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Exhibit 10.1

EXECUTION VERSION

AGENCY AGREEMENT

This Agency Agreement (this “Agreement”) is made as of July 13, 2011, by and
between Borders Group, Inc., a Michigan corporation, with executive offices
located at 100 Phoenix Drive, Ann Arbor, MI 48108, and its affiliated companies
set forth in Exhibit A hereto (collectively, the “Merchant”) and Hilco Merchant
Resources, LLC, Gordon Brothers Retail Partners, LLC, SB Capital Group, LLC,
Tiger Capital Group, LLC and Great American Group, LLC (collectively, the
“Agent”).

R E C I T A L S

WHEREAS, on February 16, 2011, the Merchant commenced voluntarily bankruptcy
cases (the “Bankruptcy Cases”) under Chapter 11 of Title 11 of the United States
Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the
Southern District of New York (the “Bankruptcy Court”);

WHEREAS, the Merchant operates retail stores in the United States and desires
that the Agent act as the Merchant’s exclusive agent for the limited purpose of
(a) selling all of the Merchandise located in Merchant’s retail store
location(s) identified on Exhibit 1 attached hereto (each individually a “Store”
and collectively, the “Stores”) by means of a promotional  “going out of
business,” “store closing” or similar themed sale; (b) selling Distribution
Center Inventory; and (c) disposing of the Agent Sale FF&E, Corporate FF&E, News
Stand Inventory and Café/Candy Inventory (as further described below, the
“Sale”); and

WHEREAS, Merchant had entered into an Asset Purchase Agreement, dated as of June
30, 2011 (the “APA”), by and among Borders Group, Inc., Borders, Inc. and BB
Brands, LLC (the “Proposed Buyer”), which APA is no longer the stalking horse
bid under the Sale Motion; and

WHEREAS,  notwithstanding Merchant's entry into the APA, this Agreement is
intended to be effective in the event (i) the Approval Order does not approve a
going concern transaction or (ii) the Approval Order approves a going concern
transaction and the going concern buyer fails to close such transaction on or
prior to July 29, 2011 (a “GC Failure”);

NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Agent and the Merchant hereby
agree as follows:

Section 1.     Defined Terms.  All capitalized terms shall have the meaning as
defined herein.

Section 2.                 Appointment of Agent/Approval Order.

(a)              Effective on the date hereof and subject to the entry of the
Approval Order, the Merchant hereby appoints the Agent, and the Agent hereby
agrees to serve, as the Merchant's exclusive agent for the limited purpose of
conducting the Sale at the Stores and Merchant’s distribution centers
(collectively referred to as the “Distribution Centers”) in accordance with the
terms and conditions of this Agreement.

 
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(b)              On June 30, 2011, Merchant filed a motion (the “Sale Motion”)
with the Bankruptcy Court for entry of an order approving this Agreement and
authorizing Merchant to conduct the Sale in accordance with the terms hereof
(the “Approval Order”).  The Approval Order shall be in substantially the form
annexed hereto as Exhibit 2(b) and shall provide that on the Payment Date the
Debtors shall repay or cause to be repaid the DIP Facility in full in cash
indefeasibly.

(c)              Subject to entry of the Approval Order, Agent shall be
authorized to advertise the Sale as a “going out of business,” “store closing”
or similar-themed sale, and the Approval Order shall provide that Agent shall be
required to comply with applicable federal, state and local laws, regulations
and ordinances, including, without limitation, all laws and regulations relating
to advertising, permitting, privacy, consumer protection, occupational health
and safety and the environment, together with all applicable statutes, rules,
regulations and orders of, and applicable restrictions imposed by, governmental
authorities (collectively, the “Applicable General Laws”), other than all
applicable laws, rules and regulations in respect of “going out of business,”
“store closing” or similar-themed sales (collectively, the “Liquidation Sale
Laws”), provided that such Sale is conducted in accordance with the terms of
this Agreement, the Sale Guidelines and Approval Order; and provided further
that the Approval Order shall provide that so long as the Sale is conducted in
accordance with the Sale Guidelines and in a safe and professional manner, Agent
shall be deemed to be in compliance with any Applicable General Laws.

Section 3.                  Consideration to Merchant and Agent.

3.1            Payments to Merchant.

(a)            As a guaranty of Agent’s performance hereunder, Agent guarantees
that Merchant shall receive: (i) seventy two percent (72%) (the “Guaranty
Percentage”) of the aggregate Cost Value of the Merchandise included in the Sale
(the “Guaranteed Amount”) plus (ii) the aggregate amount calculated in
accordance with Section 7.4 and (iii) the amounts set forth in Section 15.9.

(b)           Subject to Section 6.1 hereof, the Guaranteed Amount shall be paid
in the manner and at the times specified in Section 3.3 below.  The Guaranteed
Amount will be calculated based upon the aggregate Cost Value of the Merchandise
as determined by (A) the final certified report of the Inventory Taking Service
after verification and reconciliation thereof by Agent and Merchant plus (B)
amount of Gross Rings, as adjusted for shrinkage per this Agreement.

(c)           The Guaranty Percentage has been fixed based upon the aggregate
Cost Value of the Merchandise not being less than $350,000,000 and no more than
$395,000,000 (the “Merchandise Threshold”) as of the Sale Commencement Date,
excluding On-Order Goods, News Stand Inventory and Café/ Candy Inventory,
periodical items, and other café items.  To the extent that the aggregate Cost
Value of the Merchandise included in the Sale is less than or more than the
Merchandise Threshold, the Guaranty Percentage shall be adjusted in accordance
with Exhibit 3.1(c) annexed hereto (in addition to any adjustment applicable
pursuant to section 11.1(m) hereof), as and where applicable.  The aggregate
Cost Value of the Return to Vendor Inventory shall be no more than $10,800,000,
provided that, such amount can increase by an amount up to $1,700,000 to the
extent the Schuler Goods are returned to the Merchant (the “RTV Threshold”).  To
the extent that the aggregate Cost Value of the Return to Vendor Inventory
included in the Sale is more than the RTV Threshold, any excess Return to Vendor
Inventory shall be valued fifty percent (50%) of the Cost Value of such
inventory (the “RTV Adjustment”) (in addition to any adjustment applicable
pursuant to this section and section 11.1(m) hereof), as and where applicable.

 
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(d)           To the extent that Proceeds exceed the sum of (i) the Guaranteed
Amount and (ii) Expenses of the Sale (the sum of (i) and (ii), the “Sharing
Threshold”), then all Proceeds of the Sale above the Sharing Threshold shall be
shared fifty percent (50%) to Merchant and fifty percent (50%) to Agent.  All
amounts, if any, to be received by Merchant from Proceeds in excess of the
Sharing Threshold shall be referred to as the “Recovery Amount” and amounts to
be received by Agent from Proceeds in excess of the Sharing Threshold shall be
referred to as the “Agent Recovery Amount”.  To the extent that Merchant is
entitled to receive the Recovery Amount, such Recovery Amount shall be paid as
part of the weekly and Final Reconciliation under Section 8.6.

(e)           In addition to the Guaranteed Amount and the Recovery Amount,
Agent shall pay the Merchant an amount equal to four percent (4%) of the gross
proceeds (net of sales taxes) of the sale of Additional Agent Merchandise (the
“Merchant’s Additional Goods Recovery Amount”).  All proceeds of the sale of
Additional Agent Merchandise in excess of the Merchant’s Additional Goods
Recovery Amount shall be retained by Agent and be referred to as the “Agent’s
Additional Goods Recovery Amount.”

3.2           Compensation to Agent.  Subject to the entry of the Approval
Order, Agent shall be entitled to the Agent Recovery Amount and the Agent’s
Additional Goods Recovery Amount.  Agent shall also be entitled to receive all
proceeds of the sale of the Agent Sale FF&E as provided for in Section 15.9
hereof and a commission based on the sale of the Corporate FF&E, News Stand
Inventory and Café/Candy Inventory and any other Merchant Consignment Goods as
provided for hereunder.

(b)              Provided that no Event of Default has occurred and continues to
exist on the part of the Agent, and after all payments are made to Merchant as
required hereunder, all Merchandise remaining at the Sale Termination Date (the
“Remaining Merchandise”) shall become the property of Agent, free and clear of
all liens, claims and encumbrances of any kind or nature, and the proceeds
received by Agent from the disposition, in a commercially reasonable manner, of
such unsold Merchandise shall constitute Proceeds hereunder.  Notwithstanding
the foregoing, Agent shall exercise commercially reasonable efforts to dispose
of all of the Merchandise during the Sale Term.  Merchant shall have the right
to audit Agent’s books and records to verify its share of the Proceeds.  Agent
shall not sell any Remaining Merchandise to wholesalers for return to
publishers.  To the extent that Agent desires to sell any Merchandise or
Remaining Merchandise in bulk to a non-retail customer or abandon the Remaining
Merchandise Agent shall provide 48 hours written notice, via e-mail, to the
official committee of unsecured creditors so that the committee may verify that
the prospective purchaser does not have return to vendor privileges or approve
of the proposed abandonment.  If the official committee of unsecured creditors
objects to the proposed sale or the proposed abandonment, the parties will
request the Bankruptcy Court resolve the matter on an emergent basis.

 
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3.3              Time of Payments.

(a)              On the Sale Commencement Date or the next business day if the
Sale Commencement Date is on a non-business day (the “Payment Date”), Agent
shall pay (i) 90% of the estimated Guaranteed Amount to Merchant (the
“Guaranteed Amount Deposit”) by wire transfer to the account(s) designated on
Exhibit 3.3(a) annexed hereto (the “Merchant Account”), (ii) the Agent Sale FF&E
Guarantee and (iii) the aggregate amount calculated in accordance with Section
7.4.  Subject to Section 6.1 hereof, the Guaranteed Amount Deposit shall be
based on the estimated Cost Value (as determined in accordance with Section 5.1
of the Agreement) of the Merchandise on the Sale Commencement Date as reflected
in the master inventory file(s) provided to Agent on June 19, 2011, which shall
be rolled forward to the Sale Commencement Date (the “Perpetual Inventory
File”), provided that, the Guaranteed Amount Deposit shall not take into account
any On-Order Goods or Schuler Goods, which shall be paid when received in the
applicable weekly reconciliation.
 
(b)              The balance of the Guaranteed Amount (the “Remaining Guaranteed
Amount”), shall be paid as follows:  Agent shall pay the unpaid and undisputed
balance of the Guaranteed Amount, which amount shall be paid to the Merchant
Account no later than the earlier of (i) the date that is forty five (45) days
after the Sale Commencement Date (in which case payment shall be of the
undisputed portion of the balance of the estimated Guaranteed Amount) and (ii)
the second business day following the issuance of the Final Inventory Report,
and Agent's failure to pay such balance or undisputed portion shall entitle the
Merchant and GECC to draw upon the Agent Letter of Credit (as defined below) in
accordance with section 3.4 to the extent of such balance or undisputed
portion.  In the event that after the issuance of the Final Inventory Report as
verified and reconciled, the Guaranteed Amount is greater than the sum of the
Guaranteed Amount Deposit plus the payment of the undisputed portion of the
estimated Guaranteed Amount, Agent shall pay the remainder of the Guaranteed
Amount to the Merchant within two (2) business days after the Final Inventory
Report has been issued as verified and reconciled.  In the event that there is a
dispute with respect to the reconciliation of the aggregate Cost Value of the
Merchandise following the Inventory Taking, then any such dispute shall be
resolved in the manner and at the times set forth in Section 8.6 hereof.

(c)              All amounts required to be paid by Agent or Merchant under any
provision of this Agreement shall be made by wire transfer of immediately
available funds which shall be wired by Agent or Merchant, as applicable, no
later than 2:00 p.m.  (Eastern Time) on the date that such payment is due;
provided, however, that all of the information necessary to complete the wire
transfer has been received by Agent or Merchant, as applicable, by 10:00 a.m.
(Eastern Time) on the date that such payment is due.  In the event that the date
on which any such payment is due is not a business day, then such payment shall
be made by wire transfer on the next business day.

 
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(d)              Merchant agrees that if at any time during the Sale Term,
Merchant holds any undisputed amounts due to Agent as Proceeds hereunder, Agent
may, in its discretion, offset such Proceeds being held by Merchant against any
amounts due and owing to Merchant pursuant to this Section 3.3 or otherwise
under this Agreement.  In addition, Merchant and Agent further agree that except
as provided in the following sentence, if at any time during the Sale Term,
Agent holds any undisputed amounts due to Merchant under this Agreement, Agent
may, in its discretion, offset such amounts being held by it against any amounts
due and owing by, or required to be paid by, Merchant hereunder. Notwithstanding
the foregoing or any other provision to the contrary herein, in no event shall
Agent offset any amounts against the proceeds realized from the disposition of
the Agent Sale FF&E.
 
 
(e)              If and to the extent that Agent over-funds any amounts in
respect of the Guaranteed Amount based on the results of the Final Inventory
Report as reviewed, verified and reconciled by Merchant and Agent, then Merchant
agrees to promptly reimburse such undisputed overpayment amounts (the “Over
Payment Amount”) to Agent.

3.4           Letter of Credit.  In order to secure the Agent’s obligations
under this Agreement, in respect of (x) the payment of the Remaining Guaranteed
Amount, and (y) Expenses of the Sale, on the Payment Date Agent shall furnish
Merchant an irrevocable standby letter of credit naming Merchant and GECC as
co-beneficiaries (collectively, the “Beneficiaries”) as beneficiary in the
aggregate original face amount equal to the sum of (i) ten percent (10%) of the
estimated Guaranteed Amount, plus (ii) three (3) weeks estimated Expenses that
would be payable by Merchant, which shall be in the form of Exhibit 3.4 hereof
(collectively, the “Letter of Credit”).  The Letter of Credit shall have an
expiry date of no earlier than sixty (60) days after the latest possible Sale
Termination Date.  Unless the parties shall have mutually agreed, in
consultation with GECC, that they have completed the final reconciliation under
this Agreement, then, at least thirty (30) days prior to the initial or any
subsequent expiry date, the Beneficiaries shall receive an amendment to the
Letter of Credit solely extending (or further extending, as the case may be) the
expiry date by at least sixty (60) days.  If the Beneficiaries fail to receive
such amendment to the Letter of Credit no later than thirty (30) days before the
expiry date, then all amounts hereunder shall become immediately due and payable
and the Beneficiaries, individually or collectively, shall be permitted to draw
under the Letter of Credit in payment of amounts owed and the Beneficiaries
shall hold the balance of the amount drawn under the Letter of Credit as
security for amounts that may become due and payable to Merchant hereunder.  At
Agent’s request, the Beneficiaries shall take all actions reasonably required to
reduce the amount available to be drawn under the Letter of Credit by amounts
credited against the Guaranteed Amount; provided, however, that the Letter of
Credit shall not be reduced below three (3) weeks of estimated Expenses of the
Sale.  In the event that Agent, after receipt of three (3) business days notice
(which notice shall not be required if Agent or any member of Agent shall be a
debtor under title 11, United States Code), fails to pay the Guaranteed Amount,
or portion thereof or any Expenses when due, the Beneficiaries, individually or
collectively, may draw on the Letter of Credit in an amount equal to the unpaid,
past due, amount of the Agent’s obligations hereunder that is not the subject of
a reasonable dispute.

 
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3.5              Inventory Reconciliation.  Within thirty (30) days after the
completion of the Inventory Taking, Merchant, Agent and General Electric Capital
Corporation (“GECC”), in its capacity as administrative agent for itself and the
other lenders (the “Lenders”) party to the Merchant’s senior secured,
super-priority debtor-in-possession credit facility (the “DIP Facility”), shall
review, reconcile and verify the final report of the aggregate Cost Value of the
Merchandise by the Inventory Taking Service (the “Final Inventory Report”).

Section 4.                  Expenses of the Sale.

4.1           Expenses.  Agent shall be unconditionally responsible for all
Expenses incurred in conducting the Sale during the Sale Term, which expenses
shall be paid by Agent in accordance with Section 4.2 below.  As used herein,
“Expenses” shall mean the Store-level operating expenses of the Sale which arise
during the Sale Term limited to those set forth below:

(a)              all payroll and commissions, if applicable, for all Retained
Employees used in conducting the Sale for actual days/hours worked during the
Sale Term as well as payroll, to the extent retained by Agent for the Sale, for
any of Merchant’s former employees or temporary labor;

(b)              any amounts payable by Merchant for benefits for Retained
Employees in respect of FICA, unemployment taxes, workers’ compensation and
healthcare insurance, and vacation benefits that accrue during the Sale Term,
exclusive of Excluded Benefits for Retained Employees used in the Sale, in an
amount up to 24% of the base payroll for each Retained Employee on a per store,
per month basis (the “Benefits Cap”);

(c)              costs of all security (to the extent customarily provided in
the Stores) including, without limitation, security systems, courier and guard
service, building alarm service and alarm service maintenance;

(d)              100% of the fees and costs of the Inventory Taking Service to
conduct the Inventory Taking at the Stores and the Distribution Centers to the
extent a third-party service is used;

(e)              Retention Bonuses for Retained Employees, as provided for in
Section 9.4 below;

(f)               except as included in Section 4.1 (s), advertising and direct
mailings relating to the Sale, signwalking expenses, and Store interior and
exterior signage and banners relating to the Sale;

(g)              local and long-distance telephone and internet/wifi expenses
incurred at the Stores;

(h)              credit card fees, chargebacks and discounts with respect to
Merchandise and other goods sold in the Sale;

 
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(i)               bank service charges (for Store accounts), check guarantee
fees, and bad check expenses to the extent attributable to the Sale;

 
(j)               costs for additional Supplies used to the extent requested by
Agent;

(k)               Intentionally Omitted;

(l)               Store cash theft and other store cash shortfalls in the
registers;

(m)             any and all costs relating to the processing, transfer and
consolidation of Merchandise between and among the Stores, including delivery
and freight costs, it being understood that Agent shall be responsible for
coordinating such transfer of Merchandise;

(n)              housekeeping and cleaning expenses related to the Stores;

(o)              trash and snow removal;

(p)              on-site supervision of the Stores and the Distribution Centers,
including base fees and bonuses of Agent’s field personnel, travel to and from
the Stores or the Distribution Centers and incidental out-of-pocket and
commercially reasonable travel expenses relating thereto (including reasonable
and documented corporate travel to monitor and manage the Sale), provided that,
the supervision costs shall not exceed a budget that is mutually agreed to by
Merchant and Agent;

(q)              postage, courier and overnight mail charges to and from or
among the Stores and central office to the extent relating to the Sale;

(r)               Occupancy Expenses for the Stores listed on Exhibit 4.1(r) on
a per location and per diem basis in an amount up to the per Store  per diem
amount set forth therein plus for the Stores designated on Exhibit 4.1(r) hereto
as “Percentage Rent Stores,” on a per location basis, the amount calculated
using the percentage rent for such Store set forth therein;

(s)              Central Service Expenses equal to $50,000 per week plus the
charges with respect to e-mail distribution set forth on Exhibit 4.1(s);

(t)               Agent’s actual cost of capital (including Letter of Credit
fees), insurance and legal fees;

(u)              a pro-rata portion of Merchant’s insurance attributable to the
Merchandise and other goods located in the Stores; and
 
(v)              seventy two percent (72%) of the aggregate cost value of the
Books in Storage included in the Sale, which cost value was fixed in accordance
with the reconciliation of the transactions contemplated by that certain Agency
Agreement by and between Merchant and a joint venture composed of Hilco Merchant
Resources, LLC, SB Capital Group, LLC, Tiger Capital Group, LLC and Gordon
Brothers Retail Partners, LLC, dated February 16, 2011, provided that, the cost
value shall not exceed $3,800,000 and the Books in Storage shall be counted as
such goods leave the storage facility.

 
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Notwithstanding anything herein to the contrary, to the extent that any Expense
category listed in Section 4.1 is also included on Exhibit 4.1(r), then Exhibit
4.1(r) shall control, and such Expenses shall not be double counted.  There will
be no double payment of Expenses to the extent that Expenses appear or are
contained in more than one Expense category.

 As used herein, the following terms have the following respective meanings:

(i)           “Central Service Expenses” means costs and expenses for Merchant’s
central administrative services necessary for the Sale, including, but not
limited to, MIS services, payroll processing, cash reconciliation, inventory
processing and handling, data processing and reporting, loss prevention
reporting (including XBR Research), and, subject to separate charges set forth
in Exhibit 4.1(s), e-mail distribution.

(ii)           “Excluded Benefits” means benefits in excess of the Benefits Cap.

(iii)           “Occupancy Expenses” means base rent, percentage rent, HVAC,
utilities, CAM, storage costs, real estate and use taxes, merchant’s association
dues and expenses, and a pro rata portion of comprehensive public liability
insurance attributable to the Stores , personal property leases (including,
without limitation, point of sale equipment), cash register maintenance,
building maintenance and rental for furniture, fixtures and equipment, all of
the foregoing only as categorized and reflected on Exhibit 4.1(r) hereto.
 
 
“Expenses” shall not include: (i) Excluded Benefits; (ii) Central Service
Expenses, except as provided in Section 4.1(s); (iii) Occupancy Expenses, except
as provided in Section 4.1(r); and (iv) any other costs, expenses or liabilities
payable by Merchant not provided for herein.

4.2               Payment of Expenses.  Effective from the Sale Commencement
Date:

(a)               Agent shall be responsible for the payment of all Expenses,
whether or not there are sufficient Proceeds collected to pay such Expenses
after the payment of the Guaranteed Amount.  All Expenses incurred during each
week of the Sale (i.e. Sunday through Saturday) shall be paid by Agent to or on
behalf of Merchant immediately following the weekly Sale reconciliation by
Merchant and Agent pursuant to Section 8.6 below; provided, however, in the
event that the actual amount of an Expense is unavailable on the date of the
reconciliation (such as payroll), Merchant and Agent shall agree to an estimate
of such amounts, which amounts will be reconciled once the actual amount of such
Expense becomes available.  Agent and/or Merchant may review or audit the
Expenses at any time.

(b)               Notwithstanding anything herein to the contrary, (i) Merchant
shall not be required to fund or otherwise pay any Expenses of Sale except to
the extent there are sufficient Proceeds and (ii) without limitation on Expenses
that may be funded in advance by Agent at Merchant’s reasonable request, to the
extent that Proceeds are insufficient, Agent shall fund, in advance, all payroll
and related expenses for Retained Employees at least two (2) business days prior
to the date that such payments are due by Merchant.

 
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Section 5.                  Inventory Valuation; Merchandise.

5.1              Inventory Taking.
 
(a)               To determine the aggregate Cost Value of the Merchandise
located in the Stores, commencing on the Sale Commencement Date, Merchant and
Agent shall cause to be taken a SKU level and Retail Price level physical
inventory of the Merchandise located in the Stores, which Inventory Taking,
subject to the availability of the Inventory Taking Service, shall be completed
in each of the Stores no later than twenty-one (21) days after the Sale
Commencement Date (the “Inventory Completion Date”, and the date of the
Inventory Taking at each Store being the “Inventory Date” for each such
Store).  Merchant and Agent shall jointly employ RGIS and/or another mutually
acceptable independent inventory taking service (the “Inventory Taking Service”)
in consultation with GECC to conduct the Inventory Taking.  The Inventory Taking
shall be conducted in accordance with the procedures and instructions set forth
in Exhibit 5.1(a) (the “Inventory Taking Instructions”).  Merchant, Agent, and
at its election, GECC, shall each have representatives present during the
Inventory Taking, and shall each have the right to review and verify the listing
and tabulation of the Inventory Taking Service.  Merchant and Agent agree that
during the conduct of the Inventory Taking in each of the Stores, the applicable
Stores shall be closed to the public and no sales or other transactions shall be
conducted.  Merchant and Agent agree to cooperate with each other to conduct the
Inventory Taking commencing at a time that would minimize the number of hours
that such locations would be closed for business.

(b)      With respect to Distribution Center Inventory and Return to Vendor
Inventory that is allocated to be sent to the Stores in accordance with the
Pre-Sale Allocation, such Distribution Center Inventory and Return to Vendor
Inventory shall be counted as such inventory leaves the Distribution Centers in
accordance with the procedures to be mutually agreed to by Merchant and Agent,
which procedures shall determine the aggregate Cost Value of such inventory.
 
 
(c)      With respect to On-Order Goods and Schuler Goods, such On-Order Goods
and Schuler Goods shall be counted as such inventory is received in accordance
with the procedures to be mutually agreed to by Merchant and Agent.
 
 
(d)              The Agent and Merchant agree that they will, and agree to cause
their respective representatives to, cooperate and assist in the preparation and
the calculation of the aggregate Cost Value of the Merchandise included in the
Sale, including, without limitation, making available to the extent necessary,
books, records, work papers and personnel.

(e)              In the event that the Sale commences at any Store prior to the
completion of the Inventory Taking at such Store, then, for the period from the
Sale Commencement Date for such Store until the Inventory Date for such Store,
Agent and Merchant shall jointly keep (i) a strict count of gross register
receipts less applicable Sales Taxes but excluding any prevailing discounts
(“Gross Rings”), and (ii) cash reports of sales within such Store.  Agent and
Merchant shall keep a strict count of register receipts and reports to determine
the actual Cost Value and Retail Price of the Merchandise sold by SKU and the
markdown, if any, granted by the Agent.  All such records and reports shall be
made available to Agent and Merchant during regular business hours upon
reasonable notice.  Any Merchandise included in the Sale using the Gross Rings
shall be included in Merchandise using the average landed cost of such
Merchandise as set forth in the Perpetual Inventory File.  Agent shall pay that
portion of the Guaranteed Amount calculated on the Gross Rings basis to account
for shrinkage on the basis of 103% of the aggregate Cost Value of the
Merchandise (without taking into account any of Agent’s point of sale discounts
or point of sale markdowns) sold during the Gross Rings period.

 
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5.2           Merchandise Subject to This Agreement.

(a)           For purposes of this Agreement, “Merchandise” shall mean:  all
finished goods inventory that is owned by Merchant wherever located as of the
Sale Commencement Date, including (A) Defective Merchandise; (B) Display
Merchandise, (C) Distribution Center Inventory to the extent received by the DC
Receipt Deadline, (D) Merchandise subject to Gross Rings, (E) Return to Vendor
Inventory to the extent received by the DC Shipment Deadline; (F) On-Order Goods
to the extent received by the On-Order Receipt Deadline; (G) Schuler Goods to
the extent received by the On-Order Receipt Deadline; and (H) Calendar
Inventory.  Notwithstanding the foregoing, “Merchandise” shall not include: (1)
goods which belong to sublessees, licensees, department lessees, or
concessionaires of Merchant; (2) goods held by Merchant on memo, on consignment,
or as bailee; (3) supplies not packaged for retail sale to customers,
furnishings, trade fixtures, equipment and/or improvements to real property
(collectively, “FF&E”); provided that, Agent shall sell Agent Sale FF&E as set
forth in Section 15.9; (4) Excluded Defective Merchandise; (5) Merchant
Consignment Goods which includes News Stand Inventory and Café/Candy Inventory;
(6) Books in Storage; and (7) DC Damaged Goods.

(b)           As used in this Agreement, the following terms have the respective
meanings set forth below:

“Books in Storage” means those items of merchandise located on the Sale
Commencement Date at a storage facility in North Carolina not to exceed
$3,800,000 at cost, which goods shall not be deemed Merchant Consignment Goods
or Additional Agent Merchandise.

“Café/Candy Inventory” means items of inventory designated by Merchant, in the
ordinary course of business, as “café and candy”.

“Calendar Inventory” means any 2012 calendar inventory located in the Stores and
Distribution Centers up to an aggregate Cost Value of $200,000.

 
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“DC Damaged Goods” means those items of merchandise designated as  “Saleable,
Damaged and Refused Returns” located at each of the Distribution Centers as
identified on Exhibit 5.2(i).

“Defective Merchandise” means any item of Merchandise that is defective or
otherwise not saleable in the ordinary course because it is worn, scratched,
broken, faded, torn, mismatched, tailored or affected by other similar defenses
rendering it not first quality.  Display Merchandise shall not per se be deemed
to be Defective Merchandise.

“Display Merchandise” means those items of inventory used in the ordinary course
of business as displays or floor models, including inventory that has been
removed from its original packaging for the purpose of putting such item on
display but not customarily sold or saleable by Merchant, which goods are not
otherwise damaged or defective.  For the avoidance of doubt, Merchandise created
for display and not saleable in the ordinary course of business shall not
constitute Display Merchandise.

“Distribution Center Inventory” means those items of merchandise located on the
Sale Commencement Date at each of the Distribution Centers as identified on
Exhibit 5.2(ii) attached hereto other than any stripped books (i.e., covers of
books only) (the "Stripped Books").  Merchant and Agent will use commercially
reasonable efforts to identify and exclude all Stripped Books inventory from the
Distribution Center Inventory.  To the extent that Stripped Books are received
in Stores, and have not already been excluded from the inventory at the
Distribution Centers, the aggregate Cost Value of the Distribution Center
Inventory shall be adjusted to exclude the Stripped Books provided that Agent
provides Merchant with at least five (5) business days notice of receipt of any
Stripped Books at the Stores.

“Excluded Defective Merchandise” means (i) those items of Defective Merchandise
that are not saleable in the ordinary course because they are so damaged or
defective that such inventory cannot reasonably be used for their intended
purpose, (ii) DC Damaged Goods, and (iii) Out-Dated Goods.
 
“News Stand Inventory” means items of inventory designated by Merchant, in the
ordinary course of business, as “news stand.”

“On-Order Goods” mean items of inventory that were ordered by Merchant in the
ordinary course of business as identified on Exhibit 5.2(iii) annexed hereto,
which inventory was not received in the Stores or Distribution Centers as of the
Sale Commencement Date, but which may be received in the Stores by the On-Order
Receipt Deadline, provided that, the aggregate Cost Value of the On-Order Goods
shall not exceed $17,000,000.

“Out-Dated Goods” means 2011 calendars, previous year almanacs, batteries and
other dated materials that are out of date.

“Return to Vendor Inventory” means those items of inventory designated “Return
to Vendor” by Merchant in the ordinary course of its business as reflected on
Exhibit 5.2(iv) to the extent located in the Distribution Centers as of the Sale
Commencement Date.  For the avoidance of doubt, Merchandise located in the
Stores as of the Sale Commencement Date bearing the same SKU as Return to Vendor
Inventory shall not constitute Return to Vendor Inventory.

 
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“Schuler Goods” means items of inventory as identified on Exhibit 5.2(v) that
may be returned by Merchant’s customer, Schuler, provided that, the aggregate
Cost Value of the Schuler Goods shall not exceed $1,700,000.

5.3           Valuation.

 (a)           For purposes of this Agreement, “Cost Value” shall mean with
respect to each item of Merchandise, the lower of (i) average landed actual cost
for such item of Merchandise, as reflected in the Perpetual Inventory File;
which landed actual costs values include vendor cost, freight from the vendor to
the Distribution Centers, duties, harbor maintenance fees, drayage, brokers
fees, insurance, commissions, processing costs and other costs directly
associated with landing the product in the Distribution Centers or (ii) the
Retail Price for such item of Merchandise.  The Perpetual Inventory File does
not account for any advertising co-op allowances or discounts associated with
expedited payment terms offered by any vendor.
 
 
(b)           Other than Excluded Defective Merchandise, in lieu of any other
adjustments to the Cost Value of Merchandise under this Agreement (e.g.,
adjustments for Defective Merchandise, clearance merchandise, mis-mates and
near-mates, sample merchandise and/or Excluded Price Adjustments), the aggregate
Cost Value of the Merchandise shall be adjusted (i.e., reduced) by means of a
single global downward adjustment equal to one half of one percent (0.5%) of the
aggregate Cost Value of the Merchandise in the Stores and any On-Order Goods and
one and one half of one percent (1.5%) of the aggregate Cost Value of the
Distribution Center Inventory, Return to Vendor Inventory and Schuler Goods (the
“Global Inventory Adjustment”).
 
For the purposes of this Agreement, “Excluded Price Adjustments” means the
following discounts or price adjustments offered by the Merchant: (i) point of
sale discounts or similar adjustments regardless of duration for which the
current selling price is reflective of point of sale discounts, as reflected on
the Perpetual Inventory File other than discounts for the following e-readers,
CDs, DVDs and Blue Ray; (ii) Borders Rewards Plus Loyalty Program discounts;
(iii) multi-unit purchase discounts; (iv) adjustments for damaged, defective or
“as-is” items; (v) gift cards; (vi) obvious ticketing or marking errors; (vii)
instant (in-store) or mail in rebates; or (viii) similar customer specific,
temporary, or employee non-product specific discounts or pricing accommodations.
 
(c)           Excluded Defective Merchandise located in the Stores shall be
identified and counted during the Inventory Taking and thereafter removed from
the sales floor and segregated.  To the extent that Excluded Defective
Merchandise is sent from the Distribution Centers to the Stores, it shall be
identified once received and thereafter segregated.

(d)           Items of Distribution Center Inventory and Return to Vendor
Inventory received in the Stores on or prior to the date that is thirty (30)
days after the Sale Commencement Date (excluding the Sale Commencement Date for
purposes of such calculation) (the “DC Interim Receipt Deadline”), will be
included in Merchandise at the applicable Cost Value for each such item.  Items
of Distribution Center Inventory and Return to Vendor Inventory received at the
Stores after the DC Interim Receipt Deadline but prior to a date that is forty
five (45) days after the Sale Commencement Date (excluding the Sale Commencement
Date for purposes of such calculation) (the “DC Receipt Deadline”) shall be
included in Merchandise at the applicable Cost Value for each such item
multiplied by the inverse of the prevailing discount on similar items of
Merchandise as of the date of receipt in the Stores.  Items of Distribution
Center Inventory and Return to Vendor Inventory received in the Stores after the
DC Receipt Deadline shall not constitute Merchandise, shall be given no Cost
Value, and shall be excluded from Merchandise, and shall be sold by Agent as
Merchant Consignment Goods pursuant to Section 5.4 hereof.

 
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(e)           Items of On-Order Goods and Schuler Goods received in the Stores
on or prior to the date that is fourteen (14) days after the Sale Commencement
Date (excluding the Sale Commencement Date for purposes of such calculation)
(the “On-Order Interim Receipt Deadline”), will be included in Merchandise at
the applicable Cost Value for each such item.  Items of On-Order Goods and
Schuler Goods received at the Stores after the On-Order Interim Receipt Deadline
but prior to a date that is thirty (30) days after the Sale Commencement Date
(excluding the Sale Commencement Date for purposes of such calculation) (the
“On-Order Receipt Deadline”) shall be included in Merchandise at the applicable
Cost Value for each such item multiplied by the inverse of the prevailing
discount on similar items of Merchandise as of the date of receipt in the
Stores.  Items of On-Order Goods and Schuler Goods received in the Stores after
the On-Order Receipt Deadline shall not constitute Merchandise, shall be given
no Cost Value, and shall be excluded from Merchandise, and shall be sold by
Agent as Merchant Consignment Goods pursuant to Section 5.4 hereof.

5.4           Excluded Goods.  Merchant shall retain all responsibility for any
goods not included as “Merchandise” hereunder.  If Merchant elects at the
beginning of the Sale Term, Agent shall accept goods not included as
“Merchandise” hereunder for sale as “Merchant Consignment Goods” at prices
established by the Agent.  News Stand Inventory, Café/Candy Inventory, DC
Damaged Goods, calendar inventory located in the Stores and Distribution Centers
with a Cost Value exceeding $200,000, those items referenced by SKU on Exhibit
5.4 or items otherwise identified herein shall be deemed Merchant Consignment
Goods.  The Agent shall retain 20% of the sale price for all sales of Merchant
Consignment Goods, and Merchant shall receive 80% of the receipts in respect of
such sales.  Merchant shall receive its share of the receipts of sales of
Merchant Consignment Goods on a weekly basis in accordance with Section 3.3,
immediately following the weekly Sale reconciliation by Merchant and Agent
pursuant to Section 8.6 below.  If Merchant does not elect to have Agent sell
goods not included as Merchandise, then all such items will be removed by
Merchant from the Stores at its expense as soon as practicable after the Sale
Commencement Date.

5.5           Distribution Center Expenses.  Agent shall be responsible for
allocating and designating the shipment of the Distribution Center Inventory and
Return to Vendor Inventory to the Stores and shall do so pursuant to the
Pre-Sale Allocation.  The actual costs and expenses, including use and occupancy
at the Distribution Centers, transfer and delivery (ticketed in the ordinary
course consistent with historic practices), related to the processing, transfer
and consolidation of Distribution Center Inventory and Return to Vendor
Inventory from the Distribution Center to the Stores (collectively, the
“Distribution Center Expenses”) for a period commencing on the Sale Commencement
Date through the Sale Termination Date shall be the obligation of the Merchant;
provided however, that in the event Agent chooses to use a method of picking-up
or transportation in a manner that is not consistent with Merchant’s ordinary
course method of transport, then Agent shall be solely responsible for all
increased costs and expenses associated with such modification (such additional
costs shall be treated as an Expense hereunder); provided further, no
Distribution Center Inventory or Return to Vendor Inventory shall be shipped to
the Stores prior to the Inventory Date for any applicable Store unless Merchant
and Agent can mutually agree on a method to account for such inventory.   On or
prior to July 19, 2011, Merchant and Agent shall cooperate with each other and
shall mutually agree upon a schedule and allocation of the Distribution Center
Inventory and Return to Vendor Inventory to the Stores (the “Pre-Sale
Allocation”).

 
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Section 6.                  Sale Term.

6.1           Term.  Subject to satisfaction of the conditions precedent set
forth in Section 10 hereof, (a) if the Approval Order does not approve the APA,
then the Sale shall commence at all Stores by not later than July 22, 2011 or
(b) if the Approval Order approves the APA or a similar going concern
transaction, then in the event of a GC Failure on or prior to July 29, 2011, the
Sale shall commence at all Stores on the earlier of (i) one day following notice
of a GC Failure and (ii) August 1, 2011 (the “Sale Commencement Date”).  Subject
to the prior expiration of the term of any Store Lease or expiration of the
deadline for the Merchant to assume or reject any Store Lease pursuant to
section 365(d)(4) of the Bankruptcy Code or, if earlier, the date by which the
Merchant must vacate a Store to avoid triggering a “holiday protection” payment
(as reflected on Exhibit 6.1), the Agent shall complete the Sale at each Store
and vacate such Store in broom-clean condition by no later than November 13,
2011, unless the Sale is extended by mutual written agreement of Agent, Merchant
and GECC (the “Sale Termination Date”; the period from the Sale Commencement
Date to the Sale Termination Date as to each Store being the “Sale Term”).  The
Agent may, in its discretion, terminate the Sale at any Store upon not less than
seven (7) days’ prior written notice (a “Vacate Notice”) to Merchant.  In the
event the Agent fails to provide Merchant with such timely notice, Agent shall
be liable for and pay Occupancy Expenses for the days by which notice of a Store
closing was less than seven (7) days.

6.2           Vacating the Stores.  At the conclusion of the Sale, Agent agrees
to leave the Stores in “broom clean” condition, ordinary wear and tear excepted,
except for unsold items of FF&E, Café/Candy Inventory and News Stand Inventory
and remaining Supplies.  Agent shall vacate the Stores on or before the Sale
Termination Date, as provided for herein, at which time Agent shall surrender
and deliver the Store premises and Store keys to Merchant.  Agent’s obligations
to pay Occupancy Expenses, for each Store shall continue until the later of (i)
the date specified in the Vacate Notice (which must be at least seven days from
the date of the Vacate Notice) and (ii) the date the Agent vacates such
Store.  All assets of Merchant used by Agent in the conduct of the Sale (e.g.
FF&E, Cafe/Candy Inventory, News Stand Inventory, etc.) shall be returned by
Agent to Merchant at the end of the Sale Term to the extent the same have not
been consumed in the conduct of the Sale (e.g., Supplies) or sold.  Agent shall
be responsible for all Occupancy Expenses (irrespective of any per diem cap on
Occupancy Expenses) for a Store for which Merchant is or becomes obligated
resulting from Agent’s failure to vacate such Store in a satisfactory and timely
manner.

 
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Section 7.                  Sale Proceeds.

7.1           Proceeds.  For purposes of this Agreement, “Proceeds” shall mean
the aggregate of (a) the total amount (in dollars) of all sales of Merchandise
made under this Agreement, exclusive of Sales Taxes; (b) the total amount (in
dollars) of all sales of Books in Storage made under this Agreement, exclusive
of Sales Taxes; and (c) all proceeds of Merchant’s insurance for loss or damage
to Merchandise or Books in Storage or loss of cash arising from events occurring
during the Sale Term.  Proceeds shall also include any and all proceeds received
by Agent from the disposition, in a commercially reasonable manner, of unsold
Merchandise at the end of the Sale, whether through salvage, bulk sale or
otherwise.

7.2           Deposit of Proceeds.

(a)           All Proceeds of the Sale, Agent Sale FF&E, News Stand Inventory
and Café/Candy Inventory (including credit card proceeds) shall be collected by
Agent and deposited on a daily basis into depository accounts designated by
Merchant for the Stores, which accounts shall be designated solely for the
deposit of Proceeds of the Sale (including credit card proceeds), and the
disbursement of amounts payable by Agent hereunder (the “Designated Deposit
Accounts”), and Merchant shall exercise sole signatory authority and control
with respect to the Designated Deposit Accounts.  Upon request, Merchant shall
deliver to Agent copies of all bank statements and other information relating to
such accounts.  Merchant shall not be responsible for, and Agent shall pay as an
Expense hereunder, all bank fees and charges, including wire transfer charges,
related to the Designated Deposit Accounts, whether notice of such expense is
received during or after the Sale Term.

(b)           Agent may establish its own accounts, dedicated solely for the
deposit of the Proceeds and the disbursement of amounts payable to Agent
hereunder (the “Agency Accounts”) and Merchant shall promptly upon Agent’s
request execute and deliver all necessary documents to open and maintain the
Agency Accounts; provided, however, Agent may elect to continue to use
Merchant’s Designated Deposit Accounts (as defined above) as the Agency
Accounts.  The Agency Accounts shall be dedicated solely to the deposit of
Proceeds and the disbursement of amounts payable hereunder, and Agent shall
exercise sole signatory authority and control with respect to the Agency
Accounts.  Upon request, Agent shall deliver to Merchant and GECC copies of all
bank statements and other information relating to such accounts.  Merchant shall
not be responsible for, and Agent shall pay as an Expense hereunder, all bank
fee and charges, including wire transfer charges, related to the Agency
Accounts, whether received during or after the Sale Term. Upon Agent’s
designation of the Agency Accounts, all Proceeds of the Sale (including credit
card proceeds) shall be deposited into the Agency Accounts.  To the extent that
Agent uses the Merchant’s Designated Accounts as the Agency Accounts, Merchant
shall pay by wire funds transfer, on a daily basis, to Agent all collected funds
constituting Proceeds (including credit card proceeds) deposited in Merchant’s
Designated Deposit Accounts (but not any other funds, including, without
limitation, any proceeds of Merchant’s inventory sold prior to the Sale
Commencement Date).

 
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7.3           Credit Card Proceeds.  To the extent available, Agent shall use
Merchant’s credit card facilities (including Merchant’s credit card terminals
and processor(s), credit card processor coding, Merchant identification
number(s) and existing bank accounts) for credit card Proceeds relating solely
to the Sale.  Merchant shall process credit card transactions on behalf of Agent
and for Agent’s account, applying customary practices and procedures.  Agent may
accept Merchant’s proprietary card.  Merchant shall cooperate with Agent to
down-load data from all credit card terminals each day during the Sale Term and
to effect settlement with Merchant’s credit card processor(s) and shall take
such other actions necessary to process credit card transactions on behalf of
Agent under Merchant’s identification number(s).  Merchant shall not be
responsible for, and Agent shall pay as an Expense hereunder, all credit card
fees, charges and chargebacks related to the Sale, whether received during or
after the Sale Term.  Merchant shall cooperate with Agent to instruct its credit
card processors to change the daily deposit of credit card proceeds to an
account controlled by Agent.

7.4           Petty Cash.  In addition to the Guaranteed Amount, Agent shall
purchase all cash in the Stores on and as of the start of business on the Sale
Commencement Date and shall reimburse Merchant on a dollar for dollar basis
therefor.

Section 8.                  Conduct of the Sale.  Subject to the entry of the
Approval Order, the Agent shall be permitted to conduct the Sale in accordance
with the Approval Order.  In addition to any other rights granted to Agent
hereunder, in conducting the Sale, Agent, in the exercise of its sole
discretion, shall have the following rights, limited only by the Sale
Guidelines:

8.1           Rights of Agent.  Subject to the Approval Order, the Agent shall
be permitted to conduct the Sale as a “going out of business,” “store closing”
or similar themed sale throughout the Sale Term.  The Agent shall conduct the
Sale in the name of and on behalf of the Merchant in a commercially reasonable
manner and in compliance with the terms of this Agreement and, except as
modified by the Approval Order, all governing laws and applicable agreements to
which Merchant is a party.  The Agent shall conduct the Sale in accordance with
the sale guidelines annexed hereto as Exhibit 8.1(a) (the “Sale
Guidelines”).  In addition to any other rights granted to Agent hereunder in
conducting the Sale, but subject to any applicable agreements to which Merchant
is a party except as modified by the Approval Order, as applicable, the Agent,
in the exercise of its reasonable discretion, shall have the right:

(a)               to establish Sale prices and Store hours which are consistent
with the terms of applicable leases and local laws or regulations, including
without limitation Sunday closing laws; provided however, to the extent that
Agent extends the hours of operation at one or more of the Stores beyond the
hours historically operated by Merchant, which results in additional utilities
and increased Occupancy Expenses in excess of the amounts set forth on Exhibit
4.1(r), Agent shall reimburse Merchant the amounts, if any, of such additional
costs and such additional costs shall constitute Expenses of the Sale.

 
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(b)              except as otherwise expressly included as an Expense and
subject to applicable privacy and other laws, to use without charge during the
Sale Term all FF&E, Store-level customer lists, mailing lists and email lists
for the Stores (provided, however, such access shall be provided solely through
Merchant’s outside advertisement services for which Merchant shall use
commercially reasonable efforts to cause such outside service providers to
cooperate with and assist Agent, and the Agent shall not have direct access to
any personally identifiable information contained therein), websites (including
social media sites), computer hardware and software, existing supplies located
at the Stores, intangible assets (including Merchant’s name, logo and tax
identification numbers), Store keys, case keys, security codes and safe and lock
combinations required to gain access to and operate the Stores, and any other
assets of Merchant located at the Stores (whether owned, leased, or licensed)
consistent with applicable terms of leases or licenses (except as modified by
the Approval Order);

(c)              so long as such access does not unreasonably disrupt the
business operations of Merchant, to use (i) Merchant’s central office
facilities, central administrative services and personnel to process payroll,
perform MIS and provide other central office services necessary for the Sale to
the extent that such services are normally provided by Merchant in house, at no
additional cost to Agent (except where otherwise designated as an Expense
pursuant to Section 4.1(s) hereof); provided, however, that, in the event that
Agent expressly requests Merchant to provide services other than those normally
provided to the Stores and relating to the sale of merchandise by Merchant,
Agent shall be responsible for the actual incremental cost of such services as
an Expense; and (ii) sufficient office space located at Merchant’s central
office facility;

(d)              to establish and implement advertising, signage and promotion
programs consistent with “going out of business,” “store closing” or similar
theme (including, without limitation, by means of media advertising, A-frame and
similar interior and exterior signs and banners and use of sign walkers) in a
manner consistent with the Sale Guidelines and the Approval Order;

(e)               to transfer Merchandise between and among the Stores;
provided, however, the Agent shall not transfer Merchandise between Stores
unless the Inventory Taking at the transferring Store has been completed;
provided, further, that Agent shall provide Merchant with prior written notice
of all such transfers; and

(f)               to supplement the Merchandise at the Stores with Additional
Agent Merchandise in accordance with Section 8.9 hereof and with the Books in
Storage.

8.2           Terms of Sales to Customers.
 
(a)           All sales will be “final sales” and “as is,” and all
advertisements and sales receipts will reflect the same.  Agent shall not
warrant any inventory in any manner, but will, to the extent legally
permissible, pass on all manufacturers’ warranties to customers.  All sales will
be made only for cash, nationally recognized bank credit cards and, in Agent’s
discretion, personal checks, provided, however, if Agent determines to accept
personal checks, Agent shall bear the risk of nonpayment or loss with respect
thereto.  Agent shall clearly mark all tickets and receipts for items sold at
the Stores during the Sale Term, so as to distinguish such items from the
merchandise sold prior to the Sale Commencement Date and shall use commercially
reasonable efforts to have all UPC codes blacked out with a marker at the point
of sale.

 
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(b)           Gift Cards/Borders Rewards Plus Loyalty Program/Discounts.  During
the Sale Term, Agent shall accept Merchant’s gift cards and Merchandise credits
issued by Merchant prior to the Sale Commencement Date and Merchant shall
reimburse Agent for such amounts during the weekly sale reconciliation provided
for in Section 8.6.
 
8.3           Sales Taxes.

(a)           During the Sale Term, all sales, excise, gross receipts and other
taxes attributable to sales of Merchandise, Books in Storage, Additional Agent
Merchandise, sales of News Stand Inventory and Café/Candy Inventory and Agent
Sale FF&E, as indicated on Merchant’s point of sale equipment (other than taxes
on income) payable to any taxing authority having jurisdiction (collectively,
“Sales Taxes”) shall be added to the sales price of such items and collected by
Agent, on Merchant’s behalf, at the time of sale.  All Sales Taxes shall be
deposited into a segregated account designated by Merchant and Agent solely for
the deposit of such Sales Taxes (the “Sales Taxes Account”).   Provided that
Agent has collected all Sales Taxes during the Sale and remitted the proceeds
thereof to Merchant, Merchant shall prepare and file all applicable reports and
documents required by the applicable taxing authorities, and Merchant shall
promptly pay all Sales Taxes from the Sales Taxes Account.  Merchant will be
given access to the computation of gross receipts for verification of all such
tax collections.  If Agent fails to perform its responsibilities in accordance
with this Section 8.3, Agent shall indemnify and hold harmless Merchant from and
against any and all costs, including, but not limited to, reasonable attorneys’
fees, assessments, fines or penalties which Merchant sustains or incurs as a
result or consequence of the failure by Agent to collect and/or remit Sales
Taxes and/or the failure by Agent to promptly deliver any and all reports and
other documents required to enable Merchant to file any requisite returns with
such taxing authorities.

(b)              Without limiting the generality of Section 8.3(a) hereof, it is
hereby agreed that, as Agent is conducting the Sale solely as agent for
Merchant, various payments that this Agreement contemplates that one party may
make to the other party (including the payment by Agent of the Guaranteed
Amount) do not represent the sale of tangible personal property and,
accordingly, are not subject to Sales Taxes.

8.4           Supplies.  Agent shall have the right to use, without charge, all
existing supplies located at the Stores, including, without limitation, boxes,
bags, paper, twine and similar sales materials (collectively, “Supplies”).  In
the event that additional Supplies are required in any of the Stores during the
Sale, Merchant agrees to promptly provide the same to Agent to the extent
reasonably practicable and if available, which shall constitute an Expense
pursuant to Section 4.1(j) hereof.  Merchant does not warrant that the existing
Supplies as of the Sale Commencement Date are adequate for the purposes of the
Sale.

8.5           Returns of Merchandise. During the Sale Term, Agent shall accept
returns of merchandise sold by Merchant prior to the Sale Commencement Date
(“Returned Merchandise”), provided that such return is accompanied by the
original Store register receipt and is otherwise in compliance with Merchant’s
return and price adjustment policy in effect as of the date such item was
purchased.  Subject to Merchant’s right to return such defective goods to
Merchant’s vendors, if such Returned Merchandise is saleable as first-quality
Merchandise, it shall be included in Merchandise and valued at the Cost Value
applicable to such item multiplied by the difference between 100% and the
prevailing discount on similar items of Merchandise as of the date such item is
returned to a Store.  In the event that Returned Merchandise constitutes
Defective Merchandise (“Returned Defective Merchandise”), Merchant and Agent
shall mutually agree upon the Cost Value for such item of Returned Defective
Merchandise; provided, however, in the event that Merchant and Agent cannot
mutually agree upon the Cost Value for such Returned Defective Merchandise, or
such Returned Defective Merchandise constitutes Excluded Defective Merchandise,
then such Returned Defective Merchandise shall constitute Merchant Consignment
Goods or Excluded Defective Merchandise and excluded from the Sale.  The
aggregate Cost Value of the Merchandise shall be increased by the Cost Value of
any Returned Merchandise included in Merchandise (determined in accordance with
this Section 8.5), and the Guaranteed Amount shall be adjusted
accordingly.  Merchant shall promptly reimburse Agent in cash for any refunds
Agent is required to issue to customers in respect of any Returned
Merchandise.  Returned Merchandise not included in Merchandise shall be disposed
of by Agent in accordance with instructions received from Merchant or, in the
absence of such instructions, treated as Merchant Consignment Goods.  Any
increases in the Guaranteed Amount in connection with returned Merchandise shall
be accounted for on a weekly basis.  Except to the extent that Merchant and
Agent agree that Merchant’s POS or other applicable systems can account for
returns of Merchandise, all returns must be noted and described in a detailed
log and shall identify the receipt number for the original receipt and the date
the item was purchased (the “Returned Merchandise Log”), to be maintained by
Agent in a form acceptable to Merchant.  Agent shall provide Merchant with a
copy of any Returned Merchandise Log on a weekly basis during the Sale.  Agent
shall not be entitled to any adjustment, credit or payment for Returned
Merchandise which is not properly noted and described in the Returned
Merchandise Log (or otherwise reflected in Merchant’s POS systems).

 
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8.6.           Sale Reconciliation.  On each Wednesday during the Sale Term,
commencing on the second Wednesday after the Sale Commencement Date, Agent and
Merchant shall cooperate to reconcile Proceeds, Expenses, Distribution Center
Inventory, if any, and all other items identified herein for weekly
reconciliation, and such other Sale-related items as either party shall
reasonably request, in each case for the prior week or partial week (i.e. Sunday
through Saturday), all pursuant to procedures agreed upon by Merchant and Agent
(with a copy thereof to be provided to GECC).  Within thirty (30) days after the
end of the Sale Term, Agent and Merchant shall complete a final reconciliation
of the Sale, the written results of which shall be certified by representatives
of each of Merchant and Agent as a final settlement of accounts between Merchant
and Agent (with a copy thereof to be provided to GECC).

8.7           Force Majeure.  If any casualty, act of terrorism, or act of God
prevents or substantially inhibits the conduct of business in the ordinary
course at any Store, such Store and the Merchandise located at such Store shall,
in Agent’s discretion, be eliminated from the Sale and considered to be deleted
from this Agreement as of the date of such event, and Agent and Merchant shall
have no further rights or obligations hereunder with respect thereto; provided,
however, that (i) subject to the terms of Section 7.1 above, the proceeds of any
insurance attributable to such Merchandise shall constitute Proceeds hereunder,
and (ii) the Guaranteed Amount shall be reduced to account for any Merchandise
eliminated from the Sale which is not the subject of insurance proceeds, and, to
the extent the Agent has paid the Guaranteed Amount, Merchant shall reimburse
Agent for the amount the Guaranteed Amount is so reduced prior to the end of the
Sale Term.

 
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8.8           Merchant’s Right to Monitor.  Merchant shall have the right to
monitor the Sale and activities attendant thereto and to be present in the
Stores during the hours when the Stores are open for business; provided that
Merchant’s presence does not unreasonably disrupt the conduct of the
Sale.  Merchant shall also have a right of access to the Stores at any time in
the event of an emergency situation and shall promptly notify Agent of such
emergency.

8.9          Additional Merchandise.

(a)           Agent shall be entitled, at its expense, to include in the Sale at
the Stores additional non-book merchandise procured by Agent which is of like
kind, and no lesser quality to the Merchandise located in the Stores
(“Additional Agent Merchandise”); provided, however, that the aggregate Cost
Value of the Additional Agent Merchandise shall not exceed 2% of the aggregate
Cost Value of the Merchandise.
 
(b)           At all times and for all purposes, the Additional Agent
Merchandise and its proceeds shall be the exclusive property of Agent.  The
transactions relating to the Additional Agent Merchandise are, and shall be
construed as, a true consignment from Agent to Merchant.  The Additional Agent
Merchandise shall be at all times subject to the control of Agent.
 
(c)           In order to distinguish the Additional Agent Merchandise from the
Merchandise located in the Stores, Agent shall mark the Additional Agent
Merchandise using either a “dummy” SKU or department number or in such other
manner so as to distinguish the sale of Additional Agent Merchandise from the
sale of Merchandise.

 Section 9.                 Employee Matters.

9.1           Merchant’s Employees.  Agent may use Merchant’s employees in the
conduct of the Sale to the extent Agent deems expedient, and Agent may select
and schedule the number and type of Merchant’s employees required for the
Sale.  Agent shall identify any such employees to be used in connection with the
Sale (each such employee, a “Retained Employee”) prior to the Sale Commencement
Date.  Notwithstanding the foregoing, Merchant’s employees shall at all times
remain employees of Merchant.  Agent’s selection and scheduling of Merchant’s
employees shall at all times comply with all applicable laws and regulations.
Merchant and Agent agree that, except to the extent that wages and benefits of
Retained Employees constitute Expenses hereunder, nothing contained in this
Agreement and none of Agent’s actions taken in respect of the Sale shall be
deemed to constitute an assumption by Agent of any of Merchant’s obligations
relating to any of Merchant’s employees including, without limitation, Excluded
Benefits, WARN Act claims and other termination type claims and obligations, or
any other amounts required to be paid by statute or law; nor shall Agent become
liable under any employment agreement or be deemed a joint or successor employer
with respect to such employees.  Agent shall comply in the conduct of the Sale
with all applicable laws and Merchant’s employee rules, regulations, guidelines
and policies which have been provided to Agent in writing.  Merchant shall not,
without the prior consent of Agent, raise the salary or wages or increase the
benefits for, or pay any bonuses or other extraordinary payments to, any Store
employees prior to the Sale Termination Date.  Merchant shall not transfer any
Retained Employee during the Sale Term without Agent’s prior consent, which
consent shall not be unreasonably withheld or delayed.

 
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9.2           Termination of Employees.  Agent may in its discretion stop using
any Retained Employee at any time during the Sale, subject to the conditions
provided for herein.  In the event that Agent desires to cease using any
Retained Employee, Agent shall notify Merchant at least seven (7) days prior
thereto, so that Merchant may coordinate the termination of such employee;
provided, however, that, in the event that Agent determines to cease using an
employee “for cause” (which shall consist of dishonesty, fraud or breach of
employee duties), the seven (7) day notice period shall not apply, provided
further, however, that Agent shall immediately notify Merchant of the basis for
such “cause” so that Merchant can arrange for termination of such
employee.  From and after the date of this Agreement and until the Sale
Termination Date, Merchant shall not transfer or dismiss Retained Employees
except “for cause” without Agent’s prior consent.  Notwithstanding the
foregoing, Agent shall not have the right to terminate the actual employment of
any Retained Employee, but rather may only cease using such employee in the Sale
and paying any Expenses with respect to such employee.

9.3           Payroll Matters.  During the Sale Term, Merchant shall process the
base payroll for all Retained Employees as well as payroll for any of Merchant’s
former employees or temporary labor retained by Agent for the Sale.  Each
Wednesday (or such other date as may be reasonably requested by Merchant to
permit the funding of the payroll accounts before such payroll is due and
payable) during the Sale Term, Merchant shall transfer, or, to the extent that
the Payment Date has passed or existence of any shortfall, Agent shall transfer,
to Merchant’s payroll accounts an amount equal to the base payroll for Retained
Employees plus related payroll taxes, workers’ compensation and benefits for
such week which constitute Expenses hereunder.

9.4           Employee Retention Bonuses.  Agent may pay, as an Expense,
retention bonuses (“Retention Bonuses”) (which bonuses shall be inclusive of
payroll taxes, but as to which no benefits shall be payable), up to a maximum of
ten percent (10%) of base payroll for all Retained Employees, to such Retained
Employees who do not voluntarily leave employment and are not terminated “for
cause,” as it may determine in its discretion.  The amount of such Retention
Bonuses shall be in an amount to be determined by Agent, in its discretion, and
shall be payable within thirty (30) days after the Sale Termination Date, and
shall be processed through Merchant’s payroll system.  Agent shall provide
Merchant with a copy of Agent’s Retention Bonus plan prior to the Sale
Commencement Date.

Section 10.               Conditions Precedent and Subsequent.  The willingness
of Agent and Merchant to enter into the transactions contemplated under this
Agreement is directly conditioned upon the satisfaction of the following
conditions at the time or during the time periods indicated, unless specifically
waived in writing by the applicable party:

 
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(a)           All representations and warranties of Merchant and Agent hereunder
shall be true and correct in all material respects and no Event of Default shall
have occurred at and as of the date hereof and as of the Sale Commencement Date;
and

(b)           Merchant shall have obtained the Approval Order on or before July
21, 2011;

(c)           Except as set forth on Exhibit 6.1, the time to assume or reject
each Store Lease, pursuant to section 365(d)(4) of the Bankruptcy Code, does not
expire prior to the Sale Termination Date for such Store.

Section 11.                Representations, Warranties and Covenants.

11.1           Merchant’s Representations, Warranties and Covenants.  Merchant
hereby represents, warrants and covenants in favor of Agent as follows:

(a)              each entity comprising Merchant (i) is a corporation duly
organized, validly existing and in good standing under the laws of the state or
province of its formation (except as may be a result of the commencement and/or
pendency of the Merchant’s Chapter 11 Cases); (ii) subject to compliance with
the Bankruptcy Code, has all requisite corporate power and authority to own,
lease and operate its assets and properties and to carry on its business as
presently conducted; and (iii) is, and during the Sale Term will continue to be,
duly authorized and qualified to do business and in good standing in each
jurisdiction where the nature of its business or properties requires such
qualification, including all jurisdictions in which the Stores are located,
except, in each case, to the extent that the failure to be in good standing or
so qualified could not reasonably be expected to have a material adverse effect
on the ability of Merchant to execute and deliver this Agreement and perform
fully its obligations hereunder.

(b)              Except as may be required in connection with the issuance of
the Approval Order: (i) the Merchant has the right, power and authority to
execute and deliver this Agreement and each other document and agreement
contemplated hereby (collectively, together with this Agreement, the “Agency
Documents”) and to perform fully its obligations thereunder; (ii) Merchant has
taken all necessary actions required to authorize the execution, delivery and
performance of the Agency Documents, and no further consent or approval is
required for Merchant to enter into and deliver the Agency Documents, to perform
its obligations thereunder and to consummate the Sale, except for any such
consent the failure of which to be obtained could not reasonably be expected to
have a material adverse effect on the ability of Merchant to execute and deliver
this Agreement and perform fully its obligations hereunder; and (iii) each of
the Agency Documents has been duly executed and delivered by Merchant and
constitutes the legal, valid and binding obligation of Merchant enforceable in
accordance with its terms.

(c)              Merchant owns, and will own at all times during the Sale Term,
good and marketable title to all of the Merchandise and Owned FF&E (such Owned
FF&E being identified in Exhibit 11.1(c)) to be included in the Sale, free and
clear of all liens, claims and encumbrances of any nature, other than the liens
listed on Exhibit 11.1(c)(i), any applicable statutory liens, and any
super-priority liens, claims or encumbrances approved by Bankruptcy Code in
connection with the Merchant’s debtor-in-possession financing.  Merchant shall
not create, incur, assume or suffer to exist any security interest, lien or
other charge or encumbrance upon or with respect to any of the Merchandise, the
Owned FF&E or the Proceeds other than as provided for herein (including those
listed on Exhibit 11.1(c)(i)).  Any Approval Order shall provide that all such
liens shall be transferred to and attach only to the Guaranteed Amount or other
amounts payable to Merchant hereunder.

 
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(d)              Merchant has maintained its pricing files in the ordinary
course of business (including the Perpetual File), and prices charged to the
public for goods are the same in all material respects as set forth in such
pricing files (including Perpetual File) for the periods indicated therein
(without consideration of any point of sale markdowns  where the point of sale
markdown is reflected in the price files (including Perpetual File)), and all
pricing files (including Perpetual File)and records are true and accurate in all
material respects as to the actual cost to Merchant for purchasing the goods
referred to therein, the costs related thereto and as to the selling price to
the public for such goods (without consideration of any point of sale markdowns)
as of the dates and for the periods indicated therein.  Merchant represents that
to its knowledge (i) the ticketed prices of all items of Merchandise do not and
shall not include any Sales Taxes and (ii) all registers located at the Stores
are programmed to correctly compute materially all Sales Taxes required to be
paid by the customer under applicable law, as such calculations have been
identified to Merchant by its retained service provider.

(e)              Except with respect to Merchant’s termination of point of sale
events prior to the Sale Commencement Date in the manner previously disclosed to
Agent, to its knowledge Merchant has not marked up or raised, and shall not up
to the Sale Commencement Date mark up or raise, the price of any items of
Merchandise, or removed or altered any tickets or any indicia of clearance
merchandise, except in the ordinary course of business and except for the
effects of the termination of promotional events.

(f)              Through the Sale Commencement Date, Merchant shall use
reasonable efforts to ticket or mark all items of inventory received at the
Stores prior to the Sale Commencement in a manner consistent with similar
Merchandise located at the Stores and in accordance with Merchant’s ordinary
course past practices and policies relative to pricing and marking inventory.

(g)              Since June 19, 2011, Merchant has not, and through the
completion of the Inventory Taking, Merchant shall not purchase for or transfer
to or from the Stores any Merchandise or Excluded Defective Merchandise outside
the ordinary course except for the transfer of Distribution Center Inventory,
provided that, since June 19, 2011, Merchant has not, and through the completion
of the Inventory Taking, Merchant shall not transfer to or from the Stores any
Return to Vendor Inventory unless Agent has agreed to such
transfers.  Merchant’s replenishment has not and will not be consistent with
historic and customary levels or practices, as a result of, among other things,
Merchant’s Chapter 11 filing and/or delays in procuring shipments from its
vendors.  From and after July 19, 2011, Merchant shall discontinue issuing new
orders for replenishment for the Stores, provided that, if the Sale Commencement
Date is not July 22, 2011, the Merchant shall continue to replenish such Stores
up until the Sale Commencement Date for such Stores in the ordinary course and
consistent with historical practices.

 
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(h)              To the best of Merchant’s knowledge, all Merchandise is in
compliance with all applicable federal, state or local product safety laws,
rules and standards.  Merchant shall use reasonable efforts to provide Agent
with its historic policies and practices, if any, regarding product recalls
prior to the Sale Commencement Date.

(i)               Subject to the provisions of the Approval Order, throughout
the Sale Term, the Agent shall have the right to the unencumbered use and
occupancy of, and peaceful and quiet possession of, each of the Stores, the
assets currently located at the Stores and the utilities and other services
provided at the Stores.  Throughout the Sale Term and subject to Agent complying
with its obligations to reimburse Merchant, the Merchant shall use commercially
reasonable efforts to (a) maintain or (b) cause any applicable landlord to
comply with its obligations under applicable Lease and occupancy agreements to
maintain, in good working order, condition and repair all cash registers,
heating systems, air conditioning systems, elevators, escalators and all other
mechanical devices, but solely to the extent that the Merchant reasonably deems
necessary for the Sale to be conducted without material interruption and in a
manner that is safe and in compliance with applicable laws at the Stores;
provided that, it is understood that the maintenance of cash registers, heating
systems, air conditioning systems, elevators, and escalators are necessary for
the Sale to be conducted without material interruption.  Except as may be
impacted by the Chapter 11 Case filing or otherwise restricted by the Chapter 11
Case filing or as otherwise provided in this Agreement, and absent a bona fide
dispute, throughout the Sale Term, Merchant shall remain current on all expenses
and payables necessary for the conduct of the Sale.

(j)               Except as may be impacted by the Chapter 11 Case filing or
otherwise restricted by the Chapter 11 Case filing, Merchant had paid, and will
continue to pay throughout the Sale Term, all self-insured or Merchant funded
employee benefit programs for Store employees, including health and medical
benefits and insurance and all proper claims made or to be made in accordance
with such program.

(k)              Since June 19, 2011, Merchant has not intentionally taken, and
shall not throughout the Sale Term intentionally take, any actions with the
intent of increasing the Expenses of Sale, including, without limitation,
increasing salaries or other amounts payable to employees, except (i) there may
have been instances that, in an effort to encourage one or more employees to
remain in Merchant’s employ, Merchant increased the salaries of such employees
(such action not being with any intent to increase any Expense of the Sale or in
anticipation thereof); and (ii) to the extent an employee was due an annual
raise.

(l)               Except as may be impacted by the filing for Chapter 11
protection or otherwise restricted by the Chapter 11 filing, Merchant covenants
to continue to operate the Stores in all material respects in the ordinary
course of business from the date of this Agreement to the Sale Commencement Date
by: (i) selling inventory during such period at customary prices consistent with
the ordinary course of business; (ii) not promoting or advertising any sales or
in-store promotions (including POS promotions) to the public (except for
Merchant’s pending advertisements as of the date of this Agreement and/or
Merchant’s promotions for the period through the Sale Commencement Date, as
reflected on Exhibit 11.1(l)); (iii) except as may occur in the ordinary course
of business or as may be required by applicable law, not returning inventory to
vendors and not transferring inventory or supplies between or among Stores; and
(iv) except as may occur in the ordinary course of business, not making any
management personnel moves or changes at the Stores without prior written notice
to and consultation with (but not approval of) Agent.

 
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(m)              The aggregate Cost Value of the Merchandise as a percentage of
the aggregate Retail Price of the Merchandise (as determined in accordance with
Sections 5.1 and 5.3) (the “Cost Factor”) shall not be greater than 51.1% (the
“Cost Factor Threshold”).  To the extent that the actual Cost Factor for the
Merchandise is greater than the Cost Factor Threshold, then such deviation shall
not constitute a breach of any representation or warranty, or an Event of
Default; provided, however, that, then the Guaranty Percentage shall adjust (in
addition to any adjustment applicable pursuant to section 3.1(c) hereof) in
accordance with Exhibit 11.1(m).  For the purposes of this Agreement, “Retail
Price” means the lower of (i) the lowest ticketed, marked or shelf price, (ii)
the current selling price for such item of Merchandise, excluding in each
instance Excluded Price Adjustments or (iii) the current retail or aged price,
as applicable, for each item of Merchandise, as reflected in the Merchant’s
Perpetual File.  If an item of Merchandise has more than one ticketed price, or
if multiple items of the same SKU are ticketed at different prices, or have a
different PLU price, and such pricing does not otherwise qualify as an Excluded
Price Adjustment, the lowest ticketed, marked or PLU price on any such item
shall prevail for such item or for all such items within the same SKU, as the
case may be, that are located within the same location (as the case may be, the
“Lowest Location Price”), unless it is reasonably determined by Merchant and
Agent that the applicable Lowest Location Price was mismarked or such item was
priced because it was damaged or marked as “as is,” in which case the higher
price shall control; provided, however, in determining the Lowest Location Price
with respect to any item of Merchandise at a Store, the Lowest Location Price
shall be determined based upon the lowest ticketed, marked or PLU price for such
item on a per Store basis.  No adjustment to Retail Price shall be made with
respect to different ticketed price, marked price, or PLU prices for items
located in different Stores.  For purposes of this Agreement, the Cost Factor
shall be calculated by dividing the aggregate Cost Value of the Merchandise by
the aggregate Retail Price of the Merchandise.

(n)               To the best of Merchant’s knowledge, all documents, written
information and supplements provided by Merchant to Agent in connection with
Agent’s due diligence and the negotiation of this Agreement were true and
accurate in all material respects at the time provided.

(o)              To the best of Merchant’s knowledge, Merchant has not since
June 19, 2011 shipped any Excluded Defective Merchandise from the Distribution
Centers to the Stores.  Merchant will not ship any Excluded Defective
Merchandise from the date of this Agreement from the Distribution Centers to the
Stores.

(p)              Since June 19, 2011, Merchant has not, and through the
completion of the Inventory Taking, Merchant shall not transfer any Distribution
Center Inventory or any other merchandise to the Stores without Agent’s consent
other than ordinary course replenishment, provided that, Merchant has not, and
through the completion of the Inventory Taking, Merchant shall not transfer to
or from the Stores any Return to Vendor Inventory unless Agent has agreed to
such transfers.

 
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11.2          Agent’s Representations, Warranties and Covenants.  Agent hereby
represents, warrants and covenants in favor of Merchant as follows:

(a)              Agent: (i) is a limited partnership, corporation or limited
liability company (as the case may be) duly and validly existing and in good
standing under the laws of the State of its organization; and (ii) has all
requisite power and authority to carry on its business as presently conducted
and to consummate the transactions contemplated hereby.

(b)              Agent has the right, power and authority to execute and deliver
each of the Agency Documents to which it is a party and to perform fully its
obligations thereunder.  Agent has taken all necessary actions required to
authorize the execution, delivery and performance of the Agency Documents, and
no further consent or approval is required on the part of Agent for Agent to
enter into and deliver the Agency Documents, to perform its obligations
thereunder and to consummate the Sale.  Each of the Agency Documents has been
duly executed and delivered by the Agent and constitutes the legal, valid and
binding obligation of Agent enforceable in accordance with its terms.  No court
order or decree of any federal, state or local governmental authority or
regulatory body is in effect that would prevent or impair, or is required for,
Agent’s consummation of the transactions contemplated by this Agreement (other
than the Approval Order), and no consent of any third party which has not been
obtained is required therefor, other than as provided herein.  No contract or
other agreement to which Agent is a party or by which Agent is otherwise bound
will prevent or impair the consummation of the transactions contemplated by this
Agreement.

(c)              No action, arbitration, suit, notice or legal administrative or
other proceeding before any court or governmental body has been instituted by or
against Agent, or has been settled or resolved or, to Agent’s knowledge, has
been threatened against or affects Agent, which questions the validity of this
Agreement or any action taken or to be taken by Agent in connection with this
Agreement or which, if adversely determined, would have a material adverse
effect upon Agent’s ability to perform its obligations under this Agreement.

(d)              The Sale shall be conducted in compliance with all applicable
state and local laws, rules and regulations and Merchant’s leases and other
agreements, except as provided for in the Sale Guidelines and Approval Order.

(e)              Absent prior consent by the Merchant, Agent will not cause any
non-emergency repairs or maintenance (emergency repairs are repairs necessary to
preserve the security of a premise or to ensure customer safety) to be conducted
at the Stores.

(f)               To the best of Agent’s knowledge, all Additional Agent
Merchandise is in compliance with all applicable federal, state or local product
safety laws, rules and standards.  All Additional Agent Merchandise shall be
non-book merchandise of like kind and no lesser quality to the Merchandise
located in the Stores.

 
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Section 12.                Insurance.

12.1          Merchant’s Liability Insurance.  Merchant shall continue until the
Sale Termination Date, at Agent’s cost as an Occupancy Expense hereunder and in
such amounts as it currently has in effect, all of its liability insurance
policies covering injuries to persons and property in, or in connection with,
Merchant’s operation of the Stores and shall endeavor to cause Agent to be named
as an additional named insured (as its interest may appear) with respect to all
such policies.  Merchant shall deliver to Agent certificates evidencing such
insurance setting forth the duration thereof and naming Agent as an additional
named insured, in form reasonably satisfactory to Agent.  All such policies
shall require at least thirty (30) days’ prior notice to Agent of cancellation,
non-renewal or material change during the Sale Term.  In the event of a claim
under any such policies, Merchant shall be responsible for the payment of all
deductibles, retentions or self-insured amounts thereunder (which amounts shall
be paid by Agent as an Occupancy Expense), unless it is determined that
liability arose by reason of the wrongful acts or omissions or negligence of
Agent, or Agent’s employees, independent contractors or agents (including
Merchant’s employees being supervised by Agent).

12.2          Merchant’s Casualty Insurance.  Merchant will provide throughout
the Sale Term, at Agent’s cost as an Occupancy Expense hereunder, fire, flood,
theft and extended coverage casualty insurance covering the Merchandise in a
total amount equal to no less than the retail value thereof.  In the event of a
loss to the Merchandise on or after the date of this Agreement, the Proceeds of
such insurance attributable to the Merchandise, plus any self insurance amounts
and the amount of any deductible or self-insured retention (which amounts shall
be paid by Agent as an Expense), shall constitute Proceeds hereunder.  Merchant
shall deliver to Agent certificates evidencing such insurance, setting forth the
duration thereof, in form and substance reasonably satisfactory to Agent.  All
such policies shall require at least thirty (30) days’ prior notice to the Agent
of cancellation, non-renewal or material change during the Sale Term.  Merchant
shall not make any change in the amount of any deductibles or self insurance
amounts prior to the Sale Termination Date without Agent’s prior written
consent.

12.3         Agent’s Insurance.  Agent shall maintain as an Expense hereunder
throughout the Sale Term, in such amounts as it currently has in effect and as
set forth in Exhibit 12.3 hereto, comprehensive public liability insurance
policies covering injuries to persons and property in or in connection with
Agent’s agency at the Stores, and shall cause Merchant and GECC to be named as
additional insureds and loss payees with respect to such policies.  Agent shall
deliver to Merchant certificates evidencing such insurance policies setting
forth the duration thereof and naming Merchant as additional insureds, in form
and substance reasonably satisfactory to Merchant.  In the event of a claim
under any such policies, Agent shall be responsible for the payment of all
deductibles, retentions or self-insured amounts thereunder, unless it is
determined that liability arose by reason of the wrongful acts or omissions or
negligence of Merchant or Merchant’s independent contractors or agents, other
than Agent or Agent’s employees, agents or independent contractors (including
Merchant’s employees under Agent’s supervision).  All such policies shall
require at least thirty (30) days’ prior notice to the Merchant of cancellation,
non-renewal or material change during the Sale Term.  Agent shall not make any
change in the amount of any deductibles or self insurance amounts prior to the
Sale Termination Date without Merchant’s prior written consent.

 
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12.4         Worker’s Compensation Insurance.  Merchant shall at all times
during the Sale Term maintain in full force and effect workers’ compensation
insurance (including employer liability insurance) covering all Retained
Employees in compliance with all statutory requirements and subject to approval
of the Bankruptcy Court.

Section 13.                Indemnification

13.1         Merchant Indemnification. Merchant shall indemnify and hold Agent
and its officers, directors, employees, agents and independent contractors
(collectively, “Agent Indemnified Parties”) harmless from and against all
claims,  demands, penalties, losses, liability or damage, including, without
limitation, reasonable  attorneys' fees and expenses, directly or indirectly
asserted against, resulting from, or related to: (i)  Merchant’s material breach
of or failure to comply with any of its agreements, covenants, representations
or warranties contained in any Agency Document; (ii) subject to Agent’s
satisfaction of its obligations pursuant to Section 4.1(a) and (b) hereof, any
failure of Merchant to pay to its employees any wages, salaries or benefits due
to such employees during the Sale Term; (iii) subject to Agent's compliance with
its obligations under Section 8.3 hereof, any failure by Merchant to pay any
Sales Taxes to the proper taxing authorities or to properly file with any taxing
authorities any reports or documents required by applicable law to be filed in
respect thereof; (iv) any liability or other claims asserted by customers, any
of Merchant's employees, or  in connection with the performance of the terms of
this Agreement any other person against any Agent Indemnified Party (including,
without limitation, claims by employees arising under collective bargaining
agreements, worker's compensation or under the WARN Act); or (v) the gross
negligence (including omissions) or willful misconduct of Merchant, or its
officers, directors, employees agents or representatives.

13.2         Agent Indemnification.  Agent shall indemnify and hold Merchant and
its officers, directors, employees, agents and representatives harmless from and
against all claims, demands, penalties, losses, liability or damage, including,
without limitation, reasonable attorneys’ fees and expenses, directly or
indirectly asserted against, resulting from, or related to: (i) Agent’s material
breach of or failure to comply with any of its agreements, covenants,
representations or warranties contained in any Agency Document; (ii) any claims
by any party engaged by Agent as an employee, agent, representative or
independent contractor arising out of such engagement; (iii) any harassment or
any other unlawful, tortious or otherwise actionable treatment of any of the
Merchant’s employees or agents by Agent or any of its employees, agents,
representatives or independent contractors; (iv) as set forth in Section 8.3
hereof and (v) the gross negligence (including omissions) or willful misconduct
of Agent, its officers, directors, employees, agents, representatives or
independent contractors.

Section 14.                Defaults.  The following shall constitute “Events of
Default” hereunder:

(a)              The Merchant or Agent shall fail to perform any of their
respective material obligations hereunder if such failure remains uncured seven
(7) days after receipt of written notice thereof to the defaulting party;

 
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(b)              Any representation or warranty made by Merchant or Agent proves
untrue in any material respect as of the date made and, to the extent curable,
continues uncured seven (7) days after written notice to the defaulting party;

(c)              The Sale is terminated or materially interrupted or impaired
for any reason other than (i) an Event of Default by Agent; or (ii) any other
material breach or action by Agent not authorized under the Agency Agreement;
providedhowever, it is expressly understood that Merchant’s conduct of “going
out of business”, “store closing”, “total liquidation”, “everything must go”, or
similar themed sales at stores other than the Stores (the “Other Store
Closings”) during a period that overlaps with the Sale Term shall not be deemed
an Event of Default, or a material interruption of impairment of the Sale or
this Agreement and Agent acknowledges that it has no remedies under this
Agreement in connection with, or a result of, such Other Store Closings.

In the event of an Event of Default, the non-defaulting party may, in its
discretion, elect to terminate this Agreement upon seven (7) business days'
written notice to the other party.

Any party’s damages or entitlement to equitable relief on account of an Event of
Default shall be determined by the Bankruptcy Court.

Section 15.                Miscellaneous.

15.1         Notices.  All notices and communications provided for pursuant to
this Agreement shall be in writing and sent (i) by email and (ii) by hand, by
facsimile or by Federal Express or other recognized overnight delivery service,
as follows (with Merchant and Agent to receive all notices regardless of their
origin):

 
If to the Agent:
HILCO MERCHANT RESOURCES, LLC

5 Revere Drive, Suite 206
Northbrook, IL 60062
 
Attn:
Joseph Malfitano

 
Tel:
(847) 504-3257

 
Fax:
(847) 897-0868

 
Email:
jmalfitano@hilcotrading.com

SB CAPITAL GROUP, LLC
1010 Northern Blvd, Suite 340
Great Neck, NY  11021
 
Attn:
Robert Raskin

 
Tel:
(516) 829-2400

 
Fax:
(516) 829-2404

 
Email:
rraskin@sbcapitalgroup.com

TIGER CAPITAL GROUP, LLC
84 State Street, Suite 420
Boston, MA  02109
 
Attn:
Steve Goldberger

Dan Kane
 
Tel:
(617) 523-7002

 
Fax:
(617) 523-3007

 
Email:
sgoldberger@tigergroupllc.com

dkane@tigergroupllc.com

 
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GORDON BROTHERS RETAIL PARTNERS, LLC
101 Huntington Avenue, 10th Fl.
Boston, MA 02199
 
Attn:
Michael Chartock

 
Tel:
(617) 210-7116

 
Fax:
(617) 523-3007

 
Email:
MChartock@gordonbrothers.com

GREAT AMERICAN GROUP, LLC
Nine Parkway North, Suite 300
Deerfield, IL 60015
 
Attn.:  Mark P. Naughton

 
Tel:
(847) 444-1400

 
Fax:
(847) 444-1401

 
Email:
mnaughton@greatamerican.com

 
With a copy to:
WEIL GOTSHAL & MANGES LLP

767 Fifth Avenue
New York, NY 10153
 
Attn:
Joseph Smolinsky

 
Tel:
(212) 310-8000

 
Fax:
(212) 310- 8007

 
Email:
Joseph.Smolinsky@weil.com

 
If to the Merchant:
BORDERS GROUP INC.

100 Phoenix Drive
Ann Arbor, MI 48108
 
Attn:
Matt Chosid

 
Fax:
(734) 477-1370

 
Email:
mchosid1@bordersgroupinc.com

 
 
 
With a copy to:
KASOWITZ, BENSON, TORRES

& FRIEDMAN LLP
1633 Broadway
New York, NY  10019
 
Attn:
Andrew K. Glenn, Esq.

Barry Rutcofsky, Esq.
Daniel A. Fliman, Esq.
 
Tel:
(212) 506-1700

 
Fax:
(212) 506-1800

 
Email:
aglenn@kasowitz.com

brutcofsky@kasowitz.com
dfliman@kasowitz.com

 
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If to GECC:
GE CAPITAL

Corporate Retail Finance
500 West Monroe Street
10th Floor
Chicago, IL 60661-3679 USA
 
Attn:
Kristina M. Miller

Senior Vice President
 
Tel:
(312) 463-2257

 
Fax:
(312) 441-6817

 
Mob:
(219) 680-0779

 
Email:
KristinaMMiller@ge.com

www.gelending.com

 
With a copy to:
GENERAL ELECTRIC CAPITAL

CORPORATION
201 Merritt 7
PO Box 5201
Norwalk, CT 06851
 
Attn:
Borders/John Pistocchi

 
Fax:
( 203) 956-4002

 
If to GA:
GA Capital

One Post Office Square
Suite 3765
Boston, MA 02109
 
Attention: David Storer, Director

 
Tel: 617 692-8303

 
Email: dstorer@greatamerican.com

 
With a copy to:
Kevin J. Simard

Choate, Hall & Stewart LLP
Two International Place
Boston, MA 02110
 
Tel: 617 248-4086

 
Fax: 617 502-4086

 
Email: ksimard@choate.com

 
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15.2         Governing Law. This Agreement shall be governed and construed in
accordance with the laws of New York without regard to conflicts of laws
principles thereof, except where governed by the Bankruptcy Code.  Each of the
parties hereto irrevocably and unconditionally submits, for itself and its
properties, to the exclusive jurisdiction of the Bankruptcy Court, in any action
or proceeding arising out of or relating to this Agreement.

15.3         Entire Agreement.  This Agreement contains the entire agreement
between the parties hereto with respect to the transactions contemplated hereby
and supersedes and cancels all prior agreements, including, but not limited to,
all proposals, letters of intent or representations, written or oral, with
respect thereto.

15.4         Amendments.  This Agreement may not be modified except in a written
instrument executed by each of the parties hereto and with the prior written
consent of GECC.

15.5         No Waiver.  No consent or waiver by any party, express or implied,
to or of any breach or default by the other in the performance of its
obligations hereunder shall be deemed or construed to be a consent or waiver to
or of any other breach or default in the performance by such other party of the
same or any other obligation of such party.  Failure on the part of any party to
complain of any act or failure to act by the other party or to declare the other
party in default, irrespective of how long such failure continues, shall not
constitute a waiver by such party of its rights hereunder.

15.6         Successors and Assigns.  This Agreement shall inure to the benefit
of and be binding upon Agent and Merchant and their respective successors and
assigns; provided, however, that this Agreement may not be assigned by Merchant
or Agent to any party without the prior written consent of the other.

15.7         Execution in Counterparts.  This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original but all of which
together shall constitute but one agreement.  This Agreement shall be effective
upon delivery of original signature pages or “pdf” or facsimile copies thereof
executed by each of the parties.

15.8         Section Headings.  The headings of sections of this Agreement are
inserted for convenience only and shall not be considered for the purpose of
determining the meaning or legal effect of any provisions hereof.

15.9         FF&E.  With respect to furniture, fixtures and equipment owned by
Merchant and located at the Stores (collectively, the “Agent Sale FF&E”), Agent
shall sell the Agent Sale FF&E and shall retain all proceeds therefrom.  In
consideration thereof, Agent shall: (i) pay Merchant on the Payment Date  ten
million three hundred thousand dollars $10,300,000 (the “Agent Sale FF&E
Guarantee”); and (ii) pay the selling and marketing expenses determined by Agent
to be reasonably necessary to sell the Agent Sale FF&E (which for purposes of
the avoidance of doubt shall not include any occupancy or occupancy-related
expenses associated with the Distribution Center and/or Merchant’s home office,
which occupancy and occupancy-related expenses shall be paid by Merchant).  As
of the Sale Termination Date, Agent may abandon in place any unsold Agent Sale
FF&E at the Stores in the manner set forth in Section 6.2 hereof.

 
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Agent shall sell FF&E owned by Merchant located at the Distribution Centers
(excluding the Carlisle, PA Distribution Center) and Merchant’s corporate office
(the “Corporate FF&E”).  Agent shall be entitled to receive a commission equal
to 20% of the net proceeds from the sale of Corporate FF&E (net of Sales Taxes
and the expenses of disposing of the Corporate FF&E); providedhowever that
Merchant shall be responsible for payment of expenses incurred in connection
with the disposition of the Corporate FF&E in accordance with a budget to be
mutually agreed upon between Merchant and Agent (in consultation with GA with
copies to be provided to GECC).  As of the Sale Termination Date, Agent may
abandon in place any FF&E located at the Distribution Centers and any FF&E
located in the Merchant’s corporate office in a neat and orderly manner.  All
proceeds from the disposition of the Corporate FF&E shall be deposited in a
segregated account designated solely for the deposit of the proceeds from the
Corporate FF&E which shall be a Merchant’s Designated Deposit Account.

15.10       Reporting.  Agent shall furnish Merchant and GECC with weekly
reports (including reports that comply with Merchant’s current weekly cash
reporting to its central office) reflecting the progress of the Sale, which
shall specify the Proceeds (including proceeds from the sale of News Stand and
Café/Candy Inventory) received to date and shall furnish Merchant and GECC with
such other information regarding the Sale as Merchant reasonably requests.  The
Agent will maintain and provide to Merchant and GECC sales records to permit
calculation of and compliance with any percentage of rent obligations under
Store leases.  During the course of the Sale, Merchant and GECC shall have the
right to have representatives continually act as observers of the Sale in the
Stores, so long as they do not interfere with the conduct of the Sale.

15.11       Agent.  All references to “Agent” hereunder shall mean a joint
venture composed of Hilco Merchant Resources, LLC, SB Capital Group, LLC, Gordon
Brothers Retail Partners, LLC, Tiger Capital Group, LLC and Great American
Group, LLC.

 
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Section 16.                Security Interest.  In consideration of Agent’s
payment of the Guaranteed Amount Deposit, Expenses, Agent Sale FF&E Guarantee
and the provision of services hereunder to Merchant, upon issuance of the Letter
of Credit and effective as of the Payment Date, Merchant hereby grants to Agent
(x) a valid and perfected first priority security interest in and lien (subject
to the subordination provisions set forth herein below) upon (i) the
Merchandise, (ii) Books in Storage, (iii) Additional Agent Merchandise and the
proceeds thereof, (iv) Agent Sale FF&E and the proceeds realized from the
disposition of the Agent Sale FF&E, (v) proceeds realized from the disposition
of the Corporate FF&E up to the amount of the Agent’s disposition commission
related to Corporate FF&E as provided for in Section 15.9 and (vi) the Proceeds,
to secure all obligations of Merchant to Agent hereunder and (y) to secure
Merchant’s obligations pursuant to Section 3.3(e) to repay any Over Payment
Amount to the Agent, a superpriority administrative expense claim payable from,
and a valid and perfected first priority security interests in and lien upon,
each of the following, as defined in the APA:  (i) Intellectual Property, (ii)
the Kobo Interest, (iii) proceeds of Real Property Leases, (iv) Corporate FF&E
(as defined herein), (v) Merchant’s Additional Goods Recovery Amount (as defined
herein), (vi) Merchant's portion of proceeds related to Merchant Consignment
Goods (as defined herein) and (vii) proceeds related to any the foregoing (the
“Over Payment Collateral”); provided, however, that the security interest and
administrative expense claims granted to Agent hereunder shall remain junior and
subordinate in all respects to (a) Merchant’s rights to receive payment of the
Guaranteed Amount, Agent Sale FF&E Guarantee and, Expenses and any other
undisputed amounts due from Agent to Merchant hereunder (collectively, the
“Agent’s Payment Obligations”) and (b) the liens, security interests and claims
of the GECC and the Lenders, to the to the extent of the unpaid portion of
Agent’s Payment Obligations.  Upon the entry of the Approval Order and upon
payment of the Guaranteed Amount Deposit and Agent Sale FF&E Guarantee pursuant
to Section 3.3(a) hereof, and the issuance of the Letter of Credit, the security
interests granted to the Agent hereunder shall be deemed properly perfected
without the necessity of filing financing statements or other
documentation.  Upon the earlier occurrence of (a) date of the Final Inventory
Report as reviewed, verified and reconciled by Merchant and Agent and payment of
any Over Payment Amount, if any, (b) Agent’s express written waiver of its
rights to the Over Payment Amount or (c) entry by the Court of an Order finding
that the Merchant satisfied its obligations to the Agent pursuant to Section
3.3(e) hereof, (the “Over Payment Collateral Release Date”), the Agent’s liens
on the Over Payment Collateral shall be deemed automatically released and the
Agent will immediately disburse all amounts held in the Over Payment Escrow (as
defined below) to the Merchant.  Notwithstanding any provision in this Agreement
to the contrary, during the period commencing on the Sale Commencement Date and
after payment of the Guaranteed Amount Deposit and Agent Sale FF&E Guarantee and
ending on the Over Payment Collateral Release Date (a) the Merchant shall not
sell, assign or otherwise dispose of any item of Over Payment Collateral without
Agent’s consent, which consent will not be unreasonably withheld, (b) the
proceeds of the sale of any Over Payment Collateral shall be placed in a
segregated account with Agent (the “Over Payment Escrow”) and Agent’s liens
shall attach to such proceeds in the same priority, validity and extent they
encumbered such collateral, and (c) the Agent is authorized to hold all proceeds
due to the Merchant with respect to the Recovery Amount, Merchant’s Additional
Goods Recovery Amount and Merchant's portion of proceeds related to Merchant
Consignment Goods in the Over Payment Escrow.

Section 17.                Lenders Rights.  Any rights or remedies accorded to
GECC or GA herein shall exist only so long as the DIP Facility has not been
indefeasibly paid in full in cash.

[Signature Pages Follow]

 
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IN WITNESS WHEREOF, the Agent and Merchant hereby execute this Agreement by
their duly authorized representatives as a sealed instrument as of the day and
year first written above.

 
BORDERS GROUP INC.
 
On Behalf of Itself and the Companies Set Forth In Exhibit A hereto
             
By:
   
Name:
Holly Felder Etlin
 
Its:
Senior Vice President – Restructuring

 
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[Signature Page to Agency Agreement]

 
HILCO MERCHANT RESOURCES, LLC,
 
GORDON BROTHERS RETAIL PARTNERS, LLC,
 
SB CAPITAL GROUP, LLC,
 
TIGER CAPITAL GROUP, LLC AND
 
GREAT AMERICAN GROUP, LLC
             
By:
HILCO MERCHANT RESOURCES, LLC
   
Its:
Authorized Signatory
               
By:
       
Title:
Vice President and Deputy General Counsel

 
 
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[Signature Page to Agency Agreement]

CONSENTED AND AGREED TO
AS IT RELATES TO SECTIONS 3.4, 16 AND 17 HEREOF, BY:

GENERAL ELECTRIC CAPITAL CORPORATION

By:
 

Name
Title

 
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[Signature Page to Agency Agreement]

CONSENTED AND AGREED TO
AS IT RELATES TO SECTIONS 16 AND 17 HEREOF, BY:

GA CAPITAL LLC, as Term Agent

By:
 

Name
Title
 
 
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