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 andregulations relating to advertising, permitting, privacy, consumer protection, occupational healthand safety and the environment, together with all applicable statutes, rules, regulations andorders of, and applicable restrictions imposed by, governmental authorities (collectively, the“Applicable General Laws”), other than all applicable laws, rules and regulations inrespect 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 termsof this Agreement, the Sale Guidelines and Approval Order; and provided further that the ApprovalOrder shall provide that so long as the Sale is conducted in accordance with the Sale Guidelinesand in a safe and professional manner, Agent shall be deemed to be in compliance with anyApplicable 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 shallreceive: (i) seventy two percent (72%) (the “Guaranty Percentage”) of the aggregate CostValue of the Merchandise included in the Sale (the “Guaranteed Amount”) plus (ii) theaggregate amount calculated in accordance with Section 7.4 and (iii) the amounts set forth inSection 15.9.     (b) The Guaranteed Amount shall be paid in the manner and at the times specified in Section3.3 below. The Guaranteed Amount will be calculated based upon the aggregate Cost Value of theMerchandise as determined by (A) the final certified report of the Inventory Taking Service afterverification and reconciliation thereof by Agent and Merchant plus (B) amount of GrossRings, as adjusted for shrinkage per this Agreement.     (c) The Guaranty Percentage has been fixed based upon the aggregate Cost Value of theMerchandise not being less than $350,000,000 and no more than $395,000,000 (the “MerchandiseThreshold”) as of the Sale Commencement Date, excluding News Stand Inventory and Café/ CandyInventory, periodical items, and other café items. To the extent that the aggregate Cost Value ofthe Merchandise included in the Sale is less than or more than the Merchandise Threshold, theGuaranty Percentage shall be adjusted in accordance with **Exhibit 3.1(c)** annexed hereto (inaddition 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 SchulerGoods are returned to the Merchant (the “RTV Threshold”). To the extent that the aggregateCost 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 suchinventory (the “RTV Adjustment”) (in addition to any adjustment applicable pursuant to thissection and section 11.1(m) hereof), as and where applicable.
 

 
     (d) To the extent that Proceeds exceed the sum of (i) the Guaranteed Amount and (ii) Expensesof the Sale (the sum of (i) and (ii), the “Sharing Threshold”), then all Proceeds of theSale 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 theSharing Threshold shall be referred to as the “Recovery Amount” and amounts to be receivedby Agent from Proceeds in excess of the Sharing Threshold shall be referred to as the “AgentRecovery Amount”. To the extent that Merchant is entitled to receive the Recovery Amount, suchRecovery 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 Merchantan amount equal to four percent (4%) of the gross proceeds (net of sales taxes) of the sale ofAdditional Agent Merchandise (the “Merchant’s Additional Goods Recovery Amount”). Allproceeds of the sale of Additional Agent Merchandise in excess of the Merchant’s Additional GoodsRecovery Amount shall be retained by Agent and be referred to as the “Agent’s Additional GoodsRecovery Amount.”     3.2 Compensation to Agent. Subject to the entry of the Approval Order, Agent shall beentitled to the Agent Recovery Amount and the Agent’s Additional Goods Recovery Amount. Agentshall also be entitled to receive all proceeds of the sale of the Agent Sale FF&E as provided forin Section 15.9 hereof and a commission based on the sale of the Corporate FF&E, News StandInventory and Café/Candy Inventory and any other Merchant Consignment Goods as provided forhereunder.          (b) Provided that no Event of Default has occurred and continues to exist on the part of theAgent, and after all payments are made to Merchant as required hereunder, all Merchandise remainingat the Sale Termination Date (the “Remaining Merchandise”) shall become the property ofAgent, free and clear of all liens, claims and encumbrances of any kind or nature, and the proceedsreceived by Agent from the disposition, in a commercially reasonable manner, of such unsoldMerchandise shall constitute Proceeds hereunder. Notwithstanding the foregoing, Agent shallexercise 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 theProceeds. 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 anon-retail customer or abandon the Remaining Merchandise Agent shall provide 48 hours writtennotice, via e-mail, to the official committee of unsecured creditors so that the committee mayverify that the prospective purchaser does not have return to vendor privileges or approve of theproposed abandonment. If the official committee of unsecured creditors objects to the proposedsale or the proposed abandonment, the parties will request the Bankruptcy Court resolve the matteron an emergent basis.          3.3 Time of Payments.          (a) On the first business day following issuance of the Approval Order (the “PaymentDate”), 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 Exhibit3.3(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. The Guaranteed Amount Depositshall be based on the estimated Cost Value (as determined in accordance with Section 5.1 of theAgreement) of the Merchandise on the Sale Commencement Date as reflected in the master inventoryfile(s) provided to Agent on June 19, 2011, which shall be rolled forward to the Sale CommencementDate (the “Perpetual Inventory File”), provided that, the Guaranteed Amount Deposit shallnot take into account any On-Order Goods or Schuler Goods, which shall be paid when received in theapplicable weekly reconciliation.          (b) The balance of the Guaranteed Amount (the “Remaining Guaranteed Amount”), shall bepaid as follows: Agent shall pay the unpaid and undisputed balance of the Guaranteed Amount, whichamount shall be paid to the Merchant Account no later than the earlier of (i) the date that isforty five (45) days after the Sale Commencement Date (in which case payment shall be of theundisputed portion of the balance of the estimated Guaranteed Amount) and (ii) the second businessday following the issuance of the Final Inventory Report, and Agent’s failure to pay such balanceor 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 undisputedportion. In the event that after the issuance of the Final Inventory Report as verified andreconciled, the Guaranteed Amount is greater than the sum of the Guaranteed Amount Deposit plus thepayment of the undisputed portion of the estimated Guaranteed Amount, Agent shall pay the remainderof the Guaranteed Amount to the Merchant within two (2) business days after the Final InventoryReport has been issued as verified and reconciled. In the event that there is a dispute withrespect to the reconciliation of the aggregate Cost Value of the Merchandise following theInventory Taking, then any such dispute shall be resolved in the manner and at the times set forthin Section 8.6 hereof.          (c) All amounts required to be paid by Agent or Merchant under any provision of this Agreementshall be made by wire transfer of immediately available funds which shall be wired by Agent orMerchant, as applicable, no later than 2:00 p.m. (Eastern Time) on the date that such payment isdue; provided, however, that all of the information necessary to complete the wiretransfer has been received by Agent or Merchant, as applicable, by 10:00 a.m. (Eastern Time) on thedate that such payment is due. In the event that the date on which any such payment is due is nota business day, then such payment shall be made by wire transfer on the next business day.          (d) Merchant agrees that if at any time during the Sale Term, Merchant holds any undisputedamounts due to Agent as Proceeds hereunder, Agent may, in its discretion, offset such Proceedsbeing held by Merchant against any amounts due and owing to Merchant pursuant to this Section 3.3or otherwise under this Agreement. In addition, Merchant and Agent further agree that except asprovided in the following sentence, if at any time during the Sale Term, Agent holds any undisputedamounts due to Merchant under this Agreement, Agent may, in its discretion, offset such amountsbeing held by it against any amounts due and owing by, or required to be paid by, Merchanthereunder. Notwithstanding the foregoing or any other provision to the contrary herein, in no eventshall Agent offset any amounts against the proceeds realized from the disposition of the Agent SaleFF&E.
 

 
          (e) If and to the extent that Agent over-funds any amounts in respect of the Guaranteed Amountbased on the results of the Final Inventory Report, then Merchant agrees to promptly reimburse suchundisputed overpayment amounts to Agent. To the extent that any over-funded amounts in respect ofthe Guaranteed Amount based on the results of the Final Inventory Report have been received by GECCand have not been reimbursed by Merchant, Agent shall inform GECC by written notice of suchoverpayment and GECC agrees to disgorge such overpayment to Agent within two (2) business days ofsuch notice.     3.4 Letter of Credit. In order to secure the Agent’s obligations under thisAgreement, in respect of (x) the payment of the Remaining Guaranteed Amount, and (y) Expenses ofthe Sale on the Payment Date, Agent shall furnish Merchant an irrevocable standby letter of creditnaming Merchant and GECC as co-beneficiaries (collectively, the “Beneficiaries”) asbeneficiary in the aggregate original face amount equal to the sum of (i) ten percent (10%) of theestimated Guaranteed Amount, plus (ii) three (3) weeks estimated Expenses that would be payable byMerchant, which shall be in the form of Exhibit 3.4 hereof (collectively, the “Letterof Credit”). The Letter of Credit shall have an expiry date of no earlier than sixty (60) daysafter the Sale Termination Date. Unless the parties shall have mutually agreed, in consultationwith GECC, that they have completed the final reconciliation under this Agreement, then, at leastthirty (30) days prior to the initial or any subsequent expiry date, the Beneficiaries shallreceive an amendment to the Letter of Credit solely extending (or further extending, as the casemay be) the expiry date by at least sixty (60) days. If the Beneficiaries fail to receive suchamendment to the Letter of Credit no later than thirty (30) days before the expiry date, then allamounts hereunder shall become immediately due and payable and the Beneficiaries, individually orcollectively, shall be permitted to draw under the Letter of Credit in payment of amounts owed andthe Beneficiaries shall hold the balance of the amount drawn under the Letter of Credit as securityfor amounts that may become due and payable to Merchant hereunder. At Agent’s request, theBeneficiaries shall take all actions reasonably required to reduce the amount available to be drawnunder 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 theSale. In the event that Agent, after receipt of three (3) business days notice (which notice shallnot be required if Agent or any member of Agent shall be a debtor under title 11, United StatesCode), fails to pay the Guaranteed Amount, or portion thereof or any Expenses when due, theBeneficiaries, individually or collectively, may draw on the Letter of Credit in an amount equal tothe unpaid, past due, amount of the Agent’s obligations hereunder that is not the subject of areasonable dispute.          3.5 Inventory Reconciliation. Within thirty (30) days after the completion of theInventory Taking, Merchant, Agent and General Electric Capital Corporation (“GECC”), in itscapacity as administrative agent for itself and the other lenders (the “Lenders”) party tothe Merchant’s senior secured, super-priority debtor-in-possession credit facility (the “DIPFacility”), shall review, reconcile and verify the final report of the aggregate Cost Value of theMerchandise 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 inconducting 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-leveloperating 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 conductingthe Sale for actual days/hours worked during the Sale Term as well as payroll, to the extentretained 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 thataccrue during the Sale Term, exclusive of Excluded Benefits for Retained Employees used in theSale, in an amount up to 24% of the base payroll for each Retained Employee on a per store, permonth 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 alarmservice maintenance;          (d) 100% of the fees and costs of the Inventory Taking Service to conduct the Inventory Takingat 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 theSale, signwalking expenses, and Store interior and exterior signage and banners relating to theSale;          (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 goodssold in the Sale;          (i) bank service charges (for Store accounts), check guarantee fees, and bad check expenses tothe 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 Merchandisebetween and among the Stores, including delivery and freight costs, it being understood that Agentshall 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 andbonuses of Agent’s field personnel, travel to and from the Stores or the Distribution Centers andincidental out-of-pocket and commercially reasonable travel expenses relating thereto (includingreasonable and documented corporate travel to monitor and manage the Sale), provided that, thesupervision 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 centraloffice 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 diembasis in an amount up to the per Store per diem amount set forth therein plus for the Storesdesignated on Exhibit 4.1(r) hereto as “Percentage Rent Stores,” on a per location basis, theamount 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-maildistribution set forth on Exhibit 4.1(s);          (t) Agent’s actual cost of capital (including Letter of Credit fees), insurance and legalfees;          (u) a pro-rata portion of Merchant’s insurance attributable to the Merchandise and other goodslocated in the Stores; and          (v) seventy two percent (72%) of the aggregate cost value of the Books inStorage included in the Sale, which cost value was fixed in accordance with the reconciliation ofthe transactions contemplated by that certain Agency Agreement by and between Merchant and a jointventure composed of Hilco Merchant Resources, LLC, SB Capital Group, LLC, Tiger Capital Group, LLCand Gordon Brothers Retail Partners, LLC, dated February 16, 2011, provided that, the cost valueshall not exceed $3,800,000 and the Books in Storage shall be counted as such goods leave thestorage facility.Notwithstanding anything herein to the contrary, to the extent that any Expense category listed inSection 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 theextent 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 centraladministrative services necessary for the Sale, including, but not limited to, MIS services,payroll processing, cash reconciliation, inventory processing and handling, data processing andreporting, loss prevention reporting (including XBR Research), and, subject to separate charges setforth 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 rataportion of comprehensive public liability insurance attributable to the Stores , personal propertyleases (including, without limitation, point of sale equipment), cash register maintenance,building maintenance and rental for furniture, fixtures and equipment, all of the foregoing only ascategorized and reflected on Exhibit 4.1(r) hereto.     “Expenses” shall not include: (i) Excluded Benefits; (ii) Central Service Expenses, except asprovided 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 aresufficient Proceeds collected to pay such Expenses after the payment of the Guaranteed Amount. AllExpenses incurred during each week of the Sale (i.e. Sunday through Saturday) shall be paid byAgent to or on behalf of Merchant immediately following the weekly Sale reconciliation by Merchantand Agent pursuant to Section 8.6 below; provided, however, in the event that theactual 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 reconciledonce the actual amount of such Expense becomes available. Agent and/or Merchant may review oraudit the Expenses at any time.          (b) Notwithstanding anything herein to the contrary, (i) Merchant shall not be required tofund 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 reasonablerequest, to the extent that Proceeds are insufficient, Agent shall fund, in advance, all payrolland related expenses for Retained Employees at least two (2) business days prior to the date thatsuch payments are due by Merchant.     Section 5. Inventory Valuation; Merchandise.          5.1 Inventory Taking.          (a) To determine the aggregate Cost Value of the Merchandise located in the Stores, commencingon the Sale Commencement Date, Merchant and Agent shall cause to be taken a SKU level and RetailPrice 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 SaleCommencement Date (the “Inventory Completion Date”, and the date of the Inventory Taking ateach Store being the “Inventory Date” for each such Store). Merchant and Agent shalljointly employ RGIS and/or another mutually acceptable independent inventory taking service (the“Inventory Taking Service”) in consultation with GECC to conduct the Inventory Taking. TheInventory Taking shall be conducted in accordance with the procedures and instructions set forth inExhibit 5.1(a) (the “Inventory Taking Instructions”). Merchant, Agent, and at itselection, GECC, shall each have representatives present during the Inventory Taking, and shall eachhave 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, theapplicable Stores shall be closed to the public and no sales or other transactions shall beconducted. Merchant and Agent agree to cooperate with each other to conduct the Inventory Takingcommencing at a time that would minimize the number of hours that such locations would be closedfor business.          (b) With respect to Distribution Center Inventory and Return to Vendor Inventory that isallocated to be sent to the Stores in accordance with the Pre-Sale Allocation, such DistributionCenter Inventory and Return to Vendor Inventory shall be counted as such inventory leaves theDistrubution Centers in accordance with the procedures to be mutually agreed to by Merchant andAgent, which procedures shall determine the aggregate Cost Value of such inventory.          (c) The Agent and Merchant agree that they will, and agree to cause their respectiverepresentatives to, cooperate and assist in the preparation and the calculation of the aggregateCost Value of the Merchandise included in the Sale, including, without limitation, making availableto the extent necessary, books, records, work papers and personnel.          (d) In the event that the Sale commences at any Store prior to the completion of the InventoryTaking at such Store, then, for the period from the Sale Commencement Date for such Store until theInventory Date for such Store, Agent and Merchant shall jointly keep (i) a strict count of grossregister receipts less applicable Sales Taxes but excluding any prevailing discounts (“GrossRings”), and (ii) cash reports of sales within such Store. Agent and Merchant shall keep astrict count of register receipts and reports to determine the actual Cost Value and Retail Priceof the Merchandise sold by SKU and the markdown, if any, granted by the Agent. All such recordsand reports shall be made available to Agent and Merchant during regular business hours uponreasonable notice. Any Merchandise included in the Sale using the Gross Rings shall be included inMerchandise using the average landed cost of such Merchandise as set forth in the PerpetualInventory File. Agent shall pay that portion of the Guaranteed Amount calculated on the GrossRings basis to account for shrinkage on the basis of 103% of the aggregate Cost Value of theMerchandise (without taking into account any of Agent’s point of sale discounts or point of salemarkdowns) sold during the Gross Rings period.     5.2 Merchandise Subject to This Agreement.     (a) For purposes of this Agreement, “Merchandise” shall mean: all finished goodsinventory that is owned by Merchant wherever located as of the Sale Commencement Date,
 

 
including (A) Defective Merchandise; (B) Display Merchandise, (C) Distribution CenterInventory to the extent received by the DC Receipt Deadline, (D) Merchandise subject to GrossRings, (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 theextent received by the On-Order Receipt Deadline; and (H) Calendar Inventory. Notwithstanding theforegoing, “Merchandise” shall not include: (1) goods which belong to sublessees, licensees,department lessees, or concessionaires of Merchant; (2) goods held by Merchant on memo, onconsignment, 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) ExcludedDefective Merchandise; (5) Merchant Consignment Goods which includes News Stand Inventory andCafé/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 forthbelow:          “Books in Storage” means those items of merchandise located on the Sale CommencementDate at a storage facility in North Carolina not to exceed $3,800,000 at cost, which goods shallnot be deemed Merchant Consignment Goods or Additional Agent Merchandise.          “Café/Candy Inventory” means items of inventory designated by Merchant, in theordinary course of business, as “café and candy”.          “Calendar Inventory” means any 2012 calendar inventory located in the Stores and DistributionCenters up to an aggregate Cost Value of $200,000.          “DC Damaged Goods” means those items of merchandise designated as “Saleable, Damagedand Refused Returns” located at each of the Distribution Centers as identified on Exhibit5.2(i).          “Defective Merchandise” means any item of Merchandise that is defective or otherwisenot 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 Merchandiseshall not per se be deemed to be Defective Merchandise.          “Display Merchandise” means those items of inventory used in the ordinary course ofbusiness as displays or floor models, including inventory that has been removed from its originalpackaging for the purpose of putting such item on display but not customarily sold or saleable byMerchant, 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 notconstitute Display Merchandise.          “Distribution Center Inventory” means those items of merchandise located on the SaleCommencement 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 “StrippedBooks”). Merchant and Agent will use commercially reasonable efforts to identify and excludeall Stripped Books inventory from the Distribution Center Inventory. To the extent that StrippedBooks are received in Stores, and have not already been excluded from the inventory at theDistribution Centers, the aggregate Cost Value of the Distribution Center Inventory shall beadjusted 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 thatare not saleable in the ordinary course because they are so damaged or defective that suchinventory 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 theordinary course of business, as “news stand.”          “On-Order Goods” mean items of inventory that were ordered by Merchant in the ordinarycourse of business as identified on Exhibit 5.2(iii) annexed hereto, which inventory wasnot received in the Stores or Distribution Centers as of the Sale Commencement Date, but which maybe received in the Stores by the On-Order Receipt Deadline, provided that, the aggregate Cost Valueof the On-Order Goods shall not exceed $17,000,000.          “Out-Dated Goods” means inventory that is near or out-of-date, including 2011calendars and previous year almanacs.          “Return to Vendor Inventory” means those items of inventory designated “Return toVendor” 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 theavoidance of doubt, Merchandise located in the Stores as of the Sale Commencement Date bearing thesame SKU as Return to Vendor Inventory shall not constitute Return to Vendor Inventory.          “Schuler Goods” means items of inventory as identified on Exhibit 5.2(v) thatmay be returned by Merchant’s customer, Schuler, provided that, the aggregate Cost Value of theSchuler Goods shall not exceed $1,700,000.     5.3 Valuation.     (a) For purposes of this Agreement, “Cost Value” shall mean with respect to each itemof Merchandise, the lower of (i) average landed actual cost for such item of Merchandise, asreflected 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 withlanding the product in the Distribution Centers or (ii) the Retail Price for such item ofMerchandise. The Perpetual Inventory File does not account for any advertising co-op allowances ordiscounts associated with expedited payment terms offered by any vendor.
 

 
     (b) Other than Excluded Defective Merchandise, in lieu of any other adjustments to the CostValue of Merchandise under this Agreement (*e.g.*, adjustments for Defective Merchandise, clearancemerchandise, mis-mates and near-mates, sample merchandise and/or Excluded Price Adjustments), theaggregate Cost Value of the Merchandise shall be adjusted (*i.e.*, reduced) by means of a singleglobal downward adjustment equal to one half of one percent (0.5%) of the aggregate Cost Value ofthe Merchandise in the Stores and any On-Order Goods and one and one half of one percent (1.5%) ofthe aggregate Cost Value of the Distribution Center Inventory, Return to Vendor Inventory andSchuler Goods (the “Global Inventory Adjustment”).     For the purposes of this Agreement, “Excluded Price Adjustments” means the followingdiscounts or price adjustments offered by the Merchant: (i) point of sale discounts or similaradjustments regardless of duration for which the current selling price is reflective of point ofsale discounts, as reflected on the Perpetual Inventory File other than discounts for the followinge-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) giftcards; (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 pricingaccommodations.     (c) Excluded Defective Merchandise located in the Stores shall be identified and countedduring the Inventory Taking and thereafter removed from the sales floor and segregated. To theextent that Excluded Defective Merchandise is sent from the Distribution Centers to the Stores, itshall be identified once received and thereafter segregated.     (d) Items of Distribution Center Inventory and Return to Vendor Inventory received in theStores on or prior to the date that is thirty (30) days after the Sale Commencement Date (excludingthe Sale Commencement Date for purposes of such calculation) (the “DC Interim ReceiptDeadline”), 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 afterthe DC Interim Receipt Deadline but prior to a date that is forty five (45) days after the SaleCommencement 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 foreach such item multiplied by the inverse of the prevailing discount on similar items of Merchandiseas of the date of receipt in the Stores. Items of Distribution Center Inventory and Return toVendor Inventory received in the Stores after the DC Receipt Deadline shall not constituteMerchandise, shall be given no Cost Value, and shall be excluded from Merchandise, and shall besold by Agent as Merchant Consignment Goods pursuant to Section 5.4 hereof.     (e) Items of On-Order Goods and Schuler Goods received in the Stores on or prior to the datethat is fourteen (14) days after the Sale Commencement Date (excluding the Sale Commencement Datefor purposes of such calculation) (the “On-Order Interim Receipt Deadline”), will beincluded in Merchandise at the applicable Cost Value for each such item. Items of On-Order Goodsand Schuler Goods received at the Stores after the On-Order Interim Receipt Deadline but prior to adate that is thirty (30) days after the Sale Commencement Date (excluding the Sale CommencementDate for purposes of such calculation) (the “On-Order
 

 
Receipt Deadline”) shall be included in Merchandise at the applicable Cost Value foreach such item multiplied by the inverse of the prevailing discount on similar items of Merchandiseas of the date of receipt in the Stores. Items of On-Order Goods and Schuler Goods received in theStores after the On-Order Receipt Deadline shall not constitute Merchandise, shall be given no CostValue, and shall be excluded from Merchandise, and shall be sold by Agent as Merchant ConsignmentGoods pursuant to Section 5.4 hereof.     5.4 Excluded Goods. Merchant shall retain all responsibility for any goods notincluded as “Merchandise” hereunder. If Merchant elects at the beginning of the Sale Term, Agentshall 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 hereinshall be deemed Merchant Consignment Goods. The Agent shall retain 20% of the sale price for allsales of Merchant Consignment Goods, and Merchant shall receive 80% of the receipts in respect ofsuch sales. Merchant shall receive its share of the receipts of sales of Merchant ConsignmentGoods on a weekly basis in accordance with Section 3.3, immediately following the weekly Salereconciliation by Merchant and Agent pursuant to Section 8.6 below. If Merchant does not elect tohave Agent sell goods not included as Merchandise, then all such items will be removed by Merchantfrom 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 anddesignating the shipment of the Distribution Center Inventory and Return to Vendor Inventory to theStores. 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), relatedto the processing, transfer and consolidation of Distribution Center Inventory and Return to VendorInventory from the Distribution Center to the Stores (collectively, the “Distribution CenterExpenses”) for a period commencing on the Sale Commencement Date through the Sale TerminationDate shall be the obligation of the Merchant; provided however, that in the event Agent chooses touse a method of picking-up or transportation in a manner that is not consistent with Merchant’sordinary course method of transport, then Agent shall be solely responsible for all increased costsand expenses associated with such modification (such additional costs shall be treated as anExpense hereunder); provided further, no Distribution Center Inventory or Return to VendorInventory shall be shipped to the Stores prior to the Inventory Date for any applicable Storeunless Merchant and Agent can mutually agree on a method to account for such inventory. On orprior to July 14, 2011, Merchant and Agent shall cooperate with each other and shall mutually agreeupon a schedule and allocation of the Distribution Center Inventory and Return to Vendor Inventoryto the Stores (the “Pre-Sale Allocation”).     Section 6. Sale Term.     6.1 Term. Subject to satisfaction of the conditions precedent set forth in Section 10hereof, the Sale shall commence at each Store no event later than July 29, 2011; provided,however, that the Sale shall commence by no later than July 22, 2011 at each Store with areal property lease subject to an assumption/rejection deadline on or prior to September 30, 2011,
 

 
5:00 p.m., New York City time or subject to imposition of “holiday protection” payments if notvacated on or prior to September 30, 2011, 5:00 p.m., New York City time (the “SaleCommencement Date”). Subject to the prior expiration of the term of any Store Lease orexpiration of the deadline for the Merchant to assume or reject any Store Lease pursuant to section365(d)(4) of the Bankruptcy Code or, if earlier, the date by which the Merchant must vacate a Storeto avoid triggering a “holiday protection” payment (as reflected on Exhibit 6.1), the Agentshall complete the Sale at each Store and vacate such Store in broom-clean condition by no laterthan November 13, 2011, unless the Sale is extended by mutual written agreement of Agent, Merchantand GECC (the “Sale Termination Date”; the period from the Sale Commencement Date to theSale Termination Date as to each Store being the “Sale Term”). The Agent may, in itsdiscretion, 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 withsuch timely notice, Agent shall be liable for and pay Occupancy Expenses for the days by whichnotice 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 theStores in “broom clean” condition, ordinary wear and tear excepted, except for unsold items ofFF&E, Café/Candy Inventory and News Stand Inventory and remaining Supplies. Agent shall vacate theStores on or before the Sale Termination Date, as provided for herein, at which time Agent shallsurrender and deliver the Store premises and Store keys to Merchant. Agent’s obligations to payOccupancy Expenses, for each Store shall continue until the later of (i) the date specified in theVacate Notice (which must be at least seven days from the date of the Vacate Notice) and (ii) thedate 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 toMerchant at the end of the Sale Term to the extent the same have not been consumed in the conductof 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 orbecomes obligated resulting from Agent’s failure to vacate such Store in a satisfactory and timelymanner.     Section 7. Sale Proceeds.     7.1 Proceeds. For purposes of this Agreement, “Proceeds” shall mean theaggregate of (a) the total amount (in dollars) of all sales of Merchandise made under thisAgreement, exclusive of Sales Taxes; (b) the total amount (in dollars) of all sales of Books inStorage made under this Agreement, exclusive of Sales Taxes; and (c) all proceeds of Merchant’sinsurance for loss or damage to Merchandise or Books in Storage or loss of cash arising from eventsoccurring during the Sale Term. Proceeds shall also include any and all proceeds received by Agentfrom the disposition, in a commercially reasonable manner, of unsold Merchandise at the end of theSale, 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 intodepository accounts designated by Merchant for the Stores, which accounts shall be designatedsolely for the deposit of Proceeds of the Sale (including credit card proceeds), and thedisbursement of amounts payable by Agent hereunder (the “Designated Deposit Accounts”), andMerchant shall exercise sole signatory authority and control with respect to the Designated DepositAccounts. Upon request, Merchant shall deliver to Agent copies of all bank statements and otherinformation relating to such accounts. Merchant shall not be responsible for, and Agent shall payas an Expense hereunder, all bank fees and charges, including wire transfer charges, related to theDesignated Deposit Accounts, whether notice of such expense is received during or after the SaleTerm.     (b) Agent may establish its own accounts, dedicated solely for the deposit of the Proceeds andthe disbursement of amounts payable to Agent hereunder (the “Agency Accounts”) and Merchantshall promptly upon Agent’s request execute and deliver all necessary documents to open andmaintain the Agency Accounts; provided, however, Agent may elect to continue to useMerchant’s Designated Deposit Accounts (as defined above) as the Agency Accounts. The AgencyAccounts shall be dedicated solely to the deposit of Proceeds and the disbursement of amountspayable hereunder, and Agent shall exercise sole signatory authority and control with respect tothe Agency Accounts. Upon request, Agent shall deliver to Merchant and GECC copies of all bankstatements 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 transfercharges, related to the Agency Accounts, whether received during or after the Sale Term. UponAgent’s designation of the Agency Accounts, all Proceeds of the Sale (including credit cardproceeds) shall be deposited into the Agency Accounts. To the extent that Agent uses theMerchant’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 cardproceeds) 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).     7.3 Credit Card Proceeds. To the extent available, Agent shall use Merchant’s creditcard facilities (including Merchant’s credit card terminals and processor(s), credit card processorcoding, Merchant identification number(s) and existing bank accounts) for credit card Proceedsrelating solely to the Sale, sales of News Stand Inventory and Café/Candy Inventory and Agent SaleFF&E. 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 dayduring the Sale Term and to effect settlement with Merchant’s credit card processor(s) and shalltake such other actions necessary to process credit card transactions on behalf of Agent underMerchant’s identification number(s). Merchant shall not be responsible for, and Agent shall pay asan Expense hereunder, all credit card fees, charges and chargebacks related to the Sale, sales ofNews Stand Inventory and Café/Candy Inventory and Agent Sale FF&E, whether received during or afterthe Sale Term.
 

 
     7.4 Petty Cash. In addition to the Guaranteed Amount, Agent shall purchase all cashin the Stores on and as of the start of business on the Sale Commencement Date and shall reimburseMerchant on a dollar for dollar basis therefor.     Section 8. Conduct of the Sale. Subject to the entry of the Approval Order, the Agentshall be permitted to conduct the Sale in accordance with the Approval Order. In addition to anyother rights granted to Agent hereunder, in conducting the Sale, Agent, in the exercise of its solediscretion, 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 toconduct the Sale as a “going out of business,” “store closing” or similar themed sale throughoutthe Sale Term. The Agent shall conduct the Sale in the name of and on behalf of the Merchant in acommercially reasonable manner and in compliance with the terms of this Agreement and, except asmodified by the Approval Order, all governing laws and applicable agreements to which Merchant is aparty. The Agent shall conduct the Sale in accordance with the sale guidelines annexed hereto asExhibit 8.1(a) (the “Sale Guidelines”). In addition to any other rights granted toAgent hereunder in conducting the Sale, but subject to any applicable agreements to which Merchantis a party except as modified by the Approval Order, as applicable, the Agent, in the exercise ofits reasonable discretion, shall have the right:          (a) to establish Sale prices and Store hours which are consistent with the terms of applicableleases and local laws or regulations, including without limitation Sunday closing laws;providedhowever, to the extent that Agent extends the hours of operation at one ormore of the Stores beyond the hours historically operated by Merchant, which results in additionalutilities 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 additionalcosts shall constitute Expenses of the Sale.          (b) except as otherwise expressly included as an Expense and subject to applicable privacy andother 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 shallbe provided solely through Merchant’s outside advertisement services for which Merchant shall usecommercially reasonable efforts to cause such outside service providers to cooperate with andassist Agent, and the Agent shall not have direct access to any personally identifiable informationcontained therein), websites (including social media sites), computer hardware and software,existing supplies located at the Stores, intangible assets (including Merchant’s name, logo and taxidentification numbers), Store keys, case keys, security codes and safe and lock combinationsrequired to gain access to and operate the Stores, and any other assets of Merchant located at theStores (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 toprocess payroll, perform MIS and provide other central office services necessary for the Sale tothe extent that such services are normally provided by Merchant in
 

 
house, at no additional cost to Agent (except where otherwise designated as an Expensepursuant to Section 4.1(s) hereof); provided, however, that, in the event thatAgent expressly requests Merchant to provide services other than those normally provided to theStores and relating to the sale of merchandise by Merchant, Agent shall be responsible for theactual incremental cost of such services as an Expense; and (ii) sufficient office space located atMerchant’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 meansof media advertising, A-frame and similar interior and exterior signs and banners and use of signwalkers) 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 thetransferring Store has been completed; provided, further, that Agent shall provide Merchantwith prior written notice of all such transfers; and          (f) to supplement the Merchandise at the Stores with Additional Agent Merchandise inaccordance 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 receiptswill reflect the same. Agent shall not warrant any inventory in any manner, but will, to theextent legally permissible, pass on all manufacturers’ warranties to customers. All sales will bemade only for cash, nationally recognized bank credit cards and, in Agent’s discretion, personalchecks, provided, however, if Agent determines to accept personal checks, Agentshall bear the risk of nonpayment or loss with respect thereto. Agent shall clearly mark alltickets and receipts for items sold at the Stores during the Sale Term, so as to distinguish suchitems from the merchandise sold prior to the Sale Commencement Date and shall use commerciallyreasonable efforts to have all UPC codes blacked out with a marker at the point of sale.     (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 theSale Commencement Date and Merchant shall reimburse Agent for such amounts during the weekly salereconciliation provided for in Section 8.6.     8.3 Sales Taxes.     (a) During the Sale Term, all sales, excise, gross receipts and other taxes attributable tosales of Merchandise, Books in Storage, Additional Agent Merchandise, sales of News Stand Inventoryand 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, onMerchant’s behalf, at the time of sale. All Sales Taxes shall be deposited into a segregatedaccount designated by Merchant and Agent solely for the deposit of such Sales Taxes
 

 
(the “Sales Taxes Account”). Provided that Agent has collected all Sales Taxesduring the Sale and remitted the proceeds thereof to Merchant, Merchant shall prepare and file allapplicable reports and documents required by the applicable taxing authorities, and Merchant shallpromptly pay all Sales Taxes from the Sales Taxes Account. Merchant will be given access to thecomputation of gross receipts for verification of all such tax collections. If Agent fails toperform its responsibilities in accordance with this Section 8.3, Agent shall indemnify and holdharmless Merchant from and against any and all costs, including, but not limited to, reasonableattorneys’ fees, assessments, fines or penalties which Merchant sustains or incurs as a result orconsequence of the failure by Agent to collect and/or remit Sales Taxes and/or the failure by Agentto promptly deliver any and all reports and other documents required to enable Merchant to file anyrequisite returns with such taxing authorities.          (b) Without limiting the generality of Section 8.3(a) hereof, it is hereby agreed that, asAgent is conducting the Sale solely as agent for Merchant, various payments that this Agreementcontemplates that one party may make to the other party (including the payment by Agent of theGuaranteed Amount) do not represent the sale of tangible personal property and, accordingly, arenot subject to Sales Taxes.     8.4 Supplies. Agent shall have the right to use, without charge, all existingsupplies located at the Stores, including, without limitation, boxes, bags, paper, twine andsimilar sales materials (collectively, “Supplies”). In the event that additional Suppliesare required in any of the Stores during the Sale, Merchant agrees to promptly provide the same toAgent to the extent reasonably practicable and if available, which shall constitute an Expensepursuant to Section 4.1(j) hereof. Merchant does not warrant that the existing Supplies as of theSale Commencement Date are adequate for the purposes of the Sale.     8.5 Returns of Merchandise. During the Sale Term, Agent shall accept returns ofmerchandise sold by Merchant prior to the Sale Commencement Date (“Returned Merchandise”),provided that such return is accompanied by the original Store register receipt and isotherwise in compliance with Merchant’s return and price adjustment policy in effect as of the datesuch item was purchased. Subject to Merchant’s right to return such defective goods to Merchant’svendors, if such Returned Merchandise is saleable as first-quality Merchandise, it shall beincluded in Merchandise and valued at the Cost Value applicable to such item multiplied by thedifference between 100% and the prevailing discount on similar items of Merchandise as of the datesuch item is returned to a Store. In the event that Returned Merchandise constitutes DefectiveMerchandise (“Returned Defective Merchandise”), Merchant and Agent shall mutually agreeupon 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 forsuch Returned Defective Merchandise, or such Returned Defective Merchandise constitutes ExcludedDefective Merchandise, then such Returned Defective Merchandise shall constitute MerchantConsignment Goods or Excluded Defective Merchandise and excluded from the Sale. The aggregate CostValue of the Merchandise shall be increased by the Cost Value of any Returned Merchandise includedin Merchandise (determined in accordance with this Section 8.5), and the Guaranteed Amount shall beadjusted accordingly. Merchant shall promptly reimburse Agent in cash for any refunds Agent isrequired to issue to customers in respect of any Returned Merchandise. Returned Merchandise notincluded in Merchandise shall be disposed of by Agent
 

 
in accordance with instructions received from Merchant or, in the absence of suchinstructions, treated as Merchant Consignment Goods. Any increases in the Guaranteed Amount inconnection with returned Merchandise shall be accounted for on a weekly basis. Except to theextent that Merchant and Agent agree that Merchant’s POS or other applicable systems can accountfor returns of Merchandise, all returns must be noted and described in a detailed log and shallidentify 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 duringthe Sale. Agent shall not be entitled to any adjustment, credit or payment for ReturnedMerchandise which is not properly noted and described in the Returned Merchandise Log (or otherwisereflected in Merchant’s POS systems).     8.6. Sale Reconciliation. On each Wednesday during the Sale Term, commencing on thesecond Wednesday after the Sale Commencement Date, Agent and Merchant shall cooperate to reconcileProceeds, Expenses, Distribution Center Inventory, if any, and all other items identified hereinfor weekly reconciliation, and such other Sale-related items as either party shall reasonablyrequest, 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 toGECC). Within thirty (30) days after the end of the Sale Term, Agent and Merchant shall complete afinal reconciliation of the Sale, the written results of which shall be certified byrepresentatives of each of Merchant and Agent as a final settlement of accounts between Merchantand 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 orsubstantially inhibits the conduct of business in the ordinary course at any Store, such Store andthe Merchandise located at such Store shall, in Agent’s discretion, be eliminated from the Sale andconsidered to be deleted from this Agreement as of the date of such event, and Agent and Merchantshall 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 insuranceattributable to such Merchandise shall constitute Proceeds hereunder, and (ii) the GuaranteedAmount shall be reduced to account for any Merchandise eliminated from the Sale which is not thesubject 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 endof the Sale Term.     8.8 Merchant’s Right to Monitor. Merchant shall have the right to monitor the Saleand activities attendant thereto and to be present in the Stores during the hours when the Storesare open for business; provided that Merchant’s presence does not unreasonably disrupt theconduct of the Sale. Merchant shall also have a right of access to the Stores at any time in theevent 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 additionalnon-book merchandise procured by Agent which is of like kind, and no lesser quality to theMerchandise located in the Stores (“Additional Agent Merchandise”).
 

 
     (b) At all times and for all purposes, the Additional Agent Merchandise and itsproceeds shall be the exclusive property of Agent. The transactions relating to the AdditionalAgent Merchandise are, and shall be construed as, a true consignment from Agent to Merchant. TheAdditional 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 inthe Stores, Agent shall mark the Additional Agent Merchandise using either a “dummy” SKU ordepartment number or in such other manner so as to distinguish the sale of Additional AgentMerchandise from the sale of Merchandise.     Section 9. Employee Matters.     9.1 Merchant’s Employees. Agent may use Merchant’s employees in the conduct of theSale to the extent Agent deems expedient, and Agent may select and schedule the number and type ofMerchant’s employees required for the Sale. Agent shall identify any such employees to be used inconnection with the Sale (each such employee, a “Retained Employee”) prior to the SaleCommencement Date. Notwithstanding the foregoing, Merchant’s employees shall at all times remainemployees of Merchant. Agent’s selection and scheduling of Merchant’s employees shall at all timescomply with all applicable laws and regulations. Merchant and Agent agree that, except to theextent that wages and benefits of Retained Employees constitute Expenses hereunder, nothingcontained in this Agreement and none of Agent’s actions taken in respect of the Sale shall bedeemed to constitute an assumption by Agent of any of Merchant’s obligations relating to any ofMerchant’s employees including, without limitation, Excluded Benefits, WARN Act claims and othertermination type claims and obligations, or any other amounts required to be paid by statute orlaw; nor shall Agent become liable under any employment agreement or be deemed a joint or successoremployer with respect to such employees. Agent shall comply in the conduct of the Sale with allapplicable laws and Merchant’s employee rules, regulations, guidelines and policies which have beenprovided to Agent in writing. Merchant shall not, without the prior consent of Agent, raise thesalary or wages or increase the benefits for, or pay any bonuses or other extraordinary paymentsto, any Store employees prior to the Sale Termination Date. Merchant shall not transfer anyRetained Employee during the Sale Term without Agent’s prior consent, which consent shall not beunreasonably withheld or delayed.     9.2 Termination of Employees. Agent may in its discretion stop using any RetainedEmployee at any time during the Sale, subject to the conditions provided for herein. In the eventthat 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 anemployee “for cause” (which shall consist of dishonesty, fraud or breach of employee duties), theseven (7) day notice period shall not apply, providedfurther, however,that Agent shall immediately notify Merchant of the basis for such “cause” so that Merchant canarrange for termination of such employee. From and after the date of this Agreement and until theSale 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 toterminate the
 

 
actual employment of any Retained Employee, but rather may only cease using such employee inthe Sale and paying any Expenses with respect to such employee.     9.3 Payroll Matters. During the Sale Term, Merchant shall process the base payrollfor all Retained Employees as well as payroll for any of Merchant’s former employees or temporarylabor retained by Agent for the Sale. Each Wednesday (or such other date as may be reasonablyrequested by Merchant to permit the funding of the payroll accounts before such payroll is due andpayable) during the Sale Term, Merchant shall transfer, or, to the extent that the Payment Date haspassed or existence of any shortfall, Agent shall transfer, to Merchant’s payroll accounts anamount 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 whichno benefits shall be payable), up to a maximum of ten percent (10%) of base payroll for allRetained Employees, to such Retained Employees who do not voluntarily leave employment and are notterminated “for cause,” as it may determine in its discretion. The amount of such RetentionBonuses shall be in an amount to be determined by Agent, in its discretion, and shall be payablewithin thirty (30) days after the Sale Termination Date, and shall be processed through Merchant’spayroll system. Agent shall provide Merchant with a copy of Agent’s Retention Bonus plan prior tothe Sale Commencement Date.     Section 10. Conditions Precedent and Subsequent. The willingness of Agent andMerchant to enter into the transactions contemplated under this Agreement is directly conditionedupon the satisfaction of the following conditions at the time or during the time periods indicated,unless specifically waived in writing by the applicable party:     (a) All representations and warranties of Merchant and Agent hereunder shall be true andcorrect in all material respects and no Event of Default shall have occurred at and as of the datehereof 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 TerminationDate for such Store.     Section 11. Representations, Warranties and Covenants.     11.1 Merchant’s Representations, Warranties and Covenants. Merchant herebyrepresents, warrants and covenants in favor of Agent as follows:          (a) each entity comprising Merchant (i) is a corporation duly organized, validly existing andin good standing under the laws of the state or province of its formation (except as may be aresult of the commencement and/or pendency of the Merchant’s Chapter 11 Cases); (ii) subject tocompliance 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 presentlyconducted; and (iii) is, and during the Sale Term will continue to be, duly authorized andqualified to do business and in good standing in each jurisdiction where the nature of its businessor properties requires such qualification, including all jurisdictions in which the Stores arelocated, except, in each case, to the extent that the failure to be in good standing or soqualified could not reasonably be expected to have a material adverse effect on the ability ofMerchant 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) theMerchant has the right, power and authority to execute and deliver this Agreement and each otherdocument and agreement contemplated hereby (collectively, together with this Agreement, the“Agency Documents”) and to perform fully its obligations thereunder; (ii) Merchant hastaken all necessary actions required to authorize the execution, delivery and performance of theAgency Documents, and no further consent or approval is required for Merchant to enter into anddeliver 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 tohave a material adverse effect on the ability of Merchant to execute and deliver this Agreement andperform fully its obligations hereunder; and (iii) each of the Agency Documents has been dulyexecuted and delivered by Merchant and constitutes the legal, valid and binding obligation ofMerchant enforceable in accordance with its terms.          (c) Merchant owns, and will own at all times during the Sale Term, good and marketable titleto all of the Merchandise and Owned FF&E (such Owned FF&E being identified in Exhibit11.1(c)) to be included in the Sale, free and clear of all liens, claims and encumbrances ofany nature, other than the liens listed on Exhibit 11.1(c)(i),any applicablestatutory liens, and any super-priority liens, claims or encumbrances approved by Bankruptcy Codein 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 orwith respect to any of the Merchandise, the Owned FF&E or the Proceeds other than as provided forherein (including those listed on Exhibit 11.1(c)(i)). Any Approval Order shall providethat all such liens shall be transferred to and attach only to the Guaranteed Amount or otheramounts payable to Merchant hereunder.          (d) Merchant has maintained its pricing files in the ordinary course of business (includingthe Perpetual File), and prices charged to the public for goods are the same in all materialrespects as set forth in such pricing files (including Perpetual File) for the periods indicatedtherein (without consideration of any point of sale markdowns where the point of sale markdown isreflected in the price files (including Perpetual File)), and all pricing files (includingPerpetual File)and records are true and accurate in all material respects as to the actual cost toMerchant for purchasing the goods referred to therein, the costs related thereto and as to theselling 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 Taxesand (ii) all registers located at the Stores are programmed to correctly compute materially allSales Taxes required to be paid by the customer under applicable law, as such calculations havebeen identified to Merchant by its retained service provider.
 

 
          (e) Except with respect to Merchant’s termination of point of sale events prior to the SaleCommencement Date in the manner previously disclosed to Agent, to its knowledge Merchant has notmarked up or raised, and shall not up to the Sale Commencement Date mark up or raise, the price ofany items of Merchandise, or removed or altered any tickets or any indicia of clearancemerchandise, except in the ordinary course of business and except for the effects of thetermination of promotional events.          (f) Through the Sale Commencement Date, Merchant shall use reasonable efforts to ticket ormark all items of inventory received at the Stores prior to the Sale Commencement in a mannerconsistent with similar Merchandise located at the Stores and in accordance with Merchant’sordinary 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 ExcludedDefective Merchandise outside the ordinary course except for the transfer of Distribution CenterInventory, provided that, since June 19, 2011, Merchant has not, and through the completion of theInventory Taking, Merchant shall not transfer to or from the Stores any Return to Vendor Inventoryunless Agent has agreed to such transfers. Merchant’s replenishment has not and will not beconsistent 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 afterJuly 19, 2011, Merchant shall discontinue issuing new orders for replenishment for the Stores.          (h) To the best of Merchant’s knowledge, all Merchandise is in compliance with all applicablefederal, state or local product safety laws, rules and standards. Merchant shall use reasonableefforts to provide Agent with its historic policies and practices, if any, regarding productrecalls prior to the Sale Commencement Date.          (i) Subject to the provisions of the Approval Order, throughout the Sale Term, the Agent shallhave the right to the unencumbered use and occupancy of, and peaceful and quiet possession of, eachof the Stores, the assets currently located at the Stores and the utilities and other servicesprovided at the Stores. Throughout the Sale Term and subject to Agent complying with itsobligations 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 Leaseand occupancy agreements to maintain, in good working order, condition and repair all cashregisters, heating systems, air conditioning systems, elevators, escalators and all othermechanical devices, but solely to the extent that the Merchant reasonably deems necessary for theSale to be conducted without material interruption and in a manner that is safe and in compliancewith applicable laws at the Stores; provided that, it is understood that the maintenance ofcash registers, heating systems, air conditioning systems, elevators, and escalators are necessaryfor the Sale to be conducted without material interruption. Except as may be impacted by theChapter 11 Case filing or otherwise restricted by the Chapter 11 Case filing or as otherwiseprovided in this Agreement, and absent a bona fide dispute, throughout the
 

 
Sale Term, Merchant shall remain current on all expenses and payables necessary for theconduct of the Sale.          (j) Except as may be impacted by the Chapter 11 Case filing or otherwise restricted by theChapter 11 Case filing, Merchant had paid, and will continue to pay throughout the Sale Term, allself-insured or Merchant funded employee benefit programs for Store employees, including health andmedical benefits and insurance and all proper claims made or to be made in accordance with suchprogram.          (k) Since June 19, 2011, Merchant has not intentionally taken, and shall not throughout theSale 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 remainin Merchant’s employ, Merchant increased the salaries of such employees (such action not being withany intent to increase any Expense of the Sale or in anticipation thereof); and (ii) to the extentan employee was due an annual raise.          (l) Except as may be impacted by the filing for Chapter 11 protection or otherwise restrictedby the Chapter 11 filing, Merchant covenants to continue to operate the Stores in all materialrespects in the ordinary course of business from the date of this Agreement to the SaleCommencement Date by: (i) selling inventory during such period at customary prices consistent withthe 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 thedate of this Agreement and/or Merchant’s promotions for the period through the Sale CommencementDate, as reflected on Exhibit 11.1(l)); (iii) except as may occur in the ordinary course ofbusiness or as may be required by applicable law, not returning inventory to vendors and nottransferring inventory or supplies between or among Stores; and (iv) except as may occur in theordinary course of business, not making any management personnel moves or changes at the Storeswithout prior written notice to and consultation with (but not approval of) Agent.          (m) The aggregate Cost Value of the Merchandise as a percentage of the aggregate Retail Priceof the Merchandise (as determined in accordance with Sections 5.1 and 5.3) (the “CostFactor”) shall not be greater than 51.1% (the “Cost Factor Threshold”). To the extentthat the actual Cost Factor for the Merchandise is greater than the Cost Factor Threshold, thensuch deviation shall not constitute a breach of any representation or warranty, or an Event ofDefault; provided, however, that, then the Guaranty Percentage shall adjust (inaddition to any adjustment applicable pursuant to section 3.1(c) hereof) in accordance withExhibit 11.1(m). For the purposes of this Agreement, “Retail Price” means thelower of (i) the lowest ticketed, marked or shelf price, (ii) the current selling price for suchitem of Merchandise, excluding in each instance Excluded Price Adjustments or (iii) the currentretail or aged price, as applicable, for each item of Merchandise, as reflected in the Merchant’sPerpetual File. If an item of Merchandise has more than one ticketed price, or if multiple itemsof the same SKU are ticketed at different prices, or have a different PLU price, and such pricingdoes not otherwise qualify as an Excluded Price Adjustment, the lowest ticketed, marked or PLUprice on any such item shall prevail for such item or for all such items within the same SKU, asthe 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 Pricewas mismarked or such item was priced because it was damaged or marked as “as is,” in which casethe higher price shall control; provided, however, in determining the LowestLocation Price with respect to any item of Merchandise at a Store, the Lowest Location Price shallbe determined based upon the lowest ticketed, marked or PLU price for such item on a per Storebasis. 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 theaggregate Retail Price of the Merchandise.          (n) To the best of Merchant’s knowledge, all documents, written information and supplementsprovided by Merchant to Agent in connection with Agent’s due diligence and the negotiation of thisAgreement 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 anyExcluded Defective Merchandise from the Distribution Centers to the Stores. Merchant will not shipany Excluded Defective Merchandise from the date of this Agreement from the Distribution Centers tothe 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 theStores without Agent’s consent other than ordinary course replenishment, provided that, Merchanthas not, and through the completion of the Inventory Taking, Merchant shall not transfer to or fromthe Stores any Return to Vendor Inventory unless Agent has agreed to such transfers.     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 casemay be) duly and validly existing and in good standing under the laws of the State of itsorganization; and (ii) has all requisite power and authority to carry on its business as presentlyconducted and to consummate the transactions contemplated hereby.          (b) Agent has the right, power and authority to execute and deliver each of the AgencyDocuments to which it is a party and to perform fully its obligations thereunder. Agent has takenall necessary actions required to authorize the execution, delivery and performance of the AgencyDocuments, and no further consent or approval is required on the part of Agent for Agent to enterinto and deliver the Agency Documents, to perform its obligations thereunder and to consummate theSale. Each of the Agency Documents has been duly executed and delivered by the Agent andconstitutes the legal, valid and binding obligation of Agent enforceable in accordance with itsterms. No court order or decree of any federal, state or local governmental authority orregulatory body is in effect that would prevent or impair, or is required for, Agent’s consummationof 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 bywhich Agent is otherwise bound will prevent or impair the consummation of the transactionscontemplated by this Agreement.          (c) No action, arbitration, suit, notice or legal administrative or other proceeding beforeany court or governmental body has been instituted by or against Agent, or has been settled orresolved or, to Agent’s knowledge, has been threatened against or affects Agent, which questionsthe validity of this Agreement or any action taken or to be taken by Agent in connection with thisAgreement or which, if adversely determined, would have a material adverse effect upon Agent’sability to perform its obligations under this Agreement.          (d) The Sale shall be conducted in compliance with all applicable state and local laws, rulesand regulations and Merchant’s leases and other agreements, except as provided for in the SaleGuidelines and Approval Order.          (e) Absent prior consent by the Merchant, Agent will not cause any non-emergency repairs ormaintenance (emergency repairs are repairs necessary to preserve the security of a premise or toensure customer safety) to be conducted at the Stores.          (f) To the best of Agent’s knowledge, all Additional Agent Merchandise is in compliance withall applicable federal, state or local product safety laws, rules and standards. All AdditionalAgent Merchandise shall be non-book merchandise of like kind and no lesser quality to theMerchandise located in the Stores.  Section 12. Insurance.     12.1 Merchant’s Liability Insurance. Merchant shall continue until the SaleTermination Date, at Agent’s cost as an Occupancy Expense hereunder and in such amounts as itcurrently has in effect, all of its liability insurance policies covering injuries to persons andproperty in, or in connection with, Merchant’s operation of the Stores and shall endeavor to causeAgent to be named as an additional named insured (as its interest may appear) with respect to allsuch policies. Merchant shall deliver to Agent certificates evidencing such insurance settingforth the duration thereof and naming Agent as an additional named insured, in form reasonablysatisfactory to Agent. All such policies shall require at least thirty (30) days’ prior notice toAgent of cancellation, non-renewal or material change during the Sale Term. In the event of aclaim 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 OccupancyExpense), unless it is determined that liability arose by reason of the wrongful acts or omissionsor negligence of Agent, or Agent’s employees, independent contractors or agents (includingMerchant’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 coveragecasualty insurance covering the Merchandise in a total amount equal to no less than the retailvalue 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 insuranceamounts and the amount of any deductible or self-insured retention (which amounts shall be paid byAgent as an Expense), shall constitute Proceeds hereunder. Merchant shall deliver to Agentcertificates evidencing such insurance, setting forth the duration thereof, in form and substancereasonably satisfactory to Agent. All such policies shall require at least thirty (30) days’ priornotice to the Agent of cancellation, non-renewal or material change during the Sale Term. Merchantshall not make any change in the amount of any deductibles or self insurance amounts prior to theSale Termination Date without Agent’s prior written consent.     12.3 Agent’s Insurance. Agent shall maintain as an Expense hereunder throughout theSale Term, in such amounts as it currently has in effect and as set forth in Exhibit 12.3hereto, comprehensive public liability insurance policies covering injuries to persons and propertyin or in connection with Agent’s agency at the Stores, and shall cause Merchant and GECC to benamed as additional insureds and loss payees with respect to such policies. Agent shall deliver toMerchant certificates evidencing such insurance policies setting forth the duration thereof andnaming 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 alldeductibles, retentions or self-insured amounts thereunder, unless it is determined that liabilityarose by reason of the wrongful acts or omissions or negligence of Merchant or Merchant’sindependent contractors or agents, other than Agent or Agent’s employees, agents or independentcontractors (including Merchant’s employees under Agent’s supervision). All such policies shallrequire at least thirty (30) days’ prior notice to the Merchant of cancellation, non-renewal ormaterial change during the Sale Term. Agent shall not make any change in the amount of anydeductibles or self insurance amounts prior to the Sale Termination Date without Merchant’s priorwritten consent.     12.4 Worker’s Compensation Insurance. Merchant shall at all times during the SaleTerm maintain in full force and effect workers’ compensation insurance (including employerliability insurance) covering all Retained Employees in compliance with all statutory requirementsand subject to approval of the Bankruptcy Court.     Section 13. Indemnification     13.1 Merchant Indemnification. Merchant shall indemnify and hold Agent and itsofficers, directors, employees, agents and independent contractors (collectively, “AgentIndemnified 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 materialbreach of or failure to comply with any of its agreements, covenants, representations or warrantiescontained in any Agency Document; (ii) subject to Agent’s satisfaction of its obligations pursuantto 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’scompliance with its obligations under Section 8.3 hereof, any failure by Merchant to pay any SalesTaxes to the proper taxing authorities or to properly file with any taxing authorities any reportsor documents required by applicable law to be filed in respect thereof; (iv) any liability or otherclaims asserted by customers, any of Merchant’s employees, or in connection with the performanceof the terms
 

 
of this Agreement any other person against any Agent Indemnified Party (including, withoutlimitation, claims by employees arising under collective bargaining agreements, worker’scompensation or under the WARN Act); or (v) the gross negligence (including omissions) or willfulmisconduct 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’ feesand expenses, directly or indirectly asserted against, resulting from, or related to: (i) Agent’smaterial breach of or failure to comply with any of its agreements, covenants, representations orwarranties contained in any Agency Document; (ii) any claims by any party engaged by Agent as anemployee, agent, representative or independent contractor arising out of such engagement; (iii) anyharassment or any other unlawful, tortious or otherwise actionable treatment of any of theMerchant’s employees or agents by Agent or any of its employees, agents, representatives orindependent 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 obligationshereunder if such failure remains uncured seven (7) days after receipt of written notice thereof tothe defaulting party;          (b) Any representation or warranty made by Merchant or Agent proves untrue in any materialrespect as of the date made and, to the extent curable, continues uncured seven (7) days afterwritten 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 authorizedunder the Agency Agreement; providedhowever, it is expressly understood thatMerchant’s conduct of “going out of business”, “store closing”, “total liquidation”, “everythingmust go”, or similar themed sales at stores other than the Stores (the “Other StoreClosings”) during a period that overlaps with the Sale Term shall not be deemed an Event ofDefault, or a material interruption of impairment of the Sale or this Agreement and Agentacknowledges that it has no remedies under this Agreement in connection with, or a result of, suchOther Store Closings.     In the event of an Event of Default, the non-defaulting party may, in its discretion, elect toterminate 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 shallbe determined by the Bankruptcy Court.
 

 
     Section 15. Miscellaneous.     15.1 Notices. All notices and communications provided for pursuant to this Agreementshall be in writing and sent (i) by email and (ii) by hand, by facsimile or by Federal Express orother recognized overnight delivery service, as follows (with Merchant and Agent to receive allnotices regardless of their origin):          If to the Agent: HILCO MERCHANT RESOURCES, LLC5 Revere Drive, Suite 206Northbrook, IL 60062Attn: Joseph MalfitanoTel: (847) 504-3257Fax: (847) 897-0868Email: jmalfitano@hilcotrading.comSB CAPITAL GROUP, LLC1010 Northern Blvd, Suite 340Great Neck, NY 11021Attn: Robert RaskinTel: (516) 829-2400Fax: (516) 829-2404Email: rraskin@sbcapitalgroup.comTIGER CAPITAL GROUP, LLC84 State Street, Suite 420Boston, MA 02109Attn: Steve Goldberger           Dan KaneTel: (617) 523-7002Fax: (617) 523-3007Email: sgoldberger@tigergroupllc.comdkane@tigergroupllc.comGORDON BROTHERS RETAIL PARTNERS, LLC101 Huntington Avenue, 10th Fl.Boston, MA 02199Attn: Michael ChartockTel: (617) 523-7002Fax: (617) 523-3007Email: MChartock@gordonbrothers.comGREAT AMERICAN GROUP, LLCNine Parkway North, Suite 300Deerfield, IL 60015Attn.: Mark P. Naughton
 

 
  Tel: (847) 444-1400Fax: (847) 444-1401Email: mnaughton@greatamerican.com            With a copy to: WEIL GOTSHAL & MANGES LLP767 Fifth AvenueNew York, NY 10153Attn: Joseph SmolinskyTel: (212) 310-8000Fax: (212) 310- 8007Email: Joseph.Smolinsky@weil.com            If to the Merchant: BORDERS GROUP INC.100 Phoenix DriveAnn Arbor, MI 48108Attn: Matt ChosidFax: (734) 477-1370Email: mchosid1@bordersgroupinc.com            With a copy to: KASOWITZ, BENSON, TORRES & FRIEDMAN LLP1633 BroadwayNew York, NY 10019Attn: Andrew K. Glenn, Esq.           Barry Rutcofsky, Esq.           Daniel A. Fliman, Esq.Tel: (212) 506-1700Fax: (212) 506-1800Email: aglenn@kasowitz.com           brutcofsky@kasowitz.commailto:ashiff@kasowitz.com           dfliman@kasowitz.com            If to GECC: GE CAPITALCorporate Retail Finance500 West Monroe Street10th FloorChicago, IL 60661-3679 USAAttn: Kristina M. Miller           Senior Vice PresidentTel: (312) 463-2257Fax: (312) 441-6817Mob: (219) 680-0779Email: KristinaMMiller@ge.comwww.gelending.com
 

 
          With a copy to: GENERAL ELECTRIC CAPITAL CORPORATION201 Merritt 7PO Box 5201Norwalk, CT 06851Attn: Borders/John PistocchiFax: (203) 956-4002            If to GA: GA CapitalOne Post Office SquareSuite 3765Boston, MA 02109Attention: David Storer, DirectorTel: 617 692-8303Email: dstorer@greatamerican.com            With a copy to: Kevin J. SimardChoate, Hall & Stewart LLPTwo International PlaceBoston, MA 02110Tel: 617 248-4086Fax: 617 502-4086Email: ksimard@choate.com     15.2 Governing Law. This Agreement shall be governed and construed in accordance withthe laws of New York without regard to conflicts of laws principles thereof, except where governedby the Bankruptcy Code. Each of the parties hereto irrevocably and unconditionally submits, foritself and its properties, to the exclusive jurisdiction of the Bankruptcy Court, in any action orproceeding arising out of or relating to this Agreement.     15.3 Entire Agreement. This Agreement contains the entire agreement between theparties hereto with respect to the transactions contemplated hereby and supersedes and cancels allprior agreements, including, but not limited to, all proposals, letters of intent orrepresentations, written or oral, with respect thereto.     15.4 Amendments. This Agreement may not be modified except in a written instrumentexecuted 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 anybreach or default by the other in the performance of its obligations hereunder shall be deemed orconstrued to be a consent or waiver to or of any other breach or default in the performance by suchother party of the same or any other obligation of such party. Failure on the part of any party tocomplain 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 bysuch party of its rights hereunder.     15.6 Successors and Assigns. This Agreement shall inure to the benefit of and bebinding 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 writtenconsent of the other.     15.7 Execution in Counterparts. This Agreement may be executed in two or morecounterparts, each of which shall be deemed an original but all of which together shall constitutebut 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 forconvenience only and shall not be considered for the purpose of determining the meaning or legaleffect of any provisions hereof.     15.9 FF&E. With respect to furniture, fixtures and equipment owned by Merchant andlocated at the Stores (collectively, the “Agent Sale FF&E”), Agent shall sell the Agent Sale FF&Eand shall retain all proceeds therefrom. In consideration thereof, Agent shall: (i) pay Merchanton the Payment Date ten million three hundred thousand dollars $10,300,000 (the “Agent Sale FF&EGuarantee”); and (ii) pay the selling and marketing expenses determined by Agent to be reasonablynecessary to sell the Agent Sale FF&E (which for purposes of the avoidance of doubt shall notinclude any occupancy or occupancy-related expenses associated with the Distribution Center and/orMerchant’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 theStores in the manner set forth in Section 6.2 hereof.     Agent shall sell FF&E owned by Merchant located at the Distribution Centers (excluding theCarlisle, 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 ofCorporate 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 expensesincurred in connection with the disposition of the Corporate FF&E in accordance with a budget to bemutually agreed upon between Merchant and Agent (in consultation with GA with copies to be providedto GECC). As of the Sale Termination Date, Agent may abandon in place any FF&E located at theDistribution Centers and any FF&E located in the Merchant’s corporate office in a neat and orderlymanner. All proceeds from the disposition of the Corporate FF&E shall be deposited in a segregatedaccount designated solely for the deposit of the proceeds from the Corporate FF&E which shall be aMerchant’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 thesale 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 reasonablyrequests. The Agent will maintain and provide to Merchant and GECC sales records to permitcalculation of and compliance with any percentage of rent obligations under Store leases. Duringthe course of the Sale, Merchant and GECC shall have the right to have representatives continuallyact as observers of the Sale in the Stores, so long as they do not interfere with the conduct ofthe Sale.     15.11 Agent. All references to “Agent” hereunder shall mean a joint venturecomposed of Hilco Merchant Resources, LLC, SB Capital Group, LLC, Gordon Brothers Retail Partners,LLC, Tiger Capital Group, LLC and Great American Group, LLC.     Section 16. Security Interest. In consideration of Agent’s payment of the GuaranteedAmount Deposit, Expenses, Agent Sale FF&E Guarantee and the provision of services hereunder toMerchant, upon issuance of the Letter of Credit and effective as of the Payment Date, Merchanthereby grants to Agent a valid and perfected first priority security interest in and lien (subjectto the subordination provisions set forth herein below) upon (i) the Merchandise, (ii) Books inStorage, (iii) Additional Agent Merchandise and the proceeds thereof, (iv) Agent Sale FF&E and theproceeds realized from the disposition of the Agent Sale FF&E, (v) proceeds realized from thedisposition of the Corporate FF&E up to the amount of the Agent’s disposition commission related toCorporate FF&E as provided for in Section 15.9 and (vi) the Proceeds, to secure all obligations ofMerchant to Agent hereunder, provided, however, that the security interest grantedto Agent hereunder shall remain junior and subordinate in all respects to (a) Merchant’s rights toreceive payment of the Guaranteed Amount, Agent Sale FF&E Guarantee and, Expenses and any otherundisputed amounts due from Agent to Merchant hereunder (collectively, the “Agent’s PaymentObligations”), and (b) the liens, security interests and claims of the GECC and the Lenders, tothe extent of the unpaid portion of Agent’s Payment Obligations. Upon the entry of the ApprovalOrder and upon payment of the Guaranteed Amount Deposit and Agent Sale FF&E Guarantee pursuant toSection 3.3(a) hereof, and the issuance of the Letter of Credit, the security interest granted tothe Agent hereunder shall be deemed properly perfected without the necessity of filing financingstatements or other documentation.     Section 17. Lenders Rights. Any rights or remedies accorded to GECC or GA herein shall existonly so long as the DIP Facility has not been indefeasibly paid in full in cash.[Signature Pages Follow]
 

 
IN WITNESS WHEREOF, the Agent and Merchant hereby execute this Agreement by their duly