-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, b7//V9JUqw38ni8QVWc2VJPMzotoLZttnXoMPXV2G+QclBi/7R3PrP2HBez7a3aK aG2FK/oe+BjDAdhLNprtNg== 0000950109-95-001185.txt : 19950414 0000950109-95-001185.hdr.sgml : 19950414 ACCESSION NUMBER: 0000950109-95-001185 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19950322 ITEM INFORMATION: Changes in control of registrant FILED AS OF DATE: 19950410 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TYCO TOYS INC CENTRAL INDEX KEY: 0000786130 STANDARD INDUSTRIAL CLASSIFICATION: GAMES, TOYS & CHILDREN'S VEHICLES (NO DOLLS & BICYCLES) [3944] IRS NUMBER: 133319358 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09357 FILM NUMBER: 95527837 BUSINESS ADDRESS: STREET 1: 6000 MIDLANTIC DR CITY: MT LAUREL STATE: NJ ZIP: 08054-1516 BUSINESS PHONE: 6092347400 MAIL ADDRESS: STREET 1: BAER MARKKS & UPHAM STREET 2: 805 THIRD AVENUE CITY: NEW YORK STATE: NY ZIP: 10022 8-K 1 FORM 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1994 Date of Report (Date of earliest event reported): February 22, 1995 ----------------- Tyco Toys, Inc. --------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 1-9357 13-3319358 - ---------------------------- ------------ ------------------- (State or other jurisdiction (Commission (I.R.S. Employer of incorporation) File Number) Identification No.) 6000 Midlantic Drive Mount Laurel, New Jersey 08054 - ---------------------------------------- ------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (609) 234-7400 -------------- N/A ------------------------------ Former name or former address, if changed since last report Total Number of Sequentially Numbered Pages: ------- Item 1. Business. -------- The Company has completed its acquisition of the remaining twenty-five percent (25%) interest in its Mexican subsidiary, Ensueno-Tyco Toys de Mexico S.A. de C.V. Ensueno-Tyco is now a wholly-owned subsidiary of the Company. Recent Developments. -------------------- In February and March 1995 the company entered into $290,000,000 of new credit facilities (the New Credit Facilities). The New Credit Facilities consist of three separate three-year revolving credit facilities with General Electric Capital Corporation and affiliates in an aggregate amount of $90,000,000 and a $200,000,000 five-year receivables securitization facility arranged by General Electric Capital Corporation. Borrowings under the New Credit Facilities were used to refinance outstanding indebtedness under the prior credit facility and certain credit facilities of foreign subsidiaries. The revolving credit facilities consist of up to $35,000,000 for certain domestic entities (of which up to $10,000,000 may be used for letters of credit), $20,000,000 for Tyco (Canada), Inc. and $35,000,000 for the Company's subsidiaries in the United Kingdom (UK). Availability under the domestic revolving credit is based upon inventory, as defined, and availability under the foreign revolving credits is based upon an aggregate of eligible accounts receivable and inventory, as defined. The revolving credit facilities are secured by a lien on substantially all of the Company's domestic assets and are also guaranteed by certain foreign subsidiaries. Subject to the maximum commitment under each of these facilities, borrowings are permitted up to sixty percent (60%) of eligible inventory and, in the Canadian and UK agreements, up to eighty percent (80%) of eligible accounts receivable. Interest rates on borrowings are determined at the option of the borrower based on various indices, including LIBOR or bankers' acceptance rate, plus two and one-half percent (2.5%). Under the securitization facility, Tyco Industries and Tyco Manufacturing Corp. will sell and transfer substantially all of their accounts receivable to Tyco Funding I Corporation (TFC I) and Tyco Funding II Corporation (TFC II). These companies are newly-formed bankruptcy remote subsidiaries of Tyco Industries and will be consolidated in the financial statements of the Company. TFC I and TFC II purchase the accounts receivable with proceeds from their borrowings under a commercial paper facility (limited to a maximum of seventy-five percent (75%) of eligible accounts receivable, as defined) and certain deferred payments. The interest rate on 2 the facility is the market rate for commercial paper plus one and one- quarter percent (1.25%). The accounts receivable to be sold and/or transferred are solely the assets of TFC I or TFC II and are pledged as security for their borrowings. In the event of liquidation of TFC I or TFC II, the creditors of TFC I or TFC II would be entitled to satisfy their claims from the assets of TFC I or TFC II prior to any distribution to Tyco Industries. Under the terms of the New Credit Facilities, the Company and its subsidiaries are (1) subject to covenants and conditions relating to the maintenance of net worth, fixed charge coverage and income; (2) restricted from incurring additional indebtedness or certain obligations and from acquiring and other entities, whether by asset purchase, merger or otherwise; (3) restricted in the ability to pay dividends on capital stock subject to certain limitations; and (4) permitted to guarantee additional amounts of debt incurred by certain of its subsidiaries up to an aggregate of $70,000,000. SIGNATURE --------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized. Dated: April ___, 1995 TYCO TOYS, INC. By: /s/ R. Michael Kennedy, Jr. ______________________________ Name: R. Michael Kennedy, Jr. Title: Senior Vice President and General Counsel 3 EXHIBIT INDEX Exhibit Number Description of Document - ------- ----------------------- 10.46 Credit Agreement dated as of February 22, 1995 among Tyco Distribution Corp. and Tyco Manufacturing Corp. as Borrowers and Tyco Toys, Inc. and the Lenders Party hereto and General Electric Capital Corporation as Agent (plus Annex A to Credit Agreement - "Definitions; Rules of Construction"). 10.47 Receivables Transfer Agreement dated as of February 24, 1995 by and between Tyco Industries, Inc. and Tyco Funding I Corporation and Tyco Funding II Corporation. 10.48 Receivables Funding and Servicing Agreement dated as of February 24, 1995 by and among Tyco Funding I Corporation, Tyco Funding II Corporation, as Borrowers and, individually, as a "Borrower", Redwood Receivables Corporation, as Lender, Tyco Industries, Inc., as Servicer, Financial Security Assurance, Inc., as FSA, and General Electric Capital Corporation, as Operating Agent and Collateral Agent. 10.49 Credit Agreement between Tyco Toys (Canada) Inc., as Borrower, and the Lender or Lenders named herein, and General Electric Capital Canada Inc., as Agent (plus Annex A to Credit Agreement - "Definitions; Rules of Construction"). 10.50 Guarantee and Revolving Credit Facility Agreement dated 13th March 1995 by Tyco Toys (UK) Limited, Matchbox Toys Limited, as Borrowers, and The Lenders, and General Electric Capital Corporation, as Issuing Bank, and General Electric Capital Corporation, as Agent. 10.53 Receivables Transfer Agreement dated as of February 24, 1995 by and between Tyco Manufacturing Corp. and Tyco Funding I Corporation and Tyco Funding II Corporation. 4 EX-10.46 2 CREDIT AGREEMENT U.S.A. EXECUTION COPY -------------- Exhibit 10.46 - -------------------------------------------------------------------------------- Up to U.S.$35,000,000 CREDIT AGREEMENT Dated as of February 22, 1995 among TYCO DISTRIBUTION CORP. and TYCO MANUFACTURING CORP., as Borrowers and TYCO TOYS, INC. and THE LENDERS PARTY HERETO and GENERAL ELECTRIC CAPITAL CORPORATION, as Agent - -------------------------------------------------------------------------------- TABLE OF CONTENTS Page ---- ARTICLE 1 AMOUNT AND TERMS OF CREDIT SECTION 1.1. Revolving Credit Advances............... 2 SECTION 1.2. Non-Funding Lender; Actions by Lenders.. 3 SECTION 1.3. Repayment; Termination of Commitment.... 4 SECTION 1.4. Use of Proceeds......................... 6 SECTION 1.5. Letters of Credit....................... 6 SECTION 1.6. Interest................................ 7 SECTION 1.7. Eligible Inventory...................... 11 SECTION 1.8. Fees.................................... 11 SECTION 1.9. Cash Management System.................. 11 SECTION 1.10. Receipt of Payments..................... 11 SECTION 1.11. Pro Rata Treatment...................... 11 SECTION 1.12. Application and Allocation of Payments.. 12 SECTION 1.13. Non-Receipt of Funds by Agent........... 13 SECTION 1.14. Sharing of Payments, Etc................ 14 SECTION 1.15. Settlement Procedures................... 15 SECTION 1.16. Accounting.............................. 17 SECTION 1.17. Indemnity............................... 18 SECTION 1.18. Access.................................. 20 SECTION 1.19. Taxes................................... 21 SECTION 1.20. Additional Costs........................ 22 ARTICLE 2 CONDITIONS PRECEDENT SECTION 2.1. Conditions to the Initial Revolving Credit Advance and the Initial Letter of Credit Obligation....................... 23 SECTION 2.2. Further Conditions to Each Revolving Credit Advance and Each Letter of Credit Obligation.............................. 28 ARTICLE 3 REPRESENTATIONS AND WARRANTIES SECTION 3.1. Existence; Compliance with Law.......... 29 SECTION 3.2. Executive Offices; Collateral Locations; Corporate or Other Names................ 29 SECTION 3.3. Power; Authorization; Enforceable Obligations............................. 29 SECTION 3.4. Financial Statements and Projections.... 30 SECTION 3.5. Material Adverse Change................. 31 SECTION 3.6. Ownership of Property; Liens............ 31 SECTION 3.7. Restrictions; No Default; Material Contracts............................... 32 SECTION 3.8. Labor Matters........................... 33 SECTION 3.9. Ventures, Subsidiaries and Affiliates; Outstanding Stock and Indebtedness...... 33 SECTION 3.10. Government Regulation................... 34 -i- Page ---- SECTION 3.11. Margin Regulations...................... 34 SECTION 3.12. Taxes................................... 35 SECTION 3.13. ERISA................................... 36 SECTION 3.14. No Litigation........................... 37 SECTION 3.15. Brokers................................. 38 SECTION 3.16. Patents, Trademarks, Copyrights and Licenses................................ 38 SECTION 3.17. Full Disclosure......................... 38 SECTION 3.18. Hazardous Materials..................... 39 SECTION 3.19. Insurance Policies...................... 39 SECTION 3.20. Deposit and Disbursement Accounts....... 39 SECTION 3.21. Solvency................................ 39 SECTION 3.22. Inactive Subsidiaries................... 40 SECTION 3.23. Existing Credit Agreement............... 40 SECTION 3.24. Subordinated Debt....................... 40 SECTION 3.25. Promissory Notes and Pledge............. 41 SECTION 3.26. Certain Accounts and Inventory.......... 41 ARTICLE 4 FINANCIAL STATEMENTS AND INFORMATION SECTION 4.1. Reports and Notices..................... 41 SECTION 4.2. Communication with Accountants.......... 41 ARTICLE 5 AFFIRMATIVE COVENANTS SECTION 5.1. Maintenance of Existence and Conduct of Business................................ 42 SECTION 5.2. Payment of Charges and Claims........... 43 SECTION 5.3. Books and Records....................... 43 SECTION 5.4. Litigation.............................. 43 SECTION 5.5. Insurance............................... 44 SECTION 5.6. Compliance with Laws.................... 45 SECTION 5.7. Agreements.............................. 45 SECTION 5.8. Supplemental Disclosure................. 46 SECTION 5.9. Environmental Matters................... 46 SECTION 5.10. Landlord's Agreements................... 47 SECTION 5.11. Certain Obligations Respecting Subsidiaries............................ 47 SECTION 5.12. Application of Proceeds................. 47 SECTION 5.13. Fiscal Year............................. 47 SECTION 5.14. Casualty and Condemnation............... 47 SECTION 5.15. Currency Hedging........................ 49 SECTION 5.16. Additional Subsidiaries................. 49 SECTION 5.18. Further Assurances...................... 50 -ii- Page ---- ARTICLE 6 NEGATIVE COVENANTS SECTION 6.1. Mergers, Subsidiaries, Etc.............. 50 SECTION 6.2. Investments............................. 51 SECTION 6.3. Indebtedness............................ 52 SECTION 6.4. Affiliate and Employee Loans and Transactions............................ 54 SECTION 6.5. Capital Structure and Business.......... 56 SECTION 6.6. Guaranteed Indebtedness................. 56 SECTION 6.7. Liens................................... 57 SECTION 6.8. Sale of Assets.......................... 58 SECTION 6.9. Material Contracts...................... 60 SECTION 6.10. ERISA................................... 60 SECTION 6.11. Financial Covenants..................... 61 SECTION 6.12. Hazardous Materials..................... 61 SECTION 6.13. Sale-Leasebacks......................... 61 SECTION 6.14. Cancellation of Indebtedness............ 61 SECTION 6.15. Restricted Payments..................... 62 SECTION 6.16. Real Property Leases.................... 63 SECTION 6.17. Bank Accounts........................... 64 SECTION 6.18. No Speculative Transactions............. 64 SECTION 6.19. Margin Regulations...................... 64 SECTION 6.20. Limitation on Negative Pledge Clauses, Etc..................................... 64 SECTION 6.21. Accounting Changes...................... 65 SECTION 6.22. Inventory Sales......................... 65 SECTION 6.23. Tyco Parent and Certain Subsidiaries.... 66 SECTION 6.24. Amendments and Modifications to Debt Documents............................... 66 SECTION 6.25. Inactive Subsidiaries................... 66 ARTICLE 7 TERM SECTION 7.1. Duration................................ 67 SECTION 7.2. Survival of Obligations................. 67 ARTICLE 8 EVENTS OF DEFAULT; RIGHTS AND REMEDIES SECTION 8.1. Events of Default....................... 67 SECTION 8.2. Remedies................................ 71 SECTION 8.3. Waivers by Loan Parties................. 71 SECTION 8.4. Application of Proceeds................. 72 ARTICLE 9 AGENT SECTION 9.1. Appointment, Powers and Immunities...... 73 SECTION 9.2. Reliance by Agent....................... 74 SECTION 9.3. Defaults................................ 74 -iii- Page ---- SECTION 9.4. Rights as a Lender...................... 75 SECTION 9.5. Indemnification......................... 75 SECTION 9.6. Non-Reliance on Agent and Other Lenders. 75 SECTION 9.7. Failure to Act.......................... 76 SECTION 9.8. Successor Agent......................... 76 SECTION 9.9. Consents under Loan Documents........... 77 SECTION 9.10. Collateral Matters...................... 77 ARTICLE 10 SUCCESSORS AND ASSIGNS SECTION 10.1. Successors and Assigns.................. 78 SECTION 10.2. Assignments and Participations.......... 78 ARTICLE 11 MISCELLANEOUS SECTION 11.1. Complete Agreement; Modification of Agreement............................... 81 SECTION 11.2. Fees and Expenses....................... 82 SECTION 11.3. No Waiver............................... 83 SECTION 11.4. Remedies................................ 83 SECTION 11.5. Severability............................ 84 SECTION 11.6. Conflict of Terms....................... 84 SECTION 11.7. Right of Set-off........................ 84 SECTION 11.8. Authorized Signature.................... 84 SECTION 11.9. Notices................................. 85 SECTION 11.10. Section Titles.......................... 86 SECTION 11.11. Counterparts............................ 86 SECTION 11.12. Time of the Essence..................... 86 SECTION 11.13. Confidentiality......................... 86 SECTION 11.14. GOVERNING LAW........................... 87 SECTION 11.15. WAIVER OF JURY TRIAL.................... 88 -iv- INDEX OF ANNEXES, SCHEDULES AND EXHIBITS Annex A - Definitions; Rules of Construction Annex B - Cash Management System Annex C - Schedule of Closing Documents Annex D - Schedule of Certain Fees Annex E - Financial, Projections and Notices Annex F - Insurance Requirements Annex G - Letters of Credit Annex H - Financial Covenants Schedule 3.2 - Executive Offices; Trade Names Schedule 3.4 - Financial and Projections Schedule 3.5 - Dividends Schedule 3.6 - Real Estate and Leases Schedule 3.7 - Material Contracts Schedule 3.8 - Labor Matters Schedule 3.9 - Ventures, Subsidiaries and Affiliates; Outstanding Stock Schedule 3.12 - Tax Matters Schedule 3.13 - ERISA Plans Schedule 3.14 - Litigation Schedule 3.16 - Patents, Trademarks, Copyrights and Licenses Schedule 3.18 - Hazardous Materials Schedule 3.19 - Insurance Policies Schedule 3.20 - Disbursement and Deposit Accounts Schedule 3.22 - Inactive Subsidiaries Schedule 3.23 - Existing Credit Agreement Schedule 6.1(c) - Mergers, Etc. Schedule 6.2 - Investments Schedule 6.4 - Loans to and Transactions with Employees Schedule 6.6 - Guaranteed Indebtedness Schedule 6.7 - Liens Schedule 11.8 - Authorized Signatures Exhibit 1.1(a) - Form of Notice of Revolving Credit Advance Exhibit 1.1(d) - Form of Revolving Credit Note Exhibit 1.1(e) - Form of Borrowing Base Certificate Exhibit 1.6(d) - Form of Notice of Fixed Rate Election Exhibit 3.4 - Projections Exhibit A-1 - Form of Guaranty Exhibit A-2 - Form of Canadian Guaranty Exhibit A-3 - Form of UK Guaranty Exhibit B - Form of Note Pledge Agreement Exhibit C - Form of Patent, Trademark and Copyright Assignment -v- Exhibit D - Form of Security Agreement Exhibit E - Form of Stock Pledge Agreement Exhibit F - Form of Opinion of Counsel to Loan Parties -vi- CREDIT AGREEMENT THIS CREDIT AGREEMENT ("Agreement") is entered into as of February 22, --------- 1995, by and among TYCO DISTRIBUTION CORP., a Delaware corporation ("Distribution"), TYCO MANUFACTURING CORP., an Oregon corporation - -------------- ("Manufacturing" and together with Distribution, each individually, a "Borrower" - --------------- -------- and collectively, "Borrowers"), TYCO TOYS, INC., a Delaware corporation ("Tyco --------- ---- Parent"), each of the lenders listed on the signature pages hereof or which - ------ pursuant to Section 10.2 becomes a "Lender" hereunder (each individually, a ------------ "Lender" and collectively, "Lenders"), and GENERAL ELECTRIC CAPITAL CORPORATION, - ------- ------- a corporation organized under the banking laws of the State of New York, as agent hereunder for the Lenders (in such capacity, together with its successors in such capacity, "Agent"). ----- RECITALS -------- WHEREAS, Borrowers desire to borrow up to $35,000,000 in the aggregate from Lenders, and Lenders are willing to make certain loans and other financial accommodations in favor of Borrowers of up to such amount in the aggregate upon the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, the parties hereto agree as follows: Unless otherwise defined herein, capitalized terms used herein shall have the respective meanings ascribed to them in Annex A and, for purposes of ------- this Agreement and the other Loan Documents, the rules of construction set forth in Annex A shall govern. Unless otherwise indicated, all references in this ------- Agreement to articles, sections, subsections, schedules, annexes, exhibits, and attachments shall refer to the corresponding articles, sections, subsections, schedules, annexes, exhibits, and attachments of or to this Agreement. All schedules, annexes, exhibits and attachments hereto, or expressly identified to this Agreement, are incorporated herein by reference, and taken together, shall constitute but a single agreement. Unless otherwise expressly set forth herein, or in a written amendment referring to such schedules and annexes, all schedules and annexes referred to herein shall mean the schedules and annexes as in effect as of the Closing Date. The above Recitals shall be construed as part of this Agreement. ARTICLE 1 AMOUNT AND TERMS OF CREDIT SECTION 1.1. Revolving Credit Advances. ------------------------- (a) Upon and subject to the terms and conditions hereof, each Lender severally agrees to make available, from time to time until the Commitment Termination Date, for each Borrower's use and upon the request of each Borrower therefor to Agent, advances (each, a "Revolving Credit Advance") in an aggregate ------------------------ principal amount at any time outstanding for all Borrowers up to but not exceeding the Revolving Credit Commitment of such Lender, provided that in no event shall (i) the aggregate principal amount of the Revolving Credit Loan plus all outstanding Letter of Credit Obligations exceed the Maximum Revolving Credit Commitment and (ii) the aggregate outstanding principal amount of the Revolving Credit Advances made by all Lenders to a Borrower exceed the Borrowing Availability of such Borrower. Each Borrower may from time to time borrow, repay and reborrow Revolving Credit Advances under this Section 1.1. ----------- (b) Each Borrower shall give Agent (which shall promptly notify Lenders) notice of each borrowing requested by such Borrower hereunder as provided in Section 1.1(c) and, subject to Section 1.15, on the date specified -------------- ------------ for such borrowing each Lender shall make available the amount of the Revolving Credit Advance to be made by it to such Borrower on such date to Agent to such account of Agent as Agent may designate, in immediately available funds, for the account of such Borrower. (c) Each notice of a borrowing by a Borrower of a Revolving Credit Advance shall be given in writing (by telecopy, hand delivery, or U.S. mail) by such Borrower to Agent at its address at 501 Merritt Seven, Norwalk, Connecticut 06851, to the attention of Account Manager-Tyco or such other Person as may be designated in writing by Agent, Telephone No. (203) 840-4500, Telecopy No. (203) 840-4680, given no later than 11:00 a.m. (New York time) on the Business Day of the proposed Revolving Credit Advance requested by such Borrower. Each such notice of borrowing (a "Notice of Revolving Credit Advance") shall be ---------------------------------- substantially in the form of Exhibit 1.1(a) hereto, specifying therein the -------------- requested date, the amount of such Revolving Credit Advance, the Disbursement Account into which such Revolving Credit Advance shall be made, and such other information as may reasonably be required by Agent. Agent and Lenders shall be entitled to rely upon and shall be fully protected under this Agreement in relying upon any Notice of Revolving Credit Advance believed by Agent to be genuine and to assume that the persons executing and delivering the same were duly authorized unless the responsible individual acting thereon for Agent shall have actual knowledge to the contrary. -2- (d) The Revolving Credit Advances made by each Lender to a Borrower shall be evidenced by a single promissory note of such Borrower for such Lender substantially in the form of Exhibit 1.1(d) hereto, dated the date hereof, -------------- payable to such Lender in a maximum principal amount equal to the amount of its Revolving Credit Commitment as originally in effect and otherwise duly completed. The date and amount of each Revolving Credit Advance made by each Lender to a Borrower and each payment of principal with respect thereto shall be recorded on the books and records of such Lender, which books and records shall constitute prima facie evidence of the accuracy of the information therein ----- ----- recorded. The entire unpaid balance of the Revolving Credit Loan, together with accrued but unpaid interest thereon, shall be immediately due and payable on the Commitment Termination Date. (e) Each Borrower shall furnish to Agent and each Lender a Borrowing Base Certificate substantially in the form of Exhibit 1.1(e) hereto, completed -------------- and signed by the Chief Executive Officer or Chief Financial Officer of such Borrower, which sets forth a calculation of the Borrowing Base of such Borrower at the times and for the periods set forth in Annex E. Each Borrower agrees ------- that in making any Revolving Credit Advance to such Borrower hereunder Agent and each Lender shall be entitled to rely upon the most recent Borrowing Base Certificate delivered to Agent and the Lenders by such Borrower. Each Borrower further agrees that if such Borrower shall have failed to deliver a Borrowing Base Certificate to Agent and Lenders within the specified period, Lenders shall be under no obligation to make any further Revolving Credit Advances to (or incur any additional Letter of Credit Obligations for the account of) such Borrower until such time as such Borrowing Base Certificate is delivered to Agent and Lenders. (f) Each Borrower agrees that it shall be jointly and severally liable for all Obligations. SECTION 1.2. Non-Funding Lender; Actions by Lenders. -------------------------------------- (a) The failure of any Lender (such Lender, a "Non-Funding Lender") to ------------------ make any Revolving Credit Advance to be made by it on the date specified therefor shall not relieve any other Lender (each such other Lender, an "Other ----- Lender") of its obligation to make its Revolving Credit Advance on such date, - ------ but neither any Other Lender nor Agent shall be responsible for the failure of any Non-Funding Lender to make a Revolving Credit Advance to be made by such Non-Funding Lender, and no Non-Funding Lender shall have any obligation to Agent or any Other Lender for the failure by such Non-Funding Lender. Notwithstanding anything set forth herein to the contrary, a Non-Funding Lender shall not have any voting or consent rights under or with respect to any Loan Document or constitute a "Lender" (or be included in the calculation of "Required Lenders" hereunder) for any voting or consent rights under or with respect to any Loan Document. -3- (b) Anything in this Agreement to the contrary notwithstanding, each Lender hereby agrees with each other Lender that no Lender shall take any action to protect or enforce its rights arising out of this Agreement, the Revolving Credit Notes or the other Loan Documents (including exercising any rights of offset) without first obtaining the prior written consent of Agent and Required Lenders, it being the intent of Lenders that any such action to protect or enforce rights under this Agreement, the Revolving Credit Notes or the other Loan Documents shall be taken in concert and at the direction or with the consent of Agent and Required Lenders and not individually by a single Lender. SECTION 1.3. Repayment; Termination of Commitment. ------------------------------------ (a) Borrowers hereby promise to pay to Agent, for the account of each Lender, the entire outstanding principal amount of the Revolving Credit Loan, and the Revolving Credit Loan shall mature, on the Commitment Termination Date. (b) In the event that the outstanding principal balance of the Revolving Credit Advances made to a Borrower shall at any time exceed the Borrowing Availability of such Borrower, such Borrower shall immediately repay the Revolving Credit Advances made to such Borrower in the amount of such excess. In the event that the aggregate principal amount of the Revolving Credit Loan, together with the outstanding Letter of Credit Obligations, shall at any time exceed the Maximum Revolving Credit Commitment, Borrowers shall immediately repay the Revolving Credit Loan in the amount of such excess; provided that if after payment in full of the Revolving Credit Loan there shall - -------- continue to remain any such excess, then Borrowers shall immediately pay to Agent, for the ratable benefit of Lenders, cash or Cash Equivalents in an amount equal to such remaining excess to be held by Agent in a Cash Collateral Account pursuant to such documentation and on such terms as Agent shall require. In the event that the outstanding principal balance of the Revolving Credit Advances made to a Borrower plus the outstanding Letter of Credit Obligations of such Borrower shall at any time exceed the Borrowing Availability of such Borrower (without giving effect to any deduction of Letter of Credit Obligations as provided in such defined term), then such Borrower shall immediately repay the Revolving Credit Advances made to such Borrower until such excess is eliminated and if there shall remain any excess after repayment in full of the Revolving Credit Advances made to such Borrower, then such Borrower shall immediately pay to Agent, for the ratable benefit of Lenders, cash or Cash Equivalents in an amount equal to such remaining excess to be held by Agent in a Cash Collateral Account pursuant to such documentation and on such terms as Agent shall require. (c) Borrowers shall have the right at any time, upon ten (10) days' prior written notice to Agent, to terminate voluntarily the Revolving Credit Commitments of all (but not less than all) of -4- Lenders (in whole but not in part) without premium or penalty other than payment of the Termination Fee, if any. Upon such termination, Borrowers' right to receive Revolving Credit Advances and the benefit of Letter of Credit Obligations shall simultaneously terminate and Borrowers' obligation to pay the Non-Use Fee shall terminate, and notwithstanding anything to the contrary contained herein or in any Revolving Credit Note, the entire outstanding balance of the Revolving Credit Loan shall be immediately due and payable. On the date of such termination, Borrowers shall pay to Agent in immediately available funds all of the Obligations, including the Termination Fee, if any, and any accrued and unpaid interest, and make arrangements, in accordance with the terms and conditions of Annex G, with respect to any outstanding Letter of Credit ------- Obligations. Notwithstanding the foregoing, Borrowers may not voluntarily terminate the Revolving Credit Commitments unless concurrently therewith the commitments of the Global Lenders under each of the other Overall Facilities to provide financial accommodations thereunder are terminated and all obligations, contingent or otherwise, of the borrowers thereunder shall be paid in full in immediately available funds. (d) If the aggregate of the unpaid principal balance of the Revolving Credit Loan plus the outstanding Letter of Credit Obligations should at any time exceed the Maximum Revolving Credit Commitment or the unpaid principal balance of the Revolving Credit Advances owing by a Borrower shall exceed such Borrower's Borrowing Availability or any other excess balance described in Section 1.3(b) shall occur, the excess balance shall nevertheless constitute Obligations that are secured by the Collateral and entitled to all of the benefits thereof and of the Loan Documents and shall, to the extent same are part of the Revolving Credit Advances, be evidenced by the Revolving Credit Notes. (e) Borrowers shall make prepayments on the outstanding principal amount of the Revolving Credit Loan and on the other Obligations in an amount equal to one hundred percent (100%) of the net proceeds of any sale or other disposition of any Collateral (other than (i) sales of Inventory in the ordinary course of business and (ii) other sales and dispositions of any Collateral permitted hereunder where the aggregate net proceeds thereof for all such sales and dispositions made in any Fiscal Year shall not exceed $100,000) or of the issuance by any Loan Party or any of its Subsidiaries (other than (i) any Subsidiaries which are borrowers under any other Overall Facilities, (ii) any other Foreign Subsidiaries of Tyco Parent which have credit facilities with Persons which are not Affiliates of any Loan Party or any Subsidiary thereof and (iii) any Subsidiaries of any of such borrowers or other Foreign Subsidiaries) of any Indebtedness (other than Indebtedness permitted under any of clauses (a) through (m) of Section 6.3), in each instance contemporaneously with any such sale, other disposition or issuance. Subject to Section 8.4, such payments ----------- shall be applied, without premium or penalty (except as -5- provided in Section 1.6(g)), against outstanding amounts under the Revolving -------------- Credit Loan, pro rata between the Revolving Credit Advances of each Borrower based upon the respective principal amounts thereof owing by each Borrower immediately prior to such prepayments (unless such Collateral was owned by a Borrower or such Indebtedness was issued by a Borrower, in which case such payment shall be applied first to the Revolving Credit Advances of such Borrower and then to the other Revolving Credit Advances), and after payment in full of the Revolving Credit Loan, to the other Obligations in such manner and order as Agent shall determine (or if all Lenders determine otherwise, as Lenders so determine). The foregoing shall not constitute a consent by Agent or any Lender to any sale or other disposition of Collateral or to any issuance of Indebtedness by a Loan Party or any of its Subsidiaries not otherwise expressly permitted hereunder. (f) Borrowers agree that, during a period of thirty (30) consecutive days occurring at any time between December 1 of each year (commencing December 1995) and April 30 of the immediately succeeding year, the outstanding principal balance of the Revolving Credit Loan shall be zero (0), and notwithstanding anything to the contrary contained in this Agreement, during such thirty (30) day period Borrowers shall prepay in full the Revolving Credit Loan, and shall not request, obtain or cause to be obtained any Revolving Credit Advances, in each instance, in order to comply with this provision. (g) All Obligations, including the Revolving Credit Loan and the Letter of Credit Obligations, shall be immediately due and payable, without notice, on the "Commitment Termination Date," as defined in, and pursuant to, the Receivables Funding Agreement. SECTION 1.4. Use of Proceeds. Borrowers shall use the proceeds of the --------------- Revolving Credit Loan for (i) the refinancing of certain outstanding Indebtedness as provided in Section 2.1(c), (ii) the payment of costs and -------------- expenses of the financing transactions contemplated by this Agreement that are payable by Borrowers, and (iii) general working capital and other corporate purposes of Borrowers not prohibited by the terms of this Agreement and the other Loan Documents. Each Borrower agrees that it shall not borrow any Revolving Advances except to fulfill its immediate cash needs for such purposes. SECTION 1.5. Letters of Credit. Subject to the terms and conditions of ----------------- this Agreement, each Borrower shall have the right to request, and Lenders agree to incur, Letter of Credit Obligations in accordance with the terms and conditions set forth in Annex G. Each Lender's participation obligations with ------- respect to any Letter of Credit Obligations shall be set forth in Annex G. ------- -6- SECTION 1.6. Interest. -------- (a) Each Borrower shall pay to Agent for the account of each Lender interest on the Revolving Credit Advances made to such Borrower at the following times: (i) with respect to Revolving Credit Advances bearing interest based upon the Index Rate, in arrears for the preceding calendar month, on the first day of each calendar month, commencing on March 1, 1995 and, with respect to each Fixed Rate Tranche, on the last day of the relevant Interest Period therefor and such earlier date that the Fixed Rate therefor in effect on the first day of such Interest Period is no longer applicable to all or a portion of such Fixed Rate Tranche but only for that portion of the Fixed Rate Tranche for which such Fixed Rate is no longer applicable; (ii) if not otherwise paid in full pursuant to clause (i) above, on the Commitment Termination Date; and (iii) if any interest accrues or remains payable after the Commitment Termination Date, upon demand. Whenever any payment to be made hereunder or under any other Loan Document or on any Revolving Credit Advance shall be stated to be due and payable, or whenever the last day of any Interest Period would otherwise occur, on a day which is not a Business Day (Eurodollar Business Day with respect to a Fixed Rate Tranche), such payment shall be made and the last day of such Interest Period shall occur on the next succeeding Business Day (Eurodollar Business Day with respect to a Fixed Rate Tranche) and such extension of time shall in such case be included in computing interest on such payment; provided, -------- however, that if such extension would cause a payment of a Fixed Rate Tranche to - ------- be made, or the last day of such Interest Period for a Fixed Rate Tranche to occur, in the next following calendar month, such payment shall be made and the last day of such Interest Period shall occur on the next preceding Eurodollar Business Day. Interest shall be calculated by Agent on a daily basis and on the basis of a three hundred sixty (360) day year, in each case for the actual number of days occurring in the period for which such interest is payable. Each determination by Agent of an interest rate hereunder and each calculation of interest hereunder shall be conclusive and binding for all purposes, absent manifest error or bad faith. (b) Except as provided in paragraph (c) below, each Borrower shall be obligated to pay interest to Agent for the account of each Lender on the aggregate outstanding balance of the Revolving Credit Advances made to such Borrower from the date made until paid in full at a floating rate equal to the Index Rate in effect from time to time plus the Applicable Margin therefor. ---- (c) Provided that no Default or Event of Default has occurred and is continuing, and subject to the terms and conditions set forth herein, each Borrower may elect in the manner provided in paragraph (d) below that the entire principal amount of the portion of the Revolving Credit Loan owing by such Borrower, or a part thereof (any such entire principal amount or part thereof, a "Fixed ----- -7- Rate Tranche"), bear interest at a fixed rate (each such rate, a "Fixed Rate") - ------------ ---------- for such Interest Period as such Borrower shall select equal to the Adjusted LIBOR Rate (as in effect for such Interest Period) plus the Applicable Margin ---- therefor; provided that (i) not more than two Interest Periods in the aggregate -------- for all Borrowers shall be in effect at any time with respect to the Revolving Credit Loan; (ii) each Fixed Rate Tranche shall be in a minimum principal amount of $1,000,000; (iii) no Interest Period shall extend beyond the Commitment Termination Date; (iv) Fixed Rate Tranches in respect of any Borrower's share of the Revolving Credit Loan shall be in amounts that such Borrower reasonably anticipates will not exceed the outstanding principal amount of the Revolving Credit Advances owing by such Borrower at any time during the Interest Period selected by such Borrower; and (v) the principal amount of the Fixed Rate Tranche to which any Interest Period relates shall not be reduced, by payment, prepayment or otherwise, prior to the last day of such Interest Period, unless such payment or prepayment is accompanied by payment of the amounts specified in paragraph (g) below. (d) Subject to the requirements set forth in paragraph (c) above, each Borrower may, by written notice to Agent delivered not later than the second full Eurodollar Business Day preceding the first day of any calendar month which commences an Interest Period selected by such Borrower in respect of a Fixed Rate, elect that a Fixed Rate Tranche with respect to any or all of the portion of the Revolving Credit Loan owing by such Borrower bear interest at a Fixed Rate. Each such notice (a "Notice of Fixed Rate Election") shall be ----------------------------- substantially in the form of Exhibit 1.6(d) hereto and shall specify (i) the -------------- amount of the Fixed Rate Tranche as to which such election is made and (ii) the duration of the Interest Period selected by the relevant Borrower with respect to such Fixed Rate Tranche. Agent and Lenders shall be entitled to rely upon and shall be fully protected under this Agreement in relying upon any Notice of Fixed Rate Election believed by Agent to be genuine and to assume that the persons executing and delivering the same were duly authorized unless the responsible individual acting thereon for Agent shall have actual notice to the contrary. In the event that a Borrower shall fail to give a new Notice of Fixed Rate Election with respect to any Fixed Rate Tranche in accordance with this paragraph (d) the entire principal amount of such Fixed Rate Tranche shall thereafter bear interest based upon the Index Rate as provided in paragraph (b) above, commencing with the last day of the Interest Period applicable thereto, unless and until such Borrower shall thereafter give a new Notice of Fixed Rate Election in accordance with this paragraph (d). (e) Upon the occurrence and during the continuation of any Default or Event of Default, (x) the interest rate applicable to principal on the Revolving Credit Advances shall be increased to the Default Rate and (y) interest on interest and other Obligations -8- (excluding principal on the Revolving Credit Advances) in default shall be charged at the Default Rate (unless such increase or charge is waived in writing by the Required Lenders) and shall be payable on demand. (f) Notwithstanding anything to the contrary set forth in this Section ------- 1.6, if, at any time until payment in full of all of the Obligations, any rate - --- of interest payable hereunder exceeds the highest rate of interest permissible under any law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto (the "Maximum Lawful Rate"), then in such ------------------- event and so long as the Maximum Lawful Rate would be so exceeded, such rate of interest shall be equal to the Maximum Lawful Rate; provided, that if at any -------- time thereafter any rate of interest payable hereunder is less than the Maximum Lawful Rate, Borrowers shall continue to pay interest hereunder at the Maximum Lawful Rate until such time as the total interest received by each Lender hereunder is equal to the total interest which such Lender would have received had the interest rate or rates payable hereunder been (but for the operation of this Section 1.6(f)) the interest rate or rates payable since the Closing Date -------------- as otherwise provided in this Agreement. Thereafter, the interest rate or rates payable hereunder shall be the rate or rates of interest provided in Sections -------- 1.6(a) through (e), unless and until any rate of interest again exceeds the - ------ --- Maximum Lawful Rate, in which event this Section 1.6(f) shall again apply. In -------------- no event shall the total interest received by any Lender pursuant to the terms hereof exceed the amount which such Lender could lawfully have received had the interest due hereunder been calculated for the full term hereof at the Maximum Lawful Rate. In the event the Maximum Lawful Rate is calculated pursuant to this Section 1.6(f), (x) if required by applicable law, such interest shall be -------------- calculated at a daily rate equal to the Maximum Lawful Rate divided by the number of days in the year in which such calculation is made, and (y) if permitted by applicable law, Borrowers and Lenders shall (i) characterize any nonprincipal payment as an expense, fee or premium rather than as interest, (ii) exclude voluntary prepayments and the effect thereof, and (iii) amortize, pro rate, allocate and spread in equal or unequal parts the total amount of interest throughout the entire contemplated term of the Obligations so that interest for the entire term of this Agreement does not exceed the Maximum Lawful Rate. In the event that a court of competent jurisdiction, notwithstanding the provisions of this Section 1.6(f), shall make a final determination that a Lender has -------------- received interest hereunder or under any of the Loan Documents in excess of the Maximum Lawful Rate, such Lender shall, to the extent permitted by applicable law, promptly apply such excess first to any lawful interest due and not yet paid hereunder, then to the outstanding principal of the Obligations, then to Fees and any other unpaid Obligations, and thereafter shall refund any excess to the relevant Borrower or as a court of competent jurisdiction may otherwise order. -9- (g) In order to induce Lenders to fund and maintain any Fixed Rate Tranche at a Fixed Rate on the terms provided herein, and in consideration of the entering into by Lenders of funding arrangements from time to time in contemplation thereof, whether or not funded in the London interbank market, if any Fixed Rate Tranche is repaid in whole or in part on any day other than the last day of the Interest Period therefor (whether any such repayment is made pursuant to any provision of this Agreement or any other Loan Document or is the result of acceleration, by operation of law or otherwise), the relevant Borrower shall indemnify and hold harmless each Lender from and against and in respect of any and all losses, costs and expenses resulting from, or arising out of or imposed upon or incurred by such Lender by reason of the liquidation or reemployment of funds acquired or committed to be acquired by such Lender to fund or maintain such Fixed Rate Tranche at the Fixed Rate elected by such Borrower, pursuant to such Lender's customary funding arrangements. The amount of any losses, costs or expenses resulting in an obligation of such Borrower to make a payment pursuant to the foregoing sentence shall not include any losses attributable to a Lender's lost profit, but shall represent the excess, if any, of (x) such Lender's cost or deemed cost of obtaining funding for the amount necessary to fund or maintain its pro rata share of such Fixed Rate Tranche at --- ---- the Fixed Rate elected by such Borrower, pursuant to such Lender's customary funding arrangements, whether or not funded in the London interbank market, as reasonably determined by such Lender (which may be computed by any Lender on the basis of such funds having been borrowed at a rate equal to one percent (1%) over the interest rate on United States Treasury bills or notes with a maturity that most closely approximated the end of the relevant Interest Period as quoted by Telerate News Service (page 5) at the close of business on the first day of the Interest Period in respect of such Fixed Rate Tranche), over (y) the return such Lender would receive on its reemployment of such funds, as reasonably determined by each Lender (which, if such Lender's cost of obtaining funding is computed pursuant to the parenthetical to clause (x) above, may be computed by any Lender on the basis of its reinvestment of such funds in United States Treasury bills or notes with a maturity that most closely approximates the end of the relevant Interest Period, as quoted by Telerate News Service (page 5) at the close of business on the date of repayment of such Fixed Rate Tranche); provided, that if any Lender terminates any funding arrangements in respect of - -------- its pro rata share of any such Fixed Rate Tranche, the amount of such losses, --- ---- costs and expenses shall also include the cost to such Lender of such termination. The determination of such amount by any Lender, when evidenced by a certificate from that Lender giving a reasonably detailed calculation of the amount of said cost, expense, claim, penalty, liability, loss, fee, damage or other charge, shall be presumed correct in the absence of manifest error. (h) In the event that the Adjusted LIBOR Rate for any Fixed Rate Tranche shall be determined based upon a category of -10- liabilities referred to in the parenthetical in clause (ii) of such defined term (and not Regulation D) as a result of a Lender which is not organized under the laws of the United States or any State or Commonwealth thereof or the District of Columbia, then such Lender shall provide to the Borrowers an explanation of the reason for the use of such category of liabilities and the effect thereof on the calculation of the Adjusted LIBOR Rate; provided, however, that the failure -------- ------- of such Lender to provide such information to the Borrowers shall not affect the validity of the determination of the Adjusted LIBOR Rate. SECTION 1.7. Eligible Inventory. Based on the most recent Borrowing Base ------------------ Certificate delivered by a Borrower to Agent and on other information available to Agent, Agent shall determine which Inventory of such Borrower shall be deemed to be "Eligible Inventory" of such Borrower for purposes of determining the amounts, if any, to be advanced to such Borrower under the Revolving Credit Loan. SECTION 1.8. Fees. As compensation for Agent's and Lenders' costs, ---- skills, services and efforts incurred and expended in making the Revolving Credit Loan, and the Letters of Credit available to Borrowers, Borrowers, jointly and severally, agree to pay to Agent for its own account or the account of Lenders, as the case may be, the fees set forth in Annex D. ------- SECTION 1.9. Cash Management System. On or prior to the Closing Date, ---------------------- Borrowers, Tyco Parent and each other Domestic Subsidiary of Tyco Parent will establish and maintain until the Termination Date, the cash management system described in Annex B. ------- SECTION 1.10. Receipt of Payments. Borrowers shall make each payment ------------------- under this Agreement not later than 1:00 p.m. (New York time) on the day when due in Dollars in immediately available funds to the Collection Account. For purposes of computing interest and Fees and determining the Borrowing Availability of any Borrower: (a) all payments (including cash sweeps) consisting of cash, wire, or electronic transfers in immediately available funds shall be deemed received by Agent upon deposit in the Collection Account and notice to Agent of such deposit; and (b) all payments consisting of checks, drafts, or similar non-cash items shall be deemed received upon receipt of good funds following deposit in the Collection Account (together with notice to Agent of such deposit). Subject to Section 1.15, each payment received by Agent under ------------ this Agreement or any Revolving Credit Note for the account of any Lender shall be paid by Agent promptly to such Lender, in the same funds received, for application to the Revolving Credit Loan or other obligation in respect of which such payment is made. SECTION 1.11. Pro Rata Treatment. Except to the extent otherwise provided ------------------ herein: (a) each Revolving Credit Advance (including any Revolving Credit Advance pursuant to Sec- ---- -11- tion 1.15(b)) shall be incurred and made by Lenders, pro rata according to the - ------------ --- ---- amounts of their respective ratable portion of the Revolving Credit Commitments; (b) each payment or prepayment of principal of the Revolving Credit Loan by any Borrower shall be made to Agent for the account of Lenders, and any payment of the Termination Fee shall be made to Agent for the account of Lenders, pro rata --- ---- in accordance with the respective unpaid principal amounts of the Revolving Credit Loan held by Lenders; (c) each payment of interest on the Revolving Credit Loan by any Borrower shall be made to Agent for the account of Lenders pro rata in accordance with the amounts of interest on the Revolving Credit Loan - --- ---- then due and payable to Lenders; and (d) each payment of Non-Use Fees shall be made to Agent for the account of Lenders, pro rata according to the amounts of --- ---- their respective Revolving Credit Commitments. SECTION 1.12. Application and Allocation of Payments. Each Borrower -------------------------------------- irrevocably waives the right to direct the application of any and all payments at any time or times hereafter received from or on behalf of such Borrower or any other Loan Party, and each Borrower irrevocably agrees that Agent and Lenders shall have the continuing exclusive right to apply any and all such payments against the then due and payable Obligations of such Borrower and in repayment of the Revolving Credit Advances and Letter of Credit Obligations owing by such Borrower as herein expressly provided or permitted or, if an Event of Default is continuing, as Lenders may deem advisable; provided, that the -------- prepayments required or permitted under Section 1.3(e) shall be applied in the -------------- manner described in such Section. In the absence of a specific determination by all Lenders with respect thereto (which determination may be made without the consent of Borrowers only if an Event of Default is continuing) or unless otherwise expressly provided herein, the same shall be applied in the following order: (a) then due and payable Fees, expenses and other Obligations (including Revolving Credit Advances made by Agent in its capacity as Agent) owing by such Borrower to Agent; (b) then due and payable Fees and expenses of Lenders owing by such Borrower; (c) then due and payable interest payments owing by such Borrower; (d) Obligations to Lenders owing by such Borrower other than Fees, expenses and interest and principal payments; and (e) then due and payable principal payments on the Revolving Credit Loan owing by such Borrower; provided -------- that if any such payments are received from or on behalf of any Loan Party other than a Borrower or if an Event of Default shall occur and be continuing, such payments shall be applied to the Obligations in such manner and order as Agent shall determine (or if all Lenders determine otherwise, as all such Lenders so determine). Except as otherwise provided in this Agreement, if after payment in full of all then due and payable Obligations, there shall remain with Agent any excess monies received from or on behalf of any Borrower, then Agent shall promptly return same to the relevant Borrower. Agent, on behalf of Lenders, is authorized to, and at its option may, make or cause to be made Revolving Credit Advances by Lenders on behalf of a -12- Borrower for payment of all Fees, expenses, charges, costs, principal, interest, or other Obligations then due and payable by such Borrower under this Agreement or any of the Loan Documents, even if the making of such Revolving Credit Advance causes the outstanding balance of the Revolving Credit Loan, together with the outstanding Letter of Credit Obligations, to exceed the Maximum Revolving Credit Commitment or the outstanding principal balance of the Revolving Credit Advances owing by a Borrower to exceed such Borrower's Borrowing Availability, in which case the terms of Section 1.3(d) shall apply. -------------- SECTION 1.13. Non-Receipt of Funds by Agent. Unless Agent shall have been ----------------------------- notified by a Lender or by a Borrower (in either case, "Payor") prior to the ----- date on which such Payor is to make payment to Agent of (in the case of a Lender) the proceeds of a Revolving Credit Advance to be made by such Lender hereunder or (in the case of a Borrower) a payment to Agent for account of one or more of Lenders hereunder (such payment being herein called the "Required -------- Payment"), which notice shall be effective upon receipt by Agent, that such - ------- Payor does not intend to make the Required Payment to Agent, Agent may assume that the Required Payment has been made and may, in reliance upon such assumption (but shall not be required to), make the amount thereof available to the intended recipient(s) on such date; and, if such Payor has not in fact made the Required Payment to Agent, the recipient(s) of such payment shall, on demand, repay to Agent the amount so made available together with interest thereon in respect of each day during the period commencing on the date (the "Advance Date") such amount was so made available by Agent until the date Agent - ------------- recovers such amount, at a rate per annum equal to the Index Rate in effect from time to time plus the Applicable Margin and, if such recipient(s) shall fail promptly to make such payment, Agent shall be entitled to recover such amount, on demand, from such Payor, together with interest as aforesaid; provided, that -------- if neither the recipient(s) nor such Payor shall return the Required Payment to Agent within three (3) Business Days of the Advance Date, then, retroactively to the Advance Date, such Payor and the recipient(s) shall each be obligated to pay interest on the Required Payment (without duplication) as follows: (a) if the Required Payment shall represent a payment to be made by a Borrower to Lenders, such Borrower and the recipient(s) shall (without duplication) each be obligated retroactively to the Advance Date to pay interest in respect of the Required Payment at the Default Rate (and, in case the recipient(s) shall return the Required Payment to Agent, without limiting the obligation of the Borrower hereunder to pay interest to such recipient(s) at the Default Rate in respect of the Required Payment); and (b) if the Required Payment shall represent proceeds of a Revolving Credit Advance to be made by Lenders to a Borrower, -13- such Payor and Borrower shall (without duplication) each be obligated retroactively to the Advance Date to pay interest in respect of the Required Payment at the rate of interest provided for such Required Payment pursuant hereto (and, in case such Borrower shall return the Required Payment to Agent, without limiting any claim the Borrower may have against Payor in respect of the Required Payment). Nothing in this Section 1.13 or elsewhere in this Agreement or the other Loan ------------ Documents shall be deemed to require Agent to advance funds on behalf of any Lender or to relieve any Lender from its obligation to fulfill its Revolving Credit Commitment hereunder or to prejudice any rights that a Borrower may have against any Lender as a result of any default by such Lender hereunder. SECTION 1.14. Sharing of Payments, Etc. ------------------------- (a) Each Borrower agrees that, in addition to (and without limitation of) any right of setoff, banker's lien or counterclaim a Lender may otherwise have, each Lender shall be entitled, at its option (but subject, as between Lenders, to the provisions of Section 1.2(b)), to offset balances held by it for -------------- the account of such Borrower at any of its offices, in Dollars or in any other currency, against any principal of or interest on any of such Lender's pro rata --- ---- portion of the Revolving Credit Loan (including any Revolving Credit Advances deemed made by such Lender under Section 1.15(b)) or any other amount payable to --------------- such Lender hereunder, that is not paid when due (regardless of whether such balances are then due to such Borrower), in which case it shall promptly notify such Borrower and Agent thereof; provided, that such Lender's failure to give -------- such notice shall not affect the validity thereof. (b) If any Lender shall obtain from a Borrower payment of any principal of or interest on the pro rata portion of the Revolving Credit Loan --- ---- owing to it or payment of any other amount under this Agreement, any Revolving Credit Note held by it, or any other Loan Document through the exercise of any right of setoff, banker's lien or counterclaim or similar right or otherwise (other than from Agent as provided herein), and, as a result of such payment, such Lender shall have received a greater percentage of the principal of or interest on the Revolving Credit Loan or such other amounts then due hereunder or thereunder by such Borrower to such Lender than the percentage received by any other Lender, it shall promptly pay to Agent, for the benefit of Lenders, the amount of such excess and simultaneously purchase from such other Lenders a participation in (or, if and to the extent specified by such Lender, direct interests in) the Revolving Credit Loan or such other amounts, respectively, owing to such other Lenders (or in interest due thereon, as the case may be) in such amounts, and make such other adjustments from time to time as shall be equitable, to the end that all Lenders shall share the benefit of such excess -14- payment (net of any expenses that may be incurred by such Lender in obtaining or preserving such excess payment) pro rata in accordance with the unpaid principal --- ---- of and/or interest on the Revolving Credit Loan or such other amounts, respectively, owing to each of Lenders. Amounts received by Agent under this Section 1.14(b) shall be treated as a payment by the relevant Borrower under - --------------- Section 1.12. To such end all Lenders shall make appropriate adjustments among - ------------ themselves (by the resale of any participation sold or otherwise) if such payment is rescinded or must otherwise be restored. (c) Each Borrower agrees that any Lender so purchasing such a participation (or direct interest) may exercise, in a manner consistent with Section 1.14(a), all rights of setoff, banker's lien, counterclaim or similar - --------------- rights with respect to such participation as fully as if such Lender were a direct holder of the Revolving Credit Loan or other amounts (as the case may be) owing to such Lender in the amount of such participation. Any Lender which so exercises any right of setoff shall notify the relevant Borrower and Agent of such exercise; provided that the failure to do so shall not affect the validity -------- of such setoff. (d) Nothing contained herein shall require any Lender to exercise any right as against a Borrower as described in this Section 1.14 or shall affect ------------ the right of any Lender to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness or obligation of such Borrower. If, under any applicable bankruptcy, insolvency or other similar law, any Lender receives a secured claim in lieu of a setoff or right as against a Borrower to which this Section 1.14 applies, such Lender shall, to the extent ------------ practicable, assign such rights to Agent for the benefit of Lenders and, in any event, exercise its rights in respect of such secured claim in a manner consistent with the rights of Lenders entitled under this Section 1.14 to share ------------ in the benefits of any recovery on such secured claim. SECTION 1.15. Settlement Procedures. --------------------- (a) The Revolving Credit Loan balance may fluctuate from day to day from Agent's disbursement of funds to, and receipt of funds from, Borrowers. In order to minimize the frequency of transfers of funds between Agent and Lenders, Revolving Credit Advances may be made by Agent and payments in respect thereof will be settled according to the procedures set forth in this Section 1.15. ------------ Notwithstanding these procedures, each Lender's obligation to fund its portion of any Revolving Credit Advance made to a Borrower will commence on the date such Revolving Credit Advances are made. Such payments will be made by each Lender without setoff, counterclaim or reduction of any kind. (b) Notwithstanding anything to the contrary contained in this Agreement, Agent may elect, at its sole option, to fund the -15- entire amount of any Revolving Credit Advance requested by a Borrower. In the event Agent makes such election, such Revolving Credit Advance made by Agent shall be deemed, and shall constitute, as of the date of making thereof, a Revolving Credit Advance made by each Lender to such Borrower in an amount equal to such Lender's pro rata share thereof, and each Lender shall be obligated to --- ---- deliver to Agent such share of such Revolving Credit Advance on the Weekly Settlement Date in accordance with the procedure for weekly settlement set forth in Section 1.15(c) or as otherwise provided in Section 1.15(d). Notwithstanding --------------- --------------- anything to the contrary contained in this Agreement, for purposes of calculating interest payable to any Lender (a) Agent shall be deemed a "Lender" with respect to any outstanding Revolving Credit Advances funded by Agent, and (b) the amount of Revolving Credit Advances of any Lender that are outstanding on any day shall be equal to the amount of such Lender's Revolving Credit Advances outstanding on such day excluding any Revolving Credit Advances that have been funded entirely by Agent with respect to which such Lender has not funded its pro rata share. --- ---- (c) Each Lender shall settle with Agent, upon Agent's request, on the third Business Day of each week (or on such other day of the week as may be designated from time to time by Agent) in each successive week (the "Weekly ------ Settlement Date"), on the net Revolving Credit Advances and payments since the - --------------- date of the last settlement. On each Weekly Settlement Date, prior to 10:00 a.m. (New York time), Agent shall notify each Lender by telephone or by telex, telecopy or other form of teletransmission, of such Lender's pro rata share of --- ---- the outstanding Revolving Credit Advances and the amount of the payment necessary to adjust such Lender's outstanding Revolving Credit Advances to such Lender's pro rata share of such Revolving Credit Advances as of such Weekly --- ---- Settlement Date (on a net basis taking into account any funds in the Collection Account which Agent determines are available). Any such payment shall be made by the party from which such payment is due to the other party, in same day funds, not later than 1:00 p.m. (New York time) on such Weekly Settlement Date. If any Lender shall, for any reason, not settle with Agent within one Business Day after the Weekly Settlement Date, such Lender agrees to pay and Borrowers agree to repay, severally, to Agent forthwith on demand the amount due Agent on such Weekly Settlement Date together with interest thereon for each day from such Weekly Settlement Date until the day such amount is paid to Agent, at (i) in the case of such Lender, the Index Rate in effect for the first three (3) days for which such amount remains unpaid and thereafter at the rate then in effect with respect to Revolving Credit Advances pursuant to Section 1.6 hereof, ----------- and (ii) in the case of a Borrower, the rate then in effect with respect to Revolving Credit Advances pursuant to Section 1.6 hereof. If such Lender shall ----------- pay to Agent such corresponding amount, such amount so paid shall constitute such Lender's Revolving Credit Advance and, if both such Lender and Borrower shall have paid and repaid, respectively, such -16- corresponding amount, Agent shall promptly pay over to such Borrower such corresponding amount in same day funds, but such Borrower shall remain obligated for all interest thereon. (d) As an alternative to the weekly settlement provided for in Section ------- 1.15(c), Agent may elect at its sole option, to use the following same day - ------- settlement procedure for borrowings of Revolving Credit Advances. Prior to 12:00 noon (New York time) on any date specified for a borrowing of a Revolving Credit Advance in a Notice of Revolving Credit Advance, Agent may notify each Lender by telephone or by telex, telecopy or other form of teletransmission, of the requested Revolving Credit Advance. Not later than 2:00 p.m. (New York time) on the date of such proposed Revolving Credit Advance, each Lender shall make available to Agent, in same day funds, to such account of Agent as Agent may designate, such Lender's pro rata share of such Revolving Credit Advance. --- ---- Notwithstanding the foregoing, to the extent that there are available funds in the Collection Account, Agent may, at Agent's discretion, notify each Lender that such Lender's obligation to make available to Agent same day funds as provided in the preceding sentence shall be satisfied to the extent of its pro --- rata share out of such funds in the Collection Account, or such portion of such - ---- funds as Agent shall indicate are to be applied to fund such Revolving Credit Advance. SECTION 1.16. Accounting. Agent will provide a monthly accounting of ---------- transactions under the Revolving Credit Loan to Borrowers. Each and every such accounting shall (absent manifest error) be deemed final, binding and conclusive upon Borrowers in all respects as to all matters reflected therein, unless a Borrower, within sixty (60) days after the date any such accounting is rendered, shall notify Agent in writing of any objection which such Borrower may have to any such accounting, describing the basis for such objection with specificity. In that event, only those items (the "disputed items") expressly objected to in -------------- such notice shall be deemed to be disputed by Borrowers. Each and every such accounting shall (absent manifest error) be deemed final, binding and conclusive upon Agent and Lenders in all respects as to all matters reflected therein, unless Agent or any Lender, within sixty (60) days after the date any such accounting is rendered, shall notify Borrower and, if notice is being given by a Lender, Agent in writing of any objection or change to such accounting; in which case Borrowers shall be entitled to dispute such objection or change in the manner provided above within the foregoing sixty (60) day period (which period shall commence on the date Borrowers are notified of such objection or change). Agent's determination in good faith, based upon the facts available, of any disputed item shall (absent manifest error) be final, binding and conclusive on Borrowers. -17- SECTION 1.17. Indemnity. --------- (a) Each Loan Party shall, jointly and severally, indemnify and hold Agent, each Lender and their respective Affiliates, officers, directors, employees, attorneys and agents (each, an "Indemnified Person"), harmless from ------------------ and against any and all suits, actions, costs, fines, deficiencies, penalties, proceedings, claims, damages, losses, liabilities and expenses (including reasonable attorneys' fees and disbursements and other costs of investigations or defense, including those incurred upon any appeal) (each, a "Claim") which ----- may be instituted or asserted against or incurred by such Indemnified Person as the result of credit having been extended under this Agreement or any other Loan Document, the use or intended use of proceeds of Revolving Credit Advances, or otherwise arising in connection with the transactions contemplated hereunder and thereunder, including any and all Environmental Liabilities and Costs and regardless of whether the Indemnified Person is a party to such Claim; provided, -------- that no Loan Party shall be liable for any indemnification to such Indemnified Person with respect to any portion of any such Claim which results solely from such Indemnified Person's gross negligence, bad faith or willful misconduct as determined by a final judgment of a court of competent jurisdiction and no Loan Party shall be liable under this Section 1.17(a) for any lost profits of any Lender. The relevant Indemnified Person shall give Tyco Parent prompt written notice of any Claim asserted against it by a third party (other than a Claim for which the Loan Parties have no indemnity obligations as described in the proviso to the first sentence of this Section 1.17(a)) setting forth a description of those elements of such Claim of which such Indemnified Person has knowledge. The Loan Parties shall have the right at their sole cost and expense at any time during which such Claim is pending to select counsel to defend and settle any such Claim so long as (i) in any such event the Loan Parties shall have stated in a writing delivered to the applicable Indemnified Person that, as between the Loan Parties and such Indemnified Person, the Loan Parties are responsible to such Indemnified Person with respect to such Claim (except to the extent expressly set forth in the proviso to the first sentence of this Section 1.17(a)), (ii) the counsel selected by the Loan Parties shall be reasonably acceptable to the relevant Indemnified Person and (iii) no Loan Party shall settle any such Claim without the prior written consent of the relevant Indemnified Person (which consent shall not be unreasonably withheld or delayed); provided, however, that if an Indemnified Person shall have been advised by its counsel that there are legal defenses available to such Indemnified Person that are different from or additional to those available to any of the Loan Parties which, in the reasonable opinion of such counsel, are sufficient to make it undesirable for the same counsel to represent both such Indemnified Person and any of the Loan Parties, such Indemnified Person shall have the right to employ its own counsel in such action, and in such event, the reasonable fees and disbursements of such counsel shall be paid by -18- the Loan Parties. If the Loan Parties shall fail to assume the defense of any Claim in accordance with the terms of this indemnity, the relevant Indemnified Person shall have the right to select counsel and control the defense of such Claim; provided, however, that no Indemnified Person shall settle any such Claim without the prior written consent of Tyco Parent, which consent shall not be unreasonably withheld or delayed. With respect to any Claim for which the Loan Parties are entitled to select counsel, each Indemnified Person shall have the right, at its expense, to participate in the defense of such Claim. In the event that, with respect to any Claim, more than one Indemnified Person shall be permitted hereunder to select counsel to defend such Claim at the expense of the Loan Parties and shall decide to do so, then all such Indemnified Persons shall select the same counsel to defend such Indemnified Persons with respect to such Claim; provided, however, that if any such Indemnified Person shall in its reasonable opinion consider that the retention of one joint counsel as aforesaid shall result in a conflict of interest, such Indemnified Person may, at the expense of the Loan Parties, select its own counsel to defend such Indemnified Person with respect to such Claim. Lenders, Agent and the Loan Parties and their respective counsel shall cooperate with each other in all reasonable respects in any investigation, trial and defense of any such Claim and any appeal arising therefrom. NEITHER AGENT NOR ANY LENDER NOR ANY OTHER INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY OTHER PARTY HERETO, ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OF SUCH PERSON OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN EXTENDED UNDER THE LOAN DOCUMENTS, THE USE OR INTENDED USE OF PROCEEDS OF REVOLVING CREDIT ADVANCES OR OTHERWISE IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED HEREBY. The foregoing provision in favor of any Indemnified Person shall be in addition to any rights that such Indemnified Person may have at common law or otherwise, including, but not limited to, any right to contribution. In any suit, proceeding or action brought by Agent or Lenders relating to any Account, Chattel Paper, Contract, General Intangible, Instrument, Equipment or Document for any sum owing thereunder, or to enforce any provision of any Account, Chattel Paper, Contract, General Intangible, Instrument or Document, Borrowers shall, jointly and severally, save, indemnify and keep Agent and Lenders harmless from and against all expense, loss or damage suffered by reason of any defense, setoff, counterclaim, recoupment or reduction of liability whatsoever of the obligor thereunder arising out of a breach by a Borrower or other Loan Party of any obligation thereunder or arising out of any other agreement, indebtedness or liability at any time owing to, or in favor of, such obligor or its successors from a Borrower or other Loan Party, all such obligations of a Borrower or other Loan Party shall be and remain enforceable against, and only against, such -19- Borrower or other Loan Party and shall not be enforceable against Agent or Lenders. (b) Borrowers hereby acknowledge and agree that neither Agent nor any Lender (as of the date hereof) (i) is now or has ever been in control of any of the Real Property or the affairs of any Borrower, any other Loan Party or any Subsidiary thereof, and (ii) has the capacity through the provisions of the Loan Documents to influence the conduct of any Borrower, any other Loan Party or any Subsidiary thereof with respect to the ownership, operation or management of any of the Real Property. SECTION 1.18. Access. Each Loan Party shall (and shall cause each of its ------ Subsidiaries to) at such Person's expense (except for clause (c) below, which shall be at Borrowers' expense except to the extent provided otherwise in such clause (c)): (a) provide access during normal business hours to Agent and each Lender and any of their respective officers, employees, representatives, consultants and agents, as frequently as Agent or any Lender determines to be appropriate, upon reasonable advance notice (unless a Default shall have occurred and be continuing, in which event no notice shall be required and Agent and each Lender shall have access at any and all times), to the properties and facilities of such Loan Party or any of its Subsidiaries; (b) permit Agent and each Lender and any of their officers, employees, representatives, consultants and agents to inspect, audit and make extracts from all of such Loan Party's and its Subsidiaries' records, files and books of account; and (c) permit Agent on behalf of Lenders or any representatives, consultants or agents of Agent to conduct audits to inspect, review and evaluate the Collateral (such audits, at the expense of any Borrower, not to exceed (x) four times in any Fiscal Year for all Loan Parties in the aggregate with respect to audits of inventory by Gordon Brothers Partners, Inc. or other independent inventory auditors and (y) four times in any Fiscal Year for all Loan Parties in the aggregate with respect to other audits, unless an Event of Default has occurred in which case such limits shall not apply; it being understood that the foregoing limits shall not prohibit Agent from conducting additional audits at its expense), and such Loan Party agrees to render to Agent and each Lender and their representatives, consultants and agents at such Loan Party's cost and expense, such clerical and other assistance as may be reasonably requested with regard thereto. Each Loan Party shall, and shall cause each of its Subsidiaries to, make available to Agent and each Lender and their respective counsel, as quickly as practicable under the circumstances, originals or copies of all books, records, board minutes, contracts, insurance policies, environmental audits, business plans, files, financial statements (actual and pro forma), filings with federal, state --- ----- and local and foreign regulatory agencies, and other instruments and documents which Agent or any Lender may request which are in the possession or control of any Loan Party or any of its Subsidiaries or any of their respective accountants and other advisors. Each Loan Party -20- shall deliver any document or instrument reasonably necessary for Agent or any Lender, as it may from time to time request, to obtain records from any service bureau or other Person which maintains records for such Loan Party or its Subsidiaries, and shall maintain duplicate records or supporting documentation on media, including computer tapes and discs owned by such Loan Party. Each Loan Party shall instruct its and its Subsidiaries' independent certified public accountants and its banking and other financial institutions to make available to Agent and each Lender such information and records as Agent and each Lender may reasonably request. SECTION 1.19. Taxes. ----- (a) Any and all payments by or on behalf of any Borrower or other Loan Party hereunder or under any Revolving Credit Note or other Loan Document, shall be made, in accordance with this Section 1.19, free and clear of and without ------------ deduction or withholding for any and all present or future Taxes. If any Borrower or other Loan Party shall be required by law to deduct or withhold any Taxes from or in respect of any sum payable hereunder or under any Revolving Credit Note or other Loan Document to Agent or any Lender, (i) the sum payable shall be increased as may be necessary so that after making all required deductions and withholdings (including deductions and withholdings applicable to additional sums payable under this Section 1.19) Agent or such Lender receives ------------ an amount equal to the sum it would have received had no such deductions or withholdings been made, (ii) such Borrower or other Loan Party shall make such deductions and withholdings, and (iii) such Borrower or other Loan Party shall pay the full amount deducted or withheld to the relevant taxing or other authority in accordance with applicable law. (b) In addition, each Borrower agrees, jointly and severally, to pay any present or future intangible personal property, stamp or documentary taxes or any other excise or property taxes, charges or similar levies that arise from any payment made hereunder or under the Revolving Credit Notes or from the execution, delivery or registration of, or otherwise with respect to, this Agreement, the other Loan Documents or any other matter contemplated by this Agreement (hereinafter referred to as "Other Taxes"). ----------- (c) Each Borrower shall, jointly and severally, indemnify and pay, within ten (10) days of demand therefor, Agent and each Lender for the full amount of Taxes or Other Taxes (including any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 1.19) paid by Agent or ------------ such Lender and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. -21- (d) Within thirty (30) days after the date of any such payment of Taxes or Other Taxes, the relevant Loan Party shall furnish to Agent or such Lender, at its address referred to in Section 11.9, the original or a certified ------------ copy of a receipt evidencing payment thereof. (e) If any Lender subsequently receives from a taxing authority a refund of any Tax or Other Tax previously paid by a Borrower and for which such Borrower has indemnified such Lender pursuant to this Section 1.19, such Lender ------------ shall within thirty (30) days after receipt of such refund, and to the extent permitted by applicable law, pay to such Borrower the net amount of any such refund after deducting taxes and expenses attributable thereto. (f) Without prejudice to the survival of any other agreement of any Loan Party under this Agreement or any other Loan Document, the agreements and obligations of the Loan Parties contained in this Section 1.19 shall survive the ------------ Termination Date. SECTION 1.20. Additional Costs. ---------------- (a) Each Borrower shall pay directly to each Lender from time to time on request such amounts as such Lender may reasonably determine to be necessary to compensate such Lender for any costs that it reasonably determines are attributable to the maintenance by such Lender, pursuant to any law or regulation or any interpretation, directive or request (whether or not having the force of law and whether or not failure to comply therewith would be unlawful) of any court or governmental or monetary authority (i) following any Regulatory Change relating to Taxes, reserves, deposits or similar requirements or any other conditions affecting this Agreement or the financial accommodations provided or committed to be provided hereunder or (ii) implementing after the date hereof any risk-based capital guideline or other capital requirement (whether or not having the force of law and whether or not the failure to comply therewith would be unlawful) hereafter issued (or heretofore issued but not required to be complied with as of the date hereof) by any Governmental Authority in respect of such Lender's Revolving Credit Commitment or Revolving Credit Advances hereunder (such compensation to include, without limitation, an amount equal to any reduction of the rate of return on assets or equity of such Lender to a level below that which such Lender could have achieved but for such law, regulation, interpretation, directive or request). (b) Each Lender will furnish to the relevant Borrower a certificate setting forth the basis and amount of each request by such Lender for compensation under this Section 1.20. Determinations and allocations by any ------------ Lender for purposes of this Section 1.20 of the effect of any Regulatory Change ------------ pursuant to or of capital maintained pursuant to this Section 1.20, on its costs ------------ or rate of return of maintaining its Revolving Credit Commitment or -22- Revolving Credit Advances, and of the amounts required to compensate such Lender under this Section 1.20, shall be conclusive and binding absent manifest error. ------------ ARTICLE 2 CONDITIONS PRECEDENT SECTION 2.1. Conditions to the Initial Revolving Credit Advance and the ---------------------------------------------------------- Initial Letter of Credit Obligation. Notwithstanding any other provision of - ----------------------------------- this Agreement and without affecting in any manner the rights of Agent or any Lender hereunder, Borrowers shall have no rights under this Agreement (but shall have all applicable obligations hereunder), and Agent and Lenders shall not be obligated to make any Revolving Credit Advance or to incur any Letter of Credit Obligations or to take, fulfill, or perform any other action hereunder, until the following conditions have been fulfilled to the satisfaction of Agent (and to the extent specified below, of Lenders): (a) This Agreement or counterparts thereof shall have been duly executed by, and delivered to, Borrowers, Tyco Parent, Agent and each Lender. (b) Agent and Lenders shall have received such documents, instruments, certificates, opinions and agreements as Agent shall reasonably request in connection with the transactions contemplated by this Agreement, including in any event all documents, instruments, agreements and other materials listed in the Schedule of Closing Documents attached as Annex C hereto, each in form and ------- substance satisfactory to Agent and Required Lenders. (c) Agent shall have received evidence satisfactory to Agent that all Indebtedness and other obligations of Tyco Parent and its Subsidiaries under the Existing Credit Agreement and related documents (as in effect immediately prior to the Closing Date) will be performed and paid in full from the proceeds of the initial Revolving Credit Advance and the initial sale of Accounts under the Receivables Sale Agreements and all Liens upon any of the property (including any cash collateral) of Tyco Parent and its Subsidiaries in favor of the lender or lenders thereunder (or agent therefor) shall be terminated and released immediately upon such payment and Agent and such lender or lenders (or agent therefor) shall have entered into an escrow or other agreement in form and substance satisfactory to Agent providing for the release and termination of all such Liens, termination of the Existing Credit Agreement and acknowledgment of payment in full of all outstanding Indebtedness and other obligations under or relating to the Existing Credit Agreement. -23- (d) Agent shall have received evidence satisfactory to Agent that the Loan Parties have obtained consents, approvals and acknowledgments of all Persons whose consents, approvals and acknowledgments may be required, including all requisite Governmental Authorities, to the terms and to the execution and delivery of this Agreement and the other Loan Documents and the consummation of the transactions contemplated hereby and thereby. (e) Agent shall have received evidence satisfactory to Agent that the insurance policies provided for in Section 3.19 and Annex F are in full force ------------ ------- and effect, together with appropriate evidence showing a loss payable and/or additional insured clauses or endorsements, as appropriate, in favor of Agent and Lenders and in form and substance satisfactory to Agent. (f) All of the borrowing base assets supporting the financial accommodations to be provided under the Overall Facilities on the Closing Date after giving effect to the amount, if any, of the reserves to be established thereunder on the Closing Date (including reserves established in respect of letter of credit obligations, if any) shall be sufficient in value, on a pro --- forma basis after giving effect to the payment of all anticipated closing - ----- expenditures, whether or not then paid, as determined by Agent, and without any material deterioration of trade payables, to provide the borrowers under such Overall Facilities with unused borrowing base availability of not less than $12,500,000. (g) Payment in immediately available funds by Borrowers to Agent for its account and the account of Lenders, as the case may be, of all Fees and reasonable costs and expenses of closing (including fees and expenses of consultants and counsel to Agent presented as of the Closing Date), against which will be credited certain amounts heretofore paid by Tyco Parent to GE Capital as and to the extent provided in the Commitment Letter. (h) No action, proceeding, investigation, audit, regulation or legislation shall have been instituted, threatened or proposed before any Governmental Authority (i) which, if successful, would have a Material Adverse Effect, or (ii) to enjoin, restrain or prohibit, or to obtain damages in respect of, or which is related to or arises out of, this Agreement or any of the other Loan Documents or any of the other Overall Facilities or the consummation of the transactions contemplated hereby or thereby and which, in Agent's sole judgment exercised in good faith, would make it inadvisable to consummate the transactions contemplated by this Agreement or any of the other Loan Documents or any of the other Overall Facilities. (i) Agent, in its sole judgment, shall not have determined that: (i) Tyco Parent or any other Loan Party has made any Restricted Payment since September 30, 1994 other than as set forth on Schedule 3.5; (ii) any material ------------ increase in liabilities, -24- liquidated or contingent, of Tyco Parent or any of its Subsidiaries, or any material decrease in the assets of Tyco Parent or any of its Subsidiaries (other than normal recurring seasonal changes in the foregoing consistent with prior years' experience), shall have occurred since September 30, 1994; (iii) except as set forth on Schedule 3.5, any Material Adverse Effect (or with respect to ------------ any of Tyco Parent's Subsidiaries which are not Loan Parties, material adverse change in the business, operations, financial condition or prospects of such Person or the industry in which it operates), shall have occurred since September 30, 1994 (it being understood that the financial results described in Tyco Parent's press release of October 25, 1994 shall not constitute such a Material Adverse Effect or material adverse change so long as Agent shall have determined, after due diligence, that the results described therein reflect completely and accurately, in all material respects, the actual results for the period covered); or (iv) the results of operations of Tyco Parent and each of its Subsidiaries for the period commencing September 30, 1994 and ending on the Closing Date are materially different from the projected results of each such Person's operations for such period as indicated in the Projections. (j) Agent and each Lender shall be reasonably satisfied with the corporate, capital, tax, legal and management structure and cash management systems of Tyco Parent and the other Loan Parties and any Subsidiary thereof, and shall be satisfied, in its sole judgment, with the nature and status of all contractual obligations, securities, labor, tax, ERISA, employee benefit, environmental, health and safety matters, in each case, involving or affecting any such Person. In connection therewith, Agent and its Affiliates shall have completed, with results reasonably satisfactory to Lenders, such business and legal due-diligence of Tyco Parent and the other Loan Parties and any Subsidiary thereof as Agent may require including, without limitation, satisfactory review by Agent's field examiners or attorneys, as applicable, of Tyco Parent's and the other Loan Parties' accounts receivable, assets, inventory, financial controls and records, contracts (including, without limitation, stockholder agreements, Licenses and debt and equity agreements), leases, pension funds, organizational or governing documents, environmental compliance, indebtedness, legal and capital structure, liabilities, tax position and a liquidation analysis. Agent and its Affiliates shall have had reasonable and continuing access to any material it deems necessary to monitor the loans to be made hereunder, including access to Tyco Parent's independent public accountants. Agent shall be satisfied with the structure and the tax effect of the transactions contemplated by this Agreement. (k) Manufacturing, Industries and the Receivables Funding Subsidiary shall have entered into the Receivables Funding Documents (which documents shall be satisfactory to Agent) and shall have satisfied all conditions set forth in Article III of the -25- Receivables Funding Agreement and the Receivables Funding Documents shall be in full force and effect. (l) Each of the Persons intended to be parties to the Canadian Credit Agreement and the UK Credit Agreement (which agreements shall be satisfactory to Agent) shall have executed and delivered such agreements, all conditions to the Global Lenders thereunder providing any financial accommodations under such agreements shall have been satisfied and such credit agreements shall be in full force and effect. (m) Agent and Lenders shall have obtained a pro forma balance sheet of each Borrower, Industries and Tyco Parent as of the Closing Date after giving effect to the transactions contemplated on the Closing Date under this Agreement and the Receivables Funding Documents in form and substance reasonably satisfactory to the Agent. (n) (i) Agent shall be satisfied that there shall have been no material adverse change in the value of the assets of those Loan Parties which were the subject of an appraisal conducted by Gordon Brothers Partners, Inc. at the request of GE Capital and (ii) Lenders shall have obtained appraisals in form and substance reasonably acceptable to Lenders reflecting asset values of the Loan Parties at levels acceptable to Lenders. The appraisals shall be performed by appraisers retained by Tyco Parent and reasonably acceptable to Lenders. (o) Agent shall be satisfied that as of the Closing Date (i) the cash and cash equivalents of Tyco Parent and its Subsidiaries (free of all Liens) shall be at least $13,000,000 and (ii) there shall have been no deterioration in the accounts payable and accrued expenses of Tyco Parent and its Subsidiaries from that reflected in Tyco Parent's quarterly financial statements as at and for the period ended September 30, 1994. (p) Agent shall be satisfied that, as of the Closing Date, Tyco Parent, each other Loan Party and each Subsidiary thereof shall be in compliance in all material respects with all material agreements and all federal, state and local and foreign laws and regulations including labor and environmental laws and regulations and ERISA, and shall have obtained all waivers, consents, approvals or withholding of objections necessary or appropriate in connection with the transactions contemplated by this Agreement and the facilities provided hereunder. (q) Should any Lender have so required, as of the Closing Date, Tyco Parent shall have provided at its expense an environmental review and audit report (as to its consolidated properties), with results reasonably acceptable in form and substance to such Lender, from an independent environmental firm acceptable to such Lender. As of the Closing Date, Tyco Parent -26- shall have provided to Lenders copies of all existing environmental reviews and audits, as well as other information pertaining to material actual or potential environmental claims with respect to Tyco Parent and the other Loan Parties of which they are aware. (r) Tyco Parent and Lenders shall have agreed to a mutually acceptable capital expenditure budget with respect to Tyco Parent and its Subsidiaries. (s) As of the Closing Date, Agent and Lenders shall be reasonably satisfied with all transfer pricing of Tyco Parent and its Subsidiaries and that arrangements shall have been completed for a tax treaty exemption in connection with the cross border facilities affecting any Loan Party or any of its Subsidiaries, or the Loan Parties and the relevant Subsidiaries shall have agreed to absorb incremental withholding of cross border tax, if any. Additionally, Agent shall have received, in form and substance reasonably satisfactory to Agent, copies of all tax sharing agreements involving Tyco Parent or any of its Subsidiaries. (t) Agent shall be satisfied that, as of the Closing Date, the transactions contemplated by this Agreement shall be in compliance with all applicable laws and regulations (including, without limitation, each state in which any Loan Party is located or organized), and there shall be no legal impediment to any of Lenders making loans or other extensions of credit contemplated by this Agreement in any applicable jurisdiction. (u) Agent shall be satisfied with the arrangements relating to the purchase, sale and shipment by each Borrower of Inventory and shall have received an agreement in form and substance satisfactory to Agent from Industries pursuant to which Industries would agree that (i) with respect to any Inventory sold by any Borrower to Industries, such Inventory shall at no time be shipped directly to Industries (other than the shipment in any Fiscal Year of Inventory having an aggregate value not exceeding $100,000 which is used by sales personnel of Industries in promoting the sale of such Inventory or by Industries in toy fairs and its toy showrooms) but rather, such Inventory shall be required to be shipped directly to third party customers at the direction of Industries (and for its account) and (ii) from and after the occurrence of a "Termination Event" under and as defined in the Receivables Funding Agreement, upon the direction of Agent (which determination Agent may make in its sole discretion), each Borrower shall have the right, without any obligation or liability to Industries, to ship or cause to be shipped (either by itself or by its representatives or agents) Inventory of such Borrower directly to third party customers rather than to (or for the account of) Industries and in connection therewith, Industries will cooperate with each Borrower to effectuate same (including, without limitation, by providing each Borrower with its customer lists and unfilled sale orders). -27- SECTION 2.2. Further Conditions to Each Revolving Credit Advance and Each ------------------------------------------------------------ Letter of Credit Obligation. It shall be a further condition to the funding of - --------------------------- the initial and each subsequent Revolving Credit Advance and the incurrence of the initial and each subsequent Letter of Credit Obligation, if any, that the following statements shall be true on the date of each such funding, advance or incurrence, as the case may be: (a) Each Loan Party's representations and warranties contained herein or in any of the Loan Documents shall be true and correct in all material respects on and as of the Closing Date and the date on which each such Revolving Credit Advance is made or any Letter of Credit Obligation, if any, is incurred, as appropriate, as though made on or incurred on and as of such date, except to the extent that any such representation or warranty expressly relates solely to an earlier date and except for changes therein permitted or contemplated by this Agreement. (b) No event shall have occurred and be continuing, or would result from the making of any Revolving Credit Advance or the incurrence of any Letter of Credit Obligation, as the case may be, which constitutes or would constitute a Default or an Event of Default. (c) After giving effect to any such Revolving Credit Advance or the incurrence of any such Letter of Credit Obligation, as the case may be, the aggregate principal amount of the Revolving Credit Advances made to the appropriate Borrower shall not exceed the Borrowing Availability of such Borrower and there shall be no requirement under Section 1.3(b) to prepay any Revolving Credit Advance or provide cash collateral. (d) There shall not have occurred a Material Adverse Effect which shall not have been cured or waived in writing by Required Lenders. (e) Each of the conditions set forth in Section 2.1(a) through Section -------------- ------- 2.1(e) shall continue to be satisfied by the Loan Parties as of such date. - ------ The request and acceptance by any Borrower of the proceeds of any Revolving Credit Advance, and the request by any Borrower for the incurrence by Lenders of Letter of Credit Obligations, as the case may be, shall be deemed to constitute, as of the date of such request or acceptance, (i) a representation and warranty by such Borrower that the conditions in this Section 2.2 have been satisfied and ----------- (ii) a confirmation by such Borrower of the granting and continuance of Agent's and Lenders' Liens pursuant to the Collateral Documents. -28- ARTICLE 3 REPRESENTATIONS AND WARRANTIES To induce Agent and Lenders to enter into this Agreement, Tyco Parent and each Borrower, jointly and severally, represents and warrants to Agent and Lenders (which representations and warranties under Sections 3.25 and 3.26 shall ------------- ---- be continuously made during the term of this Agreement and all such other representations and warranties shall be made on the Closing Date and made or deemed made at such other times as provided hereunder (including without limitation, as provided in Section 2.2) that: ----------- SECTION 3.1. Existence; Compliance with Law. Each Loan Party and each of ------------------------------ its Subsidiaries: (a) is a corporation or partnership, as appropriate, duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and is duly qualified to do business and is in good standing in each other jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification (except for those foreign jurisdictions where the failure to be duly qualified to do business or in good standing would not have a Material Adverse Effect); (b) has the requisite corporate or partnership authority and the legal right to own, pledge, mortgage or otherwise encumber and operate its properties, to lease the property it operates under lease, and to conduct its business as now, heretofore and proposed to be conducted; (c) has all licenses, permits, consents or approvals from or by, and has made all filings with, and has given all notices to, all Governmental Authorities having jurisdiction, to the extent required for such ownership, operation and conduct (except where the failure to have such licenses, permits, consents or approvals or make such filings or give such notices would not have a Material Adverse Effect); (d) is in compliance with its articles or certificate of incorporation and bylaws or partnership agreement and other organizational documents, as appropriate; and (e) is in compliance with all applicable provisions of law (except where the failure to be in compliance would not have a Material Adverse Effect). SECTION 3.2. Executive Offices; Collateral Locations; Corporate or Other ----------------------------------------------------------- Names. The current locations of each Borrower's executive office, principal - ----- place of business, corporate offices, all warehouses and premises within which any Collateral is stored or located, and the locations of all of each Borrower's records concerning the Collateral are set forth in Schedule 3.2 and, except as ------------ set forth in Schedule 3.2, such locations have not changed during the preceding ------------ twelve months. During the prior five years, except as set forth in Schedule -------- 3.2, no Borrower has been known as or used any corporate, fictitious or trade - --- name. SECTION 3.3. Power; Authorization; Enforceable Obligations. The --------------------------------------------- execution, delivery and performance by each Loan Party of this -29- Agreement and the other Loan Documents to which it is a party and the creation by such Loan Party of all Liens provided for herein and therein: (a) are within such Loan Party's corporate or partnership power, as appropriate; (b) have been duly authorized by all necessary corporate, partnership and shareholder or partner action; (c) are not in contravention of any provision of such Loan Party's articles or certificate of incorporation, bylaws, partnership agreement or other organizational documents; (d) will not violate any law or regulation, or any order or decree of any Governmental Authority; (e) will not conflict with or result in the breach or termination of, constitute a default under or accelerate any performance required by, any indenture, mortgage, deed of trust, lease, agreement or other instrument to which any Loan Party or any Subsidiary thereof is a party or by which any Loan Party or any Subsidiary thereof or any of its property is bound; (f) will not result in the creation or imposition of any Lien upon any of the property of any Loan Party or any Subsidiary thereof other than those in favor of Agent or Lenders, all pursuant to the Loan Documents; and (g) do not require the consent or approval of any Governmental Authority or any other Person, except those referred to in Section 2.1(d), all -------------- of which will have been duly obtained, made or complied with prior to the Closing Date and which are in full force and effect. At or prior to the Closing Date, each of the Loan Documents shall have been duly executed and delivered for the benefit of or on behalf of the Loan Parties intended to be party thereto and each shall then constitute a legal, valid and binding obligation of such Loan Parties, enforceable against such Loan Parties in accordance with its terms subject, as to enforceability, to bankruptcy, reorganization, insolvency and similar laws affecting the enforcement of creditors' rights generally and to general principles of equity. The execution, delivery and performance by each Obligor of the documentation to which it is a party with respect to each of the Overall Facilities and by Manufacturing, Industries and the Receivables Funding Subsidiary of the Receivables Funding Documents (a) will not conflict with or result in the breach or termination of, constitute a default under, or accelerate any performance required by, any indenture, mortgage, deed of trust, lease, agreement or other instrument to which any Obligor or any Subsidiary thereof is a party or by which any such Person or any of its property is bound, (b) will not result in the creation or imposition of any Lien upon any property of any Obligor or any of its Subsidiaries other than those in favor of the Global Lenders or their respective agents and (c) do not require the consent or approval of any Governmental Authority or any other Person, except for those which have been duly obtained, made or complied with prior to the Closing Date and which are in full force and effect. SECTION 3.4. Financial Statements and Projections. Tyco Parent has ------------------------------------ delivered the Financials and Projections identified in Schedule 3.4 (which ------------ Projections are attached hereto as -30- Exhibit 3.4), and each of such Financial and Projection complies with the - ------------ description thereof contained in Schedule 3.4. ------------ SECTION 3.5. Material Adverse Change. As of the date hereof, no Loan ----------------------- Party or Subsidiary thereof has any material obligations, contingent liabilities, or liabilities for Charges, long-term leases or unusual forward or long-term commitments which are not reflected in the audited December 31, 1993 balance sheet of Tyco Parent and its Subsidiaries, except for those which were incurred or entered into in the ordinary course of such Loan Party's or Subsidiary's business. As of the date hereof, there has been no material deviation from the Projections provided to Lenders. Except as otherwise permitted hereunder or as set forth in Schedule 3.5, no Restricted Payment has ------------ been made since September 30, 1994, and no shares of Stock of any Loan Party or any of its Subsidiaries have been, or are now required to be, redeemed, retired, purchased or otherwise acquired for value by any Loan Party or any of its Subsidiaries. Except as set forth in Schedule 3.5, since September 30, 1994, no ------------ event has occurred which would result in a Material Adverse Effect (it being understood that the financial results described in Tyco Parent's press release of October 25, 1994 shall not constitute a Material Adverse Effect so long as Agent shall have determined, after due diligence, that the results described therein reflect completely and accurately, in all material respects, the actual results for the period covered). SECTION 3.6. Ownership of Property; Liens. The real estate listed in ---------------------------- Schedule 3.6 as such Schedule may, with respect to this sentence, be updated - ------------ from time to time without the consent of Agent or Lenders by Borrowers in a writing delivered to Agent and Lenders constitutes all of the Real Property owned, leased (other than Real Property leased, as lessee, where the annual rental payments are less than $150,000), or used in each Loan Party's and its Subsidiaries' business (it being understood and agreed that if Schedule 3.6 ------------ shall be updated as aforesaid to reflect the ownership by Tyco Parent, any of its Domestic Subsidiaries or any Additional Loan Party that is a Guarantor of a fee interest in Real Property (other than a fee interest purchased with a purchase money mortgage permitted hereunder which prohibits another Lien thereon, but only so long as the Indebtedness owing on such mortgage remains unpaid), Agent may require that the owner grant in favor of Agent a Mortgage thereon and execute and deliver or cause to be executed and delivered to Agent the type of documents, instruments and other material required by Section 3 of Annex C, all in form and substance satisfactory to Agent). Each Loan Party and - ------- each of its Subsidiaries holds (a) good and marketable fee simple title to all Real Property owned by it and described in Schedule 3.6, (b) valid and ------------ marketable leasehold interests in all of such Person's Leases (both as lessor and lessee, sublessee or assignee) described in Schedule 3.6, and (c) good and ------------ marketable title to, or valid leasehold interests in, all of its other properties and assets. None of the properties and assets of the Loan Parties and their -31- Subsidiaries are subject to any Liens, except Liens permitted by Section 6.7. ----------- Each Loan Party and its Subsidiaries has received all deeds, assignments, waivers, consents, non-disturbance and recognition or similar agreements, bills of sale and other documents, and duly effected all recordings, filings and other actions necessary to establish, protect and perfect such Loan Party's or Subsidiary's right, title and interest in and to all such real estate and other assets or property. Except as described in Schedule 3.6, (a) no Loan Party nor ------------ any of its Subsidiaries nor, to any Loan Party's knowledge, any other party to any such Lease described in Schedule 3.6 is in default of its obligations ------------ thereunder or has delivered or received any notice of default under any such Lease, and no event has occurred which, with the giving of notice, the passage of time, or both, would constitute a default under any such Lease (in each instance with respect to any such Lease (other than the Leases of the leased properties in Beaverton and Rivergate, Oregon) where the termination of such Lease would reasonably be expected to have a Material Adverse Effect); (b) no Loan Party nor any of its Subsidiaries either owns or holds, or is obligated under or a party to, any option, right of first refusal or any other contractual right to purchase, acquire, sell, assign or dispose of any Real Property owned or leased by a Loan Party or any of its Subsidiaries except as set forth in Schedule 3.6 as such Schedule may, with respect to this clause (b), be updated - ------------ from time to time without the consent of Agent or Lenders by Borrowers in a writing delivered to Agent and Lenders; and (c) no portion of any Real Property owned or leased by any Loan Party or any of its Subsidiaries has suffered any material damage by fire or other casualty loss which has not heretofore been repaired and restored to good operating condition, except as notified by Borrowers to Agent and Lenders in writing. All material permits required to have been issued or appropriate to enable the Real Property to be lawfully occupied and used for all of the purposes for which they are currently occupied and used, have been lawfully issued and are, as of the date hereof, in full force and effect. No Foreign Subsidiary of Tyco Parent owns any real or personal property in the United States. Neither Tyco Parent nor any of its Domestic Subsidiaries owns any tangible real or personal property located outside the United States. SECTION 3.7. Restrictions; No Default; Material Contracts. No contract, -------------------------------------------- lease, agreement or other instrument to which any Loan Party or any of its Subsidiaries is a party or by which it or any of its properties or assets is bound or affected and no provision of any charter, corporate restriction, applicable law or governmental regulation has resulted in or will result in a Material Adverse Effect. No Loan Party nor any of its Subsidiaries is in material default and, to each Loan Party's knowledge, no third party is in material default, under or with respect to any material contract, agreement, lease or other instrument to which any Loan Party or any of its Subsidiaries is a party. No Default has occurred and is continuing. Schedule 3.7, as ------------ supplemented from -32- time to time by written disclosures to the Agent, sets forth a complete and accurate list of all Material Contracts of each Loan Party and any Subsidiary thereof. Tyco Parent and each of its Subsidiaries is in compliance in all material respects with (i) all material license agreements to which it is a party or bound by, (ii) its obligations to make royalty payments to other Persons and (iii) the terms and conditions of its insurance coverage and policies therefor. SECTION 3.8. Labor Matters. Except as set forth in Schedule 3.8, there ------------- ------------ are no material strikes or other labor disputes against any Loan Party or any of its Subsidiaries that are pending or, to any Loan Party's knowledge, threatened. Hours worked by and payment made to employees of each Loan Party have not been in violation of the Fair Labor Standards Act or any other applicable law dealing with such matters which would have a Material Adverse Effect. All material payments due from any Loan Party or any of its Subsidiaries on account of employee health and welfare insurance have been paid or accrued as a liability on the books of such Loan Party or Subsidiary. Except as set forth in Schedule -------- 3.8, no Loan Party nor any of its Subsidiaries has any material obligation under - --- any collective bargaining agreement, management agreement, or any employment agreement, and a correct and complete copy of each agreement listed on Schedule -------- 3.8 has been provided to Agent. There is no material organizing activity - --- involving any Loan Party or any of its Subsidiaries pending or, to any Loan Party's knowledge, threatened by any labor union or group of employees. Except as set forth in Schedule 3.14, there are no material representation proceedings ------------- pending or, to any Loan Party's knowledge, threatened with the National Labor Relations Board or any similar Governmental Authority, and no labor organization or group of employees of any Loan Party or any of its Subsidiaries has made a pending demand for recognition, and, there are no material complaints or charges against any Loan Party or any of its Subsidiaries pending or threatened to be filed with any federal, state, local or foreign court, governmental agency or arbitrator based on, arising out of, in connection with, or otherwise relating to the employment or termination of employment by any Loan Party or any of its Subsidiaries of any individual. SECTION 3.9. Ventures, Subsidiaries and Affiliates; Outstanding Stock and ------------------------------------------------------------ Indebtedness. No Loan Party nor any of its Subsidiaries has any Subsidiaries - ------------ other than those Subsidiaries set forth on Schedule 3.9 as such Schedule may be ------------ updated from time to time without the consent of Agent or Lenders by Borrowers in a writing delivered to Agent and Lenders to reflect changes permitted under Sections 6.1 or 6.2 in Subsidiaries of Tyco Parent and its Subsidiaries and, - ------------ --- except as set forth in Schedule 3.9, as such Schedule may be updated from time ------------ to time without the consent of Agent or Lenders by Borrowers in a writing delivered to Agent and Lenders to reflect changes permitted under Sections 6.1 ------------ or 6.2 in joint ventures, partnerships and equity interests, no Loan Party --- -33- nor any of its Subsidiaries is engaged in any joint venture or partnership with any other Person or has any equity interest in any other Person. The Stock of each Loan Party (other than Tyco Parent) and of any Subsidiary thereof owned by each of the stockholders thereof named in Schedule 3.9 constitutes all of the ------------ issued and outstanding Stock of such Persons and all such Stock is duly and validly issued, fully paid and non-assessable. Schedule 3.9 as updated from ------------ time to time as permitted above lists the name of each Subsidiary of Tyco Parent, its jurisdiction of organization, the number of authorized and outstanding shares or interest of Stock of such Subsidiary and the owners of such Stock. Except as set forth in Schedule 3.9, there are no outstanding ------------ rights to purchase stock, options, warrants or similar rights, agreements or plans pursuant to which any Loan Party or any of its Subsidiaries may be required to issue, sell or purchase any Stock or other equity security (other than any of the foregoing created, entered into or issued by Tyco Parent after the date hereof solely with respect to the issuance or sale by Tyco Parent of its common stock). Schedule 3.9 lists all Indebtedness of each Loan Party and ------------ its Subsidiaries as of the Closing Date. SECTION 3.10. Government Regulation. No Loan Party nor any Subsidiary --------------------- thereof (a) is an "investment company" or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company," as such terms are defined in the Investment Company Act of 1940 as amended; (b) is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act or any other federal or state or foreign statute that restricts or limits such Person's ability to incur Indebtedness, pledge its assets, or to perform its obligations hereunder or under any other Loan Document, and, with respect to any Borrower, the making of the Revolving Credit Advances and the incurrence of the Letter of Credit Obligations, in each case by Lenders, the application of the proceeds and repayment thereof by Borrowers, and the consummation of the transactions contemplated by this Agreement and the other Loan Documents, will not constitute a violation by any Loan Party or any Subsidiary thereof (or to the knowledge of each Loan Party, by any other Person) of any provision of any such statute or any rule, regulation or order issued by the Securities and Exchange Commission. SECTION 3.11. Margin Regulations. No Loan Party or any Subsidiary thereof ------------------ is engaged in the business of extending credit for the purpose of purchasing or carrying Margin Stock and no proceeds of any Revolving Credit Advance will be used to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock. No Loan Party nor any Subsidiary thereof will take or permit to be taken any action which might cause any Loan Document or any document or instrument delivered pursuant hereto or thereto to violate any regulation of the Board of Governors of the Federal Reserve Board. -34- SECTION 3.12. Taxes. All federal, state, local and foreign tax returns, ----- reports and statements, including information returns (Form 1120-S) required to be filed by any Loan Party or any Subsidiary thereof, have been filed with the appropriate Governmental Authority and all Charges and other impositions shown thereon to be due and payable have been paid prior to the date on which any fine, penalty, interest or late charge may be added thereto for nonpayment thereof, or any such fine, penalty, interest, late charge or loss has been paid. Each Loan Party and each Subsidiary thereof has paid when due and payable all material Charges required to be paid by it. Proper and accurate amounts have been withheld by each Loan Party and each Subsidiary thereof from its employees for all periods in full and complete compliance with the tax, social security and unemployment withholding provisions of applicable federal, state, local and foreign law and such withholdings have been timely paid to the respective Governmental Authorities. Schedule 3.12, as such Schedule may, with respect to ------------- this sentence, be updated from time to time without (except as provided below) the consent of Agent or Lenders by Borrowers in a writing delivered to Agent and Lenders, sets forth those taxable years for which any of the tax returns of any Loan Party or any Subsidiary thereof are currently being audited by the IRS or any other applicable Governmental Authority; and any assessments or threatened assessments in connection with such audit or otherwise currently outstanding (it being understood and agreed that any update of Schedule 3.12 as aforesaid with ------------- respect to any material assessment or threatened assessment shall require the prior written consent of the Required Lenders). Except as described in Schedule -------- 3.12, as such Schedule may, with respect to this sentence, be updated from time - ---- to time without the consent of Agent or Lenders by Borrowers in a writing delivered to Agent and Lenders, no Loan Party nor any Subsidiary thereof has executed or filed with the IRS or any other Governmental Authority any agreement or other document extending, or having the effect of extending, the period for assessment or collection of any Charges. Except as described in Schedule 3.12, ------------- as such Schedule may, with respect to this sentence, be updated from time to time without the consent of Agent or Lenders by Borrowers in a writing delivered to Agent and Lenders, none of the property owned by any Loan Party or any Subsidiary thereof is property which is required to treat as being owned by any other Person pursuant to the provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended, and in effect immediately prior to the enactment of the Tax Reform Act of 1986 or is "tax-exempt use property" within the meaning of IRC Section 168(h). No Loan Party nor any Subsidiary thereof has agreed or been requested to make any adjustment under IRC Section 481(a) by reason of a change in accounting method or otherwise. No Loan Party nor any Subsidiary thereof has any obligation under any written tax sharing agreement except as described in Schedule 3.12. ------------- -35- SECTION 3.13. ERISA. ----- (a) Schedule 3.13 lists all Qualified Plans maintained or contributed ------------- to by any Loan Party, any Subsidiary thereof or any ERISA Affiliate, and separately identifies the Title IV Plans, Multi-employer Plans, multiple employer plans subject to Section 4064 of ERISA, nonqualified Pension Plans, and Retiree Welfare Plans. IRS determination letters regarding the qualified status under IRC Section 401 of each Qualified Plan (other than Multi-employer Plans) have been received as of the dates listed in Schedule 3.13. Each of the ------------- Qualified Plans (other than Multi-employer Plans) has subsequently been amended to comply with the Tax Reform Act of 1986 and to make other necessary or desirable changes. To the knowledge of each Loan Party, the Qualified Plans (other than Multi-employer Plans) as amended continue to qualify under Section 401 of the IRC, the trusts created thereunder continue to be exempt from tax under the provisions of IRC Section 501(a), and nothing has occurred which would cause the loss of such qualification or tax-exempt status. Each Qualified Plan (other than Multi-employer Plans) so amended will be submitted to the IRS for a determination letter as to the ongoing qualified status of the Plan under the IRC within the applicable IRC Section 401(b) remedial amendment period for the Tax Reform Act of 1986; and each such Plan shall be amended, including retroactive amendments, as required during such determination letter process to maintain the qualified status of such Plans. To the knowledge of each Loan Party, each Plan (other than Multi-employer Plans) is in compliance in all material respects with the applicable provisions of ERISA and the IRC, including the filing of all reports required under the IRC or ERISA which are true and correct in all material respects as of the date filed, and all required contributions and benefits have been paid in accordance with the provisions of each such Plan. Neither any Loan Party, any Subsidiary thereof nor any ERISA Affiliate, with respect to any Qualified Plan (other than Multi-employer Plans), has failed to make any contribution or pay any amount due as required by IRC Section 412 or Section 302 of ERISA. Except as set forth on Schedule 3.13, with ------------- respect to all Retiree Welfare Plans, the present value of future anticipated expenses pursuant to the latest actuarial projections of liabilities does not exceed $0 and will not exceed $1,000,000 at any time after the date hereof; with respect to Pension Plans, other than Qualified Plans and the unfunded Pension Plans listed in Schedule 3.13, and Multi-employer Plans, the present value of ------------- the liabilities for current participants thereunder using interest assumptions described in IRC Section 411(a)(ii) does not exceed $0 and will not exceed $1,000,000 at any time after the date hereof. No Loan Party nor any Subsidiary thereof has engaged in a prohibited transaction, as defined in IRC Section 4975 or Section 406 of ERISA, in connection with any Plan which would subject any Loan Party or any Subsidiary thereof (after giving effect to any exemption) to a material tax on prohibited transactions imposed by IRC Section 4975 or any other material liability. -36- (b) Except as set forth in Schedule 3.13: (i) no Title IV Plan has ------------- any Unfunded Pension Liability and will not have any such liability in excess of $1,000,000 after the date hereof; (ii) no ERISA Event or event described in Section 4062 (e) of ERISA with respect to any Title IV Plan has occurred or is reasonably expected to occur which in either case would be material; (iii) there are no pending, or to the knowledge of each Loan Party, any material threatened claims, actions or lawsuits (other than claims for benefits in the normal course), asserted or instituted against (x) any Plan or its assets, (y) any fiduciary with respect to any Plan or (z) any Loan Party, any Subsidiary thereof or any ERISA Affiliate with respect to any Plan; (iv) no Loan Party, Subsidiary thereof or any ERISA Affiliate has incurred or reasonably expects to incur any material Withdrawal Liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Section 4201 of ERISA as a result of a complete or partial withdrawal from a Multi-employer Plan; (v) within the last five (5) years no Loan Party, Subsidiary thereof or any ERISA Affiliate has engaged in a transaction which resulted in a Title IV Plan with Unfunded Pension Liabilities being transferred outside of the "controlled group" (within the meaning of Section 4001(a)(14) of ERISA) of any such entity; (vi) no Plan which is a Retiree Welfare Plan provides for continuing benefits or coverage for any participant or any beneficiary of a participant after such participant's termination of employment (except as may be required by IRC Section 4980B and at the sole expense of the participant or the beneficiary of the participant); (vii) each Loan Party, any Subsidiary thereof and each ERISA Affiliate have complied in all material respects with the notice and continuation coverage requirements of IRC Section 4980B and the proposed or final regulations thereunder; and (viii) no liability under any Plan (other than a Multi-employer Plan) has been funded, nor has such obligation been satisfied with, the purchase of a contract from an insurance company that is not rated AAA by Standard & Poor's Corporation and the equivalent by each other nationally recognized rating agency. SECTION 3.14. No Litigation. Except as set forth in Schedule 3.14, no ------------- ------------- action, claim or proceeding is now pending or, to the knowledge of each Loan Party, threatened against any Loan Party or any Subsidiary thereof, at law, in equity or otherwise, before any court, board, commission, agency or instrumentality of any federal, state, or local government or of any agency or subdivision thereof, or before any arbitrator or panel of arbitrators (a) which challenges any such Person's right, power, or competence to enter into or perform any of its obligations under the Loan Documents, or the validity or enforceability of any Loan Document or any action taken thereunder, or (b) which is reasonably likely to result in a Material Adverse Effect. To the knowledge of each Loan Party, there does not exist a state of facts which is reasonably likely to give rise to such proceedings. Except as set forth in Schedule 3.14, ------------- no Loan Party is a party to any consent decree. -37- SECTION 3.15. Brokers. No broker or finder acting on behalf of any Loan ------- Party or any Subsidiary thereof brought about the obtaining, making or closing of the credit extended pursuant to this Agreement or the transactions contemplated by the Loan Documents or the other Overall Facilities or the transactions contemplated thereby and no Loan Party or any Subsidiary thereof has any obligation to any Person in respect of any finder's or brokerage fees in connection therewith. SECTION 3.16. Patents, Trademarks, Copyrights and Licenses. Except as -------------------------------------------- otherwise set forth in Schedule 3.16, each Loan Party and each of its ------------- Subsidiaries owns all licenses, patents, patent applications, copyrights, service marks, trademarks, trademark applications and trade names which are necessary to continue to conduct its business as heretofore conducted by it, now conducted by it and proposed to be conducted by it, each of which is listed, together with, for other than common law trademarks and copyrights, United States Patent and Trademark Office application or registration numbers (or similar information for foreign registration or applications), where applicable, in Schedule 3.16, and will be updated by Borrowers or Tyco Parent not less often ------------- than once a calendar quarter to reflect any change therein. Each Loan Party and each of its Subsidiaries conducts business without infringement or claim of infringement of any license, patent, copyright, service mark, trademark, trade name, trade secret or other intellectual property right of others, except where such infringement or claim of infringement could not have or result in a Material Adverse Effect. Except as set forth in Schedule 3.16, to each Loan ------------- Party's knowledge, there is no infringement or claim of infringement by others of any material license, patent, copyright, service mark, trademark, trade name, trade secret or other intellectual property right of any Loan Party or any Subsidiary thereof. SECTION 3.17. Full Disclosure. No information contained in this --------------- Agreement, the other Loan Documents, the Financial or any written statement furnished by or on behalf of any Loan Party or any Affiliate thereof pursuant to the terms of this Agreement or any other Loan Document, which has previously been delivered to Agent or any Lender, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading in light of the circumstances under which they were made. With respect to all business plans and other forecasts and projections (including the Projections) furnished by or on behalf of Tyco Parent or any Borrower and made available to Agent or any Lender relating to the financial condition, operations, business, properties or prospects of any Borrower or other Loan Party or any Subsidiary thereof (a) all facts stated as such therein are true and complete in all material respects, (b) all facts upon which the forecasts or projections therein contained are based are true and complete in all material respects and no material fact was omitted therefrom, -38- (c) all assumptions made on that basis are reasonable under the circumstances and are disclosed therein, and (d) the forecasts or projections are reasonably based on those facts and assumptions. With respect to any such forecasts or projections made available to Agent or any Lender after the Closing Date, the foregoing clauses (a) through (d) shall be true and correct in all respects as of the date of such projections or forecasts. SECTION 3.18. Hazardous Materials. Except in the case of routine ------------------- operations in the ordinary course of business in compliance with applicable permits issued by a Governmental Authority, the Real Property is free of any Hazardous Material. Except as set forth in Schedule 3.18, there are no existing ------------- or potential environmental liabilities of any Loan Party or any of its Subsidiaries of which any Loan Party, after due inquiry, has knowledge, which could result in Environmental Liabilities and Costs in excess of $50,000 individually or $300,000 in the aggregate for Tyco Parent and its Subsidiaries. Except as set forth in Schedule 3.18, no Loan Party nor any of its Subsidiaries ------------- has caused or suffered to occur any Release at, under, above or within any Real Property or any other real property which could expose such Person to any actual or potential liability in excess of $50,000 and the aggregate actual or potential liabilities of Tyco Parent and its Subsidiaries with respect to all such Releases does not exceed $300,000. No Loan Party nor any of its Subsidiaries is involved in operations which are reasonably likely to lead to the imposition of any liability under the Environmental Laws in excess of $500,000 or any Lien on it, or any owner of any premises which it occupies, under the Environmental Laws, and no Loan Party nor any of its Subsidiaries has permitted any tenant or occupant of such premises to engage in any such activity. SECTION 3.19. Insurance Policies. Schedule 3.19 lists all insurance of ------------------ ------------- any nature maintained as of the Closing Date for current occurrences by each Loan Party and its Subsidiaries. Such insurance complies with and shall at all times comply with the standards set forth in Annex F. ------- SECTION 3.20. Deposit and Disbursement Accounts. Schedule 3.20 lists all --------------------------------- ------------- banks and other financial institutions at which any Loan Party maintains deposits and/or other accounts and/or post office lock boxes, including the Disbursement Accounts, the Concentration Account and the Blocked Accounts, and such Schedule correctly identifies the name, address and telephone number of each depository, the name in which the account is held, a description of the purpose of the account, and the complete account number. SECTION 3.21. Solvency. Each Loan Party is solvent and will not become -------- insolvent after giving effect to the transactions contemplated by this Agreement and the Receivables Funding Documents. Tyco Parent, each Borrower and Industries, after giving effect to the transactions contemplated by this Agreement and the -39- Receivables Funding Documents, will have an adequate amount of capital to conduct its business in the foreseeable future. SECTION 3.22. Inactive Subsidiaries. The aggregate book value of the --------------------- assets (other than intercompany receivables existing on the Closing Date) of all Inactive Subsidiaries does not exceed $3,000,000. The Inactive Subsidiaries do not owe indebtedness (other than intercompany indebtedness existing on the Closing Date set forth on Schedule 3.22 hereto and intercompany indebtedness ------------- incurred after the Closing Date that is permitted to be incurred under Section ------- 6.3) in excess of $2,500,000 in the aggregate for all the Inactive Subsidiaries - --- (all of which is existing on the Closing Date and, with respect to any such indebtedness owing to any Person in excess of $75,000, is set forth on Schedule -------- 3.22 hereto) nor do any of the Inactive Subsidiaries conduct any business or - ---- other activity. No assets of any Inactive Subsidiary are subject to any Liens. SECTION 3.23. Existing Credit Agreement. The Existing Credit Agreement in ------------------------- the form when executed as of June 3, 1992 was in effect on August 15, 1992 without any amendment or modification thereto. Schedule 3.23 hereto sets forth ------------- for each of the defined terms "Guarantor", "Credit Party", "Designated Subsidiary", "Inactive Subsidiary" and "Subsidiary Guarantor" (all of which are defined terms from the Existing Credit Agreement) those Subsidiaries of Tyco Parent which immediately prior to the Closing Date were included under each such defined term. No Foreign Subsidiary of Tyco Parent granted a Lien in any of its assets (other than capital stock of its Subsidiaries) to any lender (or agent therefor) under the Existing Credit Agreement. All of the capital stock of the Subsidiaries of Tyco Parent which immediately prior to the Closing Date were pledged as collateral under the Existing Credit Agreement (other than the capital stock of the borrowers under the other Overall Facilities and their respective Subsidiaries which are pledged under such facilities) are pledged as collateral to Agent under the Stock Pledge Agreement or, with respect to the pledge by certain individuals of shares of capital stock of certain Foreign Subsidiaries of Tyco Parent, under a similar pledge agreement by such individuals in favor of Agent. No Foreign Subsidiaries of Tyco Parent entered into any "Bank Agency Agreements" (as defined in the Existing Credit Agreement) pursuant to the Existing Credit Agreement. SECTION 3.24. Subordinated Debt. ----------------- (a) The Obligations of Tyco Parent and of any Loan Party which is a guarantor of any of the notes issued pursuant to the Tyco Parent Senior Subordinated Note Indenture are "Senior Indebtedness of the Company" and "Senior Indebtedness of a Guarantor" as such terms are defined in such indenture, subject, with respect to interest, to the provisos contained in such terms. The payment of the obligations of the Loan Parties under such notes -40- or any guarantees of such notes are, subject to the aforesaid provisos, junior and subordinate to the payment of the Obligations of such Loan Parties. (b) The Obligations of Tyco Parent constituting money borrowed, any guaranties given by Tyco Parent with respect to money borrowed and any interest, sums, obligations and liabilities with respect to the foregoing are "Senior Debt" as such term is defined in the First Chicago Notes. The payment of the obligations of Tyco Parent under such notes are junior and subordinate to the payment of the foregoing Obligations of Tyco Parent. SECTION 3.25. Promissory Notes and Pledge. Each loan or advance, now --------------------------- existing or hereafter made, permitted to be made hereunder by Tyco Parent or any of its Domestic Subsidiaries or an Additional Loan Party that is a Guarantor to Tyco Parent or any of its Subsidiaries and each intercompany payable now or hereafter owing to Tyco Parent or any of its Domestic Subsidiaries or an Additional Loan Party that is a Guarantor is evidenced by a promissory note, in form and substance satisfactory to Agent, which note is pledged to Agent pursuant to the Note Pledge Agreement whereby Agent has obtained a first priority perfected Lien in such promissory notes. SECTION 3.26. Certain Accounts and Inventory. All accounts purchased by ------------------------------ Industries from Manufacturing are purchased free and clear of any and all adverse claims, including any Liens in favor of Agent; it being understood and agreed that without the prior written consent of Agent, no such Lien by Agent in any such accounts shall be released for any such purchase. All Inventory purchased by Manufacturing and Industries are purchased free and clear of any and all adverse claims, including any Liens in favor of Agent. ARTICLE 4 FINANCIAL STATEMENTS AND INFORMATION SECTION 4.1. Reports and Notices. Tyco Parent and each Borrower ------------------- covenants and agrees that from and after the Closing Date and until the Termination Date, it shall deliver to Agent and each Lender the Financial Statements, Projections and notices at the times and in the manner set forth in Annex E. - ------- SECTION 4.2. Communication with Accountants. Tyco Parent (for itself and ------------------------------ each other Loan Party and its Subsidiaries) authorizes Agent and each Lender to communicate with its and each other Loan Party's and Subsidiary's independent certified public accountants and authorizes those accountants to make available to Agent and each Lender any and all financial statements and other supporting financial documents and schedules with respect to the -41- business, financial condition and other affairs of Tyco Parent and each Subsidiary thereof, in each instance, provided that Agent or such Lender shall (i) give Tyco Parent prior notice of each intended communication with such accountants and of each request to have such accountants make available to Agent or such Lender any such financial information and material and (ii) permit a representative of Tyco Parent to be present at any such communication or making available of financial information and material. At or before the Closing Date, Tyco Parent shall deliver a letter (the "Accountant's Letter") addressed to such ------------------- accountants instructing them to make available to Agent and Lenders such information and records as Agent and Lenders may reasonably request and to otherwise comply with the provisions of this Article 4. After the Closing Date, --------- if Tyco Parent or any other Loan Party or any Subsidiary thereof engages the services of accountants other than Deloitte & Touche, it shall deliver a letter addressed to such accountants containing the same terms and provisions as the Accountant's Letter. ARTICLE 5 AFFIRMATIVE COVENANTS Tyco Parent covenants and agrees (for itself and each of the other Loan Parties and any Subsidiary thereof) that, unless Required Lenders shall otherwise consent in writing, from and after the date hereof and until the Termination Date: SECTION 5.1. Maintenance of Existence and Conduct of Business. Tyco ------------------------------------------------ Parent shall (and shall cause each of its Subsidiaries to): (a) do or cause to be done all things necessary to preserve and keep in full force and effect its corporate or partnership existence, as appropriate, and its rights and franchises (except for the dissolution, liquidation or merger of Inactive Subsidiaries and other Subsidiaries of Tyco Parent permitted under Sections -------- 6.1(b) or (c)); (b) continue to conduct its business substantially as now - ------ --- conducted or as otherwise permitted hereunder; (c) at all times maintain, preserve and protect all of its material Intellectual Property, and preserve all the remainder of its property, in use or useful in the conduct of its business and keep the same in good repair, working order and condition (taking into consideration ordinary wear and tear) and from time to time make, or cause to be made, all necessary or appropriate repairs, replacements and improvements thereto consistent with industry practices, so that the business carried on in connection therewith may be properly and advantageously conducted at all times; (d) keep and maintain its Equipment and Fixtures in good operating condition sufficient for the continuation of such Person's business conducted on a basis consistent with past practices and shall provide or arrange for all maintenance and service and all repairs necessary for such purpose; -42- and (e) transact business only under the names set forth in Schedule 3.2 (unless ------------ the relevant Borrower shall provide Agent with not less than 30 days prior written notice of such Borrower's use of another name and takes such actions as Agent may reasonably request in connection therewith (including, without limitation, to execute such UCC financing statements as Agent may reasonably request)). SECTION 5.2. Payment of Charges and Claims. Tyco Parent shall (and shall ----------------------------- cause each of its Subsidiaries to) pay and discharge in accordance with the terms thereof, (A) all Charges imposed upon it or its income and profits, or any of its property (real, personal or mixed), and (B) all lawful claims for labor, materials, supplies and services or otherwise, which if unpaid might by law become a Lien on its property; provided, that Tyco Parent or any such Subsidiary -------- shall not be required to pay any such Charge or claim which is being contested in good faith by proper legal actions or proceedings, so long as at the time of commencement of any such action or proceeding and during the pendency thereof (i) no Event of Default shall have occurred and be continuing, (ii) adequate reserves with respect thereto are established and are maintained in accordance with GAAP, (iii) such contest operates to suspend collection of the contested Charges or claims and is maintained and prosecuted continuously with diligence, (iv) none of the Collateral would be subject to forfeiture or loss or any Lien by reason of the institution or prosecution of such contest, (v) no Lien shall exist, be imposed or be attempted to be imposed for such Charges or claims during such action or proceeding unless the full amount of such Charge or claim is covered by insurance satisfactory in all respects to Agent, and (vi) Tyco Parent or such Subsidiary, as appropriate, shall promptly pay or discharge such contested Charges and all additional charges, interest penalties and expenses, if any, and shall deliver to Agent evidence acceptable to Agent of such compliance, payment or discharge, if such contest is terminated or discontinued adversely to Tyco Parent or such Subsidiary, as appropriate. SECTION 5.3. Books and Records. Tyco Parent shall (and shall cause each ----------------- of its Subsidiaries to) keep adequate records and books of account with respect to its business activities, in which proper entries, reflecting all of its consolidated and consolidating financial transactions, are made in accordance with GAAP and on a basis consistent with the Financial. SECTION 5.4. Litigation. Tyco Parent and/or a Borrower shall notify ---------- Agent and each Lender in writing, promptly upon learning thereof, of any litigation, Claim or other action commenced or threatened against Tyco Parent or any of its Subsidiaries, and of the institution against any such Person of any suit or administrative proceeding which (a) is reasonably likely to involve an amount in excess of $100,000 individually or (to the extent litigation, Claims or other actions are related) in the -43- aggregate or (b) is reasonably likely to result in a Material Adverse Effect if adversely determined. SECTION 5.5. Insurance. --------- (a) Tyco Parent shall, at its (or any of its Subsidiaries') sole cost and expense maintain or cause to be maintained with respect to each Loan Party and its Subsidiaries, the policies of insurance in such amounts and as otherwise described in Annex F. Tyco Parent and/or a Borrower shall notify Agent promptly ------- of any occurrence causing a material loss or decline in value of any real or personal property and the estimated (or actual, if available) amount of such loss or decline, except as specified otherwise in Annex F. Tyco Parent and each ------- Borrower (for itself and the other Loan Parties and its Subsidiaries) hereby directs all present and future insurers under its "All Risk" policies of insurance to pay all proceeds payable thereunder directly to Agent on behalf of Lenders. Tyco Parent and each Borrower (for itself and the other Loan Parties and its Subsidiaries) irrevocably makes, constitutes and appoints Agent (and all officers, employees or agents designated by Agent) as such Person's true and lawful agent and attorney in-fact for the purpose of making, settling and adjusting claims under the "All Risk" policies of insurance, endorsing the name of such Person on any check, draft, instrument or other item of payment for the proceeds of such "All Risk" policies of insurance, and for making all determinations and decisions with respect to such "All Risk" policies of insurance. In the event Tyco Parent and/or a Borrower or other Subsidiary of Tyco Parent at any time or times hereafter shall fail to obtain or maintain (or fail to cause to be obtained or maintained) any of the policies of insurance required above or to pay any premium in whole or in part relating thereto, Agent or Lenders, without waiving or releasing any Obligations or Default or Event of Default hereunder, may at any time or times thereafter (but shall not be obligated to) obtain and maintain such policies of insurance and pay such premium and take any other action with respect thereto which Agent or Lenders deem advisable. All sums so disbursed, including reasonable attorneys' fees, court costs and other charges related thereto, shall be payable, on demand, by Tyco Parent and Borrowers (which liability is joint and several) to Agent on behalf of Lenders and shall be additional Obligations hereunder secured by the Collateral, provided, that if and to the extent Tyco Parent or Borrowers fail to promptly pay any of such sums upon Agent's demand therefor, Agent is authorized to, and at its option may, make or cause to be made Revolving Credit Advances on behalf of Borrowers for payment thereof. If, notwithstanding that all proceeds of insurance in respect of any Collateral shall be payable to Agent, any Borrower or other Loan Party or any Subsidiary thereof receives any proceeds of insurance in respect of any Collateral in respect of the policies required to be maintained under this Agreement (except for such proceeds which a Loan Party or Subsidiary thereof is permitted to retain pursuant to the last -44- sentence of Section 5.14(a) to replace, repair or restore Property as therein --------------- provided), such proceeds shall be held in trust by such Person (and Tyco Parent shall cause such Person to hold in trust such proceeds) for Agent and, unless Agent otherwise permits, shall be forthwith paid over to Agent. (b) Agent and Required Lenders reserve the right at any time, upon review of the risk profile of Tyco Parent and its Subsidiaries, to require additional forms and limits of insurance to, in Agent's or Required Lenders' sole opinion exercised in good faith, adequately protect the interests of Agent and Lenders. Tyco Parent and/or a Borrower shall, if so requested by Agent, deliver to Agent, as often as Agent may request, a report of a reputable insurance broker satisfactory to Agent with respect to its insurance policies. (c) Tyco Parent shall deliver to Agent endorsements to all of its and its Subsidiaries' (i) "All Risk" and business interruption insurance naming Agent on behalf of Lenders as loss payee, and (ii) general liability and other liability policies naming Agent and each Lender as additional insureds. SECTION 5.6. Compliance with Laws. Tyco Parent shall (and shall cause -------------------- each of its Subsidiaries to) comply with all federal, state, local and foreign laws, permits and regulations applicable to it, including those relating to licensing, environmental, ERISA and labor matters (except where the failure to so comply could not be reasonably expected to result in a Material Adverse Effect and would not be reasonably likely to subject Tyco Parent or any of its Subsidiaries to any criminal penalties (other than non-material fines) or any Lender to any civil or criminal penalties). SECTION 5.7. Agreements. Tyco Parent shall (and shall cause each of its ---------- Subsidiaries to) perform, within all required time periods (after giving effect to any applicable grace periods), all of its obligations and enforce all of its rights under each agreement, contract, instrument or other document to which it is a party, including any leases, licenses and customer contracts to which it is a party where the failure to so perform and enforce could have or result in a Material Adverse Effect. Tyco Parent shall not (and shall not suffer or permit any of its Subsidiaries to) terminate or modify any provision of any agreement, contract, instrument or other document to which it is a party which termination or modification could have or result in a Material Adverse Effect. Tyco Parent shall (and shall cause each of its Subsidiaries to) perform and comply with all of its material obligations in respect of Accounts, Chattel Paper, Contracts, Licenses, Instruments, Documents and all other agreements constituting or giving rise to Collateral. Tyco Parent shall (and shall cause each of its Subsidiaries to) take such actions or omit to take such actions so as not to cause a breach of the -45- representations and warranties made hereunder and under the other Loan Documents. SECTION 5.8. Supplemental Disclosure. On the request of Agent or any ----------------------- Lender (in the event that such information is not otherwise delivered by Tyco Parent or a Borrower to Agent or Lenders pursuant to this Agreement and not more often than once a calendar quarter unless an Event of Default has occurred and is continuing in which case no such limit shall exist), Tyco Parent will supplement (or cause to be supplemented) each Schedule hereto, or representation herein or in any other Loan Document with respect to any matter hereafter arising which, if existing or occurring at the date of this Agreement, would have been required to be set forth or described in such Schedule or as an exception to such representation or which is necessary to correct any information in such Schedule or representation which has been rendered inaccurate thereby; provided, that such supplement to such Schedule or -------- representation shall not be deemed an amendment thereof unless expressly consented to in writing by Agent and Required Lenders, and no such amendments, except as the same may be consented to in a writing which expressly includes a waiver, shall be or be deemed a waiver by Lenders of any Default disclosed therein. Tyco Parent shall, if so requested by Agent or Required Lenders, furnish to Agent and Lenders as often as they reasonably request, statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as Agent or Required Lenders may reasonably request, all in reasonable detail, and Tyco Parent shall advise Agent and Lenders promptly, in reasonable detail, of (a) any Lien, other than as permitted pursuant to Section 6.7, attaching to or asserted against any of the ----------- Collateral, (b) any material change in the composition of the Collateral, and (c) the occurrence of any other event which would have a Material Adverse Effect upon the Collateral and/or Agent's Lien thereon. SECTION 5.9. Environmental Matters. Tyco Parent shall (and shall cause --------------------- each of its Subsidiaries to) (a) comply in all material respects with the Environmental Laws and permits applicable to it, (b) notify Agent and each Lender promptly after any Loan Party or any Subsidiary thereof becomes aware of any Release upon any Real Property which is reasonably likely to result in or expose Tyco Parent or any of its Subsidiaries to actual or potential liability in excess of $50,000, and (c) promptly forward to Agent and each Lender a copy of any order, notice, permit, application, or any communication or report received by any Loan Party or any Subsidiary thereof in connection with any such Release or any other matter relating to the Environmental Laws that may affect any Real Property or any Loan Party or any Subsidiary thereof. The provisions of this Section 5.9 shall apply whether or not the Environmental Protection ----------- Agency, any other federal agency or any state or local or foreign environmental agency has taken or -46- threatened any action in connection with any Release or the presence of any Hazardous Materials. SECTION 5.10. Landlord's Agreements. Tyco Parent shall, unless otherwise --------------------- agreed to by Agent in writing, obtain or cause to be obtained a landlord's agreement, in form and substance substantially similar to those landlord agreements delivered by any Borrower to Agent (and found satisfactory by Agent) on or before the Closing Date or otherwise acceptable to Agent, from the lessor of any present or future leased premises of each Loan Party which owns any tangible property constituting Collateral located on such premises having a book value of more than $100,000. SECTION 5.11. Certain Obligations Respecting Subsidiaries. Except as ------------------------------------------- reflected on Schedule 3.9 as in effect on the Closing Date with respect to ------------ Ensueno Tyco Toys de Mexico S.A. de C.V. and Croner-Tyco Toys Pty. Ltd., Tyco Parent will, and will cause each of its Subsidiaries to, take such action from time to time as shall be necessary to ensure that each Subsidiary of Tyco Parent is a direct or indirect wholly owned Subsidiary of Tyco Parent and is owned directly or indirectly only by Tyco Parent or its Domestic Subsidiaries. SECTION 5.12. Application of Proceeds. Borrowers shall use the proceeds ----------------------- of Revolving Credit Advances as provided in Section 1.4. ----------- SECTION 5.13. Fiscal Year. Tyco Parent shall (and shall cause each of its ----------- Subsidiaries to) maintain as its Fiscal Year the calendar year. SECTION 5.14. Casualty and Condemnation. ------------------------- (a) Tyco Parent or a Borrower shall promptly notify Agent of any loss, damage, or destruction to any Collateral or any Real Property owned by any Loan Parent or any of its Subsidiaries whether or not constituting Collateral (collectively, "Property") or arising from its use, whether or not covered by -------- insurance; provided that no such notice is necessary with respect to the loss, -------- damage or destruction from a single casualty of any Collateral or Real Property with a value of less than $100,000. Agent on behalf of Lenders is hereby authorized to adjust losses and collect all insurance proceeds directly. If, notwithstanding the provisions hereof which require that Agent be the sole loss payee, a check or other instrument from an insurer is made payable to any Loan Party or any Loan Party and Agent jointly, Agent may endorse such Loan Party's name thereon and take such other action as Agent may elect to obtain the proceeds thereof. After deducting from such proceeds the expenses, if any, incurred by Agent in the collection or handling thereof, Agent may apply such proceeds to the reduction of the Obligations in the manner set forth in Section ------- 1.12 or, at Agent's option in its sole discretion, may permit or require the - ---- -47- relevant Loan Party to use such proceeds, or any part thereof, to replace, repair or restore such Property as provided in paragraph (d) below (it being agreed by Agent that so long as no Default or Event of Default shall be continuing, the relevant Loan Party shall be entitled to use such money (or such lesser amount thereof as shall be necessary) to replace, repair, restore or rebuild such Property as provided in paragraph (d) below where the amount of such moneys on account of a single event of loss, damage or destruction is less than $250,000 and it is reasonably expected that such replacement, repair, restoration or rebuilding can be completed within six months after the loss, damage or destruction (and if not completed by the end of such six-month period, the remaining monies shall be delivered to Agent to be applied to the payment of the Obligations)). (b) Tyco Parent shall, promptly upon Tyco Parent or any of its Subsidiaries learning of the institution of any proceeding for the condemnation or other taking of any of its Property, notify Agent of the pendency of such proceeding, and agrees that Agent may participate in any such proceeding and Tyco Parent from time to time will deliver (or cause to be delivered) to Agent all instruments reasonably requested by Agent to permit such participation. Agent shall (and is hereby authorized to) collect any and all awards, payments or other proceeds of any such condemnation or taking and apply such proceeds to the reduction of the Obligations in the manner set forth in Section 1.12 or, at ------------ Agent's option in its sole discretion, may permit or require the relevant Loan Party to use such proceeds, or any part thereof, to replace, repair or restore such Property as provided in paragraph (d) below. (c) Subject to the terms and conditions hereof (including Section ------- 2.2), after application of the proceeds of any loss or taking of any Loan - --- Party's Property to the reduction of the Obligations pursuant to paragraphs (a) and (b) above, Borrower may borrow Revolving Credit Advances for the purpose of replacing, repairing or restoring any Property subject to such loss or taking in accordance with paragraph (d) below. (d) Any Property which is to be replaced, repaired or restored pursuant to paragraph (a), (b) or (c) above shall be replaced, repaired or restored pursuant to such terms and conditions as Agent may reasonably require and with materials and workmanship of substantially as good a quality as existed before such loss or taking, and the relevant Loan Party shall commence such replacement, repair or restoration as soon as practicable and proceed diligently with it until completion to Agent's satisfaction. Tyco Parent or a Borrower shall provide to Agent written progress reports, other information and evidence of its compliance with the foregoing. -48- SECTION 5.15. Currency Hedging. Tyco Parent shall maintain at all times ---------------- operations and personnel therefor to monitor currency exchange rate changes applicable to the business of the Loan Parties and to engage in prudent currency hedging activities to protect the Loan Parties from changes to such exchange rates, all in manner reasonably acceptable to the Agent. SECTION 5.16. Additional Subsidiaries. Promptly upon any Person becoming ----------------------- an Additional Loan Party, Tyco Parent or any Borrower shall so notify Agent and Lenders thereof and, unless otherwise agreed to in writing by Agent, shall (i) cause such Person to become a guarantor under the Guaranty and a grantor of Liens under the Security Agreement, Note Pledge Agreement, Stock Pledge Agreement and the Patent, Trademark and Copyright Assignment, all pursuant to documentation in form and substance satisfactory to Agent and cause such Person to execute and deliver such other Collateral Documents as Agent may reasonably require to obtain a Lien on all the assets, now or hereafter existing, of such Person, (ii) cause all of the capital stock of such Person to be delivered to Agent (together with undated stock powers signed in blank) and pledged to Agent (for the ratable benefit of the Lenders) pursuant to the Stock Pledge Agreement by the owner(s) of such capital stock, (iii) cause such Person to enter into a Blocked Account Agreement (executed in each case by the applicable depository bank or other financial institution) and (iv) cause to be executed and delivered to Agent (A) to the extent required by Section 5.10 hereof, appropriate ------------ landlord's agreements with respect to any lease of real property to which such Person is a party and (B) such other documentation as Agent may reasonably request in connection with the foregoing, including, without limitation, appropriate UCC-1 financing statements, stock certificates and stock powers, certified corporate resolutions and other corporate documents of such Person and favorable opinions of counsel to such Person (which shall cover, among other things, the legality, validity, binding effect and enforceability of the documentation referred to above), all in form, content and scope satisfactory to Agent. The foregoing shall not constitute a consent by Agent or any Lender to the creation or acquisition of any Subsidiary. Agent and Tyco Parent shall use their best efforts to structure any guaranties and security documentation required by this Section 5.16 by any Additional Loan Party that is a Foreign ------------ Subsidiary of Tyco Parent and any pledge required by this Section 5.16 of the ------------ capital stock of such Foreign Subsidiary to avoid adverse tax consequences to such Foreign Subsidiary or its parent corporation. SECTION 5.17. Interest Rate Hedging. Tyco Parent shall, and shall cause --------------------- each of its Subsidiaries to, within 60 days after the date hereof amend, modify or terminate all interest hedging agreements involving Tyco Parent or any of its Subsidiaries which are existing on the date hereof to the extent necessary so that after giving effect to any such amendment, modification or -49- termination all such agreements existing on such 60th day shall be reasonably satisfactory to the Agent. SECTION 5.18. Further Assurances. Tyco Parent shall, and shall cause each ------------------ of its Subsidiaries to, at its cost and expense, upon request of Agent, duly execute and deliver, or cause to be duly executed and delivered, to Agent such further instruments and do and cause to be done such further acts as may be necessary or proper in the reasonable opinion of Agent to carry out more effectually the provisions and purposes of this Agreement or any other Loan Document. ARTICLE 6 NEGATIVE COVENANTS Tyco Parent covenants and agrees (for itself and each of its Subsidiaries) that, without the Required Lenders' prior written consent, from and after the date hereof and until the Termination Date: SECTION 6.1. Mergers, Subsidiaries, Etc. Tyco Parent shall not (and --------------------------- shall not suffer or permit any of its Subsidiaries to), directly or indirectly, by operation of law or otherwise, merge with, consolidate with, acquire all or substantially all of the assets or capital stock of, or otherwise combine with, any Person or, except for the creation of the Receivables Funding Subsidiary or as permitted by Section 6.2(e), form or acquire any Subsidiary; provided, that: -------------- -------- (a) so long as no Event of Default shall be continuing at the time or would result therefrom, (i) Matchbox Toys Pty. Ltd. may acquire from Croner Trading Pty. Ltd. the 25% interest of such Person in Croner-Tyco Toys Pty. Ltd. as, when and on the terms required pursuant to Section 6.1 of the Shareholders Agreement, dated November 17, 1992, among Matchbox Toys Pty. Ltd., Croner Trading Pty. Ltd., Tyco Parent, John Victor Hunter and Pamela Jean Hunter as in effect on the date hereof and (ii) Industries may acquire from Billy and Jaime Kopchinsky the 25% interest of such Persons in Ensueno Tyco Toys de Mexico S.A. de C.V. as, when and on the terms required pursuant to Section 7.1 of the Shareholders Agreement, dated April 30, 1993, among Tyco Parent, Industries and such Persons as in effect on the date hereof; (b) any Inactive Subsidiary may be liquidated or dissolved or merged into Industries or a Foreign Subsidiary of Tyco Parent (but only if such Inactive Subsidiary shall not have incurred any indebtedness after the Closing Date, and View-Master Ideal (UK) Limited and Tyco Toys (Italy) S.p.A. may only be liquidated, dissolved or merged into Industries); and -50- (c) the distributions, capital contributions, liquidations, dissolutions and mergers described in Schedule 6.1(c) shall be permitted subject --------------- to compliance with the terms and conditions therefor described in such Schedule -------- 6.1(c). - ------ SECTION 6.2. Investments. Tyco Parent shall not (and shall not suffer or ----------- permit any of its Subsidiaries to), directly or indirectly, make or maintain any Investment except: (a) as otherwise permitted by Section 6.3 or 6.4; ----------- --- (b) Investments outstanding on the date hereof and listed in Schedule -------- 6.2, but not any additional investments therein except as otherwise expressly - --- permitted hereunder; (c) cash and Cash Equivalents; provided, that (i) so long as there -------- shall remain outstanding any principal owing on the Revolving Credit Loan, the aggregate amount of cash and Cash Equivalents of Tyco Parent and its Subsidiaries shall not exceed $21,000,000 (the foregoing $21,000,000 limitation to be tested on the last day of each Fiscal Month (or within two (2) Business Days after such testing day with respect to such testing day) or more often during such Fiscal Month if Tyco Parent or any Borrower is then aware of the aggregate amount of cash and Cash Equivalents of Tyco Parent and its Subsidiaries, and if such cash and Cash Equivalents shall at any such time exceed such $21,000,000 limit while there remains outstanding any principal owing on the Revolving Credit Loan, such excess shall be eliminated within two (2) Business Days after the relevant testing day) and (ii) all Cash Equivalents of Tyco Parent and any of its Subsidiaries which are either Domestic Subsidiaries or Additional Loan Parties that are Guarantors (to the extent the aggregate value of such Cash Equivalents exceeds $100,000 at any time) shall be pledged to Agent pursuant to a pledge agreement in form and substance satisfactory to Agent whereby Agent shall obtain a first priority perfected Lien in such Cash Equivalents; (d) the acquisition by Matchbox Toys Pty. Ltd. of interests in Croner- Tyco Toys Pty. Ltd. and the acquisition by Industries of Ensueno Tyco Toys de Mexico S.A. de C.V., in each instance so long as permitted by clause (a) of Section 6.1; - ----------- (e) capital contributions by a Loan Party not to exceed $500,000 in the aggregate for all Loan Parties during the entire term of this Agreement to Subsidiaries of Tyco Parent not existing on the Closing Date created to perform sales and marketing functions in territories not previously served directly by a Loan Party; (f) capital contributions by Industries to the Receivables Funding Subsidiary of Accounts created by Industries pursuant to and as contemplated by the Receivables Sale Agreement -51- so long as no Termination Event (as defined in the Receivables Funding Agreement) is continuing; and (g) the Investments described in Schedule 6.1(c) subject to compliance --------------- with the terms and conditions therefor described in such Schedule 6.1(c). --------------- SECTION 6.3. Indebtedness. Tyco Parent shall not (and shall not suffer ------------ or permit any of its Subsidiaries to) create, incur, assume or permit to exist any Indebtedness, except: (a) the Obligations; (b) Deferred Taxes; (c) purchase money Indebtedness secured by purchase money Liens permitted under clause (d) of Section 6.7 (and refinancings of such purchase ----------- money Indebtedness permitted by such clause (d)); (d) Indebtedness under the other Overall Facilities; (e) Indebtedness incurred by the Receivables Funding Subsidiary under the Receivables Funding Agreement and Indebtedness of Industries and Manufacturing to the Receivables Funding Subsidiary representing loans by the Receivables Funding Subsidiary to such Persons as provided in the respective Receivables Sale Agreement; (f) Indebtedness which constitutes Guaranteed Indebtedness permitted under Section 6.6; ----------- (g) Indebtedness of Manufacturing owing to GP Portland Limited Partnership I under that certain Lease Agreement, dated as of March 23, 1992, between Manufacturing, as lessee, and GP Portland Limited Partnership I, as lessor; (h) Indebtedness under currency exchange agreements, currency futures or currency options permitted under the parenthetical in Section 6.18; ------------ (i) Indebtedness of any direct or indirect Foreign Subsidiary of Tyco Parent (other than TOMCO I and other than any Inactive Subsidiary) incurred in the ordinary course of such Person's business for the purpose of satisfying the working capital and trade finance needs of such Person and which does not (together with the outstanding principal amount of the Indebtedness permitted pursuant to clause (j) below owing by Foreign Subsidiaries of Tyco Parent plus ---- the outstanding principal amount of the Indebtedness owing under the other Overall Facilities) exceed a principal amount of $80,000,000 in the aggregate for all such Persons at any time outstanding; -52- (j) other Indebtedness set forth in Schedule 3.9, but not (I) any ------------ increase in the amount of any thereof or (II) any refinancing or refunding of any thereof; (k) Indebtedness of Tyco Parent constituting pay-in-kind interest owing under the First Chicago Notes; (l) Indebtedness under interest rate protection agreements which have terms that are acceptable to Agent; (m) reimbursement obligations of Industries in an aggregate amount not to exceed $370,000 with respect to drawings which may be made after the Closing Date under the letter of credit issued under the Existing Credit Agreement prior to the Closing Date that is to remain outstanding after the Closing Date, but only if the expiration date of such letter of credit is not extended and the undrawn amount thereof is not increased; and (n) unsecured Indebtedness of Tyco Parent incurred after the Closing Date which (x) by its express terms is subordinated to the payment of the Obligations of Tyco Parent, (y) has terms and provisions (including, without limitation, as to principal amount, interest rate, covenants, events of default and subordination) as are acceptable to Agent and (z) is not guaranteed in any manner by any Subsidiaries of Tyco Parent. Notwithstanding anything to the contrary set forth in this Section 6.3 ----------- or any other provision of this Agreement, the Loan Parties agree that (i) Tyco Investment and TOMCO I shall not contract, create, incur, assume or permit to exist any Indebtedness except for Indebtedness arising under this Agreement or under any other Loan Document to which such Person is a party, (ii) Distribution shall not contract, create, incur, assume or permit to exist any Indebtedness except for Indebtedness arising under this Agreement or any other Loan Document to which Distribution is a party, (iii) Manufacturing shall not contract, create, incur, assume or permit to exist any Indebtedness except for (A) Indebtedness arising under this Agreement or any other Loan Document to which Manufacturing is a party and (B) Indebtedness to GP Portland Limited Partnership I under that certain Lease Agreement, dated as of March 23, 1992, between Manufacturing, as lessee, and GP Portland Limited Partnership I, as lessor and (iv) Tyco Hong Kong shall not contract, create, incur, assume or permit to exist any Indebtedness if as a result thereof the aggregate principal amount of all Indebtedness of Tyco Hong Kong at such time would exceed $10,000,000. Notwithstanding anything to the contrary set forth in this Agreement, Manufacturing shall not contract, create, incur, assume or permit to exist any indebtedness or obligations in excess of $5,000,000 relating to the purchase of raw materials in the ordinary course of business for use in the manufacturing operations of Manufacturing. -53- SECTION 6.4. Affiliate and Employee Loans and Transactions. Tyco Parent --------------------------------------------- shall not (and shall not suffer or permit any of its Subsidiaries to) enter into any lending, borrowing or other commercial transaction with any of its Subsidiaries, Affiliates, officers, directors, shareholders or employees, including payment of any management, consulting, advisory or similar fee; provided, that: - -------- (a) Manufacturing, Industries and the Receivables Funding Subsidiary may enter into and perform the Receivables Funding Documents; provided that -------- sales, transfers, capital contributions and other dispositions by Industries or Manufacturing to the Receivables Funding Subsidiary of Accounts as therein contemplated shall only be permitted so long as no Termination Event (as defined in the Receivables Funding Agreement) is continuing; (b) (1) Industries may purchase Inventory from Distribution, (2) any Borrower may purchase Inventory from Tyco Hong Kong, (3) Distribution may purchase Inventory from Manufacturing, (4) any Borrower or any Foreign Subsidiary of Tyco Parent may purchase goods from Taiyo Kogyo Co, Ltd., a Japanese joint stock corporation, and (5) Tyco Hong Kong may purchase Inventory from Shanghai Universal Plastic Toys Co., Ltd., Shanghai Universal Printing Co., Ltd., Shanghai Universal Toys Co., Ltd., Guangzhaou Unitoys Tooling, Ltd., Universal International (Thailand) Co., Ltd. and Universal (Printing) Investment Co. Ltd.; provided that each such transaction under this clause (b) is in the ordinary course of business of Industries, Distribution, Manufacturing or other Subsidiary of Tyco Parent, as the case may be, and is on terms and conditions substantially as favorable to Industries, Distribution, Manufacturing or such other Subsidiary of Tyco Parent, as the case may be, as would be obtainable by it in a comparable arms-length transaction or agreement with a wholly independent third party; (c) Industries may purchase accounts from Manufacturing; (d) Tyco Parent or any of its Subsidiaries may enter into transactions (other than the transactions in clauses (b) and (c) above) with any of Tyco Parent or its Subsidiaries, Affiliates, directors or shareholders (but in no event with its or any Affiliate's employees or officers) in the ordinary course of such Person's business on terms and conditions substantially as favorable to such Person as would be obtainable by it in a comparable arms-length transaction with a Person other than an officer, employee, director, shareholder or Affiliate of such Person, provided that the sum of (i) the aggregate cost to all -------- such Persons of property and assets purchased in any such transactions plus (ii) ---- the aggregate amounts outstanding at any time which are borrowed, loaned or otherwise distributed by such Persons in any such transactions, would not exceed $10,000,000; -54- (e) any Borrower may make loans, advances and other distributions with proceeds of Revolving Credit Advances and with proceeds from the sale by Manufacturing of its Accounts pursuant to its Receivables Sale Agreement, in each instance, to any Subsidiary of Industries that is a Guarantor and to Industries (but only for Industries' own working capital needs) and Industries may make loans, advances and other distributions with proceeds received by Industries from the sale of its Accounts pursuant to its Receivables Sale Agreement to any Subsidiary of Industries that is a Guarantor; (f) Tyco Parent may make capital contributions to Industries of funds obtained by Tyco Parent through the issuance of common stock of Tyco Parent which does not result in a Change of Control; (g) a Loan Party may transfer (including, without limitation, by capital contribution) to Tyco Investment Intellectual Property of such Loan Party, provided that Agent shall be satisfied that it continues to hold a valid -------- and perfected, first-priority Lien in such Intellectual Property after giving effect to such transfer; (h) Tyco Parent may grant stock options for common stock of Tyco Parent pursuant to an existing stock option plan or agreement duly adopted by the board of directors of Tyco Parent which is described on Schedule 3.9; ------------ (i) any Loan Party may make loans and advances to its officers and employees for the purpose of assisting in relocations or in the exercise of stock options by such officers or employees with respect to the common stock of Tyco Parent, provided that the aggregate outstanding principal amount of all -------- such loans and advances shall not exceed $3,000,000 at any time; (j) unsecured loans by Subsidiaries of Tyco Parent to Tyco Parent or its other Subsidiaries in an aggregate outstanding principal amount not to exceed $2,000,000 at any time; (k) to the extent permitted by Section 6.8; and ----------- (l) any Subsidiary of Tyco Parent may pay royalty and management fees to Industries or a direct or indirect parent corporation of such Subsidiary obligor so long as the fee payable by any Subsidiary of Tyco Parent shall be based solely upon a percentage of such Subsidiary's net sales (such percentage to be uniform among all Subsidiaries of Tyco Parent which are paying any management or royalty fee and not in any event to exceed 7.5%, the percentage in effect on the Closing Date). Notwithstanding anything to the contrary set forth in this Section ------- 6.4, no Loan Party will (nor will it permit any of its - --- -55- Subsidiaries to) make any capital contributions to or other investments in (other than (1) transactions permitted under clauses (a), (b) and (c) above, (2) Investments outstanding on the date hereof and listed in Schedule 6.2 and (3) ------------ capital contributions to Tyco Investment of Intellectual Property permitted under clause (g) above), or provide any guarantees of or other support for any financing of (other than Guaranteed Indebtedness permitted under Section 6.6), ----------- any Designated Subsidiary. Set forth in Schedule 6.4 is a list of all such lending, borrowing or ------------ other commercial transactions existing or outstanding as of the Closing Date. SECTION 6.5. Capital Structure and Business. Except as permitted under ------------------------------ Section 5.1, Tyco Parent shall not (and shall not suffer or permit any of its - ----------- Subsidiaries to): (a) make any changes in its business objectives, purposes, or operations which could in any way adversely affect the repayment of the Obligations or have or result in a Material Adverse Effect; (b) make any change in its capital structure as described in Schedule -------- 3.9 and Schedule 6.3 (including the issuance or recapitalization of any shares - --- ------------ of Stock or other securities convertible into Stock or any revision of the terms of its outstanding Stock) except (i) for the issuance by Tyco Parent of additional shares of its common stock, (ii) for the issuance by Tyco Parent of additional shares of preferred stock having terms and provisions acceptable to Agent and (iii) as permitted under Section 6.15(a), in each instance under --------------- clauses (i), (ii) and (iii) above, so long as no Change of Control shall result therefrom, and (iv) for the issuance of the Junior Preferred Stock in accordance with the terms of the Rights Agreement; (c) amend its articles of incorporation, charter, bylaws or other organizational documents in any manner which is reasonably likely to adversely affect the interests of Lenders (but in no event shall any such amendment authorize any preferred stock or restrict the powers or purposes of Tyco Parent or any of its Subsidiaries); or (d) engage in any business other than the business currently engaged in by such Person and any related toy or collectibles business. SECTION 6.6. Guaranteed Indebtedness. Tyco Parent shall not (and shall ----------------------- not suffer or permit any of its Subsidiaries to) incur any Guaranteed Indebtedness except: (a) by endorsement of instruments or items of payment for deposit to the general account of such Person; -56- (b) for performance bonds or indemnities entered into in the ordinary course of business consistent with past practices; (c) for any Guaranties by Loan Parties of all or any portion of the Obligations; (d) guaranties of Indebtedness incurred under the other Overall Facilities; (e) unsecured Guaranteed Indebtedness of Tyco Parent to support the Indebtedness permitted under Section 6.3(i); provided that the aggregate amount -------------- -------- of such Guaranteed Indebtedness, together with the aggregate amount of Guaranteed Indebtedness under clause (f) below where the primary obligor is a Foreign Subsidiary of Tyco Parent, shall not exceed $70,000,000 for Tyco Parent and its Subsidiaries at any one time outstanding; (f) the existing unsecured Guaranteed Indebtedness set forth on Schedule 6.6 hereto, but the amount of any thereof not to exceed the respective - ------------ amounts set forth on such Schedule 6.6; and ------------ (g) for any guaranty by a Receivables Funding Subsidiary of the obligations of the other Receivables Funding Subsidiary under the Receivables Funding Documents. SECTION 6.7. Liens. Tyco Parent shall not (and shall not suffer or permit ----- any of its Subsidiaries to) create or permit to exist any Lien on any of its properties or assets except for: (a) presently existing or hereafter created Liens in favor of Agent or Lenders to secure the Obligations (including to secure the obligations of any Guarantor under any Guaranty); (b) Liens set forth in Schedule 6.7 existing on the Closing Date, but ------------ not any increase in the amount secured by any such Liens or the coverage thereof to other property or assets; (c) Permitted Encumbrances; (d) purchase money mortgages or other purchase money Liens and Capital Leases (including, without limitation, finance leases) granted after the date hereof upon any fixed or capital assets hereafter acquired, or Liens (including, without limitation, finance leases) on any such assets hereafter acquired or existing at the time of acquisition of such assets, whether or not assumed, so long as (v) any such Lien does not extend to or cover any other asset of any Loan Party or any of its Subsidiaries, (w) such Lien secures the obligation to pay the purchase price of such asset (or the obligation under such capital or finance lease) only, (x) the principal amount secured by each such Lien does not exceed the unpaid purchase price for such asset, (y) the aggregate amount of Indebtedness secured by such purchase money Liens and Capital -57- Leases shall not at any time exceed (together with the Indebtedness secured by any purchase money Liens and Capital Leases permitted under clause (b) above and any Indebtedness permitted below in this clause (d) to refinance purchase money Indebtedness) $10,000,000, and (z) such fixed or capital asset, if Equipment, is not a component, part or accessory installed on, or an accession, addition or attachment to, any other Equipment or other personal property of a Loan Party or an Affiliate of any thereof (except other Equipment on which a security interest exists in favor of Agent under clause (a) above), and Liens to secure any refinancing of the purchase money Indebtedness permitted under this clause (d) and under clause (b) above so long as (x) the Indebtedness refinancing such purchase money Indebtedness does not exceed the outstanding principal amount of the Indebtedness being refinanced,(y) the Lien securing such new Indebtedness secures only such Indebtedness and does not extend to or cover any asset other than the asset secured by the refinanced Indebtedness and (z) the terms of such new Indebtedness are no less favorable to the Loan Party or its Subsidiary owing same as the terms of the Indebtedness being refinanced; (e) in the case of the Receivables Funding Subsidiary, Liens created under or pursuant to the Receivables Funding Documents; (f) Liens granted pursuant to the other Overall Facilities; (g) with respect to other than Tyco Investment, TOMCO I, the Inactive Subsidiaries and Almat Toy Company, good faith deposits to secure performance of performance and return money bonds incurred in the ordinary course of business; provided, that the aggregate amount of such deposits shall not exceed $500,000 - -------- at any one time; and (h) cash collateral delivered to NationsBank, N.A. (Carolinas), formerly known as NationsBank of North Carolina, N.A., in an aggregate amount not to exceed $388,000 to secure the reimbursement obligations of Industries with respect to drawings which may be made under the letter of credit issued under the Existing Credit Agreement prior to the Closing Date that is to remain outstanding after the Closing Date. SECTION 6.8. Sale of Assets. Tyco Parent shall not (and shall not suffer -------------- or permit any of its Subsidiaries to) sell, transfer, convey, assign or otherwise dispose of any of its assets or properties, including any Collateral; provided, that the foregoing shall not prohibit: - -------- (a) the sale by Manufacturing or Industries of its Accounts to the Receivables Funding Subsidiary pursuant to and in accordance with the Receivables Sale Agreement; provided, that no -------- -58- such sales shall be permitted so long as a Termination Event (as defined in the Receivables Funding Agreement) is continuing; (b) the sale of Inventory in the ordinary course of business (including, in any event, sales of Inventory by Distribution to Industries or by Manufacturing to Distribution consistent with historical practices but subject to Section 6.22); (c) the sale or disposition of any Equipment or Intellectual Property which, in each instance, has become no longer useful, obsolete or surplus to the business of any Loan Party or any Subsidiary thereof; (d) (x) the sale, lease, transfer or other disposition of assets and properties by any Subsidiary of Tyco Parent to Tyco Parent or any of its other Subsidiaries in the ordinary course of business for fair consideration or (y) the sale, lease, transfer or other disposition by any one or more Subsidiaries of Tyco Parent of other assets and property having an aggregate purchase or sale price or fair market value, whichever is greater, not in excess for each such Subsidiary of $100,000 in any Fiscal Year; and (e) the sale of any of the Inactive Subsidiaries to one or more Persons each of which is not an Affiliate of Tyco Parent or any of its Subsidiaries (but only after all intercompany debt owed by it has been paid in full and all intercompany debt owed to it has been paid in full or forgiven). Notwithstanding anything herein or in any other Loan Document to the contrary, any assets and property permitted to be sold, assigned or otherwise transferred hereunder by Tyco Parent or any of its Subsidiaries to any other of Tyco Parent or any of its Subsidiaries which immediately prior to such sale, assignment or transfer was subject to the Lien of the Agent therein shall continue to be subject to such Lien after such sale, assignment or transfer (and such sale, assignment or transfer shall be made subject to such Lien); provided, that (i) -------- Liens in favor of Agent on Inventory sold by any Borrower to Industries or Manufacturing (or by any Subsidiary of Tyco Parent which has granted a Lien therein in favor of Agent to Manufacturing or Industries) shall be released upon the sale of such Inventory in the ordinary course of business for fair consideration to a Person which is not an Affiliate of Tyco Parent or any of its Subsidiaries so long as no Termination Event (as defined in the Receivables Funding Agreement) is continuing (the Agent retaining a Lien in the proceeds of such sale, subject to the terms of the Intercreditor Agreement), (ii) Liens in favor of Agent on Accounts sold or transferred by Manufacturing or Industries to the Receivables Funding Subsidiary in accordance with the Receivables Funding Documents shall be released to the extent provided in the Intercreditor Agreement and (iii) Liens in favor of Agent on other Collateral sold or transferred on an intercompany basis as provided above shall (if -59- such intercompany sale or transfer is permitted hereunder) be released upon a sale of such Collateral permitted hereunder for fair consideration to a Person which is not an Affiliate of Tyco Parent or any of its Subsidiaries and the application of the net cash proceeds from such sale to the payment of the Obligations. All tangible assets and property sold, assigned or transferred on an intercompany basis for which the Lien of Agent shall continue after such sale, assignment or transfer as provided above shall, until the Lien of Agent is released as provided above, remain in the states of the United States where Agent has filed appropriate UCC financing statements in order to continue the perfection of its Lien after such sale, assignment or transfer and maintain the status of such Lien as a first-priority perfected Lien in such assets and property, except that Inventory sold by Industries to Foreign Subsidiaries of Tyco Parent in the ordinary course of business shall not be subject to such location restriction if immediately prior to such sale, assignment or transfer such Inventory was not utilized in determining the Borrowing Base of any Borrower and there shall have been no requirement under Section 1.3(b) to repay -------------- any Revolving Credit Advances or provide cash collateral. SECTION 6.9. Material Contracts. Tyco Parent shall not (and shall not ------------------ suffer or permit any of its Subsidiaries to) (a) cancel or terminate any Material Contract or amend or otherwise modify any Material Contract, or waive any default or breach under any Material Contract, in each instance except in the ordinary course of business, but only so long as (i) Tyco Parent determines that it is in the best interests of Tyco Parent and, if applicable, the relevant Subsidiary to do so, (ii) at the time of such action no Event of Default is continuing, and (iii) such action is not being taken with respect to any Material Contract restricted under Section 6.24 or (b) take any other action in ------------ connection with any Material Contract that would have a Material Adverse Effect. SECTION 6.10. ERISA. Neither any Loan Party nor any Subsidiary thereof ----- nor any ERISA Affiliate shall acquire any new ERISA Affiliate that maintains or has an obligation to contribute to a Pension Plan that has either a material "accumulated funding deficiency," as defined in Section 302 of ERISA, or material "unfunded vested benefits," as defined in Section 4006(a)(3)(E)(iii) of ERISA in the case of any Pension Plan other than a Multi-employer Plan and in Section 4211 of ERISA in the case of a Multi-employer Plan. Additionally, neither any Loan Party nor any Subsidiary thereof nor any ERISA Affiliate shall: (a) permit or suffer any condition set forth in Schedule 3.13 to cease to be met ------------- and satisfied at any time; (b) terminate any Pension Plan that is subject to Title IV of ERISA where such termination could reasonably be anticipated to result in material liability to any Loan Party or any of its Subsidiaries, (c) permit any material accumulated funding deficiency, as defined in Section 302(a)(2) of ERISA, to be incurred with respect to any Pension Plan; (d) fail to -60- make any material contributions or fail to pay any material amounts due and owing as required by the terms of any Plan before such contributions or amounts become delinquent (or shall correct such failure within 30 days of the time such contribution or amount was due); (e) make a complete or partial withdrawal (within the meaning of Section 4201 of ERISA) from any Multi-employer Plan that would cause such Loan Party, Subsidiary or ERISA Affiliate to incur material withdrawal liability; or (f) at any time fail to provide Agent and any Lender with copies of any Plan documents or governmental reports or filings, if reasonably requested by Agent or any Lender. SECTION 6.11. Financial Covenants. Tyco Parent shall not breach or fail ------------------- to comply with any of the financial covenants set forth in Annex H, each of ------- which shall be calculated in accordance with GAAP consistently applied (and based upon the financial statements delivered hereunder). SECTION 6.12. Hazardous Materials. Except as set forth in Schedule 3.18, ------------------- ------------- Tyco Parent shall not and shall not suffer or permit any of its Subsidiaries or any other Person within the control of Tyco Parent: (a) to cause or permit a Release of Hazardous Material on, under in or about any Real Property (except where such Release is not reasonably likely to expose Tyco Parent and its Subsidiaries to actual and potential liability for all such Releases in excess of $500,000; (b) to use, store, generate, treat or dispose of Hazardous Materials, except in compliance in all material respects with Environmental Laws; or (c) to transport any Hazardous Materials to or from any Real Property, except in compliance in all material respects with Environmental Laws. SECTION 6.13. Sale-Leasebacks. Tyco Parent shall not (and shall not --------------- suffer or permit any of its Subsidiaries to) engage in any sale-leaseback or similar transaction involving any of its property or assets; provided, however, -------- ------- that this Section 6.13 shall not be deemed to prohibit any transaction involving ------------ a transfer of Intellectual Property by any Loan Party to Tyco Investment permitted under Section 6.4 and a corresponding taking back by such Loan Party ----------- from Tyco Investment of a royalty license agreement with respect to such Intellectual Property. SECTION 6.14. Cancellation of Indebtedness. Tyco Parent shall not (and ---------------------------- shall not suffer or permit any of its Subsidiaries to) cancel any claim or Indebtedness owing to it, except for reasonable consideration and in the ordinary course of its business, or make any payment or prepayment of principal of or interest on or otherwise with respect to, or purchase, defease, acquire or redeem, any Indebtedness (other than under the Overall Facilities) or make any deposit in respect thereof or give notice in respect thereof, provided, however, -------- ------- that (i) Tyco Parent and its Subsidiaries may make regular, scheduled mandatory payments on Indebtedness (other than the Indebtedness evidenced or governed by -61- any of the Subordinated Debt Documents) which is permitted to be outstanding under the terms hereof when and as due and payable, (ii) Tyco Parent may make regular, scheduled mandatory payments of interest when and as due and payable with respect to the Indebtedness evidenced or governed by any of the Subordinated Debt Documents in the form as in effect on the date hereof or as amended with the prior written consent of the Required Lenders (so long as any such payment is not prohibited under the provisions of the relevant Subordinated Debt Documents, including, without limitation, the subordination provisions thereunder), (iii) any of Tyco Parent or any of its Subsidiaries may make optional or voluntary payments or prepayments on loans and advances owing to either Borrower, or, if owing by other than any Borrower, to Industries which is permitted to be outstanding under the terms hereof so long as the Revolving Credit Loan is concurrently prepaid in the amount of such payment or prepayment, and (iv) so long as no Default or Event of Default is continuing or would result therefrom (unless otherwise agreed to in writing by Agent), Subsidiaries of Tyco Parent may make any optional or voluntary payments or prepayments on Indebtedness owing by it to (x) any of Tyco Parent and its Subsidiaries which is permitted to be outstanding under the terms hereof and (y) any Person which is not an Affiliate of such Person which is permitted to be outstanding under the terms hereof (other than the Indebtedness evidenced or governed by the Subordinated Debt Documents) in an aggregate amount for all such optional or voluntary payments and prepayments under this clause (y) not to exceed $200,000 in any Fiscal Year. SECTION 6.15. Restricted Payments. Tyco Parent shall not (and shall not ------------------- suffer or permit any of its Subsidiaries to) make any Restricted Payment to any Person, except that: (a) each of Tyco Parent and its Subsidiaries may declare and pay dividends on its Stock solely in the same class of Stock of such Person; (b) any direct Subsidiary of any Borrower may declare and pay dividends or return capital or make any other distribution on its Stock to such Borrower; (c) any Subsidiary of Tyco Parent which is a Loan Party may declare and pay dividends to, or return capital to or make any other distribution on its Stock held by, any Borrower or any other Guarantor; (d) so long as (x) no Default or Event of Default has occurred and is continuing at such time or would be directly or indirectly caused as a result thereof and (y) Tangible Net Worth (as defined in Annex H) for the Fiscal Year ------- just ended is equal to or greater than $118,000,000 (compliance with the Tangible Net Worth test to be determined from the annual audited financial statements of Tyco Parent for such Fiscal Year required to be -62- delivered pursuant to Section 3 of Annex E), Tyco Parent may declare and pay ------- dividends on its Stock (other than the Junior Preferred Stock) in the then current Fiscal Year in an aggregate amount for such current Fiscal Year not to exceed, together with the cash payments made during such current Fiscal Year under clause (h) below, 15% of the aggregate net income of Tyco Parent and its Subsidiaries on a consolidated basis from continuing operations for the Fiscal Year just ended; (e) any Subsidiary of Tyco Parent may make mandatory payments and, to the extent permitted by Section 6.14, voluntary payments and prepayments on ------------ loans and advances made to it by whichever of Tyco Parent or any of its Subsidiaries is the owner of all or a portion of such Person's Stock, but in each instance only so long as such loan or advance is permitted under Section ------- 6.2; - --- (f) any Subsidiary of Tyco Parent may make loans and advances to whichever of Tyco Parent or any of its Subsidiaries is the owner of all or a portion of such Person's Stock to the extent permitted by Section 6.2; ----------- (g) any Subsidiary of Tyco Parent may make other transfers of funds or other property to whichever of Tyco Parent or any of its Subsidiaries is the owner of all or a portion of such Person's Stock to the extent permitted by Section 6.4; - ----------- (h) Tyco Parent may (x) pay cash in lieu of dividends consisting of fractional shares of its Stock, (y) through April 15, 1996 pay cash as part of a dividend on its preferred Stock and (z) pay cash in lieu of pay-in-kind interest on the First Chicago Notes; provided that the aggregate cash payments made under -------- this clause (h) in any Fiscal Year shall not exceed $500,000; (i) those Subsidiaries of Tyco Parent which are the subject of the transactions described in Schedule 6.1(c) may make the Restricted Payments --------------- described in such Schedule 6.1(c) subject to compliance with the terms and --------------- conditions therefor in such Schedule; and (j) Tyco Parent may redeem rights issued pursuant to the Rights Agreement in accordance with the terms of the Rights Agreement so long as (i) the aggregate cash and other consideration paid to redeem rights shall not exceed $500,000 (except that the foregoing shall not prohibit the redemption of such rights with common stock of Tyco Parent), (ii) the redemption is pro rata among the holders of such rights, and (iii) the redemption has been duly approved by the Board of Directors of Tyco Parent. SECTION 6.16. Real Property Leases. Tyco Parent shall not (and shall not -------------------- suffer or permit any of its Domestic Subsidiaries to) enter into or renew (by amendment, modification or otherwise) any Lease other than (i) renewals of existing Leases upon more -63- favorable (to such Person) or substantially the same terms as are in effect on the Closing Date, (ii) leases of sales offices and showrooms in the ordinary course of business, and (iii) leases by any Subsidiary of Tyco Parent, as lessor, to Tyco Parent or any of its Subsidiaries to the extent permitted by Section 6.4. - ----------- SECTION 6.17. Bank Accounts. Tyco Parent shall not (and shall not suffer ------------- or permit any of its Subsidiaries to) maintain any deposit, operating or other bank accounts except for those accounts identified in Schedule 3.20. ------------- SECTION 6.18. No Speculative Transactions. Tyco Parent shall not (and --------------------------- shall not suffer or permit any of its Subsidiaries to) engage in any transaction involving commodity options or futures contracts, derivatives, currency options or futures contracts or any similar speculative transactions (other than with respect to currency exchange rate fluctuations in the ordinary course of business consistent with past practice and prudent business management in order to comply with Section 5.15 and other than with respect to interest rate ------------ protection having terms acceptable to Agent). SECTION 6.19. Margin Regulations. No Borrower shall use the proceeds of ------------------ any Revolving Credit Advance to purchase or carry any Margin Stock or any equity security of a class which is registered pursuant to Section 12 of the Securities Exchange Act of 1934. SECTION 6.20. Limitation on Negative Pledge Clauses, Etc. Tyco Parent ------------------------------------------- shall not (and shall not suffer or permit any of its Subsidiaries to), directly or indirectly, enter into any agreement with any Person which prohibits or limits the ability of Tyco Parent or any of its Subsidiaries to create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, other than the agreements with Agent or Lenders pursuant to a Loan Document, the agreements governing the other Overall Facilities, Lien restrictions in a Capital Lease or other purchase money financing arrangement permitted hereunder relating to the asset financing thereunder and agreements governing Indebtedness of Foreign Subsidiaries of Tyco Parent permitted under Sections 6.3(i) and (j), but only to the extent that such ----------------------- prohibition or limitation applies to the borrower thereunder and its Subsidiaries. Tyco Parent shall not (and shall not permit any of its Subsidiaries to) enter into, after the date of this Agreement, any indenture, agreement, instrument or other arrangement that, directly or indirectly, prohibits or restrains, or has the effect of prohibiting or restraining, or imposes materially adverse conditions upon, the incurrence or payment of Indebtedness, the granting of Liens (other than pursuant to the terms of any purchase money Indebtedness or Capital Lease permitted herewith relating to the asset in question), the declaration or payment of dividends or other Restricted Payments, the making of loans, advances or -64- Investments or the sale, assignment, transfer or other disposition of any property or assets (other than pursuant to the terms of any purchase money Indebtedness or Capital Lease permitted herewith relating to the asset in question) except (x) for the Receivables Funding Documents, in the case of the Receivables Funding Subsidiary, and (y) for any debt documents governing Indebtedness of Foreign Subsidiaries of Tyco Parent permitted under Section ------- 6.3(i), in the case of the Foreign Subsidiaries which are borrowers thereunder - ------ and their respective Subsidiaries; provided that such prohibitions or restrictions in such debt documents shall be permitted under Section 4.10 of the Tyco Parent Senior Subordinated Note Indenture. SECTION 6.21. Accounting Changes. Tyco Parent shall not (and shall not ------------------ suffer or permit any of its Subsidiaries to) make any significant change in accounting treatment and reporting practices except for changes concurred in by such Person's independent public accountants. SECTION 6.22. Inventory Sales. No Borrower shall at any time ship or --------------- cause to be shipped directly or indirectly to Industries or Manufacturing any Inventory of such Borrower which is sold by it to Industries or Manufacturing (other than, with respect to shipments to Industries, as permitted in clause (i) of Section 2.1(u)), but shall ship or cause to be shipped any such Inventory -------------- directly to third party customers at the direction of Industries or Manufacturing, as appropriate (and for its account); provided that notwithstanding the foregoing from and after the occurrence of a "Termination Event" under and as defined in the Receivables Funding Agreement, Agent may, in its sole discretion, require each Borrower to (or, in Agent's sole discretion, Agent as attorney-in-fact for each Borrower, may itself) sell and ship such Borrower's Inventory directly to third party customers rather than to (or for the account of) Industries or Manufacturing. In connection with any such shipment and sale of Inventory by Agent, each Borrower hereby appoints Agent and Agent's designees as such Borrower's attorney, with power from and after the occurrence of a Termination Event to take any and all actions in order for Agent to ship and sell any Inventory of such Borrower (including, without limitation, to sign such Borrower's name on any invoice, bill of lading or other document of title relating to any such Inventory). Each Borrower hereby ratifies and approves all lawful acts of such attorney. Neither Agent, any Lender nor the attorney will be liable for any acts or omissions or for any error of judgment or mistake of fact or law, except for Agent's own wilful misconduct, gross negligence or bad faith. This power, being coupled with an interest, is irrevocable until this Agreement has been terminated and the Obligations have been fully satisfied. Each Borrower agrees to execute and deliver and to take such actions as Agent may reasonably request in connection with any such shipment or sale by Agent. -65- SECTION 6.23. Tyco Parent and Certain Subsidiaries. Except for the ------------------------------------ acquisition by Tyco Parent from its Subsidiaries of assets to the extent such acquisitions are expressly permitted hereunder, Tyco Parent shall not engage in any business activity other than the ownership of shares of capital stock of its Subsidiaries as described and permitted hereunder nor shall it own any assets except for such shares of capital stock. Each of TOMCO I, TVMI Service Corp. and Tyco Services, Inc. shall not engage in any business activity other than, with respect to TOMCO I, holding certain voting preferred stock of Distribution (all of which is pledged under the Stock Pledge Agreement) and, with respect to such other Persons, performing certain administrative services for Tyco Parent and its Subsidiaries. SECTION 6.24. Amendments and Modifications to Debt Documents. Tyco Parent ---------------------------------------------- shall not (and shall not suffer or permit any of its Subsidiaries to) directly or indirectly, amend, modify, supplement, waive compliance with, grant a waiver under, or assent to noncompliance with: (i) any instrument, document or agreement evidencing, creating, guaranteeing or governing Indebtedness or Guaranteed Indebtedness in excess of $1,000,000 permitted under Section 6.3 or ----------- 6.6 or entered into in connection therewith (other than (x) the instruments, - --- documents and agreements governing the Overall Facilities in accordance with the terms thereof and (y) any such instruments, documents or agreements relating to credit facilities of Foreign Subsidiaries of Tyco Parent with Persons which are not Affiliates of Tyco Parent or any of its Subsidiaries that are permitted under Sections 6.3(i) or (j), but only so long as such amendment, modification, --------------- --- supplement, waiver or assent shall not directly or indirectly result in or cause a Default, Event of Default or a Material Adverse Effect) or (ii) any of the Subordinated Debt Documents (it being understood that this Section 6.24 shall be deemed not to prohibit the holders of any Indebtedness under any of the Subordinated Debt Documents (or any required percentage thereof) from waiving any requirement or default under any Subordinated Debt Documents). SECTION 6.25. Inactive Subsidiaries. Tyco Parent shall not suffer or --------------------- permit (i) the book value of the assets (other than intercompany receivables existing on the Closing Date) of all Inactive Subsidiaries to exceed $3,000,000 at any time or (ii) any Inactive Subsidiary to engage in any activity, or contract, create, assume, incur or suffer to exist any indebtedness (other than indebtedness for which Section 3.22 continues to be true and correct) or create, ------------ grant or suffer to exist any Liens on its property. -66- ARTICLE 7 TERM SECTION 7.1. Duration. The financing arrangements contemplated hereby -------- shall be in effect until the Commitment Termination Date. On the Commitment Termination Date, the Revolving Credit Commitments shall terminate and the Revolving Credit Loan and all other Obligations shall immediately become due and payable in full, in immediately available funds in Dollars. SECTION 7.2. Survival of Obligations. Except as otherwise expressly ----------------------- provided for in the Loan Documents, no termination or cancellation (regardless of cause or procedure) of any financing arrangement under this Agreement shall in any way affect or impair the Obligations, duties, indemnities, and liabilities of Borrowers or any other Loan Party, or the rights of Agent or any Lender relating to any Obligations, due or not due, liquidated, contingent or unliquidated or any transaction or event occurring prior to such termination, or any transaction or event, the performance of which is not required until after the Commitment Termination Date. Except as otherwise expressly provided herein or in any other Loan Document, all undertakings, agreements, covenants, warranties and representations of or binding upon Borrowers or any other Loan Party, and all rights of Agent and each Lender, all as contained in the Loan Documents shall not terminate or expire, but rather shall survive such termination or cancellation and shall continue in full force and effect until such time as all of the Obligations have been paid in full in immediately available funds in Dollars in accordance with the terms of the agreements creating such Obligations. ARTICLE 8 EVENTS OF DEFAULT; RIGHTS AND REMEDIES SECTION 8.1. Events of Default. The occurrence of any one or more of the ----------------- following events (regardless of the reason therefor) shall constitute an "Event ----- of Default" hereunder: - ---------- (a) Any Borrower or other Loan Party shall fail to make any payment in respect of any Obligations hereunder or under any of the other Loan Documents when due and payable or declared due and payable, including any payment of principal of, or interest on, or Fees in respect of, the Revolving Credit Loan, and, with respect to the failure to make any payment of any Obligations hereunder (other than principal on the Revolving Credit Loan or reimbursement for payments of Letter of Credit Obligations which shall have no grace period), such failure shall continue unremedied for five (5) days. -67- (b) Any Borrower or any other Loan Party shall fail or neglect to perform, keep or observe any of the provisions of Section 1.9, Section 4.1, or ----------- ----------- Article 6, including any of the provisions set forth in Annex B, Annex E, or - --------- ------- ------- Annex H, and such failure or neglect shall continue unremedied (if capable of - ------- being remedied) for five (5) days with respect to Section 1.9 and Annex B and ----------- ------- for ten (10) days with respect to Section 4.1 and Annex E (other than Section 2 ----------- ------- --------- of Annex E for which the grace period shall be thirty (30) days) (with no grace ------- period to be provided for any failure or neglect of Article 6 or Annex H). --------- ------- (c) Any Borrower, any other Loan Party or any other Subsidiary of Tyco Parent shall fail or neglect to perform, keep or observe any term or provision of this Agreement or of any of the other Loan Documents (other than any such term or provision referred to in paragraph (a) or (b) above), and the same shall remain unremedied (if capable of being remedied) for a period ending on the first to occur of thirty (30) days after Borrowers shall receive written notice of any such failure from Agent or any Lender or thirty (30) days after any Borrower shall become aware thereof. (d) (x) a default shall occur and be continuing under any other agreement, document or instrument to which any Borrower or any other Loan Party or any of its Subsidiaries is a party or by which any such Person or its property is bound, and such default (i) involves the failure to make any payment (whether of principal, interest or otherwise) due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) in respect of any Indebtedness of such Person in an aggregate amount exceeding $1,000,000 or (ii) permits any holder of such Indebtedness or a trustee to cause) such Indebtedness, or a portion thereof in an aggregate amount exceeding $1,000,000, to become due prior to its stated maturity or prior to its regularly scheduled dates of payment or (y) any such default under clause (x) above (whether or not continuing) causes or results in such Indebtedness, or a portion thereof in an aggregate amount exceeding $1,000,000, to become due prior to its stated maturity or prior to its regularly scheduled dates of payment. (e) Any representation or warranty herein or in any Loan Document or in any written statement pursuant thereto or hereto, any report, financial statement or certificate made or delivered to Agent or any Lender by any Borrower or any other Loan Party or Subsidiary of Tyco Parent shall be untrue or incorrect in any material respect as of the date when made or deemed made (including those made or deemed made pursuant to Section 2.2). ----------- (f) Assets of any Borrower, any other Loan Party or any Subsidiary thereof or any other Collateral having an aggregate value for all such assets and other Collateral in excess of $500,000 shall be attached, seized, levied upon or subjected to a -68- writ, execution, distress warrant or similar process, or come within the possession of any receiver, trustee, custodian or assignee for the benefit of creditors of such Person and shall remain unstayed or undismissed for thirty (30) consecutive days; or any Person other than any Borrower or any other Loan Party shall apply for the appointment of a receiver, trustee or custodian for any Borrower's, any other Loan Parties' or any of its Subsidiaries' assets or any other Collateral having an aggregate value for all such assets and other Collateral in excess of $500,000 and shall remain unstayed or undismissed for thirty (30) consecutive days; or any Borrower, any other Loan Party or any Subsidiary thereof or any other Person which grants or provides Collateral shall have concealed, removed or permitted to be concealed or removed, any part of its property, with intent to hinder, delay or defraud its creditors or any of them or made or suffered a transfer of any of its property or the incurring of an obligation which may be fraudulent under any bankruptcy, fraudulent conveyance or other similar law. (g) A case or proceeding shall have been commenced against any Borrower, any other Loan Party, any Subsidiary thereof or any other Person which grants or provides Collateral in a court having competent jurisdiction seeking a decree or order (i) under Title 11 of the United States Code, as now constituted or hereafter amended, or any other applicable federal, state or foreign bankruptcy or other similar law, (ii) appointing a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) of any Borrower, any other Loan Party, any Subsidiary thereof or any such other Person or of any substantial part of its properties, or (iii) ordering the winding up or liquidation of the affairs of any Borrower, any other Loan Party, any Subsidiary thereof or any such other Person and such case or proceeding shall remain undismissed or unstayed for sixty (60) consecutive days or such court shall enter a decree or order granting the relief sought in such case or proceeding. (h) Any Borrower, any other Loan Party, any Subsidiary thereof or any other Person which grants or provides Collateral (i) shall file a petition seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other applicable federal, state or foreign bankruptcy or other similar law, (ii) shall consent to the institution of proceedings thereunder or to the filing of any such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) of any Borrower, any other Loan Party, any Subsidiary thereof or any such other Person or of any substantial part of any Borrower's, any other Loan Parties', any of its Subsidiaries' or any such other Person's properties, (iii) shall fail generally to pay its debts as such debts become due, or (iv) shall take any corporate action in furtherance of any such action. -69- (i) Final judgment or judgments (after the expiration of all times to appeal therefrom) shall be rendered against any Borrower, any other Loan Party or any Subsidiary thereof for the payment of money exceeding insurance coverage therefor by $1,000,000 or more for any such judgment or $3,000,000 or more in the aggregate for all such judgments against Tyco Parent and its Subsidiaries, unless the same shall be vacated, stayed, bonded, paid or discharged within a period of 30 days from the date of such respective judgment (it being understood that in any event any such judgment is not covered by insurance to the extent of the applicable deductible therefor or if and to the extent the issuer of the relevant insurance denies liability therefor). (j) There shall occur any Material Adverse Effect which shall not have been cured (or waived by Required Lenders) within ten (10) days of notice thereof from Agent or the Required Lenders to Borrowers. (k) Any material provision of any Loan Document shall for any reason cease to be valid, binding and enforceable in accordance with its terms (other than by reason of any action of Agent or Lenders or upon the written consent of all Lenders) or any Borrower or other party thereto shall so state in writing; or any Lien created under any Collateral Document shall cease to be a valid and perfected Lien having the first priority in Collateral having a value in excess of $50,000 purported to be covered thereby (subject to Liens permitted hereby). (l) There shall occur a Change of Control. (m) Without limiting the effect of Section 1.3(g) above, there shall -------------- occur any "Termination Event" under and as defined in the Receivables Funding Agreement. (n) An event or condition specified in Section 6.10 hereof shall occur ------------ or exist with respect to any Plan or Multiemployer Plan and, as a result of such event or condition, together with all other such events or conditions, any Borrower, any other Loan Party, any Subsidiary thereof or any ERISA Affiliate shall incur or in the opinion of Required Lenders shall be reasonably likely to incur a liability (due to be paid within the twenty-four months following the date of such event or condition) to a Plan, a Multi-employer Plan or PBGC (or any combination of the foregoing) in excess of $1,000,000 in the aggregate. (o) There shall occur and be continuing any "Event of Default" (as defined in the Canadian Credit Agreement) or a "Default" (as defined in the UK Credit Agreement) or any event, act or condition which, after giving effect to any grace periods or notice requirements thereunder, permits the requisite lenders or agent thereunder to accelerate the obligations of the borrower or borrowers under such Overall Facility or any Indebtedness owing -70- under any of the other Overall Facilities shall become due prior to its stated maturity or prior to its regularly scheduled dates of payment. SECTION 8.2. Remedies. If any Event of Default shall have occurred and be -------- continuing, the rate of interest applicable to the Revolving Credit Loan, the Letter of Credit Obligations and interest and other Obligations shall be increased to or charged at, as appropriate, effective as of the date of the occurrence of the Default giving rise to such Event of Default, the Default Rate as provided in Section 1.6(e) or Annex D, as appropriate, unless such increase -------------- ------- or charge is waived in writing by the Required Lenders. If any Event of Default shall have occurred and be continuing, Agent may, or if requested by the Required Lenders, shall, without notice, take any one or more of the following actions: (a) terminate the Revolving Credit Commitments, whereupon Lenders' obligation to make further Revolving Credit Advances shall terminate; (b) declare all or any portion of the Obligations to be forthwith due and payable, including the Revolving Credit Loan and any contingent liabilities with respect to Letter of Credit Obligations, whereupon such Obligations shall become and be due and payable; (c) require that all Letter of Credit Obligations be fully cash collateralized in accordance with the terms of Annex G; or (d) exercise any ------- rights and remedies provided to Agent or Lenders under the Loan Documents and/or at law or equity, including all remedies provided under the Code; provided, that -------- upon the occurrence of an Event of Default specified in Section 8.1 (g) or (h), ----------- --- --- the Revolving Credit Commitments of each of the Lenders shall immediately terminate and the Obligations shall become immediately due and payable, in each case, without declaration, notice or demand by or to any Person. SECTION 8.3. Waivers by Loan Parties. Except as otherwise provided for in ----------------------- this Agreement and applicable law, to the full extent permitted by applicable law, each Loan Party waives (a) presentment, demand and protest and notice of presentment, dishonor, notice of intent to accelerate, notice of acceleration, protest, default, nonpayment, maturity, release, compromise, settlement, extension or renewal of any or all Loan Documents, notes, commercial paper, accounts, contract rights, documents, instruments, chattel paper and guaranties at any time held by Agent or any Lender on which such Loan Party may in any way be liable, and such Loan Party hereby ratifies and confirms whatever Agent or any Lender may do in this regard, (b) all rights to notice and a hearing prior to Agent's or Lenders' taking possession or control of, or to Agent's or Lenders' replevy, attachment or levy upon, the Collateral or any bond or security which might be required by any court prior to allowing Agent or Lenders to exercise any of their remedies, and (c) the benefit of any right of redemption and all valuation, appraisal and exemption laws. Each Loan Party acknowledges that it has been advised by counsel of its choice with respect to this Agreement, the other Loan Documents and the -71- transactions contemplated by this Agreement and the other Loan Documents. SECTION 8.4. Application of Proceeds. After the occurrence of an Event of ----------------------- Default and acceleration of the Obligations, the proceeds of the Collateral and of property of Persons other than the Loan Parties securing the Obligations and collections from the Guaranty shall be applied by Agent to payment of the Obligations in the following order, unless Lenders otherwise agree in writing or a court of competent jurisdiction shall otherwise direct: (i) FIRST, pro rata to each Lender to reimburse such Lender for that portion of any payments made by it with respect to Letter of Credit Obligations for which a Lender, as a participant in such Letter of Credit Obligations, failed to pay its pro rata share thereof as required pursuant to Section 11 of Annex G hereto; ------- (ii) SECOND, to payment of all costs and expenses of Agent and Lenders incurred in connection with the preservation, collection and enforcement of the Obligations or the Guaranty, or of any of the Liens granted to Agent pursuant to the Collateral Documents or otherwise, including, without limitation, any amounts advanced by Agent or Lenders to protect or preserve the Collateral; (iii) THIRD, to payment of that portion of the Obligations constituting accrued and unpaid interest and fees and indemnities payable under Section 1 hereof and Annexes D and G hereof, ratably amongst Agent --------------- and Lenders in accordance with the proportion which the accrued interest and fees and indemnities payable under such Section 1 and Annexes D and G --------------- constituting the Obligations owing to Agent and each such Lender at such time bears to the aggregate amount of accrued interest and fees and indemnities payable under such Section 1 and Annexes D and G constituting --------------- the Obligations owing to the Agent and all Lenders at such time until such interest, fees and indemnities shall be paid in full; (iv) FOURTH, to payment of the principal of the Obligations (excluding reimbursement obligations with respect to the aggregate amount of any then outstanding Letter of Credit Obligations), ratably amongst Lenders in accordance with the proportion which the principal amount of the Obligations owing to each such Lender (excluding reimbursement obligations with respect to the aggregate amount of any then outstanding Letter of Credit Obligations) bears to the aggregate principal amount of the Obligations (excluding reimbursement obligations with respect to the aggregate amount of any then outstanding Letter of Credit Obligations) owing to all Lenders until such principal of the Obligations shall be paid in full; -72- (v) FIFTH, to the extent, with respect to Letter of Credit Obligations, that the collateral, if any, held by Agent as security for reimbursement obligations with respect to the Letter of Credit Obligations is less than the aggregate amount of the Letter of Credit Obligations outstanding at the time of distribution hereunder, to Agent to be held by Agent as additional collateral therefor; (vi) SIXTH, to the payment of all other Obligations, ratably amongst Lenders in accordance with the proportion which the amount of such other Obligations owing to each such Lender bears to the aggregate principal amount of such other Obligations owing to all Lenders until such other Obligations shall be paid in full; and (vii) SEVENTH, the balance, if any, after all of the Obligations has been satisfied, shall, except as otherwise provided in any Loan Document, be deposited by Agent in an operating account(s) of Borrowers with the Agent designated by Borrowers or paid over to such other Person or Persons as may be required by law. The Loan Parties acknowledge and agree that they shall remain liable to the extent of any deficiency between the amount of the proceeds of the Collateral and collections under the Guaranty (to the fullest extent recourse to such Loan Parties under the Guaranty) and the aggregate amount of the sums referred to in the first through sixth clauses above. ARTICLE 9 AGENT SECTION 9.1. Appointment, Powers and Immunities. Each Lender hereby ---------------------------------- irrevocably appoints and authorizes GE Capital to act as its agent hereunder and under the other Loan Documents with such powers as are specifically delegated to Agent by the terms of this Agreement and of the other Loan Documents, together with such other powers as are reasonably incidental thereto. Agent (which term as used in this sentence and in Section 9.5 and the first sentence of Section ----------- ------- 9.6 hereof shall include reference to its affiliates and its own and its - --- affiliates' officers, directors, employees and agents): (a) shall have no duties or responsibilities except those expressly set forth in this Agreement and in the other Loan Documents, and shall not by reason of this Agreement or any other Loan Document be a trustee or fiduciary for any Lender; (b) shall not be responsible to Lenders for any recitals, statements, representations or warranties contained in this Agreement or in any other Loan Document, or in any certificate or other document referred to or provided for in, or received by any of them under, this Agreement or any other Loan Document, or for the value, -73- validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document or any other document referred to or provided for herein or therein or for any failure by a Borrower or any other Person to perform any of its obligations hereunder or thereunder; (c) shall not be required to initiate or conduct any litigation or collection proceedings hereunder or under any other Loan Document; (d) shall not be responsible to Lenders for any action taken or omitted to be taken by it hereunder or under any other Loan Document or under any other document or instrument referred to or provided for herein or therein or in connection herewith or therewith, except for its own gross negligence or willful misconduct as determined by a final judgment of a court of competent jurisdiction. Agent may employ agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it in good faith. Agent may deem and treat the payee of any Revolving Credit Note as the holder thereof for all purposes hereof unless and until a notice of the assignment or transfer thereof shall have been filed with Agent. SECTION 9.2. Reliance by Agent. Agent shall be entitled to rely upon any ----------------- certification, notice or other communication (including any thereof by telephone, telecopy, telex, telegram or cable) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by Agent. As to any matters not expressly provided for by this Agreement or any other Loan Document, Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder or thereunder in accordance with instructions given by Required Lenders or all of Lenders as is required in such circumstance, and such instructions of such Lenders and any action taken or failure to act pursuant thereto shall be binding on all Lenders. SECTION 9.3. Defaults. Agent shall not be deemed to have knowledge or -------- notice of the occurrence of a Default (other than the non-payment of principal of or interest on the Revolving Credit Loan or of Fees) unless Agent has received notice from a Lender or Borrower specifying such Default and stating that such notice is a "Notice of Default". In the event that Agent receives ----------------- such a notice of the occurrence of a Default, Agent shall give prompt notice thereof to Lenders (and shall give each Lender prompt notice of each such non- payment). Agent shall (subject to Section 9.7) take such action with respect to ----------- such Default as shall be directed by Required Lenders; provided, that unless and -------- until Agent shall have received such directions, Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall deem advisable in the best interest of Lenders except to the extent that this Agreement expressly requires that such action be taken, or not be taken, only -74- with the consent or upon the authorization of Required Lenders or all of Lenders as is required in such circumstance. SECTION 9.4. Rights as a Lender. With respect to its Revolving Credit ------------------ Commitment and all Revolving Credit Advances made by GE Capital (and any successor acting as Agent), it shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not acting as Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include Agent in its individual capacity. GE Capital (and any successor acting as Agent) and its affiliates may (without having to account therefor to any Lender) lend money to, make investments in and generally engage in any kind of business with any Borrower or any other Loan Party (and any of its Subsidiaries or Affiliates) as if it were not acting as Agent, and GE Capital and its Affiliates may accept fees and other consideration from any Borrower or any other Loan Party or Affiliate thereof for services in connection with this Agreement or otherwise without having to account for the same to Lenders. SECTION 9.5. Indemnification. Lenders agree to indemnify Agent (to the --------------- extent not reimbursed by Borrowers hereunder and without limiting the obligations of Borrowers hereunder) ratably in accordance with the aggregate principal amount of the Revolving Credit Advances held by Lenders (or, if no Revolving Credit Advances are at the time outstanding, ratably in accordance with their respective Revolving Credit Commitments), for any and all Claims of any kind and nature whatsoever that may be imposed on, incurred by or asserted against Agent (including by any Lender) arising out of or by reason of any investigation in or in any way relating to or arising out of this Agreement or any other Loan Document or any other documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby (including the costs and expenses that any Borrower is obligated to pay hereunder) or the enforcement of any of the terms hereof or thereof or of any such other documents; provided, that no Lender shall be liable for any of the foregoing to -------- the extent they arise solely from the gross negligence or willful misconduct of the party to be indemnified as determined by a final judgment of a court of competent jurisdiction. SECTION 9.6. Non-Reliance on Agent and Other Lenders. Each Lender agrees --------------------------------------- that it has, independently and without reliance on Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own credit analysis of Borrowers, the other Loan Parties and any Subsidiary thereof and decision to enter into this Agreement and that it will, independently and without reliance upon Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement or any of the other Loan Documents. Agent shall not be required to -75- keep itself informed as to the performance or observance by Borrowers, any other Loan Parties or any of their Subsidiaries of this Agreement or any of the other Loan Documents or any other document referred to or provided for herein or therein or to inspect the properties or books of Borrowers, any other Loan Parties or any of their Subsidiaries. Agent will use reasonable efforts to provide Lenders with any information received by Agent from any Borrowers which is required to be provided to Lenders hereunder, with any notice of a Default received by Agent from any Borrower and with any notice of a Default delivered by Agent to any Borrower; provided, that Agent shall not be liable to any Lender -------- for any failure to do so, except to the extent that such failure is attributable to Agent's gross negligence or willful misconduct as determined by a final judgment of a court of competent jurisdiction. Agent shall not have any duty or responsibility to provide any Lender with any other credit or other information concerning the affairs, financial condition or business of any Borrower or any other Loan Party (or any of their affiliates) that may come into the possession of Agent or any of its affiliates nor to update or correct any information previously given which becomes incorrect or which Agent learns is incorrect. SECTION 9.7. Failure to Act. Except for action expressly required of -------------- Agent hereunder and under the other Loan Documents, Agent shall in all cases be fully justified in failing or refusing to act hereunder and thereunder unless it shall receive further assurances to its satisfaction from Lenders of their indemnification obligations under Section 9.5 hereof against any and all ----------- liability and expense that may be incurred by it by reason of taking or continuing to take any such action. SECTION 9.8. Successor Agent. Subject to and effective upon the --------------- appointment and acceptance of a successor Agent as provided below, Agent may resign at any time by giving notice thereof to Lenders and Borrowers, and the Required Lenders may, at any time when GE Capital's pro rata share of the --- ---- aggregate of the Revolving Credit Commitments of all Lenders at such time (or, if the Commitment Termination Date has occurred, in lieu of the Revolving Credit Commitments, the Revolving Credit Loan then outstanding in respect of the Revolving Credit Commitment) equals less than fifty percent (50%), remove the Agent by written notice to that effect, with the written consent of Borrowers (which consent shall not unreasonably be withheld). Upon any such resignation or removal, the Required Lenders shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty (30) days after the retiring Agent's giving of notice of resignation or receipt of notice of removal, then the retiring Agent may, on behalf of Lenders, appoint a successor Agent, that shall be a financial institution with a combined capital and surplus or net worth of at least $200,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such -76- successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article ------- 9 shall continue in effect for its benefit in respect of any actions taken or - - omitted to be taken by it while it was acting as Agent. SECTION 9.9. Consents under Loan Documents. Except as otherwise provided ----------------------------- in Section 11.1 with respect to this Agreement, Agent may, with the prior ------------ consent of Required Lenders (but not otherwise), consent to any modification, supplement or waiver under any of the Loan Documents; provided, that without the -------- prior consent of each Lender, Agent shall not (except as provided herein or in the Collateral Documents) release any material portion of the Collateral or otherwise terminate any Lien under any Collateral Document with respect to any material portion of the Collateral, or agree to additional obligations being secured by such Collateral, except that no such consent shall be required, and Agent is hereby authorized and instructed, to release any Lien covering Collateral (a) which is the subject of a disposition permitted hereunder, (b) which secures Indebtedness to the extent permitted under Section 6.3, (c) to ----------- which Required Lenders have consented (except as otherwise provided in Section ------- 11.1), or (d) the value of which does not exceed $1,000,000 in any Fiscal Year. - ---- SECTION 9.10. Collateral Matters. ------------------ (a) Except as otherwise expressly provided for in this Agreement, Agent shall have no obligation whatsoever to any Lender or any other Person to investigate, confirm or assure that the Collateral exists or is owned by any Borrower or other Loan Party or is cared for, protected or insured or has been encumbered, or that any particular items of Collateral meet the eligibility criteria applicable in respect of the relevant Borrowing Base, or whether any particular reserves are appropriate, or that the Liens granted to Agent herein or pursuant hereto have been properly or sufficiently or lawfully created, perfected, protected or enforced or are entitled to any particular priority, or to exercise at all or in any particular manner or under any duty of care, disclosure or fidelity, or to continue exercising, any of the rights, authorities and powers granted or available to Agent in this Agreement or in any of the other Loan Documents, it being understood and agreed that (i) in respect of the Collateral, or any act, omission or event related thereto, Agent may act in any manner it may deem appropriate, in its sole discretion, given Agent's own interest in the Collateral as a Lender and (ii) that Agent shall have no duty or liability whatsoever to any other Lender, other than liability solely resulting from its own gross negligence or willful misconduct as determined by a final judgment of a court of competent jurisdiction. -77- (b) Each Lender hereby appoints each other Lender as agent for the purpose of perfecting Lenders' security interest in assets which, in accordance with Article 9 of the Code, can be perfected only by possession. Should any Lender (other than Agent) obtain possession of any such Collateral, such Lender shall notify Agent thereof and, promptly upon Agent's request therefor, shall deliver such Collateral to Agent or in accordance with Agent's instructions. ARTICLE 10 SUCCESSORS AND ASSIGNS SECTION 10.1. Successors and Assigns. This Agreement and the other Loan ---------------------- Documents shall be binding on and shall inure to the benefit of the Loan Parties, Agent, Lenders, and their respective successors and assigns, except as otherwise provided herein or therein. No Loan Party may assign, delegate, transfer, hypothecate or otherwise convey its rights, benefits, obligations or duties hereunder or under any of the Loan Documents without the prior express written consent of Agent and all Lenders. Any such purported assignment, transfer, hypothecation or other conveyance by any Loan Party without such prior express written consent shall be void. The terms and provisions of this Agreement and the other Loan Documents are for the purpose of defining the relative rights and obligations of the Loan Parties, Agent and Lenders with respect to the transactions contemplated hereby and there shall be no third party beneficiaries of any of the terms and provisions of this Agreement or any of the other Loan Documents. SECTION 10.2. Assignments and Participations. ------------------------------ (a) Each Lender may, with the prior written consent of Agent, resell (through syndication, assignment or a participation) all or a portion of its rights and obligations under this Agreement (including all or a part of its Revolving Credit Advances, Revolving Credit Commitment and Revolving Credit Note), in minimum increments of $5,000,000, to any other Person. Any assignment by a Lender of all or a portion of its rights and obligations under this Agreement to a Person which is not an Affiliate of such Lender or another Lender shall require the consent of Borrowers as to the identity of such assignee (but not as to the terms of any such assignment), which consent shall not be unreasonably withheld or delayed. No consent of Borrowers shall in any event be required with respect to a participation. (b) In the case of an assignment by any Lender under this Section ------- 10.2, the purchaser shall have, to the extent of such assignment, the same - ---- rights, benefits and obligations as it would if it were a Lender hereunder; provided, that each such assignment shall be of a constant, and not a varying, - -------- percentage of the -78- selling Lender's rights and obligations under this Agreement. Upon execution by the assignor and the assignee of an instrument pursuant to which the assignee assumes such rights and obligations, payment by such assignee to such assignor of an amount equal to the purchase price agreed between such assignor and assignee and delivery to Agent and Borrowers of an executed copy of such instrument together with payment to Agent of a processing fee of $2,500, such assignee shall have, to the extent of such assignment (unless otherwise provided therein), the same rights and benefits as it would have if it were a Lender hereunder and the assignor shall be, to the extent of such assignment (unless otherwise provided therein) released from its obligations under this Agreement. Each Loan Party hereby acknowledges and agrees that any assignment will give rise to a direct obligation of such Loan Party to the assignee and that the assignee shall be considered to be a "Lender" hereunder and under the other Loan Documents. In all instances, each Lender's liability to make Revolving Credit Advances shall be several and not joint and shall be limited to such Lender's pro rata share thereof. Upon any such assignment, each Borrower, at its own - --- ---- expense, shall execute and deliver to Agent in exchange for the surrendered Revolving Credit Note of the assignor Lender a new Revolving Credit Note to the order of the assignor Lender in an amount equal to the Revolving Credit Commitment assumed by such assignee Lender, and if the assignor Lender has retained a Revolving Credit Commitment hereunder, a new Revolving Credit Note to the order of the assignor Lender in an amount equal to such retained Revolving Credit Commitment. Such new Revolving Credit Notes shall be dated the Closing Date and shall otherwise be in the form of the Revolving Credit Note replaced thereby. The Revolving Credit Notes surrendered to Agent shall be returned by Agent to the appropriate Borrower marked "canceled". (c) In the case of a participation by any Lender under this Section ------- 10.2, (A) all amounts payable by any Borrower hereunder shall be determined as - ---- if that Lender had not sold such participation and the participating Lender shall remain a "Lender" for all purposes under this Agreement, (B) any such grant of a participation will be made in compliance with all applicable state or federal laws, rules, and regulations, and (C) such Lender shall not grant any participation under which the participant shall have rights to approve any amendment to or waiver of this Agreement or the Loan Documents, except to the extent such amendment or waiver would (i) extend the final maturity date for payment of the Revolving Credit Loan; (ii) reduce the interest rate or the amount of principal or Fees applicable to the Revolving Credit Loan; or (iii) release all or substantially all of the Collateral, except as expressly provided herein. In those cases in which a Lender grants rights to its participants to approve any amendment to or waiver of this Agreement or the other Loan Documents respecting the matters described in the foregoing clauses (i) through (iii), the relevant participation agreements shall provide for a voting mechanism -79- whereby a majority of the amount of the participating Lender's portion of the Revolving Credit Loan (irrespective of whether held by such Lender or participated), shall control the vote for all of such Lender's portion of the Revolving Credit Loan. In the case of any participation, the participant shall not have any rights under this Agreement or any of the other Loan Documents entered into in connection herewith (the participant's right against such Lender in respect of such participation to be those set forth in the participation or other agreement executed by such Lender and the participant relating thereto) and all amounts payable to any Lender hereunder shall be determined as if such Lender had not sold such participation. (d) Except as otherwise provided in this Section 10.2 no Lender shall, ------------ as between any Borrower or other Loan Party and that Lender, be relieved of any of its obligations hereunder as a result of any sale, assignment, transfer or negotiation of, or granting of participation in, all or any part of the Revolving Credit Loan or other Obligations owed to such Lender. Any Lender permitted to sell assignments and participations under this Section 10.2 may ------------ furnish any information concerning any Borrower or other Loan Party and its Subsidiaries in the possession of that Lender from time to time to assignees and participants (including prospective assignees and participants), subject to the provisions of Section 11.13 hereof. ------------- (e) Each Borrower and other Loan Party shall assist any Lender permitted to sell assignments or participations under this Section 10.2 in ------------ whatever manner necessary in order to enable or effect any such assignment or participation, including the execution and delivery of any and all agreements, notes and other documents and instruments as shall be requested and the preparation and delivery of informational materials, appraisals or other documents for, and the participation of relevant management in meetings with, potential assignees or participants, subject to the provisions of Section 11.13 ------------- hereof. Each Borrower and other Loan Party shall certify the correctness, completeness and accuracy of all descriptions of any Borrower or other Loan Party or any of its Subsidiaries and its affairs contained in any selling materials and all information provided by it and included in such materials. (f) Each Lender which grants or sells a participation in all or any part of its interest in this Agreement, any other Loan Document or any of the financial accommodations provided or to be provided by it hereunder to any Person shall promptly notify Borrowers thereof; provided that the failure of -------- such Lender to do so shall not affect the validity of such grant or sale of a participation interest. (g) Each Lender agrees that if such Lender shall intend to assign or grant a participation in all or any part of its interest in this Agreement, any other Loan Document or any of the -80- financial accommodations provided or to be provided by it hereunder to any bank or other entity which is organized under the laws of a jurisdiction outside of the United States or any Commonwealth thereof (a "Foreign Lending Entity"), such ---------------------- Lender, as a condition to the effectiveness of such assignment or participation, shall request that such Foreign Lending Entity provide to Borrowers and Agent on or prior to the consummation of such assignment or participation a properly completed and executed Internal Revenue Service Form 4224 or Form 1001 or other applicable form, certificate or document prescribed by the Internal Revenue Service of the United States certifying as to such Foreign Lending Entity's entitlement to exemption from United States withholding tax or a zero rate of withholding under an applicable statute or tax treaty with respect to its interest in the credit facility herein provided. In the event that such Foreign Lending Entity is unable to deliver such form, certificate or document at or prior to the consummation of such assignment or participation, such assignment or participation shall not be permitted. ARTICLE 11 MISCELLANEOUS SECTION 11.1. Complete Agreement; Modification of Agreement. This --------------------------------------------- Agreement and the other Loan Documents constitute the complete agreement between the parties with respect to the subject matter hereof and thereof and supersede all prior agreements, commitments, understandings or inducements (oral or written, expressed or implied). Neither this Agreement nor any other Loan Document nor any terms hereof or thereof may be changed, waived, discharged or terminated unless such change, waiver, discharge or termination is in writing signed by Required Lenders and the Loan Party or Loan Parties which are party thereto; provided, that no such change, waiver, discharge or termination shall, -------- without the consent of each affected Lender and Agent, (a) extend the scheduled final maturity of the Revolving Credit Loan, or any portion thereof, or reduce the rate or extend the time of payment of interest (other than as a result of waiving the applicability of any post-Default increase in interest rates) thereon or Fees, or reduce the principal amount thereof, or increase the Revolving Credit Commitment of such Lender over the amount thereof then in effect (it being understood that a waiver of any Default shall not constitute a change in the terms of any Revolving Credit Commitment of any Lender), (b) release more than $10,000,000 in value of the Collateral (except as expressly permitted by the Loan Documents), (c) amend, modify or waive any provision of this Section, or Section 1.11, 9.5, 11.2 or 11.7, (d) reduce any percentage ------------ --- ---- ---- specified in, or otherwise modify, the definition of Required Lenders, or (e) consent to the assignment or transfer by any Borrower or other Loan Party of any of its rights and obligations under this Agreement. No provision of Article 9 --------- may be amended without the prior written consent of Agent. -81- SECTION 11.2. Fees and Expenses. ----------------- (a) Tyco Parent and each Borrower shall, jointly and severally, pay on demand all reasonable out-of-pocket costs and expenses (including reasonable fees of counsel) of Agent, GE Capital and its Affiliates in connection with the preparation, negotiation, approval, execution, delivery, administration, modification, amendment, waiver and enforcement (whether through negotiations, legal proceedings or otherwise) of the Loan Documents, and commitments relating thereto, and the other documents to be delivered hereunder or thereunder and the transactions contemplated hereby and thereby and the fulfillment or attempted fulfillment of conditions precedent hereunder, including: (i) wire transfer fees and other costs of forwarding to any Borrower or any other Person on behalf of any Borrower by Agent and each Lender of the proceeds of the Revolving Credit Advances; (ii) any amendment, modification or waiver of, or consent with respect to, any of the Loan Documents or advice in connection with the administration of the advances made pursuant hereto or its rights hereunder or thereunder; (iii) any litigation, contest, dispute, suit, proceeding or action (whether instituted by Agent, any Lender, any Borrower or any other Person) in any way relating to the Collateral, any of the Loan Documents or any other agreements to be executed or delivered in connection therewith or herewith, whether as party, witness, or otherwise, including any litigation, contest, dispute, suit, case, proceeding or action, and any appeal or review thereof, in connection with a case commenced by or against any Borrower or any other Person that may be obligated to Agent and Lenders by virtue of the Loan Documents, including any litigation, contest, dispute, suit, case, proceeding or action (and any appeal or review) in connection with a case under title 11 of the United States Code, as now constituted or hereafter amended, or any other applicable Federal, state or foreign bankruptcy or similar insolvency law; (iv) any attempt to enforce any rights of Agent or Lenders against any Borrower or any other Person that may be obligated to Agent or Lenders by virtue of any of the Loan Documents; or (v) any effort to (A) monitor the Revolving Credit Loan and the Loan Documents, (B) evaluate, observe or assess any Borrower or any other Loan Party or its affairs, or (C) verify, protect, evaluate, assess, appraise, collect, sell, liquidate or otherwise dispose of the Collateral, subject to the limitations on the obligations of Borrowers to pay for audits as provided in clause (c) of the first sentence of Section 1.18. ------------ (b) Tyco Parent and each Borrower shall, jointly and severally, pay on demand all reasonable out-of-pocket costs and expenses (including reasonable fees of counsel) of Agent and each Lender in connection with any Default and any enforcement or collection proceedings resulting therefrom or any amendment, modification or waiver of, or consent with respect to, any of the Loan Documents in connection with any Default. -82- (c) Without limiting the generality of clauses (a) and (b) above (but subject to the limitations on the obligations of Borrowers to pay for audits as provided in clause (c) of the first sentence of Section 1.18), Tyco Parent's and ------------ each Borrower's obligation to reimburse Agent and/or any Lender for costs and expenses shall include the reasonable fees and expenses of counsel (and local, foreign or special counsel, advisors, consultants and auditors retained by such counsel), as well as the fees and expenses of accountants, environmental advisors, field examiners, appraisers, investment bankers, rating agencies, management and other consultants and paralegals; court costs and expenses; photocopying and duplicating expenses; court reporter fees, costs and expenses; long distance telephone charges; air express charges; telegram charges; secretarial overtime charges; expenses for travel, lodging and food; and all other reasonable out-of-pocket costs and expenses of every type and nature paid or incurred in connection with the performance of such legal or other advisory services. SECTION 11.3. No Waiver. (a) No failure on the part of Agent or Lenders, --------- at any time or times, to require strict performance by any Borrower or other Loan Party, of any provision of this Agreement and any of the other Loan Documents shall waive, affect or diminish any right of Agent or Lenders thereafter to demand strict compliance and performance therewith. Any suspension or waiver of a Default shall not suspend, waive or affect any other Default whether the same is prior or subsequent thereto and whether of the same or of a different type. None of the undertakings, agreements, warranties, covenants and representations of any Borrower or other Loan Party contained in this Agreement or any of the other Loan Documents and no Default by any Borrower or other Loan Party shall be deemed to have been suspended or waived by Lenders, unless such waiver or suspension is by an instrument in writing signed by an officer of or other authorized employee of Agent and Required Lenders or all of Lenders if required hereunder and directed to such Borrower or other Loan Party specifying such suspension or waiver. (b) No failure on the part of any Loan Party, at any time or times, to require strict performance by any Lender or Agent, of any provision of this Agreement and any of the other Loan Documents shall waive, affect or diminish any right of such Loan Party thereafter to demand strict compliance and performance therewith. SECTION 11.4. Remedies. The rights and remedies of Agent and Lenders -------- under this Agreement shall be cumulative and nonexclusive of any other rights and remedies which Agent or any Lender may have under any other agreement, including the Loan Documents, by operation of law or otherwise. Recourse to the Collateral shall not be required. -83- SECTION 11.5. Severability. Wherever possible, each provision of this ------------ Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. SECTION 11.6. Conflict of Terms. Except as otherwise provided in this ----------------- Agreement or any of the other Loan Documents by specific reference to the applicable provisions of this Agreement, if any provision contained in this Agreement is in conflict with, or inconsistent with, any provision in any of the other Loan Documents, the provisions contained in this Agreement shall govern and control. SECTION 11.7. Right of Set-off. Subject to Section 1.2 and 1.14, upon the ---------------- ----------- ---- occurrence and during the continuance of any Event of Default, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to setoff and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of any Borrower or other Loan Party against any and all of the Obligations now or hereafter existing irrespective of whether or not such Lender shall have made any demand under this Agreement or any other Loan Document and although such Obligations may be unmatured. Each Lender agrees promptly to notify Agent and Borrowers after any such setoff and application made by such Lender; provided, -------- that the failure to give such notice shall not affect the validity of such setoff and application. The rights of each Lender under this Section are in addition to the other rights and remedies (including other rights of setoff) which such Lender may have. SECTION 11.8. Authorized Signature. Until Agent shall be notified by any -------------------- Borrower to the contrary, the signature upon any document or instrument delivered by such Borrower pursuant hereto and believed by Agent or any of Agent's officers, agents, or employees to be that of an officer or duly authorized representative of such Borrower listed in Schedule 11.8 shall bind ------------- Borrowers and be deemed to be the act of such Borrower affixed pursuant to and in accordance with resolutions duly adopted by such Borrower's Board of Directors, and Agent and each Lender shall be entitled to assume the authority of each signature and authority of the Person whose signature it is or appears to be unless the Person acting in reliance on such signature shall have actual knowledge of the fact that such signature is false or the Person whose signature or purported signature is presented is without authority. -84- SECTION 11.9. Notices. Except as otherwise provided herein, whenever it ------- is provided herein that any notice, demand, request, consent, approval, declaration or other communication shall or may be given to or served upon either of the parties by the other party, or whenever either of the parties desires to give or serve upon the other party any communication with respect to this Agreement, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and shall be deemed to have been validly served, given or delivered (a) upon the earlier of actual receipt and three (3) days after deposit in the United States Mail, registered or certified mail, return receipt requested, with proper postage prepaid, (b) upon transmission, when sent by telecopy or other similar facsimile transmission (with such telecopy or facsimile promptly confirmed by delivery of a copy by personal delivery or United States Mail as otherwise provided in this Section ------- 11.9), (c) one Business Day after deposit with a reputable overnight courier - ---- with all charges prepaid, or (d) when delivered, if hand-delivered by messenger, all of which shall be addressed to the party to be notified and sent to the address or facsimile number indicated below or to such other address (or facsimile number) as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Failure or delay in delivering copies of any notice, demand, request, consent, approval, declaration or other communication to any Person (other than Borrowers, Tyco Parent, Agent or any Lender) designated below to receive copies shall in no way adversely affect the effectiveness of such notice, demand, request, consent, approval, declaration or other communication. (a) If to Agent, as a Lender or as Agent, at: General Electric Capital Corporation 501 Merritt Seven Norwalk, Connecticut 06851 Attention: Vice President-Portfolio/Tyco Telecopy No.: (203) 840-4680 with a copy to: General Electric Capital Corporation 501 Merritt Seven, Third Floor Norwalk, Connecticut 06851 Attention: Legal Counsel/Tyco Telecopy No.: (203) 840-4520 and -85- Kaye, Scholer, Fierman, Hays & Handler 425 Park Avenue New York, New York 10022 Attention: Robert Finley, Esq. Telecopy No.: (212) 836-8689 (b) if to any Borrower or any other Loan Party, at: 6000 Midlantic Drive Mt. Laurel, New Jersey 08054 Attention: Treasurer or Chief Financial Officer Telecopy No.: (609) 273-2885 with a copy to: Tyco Toys, Inc. 6000 Midlantic Drive Mt. Laurel, New Jersey 08054 Attention: General Counsel Telecopy No.: (609) 273-2885 SECTION 11.10. Section Titles. The Section titles and Table of Contents -------------- contained in this Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of this Agreement. SECTION 11.11. Counterparts. This Agreement may be executed in any number ------------ of separate counterparts, each of which shall, collectively and separately, constitute one agreement. SECTION 11.12. Time of the Essence. Time is of the essence of this ------------------- Agreement and each of the other Loan Documents. SECTION 11.13. Confidentiality. --------------- (a) Each Borrower and other Loan Party agrees that it shall not (and shall not permit any of its Subsidiaries to) issue any news release or make any public announcement pertaining to the transactions contemplated by the Loan Documents without the prior written consent of Agent (which consent shall not be unreasonably withheld) unless such news release or public announcement is required by law, in which case Tyco Parent or Borrowers shall consult with Agent prior to the issuance of any such news release or public announcement. (b) Tyco Parent and Borrowers have furnished and will furnish to Agent and Lenders certain information concerning the Loan Parties and its Subsidiaries which Tyco Parent and Borrowers have advised is non-public, proprietary or confidential in nature ("Confidential Information"). Agent and each Lender ------------------------ confirms to Tyco Parent and each Borrower, for itself, that it is Agent's and such Lender's policy and practice to maintain in confidence all -86- Confidential Information which is provided to it under agreements providing for the extension of credit and which is identified to it as such, and that it will protect the confidentiality of Confidential Information submitted to it with respect to any Loan Party and any of its Subsidiaries under this Agreement, commensurate with its efforts to maintain the confidentiality of its own Confidential Information, provided, however, that (i) nothing contained herein -------- ------- shall prevent Agent or any Lender from disclosing Confidential Information (A) to its Affiliates, Redwood and their respective directors, officers and employees and to any legal counsel, auditors, appraisers, consultants or other persons retained by it or its Affiliates as professional advisors, on the condition that such information not be further disclosed except in compliance with this Section 11.13(b); (B) under color of legal authority, including, ---------------- without limitation, to any regulatory authority having jurisdiction over it or its operations or to or under the authority of any court deemed by it to be of competent jurisdiction; (C) to any actual or potential assignee of or participant in a Lender's rights and obligations under this Agreement pursuant to Section 10.2 hereof to the extent such actual or potential assignee or ------------ participant has agreed to maintain such information in confidence on the basis set forth in this Section 11.13(b); and (D) as necessary in connection with the ---------------- exercise of its remedies under this Agreement or any of the other Loan Documents; (ii) the terms of this Section 11.13(b) shall be inapplicable to any ---------------- information furnished to it which is in its possession prior to the delivery to it of such information by any Borrower, other Loan Party or any of its Subsidiaries, or otherwise has been obtained by it on a non-confidential basis, or which was or becomes available to the public or otherwise part of the public domain (other than as a result of Agent's or such Lender's failure or any prospective participant's or assignee's failure to abide hereby), or which was not non-public, proprietary or confidential when any Borrower, other Loan Party or any of its Subsidiaries delivered it to Agent or any Lender; and (iii) the determination by Agent or any Lender as to the application of any of the circumstances described in the foregoing clauses (i) and (ii) will be conclusive and binding if made in good faith. (c) Notwithstanding paragraph (b) above, each Borrower and Loan Party consents to Agent publishing a tombstone or similar advertising material relating to the financing transaction contemplated by this Agreement. SECTION 11.14. GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ------------- ANY OF THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. EACH BORROWER AND OTHER LOAN PARTY HEREBY CONSENTS AND -87- AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN NEW YORK COUNTY, NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES PERTAINING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS; PROVIDED, THAT EACH LENDER, BORROWER AND OTHER LOAN PARTY ACKNOWLEDGES THAT ANY - -------- APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK COUNTY, NEW YORK; AND FURTHER PROVIDED, THAT NOTHING IN THIS AGREEMENT -------------------- SHALL BE DEEMED OR OPERATE TO PRECLUDE AGENT OR ANY LENDER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF AGENT OR ANY LENDER. EACH BORROWER AND OTHER LOAN PARTY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH BORROWER AND OTHER LOAN PARTY HEREBY WAIVES ANY OBJECTION WHICH SUCH PERSON MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON ----- --- CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF - ---------- AS IS DEEMED APPROPRIATE BY SUCH COURT. EACH BORROWER AND OTHER LOAN PARTY HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO SUCH PERSON AT THE ADDRESS SET FORTH IN SECTION 11.9 OF THIS ------------ AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON SUCH PERSON'S ACTUAL RECEIPT THEREOF. SECTION 11.15. WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN -------------------- CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER IN CONTRACT, TORT, OR OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO, THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. -88- IN WITNESS WHEREOF, this Agreement has been duly executed as of the date first written above. TYCO DISTRIBUTION CORP. By: /s/ R. Michael Kennedy, Jr. --------------------------- Name: R. Michael Kennedy, Jr. Title: Senior Vice President TYCO MANUFACTURING CORP. By: /s/ R. Michael Kennedy, Jr. ---------------------------- Name: R. Michael Kennedy, Jr. Title: Senior Vice President TYCO TOYS, INC. By: /s/ R. Michael Kennedy, Jr. ---------------------------- Name: R. Michael Kennedy, Jr. Title: Senior Vice President GENERAL ELECTRIC CAPITAL CORPORATION, as Agent By: /s/ Peggy Erlenkotter ---------------------------- Name: Peggy Erlenkotter Title: Duly Authorized Signatory Lenders: ------- Revolving Credit Commitment: GENERAL ELECTRIC CAPITAL - --------------------------- CORPORATION $35,000,000 By: /s/ Peggy Erlenkotter ---------------------------- Name: Peggy Erlenkotter Title: Duly Authorized Signatory -89- Annex A to Credit Agreement ---------------- DEFINITIONS; RULES OF CONSTRUCTION ---------------------------------- 1. Definitions. Capitalized terms used in this Agreement and the other ----------- Loan Documents shall have (unless otherwise provided elsewhere in this Agreement and the other Loan Documents) the following respective meanings: "Accounts" shall mean all "accounts," as such term is defined in the -------- Code, now owned or hereafter acquired by any Borrower, any other Loan Party or any Subsidiary thereof and, in any event, including: (a) all accounts receivable, other receivables, book debts and other forms of obligations (other than forms of obligations evidenced by Chattel Paper, Documents or Instruments) now owned or hereafter received or acquired by or belonging or owing to any Borrower, any other Loan Party or any Subsidiary thereof, whether arising out of goods sold or services rendered by it or from any other transaction (including any such obligations which may be characterized as an account or contract right under the Code); (b) all of any Borrower's, any other Loan Party's or any of its Subsidiaries' rights in, to and under all purchase orders or receipts now owned or hereafter acquired by it for goods or services; (c) all of any Borrower's, any other Loan Party's or any of its Subsidiaries' rights to any goods represented by any of the foregoing (including unpaid sellers' rights of rescission, replevin, reclamation and stoppage in transit and rights to returned, reclaimed or repossessed goods); (d) all monies due or to become due to any Borrower, any other Loan Party or any Subsidiary thereof under all purchase orders and contracts for the sale or lease of goods or the performance of services or both by such Borrower or other Loan Party or Subsidiary or in connection with any other transaction (whether or not yet earned by performance on the part of such Borrower or other Loan Party or Subsidiary) now or hereafter in existence, including, without limitation, the right to receive the proceeds of said purchase orders and contracts; and (e) all collateral security and guarantees of any kind, now or hereafter in existence, given by any Person with respect to any of the foregoing. "Additional Loan Party" shall mean each Person that becomes a direct --------------------- or indirect Subsidiary of Tyco Parent after the Closing Date. "Adjusted LIBOR Rate" shall mean, with respect to each Interest Period ------------------- for a Fixed Rate Tranche, the rate obtained by dividing (i) the LIBOR Rate for such Interest Period by (ii) a percentage equal to 1 minus the stated maximum rate (stated as a decimal) of all reserves then required to be maintained against "Eurocurrency liabilities" as specified in Regulation D (or A-1 against any other category of liabilities which includes deposits by reference to which the interest rate on a Fixed Rate Tranche is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of any Lender to United States residents). "Advance Date" shall have the meaning assigned to it in Section 1.13. ------------ ------------ "Affiliate" shall mean, with respect to any Person, (a) each Person --------- that, directly or indirectly, owns or controls, whether beneficially, or as a trustee, guardian or other fiduciary, ten percent (10%) or more of the Stock having ordinary voting power in the election of directors of such Person, (b) each Person that controls, is controlled by or is under common control with such Person or any Affiliate of such Person, or (c) each of such Person's officers, directors, joint ventures and partners. For the purpose of this definition, "control" of a Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of its management or policies, whether through the ownership of voting securities, by contract or otherwise. "Agent" shall have the meaning assigned to it in the first paragraph ----- of this Agreement. "Agreement" shall mean the Credit Agreement to which this Annex A is --------- ------- attached and of which it forms a part, including all Annexes, Schedules, and Exhibits attached or otherwise identified thereto, all restatements, modifications and supplements hereof or hereto, and any appendices, attachments, exhibits or schedules to any of the foregoing, and shall refer to this Agreement as the same may be in effect at the time such reference becomes operative; provided, that any reference to the Schedules to this Agreement shall be deemed - -------- a reference to the Schedules as in effect as of the Closing Date, unless otherwise provided in a written amendment thereto. "Applicable Margin" shall mean (a) with respect to interest based upon ----------------- the Index Rate, one and one-quarter percent (1.25%) per annum and (b) with respect to interest based upon the Adjusted LIBOR Rate, two and one-half percent (2.50%) per annum. "Blocked Account" shall have the meaning assigned to it in Annex B. --------------- ------- "Blocked Account Agreement" shall have the meaning assigned to it in ------------------------- Annex B. - ------- "Borrower" and "Borrowers" shall have the meanings provided in the -------- --------- first paragraph of this Agreement. A-2 "Borrowing Availability" shall mean, at any time with respect to any ---------------------- Borrower, the Borrowing Base of such Borrower, less all outstanding Letter of Credit Obligations of such Borrower. "Borrowing Base" shall mean, at any time with respect to any Borrower: -------------- (a) up to sixty percent (60%) of Eligible Inventory of such Borrower, valued on a first-in, first-out basis (at the lower of cost or market), minus (b) the ----- amount of any reserves as Agent may deem necessary or appropriate from time to time in its sole discretion exercised in good faith. "Borrowing Base Certificate" shall mean a certificate in the form -------------------------- attached hereto as Exhibit 1.1(e). -------------- "Business Day" shall mean any day that is not (i) a Saturday, a Sunday ------------ or a day on which banks are required or permitted to be closed in the Stated of New York, or (ii) a day on which Agent is not open for business. "Canadian Credit Agreement" shall mean the Credit Agreement, dated as ------------------------- of the date hereof, among Tyco Toys (Canada) Inc., the lenders party thereto from time to time and General Electric Capital Canada Inc., as agent, as amended, modified or supplemented from time to time in accordance with the terms thereof. "Canadian Guaranty" shall mean the guaranty, substantially in the form ----------------- of Exhibit A-2 hereto, to be executed by Tyco Toys (Canada) Inc. in favor of ----------- Agent, for the ratable benefit of Lenders, to secure all or a portion of the Obligations owing by Industries and Tyco Parent, including all amendments, modifications and supplements thereto, and shall refer to the Canadian Guaranty as the same may be in effect at the time such reference becomes operative. "Capital Lease" shall mean any lease of any property (whether real, ------------- personal or mixed) by any Person as lessee that, in accordance with GAAP, either would be required to be classified and accounted for as a capital lease on a balance sheet of such Person or otherwise be disclosed as such in a note to such balance sheet. "Capital Lease Obligation" shall mean, as of any date, the amount of ------------------------ the obligation of the lessee under a Capital Lease that, in accordance with GAAP, would appear on a balance sheet of such lessee in respect of such Capital Lease or otherwise be disclosed as such in a note to such balance sheet. "Cash Collateral Account" shall have the meaning assigned to it in ----------------------- Annex G. - ------- A-3 "Cash Equivalents" shall mean: (1) with respect to Tyco Parent and ---------------- its Subsidiaries (other than the Subsidiaries of Tyco Parent which are organized under the laws of Canada, the United Kingdom or any political subdivision thereof) (a) securities with maturities of one year or less from the date of acquisition, issued or fully guaranteed or insured by the government of the United States of America or any agency thereof and backed by the full faith and credit of the United States of America; (b) certificates of deposit, Eurodollar time deposits, overnight bank deposits and bankers' acceptances of any domestic commercial bank having capital and surplus in excess of $500,000,000, having maturities of one year or less from the date of acquisition; and (c) commercial paper of an issuer rated at least A-1 by Standard & Poor's Corp. or at least P-1 by Moody's Investors Services, Inc., or carrying an equivalent rating by a nationally recognized rating agency if both of the two named rating agencies cease publishing ratings of investments, in each case with maturities of not less than sixty (60) days from the date acquired, (2) with respect to the Subsidiaries of Tyco Parent which are organized under the laws of Canada or any political subdivision thereof, those investments included in the defined term "Cash Equivalents" in the Canadian Credit Agreement and (3) with respect to the Subsidiaries of Tyco Parent which are organized under the laws of the United Kingdom or any political subdivision thereof, those investments set forth in clause (1) above and such other investments consented to in writing by Agent. "Change in Control" shall mean the time when (i) any Person or "group" ----------------- has acquired "beneficial ownership" (as such terms are defined under Section 13d-3 of and Regulation 13D under the Securities Exchange Act of 1934, as amended), either directly or indirectly, of outstanding shares of Stock of Tyco Parent having more than twenty percent (20%) of the voting power for the election of directors of Tyco Parent under ordinary circumstances, (ii) more than fifty percent (50%) of the members of Tyco Parent's board of directors shall have been replaced by new directors not nominated for membership on the board by a majority of directors who were either (x) directors on the Closing Date or (y) directors after the Closing Date and whose nomination to the board of directors of Tyco Parent was itself approved by a majority of directors on the board who were directors on the Closing Date, (iii) Tyco Parent has sold, transferred, conveyed, assigned or otherwise disposed of all or substantially all of the assets of Tyco Parent, (iv) a "Change of Control" (as defined in the Tyco Parent Senior Subordinated Note Indenture) shall have occurred, (v) a "Change of Control" or a "Fundamental Change" (each as defined in the First Chicago Notes) shall have occurred or (vi) a "Section 11(a)(ii) Event" (as defined in the Rights Agreement) shall have occurred. "Charges" shall mean all Federal, state, county, city, municipal, ------- local, foreign or other governmental taxes (including A-4 taxes owed to PBGC at the time due and payable), levies, assessments, charges or Liens upon or relating to (a) the Collateral, (b) the Obligations, (c) the employees, payroll, income or gross receipts of any Borrower, any other Loan Party or any Subsidiary thereof, (d) the ownership or use by any Borrower, any other Loan Party or any Subsidiary thereof of any of its assets, or (v) any other aspect of any Borrower's, any other Loan Party's or any of its Subsidiaries' business. "Chattel Paper" shall mean all "chattel paper," as such term is ------------- defined in the Code, now owned or hereafter acquired by any Borrower, any other Loan Party or any Subsidiary thereof, wherever located. "Claim" shall have the meaning assigned to it in Section 1.17. ----- ------------ "Closing Date" shall mean the Business Day on which the conditions ------------ precedent set forth in Article 2 have been satisfied, in Agent's sole --------- discretion, or waived in writing by Agent, and the initial Revolving Credit Advance has been made (which date shall in any event be on or prior to February 28, 1995). "Code" shall mean the Uniform Commercial Code as the same may, from ---- time to time, be in effect in the State of New York; provided, that in the event -------- that by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of, or the remedies with respect to, Agent's security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, the term "Code" shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such attachment, perfection, priority or remedies and for purposes of definitions related to such provisions. "Collateral" shall mean the property covered by the Collateral ---------- Documents and any other property, real or personal, tangible or intangible, now existing or hereafter acquired, that may at any time be or become subject to a Lien in favor of Agent or Lenders to secure any or all of the Obligations. "Collateral Documents" shall mean the Security Agreement, the Patent, -------------------- Trademark and Copyright Assignment, the Mortgages, the Note Pledge Agreement, the Stock Pledge Agreement and all other instruments and agreement now or hereafter securing the whole or any part of the Obligations. "Collection Account" shall mean that certain account of Agent, account ------------------ number 502-328-54 in the name of GECC/CAF Depository at Bankers Trust Company, 1 Bankers Trust Plaza, New York, New York 10006, ABA number 021-001-033, or such other account as may be designated by Agent. A-5 "Commitment Letter" shall mean the Commitment Letter, dated November ----------------- 8, 1994, by GE Capital and General Electric Capital Canada Inc. to Tyco Parent and agreed to and accepted by Tyco Parent on November 11, 1994, together with all term sheets attached thereto, as amended on December 27, 1994, January 30, 1995 and February 8, 1995 and as further amended, modified or supplemented from time to time. "Commitment Termination Date" shall mean the earliest of (a) the third --------------------------- anniversary of the Closing Date, (b) the date of termination of the Revolving Credit Commitments pursuant to Section 8.2, and (c) the date of termination of ----------- the Revolving Credit Commitments in accordance with the provisions of Section ------- 1.3. - --- "Confidential Information" shall have the meaning assigned to it in ------------------------ Section 11.13. - ------------- "Contracts" shall mean all the contracts, undertakings, or agreements --------- (other than rights evidenced by Chattel Paper, Documents or Instruments) in or under which any Borrower, any other Loan Party or any Subsidiary thereof may now or hereafter have any right, title or interest, including any agreement relating to the terms of payment or the terms of performance of any Account. "Copyrights" shall mean any copyright to which any Borrower, any other ---------- Loan Party or any Subsidiary thereof now or hereafter has title, as well as any application for a copyright hereafter made by any Borrower, any other Loan Party or any Subsidiary thereof. "Default" shall mean any event which, with the passage of time or ------- notice or both, would, unless cured or waived, become an Event of Default. "Default Rate" shall mean (a) with respect to principal owing on ------------ Revolving Credit Advances, a rate per annum equal to two percent (2%) over the rate or rates of interest otherwise in effect hereunder from time to time therefor and (b) with respect to interest or other Obligations (excluding principal on the Revolving Credit Advances), a rate per annum equal to the Index Rate in effect from time to time plus three and one-quarter percent (3-1/4%)). "Deferred Taxes" shall mean, with respect to any Person at any date, -------------- the amount of deferred taxes of such Person as shown on the balance sheet of such Person as of such date prepared in accordance with GAAP. "Designated Subsidiary" shall mean any of the Receivables Funding --------------------- Subsidiary (but only so long as not a Guarantor), Tyco Investment, Tyco Hong Kong, Tyco Far East, TOMCO A-6 I, Illco Acquisition Corp., Matchbox International Limited, Matchbox Toys, Pty. Ltd., Matchbox Collectibles Pty. Ltd., Tyco Toys (Singapore) Pte. Ltd., Tyco Asia Ltd., Universal International (Holdings) Ltd., the Inactive Subsidiaries and any other Subsidiary of Tyco Parent created or acquired after the Closing Date that with the prior written agreement of Agent is not to become a Guarantor. "Disbursement Accounts" shall have the meaning assigned to it in Annex --------------------- ----- B. - - "Distribution" shall have the meaning assigned to it in the first ------------ paragraph of this Agreement. "Documents" shall mean all "documents," as such term is defined in the --------- Code, now owned or hereafter acquired by any Borrower, any other Loan Party or any Subsidiary thereof, wherever located, and in any event any bills of lading, dock warrants, dock receipts, warehouse receipts, or other documents of title. "Dollars" and "$" shall mean lawful money of the United States of ------- - America. "DOL" shall mean the United States Department of Labor or any --- successor thereto. "Domestic Subsidiary" shall mean, with respect to any Person, any ------------------- Subsidiary of such Person which is incorporated or organized under the laws of the United States, any State or Commonwealth thereof or the District of Columbia. "Eligible Inventory" shall mean, with respect to any Borrower, such ------------------ Inventory of such Borrower that consists of finished goods and that is not ineligible as the basis for Revolving Credit Advances and Letter of Credit Obligations based on such criteria determined by Agent from time to time in its sole discretion exercised in good faith. Criteria for eligibility may be fixed and revised from time to time by Agent in its sole discretion exercised in good faith. Unless otherwise agreed to in writing by Agent, in determining whether Inventory of any Borrower constitutes Eligible Inventory of such Borrower, Agent shall not include any Inventory that: (a) is not owned by such Borrower free and clear of all Liens and rights of others, except first priority perfected Liens in favor of Agent; (b) except as provided in paragraph (c) and (d) below, is not located on premises owned and operated by such Borrower and referenced in Schedule 3.6; ------------ A-7 (c) is Inventory in transit or Inventory held on or at any leased premises where the landlord thereof has not executed a consent and waiver in form and substance satisfactory to Agent; (d) is in the possession or control of a bailee, warehouseman, processor, converter, finisher or other Person other than such Borrower, unless Agent is in possession of such agreements, instruments and documents as Agent may require (each in form and content acceptable to Agent and duly executed, as appropriate by the bailee, warehouseman, processor, converter or other Person in possession or control of such Inventory, as applicable) including warehouse receipts in Agent's name covering such Inventory; (e) is covered by a negotiable document of title; (f) in Agent's good faith judgment, is obsolete, unsalable, shopworn, damaged, unfit for further processing, or is of substandard quality (it being agreed that the determination of substandard quality with respect to any Inventory which is the subject of a License as to which such Borrower is a licensee that contains standards of quality for such Inventory shall be based upon the quality standards set forth in such License); (g) consists of display items, samples, supplies, small tools, packaging and shipping materials or defective goods which have been returned by the buyer; (h) consists of discontinued or slow-moving items; (i) does not meet all standards imposed by any Governmental Authority; (j) is placed by such Borrower on consignment or held by such Borrower on consignment from another Person; (k) is produced in violation of the Fair Labor Standards Act and subject to the "hot goods" provisions contained in Title 29 U.S.C. (S) 215 or any successor statute or section; (l) in any way fails to meet or violates any warranty, representation or covenant contained in this Agreement or any other Loan Document; or (m) is not otherwise acceptable in the sole discretion of Agent exercised in good faith. "Environmental Laws" shall mean all Federal, state and local and ------------------ foreign laws, statutes, ordinances, orders and regulations, now or hereafter in effect, and in each case as amended or supplemented from time to time, and any applicable judicial or administrative interpretation thereof relating to the regulation and protection of human health, safety, the A-8 environment and natural resources (including ambient air, surface water, groundwater, wetlands, land surface or subsurface strata, wildlife, aquatic species and vegetation). Environmental Laws include, but are not limited to, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. (S)(S) 9601 et seq.) ("CERCLA"); the Hazardous -- --- Material Transportation Act, as amended (49 U.S.C. (S)(S) 1801 et seq.); the -- --- Federal Insecticide, Fungicide, and Rodenticide Act, as amended (7 U.S.C. (S)(S) 136 et seq.); the Resource Conservation and Recovery Act, as amended (42 U.S.C. -- --- (S)(S) 6901 et seq.) ("RCRA"); the Toxic Substance Control Act, as amended (15 -- --- U.S.C. (S)(S) 2601 et seq.); the Clean Air Act, as amended (42 U.S.C. (S)(S) 740 -- --- et seq.); the Federal Water Pollution Control Act, as amended (33 U.S.C. (S)(S) - -- --- 1251 et seq.); the Occupational Safety and Health Act, as amended (29 U.S.C. -- --- (S)(S) 651 et seq.) ("OSHA"); and the Safe Drinking Water Act, as amended (42 -- --- U.S.C. (S)(S) 300(f) et seq.), and any and all regulations promulgated -- --- thereunder, and all analogous state and local and foreign counterparts or equivalents and any transfer of ownership notification or approval statutes. "Environmental Liabilities and Costs" shall mean all liabilities, ----------------------------------- obligations, responsibilities, remedial actions, removal costs, losses, damages, punitive damages, consequential damages, treble damages, costs and expenses (including all reasonable fees, disbursements and expenses of counsel, experts and consultants and costs of investigation and feasibility studies), fines, penalties, sanctions and interest incurred as a result of any claim, suit, action or demand by any person or entity, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute or common law (including any thereof arising under any Environmental Law, permit, order or agreement with any Governmental Authority) and which relate to any health or safety condition regulated under any Environmental Law or in connection with any other environmental matter or Release, threatened Release, or the presence of a Hazardous Material. "Equipment" shall mean all "equipment" as such term is defined in the --------- Code, and, in any event, shall include all machinery, equipment, furnishings, fixtures and vehicles and any and all additions, accessions, substitutions and replacements of any of the foregoing, wherever located, together with all attachments, components, parts, equipment and accessories installed thereon or affixed thereto. "ERISA" shall mean the Employee Retirement Income Security Act of 1974 ----- (or any successor legislation thereto), as amended from time to time, and any regulations promulgated thereunder. "ERISA Affiliate" shall mean any trade or business (whether or not --------------- incorporated) under common control with any Borrower, any other Loan Party or any Subsidiary thereof and A-9 which, together with such Borrower, other Loan Party or such Subsidiary, is treated as a single employer within the meaning of Section 414(b), (c), (m) or (o) of the IRC. "ERISA Event" shall mean, with respect to any Borrower or other Loan ----------- Party, any Subsidiary thereof or any ERISA Affiliate, (a) a Reportable Event with respect to a Title IV Plan or a Multi-employer Plan; (b) the withdrawal of such Borrower or other Loan Party, any Subsidiary thereof or any ERISA Affiliate from a Title IV Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer, as defined in Section 4001(a) (2) of ERISA; (c) the complete or partial withdrawal of such Borrower or other Loan Party, any Subsidiary thereof or any ERISA Affiliate from any Multi-employer Plan; (d) the filing of a notice of intent to terminate a Title IV Plan or the treatment of a plan amendment as a termination under Section 4041(c) of ERISA; (e) the institution of proceedings to terminate a Title IV Plan or Multi-employer Plan by the PBGC; (vi) the failure to make required contributions to a Qualified Plan; or (f) any other event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Title IV Plan or Multi-employer Plan or the imposition of any material liability under Title IV of ERISA, other than PBGC premiums due but not delinquent under Section 4007 of ERISA. "Eurodollar Business Day" shall mean a Business Day on which banks ----------------------- generally in the City of London are open for interbank or foreign exchange transactions. "Event of Default" shall have the meaning assigned to it in Section ---------------- ------- 8.1. - --- "Excess Borrowing Availability" shall mean at any time of measurement ----------------------------- with respect to any Borrower, the amount by which Borrowing Availability of such Borrower exceeds the aggregate principal amount of the Revolving Credit Advances owing by such Borrower. "Existing Credit Agreement" shall mean the Amended and Restated Credit ------------------------- Agreement, dated as of October 2, 1992, among Industries, as borrower, Tyco Parent, certain Subsidiaries of Tyco Parent, the lenders party thereto, NationsBank, N.A. (Carolinas) (formerly known as NationsBank of North Carolina, N.A.), as Agent, and The Bank of Nova Scotia, as co-agent, as amended by Amendment No. 1 thereto dated as of March 18, 1993, Amendment No. 2 thereto dated as of February 10, 1994, Amendment No. 3 thereto dated as of November 15, 1994, Amendment No. 4 thereto dated as of February 8, 1995 and by a letter agreement thereto dated June 7, 1994. A-10 "Fees" shall mean the fees due to Agent and Lenders as set forth in ---- Section 1.8, and any other fees due to Agent or Lenders pursuant to the Loan - ----------- Documents. "Financials" shall mean the financial statements referred to in ---------- paragraph 1 of Schedule 3.4. ------------ "First Chicago Notes" shall mean the Convertible Subordinated Notes ------------------- due July 18, 2001 issued by Tyco Parent in the original aggregate principal amount of $13,500,000, as amended, modified, supplemented, replaced or substituted for from time to time in accordance with the terms thereof and hereof. "Fiscal Month" shall mean for Tyco Parent and its Subsidiaries the ------------ following: (a) the first, fourth, seventh and tenth Fiscal Months of any Fiscal Year shall be the periods commencing on January 1, April 1, July 1 and October 1, respectively, in such Fiscal Year and ending on the fourth Saturday thereafter; (b) the second, fifth, eighth and eleventh Fiscal Months of any Fiscal Year shall be the periods commmencing on the day after the last day of the first, fourth, seventh and tenth Fiscal Months, respectively, of such Fiscal Year and ending on the fourth Saturday thereafter; and (c) the third, sixth, ninth and twelfth Fiscal Months of any Fiscal Year shall be the periods commencing on the day after the last day of the second, fifth, eighth and eleventh Fiscal Months, respectively, of such Fiscal Year and ending on the last day of March, June, September and December, respectively, immmediately thereafter. "Fiscal Quarter" shall mean for Tyco Parent and its Subsidiaries each -------------- calendar quarter. "Fiscal Year" shall mean for Tyco Parent and its Subsidiaries the ----------- calendar year. Subsequent changes of the fiscal year of Tyco Parent or any of its Subsidiaries shall not change the term "Fiscal Year," unless Agent and Required Lenders shall consent in writing to such change. "Fixed Rate" shall have the meaning assigned to it in Section 1.6(c). ---------- -------------- "Fixed Rate Tranche" shall have the meaning assigned to it in Section ------------------ ------- 1.6(c). - ------ "Fixtures" shall mean all "fixtures," as such term is defined in the -------- Code, now or hereafter owned or acquired by any Borrower, any other Loan Party or any Subsidiary thereof, A-11 wherever located, and, in any event, including all of the fixtures, systems, machinery, apparatus, equipment and fittings of every kind and nature whatsoever and all appurtenances and additions thereto and substitutions therefor or replacements thereof, now or hereafter attached or affixed to or constituting a part of, or located in or upon, Real Property wherever located (including all heating, electrical, mechanical, lighting, lifting, plumbing, ventilating, air- conditioning and air cooling, refrigerating, incinerating and power, loading and unloading, signs, escalators, elevators, boilers, communication, switchboards, sprinkler and other fire prevention and extinguishing fixtures, systems, machinery, apparatus and equipment, and all engines, motors, dynamos, machinery, pipes, pumps, tanks, conduits and ducts constituting a part of any of the foregoing, together with all extensions, improvements, betterments, renewals, substitutes, and replacements of, and all additions and appurtenances to any of the foregoing property). "Foreign Lending Entity" shall have the meaning set forth in Section ---------------------- ------- 10.2(g) of this Agreement. - ------- "Foreign Subsidiary" shall mean, with respect to any Person, any ------------------ Subsidiary of such Person which is not a Domestic Subsidiary of such Person. "GAAP" shall mean generally accepted accounting principles in the ---- United States of America as in effect from time to time, consistently applied. "GE Capital" shall mean General Electric Capital Corporation, a ---------- corporation organized under the banking laws of the State of New York. "General Intangibles" shall mean all "general intangibles," as such ------------------- term is defined in the Code, now owned or hereafter acquired by any Borrower, any other Loan Party or any Subsidiary thereof and, in any event, including all right, title and interest which any Borrower, any other Loan Party or any Subsidiary thereof may now or hereafter have in or under any Contract, all customer lists, Intellectual Property, interests in partnerships, joint ventures and other business associations, permits, proprietary or confidential information, inventions (whether or not patented or patentable), technical information, procedures, designs, knowledge, know-how, software, data bases, data, skill, expertise, experience, processes, models, drawings, materials and records, goodwill (including the goodwill associated with any Intellectual Property), all rights and claims in or under insurance policies, (including insurance for fire, damage, loss, and casualty, whether covering personal property, real property, tangible rights or intangible rights, all liability, life, key man, and business interruption insurance, and all unearned premiums), uncertificated securities, letters of credit, choses in action, and other bank accounts (including the A-12 Blocked Account and the Disbursement Accounts), rights to receive tax refunds and other payments and rights of indemnification. "Global Lenders" shall mean, collectively, the lenders providing or -------------- committing to provide any financial accommodations under any of the Overall Facilities. "Goods" shall mean all "goods" as such term is defined in the Code, ----- now owned or hereafter acquired by any Borrower, any other Loan Party or any Subsidiary thereof, wherever located, including movables, Fixtures, Equipment, Inventory, or other tangible personal property. "Governmental Authority" shall mean any nation or government, any ---------------------- state or other political subdivision thereof, and any agency, department or other entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guaranteed Indebtedness" shall mean, as to any Person, any obligation ----------------------- of such Person guaranteeing any indebtedness, lease, dividend, or other obligation ("primary obligations") of any other Person (the "primary obligor") ------------------- --------------- in any manner including any obligation or arrangement of such Person (a) to purchase or repurchase any such primary obligation, (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet condition of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (d) to indemnify the owner of such primary obligation against loss in respect thereof. "Guarantor" shall mean, at any time (i) Tyco Parent; (ii) each --------- Borrower; (iii) any other Domestic Subsidiary (other than Tyco Investment), now existing or hereafter organized or created, of Tyco Parent; provided that, so -------- long as the Receivables Funding Agreement has not been terminated or the Receivables Funding Subsidiary has any obligations thereunder, the Receivables Funding Subsidiary shall not be a Guarantor; (iv) any Foreign Subsidiary of Tyco Parent existing on the Closing Date (other than Designated Subsidiaries existing on the Closing Date which are Foreign Subsidiaries of Tyco Parent); and (v) unless otherwise agreed to in writing by Agent (including, without limitation, by reason of the last sentence of Section 5.16 hereof), any Additional Loan ------------ Party. "Guaranty" shall mean the guaranty, substantially in the form of -------- Exhibit A-1 hereto, to be executed by each Guarantor (other than Tyco Toys - ----------- (Canada) Inc. which shall execute and deliver to Agent the Canadian Guaranty and each of Tyco Toys A-13 (U.K.) Ltd., Matchbox Toys, Ltd., Illco (U.K.) Ltd., Matchbox Collectibles (U.K.) Ltd. and Playtime Toys UK Ltd. which shall execute and deliver to Agent a UK Guaranty) in favor of Agent, for the ratable benefit of Lenders, to secure all or a portion of the Obligations, including all amendments, modifications and supplements thereto, and shall refer to the Guaranty as the same may be in effect at the time such reference becomes operative. "Hazardous Material" shall mean a Hazardous Substance and/or a ------------------ Hazardous Waste. "Hazardous Substance" shall mean any element, material, compound, ------------------- mixture, solution, chemical, substance, or pollutant within the definition of "hazardous substance" under Section 101(14) of the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. (S) 9601(14); petroleum or any fraction, by-product or distillation product thereof; asbestos, polychlorinated biphenyls, or any radioactive substances; and any material regulated as a hazardous substance by any jurisdiction in which any Borrower, any other Loan Party or any Subsidiary thereof owns or operates or has owned or operated a facility. "Hazardous Waste" shall mean any element, pollutant, contaminate or --------------- discarded material (including any radioactive material) within the definition of Section 103(6) of the Resource Conservation and Recovery Act, 42 U.S.C. (S) 6903(6); and any material regulated as a hazardous waste by any jurisdiction in which any Borrower, any other Loan Party or any Subsidiary thereof owns or operates or has owned or operated a facility, or to which any Borrower, any other Loan Party or any Subsidiary thereof sends material for treatment, storage or disposal as waste. "Inactive Subsidiaries" shall mean any of View-Master International --------------------- (Singapore) Pte., Ltd., View-Master Ideal (UK) Limited, DI Hong Kong Limited, Nasta Far East, Limited, Hingham Enterprises Limited, GreatResult Electronics Limited, Matchbox Japan Ltd., Matchbox Acquisition Ltd., Tyco Toys (Italy) S.p.A., Macao Toys Ltd., and Macao Die-Casting Toys Ltd. "Indebtedness" of any Person shall mean (a) all indebtedness of such ------------ Person for borrowed money or for the deferred purchase price of property or services (including reimbursement and all other obligations with respect to surety bonds, letters of credit and bankers' acceptances, whether or not matured, but not including obligations to trade creditors incurred in the ordinary course of business (which exclusion shall include inter-company trade debt incurred with respect to purchases of Inventory permitted by Section ------- 6.4(b)) and not including obligations to pay inter-company management and - ------ royalty fees so long as such fees are paid to Industries or the direct or indirect parent corporation of the obligor of such fees), (b) all obligations evidenced by notes, bonds, debentures or similar A-14 instruments, (c) all indebtedness created or arising under any conditional sale or other title retention agreements with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (d) all Capital Lease Obligations, (e) all Guaranteed Indebtedness, (f) all Indebtedness referred to in clause (a), (b), (c), (d) or (e) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness, (f) the Obligations, (g) all liabilities under Title IV of ERISA and (h) all liabilities under or with respect to interest rate protection agreements. "Indemnified Person" shall have the meaning assigned to it in Section ------------------ ------- 1.17. - ---- "Index Rate" shall mean for any day, the rate per annum determined by ---------- Agent by reference to the higher of (i) the highest daily prime, base or equivalent rate published or announced from time to time by Bankers Trust Company, Citibank, N.A., Morgan Guaranty Trust Company of New York, Chemical Bank, or The Chase Manhattan Bank (National Association) (or any successor to any such bank) (whether or not such rate is actually charged by such bank or successor) as in effect for such day, and (ii) the latest month-end rate for ninety (90) day dealer placed commercial paper which normally is published in the "Money Rates" section of The Wall Street Journal for such day (or in the event such rate shall not so appear, in such other nationally recognized publication as Agent may, from time to time, specify to Borrowers). If any of the above-mentioned banks (or any successor thereto) does not timely publish or announce its prime, base or equivalent rate and Agent is not otherwise able to determine same, Agent shall determine the relevant interest rate on the basis of the prime, base or equivalent rates published by the remaining banks (or successors thereto) or, if none of such prime, base or equivalent rates is available on a timely basis and Agent is not otherwise able to determine same, Agent shall forthwith give notice thereof to Borrowers and Lenders, whereupon until Agent notifies Borrowers and Lenders that such prime, base or equivalent rates are available on a timely basis, Agent may utilize the prime, base or equivalent rate of any bank having its principal place of business in New York, New York and having a combined capital and surplus of not less than $500,000,000. "Industries" shall mean Tyco Industries, Inc., a Delaware corporation. ---------- "Instruments" shall mean all "instruments," as such term is defined in ----------- the Code, now owned or hereafter acquired by any Borrower, any other Loan Party or any Subsidiary thereof, A-15 wherever located and in any event all certificated securities, certificates of deposit and all notes and other evidences of indebtedness, other than instruments that constitute, or are a part of a group of writings that constitute, Chattel Paper. "Intellectual Property" shall mean, collectively, all Trademarks, all --------------------- Patents, all Copyrights and all Licenses now held or hereafter acquired by any Borrower, any other Loan Party or any Subsidiary thereof, together with all franchises, tax refund claims, rights of indemnification, payments under insurance, indemnities, warranties and guarantees payable with respect to the foregoing. "Intercreditor Agreement" shall mean the Intercreditor Agreement to be ----------------------- entered into among Agent, Manufacturing, Industries, Receivables Funding Subsidiary, Financial Security Assurance and GE Capital as agent for Redwood with respect to the priority of Liens granted by Manufacturing and Industries in favor of Agent and the Receivables Funding Subsidiary in certain assets of Manufacturing and Industries and certain other matters related to such Liens, as amended, modified or supplemented from time to time in accordance with the terms thereof. "Interest Period" shall mean with respect to any Fixed Rate Tranche --------------- bearing interest at a Fixed Rate, the period of one, two or three whole calendar months commencing on the first day of the calendar month specified by the relevant Borrower in its Notice of Fixed Rate Election with respect to such Fixed Rate Tranche delivered to Agent in accordance with Section 1.6(d). -------------- Notwithstanding the foregoing, all Interest Periods shall be adjusted in accordance with the second sentence of Section 1.6(a). -------------- "Inventory" shall mean all "inventory," as such term is defined in the --------- Code, now or hereafter owned or acquired by, any Borrower, any other Loan Party or any Subsidiary thereof, wherever located, and, in any event, including inventory, merchandise, Goods and other personal property which are held by or on behalf of any Borrower, any other Loan Party or any Subsidiary thereof for sale or lease or are furnished or are to be furnished under a contract of service or which constitute raw materials, work in process or materials used or consumed or to be used or consumed in any Borrower's, any other Loan Party's or any of its Subsidiaries' business or in the processing, production, packaging, promotion, delivery or shipping of the same, including other supplies, and all accessions and additions thereto and all Documents covering any of the foregoing. "IRC" shall mean the Internal Revenue Code of 1986, as amended, and --- any successor thereto. "IRS" shall mean the Internal Revenue Service, or any successor --- thereto. A-16 "Investment" shall mean, for any Person (a) the acquisition (whether ---------- for cash, property, services or securities or otherwise) of capital stock, bonds, notes, debentures, partnership or other ownership interests or other securities of any other Person or any agreement to make any such acquisition; (b) the making of any deposit with, or advance, loan or other extension of credit to, any other Person (including the purchase of property from another Person subject to an understanding or agreement, contingent or otherwise, to resell such property to such Person); and (c) the entering into of any Guaranteed Indebtedness of, or other contingent obligation with respect to, Indebtedness or other liability of any other Person and (without duplication) any amount committed to be advanced, lent or extended to such Person. "Junior Preferred Stock" shall mean the Series A Junior Preferred ---------------------- Stock of Tyco Parent which may be issued pursuant to and in accordance with the terms of the Rights Agreement having the terms and rights set forth in Exhibit A to the Rights Agreement. "Leases" shall mean all of those leasehold estates in real property ------ now owned or hereafter acquired by any Borrower, any other Loan Party or any Subsidiary thereof, as lessee or sublessor. "Lender" and "Lenders" shall have the meanings provided in the first ------ ------- paragraph of this Agreement. "Letter of Credit Fee" shall have the meaning assigned to it in Annex -------------------- ----- D to this Agreement. - - "Letter of Credit Obligations" shall mean all outstanding obligations ---------------------------- incurred by Agent or any Lender at the request of any Borrower, whether direct or indirect, contingent or otherwise, due or not due, in connection with the issuance or guaranty, by Agent, any Lender or another Person, of Letters of Credit. The amount of such Letter of Credit Obligations with respect to any Letter of Credit or guaranty thereof at any time shall equal the maximum amount which may be payable by Agent or Lenders thereupon or pursuant thereto at such time. "Letters of Credit" shall mean commercial or standby letters of credit ----------------- issued at the request and for the account of any Borrower for which Agent or any Lender has incurred Letter of Credit Obligations. "LIBOR Rate" shall mean for the purposes of determining any Fixed Rate ---------- for any Interest Period, the rate per annum offered on Eurodollar deposits in U.S. dollars for a period corresponding to the duration of such Interest Period in an amount approximately corresponding to the principal amount of the applicable Fixed Rate Tranche, as quoted by Telerate News Service A-17 on page 3750 as of 11:00 a.m. (London time) on the second full Eurodollar Business Day preceding the beginning of such Interest Period. The LIBOR Rate will be determined by Agent on the second full Eurodollar Business Day preceding the beginning of the relevant Interest Period and the LIBOR Rate so determined will be utilized for the duration of such Interest Period. If such interest rate ceases to be available from Telerate News Service, the LIBOR Rate will be determined from such financial reporting service or other information as would be mutually acceptable to Borrowers and Agent. "License" shall mean any Patent License, Trademark License or other ------- license of rights or interests now held or hereafter acquired by any Borrower, any other Loan Party or any Subsidiary thereof. "Lien" shall mean any mortgage, deed to secure debt or deed of trust, ---- pledge, hypothecation, assignment, deposit arrangement, lien, charge, claim, security interest, easement or encumbrance, or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any lease or title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement perfecting a security interest under the Code or comparable law of any jurisdiction). "Loan Documents" shall mean this Agreement, the Revolving Credit -------------- Notes, the Collateral Documents, the Guaranty, the Canadian Guaranty, the UK Guaranties and all agreements, instruments, documents and certificates in favor of Agent or Lenders executed in connection with the transactions contemplated by this Agreement, including, without limitation, those that are identified in the Schedule of Closing Documents attached as Annex C, and including all other ------- pledges, powers of attorney, consents, assignments, contracts, notices, and other written matter whether heretofore, now or hereafter executed by or on behalf of any Loan Party and delivered to Agent or Lenders in connection with this Agreement or the financing transactions contemplated hereby. "Loan Party" shall mean and include each Borrower, each other ---------- Guarantor, Tyco Investment, TOMCO I, Tyco Hong Kong, Tyco Far East, Illco Acquisition Corp., Tyco Asia Limited, Matchbox International Limited and Matchbox Toys Pty. Ltd. "Manufacturing" shall have the meaning assigned to it in the first ------------- paragraph of this Agreement. "Margin Stock" shall have the meaning specified in Regulation G, T, U ------------ or X of the Board of Governors of the Federal Reserve System, as in effect from time to time. A-18 "Material Adverse Effect" shall mean a material adverse effect on (i) ----------------------- the business, assets, operations, prospects, or financial condition of any Borrower, any other Loan Party or any Subsidiary thereof, (ii) any Borrower's ability to pay or perform the Obligations in accordance with the terms thereof or any other Loan Party's ability to perform its obligations under any Loan Document to which it is a party, (iii) the Collateral or Agent's or Lenders' Liens on the Collateral or the priority of any such Liens, or (iv) the rights and remedies of Agent and Lenders under this Agreement and the other Loan Documents. "Material Contract" shall mean each contract (other than purchase ----------------- orders for the sale by any Loan Party or any Subsidiary thereof in the ordinary course of business of Inventory to Persons who are not Affiliates of any Loan Party or any Subsidiary thereof) to which any Borrower, any other Loan Party or any Subsidiary thereof is now or hereafter a party which (x) involves aggregate consideration payable to or by (or guaranteed by) such Borrower or other Loan Party or Subsidiary, contingent or otherwise, in excess of $1,000,000 in any calendar year (other than foreign exchange contracts permitted hereunder) or (y) is otherwise material to the business or operations of such Loan Party or Subsidiary. "Maximum Lawful Rate" shall have the meaning assigned to it in Section ------------------- ------- 1.6(f). - ------ "Maximum Revolving Credit Commitment" shall mean an amount equal to ----------------------------------- $35,000,000 as of the Closing Date, as reduced or terminated in accordance with the terms of this Agreement. "Mortgage" shall mean any fee or leasehold mortgage or deed of trust -------- executed by any Loan Party in favor of Agent (or any co-agent or trustee for the benefit of Agent), for the ratable benefit of Lenders, to secure all or a portion of the Obligations, including all amendments, modifications and supplements thereto, and shall refer to the relevant Mortgage as the same may be in effect at the time such reference becomes operative. "Multi-employer Plan" shall mean a "Multi-employer plan" as defined in ------------------- Section 4001(a) (3) of ERISA, and to which any Borrower, other Loan Party, any Subsidiary thereof or any ERISA Affiliate is making, is obligated to make, or within the last six years has made or been obligated to make, contributions on behalf of participants who are or were employed by any of them. "Non-Funding Lender" shall have the meaning assigned to it in Section ------------------ ------- 1.2. - --- "Non-Use Fee" shall have the meaning assigned to it in Annex D. ----------- ------- A-19 "Note Pledge Agreement" shall mean the Note Pledge Agreement, --------------------- substantially in the form of Exhibit B hereto, to be executed by Tyco Parent, --------- each other Loan Party which is or becomes either a Domestic Subsidiary of Tyco Parent or an Additional Loan Party that is a Guarantor and Agent, including all amendments, modifications and supplements thereto, and shall refer to the Note Pledge Agreement as the same may be in effect at the time such reference becomes operative. "Notice of Fixed Rate Election" shall have the meaning assigned to it ----------------------------- in Section 1.6(d). "Notice of Revolving Credit Advance" shall have the meaning assigned ---------------------------------- to it in Section 1.1(c). "Obligations" shall mean all loans, advances, liabilities and ----------- obligations for the payment of monetary amounts (whether or not such payment is then required or contingent, or amounts are liquidated or determinable) owing by any Borrower or any other Loan Party to Agent or any Lender, of any kind or nature, present or future, whether or not evidenced by any note, agreement or other instrument, arising under any of the Loan Documents. This term includes all principal, interest (including interest which accrues after the commencement of any case or proceeding referred to in Section 8.1(g) or (h)), all Fees, --------------------- Charges, Claims, expenses, attorneys' fees and any other sum chargeable to any Borrower or any other Loan Party under any of the Loan Documents. "Obligor" shall mean any borrower under any of the Overall Facilities ------- and any guarantor of any or all of the obligations of any such borrower under any of the Overall Facilities, including, without limitation, the Borrowers and Guarantors. "Other Lender" shall have the meaning assigned to it in Section 1.2. ------------ ----------- "Other Taxes" shall have the meaning assigned to it in Section ----------- ------- 1.19(b). - ------- "Overall Facilities" shall mean, collectively, the loan facilities ------------------ provided under this Agreement, the Canadian Credit Agreement and the UK Credit Agreement. "Patent License" shall mean, with respect to any Borrower, any other -------------- Loan Party or any Subsidiary thereof, rights under any written agreement now owned or hereafter acquired by such Person granting any right with respect to any invention on which a Patent is in existence. "Patent, Trademark and Copyright Assignment" shall mean the Trademark, ------------------------------------------ Patent and Copyright Security Agreement, substan- A-20 tially in the form of Exhibit C hereto, to be executed by Tyco Parent, each --------- other Loan Party which is or becomes either a Domestic Subsidiary of Tyco Parent or an Additional Loan Party that is a Guarantor and Agent, for the ratable benefit of Lenders, including all amendments, modifications and supplements thereto, and shall refer to the Patent, Trademark and Copyright Assignment as the same may be in effect at the time such reference becomes operative. "Patents" shall mean all of the following in which any Borrower, any ------- other Loan Party or any Subsidiary thereof now holds or hereafter acquires any interest: (a) all letters patent of the United States of America or any other country, all registrations and recordings thereof, and all applications for letters patent of the United States of America or any other country, including registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States of America, any State or Territory thereof, or any other country, and (b) all reissues, divisions, continuations, continuations-in-part or extensions thereof. "Payor" shall have the meaning assigned to it in Section 1.13. ----- ------------ "PBGC" shall mean the Pension Benefit Guaranty Corporation or any ---- successor thereto. "Pension Plan" shall mean an employee pension benefit plan, as defined ------------ in Section 3(2) of ERISA (other than a Multi-employer Plan), which is not an individual account plan, as defined in Section 3(34) of ERISA, and which any Borrower or any other Loan Party or, if a Title IV Plan, any Subsidiary of any Borrower, any other Loan Party or any ERISA Affiliate maintains, contributes to or has an obligation to contribute to on behalf of participants who are or were employed by any of them. "Permitted Encumbrances" shall mean the following encumbrances: (a) ---------------------- Liens for taxes or assessments or other governmental Charges or levies, either not yet due and payable or to the extent that nonpayment thereof is permitted by the terms of Section 5.2 of this Agreement; (b) pledges or deposits securing ----------- obligations under workmen's compensation, unemployment insurance, social security or public liability laws or similar legislation; (c) with respect to any Person other than Tyco Investment, TOMCO I, any Inactive Subsidiary and Almat Toy Company, pledges or deposits securing bids, tenders, contracts (other than contracts for the payment of money) or leases to which any Loan Party or any of its Subsidiaries is a party as lessee made in the ordinary course of business; (d) deposits securing public or statutory obligations of any Loan Party or any of its Subsidiaries; (e) with respect to any Person other than Tyco Investment, TOMCO I, any Inactive Subsidiary and Almat Toy A-21 Company, inchoate and unperfected workers', mechanics', suppliers' or similar liens arising in the ordinary course of business; (f) with respect to any Person other than Tyco Investment, TOMCO I, any Inactive Subsidiary and Almat Toy Company, carriers', warehousemen's or other similar possessory liens arising in the ordinary course of business and securing Indebtedness not yet due and payable in an outstanding aggregate amount not in excess of $100,000 at any time; (g) deposits securing, or in lieu of, surety, appeal or customs bonds in proceedings to which any Loan Party or any of its Subsidiaries is a party; (h) any attachment or judgment lien, unless the judgment it secures shall not, within 30 days after the entry thereof, have been discharged or execution thereof stayed pending appeal, or shall not have been discharged within 30 days after the expiration of any such stay; (i) with respect to any Person other than Tyco Investment, TOMCO I, any Inactive Subsidiary and Almat Toy Company, zoning restrictions, easements, licenses, or other restrictions on the use of real property or other minor irregularities in title (including leasehold title) thereto, so long as the same do not materially impair the use, value, or marketability of such real property, leases or leasehold estates and (j) with respect to any Foreign Subsidiary of Tyco Parent (other than TOMCO I, any Inactive Subsidiary, Tyco Toys (Canada) Inc., Tyco Toys (U.K.) Ltd., Matchbox Toys, Ltd. and the respective Subsidiaries of such Canadian and United Kingdom Persons) which is a borrower (or a Subsidiary of a borrower) under a credit facility permitted under Section 6.3(i) provided by a lender or group of lenders which are not Affiliates of any Loan Party or any Subsidiary thereof, Liens in favor of such lender or lenders (or agent acting on behalf of such lenders) to secure the obligations of such Person under or with respect to such credit facility in respect of any property or assets of such Person (other than the capital stock of any Subsidiary of Tyco Parent) not located in the United States, Canada or the United Kingdom. "Person" shall mean any individual, sole proprietorship, partnership, ------ joint venture, trust, unincorporated organization, association, corporation, institution, public benefit corporation, entity or government (whether Federal, state, county, city, municipal or otherwise, including any instrumentality, division, agency, body or department thereof). "Plan" shall mean, with respect to any Borrower, any other Loan Party, ---- any Subsidiary thereof or any ERISA Affiliate, at any time, an employee benefit plan, as defined in Section 3(3) of ERISA, which such Borrower, other Loan Party, Subsidiary or ERISA Affiliate maintains, contributes to or has an obligation to contribute to on behalf of participants who are or were employed by any of them. "Proceeds" shall mean all "proceeds," as such term is defined in the -------- Code and, in any event, shall include, with A-22 respect to any Person: (a) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to such Person from time to time with respect to any of its property or assets; (b) any and all payments (in any form whatsoever) made or due and payable to such Person from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of such Person's property or assets by any governmental body, authority, bureau or agency (or any person acting under color of governmental authority), (c) any claim of such Person against third parties (i) for past, present or future infringement of any Patent or Patent License or (ii) for past, present or future infringement or dilution of any Trademark or Trademark License or for injury to the goodwill associated with any Trademark, Trademark registration or Trademark licensed under any Trademark License; (d) any recoveries by such Person against third parties with respect to any litigation or dispute concerning any of such Person's property or assets; and (e) any and all other amounts from time to time paid or payable under or in connection with any of such Person's property or assets, upon disposition or otherwise. "Projections" shall mean the projections referred to in paragraph 2 of ----------- Schedule 3.4 and any other projections required to be delivered by any Loan - ------------ Party to Agent or any Lender under this Agreement. "Property" shall have the meaning assigned to it in Section 5.14. -------- ------------ "Qualified Plan" shall mean an employee pension benefit plan, as -------------- defined in Section 3(2) of ERISA, which is intended to be tax-qualified under IRC Section 401(a), and which any Borrower or other Loan Party, any Subsidiary of any Borrower or other Loan Party or any ERISA Affiliate maintains, contributes to or has an obligation to contribute to on behalf of participants who are or were employed by any of them. "Real Property" shall mean all real property owned, leased or operated ------------- by any Borrower or any other Loan Party or any Affiliate of any Borrower or any other Loan Party. "Receivables Funding Agreement" shall mean the Receivables Funding and ----------------------------- Servicing Agreement, dated as of even date with this Agreement, among the Receivables Funding Subsidiary, as borrowers, Redwood, as lender, Industries, as servicer, Financial Security Assurance and GE Capital, as operating agent and collateral agent. "Receivables Funding Documents" means, collectively, the Receivables ----------------------------- Funding Agreement and the Receivables Sale Agreement. A-23 "Receivables Funding Subsidiary" shall mean, collectively, Tyco ------------------------------ Funding I Corporation and Tyco Funding II Corporation, each a Delaware corporation and a direct subsidiary of Industries. Where the context requires, such defined term shall mean and refer to one or both of such corporations. "Receivables Sale Agreement" shall mean, collectively (i) the -------------------------- Receivables Transfer Agreement, dated as of even date with this Agreement, by and between Manufacturing and the Receivables Funding Subsidiary and (ii) the Receivables Transfer Agreement, dated as of even date with this Agreement, by and between Industries and the Receivables Funding Subsidiary. Where the context requires, such defined term shall mean and refer to one or both of such agreements. "Redwood" shall mean Redwood Receivables Corporation, a Delaware ------- corporation. "Regulatory Change" shall mean, with respect to any Lender, any change ----------------- after the date of this Agreement in Federal, state or foreign law or regulations (including Regulation D) or the adoption or making after such date of any interpretation, directive or request applying to a class of lenders including such Lender of or under any Federal, state or foreign law or regulations (whether or not having the force of law and whether or not failure to comply therewith would be unlawful) by any court or governmental or monetary authority charged with the interpretation or administration thereof. "Release" shall mean, as to any Person, any release or any spilling, ------- leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, disposing or migration of a Hazardous Material into the indoor or outdoor environment by such Person (or by a person under such Person's direction or control), including the movement of a Hazardous Material through or in the air, soil, surface water, ground water or property; but shall exclude any release, discharge, emission or disposal in material compliance with a then effective permit or order of a Governmental Authority. "Reportable Event" shall mean any of the events described in Section ---------------- 4043(b) (1), (2), (3), (5), (6), (8) or (9) of ERISA. "Required Lenders" shall mean, at any time, Lenders holding more than ---------------- 50% of the aggregate of the Revolving Credit Commitments of all Lenders at such time (or, if the Commitment Termination Date has occurred, in lieu of the Revolving Credit Commitments, the aggregate of the Revolving Credit Loan then outstanding in respect of the Revolving Credit Commitment). "Required Payment" shall have the meaning assigned to it in Section ---------------- ------- 1.13. - ---- A-24 "Restricted Payment" shall mean, with respect to any Person: (a) the ------------------ declaration or payment of any dividend or the occurrence of any liability to make any other payment or distribution of cash or other property or assets in respect of such Person's Stock; (b) any payment on account of the purchase, redemption, defeasance or other retirement of such Person's Stock or any other payment or distribution made in respect thereof, either directly or indirectly; or (c) any payment, loan, contribution, or other transfer of funds or other property to any Stockholder of such Person; provided, that Restricted Payment -------- shall not include any dividends declared or paid by the Receivables Funding Subsidiary to Industries. "Retiree Welfare Plan" shall refer to any Welfare Plan providing for -------------------- continuing coverage or benefits for any participant or any beneficiary of a participant after such participant's termination of employment, other than continuation coverage provided pursuant to Section 4980B of the IRC and at the sole expense of the participant or the beneficiary of the participant. "Revolving Credit Advance" shall have the meaning assigned to it in ------------------------ Section 1.1(a). - -------------- "Revolving Credit Commitment" shall mean, as to each Lender, the --------------------------- commitment of such Lender to make Revolving Credit Advances to Borrowers pursuant to Section 1.1 in the aggregate principal amount outstanding not to ----------- exceed the amount set forth opposite such Lender's name on the signature pages of this Agreement or specified in any amendment hereto or any assignment hereof pursuant to Section 10.2 hereof, as such amount may be reduced or terminated in ------------ accordance with the terms of this Agreement. "Revolving Credit Loan" shall mean the aggregate amount of Revolving --------------------- Credit Advances of all Lenders outstanding at any time. "Revolving Credit Notes" shall mean the promissory notes provided for ---------------------- by Section 1.1(d) and all promissory notes delivered in substitution or exchange -------------- therefor, in each case as the same may be modified and supplemented and in effect from time to time. "Rights Agreement" shall mean the Rights Agreement, dated as of ---------------- September 8, 1988, between Tyco Parent and Chemical Bank (as successor to Manufacturers Hanover Trust Company), as rights agent, as in effect on the date of execution thereof and as amended with the prior written consent of Agent. "Security Agreement" shall mean the Security Agreement, substantially ------------------ in the form of Exhibit D attached hereto, to be executed by Tyco Parent and each --------- other Loan Party which is or becomes either a Domestic Subsidiary of Tyco Parent or an A-25 Additional Loan Party that is a Guarantor in favor of Agent, for the ratable benefit of Lenders, including all amendments, modifications and supplements thereto, and shall refer to the Security Agreement as the same may be in effect at the time such reference becomes operative. "Stock" shall mean all shares, options, warrants, general or limited ----- partnership interests, participation or other equivalents (regardless of how designated) of or in a corporation, partnership or equivalent entity whether voting or nonvoting, including common stock, preferred stock, or any other "equity security" (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended). "Stock Pledge Agreement" shall mean the Pledge Agreement, ---------------------- substantially in the form of Exhibit E hereto, to be executed by Tyco Parent, --------- each other Loan Party which is a Domestic Subsidiary of Tyco Parent (now existing or hereafter created or acquired), TOMCO I, certain other Foreign Subsidiaries of Tyco Parent and each Additional Loan Party that is a Guarantor in favor of Agent, for the ratable benefit of Lenders, including all amendments, modifications and supplements thereto, and shall refer to the Stock Pledge Agreement as the same may be in effect at the time such reference becomes operative. "Subject Property" shall mean all Real Property subject to a Mortgage ---------------- and serving as security for all or a portion of the Obligations, consisting of, to the extent required by Agent, the leasehold interest of Manufacturing at 8585 SW Hall Blvd., Beaverton, Oregon. "Subordinated Debt Documents" shall mean (i) the Tyco Parent Senior --------------------------- Subordinated Note Indenture and the notes, guaranties and other documents executed and delivered in connection therewith and (ii) the First Chicago Notes and the documents executed and delivered in connection therewith, each as amended, modified or supplemented from time to time in accordance with the terms thereof and hereof. "Subsidiary" shall mean, with respect to any Person: (a) any ---------- corporation of which an aggregate of more than 50% of the outstanding Stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, Stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, owned legally or beneficially by such Person and/or one or more Subsidiaries of such Person, or with respect to which any such Person has the right to vote or designate the vote of more than 50% of such Stock whether by proxy, agreement, operation of law or otherwise; and (b) any A-26 partnership in which such Person and/or one or more Subsidiaries of such Person shall have an interest (whether in the form of voting or participation in profits or capital contribution) of more than 50% or of which any such Person is a general partner or may exercise the powers of a general partner. "Taxes" shall mean taxes, levies, imposts, deductions, Charges or ----- withholdings, and all liabilities with respect thereto, excluding franchise taxes and other taxes imposed on or measured by the net income of any Lender by the United States of America, the jurisdiction under the laws of which such Lender is organized, the jurisdiction in which such Lender's applicable lending office is located or other jurisdictions where such Lender is subject to tax solely by reason of its activities or former activities in such jurisdictions other than activities in connection with the transactions contemplated by this Agreement or, in each case, any political subdivision thereof. "Termination Date" shall mean the date on which (a) the Revolving ---------------- Credit Commitments have been terminated in full, and Lenders shall have no further obligation to make any credit extensions or financial accommodations hereunder, and (b) all Obligations have been paid in full in immediately available funds in Dollars, and Borrowers shall have funded in immediately available funds in Dollars and Cash Equivalents the amounts required, if any, under the Loan Documents into the Cash Collateral Account in respect of Letter of Credit Obligations, if any, then outstanding. "Termination Fee" shall have the meaning provided in Annex D. --------------- ------- "Title IV Plan" shall mean a Pension Plan, other than a Multi-employer ------------- Plan, which is covered by Title IV of ERISA. "TOMCO I" shall mean Tyco Management I, Limited, a Barbados ------- corporation. "Trademark License" shall mean, with respect to any Borrower, any ----------------- other Loan Party or any Subsidiary thereof, rights under any written agreement now owned or hereafter acquired by such Person granting any right to use any Trademark or Trademark registration. "Trademarks" shall mean all of the following in which any Borrower, ---------- any other Loan Party or any Subsidiary thereof now holds or hereafter acquires any interest: (a) all common law and statutory trademarks, trade names, corporate names, business names, trade styles, service marks, logos, other source or business identifiers, prints and labels on which any of the foregoing have appeared or appear, designs and general intangibles of like nature, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all A-27 applications in connection therewith, including registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States of America, any State or Territory thereof, or any other country or any political subdivision thereof; (b) all reissues, extensions or renewals thereof; and (c) all licenses thereunder and together with the goodwill associated with and symbolized by such trademark. "Tyco Parent" shall have the meaning assigned to it in the first ----------- paragraph of this Agreement. "Tyco Far East" shall mean Tyco (Far East) Limited, a Hong Kong ------------- corporation. "Tyco Hong Kong" shall mean Tyco (Hong Kong) Limited, a Hong Kong -------------- corporation. "Tyco Investment" shall mean Tyco Investment Corp., a Delaware --------------- corporation. "Tyco Parent Senior Subordinated Note Indenture" shall mean the ---------------------------------------------- Indenture, dated as of August 15, 1992, among Tyco Parent, as issuer, certain Subsidiaries of Tyco Parent, as guarantors, and Bankers Trust Company, as trustee (as successor trustee to NationsBank of Virginia, N.A.), with respect to Tyco Parent's 10-1/8% Senior Subordinated Notes due August 15, 2002, as such indenture was supplemented by two Supplemental Indentures, dated as of October 17, 1992 and as of June 8, 1993, respectively, adding additional Subsidiaries of Tyco Parent as guarantors, and as such indenture shall be further amended, modified or supplemented from time to time in accordance with the terms thereof and hereof. "UK Credit Agreement" shall mean the Guarantee and Revolving Credit ------------------- Facility Agreement to be entered into among Tyco Toys (U.K.) Ltd., Matchbox Toys, Ltd., the lenders party thereto from time to time, Lloyds Bank PLC, as issuing bank, and GE Capital, as agent, as amended, modified or supplemented from time to time in accordance with the terms thereof. "UK Guaranty" shall mean a guaranty, substantially in the form of ----------- Exhibit A-3 hereto, to be executed by each of Tyco Toys (U.K.) Ltd., Matchbox - ----------- Toys, Ltd., Illco (U.K.) Ltd., Matchbox Collectibles (U.K.) Ltd. and Playtime Toys UK Ltd. in favor of Agent, for the ratable benefit of Lenders, to secure all or a portion of the Obligations, including all amendments, modifications and supplements thereto, and shall refer to the respective UK Guaranty as the same may be in effect at the time such reference becomes operative. "Unfunded Pension Liability" shall mean, at any time, the aggregate -------------------------- amount, if any, of the sum of (a) the amount by A-28 which the present value of all accrued benefits under each Title IV Plan exceeds the fair market value of all assets of such Title IV Plan allocable to such benefits in accordance with Title IV of ERISA, all determined as of the most recent valuation date for each such Title IV Plan using the actuarial assumptions in effect under such Title IV Plan, and (b) for a period of five (5) years following a transaction reasonably likely to be covered by Section 4069 of ERISA, the liabilities (whether or not accrued) that could be avoided by any Borrower, other Loan Party, any Subsidiary thereof or any ERISA Affiliate as a result of such transaction. "Weekly Settlement Date" shall have the meaning assigned to it in ---------------------- Section 1.15(c). - --------------- "Welfare Plans" shall mean any welfare plan, as defined in Section ------------- 3(1) of ERISA, which is maintained or contributed to by any Borrower or other Loan Party, any Subsidiary thereof or any ERISA Affiliate. "Withdrawal Liability" shall mean, at any time, the aggregate amount -------------------- of the liabilities, if any, pursuant to Section 4201 of ERISA, and any increase in contributions pursuant to Section 4243 of ERISA with respect to all Multi- employer Plans. 2. Certain Matters of Construction. (a) Except as otherwise set forth ------------------------------- in Annex H, any accounting term used in the Agreement or the other Loan ------- Documents shall have, unless otherwise specifically provided therein, the meaning customarily given such term in accordance with GAAP. (b) All other undefined terms contained in this Agreement or the other Loan Documents shall, unless the context indicates otherwise, have the meanings provided for by the Code as in effect in the State of New York to the extent the same are used or defined therein. (c) The words "herein," "hereof" and "hereunder" or other words of similar import refer to this Agreement as a whole, including the annexes, exhibits and schedules hereto, as the same may from time to time be amended, modified or supplemented, and not to any particular section, subsection or clause contained in this Agreement. (d) For purposes of this Agreement and the other Loan Documents, the following additional rules of construction shall apply: (i) wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and the plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, the feminine and the neuter; (ii) the term "including" shall not be limiting or exclusive, unless specifically indicated to the A-29 contrary; (iii) all references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations; and (iv) all references to any instruments or agreements, including references to any of the Loan Documents, shall include any and all modifications or amendments thereto and any and all extensions or renewals thereof. A-30 EX-10.47 3 TRANSFER AGREEMENT INDUSTRIES Exhibit 10.47 EXECUTION COPY RECEIVABLES TRANSFER AGREEMENT Dated as of February 24, 1995 by and between Tyco Industries, Inc. and Tyco Funding I Corporation and Tyco Funding II Corporation TABLE OF CONTENTS -----------------
Page ---- ARTICLE I ................................................................... 1 DEFINITIONS ................................................................. 1 SECTION 1.01. Definitions and Conventions ............................. 1 SECTION 1.02. Other Terms and Interpretation .......................... 16 SECTION 1.03. Rounding ................................................ 16 ARTICLE II .................................................................. 17 TRANSFERS OF RECEIVABLES .................................................... 17 SECTION 2.01. Agreement to Transfer to TFC I .......................... 17 SECTION 2.02. Agreement to Transfer to TFC II ......................... 18 SECTION 2.03. Grant of Security Interest .............................. 20 ARTICLE III CONDITIONS OF SALE .......................................................... 20 SECTION 3.01. Conditions Precedent to the Initial Sale .................................................... 20 SECTION 3.02. Conditions Precedent to All Sales ....................... 22 ARTICLE IV .................................................................. 23 REPRESENTATIONS, WARRANTIES AND COVENANTS ................................... 23 SECTION 4.01. Representations and Warranties of the Company ................................................. 24 SECTION 4.02. Covenants of the Company ................................ 36 SECTION 4.03. Negative Covenants of the Company ....................... 45 SECTION 4.04. Restatement of Representations, Warranties and Covenants ................................ 47 SECTION 4.05. Breach of Representations, Warranties or Covenants ............................................... 47 ARTICLE V ................................................................... 48 TFC I LOANS TO THE COMPANY .................................................. 48 SECTION 5.01. TFC I Loans ............................................. 48 SECTION 5.02. Notices Relating to Loans ............................... 48 SECTION 5.03. Disbursement of Loan Proceeds ........................... 48 SECTION 5.04. Company Note I .......................................... 49 SECTION 5.05. Principal Repayments .................................... 49 SECTION 5.06. Interest ................................................ 49 SECTION 5.07. Time and Method of Payments ............................. 50 ARTICLE VI TFC II LOANS TO THE COMPANY ................................................. 50 SECTION 6.01. TFC II Loans ............................................ 50 SECTION 6.02. Notices Relating to Loans ............................... 50
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Page ---- SECTION 6.03. Disbursement of Loan Proceeds ........................... 51 SECTION 6.04. Company Note II ......................................... 51 SECTION 6.05. Principal Repayments .................................... 51 SECTION 6.06. Interest ................................................ 51 SECTION 6.07. Time and Method of Payments ............................. 52 ARTICLE VII COLLATERAL SECURITY ......................................................... 52 SECTION 7.01. Security Interest ....................................... 52 SECTION 7.02. Other Collateral; Rights in Receivables ................. 53 SECTION 7.03. Indebtedness Secured .................................... 53 SECTION 7.04. Further Action Evidencing Security Interest ................................................ 53 ARTICLE VIII INDEMNIFICATION ............................................................. 54 SECTION 8.01. Indemnification ......................................... 54 SECTION 8.02. Assignment of Indemnities ............................... 55 ARTICLE IX MISCELLANEOUS ............................................................... 56 SECTION 9.01. Notices, Etc ............................................ 56 SECTION 9.02. No Waiver; Remedies ..................................... 56 SECTION 9.03. Binding Effect; Assignability ........................... 57 SECTION 9.04. No Proceedings .......................................... 57 SECTION 9.05. Amendments; Consents and Waivers ........................ 57 SECTION 9.06. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL .................................... 57 SECTION 9.07. Execution in Counterparts; Severability ............................................ 58 SECTION 9.08. Descriptive Headings .................................... 58 SECTION 9.09. No Setoff ............................................... 58 SECTION 9.10. Further Assurances ...................................... 58 SECTION 9.11. Third-Party Beneficiaries ............................... 59 SECTION 9.12. Assignment of Agreement ................................. 59 EXHIBIT 1A [FORM OF ASSIGNMENT I] ...................................................... 62 EXHIBIT 1B [FORM OF ASSIGNMENT II] ..................................................... 63 EXHIBIT 2A [FORM OF COMPANY NOTE I] .................................................... 64 EXHIBIT 2B
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Page ---- [FORM OF COMPANY NOTE II] ................................................... 67 EXHIBIT 3 FORM OF LOCKBOX AGREEMENT ................................................... 70 EXHIBIT 4 FORM OF OPINION OF COUNSEL OF COMPANY ....................................... 71 SCHEDULE I [Form of] Written Contracts ................................................. 75 SCHEDULE II [Form of] Collection Policy ................................................. 76 SCHEDULE III Addresses of Company ........................................................ 77 SCHEDULE IV LockBox Banks and LockBox Accounts of Company ............................... 78 SCHEDULE V Trade Names,"Doing Business Names", Fictitious Names and Assumed Names of the Company ........................................................ 79
iii Exhibit 10.47 RECEIVABLES TRANSFER AGREEMENT, dated as of February 24, 1995 (this "Agreement"), among TYCO INDUSTRIES, INC. (the "Company"), a Delaware corporation, TYCO FUNDING I CORPORATION, a Delaware corporation ("TFC I") and TYCO FUNDING II CORPORATION ("TFC II"), a Delaware corporation (TFC I and TFC II, collectively, the "Funding Corporations"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Funding Corporations have been formed for the sole purpose of purchasing and acquiring by capital contribution, and financing such purchases by borrowing funds from Redwood Receivables Corporation ("Redwood") and granting to Redwood a security interest in, all trade receivables originated by the Company and Tyco Manufacturing Corp.; and WHEREAS, the Company intends to sell, or otherwise contribute, and the Funding Corporations intend to purchase, or otherwise have contributed to them, such trade receivables, from time to time, as described herein; NOW, THEREFORE, the parties agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. Definitions and Conventions. As used herein, the --------------------------- following terms shall have the following meanings: "Accession Agreement" means an Accession Agreement substantially in ------------------- the form of Exhibit A to the Collateral Agent Agreement. "Accumulated Funding Deficiency" shall have the meaning provided in ------------------------------ Section 412 of the Code and Section 302 of ERISA, whether or not waived. "Advance" means each of the advances made by Redwood to either TFC I ------- or TFC II under the Funding Agreement. "Advances Outstanding" means, with respect to each Funding -------------------- Corporation, for any day, the aggregate principal amount of Advances outstanding on such day to such Funding Corporation, after giving effect to all repayments by and issuances of Advances to such Funding Corporation on such day; provided, however, that Advances which have been paid with proceeds of a payment under the Policy shall continue to remain Advances Outstanding for purposes of this Agreement until FSA has been paid as subrogee to the rights of Redwood as Lender under the Funding Agreement or reimbursed pursuant to the Insurance and Indemnity Agreement for all payments under the Policy used to repay such Advances and all amounts due in connection therewith under the Insurance and Indemnity Agreement, as evidenced by a written notice from FSA delivered to the Operating Agent, and FSA shall be deemed to be the "Lender" thereof (as that term is used in the Funding Agreement) to the extent of any payments thereon made by FSA. "Adverse Claim" means any claim of ownership or any lien, security ------------- interest, title retention, trust or other charge or encumbrance, or other type of preferential arrangement having the effect or purpose of creating a lien or security interest, other than the security interest created under the Funding Agreement. "Affected Party" means Redwood, the Collateral Agent, the Liquidity -------------- Agent, any of the Liquidity Lenders, the Operating Agent, any of the Letter of Credit Providers, FSA or any affiliate of the foregoing persons. "Affiliate" means, as to any Person, any other Person that, directly --------- or indirectly, is in control of, is controlled by, or is under common control with, such Person within the meaning of control under Section 15 of the Securities Act of 1933, as amended. "Agreement" means this Receivables Transfer Agreement between the --------- Company and the Funding Corporations. "Assignment I" has the meaning specified in Section 2.01(c). ------------ "Assignment II" has the meaning specified in Section 2.02(c). ------------- "Assignments" means Assignment I and Assignment II, collectively. ----------- "Billed Amount" means, with respect to any Receivable, the net amount ------------- billed on the Billing Date to the related Obligor with respect thereto. "Billing Date" means the date on which the invoice with respect to a ------------ Receivable was generated. "Borrowing Base Certificate" means the certificate designated as such -------------------------- pursuant to the Funding Agreement. "Business Day" means any day of the year, other than a Saturday or ------------ Sunday, that in the City of New York is neither a 2 legal holiday nor a day on which banking institutions are authorized or obligated by law or executive order to be closed. "Code" means the Internal Revenue Code of 1986, including, unless the ---- context otherwise requires, the rules and regulations thereunder, as amended from time to time. "Collateral" has the meaning specified in Section 7.01. ---------- "Collateral Agent" means GE Capital or such other party designated as ---------------- agent for Redwood and FSA and the other secured parties under the Collateral Agent Agreement and this Agreement. "Collateral Agent Agreement" means the Amended and Restated Collateral -------------------------- Agent and Security Agreement, dated as of February 24, 1995, entered into by Redwood with the Collateral Agent, the Letter of Credit Agent, the Liquidity Agent, the Depositary and each Transaction Credit Provider, as amended, modified, restated or supplemented from time to time. "Collateral Obligations" means all obligations of the Company under ---------------------- Sections 4.05 and 8.01. "Collection Account" means the deposit or trust account maintained ------------------ with the Depositary as described in Section 6.01(b) of the Funding Agreement. "Collections" means, with respect to any Receivable, all collections ----------- and other Proceeds of such Receivable (including late charges, fees and interest arising thereon and all recoveries with respect to Receivables that have been written off as uncollectible but excluding the Sale Price therefor). "Commercial Paper" means commercial paper issued by Redwood. ---------------- "Commitment Termination Date" means the earlier of (a) the date so --------------------------- designated pursuant to Section 9.01 of the Funding Agreement as a result of a Termination Event and (b) the Termination Date; provided, however, that if each of the Funding Corporations has not on or before the 270th day prior to the Termination Date (i) entered into an agreement with Redwood, the Operating Agent and FSA renewing or extending the Termination Date, or (ii) entered into a firm commitment with a counterparty, acceptable to the Operating Agent and FSA, to purchase from Redwood at par plus accrued interest all Advances Outstanding as of the Termination Date, then if the Commitment Termination Date has not already occurred pursuant to clause (a), the Commitment Termination Date shall be the date that is the last day of the Clean Down Period Part 3 (as defined in the Funding Agreement) occurring in the year 2000, but in no event later that April 1, 2000. 3 "Commonly Controlled Entity" means the Company and any entity, whether -------------------------- or not incorporated, affiliated with the Company pursuant to Section 414(b), (c), (m) or (o) of the Code. "Company" means Tyco Industries, Inc. as the transferor of Receivables ------- under this Agreement. "Company Interest Rate" has the meaning specified in Section 5.06. --------------------- "Company Note I" has the meaning specified in Section 5.04. -------------- "Company Note II" has the meaning specified in Section 6.04. --------------- "Contract" means an agreement (or agreements) (including invoices) -------- pursuant to, or under which, an Obligor shall be obligated to pay for services rendered or merchandise or goods sold to such Obligor by the Company from time to time. "Contributed Receivables" means the Tier I Contributed Receivables and ----------------------- the Tier II Contributed Receivables, collectively. "Credit and Collection Policies" means the credit, collection, ------------------------------ customer relations and service policies of the Company in effect on the Effective Date, as set forth in writing and delivered to Redwood, the Operating Agent, the Collateral Agent and FSA on or before the Effective Date pursuant to Section 3.01(p) of the Funding Agreement, and as such policies may hereafter be amended, modified or supplemented from time to time with the prior written consent of the Operating Agent and FSA. "Dealer Agreement" means any dealer agreement entered into by Redwood ---------------- for the distribution of Commercial Paper. "Debt" of any Person means (a) indebtedness of such Person for ---- borrowed money, (b) obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (c) obligations of such Person to pay the deferred purchase price of property or services (excluding trade payables incurred in the ordinary course of business), (d) obligations of such Person as lessee under leases which have been or should be, in accordance with GAAP, recorded as capital leases, (e) obligations secured by any lien or other charge upon property or assets owned by such Person, even though such Person has not assumed or become liable for the payment of such obligations, (f) obligations of such Person under direct or indirect guaranties in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the 4 kinds referred to in clauses (a) through (e) above, and (g) liabilities in respect of unfunded vested benefits under plans covered by ERISA. For the purposes hereof, the term "guarantee" shall include any agreement, whether such agreement is on a contingency or otherwise, to purchase, repurchase or otherwise acquire Debt of any other Person, or to purchase, sell or lease, as lessee or lessor, property or services, in any such case primarily for the purpose of enabling another person to make payment of Debt, or to make any payment (whether as an advance, capital contribution, purchase of an equity interest or otherwise) to assure a minimum equity, asset base, working capital or other balance sheet or financial condition, in connection with the Debt of another Person, or to supply funds to or in any manner invest in another Person in connection with Debt of such Person. "Defaulted Receivable" means a Receivable (a) as to which any payment, -------------------- or part thereof, remains unpaid for more than 90 days from the Maturity Date for such Receivable, or (b) as to which the Obligor thereof has taken any action, or suffered any event to occur, of the type described in Section 9.01(c) of the Funding Agreement (except that such action or event shall be taken by or occur with respect to such Obligor, rather than by or to the parties mentioned in such Section), or (c) which otherwise would be determined to be uncollectible and written off in accordance with the Credit and Collection Policies. "Depositary" means Bankers Trust Company, or any other Person designated as the successor Depositary from time to time in its capacity as issuing and paying agent or trustee in connection with the issuance of Commercial Paper by Redwood. "Depositary Agreement" means the Depositary Agreement, dated as of -------------------- March 15, 1994, between Redwood and the Depositary and consented to by the Liquidity Agent. "Dollar" and "$" means lawful currency of the United States of ------ America. "Effective Date" means the date of this Agreement. -------------- "Eligible Customer" means any Obligor which is not an Excluded ----------------- Customer. "Eligible Receivable" has the meaning specified in the Funding ------------------- Agreement. "ERISA" means the Employee Retirement Income Security Act of 1974, as ----- it may be amended from time to time, and the regulations promulgated thereunder. 5 "Event of Servicer Termination" has the meaning specified in Section ----------------------------- 9.02 the Funding Agreement. "Excluded Customer" means an Obligor which is (a) an Affiliate of the ----------------- Company or TFC I or TFC II, (b) a Governmental Authority, (c) domiciled outside the United States or (d) an Obligor listed on Schedule 3 to the Funding Agreement as revised from time to time in good faith by or with the prior written consent of the Operating Agent and FSA pursuant to a letter in the form of Annex A thereto. "Excluded Receivables" means any Receivables agreed by the Company and -------------------- either TFC I or TFC II, as the case may be, with the prior written consent of the Operating Agent and FSA, to be excluded from any Sale or contribution. "FSA" means Financial Security Assurance Inc., a stock insurance --- company organized and created under the laws of the State of New York, and any successors thereto or assigns thereof. "Funding Agreement" means the Receivables Funding and Servicing ----------------- Agreement, dated as of February 24, 1995 among the Funding Corporations (as Borrowers), Redwood (as Lender), the Operating Agent, the Collateral Agent, FSA and the Company (as Servicer). "Funding Corporations" means, collectively TFC I and TFC II. -------------------- "Funding Excess" means a Borrowing Excess as defined in the Funding -------------- Agreement. "GAAP" means generally accepted accounting principles as in effect in ---- the United States, consistently applied, as of the date of such application. "GE Capital" means General Electric Capital Corporation. ---------- "Governmental Authority" means the United States of America, any ---------------------- state, local or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions thereof or pertaining thereto. "Governmental Consents" has the meaning specified in Section --------------------- 4.01(a)(xv). "Income Discount Amount" means the amount calculated by the Operating ---------------------- Agent as set forth on Schedule 4 to the Funding Agreement, from time to time, at its discretion, subject, with respect to Items E to H inclusive in the "Input Table" of such 6 Schedule 4 and the definitions set forth on such Schedule 4 relating to such items, to the subsequent written notice to FSA and, upon notice by FSA to the Operating Agent to the prior written consent of FSA to the next succeeding calculation. "Indemnified Amounts" has the meaning specified in Section 8.01. ------------------- "Indemnified Party" has the meaning specified in Section 8.01. ----------------- "Insurance and Indemnity Agreement" means the agreement of that name --------------------------------- among the Funding Corporations, Redwood, GE Capital, the Servicer and FSA, dated as of February 24, 1995. "Intercreditor Agreement" means the Intercreditor Agreement, dated as ----------------------- of February 24, 1995, among the Company, Tyco Manufacturing, Corp., the Funding Corporations, Redwood, FSA, GE Capital and other parties. "Lender Secured Parties" has the meaning given to that term in the ---------------------- Funding Agreement. "Letter of Credit" means the letter of credit, dated April 12, 1994, ---------------- provided by the Letter of Credit Provider pursuant to the Letter of Credit Agreement. "Letter of Credit Agent" means GE Capital, in its capacity as agent ---------------------- for the Letter of Credit Providers under the Letter of Credit Agreement, and its successors and permitted assigns in such capacity. "Letter of Credit Agreement" means the Amended and Restated Letter of -------------------------- Credit Reimbursement Agreement, dated as of February 24, 1995, entered into by Redwood, the Letter of Credit Agent and the Letter of Credit Provider for the provision of credit support for the Commercial Paper and the Liquidity Loans. "Letter of Credit Provider" means, initially, GE Capital, as provider ------------------------- of the Letter of Credit under the Letter of Credit Agreement, and thereafter its successors and any permitted assigns in such capacity. "Liquidity Agent" means GE Capital and its successors and assigns as --------------- agent for the Liquidity Lenders pursuant to the Liquidity Loan Agreement. "Liquidity Loan Agreement" means the Amended and Restated Liquidity ------------------------ Loan Agreement, dated as of February 24, 1995, entered into by Redwood, the Liquidity Agent and the Liquidity Lenders in connection with the provision of liquidity support for Redwood. 7 "Liquidity Lenders" means, collectively, GE Capital and any other ----------------- provider of liquidity loans under the Liquidity Loan Agreement. "Liquidity Loans" means borrowings by Redwood under the Liquidity Loan --------------- Agreement. "Lockbox" has the meaning specified in Section 4.02(b). ------- "Lockbox Account" means a segregated deposit account described in --------------- Section 6.01(a) of the Funding Agreement in the name of the Collateral Agent, into which all Collections in respect of Transferred Receivables owned by such Funding Corporation shall be deposited, subject to and in accordance with such Section 6.01. "Lockbox Agreement" means the agreement among either TFC I or TFC II, ----------------- as the case may be, the Operating Agent, Redwood, and a Lockbox Bank with respect to the Lockbox Account associated with such Funding Corporation, in the form of Exhibit 3 hereto. "Lockbox Bank" means any of the banks approved in writing by FSA ------------ holding one or more Lockbox Accounts. "Material Adverse Effect" means, with respect to any event or ----------------------- circumstance and any Person, a material adverse effect with respect to: (a) the business, financial condition, operations or assets of such Person, or of such Person and such Person's Subsidiaries on a consolidated basis or Tyco Industries, Inc., Tyco Investment Corp., Tyco Manufacturing Corp., Tyco Distribution Corp., Matchbox (USA) Ltd. or Tyco Playtime, Inc.; (b) the ability of such Person to perform its obligations under any Related Document, any Program Document, the Receivables Transfer Agreements or the Contracts; (c) the validity or enforceability of, or collectibility of amounts payable under, the Receivables Transfer Agreements, any Related Document or any Program Document; (d) the Receivables or the status, existence, perfection or first priority of FSA's, Redwood's or the Collateral Agent's interest in the Receivables, taken as a whole, free from any Adverse Claim; 8 (e) the validity, enforceability or collectibility of the Receivables or Contracts; (f) the ability of FSA, Redwood or the Collateral Agent to liquidate, or foreclose against, the Transferred Receivables; (g) the practical realization by FSA, Redwood or the Collateral Agent of any of the benefits or security afforded under the Receivables Transfer Agreements, any Related Document or any Program Document; or (h) the shadow rating assigned by either Rating Agency to the credit risk exposure of FSA, if such adverse effect on the shadow rating is notified to the Company by FSA. "Maturity Date", for any Receivable, means the due date for payment ------------- specified in the related Contract, or, if no date is specified, 60 days from the Billing Date. "Maximum Facility Commitment" has the meaning specified in the Funding --------------------------- Agreement. "Multiemployer Plan" means a multiemployer plan (within the meaning of ------------------ Section 4001(a)(3) of ERISA) in respect of which a Commonly Controlled Entity makes contributions or has liability. "Obligor" means, with respect to any Receivable, the Person primarily ------- obligated to make payments in respect thereof. "Operating Agent" means GE Capital as operating agent pursuant to the --------------- Funding Agreement, together with its successors and assigns. "Operating Agent Agreement" means the Operating Agent Agreement, dated ------------------------- as of March 15, 1994, between Redwood and the Operating Agent. "Outstanding Balance" of any Receivable at any time means an amount ------------------- (not less than zero) equal to (a) its Billed Amount minus (b) all payments received from the Obligor with respect thereto minus (c) all discounts to or any other modifications that reduce the Billed Amount; provided, that if the -------- Operating Agent or the Servicer makes a determination that all payments by the Obligor with respect to such Billed Amount have been made, the Outstanding Balance shall be zero. "PBGC" means the Pension Benefit Guaranty Corporation or any successor ---- agency, corporation or instrumentality of the United States to which the duties and powers of the Pension Benefit Guaranty Corporation are transferred. 9 "Person" means an individual, partnership, corporation (including a ------ business trust), joint stock company, trust, association, joint venture, Governmental Authority or any other entity of whatever nature. "Plan" means any pension plan (other than a Multiemployer Plan) ---- covered by Title IV of ERISA, which is maintained by a Commonly Controlled Entity or in respect of which a Commonly Controlled Entity has liability. "Policy" means, collectively, the financial guaranty insurance ------ policies Nos. 50352A-N and 50352B-N issued by FSA with respect to each Note (as defined in the Funding Agreement) pursuant to the Insurance and Indemnity Agreement, including any endorsement thereto. "Premium" has the meaning specified in the Insurance and Indemnity ------- Agreement. "Premium Letter" means the side letter dated as of February 24, 1995 -------------- among FSA, GE Capital in its capacity as Operating Agent and Collateral Agent, Redwood and the Funding Corporations in respect of the premium payable by the Funding Corporations in consideration of the issuance of the Policy. "Proceeds" means, with respect to any Receivable, whatever is -------- receivable or received when such Receivable is sold, collected, exchanged or otherwise disposed of, whether such disposition is voluntary or involuntary, and includes all rights to payment, including returned premiums, with respect to any insurance relating to such Receivable but excludes the Sale Price and the Advances. "Program Documents" means the Letter of Credit Agreement, the ----------------- Liquidity Loan Agreement, the Depositary Agreement, the Commercial Paper, the Operating Agent Agreement, each Accession Agreement, and the Dealer Agreements. "Purchase Price Calculation Date" has the meaning specified in Section ------------------------------- 2.01(c) with respect to Tier I Receivables and the meaning specified in Section 2.02(c) with respect to Tier II Receivables, respectively. "Receivable" means: (a) indebtedness of an Obligor (whether ---------- constituting an account, chattel paper, instrument or general intangible) arising from the provision of merchandise, goods or services by the Company to such Obligor (other than the provision of goods or services to Tyco Toys, Inc. or any Affiliate thereof), including the right to payment of any interest or finance charges and other obligations of such Obligor with respect thereto; 10 (b) all security interests or liens and property subject thereto from time to time purporting to secure payment by the Obligor; (c) all guarantees, indemnities and warranties and proceeds thereof, proceeds of insurance policies, financing statements and other agreements or arrangements of whatever character from time to time supporting or securing payment of such Receivable; (d) all Collections with respect to any of the foregoing; (e) all Records with respect to any of the foregoing; and (f) all Proceeds of any of the foregoing. "Receivables" means the Tier I Receivables and the Tier II ----------- Receivables, collectively. "Receivables Transfer Agreements" means this Agreement and that ------------------------------- certain Receivables Transfer Agreement, dated as of February 24, 1995 among Tyco Manufacturing Corp., TFC I and TFC II. "Records" means all Contracts and other documents, agreements, books, ------- records and other information (including, without limitation, computer programs, tapes, disks, punch cards, data processing software and related property and rights) prepared and maintained by the Company, the Servicer or either of the Funding Corporations with respect to Receivables and the related Obligors. "Redwood" means Redwood Receivables Corporation, a Delaware ------- corporation. "Related Documents" means the Assignments, the Insurance and Indemnity ----------------- Agreement, the Policy, the Premium Letter, each Lockbox Agreement, the Funding Agreement, the Intercreditor Agreement and all agreements, instruments, certificates, financing statements or other documents required to be delivered hereunder or thereunder. "Reportable Event" means any of the events set forth in Section ---------------- 4043(b) of ERISA or the regulations thereunder. "Requested Amount" means the amount which the Company requested to ---------------- receive on any Purchase Price Calculation Date, pursuant to a Request Notice, from the sale of Receivables on the related Sale Date. 11 "Request Notice" means a notice in the form of a computer print-out, -------------- tape or other form acceptable to the Funding Corporations and the Operating Agent, which (a) by reference to an invoice register and file or microfiche of actual invoices, (i) enables each of TFC I or TFC II, as the case may be, and the Operating Agent to identify all Receivables to be sold or contributed on the succeeding Sale Date by the Company to each of TFC I or TFC II, as the case may be, and the Required Information with respect thereto and (ii) sets forth the amount of payments received on each Transferred Receivable since the prior Purchase Price Calculation Date and (b) sets forth the Requested Amount for the succeeding Purchase Price Calculation Date. "Request Notice Date" has the meaning set forth in Section 2.01(c) ------------------- with respect to Tier I Receivables and the meaning set forth in Section 2.02(c) with respect to Tier II Receivables. "Required Information" means, with respect to a Receivable, (a) the -------------------- Obligor, (b) the Obligor's address, (c) the invoice number, (d) the Billed Amount, (e) the Maturity Date, (f) the Billing Date and (g) whether or not such Receivable is an Eligible Receivable. "Restrictions on Transferability" means any material condition to, or ------------------------------- restriction on, the ability of the holder or an assignee of the holder of any right, title or interest to sell, assign, transfer or otherwise liquidate such right, title or interest in a commercially reasonable time and manner or which would otherwise materially deprive the holder or any assignee of the holder of the benefits thereof. "Sale" means a sale of Receivables by the Company to either TFC I or ---- TFC II pursuant to Section 2.01 or Section 2.02, respectively. "Sale Date" has the meaning specified in Section 2.01(b) with respect --------- to Tier I Receivables and the meaning specified in Section 2.02(b) with respect to Tier II Receivables, respectively. "Sale Price" means with respect to the Eligible Receivables to be sold ---------- by the Company to the Funding Corporations on any day the price calculated by TFC I or TFC II, as the case may be, and approved from time to time by the Operating Agent with the consent of FSA, equal to: (a) the Outstanding Balance of Eligible Receivables to be sold by the Company to the Funding Corporations on such date, minus 12 (b) the expected costs to be incurred by the Funding Corporations of financing such purchase of such Sold Receivables until the Outstanding Balance of such Sold Receivables is paid in full, minus (c) the portion of such Sold Receivables that are reasonably expected by the Company to become Defaulted Receivables, minus (d) the portion of such Sold Receivables that are reasonably expected by the Company to be reduced by means other than by the receipt of Collections on such Sold Receivables or pursuant to (c) above, in each of (b), (c) and (d) determined based on historical experience by the Company; "Security Agreement" means the agreement dated as of February 24, 1995 ------------------ between Tyco Manufacturing, Tyco Distribution Corp. and other parties, in favor of GE Capital. "Security Interest" has the meaning specified in Section 7.01. ----------------- "Servicer" means the Company as Servicer or any successor Servicer -------- pursuant to the Funding Agreement. "Settlement Period" means, in the case of the initial Settlement ----------------- Period, the period beginning with the Effective Date to and including the last day of the week in which such Effective Date occurs; with respect to the final Settlement Period, the period ending on the Termination Date and beginning with the first day of the week in which the Termination Date occurs; and with respect to all other Settlement Periods, each week, unless (with respect to any of the foregoing Settlement Periods) otherwise specified to be a month. "Sold Receivables" means together, the Tier I Sold Receivables and the ---------------- Tier II Sold Receivables. "Subsidiary" means, as to any Person, any corporation or other entity ---------- of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other Persons performing similar functions are at the time directly or indirectly owned by such Person. "Termination Date" means August 24, 2000. ---------------- "Termination Event" means any event designated as such in the Funding ----------------- Agreement. 13 "TFC I" means Tyco Funding I Corporation, as a purchaser and ----- transferee of Receivables under this Agreement. "TFC II" means Tyco Funding II Corporation, as a purchaser and ------ transferee of Receivables under this Agreement. "TFC I Deferred Sale Price" means the portion of the Sale Price of ------------------------- Tier I Sold Receivables sold on any Sale Date exceeding the amount of the Sale Price under Section 2.01 to be paid in cash, which portion (computed as of the related Purchase Price Calculation Date of such Receivables) when added to the cumulative amount of all previous TFC I Deferred Sale Prices (after giving effect to any repayment of amounts due thereunder) shall not exceed 25% of the Outstanding Balance of such Tier I Transferred Receivables, provided that no such 25% limit shall apply during any Clean Down Period. The obligations of TFC I in respect of the TFC I Deferred Sale Price shall be evidenced by TFC I's subordinated promissory note in the form of Exhibit 5 hereto. "TFC II Deferred Sale Price" means the portion of the Sale Price of -------------------------- Tier II Sold Receivables sold on any Sale Date exceeding the amount of the Sale Price under Section 2.02 to be paid in cash, which portion (computed as of the related Purchase Price Calculation Date of such Receivables) when added to the cumulative amount of all previous TFC II Deferred Sale Prices (after giving effect to any repayment of amounts due thereunder) shall not exceed 25% of the Outstanding Balance of such Tier II Transferred Receivables, provided that no such 25% limit shall apply during any Clean Down Period. The obligations of TFC II in respect of the TFC II Deferred Sale Price shall be evidenced by TFC II's subordinated promissory note in the form of Exhibit 5 hereto. "TFC I Loan" has the meaning specified in Section 5.01. ---------- "TFC II Loan" has the meaning specified in Section 6.01. ----------- "TFC Loans" means together the TFC I Loans and the TFC II Loans. --------- "TFC Secured Obligations" means all obligations of every nature of the ----------------------- Funding Corporations, collectively (other than to the Company or Servicer), now or hereafter existing, under the Funding Agreement and any promissory note or other document or instrument delivered pursuant to such documents, and all amendments, extensions or renewals thereof, whether for principal, interest, fees, expenses or otherwise, whether now existing or hereafter arising, voluntary or involuntary, whether or not jointly owed with others, direct or indirect, absolute or contingent, liquidated or unliquidated, and whether or not from 14 time to time decreased or extinguished and later increased, created or incurred and all or any portion of such obligations that are paid, to the extent that all or any part of such payment is avoided or recovered directly or indirectly from Redwood, the Operating Agent, FSA or the Collateral Agent as a preference, fraudulent transfer or otherwise. "Tier I Contributed Receivable" has the meaning specified in Section ----------------------------- 2.01(l). "Tier II Contributed Receivable" has the meaning specified in 2.02(l). ------------------------------ "Tier I Eligible Receivable" means any Eligible Receivable other than -------------------------- an Eligible Receivable the Obligor of which is Toys'R'Us. "Tier II Eligible Receivable" means any Eligible Receivable the --------------------------- Obligor of which is Toys'R'Us. "Tier I Receivable" means any Receivable other than a Receivable the ----------------- Obligor of which is Toys'R'Us. "Tier II Receivable" means any Receivable the Obligor of which is ------------------ Toys'R'Us. "Tier I Sold Receivable" has the meaning specified in Section 2.01(c). ---------------------- "Tier II Sold Receivable" has the meaning specified in Section ----------------------- 2.02(c). "Tier I Transferred Receivable" has the meaning specified in Section ----------------------------- 2.01(d). "Tier II Transferred Receivable" has the meaning specified in Section ------------------------------ 2.02(d). "Toys'R'Us" means Toys'R'Us Inc., a Delaware corporation. --------- "Transaction Credit" shall have the meaning ascribed to it in the ------------------ Collateral Agent Agreement. "Transaction Credit Agreement" means any agreement executed by a ---------------------------- Transaction Credit Provider, the Operating Agent and Redwood for the provision of Transaction Credit. "Transaction Credit Provider" shall have the meaning such term has --------------------------- pursuant to the Collateral Agent Agreement. 15 "Transferred Receivables" means, together, the Tier I Transferred ----------------------- Receivables and the Tier II Transferred Receivables. "Transferred Receivables Balance" means at any time the aggregate ------------------------------- Outstanding Balance of the Transferred Receivables less the Outstanding Balance of Transferred Receivables constituting Defaulted Receivables. "UCC" means, for any jurisdiction, the Uniform Commercial Code as from --- time to time in effect in such jurisdiction. "Underfunded Plan" means any Plan that has an Underfunding. ---------------- "Underfunding" means, with respect to any Plan, the excess, if any, of ------------ (a) the present value of all benefits under the Plan (based on the assumptions used to fund the Plan pursuant to Section 412 of the Code) as of the most recent valuation date over (b) the fair market value of the assets of such Plan as of such valuation date. "Wire Payments" has the meaning specified in Section 4.02(b). -------------- SECTION 1.02. Other Terms and Interpretation. All accounting terms ------------------------------ not specifically defined herein shall be construed in accordance with GAAP. All terms used in Article 9 of the UCC of the State of New York, and not specifically defined herein, are used herein as defined in such Article 9. All hourly references herein shall refer to New York City time. Except as otherwise indicated, all agreements defined in this Agreement refer to the same as from time to time amended or supplemented or as the terms of such agreements are waived or modified in accordance with their terms. All weekly or monthly references with respect to Tyco Toys, Inc., the Company, TFC I or TFC II herein shall refer to fiscal weeks or months of Tyco Toys, Inc., the Company, TFC I or TFC II, as the case may be. SECTION 1.03. Rounding. For purposes of any calculations referred to -------- in this Agreement (unless otherwise specified), (i) all percentages resulting from such calculations will be rounded up, if necessary, to the nearest one ten- thousandth of a percentage point (e.g. 9.87654% (or .0987654) being rounded up to 9.8766% (or .098766)) and (ii) all Dollar amounts used in or resulting from such calculations will be rounded up to the nearest cent (e.g., $1,057.373 being rounded up to $1,057.38). 16 ARTICLE II TRANSFERS OF RECEIVABLES SECTION 2.01. Agreement to Transfer to TFC I. (a) On the terms and ------------------------------ conditions of this Agreement, on and after the date of this Agreement until the Commitment Termination Date, the Company agrees to sell or contribute to TFC I each Tier I Receivable originated by the Company other than Excluded Receivables. (b) The Company shall, on each Business Day (each, a "Sale Date"), (i) identify, at its option, a certain number of Transferred Receivables as contributed to TFC I ("Tier I Contributed Receivables") and (ii) identify as purchased all other Transferred Receivables not previously identified as purchased or contributed, in each case in accordance with the procedures described in this Section 2.01(b). Each such identification shall be made as of the opening of business of the Servicer on each Business Day.b (c) On the Effective Date and on a date occurring no less frequently than weekly thereafter (each a "Request Notice Date") the Company shall deliver to TFC I a Request Notice setting forth all outstanding Tier I Receivables originated and owned by the Company through such date. No later than the following Business Day (the "Purchase Price Calculation Date") TFC I and the Company shall identify and mutually agree which Tier I Eligible Receivables designated in such Request Notice were, since the last Purchase Price Calculation Date, or are to be purchased and sold on such Purchase Price Calculation Date (the "Tier I Sold Receivables"). The price paid for such Tier I Sold Receivables shall be the Sale Price for such Tier I Sold Receivables. Such Sale Price shall be paid by means of (i) an immediate cash payment to the Company plus (ii) the TFC I Deferred Sale Price. The cumulative amount of all TFC I Deferred Sale Prices shall be subject at all times to the limitations contained in the definition thereof. On each Purchase Price Calculation Date, such cumulative TFC I Deferred Sale Price shall be recalculated by the Servicer. To the extent that the Sale Price for the Tier I Sold Receivables is less than the fair market value thereof, the difference shall be deemed a capital contribution by the Company to TFC I. On or before the Effective Date, the Company and TFC I shall enter into a Certificate of Assignment I substantially in the form of Exhibit 1A hereto ("Assignment I"). On each Sale Date the Tier I Sold Receivables and Tier I Contributed Receivables shall be assigned, and on the subsequent Purchase Price Calculation Date TFC I shall pay the Sale Price for such Tier I Sold Receivables. The portion of the Sale Price which is to be payable immediately in cash shall be payable by wire transfer on the Purchase Price Calculation Date to an account designated by the Company (and approved by the 17 Operating Agent) on or before the Purchase Price Calculation Date. (d) On and after each Business Day hereunder, TFC I shall own the Tier I Sold Receivables and the Tier I Contributed Receivables which have been (assuming compliance with the terms hereof) identified as being transferred to TFC I under this Section 2.01 (each a "Tier I Transferred Receivable") and the ------------ Company shall not take any action inconsistent with such ownership and shall not claim any ownership interest in any such Tier I Transferred Receivable. (e) Until the occurrence of an Event of Servicer Termination or a resignation pursuant to the Funding Agreement, the Company, as Servicer, shall conduct the servicing, administration and collection of Tier I Transferred Receivables and shall take, or cause to be taken, all such actions as may be necessary or advisable to service, administer and collect such Tier I Transferred Receivables, from time to time, all in accordance with (i) the terms of the Funding Agreement, (ii) the Credit and Collection Policies and, to the extent not in conflict therewith, customary and prudent servicing procedures for trade receivables of a similar type and (iii) all applicable laws, rules and regulations. Documents relating to Tier I Transferred Receivables shall be held in trust by the Company, as Servicer, for the benefit of TFC I and its assignees as the owners thereof, and possession of any incident relating to the Tier I Transferred Receivables and Contracts so retained is for the sole purpose of facilitating the servicing of the Tier I Transferred Receivables. Such retention and possession thereof is at the will of TFC I and its assignees and in a custodial capacity for their benefit only. SECTION 2.02. Agreement to Transfer to TFC II. (a) On the terms and ------------------------------- conditions of this Agreement, on and after the date of this Agreement until the Commitment Termination Date, the Company agrees to sell or contribute to TFC II each Tier II Receivable originated by the Company other than Excluded Receivables. (b) The Company shall, on each Business Day (each, a "Sale Date"), (i) identify, at its option, a certain number of Transferred Receivables as contributed to TFC II ("Tier II Contributed Receivables") and (ii) identify as purchased all other Transferred Receivables not previously identified as purchased or contributed, in each case in accordance with the procedures described in this Section 2.02(b). Each such identification shall be made as of the opening of business of the Servicer on each Business Day. (c) On the Effective Date and on a date occurring no less frequently than weekly thereafter (each a "Request Notice Date") the Company shall deliver to TFC II a Request Notice 18 setting forth all outstanding Tier II Receivables originated and owned by the Company through such date. No later than the following Business Day (the "Purchase Price Calculation Date") TFC II and the Company shall identify and mutually agree which Tier II Eligible Receivables designated in such Request Notice were, since the last Purchase Price Calculation Date, or are to be purchased and sold on such Purchase Price Calculation Date (the "Tier II Sold Receivables"). The price paid for such Tier II Sold Receivables shall be the Sale Price for such Tier II Sold Receivables. Such Sale Price shall be paid by means of (i) an immediate cash payment to the Company plus (ii) the TFC II Deferred Sale Price. The cumulative amount of all TFC II Deferred Sale Prices shall be subject at all times to the limitations contained in the definition thereof. On each Purchase Price Calculation Date, such cumulative TFC II Deferred Sale Price shall be recalculated by the Servicer. To the extent that the Sale Price for the Tier II Sold Receivables is less than the fair market value thereof, the difference shall be deemed a capital contribution by the Company to TFC II. On or before the Effective Date, the Company and TFC II shall enter into a Certificate of Assignment II substantially in the form of Exhibit 1B hereto ("Assignment II"). On each Sale Date the Tier II Sold Receivables and Tier II Contributed Receivables shall be assigned, and on the subsequent Purchase Price Calculation Date TFC II shall pay the Sale Price for such Tier II Sold Receivables. The portion of the Sale Price which is to be payable immediately in cash shall be payable by wire transfer on the Purchase Price Calculation Date to an account designated by the Company (and approved by the Operating Agent) on or before the Purchase Price Calculation Date. (d) On and after each Business Day hereunder, TFC II shall own the Tier II Sold Receivables and the Tier II Contributed Receivables which have been (assuming compliance with the terms hereof) identified as being transferred to TFC II under this Section 2.02 (each a "Tier II Transferred Receivable") and the ------------ Company shall not take any action inconsistent with such ownership and shall not claim any ownership interest in any such Tier II Transferred Receivable. (e) Until the occurrence of an Event of Servicer Termination or a resignation pursuant to the Funding Agreement, the Company, as Servicer, shall conduct the servicing, administration and collection of Tier II Transferred Receivables and shall take, or cause to be taken, all such actions as may be necessary or advisable to service, administer and collect such Tier II Transferred Receivables, from time to time, all in accordance with (i) the terms of the Funding Agreement, (ii) the Credit and Collection Policies and, to the extent not in conflict therewith, customary and prudent servicing procedures for trade receivables of a similar type and (iii) all applicable laws, rules and regulations. Documents relating to Tier II Transferred 19 Receivables shall be held in trust by the Company, as Servicer, for the benefit of TFC II and its assignees as the owners thereof, and possession of any incident relating to the Tier II Transferred Receivables and Contracts so retained is for the sole purpose of facilitating the servicing of the Tier II Transferred Receivables. Such retention and possession thereof is at the will of TFC II and its assignees and in a custodial capacity for their benefit only. SECTION 2.03. Grant of Security Interest. (a) It is the intention of -------------------------- the parties hereto that each transfer of Transferred Receivables to be made hereunder shall constitute a purchase and sale or capital contribution and not a loan. In the event, however, that a court of competent jurisdiction were to hold that any transaction provided for hereby constitutes a loan and not a purchase and sale or capital contribution, this Agreement shall constitute a security agreement under applicable law and the Company does hereby grant to TFC I, with respect to the TFC I Transferred Receivables, and to TFC II, with respect to the TFC II Transferred Receivables, a first priority security interest in all of the Company's right, title and interest in, to and under such Transferred Receivables, all payments of principal, interest, fees, charges and indemnities on or under such Transferred Receivables and all proceeds of any such Transferred Receivables. (b) The Company acknowledges and consents to the security interest over the Transferred Receivables created pursuant to Section 8.02 of the Funding Agreement and acknowledges the rights of the Collateral Agent and FSA and the covenants given by the Funding Corporations and Redwood in favor of the Collateral Agent and FSA set forth in the Funding Agreement, and further acknowledges and consents that each of the Collateral Agent and FSA shall be entitled to enforce the provisions of this Agreement and the Related Documents to which the Company is a party and shall be entitled to all the rights and remedies of the Funding Corporations and Redwood hereunder and thereunder. In addition, the Company hereby authorizes each of the Collateral Agent and FSA to rely on the representations, warranties and covenants of the Company contained in this Agreement and the Related Documents to which the Company is a party and in any other certificates and documents furnished by the Company to any party in connection herewith or therewith. ARTICLE III CONDITIONS OF SALE SECTION 3.01. Conditions Precedent to the Initial Sale. The initial ---------------------------------------- Sale hereunder is subject to the following conditions precedent: 20 (a) that each of the Funding Corporations shall have received on or before the date of the initial Sale under this Agreement, each dated such date (unless otherwise indicated), in form and substance satisfactory to each of the Funding Corporations, the Operating Agent and FSA: (i) the Assignments executed by the Company; (ii) a copy of resolutions duly adopted by the Board of Directors of the Company approving this Agreement, the Assignments and the other documents to be delivered by it hereunder and the transactions and matters contemplated hereby, certified by its Secretary or Assistant Secretary; (iii) the charter, as amended, of the Company, certified by the Secretary of State of its state of incorporation, dated not earlier than 30 days prior to the date of the initial Sale; (iv) good standing certificates for the Company issued by the Secretaries of States of Delaware, California, Georgia, Illinois, New Jersey and Washington, each dated not earlier than 30 days prior to the date of the initial Sale; (v) a copy of the Company's by-laws, as amended, certified by its Secretary or Assistant Secretary; (vi) a certificate of the Secretary or Assistant Secretary of the Company certifying the names and true signatures of the officers authorized on its behalf to sign this Agreement, the Assignments, and the other documents to be delivered by it hereunder (on which certificate the Funding Corporations may conclusively rely until such time as the Funding Corporations shall receive from the Company a revised certificate meeting the requirements of this Subsection (vi)) and certifying that (A) the charter of the Company has not changed since the date of the certificate referred to in Section 3.01(a)(iii), (B) that the Company is still in good standing in all jurisdictions, including, without limitation, those referred to in Section 3.01(a)(iv), (C) all representations and warranties made by the Company in this Agreement are true and correct in every particular and (D) no financing statements or other similar instruments and documents relating to the Receivables have been filed in any jurisdiction, other than those financing statements, other similar instruments and documents shown on the certified copies of the Requests for Information or Copies provided pursuant to clause (ix); (vii) copies of proper financing statements (Form UCC-1), dated on or prior to the date of the initial Sale, naming the Company as the assignor of the Receivables and 21 TFC I, with respect to the Tier I Receivables, and TFC II, with respect to the Tier II Receivables, as assignee, or other similar instruments or documents, in form and substance sufficient for filing under the UCC or any comparable law of any and all jurisdictions as may be necessary or, in the opinion of the Operating Agent or FSA, desirable to perfect TFC I's ownership interests in all Tier I Receivables and TFC II's ownership interest in all TFC II Receivables, in each case in which an interest may be assigned hereunder; (viii) copies of properly executed termination statements or statements of release (Forms UCC-2 or UCC-3) or other similar instruments or documents, if any, in form and substance satisfactory for filing under the UCC or any comparable law of any and all jurisdictions as may be necessary or, in the opinion of the Operating Agent or FSA, desirable to release all security interests and similar rights of any Person in the Receivables previously granted by the Company; (ix) certified copies of Requests for Information or Copies (Form UCC- 11) (or a similar search report certified by a party acceptable to the Operating Agent and FSA), dated a date reasonably near and prior to the date of the initial Sale, listing all effective financing statements and other similar instruments and documents, including those referred to above in Subsections (vii) and (viii) which name the Company (under its present name and any previous name) as debtor and which are filed in the jurisdictions in which filings are to be made pursuant to such Subsections (vii) and (viii) above, together with copies of such financing statements, none of which, except those filed pursuant to Subsections (vii) and (viii), above, shall cover any Receivables; (x) the Lock-Box Agreements with all the Lock-Box Banks, in each case executed by the Company and acknowledged and agreed to by the applicable Lock-Box Bank and dated on or before the date of the initial Sale, together with an acknowledgment executed by the Operating Agent and Redwood; (xi) a favorable opinion of Wolf, Block, Schorr and Solis-Cohen, counsel to the Company, in substantially the form of Exhibit 4 hereto and with respect to such other matters as the Operating Agent or FSA may reasonably request. SECTION 3.02. Conditions Precedent to All Sales. The obligation of --------------------------------- TFC I or TFC II, as the case may be, to pay for each Sold Receivable on each Purchase Price Calculation Date (including the initial Purchase Price Calculation Date) shall be 22 subject to the further conditions precedent (any one of which can be waived by TFC I, with respect to transfers of Tier I Receivables, or TFC II, with respect to Tier II Receivables, in each case, with the prior written consent of FSA) that on such Purchase Price Calculation Date: (a) The following statements shall be true (and delivery by the Company of a Request Notice and the acceptance by the Company of the Sale Price for any Receivables on any Purchase Price Calculation Date shall constitute a representation and warranty by the Company that on such Purchase Price Calculation Date such statements are true): (i) the representations and warranties of the Company contained in Section 4.01 shall be correct on and as of such Purchase Price Calculation Date in all material respects (except with respect to Section 4.01(b) and those already so qualified which are true and correct in all respects), before and after giving effect to such Sale and to the application of proceeds therefrom, as though made on and as of such date; and (ii) no event has occurred, or would result from such Sale or from the application of the proceeds therefrom, which constitutes a Termination Event or would constitute a Termination Event but for the requirement that notice be given or time elapse or both; (iii) the Company is in compliance with each of its covenants and other agreements set forth herein; (iv) no event has occurred which constitutes an Event of Servicer Termination or would constitute an Event of Servicer Termination but for the requirement that notice be given or time elapse or both; and (v) each Transferred Receivable designated as an Eligible Receivable is an Eligible Receivable; (b) The Commitment Termination Date shall not have occurred; and (c) The Company shall have taken such other action, including delivery of approvals, consents, opinions, documents and instruments to Redwood, the Operating Agent and FSA, as the Operating Agent or FSA may reasonably request. 23 ARTICLE IV REPRESENTATIONS, WARRANTIES AND COVENANTS SECTION 4.01. Representations and Warranties of the Company. The --------------------------------------------- Company represents and warrants to the Funding Corporations and FSA as of each Purchase Price Calculation Date and each Sale Date, which representations and warranties are or will be true and correct as of such Purchase Price Calculation Date or each Sale Date, as the case may be, that: (a) With respect to the Company: (i) the Company is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and is duly qualified to do business and is in good standing in every jurisdiction in which the failure to be so qualified, separately or in the aggregate, would have a Material Adverse Effect; (ii) the Company has the power and authority to own, pledge, mortgage, operate and convey all of its properties and assets and to execute and deliver this Agreement and the Related Documents and to perform the transactions contemplated hereby and thereby; (iii) the Company is operated in such a manner that neither TFC I nor TFC II would be substantively consolidated in the estate of the Company (that is, in such a manner that the separate corporate existence of either TFC I and the Company or TFC II and the Company, as the case may be, would not be disregarded), in the event of a bankruptcy or insolvency of the Company and in such regard: (1) each of TFC I and TFC II is a limited purpose corporation whose activities are restricted in its respective certificate of incorporation; (2) neither the Company or any Affiliate of the Company is involved in the day-to-day management of either of the Funding Corporations; (3) other than the purchase and contribution of Receivables, TFC Loans, and other transactions contemplated by the Receivables Transfer Agreements, the payment of dividends and the return of capital, any lease or sub-lease of office space or equipment, any common officers or other employees and the payment of Servicing Fees (as defined in the Funding Agreement) to the Servicer under the Funding Agreement, neither of the Funding Corporations engages in any intercorporate 24 transactions with the Company or any Affiliate of the Company; (4) each of the Funding Corporations maintains separate corporate records and books of account from the Company, holds regular corporate meetings and otherwise observes corporate formalities and has a separate business office from the Company; (5) all the financial statements and books and records of the Funding Corporations and the Company reflect the respective separate corporate existence of each of the Funding Corporations; (6) each of the Funding Corporations maintains its assets separately from the assets of the Company and any other Affiliate of the Company (including through the maintenance of separate bank accounts), each of the Funding Corporations' funds and assets, and records relating thereto, have not been, are not and will not be commingled with those of the Company or any other Affiliate of the Company and the separate creditors of each of the Funding Corporations will be entitled to be satisfied out of that Funding Corporation's assets prior to any value in that Funding Corporation becoming available to that Funding Corporation's equityholders; each Funding Corporation has, and will continue to have, assets other than assets contributed by the Company; (7) neither the Company nor any Affiliate of the Company (A) pays either of the Funding Corporations' expenses; (B) guarantees either of the Funding Corporations' obligations, or (C) advances funds to either of the Funding Corporations for the payment of expenses or otherwise; (8) all business correspondence of each of the Funding Corporations and other communications are conducted in that Funding Corporation's own name, on its own stationery and through a separately-listed telephone number; (9) neither TFC I nor TFC II acts as agent for the Company or of any of its Affiliates, but instead each presents itself to the public as a corporation separate from the Company and its Affiliates, independently engaged in the business of purchasing and financing Receivables; and (10) each of TFC I and TFC II maintains two independent directors, each of whom at all times who 25 shall at no time be a shareholder, director, officer, employee or associate of the Company or any Affiliate of the Company (other than as a Director of that Funding Corporation or of the other Funding Corporation) as provided in its certificate or articles of incorporation. (11) each Funding Corporation is solvent and will not be rendered insolvent by the transactions contemplated by any of the Receivables Transfer Agreements or the Related Documents and, after giving effect to such transactions, neither Funding Corporation will be left with an unreasonably small amount of capital with which to engage in its business nor will either of the Funding Corporations have intended to incur, or believe that it has incurred, debts beyond its ability to pay such debts as they mature. Neither of the Funding Corporations contemplates the commencement of insolvency, bankruptcy, liquidation or consolidation proceedings or the appointment of a receiver, liquidator, conservator, trustee or similar official in respect of that Funding Corporation or any of its assets. (12) The Company is the owner of 100% of the Class A common stock and 49% of the Class B common stock of both Funding Corporations. (iv) the execution, delivery and performance by the Company of this Agreement and the Related Documents and the transactions contemplated hereby and thereby (A) have been duly authorized by all necessary corporate or other action on the part of the Company, (B) do not contravene or cause the Company to be in default under (1) the Company's certificate or articles of incorporation or by-laws, (2) any contractual restriction with respect to any Debt of the Company or contained in any indenture, loan or credit agreement, lease, mortgage, security agreement, bond, note, or other agreement or instrument binding on or affecting the Company or its property or (3) any law, rule, regulation, order, writ, judgment, award, injunction or decree applicable to, binding on or affecting the Company, its Affiliates or their respective property and (C) do not result in or require the creation of any Adverse Claim upon or with respect to any of its properties (other than in favor of TFC I or TFC II with respect to this Agreement and Redwood, FSA and the Collateral Agent under the Funding Agreement); (v) this Agreement and the Related Documents have each been duly executed and delivered by the Company; 26 (vi) no approval or consent of, notice to, filing with or licenses, permits, qualifications or other action by any Governmental Authority or any other party, is required or necessary for the conduct of the Company's business as currently conducted and for the due execution, delivery and performance by the Company of this Agreement or any of the Related Documents or for the perfection of or the exercise by either TFC I or TFC II, Redwood, the Operating Agent, FSA or the Collateral Agent of any of their rights or remedies thereunder or hereunder, other than approvals, consents, notices, filings and other actions which have been obtained or made and complete copies of which have been provided to Redwood, the Operating Agent, FSA and the Collateral Agent; (vii) each of this Agreement, each other Related Document delivered by the Company and the respective obligations of the Company thereunder is the legal, valid and binding obligation of the Company enforceable against the Company in accordance with its respective terms subject to (i) any applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting the enforceability of creditors' rights generally and (ii) general equitable principles, whether applied in a proceeding at law or in equity; (viii) there is no pending or threatened, nor any reasonable basis for any, action, suit or proceeding against or affecting the Company, its officers or directors, or the property of the Company, in any court or tribunal, or before any arbitrator of any kind or before or by any Governmental Authority (A) asserting the invalidity of this Agreement or any of the Related Documents, (B) seeking to prevent the sale, pledge or contribution of any Receivable or the consummation of any of the transactions contemplated hereby or thereby, (C) seeking any determination or ruling that might materially and adversely affect (1) the performance by either of the Funding Corporations or the Company of its obligations under this Agreement or any of the Related Documents, (2) the validity or enforceability of this Agreement or any of the Related Documents, (3) the Receivables or the Contracts or the interests of either of the Funding Corporations, Redwood, FSA or the Lender Secured Parties therein, or (4) the federal income tax attributes of the contribution, sale or pledge of the Transferred Receivables, (D) asserting a claim for payment of money in excess of $10,000,000 (other than such judgments or orders in respect of which adequate insurance is maintained by the Company for the payment in full thereof) or (E) which is reasonably likely to have a Material Adverse Effect; 27 (ix) no injunction, writ, restraining order or other order of any nature adverse to the Company or the conduct of its business or which is inconsistent with the due consummation of the transactions contemplated by this Agreement or the Funding Agreement or any of the other Related Documents has been issued by a Governmental Authority nor been sought by any Person; (x) the principal place of business and chief executive office of the Company are located at the address of the Company referred to in this Agreement and there are now no, and during the past four months there have not been any, other locations where the Company is located (as that term is used in the UCC of the jurisdiction where such principal place of business is located) or keeps Records; (xi) the legal name of the Company is as set forth at the beginning of this Agreement and the Company has not changed its name in the last six years, and during such period the Company did not use, nor does the Company now use, any tradenames, fictitious names, assumed names or "doing business as" names, other than those contained in Schedule V hereto; (xii) the Lockbox Accounts are the only lockbox accounts maintained by the Company, either of the Funding Corporations or otherwise in respect of the Transferred Receivables; (xiii) the Company is solvent and will not become insolvent after giving effect to the transactions contemplated by this Agreement and the Related Documents; the Company is paying its Debts as they mature; the Company has not incurred Debts beyond its ability to pay as they mature; and the Company, after giving effect to the transactions contemplated by this Agreement and the Related Documents, will have an adequate amount of capital to conduct its business in the foreseeable future; (xiv) for federal income tax, reporting and accounting purposes, the Company will treat the sale of each Receivable sold or assigned pursuant to this Agreement as a sale of, or absolute assignment of, its full right, title and ownership interest in such Receivable to either TFC I or TFC II, as the case may be, (and each Receivable contributed to either of the Funding Corporations by the Company pursuant to this Agreement shall be accounted for as an increase in the stated capital of such Funding Corporation), and the Company has not in any other respect accounted for or treated the transactions contemplated by this Agreement or the Related Documents; 28 (xv) the Company has complied in all respects with all applicable laws, rules, regulations, and orders with respect to it, its business and properties and all Receivables and related Contracts (including without limitation, all applicable environmental, health and safety requirements) and all restrictions contained in any indenture, loan or credit agreement, mortgage, security agreement, bond, note or other agreement or instrument binding on or affecting the Company or its property, and has and maintains all permits, licenses, authorizations, registrations, approvals and consents of Governmental Authorities for (A) the activities and business of the Company and each of its Affiliates as currently conducted and as proposed to be conducted, (B) the ownership, use, operation and maintenance by each of them of its properties, facilities and assets and (C) the performance by the Company and each of TFC I and TFC II of this Agreement and the Related Documents (hereinafter referred to collectively as "Governmental Consents"), with respect to which any non-compliance or failure to maintain such items would, separately or in the aggregate, have a Material Adverse Effect; (xvi) no practice, procedure or policy employed or proposed to be employed by the Company in the conduct of its business violates any law, regulation, judgment, agreement, order or decree applicable to the Company which, if enforced, would have a Material Adverse Effect; (xvii) without limiting the generality of the prior representation, no condition exists or event has occurred which, in itself or with the giving of notice or lapse of time or both, would result in the suspension, revocation, impairment, forfeiture or non-renewal of any Governmental Consent applicable to the Company or any Subsidiary, except where such conditions or events would not, separately or in the aggregate, have a Material Adverse Effect; (xviii) the Company has filed on a timely basis all tax returns (federal, state and local) required to be filed and has paid or made adequate provisions for the payment of all taxes, fees, assessments and other governmental charges due from the Company; no tax lien or similar Adverse Claim has been filed, and no claim is being asserted, with respect to any such tax, fee, assessment, or other governmental charge except as set forth on Schedule VI. Any taxes, fees, assessments and other governmental charges payable by the Company in connection with the execution and delivery of this Agreement and the Related Documents and the transactions contemplated hereby or thereby have been paid or when due, to the extent due at or prior to such Purchase Price Calculation Date; 29 (xix) with respect to each of the Funding Corporations, the Servicer (if the Servicer is the Company), the Company and Tyco Manufacturing Corp. or any of its Affiliates, there has occurred no event which has or is reasonably likely to have a Material Adverse Effect on the Company; (xx) the Company is licensed or otherwise has the lawful right to use all patents, trademarks, servicemarks, tradenames, copyrights, technology, know-how and processes used in or necessary for the conduct of its business as currently conducted which are material to its financial condition, business, operations, assets and prospects, individually or taken as a whole; (xxi) (a) the consolidated balance sheets of Tyco Toys, Inc. and its consolidated Subsidiaries for each of the last three fiscal years prior to the balance sheet date are delivered prior to such Purchase Price Calculation Date, and the related statements of income and shareholders' equity of Tyco Toys, Inc. and its consolidated Subsidiaries for such fiscal years, certified without qualification by Tyco Toys, Inc.'s independent certified public accountants, copies of which have been furnished to Redwood, FSA and the Operating Agent, are complete and correct and fairly present the consolidated financial condition, business and results of operations of Tyco Toys, Inc. and its consolidated Subsidiaries as of the last day of such fiscal years and the consolidated results of the operations of Tyco Toys, Inc. and its consolidated Subsidiaries for the periods ended on such dates, all in accordance with GAAP, (b) the unaudited consolidated balance sheets and the related statements of income and shareholders' equity of Tyco Toys, Inc. and its consolidated Subsidiaries for each fiscal quarter in the period since the most recent consolidated balance sheet and related statement of income and shareholders' equity referred to in clause (a) above and ended at least 45 days prior to such Purchase Price Calculation Date, copies of which have been furnished to Redwood, FSA and the Operating Agent, are complete and correct and fairly present the consolidated financial condition, business and operations of the Tyco Toys, Inc. and its consolidated Subsidiaries as of the last day of such fiscal quarters and the consolidated results of the operations of the Company and its consolidated Subsidiaries for the periods ended on such dates, all in accordance with GAAP, and (c) since the last date for which a balance sheet of the Company and its consolidated Subsidiaries has been delivered to Redwood, FSA and the Operating Agent, there has, except as disclosed to the Operating Agent and FSA, been no material adverse change in any such condition, business or results of operations; neither Tyco Toys nor its consolidated Subsidiaries have any 30 contingent liabilities or commitments which, separately or in the aggregate, is reasonably likely to have a Material Adverse Effect on such entities; (xxii) each Obligor of a Transferred Receivable has been directed, and is required to, remit all payments with respect to such Receivable for deposit in a Lockbox Account or a Lockbox; (xxiii) each Request Notice contains a complete and accurate list of all Tier I Transferred Receivables or Tier II Transferred Receivables contributed or sold by the Company to TFC I or TFC II, respectively, as of its date; (xxiv) no Obligor of an Eligible Receivable being sold on the related Sale Date has any claim against or affecting the Company or the property of the Company; (xxv) the Company is in compliance with ERISA and has not incurred and does not expect to incur any liabilities (except for premium payments arising in the ordinary course of business) to the Pension Benefit Guaranty Corporation (or any successor thereof) under ERISA; (xxvi) each pension plan or profit sharing plan to which the Company or any Affiliate is a party has been administered and fully funded in accordance with the obligations of the Company under law and as set forth in such plan, and the Company has complied with the applicable provisions of ERISA in effect as of such Purchase Price Calculation Date; (xxvii) the Company has valid business reasons for selling or contributing its interests in the Transferred Receivables rather than obtaining a loan with the Transferred Receivables as collateral; (xxviii) the Company has not agreed to pay any fee or commission to any agent, broker, finder or other person for or on account of services rendered as a broker or finder in connection with this Agreement or the Related Documents or the transactions contemplated hereby or thereby which would give rise to any valid claim against either of the Funding Corporations for any brokerage commission or finder's fee or like payment; (xxix) all information heretofore or hereafter furnished by the Company to TFC I, TFC II, Redwood, the Operating Agent, FSA or the Collateral Agent in connection with any transaction contemplated by this Agreement or the Related Documents is and will be true and complete in all material respects and does not and will not omit to state a 31 material fact necessary to make the statements contained herein or therein not misleading. With respect to the Company, Tyco Manufacturing or the Funding Corporations there has occurred no event which has or is reasonably likely to have a Material Adverse Effect on such entity; (xxx) no part of the proceeds received by the Company or any Affiliate from the Sale Price will be used directly or indirectly for the purpose of purchasing or carrying, or for payment in full or in part of, Debt that was incurred for the purposes of purchasing or carrying any "margin stock," as such term is defined in (S) 221.3 of Regulation U of the Board of Governors of the Federal Reserve System. (xxxi) there are not now, nor will there be at any time in the future, any agreement or understanding between the Company and either of the Funding Corporations (other than as expressly set forth herein) providing for the allocation or sharing of obligations to make payments or otherwise in respect of any taxes, fees, assessments or other governmental charges; (xxxii) no transaction contemplated by this Agreement or any of the Related Documents requires compliance with any bulk sales act or similar law; (xxxiii) the Request Notice with respect to such Purchase Price Calculation Date is accurate in all material respects; (xxxiv) each purchase of Receivables under the Receivables Transfer Agreements will constitute (i) a "current transaction" within the meaning of Section 3(a)(3) of the Securities Act of 1933, as amended, and (ii) a purchase or other acquisition of notes, drafts, acceptances, open accounts receivable or other obligations representing part or all of the sales price of merchandise, insurance or services within the meaning of Section 3(c)(5) of the Investment Company Act of 1940, as amended; (xxxv) (i) the Company is not a party to any indenture, loan or credit agreement or any lease or other agreement or instrument or subject to any charter or corporation restriction that is reasonably likely to have, and no provision of applicable law or governmental regulation is reasonably likely to have, a material adverse effect on the condition (financial or otherwise), business, operations or properties of the Company, or could have such an effect on the ability of the Company to carry out its obligations under this Agreement and the other Related Documents to which the Company is a party and (ii) the 32 Company is not in default under or with respect to any contract, agreement, lease or other instrument to which the Company is a party and which is material to the Company's condition (financial or otherwise), business, operations or properties, and the Company has not delivered or received any notice of default thereunder; (xxxvi) the Company is not an "investment company" or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended. The purchase or acquisition of the Transferred Receivables by the Funding Corporations, the application of the proceeds and the consummation of the transactions contemplated by this Agreement and the other Related Documents to which the Company is a party will not violate any provision of such Act or any rule, regulation or order issued by the Securities and Exchange Commission thereunder; (xxxvii) the bylaws and/or the articles of incorporation of the Company require it to maintain (A) correct and complete books and records of account, and (B) minutes of the meetings and other proceedings of its shareholders and board of directors; and (xxxviii) Each of the representations and warranties of the Company contained in this Agreement and the Related Documents is true and correct in all material respects and the Company hereby makes each such representation and warranty to, and for the benefit of, the Collateral Agent, the Operating Agent, FSA and Redwood as if the same were set forth in full herein. (b) On each Sale Date and as of the date of each Borrowing Base Certificate delivered under the Funding Agreement, with respect to each Receivable designated as an Eligible Receivable: (i) such Receivable is an Eligible Receivable, and is a receivable created through the unconditional provision of merchandise, goods or services by the Company in the ordinary course of its business in a current transaction; (ii) such Receivable was created in accordance with and satisfies all applicable requirements of the Credit and Collection Policies; (iii) if requested, a copy of any related Contract (if such Contract exists in a reproducible form) to such Receivable to which the Company is a party has been 33 delivered to Redwood, the Operating Agent, FSA and the Collateral Agent; (iv) such Receivable represents the genuine, legal, valid and binding obligation in writing of the Obligor enforceable by the holder thereof in accordance with its terms, and neither such Receivable nor its related Contract has been satisfied, subordinated, rescinded or amended in any manner, subject to (i) any applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting the enforceability of creditors' rights generally and (ii) general equitable principles, whether applied in a proceeding at law or in equity; (v) neither such Receivable nor its related Contract is or will be subject to any right of rescission, set-off, recoupment, counterclaim or defense, whether arising out of transactions concerning the Contract or otherwise; (vi) prior to its sale or contribution to either TFC I or TFC II such Receivable was owned by the Company free and clear of any Adverse Claim or Restrictions on Transferability, and the Company had the right to contribute, sell, assign and transfer the same and interests therein as contemplated under this Agreement and, upon such sale or contribution, TFC I or TFC II acquired good and marketable title to and a valid and the sole record and beneficial ownership interest in such Receivable, free and clear of any Adverse Claim and any other restriction on transferability; (vii) this Agreement and the Assignment related to such Receivable constitute a valid sale, contribution, transfer, assignment, setover and conveyance to either TFC I or TFC II, as the case may be, of all right, title and interest of the Company in and to such Receivable; (viii) the Billed Amount of such Receivable is net of contractual allowances, any offset or other modifications and such Receivable is entitled to be paid pursuant to the terms of the related Contract, has not been paid in full or been compromised, adjusted, extended, satisfied, subordinated, rescinded or modified, and is not subject to compromise, adjustment, extension, satisfaction, subordination, rescission or modification by the Company or Tyco Manufacturing (in each case, excluding any contractual allowances of the types set forth in Schedule 2 to the Funding Agreement granted by the Company or Tyco Manufacturing in the ordinary course of its business and in accordance with the Credit and Collection Policies, which 34 allowances shall by typical for businesses similar to the Company's or Tyco Manufacturing's); (ix) the Company has submitted all necessary documentation (including any invoice) for payment of such Receivable to the Obligor and has fulfilled all its other obligations in respect thereof; (x) such Receivable has a Maturity Date no later than 270 days from its Billing Date; (xi) such Receivable is an "account" or "chattel paper" within the meaning of the UCC of the jurisdiction where the Company's chief executive office is located; (xii) neither such Receivable nor its related Contract contravenes in any material respect any laws, rules or regulations applicable thereto (including, without limitation, laws, rules and regulations relating to usury, consumer protection, truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy) and no party to such related Contract is in violation of any such law, rule or regulation in any material respect; (xiii) such Receivable does not represent "billed but not yet shipped" goods or merchandise, unperformed services, consigned goods or "sale or return" goods; nor does such Receivable arise from a transaction for which any additional performance by the Company or acceptance or other act of the Obligor remains to be performed as a condition to payments on such Receivable; (xiv) there are no proceedings or investigations pending or threatened before any Governmental Authority (A) asserting the invalidity of such Receivable or such Contract, (B) asserting the bankruptcy or insolvency of the related Obligor, (C) seeking the payment of such Receivable or payment and performance of such Contract or (D) seeking any determination or ruling that might materially and adversely affect the validity or enforceability of such Receivable or such Contract; (xv) as of the applicable date of transfer hereunder, no Obligor on such Receivable is bankrupt or insolvent, is unable to make payment of its obligations when due, is the debtor in a voluntary or involuntary bankruptcy proceeding, or is the subject of a comparable receivership or insolvency proceeding, other than Obligors under the protection of a bankruptcy court or receivership which has approved payment by any such Obligor of such Receivable; and 35 (xvi) the Company has no knowledge of any fact (including any defaults by the Obligor on any other accounts) which leads it or reasonably should have led it to expect that the Billed Amount of such Receivable will not be paid in full when due or to expect any other Material Adverse Effect; It is understood and agreed that the representations and warranties described in this Section 4.01 shall survive the sale or contribution of the Transferred Receivables to either of the Funding Corporations, any subsequent assignment of the Transferred Receivables by either of the Funding Corporations (including its grant of a first priority perfected security interest in, to and under the Transferred Receivables, pursuant to the Funding Agreement, in order to secure the due payment and performance by either of the Funding Corporations of TFC Secured Obligations), and the termination of this Agreement and the Funding Agreement and shall continue so long as any Transferred Receivable shall remain outstanding. SECTION 4.02. Covenants of the Company. (a) Offices and Records. ------------------------ ------------------- The Company shall keep its chief place of business and chief executive offices and the office where it keeps its Records at the respective locations specified in Section 4.01(a)(x) or, upon 30 days prior written notice to the Funding Corporations, FSA and the Collateral Agent, at such other location in a jurisdiction where all action required by Section 4.02(f) shall have been taken with respect to the Transferred Receivables. The Company shall, for not less than three years or for such longer period as may be required by law, from the date on which any Transferred Receivable arose, maintain the Records with respect to each Transferred Receivable, including records of all payments received, credits granted and merchandise returned. The Company will permit representatives of each Funding Corporation, the Servicer, FSA, the Operating Agent or the Collateral Agent at any time and from time to time during normal business hours, and at such times outside of normal business hours, upon reasonable prior notice, as either Funding Corporation, FSA, the Servicer, the Operating Agent or the Collateral Agent shall reasonably request, (i) to inspect and make copies of and abstracts from such records, and (ii) to visit the properties of the Company utilized in connection with the collection, processing or servicing of the Transferred Receivables for the purpose of examining such Records, and to discuss matters relating to the Transferred Receivables or the Company's performance under this Agreement or the affairs, finances and accounts of the Company with any of its officers, directors, employees, representatives or agents and with its independent certified accountants and advise such accountants that the Funding Corporations, the Operating Agent, FSA, the Servicer and the Collateral Agent have been authorized to review and discuss with such accountants any and all financial 36 statements and other information of any kind that they may have with respect to the Company and direct such accountants to comply with any request of the Funding Corporations, the Operating Agent, FSA, the Servicer or the Collateral Agent for such information. In connection therewith, the Company, the Operating Agent, FSA or the Collateral Agent may institute procedures to permit it to confirm the Obligor outstanding balances in respect of any Transferred Receivables. The Company agrees to render to TFC I, TFC II, FSA, the Operating Agent and the Collateral Agent, at the Company's own cost and expense, such clerical and other assistance as may be reasonably requested with regard to the foregoing. If a Termination Event under the Funding Agreement shall have occurred and be continuing, promptly upon request therefor, the Company shall assist the Funding Corporations in delivering to the Operating Agent records reflecting activity through the close of business on the immediately preceding Business Day. (b) Collection of Transferred Receivables. TFC I has established ------------------------------------- with a Lockbox Bank a Lockbox Account, and TFC II has established with a Lockbox Bank a Lockbox Account, into which the Company and TFC I or TFC II as the case may be shall deposit from time to time all monies, instruments and other property received by either of them as Collections or Proceeds of the Tier I Transferred Receivables and Tier II Transferred Receivables, respectively. Except for Toys'R'Us, the Company has instructed all existing Obligors, and will instruct all future Obligors, to make payments in respect of Transferred Receivables only (i) by check or money order mailed to one or more lockboxes or post office boxes in the name and under the control of the Collateral Agent (each such box being a "Lockbox"), or (ii) by wire transfer or moneygram directly to a Lockbox Account established by TFC I or a Lockbox Account established by TFC II, as the case may be ("Wire Payments") in the name and under the control of the Collateral Agent. The Lockboxes to which mail payments are made as of the date hereof listed are listed on the attached Schedule IV. The Company shall endorse, to the extent necessary, all checks or other instruments received in any Lockbox so that the same can be deposited, and the same shall be deposited in the applicable Lockbox Account in the form so received (with all necessary endorsements), on the next Business Day after the Business Day on which such check or other instruments are received. In addition, the Company shall deposit or cause to be deposited in the Lockbox Account for Tier I Receivables or in the Lockbox Account for Tier II Receivables, as appropriate, all cash, checks, money orders or other Collections or Proceeds received other than in a Lockbox or by Wire Payments, in the form so received (with all necessary endorsements), not later than the close of business on the Business Day following the date of such receipt, and until so deposited all such items or other Collections or Proceeds shall be held in trust for the Collateral Agent and FSA; provided that any payments by Toys'R'Us in respect -------- 37 of the Transferred Receivables shall be delivered directly by Toys'R'Us to a bonded courier acceptable to Redwood and FSA and, directly upon receipt thereof on the day so received, deposited into the Collection Account or deposited directly by Toys'R'Us into the applicable Lockbox Account. FSA, the Company and GE Capital will agree on satisfactory procedures for collecting payments from Toys'R'Us from time to time. In connection with such collections, the Company may take (and at the Collateral Agent's or FSA's direction after a Termination Event has occurred and is continuing, shall take) such action as either TFC I or TFC II or the Collateral Agent or FSA, in each case with the prior written consent of FSA, may deem necessary or advisable to enforce collection of the Transferred Receivables; provided, however, that the Collateral Agent may, at any time that a Termination Event has occurred and is continuing, notify any Obligor with respect to any Transferred Receivables of the assignment of such Transferred Receivables to the Collateral Agent and direct that payments of all amounts due or to become due thereunder be made directly to the Collateral Agent or any servicer, collection agent or lockbox or other account designated by the Collateral Agent and, upon such notification the Collateral Agent may enforce collection of any such Receivable and adjust, settle or compromise the amount or payment thereof, subject in each case to the prior written approval of FSA. (c) Maintain Records of Transferred Receivables. The Company as ------------------------------------------- Servicer shall, at its own cost and expense, maintain satisfactory and complete records of the Transferred Receivables, including a record of all payments received and all credits granted with respect to the Transferred Receivables and all other dealings with the Transferred Receivables. The Company as Servicer will mark conspicuously with a legend, in form and substance satisfactory to the Operating Agent and FSA, its records, computer tapes, computer disks and credit files pertaining to the Transferred Receivables, and its file cabinets or other storage facilities where it maintains information pertaining to the Transferred Receivables, to evidence this Agreement, the transfers hereunder and that ownership of each Transferred Receivable is held by either TFC I or TFC II or their respective assignees. Upon the occurrence and during the continuation of a Termination Event, the Company as Servicer shall (i) provide to the Operating Agent and FSA or its representatives with access to, at any time on demand of the Operating Agent or FSA, all of the Company's facilities, personnel, books and records pertaining to the Transferred Receivables, including all Records, and (ii) allow the Operating Agent and FSA to occupy the premises of the Company where such books and Records are maintained, and utilize such premises, the equipment thereon and any personnel of the Company that either such party may wish to employ to administer, service and collect the Transferred Receivables. 38 (d) Compliance With Credit and Collection Policies. The Company ---------------------------------------------- shall comply in all respects with the Credit and Collection Policies with regard to each Transferred Receivable and the related Contracts, and with the terms of such Receivables and Contracts. (e) Notice of Adverse Claim. The Company shall advise TFC I, TFC II, ----------------------- FSA, the Operating Agent and the Collateral Agent promptly, in writing and in reasonable detail, (i) of any Adverse Claim known to it made or asserted against any of the Transferred Receivables, (ii) of any determination that a Sold Receivable, or any other Receivable designated as an Eligible Receivable in a Request Notice or otherwise, was not an Eligible Receivable at such time, and (iii) of the occurrence of any event which would have a material adverse effect on the aggregate value of the Transferred Receivables or on the validity of the transfers in this Agreement. (f) Further Assurances; Financing Statements. (i) The Company agrees ---------------------------------------- that at any time and from time to time, at its expense, it shall promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable or that TFC I, TFC II, the Operating Agent, FSA or the Collateral Agent may reasonably request to perfect, preserve, continue and maintain fully and protect the transfers made and the right, title and interest (including any security interests) granted to either Funding Corporation by this Agreement or to enable TFC I, TFC II, the Operating Agent, FSA or the Collateral Agent to exercise and enforce its rights and remedies under this Agreement or any of the Related Documents with respect to any Transferred Receivables. Without limiting the generality of the foregoing, the Company shall execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices as may be necessary or desirable or that TFC I, TFC II, the Operating Agent, FSA or the Collateral Agent may reasonably request to protect, preserve and perfect the transfers and security interests granted by this Agreement, free and clear of all Adverse Claims and Restrictions on Transferability. Without limitation of the foregoing, the Company shall, upon the request of FSA, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, within five (5) days of such request, such amendments hereto and such further instruments and take such further action as may be necessary or advisable to effectuate the intention, performance and provisions of this Agreement and the Related Documents or to protect the interest of TFC I in the Tier I Receivables and TFC II in the Tier II Receivables, free and clear of all Adverse Claims and Restrictions on Transferability. In addition, the Company and the Operating Agent agree to cooperate with S&P and Moody's in connection with any review of the transactions contemplated 39 hereby or by the Related Documents which may be undertaken by S&P and Moody's after the date hereof. (ii) The Company hereby authorizes TFC I, TFC II, FSA and the Collateral Agent to file one or more financing or continuation statements, and amendments thereto, relating to all or any part of the Transferred Receivables without the signature of the Company where permitted by law. A carbon, photographic or other reproduction of this Agreement or any notice or financing statement covering the Transferred Receivables or any part thereof shall be sufficient as a notice or financing statement where permitted by law. (g) Assignment. The Company acknowledges that, pursuant to the ---------- Funding Agreement, each of TFC I and TFC II may assign all of its right, title and interest in, to and under the Transferred Receivables and TFC Loans and its rights, title and interest under this Agreement, including its right to exercise the remedies created by Section 4.05 hereof, to Redwood and the Collateral Agent. The Company agrees that, upon such assignment, the assignee may enforce directly, without joinder of either Funding Corporation, the repurchase obligations of the Company set forth in Section 4.05 hereof with respect to breaches of the representations and warranties or covenants set forth in Sections 4.01 and 4.02 of this Agreement. (h) Compliance With Agreements and Applicable Laws. The Company shall ---------------------------------------------- perform each of its obligations under this Agreement and the Related Documents and comply with all material requirements of any law, rule or regulation applicable to it. (i) Corporate Existence. The Company shall maintain its corporate ------------------- existence and shall at all times continue to be duly organized under the laws of the State of Delaware and duly qualified and duly authorized (as described in Section 4.01 hereof) and shall conduct its business in accordance with the terms of its certificate of incorporation and bylaws. (j) Financial Statements; Accountants' Reports; Other Information. ------------------------------------------------------------- The Company shall keep or cause to be kept in reasonable detail books and records of account of the Company's assets and business, including, but not limited to, books and records relating to the transactions contemplated herein and in the Related Documents, which shall be furnished to the Operating Agent or FSA upon request. The books of the Company shall be kept on an accrual basis and the Company shall report its operations for tax purposes on an accrual basis. The fiscal year of the Company shall end on December 31 of each year. The Company shall furnish or cause to be furnished to the Operating Agent and FSA: 40 (i) Annual Financial Statements. As soon as publicly available, --------------------------- and in any event within 90 days after the close of each fiscal year of Tyco Toys, Inc., the consolidated audited balance sheets of Tyco Toys, Inc. as of the end of such fiscal year and the consolidated audited statements of income, changes in shareholders' equity and cash flows of Tyco Toys, Inc. for such fiscal year, all in reasonable detail and stating in comparative form the respective figures for the corresponding date and period in the preceding fiscal year, prepared in accordance with generally accepted accounting principles, consistently applied, and accompanied by the certificate of the independent accountants of Tyco Toys, Inc. (Deloitte & Touche or any "Big 6" accounting firm shall be acceptable to FSA and the Operating Agent) and by the certificate specified in Section 4.02(k) hereof. (ii) Quarterly Financial Statements. As soon as publicly ------------------------------ available, and in any event within 45 days after the close of each of the first three quarters of each fiscal year of Tyco Toys, Inc., the consolidated unaudited balance sheets of Tyco Toys, Inc. as of the end of such quarter and the consolidated unaudited statements of income, changes in shareholders' equity and cash flows of Tyco Toys, Inc. for the portion of the fiscal year then ended, all in reasonable detail and stating in comparative form the respective figures for the corresponding date and period in the preceding fiscal year, prepared in accordance with generally accepted accounting principles consistently applied (subject to normal year-end adjustments), and accompanied by the certificate specified in Section 4.02(k) hereof. (iii) Accountants' Reports. Promptly upon receipt thereof, copies -------------------- of any reports submitted to the Company by its independent accountants in connection with any examination of the financial statements of the Company. (iv) Certain Information. Promptly after the filing or sending ------------------- thereof, copies of all proxy statements, financial statements, reports, and registration statements which the Company or Tyco Toys, Inc. files with, or delivers to, the Internal Revenue Service, the Securities Exchange Commission or any other federal government agency, authority or body which supervises the issuance of securities by the Company or Tyco Toys, Inc. or any national securities exchange. (k) Compliance Certificate. The Company shall deliver to the ---------------------- Operating Agent and FSA concurrently with the delivery of the financial statements required pursuant to Section 4.02(j)(i) and (ii) hereof, a certificate signed on its behalf by the Chief Financial Officer of the Company stating that: 41 (i) a review of the Company's performance under this Agreement and the Related Documents during such period has been made under such officer's supervision; (ii) to the best of such individual's knowledge following due inquiry, no Termination Event or event which, upon the giving of notice or the passage of time, or both, would become a Termination Event, has occurred, or if a Termination Event or such other event has occurred, specifying the nature thereof and, if the Company has a right to cure pursuant to the Funding Agreement, stating in reasonable detail the steps, if any, being taken by the Company to cure such Termination Event or other event or to otherwise comply with the terms of the agreement to which such Termination Event or other event relates; and (iii) the financial reports attached thereto and submitted in accordance with Section 4.02(j)(i) or (ii) hereof, as applicable, are complete and correct in all material respects and present fairly the financial condition and results of operations of the Tyco Toys, Inc. and its consolidated Subsidiaries as of the dates and for the periods indicated, in accordance with GAAP consistently applied (subject as to interim statements to normal year-end adjustments) and the attached computations indicate compliance by the Company with the covenants set forth in Section 7.06 of the Funding Agreement and other agreements of the Company herein. (l) Notice of Material Event. The Company shall promptly inform the ------------------------ Operating Agent and FSA in writing of the occurrence of any of the following: (i) the submission of any claim or the initiation of any legal process, litigation or administrative or judicial investigation against the Company or with respect to or in connection with all or any portion of the Transferred Receivables, involving potential damages or penalties in an uninsured amount in excess of $100,000 in any one instance or $500,000 in the aggregate; (ii) any change in the location of Company's principal office or any change in the location of the Company's books and records; (iii) the occurrence of any Termination Event or event which, upon the giving of notice or the passage of time, or both, would become a Termination Event; (iv) the commencement or threat of any rule making or disciplinary proceedings or any proceedings instituted by or against the Company in any federal, state or local court 42 or before any governmental body or agency, or before any arbitration board, or the promulgation of any proceeding or any proposed or final rule which, if adversely determined, would have a Material Adverse Effect with respect to the Company; (v) the commencement of any proceedings by or against the Company under any applicable bankruptcy, reorganization, liquidation, rehabilitation, insolvency or other similar law now or hereafter in effect or of any proceeding in which a receiver, liquidator, conservator, trustee or similar official shall have been, or may be, appointed or requested for the Company or any of its assets; (vi) the receipt of notice that (A) the Company is being placed under regulatory supervision, (B) any license, permit, charter, registration or approval necessary for the conduct of the Company's business is to be, or may be, suspended or revoked, or (C) the Company is to cease and desist any practice, procedure or policy employed by the Company in the conduct of its business, and such cessation may have a Material Adverse Effect with respect to the Company; or (vii) any other event, circumstance or condition that has had, or has a material possibility of having, a Material Adverse Effect in respect of the Company. (m) Maintenance of Licenses. The Company shall maintain all ----------------------- licenses, permits, charters and registrations which are material to the conduct of its business. (n) Use of Proceeds. The Company shall apply its funds towards --------------- general corporate purposes and towards the other sums payable by the Company under this Agreement and the Related Documents in connection with the transactions contemplated hereby and by the Related Documents and for no other purpose. (o) Separate Identity. ----------------- (i) The Company shall maintain corporate records and books of account separate from those of both of the Funding Corporations. (ii) The annual financial statements of Tyco Toys Inc. shall disclose the effects of the Company's transactions in accordance with GAAP and the annual financial statements of Tyco Toys, Inc. shall disclose that the assets of neither of the Funding Corporations are available to pay creditors of the Company, Tyco Manufacturing, or any other Affiliate of the Company. 43 (iii) The resolutions, agreements and other instruments underlying the transactions described in this Agreement shall be continuously maintained by the Company as official records. (iv) The Company shall use its best efforts to maintain an arm's-length relationship with TFC I and TFC II and will not hold itself out as being liable for the debts of either of the Funding Corporations. (v) The Company shall use its best efforts to keep its assets and its liabilities wholly separate from those of each of TFC I and TFC II. (vi) The Company will conduct its business solely in its own name through its duly authorized officers or agents so as not to mislead others as to the identity of the Company. (vii) The Company will use its best efforts to avoid the appearance of conducting business on behalf of the Funding Corporations or that the assets of the Company are available to pay the creditors of either of the Funding Corporations. (viii) The Company will cause operating expenses and liabilities of the respective Funding Corporations to be paid from their respective funds. (p) ERISA. The Company shall give the Operating Agent and FSA prompt ----- notice of each of the following events (but in no event more than 30 days after the occurrence of the event): (i) an Accumulated Funding Deficiency, (ii) the failure to make a material required contribution to a Plan or Multiemployer Plan (but in no event will a contribution failure sufficient to give rise to a lien under (S)302(f) of ERISA be considered immaterial), (iii) a Reportable Event, (iv) any action by a Commonly Controlled Entity to terminate any Plan or withdraw from any Multiemployer Plan, (v) any action by the PBGC to terminate or appoint a trustee to administer a Plan, (vi) the reorganization or insolvency of any Multiemployer Plan and (vii) an aggregate Underfunding for all Underfunded Plans in excess of $100,000. In addition, the Company shall promptly (but in no case more than 30 days following issuance or receipt by the Commonly Controlled Entity) provide to FSA a copy of all correspondence between a Commonly Controlled Entity and the PBGC, Internal Revenue Service, Department of Labor or the administrators of a Multiemployer Plan relating to any of the events described in the preceding sentence or the underfunded status, termination or possible termination of a Plan or a Multiemployer Plan which could result in a material liability. 44 (q) Cooperation With Requests for Information or Documents. The ------------------------------------------------------ Company will cooperate fully with all reasonable requests of Redwood, FSA, the Operating Agent and the Collateral Agent regarding the provision of any information or documents, necessary, including the provision of such information or documents in electronic or machine-readable format, or desirable to allow each of Redwood, the Operating Agent, FSA and the Collateral Agent to carry out its responsibilities under the Related Documents. (r) Payment, Performance and Discharge of Obligations. The Company ------------------------------------------------- will pay, perform and discharge all of its obligations and liabilities, including, without limitation, all taxes, assessments and governmental charges upon its income and properties when due the non-payment, performance or discharge of which would have a Material Adverse Effect, unless and to the extent only that such obligations, liabilities, taxes, assessments and governmental charges shall be contested in good faith and by appropriate proceedings and that, to the extent required by GAAP, proper and adequate book reserves relating thereto are established by the Company and then only to the extent that a bond is filed in cases where the filing of a bond is necessary to avoid the creation of an Adverse Claim against any of its properties; SECTION 4.03. Negative Covenants of the Company. The Company shall --------------------------------- not, without the prior written consent of TFC I, TFC II, the Operating Agent, FSA and the Collateral Agent: (a) sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist, or agree to create, or consent to cause or permit in the future (upon the happening of a contingency or otherwise) the creation, incurrence or existence of, any Adverse Claim upon or with respect to, or assign any right to receive income in respect of any Transferred Receivable or related Contract with respect thereto, or upon or with respect to the Lockbox Accounts or Lockboxes or any other account in which any Collections or Proceeds of any Transferred Receivables are deposited; (b) extend, amend, forgive, discharge, compromise, cancel or otherwise modify the terms of any Transferred Receivable, or amend, modify or waive any term or condition of any Contract related thereto; (c) make any change in its instructions to Obligors regarding payments to be made to the Funding Corporations or payments to be deposited to the Lockbox Accounts or Lockboxes; (d) merge with or into, consolidate with or into, convey, transfer, lease or otherwise dispose of all or substantially all of its assets (whether now owned or hereafter 45 acquired) to, or acquire all or substantially all of the assets or capital stock or other ownership interest of, any Person (whether in one transaction or in a series of transactions); (e) make statements or disclosures or prepare any financial statements which shall account for the transactions contemplated by this Agreement in any manner other than as a sale or contribution of the Transferred Receivables to either TFC I or TFC II, as the case may be, or in any other respect account for or treat the transactions contemplated hereby (including but not limited to, for accounting, tax and reporting purposes) in any manner other than as a sale or absolute assignment of the Transferred Receivables; (f) The Company shall not amend, supplement or otherwise modify its certificate of incorporation or bylaws (or permit any of the foregoing) to the extent that such modification would have a Material Adverse Effect. (g) The Company shall not (i) take any action, or fail to take any action, if such action or failure to take action may interfere with the enforcement of any rights under this Agreement or the Related Documents that are material to the rights, benefits or obligations of the Funding Corporations, Redwood or FSA (however, nothing herein shall be construed to constitute a guarantee of collectibility by the Company); (ii) waive or alter any rights with respect to the Receivables (or any agreement or instrument relating thereto); (iii) take any action, or fail to take any action, if such action or failure to take action may interfere with the enforcement of any rights with respect to the Receivables; or (iv) fail to pay any tax, assessment, charge or fee with respect to the Receivables, or fail to defend any action, if such failure to pay or defend may adversely affect the priority or enforceability of the first priority perfected interest of TFC I and TFC II in the Tier I Receivables or the Tier II Receivables, respectively, or the Company's right, title or interest in the Receivables. (h) The Company shall not consolidate with or merge with or into any Person or, except as permitted by this Agreement, transfer all or any material amount of its assets to any Person or liquidate or dissolve. (i) Neither the Company nor any Commonly Controlled Entity will: (i) terminate any Plan so as to incur any material liability to the PBGC; (ii) knowingly participate in any "prohibited transaction" (as defined in ERISA) involving any Plan or Multiemployer Plan or any trust created thereunder which 46 would subject any of them to a material tax or penalty on prohibited transactions imposed under Section 4975 of the Code or ERISA; (iii) fail to pay to any Plan or Multiemployer Plan any contribution which it is obligated to pay under the terms of such Plan or Multiemployer Plan, if such failure would cause such plan to have any material Accumulated Funding Deficiency, whether or not waived; or (iv) allow or suffer to exist any occurrence of a Reportable Event, or any other event or condition, which presents a material risk of termination by the PBGC on any Plan or Multiemployer Plan, to the extent that the occurrence or nonoccurrence of such Reportable Event or other event or condition is within the control of it or any Commonly Controlled Entity. (j) The Company shall not make any change to the Credit and Collection Policies or the terms of the contractual dilutions without the prior written consent of FSA. (k) Tax Status of Advances. The Company, shall not take or permit ---------------------- (other than with respect to actions taken or to be taken solely by a government or governmental authority) to be taken any action which would have the effect directly or indirectly of subjecting interest on any of the Advances or the Commercial Paper to withholding taxation in the hands of, respectively, TFC I, TFC II, Redwood or holders of the Commercial Paper generally who are residents of the United States, and will perform all of its obligations under this Agreement and the Related Documents to prevent or cure any default by the Company which would have the effect, directly or indirectly, of subjecting interest on any of the Advances or the Commercial Paper to withholding taxation. SECTION 4.04. Restatement of Representations, Warranties and ---------------------------------------------- Covenants. The Company hereby restates, and makes, for the benefit of FSA, each - --------- of its representations, warranties, covenants and other agreements as set forth in this Agreement and each of the other Related Agreements, to be included in the Insurance and Indemnity Agreement, in each case with the same force and effect as if each such representation, warranty, covenant and agreement were set forth in full in the Insurance and Indemnity Agreement. SECTION 4.05. Breach of Representations, Warranties or Covenants. Upon -------------------------------------------------- discovery by the Company, TFC I or TFC II, the Operating Agent, Redwood, the Collateral Agent or any assignee of either of the Funding Corporations' rights hereunder, of a breach of any of the representations, warranties or covenants described in Section 4.01, 4.02 or 4.03 hereof which is reasonably likely 47 to have a Material Adverse Effect on the value of a Transferred Tier I Receivable or a Transferred Tier II Receivable or the interests of either of the Funding Corporations, Redwood, FSA or the Collateral Agent therein, the party discovering such breach shall give prompt written notice to the other parties. Thereafter, if requested by notice from TFC I or TFC II or any assignee of either of the Funding Corporations, the Company shall on the next succeeding Business Day make a capital contribution of the Rejected Amount (as defined under the Funding Agreement) in cash to either TFC I or TFC II, as the case may be, in an amount equal to the Billed Amount of such Receivable less Collections ---- received in respect thereof by remitting the amount of such capital contribution to the Collection Account in accordance with the terms of the Funding Agreement. Notice of any such contribution and the amount thereof shall promptly be given to FSA by the Company. ARTICLE V TFC I LOANS TO THE COMPANY SECTION 5.01. TFC I Loans. TFC I hereby agrees, on the terms and ----------- subject to the conditions of this Agreement, upon request of the Company, to make advances (each, a "TFC I Loan") to the Company to the extent of its available funds during the term of this Agreement in an aggregate principal amount at any one time outstanding up to, but not exceeding, the Maximum Facility Commitment. Subject to the terms of this Agreement, the Company may borrow, repay and reborrow; provided that no such TFC I Loans may be made if a Termination Event or an Event of Servicer Termination, or an event which, upon the giving of notice or the passage of time, or both would become a Termination Event or an Event of Servicer Termination has occurred and is continuing, or if, after giving effect thereto, there would be a Funding Excess or any amounts are outstanding under the TFC I Deferred Sale Prices. SECTION 5.02. Notices Relating to Loans. The Company shall give TFC I ------------------------- and the Operating Agent same day notice, and FSA a monthly report (with the option reserved by FSA to receive daily notice upon request therefor), of each borrowing and repayment of each TFC I Loan. Each such notice of borrowing or repayment shall specify the amount of TFC I Loans to be borrowed or repaid and the date of such action (which shall be a Business Day). SECTION 5.03. Disbursement of Loan Proceeds. Not later than 3:00 p.m., ----------------------------- New York City time, on the date specified for each TFC I Loan hereunder, TFC I shall transfer, by wire transfer or otherwise, but in any event in immediately available funds, the amount of the TFC I Loan to be made on such date, to 48 the account designated by the Company maintained with [depository institution], in accordance with instructions previously supplied to TFC I. SECTION 5.04. Company Note I. (a) TFC I Loans made by TFC I hereunder -------------- shall be evidenced by a single promissory note of the Company in substantially the form of Exhibit 2A hereto ("Company Note I"). Company Note I shall be dated the date of this Agreement, shall be payable to the order of TFC I in a principal amount equal to $100,000,000 and shall otherwise be duly completed. (b) TFC I shall enter on a schedule attached to Company Note I a notation (which may be computer generated) with respect to each TFC I Loan made hereunder of: (i) the date and principal amount thereof and (ii) each payment and repayment of principal thereof. The failure of TFC I to make a notation on the schedule to Company Note I as aforesaid shall not limit or otherwise affect the obligation of the Company to repay TFC I Loans in accordance with their respective terms as set forth herein. (c) The Company acknowledges that Company Note I is pledged to the Collateral Agent, on behalf of the Lender and FSA, pursuant to the Funding Agreement to secure the obligations of TFC I thereunder. SECTION 5.05. Principal Repayments. TFC I Loans may be repaid by the -------------------- Company at any time and from time to time, in whole or in part, upon prior written notice to TFC I, FSA and Operating Agent as provided in Section 5.02. In addition, TFC I Loans shall be payable immediately on demand of TFC I or, upon the occurrence and during the continuation of a Termination Event or an Event of Servicer Termination, of FSA. Any amount so repaid may, subject to the terms and conditions hereof, be reborrowed hereunder; provided, however, that all repayments of TFC I Loans or any portion thereof shall be made together with payment of all interest accrued on the amount repaid to (but excluding) the date of such repayment. SECTION 5.06. Interest. (a) On each monthly anniversary of the date -------- hereof, the Company shall pay to TFC I interest at the prime rate plus 1% (the "Company Interest Rate") on the unpaid principal amount of each TFC I Loan for the period commencing on and including the date of such TFC I Loan until but excluding the date such TFC I Loan shall be paid in full. (b) Notwithstanding the foregoing, the Company shall pay interest on unpaid interest, on any TFC I Loan or any installment thereof, and on any other amount payable by the Company hereunder (to the extent permitted by law) that shall not be paid in full when due (whether at stated maturity, by 49 acceleration or otherwise) for the period commencing on the due date thereof to (but excluding) the date the same is paid in full at the applicable Company Interest Rate. SECTION 5.07. Time and Method of Payments. All payments of principal, --------------------------- interest and other amounts (including indemnities) payable by the Company hereunder shall be made in Dollars, in immediately available funds, to TFC I not later than 11:00 a.m., New York City time, on the date on which such payment shall become due. Any such payment made on such date but after such time shall, if the amount paid bears interest, be deemed to have been made on, and interest shall continue to accrue and be payable thereon until, the next succeeding Business Day. If any payment of principal or interest becomes due on a day other than a Business Day, such payment may be made on the next succeeding Business Day and such extension shall be included in computing interest in connection with such payment. All payments hereunder and under Company Note I shall be made without set-off or counterclaim and in such amounts as may be necessary in order that all such payments shall not be less than the amounts otherwise specified to be paid under this Agreement and Company Note I. Upon payment in full of Company Note I, following the end of the term of this Agreement, TFC I shall mark Company Note I "Paid" and return it to the Company. ARTICLE VI TFC II LOANS TO THE COMPANY SECTION 6.01. TFC II Loans. TFC II hereby agrees, on the terms and ------------ subject to the conditions of this Agreement, upon request of the Company, to make advances (each, a "TFC II Loan") to the Company to the extent of its available funds during the term of this Agreement in an aggregate principal amount at any one time outstanding up to, but not exceeding, the Maximum Facility Commitment. Subject to the terms of this Agreement, the Company may borrow, repay and reborrow; provided that no such TFC II Loans may be made if a -------- Termination Event or an Event of Servicer Termination, or an event which, upon the giving of notice or the passage of time, or both would become a Termination Event or an Event of Servicer Termination, has occurred and is continuing, or if, after giving effect thereto, there would be a Funding Excess or any amounts are outstanding under the TFC II Deferred Sale Prices. SECTION 6.02. Notices Relating to Loans. The Company shall give TFC II ------------------------- and the Operating Agent same day notice, and FSA a monthly report (with the option reserved by FSA to receive daily notice upon request therefor) of each borrowing and repayment of each TFC II Loan. Each such notice of borrowing or repayment shall specify the amount of TFC II Loans to be borrowed 50 or repaid and the date of such action (which shall be a Business Day). SECTION 6.03. Disbursement of Loan Proceeds. Not later than 3:00 p.m., ----------------------------- New York City time, on the date specified for each TFC II Loan hereunder, TFC II shall transfer, by wire transfer or otherwise, but in any event in immediately available funds, the amount of the TFC II Loan to be made on such date, to the account designated by the Company maintained with [depository institution], in accordance with instructions previously supplied to TFC II. SECTION 6.04. Company Note II. (a) TFC II Loans made by TFC II --------------- hereunder shall be evidenced by a single promissory note of the Company in substantially the form of Exhibit 2B hereto ("Company Note II"). Company Note II shall be dated the date of this Agreement, shall be payable to the order of TFC II in a principal amount equal to $100,000,000 and shall otherwise be duly completed. (b) TFC II shall enter on a schedule attached to Company Note II a notation (which may be computer generated) with respect to each TFC II Loan made hereunder of: (i) the date and principal amount thereof and (ii) each payment and repayment of principal thereof. The failure of TFC II to make a notation on the schedule to Company Note II as aforesaid shall not limit or otherwise affect the obligation of the Company to repay TFC II Loans in accordance with their respective terms as set forth herein. (c) The Company acknowledges that Company Note II is pledged to the Collateral Agent, on behalf of the Lender and FSA, pursuant to the Funding Agreement to secure the obligations of TFC II hereunder. SECTION 6.05. Principal Repayments. TFC II Loans may be repaid by the -------------------- Company at any time and from time to time, in whole or in part, upon prior written notice to TFC II, FSA and Operating Agent as provided in Section 6.02. In addition, TFC II Loans shall be payable immediately on demand of TFC II or, upon the occurrence and during the continuation of a Termination Event or an Event of Servicer Termination, of FSA. Any amount so repaid may, subject to the terms and conditions hereof, be reborrowed hereunder; provided, however, that all repayments of TFC II Loans or any portion thereof shall be made together with payment of all interest accrued on the amount repaid to (but excluding) the date of such repayment. SECTION 6.06. Interest . (a) On each monthly anniversary of the date -------- hereof, the Company shall pay to TFC II interest at the prime rate plus 1% (the "Company Interest Rate") on the unpaid principal amount of each TFC II Loan for the period 51 commencing on and including the date of such TFC II Loan until but excluding the date such TFC II Loan shall be paid in full. (b) Notwithstanding the foregoing, the Company shall pay interest on unpaid interest, on any TFC II Loan or any installment thereof, and on any other amount payable by the Company hereunder (to the extent permitted by law) that shall not be paid in full when due (whether at stated maturity, by acceleration or otherwise) for the period commencing on the due date thereof to (but excluding) the date the same is paid in full at the applicable Company Interest Rate. SECTION 6.07. Time and Method of Payments . All payments of principal, --------------------------- interest and other amounts (including indemnities) payable by the Company hereunder shall be made in Dollars, in immediately available funds, to TFC II not later than 11:00 a.m., New York City time, on the date on which such payment shall become due. Any such payment made on such date but after such time shall, if the amount paid bears interest, be deemed to have been made on, and interest shall continue to accrue and be payable thereon until, the next succeeding Business Day. If any payment of principal or interest becomes due on a day other than a Business Day, such payment may be made on the next succeeding Business Day and such extension shall be included in computing interest in connection with such payment. All payments hereunder and under Company Note II shall be made without set-off or counterclaim and in such amounts as may be necessary in order that all such payments shall not be less than the amounts otherwise specified to be paid under this Agreement and Company Note II. Upon payment in full of Company Note II, following the end of the term of this Agreement, TFC II shall mark Company Note II "Paid" and return it to the Company. ARTICLE VII COLLATERAL SECURITY SECTION 7.01. Security Interest . The Company hereby grants each of ----------------- TFC I and TFC II a security interest ("Security Interest") in the following property, wherever located and whether now owned or hereafter acquired by the Company (collectively, the "Collateral"): (a) all accounts, inventory, general intangibles, chattel paper, documents, and instruments (each as defined in the UCC), whether or not specifically assigned to the Funding Corporations; (b) all books, records and other information (including, without limitation, computer programs, tapes, disks, punch cards, data processing software, and other 52 related property and rights) at any time evidencing or relating to any Collateral; and (c) all monies, securities and other property, now or hereafter held or received by, or in transit to either of the Funding Corporations from or for the Company, and all of the Funding Corporations' credits, and balances with the Company existing at any time, provided that the Collateral shall not include any items of property in which a security interest is not granted as a result of the terms of the Security Agreement delivered pursuant to the Inventory Facility and provided further that any portion of the Collateral may be sold, transferred, conveyed, assigned or otherwise disposed of, free and clear of the security interest granted hereunder, to the extent provided in Section 6.8 of the Inventory Facility. SECTION 7.02. Other Collateral; Rights in Receivables . Nothing --------------------------------------- contained in this Article shall limit the rights of TFC I or TFC II, as the case may be in and to any other collateral securing the Collateral Obligations which may have been or may hereafter be granted to TFC I or TFC II as the case may be, by the Company or any third party pursuant to any other agreement nor the rights of TFC I or TFC II, as the case may be, under any of the Transferred Receivables. SECTION 7.03. Indebtedness Secured . The Security Interest secures --------------------- payment of any and all recourse obligations of the Company to TFC I or TFC II, as the case may be hereunder, including but not limited to those set forth in Sections 4.05 and 8.01. SECTION 7.04. Further Action Evidencing Security Interest . (a) The -------------------------------------------- Company agrees that from time to time, at its expense, it will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or appropriate or that either of the Funding Corporations may reasonably request in order to perfect, protect or more fully evidence the Security Interest, or to enable either of the Funding Corporations to exercise or enforce any of their respective rights hereunder. Without limiting the generality of the foregoing, the Company will, upon the request of either of the Funding Corporations: (i) execute and file such financing or continuation statements, or amendments thereto or assignments thereof, and such other instruments or notices, as may be necessary or appropriate or as either of the Funding Corporations may request, in order to perfect, protect, or evidence such Security Interest and (ii) mark conspicuously or segregate any Collateral in a manner acceptable to the Funding Corporations. 53 (b) The Company hereby authorizes both TFC I and TFC II to file one or more financing or continuation statements, and amendments thereto and assignments thereof, relating to all or part of any of TFC I's or TFC II's, as the case may be, interest now existing or hereafter arising with respect to the Collateral now existing or hereafter arising without the signature of the Company where permitted by law. A carbon, photographic or other reproduction of this Agreement or any financing statement covering the Collateral, or any part thereof, shall be sufficient as a financing statement where permitted by law. (c) If the Company fails to perform any agreement or obligations under this Section, either TFC I or TFC II, as the case may be may (but shall not be required to) itself perform, or cause performance of, such agreement or obligation, and the reasonable expenses of such Funding Corporation incurred in connection therewith shall be payable by the Company upon such Funding Corporation's demand therefor. ARTICLE VIII INDEMNIFICATION SECTION 8.01. Indemnification. (a) Without limiting any other rights --------------- that TFC I, TFC II, Redwood, the Collateral Agent, FSA or any of their shareholders, officers, employees or agents, any assignee of either Funding Corporation's rights hereunder or such assignee's shareholders, officers, employees or agents (each, an "Indemnified Party") may have hereunder or under applicable law, the Company hereby agrees to indemnify each Indemnified Party from and against any and all claims, losses (excluding consequential damages, but including specifically any fees, including the Premium, past or future), liabilities, obligations, damages, penalties, actions, judgments, suits, and related costs and expenses of any nature whatsoever, including reasonable attorneys' fees and disbursements (all of the foregoing being collectively referred to as "Indemnified Amounts") which may be imposed on, incurred by or asserted against an Indemnified Party in any way arising out of or resulting from this Agreement or any Related Documents or the use by the Company of proceeds of any purchase or assignment hereunder or in respect of any Transferred Receivable or any Contract, excluding, however, (x) Indemnified Amounts to the extent resulting solely from gross negligence, acts of bad faith or willful misconduct on the part of such Indemnified Party or (y) recourse for uncollectible or uncollected Transferred Receivables. Without limiting or being limited by the foregoing, the Company shall pay within five Business Days after demand to each Indemnified Party any and all Indemnified Amounts necessary to indemnify such Indemnified Party from and against any and all Indemnified Amounts relating to or resulting from: 54 (i) reliance on any representation or warranty made or deemed made by the Company (or any of its officers) under or in connection with this Agreement or any Related Document, any report or any other information delivered by the Company pursuant hereto, which shall have been incorrect in any material respect when made or deemed made or delivered; (ii) the failure by the Company to comply with any term, provision or covenant contained in this Agreement or any Related Document, or any agreement executed in connection with this Agreement or with any applicable law, rule or regulation with respect to any Transferred Receivable or the related Contract, or the nonconformity of any Transferred Receivable or the related Contract with any such applicable law, rule or regulation; or (iii) the failure to vest and maintain vested in the either of the Funding Corporations, or to transfer to either of the Funding Corporations, legal and equitable title to and ownership of the Receivables which are, or are purported to be, Transferred Receivables, together with all Collections and Proceeds in respect thereof, free and clear of any Adverse Claim (except as permitted hereunder) whether existing at the time of the proposed sale of such Receivable or at any time thereafter. (b) The Company shall have the right at any time during which any claim is pending to select counsel to defend and settle any such claim so long as in any such event the Company shall have stated in a writing delivered to the applicable Indemnified Party that, as between the Company and such Indemnified Party, the Company is responsible to such Indemnified Party with respect to such claim (other than claims as to which it is ultimately determined that it has no responsibility pursuant to clauses 8.01(a)(x) or 8.01(a)(y)); provided, however, ----------------- that if an Indemnified Party shall have been advised by its counsel that there are legal defenses available to such Indemnified Party that are different from or additional to those available to the Company, such Indemnified Party shall have the right to employ its own counsel in such action, and in such event, the reasonable fees and disbursements of such counsel shall be paid by the Company. If the Company shall fail to assume the defense of any claim in accordance with the terms of this indemnity, the relevant Indemnified Party shall have the right to select counsel and control the defense of such claim; provided, however, that ----------------- no Indemnified Party shall settle any such claim without the prior written consent of the Company, which shall not be unreasonably withheld or delayed. SECTION 8.02. Assignment of Indemnities. The Company acknowledges ------------------------- that, pursuant to the Funding Agreement, each of 55 TFC I and TFC II may assign its rights of indemnity granted hereunder to Redwood, FSA and the Collateral Agent and upon such assignment, Redwood, FSA or the Collateral Agent, as applicable, shall have all rights of the Funding Corporations hereunder and may in turn assign such rights. The Company agrees that, upon such assignment, Redwood, FSA, the Collateral Agent or the assignee of either Redwood, FSA or the Collateral Agent, as applicable, may enforce directly, without joinder of either TFC I or TFC II, as the case may be, the indemnities set forth in this Article VIII. ARTICLE IX MISCELLANEOUS SECTION 9.01. Notices, Etc. All notices and other communications ------------- provided for hereunder shall, unless otherwise stated herein, be in writing (including facsimile, telex and express mail) and mailed by registered mail or transmitted by facsimile or telex, or delivered as to each party hereto, at its address set forth under its name on the signature page hereof or at such other address as shall be designated by such party in a written notice to the other parties hereto or to FSA as follows: To FSA: Financial Security Assurance Inc. 350 Park Avenue New York, NY 10022 Attention: Surveillance Department Telex No.: (212) 688-3101 Confirmation: (212) 826-0100 Telecopy Nos.: (212) 339-3518 (212) 339-3529 (In each case in which notice or other communication to FSA refers to a Termination Event, an Event of Servicer Termination, a claim on the Policy or with respect to which failure on the part of FSA to respond shall be deemed to constitute consent or acceptance, then copies of such notice or other communication should also be sent to the attention of the General Counsel and the Head-- Financial Guaranty Group "URGENT MATERIAL ENCLOSED.") ------------------------ All such notices and communications shall not be effective until received by the party to whom such notice or communication is addressed. SECTION 9.02. No Waiver; Remedies. No failure on the part of the ------------------- Company or TFC I or TFC II or any assignee of either of the Funding Corporations or FSA to exercise, and no delay in 56 exercising, any right hereunder or under any Assignment shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any other remedies provided by law. SECTION 9.03. Binding Effect; Assignability. This Agreement shall be ----------------------------- binding upon and inure to the benefit of the Company, TFC I and TFC II, and their respective successors and permitted assigns. Except as contemplated herein, none of the parties may assign any of its rights and obligations hereunder or any interest herein without the prior written consent of the other parties and FSA. This Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its terms, and shall remain in full force and effect until its termination; provided, that the rights and -------- remedies pursuant to Section 4.05 with respect to any breach of any representation, warranty or covenants made by the Company pursuant to Sections 4.01, 4.02 and 4.03 and the indemnification and payment provisions of Article VII shall be continuing and shall survive any termination of this Agreement. SECTION 9.04. No Proceedings. The Company hereby agrees that it will -------------- not, directly or indirectly, institute, or cause to be instituted, against either of the Funding Corporations any proceeding of the type referred to in Section 9.01(c) of the Funding Agreement (except that such action or event shall be taken by or occur with respect to such Funding Corporation, rather than by or to the parties mentioned in such Section) so long as there shall not have elapsed one year plus one day since the latest maturing commercial paper ---- issued by Redwood and allocated to TFC I or TFC II, as the case may be, has been paid in full in cash. SECTION 9.05. Amendments; Consents and Waivers. No modification, -------------------------------- amendment or waiver of, or with respect to, any provision of this Agreement, and all other agreements, instruments and documents delivered thereto, nor consent to any departure by the Company or either of the Funding Corporations from any of the terms or conditions thereof shall be effective unless it shall be in writing and signed by each of the parties hereto, and prior written consent is given in writing by Redwood, FSA and the Collateral Agent. Any waiver or consent shall be effective only in the specific instance and for the purpose for which given. No consent or demand in any case shall, in itself, entitle any party to any other consent or further notice or demand in similar or other circumstances. This Agreement and the documents referred to herein embody the entire agreement of the Company and each of TFC I and TFC II respectively with respect to the Transferred Receivables and supersede all prior agreements and understandings relating to the subject hereof. 57 SECTION 9.06. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY ------------------------------------------------------ TRIAL . (A) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH - ----- THE LAW OF THE STATE OF NEW YORK (WITHOUT REGARD TO THE CONFLICT OF LAW PROVISIONS THEREOF). (B) THE COMPANY, TFC I AND TFC II HEREBY SUBMIT TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE UNITED STATES DISTRICT COURT LOCATED IN THE BOROUGH OF MANHATTAN IN NEW YORK CITY, AND EACH WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL DIRECTED TO SUCH PERSON AT THE ADDRESS SET FORTH ON THE SIGNATURE PAGE HEREOF AND SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON SUCH PERSON'S ACTUAL RECEIPT THEREOF. THE COMPANY, TFC I and TFC II EACH HEREBY WAIVE ANY OBJECTION BASED ON FORUM NON --------- CONVENIENS, AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER AND - ---------- CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE COURT. NOTHING IN THIS SECTION SHALL AFFECT THE RIGHT OF THE COMPANY OR TFC I or TFC II TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT EITHER'S RIGHT TO BRING ANY ACTION OR PROCEEDING IN THE COURTS OF ANY OTHER JURISDICTION. (C) THE COMPANY, TFC I AND TFC II EACH HEREBY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR IN CONNECTION WITH THIS AGREEMENT. INSTEAD, ANY DISPUTE RESOLVED IN COURT WILL BE RESOLVED IN A BENCH TRIAL WITHOUT A JURY. SECTION 9.07. Execution in Counterparts; Severability. This Agreement --------------------------------------- may be executed by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and both of which when taken together shall constitute one and the same agreement. In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations in any jurisdiction, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. SECTION 9.08. Descriptive Headings. The descriptive headings of the -------------------- various sections of this Agreement are inserted for convenience of reference only and shall not be deemed to affect the meaning or construction of any of the provisions hereof. SECTION 9.09. No Setoff. The Company's obligations under this --------- Agreement shall not be affected by any right of setoff, counterclaim, recoupment, defense or other right the Company might have against TFC I, TFC II, Redwood, the Operating 58 Agent, FSA, the Collateral Agent or any assignee, all of which rights are hereby waived by the Company. SECTION 9.10. Further Assurances. The Company agrees to do such ------------------ further acts and things and to execute and deliver to TFC I, TFC II, FSA, Redwood, FSA the Operating Agent or any assignee such additional assignments, agreements, powers and instruments as TFC I, TFC II, FSA, Redwood, FSA the Operating Agent or any assignee may require or deem advisable to carry into effect the purposes of this Agreement or to better assure and confirm unto any such party its respective rights, powers and remedies hereunder. SECTION 9.11. Third-Party Beneficiaries . This Agreement will inure ------------------------- to the benefit of the parties hereto, FSA and its successors and permitted assigns. Except as otherwise provided in this Agreement, no other person will have any right or obligation hereunder. SECTION 9.12. Assignment of Agreement . The Company acknowledges ----------------------- that, pursuant to the Funding Agreement, each of TFC I and TFC II may assign its rights (in addition to those set forth in Section 8.02) granted hereunder, including any rights in the Collateral granted under Article VII, to the Collateral Agent on behalf of the Secured Parties and upon such assignment, the Collateral Agent shall have all rights of the Funding Corporations hereunder and may in turn assign such rights. The Company agrees that, upon such assignment, the Collateral Agent may enforce directly, without joinder of either TFC I or TFC II, as the case may be, the rights set forth in this Agreement. 59 IN WITNESS WHEREOF, the parties have caused this Receivables Transfer Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. TYCO INDUSTRIES, INC. By /s/ R. Michael Kennedy, Jr. Name: R. Michael Kennedy, Jr. Title: Senior V.P. Address: 6000 Midlantic Drive Mt. Laurel, New Jersey 08054 Attention: Chief Financial Officer Phone number: (609) 840-1243 Telecopier number: (609) 273-2885 TYCO FUNDING I CORPORATION By /s/ Anthony Di Michele Name: Anthony Di Michele Title: President & CFO Address: 6000 Midlantic Drive - Room 400 Mt. Laurel, New Jersey 08054 Attention: Chief Financial Officer Phone number: (609) 840-2159 Telecopier number: (609) 273-2885 TYCO FUNDING II CORPORATION By /s/ Anthony Di Michele Name: Anthony Di Michele Title: President & CFO Address: 6000 Midlantic Drive - Room 400 Mt. Laurel, New Jersey 08054 Attention: Chief Financial Officer Phone number: (609) 840-2160 Telecopier number: (609) 273-2885 EXHIBIT 1A [FORM OF ASSIGNMENT I] ASSIGNMENT, dated as of _______________ between TYCO INDUSTRIES, INC. (the "Company") and TYCO FUNDING I CORPORATION ("TFC I"). 1. We refer to the Receivables Transfer Agreement (the "Transfer Agreement") dated as of __________ among the Company, TFC I and TFC II. All provisions of such Transfer Agreement are incorporated herein by reference. All capitalized terms shall have the meanings set forth in the Transfer Agreement. 2. The Company does hereby sell or contribute to TFC I, without recourse, except with respect to contribution obligations pursuant to Section 4.05 of the Transfer Agreement, all right, title and interest of the Company in and to all Tier I Transferred Receivables transferred from time to time in each Sale or contribution from the Company under the Transfer Agreement. 3. Each Sale and/or contribution made from the Company under the Transfer Agreement shall be endorsed by TFC I for TFC I on the grid attached hereto which is a part of this Certificate of Assignment I, and such endorsement shall evidence the ownership of the Tier I Transferred Receivables resulting from such Sale and/or contribution thereof. 4. THIS CERTIFICATE OF ASSIGNMENT I SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. TYCO INDUSTRIES, INC. By ________________________ Name: ________________ Title: _______________ TYCO FUNDING I CORP. By ________________________ Name: ________________ Title: _______________ EXHIBIT 1B [FORM OF ASSIGNMENT II] ASSIGNMENT, dated as of __________ between TYCO INDUSTRIES, INC. (the "Company") and TYCO FUNDING II CORPORATION ("TFC II"). 1. We refer to the Receivables Transfer Agreement (the "Transfer Agreement") dated as of __________ among the Company, TFC I and TFC II. All provisions of such Transfer Agreement are incorporated herein by reference. All capitalized terms shall have the meanings set forth in the Transfer Agreement. 2. The Company does hereby sell or contribute to TFC II, without recourse, except with respect to contribution obligations pursuant to Section 4.05 of the Transfer Agreement, all right, title and interest of the Company in and to all Tier II Transferred Receivables transferred from time to time in each Sale or contribution from the Company under the Transfer Agreement. 3. Each Sale and/or contribution made from the Company under the Transfer Agreement shall be endorsed by TFC II for TFC II on the grid attached hereto which is a part of this Certificate of Assignment II, and such endorsement shall evidence the ownership of the Tier II Transferred Receivables resulting from such Sale and/or contribution thereof. 4. THIS CERTIFICATE OF ASSIGNMENT II SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. TYCO INDUSTRIES, INC. By ________________________ Name: ________________ Title: _______________ TYCO FUNDING II CORP. By ________________________ Name: ________________ Title: _______________ EXHIBIT 2A [FORM OF COMPANY NOTE I] $______________ [Date] FOR VALUE RECEIVED, [Company] a _______________ (the "Company"), hereby promises to pay to [Tyco Funding I Corporation] (the "Lender"), for its account, at _____________, the principal sum of ____________ Dollars (or such lesser amount as shall equal the aggregate unpaid principal amount of the TFC I Loans made by the Lender to the Company under the Transfer Agreement referred to below), in lawful money of the United States of America and in immediately available funds immediately on the demand of the Lender. The date, amount and interest rate, of each TFC I Loan made by the Lender to the Company, and each payment made on account of the principal thereof, shall be recorded by the Lender on its books and, prior to any transfer of this Note, endorsed by the Lender on the schedule attached hereto or any continuation thereof. This Note is the Company Note I referred to in the Receivables Transfer Agreement (as modified and supplemented and in effect from time to time, the "Transfer Agreement") dated as of ________________ among the Company, the Lender, TFC I and TFC II and evidences Loans made by the Lender thereunder. Capitalized terms used in this Note and not defined herein have the respective meanings assigned to them in the Transfer Agreement. The Transfer Agreement provides for prepayments of Loans upon the terms and conditions specified therein. Notwithstanding any other provisions contained in this Note, if at any time the rate of interest payable by the Company under this Note, when combined with any and all other charges provided for in this Note, in the Funding Agreement or in any other document (to the extent such other charges would constitute interest for the purpose of any applicable law limiting interest that may be charged on this Note), exceeds the highest rate of interest permissible under applicable law (the "Maximum Lawful Rate"), then so long as the Maximum Lawful Rate would be exceeded the rate of interest under this Note shall be equal to the Maximum Lawful Rate. If at any time thereafter the rate of interest payable under this Note is less than the Maximum Lawful Rate, the Company shall continue to pay interest under this Note at the Maximum Lawful Rate until such time as the total interest paid by the Company is equal to the total interest that would have been paid had such applicable law not limited the interest rate payable under this Note. In no event shall the total interest received by the Lender under this Note exceed the amount which the Lender could lawfully have received had the interest due under this Note been calculated since the date of this Note at the Maximum Lawful Rate. If any payment under this Note falls due on a day which is not a Business Day, then such due date shall be extended to the next succeeding Business Day and interest (calculated at the Company Interest Rate for each day during the period then ending) shall be payable on any principal so extended. The Company expressly waives presentment, demand, diligence, protest and all notices of any kind whatsoever with respect to this Note. This Note is made and delivered in New York, New York and shall be governed by, and construed in accordance with, the internal laws (without application of its conflict of laws provisions) of the State of New York. IN WITNESS WHEREOF, the Company has caused this Note to be signed and delivered by its duly authorized officer as of the date set forth above. Very truly yours, [NAME OF COMPANY] By:____________________________ Name: Title: SCHEDULE OF LOANS ----------------- This Note evidences demand TFC I Loans made under the within-described Transfer Agreement to the Company, on the date, at the interest rate, and in the principal amounts set forth below, subject to the payments and prepayments of principal set forth below:
================================================================================ Principal Amount Unpaid Notation Amount of Interest Paid Principal Made Date Loan Rate or Prepaid Amount - -------------------------------------------------------------------------------- ================================================================================
EXHIBIT 2B [FORM OF COMPANY NOTE II] $______________ [Date] FOR VALUE RECEIVED, [Company] a _______________ (the "Company"), hereby promises to pay to [Tyco Funding II Corporation] (the "Lender"), for its account, at _____________, the principal sum of ____________ Dollars (or such lesser amount as shall equal the aggregate unpaid principal amount of the TFC II Loans made by the Lender to the Company under the Transfer Agreement referred to below), in lawful money of the United States of America and in immediately available funds immediately on the demand of the Lender. The date, amount and interest rate, of each TFC II Loan made by the Lender to the Company, and each payment made on account of the principal thereof, shall be recorded by the Lender on its books and, prior to any transfer of this Note, endorsed by the Lender on the schedule attached hereto or any continuation thereof. This Note is the Company Note II referred to in the Receivables Transfer Agreement (as modified and supplemented and in effect from time to time, the "Transfer Agreement") dated as of ________________ by and among the Company, the Lender, TFC II and TFC I and evidences Loans made by the Lender thereunder. Capitalized terms used in this Note and not defined herein have the respective meanings assigned to them in the Transfer Agreement. The Transfer Agreement provides for prepayments of Loans upon the terms and conditions specified therein. Notwithstanding any other provisions contained in this Note, if at any time the rate of interest payable by the Company under this Note, when combined with any and all other charges provided for in this Note, in the Funding Agreement or in any other document (to the extent such other charges would constitute interest for the purpose of any applicable law limiting interest that may be charged on this Note), exceeds the highest rate of interest permissible under applicable law (the "Maximum Lawful Rate"), then so long as the Maximum Lawful Rate would be exceeded the rate of interest under this Note shall be equal to the Maximum Lawful Rate. If at any time thereafter the rate of interest payable under this Note is less than the Maximum Lawful Rate, the Company shall continue to pay interest under this Note at the Maximum Lawful Rate until such time as the total interest paid by the Company is equal to the total interest that would have been paid had such applicable law not limited the interest rate payable under this Note. In no event shall the total interest received by the Lender under this Note exceed the amount which the Lender could lawfully have received had the interest due under this Note been calculated since the date of this Note at the Maximum Lawful Rate. If any payment under this Note falls due on a day which is not a Business Day, then such due date shall be extended to the next succeeding Business Day and interest (calculated at the Company Interest Rate for each day during the period then ending) shall be payable on any principal so extended. The Company expressly waives presentment, demand, diligence, protest and all notices of any kind whatsoever with respect to this Note. This Note is made and delivered in New York, New York and shall be governed by, and construed in accordance with, the internal laws (without application of its conflict of laws provisions) of the State of New York. IN WITNESS WHEREOF, the Company has caused this Note to be signed and delivered by its duly authorized officer as of the date set forth above. Very truly yours, [NAME OF COMPANY] By:____________________________ Name: Title: SCHEDULE OF LOANS ----------------- This Note evidences demand TFC II Loans made under the within- described Transfer Agreement to the Company, on the date, at the interest rate, and in the principal amounts set forth below, subject to the payments and prepayments of principal set forth below:
================================================================================ Principal Amount Unpaid Notation Amount of Interest Paid Principal Made Date Loan Rate or Prepaid Amount By - -------------------------------------------------------------------------------- ================================================================================
EXHIBIT 3 FORM OF LOCKBOX AGREEMENT EXHIBIT 4 FORM OF OPINION OF COUNSEL OF COMPANY EXHIBIT 5 FORM OF [TFC I][TFC II] DEFERRED SALE PRICE NOTE New York, New York February 24, 1995 ON DEMAND [TFC I] [TFC II], a Delaware corporation, hereby promises to pay to the order of TYCO INDUSTRIES, INC.(the "Company"), the principal amount of this Note, determined as described below, together with interest thereon at a rate per annum equal to the Company Interest Rate (as defined in the Receivables Transfer Agreement referred to below) plus 1% in lawful money of the United States of America. Capitalized terms used herein but not defined herein shall have the meanings assigned to such terms in the Receivables Transfer Agreement dated as of February 24, 1995, between TYCO INDUSTRIES, INC., a Delaware corporation and TYCO FUNDING I CORPORATION ("TFC I") and TYCO FUNDING II CORPORATION ("TFC II") (such agreement, as it may from time to time be amended, supplemented or otherwise modified in accordance with its terms, the "Receivables Transfer Agreement"). This Note is the Note referred to in the definition of "[TFC I] [TFC II] Deferred Sale Price" in the Receivables Transfer Agreement. The aggregate principal amount of this Note at any time shall be equal to the difference between (a) the sum of the aggregate principal amount of this Note on the date of the issuance hereof and each addition to the principal amount of this Note pursuant to the terms of Section [2.01] [2.02] of the Receivables Transfer Agreement minus (b) the aggregate amount of all payments made in respect of the principal of this Note, in each case, as recorded on the schedule annexed to and constituting a part of this Note but failure to so record shall not affect the obligations of the Company to [TFC I] [TFC II]. Payments of interest on this Note shall be paid on each Settlement Date (with respect to interest accrued and not paid as of the end of the preceding Settlement Period (or, in the case of the first Settlement Date, as of the date on which this Note is issued)) and on the date of demand by the Company by wire transfer of immediately available funds to such account of the Seller as such Seller may designate in writing. The principal amount of this Note may, at the option of [TFC I] [TFC II] be prepaid in whole at any time or in part from time to time. Default in the payment of principal or interest under this Note shall not constitute a default or event of default hereunder or a Termination Event under the Receivables Transfer Agreement. Payments under this Note are subject and subordinate to the prior rights of payment to any obligations of TFC I or TFC II then due and payable under any of the Related Documents. The Company hereby waives diligence, presentment, demand, protest and notice of any kind whatsoever. The failure of any holder to exercise any of its rights hereunder in any particular instance shall not constitute a waiver thereof in that or any subsequent instance. Neither this Note, nor any right of the Company to receive payments hereunder, shall, without the prior written consent of [TFC I] [TFC II] and (so long as the Funding Agreement remains in effect or any amounts owed remain outstanding thereunder) the Collateral Agent, be assigned, transferred, exchanged, pledged, hypothecated, participated or otherwise conveyed. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THAT STATE . [TYCO FUNDING I CORPORATION] [TYCO FUNDING II CORPORATION] By:___________________________ Title: Schedule 1 to Deferred Sale Price Note LOANS AND PAYMENTS OF PRINCIPAL -------------------------------
================================================================================ Amount of Unpaid Amount of Principal Principal Notation Date Loans Repaid Balance Made By - -------------------------------------------------------------------------------- ================================================================================
SCHEDULE I [Form of] Written Contracts SCHEDULE II [Form of] Collection Policy SCHEDULE III Addresses of Company SCHEDULE IV LockBox Banks and LockBox Accounts of Company SCHEDULE V Trade Names,"Doing Business Names", Fictitious Names and Assumed Names of the Company SCHEDULE VI EX-10.48 4 RECEIVABLES FUNDING AND SERVICING AGREEMENT EXECUTION COPY Exhibit 10.48 RECEIVABLES FUNDING AND SERVICING AGREEMENT Dated as of February 24, 1995 by and among TYCO FUNDING I CORPORATION, TYCO FUNDING II CORPORATION, as Borrowers and, individually, as a "Borrower" REDWOOD RECEIVABLES CORPORATION, as Lender TYCO INDUSTRIES, INC., as Servicer FINANCIAL SECURITY ASSURANCE INC., as FSA and GENERAL ELECTRIC CAPITAL CORPORATION, as Operating Agent and Collateral Agent TABLE OF CONTENTS -----------------
Page ---- ARTICLE I DEFINITIONS............................... 2 SECTION 1.01. Certain Defined Terms.................................. 2 SECTION 1.02. Other Terms............................................ 30 SECTION 1.03. Interpretation......................................... 31 SECTION 1.04. Rounding............................................... 31 ARTICLE II COMMITMENT; ADVANCES........................... 31 SECTION 2.01. Advances............................................... 31 SECTION 2.02. Optional Changes in Commitment......................... 31 SECTION 2.03. Notices Relating to Advances........................... 32 SECTION 2.04. Disbursement of Loan Proceeds.......................... 33 SECTION 2.05. Note................................................... 33 SECTION 2.06. Principal Repayments................................... 33 SECTION 2.07. Interest............................................... 33 SECTION 2.08. Fees................................................... 34 SECTION 2.09. Time and Method of Payments............................ 34 SECTION 2.10. Additional Costs; Capital Requirements................. 35 SECTION 2.11. Breakage Costs......................................... 37 SECTION 2.12. Collections on Receivables............................. 37 SECTION 2.13. Clean Down............................................. 37 ARTICLE III CONDITIONS TO LENDING.......................... 38 SECTION 3.01. Conditions Precedent to Effectiveness of the Agreement.......................................... 38 SECTION 3.02. Conditions Precedent to All Advances................... 41 ARTICLE IV REPRESENTATIONS AND WARRANTIES........................... 42 SECTION 4.01. Representations and Warranties of the Borrower............................................... 42 SECTION 4.02. Representations and Warranties of Each Borrower With Respect to the Parent and the Transferred Receivables............................ 50 SECTION 4.03. Representations and Warranties of the Servicer............................................... 59 SECTION 4.04. Representations and Warranties of the Lender................................................. 63
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Page ---- ARTICLE V GENERAL COVENANTS OF THE BORROWERS ......................... 64 SECTION 5.01. Affirmative Covenants of the Borrowers................. 64 SECTION 5.02. Reporting Requirements of the Borrowers................ 70 SECTION 5.03. Negative Covenants of the Borrowers.................... 73 ARTICLE VI COLLECTIONS AND DISBURSEMENTS............................ 76 SECTION 6.01. Establishment of Accounts.............................. 76 SECTION 6.02. Funding of Collection Account.......................... 79 SECTION 6.03. Daily Disbursements From the Collection Account - Revolving Period............................. 80 SECTION 6.04. Disbursements From the Retention Account - Settlement Date Procedures - Revolving Period................................................. 82 SECTION 6.05. Liquidation Settlement Procedures...................... 83 SECTION 6.06. Notification by Operating Agent........................ 84 SECTION 6.07. Investment of Accounts................................. 84 SECTION 6.08. Termination Procedure.................................. 86 SECTION 6.09. Payment Under the Policy............................... 86 SECTION 6.10. Effect of Payments by FSA: Subrogation................. 87 ARTICLE VII APPOINTMENT OF THE SERVICER............................. 88 SECTION 7.01. Appointment of the Servicer............................ 88 SECTION 7.02. Duties and Responsibilities of the Servicer............ 88 SECTION 7.03. Authorization of the Servicer.......................... 93 SECTION 7.04. Servicing Fees......................................... 94 SECTION 7.05. Negative Covenants of the Servicer..................... 94 SECTION 7.06. Financial Covenants.................................... 96 SECTION 7.07. Reporting.............................................. 97 SECTION 7.08. Annual Statement as to Compliance...................... 98 SECTION 7.09. Annual Independent Public Accountants' Servicing and Compliance Report...................................... 99 SECTION 7.10. Retention and Termination of Servicer.................. 99 ARTICLE VIII GRANT OF SECURITY INTERESTS............................. 100 SECTION 8.01. Borrowers' Grant of Security Interest.................. 100 SECTION 8.02. Lender's Assignment and Grant of Security Interest..... 102
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Page ---- SECTION 8.03. Delivery of Collateral................................. 102 SECTION 8.04. Borrowers Remain Liable................................ 103 SECTION 8.05. Covenants of the Borrowers and Servicer Regarding the Collateral............................................. 103 ARTICLE IX TERMINATION EVENTS............................ 107 SECTION 9.01. Termination Events..................................... 107 SECTION 9.02. Events of Servicer Termination......................... 110 ARTICLE X REMEDIES................................. 112 SECTION 10.01. Actions Upon Termination Event........................ 112 SECTION 10.02. Receipt of Payments in Trust.......................... 113 SECTION 10.03. Application of Proceeds............................... 114 SECTION 10.04. Exercise of Remedies.................................. 114 SECTION 10.05. Severability of Remedies.............................. 114 SECTION 10.06. Waiver of Appraisement................................ 114 SECTION 10.07. Power of Attorney..................................... 115 SECTION 10.08. Continuing Security Interest.......................... 115 ARTICLE XI SUCCESSOR SERVICER............................ 116 SECTION 11.01. Servicer Not to Resign................................ 116 SECTION 11.02. Appointment of the Successor Servicer................. 116 SECTION 11.03. Duties of the Servicer................................ 116 SECTION 11.04. Effect of Termination or Resignation.................. 117 ARTICLE XII INDEMNIFICATION.............................. 117 SECTION 12.01. Indemnities by the Borrowers.......................... 117 SECTION 12.02. Indemnities by the Servicer........................... 119 ARTICLE XIII OPERATING AGENT.............................. 120 SECTION 13.01. Authorization and Action.............................. 120 SECTION 13.02. Reliance, etc......................................... 120 SECTION 13.03. GE Capital and Affiliates............................. 121
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Page ---- ARTICLE XIV MISCELLANEOUS............................... 121 SECTION 14.01. Notices, Etc.......................................... 121 SECTION 14.02. Binding Effect; Assignability......................... 121 SECTION 14.03. Costs, Expenses and Taxes............................. 122 SECTION 14.04. No Proceedings........................................ 123 SECTION 14.05. Amendments; Waivers; Consents......................... 124 SECTION 14.06. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL.................................. 124 SECTION 14.07. Execution in Counterparts; Severability.......................................... 125 SECTION 14.08. Descriptive Headings.................................. 125 SECTION 14.09. Deemed Good Faith..................................... 125 SECTION 14.10. The Borrowers......................................... 125 SECTION 14.11. Financing Statements.................................. 126 SECTION 14.12. Intercreditor Agreement............................... 126 SECTION 14.13. The Note.............................................. 126 SECTION 14.14 Limited Recourse...................................... 126
iv RECEIVABLES FUNDING AND SERVICING AGREEMENT, dated as of February 24, 1995 (the "Agreement") by and among TYCO FUNDING I CORPORATION, a Delaware corporation ("TFC I"), TYCO FUNDING II CORPORATION, a Delaware corporation ("TFC II")(together with TFC I, the "Borrowers"), REDWOOD RECEIVABLES CORPORATION, a Delaware corporation, as Lender (as such, together with its successors and assigns, the "Lender"), GENERAL ELECTRIC CAPITAL CORPORATION a New York banking corporation ("GE Capital"), in its capacity as operating agent hereunder (as such, together with its successors and assigns, the "Operating Agent") and in its capacity as Collateral Agent for the Lender and FSA (as defined below) (as such, together with its successors and assigns, the "Collateral Agent"), TYCO INDUSTRIES, INC., a Delaware corporation (together with its successors and assigns, the "Parent"), as servicer hereunder (together with its successors and permitted assigns, the "Servicer"), and FINANCIAL SECURITY ASSURANCE INC., a New York stock insurance company (together with its successors and assigns, "FSA"), as insurer hereunder. W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Borrowers are bankruptcy-remote subsidiaries of the Parent; WHEREAS, the Borrowers have been formed for the sole purpose of purchasing and financing certain trade and other receivables originated by the Parent and Tyco Manufacturing and purchased by or, in the case of the Parent, contributed to the Borrowers pursuant to the Receivables Transfer Agreements, each dated as of February 24, 1995 (the "Receivables Transfer Agreements"), by and between the Borrowers and either Tyco Manufacturing or the Parent, respectively; WHEREAS, the Borrowers and the Lender intend that the Lender will make advances to the Borrowers from time to time, such advances to be secured by certain receivables and other collateral owned by the Borrowers; WHEREAS, the Operating Agent has been requested and is willing to act as operating agent on behalf of the Lender in connection with the making and financing of such advances; WHEREAS, to effectuate the purposes of this Agreement, the Lender and the Operating Agent desire that a servicer be appointed to perform certain servicing, administrative and collection functions in respect of the receivables financed by the Lender under this Agreement; WHEREAS, the Parent has been requested and is willing to act as the Servicer; WHEREAS, FSA has been requested and is willing to provide the Policy (as hereinafter defined) to the Borrowers for the benefit of the Lender; and WHEREAS, to secure the advances made to the Borrowers by the Lender and the reimbursement obligations to FSA arising hereunder or under the Insurance and Indemnity Agreement, the Borrowers intend to grant to the Collateral Agent, on behalf of the Lender and FSA, a security interest in such receivables and other collateral owned by the Borrowers. NOW, THEREFORE, the parties agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. Certain Defined Terms. As used herein, the following terms --------------------- shall have the following meanings: "Accession Agreement" means an Accession Agreement substantially in ------------------- the form of Exhibit A to the Collateral Agent Agreement. "Accrued Monthly Interest" means for any day within a Settlement ------------------------ Period, the Daily Interest calculated for each day from and including the first day of the Settlement Period through and including the day for which the calculation is being made. "Accumulated Funding Deficiency" shall have the meaning provided in ------------------------------ Section 412 of the Code and Section 302 of ERISA, whether or not waived. "Additional Amounts" means any amounts payable to any Affected Party ------------------ under Sections 2.10 and 2.11. "Additional Costs" has the meaning specified in Section 2.10(b). ---------------- "Advance" has the meaning set forth in Section 2.01. ------- "Advance Rate" means, for any date within a Settlement Period, a ------------ percentage equal to the lesser of (i) the Advance Rate Cap, and (ii) the Dynamic Advance Rate. "Advance Rate Cap" means 75% or such other greater figure as ---------------- determined by the Operating Agent (with the prior 2 written approval of the Liquidity Lenders, the Rating Agencies and FSA) and agreed to by the Borrowers. "Advances Outstanding" means, with respect to each Borrower, for any -------------------- day, the aggregate principal amount of Advances outstanding on such day to such Borrower, after giving effect to all repayments by and issuances of Advances to such Borrower on such day; provided, however, that Advances which have been paid -------- ------- with a payment under either Policy shall continue to remain Advances Outstanding for purposes of this Agreement until FSA has been paid as subrogee to the rights of the Lender hereunder or reimbursed pursuant to the Insurance and Indemnity Agreement for all draws under the Policy used to repay such Advances and all amounts due in connection therewith under the Insurance and Indemnity Agreement, as evidenced by a written notice from FSA delivered to the Operating Agent, and FSA shall be deemed to be the "Lender" thereof to the extent of any payments thereon made by FSA. "Adverse Claim" means any claim of ownership or any lien, security ------------- interest, title retention, trust or other charge or encumbrance, or other type of preferential arrangement having the effect or purpose of creating a lien or security interest, other than the security interest created under this Agreement or the Collateral Agent Agreement. "Affected Party" means the Lender, any of the Liquidity Lenders, the -------------- Operating Agent, any of the Letter of Credit Providers, the Collateral Agent, FSA or any Affiliate of the foregoing persons. "Affiliate" means, as to any Person, any other Person that, directly --------- or indirectly, is in control of, is controlled by, or is under common control with, such Person within the meaning of control under Section 15 of the Securities Act of 1933, as amended. "Agreement" means this Receivables Funding and Servicing Agreement, --------- among the Borrowers, the Lender, the Servicer, FSA, the Operating Agent and the Collateral Agent. "Anticipation Payments" means with respect to any Transferred --------------------- Receivable on any date, the amount of any payments made by the related Obligor prior to the Maturity Date thereof which such Maturity Date occurs after such date. "Assignment" means an assignment entered into between the Parent or ---------- Tyco Manufacturing and the Borrowers on any Transfer Date substantially in the form of Exhibit 1A or 1B, as the case may be, to the Receivables Transfer Agreements. 3 "Authorized Officer" means, with respect to any corporation, the ------------------ Chairman or Vice-Chairman of the Board, the President, any Vice President, the Secretary, the Treasurer, any Assistant Secretary, any Assistant Treasurer and each other officer of such corporation specifically authorized in resolutions of the Board of Directors of such corporation to sign agreements, instruments or other documents in connection with this Agreement. "Availability" means, as of any date and with respect to either ------------ Borrower, the lesser of X and Y, where: X = the Borrowing Base (as of such date) times the Advance Rate (as of such date) minus the Income Discount Amount minus the Advances Outstanding to the other Borrower; and Y = such Borrower's Maximum Facility Commitment as of such date. "Balance Sheet Date" means September 30, 1994. ------------------ "Billed Amount" means, with respect to any Receivable, the amount ------------- billed on the Billing Date to the related Obligor with respect thereto net of contractual allowances, any set-off or other modifications, in each case as permitted hereunder (excluding any contractual allowances of the types set forth in Schedule 2 granted by the Parent or Tyco Manufacturing in the ordinary course of its business which allowance shall be typical for businesses similar to the Parent's or Tyco Manufacturing's). "Billing Date" means the date on which the invoice with respect to a ------------ Receivable was generated. "Borrower" means either of, and "Borrowers" means both of, Tyco -------- --------- Funding I Corporation and Tyco Funding II Corporation. "Borrower Account Collateral" has the meaning specified in Section --------------------------- 8.01(c). "Borrower Assigned Agreements" has the meaning specified in Section ---------------------------- 8.01(b). "Borrower Collateral" has the meaning specified in Section 8.01. ------------------- "Borrower Notice" means a notice in the form of Exhibit A, setting --------------- forth the information required by Section 2.03(b). "Borrower Secured Obligations" means, collectively, all obligations of ---------------------------- every nature of the Borrowers (other than to the 4 Parent, Tyco Manufacturing or the Servicer), now or hereafter existing, under this Agreement, the Notes, the Insurance and Indemnity Agreement, the Premium Letter and any promissory note or other document or instrument delivered pursuant to such documents, and all amendments, extensions or renewals hereof or thereof, whether for principal, interest, fees, expenses or otherwise, whether now existing or hereafter arising, voluntary or involuntary, whether or not jointly owed with others, direct or indirect, absolute or contingent, liquidated or unliquidated, and whether or not from time to time decreased or extinguished and later increased, created or incurred and all or any portion of such obligations that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from the Lender, the Operating Agent, FSA or the Collateral Agent as a preference, fraudulent transfer or otherwise. "Borrowers' Share" means the ratio of the aggregate Maximum Facility ---------------- Commitments of the Borrowers to the aggregate maximum commitments of the Borrowers under this Agreement and all Other Funding Agreements. "Borrowing Base" means, as of the date of its computation, an amount -------------- equal to (a) the aggregate Outstanding Balance of Transferred Receivables that are Eligible Receivables with respect to both Borrowers, plus (b) an amount equal to the Outstanding Balance of Eligible Receivables to be purchased or contributed on that date with respect to both Borrowers, minus (c) the sum of ----- (i) the Concentration Discount Amounts for all Obligors in respect of such Eligible Receivables and (ii) the Contractual Reserves in respect of all Transferred Receivables and (iii) during the Clean Down Period Part 4, the Clean Down Retention Amount. "Borrowing Base Certificate" means, with respect to either Borrower on -------------------------- any Business Day, an Officer's Certificate of such Borrower in the form of Exhibit B, computing for such Business Day the Borrowing Base, the Availability with respect to such Borrower and any net increase or decrease in the Availability with respect to such Borrower since the date of the previous Borrowing Base Certificate and New Advances Available for such Borrower. "Borrowing Excess" means, with respect to the Borrowers and for any ---------------- date, the extent to which the then Advances Outstanding of such Borrowers exceeds the aggregate Availability with respect to the Borrowers as of such date. "Breakage Costs" has the meaning specified in Section 2.11(a). -------------- "Business Day" means any day of the year, other than a Saturday or ------------ Sunday that in the City of New York is neither a 5 legal holiday nor a day on which banking institutions are authorized or obligated by law or executive order to be closed. "Capital Lease" shall mean any lease of any property (whether real, ------------- personal or mixed) by any Person as lessee that, in accordance with GAAP, either would be required to be classified and accounted for as a capital lease on a balance sheet of such Person or otherwise be disclosed as such in a note to such balance sheet. "Capital Lease Obligation" shall mean, as of any date, the amount of ------------------------ the obligation of the lessee under a Capital Lease that, in accordance with GAAP, would appear on a balance sheet of such lessee in respect of such Capital Lease or otherwise be disclosed as such in a note to such balance sheet. "Cash Interest Expense" means, with respect to any Person for any --------------------- period, the amount of cash interest payable on all Debt of such Person and its consolidated Subsidiaries. "Change in Control" has the meaning specified in the Inventory ----------------- Facility. "Clean Down Period" means the period which is divided into the ----------------- following parts: "Clean Down Period Part 1" means, with respect to December 1, the period commencing on December 1 of each such period, and ending on the Business Day immediately following the Business Day on which the sum of Advances Outstanding of both Borrowers are reduced by an amount equal to the Clean Down Reserve Amount. "Clean Down Period Part 2" means the period commencing on the Business Day immediately following the Business Day on which Clean Down Period 1 ends, and ending on the Business Day when the sum of Advances Outstanding of both Borrowers are equal to zero. "Clean Down Period Part 3" means the period commencing on the Business Day immediately following the Business Day on which Clean Down Period Part 2 ends, and ending on the fifth Business Day immediately following the Business Day on which Clean Down Period Part 3 commenced. "Clean Down Period Part 4" means the period commencing on the Business Day immediately following the Business Day on which Clean Down Period Part 3 ends, and ending on the March 31st following the December 1st on which that Clean Down Period commenced. 6 "Clean Down Reserve Amount" means an amount calculated in accordance ------------------------- with the following formula: CDR = CDF x PYD where CDR = Clean Down Reserve CDF = 1.5, but which may be increased in good faith by the Operating Agent or FSA on any day during any Clean Down Period with notice to the Borrowers. PYD = the greater of (i) the total of all Variable Dilutions recorded by the Parent or Tyco Manufacturing in the immediately preceding period from December 1st to April 30th, and (ii) the total of all Variable Dilutions recorded by the Parent or Tyco Manufacturing in the next preceding period from December 1st to April 30th, provided that PYD may be increased in good faith by the Operating Agent or FSA on any day during any Clean Down Period with notice to the Borrowers. "Clean Down Retention Amount" on any day during the Clean Down Period --------------------------- Part 4 means an amount calculated in accordance with the following formula: CDRA = CDF x PYD - ADR where CDRA = Clean Down Retention Amount CDF = 1.5, but which may be increased in good faith by the Operating Agent or FSA on any day during any Clean Down Period with notice to the Borrowers. PYD = the greater of (i) the total of all Variable Dilutions recorded by the Parent or Tyco Manufacturing in the immediately preceding period from December 1st to April 30th, and (ii) the total of all Variable Dilutions recorded by the Parent or Tyco Manufacturing in the second preceding period from December 1st to April 30th, provided that PYD shall at all times be an amount not less than ADR and provided, further that PYD may be increased in good faith by the Operating Agent or FSA 7 on any day during any Clean Down Period with notice to the Borrowers. ADR = The sum of Variable Dilutions recorded by the Parent and Tyco Manufacturing from and including the most recent December 1 to and including such day during the related Clean Down Period. "Collateral" means, collectively, the Borrower Collateral pledged by ---------- the Borrowers in Section 8.01 and the Lender Collateral pledged and assigned by the Lender in Section 8.02. "Collateral Account" means the account maintained with the Depositary ------------------ described in Section 6.01(d). "Collateral Agent" means GE Capital or such other party designated as ---------------- agent for the secured parties under the Collateral Agent Agreement. "Collateral Agent Agreement" means the Amended and Restated Collateral -------------------------- Agent and Security Agreement, dated as of February, 24 1994, as amended entered into by the Lender with the Collateral Agent, the Letter of Credit Agent, the Liquidity Agent, the Depositary and each Transaction Credit Provider. "Collateral Agent Fees" means the fees paid to the Collateral Agent --------------------- under the Collateral Agent Agreement. "Collection Account" means the account maintained with the Depositary ------------------ described in Section 6.01(b). "Collections" means, with respect to any Receivable, all collections ----------- and other Proceeds of such Receivable (including late charges, fees and interest arising thereon, and all recoveries with respect to Receivables that have been written off as uncollectible) but excluding (i) the sale price therefor under the Receivables Transfer Agreements, and (ii) the Advances. "Commercial Paper" means commercial paper issued by the Lender. ---------------- "Commitment Letter" means the letter dated November 8, 1994, together ----------------- with the commitment extension letters dated December 27, 1994 and January 31, 1995, each from Redwood Receivables Corporation to Tyco Toys, Inc. "Commitment Termination Date" means the earlier of (a) the date so --------------------------- designated pursuant to Section 9.01 as a result of a Termination Event, and (b) the Final Maturity Date; provided, however, that if each of the Borrowers has not on or 8 before the 270th day prior to the Final Maturity Date (i) entered into an agreement with the Lender, the Operating Agent and FSA renewing or extending the Final Maturity Date, or (ii) entered into a firm commitment with a counterparty, acceptable to the Operating Agent and FSA, to purchase from the Lender at par plus accrued Interest all Advances Outstanding as of the Final Maturity Date, then if the Commitment Termination Date has not already occurred pursuant to clause (a), the Commitment Termination Date shall be the date that is the last day of the Clean Down Period Part 3 occurring in the year 2000, but in no event later than April 1, 2000. "Commonly Controlled Entity" means each of the Borrowers and each -------------------------- entity, whether or not incorporated, which is affiliated with any of the foregoing pursuant to Section 414(b), (c), (m) or (o) of the Code. "Company Notes" means the notes evidencing the loans made from time to ------------- time by each of the Borrowers to the Parent and Tyco Manufacturing, respectively, pursuant to Articles V and VI of the Transfer Agreements. "Concentration Discount Amount" means, with respect to any Obligor, on ----------------------------- any date after giving effect to all Eligible Receivables to be purchased on such date, the amount by which the Outstanding Balance of Eligible Receivables payable by such Obligor exceeds the lesser of either (a) the Dollar amount set forth on Schedule 1, or (b) the product of (i) such Obligor's Concentration Limit Percentage set forth on Schedule 1 and (ii) the Outstanding Balance of all Transferred Receivables that are Eligible Receivables on such date. The Concentration Discount Amount may be changed at any time by the Operating Agent acting in good faith and with the prior written consent of FSA and the Rating Agencies. "Concentration Limit Percentage" means, with respect to any Obligor, ------------------------------ the maximum percentage that such Obligor's Outstanding Balance of Eligible Receivables may be of the Outstanding Balance of all Eligible Receivables that are Transferred Receivables at such time, as determined by the Operating Agent acting in good faith and with the prior written consent of FSA and the Rating Agencies and notified to the Borrowers in writing (such initial notification is attached as Schedule 1A hereto.) "Contract" means an agreement (or agreements) (including invoices) -------- pursuant to, or under which, an Obligor shall be obligated to pay for services rendered or merchandise or goods sold to such Obligor by the Parent or Tyco Manufacturing, from time to time. 9 "Contractual Reserves" means, as of any date, an amount equal to the -------------------- sum of the Dilution Factors of the type listed on Schedule 2 as reflected on the books of each of the Parent and Tyco Manufacturing as an accrued credit as of such date. "Controlling Party" means (i) FSA so long as an FSA Default shall not ----------------- have occurred and be continuing and (ii) the Collateral Agent so long as an FSA Default shall have occurred and be continuing; provided, however, that the Collateral Agent shall be Controlling Party after delivery by FSA to the Collateral Agent of a notice of resignation as Controlling Party. "CP Holder" means any Person holding record or beneficial ownership of --------- Commercial Paper. "Credit and Collection Policies" means the credit, collection, ------------------------------ customer relations and service policies of the Parent or Tyco Manufacturing, as the case may be, in effect on the Effective Date, as set forth in writing and delivered to the Lender, the Operating Agent, FSA and the Collateral Agent on or before the Effective Date pursuant to Section 3.01(p), and as such policies may hereafter be amended, modified or supplemented from time to time with the prior written consent of the Operating Agent and FSA. "Daily Borrowing Rate" has the meaning specified in Schedule 5 to this -------------------- Agreement. "Daily Interest" has the meaning specified in Schedule 5. -------------- "Daily Unused Facility Fee" means, with respect to either Borrower, a ------------------------- fee payable by such Borrower to the Lender for each day in an amount equal to (A) the product of (i) such Borrower's Maximum Facility Commitment on such day minus the Advances Outstanding for such Borrower for such day, and (ii) the Unused Facility Fee Rate (as set out in the Fee Letter), divided by (B) 360. "Dealer" means any dealer under a Dealer Agreement. ------ "Dealer Agreement" means any dealer agreement entered into by the ---------------- Lender for the distribution of Commercial Paper. "Debt" of any Person means (a) indebtedness of such Person for ---- borrowed money, (b) obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (c) obligations of such Person to pay the deferred purchase price of property or services, (excluding trade payables incurred in the ordinary course of business), (d) Capital Lease Obligations, (e) obligations secured by any lien or other charge upon property or assets owned by such Person, even though such 10 Person has not assumed or become liable for the payment of such obligations, (f) obligations of such Person under direct or indirect guaranties in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clauses (a) through (e) above, and (g) liabilities in respect of unfunded vested benefits under plans covered by ERISA. For the purposes hereof, the term "guarantee" shall include any agreement, whether such agreement is on a contingency or otherwise, to purchase, repurchase or otherwise acquire Debt of any other Person, or to purchase, sell or lease, as lessee or lessor, property or services, in any such case primarily for the purpose of enabling another person to make payment of Debt, or to make any payment (whether as an advance, capital contribution, purchase of an equity interest or otherwise) to assure a minimum equity, asset base, working capital or other balance sheet or financial condition, in connection with the Debt of another Person, or to supply funds to or in any manner invest in another Person in connection with Debt of such Person. "Debt Service" shall mean, with respect to any fiscal period of Tyco ------------ Toys, the sum of (a) Interest Expense during such period, plus (b) regularly ---- scheduled payments of principal on Debt (other than Debt owing under this Agreement and the Inventory Facility and Debt paid on February 24, 1995 under the Existing Credit Agreement) of Tyco Toys and its Subsidiaries scheduled to be paid during such period (whether or not actually paid during such period), plus ---- (c) dividend payments made by Tyco Toys during such period. "Default Coverage" means a fraction (expressed as a percentage) where ---------------- the numerator is the product of (i) the Default Percentage, (ii) the Default Horizon, and (iii) 1.5, and the denominator is the aggregate Outstanding Balance of all Eligible Receivables. "Default Horizon" means, at any time, the aggregate original --------------- Outstanding Balances of Transferred Receivables generated during the 26 most recent weeks. "Default Percentage" for each week, means the greatest of the "DF"s ------------------ calculated as at the end of such week and each of the 51 immediately preceding weeks, where DF equals a fraction (expressed as a percentage), the numerator of which is sum of Delinquent Receivables recorded for such week and each of the 25 weeks prior to such week, and the denominator of which is the sum of the Outstanding Balances of all Transferred Receivables generated during the period from the 27th to 52nd (inclusive) weeks immediately preceding such week. 11 "Default Ratio" means, as of any Settlement Date, the ratio (expressed ------------- as a percentage) computed by dividing (a) the aggregate Outstanding Balance of all Transferred Receivables that were Delinquent Receivables as of the last day of the prior Settlement Period by -- (b) the Outstanding Balance of all Transferred Receivables on the last day of such prior Settlement Period. "Defaulted Receivable" means a Receivable (a) as to which any payment, -------------------- or part thereof, remains unpaid for more than 90 days after the Maturity Date of such Receivable, or (b) as to which the Obligor thereof has taken any action, or suffered any event to occur, of the type described in Section 9.01(c) in respect of the Obligor (except that such action or event shall be taken by or occur with respect to such Obligor, rather than by or to the parties mentioned in such Section), or (c) which otherwise would be determined to be uncollectible and written off in accordance with the Credit and Collection Policies. "Delinquency Ratio" means, as of any Settlement Date, the ratio ----------------- (expressed as a percentage) computed by dividing (a) the aggregate Outstanding Balance of all Transferred Receivables as to which any payment, or part thereof, remains unpaid for more than 30 days but less than 61 days past its Maturity Date as of the last day of the prior Settlement Period by -- (b) the Outstanding Balance of all Transferred Receivables on the last day of such prior Settlement Period. "Delinquent Receivable" means any Receivable, other than a Defaulted --------------------- Receivable, as to which any payment, or part thereof, remains unpaid for more than 60 days past its Maturity Date. "Depositary" means Bankers Trust Company, or any other Person ---------- designated as the successor Depositary from time to time in its capacity as issuing and paying agent or trustee in connection with the issuance of Commercial Paper by the Lender. "Depositary Agreement" means the depositary agreement, dated as of -------------------- March 15, 1994, between the Lender and the Depositary and consented to by the Liquidity Agent. 12 "Depositary Fee" means the fee paid to the Depositary in connection -------------- with the issuance of Commercial Paper by the Lender. "Dilution Coverage" means, at any time, a fraction, expressed as a ----------------- percentage, the numerator of which is the sum of the Normal Dilutions and the Spike Impact calculated as of such date, and the denominator of which is the aggregate Outstanding Balance of all Eligible Receivables. "Dilution Factors" means, with respect to the Receivables, any net ---------------- credits, rebates, freight charges, cash discounts, volume discounts, cooperative advertising expenses, royalty payments, warranties, cost of parts required to be maintained by agreement (whether express or implied), warehouse and other allowances, disputes, chargebacks, defective returns, other returned or repossessed goods, inventory transfers, allowances for early payments and other similar allowances that are made or coordinated with Tyco Manufacturing or the Parent's usual practices, in each case after, in the case of any Receivable, such Receivable first became a "Receivable" hereunder; provided that any allowances or adjustments in accordance with the Credit and Collection Policies made on account of an Obligor's insolvency or inability to pay shall not constitute a Dilution Factor. "Dilution Horizon" means, at any time, an amount calculated as the ---------------- aggregate original Outstanding Balances of Transferred Receivables generated during the "N" most recent days, where N equals, if the Dilution Horizon is calculated on any day in the months shown in Column A below, the corresponding number of days shown in Column B below:
COLUMN A COLUMN B -------- -------- January 180 February 180 March 180 April 120 May 120 June 120 July 120 August 150 September 180
13 October 210 November 240 December 270
"Dilution Percentage" means, calculated during any month, a fraction ------------------- (expressed as a percentage) calculated as set out in Schedule 9. "Dilution Ratio" means, as of any Settlement Date, the ratio -------------- (expressed as a percentage) computed by dividing (a) an amount equal to the aggregate amount of the Variable Dilutions as reflected on the books of each of the Parent and Tyco Manufacturing during the preceding Settlement Period. by -- (b) the Outstanding Balance of all Eligible Receivables on the last day of the prior Settlement Period. "Dollar" and "$" means lawful currency of the United States of ------ America. "Dynamic Advance Rate" means a rate, as of any date, expressed as a -------------------- percentage, equal to 100% minus the sum of the Dilution Coverage, as calculated on such date, and the Default Coverage, as calculated for the Settlement Period preceding such date. "EBITA" shall mean, with respect to any fiscal period of Tyco Toys, ----- (i) operating profit of Tyco Toys and its Subsidiaries on a consolidated basis for such period, plus (ii) to the extent deducted in determining such operating ---- profit, amortization expense of Tyco Toys and its Subsidiaries on a consolidated basis for such period, minus (iii) to the extent deducted in determining net ----- income of Tyco Toys and its Subsidiaries on a consolidated basis for such period, extraordinary losses of Tyco Toys and its Subsidiaries on a consolidated basis during such period. "Effective Date" means the date of this Agreement. -------------- "Eligible Bank Account" means (a) a segregated deposit account with a --------------------- depositary institution or trust company acceptable to FSA whose short-term unsecured debt obligations are rated at least A-1+ by S&P and P-1 by Moody's; (b) a segregated account maintained in the corporate trust department of; a depositary institution or trust (which may be an account maintained with the Depositary) whose long-term unsecured debt obligations are rated 14 at least A- by S&P and A3 by Moody's; or (c) a segregated trust account or similar account maintained with a federally or state chartered depository institution subject to regulations regarding fiduciary funds on deposit substantially similar to 12 C.F.R. (S) 9.10(b) whose long-term unsecured debt obligations are rated at least A- by S&P and A3 by Moody's. "Eligible Customer" means any Obligor which is not an Excluded ----------------- Customer. "Eligible Receivable" means, at any time, a Transferred Receivable: ------------------- (a) which is a liability of an Eligible Customer organized under the laws of any jurisdiction in the United States and having its principal office in the United States; (b) which is denominated and payable in Dollars in the United States; (c) which is not and will not be subject to any right of rescission, set-off, recoupment, counterclaim or defense, whether arising out of transactions concerning the related Contract or otherwise; (d) which is not a Delinquent Receivable or a Defaulted Receivable; (e) which does not represent "billed but not yet shipped" goods or merchandise, unperformed services, consigned goods or "sale or return" goods or any other conditional sale or supply of goods or services; (f) as to which the representations and warranties of Section 4.02(c) are true and correct in all respects as of the date of its inclusion in any Borrowing Base Certificate; (g) which has a Maturity Date no later than 270 days from its Billing Date; (h) which complies with such other criteria and requirements as the Operating Agent and FSA may in good faith from time to time specify to the Borrower following 30 days' notice; and (i) which is not a Receivable of an Obligor which has more than 30% of its Receivables as Delinquent Receivables. 15 "ERISA" means the Employee Retirement Income Security Act of 1974, as ----- it may be amended from time to time, and the regulations promulgated thereunder. "Event of Servicer Termination" has the meaning specified in Section ----------------------------- 9.02. "Excluded Customer" means an Obligor which is (a) an Affiliate of the ----------------- Parent or Tyco Manufacturing or either of the Borrowers, (b) a Governmental Authority, (c) a supplier of goods or services to the Parent, Tyco Manufacturing or an Affiliate of either with respect to which the Parent, Tyco Manufacturing and/or an Affiliate of either has accounts payable, on any date of determination, in excess of 10% of the Outstanding Balance of Transferred Receivables on such date or (d) a supplier of goods or services to the Parent, Tyco Manufacturing or an Affiliate of either with respect to which the Parent, Tyco Manufacturing or an Affiliate of either has accounts payable in an amount which when added to the amount of all accounts payable of all other obligors which supply goods or services to the Parent, Tyco Manufacturing or an Affiliate of either exceeds $150,000, in which event all such Obligors shall be Excluded Customers, (e) Toys'R'Us, if Toys'R'Us is then a supplier of goods or services to the Parent, Tyco Manufacturing or an Affiliate of either or (f) an Obligor listed on Schedule 3 hereof as revised from time to time in good faith by the Operating Agent, with the prior written consent of FSA if any such Excluded Customer shall be removed therefrom, pursuant to a letter in the form of Annex A thereto. "Facility Structuring Fee" has the meaning specified in the Fee ------------------------ Letter. "Fee Letter" means the letter dated as of February 24, 1995, among the ---------- Borrowers, the Lender, the Servicer and the Operating Agent. "Fees" mean the fees payable pursuant to the Fee Letter. ---- "Final Maturity Date" means August 24, 2000. ------------------- "FSA" means Financial Security Assurance Inc., a stock insurance --- company organized and created under the laws of the State of New York, and any successors thereto. "FSA Default" shall mean any one of the following events shall have ----------- occurred and be continuing: (a) FSA fails to make a payment required under the Policy in accordance with its terms; 16 (b) FSA (i) files any petition or commences any case or proceeding under any provision or chapter of the United States Bankruptcy Code or any other similar federal or state law relating to insolvency, bankruptcy, rehabilitation, liquidation or reorganization, (ii) makes a general assignment for the benefit of its creditors, or (iii) has an order for relief entered against it under the United States Bankruptcy Code or any other similar federal or state law relating to insolvency, bankruptcy, rehabilitation, liquidation or reorganization which is final and nonappealable; or (c) a court of competent jurisdiction, the New York Department of Insurance or other competent regulatory authority enters a final and nonappealable order, judgment or decree (i) appointing a custodian, trustee, agent or receiver for FSA or for all or any material portion of its property or (ii) authorizing the taking of possession by a custodian, trustee, agent or receiver of FSA (or the taking of possession of all or any material portion of the property of FSA). "Funded Debt" shall mean, with respect to any Person, all Debt of such ----------- Person which by the terms of the agreement governing or instrument evidencing such Debt matures more than one year from, or is directly or indirectly renewable or extendible at the option of the debtor under a revolving credit or similar agreement obligating the lender or lenders to extend credit over a period of more than one year from, the date of creation thereof, including current maturities of long-term debt, revolving credit, and short-term debt extendable beyond one year at the option of such Person. "Funding Date" means each day on which an Advance is ------------ made. "GAAP" means generally accepted accounting principles as in effect in ---- the United States, consistently applied, as of the date of such application. "GE Capital" means General Electric Capital Corporation. ---------- "Governmental Authority" means the United States of America, any ---------------------- state, local or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions thereof or pertaining thereto. "Governmental Consents" has the meaning specified in Section --------------------- 4.02(a)(xiv). 17 "Guaranteed Distributions" has the meaning specified in the Policy. ------------------------ "Incipient Event" means an event which, upon the giving of notice or --------------- the passage of time, or both, would become a Termination Event. "Income Discount Amount" means the amount calculated by the Operating ---------------------- Agent as set forth on Schedule 4, from time to time at its discretion, subject, with respect only to items E to H inclusive in the "Input Table" of such Schedule 4 and the definitions set forth on such Schedule 4 relating to such items, to the subsequent written notice to FSA and, upon notice by FSA to the Operating Agent to the prior written consent of FSA to the next succeeding calculation. "Indemnified Amounts" has the meaning specified in Section 12.01(a). ------------------- "Indemnified Party" has the meaning specified in Section 12.01(a). ----------------- "Insurance and Indemnity Agreement" means the agreement of that name --------------------------------- among the Borrowers, GE Capital, the Lender, the Servicer and FSA dated as of February 24, 1995, as amended or supplemented in accordance with the provisions thereof. "Intercreditor Agreement" means the Intercreditor Agreement, dated as ----------------------- of February 24, 1995, among Tyco Manufacturing, the Parent, the Borrowers, the Lender, FSA, the Collateral Agent, the Inventory Lender Agent and the Operating Agent. "Interest", for any period, means the sum of the Daily Interest for -------- each day in such period, as more fully specified in Schedule 5. "Interest and Fees Shortfall" means, for any day within a Settlement --------------------------- Period, the amount, if any, by which the sum of the Accrued Monthly Interest and the Unused Facility Fees calculated as of that day exceed the sum of the Retained Monthly Interest and the Unused Facility Fees transferred to or retained in the Retention Account as of that same day. "Interest Expense" shall mean with respect to any fiscal period of ---------------- Tyco Toys, interest expense of Tyco Toys and its Subsidiaries on a consolidated basis for such period, including amortization of original issue discount on any Debt and of all fees payable in connection with the incurring of such Debt (to the extent included in interest expense), the interest portion of any deferred payment obligation and the interest component of any Capital Lease Obligation. 18 "Internal Revenue Code" means the Internal Revenue Code of 1986, as --------------------- amended from time to time. "Inventory Facility" means the Credit Agreement, dated as of February ------------------ 24, 1995, among Tyco Distribution Corp., Tyco Manufacturing, Tyco Toys, the lenders, parties thereto and GE Capital as in the effect on the Effective Date with such amendments and modifications as may be agreed to by the Lender and FSA and includes any refinancing, replacement, refunding of or successor to such agreement. "Investments" means, with respect to the Borrower Account Collateral ----------- and the Lender Account Collateral, the certificates, instruments or other Permitted Investments in which amounts in such accounts are invested from time to time. "Lender" means Redwood Receivables Corporation, a Delaware ------ corporation. "Letter of Credit" means the letter of credit, dated April 12, 1994, ---------------- provided by the Letter of Credit Providers pursuant to the Letter of Credit Agreement. "Letter of Credit Agent" means GE Capital, in its capacity as agent ---------------------- for the Letter of Credit Providers under the Letter of Credit Agreement, and its successors and permitted assigns in such capacity. "Letter of Credit Agreement" means the Amende and Restated Letter of -------------------------- Credit Reimbursement Agreement, dated as of February 24, 1995, entered into by the Lender, the Letter of Credit Agent and the Letter of Credit Providers. "Letter of Credit Providers" means, initially, GE Capital, as provider -------------------------- of the Letter of Credit under the Letter of Credit Agreement, and thereafter its successors and any permitted assigns in such capacity. "Liquidity Agent" means GE Capital and its successors and assigns as --------------- agent for the Liquidity Lenders pursuant to the Liquidity Loan Agreement. "Liquidity Lenders" means, collectively, GE Capital and any other ----------------- provider of Liquidity Loans under the Liquidity Loan Agreement. "Liquidity Loan Agreement" means the Amended and Restated Liquidity ------------------------ Loan Agreement, dated as of February 24, 1995, entered into by the Lender, the Liquidity Lenders and the Liquidity Agent in connection with the provision of liquidity support for the Lender. 19 "Liquidity Loans" means borrowings by the Lender under the Liquidity --------------- Loan Agreement. "Loans" means any indebtedness issued by an Affected Party, including ----- Advances, payments under the Policy and Liquidity Loans. "LOC Draw" means a draw under the Letter of Credit Agreement. -------- "Lockbox" has the meaning specified in Section 6.01(a)(ii). ------- "Lockbox Account" means a segregated deposit account described in --------------- Section 6.01(a) in the name of the Collateral Agent into which Proceeds in respect of Transferred Receivables shall be deposited. "Lockbox Agreement" means an agreement among either TFC I or TFC II as ----------------- the case may be, the Operating Agent, the Lender and a Lockbox Bank with respect to the Lockbox Accounts, in the form, subject to the approval of FSA, of Exhibit 3 to the Receivables Transfer Agreements. "Lockbox Bank" means any of the banks approved in writing by FSA ------------ holding one or more Lockbox Accounts. "Material Adverse Effect" means, with respect to any event or ----------------------- circumstance and any Person, a material adverse effect on: (a) the business, financial condition, operations or assets of such Person, or of such Person and of its Subsidiaries, on a consolidated basis, or of Tyco Industries, Inc. Tyco Investment Corp., Tyco Manufacturing Corp., Tyco Distribution Corp., Matchbox Toys (USA) Ltd. and Tyco Playtime, Inc.; (b) the ability of such Person to perform its obligations under any Related Document, any Program Document, or this Agreement; (c) the validity or enforceability of, or collectibility of amounts payable under, this Agreement, any Related Document or any Program Document; (d) the Collateral or the status, existence, perfection or first priority of the Lender's, the Collateral Agent's or FSA's interest in the Collateral, taken as a whole free of any Adverse Claim; 20 (e) the validity, enforceability or collectibility of the Receivables or Contracts; (f) the ability of the Lender, the Collateral Agent or FSA to liquidate, or foreclose against, the Collateral; (g) the practical realization by the Lender, the Collateral Agent or FSA of any of the benefits or security afforded under this Agreement, any Related Document or any Program Document; or (h) the shadow rating of the pool of Receivables purchased by the Borrowers, if such adverse effect on the shadow rating is notified to the Servicer or Tyco Manufacturing by FSA. "Maturity Date", for any Receivable, means the due date for payment ------------- specified in the related Contract, or, if no date is specified, 60 days from the Billing Date. "Maximum Facility Commitment" means with respect to each Borrower, --------------------------- $100,000,000, as such amount may be subject to reduction in accordance with Section 2.02(a). "Maximum Lawful Rate" has the meaning specified in Section 2.07(c). ------------------- "Monthly Report" has the meaning set forth in Section 5.02(a)(ii). -------------- "Moody's" means Moody's Investors Service, Inc. or any successors ------- thereto. "Multiemployer Plan" means a multiemployer plan (within the meaning of ------------------ Section 4001(a)(3) of ERISA) in respect of which a Commonly controlled Entity makes contributions or has liability. "Net Income" shall mean, with respect to any fiscal period of Tyco ---------- Toys, Inc., the aggregate net income (or loss) of Tyco Toys, Inc. and its Subsidiaries on a consolidated basis from continuing operations for such period, calculated and determined in accordance with GAAP. "Net Proceeds Amount" means the face amount of Commercial Paper minus ------------------- the discount on the price to the public and dealer fees for such Commercial Paper. "New Advances Available" means, with respect to either Borrower, as of ---------------------- the date of any calculation, (a) the Availability with respect to such Borrower as of such date, minus (b) Advances Outstanding with respect to such Borrower as of such date. 21 "Normal Dilutions" means an amount which is the product of (i) the ---------------- Dilution Percentage, (ii) the Dilution Horizon, and (iii) 1.5. "Note" has the meaning set forth in Section 2.05(a). ---- "Notice of Claim" means the Notice of Claim and Certificate under the --------------- Policy. "Obligations" means all amounts owed by the Borrowers under this ----------- Agreement and under the Insurance and Indemnity Agreement or the Premium Letter, including with respect to Advances, payments under the Policy, Interest, Fees, Additional Amounts, and indemnities. "Obligor" means, with respect to any Receivable, the Person primarily ------- obligated to make payments with respect thereto. "Officers' Certificate" means, with respect to any Person, a --------------------- certificate of such Person signed on its behalf by the Chairman of the Board, Vice Chairman of the Board, the President, a Vice President, the Treasurer, the Secretary or any other duly authorized officer of such Person acceptable to the Operating Agent and FSA. "Operating Agent" means GE Capital, as Operating Agent hereunder, --------------- together with its successors and assigns. "Operating Agent Agreement" means the Operating Agent Agreement, dated ------------------------- as of March 15, 1994, between the Lender and the Operating Agent. "Operating Agent Base Fees" means the amount designated as such and so ------------------------- agreed by the Lender and the Operating Agent. "Optional Prepayment of Advances" means the option of each Borrower to ------------------------------- repay an Advance pursuant to a Borrower Notice and in accordance with Article VI. "Optional Repayment Amount" means the principal amount of any Optional ------------------------- Prepayment of Advances, plus the interest accrued but unpaid on such principal amount through the prepayment date, as set forth in any Borrower Notice. "Other Costs" has the meaning specified in Section 14.03(a). ----------- "Other Funding Agreements" means other agreements for the purchase or ------------------------ funding of receivables entered into from time to time by the Lender in which it is contemplated that such purchases or fundings will be financed in the same manner as contemplated hereunder. 22 "Outstanding Balance" of any Receivable at any time means an amount ------------------- (not less than zero) equal to (a) its Billed Amount, minus (b) all payments received from the Obligor with respect thereto, minus (c) all discounts to or any other modifications that reduce the Billed Amount; provided, that if the -------- Operating Agent or the Servicer makes a determination that all payments by the Obligor with respect to such Billed Amount have been made, the Outstanding Balance shall be zero. "Parent" means Tyco Industries, Inc. or any Affiliate thereof that is ------ an originator of Transferred Receivables. "Parent's Sales" means, for any period, the Billed Amounts of all -------------- Receivables originated by the Parent during such period, plus the aggregate amount of any down payments or deposits made in respect of such Receivables. "PBGC" means the Pension Benefit Guaranty Corporation or any successor ---- agency, corporation or instrumentality of the United States to which the duties and powers of the Pension Benefit Guaranty Corporation are transferred. "Permitted Investments" means one or more of the following: --------------------- (a) obligations of, or guaranteed as to the full and timely payment of principal and interest by, the United States or obligations of any agency or instrumentality thereof, when such obligations are backed by the full faith and credit of the United States; (b) repurchase agreements on obligations specified in clause (a); provided, that the short-term debt obligations of the party agreeing to repurchase are rated at least A-1+ by S&P and P-1 by Moody's; (c) federal funds, certificates of deposit, time deposits and bankers' acceptances (which shall each have an original maturity of not more than 90 days or, in the case of bankers' acceptances, shall in no event have an original maturity of more than 365 days) of any United States depository institution or trust company incorporated under the laws of the United States or any state; provided, that the short-term obligations of such depository institution or trust company are rated at least A-1+ by S&P and P-1 by Moody's; (d) commercial paper (having original maturities of not more than 30 days) of any corporation incorporated under the laws of the United States or any state thereof which on the date of acquisition are rated at least A-1+ by S&P and P-1 by Moody's; 23 (e) with the prior consent of FSA, securities of money market funds rated at least Aam by S&P and P-1 by Moody's provided that Bankers Trust Money Market Mutual Fund shall be acceptable; and (f) with the prior written consent of FSA, such other investments with respect to which each Rating Agency shall have confirmed in writing to the Lender and Collateral Agent that such investments shall not result in a withdrawal or reduction of the then current rating by such Rating Agency of the Commercial Paper. "Person" means an individual, partnership, corporation (including a ------ business trust), joint stock company, trust, association, joint venture, Governmental Authority or any other entity of whatever nature. "Plan" means any pension plan (other than a Multiemployer Plan) ---- covered by Title IV of ERISA, which is maintained by a Commonly Controlled Entity or in respect of which a Commonly Controlled Entity has liability. "Policy" means, collectively, the financial guaranty insurance ------ policies Nos. 50352A-N and 50352B-N issued by FSA with respect to a Note pursuant to the Insurance and Indemnity Agreement, including any endorsement thereto. "Premium" has the meaning specified in the Insurance and Indemnity ------- Agreement. "Premium Letter" means the side letter dated as of February 24, 1995 -------------- among FSA, the Borrowers, GE Capital in its capacity as Collateral Agent and Operating Agent and the Lender in respect of the premium payable by the Borrowers in consideration of the issuance of the Policy. "Proceeds" means, with respect to any Collateral, whatever is -------- receivable or received when such Collateral is sold, collected, exchanged or otherwise disposed of, whether such disposition is voluntary or involuntary, and includes all rights to payment, including returned premiums, with respect to any insurance relating to such Collateral. "Program Documents" means the Letter of Credit Agreement, the ----------------- Liquidity Loan Agreement, the Collateral Agent Agreement, the Depositary Agreement, the Commercial Paper, the Operating Agent Agreement, each Accession Agreement and the Dealer Agreements. "Rating Agency" means each of Moody's and S&P. ------------- 24 "Rating Agency Fee" means fees paid to each Rating Agency in ----------------- connection with the rating of the Commercial Paper. "Receivable" means: ---------- (a) indebtedness of an Obligor (whether constituting an account, chattel paper, instrument or general intangible) arising from the provision of merchandise, goods or services by the Parent or Tyco Manufacturing to such Obligor (other than the provision of services to Tyco Toys or any Affiliate thereof), including the right to payment of any interest or finance charges and other obligations of such Obligor with respect thereto; (b) all security interests or liens and property subject thereto from time to time securing or purporting to secure payment by the Obligor; (c) all guarantees, indemnities and warranties and proceeds thereof, proceeds of insurance policies, financing statements and other agreements or arrangements of whatever character from time to time supporting or securing payment of such Receivable; (d) all Collections with respect to any of the foregoing; (e) all Records with respect to any of the foregoing; and (f) all Proceeds of any of the foregoing. "Receivable Collection Turnover" means, as of the last day of any ------------------------------ Settlement Period, a number of days equal to (A) a fraction, the numerator of which is equal to the average of the Outstanding Balance of Transferred Receivables on the first day of each month during the prior twelve fiscal months and the denominator of which is equal to aggregate Collections less Anticipation Payments received during such twelve month period with respect to all Receivables originated by the Parent or Tyco Manufacturing, multiplied by (B) the number of days in such prior twelve fiscal month period. "Receivables Transfer Agreements" means the Receivables Transfer ------------------------------- Agreements, each dated as of February 24, 1995, among the Borrowers and either Tyco Manufacturing or the Parent, as the case may be. "Records" means all Contracts and other documents, books, records and ------- other information (including, without limitation, computer programs, tapes, disks, punch cards, data processing software and related property and rights) prepared and 25 maintained by the Parent, Tyco Manufacturing, the Servicer or the Borrowers with respect to Receivables and the related Obligors. "Regulatory Change" shall mean any change after the Effective Date in ----------------- federal, state or foreign law or regulations (including, without limitation, Regulation D of the Federal Reserve Board) or the adoption or making after such date of any interpretation, directive or request applying to any Affected Party of or under any federal, state or foreign law or regulations (whether or not having the force of law) by any Governmental Authority charged with the interpretation or administration thereof. "Rejected Amount" means, with respect to either Borrower, the amount --------------- of the capital contribution or payment as the case may be, which the Parent or Tyco Manufacturing, as the case may be, is required to make to such Borrower (as reasonably determined by the Operating Agent) pursuant to the applicable Receivables Transfer Agreement as a result of breaches by the Parent or Tyco Manufacturing of representations and warranties with respect to Receivables transferred to such Borrower by the Parent or Tyco Manufacturing pursuant to a Receivables Transfer Agreement. "Related Documents" means the Notes, the Lockbox Agreements, the ----------------- Receivables Transfer Agreements, the Assignments, the Insurance and Indemnity Agreement, the Policy, the Premium Letter, the Intercreditor Agreement and all agreements, instruments, certificates, financing statements or other documents required to be delivered hereunder or thereunder. "Reportable Event" means any of the events set forth in Section ---------------- 4043(b) of ERISA or the regulations thereunder. "Request Notice" has the meaning set out in the Receivables Transfer -------------- Agreement. "Required Information" means, with respect to a Receivable, (a) the -------------------- Obligor, (b) the Obligor's address, (c) the Billed Amount, (d) the Maturity Date, (e) the Billing Date and (f) whether or not such Receivable is an Eligible Receivable. "Restrictions on Transferability" means any material condition to, or ------------------------------- restriction on, the ability of the holder or an assignee of the holder of any right, title or interest to sell, assign, transfer or otherwise liquidate such right, title or interest in a commercially reasonable time and manner or which would otherwise materially deprive the holder or any assignee of the holder of the benefits thereof. "Retained Monthly Interest" means, for any day within a Settlement ------------------------- Period, all amounts transferred to or retained in the 26 Retention Account with respect to Daily Interest calculated as of the previous day in accordance with Section 6.03(a)(ii) and Accrued Monthly Interest calculated as of that date in accordance with Section 6.04(a)(iii). "Retention Account" means the account maintained with the Depositary ----------------- described in Section 6.01(c). "Retention Account Deficiency" means, for any Settlement Date, any ---------------------------- deficiency in the amounts on deposit in the Retention Account necessary to make the payments required under Sections 6.04(a)(i) and (ii). "Revolving Period" means the period commencing on the Effective Date ---------------- of this Agreement and ending on the day immediately prior to the Commitment Termination Date. "S&P" means Standard & Poor's Ratings Group, a division of McGraw- --- Hill, Inc. or any successors thereto. "Sale Date" has the meaning given to that term in the Receivables --------- Transfer Agreements. "Secured Parties" means, collectively, the Lender and FSA. --------------- "Servicer" means the Parent, or any Person designated as Successor -------- Servicer, and its successors and assigns from time to time hereunder. "Servicer Documents" has the meaning set forth in Section 4.03 (l). ------------------ ---------------- "Servicer Extension Notice" has the meaning set forth in Section 7.10 ------------------------- ------------ hereof. "Servicer Termination Notice" means a notice by the Operating Agent, --------------------------- with the prior written consent or at the direction of FSA, to the Servicer that an Event of Servicer Termination has occurred and that the Servicer's appointment hereunder has been terminated. "Servicing Fee" means a fee payable by such Borrowers to the Servicer ------------- on each Settlement Date equal to the product of (i) the Servicing Fee Rate, (ii) the Average Outstanding Balance of all Transferred Receivables for the preceding Settlement Period, and (iii) the actual number of days in such period divided by 360. "Servicing Fee Rate" means 1.00% per annum. ------------------ 27 "Servicing Officer" means any officer of the Servicer involved in, or ----------------- responsible for, the administration and servicing of the Transferred Receivables whose name appears on an Officer's Certificate listing servicing officers furnished to the Operating Agent and FSA by the Servicer, as amended from time to time. "Servicing Records" means all documents, books, records and other ----------------- information (including, without limitation, computer programs, tapes, disks, punch cards, data processing software and related property and rights) prepared and maintained by the Servicer with respect to the Transferred Receivables and the related Obligors. "Settlement Date" means each Tuesday or if any such Tuesday is not a --------------- Business Day, the next succeeding Business Day. "Settlement Period" means, in the case of the initial Settlement ----------------- Period, the period beginning with the Effective Date to and including the last day of the week in which such Effective Date occurs; with respect to the final Settlement Period, the period ending on the Final Maturity Date and beginning with the first day of the week in which the Final Maturity Date occurs; and with respect to all other Settlement Periods, each week, unless (with respect to any of the foregoing Settlement Periods) otherwise specified to be a month. "Spike" means, with respect to any Settlement Period, an amount ----- expressed as a percentage and calculated as the greater of (i) ADP - DP, and (ii) zero, where: ADP = the arithmetic average of (a) the Dilution Percentage for the Settlement Period in the year immediately prior to such Settlement Period, and (b) the Dilution Percentage for the Settlement Period two years immediately prior to such Settlement Period. DP = the Dilution Percentage for such Settlement Period "Spike Impact" means, with respect to any Settlement Period, the ------------ product of the Spike and the Dilution Horizon. "Sub-Servicer" means any Person with whom the Servicer enters into a ------------ Sub-Servicing Agreement. "Sub-Servicing Agreement" means any written contract between the ----------------------- Servicer and any Sub-Servicer, relating to servicing, administration or collection of Transferred Receivables as provided in Section 7.01, in such form as has been approved in writing by the Servicer, FSA and the Operating Agent. 28 "Subsidiary" means, as to any Person, any corporation or other entity ---------- of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other Persons performing similar functions are at the time directly or indirectly owned by such Person. "Successor Servicer" has the meaning specified in Section 11.02. ------------------ "Successor Servicing Fees and Expenses" means the fees and expenses ------------------------------------- payable by the Borrowers to the Successor Servicer, as agreed to by the Borrowers, the Lender, the Operating Agent, the Liquidity Agent and FSA at a per annum rate not to exceed 2% of the Outstanding Balance of Transferred Receivables. "Tangible Net Worth" shall mean, as of any date, (a) shareholders' ------------------ equity of Tyco Toys and its Subsidiaries on a consolidated basis minus (b) the ----- amount of goodwill of Tyco Toys and its Subsidiaries on a consolidated basis, determined in each case in accordance with GAAP; provided that Tangible Net -------- Worth shall not in any event include any cumulative translation adjustments which are made pursuant to FASB 52 or any similar accounting rule, regulation, pronouncement or opinion. "Tax Expense" shall mean, with respect to any fiscal period of Tyco ----------- Toys, provision for income taxes of Tyco Toys and its Subsidiaries on a consolidated basis for such period. "Term of the Insurance and Indemnity Agreement" shall be determined as --------------------------------------------- provided in Section 4.01 of the Insurance and Indemnity Agreement. "Termination Event" has the meaning specified in Section 9.01. ----------------- "TFC I" has the meaning specified in the preamble. ----- "TFC II" has the meaning specified in the preamble. ------ "TFC I Deferred Sale Price" has the meaning specified in the ------------------------- Receivables Transfer Agreements. "TFC II Deferred Sale Price" has the meaning specified in the -------------------------- Receivables Transfer Agreements. "Tier I Transferred Receivables" has the meaning such term has ------------------------------ pursuant to the Receivables Transfer Agreements. "Tier II Transferred Receivables" has the meaning such term has ------------------------------- pursuant to the Receivables Transfer Agreements. 29 "Transaction Credit Provider" shall have the meaning such term has --------------------------- pursuant to the Collateral Agent Agreement. "Transfer Date" means each date on which a Transferred Receivable is ------------- sold or contributed to the Borrower by the Parent or Tyco Manufacturing under a Receivables Transfer Agreement. "Transferred Receivable" means any Receivable which has been purchased ---------------------- by either Borrower, or contributed as capital by the Parent to either Borrower, under a Receivables Transfer Agreement. "Tyco Manufacturing" means Tyco Manufacturing Corp., a company ------------------ incorporated under the laws of Oregon. "Tyco Manufacturing's Sales" means, for any period, the Billed Amount -------------------------- of all Receivables originated by Tyco Manufacturing during such period, plus the aggregate amount of any downpayments or deposits made in respect of such Receivables. "Tyco Toys" means Tyco Toys, Inc., a company incorporated under the --------- laws of Delaware. "UCC" means, for any jurisdiction, the Uniform Commercial Code as from --- time to time in effect in such jurisdiction. "Underfunded Plan" means any Plan that has an Underfunding. ---------------- "Underfunding" means, with respect to any Plan, the excess, if any, of ------------ (a) the present value of all benefits under the Plan (based on the assumptions used to fund the Plan pursuant to Section 412 of the Code) as of the most recent valuation date over (b) the fair market value of the assets of such Plan as of such valuation date. "Unused Facility Fee" means for any period, the sum of the Daily ------------------- Unused Facility Fees for each day in the period. "Variable Dilutions" means, for any period, an amount equal to the sum ------------------ of the Dilution Factors as reflected on the books of each of the Parent and Tyco Manufacturing for such period less the amounts of credit memos issued during such period relating to the Contractual Reserves. "Wire Payments" has the meaning specified in Section 6.01(a)(ii). ------------- SECTION 1.02. Other Terms. All accounting terms not specifically defined ----------- herein shall be construed in accordance with GAAP. All terms used in Article 9 of the UCC of the State of New 30 York, and not specifically defined herein, are used herein as defined in such Article 9. All hourly references herein shall refer to New York City time. All weekly or monthly references with respect to Tyco Toys, the Parent, Tyco Manufacturing or the Borrowers herein shall refer to fiscal weeks or months of Tyco Toys, the Parent or Tyco Manufacturing, as the case may be. SECTION 1.03. Interpretation. Except as otherwise indicated, all -------------- agreements defined in this Agreement refer to the same as from time to time amended or supplemented or as the terms of such agreements are waived or modified in accordance with their terms. SECTION 1.04. Rounding. For purposes of any calculations referred to in -------- this Agreement (unless otherwise specified), (a) all percentages resulting from such calculations will be rounded up, if necessary, to the nearest one ten- thousandth of a percentage point (e.g. 9.87654% (or .0987654) being rounded up to 9.8766% (or .098766)) and (b) all Dollar amounts used in or resulting from such calculations will be rounded up to the nearest cent (e.g. $1,057.373 being rounded up to $1,057.38). ARTICLE II COMMITMENT; ADVANCES SECTION 2.01. Advances. -------- Subject to Section 2.13, the Lender hereby agrees, on the terms and subject to the conditions of this Agreement, to make advances (each, an "Advance") to each of the Borrowers during the Revolving Period in an aggregate principal amount at any one time outstanding up to, but not exceeding, such Borrower's Availability. Subject to Section 2.13 and the other terms of this Agreement, during the Revolving Period each of the Borrowers may borrow, repay and reborrow up to the amount of such Borrower's Availability (after giving effect to the mandatory and voluntary reductions required and permitted herein). SECTION 2.02. Optional Changes in Commitment. ------------------------------ (a) Each Borrower shall be entitled at its option, not more than twice during each calendar year, to reduce its Maximum Facility Commitment permanently; provided that such Borrower shall give notice of such reduction to -------- the Lender and FSA as provided in Section 2.03(b) hereof and that any partial reduction of the Maximum Facility Commitment shall be in an amount equal to One Million Dollars ($1,000,000) or an integral multiple thereof; and provided, -------- further, that any reduction of its Maximum Facility Commitment below Advances - ------- Outstanding of such Borrower shall be subject to such Borrower's repayment obligations under Sections 2.03(a) and 2.06(a). (b) Subject to Section 2.02(c), each Borrower shall be entitled at its option to terminate its Maximum Facility Commitment, provided that the Lender and FSA shall be given 180 days prior notice by such Borrower of such termination. Any such termination shall be permanent and irrevocable. (c) Early termination or reduction of its Maximum Facility Commitment shall obligate the applicable Borrower to pay to FSA an amount in respect of "Unpaid Premium" as set forth in Section 3.02 of the Insurance and Indemnity Agreement. SECTION 2.03. Notices Relating to Advances. ---------------------------- (a) On each Settlement Date, on each Funding Date and on each Business day during the Clean Down Period Part 1 and the Clean Down Period Part 2, the Borrowers shall each file a Borrowing Base Certificate and copies of all applicable Request Notices under the Receivables Transfer Agreements with the Operating Agent and, upon request, FSA. Availability will be calculated based on the most recent Borrowing Base Certificate delivered to the Lender and the Operating Agent. Subject to Section 2.13, the Borrowers may each request additional Advances up to such Borrower's New Advances Available, if any. If there is a Borrowing Excess with respect to a Borrower, the affected Borrower must repay, in accordance with the procedures set forth in Sections 6.02(a)(iii), 6.03(a)(iii) and 6.04(a)(i)(D), Advances Outstanding of such Borrower to the then current level of the Availability of such Borrower. (b) Each Borrower shall give the Lender, FSA and the Operating Agent written notice of each termination or reduction of its Maximum Facility Commitment and of each borrowing and repayment of each Advance of such Borrower (in each case, a "Borrower Notice"). Each such written notice shall be irrevocable upon its effectiveness. Such notice and the termination, reduction, borrowing or repayment referred to therein shall be effective, only if such notice is received by the Lender, FSA and the Operating Agent not later than 2:00 p.m., New York City time on the Business Day prior to the date of the related termination, reduction, borrowing or repayment. Each such notice of termination or reduction shall specify the amount thereof. Each such notice of borrowing or repayment shall specify the amount (subject to Section 2.01 hereof) of Advances of such Borrower to be borrowed or repaid and the Funding Date or repayment date (which shall be a Business Day). (c) Each Borrower Notice requesting an Advance shall include a representation by the applicable Borrower that the Advance requested shall not on the Funding Date exceed the New 32 Advances Available of such Borrower, based upon the most recent Borrowing Base Certificate of such Borrower. SECTION 2.04. Disbursement of Loan Proceeds. Each Borrower shall give the ----------------------------- Lender and the Operating Agent and, upon request by FSA, FSA notice of each Advance to it hereunder as provided in Section 2.03(b) hereof. Not later than 11:00 a.m., New York City time, on the date specified for each Advance hereunder, the Lender shall transfer or cause the Collateral Agent to transfer, by wire transfer or otherwise, but in any event in immediately available funds, the amount of the Advance to be made on such date, to the Collection Account. SECTION 2.05. Note. ---- (a) The Advances made by the Lender hereunder to each Borrower shall be evidenced by a single promissory note of each Borrower in substantially the form of Exhibit C hereto (each, a "Note"). The Note shall be dated the date of the initial Advance under this Agreement, shall be payable to the order of the Lender in a principal amount equal to such Borrower's Maximum Facility Commitment as originally in effect, and shall otherwise be duly completed. The Advances evidenced by each Note shall be payable as provided in Article VI hereof. (b) The Lender shall enter on a schedule attached to each Note a notation (which may be computer generated) with respect to each Advance of the related Borrower made hereunder of: (i) the date and principal amount thereof and (ii) each payment and repayment of principal thereof. The failure of the Lender to make a notation on the schedule to a Note as aforesaid shall not limit or otherwise affect the obligation of the related Borrower to repay the related Advances in accordance with their respective terms as set forth herein. SECTION 2.06. Principal Repayments. The Advances of each Borrower (a) -------------------- shall be repaid as and when necessary, as set forth in Sections 2.03(a), 6.03, 6.04 and 6.05, to cause the aggregate principal amount of the Advances Outstanding of such Borrower not to exceed the Availability of such Borrower, and (b) may be repaid at any time and from time to time, in whole or in part, upon prior written notice to the Lender, FSA and Operating Agent as provided in Section 2.03(b) hereof and any amount so repaid may, subject to the terms and conditions hereof, be reborrowed hereunder during the Revolving Period, subject to Section 2.13; provided, however, that all repayments of Advances or any portion thereof shall be made together with payment of (i) all Interest accrued on the amount repaid to (but excluding) the date of such repayment, and (ii) any and all Breakage Costs payable under Section 2.11. SECTION 2.07. Interest. -------- 33 (a) Each Borrower shall pay to the Lender, as set forth in Sections 6.03, 6.04 and 6.05, Interest on the unpaid principal amount of each Advance of such Borrower for the period commencing on and including the date of such Advance until but excluding the date such Advance shall be paid in full. (b) Notwithstanding the foregoing, each Borrower shall pay interest on unpaid Interest, on any Advance of such Borrower or any installment thereof, and on any other amount payable by such Borrower hereunder (to the extent permitted by law) that shall not be paid in full when due (whether at stated maturity, by acceleration or otherwise) for the period commencing on the due date thereof to (but excluding) the date the same is paid in full at the applicable Daily Borrowing Rate. (c) Anything in this Agreement or any of the Related Documents to the contrary notwithstanding, if at any time the rate of interest payable by any Person under this Agreement or any of the Related Documents exceeds the highest rate of interest permissible under any applicable law (the "Maximum Lawful Rate"), then, so long as the Maximum Lawful Rate would be exceeded, the rate of interest under this Agreement or such Related Document shall be equal to the Maximum Lawful Rate. If at any time thereafter the rate of interest payable under this Agreement or such Related Document is less than the Maximum Lawful Rate, such Person shall continue to pay interest under this Agreement or such Related Document at the Maximum Lawful Rate until such time as the total interest received from such Person is equal to the total interest that would have been received had the applicable law not limited the interest rate payable under this Agreement or such Related Document. In no event shall the total interest received by the Lender and the Collateral Agent under this Agreement or any of the Related Documents exceed the amount which the Lender and the Collateral Agent could lawfully have received, had the interest due under this Agreement or such Related Document been calculated since the Effective Date at the Maximum Lawful Rate. SECTION 2.08. Fees. ---- (a) On the Effective Date and each Settlement Date, as the case may be, the Borrowers shall pay the Fees to the Lender. (b) On each Settlement Date, the Borrowers shall pay to the Servicer, the Servicing Fee, or to the Successor Servicer, the Successor Servicing Fees and Expenses. SECTION 2.09. Time and Method of Payments. Subject to the provisions of --------------------------- Sections 6.03, 6.04 and 6.05, all payments of principal, interest, fees and other amounts (including indemnities) payable by the Borrowers hereunder shall be made in Dollars, in immediately available funds, to the Lender not later 34 than 11:00 a.m., New York City time, on the date on which such payment shall become due. Any such payment made on such date but after such time shall, if the amount paid bears interest, be deemed to have been made on, and interest shall continue to accrue and be payable thereon until, the next succeeding Business Day. If any payment of principal or interest becomes due on a day other than a Business Day, such payment may be made on the next succeeding Business Day and such extension shall be included in computing interest in connection with such payment. All payments hereunder and under the Notes shall be made without set-off or counterclaim and in such amounts as may be necessary in order that all such payments shall not be less than the amounts otherwise specified to be paid under this Agreement and the Notes (after withholding for or on account of any present or future taxes, levies, imposts, duties or other similar charges of whatever nature imposed upon an Affected Party by any government or any political subdivision or taxing authority thereof, other than any tax on or measured by the net income of the Affected Party to which any such payment is due pursuant to applicable federal, state and local income tax laws). Upon payment in full of any Note, following the Commitment Termination Date, the Lender shall mark such Note "Paid" and return it to the applicable Borrower. SECTION 2.10. Additional Costs; Capital Requirements. -------------------------------------- (a) In the event that any existing or future law, regulation or guideline, or interpretation thereof, by any court or administrative or governmental authority charged with the administration thereof, or compliance by any Affected Party with any request or directive (whether or not having the force of law) of any such authority shall impose, modify or deem applicable or result in the application of, any capital maintenance, capital ratio or similar requirement against Loan commitments or other financial commitments made by any Affected Party under this Agreement, the Insurance and Indemnity Agreement, the Policy or a Program Document, and the result of any event referred to above is to impose upon any Affected Party or increase any capital requirement applicable as a result of the making or maintenance of, such Affected Party's loan or other financial commitment (which imposition of capital requirements may be determined by each Affected Party's reasonable allocation of the aggregate of such capital increases or impositions), then, upon demand made by the Operating Agent on behalf of such Affected Party as promptly as practicable after it obtains knowledge that such law, regulation, guideline, interpretation, request or directive exists and determines to make such demand, the Borrowers shall pay within 5 Business Days after delivery of the certificate referred to below to the Collateral Agent or the Operating Agent on behalf of such Affected Party from time to time as specified by the Operating Agent additional amounts which shall be sufficient to compensate such Affected Party for the Borrowers' 35 Share of such imposition of or increase in capital requirements together with interest on each such amount from the end of such 5 Business Day period until payment in full thereof at the Daily Borrowing Rate. A certificate setting forth in reasonable detail the amount necessary to compensate such Affected Party as a result of an imposition of or increase in capital requirements submitted by the Operating Agent to the Borrowers shall be conclusive, absent manifest error, as to the amount thereof. (b) In the event that any Regulatory Change shall: (i) change the basis of taxation of any amounts payable to any Affected Party in respect of any Loans (other than taxes imposed on the overall net income of such Affected Party for any such Loans); (ii) impose or modify any reserve, Federal Deposit Insurance Corporation premium or assessment, special deposit or similar requirements relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, such Affected Party; or (iii) impose any other conditions affecting this Agreement or the Insurance and Indemnity Agreement or the Policy in respect of Loans (or any of such extensions of credit, assets, deposits or liabilities); and the result of any event referred to in clause (i), (ii) or (iii) above shall be to increase such Affected Party's costs of making or maintaining any Loans or its commitment under the Insurance and Indemnity Agreement, the Policy or a Program Document, or to reduce any amount receivable by such Affected Party hereunder in respect of any of its Loans or its commitment (such increases in costs and reductions in amounts receivable are hereinafter referred to as "Additional Costs") then, upon demand made by the Operating Agent on behalf of such Affected Party, the Borrowers shall pay within 5 Business Days after delivery of the certificate referred to below to the Collateral Agent on behalf of such Affected Party (or, in the case of FSA, directly to FSA), from time to time as specified by the Operating Agent, additional commitment fees or other amounts which shall be sufficient to compensate such Affected Party for the Borrowers' Share of such increased cost or reduction in amounts receivable by such Affected Party from the date of such change, together with interest on each such amount from the date demanded until payment in full thereof at the Daily Borrowing Rate (or, in the case of FSA, at the rate and amounts set forth in Sections 3.05 and 3.07 of the Insurance and Indemnity Agreement). A certificate setting forth in reasonable detail the amount necessary to compensate such Affected Party for such increased cost or reduction in amounts receivable by such Affected Party submitted by the Operating Agent to the Borrower shall be conclusive, absent manifest error, as to the amount thereof. (c) Determinations by any Affected Party for purposes of this Section 2.10 of the effect of any Regulatory Change on its costs of making or maintaining Loans or on amounts receivable by it in respect of Loans, and of the additional amounts required 36 to compensate such Affected Party in respect of any Additional Costs, shall be set forth in a written notice to the Borrower in reasonable detail and shall be conclusive, absent manifest error. SECTION 2.11. Breakage Costs. -------------- (a) The Borrowers shall pay to the Collateral Agent for the account of the Lender, upon the request of the Lender, such amount or amounts as shall compensate the Lender for any loss (including loss of profit), cost or expense incurred by the Lender (as reasonably determined by the Lender) as a result of any repayment of an Advance (and Interest thereon) other than on the maturity date of the Commercial Paper funding such Advance, such compensation to include, without limitation, an amount equal to any loss or expense suffered by the Lender during the period from the date of receipt of such repayment to (but excluding) the maturity date of such Commercial Paper, if the rate of interest obtainable by the Lender upon the redeployment of an amount of funds equal to the amount of such repayment is less than the rate of interest applicable to such Commercial Paper (such expense to be referred to as "Breakage Costs"). The determination by the Lender of the amount of any such loss or expense shall be set forth in a written notice to the Borrower in reasonable detail and shall be prima facie evidence of such loss or expense, absent manifest error or bad faith. (b) Section 2.11(a) shall not apply during Clean Down Period Part 1 or Clean Down Period Part 2. SECTION 2.12. Collections on Receivables. In the event that the Servicer -------------------------- is unable to determine the specific Receivables on which Collections have been received from an Obligor, the parties agree that such Collections shall be deemed to have been received on the Receivables in the order in which they were originated with respect to such Obligor. In the event that the Servicer is unable to determine the specific Receivables on which discounts, offsets or other non-cash reductions have been granted or made with respect to an Obligor, the parties agree that such reductions shall be deemed to have been granted or made in respect of the Receivables of such Obligor in the order in which they were originated. SECTION 2.13. Clean Down. During the Clean Period Part 1, the Clean Down ---------- Period Part 2 and the Clean Down Period Part 3, the Lender shall not make any Advances. 37 ARTICLE III CONDITIONS TO LENDING SECTION 3.01. Conditions Precedent to Effectiveness of the Agreement. ------------------------------------------------------ The effectiveness of this Agreement is subject to the condition precedent that the Lender, the Operating Agent, FSA and the Collateral Agent shall each have received on or before the Effective Date the following, in form and substance satisfactory to the Operating Agent, FSA and the Collateral Agent: (a) An executed copy of the Receivables Transfer Agreements in the form approved by the Operating Agent, FSA and the Collateral Agent and evidence to the effect that all conditions precedent to the effectiveness thereof shall have been satisfied. (b) A certificate from an officer of the Parent in the form of Exhibit D to the effect that the performance of the Receivables Transfer Agreements will not render the Borrowers insolvent and the Borrowers will be able to remain economically viable without further investments by the Parent for the foreseeable future. (c) A certificate from an officer of the Parent to the effect that all Lockboxes into which Collections may from time to time be mailed are in the name of the Borrowers. (d) With respect to each of the Borrowers: (i) the certificate or articles of incorporation of such Borrower certified, as of a date no more than five days prior to the Effective Date, by the Secretary of State of its state of incorporation; (ii) a good standing certificate, dated no more than five days prior to the Effective Date, from the respective Secretary of State of its state of incorporation and each state in which such Borrower is required to qualify, or represents that it is qualified, to do business; (iii) a Certificate of the Secretary or Assistant Secretary of such Borrower certifying as of the Effective Date: (A) the names and true signatures of the officers authorized on its behalf to sign this Agreement, (B) a copy of such Borrower's by-laws, and (C) a copy of the resolutions of the board of directors of such Borrower approving this Agreement, the Related Documents to which it is a party and the transactions contemplated hereby and thereby; 38 (iv) an Officer's Certificate in the form of Exhibit E hereto; and (v) a Note shall have been duly executed and delivered by such Borrower to the Operating Agent and shall be in full force and effect. (e) With respect to the Servicer: (i) the certificate or articles of incorporation of the Servicer certified, as of a date no more than five days prior to the Effective Date, by the Secretary of State of its state of incorporation; (ii) a good standing certificate, dated no more than five days prior to the Effective Date, from the respective Secretary of State of its state of incorporation and each state in which the Servicer is required to qualify, or represents that it is qualified, to do business; (iii) a certificate of the Secretary or Assistant Secretary of the Servicer certifying as of the Effective Date: (A) the names and true signatures of the officers authorized on its behalf to sign this Agreement, (B) a copy of the Servicer's by-laws, and (C) a copy of the resolutions of the board of directors of the Servicer approving this Agreement, the Related Documents to which it is a party and the transactions contemplated hereby and thereby; and (iv) an Officer's Certificate in the form of Exhibit F hereto. (f) Certified copies of Requests for Information or Copies of form UCC-11 (or a similar search report certified by a party acceptable to the Operating Agent and FSA), dated a date no more than five days prior to the Effective Date listing all effective financing statements and other similar instruments and documents which name the Parent or Tyco Manufacturing (under its present name and any previous name) or either of the Borrowers as debtor, together with copies of such financing statements. (g) Executed financing statements (form UCC-3), if any, necessary to release all security interests and other rights of any Person in Transferred Receivables previously granted by the Parent or Tyco Manufacturing including, without limitation, all such releases specified by the Parent or Tyco Manufacturing prior to the date hereof. (h) Any necessary third party consents to the closing of the transactions contemplated hereby, in form and substance satisfactory to the Operating Agent and FSA. 39 (i) Executed copies of proper financing statements (form UCC-1), in respect of Transferred Receivables, (i) pursuant to the Receivables Transfer Agreements, naming the Parent or Tyco Manufacturing, as the case may be, as the assignor and each of the Borrowers as the assignee, and (ii) pursuant to Article VIII, naming each of the Borrowers as the debtor, the Collateral Agent on behalf of the Lender and FSA as the secured party, or other, similar instruments or documents, as may be necessary or, in the opinion of the Operating Agent and FSA, desirable under the UCC of all appropriate jurisdictions or any other applicable law (including the Assignment of Claims Act) to perfect the Collateral Agent's interests in all Transferred Receivables in which an interest may be assigned hereunder. (j) Fully executed copies of (i) the Lockbox Agreements and, the Receivables Transfer Agreements; (ii) the letter of instruction from each of the Borrowers to the Lockbox Bank maintaining the Lockbox Account established by such Borrower, assigning all interest in and control over such Lockbox Account to the Collateral Agent and, upon the occurrence and during the continuation of a Termination Event, the Collateral Agent; and (iii) the letter to each of the post offices maintaining a Lockbox transferring control of such Lockbox to the Collateral Agent. (k) The opinion of counsel to the Borrowers, Tyco Manufacturing and the Parent in form and substance satisfactory to the Lender, the Operating Agent, FSA and the Collateral Agent, as to the matters set forth in Exhibit G. (l) The favorable opinion of Wolf, Block, Schorr & Solis-Cohen, counsel to the Borrowers, as to the true sale of the Receivables which are sold by the Parent and Tyco Manufacturing, as the case may be, to the Borrowers, and the nonconsolidation of either Borrower's assets into the bankruptcy estate of the Parent, in form and substance satisfactory to FSA. (m) Payment of the Facility Structuring Fee. (n) Payment of (i) the Lender's and FSA's estimated legal and other document preparation costs and (ii) the Lender's and FSA's out-of-pocket costs associated with installation of an appropriate Receivables monitoring system, account maintenance fees, and due diligence in an amount not in excess of the Lender's and FSA's costs in the aggregate on or prior to the Effective Date. (o) (i) Consolidated balance sheets and statements of income (loss) and changes in financial position of Tyco Toys and its Subsidiaries for each of the years in the three most recent calendar year period prior to the Balance Sheet Date, audited by a nationally recognized accounting firm; 40 (ii) Unaudited consolidated balance sheets and statements of income (loss) of Tyco Toys and its Subsidiaries for the most recent month end close but in any event for the twelve month period ended December 31, 1994; (iii) Each Borrower's pro forma balance sheet, dated as of the Effective Date and certified by the chief financial officer of the Parent as being correct to the best of his knowledge; and (iv) A complete and accurate Borrowing Base Certificate, dated as of the Effective Date. (p) A copy of each of the Parent's and Tyco Manufacturing's Credit and Collection Policies. (q) Written confirmation of the current ratings of the Commercial Paper by the Rating Agencies. (r) The Policy being issued by FSA in a form acceptable to the Operating Agent and the Lender. (s) Such other approvals, consents, opinions, documents and instruments, as the Operating Agent or FSA may reasonably request. SECTION 3.02. Conditions Precedent to All Advances. Each Advance to ------------------------------------ either Borrower, (including the initial Advance to such Borrower) shall be subject to the further conditions precedent that: (a) The representations and warranties of such Borrower, the Parent, Tyco Manufacturing and the Servicer set forth in Sections 4.01, 4.02 and 4.03 and in the Related Documents are true and correct on and as of such date in all material respects (except with respect to Sections 4.02(b) and (c) and those already so qualified which are true and correct in all respects), before and after giving effect to such borrowing and to the application of the proceeds therefrom, as though made on and as of the date of such Advance (except to the extent such representations and warranties expressly related to an earlier date, in which case they shall have been true and correct on and as of such earlier date); (b) Each of such Borrowers and the Servicer is in compliance with each of its covenants and other agreements set forth herein and in the Related Documents; and (c) No event has occurred or would result from such Advance or from the application of the proceeds therefrom, which constitutes a Termination Event or an Event of Servicer Termination or would constitute a Termination Event or an Event 41 of Servicer Termination but for the requirement that notice be given or time elapse or both; (d) On the related Funding Date, such Borrower shall have certified as to the truthfulness of the preceding clauses (a) through (c) in the related Borrowing Base Certificate that, except as specifically disclosed in the related Borrower Notice (or specifically disclosed in a prior instance to the Lender in writing), and specifically consented to in writing by each of the Lender and FSA, each of subsections (a) through (c) above is true and correct; (e) The Commitment Termination Date shall not have occurred; (f) Before and after giving effect to such borrowing and to the application of proceeds therefrom, there exists no Borrowing Excess; (g) Each Transferred Receivable submitted by the Borrowers for computation of the Borrowing Base is an Eligible Receivable; and (h) The Parent, Tyco Manufacturing and the Borrowers shall have taken such other action, including delivery of approvals, consents, opinions, documents and instruments to the Lender, the Operating Agent and FSA, as the Operating Agent or FSA may reasonably request. ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties of the Borrower. Each ---------------------------------------------- Borrower represents and warrants to the Lender, the Operating Agent, FSA and the Collateral Agent as of the date hereof, as of the Effective Date and on each subsequent Funding Date as follows: (a) The Borrower is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and is duly qualified to do business, and is in good standing, in each jurisdiction in which the nature of its business requires it to be so qualified or where the failure to be so qualified, separately or in the aggregate, would have a Material Adverse Effect on the Borrower. (b) The Borrower has the power and authority to own, pledge, mortgage, operate and convey all of its properties and conduct its business as now or currently proposed to be conducted and to execute and deliver this agreement and the Related 42 Documents and to perform the transactions contemplated hereby and thereby. (c) The Borrower is a subsidiary of the Parent. (d) The Borrower is operated in the following manner: (i) the Borrower is a limited purpose corporation whose activities are restricted in its certificate or articles of incorporation; (ii) neither the Parent, Tyco Manufacturing nor any Affiliate of the Parent or Tyco Manufacturing is involved in the day-to-day management of the Borrower; (iii) other than the purchase and contribution of Receivables and other transactions contemplated by the Receivables Transfer Agreements, the payment of dividends and return of capital, any lease or sub-lease of office space or equipment and the payment of Servicing Fees to the Servicer under this Agreement, the Borrower engages in no intercorporate transactions with the Parent, Tyco Manufacturing or any Affiliate of the Parent or Tyco Manufacturing; (iv) the Borrower maintains proper corporate records and books of account that are separate from each of the Parent and Tyco Manufacturing, holds regular corporate meetings and otherwise observes corporate formalities and has a separate business office from the Parent and Tyco Manufacturing; (v) all the financial statements and books and records of the Borrower, the Parent and Tyco Manufacturing reflect the separate corporate existence of the Borrower, the Parent and Tyco Manufacturing; (vi) the Borrower maintains its assets separately from the assets of the Parent and Tyco Manufacturing and any other Affiliate of the Parent or Tyco Manufacturing (including through the maintenance of separate bank accounts), the Borrower's funds and assets, and records relating thereto, have not been, are not and will not be commingled with those of the Parent or Tyco Manufacturing or any other Affiliate of the Parent or Tyco Manufacturing and the separate creditors of the Borrower will be entitled to be satisfied out of the Borrower's assets prior to any value in the Borrower becoming available to the Borrower's equityholders; the Borrower has, and will continue to have, assets other than assets contributed by the Parent; 43 (vii) neither the Parent, Tyco Manufacturing nor any Affiliate of the Parent or Tyco Manufacturing (A) pays the Borrower's expenses; (B) guarantees the Borrower's obligations, or (C) advances funds to the Borrower for the payment of expenses or otherwise other than certain incorporation or set-up expenses of the Borrower; (viii) all business correspondence of the Borrower and other communications are conducted in the Borrower's own name, on its own stationery and through a separately-listed telephone number; (ix) the Borrower does not act as agent for the Parent, Tyco Manufacturing or of any of their Affiliates, but instead presents itself to the public as a corporation separate from the Parent, Tyco Manufacturing and their respective Affiliates, independently engaged in the business of purchasing and financing Receivables; and (x) the Borrower maintains at least two independent directors each of whom at all times shall not be a shareholder, director, officer, employee or associate of the Parent, Tyco Manufacturing or any Affiliate of the Parent or Tyco Manufacturing (other than each Borrower) as provided in its certificate or articles of incorporation; (xi) the Borrower is solvent and will not be rendered insolvent by the transactions contemplated hereby and by the Related Documents and, after giving effect to such transactions, the Borrower will not be left with an unreasonably small amount of capital with which to engage in its business nor will the Borrower have intended to incur, or believe that it has incurred, debts beyond its ability to pay such debts as they mature, and the Borrower does not contemplate the commencement of insolvency, bankruptcy, liquidation or consolidation proceedings or the appointment of a receiver, liquidator, conservator, trustee or similar official in respect of the Borrower or any of its assets; and (xii) the bylaws and/or Articles of Incorporation of the Borrower require it to maintain (A) correct and complete books and records of account, and (B) minutes of the meetings and other proceedings of its shareholders and board of directors. (e) The Borrower has not engaged, and does not presently engage, in any activity other than the activities undertaken pursuant to this Agreement and the Related Documents, nor has the Borrower entered into any agreement other than this Agreement, the Related Documents and any agreement necessary to 44 undertake any activity pursuant to this Agreement or the Related Documents. (f) The execution, delivery and performance by the Borrower of this Agreement, the Related Documents and the transactions contemplated hereby and thereby (i) have been duly authorized by all necessary corporate or other action on the part of the Borrower, (ii) do not contravene or cause the Borrower to be in default under (A) the Borrower's certificate or articles of incorporation or by-laws, (B) any contractual restriction contained in any indenture, loan or credit agreement, lease, mortgage, security agreement, bond, note, or other agreement or instrument binding on or affecting the Borrower or its property, the Parent or its property or Tyco Manufacturing or its property, or (C) any law, rule, regulation, order, license requirement, writ, judgment, award, injunction, or decree applicable to, binding on or affecting the Borrower or its property or the Parent or its property or Tyco Manufacturing or its property, and (iii) do not result in or require the creation of any Adverse Claim upon or with respect to any of the property of the Borrower, the Parent or Tyco Manufacturing (other than in favor of the Collateral Agent as contemplated hereunder). (g) This Agreement and the Related Documents have each been duly executed and delivered by the Borrower. (h) No approval or consent of, notice to, filing with, licenses or permits, qualifications or other action by any Governmental Authority or any other party is required (i) for the due execution, delivery and performance by the Borrower of this Agreement or any of the Related Documents, (ii) for the perfection of or the exercise by each of the Lender, the Operating Agent, FSA or the Collateral Agent of any of its rights or remedies hereunder or thereunder, (iii) for the grant by the Borrower of the security interests granted under Section 8.01 of this Agreement, (iv) for the perfection of or the exercise by each of the Lender, FSA or the Collateral Agent of its rights and remedies provided for in this Agreement, or (v) to ensure the legality, validity, enforceability or admissibility into evidence of this Agreement and the Related Documents in any jurisdiction in which any of the Collateral is located, or (vi) to conduct its business as currently conducted, in each case other than licenses, permits, charters, registrations, approvals, consents, notices, filings and other actions which have been obtained or made and complete copies of which have been provided to the Lender, the Operating Agent, FSA and the Collateral Agent. (i) No transaction contemplated by this Agreement requires compliance with any bulk sales act or similar law. (j) This Agreement and each Related Document is the legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its respective terms. Each of the Borrower Assigned Agreements to which the Parent, Tyco Manufacturing or the Borrower is a party constitutes the legal, valid and binding obligation of such Person, enforceable against such Person in accordance with its terms subject to (i) any applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting the enforceability of creditors' rights generally and (ii) general equitable principles, whether applied in a proceeding at law or in equity. (k) There is no pending or threatened, nor any reasonable basis for any, action, suit or proceeding against or affecting the Borrower, its officers or directors, or the property of the Borrower, in any court or tribunal, or before any arbitrator of any kind or before or by any Governmental Authority (A) asserting the invalidity of this Agreement or any of the Related Documents, (B) seeking to prevent the sale, pledge or contribution of any Receivable or the consummation of any of the transactions contemplated hereby or thereby, (C) seeking any determination or ruling that might materially and adversely affect (1) the performance by either Borrower of its obligations under this Agreement or any of the Related Documents, (2) the validity or enforceability of this Agreement or any of the Related Documents (3) the Receivables or the Contracts or the interests of either Borrower, the Lender or FSA therein, or (4) the federal income tax attributes of the sale or pledge of the Transferred Receivables, (D) asserting a claim for payment of money in excess of $10,000,000 (other than such judgments or orders in respect of which adequate insurance is maintained by the Company for the payment in full thereof) or (E) which is reasonably likely to have a Material Adverse Effect; (l) No injunction, writ, restraining order or other order of any nature adverse to the Borrower or the conduct of its business or which is inconsistent with the due consummation of the transactions contemplated by this Agreement or the Related Documents has been issued by a Governmental Authority or been sought by any Person. (m) The principal place of business and chief executive office of the Borrower, and the office where the Borrower keeps its Records and the original copies of the Borrower Assigned Agreements are located at the address of the Borrower for notices under Section 14.01 as set forth on the attached Schedule 6 or in such written notice as the Borrower has delivered to, and which has been received by, each of the parties named in the preamble to this Section 4.01 at least 30 days prior to the date of making this representation and warranty, and there are currently no, and during the past four months (or such shorter time as the Borrower has been in existence) there have not been, any other locations where the Borrower is located (as 46 that term is used in the UCC of the jurisdiction where such principal place of business is located) or keeps Records. (n) The Borrower does not have and has never conducted business using tradenames, fictitious names, assumed names or "doing business as" names. (o) The Borrower does not have any Subsidiaries. (p) The Borrower is solvent and will not become insolvent after giving effect to the transactions contemplated by this Agreement and the Related Documents. The Borrower has no Debts to any Person other than pursuant to this Agreement and the Related Documents. The Borrower, after giving effect to the transactions contemplated by this Agreement and the Related Documents, will have an adequate amount of capital to conduct its business in the foreseeable future. (q) For federal income tax, reporting and accounting purposes, the Borrower will treat the purchase or absolute assignment of each Transferred Receivable pursuant to the Receivables Transfer Agreements as a purchase or absolute assignment of the Parent's or Tyco Manufacturing's (as the case may be) full right, title and ownership interest in such Transferred Receivable to the Borrower (and those Receivables contributed to such Borrower by the Parent pursuant to the Receivables Transfer Agreements shall be accounted for as an increase in the stated capital of the Borrower) and the Borrower has not in any other manner accounted for or treated the transactions in Transferred Receivables. (r) The Borrower has complied in all respects with and will comply with all applicable laws, rules, regulations, judgments, agreements, orders or decrees with respect to it, its business and properties and all Collateral, the non-compliance of which, separately or in the aggregate, would have a Material Adverse Effect. (s) The Borrower has filed on a timely basis all tax returns (federal, state and local) required to be filed, is not liable for taxes payable by any other Person (other than any liability imposed by a Governmental Authority on the Borrower as a result of the filing of a consolidated tax return incorporating the Borrower) and has paid or made adequate provisions for the payment of all taxes, fees, assessments and other governmental charges due from the Borrower. No tax lien or similar Adverse Claim has been filed, and no claim is being asserted, with respect to any such tax, assessment or other governmental charge. Any taxes, fees and other governmental charges payable by the Parent or Tyco Manufacturing in connection with the execution and delivery of this Agreement and the Related Documents and the transactions contemplated hereby or thereby have been paid or 47 shall have been paid if and when due at or prior to such Sale Date. (t) Each Borrowing Base Certificate and Request Notice is accurate in all material respects. (u) The Collateral and each part thereof is owned by the Borrower free and clear of any Adverse Claim and the Borrower has the full right, corporate power and lawful authority to assign, transfer and pledge the same and interests therein and all substitutions therefor and additions thereto pursuant to Section 8.01, and upon making each Advance, the Collateral Agent will have acquired a perfected, first priority and valid security interest in such Collateral, free and clear of any Adverse Claim or Restrictions on Transferability. No effective financing statement or other instrument similar in effect covering all or any part of the Borrower Collateral is on file in any recording office, except such as may have been filed in favor of the Collateral Agent as "Secured Party" pursuant to Article VIII of this Agreement or, with respect to the Transferred Receivables, in favor of the Borrower pursuant to the Receivables Transfer Agreements. (v) Each Transferred Receivable was purchased by or contributed to the Borrower on the relevant Sale Date pursuant to the Receivables Transfer Agreements and the Borrower is the true owner thereof. (w) Each purchase of Receivables under the Receivables Transfer Agreements will constitute (i) a "current transaction" within the meaning of Section 3(a)(3) of the Securities Act of 1933, as amended, and (ii) a purchase or other acquisition of notes, drafts, acceptances, open accounts receivable or other obligations representing part or all of the sales price of merchandise, insurance or services within the meaning of Section 3(c)(5) of the Investment Company Act of 1940, as amended. (x) All information heretofore or hereafter furnished by or on behalf of the Borrower to the Collateral Agent, the Operating Agent, FSA or the Lender or by the Operating Agent to FSA in connection with this Agreement or the Related Documents or any transaction contemplated hereby or thereby is and will be true and complete in all material respects and does not and will not omit to state a material fact necessary to make the statements contained herein or therein not misleading. With respect to each of the Borrowers, the Servicer, the Parent and Tyco Manufacturing or any of their respective Affiliates, there has occurred no event which has or is reasonably likely to have a Material Adverse Effect on such entity. 48 (y) Schedule 8 lists all Lockboxes and Lockbox Accounts maintained by the Borrower or otherwise in respect of the Transferred Receivables. (z) The Borrower is in compliance with ERISA and has not incurred and does not expect to incur any liabilities (except for premium payments arising in the ordinary course of business) to the Pension Benefit Guaranty Corporation (or any successor thereto) under ERISA. (aa) (i) The Borrower is not a party to any indenture, loan or credit agreement or any lease or other agreement or instrument or subject to any charter or corporation restriction that could have, and no provision of applicable law or governmental regulation is reasonably likely to have, a material adverse effect on the condition (financial or otherwise), business, operations or properties of the Borrower, or could have such an effect on the ability of the Borrower to carry out its obligations under this Agreement and the other Related Documents to which the Borrower is a party and (ii) the Borrower is not in default under or with respect to any contract, agreement, lease or other instrument to which the Borrower is a party and which is material to the Borrower's condition (financial or otherwise), business, operations or properties, and the Borrower has not delivered or received any notice of default thereunder. (bb) The Borrower is not an "investment company" or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended. The making of the Advances by the Lender, the application of the proceeds and repayment thereof by the Borrower and the consummation of the transactions contemplated by this Agreement and the other Related Documents to which the Borrower is a party will not violate any provision of such Act or any rule, regulation or order issued by the Securities and Exchange Commission thereunder. (cc) There are not now, nor will there be at any time in the future, any agreement or understanding between the Parent and the Borrower (other than as expressly set forth herein) providing for the allocation or sharing of obligations to make payments or otherwise in respect of any taxes, fees, assessments or other governmental charges. (dd) Each of the representations and warranties of the Borrower contained in this Agreement and the Related Documents is true and correct in all material respects and the Borrower hereby makes each such representation and warranty to, and for the benefit of, the Collateral Agent, the Operating Agent, FSA and the Lender as if the same were set forth in full herein. 49 (ee) Each Obligor, other than Toys'R'Us, of a Transferred Receivable has been directed, and is required to, remit all payments with respect to such Receivable for deposit in a Lockbox Account or a Lockbox. SECTION 4.02. Representations and Warranties of Each Borrower With Respect ------------------------------------------------------------ to the Parent and the Transferred Receivables. Each Borrower represents and - --------------------------------------------- warrants to the Lender, the Operating Agent, FSA and the Collateral Agent that on the Effective Date it has entered into the Receivables Transfer Agreements with the Parent and Tyco Manufacturing and that, as of each Funding Date (other than the representation and warranty made in paragraph (a)(xix) of this Section 4.02, which is made on the initial Funding Date only), the Parent and Tyco Manufacturing have made the following representations and warranties in such Receivables Transfer Agreements as of each Sale Date, which representations and warranties are or will be true and correct as of such Sale Date: (a) With respect to the Parent and Tyco Manufacturing: (i) each of the Parent and Tyco Manufacturing is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and is duly qualified to do business and is in good standing in every jurisdiction in which the failure to be so qualified, separately or in the aggregate, would have a Material Adverse Effect; (ii) each of the Parent and Tyco Manufacturing has the power and authority to own, pledge, mortgage, operate and convey all of its properties and assets, to execute and deliver this Agreement and the Related Documents and to perform the transactions contemplated hereby and thereby; (iii) the Parent and Tyco Manufacturing are operated in such a manner that the Borrower would not be substantively consolidated in the estate of the Parent or Tyco Manufacturing (that is, in such a manner that the separate corporate existence of the Borrower and the Parent or Tyco Manufacturing would not be disregarded in the event of a bankruptcy or insolvency of the Parent or Tyco Manufacturing); (iv) the execution, delivery and performance by the Parent of this Agreement and the Parent and Tyco Manufacturing of the Related Documents and the transactions contemplated hereby and thereby (A) have been duly authorized by all necessary corporate or other action on the part of the Parent and Tyco Manufacturing, (B) do not contravene or cause the Parent or Tyco Manufacturing, as the case may be, to be in default under (1) its certificate or articles of incorporation or by-laws, (2) any contractual 50 restriction with respect to any Debt or contained in any indenture, loan or credit agreement, lease, mortgage, security agreement, bond, note, or other agreement or instrument binding on or affecting it or its property, or (3) any law, rule, regulation, order, writ, judgment, award, injunction or decree applicable to, binding on or affecting it, its Affiliate or their respective property, and (C) do not result in or require the creation of any Adverse Claim upon or with respect to any of its properties (other than in favor of the Borrower with respect to the Receivables Transfer Agreements and the Collateral Agent under Article VIII of this Agreement); (v) this Agreement and the Related Documents have each been duly executed and delivered by the Parent and Tyco Manufacturing; (vi) no approval or consent of, notice to, filing with or licenses, permits, qualifications or other action by any Governmental Authority or any other party, is required for the due execution, delivery and performance by the Parent of this Agreement or by the Parent or Tyco Manufacturing of any of the Related Documents or for the perfection of or the exercise by the Borrower, the Lender, the Operating Agent, FSA or the Collateral Agent of any of their rights or remedies hereunder or thereunder, other than approvals, consents, notices, filings and other actions which have been obtained or made and complete copies of which have been provided to the Lender, the Operating Agent, FSA and the Collateral Agent; (vii) each of this Agreement, each other Related Document delivered by the Parent or Tyco Manufacturing and their respective obligations thereunder is the legal, valid and binding obligation of the Parent or Tyco Manufacturing, as the case may be, enforceable against the Parent or Tyco Manufacturing, as the case may be, in accordance with its respective terms subject to (i) any applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting the enforceability of creditors' rights generally and (ii) general equitable principles, whether applied in a proceeding at law or in equity; (viii) there is no pending or threatened, nor any reasonable basis for any, action, suit or proceeding, against or affecting the Parent or Tyco Manufacturing, their officers or directors, or the property of the Parent or Tyco Manufacturing, in any court or tribunal, before any arbitrator of any kind or before or by any Governmental Authority (A) asserting the invalidity of this Agreement or any of the Related Documents, (B) seeking to prevent the 51 contribution, sale or pledge of any Receivable or the consummation of any of the transactions contemplated hereby or thereby, (C) seeking any determination or ruling that may reasonably in the good faith opinion of the Operating Agent or FSA materially and adversely affect (1) the performance by the Borrower, the Parent or Tyco Manufacturing of its obligations under this Agreement or any of the Related Documents, (2) the validity or enforceability of this Agreement or any of the Related Documents, (3) the Receivables or the Contracts or the interests therein of either of the Borrowers, the Lender, FSA or the Collateral Agent therein or (4) the federal income tax attributes of the contribution, sale or pledge of the Transferred Receivables, (D) asserting a claim for payment of money in excess of $10,000,000 (other than such judgments or orders in respect of which adequate insurance is maintained by the Parent for the payment in full thereof) or (E) which is reasonably likely to have a Material Adverse Effect; (ix) no injunction, writ, restraining order or other order of any nature adverse to the Parent or Tyco Manufacturing or the conduct of their businesses or which is inconsistent with the due consummation of the transactions contemplated by this Agreement or the Related Documents has been issued by a Governmental Authority or been sought by any Person; (x) the principal place of business and chief executive office of the Parent and Tyco Manufacturing are located at the addresses of the Parent and Tyco Manufacturing respectively referred to in the Receivables Transfer Agreements or in such written notice as the Parent or Tyco Manufacturing, as the case may be, has delivered to, and which has been received by, each of the parties named in the preamble to this Section 4.02 at least 30 days prior to the date of making this representation and warranty, and there are now no, and during the past four months there have not been any, other locations where the Parent or Tyco Manufacturing is located (as that term is used in the UCC of the jurisdiction where such principal place of business is located) or keeps Records; (xi) the legal names of the Parent and Tyco Manufacturing are as set forth at the beginning of this Agreement or in such written notice as the Parent or Tyco Manufacturing, as the case may be, has delivered to, and which has been received by, each of the parties named in the preamble to this Section 4.02 at least 30 days prior to the date of making this representation and warranty, and the Parent and Tyco Manufacturing have not changed their names in the last six years, and during such period neither the Parent nor Tyco Manufacturing used, nor does the Parent or 52 Tyco Manufacturing now use, any tradenames, fictitious names, assumed names or "doing business as" names; (xii) each of the Parent and Tyco Manufacturing is solvent and will not become insolvent after giving effect to the transactions contemplated by this Agreement and the Related Documents; each of the Parent and Tyco Manufacturing is paying its Debts as they mature; each of the Parent and Tyco Manufacturing has not incurred Debts beyond its ability to pay as they mature; and each of the Parent and Tyco Manufacturing, after giving effect to the transactions contemplated by this Agreement and the Related Documents, will have an adequate amount of capital to conduct its business in the foreseeable future; (xiii) for federal income tax, reporting and accounting purposes, the Parent and Tyco Manufacturing will treat the sale of each Receivable sold or assigned pursuant to the Receivables Transfer Agreements as a sale of, or absolute assignment of, its full right, title and ownership interest in such Receivable to a Borrower (and those Receivables contributed to such Borrower by the Parent pursuant to the Receivables Transfer Agreements shall be accounted for as an increase in the stated capital of such Borrower), and each of the Parent and Tyco Manufacturing has not in any other respect accounted for or treated the transactions contemplated hereby or by the Related Documents in any way inconsistent with the foregoing; (xiv) each of the Parent and Tyco Manufacturing has complied in all respects with all applicable laws, rules, regulations and orders with respect to it, its business and properties and all Receivables and related Contracts (including without limitation, all applicable environmental, health and safety requirements) and all restrictions contained in any indenture, loan or credit agreement, mortgage, security agreement, bond, note or other agreement or instrument binding on or affecting it or its property, and has and maintains all permits, licenses, authorizations, registrations, approvals and consents of Governmental Authorities for (A) its and each of its Affiliates activities and business as currently conducted and as proposed to be conducted, (B) the ownership, use, operation and maintenance by each of them of its properties, facilities and assets, and (C) the performance by it and the Borrowers of this Agreement and the Related Documents (hereinafter referred to collectively as "Governmental Consents"), the non-compliance or non-maintenance of which, separately or in the aggregate, would have a Material Adverse Effect; 53 (xv) without limiting the generality of the prior representation, no condition exists or event has occurred which, in itself or with the giving of notice or lapse of time or both, would result in the suspension, revocation, impairment, forfeiture or non-renewal of any Governmental Consent applicable to the Parent, or Tyco Manufacturing or any Affiliate thereof, the lack of which, separately or in the aggregate, would have a Material Adverse Effect; (xvi) the Parent and Tyco Manufacturing have each filed on a timely basis all tax returns (federal, state and local) required to be filed and has paid or made adequate provisions for the payment of all taxes, assessments and other governmental charges due; no tax lien or similar Adverse Claim has been filed, and no claim is being asserted, with respect to any such tax, fee, assessment or other governmental charge. Any taxes, fees and other governmental charges payable by the Parent or Tyco Manufacturing in connection with the execution and delivery of this Agreement and the Related Documents and the transactions contemplated hereby or thereby have been paid or shall have been paid if and when due at or prior to such Sale Date; (xvii) with respect to each of the Parent and Tyco Manufacturing and any of their Affiliates, there has occurred no event which has or is reasonably likely to have a Material Adverse Effect on its operations, including its ability to perform its obligations under this Agreement or the Related Documents as Parent, Servicer or otherwise; (xviii) each of the Parent and Tyco Manufacturing is licensed or otherwise has the lawful right to use all patents, trademarks, servicemarks, tradenames, copyrights, technology, know-how and processes used in or necessary for the conduct of its business as currently conducted which are material to its financial condition, business, operations, assets and prospects, individually or taken as a whole; (xix) the consolidated balance sheets of Tyco Toys and its consolidated Subsidiaries for each of the last three calendar years ending December 31, 1994 and the related statements of income and shareholders' equity of Tyco Toys and its consolidated Subsidiaries for the years then ended, certified without qualification by independent certified public accountants, copies of which have been furnished to the Lender, FSA and Operating Agent, (i) are, as of the dates and for the periods referred to therein, complete and correct in all material respects, (ii) fairly present the consolidated financial condition, business and results of operations of Tyco Toys and its consolidated Subsidiaries as at such date and the consolidated results of the operations 54 of Tyco Toys and its consolidated Subsidiaries for the period ended on such date, all in accordance with GAAP, and since December 31, 1994 there has been no material adverse change in any such condition, business or operations; neither Tyco Toys nor any of its consolidated Subsidiaries is subject to any contingent liabilities or commitments which, individually or in the aggregate, is reasonably likely to cause a Material Adverse Effect with respect to any of the aforementioned; (xx) since the last unaudited quarterly financial statements of Tyco Toys, except as otherwise disclosed to FSA and the Lender, there have been no material adverse changes in the financial condition or results of operation and there have been no material increases in the liabilities (liquidated or contingent) and no material decreases in the assets of Tyco Toys, the Parent, Tyco Manufacturing or the Borrowers other than normal recurring seasonal changes consistent with prior years' experience; (xxi) each Request Notice contains a complete and accurate list of all Transferred Receivables sold or contributed by the Parent and Tyco Manufacturing to the Borrower as of its date; (xxii) except as specified in Section 6.01, each Obligor of a Transferred Receivable has been directed, and is required to, remit all payments with respect to such Receivable for deposit in a Lockbox or a Lockbox Account; (xxiii) no Obligor of an Eligible Receivable being sold on any Sale Date has any claim against or affecting the Parent or Tyco Manufacturing or the property of the Parent or Tyco Manufacturing; (xxiv) each pension plan or profit sharing plan to which the Parent or Tyco Manufacturing is a party has been administered and fully funded in accordance with the obligations of the Parent or Tyco Manufacturing under law and as set forth in such plan, and the Parent and Tyco Manufacturing have complied with the applicable provisions of ERISA in effect as of such Sale Date; and neither the Parent nor Tyco Manufacturing expects to incur any liabilities to the Pension Benefit Guaranty Corporation (or any successor thereto) under ERISA; (xxv) each of the Parent and Tyco Manufacturing has valid business reasons for selling or contributing its interests in the Transferred Receivables rather than obtaining a loan with the Transferred Receivables as collateral; 55 (xxvi) each of the Parent and Tyco Manufacturing has not agreed to pay any fee or commission to any agent, broker, finder or other person for or on account of services rendered as a broker or finder in connection with this Agreement or the Related Documents or the transactions contemplated hereby or thereby which would give rise to any valid claim against the Borrowers for any brokerage commission, finder's fee or like payment; (xxvii) all information heretofore or hereafter furnished with respect to the Parent or Tyco Manufacturing to the Borrowers, Lender, Operating Agent, FSA or Collateral Agent or by the Operating Agent to FSA in connection with any transaction contemplated by this Agreement or the Related Documents is and will be true and complete in all material respects and does not and will not omit to state a material fact necessary to make the statements contained herein or therein not misleading; and (xxviii) no part of the proceeds received by the Parent or Tyco Manufacturing or any Affiliate from the Advances will be used directly or indirectly for the purpose of purchasing or carrying, or for payment in full or in part of, Debt that was incurred for the purposes of purchasing or carrying, any "margin stock", as such term is defined in (S) 221.3 of Regulation U of the Board of Governors of the Federal Reserve System. (b) With respect to each Receivable sold or contributed pursuant to the Receivables Transfer Agreements the Required Information contained in the Request Notice and the Assignment relating to such Receivable is true and correct. (c) With respect to each Receivable designated as an Eligible Receivable: (i) such Receivable is an Eligible Receivable, and is a receivable created through the unconditional provision of merchandise, goods or services by the Parent or Tyco Manufacturing, as the case may be, in the ordinary course of its business in a current transaction; (ii) such Receivable was created in accordance with and satisfies all applicable requirements of the Credit and Collection Policies; (iii) a copy of any related Contract, if such, to which the Parent or Tyco Manufacturing, as the case may be, is a party has been delivered to the Lender, the Operating Agent, the Collateral Agent and, if FSA requests, FSA; 56 (iv) such Receivable represents the genuine, legal, valid and binding obligation in writing of the Obligor enforceable by the holder thereof in accordance with its terms subject to (i) any applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting the enforceability of creditors' rights generally and (ii) general equitable principles, whether applied in a proceeding at law or in equity, and neither the Receivable nor the related Contract has been satisfied, subordinated, rescinded or amended in any manner; (v) neither the Receivable nor the related Contract is or will be subject to any right of rescission, set-off, recoupment, counterclaim or defense, whether arising out of transactions concerning the Contract or otherwise; (vi) prior to its sale or contribution to the Borrower, such Receivable was owned by the Parent or Tyco Manufacturing, as the case may be, free and clear of any Adverse Claim, and the Parent or Tyco Manufacturing, as the case may be, had the right to contribute, sell, assign and transfer the same and interests therein as contemplated under the Receivables Transfer Agreements and, upon such sale or contribution, that Borrower acquired good and marketable title and a valid ownership interest in such Receivable, free and clear of any Adverse Claim and any other restriction on transferability; (vii) such Receivable was sold or contributed under the Receivables Transfer Agreements, and the Receivables Transfer Agreements and the related Assignment constitutes a valid transfer, assignment, set- over and conveyance to the Borrower of all right, title and interest of the Parent or Tyco Manufacturing, as the case may be, in and to such Receivable sold or contributed thereunder; (viii) the Billed Amount of such Receivable is net of contractual allowances, any offset or other modifications and such Receivable is entitled to be paid pursuant to the terms of the related Contract, has not been paid in full or been compromised, adjusted extended, satisfied, subordinated, rescinded or modified, and is not subject to compromise, adjustment, extension, satisfaction, subordination, rescission or modification by the Parent or Tyco Manufacturing, as the case may be (excluding any contractual allowances of the types set forth in Schedule 2 to the Funding Agreement granted by the Parent or Tyco Manufacturing in the ordinary course of its business and in accordance with the Credit and Collection Policies, which 57 allowances shall be typical for businesses similar to the Parent's or Tyco Manufacturing's); (ix) the Parent or Tyco Manufacturing, as the case may be, has submitted all necessary documentation (including any invoice) for payment of such Receivable to the Obligor and has fulfilled all its other obligations in respect thereof; (x) any Maturity Date of such Receivable is not greater than 270 days from its Billing Date; (xi) such Receivable is an "account" within the meaning of the UCC of the jurisdiction where the Parent's or Tyco Manufacturing's (as the case may be) chief executive office is located; (xii) neither such Receivable nor the related Contract contravenes in any material respect any laws, rules or regulations applicable thereto (including, without limitation, laws, rules and regulations relating to usury, consumer protection, truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy) and no party to such related Contract is in violation of any such law, rule or regulation in any material respect; (xiii) such Receivable does not represent "billed but not yet shipped" goods or merchandise, unperformed services, consigned goods or "sale or return" goods nor does such Receivable arise from a transaction for which any additional performance by the Borrower, the Parent or Tyco Manufacturing or acceptance or other act of the Obligor remains to be performed as a condition to payments on such Receivable; (xiv) there are no proceedings or investigations pending or, to the Parent's knowledge after due investigation, threatened before any Governmental Authority (A) asserting the invalidity of such Receivable or such Contract, (B) asserting the bankruptcy or insolvency of the related Obligor, (C) seeking the payment of such Receivable or payment and performance of such Contract, or (D) seeking any determination or ruling that might materially and adversely affect the validity or enforceability of such Receivable or such Contract; (xv) as of the applicable date of transfer thereunder, no Obligor on such Receivable is bankrupt, is insolvent, is unable to make payment of its obligations when due, is the debtor in a voluntary or involuntary bankruptcy proceeding, or is the subject of a comparable receivership 58 or insolvency proceeding, other than Obligors under the protection of a bankruptcy court or receivership which has approved payment by any such Obligor of such Receivable; and (xvi) neither the Parent nor Tyco Manufacturing has knowledge of any fact (including any defaults by the Obligor on any other accounts) which reasonably should have led it to expect at the time of transfer of such Receivable that the Billed Amount of such Receivable would not be paid in full when due or to expect any Material Adverse Effect. Each Borrower hereby certifies that (A) the benefits of such representations and warranties of the Parent and Tyco Manufacturing have been assigned to the Lender, FSA and the Collateral Agent; (B) the rights of the Borrowers under the Receivables Transfer Agreements to require a capital contribution or payment of a Rejected Amount from the Parent or Tyco Manufacturing may be enforced by the Lender, FSA or the Collateral Agent; and (C) the Receivables Transfer Agreements provide that the representations, warranties and covenants described in Sections 4.01, 4.02, and 4.03 shall survive the sale of the Transferred Receivables and the termination of the Receivables Transfer Agreements and this Agreement. SECTION 4.03. Representations and Warranties of the Servicer. The ---------------------------------------------- Servicer represents and warrants to the Lender, the Operating Agent, FSA and the Collateral Agent as follows as of the date hereof: (a) The Servicer and each of its Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and is duly qualified to do business, and is in good standing, and has obtained all necessary licenses, permits, charters, registrations and approvals (together, "approvals") necessary for the conduct of its business as currently conducted and the performance of its obligations under this Agreement and the Related Documents in every jurisdiction in which the nature of its business requires it to be so qualified or where the failure to be so qualified, separately or in the aggregate, would have a Material Adverse Effect. (b) The Servicer has the power and authority to execute and deliver this Agreement and each other Related Document it is a party to and to perform the transactions contemplated hereby and thereby. (c) The execution, delivery and performance by the Servicer of this Agreement and each other Related Document to which it is a party and all other agreements, instruments and documents which may be delivered by it pursuant hereto and thereto and the transactions contemplated hereby and thereby 59 (i) have been duly authorized by all necessary corporate or other action on the part of the Servicer, (ii) do not contravene or cause the Servicer to be in default under (A) its charter or by-laws, (B) any contractual restriction with respect to any Debt of the Servicer or contained in any indenture, loan or credit agreement, lease, mortgage, security agreement, bond, note or other agreement or instrument binding on or affecting it or its property, or (C) any law, rule, regulation, order, writ, judgment, award, injunction or decree binding on or affecting it or its property, and (iii) do not result in or require the creation of any Adverse Claim upon or with respect to any of its properties. (d) This Agreement and each other Related Document to which it is a party has been duly executed and delivered by the Servicer. (e) No approval or consent of, notice to, filing with or permits, licenses, qualifications or other action by any Governmental Authority or any other party is required for the due execution, delivery and performance by the Servicer of this Agreement or any Related Document to which it is a party or any other agreement, document or instrument to be delivered hereunder other than any approvals, consents, notices, permits, qualifications, filings or other actions which have been obtained or made and complete copies of which have been provided to the Lender, the Operating Agent, FSA and the Collateral Agent. (f) This Agreement and each other Related Document to which it is a party is the legal, valid and binding obligation of the Servicer enforceable against the Servicer in accordance with its terms. (g) There is no pending or threatened, nor any reasonable basis for any, action, suit, investigation or proceeding of a material nature against or affecting the Servicer, any of its Subsidiaries or their respective officers or directors, or the property of the Servicer, in any court or tribunal, before any arbitrator of any kind or before or by any Governmental Authority (i) asserting the invalidity of this Agreement or any other Related Documents or any document to be delivered by the Servicer hereunder or thereunder, or (ii) seeking any determination or ruling that might materially and adversely affect (A) the performance by the Servicer of its obligations under this Agreement or any other Related Document, or (B) the validity or enforceability of this Agreement or any other Related Document or any document to be delivered by the Servicer hereunder or thereunder. (h) No injunction, writ, restraining order or other order of any material nature adverse to the Servicer or the conduct of its business or which is inconsistent with the due 60 consummation of the transactions contemplated by this Agreement and the Related Documents has been issued by a Governmental Authority or, to the knowledge of the Servicer, has been sought by any other Person. (i) In the event the Parent is the Servicer: the financial statements of the Servicer, copies of which have been furnished to the Lender, the Operating Agent, FSA and the Collateral Agent, (i) are, as of the dates and for the periods referred to therein, complete and correct in all material respects, (ii) present fairly the financial condition and results of operations of the Servicer as of the dates and for the periods indicated and (iii) have been prepared in accordance with GAAP, except as noted therein (subject as to interim statements to normal year-end adjustments). Since the date of such financial statements, there has been no material adverse change in such financial condition or results of operations. Except as disclosed in the financial statements, the Servicer is not subject to any contingent liabilities or commitments that, individually or in the aggregate, have a material possibility of causing a Material Adverse Effect in respect of the Servicer. (j) If the Parent is the Servicer, the Servicer was or will be, immediately prior to each transfer by it of Transferred Receivables, the owner of, and had or will have at such time good and marketable title to, all such Transferred Receivables free and clear of all Adverse Claims and Restrictions on Transferability, and had or will have at such time full right, corporate power and lawful authority to assign, transfer and pledge the Transferred Receivables (and any documents which are a part thereof) and all such substitutions therefor and additions thereto delivered under the Receivables Transfer Agreement to which it is a party. The Borrowers will have, upon the transfer of the Transferred Receivables, a valid and perfected first priority interest in the Transferred Receivables free and clear of all Adverse Claims and Restrictions on Transferability. (k) The Servicer has filed all tax returns (federal, state and local) required to be filed by it and has paid or has made adequate provision for the payment of all taxes, fees, assessments and other governmental charges due from the Servicer, no tax lien or other similar Adverse Claim has been filed, and no claim has been filed, and no claim is being asserted, with respect to any such tax, fee, assessment or other governmental charge. Any taxes, fees and other governmental charges payable by the Servicer in connection with the transactions contemplated by this Agreement and the Related Documents and the execution and delivery of this Agreement and the Related Documents have been paid or shall have been paid at or prior to the earlier of the Effective Date and the date the Policy is issued as specified therein. 61 (l) Neither this Agreement, the Related Documents nor any documents, agreements, instruments, schedules, certificates, statements, cash flow schedules, number runs or other writings or data (collectively, the "Servicer Documents") furnished to the Lender, the Operating Agent, FSA or the Collateral Agent by the Servicer (in its capacity as Servicer or otherwise) or by the Operating Agent to FSA contain any statement of a material fact by the Servicer which was untrue or misleading in any material respect when made. There is no fact known to the Servicer which has a reasonable likelihood of causing a Material Adverse Effect with respect to the Servicer or FSA. Since the furnishing of the Servicer Documents, there has been no change nor any development or event involving a prospective change known to the Servicer which would render any of the Servicer Documents untrue or misleading in a material respect. (m) The Servicer is not required to be registered as an "investment company" under the Investment Company Act. The Servicer will not be subject to the information reporting requirements of the Securities Exchange Act. (n) (i) The capital of the Servicer is adequate for the business and undertakings of the Servicer. (ii) Other than with respect to the purchase and contribution of Receivables pursuant to the Receivables Transfer Agreements, the making of other capital contributions and the receipt of dividends and loans, the Servicer is not engaged in any business transactions with the Borrowers. (iii) Each of the Borrowers has, and will continue to have, assets other than assets contributed by the Servicer. (iv) At least two directors of each of the Borrowers is not, and will not be, a director, officer, employee, associate or holder of 5% or more of the equity securities of the Servicer or any Affiliate thereof (other than the other Borrower). (v) The Servicer's funds and assets are not, and will not be, commingled with those of either of the Borrowers. (vi) The Servicer is solvent and will not be rendered insolvent by the transactions contemplated by this Agreement and the Related Documents and, after giving effect to such transactions, the Servicer will not be left with an unreasonably small amount of capital with which to engage in its business nor will the Servicer have intended to incur, or believe that it 62 has incurred, debts beyond its ability to pay such debts as they mature. The Servicer does not contemplate the commencement of insolvency, bankruptcy, liquidation or consolidation proceedings or the appointment of a receiver, liquidator, conservator, trustee or similar official in respect of the Servicer or any of its assets. (vii) All the outstanding shares of Class A Common Stock and 49% of the Class B Common Stock of each of the Borrowers are owned by the Servicer. All the outstanding shares of capital stock of the Servicer are owned by Tyco Toys. (o) Each of the representations and warranties of the Servicer contained in this Agreement and the Related Documents is true and correct in all material respects and the Servicer hereby makes each such representation and warranty contained in the Related Documents to, and for the benefit of, the Lender, the Operating Agent, FSA and the Collateral Agent. SECTION 4.04. Representations and Warranties of the Lender. The Lender -------------------------------------------- represents, warrants and covenants to each other party as follows: (a) Corporate Existence. The Lender is duly organized, validly ------------------- existing and in good standing under the laws of the State of Delaware, has the corporate power to own its assets and to transact the business in which it is now engaged and is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction in which its business or activities requires such qualification. (b) Corporate Power; Authorization; Enforceable Obligation. The ------------------------------------------------------ Lender has the corporate power, authority and legal right to execute, deliver and perform this Agreement and the Related Documents. The Lender has taken all necessary corporate action to authorize the execution, delivery and performance of this Agreement. No consent, license, permit, approval or authorization of, exemption by, notice or report to or registration, filing or declaration with any governmental authority is required for the execution, delivery and performance by the Lender of this Agreement and the Related Documents which has not been obtained, made, given or accomplished. This Agreement and each of the Related Documents has been executed and delivered by a duly authorized officer of the Lender and constitutes a legal, valid and binding agreement or obligation of the Lender, enforceable against the Lender in accordance with its terms. 63 ARTICLE V GENERAL COVENANTS OF THE BORROWERS SECTION 5.01. Affirmative Covenants of the Borrowers. Each Borrower -------------------------------------- shall, unless the Operating Agent and FSA shall otherwise consent in writing: (a) perform each of its obligations under this Agreement and the Related Documents and comply in all respects with all of its obligations under this Agreement and the Related Documents and comply with all applicable laws, rules, regulations and orders with respect to this Agreement, the Related Documents, its business and properties and all Transferred Receivables, related Contracts and Collections with respect thereto, where non-compliance or non- performance, separately or in the aggregate, would have a Material Adverse Effect on such Borrower; (b) preserve and maintain its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation and shall conduct its business in accordance with the terms of its certificate of incorporation and bylaws; (c) engage exclusively in the activities contemplated by this Agreement and the Related Documents; (d) continue to operate its business in the manner set forth in Sections 4.01(d) and (e); (e) cause to be delivered to the Lender, the Operating Agent, FSA and the Collateral Agent on or before March 31 of each year beginning on March 31, 1996, (i) an Officer's Certificate of the Borrower, dated the date of such delivery, bringing down to such date the matters set forth in the Officer's Certificate delivered pursuant to Section 3.01(d)(iv), (ii) an Officer's Certificate of the Servicer, dated the date of such delivery, bringing down to such date the matters set forth in the Officer's Certificate delivered pursuant to Section 3.01(e)(iv), and (iii) an opinion of counsel reaffirming as of the date of its delivery the opinion of counsel with respect to the Borrowers, the Parent and Tyco Manufacturing delivered to the Lender, the Operating Agent, FSA and the Collateral Agent on the Effective Date pursuant to Section 3.01(l), provided that any changes from the opinion delivered on the Effective Date are, in form and substance, satisfactory to the Lender, the Operating Agent, FSA and the Collateral Agent ; (f) except as specified in Section 6.01, deposit all Collections it may receive in respect of Transferred Receivables into the Lockbox Account within one Business Day of receipt; 64 (g) use the proceeds of the Advances made hereunder solely for purposes of the Receivables Transfer Agreement; (h) have or maintain a Tangible Net Worth not less than 5% of the Outstanding Balance of all Transferred Receivables; (i) cooperate fully with all reasonable requests of the Lender, FSA, the Operating Agent and the Collateral Agent regarding any information or documents (including the provision of information in appropriate electronic or, if available, machine readable format) necessary or desirable to allow each of the Lender, the Operating Agent, FSA and the Collateral Agent to carry out its responsibilities hereunder or, in the case of FSA, under the Policy; (j) permit the Lender, the Operating Agent, the Collateral Agent and FSA: (i) to make or cause to be made (and, after the occurrence of and during the continuance of a Termination Event, at the Borrower's expense) inspections and audits of any books, records and papers of the Borrower, which shall be maintained at the address of the Borrower designated herein for receipt of notices, unless the Borrower shall otherwise advise the parties hereto in writing, and the Servicer, and to make extracts therefrom and copies thereof, or to make inspections and examinations of any properties and facilities of the Borrower and the Servicer, on reasonable notice, which inspections and audits (excluding inspections and audits made subject to Sections 5.01(m) and 5.02(e)), so long as no Termination Event is continuing, shall be made no more frequently than once each calendar quarter; and (ii) to discuss the affairs, finances and accounts of the Borrower or the Servicer with any of their officers, directors, employees, representatives or agents and with their independent certified accountants and advise such accountants that the Lender, the Operating Agent, FSA and the Collateral Agent have been authorized to review and discuss with such accountants any and all financial statements and other information of any kind that they may have with respect to the Borrower or the Servicer and direct such accountants to comply with any request of the Lender, the Operating Agent, FSA or the Collateral Agent for such information; (k) pay, perform and discharge all of its obligations and liabilities, including, without limitation, all taxes, assessments and governmental charges upon its income and properties when due the non-payment, performance or discharge of 65 which would have a Material Adverse Effect, unless and to the extent only that such obligations, liabilities, taxes, assessments and governmental charges shall be contested in good faith and by appropriate proceedings and that, to the extent required by GAAP, proper and adequate book reserves relating thereto are established by the Borrower and then only to the extent that a bond is filed in cases where the filing of a bond is necessary to avoid the creation of an Adverse Claim against any of its properties; (l) promptly notify the Lender, FSA and the Operating Agent in writing of any litigation, legal proceeding or dispute, whether or not in the ordinary course of business, affecting the Borrower, whether or not fully covered by insurance, and regardless of the subject matter thereof; (m) permit once in each calendar year (in addition to such examinations under Sections 5.01(j) and 5.02(e)), at the Borrower's expense, a firm of independent public accountants acceptable to the Operating Agent and FSA to provide a letter (upon which the Operating Agent, FSA and the Collateral Agent may rely) to the effect that (i) such firm has examined the Monthly Reports delivered during that calendar year (including the Borrowing Base Certificates attached thereto) and such Records relating to the Transferred Receivables as such firm deems necessary as a basis for the report contemplated by this Section 5.01(m) and that, on the basis of such examination, such Monthly Reports have been prepared substantially in compliance with this Agreement, except for (A) such exceptions as such firm shall believe to be immaterial, and (B) such other exceptions as shall be set forth in such statement, and (ii) such firm has examined the financial statements for the preceding year of the Borrower and the Borrower's financial covenants set forth in Section 7.06 and that, on the basis of such examination, the Borrower is in compliance with such covenants; (n) if such report prepared pursuant to Section 5.01(m) sets out material exceptions, permit examinations of the type set out in Section 5.01(m) (in addition to the examinations pursuant to Section 5.01(m)) each calendar month thereafter, each at the Borrower's expense, until the reports prepared pursuant to such examinations contain no material exceptions for two successive months; (o) at such Borrower's expense, promptly take, or cause to be taken, such actions as may be necessary or desirable, in the reasonable judgment of FSA or the Operating Agent, (i) to create and maintain the security interest granted under this Agreement as a valid and perfected lien covering the Collateral and (ii) to fully preserve, publish notice of and protect the perfected first priority security interest of the Collateral Agent in, and all rights of the Secured Parties with respect to, 66 the Collateral, including, without limitation, the execution and filing of all necessary financing statements or other instruments, and any amendments or continuation statements relating thereto, necessary to be kept and filed in such manner and in such places as may be required by law to preserve, protect and perfect fully the lien of the Collateral Agent with respect to the Collateral. Without limitation of the foregoing, each Borrower shall, upon the request of the Operating Agent or FSA, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, within five (5) Business Days of such request, such amendments hereto and such further instruments and take such further action as may be necessary and advisable to effectuate the intention, performance and provisions of the Related Documents or to protect the interest of the Collateral Agent in the Collateral, free and clear of all liens and Restrictions on Transferability. Each Borrower hereby designates the Collateral Agent and FSA, its agent and attorney-in-fact to execute any financing statement, continuation statement or other instrument required pursuant to this Section 5.01(o). Such power of attorney is coupled with an interest and is irrevocable, and each Borrower hereby ratifies and confirms all that the Collateral Agent or FSA, as the case may be, may do by virtue thereof. In addition each Borrower agrees to cooperate with S&P and Moody's in connection with any review undertaken by S&P or Moody's after the date hereof with respect to the transactions contemplated by this Agreement and the Related Documents; (p) on or before January 31 of each calendar year, commencing January 31, 1996, each Borrower shall furnish to the Collateral Agent and FSA an opinion of counsel (which opinion may contain qualifications and assumptions substantially similar to those contained in the similar opinion delivered pursuant to Section 3.01) acceptable in form and substance to FSA in each jurisdiction in which Collateral is located or a Uniform Commercial Code financing statement has been filed by or on behalf of the Lender or a Borrower stating either that, in the opinion of such counsel, such action has been taken with respect to the recording, filing, rerecording and refiling of this Agreement, any supplements and any other requisite documents and with respect to the execution and filing of any financing statements and continuation statements as is necessary to perfect and maintain the perfection of the lien and security interest of the Collateral Agent with respect to the Collateral and reciting the details of such action or stating that, in the opinion of such counsel, no such action is necessary to perfect and maintain the perfection of such lien and security interest. Such opinion of counsel shall also describe the recording, filing, rerecording and refiling of this Agreement, any supplements and any other requisite documents and the execution and filing of any financing statements and continuation statements that will, in the opinion of such counsel, be required to perfect and maintain the 67 perfection of the lien and security interest of the Collateral Agent with respect to the Collateral until January 31 in the following calendar year; (q) on or before January 31 in each calendar year, commencing January 31, 1996, deliver to the Collateral Agent and FSA a written statement signed by an Authorized Officer, stating that: (i) a review of the activities of the Borrowers during such year and of performance under this Agreement has been made under their supervision; and (ii) to the best of such Authorized Officers' knowledge, based on such review, each of the Borrowers has fulfilled all its obligations under this Agreement throughout such year and no Termination Event or Event or Servicer Termination has occurred, or, if there has been a Termination Event or an Event or Servicer Termination in the fulfillment of any such obligation, specifying each such Termination Event or Event or Servicer Termination known to them and the nature and status thereof; (r) concurrently with the delivery of the financial statements required pursuant to Section 5.02(b) and (c) hereof, furnish or cause to be furnished, a certificate signed by the Chief Financial Officer of the Borrower stating that: (i) a review of the Borrower's performance under this Agreement and the Related Documents during such period has been made under such officer's supervision; (ii) to the best of such individual's knowledge following reasonable inquiry, no Termination Event has occurred, or if a Termination Event has occurred, specifying the nature thereof and, if the Borrower has a right to cure pursuant to Section 9.01, stating in reasonable detail the steps, if any, being taken by the Borrower to cure such Termination Event or to otherwise comply with the terms of the agreement to which such Termination Event relates; and (iii) the financial reports attached thereto and submitted in accordance with Section 5.02(b) and (c) hereof, as applicable, are complete and correct in all material respects and present fairly the financial condition and results of operations of the Borrower as of the dates and for the periods indicated, in accordance with generally accepted accounting principles consistently applied (subject as to interim statements to normal year-end adjustments) and the 68 attached computations indicate compliance by the Borrower with the covenants of the Borrower contained in Article V hereof; (s) maintain all licenses, permits, charters and registrations which are material to the conduct of its business; (t) (i) use its best efforts to avoid the appearance of conducting business on behalf of either of the Parent or Tyco Manufacturing or that the assets of the Parent or Tyco Manufacturing are available to pay the creditors of the Borrower; (ii) maintain proper corporate records and books of account separate from those of its Parent, Tyco Manufacturing or any other Affiliate of the Borrower; (iii) cause operating expenses and liabilities of the respective Borrower to be paid from their respective funds; (iv) cause the annual financial statements of the Borrower to disclose the effects of the Borrower's transactions in accordance with generally accepted accounting principles and to disclose that the assets of the Borrower are not available to pay creditors of the Parent or Tyco Manufacturing; (v) cause the resolutions, agreements and other instruments underlying the transactions described in this Agreement and the Related Documents to be maintained by the Borrower as official records; (vi) use its best efforts to maintain an arm's-length relationship with the Parent and Tyco Manufacturing and not to hold itself out as being liable for the debts of its Parent or Tyco Manufacturing; and (vii) use its best efforts to keep its assets and its liabilities wholly separate from those of all other entities, including, but not limited to, the Parent or Tyco Manufacturing; (u) comply in all respects with the Credit and Collection Policies with regard to each Transferred Receivable and the related Contracts, and with the terms of such Receivables and Contracts; (v) keep or cause to be kept in reasonable detail, books and records of account of its assets and business, including, but not limited to, books and records relating to the 69 transactions contemplated by this Agreement and the Related Documents; (w) keep or cause its books to be kept on an accrual basis and each Borrower shall report its operations for tax purposes on an accrual basis. The fiscal year of each Borrower shall end on December 31 of each year; and (x) give FSA prompt notice of each of the following events (but in no event more than 30 days after the occurrence of the event): (i) an Accumulated Funding Deficiency, (ii) the failure to make a required contribution to a Plan or Multiemployer Plan, (iii) a Reportable Event, (iv) any action by a Commonly Controlled Entity to terminate any Plan or withdraw from any Multiemployer Plan, (v) any action by the PBGC to terminate or appoint a trustee to administer a Plan, and (vi) the reorganization or insolvency of any Multiemployer Plan. In addition, the Borrower shall promptly (but in no case more than 30 days following issuance or receipt by the Commonly Controlled Entity) provide to FSA a copy of all correspondence between a Commonly Controlled Entity and the PBGC, Internal Revenue Service, Department of Labor or the administrators of a Multiemployer Plan relating to any of the events described in the preceding sentence or the underfunded status, termination or possible termination of a Plan or a Multiemployer Plan which could result in a material liability. SECTION 5.02. Reporting Requirements of the Borrowers. Each Borrower --------------------------------------- shall furnish, or cause to be furnished, at its own expense, to the Lender, the Operating Agent and the Collateral Agent, and, unless otherwise notified by FSA, FSA: (a) (i) no less frequently than on the Settlement Date, commencing with the Effective Date, and, during the Clean Down Period Part 1 and the Clean Down Period Part 2, on each Business Day, a Borrowing Base Certificate; and (ii) monthly, as soon as available, and in any event, within ten Days after the end of each month, a Monthly Report in the form of Exhibit G, including all data necessary to recalculate the Advance Rate and a list of Obligors on Transferred Receivables not included in the previous Monthly Report; (b) as soon as publicly available and in any event within 90 days after the end of each fiscal year, a copy of the annual 10-K report and audited consolidated financial statements for such year for Tyco Toys and its consolidated Subsidiaries, certified, in a manner acceptable to the Operating Agent, FSA and the Collateral Agent, by nationally recognized independent public accountants acceptable to the Operating Agent, FSA and the Collateral Agent and including comparisons to the prior comparable period provided that the Operating -------- Agent and FSA 70 acknowledge that Deloitte & Touche or any other "Big 6" firm shall be acceptable,; (c) as soon as publicly available and in any event within 45 days after the end of each of the first three quarters of each fiscal year of Tyco Toys, a consolidated balance sheet of Tyco Toys and its consolidated Subsidiaries as of the end of such quarter, and consolidated statements of income and retained earnings, and of cash flow, of Tyco Toys and its consolidated Subsidiaries for such quarter and for the period commencing at the end of the previous fiscal year and ending with the end of such quarter and including comparisons to budget and the prior comparable period, certified by the chief financial officer or chief accounting officer of Tyco Toys identifying such documents as being the documents described in this paragraph (c) and stating that the information set forth therein fairly presents the financial condition of Tyco Toys and its consolidated Subsidiaries as of and for the periods then ended, subject to year-end adjustments consisting only of normal, recurring accruals; (d) as soon as possible and in any event within five days after the occurrence of a Termination Event (including without limitation a material adverse change in the financial condition of the Borrower as determined by the Operating Agent, FSA or the Collateral Agent and notified in writing to the Borrower) or an Incipient Event, the statement of the chief executive officer of the Borrower setting forth complete details of such Termination Event or Incipient Event and the action which the Borrower has taken, is taking and proposes to take with respect thereto; (e) as soon as available and in any event within 90 days after the end of each fiscal year of Tyco Toys, a letter from a firm of nationally recognized independent public accountants acceptable to the Operating Agent and FSA (and upon which the Operating Agent, FSA and the Collateral Agent may rely) provided that the Operating Agent and FSA acknowledge that Deloitte & Touche or - -------- any other "Big 6" firm shall be acceptable, to the effect that (i) such firm has examined the Monthly Reports delivered during the previous calendar year (including the Borrowing Base Certificates attached thereto) and such Records relating to the Transferred Receivables as such firm deems necessary as a basis for the report contemplated by this Section 5.02(e) and that, on the basis of such examination, such Monthly Reports have been prepared substantially in compliance with this Agreement, except for (A) such exceptions as such firm shall believe to be immaterial, and (B) such other exceptions as shall be set forth in such statement, and (ii) such firm has examined the financial statements for the preceding year of the Borrower and the Borrower's financial covenants in this Agreement and 71 that, on the basis of such examination, the Borrower is in compliance with such covenants; (f) promptly, and in any event within three Business Days, after the commencement thereof, notice of all actions, suits and proceedings before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, affecting the Borrower, the Parent, Tyco Manufacturing or any Affiliate of any of them of the types described in Section 4.02(a)(viii); (g) promptly and in any event within one Business Day after the Borrower becomes aware of the existence thereof, telephonic, telex or telecopied notice (confirmed in writing within 5 days) specifying the nature of any Borrowing Excess, Termination Event or Incipient Event, any breach or nonperformance by the Borrower, the Parent or Tyco Manufacturing of any other Related Document or any development or other information which is reasonably likely to materially and adversely affect the condition (financial or otherwise), business, operations, prospects or properties of the Borrower or the ability of the Borrower to perform its obligations under this Agreement or any Related Document; (h) within 10 days after its request, copies of all federal, state and local tax returns and reports filed by the Borrower or in which the Borrower was included on a consolidated or combined basis (excluding sales, use and like taxes); (i) within 10 days after receipt of Revenue Agent Reports (Internal Revenue Service Form 886), or other written proposals of the Internal Revenue Service, which propose, determine or otherwise set forth positive adjustments to the Federal income tax liability of the affiliated group (within the meaning of Section 1504(a)(1) of the Code) of which the Borrower is a member which equal or exceed $1,000,000 in the aggregate, telephonic, telex or telecopied notice (confirmed in writing within 5 days) specifying the nature of the items giving rise to such adjustments and the amounts thereof; (j) as soon as available and in any event prior to the end of each fiscal year, a copy of any operating plan for Tyco Toys, such plan to include sales and expense budgets and operating profit and cash flow projections for the following year; (k) promptly, from time to time, such other information, documents, records or reports in the possession of the Borrower, the Parent or Tyco Manufacturing respecting the Transferred Receivables or the Contracts or the condition or operations, financial or otherwise, of the Borrower, the Parent, Tyco Manufacturing or any of their Subsidiaries, as the Lender, 72 the Operating Agent, FSA or the Collateral Agent may, from time to time, reasonably request; and (l) the submission of any claim or the initiation of any legal process, litigation or administrative or judicial investigation against the Borrower; (m) any change in the location of Borrower's principal office or any change in the location of the Borrower's books and records; (n) written notice of the commencement or threat of any rule making or disciplinary proceedings or any proceedings instituted by or against the Borrower in any federal, state or local court or before any governmental body or agency, or before any arbitration board, or the promulgation of any proceeding or any proposed or final rule which, if adversely determined, would result in a Material Adverse Effect with respect to the Borrower; (o) the receipt of notice from any Governmental Authority that (A) the Borrower is being placed under regulatory supervision, (B) any license, permit, charter, registration or approval necessary for the conduct of the Borrower's business is to be, or may be, suspended or revoked, or (C) the Borrower is to cease and desist any practice, procedure or policy employed by the Borrower in the conduct of its business, and such cessation is reasonably likely to result in a Material Adverse Effect with respect to the Borrower; and (p) any other event, circumstance or condition that has resulted, is reasonably likely to result, in a Material Adverse Effect in respect of the Borrower. SECTION 5.03. Negative Covenants of the Borrowers. Neither Borrower ----------------------------------- shall, without the prior written consent of the Lender, the Operating Agent, FSA and the Collateral Agent: (a) sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Adverse Claim upon or with respect to, or assign any right to receive income in respect of, (i) any Transferred Receivable or related Contract with respect thereto, or upon or with respect to the Lockbox Account, Lockbox, the Collection Account, the Retention Account or other account in which any Collections of any Transferred Receivable are deposited, or (ii) any of the Borrower's property; (b) extend, amend, forgive, discharge, compromise, waive, cancel or otherwise modify the terms of the Receivables Transfer Agreements, any Related Document, the Credit and Collection Policies or of any Transferred Receivable, or amend, 73 modify or waive any term or condition of any Contract related thereto; (c) make any change in its instructions to Obligors regarding payments to be made to the Borrower or payments to be deposited to the Lockbox Account or the Lockbox; (d) amend its articles or certificate of incorporation, its by-laws or any Related Document except as permitted by this Agreement; (e) merge with or into, consolidate with or into, convey, transfer, lease or otherwise dispose of all or substantially all of its assets (whether now owned or hereafter acquired) to, or acquire all or substantially all of the assets or capital stock or other ownership interest of, any Person (whether in one transaction or in a series of transactions), or own any Subsidiary; (f) prepare any financial statements of the Borrower which shall account for the transactions contemplated by the Receivables Transfer Agreements in any manner other than as a purchase or absolute assignment of the Transferred Receivables to the Borrowers from the Parent or Tyco Manufacturing, as the case may be, or in any other respect account for or treat the transactions contemplated hereby (including but not limited to, for accounting, tax and reporting purposes) in any manner other than as a purchase or absolute assignment of the Transferred Receivables to the Borrower from the Parent or Tyco Manufacturing, as the case may be; (g) at any time (i) advance credit to any Person, or (ii) declare any dividends or return any capital, if after giving effect to such distribution or advance, there would be a Borrowing Excess or any amounts outstanding in respect of any TFC I Deferred Sale Price or TFC II Deferred Sale Price; (h) create, incur, permit to exist or have outstanding any Debt, except: (i) Debt of the Borrower to the Lender, any Affected Party or any Indemnified Party under this Agreement and the Note; (ii) taxes, assessments and governmental charges, non-interest bearing accounts payable and accrued liabilities, in any case not more than 90 days past due from the original due date thereof, and non- interest bearing deferred liabilities other than for borrowed money (e.g., deferred taxes), in each case incurred and continuing in the ordinary course of business; 74 (iii) the endorsement of negotiable instruments for deposit or collection in the ordinary course of business; and (iv) any subordinated Debt to the Parent or Tyco Manufacturing in relation to the TFC I Deferred Sale Price or TFC II Deferred Sale Price; (i) issue any additional shares or any right or option to acquire any shares, or any security convertible into any shares, of the capital stock of the Borrower; (j) make or suffer to exist any purchases of assets aggregating more than $10,000 in any year or investments in any Person, including, without limitation, any shareholder, director, officer or employee of the Borrower or any of the Parent's other Subsidiaries, except Transferred Receivables and Permitted Investments; (k) (i) take any action, or fail to take any action (other than any action or failure constituting a guaranty of collectibility of any Receivable), if such action or failure to take action may interfere with the enforcement of any rights under this Agreement or the Related Documents that are material to the rights, benefits or obligations of the Secured Parties or FSA; (ii) waive or alter any rights with respect to the Collateral (or any agreement or instrument relating thereto); (iii) take any action, or fail to take any action, if such action or failure to take action may interfere with the enforcement of any rights with respect to the Collateral; or (iv) fail to pay any tax, assessment, charge or fee with respect to the Collateral or fail to defend any action, if such failure to pay or defend may adversely affect the priority or enforceability of the Secured Parties' first priority lien on or perfected security interest in the Collateral or the Borrowers' right, title or interest in the Collateral; (l) institute against, or join any other person in instituting against the Parent or Tyco Manufacturing, any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding or other proceeding, under any bankruptcy or similar law, for one year and a day after the expiration of the Term of the Insurance and Indemnity Agreement; (m) terminate or designate any successor Servicer without the prior approval of FSA; (n) take or permit (other than with respect to actions taken or to be taken solely by a government or governmental authority) to be taken any action which would have the effect directly or indirectly of subjecting interest on the Notes or the Commercial Paper to withholding taxation in the hands of, 75 respectively, the Lender or holders of Commercial Paper generally who are residents of the United States, and will perform all of its obligations under this Agreement and the Related Documents to prevent or cure any default by the Borrower which would have the effect, directly or indirectly, of subjecting interest on the Notes or the Commercial Paper to withholding taxation; or (o) nor any Commonly Controlled Entity will: (i) terminate any Plan so as to incur any material liability to the PBGC; (ii) knowingly participate in any "prohibited transaction" (as defined in ERISA) involving any Plan or Multiemployer Plan or any trust created thereunder which would subject any of them to a material tax or penalty on prohibited transactions imposed under Section 4975 of the Code or ERISA; (iii) fail to pay to any Plan or Multiemployer Plan any contribution which it is obligated to pay under the terms of such Plan or Multiemployer Plan, if such failure would cause such plan to have any material Accumulated Funding Deficiency, whether or not waived; or (iv) allow or suffer to exist any occurrence of a Reportable Event, or any other event or condition, which presents a material risk of termination by the PBGC of any Plan or Multiemployer Plan, to the extent that the occurrence or nonoccurrence of such Reportable Event or other event or condition is within the control of it or any Commonly Controlled Entity. ARTICLE VI COLLECTIONS AND DISBURSEMENTS SECTION 6.01. Establishment of Accounts. ------------------------- (a) The Lockbox Accounts. (i) TFC I has a Lockbox Account with a -------------------- Lockbox Bank, subject to the approval of FSA, into which each of the Servicer and TFC I shall deposit from time to time all monies, instruments and other property received by it as Collections or Proceeds of the Tier I Transferred Receivables, and TFC II has a Lockbox Account with a Lockbox Bank, subject to the approval of FSA, into which each of the Servicer and TFC II shall deposit from time to time all monies, instruments and other property received by it as Collections or Proceeds of the Tier II Transferred Receivables. The Borrowers agree that the Collateral Agent shall have exclusive dominion and control 76 of the Lockbox Accounts and all monies, instruments and other property from time to time in the Lockbox Accounts. The Borrowers will not make or cause to be made, or have any ability to make or cause, any withdrawals from the Lockbox Account, except as provided in Section 6.01(b)(ii). (ii) The Servicer and TFC I have instructed all existing Obligors other than Toys'R'Us, and will instruct all future Obligors other than Toys'R'Us, to make payments in respect of Transferred Receivables only (A) by check or money order mailed to one or more lockboxes or post office boxes under the control of the Operating Agent (each such box being a "Lockbox"), or (B) by wire transfer or moneygram directly to the Lockbox Account established by TFC I ("Wire Payments"). The Lockboxes to which mail payments are made as of the date hereof are listed on the attached Schedule 8. TFC I and the Servicer shall endorse, to the extent necessary, all checks or other instruments received in any Lockbox so that the same can be deposited in such Lockbox Account established by TFC I, in the form so received (with all necessary endorsements), and the Collateral Agent shall deposit the same in such Lockbox Account on the next Business Day after the Business Day on which such check or other instruments are received. In addition, the Borrowers and Servicer shall deposit or cause to be deposited in the appropriate Lockbox Account all cash, checks, money orders or other Proceeds of Collateral received other than in a Lockbox or by Wire Payments, in the form so received (with all necessary endorsements), not later than the close of business on the Business Day following the date of such receipt, and until so deposited all such items or other Proceeds shall shall be held in trust for the Collateral Agent; provided that any payments -------- by Toys'R'Us in respect of the Transferred Receivables shall be delivered directly by Toys'R'Us to a bonded courier acceptable to the Lender and FSA and, directly upon receipt thereof on the day so received, deposited into the Collection Account or deposited by Toys 'R' Us directly into the applicable Lockbox Account. (iii) In the event that any of the Lockbox Agreements terminates for any reason or the related Lockbox Bank fails to comply with its obligations under such Lockbox Agreement for any reason, then the related Borrower shall promptly notify all Obligors to make all future Wire Payments to a new Lockbox Account established in accordance with the next succeeding sentence with such Lockbox Bank or another depositary institution. Such Borrower shall not close such Lockbox Account unless it shall have (1) received the prior written consent of the Operating Agent, FSA and the Collateral Agent, (2) established a new account with the Lockbox Bank or with a new depositary institution satisfactory to the Operating Agent, FSA and the Collateral 77 Agent, (3) entered into an agreement covering such new account with the Lockbox Bank or with such new depositary institution substantially in the form of such Lockbox Agreement which is satisfactory in all respects to the Operating Agent, FSA and the Collateral Agent (whereupon, for all purposes of this Agreement and the Related Documents, such new account shall become such Lockbox Account, such new agreement shall become such Lockbox Agreement and any new depositary institution shall become the Lockbox Bank), and (4) taken all such action as the Collateral Agent or FSA shall require to grant and perfect a first priority security interest in such new Lockbox Account to the Collateral Agent under Section 8.01 of this Agreement. (b) Collection Account. (i) The Lender has established and shall ------------------ maintain an Eligible Bank Account with the Depositary titled "Redwood Receivables Corporation -Collection Account (Tyco Borrowers)." The Borrowers agree that the Collateral Agent shall have exclusive dominion and control of such Collection Account and all monies, instruments and other property from time to time in such Collection Account. (ii) Pursuant to Section 6.02, each Borrower shall instruct the Lockbox Bank to transfer, and each Borrower hereby grants the Collateral Agent the authority to instruct each Lockbox Bank to transfer, on each Business Day in same day funds, all available funds deposited in the Lockbox Accounts before such Business Day to the Collection Account. The Lender, the Operating Agent and the Collateral Agent may deposit into the Collection Account from time to time all monies, instruments and other property received by any of them as Collections or Proceeds of the Transferred Receivables. On each Business Day before the Commitment Termination Date, so long as no Termination Event shall have occurred and be continuing, the Collateral Agent shall instruct and cause the Depositary (which instruction may be in writing or by telephone confirmed promptly thereafter in writing) to release funds on deposit in the Collection Account in the order of priority set forth in Section 6.03. On each Business Day on and after the Commitment Termination Date and on each Business Day during any period while a Termination Event has occurred and is continuing, the Collateral Agent shall apply all amounts when received in the Collection Account in the order of priority set forth in Section 6.05. (iii) In the event that the Depositary wishes to resign as depositary of the Collection Account for any reason or fails to carry out the instructions of the Collateral Agent for any reason, then the Lender or the 78 Operating Agent shall promptly notify all Secured Parties. The Lender shall not close the Collection Account unless it shall have (A) received the prior written consent of the Operating Agent, FSA and the Collateral Agent, (B) established a new account with the Depositary or with a new depositary institution satisfactory to the Operating Agent, FSA and the Collateral Agent, (C) entered into an agreement covering such new account with the Depositary or such new depositary institution satisfactory in all respects to the Operating Agent, and FSA and the Collateral Agent (whereupon such new account shall become the Collection Account for all purposes of this Agreement and the Related Documents), and (D) taken all such actions as the Collateral Agent and FSA shall require to grant and perfect first priority security interests in such new Collection Account to the Collateral Agent under this Agreement. (c) Retention Account. The Lender has established and shall maintain ----------------- an Eligible Bank Account with the Depositary and controlled by the Operating Agent titled "Redwood Receivables Corporation - Retention Account (Tyco Borrowers)." (d) Collateral Account. The Lender has established and shall ------------------ maintain an Eligible Bank Account with the Depositary and controlled by the Operating Agent titled "Redwood Receivables Corporation - Collateral Account". SECTION 6.02. Funding of Collection Account. ----------------------------- (a) No later then 10:00 a.m. on each Business Day: (i) the Collateral Agent shall transfer all Collections deposited in the Lockbox Accounts prior to such Business Day to the Collection Account; (ii) the Lender shall, or shall cause the Collateral Agent to, deposit any Advances made on such Business Day to the Collection Account; (iii) if, on the prior Business Day, the Operating Agent has notified the Borrowers of any Borrowing Excess pursuant to Section 6.03(b), the Borrowers shall deposit cash in the amount of such Borrowing Excess in the Collection Account; (iv) if, pursuant to a Borrower Notice, the Borrowers have requested to make an Optional Prepayment of Advances on such Business Day, the Borrowers shall deposit cash into the Collection Account in an amount equal to such Optional Repayment Amount; 79 (v) if on such Business Day the Borrowers are required to make other payments under this Agreement not previously retained out of Collections (including Indemnified Amounts not previously paid), the Borrowers shall deposit an amount equal to such payments in the Collection Account; (vi) if, on the prior Business Day, the Borrower shall have received a capital contribution made by the Parent or a payment made by Tyco Manufacturing of a Rejected Amount pursuant to the Receivables Transfer Agreements, the Borrowers shall deposit cash in the amount received from the Parent or Tyco Manufacturing for such capital contribution or payment, in the Collection Account; and (vii) the Servicer shall deposit into the Collection Account the Outstanding Balance of any Transferred Receivable it elects to pay pursuant to Section 7.03. (b) If, two Business Days prior to any Settlement Date, the Operating Agent notifies the Borrowers of any Retention Account Deficiency pursuant to Section 6.04(b), the Borrowers shall deposit cash in the amount of such deficiency into the Collection Account no later than 10:00 a.m. on such Settlement Date. (c) On and after the Commitment Termination Date, the Operating Agent shall transfer all amounts held in the Retention Account as of that date to the Collection Account. SECTION 6.03. Daily Disbursements From the Collection Account - Revolving ----------------------------------------------------------- Period. - ------ (a) On each Business Day during the Revolving Period, following the transfers made in accordance with Section 6.02, the Collateral Agent shall disburse all amounts in the Collection Account in the following priority: (i) to the Retention Account for the account of the Lender, the amount of any Retention Account Deficiency deposited pursuant to Section 6.02(b); (ii) to the Retention Account for the account of the Lender, an amount equal to the sum of (A) Daily Interest on Advances Outstanding as of the previous day; (B) the Daily Unused Facility Fees for such day; and 80 (C) the Interest and Fees Shortfall for the prior Business Day; (iii) to the Collateral Account for the account of the Lender, as repayment of principal on Advances if, as disclosed in either of the most recently submitted Borrowing Base Certificates, there is a Borrowing Excess with respect to either Borrower, by transfer of such Borrowing Excess; (iv) if, pursuant to a Borrower Notice, either Borrower has requested to make an Optional Prepayment of Advances on such date, the related Optional Repayment Amount to the Collateral Account for the account of the Lender, as repayment of principal on such Advance; (v) during the Clean Down Period Part 1 to the Collateral Account for the account of the Lender, as repayment of principal on Advances, an amount equal to the lesser of the balance in the Collection Account or the principal on all Advances Outstanding; (vi) during the Clean Down Period Part 2, to the Collateral Account for the account of the Lender, as repayment or principal of Advances, an amount equal to 80% of the balance in the Collection Account; (vii) to an account designated by FSA, any amounts due and owing to FSA pursuant to the Insurance and Indemnity Agreement or the Premium Letter (excluding any amounts thereof disbursed pursuant to clause (a)(ii)(B) above); (viii) to the Collateral Account for the account of the Lender (or in the case of Indemnified Amounts, for the account of the Indemnified Party), amounts deposited into the Collection Account pursuant to Section 6.02(a)(iii); and (ix) to an account of each of the Borrowers previously designated by the applicable Borrower, the balance, if any. (b) After completion of the disbursements specified in Section 6.03(a), the Operating Agent shall notify the Borrowers of any remaining Borrowing Excess, and the Borrowers shall deposit the amount of such remaining Borrowing Excess in the Collection Account by 10:00 a.m. on the following Business Day. 81 SECTION 6.04. Disbursements From the Retention Account -Settlement Date --------------------------------------------------------- Procedures - Revolving Period. - ----------------------------- (a) No later than 11:00 a.m. on each Settlement Date during the Revolving Period, the amounts held in the Retention Account shall be disbursed or retained by the Collateral Agent in the following priority: (i) to the Collateral Account for the account of the Lender (or, if applicable, any Indemnified Party) or, with respect to payments to FSA, to an account designated by FSA, in an amount equal to: (A) accrued and unpaid Interest to the end of the preceding Settlement Period (excluding any amounts thereof to be disbursed pursuant to clause (B) below); (B) all amounts due and owing to FSA with respect to the Premium; (C) all Unused Facility Fees accrued and unpaid to the end of the preceding Settlement Period (excluding any amounts thereof to be disbursed pursuant to clause (B) above); (D) if there is a Borrowing Excess with respect to either Borrower, an amount equal to such excess, in reduction of Advances Outstanding of such Borrower; (E) all Additional Amounts incurred and payable to any Affected Party through the end of the preceding Settlement Period; (F) all other amounts accrued and payable under this Agreement other than principal payments on Advances (including Indemnified Amounts incurred and payable to any Indemnified Party) through the end of the preceding Settlement Period; (ii) to the Servicer on behalf of the Borrowers, in an amount equal to its accrued and unpaid Servicing Fee to the end of the preceding Settlement Period; (iii) retained in the Retention Account, the Accrued Monthly Interest and Unused Facility Fee as of that date; (iv) to an account designated by FSA, any other amounts due and owing to FSA under the Insurance and Indemnity Agreement or the Premium Letter; 82 (v) to the extent that the balance in the Retention Account exceeds the amount to be retained under Section 6.04(iii), that excess, if so designated by the Borrowers, to the Collateral Account to repay Advances Outstanding of the Borrowers as so designated; and (vi) to the extent that the balance in the Retention Account exceeds the amount to be retained or disbursed under Section 6.04(iii) or (v), each Borrower's pro rata portion of that excess to accounts previously designated by the Borrowers. (b) Two Business Days prior to each Settlement Date, the Operating Agent shall determine and notify the Borrowers of any Retention Account Deficiency for the preceding Settlement Period, and the Borrowers shall deposit cash in the amount of such Retention Account Deficiency to the Collection Account pursuant to Section 6.02(b). SECTION 6.05. Liquidation Settlement Procedures. On each Business Day on --------------------------------- and after the Commitment Termination Date, the Collateral Agent shall transfer all amounts from the Collection Account in the following priority: (a) amounts due and owing to FSA with respect to any accrued and unpaid Premium; (b) if an Event of Servicer Termination has occurred and a Successor Servicer has been appointed to the Successor Servicer in an amount equal to its accrued and unpaid Successor Servicing Fees and Expenses; (c) to the Collateral Account for the account of the Lender or, with respect to amounts payable to FSA, to an account designated by FSA, in the following order, priority and amount equal to: (i) that portion of the accrued and unpaid Interest equal to the product of the Daily Interest Rate and Advances Outstanding during the period from the Commitment Termination Date through and including the date of payment through and including such date; (ii) the principal of all Advances Outstanding (excluding Advances which have been paid with a payment under either Policy); (iii) all accrued and unpaid fees and expenses of the Operating Agent and the Collateral Agent, provided that the sum of all transfers made pursuant to this clause (iii) after the Commitment Termination Date shall at no time exceed in the aggregate $200,000; 83 (iv) an amount equal to all other obligations due and owing to FSA pursuant to the Insurance and Indemnity Agreement or the Premium Letter; (v) all accrued and unpaid Interest and Unused Facility Fees (excluding any amounts thereof transferred pursuant to clauses (c)(i) and (c)(iii) above); (vi) all Additional Amounts incurred and payable to any Affected Party; and (vii) all Indemnified Amounts incurred and payable to any Indemnified Party; (d) if an Event of Servicer Termination has not occurred, to the Servicer in an amount equal to its accrued and unpaid Servicing Fee. SECTION 6.06. Notification by Operating Agent. The Collateral Agent ------------------------------- shall notify the Borrowers, the Lender, the Operating Agent, FSA and the Servicer of the determinations and disbursements made pursuant to Sections 6.03, 6.04, 6.05 and 6.08 no later than one Business Day thereafter. SECTION 6.07. Investment of Accounts. ---------------------- (a) During the Revolving Period, to the extent there are uninvested amounts deposited in the Collection Account or the Retention Account, the Collateral Agent shall invest all such amounts in Permitted Investments selected by the Collateral Agent and approved by the Borrowers and FSA that mature no later than the immediately succeeding Business Day, in the case of the Collection Account, and the immediately succeeding Settlement Date, in the case of the Retention Account, provided that following a Termination Event or Event of Servicer Termination, unless FSA otherwise consents in writing, money in each such account shall be invested only in Permitted Investments described in paragraph (a) of the definition of Permitted Investments; (b) The securities purchased with the moneys in each such account shall be deemed a part of such account and, for the purpose of determining the amount of money in such account, the securities shall be valued at their cost or market value, whichever is lower. To the extent the Collateral Agent invests such monies in any Permitted Investment other than as permitted under clause (e) of the definition of "Permitted Investments", monthly statements of the earnings or losses, disbursements and deposits, and any other changes in the fund balances, shall be submitted by the Collateral Agent to FSA and the Lender. (c) To the extent the Collateral Agent invests such monies in any Permitted Investment other than as permitted under 84 clause (e) of the definition of "Permitted Investments", if at any time it shall become necessary that some or all of the securities purchased with the moneys in either the Collection Account or the Retention Account be redeemed or sold in order to raise moneys necessary to comply with the provisions of this Agreement, the Collateral Agent shall so redeem or sell such securities. (d) To the extent the Collateral Agent invests such monies in any Permitted Investment other than as permitted under clause (e) of the definition of "Permitted Investments", the Lender will not direct the Collateral Agent to make any investment of any funds in either the Collection Account or the Retention Account or to sell any investment held in either such account except under the following terms and conditions: (i) each such investment shall be made in the name of the Collateral Agent (in its capacity as such) or in the name of a nominee of the Collateral Agent under its complete and exclusive dominion and control (or, if, as stated in an opinion of counsel delivered to the Collateral Agent and acceptable in form and substance to the Collateral Agent and FSA, applicable law provides for perfection of pledges of an instrument not evidenced by a certificate or other instrument through registration of such pledge on books maintained by or on behalf of the issuer of such investment, such pledge may be so registered), (ii) the Collateral Agent shall have sole control over such investment, the income thereon and the proceeds thereof, (iii) other than the investments described in clause (i) above, any certificate or other instrument evidencing such investment shall be delivered directly to the Collateral Agent or its agent, and (iv) the proceeds of each sale of such an investment shall be remitted by the purchaser thereof directly to the Collateral Agent for deposit in the account in which such investment was held. (e) All income or other gain from investments of moneys deposited in either the Collection Account or the Retention Account shall be deposited by the Collateral Agent in such account, immediately upon receipt, and any loss resulting from such investments shall be charged to such account. Subject to Section 13.01 hereof, the Collateral Agent shall not in any way be held liable by reason of any insufficiency in either the Collection Account or the Retention Account resulting from any loss on any Permitted Investment included therein except for losses attributable to the Collateral Agent's failure to make 85 payments on such Permitted Investments issued by the Collateral Agent, in its commercial capacity, in accordance with their terms. (f) On or after the Commitment Termination Date, any investment of such amounts shall be solely at the discretion of the Collateral Agent subject to the restrictions described above. SECTION 6.08. Termination Procedure. --------------------- (a) On the earlier of (i) the first Business Day after the Commitment Termination Date on which Advances Outstanding have been reduced to zero or (ii) the Final Maturity Date, if the payments required to be made pursuant to Sections 6.05(a), (b), (c) and (d) have not been made in full, the Borrowers shall immediately deposit into the Collection Account an amount sufficient to make such payments in full. (b) On the later of (i) the Commitment Termination Date or (ii) the Business Day on which the payments required pursuant to Sections 6.05(a), (b), (c) and (d) have been made in full, and upon a final accounting in respect thereof being made to FSA, all amounts held in the Collection Account and the Retention Account, if any, shall be disbursed to the Borrowers and all security interests of the Lender and the Collateral Agent in all Transferred Receivables owned by the Borrowers shall be released by the Lender and the Collateral Agent. Such disbursement shall constitute the final payment to which the Borrowers are entitled pursuant to the terms of this Agreement. (c) Upon payment in full of the Guaranteed Distributions, all payments payable under the Policy shall be deemed to have been paid in full. Upon the expiration of the Policy according to its terms, the Operating Agent shall surrender the Policy to FSA for cancellation. SECTION 6.09. Payment Under the Policy. (a) If, on the second ------------------------ anniversary of the Commitment Termination Date, there is not on deposit in the Collection Account and Retention Account (or otherwise available) sufficient moneys to pay the Guaranteed Distributions remaining unpaid as of such day, the Operating Agent, as soon as practicable and in no event later than 12:00 noon (New York City time) on the next succeeding Business Day, shall furnish a Notice of Claim to FSA in accordance with the Policy in respect of the amount of such deficiency. (b) Any funds paid by FSA as a result of any claim under the Policy shall be applied directly to the payment in full of Guaranteed Distributions. Funds received by the Lender as a result of any claim under the Policy may not be applied to satisfy any costs, expenses or liabilities of the Lender. 86 SECTION 6.10. Effect of Payments by FSA: Subrogation. (a) Anything -------------------------------------- herein to the contrary notwithstanding, any payment with respect to the Guaranteed Distributions made with moneys received pursuant to the terms of the Policy shall not be considered payment by a Borrower of Advances or in respect of the Notes, shall not discharge any Borrower in respect of its obligation to make such payment and shall not result in the payment of or the provision for the payment of the principal of or interest on the Advances or the Notes within the meaning of Section 2.09 hereof. The Lender, the Operating Agent, the Collateral Agent and the Borrowers each acknowledge that without the need for any further action on the part of FSA or any other Person, (i) to the extent FSA makes payments, directly or indirectly, on account of the Guaranteed Distributions, FSA will be fully subrogated to the rights of the Lender to receive all payments of principal and interest from the Borrowers in respect of the Advances or the Notes, and (ii) FSA shall be paid such payments in its capacity as an obligee of the Notes but only from the sources and in the manner provided herein for the payment of principal and interest in respect of the Advances or the Notes by the Borrowers in each case only after the Lender has received payment of the Guaranteed Distributions. Without limiting the foregoing, and subject to and conditioned upon payment of any such Guaranteed Distribution by or on behalf of FSA, the Lender shall assign to FSA all rights to payment of interest or principal on the Notes which are then due for payment to the extent of all payments made by FSA in respect of the Guaranteed Distributions, and FSA may exercise any option, vote, right, power or the like with respect to such obligations. (b) Without limiting the provisions of Article IX hereof or the rights or interests of the Lender or the Operating Agent as otherwise set forth herein, the Lender, the Operating Agent, the Collateral Agent and each of the Borrowers shall cooperate in all respects with any reasonable request by FSA for action to preserve or enforce FSA's rights or interests under this Agreement, including, without limitation, upon the occurrence and continuance of a Termination Event or an Event of Servicer Termination, a request to take any one or more of the following actions: (i) institute proceedings for the collection of all amounts then payable on the Advances or the Notes, or under this Agreement in respect to the Advances or the Notes, enforce any judgment obtained and collect from the Borrowers moneys adjudged due; (ii) institute proceedings from time to time for the complete or partial foreclosure of the Collateral; and (iii) exercise any remedies of a secured party under the Uniform Commercial Code and take any other 87 appropriate action to protect and enforce the rights and remedies of FSA hereunder. ARTICLE VII APPOINTMENT OF THE SERVICER SECTION 7.01. Appointment of the Servicer. The Borrowers hereby appoint --------------------------- the Servicer as their agent to service the Transferred Receivables and enforce their respective rights and interests in and under each Transferred Receivable and each related Contract and to serve in such capacity until the termination of its responsibilities pursuant to Sections 7.10, 9.02 or 11.01. The Servicer hereby agrees to perform the duties and obligations with respect thereto set forth herein. The Servicer may, with the prior written consent of the Borrowers, the Lender, the Operating Agent, FSA and the Collateral Agent subcontract with a Sub-Servicer for collection, servicing or administration of the Transferred Receivables, provided, that (a) the Servicer shall remain liable -------- for the performance of the duties and obligations of the Sub-Servicer pursuant to the terms hereof, and (b) any Sub-Servicing Agreement that may be entered into and any other transactions or services relating to the Transferred Receivables involving a Sub-Servicer shall be deemed to be between the Sub- Servicer and the Servicer alone and the Borrowers, the Lender, Operating Agent, FSA and the Collateral Agent shall not be deemed parties thereto and shall have no obligations, duties or liabilities with respect to the Sub-Servicer. SECTION 7.02. Duties and Responsibilities of the Servicer. ------------------------------------------- (a) The Servicer shall conduct the servicing, administration and collection of the Transferred Receivables and shall take, or cause to be taken, all such actions as may be necessary or advisable to service, administer and collect each Transferred Receivable from time to time in accordance with the Credit and Collection Policies. (b) The duties of the Servicer shall include, without limitation: (i) preparation and submission of claims to, and post-billing liaison with, Obligors on Transferred Receivables; (ii) arranging for the direct remittance of all Collections with respect to each Transferred Receivable to the Lockbox Account or the Lockbox; (iii) maintaining all necessary Servicing Records with respect to the Transferred Receivables and providing 88 such reports to the Lender, the Operating Agent, FSA and the Collateral Agent in respect of the servicing of the Transferred Receivables (including information relating to its performance under this Agreement) as may be required hereunder or as the Lender, the Operating Agent, FSA or the Collateral Agent may reasonably request; (iv) maintaining and implementing administrative and operating procedures (including, without limitation, an ability to recreate Servicing Records evidencing the Transferred Receivables in the event of the destruction of the originals thereof) and keeping and maintaining all documents, books, records and other information reasonably necessary or advisable for the collection of the Transferred Receivables (including, without limitation, records adequate to permit the identification of each new Transferred Receivable and all Collections of and adjustments to each existing Transferred Receivable); (v) promptly delivering to the Operating Agent, FSA or the Collateral Agent, from time to time, such information and Servicing Records (including information relating to its performance under this Agreement) as the Operating Agent, FSA or the Collateral Agent may from time to time reasonably request; (vi) identifying each Transferred Receivable clearly and unambiguously in its Servicing Records to reflect that such Transferred Receivable is owned by the Borrower and pledged to the Collateral Agent and FSA; (vii) complying in all respects with the Credit and Collection Policies in regard to each Transferred Receivable and the related Contracts, and with the terms of such Receivables and Contracts; (viii) complying in all material respects with all applicable laws, rules, regulations and orders with respect to it, its business and properties and all Transferred Receivables, related Contracts and Collections with respect thereto; (ix) preserving and maintaining its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualifying and remaining qualified in good standing as a foreign corporation and qualifying to and remaining authorized to perform obligations as Servicer (including enforcement of collection of Transferred Receivables on behalf of the Lender, FSA and the Collateral Agent) in each jurisdiction where the failure to preserve and maintain such existence, rights, franchises, privileges and qualification would 89 materially adversely affect (A) the rights or interests of the Lender, FSA or the Collateral Agent in the Transferred Receivables, (B) the collectibility of any Transferred Receivable, (C) the ability of the Servicer to perform its obligations hereunder, or (D) the ability of the Parent and Tyco Manufacturing to perform their obligations under this Agreement or under the Contracts; (x) promptly notifying the Lender, the Operating Agent, FSA and the Collateral Agent of the occurrence of a Termination Event (including, without limitation, a material adverse change in the financial condition of the Parent or Tyco Manufacturing) or an Incipient Event of which it has knowledge; (xi) notifying the Lender, the Operating Agent, FSA and the Collateral Agent of any action, suit, proceeding, dispute, offset deduction, defense or counterclaim that is or may be asserted by an Obligor with respect to any Transferred Receivable; (xii) upon the request of the Lender, the Operating Agent, FSA or the Collateral Agent, permitting the Lender, the Operating Agent, FSA or the Collateral Agent or its authorized agents: (A) to inspect the books and records of the Servicer as they may relate to the Notes, the Collateral, the obligations of the Servicer under this Agreement and the Related Documents, the Servicer's business and the transaction contemplated by this Agreement or the Related Documents; (B) to discuss the affairs, finances and accounts of the Servicer with the chief operating officer and the chief financial officer of the Servicer; and (C) to discuss the affairs, finances and accounts of the Servicer with the Servicer's independent accountants, provided that an officer of the Servicer shall have the right to be present during such discussions; (xiii) promptly informing the Lender, the Operating Agent, FSA and the Collateral Agent in writing of the occurrence of any of the following: (A) the submission of any claim or the initiation of any legal process, litigation or administrative or judicial investigation against the Servicer involving potential damages or penalties in an uninsured amount 90 in excess of $100,000 in any one instance or $500,000 in the aggregate; (B) any change in the location of the Servicer's principal office or any change in the location of the Servicer's books and records; (C) the commencement of or threat of any rule making or disciplinary proceedings or any proceedings instituted by or against the Servicer in any federal, state or local court or before any governmental body or agency, or before any arbitration board, or the promulgation of any proceeding or any proposed or final rule which, if adversely determined, would have or cause a Material Adverse Effect on or with respect to the Servicer; (D) the commencement of any proceedings by or against the Servicer under any applicable bankruptcy, reorganization, liquidation, rehabilitation, insolvency or other similar law now or hereafter in effect or of any proceeding in which a receiver, liquidator, conservator, trustee or similar official shall have been, or may be, appointed or requested for the Servicer or any of its assets; or (E) the receipt of notice that (A) the Servicer is being placed under regulatory supervision, (B) any license, permit, charter, registration or approval necessary for the conduct of the Servicer's business is to be, or may be, suspended or revoked, or (C) the Servicer is to cease and desist any practice, procedure or policy employed by the Servicer in the conduct of its business, and such cessation may have or cause in a Material Adverse Effect on or with respect to the Servicer; (xiv) at its own expense, promptly taking, or causing to be taken, such actions as may be necessary or desirable, in the sole judgment of the Lender, the Operating Agent, FSA or the Collateral Agent, (i) to create and maintain this Agreement as a valid and perfected first priority security interest covering the Collateral and (ii) to fully preserve and protect the perfected first priority security interest of the Secured Parties in, and all rights of the Secured Parties with respect to, the Collateral, including, without limitation, the execution and filing of all necessary financing statements or other instruments, and any amendments or continuation statements relating thereto, necessary to be kept and filed in such manner and in such places as may be required by law to preserve, protect and perfect fully the first priority security interest of the 91 Secured Parties with respect to the Collateral; without limitation of the foregoing, the Servicer shall, upon the request of the Lender, the Operating Agent, FSA or the Collateral Agent, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, within five (5) days of such request, such amendments hereto and such further instruments and take such further action as may be necessary or advisable to effectuate the intention, performance and provisions of the Servicer Documents or to protect the interest of the Secured Parties in the Collateral, free and clear of all Adverse Claims and Restrictions on Transferability; additionally, the Servicer agrees to cooperate with S&P and Moody's in connection with any review of the transactions contemplated by this Agreement or the Related Documents which may be undertaken by S&P or Moody's after the date hereof; (xv) (A) maintaining corporate records and books of account separate from those of the Borrowers; (B) disclosing in its financial statements the effects of the Servicer's transactions in accordance with GAAP and disclosing that the assets of the Servicer are not available to pay creditors of either of the Borrowers; (C) continuously maintaining as official records the resolutions, agreements and other instruments underlying the transactions contemplated by this Agreement and the Related Documents; (D) using its best efforts to maintain an arm's-length relationship with the Borrowers and not holding itself out as being liable for the debts of either of the Borrowers; and (E) using its best efforts to keep its assets and its liabilities wholly separate from those of the Borrowers; (xvi) agreeing that FSA shall have all rights of a third-party beneficiary in respect of the Receivables Transfer Agreements and the Assignments and, accordingly, hereby incorporating and restating its representations, warranties and covenants as set forth therein for the benefit of FSA; (xvii) giving the Lender, the Operating Agent, FSA and the Collateral Agent prompt notice of each of the following events (but in no event more than 30 days after the earlier of the occurrence of the event or the existence of an expectation of the occurrence of the event): (i) an 92 Accumulated Funding Deficiency, (ii) the failure to make a required contribution to a Plan or Multiemployer Plan, (iii) a Reportable Event, (iv) any action by a Commonly Controlled Entity to terminate any Plan or withdraw from any Multiemployer Plan, (v) any action by the PBGC to terminate or appoint a trustee to administer a Plan, and (vi) the reorganization or insolvency of any Multiemployer Plan; additionally, the Servicer shall promptly (but in no case more than 30 days following issuance or receipt by the Commonly Controlled Entity) provide to the Lender, the Operating Agent, FSA and the Collateral Agent a copy of all correspondence between a Commonly Controlled Entity and the PBGC, Internal Revenue Service, Department of Labor or the administrators of a Multiemployer Plan relating to any of the events described in the preceding sentence or the underfunded status, termination or possible termination of a Plan or a Multiemployer Plan which could result in material liability; and (xviii) complying in all respects with the Credit and Collection Policies with regard to each Transferred Receivable and the related Contracts, and with the terms of such Receivables and Contracts. (c) The Lender, the Operating Agent, FSA and the Collateral Agent shall not have any obligation or liability with respect to any Transferred Receivables or related Contracts, nor shall any of them be obligated to perform any of the obligations of the Servicer hereunder. SECTION 7.03. Authorization of the Servicer. Subject to Section 7.10 ----------------------------- hereof and to the further direction of FSA, each of the Borrowers, FSA and the Lender hereby authorizes the Servicer (including any successor thereto) to take any and all reasonable steps in its name and on its behalf necessary or desirable and not inconsistent with the pledge of the Transferred Receivables to the Collateral Agent, in the determination of the Servicer, to collect all amounts due under any and all Transferred Receivables, including, without limitation, endorsing any of their names on checks and other instruments representing Collections, executing and delivering any and all instruments of satisfaction or cancellation, or of partial or full release or discharge, and all other comparable instruments, with respect to the Transferred Receivables and, after the delinquency of any Transferred Receivable and to the extent permitted under and in compliance with applicable law and regulations, to commence proceedings with respect to enforcing payment of such Transferred Receivables and the related Contracts, and adjusting, settling or compromising the account or payment thereof, to the same extent as the Parent or Tyco Manufacturing could have done if it had continued to own such Receivable. The Parent, Tyco Manufacturing, the Borrowers and the Lender shall furnish the 93 Servicer (and any successors thereto) with any powers of attorney and other documents necessary or appropriate to enable the Servicer to carry out its servicing and administrative duties hereunder, and shall cooperate with the Servicer to the fullest extent in order to ensure the collectibility of the Transferred Receivables. Notwithstanding anything to the contrary contained herein, each of the Lender, the Collateral Agent, FSA and the Operating Agent shall, subject to the prior written consent of FSA, have the right to direct the Servicer (whether the Servicer is the Parent or otherwise) to commence or settle any legal action to enforce collection of any Transferred Receivable or to foreclose upon, repossess or take any other action which the Collateral Agent, FSA or the Operating Agent, subject to the prior written consent of FSA, deems necessary or advisable with respect thereto; provided, that the Servicer may, rather than commencing such action or taking other enforcement action, at its option elect to pay the applicable Borrower the Outstanding Balance of such Transferred Receivable. In no event shall the Servicer be entitled to make the Lender, the Collateral Agent, FSA or the Operating Agent a party to any litigation without such party's express prior written consent, or to make either Borrower a party to any litigation without the Operating Agent's and FSA's prior written consent. SECTION 7.04. Servicing Fees. As compensation for its servicing -------------- activities and as reimbursement for its expenses in connection therewith, the Servicer shall be entitled to receive the Servicing Fees in the manner set forth in Sections 6.04 and 6.05, payable monthly in arrears on each Settlement Date with respect to the preceding Settlement Period. The Servicer shall be required to pay for all expenses incurred by the Servicer in connection with its activities hereunder (including any payments to accountants, counsel or any other Person) and shall not be entitled to any payment therefor other than the Servicing Fees. SECTION 7.05. Negative Covenants of the Servicer. The Servicer shall ---------------------------------- not, without the prior written consent of the Operating Agent, FSA and the Collateral Agent: (a) sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist or consent to cause or permit in the future (upon the happening of a contingency or otherwise) the creation, incurrence or existence of, any Adverse Claim or Restriction on Transferability upon or with respect to (and any such purported disposition shall be null and void), any Transferred Receivable or related Contract with respect thereto, or upon or with respect to the Lockbox Accounts, the Lockboxes, the Collection Account, the Retention Account or any other account to which any Collections of any Receivable are deposited or any other Collateral, or assign any right to receive income in respect thereof; 94 (b) extend, amend or otherwise modify the terms of any Transferred Receivable (other than adjusting, settling or compromising the account or payment of a Transferred Receivable pursuant to Section 7.03), or amend, modify or waive any term or condition of any Contract related thereto; (c) make any material change in the character of its business; (d) make any change in its instructions to Obligors to make payments to the Lockbox Accounts or Lockboxes (other than to a new Lockbox Account pursuant to Section 6.01(a)(iii)); (e) merge or consolidate with or into any entity in which the Servicer is not the surviving entity, or convey, transfer, lease or otherwise dispose of all or substantially all of its assets (whether now owned or hereafter acquired) to, any Person (whether in one transaction or in a series of transactions); (f) (i) take any action, or fail to take any action, if such action or failure to take action may interfere with the enforcement of any rights under this Agreement or the Related Documents that are material to the rights, benefits or obligations of the Secured Parties; (ii) waive or alter any rights with respect to the Collateral (or any agreement or instrument relating thereto); (iii) take any action, or fail to take any action, if such action or failure to take action may interfere with the enforcement of any rights with respect to the Collateral; or (iv) fail to pay any tax, assessment, charge or fee with respect to the Collateral, or fail to defend any action, if such failure to pay or defend may adversely affect the priority or enforceability of the Secured Parties' first priority lien on or perfected security interest in the Collateral or the Parent's or Tyco Manufacturing's right, title or interest in the Transferred Receivables; (g) waive, modify or amend, or consent to any waiver, modification or amendment of, any of the terms, provisions or conditions of this Agreement or the Related Documents; (h) nor shall any Commonly Controlled Entity: (i) terminate any Plan so as to incur any material liability to the PBGC; (ii) knowingly participate in any "prohibited transaction" (as defined in ERISA) involving any Plan or Multiemployer Plan or any trust created thereunder which would subject any of them to a material tax or penalty on prohibited transactions imposed under Section 4975 of the Code or ERISA; 95 (iii) fail to pay to any Plan or Multiemployer Plan any contribution which it is obligated to pay under the terms of such Plan or Multiemployer Plan, if such failure would cause such plan to have any material Accumulated Funding Deficiency, whether or not waived; or (iv) allow or suffer to exist any occurrence of a Reportable Event, or any other event or condition, which presents a material risk of termination by the PBGC of any Plan or Multiemployer Plan, to the extent that the occurrence or nonoccurrence of such Reportable Event or other event or condition is within the control of it or any Commonly Controlled Entity; (i) take or permit to be taken any action which would have the effect directly or indirectly of subjecting interest on any of the Advances or the Commercial Paper to or withholding taxation in the hands of the Lender or the holders of Commercial Paper generally, and will perform all of its obligations under this Agreement and the Related Documents to prevent or cure any default by the Servicer which would have the effect, directly or indirectly, of subjecting interest on any of the Advances or the Commercial Paper to or withholding taxation; or (j) institute against, or join any other person in instituting against, either of the Borrowers any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding, or other proceeding under any bankruptcy or similar law, for one year and a day after the expiration of the Term of the Insurance and Indemnity Agreement. SECTION 7.06. Financial Covenants. Tyco Toys shall not breach or fail to ------------------- comply (or permit the breach or failure to comply) with any of the following financial covenants: (a) Tyco Toys shall maintain (or cause to be maintained) as of the end of each Fiscal Quarter (as defined in the Inventory Facility), ending on each of the dates set forth below, Tangible Net Worth of not less than the respective amount set forth below opposite each such date:
Date Amount ---- ------ March 31, 1995 $ 74,100,000 June 30, 1995 75,300,000 September 30, 1995 91,100,000 December 31, 1995 100,600,000 March 31, 1996 92,900,000 June 30, 1996 93,900,000 September 30, 1996 109,600,000 December 31, 1996 118,700,000
96 March 31, 1997 110,500,000 June 30, 1997 111,500,000 September 30, 1997 127,400,000 December 31, 1997 136,700,000 March 31, 1998 128,700,000 June 30, 1998 129,600,000 September 30, 1998 145,800,000 December 31, 1998 155,200,000 March 31, 1999 147,300,000 June 30, 1999 148,300,000 September 30, 1999 164,800,000 December 31, 1999 174,300,000 and the last day of each Fiscal Quarter thereafter
(b) Tyco Parent shall not permit for the three Fiscal Month period ending March 31, 1995 or for the six Fiscal Month period (as defined in the Inventory Facility) ending June 30, 1995 (x) EBITA for such three or six, as appropriate, Fiscal Month period less (y) the aggregate amount of all Capital ---- Expenditures (as defined in the Inventory Facility) made by Tyco Toys and its Subsidiaries during such three or six, as appropriate, Fiscal Month period, to be less than ($17,300,000) and ($15,800,000), respectively. (c) Tyco Toys shall maintain (or cause to be maintained), as of the end of each Fiscal Quarter (commencing with the Fiscal Quarter ending September 30, 1995), for each Parent Rolling Period (as defined in the Inventory Facility, provided that the principal repayments pursuant to the Inventory Facility shall not be deemed Debt Service for the purpose of the calculations in this clause (c)), a Minimum Debt Service Coverage Ratio (as defined in the Inventory Facility) of not less than (x) .60 to 1.0 as of the end of the Fiscal Quarter ending September 30, 1995, (y) 1.25 to 1.0 as of the end of each of the Fiscal Quarters ending December 31, 1995, March 31, 1996, June 30, 1996 and September 30, 1996 and (z) 1.30 to 1.0 as of the end of each Fiscal Quarter thereafter. SECTION 7.07. Reporting. During the term of this Agreement, the Servicer --------- shall furnish to the Collateral Agent, the Operating Agent, FSA and the Lender: (a) if the Servicer is not the Parent, as soon as available and in any event within 90 days after the end of each fiscal year of the Servicer a copy of the consolidated financial statement of the Servicer and its consolidated Subsidiaries as of the end of such year and the related consolidated statements of income and retained earnings, and of cash flow, of the Servicer and its consolidated Subsidiaries for such year, in each case 97 reported on by a firm of nationally recognized independent public accountants; (b) on or before the 45th day after each quarter other than the last quarter of any year, an Officer's Certificate stating, as to each signer thereof, that (i) a review of the activities of the Servicer during the preceding calendar quarter and of its performance under this Agreement has been made under such officer's supervision, (ii) to the best of such officer's knowledge, based on such review, the Servicer has fulfilled in all material respects all its obligations under this Agreement throughout such quarter, or, if there has been a material default in the fulfillment of any such obligation, specifying each such default known to such officer and the nature and status thereof, (iii) the Servicer has complied with the duties and responsibilities set forth in Section 7.02 and the covenants set forth in Sections 7.05, 7.06 and 8.06 and (iv) the representations and warranties of the Servicer in Section 4.03 are true and correct as if made on the date of such Officers' Certificate; (c) promptly after the sending or filing thereof, copies of all reports which Tyco Toys sends to any of its security holders, and the annual report of Tyco Toys; (d) upon request, books and records of account in reasonable detail of the Servicer's assets and business, including, but not limited to, books and records relating to the transactions contemplated by this Agreement and the Related Documents, and including the provision of all such information in machine-readable format; and (e) promptly upon request, such other periodic, special or other reports or information as the Lender, the Operating Agent, FSA or the Collateral Agent may reasonably require. SECTION 7.08. Annual Statement as to Compliance. The Servicer shall --------------------------------- deliver to the Collateral Agent, the Operating Agent, FSA and the Lender on or before June 30, 1995 and March 31 of each subsequent year an Officer's Certificate stating, as to each signer thereof, that (a) a review of the activities of the Servicer during the preceding calendar year and of its performance under this Agreement has been made under such officer's supervision, (b) to the best of such officer's knowledge, based on such review, the Servicer has fulfilled in all material respects all its obligations under this Agreement throughout such year or, if there has been a material default in the fulfillment of any such obligation, specifying each such default known to such officer and the nature and status thereof, (c) the Servicer has complied with the duties and responsibilities set forth in Section 7.02 and the covenants set 98 forth in Sections 7.05, 7.06 and 8.06, and (d) the representations and warranties of the Servicer in Section 4.03 are true and correct in all material respects (except with respect to Section 4.03(j) and those already so qualified which are true and in all respects) as if made on the date of such Officers' Certificate and (e) if the Servicer is not the Parent, the attached financial reports submitted in accordance with Section 7.07(a) hereof, as applicable, are complete and correct in all material respects and present fairly the financial condition and results of operations of the Servicer as of the dates and for the periods indicated, in accordance with generally accepted accounting principles consistently applied (subject as to interim statements to normal year-end adjustments) and the attached computations indicate compliance by the Servicer with the financial covenants of the Servicer contained in Section 7.06 of this Agreement and in the Related Documents. SECTION 7.09. Annual Independent Public Accountants' Servicing and ---------------------------------------------------- Compliance Report. On or before June 30, 1995 and March 31 of each subsequent - ----------------- year commencing on March 31, 1996, the Servicer at its expense shall cause a firm of nationally recognized independent public accountants to furnish a statement to the Collateral Agent, FSA and the Operating Agent to the effect that (a) such firm has examined such Servicing Records relating to the Transferred Receivables as such firm deems necessary as a basis for the report contemplated by this Section 7.09 and that, on the basis of such examination, such servicing has been conducted substantially in compliance with this Agreement (including the Credit and Collection Policies), except for (i) such exceptions as such firm shall believe to be immaterial, and (ii) such other exceptions as shall be set forth in such statement, (b) such firm has examined the financial statements set forth in Section 5.02 for the preceding year (other than with respect to the June 30, 1995 audit) of the Servicer and the Servicer's financial covenants in this Agreement and that, on the basis of such examination, the Servicer has complied during such year with such covenants, and (c) that the Lender, the Operating Agent, FSA and the Collateral Agent may rely on such report. SECTION 7.10. Retention and Termination of Servicer. Subject to early ------------------------------------- termination due to an Event of Servicer Termination described in Section 9.02 or as otherwise provided below in this Section 7.10, the Servicer shall serve as Servicer for an initial term commencing on the Effective Date and expiring on June 30, 1995, which term, unless terminated, shall be extendible by FSA for successive terms thereafter of one calendar year quarter each (in each case on the next succeeding day that is March 31, June 30, September 30 or December 31 of such year) as specified in a writing delivered by FSA from time to time prior to the expiration of each current term as described below to the Servicer and the Operating Agent (or, at the discretion of 99 FSA, exercised pursuant to revocable written standing instructions from time to time to the Servicer and the Operating Agent, for any specified number of terms greater than one), until the termination of this Agreement. Each such notice (including each notice pursuant to standing instructions, which shall be deemed delivered at successive calendar quarter intervals for so long as such instructions are in effect) (a "Servicer Extension Notice") shall be delivered by FSA to the Operating Agent and the Servicer. The Servicer hereby agrees that, upon its receipt of any such Servicer Extension Notice, the Servicer shall become bound, for the duration of the term covered by such notice, to continue as Servicer subject to and in accordance with the other provisions of this Agreement. The Operating Agent agrees that if as of the fifteenth (15th) day prior to the last day of any term of the Servicer, the Operating Agent shall not have received any Servicer Extension Notice from FSA, the Operating Agent will, within five (5) days thereafter, give written notice of such non-receipt to FSA and the Servicer. With the prior written consent of the Lender, the Operating Agent, FSA and the Collateral Agent, the Borrowers may terminate the appointment of the Servicer at any time. ARTICLE VIII GRANT OF SECURITY INTERESTS SECTION 8.01. Borrowers' Grant of Security Interest. As security for the ------------------------------------- prompt payment or performance in full when due, whether at stated maturity, by acceleration or otherwise, of all Borrower Secured Obligations, each Borrower hereby assigns and pledges to the Collateral Agent, on behalf of the Secured Parties, and grants to the Collateral Agent, on behalf of the Secured Parties, a security interest in and lien upon, all of the Borrower's right, title and interest in and to the following, in each case whether now or hereafter existing or in which such Borrower now has or hereafter acquires an interest and wherever the same may be located (collectively, the "Borrower Collateral"): (a) all Transferred Receivables, Contracts and Collections; (b) the Receivables Transfer Agreements, the Lockbox Agreements, the Company Notes, and all other Related Documents now or hereafter in effect relating to the purchase, servicing or processing of Transferred Receivables (the "Borrower Assigned Agreements"), including (i) all rights of the Borrowers to receive moneys due and to become due under or pursuant to the Borrower Assigned Agreements, (ii) all rights of the Borrowers to receive proceeds of any insurance, indemnity, warranty or guaranty with respect to the Borrower Assigned Agreements, (iii) claims of either 100 Borrower for damages arising out of or for breach of or default under the Borrower Assigned Agreements, and (iv) the right of the Borrowers to amend, waive or terminate the Borrower Assigned Agreements, to perform under the Borrower Assigned Agreements and to compel performance and otherwise exercise all remedies under the Borrower Assigned Agreements; (c) all of the following (the "Borrower Account Collateral"): (i) the Lockbox Accounts, the Lockboxes and all funds held in any Lockbox Account and the Lockboxes and all certificates and instruments, if any, from time to time representing or evidencing any Lockbox Account, the Lockboxes or such funds, (ii) the Collection Account and the Retention Account, all funds held in the Collection Account and the Retention Account, and all certificates and instruments, if any, from time to time representing or evidencing the Collection Account, the Retention Account or such funds, (iii) all Investments from time to time of amounts in the Collection Account, the Lockbox Account and the Retention Account, and all certificates and instruments, if any, from time to time representing or evidencing such Investments, (iv) all notes, certificates of deposit and other instruments from time to time delivered to or otherwise possessed by the Lender or any assignee or agent on behalf of the Lender in substitution for or in addition to any of the then existing Borrower Account Collateral, and (v) all interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any and all of the then existing Borrower Account Collateral; (d) all additional property that may from time to time hereafter be granted and pledged by the Borrower or by anyone on its behalf under this Agreement, including the deposit with the Lender, the Operating Agent or the Collateral Agent of additional moneys by the Borrower; and (e) all Proceeds, accessions, substitutions, rents and profits of any and all of the foregoing Borrower Collateral (including Proceeds that constitute property of 101 the types described in Sections 8.01(a) through (d) above) and, to the extent not otherwise included, all payments under insurance (whether or not the Lender or any assignee or agent on behalf of the Lender is the loss payee thereof) or any indemnity, warranty or guaranty payable by reason of loss or damage to or otherwise with respect to any of the foregoing Borrower Collateral. SECTION 8.02. Lender's Assignment and Grant of Security Interest. The -------------------------------------------------- Lender hereby assigns and pledges to the Collateral Agent for benefit of the Lender and FSA: (i) the Lockbox Accounts, the Lockboxes and all funds held in any Lockbox Account and the Lockboxes and all certificates and instruments, if any, from time to time representing or evidencing any Lockbox Account, the Lockboxes or such funds, (ii) the Collection Account and the Retention Account, all funds held in the Collection Account and the Retention Account, and all certificates and instruments, if any, from time to time representing or evidencing the Collection Account, the Retention Account or such funds, (iii) all Investments from time to time of amounts in the Collection Account, the Lockbox Account and the Retention Account, and all certificates and instruments, if any, from time to time representing or evidencing such Investments, (iv) all notes, certificates of deposit and other instruments from time to time delivered to or otherwise possessed by the Lender or any assignee or agent on behalf of the Lender in substitution for or in addition to any of the then existing Borrower Account Collateral, and (v) all interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any and all of the foregoing. SECTION 8.03. Delivery of Collateral. All certificates or instruments ---------------------- representing or evidencing Collateral shall be delivered to and held by or on behalf of the Collateral Agent pursuant to this Agreement, and shall be in suitable form for transfer by delivery or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Collateral Agent, and to the extent not constituting an assignment shall be irrevocable powers of 102 attorney coupled with an interest. The Collateral Agent, with Controlling Party's prior consent, shall have the right, at any time in its discretion and without notice to the Borrowers or the Lender, to transfer to or to register in the name of the Collateral Agent or any of its nominees any or all of the Collateral. In addition, the Collateral Agent, with the consent of the Controlling Party, shall have the right at any time to exchange certificates or instruments representing or evidencing Collateral for certificates or instruments of smaller or larger denominations. SECTION 8.04. Borrowers Remain Liable. Notwithstanding anything in this ----------------------- Agreement, (a) each of the Borrowers, Tyco Manufacturing and the Parent shall remain liable for their respective obligations under the Transferred Receivables, Contracts, Borrower Assigned Agreements and other agreements included in the Collateral to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by the Lender, FSA or the Collateral Agent of any of its rights under this Agreement shall not release the Borrowers or the Servicer from any of their respective duties or obligations under the Transferred Receivables, Contracts, Borrower Assigned Agreements or other agreements included in the Collateral, (c) the Lender, the Collateral Agent, FSA and the other Lender Secured Parties shall not have any obligation or liability under the Transferred Receivables, Contracts, Borrower Assigned Agreements or other agreements included in the Collateral by reason of this Agreement, and (d) neither the Collateral Agent nor any of the other Secured Parties shall be obligated to perform any of the obligations or duties of the Borrowers or the Servicer under the Transferred Receivables, Contracts, Borrower Assigned Agreements or other agreements included in the Collateral or to take any action to collect or enforce any claim for payment assigned under this Agreement. SECTION 8.05. Covenants of the Borrowers and Servicer Regarding the ----------------------------------------------------- Collateral. - ---------- (a) Offices and Records. Each Borrower shall keep its chief place of ------------------- business and chief executive offices and the office where it keeps its Records at the respective locations specified in Section 4.01(m) or, upon 30 days prior written notice to the Collateral Agent and FSA, at such other location in a jurisdiction where all action required by Section 8.06(f) shall have been taken with respect to the Collateral. The Borrowers and the Servicer shall, for not less than three years or for such longer period as may be required by law, from the date on which any Transferred Receivable arose, maintain the Records with respect to each Transferred Receivable, including records of all payments received, credits granted and merchandise returned. The Borrowers and the Servicer will permit representatives of the 103 Operating Agent, FSA and the Collateral Agent (upon reasonable notice unless a Termination Event or an Event of Servicer Termination has occurred) at any time and from time to time during normal business hours, and at such times outside of normal business hours as the Operating Agent, FSA or the Collateral Agent shall reasonably request, (i) to inspect and make copies of and abstracts from such records, and (ii) to visit the properties of the Borrowers or the Servicer utilized in connection with the collection, processing or servicing of the Transferred Receivables for the purpose of examining such Records, and to discuss matters relating to the Receivables or the Borrowers' or Servicer's performance under this Agreement with any officer or employee of the Borrowers or Servicer having knowledge of such matters. In connection therewith, the Operating Agent, FSA or the Collateral Agent may institute procedures to permit it to confirm the Obligor balances in respect of any Transferred Receivables. Each of the Borrowers and the Servicer agrees to render to the Operating Agent, FSA and the Collateral Agent such clerical and other assistance as may be reasonably requested with regard to the foregoing. If a Termination Event shall have occurred and be continuing, promptly upon request therefor, the Borrowers or the Servicer shall deliver to the Collateral Agent and FSA records reflecting activity through the close of business on the immediately preceding Business Day. (b) Collection of Transferred Receivables. Except as otherwise ------------------------------------- provided in this Section 8.06(b), each Borrower shall continue to collect or cause to be collected, at its own expense, all amounts due or to become due to the Borrower under the Transferred Receivables, the Borrower Assigned Agreements and any other Borrower Collateral. In connection with such collections, each Borrower may take (and at FSA's and the Collateral Agent's direction after a Termination Event has occurred and is continuing, shall take) such action as the Borrower, FSA or the Collateral Agent may deem necessary or advisable to enforce collection of the Transferred Receivables and the Borrower Assigned Agreements; provided, however, that the Collateral Agent may, at any time that a Termination Event has occurred and is continuing, notify any Obligor with respect to any Transferred Receivables or obligors under the Borrower Assigned Agreements of the assignment of such Transferred Receivables or Borrower Assigned Agreements, as the case may be, to the Collateral Agent and FSA and, with the prior written consent and subject to the direction of FSA, direct that payments of all amounts due or to become due to the Borrowers thereunder be made directly to the Collateral Agent or any servicer, collection agent or lockbox or other account designated by the Collateral Agent or FSA and, upon such notification and at the expense of the Borrowers, the Collateral Agent, with the consent and subject to the direction of FSA, may enforce collection of any such Transferred Receivables or the Borrower Assigned Agreements and adjust, settle or compromise the amount or payment thereof. 104 (c) Maintain Records of Transferred Receivables. The Borrowers and ------------------------------------------- the Servicer shall, at their own cost and expense, maintain satisfactory and complete records of the Collateral, including a record of all payments received and all credits granted with respect to the Collateral and all other dealings with the Collateral. Each of the Borrowers and the Servicer will mark conspicuously with a legend, in form and substance satisfactory to the Collateral Agent and FSA, its records, computer tapes, computer disks and credit files pertaining to the Collateral and the Related Contracts, and its file cabinets or other storage facilities where it maintains information pertaining to the Collateral, to evidence this Agreement and the assignment and security interest granted by this Article VIII. Upon the occurrence and during the continuation of a Termination Event, the Borrowers and Servicer shall (i) provide the Collateral Agent, FSA or their representatives with access to, at any time on demand of the Collateral Agent or FSA, all of the Borrowers' and Servicer's facilities, personnel, books and records pertaining to the Collateral, including all Records, and (ii) allow the Collateral Agent or FSA to occupy the premises of the Borrowers and those portions of the Servicer's premises where such books, records and Records are maintained, and utilize such premises, the equipment thereon and any personnel of the Borrowers or the Servicer that the Collateral Agent or FSA may wish to employ to administer, service and collect the Transferred Receivables. (d) Performance of Borrower Assigned Agreements. Each Borrower shall ------------------------------------------- (i) perform and observe all the terms and provisions of the Borrower Assigned Agreements to be performed or observed by it, maintain the Borrower Assigned Agreements in full force and effect, enforce the Borrower Assigned Agreements in accordance with their terms and take all such action to such end as may be from time to time requested by the Collateral Agent or FSA, and (ii) upon request of the Operating Agent, FSA or the Collateral Agent, make to any other party to the Borrower Assigned Agreements such demands and requests for information and reports or for action as such Borrower is entitled to make under the Borrower Assigned Agreements. (e) Notice of Adverse Claim. Each of the Borrowers and the Servicer ----------------------- shall advise the Lender, the Operating Agent, FSA and the Collateral Agent promptly, in reasonable detail, (i) of any Adverse Claim known to it made or asserted against any of the Borrower Collateral, and (ii) of the occurrence of any event which would have a material adverse effect on the aggregate value of the Borrower Collateral or on the assignments and security interests granted by the Borrower in this Agreement. (f) Further Assurances; Financing Statements. ---------------------------------------- 105 (i) Each of the Borrowers and the Servicer severally agrees that at any time and from time to time, at its expense, it shall promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable or that the Lender, the Operating Agent, FSA or the Collateral Agent may request to perfect, protect and preserve the assignments and security interests granted or purported to be granted by this Article VIII or to enable the Lender, the Operating Agent, FSA or the Collateral Agent to exercise and enforce its rights and remedies under this Agreement with respect to any Collateral. Without limiting the generality of the foregoing, the Borrowers shall execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices as may be necessary or desirable or that the Lender, the Operating Agent, FSA or the Collateral Agent may request to perfect, protect and preserve the assignments and security interests granted by this Agreement. (ii) The Borrowers and the Lender hereby severally authorize each of the Collateral Agent, with the prior written consent and subject to the direction of FSA, and FSA to file one or more financing or continuation statements, and amendments thereto, relating to all or any part of the Collateral without the signature of the Borrowers or the Lender where permitted by law. A carbon, photographic or other reproduction of this Agreement or any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement where permitted by law. The Collateral Agent or FSA, as the case may be, will promptly send to the Borrowers any financing or continuation statements thereto which it files without the signature of the Borrowers and will promptly send to the Lender any financing or continuation statements thereto which it files without the signature of the Lender except, in the case of filings of copies of this Agreement as financing statements, the Collateral Agent will promptly send the Borrowers or the Lender, as the case may be, the filing or recordation information with respect thereto. (iii) Each of the Borrowers and the Servicer shall furnish to the Collateral Agent and FSA from time to time such statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Collateral Agent or FSA may reasonably request, all in reasonable detail. 106 ARTICLE IX TERMINATION EVENTS SECTION 9.01. Termination Events. If any of the following events (each, ------------------ a "Termination Event") shall occur and be continuing: (a) (i) either Borrower defaults in the payment of any amount owed by it hereunder (including any obligation to make a payment under Section 2.06(a) in the event of a Borrowing Excess) and such default shall remain outstanding for one Business Day, or (ii) either Borrower shall fail to perform or observe any other term, covenant or agreement contained in this Agreement and such failure shall remain unremedied for five Business Days, in each case after written notice thereof shall have been given by the Operating Agent, FSA or the Collateral Agent to the Borrower; or (b) an event of default shall have occurred and be continuing under any instrument or agreement evidencing, securing or providing for the issuance of Debt of Tyco Toys, the Parent, Tyco Manufacturing or the Borrowers (i) in the case that such instrument or agreement has GE Capital or the Lender or any of their Affiliates as a party, with any amount outstanding, including, without limitation, an "Event of Default" under and as defined in or a default pursuant to Section 8.1(a) (or a provision similar to Section 8.1(a), as the case may be) of the Inventory Facility or (ii) in any other case (including for this determination any trade payables), with aggregate amounts outstanding under any such instruments and agreements equal to or greater than $1 million; or (c) Tyco Toys, the Parent, Tyco Manufacturing or either of the Borrowers shall admit in writing its inability to pay its Debts generally, or shall make a general assignment for the benefit of creditors, or any proceeding shall be instituted by or against the Parent, Tyco Manufacturing or the Borrowers seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or any of its Debts under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), such proceeding shall remain undismissed or unstayed for a period of 30 days, or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) 107 shall occur, or Tyco Toys, the Parent, Tyco Manufacturing or the Borrowers shall take any corporate action to authorize any of the actions set forth in this Section 9.01(c); or (d) judgments or orders for the payment of money (other than such judgments or orders in respect of which adequate insurance is maintained for the payment thereof) in excess of $5 million in the aggregate against the Parent or any of its Affiliates shall remain unpaid, unstayed on appeal, undischarged, unbonded or undismissed for a period of 45 days or more; or (e) a judgment or order for the payment of money is rendered against either of the Borrowers; or (f) there is a breach of any of the representations and warranties of either of the Borrowers set forth in Section 4.01 or 4.02 provided that with -------- respect to any breach of the representations and warranties under Section 4.02(c) no breach shall be deemed to occur hereunder if the Parent and/or Tyco Manufacturing shall have satisfied their obligations with respect to the Receivables in respect of which the breach under Section 4.02(c) occurred upon notice pursuant to and in accordance with the Receivables Transfer Agreements; or (g) any Governmental Authority (including the Internal Revenue Service or the Pension Benefit Guaranty Corporation) shall file notice of a lien with regard to any assets of the Parent or its Affiliates (other than a lien (i) limited by its terms to assets other than Receivables or any other Collateral and (ii) not materially adversely affecting the financial condition of the Parent or its Affiliates or the Parent's ability to perform as Servicer hereunder); or (h) any Governmental Authority (including the Internal Revenue Service or the Pension Benefit Guaranty Corporation) shall file notice of a lien with regard to any of the assets of either of the Borrowers; or (i) as of any Settlement Date, the Delinquency Ratio is greater than 7.0%; or (j) as of any Settlement Date, the Default Ratio is greater than 2.0%; or (k) as of any Settlement Date, the Dilution Ratio is greater than 3.0% during the months of April through December or 15% during the months of January through March; or (l) as of any Settlement Date, the Receivable Collection Turnover exceeds 150 days; or 108 (m) any event which materially adversely affects the collectibility of the Receivables has occurred, or that any other event which materially adversely affects the financial condition of the Parent, Tyco Manufacturing or either of the Borrowers or the ability of either of the Borrowers to perform hereunder has occurred; or (n) there shall occur a failure of the Parent or Tyco Manufacturing to contribute capital or make a payment in the Rejected Amount or make any other payment as required under the Receivables Transfer Agreements within three Business Days after notice pursuant to and in accordance with such Agreements, or either of the Receivables Transfer Agreements shall for any reason cease to evidence the transfer to the applicable Borrower (or its assignees or transferees) of the legal and equitable title to, and ownership of, the Transferred Receivables; or (o) any of the Lockbox Agreements or either of the Receivables Transfer Agreements shall have been amended or terminated without the prior written consent of the Lender, the Operating Agent, FSA and the Collateral Agent except in conformance with the requirements of Section 6.01(a)(iii); or (p) an Event of Servicer Termination shall have occurred; or (q) the Operating Agent shall have determined that the funding of Receivables hereunder is impracticable due to a drop in or withdrawal of any of the ratings assigned to the Lender's Commercial Paper, the imposition of Additional Amounts, restrictions on the amount of Transferred Receivables it may finance or the inability of the Lender to issue Commercial Paper; or (r) the Lender, FSA and the Collateral Agent cease to hold a first priority, perfected security interest in the Transferred Receivables or any of them; or (s) the short-term unsecured debt rating assigned by either Rating Agency to any Liquidity Provider or Letter of Credit Provider falls below A-1 or P-1 or its equivalent, and such Liquidity Provider or Letter of Credit Provider is not replaced according to the terms of the Liquidity Loan Agreement or Letter of Credit Agreement, as the case may be, within 30 days; or (t) the rating assigned by either Rating Agency to the claims paying ability of FSA falls below AA or Aa2 or its equivalent; or (u) an Event of Default (as defined in the Collateral Agent Agreement) has occurred; or 109 (v) an Event of Default under and as defined in the Insurance and Indemnity Agreement has occurred; or (w) the obligations of the Liquidity Lenders to make Liquidity Loans, the proceeds of which may be used by the Lender to make Advances to the Borrower, have terminated; or (x) a breach of the covenants in Section 7.06 shall have occurred; or (y) the shadow rating assigned by either Rating Agency to the credit risk exposure of FSA falls below investment grade (or its equivalent); then and in any such event, the Operating Agent shall, at the request, or may with the consent, of the Lender (with the prior written approval of FSA) or FSA, or FSA shall, by notice to the Borrowers declare the Commitment Termination Date to have occurred, whereupon the Commitment Termination Date shall forthwith occur, without demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrowers; provided, that in the event that any -------- of the Termination Events described in Section 9.01(c), (i), (j) or (k) shall have occurred, the Commitment Termination Date shall automatically occur, without demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrowers. SECTION 9.02. Events of Servicer Termination. If any of the following ------------------------------ events (each, an "Event of Servicer Termination") shall occur and be continuing: (a) the Servicer shall fail to perform or observe any term, covenant or agreement contained in this Agreement and such failure shall remain unremedied for five Business Days after written notice thereof shall have been given by the Lender, the Collateral Agent, FSA or the Operating Agent to the Servicer; or (b) an event of default shall have occurred and be continuing under any instrument or agreement evidencing, securing or providing for the issuance of Debt of the Servicer; or (c) the Servicer shall admit in writing its inability to pay its Debts generally, or shall make a general assignment for the benefit of creditors, or any proceeding shall be instituted by or against the Servicer seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or any of its Debts under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property, and, in the case of any 110 such proceeding instituted against it (but not instituted by it), such proceeding shall remain undismissed or unstayed for a period of 30 days, or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) shall occur, or the Servicer shall take any corporate action to authorize any of the actions set forth in this Section 9.02(c); or (d) judgments or orders for the payment of money (other than such judgments or orders in respect of which adequate insurance is maintained for the payment thereof) in excess of $5 million in the aggregate against the Servicer or any of its Affiliates shall remain unpaid, unstayed on appeal, undischarged, unbonded or undismissed for a period of 45 days or more; or (e) there is a breach of any of the representations and warranties of the Servicer set forth in Section 4.03 provided that with respect to any breach -------- of the representations and warranties under Section 4.03(j) no breach shall be deemed to occur hereunder if the Parent and/or Tyco Manufacturing shall have satisfied their obligations with respect to the Receivables in respect of which the breach under Section 4.03(j) occurred upon notice pursuant to and in accordance with the Receivables Transfer Agreements; or (f) the Operating Agent, FSA or the Collateral Agent shall have determined that any event which materially adversely affects the ability of the Servicer to collect Receivables or to otherwise perform hereunder has occurred; or (g) a Termination Event shall have occurred or this agreement shall have been terminated; or (h) the Servicer shall assign or purport to assign any of its obligations hereunder or under the Receivables Transfer Agreements without the prior written consent of the Operating Agent, FSA and the Collateral Agent; or (i) a Change in Control has occurred; then, and in any such event, the Operating Agent shall (on behalf of the Borrowers), at the request, or may with the consent, of the Lender, FSA or the Collateral Agent, in each case subject to the prior written approval by FSA, or FSA shall, by delivery of a Servicer Termination Notice to the Borrower and the Servicer, terminate the servicing responsibilities of the Servicer hereunder, without demand, protest or further notice of any kind, all of which are hereby waived by the Servicer. Upon any such declaration, all authority and power of the Servicer under this Agreement and the Receivables Transfer Agreements shall pass to 111 and be vested in the Successor Servicer appointed pursuant to Section 11.02; provided, that notwithstanding anything to the contrary herein, each Borrower - -------- agrees that it will continue to follow the procedures set forth in Section 7.02(b)(ii) with respect to Collections on Transferred Receivables. ARTICLE X REMEDIES SECTION 10.01. Actions Upon Termination Event. If any Termination Event ------------------------------ shall have occurred and be continuing and the Operating Agent or the Controlling Party shall have declared the Commitment Termination Date to have occurred or the Commitment Termination Date shall have been deemed to have occurred pursuant to Section 9.01, then the Collateral Agent (with the prior written consent of the Controlling Party) or the Controlling Party may exercise in respect of the Borrower Collateral, in addition to any and all other rights and remedies otherwise available to it, all of the rights and remedies of a secured party upon default under the UCC (such rights and remedies to be cumulative and nonexclusive), and, in addition, may take the following remedial actions: (a) The Collateral Agent, subject to the prior written approval and at the direction of the Controlling Party, may, without notice to the Borrowers except as required by law and at any time or from time to time, charge, set-off and otherwise apply all or any part of the Borrower Secured Obligations against amounts payable to the Borrowers from the Collection Account, the Lockbox Accounts, the Retention Account or any part of such accounts in accordance with the priorities required by Section 10.03. (b) The Collateral Agent may, with the prior written consent of the Controlling Party, and shall upon the request of the Controlling Party, without notice except as specified below, solicit and accept bids for and sell the Borrower Collateral or any part of the Borrower Collateral in one or more parcels at public or private sale, at any exchange, broker's board or at any of the Lender's, Operating Agent's or Collateral Agent's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as are commercially reasonable. Each Borrower agrees that, to the extent notice of sale shall be required by law, at least ten Business Days' notice to the Borrower of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Collateral Agent shall not be obligated to make any sale of Borrower Collateral regardless of notice of sale having been given. The Collateral Agent, with the prior written consent of the Controlling Party may adjourn any public or private sale from time to time by announcement at the 112 time and place fixed for such sale, and such sale may, without further notice, be made at the time and place to which it was so adjourned. Every such sale shall operate to divest all right, title, interest, claim and demand whatsoever of the Borrowers in and to the Borrower Collateral so sold, and shall be a perpetual bar, both at law and in equity, against the Borrowers, the Parent or its Affiliates, any Person claiming the Borrower Collateral sold through the Borrower, the Parent or its Affiliates and their respective successors or assigns. (c) Upon the completion of any sale under Section 10.01(b), the Borrowers or the Servicer will deliver or cause to be delivered all of the Borrower Collateral sold to the purchaser or purchasers at such sale on the date of sale, or within a reasonable time thereafter if it shall be impractical to make immediate delivery, but in any event full title and right of possession to such property shall pass to such purchaser or purchasers forthwith upon the completion of such sale. Nevertheless, if so requested by the Collateral Agent or the Controlling Party or by any purchaser, the Borrowers shall confirm any such sale or transfer by executing and delivering to such purchaser all proper instruments of conveyance and transfer and releases as may be designated in any such request. (d) At any public sale under Section 10.01(b), the Lender, any holder of a Note (the identity of which, if other than the Collateral Agent, shall if known to Borrower be disclosed by the Borrowers to each Rating Agency), the Collateral Agent or any Secured Party may, with the prior written consent of the Controlling Party, bid for and purchase the property offered for sale and, upon compliance with the terms of sale, may hold, retain and dispose of such property without further accountability therefor. Any purchaser at any sale under Section 10.01(b) shall be entitled, for the purpose of making payment for the property purchased, to use such Note in order that there may be credited thereon the sums payable out of the net proceeds of such sale to any such holder, and thereupon such purchaser shall be credited on account of such purchase price with the portion of such net proceeds that shall be applicable to the payment of, and shall have been credited upon, the Note so used. (e) Each of the Collateral Agent (with the prior written consent of the Controlling Party) and the Controlling Party may exercise at the Borrowers' expense any and all rights and remedies of the Borrowers under or in connection with the Borrower Assigned Agreements or the other Borrower Collateral, including any and all rights of the Borrower to demand or otherwise require payment of any amount under, or performance of any provisions of, the Borrower Assigned Agreements. SECTION 10.02. Receipt of Payments in Trust. All payments received by ---------------------------- the Borrowers, Tyco Toys, the Parent, Tyco 113 Manufacturing, the Servicer, the Lender or the Operating Agent under or in connection with the Borrower Collateral shall be received in trust for the benefit of the Collateral Agent and FSA, shall be segregated from other funds of such party and shall be forthwith paid over to the applicable Lockbox Account in the same form as so received (with any necessary endorsement). SECTION 10.03. Application of Proceeds. Any cash, certificates, ----------------------- instruments, securities and other assets or property held by or on behalf of the Collateral Agent and FSA as Borrower Collateral, whether from Transferred Receivables or otherwise, and all cash proceeds, certificates instruments, securities and other assets or property received by the Collateral Agent in respect of any sale of, collection from or other realization upon all or any part of the Borrower Collateral, after the Commitment Termination Date shall be applied as set forth in Section 6.05. Any surplus of such cash or cash proceeds, certificates, instruments, securities and other assets or property held by or on behalf of the Collateral Agent after the Commitment Termination Date and after such application shall be disposed of in accordance with Section 6.08. SECTION 10.04. Exercise of Remedies. No failure or delay on the part of -------------------- the Collateral Agent or FSA to exercise any right, power or privilege under this Agreement and no course of dealing between the Borrowers, the Servicer, the Lender or the Operating Agent, on the one hand, and the Collateral Agent or FSA, on the other hand, shall operate as a waiver of such right, power or privilege, nor shall any single or partial exercise of any right, power or privilege under this Agreement preclude any other or further exercise of such right, power or privilege or the exercise of any other right, power or privilege. The rights and remedies expressly provided in this Agreement are cumulative and not exclusive of any rights or remedies which the Collateral Agent or the Secured Parties would otherwise have pursuant to law or equity. No notice to or demand on any party in any case shall entitle such party to any other or further notice or demand in similar or other circumstances, or constitute a waiver of the right of the other party to any other or further action in any circumstances without notice or demand. SECTION 10.05. Severability of Remedies. The invalidity of any remedy in ------------------------ any jurisdiction shall not invalidate such remedy in any other jurisdiction. The invalidity or unenforceability of the remedies herein provided in any jurisdiction shall not in any way affect the right of the enforcement in such jurisdiction or elsewhere of any of the other remedies herein provided. SECTION 10.06. Waiver of Appraisement. Each of the Borrowers and the ---------------------- Servicer agrees, to the full extent that it may lawfully so agree, that neither it nor anyone claiming through or under it will set up, claim or seek to take advantage of any 114 appraisement, valuation, stay, extension or redemption law now or hereafter in force in any locality where Borrower Collateral may be situated in order to prevent, hinder or delay the enforcement or foreclosure of this Agreement, or the absolute sale of any of the Borrower Collateral or any part thereof, or the final and absolute putting into possession thereof, immediately after such sale, of the purchasers thereof, and each of the Borrowers and the Servicer, for itself and all who may at any time claim through or under it, hereby waives, to the full extent that it may be lawful so to do, the benefit of all such laws, and any and all right to have any of the properties or assets comprising the Borrower Collateral marshalled upon any such sale, and agrees that the Collateral Agent, FSA or any court having jurisdiction to foreclose the security interests granted in this Agreement may sell the Borrower Collateral as an entirety or in such parcels as the Collateral Agent, FSA or such court may determine. SECTION 10.07. Power of Attorney. Each of the Borrowers and the Servicer ----------------- hereby irrevocably appoints each of the Collateral Agent and FSA its true and lawful attorney (with full power of substitution) in its name, place and stead and at its expense, in connection with the enforcement of the rights and remedies provided for in this Article X, including with the following powers: (a) to give any necessary receipts or acquittance for amounts collected or received hereunder, (b) to make all necessary transfers of the Borrower Collateral in connection with any sale or other disposition made pursuant hereto, (c) to execute and deliver for value all necessary or appropriate bills of sale, assignments and other instruments in connection with any such sale or other disposition, the Borrowers and the Servicer hereby ratifying and confirming all that such attorney (or any substitute) shall lawfully do hereunder and pursuant to the other provisions of this Agreement, and (d) to sign any agreements, orders or other documents in connection with or pursuant to this Agreement and any Related Document. Nevertheless, if so requested by the Collateral Agent or a purchaser of Borrower Collateral, the Borrowers shall ratify and confirm any such sale or other disposition by executing and delivering to the Collateral Agent, FSA or such purchaser all proper bills of sale, assignments, releases and other instruments as may be designated in any such request. SECTION 10.08. Continuing Security Interest. This Agreement shall create ---------------------------- a continuing security interest in the Collateral until the satisfaction of Section 6.08 of this Agreement. 115 ARTICLE XI SUCCESSOR SERVICER SECTION 11.01. Servicer Not to Resign. The Servicer shall not resign ---------------------- from the obligations and duties hereby imposed on it except upon determination that (a) the performance of its duties hereunder has become impermissible under applicable law, and (b) there is no reasonable action which the Servicer could take to make the performance of its duties hereunder permissible under applicable law. Any such determination permitting the resignation of the Servicer shall be evidenced as to clause (a) above by an opinion of counsel to such effect delivered to the Lender, the Collateral Agent, FSA and the Operating Agent. No such resignation shall become effective until a successor servicer shall have assumed the responsibilities and obligations of the Servicer in accordance with Section 11.02. SECTION 11.02. Appointment of the Successor Servicer. In connection with ------------------------------------- the termination of the Servicer's responsibilities under this Agreement pursuant to Sections 7.10, 9.02 or 11.01, the Operating Agent shall (a) succeed to and assume all of the Servicer's responsibilities, rights, duties and obligations as Servicer (but not in any other capacity, including specifically not its obligations under Section 12.02) under this Agreement (and except that the Operating Agent makes no representations and warranties pursuant to Section 4.03), or (b) prior to or simultaneous with any such termination, appoint a successor servicer to the Servicer which shall be acceptable to the Collateral Agent and FSA and shall succeed to all rights and assume all of the responsibilities, duties and liabilities of the Servicer under this Agreement (the Operating Agent, in such capacity, or such successor servicer being referred to as the "Successor Servicer"); provided, that the Successor Servicer shall have no responsibility for any actions of the Servicer prior to the date of its appointment as Successor Servicer. In selecting a Successor Servicer, the Operating Agent may obtain bids from any potential Successor Servicer and may agree to any bid it deems appropriate. The Successor Servicer shall accept its appointment by executing, acknowledging and delivering to the Operating Agent, FSA and the Collateral Agent an instrument in form and substance acceptable to the Operating Agent, FSA and the Collateral Agent. SECTION 11.03. Duties of the Servicer. At any time following the ---------------------- appointment of a Successor Servicer: (a) The Servicer agrees that it will terminate its activities as Servicer hereunder in a manner acceptable to the Collateral Agent and FSA so as to facilitate the transfer of servicing to the Successor Servicer including, without limitation, timely delivery (i) to the Collateral Agent of any 116 funds that were required to be remitted to the Collateral Agent for deposit in the Lockbox Accounts, and (ii) to the Successor Servicer, at a place selected by the Successor Servicer, of all Servicing Records and other information with respect to the Transferred Receivables. The Servicer shall account for all funds and shall execute and deliver such instruments and do such other things as may reasonably be required to more fully and definitely vest and confirm in the Successor Servicer all rights, powers, duties, responsibilities, obligations and liabilities of the Servicer. (b) The Servicer shall terminate each Sub-Servicing Agreement that may have been entered into and the Successor Servicer shall not be deemed to have assumed any of the Servicer's interest therein or to have replaced the Servicer as a party to any such Sub-Servicing Agreement. SECTION 11.04. Effect of Termination or Resignation. Any termination or ------------------------------------ resignation of the Servicer under this Agreement shall not affect any claims that the Borrowers, the Collateral Agent, the Lender, FSA or the Operating Agent may have against the Servicer for events occurring or actions taken or not taken by the Servicer arising prior to any such termination or resignation. ARTICLE XII INDEMNIFICATION SECTION 12.01. Indemnities by the Borrowers. ---------------------------- (a) Without limiting any other rights that the Collateral Agent, the Lender, the Operating Agent, the Liquidity Agent, any Liquidity Lender, FSA, the Letter of Credit Agent or any Letter of Credit Provider or any director, officer, employee or agent of such party (each an "Indemnified Party") may have hereunder or under applicable law or that FSA may have under the Insurance and Indemnity Agreement, each Borrower hereby agrees to indemnify by payment pursuant to the next sentence each Indemnified Party from and against any and all claims, losses, liabilities, obligations, damages, penalties, actions, judgments, suits, and related costs and expenses of any nature whatsoever, including reasonable attorneys' fees and disbursements (all of the foregoing being collectively referred to as "Indemnified Amounts"), which may be imposed on, incurred by or asserted against an Indemnified Party in any way arising out of or relating to (i) any breach of the Borrowers' obligations under this Agreement, (ii) the financing or the pledge of the Transferred Receivables, or (iii) any Receivable or any Contract, excluding, however, Indemnified Amounts to the extent resulting solely from gross negligence, acts in bad faith or willful misconduct on the part of such Indemnified Party. Without 117 limiting or being limited by the foregoing, the Borrowers shall pay within 5 Business Days after demand to each Indemnified Party any and all amounts necessary to indemnify such Indemnified Party from and against any and all Indemnified Amounts relating to or resulting from: (A) reliance on any representation or warranty made or deemed made by the Borrowers (or any of its officers) under or in connection with this Agreement, any Related Document or any report or other information delivered by the Borrowers pursuant hereto which shall have been incorrect in any material respect when made or deemed made or delivered; (B) the failure by the Borrowers to comply with any term, provision or covenant contained in this Agreement, any Related Document or any agreement executed by it in connection with this Agreement or with any applicable law, rule or regulation with respect to any Transferred Receivable or its related Contract, or the nonconformity of any Transferred Receivable or its related Contract with any such applicable law, rule or regulation; or (C) the failure to vest and maintain vested in the Borrowers legal and equitable title to and ownership of the Receivables which are, or are purported to be, Transferred Receivables, together with all Collections in respect thereof, free and clear of any Adverse Claim or Restrictions on Transferability (except as permitted hereunder) whether existing at the time of the purchase of such Receivable or at any time thereafter, and to maintain or transfer to the Collateral Agent a first priority, perfected security interest therein. (b) Any Indemnified Amounts subject to the indemnification provisions of this Section 12.01 not paid in accordance with Article VI, to the extent that funds are available therefor in accordance with the provisions of Article VI, shall be paid to the Indemnified Party within five Business Days following demand therefor. (c) The Borrowers shall have the right at any time during which any claim is pending to select counsel to defend and settle any such claim so long as in any such event the Borrowers shall have stated in a writing delivered to the applicable Indemnified Party that, as between the Borrowers and such Indemnified Party, the Borrowers are responsible to such Indemnified Party with respect to such claim, subject however to the exclusion at the end of the first sentence of Section 12.01(a); provided, however, that if an Indemnified Party -------- ------- shall have been advised by its counsel that there are legal defenses available to such Indemnified Party that are different from or additional to those available to any of the Borrowers which, in 118 the reasonable opinion of such counsel, are sufficient to make it undesirable for the same counsel to represent both such Indemnified Party and any of the Borrowers, such Indemnified Party shall have the right to employ its own counsel in such action, and in such event, the reasonable fees and disbursements of such counsel shall be paid by the Borrowers. If the Borrowers shall fail to assume the defense of any claim in accordance with the terms of this indemnity, the relevant Indemnified Party shall have the right to select counsel and control the defense of such claim; provided, however, that no Indemnified Party shall -------- ------- settle any such claim without the prior written consent of the Borrowers, which consent shall not be unreasonably withheld or delayed. SECTION 12.02. Indemnities by the Servicer. --------------------------- (a) Without limiting any other rights that an Indemnified Party may have hereunder or under applicable law or that FSA may have under the Insurance and Indemnity Agreement, the Servicer hereby agrees to indemnify each Indemnified Party from and against any and all Indemnified Amounts which may be imposed on, incurred by or asserted against an Indemnified Party in any way arising out of or relating to any breach of the Servicer's obligations under this Agreement, excluding, however, Indemnified Amounts to the extent resulting from gross negligence or willful misconduct on the part of such Indemnified Party. Without limiting or being limited by the foregoing, the Servicer shall pay on demand to each Indemnified Party any and all amounts necessary to indemnify such Indemnified Party from and against any and all Indemnified Amounts relating to or resulting from: (i) reliance on any representation or warranty made or deemed made by the Servicer (or any of its officers) under or in connection with this Agreement, any Related Document or any report or other information delivered by the Servicer pursuant hereto which shall have been incorrect in any material respect when made or deemed made or delivered; or (ii) the failure by the Servicer to comply with any term, provision or covenant contained in this Agreement, any Related Document or any agreement executed by it in connection with this Agreement or with any applicable law, rule or regulation with respect to any Transferred Receivable or its related Contract, or the imposition of any Adverse Claim or Restrictions on Transferability (except as permitted hereunder) with respect to a Transferred Receivable as a result of the Servicer's actions hereunder. (b) Any Indemnified Amounts subject to the indemnification provisions of this Section shall be paid to the 119 Indemnified Party within five Business Days following demand therefor. ARTICLE XIII OPERATING AGENT SECTION 13.01. Authorization and Action. The Operating Agent may take ------------------------ such action and carry out such functions under this Agreement as are delegated to it by the terms hereof, pursuant to the Operating Agent Agreement or otherwise contemplated hereby or thereby or are reasonably incidental thereto; provided, that the duties of the Operating Agent shall be determined solely by - -------- the express provisions of this Agreement, and other than the duties set forth in Section 13.02, any permissive right of the Operating Agent hereunder shall not be construed as a duty. SECTION 13.02. Reliance, etc. None of the Operating Agent, any Affiliate ------------- thereof nor any of their respective directors, officers, agents or employees will be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement, the Program Documents or the Related Documents, except when caused solely by their own gross negligence or willful misconduct. Without limiting the generality of the foregoing, and notwithstanding any term or provision hereof to the contrary, the Borrower, the Servicer and the Lender hereby acknowledge and agree that the Operating Agent, subject to the terms of the Insurance and Indemnity Agreement, (a) acts as agent hereunder for the Lender and has no duties or obligations to, will incur no liabilities or obligations to, and does not act as an agent in any capacity for, the Borrowers, the Parent or any Affiliate thereof, (b) may consult with legal counsel, independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts, (c) makes no warranty or representation hereunder and shall not be responsible for any statements, warranties or representations made in or in connection with this Agreement, the Program Documents or the Related Documents (other than representations, warranties and covenants made in the Insurance and Indemnity Agreement), (d) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement, the Program Documents or Related Documents on the part of the Borrowers, the Servicer or the Lender or to inspect the property (including the books and records) of the Borrowers, the Servicer or the Lender, (e) shall not be responsible to the Borrowers, the Servicer or the Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto (including the 120 Related Documents), (f) shall incur no liability under or in respect of this Agreement, the Program Documents or the Related Documents by acting upon any notice or communication (including a communication by telephone), consent, certificate or other instrument or writing believed by it to be genuine and signed, sent or communicated by the proper party or parties and (g) shall not be bound to make any investigation into the facts or matters stated in any notice or other communication hereunder and may rely on the accuracy of such facts or matters. SECTION 13.03. GE Capital and Affiliates. GE Capital and its Affiliates ------------------------- may generally engage in any kind of business with the Borrowers, the Parent, the Servicer, the Lender or any Obligor, any of their respective Affiliates and any Person who may do business with or own securities of such parties or any of their respective Affiliates, all as if GE Capital were not the Operating Agent, and without the duty to account therefor to the Borrowers, the Parent, the Servicer, the Lender or any other Person. ARTICLE XIV MISCELLANEOUS SECTION 14.01. Notices, Etc. All notices and other communications ------------ provided for hereunder, unless otherwise stated herein, shall be in writing and mailed by registered mail or telecommunicated, or delivered as to each party hereto, at its address set forth on Schedule 6 or at such other address as shall be designated by such party in a written notice to the other parties hereto. All such notices and communications shall not be effective until received by the party to whom such notice or communication is addressed. SECTION 14.02. Binding Effect; Assignability. ----------------------------- (a) This Agreement shall be binding upon and inure to the benefit of the Borrowers, the Servicer, the Lender, FSA, the Operating Agent and their respective permitted successors and assigns. Neither the Borrowers nor the Servicer may assign any of their rights and obligations hereunder or any interest herein without the prior written consent of the Lender, FSA, the Collateral Agent, FSA and the Operating Agent and unless each Rating Agency shall have confirmed in writing to the Lender and the Operating Agent that such assignment would not result in a withdrawal or reduction of the then current rating by such Rating Agency of the Commercial Paper. The Lender, the Collateral Agent, and the Operating Agent may, at any time, without the consent of the Borrowers, or the Servicer or any of their respective Affiliates but subject to the approval of FSA, assign any of their respective rights and obligations hereunder or interest herein to any Person which is an Affiliate and, with the 121 consent of the Borrowers, to any other Person. Notwithstanding the foregoing, FSA shall have the right to give participation in its rights under this Agreement and to enter into contracts of reinsurance with respect to each of the Policies upon such terms and conditions as FSA may in its discretion determine; provided, however, that no such participation or reinsurance agreement or arrangement shall relieve FSA of any of its obligations hereunder or under the Policies. In addition, and notwithstanding the foregoing, FSA shall be entitled to assign or pledge to any bank or other lender providing liquidity or credit with respect to the transactions contemplated under this Agreement and the Related Documents or the obligations of FSA in connection therewith any rights of FSA under this Agreement or the Related Documents or with respect to any real or personal property or other interests pledged to FSA, or in which FSA has a security interest, in connection with the transactions contemplated under this Agreement and the Related Documents. (b) Except as provided herein with respect to assignees, participants and reinsurers, nothing in this Agreement shall confer any right, remedy or claim, express or implied, upon any Person, including, particularly, any holders of commercial paper issued by the Lender, other than FSA, against the Borrowers, the Lender, the Servicer, the Operating Agent or the Collateral Agent, and all the terms, covenants, conditions, promises and agreements contained herein shall be for the sole and exclusive benefit of the parties hereto and their successors and permitted assigns. Any such assignee may further assign at any time its rights and obligations hereunder or interests herein without the consent of the Borrowers, the Parent or the Servicer or any of their respective Affiliates. This Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its terms, and shall remain in full force and effect until its termination; provided, that the rights and remedies with -------- respect to any breach of any representation and warranty made by the Borrowers, the Servicer or the Lender pursuant to Article IV and the indemnification and payment provisions of Article XII shall be continuing and shall survive any termination of this Agreement. SECTION 14.03. Costs, Expenses and Taxes. ------------------------- (a) In addition to the rights of indemnification under Article XII hereof, each Borrower agrees to pay upon demand all reasonable costs and expenses and taxes (excluding income and similar taxes) incurred by the Lender, the Operating Agent or the Collateral Agent ("Other Costs") in connection with the administration (including periodic auditing, Rating Agency requirements, modification and amendment) of this Agreement, the Related Documents and the other documents to be delivered 122 hereunder, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Lender, the Operating Agent and the Collateral Agent with respect thereto and with respect to advising the Lender, the Operating Agent or the Collateral Agent as to its rights and remedies under this Agreement, the Related Documents and the other agreements executed pursuant hereto. Each Borrower further agrees to pay within five Business Days after demand all reasonable costs, counsel fees and expenses in connection with the enforcement (whether through negotiation, legal proceedings or otherwise) of this Agreement, the Related Documents and the other agreements and documents to be delivered hereunder, including, without limitation, reasonable counsel fees and expenses in connection with the enforcement of such agreements and documents by FSA and the enforcement of rights under this Section 14.03 in accordance with the provisions of Article VI to the extent that funds are available therefor in accordance therewith. (b) In addition, each Borrower shall pay on demand any and all stamp, sales, excise and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing or recording of this Agreement, the Related Documents or the other agreements and documents to be delivered hereunder, and agrees to indemnify and save each Indemnified Party from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees. (c) In the event that the Operating Agent determines that any of the costs referred to in paragraphs (a) or (b) above were in any part incurred on behalf of, or are attributable to the actions of, borrowers or sellers under Other Funding Agreements, the Borrowers shall have no liability hereunder in excess of the Borrowers' Share of such costs. (d) If the Borrowers or the Servicer fails to perform any agreement or obligation contained herein within 5 days after demand therefor by the Lender, the Lender, the Collateral Agent, FSA or the Operating Agent may (but shall not be required to) itself perform, or cause performance of, such agreement or obligation, and the expenses of such party incurred in connection therewith shall be payable by the party which has failed to so perform upon the such party's demand therefor. SECTION 14.04. No Proceedings. Each of the Borrowers and the Servicer -------------- each hereby agrees that it will not, directly or indirectly, institute, or cause to be instituted, against the Lender any proceeding of the type referred to in Section 9.01(c) (except that such action or event shall be taken by or occur with respect to the Lender, rather than by or to the other parties mentioned in such Section) so long as there shall not have 123 elapsed one year plus one day since the latest maturing Commercial Paper have been paid in full in cash. SECTION 14.05. Amendments; Waivers; Consents. No modification, amendment ----------------------------- or waiver of or with respect to any provision of this Agreement, the Related Documents or any other agreements, instruments and documents delivered pursuant hereto, nor consent to or waiver of any departure by the Borrowers or the Servicer from any of the terms or conditions thereof, shall be effective unless it shall be in writing, signed by each of the parties hereto and approved in writing by FSA. No modification, amendment or waiver of or with respect to the Credit and Collection Policies shall be effective unless it shall be in writing and approved in writing by the Operating Agent and FSA. Any waiver or consent shall be effective only in the specific instance and for the purpose for which given. No consent to or demand on the Borrower, the Parent or the Servicer or any of their respective Affiliates in any case shall, in itself, entitle it to any other consent or further notice or demand in similar or other circumstances. This Agreement, the Related Documents and the documents referred to therein embody the entire agreement among the Borrower, the Lender, the Operating Agent, the Collateral Agent and the Servicer and supersede all prior agreements and understandings relating to the subject hereof. SECTION 14.06. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY ------------------------------------------------------ TRIAL. - ----- (a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK (WITHOUT REGARD TO THE CONFLICT OF LAW PROVISIONS THEREOF). (b) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY SUBMITS TO THE NON- EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE UNITED STATES DISTRICT COURT LOCATED IN THE BOROUGH OF MANHATTAN IN NEW YORK CITY, AND EACH WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY REGISTERED MAIL DIRECTED TO THE ADDRESSES SET FORTH ON THE ATTACHED SCHEDULE 6, AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED FIVE DAYS AFTER THE SAME SHALL HAVE BEEN DEPOSITED IN THE U.S. MAILS, POSTAGE PREPAID. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY WAIVES ANY OBJECTION BASED ON FORUM NON CONVENIENS AND ANY OBJECTION TO VENUE OF ANY ACTION -------------------- INSTITUTED HEREUNDER, AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE COURT. NOTHING IN THIS SECTION 14.06(b) SHALL AFFECT THE RIGHT OF ANY PARTY TO THIS AGREEMENT TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT ANY PARTY'S RIGHT TO BRING ANY ACTION OR PROCEEDING IN THE COURTS OF ANY OTHER JURISDICTION. COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO SUCH PERSON AT THE ADDRESS SET FORTH IN SCHEDULE 6 TO THIS AGREEMENT AND THAT 124 SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON SUCH PERSON'S ACTUAL RECEIPT THEREOF. (c) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO OR IN CONNECTION WITH THIS AGREEMENT. INSTEAD, ANY DISPUTE RESOLVED IN COURT WILL BE RESOLVED IN A BENCH TRIAL WITHOUT A JURY. SECTION 14.07. Execution in Counterparts; Severability. This Agreement --------------------------------------- may be executed by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation shall not in any way be affected or impaired thereby in such jurisdiction and the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation shall not be impaired thereby in any other jurisdiction. SECTION 14.08. Descriptive Headings. The descriptive headings of the -------------------- various sections of this Agreement are inserted for convenience of reference only and shall not be deemed to affect the meaning or construction of any of the provisions hereof. SECTION 14.09. Deemed Good Faith. Any party shall be deemed to have ----------------- acted in good faith in the exercise of any discretion under this Agreement if it exercises such discretion at the request of or in furtherance of a request of a Rating Agency. SECTION 14.10. The Borrowers. In this Agreement: ------------- (a) any obligation, duty, liability, warranty or covenant which relates to either Borrower shall be a joint and several obligation, duty, liability, warranty or covenant of each Borrower; (b) any right of the Borrowers to take any action not arising out of an obligation, exercise any rights or give any notice, shall be deemed to have been taken, exercised as given, as the case may be, by both Borrowers, if it is so taken, exercised or given by either Borrower; and (c) notwithstanding any requirement to give notices or instruments to both Borrowers, any notice or instrument given to 125 either Borrower shall be deemed to have been given to both Borrowers. SECTION 14.11. Financing Statements. All UCC-1's, UCC-2's, UCC-3's, and -------------------- all other financing statements, termination statements, statements of release or other similar instruments and documents described in Section 3.01 shall be released to the Operating Agent directly upon this Agreement's becoming effective pursuant to the terms hereof. The Operating Agent hereby agrees to duly and properly file each of the foregoing in the appropriate offices of the jurisdictions indicated above, in accordance with the UCC or any other applicable law, as soon as is practicable, and in no event later than three Business Days after the Effective Date. SECTION 14.12. Intercreditor Agreement. This Agreement shall be subject ----------------------- to the terms of the Intercreditor Agreement. SECTION 14.13. The Note. The Note has been issued to the Lender, -------- and the Lender, by receipt of the Note, acknowledges that it has not acquired the Note with a view to resell or redistribute the Note or any interest therein. SECTION 14.14 Limited Recourse. The obligations of Redwood under this ---------------- Agreement and all Related Documents are solely the corporate obligations of Redwood. No recourse shall be had for the payment of any amount owing in respect of Advances or for the payment of any fee hereunder or any other obligation or claim arising out of or based upon this Agreement or any other Related Document against any shareholder, employee, officer, director, agent or incorporator of Redwood. Any accrued obligations owing by Redwood under this Agreement shall be payable by Redwood solely to the extent that funds are available therefor from time to time in accordance with the provisions of Article VI of the Collateral Agent Agreement and Article VI of this Agreement (and such accrued obligations shall not be extinguished until paid in full). 126 IN WITNESS WHEREOF, the parties have caused this Receivables Funding and Servicing Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. TYCO INDUSTRIES, INC. By /s/ R. Michael Kennedy, Jr. Name: R. Michael Kennedy, Jr. Title: Senior V.P. Address: 6000 Midlantic Drive Mt. Laurel, New Jersey 08054 Attention: Chief Financial Officer Phone number: (609) 840-1243 Telecopier number: (609) 273-2885 REDWOOD RECEIVABLES CORPORATION By /s/ Walter J. Owens Name: Walter J. Owens Title: Assistant Treasurer Address: c/o General Electric Capital Corporation 501 Merritt Seven - Third Floor Norwalk, Connecticut 06851 Attention: Vice President - Portfolio/Tyco Phone number: (203) 840-4544 Telecopier number: (203) 840-4740 TYCO FUNDING I CORPORATION By /s/ Anthony Di Michele Name: Anthony di Michele Title: President & CFO Address: 6000 Midlantic Drive - Room 400 Mt. Laurel, New Jersey 08054 Attention: Chief Financial Officer Phone number: (609) 840-2159 Telecopier number: (609) 273-2885 TYCO FUNDING II CORPORATION By /s/ Anthony Di Michele Name: Anthony Di Michele Title: President & CFO Address: 6000 Midlantic Drive - Room 400 Mt. Laurel, New Jersey 08054 Attention: Chief Financial Officer Phone number: (609) 840-2160 Telecopier number: (609) 273-2885 FINANCIAL SECURITY ASSURANCE, INC. By /s/ Scott D. Gordon Name: Scott D. Gordon Title: Managing Director Address: 350 Park Avenue New York, New York 10022 Attention: Senior Vice President - Surveillance Phone number: (212) 826-0100 Telecopier number: (212) 339-3518 GENERAL ELECTRIC CAPITAL CORPORATION as Operating Agent and Collateral Agent By /s/ Catharine L. Midkiff Name: Catharine L. Midkiff Title: VP - Commercial Finance Address: 501 Merritt Seven - Third Floor Norwalk, Connecticut 06851 Attention: Vice President - Portfolio/Tyco Phone number: (203) 840-4544 Telecopier number: (203) 840-4740 Schedule 1 ---------- Concentration Limits --------------------
Short Term Rating* Concentration Limit Obligor Requirement Percentage or Amount - ------- ----------------- -------------------- Toys 'R' Us Inc. A-1 and P-1 The lesser of $100 million and 60% A-2 and P-2 8% Any other rating 2% Walmart A-1 and P-2 20% Stores, Inc. A-2 and P-2 8% Any other rating 2% The K-Mart Corporation A-2 and P-2 6% Any other rating 2% Target Stores A-1 and P-2 10% (Dayton-Hudson Corporation) Any other rating 2% Kay Bee A-1 and P-1 7% (Melville Corporation) Any other rating 2% Any other Obligor 2%
__________________ * Ratings by S&P and Moody's respectively. ** Subject to the ongoing approval by FSA. Ratings specified are those of the parent (indicated in parenthesis) and then subject to 100% of stock remaining owned by current parent. Schedule 2 ---------- Contractual Reserves -------------------- 1. Cooperative Advertising - Balance of accrued and unpaid liabilities with respect to cooperative advertising allowances earned by Obligor but for which credit memos have not yet been issued 2. Pricing Allowance - Balance of accrued and unpaid liabilities with respect to pricing allowances earned by Obligor but for which credit memos have not yet been issued 3. Warehouse Allowance - Balance of accrued and unpaid liabilities with respect to pricing allowances earned by Obligor but for which credit memos have not yet been issued S-2 Schedule 3 ---------- Excluded Customers ------------------ None S-3-1 Annex A ------- to -- Schedule 3 ---------- [Form of Amending Letter] ----------------------- [Insert Date] [Borrower] [Address] Attention : Redwood Receivables Corporation [Address] Attention: [Parent] [Address] Attention: Re: Receivables Funding and Servicing Agreement, dated as of February 24, 1995 Ladies and Gentlemen: This notice is given pursuant to the Receivables Funding and Servicing Agreement, dated as of February 24, 1995 (the "Funding Agreement"), between Redwood Receivables Corporation (the "Lender"), Financial Security Assurance Inc., General Electric Capital Corporation, as agent for the Company (in such capacity, the "Operating Agent") and as Collateral Agent (in such capacity, the "Collateral Agent"), [Names of Borrowers] (the "Borrowers") and [Name of Parent] (the "Parent"). Capitalized terms used but not defined in this notice have the meanings ascribed to such terms in the Funding Agreement. The Operating Agent hereby amended Schedule 3 to the Funding Agreement as follows: [The following Obligors are added to Schedule 3 as "Excluded Customers": ] S-3-A1 [The following customers are removed from Schedule 3: The effective date of this amendment to Schedule 3 is ____________, 199_. Very truly yours, [Operating Agent] By:_________________________________ Name: Title: [Consent of FSA] S-3-A2 Schedule 4 ---------- INCOME DISCOUNT AMOUNT Income Discount Amount = Borrowing Rate Discount Amount + Interest Volatility Discount Amount + Unused Facility Fee Discount Amount + Servicing Fee Discount Amount #1 Borrowing Rate = Advances Outstanding Discount Amount x Borrowing Rate x Liquidation Term Factor #2 Interest Volatility = Advances Outstanding Discount Amount x Interest Volatility Percentage x Liquidation Term Factor #3 Unused Facility Fee = Unused Facility Amount Discount Amount x Unused Facility Fee Rate x Liquidation Term Factor #4 Servicing Fee = Outstanding Balances of Transferred Discount Amount Receivables x Servicing Fee Rate x Liquidation Term Factor #5 Borrowing Rate = Daily Borrowing Rate (see Schedule 5) x 360 #6 Liquidation Term = Expected Liquidation Period/360 Factor #7 Unused Facility = Maximum Facility Commitment Amount - Advances Outstanding
"Expected Liquidation Period" means the product of (i) the weighted --------------------------- average number of days from the date of the Borrowing Base Certificate to the invoice due date for the Outstanding Balance of Transferred Receivables and (ii) 2. "Interest Volatility Percentage" means the maximum increase in interest ------------------------------ rates anticipated over the Expected Liquidation Period, as determined from time to time by the Collateral Agent in no event less than .50%. S-4-1 EXAMPLE Income Discount Amount = Borrowing Rate Discount Amount = $440,157 + Interest Volatility Discount Amount = 6,333 + Unused Facility Fee Discount Amount = 15,833 + Servicing Fee Discount Amount = 70,932 -------- $533,255 ========
Input Table: - ----------- A. Outstanding Balance of Transferred Receivables: $64,000,000 B. Maximum Facility Commitment: $60,000,000 C. Advances Outstanding: $40,000,000 D. Daily Borrowing Rate: 0.01931% E. Unused Facility Fee Rate: 0.50% F. Servicing Fee Rate: 0.70% G. Average expected term to liquidate Receivables: 57 days H. Interest Volatility Percentage: 0.1% Calculations: - ------------ #7. Unused Facility = B - C Amount = $60,000,000 - $40,000,000 = $20,000,000 ----------- #6. Liquidation Term = G / 360 Factor = 57 / 360 = 0.15833 ------- #5. Borrowing Rate = D x 360 = 0.01931% x 360 = 6.95% ----- #1. Borrowing Rate = C x #5 x #6 Discount Amount = $40,000,000 x 6.95% x 0.15833 = $440,157 -------- #2. Interest Volatility = C x H x #6 Discount Amount = $40,000,000 x 0.1% x 0.15833 = $6,333 ------ #3. Unused Facility Fee = #7 x E x #6 Discount Amount = $20,000,000 x 0.5% x 0.15833 = $15.833 ------- #4. Servicing Fee = A x F x #6 Discount Amount = $64,000,000 x 0.7% x 0.15833 = $70,932 -------
S-4-2 Schedule 4 INCOME DISCOUNT AMOUNT CALCULATION Tyco Funding Corp. (TFC) C14. BORROWING RATE DISCOUNT AMOUNT: ------------------------------ C14a. Daily Yield/Interest Expense Due ($0/S Loan x (CP Rate + 1.255 Margin)) ___________ __ C14b. BOD Advances Outstanding ___________ C14b1. Borrower Default Margin (Defined in Loan Docs) ___________ C14c. Annualized Yield/Interest Rate (((C14a/C14b)*360)+C14b1) ___________ C14d. Liquidation Term in Days (Determined by Time of Year, days until due plus 60) (A) ___________ C14e. Liquidation Term Factor (C14d/360) ___________ C14f. BORROWING RATE DISCOUNT AMOUNT (C14b*C14c*C14e) ___________ C15. INTEREST VOLATILITY DISCOUNT AMOUNT: ----------------------------------- C15a. Interest Volatility Percentage (Determined by stability in the CP market) ___________ C15b. INTEREST VOLATILITY DISCOUNT AMOUNT (C14b*C14e*C15a) ___________ C16. UNUSED FACILITY FEE DISCOUNT AMOUNT: ----------------------------------- C16a. Maximum Facility Commitment ___________ C16b. Unused Facility Fee Rate ___________ C16c. UNUSED FACILITY FEE DISCOUNT AMOUNT ((C16a-C14b)*C16b*C14e) ___________ S-4-3 C17. SERVICING FEE DISCOUNT AMOUNT: ----------------------------- C17a. BOD Outstanding Balance of Transferred Receivables ___________ C17b. Servicing Fee Rate (Defined in Loan Docs) ___________ C17c. SERVICING FEE DISCOUNT AMOUNT (C17a*C17b*C14e) ___________ C18. INCOME DISCOUNT AMOUNT (C14f+C15b+C16c+C17c) =========== (A) This number is determined by the time of year and taken from the loan documents S-4-4 Schedule 5 ---------- DETERMINATION OF "INTEREST" MONTHLY INTEREST EXPENSE = SUM OF DAILY INTEREST FOR THE SETTLEMENT PERIOD #1) Daily Interest = Daily Borrowing Rate x Advances Outstanding on the preceding day #2) Daily Borrowing Rate: (a) Pre-Termination = Daily Interest Rate + Daily Margin (b) Post-Termination = Daily Interest Rate + Daily Margin + Daily Default Margin #3) Daily Interest Rate = [Daily Weighted Average CP Rate + Daily Weighted Average Liquidity Rate] x Redwood Funding Factor #4) Daily Weighted Average CP Rate = [Commercial Paper Outstanding/Senior Debt] x [Weighted Average CP Rate/360] #5) Weighted Average CP Rate = Average of CP Rates for all tranches of CP Outstanding issued by Redwood, weighted by CP Outstanding in each tranche #6) Daily Weighted Average Liquidity Rate = [Liquidity Loans Outstanding/Senior Debt] x [Weighted Average Liquidity Rate/360 Days] #7) Weighted Average = Average of Liquidity Rates (being Liquidity Rate the greater of NYCHA Prime or 30 Day CP + 1.00%) of Liquidity Loans Outstanding weighted by the amount of each Liquidity Loan #8) Daily Margin and Daily Default Margin = 1.30% and 2.00% respectively/360 Days #9) Senior Debt = CP Outstanding + Liquidity Loans Outstanding
S-5-1 #10) Redwood Funding Factor = Total Debt/Total Fundings Outstanding Definitions - ----------- "Redwood Debt" means, at any time, the aggregate of the Lender's ------------ Senior Debt, plus LOC Draws Outstanding, minus LOC Deposits for all RFCs at such time. "RFC" means a receivables financing company that either sells --- receivables to the Lender, or makes borrowings from the Lender secured by receivables. "Total Fundings Outstanding" means, at any time, the aggregate of the -------------------------- Advances Outstanding at such time, plus the amounts corresponding to Advances Outstanding for all other RFCs that have pledged receivables as collateral for such advances from the Lender at such time, plus the purchases outstanding for all other RFCs as sellers of receivables to the Lender at such time. S-5-2 Tyco Funding Corporation Example for Determination Of Interest Schedule 5
Input Table ----------- A Advances Outstanding - Tyco 30,000,000 B Other Advances Outstanding 10,000,000 C Weighted Average CP Interest Rate on 6,0000% C/S D Daily Margin 1,2500% E Default Margin 2,0000% F Commercial Paper Outstanding 40,000,500 G Liquidity Loans Outstanding 0 H NYCGA Prime Rate 8,5000% I CP 30 Day Rate 5,8900%
Calculations: ------------ 1) Daily Interest Daily Borrowing Rate 0.0201% X Advances O/S 30,000,000 ------------- 6,041.73 ============= 2) Daily Borrowing Rate Daily Interest Rate 0.0167% + Daily Margin 0.0035% ----------- 3) Daily Interest Rate Daily WA CP Rate 0.0167% X Redwood Funding Factor 1.0000125 ----------- 0.0167% =========== 4) Daily Weighted Average CP Outstanding 40,000,500 CP Rate / Senior Debt 40,000,500 X WA CP Rate 6.0000% / 360 days 360 ----------- 0.0167% ===========
S-5-3 5) Daily Weighted Average Liquidity Loans O/S 0 Liquidity Rate / Senior Debt 40,000,500 X Liquidity Rate 9,5000% / 360 days 360 ----------- 0 =========== 6) Liquidity Rate (> of NYCHA Prime or 8.5000% Only If in Liquidation 30 day CP) 5.8900% + 1.0000% 1.0000% ----------- 9.5000% ----------- 7) Daily Margin Daily Margin / 360 0.0035% =========== Daily Default Margin Default Margin / 360 0.0056% =========== 8) Senior Debt CP Outstanding 40,000,500 + Liquidity Outstanding 0 ----------- 40,000,500 =========== 9) Redwood Funding Factor Total Debt 40,000,500 / Total Fundings Outstanding 40,000,000 ----------- 100,0013% ===========
S-4-4 Schedule 6 ---------- Addresses for Notice and Other Offices of the Borrowers To: Tyco Funding I Corporation Address: 6000 Midlantic Drive - Room 400 Mt. Laurel, New Jersey 08054 Attention: Chief Financial Officer Phone number: (609) 840-2159 Telecopier number: (609) 273-2885 To: Tyco Funding I Corporation Address: 6000 Midlantic Drive - Room 400 Mt. Laurel, New Jersey 08054 Attention: Chief Financial Officer Phone number: (609) 840-2159 Telecopier number: (609) 273-2885 To FSA: Financial Security Assurance Inc. 350 Park Avenue New York, NY 10022 Attention: Surveillance Department Telex No.: (212) 688-3101 Confirmation: (212) 826-0100 Telecopy Nos.: (212) 339-3518 (212) 339-3529 (in each case in which notice or other communication to FSA refers to Termination Event, an Event of Servicer Termination, a claim on the Policy or with respect to which failure on the part of FSA to respond shall be deemed to constitute consent or acceptance, then copies of such notice or other communication should also be sent to the attention of the General Counsel and the Head--Financial Guaranty Group "URGENT MATERIAL ENCLOSED.") S-6 Schedule 7 ---------- Former Names, assumed names, "dba" names of the Borrowers None Schedule 8 ---------- List of Lockboxes and Lockbox Accounts S-8 Schedule 9 ---------- CALCULATION OF DILUTION PERCENTAGE The Dilution Percentage means, calculated during any month shown in Column A of the table below, a fraction (expressed as a percentage), the numerator of which is the sum of the Variable Dilutions for the months (inclusive) shown in Column B of the table below corresponding to the month shown in Column A (and if calculated on any day during the month other than the last day, for the cumulative number of days to the corresponding day in the last month in Column B), and the denominator of which is the sum of the Outstanding Balance of all Transferred Receivables generated during the immediately preceding months shown in Column C of the table below corresponding to the month shown in Column A (and if calculated at any day during the month other than the last day, for the cumulative number of days to the corresponding day in the last month in Column C).
Column A Column B Column C CALCULATED VARIABLE OUTSTANDING BALANCE OF - ---------- -------- ---------------------- DURING THE DILUTIONS TRANSFERRED RECEIVABLES - ---------- --------- ----------------------- MONTH OF: GENERATED - --------- --------- January December and June and July January February December to June to August February March December to June to September March April December to June to October April May December to June to November May June June December July June and July December and January
S-9 August June to December to February August September June to December to March September October June to October December to April November June to December to May November December December June
EXAMPLE ------- This example is provided by way of illustration only, does not cover all possible situations and does not restrict the calculation of Dilution Percentage above. If the Dilution Percentage is calculated as at January 20, 1995, the sum of the Variable Dilutions from December 1, 1994 to January 20, 1995 is divided by the sum of the Outstanding Balance of Transferred Receivables recorded from June 1, 1994 to July 20, 1994. If July 20, 1994 had fallen on a day other than a Business Day, the recorded Variable Dilutions and Transferred Receivables at July 20 would have been equal to the balances generated on the immediately preceding Business Day and no adjustment would be made. S-9 Exhibit A to Funding Agreement [FORM OF BORROWER NOTICE - Request for Advance] [Insert Date] Redwood Receivables Corporation [Address] Attention: General Electric Capital Corporation, as Operating Agent [Address] Attention: Re: Receivables Funding and Servicing Agreement, dated as of February 24, 1995 Ladies and Gentlemen: This notice is given pursuant to Section 2.03(b) of the Receivables Funding and Servicing Agreement, dated as of February 24, 1995 (the "Funding Agreement"), between Redwood Receivables Corporation (the "Lender"), General Electric Capital Corporation, as agent for the Company (in such capacity, the "Liquidity Agent") and as Collateral Agent for the Lender Secured Parties (in such capacity, the "Collateral Agent"), [Name of Borrower] (the "Borrower") and [Name of Parent] (the "Parent") and Financial Security Assurance Inc. Capitalized terms used but not defined in this notice have the meanings ascribed to such terms in the Funding Agreement. The Borrower hereby requests that the Lender make an Advance to the Borrower on ___________, 19__ pursuant to Section 2.01 of the Funding Agreement in the amount of $____________ to be disbursed to the Borrower in accordance with Section 2.04 of the Funding Agreement. The Borrower hereby confirms that the conditions set forth in Section 3.02 of the Funding Agreement for the making of such Advance have been met. Very truly yours, [NAME OF BORROWER] By:____________________________ Name: Title: A-1 [FORM OF BORROWER NOTICE - Repayment of Advance] [Insert Date] Redwood Receivables Corporation [Address] Attention: General Electric Capital Corporation, as Operating Agent [Address] Attention: Re: Receivables Funding and Servicing Agreement, dated as of February 24, 1995 Ladies and Gentlemen: This notice is given pursuant to Section 2.03(b) of the Receivables Funding and Servicing Agreement, dated as of February 24, 1995 (the "Funding Agreement"), between Redwood Receivables Corporation (the "Lender"), General Electric Capital Corporation, as agent for the Company (in such capacity, the "Operating Agent") and as collateral agent for the Lender Secured Parties (in such capacity, the "Collateral Agent"), [Names of Borrowers] (the "Borrowers"), [Name of Parent] (the "Parent") and Financial Security Assurance Inc. Capitalized terms used but not defined in this notice have the meanings ascribed to such terms in the Funding Agreement. The Borrower hereby notifies the Lender, FSA and the Operating Agent that on ___________, 19__ (which is a Business Day) the Borrower intends to repay $__________ of Advances currently outstanding to the Borrower pursuant to Section 2.06(b) of the Funding Agreement, including (i) all Interest accrued on the principal amount of Advances being repaid through the date of repayment, and (ii) any and all Breakage Costs payable under Section 2.11 of the Funding Agreement. Very truly yours, [NAME OF BORROWER] By:____________________________ Name: Title: A-2 [FORM OF BORROWER NOTICE - Reduction of Commitment] [Insert Date] Redwood Receivables Corporation [Address] Attention: General Electric Capital Corporation, as Operating Agent [Address] Attention: Re: Receivables Funding and Servicing Agreement, dated as of February 24, 1995 Ladies and Gentlemen: This notice is given pursuant to Section 2.03(b) of the Receivables Funding and Servicing Agreement, dated as of February 24, 1995 (the "Funding Agreement"), between Redwood Receivables Corporation (the "Lender"), and Financial Security Assurance Inc. ("FSA"), General Electric Capital Corporation, as agent for the Company (in such capacity, the "Operating Agent") and as collateral agent (in such capacity, the "Collateral Agent"), [Names of Borrowers] (the "Borrowers") and [Name of Parent] (the "Parent"). Capitalized terms used but not defined in this notice have the meanings ascribed to such terms in the Funding Agreement. The Borrower hereby irrevocably notifies the Lender, FSA and the Operating Agent pursuant to Section 2.02(a) of the Funding Agreement that on ____________, 19__ (which is a Business Day) the Maximum Facility Commitment shall be reduced to $_________. This reduction is the [first] [second] reduction of the calendar year permitted by Section 2.02(a) of the Funding Agreement. After such reduction, the Maximum Facility Commitment will not be less than the Advances Outstanding [after giving effect to, and conditioned upon, the repayment of Advances set forth in the attached notice]. Very truly yours, [NAME OF BORROWER] By:____________________________ Name: Title: A-3 [FORM OF BORROWER NOTICE - Termination of Commitment] [Insert Date] Redwood Receivables Corporation [Address] Attention: General Electric Capital Corporation, as Operating Agent [Address] Attention: Re: Receivables Funding and Servicing Agreement, dated as of February 24, 1995 Ladies and Gentlemen: This notice is given pursuant to Section 2.03(b) of the Receivables Funding and Servicing Agreement, dated as of February 24, 1995 (the "Funding Agreement"), between Redwood Receivables Corporation (the "Lender"), and Financial Security Assurance Inc. ("FSA"), General Electric Capital Corporation, as agent for the Company (in such capacity, the "Operating Agent") and as collateral agent (in such capacity, the "Collateral Agent"), [Names of Borrowers] (the "Borrowers") and [Name of Parent] (the "Parent"). Capitalized terms used but not defined in this notice have the meanings ascribed to such terms in the Funding Agreement. The Borrower hereby irrevocably notifies the Lender, FSA and the Operating Agent pursuant to Section 2.02(b) of the Funding Agreement that on ____________, 19__ (which is a Business Day at least 180 days after the date this notice is given) the Maximum Facility Commitment shall be terminated. Very truly yours, [NAME OF BORROWER] By:____________________________ Name: Title: A-4 Exhibit B to Funding Agreement [FORM OF BORROWING BASE CERTIFICATE] Tyco Funding Corp. Borrowing Base Certificate 1. As Of: ___________ ___________ 2. Transferred Receivables - Beginning of Period __________ 3. Deposit of Customer Collections from ______ to _____________ 4. Deposit of Rejected Amounts from ______ to ______ __________ 5. Newly Transferred Receivables from ______ to _______________ 6. Non-Cash Dilutions _________ 7. Transferred Receivables - End of Period __________ 8. Ineligible Receivables 8a. 61 days past due __________ 8b. Credits over 61 days past due __________ 8c. Unapplied Cash __________ 8d. Code 5 __________ 8e. Credit over 61 exceeds total balance __________ 8f. Invoices with terms greater than 270 days __________ 8g. Foreign Receivables __________ 8h. 30% Rule __________ 8i. Bankrupt Customers __________ 8j. Other __________ 8k. Total Ineligible Receivables __________ 9. Excluded Customers 9a. Intercompany Receivables __________ 9b. Government Receivables __________ 9c. Other __________ 9d. Total Excluded Receivables __________ 10. Eligible Receivables __________ 11. Concentration Discount Amount 12. Reserve for Co-op Advertising __________ B-1 13. Reserve for Pricing Allowance (including Warehouse Allowance) __________ 14. Clean Down Retention Amount, if applicable __________ 15. Borrowing Base __________ 16. Advance Rate (see chart) x Eligible _________% __________ 17. Income Discount Amount __________ 18. Accounts Receivable Availability __________ 19. Advances Outstanding __________ 20. Advances Available (Borrowing Excess) ========== 21. Maximum Facility Commitment __________ 22. Parents Prior 52 Weeks Sales __________ 23. Prior 52 Weeks Defaults __________ 24. Prior 52 Weeks Non-Cash Dilutions Other than Defaults __________ B-2 Exhibit C to Funding Agreement [FORM OF NOTE] [Name of Borrower] $[Insert Amount] [Insert Date] FOR VALUE RECEIVED, [NAME OF BORROWER], a corporation (the "Borrower"), promises to pay to Redwood Receivables Corporation (the "Lender"), or registered assigns, the principal sum of ______________________________ DOLLARS ($____________ ) or, if less, the unpaid principal amount of the aggregate loans ("Advances") made by the Lender to the Borrower pursuant to the Funding Agreement (as defined below), as set forth on the attached Schedule, on the dates specified in Section 2.06 of the Funding Agreement, and to pay interest on the unpaid principal amount of this Note on each day that such unpaid principal amount is outstanding at the Daily Borrowing Rate as provided in Schedule 5 to the Funding Agreement on the dates specified in Section 2.07 of the Funding Agreement. This Note is issued pursuant to the Receivables Funding and Servicing Agreement, dated as of February 24, 1995 (the "Funding Agreement"), between the Borrowers, [Name of Parent], the Lender, Financial Security Assurance Inc. and General Electric Capital Corporation as agent for the Lender (in such capacity, the "Operating Agent") and as collateral agent (in such capacity, the "Collateral Agent"). Capitalized terms used but not defined in this Note are used with the meanings ascribed to them in the Funding Agreement. Notwithstanding any other provisions contained in this Note, if at any time the rate of interest payable by the Borrower under this Note, when combined with any and all other charges provided for in this Note, in the Funding Agreement or in any other document (to the extent such other charges would constitute interest for the purpose of any applicable law limiting interest that may be charged on this Note), exceeds the highest rate of interest permissible under applicable law (the "Maximum Lawful Rate"), then so long as the Maximum Lawful Rate would be exceeded the rate of interest under this Note shall be equal to the Maximum Lawful Rate. If at any time thereafter the rate of interest payable under this Note is less than the Maximum Lawful Rate, the Borrower shall continue to pay interest under this Note at the Maximum Lawful Rate until such time as the total interest paid by the Borrower is equal to the total interest that would have been paid had applicable law not limited the interest rate payable under this Note. In no event shall the total interest received by the Lender under this Note exceed the amount which C-1 the Lender could lawfully have received had the interest due under this Note been calculated since the date of this Note at the Maximum Lawful Rate. Payments of the principal of, premium, if any, and interest on this Note shall be made by the Borrower to the holder hereof by wire transfer of immediately available funds by : a.m. New York City time, in the manner [and --- at the address] specified for such purpose as provided in Section 2.09 of the Funding Agreement, or in such manner or at such other address as the holder of this Note shall have specified in writing by the Borrower for such purpose, without the presentation or surrender of this Note or the making of any notation on this Note. If any payment under this Note falls due on a day which is not a Business Day, then such due date shall be extended to the next succeeding Business Day and Interest (calculated at the Daily Borrowing Rate for each day during the period then ending) shall be payable on any principal so extended. The Borrower expressly waives presentment, demand, diligence, protest and all notices of any kind whatsoever with respect to this Note. The holder hereof may, as provided in Section 14.02 of the Funding Agreement, sell, assign, transfer, negotiate, grant participation in or otherwise dispose of all or any portion of this Note and the indebtedness evidenced by the Note. This Note is secured by the security interests granted to the Lender pursuant to Section 8.01 of the Funding Agreement. The holder of this Note is entitled to the benefits of the Funding Agreement and may enforce the agreements of the Borrower contained in the Funding Agreement and exercise the remedies provided for by, or otherwise available in respect of, the Funding Agreement, all in accordance with the terms of the Funding Agreement. If a Termination Event shall occur and be continuing, the unpaid balance of the principal of this Note, together with accrued interest, may be declared and become due and payable in the manner and with the effect provided in the Funding Agreement. This Note is made and delivered in New York, New York and shall be governed by, and construed in accordance with, the C-2 internal laws (without application of its conflict of laws provisions) of the State of New York. IN WITNESS WHEREOF, the Borrower has caused this Note to be signed and delivered by its duly authorized officer as of the date set forth above. Very truly yours, [NAME OF BORROWER] By:____________________________ Name: Title: C-3 Schedule to Note
Date of Principal Principal Outstanding Advance or Amount of Amount of Principal Repayment Advance Repayment Amount - ---------- --------- --------- -----------
C-4 Exhibit D to Funding Agreement [FORM OF OFFICER'S CERTIFICATE AS TO INSOLVENCY] [NAME OF PARENT] Officer's Certificate I, [Name of Officer], the duly elected [Insert Title] of [Name of Parent] (the "Parent"), hereby certify in connection with the Receivables Funding and Servicing Agreement, dated as of February 24, 1995 (the "Funding Agreement"; capitalized terms used but not defined in this Officer's Certificate having the meaning set forth in the Funding Agreement), between [Names of Borrowers] (the "Borrowers"), the Parent, Redwood Receivables Corporation (the "Lender"), Financial Security Assurance Inc. ("FSA") and General Electric Capital Corporation, as agent for the Lender (in such capacity, the "Operating Agent") and as collateral agent (in such capacity, the "Collateral Agent"), and for the benefit of the Lender, the Operating Agent, FSA and the Collateral Agent, as follows: (1) the performance of the Receivables Transfer Agreements, dated as of February 24, 1995, between the Parent, as seller, and the Borrowers, as buyers, will not render the Borrowers insolvent; and (2) the Borrowers will be able to remain economically viable without further investments by the Parent for the foreseeable future. IN WITNESS WHEREOF, I have signed and delivered this Officer's Certificate this _____ day of ___________, 19__; [NAME OF PARENT] By:____________________________ Name: Title: D Exhibit E to Funding Agreement [FORM OF OFFICER'S CERTIFICATE OF BORROWER] [NAME OF BORROWER] Officer's Certificate I, [Name of Officer], the duly elected [Insert Title] of [Name of Borrower] (the "Borrower"), hereby certify pursuant to Section 3.01(d)(iv) of the Receivables Funding and Servicing Agreement, dated as of February 24, 1995 (the "Funding Agreement"; capitalized terms used but not defined in this Officer's Certificate having the meaning set forth in the Funding Agreement), between the Borrowers, [Name of Parent], Redwood Receivables Corporation (the "Lender"), Financial Security Assurance Inc. ("FSA") and General Electric Capital Corporation, as agent for the Lender (in such capacity, the "Operating Agent") and as collateral agent (in such capacity, the "Collateral Agent") for the Lender Secured Parties (as defined in the Funding Agreement), and for the benefit of the Lender, the Operating Agent, FSA and the Collateral Agent, as follows: (1) after giving effect to the effectiveness of the Funding Agreement, no Termination Event or Incipient Event will have occurred and be continuing; and (2) the representations and warranties of the Borrower contained in Sections 4.01 and 4.02 of the Funding Agreement, in the Receivables Transfer Agreements and in any other document, certificate or financial or other statement delivered by either of the Borrowers in connection with the Funding Agreement or the Receivables Transfer Agreements are true and correct in all material respects (unless such representation or warranty contains a materiality qualification or in the case of Section 4, in which case it is true and correct in all respects) and with the same force and effect as though such representations and warranties had been made as of such date, except to the extent any such representations and warranties relate solely to an earlier date, in which case such representations and warranties shall be true and correct in material respects (or in all respects, as the case may be) as of such earlier date. E-1 IN WITNESS WHEREOF, I have signed and delivered this Officer's Certificate this _____ day of ___________, 19__. [NAME OF BORROWER] By:____________________________ Name: Title: E-2 Exhibit F to Funding Agreement [FORM OF OFFICER'S CERTIFICATE OF SERVICER] [NAME OF SERVICER] Officer's Certificate I, [Name of Officer], the duly elected [Insert Title] of [Name of Parent] (the "Servicer"), hereby certify pursuant to Section 3.01(e)(iv) of the Receivables Funding and Servicing Agreement, dated as of February 24, 1995 (the "Funding Agreement"); capitalized terms used but not defined in this Officer's Certificate having the meaning set forth in the Funding Agreement), between [Names of Borrowers] (the "Borrowers"), the Servicer, Redwood Receivables Corporation (the "Lender"), Financial Security Assurance Inc. ("FSA") and General Electric Capital Corporation, as agent for the Lender (in such capacity, the "Operating Agent") and as collateral agent (in such capacity, the "Collateral Agent"), and for the benefit of the Lender, FSA, the Operating Agent and the Collateral Agent, as follows: (1) after giving effect to the effectiveness of the Funding Agreement, no Event of Servicer Termination or event which, with the giving of notice or lapse of time, or both, would constitute an Event of Servicer Termination, will have occurred and be continuing; and (2) the representations and warranties of the Servicer contained in Section 4.03 of the Funding Agreement and in any other document, certificate or financial or other statement delivered by the Servicer in connection with the Funding Agreement are true and correct in all material respects (unless such representation or warranty contains a materiality qualification, in which case it is true and correct in all respects) and with the same force and effect as though such representations and warranties had been made as of such date, except to the extent any such representations and warranties relate solely to an earlier date, in which case they are true and correct in all material respects (or in all respects, as the case may be) as of such earlier date. F-1 IN WITNESS WHEREOF, I have signed and delivered this Officer's Certificate this _____ day of _____________, 19__. [NAME OF SERVICER] By:____________________________ Name: Title: F-2 Exhibit G to Funding Agreement Form of Monthly Reporting ------------------------- Exhibit G-I. - Form of Advance Rate Calculation Exhibit G-II. - Overcollateralization Model - Dilution Coverage Exhibit G-III. - Overcollateralization Model - Default Coverage Exhibit G-IV. - Sales and Receivable Analysis Exhibit G-V. - Comparative Aging Analysis Exhibit G-VI. - Financial Covenant Calculations and Termination Events Exhibit G-VII. - Balance Sheet Exhibit G-VIII. - Accounts Receivable Reconciliation and New obligor Listing
G-1 Exhibit G-I FORM OF ADVANCE RATE CALCULATION Tyco Funding Corp. (TFC) For the Week of:
C. CALCULATION OF ADVANCE RATE AMOUNT ------------------------------ C1. Dilution Coverage (from model) _________ C2. Default Coverage (from model) _________ C3. Total Overcollateralization Required (C1 + C2) ========= C4. Dynamic Advance Rate (100% - C3) ========= C5. Advance Rate Cap (from loan documents ========= C6. Advance Rate (lower of C4 and C5) =========
G-2 Tyco Funding Corporation Overcollateralization Model Dilution Coverage Factor 1:50 Exhibit G-II DILUTIONS _____________________________________________________________ _________________________________________________
1 2 3 4 5 6 7 8 9 10 11 Anti Defect Oth Markdo ci- ive Misc New er wn SALE pati Bill Return Frei Prom Retur Mis Reserv ---- ---- ing ------ ---- ---- ----- --- ------ WEEK S A/R ons Adj s ght o ns c e - ---- - --- --- --- - --- - -- - - 1 12 13 14 15 16 17 18 19 20 21 (4+5+6+7+8 + Dilution Spike Spike 9+10+11) on Dilution Normal ----- / Spike Dilution Default Total Week TOTAL % Horizon Dilution e Dilution Impact Coverage Coverage Coverage - ---- ----- - ------- -------- - -------- ------ -------- -------- --------
G-3 Tyco Funding Corporation Overcollateralization Model Default Coverage FACTOR: 1.50 Exhibit G-III
Lag 6 Mo 6 Max Default Monthly Month Last Default Base Default MONTH SALES A/R Bucket Default % Average 12 Months Horizon Support Factor Defaults Coverage - ----- ----- --- ------ --------- ------ --------- ------- ------- ------ -------- --------
G-4 TYCO FUNDING CORPORATION Sales and Receivable Analysis Exhibit G-IV
1 2 3 4 5 6 7 8 9 10 11 BOM Gross Cash Miscellaneous Non (7+8-9) Period Balance Credit Debit Total Receipts Adjustments Credits Adjustments Dil. Total Days Sales CR Credits Dilution Sales 12 13 14 15 16 17 Period (1/5.11) (10/2) YTD Rolling YTD Rolling T/O DILUTION T/O 12 T/O Dilution 12 Dilution
G-5 TYCO FUNDING CORPORATION COMPARATIVE AGING ANALYSIS Exhibit G-V
Date From S&R (S&R - Aging Future Current Dollars Over Chrgbk Future A/H Bal. Aging) A/R ------- Variance Bal. 1-30 31-60 61-90 90 Current Percentage Over ---------- 1-30 31-60 61-90 90 Chrgbk
G-6 Schedule 1A ----------- Concentration Level -------------------
Gross A/R Inelig. % of Inelig. Sales --------- ------- ---- ------- ----- Obligor Balance Amount Elig. Elig. A/R % Limit Amount YTD - ------- --------- ------- ----- --------- -------- ------- ----- Toys 'R' 60% Us, Inc. Walmart 20% Stores, Inc. The K-Mart 6% Corporation Target 10% Stores (Dayton- Hudson Corp.) Kay Bee 7% (Melville Corp.) Any Other 2% Obligor
Note: There must be a minimum of ten obligors on this listing which equate to the ten largest balances on the accounts receivable aging. DEFINITIONS: Eligible - Gross A/R obligor balance less ineligible obligor amount. -------- % of Eligible A/R - Eligible divided by Line 10 of Exhibit B. ----------------- Ineligible Amount - The percent of eligible A/R less the percent limit ----------------- multiplied by the eligible obligor amount. (If the % of eligible A/R is less than the % limit, the ineligible amount is zero). G-7 Schedule 1B ----------- TOYS 'R' US MAXIMUM FUNDED AMOUNT --------------------------------- A. Gross A/R ___________ B. Less: Ineligible ___________ C. Eligible (A-B) ___________ D. Less: Pro rata share of Contractual Reserves ___________ E. Net Eligible A/R (C-D) ___________ F. Advance Rate (Line 15 of Exhibit B) ___________ G. Maximum Funded Amount (E*F) ___________ H. Less Cap of $100,000,000 100,000,000 I. Excluded Amounts (If (G-H)> 1, (G-H),0) $ ===========
G-8 Tyco Funding Corporation Financial Covenant Calculations/Termination Events - -------------------------------------------------- Exhibit G-VI
Parent ------ Document Actual Covenant Reference Covenant Amount Level - --------- -------- ------ ----- Net Worth Interest Coverage Borrower -------- Document Actual Covenant Reference Covenant Amount Level - --------- -------- ------ ------- 9.01(i) Delinquency Ratio 7.00% 9.01(j) Default Ratio - Tyco 1 2.00% 9.01(k) Dilution Ratio - Tyco 1 April through December 3.00% January through March 15.00% 9.01(m) Turnover 150 days
G-9 TYCO FUNDING CORPORATION FINANCIAL COVENANT CALCULATIONS/TERMINATION EVENTS - --------------------------------------------------
PARENT Exhibit VI ------ Document Actual Covenant Reference Covenant Amount Level - --------- -------- ------ ----- Net Worth Interest Coverage BORROWER -------- Document Actual Covenant Reference Covenant Amount Level - --------- -------- ------ ----- 9.01i Delinquency Ratio 7.00% 9.01k Default Ratio - Tyco 2 2.00% 9.01m Dilution Ratio - Tyco 2 April through December 3.00% January through March 15.00% 9.01n Turnover 150 days
G-10 Exhibit G-VII TYCO FUNDING CORPORATION BALANCE SHEET AS OF: Cash Accounts Receivable Dilution Reserve Deferred Financing Costs Other Miscellaneous Assets ___________ TOTAL ASSETS =========== Loan Due To Redwood Deferred Income Other Miscellaneous Liabilities Common Stock Additional Paid in Capital Retained Earnings ___________ TOTAL LIABILITIES AND EQUITY =========== NET WORTH =========== G-11 Exhibit G-VIII I. RECONCILIATION -------------- End of Month Balance per Accounts Receivable roll forward Accounts Receivable Aging Balance _______________ Adjustments (List) _______________ General Ledger Balance _______________ II. NEW OBLIGORS ------------ CREDIT E.O.M. NAME LINE BALANCE ---- ---- ------- (i) (ii) (iii) (iv) (v) (vi) ___________ ____________ ___________ G-12 Exhibit H to Funding Agreement [FORM OF MONTHLY REPORT] H-1 EX-10.49 5 CREDIT AGREEMENT CANADA - ------------------------------------------------------------------------------- CREDIT AGREEMENT Exhibit 10.49 - ------------------------------------------------------------------------------- between TYCO TOYS (CANADA) INC. as Borrower and THE LENDER OR LENDERS NAMED HEREIN and GENERAL ELECTRIC CAPITAL CANADA INC. as Agent - ------------------------------------------------------------------------------- Dollar Equivalent Amount of US$20,000,000 REVOLVING TERM CREDIT FACILITY February 22, 1995 - ------------------------------------------------------------------------------- TABLE OF CONTENTS ARTICLE 1 AMOUNT AND TERMS OF CREDIT SECTION 1.1 Revolving Credit Advances............................ 1 SECTION 1.2 Non-Funding Lender; Actions by Lenders............... 3 SECTION 1.3 Repayment; Termination of Commitment................. 3 SECTION 1.4 Use of Proceeds...................................... 5 SECTION 1.5 Interest............................................. 5 SECTION 1.6 Eligible Accounts and Eligible Inventory............. 8 SECTION 1.7 Fees................................................. 8 SECTION 1.8 Cash Management System............................... 8 SECTION 1.9 Receipt of Payments.................................. 8 SECTION 1.10 Pro Rata Treatment................................... 9 SECTION 1.11 Application and Allocation of Payments............... 9 SECTION 1.12 Non-Receipt of Funds by Agent........................ 10 SECTION 1.13 Sharing of Payments, Etc............................. 11 SECTION 1.14 Settlement Procedures................................ 12 SECTION 1.15 Accounting........................................... 13 SECTION 1.16 Indemnity............................................ 14 SECTION 1.17 Access............................................... 16 SECTION 1.18 Taxes................................................ 17 SECTION 1.19 Additional Costs..................................... 18 ARTICLE 2 CONDITIONS PRECEDENT SECTION 2.1 Conditions to the Initial Revolving Credit Advance... 19 SECTION 2.2 Further Conditions to Each Revolving Credit Advance.. 22 ARTICLE 3 REPRESENTATIONS AND WARRANTIES SECTION 3.1 Corporate Existence; Compliance with Law............. 23 SECTION 3.2 Executive Offices; Collateral Locations; Corporate Names...................................... 23 SECTION 3.3 Corporate Power; Authorization; Enforceable Obligations.......................................... 23 SECTION 3.4 Financial Statements and Projections................. 24 SECTION 3.5 Material Adverse Change.............................. 24 SECTION 3.6 Ownership of Property; Liens......................... 24 SECTION 3.7 Restrictions; No Default; Material Contracts......... 25 SECTION 3.8 Labor Matters........................................ 25 SECTION 3.9 Ventures, Subsidiaries and Equity Investments; Outstanding Stock and Indebtedness................... 26 SECTION 3.10 Taxes................................................ 26 SECTION 3.11 No Foreign Business.................................. 27 SECTION 3.12 Benefit and Pension Plans............................ 27 SECTION 3.13 No Litigation........................................ 27 SECTION 3.14 Brokers.............................................. 28 (ii) SECTION 3.15 Patents, Trademarks, Copyrights and Licenses......... 28 SECTION 3.16 Full Disclosure...................................... 28 SECTION 3.17 Environmental Matters................................ 29 SECTION 3.18 Insurance Policies................................... 30 SECTION 3.19 Deposit and Disbursement Accounts.................... 30 SECTION 3.20 Existing US Credit Agreement......................... 30 SECTION 3.21 Subordinated Debt.................................... 31 SECTION 3.22 Promissory Notes and Pledge.......................... 31 SECTION 3.23 Inventory............................................ 31 SECTION 3.24 Deemed Repetition.................................... 31 ARTICLE 4 FINANCIAL STATEMENTS AND INFORMATION SECTION 4.1 Reports and Notices.................................. 31 SECTION 4.2 Communication with Accountants....................... 31 ARTICLE 5 AFFIRMATIVE COVENANTS SECTION 5.1 Maintenance of Existence and Conduct of Business..... 32 SECTION 5.2 Payment of Obligations, Charges and Claims........... 33 SECTION 5.3 Books and Records.................................... 33 SECTION 5.4 Litigation........................................... 33 SECTION 5.5 Insurance............................................ 34 SECTION 5.6 Compliance with Laws................................. 35 SECTION 5.7 Agreements........................................... 35 SECTION 5.8 Supplemental Disclosure.............................. 35 SECTION 5.9 Environmental Matters................................ 36 SECTION 5.10 Securities Regulatory Filings; Certain Other Notices. 38 SECTION 5.11 Canadian Benefit Plans............................... 38 SECTION 5.12 Landlord, Warehouseman/Bailee and Mortgagee Agreements........................................... 39 SECTION 5.13 Certain Obligations Respecting Subsidiaries.......... 39 SECTION 5.14 Application of Proceeds.............................. 39 SECTION 5.15 Fiscal Year.......................................... 39 SECTION 5.16 Report to Other Creditors............................ 39 SECTION 5.17 Casualty and Condemnation............................ 39 SECTION 5.18 Intellectual Property................................ 40 SECTION 5.19 New Locations........................................ 41 SECTION 5.20 Security............................................. 41 SECTION 5.21 Currency and Interest Rate Hedging................... 42 ARTICLE 6 NEGATIVE COVENANTS SECTION 6.1 Mergers, Subsidiaries, Etc........................... 43 (iii) SECTION 6.2 Investments.......................................... 43 SECTION 6.3 Indebtedness......................................... 43 SECTION 6.4 Affiliate and Employee Loans and Transactions........ 43 SECTION 6.5 Capital Structure and Business....................... 43 SECTION 6.6 Guaranteed Indebtedness.............................. 44 SECTION 6.7 Liens................................................ 44 SECTION 6.8 Sale of Assets....................................... 44 SECTION 6.9 Material Contracts................................... 44 SECTION 6.10 ERISA................................................ 45 SECTION 6.11 Canadian Benefit and Pension Plans................... 45 SECTION 6.12 Sale-Leasebacks...................................... 45 SECTION 6.13 Cancellation of Indebtedness......................... 45 SECTION 6.14 Restricted Payments.................................. 46 SECTION 6.15 Real Property Leases................................. 46 SECTION 6.16 Bank Accounts........................................ 46 SECTION 6.17 No Speculative Transactions.......................... 46 SECTION 6.18 Limitation on Negative Pledge Clauses, Etc........... 46 SECTION 6.19 Accounting Changes................................... 47 SECTION 6.20 Amendments and Modifications to Debt Documents....... 47 SECTION 6.21 Borrowing Solely for Immediate Cash Requirements..... 47 ARTICLE 7 TERM SECTION 7.1 Duration............................................. 47 SECTION 7.2 Survival of Obligations.............................. 47 ARTICLE 8 EVENTS OF DEFAULT; RIGHTS AND REMEDIES SECTION 8.1 Events of Default.................................... 48 SECTION 8.2 Remedies............................................. 51 SECTION 8.3 Waivers by Borrower.................................. 51 SECTION 8.4 Application of Proceeds.............................. 51 ARTICLE 9 AGENT SECTION 9.1 Appointment, Powers and Immunities................... 52 SECTION 9.2 Reliance by Agent.................................... 53 SECTION 9.3 Defaults............................................. 53 SECTION 9.4 Rights as a Lender................................... 53 SECTION 9.5 Indemnification...................................... 54 SECTION 9.6 Non-Reliance on Agent and Other Lenders.............. 54 SECTION 9.7 Failure to Act....................................... 55 SECTION 9.8 Successor Agent...................................... 55 SECTION 9.9 Consents under Loan Documents........................ 55 (iv) SECTION 9.10 Collateral Matters................................... 56 ARTICLE 10 SUCCESSORS AND ASSIGNS SECTION 10.1 Successors and Assigns............................... 56 SECTION 10.2 Assignments and Participations....................... 57 ARTICLE 11 MISCELLANEOUS SECTION 11.1 Complete Agreement; Modification of Agreement........ 59 SECTION 11.2 Fees and Expenses.................................... 59 SECTION 11.3 No Waiver............................................ 60 SECTION 11.4 Remedies............................................. 61 SECTION 11.5 Severability......................................... 61 SECTION 11.6 Conflict of Terms.................................... 61 SECTION 11.7 Right of Set-off..................................... 61 SECTION 11.8 Judgment Currency.................................... 62 SECTION 11.9 Authorized Signature................................. 62 SECTION 11.10 Notices.............................................. 63 SECTION 11.11 Section Titles....................................... 65 SECTION 11.12 Counterparts......................................... 65 SECTION 11.13 Time of the Essence.................................. 65 SECTION 11.14 Public Announcements and Confidentiality............. 65 SECTION 11.15 GOVERNING LAW........................................ 66 SECTION 11.16 Further Assurances................................... 66 (v) INDEX OF ANNEXES, SCHEDULES AND EXHIBITS Annex A - Definitions; Rules of Construction Annex B - Cash Management System Annex C - Schedule of Closing Documents Annex D - Schedule of Certain Fees Annex E - Financials, Projections and Notices Annex F - Insurance Requirements Schedule 3.2 - Executive Office; Collateral Locations; Corporate Names Schedule 3.4 - Financials and Projections Schedule 3.5 - Restricted Payments Schedule 3.6 - Real Estate and Leases Schedule 3.7 - Material Contracts Schedule 3.8 - Labor Matters Schedule 3.9 - Ventures, Subsidiaries and Equity Investments; Outstanding Stock and Indebtedness Schedule 3.10 - Taxes Schedule 3.12 - Benefit and Pension Plans Schedule 3.13 - Litigation Schedule 3.15 - Patents, Trademarks, Copyrights and Licenses Schedule 3.17 - Environmental Matters Schedule 3.18 - Insurance Policies Schedule 3.19 - Deposit and Disbursement Accounts Schedule 6.2 - Investments Schedule 6.4 - Affiliate and Employee Loans and Transactions Schedule 6.6 - Guaranteed Indebtedness Schedule 6.7 - Liens Schedule 11.8 - Signatures of Authorized Signatories Exhibit 1.1(c) - Form of Notice of Revolving Credit Advance Exhibit 1.1(d) - Form of Revolving Credit Note Exhibit 1.1(e) - Form of Borrowing Base Certificate Exhibit 1.5(d) - Form of Notice of Fixed Rate Election Exhibit 3.4 - Projections Exhibit A - Agreement Respecting Distribution Agreement Exhibit B - Assignment of Monies Payable Under Insurance Policies Exhibit C - General Assignment of Book Debts Exhibit D - Hypothec Exhibit E - Security Agreement Exhibit F - Supplier Waiver and Assignment Exhibit G - Tyco Industries Pledge Agreement Exhibit H - Cash Collateral Agreement CREDIT AGREEMENT THIS CREDIT AGREEMENT ("Agreement") is entered into as of February 22, --------- 1995, between TYCO TOYS (CANADA) INC., a Canada corporation ("Borrower"), each of the lenders listed on the signature pages hereof or which pursuant to Section ------- 10.2 becomes a "Lender" hereunder (each individually, a "Lender", and - ---- ------ collectively, "Lenders"), and GENERAL ELECTRIC CAPITAL CANADA INC., a Canada ------- corporation, as agent hereunder for the Lenders (in such capacity, together with its successors in such capacity, "Agent"). ----- RECITALS -------- A. Borrower desires to borrow up to the Dollar Equivalent Amount of US$20,000,000 in the aggregate from Lenders, and Lenders are willing to make secured revolving loans in favour of Borrower of up to such amount in the aggregate upon the terms and conditions set forth herein. B. Unless otherwise defined herein, capitalized terms used herein shall have the respective meanings ascribed to them in Annex A and, for purposes of ------- this Agreement and the other Loan Documents, the rules of construction set forth in Annex A shall govern. Unless otherwise indicated, all references in this ------- Agreement to articles, sections, subsections, schedules, annexes, exhibits, and attachments shall refer to the corresponding articles, sections, subsections, schedules, annexes, exhibits, and attachments of or to this Agreement. All schedules, annexes, exhibits and attachments hereto, or expressly identified to this Agreement, are incorporated herein by reference, and taken together, shall constitute but a single agreement. Unless otherwise expressly set forth herein, or in a written amendment referring to such schedules and annexes, all schedules and annexes referred to herein shall mean the schedules and annexes as in effect as of the Closing Date. These Recitals shall be construed as part of this Agreement. NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, the parties hereto agree as follows: ARTICLE 1 AMOUNT AND TERMS OF CREDIT SECTION 1.1 Revolving Credit Advances. ------------------------- (a) Upon and subject to the terms and conditions hereof, each Lender severally agrees to make available, from time to time until the Commitment Termination Date, for Borrower's use and upon the request of Borrower therefor to Agent, advances (each, a "Revolving Credit Advance") in an aggregate ------------------------ principal amount at any time outstanding up to but not exceeding the Revolving Credit Commitment of such Lender, provided that in no event shall (i) the -------- aggregate 2 principal amount of the Revolving Credit Loan exceed the Maximum Revolving Credit Commitment and (ii) the aggregate outstanding principal amount of the Revolving Credit Advances made by all Lenders exceed the Borrowing Base. Borrower may from time to time borrow, repay and reborrow Revolving Credit Advances under this Section 1.1. ----------- (b) Borrower shall give Agent (which shall promptly notify Lenders) notice of each borrowing requested by Borrower hereunder, as provided in Section 1.1 ----------- (c), and, subject to Section 1.14, at or before 1:00 p.m. on the date specified - --- ------------ for such borrowing, each Lender shall make available the amount of the Revolving Credit Advance to be made by it to Borrower on such date to Agent to such account of Agent as Agent may designate, in immediately available funds, for the account of Borrower. Agent shall before 3:00 p.m. on the date specified for such borrowing wire, in immediately available funds, to the Disbursement Account into which Borrower has requested that such borrowing be made the aggregate amount of the Revolving Credit Advance so made available by Lenders to Agent. (c) Each notice of a borrowing by Borrower of a Revolving Credit Advance shall be given in writing (by telecopy or hand delivery) to Agent at its address at 2300 Meadowvale Blvd., Mississauga, Ontario L5N 5P9, to the attention of the Vice-President, Commercial Finance or such other Person as may be reasonably designated in writing by Agent to Borrower, Telephone No. (905) 858-5218, Telecopy No. (905) 858-5456, with a copy to 501 Merritt Seven, Norwalk, Connecticut 06851, to the attention of Account Manager-Tyco or such other Person as may be designated in writing by Agent to Borrower, Telephone No. (203) 840- 4500, Telecopy No. (203) 840-4680, in each case given no later than 9:30 a.m. on the Business Day of the proposed Revolving Credit Advance. Each such notice of borrowing (a "Notice of Revolving Credit Advance") shall be substantially in the ---------------------------------- form of Exhibit 1.1(c) hereto, specifying therein the requested date, the -------------- amount of such Revolving Credit Advance, the Disbursement Account into which such Revolving Credit Advance shall be made, and such other information as may be reasonably required by Agent. Agent and Lenders shall be entitled to rely upon and shall be fully protected under this Agreement in relying upon any Notice of Revolving Credit Advance believed by Agent to be genuine and to assume that the persons executing and delivering the same were duly authorized unless the responsible individual acting thereon for Agent shall have actual knowledge to the contrary. (d) The Revolving Credit Advances made by each Lender to Borrower shall be evidenced by a single promissory note of Borrower for such Lender substantially in the form of Exhibit 1.1(d) hereto (collectively the "Revolving Credit -------------- Notes"), dated the date hereof, payable to such Lender in a maximum principal amount equal to the amount of its Revolving Credit Commitment as originally in effect and otherwise duly completed. The date and amount of each Revolving Credit Advance made by each Lender to Borrower, the dates of the commencement and the termination of each Interest Period and each payment of principal and interest with respect thereto and all other amounts becoming due from Borrower to such Lender and to Agent for the amount of such Lender or Agent shall be recorded on the books and records of Agent, which books and records shall constitute prima facie evidence of the accuracy of the information therein ----- ----- recorded and of the indebtedness of Borrower to such Lender and Agent, absent manifest 3 error. The entire unpaid balance of the Revolving Credit Loan, together with accrued but unpaid interest thereon, shall be immediately due and payable on the Commitment Termination Date. (e) Borrower shall furnish to Agent and each Lender a Borrowing Base Certificate substantially in the form of Exhibit 1.1(c) hereto, completed and -------------- signed by the Chief Executive Officer or Chief Financial Officer of Borrower, which sets forth a calculation of the Borrowing Base at the times and for the periods set forth in Annex E. Borrower agrees that in making any Revolving ------- Credit Advance to Borrower hereunder, Agent and each Lender shall be entitled to rely upon the most recent Borrowing Base Certificate delivered to Agent and the Lenders by Borrower. Borrower further agrees that if Borrower shall have failed to deliver a Borrowing Base Certificate to Agent and Lenders within the specified period, Lenders shall be under no obligation to make any further Revolving Credit Advances to Borrower until such time as such Borrowing Base Certificate is delivered to Agent and Lenders. SECTION 1.2 Non-Funding Lender; Actions by Lenders. -------------------------------------- (a) The failure of any Lender (such Lender, a "Non-Funding Lender") to make ------------------ any Revolving Credit Advance to be made by it on the date specified therefor shall not relieve any other Lender (each such other Lender, an "Other Lender") ------------ of its obligation to make its Revolving Credit Advance on such date, but neither any Other Lender nor Agent shall be responsible for the failure of any Non- Funding Lender to make a Revolving Credit Advance to be made by such Non-Funding Lender, and no Non-Funding Lender shall have any obligation to Agent or any Other Lender for the failure by such Non-Funding Lender. Notwithstanding anything set forth herein to the contrary, a Non-Funding Lender shall not have any voting or consent rights under or with respect to any Loan Document or constitute a "Lender" (or be included in the calculation of "Required Lenders" hereunder) for any voting or consent rights under or with respect to any Loan Document. (b) Anything in this Agreement to the contrary notwithstanding, each Lender hereby agrees with each other Lender that no Lender shall take any action to protect or enforce its rights arising out of this Agreement, the Revolving Credit Notes or the other Loan Documents (including exercising any rights of offset) without first obtaining the prior written consent of Agent and Required Lenders, it being the intent of Lenders that any such action to protect or enforce rights under this Agreement, the Revolving Credit Notes or the other Loan Documents shall be taken in concert and at the direction or with the consent of Agent and Required Lenders and not individually by a single Lender. SECTION 1.3 Repayment; Termination of Commitment. ------------------------------------ (a) Borrower hereby promises to pay to Agent, for the account of each Lender, the entire outstanding principal amount of the Revolving Credit Loan and unless otherwise payable hereunder, all other amounts outstanding under this Agreement, and the Revolving Credit Loan shall mature, on the Commitment Termination Date. 4 (b) If the outstanding principal balance of the Revolving Credit Loan shall at any time exceed the Borrowing Base, Borrower shall immediately repay to Agent the Revolving Credit Loan in the amount of such excess. If the aggregate principal amount of the Revolving Credit Loan shall at any time exceed the Maximum Revolving Credit Commitment, Borrower shall immediately repay the Revolving Credit Loan in the amount of such excess. (c) Borrower shall have the right at any time, upon ten (10) days' prior written notice to Agent, to terminate voluntarily the Revolving Credit Commitments of all (but not less than all) of Lenders (in whole but not in part) without premium or penalty other than payment to the Agent of the Termination Fee, if any. Upon such termination, Borrower's right to receive Revolving Credit Advances shall simultaneously terminate and Borrower's obligation to pay the Non-Use Fee shall terminate, and notwithstanding anything to the contrary contained herein or in any Revolving Credit Note, the entire outstanding balance of the Revolving Credit Loan shall be immediately due and payable. On the date of such termination, Borrower shall pay to Agent in immediately available funds all of the Obligations, including the Termination Fee, if any, and any accrued and unpaid interest. Notwithstanding the foregoing, Borrower may not voluntarily terminate the Revolving Credit Commitments unless concurrently therewith the commitments of the Global Lenders under each of the other Overall Facilities to provide financial accommodations thereunder are terminated and all obligations, contingent or otherwise, of the "Loan Parties" thereunder (as defined thereunder) shall be paid in full in immediately available funds. (d) If the aggregate of the unpaid principal balance of the Revolving Credit Loan should at any time exceed the Maximum Revolving Credit Commitment or the unpaid principal balance of the Revolving Credit Advances owing by Borrower shall exceed the Borrowing Base, the excess balance shall nevertheless constitute Obligations that are secured by the Collateral and entitled to all of the benefits thereof and of the Loan Documents and shall be deemed to be evidenced by the Revolving Credit Notes. (e) Borrower shall make prepayments to Agent on the outstanding principal amount of the Revolving Credit Loan in an amount equal to one hundred percent (100%) of the net proceeds of any sale or other disposition of any Collateral (other than (i) sales of Inventory in the ordinary course of business and (ii) other sales and dispositions of any Collateral permitted hereunder where the aggregate net proceeds thereof for all such sales and dispositions made in any Fiscal Year shall not exceed US$100,000, or the Equivalent Amount thereof,) or of the issuance by Borrower or any of its Subsidiaries of any Indebtedness (other than Indebtedness permitted under Section 6.3), in each instance, ----------- contemporaneously with any such sale, other disposition or issuance. Subject to Section 8.4., such payments shall be applied first, without premium or penalty - ------------ (except as provided in Section 1.5(g)), against outstanding amounts under the ----------- Revolving Credit Loan, and then to the other Obligations in such manner and order as Agent shall determine (or if all Lenders determine otherwise, as Lenders so determine). The foregoing shall not constitute a consent by Agent or any Lender to any sale or other disposition of Collateral or to any issuance of Indebtedness by Borrower or any of its Subsidiaries not otherwise expressly permitted hereunder. 5 (f) Borrower agrees to repay the Revolving Credit Advances to the extent necessary to cause, for a period of thirty (30) consecutive days occurring at any time between December 1 of each year (commencing December, 1995) and April 30 of the immediately succeeding year, the outstanding principal balance of the Revolving Credit Loan to be not more than the Borrowing Base less the value of ---- Eligible Inventory included in the Borrowing Base. (g) All payments in respect of the Obligations shall be made in the currency in which the Obligations are denominated. (h) All Obligations shall be immediately due and payable, without notice, on the "Commitment Termination Date", as defined in, and pursuant to, the Receivables Funding Agreement. SECTION 1.4 Use of Proceeds. Borrower shall use the proceeds of the --------------- Revolving Credit Loan for (i) the refinancing of certain outstanding Indebtedness as provided in Section 2.1(c), (ii) the payment of costs and -------------- expenses of the financing transactions contemplated by this Agreement that are payable by Borrower, and (iii) for general working capital and for other corporate purposes of Borrower not prohibited by the terms of this Agreement and the other Loan Documents. SECTION 1.5 Interest. -------- (a) Borrower shall pay to Agent for the account of each Lender interest on the Revolving Credit Advances at the following times: (i) with respect to Revolving Credit Advances bearing interest based upon the Index Rate, in arrears for the preceding calendar month, on the first day of each calendar month, commencing on March 1, 1995 and, with respect to each Fixed Rate Tranche, on the last day of the relevant Interest Period therefor; (ii) if not otherwise paid in full under clause (a)(i) above because the Commitment Termination Date occurs on a date other than on the first day of a calendar month, on the Commitment Termination Date; and (iii) if any interest accrues or remains payable after the Commitment Termination Date, upon demand. Whenever any payment to be made hereunder or under any other Loan Document or on any Revolving Credit Advance shall be stated to be due and payable, or whenever the last day of any Interest Period would otherwise occur, on a day which is not a Business Day, such payment shall be made, and the last day of such Interest Period shall occur, on the next succeeding Business Day and such extension of time shall in such case be included in computing interest on such payment. Interest shall be calculated by Agent on a daily basis and on the basis of a three hundred sixty (360) day year, in each case for the actual number of days occurring in the period for which such interest is payable. Each determination by Agent of an interest rate hereunder and each calculation of interest payable hereunder shall be conclusive and binding for all purposes, absent manifest error or bad faith. 6 (b) Except as provided in paragraph (c) below, Borrower shall be obligated to pay interest to Agent for the account of each Lender on the aggregate outstanding balance of the Revolving Credit Advances made to Borrower from the date made until paid in full at a floating rate equal to the Index Rate in effect from time to time plus the Margin. ---- (c) Provided that no Default or Event of Default has occurred and is continuing, and subject to the terms and conditions set forth herein, Borrower may elect in the manner provided in paragraph (d) below that the entire principal amount of the Revolving Credit Loan, or a part thereof (any such entire principal amount or part thereof, a "Fixed Rate Tranche"), bear interest ------------------ at a fixed rate (each such rate, a "Fixed Rate") for an Interest Period equal to ---------- the BA Rate (as in effect for such Interest Period) plus the Margin; provided, ---- ------- that (i) not more than two Interest Periods shall be in effect at any time with respect to the Revolving Credit Loan; (ii) each Fixed Rate Tranche shall be in a minimum principal amount of $1,000,000; (iii) no Interest Period shall extend beyond the Commitment Termination Date; (iv) Fixed Rate Tranches shall be in amounts that Borrower reasonably anticipates will not exceed the outstanding principal amount of the Revolving Credit Advances owing at any time during the Interest Period; and (v) the principal amount of the Fixed Rate Tranche to which any Interest Period relates shall not be reduced, by payment, prepayment or otherwise, prior to the last day of such Interest Period, unless such payment or prepayment is accompanied by payment of the amounts specified in paragraph (g) below. (d) Subject to the requirements set forth in paragraph (c) above, Borrower may, on two (2) Business Days written notice to Agent, elect that a Fixed Rate Tranche with respect to all or any portion of the Revolving Credit Loan bear interest at a Fixed Rate. Each such notice (a "Notice of Fixed Rate Election") ----------------------------- shall be substantially in the form of Exhibit 1.5(d) hereto and shall specify -------------- the amount of the Fixed Rate Tranche as to which such election is made and the date on which Borrower elects to have the Interest Period commence, the immediately preceding day of which must be a Business Day. Agent and Lenders shall be entitled to rely upon and shall be fully protected under this Agreement in relying upon any Notice of Fixed Rate Election believed by Agent to be genuine and to assume that the persons executing and delivering the same were duly authorized unless the responsible individual acting thereon for Agent shall have actual notice to the contrary. In the event that Borrower shall fail to give a new Notice of Fixed Rate Election with respect to any Fixed Rate Tranche in accordance with this paragraph (d), the entire principal amount of such Fixed Rate Tranche shall thereafter bear interest based upon the Index Rate as provided in paragraph (b) above, commencing with the last day of the Interest Period applicable thereto (without duplication), unless and until Borrower shall thereafter give a new Notice of Fixed Rate Election in accordance with this paragraph (d). (e) Upon the occurrence and during the continuation of any Default or Event of Default, (x) the interest rate applicable to principal on the Revolving Credit Advances shall be increased to the Default Rate and (y) interest on interest and other Obligations (excluding principal on the Revolving Credit Advances) in default shall be charged at the Default Rate (unless such increase or charge is waived in writing by the Required Lenders) and shall be payable on the earlier of the first day of each calendar month thereafter and demand therefor. 7 (f) If any provision of this Agreement or any of the other Loan Documents would oblige Borrower to make any payment of interest or other amount payable to any Lender in an amount or calculated at a rate which would be prohibited by law or would result in a receipt by that Lender of interest at a criminal rate (as such terms are construed under the Criminal Code (Canada)), then notwithstanding such provision, such amount or rate shall be deemed to have been adjusted with retroactive effect to the maximum amount or rate of interest, as the case may be, as would not be so prohibited by law or so result in a receipt by that Lender of interest at a criminal rate, such adjustment to be effected, to the extent necessary, as follows: (i) firstly, by reducing the amount or rate of interest required to be paid to the affected Lender under this Section 1.5; and ----------- (ii) thereafter, by reducing any fees, commissions, premiums and other amounts required to be paid to the affected Lender which would constitute interest for purposes of Section 347 of the Criminal Code (Canada). Notwithstanding the foregoing and after giving effect to all adjustments contemplated thereby, if any Lender shall have received an amount in excess of the maximum permitted by that section of the Criminal Code (Canada), then Borrower shall be entitled, by notice in writing to the affected Lender, to obtain reimbursement from that Lender in an amount equal to such excess, and pending such reimbursement, such amount shall be deemed to be an amount payable by that Lender to Borrower. Any amount or rate of interest referred to in this Section 1.5(f) shall be -------------- determined in accordance with generally accepted actuarial practices and principles as an effective annual rate of interest over the term that any Revolving Credit Advance remains outstanding on the assumption that any charges, fees or expenses that fall within the meaning of "interest" (as defined in the Criminal Code (Canada)) shall, if they relate to a specific period of time, be pro-rated over that period of time and otherwise be pro-rated over the period from the Closing Date to the Termination Date. (g) In order to induce Lenders to fund and maintain any Fixed Rate Tranche at a Fixed Rate on the terms provided herein, and in consideration of the entering into by Lenders of funding arrangements from time to time in contemplation thereof, if any Fixed Rate Tranche is repaid in whole or in part on any day other than the last day of the Interest Period therefor (whether any such repayment is made pursuant to any provision of this Agreement or any other Loan Document or is the result of acceleration, by operation of law or otherwise), Borrower shall indemnify and hold harmless each Lender from and against and in respect of any and all losses, costs and expenses resulting from, or arising out of or imposed upon or incurred by such Lender by reason of the liquidation or reemployment of funds acquired or committed to be acquired by such Lender to fund or maintain such Fixed Rate Tranche at the Fixed Rate elected by Borrower, pursuant to such Lender's customary funding arrangements. The amount of any losses, costs or expenses resulting in an obligation of Borrower to make a payment pursuant to the foregoing sentence shall not include any losses attributable to a Lender's lost profit, but shall represent the excess, if any, of (x) such Lender's cost or deemed cost of obtaining funding for the amount necessary to fund or maintain its pro rata share of such Fixed --- ---- Rate Tranche at the Fixed Rate elected by Borrower, pursuant to such Lender's customary funding arrangements, as reasonably determined by such Lender (which may be computed by any Lender on the basis of such funds having been borrowed at a rate equal to one percent (1%) over CDOS on the first day of the Interest Period in respect of such Fixed Rate Tranche), over (y) the return such Lender would receive on its reemployment of such funds, as reasonably determined by each Lender (which, if 8 such Lender's cost of obtaining funding is computed pursuant to the parenthetical to clause (x) above, may be computed by any Lender on the basis of its reinvestment of such funds at CDOS on the date of repayment of such Fixed Rate Tranche); provided, that if any Lender terminates any funding arrangements -------- in respect of its pro rata share of any such Fixed Rate Tranche, the amount of --- ---- such losses, costs and expenses shall also include the cost to such Lender of such termination. The determination of such amount by any Lender, when evidenced by a certificate from that Lender giving a reasonably detailed calculation of the amount of said cost, expense, claim, penalty, liability, loss, fee, damage or other charge, shall be presumed correct in the absence of manifest error or bad faith. (h) For purposes of disclosure pursuant to the Interest Act (Canada), the annual rates of interest or fees to which the rates of interest or fees provided in this Agreement (and stated herein to be computed on the basis of a 360 day year) are equivalent are the rates so determined multiplied by the actual number of days in the applicable calendar year and divided by 360. SECTION 1.6 Eligible Accounts and Eligible Inventory. Based on the most ---------------------------------------- recent Borrowing Base Certificate delivered by Borrower to Agent and on other information available to Agent, Agent shall determine which Accounts of Borrower shall be deemed to be "Eligible Accounts" and which Inventory of Borrower shall be deemed to be "Eligible Inventory", for purposes of determining the amounts, if any, to be advanced under the Revolving Credit Loan. SECTION 1.7 Fees. As compensation for Agent's and Lenders' costs, ---- skills, services and efforts incurred and expended in making the Revolving Credit Loan available to Borrower, Borrower agrees to pay to Agent for its own account or the account of Lenders, as the case may be, the fees set forth in Annex D and the Fee Agreement. - ------- SECTION 1.8 Cash Management System. On or prior to the Closing Date, ---------------------- Borrower will establish and maintain until the Termination Date, the cash management system described in Annex B. ------- SECTION 1.9 Receipt of Payments. Borrower shall make each payment under ------------------- this Agreement not later than 1:00 p.m. on the day when due in immediately available funds to the Collection Account. For purposes of computing interest and Fees and determining the borrowing availability hereunder: (a) all payments (including cash sweeps) consisting of cash, wire, or electronic transfers in immediately available funds shall be deemed received by Agent upon deposit in the Collection Account and notice from the financial institution at which the Collection Account is located to Agent of such deposit; and (b) all payments consisting of cheques, drafts, or similar non-cash items shall be deemed received upon receipt of good funds following deposit in the Collection Account (together with notice from the financial institution at which the Collection Account is located to Agent of such deposit). Subject to Section 1.14, each ------------ payment received by Agent under this Agreement or any Revolving Credit Note for the account of any Lender shall be paid by Agent promptly to such Lender, in the same funds received, for application to the Revolving Credit Loan or other Obligation in respect of which such payment is made. 9 SECTION 1.10 Pro Rata Treatment. Except to the extent otherwise provided ------------------ herein: (a) each Revolving Credit Advance (including any Revolving Credit Advance made pursuant to Section 1.14(b)) shall be incurred and made by Lenders, ---------------- pro rata according to the amounts of their respective ratable portion of the - --- ---- Revolving Credit Commitments; (b) each payment or prepayment of principal of the Revolving Credit Loan shall be made to Agent for the account of Lenders, pro --- rata in accordance with the respective unpaid principal amounts of the Revolving - ---- Credit Loan held by Lenders; (c) each payment of interest on the Revolving Credit Loan shall be made to Agent for the account of Lenders pro rata in --- ---- accordance with the amounts of interest on the Revolving Credit Loan then due and payable to Lenders; and (d) each payment of Non-Use Fees shall be made to Agent for the account of Lenders, pro rata according to the amounts of their --- ---- respective Revolving Credit Commitments. SECTION 1.11 Application and Allocation of Payments. Subject to Section -------------------------------------- ------- 8.4, Borrower irrevocably waives the right to direct the application of any and - --- all payments at any time or times hereafter received by Agent or any Lender from or on behalf of Borrower or any other Loan Party, and Borrower irrevocably agrees that Agent and Lenders shall have the continuing exclusive right to apply any and all such payments against the then due and payable Obligations and in repayment of the Revolving Credit Advances owing by Borrower as herein expressly provided or permitted or, if an Event of Default is continuing, as Lenders may deem advisable; provided, that the prepayments required or permitted under -------- Section 1.3(e) shall be applied in the manner described in such Section. In the - -------------- absence of a specific determination by all Lenders with respect thereto (which determination may be made without the consent of Borrower only if an Event of Default is continuing) or unless otherwise expressly provided herein, the same shall be applied in the following order: (a) then due and payable Fees, expenses and other Obligations (including Revolving Credit Advances made by Agent in its capacity as Agent) owing by Borrower to Agent; (b) then due and payable Fees and expenses of Lenders owing by Borrower; (c) then due and payable interest payments owing by Borrower; (d) Obligations to Lenders owing by Borrower other than Fees, expenses and interest and principal payments; and (e) then due and payable principal payments on the Revolving Credit Loan owing by Borrower; provided, that if any such payments are received from or on behalf of any Loan - ------- Party other than Borrower or if an Event of Default shall occur and be continuing, such payments shall be applied to the Obligations in such manner and order as Agent shall determine (or if all Lenders determine otherwise, as all Lenders so determine). If after payment in full of all then due and payable Obligations, there shall remain with Agent any excess money received from or on behalf of Borrower, then Agent promptly shall return that excess money to Borrower. Agent, on behalf of Lenders, is authorized to, and at its option may, make or cause to be made Revolving Credit Advances by Lenders on behalf of Borrower for payment of all Fees, expenses, charges, costs, principal, interest, or other Obligations then due and payable by Borrower under this Agreement or any of the Loan Documents, even if the making of such Revolving Credit Advance causes the outstanding balance of the Revolving Credit Loan to exceed the Maximum Revolving Credit Commitment or the outstanding principal balance of the Revolving Credit Advances to exceed the Borrowing Base, in which case the terms of Section 1.3(d) shall apply. ----------- 10 SECTION 1.12 Non-Receipt of Funds by Agent. Unless Agent shall have been ----------------------------- notified by a Lender or Borrower (in either case, "Payor") one (1) Business Day ----- prior to the date on which such Payor is to make payment to Agent of (in the case of a Lender) the proceeds of a Revolving Credit Advance to be made by such Lender hereunder or (in the case of Borrower) a payment to Agent for account of Lenders hereunder (such payment being herein called the "Required Payment") that ---------------- such Payor does not intend to make the Required Payment to Agent, Agent may assume that the Required Payment has been made and may, in reliance upon such assumption (but shall not be required to), make the amount thereof available to the intended recipient(s) (Borrower or Lenders, as applicable,) on such date; and, if such Payor has not in fact made the Required Payment to Agent, the recipient(s) of such payment (Borrower or Lenders, as applicable,) shall, on demand, repay to Agent the amount so made available together with interest thereon in respect of each day during the period commencing on the date (the "Advance Date") such amount was so made available by Agent until the date Agent - ------------- recovers such amount, at a rate per annum equal to the Index Rate in effect from time to time plus the Margin and, if such recipient(s) shall fail promptly to make such payment, Agent shall be entitled to recover such amount, on demand, from such Payor, together with interest as aforesaid; provided, that if neither -------- the recipient(s) nor such Payor shall return the Required Payment to Agent within three (3) Business Days of the Advance Date, then, retroactively to the Advance Date, such Payor and the recipient(s) shall each be obligated to pay interest on the Required Payment (without duplication) as follows: (a) if the Required Payment represents a payment to be made by Borrower to Lenders, Borrower and the recipient Lenders shall (without duplication) each be obligated retroactively to the Advance Date to pay interest in respect of the Required Payment at the Default Rate (and, in case the recipient Lenders shall return the Required Payment to Agent, without limiting the obligation of Borrower hereunder to pay interest to such recipient Lenders at the Default Rate in respect of the Required Payment); and (b) if the Required Payment represents proceeds of a Revolving Credit Advance to be made by Lenders to Borrower, such Lenders and Borrower shall (without duplication) each be obligated retroactively to the Advance Date to pay interest in respect of the Required Payment at the rate of interest provided for such Required Payment pursuant hereto (and, in case Borrower shall return the Required Payment to Agent, without limiting any claim Borrower may have against Lenders in respect of the Required Payment). Nothing in this Section 1.12 or elsewhere in this Agreement or the other ------------ Loan Documents shall be deemed to require Agent to advance funds on behalf of any Lender or to relieve any Lender from its obligation to fulfil its Revolving Credit Commitment hereunder or to prejudice any rights that Borrower may have against any Lender or Agent as a result of any default by such Lender or Agent hereunder, as applicable. 11 SECTION 1.13 Sharing of Payments, Etc. ------------------------- (a) Borrower agrees that, in addition to (and without limitation of) any right of setoff, banker's lien or counterclaim a Lender may otherwise have, each Lender shall be entitled, at its option (but subject, as between Lenders, to the provisions of Section 1.2(b)), to offset balances held by it for the account of --------------- Borrower at any of its offices, in Dollars or in any other currency (at the conversion rate at which it would be prepared to sell such currency in Toronto, Ontario against the currency in which the obligation is denominated), against any principal of or interest on any of such Lender's pro rata portion of the --- ---- Revolving Credit Loan (including any Revolving Credit Advances deemed made by such Lender under Section 1.14(b)) or any other amount payable to such Lender ---------------- hereunder, that is not paid when due (regardless of whether such balances are then due to Borrower), in which case it shall promptly notify Borrower and Agent thereof; provided, that such Lender's failure to give such notice shall not -------- affect the validity thereof. (b) If any Lender shall obtain from Borrower payment of any principal of or interest on the pro rata portion of the Revolving Credit Loan owing to it or --- ---- payment of any other amount under this Agreement, any Revolving Credit Note held by it, or any other Loan Document through the exercise of any right of setoff, banker's lien or counterclaim or similar right or otherwise (other than from Agent as provided herein), and, as a result of such payment, such Lender shall have received a greater percentage of the principal of or interest on the Revolving Credit Loan or such other amounts then due hereunder or thereunder by Borrower to such Lender than the percentage received by any other Lender, it shall promptly pay to Agent, for the benefit of Lenders, the amount of such excess and simultaneously purchase from such other Lenders a participation in the Revolving Credit Loan or such other amounts, respectively, owing to such other Lenders (or in interest due thereon, as the case may be) in such amounts, and make such other adjustments from time to time as shall be equitable, to the end that all Lenders shall share the benefit of such excess payment (net of any expenses that may be incurred by such Lender in obtaining or preserving such excess payment) pro rata in accordance with the unpaid principal of and/or --- ---- interest on the Revolving Credit Loan or such other amounts, respectively, owing to each of Lenders. Amounts received by Agent under this Section 1.13(b) shall --------------- be treated as a payment by Borrower under Section 1.11. To such end, all ------------ Lenders shall make appropriate adjustments among themselves (by the resale of any participation or assignment sold or otherwise) if such payment is rescinded or must otherwise be restored. (c) Borrower agrees that any Lender so purchasing such a participation (or direct interest) may exercise, in a manner consistent with Section 1.13(a), all --------------- rights of setoff, banker's lien, counterclaim or similar rights with respect to such participation as fully as if such Lender were a direct holder of the Revolving Credit Loan or other amounts (as the case may be) owing to such Lender in the amount of such participation. Any Lender which so exercises any right of setoff shall notify Borrower and Agent of such exercise; provided, that the -------- failure to do so shall not affect the validity of such setoff. 12 (d) Nothing contained herein shall require any Lender to exercise any right as against Borrower as described in this Section 1.13 or shall affect the right ------------ of any Lender to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness or obligation of Borrower. If, under any Insolvency Statute, any Lender receives a secured claim in lieu of a setoff or right as against Borrower to which this Section 1.13 applies, such Lender shall, ------------ to the extent practicable, assign such rights to Agent for the benefit of Lenders and, in any event, exercise its rights in respect of such secured claim in a manner consistent with the rights of Lenders entitled under this Section ------- 1.13 to share in the benefits of any recovery on such secured claim. - ---- SECTION 1.14 Settlement Procedures. --------------------- (a) The Revolving Credit Loan balance may fluctuate from day to day from Agent's disbursement of funds to, and receipt of funds from, Borrower. In order to minimize the frequency of transfers of funds between Agent and Lenders, Revolving Credit Advances may be made by Agent and payments in respect thereof will be settled according to the procedures set forth in this Section 1.14. ------------ Notwithstanding these procedures, each Lender's obligation to fund its portion of any Revolving Credit Advance will commence on the date such Revolving Credit Advance is made. Such payments will be made by each Lender without setoff, counterclaim or reduction of any kind. (b) Notwithstanding anything to the contrary contained in this Agreement, Agent may elect, at its sole option, to fund the entire amount of any Revolving Credit Advance requested by Borrower. In the event Agent makes such election, such Revolving Credit Advance made by Agent shall be deemed, and shall constitute, as of the date of making thereof, a Revolving Credit Advance made by each Lender to Borrower in an amount equal to such Lender's pro rata share --- ---- thereof, and each Lender shall be obligated to deliver to Agent such share of such Revolving Credit Advance on the Weekly Settlement Date in accordance with the procedure for weekly settlement set forth in Section 1.14(c) or as otherwise --------------- provided in Section 1.14(d). Notwithstanding anything to the contrary --------------- contained in this Agreement, for purposes of calculating interest payable to any Lender (a) Agent shall be deemed a "Lender" with respect to any outstanding Revolving Credit Advances funded by Agent, and (b) the amount of Revolving Credit Advances of any Lender that are outstanding on any day shall be equal to the amount of such Lender's Revolving Credit Advances outstanding on such day, excluding any Revolving Credit Advances that have been funded entirely by Agent with respect to which such Lender has not funded its pro rata share. --- ---- (c) Each Lender shall settle with Agent, upon Agent's request, on the third Business Day of each week (or on such other day of the week as may be designated from time to time by Agent) in each successive week (the "Weekly Settlement ----------------- Date"), on the net Revolving Credit Advances and payments since the date of the - ----- last settlement. On each Weekly Settlement Date, prior to 10:00 a.m., Agent shall notify each Lender by telephone or by telex, telecopy or other form of teletransmission, of such Lender's pro rata share of the outstanding Revolving --- ---- Credit Advances and the amount of the payment necessary to adjust such Lender's outstanding 13 Revolving Credit Advances to such Lender's pro rata share of such Revolving --- ---- Credit Advances as of such Weekly Settlement Date (on a net basis taking into account any funds in the Collection Account which Agent determines are available). Any such payment shall be made by the party from which such payment is due to the other party, in same day funds, not later than 1:00 p.m. on such Weekly Settlement Date. If any Lender shall, for any reason, not settle with Agent within one Business Day after the Weekly Settlement Date, such Lender agrees to pay and Borrower agrees to repay, severally, to Agent forthwith on demand the amount due Agent on such Weekly Settlement Date together with interest thereon for each day from such Weekly Settlement Date until the day such amount is paid to Agent, at (i) in the case of such Lender, the Index Rate in effect for the first three (3) days for which such amount remains unpaid and thereafter at the rate then in effect with respect to Revolving Credit Advances pursuant to Section 1.5, and (ii) in the case of Borrower, the rate then in ----------- effect with respect to Revolving Credit Advances pursuant to Section 1.5. If ----------- such Lender shall pay to Agent such corresponding amount, such amount so paid shall constitute such Lender's Revolving Credit Advance and, if both such Lender and Borrower shall have paid and repaid, respectively, such corresponding amount, Agent shall promptly pay over to Borrower such corresponding amount in same day funds, but Borrower shall remain obligated for all interest thereon at the rate then in effect with respect to Revolving Credit Advances pursuant to Section 1.5. - ----------- (d) As an alternative to the weekly settlement provided for in Section ------- 1.14(c), Agent may elect at its sole option, to use the following same day - ------- settlement procedure for borrowings of Revolving Credit Advances. Prior to 12:00 noon on any date specified for a borrowing of a Revolving Credit Advance in a Notice of Revolving Credit Advance, Agent may notify each Lender by telephone or by telex, telecopy or other form of teletransmission, of the requested Revolving Credit Advance. Not later than 1:00 p.m. on the date of such proposed Revolving Credit Advance, each Lender shall make available to Agent, in same day funds, to such account of Agent as Agent may designate, such Lender's pro rata share of such Revolving Credit Advance. Notwithstanding the --- ---- foregoing, to the extent that there are available funds in the Collection Account, Agent may, at Agent's discretion, notify each Lender that such Lender's obligation to make available to Agent same day funds as provided in the preceding sentence shall be satisfied to the extent of its pro rata share out of --- ---- such funds in the Collection Account, or such portion of such funds as Agent shall indicate are to be applied to fund such Revolving Credit Advance. SECTION 1.15 Accounting. Agent will provide a monthly accounting of ---------- transactions under the Revolving Credit Loan to Borrower. Each and every such accounting shall (absent manifest error) be deemed final, binding and conclusive upon Borrower in all respects as to all matters reflected therein, unless Borrower, within sixty (60) days after the date any such accounting is rendered, shall notify Agent in writing of any objection which Borrower may have to any such accounting, describing the basis for such objection with specificity. In that event, only those items (the "disputed items") expressly objected to in -------------- such notice shall be deemed to be disputed by Borrower. Each and every accounting shall (absent manifest error) be deemed final, binding and conclusive upon Agent and Lenders in all respects as to all matters reflected therein, unless Agent or any Lender, within sixty (60) days after the date on which any such 14 accounting is rendered, shall notify Borrower and, if notice is being given by a Lender, Agent in writing of any objection or change to such accounting, in which case Borrower shall be entitled to dispute such objection or change in the manner provided above within the foregoing sixty (60) day period (which period shall commence on the date Borrower and, if applicable, Agent, are notified of such objection or change). Agent's determination in good faith, based upon the facts available, of any disputed item shall (absent manifest error) be final, binding and conclusive on Borrower. SECTION 1.16 Indemnity. --------- (a) Borrower shall, and shall cause each of its Subsidiaries to, jointly and severally, indemnify and hold Agent, each Lender and their respective Affiliates, officers, directors, employees, legal counsel and agents (each, an "Indemnified Person"), harmless from and against any and all suits, actions, - -------------------- costs, fines, deficiencies, penalties, proceedings, claims, damages, losses, liabilities and expenses (including reasonable counsel fees and disbursements and other reasonable costs of investigations or defense, including those incurred upon any appeal) (each, a "Claim") which may be instituted or asserted ----- against or incurred by such Indemnified Person as the result of credit having been extended under this Agreement or any other Loan Document, the use or intended use of proceeds of Revolving Credit Advances or otherwise arising in connection with the transactions contemplated hereunder and thereunder and regardless of whether the Indemnified Person is a party to such Claim; provided, -------- that neither Borrower nor any of its Subsidiaries shall be liable for any indemnification to such Indemnified Person with respect to any portion of any such Claim which results solely from such Indemnified Person's gross negligence, bad faith or willful misconduct as determined by a final judgment of a court of competent jurisdiction and neither Borrower nor any of its Subsidiaries shall be liable under this Section 1.16(a) for any lost profits of any Lender. To the --------------- extent that the undertaking to indemnify and hold harmless set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy, Borrower shall, and shall cause each of its Subsidiaries to, contribute the maximum portion which Borrower and its Subsidiaries are permitted to pay and satisfy under Applicable Law to the payment and satisfaction of all indemnified matters incurred by any Indemnified Person. The relevant Indemnified Person shall give Borrower prompt written notice of any Claim asserted against it by a third party (other than a Claim for which Borrower and its Subsidiaries have no indemnity obligations as described in the proviso in the first sentence of this Section 1.16(a)) setting forth a description of those ---------------- elements of such Claim of which such Indemnified Person has knowledge. Borrower and its Subsidiaries shall have the right at their sole expense at any time during which such Claim is pending to select counsel to defend and settle any such Claim so long as (i) in any such event Borrower and its Subsidiaries shall have stated in a writing delivered to the applicable Indemnified Person that, as between Borrower and its Subsidiaries and such Indemnified Person, Borrower and its Subsidiaries are responsible to such Indemnified Person with respect to such Claim (except to the extent expressly set forth in the proviso in the first sentence of this Section 1.16(a)), (ii) the counsel selected by Borrower and its ---------------- Subsidiaries shall be reasonably acceptable to the relevant Indemnified Person and (iii) Borrower and its Subsidiaries shall not settle any such Claim without the prior written consent of the relevant Indemnified Person (which consent shall not be unreasonably withheld or 15 delayed); provided, however, if an Indemnified Person shall have been advised by -------- its counsel that there are legal defenses available to such Indemnified Person that are different from or additional to those available to any of Borrower and its Subsidiaries which, in the reasonable opinion of such counsel, are sufficient to make it undesirable for the same counsel to represent both such Indemnified Person and any of Borrower and its Subsidiaries, such Indemnified Person shall have the right to employ its own counsel in such action, and in such event, the reasonable fees and disbursements of such counsel shall be paid by Borrower and its Subsidiaries. If Borrower and its Subsidiaries shall fail to assume the defense of any Claim in accordance with the terms of this indemnity, the relevant Indemnified Person shall have the right to select counsel and control the defense of such Claim; provided, however, no Indemnified -------- Person shall settle any such Claim as to which it is controlling the defense without the prior written consent of Borrower, which consent shall not be unreasonably withheld or delayed. With respect to any Claim for which Borrower and its Subsidiaries are entitled to select counsel, each Indemnified Person shall have the right, at its expense, to participate in the defense of such Claim. In the event that, with respect to any Claim, more than one Indemnified Person shall be permitted hereunder to select counsel to defend such Claim at the expense of Borrower and its Subsidiaries and shall decide to do so, then all such Indemnified Persons shall select the same counsel to defend such Indemnified Persons with respect to such Claim; provided, however, if any such -------- Indemnified Person shall in its reasonable opinion consider that the retention of one joint counsel shall result in a conflict of interest, such Indemnified Person may, at the expense of Borrower and its Subsidiaries, select its own counsel to defend such Indemnified Person with respect to such Claim. Lenders, Agent and Borrower and its Subsidiaries and their respective counsel shall cooperate with each other in all reasonable respects in any investigation, trial and defense of any such Claim and any appeal arising therefrom. NEITHER AGENT NOR ANY LENDER NOR ANY OTHER INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY OTHER PARTY HERETO, ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OF SUCH PERSON OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN EXTENDED UNDER THE LOAN DOCUMENTS, THE USE OR INTENDED USE OF PROCEEDS OF REVOLVING CREDIT ADVANCES OR OTHERWISE IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED HEREBY. The foregoing provision in favour of any Indemnified Person shall be in addition to any rights that such Indemnified Person may have at common law or otherwise, including, but not limited to, any right to contribution. In any suit, proceeding or action brought by Agent or Lenders relating to any sums owing to Borrower under or in connection with any contract or agreement with an Account Debtor or other obligor or their successors, including, without limitation, any Account, Chattel Paper, Instrument or Intellectual Property, or to enforce any provision of the foregoing, Borrower shall, and shall cause each of its Subsidiaries to, jointly and severally, indemnify and keep Agent and Lenders harmless from and against all expense, loss or damage suffered by reason of any defense, setoff, counterclaim, recoupment or reduction of liability whatsoever of the obligor thereunder arising out of a breach by Borrower or any of its Subsidiaries of any obligation 16 thereunder or arising out of any other agreement, indebtedness or liability at any time owing to, or in favour of, such obligor or its successors from Borrower or any of its Subsidiaries, all such obligations of Borrower shall be and remain enforceable against, and only against, Borrower or its applicable Subsidiary and shall not be enforceable against Agent or Lenders. (b) Borrower hereby acknowledges and agrees that neither Agent nor any Lender (as of the date hereof) (i) is now or has ever been in control of any real property or the affairs of Borrower or any other Loan Party, and (ii) has the capacity through the provisions of the Loan Documents, other than through such provisions contemplating the appointment of a receiver and manager on a realization, to influence the conduct of Borrower or any other Loan Party with respect to the ownership, operation or management of any of the real property. SECTION 1.17 Access. Borrower shall, and shall cause each of its ------ Subsidiaries to, at such Person's expense (except for clause (c) below, which shall be at Borrower's expense except to the extent provided otherwise in such clause (c)): (a) provide access during normal business hours to Agent and each Lender and any of their respective officers, employees, representatives, consultants and agents, as frequently as Agent or any Lender determines to be appropriate, upon reasonable advance notice (unless a Default shall have occurred and be continuing, in which event no notice shall be required and Agent and each Lender shall have access at any and all times), to the properties and facilities of Borrower and each of its Subsidiaries; (b) permit Agent and each Lender and any of their officers, employees, representatives, consultants and agents to inspect, audit and make extracts from all of Borrower's and each of its Subsidiaries' records, files and books of account; and (c) permit Agent on behalf of Lenders or any representatives, consultants or agents of Agent to conduct audits to inspect, review and evaluate the Collateral (such audits, at the expense of Borrower, not to exceed (4) four times in any Fiscal Year for all Loan Parties in the aggregate with respect to audits of inventory by Gordon Brothers Partners, Inc. or other independent inventory auditors and (4) four times in any Fiscal Year for all Loan Parties in the aggregate with respect to other audits, unless an Event of Default has occurred, in which case, such limits shall not apply; provided, however, the foregoing limits prior to the -------- occurrence of an Event of Default shall not prohibit Agent from conducting additional audits at Lenders' expense), and Borrower shall, and shall cause each of its Subsidiaries to, render to Agent and each Lender and their representatives, consultants and agents at Borrower's or its applicable Subsidiaries' cost and expense, such clerical and other assistance as may be reasonably requested with regard thereto. Borrower shall, and shall cause each of its Subsidiaries to, make available to Agent and each Lender and their respective legal counsel, as quickly as practicable under the circumstances, originals or copies of all books, records, board minutes, contracts, insurance policies, environmental audits, business plans, files, financial statements (actual and pro forma), Tax Returns and other filings with any Governmental --- ----- Body, and other instruments and documents which Agent or any Lender may request which are in the possession or control of Borrower or any of its Subsidiaries or any of their respective accountants and other advisors. Borrower shall deliver any document or instrument reasonably necessary for Agent or any Lender, as it may from time to time request, to obtain records from any service bureau or other Person which maintains records for Borrower or its Subsidiaries, and shall maintain duplicate records or supporting documentation on media, including computer tapes 17 and discs owned by Borrower or its Subsidiaries. Borrower shall, and shall cause each of its Subsidiaries to, instruct its independent certified public accountants and its banking and other financial institutions to make available to Agent and each Lender such information and records as Agent and each Lender may reasonably request. SECTION 1.18 Taxes. ----- (a) Any and all payments by Borrower under this Agreement or under the Revolving Credit Notes shall be made, in accordance with this Section 1.18, in ------------ full, without set-off or counterclaim, and free and clear of and without deduction or withholding for any and all present or future Taxes, excluding Taxes imposed on or measured by the net income of Agent or Lenders by the jurisdictions under the laws of which they are organized or carry on business or any political subdivisions thereof. If Borrower shall be required by law to deduct or withhold any Taxes from or in respect of any sum payable hereunder or under any Revolving Credit Note to any Lender, (i) the sum payable shall be increased, as may be necessary, so that after making all required deductions and withholdings, (including deductions and withholdings applicable to additional sums payable under this Section 1.18 and taking into account all Taxes on and ------------ arising by reason of the payment of additional sums payable under this Section ------- 1.18), Agent and/or the affected Lender, as applicable, receives an amount equal - ---- to the sum that it would have received had no such deductions or withholdings been made, (ii) Borrower shall make such deductions or withholdings, and (iii) Borrower shall pay the full amount deducted or withheld to the relevant taxing or other authority in accordance with Applicable Laws. (b) In addition, Borrower agrees to pay any present or future Taxes that arise from any payment made under this Agreement or under the Revolving Credit Notes or from the execution, sale, transfer, delivery or registration of, or otherwise with respect to, this Agreement or the Revolving Credit Notes, the other Loan Documents and any other agreements and instruments contemplated hereby or thereby (except for Taxes imposed on or measured by the net income of Agent or Lenders by the jurisdictions under the laws of which they are organized or carry on business or any political subdivisions thereof). (c) Borrower shall indemnify Agent and each Lender for the full amount of the Taxes referred to in this Section 1.18 (except for Taxes imposed on or ------------ measured by the net income of Agent or Lenders by the jurisdictions under the laws of which they are organized or carry on business or any political subdivisions thereof, but including, without limitation, any Taxes imposed by any jurisdiction on amounts payable by Borrower under this Section 1.18) paid by ------------ Agent or such Lender and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally asserted. This indemnification shall be made within 30 days after the date Agent makes written demand therefor for its own benefit or the benefit of the affected Lender. 18 (d) Within 30 days after the date of any payment of Taxes, Borrower shall furnish to Agent, at its address referred to in Section 11.10, the original or a ------------- certified copy of a receipt evidencing payment thereof. (e) Without prejudice to the survival of any other agreement of Borrower under this Agreement, the agreements and obligations of Borrower contained in this Section 1.18 shall survive the Termination Date. ------------ (f) If any Lender subsequently receives from a taxing authority a refund of any Taxes previously paid by Borrower and for which Borrower has indemnified such Lender pursuant to this Section 1.18, such Lender shall within thirty (30) ------------ days after receipt of such refund, and to the extent permitted by Applicable Laws, pay to Borrower the net amount of any such refund after deducting taxes and expenses attributable thereto. SECTION 1.19 Additional Costs. ---------------- (a) If at any time after the date of the initial Revolving Credit Advance, any Lender determines, acting reasonably and with appropriate diligence, that (i) any Regulatory Change, or (ii) compliance by such Lender with any direction, requirement or request from any central bank or other regulatory authority given after the date of execution hereof, whether or not having the force of law, has or would have, as a consequence of such Lender's obligation under this Agreement, and taking into consideration such Lender's policies with respect to capital adequacy, the effect of reducing the rate of return on such Lender's capital to a level below that which such Lender would have achieved under this Agreement but for such change or compliance, such Lender shall determine the amount of such additional amounts as will compensate such Lender for such reduction. (b) If after the date of execution hereof, any introduction of any Applicable Law or any Regulatory Change or any change in the compliance of any Lender therewith now or hereafter: (i) subjects any Lender to, or causes the withdrawal or termination of a previously granted exemption with respect to, any Tax or changes the basis of taxation, or increases any existing Tax, on payments of principal, interest, fees or other amounts payable by Borrower to such Lender under this Agreement (except for taxes on the overall net income of such Lender), (ii) imposes, modifies or deems applicable any reserve, special deposit, deposit insurance or similar requirement against assets held by, or deposits in or for the account of or loans by or any other acquisition of funds by, an office of such Lender, in connection with Revolving Credit Advances or such Lender's Revolving Credit Commitment (iii) imposes or holds applicable on such Lender, or expects there to be maintained by such Lender, any capital adequacy or additional capital requirement in respect of Revolving Credit Advances or its Revolving Credit Commitment or any other condition with respect to this Agreement, or (iv) imposes any Tax on reserves or deemed reserves with respect to the undrawn portion of its Revolving Credit Commitment, and the result of any of the foregoing, in the determination of Lender acting reasonably and with appropriate diligence, shall be to increase the cost to, or reduce the amount of principal, interest or other amount received or receivable by such Lender hereunder or its 19 effective return hereunder in respect of making, maintaining or funding Revolving Credit Advances hereunder, such Lender shall, acting reasonably, determine that amount of money which shall compensate such Lender for such increase in cost or reduction in income (herein referred to as "Additional ---------- Compensation"). - ------------ (c) Upon a Lender having determined that it is entitled to additional amounts in accordance with the provisions of Section 1.19(a) or to Additional --------------- Compensation in accordance with the provisions of Section 1.19(b), such Lender --------------- shall promptly so notify Agent and shall provide to Agent a photocopy of the relevant Regulatory Change or Applicable Law (if any, in either case,) and a certificate of a duly authorized officer of such Lender setting forth the additional amounts or Additional Compensation, as applicable, and the basis of calculation thereof, which shall be prima facie evidence of such additional amounts or Additional Compensation, as applicable. Agent shall promptly notify Borrower and Borrower shall pay to Agent for the account of such Lender within 10 Business Days of the giving of such notice such Lender's additional amounts or Additional Compensation, as applicable, calculated to the date of such notification. Such Lender shall be entitled to be paid such additional amounts or Additional Compensation, as applicable, from time to time to the extent that the provisions of this Section 1.19 are then applicable notwithstanding that ------------ such Lender has previously been paid any additional amounts or Additional Compensation. ARTICLE 2 CONDITIONS PRECEDENT SECTION 2.1 Conditions to the Initial Revolving Credit Advance. -------------------------------------------------- Notwithstanding any other provision of this Agreement and without affecting in any manner the rights of Agent or any Lender hereunder, Borrower shall have no rights under this Agreement (but shall have all applicable obligations hereunder), and Agent and Lenders shall not be obligated to make any Revolving Credit Advance or to take, fulfil, or perform any other action hereunder, until the following conditions have been fulfilled to the satisfaction of Agent (and to the extent specified below, of Lenders): (a) This Agreement or counterparts thereof shall have been duly executed by, and delivered to, Borrower, Agent and each Lender. (b) Agent and Lenders shall have received such documents, instruments, certificates, opinions and agreements as Agent shall reasonably request in connection with the transactions contemplated by this Agreement, including all documents, instruments, agreements and other materials listed in the Schedule of Closing Documents attached as Annex C hereto, each in form and substance ------- satisfactory to Agent and Required Lenders (except that the Fee Agreement need only be satisfactory to Agent), together with evidence of the completion of all necessary or appropriate recordings and filings of the foregoing in order to give agent first ranking Liens (subject to the other Liens permitted by Section ------- 6.7) created thereby in the Collateral. - --- 20 (c) Agent shall have received evidence satisfactory to Agent that all Indebtedness and other obligations of Borrower under the Existing Credit Agreement (as in effect immediately prior to the Closing Date) will be performed and paid in full from the proceeds of the initial Revolving Credit Advance and all Liens upon any of the property (including any cash collateral) of Borrower in favour of the lender or lenders thereunder (or agent therefor) shall be terminated and released immediately upon such payment and Agent and such lender or lenders (or agent therefor) shall have entered into an escrow or other agreement in form and substance satisfactory to Agent providing for the release and termination of all such Liens, termination of the Existing Credit Agreement and acknowledgment of payment in full of all outstanding Indebtedness and other obligations under or relating to the Existing Credit Agreement. (d) Agent shall have received evidence satisfactory to Agent that the Loan Parties have obtained consents, approvals and acknowledgments of all Persons whose consents, approvals and acknowledgments may be required, including all requisite Governmental Approvals, to the terms and to the execution and delivery of this Agreement and the other Loan Documents and the consummation of the transactions contemplated hereby and thereby. (e) Agent shall have received evidence satisfactory to Agent that the insurance policies provided for in Section 3.18 and Annex F are in full force ------------ ------- and effect, together with appropriate evidence showing a loss payable and/or additional insured clauses and/or mortgage clauses or endorsements, as appropriate, in favour of Agent for Agent and Lenders and in form and substance satisfactory to Agent. (f) Payment in immediately available funds by Borrower to Agent for its account and the account of Lenders, as the case may be, of all Fees and reasonable costs and expenses of closing (including fees and expenses of consultants and counsel to Agent and Lender presented as of the Closing Date). (g) No action, proceeding, investigation, audit, regulation or legislation shall have been instituted, threatened or proposed before any Governmental Body (i) which, if successful, would have a Material Adverse Effect, or (ii) to enjoin, restrain or prohibit, or to obtain damages in respect of, or which is related to or arises out of, this Agreement or any of the other Loan Documents or the consummation of the transactions contemplated hereby or thereby and which, in Agent's sole judgment exercised in good faith, would make it inadvisable to consummate the transactions contemplated by this Agreement or any of the other Loan Documents. (h) Agent, in its sole judgment, shall not have determined in good faith that: (i) Borrower has made any Restricted Payment since September 30, 1994, other than as set forth in Schedule 3.5; (ii) any material increase in ------------ liabilities, liquidated or contingent, of Borrower, or any material decrease in the assets of Borrower (other than normal recurring seasonal changes in the foregoing consistent with prior years' experience), shall have occurred since September 30, 1994; (iii) except as set forth in Schedule 3.5, any Material ------------ Adverse Effect shall have occurred since September 30, 1994; or (iv) the results of operations of Borrower for the period commencing 21 September 30, 1994 and ending on the Closing Date are materially different from the projected results of Borrower's operations for such period contained in the Projections. (i) Agent and each Lender shall be reasonably satisfied with the corporate, capital, tax, legal and management structure and cash management systems of Borrower, and shall be satisfied, in their respective sole judgments, with the nature and status of all contractual obligations, securities, labor, tax, employee benefit, environmental, health and safety matters, in each case, involving or affecting Borrower. In connection therewith, Agent and its Affiliates shall have completed, with results reasonably satisfactory to Lenders, such business and legal due-diligence of Borrower as Agent may require including, without limitation, satisfactory review by Agent's field examiners or counsel, as applicable, of Borrower's Accounts, assets, inventory, financial controls and records, contracts (including, without limitation, stockholder agreements, licenses and debt and equity agreements), leases, pension funds, organizational or governing documents, environmental compliance, indebtedness, legal and capital structure, liabilities, tax position and a liquidation analysis. Agent and its Affiliates shall have had reasonable and continuing access to any material it deems necessary to monitor the loans to be made hereunder, including access to Borrower's independent public accountants. Agent shall be satisfied with the structure and the tax effect of the transactions contemplated by this Agreement. (j) Agent and Lenders shall have obtained a pro forma balance sheet of Borrower as of the Closing Date after giving effect to the transactions contemplated on the Closing Date under this Agreement in form and substance reasonably satisfactory to Agent. (k) Agent shall be satisfied that, as of the Closing Date, Borrower shall be in compliance in all material respects with all material agreements and all Applicable Laws, and shall have obtained all waivers, consents, approvals or withholding of objections necessary or appropriate in connection with the transactions contemplated by this Agreement and the facilities provided hereunder. (l) Should Agent have so required, as of the Closing Date, Borrower shall have provided at its expense an Environmental Assessment, with results reasonably acceptable in form and substance to Agent, from an independent environmental firm acceptable to Agent. As of the Closing Date, Borrower shall have provided to Lenders copies of any existing environmental reviews and audits, as well as other information pertaining to material actual or potential environmental claims with respect to Borrower of which it is aware. (m) Agent shall be satisfied that, as of the Closing Date, the transactions contemplated by this Agreement shall be in compliance with all Applicable Laws, and there shall be no legal impediment to any of Lenders making loans or other extensions of credit contemplated by this Agreement in any applicable jurisdiction. (n) Each of the Persons intended to be parties to the US Credit Agreement and the UK Credit Agreement (which agreements shall be satisfactory to Agent) shall have executed and delivered such agreements, all conditions to the Global Lenders thereunder providing any 22 financial accommodations under such agreements shall have been satisfied and such credit agreements shall be in full force and effect. (o) Tyco Manufacturing, Tyco Industries and the Receivables Funding Subsidiary shall have entered into the Receivables Funding Documents (which documents shall be satisfactory to GE Capital) and shall have satisfied all conditions set forth in Article III of the Receivables Funding Agreement and the Receivables Funding Documents shall be in full force and effect. SECTION 2.2 Further Conditions to Each Revolving Credit Advance. It --------------------------------------------------- shall be a further condition to the funding of the initial and each subsequent Revolving Credit Advance that the following statements shall be true on the date of each such funding, advance or incurrence, as the case may be: (a) Each Loan Party's representations and warranties contained herein or in any of the Loan Documents shall be true and correct in all material respects on and as of the Closing Date and the date on which each such Revolving Credit Advance is made, as though made on or incurred on and as of such date, except to the extent that any such representation or warranty expressly relates solely to an earlier date, in which case such representation and warranty shall have been true and correct on such date, and except for changes permitted or contemplated by this Agreement. (b) No event shall have occurred and be continuing, or would result from the making of any Revolving Credit Advance, which constitutes or would constitute a Default or an Event of Default. (c) After giving effect to any such Revolving Credit Advance, the aggregate principal amount of the Revolving Credit Advances made to Borrower shall not exceed the Borrowing Base and there shall be no requirement under Section ------- 1.3(b) to prepay any Revolving Credit Advance. - ------ (d) There shall not have occurred a Material Adverse Effect which shall not have been cured or waived in writing by Required Lenders. (e) Agent shall have received a Notice of Revolving Credit Advance in accordance with Section 1.1(c). -------------- (f) Each of the conditions set forth in Section 2.1(a) through Section -------------- ------- 2.1(e) shall continue to be satisfied by the Loan Parties as of such date. - ------ The request and acceptance by Borrower of the proceeds of any Revolving Credit Advance shall be deemed to constitute, as of the date of such request, (i) a representation and warranty by Borrower that the conditions in this Section 2.2 have been satisfied and (ii) a confirmation by Borrower of the - ----------- granting and continuance of Agent's and Lenders' Liens pursuant to the Collateral Documents. 23 ARTICLE 3 REPRESENTATIONS AND WARRANTIES To induce Agent and Lenders to enter into this Agreement, Borrower represents and warrants to Agent and Lenders (which representations and warranties under Sections 3.22 and 3.23 shall be continuously made until the ------------- ---- Termination Date and all such other representations and warranties shall be made on the Closing Date and be made or deemed made at such other times as provided hereunder (including as provided in Section 2.2); provided, however, for greater ----------- -------- certainty, Borrower's representations and warranties relating to Subsidiaries of Borrower shall apply at and following the time at which Borrower creates or acquires any Subsidiary) that: SECTION 3.1 Corporate Existence; Compliance with Law. Each of Borrower ---------------------------------------- and its Subsidiaries: (a) is a corporation duly organized and validly existing under the laws of the jurisdiction of its incorporation and is duly qualified to do business and is in good standing under the laws of each jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification; (b) has the requisite corporate power and authority and the legal right to own, pledge, mortgage or otherwise encumber and operate its properties, to lease the property it operates under lease, and to conduct its business as now, heretofore and proposed to be conducted; (c) has all Governmental Approvals and has made all filings with, and has given all notices to, all Governmental Bodies having jurisdiction, to the extent required for such ownership, operation and conduct (except when the failure to have such Governmental Approvals or make such filings or give such notices would not have a Material Adverse Effect); (d) is in compliance with its articles or certificate of incorporation and bylaws; and (e) is in compliance with all Applicable Laws (except where the failure to be in compliance would not have a Material Adverse Effect). SECTION 3.2 Executive Offices; Collateral Locations; Corporate Names. -------------------------------------------------------- The current location of each of Borrower's and its Subsidiaries' executive office, principal place of business, corporate offices, all warehouses and premises within which any Collateral is stored or located, and the locations of all of Borrower's records concerning the Collateral are set forth in Schedule -------- 3.2. Each of Borrower's and its Subsidiaries' corporate names are set forth in - --- Section 3.2. Neither Borrower nor any of its Subsidiaries carries on any - ----------- business under any name other than its corporate name. SECTION 3.3 Corporate Power; Authorization; Enforceable Obligations. ------------------------------------------------------- The execution, delivery and performance by each of Borrower and its Subsidiaries of this Agreement and the other Loan Documents to which it is a party and the creation by Borrower and its Subsidiaries of all Liens provided for herein and therein: (a) are within Borrower's or its applicable Subsidiary's, as the case may be, corporate power; (b) have been duly authorized by all necessary corporate and shareholder action; (c) are not in contravention of any provision of Borrower's or its applicable Subsidiary's, as the case may be, articles or certificate of incorporation or bylaws or other organizational documents; (d) will not violate any Applicable 24 Laws of any Governmental Body; (e) will not conflict with or result in the breach or termination of, constitute a default under or accelerate any performance required by, any indenture, mortgage, deed of trust, lease, agreement or other instrument to which Borrower or any of its Subsidiaries is a party or by which Borrower, or any of its Subsidiaries, or any of their respective property is bound, including the Subordinated Debt Documents; (f) will not result in the creation or imposition of any Lien upon any of the property of Borrower or any of its Subsidiaries other than those in favour of Agent or Lenders, all pursuant to the Loan Documents; and (g) do not require the consent or approval of any Governmental Body or any other Person, except those referred to in Section 2.1, all of which will have been duly obtained, made or ----------- complied with prior to the Closing Date and which are in full force and effect. Each of the Loan Documents has been duly executed and delivered by each Loan Party that is a party thereto, and each constitutes a legal, valid and binding obligation of each such Loan Party, enforceable against each such Loan Party in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and principles of equity. SECTION 3.4 Financial Statements and Projections. Borrower has ------------------------------------ delivered the Financials and Projections identified in Schedule 3.4 (which ------------ Projections are attached hereto as Exhibit 3.4), and each of such Financials and ------------ Projection complies with the description thereof contained in Schedule 3.4. ------------ SECTION 3.5 Material Adverse Change. As of the date hereof, Borrower ----------------------- has no material obligations, contingent liabilities, or liabilities for Charges, long-term leases or unusual forward or long-term commitments which are not reflected in the audited December 31, 1993 balance sheet of Tyco Parent and its Subsidiaries, except for those which were exercised or entered into in the ordinary course of Borrower's business. As of the date hereof, there has been no material deviation from the Projections. Except as otherwise permitted hereunder or as set forth in Schedule 3.5, no Restricted Payment has been made ------------ since September 30, 1994, and no shares of Stock of Borrower or any of its Subsidiaries have been, or are now required to be, redeemed, retired, purchased or otherwise acquired for value by Borrower or any of its Subsidiaries. Except as set forth in Schedule 3.5, since September 30, 1994, no event has occurred ------------ which would result in a Material Adverse Effect (it being understood that the financial results described in Tyco Parent's press release of October 25, 1994 shall not constitute a Material Adverse Effect so long as Agent shall have determined, after due diligence, that the results described therein reflect completely and accurately, in all material respects the actual results for the period covered). SECTION 3.6 Ownership of Property; Liens. Neither Borrower nor any of ---------------------------- its Subsidiaries owns any real property. The real estate listed in Schedule 3.6 ------------ constitutes all of the real property leased, or used in Borrower's or any of its Subsidiaries' business. Borrower or one of its Subsidiaries holds (a) valid and, subject to receipt of any necessary consent of any lessor thereunder, marketable leasehold interests in all Leases (both as lessee and sublessee or assignee) as described in Schedule 3.6, and (b) good and, subject to receipt of ------------ any necessary consent of any lessor thereunder, marketable title to, or valid leasehold interests in, all of their other 25 properties and assets. None of the properties and assets of Borrower or any of its Subsidiaries is subject to any Liens, except Liens permitted by Section 6.7. ----------- Borrower and each of its Subsidiaries have received all deeds, assignments, waivers, consents, non-disturbance and recognition or similar agreements, bills of sale and other documents, and duly effected all recordings, filings and other actions necessary to establish, protect and perfect Borrower's and each of its Subsidiaries' right, title and interest in and to all such real estate and other assets or property. Except as described in Schedule 3.6, (a) neither Borrower ------------ nor any of its Subsidiaries nor, to Borrower's knowledge, any other party to any such Lease described in Schedule 3.6 is in default of its obligations thereunder ------------ or has delivered or received any notice of default under any such Lease, and no event has occurred which, with the giving of notice, the passage of time, or both, would constitute a default under any such Lease; (b) neither Borrower nor any of its Subsidiaries owns or holds, or is obligated under or a party to, any option, right of first refusal or any other contractual right to purchase, acquire, sell, assign or dispose of any real property; and (c) no portion of any real property leased by Borrower or any of its Subsidiaries has suffered any material damage by fire or other casualty loss which has not heretofore been repaired and restored to good operating condition, except as notified by Borrower to Agent and Lender. All Governmental Approvals required to have been issued or appropriate to enable the real property subject to the Leases to be lawfully occupied and used for all of the purposes for which they are currently occupied and used, have been lawfully issued and are, as of the date hereof, in full force and effect. SECTION 3.7 Restrictions; No Default; Material Contracts. No contract, -------------------------------------------- lease, agreement or other instrument to which Borrower or any of its Subsidiaries is a party or by which it or any of its properties or assets is bound or affected and no provision of any charter, corporate restriction or Applicable Laws has resulted in or will result in a Material Adverse Effect. Neither Borrower nor any of its Subsidiaries is in material default and, to Borrower's knowledge, no third party is in material default, under or with respect to any material contract, agreement, lease or other instrument to which Borrower or any of its Subsidiaries is a party. No Default has occurred and is continuing. Schedule 3.7, as supplemented from time to time by written ------------ disclosures to Agent, sets forth a complete and accurate list of all Material Contracts. Borrower and each of its Subsidiaries is in compliance in all material respects with (i) all material licence agreements to which it is a party or bound by, (ii) its obligations to make royalty payments to other Persons and (iii) the terms and conditions of its insurance coverage and policies therefor. SECTION 3.8 Labor Matters. Except as set forth in Schedule 3.8, there ------------- ------------ are no material strikes or other labor disputes against Borrower or any of its Subsidiaries that are pending or, to Borrower's knowledge, threatened. Hours worked by and payment made to employees of Borrower and its Subsidiaries have not been in violation of any Applicable Laws which would have a Material Adverse Effect. All material payments due from Borrower or any of its Subsidiaries on account of employee insurance of every kind have been paid or accrued as a liability on the books of Borrower or its applicable Subsidiary, as applicable. Except as set forth in Schedule 3.8, neither Borrower nor any of its ------------ Subsidiaries has any material obligation under any collective bargaining agreement, management agreement, or any employment 26 agreement, and a correct and complete copy of each agreement listed on Schedule -------- 3.8 has been provided to Agent. There is no material organizing activity - --- involving Borrower or any of its Subsidiaries pending or, to Borrower's knowledge, threatened by any labor union or group of employees. Except as set forth in Schedule 3.13, neither Borrower nor any of its Subsidiaries has made a ------------- pending demand for recognition, and, there are no material complaints or charges against Borrower or any of its Subsidiaries pending or threatened to be filed with any Governmental Body or arbitrator based on, arising out of, in connection with, or otherwise relating to the employment or termination of employment by Borrower or any of its Subsidiaries of any individual. SECTION 3.9 Ventures, Subsidiaries and Equity Investments; Outstanding ---------------------------------------------------------- Stock and Indebtedness. Borrower has no Subsidiaries other than those - ---------------------- Subsidiaries set forth on Schedule 3.9 and, except as set forth in Schedule 3.9, ------------ ------------ neither Borrower nor any of its Subsidiaries is engaged in any joint venture or partnership with any other Person or has any equity interest in any other Person. The Stock of Borrower and each of its Subsidiaries owned by each of the stockholders thereof named in Schedule 3.9 constitutes all of the issued and ------------ outstanding Stock of such Persons and all such Stock is duly and validly issued, fully paid and non-assessable. Except as set forth in Schedule 3.9, there are ------------ no outstanding rights to purchase options, warrants or similar rights, agreements or plans pursuant to which Borrower or any of its Subsidiaries may be required to issue, sell or purchase any Stock. Schedule 3.9 lists all ------------ outstanding Stock of Borrower and each of its Subsidiaries as of the Closing Date and all Indebtedness of Borrower and each of its Subsidiaries immediately prior to the time of closing on the Closing Date. SECTION 3.10 Taxes. All Tax Returns required to be filed by or on behalf ----- of Borrower or any of its Subsidiaries have been accurately prepared, duly executed and filed within the prescribed period. All information provided in such Tax Returns pertaining to Borrower or any of its Subsidiaries is true, complete and accurate in all material respects. All Taxes attributable to each of Borrower and its Subsidiaries that were due and payable have been paid (except Taxes being contested pursuant to Section 5.2) and adequate provision ----------- has been made on the books of Borrower and each of its Subsidiaries in accordance with GAAP for all Taxes payable for the current or a prior year which are not yet due. As of the Closing Date, Borrower has received notices of assessment up to the 1991 taxation year from the Government of Ontario, the Government of Quebec and the Government of Canada. Except as set out in Schedule 3.10, as such Schedule may, with respect to this sentence, be updated - ------------- from time to time without (except as provided below) the consent of Agent or Lenders by Borrower in a writing delivered to Agent and Lenders, neither Borrower nor any of its Subsidiaries has received any notice of assessment of additional taxes or any other claim or notice of any nature whatsoever that any Tax or additional Tax is due which has not been paid or otherwise finally settled or satisfied (it being agreed that any update of Schedule 3.10 with ------------- respect to any material assessment or any other material claim shall require the consent of the Required Lenders). Except as set out in Schedule 3.10, as such ------------- Schedule may, with respect to this sentence, be updated from time to time without (except as provided below) the consent of Agent or Lenders by Borrower in a writing delivered to Agent and Lenders, there are no actions, suits, proceedings, investigations or claims, threatened 27 or pending in respect of any Taxes, nor are there any matters under discussion with any Governmental Body relating to any Taxes asserted by any such body (it being agreed that any update of Schedule 3.10 with respect to any material ------------- actions, suits, proceedings investigations or claims, threatened or pending, or any material matters under discussion, shall require the consent of the Required Lenders). Each of Borrower and its Subsidiaries has withheld from its employees, customers and any other applicable payees (and timely paid to the appropriate Governmental Body) the proper and accurate amount of all Taxes and other amounts required to be withheld or collected and remitted in compliance with all Applicable Laws. There are no Liens for Taxes on the assets of any of Borrower or its Subsidiaries except for Liens for Taxes not yet due. Neither Borrower nor its Subsidiaries have executed or filed with Revenue Canada or any other Governmental Body any agreement, waiver or other document extending or having the effect of extending the period for assessment, reassessment or collection of any Taxes or the filing of any Tax Returns. SECTION 3.11 No Foreign Business. Neither Borrower nor any of its ------------------- Subsidiaries carries on any business, employs any employees or owns any material assets outside Canada. SECTION 3.12 Benefit and Pension Plans. Neither Borrower nor any of its ------------------------- Subsidiaries has made at any time any improper withdrawal or application of assets in respect of any Canadian Pension Plan to which Borrower has made at any time contributions or which Borrower has maintained at any time. Neither Borrower nor any of its Subsidiaries maintains or contributes to any Canadian Pension Plan. Schedule 3.12 sets forth all Canadian Benefit Plans. No promises ------------- of benefit improvements under the Canadian Benefit Plans have been made except where such improvement could not have a Material Adverse Effect. All contributions or premiums required to be made by Borrower and each of its Subsidiaries to the Canadian Benefit Plans have been made in a timely fashion in accordance with the terms of such plans and all Applicable Laws. All employee contributions to the Canadian Benefit Plans by way of authorized payroll deduction have been properly withheld by Borrower and each of its Subsidiaries and fully paid into such plans. There have been no improper withdrawals or applications of the assets of the Canadian Benefit Plans. Each of the Canadian Benefit Plans is fully funded. Neither Borrower nor any of its Subsidiaries is a party to, employs any employees who are participants in or has taken any action which may have the effect of acknowledging, accepting or creating any liability whatsoever under or in respect of any employee benefit plan which is governed by ERISA. None of the assets of Borrower or any of its Subsidiaries is subject to any Lien in favour of the PBGC or any other Person in connection with any liability under or in connection with ERISA. SECTION 3.13 No Litigation. Except as set forth in Schedule 3.13, no ------------- ------------- action, claim or proceeding is now pending or, to the knowledge of Borrower or any of its Subsidiaries, threatened against Borrower or any of its Subsidiaries, at law, in equity or otherwise, before any court, board, commission, agency or instrumentality of any Governmental Body or before any arbitrator or panel of arbitrators (a) which challenges any such Person's right, power, or competence to enter into or perform any of its obligations under the Loan Documents, or the validity or enforceability of any Loan Document or any action taken thereunder, or (b) which if 28 determined adversely, is reasonably likely to have a Material Adverse Effect. To the knowledge of Borrower and its Subsidiaries, there does not exist a state of facts which is reasonably likely to give rise to such proceedings. Except as set forth in Schedule 3.13, neither Borrower nor any of its Subsidiaries is a ------------- party to any consent order. SECTION 3.14 Brokers. No broker or finder acting on behalf of Borrower ------- brought about the obtaining, making or closing of the credit extended pursuant to this Agreement or the transactions contemplated by the Loan Documents or the transactions contemplated thereby and Borrower has no obligation to any Person in respect of any finder's or brokerage fees in connection therewith. SECTION 3.15 Patents, Trademarks, Copyrights and Licenses. The sole -------------------------------------------- interest that Borrower or any of its Subsidiaries has in any Intellectual Property is the right to use certain Intellectual Property under the Distribution Agreement. Borrower's rights to use certain Intellectual Property under the Distribution Agreement give to Borrower all the rights which Borrower requires to continue to conduct its business as heretofore conducted by it, now conducted by it and proposed to be conducted by it, each of which Intellectual Property is listed by type of property, together with the owner thereof, in Schedule 3.15. Following the Closing Date, Schedule 3.15 has been updated by - ------------- ------------- Borrower to reflect promptly any change therein. Each of Borrower and its Subsidiaries conducts business without infringement or claim of infringement of any Intellectual Property of others, except where such infringement or claim of infringement could not have or result in a Material Adverse Effect. Except as set forth in Schedule 3.15, to Borrower's knowledge, there is no infringement or ------------- claim of infringement by others of any Intellectual Property used by Borrower or any of its Subsidiaries. SECTION 3.16 Full Disclosure. No information contained in this --------------- Agreement, the other Loan Documents, the Financials or any written statement furnished by or on behalf of Borrower or any Affiliate thereof pursuant to the terms of this Agreement or any other Loan Document, which has previously been delivered to Agent or any Lender, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading in light of the circumstances under which they were made. With respect to all business plans and other forecasts and projections (including the Projections) furnished by or on behalf of Borrower and made available to Agent or any Lender relating to the financial condition, operations, business, properties or prospects of Borrower (a) all facts stated as such therein are true and complete in all material respects, (b) all facts upon which the forecasts or projections therein contained are based are true and complete in all material respects and no material fact was omitted therefrom, (c) all assumptions made on that basis are reasonable under the circumstances and are disclosed therein, and (d) the forecasts or projections are reasonably based on those facts and assumptions. With respect to any such forecasts or projections made available to Agent or any Lender after the Closing Date, the foregoing clauses (a) through (d) shall be true and correct in all respects as of the date of such projections or forecasts. 29 SECTION 3.17 Environmental Matters. Except as disclosed in Schedule --------------------- -------- 3.17: (a) all Facilities and the Undertaking have been, and continue to be, owned, leased, managed, controlled or operated, and have been and are now in compliance with all Environmental Laws; (b) Borrower and each of its Subsidiaries have obtained all Governmental Approvals which they require under Environmental Laws in respect of the Facilities and the Undertaking. The Undertaking has been conducted in compliance with all such Governmental Approvals and all such Governmental Approvals are valid and in full force and effect; (c) neither Borrower nor any of its Subsidiaries has received any notice, nor is any aware of any proposal, to amend, revoke or replace any Governmental Approval under Environmental Laws, or requiring the issue of any such additional Governmental Approval in respect of the Facilities or the Undertaking; (d) Borrower and each of its Subsidiaries and their predecessors in title have carried on or are carrying on, as the case may be, the Undertaking in a manner which would permit the issue, maintenance, renewal or reissue of all Governmental Approvals required under the Environmental Laws in respect of the Facilities and the Undertaking; (e) no notice, citation, summons or order has been issued, no complaint has been filed, no administrative or legal proceedings have been instituted and no penalty has been assessed and no environmental investigation or review is pending or threatened by any Governmental Body with respect to any alleged (1) violation by Borrower or any of its Subsidiaries of any Environmental Law with respect to the Facilities or the Undertaking; or (2) failure by Borrower or any of it Subsidiaries to have any Governmental Approval which any of them is required to have under the Environmental Laws in respect of the Facilities or the Undertaking; or (3) violation of or failure by Borrower or any of its Subsidiaries to comply with any Governmental Approval which any of them is required to have under the Environmental Laws in respect of the Facilities or the Undertaking; (f) neither Borrower nor any of its Subsidiaries or predecessors in title is or has been on notice of, or subject to, a claim, administrative order or other demand either to take decontamination or restoration or other action under any Environmental Laws, or to reimburse any Person who has taken such action, in connection with a Facility or other property or is or has been the object of any stop order, control order, directive, order, programme approval, certificate or depollution programme relating to an Environmental Activity or any other environmental matter which mandates any work, repairs, construction, modifications, capital expenditures or any preparation of contingency plans binding upon Borrower or any of its Subsidiaries; 30 (g) neither Borrower nor any of its Subsidiaries nor any predecessor in title has, contrary to any Environmental Laws, used, generated, treated, stored, recycled, reused or Discharged any Contaminant in, on, under, or from any property now or previously owned, operated, leased or occupied by Borrower or any of its Subsidiaries or any predecessor in title; (h) each of Borrower and its Subsidiaries and their predecessors in title has reported promptly to appropriate Governmental Bodies the occurrence of any Environmental Activity or any other event where required to do so by Environmental Laws in respect of any of the Facilities and the Undertaking; (i) there are no environmental Liens or registrations under any Environmental Laws on any Facility and no actions have been taken which could subject any Facility to such environmental Liens or registrations; (j) there is no fact, condition or circumstance relating to the Facilities or the Undertaking that could reasonably be expected to result in a Material Adverse Effect as a result of non-compliance with any Environmental Laws; (k) neither Borrower nor any of its Subsidiaries has any liability or contingent liability under any Environmental Laws in connection with the Facilities or the Undertaking constituting a Material Adverse Effect (whether or not such contingent liability is required under GAAP to be reflected in the financial statements of Borrower or any Subsidiary); and (l) there are no unauthorized locations in Canada and the United States to which Contaminants have been shipped or disposed of by any of Borrower or its Subsidiaries. All facilities and all transporters and handlers engaged by Borrower or its Subsidiaries to transport or dispose of any Contaminants had, at the time of shipment or disposal, all required Governmental Approvals. SECTION 3.18 Insurance Policies. Schedule 3.18 lists all insurance of ------------------ ------------- any nature maintained as of the Closing Date for current occurrences by Borrower and each of its Subsidiaries. Such insurance complies with and shall at all times comply with the standards set forth in Annex F. ------- SECTION 3.19 Deposit and Disbursement Accounts. Schedule 3.19 lists all --------------------------------- ------------- banks and other financial institutions at which Borrower and each of its Subsidiaries maintains deposits and/or other accounts, including the Blocked Account and the Disbursements Accounts, and such Schedule correctly identifies the name, address and telephone number of each such financial institution, the name in which the account is held, a description of the purpose of the account, and the complete account number. SECTION 3.20 Existing US Credit Agreement. The Existing US Credit ---------------------------- Agreement in the original form executed as of June 3, 1992 was in effect on August 15, 1992 without any amendment or modification thereto. Immediately prior to the Closing Date, Borrower was a 31 "Credit Party", "Guarantor" and "Subsidiary Guarantor", all as defined in the Existing US Credit Agreement. Borrower has not granted to any lender (or agent thereof) under the Existing US Credit Agreement a Lien in any of its assets. Borrower has not entered into any "Bank Agency Agreement" (as defined in the Existing US Credit Agreement) under the Existing US Credit Agreement. SECTION 3.21 Subordinated Debt. The Obligations of Borrower and each ----------------- other Loan Party are "Senior Indebtedness of a Guarantor" as defined in the Tyco Parent Senior Subordinated Note Indenture. The payment of the obligations of Borrower and any other Loan Party under any guarantee of any of the notes issued pursuant to the Tyco Parent Senior Subordinated Note Indenture are junior and subordinate to the payment of the Obligations. SECTION 3.22 Promissory Notes and Pledge. Each loan or advance, now --------------------------- existing or hereafter made or permitted to be made hereunder, by Borrower or any of its Subsidiaries, and each intercompany payable now or hereafter owing to Borrower or any of its Subsidiaries, is evidenced by a promissory note, in form and substance satisfactory to Agent, which note is pledged to Agent pursuant to the Security Agreement whereby Agent has obtained a first priority perfected Lien in such promissory notes. SECTION 3.23 Inventory. All Inventory purchased by Borrower or any of --------- its Subsidiaries is purchased free and clear of any and all adverse claims. All Affiliates of Borrower from whom Borrower purchases Inventory have duly executed Supplier Waivers and Assignments which are enforceable against such Affiliates. Borrower has delivered to Agent those Supplier Waivers and Assignments. SECTION 3.24 Deemed Repetition. In all material respects, the ----------------- representations and warranties contained in Section 3.1 through Section 3.23 ----------- ------------ inclusive shall be deemed to be repeated on each date on which a Revolving Credit Advance is made as if made on such date, except to the extent that any such representation or warranty expressly relates solely to an earlier date and except for changes therein permitted or contemplated by this Agreement. ARTICLE 4 FINANCIAL STATEMENTS AND INFORMATION SECTION 4.1 Reports and Notices. Borrower covenants and agrees that ------------------- from and after the Closing Date and until the Termination Date, it shall deliver to Agent and each Lender the Financial Statements, Projections and notices at the times and in the manner set forth in Annex E. ------- SECTION 4.2 Communication with Accountants. Borrower authorizes Agent, ------------------------------ each Lender and each participant under the Participation Agreement to communicate with its and its Subsidiaries' independent certified public accountants and authorizes or will arrange for 32 authorization for those accountants to make available to Agent, each Lender and each participant under the Participation Agreement any and all financial statements and other supporting financial documents and schedules with respect to the business, financial condition and other affairs of Borrower and its Subsidiaries, in each instance, provided that Agent, such Lender or such participant shall (i) give Borrower prior notice of each intended communication with such accountants and of each request to have such accountants make available to Agent, such Lender or such participant any such financial information and material and (ii) permit a representative of Borrower to be present at any such communication or making available of financial information and material. At or before the Closing Date, Borrower shall deliver a letter addressed to and acknowledged by such accountants (such acknowledgement to be made in favour of Agent, Lenders and participants under the Participation Agreement) instructing them to make available to Agent, Lenders and participants under the Participation Agreement such information and records as Agent, Lenders and participants under the Participation Agreement may reasonably request and to otherwise comply with the provisions of this Article 4 and a similar letter of --------- Tyco Parent's accountants delivered under the US Credit Agreement (such letters, the "Accountants' Letters"). After the Closing Date, if Tyco Parent or Borrower engages the services of accountants other than Deloitte & Touche, Borrower shall deliver or cause to be delivered a letter addressed to, and acknowledged by, such accountants (such acknowledgement to be made in favour of Agent, Lenders and participants under the Participation Agreement) containing the same terms and provisions as the applicable Accountant's Letter. Borrower shall deliver to Agent a copy of such letter so acknowledged by such accountants prior to the engagement by Tyco Parent or Borrower of such accountants. ARTICLE 5 AFFIRMATIVE COVENANTS Borrower acknowledges that it controls its Subsidiaries, if any. To the extent that the provisions of this Agreement impose obligations or restrictions of any nature or kind on the Subsidiaries of Borrower, including the covenants contained in Articles 5 and 6, the Borrower shall be obligated to Agent and ---------- - Lenders to cause its Subsidiaries to comply with such obligations and restrictions. Borrower covenants and agrees that, unless Required Lenders shall otherwise consent in writing, from and after the date hereof and until the Termination Date: SECTION 5.1 Maintenance of Existence and Conduct of Business. Each of ------------------------------------------------ Borrower and its Subsidiaries shall: (a) do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence; (b) continue to conduct its business substantially as now conducted or as otherwise permitted hereunder; (c) at all times maintain, preserve and protect all of its material Intellectual Property, and preserve all the remainder of its property (unless obsolete), in use or useful in the conduct of its business and keep the same in good repair, working order and condition (taking into consideration ordinary wear and tear) and from time to time make, or cause to be made, all necessary or appropriate repairs, replacements and improvements thereto consistent with industry practices, so that the business carried on in 33 connection therewith may be properly and advantageously conducted at all times; (d) keep and maintain its Equipment and fixtures in good operating condition (taking into consideration ordinary wear and tear) sufficient for the continuation of Borrower's business conducted on a basis consistent with past practices and shall provide or arrange for all maintenance and service and all repairs necessary for such purpose; and (e) transact business only under the names set forth in Schedule 3.2 (unless Borrower provides Agent with not less ------------ than 30 days prior notice of use of another name). SECTION 5.2 Payment of Obligations, Charges and Claims. Each of ------------------------------------------ Borrower and its Subsidiaries shall pay and discharge in accordance with the terms thereof: (a) all its Indebtedness and Obligations, as and when due and payable, (b) all Charges imposed upon it or its income and profits, or any of its property (real, personal or mixed), and (c) all lawful claims for labor, materials, supplies and services or otherwise, which if unpaid might by law become a Lien on its property; provided, that Borrower or any of its -------- Subsidiaries shall not be required to pay any such Charge or claim which is being contested in good faith by proper legal actions or proceedings, so long as at the time of commencement of any such action or proceeding and during the pendency thereof (i) no Default shall have occurred and be continuing, (ii) adequate reserves with respect thereto are established and are maintained in accordance with GAAP, (iii) such contest operates to suspend collection of the contested Charges or claims and is maintained and prosecuted continuously with diligence, (iv) none of the Collateral would be subject to forfeiture or loss or any Lien by reason of the institution or prosecution of such contest, (v) no Lien shall exist, be imposed or be attempted to be imposed for such Charges or claims during such action or proceeding unless the full amount of such Charge or claim is covered by insurance satisfactory in all respects to Agent, and (vi) Borrower or its applicable Subsidiary, as appropriate, shall promptly pay or discharge such contested Charges and all additional charges, interest, penalties and expenses, if any, and shall deliver to Agent evidence acceptable to Agent of such compliance, payment or discharge, if such contest is terminated or discontinued adversely to Borrower or its Subsidiaries, as appropriate. SECTION 5.3 Books and Records. Each of Borrower and its Subsidiaries ----------------- shall keep adequate records and books of account with respect to its business activities, in which proper entries, reflecting all of its consolidated and consolidating financial transactions, are made in accordance with GAAP and on a basis consistent with the Financials. SECTION 5.4 Litigation. Borrower shall notify Agent and each Lender in ---------- writing, promptly upon learning thereof, of any litigation, Claim or other action commenced or threatened against Borrower or any of its Subsidiaries, and of the institution against any such Person of any suit or administrative proceeding which (a) is reasonably likely to involve an amount in excess of $100,000, or the Equivalent Amount thereof, individually or (to the extent litigation, Claims or other actions are related) in the aggregate or (b) is reasonably likely to result in a Material Adverse Effect if adversely determined. 34 SECTION 5.5 Insurance. --------- (a) Each of Borrower and its Subsidiaries shall, at their sole cost and expense maintain or cause to be maintained, the policies of insurance in such amounts and as otherwise described in Annex F. Borrower shall notify Agent ------- promptly of any occurrence causing a material loss or decline in value of any real or personal property and the estimated (or actual, if available) amount of such loss or decline, except as specified otherwise in Annex F. Borrower (for ------- itself and its Subsidiaries) hereby directs all present and future insurers under its "All Risk" policies of insurance to pay all proceeds payable thereunder directly to Agent on behalf of Lenders. Borrower (for itself and its Subsidiaries) irrevocably makes, constitutes and appoints Agent (and all officers, employees or agents designated by Agent) as such Person's true and lawful agent and attorney in-fact for the purpose of making, settling and adjusting claims under the "All Risk" policies of insurance, endorsing the name of such Person on any cheque, draft, instrument or other item of payment for the proceeds of such "All Risk" policies of insurance, and for making all determinations and decisions with respect to such "All Risk" policies of insurance. In the event Borrower at any time or times hereafter shall fail to obtain or maintain (or fail to cause to be obtained or maintained) any of the policies of insurance required above or to pay any premium in whole or in part relating thereto, Agent or Lenders, without waiving or releasing any Obligations or Default or Event of Default hereunder, may at any time or times thereafter (but shall not be obligated to) obtain and maintain such policies of insurance and pay such premium and take any other action with respect thereto which Agent or Lenders deem advisable. All sums so disbursed, including reasonable counsel fees, court costs and other charges related thereto, shall be payable, on demand, by Borrower to Agent on behalf of Lenders and shall be additional Obligations hereunder secured by the Collateral, provided, that if and to the -------- extent Borrower fails to promptly pay any of such sums upon Agent's demand therefor, Agent is authorized to, and at its option may, make or cause to be made Revolving Credit Advances on behalf of Borrower for payment thereof. (b) Agent and Required Lenders reserve the right at any time, upon review of the risk profile of Borrower and its Subsidiaries, to require additional forms and limits of insurance to, in Agent's or Required Lenders' sole opinion, adequately protect the interests of Agent and Lenders. Borrower shall, if so requested by Agent, deliver to Agent, as often as Agent may request, a report of a reputable insurance broker satisfactory to Agent with respect to its insurance policies. (c) Borrower shall deliver to Agent endorsements to all of its and its Subsidiaries' (i) "All Risk" and business interruption insurance naming Agent on behalf of Agent and Lenders as loss payee, and (ii) general liability and other liability policies naming Agent on behalf of Agent and Lenders as additional insureds. (d) Prior to or contemporaneously with the amendment, supplementation or other modification of Borrower's insurance coverage under which Agent is to be named as a loss payee under the terms of this Agreement, Borrower agrees to deliver to Agent (i) an Assignment of Monies Payable Under Insurance Policies duly executed by Borrower; (ii) a duly executed 35 confirmation of the applicable insurer confirming the receipt of the transfer and assignment and authorization provided for in such Assignment of Monies Payable Under Insurance Policies and the duly executed agreement of the applicable insurer to pay all proceeds of insurance in accordance with same; and (iii) a legal opinion of counsel acceptable to Agent in form and substance acceptable to Agent as to the Assignment of Monies Payable Under Insurance Policies being enforceable against Borrower. SECTION 5.6 Compliance with Laws. Each of Borrower and its Subsidiaries -------------------- shall comply in all material respects with all Applicable Laws, including those regarding the withholding, collection, payment and deposit of employee's income, unemployment insurance or other benefits and social security, except (other than with respect to those Applicable Laws with which the failure to so comply would result in a Lien against any of the Borrower's or any of its Subsidiaries' property or assets) when the failure to so comply could not reasonably be expected to result in a Material Adverse Effect and would not reasonably likely subject Borrower or any of its Subsidiaries to any criminal penalties (other than non-material fines) or the Agent or any Lender to any civil or criminal penalties. SECTION 5.7 Agreements. Each of Borrower and its Subsidiaries shall ---------- perform and comply with, within all required time periods (after giving effect to any applicable grace periods), all of its obligations and enforce all of its rights under each agreement, contract, instrument or other document to which it is a party, including any Material Contracts, leases, licences and customer contracts to which it is a party where the failure to so perform and enforce could have or result in a Material Adverse Effect. Each of Borrower and its Subsidiaries shall take such actions or omit to take such actions so as not to cause a breach of the representations and warranties hereunder and under the other Loan Documents. SECTION 5.8 Supplemental Disclosure. On the request of Agent or any ----------------------- Lender, at any time after an Event of Default has occurred which is continuing and, otherwise, not more than once a calendar quarter (in the event that such information is not otherwise delivered by Borrower to Agent or Lenders pursuant to this Agreement), Borrower will supplement (or cause to be supplemented) each Schedule hereto, or representation herein or in any other Loan Document with respect to any matter hereafter arising which, if existing or occurring at the date of this Agreement, would have been required to be set forth or described in such Schedule or as an exception to such representation or which is necessary to correct any information in such Schedule or representation which has been rendered inaccurate thereby; provided, that any supplement to such Schedule or -------- representation shall not be deemed an amendment thereof unless expressly consented to in writing by Agent and Required Lenders, and no such amendments, except as the same may be consented to in a writing which expressly includes a waiver, shall be or be deemed a waiver by Lenders of any Default disclosed therein. Borrower shall, if so requested by Agent or Required Lenders, furnish to Agent and Lenders as often as they reasonably request, statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as Agent or Required Lenders may reasonably request, all in reasonable detail, and Borrower shall advise Agent and Lenders promptly, in reasonable detail, of (a) any Lien, other than as permitted pursuant to Section 6.7, ----------- 36 attaching to or asserted against any of the Collateral, (b) any material change in the composition of the Collateral, and (c) the occurrence of any other event which would have a Material Adverse Effect upon the Collateral and/or Agent's Lien thereon. SECTION 5.9 Environmental Matters. --------------------- (a) Each of Borrower and its Subsidiaries (1) shall be at all times in compliance in all material respects with all Environmental Laws, and (2) shall similarly ensure that the Facilities and the Undertaking are in compliance with all Environmental Laws and that no Contaminants are, contrary to any Environmental Laws, Discharged, generated, used, stored, transported or otherwise dealt with thereon or in connection therewith. (b) Borrower shall deliver to Agent promptly following the completion thereof a copy of any environmental assessments or audits that it or any of its Subsidiaries conducts or has conducted by a third party. Should any event occur which Agent, in its discretion, acting reasonably, deems to require an Environmental Assessment, Borrower shall, upon the request of Agent, provide to Agent an Environmental Assessment concerning any Facility or element of the Undertaking, which Environmental Assessment must prove satisfactory to Agent, acting reasonably. If Borrower does not initiate such Environmental Assessment within 30 days of Agent's request and diligently proceed with such Environmental Assessment thereafter, Agent may, but is not required to, retain an independent, qualified engineer or environmental consultant to conduct the Environmental Assessment. Each of Borrower and its Subsidiaries shall grant full and complete access to the Facilities, including, but not limited to, the right to enter upon, investigate, and collect air, surface water, groundwater, and soil samples, provided, that such entry, investigation and sampling shall not unduly -------- interfere with the normal business and operations of Borrower and its Subsidiaries. All costs of such an Environmental Assessment will be paid by Borrower. (c) Borrower shall promptly, and in any event within five Business Days, notify Agent of any written notice or communication received by Borrower or any of its Subsidiaries of the following: (i) any report of any Environmental Activity relating to the Facilities or the Undertaking, made by or known or which should be known to Borrower, to a Governmental Body pursuant to any applicable Environmental Laws or Governmental Approvals; (ii) any notification to Borrower or any of its Subsidiaries by a Governmental Body to the effect that: (1) it intends to cancel, suspend or refuse to renew a Governmental Approval relating to Environmental Laws or has so cancelled, suspended or refused to renew the same; (2) it intends to impose or has imposed terms, provisions, conditions or limitations in a Governmental Approval relating to Environmental Laws; (3) it has imposed or intends to impose any order, requirement, directive, program 37 approval or certificate relating to Environmental Laws which mandates any work, repairs, construction, stand-by equipment, modifications or capital expenditure; (4) it has imposed or intends to impose any stop order or control order under an Environmental Law relating to Borrower or any of its Subsidiaries; or (5) Borrower or any of its Subsidiaries may be liable, in whole or in part, for any remedial action, including decontamination or restoration work; (iii) any investigation, inquiry, search (whether effected pursuant to a search order, search warrant or powers conferred by statute), characterization work, sampling, excavation or drilling by a Governmental Body relating to any Environmental Activity or other environmental matter concerning Borrower or any of its Subsidiaries, but not including routine and periodic inspections or site visits by members of a Governmental Body dealing with pollution abatement; (iv) any administrative or judicial complaint or order filed against Borrower or any of its subsidiaries alleging violation of any Environmental Laws or Governmental Approval; (v) any injunction, prosecution, action, charge or proceeding, whether before a court or a regulatory body, dealing with Environmental Laws; (vi) any request or order by a Governmental Body that Borrower or any of its Subsidiaries perform any evaluation, assessment, characterization work, study or test relating to any Environmental Activity; (vii) any change in Governmental Approvals issued to Borrower or any of its Subsidiaries applicable to the generation, transportation, storage or disposal by Borrower or any of its Subsidiaries of Contaminants which reasonably could be expected to have a Material Adverse Effect; and (viii) any process, investigation or order which could result in liability to Borrower or any of its Subsidiaries for any clean-up or remedial action, including decontamination or restoration work, associated with any Environmental Activity relating to any Facility or the Undertaking or for any damages resulting from such Environmental Activity. (d) Borrower shall, upon receiving a written request therefor from Agent, within 90 Business Days of delivering to Agent a notice mentioned in Section ------- 5.9(c), deliver to Agent a written estimate, prepared by an independent - ------ environmental consulting firm and in form and substance satisfactory to Agent, of the cost of the action, works or measures required pursuant to an Environmental Law and mentioned in such notice. 38 (e) Borrower shall promptly, and in any event within five Business Days, forward to Agent a copy of any permit or application obtained or filed by Borrower or any of its Subsidiaries under any Environmental Laws to the extent that failure to hold or apply for the same could have a Material Adverse Effect. (f) Borrower shall, to the extent permitted by Applicable Laws, indemnify the Lender and Agent, their respective directors, officers, employees, agents, shareholders and other Affiliates, and shall hold each of them harmless from and against any and all losses, liabilities, damages, costs, penalties, fines, expenses and claims of any and every kind whatsoever, including without limitation, from and against: (i) the reasonable cost of defending and/or counter-claiming or claiming over against third parties in respect of any action or matter relating to any Facility or the Undertaking, and (ii) any cost, liability or damage arising out of the disposition or settlement of any action entered into by Agent relating to any Facility or the Undertaking, and which at any time or from time to time may be paid or incurred by, or asserted against, any of them for, with respect to or as a direct or indirect result of (A) any Environmental Activity by Borrower or any of its Subsidiaries or any of their predecessors in title in contravention of an Environmental Law, (B) failure on the part of Borrower or any Subsidiaries or any of their predecessors in title to comply with any Environmental Laws and (C) any misrepresentation, breach of warranty or breach of covenant on the part of Borrower or any of its Subsidiaries with respect to environmental matters. This indemnification shall survive the Termination Date. To the extent that this indemnification may be unenforceable because it violates any law or public policy, Borrower will contribute the maximum portion which it is permitted to pay and satisfy under Applicable Laws to the payment and satisfaction of all indemnified matters incurred by any Person contemplated by this indemnification. SECTION 5.10 Securities Regulatory Filings; Certain Other Notices. ---------------------------------------------------- Borrower shall provide to Agent (a) promptly, after the filing thereof with any securities regulatory authority, a copy of each material report, notice or other filing, if any, made by Borrower or any of its Subsidiaries with such regulatory authority and (b) a copy of each material written communication received by Borrower or any of its Subsidiaries from or delivered by Borrower or any of its Subsidiaries to (i) any securities regulatory authority or (ii) any holder of Stock of Borrower, in each case, promptly after each such receipt or delivery. SECTION 5.11 Canadian Benefit Plans. Borrower shall deliver to Agent ---------------------- notification within 30 days of any material increases in the benefits of any existing Canadian Benefit Plan, or the establishment of any new Canadian Benefit Plan, or the commencement of contributions to any such plan to which Borrower or any of its Subsidiaries was not previously contributing. 39 SECTION 5.12 Landlord, Warehouseman/Bailee and Mortgagee Agreements. ------------------------------------------------------ Borrower shall, unless otherwise agreed to by Agent in writing, obtain or cause to be obtained a landlord agreement or warehouseman/bailee agreement, in each case in form and substance acceptable to Agent, with the lessor of each present or future leased premises of Borrower or any of its Subsidiaries or the warehouseman of each present or future warehouse in which Collateral is located at any time, as applicable, together with a mortgagee consent and agreement, in form and substance satisfactory to Agent, with each mortgagee of each such leased premises; provided, however, no landlord agreement or mortgagee consent -------- and agreement shall be required in respect of Borrower's leased premises at 4190 Thimens Boulevard, St. Laurent, Quebec so long as the nature of Borrower's business conducted at such premises does not change following the Closing Date and the amount of the Collateral located at such premises is less than Cdn$100,000. SECTION 5.13 Certain Obligations Respecting Subsidiaries. Each of ------------------------------------------- Borrower and its Subsidiaries shall take such action from time to time as shall be necessary to ensure that each of its Subsidiaries is a direct or indirect wholly owned Subsidiary of Borrower and is owned directly or indirectly only by Borrower. SECTION 5.14 Application of Proceeds. Borrower shall use the proceeds of ----------------------- Revolving Credit Advances as provided in Section 1.4. ----------- SECTION 5.15 Fiscal Year. Borrower shall maintain as its Fiscal Year the ----------- calendar year. SECTION 5.16 Report to Other Creditors. Borrower shall provide to Agent ------------------------- copies of any statement or report provided to any other party by Borrower or any of its Subsidiaries pursuant to the terms of each contract or agreement relating to Indebtedness of Borrower or any of its Subsidiaries and not otherwise required to be provided to Agent pursuant to this Agreement promptly following the provision to such other party. SECTION 5.17 Casualty and Condemnation. ------------------------- (a) Borrower shall promptly notify Agent of any loss, damage, or destruction to any Collateral or arising from its use, whether or not covered by insurance. Agent, on behalf of Agent and Lenders, is hereby authorized to adjust losses and collect all insurance proceeds directly. If, notwithstanding the provisions hereof which require that Agent be the sole loss payee, a check or other instrument from an insurer is made payable to Borrower or any of its Subsidiaries solely or jointly with Agent, Agent may endorse such Person's name thereon and take such other action as Agent may elect to obtain the proceeds thereof. After deducting from such proceeds the expenses, if any, incurred by Agent in the collection or handling thereof, Agent may apply such proceeds to the reduction of the Obligations in the manner set forth in Section 1.11 or, at ------------ Agent's option in its sole discretion, may permit or require Borrower or the applicable Subsidiary of Borrower to use such proceeds, or any part thereof, to replace, repair or restore such Collateral as provided in paragraph (d) below (it being agreed by Agent that so long as no Default or Event of Default shall be continuing, the Borrower or the applicable 40 Subsidiary of Borrower shall be entitled to use such amount of such money as shall be necessary to replace, repair or restore such Collateral, as provided in paragraph (d) below, where the amount of such money on account of a single event of loss, damage or destruction is less than $250,000 and it is reasonably expected that such replacement, repair or restoration can be completed within six months after loss, damage or destruction (and if not completed by the end of such six month period, the remaining money shall be delivered to Agent to be applied to the payment of the Obligations)). If, notwithstanding that all proceeds of insurance in respect of any Collateral shall be payable to Agent, Borrower or any of its Subsidiaries receives any proceeds of insurance in respect of any Collateral in respect of the policies required to be maintained under this Agreement, subject to the immediately preceding sentence, such proceeds shall be held in trust by Borrower, or Borrower shall cause the applicable Subsidiary of Borrower to hold in trust such proceeds, for Agent and, unless Agent otherwise permits, shall be forthwith paid over to Agent. (b) Borrower shall, promptly upon Borrower learning of the institution of any proceeding for the condemnation or other taking of any of its Collateral, notify Agent of the pendency of such proceeding, and agrees that Agent may participate in any such proceeding and Borrower from time to time will deliver to Agent all instruments reasonably requested by Agent to permit such participation. Agent shall (and is hereby authorized to) collect any and all awards, payments or other proceeds of any such condemnation or taking and apply such proceeds to the reduction of the Obligations in the manner set forth in Section 1.11 or, at Agent's option in its sole discretion, may permit or require - ------------ Borrower to use such proceeds, or any part thereof, to replace, repair or restore such Collateral as provided in paragraph (d) below. (c) Subject to the terms and conditions hereof (including Section 2.2), ----------- after application of the proceeds of any loss or taking of any Collateral to the reduction of the Obligations pursuant to paragraphs (a) and (b) above, Borrower may borrow Revolving Credit Advances for the purpose of replacing, repairing or restoring any Collateral subject to such loss or taking in accordance with paragraph (d) below. (d) Any Collateral which is to be replaced, repaired or restored pursuant to paragraph (a), (b) or (c) above shall be replaced, repaired or restored pursuant to such terms and conditions as Agent may reasonably require and with materials and workmanship of substantially as good a quality as existed before such loss or taking, and each of Borrower and its Subsidiaries shall commence such replacement, repair or restoration as soon as practicable and proceed diligently with it until completion to Agent's satisfaction. Borrower shall provide to Agent written progress reports, other information and evidence of its compliance with the foregoing. SECTION 5.18 Intellectual Property. If before the Obligations shall have --------------------- been satisfied in full, Borrower or any of its Subsidiaries shall (a) obtain rights to any new Intellectual Property or (b) become entitled to the benefit of any Intellectual Property, Borrower shall give to Agent prompt written notice thereof. In addition, Borrower or its applicable Subsidiary shall (i) prosecute diligently each Intellectual Property registration application pending as of the Closing Date or thereafter until the Termination Date, as is appropriate in its best interests, (ii) 41 make applications to register its Intellectual Property, as is appropriate in its best interests, and (iii) use its best efforts to preserve and maintain all rights in its Intellectual Property, as is appropriate in its best interests. Each of Borrower and its Subsidiaries shall, and shall instruct the solicitor or agent prosecuting or filing any Intellectual Property applications of Borrower or its applicable Subsidiary to, take all necessary steps to perfect Agent's security in the Intellectual Property that is the subject of such applications and to deliver to Agent as soon as practically possible a legal opinion from counsel, and in form and substance, satisfactory to Agent stating that Agent's security is enforceable and duly perfected. With respect to all options and licence rights of Borrower or any of its Subsidiaries constituting Intellectual Property, Borrower shall deliver to Agent, in form and substance satisfactory to Agent, an agreement duly executed by each owner and (in the case of rights sub- licensed to Borrower or any or its Subsidiaries by Persons who are not at arm's length with Borrower) licensor of such Intellectual Property substantially in the form of the Agreement Respecting Distribution Agreement, together with a legal opinion relating to such security from counsel, and in form and substance, satisfactory to the Agent in its discretion. Neither Borrower nor any of its Subsidiaries shall abandon any right to file or register any Intellectual Property material to its business without the consent of Agent. At any time after the occurrence and during the continuance of an Event of Default, Agent shall have the right, but shall in no way be obligated, to bring suit in its own name, on its behalf and on behalf of Lenders, to enforce all Intellectual Property of Borrower or any of its Subsidiaries and, if Agent shall determine that it shall commence any such suit, each of Borrower and its applicable Subsidiary shall do any and all lawful acts and execute any and all proper documents required by Agent in aid of such enforcement and each of Borrower and its applicable Subsidiary shall, promptly, upon demand from Agent, reimburse and indemnify Agent for all reasonable costs and expenses incurred by Agent in the exercise of its rights under this Section 5.18. ------------ SECTION 5.19 New Locations. Borrower shall advise Agent in writing not ------------- less than 30 days prior to Borrower or any of its Subsidiaries (a) changing the location of any of their executive offices or principal places of business or acquiring any new such locations, other than those set forth in Schedule 3.2, or ------------ (b) keeping, maintaining or storing Inventory at any location other than the locations listed in Schedule 3.2; provided, in each case, that any such new ------------ -------- location must be within the Province of Ontario, Canada. Before changing any such location or acquiring another such location (whether by purchase, lease or otherwise), Borrower shall provide Agent and Lenders with such charges, assignments, landlord agreements, warehouseman/bailee agreements, mortgagee consents and agreements (as contemplated by Section 5.12) and legal opinions as ------------ Agent may reasonably require in order to assure and maintain the first priority, perfected Lien on the Collateral, subject only to other Liens permitted by Section 6.7, and to assure access thereto. - ----------- SECTION 5.20 Security. -------- (a) Each of Borrower and its Subsidiaries shall defend the Lien granted pursuant to the Loan Documents against claims and demands of all Persons whomsoever. Each of Borrower and its Subsidiaries shall maintain the Collateral so as not to be co-mingled with the assets of any other Person thereby becoming indistinguishable from that of another Person. Borrower will 42 advise Agent in writing of any material change to or material acquisition of Collateral within two Business Days of such material change or acquisition. Upon the request of Agent, Borrower will furnish to Agent statements and schedules further identifying and describing Collateral. (b) Borrower shall, at the request of Agent, as soon as possible deliver to Agent (i) such security agreements, financing statements and other documents as Agent may request in order to grant to Agent a first ranking Lien (subject only to other Liens permitted by Section 6.7) in the Collateral situated in the ----------- Northwest Territories and (ii) a legal opinion relating to such security, from counsel, and in form and substance, satisfactory to Agent in its discretion, if at any time the amount of Accounts arising from Account Debtors of Borrower or any of its Subsidiaries located in the Northwest Territories exceeds $100,000. (c) If Borrower or any of its Subsidiaries acquires after the Closing Date any property, real or personal, tangible or intangible, not subject to the Lien granted pursuant to the Loan Documents (other than Accounts of Account Debtors situated in the Northwest Territories), Borrower shall promptly advise Agent and, at request of Agent, as soon as possible deliver to Agent (i) security agreements, financing statements and other documents as Agent may request in order to grant Agent a first ranking Lien (subject only to other Liens permitted by Section 6.7) in such property and (ii) a legal opinion relating to such ----------- security, from counsel, and in form and substance, satisfactory to Agent in its discretion. SECTION 5.21 Currency and Interest Rate Hedging. ---------------------------------- (a) Borrower shall, and shall cause each of its Subsidiaries to, within 60 days after the date hereof, maintain at all times operations and personnel therefor to monitor currency exchange rate changes applicable to the business of Borrower and its Subsidiaries and to engage in prudent currency hedging activities to protect Borrower and its Subsidiaries from changes to such exchange rates, all in a manner reasonably acceptable to Agent. (b) Borrower shall, and shall cause each of its Subsidiaries to, within 60 days after the date hereof amend, modify or terminate all interest hedging agreements involving Borrower or any of its Subsidiaries which are existing on the date hereof to the extent necessary so that after giving effect to any such amendment, modification or termination all such agreements existing on such 60th day shall be reasonably satisfactory to Agent. ARTICLE 6 NEGATIVE COVENANTS Borrower covenants and agrees (for itself and each of its Subsidiaries, if any,) that, without the Required Lenders' prior written consent, from and after the date hereof and until the Termination Date: 43 SECTION 6.1 Mergers, Subsidiaries, Etc. Neither Borrower nor any of its --------------------------- Subsidiaries shall, directly or indirectly, by operation of law or otherwise, amalgamate with, acquire all or substantially all of the assets or shares of, or otherwise combine with, any Person or form or acquire any Subsidiary. SECTION 6.2 Investments. Neither Borrower nor any of its Subsidiaries ----------- shall, directly or indirectly, make or maintain any Investment except: (a) to the extent that Borrower or any of its Subsidiaries is permitted do so under Section 6.2(a) through Section 6.2(c) of the US Credit Agreement and (b) - -------------- -------------- Investments in Cash Equivalents; provided that all Cash Equivalents of Borrower -------- and any of its Subsidiaries (to the extent the aggregate value of such Cash Equivalents exceeds $50,000 at any time) shall be pledged to Agent pursuant to the Security Agreement or other documentation in form and substance satisfactory to Agent whereby Agent shall obtain a first priority perfected Lien in such Cash Equivalents. Set forth in Schedule 6.2 are all Investments of Borrower ------------ outstanding on the date hereof. SECTION 6.3 Indebtedness. Neither Borrower nor any of its Subsidiaries ------------ shall create, incur, assume or permit to exist any Indebtedness, except to the extent that the Borrower or any of its Subsidiaries is permitted to do so under Section 6.3 of the US Credit Agreement; provided, that Indebtedness under - ----------- -------- interest rate protection agreements shall have terms that are acceptable to Agent. SECTION 6.4 Affiliate and Employee Loans and Transactions. Neither --------------------------------------------- Borrower nor any of its Subsidiaries shall enter into any lending, borrowing or other commercial transaction with any of its Subsidiaries, Affiliates, officers, directors or employees, including payment of any management, consulting, advisory or similar fee except to the extent that the Borrower or any of its Subsidiaries is permitted to do so under Section 6.4 of the US Credit Agreement; ----------- provided, however, with reference to Section 6.4(l) of the US Credit Agreement, - -------- -------------- neither Borrower nor any of its Subsidiaries shall pay any royalty fees to Tyco Industries or a direct or indirect parent corporation of Borrower or any of its Subsidiaries. Set forth in Schedule 6.4 is a list of all such lending, ------------ borrowing or other commercial transactions existing or outstanding as of the Closing Date. Prior to Borrower purchasing any Inventory from any of its Affiliates, other than those Affiliates identified in Schedule 6.4 as Affiliates ------------ from whom, as of the Closing Date, Borrower purchases Inventory, Borrower shall deliver to Agent a Supplier Waiver and Assignment duly executed by the Affiliate of Borrower from whom Borrower wishes to purchase Inventory. SECTION 6.5 Capital Structure and Business. Except as permitted under ------------------------------ Section 5.1, neither Borrower nor any of its Subsidiaries shall: (a) make any - ----------- changes in its business objectives, purposes, or operations which could in any way adversely affect the repayment of the Obligations or have or result in a Material Adverse Effect; (b) make any change in its capital structure as described in Schedule 3.9 (including the issuance or recapitalization of any ------------ shares of Stock or other securities convertible into Stock or any revision of the terms of its outstanding Stock), except in respect of the declaration and payment of dividends on Borrower's or any of its Subsidiaries' Stock, solely in the same class of Stock of such Person, provided that, such Stock is pledged to -------- Agent on the same terms as Borrower's Stock is pledged to Agent on the Closing 44 Date; (c) amend its articles of incorporation or other constating documents or by-laws in any manner which is reasonably likely to adversely affect the interests of Lenders (but in no event shall any such amendment restrict the business or power of Borrower or any of its Subsidiaries); or (d) engage in any business other than the business currently engaged in by such Person and any related toy or collectibles business. SECTION 6.6 Guaranteed Indebtedness. Neither Borrower nor any of its ----------------------- Subsidiaries shall incur any Guaranteed Indebtedness except: (a) by endorsement of instruments or items of payment for deposit to the general account of such Person; (b) for performance bonds or indemnities entered into in the ordinary course of business consistent with past practices; and (c) the unsecured Guaranteed Indebtedness set forth in Schedule 6.6 hereto, but the amount of any ------------ thereof shall not exceed the respective amounts set forth on such Schedule 6.6. ------------ SECTION 6.7 Liens. Neither Borrower nor any of its Subsidiaries shall ----- create or permit to exist any Lien on any of its properties or assets except for: (a) presently existing or hereafter created Liens in favour of Agent or Lenders to secure the Obligations; (b) Liens set forth in Schedule 6.7 existing ------------ on the Closing Date, but not any increase in the amount secured by any such Liens or the coverage thereof to other property or assets; (c) Permitted Encumbrances; and (d) Liens which under Section 6.7(d) of the US Credit -------------- Agreement the Borrower or any of its Subsidiaries is permitted to create or permit to exist. SECTION 6.8 Sale of Assets. Neither Borrower nor any of its -------------- Subsidiaries shall sell, transfer, convey, assign or otherwise dispose of any of its assets or properties, including any Collateral; provided, that the foregoing -------- shall not prohibit (a) the sale of Inventory in the ordinary course of business; (b) the sale or disposition of any Equipment which has become no longer useful or obsolete or surplus to the business of Borrower or any of its Subsidiaries; and (c) (i) the sale, lease, transfer or other disposition of assets and properties by Borrower or any of its Subsidiaries to Tyco Parent or any of its other Subsidiaries in the ordinary course of business for fair consideration or (ii) any other sale, lease, transfer or other disposition by Borrower or any of its Subsidiaries of assets and property having an aggregate purchase or sale price or fair market value, whichever is greater, not in excess of US$100,000, or the Equivalent Amount thereof, in any Fiscal Year. SECTION 6.9 Material Contracts. Neither Borrower nor any of its ------------------ Subsidiaries shall (a) cancel or terminate any Material Contract or amend or otherwise modify any Material Contract, or waive any default or breach under any Material Contract, except, in the case of the Distribution Agreement, in accordance with the Agreement Respecting Distribution Agreement and, otherwise, in each instance, in the ordinary course of business, but only so long as (i) Tyco Parent determines that it is in the best interests of Tyco Parent and Borrower or the applicable Subsidiary of Borrower, as the case may be, to do so, (ii) at the time of such action no Event of Default is continuing and (iii) such action is not being taken with respect to any Material Contract (as defined in the US Credit Agreement) restricted under Section 6.24 of the US Credit ------------ Agreement or (b) take any other action in connection with any Material Contract that would have a Material Adverse Effect. 45 SECTION 6.10 ERISA. Borrower shall not, and shall not permit any of its ----- Subsidiaries to, carry on any business, employ any employees or own any material assets outside Canada. Borrower shall not, and shall not permit any Subsidiary to, become a party to, employ any employees who are or who may become participants in, or take any action which may have the effect of acknowledging, accepting or creating any liability whatsoever under or in respect of, any employee benefit plan which is governed by ERISA. Borrower shall not, and shall not permit any Subsidiary to, create, assume or incur, or suffer to be created, assumed or incurred or to exist, any Lien in favour of the PBGC or any other Person in connection with any liability under or in connection with ERISA. Borrower shall do all things necessary to maintain its corporate existence separate and apart from Tyco Industries and other Affiliates of Borrower which carry on business outside Canada, including, (a) practising and adhering to corporate formalities, including maintaining the appropriate corporate books and records; (b) maintaining all of its deposit and other bank accounts and all of its assets separate and apart from those of any such Persons; (c) maintaining all of its financial records separate and apart from those of any such Persons; (d) maintaining its own separate offices, telephone numbers, stationery and business forms; (e) accounting for and managing all of its liabilities separately from those of any such Persons; and (f) conducting all of its business (whether written or oral) solely in its own name. SECTION 6.11 Canadian Benefit and Pension Plans. Neither Borrower nor ---------------------------------- any of its Subsidiaries shall establish, maintain or contribute to any Canadian Pension Plan. Neither Borrower nor any of its Subsidiaries shall enter into any new Canadian Benefit Plan or modify any such existing plan so as to increase its obligations thereunder which could result in any liability to Borrower or any of its Subsidiaries and which could have a Material Adverse Effect. SECTION 6.12 Sale-Leasebacks. Neither Borrower nor any of its --------------- Subsidiaries shall engage in any sale-leaseback or similar transaction involving any of its property or assets; provided, however, subject to Section 5.18, this -------- ------------ Section 6.12 shall not prohibit any transaction involving a transfer of - ------------ Intellectual Property by Borrower or any of its Subsidiaries to Tyco Investment Corp. permitted under Section 6.4 and a corresponding taking back by Borrower or ----------- its applicable Subsidiary from Tyco Investment Corp. of a royalty license agreement with respect to such Intellectual Property. SECTION 6.13 Cancellation of Indebtedness. Neither Borrower nor any of ---------------------------- its Subsidiaries shall cancel any claim or Indebtedness owing to it, except for reasonable consideration and in the ordinary course of its business, or make any payment or prepayment of principal of or interest on or otherwise with respect to, or purchase, defease, acquire or redeem, any Indebtedness (other than the Obligations) or make any deposit in respect thereof or give notice in respect thereof; provided, however, Borrower or any of its Subsidiaries may make those -------- payments and prepayments permitted to be made by Borrower or any of its Subsidiaries under clauses (i) and (iii) through (iv) of Section 6.14 of the US ------------ Credit Agreement; provided, that, with reference to clause (iv) of such Section -------- ------- 6.14, an additional condition precedent shall be that no Default or Event of - ---- Default is continuing or would result therefrom (unless otherwise agreed to in writing by Agent). 46 SECTION 6.14 Restricted Payments. Neither Borrower nor any of its ------------------- Subsidiaries shall make any Restricted Payment to any Person except to the extent that the Borrower or any of its Subsidiaries is permitted to do so under Section 6.15(a), (c), (d), (e), (f) or (g) of the US Credit Agreement. - --------------- --- --- --- --- --- SECTION 6.15 Real Property Leases. Neither Borrower nor any of its -------------------- Subsidiaries shall enter into or renew (by amendment, modification or otherwise) any Leases other than (i) renewals of existing Leases upon more favourable (to such Person) or substantially the same terms as are in effect on the Closing Date, (ii) leases of sales offices and showrooms in the ordinary course of business and (iii) leases by Borrower or any of its Subsidiaries, as sublessor, to Tyco Parent or any of its Subsidiaries to the extent permitted by Section ------- 6.4. - --- SECTION 6.16 Bank Accounts. Neither Borrower nor any of its Subsidiaries ------------- shall maintain any deposit, operating or other bank accounts except for those accounts identified in Schedule 3.19; provided, however, Borrower shall deliver ------------- -------- to Agent on or before March 24, 1995 evidence satisfactory to Agent that Borrower has closed its accounts 1335-15 and 1314-15 maintained at The Bank of Nova Scotia. SECTION 6.17 No Speculative Transactions. Neither Borrower nor any of --------------------------- its Subsidiaries shall engage in any transaction involving commodity options, futures contracts, derivatives or any similar speculative transactions (other than currency hedging in the ordinary course of business consistent with past practice and prudent business management in order to comply with Section 5.21 ------------ and other than with respect to interest rate protection in compliance with Section 5.21). - ------------ SECTION 6.18 Limitation on Negative Pledge Clauses, Etc. Neither ------------------------------------------- Borrower nor any of its Subsidiaries shall, directly or indirectly, enter into any agreement with any Person which prohibits or limits the ability of Borrower or any of its Subsidiaries to create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, other than the agreements with Agent or Lenders pursuant to a Loan Document, the agreements under the US Credit Agreement and the Loan Documents (as defined in the US Credit Agreement) delivered thereunder and Lien restrictions in a Capital Lease or other purchase money financing arrangement permitted hereunder relating to the asset financing thereunder. Neither Borrower nor any of its Subsidiaries shall enter into, after the date of this Agreement, any indenture, agreement, instrument or other arrangement that, directly or indirectly, prohibits or restrains, or has the effect of prohibiting or restraining, or imposes materially adverse conditions upon, the incurrence or payment of Indebtedness, the granting of Liens (other than pursuant to a Capital Lease or other purchase money financing arrangement permitted hereunder relating to the asset financing thereunder, the declaration or payment of dividends or other Restricted Payments, the making of loans, advances or Investments or the sale, assignment, transfer or other disposition of any property or assets (other than pursuant to a Capital Lease or other purchase money financing arrangement permitted hereunder relating to the asset financing thereunder). 47 SECTION 6.19 Accounting Changes. Neither Borrower nor any of its ------------------ Subsidiaries shall make any significant change in accounting treatment and reporting practices except for changes concurred in by such Person's independent public accountants. SECTION 6.20 Amendments and Modifications to Debt Documents. Neither ---------------------------------------------- Borrower nor any of its Subsidiaries shall, directly or indirectly, amend, modify, supplement, waive compliance with, grant a waiver under, or assent to non-compliance with: (i) any instrument, document or agreement evidencing, creating, guaranteeing or governing Indebtedness or Guaranteed Indebtedness in excess of $500,000 permitted under Section 6.3 or Section 6.6 or entered into in ----------- ----------- connection therewith (other than the instruments, documents and agreements governing the loan facility provided under this Agreement and the guarantee executed and delivered by Borrower under the US Credit Agreement) or (ii) any of the Subordinated Debt Documents (it being understood that this Section 6.20 ------------ shall be deemed not to prohibit the holders of any Indebtedness under any of the Subordinated Debt Documents (or any required percentage thereof) from waiving any requirement or default under any of the Subordinated Debt Documents). SECTION 6.21 Borrowing Solely for Immediate Cash Requirements. The ------------------------------------------------ Borrower shall not use the proceeds of any Revolving Credit Advance for any purpose except as set out in Section 1.4 and, then, only to meet the Borrower's ----------- immediate cash requirements in respect thereof. ARTICLE 7 TERM SECTION 7.1 Duration. The financing arrangements contemplated hereby -------- shall be in effect until the Commitment Termination Date. On the Commitment Termination Date, the Revolving Credit Commitments shall terminate and the Revolving Credit Loan and all other Obligations shall immediately become due and payable in full in immediately available funds. SECTION 7.2 Survival of Obligations. Except as otherwise expressly ----------------------- provided for in the Loan Documents, no termination or cancellation (regardless of cause or procedure) of any financing arrangement under this Agreement shall in any way affect or impair the Obligations, duties, indemnities, and liabilities of Borrower or any other Loan Party, or the rights of Agent or any Lender relating to any Obligations, due or not due, liquidated, contingent or unliquidated or any transaction or event occurring prior to such termination, or any transaction or event, the performance of which is not required until after the Commitment Termination Date. Except as otherwise expressly provided herein or in any other Loan Document, all undertakings, agreements, covenants, warranties and representations of or binding upon Borrower or any other Loan Party, and all rights of Agent and each Lender, all as contained in the Loan Documents, shall not terminate or expire, but rather shall survive such termination or cancellation and shall continue in full force and effect until such time as all of the Obligations have been indefeasibly 48 paid in full in immediately available funds in accordance with the terms of the agreements creating such Obligations. ARTICLE 8 EVENTS OF DEFAULT; RIGHTS AND REMEDIES SECTION 8.1 Events of Default. The occurrence of any one or more of the ----------------- following events (regardless of the reason therefor) shall constitute an "Event ----- of Default" hereunder: - ---------- (a) Borrower or any other Loan Party shall fail to make any payment in respect of any Obligations hereunder or under any of the other Loan Documents when due and payable or declared due and payable, including any payment of principal of, or interest on, or Fees in respect of, the Revolving Credit Loan, and, with respect to the failure to make any payment of any Obligations hereunder, other than the principal of the Revolving Credit Loan, such failure shall continue unremedied for five (5) days. (b) Borrower or any of its Subsidiaries shall fail or neglect to perform, keep or observe any of the provisions of Section 1.8, Section 4.1, Section ----------- ----------- ------- 5.1(e), Section 5.5(d), Section 5.9(a), Section 5.19 or Article 6, including - ------ -------------- -------------- ------------ --------- any of the provisions set forth in Annex B or Annex E and (if capable of being ------- ------- remedied) such failure or neglect shall continue unremedied for five (5) days with respect to Section 1.9 and Annex B and for ten (10) days with respect to ----------- ------- Section 4.1, Section 5.9(a) and Annex E (other than Section 2 of Annex E for - ----------- ------------- ------- ------- which the grace period (if the relevant provision of such Section 2 is capable of being remedied) shall be thirty (30) days) (with no grace period to be provided for any failure or neglect of any provision of Article 6); provided, --------- -------- however, for greater certainty and without limitation, no grace period shall be provided for any failure or neglect of any provision of Section 5.1(e), ------------- Section 5.5(d), or Section 5.19 because any such failure or neglect is not - ------------- ------------ capable of being remedied. (c) Borrower or any other Loan Party shall fail or neglect to perform, keep or observe any term or provision of this Agreement or of any of the other Loan Documents (other than any such term or provision referred to in paragraph (a) or (b) above), and (if capable of being remedied) the same shall remain unremedied for a period ending on the first to occur of thirty (30) days after Borrower shall receive written notice of any such failure from Agent or any Lender or thirty (30) days after Borrower shall become aware thereof. (d) A default shall occur and be continuing under any other agreement, document or instrument to which Borrower or any other Loan Party is a party or by which any such Person or its property is bound, and such default (i) involves the failure to make any payment (whether of principal, interest or otherwise) due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) in respect of any Indebtedness of such Person in an aggregate amount exceeding $500,000, or the Equivalent Amount thereof, in the case of Borrower or any 49 of its Subsidiaries, or US$1,000,000, or the Equivalent Amount thereof, in the case of any other Loan Party or (ii) permits any holder of any Indebtedness of such Person or a trustee to cause such Indebtedness, or a portion thereof, in an aggregate amount exceeding $500,000, or the Equivalent Amount thereof, in the case of Borrower or any of its Subsidiaries, or US$1,000,000, or the Equivalent Amount thereof, in the case of any other Loan Party, to become due prior to its stated maturity or prior to its regularly scheduled date of payment or (y) any such default under clause (x) above (whether or not continuing) causes or results in such Indebtedness, or a portion thereof, in an aggregate amount exceeding $500,000, or the Equivalent Amount thereof, in the case of Borrower or any of its Subsidiaries, or US$1,000,000, or the Equivalent Amount thereof, in the case of any other Loan Party to become due prior to its stated maturity or prior to its regularly scheduled date of payment. (e) Any representation or warranty herein or in any Loan Document or in any written statement pursuant thereto or hereto, any report, financial statement or certificate made or delivered to Agent or any Lender by Borrower or any other Loan Party shall be untrue or incorrect in any material respect as of the date when made or deemed made (including those made or deemed made pursuant to Section 2.2). - ----------- (f) Assets of Borrower or any of its Subsidiaries, or any Stock subject to the Tyco Industries Pledge Agreement, having an aggregate value for all such assets and stock in excess of $500,000, or the Equivalent Amount thereof, shall be attached, seized, levied upon or subjected to a writ, execution, distress warrant, or similar process, or come within the possession of any administrator, receiver, trustee, custodian, assignee or bailiff for the benefit of creditors of such Person and shall remain unstayed or undismissed for thirty (30) consecutive days; or any Person, other than Borrower, shall apply for the appointment of an administrator, receiver, trustee, custodian, assignee, bailiff or similar official for Borrower's or any other Loan Party's assets having an aggregate value for all such assets in excess of $500,000, or the Equivalent Amount thereof, and shall remain unstayed or undismissed for thirty (30) consecutive days; or Borrower or any other Loan Party shall have concealed, removed or permitted to be concealed or removed, any part of its property, with intent to hinder, delay or defraud its creditors or any of them or made or suffered a transfer of any of its property or the incurring of an obligation which may be fraudulent under any Insolvency Statute, fraudulent conveyance or other similar law by whatever name called and in whatever jurisdiction. (g) The commencement of a case or proceeding, or the presentation of a petition, against Borrower or any other Loan Party in or to a court having competent jurisdiction seeking a decree or order (i) under any Insolvency Statute, (ii) appointing a custodian, administrator, receiver, liquidator, assignee, trustee or sequestrator (or similar official) of Borrower or any other Loan Party or of any substantial part of its properties or assets, or (iii) ordering the winding up or liquidation of the affairs of Borrower or any other Loan Party, and such case or proceeding shall remain undismissed or unstayed for sixty (60) consecutive days or such court shall enter a decree or order granting the relief sought in such case or proceeding. 50 (h) Borrower or any other Loan Party shall (i) cease or threaten to cease to carry on its business, (ii) commence a proceeding, (including, without limitation, the filing of a petition or an assignment or a proposal or a notice of intention to make a proposal) under any Insolvency Statute, (iii) consent to the institution of proceedings under any Insolvency Statute or to the filing of any such petition or to the appointment of or taking possession by a custodian, administrator, receiver, liquidator, assignee, trustee, bailiff or sequestrator (or similar official) of Borrower or any other Loan Party or of any substantial part of Borrower's or any other Loan Parties' properties, (iv) shall fail generally to pay its debts as such debts become due, or (v) shall take any corporate action in furtherance of any such action. (i) Final judgment or judgments (after the expiration of all times to appeal therefrom) for the payment of money in excess of $500,000, or the Equivalent Amount thereof, in the aggregate, in the case of Borrower or any of its Subsidiaries, or US$1,000,000, or the Equivalent Amount thereof, in the aggregate, in the case of any other Loan Party, shall be rendered against Borrower or any other Loan Party, unless the same shall be (i) fully covered by insurance in accordance with Section 5.5, or (ii) vacated, stayed, bonded, paid ----------- or discharged within a period of thirty (30) days from the date of such judgment. (j) There shall occur any Material Adverse Effect which shall not have been cured (or waived by Required Lenders) within ten (10) days of notice thereof from Agent or the Required Lenders to Borrower. (k) Any material provision of any Loan Document shall for any reason cease to be valid, binding and enforceable in accordance with its terms (other than by reason of any action of Agent or Lenders or upon the written consent of all Lenders) or Borrower or other party thereto shall so state in writing; or any Lien created under any Collateral Document shall cease to be a valid and perfected Lien having the first priority in Collateral having a value in excess of $25,000 purported to be covered thereby (subject to Liens permitted by Section 6.7). - ----------- (l) There shall occur a Change of Control. (m) Without limiting the effect of Section 1.3(h), there shall occur any -------------- "Termination Event" under and as defined in the Receivables Funding Agreement. (n) There shall occur and be continuing any "Event of Default" (as defined under the US Credit Agreement) or "Default" (as defined under the UK Credit Agreement) or any event, act or condition which, after giving effect to any grace periods or notice requirements thereunder, or both, permits the requisite lenders or agent thereunder to accelerate the obligations of borrower or borrowers under any of the loan facilities provided thereunder or any Indebtedness owing under any of such loan facilities shall become due prior to its stated maturity or prior to its regularly scheduled date of payment. 51 SECTION 8.2 Remedies. If any Event of Default shall have occurred and -------- be continuing, the rate of interest applicable to the Revolving Credit Loan and interest and other Obligations shall be increased to or charged at, as appropriate, effective as of the date of the occurrence of the Default giving rise to such Event of Default, the Default Rate as provided in Section 1.5(e), -------------- unless such increase or charge is waived by the Required Lenders. If any Event of Default shall have occurred and be continuing, Agent may, or if requested by the Required Lenders, shall, without notice, take any one or more of the following actions: (a) terminate the Revolving Credit Commitments, whereupon Lenders' obligations to make further Revolving Credit Advances shall terminate; (b) declare all or any portion of the Obligations to be forthwith due and payable, including the Revolving Credit Loan, whereupon such Obligations shall become and be due and payable; (c) exercise any rights and remedies provided to Agent or Lenders under the Loan Documents and/or at law or equity, provided, -------- that upon the occurrence of an Event of Default specified in Section 8.1(g) or -------------- Section 8.1(h), the Revolving Credit Commitments of each Lender shall - -------------- immediately terminate and the Obligations shall become immediately due and payable, in each case, without declaration, notice or demand by or to any Person. SECTION 8.3 Waivers by Borrower. Except as otherwise provided for in ------------------- this Agreement and under Applicable Laws, to the full extent permitted by Applicable Laws, Borrower waives (a) presentment, demand and protest and notice of presentment, dishonour, notice of intent to accelerate, notice of acceleration, protest, default, nonpayment, maturity, release, compromise, settlement, extension or renewal of any or all Loan Documents, notes, commercial paper, accounts, contract rights, documents, instruments, chattel paper and guarantees at any time held by Agent or any Lender on which Borrower may in any way be liable, and Borrower hereby ratifies and confirms whatever Agent or any Lender may do in this regard, absent bad faith, (b) all rights to notice and a hearing prior to Agent's or Lenders' taking possession or control of, or to Agent's or Lenders' replevy, attachment or levy upon, the Collateral or any bond or security which might be required by any court prior to allowing Agent or Lenders to exercise any of their remedies, and (c) the benefit of any right of redemption and all valuation, appraisal and exemption laws. Borrower acknowledges that it has been advised by counsel of its choice with respect to this Agreement, the other Loan Documents and the transactions contemplated by this Agreement and the other Loan Documents. SECTION 8.4 Application of Proceeds. After the occurrence of an Event ----------------------- of Default and acceleration of the Obligations, the proceeds of the Collateral shall be applied by Agent to payment of the Obligations in the following order, unless Lenders otherwise agree in writing or a court of competent jurisdiction shall otherwise direct: (a) FIRST, to payment of all costs and expenses of Agent and Lenders incurred in connection with the preservation, collection and enforcement of the Obligations, or of any of the Liens granted to Agent pursuant to the Collateral Documents or otherwise, including, without limitation, any amounts advanced by Agent or Lenders to protect or preserve the Collateral; 52 (b) SECOND, to payment of that portion of the Obligations constituting accrued and unpaid interest and fees and indemnities payable under Section 1, --------- Annex D and the Fee Agreement ratably amongst Agent and Lenders in accordance - ------- with the proportion which the accrued interest and fees and indemnities payable under Section 1, Annex D and the Fee Agreement constituting the Obligations --------- ------- owing to Agent and each such Lender at such time bears to the aggregate amount of accrued interest and fees and indemnities payable under such Section 1, Annex --------- ----- D and the Fee Agreement constituting the Obligations owing to the Agent and all - - Lenders at such time until such interest, fees and indemnities shall be paid in full; (c) THIRD, to payment of the principal of the Obligations, ratably amongst Lenders in accordance with the proportion which the principal amount of the Obligations owing to each such Lender bears to the aggregate principal amount of the Obligations owing to all Lenders until such principal of the Obligations shall be paid in full; (d) FOURTH, to the payment of all other Obligations, ratably amongst Lenders in accordance with the proportion which the amount of such other Obligations owing to each such Lender bears to the aggregate principal amount of such other Obligations owing to all Lenders until such other Obligations shall be paid in full; and (e) FIFTH, the balance, if any, after all of the Obligations has been satisfied, shall, except as otherwise provided in any Loan Document, be paid over to such other Person or Persons as may be required by law. Borrower acknowledges and agrees that it shall remain liable to the extent of any deficiency between the amount of the proceeds of the Collateral and the aggregate amount of the sums referred to in the first through fourth clauses above. ARTICLE 9 AGENT SECTION 9.1 Appointment, Powers and Immunities. Each Lender hereby ---------------------------------- irrevocably appoints and authorizes GE Capital Canada to act as its agent hereunder and under the other Loan Documents with such powers as are specifically delegated to Agent by the terms of this Agreement and of the other Loan Documents, together with such other powers as are reasonably incidental thereto. Agent (which term as used in this sentence and in Section 9.5 and the ----------- first sentence of Section 9.6 shall include reference to its affiliates and its ----------- own and its affiliates' officers, directors, employees and agents): (a) shall have no duties or responsibilities except those expressly set forth in this Agreement and in the other Loan Documents, and shall not by reason of this Agreement or any other Loan Document be a trustee or fiduciary for any Lender; (b) shall not be responsible to Lenders for any recitals, statements, representations or warranties contained in this Agreement or in any other Loan Document, or in any certificate or other document referred to or provided for in, or received by any of them under, this Agreement 53 or any other Loan Document, or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document or any other document referred to or provided for herein or therein or for any failure by Borrower or any other Person to perform any of its obligations hereunder or thereunder; (c) shall not be required to initiate or conduct any litigation or collection proceedings hereunder or under any other Loan Document; (d) shall not be responsible to Lenders for any action taken or omitted to be taken by it hereunder or under any other Loan Document or under any other document or instrument referred to or provided for herein or therein or in connection herewith or therewith, except for its own gross negligence or willful misconduct as determined by a final judgment of a court of competent jurisdiction. Agent may employ agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in- fact selected by it in good faith. SECTION 9.2 Reliance by Agent. Agent shall be entitled to rely upon any ----------------- certification, notice or other communication (including any thereof by telephone, telecopy, telex, telegram or cable) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by Agent. As to any matters not expressly provided for by this Agreement or any other Loan Document, Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder or thereunder in accordance with instructions given by Required Lenders or all Lenders, as is required in such circumstance, and such instructions of such Lenders and any action taken or failure to act pursuant thereto shall be binding on all Lenders. SECTION 9.3 Defaults. Agent shall not be deemed to have knowledge or -------- notice of the occurrence of a Default (other than the non-payment of principal of or interest on the Revolving Credit Loan or of Fees) unless Agent has received notice from a Lender or Borrower specifying such Default and stating that such notice is a "Notice of Default". In the event that Agent receives ----------------- such a notice of the occurrence of a Default, Agent shall give prompt notice thereof to Lenders (and shall give each Lender prompt notice of each such non- payment). Agent shall (subject to Section 9.7) take such action with respect to ----------- such Default as shall be directed by Required Lenders; provided, that unless and -------- until Agent shall have received such directions, Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall deem advisable in the best interest of Lenders except to the extent that this Agreement expressly requires that such action be taken, or not be taken, only with the consent or upon the authorization of Required Lenders or all Lenders, as is required in such circumstance. SECTION 9.4 Rights as a Lender. With respect to the Revolving Credit ------------------ Commitment of GE Capital Canada (if at any time GE Capital Canada becomes a Lender), and all Revolving Credit Advances made by GE Capital Canada (and any successor acting as Agent), GE Capital Canada (and any successor acting as Agent) shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not acting as Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include Agent in its individual capacity. GE Capital Canada (and any successor acting as Agent) and its 54 affiliates may (without having to account therefor to any Lender) lend money to, make investments in and generally engage in any kind of business with Borrower or any other Loan Party (and any of its Subsidiaries or Affiliates) as if it were not acting as Agent, and GE Capital Canada and its affiliates may accept fees and other consideration from Borrower or any other Loan Party or any Affiliate thereof for services in connection with this Agreement or otherwise without having to account for the same to Lenders. SECTION 9.5 Indemnification. Lenders agree to indemnify Agent (to the --------------- extent not reimbursed by Borrower hereunder and without limiting the obligations of Borrower hereunder) ratably in accordance with the aggregate principal amount of the Revolving Credit Advances held by Lenders (or, if no Revolving Credit Advances are at the time outstanding, ratably in accordance with their respective Revolving Credit Commitments), for any and all Claims of any kind and nature whatsoever that may be imposed on, incurred by or asserted against Agent (including by any Lender) arising out of or by reason of any investigation in or in any way relating to or arising out of this Agreement or any other Loan Document or any other documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby (including the costs and expenses that any Borrower is obligated to pay hereunder) or the enforcement of any of the terms hereof or thereof or of any such other documents; provided, -------- that no Lender shall be liable for any of the foregoing to the extent they arise solely from the gross negligence or willful misconduct of the party to be indemnified as determined by a final judgment of a court of competent jurisdiction. SECTION 9.6 Non-Reliance on Agent and Other Lenders. Each Lender agrees --------------------------------------- that it has, independently and without reliance on Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own credit analysis of Borrower and the other Loan Parties and decision to enter into this Agreement and that it will, independently and without reliance upon Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement or any of the other Loan Documents. Agent shall not be required to keep itself informed as to the performance or observance by Borrower or any other Loan Party of this Agreement or any of the other Loan Documents or any other document referred to or provided for herein or therein or to inspect the properties or books of Borrower or any other Loan Party. Agent will use reasonable efforts to provide Lenders with any information received by Agent from Borrower which is required to be provided to Lenders hereunder, with any notice of a Default received by Agent from Borrower and with any notice of a Default delivered by Agent to Borrower; provided, that Agent shall not be liable to any Lender for any failure -------- to do so, except to the extent that such failure is attributable to Agent's gross negligence or willful misconduct, as determined by a final judgment of a court of competent jurisdiction. Agent shall not have any duty or responsibility to provide any Lender with any other credit or other information concerning the affairs, financial condition or business of Borrower or any other Loan Party (or any of their Affiliates) that may come into the possession of Agent or any of its affiliates nor to update or correct any information previously given which becomes incorrect or which Agent learns is incorrect. 55 SECTION 9.7 Failure to Act. Except for action expressly required of -------------- Agent hereunder and under the other Loan Documents, Agent shall in all cases be fully justified in failing or refusing to act hereunder and thereunder unless it shall receive further assurances to its satisfaction from Lenders of their indemnification obligations under Section 9.5 against any and all liability and ----------- expense that may be incurred by it by reason of taking or continuing to take any such action. SECTION 9.8 Successor Agent. Subject to and effective upon the --------------- appointment and acceptance of a successor Agent, as provided below, Agent may resign at any time by giving notice thereof to Lenders and Borrower, and the Required Lenders may, at any time when GE Capital Canada holds a participation or GE Capital Canada's pro rata share of the aggregate of the Revolving Credit --- ---- Commitments of all Lenders at such time (or, if the Commitment Termination Date has occurred, in lieu of the Revolving Credit Commitments, the Revolving Credit Loan then outstanding in respect of the Revolving Credit Commitment) equals less than fifty percent (50%), remove Agent by written notice to that effect, with the written consent of Borrower (which consent shall not be unreasonably withheld). Upon any such resignation or removal, the Required Lenders shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty (30) days after the retiring Agent's giving of notice of resignation or receipt of notice of removal, then the retiring Agent may, on behalf of Lenders, appoint a successor Agent, that shall be a financial institution with a combined capital and surplus or net worth of at least $75,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent (retiring by reason of its resignation or removal) shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation or removal hereunder as Agent, the provisions of this Article 9 shall continue in effect for its benefit in respect of any actions - --------- taken or omitted to be taken by it while it was acting as Agent. SECTION 9.9 Consents under Loan Documents. Except as otherwise provided ----------------------------- in Section 11.1 with respect to this Agreement, Agent may, with the prior ------------ consent of Required Lenders (but not otherwise), consent to any modification, supplement or waiver under any of the Loan Documents; provided, that without the -------- prior consent of each Lender, Agent shall not (except as provided herein or in the Collateral Documents) release any material portion of the Collateral or otherwise terminate any Lien under any Collateral Document with respect to any material portion of the Collateral, or agree to additional obligations being secured by such Collateral, except that no such consent shall be required, and Agent is hereby authorized and instructed, to release any Lien covering Collateral (a) which is the subject of a disposition permitted hereunder, (b) which secures Indebtedness to the extent permitted under Section 6.3, (c) to ----------- which Required Lenders have consented (except as otherwise provided in Section ------- 11.1), or (d) the value of which does not exceed $1,000,000, or the Equivalent - ---- Amount thereof, in any Fiscal Year. 56 SECTION 9.10 Collateral Matters. ------------------ (a) Except as otherwise expressly provided for in this Agreement, Agent shall have no obligation whatsoever to any Lender or any other Person to investigate, confirm or assure that the Collateral exists or is owned by Borrower or any other Loan Party or is cared for, protected or insured or has not been encumbered, or that any particular items of Collateral meet the eligibility criteria applicable in respect of the relevant Borrowing Base, or whether any particular reserves are appropriate, or that the Liens granted to Agent herein or pursuant hereto have been properly or sufficiently or lawfully created, perfected, protected or enforced or are entitled to any particular priority, or to exercise at all or in any particular manner or under any duty or care, disclosure or fidelity, or to continue exercising, any of the rights, authorities and powers granted or available to Agent in this Agreement or in any of the other Loan Documents, it being understood and agreed that (i) in respect of the Collateral, or any act, omission or event related thereto, Agent may act in any manner it may deem appropriate, in its sole discretion, given Agent's own interest in the Collateral as a Lender and (ii) that Agent shall have no duty or liability whatsoever to any other Lender, other than liability solely resulting from its own gross negligence or willful misconduct as determined by a final judgment of a court of competent jurisdiction. (b) Each Lender hereby appoints each other Lender as agent for the purpose of perfecting Lenders' security interests in assets which can be perfected only by possession. Should any Lender (other than Agent) obtain possession of any such Collateral, such Lender shall notify Agent thereof and, promptly upon Agent's request therefor, shall deliver such Collateral to Agent or in accordance with Agent's instructions. ARTICLE 10 SUCCESSORS AND ASSIGNS SECTION 10.1 Successors and Assigns. This Agreement and the other Loan ---------------------- Documents shall be binding on and shall inure to the benefit of Borrower, Agent, Lenders, and their respective successors and assigns, except as otherwise provided herein or therein. Borrower may not assign, delegate, transfer, hypothecate or otherwise convey its rights, benefits, obligations or duties hereunder or under any of the Loan Documents without the prior express written consent of Agent and all Lenders. Any such purported assignment, transfer, hypothecation or other conveyance by Borrower without such prior express written consent shall be void. The terms and provisions of this Agreement and the other Loan Documents are for the purpose of defining the relative rights and obligations of Borrower, Agent and Lenders with respect to the transactions contemplated hereby and there shall be no third party beneficiaries of any of the terms and provisions of this Agreement or any of the other Loan Documents. 57 SECTION 10.2 Assignments and Participations. ------------------------------ (a) Each Lender may, with the prior written consent of Agent, resell (through syndication, assignment or participation) all or a portion of its rights and obligations under this Agreement (including all or a part of its Revolving Credit Advances, Revolving Credit Commitment and Revolving Credit Note, in minimum increments of $5,000,000, to any other Person. Any resale by a Lender of all or a portion of its rights and obligations under this Agreement to a Person which is a non-resident of Canada for the purpose of the ITA shall require the consent of the Borrower as to the identity of such Person (but not as to the terms of any such resale), which consent shall not be unreasonably withheld or delayed; provided, that, for greater certainty, the refusal of -------- Borrower to grant its consent to any resale to a Person on the basis that such assignee is a non-resident of Canada for the purpose of the ITA shall be a reasonable withholding of Borrower's consent. No consent of Borrower shall in any event be required with respect to a participation. (b) In the case of an assignment by any Lender under this Section 10.2, the ------------ purchaser shall have, to the extent of such assignment, the same rights, benefits and obligations as it would if it were a Lender hereunder; provided, -------- that each such assignment shall be of a constant, and not a varying, percentage of the selling Lender's rights and obligations under this Agreement. Upon execution by the assignor and the assignee of an instrument pursuant to which the assignee assumes such rights and obligations, payment by such assignee to such assignor of an amount equal to the purchase price agreed between such assignor and assignee and delivered to Agent and Borrower of an executed copy of such instrument, together with payment to Agent of a processing fee of US$2,500, such assignee shall have, to the extent of such assignment (unless otherwise provided therein), the same rights and benefits as it would have if it were a Lender hereunder and the assignor shall be, to the extent of such assignment (unless otherwise provided therein) released from its obligations under this Agreement. Borrower hereby acknowledges and agrees that any assignment will give rise to a direct obligation of Borrower to the assignee and that the assignee shall be considered to be a "Lender" hereunder and under the other Loan Documents. In all instances, each Lender's liability to make Revolving Credit Advances shall be several and not joint and shall be limited to such Lender's pro rata share thereof. Upon any such assignment, Borrower, at its own expense, - --- ---- shall execute and deliver to Agent in exchange for the surrendered Revolving Credit Note of the assignor Lender a new Revolving Credit Note to the order of the assignor Lender in an amount equal to the Revolving Credit Commitment assumed by such assignee Lender, and if the assignor Lender has retained a Revolving Credit Commitment hereunder, a new Revolving Credit Note to the order of the assignor Lender in an amount equal to such retained Revolving Credit Commitment. Such new Revolving Credit Notes shall be dated the Closing Date and shall otherwise be in the form of the Revolving Credit Note replaced thereby. The Revolving Credit Notes surrendered to Agent shall be returned by Agent to Borrower marked "cancelled". (c) In the case of a participation by any Lender under this Section 10.2, ------------ (A) all amounts payable by Borrower hereunder shall be determined as if that Lender had not sold such participation and the participating Lender shall remain a "Lender" for all purposes under this 58 Agreement, (B) any such grant of a participation will be made in compliance with all Applicable Laws and (C) such Lender shall not grant any participation under which the participant shall have rights to approve any amendment to or waiver of this Agreement or the Loan Documents, except to the extent such amendment or waiver would (i) extend the final maturity date for payment of the Revolving Credit Loan; (ii) reduce the interest rate or the amount of principal or Fees applicable to the Revolving Credit Loan; or (iii) release all or substantially all of the Collateral, except as expressly provided herein. In those cases in which a Lender grants rights to its participants to approve any amendment to or waiver of this Agreement or the other Loan Documents respecting the matters described in the foregoing clauses (i) through (iii), the relevant participation agreements shall provide for a voting mechanism whereby a majority of the amount of the participating Lender's portion of the Revolving Credit Loan (irrespective of whether held by such Lender or participated), shall control the vote for all of such Lender's portion of the Revolving Credit Loan. In the case of any participation, the participant shall not have any rights under this Agreement or any of the other Loan Documents entered into in connection herewith (the participant's right against such Lender in respect of such participation to be those set forth in the participation or other agreement executed by such Lender and the participant relating thereto) and all amounts payable to any Lender hereunder shall be determined as if such Lender had not sold such participation. (d) Except as otherwise provided in this Section 10.2, no Lender shall, as ------------ between Borrower and that Lender, be relieved of any of its obligations hereunder as a result of any sale, assignment, transfer or negotiation of, or granting of participation in, all or any part of the Revolving Credit Loan or other Obligations owed to such Lender. Any Lender permitted to sell assignments and participations under this Section 10.2 may furnish any information ------------ concerning Borrower or any other Loan Party in the possession of that Lender from time to time to assignee and participants (including prospective assignees and participants), subject to the provisions of Section 11.14. ------------- (e) Borrower shall, and shall cause each of its Subsidiaries to, assist any Lender permitted to sell assignments or participations under this Section 10.2 ------------ in whatever manner necessary in order to enable or effect any such assignment or participation, including the execution and delivery of any and all agreements, notes and other documents and instruments as shall be requested and the preparation and delivery of informational materials, appraisals or other documents for, and the participation of relevant management in meetings with, potential assignees or participants, subject to the provisions of Section 11.14. ------------- Borrower and its Subsidiaries shall certify the correctness, completeness and accuracy of all descriptions of Borrower and any of its Subsidiaries and their respective affairs contained in any selling materials and all information provided by it and included in such materials. (f) Each Lender which grants or sells a participation in all or any part of its interest in this Agreement, any other Loan Document or any of the financial accommodations provided or to be provided by it hereunder to any Person shall promptly notify the Borrower thereof; provided, that the failure of such Lender -------- to do so shall not affect the validity of such grant or sale of a participation interest. 59 ARTICLE 11 MISCELLANEOUS SECTION 11.1 Complete Agreement; Modification of Agreement. This --------------------------------------------- Agreement and the other Loan Documents constitute the complete agreement between the parties with respect to the subject matter hereof and thereof and supersede all prior agreements, commitments, understandings or inducements (oral or written, expressed or implied), including the Commitment Letter. Neither this Agreement nor any other Loan Document nor any terms hereof or thereof may be changed, waived, discharged or terminated unless such change, waiver, discharge or termination is in writing signed by the Required Lenders; provided, that no -------- such change, waiver, discharge or termination shall, without the consent of each affected Lender and Agent, (a) extend the scheduled final maturity of the Revolving Credit Loan, or any portion thereof, or reduce the rate or extend the time of payment of interest (other than as a result of waiving the applicability of any post-Default increase in interest rates) thereon or Fees, or reduce the principal amount thereof, or increase the Revolving Credit Commitment of such Lender over the amount thereof then in effect (it being understood that a waiver of any Default shall not constitute a change in the terms of any Revolving Credit Commitment of any Lender), (b) release more than $1,000,000, or the Equivalent Amount thereof, in value of the Collateral (except as expressly permitted by the Loan Documents), (c) amend, modify or waive any provision of this Section, or Section 1.10, 9.5, 11.2 or 11.7, (d) reduce any percentage ------------ --- ---- ---- specified in, or otherwise modify, the definition of Required Lenders, or (e) consent to the assignment or transfer by Borrower or its Subsidiaries of any of its rights and obligations under this Agreement. No provision of Article 9 may --------- be amended without the prior written consent of Agent. SECTION 11.2 Fees and Expenses. ----------------- (a) Borrower shall pay on demand all reasonable out-of-pocket costs and expenses (including reasonable fees of counsel) of Agent and its Affiliates and Lenders, in connection with the preparation, negotiation, approval, execution, delivery, administration, modification, amendment, waiver and enforcement (whether through negotiations, legal proceedings or otherwise) of the Loan Documents, and commitments relating thereto, and the other documents to be delivered hereunder or thereunder and the transactions contemplated hereby and thereby and the fulfilment or attempted fulfilment of conditions precedent hereunder, and the costs of forwarding proceeds of borrowings to Borrower or any other Person on behalf of Borrower and all costs and expenses for which Borrower or any of its Subsidiaries is liable under Section 1.17 including: (i) wire ------------ transfer fees and other costs of forwarding to Borrower or any other Person on behalf of Borrower by Agent and each Lender of the proceeds of the Revolving Credit Advances; (ii) any amendment, modification or waiver of, or consent with respect to, any of the Loan Documents or advice in connection with the administration of the advances made pursuant hereto or its rights hereunder or thereunder; (iii) any litigation, contest, dispute, suit, proceeding or action (whether instituted by Agent, any Lender, Borrower or any other Person) in any way relating to the Collateral, any of the Loan Documents or any other agreements to be executed or 60 delivered in connection therewith or herewith, whether as party, witness, or otherwise, including any litigation, contest, dispute, suit, case, proceeding or action, and any appeal or review thereof, in connection with a case commenced by or against Borrower or any other Person that may be obligated to Agent and Lenders by virtue of the Loan Documents, including any litigation, contest, dispute, suit, case, proceeding or action (and any appeal or review) in connection with a case under any Insolvency Statute; (iv) any attempt to enforce any rights of Agent or Lenders against Borrower or any other Person that may be obligated to Agent or Lenders by virtue of any of the Loan Documents; or (v) any effort to (A) monitor the Revolving Credit Loan and the Loan Documents, (B) evaluate, observe or assess Borrower or any other Loan Party or its affairs or (C) verify, protect, evaluate, assess, appraise, collect, sell, liquidate or otherwise dispose of the Collateral, subject to the limitations on the obligations of Borrower to pay for audits as provided in clause (c) of the first sentence of Section 1.17. ------------ (b) Borrower shall pay on demand all reasonable out-of-pocket costs and expenses (including reasonable fees of counsel) of Agent and each Lender in connection with any Default and any enforcement or collection proceedings resulting therefrom or any amendment, modification or waiver of, or consent with respect to, any of the Loan Documents in connection with any Default. (c) Without limiting the generality of clauses (a) and (b) above (but subject to the limitations on the obligations of Borrower to pay for audits as provided in clause (c) of the first sentence of Section 1.17), Borrower's ------------ obligation to reimburse Agent and/or any Lender for costs and expenses shall include the reasonable fees and expenses of counsel (and local, foreign or special counsel, advisors, consultants and auditors retained by such counsel), as well as the reasonable fees and expenses of accountants, environmental advisors, field examiners, appraisers, investment bankers, rating agencies, management and other consultants and paralegals; court costs and expenses; photocopying and duplicating expenses; court reporter fees, costs and expenses; long distance telephone charges; air express charges; telecopier charges; secretarial overtime charges; expenses for travel, lodging and food; and all other reasonable out-of-pocket costs and expenses of every type and nature paid or incurred in connection with the performance of such legal or other advisory services. SECTION 11.3 No Waiver. --------- (a) No failure on the part of Agent or Lenders, at any time or times, to require strict performance by Borrower or any other Loan Party, of any provision of this Agreement or any of the other Loan Documents shall waive, affect or diminish any right of Agent or Lenders thereafter to demand strict compliance and performance therewith. Any suspension or waiver of a Default or Event of Default shall not suspend, waive or affect any other Default or Event of Default, whether the same is prior or subsequent thereto, and whether of the same or of a different type. None of the undertakings, agreements, warranties, covenants and representations of Borrower or any other Loan Party contained in this Agreement or any of the other Loan Documents and no Default or Event of Default shall be deemed to have been suspended or waived by Lenders, unless such waiver or suspension is by an instrument in writing signed by 61 an officer of or other authorized employee of Agent and Required Lenders or all Lenders if required hereunder and directed to Borrower or other Loan Party specifying such suspension or waiver. (b) No failure on the part of Borrower or any of its Subsidiaries, at any time or times, to require strict performance by any Lender or Agent, of any provision of this Agreement and any of the other Loan Documents shall waive, affect or diminish any right of Borrower or any of its Subsidiaries thereafter to demand strict compliance and performance therewith. SECTION 11.4 Remedies. The rights and remedies of Agent and Lenders -------- under this Agreement shall be cumulative and nonexclusive of any other rights and remedies which Agent or any Lender may have under any other agreement, including the Loan Documents, by operation of law or otherwise. Recourse to the Collateral shall not be required. SECTION 11.5 Severability. Wherever possible, each provision of this ------------ Agreement shall be interpreted in such manner as to be effective and valid under Applicable Laws, but if any provision of this Agreement shall be prohibited by or invalid under Applicable Laws, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. SECTION 11.6 Conflict of Terms. Except as otherwise provided in this ----------------- Agreement or any of the other Loan Documents (other than the Participation Agreement) by specific reference in the applicable other Loan Document to the applicable provisions of this Agreement, if any provision contained in this Agreement is in conflict with any provision in any of the other Loan Documents (other than the Participation Agreement), the provisions contained in this Agreement shall govern and control. For greater certainty, any provision contained in this Agreement shall not be in conflict with, or be inconsistent with, any provision in any of the other Loan Documents (which shall not include the Participation Agreement for the purpose of this sentence) unless the relevant Loan Party cannot comply with both provisions. If any provision contained in this Agreement is in conflict with any provision in the Participation Agreement, the provisions contained in the Participation Agreement shall govern and control. SECTION 11.7 Right of Set-off. Subject to Section 1.2 and 1.13, upon the ---------------- ----------- ---- occurrence and during the continuance of any Event of Default, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to setoff and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of Borrower against any and all of the Obligations now or hereafter existing irrespective of whether or not such Lender shall have made any demand under this Agreement or any other Loan Document and although such Obligations may be unmatured. Each Lender agrees promptly to notify Agent and Borrower after any such setoff and application made by such Lender; provided, that the failure to give such notice -------- shall not affect the validity of such setoff and application. The rights of each Lender under this Section are in addition to the other rights and remedies (including other rights of setoff) which such Lender may have. 62 SECTION 11.8 Judgment Currency. ----------------- (a) If, for the purpose of obtaining or enforcing judgment against Borrower or any of its Subsidiaries in any court in any jurisdiction, it becomes necessary to convert into any other currency (such other currency being hereinafter in this Section 11.8 referred to as the "Judgment Currency") an ------------ amount due in Dollars or US Dollars under any Loan Document, the conversion shall be made at the rate of exchange prevailing on the Business Day immediately preceding (i) the date of actual payment of the amount due, in the case of any proceeding in the courts of the Province of Ontario or in the courts of any other jurisdiction that will give effect to such conversion being made on such date, or (ii) the date on which the judgment is given, in the case of any proceeding in the courts of any other jurisdiction (the applicable date as of which such conversion is made pursuant to this Section 11.8(a) being hereinafter --------------- in this Section 11.8 referred to as the "Judgment Conversion Date"). ------------ (b) If, in the case of any proceeding in the court of any jurisdiction referred to in Section 11.8(a), there is a change in the rate of exchange --------------- prevailing between the Judgment Conversion Date and the date of actual receipt of the amount due in immediately available funds, Borrower shall pay such additional amount (if any, but in any event not a lesser amount) as may be necessary to ensure that the amount actually received in the Judgment Currency, when converted at the rate of exchange prevailing on the date of payment, will produce the amount of Dollars or US Dollars, as the case may be, which could have been purchased with the amount of the Judgment Currency stipulated in the judgment or judicial order at the rate of exchange prevailing on the Judgment Conversion Date. (c) Any amount due from Borrower under Section 11.8(b) shall be due as a --------------- separate debt and shall not be affected by judgment being obtained for any other amounts due under or in respect of any of the Loan Documents. (d) The term "rate of exchange" in this Section 11.8 means the spot rate of ------------ exchange at which Agent would, on the relevant date at or about 12:00 noon, be prepared to sell Dollars or US Dollars, as the case may be, against the Judgment Currency. SECTION 11.9 Authorized Signature. Until Agent shall be notified by -------------------- Borrower to the contrary, the signature upon any document or instrument delivered by Borrower pursuant hereto and believed by Agent or any of Agent's officers, agents, or employees to be that of an officer or duly authorized representative of Borrower listed in Schedule 11.8 shall bind Borrower and be ------------- deemed to be the act of Borrower affixed pursuant to and in accordance with resolutions duly adopted by Borrower's board of directors, and Agent and each Lender shall be entitled to assume the authority of each signature and authority of the Person whose signature it is or appears to be unless the Person acting in reliance on such signature shall have actual knowledge of the fact that such signature is false or the Person whose signature or purported signature is presented is without authority. 63 SECTION 11.10 Notices. Except as otherwise provided herein, whenever it ------- is provided herein that any notice, demand, request, consent, approval, declaration or other communication shall or may be given to or served upon one party by the other party, or whenever one party desires to give or serve upon the other party any communication with respect to this Agreement, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and shall be deemed to have been validly served, given or delivered (a) upon the earlier of actual receipt and five (5) days after deposit with Canada Post, registered or certified mail, return receipt requested, with proper postage prepaid, (b) upon transmission, when transmission occurs at or before 5:00 p.m. on any Business Day, or, if transmission occurs after such time on such Business Day, on the Business Day immediately following such Business Day, when sent by telecopy or other similar facsimile transmission (with such telecopy or facsimile promptly confirmed by delivery of a copy by personal delivery or Canada Post as otherwise provided in this Section 11.10), (c) one ------------- Business Day after deposit with a reputable overnight courier with all charges prepaid, or (d) when delivered, if hand-delivered by messenger, all of which shall be addressed to the party to be notified and sent to the address or facsimile number indicated below or to such other address (or facsimile number) as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Failure or delay in delivering copies of any notice, demand, request, consent, approval, declaration or other communication to any Person (other than Borrower, Agent or any Lender) designated below to receive copies shall in no way adversely affect the effectiveness of such notice, demand, request, consent, approval, declaration or other communication. (a) Communications with Agent under this Section 11.10 shall be addressed ------------- as follows: General Electric Capital Canada Inc. 2300 Meadowvale Boulevard Mississauga, Ontario L5N 5P9 Attention: Vice-President, Commercial Finance Telecopier No.: (905) 858-5456 with a copy to: General Electric Capital Corporation 501 Merritt Seven Norwalk, Connecticut 06851 Attention: Vice-President - Portfolio/Tyco and Legal Counsel/Tyco Telecopy Nos.: (203) 840-4680 and (203) 840-4520 and 64 McMillan Binch Suite 3600, South Tower Royal Bank Plaza, 200 Bay Street Toronto, Ontario M5J 2J7 Attention: Bruce Barker Telecopy No.: (416) 865-7048. (b) Communications with Royal Bank of Canada, as Lender, under this Section ------- 11.10 shall be addressed as follows: - ----- Royal Bank of Canada 200 Bay Street South Tower, Royal Bank Plaza 14th floor Toronto, Ontario M5J 2J5 Attention: Corporate Banking, Multinational Tyco Toys (Canada) Inc. Account Manager Telecopy No.: (416) 974-0248 with a copy, in each case, to Agent and each Person to whom copies of communications with Agent are to be given or served under Section 11.10(a). ---------------- (c) Communications with Borrower under this Section 11.10 shall be ------------- addressed as follows: Tyco Toys (Canada) Inc. 7420 B Bramalea Road Mississauga, Ontario L5S 1W9 Attention: Vice-President, Finance Telecopy No.: (905) 612-8966 with a copy to: 6000 Midlantic Drive Mt. Laurel, New Jersey 08054 Attention: Treasurer or Chief Financial Officer Telecopy No.: (609) 273-2885. 65 SECTION 11.11 Section Titles. The Section titles and Table of Contents -------------- contained in this Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of this Agreement. SECTION 11.12 Counterparts. This Agreement may be executed in any number ------------ of separate counterparts, each of which shall, collectively and separately, constitute one agreement. SECTION 11.13 Time of the Essence. Time is of the essence of this ------------------- Agreement and each of the other Loan Documents. SECTION 11.14 Public Announcements and Confidentiality. ---------------------------------------- (a) Borrower agrees that it and that each of its Subsidiaries shall not issue any news release or make any public announcement pertaining to the transactions contemplated by the Credit Documents without the prior consent of Agent (which consent shall not be unreasonably withheld) unless such news release or public announcement is required by law, in which case Borrower shall consult with Agent prior to issuing any such news release or public announcement. (b) Borrower has furnished and will furnish to Agent and Lenders certain information concerning Loan Parties which Borrower has advised is non-public, proprietary or confidential in nature ("Confidential Information"). Agent and ------------------------ each Lender confirms to Borrower, for itself, that it is Agent's and such Lender's policy and practice to maintain in confidence all Confidential Information which is provided to it under agreements providing for the extension of credit and which is identified to it as such, and that it will protect the confidentiality of Confidential Information submitted to it with respect to any Loan Party under this Agreement, commensurate with its efforts to maintain the confidentiality of its own Confidential Information, provided, however, that (i) -------- ------- nothing contained herein shall prevent Agent or any Lender from disclosing Confidential Information (A) to its Affiliates and their respective directors, officers and employees and to any legal counsel, auditors, appraisers, consultants or other persons retained by it or its Affiliates as professional advisors, on the condition that such information not be further disclosed except in compliance with this Section 11.14(b); (B) under colour of legal authority, ---------------- including, without limitation, to any regulatory authority having jurisdiction over it or its operations or to or under the authority of any court deemed by it to be of competent jurisdiction; (C) to any actual or potential assignee of or participant in a Lender's rights and obligations under this Agreement pursuant to Section 10.2 hereof to the extent such actual or potential assignee or ------------ participant has agreed to maintain such information in confidence on the basis set forth in this Section 11.14(b); and (D) as necessary in connection with the ---------------- exercise of its rights and remedies under this Agreement or any of the other Loan Documents; (ii) the terms of this Section 11.14(b) shall be inapplicable to ---------------- any information provided to it which is in its possession prior to the delivery to it of such information by Borrower or otherwise has been obtained by it on a non-confidential basis, or which was or becomes available to the public or otherwise part of the public domain (other than as a result of Agent's or such Lender's failure or any prospective participant's or assignee's failure to abide hereby), or which was not non-public, 66 proprietary or confidential when Borrower delivered it to Agent or any Lender; and (iii) the determination by Agent or any Lender as to the application of any of the circumstances described in the foregoing clauses (i) and (ii) will be conclusive if made in good faith. (c) Notwithstanding paragraph (b) above, Borrower consents to Agent publishing at its expense a tombstone or similar advertising material relating to the financing transaction contemplated by this Agreement. SECTION 11.15 GOVERNING LAW. IN ALL RESPECTS, INCLUDING ALL MATTERS OF ------------- CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE PROVINCE OF ONTARIO APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH PROVINCE, AND ANY LAWS OF CANADA APPLICABLE THEREIN. SECTION 11.16 Further Assurances. The Borrower shall, and shall cause ------------------ each of its Subsidiaries to, from time to time, upon each request from Agent, at Borrower's and its Subsidiaries' cost and expense, make, do, execute and cause to be made, done and executed, all such further and other lawful acts, documents and assurances whatsoever which Agent determines in its reasonable opinion may be necessary in order to give effect to the provisions, purposes and intent of this Agreement and the other Loan Documents and to complete the transactions contemplated by this Agreement and the other Loan Documents. [INTENTIONALLY LEFT BLANK.] 67 IN WITNESS WHEREOF, this Agreement has been duly executed. TYCO TOYS (CANADA) INC. By: /s/ Robert Polovniak ----------------------------------- Name: Robert Polovniak Title: Vice-President, Finance GENERAL ELECTRIC CAPITAL CANADA INC, as Agent By: /s/ Richard Sabourin ----------------------------------- Name: Richard Sabourin Title: Vice-President, Commercial Finance Lender: ------ Revolving Credit Commitment: ROYAL BANK OF CANADA - --------------------------- Dollar Equivalent Amount of US$20,000,000 By: /s/ Don Bean ---------------------------------- Name: Don Bean Title: Senior Account Manager Annex A to Credit Agreement DEFINITIONS; RULES OF CONSTRUCTION ---------------------------------- 1. Definitions. Capitalized terms used in this Agreement and the other Loan ----------- Documents have (unless otherwise provided elsewhere in this Agreement and the other Loan Documents) the following respective meanings: "Account Debtor" means, as to any Person, any other Person who is or who -------------- may become obligated to such Person under, with respect to, or on account of, an Account. "Accounts" means all "accounts," as such term is defined in the PPSA -------- (Ontario), now owned or hereafter acquired by Borrower, including, without limitation: (a) all accounts receivable, other receivables, book debts and other forms of obligations (other than forms of obligations evidenced by Chattel Paper or Instruments or a security) now owned or hereafter received or acquired by or belonging or owing to Borrower, whether arising out of goods sold or services rendered by it or from any other transaction; (b) all of Borrower's rights in, to and under all purchase orders or receipts now owned or hereafter acquired by it for goods or services; (c) all of Borrower's rights to any goods represented by any of the foregoing (including unpaid sellers' rights of rescission, replevin, reclamation and stoppage in transit and rights to returned, reclaimed or repossessed goods); (d) all monies due or to become due to Borrower under all purchase orders and contracts for the sale or lease of goods or the performance of services or both by Borrower or in connection with any other transaction (whether or not yet earned by performance on the part of Borrower) now or hereafter in existence, including, without limitation, the right to receive the proceeds of said purchase orders and contracts; and (e) all collateral security and guarantees of any kind, now or hereafter in existence, given by any Person with respect to any of the foregoing. "Advance Date" has the meaning assigned to it in Section 1.12. ------------ ------------ "Affiliate" means, with respect to any Person, (a) each Person that, --------- directly or indirectly, owns or controls, whether beneficially, or as a trustee, guardian or other fiduciary, ten percent (10%) or more of the Stock having ordinary voting power in the election of directors of such Person, (b) each Person that controls, is controlled by or is under common control with such Person, or (c) each of such Person's officers, directors, joint ventures and partners. For the purpose of this definition, A - 1 "control" of a Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of its management or policies, whether through the ownership of voting securities, by contract or otherwise. "Agent" has the meaning assigned to it in the first paragraph of this ----- Agreement. "Agreement" means the Credit Agreement to which this Annex A is attached --------- ------- and of which it forms a part, including all Annexes, Schedules, and Exhibits attached or otherwise identified thereto, all restatements, modifications and supplements hereof or hereto, and any appendices, attachments, exhibits or schedules to any of the foregoing, and shall refer to this Agreement as the same may be in effect at the time such reference becomes operative; provided, that -------- any reference to the Schedules to this Agreement shall be deemed a reference to the Schedules as in effect as of the Closing Date, unless otherwise provided in a written amendment thereto. "Agreement Respecting Distribution Agreement" means the agreement in the ------------------------------------------- form of Exhibit A attached hereto, to be executed by Borrower and Tyco --------- Industries in favour of Agent for the benefit of Agent and Lenders, including all restatements, amendments, modifications and supplements thereto, and shall refer to the Agreement Respecting Distribution Agreement as the same may be in effect at the time such reference becomes operative. "Applicable Laws" means, with respect to any Person, property, transaction --------------- or event, all applicable laws, statutes, regulations, treaties, judgments and decrees and (whether or not having the force of law) all applicable official directives, rules, consents, approvals, authorizations, guidelines, orders and policies of any Governmental Body having authority over such Person. "Assignments of Monies Payable Under Insurance Policies" means each ------------------------------------------------------ agreement in the form of Exhibit B attached hereto, to be executed by Borrower --------- in favour of Agent, for the benefit of Agent and Lenders, including all restatements, amendments, modifications and supplements thereto, and shall refer to the Assignments of Monies Payable Under Insurance Policies as the same may be in effect at the time such reference becomes operative. "BA Rate" means, in respect of any Interest Period applicable to a Fixed ------- Rate Tranche, the rate of interest per annum determined by Agent which is equal to the average rate (rounded upwards to the nearest basis point) shown for Canadian dollar bankers' acceptances with a term of one month on "CDOR" page on the Reuter Monitor Money Rates Service (or such other A - 2 page as may replace such page on the Reuter Monitor Money Rates Service for the purpose of displaying Canadian interbank bid rates for Canadian dollar bankers' acceptances with a term of one month) as of 10:00 a.m. one Business Day immediately preceding the first day of such Interest Period. If for any reason such rate does not appear on "CDOR" page on the Reuter Monitor Money Rates Service, or such other page, as contemplated, BA Rate means the annual rate of interest determined by Agent which is equal to the arithmetic average of the rates quoted by such of The Bank of Nova Scotia, Royal Bank of Canada and Canadian Imperial Bank of Commerce as may quote such a rate in respect of Canadian dollar bankers' acceptances with a term of one month as of 10:00 a.m. one Business Day immediately preceding the first day of such Interest Period. For greater certainty, no adjustment shall be made to account for the difference between the number of days in a year on which the rates referred to in this definition are based and the number of days in a year on the basis of which interest is calculated under this Agreement. "Blocked Account" has the meaning assigned to it in Annex B. --------------- ------- "Blocked Account Agreement" has the meaning assigned to it in Annex B. ------------------------- ------- "Borrower" has the meaning assigned to it in the first paragraph of this -------- Agreement. "Borrowing Base" means, at any time, an amount equal to the sum at such -------------- time of: (a) up to eighty percent (80%) of Eligible Accounts plus (b) up to ---- sixty percent (60%) of Eligible Inventory, valued on a first-in, first-out basis (at the lower of cost or market), minus (c) the amount of any reserves, ----- including, in respect of Prior Claims, as Agent may deem necessary or appropriate from time to time in its sole discretion exercised in good faith. "Borrowing Base Certificate" means a certificate in the form attached -------------------------- hereto as Exhibit 1.1(e). -------------- "Business Day" means any day that is not (i) a Saturday, a Sunday or a day ------------ on which banks are required or permitted to be closed in the State of New York or the Province of Ontario, or (ii) a day on which Agent is not open for business. "Canadian Benefit Plans" means all material employee benefit plans ---------------------- maintained or contributed to by Borrower or any of its Subsidiaries that are not Canadian Pension Plans including, without limitation, all profit sharing, savings, supplemental retirement, retiring allowance, severance, deferred compensation, welfare, bonus, supplementary unemployment benefit plans or arrangements and all life, health, dental and disability plans and arrangements in which the employees or former employees of A - 3 Borrower or any of its Subsidiaries employed in Canada participate or are eligible to participate but excluding all stock option or stock purchase plans. "Canadian Pension Plans" means each plan which is considered to be a ---------------------- pension plan for the purposes of any applicable pension benefits standards statute and/or regulation in Canada established, maintained or contributed to by Borrower or any of its Subsidiaries for its or any of its Subsidiaries' employees or former employees. "Capital Lease" means any lease of any property (whether real, personal or ------------- mixed) by any Person as lessee that, in accordance with GAAP, either would be required to be classified and accounted for as a capital lease on a balance sheet of such Person or otherwise be disclosed as such in a note to such balance sheet. "Capital Lease Obligation" means, as of any date, the amount of the ------------------------ obligation of the lessee under a Capital Lease that, in accordance with GAAP, would appear on a balance sheet of such lessee in respect of such Capital Lease or otherwise be disclosed as such in a note to such balance sheet. "Cash Collateral Agreement" means the agreement, substantially in the form ------------------------- of Exhibit H attached hereto, to be executed by Borrower and Lender, including --------- all restatements, amendments, modifications and supplements thereto in form and substance satisfactory to Borrower, Lender and Agent, and shall refer to the Cash Collateral Agreement as the same may be in effect at the time such reference becomes operative. "Cash Equivalents" means: (a) securities with maturities of 180 days or ---------------- less from the date of acquisition, issued or fully guaranteed or insured by the governments of Canada or the United States of America or any agency thereof; (b) certificates of deposit, overnight bank deposits and bankers' acceptances issued by commercial banks incorporated under the laws of Canada or the United States of America, each having capital and surplus in excess of $500,000,000, or the Equivalent Amount thereof, having maturities of one year or less from the date of acquisition; and (c) commercial paper of an issuer rated at least A-1 by Standard & Poor's Corp. or at least P-1 by Moody's Investors Services, Inc., or carrying an equivalent rating by a nationally recognized rating agency if both of the two named rating agencies cease publishing ratings of investments, in each case with maturities of not more than sixty (60) days from the date acquired. "CDOS" means, at any date, the annual rate of interest determined by Agent ---- by reference to the average rate (rounded upwards to the nearest basis point) shown for one month Government of Canada treasury bills on "CDOS" page on the Reuters A - 4 Monitor Money Rates Service (or such other page as may replace such page on the Reuters Monitor Money Rates Service for the purpose of displaying Canadian interbank bid rates for one month Canadian dollar Government of Canada treasury bills) as of 10:00 a.m. on such date. "Certificate of Deposit" means a certificate of deposit in the amount of ---------------------- the Dollar Equivalent Amount of US$200,000, determined on the Closing Date, maintained by Borrower with Lender as part of the security for the Obligations, and all substitutions therefor. "Change in Control" means the time when (i) any Person or "group" has ----------------- acquired "beneficial ownership" (as such terms are defined under Section 13d-3 of and Regulation 13D under the Securities Exchange Act of 1934, as amended), either directly or indirectly, of outstanding shares of Stock of Tyco Parent having more than twenty percent (20%) of the voting power for the election of directors of Tyco Parent under ordinary circumstances, (ii) more than fifty percent (50%) of the members of Tyco Parent's board of directors shall have been replaced by new directors not nominated for membership on the board by a majority of directors who were either (x) directors on the Closing Date or (y) directors after the Closing Date and whose nomination to the board of directors of Tyco Parent was itself approved by a majority of directors on the board who were directors on the Closing Date, (iii) Tyco Parent has sold, transferred, conveyed, assigned or otherwise disposed of all or substantially all of the assets of Tyco Parent or (iv) a "Change of Control" (as defined in the Tyco Parent Senior Subordinated Note Indenture) shall have occurred. "Charges" means all Taxes or Liens in respect of Taxes upon or relating to ------- (a) the Collateral, (b) the Obligations, (c) the employees, payroll, income or gross receipts of Borrower or any of its Subsidiaries, (d) the ownership or use by Borrower or any of its Subsidiaries of any of its assets, or (v) any other aspect of Borrower's or any of its Subsidiaries' business. "Chattel Paper" means all "chattel paper," as such term is defined in the ------------- PPSA (Ontario), now owned or hereafter acquired by Borrower, wherever located. "Claim" has the meaning assigned to it in Section 1.16. ----- ------------ "Closing Date" means the Business Day on which the conditions precedent set ------------ forth in Article 2 have been satisfied, in Agent's sole discretion, or waived in --------- writing by Agent, and on which the initial Revolving Credit Advance shall be made (which date shall in any event be on or prior to February 28, 1995). A - 5 "Collateral" means the property covered by the Collateral Documents and any ---------- other property, real or personal, tangible or intangible, now existing or hereafter acquired, that may at any time be or become subject to a Lien in favour of Agent or Lenders to secure any or all of the Obligations. "Collateral Documents" means the Security Agreement, the Hypothec, the -------------------- General Assignment of Book Debts, the Tyco Industries Pledge Agreement, the Assignments of Monies Payable under Insurance Policies, the Blocked Account Agreement, the Cash Collateral Agreement, the Certificate of Deposit and all other instruments and agreements now or hereafter securing the whole or any part of the Obligations. "Collection Account" means Agent's Dollar account 1011519 or Agent's US ------------------ Dollar account 4002739, as applicable, with account name GECCI COMM FIN at Royal Bank of Canada, Corporate Banking, 10th Floor, 20 King Street West, Toronto, Ontario, transit number 00002, or such other account as may be designated by Agent. "Commitment Letter" means the Commitment Letter, dated November 8, 1994, ----------------- made by GE Capital and GE Capital Canada and agreed to and accepted by Tyco Parent on November 11, 1994, together with all term sheets attached thereto, as amended on December 27, 1994, January 30, 1995 and February 8, 1995 and as further amended, modified or supplemented from time to time. "Commitment Termination Date" means the earliest of (a) the third --------------------------- anniversary of the Closing Date, (b) the date of termination of the Revolving Credit Commitments pursuant to Section 8.2, and (c) the date of termination of ----------- the Revolving Credit Commitments in accordance with the provisions of Section ------- 1.3. - --- "Concentration Account" has the meaning assigned to it in Annex B. --------------------- ------- "Confidential Information" has the meaning assigned to it in Section ------------------------ ------- 11.13(b). - -------- "Contaminant" means any substance, solid, liquid or gaseous matter, fuel ----------- (including, without limitation, petroleum or petroleum products, crude oil, natural gas, natural gas liquid, liquified natural gas, synthetic fuel or any combination of the above), microorganism, sound, vibration, ray, heat, odour, radiation, energy vector, plasma, organic or inorganic matter, whether or not animate or inanimate, container, transient reaction intermediate, nuclear material or any combination of the above deemed hazardous, toxic, a pollutant, a deleterious substance, a hazardous material, a waste, a hazardous waste, a contaminant or a source of pollution or contamination under any Environmental Laws or the presence of which in the Environment is A - 6 likely to affect adversely the quality of the Environment in any way, including, without limitation, affecting adversely the life, health, safety, welfare or comfort of human beings, or causing damage to or otherwise impairing the quality of the soil, vegetation, wildlife or property. "Default" means any event which, with the passage of time or notice or ------- both, would, unless cured or waived, become an Event of Default. "Default Rate" means (a) with respect to principal owing on Revolving ------------ Credit Advances, a rate per annum equal to (i) two percent (2%), plus, (ii) the ---- rate or rates of interest otherwise in effect hereunder from time to time therefor and (b) with respect to interest or other Obligations (excluding principal on the Revolving Credit Advances), a rate per annum equal to (i) the Index Rate in effect from time to time, plus, (ii) four and one-half percent ---- (4.50%)). "Disbursement Accounts" has the meaning assigned to it in Annex B. --------------------- ------- "Discharge" means the emission, deposit, issue, discharge, release, escape, --------- leaching, dispersal, migration, spraying, spill, leakage or seepage of a Contaminant into the Environment. "Dollar Equivalent Amount" means, on any date, the Equivalent Amount in ------------------------ Canadian Dollars of the stated fixed amount of US Dollars. "Dollars" and "$" means lawful money of Canada. ------- - "Eligible Account" means the gross outstanding balance of Accounts of ---------------- Borrower (arising out of the sale by Borrower of finished goods Inventory), denominated in Dollars, net of reserves established therefor, which Agent, in its discretion exercised in good faith, shall from time to time deem eligible, less, all finance charges, late fees, other fees that are unearned, and all - ---- reserves, allowances, rebates and discounts for volume, advertising, defective returns, mark-down allowances, cash payment, warehouse delivery and booking discounts and such other reserves as Agent, in its discretion exercised in good faith, shall from time to time deem appropriate. Without in any way limiting the discretion given to Agent hereunder to deem an Account of Borrower ineligible, an Account of Borrower shall not be an Eligible Account if: (1) any warranty or representation contained in this Agreement or any of the other Loan Documents applicable either to Accounts of Borrower in general or to any such specific Account has been breached with respect to such Account in any material respect; A - 7 (2) (A) such Account is owing by an Account Debtor which is unable to pay its debts as such debts become due, or is, or is adjudged or declared to be, or admits to being, bankrupt or insolvent, or makes, or files a notice of intention to make, a proposal under any Insolvency Statute; or (B) any notice of intention is filed or any voluntary case or involuntary case or proceeding is commenced under any Insolvency Statute, or incorporation or other law, now or hereinafter in effect, for the (i) bankruptcy, liquidation, winding-up, dissolution or suspension of general operations of such Account Debtor, (ii) composition, reorganization, arrangement or readjustment of, or other relief from, or stay of proceedings to enforce, some or all of the debts of such Account Debtor, (iii) appointment of a trustee, receiver, receiver and manager, liquidator, custodian or other similar official for, or for all or a substantial part of the assets of, such Account Debtor or (iii) possession, foreclosure or retention, or sale or other disposition of, or other proceedings to enforce security over, all or a substantial part of the assets of such Account Debtor; (3) such Account has remained unpaid after the earlier to occur of (A) 60 days after the date on which payment is specified to be due in the original applicable invoice and (B) 270 days after the date of such original applicable invoice; (4) such Account is payable by an Account Debtor which is a supplier, creditor (other than in respect of reserves, rebates and discounts referred to above) or an Affiliate of Borrower; (5) such Account originated outside of Canada or is not denominated in Dollars; (6) the sale represented by such Account is on a bill-and-hold, undelivered sale, guaranteed sale, sale or return, consignment, or sale on approval basis; (7) Agent believes, in its sole discretion, that the collection of such Account is insecure or that such Account may not be paid; (8) such Account is subject to any material claim by or dispute with the Account Debtor; A - 8 (9) such Account is subject to any right of set-off by the Account Debtor; (10) Agent does not have a perfected first ranking Lien in and to such Account, subject to no prior ranking Lien other than the Liens described in paragraphs (a), (b) and, provided such Liens are not registered, (e) of the definition of Permitted Encumbrances (it being understood that, as of the Closing Date, Borrower has not granted to Agent a perfected Lien in any Account generated from sales to Account Debtors situated in Quebec, Yukon Territory or Northwest Territories); (11) such Account is not evidenced by an invoice or other writing in form acceptable to Agent in its sole discretion; (12) such Account is an Account owing by a Governmental Body and Agent does not have a legal opinion from counsel and in form and substance acceptable to Agent stating that such Account is enforceable against the applicable Governmental Body (it being understood that, as of the Closing Date, the foregoing condition has not been satisfied); (13) in order to be entitled to collect it, Borrower is required to perform any additional service for, or perform or incur any additional obligation to, Account Debtor; (14) such Account is owing by an Account Debtor whose Indebtedness to Borrower on Accounts which are otherwise ineligible exceeds 50% of such Account Debtor's total Indebtedness to Borrower; (15) such Account is owing by an Account Debtor whose total Indebtedness to Borrower on Accounts exceeds 10% of the aggregate amount of all Accounts of Borrower (the "Aggregate Accounts") and, in that case, such Account shall be ineligible to the extent that the aggregate amount of all Accounts owing by such Account Debtor and which are otherwise eligible exceeds 10% of the Aggregate Accounts provided, -------- however, (i) in the case of Accounts owing by Toys R Us (Canada) Ltd. or any of its Affiliates, such Accounts shall be ineligible to the extent that the aggregate amount of all Accounts owing by Toys R Us (Canada) Ltd. and its Affiliates exceeds 45% of the Aggregate Accounts; (ii) in the case of Accounts owing by Walmart Canada Inc. or any of its Affiliates, such Accounts shall be ineligible to the extent that the aggregate amount of all Accounts owing by Walmart Canada Inc. and its Affiliates exceeds 40% A - 9 of the Aggregate Accounts; (iii) in the case of Accounts owing by Canadian Tire Corporation Ltd. or any of its Affiliates, such Accounts shall be ineligible to the extent that the aggregate amount of all Accounts owing by Canadian Tire Corporation Ltd. and its Affiliates exceeds 20% of the Aggregate Accounts; and (iv) in the case of Accounts owing by Consumers Distributing Inc. or any of its Affiliates, such Accounts shall be ineligible to the extent that the aggregate amount of all Accounts owing by Consumers Distributing Inc. and its Affiliates exceeds 15% of the Aggregate Accounts; or (16) such Account is an Account in respect of which Account Debtor takes a deduction or credit not authorized or otherwise agreed to by Borrower. "Eligible Inventory" means such Inventory of Borrower that consists of ------------------ finished goods and that is not ineligible as the basis for Revolving Credit Advances based on such criteria determined by Agent from time to time in its sole discretion exercised in good faith. Criteria for eligibility may be fixed and revised from time to time by Agent in its sole discretion exercised in good faith. Unless otherwise agreed to in writing by Agent, in determining whether Inventory of Borrower constitutes Eligible Inventory, Agent shall not include any Inventory that: (1) is not owned by Borrower free and clear of all Liens and rights of others, except first priority Liens perfected in favour of Agent and Liens described in paragraphs (a), (b) and, provided such Liens are not registered, (e) of the definition of Permitted Encumbrances (it being understood that, as of the Closing Date, Borrower has not granted to Agent a perfected security interest in any Inventory of Borrower situated outside of the Province of Ontario); (2) except as provided in paragraphs (3) and (4) below, is not located on premises owned and operated by Borrower in the Province of Ontario and referenced in Schedule 3.2; ------------ (3) is Inventory in transit or Inventory held on or at any leased premises where the landlord thereof has not executed a landlord agreement and the mortgagee thereof,if any, has not executed a consent and agreement to the terms of the applicable landlord agreement, in each case, in form and substance satisfactory to Agent and that remains effective (it being understood that, as of the Closing Date, only the landlord and the mortgagees of Borrower's premises A - 10 located at 7420 B Bramalea Road, Mississauga, Ontario have executed a landlord agreement and a mortgagee consent and agreement); (4) is in the possession or control of a bailee, warehouseman, processor, converter, finisher or other Person other than Borrower, unless Agent is in possession of such agreements, instruments and documents as Agent may require (each in form and content acceptable to Agent and duly executed, as appropriate by the bailee, warehouseman, processor, converter or other Person in possession or control of such Inventory, as applicable) including warehouse receipts in Agent's name covering such Inventory; (5) is covered by a negotiable document of title; (6) in Agent's good faith judgment, is obsolete, unsaleable, shopworn, damaged, unfit for further processing, or is of substandard quality (it being agreed that the determination of substandard quality with respect to any Inventory which is the subject of a licence of rights or interests now held or hereafter acquired by Borrower as licensee that contains standards of quality for such Inventory shall be based upon the quality standards set forth in such licence); (7) consists of display items, samples, supplies, small tools, packaging and shipping materials or defective goods which have been returned by the buyer; (8) such Inventory has not been within the preceding 12 months included in a catalogue or other sales materials (including the Borrower's Canadian price list) which are intended to be used for purposes of promoting sales by Borrower at regular or incentive prices within the next 12 months or is otherwise obsolete; (9) does not meet all standards imposed by any Applicable Law or promulgated by any Governmental Body including, without limitation, all Applicable Laws governing product labelling, care labelling and country of origin labelling; (10) is placed by Borrower on consignment or held by Borrower on consignment from another Person; (11) in any way fails to meet or violates any warranty, representation or covenant contained in this Agreement or any other Loan Document; A - 11 (12) has not been fully paid for by Borrower and 30 days have not expired after the date of delivery of such Inventory to Borrower, unless Agent has received a duly executed Supplier Waiver and Assignment from the seller to Borrower of such Inventory; provided, however, for greater -------- certainty, Agent may at any time exercise the discretion given to Agent hereunder to deem such Inventory ineligible notwithstanding that Agent has received a duly executed Supplier Waiver and Assignment from the seller to Borrower of such Inventory. As of the Closing Date, Agent has received a Supplier Waiver and Assignment only from Tyco Industries, Tyco Manufacturing and Tyco (Hong Kong) Limited, a Hong Kong corporation and Tyco Asia, Ltd., a Hong Kong corporation; or (13) is not otherwise acceptable in the sole discretion of Agent exercised in good faith. "Environment" means all components of the Earth, including, all layers of ----------- the atmosphere, air, land (including, all underground spaces and cavities and all land submerged under water), soil, water (including surface and underground water), all organic and inorganic matter and living organisms, animal life, vegetation and property, and the interacting natural systems that include components referred to above in this definition. "Environmental Activity" means any past, present or future activity, event ---------------------- or circumstance in respect of a Contaminant (including its storage, holding, collection, purchase, accumulation, assessment, generation, manufacture, construction, processing, treatment, stabilization, disposition, handling, transportation, deposit, recycling, elimination, sale, distribution, import or export or its Discharge into the natural environment, including the movement through or in the air, soil, surface water or ground water) or which is otherwise regulated by Environmental Laws. "Environmental Assessment" means an environmental audit conducted by a ------------------------ Person approved in writing by Agent in respect of any or all of the Facilities. "Environmental Laws" means all applicable federal, state, provincial, ------------------ national and supra-national, and local laws, including statutes, regulations, directives, ordinances, codes, orders, rules, subordinate legislation, Governmental Approvals and other governmental actions, restrictions and requirements, and all judgments, orders, instructions and awards of any court of competent authority and all codes of practice and guidance, from time to time, having the force of law, relating to environmental matters (including Environmental Activities or A - 12 occupational health and safety), including, the Environment Quality Act (Quebec), the Act respecting Pesticides (Quebec), the Act respecting Occupational Health and Safety (Quebec), the Act respecting the Use of Petroleum Products (Quebec), By-Law 87 of the Montreal Urban Community respecting wastewater disposal in sewer systems and waterways, By-Law 90 of the Montreal Urban Community pertaining to air purification, the Politique de rehabilitation des terrains contamines (Quebec) (notwithstanding such policy does not have the force of law), the Environmental Protection Act (Ontario), the Occupational Health and Safety Act (Ontario), the Canadian Environmental Protection Act (Canada), the Fisheries Act (Canada), the Transportation of Dangerous Goods Act (Canada) and the Hazardous Materials Information Review Act (Canada), all as amended, and includes all regulations made under such statutes. "Equipment" means all "equipment" as such term is defined in the PPSA --------- (Ontario), and, in any event, shall include all machinery, equipment, furnishings, fixtures and vehicles and any and all additions, accessions, substitutions and replacements of any of the foregoing, wherever located, together with all attachments, components, parts, equipment and accessories installed thereon or affixed thereto. "Equivalent Amount" means, on any date, with respect to obligations or ----------------- valuations denominated in one currency (the "First Currency") the amount of the First Currency which is required to purchase a fixed amount in another currency (the "Other Currency") at the 12:00 noon rate quoted on "BOFC" page on the Reuter Monitor Money Rates Service (or such other page on the Reuter Monitor Money Rates Service as may replace such page for the purpose of displaying such exchange rates) on the Business Day immediately preceding such date, or at such other rate as may have been agreed in writing between Borrower and Agent. "ERISA" means the United States Employee Retirement Income Security Act of ----- 1974 (or any successor legislation thereto), as amended from time to time, and any regulations promulgated thereunder. "Event of Default" has the meaning assigned to it in Section 8.1. ---------------- ----------- "Existing Credit Agreement" means the letter agreement dated May 28, 1993, ------------------------- as amended and restated as of May 28, 1994 by an amending letter agreement dated June 20, 1994, between Borrower and The Bank of Nova Scotia. "Existing US Credit Agreement" means the credit agreement dated as of ---------------------------- October 2, 1992 between Tyco Industries, as borrower, Tyco Parent, certain Subsidiaries of Tyco Parent, the lenders party thereto, NationsBank, N.A. (Carolinas) (formerly known as A - 13 Nationsbank of North Carolina, N.A.), as agent, and The Bank of Nova Scotia, as co-agent, as amended by Amendment No. 1 thereto dated as of March 18, 1993, Amendment No. 2 thereto dated as of February 10, 1994, Amendment No. 3 thereto dated as of November 15, 1994, Amendment No. 4 thereto dated as of February 8, 1995 and by a letter agreement dated June 7, 1994. "Facilities" means the moveable, personal, immoveable and real properties ---------- (including buildings, equipment, machinery and lands) from time to time, owned, leased, managed, controlled or operated by Borrower or any of its Subsidiaries. "Fee Agreement" means the agreement dated as of February 22, 1995 between ------------- Borrower and Agent, including all restatements, amendments, modifications and supplements thereto, and shall refer to the Fee Agreement as the same may be in effect at the time such reference becomes operative. "Fees" means the fees due to Agent for the account of Lenders as set forth ---- in Annex D, and any other fees due to Agent or Lenders pursuant to the Fee ------- Agreement or any other Loan Document. "Financials" means the financial statements referred to in paragraph 1 of ---------- Schedule 3.4. - ------------ "Fiscal Month" means for Tyco Parent, Borrower and its Subsidiaries the ------------ following: (a) the first, fourth, seventh and tenth Fiscal Months of any Fiscal Year shall be the periods commencing on January 1, April 1, July 1 and October 1, respectively, in such Fiscal Year and ending on the fourth Saturday thereafter; (b) the second, fifth, eighth and eleventh Fiscal Months of any Fiscal Year shall be the periods commencing on the day after the last day of the first, fourth, seventh and tenth Fiscal Months, respectively, of such Fiscal Year and ending on the fourth Saturday thereafter; and (c) the third, sixth, ninth and twelfth Fiscal Months of any Fiscal Year shall be the periods commencing on the day after the last day of the second, fifth, eighth and eleventh Fiscal Months, respectively, of such Fiscal Year and ending on the last day of March, June, September and December, respectively, immediately thereafter. "Fiscal Quarter" means for Tyco Parent, Borrower and its Subsidiaries each -------------- calendar quarter. A - 14 "Fiscal Year" shall mean for Tyco Parent, Borrower and its Subsidiaries the ----------- calendar year. Subsequent changes of the fiscal year of Tyco Parent, Borrower or any of its Subsidiaries shall not change the term "Fiscal Year", unless Agent and Required Lenders shall consent in writing to such change. "Fixed Rate" has the meaning assigned to it in Section 1.5(c). ---------- -------------- "Fixed Rate Tranche" has the meaning assigned to it in Section 1.5(c). ------------------ -------------- "GAAP" means, subject to Section 2(a) of this Annex A, (a) with respect to ---- ------------ ------- Borrower and its Subsidiaries, generally accepted accounting principles in Canada in effect from time to time and (b) with respect to Tyco Parent on a consolidated basis, generally accepted accounting principles in the United States of America in effect from time to time, in each case applied on a consistent basis. "GE Capital" means General Electric Capital Corporation, a corporation ---------- organized under the banking laws of the State of New York. "GE Capital Canada" means General Electric Capital Canada Inc., a Canada ----------------- corporation, having an office at 2300 Meadowvale Blvd., Mississauga, Ontario, L5N 5P9. "General Assignment of Book Debts" means the agreement, in the form of -------------------------------- Exhibit C attached hereto, to be executed by Borrower in favour of Agent, for - --------- the benefit of Agent and Lenders, including all restatements, amendments, modifications and supplements thereto, and shall refer to the General Assignment of Book Debts as the same may be in effect at the time such reference becomes operative. "Global Lenders" means, collectively, the lenders providing or committing -------------- to provide any financial accommodations under any of the Overall Facilities. "Governmental Approval" means any authorization, certificate, attestation, --------------------- permit, approval, grant, licence, consent, right, privilege, registration, filing, commitment, order, judgment, direction, ordinance or decree issued or granted by or under law or by any Governmental Body as well as any acquired or vested right required or recognized pursuant to Environmental Laws. "Governmental Body" means any government, parliament, legislature, ----------------- regulatory authority, agency, tribunal, department, commission, board or court or other law, regulation or rule making entity (including a Minister of the Crown), national or A - 15 supra-national, having or purporting to have jurisdiction on behalf of any nation, state, province, municipality or district, or any subdivision thereof. "Guaranteed Indebtedness" means, as to any Person, any obligation of such ----------------------- Person guaranteeing any indebtedness, lease, dividend, or other obligation ("primary obligation") of any other Person (the "primary obligor") in any manner, including any obligation or arrangement of such Person (a) to purchase or repurchase any such primary obligation, (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet condition of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (d) to indemnify the owner of such primary obligation against loss in respect thereof. "Hypothec" means the agreement, substantially in the form of Exhibit D -------- --------- attached hereto, to be executed by Borrower, Lender and Agent, including all restatements, amendments, modifications and supplements thereto, and shall refer to the Hypothec as the same may be in effect at the time such reference becomes operative. "Indebtedness" of any Person means (a) all indebtedness of such Person for ------------ borrowed money or for the deferred purchase price of property or services (including reimbursement and all other obligations with respect to surety bonds, letters of credit and bankers' acceptances, whether or not matured, but not including obligations to trade creditors incurred in the ordinary course of business and not including obligations to pay inter-company management fees so long as such fees are paid to Tyco Industries or the parent corporation of the obligor of such fees), (b) all obligations evidenced by notes, bonds, debentures or similar instruments, (c) all indebtedness created or arising under any conditional sale or other title retention agreements with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (d) all Capital Lease Obligations, (e) all Guaranteed Indebtedness, (f) all Indebtedness referred to in clause (a), (b), (c), (d) or (e) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness, (f) the Obligations and (g) all liabilities under or with respect to interest rate protection agreements. A - 16 "Indemnified Person" has the meaning assigned to it in Section 1.16. ------------------ ------------ "Index Rate" means, at any date, the annual rate of interest determined by ---------- Agent which is equal to the highest annual rate of interest announced from time to time by any of The Bank of Nova Scotia, Royal Bank of Canada and Canadian Imperial Bank of Commerce, as being its reference rate in effect on such date (or if such date is not a Business Day, on the Business Day immediately preceding such date) for determining interest rates on Canadian dollar denominated commercial loans made by it in Canada (that is, prime rate), in each case, regardless of whether any of such banks actually charges such rate of interest in connection with extensions of credit in Canadian dollars to debtors and, for greater certainty, without adjustment to account for the difference between the number of days in a year on which such highest annual rate of interest is based and the number of days in a year on the basis of which interest is calculated under this Agreement. "Insolvency Statute" means any of the Bankruptcy and Insolvency Act ------------------ (Canada), the Companies' Creditors Arrangement Act (Canada) and Title 11 of the United States Code entitled "Bankruptcy", each as now and hereafter in effect, any successors to such statutes and any other applicable insolvency or other similar law of any jurisdiction. "Instruments" means all "instruments," as such term is defined in the PPSA ----------- (Ontario), now owned or hereafter acquired by Borrower, wherever located. "Intellectual Property" means all intellectual and industrial property, --------------------- including, without limitation, all patents, industrial designs, copyrights, trademarks, trade names, trade secrets, and options and rights to use any of the foregoing and, when the context permits, all registrations and applications that have been made or shall be made or filed in any office in any jurisdiction in respect of the foregoing, and all reissues, extensions and renewals thereof. "Interest Period" means with respect to any Fixed Rate Tranche bearing --------------- interest at a Fixed Rate, the period of 30 days commencing on the day of the month specified by Borrower in its Notice of Fixed Rate Election with respect to such Fixed Rate Tranche delivered to Agent in accordance with Section 1.5(d). -------------- Notwithstanding the foregoing, all Interest Periods shall be adjusted in accordance with the second sentence of Section 1.5(a). -------------- "Inventory" means, as to any Person, all goods, wares and merchandise --------- manufactured, produced or purchased for resale or lease by such Person or procured for such manufacture, A - 17 production, resale or lease, and all goods, wares and merchandise used in or procured for the packing or packaging of goods, wares and merchandise so manufactured, produced or purchased for resale or lease. "Investment" means, for any Person (a) the acquisition (whether for cash, ---------- property, services or securities or otherwise) of shares, bonds, notes, debentures, partnership or other ownership interests or other securities of any other Person or any agreement to make any such acquisition; (b) the making of any deposit with, or advance, loan or other extension of credit to, any other Person (including the purchase of property from another Person subject to an understanding or agreement, contingent or otherwise, to resell such property to such Person); and (c) the entering into of any Guaranteed Indebtedness of, or other contingent obligation with respect to, Indebtedness or other liability of any other Person and (without duplication) any amount committed to be advanced, lent or extended to such Person. "ITA" means the Income Tax Act (Canada), as amended, and any successor --- thereto, and any regulations promulgated thereunder. "Judgment Conversion Date" has the meaning assigned to it in Section 11.8. ------------------------ ------------ "Judgment Currency" has the meaning assigned to it in Section 11.8. ----------------- ------------ "Leases" means all of those leasehold estates in real property now owned or ------ hereafter acquired by Borrower or any of its Subsidiaries, as lessee or sublessor. "Lender" and "Lenders" have the meanings provided in the first paragraph of ------ ------- this Agreement. "Lien" means any mortgage, deed to secure debt or deed of trust, pledge, ---- hypothecation, assignment, deposit arrangement, lien, charge, claim, security interest, easement or encumbrance, or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any lease or title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement perfecting a security interest under the Applicable Laws of any jurisdiction) whether or not filed, recorded or otherwise perfected under such Applicable Laws. "Loan Documents" mean this Agreement, the Revolving Credit Notes, the -------------- Collateral Documents, the Agreement Respecting Distribution Agreement, the Supplier Waivers and Assignments, the Fee Agreement, the Participation Agreement and all agreements, instruments, documents and certificates in favour of Agent and/or A - 18 Lenders executed in connection with the transactions contemplated by this Agreement, including, without limitation, those that are identified in the Schedule of Closing Documents attached as Annex C, and including all other ------- pledges, powers of attorney, consents, assignments, contracts, notices, and other written matter whether heretofore, now or hereafter executed by or on behalf of any Loan Party and delivered to Agent and/or Lenders in connection with this Agreement or the financing transactions contemplated hereby. "Loan Party" means Borrower, each of its Subsidiaries, if any, and Tyco ---------- Industries. "Margin" means two and one-half percent (2.50%) per annum. ------ "Material Adverse Effect" means a material adverse effect on (i) the ----------------------- business, assets, operations, prospects, or financial condition of any Loan Party, (ii) Borrower's ability to pay or perform the Obligations in accordance with the terms thereof or any other Loan Party's ability to perform its obligations under any Loan Document to which it is a party, (iii) the Collateral or Agent's or Lenders' Liens on the Collateral or the priority of any such Liens, or (iv) the rights and remedies of Agent and Lenders under this Agreement and the other Loan Documents. "Material Contract" means each contract to which Borrower or any of its ----------------- Subsidiaries is now or hereafter a party which (x) involves aggregate consideration payable to or by Borrower or any of its Subsidiaries, contingent or otherwise, in excess of $500,000, or the Equivalent Amount thereof, except contracts as to which the remaining consideration payable to or by Borrower or any of its Subsidiaries is less than $100,000, or the Equivalent Amount thereof, or (y) is otherwise material to the business or operations of Borrower or any of its Subsidiaries. "Maximum Revolving Credit Commitment" means, on any date, an amount equal ----------------------------------- to the Dollar Equivalent Amount of US$20,000,000, as reduced or terminated in accordance with the terms of this Agreement. "Non-Funding Lender" has the meaning assigned to it in Section 1.2. ------------------ ----------- "Non-Use Fee" has the meaning assigned to it in Annex D. ----------- ------- "Notice of Fixed Rate Election" has the meaning assigned to it in Section ----------------------------- ------- 1.5(d). - ------ "Notice of Revolving Credit Advance" has the meaning assigned to it in ---------------------------------- Section 1.1(c). - -------------- A - 19 "Obligations" means all loans, advances, liabilities and obligations for ----------- the payment of monetary amounts (whether or not such performance is then required or contingent, or amounts are liquidated or determinable) owing by Borrower or any other Loan Party to Agent or any Lender, of any kind or nature, present or future, whether or not evidenced by any note, agreement or other instrument, arising under any of the Loan Documents. This term includes all principal, interest (including interest which accrues after the commencement of any case or proceeding referred to in Section 8.1(g) or (h)), all Fees, Charges, --------------------- Claims, expenses, counsel fees and any other sum chargeable to Borrower or any other Loan Party under any of the Loan Documents. "Other Lender" has the meaning assigned to it in Section 1.2. ------------ ----------- "Overall Facilities" means, collectively, the loan facilities provided ------------------ under this Agreement, the US Credit Agreement and the UK Credit Agreement. "Participation Agreement" means the agreement dated as of February 22, 1995 ----------------------- between Borrower, Tyco Industries, Lender, GE Capital Canada and Agent, including all restatements, amendments, modifications and supplements thereto, and shall refer to the Participation Agreement as the same may be in effect at the time such reference becomes operative. "Payor" has the meaning assigned to it in Section 1.12. ----- ------------ "PBGC" means the Pension Benefit Guaranty Corporation or any successor ---- thereto. "Permitted Encumbrances" means the following encumbrances: (a) liens for ---------------------- Taxes, (excluding any liens arising under Canadian Pension Plans or Canadian Benefits Plans), either not yet due and payable or to the extent that nonpayment thereof is permitted by the terms of Section 5.2 of this Agreement; (b) liens ----------- securing obligations not yet due and payable under unemployment insurance legislation; (c) pledges or deposits securing bids, tenders, contracts (other than contracts for the payment of money) or leases to which Borrower or any of its Subsidiaries is a party as lessee made in the ordinary course of business; (d) deposits securing public or statutory obligations of Borrower or any of its Subsidiaries; (e) inchoate or statutory contractors', mechanics', suppliers' or similar liens arising in the ordinary course of business; provided, that such -------- liens are not registered against the title to any real or personal property or are being contested in good faith by appropriate proceedings and in respect of which there shall have been set aside a reserve (segregated to the extent required by GAAP) in an amount which is reasonably adequate with respect thereto; (f) carriers', warehousemen's or other similar possessory liens arising in the ordinary course of A - 20 business and securing Indebtedness not yet due and payable in an outstanding aggregate amount not in excess of $100,000, or the Equivalent Amount thereof, at any time; (g) deposits securing, or in lieu of, surety, appeal or customs bonds in proceedings to which Borrower or any of its Subsidiaries is a party; (h) any attachment or judgment lien, unless the judgment it secures shall not, within 30 days after the entry thereof, have been discharged or execution thereof stayed pending appeal, or shall not have been discharged within 30 days after the expiration of any such stay; (i) zoning restrictions, easements, servitudes, rights-of-way, licenses, reservations, limitations, provisos and conditions, if any, expressed in any original grant from the Crown or other restrictions on the use of real property or other minor irregularities in title (including leasehold title) thereto, so long as the same do not materially impair the use, value, or marketability of such real property, leases or leasehold estates; and (j) Liens arising under the Loan Documents or any other security in favour of Agent or the Lenders. "Person" means any individual, sole proprietorship, partnership, joint ------ venture, trust, unincorporated organization, association, corporation, institution, public benefit corporation, entity or Governmental Body. "PPSA (Ontario)" means the Personal Property Security Act (Ontario) as the -------------- same may, from time to time, be in effect in the Province of Ontario. "Prior Claims" means, at any time, all Liens created by Applicable Laws ------------ which rank, or are capable of ranking, prior to or pari passu with Agent's security against all or part of the Collateral including, without limitation, for amounts owing for wages, vacation pay, employee deductions, goods and services taxes, sales taxes, income taxes, workmen's compensation, government royalties, pension fund obligations and overdue rents. "Projections" means the projections referred to in paragraph 2 of Schedule ----------- -------- 3.4 and any other projections required to be delivered by Borrower to Agent or - --- any Lender under this Agreement. "Receivables Funding Agreement" means the receivables funding and servicing ----------------------------- agreement, dated as of even date with this Agreement, between the Receivables Funding Subsidiary, as borrowers, Redwood, as lender, Tyco Industries, as servicer, Financial Security Assurance and GE Capital, as operating agent and collateral agent. "Receivables Funding Documents" means, collectively, the Receivables ----------------------------- Funding Agreement and the Receivables Sale Agreement. A - 21 "Receivables Funding Subsidiary" means, collectively, Tyco Funding I ------------------------------ Corporation and Tyco Funding II Corporation, each a Delaware corporation and a direct subsidiary of Tyco Industries. Where the context requires, such defined term shall mean and refer to one or both of such corporations. "Receivables Sale Agreement" means, collectively (i) the receivables -------------------------- transfer agreement, dated as of even date with this Agreement, between Tyco Manufacturing and the Receivables Funding Subsidiary and (ii) the receivables transfer agreement, dated as of even date with this Agreement, between Tyco Industries and the Receivables Funding Subsidiary. Where the context requires, such defined term shall mean and refer to one or both of such agreements. "Redwood" means Redwood Receivables Corporation, a Delaware corporation. ------- "Regulatory Change" means, with respect to any Lender, any change after the ----------------- date of this Agreement in Applicable Law or the adoption or making after such date of any interpretation, directive or request applying to a class of lenders including such Lender of or under any Applicable Law (whether or not failure to comply therewith would be unlawful) by any court or Governmental Body or monetary authority charged with the interpretation or administration thereof. "Required Lenders" means, at any time, Lenders holding more than 50% of the ---------------- aggregate of the Revolving Credit Commitments of all Lenders at such time (or, if the Commitment Termination Date has occurred, in lieu of the Revolving Credit Commitments, the aggregate of the Revolving Credit Loan then outstanding in respect of the Revolving Credit Commitment). "Required Payment" has the meaning assigned to it in Section 1.11. ---------------- ------------ "Restricted Payment" means, with respect to any Person: (a) the ------------------ declaration or payment of any dividend or the occurrence of any liability to make any other payment or distribution of cash or other property or assets in respect of such Person's Stock; (b) any payment on account of the purchase, redemption, defeasance or other retirement of such Person's Stock or any other payment or distribution made in respect thereof, either directly or indirectly; or (c) any payment, loan, contribution, or other transfer of funds or other property to any holder of Stock of such Person. "Revolving Credit Advance" has the meaning assigned to it in Section ------------------------ ------- 1.1(a). - ------ A - 22 "Revolving Credit Commitment" means, as to each Lender, the commitment of --------------------------- such Lender to make Revolving Credit Advances to Borrower pursuant to Section ------- 1.1 in the aggregate principal amount outstanding not to exceed the amount set - --- forth opposite such Lender's name on the signature pages of this Agreement or specified in any amendment hereto or any assignment hereof pursuant to Section ------- 10.2 hereof, as such amount may be reduced or terminated in accordance with the - ---- terms of this Agreement. "Revolving Credit Loan" means the aggregate amount of Revolving Credit --------------------- Advances of all Lenders outstanding at any time. "Revolving Credit Notes" means the promissory notes provided for by Section ---------------------- ------- 1.1(d) and all promissory notes delivered in substitution or exchange therefor, - ------ in each case as the same may be restated, amended, modified and supplemented and in effect from time to time. "Security Agreement" means the agreement, substantially in the form of ------------------ Exhibit E attached hereto, to be executed by Borrower in favour of Agent, for - --------- the benefit of Agent and Lenders, including all restatements, amendments, modifications and supplements thereto, and shall refer to the Security Agreement as the same may be in effect at the time such reference becomes operative. "Stock" means all shares, options, warrants, general or limited partnership ----- interests, participation or other equivalents (regardless of how designated) of or in a corporation, partnership or equivalent entity, whether voting or nonvoting. "Subordinated Debt Documents" means the Tyco Parent Senior Subordinated --------------------------- Note Indenture and the notes, guarantees and other documents executed and delivered in connection therewith, each as amended, modified or supplemented from time to time in accordance with the terms hereof and thereof. "Subsidiary" means, with respect to any Person: (a) any corporation of ---------- which an aggregate of more than 50% of the outstanding Stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, Stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, owned legally or beneficially by such Person and/or one or more Subsidiaries of such Person, or with respect to which any such Person has the right to vote or designate the vote of more than 50% of such Stock whether by proxy, agreement, operation of law or otherwise; and (b) any partnership in which such Person and/or one or more Subsidiaries of such Person shall have an interest (whether in the form of voting or participation in profits or capital contribution) of A - 23 more than 50% or of which any such Person is a general partner or may exercise the powers of a general partner. "Supplier Waiver and Assignment" means each agreement substantially in the ------------------------------ form of Exhibit F attached hereto, to be executed by any supplier of Inventory --------- to Borrower in favour of Agent, for the benefit of Agent and Lenders, including all restatements, amendments, modifications and supplements thereto, and shall refer to the Supplier Waiver and Subordination as the same may be in effect at the time such reference becomes operative. "Tax" and "Taxes" includes all present and future taxes, surtaxes, duties, --- ----- levies, imposts, rates, fees, assessments, withholdings and other charges of any nature (including income, corporate, capital (including large corporations), net worth, sales, consumption, use, transfer, goods and services, value-added, stamp, registration, franchise, withholding, payroll, employment, health, education, excise, business, school, property, occupation, customs, anti-dumping and countervail taxes, surtaxes, duties, levies, imports, rates, fees, assessments, withholdings and other charges) imposed by any Governmental Body, together with any fines, interest, penalties or other additions on, to, in lieu of, for non-collection of or in respect of those taxes, surtaxes, duties, levies, imposts, rates, fees, assessments, withholdings and other charges. "Tax Returns" means all reports, estimates, information statements and ----------- returns relating to, or required to be filed in connection with, any Taxes pursuant to the statutes, laws, rules and regulations of any federal, provincial, state, municipal or foreign governmental taxing authority and "Tax Return" shall mean any one thereof. "Termination Date" means the date on which (a) the Revolving Credit ---------------- Commitments have been terminated in full, and Lenders shall have no further obligation to make any credit extensions or financial accommodations hereunder, and (b) all Obligations have been indefeasibly paid in full in immediately available funds. "Termination Fee" has the meaning assigned to it in Annex D. --------------- ------- "Tyco Industries" means Tyco Industries, Inc., a Delaware corporation. --------------- "Tyco Industries Pledge Agreement" means the agreement between Agent, for -------------------------------- the benefit of Agent and Lenders, and Tyco Industries, substantially in the form of Exhibit G, under which Tyco Industries pledges and/or charges to Agent all of --------- the Stock of Borrower owned by Tyco Industries, including all amendments, restatements, modifications and supplements thereto, in form and substance satisfactory to Agent, and shall refer to such Tyco A - 24 Industries Pledge Agreement as the same may be in effect at the time such reference becomes operative. "Tyco Manufacturing" means Tyco Manufacturing Corp., an Oregon corporation. ------------------ "Tyco Parent" means Tyco Toys, Inc., a Delaware corporation. ----------- "Tyco Parent Senior Subordinated Note Indenture" means the indenture, dated ---------------------------------------------- as of August 15, 1992, between Tyco Parent, as issuer, certain Subsidiaries of Tyco Parent, as guarantors, and Bankers Trust Company, as trustee (as successor trustee to NationsBank of Virginia, N.A.), with respect to Tyco parent's 10 1/8% senior subordinated notes due August 15, 2002, as such indenture was supplemented by two supplemental indentures, dated as of October 17, 1992 and as of June 8, 1993, respectively, adding additional Subsidiaries of Tyco Parent as guarantors, and as such indenture shall be further amended, modified or supplemented from time to time in accordance with the terms thereof and hereof. "UK Credit Agreement" means the revolving credit agreement to be entered ------------------- into between Tyco Toys (U.K.) Ltd., Matchbox Toys, Ltd. (United Kingdom), the lenders party thereto from time to time, Lloyds Bank PLC, as issuing bank, and GE Capital, as agent, as amended, modified or supplemented from time to time in accordance with the terms thereof. "Undertaking" means the business, undertaking and operations of Borrower ----------- and its Subsidiaries and of their predecessors in title. "US Credit Agreement" means the credit agreement dated as of the date ------------------- hereof, between Tyco Distribution Corp., Tyco Manufacturing, Tyco Parent, the lenders party thereto from time to time and GE Capital as agent, as amended, modified or supplemented from time to time in accordance with the terms thereof and with the consent of Agent. "US Dollars" and "US$" mean lawful money of the United States of America. ---------- --- "Weekly Settlement Date" has the meaning assigned to it in Section 1.14(c). ---------------------- --------------- 2. Certain Matters of Construction. (a) Any accounting term used in the ------------------------------- Agreement or the other Loan Documents shall have, unless otherwise specifically provided therein, the meaning customarily given such term in accordance with GAAP, and all financial computations shall be computed on a consolidated basis in accordance with GAAP consistently applied. That certain items or computations are explicitly modified by the phrase "in A - 25 accordance with GAAP" shall in no way be construed to limit the foregoing. In the event that any "Accounting Changes" (as defined below) occur and such changes result in a change in the standards or terms used in this Agreement, then Borrower, Lenders and Agent agree to enter into negotiations in order to amend such provisions of this Agreement so as equitably to reflect such Accounting Changes with the desired result that the criteria for evaluating Borrower's financial condition shall be the same after giving effect to such Accounting Changes as if such Accounting Changes had not been made. "Accounting ---------- Changes" means (i) in respect of Borrower and its Subsidiaries, changes in - ------- accounting principles required by the promulgation of any rule, regulation, pronouncement or opinion by the Canadian Institute of Chartered Accountants (or successor thereto or any agency with similar functions), and in respect of Tyco Parent and its Subsidiaries, changes in accounting principles required by the promulgation of any rule, regulation, pronouncement or opinion by the Financial Accounting Standards Board of the American Institute of Certified Public Accountants (or successor thereto or any agency with similar functions) and (ii) in respect of Borrower and its Subsidiaries, changes in accounting principles concurred in by Borrower's independent public accountants, and in respect of Tyco Parent and its Subsidiaries, changes in accounting principles concurred in by Tyco Parent's independent public accountants. In the event that the parties to this Agreement shall have agreed upon any such required amendment, then, after such amendment has been evidenced in writing and the underlying Accounting Change with respect thereto has been implemented, any reference to GAAP contained in this Agreement shall, only to the extent of such Accounting Change, refer to GAAP, consistently applied after giving effect to the implementation of such Accounting Change. If the parties to this Agreement cannot agree upon any required amendment within thirty (30) days following the date of implementation of any Accounting Change, then all financial statements delivered in accordance with Annex E to this Agreement and all standards and terms used in this ------- Agreement shall be prepared and used without regard to the underlying Accounting Change. (b) Unless otherwise specified, all references to dollar amounts in this Agreement or the other Loan Documents shall mean Dollars. (c) Unless otherwise specified, any reference to a time of day means local time in the City of Toronto, Province of Ontario, Canada. (d) The words "herein," "hereof" and "hereunder" or other words of similar import refer to this Agreement as a whole, including the annexes, exhibits and schedules hereto, as the same may from time to time be restated, amended, modified or A - 26 supplemented, and not to any particular section, subsection or clause contained in this Agreement. (e) For purposes of this Agreement and the other Loan Documents, the following additional rules of construction shall apply: (i) wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and the plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, the feminine and the neuter; (ii) the term "including" shall not be limiting or exclusive, unless specifically indicated to the contrary; (iii) all references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations; and (iv) all references to any instruments or agreements, including references to any of the Loan Documents, shall include any and all modifications thereto and any and all extensions or renewals thereof. A - 27 EX-10.50 6 GUARANTEE AND REVOLVING Exhibit 10.50 DATED 13TH MARCH 1995 --------------------- TYCO TOYS (UK) LIMITED MATCHBOX TOYS LIMITED as Borrowers - and - THE LENDERS - and - GENERAL ELECTRIC CAPITAL CORPORATION as Issuing Bank - and - GENERAL ELECTRIC CAPITAL CORPORATION as Agent ---------------------------------------- GUARANTEE AND REVOLVING CREDIT FACILITY AGREEMENT ---------------------------------------- WILDE SAPTE 1 Fleet Place London EC4M 7WS Tel. 071 246 7000 Fax. 071 246 7777 REF: HJB/573019/BF70290.05
TABLE OF CONTENTS ----------------- Clause Heading Page Number - ------ ------- ----------- 1. DEFINITIONS AND INTERPRETATION....................................................1 1.1 Definitions.......................................................................1 1.2 Clause Headings...................................................................19 1.3 Interpretation....................................................................19 2. CONDITIONS PRECEDENT..............................................................21 3. FACILITIES, OBLIGATIONS SEVERAL, RIGHTS SEVERAL...................................25 3.1 Facilities........................................................................25 3.2 Obligations Several...............................................................25 3.3 Rights Several....................................................................26 4. PURPOSES, ETC.....................................................................26 4.1 Purposes..........................................................................26 4.2 Undertaking by the Borrowers......................................................26 4.3 No Liability......................................................................26 5. AVAILABILITY, DRAWDOWN AND PARTICIPATIONS.........................................26 5.1 Commitment Period.................................................................26 5.2 Advances and Guarantees...........................................................27 5.3 Drawdown of Advances and Issue of Guarantees......................................27 5.4 Participations and Payments.......................................................29 5.5 Drawdown Indemnity................................................................29 5.6 Non-Availability of Sterling......................................................30 5.7 Effect of Notice..................................................................30 5.8 Indemnity.........................................................................30 5.9 Issue of Guarantees...............................................................30 6. INTEREST..........................................................................31 6.1 Basis and Amount..................................................................31 6.2 Interest Periods..................................................................31 6.3 Default Interest..................................................................32 6.4 Calculation and Payment of Interest...............................................33 6.5 Market Disruption.................................................................33 6.6 Agent's Determination.............................................................34 7. REPAYMENT.........................................................................35 7.1 Repayment.........................................................................35 7.2 Mandatory Prepayments.............................................................35 7.3 Clean Down Period.................................................................36 7.4 Reborrowing.......................................................................36 7.5 New Advances to repay Maturing Advances...........................................36 7.6 Settlement of Guarantees..........................................................37 7.7 Indemnity.........................................................................37 8. CANCELLATION AND TERMINATION......................................................38 9. CHANGES IN CIRCUMSTANCES..........................................................38 9.1 Illegality........................................................................38 9.2 Increased Costs...................................................................39 9.3 Certificates......................................................................41 10. PAYMENTS..........................................................................41 10.1 Time and Place....................................................................41 10.2 Business Days.....................................................................41 10.3 Breakage Costs Indemnity..........................................................42 10.4 Grossing-up.......................................................................43 10.5 Prepayment Right..................................................................45 10.6 Currency of Account...............................................................45 10.7 Accounts as Evidence..............................................................45
10.8 Borrower's Payments...............................................................46 10.9 Lenders' Payments.................................................................46 10.10 Appropriation.....................................................................47 11. SECURITY..........................................................................47 12. REPRESENTATIONS AND WARRANTIES....................................................47 12.1 Acknowledgement of Reliance.......................................................47 12.2 Representations and Warranties....................................................48 12.3 Repetition........................................................................57 13. UNDERTAKINGS......................................................................57 13.1 Information Undertakings..........................................................57 13.1.1 Weekly Information................................................................57 13.1.2 Monthly Information...............................................................57 13.1.3 Annual Information................................................................58 13.1.4 Other Information Undertakings....................................................60 13.1.5 Disclosure of Information.........................................................61 13.2 Positive Covenants................................................................62 13.3 Negative Covenants................................................................67 13.4 Financial Undertakings............................................................70 14. DEFAULT, ACCELERATION.............................................................73 14.1 Default...........................................................................73 14.2 Acceleration etc..................................................................76 15. SET-OFF AND PRO RATA PAYMENTS.....................................................76 15.1 Set-Off...........................................................................76 15.2 Pro Rata Sharing..................................................................77 16. THE AGENT, THE ISSUING BANK AND THE LENDERS.......................................78 16.1 Appointment and Duties............................................................78 16.2 Payments and Information Received.................................................78 16.3 Defaults..........................................................................79 16.4 Assumptions.......................................................................79 16.5 Legal Proceedings.................................................................79 16.6 No Liability......................................................................79 16.7 Credit Decisions..................................................................79 16.8 Advisers..........................................................................80 16.9 Relationship with Lenders and Issuing Bank........................................80 16.10 Agent's position as a Lender......................................................80 16.11 Indemnity.........................................................................81 16.12 Resignation.......................................................................81 16.13 Change of Office..................................................................82 16.14 Waivers, Amendments...............................................................82 16.15 Consents..........................................................................83 16.16 Evidence..........................................................................83 16.17 Security Documents................................................................83 16.18 Distribution of Proceeds of Enforcement...........................................84 17. FEES AND EXPENSES.................................................................85 17.1 Expenses..........................................................................85 17.2 Closing and Collateral Management Fees............................................86 17.3 Non-utilisation Fee...............................................................86 17.4 Guarantee Fees....................................................................86 17.5 Documentary Taxes Indemnity.......................................................86 17.6 Prepayment Fee....................................................................87 17.7 VAT...............................................................................87 17.8 Indemnity Payments................................................................87 17.9 Lloyds Administration Fees........................................................88 18. MISCELLANEOUS.....................................................................88 18.1 Severance.........................................................................88 18.2 Waivers, Remedies Cumulative......................................................88
18.3 Further Assurance................................................................88 18.4 Counterparts.....................................................................88 18.5 Entire Agreement.................................................................88 18.6 Joint and Several Liability......................................................89 19. NOTICES..........................................................................89 19.1 Method...........................................................................89 19.2 Delivery.........................................................................89 19.3 Addresses........................................................................89 19.4 Deemed Receipt...................................................................91 19.5 Notices to the Lenders...........................................................92 20. ASSIGNMENTS AND TRANSFERS........................................................92 20.1 Benefit of Agreement.............................................................92 20.2 Assignments and Transfers by the Borrowers.......................................92 20.3 Assignments and Transfers by Lenders.............................................93 20.4 Disclosure of Information........................................................95 21. LAW..............................................................................95 21.1 Law..............................................................................95 21.2 Jurisdiction.....................................................................95 SCHEDULE 1 - THE LENDERS.................................................................96 SCHEDULE 2 - PART A - DRAWDOWN NOTICE....................................................97 SCHEDULE 2 - PART B - ISSUE REQUEST......................................................98 SCHEDULE 3 - THE CHARGING GROUP..........................................................99 SCHEDULE 4 - MANDATORY LIQUID ASSET COSTS FORMULA........................................100 SCHEDULE 5 - FORM OF TRANSFER CERTIFICATE................................................102 SCHEDULE 6 - BORROWING BASE CERTIFICATE..................................................106 SCHEDULE 7 - LOCATION OF PREMISES AND RECORDS............................................116 SCHEDULE 8 - PERMITTED INDEBTEDNESS......................................................117 SCHEDULE 9 - EVENTS CONSTITUTING A MATERIAL ADVERSE EFFECT...............................118 SCHEDULE 10 - ENCUMBRANCES AS AT COMPLETION DATE..........................................119 SCHEDULE 11 - REAL PROPERTY...............................................................120 SCHEDULE 12 - OPTIONS RELATING TO REAL PROPERTY...........................................121 SCHEDULE 13 - ACCOUNTS....................................................................122 SCHEDULE 14 - MATERIAL CONTRACTS..........................................................123 SCHEDULE 15 - PART I - INSURANCE POLICIES.................................................124 SCHEDULE 15 - PART II - INSURANCE POLICIES................................................125 SCHEDULE 16 - PART I - SHAREHOLDERS.......................................................127 SCHEDULE 16 - PART II - OPTIONS RELATING TO SHARES........................................128 SCHEDULE 17 - INTELLECTUAL PROPERTY.......................................................129 SCHEDULE 18 - EXCLUSIONS TO CLAUSE 12.2(ii)...............................................140 SCHEDULE 19 - HIGHER ELIGIBLE ACCOUNTS RECEIVABLE THRESHOLDS..............................141 SCHEDULE 20 - AGREED FORM OF GUARANTEE....................................................142 SCHEDULE 21 - LLOYDS GUARANTEES...........................................................143
THIS AGREEMENT is made on the 13th day of March 1995 BY: (1) TYCO TOYS (UK) LIMITED, a company incorporated under the laws of England and Wales with registered number 2461539 having its registered office at Tyco House, Third Avenue, Globe Park, Marlow, Bucks SL7 1YF ("Tyco Toys") and MATCHBOX TOYS LIMITED, a company incorporated under the laws of England and Wales with registered number 1611433 having its registered office at Swift Park Industrial Estate, Old Leicester Road, Rugby, Warwickshire CV21 1DZ ("Matchbox") (each a "Borrower" and together the "Borrowers"); (2) THE LENDERS as defined below; (3) GENERAL ELECTRIC CAPITAL CORPORATION, a corporation organised under the banking laws of the State of New York as the issuing bank in respect of certain guarantees (the "Issuing Bank"); and (4) GENERAL ELECTRIC CAPITAL CORPORATION, aforesaid as the Agent (as such term is more particularly defined below). NOW IT IS HEREBY AGREED as follows: 1. DEFINITIONS AND INTERPRETATION ------------------------------ 1.1 Definitions ----------- In this Agreement (unless otherwise provided) the following expressions shall have the following meanings: "Accounts" means: -------- (a) in relation to Tyco Parent, the audited consolidated accounts (audited by the Auditors) (including all additional information and notes thereto) of Tyco Parent and its Subsidiaries together with the relative directors' report and auditors' report; and (b) in relation to each of the Borrowers and their respective Subsidiaries from time to time, its audited accounts (audited by the Auditors) (including all additional information and notes thereto) together with the relative directors' report and auditors' report; "Advance" means an advance drawn down under the Facility and thereafter ------- the principal amount of each such advance from time to time outstanding; -1- "Affiliate" means, with respect to any person, (a) each person that, --------- directly or indirectly, owns or controls, whether beneficially, or as a trustee, guardian or other fiduciary, ten per cent. or more of the Stock having ordinary voting power in the election of directors of such person, (b) each person that controls, is controlled by or is under common control with such person or any Affiliate of such person, or (c) each of such person's officers, directors, joint ventures and partners. For the purpose of this definition, "control" of a person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of its management or policies, whether through the ownership of voting securities, by contract or otherwise; "Agent" means General Electric Capital Corporation, in its capacity as ----- agent and trustee for the Lenders and each successor Agent appointed from time to time under Clause 16.12; "Applicable Laws" means, with respect to any person, property, --------------- transaction or event, all applicable laws, statutes, regulations, treaties, judgments and decrees and (whether or not having the force of law) all applicable official directives, rules, consents, approvals, authorisations, guidelines order and policies of any Governmental Authority having authority over such person, property, transaction or event; "A/R Availability" means at any time with respect to any Borrower, an ---------------- amount determined by the Agent in its sole discretion exercised in good faith of up to 80 per cent. of such Borrower's Eligible Accounts Receivable at such time; "Auditors" means Touche Ross or such other firm of chartered accountants -------- of internationally recognised standing as shall have been previously approved by the Agent and appointed as auditors of the Tyco Parent, each Borrower and its Subsidiaries; "Base Accounts" means in respect of Tyco Parent, the Accounts of Tyco ------------- Parent for the period of nine months ending on 30th September 1994; "Beneficiary" means any of H.M. Customs & Excise or the immediate ----------- landlord of any of the sites occupied by either Borrower in England at the date of this Agreement; "Borrowing Availability" means, at any time with respect to any Borrower, ---------------------- an amount determined by the Agent in its sole discretion exercised in good faith to be equal to the aggregate at such time of (a) up to sixty per cent. of Eligible Inventory of such Borrower, valued on a first-in, first-out basis (at the lower of the actual cost or then subsisting open market price of the same), and (b) the A/R Availability, less the aggregate of (i) the Outstandings and (ii) the amount of any reserves (other than those already taken into account by the Agent in determining the amount of such Borrower's Eligible Accounts Receivable) as the Agent may deem necessary or appropriate from time to time in its sole discretion exercised in good faith; -2- "Borrowing Base Certificate" means a certificate in the form set out in -------------------------- Schedule 6; "Business Day" means a day on which banks generally in the City of London ------------ and in New York are open for interbank or foreign exchange transactions; "Canadian Credit Agreement" means the Credit Agreement, dated as of 22nd ------------------------- February 1995, among Tyco Toys (Canada), Inc., the lenders party thereto from time to time and General Electric Capital Canada Inc., as agent, as amended, modified or supplemented from time to time in accordance with the terms thereof; "Capital Expenditure" shall have the meaning given to such term in the US ------------------- Credit Agreement; "Cash Cover" means credit balances in Sterling over which the Issuing ---------- Bank has rights which at all times satisfy the Bank of England's requirements for nil-weighting for capital adequacy purposes pursuant to the Solvency Ratio Directive (such requirements at the date of this Agreement being contained in BSD/1993/3); "Certified Copy" means, in relation to any document, a copy of such -------------- document bearing the endorsement "Certified a true, complete and accurate copy of the original, which has not been amended otherwise than by a document, a Certified Copy of which is attached hereto" signed and dated by a duly authorised officer of the company in question; "Change in Control" means the time when (i) any person or "group" has ----------------- acquired "beneficial ownership" (as such terms are defined under Section 13d-3 of and Regulation 13D under the Securities Exchange Act of 1934, as amended), either directly or indirectly, of outstanding shares of Stock of Tyco Parent having more than twenty per cent. of the voting power for the election of directors of Tyco Parent under ordinary circumstances, (ii) more than fifty per cent. of the members of Tyco Parent's board of directors shall have been replaced by new directors not nominated for membership on the board by a majority of directors who were either (X) directors on the Completion Date or (Y) directors after the Completion Date and whose nomination to the board of directors of Tyco Parent was itself approved by a majority of directors on the board who were directors on the Completion Date, or (iii) Tyco Parent has sold, transferred, conveyed, assigned or otherwise disposed of all or substantially all of the assets of Tyco Parent, (iv) a "Change of Control" (as defined in the Tyco Parent Senior Subordinated Note Indenture) shall have occurred or (v) a "Change of Control" or a "Fundamental Change" (each as defined in the First Chicago Notes) shall have occurred; "Charge Over Shares" means each charge over shares in form and content ------------------ satisfactory to the Agent given or to be given by a member of the Charging Group; "Charged Property" means the property charged by the Security Documents ---------------- and any other property, real or personal, tangible or intangible, now existing or hereafter acquired, that may at any time be or become subject to a Encumbrance in favour of -3- Agent, the Issuing Bank or any of the Lenders to secure any or all of the obligations under the Financing Documents; "Charging Group" means each of the companies listed in Schedule 3 -------------- together with all other members of the Group that have executed and delivered Security Documents; "Commitment" means, in relation to each Lender, the principal amount set ---------- opposite its name in Schedule 1 or the Schedule to any relative Transfer Certificate, in each case as reduced or cancelled under the terms of this Agreement and "Total Commitments" means the aggregate of the Lenders' ----------------- Commitments; "Commitment Period" means the period from and including the Completion ----------------- Date to but excluding the date falling one (1) month prior to the Final Repayment Date; "Completion Date" means the Business Day on which the Conditions --------------- Precedent have been satisfied, in the Agent's sole discretion, or waived in writing by the Agent with the consent of all the Lenders; "Conditions Precedent" means each of the conditions set out in Clause 2; -------------------- "Contribution" means, in relation to a Lender and an Advance or the Loan, ------------ the part of such Advance or the Loan, as the case may be, made available or to be made available by such Lender and thereafter the part of such Advance or the Loan, as the case may be, owing to such Lender from time to time; "Debenture" means each guarantee and debenture in form and content --------- satisfactory to the Agent executed or to be executed by a member of the Charging Group; "Deed of Subordination" means the deed entered into or to be entered into --------------------- between (1) the Borrowers, (2) the Lenders, (3) the Issuing Bank, (4) the Agent and (5) Tyco Industries, Tyco (Far East) Limited and Tyco Manufacturing (Europe) Inc.; "Default" means any of the events specified in Clause 14.1; ------- "Default Occurrence" means any event, occurrence or omission which with ------------------ the passing of time, giving of notice or satisfaction of any other condition would be a Default; "Default Rate" means (a) with respect to principal owing on an Advance, a ------------ rate per annum equal to the aggregate of two per cent. and the rate at which interest is then otherwise accruing hereunder from time to time thereon and (b) with respect to interest outstanding and unpaid or other amounts outstanding under any of the Financing Documents (excluding principal on the Advances), a rate per annum equal to the aggregate of the Index Rate in effect from time to time and four and one half per cent.; -4- "Deferred Taxes" shall mean, with respect to any person at any date, the -------------- amount of deferred taxes of such person as shown on the balance sheet of such person as of such date prepared in accordance with UK GAAP; "Dollar Equivalent" means in relation to an amount in Sterling on the day ----------------- on which the calculation falls to be made, the amount of Dollars which could be purchased with such amount of Sterling on the basis of the spot buying rate for Dollars appearing on "FXFX" page on the Reuters Monitor Money Rates Service (or such other page as may replace such page of such service for the purpose of displaying spot exchange rates in London for acquiring Dollars) at or about 11.00 am (New York Time) on the date of such determination; "Dollars" and "$" means lawful money of the United States of America; ------- - "Drawdown Date" means any date, being a Business Day, on which an Advance ------------- is made, or is proposed to be made pursuant to a Drawdown Notice; "Drawdown Notice" means a notice substantially in the form set out in --------------- Part A of Schedule 2; "Eligible Accounts Receivable" means at any time, with respect to any ---------------------------- Borrower, the gross outstandings balance of all accounts receivable at such time of such Borrower denominated in Sterling, net of reserves established therefor, which the Agent, in its discretion, shall from time to time deem eligible, less all finance charges, late fees, other fees that are unearned, reserves for volume, advertising and booking discounts and such other reserves as the Agent, in its discretion, shall from time to time deem appropriate. Without in any way limiting the discretion given to the Agent hereunder to deem an account receivable of a Borrower ineligible, an account receivable of a Borrower shall not be an Eligible Accounts Receivable if: (1) any warranty or representation contained in this Agreement or any of the other Financing Documents applicable either to accounts receivable of a Borrower in general or to any such specific account receivable has been breached with respect to such account receivable in any material respect; (2) (A) such account receivable is owing by a debtor which is unable to pay its debts as such debts become due or is, or is adjudged or declared to be, or admits to being, bankrupt or insolvent or is wound up or dissolved; or (B) such account receivable is owing by a debtor in relation to whom any legal proceedings are started or other steps are taken for (i) the bankruptcy, liquidation, winding-up, dissolution or suspension of general operations of such debtor, (ii) the composition, reorganisation, reconstruction of, or the granting of other relief from, or stay of proceedings to enforce, some or all of the debts of such debtor, (iii) the appointment of a trustee, receiver, administrative receiver, administrator, -5- liquidator, or similar officer over the whole or any substantial part of the undertaking and assets of, such debtor; or (C) such account receivable is owing by a debtor in relation to whom a creditor or encumbrancer attaches or takes possession of, or a distress, execution, sequestration or other process is levied, commenced or enforced upon or sued out against, or other proceedings are taken to enforce security over, all or a substantial part of the assets of such debtor; (3) such account receivable has remained unpaid after the earlier to occur of (A) 60 days after the date on which payment is specified to be due in the original applicable invoice and (B) 270 days after the date of such original applicable invoice; (4) such account receivable is subject to a volume discount, and in that case such account receivable shall be ineligible to the extent of the amount of the volume discount; (5) such account receivable is payable by a debtor which is a supplier, creditor or an Affiliate of either of the Borrowers; (6) such account receivable is owing by a debtor whose billing address (as determined by the Agent) is situated outside of the United Kingdom and Eire or such account receivable is not denominated in Sterling; (7) the sale represented by such account receivable is on a bill-and- hold, undelivered sale, guaranteed sale, sale or return, consignment or sale on approval basis; (8) the Agent believes, in its sole discretion, that the collection of such account receivable is uncertain or that such account receivable may not be paid; (9) such account receivable is subject to any claim by or dispute with the debtor where the payment of an amount which is, in the opinion of the Agent exercised in good faith, equal to or greater than ten per cent. of such account receivable is disputed; (10) such account receivable is subject to any right of set-off by the debtor; (11) the Agent does not have a perfected first ranking Encumbrance in and to such account receivable as agent and trustee for itself, the Issuing Bank and the Lenders, subject to no prior ranking Encumbrance; (12) such account receivable is not evidenced by an invoice (or other writing in form acceptable to the Agent in its sole discretion); -6- (13) such account receivable is an account receivable owing by a Governmental Authority; (14) in order to be entitled to collect payment of it, a Borrower is required to perform any additional service or perform or incur any additional obligation; (15) such account receivable is owing by a debtor whose indebtedness to a Borrower in respect of accounts receivable which are otherwise ineligible exceeds 50% of such debtor's total indebtedness to such Borrower; (16) such account receivable is owing by a debtor whose accounts receivable owing to a Borrower exceeds, in the case of the debtors set out in Schedule 19, the percentages specified therein, and in the case of any other debtor, 10% of the aggregate amount of all accounts receivable of such Borrower and, in that case, such account receivable shall be ineligible to the extent that the amount of all accounts receivable owing by such debtor and which are otherwise eligible exceeds, in the case of each such debtor such percentage set against its name in Schedule 19, and in the case of any other debtor, 10% of the aggregate amount of all accounts receivable of such Borrower; or (17) such account receivable is an account receivable in respect of which a debtor takes a deduction of credit not authorised or otherwise agreed to by a Borrower and in that case such account receivable shall be ineligible to the extent of the amount of the deduction; "Eligible Inventory" means, with respect to any Borrower, such Inventory ------------------ of such Borrower that consists of finished goods and that are not ineligible as the basis for Advances based on such criteria determined by Agent from time to time in its sole discretion exercised in good faith. Criteria for eligibility may be fixed and revised from time to time by the Agent in its sole discretion exercised in good faith. Unless otherwise agreed to in writing by the Agent, in determining whether Inventory of any Borrower constitutes Eligible Inventory of such Borrower, the Agent shall not include any Inventory that: (a) is not owned by such Borrower free and clear of all Encumbrances and rights of others, (other than a first priority Encumbrance in favour of the Agent as agent and trustee for itself, the Issuing Bank and the Lenders) (save for liens over Inventory held by a person described in paragraph (d) below where the Agent is in possession of such agreements as described in paragraph (d) as it reasonably requires); (b) except as provided in paragraph (c) and (d) below, is not located on premises owned and operated by such Borrower and referenced in Schedule 7; -7- (c) is Inventory in transit or Inventory held on or at any leased premises where the landlord thereof has not executed a consent and waiver in form and substance reasonably satisfactory to the Agent; (d) is in the possession or control of a bailee, warehouseman, processor, converter, finisher or other person other than such Borrower, unless the Agent is in possession of such agreements, instruments and documents as the Agent may reasonably require (each in form and content reasonably acceptable to the Agent and duly executed, as appropriate by the bailee, warehouseman, processor, converter or other person in possession or control of such Inventory, as applicable) including warehouse receipts in the Agent's name covering such Inventory; (e) is covered by a negotiable document of title which is not in the actual possession of the Agent; (f) in the Agent's judgment, is obsolete, unsaleable, shopworn, damaged, unfit for further processing, or is of substandard quality; (g) consists of display items, samples, supplies, small tools, packaging and shipping materials or defective goods which have been returned by the buyer; (h) consists of discontinued or slow-moving items; (i) does not meet all standards imposed by any Governmental Authority situated in the United Kingdom which are applicable in the United Kingdom; (j) is placed by such Borrower on consignment or held by such Borrower on consignment from another person; (k) is in violation of the Consumer Protection Act 1987, the Sale of Goods Act 1979, the Sale and Supply of Goods Act 1994, the Toys (Safety) Regulations 1989 and any legislation or regulation amending, replacing or supplementing the same or any successor statute or section; or (l) in any way fails to meet or violates any warranty, representation or covenant contained in this Agreement or any other Financing Document; "Encumbrance" means any mortgage, charge, assignment for the purpose of ----------- security, pledge, lien, rights of set-off, arrangements for retention of title or hypothecation or trust arrangement for the purpose of, or which has the effect of, granting security or other security interest or preferential arrangement of any kind whatsoever or any agreement, whether expressed to be conditional or otherwise, to create any of the same or any agreement to sell or otherwise dispose of any asset on terms whereby such asset is or may be leased to or re-acquired or acquired by any member of the Group (other than sales which, in the opinion of the Agent, constitute -8- bona fide sales of Inventory in the ordinary course of trade of any Borrower to any such member of the Group); "Environment" means all or any of the following media; air (including air ----------- within buildings or other structures and whether above or below ground), land (including buildings and any other structures or erections in, on or under it and any soil and anything below the surface of land), land covered with water and water (including sea, ground and surface water); "Environmental Claim" means any written or oral notice or intimation from ------------------- anyone including, without limitation, any regulatory authority or government agency, alleging any breach, contravention or violation of any Environmental Law by either Borrower or any of its Subsidiaries or the existence of any liability or potential liability arising from any such breach, contravention or violation including, without limitation, liability to conduct, pay for or for damages in respect of any investigation or audit, clean-up, remediation, administrative cost or charge or expense, damage to the Environment or any natural resource, property, loss or damage, personal injury or any penalty attaching or relating to the presence, emission, release or leak of any Hazardous Material in or to the Environment; "Environmental Law" means all statutes, treaties and conventions, ----------------- directives, regulations and all codes of practice or conduct, circulars and guidance notes having legal or judicial import or effect whether of a criminal, civil or administrative nature, and the rules of Common Law, relating to or concerning: (a) pollution or contamination of the Environment; (b) harm, whether actual or potential, to mankind and human senses, living organisms and ecological systems; (c) the generation, manufacture, processing, distribution, use (including abuse), treatment, storage, disposal, transport or handling of Hazardous Materials; and (d) the emission, leak, release or discharge into the Environment of noise, vibration, dust, fumes, gas, odours, smoke, steam, effluvia, heat, light, radiation (of any kind), infection, electricity or any Hazardous Material and any matter or thing capable of constituting a nuisance or an actionable tort of any kind in respect of such matters; "Environmental Permit" means any and all approvals, authorisations, -------------------- consents, licences, mandates, registrations or permits required by any Environmental Law; "Existing Credit Agreement" means the Amended and Restated Credit ------------------------- Agreement, dated as of 2nd October, 1992, among Tyco Industries, as borrower, Tyco Parent, certain Subsidiaries of Tyco Parent, the lenders party thereto, NationsBank N.A. (Carolinas) formerly known as NationsBank of North Carolina, N.A., as Agent, and The Bank of Nova Scotia, as co- agent, as amended by Amendment No. 1 thereto -9- dated as of 18th March, 1993, Amendment No. 2 thereto dated as of 10th February 1994, Amendment No. 3 thereto dated as of 15th November 1994, Amendment No. 4 thereto dated as of 8th February 1995 and by a letter agreement thereto dated 7th June 1994; "Facility" means the revolving credit facility, the terms and conditions -------- of which are set out in this Agreement; "Facility Limit" means, subject to Clauses 7.2 and 8, $35,000,000; -------------- "Fees Letter" means the letter of even date herewith from the Agent to ----------- the Borrowers relating to certain fees payable to the Agent by the Borrowers in relation to this Agreement, being described on its face as the Fees Letter; "Final Repayment Date" means the third anniversary of the Completion -------------------- Date; "Financial Year" in relation to a person the calendar year or such other -------------- period as agreed by the Agent (acting on the instructions of the Majority Lenders); "Financing Documents" means this Agreement, the Fees Letter, the ------------------- Participation Agreement, the Hedging Agreements and the Security Documents; "First Chicago Notes" shall mean the convertible subordinated notes due ------------------- July 18, 2001 issued by Tyco Parent in the original aggregate principal amount of $13,500,000, as amended, modified, supplemented, replaced or substituted for from time to time in accordance with the terms thereof and of the US Credit Agreement; "Global Lenders" means, collectively, the lenders (other than Lloyds) -------------- providing or committing to provide any financial accommodations under any of the Overall Facilities; "Governmental Authority" means any nation or government, any state or ---------------------- other political subdivision thereof, and any agency, department or other entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government; "Group" means each of the Tyco Parent and each Subsidiary of the Tyco ----- Parent from time to time during the Security Period; "Guarantee" means a guarantee issued or to be issued by the Issuing Bank --------- in favour of Lloyds at the request of either Borrower, subject to the terms and conditions hereof, in the terms or in substantially the terms set out in Schedule 20; "Guarantee Facility" means the guarantee facility, the terms and ------------------ conditions of which are set out in this Agreement; "Guarantee Facility Limit" means, subject to Clause 8, (Pounds)1,525,600; ------------------------ -10- "Hazardous Materials" means any element or substance, whether natural or ------------------- artificial, and whether consisting of gas, liquid, solid or vapour, whether on its own or in any combination with any other element or substance, which is listed, identified, defined or determined by any applicable Environmental Law to be, to have been, or to be capable of being or becoming harmful to mankind or any living organism or damaging to the Environment; "Hedging Agreements" means each of the agreements entered into pursuant ------------------ to Clause 13.2(x)(ii); "Indebtedness" means, in relation to any member of the Group (or any ------------ other person), its obligation (whether present or future, actual or contingent and whether incurred as principal or surety) for the payment or repayment of money (whether in respect of interest, principal or otherwise) incurred in respect of any of: (i) moneys borrowed or raised; (ii) any bond, note, loan stock, debenture or similar instrument; (iii) acceptance credit, bill discounting, note purchase, factoring facilities or documentary credit facilities; (iv) payment obligations under hire purchase agreements, conditional sale agreements and leases (whether in respect of land, machinery, equipment or otherwise); (v) guarantees, bonds, stand-by letters of credit or other similar instruments issued in connection with the performance of contracts; (vi) interest rate or currency swap agreements or any other hedging instrument in respect of interest rates or currencies; (vii) where the calculation falls to be made in relation to any member of the Group, any arrangement pursuant to which any asset disposed of by any member of the Group is to be or may be re-acquired or acquired by any member of the Group (whether following the exercise of an option or otherwise) save for sales, which in the opinion of the Agent, constitute bona fide sales of Inventory in the ordinary course of trade of such member of the Group; and (viii) counter-indemnities, guarantees or other assurances against financial loss in respect of the liability or obligation of any person falling within any of paragraphs (i) to (vii) above; Provided that Indebtedness shall not include obligations to trade creditors incurred in the ordinary course of business (including trade debt incurred to any member of the Group with respect to purchases of Inventory), and shall not include obligations -11- to pay inter-company management and royalty fees to Tyco Industries, Inc or any company which is a parent company of the company bound to pay such fees. "Index Rate" shall mean for any day, the rate per annum certified by ---------- Lloyds Bank Plc to be its base lending rate on such day; "Interest Date" means with respect to Advances where the Index Rate Basis ------------- under Clause 6 is applicable, each of the first day of the calendar month next succeeding the month in which such Advance is made (or if such first day is not a Business Day, the immediately succeeding Business Day), the first day of each subsequent calendar month until the Final Repayment Date and the Final Repayment Date and, where the LIBOR Basis under Clause 6 is applicable, the Repayment Date for such Advance, or in respect of any amount on which interest accrues under Clause 6.3, the last day of the relevant Interest Period; "Interest Period" means each period determined in accordance with Clause --------------- 6 for the purpose of calculating interest on Advances or overdue amounts; "Inventory" means all stock, inventory, merchandise, goods and other --------- moveable chattels, wherever located, which are held by or on behalf of any Borrower for sale or lease in either Borrower's business or hereafter owned or acquired by either Borrower; "Issue Date" means, in respect of a Guarantee, the Business Day on which ---------- such Guarantee is issued by the Issuing Bank under this Agreement or proposed to be issued pursuant to an Issue Request; "Issue Request" means a request substantially in the form of Part B of ------------- Schedule 2; "Leases" shall mean all of those leasehold estates in real property now ------ owned or hereafter acquired by any Borrower or any other member of the Charging Group, as lessee or sub lessee; "Lender Transferee" has the meaning attributed thereto in Clause 20; ----------------- "Lenders" means each of the lenders listed in Schedule 1, their ------- respective successors in title, assigns and each Lender Transferee and "Lender" shall be construed accordingly; "Lending Office" means, in relation to each Lender, the lending office -------------- details of which are set out in Schedule 1 or the relative Transfer Certificate or such other lending office in the United Kingdom through which its Commitment is maintained and through which its Contribution is made and maintained under this Agreement and in relation to a Participant, the office at which the relevant assets and liabilities relating to it in its capacity as such are, or are to be, booked; "LIBOR" means, in respect of an Advance or other sum the rate per annum ----- determined by the Agent by reference to the rate per annum established by the -12- British Bankers' Association as the Sterling London Interbank Offered Rate or, if not denominated in Sterling, the London Interbank Offered Rate for the relevant currency, for a period equal to the relative Interest Period, which appears on Telerate Page 3750 as of 11:00 a.m. (London time), in the case of Sterling one Business Day prior to the beginning of such Interest Period and in the case of any other currency two Business Days prior to the beginning of such Interest Period; "Lloyds" means Lloyds Bank Plc; ------ "Lloyds Deposit Agreements" means deposit agreements in Lloyds' standard ------------------------- form to be entered into between each of the Borrowers (1) and Lloyds (2); "Lloyds Deposits" mean (Pounds)109,382 and (Pounds)109,382 standing to --------------- the credit of the Lloyds Tyco Deposit Account and the Lloyds Matchbox Deposit Account respectively; "Lloyds Guarantees" means the guarantees issued by Lloyds specified in ----------------- Schedule 21: "Lloyds Matchbox Deposit Account" means the account numbered 7535854 with ------------------------------- Lloyds Bank Plc and designated "Lloyds Bank Plc re Matchbox Toys Limited"; "Lloyds Tyco Deposit Account" means the account numbered 7534866 with --------------------------- Lloyds Bank Plc and designated "Lloyds Bank Plc re Tyco Toys (UK) Limited"; "Loan" means, at any time, the aggregate amount of Advances outstanding ---- at such time; "Majority Lenders" means those Lenders the aggregate of whose ---------------- participations comprise at least 50 per cent. of the Advances or, at any time when an Advance is not outstanding, those Lenders whose Commitments comprise at least 50 per cent. of the Total Commitments; "Mandatory Liquid Asset Costs" means, in relation to each Lender, the ---------------------------- additional cost to such Lender of compliance with the reserve asset ratio from time to time required by the Bank of England, expressed as a rate per cent. per annum, in accordance with the formula set out in Schedule 4; "Margin" means 2.5 per cent. per annum; ------ "Matchbox Fixed IRB Advances" means the initial Advance or Advances made --------------------------- to Matchbox on an Index Rate Basis and which, at the time of drawing, in aggregate equal (Pounds)109,382; "Matchbox International" means Matchbox International Limited a company ---------------------- incorporated under the laws of Hong Kong with registered number 112203; "Material Adverse Effect" shall mean a material adverse effect on (i) the ----------------------- business, assets, operations, prospects, or financial condition of any Borrower or any of its -13- Subsidiaries, (ii) the ability of any Borrower or any Subsidiary thereof to pay or perform its obligations under the Financing Documents in accordance with the terms thereof, (iii) the Charged Property or the Agent's, Issuing Bank's or Lenders' Encumbrances on the Charged Property or the priority of any such Encumbrances, or (iv) the rights and remedies of the Agent, the Issuing Bank and Lenders under this Agreement and the other Financing Documents; "Material Contracts" shall mean each contract (other than any purchase ------------------ order by any Borrower or Subsidiary thereof in the ordinary course of trading of Inventory to persons who are not Affiliates of any Borrower or Subsidiary thereof) to which any Borrower or any Subsidiary thereof is now or hereafter a party which (i) involves aggregate consideration payable to or by such Borrower or Subsidiary, contingent or otherwise, in excess of (Pounds)200,000 in any calendar year or (ii) is otherwise material to its business or operations; "Obligor" shall mean any borrower under any of the Overall Facilities and ------- any guarantor of any or all of the obligations of any such borrower under any of the Overall Facilities, including, without limitation, the Borrowers and the other members of the Charging Group; "Outstandings" means, at any given time in respect of each of the ------------ Guarantees then in issue, the aggregate maximum amount for which such Guarantees were issued less the aggregate amount of any permanent reductions thereof; "Overall Facilities" shall mean, collectively, the loan facilities ------------------ provided under this Agreement, the Canadian Credit Agreement and the US Credit Agreement; "Participant" means General Electric Capital Corporation in its capacity ----------- as sub-Participant under the Participation Agreement and its successors and assigns thereunder; "Participated Amount" of any Contribution, any Commitment, the Loan or of ------------------- any Advance or Advances means, in respect of a Participant at any time, the amounts of such Contribution, Commitment, Loan, Advance or Advances in respect of which the Participant has a participation or liability (whether present or future, actual or contingent) pursuant to the Participation Agreement; "Participation Agreement" means a participation agreement in form and ----------------------- content satisfactory to the Agent, made or to be made between (1) Lloyds, (2) the Agent, (3) the Participant and (4) the Borrowers; "Permitted Encumbrance" means: --------------------- (a) all security interests and the other Encumbrances created in favour of the Agent pursuant to this Agreement and any of the Security Documents; (b) liens arising by operation of law not exceeding (Pounds)100,000 or any rights of set-off; -14- (c) any leases to which any member of the Group is a party as lessee made in the ordinary course of business; (d) any Encumbrance listed in Schedule 10 being those Encumbrances subsisting at the date of this Agreement, provided that the amount thereby secured shall not be increased after the date of this Agreement; (e) any Encumbrance granted over an asset which secures a liability to a creditor incurred after the Completion Date in the ordinary course of business in relation to and incurred solely for the purpose of the financing or refinancing of an asset where such Encumbrance secures that asset alone provided that: (i) the principal amount secured by such Encumbrance does not exceed the unpaid purchase price for such asset, or, in the case of a refinancing, the Indebtedness secured does not exceed the outstanding principal amount of the Indebtedness being refinanced; (ii) the aggregate amount of Indebtedness secured by Encumbrances falling within this paragraph (e) shall not at any time exceed (together with any Indebtedness permitted in this paragraph (e) to refinance Indebtedness under any conditional sale agreements) (Pounds)100,000; (iii) in the case of refinancing, the terms of such new Indebtedness are no less favourable to the person owing the same as the terms of the Indebtedness being financed; and (iv) such asset is not a component, part or accessory installed on, or an accession, addition or attachment to any other asset or property of any member of the Charging Group or an Affiliate of any thereof; (f) the Lloyds Deposit Agreements; "Permitted Indebtedness" means: ---------------------- (a) Indebtedness outstanding under the Overall Facilities or under any guarantee or security granted in respect of any such Indebtedness; (b) Indebtedness to trade creditors incurred in the normal course of the prudent conduct of the trading activities of a member of the Charging Group; -15- (c) Indebtedness under hire purchase agreements, conditional sale agreements and leases where such agreements have not been entered into primarily as a method of raising finance not exceeding (Pounds)500,000; (d) Deferred Taxes; (e) any Indebtedness set out in Schedule 8 and any refinancing or refunding thereof provided that such Indebtedness is not increased in amount after the date hereof; (f) Indebtedness under currency exchange agreements, currency futures or currency options permitted under the words in parenthesis in Clause 13.3(n); (g) Indebtedness under interest rate protection agreements the terms of which are acceptable to the Agent; (h) Indebtedness of the Borrowers and their respective Subsidiaries which would be permitted under the terms of Section 6.3 of the US Credit Agreement; and (i) Indebtedness under counter-indemnities given by either Borrower to Lloyds in respect of Lloyds Guarantees; "Prior Claims" means, at any time, all Encumbrances created by any ------------ Applicable Law, which rank or are capable of ranking prior to or pari passu with the Agent's security in the Charged Property, including, without limitation, for preferential debts; "Real Property" shall mean all real property owned, leased or operated by ------------- any Borrower or any other member of the Group or any Affiliate of any Borrower or any other member of the Group; "Receivables Funding Agreement" shall mean the Receivables Funding and ----------------------------- Servicing Agreement, dated as of the date of the US Credit Agreement, among Tyco Funding I Corporation and Tyco Funding II Corporation, as seller, Redwood, as buyer, Tyco Industries, as servicer, Financial Security Assurance Inc. and General Electric Capital Corporation, as operating agent and collateral agent; "Receivables Funding Documents" means, collectively, the Receivables ----------------------------- Funding Agreement and the Receivables Sale Agreement; "Receivables Sale Agreement" shall mean, collectively (i) the Receivables -------------------------- Transfer Agreement, dated as of the date of the US Credit Agreement, by and among Tyco Manufacturing Corporation and Tyco Funding I and Tyco Funding II Corporation and (ii) the Receivables Transfer Agreement, dated as of the date of the US Credit Agreement, by and between Tyco Industries and Tyco Funding I and Tyco Funding II Corporation; -16- "Redwood" shall mean Redwood Receivables Corporation; ------- "Repayment Date" means in relation to (a) an Advance to which the LIBOR -------------- Basis applies, the last day of the Interest Period relative thereto, (b) a Matchbox Fixed IRB Advance and a Tyco Fixed IRB Advance, the Final Repayment Date and (c) an Advance made on an Index Rate Basis (other than a Matchbox Fixed IRB Advance or a Tyco Fixed IRB Advance) the Final Repayment Date, subject to the provisions of clause 7.6 of each of the Debentures; "Restricted Payment" shall mean, with respect to any person (a) the ------------------ declaration or payment of any dividend or the occurrence of any liability to make any other payment or distribution of cash or other property or assets in respect of such person's Stock; (b) any payment on account of the purchase, redemption, defeasance or other retirement of such person's Stock or any other payment or distribution made in respect thereof, either directly or indirectly; or (c) any payment, loan, contribution, or other transfer of funds or other property to any Stockholder of such person; "Security Documents" means each of the Deed of Subordination, the ------------------ Debentures, the Charges over Shares and the Trade Mark Charges set out in Schedule 3 executed or to be executed by members of the Charging Group and any guarantees and documents creating security executed and delivered after the date hereof in respect of the obligations and liabilities of any of the Borrowers and the other members of the Group under this Agreement or the other Financing Documents; "Security Period" means the period starting on the date hereof and ending --------------- on the date on which all of the obligations and liabilities of the members of the Group under each of this Agreement and the other Financing Documents are discharged in full and none of the Agent, the Issuing Bank and the Lenders has any continuing obligation in relation to the Facility or the Guarantee Facility; "Settlement Amount" means the amount payable by the Issuing Bank to ----------------- Lloyds in respect of a Guarantee, which amount shall include all interest, commissions and expenses payable by the Issuing Bank to Lloyds; "Settlement Date" means the date on which payment of a Settlement Amount --------------- is due to Lloyds in respect of a Guarantee; "Solvency Ratio Directive" means the Council directive of 18 December ------------------------ 1989 on a solvency ratio for credit institutions (89/647/EEC) as currently in force and as modified or re-adopted from time to time; "Sterling", "Pounds" and "(Pounds)" means the lawful currency for the -------- ------ -------- time being of the United Kingdom; "Sterling Equivalent" means, in relation to an amount in Dollars on the ------------------- day on which the calculation falls to be made, the amount of Sterling which could be purchased with such amount of Dollars on the basis of the spot buying rate for Sterling -17- appearing on "FXFX" page on the Reuters Money Rates Service (or such other page as may replace such page of such service for the purpose of displaying spot exchange rates in London for acquiring Sterling at or about 11.00 a.m. (New York time) on the date of such determination; "Stock" means all shares, options, warrants, general or limited ----- partnership interests, participations or other equivalents (regardless of how designated) on or in a corporation, partnership or equivalent entity whether voting or non-voting, including common stock, preferred stock, or any other "equity security" (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended); "Subsidiary" has the meaning ascribed to it by section 736 of the ---------- Companies Act 1985 and "Subsidiaries" shall be construed accordingly; ------------ "Tax" includes all present and future taxes, charges, imposts, duties, --- levies, deductions, withholdings or fees of any kind whatsoever, or any amount payable on account of or as security for any of the foregoing, payable at the instance of or imposed by any statutory, governmental, international, state, federal, provincial, local or municipal authority, agency, body or department whatsoever or any central bank or monetary agency or European Union institution, in each case whether in the United Kingdom or elsewhere, together with any penalties, additions, fines, surcharges or interest relating thereto including (without limitation) income tax, corporation tax, advance corporation tax, capital gains tax, value added tax, petroleum revenue tax, customs and other import duties, stamp duty, stamp duty reserve tax, capital transfer tax, inheritance tax, insurance premium tax, capital duty, payments to be made under the Pay As You Earn system and national insurance contributions; and "Taxes" ----- and "Taxation" shall be construed accordingly; -------- "Tax Liability" means in respect of any person: ------------- (a) any liability or any increase in the liability of that person to make any payment or payments of or in respect of Tax; (b) the loss of any relief, allowance, deduction or credit in respect of Tax which would otherwise have been available to that person; (c) the setting off against income, profits or gains or against any Tax liability of any relief, allowance deduction or credit in respect of Tax which would otherwise have been available to that person; and (d) the loss or setting off against any Tax liability of a right to repayment of Tax which would otherwise have been available to that person. For the purposes of this definition any question of whether or not any relief, allowance, deduction, credit or right to repayment of Tax has been lost or set-off, -18- and if so, the date on which that loss or set-off took place, shall be conclusively determined by the relevant person's auditors; "Tax on Overall Net Income" means in relation to a Lender and a ------------------------- Participant Tax (other than Tax deducted or withheld from any payment) imposed on such Lender or such Participant on its net profits by the jurisdiction in which either its Lending Office or its head office is situated; "Total Commitments" has the meaning ascribed to it in the definition of ----------------- Commitment; "Trade Mark Charge" means a fixed charge over inter alia certain trade ----------------- mark rights in form and content satisfactory to the Agent given or to be given pursuant to Clause 2; "Transfer Certificate" means a transfer certificate in substantially the -------------------- form set out in Schedule 5; "Tyco Fixed IRB Advance" means the Initial Advance or Advances made to ---------------------- Tyco Toys on an Index Rate Basis and which, at the time of drawing, in aggregate equals (Pounds)109,382; "Tyco Industries" means Tyco Industries Inc., a Delaware corporation; --------------- "Tyco Parent" means Tyco Toys, Inc., a Delaware corporation; ----------- "Tyco Parent Senior Subordinated Note Indenture" shall mean the ---------------------------------------------- Indenture, dated 15th August 1992, between Tyco Parent, as issuer, certain Subsidiaries of Tyco Parent, as guarantors, and Bankers Trust Company, as trustee (as successor trustee to NationsBank of Virginia, N.A.), with respect to Tyco Parent's 10-1/8% senior subordinated notes due August 15, 2002, as such indenture was supplemented by two supplemental indentures, dated 17th October 1992 and 8th June 1993, respectively, adding additional Subsidiaries of Tyco Parent as guarantor and as such indenture shall be further amended, modified or supplemented from time to time in accordance with the terms thereof and the US Credit Agreement; "UK Generally Accepted Accounting Principles" and "UK GAAP" means ------------------------------------------- ------- accounting principles, concepts, bases and policies generally adopted and accepted in the United Kingdom; "US Generally Accepted Accounting Principles" and "US GAAP" means ------------------------------------------- ------- accounting principles, concepts, bases and policies generally adopted and accepted in the United States of America; "US Credit Agreement" shall mean the Credit Agreement, dated as of 22nd ------------------- February 1995, made among Tyco Distribution Corporation and Tyco Manufacturing Corporation (1), Tyco Parent (2), certain lenders and General Electric Capital -19- Corporation as agent, as amended, modified or supplemented from time to time in accordance with the terms thereof; and "VAT" means value added tax as provided for in the Value Added Tax Act --- 1983 and legislation (or purported legislation and whether delegated or otherwise) supplemental thereto or in any primary or secondary legislation promulgated by the European Union or any official body or agency thereof, and any tax similar or equivalent to value added tax imposed by any country other than the United Kingdom and any similar or turnover Tax replacing or introduced in addition to any of the same; 1.2 Clause Headings --------------- Clause headings are for convenience of reference only and shall not affect the construction of this Agreement. 1.3 Interpretation -------------- In this Agreement (unless otherwise provided): 1.3.1 where a covenant or obligation is expressed to be subject to materiality, an event, occurrence or omission shall only constitute a breach of that covenant or obligation if such potential breach (considered together with all other potential breaches of that covenant or obligation) may in the opinion of the Majority Lenders have a Material Adverse Effect; 1.3.2 references to Clauses and Schedules are to be construed as references to the Clauses of, and Schedules to, this Agreement as amended or varied from time to time and references to sub- Clauses shall unless otherwise specifically stated be construed as references to the sub-Clauses of the Clause in which the reference appears; 1.3.3 references to any Financing Document shall be construed as references to this Agreement or such Financing Document, as amended, varied, novated or supplemented, as the case may be, from time to time; 1.3.4 words importing the singular shall include the plural and vice versa; 1.3.5 references to any person shall include that person's assigns or transferees or successors in title and shall be construed as including references to an individual, sole proprietorship, firm, partnership, joint venture, trust, company, corporation, institution, unincorporated body of persons, association public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including any instrumentality, division, agency, body or department thereof); -20- 1.3.6 references to any statute or statutory provision include any statute or statutory provision which amends, extends, consolidates or replaces the same, or which has been amended, extended, consolidated or replaced by the same, and shall include any orders, regulations, instruments or other subordinate legislation made under the relevant statute; 1.3.7 accounting terms shall be construed so as to be consistent with US Generally Accepted Accounting Principles except where expressly stated to be construed in accordance with UK Generally Accepted Accounting Principles; 1.3.8 the words "other" and "otherwise" shall not be construed ejusdem generis with any foregoing words where a wider construction is possible; 1.3.9 the words "including" and "in particular" shall be construed as being by way of illustration or emphasis only and shall not be construed as, nor shall they take effect as, limiting the generality of any foregoing words; and 1.3.10 all capitalised words and expressions appearing in Clause 13.2 shall have the meaning ascribed to such words and expressions in the US Credit Agreement. 2. CONDITIONS PRECEDENT -------------------- Notwithstanding any other provision of this Agreement, none of the Agent, the Issuing Bank and the Lenders shall be under any obligation whatsoever under or in connection with this Agreement unless:- (a) the Agent shall have received (in form and content reasonably satisfactory to the Agent), by 10th March 1995, all of the following: (i) a Certified Copy of the Certificate of Incorporation (and any relative certificate of incorporation on change of name) and the Memorandum and Articles of Association in form and content satisfactory to the Agent of each of the Borrowers and each member of the Charging Group incorporated in England and Wales, the articles or certificate of incorporation of Tyco Industries certified by the Secretary of State of Delaware and the by-laws of Tyco Industries as in effect on the Completion Date, certified by the Secretary, Assistant Secretary or other appropriate officer or director of Tyco Industries, and the equivalent constitutional documents of Matchbox International; (ii) a Certified Copy of the board minutes and resolutions of each of the Borrowers approving and authorising the execution, delivery and performance of each of the Financing Documents to which such Borrower is a party on the terms and conditions -21- thereof and authorising a person or persons to sign or otherwise attest the due execution of such documents and any other documents to be executed or delivered by the relevant Borrower pursuant thereto together with a certificate of a duly authorised officer of each Borrower setting out the names and signatures of the persons authorised to sign such documents on behalf of such Borrower; (iii) Certified Copies of board minutes and resolutions of each member of the Charging Group (other than the Borrowers) approving and authorising the execution, delivery and performance by it of each of the Security Documents to which it is a party on the terms and conditions thereof and authorising a person or persons to sign or otherwise attest the due execution of such documents and any other documents to be executed by it pursuant thereto together with a certificate of a duly authorised officer of each such member of the Charging Group setting out the names and signatures of the persons authorised to sign such documents on its behalf; (iv) Certified Copies of all consents, licences, approvals or authorisations of any governmental or other authority, bureau or agency or of any other third party required by each member of the Charging Group in connection with the execution, delivery, performance, validity or enforceability of the Financing Documents or any document to be delivered thereunder; (v) the Fees Letter duly executed by each Borrower together with the fees payable thereunder on the Completion Date; (vi) each Security Document listed in Column 3 of Schedule 3 duly executed by the company listed opposite such Security Document in Column 1 of Schedule 3 together with all documents deliverable therewith; (vii) evidence that each Borrower and each Subsidiary of any Borrower (or, in either case, an Affiliate thereof) maintains such policies of insurance in such amounts as are satisfactory to the Agent and otherwise meeting the requirements of clause 10 of any Debenture to which a Borrower and each Subsidiary of any Borrower is a party; (viii) legal opinions from Wilde Sapte, Wolf, Block, Schorr & Solis-Cohen counsel to Tyco Parent, Denton Hall and Denton Hall Hong Kong; -22- (ix) a Borrowing Base Certificate as of the Completion Date in relation to each Borrower certified by Tyco Parent; (x) all relevant deeds of release relating to all Encumbrances (other than Permitted Encumbrances) affecting any of the assets of members of the Charging Group or undertakings acceptable to the Agent; (xi) Certified Copies of all existing environmental reviews and audits (if any) pertaining to any member of the Charging Group; (xii) a letter from the agent under each of the Overall Facilities and the Receivables Funding Agreement that the conditions precedent to drawdown thereunder have been, or shall immediately after the satisfaction of the Conditions Precedent be, satisfied and that the Receivables Funding Documents are in full force and effect; (xiii) a certificate from an officer of Tyco Parent that each member of the Charging Group is in compliance in all material respects with all Material Contracts; (xiv) evidence that other than in relation to any matter specified in Schedule 9 (i) since 30th September 1994, there has been no material increase in liabilities, liquidated or contingent, of any Borrower or any of their Subsidiaries, or any material decrease in the assets of any Borrower or any of their Subsidiaries (other than normal recurring seasonal changes in the foregoing consistent with prior years' experience), (ii) no event since 30th September 1994 has occurred which would have a Material Adverse Effect (it being understood that the financial results described in Tyco Parent's press release of October 25th 1994 shall not constitute a Material Adverse Effect so long as the Agent has determined, after due diligence, that the results described therein reflect completely and accurately, in all material respects, the actual results for the period covered); (xv) confirmation that there is no subsisting unsatisfied judgment or award given against any member of the Charging Group by any court, arbitrator or other body and no action, litigation, arbitration or administrative proceeding has been commenced, or is pending or threatened against any member of the Charging Group which : (i) challenges any such member of the Charging Group's right, power or ability to enter into or perform any of its obligations under the Financing Documents or the -23- validity or enforceability of any Financing Document; or (ii) which is reasonably likely to have a Material Adverse Effect; and, in either case which, in the Agent's sole judgment exercised in good faith, would make it inadvisable to complete the transactions contemplated by the Financing Documents or any of the other Overall Facilities; (xvi) the Accountant's Letter (as defined in Clause 13.1.5). (xvii) evidence that the repayment of any sums owing from one member of the Group to another is subordinated to the repayment of any sums due under the Financing Documents to the extent permitted under the Existing Credit Agreement; (xviii) a certificate of the Chief Financial Officer of Tyco Parent that neither of the Borrowers is deemed to be unable to pay its debts by reason of s123 of the Insolvency Act 1986; (xix) acknowledgement of the Debenture by third party holders of Inventory; (xx) any other documents, instruments, certificates, opinions and agreements as the Agent shall reasonably request in connection with the transactions contemplated by this Agreement; (xxi) a pro forma balance sheet in relation to each of the Borrowers as at the Completion Date (based on figures as at 31st January 1995) in form and content satisfactory to the Agent; (xxii) the Lloyds Deposit Agreements executed by each of the Borrowers; (xxiii) a letter from Lloyds Bank Plc addressed to the Agent concerning the lock-box service agreement to be entered into between Lloyds Bank Plc, International Factors PLC, the Agent and in each case a different Borrower ; (xxiv) the Deed of Subordination duly executed by the parties stated therein; (xxv) dated executed stock transfer forms in relation to all shares charged under each of the Charges over Shares; -24- (xxvi) the Participation Agreement duly executed by the parties thereto; (xxvii) a Certified Copy of the board minutes of Tyco (Far East) Limited in relation to the Deed of Subordination; and (xxviii) a Certified Copy of the board minutes of Tyco Manufacturing (Europe) Inc. in relation to the Deed of Subordination. (b) If so requested by any Lender, such Lender shall have received (in form and content reasonably satisfactory to it) an environmental review and audit report as to the properties of the Charging Group from an independent environmental firm acceptable to such Lender. (c) The Agent has completed, with results reasonably satisfactory to it, business and legal due diligence in relation to all assets and liabilities of all companies within the Group. (d) The Global Lenders are reasonably satisfied with the cash management systems of the Group. (e) The Global Lenders are reasonably satisfied with the corporate, capital, tax, legal and management structure of the Group. (f) The Agent is reasonably satisfied that arrangements have been completed for a tax treaty exemption in connection with the cross-border facilities of the Group, if any and the relevant member of the Group has agreed to absorb incremental withholding of cross border tax, if any. (g) A certificate of title prepared by Messrs Denton Hall in form and content satisfactory to the Agent relating to the property known as Unit A1, Swift Park, Old Leicester Road, Rugby. (h) The Lloyds Deposits shall have been credited to the Lloyds Deposit Accounts. 3. FACILITIES, OBLIGATIONS SEVERAL, RIGHTS SEVERAL ----------------------------------------------- 3.1 Facilities ---------- 3.1.1 Upon and subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties in Clause 12: (a) the Issuing Bank agrees to issue Guarantees to Lloyds for the account of either of the Borrowers in the maximum aggregate amount of the Guarantee Facility Limit from time to time in respect of the liabilities of the Borrowers to Lloyds under -25- counter-indemnities given by the Borrowers to Lloyds in respect of the liabilities of Lloyds under Lloyds Guarantees; and (b) the Lenders agree to make available to the Borrowers a revolving credit facility in the maximum aggregate principal amount of the Sterling Equivalent at any time of $35,000,000 less the Outstandings from time to time. 3.1.2 For the avoidance of doubt, it is hereby declared that, notwithstanding any other provision of this Agreement: (a) the Dollar Equivalent of the aggregate of Advances and Outstandings shall not, at any time, exceed the Total Commitments; and (b) no Lender shall be obliged to lend the Borrowers in aggregate more than its Commitment. 3.2 Obligations Several ------------------- 3.2.1 The obligations of the Lenders under this Agreement are several. 3.2.2 The failure of a Lender to carry out its obligations hereunder shall not relieve any other party hereto of any of its obligations hereunder. 3.2.3 None of the Lenders nor the Agent or the Issuing Bank shall be responsible for the obligations of any others hereunder. 3.3 Rights Several -------------- 3.3.1 Without prejudice to the provisions of this Agreement relating to or requiring action by all or any of the Lenders, the rights of each of the Lenders, the Issuing Bank and the Agent are several and all amounts due, and obligations owed, to each of them are separate and independent debts or, as the case may be, obligations . 3.3.2 Each Lender, the Issuing Bank and the Agent may, except as otherwise stated in this Agreement, separately enforce its rights hereunder. 4. PURPOSES, ETC ------------- 4.1 Purposes -------- (a) Guarantees are to be requested to guarantee the liability of the Borrowers to Lloyds pursuant to counter-indemnities given by the Borrowers to Lloyds in respect of the liability of Lloyds to a Beneficiary pursuant to Lloyds Guarantees; -26- (b) The proceeds of all Advances shall be used to repay existing Indebtedness of the Borrowers, for the general working capital and other corporate purposes of the Borrowers, and to repay maturing Advances. 4.2 Undertaking by the Borrowers ---------------------------- Each Borrower undertakes that it will use Advances and seek Guarantees only as permitted by this Clause 4. 4.3 No Liability ------------ Neither the Agent, the Issuing Bank nor any of the Lenders shall be obliged to investigate the use or application of the proceeds of the Advances or the Guarantees. 5. AVAILABILITY, DRAWDOWN AND PARTICIPATIONS ----------------------------------------- 5.1 Commitment Period ----------------- Subject to the other terms of this Agreement and, in particular, Clause 2, Advances shall be made to a Borrower at any time during the Commitment Period and Guarantees shall be issued in favour of Lloyds up to the date falling one year prior to the end of the Commitment Period, or such later date as the Issuing Bank and the Lenders may agree, when requested by a Borrower by means of a Drawdown Notice or, as the case may be, an Issue Request, in accordance with this Clause 5. Any portion of the Facility or the Guarantee Facility which shall remain unused at the close of business in London on the last day of the Commitment Period shall be automatically cancelled at that time. 5.2 Advances and Guarantees ----------------------- 5.2.1 Advances shall be denominated in Sterling and shall be the Sterling amount requested by the relative Borrower in the relative Drawdown Notice and, in the case of an Advance to be made on a LIBOR basis shall be in minimum amounts of (Pounds)100,000 and integral multiples of (Pounds)50,000 (or, if less, the undrawn balance available under the Facility) and may be borrowed for 30, 60 or 90 days as specified in the relative Drawdown Notice subject to Clause 6.2. Tyco Fixed IRB Advances and Matchbox IRB Advances shall be borrowed for a period commencing on the relative Drawdown Date and ending on the Final Repayment Date (but no shorter period). Other Advances on an Index Rate Basis shall be borrowed for a period commencing on the relative Drawdown Date and ending on the earlier of the Final Repayment Date or earlier repayment out of payments received and credited to the relevant Charged Account (as defined in each Debenture). -27- 5.2.2 Guarantees shall be denominated in Sterling, be in favour of Lloyds and shall expire no later than the Final Repayment Date. 5.2.3 In relation to the first Advance to a Borrower the Index Rate Basis shall be selected pursuant to Clause 6 and no Advance to such Borrower shall be made on a LIBOR Basis unless there is then outstanding from such Borrower an Advance or Advances on an Index Rate Basis equal to or greater than (Pounds)109,382 in aggregate. No more than two Advances in relation to which the LIBOR Basis has been selected pursuant to Clause 6 shall be outstanding at any one time. 5.2.4 Advances shall be made and Guarantees shall be issued only on a Business Day. 5.3 Drawdown of Advances and Issue of Guarantees -------------------------------------------- 5.3.1 Whenever a Borrower wishes an Advance to be made or a Guarantee to be issued, it shall give a Drawdown Notice or, as the case may be, an Issue Request to the Agent to be received not later than 11.00 a.m. (London time) three Business Days prior to the Drawdown Date or, as the case may be, the Issue Date, unless such Advance is to be on an Index Rate Basis, when if more than the Sterling Equivalent of $1,000,000 such notice shall be received no later than 11.00 a.m. (London time) two Business Days prior to the Drawdown Date and if less than or equal to the Sterling Equivalent of $1,000,000 it shall be received no later than 11.00 a.m. (London time) one Business Day prior to the Drawdown Date PROVIDED THAT notwithstanding any other provision of this Agreement, no Drawdown Notice and no Issue Request may be served and no Advance will be made and no Guarantee will be issued: (a) unless the Conditions Precedent shall have been satisfied; or (b) if a Default or Default Occurrence has occurred and is continuing or if a Default or Default Occurrence would occur on the making of such Advance or, as the case may be, the issue of such Guarantee; or (c) unless the representations and warranties set out in Clause 12 are, or will be, true and accurate in all material respects on the date on which such Drawdown Notice or Issue Request is served and on the Drawdown Date or, as the case may be, the Issue Date; or (d) if the making of such Advance or the issue of such Guarantee would cause the Dollar Equivalent of the aggregate of the Loan and Outstandings to be greater than the Facility Limit; or -28- (e) if the making of such Advance or the issue of such Guarantee would cause the aggregate of the Loan and the Outstandings to exceed the relevant Borrower's Borrowing Availability as determined by the Agent as at the date the relevant Drawdown Notice or Issue Request is served based on the latest available Borrowing Base Certificate of such Borrower (for the avoidance of doubt, the issue of a Guarantee on account of a Borrower shall constitute the use of an amount of such Borrower's Borrowing Availability equal to the maximum amount for which such Guarantee is issued); or (f) if a Material Adverse Effect has occurred which has not been cured or waived in writing by the Majority Lenders; or (g) if the issue of any such Guarantee would cause the Outstandings to be greater than the Guarantee Facility Limit at any time during the period to the expiry date of such Guarantee. 5.3.2 Subject always to the other terms of this Agreement, each Drawdown Notice shall be irrevocable and the relevant Borrower shall be obliged to borrow in accordance with its terms and each Issue Request shall be irrevocable. 5.4 Participations and Payments --------------------------- 5.4.1 Subject always to the other terms of this Agreement, each Lender acting through its Lending Office, agrees to contribute its Contribution in each Advance in Sterling , the amount of its Contribution being that proportion which its unutilised Commitment bears to the unutilised part of the Total Commitments on the Drawdown Date PROVIDED THAT notwithstanding any other provisions of this Agreement the obligation of the relevant Lender to contribute its Contribution is subject to and conditional upon the deposit by each of the Participants with such Lender by or before 10.00 a.m. on the relevant Drawdown Date of the amount in full which should have been so deposited by such Participant in accordance with the Participation Agreement in respect of the relevant Advance and PROVIDED FURTHER THAT if a Participant fails so to deposit such an amount, the amount of the proposed Advance shall be reduced by the amount of such shortfall. Without prejudice to the provisions of this Clause 5.4, the relevant Lender shall notify the relevant Borrower of the amount of any shortfall in respect of a proposed Advance if the Participant fails to deposit all or any part of the amount to be deposited by such Participant as referred to in this Clause 5.4.1 . 5.4.2 If, for any reason, any Participation Agreement terminates or any Participant's obligations under a Participation Agreement terminates, the relevant Lender's obligations under this Agreement shall terminate -29- immediately and without any further action being required from such Lender and such Lender shall be entitled to require the Borrowers immediately to repay such Lender's Contribution together with accrued interest thereon and immediately to pay all other sums payable to such Lender under this Agreement, whereupon the same shall become immediately due and payable by the Borrowers to such Lender and the Lender's Commitment shall be cancelled. 5.4.3 Subject to Clauses 5.4.1 and 5.4.2 and subject to receiving the same number of Business Days prior written notification as specified in Clause 5.3.1 relative to the Advance from the Agent of the terms of a Drawdown Notice, each Lender shall on the Drawdown Date make available to the Agent to such account as the Agent may have previously specified for this purpose, not later than 11 a.m. (London time) on such date in immediately available funds, an amount in Sterling equal to its Contribution in the requested Advance. 5.5 Drawdown Indemnity ------------------ If any Advance (or part thereof) is not made to a Borrower on a Drawdown Date in accordance with the Drawdown Notice, such Borrower shall indemnify each of the Lenders in accordance with Clause 10.3. 5.6 Non-Availability of Sterling ---------------------------- If, before 11.00 a.m. on the Drawdown Date relative to an Advance the Agent receives notice from a Lender that: (a) for whatever reason it is impracticable for such Lender or a Participant from such Lender to fund its Contribution in such Advance in the ordinary course of business in the London Inter- Bank Market; or (b) central bank or other governmental authorisation is required to permit such Lender to make, or the Participant to make a corresponding deposit with the Lender in respect of, such Advance and the authorisation has not been obtained or is not in full force and effect or is subject to unacceptable conditions; or (c) the use of Sterling is restricted or prohibited by any request, directive, regulation or guideline of any governmental body, agency, department or regulatory or other authority (whether or not having the force of law) in accordance with which such Lender or a Participant from such Lender is accustomed to act; the Agent shall give notice to the relevant Borrower to that effect before 11.30 a.m. on such Drawdown Date. -30- 5.7 Effect of Notice ---------------- 5.7.1 If the Agent delivers a notice under Clause 5.6, then the relevant Borrower may elect by notice served on the Agent by noon on such Drawdown Date that the relevant Advance or the relevant Lender's Contribution in such Advance shall not be made. 5.7.2 If the relevant Borrower does not elect as set out in Clause 5.7.1, the relevant Advance shall be denominated in Dollars, shall be made on the LIBOR basis (as defined in Clause 6.1.3) and the relative Drawdown Date shall be the date which is two Business Days after the Drawdown Date which was specified in the relative Drawdown Notice. 5.8 Indemnity --------- The Borrowers hereby indemnify each Lender on demand against any costs, losses or expenses which such Lender may have incurred, including any liability to indemnify any Participant, as a consequence of the operation of Clauses 5.6 and 5.7. 5.9 Issue of Guarantees ------------------- 5.9.1 Upon receipt of an Issue Request complying with the terms of this Agreement, the Agent shall notify the Issuing Bank thereof. 5.9.2 The Borrowers represent that at the date of this Agreement all subsisting Lloyds Guarantees are as set out in Schedule 21 and are subsisting in favour of a Beneficiary whereunder the aggregate maximum liability (whether present or future, actual or contingent) is equal to (Pounds)1,525,600. Subject always to the other terms of this Agreement, each Borrower shall serve an Issue Request for the issue of Guarantees in favour of Lloyds in respect of such Lloyds Guarantees on compliance with the conditions set out in Clauses 2 and 5.3. 6. INTEREST -------- 6.1 Basis and Amount ---------------- 6.1.1 In each Drawdown Notice the relevant Borrower may elect that the interest accruing in respect of the requested Advance, subject to the limitations in Clause 5.2.3 shall be calculated in accordance with Clause 6.1.2 (the "Index Rate Basis") or Clause ---------------- 6.1.3 (the "LIBOR Basis"). ----------- 6.1.2 If a Borrower elects in the relevant Drawdown Notice that the Index Rate Basis shall apply in respect of the requested Advance, then interest shall accrue on the outstanding balance of such Advance from the relative Drawdown Date to, but excluding, the date of repayment of such -31- Advance in full at the rate determined by the Agent to be the aggregate of: (a) the Margin; and (b) the Index Rate from time to time during such period. 6.1.3 If a Borrower elects in the relevant Drawdown Notice that the LIBOR Basis shall apply in respect of the requested Advance, then interest shall accrue on such Advance in respect of the period from and including the relative Drawdown Date to, but excluding, the relative Repayment Date at the rate determined by the Agent to be the aggregate of: (a) the Margin; (b) LIBOR; and (c) the Mandatory Liquid Asset Costs. 6.2 Interest Periods ---------------- 6.2.1 Interest Periods in respect of Advances in relation to which a Borrower has selected the LIBOR Basis may be of 30, 60 or 90 days' duration . 6.2.2 The relevant Borrower shall, subject to Clause 6.2.3, in each Drawdown Notice in which it selects the LIBOR Basis also select the Interest Period of the Advance to which such Drawdown Notice relates. 6.2.3 No Interest Period shall extend beyond the Final Repayment Date and if an Interest Period selected purports so to do, it shall nevertheless expire on the Final Repayment Date. 6.2.4 If the relevant Borrower fails to select an Interest Period for an Advance on a LIBOR basis, the Borrower shall, subject to Clause 6.2.3, be deemed to have selected an Interest Period of 30 days. 6.2.5 Any Interest Period which commences on the last Business Day of a calendar month or on a Business Day for which there is no numerically corresponding day in the calendar month in which that Interest Period is to end, shall (subject to Clause 6.2.4) end on the last Business Day in that later calendar month. 6.2.6 Any Interest Period which would otherwise end on a day which is not a Business Day shall end on the next succeeding Business Day or, if that day falls in the following calendar month, on the immediately preceding Business Day. -32- 6.3 Default Interest ---------------- 6.3.1 If a Borrower defaults in the payment of any sum due and payable under any Financing Document on the due date, such Borrower shall pay default interest on such sum (or, as the case may be, the amount thereof for the time being due and unpaid) to the Agent for the account of the Agent, the Issuing Bank or the Lenders, as the case may be, from the due date to the date of actual payment in full calculated by reference to successive Interest Periods (each of such duration as the Agent may from time to time select and the first beginning on the relative due date) at the rate per annum being the aggregate of: (a) the Default Rate; and (b) if the Default Rate is accruing by reference to LIBOR, to the extent that any are certified by any Lender to the Agent as having been incurred by such Lender, the Mandatory Liquid Asset Costs of such Lender. 6.3.2 So long as the default continues, such rate shall be recalculated in accordance with the provisions of this Clause 6.3 on the last day of each such Interest Period and unpaid interest then payable but unpaid under this Clause shall be compounded at the end of each Interest Period. 6.4 Calculation and Payment of Interest ----------------------------------- 6.4.1 The Agent will notify the relevant Borrower of the rate and amount of interest payable for each Interest Period (but in the case of such interest calculated under Clause 6.3, any such notification need not be made more frequently than weekly). Such notification shall set out in reasonable detail the basis of computation of the amount of interest so payable. 6.4.2 Interest due from either of the Borrowers to any of the Agent and the Lenders under this Agreement shall: (a) accrue from day to day at the rate calculated under this Clause 6; (b) except as otherwise provided in this Agreement, be paid by the Borrower to the Agent for the account of the Lenders, the Issuing Bank or the Agent, as the case may be, in arrears on each Interest Date; (c) be calculated on the basis of the actual number of days elapsed and a 365 day year; and (d) be payable after as well as before judgment. -33- 6.5 Market Disruption ----------------- If, following receipt of a Drawdown Notice for an Advance on a LIBOR Basis from a Borrower: (i) before the close of business in London on the first day of the requested Interest Period the Agent has been notified by one or more Lenders and Participants the aggregate of whose Commitments or, as the case may be, Contributions is equal to at least 33 per cent. of the Total Commitments or, as the case may be, total Contributions, that LIBOR does not accurately reflect the cost to it of obtaining deposits, or (ii) by reason of circumstances generally affecting the London Inter- Bank Market, reasonable and adequate means do not exist for ascertaining LIBOR for any Interest Period; then: (a) the Agent shall promptly notify such Borrower in writing of such event ("market disruption notice"); ------------------------ (b) promptly upon receipt of the market disruption notice such Borrower shall either: (i) withdraw the relative Drawdown Notice in which event the Borrower shall not be obliged to borrow the proposed Advance, but without prejudice to the Borrower's liability under Clauses 10.3 and 17.3; or (ii) discuss with the Agent an alternative basis for calculating the rate of interest for the relative Advance (the "Affected Advance") on the basis that the net return to the Lenders and their corresponding Participants shall be no less than it would have been had such event not occurred ("alternative basis"); ----------------- (c) such Borrower shall throughout any period in relation to which a market disruption notice is in effect (subject always to Clause 6.5(d)) pay interest to the Agent for the account of each of the Lenders on the amount of such Lender's Contribution in the Affected Advance at the rate per annum determined by the Agent on behalf of such Lender to be the aggregate of: (x) the Margin; (y) the rate notified by such Lender to the Agent to be the rate which expresses as a percentage rate per annum the cost to such Lender of funding for the time being from whatever sources it may select its Contribution in the Affected Advance, -34- including from the Participant under the Participation Agreements; and (z) the higher of the Mandatory Liquid Asset Costs of such Lender or its Participants; or (d) if no agreement is reached on an alternative basis within fifteen Business Days of the date of service of the market disruption notice then, if such notice remains in effect, the Borrowers shall prepay the Affected Advances upon giving the Agent three Business Days notice of its intention to make such prepayment together with interest accrued thereon and without prejudice to Clauses 6.3 and 10.3; or (e) if such Borrower and the Lenders shall agree an alternative basis, then such agreement shall take effect in accordance with its terms and shall be deemed to take effect under this Agreement. 6.6 Agent's Determination --------------------- The determination by the Agent of any interest payable under any of Clauses 6.1, 6.3 and 6.5 shall, save for manifest error, be conclusive and binding on the Borrowers. 7. REPAYMENT --------- 7.1 Repayment --------- 7.1.1 Each Advance made on a LIBOR basis shall, subject to the other terms hereof, be repaid in full on the Repayment Date relating to such Advance. 7.1.2 For the avoidance of doubt, subject to the other terms hereof, all Advances shall be repaid on or before the Final Repayment Date. 7.2 Mandatory Prepayments --------------------- 7.2.1 If the Dollar Equivalent of the aggregate of the outstanding principal balances of the Advances made to a Borrower and the Outstandings under those Guarantees issued for the account of such Borrower shall at any time exceed the Borrowing Availability of such Borrower, without prejudice to Clauses 10.3 and 17.3, such Borrower shall immediately prepay the Advances made to such Borrower or, in relation to the Outstandings provide Cash Cover, (or a combination of each) in the amount the Dollar Equivalent of which is equal to such excess (which shall nevertheless be secured by the Security Documents). Any such prepayments shall be applied without premium or penalty pro rata between the Advances of such Borrower based upon the respective principal amounts thereof. -35- 7.2.2 If on the date falling one month after the earlier of the first Drawdown Date and the first Issue Date hereunder or on any date falling on successive monthly intervals thereafter: (a) the Dollar Equivalent of the aggregate of the Loan and the Outstandings less the Dollar Equivalent of the amount of any Cash Cover exceeds the Facility Limit, the Borrowers will, on demand from the Agent (acting on the instructions of the Majority Lenders) prepay, subject to Clauses 10.3 and 17.3, such excess. Such payments shall be applied without premium or penalty pro rata between all Advances based upon the respective principal amounts thereof; (b) the Dollar Equivalent of the Outstandings less the amount of any Cash Cover exceeds the Guarantee Facility Limit, the Borrowers will, on demand from the Agent (acting on the instructions of the Issuing Bank or the Majority Lenders) pay additional Cash Cover equal to the Sterling Equivalent of such excess. 7.2.3 Without prejudice to Clauses 10.3 and 17.3 each Borrower shall make prepayments of the Loan or, if no Loan is outstanding, payments of Cash Cover in an amount equal to one hundred per cent. of the net proceeds of any sale or other disposition of any Charged Property (other than (i) sales of Inventory in the ordinary course of business or (ii) other sales and dispositions of any Charged Property otherwise permitted hereunder PROVIDED THAT the aggregate net proceeds thereof so excluded shall not exceed (Pounds)50,000 in any Financial Year) or of the issuance by any member of the Charging Group or any Subsidiary thereof of any Indebtedness (other than Permitted Indebtedness), in each instance contemporaneously with any such sale, other disposition or issuance. Such prepayments shall be applied without premium or penalty against outstanding amounts under the Loan, pro rata between the Advances of each Borrower based upon the respective principal amounts thereof owing by each Borrower immediately prior to such prepayments (unless such Charged Property was owned by a Borrower or such Indebtedness was issued by a Borrower, in which case such prepayment shall be applied first pro rata to the Advances of such Borrower and then pro rata to the other Advances). The foregoing shall not constitute a consent by Agent or any Lender to any sale or other disposition of Charged Property or to any issuance of Indebtedness by a member of the Charging Group or any of its Subsidiaries not otherwise expressly permitted hereunder. 7.3 Clean Down Period ----------------- Each Borrower agrees that, throughout a period of thirty consecutive days occurring at any time between December 1 of each year (commencing December 1995) and -36- April 30 of the immediately succeeding year selected by the Borrowers and notified to the Lenders, the Issuing Bank and the Agent, the Dollar Equivalent of the aggregate of the Loan and Outstandings less any Cash Cover shall be equal to or less than the aggregate A/R Availability of the Borrowers, and, notwithstanding anything to the contrary contained in this Agreement, the Borrowers shall without prejudice to Clauses 10.3 and 17.3 make such prepayments or provide such Cash Cover as may be necessary to comply with this covenant, and the Borrowers shall not be entitled to request, obtain or cause to be obtained any Advance or request any Guarantee, in each instance, in breach of this provision. In the absence of any selection by the Borrowers by 1st April in any year, the relevant 30 day period shall be as selected and notified to the Borrowers, the Issuing Bank and the Lenders by the Agent. 7.4 Reborrowing ----------- Subject to the other terms hereof, all amounts repaid or prepaid in respect of an Advance may, during the Commitment Period, be reborrowed without prejudice to the remaining provisions of this Agreement. 7.5 New Advances to repay Maturing Advances --------------------------------------- If all or part of one or more existing Advances is to be repaid from the proceeds of all or part of a new Advance, then as between each Lender and the relevant Borrower, the amount to be repaid by such Borrower shall be set off against the amount to be advanced by such Lender in relation to the new Advance and the person to whom the smaller amount is to be paid shall pay to the other party a sum equal to the difference between the two amounts. 7.6 Settlement of Guarantees ------------------------ The Issuing Bank shall, promptly after being notified by Lloyds that the Issuing Bank is required to make payment under a Guarantee, notify the Borrower for whose account the corresponding Lloyds Guarantee was issued and the Agent: (a) that such payment is due; and (b) of the Settlement Amount and the Settlement Date in respect thereof; whereupon such Borrower shall pay in Sterling the Settlement Amount to the Issuing Bank on the Settlement Date. 7.7 Indemnity --------- Each of the Borrowers hereby unconditionally and irrevocably agrees and undertakes to the Issuing Bank as follows: (a) it will at all times indemnify the Issuing Bank and keep the same indemnified from and against all actions, proceedings, claims and demands -37- which may be brought or made against any of them and all losses, costs, charges, damages and expenses which any of them may incur or sustain or for which any of them may become liable by reason either directly or indirectly of the Issuing Bank having opened or issued any Guarantee or having made a payment thereunder; (b) the Issuing Bank is hereby irrevocably authorised by each Borrower to comply with the terms of any demand or drawing served or made or purported to be served or made on the Issuing Bank under any Guarantee without any reference to, or further authority from, either Borrower and without enquiry by the Issuing Bank into the justification for such demand or drawing or the validity thereof and each Borrower further agrees that any payment which the Issuing Bank shall make in accordance with such a demand or drawing or purported demand or drawing shall be binding on the Borrowers and be accepted by each of them as conclusive and binding evidence that the Issuing Bank was liable to comply with the terms of such demand or drawing and was liable to do so in the manner and for the amount in which the Issuing Bank effected such compliance; and (c) the indemnity contained in this Clause 7.7 shall constitute and be a continuing security to the Issuing Bank and shall extend to each Guarantee as it may, from time to time, be varied, modified, amended or extended. 8. CANCELLATION ------------ 8.1 On giving not less than 10 days' prior irrevocable written notice to the Agent, the Borrowers acting jointly may cancel all (but not part) of the Facility and the Guarantee Facility for the time being unutilised without premium or penalty other than payment of the cancellation fee, if any in accordance with Clause 17.6. Amounts so cancelled shall cease to be available for borrowing hereunder and the Facility Limit, the Guarantee Facility Limit and the Total Commitments of the Lenders will be reduced to zero. 8.2 Upon cancellation of the Facility and the Guarantee Facility pursuant to this Clause 8, the Borrowers' obligation to pay the non-utilisation fee referred to in Clause 17.3 shall terminate (except in respect of any portion of such fee accrued up to the date of cancellation) and, notwithstanding anything to the contrary contained herein, the Loan shall be immediately due and payable and the Borrowers shall immediately provide Cash Cover in respect of the contingent liabilities of the Issuing Bank under the Guarantees in an amount no less than the Outstandings then subsisting. 8.3 Notwithstanding the foregoing, the Borrowers may not voluntarily cancel the Facility and the Guarantee Facility under Clause 8.1 unless concurrently therewith the commitments of the Global Lenders to provide further financial accommodations under each of the other Overall Facilities are also cancelled. -38- 9. CHANGES IN CIRCUMSTANCES ------------------------ 9.1 Illegality ---------- If after the date of this Agreement it becomes illegal for a Lender to maintain its Commitment or to continue to make available or fund its share of any Advance under this Agreement or for a Participant in relation to such Lender to make available or fund its share of the corresponding payments or deposits made or to be made by it under the Participation Agreement or for the Issuing Bank to issue a Guarantee, or to maintain its contingent liability or fund any sum requested to be paid by it thereunder, then (a) such Lender or, as the case may be, the Issuing Bank shall so notify the Agent and each Borrower; and (b) if such illegality relates to such Lender, to the extent necessary to cure that illegality, the Commitment of such Lender shall be cancelled and each Borrower shall repay to the Agent (for the account of that Lender) that Lender's contribution to any Advances made to that Borrower (together with accrued interest thereon and all amounts owing to such Lender under this Agreement) within five Business Days of demand by that Lender (or, if permitted by the relevant law, on the next Interest Date of the relevant Advances); and (c) if such illegality relates to such Participant, the Commitment of such Lender shall immediately be reduced by an amount equal to the Participated Amount thereof in respect of such Participant and its obligations to make Advances hereunder shall reduce accordingly and each Borrower shall repay to the Agent (for the account of such Lender) an amount equal to the Participated Amount of any Advance made to that Borrower in respect of such Participant (together with accrued interest thereon and any other amounts owing to such Lender under this Agreement which are referable to such Participant) within five Business Days of demand by that Lender (or, if permitted by the relevant law, on the next Interest Date of the relevant Advances); and (d) if such illegality relates to the Issuing Bank, the Issuing Bank's obligations under the Guarantee Facility will terminate and the relevant Borrower will use all reasonable endeavours to procure the cancellation of each Guarantee and shall within five Business Days of demand by the Issuing Bank provide it with Cash Cover in an amount no less than the Outstandings from time to time. Without prejudice to the foregoing, each such Lender and the Issuing Bank confirms that if it informs the Agent as aforesaid and if it is satisfied that it will not prejudice its legal or commercial interests so to do, it shall, as between itself and the -39- Borrowers (and shall endeavour to procure that any relevant Participant shall) thereafter use reasonable endeavours to avoid or mitigate the effects of such illegality and such Lender or, as the case may be, the Issuing Bank and the Agent will (and any such Lender shall endeavour to procure that any relevant Participant shall) enter into negotiations in good faith with a view to finding a means of avoiding or mitigating the effects of such illegality PROVIDED THAT neither such Lender nor the Agent or the Issuing Bank shall be obliged to continue (and any such Lender shall not be obliged to procure that any relevant Participant so continue) such negotiations for a period exceeding 30 days. 9.2 Increased Costs --------------- 9.2.1 If, after the date of this Agreement, the introduction, implementation, repeal, withdrawal or change in, or in the interpretation or application of, (a) any applicable law, regulation, practice or concession, or (b) any applicable directive, requirement, request or guidance (whether or not having the force of law) of any central bank or other fiscal, monetary or other authority (each of such occurrences being referred to in this Clause 9.2 as a "Change") causes an ------ Increased Cost (as defined in Clause 9.2.4) to the Issuing Bank, any Lender or any Participant (or any company of which the Issuing Bank, a Lender or a Participant is a Subsidiary) then the Borrowers shall pay (as additional interest) from time to time to the Agent (for the account of the Issuing Bank or, as the case may be, such Lender) within 5 Business Days of demand all amounts which the Issuing Bank certifies to be necessary to compensate it for the Increased Cost or, as the case may be, such Lender certifies to be necessary to compensate such Lender or such Participant for the Increased Cost. 9.2.2 Any demand made under Clause 9.2.1 shall be made by the Issuing Bank or, as the case may be, the relevant Lender through the Agent and shall set out in reasonable detail so far as is practicable the basis of computation of the Increased Cost. 9.2.3 Without prejudice to Clause 9.2.1, the Issuing Bank or, as the case may be, each Lender agrees that it will, after consultation with the Borrowers and the Agent, take such reasonable steps as may be available to the Issuing Bank or, as the case may be, the Lender (but only so long as such steps do not, in the opinion of the Issuing Bank or, as the case may be, the Lender, produce any other adverse effects for the Issuing Bank or, as the case may be, the Lender) to avoid or reduce the Increased Cost. 9.2.4 In this Clause 9.2 "Increased Cost" means any cost to, or -------------- reduction in the amount payable to, or reduction in the return on capital achieved by, the Issuing Bank, a Lender or a Participant (or any company of which the Issuing Bank, that Lender or that Participant is a Subsidiary) to the extent that they arise, directly or indirectly, as a result of the Change and are attributable to the issue of any Guarantee or the liability of the Issuing -40- Bank under any Guarantee, the Commitment or Contribution of that Lender, or the funding of that Lender's Contribution, the commitment under the Participation Agreement or the Participated Amount of such Participant or the funding of that Participant's Participated Amount including, without limitation: (a) any Tax Liability (other than Tax on Overall Net Income) incurred by the Issuing Bank, that Lender or that Participant; (b) any changes in the basis or timing of Taxation of the Issuing Bank in relation to the Guarantee Facility, that Lender in relation to its Commitment or Contribution or to the funding of that Lender's Contribution or that Participant in relation to its commitment under the Participation Agreement, the Participated Amount or to the funding of that Participant's Participated Amount; (c) the cost to the Issuing Bank, that Lender or that Participant (or any company of which the Issuing Bank, that Lender or that Participant is a Subsidiary) of complying with any capital adequacy or similar requirements howsoever arising including, without limitation, as a result of an increase in the amount of capital to be allocated to the Facility, the Guarantee Facility or the Participation Agreement or of a change to the weighting of the Guarantee Facility or that Lender's Contribution or Commitment under the Facility or to the weighting of that Participant's commitment under the Participation Agreement or its Participated Amount; (d) the cost to the Issuing Bank, that Lender or that Participant of complying with any reserve, cash ratio, special deposit or liquidity requirements (or any other similar requirements). 9.2.5 Neither of the Borrowers shall be obliged to make a payment in respect of an Increased Cost under this Clause 9.2 if and to the extent that: (a) it has been compensated for by the payment of Mandatory Liquid Asset Costs or the operation of Clause 10.4; (b) it is payable to an assignee or to a Lender Transferee (as defined in Clause 20.3) or to an assignee or to a transferee under the Participation Agreement or a Lender or a Participant acting through a new Lending Office if the Increased Cost: (i) arose or is payable at the time of the assignment or transfer to the Lender Transferee or transferee under the Participation Agreement or change in Lending Office, and -41- (ii) would not have been payable if the transfer or change of Lending Office had not occurred. 9.3 Certificates ------------ The certificate or notification of the Agent, the Issuing Bank or, as the case may be, the relevant Lender as to any of the matters referred to in Clauses 9.1, 9.2 and 10.3 shall be in reasonable detail and, save for any manifest error, be conclusive and binding on the Borrowers. 10. PAYMENTS -------- 10.1 Time and Place -------------- All payments to be made by each Borrower for the account of the Agent, the Issuing Bank or the Lenders, as the case may be, in relation to this Agreement or the Fees Letter shall be made on the due date in immediately available funds by not later than 12.00 noon (London time) to the appropriate account in London of the Agent which account shall have been previously specified by the Agent. 10.2 Business Days ------------- If, but for this Clause, any sum would become due for payment under this Agreement on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day PROVIDED THAT if the next succeeding Business Day falls in the next calendar month, then such payment shall be made on the immediately preceding Business Day. 10.3 Breakage Costs Indemnity ------------------------ 10.3.1 Each Borrower agrees to indemnify the Issuing Bank and each Lender on demand against any loss or expense (including, but not limited to, any loss of the Margin or any other loss or expense sustained or incurred or to be sustained or incurred by (i) the Issuing Bank in liquidating or employing deposits acquired or contracted for to effect any payment under any Guarantee, including any loss of profit, or (ii) any Lender in (A) liquidating or employing deposits acquired or contracted for to effect or maintain its Contribution in the Loan or any part thereof or (B) in indemnifying any Participant for any loss or expense including any loss of profit, sustained or incurred or to be sustained or incurred by it in liquidating or employing deposits acquired or contracted for to effect or maintain its Participated Amount or any part thereof) which the Issuing Bank, such Lender or such Participant has sustained or incurred as a consequence of any of: -42- (a) an Advance not being made following the service of a Drawdown Notice by reason of the non-fulfilment of any of the Conditions Precedent or otherwise (save as may arise as a result of the failure of such Lender to comply with its obligations hereunder or of such Participant to comply with its obligations under the Participation Agreement respectively); (b) a failure of any Borrower to make payment on the due date of any sum due under this Agreement; (c) the repayment of the Loan or the termination of the Facility pursuant to Clause 7 (other than pursuant to Clause 7.1), Clause 6.5(d), Clause 9.1, Clause 10.5 or Clause 14; (d) a failure of any Borrower to pay the Settlement Amount in full on the relevant Settlement Date; (e) the occurrence of any Default; and (f) the prepayment of any Advance or any part thereof being made otherwise than on the Repayment Date relative thereto. 10.3.2 If any prepayment or repayment of an Advance is made otherwise than on an Interest Date relative to such Advance, the Borrower thereof shall on demand pay to the Agent, for the account of the Lenders, such additional amount as the Agent may (after consultation with the Lenders) certify is necessary to compensate the Lenders, or any of them for any loss or expense on account of funds borrowed, contracted for or utilised to fund the amounts so repaid or prepaid, including pursuant to the Participation Agreement. Any certifications issued by the Agent pursuant to this Clause shall be conclusive and binding on such Borrower save in the case of manifest error. 10.4 Grossing-Up ----------- 10.4.1 Subject to Clause 10.4.2, all sums payable to any of the Agent, the Issuing Bank and the Lenders pursuant to or in connection with any of the Financing Documents shall be paid in full without any set-off or counterclaim and free and clear of all deductions or withholdings whatsoever save only as may be required by law. 10.4.2 If any deduction or withholding is required by law in respect of any payment due to any of the Agent, the Issuing Bank or the Lenders pursuant to or in connection with any of the Financing Documents, the relevant Borrower shall: -43- (a) ensure or procure that the deduction or withholding is made and that it does not exceed the minimum legal requirement therefor; (b) pay, or procure the payment of, the full amount deducted or withheld to the relevant Taxation or other authority in accordance with the applicable law; (c) if the payment is to be made by the relevant Borrower, increase the payment in respect of which the deduction or withholding is required so that the net amount received by the payee (which expression when used in this Clause 10.4.2 shall mean the Agent, the Issuing Bank or any Lender) after the deduction or withholding (and after taking account of any further deduction or withholding which is required to be made as a consequence of the increase) shall be equal to the amount which the payee would have been entitled to receive in the absence of any requirement to make any deductions or withholdings; and (d) promptly deliver or procure the delivery to the relative payee of receipts evidencing each deduction or withholding which has been made. 10.4.3.1 If the Agent is obliged to make any deduction or withholding from any payment to the Issuing Bank or any of the Lenders (an "agency payment") which represents an amount or amounts received -------------- by the Agent from any obligor under any of the Financing Documents , the relevant Borrower shall pay directly to the Issuing Bank or the relative Lender such sum (an "agency ------ compensating sum") as will, after taking into account any ---------------- deduction or withholding which such Borrower is obliged to make from the agency compensating sum, enable such Lender to receive, on the due date for payment of the agency payment, an amount equal to the agency payment which such Lender would have received in the absence of any obligation to make any deduction or withholding. 10.4.3.2 If any payment to be made by a Lender or by the Agent on its behalf to the Participant under the Participation Agreement is required by law to be made subject to any deduction or withholding on account of Tax or otherwise in connection with this Agreement or the Participation Agreement, the Borrowers shall, within 5 Business Days of demand pay to the Agent for the account of such Lender an amount which is equal to such additional sum as would be necessary for such Lender or the Agent on its behalf to ensure that such Participant would be able to receive and be entitled to retain, in aggregate, a net amount equal to the full amount which it would have secured and been entitled to retain had no such deduction or withholding been made. -44- 10.4.4 (a) If the Issuing Bank or any of the Lenders determines, in its absolute discretion, that it has received, realised, utilised or retained a Tax benefit or payment from a Participant by reason of any deduction or withholding in respect of which a Borrower has made an increased payment or paid a compensating sum or an agency compensating sum under Clause 10.4, such Lender shall, provided that the Agent, the Issuing Bank and each Lender has received all amounts which are then due and payable by the obligors under any of the Financing Documents, pay to such Borrower (to the extent that the Issuing Bank or, as the case may be, such Lender can do so without prejudicing the amount of such benefit, payment or repayment and the right of the Issuing Bank or, as the case may be, such Lender, to obtain any other benefit, relief, repayment or allowance which may be available to it) such amount, if any, as the Issuing Bank or, as the case may be, such Lender, in its absolute discretion shall determine, will leave the Issuing Bank or, as the case may be, such Lender in no worse position than it would have been in if the deduction or withholding had not been required PROVIDED THAT: (i) the Issuing Bank and each Lender shall have an absolute discretion as to the time at which and the order and manner in which it realises or utilises any Tax benefit and shall not be obliged to arrange its business or its Tax affairs in any particular way in order to be eligible for any credit or refund or similar benefit; (ii) neither the Issuing Bank nor any Lender shall be obliged to disclose any information regarding its or any other person's business, Tax affairs or Tax computations; (iii) if the Issuing Bank or a Lender has made a payment to a Borrower pursuant to this Clause 10.4.4 on account of any repayment or Tax benefit or payment from the Participant and it subsequently transpires that the Issuing Bank or, as the case may be, such Lender did not receive that repayment or Tax benefit or payment from the Participant, or received a lesser repayment or Tax benefit or payment from the Participant, such Borrower shall, on demand, pay to the Issuing Bank or, as the case may be, such Lender such sum as the Issuing Bank or, as the case may be, the relative Lender may determine as being necessary to restore its after- Tax position to that which it would have been had no adjustment under this -45- Clause 10.4.4 been made. Any sums payable by a Borrower to the Issuing Bank or, as the case may be, a Lender under this Clause 10.4.4 shall be subject to the provisions of Clause 17.7. (b) Neither the Issuing Bank nor any Lender shall be obliged to make any payment under this Clause 10.4.4 if, by doing so, it would contravene the terms of any applicable law or any notice, direction or requirement of any governmental or regulatory authority (whether or not having the force of law). 10.5 Prepayment Right ---------------- If a Borrower is required to make an increased payment for the account of a Lender under Clause 10.4.2 (but only so long as such requirement exists), subject to giving the Agent and such Lender not less than 3 days' prior written notice (which shall be irrevocable), such Borrower may prepay all, but not part, of such Lender's Contribution in the Loan together with accrued interest thereon PROVIDED THAT any such prepayment shall be subject to the provisions of Clause 10.3. On any such prepayment the Commitment of the relevant Lender will be automatically cancelled. 10.6 Currency of Account ------------------- All payments to be made by a Borrower in respect of a Guarantee or an Advance, whether of interest or principal, shall be made in Sterling (or, in relation to an Advance denominated in Dollars, in Dollars). All payments to be made under any indemnity or reimbursement provision of this Agreement relating to costs, losses and expenses shall be paid in the currency in which the relative costs, losses or expenses were incurred. 10.7 Accounts as Evidence -------------------- Each Lender shall maintain in accordance with its usual practice an account or accounts, evidencing the amounts from time to time advanced by, owing to, paid and repaid to such Lender under this Agreement. The Agent shall maintain a control account or accounts showing the amounts of Guarantees and amounts owing to the Issuing Bank, the Agent and the Lenders and each payment made in respect thereof from time to time. The control accounts shall as between a Borrower and the Agent, the Issuing Bank and the Lenders be prima facie evidence of the amounts from time to time advanced, owing, paid and repaid and outstanding under Guarantees and under this Agreement. 10.8 Borrower's Payments ------------------- 10.8.1 The Agent may assume that each Borrower will make all payments due from such Borrower under this Agreement on the due date and the Agent may, in reliance upon such assumption, make available to each Lender on -46- any payment date an amount equal to such Lender's pro-rata share of such assumed payment. 10.8.2 If a Borrower does not in fact make such payment to the Agent, each Lender shall forthwith on demand by the Agent repay to the Agent the amount made available to such Lender (together with interest thereon up to the date of repayment at the rate determined by the Agent as being its cost of funding such payment) unless such Lender has already made the corresponding payment to a Participant, in which case the Lender shall repay such amount to such extent that it receives the same from the Participant. 10.9 Lenders' Payments ----------------- 10.9.1 The Agent may assume that each Lender has made its Contribution in an Advance available to the Agent on the relative Drawdown Date unless the relevant Lender has notified the Agent to the contrary in writing prior to the relative Drawdown Date and the Agent may in reliance upon such assumption, make available to the relevant Borrower a corresponding amount. 10.9.2 If such corresponding amount is not in fact made available to the Agent by such Lender and such Lender has failed to notify the Agent in accordance with Clause 10.9.1, the Agent shall be entitled to recover such corresponding amount (together with interest thereon at the rate determined by the Agent as being its cost of funds in the circumstances) on demand from the relevant Borrower. 10.9.3 Where the Agent has made available an amount to a Borrower in reliance upon the assumption contained in Clause 10.9.1 but a Lender has not made its Contribution in the relevant Advance available to the Agent then, unless that Lender notified the Agent in writing prior to the relevant Drawdown Date that it would not be making its Contribution in such Advance available, that Lender shall (subject to and conditional upon that Lender having received the corresponding payment from the relevant Participant): (a) if such Borrower does not refund the corresponding amount to the Agent within 3 Business Days, reimburse the Agent for such amount (together with interest thereon at the rate determined by the Agent as being its cost of funds in the circumstances) on demand; and (b) indemnify the Agent from and against all losses, costs, charges and expenses which the Agent may incur or sustain by reason of that Lender not having made its Contribution in the relevant Advance available. -47- 10.10 Appropriation ------------- If a Borrower shall pay a sum which is less than the total amount due and payable under this Agreement on the day on which such sum is paid, such Borrower hereby waives any rights it may have to make any appropriation thereof as between any amounts so due and payable and the sum so paid shall be applied in or towards satisfaction of principal, interest, fees and other sums which are due or overdue for payment on that day in such order as the Majority Lenders may determine PROVIDED THAT (save in relation to amounts standing to the credit of the Lloyds Tyco Deposit Account and the Lloyds Matchbox Deposit Account which are appropriated by Lloyds) each Lender shall receive its pro-rata share of any such sum. Except as otherwise provided in the Financing Documents, if after payment in full of all then due and payable obligations under the Financing Documents, there remains with the Agent any excess monies received from or on behalf of any Borrower, then the Agent shall promptly return the same to the relevant Borrower. 11. SECURITY -------- The obligations and liabilities of the Borrowers to the Agent, the Issuing Bank and each Lender under this Agreement inter alia shall be secured by the interests and rights granted in favour of the Agent as trustee for itself, the Issuing Bank and the Lenders under the Security Documents. 12. REPRESENTATIONS AND WARRANTIES ------------------------------ 12.1 Acknowledgement of Reliance --------------------------- Each Borrower hereby acknowledges that the Agent, the Issuing Bank and each Lender has entered into this Agreement and accepted the security granted in favour of the Agent under the Security Documents in full reliance on the representations and warranties made or deemed to be made and repeated under this Clause 12. 12.2 Representations and Warranties ------------------------------ Each Borrower hereby represents and warrants to each of the Lenders, the Issuing Bank and the Agent that: (a) each member of the Charging Group (other than Tyco Industries and Matchbox International) is a limited company duly incorporated under the laws of England and Wales, and possesses the capacity to sue and be sued in its own name and has the power to carry on its business and to own its property and other assets; (b) Tyco Industries is a corporation duly organised, validly existing and in good standing under the laws of the state of Delaware and Matchbox International Limited is a corporation duly organised, and validly existing -48- under the laws of Hong Kong and each is duly qualified to do business and is in good standing in each other jurisdiction where its ownership or leasing of property or the conduct of its business requires such qualification except for those foreign jurisdictions where the failure to be duly qualified to do business or in good standing would not have a Material Adverse Effect; (c) each member of the Charging Group has power to own, operate, pledge, mortgage, assign and charge its properties, assets and business, to execute, deliver and perform its obligations under the Financing Documents to which it is a party and to carry out the transactions contemplated by each of the aforementioned documents and all necessary corporate, shareholder and other action has been or will be taken to authorise the execution, delivery and performance of the same; (d) each member of the Charging Group and each Subsidiary thereof is in compliance in all material respects with all applicable provisions of law except where the failure to be in compliance would not have a Material Adverse Effect; (e) the obligations of each member of the Charging Group under the Financing Documents to which it is a party, constitute its legal, valid and binding obligations and are in full force and effect and enforceable against such member of the Charging Group in accordance with its terms subject, as to enforceability, to bankruptcy, reorganisation, insolvency and similar laws affecting the enforcement of creditors' rights generally and to general principles of equity; (f) the execution, delivery and performance by each member of the Charging Group of the Financing Documents to which it is a party does not: (i) contravene any applicable law or regulation or any order of any governmental or other official authority, body or agency or any judgment, order or decree of any court having jurisdiction over it; (ii) conflict with, or result in any breach of any of the terms of, or constitute a default under, any agreement or other instrument to which it or any of its Subsidiaries is a party or any licence or other authorisation to which it or any of its Subsidiaries is subject or by which it or any of its Subsidiaries or any of its or its Subsidiaries' property is bound; (iii) contravene or conflict with the provisions of its Memorandum and Articles of Association or, as the case may be, its by-laws or other organisational documents; or -49- (iv) require the consent or approval of any governmental or other official authority, body or agency or of any other person which has not been obtained; (g) except as set out in Schedule 9, since 30th September 1994, no event has occurred which would have a Material Adverse Effect (it being understood that the financial results described in Tyco's Parent's press release of 25th October, 1994 shall not constitute a Material Adverse Effect so long as the Agent shall have determined, after due diligence, that the results described therein reflect completely and accurately, in all material respects, the actual results for the period covered); (h) as at the date hereof, no member of the Charging Group or any Subsidiary thereof has any material obligations, contingent liabilities, or liabilities to Tax, long term leases or unusual forward or long term commitments which are not reflected in the audited 31st December 1993 balance sheet of Tyco Parent and its Subsidiaries except for those which were incurred or entered into in the normal course of the prudent conduct of trading activities by such member or Subsidiary. Except as otherwise permitted hereunder no dividend has been declared or paid by any member of the Charging Group since 30th September 1994 and no payment has been made in respect of the purchase, or redemption of any share capital of any member of the Charging Group and none of the share capital of any member of the Charging Group has been, or is now required to be redeemed, purchased or otherwise acquired for value by any member of the Charging Group; (i) no member of the Charging Group has taken any action nor have any steps been taken or legal proceedings been started or, so far as it is aware, threatened against it for winding-up, dissolution or re-organisation, the enforcement of any Encumbrance over its assets or for the appointment of a receiver, administrative receiver, or administrator, trustee or similar officer of it or of any or all of its assets or revenues; (j) no member of the Charging Group is (nor would be with any of the giving of notice, lapse of time, determination of materiality or other condition) in material breach of or in material default under any deed, instrument or any agreement to which it is a party or which is binding on it or any of its assets; (k) no action, litigation, arbitration or administrative proceeding has been commenced, or is pending or, so far as it is aware, threatened against any member of the Charging Group or any Subsidiary thereof which: (i) challenges any such member of the Charging Group's or Subsidiary's right, power or ability to enter into or perform any of its obligations under the Financing Documents or the validity or enforceability of any Financing Document; or -50- (ii) which is reasonably likely to have a Material Adverse Effect; and nor is there subsisting any unsatisfied judgment or award given against any of them by any court, arbitrator or other body; (l) there are no material strikes or other employment disputes against any member of the Charging Group or any Subsidiary thereof which are pending or, to any such company's knowledge, threatened and none of them has any material obligation under any collective bargaining agreement, there is no organising activity involving any member of the Charging Group or any Subsidiary thereof pending or to any of their knowledge, threatened by any trade union or group of employees, there are no proceedings pending or to any of their knowledge threatened with any industrial tribunal or employment appeals tribunal and no organisation or group of employees of any of them has made any demand for recognition and there are no material complaints or charges against any member of the Charging Group or any Subsidiary thereof pending or, so far as it is aware, threatened to be filed with any governmental body or agency or any local authority arising out of or in connection with or otherwise relating to the employment or termination of employment by any member of the Charging Group or any Subsidiary thereof of any individual; (m) (i) each of the latest Accounts of Tyco Parent or the Borrowers required to be delivered pursuant to Clause 13.1 is prepared in the case of Tyco Parent in accordance with US Generally Accepted Accounting Principles and in the case of each Borrower in accordance with UK Generally Accepted Accounting Principles and in each case gives a true and fair view of the financial position of Tyco Parent or, as the case may be, the relevant Borrower as at the date to which the same were prepared and for the period then ended; (ii) each set of management accounts required to be delivered under Clause 13.1 shows with reasonable accuracy the financial condition of the member of the Group in respect of which they were prepared during the period to which they relate; (iii) all liabilities (contingent or otherwise) which should have been fully disclosed or reserved against in such Accounts or, as the case may be, management accounts, were so disclosed or reserved against therein; (n) once the Conditions Precedent have been satisfied, no Encumbrance other than a Permitted Encumbrance exists over all or any part of the present or future revenues or assets of any member of the Charging Group or any Subsidiary thereof; -51- (o) all licences, consents, exemptions, clearances, filings, registrations and authorisations which are or may be necessary to enable each member of the Charging Group and each Subsidiaries thereof to own its assets, to carry on its business and to perform its obligations under the Financing Documents to which it is a party and to fulfil the transactions contemplated by such documents and for the proper conduct of its business or which are required in connection with the execution, delivery, validity, enforceability or admissibility in evidence of the Financing Documents are in full force and effect; (p) the accounting reference date of each Borrower is 31st December; (q) the execution of the Financing Documents by members of the Charging Group and the exercise of each of their respective rights and the performance of each of their respective obligations thereunder will not result in the creation of any Encumbrance over or in respect of any of their or their Subsidiaries' present or future revenues, assets or undertakings, other than a Permitted Encumbrance; (r) each member of the Charging Group and each Subsidiary thereof has complied with all Taxation laws in all jurisdictions in which it is subject to Taxation and has paid all Taxes due and payable by it and no claims are being asserted against it in respect of Taxes save for assessments in relation to the ordinary course of its business or claims contested in good faith and in respect of which adequate provision has been made and disclosed in the latest Accounts or information delivered in writing to the Agent hereunder; (s) no member of the Charging Group nor any Subsidiary thereof has any obligation to contribute to any form of occupational or personal pension schemes or has any liabilities in relation to any form of occupational or personal pension schemes; (t) the obligations of each Borrower under this Agreement and each member of the Charging Group under the Financing Documents (to the extent that any such obligations do not acquire enhanced priority by virtue of security created and/or conferred by the Security Documents) shall, without prejudice to the provisions of Clause 13.3, at all times rank at least pari passu with all its other present and future unsecured and unsubordinated Indebtedness with the exception of any obligations which are mandatorily preferred by law and not by contract; (u) (i) each of the Borrowers and each of their Subsidiaries is complying and has at all times complied with Environmental Law; -52- (ii) each of the Borrowers and each of their Subsidiaries has obtained every Environmental Permit it requires in connection with the conduct of its business and the ownership, use, exploitation or occupation of its property and assets, and has conducted its business in accordance with such Environmental Permits; all such Environmental Permits are in full force and effect and there has been no default in the observance of the conditions and restrictions (if any) imposed in, or in connection with, any of the same and no member of the Charging Group nor any Subsidiary thereof has received any notice, nor is aware of any proposal to amend, revoke, or replace any such Environmental Permits, or requiring the issue of any new Environmental Permits in respect of its undertaking, property, assets or business; (iii) each of the Borrowers and each of their Subsidiaries has at all times carried on and is now carrying on its business in a manner which would permit the issue, maintenance, renewal or reissue of all Environmental Permits required under Environmental Law applying to its undertaking, property, assets and business; (iv) no Borrower nor any Subsidiary thereof is or has been on notice of, or subject to, a claim, order, notice or other demand either to take decontamination, remedial or other action under any Environmental Law, or to reimburse any person who has taken such action, in connection with any property or is or has been the subject of any claim, order, notice or other communication which requires any work, repairs, construction, modifications or capital expenditure pursuant to any Environmental Law; (v) no Borrower nor any Subsidiary thereof has any liability or contingent liability under any Environmental Law in connection with its undertaking, property, assets or business; (vi) there is no Environmental Claim pending against any Borrower or any Subsidiary thereof and to the knowledge of the officers of each Borrower or each such Subsidiary, no circumstances have arisen which might give rise to an Environmental Claim against any such company; (vii) no Borrower nor any Subsidiary thereof nor any premises now in the ownership, occupation or control of either of the Borrowers or any Subsidiary thereof has been the subject of any investigation or inspection under any Environmental Law other than merely routine inspections and so far as it is aware no such investigation or inspection is pending, threatened or proposed. -53- (v) (i) since the date of first ownership, leasing, occupation or control of any premises by any Borrower or any Subsidiary thereof no Hazardous Materials have been used, disposed of, generated, stored, transported, dumped, released, deposited, buried, or emitted at, on, from or under any such premises and, so far as each of the Borrowers and each of their Subsidiaries is aware, prior to any such date no Hazardous Materials have been used, disposed of, generated, stored, transported, dumped, released, deposited, buried, or emitted at, on, from or under any such premises; (ii) there are no unauthorised locations in the United Kingdom to which or where Hazardous Materials have been shipped or disposed of by any Borrower or any Subsidiary thereof. All facilities and all transporters and handlers engaged by any Borrower or any Subsidiary thereof to transport or dispose of any Hazardous Materials had, at the time of shipment or disposal, all required Environmental Permits. (w) the locations of each Borrower's warehouses and premises within which any of its Charged Property is stored or located, and the location of all of each Borrower's records concerning the Charged Property are set forth in Schedule 7; (x) the property listed in Schedule 11, as such Schedule may with respect to this sentence have been previously updated in writing (for which no consent is required) by the Borrowers in writing delivered to the Agent, the Issuing Bank and the Lenders, constitutes all the real property owned, leased (other than property leased, as lessee where the annual rental payments are less than (Pounds)20,000) or used in the business of any member of the Charging Group or any of their Subsidiaries, and each such company holds (a) good and marketable fee simple title to all real property owned by it and described in Part 1 of Schedule 11, (b) valid and marketable leasehold interests in all of such leases (both as lessor and lessee, sub-lessee or assignee) described in Part 2 of Schedule 11, and (c) good and marketable title to or valid leasehold interests in, all of its other property and assets; (y) without prejudice to Clause 12.2(j), no member of the Charging Group nor any Subsidiary thereof, nor, to any member of the Charging Group's knowledge, any other party to any such lease described in Schedule 11 is in default of its obligations thereunder or has delivered or received any notice of default under any lease, and no event has occurred which, with the giving of notice, the passage of time, or both, would constitute a default under any such lease, where, with respect to any such lease, the termination of such lease would reasonably be expected to have a Material Adverse Effect; -54- (z) no member of the Charging Group nor any Subsidiary thereof either owns or holds, or is obligated under or a party to, any option, right of first refusal or any other contractual right to purchase, acquire, sell, assign or dispose of any real property owned or leased by a member of the Charging Group or any Subsidiary thereof except as set forth in Schedule 12, as such Schedule may with respect to this sentence have been previously updated in writing (for which no consent is required) by the Borrowers in writing delivered to the Agent, the Issuing Bank and the Lenders; (aa) no portion of any real property owned or leased by any member of the Charging Group or any Subsidiary thereof has suffered any material damage by fire or other casualty loss which has not heretofore been repaired and restored to good operating condition except as shall have been previously notified by such member or Subsidiary to the Agent, the Issuing Bank and the Lenders in writing; all material permits required to have been issued or appropriate to enable the real property to be lawfully occupied and used for all of the purposes for which they are currently occupied and used, have been lawfully issued and are, as of the date hereof, in full force and effect; (bb) no contract, lease, agreement or other instrument to which any member of the Charging Group or any Subsidiary thereof is a party or by which it or any of its properties or assets is bound or affected and no provision of any constitutional document, applicable law or governmental regulation or any corporate restriction has resulted in or will result in a Material Adverse Effect; (cc) the list of accounts in Schedule 13 constitutes a full list of all banks and other financial institutions at which any Borrower and any of their respective Subsidiaries maintains deposits and/or other accounts and such Schedule correctly identifies the name and address of each deposit or, as the case may be, account holder, the name in which the account is held, a description of the purpose of the account, and the complete account number; (dd) the list of contracts in Schedule 14 as supplemented from time to time by written disclosure to the Agent is a complete and accurate list of all Material Contracts of each member of the Charging Group and each Subsidiary thereof; (ee) the list of insurances in Schedule 15 as supplemented from time to time by written disclosure to the Agent is a complete and accurate list of all insurances (including, without limitation, all insurances relating to receivables) maintained by each Borrower and each of their respective Subsidiaries; -55- (ff) without prejudice to Clause 12.2(j), no member of the Group is in material default and, to each member of the Group's knowledge, no third party is in material default, under or with respect to any Material Contract, agreement, lease or other instrument to which any member of the Group is a party; (gg) each member of the Group is in compliance in all material respects with (i) all material license agreements to which it is a party or bound by, and (ii) its obligations to make royalty payments to other persons; (hh) neither of the Borrowers has any Subsidiaries other than those Subsidiaries set forth in Schedule 3 and no member of the Charging Group nor any Subsidiary thereof is engaged in any joint venture or partnership with any other person or has any equity interest in any other person. The issued share capital of each member of the Charging Group and each Subsidiary thereof is owned by each of the Shareholders named in Schedule 16 Part I and constitutes all of the issued share capital of such persons and all such share capital is duly and validly issued and fully paid. Except as set out in Schedule 16 Part II, there are no outstanding rights to purchase stock, or options, warrants or similar rights, agreements or plans pursuant to which any member of the Charging Group or any Subsidiary thereof may be required to issue, sell or purchase any shares or other equity security; (ii) except as set out in Schedule 18, (or, in relation to Tyco Industries except as set out in the US Credit Agreement) each member of the Charging Group and each Subsidiary of the Borrowers owns all licences, patents, patent applications, copyrights, service marks, trademarks, trademark applications and trade names which are necessary to continue to conduct its business as heretofore conducted by it and proposed to be conducted by it, each of which is listed together with relevant application or, as the case may be, registration numbers in Schedule 17, and each Borrower will procure that each member of the Charging Group and each Subsidiary of each Borrower will update the contents of such Schedule not less than once in each calendar quarter in each calendar year to reflect promptly any change therein. Each member of the Charging Group and each Subsidiary thereof conducts business without infringement or claim of infringement of any licence, patent, copyright, service mark, trademark, trade name, trade secret or other intellectual property right of others, except where such infringement or claim of infringement could not have or result in a Material Adverse Effect. To the knowledge of each member of the Charging Group and each Subsidiary thereof, there is no infringement or claim of infringement by others of any material licence, patent, copyright, service mark, trademark, trade name, trade secret or other intellectual property right of any member of the Charging Group or any of its Subsidiaries; -56- (jj) neither Borrower has any obligations to any person in respect of any finder's or brokerage fees in connection with the Financing Documents; (kk) since the latest management accounts of the Tyco Parent delivered to the Agent in accordance with Clause 13.1 there has been no material decrease in the consolidated assets of Tyco Parent (other than normal recurring seasonal changes in the foregoing consistent with prior years' experience). (ll) each member of the Charging Group is solvent and will not become insolvent after giving effect to the transactions contemplated by this Agreement and the other Financing Documents; each Borrower and each of their respective Subsidiaries after giving effect to the transactions contemplated by this Agreement and the other Financing Documents will have an adequate amount of capital to conduct its business in the foreseeable future; (mm) no information contained in this Agreement or the other Financing Documents or any written statement furnished by or on behalf of any member of the Charging Group or any Affiliate thereof pursuant to the terms of this Agreement or any other Financing Document, which has previously been delivered to the Agent or any Lender, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading in light of the circumstances under which they were made; with respect to all business plans and other forecasts and projections furnished to the Agent, the Issuing Bank or any Lender relating to the financial condition, operations, business, properties or prospects of any Borrower or any Subsidiary thereof (i) all the facts stated as such therein are true and complete in all material respects, (ii) all facts upon which each forecast or projection therein contained are based are true and complete in all material respects and no material fact was omitted therefrom, (iii) all assumptions made on which each of them were based are reasonable under the circumstances and are disclosed therein, and (iv) the forecasts or projections are reasonably based on those facts and assumptions; with respect to any such forecasts or projections made available to the Agent, the Issuing Bank or any Lender after the Completion Date, the foregoing sub-clauses (i) to (iv) shall be true and accurate in all respects as of the date of each such projection and forecast; (nn) no Borrower or any of their respective Subsidiaries is subject to regulation under any statute that restricts or limits the ability of any person subject thereto to incur indebtedness, charge, assign or mortgage its assets or perform its obligations hereunder or under any other Financing Document, the making of the Advances by the Lenders, the application of the proceeds and repayment thereof by the Borrowers or the issue of any Guarantees on account of and with recourse to either Borrower, and the consummation of the transactions contemplated by this -57- Agreement and other Financing Documents will not violate any provision of any such statute, regulation or order issued by any such body; (oo) neither Borrower employs any person in Eire or is liable to VAT in Eire; and (pp) the trademarks "Speedking", "Play Track", "Fighting Furies" and "Streakers" are not in use with either Borrower in its business. 12.3 Repetition ---------- The representations and warranties set out in Clause 12.2 shall survive the execution of this Agreement and (save for the representation and warranty made under Clause 12.2(g)) shall be deemed to be repeated by each of the Borrowers on each Drawdown Date and each Issue Date and, except where the terms of such representation and warranty imply otherwise, as if made with reference to the facts and circumstances existing at that time. 13. UNDERTAKINGS ------------ 13.1 Information Undertakings ------------------------ 13.1.1 Weekly Information ------------------ Each Borrower hereby undertakes and agrees with the Agent, the Issuing Bank and each Lender that throughout the Security Period it shall by no later than Tuesday of each week deliver to the Agent: (i) a Borrowing Base Certificate for each Borrower as of the last day of the preceding week; and (ii) for each Borrower, an Inventory report by product line and a schedule detailing ineligible Inventory in each case accompanied by such supporting detail and documentation as the Agent may request. 13.1.2 Monthly Information ------------------- Each Borrower hereby undertakes and agrees with the Agent, the Issuing Bank and each Lender that throughout the Security Period it shall as soon as the same become available, but in any event within 30 days after the end of each period of one month (or 45 days after the end of each March, June and September) during any Financial Year, deliver to the Agent for distribution to the Issuing Bank and the Lenders, copies in sufficient numbers for all of them of: -58- (a) monthly management accounts of each of the Borrowers and their respective Subsidiaries incorporating an income statement and balance sheet (such information to be in the form of the consolidating information provided pursuant to the terms of the US Credit Agreement) for such month and that portion of the current Financial Year ending as of the end of such month which shall provide comparisons to the prior year's equivalent period, both on a monthly and year-to-date basis, and to budget and otherwise in form and substance satisfactory to the Agent and which shall give a true and fair view of the consolidated financial position of such companies; (b) a report of the Managing Director or Finance Director of each Borrower and their respective Subsidiaries setting forth the board of directors' discussion and analysis of all current income statement, balance sheet and cash flow financial trends; and (c) a certificate of the Managing Director or Finance Director of each Borrower and their respective Subsidiaries that all such financial statements are complete and do not contain any material error, mis- statement or omission and present fairly in accordance with UK GAAP (subject to normal year end adjustments) the financial position, the results of operations of the Borrowers and their respective Subsidiaries as at the end of such month and for the period then ended, and that to his or her knowledge there was no Default or Default Occurrence in existence as of such date or specifying those Defaults or Default Occurrences of which he or she was aware and with respect to the certificate to be delivered for the last month in each period of three months ending on 31st March, 30th June, 30th September and 31st December in each year, accompanied by a statement in reasonable detail showing the calculations used in determining the compliance by each Borrower with the financial undertakings contained in Clause 13.4. 13.1.3 Annual Information ------------------ Each Borrower hereby undertakes and agrees with the Agent, the Issuing Bank and each Lender that throughout the Security Period it shall, as soon as the same become available, but in any event in relation to the items required by Clauses 13.1.3(a) to (d) within 90 days after the end of each Financial Year and in relation to the items required by Clauses 13.1.3(e) on the last Business Day of each Financial Year, deliver to the Agent for distribution to the Issuing Bank and the Lenders, copies in sufficient numbers for all of them of: (a) the Accounts of Tyco Parent for the relevant Financial Year together with a copy of the management letter (if any) -59- addressed by the Auditors to the directors of the relevant company accompanied by a statement in reasonable detail showing the calculations used in determining the Borrowers compliance with the financial undertakings set forth in Clause 13.4 together with a report from the Auditors to the effect that in connection with their audit examination, they did not become aware of any Default or Default Occurrence or specifying those Defaults or Default Occurrences of which they became aware; (b) a report of Tyco Parent executed on its behalf by the Chief Executive Officer or Chief Financial Officer setting forth the board of directors discussion and analysis of all current income statement, balance sheet and cash flow financial trends; (c) the annual letter from Tyco Parent's Chief Executive Officer or Chief Financial Officer to the Auditors in connection with their audit examination detailing the Borrowers' material contingent liabilities and material litigation; (d) a certificate of the Chief Executive Officer or Chief Financial Officer of Tyco Parent that all such financial statements are complete and correct and represent fairly in accordance with US GAAP the financial position, the results of operations and the changes in financial position of Tyco Parent as at the end of Financial Year and for the period then ended, and that there was no Default or Default Occurrence in existence as of such time or specifying the Default or Default Occurrence of which he or she was aware; and (e) financial projections for the next succeeding Financial Year which shall include monthly financial projections (including a Capital Expenditures budget) for each of the Borrowers and their respective Subsidiaries acceptable to the Agent for the following Financial Year approved by the board of directors of each of the Borrowers and their respective Subsidiaries, as the case may be, and, which, in each case, include the following: (i) projected balance sheets of each Borrower and each of their Subsidiaries for such Financial Year, on a monthly basis; (ii) projected cash flow statements and forecasted excess borrowing availability of the Borrowers, including summary details of cash disbursements (including Capital Expenditure) for such Financial Year, on a monthly basis; -60- (iii) projected statements of operations of each Borrower and each of their respective Subsidiaries for such Financial Year, on a monthly basis; and (iv) projected annual balance sheet, cash flow statements, and statements of operations of each Borrower and each of their respective Subsidiaries for such Financial Year together with the description of major assumptions used in generating such balance sheets, cash flows and income statements, and other appropriate supporting details as requested by the Agent; and all such projections shall be broken down by division and otherwise in a manner satisfactory to the Agent. 13.1.4 Other Information Undertakings ------------------------------ Each Borrower hereby undertakes and agrees with the Agent, the Issuing Bank and each Lender that throughout the Security Period it shall: (a) promptly furnish to the Agent such information, documents and records about the business, financial condition, operations and prospects of any member of the Group as the Agent or any Lender may from time to time reasonably require; (b) ensure that all Accounts and other financial information (other than Accounts of and other financial information relating solely to a Borrower) submitted to the Agent have been prepared in accordance with US Generally Accepted Accounting Principles as applied in respect of the Base Accounts; (c) ensure that all Accounts and other financial information submitted to the Agent relating solely to a Borrower have been prepared in accordance with UK Generally Accepted Accounting Principles as applied in respect of the Accounts of such Borrower filed at Companies House in respect of its Financial Year ended 31st December 1993; (d) promptly notify the Agent of: (i) any Default and any Default Occurrence; (ii) any litigation, arbitration or administrative proceeding commenced against any member of the Group which, is reasonably likely if adversely determined to have a Material Adverse Effect or to give rise to a judgment or award exceeding (Pounds)50,000 -61- individually in value or (to the extent litigation, arbitration or administrative proceedings are related) in the aggregate; (iii) any Encumbrance which is not a Permitted Encumbrance of which a Borrower becomes aware attaching to its assets or revenues; and (iv) any occurrence (including without limitation any third party claim or liability) of which a Borrower becomes aware which may have a Material Adverse Effect; and in each case such notification to be confirmed in writing to the Agent within 5 days; and (e) by no later than the twentieth day after the end of each month, a reconciliation for each Borrower or the weekly Inventory reports of such Borrower required in Clause 13.1.1(ii) for such month to such Borrower's general ledger for such month and monthly financial statement, in each case accompanied by such supporting detail and documentation as the Agent may require. 13.1.5 Disclosure of Information ------------------------- Each Borrower (for itself and each of its respective Subsidiaries) authorises the Agent, the Issuing Bank and each Lender to communicate with its and each of its Subsidiary's independent accountants and authorises those accountants to make available to the Agent, the Issuing Bank and each Lender any and all financial statements and other supporting financial documents and information, with respect to the business, financial condition and other affairs of each Borrower and each of their respective Subsidiaries provided that the Agent, the Issuing Bank, or such Lenders shall (i) give the relevant Borrower prior notice of each intended communication with such accountants and of each request to have such accountants make available to the Agent, the Issuing Bank or such Lender any such financial information and material and (ii) permit a representative of the relevant Borrower to be present at any communication or making available of financial information and material. On or before the Completion Date, each Borrower shall deliver a letter (the "Accountants Letter") addressed to such accountants instructing them to make available to the Agent, the Issuing Bank and the Lenders such information and records as the Agent, the Issuing Bank and the Lenders may reasonably request and to otherwise comply with the provisions of this Clause 13.1.5 and if any Borrower or any of their Subsidiaries engages the services of accountants other than Touche Ross, it shall deliver a letter addressed to such accountants containing the same terms and provisions as the Accountants Letter. -62- 13.2 Positive Covenants ------------------ Each of the Borrowers hereby undertakes and agrees with the Agent, the Issuing Bank and each Lender that, throughout the Security Period, it shall and it shall procure that it and each of its Subsidiaries shall unless the Agent (acting on the instructions of the Majority Lenders) shall otherwise agree: (a) do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and its rights and franchises other than the dissolution, liquidation or merger of Subsidiaries of the Borrowers insofar as permitted under Clause 13.3(d), and continue to conduct its business substantially as now conducted or as otherwise permitted hereunder; (b) permit the Agent and any person (being an accountant, auditor, solicitor, valuer or other professional adviser of the Agent) authorised by the Agent to have, at all reasonable times during normal business hours and on reasonable notice, access to the property, premises and accounting books and records of any member of the Group and to the officers of any member of the Group, permit such person to inspect, audit and make extracts from all accounting books and records of such member of the Group and permit such person to conduct audits to inspect, review and evaluate the Charged Property (such audits not to exceed, at the expense of any member of the Charging Group, (x) four times in any Financial Year with respect to audits of inventory and (y) four times in any Financial Year with respect to other audits unless a Default has occurred in which case such limits shall not apply; it being understood that the foregoing limit shall not prohibit the Agent from conducting additional audits at the expense of the Lenders); (c) at the request of the Agent, do or procure the doing of all such things and execute or procure the execution of all such documents as are in the reasonable opinion of the Agent or any Lender, necessary or desirable to ensure that the Agent, the Issuing Bank and the Lenders obtain the full benefit of their rights and benefits under the Financing Documents; (d) pay and discharge all Taxes and governmental charges prior to the date on which the same become overdue unless, and only to the extent that, such Taxes and charges shall be contested in good faith by appropriate proceedings, pending determination of which payment may lawfully be withheld, and there shall be set aside adequate reserves in accordance with UK Generally Accepted Accounting Principles with respect to any such Taxes or charges so contested; (e) pay and discharge its debts as they fall due for payment in the ordinary course of its trading activities (unless contested in good faith); -63- (f) at all times comply with all laws and regulations applicable to it and which are necessary in relation to: (i) the conduct of its business generally and obtain, effect and maintain in full force and effect all governmental and other regulatory consents, licences, exemptions, clearances, filings, registrations and authorisations required for the conduct of its business generally; and (ii) the validity, enforceability or, as the case may be, admissibility in evidence of the Financing Documents; except where the failure to so comply could not be reasonably expected to result in a Material Adverse Effect and would not be reasonably likely to subject Tyco Parent or any of its Subsidiaries to any criminal penalties (other than non-material fines) or the Agent, the Issuing Bank or any Lender to any civil or criminal penalties; (g) promptly and in any event within any period provided for the same in any applicable statute, law or regulation deliver all necessary forms and documents required to be delivered to or registered with any governmental, statutory or other body or agency in connection with the Financing Documents and any of the transactions contemplated hereunder or thereunder; (h) remain resident in the United Kingdom for Tax purposes; (i) comply, and procure that each other member of the Charging Group and each Subsidiary thereof complies, in all material respects with all requirements of Environmental Law applicable to each such member of the Charging Group and each Subsidiary thereof (including, without limitation, obtaining and maintaining in full force and effect all consents, authorisations, licences or approvals required from time to time) and promptly notify the Agent of (i) any Environmental Claim which has been made or threatened against any member of the Charging Group and each Subsidiary thereof or against any occupier of any property owned or leased by any member of the Charging Group and each Subsidiary thereof or of any circumstanecs that arises which might give rise to any such Environmental Claim and (ii) any revocation, suspension, amendment, variation, withdrawal or refusal to grant any consent, authorisation, licence or approval, which in the case of either (i) or (ii) above might have a Material Adverse Effect; (j) notify the Agent in writing, promptly upon learning thereof, of any litigation, claim (whether in respect of Tax or otherwise) commenced or threatened against any Borrower or any of their respective Subsidiaries, and of the institution against any such person of any suit or administrative proceeding which (a) may involve an amount in excess of (Pounds)50,000 -64- individually or in aggregate or (b) could have or result in a Material Adverse Effect if adversely determined; (k) at all times maintain, preserve and protect all of its material Intellectual Property, and preserve all the remainder of its property, in use or useful in the conduct of its business and keep the same in good repair, working order and condition (taking into consideration ordinary wear and tear) and from time to time make, or cause to be made, all necessary or appropriate repairs, replacements and improvements thereto consistent with industry practices, so that the business carried on in connection therewith may be properly and advantageously conducted at all times; (l) keep and maintain its equipment and fixtures in good operating condition sufficient for the continuing of such company's business conducted on a basis consistent with past practices and shall provide or arrange for all maintenance and service and all repairs necessary for such purpose; (m) transact business only under the names set forth in Schedule 20; (n) keep adequate records and books of account with respect to its business activities, in which proper entries, reflecting all of its financial transactions, are made in accordance with UK GAAP; (o) at its sole cost and expense maintain insurances or cause to be maintained with respect to each member of the Charging Group and each Subsidiary thereof on and in relation to its business and assets against such risks and to such an extent and with such underwriters or insurance companies as the Agent deems advisable from time to time and which include: (i) property damage insurance where the cover is for amounts which are no lower than the higher of the market value and book value of the relative property; and (ii) business interruption insurance where the cover shall be substantially similar in amount to that customarily maintained by or on behalf of the relevant company; and shall, without limitation, comply with all obligations contained in any Guarantee and Debenture to which the Borrower is a party relating to insurance and shall further, without limitation, maintain all those insurances listed in Schedule 15 and shall ensure that save in relation to those insurances listed in Part 2 of Schedule 15 the Agent is named as an insured party on all such policies of insurance and, if so required by the Agent, as loss payee and shall if so requested by the Agent, deliver to the Agent, as often as the Agent may request, a report of a reputable insurance broker satisfactory to the Agent with respect to its insurance policies. If, notwithstanding that all proceeds of insurance in respect of any Charged Property are payable to the Agent, any member of the -65- Charging Group or Subsidiary thereof receives any proceeds of insurance in respect of any Charged Property in respect of the policies required to be maintained under this Agreement, such proceeds shall be held in trust by such person and the Borrowers shall cause such person to hold such proceeds in trust for the Agent and, unless the Agent otherwise permits, shall be forthwith paid over to the Agent; (p) notify the Agent promptly of any occurrence causing a material loss or decline in value of any property or assets of any Borrower or any of their Subsidiaries and the estimated (or actual, if available) amount of such loss or decline; each Borrower (for itself and its respective Subsidiaries) hereby directs all present and future insurers to pay all proceeds of insurance described in Part 1 of Schedule 15 directly to the Agent on behalf of itself, the Issuing Bank and the Lenders; and each Borrower (for itself and its Subsidiaries) irrevocably makes, constitutes and appoints the Agent (and all officers, employees or agents designated by the Agent) as such persons true and lawful agent and attorney-in-fact for the purpose of making, settling and adjusting claims under all policies of insurance and for doing all things in connection therewith; (q) perform, within all required time periods (after giving effect to any applicable grace periods), all of its obligations and enforce all of its rights under each agreement, contract, instrument or other document to which it is a party, including any leases, licenses and customer contracts to which it is a party where the failure to so perform and enforce could have or result in a Material Adverse Effect; (r) on the request of the Agent, the Issuing Bank or any Lender, but not more often than once a calendar quarter unless a Default has occurred and is continuing in which case no such limit shall exist, supplement (or cause to be supplemented) each Schedule or representation herein or in any other Financing Document with respect to any matter hereafter arising which, if existing or occurring at the date of this Agreement, would have been required to be set forth or described in such Schedule or as an exception to such representation or which is necessary to correct any information in such Schedule or representation which has been rendered inaccurate thereby, provided that such supplement to such Schedule or representation shall not be deemed an amendment thereof unless expressly consented to in writing by the Agent and the Majority Lenders and no such amendments, except as the Majority Lenders have consented to in writing which expressly includes a waiver, shall be or be deemed a waiver by the Lenders of any Default disclosed therein; each Borrower shall, if so requested by the Agent or the Majority Lenders, furnish to the Agent, the Issuing Bank and the Lenders as often as they reasonably request, statements and schedules further identifying and describing the Charged Property and such other reports in connection with the Charged Property as the Agent or Majority Lenders may reasonably request and shall advise the Agent, the Issuing Bank and the Lenders promptly of any -66- Encumbrance, other than a Permitted Encumbrance, attaching to or asserted against any of the Charged Property, any material change in the composition of the Charged Property and the occurrence of any other event which would have a Material Adverse Effect upon the Charged Property and/or the Agent's security of the Agent as agent and security trustee thereon; (s) unless otherwise agreed to by the Agent in writing, obtain or cause to be obtained a landlord's agreement in form and substance acceptable to Agent from the lessor of any present or future leased premises of each member of the Group which owns any tangible property constituting Charged Property located on such premises having a book value of more than (Pounds)50,000 or constituting any Eligible Inventory; (t) take such action from time to time as shall be necessary to ensure that each Subsidiary of each Borrower is a direct or indirect wholly owned Subsidiary of either of the Borrowers and is owned directly or indirectly only by members of the Group; (u) promptly notify the Agent of any loss, damage, or destruction to any Charged Property or any real property owned by any member of the Group whether or not constituting Charged Property (collectively, "Property") or arising from its use, whether or -------- not covered by insurance provided that no such notice is necessary with respect to the loss, damage or destruction from a single casualty of any Property with a value less than (Pounds)20,000; (v) if either Borrower establishes a retirement benefit scheme (as defined in Section 611 of the Income and Corporation Taxes Act 1988) (the "scheme") it shall (i) promptly provide the Agent with ------ copies of such documentation relating thereto as the Agent shall request, (ii) not do anything which would or might prejudice any Inland Revenue approval of that scheme, (iii) duly and punctually pay all contributions or other sums required under the trust deed and rules or other documentation containing provisions governing the scheme and ensure that all lump sum death in service benefits payable under the scheme or by the relevant Borrower are fully insured, (iv) comply with all statutory requirements relating thereto including without restriction the provisions of Article 119 of the Treaty of Rome establishing the European Economic Community, (v) immediately notify the Agent of any claims, actions or suits which have or may be made against the relevant Borrower or the trustees of the scheme; (w) procure that each member of the Charging Group and each Subsidiary thereof shall within 60 days after the date hereof amend, modify or terminate all hedging agreements involving any member of the Charging Group and any Subsidiary thereof which are existing on the date hereof to the extent necessary so that after giving effect to any such amendment, -67- modification or termination, all such agreements existing on such 60th day shall be reasonably satisfactory to the Agent; (x) within 60 days of the date of this Agreement, enter into: (i) a distribution agreement with the other companies in the Group, in form and substance satisfactory to the Agent; and (ii) currency hedging agreements in amount, duration, form and substance reasonably acceptable to the Agent; and (iii) an agreement to alter the name of the Owner under the agency agreement dated 27th July 1994 between Tyco Matchbox Limited and Just Licensing Limited and change the name of the principal to Matchbox Toys Limited in the annexed licence agreement; (y) within 15 days of the date of this Agreement, agree and procure that Lloyds Bank Plc and International Factors Limited agree a form of lockbox service agreement which each is willing to enter into if required to do so by the Agent pursuant to the Debenture in form and content satisfactory to the Agent; and (z) if at any time any of the trademarks referred to in Clause 12.2(pp) are in use with either Borrower in its business, such Borrower shall promptly notify the Agent thereof and on request from the Agent execute a fixed charge substantially in the form of a Trade Mark Change over its rights to use the same and procure that any member of the Group which is a registered proprietor or licensor to such Borrower on request from the Agent shall also execute a fixed charge substantially in the form of a Trade Marks Change over its right, title, benefit and interest in and to such mark. 13.3 Negative Covenants ------------------ Each of the Borrowers hereby undertakes with the Agent, the Issuing Bank and each Lender that during the Security Period it shall not and the Borrowers shall procure that none of their respective Subsidiaries shall unless the Agent (acting on the instructions of the Majority Lenders) otherwise agrees: (a) other than Permitted Encumbrances, create or permit to subsist any Encumbrance over any of its undertaking and assets from time to time or directly or indirectly enter into any agreement with any person which prohibits or limits the ability of any of the Borrowers or their respective Subsidiaries to create, incur, assume or suffer to exist any Encumbrance upon any of its property, assets or revenues whether now owned or hereafter acquired other than agreements with the Agent, the Issuing Bank or the Lenders which are entered into pursuant to a Financing -68- Document and other than agreements which restrict Encumbrances which fall within paragraph (e) of the definition of "Permitted Encumbrance" in Clause 1.1; (b) sell, transfer, lease, lend or otherwise dispose of any of its undertaking and assets from time to time owned by it other than the sale of Inventory, or the sale or disposal of any assets which have become obsolete or surplus to the business of such Borrower or Subsidiary, in any such case in the ordinary course of the prudent conduct of its trading activities, or other than any sale, transfer, lease, loan or other disposal which would then be permitted under Section 6.8 of the US Credit Agreement; (c) make or threaten to make any change in its business objectives, purposes or operations as at present conducted, which could in any way adversely affect the satisfaction of any obligations under the Financing Documents on the due date for performance thereof or have or result in a Material Adverse Effect or make any material change in the terms and conditions upon which any of the Borrowers or their respective Subsidiaries does business, amend its Memorandum or Articles of Association in any manner which is reasonably likely to adversely affect the interests of the Issuing Bank or the Lenders, or engage in any business other than the business in which it is currently engaged or any related toy or collectibles business; (d) directly or indirectly, by operation of law or otherwise, merge or consolidate with or otherwise combine with any other person or enter into any joint venture or partnership agreement, other than any such merger, consolidation or combination, joint venture or partnership agreement which would then be permitted under Section 6.1 of the US Credit Agreement; (e) subject to Clause 13.3(f) below, pay any fees or commissions to any person other than on open market terms and for the purpose of its trade and in the ordinary course of the prudent conduct of its trade; (f) make any loans or grant any credit or enter into any commercial transaction with any of its Subsidiaries, Affiliates, officers, directors or employees, including payment of any management, consulting, advisory or similar fee, other than any such loan, granting of credit or entry into a commercial transaction which would then be permitted under Section 6.4 of the US Credit Agreement; (g) other than Permitted Indebtedness, incur or permit to subsist any Indebtedness; (h) incorporate any company as its Subsidiary or acquire all or substantially all of the assets, shares or securities issued by any company; -69- (i) cancel or terminate any Material Contract or amend or otherwise modify any Material Contract, or waive any default or breach any Material Contract, except any such cancellation, termination, amendment, modification, waiver or breach which would then be permitted under Section 6.9 of the US Credit Agreement, or take any other action in connection with any Material Contract that would have a Material Adverse Effect; (j) cancel any claim or Indebtedness owing to it, except for reasonable consideration and in the ordinary course of its business, or make any payment or prepayment of principal or of interest on or otherwise with respect to, or purchase, acquire or redeem any Indebtedness (other than under the Overall Facilities) or make any deposit in respect thereof or give notice in respect thereof, except any payments of Indebtedness which would then be permitted under the US Credit Agreement; (k) declare or make any Restricted Payment, other than a Restricted Payment which then may be declared or made under Section 6.15 of the US Credit Agreement; (l) enter into or renew (by amendment, modification or otherwise) any lease of real property other than (x) renewals of existing leases of real property upon more favourable (to such company) or substantially the same terms as are in effect on the Completion Date and (y) leases of real property permitted under the terms of clause 6.16 of the US Credit Agreement; (m) maintain any deposit, operating or other bank accounts except for those accounts identified in Schedule 13; (n) engage in any transaction involving commodity options or futures contracts, derivatives, currency options or futures contracts or any similar speculative transaction (other than with respect to currency exchange rate fluctuations in the ordinary course of business consistent with past practice and prudent business management or with respect to interest rate protection the terms of which are acceptable to the Agent); (o) make any significant change in accounting treatment and reporting practices except for changes concurred with by its Auditors; (p) not make any deposit with, or advance, loan or other extension of credit to any other person (including the purchase of property from another person subject to an understanding or agreement, contingent or otherwise, to resell such property to such person) other than deposits, advances, loans and extensions of credit which would be permitted under Section 6.2 of the US Credit Agreement or are otherwise contemplated by any of the Financing Documents, or are made in the ordinary course of its business with or to institutions authorised under the Banking Act 1987; -70- (q) make any change in its capital structure (including the issuance or recapitalisation of any shares of Stock or other securities convertible into Stock or any revision of the terms of its outstanding Stock) save as permitted under the terms of clause 6.15(a) of the US Credit Agreement; and (r) directly or indirectly, amend, modify, supplement, waive compliance with, grant a waiver under, or assent to non- compliance with: (i) any instrument, document or agreement evidencing, creating, guaranteeing or governing Indebtedness in excess of (Pounds)100,000 permitted under this Agreement or entered into in connection herewith (other than the instruments, documents and agreements governing the Overall Facilities in accordance with the terms thereof) or (ii) any subordinated Indebtedness (it being understood that this Clause 13.3(r) shall not be deemed to prohibit the holders of any subordinated Indebtedness (or any required percentage thereof) from waiving any requirement or default under any subordinated Indebtedness). 13.4 Financial Undertakings ---------------------- 13.4.1 In this Clause 13.4 words and expressions shall have the meanings attributed to them in the US Credit Agreement. This Clause 13.4 shall be construed in accordance with the rules of construction set out in Section 2(b) of Annex H to the US Credit Agreement. 13.4.2 Each Borrower shall procure that Tyco Parent shall maintain (or cause to be maintained) as of the end of each Fiscal Quarter ending on each of the dates set forth below, Tangible Net Worth of not less than the respective amount set forth below opposite each such date:
Date Amount in Dollars ---- ----------------- March 31, 1995 74,100,000 June 30, 1995 75,300,000 September 30, 1995 91,100,000 December 31, 1995 100,600,000 March 31, 1996 92,900,000 June 30, 1996 93,900,000 September 30, 1996 109,600,000 December 31, 1996 118,700,000 March 31, 1997 110,500,000 June 30, 1997 111,500,000 September 30, 1997 127,400,000 December 31, 1997 136,700,000 March 31, 1998 128,700,000
-71- June 30, 1998 129,600,000 September 30, 1998 145,800,000 December 31, 1998 155,200,000 March 31, 1999 147,300,000 June 30, 1999 148,300,000 September 30, 1999 164,800,000 December 31, 1999 174,300,000 and the last day of each Fiscal Quarter thereafter
13.4.3 Each Borrower shall procure that Tyco Parent shall maintain (or cause to be maintained), as of the end of each Fiscal Quarter (commencing with the Fiscal Quarter ending September 30, 1995), for each Parent Rolling Period, a Minimum Debt Service Coverage Ratio of not less than (x) 0.60 to 1.0 as of the end of the Fiscal Quarter ending September 30, 1995, (y) 1.25 to 1.0 as of the end of each of the Fiscal Quarters ending December 31, 1995, March 31, 1996, June 30, 1996 and September 30, 1996 and (z) 1.30 to 1.0 as of the end of each Fiscal Quarter thereafter. 13.4.4 Each Borrower shall procure that Tyco Parent shall not permit for the three Fiscal Month period ending March 31, 1995 or for the six Fiscal Month period ending June 30, 1995 (x) EBITA for such three or six, as appropriate, Fiscal Month period less (y) the aggregate amount of all Capital Expenditures made by Tyco Parent and its Subsidiaries during such three or six, as appropriate, Fiscal Month period, to be less than ($17,300,000) and ($15,800,000), respectively. 13.4.5 Each Borrower shall procure that Tyco Parent shall not permit EBITA of the International Management Subsidiaries as of the end of any Fiscal Month set forth below for each Subsidiary Rolling Period to be less than the respective amount in Dollars set forth below opposite such Fiscal Month:
Fiscal Month Ending In EBITA June, 1995 (2,481,000) July, 1995 (1,289,000) August, 1995 2,169,000 September, 1995 10,485,000 October, 1995 18,604,000 November, 1995 23,141,000 December, 1995 23,064,000 January, 1996 23,250,000 February, 1996 23,345,000 March, 1996 23,399,000 April, 1996 23,461,000 May, 1996 23,513,000
-72- June, 1996 23,566,000 July, 1996 23,625,000 August, 1996 23,553,000 September, 1996 23,588,000 October, 1996 23,994,000 November, 1996 24,221,000 December, 1996 24,217,000 January, 1997 24,396,000 February, 1997 24,488,000 March, 1997 24,543,000 April, 1997 24,606,000 May, 1997 24,658,000 June, 1997 24,714,000 July, 1997 24,776,000 August, 1997 24,712,000 September, 1997 24,768,000 October, 1997 25,194,000 November, 1997 25,432,000 December, 1997 25,428,000 January, 1998 25,601,000
13.4.6 Each Borrower shall procure that Tyco Parent shall not permit EBITA of the Direct Import Subsidiaries as of the end of any Fiscal Month set forth below for each Subsidiary Rolling Period to be less than the respective amount in Dollars set forth below opposite such Fiscal Month:
Fiscal Month Ending In EBITA June, 1995 (537,000) July, 1995 842,000 August, 1995 3,482,000 September, 1995 5,938,000 October, 1995 7,048,000 November, 1995 7,893,000 December, 1995 8,735,000 January, 1996 8,759,000 February, 1996 8,787,000 March, 1996 8,807,000 April, 1996 8,814,000 May, 1996 8,805,000 June, 1996 8,761,000 July, 1996 8,778,000 August, 1996 8,910,000 September, 1996 9,032,000 October, 1996 9,088,000 November, 1996 9,130,000 December, 1996 9,172,000 January, 1997 9,195,000
-73- February, 1997 9,221,000 March, 1997 9,240,000 April, 1997 9,247,000 May, 1997 9,238,000 June, 1997 9,197,000 July, 1997 9,216,000 August, 1997 9,355,000 September, 1997 9,484,000 October, 1997 9,542,000 November, 1997 9,587,000 December, 1997 9,631,000 January, 1998 9,652,000
14. DEFAULT, ACCELERATION --------------------- 14.1 Default ------- There shall be a Default if: (a) any amount payable under this Agreement is not paid by either Borrower within 5 days of the date and at the place at which it is expressed to be payable; or (b) any of the Borrowers fails to comply with any of its obligations under Clauses 13.1, 13.2(x), 13.2(y), 13.2(z), 13.3, 13.4 of this Agreement and such failure shall continue unremedied for 10 days with respect to obligations under Clause 13.1 (other than under Clause 13.1.2 for which the grace period shall be 30 days) (with no grace period for any failure to comply with obligations under Clauses 13.3 and 13.4); or (c) any member of the Charging Group or any Subsidiary thereof fails to comply with any of its obligations and undertakings under any of the Financing Documents (other than the obligations and undertakings referred to in the foregoing Clause 14.1(a) or (b)) and, if, in the opinion of the Agent, capable of remedy, such default is not remedied within 30 days after notice of such failure has been given by the Agent to the relevant Borrower or 30 days after any Borrower shall become aware thereof; or (d) any representation, warranty or statement made or deemed to be repeated by any member of the Charging Group under any of the Financing Documents or in any notice, certificate, statement of fact, financial information, statement or accounts referred to in or delivered under any of the Financing Documents is or proves to have been incorrect in any material respect when made or deemed to have been repeated; or (e) any material provision of any of the Financing Documents is not or ceases to be in full force and effect, other than by reason of any action of the -74- Agent, the Issuing Bank or the Lenders or upon the written consent of the Lenders, or the validity or enforceability of any of the terms of any of the Financing Documents shall be contested by any of the members of the Charging Group; or (f) any Indebtedness in excess of, in aggregate, $1,000,000 of any of the members of the Charging Group: (i) is declared to be or otherwise becomes due and payable prior to its specified maturity or prior to its regularly scheduled dates of payment; or (ii) is not paid when due; or any creditor or creditors of members of the Charging Group become entitled to declare any such Indebtedness due and payable prior to its specified maturity; or (g) a creditor or encumbrancer attaches or takes possession of, or a distress, execution, sequestration or other process is levied or enforced upon or sued out against, any of the undertaking and assets of any of the members of the Charging Group having an aggregate value for all such assets in excess of $500,000 other than where such proceedings are set aside or withdrawn within 30 days, or any member of the Charging Group conceals, removes or permits to be concealed or removed any part of its property, with intent to hinder, delay or defraud its creditors or any of them or makes or suffers a transfer of its property or the incurring of an obligation which may be fraudulent under any bankruptcy, fraudulent conveyance or other similar law; or (h) any of the members of the Charging Group: (i) suspends payment of its debts or is unable or admits its inability to pay its debts as they fall due; or (ii) commences negotiations with one or more of its creditors with a view to the general readjustment or rescheduling of all or part of its Indebtedness which it would otherwise not be able to pay as it falls due; or (iii) proposes or enters into any composition or other arrangement for the benefit of its creditors generally or any class of creditors; or (i) any of the members of the Charging Group takes any action or any legal proceedings are started or other steps taken for: -75- (i) any of the members of the Charging Group to be adjudicated or found insolvent; or (ii) the winding-up or dissolution of any of the members of the Charging Group (other than in connection with a solvent reconstruction, the terms of which have been previously approved in writing by the Majority Lenders); or (iii) the appointment of a trustee, receiver, administrative receiver, or similar officer of any of the members of the Charging Group, or the whole or any substantial part of their respective undertaking and assets; or (j) any adjudication, order or, as the case may be, appointment is made under or in relation to any of the proceedings referred to in Clause 14.1(h)); or (k) an application is made to the court for an administration order under the Insolvency Act 1986 with respect to any of the members of the Charging Group; or (l) any event occurs or proceeding is taken with respect to any member of the Charging Group in any jurisdiction to which it is subject which has an effect equivalent or similar to any of the events mentioned in Clauses 14.1(f), (g), (h), (i) or (j); or (m) any of the members of the Charging Group suspends, ceases or threatens to suspend or cease to carry on its business; or (n) without the prior written consent of the Agent acting on the instructions of the Majority Lenders, any of the members of the Charging Group makes any redemption of any of their shares, purchases any of their shares or otherwise reduces their issued share capital from time to time; or (o) at any time there occurs any event or circumstance which have had or are reasonably likely, in the opinion of the Majority Lenders, to have a Material Adverse Effect and which is not remedied within 10 days after notice of such failure has been given by the Agent to either Borrower; or (p) any "Termination Event" under and as defined in the Receivables Funding Agreement occurs; or (q) there shall occur and be continuing any "Event of Default" (as defined in the Canadian Credit Agreement) or any "Event of Default" (as defined in the US Credit Agreement) or any event, act or condition which, after giving effect to any grace periods or notice requirements thereunder, permits the requisite lenders or agent thereunder to accelerate the obligations of the borrower or borrowers under such Overall Facility or any Indebtedness owing under any of the other Overall Facilities shall -76- become due prior to its stated maturity or prior to its regularly scheduled dates of payment; or (r) a Change of Control occurs; or (s) a final judgment or judgments (after the expiration of all times to appeal therefrom) in the aggregate is made against any member of the Charging Group for the payment of money exceeding insurance coverage therefor by $500,000 or more for any such judgment or $3,000,000 or more in the aggregate for all such judgments against the Group unless the same is set aside or paid within 15 days of such judgment (it being understood that in any event any such judgment is not covered by insurance to the extent of the applicable deductible therefor or if and to the extent the issuer of the relevant insurance denies liability therefor); save that the liquidation of a company as part of a solvent reorganisation of the Group in relation to which the Agent has given its prior written consent shall not constitute a Default hereunder. 14.2 Acceleration etc. ----------------- At any time when any Default remains unremedied the Agent may, and shall, if so instructed by the Majority Lenders, by notice to either of the Borrowers cancel the Facility and the Guarantee Facility in whole or in part and: (a) require that Cash Cover be provided by the Borrowers in respect of the contingent liabilities of the Issuing Bank under the Guarantees in an amount no less than the Outstandings then subsisting; and (b) require the Borrowers immediately to repay the Loan together with accrued interest thereon and immediately to pay all other sums payable under this Agreement, whereupon the same shall become immediately due and payable; or (c) place the Loan on demand, whereupon the same and all other sums payable hereunder shall become repayable on demand made by the Agent on the instructions of the Majority Lenders. Upon the service of any such notice by the Agent on the instructions of the Majority Lenders, the Lenders' obligations shall be terminated and each of the Lenders' Commitments shall be cancelled and reduced to zero, but without prejudice to any present or future liability pursuant to Clause 7.6.2. -77- 15. SET-OFF AND PRO-RATA PAYMENTS ----------------------------- 15.1 Set-Off ------- Each Borrower hereby authorises the Agent, the Issuing Bank and each Lender to apply any credit balance on any account of such Borrower with any of the Agent, the Issuing Bank and the Lenders in satisfaction of any sum due and payable by such Borrower pursuant to the terms of the Financing Documents which is not paid when due. For this purpose each of the Agent, the Issuing Bank and the Lenders is authorised to purchase at its spot rate of exchange with the moneys standing to the credit of any such account Sterling or such other currencies as may be necessary to effect such application. The Agent, the Issuing Bank or the relevant Lender which so applies such credit balance shall use reasonable efforts to notify the relevant Borrower, the Agent and the Lenders of such application PROVIDED THAT the failure to do so shall not affect the validity of such application. 15.2 Pro Rata Sharing ---------------- 15.2.1 If any Lender (the "Sharing Lender") shall at any time obtain (whether by way of voluntary or involuntary payment, right of set-off, or otherwise but excluding (i) any amount received or recoverable by it pursuant to a Participation Agreement and (ii) amounts standing to the credit of the Lloyds Tyco Deposit Account and the Lloyds Matchbox Deposit Account) a proportion in respect of its Contribution in any sum due from a Borrower under this Agreement which is greater than the proportion obtained by the Lender or Lenders respectively obtaining the smallest proportion of its Contribution therein, including a nil receipt, (the amount so obtained by the Sharing Lender which represents such excess being herein called "the excess amount") then: ------------- (a) the Sharing Lender shall promptly pay to the Agent, for the account of the Lenders, an amount equal to the excess amount, whereupon the Agent shall notify the relevant Borrower of such amount and its receipt by the Agent; (b) the Agent shall treat such payment as if it were a payment by the relevant Borrower on account of sums owed to the Lenders; and (c) as between the relevant Borrower and the Sharing Lender the excess amount shall be treated as not having been paid, while as between the relevant Borrower and each Lender it shall be treated as having been paid to the extent any moneys are received by such Lender. 15.2.2 Each Lender shall forthwith notify the Agent of any such receipt or recovery by it other than by payment through the Agent. -78- 15.2.3 If any excess amount subsequently has to be wholly or partly refunded to a Borrower by a Sharing Lender which has paid an amount equal thereto to the Agent under Clause 15.2.1, each Lender to which any part of that amount was distributed shall on request from the Sharing Lender repay to the Sharing Lender such Lender's pro rata share of the amount which has to be so refunded by the Sharing Lender. Each Lender shall on request supply to the Agent such information as the Agent may from time to time request for the purpose of this Clause 15.2. Notwithstanding the foregoing provisions of this Clause 15.2, no Sharing Lender shall be obliged to share any excess amount which it receives or recovers pursuant to legal proceedings taken by it to recover any sums owing to it under this Agreement with any other party which has a legal right to, but does not, either join in such proceedings or commence and diligently pursue separate proceedings to enforce its rights in the same or another court, unless the proceedings instituted by the Sharing Lender are instituted by it without prior notice having been given to such party through the Agent and an opportunity to such party to join in such proceedings. 15.2.4 Nothing in this Agreement shall oblige the Agent, the Issuing Bank or any Lender to apply any credit balance or other benefit received from a Borrower against the liabilities of such Borrower under this Agreement in priority to any other liabilities of such Borrower to the Agent, the Issuing Bank or that Lender. 16. THE AGENT, THE ISSUING BANK AND THE LENDERS ------------------------------------------- 16.1 Appointment and Duties ---------------------- 16.1.1 Each Lender and the Issuing Bank hereby irrevocably appoints the Agent to act as its agent in connection with the administration of the Facility and to act as its agent and trustee in connection with the Security Documents and for such purposes irrevocably authorises the Agent to take such action and to exercise and carry out all the discretions, authorities, rights, powers and duties as are specifically delegated to the Agent in this Agreement and each Security Document together with such powers and discretions as are incidental thereto. 16.1.2 The Agent shall have no duties or responsibilities except those expressly set out in the Financing Documents. As to any matters not expressly provided for by this Agreement, save in respect of the Security Documents, the Agent shall, subject to the provisions hereof or thereof, act hereunder or thereunder or in connection herewith or therewith in accordance with the instructions of the Majority Lenders (but in the absence of any such instructions shall not be obliged to act) and any such instructions and any action taken by the Agent in accordance therewith shall be binding upon all the Lenders. -79- 16.2 Payments and Information Received --------------------------------- The Agent will promptly account to the Issuing Bank or, as the case may be, the Lending Office of each Lender for the Issuing Bank's or, as the case may be, such Lender's due proportion of all sums received by the Agent for the Issuing Bank's or such Lender's account, whether by way of repayment or prepayment of principal or payment of interest, fees or otherwise. The Agent shall provide the Issuing Bank and the Lenders with all information and copies of all notices which by the terms of this Agreement are to be provided or given to the Issuing Bank or the Lenders respectively. The Agent may retain for its own use and benefit (and shall not be liable to account to the Issuing Bank or any of the Lenders for all or any part of) any sums received by it by way of agency or management or arrangement fees or by way of reimbursement of expenses incurred by it. 16.3 Defaults -------- The Agent shall not be obliged to take any steps to ascertain whether any Default (other than a default in repayment of principal or in payment of interest or fees due pursuant to this Agreement) or Default Occurrence has happened or exists and, until the Agent shall have received express notice to the contrary from a Borrower, the Issuing Bank or any Lender, the Agent shall be entitled to assume that no Default (other than as aforesaid) or Default Occurrence has happened or exists. Upon receipt of such notice the Agent shall promptly inform the Issuing Bank and the Lenders. The Agent shall promptly notify the Lenders of any Default Occurrence of which it is notified by a Borrower. 16.4 Assumptions ----------- The Agent shall be entitled to rely on any communication or document believed by it to be genuine and correct and to have been communicated or signed by the person by whom it purports to be communicated or signed and shall not be liable to any of the parties to this Agreement for any of the consequences of such reliance. 16.5 Legal Proceedings ----------------- The Agent shall not be obliged to take or commence any legal action or proceeding against a Borrower or any other person arising out of or in connection with any of the Financing Documents until it shall have been indemnified or secured to its satisfaction against any and all costs, claims and expenses (including, but not limited to, any costs award which may be made against it as a result of any such legal action or proceeding not being successful) which it may expend or incur in such legal action or proceeding. 16.6 No Liability ------------ Neither the Agent nor any of its directors, employees or agents shall be liable for any action taken or omitted to be taken by it or any of them under or in connection with the Financing Documents unless caused by its or their gross negligence or wilful -80- misconduct. The Agent shall not be responsible for any statements, representations or warranties in the Financing Documents or for any information supplied or provided or hereafter to be supplied or provided to the Issuing Bank or any of the Lenders by the Agent, in respect of a Borrower or any other person or for any other matter relating to the Facility, the Security Documents or for the execution, effectiveness, genuineness, validity, enforceability or sufficiency of such documents or any of the other documents referred to herein or therein or for the recoverability of all or any of the Advances or any of the other sums to become due and payable pursuant hereto. 16.7 Credit Decisions ---------------- 16.7.1 Each Lender acknowledges that it has, independently and without reliance on the Agent or the Issuing Bank, and the Issuing Bank acknowledges that it has, independently and without reliance on the Agent, and based on such documents and information as it deemed appropriate, made its own analysis of the transaction contemplated by, and reached its own decision to enter into, this Agreement and made its own investigation of the financial condition and affairs of each Borrower and any surety for each Borrower's obligations and its own appraisal of the creditworthiness of each Borrower and any surety for each Borrower's obligations. 16.7.2 Save as specifically provided herein, the Agent shall not be under any duty or obligation, either initially or on a continuing basis, to provide any Lender or the Issuing Bank with any credit information or other information with respect to the financial condition of either Borrower or which is otherwise relevant to the Facility or Guarantee Facility. 16.7.3 Each Lender and the Issuing Bank further acknowledges and confirms that it will, independently and without reliance on the Agent and based on such documents and information as it shall deem appropriate at the time, make its own decisions in taking or not taking action under the Financing Documents. 16.8 Advisers -------- The Agent shall be entitled to obtain and rely on the advice of any professional advisers selected by it given in connection with the Financing Documents or any of the matters contemplated hereby or thereby, and shall not be liable to any of the Lenders or the Issuing Bank for any of the consequences of such reliance. 16.9 Relationship with Lenders and Issuing Bank ------------------------------------------ 16.9.1 In performing its functions and duties under this Agreement, the Agent shall act solely as the agent for the Lenders and, as specified herein, for the Issuing Bank and save as expressly provided herein and in the Security Documents shall not be deemed to be acting as trustee for any Lender or the Issuing Bank and shall not assume or be deemed to have assumed any -81- obligation as agent or trustee for, or any relationship of agency or trust with, any of the Borrowers. 16.9.2 Neither the Agent, the Issuing Bank nor any Lender shall be under any liability or responsibility of any kind to any of the Borrowers, the Issuing Bank or any of the other Lenders arising out of or in relation to any failure or delay in performance or breach by any other Lender or Lenders, the Issuing Bank or, as the case may be, either Borrower of any of its or their respective obligations pursuant to or in connection with the Financing Documents or any of the Guarantees. 16.10 Agent's position as a Lender ---------------------------- With respect to its own Contribution in the Loan, the Agent shall have the same rights and powers under and in respect of the Financing Documents as though it were not also acting as agent for the Lenders and, as specified herein, for the Issuing Bank. The Agent may, without liability to account, accept deposits from, lend money to and generally engage in any kind of banking or trust business with or for a Borrower as if it were not the agent or the trustee for the Lenders and, as specified herein, for the Issuing Bank under any Financing Document. 16.11 Indemnity --------- 16.11.1 The Lenders agree to indemnify the Agent (to the extent not reimbursed by either of the Borrowers) rateably according to the Lenders' respective Contributions in the Loan (or, if no Advance shall then be outstanding, their respective Commitments) from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses and disbursements of any kind or nature whatsoever (except in respect of any agency, management or other fee due to the Agent) which may be imposed on, incurred by or asserted against the Agent in its capacity as agent or trustee for the Lenders or in any way relating to or arising out of the Financing Documents or any action taken or omitted by the Agent in enforcing or preserving the rights of the Lenders under the Financing Documents, provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent's gross negligence, bad faith or wilful misconduct. 16.11.2 Each of the Lenders shall make such payments as are due and payable to the Agent under Clause 16.11.1 promptly following demand subject to and conditional upon having received the corresponding payment from the relevant Participant under the Participation Agreement. 16.12 Resignation ----------- 16.12.1 Subject to the appointment and acceptance of a successor Agent as hereinafter provided, the Agent may resign at any time by giving to either -82- of the Borrowers, the Issuing Bank and each of the Lenders not less than 60 days' notice of its intention to do so. Upon receipt of such notice of resignation the Lenders and the Issuing Bank shall appoint as successor Agent any bank or financial institution selected by the Borrowers and the Majority Lenders (such selection in the case of the Borrowers not to be unreasonably withheld or delayed) which is willing and able to act as such agent for the Lenders. 16.12.2 If no such successor Agent selected by the Borrowers and the Majority Lenders shall have accepted such appointment within 20 days after the Agent's giving of notice of resignation then the Majority Lenders after consultation with the Borrowers shall have the right to appoint such a successor Agent. 16.12.3 If no such successor Agent shall have been so appointed by the Majority Lenders and shall have accepted such appointment within 40 days after the Agent's giving of notice of resignation then the resigning Agent may, after consultation with the Borrowers, appoint as its successor any reputable and experienced bank or other financial institution with an office in London. 16.12.4 Any such appointment shall take effect upon notice thereof (which notice shall specify the bank in London to which payments shall be made thereafter) being given to the Borrowers, the Issuing Bank and each Lender. Thereafter, the resigning Agent shall be discharged from any further obligation under the Financing Documents and its successor and each of the other parties hereto and thereto shall have the same rights and obligations inter se as they would have had if such successor had been a party to the Financing Documents in place of the resigning Agent. The resigning Agent shall make over to its successor all such records as its successor requires to carry out its duties. 16.13 Change of Office ---------------- The Agent may from time to time in its sole discretion by written notice to the Borrowers, the Issuing Bank and each Lender designate a different office in the United Kingdom from which its duties as the Agent will thereafter be performed. 16.14 Waivers, Amendments ------------------- The Agent may (except where the same is required by the express provisions of this Agreement to be authorised by all the Lenders) grant waivers, vary the terms of the Financing Documents and do or omit to do all such acts and things in connection therewith as may be authorised in writing by the Majority Lenders. Any such waiver, variation, act or omission so authorised and effected by the Agent shall be binding on all the leaders and the Issuing Bank and the Agent shall be under no liability whatsoever in respect of any such waiver, consent, variation, act or -83- omission Nothing in this Clause shall authorise (as between the Agent, the Issuing Bank and the Lenders), except with the prior written agreement of all the Lenders: (i) any change in the rate at which any interest on the Loan is payable under this Agreement; (ii) any agreed extension of the date for, or alteration in the amount or currency of, the payment of any principal, interest, fees or any other amount payable under this Agreement other than in connection with the Guarantee Facility (including under any Guarantee); (iii) any increase in any Lender's Commitment; (iv) any variation of the definitions of "Majority Lenders" in Clause 1; (v) any variation of Clauses 6 or 7 insofar as it relates to Advances and interest thereon and this Clause 16 except insofar as it may affect the Issuing Bank (vi) any provision of this Agreement which requires the consent of all the Lenders; and except with the prior written agreement of the Issuing Bank: (a) any increase in the Guarantee Facility Limit or any agreed extension of the date for, or alteration in the amount or currency of, the payment of any principal, interest, fees or any other amount payable under this Agreement in connection with the Guarantee Facility (including under any Guarantee); (b) any variation of Clauses 6 or 7 insofar as it does not relate to Advances and interest thereon, any variation of Clause 14 and any variation to this Clause 16 insofar as it may affect the Issuing Bank; and (c) any provision of this Agreement which requires the consent of the Issuing Bank; and except with the prior written agreement of the Issuing Bank and all the Lenders, any release of security constituted under the Security Documents. 16.15 Consents -------- The Agent may at any time upon the application and at the cost of either Borrower and without any consent of any of the Lenders (only if and so far as in its reasonable opinion the interests of the Lenders shall not be significantly prejudiced thereby) give any consent, approval or licence required of the Agent under the terms of this Agreement, save where this Agreement expressly requires that such consent, -84- approval or licence should be given only with the approval of, or on the instructions of, the Lenders or the Majority Lenders. 16.16 Evidence -------- The Agent may accept a certificate signed by any director or the secretary of a Borrower as to any fact or matter on which the Agent may need or wish to be satisfied as sufficient evidence thereof and a like certificate that any assets in the opinion of the person so certifying have a particular value or produce a particular income or are suitable for a particular purpose as sufficient evidence that they have that value or produce that income or are so suitable and the Agent shall not be bound in any such case to call for further evidence or be responsible for any loss that may be occasioned by its failing to do so. 16.17 Security Documents ------------------ 16.17.1 The Agent shall accept without investigation, requisition or objection such title as any person may have to the undertaking, property and assets which are subject to the Security Documents and shall not be bound or concerned to examine or enquire into nor be liable for any defect or failure in the title of any person whether such defect or failure was known to the Agent or might have been discovered upon examination or enquiry and whether capable of remedy or not nor for any failure on the part of the Agent to give notice to any third party of the Security Documents to which it is party or otherwise perfect or register the security thereby created. 16.17.2 The Agent shall hold the benefit of the Security Documents upon trust for itself, the Issuing Bank and the Lenders. The applicable perpetuity period for trusts arising under Financing Documents shall be 80 years. 16.17.3 The Issuing Bank and each of the Lenders hereby confirms and agrees that it does not wish to be registered in accordance with Rule 146 of the Land Registration Rules 1925 as the joint proprietor of any mortgage or charge created pursuant to any Financing Document and accordingly authorises the Agent to hold such mortgage or charge in its sole name as agent and trustee for the Agent, the Issuing Bank, the Lenders and General Electric Capital Corporation and hereby request H.M. Land Registry to register the Agent as the sole proprietor of any such mortgage or charge. 16.18 Distribution of Proceeds of Enforcement --------------------------------------- 16.18.1 In this Clause 16.18 the following expressions shall have the following meanings: -85- "Lender Outstandings" means, in respect of a Lender, the ------------------- aggregate amount owed to such Lender by way of principal, interest, commission and fees in respect of the Facility; and "Total Outstandings" means, at any time, the aggregate amount ------------------ of all the Lender Outstandings at such time. 16.18.2 On the enforcement of all or any of the Security Documents, the Agent shall be entitled to deduct from the proceeds of such enforcement its costs, charges and expenses incurred in connection with such enforcement together with an amount equal to all sums due to it as agent or trustee and due to the Issuing Bank hereunder and under the Security Documents before distributing the balance by forwarding to each Lender (including itself) an amount equal to such remaining proceeds multiplied by: Lender Outstandings of such Lender ---------------------------------- Total Outstandings where all Lender Outstandings and the Total Outstandings are calculated as at the date of distribution. 16.18.3 For the purpose of this Clause 16.18, where any part of any Lender Outstandings is denominated in a currency other than Sterling, any distribution shall be calculated on the basis of the Sterling Equivalent of such part calculated at the date of distribution. However, an actual distribution may, in the Agent's discretion, be made in the currencies of the Lender Outstandings and for this purpose the Agent is authorised by the Borrowers to convert any proceeds of enforcement (including the proceeds of any previous conversion under this Clause) from their existing currency of denomination into any other currency at such rate or rates of exchange and at such time as the Agent thinks fit. 16.18.4 The Agent shall notify the Lenders of any proposed distribution and the proposed date of distribution and each of the Lenders, shall provide to the Agent a calculation of what is due to it in respect of the sums referred to in Clause 16.18.1. The Agent shall send copies of all such calculations to all other parties and, in the absence of manifest error, the Agent shall make the distributions on the basis of such calculations. 16.18.5 The Agent may, at its discretion, accumulate proceeds of realisations on an interest bearing account in its own name until there is a minimum of (Pounds)10,000 to distribute under Clause 16.18.2. 16.19 In respect of any determination, certificate or opinion made or given by the Agent hereunder, the Agent shall as soon as reasonably practicable provide the Borrowers (or the relevant Borrower) with details of how it has arrived at the determination or any conclusion or opinion expressed PROVIDED THAT the Agent shall have no obligation to disclose any matter which it deems to be confidential. -86- 17. FEES AND EXPENSES ----------------- 17.1 Expenses -------- The Borrowers shall on demand pay all expenses reasonably incurred (including, but not limited to, legal, valuation and accounting fees) and any VAT thereon: (a) by the Agent and the Issuing Bank in connection with the negotiation, preparation, administration, and execution of the Financing Documents and the other documents contemplated hereby or thereby now or at any time hereafter; (b) by the Agent, the Issuing Bank and the Lenders in connection with the granting of any release, waiver or consent or in connection with any amendment or variation of any Financing Document, including any amount which the Lenders are obliged to reimburse the Participants in respect thereof; (c) by the Agent, the Issuing Bank and the Lenders in enforcing, perfecting, protecting or preserving (or attempting so to do) any of their rights, or in suing for or recovering any sum due from any Borrower or any other person under any Financing Document including any amount which any Lender is obliged to reimburse any Participant in respect thereof; and (d) by Lloyds in connection with the negotiation, preparation, administration and execution of this Agreement, the Participation Agreement, the Deed of Subordination, the Debentures and the deeds of release granted by Lloyds pursuant to Clause 2(a)(x) and the negotiation, preparation, administration, execution and enforcement of the Guarantees and the Lloyds Deposit Agreements. 17.2 Closing and Collateral Management Fees -------------------------------------- The Borrowers shall pay to the Agent closing and collateral management fees in accordance with the terms of the Fees Letter. For the avoidance of doubt, all liabilities and obligations of the Borrowers under the Fees Letter will be deemed to be incurred hereunder and will be secured by the Security Documents. 17.3 Non-utilisation Fee ------------------- The Borrowers shall pay a non-utilisation fee in Sterling to the Agent for the account of the Lenders at the rate of 0.5% cent. per annum on the difference from time to time between (i) the Sterling Equivalent of the Total Commitments and (ii) the total of all Advances. Such fee shall accrue day to day on the basis of a 365 day year and the number of days elapsed in respect of each successive period of one month from the date hereof and shall be paid in arrear on the first Business Day -87- after the end of each such period and on the date when the Total Commitments are reduced to zero. 17.4 Guarantee Fees -------------- The Borrowers shall pay a guarantee fee in Sterling to the Agent for the account of the Issuing Bank at the rate of 2.5 per cent. per annum on the daily Outstandings. Such fee shall accrue from day to day on the basis of a 365 day year and the number of days elapsed in respect of each successive period of one month from the date hereof and shall be paid in arrear on the first Business Day after the end of each such period. 17.5 Documentary Taxes Indemnity --------------------------- All stamp, documentary, registration or other like duties or Taxes, including any penalties, additions, fines, surcharges or interest relating thereto, which are imposed or chargeable on or in connection with the Financing Documents shall be paid by the Borrowers PROVIDED THAT the Agent shall be entitled but not obliged to pay any such duties or Taxes (whether or not they are its primary responsibility), whereupon the Borrowers shall on demand indemnify the Agent against those duties or Taxes and against any costs and expenses so incurred by the Agent in discharging them. 17.6 Cancellation Fee ---------------- In the event that the Borrowers cancel the undrawn Facility and Guarantee Facility pursuant to Clause 8, the Borrowers shall pay a cancellation fee in Dollars to the Agent for the account of the Lenders in an amount equal to (i) $350,000 if the Borrowers terminate the Facility and the Guarantee Facility on or before the first anniversary of the Completion Date; (ii) $175,000 if the Borrowers terminate the Facility and the Guarantee Facility after the first anniversary of the Completion Date but on or prior to the second anniversary of the Completion Date; and (iii) $87,500 if the Borrowers terminate the Facility and the Guarantee Facility after the second anniversary of the Completion Date but on or prior to the third anniversary of the Completion Date payable on the termination of the Facility and Guarantee Facility in accordance with Clause 8 PROVIDED THAT no cancellation fee shall be payable if the Borrowers refinance the obligations under the Financing Documents with the Agent on terms and conditions acceptable to the Agent. -88- 17.7 VAT --- 17.7.1 All payments made by a Borrower under the Financing Documents are calculated without regard to VAT. If any such payment constitutes the whole or any part of the consideration for a taxable or deemed taxable supply (whether that supply is taxable pursuant to the exercise of an option or otherwise) by the Agent, the Issuing Bank or a Lender, the amount of that payment shall be increased by an amount equal to the amount of VAT which is chargeable in respect of the taxable supply in question. 17.7.2 No payment or other consideration to be made or furnished by the Agent, the Issuing Bank or a Lender, to a Borrower pursuant to or in connection with the Financing Documents or any transaction or document contemplated herein or therein may be increased or added to by reference to (or as a result of any increase in the rate of) any VAT which shall be or may become chargeable in respect of any taxable supply. 17.8 Indemnity Payments ------------------ Where in the Financing Documents a Borrower has an obligation to indemnify or reimburse the Agent, the Issuing Bank or a Lender in respect of any loss or payment, the calculation of the amount payable by way of indemnity or reimbursement shall take account of the likely Tax treatment in the hands of the Agent, the Issuing Bank or the relevant Lender, as the case may be, (as determined by the relevant party's auditors) of the amount payable by way of indemnity or reimbursement and of the loss or payment in respect of which that amount is payable. 17.9 Lloyds Administration Fees -------------------------- The Borrowers shall pay to Lloyds Bank plc within 7 Business Days of receipt of an invoice from time to time an administration fee for time spent by its personnel in administering, and performing its obligations and duties under, the Participation Agreement which shall be payable at the rate of (Pounds)100 per man hour spent over the period covered by each such invoice, together with any VAT chargeable thereon. 18. MISCELLANEOUS ------------- 18.1 Severance --------- If at any time any provision of this Agreement is or becomes illegal, invalid or unenforceable in any respect under the law of any jurisdiction neither the legality, validity or enforceability of the remaining provisions hereof nor the legality, validity or enforceability of such provision under the law of any other jurisdiction shall in any way be affected or impaired thereby. -89- 18.2 Waivers, Remedies Cumulative ---------------------------- No failure to exercise, nor any delay in exercising, on the part of the Agent, the Issuing Bank or any Lender, any right or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right or remedy prevent any further or other exercise thereof or the exercise of any other right or remedy. The rights and remedies herein provided are cumulative and not exclusive of any rights or remedies provided by law. 18.3 Further Assurance ----------------- Each of the Borrowers expressly agree that at any time and from time to time at its cost and expense it will upon the request of the Agent execute and deliver such further documents and do such other acts and things as the Agent on behalf of the Issuing Bank and the Lenders may reasonably request in order to further fulfil the obligations of the Borrowers hereunder or under any of the Financing Documents. 18.4 Counterparts ------------ This Agreement may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument. 18.5 Entire Agreement ---------------- This Agreement constitutes the entire Agreement between the parties hereto in relation to the Facility, the Guarantee Facility and the Loan and supersedes all previous proposals, agreements and other written and oral communications in relation thereto. 18.6 Joint and Several Liability --------------------------- Wherever in this Agreement it is specified that the Borrowers shall be liable to make any payment such liability of the Borrowers shall be joint and several. Each Borrower agrees and consents to be bound by this Agreement notwithstanding that the other Borrower may not execute this Agreement or may not effectually be bound and notwithstanding this Agreement may be void, voidable or unenforceable against the other Borrower, whether or not the deficiency is known to the Agent, the Issuing Bank or any of the Lenders. The Agent, the Issuing Bank and any of the Lenders shall be at liberty to release either of the Borrowers from this Agreement and to compound with or otherwise vary or agree to vary the liability of or to grant time to, indulgence to, or make other arrangements with, any Borrower or any other person, without prejudicing or affecting the rights or remedies of the Agent, the Issuing Bank or any of the Lenders against the other Borrower. -90- 19. NOTICES ------- 19.1 Method ------ Each communication to be made hereunder shall be made in writing in English but, unless otherwise provided, may be made by facsimile transmission or letter. 19.2 Delivery -------- Any communication or document to be made or delivered by one party to another pursuant to this Agreement shall (unless the one has by 15 days' written notice to the other specified another address) be made or delivered to that other party, in the case of the Borrowers, the Issuing Bank and the Agent at the respective addresses given in Clause 19.3, and in the case of notice to either Borrower with a copy to Tyco Parent and in the case of notice to the Agent with copies as specified, in the case of the Lenders at the respective addresses given in Schedule 1 or, as the case may be, the Schedule of the relative Transfer Certificate. 19.3 Addresses --------- The addresses referred to in Clause 19.2 are: (A) the Borrowers: Tyco Toys (UK) Limited Tyco House Third Avenue Globe Park Marlow Buckinghamshire SL7 1YF Attention: Brian Triptree Fax: 01628 488 222 Matchbox Toys Limited Tyco House Third Avenue Globe Park Marlow Buckinghamshire SL7 1YF Attention: Brian Triptree Fax: 01628 488 222 with a copy to: Tyco Toys, Inc. 6000 Midlantic Drive -91- Mt. Laurel New Jersey 08054 USA Attention: General Counsel Fax: 0101 609 273 2885 (B) the Issuing Bank: General Electric Capital Corporation 501 Merritt Seven Norwalk CT 06851 USA Attention: Vice President - Portfolio/Tyco Fax: 0101 203 840 4680 with a copy to: General Electric Capital Corporation 501 Merritt Seven 3rd Floor Norwalk CT 06851 USA Attention: Legal Counsel/Tyco Fax: 0101 203 840 4520 and a further copy to: Wilde Sapte 1 Fleet Place London EC4M 7WS Attention: Howard Barrie Fax: 0171 246 7777 (C) the Agent: General Electric Capital Corporation 501 Merritt Seven Norwalk CT 06851 USA -92- Attention: Vice President - Portfolio/Tyco Fax: 0101 203 840 4680 with a copy to: General Electric Capital Corporation 501 Merritt Seven 3rd Floor Norwalk CT 06851 USA Attention: Legal Counsel/Tyco Fax: 0101 203 840 4520 and a further copy to: Wilde Sapte 1 Fleet Place London EC4M 7WS Attention: Howard Barrie Fax: 0171 246 7777 19.4 Deemed Receipt -------------- 19.4.1 Any notice given by the Agent to either of the Borrowers shall be deemed to have been received: (a) If sent by facsimile transmission, with a confirmed receipt of transmission from the receiving machine, on the Business Day on which transmitted or the following Business Day if transmitted after the normal business hours of the recipient; (b) in the case of a written notice lodged by hand (including, without limitation, reputable international courier service), on the Business Day of actual delivery or the following Business Day if delivered after the normal business hours of the recipient; (c) if posted in the United Kingdom to an address in the United Kingdom, on the third Business Day following the day on which it was properly despatched by first class mail postage prepaid; and -93- (d) if posted inside or outside the United Kingdom to an address outside or inside the United Kingdom respectively, on the seventh Business Day following the day on which it was properly despatched by airmail postage prepaid. 19.4.2 Any notice given to the Agent, the Issuing Bank or the Lenders shall be deemed to have been given only on actual receipt. 19.5 Notices to the Lenders ---------------------- Any notice to be given by either of the Borrowers to the Lenders or any of them may be given by serving such notice on the Agent together with a written instruction that such notice is to be treated as notice to one or more specified Lenders. In the absence of such written instructions it shall be deemed to be a notice to the Agent alone. 20. ASSIGNMENTS AND TRANSFERS ------------------------- 20.1 Benefit of Agreement -------------------- This Agreement shall be binding upon and enure to the benefit of each party hereto and its successors and assigns. 20.2 Assignments and Transfers by the Borrowers ------------------------------------------ Neither Borrower shall be entitled to assign or transfer all or any of its rights and benefits under this Agreement. 20.3 Assignments and Transfers by Lenders ------------------------------------ 20.3.1 Any Lender may at any time assign all or any of its rights and benefits under any of the Financing Documents or transfer in accordance with Clause 20.3.3 all or any of its rights, benefits and obligations under any of the Financing Documents. Any assignment by a Lender of all or any of its rights and benefits under this Agreement to a person which is not (i) an Affiliate of such Lender or of another Lender or (ii) General Electric Capital Corporation or an Affiliate thereof, shall require the consent of the Borrowers as to the identity of such assignee (but not as to the terms of any such assignment), which consent shall not be unreasonably withheld or delayed. No consent of the Borrowers shall in any event be required with respect to a participation. 20.3.2 If any Lender assigns all or any of its rights and benefits under any of the Financing Documents in accordance with Clause 20.3.1, then, unless and until the assignee has confirmed to the Agent, the Issuing Bank and the other Lenders that it shall be under the same obligations towards each of them as it would have been under if it had been a party hereto as a -94- Lender, the Agent, the Issuing Bank and the other Lenders shall not be obliged to recognise such assignee as having the rights against each of them which it would have had if it had been such a party hereto. 20.3.3 If any Lender (the "Existing Lender") wishes to transfer all or --------------- any part of its Commitment or Contribution to another bank or financial institution (the "Lender Transferee"), such transfer ----------------- may be effected by way of a novation by the delivery to, and the execution by, the Agent of a duly completed Transfer Certificate. 20.3.4 On the date specified in the Transfer Certificate: (a) to the extent that in the Transfer Certificate the Existing Lender seeks to transfer its Commitment or Contribution, the Borrowers and the Existing Lender shall be released from further obligations to each other under this Agreement and their respective rights against each other shall be cancelled (such rights and obligations being referred to in this Clause 20.3.4 as "Discharged ---------- Rights and Obligations"); ---------------------- (b) each Borrower and the Lender Transferee shall assume obligations towards each other and/or acquire rights against each other which differ from the Discharged Rights and Obligations only insofar as such Borrower and the Lender Transferee have assumed and/or acquired the same in place of such Borrower and the Existing Lender; (c) the Agent, the Issuing Bank, the Borrowers, the Lender Transferee and the other Lenders shall acquire the same rights and assume the same obligations among themselves as they would have acquired and assumed had the Lender Transferee been a party hereunder as a Lender with the rights and/or the obligations acquired or assumed by it as a result of the transfer; and (d) a proportion of the Existing Lender's rights under the Security Documents, equal to the proportion of the Existing Lender's rights under this Agreement being transferred, shall automatically be transferred to the Lender Transferee. 20.3.5 The Agent will promptly complete Transfer Certificates on request by an Existing Lender and upon payment by the Lender Transferee of a fee of $200 to the Agent. The Borrowers, the Issuing Bank and each of the Lenders hereby irrevocably authorise the Agent to execute any duly completed Transfer Certificate on its behalf provided that such authorisation does not extend to the execution of a Transfer Certificate on behalf of either the Existing Lender or the Lender Transferee named therein. -95- 20.3.6 The Agent shall promptly notify the Borrowers of the receipt and execution on its behalf by the Agent of any Transfer Certificate. 20.3.7 The Borrowers shall be under no obligation to pay any greater amount under this Agreement following an assignment or transfer by a Lender of any of its rights or obligations pursuant to the foregoing provisions of this Clause 20 if, in the circumstances existing at the time of such assignment or transfer, such greater amount would not have been payable but for the assignment or transfer. 20.3.8 Each Borrower and the other members of the Charging Group shall assist any Lender permitted to assign or transfer any of its rights and benefits under the Financing Documents under this Clause 20 or wishing to grant a sub-participation in respect to any of the same in whatever manner necessary in order to enable or effect any such assignment, transfer or participation, including the execution and delivery of any and all agreements and other documents and instruments as shall be requested and the preparation and delivery of information materials, appraisals or other documents for, and the participation of relevant management in meetings with, potential assignees, transferees or sub-participants, subject to the provisions of Clause 20.4 hereof. Each Borrower and other members of the Charging Group shall certify the correctness, completeness and accuracy of all descriptions of any member of the Charging Group or any of their Subsidiaries and their affairs contained in any such materials and all information provided by it and included in such materials. 20.4 Disclosure of Information ------------------------- The Agent, the Issuing Bank and the Lenders may disclose any information furnished or made available to them hereunder by the Borrowers to each other, their professional advisers and to any actual or potential assignee, transferee or sub-participant subject to the condition (except where such information is available in the public domain and except where such disclosure is required by law) that each of the same keeps confidential any such information. 21. LAW AND JURISDICTION -------------------- 21.1 Law --- This Agreement shall be governed by, and construed in all respects in accordance with, English law. -96- 21.2 Jurisdiction ------------ The parties agree that the English courts shall have non-exclusive jurisdiction in relation to any dispute or controversy arising out of or in respect of this Agreement and that any judgment or order of an English court made in this respect is conclusive and binding on them and may be enforced against them in the courts of any other jurisdiction and the Agent hereby irrevocably submits to the non-exclusive jurisdiction of such court and irrevocably appoints GE Global Project and Structured Finance Group Limited currently at 20 St James's Street, London SW1A 1ES (to be marked for the attention of George Tappert, Managing Director) to accept service of any proceedings in such court on its behalf. Nothing in this Clause limits the right of the Agent, the Issuing Bank or any Lender to bring proceedings in any other court of competent jurisdiction or concurrently in more than one jurisdiction. 21.3 For the purposes of this Agreement the Borrowers hereby: (i) waive any objections on the grounds of venue or forum non conveniens or any similar grounds; and (ii) consent to service of process by mail or in any other manner permitted by the relevant law. IN WITNESS whereof the parties hereto have caused this Agreement to be duly executed on the date set out above. -97- The Lender - ---------- SIGNED by ) K.G.SANKEY as Attorney for and on behalf of ) LLOYDS BANK PLC ) in the presence of : ) S.SPRING S.SPRING ) The Agent - --------- SIGNED by ) P.WALSH GENERAL ELECTRIC ) CAPITAL CORPORATION ) acting by ) as Attorney who under the laws ) of the State of New York is acting ) under the authority of ) General Electric Capital ) Corporation ) The Participant - --------------- SIGNED by ) P.WALSH GENERAL ELECTRIC ) CAPITAL CORPORATION ) acting by P.WALSH ) who under the laws of the State of ) New York is acting under the ) authority of General Electric ) Capital Corporation ) The Borrowers - ------------- SIGNED by B. TRIPTREE ) B.TRIPTREE for and on behalf of ) MATCHBOX TOYS LIMITED ) SIGNED by B. TRIPTREE ) B.TRIPTREE for and on behalf of ) TYCO TOYS (U.K.) LIMITED ) -147- EX-10.53 7 TRANSFER AGREEMENT MANUFACTURING EXHIBIT 10.53 EXECUTION COPY RECEIVABLES TRANSFER AGREEMENT Dated as of February 24, 1995 by and between Tyco Manufacturing Corp. and Tyco Funding I Corporation and Tyco Funding II Corporation TABLE OF CONTENTS -----------------
Page ---- ARTICLE I................................................................... 1 DEFINITIONS................................................................. 1 SECTION 1.01. Definitions and Conventions............................. 1 SECTION 1.02. Other Terms and Interpretation.......................... 16 SECTION 1.03. Rounding................................................ 16 ARTICLE II.................................................................. 16 TRANSFERS OF RECEIVABLES.................................................... 16 SECTION 2.01. Agreement to Transfer to TFC I.......................... 16 SECTION 2.02. Agreement to Transfer to TFC II......................... 18 SECTION 2.03. Grant of Security Interest.............................. 19 ARTICLE III CONDITIONS OF SALE.......................................................... 20 SECTION 3.01. Conditions Precedent to the Initial Sale................ 20 SECTION 3.02. Conditions Precedent to All Sales....................... 22 ARTICLE IV.................................................................. 23 REPRESENTATIONS, WARRANTIES AND COVENANTS................................... 23 SECTION 4.01. Representations and Warranties of the Company........... 23 SECTION 4.02. Covenants of the Company................................ 35 SECTION 4.03. Negative Covenants of the Company....................... 44 SECTION 4.04. Restatement of Representations, Warranties and Covenants............................................. 47 SECTION 4.05. Breach of Representations, Warranties or Covenants...... 47 ARTICLE V................................................................... 47 TFC I LOANS TO THE COMPANY.................................................. 47 SECTION 5.01. TFC I Loans............................................. 47 SECTION 5.02. Notices Relating to Loans............................... 48 SECTION 5.03. Disbursement of Loan Proceeds........................... 48 SECTION 5.04. Company Note I.......................................... 48 SECTION 5.05. Principal Repayments.................................... 48 SECTION 5.06. Interest................................................ 49 SECTION 5.07. Time and Method of Payments............................. 49 ARTICLE VI TFC II LOANS TO THE COMPANY................................................. 49 SECTION 6.01. TFC II Loans............................................ 50
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Page ---- SECTION 6.02. Notices Relating to Loans............................... 50 SECTION 6.03. Disbursement of Loan Proceeds........................... 50 SECTION 6.04. Company Note II......................................... 50 SECTION 6.05. Principal Repayments.................................... 51 SECTION 6.06. Interest................................................ 51 SECTION 6.07. Time and Method of Payments............................. 51 ARTICLE VII COLLATERAL SECURITY......................................................... 52 SECTION 7.01. Security Interest....................................... 52 SECTION 7.02. Other Collateral; Rights in Receivables................. 52 SECTION 7.03. Indebtedness Secured.................................... 52 SECTION 7.04. Further Action Evidencing Security Interest............. 53 ARTICLE VIII INDEMNIFICATION............................................................. 53 SECTION 8.01. Indemnification......................................... 53 SECTION 8.02. Assignment of Indemnities............................... 55 ARTICLE IX MISCELLANEOUS............................................................... 55 SECTION 9.01. Notices, Etc............................................ 55 SECTION 9.02. No Waiver; Remedies..................................... 56 SECTION 9.03. Binding Effect; Assignability........................... 56 SECTION 9.04. No Proceedings.......................................... 56 SECTION 9.05. Amendments; Consents and Waivers........................ 57 SECTION 9.06. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL................................................. 57 SECTION 9.07. Execution in Counterparts; Severability................. 58 SECTION 9.08. Descriptive Headings.................................... 58 SECTION 9.09. No Setoff............................................... 58 SECTION 9.10. Further Assurances...................................... 58 SECTION 9.11. Third-Party Beneficiaries............................... 58 SECTION 9.12. Assignment of Agreement................................. 59 EXHIBIT 1A - FORM OF ASSIGNMENT I EXHIBIT 1B - FORM OF ASSIGNMENT II EXHIBIT 2A - FORM OF COMPANY NOTE I EXHIBIT 2B - FORM OF COMPANY NOTE II EXHIBIT 3 - FORM OF LOCKBOX AGREEMENT EXHIBIT 4 - FORM OF OPINION OF COUNSEL OF COMPANY EXHIBIT 5 - FORM OF [TFC I][TFC II] SALE PRICE NOTE SCHEDULE I - FORM OF Written Contracts SCHEDULE II - FORM OF Collection Policy SCHEDULE III - Addresses of Company
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Page ---- SCHEDULE IV - LockBox Banks and LockBox Accounts of Company SCHEDULE V - Trade Names,"Doing Business Names", Fictitious Names and Assumed Names of the Company
iii Exhibit 10.53 RECEIVABLES TRANSFER AGREEMENT, dated as of February 24, 1995 (this "Agreement"), among TYCO MANUFACTURING CORP. (the "Company"), an Oregon corporation, TYCO FUNDING I CORPORATION, a Delaware corporation ("TFC I") and TYCO FUNDING II CORPORATION ("TFC II"), a Delaware corporation (TFC I and TFC II, collectively, the "Funding Corporations"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Funding Corporations have been formed for the sole purpose of purchasing and financing such purchases by borrowing funds from Redwood Receivables Corporation ("Redwood") and granting to Redwood a security interest in, all trade receivables originated by the Company and Tyco Industries, Inc.; and WHEREAS, the Company intends to sell, and the Funding Corporations intend to purchase, such trade receivables, from time to time, as described herein; NOW, THEREFORE, the parties agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. Definitions and Conventions. As used herein, the --------------------------- following terms shall have the following meanings: "Accession Agreement" means an Accession Agreement substantially ------------------- in the form of Exhibit A to the Collateral Agent Agreement. "Accumulated Funding Deficiency" shall have the meaning provided in ------------------------------ Section 412 of the Code and Section 302 of ERISA, whether or not waived. "Advance" means each of the advances made by Redwood to either TFC I ------- or TFC II under the Funding Agreement. "Advances Outstanding" means, with respect to each Funding -------------------- Corporation, for any day, the aggregate principal amount of Advances outstanding on such day to such Funding Corporation, after giving effect to all repayments by and issuances of Advances to such Funding Corporation on such day; provided, however, that Advances which have been paid with proceeds of a payment under the Policy shall continue to remain Advances Outstanding for purposes of this Agreement until FSA has been paid as subrogee to the rights of Redwood as Lender under the Funding Agreement or reimbursed pursuant to the Insurance and Indemnity Agreement for all payments under the Policy used to repay such Advances and all amounts due in connection therewith under the Insurance and Indemnity Agreement, as evidenced by a written notice from FSA delivered to the Operating Agent, and FSA shall be deemed to be the "Lender" thereof (as that term is used in the Funding Agreement) to the extent of any payments thereon made by FSA. "Adverse Claim" means any claim of ownership or any lien, security ------------- interest, title retention, trust or other charge or encumbrance, or other type of preferential arrangement having the effect or purpose of creating a lien or security interest, other than the security interest created under the Funding Agreement. "Affected Party" means Redwood, the Collateral Agent, the Liquidity -------------- Agent, any of the Liquidity Lenders, the Operating Agent, any of the Letter of Credit Providers, FSA or any affiliate of the foregoing persons. "Affiliate" means, as to any Person, any other Person that, directly --------- or indirectly, is in control of, is controlled by, or is under common control with, such Person within the meaning of control under Section 15 of the Securities Act of 1933, as amended. "Agreement" means this Receivables Transfer Agreement between the --------- Company and the Funding Corporations. "Assignment I" has the meaning specified in Section 2.01(c). ------------ "Assignment II" has the meaning specified in Section 2.02(c). ------------- "Assignments" means Assignment I and Assignment II, collectively. ----------- "Billed Amount" means, with respect to any Receivable, the net amount ------------- billed on the Billing Date to the related Obligor with respect thereto. "Billing Date" means the date on which the invoice with respect to a ------------ Receivable was generated. "Borrowing Base Certificate" means the certificate designated as such -------------------------- pursuant to the Funding Agreement. "Business Day" means any day of the year, other than a Saturday or ------------ Sunday, that in the City of New York is neither a legal holiday nor a day on which banking institutions are authorized or obligated by law or executive order to be closed. 2 "Code" means the Internal Revenue Code of 1986, including, unless the ---- context otherwise requires, the rules and regulations thereunder, as amended from time to time. "Collateral" has the meaning specified in Section 7.01. ---------- "Collateral Agent" means GE Capital or such other party designated as ---------------- agent for Redwood and FSA and the other secured parties under the Collateral Agent Agreement and this Agreement. "Collateral Agent Agreement" means the Amended and Restated Collateral -------------------------- Agent and Security Agreement, dated as of February 24, 1995, entered into by Redwood with the Collateral Agent, the Letter of Credit Agent, the Liquidity Agent, the Depositary and each Transaction Credit Provider, as amended, modified, restated or supplemented from time to time. "Collateral Obligations" means all obligations of the Company under ---------------------- Sections 4.05 and 8.01. "Collection Account" means the deposit or trust account maintained ------------------ with the Depositary as described in Section 6.01(b) of the Funding Agreement. "Collections" means, with respect to any Receivable, all collections ----------- and other Proceeds of such Receivable (including late charges, fees and interest arising thereon and all recoveries with respect to Receivables that have been written off as uncollectible but excluding the Sale Price therefor). "Commercial Paper" means commercial paper issued by Redwood. ---------------- "Commitment Termination Date" means the earlier of (a) the date so --------------------------- designated pursuant to Section 9.01 of the Funding Agreement as a result of a Termination Event and (b) the Termination Date; provided, however, that if each of the Funding Corporations has not on or before the 270th day prior to the Termination Date (i) entered into an agreement with Redwood, the Operating Agent and FSA renewing or extending the Termination Date, or (ii) entered into a firm commitment with a counterparty, acceptable to the Operating Agent and FSA, to purchase from Redwood at par plus accrued interest all Advances Outstanding as of the Termination Date, then if the Commitment Termination Date has not already occurred pursuant to clause (a), the Commitment Termination Date shall be the date that is the last day of the Clean Down Period Part 3 (as defined in the Funding Agreement) occurring in the year 2000, but in no event later that April 1, 2000. 3 "Commonly Controlled Entity" means the Company and any entity, whether -------------------------- or not incorporated, affiliated with the Company pursuant to Section 414(b), (c), (m) or (o) of the Code. "Company" means Tyco Manufacturing Corp. as the transferor of ------- Receivables under this Agreement . "Company Interest Rate" has the meaning specified in Section 5.06. --------------------- "Company Note I" has the meaning specified in Section 5.04. -------------- "Company Note II" has the meaning specified in Section 6.04. --------------- "Contract" means an agreement (or agreements) (including invoices) -------- pursuant to, or under which, an Obligor shall be obligated to pay for services rendered or merchandise or goods sold to such Obligor by the Company from time to time. "Credit and Collection Policies" means the credit, collection, ------------------------------ customer relations and service policies of the Company in effect on the Effective Date, as set forth in writing and delivered to Redwood, the Operating Agent, the Collateral Agent and FSA on or before the Effective Date pursuant to Section 3.01(p) of the Funding Agreement, and as such policies may hereafter be amended, modified or supplemented from time to time with the prior written consent of the Operating Agent and FSA. "Dealer Agreement" means any dealer agreement entered into by Redwood ---------------- for the distribution of Commercial Paper. "Debt" of any Person means (a) indebtedness of such Person for ---- borrowed money, (b) obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (c) obligations of such Person to pay the deferred purchase price of property or services (excluding trade payables incurred in the ordinary course of business), (d) obligations of such Person as lessee under leases which have been or should be, in accordance with GAAP, recorded as capital leases, (e) obligations secured by any lien or other charge upon property or assets owned by such Person, even though such Person has not assumed or become liable for the payment of such obligations, (f) obligations of such Person under direct or indirect guaranties in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clauses (a) through (e) above, and (g) liabilities in respect of unfunded vested benefits under plans covered by ERISA. For the purposes hereof, the term "guarantee" shall include any agreement, whether such agreement is on a 4 contingency or otherwise, to purchase, repurchase or otherwise acquire Debt of any other Person, or to purchase, sell or lease, as lessee or lessor, property or services, in any such case primarily for the purpose of enabling another person to make payment of Debt, or to make any payment (whether as an advance, capital contribution, purchase of an equity interest or otherwise) to assure a minimum equity, asset base, working capital or other balance sheet or financial condition, in connection with the Debt of another Person, or to supply funds to or in any manner invest in another Person in connection with Debt of such Person. "Defaulted Receivable" means a Receivable (a) as to which any payment, -------------------- or part thereof, remains unpaid for more than 90 days from the Maturity Date for such Receivable, or (b) as to which the Obligor thereof has taken any action, or suffered any event to occur, of the type described in Section 9.01(c) of the Funding Agreement (except that such action or event shall be taken by or occur with respect to such Obligor, rather than by or to the parties mentioned in such Section), or (c) which otherwise would be determined to be uncollectible and written off in accordance with the Credit and Collection Policies. "Depositary" means Bankers Trust Company, or any other Person ---------- designated as the successor Depositary from time to time in its capacity as issuing and paying agent or trustee in connection with the issuance of Commercial Paper by Redwood. "Depositary Agreement" means the Depositary Agreement, dated as of -------------------- March 15, 1994, between Redwood and the Depositary and consented to by the Liquidity Agent. "Dollar" and "$" means lawful currency of the United States of ------ America. "Effective Date" means the date of this Agreement. -------------- "Eligible Customer" means any Obligor which is not an Excluded ----------------- Customer. "Eligible Receivable" has the meaning specified in the Funding ------------------- Agreement. "ERISA" means the Employee Retirement Income Security Act of 1974, as ----- it may be amended from time to time, and the regulations promulgated thereunder. "Event of Servicer Termination" has the meaning specified in Section ----------------------------- 9.02 of the Funding Agreement. "Excluded Customer" means an Obligor which is (a) an Affiliate of the ----------------- Company or TFC I or TFC II, (b) a Governmental 5 Authority, (c) domiciled outside the United States or (d) an Obligor listed on Schedule 3 to the Funding Agreement as revised from time to time in good faith by or with the prior written consent of the Operating Agent and FSA pursuant to a letter in the form of Annex A thereto. "Excluded Receivables" means any Receivables agreed by the Company and -------------------- either TFC I or TFC II, as the case may be, with the prior written consent of the Operating Agent and FSA, to be excluded from any Sale. "FSA" means Financial Security Assurance Inc., a stock insurance --- company organized and created under the laws of the State of New York, and any successors thereto or assigns thereof. "Funding Agreement" means the Receivables Funding and Servicing ----------------- Agreement, dated as of February 24, 1995 among the Funding Corporations (as Borrowers), Redwood (as Lender), the Operating Agent, the Collateral Agent, FSA and the Company (as Servicer). "Funding Corporations" means, collectively TFC I and TFC II. -------------------- "Funding Excess" means a Borrowing Excess as defined in the Funding -------------- Agreement. "GAAP" means generally accepted accounting principles as in effect in ---- the United States, consistently applied, as of the date of such application. "GE Capital" means General Electric Capital Corporation. ---------- "Governmental Authority" means the United States of America, any ---------------------- state, local or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions thereof or pertaining thereto. "Governmental Consents" has the meaning specified in Section --------------------- 4.01(a)(xv). "Income Discount Amount" means the amount calculated by the Operating ---------------------- Agent as set forth on Schedule 4 to the Funding Agreement, from time to time, at its discretion, subject, with respect to Items E to H inclusive in the "Input Table" of such Schedule 4 and the definitions set forth on such Schedule 4 relating to such items, to the subsequent written notice to FSA and, upon notice by FSA to the Operating Agent to the prior written consent of FSA to the next succeeding calculation. 6 "Indemnified Amounts" has the meaning specified in Section 8.01. ------------------- "Indemnified Party" has the meaning specified in Section 8.01. ----------------- "Insurance and Indemnity Agreement" means the agreement of that name --------------------------------- among the Funding Corporations, Redwood, GE Capital, the Servicer and FSA, dated as of February 24, 1995. "Intercreditor Agreement" means the Intercreditor Agreement, dated as ----------------------- of February 24, 1995, among the Company, Tyco Industries, Inc., the Funding Corporations, Redwood, FSA, GE Capital and other parties. "Lender Secured Parties" has the meaning given to that term in the ---------------------- Funding Agreement. "Letter of Credit" means the letter of credit, dated April 12, 1994, ---------------- provided by the Letter of Credit Provider pursuant to the Letter of Credit Agreement. "Letter of Credit Agent" means GE Capital, in its capacity as agent ---------------------- for the Letter of Credit Providers under the Letter of Credit Agreement, and its successors and permitted assigns in such capacity. "Letter of Credit Agreement" means the Amended and Restated Letter of -------------------------- Credit Reimbursement Agreement, dated as of February 24, 1995, entered into by Redwood, the Letter of Credit Agent and the Letter of Credit Provider for the provision of credit support for the Commercial Paper and the Liquidity Loans. "Letter of Credit Provider" means, initially, GE Capital, as provider ------------------------- of the Letter of Credit under the Letter of Credit Agreement, and thereafter its successors and any permitted assigns in such capacity. "Liquidity Agent" means GE Capital and its successors and assigns as --------------- agent for the Liquidity Lenders pursuant to the Liquidity Loan Agreement. "Liquidity Loan Agreement" means the Amended and Restated Liquidity ------------------------ Loan Agreement, dated as of February 24, 1995, entered into by Redwood, the Liquidity Agent and the Liquidity Lenders in connection with the provision of liquidity support for Redwood. "Liquidity Lenders" means, collectively, GE Capital and any other ----------------- provider of liquidity loans under the Liquidity Loan Agreement. 7 "Liquidity Loans" means borrowings by Redwood under the Liquidity Loan --------------- Agreement. "Lockbox" has the meaning specified in Section 4.02(b). ------- "Lockbox Account" means a segregated deposit account described in --------------- Section 6.01(a) of the Funding Agreement in the name of the Collateral Agent into which all Collections in respect of Transferred Receivables owned by such Funding Corporation shall be deposited, subject to and in accordance with such Section 6.01. "Lockbox Agreement" means the agreement among either TFC I or TFC II, ----------------- as the case may be, the Operating Agent, Redwood, and a Lockbox Bank with respect to the Lockbox Account associated with such Funding Corporation, in the form of Exhibit 3 hereto. "Lockbox Bank" means any of the banks approved in writing by FSA ------------ holding one or more Lockbox Accounts. "Material Adverse Effect" means, with respect to any event or ----------------------- circumstance and any Person, a material adverse effect with respect to: (a) the business, financial condition, operations or assets of such Person, or of such Person and such Person's Subsidiaries on a consolidated basis or Tyco Industries, Inc., Tyco Investment Corp., Tyco Manufacturing Corp., Tyco Distribution Corp., Matchbox (USA) Ltd. or Tyco Playtime, Inc.; (b) the ability of such Person to perform its obligations under any Related Document, any Program Document, the Receivables Transfer Agreements or the Contracts; (c) the validity or enforceability of, or collectibility of amounts payable under, the Receivables Transfer Agreements, any Related Document or any Program Document; (d) the Receivables or the status, existence, perfection or first priority of FSA's, Redwood's or the Collateral Agent's interest in the Receivables, taken as a whole, free from any Adverse Claim; (e) the validity, enforceability or collectibility of the Receivables or Contracts; 8 (f) the ability of FSA, Redwood or the Collateral Agent to liquidate, or foreclose against, the Transferred Receivables; (g) the practical realization by FSA, Redwood or the Collateral Agent of any of the benefits or security afforded under the Receivables Transfer Agreements, any Related Document or any Program Document; or (h) the shadow rating assigned by either Rating Agency to the credit risk exposure of FSA, if such adverse effect on the shadow rating is notified to the Company by FSA. "Maturity Date", for any Receivable, means the due date for payment ------------- specified in the related Contract, or, if no date is specified, 60 days from the Billing Date. "Maximum Facility Commitment" has the meaning specified in the Funding --------------------------- Agreement. "Multiemployer Plan" means a multiemployer plan (within the meaning of ------------------ Section 4001(a)(3) of ERISA) in respect of which a Commonly Controlled Entity makes contributions or has liability. "Obligor" means, with respect to any Receivable, the Person primarily ------- obligated to make payments in respect thereof. "Operating Agent" means GE Capital as operating agent pursuant to the --------------- Funding Agreement, together with its successors and assigns. "Operating Agent Agreement" means the Operating Agent Agreement, dated ------------------------- as of March 15, 1994, between Redwood and the Operating Agent. "Outstanding Balance" of any Receivable at any time means an amount ------------------- (not less than zero) equal to (a) its Billed Amount minus (b) all payments received from the Obligor with respect thereto minus (c) all discounts to or any other modifications that reduce the Billed Amount; provided, that if the -------- Operating Agent or the Servicer makes a determination that all payments by the Obligor with respect to such Billed Amount have been made, the Outstanding Balance shall be zero. "PBGC" means the Pension Benefit Guaranty Corporation or any successor ---- agency, corporation or instrumentality of the United States to which the duties and powers of the Pension Benefit Guaranty Corporation are transferred. "Person" means an individual, partnership, corporation (including a ------ business trust), joint stock company, trust, 9 association, joint venture, Governmental Authority or any other entity of whatever nature. "Plan" means any pension plan (other than a Multiemployer Plan) ---- covered by Title IV of ERISA, which is maintained by a Commonly Controlled Entity or in respect of which a Commonly Controlled Entity has liability. "Policy" means, collectively, the financial guaranty insurance ------ policies Nos. 50352A-N and 50352B-N issued by FSA with respect to each Note (as defined in the Funding Agreement) pursuant to the Insurance and Indemnity Agreement, including any endorsement thereto. "Premium" has the meaning specified in the Insurance and Indemnity ------- Agreement. "Premium Letter" means the side letter dated as of February 24, 1995 -------------- among FSA, GE Capital in its capacity as Operating Agent and Collateral Agent, Redwood and the Funding Corporations in respect of the premium payable by the Funding Corporations in consideration of the issuance of the Policy. "Proceeds" means, with respect to any Receivable, whatever is -------- receivable or received when such Receivable is sold, collected, exchanged or otherwise disposed of, whether such disposition is voluntary or involuntary, and includes all rights to payment, including returned premiums, with respect to any insurance relating to such Receivable but excludes the Sale Price and the Advances. "Program Documents" means the Letter of Credit Agreement, the ----------------- Liquidity Loan Agreement, the Depositary Agreement, the Commercial Paper, the Operating Agent Agreement, each Accession Agreement, and the Dealer Agreements. "Purchase Price Calculation Date" has the meaning specified in Section ------------------------------- 2.01(c) with respect to Tier I Receivables and the meaning specified in Section 2.02(c) with respect to Tier II Receivables, respectively. "Receivable" means: (a) indebtedness of an Obligor (whether ---------- constituting an account, chattel paper, instrument or general intangible) arising from the provision of merchandise, goods or services by the Company to such Obligor (other than the provision of goods or services to Tyco Toys, Inc. or any Affiliate thereof), including the right to payment of any interest or finance charges and other obligations of such Obligor with respect thereto; 10 (b) all security interests or liens and property subject thereto from time to time purporting to secure payment by the Obligor; (c) all guarantees, indemnities and warranties and proceeds thereof, proceeds of insurance policies, financing statements and other agreements or arrangements of whatever character from time to time supporting or securing payment of such Receivable; (d) all Collections with respect to any of the foregoing; (e) all Records with respect to any of the foregoing; and (f) all Proceeds of any of the foregoing. "Receivables" means the Tier I Receivables and the Tier II ----------- Receivables, collectively. "Receivables Transfer Agreements" means this Agreement and that ------------------------------- certain Receivables Transfer Agreement, dated as of February 24, 1995 among Tyco Manufacturing Corp., TFC I and TFC II. "Records" means all Contracts and other documents, agreements, books, ------- records and other information (including, without limitation, computer programs, tapes, disks, punch cards, data processing software and related property and rights) prepared and maintained by the Company, the Servicer or either of the Funding Corporations with respect to Receivables and the related Obligors. "Redwood" means Redwood Receivables Corporation, a Delaware ------- corporation. "Related Documents" means the Assignments, the Insurance and Indemnity ----------------- Agreement, the Policy, the Premium Letter, each Lockbox Agreement, the Funding Agreement, the Intercreditor Agreement and all agreements, instruments, certificates, financing statements or other documents required to be delivered hereunder or thereunder. "Reportable Event" means any of the events set forth in Section ---------------- 4043(b) of ERISA or the regulations thereunder. "Requested Amount" means the amount which the Company requested to ---------------- receive on any Purchase Price Calculation Date, pursuant to a Request Notice, from the sale of Receivables on the related Sale Date. 11 "Request Notice" means a notice in the form of a computer print-out, -------------- tape or other form acceptable to the Funding Corporations and the Operating Agent, which (a) by reference to an invoice register and file or microfiche of actual invoices, (i) enables each of TFC I or TFC II, as the case may be, and the Operating Agent to identify all Receivables to be sold on the succeeding Sale Date by the Company to each of TFC I or TFC II, as the case may be, and the Required Information with respect thereto and (ii) sets forth the amount of payments received on each Transferred Receivable since the prior Purchase Price Calculation Date and (b) sets forth the Requested Amount for the succeeding Purchase Price Calculation Date. "Request Notice Date" has the meaning set forth in Section 2.01(c) ------------------- with respect to Tier I Receivables and the meaning set forth in Section 2.02(c) with respect to Tier II Receivables. "Required Information" means, with respect to a Receivable, (a) the -------------------- Obligor, (b) the Obligor's address, (c) the invoice number, (d) the Billed Amount, (e) the Maturity Date, (f) the Billing Date and (g) whether or not such Receivable is an Eligible Receivable. "Restrictions on Transferability" means any material condition to, or ------------------------------- restriction on, the ability of the holder or an assignee of the holder of any right, title or interest to sell, assign, transfer or otherwise liquidate such right, title or interest in a commercially reasonable time and manner or which would otherwise materially deprive the holder or any assignee of the holder of the benefits thereof. "Sale" means a sale of Receivables by the Company to either TFC I or ---- TFC II pursuant to Section 2.01 or Section 2.02, respectively. "Sale Date" has the meaning specified in Section 2.01(b) with respect --------- to Tier I Receivables and the meaning specified in Section 2.02(b) with respect to Tier II Receivables, respectively. "Sale Price" means with respect to the Eligible Receivables to be sold ---------- by the Company to the Funding Corporations on any day the price calculated by TFC I or TFC II, as the case may be, and approved from time to time by the Operating Agent with the consent of FSA, equal to: (a) the Outstanding Balance of Eligible Receivables to be sold by the Company to the Funding Corporations on such ate, minus 12 (b) the expected costs to be incurred by the Funding Corporations of financing such purchase of such Sold Receivables until the Outstanding Balance of such Sold Receivables is paid in full, minus (c) the portion of such Sold Receivables that are reasonably expected by the Company to become Defaulted Receivables, minus (d) the portion of such Sold Receivables that are reasonably expected by the Company to be reduced by means other than by the receipt of Collections on such Sold Receivables or pursuant to (c) above, in each of (b), (c) and (d) determined based on historical experience by the Company; "Security Agreement" means the agreement dated as of February 24, 1995 ------------------ between Tyco Manufacturing, Tyco Distribution Corp. and other parties, in favor of GE Capital. "Security Interest" has the meaning specified in Section 7.01. ----------------- "Servicer" means the Company as Servicer or any successor Servicer -------- pursuant to the Funding Agreement. "Settlement Period" means, in the case of the initial Settlement ----------------- Period, the period beginning with the Effective Date to and including the last day of the week in which such Effective Date occurs; with respect to the final Settlement Period, the period ending on the Termination Date and beginning with the first day of the week in which the Termination Date occurs; and with respect to all other Settlement Periods, each week, unless (with respect to any of the foregoing Settlement Periods) otherwise specified to be a month. "Sold Receivables" means together, the Tier I Sold Receivables and the ---------------- Tier II Sold Receivables. "Subsidiary" means, as to any Person, any corporation or other entity ---------- of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other Persons performing similar functions are at the time directly or indirectly owned by such Person. "Termination Date" means August 24, 2000. ---------------- "Termination Event" means any event designated as such in the Funding ----------------- Agreement. 13 "TFC I" means Tyco Funding I Corporation, as a purchaser and ----- transferee of Receivables under this Agreement. "TFC II" means Tyco Funding II Corporation, as a purchaser and ------ transferee of Receivables under this Agreement. "TFC I Deferred Sale Price" means the portion of the Sale Price of ------------------------- Tier I Sold Receivables sold on any Sale Date exceeding the amount of the Sale Price under Section 2.01 to be paid in cash, which portion (computed as of the related Purchase Price Calculation Date of such Receivables) when added to the cumulative amount of all previous TFC I Deferred Sale Prices (after giving effect to any repayment of amounts due thereunder) shall not exceed 25% of the Outstanding Balance of such Tier I Transferred Receivables, provided that no such 25% limit shall apply during any Clean Down Period. The obligations of TFC I in respect of the TFC I Deferred Sale Price shall be evidenced by TFC I's subordinated promissory note in the form of Exhibit 5 hereto. "TFC II Deferred Sale Price" means the portion of the Sale Price of -------------------------- Tier II Sold Receivables sold on any Sale Date exceeding the amount of the Sale Price under Section 2.02 to be paid in cash, which portion (computed as of the related Purchase Price Calculation Date of such Receivables) when added to the cumulative amount of all previous TFC II Deferred Sale Prices (after giving effect to any repayment of amounts due thereunder) shall not exceed 25% of the Outstanding Balance of such Tier II Transferred Receivables, provided that no such 25% limit shall apply during any Clean Down Period. The obligations of TFC II in respect of the TFC II Deferred Sale Price shall be evidenced by TFC II's subordinated promissory note in the form of Exhibit 5 hereto. "TFC I Loan" has the meaning specified in Section 5.01. ---------- "TFC II Loan" has the meaning specified in Section 6.01. ----------- "TFC Loans" means together the TFC I Loans and the TFC II Loans. --------- "TFC Secured Obligations" means all obligations of every nature of the ----------------------- Funding Corporations, collectively (other than to the Company or Servicer), now or hereafter existing, under the Funding Agreement and any promissory note or other document or instrument delivered pursuant to such documents, and all amendments, extensions or renewals thereof, whether for principal, interest, fees, expenses or otherwise, whether now existing or hereafter arising, voluntary or involuntary, whether or not jointly owed with others, direct or indirect, absolute or contingent, liquidated or unliquidated, and whether or not from 14 time to time decreased or extinguished and later increased, created or incurred and all or any portion of such obligations that are paid, to the extent that all or any part of such payment is avoided or recovered directly or indirectly from Redwood, the Operating Agent, FSA or the Collateral Agent as a preference, fraudulent transfer or otherwise. "Tier I Eligible Receivable" means any Eligible Receivable other than -------------------------- an Eligible Receivable the Obligor of which is Toys'R'Us. "Tier II Eligible Receivable" means any Eligible Receivable the --------------------------- Obligor of which is Toys'R'Us. "Tier I Receivable" means any Receivable other than a Receivable the ----------------- Obligor of which is Toys'R'Us. "Tier II Receivable" means any Receivable the Obligor of which is ------------------ Toys'R'Us. "Tier I Sold Receivable" has the meaning specified in Section 2.01(c). ---------------------- "Tier II Sold Receivable" has the meaning specified in Section ----------------------- 2.02(c). "Tier I Transferred Receivable" has the meaning specified in Section ----------------------------- 2.01(d). "Tier II Transferred Receivable" has the meaning specified in Section ------------------------------ 2.02(d). "Toys'R'Us" means Toys'R'Us Inc., a Delaware corporation. --------- "Transaction Credit" shall have the meaning ascribed to it in the ------------------ Collateral Agent Agreement. "Transaction Credit Agreement" means any agreement executed by a ---------------------------- Transaction Credit Provider, the Operating Agent and Redwood for the provision of Transaction Credit. "Transaction Credit Provider" shall have the meaning such term has --------------------------- pursuant to the Collateral Agent Agreement. "Transferred Receivables" means, together, the Tier I Transferred ----------------------- Receivables and the Tier II Transferred Receivables. "Transferred Receivables Balance" means at any time the aggregate ------------------------------- Outstanding Balance of the Transferred Receivables less the Outstanding Balance of Transferred Receivables constituting Defaulted Receivables. 15 "UCC" means, for any jurisdiction, the Uniform Commercial Code as from --- time to time in effect in such jurisdiction. "Underfunded Plan" means any Plan that has an Underfunding. ---------------- "Underfunding" means, with respect to any Plan, the excess, if any, of ------------ (a) the present value of all benefits under the Plan (based on the assumptions used to fund the Plan pursuant to Section 412 of the Code) as of the most recent valuation date over (b) the fair market value of the assets of such Plan as of such valuation date. "Wire Payments" has the meaning specified in Section 4.02(b). -------------- SECTION 1.02. Other Terms and Interpretation. All accounting terms ------------------------------ not specifically defined herein shall be construed in accordance with GAAP. All terms used in Article 9 of the UCC of the State of New York, and not specifically defined herein, are used herein as defined in such Article 9. All hourly references herein shall refer to New York City time. Except as otherwise indicated, all agreements defined in this Agreement refer to the same as from time to time amended or supplemented or as the terms of such agreements are waived or modified in accordance with their terms. All weekly or monthly references with respect to Tyco Toys, Inc., the Company, TFC I or TFC II herein shall refer to fiscal weeks or months of Tyco Toys, Inc., the Company, TFC I or TFC II, as the case may be. SECTION 1.03. Rounding. For purposes of any calculations referred to -------- in this Agreement (unless otherwise specified), (i) all percentages resulting from such calculations will be rounded up, if necessary, to the nearest one ten- thousandth of a percentage point (e.g. 9.87654% (or .0987654) being rounded up to 9.8766% (or .098766)) and (ii) all Dollar amounts used in or resulting from such calculations will be rounded up to the nearest cent (e.g., $1,057.373 being rounded up to $1,057.38). ARTICLE II TRANSFERS OF RECEIVABLES SECTION 2.01. Agreement to Transfer to TFC I. (a) On the terms and ------------------------------ conditions of this Agreement, on and after the date of this Agreement until the Commitment Termination Date, the Company agrees to sell to TFC I each Tier I Receivable originated by the Company other than Excluded Receivables. 16 (b) The Company shall, on each Business Day (each, a "Sale Date"), identify as purchased all Receivables not previously identified as Transferred Receivables, in accordance with this Section 2.01(b), on such Business Day. Each such identification shall be made as of the opening of the business of the Servicer on each Business Day. (c) On the Effective Date and on a date occurring no less frequently than weekly thereafter (each a "Request Notice Date") the Company shall deliver to TFC I a Request Notice setting forth all outstanding Tier I Receivables originated and owned by the Company through such date. No later than the following Business Day (the "Purchase Price Calculation Date") TFC I and the Company shall identify and mutually agree which Tier I Eligible Receivables designated in such Request Notice were, since the last Purchase Price Calculation Date, or are to be purchased and sold on such Purchase Price Calculation Date (the "Tier I Sold Receivables"). The price paid for such Tier I Sold Receivables shall be the Sale Price for such Tier I Sold Receivables. Such Sale Price shall be paid by means of (i) an immediate cash payment to the Company plus (ii) the TFC I Deferred Sale Price. The cumulative amount of all TFC I Deferred Sale Prices shall be subject at all times to the limitations contained in the definition thereof. On each Purchase Price Calculation Date, such cumulative TFC I Deferred Sale Price shall be recalculated by the Servicer. On or before the Effective Date, the Company and TFC I shall enter into a Certificate of Assignment I substantially in the form of Exhibit 1A hereto ("Assignment I"). On each Sale Date the Tier I Sold Receivables shall be assigned, and on the subsequent Purchase Price Calculation Date TFC I shall pay the Sale Price for such Tier I Sold Receivables. The portion of the Sale Price which is to be payable immediately in cash shall be payable by wire transfer on the Purchase Price Calculation Date to an account designated by the Company (and approved by the Operating Agent) on or before the Purchase Price Calculation Date. (d) On and after each Business Day hereunder, TFC I shall own the Tier I Sold Receivables which have been (assuming compliance with the terms hereof) identified as being transferred to TFC I under this Section 2.01 (each a ------------ "Tier I Transferred Receivable") and the Company shall not take any action inconsistent with such ownership and shall not claim any ownership interest in any such Tier I Transferred Receivable. (e) Until the occurrence of an Event of Servicer Termination or a resignation pursuant to the Funding Agreement, the Company, as Servicer, shall conduct the servicing, administration and collection of Tier I Transferred Receivables and shall take, or cause to be taken, all such actions as may be necessary or advisable to service, administer and collect such Tier I Transferred Receivables, from time to time, all in 17 accordance with (i) the terms of the Funding Agreement, (ii) the Credit and Collection Policies and, to the extent not in conflict therewith, customary and prudent servicing procedures for trade receivables of a similar type and (iii) all applicable laws, rules and regulations. Documents relating to Tier I Transferred Receivables shall be held in trust by the Company, as Servicer, for the benefit of TFC I and its assignees as the owners thereof, and possession of any incident relating to the Tier I Transferred Receivables and Contracts so retained is for the sole purpose of facilitating the servicing of the Tier I Transferred Receivables. Such retention and possession thereof is at the will of TFC I and its assignees and in a custodial capacity for their benefit only. SECTION 2.02. Agreement to Transfer to TFC II. (a) On the terms and ------------------------------- conditions of this Agreement, on and after the date of this Agreement until the Commitment Termination Date, the Company agrees to sell to TFC II each Tier II Receivable originated by the Company other than Excluded Receivables. (b) The Company shall, on each Business Day (each, a "Sale Date"), identify as purchased all Receivables not previously identified as Transferred Receivables, in accordance with this Section 2.02(b), on such Business Day. Each such identification shall be made as of the opening of the business of the Servicer on each Business Day. (c) On the Effective Date and on a date occurring no less frequently than weekly thereafter (each a "Request Notice Date") the Company shall deliver to TFC II a Request Notice setting forth all outstanding Tier II Receivables originated and owned by the Company through such date. No later than the following Business Day (the "Purchase Price Calculation Date") TFC II and the Company shall identify and mutually agree which Tier II Eligible Receivables designated in such Request Notice were, since the last Purchase Price Calculation Date, or are to be purchased and sold on such Purchase Price Calculation Date (the "Tier II Sold Receivables"). The price paid for such Tier II Sold Receivables shall be the Sale Price for such Tier II Sold Receivables. Such Sale Price shall be paid by means of (i) an immediate cash payment to the Company plus (ii) the TFC II Deferred Sale Price. The cumulative amount of all TFC II Deferred Sale Prices shall be subject at all times to the limitations contained in the definition thereof. On each Purchase Price Calculation Date, such cumulative TFC II Deferred Sale Price shall be recalculated by the Servicer. On or before the Effective Date, the Company and TFC II shall enter into a Certificate of Assignment II substantially in the form of Exhibit 1B hereto ("Assignment II"). On each Sale Date the Tier II Sold Receivables shall be assigned, and on the subsequent Purchase Price Calculation Date TFC II shall pay the Sale Price for such Tier II Sold Receivables. The portion of the Sale Price which is to be payable immediately in cash shall be payable by wire 18 transfer on the Purchase Price Calculation Date to an account designated by the Company (and approved by the Operating Agent) on or before the Purchase Price Calculation Date. (d) On and after each Business Day hereunder, TFC II shall own the Tier II Sold Receivables which have been (assuming compliance with the terms hereof) identified as being transferred to TFC II under this Section 2.02 (each ------------ a "Tier II Transferred Receivable") and the Company shall not take any action inconsistent with such ownership and shall not claim any ownership interest in any such Tier II Transferred Receivable. (e) Until the occurrence of an Event of Servicer Termination or a resignation pursuant to the Funding Agreement, the Company, as Servicer, shall conduct the servicing, administration and collection of Tier II Transferred Receivables and shall take, or cause to be taken, all such actions as may be necessary or advisable to service, administer and collect such Tier II Transferred Receivables, from time to time, all in accordance with (i) the terms of the Funding Agreement, (ii) the Credit and Collection Policies and, to the extent not in conflict therewith, customary and prudent servicing procedures for trade receivables of a similar type and (iii) all applicable laws, rules and regulations. Documents relating to Tier II Transferred Receivables shall be held in trust by the Company, as Servicer, for the benefit of TFC II and its assignees as the owners thereof, and possession of any incident relating to the Tier II Transferred Receivables and Contracts so retained is for the sole purpose of facilitating the servicing of the Tier II Transferred Receivables. Such retention and possession thereof is at the will of TFC II and its assignees and in a custodial capacity for their benefit only. SECTION 2.03. Grant of Security Interest. (a) It is the intention of -------------------------- the parties hereto that each transfer of Transferred Receivables to be made hereunder shall constitute a purchase and sale and not a loan. In the event, however, that a court of competent jurisdiction were to hold that any transaction provided for hereby constitutes a loan and not a purchase and sale this Agreement shall constitute a security agreement under applicable law and the Company does hereby grant to TFC I, with respect to the TFC I Transferred Receivables, and to TFC II, with respect to the TFC II Transferred Receivables, a first priority security interest in all of the Company's right, title and interest in, to and under such Transferred Receivables, all payments of principal, interest, fees, charges and indemnities on or under such Transferred Receivables and all proceeds of any such Transferred Receivables. (b) The Company acknowledges and consents to the security interest over the Transferred Receivables created pursuant to Section 8.02 of the Funding Agreement and 19 acknowledges the rights of the Collateral Agent and FSA and the covenants given by the Funding Corporations and Redwood in favor of the Collateral Agent and FSA set forth in the Funding Agreement, and further acknowledges and consents that each of the Collateral Agent and FSA shall be entitled to enforce the provisions of this Agreement and the Related Documents to which the Company is a party and shall be entitled to all the rights and remedies of the Funding Corporations and Redwood hereunder and thereunder. In addition, the Company hereby authorizes each of the Collateral Agent and FSA to rely on the representations, warranties and covenants of the Company contained in this Agreement and the Related Documents to which the Company is a party and in any other certificates and documents furnished by the Company to any party in connection herewith or therewith. ARTICLE III CONDITIONS OF SALE SECTION 3.01. Conditions Precedent to the Initial Sale. The initial ---------------------------------------- Sale hereunder is subject to the following conditions precedent: (a) that each of the Funding Corporations shall have received on or before the date of the initial Sale under this Agreement, each dated such date (unless otherwise indicated), in form and substance satisfactory to each of the Funding Corporations, the Operating Agent and FSA: (i) the Assignments executed by the Company; (ii) a copy of resolutions duly adopted by the Board of Directors of the Company approving this Agreement, the Assignments and the other documents to be delivered by it hereunder and the transactions and matters contemplated hereby, certified by its Secretary or Assistant Secretary; (iii) the charter, as amended, of the Company, certified by the Secretary of State of its state of incorporation, dated not earlier than 30 days prior to the date of the initial Sale; (iv) good standing certificates for the Company issued by the Secretaries of States of Delaware, California, Georgia, Illinois, New Jersey and Washington, each dated not earlier than 30 days prior to the date of the initial Sale; (v) a copy of the Company's by-laws, as amended, certified by its Secretary or Assistant Secretary; (vi) a certificate of the Secretary or Assistant Secretary of the Company certifying the names and true 20 signatures of the officers authorized on its behalf to sign this Agreement, the Assignments, and the other documents to be delivered by it hereunder (on which certificate the Funding Corporations may conclusively rely until such time as the Funding Corporations shall receive from the Company a revised certificate meeting the requirements of this Subsection (vi)) and certifying that (A) the charter of the Company has not changed since the date of the certificate referred to in Section 3.01(a)(iii), (B) that the Company is still in good standing in all jurisdictions, including, without limitation, those referred to in Section 3.01(a)(iv), (C) all representations and warranties made by the Company in this Agreement are true and correct in every particular and (D) no financing statements or other similar instruments and documents relating to the Receivables have been filed in any jurisdiction, other than those financing statements, other similar instruments and documents shown on the certified copies of the Requests for Information or Copies provided pursuant to clause (ix); (vii) copies of proper financing statements (Form UCC-1), dated on or prior to the date of the initial Sale, naming the Company as the assignor of the Receivables and TFC I, with respect to the Tier I Receivables, and TFC II, with respect to the Tier II Receivables, as assignee, or other similar instruments or documents, in form and substance sufficient for filing under the UCC or any comparable law of any and all jurisdictions as may be necessary or, in the opinion of the Operating Agent or FSA, desirable to perfect TFC I's ownership interests in all Tier I Receivables and TFC II's ownership interest in all TFC II Receivables, in each case in which an interest may be assigned hereunder; (viii) copies of properly executed termination statements or statements of release (Forms UCC-2 or UCC-3) or other similar instruments or documents, if any, in form and substance satisfactory for filing under the UCC or any comparable law of any and all jurisdictions as may be necessary or, in the opinion of the Operating Agent or FSA, desirable to release all security interests and similar rights of any Person in the Receivables previously granted by the Company; (ix) certified copies of Requests for Information or Copies (Form UCC- 11) (or a similar search report certified by a party acceptable to the Operating Agent and FSA), dated a date reasonably near and prior to the date of the initial Sale, listing all effective financing statements and other similar instruments and documents, including those referred to above in Subsections (vii) and (viii) which name the Company (under its present name and any previous name) as 21 debtor and which are filed in the jurisdictions in which filings are to be made pursuant to such Subsections (vii) and (viii) above, together with copies of such financing statements, none of which, except those filed pursuant to Subsections (vii) and (viii), above, shall cover any Receivables; (x) the Lock-Box Agreements with all the Lock-Box Banks, in each case executed by the Company and acknowledged and agreed to by the applicable Lock-Box Bank and dated on or before the date of the initial Sale, together with an acknowledgment executed by the Operating Agent and Redwood; (xi) a favorable opinion of Wolf, Block, Schorr and Solis-Cohen, counsel to the Company, in substantially the form of Exhibit 4 hereto and with respect to such other matters as the Operating Agent or FSA may reasonably request. SECTION 3.02. Conditions Precedent to All Sales. The obligation of --------------------------------- TFC I or TFC II, as the case may be, to pay for each Sold Receivable on each Purchase Price Calculation Date (including the initial Purchase Price Calculation Date) shall be subject to the further conditions precedent (any one of which can be waived by TFC I, with respect to transfers of Tier I Receivables, or TFC II, with respect to Tier II Receivables, in each case, with the prior written consent of FSA) that on such Purchase Price Calculation Date: (a) The following statements shall be true (and delivery by the Company of a Request Notice and the acceptance by the Company of the Sale Price for any Receivables on any Purchase Price Calculation Date shall constitute a representation and warranty by the Company that on such Purchase Price Calculation Date such statements are true): (i) the representations and warranties of the Company contained in Section 4.01 shall be correct on and as of such Purchase Price Calculation Date in all material respects (except with respect to Section 4.01(b) and those already so qualified which are true and correct in all respects), before and after giving effect to such Sale and to the application of proceeds therefrom, as though made on and as of such date; and (ii) no event has occurred, or would result from such Sale or from the application of the proceeds therefrom, which constitutes a Termination Event or would constitute a Termination Event but for the requirement that notice be given or time elapse or both; (iii) the Company is in compliance with each of its 22 covenants and other agreements set forth herein; (iv) no event has occurred which constitutes an Event of Servicer Termination or would constitute an Event of Servicer Termination but for the requirement that notice be given or time elapse or both; and (v) each Transferred Receivable designated as an Eligible Receivable is an Eligible Receivable; (b) The Commitment Termination Date shall not have occurred; and (c) The Company shall have taken such other action, including delivery of approvals, consents, opinions, documents and instruments to Redwood, the Operating Agent and FSA, as the Operating Agent or FSA may reasonably request. ARTICLE IV REPRESENTATIONS, WARRANTIES AND COVENANTS SECTION 4.01. Representations and Warranties of the Company. The --------------------------------------------- Company represents and warrants to the Funding Corporations and FSA as of each Purchase Price Calculation Date and each Sale Date, which representations and warranties are or will be true and correct as of such Purchase Price Calculation Date or Sale Date, as the case may be, that: (a) With respect to the Company: (i) the Company is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and is duly qualified to do business and is in good standing in every jurisdiction in which the failure to be so qualified, separately or in the aggregate, would have a Material Adverse Effect; (ii) the Company has the power and authority to own, pledge, mortgage, operate and convey all of its properties and assets and to execute and deliver this Agreement and the Related Documents and to perform the transactions contemplated hereby and thereby; (iii) the Company is operated in such a manner that neither TFC I nor TFC II would be substantively consolidated in the estate of the Company (that is, in such a manner that the separate corporate existence of either TFC I and the Company or TFC II and the Company, as the case may be, would not be disregarded), in the event of a bankruptcy or insolvency of the Company and in such regard: 23 (1) each of TFC I and TFC II is a limited purpose corporation whose activities are restricted in its respective certificate of incorporation; (2) neither the Company or any Affiliate of the Company is involved in the day-to-day management of either of the Funding Corporations; (3) other than the purchase of Receivables, TFC Loans, and other transactions contemplated by the Receivables Transfer Agreements, the payment of dividends and the return of capital, any lease or sub-lease of office space or equipment, any common officers or other employees and the payment of Servicing Fees (as defined in the Funding Agreement) to the Servicer under the Funding Agreement, neither of the Funding Corporations engages in any intercorporate transactions with the Company or any Affiliate of the Company; (4) each of the Funding Corporations maintains separate corporate records and books of account from the Company, holds regular corporate meetings and otherwise observes corporate formalities and has a separate business office from the Company; (5) all the financial statements and books and records of the Funding Corporations and the Company reflect the respective separate corporate existence of each of the Funding Corporations; (6) each of the Funding Corporations maintains its assets separately from the assets of the Company and any other Affiliate of the Company (including through the maintenance of separate bank accounts), each of the Funding Corporations' funds and assets, and records relating thereto, have not been, are not and will not be commingled with those of the Company or any other Affiliate of the Company and the separate creditors of each of the Funding Corporations will be entitled to be satisfied out of that Funding Corporation's assets prior to any value in that Funding Corporation becoming available to that Funding Corporation's equityholders; each Funding Corporation has, and will continue to have, assets other than assets contributed by the Company; (7) neither the Company nor any Affiliate of the Company (A) pays either of the Funding Corporations' expenses; (B) guarantees either of the Funding Corporations' obligations, or (C) advances funds to either of the Funding Corporations for the payment of expenses or otherwise; 24 (8) all business correspondence of each of the Funding Corporations and other communications are conducted in that Funding Corporation's own name, on its own stationery and through a separately-listed telephone number; (9) neither TFC I nor TFC II acts as agent for the Company or of any of its Affiliates, but instead each presents itself to the public as a corporation separate from the Company and its Affiliates, independently engaged in the business of purchasing and financing Receivables; and (10) each of TFC I and TFC II maintains two independent directors, each of whom at all times who shall at no time be a shareholder, director, officer, employee or associate of the Company or any Affiliate of the Company (other than as a Director of that Funding Corporation or of the other Funding Corporation) as provided in its certificate or articles of incorporation. (11) each Funding Corporation is solvent and will not be rendered insolvent by the transactions contemplated by any of the Receivables Transfer Agreements or the Related Documents and, after giving effect to such transactions, neither Funding Corporation will be left with an unreasonably small amount of capital with which to engage in its business nor will either of the Funding Corporations have intended to incur, or believe that it has incurred, debts beyond its ability to pay such debts as they mature. Neither of the Funding Corporations contemplates the commencement of insolvency, bankruptcy, liquidation or consolidation proceedings or the appointment of a receiver, liquidator, conservator, trustee or similar official in respect of that Funding Corporation or any of its assets. (12) The Company is the owner of 100% of the Class A common stock and 49% of the Class B common stock of both Funding Corporations. (iv) the execution, delivery and performance by the Company of this Agreement and the Related Documents and the transactions contemplated hereby and thereby (A) have been duly authorized by all necessary corporate or other action on the part of the Company, (B) do not contravene or cause the Company to be in default under (1) the Company's certificate or articles of incorporation or by-laws, (2) any contractual restriction with respect to any Debt of the Company or contained in any indenture, loan or credit 25 agreement, lease, mortgage, security agreement, bond, note, or other agreement or instrument binding on or affecting the Company or its property or (3) any law, rule, regulation, order, writ, judgment, award, injunction or decree applicable to, binding on or affecting the Company, its Affiliates or their respective property and (C) do not result in or require the creation of any Adverse Claim upon or with respect to any of its properties (other than in favor of TFC I or TFC II with respect to this Agreement and Redwood, FSA and the Collateral Agent under the Funding Agreement); (v) this Agreement and the Related Documents have each been duly executed and delivered by the Company; (vi) no approval or consent of, notice to, filing with or licenses, permits, qualifications or other action by any Governmental Authority or any other party, is required or necessary for the conduct of the Company's business as currently conducted and for the due execution, delivery and performance by the Company of this Agreement or any of the Related Documents or for the perfection of or the exercise by either TFC I or TFC II, Redwood, the Operating Agent, FSA or the Collateral Agent of any of their rights or remedies thereunder or hereunder, other than approvals, consents, notices, filings and other actions which have been obtained or made and complete copies of which have been provided to Redwood, the Operating Agent, FSA and the Collateral Agent; (vii) each of this Agreement, each other Related Document delivered by the Company and the respective obligations of the Company thereunder is the legal, valid and binding obligation of the Company enforceable against the Company in accordance with its respective terms subject to (i) any applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting the enforceability of creditors' rights generally and (ii) general equitable principles, whether applied in a proceeding at law or in equity; (viii) there is no pending or threatened, nor any reasonable basis for any, action, suit or proceeding against or affecting the Company, its officers or directors, or the property of the Company, in any court or tribunal, or before any arbitrator of any kind or before or by any Governmental Authority (A) asserting the invalidity of this Agreement or any of the Related Documents, (B) seeking to prevent the sale, pledge or contribution of any Receivable or the consummation of any of the transactions contemplated hereby or thereby, (C) seeking any determination or ruling that 26 might materially and adversely affect (1) the performance by either of the Funding Corporations or the Company of its obligations under this Agreement or any of the Related Documents, (2) the validity or enforceability of this Agreement or any of the Related Documents, (3) the Receivables or the Contracts or the interests of either of the Funding Corporations, Redwood, FSA or the Lender Secured Parties therein, or (4) the federal income tax attributes of the sale or pledge of the Transferred Receivables, (D) asserting a claim for payment of money in excess of $10,000,000 (other than such judgments or orders in respect of which adequate insurance is maintained by the Company for the payment in full thereof) or (E) which is reasonably likely to have a Material Adverse Effect; (ix) no injunction, writ, restraining order or other order of any nature adverse to the Company or the conduct of its business or which is inconsistent with the due consummation of the transactions contemplated by this Agreement or the Funding Agreement or any of the other Related Documents has been issued by a Governmental Authority nor been sought by any Person; (x) the principal place of business and chief executive office of the Company are located at the address of the Company referred to in this Agreement and there are now no, and during the past four months there have not been any, other locations where the Company is located (as that term is used in the UCC of the jurisdiction where such principal place of business is located) or keeps Records; (xi) the legal name of the Company is as set forth at the beginning of this Agreement and the Company has not changed its name in the last six years, and during such period the Company did not use, nor does the Company now use, any tradenames, fictitious names, assumed names or "doing business as" names, other than those contained in Schedule V hereto; (xii) the Lockbox Accounts are the only lockbox accounts maintained by the Company, either of the Funding Corporations or otherwise in respect of the Transferred Receivables; (xiii) the Company is solvent and will not become insolvent after giving effect to the transactions contemplated by this Agreement and the Related Documents; the Company is paying its Debts as they mature; the Company has not incurred Debts beyond its ability to pay as they mature; and the Company, after giving effect to the transactions contemplated by this Agreement and the Related 27 Documents, will have an adequate amount of capital to conduct its business in the foreseeable future; (xiv) for federal income tax, reporting and accounting purposes, the Company will treat the sale of each Receivable sold or assigned pursuant to this Agreement as a sale of, or absolute assignment of, its full right, title and ownership interest in such Receivable to either TFC I or TFC II, as the case may be, (and each Receivable contributed to either of the Funding Corporations by the Company pursuant to this Agreement shall be accounted for as an increase in the stated capital of such Funding Corporation), and the Company has not in any other respect accounted for or treated the transactions contemplated by this Agreement or the Related Documents; (xv) the Company has complied in all respects with all applicable laws, rules, regulations, and orders with respect to it, its business and properties and all Receivables and related Contracts (including without limitation, all applicable environmental, health and safety requirements) and all restrictions contained in any indenture, loan or credit agreement, mortgage, security agreement, bond, note or other agreement or instrument binding on or affecting the Company or its property, and has and maintains all permits, licenses, authorizations, registrations, approvals and consents of Governmental Authorities for (A) the activities and business of the Company and each of its Affiliates as currently conducted and as proposed to be conducted, (B) the ownership, use, operation and maintenance by each of them of its properties, facilities and assets and (C) the performance by the Company and each of TFC I and TFC II of this Agreement and the Related Documents (hereinafter referred to collectively as "Governmental Consents"), with respect to which any non-compliance or failure to maintain such items would, separately or in the aggregate, have a Material Adverse Effect; (xvi) no practice, procedure or policy employed or proposed to be employed by the Company in the conduct of its business violates any law, regulation, judgment, agreement, order or decree applicable to the Company which, if enforced, would have a Material Adverse Effect; (xvii) without limiting the generality of the prior representation, no condition exists or event has occurred which, in itself or with the giving of notice or lapse of time or both, would result in the suspension, revocation, impairment, forfeiture or non-renewal of any Governmental Consent applicable to the Company or any Subsidiary, except 28 where such conditions or events would not, separately or in the aggregate, have a Material Adverse Effect; (xviii) the Company has filed on a timely basis all tax returns (federal, state and local) required to be filed and has paid or made adequate provisions for the payment of all taxes, fees, assessments and other governmental charges due from the Company; no tax lien or similar Adverse Claim has been filed, and no claim is being asserted, with respect to any such tax, fee, assessment, or other governmental charge except as set forth on Schedule VI. Any taxes, fees, assessments and other governmental charges payable by the Company in connection with the execution and delivery of this Agreement and the Related Documents and the transactions contemplated hereby or thereby have been paid or when due, to the extent due at or prior to such Purchase Price Calculation Date; (xix) with respect to each of the Funding Corporations, the Servicer (if the Servicer is the Company), the Company and Tyco Manufacturing Corp. or any of its Affiliates, there has occurred no event which has or is reasonably likely to have a Material Adverse Effect on the Company; (xx) the Company is licensed or otherwise has the lawful right to use all patents, trademarks, servicemarks, tradenames, copyrights, technology, know-how and processes used in or necessary for the conduct of its business as currently conducted which are material to its financial condition, business, operations, assets and prospects, individually or taken as a whole; (xxi) (a) the consolidated balance sheets of Tyco Toys, Inc. and its consolidated Subsidiaries for each of the last three fiscal years prior to the balance sheet date are delivered prior to such Purchase Price Calculation Date, and the related statements of income and shareholders' equity of Tyco Toys, Inc. and its consolidated Subsidiaries for such fiscal years, certified without qualification by Tyco Toys, Inc.'s independent certified public accountants, copies of which have been furnished to Redwood, FSA and the Operating Agent, are complete and correct and fairly present the consolidated financial condition, business and results of operations of Tyco Toys, Inc. and its consolidated Subsidiaries as of the last day of such fiscal years and the consolidated results of the operations of Tyco Toys, Inc. and its consolidated Subsidiaries for the periods ended on such dates, all in accordance with GAAP, (b) the unaudited consolidated balance sheets and the related statements of income and shareholders' equity of Tyco Toys, Inc. and its consolidated Subsidiaries for each fiscal quarter in the 29 period since the most recent consolidated balance sheet and related statement of income and shareholders' equity referred to in clause (a) above and ended at least 45 days prior to such Purchase Price Calculation Date, copies of which have been furnished to Redwood, FSA and the Operating Agent, are complete and correct and fairly present the consolidated financial condition, business and operations of the Tyco Toys, Inc. and its consolidated Subsidiaries as of the last day of such fiscal quarters and the consolidated results of the operations of the Company and its consolidated Subsidiaries for the periods ended on such dates, all in accordance with GAAP, and (c) since the last date for which a balance sheet of the Company and its consolidated Subsidiaries has been delivered to Redwood, FSA and the Operating Agent, there has, except as disclosed to the Operating Agent and FSA, been no material adverse change in any such condition, business or results of operations; neither Tyco Toys nor its consolidated Subsidiaries have any contingent liabilities or commitments which, separately or in the aggregate, is reasonably likely to have a Material Adverse Effect on such entities; (xxii) each Obligor of a Transferred Receivable has been directed, and is required to, remit all payments with respect to such Receivable for deposit in a Lockbox Account or a Lockbox; (xxiii) each Request Notice contains a complete and accurate list of all Tier I Transferred Receivables or Tier II Transferred Receivables sold by the Company to TFC I or TFC II, respectively, as of its date; (xxiv) no Obligor of an Eligible Receivable being sold on the related Sale Date has any claim against or affecting the Company or the property of the Company; (xxv) the Company is in compliance with ERISA and has not incurred and does not expect to incur any liabilities (except for premium payments arising in the ordinary course of business) to the Pension Benefit Guaranty Corporation (or any successor thereof) under ERISA; (xxvi) each pension plan or profit sharing plan to which the Company or any Affiliate is a party has been administered and fully funded in accordance with the obligations of the Company under law and as set forth in such plan, and the Company has complied with the applicable provisions of ERISA in effect as of such Purchase Price Calculation Date; (xxvii) the Company has valid business reasons for selling its interests in the Transferred Receivables rather 30 than obtaining a loan with the Transferred Receivables as collateral; (xxviii) the Company has not agreed to pay any fee or commission to any agent, broker, finder or other person for or on account of services rendered as a broker or finder in connection with this Agreement or the Related Documents or the transactions contemplated hereby or thereby which would give rise to any valid claim against either of the Funding Corporations for any brokerage commission or finder's fee or like payment; (xxix) all information heretofore or hereafter furnished by the Company to TFC I, TFC II, Redwood, the Operating Agent, FSA or the Collateral Agent in connection with any transaction contemplated by this Agreement or the Related Documents is and will be true and complete in all material respects and does not and will not omit to state a material fact necessary to make the statements contained herein or therein not misleading. With respect to the Company, Tyco Manufacturing or the Funding Corporations there has occurred no event which has or is reasonably likely to have a Material Adverse Effect on such entity; (xxx) no part of the proceeds received by the Company or any Affiliate from the Sale Price will be used directly or indirectly for the purpose of purchasing or carrying, or for payment in full or in part of, Debt that was incurred for the purposes of purchasing or carrying any "margin stock," as such term is defined in (S) 221.3 of Regulation U of the Board of Governors of the Federal Reserve System. (xxxi) there are not now, nor will there be at any time in the future, any agreement or understanding between the Company and either of the Funding Corporations (other than as expressly set forth herein) providing for the allocation or sharing of obligations to make payments or otherwise in respect of any taxes, fees, assessments or other governmental charges; (xxxii) no transaction contemplated by this Agreement or any of the Related Documents requires compliance with any bulk sales act or similar law; (xxxiii) the Request Notice with respect to such Purchase Price Calculation Date is accurate in all material respects; (xxxiv) each purchase of Receivables under the Receivables Transfer Agreements will constitute (i) a "current transaction" within the meaning of Section 3(a)(3) 31 of the Securities Act of 1933, as amended, and (ii) a purchase or other acquisition of notes, drafts, acceptances, open accounts receivable or other obligations representing part or all of the sales price of merchandise, insurance or services within the meaning of Section 3(c)(5) of the Investment Company Act of 1940, as amended; (xxxv) (i) the Company is not a party to any indenture, loan or credit agreement or any lease or other agreement or instrument or subject to any charter or corporation restriction that is reasonably likely to have, and no provision of applicable law or governmental regulation is reasonably likely to have, a material adverse effect on the condition (financial or otherwise), business, operations or properties of the Company, or could have such an effect on the ability of the Company to carry out its obligations under this Agreement and the other Related Documents to which the Company is a party and (ii) the Company is not in default under or with respect to any contract, agreement, lease or other instrument to which the Company is a party and which is material to the Company's condition (financial or otherwise), business, operations or properties, and the Company has not delivered or received any notice of default thereunder; (xxxvi) the Company is not an "investment company" or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended. The purchase or acquisition of the Transferred Receivables by the Funding Corporations, the application of the proceeds and the consummation of the transactions contemplated by this Agreement and the other Related Documents to which the Company is a party will not violate any provision of such Act or any rule, regulation or order issued by the Securities and Exchange Commission thereunder; (xxxvii) the bylaws and/or the articles of incorporation of the Company require it to maintain (A) correct and complete books and records of account, and (B) minutes of the meetings and other proceedings of its shareholders and board of directors; and (xxxviii) Each of the representations and warranties of the Company contained in this Agreement and the Related Documents is true and correct in all material respects and the Company hereby makes each such representation and warranty to, and for the benefit of, the Collateral Agent, the Operating Agent, FSA and Redwood as if the same were set forth in full herein. 32 (b) On each Sale Date and as of the date of each Borrowing Base Certificate delivered under the Funding Agreement, with respect to each Receivable designated as an Eligible Receivable: (i) such Receivable is an Eligible Receivable, and is a receivable created through the unconditional provision of merchandise, goods or services by the Company in the ordinary course of its business in a current transaction; (ii) such Receivable was created in accordance with and satisfies all applicable requirements of the Credit and Collection Policies; (iii) if requested, a copy of any related Contract (if such Contract exists in a reproducible form) to such Receivable to which the Company is a party has been delivered to Redwood, the Operating Agent, FSA and the Collateral Agent; (iv) such Receivable represents the genuine, legal, valid and binding obligation in writing of the Obligor enforceable by the holder thereof in accordance with its terms, and neither such Receivable nor its related Contract has been satisfied, subordinated, rescinded or amended in any manner, subject to (i) any applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting the enforceability of creditors' rights generally and (ii) general equitable principles, whether applied in a proceeding at law or in equity; (v) neither such Receivable nor its related Contract is or will be subject to any right of rescission, set-off, recoupment, counterclaim or defense, whether arising out of transactions concerning the Contract or otherwise; (vi) prior to its sale to either TFC I or TFC II such Receivable was owned by the Company free and clear of any Adverse Claim or Restrictions on Transferability, and the Company had the right to sell, assign and transfer the same and interests therein as contemplated under this Agreement and, upon such sale, TFC I or TFC II acquired good and marketable title to and a valid and the sole record and beneficial ownership interest in such Receivable, free and clear of any Adverse Claim and any other restriction on transferability; (vii) this Agreement and the Assignment related to such Receivable constitute a valid sale, transfer, 33 assignment, setover and conveyance to either TFC I or TFC II, as the case may be, of all right, title and interest of the Company in and to such Receivable; (viii) the Billed Amount of such Receivable is net of contractual allowances, any offset or other modifications and such Receivable is entitled to be paid pursuant to the terms of the related Contract, has not been paid in full or been compromised, adjusted, extended, satisfied, subordinated, rescinded or modified, and is not subject to compromise, adjustment, extension, satisfaction, subordination, rescission or modification by the Company or Tyco Manufacturing (in each case, excluding any contractual allowances of the types set forth in Schedule 2 to the Funding Agreement granted by the Company or Tyco Manufacturing in the ordinary course of its business and in accordance with the Credit and Collection Policies, which allowances shall by typical for businesses similar to the Company's or Tyco Manufacturing's); (ix) the Company has submitted all necessary documentation (including any invoice) for payment of such Receivable to the Obligor and has fulfilled all its other obligations in respect thereof; (x) such Receivable has a Maturity Date no later than 270 days from its Billing Date; (xi) such Receivable is an "account" or "chattel paper" within the meaning of the UCC of the jurisdiction where the Company's chief executive office is located; (xii) neither such Receivable nor its related Contract contravenes in any material respect any laws, rules or regulations applicable thereto (including, without limitation, laws, rules and regulations relating to usury, consumer protection, truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy) and no party to such related Contract is in violation of any such law, rule or regulation in any material respect; (xiii) such Receivable does not represent "billed but not yet shipped" goods or merchandise, unperformed services, consigned goods or "sale or return" goods; nor does such Receivable arise from a transaction for which any additional performance by the Company or acceptance or other act of the Obligor remains to be performed as a condition to payments on such Receivable; (xiv) there are no proceedings or investigations pending or threatened before any Governmental Authority (A) 34 asserting the invalidity of such Receivable or such Contract, (B) asserting the bankruptcy or insolvency of the related Obligor, (C) seeking the payment of such Receivable or payment and performance of such Contract or (D) seeking any determination or ruling that might materially and adversely affect the validity or enforceability of such Receivable or such Contract; (xv) as of the applicable date of transfer hereunder, no Obligor on such Receivable is bankrupt or insolvent, is unable to make payment of its obligations when due, is the debtor in a voluntary or involuntary bankruptcy proceeding, or is the subject of a comparable receivership or insolvency proceeding, other than Obligors under the protection of a bankruptcy court or receivership which has approved payment by any such Obligor of such Receivable; and (xvi) the Company has no knowledge of any fact (including any defaults by the Obligor on any other accounts) which leads it or reasonably should have led it to expect that the Billed Amount of such Receivable will not be paid in full when due or to expect any other Material Adverse Effect; It is understood and agreed that the representations and warranties described in this Section 4.01 shall survive the sale of the Transferred Receivables to either of the Funding Corporations, any subsequent assignment of the Transferred Receivables by either of the Funding Corporations (including its grant of a first priority perfected security interest in, to and under the Transferred Receivables, pursuant to the Funding Agreement, in order to secure the due payment and performance by either of the Funding Corporations of TFC Secured Obligations), and the termination of this Agreement and the Funding Agreement and shall continue so long as any Transferred Receivable shall remain outstanding. SECTION 4.02. Covenants of the Company. (a) Offices and Records. ------------------------ ------------------- The Company shall keep its chief place of business and chief executive offices and the office where it keeps its Records at the respective locations specified in Section 4.01(a)(x) or, upon 30 days prior written notice to the Funding Corporations, FSA and the Collateral Agent, at such other location in a jurisdiction where all action required by Section 4.02(f) shall have been taken with respect to the Transferred Receivables. The Company shall, for not less than three years or for such longer period as may be required by law, from the date on which any Transferred Receivable arose, maintain the Records with respect to each Transferred Receivable, including records of all payments received, credits granted and merchandise returned. The Company will permit representatives of each Funding Corporation, the Servicer, FSA, the Operating Agent or the 35 Collateral Agent at any time and from time to time during normal business hours, and at such times outside of normal business hours, upon reasonable prior notice, as either Funding Corporation, FSA, the Servicer, the Operating Agent or the Collateral Agent shall reasonably request, (i) to inspect and make copies of and abstracts from such records, and (ii) to visit the properties of the Company utilized in connection with the collection, processing or servicing of the Transferred Receivables for the purpose of examining such Records, and to discuss matters relating to the Transferred Receivables or the Company's performance under this Agreement or the affairs, finances and accounts of the Company with any of its officers, directors, employees, representatives or agents and with its independent certified accountants and advise such accountants that the Funding Corporations, the Operating Agent, FSA, the Servicer and the Collateral Agent have been authorized to review and discuss with such accountants any and all financial statements and other information of any kind that they may have with respect to the Company and direct such accountants to comply with any request of the Funding Corporations, the Operating Agent, FSA, the Servicer or the Collateral Agent for such information. In connection therewith, the Company, the Operating Agent, FSA or the Collateral Agent may institute procedures to permit it to confirm the Obligor outstanding balances in respect of any Transferred Receivables. The Company agrees to render to TFC I, TFC II, FSA, the Operating Agent and the Collateral Agent, at the Company's own cost and expense, such clerical and other assistance as may be reasonably requested with regard to the foregoing. If a Termination Event under the Funding Agreement shall have occurred and be continuing, promptly upon request therefor, the Company shall assist the Funding Corporations in delivering to the Operating Agent records reflecting activity through the close of business on the immediately preceding Business Day. (b) Collection of Transferred Receivables. TFC I has established ------------------------------------- with a Lockbox Bank a Lockbox Account, and TFC II has established with a Lockbox Bank a Lockbox Account, into which the Company and TFC I or TFC II as the case may be shall deposit from time to time all monies, instruments and other property received by either of them as Collections or Proceeds of the Tier I Transferred Receivables and Tier II Transferred Receivables, respectively. Except for Toys'R'Us, the Company has instructed all existing Obligors, and will instruct all future Obligors, to make payments in respect of Transferred Receivables only (i) by check or money order mailed to one or more lockboxes or post office boxes in the name and under the control of the Collateral Agent (each such box being a "Lockbox"), or (ii) by wire transfer or moneygram directly to a Lockbox Account established by TFC I or a Lockbox Account established by TFC II, as the case may be ("Wire Payments") in the name and under the control of the Collateral Agent. The Lockboxes to which mail payments are made 36 as of the date hereof listed are listed on the attached Schedule IV. The Company shall endorse, to the extent necessary, all checks or other instruments received in any Lockbox so that the same can be deposited, and the same shall be deposited in the applicable Lockbox Account in the form so received (with all necessary endorsements), on the next Business Day after the Business Day on which such check or other instruments are received. In addition, the Company shall deposit or cause to be deposited in the Lockbox Account for Tier I Receivables or in the Lockbox Account for Tier II Receivables, as appropriate, all cash, checks, money orders or other Collections or Proceeds received other than in a Lockbox or by Wire Payments, in the form so received (with all necessary endorsements), not later than the close of business on the Business Day following the date of such receipt, and until so deposited all such items or other Collections or Proceeds shall be held in trust for the Collateral Agent and FSA; provided that any payments by Toys'R'Us in respect of the Transferred -------- Receivables shall be delivered directly by Toys'R'Us to a bonded courier acceptable to Redwood and FSA and directly upon receipt thereof on the day so received, deposited into the Collection Account or deposited directly by Toys'R'Us into the applicable Lockbox Account. FSA, the Company and GE Capital will agree on satisfactory procedures for collecting payments from Toys'R'Us from time to time. In connection with such collections, the Company may take (and at the Collateral Agent's or FSA's direction after a Termination Event has occurred and is continuing, shall take) such action as either TFC I or TFC II or the Collateral Agent or FSA, in each case with the prior written consent of FSA, may deem necessary or advisable to enforce collection of the Transferred Receivables; provided, however, that the Collateral Agent may, at any time that a Termination Event has occurred and is continuing, notify any Obligor with respect to any Transferred Receivables of the assignment of such Transferred Receivables to the Collateral Agent and direct that payments of all amounts due or to become due thereunder be made directly to the Collateral Agent or any servicer, collection agent or lockbox or other account designated by the Collateral Agent and, upon such notification the Collateral Agent may enforce collection of any such Receivable and adjust, settle or compromise the amount or payment thereof, subject in each case to the prior written approval of FSA. (c) Maintain Records of Transferred Receivables. The Company as ------------------------------------------- Servicer shall, at its own cost and expense, maintain satisfactory and complete records of the Transferred Receivables, including a record of all payments received and all credits granted with respect to the Transferred Receivables and all other dealings with the Transferred Receivables. The Company as Servicer will mark conspicuously with a legend, in form and substance satisfactory to the Operating Agent and FSA, its records, computer tapes, computer disks and credit files pertaining to the Transferred Receivables, and its file cabinets 37 or other storage facilities where it maintains information pertaining to the Transferred Receivables, to evidence this Agreement, the transfers hereunder and that ownership of each Transferred Receivable is held by either TFC I or TFC II or their respective assignees. Upon the occurrence and during the continuation of a Termination Event, the Company as Servicer shall (i) provide to the Operating Agent and FSA or its representatives with access to, at any time on demand of the Operating Agent or FSA, all of the Company's facilities, personnel, books and records pertaining to the Transferred Receivables, including all Records, and (ii) allow the Operating Agent and FSA to occupy the premises of the Company where such books and Records are maintained, and utilize such premises, the equipment thereon and any personnel of the Company that either such party may wish to employ to administer, service and collect the Transferred Receivables. (d) Compliance With Credit and Collection Policies. The Company ---------------------------------------------- shall comply in all respects with the Credit and Collection Policies with regard to each Transferred Receivable and the related Contracts, and with the terms of such Receivables and Contracts. (e) Notice of Adverse Claim. The Company shall advise TFC I, TFC II, ----------------------- FSA, the Operating Agent and the Collateral Agent promptly, in writing and in reasonable detail, (i) of any Adverse Claim known to it made or asserted against any of the Transferred Receivables, (ii) of any determination that a Sold Receivable, or any other Receivable designated as an Eligible Receivable in a Request Notice or otherwise, was not an Eligible Receivable at such time, and (iii) of the occurrence of any event which would have a material adverse effect on the aggregate value of the Transferred Receivables or on the validity of the transfers in this Agreement. (f) Further Assurances; Financing Statements. (i) The Company agrees ---------------------------------------- that at any time and from time to time, at its expense, it shall promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable or that TFC I, TFC II, the Operating Agent, FSA or the Collateral Agent may reasonably request to perfect, preserve, continue and maintain fully and protect the transfers made and the right, title and interest (including any security interests) granted to either Funding Corporation by this Agreement or to enable TFC I, TFC II, the Operating Agent, FSA or the Collateral Agent to exercise and enforce its rights and remedies under this Agreement or any of the Related Documents with respect to any Transferred Receivables. Without limiting the generality of the foregoing, the Company shall execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices as may be necessary or desirable or that TFC I, TFC II, the Operating 38 Agent, FSA or the Collateral Agent may reasonably request to protect, preserve and perfect the transfers and security interests granted by this Agreement, free and clear of all Adverse Claims and Restrictions on Transferability. Without limitation of the foregoing, the Company shall, upon the request of FSA, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, within five (5) days of such request, such amendments hereto and such further instruments and take such further action as may be necessary or advisable to effectuate the intention, performance and provisions of this Agreement and the Related Documents or to protect the interest of TFC I in the Tier I Receivables and TFC II in the Tier II Receivables, free and clear of all Adverse Claims and Restrictions on Transferability. In addition, the Company and the Operating Agent agree to cooperate with S&P and Moody's in connection with any review of the transactions contemplated hereby or by the Related Documents which may be undertaken by S&P and Moody's after the date hereof. (ii) The Company hereby authorizes TFC I, TFC II, FSA and the Collateral Agent to file one or more financing or continuation statements, and amendments thereto, relating to all or any part of the Transferred Receivables without the signature of the Company where permitted by law. A carbon, photographic or other reproduction of this Agreement or any notice or financing statement covering the Transferred Receivables or any part thereof shall be sufficient as a notice or financing statement where permitted by law. (g) Assignment. The Company acknowledges that, pursuant to the ---------- Funding Agreement, each of TFC I and TFC II may assign all of its right, title and interest in, to and under the Transferred Receivables and TFC Loans and its rights, title and interest under this Agreement, including its right to exercise the remedies created by Section 4.05 hereof, to Redwood and the Collateral Agent. The Company agrees that, upon such assignment, the assignee may enforce directly, without joinder of either Funding Corporation, the repurchase obligations of the Company set forth in Section 4.05 hereof with respect to breaches of the representations and warranties or covenants set forth in Sections 4.01 and 4.02 of this Agreement. (h) Compliance With Agreements and Applicable Laws. The Company shall ---------------------------------------------- perform each of its obligations under this Agreement and the Related Documents and comply with all material requirements of any law, rule or regulation applicable to it. (i) Corporate Existence. The Company shall maintain its corporate ------------------- existence and shall at all times continue to be duly organized under the laws of the State of Delaware and duly qualified and duly authorized (as described in Section 4.01 39 hereof) and shall conduct its business in accordance with the terms of its certificate of incorporation and bylaws. (j) Financial Statements; Accountants' Reports; Other Information. ------------------------------------------------------------- The Company shall keep or cause to be kept in reasonable detail books and records of account of the Company's assets and business, including, but not limited to, books and records relating to the transactions contemplated herein and in the Related Documents, which shall be furnished to the Operating Agent or FSA upon request. The books of the Company shall be kept on an accrual basis and the Company shall report its operations for tax purposes on an accrual basis. The fiscal year of the Company shall end on December 31 of each year. The Company shall furnish or cause to be furnished to the Operating Agent and FSA: (i) Annual Financial Statements. As soon as publicly available, --------------------------- and in any event within 90 days after the close of each fiscal year of Tyco Toys, Inc., the consolidated audited balance sheets of Tyco Toys, Inc. as of the end of such fiscal year and the consolidated audited statements of income, changes in shareholders' equity and cash flows of Tyco Toys, Inc. for such fiscal year, all in reasonable detail and stating in comparative form the respective figures for the corresponding date and period in the preceding fiscal year, prepared in accordance with generally accepted accounting principles, consistently applied, and accompanied by the certificate of the independent accountants of Tyco Toys, Inc. (Deloitte & Touche or any "Big 6" accounting firm shall be acceptable to FSA and the Operating Agent) and by the certificate specified in Section 4.02(k) hereof. (ii) Quarterly Financial Statements. As soon as publicly ------------------------------ available, and in any event within 45 days after the close of each of the first three quarters of each fiscal year of Tyco Toys, Inc., the consolidated unaudited balance sheets of Tyco Toys, Inc. as of the end of such quarter and the consolidated unaudited statements of income, changes in shareholders' equity and cash flows of Tyco Toys, Inc. for the portion of the fiscal year then ended, all in reasonable detail and stating in comparative form the respective figures for the corresponding date and period in the preceding fiscal year, prepared in accordance with generally accepted accounting principles consistently applied (subject to normal year-end adjustments), and accompanied by the certificate specified in Section 4.02(k) hereof. (iii) Accountants' Reports. Promptly upon receipt thereof, copies -------------------- of any reports submitted to the Company by its independent accountants in connection with any examination of the financial statements of the Company. 40 (iv) Certain Information. Promptly after the filing or sending ------------------- thereof, copies of all proxy statements, financial statements, reports, and registration statements which the Company or Tyco Toys, Inc. files with, or delivers to, the Internal Revenue Service, the Securities Exchange Commission or any other federal government agency, authority or body which supervises the issuance of securities by the Company or Tyco Toys, Inc. or any national securities exchange. (k) Compliance Certificate. The Company shall deliver to the ---------------------- Operating Agent and FSA concurrently with the delivery of the financial statements required pursuant to Section 4.02(j)(i) and (ii) hereof, a certificate signed on its behalf by the Chief Financial Officer of the Company stating that: (i) a review of the Company's performance under this Agreement and the Related Documents during such period has been made under such officer's supervision; (ii) to the best of such individual's knowledge following due inquiry, no Termination Event or event which, upon the giving of notice or the passage of time, or both, would become a Termination Event, has occurred, or if a Termination Event or such other event has occurred, specifying the nature thereof and, if the Company has a right to cure pursuant to the Funding Agreement, stating in reasonable detail the steps, if any, being taken by the Company to cure such Termination Event or other event or to otherwise comply with the terms of the agreement to which such Termination Event or other event relates; and (iii) the financial reports attached thereto and submitted in accordance with Section 4.02(j)(i) or (ii) hereof, as applicable, are complete and correct in all material respects and present fairly the financial condition and results of operations of the Tyco Toys, Inc. and its consolidated Subsidiaries as of the dates and for the periods indicated, in accordance with GAAP consistently applied (subject as to interim statements to normal year-end adjustments) and the attached computations indicate compliance by the Company with the covenants set forth in Section 7.06 of the Funding Agreement and other agreements of the Company herein. (l) Notice of Material Event. The Company shall promptly inform the ------------------------ Operating Agent and FSA in writing of the occurrence of any of the following: (i) the submission of any claim or the initiation of any legal process, litigation or administrative or judicial investigation against the Company or with respect 41 to or in connection with all or any portion of the Transferred Receivables, involving potential damages or penalties in an uninsured amount in excess of $100,000 in any one instance or $500,000 in the aggregate; (ii) any change in the location of Company's principal office or any change in the location of the Company's books and records; (iii) the occurrence of any Termination Event or event which, upon the giving of notice or the passage of time, or both, would become a Termination Event; (iv) the commencement or threat of any rule making or disciplinary proceedings or any proceedings instituted by or against the Company in any federal, state or local court or before any governmental body or agency, or before any arbitration board, or the promulgation of any proceeding or any proposed or final rule which, if adversely determined, would have a Material Adverse Effect with respect to the Company; (v) the commencement of any proceedings by or against the Company under any applicable bankruptcy, reorganization, liquidation, rehabilitation, insolvency or other similar law now or hereafter in effect or of any proceeding in which a receiver, liquidator, conservator, trustee or similar official shall have been, or may be, appointed or requested for the Company or any of its assets; (vi) the receipt of notice that (A) the Company is being placed under regulatory supervision, (B) any license, permit, charter, registration or approval necessary for the conduct of the Company's business is to be, or may be, suspended or revoked, or (C) the Company is to cease and desist any practice, procedure or policy employed by the Company in the conduct of its business, and such cessation may have a Material Adverse Effect with respect to the Company; or (vii) any other event, circumstance or condition that has had, or has a material possibility of having, a Material Adverse Effect in respect of the Company. (m) Maintenance of Licenses. The Company shall maintain all licenses, ----------------------- permits, charters and registrations which are material to the conduct of its business. (n) Use of Proceeds. The Company shall apply its funds towards --------------- general corporate purposes and towards the other sums payable by the Company under this Agreement and the Related 42 Documents in connection with the transactions contemplated hereby and by the Related Documents and for no other purpose. (o) Separate Identity. ----------------- (i) The Company shall maintain corporate records and books of account separate from those of both of the Funding Corporations. (ii) The annual financial statements of Tyco Toys Inc. shall disclose the effects of the Company's transactions in accordance with GAAP and the annual financial statements of Tyco Toys, Inc. shall disclose that the assets of neither of the Funding Corporations are available to pay creditors of the Company, Tyco Manufacturing, or any other Affiliate of the Company. (iii) The resolutions, agreements and other instruments underlying the transactions described in this Agreement shall be continuously maintained by the Company as official records. (iv) The Company shall use its best efforts to maintain an arm's- length relationship with TFC I and TFC II and will not hold itself out as being liable for the debts of either of the Funding Corporations. (v) The Company shall use its best efforts to keep its assets and its liabilities wholly separate from those of each of TFC I and TFC II. (vi) The Company will conduct its business solely in its own name through its duly authorized officers or agents so as not to mislead others as to the identity of the Company. (vii) The Company will use its best efforts to avoid the appearance of conducting business on behalf of the Funding Corporations or that the assets of the Company are available to pay the creditors of either of the Funding Corporations. (viii) The Company will cause operating expenses and liabilities of the respective Funding Corporations to be paid from their respective funds. (p) ERISA. The Company shall give the Operating Agent and FSA prompt ----- notice of each of the following events (but in no event more than 30 days after the occurrence of the event): (i) an Accumulated Funding Deficiency, (ii) the failure to make a material required contribution to a Plan or Multiemployer Plan (but in no event will a contribution failure sufficient to give 43 rise to a lien under (S)302(f) of ERISA be considered immaterial), (iii) a Reportable Event, (iv) any action by a Commonly Controlled Entity to terminate any Plan or withdraw from any Multiemployer Plan, (v) any action by the PBGC to terminate or appoint a trustee to administer a Plan, (vi) the reorganization or insolvency of any Multiemployer Plan and (vii) an aggregate Underfunding for all Underfunded Plans in excess of $100,000. In addition, the Company shall promptly (but in no case more than 30 days following issuance or receipt by the Commonly Controlled Entity) provide to FSA a copy of all correspondence between a Commonly Controlled Entity and the PBGC, Internal Revenue Service, Department of Labor or the administrators of a Multiemployer Plan relating to any of the events described in the preceding sentence or the underfunded status, termination or possible termination of a Plan or a Multiemployer Plan which could result in a material liability. (q) Cooperation With Requests for Information or Documents. The ------------------------------------------------------ Company will cooperate fully with all reasonable requests of Redwood, FSA, the Operating Agent and the Collateral Agent regarding the provision of any information or documents, necessary, including the provision of such information or documents in electronic or machine-readable format, or desirable to allow each of Redwood, the Operating Agent, FSA and the Collateral Agent to carry out its responsibilities under the Related Documents. (r) Payment, Performance and Discharge of Obligations. The Company ------------------------------------------------- will pay, perform and discharge all of its obligations and liabilities, including, without limitation, all taxes, assessments and governmental charges upon its income and properties when due the non-payment, performance or discharge of which would have a Material Adverse Effect, unless and to the extent only that such obligations, liabilities, taxes, assessments and governmental charges shall be contested in good faith and by appropriate proceedings and that, to the extent required by GAAP, proper and adequate book reserves relating thereto are established by the Company and then only to the extent that a bond is filed in cases where the filing of a bond is necessary to avoid the creation of an Adverse Claim against any of its properties; SECTION 4.03. Negative Covenants of the Company. The Company shall --------------------------------- not, without the prior written consent of TFC I, TFC II, the Operating Agent, FSA and the Collateral Agent: (a) sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist, or agree to create, or consent to cause or permit in the future (upon the happening of a contingency or otherwise) the creation, incurrence or existence of, any Adverse Claim upon or with respect to, or assign any right to receive income in respect of any Transferred 44 Receivable or related Contract with respect thereto, or upon or with respect to the Lockbox Accounts or Lockboxes or any other account in which any Collections or Proceeds of any Transferred Receivables are deposited; (b) extend, amend, forgive, discharge, compromise, cancel or otherwise modify the terms of any Transferred Receivable, or amend, modify or waive any term or condition of any Contract related thereto; (c) make any change in its instructions to Obligors regarding payments to be made to the Funding Corporations or payments to be deposited to the Lockbox Accounts or Lockboxes; (d) merge with or into, consolidate with or into, convey, transfer, lease or otherwise dispose of all or substantially all of its assets (whether now owned or hereafter acquired) to, or acquire all or substantially all of the assets or capital stock or other ownership interest of, any Person (whether in one transaction or in a series of transactions); (e) make statements or disclosures or prepare any financial statements which shall account for the transactions contemplated by this Agreement in any manner other than as a sale of the Transferred Receivables to either TFC I or TFC II, as the case may be, or in any other respect account for or treat the transactions contemplated hereby (including but not limited to, for accounting, tax and reporting purposes) in any manner other than as a sale or absolute assignment of the Transferred Receivables; (f) The Company shall not amend, supplement or otherwise modify its certificate of incorporation or bylaws (or permit any of the foregoing) to the extent that such modification would have a Material Adverse Effect. (g) The Company shall not (i) take any action, or fail to take any action, if such action or failure to take action may interfere with the enforcement of any rights under this Agreement or the Related Documents that are material to the rights, benefits or obligations of the Funding Corporations, Redwood or FSA (however, nothing herein shall be construed to constitute a guarantee of collectibility by the Company); (ii) waive or alter any rights with respect to the Receivables (or any agreement or instrument relating thereto); (iii) take any action, or fail to take any action, if such action or failure to take action may interfere with the enforcement of any rights with respect to the Receivables; or (iv) fail to pay any tax, assessment, charge or fee with respect to the Receivables, or fail to defend any action, if such failure to pay or defend may adversely affect the priority or enforceability of the first priority perfected interest of TFC I and TFC II in the Tier I Receivables or the 45 Tier II Receivables, respectively, or the Company's right, title or interest in the Receivables. (h) The Company shall not consolidate with or merge with or into any Person or, except as permitted by this Agreement, transfer all or any material amount of its assets to any Person or liquidate or dissolve. (i) Neither the Company nor any Commonly Controlled Entity will: (i) terminate any Plan so as to incur any material liability to the PBGC; (ii) knowingly participate in any "prohibited transaction" (as defined in ERISA) involving any Plan or Multiemployer Plan or any trust created thereunder which would subject any of them to a material tax or penalty on prohibited transactions imposed under Section 4975 of the Code or ERISA; (iii) fail to pay to any Plan or Multiemployer Plan any contribution which it is obligated to pay under the terms of such Plan or Multiemployer Plan, if such failure would cause such plan to have any material Accumulated Funding Deficiency, whether or not waived; or (iv) allow or suffer to exist any occurrence of a Reportable Event, or any other event or condition, which presents a material risk of termination by the PBGC on any Plan or Multiemployer Plan, to the extent that the occurrence or nonoccurrence of such Reportable Event or other event or condition is within the control of it or any Commonly Controlled Entity. (j) The Company shall not make any change to the Credit and Collection Policies or the terms of the contractual dilutions without the prior written consent of FSA. (k) Tax Status of Advances. The Company, shall not take or permit ---------------------- (other than with respect to actions taken or to be taken solely by a government or governmental authority) to be taken any action which would have the effect directly or indirectly of subjecting interest on any of the Advances or the Commercial Paper to withholding taxation in the hands of, respectively, TFC I, TFC II, Redwood or holders of the Commercial Paper generally who are residents of the United States, and will perform all of its obligations under this Agreement and the Related Documents to prevent or cure any default by the Company which would have the effect, directly or indirectly, of subjecting interest on any of the Advances or the Commercial Paper to withholding taxation. 46 SECTION 4.04. Restatement of Representations, Warranties and ---------------------------------------------- Covenants. The Company hereby restates, and makes, for the benefit of FSA, each - --------- of its representations, warranties, covenants and other agreements as set forth in this Agreement and each of the other Related Agreements, to be included in the Insurance and Indemnity Agreement, in each case with the same force and effect as if each such representation, warranty, covenant and agreement were set forth in full in the Insurance and Indemnity Agreement. SECTION 4.05. Breach of Representations, Warranties or Covenants. -------------------------------------------------- Upon discovery by the Company, TFC I or TFC II, the Operating Agent, Redwood, the Collateral Agent or any assignee of either of the Funding Corporations' rights hereunder, of a breach of any of the representations, warranties or covenants described in Section 4.01, 4.02 or 4.03 hereof which is reasonably likely to have a Material Adverse Effect on the value of a Transferred Tier I Receivable or a Transferred Tier II Receivable or the interests of either of the Funding Corporations, Redwood, FSA or the Collateral Agent therein, the party discovering such breach shall give prompt written notice to the other parties. Thereafter, if requested by notice from TFC I or TFC II or any assignee of either of the Funding Corporations, the Company shall on the next succeeding Business Day make a payment of the Rejected Amount (as defined under the Funding Agreement) in cash to either TFC I or TFC II, as the case may be, in an amount equal to the Billed Amount of such Receivable less Collections received in ---- respect thereof by remitting the amount of such payment to the Collection Account in accordance with the terms of the Funding Agreement. Notice of any such payment and the amount thereof shall promptly be given to FSA by the Company. ARTICLE V TFC I LOANS TO THE COMPANY SECTION 5.01. TFC I Loans. TFC I hereby agrees, on the terms and ----------- subject to the conditions of this Agreement, upon request of the Company, to make advances (each, a "TFC I Loan") to the Company to the extent of its available funds during the term of this Agreement in an aggregate principal amount at any one time outstanding up to, but not exceeding, the Maximum Facility Commitment. Subject to the terms of this Agreement, the Company may borrow, repay and reborrow; provided that no such TFC I Loans may be made if a -------- Termination Event or an Event of Servicer Termination, or an event which, upon the giving of notice or the passage of time, or both would become a Termination Event or an Event of Servicer Termination has occurred and is continuing, or if, after giving effect thereto, there would be a Funding Excess or any amounts are outstanding under the TFC I Deferred Sale Prices. 47 SECTION 5.02. Notices Relating to Loans. The Company shall give TFC ------------------------- I and the Operating Agent same day notice, and FSA a monthly report (with the option reserved by FSA to receive daily notice upon request therefor), of each borrowing and repayment of each TFC I Loan. Each such notice of borrowing or repayment shall specify the amount of TFC I Loans to be borrowed or repaid and the date of such action (which shall be a Business Day). SECTION 5.03. Disbursement of Loan Proceeds. Not later than 3:00 ----------------------------- p.m., New York City time, on the date specified for each TFC I Loan hereunder, TFC I shall transfer, by wire transfer or otherwise, but in any event in immediately available funds, the amount of the TFC I Loan to be made on such date, to the account designated by the Company maintained with [depository institution], in accordance with instructions previously supplied to TFC I. SECTION 5.04. Company Note I. (a) TFC I Loans made by TFC I -------------- hereunder shall be evidenced by a single promissory note of the Company in substantially the form of Exhibit 2A hereto ("Company Note I"). Company Note I shall be dated the date of this Agreement, shall be payable to the order of TFC I in a principal amount equal to $100,000,000 and shall otherwise be duly completed. (b) TFC I shall enter on a schedule attached to Company Note I a notation (which may be computer generated) with respect to each TFC I Loan made hereunder of: (i) the date and principal amount thereof and (ii) each payment and repayment of principal thereof. The failure of TFC I to make a notation on the schedule to Company Note I as aforesaid shall not limit or otherwise affect the obligation of the Company to repay TFC I Loans in accordance with their respective terms as set forth herein. (c) The Company acknowledges that Company Note I is pledged to the Collateral Agent, on behalf of the Lender and FSA, pursuant to the Funding Agreement to secure the obligations of TFC I thereunder. SECTION 5.05. Principal Repayments. TFC I Loans may be repaid by the -------------------- Company at any time and from time to time, in whole or in part, upon prior written notice to TFC I, FSA and Operating Agent as provided in Section 5.02. In addition, TFC I Loans shall be payable immediately on demand of TFC I or, upon the occurrence and during the continuation of a Termination Event or an Event of Servicer Termination, of FSA. Any amount so repaid may, subject to the terms and conditions hereof, be reborrowed hereunder; provided, however, that all repayments of TFC I Loans or any portion thereof shall be made together with 48 payment of all interest accrued on the amount repaid to (but excluding) the date of such repayment. SECTION 5.06. Interest. (a) On each monthly anniversary of the date -------- hereof, the Company shall pay to TFC I interest at the prime rate plus 1% (the "Company Interest Rate") on the unpaid principal amount of each TFC I Loan for the period commencing on and including the date of such TFC I Loan until but excluding the date such TFC I Loan shall be paid in full. (b) Notwithstanding the foregoing, the Company shall pay interest on unpaid interest, on any TFC I Loan or any installment thereof, and on any other amount payable by the Company hereunder (to the extent permitted by law) that shall not be paid in full when due (whether at stated maturity, by acceleration or otherwise) for the period commencing on the due date thereof to (but excluding) the date the same is paid in full at the applicable Company Interest Rate. SECTION 5.07. Time and Method of Payments. All payments of --------------------------- principal, interest and other amounts (including indemnities) payable by the Company hereunder shall be made in Dollars, in immediately available funds, to TFC I not later than 11:00 a.m., New York City time, on the date on which such payment shall become due. Any such payment made on such date but after such time shall, if the amount paid bears interest, be deemed to have been made on, and interest shall continue to accrue and be payable thereon until, the next succeeding Business Day. If any payment of principal or interest becomes due on a day other than a Business Day, such payment may be made on the next succeeding Business Day and such extension shall be included in computing interest in connection with such payment. All payments hereunder and under Company Note I shall be made without set-off or counterclaim and in such amounts as may be necessary in order that all such payments shall not be less than the amounts otherwise specified to be paid under this Agreement and Company Note I. Upon payment in full of Company Note I, following the end of the term of this Agreement, TFC I shall mark Company Note I "Paid" and return it to the Company. ARTICLE VI TFC II LOANS TO THE COMPANY SECTION 6.01. TFC II Loans. TFC II hereby agrees, on the terms and ------------ subject to the conditions of this Agreement, upon request of the Company, to make advances (each, a "TFC II Loan") to the Company to the extent of its available funds during the term of this Agreement in an aggregate principal amount at any one time outstanding up to, but not exceeding, the Maximum Facility Commitment. Subject to the terms of this Agreement, the 49 Company may borrow, repay and reborrow; provided that no such TFC II Loans may -------- be made if a Termination Event or an Event of Servicer Termination, or an event which, upon the giving of notice or the passage of time, or both would become a Termination Event or an Event of Servicer Termination, has occurred and is continuing, or if, after giving effect thereto, there would be a Funding Excess or any amounts are outstanding under the TFC II Deferred Sale Prices. SECTION 6.02. Notices Relating to Loans. The Company shall give TFC ------------------------- II and the Operating Agent same day notice, and FSA a monthly report (with the option reserved by FSA to receive daily notice upon request therefor) of each borrowing and repayment of each TFC II Loan. Each such notice of borrowing or repayment shall specify the amount of TFC II Loans to be borrowed or repaid and the date of such action (which shall be a Business Day). SECTION 6.03. Disbursement of Loan Proceeds. Not later than 3:00 ----------------------------- p.m., New York City time, on the date specified for each TFC II Loan hereunder, TFC II shall transfer, by wire transfer or otherwise, but in any event in immediately available funds, the amount of the TFC II Loan to be made on such date, to the account designated by the Company maintained with [depository institution], in accordance with instructions previously supplied to TFC II. SECTION 6.04. Company Note II. (a) TFC II Loans made by TFC II --------------- hereunder shall be evidenced by a single promissory note of the Company in substantially the form of Exhibit 2B hereto ("Company Note II"). Company Note II shall be dated the date of this Agreement, shall be payable to the order of TFC II in a principal amount equal to $100,000,000 and shall otherwise be duly completed. (b) TFC II shall enter on a schedule attached to Company Note II a notation (which may be computer generated) with respect to each TFC II Loan made hereunder of: (i) the date and principal amount thereof and (ii) each payment and repayment of principal thereof. The failure of TFC II to make a notation on the schedule to Company Note II as aforesaid shall not limit or otherwise affect the obligation of the Company to repay TFC II Loans in accordance with their respective terms as set forth herein. (c) The Company acknowledges that Company Note II is pledged to the Collateral Agent, on behalf of the Lender and FSA, pursuant to the Funding Agreement to secure the obligations of TFC II hereunder. SECTION 6.05. Principal Repayments. TFC II Loans may be repaid by -------------------- the Company at any time and from time to time, in 50 whole or in part, upon prior written notice to TFC II, FSA and Operating Agent as provided in Section 6.02. In addition, TFC II Loans shall be payable immediately on demand of TFC II or, upon the occurrence and during the continuation of a Termination Event or an Event of Servicer Termination, of FSA. Any amount so repaid may, subject to the terms and conditions hereof, be reborrowed hereunder; provided, however, that all repayments of TFC II Loans or any portion thereof shall be made together with payment of all interest accrued on the amount repaid to (but excluding) the date of such repayment. SECTION 6.06. Interest. (a) On each monthly anniversary of the date -------- hereof, the Company shall pay to TFC II interest at the prime rate plus 1% (the "Company Interest Rate") on the unpaid principal amount of each TFC II Loan for the period commencing on and including the date of such TFC II Loan until but excluding the date such TFC II Loan shall be paid in full. (b) Notwithstanding the foregoing, the Company shall pay interest on unpaid interest, on any TFC II Loan or any installment thereof, and on any other amount payable by the Company hereunder (to the extent permitted by law) that shall not be paid in full when due (whether at stated maturity, by acceleration or otherwise) for the period commencing on the due date thereof to (but excluding) the date the same is paid in full at the applicable Company Interest Rate. SECTION 6.07. Time and Method of Payments. All payments of --------------------------- principal, interest and other amounts (including indemnities) payable by the Company hereunder shall be made in Dollars, in immediately available funds, to TFC II not later than 11:00 a.m., New York City time, on the date on which such payment shall become due. Any such payment made on such date but after such time shall, if the amount paid bears interest, be deemed to have been made on, and interest shall continue to accrue and be payable thereon until, the next succeeding Business Day. If any payment of principal or interest becomes due on a day other than a Business Day, such payment may be made on the next succeeding Business Day and such extension shall be included in computing interest in connection with such payment. All payments hereunder and under Company Note II shall be made without set-off or counterclaim and in such amounts as may be necessary in order that all such payments shall not be less than the amounts otherwise specified to be paid under this Agreement and Company Note II. Upon payment in full of Company Note II, following the end of the term of this Agreement, TFC II shall mark Company Note II "Paid" and return it to the Company. 51 ARTICLE VII ----------- COLLATERAL SECURITY ------------------- SECTION 7.01. Security Interest. The Company hereby grants each of ----------------- TFC I and TFC II a security interest ("Security Interest") in the following property, wherever located and whether now owned or hereafter acquired by the Company (collectively, the "Collateral"): (a) all accounts, inventory, general intangibles, chattel paper, documents, and instruments (each as defined in the UCC), whether or not specifically assigned to the Funding Corporations; (b) all books, records and other information (including, without limitation, computer programs, tapes, disks, punch cards, data processing software, and other related property and rights) at any time evidencing or relating to any Collateral; and (c) all monies, securities and other property, now or hereafter held or received by, or in transit to either of the Funding Corporations from or for the Company, and all of the Funding Corporations' credits, and balances with the Company existing at any time, provided that the Collateral shall not include any items of property in which a security interest is not granted as a result of the terms of the Security Agreement delivered pursuant to the Inventory Facility and provided further that any portion of the Collateral may be sold, transferred, conveyed, assigned or otherwise disposed of, free and clear of the security interest granted hereunder, to the extent provided in Section 6.8 of the Inventory Facility. SECTION 7.02. Other Collateral; Rights in Receivables. Nothing --------------------------------------- contained in this Article shall limit the rights of TFC I or TFC II, as the case may be in and to any other collateral securing the Collateral Obligations which may have been or may hereafter be granted to TFC I or TFC II as the case may be, by the Company or any third party pursuant to any other agreement nor the rights of TFC I or TFC II, as the case may be, under any of the Transferred Receivables. SECTION 7.03. Indebtedness Secured. The Security Interest secures -------------------- payment of any and all recourse obligations of the Company to TFC I or TFC II, as the case may be hereunder, including but not limited to those set forth in Sections 4.05 and 8.01. 52 SECTION 7.04. Further Action Evidencing Security Interest. (a) The ------------------------------------------- Company agrees that from time to time, at its expense, it will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or appropriate or that either of the Funding Corporations may reasonably request in order to perfect, protect or more fully evidence the Security Interest, or to enable either of the Funding Corporations to exercise or enforce any of their respective rights hereunder. Without limiting the generality of the foregoing, the Company will, upon the request of either of the Funding Corporations: (i) execute and file such financing or continuation statements, or amendments thereto or assignments thereof, and such other instruments or notices, as may be necessary or appropriate or as either of the Funding Corporations may request, in order to perfect, protect, or evidence such Security Interest and (ii) mark conspicuously or segregate any Collateral in a manner acceptable to the Funding Corporations. (b) The Company hereby authorizes both TFC I and TFC II to file one or more financing or continuation statements, and amendments thereto and assignments thereof, relating to all or part of any of TFC I's or TFC II's, as the case may be, interest now existing or hereafter arising with respect to the Collateral now existing or hereafter arising without the signature of the Company where permitted by law. A carbon, photographic or other reproduction of this Agreement or any financing statement covering the Collateral, or any part thereof, shall be sufficient as a financing statement where permitted by law. (c) If the Company fails to perform any agreement or obligations under this Section, either TFC I or TFC II, as the case may be may (but shall not be required to) itself perform, or cause performance of, such agreement or obligation, and the reasonable expenses of such Funding Corporation incurred in connection therewith shall be payable by the Company upon such Funding Corporation's demand therefor. ARTICLE VIII INDEMNIFICATION SECTION 8.01. Indemnification. (a) Without limiting any other --------------- rights that TFC I, TFC II, Redwood, the Collateral Agent, FSA or any of their shareholders, officers, employees or agents, any assignee of either Funding Corporation's rights hereunder or such assignee's shareholders, officers, employees or agents (each, an "Indemnified Party") may have hereunder or under applicable law, the Company hereby agrees to indemnify each Indemnified Party from and against any and all claims, losses (excluding consequential damages, but including specifically any fees, including the Premium, past or future), liabilities, 53 obligations, damages, penalties, actions, judgments, suits, and related costs and expenses of any nature whatsoever, including reasonable attorneys' fees and disbursements (all of the foregoing being collectively referred to as "Indemnified Amounts") which may be imposed on, incurred by or asserted against an Indemnified Party in any way arising out of or resulting from this Agreement or any Related Documents or the use by the Company of proceeds of any purchase or assignment hereunder or in respect of any Transferred Receivable or any Contract, excluding, however, (x) Indemnified Amounts to the extent resulting solely from gross negligence, acts of bad faith or willful misconduct on the part of such Indemnified Party or (y) recourse for uncollectible or uncollected Transferred Receivables. Without limiting or being limited by the foregoing, the Company shall pay within five Business Days after demand to each Indemnified Party any and all Indemnified Amounts necessary to indemnify such Indemnified Party from and against any and all Indemnified Amounts relating to or resulting from: (i) reliance on any representation or warranty made or deemed made by the Company (or any of its officers) under or in connection with this Agreement or any Related Document, any report or any other information delivered by the Company pursuant hereto, which shall have been incorrect in any material respect when made or deemed made or delivered; (ii) the failure by the Company to comply with any term, provision or covenant contained in this Agreement or any Related Document, or any agreement executed in connection with this Agreement or with any applicable law, rule or regulation with respect to any Transferred Receivable or the related Contract, or the nonconformity of any Transferred Receivable or the related Contract with any such applicable law, rule or regulation; or (iii) the failure to vest and maintain vested in the either of the Funding Corporations, or to transfer to either of the Funding Corporations, legal and equitable title to and ownership of the Receivables which are, or are purported to be, Transferred Receivables, together with all Collections and Proceeds in respect thereof, free and clear of any Adverse Claim (except as permitted hereunder) whether existing at the time of the proposed sale of such Receivable or at any time thereafter. (b) The Company shall have the right at any time during which any claim is pending to select counsel to defend and settle any such claim so long as in any such event the Company shall have stated in a writing delivered to the applicable Indemnified Party that, as between the Company and such Indemnified Party, the Company is responsible to such Indemnified Party with respect 54 to such claim (other than claims as to which it is ultimately determined that it has no responsibility pursuant to clauses 8.01(a)(x) or 8.01(a)(y)); provided, --------- however, that if an Indemnified Party shall have been advised by its counsel - ------- that there are legal defenses available to such Indemnified Party that are different from or additional to those available to the Company, such Indemnified Party shall have the right to employ its own counsel in such action, and in such event, the reasonable fees and disbursements of such counsel shall be paid by the Company. If the Company shall fail to assume the defense of any claim in accordance with the terms of this indemnity, the relevant Indemnified Party shall have the right to select counsel and control the defense of such claim; provided, however, that no Indemnified Party shall settle any such claim without - ----------------- the prior written consent of the Company, which shall not be unreasonably withheld or delayed. SECTION 8.02. Assignment of Indemnities. The Company acknowledges ------------------------- that, pursuant to the Funding Agreement, each of TFC I and TFC II may assign its rights of indemnity granted hereunder to Redwood, FSA and the Collateral Agent and upon such assignment, Redwood, FSA or the Collateral Agent, as applicable, shall have all rights of the Funding Corporations hereunder and may in turn assign such rights. The Company agrees that, upon such assignment, Redwood, FSA, the Collateral Agent or the assignee of either Redwood, FSA or the Collateral Agent, as applicable, may enforce directly, without joinder of either TFC I or TFC II, as the case may be, the indemnities set forth in this Article VIII. ARTICLE IX MISCELLANEOUS SECTION 9.01. Notices, Etc. All notices and other communications ------------- provided for hereunder shall, unless otherwise stated herein, be in writing (including facsimile, telex and express mail) and mailed by registered mail or transmitted by facsimile or telex, or delivered as to each party hereto, at its address set forth under its name on the signature page hereof or at such other address as shall be designated by such party in a written notice to the other parties hereto or to FSA as follows: 55 To FSA: Financial Security Assurance Inc. 350 Park Avenue New York, NY 10022 Attention: Surveillance Department Telex No.: (212) 688-3101 Confirmation: (212) 826-0100 Telecopy Nos.: (212) 339-3518 (212) 339-3529 (In each case in which notice or other communication to FSA refers to a Termination Event, an Event of Servicer Termination, a claim on the Policy or with respect to which failure on the part of FSA to respond shall be deemed to constitute consent or acceptance, then copies of such notice or other communication should also be sent to the attention of the General Counsel and the Head--Financial Guaranty Group "URGENT MATERIAL ENCLOSED.") ------------------------ All such notices and communications shall not be effective until received by the party to whom such notice or communication is addressed. SECTION 9.02. No Waiver; Remedies. No failure on the part of the ------------------- Company or TFC I or TFC II or any assignee of either of the Funding Corporations or FSA to exercise, and no delay in exercising, any right hereunder or under any Assignment shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any other remedies provided by law. SECTION 9.03. Binding Effect; Assignability. This Agreement shall be ----------------------------- binding upon and inure to the benefit of the Company, TFC I and TFC II, and their respective successors and permitted assigns. Except as contemplated herein, none of the parties may assign any of its rights and obligations hereunder or any interest herein without the prior written consent of the other parties and FSA. This Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its terms, and shall remain in full force and effect until its termination; provided, that the rights and -------- remedies pursuant to Section 4.05 with respect to any breach of any representation, warranty or covenants made by the Company pursuant to Sections 4.01, 4.02 and 4.03 and the indemnification and payment provisions of Article VII shall be continuing and shall survive any termination of this Agreement. SECTION 9.04. No Proceedings. The Company hereby agrees that it will -------------- not, directly or indirectly, institute, or 56 cause to be instituted, against either of the Funding Corporations any proceeding of the type referred to in Section 9.01(c) of the Funding Agreement (except that such action or event shall be taken by or occur with respect to such Funding Corporation, rather than by or to the parties mentioned in such Section) so long as there shall not have elapsed one year plus one day since the ---- latest maturing commercial paper issued by Redwood and allocated to TFC I or TFC II, as the case may be, has been paid in full in cash. SECTION 9.05. Amendments; Consents and Waivers. No modification, -------------------------------- amendment or waiver of, or with respect to, any provision of this Agreement, and all other agreements, instruments and documents delivered thereto, nor consent to any departure by the Company or either of the Funding Corporations from any of the terms or conditions thereof shall be effective unless it shall be in writing and signed by each of the parties hereto, and prior written consent is given in writing by Redwood, FSA and the Collateral Agent. Any waiver or consent shall be effective only in the specific instance and for the purpose for which given. No consent or demand in any case shall, in itself, entitle any party to any other consent or further notice or demand in similar or other circumstances. This Agreement and the documents referred to herein embody the entire agreement of the Company and each of TFC I and TFC II respectively with respect to the Transferred Receivables and supersede all prior agreements and understandings relating to the subject hereof. SECTION 9.06. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY ------------------------------------------------------ TRIAL. (A) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE - ----- WITH THE LAW OF THE STATE OF NEW YORK (WITHOUT REGARD TO THE CONFLICT OF LAW PROVISIONS THEREOF). (B) THE COMPANY, TFC I AND TFC II HEREBY SUBMIT TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE UNITED STATES DISTRICT COURT LOCATED IN THE BOROUGH OF MANHATTAN IN NEW YORK CITY, AND EACH WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL DIRECTED TO SUCH PERSON AT THE ADDRESS SET FORTH ON THE SIGNATURE PAGE HEREOF AND SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON SUCH PERSON'S ACTUAL RECEIPT THEREOF. THE COMPANY, TFC I and TFC II EACH HEREBY WAIVE ANY OBJECTION BASED ON FORUM NON --------- CONVENIENS, AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER AND - ---------- CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE COURT. NOTHING IN THIS SECTION SHALL AFFECT THE RIGHT OF THE COMPANY OR TFC I or TFC II TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT EITHER'S RIGHT TO BRING ANY ACTION OR PROCEEDING IN THE COURTS OF ANY OTHER JURISDICTION. 57 (C) THE COMPANY, TFC I AND TFC II EACH HEREBY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR IN CONNECTION WITH THIS AGREEMENT. INSTEAD, ANY DISPUTE RESOLVED IN COURT WILL BE RESOLVED IN A BENCH TRIAL WITHOUT A JURY. SECTION 9.07. Execution in Counterparts; Severability. This --------------------------------------- Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and both of which when taken together shall constitute one and the same agreement. In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations in any jurisdiction, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. SECTION 9.08. Descriptive Headings. The descriptive headings of the -------------------- various sections of this Agreement are inserted for convenience of reference only and shall not be deemed to affect the meaning or construction of any of the provisions hereof. SECTION 9.09. No Setoff. The Company's obligations under this --------- Agreement shall not be affected by any right of setoff, counterclaim, recoupment, defense or other right the Company might have against TFC I, TFC II, Redwood, the Operating Agent, FSA, the Collateral Agent or any assignee, all of which rights are hereby waived by the Company. SECTION 9.10. Further Assurances. The Company agrees to do such ------------------ further acts and things and to execute and deliver to TFC I, TFC II, FSA, Redwood, FSA the Operating Agent or any assignee such additional assignments, agreements, powers and instruments as TFC I, TFC II, FSA, Redwood, FSA the Operating Agent or any assignee may require or deem advisable to carry into effect the purposes of this Agreement or to better assure and confirm unto any such party its respective rights, powers and remedies hereunder. SECTION 9.11. Third-Party Beneficiaries. This Agreement will inure ------------------------- to the benefit of the parties hereto, FSA and its successors and permitted assigns. Except as otherwise provided in this Agreement, no other person will have any right or obligation hereunder. 58 SECTION 9.12. Assignment of Agreement. The Company acknowledges ----------------------- that, pursuant to the Funding Agreement, each of TFC I and TFC II may assign its rights (in addition to those set forth in Section 8.02) granted hereunder, including any rights in the Collateral granted under Article VII, to the Collateral Agent on behalf of the Secured Parties and upon such assignment, the Collateral Agent shall have all rights of the Funding Corporations hereunder and may in turn assign such rights. The Company agrees that, upon such assignment, the Collateral Agent may enforce directly, without joinder of either TFC I or TFC II, as the case may be, the rights set forth in this Agreement. 59 IN WITNESS WHEREOF, the parties have caused this Receivables Transfer Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. TYCO MANUFACTURING CORP. By /s/ R. Michael Kennedy, Jr. Name: R. Michael Kennedy, Jr. Title: Senior V.P. Address: 6000 Midlantic Drive - Room 400 Mt. Laurel, New Jersey 08054 Attention: Chief Financial Officer Phone number: (609) 273-1243 Telecopier number: (609) 273-2885 TYCO FUNDING I CORPORATION By /s/ Anthony Di Michele Name: Anthony Di Michele Title: President & CFO Address: 6000 Midlantic Drive - Room 400 Mt. Laurel, New Jersey 08054 Attention: Chief Financial Officer Phone number: (609) 840-2159 Telecopier number: (609) 273-2885 TYCO FUNDING II CORPORATION By /s/ Anthony Di Michele Name: Anthony Di Michele Title: President & CFO Address: 6000 Midlantic Drive - Room 400 Mt. Laurel, New Jersey 08054 Attention: Chief Financial Officer Phone number: (609) 840-2160 Telecopier number: (609) 273-2885 EXHIBIT 1A FORM OF ASSIGNMENT I ASSIGNMENT, dated as of _______________ between Tyco Manufacturing Corp. (the "Company") and Tyco Funding I Corporation ("TFC I"). 1. We refer to the Receivables Transfer Agreement (the "Transfer Agreement") dated as of __________ among the Company, TFC I and TFC II. All provisions of such Transfer Agreement are incorporated herein by reference. All capitalized terms shall have the meanings set forth in the Transfer Agreement. 2. The Company does hereby sell to TFC I, without recourse, except with respect to contribution obligations pursuant to Section 4.05 of the Transfer Agreement, all right, title and interest of the Company in and to all Tier I Transferred Receivables transferred from time to time in each Sale from the Company under the Transfer Agreement. 3. Each Sale made from the Company under the Transfer Agreement shall be endorsed by TFC I for TFC I on the grid attached hereto which is a part of this Certificate of Assignment I, and such endorsement shall evidence the ownership of the Tier I Transferred Receivables resulting from such Sale thereof. 4. THIS CERTIFICATE OF ASSIGNMENT I SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. Tyco Manufacturing Corp. By ________________________ Name: ________________ Title: _______________ Tyco Funding I Corp. By ________________________ Name: ________________ Title: _______________ EXHIBIT 1B FORM OF ASSIGNMENT II ASSIGNMENT, dated as of __________ between Tyco Manufacturing Corp. (the "Company") and Tyco Funding II Corporation ("TFC II"). 1. We refer to the Receivables Transfer Agreement (the "Transfer Agreement") dated as of __________ among the Company, TFC I and TFC II. All provisions of such Transfer Agreement are incorporated herein by reference. All capitalized terms shall have the meanings set forth in the Transfer Agreement. 2. The Company does hereby sell to TFC II, without recourse, except with respect to contribution obligations pursuant to Section 4.05 of the Transfer Agreement, all right, title and interest of the Company in and to all Tier II Transferred Receivables transferred from time to time in each Sale from the Company under the Transfer Agreement. 3. Each Sale made from the Company under the Transfer Agreement shall be endorsed by TFC II for TFC II on the grid attached hereto which is a part of this Certificate of Assignment II, and such endorsement shall evidence the ownership of the Tier II Transferred Receivables resulting from such Sale thereof. 4. THIS CERTIFICATE OF ASSIGNMENT II SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. Tyco Manufacturing Corp. By ________________________ Name: ________________ Title: _______________ Tyco Funding II Corp. By ________________________ Name: ________________ Title: _______________ EXHIBIT 2A FORM OF COMPANY NOTE I ______________$ [Date] FOR VALUE RECEIVED, [Company] a _______________ (the "Company"), hereby promises to pay to [Tyco Funding I Corporation] (the "Lender"), for its account, at _____________, the principal sum of ____________ Dollars (or such lesser amount as shall equal the aggregate unpaid principal amount of the TFC I Loans made by the Lender to the Company under the Transfer Agreement referred to below), in lawful money of the United States of America and in immediately available funds immediately on the demand of the Lender. The date, amount and interest rate, of each TFC I Loan made by the Lender to the Company, and each payment made on account of the principal thereof, shall be recorded by the Lender on its books and, prior to any transfer of this Note, endorsed by the Lender on the schedule attached hereto or any continuation thereof. This Note is the Company Note I referred to in the Receivables Transfer Agreement (as modified and supplemented and in effect from time to time, the "Transfer Agreement") dated as of ________________ among the Company, the Lender, TFC I and TFC II and evidences Loans made by the Lender thereunder. Capitalized terms used in this Note and not defined herein have the respective meanings assigned to them in the Transfer Agreement. The Transfer Agreement provides for prepayments of Loans upon the terms and conditions specified therein. Notwithstanding any other provisions contained in this Note, if at any time the rate of interest payable by the Company under this Note, when combined with any and all other charges provided for in this Note, in the Funding Agreement or in any other document (to the extent such other charges would constitute interest for the purpose of any applicable law limiting interest that may be charged on this Note), exceeds the highest rate of interest permissible under applicable law (the "Maximum Lawful Rate"), then so long as the Maximum Lawful Rate would be exceeded the rate of interest under this Note shall be equal to the Maximum Lawful Rate. If at any time thereafter the rate of interest payable under this Note is less than the Maximum Lawful Rate, the Company shall continue to pay interest under this Note at the Maximum Lawful Rate until such time as the total interest paid by the Company is equal to the total interest that would have been paid had such applicable law not limited the interest rate payable under this Note. In no event shall the total interest received by the Lender under this Note exceed the amount which the Lender could lawfully have received had the interest due under this Note been calculated since the date of this Note at the Maximum Lawful Rate. If any payment under this Note falls due on a day which is not a Business Day, then such due date shall be extended to the next succeeding Business Day and interest (calculated at the Company Interest Rate for each day during the period then ending) shall be payable on any principal so extended. The Company expressly waives presentment, demand, diligence, protest and all notices of any kind whatsoever with respect to this Note. This Note is made and delivered in New York, New York and shall be governed by, and construed in accordance with, the internal laws (without application of its conflict of laws provisions) of the State of New York. IN WITNESS WHEREOF, the Company has caused this Note to be signed and delivered by its duly authorized officer as of the date set forth above. Very truly yours, [NAME OF COMPANY] By:____________________________ Name: Title: SCHEDULE OF LOANS ----------------- This Note evidences demand TFC I Loans made under the within-described Transfer Agreement to the Company, on the date, at the interest rate, and in the principal amounts set forth below, subject to the payments and prepayments of principal set forth below:
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EXHIBIT 2B FORM OF COMPANY NOTE II ______________$ [Date] FOR VALUE RECEIVED, [Company] a _______________ (the "Company"), hereby promises to pay to [Tyco Funding II Corporation] (the "Lender"), for its account, at _____________, the principal sum of ____________ Dollars (or such lesser amount as shall equal the aggregate unpaid principal amount of the TFC II Loans made by the Lender to the Company under the Transfer Agreement referred to below), in lawful money of the United States of America and in immediately available funds immediately on the demand of the Lender. The date, amount and interest rate, of each TFC II Loan made by the Lender to the Company, and each payment made on account of the principal thereof, shall be recorded by the Lender on its books and, prior to any transfer of this Note, endorsed by the Lender on the schedule attached hereto or any continuation thereof. This Note is the Company Note II referred to in the Receivables Transfer Agreement (as modified and supplemented and in effect from time to time, the "Transfer Agreement") dated as of ________________ by and among the Company, the Lender, TFC II and TFC I and evidences Loans made by the Lender thereunder. Capitalized terms used in this Note and not defined herein have the respective meanings assigned to them in the Transfer Agreement. The Transfer Agreement provides for prepayments of Loans upon the terms and conditions specified therein. Notwithstanding any other provisions contained in this Note, if at any time the rate of interest payable by the Company under this Note, when combined with any and all other charges provided for in this Note, in the Funding Agreement or in any other document (to the extent such other charges would constitute interest for the purpose of any applicable law limiting interest that may be charged on this Note), exceeds the highest rate of interest permissible under applicable law (the "Maximum Lawful Rate"), then so long as the Maximum Lawful Rate would be exceeded the rate of interest under this Note shall be equal to the Maximum Lawful Rate. If at any time thereafter the rate of interest payable under this Note is less than the Maximum Lawful Rate, the Company shall continue to pay interest under this Note at the Maximum Lawful Rate until such time as the total interest paid by the Company is equal to the total interest that would have been paid had such applicable law not limited the interest rate payable under this Note. In no event shall the total interest received by the Lender under this Note exceed the amount which the Lender could lawfully have received had the interest due under this Note been calculated since the date of this Note at the Maximum Lawful Rate. If any payment under this Note falls due on a day which is not a Business Day, then such due date shall be extended to the next succeeding Business Day and interest (calculated at the Company Interest Rate for each day during the period then ending) shall be payable on any principal so extended. The Company expressly waives presentment, demand, diligence, protest and all notices of any kind whatsoever with respect to this Note. This Note is made and delivered in New York, New York and shall be governed by, and construed in accordance with, the internal laws (without application of its conflict of laws provisions) of the State of New York. IN WITNESS WHEREOF, the Company has caused this Note to be signed and delivered by its duly authorized officer as of the date set forth above. Very truly yours, [NAME OF COMPANY] By:____________________________ Name: Title: SCHEDULE OF LOANS ----------------- This Note evidences demand TFC II Loans made under the within- described Transfer Agreement to the Company, on the date, at the interest rate, and in the principal amounts set forth below, subject to the payments and prepayments of principal set forth below:
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EXHIBIT 3 FORM OF LOCKBOX AGREEMENT EXHIBIT 4 FORM OF OPINION OF COUNSEL OF COMPANY EXHIBIT 5 FORM OF [TFC I][TFC II] DEFERRED SALE PRICE NOTE New York, New York February 24, 1995 ON DEMAND [TFC I] [TFC II], a Delaware corporation, hereby promises to pay to the order of TYCO MANUFACTURING CORP.(the "Company"), the principal amount of this Note, determined as described below, together with interest thereon at a rate per annum equal to the Company Interest Rate (as defined in the Receivables Transfer Agreement referred to below) plus 1% in lawful money of the United States of America. Capitalized terms used herein but not defined herein shall have the meanings assigned to such terms in the Receivables Transfer Agreement dated as of February 24, 1995, between TYCO MANUFACTURING CORP., a Delaware corporation and TYCO FUNDING I CORPORATION ("TFC I") and TYCO FUNDING II CORPORATION ("TFC II") (such agreement, as it may from time to time be amended, supplemented or otherwise modified in accordance with its terms, the "Receivables Transfer Agreement"). This Note is the Note referred to in the definition of "[TFC I] [TFC II] Deferred Sale Price" in the Receivables Transfer Agreement. The aggregate principal amount of this Note at any time shall be equal to the difference between (a) the sum of the aggregate principal amount of this Note on the date of the issuance hereof and each addition to the principal amount of this Note pursuant to the terms of Section [2.01] [2.02] of the Receivables Transfer Agreement minus (b) the aggregate amount of all payments made in respect of the principal of this Note, in each case, as recorded on the schedule annexed to and constituting a part of this Note but failure to so record shall not affect the obligations of the Company to [TFC I] [TFC II]. Payments of interest on this Note shall be paid on each Settlement Date (with respect to interest accrued and not paid as of the end of the preceding Settlement Period (or, in the case of the first Settlement Date, as of the date on which this Note is issued)) and on the date of demand by the Company by wire transfer of immediately available funds to such account of the Seller as such Seller may designate in writing. The principal amount of this Note may, at the option of [TFC I] [TFC II] be prepaid in whole at any time or in part from time to time. Default in the payment of principal or interest under this Note shall not constitute a default or event of default hereunder or a Termination Event under the Receivables Transfer Agreement. Payments under this Note are subject and subordinate to the prior rights of payment to any obligations of TFC I or TFC II then due and payable under any of the Related Documents. The Company hereby waives diligence, presentment, demand, protest and notice of any kind whatsoever. The failure of any holder to exercise any of its rights hereunder in any particular instance shall not constitute a waiver thereof in that or any subsequent instance. Neither this Note, nor any right of the Company to receive payments hereunder, shall, without the prior written consent of [TFC I] [TFC II] and (so long as the Funding Agreement remains in effect or any amounts owed remain outstanding thereunder) the Collateral Agent, be assigned, transferred, exchanged, pledged, hypothecated, participated or otherwise conveyed. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THAT STATE. [TYCO FUNDING I CORPORATION] [TYCO FUNDING II CORPORATION] By:___________________________ Title: Schedule 1 to Deferred Sale Price Note LOANS AND PAYMENTS OF PRINCIPAL -------------------------------
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SCHEDULE I Form of Written Contracts SCHEDULE II Form of Collection Policy SCHEDULE III Addresses of Company SCHEDULE IV LockBox Banks and LockBox Accounts of Company SCHEDULE V Trade Names,"Doing Business Names", Fictitious Names and Assumed Names of the Company SCHEDULE VI -----END PRIVACY-ENHANCED MESSAGE-----