Document:

exv10w1

 

Exhibit
10.1

SENIOR SECURED CREDIT AGREEMENT

Dated as of April 9, 2008

among

BORDERS GROUP, INC.

As Borrower

THE GUARANTORS LISTED HEREUNDER

and

THE LENDERS LISTED HEREUNDER

and

PERSHING SQUARE CAPITAL MANAGEMENT, L.P.

As Administrative Agent

and

As Collateral Agent

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 	 	 
	1.	 	DEFINITIONS, RULES OF INTERPRETATION, ETC.	 	 	1	 
	 
	 	1.1.	 	Definitions	 	 	1	 
	 
	 	1.2.	 	Rules of Interpretation	 	 	16	 
	 
	 	1.3.	 	Accounting Principles	 	 	17	 
	 
	 	 	 	 	 	 	 	 
	2.	 	THE TERM LOAN FACILITY	 	 	18	 
	 
	 	2.1.	 	Loan Commitment	 	 	18	 
	 
	 	 	 	2.1.1.   Term Loan Facility	 	 	18	 
	 
	 	 	 	2.1.2.   Notice of Borrowing	 	 	18	 
	 
	 	 	 	2.1.3.   Deposit of Commitment Amount	 	 	18	 
	 
	 	 	 	2.1.4.   Lending Obligation	 	 	18	 
	 
	 	 	 	2.1.5.   Payment at Maturity	 	 	18	 
	 
	 	2.2.	 	Premiums	 	 	18	 
	 
	 	 	 	2.2.1.   Closing Discount	 	 	18	 
	 
	 	 	 	2.2.2.   Repayment Premium	 	 	19	 
	 
	 	2.3.	 	Evidence of Loan Obligations	 	 	19	 
	 
	 	 	 	2.3.1.   Notes	 	 	19	 
	 
	 	 	 	2.3.2.   Delivery of Notes	 	 	19	 
	 
	 	2.4.	 	Interest on Loans	 	 	19	 
	 
	 	 	 	2.4.1.   Interest on Loans	 	 	19	 
	 
	 	 	 	2.4.2.   Maximum Interest	 	 	19	 
	 
	 	2.5.	 	Allocation	 	 	20	 
	 
	 	 	 	 	 	 	 	 
	3.	 	REPAYMENT OF THE LOANS	 	 	20	 
	 
	 	3.1.	 	Maturity	 	 	20	 
	 
	 	3.2.	 	Voluntary Prepayments	 	 	21	 
	 
	 	3.3.	 	Mandatory Prepayments	 	 	21	 
	 
	 	3.4.	 	Application of Proceeds	 	 	21	 
	 
	 	 	 	 	 	 	 	 
	4.	 	CERTAIN GENERAL PROVISIONS	 	 	21	 
	 
	 	4.1.	 	Funds for Payments	 	 	21	 
	 
	 	 	 	4.1.1.   Payments to Administrative Agent	 	 	21	 
	 
	 	 	 	4.1.2.   No Offset, etc	 	 	21	 
	 
	 	 	 	4.1.3.   Non-U.S. Lenders	 	 	22	 
	 
	 	4.2.	 	Computations	 	 	23	 
	 
	 	4.3.	 	Additional Costs, etc	 	 	23	 
	 
	 	4.4.	 	Capital Adequacy	 	 	24	 
	 
	 	4.5.	 	Certificate	 	 	25	 
	 
	 	4.6.	 	Interest After Default	 	 	25	 
	 
	 	 	 	4.6.1.   Overdue Amounts	 	 	25	 
	 
	 	 	 	4.6.2.   Amounts Not Overdue	 	 	25	 
	 
	 	4.7.	 	Replacement of Lenders	 	 	25	 

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	5.	 	GUARANTY AND COLLATERAL SECURITY	 	 	26	 
	 
	 	5.1.	 	Guaranty of Payment and Performance	 	 	26	 
	 
	 	5.2.	 	Guaranty Absolute	 	 	26	 
	 
	 	5.3.	 	Effectiveness, Enforcement	 	 	28	 
	 
	 	5.4.	 	Waiver	 	 	28	 
	 
	 	5.5.	 	Subordination; Subrogation	 	 	28	 
	 
	 	5.6.	 	Payments	 	 	29	 
	 
	 	5.7.	 	Setoff	 	 	29	 
	 
	 	5.8.	 	Further Assurances	 	 	30	 
	 
	 	5.9.	 	Successors and Assigns	 	 	30	 
	 
	 	5.10.	 	Contribution	 	 	30	 
	 
	 	5.11.	 	Security of Borrower	 	 	30	 
	 
	 	 	 	 	 	 	 	 
	6.	 	REPRESENTATIONS AND WARRANTIES	 	 	31	 
	 
	 	6.1.	 	Corporate Authority	 	 	31	 
	 
	 	 	 	6.1.1.   Incorporation; Good Standing	 	 	31	 
	 
	 	 	 	6.1.2.   Authorization	 	 	31	 
	 
	 	 	 	6.1.3.   Enforceability	 	 	31	 
	 
	 	6.2.	 	Governmental Approvals	 	 	31	 
	 
	 	6.3.	 	Title to Properties; Leases	 	 	32	 
	 
	 	6.4.	 	Fiscal Year; Financial Statements and Projections	 	 	32	 
	 
	 	 	 	6.4.1.   Fiscal Year	 	 	32	 
	 
	 	 	 	6.4.2.   Financial Statements	 	 	32	 
	 
	 	 	 	6.4.3.   Projections	 	 	32	 
	 
	 	6.5.	 	No Material Adverse Effect, Etc	 	 	33	 
	 
	 	6.6.	 	Intellectual Property	 	 	33	 
	 
	 	 	 	6.6.1.   Franchises, Patents, Copyrights, Etc	 	 	33	 
	 
	 	 	 	6.6.2.   Paperchase Companies Intellectual Property	 	 	33	 
	 
	 	6.7.	 	Litigation	 	 	33	 
	 
	 	6.8.	 	No Materially Adverse Contracts, Etc	 	 	33	 
	 
	 	6.9.	 	Compliance With Other Instruments, Laws, etc	 	 	34	 
	 
	 	6.10.	 	Tax Status	 	 	34	 
	 
	 	6.11.	 	No Event of Default	 	 	34	 
	 
	 	6.12.	 	Holding Company and Investment Company Acts	 	 	34	 
	 
	 	6.13.	 	Certain Transactions	 	 	34	 
	 
	 	6.14.	 	Employee Benefit Plans	 	 	34	 
	 
	 	 	 	6.14.1.   In General	 	 	34	 
	 
	 	 	 	6.14.2.   Terminability of Welfare Plans	 	 	35	 
	 
	 	 	 	6.14.3.   Guaranteed Pension Plans	 	 	35	 
	 
	 	 	 	6.14.4.   Multiemployer Plans	 	 	35	 
	 
	 	6.15.	 	Use of Proceeds	 	 	36	 
	 
	 	6.16.	 	Environmental Compliance	 	 	36	 
	 
	 	6.17.	 	Subsidiaries	 	 	37	 
	 
	 	6.18.	 	No Other Guarantors	 	 	38	 
	 
	 	6.19.	 	Disclosure	 	 	38	 
	 
	 	6.20.	 	Senior Debt Status	 	 	38	 
	 
	 	6.21.	 	Solvency	 	 	38	 

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	 	6.22.	 	Updates to Schedules	 	 	38	 
	 
	 	6.23.	 	Insurance	 	 	39	 
	 
	 	6.24.	 	Perfection of Security Interest	 	 	39	 
	 
	 	6.25.	 	Foreign Assets Control Regulations, Etc	 	 	39	 
	 
	 	6.26.	 	No Additional Issuances	 	 	39	 
	 
	 	6.27.	 	No Amendments	 	 	39	 
	 
	 	6.28.	 	Existing Indebtedness	 	 	40	 
	 
	 	 	 	 	 	 	 	 
	7.	 	AFFIRMATIVE COVENANTS	 	 	40	 
	 
	 	7.1.	 	Punctual Payment	 	 	40	 
	 
	 	7.2.	 	Maintenance of Office	 	 	40	 
	 
	 	7.3.	 	Records and Accounts	 	 	40	 
	 
	 	7.4.	 	Financial Statements, Certificates and Information	 	 	40	 
	 
	 	7.5.	 	Notices	 	 	42	 
	 
	 	 	 	7.5.1.   Defaults	 	 	42	 
	 
	 	 	 	7.5.2.   Environmental Events	 	 	42	 
	 
	 	 	 	7.5.3.   Notice of Litigation, Judgments and Claims Against Assets	 	 	42	 
	 
	 	 	 	7.5.4.   Notice Regarding Certain Events	 	 	43	 
	 
	 	 	 	7.5.5.   Notices Regarding Existing Credit Agreement	 	 	43	 
	 
	 	7.6.	 	Legal Existence; Maintenance of Properties	 	 	43	 
	 
	 	7.7.	 	Taxes	 	 	44	 
	 
	 	7.8.	 	Compliance with Laws, Contracts, Licenses, and Permits	 	 	44	 
	 
	 	7.9.	 	Employee Benefit Plans	 	 	44	 
	 
	 	7.10.	 	Use of Proceeds	 	 	45	 
	 
	 	7.11.	 	Subsidiary Guaranties	 	 	45	 
	 
	 	7.12.	 	Further Assurances	 	 	45	 
	 
	 	7.13.	 	Paperchase Companies as Separate Entities	 	 	45	 
	 
	 	7.14.	 	Permitted Restructuring Transactions	 	 	45	 
	 
	 	 	 	 	 	 	 	 
	8.	 	CERTAIN NEGATIVE COVENANTS	 	 	45	 
	 
	 	8.1.	 	Restrictions on Indebtedness	 	 	45	 
	 
	 	8.2.	 	Restrictions on Liens	 	 	46	 
	 
	 	8.3.	 	Restrictions on Investments	 	 	49	 
	 
	 	8.4.	 	Restricted Payments	 	 	51	 
	 
	 	8.5.	 	Merger, Consolidation, Disposition of Assets and Sale Leaseback Transactions	 	 	51	 
	 
	 	 	 	8.5.1.   Mergers and Consolidations	 	 	52	 
	 
	 	 	 	8.5.2.   Disposition of Assets	 	 	52	 
	 
	 	8.6.	 	Acquisitions	 	 	54	 
	 
	 	8.7.	 	Compliance with Environmental Laws	 	 	55	 
	 
	 	8.8.	 	Employee Benefit Plans	 	 	55	 
	 
	 	8.9.	 	Business Activities	 	 	56	 
	 
	 	8.10.	 	Fiscal Year	 	 	56	 
	 
	 	8.11.	 	Transactions with Affiliates	 	 	56	 
	 
	 	8.12.	 	Changes in Governing Documents	 	 	57	 
	 
	 	8.13.	 	Inconsistent Agreements	 	 	57	 
	 
	 	8.14.	 	Additional Paperchase Companies Covenants	 	 	57	 

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	 	8.15.	 	Permitted Restructuring Transactions	 	 	58	 
	 
	 	 	 	 	 	 	 	 
	9.	 	CLOSING CONDITIONS.	 	 	58	 
	 
	 	9.1.	 	Loan Documents	 	 	58	 
	 
	 	9.2.	 	Certified Copies of Governing Documents	 	 	58	 
	 
	 	9.3.	 	Corporate or Other Action	 	 	58	 
	 
	 	9.4.	 	Incumbency Certificate	 	 	59	 
	 
	 	9.5.	 	UCC Search Results	 	 	59	 
	 
	 	9.6.	 	Solvency Certificate	 	 	59	 
	 
	 	9.7.	 	Opinion of Counsel	 	 	59	 
	 
	 	9.8.	 	Payment of Premium and Expenses	 	 	59	 
	 
	 	9.9.	 	Disbursement Instructions	 	 	59	 
	 
	 	9.10.	 	Validity of Liens	 	 	59	 
	 
	 	9.11.	 	Consents and Approvals	 	 	60	 
	 
	 	9.12.	 	Other Transactions	 	 	60	 
	 
	 	9.13.	 	Representations True; No Event of Default	 	 	60	 
	 
	 	9.14.	 	No Legal Impediment	 	 	60	 
	 
	 	9.15.	 	Proceedings and Documents	 	 	60	 
	 
	 	 	 	 	 	 	 	 
	10.	 	[RESERVED]	 	 	61	 
	 
	 	 	 	 	 	 	 	 
	11.	 	EVENTS OF DEFAULT; ACCELERATION; ETC.	 	 	61	 
	 
	 	11.1.	 	Events of Default and Acceleration	 	 	61	 
	 
	 	11.2.	 	Remedies	 	 	64	 
	 
	 	11.3.	 	Distribution of Proceeds	 	 	65	 
	 
	 	 	 	 	 	 	 	 
	12.	 	THE AGENTS.	 	 	65	 
	 
	 	12.1.	 	Authorization	 	 	65	 
	 
	 	12.2.	 	Employees and Agents	 	 	66	 
	 
	 	12.3.	 	No Liability	 	 	67	 
	 
	 	12.4.	 	No Representations	 	 	67	 
	 
	 	 	 	12.4.1.   General	 	 	67	 
	 
	 	 	 	12.4.2.   Closing Documentation, Etc	 	 	68	 
	 
	 	12.5.	 	Payments.	 	 	68	 
	 
	 	 	 	12.5.1.   Payments to Administrative Agent	 	 	68	 
	 
	 	 	 	12.5.2.   Distribution by Administrative Agent	 	 	68	 
	 
	 	 	 	12.5.3.   Delinquent Lenders	 	 	69	 
	 
	 	12.6.	 	Holders of Notes	 	 	69	 
	 
	 	12.7.	 	Indemnity	 	 	69	 
	 
	 	12.8.	 	The Agents as Lenders	 	 	70	 
	 
	 	12.9.	 	Resignation	 	 	70	 
	 
	 	12.10.	 	Notification of Defaults and Events of Default	 	 	70	 
	 
	 	12.11.	 	Administrative Agent May File Proofs of Claim	 	 	70	 
	 
	 	12.12.	 	Duties in the Case of Enforcement	 	 	71	 
	 
	 	12.13.	 	Release of Collateral and Guarantors	 	 	71	 
	 
	 	12.14.	 	Matters Relating to Collateral	 	 	72	 

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	13.	 	SUCCESSORS AND ASSIGNS	 	 	72	 
	 
	 	13.1.	 	General Conditions	 	 	72	 
	 
	 	13.2.	 	Assignments	 	 	72	 
	 
	 	13.3.	 	Register	 	 	73	 
	 
	 	13.4.	 	Participations	 	 	73	 
	 
	 	13.5.	 	Payments to Participants	 	 	74	 
	 
	 	13.6.	 	Miscellaneous Assignment Provisions	 	 	74	 
	 
	 	13.7.	 	New Notes	 	 	74	 
	 
	 	 	 	 	 	 	 	 
	14.	 	PROVISIONS OF GENERAL APPLICATION	 	 	75	 
	 
	 	14.1.	 	Setoff	 	 	75	 
	 
	 	14.2.	 	Expenses	 	 	76	 
	 
	 	14.3.	 	Indemnification	 	 	76	 
	 
	 	14.4.	 	Treatment of Certain Confidential Information	 	 	77	 
	 
	 	 	 	14.4.1.   Confidentiality	 	 	77	 
	 
	 	 	 	14.4.2.   Prior Notification	 	 	78	 
	 
	 	 	 	14.4.3.   Other	 	 	78	 
	 
	 	14.5.	 	Survival of Covenants, Etc	 	 	78	 
	 
	 	14.6.	 	Notices	 	 	78	 
	 
	 	14.7.	 	GOVERNING LAW	 	 	80	 
	 
	 	14.8.	 	Headings	 	 	80	 
	 
	 	14.9.	 	Counterparts	 	 	80	 
	 
	 	14.10.	 	Entire Agreement, Etc	 	 	80	 
	 
	 	14.11.	 	WAIVER OF JURY TRIAL	 	 	80	 
	 
	 	14.12.	 	Consents, Amendments, Waivers, Etc	 	 	81	 
	 
	 	14.13.	 	Severability	 	 	82	 
	 
	 	 	 	 	 	 	 	 
	15.	 	USA PATRIOT ACT NOTICE	 	 	82	 

EXHIBITS

	 	 	 
	Exhibit A

	 	Form of Pledge Agreement
	Exhibit B

	 	Form of Promissory Note
	Exhibit C

	 	Assignment and Acceptance
	Exhibit D

	 	Form of Joinder Agreement

SCHEDULES

	 	 	 
	Schedule 1

	 	Lenders and Commitments
	Schedule 6.3

	 	Title to Properties; Leases
	Schedule 6.5

	 	Restricted Payments
	Schedule 6.6.2

	 	Intellectual Property
	Schedule 6.7

	 	Litigation
	Schedule 6.13

	 	Transactions with Affiliates

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	Schedule 6.16

	 	Environmental Compliance
	Schedule 6.17

	 	Subsidiaries, Etc.
	Schedule 6.23

	 	Insurance
	Schedule 8.1

	 	Existing Indebtedness
	Schedule 8.2

	 	Existing Liens
	Schedule 8.3

	 	Existing Investments

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SENIOR SECURED CREDIT AGREEMENT

          This SENIOR SECURED CREDIT AGREEMENT (this “Credit Agreement”) is made as of April 9, 2008, by
and among (a) BORDERS GROUP, INC. (the “Borrower”), a Michigan corporation, (b) BORDERS, INC., a
Colorado corporation (“Borders”), WALDEN BOOK COMPANY, INC., a Colorado corporation (“Walden”), BGP
(UK) LIMITED, a company with limited liability organized under the laws of England and Wales (“BGP
(UK)”), BORDERS PROPERTIES, INC., a Delaware corporation (“BPI”), BORDERS ONLINE, LLC, a Delaware
limited liability company (“Online”), BORDERS FULFILLMENT, INC., a Delaware corporation
(“Fulfillment”), BORDERS ONLINE, INC., a Colorado corporation (“BOI” and together with Borders,
Walden, BGP(UK), BPI, Online and Fulfillment, the “Guarantors”), (c) Pershing Square Credit
Partners LLC, a Delaware limited liability company (“Pershing Square” or a “Lender) and PSRH, Inc.,
a Cayman Islands exempted company (a “Lender”, and collectively with Pershing Square, the
“Lenders”), (d) Pershing Square Capital Management, L.P., a Delaware limited partnership (“Pershing
Square Capital”), as administrative agent and as collateral agent for itself and the Lenders (in
its capacity as administrative agent, the “Administrative Agent”, and in its capacity as collateral
agent, the “Collateral Agent”).

     WHEREAS, the Borrower has requested that the Lenders make available to it the Commitments, on
the terms and conditions set forth herein, to, among other things, fund transaction costs, working
capital requirements and other general corporate purposes of the Borrower and its Subsidiaries; and

     WHEREAS, the Lenders are willing to make the Loans to the Borrower upon the terms and
conditions set forth herein;

     NOW THEREFORE, in consideration of the premises and the covenants and agreements contained
herein and other good and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:

1. DEFINITIONS, RULES OF INTERPRETATION, ETC.

     1.1. Definitions. The following terms shall have the meanings set forth in this
Section 1 or elsewhere in the provisions of this Credit Agreement referred to below:

     Accounts Receivable. All rights of the Borrower or any of its Subsidiaries to payment for
goods sold, leased or otherwise marketed in the ordinary course of business and all rights of the
Borrower or any of its Subsidiaries to payment for services rendered in the ordinary course of
business and all sums of money or other proceeds due thereon pursuant to transactions with account
debtors, except for that portion of the sum of money or other proceeds due thereon that relate to
sales, use or property taxes in conjunction with such transactions, recorded on books of account in
accordance with GAAP.

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     Acquisition. Any transaction, or any series of related transactions, entered into or
consummated on or after the date of this Credit Agreement, by which the Borrower or any of its
Subsidiaries (a) acquires any ongoing business or all or substantially all of the assets of any
Person or division thereof, whether through a purchase of assets, merger or otherwise, or (b)
directly or indirectly acquires (in one transaction or as the most recent transaction in a series
of transactions) a majority of the securities of a corporation, which securities have ordinary
voting power for the election of directors (other than securities having such power only by reason
of the happening of a contingency) or a majority (by percentage and voting power) of the
outstanding partnership interests of a partnership or membership interests of a limited liability
company.

     Administrative Agent. Pershing Square Capital acting as administrative agent for the Lenders,
and each other Person appointed as the successor Administrative Agent in accordance with Section
12.9.

     Administrative Agent Account. Deposit account as the Administrative Agent may from time to
time specify in writing to the Borrower and the Lenders.

     Administrative Agent’s Office. The Administrative Agent’s office located at 888 Seventh
Avenue, 29th Floor, New York, NY 10019 or at such other location as the Administrative Agent may
designate from time to time.

     Administrative Agent’s Special Counsel. Sullivan & Cromwell LLP or such other counsel as may
be approved by the Administrative Agent.

     Affected Lender. See Section 4.7.

     Affiliate. Any Person which, directly or indirectly, controls, is controlled by or is under
common control with any Person. “Control” of a Person means the power, directly or indirectly, (a)
to vote five percent (5%) or more of the Capital Stock (on a fully diluted basis) of such Person
having ordinary voting power for the election of directors, managing members or general partners
(as applicable); or (b) to direct or cause the direction of the management and policies of such
Person (whether by contract or otherwise). Notwithstanding the foregoing, the Lenders and Pershing
Square Capital shall not be an Affiliate of the Borrower or any of its Subsidiaries and the
Borrower and any of its Subsidiaries shall not be an Affiliate of the Lenders or Pershing Square
Capital for purposes of this Credit Agreement.

     Agents. Collectively, the Administrative Agent and the Collateral Agent.

     Applicable Pension Legislation. At any time, any pension or retirement benefits legislation
(be it national, federal, provincial, territorial or otherwise) then applicable to the Borrower or
any of its Subsidiaries.

     Approved Fund. Any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of
a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.

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     Assignment and Acceptance. An assignment and acceptance entered into by a Lender and an
Eligible Assignee (with the consent of any party whose consent is required by Section 13.2), and
accepted by the Administrative Agent, in substantially the form of Exhibit C or any other form
approved by the Administrative Agent.

     Authorized Officers. The President, Senior Vice President – Finance and Chief Financial
Officer, Vice President – Financial Planning and Reporting, Vice President – Finance and Asset
Protection, Associate Director, Treasury or Treasurer of the Borrower and with respect to any
Foreign Subsidiary, a director of such Foreign Subsidiary or, in any case, any Person designated in
writing by any of the foregoing.

     Balance Sheet Date. February 2, 2008.

     BGP (UK). As defined in the preamble hereto.

     BOI. Borders Online, Inc., a Colorado corporation.

     Borders. As defined in the preamble hereto.

     Borders UK. As defined in the preamble hereto.

     Borrower. As defined in the preamble hereto.

     BPI. Borders Properties, Inc., a Delaware corporation.

     Business Day. Any day on which banking institutions in New York, New York are open for the
transaction of banking business.

     Capital Assets. Fixed assets, both tangible (such as land, buildings, fixtures, machinery and
equipment) and intangible (such as Intellectual Property, franchises and good will); provided that
Capital Assets shall not include any item customarily charged directly to expense or depreciated
over a useful life of twelve (12) months or less in accordance with GAAP.

     Capital Expenditures. Amounts paid or Indebtedness incurred by the Borrower or any of its
Subsidiaries in connection with the purchase or lease by the Borrower or any of its Subsidiaries of
Capital Assets that would be required to be capitalized and shown on the balance sheet of such
Person in accordance with GAAP, provided that Capital Expenditures shall not include any
expenditures made to effect any Acquisition.

     Capital Stock. Any and all shares, interests, participations or other equivalents (however
designated) of capital stock of a corporation, any and all equivalent ownership interests in a
Person (other than a corporation) and any and all warrants, rights or options to purchase any of
the foregoing.

     Capitalized Leases. Leases under which the Borrower or any of its Subsidiaries is the lessee
or obligor, the discounted future rental payment obligations under which are

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required to be capitalized on the balance sheet of the lessee or obligor in accordance with
GAAP.

     CERCLA. See Section 6.16(a).

     Change of Control. An event or series of events by which (i) any Person or group of Persons
(within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934), excluding the
Initial Investor (as defined in the Warrant and Registration Rights Agreement in effect on the date
hereof), shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by
the SEC under said Act), directly or indirectly, of thirty-five percent (35%) or more of the
outstanding shares of common stock of the Borrower, (ii) all or substantially all of the
consolidated assets of the Borrower are sold, leased, exchanged or transferred to any Person or
group of Persons (within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of
1934), (iii) the Borrower is consolidated, merged, amalgamated, reorganized or otherwise enters
into a similar transaction in which it is combined with another Person other than the Initial
Investor (as defined in the Warrant and Registration Rights Agreement in effect on the date
hereof), unless the Persons who beneficially own the outstanding Voting Securities (as defined in
the Warrant and Registration Rights Agreement in effect on the date hereof) of the
Company immediately before consummation of the transaction beneficially own a majority of the
outstanding Voting Securities (as defined in the Warrant and Registration Rights Agreement in
effect on the date hereof) of the combined or surviving entity immediately thereafter, (iv) the
majority of the seats (other than vacant seats) on the board of the directors of the Borrower (or
similar governing body) ceases to be occupied by Persons who either (a) were members of the board
of directors of the Borrower on the date hereof or (b) were nominated for election by the board of
directors of the Borrower, a majority of whom were directors on the date hereof or whose election
or nomination for election was previously approved by a majority of such directors or (v) the
approval by the holders of capital stock of the Borrower of any plan or proposal for the
liquidation or dissolution of the Borrower.

     Closing Date. The Business Day, on or before April 10, 2008, on which the conditions set
forth in Section 9 have been satisfied (or waived in accordance with terms of this Credit
Agreement).

     Closing Discount. See Section 2.2.1.

     Code. The Internal Revenue Code of 1986.

     Collateral. All of the property, rights and interests that are or are intended to be subject
to the Liens created by the Pledge Agreement.

     Collateral Agent. Pershing Square Capital.

     Commitment. With respect to any Lender, the obligation of such Lender to make a Loan pursuant
to the terms and conditions of this Credit Agreement, and which shall not exceed the principal
amount set forth opposite such Lender’s name on Schedule 1 under the heading “Commitment”, and
“Commitments” means the aggregate principal

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amount of the Commitments of all the Lenders (it being understood and agreed that the maximum
aggregate principal amount of the Commitments shall be $42,500,000).

     Commitment Letter. Commitment letter by Pershing Square Capital and the Borrower, dated
March 19, 2008, containing the summaries and proposed terms and conditions for the Term Loan
Facility, the Purchase Offer and the Warrant and Registration Rights Agreement, including all
exhibits attached thereto.

     Consolidated or consolidated. With reference to any term defined herein, shall mean that term
as applied to the accounts of the Borrower and its Subsidiaries, consolidated in accordance with
GAAP.

     Consolidated Net Income (or Deficit). The consolidated net income (or deficit) of the
Borrower and its Subsidiaries, after deduction of all expenses, taxes, and other proper charges,
determined in accordance with GAAP.

     Consolidated Tangible Net Worth. The excess of Consolidated Total Assets over Consolidated
Total Liabilities, and less the sum of:

     (a) the total book value of all assets of the Borrower and its Subsidiaries properly
classified as intangible assets under GAAP, including such items as good will, the purchase
price of acquired assets in excess of the fair market value thereof, Intellectual Property
and licenses, and rights with respect to the foregoing; plus

     (b) all amounts representing any write-up in the book value of any assets of the
Borrower or its Subsidiaries resulting from a revaluation thereof subsequent to the Balance
Sheet Date, excluding adjustments to translate foreign assets and liabilities for changes
in foreign exchange rates made in accordance with Financial Accounting Standards Board
Statement No. 52; plus

     (c) to the extent otherwise includable in the computation of Consolidated Tangible Net
Worth, any subscriptions receivable.

     Consolidated Total Assets. The sum of all assets (“consolidated balance sheet assets”) of the
Borrower and its Subsidiaries determined on a consolidated basis in accordance with GAAP.

     Consolidated Total Liabilities. All liabilities of the Borrower and its Subsidiaries
determined on a consolidated basis in accordance with GAAP and classified as such on the
consolidated balance sheet of the Borrower and its Subsidiaries.

     Contract. See Section 6.8.

     Credit Agreement. This Senior Secured Credit Agreement, including the Schedules and Exhibits
hereto.

     Default. See Section 11.1.

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     Delinquent Lender. See Section 12.5.3.

     Disposition. Any transaction, or series of related transactions, pursuant to which the
Borrower or any of its Subsidiaries conveys, sells, leases or subleases, assigns, transfers or
otherwise disposes of any part of its business, property or assets (whether now owned or hereafter
acquired) to any other Person, in each case whether or not the consideration therefor consists of
cash, securities or other assets, excluding any sales of inventory in the ordinary course of
business.

     Distribution. The declaration or payment of any dividend on or in respect of any shares of
any class of Capital Stock of a Person, other than dividends payable solely in shares of common
stock of such Person; the purchase, redemption, defeasance, retirement or other acquisition of any
shares of any class of Capital Stock of a Person, directly or indirectly through a Subsidiary of
such Person or otherwise (including the setting apart of assets for a sinking or other analogous
fund to be used for such purpose); the return of capital by a Person to its shareholders as such;
or any other distribution on or in respect of any shares of any class of Capital Stock of such
Person.

     Dollars or $. Dollars in lawful currency of the United States of America.

     Domestic Lending Office. The office of each Lender designated as such in Schedule 1 hereto.

     Domestic Subsidiary. Any Subsidiary of the Borrower organized under the laws of the United
States of America, any state or territory thereof or the District of Columbia.

     Eligible Assignee. Any of (a) a Lender, (b) an Affiliate of a Lender, (c) an Approved Fund or
(d) any other Person (other than a natural person) (i) approved by the Administrative Agent, and
(ii) unless a Default or an Event of Default has occurred and is continuing, approved by the
Borrower (each such approval not to be unreasonably withheld or delayed); provided that
notwithstanding the foregoing, “Eligible Assignee” shall not include the Borrower or any of the
Borrower’s Affiliates or Subsidiaries.

     Employee Benefit Plan. Any employee benefit plan within the meaning of Section 3(3) of ERISA
maintained or contributed to by the Borrower or any ERISA Affiliate, other than a Guaranteed
Pension Plan or a Multiemployer Plan.

     Environmental Laws. See Section 6.16(a).

     EPA. See Section 6.16(b).

     ERISA. The Employee Retirement Income Security Act of 1974.

     ERISA Affiliate. Any Person which is treated as a single employer with any of the Borrower
under Section 414 of the Code.

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     ERISA Reportable Event. A reportable event with respect to a Guaranteed Pension Plan within
the meaning of Section 4043 of ERISA and the regulations promulgated thereunder.

     Event of Default. See Section 11.1.

     Exchange Rate. At any date of determination thereof, the Spot Rate of exchange for the
conversion of a currency not denominated in Dollars into Dollars and with respect to Dollars, at
any date of determination thereof, the Spot Rate of exchange for the conversion of Dollars into the
applicable currency not denominated in Dollars.

     Existing Credit Agreement. Second Amended and Restated Multicurrency Revolving Credit
Agreement dated as of July 31, 2006, as amended from time to time, by and among the Borrower, the
co-borrowers therein, the guarantors therein, the lenders therein and Bank of America as
administrative agent.

     Financial Affiliate. A Subsidiary of the bank holding company controlling any Lender, which
Subsidiary is engaging in any of the activities permitted by Section 4(e) of the Bank Holding
Company Act of 1956 (12 U.S.C. Section 1843).

     Fiscal Quarter. Subject to Section 6.4.1, for the first three Fiscal Quarters of each year,
the 13 week period commencing on the day after the last day of the preceding Fiscal Quarter and for
the fourth Fiscal Quarter of each year, the period commencing on the day after the last day of the
third Fiscal Quarter and ending on the Saturday closest to January 31 of each year. As used
herein, “FQ1 2xxx” refers to the first Fiscal Quarter of the 2xxx Fiscal Year, “FQ2 2xxx” refers to
the second Fiscal Quarter of the 2xxx Fiscal Year and so on.

     Fiscal Year. Subject to Section 6.4.1, the 52/53 week period commencing on the day after the
last day of the preceding Fiscal Year and ending on the Saturday closest to January 31 of each
year. By way of illustration, the Borrower’s 2007 Fiscal Year ended February 2, 2008.

     Foreign Subsidiary. Any Subsidiary of the Borrower (other than BGP (UK)) organized under the
laws of any jurisdiction other than the United States of America, any state or territory thereof or
the District of Columbia.

     Fulfillment. Borders Fulfillment, Inc., a Delaware corporation.

     Fund. Any Person (other than a natural person) that is (or will be) engaged in making,
purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in
the ordinary course of its business.

     GAAP or generally accepted accounting principles. In case of a US Person, principles that are
(i) consistent with the principles promulgated or adopted by the Financial Accounting Standards
Board and its predecessors, as in effect from time to time, and (ii) consistently applied with past
financial statements of the Borrower adopting the same principles. In the case of the Paperchase
Companies, principles that are (i)

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consistent with the International Financial Reporting Standards, and (ii) consistently applied
with past financial statements of the Paperchase Companies adopting the same principles.

     Governing Documents. With respect to any Person, its certificate or articles of incorporation
or organization, its by-laws, or, as the case may be, its certificate of formation, limited
partnership certificate, operating agreement, limited partnership agreement or other constitutive
documents and all shareholder agreements, voting trusts and similar arrangements applicable to any
of its Capital Stock.

     Governmental Authority. Any foreign, federal, state, regional, local, municipal or other
government, or any department, commission, board, bureau, agency, public authority or
instrumentality thereof, or any court or arbitrator.

     Guaranteed Obligations. See Section 5.1.

     Guaranteed Pension Plan. Any employee pension benefit plan within the meaning of Section 3(2)
of ERISA maintained or contributed to by the Borrower or any ERISA Affiliate the benefits of which
are guaranteed on termination in full or in part by the PBGC pursuant to Title IV of ERISA, other
than a Multiemployer Plan.

     Guarantors. Borders, Walden, BGP(UK), BPI, Online, Fulfillment, BOI, and any Subsidiary of
the Borrower which executes a Joinder Agreement as a Guarantor of all of the obligations pursuant
to the provisions of this Credit Agreement after the Closing Date.

     Guaranty. The guarantee made by each Guarantor set forth in Section 5 of this Credit
Agreement.

     Hazardous Substances. See Section 6.16(b).

     Hedging Agreement. (a) Any and all rate swap transactions, basis swaps, credit derivative
transactions, forward rate transactions, commodity swaps, commodity options, forward commodity
contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or
options or forward bond or forward bond price or forward bond index transactions, interest rate
options, forward foreign exchange transactions, cap transactions, floor transactions, collar
transactions, currency swap transactions, cross-currency rate swap transactions, currency options,
spot contracts, or any other similar transactions or any combination of any of the foregoing
(including any options to enter into any of the foregoing), whether or not any such transaction is
governed by or subject to any master agreement, and (b) any and all transactions of any kind, and
the related confirmations, which are subject to the terms and conditions of, or governed by, any
form of master agreement published by the International Swaps and Derivatives Association, Inc.,
any International Foreign Exchange Master Agreement, or any other master agreement (any such master
agreement, together with any related schedules, a “Master Agreement”), including any such
obligations or liabilities under any Master Agreement.

     Highest Lawful Rate. See Section 2.4.2.

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     Indebtedness. As to any Person and whether recourse is secured by or is otherwise available
against all or only a portion of the assets of such Person and whether or not contingent, but
without duplication:

     (a) every obligation of such Person for money borrowed,

     (b) every obligation of such Person evidenced by bonds, debentures, notes or other
similar instruments, including obligations incurred in connection with the acquisition of
property, assets or businesses,

     (c) every reimbursement obligation of such Person with respect to letters of credit,
bankers’ acceptances or similar facilities issued for the account of such Person,

     (d) every obligation of such Person issued or assumed as the deferred purchase price
of property or services (including securities repurchase agreements but excluding trade
accounts payable or accrued liabilities arising in the ordinary course of business which
are not overdue or which are being contested in good faith),

     (e) every obligation of such Person under any Capitalized Lease,

     (f) every obligation of such Person under any Synthetic Lease,

     (g) all sales by such Person of (i) accounts or general intangibles for money due or
to become due, (ii) chattel paper, instruments or documents creating or evidencing a right
to payment of money or (iii) other receivables (collectively “receivables”), whether
pursuant to a purchase facility or otherwise, other than in connection with the disposition
of the business operations of such Person relating thereto or a disposition of defaulted
receivables for collection and not as a financing arrangement, and together with any
obligation of such Person to pay any discount, interest, fees, indemnities, penalties,
recourse, expenses or other amounts in connection therewith,

     (h) every obligation of such Person (an “equity related purchase obligation”) to
purchase, redeem, retire or otherwise acquire for value any shares of Capital Stock issued
by such Person or any rights measured by the value of such Capital Stock,

     (i) every obligation of such Person under any forward contract, futures contract,
swap, option or other financing agreement or arrangement (including, without limitation,
caps, floors, collars and similar agreements), the value of which is dependent upon
interest rates, currency exchange rates, commodities or other indices (a “derivative
contract”),

     (j) every obligation in respect of Indebtedness of any other entity (including any
partnership in which such Person is a general partner) to the extent that such Person is
liable therefor as a result of such Person’s ownership interest

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in or other relationship with such entity, except to the extent that the terms of such
Indebtedness provide that such Person is not liable therefor and such terms are enforceable
under applicable law,

     (k) every obligation, contingent or otherwise, of such Person guaranteeing, or having
the economic effect of guarantying or otherwise acting as surety for, any obligation of a
type described in any of clauses (a) through (j) (the “primary obligation”) of another
Person (the “primary obligor”), in any manner, whether directly or indirectly, and
including, without limitation, any obligation of such Person (i) to purchase or pay (or
advance or supply funds for the purchase of) any security for the payment of such primary
obligation, (ii) to purchase property, securities or services for the purpose of assuring
the payment of such primary obligation, or (iii) to maintain working capital, equity
capital or other financial statement condition or liquidity of the primary obligor so as to
enable the primary obligor to pay such primary obligation.

     The “amount” or “principal amount” of any Indebtedness at any time of determination
represented by (t) any Indebtedness, issued at a price that is less than the principal amount at
maturity thereof, shall be the amount of the liability in respect thereof determined in accordance
with GAAP, (u) any Capitalized Lease shall be the principal component of the aggregate of the
rentals obligation under such Capitalized Lease payable over the term thereof that is not subject
to termination by the lessee, (v) any sale of receivables shall be the amount of unrecovered
capital or principal investment of the purchaser (other than the Borrower or any of its
Wholly-owned Subsidiaries) thereof, excluding amounts representative of yield or Interest earned on
such investment, (w) any Synthetic Lease shall be the stipulated loss value, termination value or
other equivalent amount, (x) any derivative contract shall be the maximum amount of any termination
or loss payment required to be paid by such Person if such derivative contract were, at the time of
determination, to be terminated by reason of any event of default or early termination event
thereunder, whether or not such event of default or early termination event has in fact occurred,
(y) any equity related purchase obligation shall be the maximum fixed redemption or purchase price
thereof inclusive of any accrued and unpaid dividends to be comprised in such redemption or
purchase price and (z) any guaranty or other contingent liability referred to in clause (k) shall
be an amount equal to the stated or determinable amount of the primary obligation in respect of
which such guaranty or other contingent obligation is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof (assuming such Person is required to
perform thereunder) as determined by such Person in good faith.

     Notwithstanding anything to the contrary in this definition of Indebtedness, the obligations
(whether for cash, common shares of the Borrower or otherwise) of the Borrower and its
Subsidiaries to settle the warrants pursuant to the Warrant and Registration Rights Agreement, any
stock appreciation rights issued in lieu thereof or any debt or equity instruments (including
interest and fees thereon) issued as a result of or in connection with the deferral of any payment
in respect of the warrants pursuant to the Warrant and Registration Rights Agreement or any
settlement, exercise, purchase,

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redemption, defeasance, retirement, payment, acquisition or otherwise thereof shall not
constitute Indebtedness hereunder.

     Insolvency Proceeding. As to any Person, any of the following: (i) any case or proceeding,
whether voluntary or involuntary, with respect to such Person under the U.S. Bankruptcy Code or any
other Federal, state or foreign bankruptcy, insolvency, reorganization or other law affecting
creditors’ rights or any other or similar proceedings seeking any stay, reorganization,
arrangement, composition or readjustment of the obligations and indebtedness of such Person or (ii)
any proceeding seeking the appointment of any trustee, receiver, liquidator, custodian,
administrator or other insolvency official with similar powers with respect to such Person or any
of its assets or (iii) any proceeding for liquidation, dissolution or other winding up of the
business of such Person or (iv) any assignment for the benefit of creditors or any marshalling of
assets of such Person.

     Intellectual Property. See Section 6.6.2.

     Interest Payment Date. The first Business Day of the calendar month for the immediately
preceding calendar month with respect to interest accrued during such calendar month. “Interest
Payment Date” shall also include (a) with respect to the amount of the Loan prepaid, the date of
such repayment and (b) the Maturity Date.

     Interest Rate. 9.8% per annum, calculated on a 365/366 day basis.

     Investments. All expenditures made and all liabilities incurred (contingently or otherwise)
by any Person for the acquisition of stock, membership interests, partnership interests or other
equity interests, other than repurchases or redemptions of stock, membership interests, partnership
interests or other equity interests of such Person, or Indebtedness of, or for loans, advances,
capital contributions or transfers of property to, or in respect of any guaranties (or other
commitments as described under Indebtedness), or obligations of, any Person. In determining the
aggregate amount of Investments outstanding at any particular time: (a) the amount of any
Investment represented by a guaranty shall be taken at not less than the principal amount of the
obligations guaranteed and still outstanding; (b) there shall be deducted in respect of each such
Investment any amount received as a return of capital (but only by repurchase, redemption,
retirement, repayment, liquidating dividend or liquidating distribution); (c) there shall not be
deducted in respect of any Investment any amounts received as earnings on such Investment, whether
as dividends, interest or otherwise; (d) there shall not be deducted from the aggregate amount of
Investments any decrease in the value thereof; and (e) the amount of any Investment made by a
transfer of property shall be valued at the fair market value of such transferred property at the
time of such transfer.

     Joinder Agreements. Joinder agreements in substantially the form of Exhibit D hereto pursuant
to which Subsidiaries of the Borrower become parties to and agree to be bound by the provisions of
this Credit Agreement as a Guarantor.

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     Joint Venture. Any corporation, partnership, limited liability company, joint venture or
other entity in which the Borrower and its Subsidiaries own not more than 50% of the capital stock,
partnership interests, membership interests or other ownership interests and which does not meet
the definition of “Subsidiary” herein.

     Lender Affiliate. With respect to any Lender, (a) an Affiliate of such Lender or (b) any
Approved Fund.

     Lenders. Pershing Square and PSRH, Inc., together with their respective successors and
permitted assigns.

     Lien. Any mortgage, deed of trust, security interest, charge, pledge, hypothecation,
assignment, attachment, deposit arrangement, encumbrance, lien (statutory, judgment or otherwise,
but excluding any right of set off arising by operation of law or pursuant to agreements entered
into in the ordinary course of business), or other security agreement or preferential arrangement
of any kind or nature whatsoever (including any conditional sale or other title retention
agreement, any Capitalized Lease, any Synthetic Lease, any financing lease involving substantially
the same economic effect as any of the foregoing and the filing of any financing statement under
the Uniform Commercial Code or comparable law of any jurisdiction).

     Loan Documents or Finance Documents. This Credit Agreement, the Pledge Agreement, the Joinder
Agreements and any other instruments, certificates or documents delivered or contemplated to be
delivered hereunder or thereunder or in connection herewith or therewith (excluding Hedging
Agreements).

     Loans. Loans under the Term Loan Facility.

     Material Adverse Effect. With respect to any event or occurrence of whatever nature
(including any adverse determination in any litigation, arbitration or governmental investigation
or proceeding):

     (a) a material adverse effect on the business, properties, prospects, condition
(financial or otherwise), assets, operations or income of the Borrower, individually, or
the Borrower and its Subsidiaries, taken as a whole;

     (b) a material adverse effect on the ability of the Borrower or any of the Guarantors,
taken as a whole, to perform any of its Obligations under any of the Loan Documents to
which it is a party;

     (c) a material adverse effect on the business, properties, prospects, condition
(financial or otherwise), assets, operations or income of the Paperchase Companies, taken
as a whole;

     (d) a material adverse effect on the value of the Pledged Shares as pledged to the
Collateral Agent or the Collateral Agent’s Lien with respect to the Pledged Shares or the
right and remedies of the Collateral Agent and the Lenders relating thereto;

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     or

     (e) any material impairment of the validity, binding effect or enforceability of this
Credit Agreement or any of the other Loan Documents or any material impairment of the
rights, remedies or benefits available to any Agent or any Lender under any Loan Document.

     Maturity Date. January 15, 2009.

     Multiemployer Plan. Any multiemployer plan within the meaning of Section 3(37) of ERISA
maintained or contributed to by the Borrower or any ERISA Affiliate.

     Net Cash Proceeds. Cash or cash equivalents received by the Borrower or any Subsidiary from
time to time in connection with a Disposition (whether as initial consideration or through the
payment of deferred consideration) other than any Disposition pursuant to Section 8.5.2(a)-(g)
inclusive after deducting therefrom only reasonable fees and expenses related thereto incurred by
the Borrower or such Subsidiary in connection therewith and, in connection with a Disposition of or
by the Paperchase Companies, any Indebtedness of a Paperchase Company required to be paid in
connection therewith.

     Note. See Section 2.3.1.

     Obligations. All of the Borrower’s obligations under this Credit Agreement.

     Online. Borders Online, LLC, a Delaware limited liability company.

     outstanding. With respect to the Loans, the aggregate unpaid principal thereof as of any date
of determination.

     Paperchase. Paperchase Products Ltd.

     Paperchase Businesses. Paperchase and its Subsidiaries and Superstores and its Subsidiaries,
together with their respective assets and businesses.

     Paperchase Companies. Paperchase and its Subsidiaries and Superstores and its Subsidiaries.

     Participant. See Section 13.4.

     PBGC. The Pension Benefit Guaranty Corporation created by Section 4002 of ERISA and any
successor entity or entities having similar responsibilities.

     Person. Any individual, corporation, limited liability company, partnership, limited
liability partnership, trust, other unincorporated association, business, or other legal entity,
and any Governmental Authority.

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     Permitted Liens. Liens permitted by Section 8.2.

     Permitted Restructuring Transactions. As defined in the Existing Credit Agreement in effect on
the date hereof.

     Pershing Square Capital. As defined in the preamble hereto.

     Pledge Agreement. Deed of Charge over Shares, dated April 9, 2008, by the Pledgor in favor
of the Collateral Agent, in the form of Exhibit A attached hereto.

     Pledged Shares. See Section 5.11.

     Pledgor. BGP (UK).

     Premiums. Collectively, the Closing Discount and the Repayment Premium.

     Property. Any and all property and assets, whether real, personal, tangible, intangible or
mixed, and owned, licensed and leased (including pursuant to Capitalized Leases), of any Person.

     Purchase Offer. See Section 6.15.

     RCRA. See Section 6.16(a).

     Real Estate. All real property at any time owned or leased (as lessee or sublessee) by the
Borrower or any of its Subsidiaries.

     Record. The grid attached to a Note, or the continuation of such grid, or any other similar
record, including computer records, maintained by any Lender with respect to the Loan referred to
in such Note.

     Register. See Section 13.3.

     Related Parties. With respect to any specified Person, such Person’s Affiliates and the
respective directors, officers, employees, agents and advisors of such Person and such Person’s
Affiliates.

     Replacement Lender. See Section 4.7.

     Restricted Payment. In relation to the Borrower and its Subsidiaries, any (a) Distribution,
(b) payment in cash or other property (other than common shares or additional warrants or rights to
acquire common shares or other equity securities or stock appreciation rights of the Borrower)
arising or resulting from the settlement, exercise, purchase, redemption, defeasance, retirement,
payment, acquisition or otherwise of the warrants pursuant to the Warrant and Registration Rights
Agreement or any debt or equity instruments (including interest and fees thereon) issued as a
result of or in connection with the deferral of any payment in respect of the warrants pursuant to
the

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Warrant and Registration Rights Agreement or any settlement, exercise, purchase, redemption,
defeasance, retirement, payment, acquisition or otherwise thereof or (c) derivatives or other
transactions (other than pursuant to the Transactions or employee stock options, stock appreciation
rights or similar instruments issued to employees in the ordinary course of business) obligating
the Borrower or any of its Subsidiaries to make payments to any Person as a result of any change in
market value of any Capital Stock of the Borrower or such Subsidiary.

     Required Lenders. Lenders holding more than 50% of the total Commitment of the aggregate
outstanding principal amount of the Loans.

     Same Day Funds. Immediately available funds.

     SARA. See Section 6.16(a).

     Solvent. With respect to any Person on a particular date, that on such date (a) the fair
value of the Property of such Person is greater than the total amount of liabilities, including,
without limitation, contingent liabilities, of such Person, (b) the present fair saleable value of
the assets of such Person is not less than the amount that will be required to pay the probable
liability of such Person on its debts as they become absolute and matured, (c) such Person is able
to realize upon its assets and pay its debts and other liabilities, contingent obligations and
other commitments as they mature in the normal course of business, (d) such Person does not intend
to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to
pay as such debts and liabilities mature, and (e) such Person is not engaged in business or a
transaction, and is not about to engage in business or a transaction, for which such Person’s
property would constitute unreasonably small capital after giving due consideration to the
prevailing practice in the industry in which such Person is engaged. In computing the amount of
contingent liabilities at any time, it is intended that such liabilities will be computed at the
amount which, in light of all the facts and circumstances existing at such time, represents the
amount that can reasonably be expected to become an actual or matured liability.

     Subsidiary. With respect to any Person (the “parent”) at any date, any corporation, limited
liability company, partnership, association or other entity the accounts of which would be
consolidated with those of the parent in the parent’s consolidated financial statements if such
financial statements were prepared in accordance with GAAP as of such date, as well as any other
corporation, limited liability company, partnership, association or other entity (a) of which
securities or other ownership interests representing more than 50% of the equity or more than 50%
of the ordinary voting power or, in the case of a partnership, more than 50% of the general
partnership interests are, as of such date, owned, controlled or held, or (b) that is, as of such
date, otherwise controlled, directly or indirectly, by the parent or one or more subsidiaries of
the parent.

     Superstores. Borders Superstores (UK) Limited.

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     Synthetic Lease. Any lease of goods or other property, whether real or personal, which is
treated as an operating lease under GAAP and as a loan or financing for U.S. income tax purposes.

     Term Loan Facility. See Section 2.1.1.

     Transactions. Transactions contemplated by this Credit Agreement and the other Loan
Documents, the Purchase Offer and the Warrant and Registration Rights Agreement, including without
limitation the performance by the Borrower and its Subsidiaries of their respective obligations
thereunder.

     Total Commitment. See Section 2.1.1.

     Total Facility Usage Ratio. As defined in the Existing Credit Agreement in effect on the date
hereof.

     Walden. As defined in the preamble hereto.

     Warrant and Registration Rights Agreement. See Section 6.15.

     Wholly-owned Subsidiary. Any Subsidiary of the Borrower of which all of the outstanding
shares of capital stock or other equity interests are owned by the Borrower (whether directly or
through one or more Wholly-owned Subsidiaries of the Borrower) except for directors’ qualifying
shares in jurisdictions where such qualifying shares are required.

     1.2. Rules of Interpretation.

     (a) A reference to any document or agreement shall include such document or agreement as
amended, modified or supplemented from time to time in accordance with its terms and the terms of
this Credit Agreement.

     (b) The singular includes the plural and the plural includes the singular.

     (c) A reference to any law includes any amendment or modification to such law.

     (d) A reference to any Person includes its permitted successors and permitted assigns.

     (e) Accounting terms not otherwise defined herein have the meanings assigned to them by GAAP
applied on a consistent basis by the accounting entity to which they refer.

     (f) The words “include”, “includes” and “including” are not limiting.

     (g) All terms not specifically defined herein or by GAAP, which terms are defined in the
Uniform Commercial Code as in effect in the State of New York, have the

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meanings assigned to them therein, with the term “instrument” being that defined under Article
9 of the Uniform Commercial Code.

     (h) Reference to a particular “Section “ refers to that section of this Credit Agreement
unless otherwise indicated.

     (i) The words “herein”, “hereof”, “hereunder” and words of like import shall refer to this
Credit Agreement as a whole and not to any particular section or subdivision of this Credit
Agreement.

     (j) Unless otherwise expressly indicated, in the computation of periods of time from a
specified date to a later specified date, the word “from” means “from and including,” the words
“to” and “until” each mean “to but excluding,” and the word “through” means “to and including.”

     (k) This Credit Agreement and the other Loan Documents may use several different limitations,
tests or measurements to regulate the same or similar matters. All such limitations, tests and
measurements are, however, cumulative and are to be performed in accordance with the terms thereof.

     (l) This Credit Agreement and the other Loan Documents are the result of negotiation among,
and have been reviewed by counsel to, among others, the Administrative Agent and the Borrower and
are the product of discussions and negotiations among all parties. Accordingly, this Credit
Agreement and the other Loan Documents are not intended to be construed against any Agent or any of
the Lenders merely on account of any Agent’s or any Lender’s involvement in the preparation of such
documents.

     1.3. Accounting Principles. Except as otherwise provided in this Credit Agreement, all
computations and determinations as to accounting or financial matters and all financial statements
to be delivered pursuant to this Credit Agreement shall be made and prepared in accordance with
GAAP (including principles of consolidation where appropriate); provided, however, that if any
change in GAAP or the application thereof occurs hereafter, or if the Borrower adopts a change to
its accounting principles or methods with the agreement of its independent certified public
accountants, and such change results in a change in the calculation of any financial covenant or
restriction set forth herein, then the parties hereto agree to enter into and diligently pursue
negotiations in order to amend such financial covenant or restriction so as to equitably reflect
such change, with the desired result that the criteria for evaluating the financial condition and
results of operations of the Borrower and its Subsidiaries shall be the same after such change as
if such change had not been made. Pending the resolution of any such negotiations, the Borrower
agree to provide to each of the Lenders such unaudited financial information and pro forma
statements using the accounting methods and principles used in the preparation of the audited
financial statements for the fiscal year ended as of the Balance Sheet Date, as are necessary to
enable the Lenders to test the financial covenants contained herein.

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2. THE TERM LOAN FACILITY.

     2.1. Loan Commitment.

     2.1.1. Term Loan Facility. Subject to the terms and conditions set forth herein,
each Lender hereby severally agrees to make a term loan (each, a “Loan”) in the principal
amount set forth opposite each such Lender’s name on Schedule 1 hereto to the Borrower on
the Closing Date, in accordance with this Section 2.1. The aggregate principal amount
under this senior secured term loan facility (the “Term Loan Facility”) of the Loans to be
advanced will be $42,500,000 (the “Total Commitment”). An increase in the Total Commitment
requires consent of the Required Lenders (as defined in the Existing Credit Agreement in
effect on the date hereof). Amounts repaid or prepaid may not be reborrowed.

     2.1.2. Notice of Borrowing. If the Borrower desires to borrow under Section 2.1.1
the Borrower shall deliver to the Administrative Agent a Notice of Borrowing not later than
9:00 a.m. on the Closing Date. Such Notice of Borrowing shall specify the proposed Closing
Date, which must be a Business Day. The Notice of Borrowing given pursuant to this Section
2.1.2 shall be irrevocable and binding on the Borrower.

     2.1.3. Deposit of Commitment Amount. The Administrative Agent shall promptly notify
each Lender of the Loans requested by the Borrower. Each Lender shall deposit in the
Administrative Agent Account an amount equal to its Commitment, in immediately available
funds, not later than 12:00 p.m. on the Closing Date. Subject to the satisfaction of the
conditions precedent set forth in Section 9, the Administrative Agent shall make the
proceeds of the Loans received by it available to the Borrower on the Closing Date.

     2.1.4. Lending Obligation. Except as otherwise provided in this Section 2.1.4, the
Loans under this Credit Agreement shall be made by the Lenders simultaneously and
proportionately. The failure of any Lender to deposit the amount described in 2.1.1 above
with the Administrative Agent on the Closing Date shall not relieve any other Lender of its
obligations hereunder to make its Loan on the Closing Date. In the event of any failure by
any other Lender to perform its obligation to make a Loan hereunder, Pershing Square
Capital shall make such Loan to the Borrower.

     2.1.5. Payment at Maturity. The aggregate principal amount of the Loans shall be
payable in Dollars on the Maturity Date.

     2.2. Premiums.

     2.2.1. Closing Discount. The Borrower agrees to pay to Pershing Square Capital for
the account of the Lenders on the Closing Date an amount (the “Closing Discount”) in
Dollars equal to 2.25% of the Total Commitment. The payment of the Closing Discount shall
be deducted from the principal amount of

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the Loans such that, for the avoidance of doubt, the net amount advanced to the
Borrower under the Term Loan Facility is $41,543,750.

     2.2.2. Repayment Premium. The Borrower agrees to pay to Pershing Square Capital for
the account of the Lenders on the date of the repayment of the Loans an amount (the
“Repayment Premium”) in Dollars equal to 2.25% of the principal amount of the Loans then
repaid. Payment of the Repayment Premium shall be a condition to the effectiveness of the
repayment of the principal amount of the Loans.

     2.3. Evidence of Loan Obligations.

     2.3.1. Notes. The Borrower’s obligation to pay the principal of, and interest on, the
Loans made to the Borrower by each Lender shall be set forth on the Register maintained by
the Administrative Agent pursuant to Section 13.3 and, subject to the provisions of Section
2.3.2, shall be evidenced by a promissory note substantially in the form of Exhibit B with
blanks appropriately completed in conformity herewith (each, as the same may be amended,
supplemented or otherwise modified from time to time, a “Note”).

     2.3.2. Delivery of Notes. Notwithstanding anything to the contrary contained above or
elsewhere in this Agreement, Notes shall only be delivered to Lenders which at any time
specifically request the delivery of such Notes. No failure of any Lender to request or
obtain a Note evidencing its Loans to the Borrower shall affect or in any manner impair the
obligations of the Borrower to pay the Loans (and all related Obligations) which would
otherwise be evidenced thereby in accordance with the requirements of this Agreement, and
shall not in any way affect the security or Guaranties therefor provided pursuant to the
Loan Documents. At any time when any Lender requests the delivery of a Note to evidence
any of its Loans, the Borrower shall promptly execute and deliver to that Lender the
requested Note in the appropriate amount or amounts to evidence such Loans.

     2.4. Interest on Loans. Except as otherwise provided in Section 4.6,

     2.4.1. Interest on Loans. The Borrower agrees to pay interest on the unpaid principal
amount of each Loan on each Interest Payment Date from the date of such Loan until such
Loan is repaid in full at a rate equal to the Interest Rate for such Loan. The Borrower
shall pay accrued and unpaid interest on the Loans in cash on each Interest Payment Date.
All computations of interest hereunder shall be made on the actual number of days elapsed
over a year of 365/366 days.

     2.4.2. Maximum Interest. Notwithstanding anything to the contrary set forth in this
Section 2.4.2, if at any time until payment in full of the Loans, the interest rate payable
on any Loan exceeds the highest rate of interest permissible under any law which a court of
competent jurisdiction shall deem applicable

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hereto (the “Highest Lawful Rate”), then in such event and so long as the Highest
Lawful Rate would be so exceeded, the rate of interest payable on such Loans shall be equal
to the Highest Lawful Rate. Thereafter, the interest rate payable on such Loans shall be
the applicable interest rate pursuant to Section 2.4.1 above unless and until such rate
again exceeds the Highest Lawful Rate, in which event this paragraph shall again apply. In
no event shall the total interest received by any Lender for any Loans pursuant to the
terms hereof exceed the amount which it could lawfully have received for such Loans had the
interest due hereunder for such Loans been calculated for the full term thereof at the
Highest Lawful Rate. Interest on the Highest Lawful Rate shall be calculated at a daily
rate equal to the Highest Lawful Rate divided by the number of days in the year in which
such calculation is made. In the event that a court of competent jurisdiction,
notwithstanding the provisions of this Section 2.4.2, shall make a determination that a
Lender has received interest hereunder or under any of the Loan Documents in excess of the
Highest Lawful Rate, such Lender shall, to the extent permitted by Applicable Law, promptly
apply such excess first to any interest due or accrued and not yet paid under the Loans,
then to the outstanding principal of the Loans, then to other unpaid Obligations and
thereafter shall refund any excess to the Borrower or as a court of competent jurisdiction
may otherwise order.

     2.5. Allocation. The Borrower, on the one hand, and Pershing Square Capital and its managed
funds and affiliates, on the other hand, as parties to this Credit Agreement, the Purchase Offer
and the Warrant and Registration Rights Agreement, agree to work together in good faith to agree on
amounts to be allocated for U.S. federal tax purposes to the Term Loan Facility and to the warrants
to be issued as of the date hereof pursuant to the Warrant and Registration Rights Agreement (such
allocations, the “Tax Allocations”), and further agree that if they do not agree on Tax Allocations
initially, they will appoint a mutually satisfactory valuation expert (such as an accounting firm
of national standing) to determine the Tax Allocations (the fees, costs and expenses of such expert
to be shared equally between the Borrower, on the one hand, and Pershing Square Capital and its
managed funds and affiliates, on the other hand). The Borrower and the Lenders agree that they will
each calculate the original issue discount arising from the amount advanced pursuant to this Credit
Agreement based on such Tax Allocations and make their respective tax determinations and filings
consistent therewith, unless otherwise required pursuant to a “determination” within the meaning of
Section 1313(a) of the Code. Notwithstanding anything to the contrary in this Credit Agreement,
this provision shall survive until 90 days after the expiration of the relevant statute of
limitations.

3. REPAYMENT OF THE LOANS.

     3.1. Maturity. The Borrower promises to pay on the Maturity Date, and there shall become
absolutely due and payable on the Maturity Date, all of the Loans outstanding on such date,
together with any and all accrued and unpaid interest thereon and, as a condition to the
effectiveness of such payment, the Repayment Premium.

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     3.2. Voluntary Prepayments. The Borrower shall have the right, upon at least three (3)
Business Days’ prior written notice to the Administrative Agent, to voluntarily prepay all or any
portion (in multiples of not less than $1,000,000 or such lesser amount as may then be outstanding)
of the Loans on any Business Day. Any prepayment of any Loan shall be accompanied by the payment
of all accrued and unpaid interest with respect to the principal being prepaid through the date of
prepayment and, as a condition to the effectiveness of such prepayment, the Repayment Premium.

     3.3. Mandatory Prepayments. On the date of receipt by the Borrower or any Subsidiary of the
Borrower of any Net Cash Proceeds of any Disposition of any direct or indirect interest in the
Paperchase Businesses, the Borrower shall cause 100% of such Net Cash Proceeds to be applied to
prepay the Loans. All prepayments under this Section 3.3 shall be accompanied by all accrued and
unpaid interest on the Loans being prepaid and, as a condition to the effectiveness of such
prepayment, the Repayment Premium.

     3.4. Application of Proceeds. All prepayments under this Section 3.4 with respect to a
particular Loan shall be applied to: first, to reimburse the Agents and Lenders for any
amounts due to them under this Credit Agreement; second, to pay interest accrued and
unpaid; third, to pay the Repayment Premium; and fourth, to pay outstanding
principal amount of such Loan until all of such Loan is repaid in full.

4. CERTAIN GENERAL PROVISIONS.

     4.1. Funds for Payments.

     4.1.1. Payments to Administrative Agent. Unless provided otherwise in this Credit
Agreement, all payments of principal and interest on Loans and any other amounts due
hereunder or under any of the other Loan Documents shall be made on the due date thereof to
the Administrative Agent, for the respective accounts of the applicable Lenders or any
Agent, as the case may be, at the Administrative Agent’s Office or at such other place that
the Administrative Agent may from time to time designate, in each case at or about 11:00
a.m. (Eastern time or other local time at the place of payment) and in Same Day Funds.

     4.1.2. No Offset, etc. All payments by the Borrower hereunder and under any of the
other Loan Documents shall be made without recoupment, setoff or counterclaim and free and
clear of and without deduction for any taxes, levies, imposts, duties, charges, fees,
deductions, withholdings, compulsory loans, restrictions or conditions of any nature now or
hereafter imposed or levied by any jurisdiction or any political subdivision thereof or
taxing or other authority therein unless the Borrower is compelled by law to make such
deduction or withholding. If any such obligation is imposed upon the Borrower with respect
to any amount payable by them hereunder or under any of the other Loan Documents, the
Borrower will pay to the Administrative Agent, for the account of the applicable Lender or
the applicable Agent, as the case may be, on the date on which such amount is due and
payable hereunder or under such other Loan Document, such additional amount in Dollars as
shall be necessary to enable such Lender or such

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Agent to receive the same net amount which such Lender or such Agent would have
received on such due date had no such obligation been imposed upon the Borrower. The
Borrower will deliver promptly to the Administrative Agent certificates or other valid
vouchers for all taxes or other charges deducted from or paid with respect to payments made
by the Borrower hereunder or under such other Loan Document.

     4.1.3. Non-U.S. Lenders. Each Lender and Agent that is not a U.S. Person as defined
in Section 7701(a)(30) of the Code for federal income tax purposes (a “Non-U.S. Lender”)
hereby agrees that, if and to the extent it is legally able to do so, it shall, prior to
the date of the first payment by the Borrower hereunder to be made to such Lender or Agent
or for such Lender’s or Agent’s account, deliver to the Borrower and the Administrative
Agent, as applicable, such certificates, documents or other evidence, as and when required
by the Code or Treasury Regulations issued pursuant thereto, including (a) in the case of a
Non-U.S. Lender that is a “bank” for purposes of Section 881(c)(3)(A) of the Code, two (2)
duly completed copies of Internal Revenue Service Form W-8BEN or Form W-8ECI and any other
certificate or statement of exemption required by Treasury Regulations, or any subsequent
versions thereof or successors thereto, properly completed and duly executed by such Lender
or Agent establishing that with respect to payments of principal, interest or fees
hereunder it is (i) not subject to United States federal withholding tax under the Code
because such payment is effectively connected with the conduct by such Lender or Agent of a
trade or business in the United States or (ii) totally exempt or partially exempt from
United States federal withholding tax under a provision of an applicable tax treaty and (b)
in the case of a Non-U.S. Lender that is not a “bank” for purposes of Section 881(c)(3)(A)
of the Code, a certificate in form and substance reasonably satisfactory to the
Administrative Agent and the Borrower and to the effect that such Non-U.S. Lender (i) is
not a “bank” for purposes of Section 881(c)(3)(A) of the Code, is not subject to regulatory
or other legal requirements as a bank in any jurisdiction, and has not been treated as a
bank for purposes of any tax, securities law or other filing or submission made to any
governmental authority, any application made to a rating agency or qualification for any
exemption from any tax, securities law or other legal requirements, (ii) is not a ten (10)
percent shareholder for purposes of Section 881(c)(3)(B) of the Code and (iii) is not a
controlled foreign corporation receiving interest from a related person for purposes of
Section 881(c)(3)(C) of the Code, together with a properly completed Internal Revenue
Service Form W-8 or W-9, as applicable (or successor forms). Each Lender and Agent agrees
that it shall, promptly upon a change of its lending office or the selection of any
additional lending office, to the extent the forms previously delivered by it pursuant to
this section are no longer effective, and promptly upon the Borrower’s or the
Administrative Agent’s reasonable written request after the occurrence of any other event
(including the passage of time) requiring the delivery of a Form W-8BEN, Form W-8ECI, Form
W-8 or W-9 in addition to or in replacement of the forms previously delivered, deliver to
the Borrower and the Administrative Agent, as applicable, if and to the extent it is
properly entitled to do so, a properly completed and executed Form W-8BEN,

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Form W-8ECI, Form W-8 or W-9, as applicable (or any successor forms thereto).
Without limiting the obligations of the Lenders set forth above regarding delivery of
certain forms and documents to establish each Lender’s status for U.S. withholding tax
purposes, each Lender agrees promptly to deliver to the Administrative Agent, as the
Administrative Agent shall reasonably request, on or prior to the Closing Date, and in a
timely fashion thereafter, such other documents and forms required by any relevant taxing
authorities under the laws of any other jurisdiction, duly executed and completed by such
Lender, as are required under such laws to confirm such Lender’s entitlement to any
available exemption from, or reduction of, applicable withholding taxes in respect of all
payments to be made to such Lender outside of the U.S. by the Borrower pursuant to this
Credit Agreement or otherwise to establish such Lender’s status for withholding tax
purposes in such other jurisdiction. Each Lender shall promptly (A) notify the
Administrative Agent of any change in circumstances which would modify or render invalid
any such claimed exemption or reduction, and (B) take such steps as shall not be materially
disadvantageous to it, in the reasonable judgment of such Lender, and as may be reasonably
necessary to avoid any requirement of applicable laws of any such jurisdiction that the
Borrower make any deduction or withholding for taxes from amounts payable to such Lender.
Additionally, the Borrower shall promptly deliver to the Administrative Agent or any
Lender, as the Administrative Agent or such Lender shall reasonably request, on or prior to
the Closing Date, and in a timely fashion thereafter, such documents and forms required by
any relevant taxing authorities under the laws of any jurisdiction, duly executed and
completed by the Borrower, as are required to be furnished by such Lender or the
Administrative Agent under such laws in connection with any payment by the Administrative
Agent or any Lender of taxes or otherwise in connection with the Loan Documents, with
respect to such jurisdiction.

     4.2. Computations. All computations of interest on the Loans shall be based on a 365/366-day
year and paid for the actual number of days elapsed. Whenever a payment hereunder or under any of
the other Loan Documents becomes due on a day that is not a Business Day, the due date for such
payment shall be extended to the next succeeding Business Day, and interest shall accrue during
such extension.

     4.3. Additional Costs, etc. If any present or future applicable law, which expression, as
used herein, includes statutes, rules and regulations thereunder and interpretations thereof by any
competent court or by any governmental or other regulatory body or official charged with the
administration or the interpretation thereof and requests, directives, instructions and notices at
any time or from time to time hereafter made upon or otherwise issued to any Lender or Agent by any
central bank or other fiscal, monetary or other authority (whether or not having the force of law),
shall:

     (a) subject any Lender or Agent to any tax, levy, impost, duty, charge, fee, deduction or
withholding of any nature with respect to this Credit Agreement, the other Loan Documents, such
Lender’s Commitment or the Loans (other than taxes based upon or measured by the income or profits
of such Lender or Agent), or

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     (b) materially change the basis of taxation (except for changes in taxes on income or profits)
of payments to any Lender of the principal of or the interest on any Loans or any other amounts
payable to any Lender or Agent under this Credit Agreement or any of the other Loan Documents, or

     (c) impose or increase or render applicable (other than to the extent specifically provided
for elsewhere in this Credit Agreement) any special deposit, reserve, assessment, liquidity,
capital adequacy or other similar requirements (whether or not having the force of law) against
assets held by, or deposits in or for the account of, or loans by, or letters of credit issued by,
or commitments of an office of any Lender, or

     (d) impose on any Lender or Agent any other conditions or requirements with respect to this
Credit Agreement, the other Loan Documents, the Loans, such Lender’s Commitment, or any class of
loans, letters of credit or commitments of which any of the Loans or such Lender’s Commitment forms
a part,

and the result of any of the foregoing (a) to (d) is:

     (i) to increase the cost to any Lender of making, funding, issuing, renewing,
extending or maintaining any of the Loans, or

     (ii) to reduce the amount of principal, interest or other amount payable to such
Lender or Agent hereunder on account of such Lender’s Commitment or any of the Loans, or

     (iii) to require such Lender or Agent to make any payment or to forego any interest or
other sum payable hereunder, the amount of which payment or foregone interest or other sum
is calculated by reference to the gross amount of any sum receivable or deemed received by
such Lender or Agent from the Borrower hereunder,

then, and in each such case, the Borrower will, upon demand made by such Lender or any Agent (as
the case may be) at any time and from time to time and as often as the occasion therefor may arise,
pay to such Lender or Agent such additional amounts as will be sufficient to compensate such Lender
or Agent for such additional cost, reduction, payment or foregone interest or other sum.

     4.4. Capital Adequacy. If after the date hereof any Lender or Agent determines that (a) the
adoption of or change in any law, governmental rule, regulation, policy, guideline or directive
(whether or not having the force of law) regarding capital requirements for banks or bank holding
companies or any change in the interpretation or application thereof by a Governmental Authority
with appropriate jurisdiction, or (b) compliance by such Lender or Agent or any corporation
controlling such Lender or Agent with any law, governmental rule, regulation, policy, guideline or
directive (whether or not having the force of law) of any such entity regarding capital adequacy,
has the effect of reducing the return on such Lender’s or Agent’s commitment with respect to any
Loans to a level below that which such Lender or Agent could have achieved but for such adoption,
change or compliance (taking into consideration such

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Lender’s or Agent’s then existing policies with respect to capital adequacy and assuming full
utilization of such entity’s capital) by any amount deemed by such Lender or Agent (as the case may
be) to be material, then such Lender or Agent may notify the Borrower of such fact. To the extent
that the amount of such reduction in the return on capital is not reflected in the Interest Rate,
the Borrower agrees to pay such Lender or Agent (as the case may be) for the amount of such
reduction in the return on capital as and when such reduction is determined upon presentation by
such Lender or Agent (as the case may be) of a certificate in accordance with Section 4.5 hereof.
Each Lender shall allocate such cost increases among its customers in good faith and on an
equitable basis.

     4.5. Certificate. A certificate setting forth any additional amounts payable pursuant to
Sections 4.3 or 4.4 and a brief explanation of such amounts which are due, submitted by any Lender
or Agent to the Borrower, shall be conclusive, absent manifest error, that such amounts are due and
owing.

     4.6. Interest After Default.

     4.6.1. Overdue Amounts. Overdue principal and (to the extent permitted by applicable
law) interest on the Loans and all other overdue amounts payable hereunder or under any of
the other Loan Documents shall bear interest compounded monthly and payable on demand at a
rate per annum equal to two percent (2%) above the Interest Rate until such amount shall be
paid in full (after as well as before judgment).

     4.6.2. Amounts Not Overdue. During the continuance of a Default or an Event of
Default the principal of the Loans not overdue shall, until such Default or Event of
Default has been cured or remedied or such Default or Event of Default has been waived by
the Required Lenders pursuant to Section 14.12, bear interest at a rate per annum equal to
the rate of interest applicable to overdue principal pursuant to Section 4.6.1.

     4.7. Replacement of Lenders. If any Lender (an “Affected Lender”) (a) makes demand upon the
Borrower for (or if the Borrower is otherwise required to pay) amounts pursuant to Sections 4.3 or
4.4 or (b) defaults in its obligation to make Loans in accordance with the terms of this Credit
Agreement, the Borrower may, so long as no Default or Event of Default has occurred and is then
continuing, within ninety (90) days of receipt of such demand or default referred to in clauses (a)
or (b), as the case may be, by notice (a “Replacement Notice”) in writing to the Administrative
Agent and such Affected Lender (i) request the Affected Lender to cooperate with the Borrower in
obtaining a replacement Lender satisfactory to the Administrative Agent and the Borrower (the
“Replacement Lender”); (ii) request the non-Affected Lenders to acquire and assume all of the
Affected Lender’s Loans, but none of such Lenders shall be under an obligation to do so; or (iii)
designate a Replacement Lender approved by the Administrative Agent, such approval not to be
unreasonably withheld or delayed. If any satisfactory Replacement Lender shall be obtained, and/or
if any one or more of the non-Affected Lenders shall agree to acquire and assume all of the
Affected Lender’s Loans and Commitment, then such Affected Lender shall assign, in accordance with
Section 13,

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all of its Commitment, Loans, Notes and other rights and obligations under this Credit
Agreement and all other Loan Documents to such Replacement Lender or non-Affected Lenders, as the
case may be, in exchange for payment of the principal amount so assigned and all interest and fees
accrued on the amount so assigned, plus all other Obligations then due and payable to the Affected
Lender; provided, however, that (A) such assignment shall be without recourse, representation or
warranty and shall be on terms and conditions reasonably satisfactory to such Affected Lender and
such Replacement Lender and/or non-Affected Lenders, as the case may be, and (B) prior to any such
assignment, the Borrower shall have paid to such Affected Lender all amounts properly demanded and
unreimbursed under Sections 4.3 and 4.4. Upon the effective date of such assignment, the Borrower
shall issue replacement Notes to such Replacement Lender and/or non-Affected Lenders, as the case
may be, and such institution shall become a “Lender” for all purposes under this Credit Agreement
and the other Loan Documents.

5. GUARANTY AND COLLATERAL SECURITY.

     5.1. Guaranty of Payment and Performance. For value received and hereby acknowledged and as
an inducement to the Lenders to make Loans to the Borrower, (a) each Guarantor hereby absolutely,
unconditionally and irrevocably guarantees to the Agents and the Lenders, the full and punctual
payment when due (whether at stated maturity, by required pre-payment, by acceleration or
otherwise), as well as the performance, of all of the Obligations including all such which would
become due but for the operation of the automatic stay pursuant to Section 362(a) of the Federal
Bankruptcy Code and the operation of Sections 502(b) and 506(b) of the Federal Bankruptcy Code
(such obligations collectively being the “Guaranteed Obligations”). This Section 5 is in no way
conditioned upon any requirement that any Agent or Lender first attempt to collect any of the
Obligations from the Borrower or resort to any collateral security or other means of obtaining
payment. Should the Borrower default in the payment or performance of any of its Obligations, the
obligations of each Guarantor hereunder to the Guaranteed Obligations shall become immediately due
and payable to the Administrative Agent, for the benefit of the Lenders or the Agents, without
demand or notice of any nature, all of which are expressly waived by each Guarantor.

     5.2. Guaranty Absolute. Each of the Guarantors guarantees that the Guaranteed Obligations
will be paid strictly in accordance with the terms hereof, regardless of any law, regulation,
order, decree or directive (whether or not having the force of law) or any interpretation thereof,
now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of any
Agent or Lender with respect thereto, including, without limitation, any law, regulation, order,
decree or directive or interpretation thereof that purports to require or permit the satisfaction
of any Guaranteed Obligation, other than strictly in accordance with the terms of this Credit
Agreement, or (b) any agreement, whether or not signed by or on behalf of any Agent or the Lenders,
in connection with the restructuring or rescheduling of public or private obligations in the
Borrower’s country, whether or not such agreement is stated to cause or permit the discharge of the
Obligations prior to the final payment in full of the Obligations. The

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liability of each Guarantor under this Guaranty with regard to the Guaranteed Obligations of
the Borrower shall be absolute and unconditional irrespective of:

     (a) any lack of authorization, execution, validity or enforceability or any illegality of the
Borrower to become a Borrower hereunder, this Credit Agreement and any amendment hereof (with
regard to such Guaranteed Obligations), or any other obligation, agreement or instrument relating
thereto (it being agreed by each Guarantor that the Guaranteed Obligations shall not be discharged
prior to the final and complete satisfaction of all of the Obligations of the Borrower) or any
failure to obtain any necessary governmental consent or approvals or necessary third party consents
or approvals;

     (b) any Agent’s or any Lender’s exercise or enforcement of, or failure or delay in exercising
or enforcing, legal proceedings to collect the Obligations or the Guaranteed Obligations, as the
case may be, or any power, right or remedy with respect to any of the Obligations or the Guaranteed
Obligations, as the case may be, including any change in the time, manner or place of payment of,
or in any other term of, all or any of the Guaranteed Obligations of the Borrower or any other
amendment or waiver of or any consent to departure from this Credit Agreement or the other Loan
Documents (with regard to such Guaranteed Obligations) or any other agreement or instrument
governing or evidencing any of the Guaranteed Obligations;

     (c) any exchange, release or non-perfection of any collateral, or any release or amendment or
waiver of or consent to departure from any other guaranty, for all or any of the Guaranteed
Obligations of the Borrower;

     (d) any change in ownership of the Borrower;

     (e) any acceptance of any partial payment(s) from the Borrower;

     (f) any insolvency, bankruptcy, reorganization, arrangement, adjustment, composition,
assignment for the benefit of creditors, appointment of a receiver, examiner or trustee for all or
any part of the Borrower’s assets;

     (g) any assignment, participation or other transfer, in whole or in part, of any Agent’s or
any Lender’s interest in and rights under this Credit Agreement or any other Loan Document, or of
any Agent’s or any Lender’s interest in the Obligations or the Guaranteed Obligations;

     (h) any cancellation, renunciation or surrender of any pledge, guaranty or any debt instrument
evidencing the Obligations or the Guaranteed Obligations;

     (i) any Agent’s or any Lender’s vote, claim, distribution, election, acceptance, action or
inaction in any bankruptcy or reorganization case related to the Obligations or the Guaranteed
Obligations; or

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     (j) any other action or circumstance, other than payment, which might otherwise constitute a
defense available to, or a discharge of, the Borrower in respect of its or the Guaranteed
Obligations.

     This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any
time any payment of any of the Guaranteed Obligations is rescinded or must otherwise be returned by
any Agent or any Lender upon the insolvency, bankruptcy or reorganization, examination of the
Borrower or otherwise, all as though such payment had not been made.

     5.3. Effectiveness, Enforcement. The Guaranty herein of each Guarantor shall be effective and
shall be deemed to be made with respect to each Loan made as of the time it is made. No
invalidity, irregularity or unenforceability by reason of any bankruptcy or similar law, or any law
or order of any government or agency thereof purporting to reduce, amend or otherwise affect any
liability of the Borrower, and no defect in or insufficiency or want of powers of the Borrower or
irregular or improperly recorded exercise thereof, shall impair, affect, be a defense to or claim
against such Guaranty. This Guaranty is a continuing guaranty and shall (a) survive any
termination of this Credit Agreement and (b) remain in full force and effect until payment in full
in cash and performance of all Guaranteed Obligations and all other amounts payable under this
Guaranty. This Guaranty is made for the benefit of each Agent and each of the Lenders and their
respective successors and assigns, and may be enforced from time to time as often as occasion
therefor may arise and without requirement on the part of any Agent or any Lender first to exercise
any rights against the Borrower or to exhaust any remedies available to it against the Borrower or
to resort to any other source or means of obtaining payment of any of the Guaranteed Obligations or
to elect any other remedy. In the event that acceleration of the time for payment (or the giving
of notice of such acceleration) of the Guaranteed Obligations of the Borrower is stayed upon the
insolvency, bankruptcy, examination or reorganization, of the Borrower or for any other reason, all
such amounts otherwise subject to acceleration under the terms of this Credit Agreement shall be
immediately due and payable by each Guarantor under the Guaranty herein provided.

     5.4. Waiver. Each of the Guarantors hereby waives promptness, diligence, protest, notice of
protest, all suretyship defenses, notice of acceptance and any other notice with respect to any of
the Guaranteed Obligations and this Guaranty and any requirement that any Agent or any Lender
secure, perfect or protect any security interest or lien or any property subject thereto or exhaust
any right or take any action against the Borrower or any other Person or any collateral. Each of
the Guarantors also irrevocably waives, to the fullest extent permitted by law, all defenses which
at any time may be available to it in respect of the Guaranteed Obligations by virtue of any
statute of limitations, valuation, stay, moratorium law or other similar law now or hereafter in
effect.

     5.5. Subordination; Subrogation. Until the termination of the Commitments and final payment
and performance in full in cash of all of the Obligations, none of the Guarantors shall exercise
and hereby waives any rights against the Borrower as a result of

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payment by any Guarantor hereunder, by way of subrogation, reimbursement, restitution,
contribution or otherwise, and any Guarantor will not prove any claim in competition with any Agent
or any Lender in respect of any payment hereunder in bankruptcy, insolvency or reorganization
proceedings of any nature; any Guarantor will not claim any set-off, recoupment or counterclaim
against the Borrower in respect of any liability of such Guarantor; and each Guarantor waives any
benefit of and any right to participate in any collateral which may be held by any Agent or any
Lender. The payment of any amounts due with respect to any Indebtedness of the Borrower now or
hereafter held by any Guarantor is hereby subordinated to the prior payment in full of the
Guaranteed Obligations. Each Guarantor agrees that after the occurrence of any default in the
payment or performance of the Guaranteed Obligations such Guarantor will not demand, sue for, or
otherwise attempt to collect any such Indebtedness of the Borrower to such Guarantor until the
Guaranteed Obligations then due shall have been paid in full in cash. If, notwithstanding the
foregoing sentence, any Guarantor shall collect or receive any amounts in respect of such
indebtedness, such amounts shall be collected and received by such Guarantor as trustee for the
Agents and the Lenders and be paid over to the Administrative Agent for the respective accounts of
the Agents and the Lenders on account of the Guaranteed Obligations without affecting in any manner
the liability of any Guarantor under the other provisions of this Section 5. The provisions of
this Section 5 shall survive the expiration or termination of the Credit Agreement and the other
Loan Documents and the provisions of this Section 5 shall be supplemental to and not in derogation
of any rights and remedies of any Agent or any Lender under any separate subordination agreement
which any Agent or any Lender may at any time and from time to time entered into with any Guarantor
for the benefit of any Agent or any Lender.

     5.6. Payments. Payments by each Guarantor hereunder may be required by the Administrative
Agent on any number of occasions. All payments made by each Guarantor under this Section 5 shall
be made to the Administrative Agent, in the manner and at the place of payment specified therefor
in Section 4.1.1 hereof, for the account of the Lenders and the Agents and in the same currency in
which such Obligation was made, unless otherwise agreed to in writing by the Agents or the Lenders.

     5.7. Setoff. Each Guarantor grants to the Agents and the Lenders, as security for the full
and punctual payment and performance of all of such Guarantor’s obligations under this Section 5, a
continuing lien on, security interest and right of setoff in all securities or other property
belonging to such Guarantor, as the case may be, now or hereafter held by any Agent or such Lender
and in all deposits (general or special, time or demand, provisional or final) and other sums
credited by or due from any Agent or such Lender to such Guarantor or subject to withdrawal by such
Guarantor. Regardless of the adequacy of any collateral security or other means of obtaining
payment of any of the Guaranteed Obligations, each of the Agents and the Lenders is hereby
authorized at any time and from time to time during the continuance of any Event of Default,
without notice to any Guarantor (any such notice being expressly waived by the Guarantors) and to
the fullest extent permitted by law, to set off and apply such deposits and other sums against the
obligations of such Guarantor under this Section 5, whether or not such Agent or such Lender shall
have made any demand under this Section 5 and although such obligations may be contingent or
unmatured.

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     5.8. Further Assurances. Each Guarantor agrees that it will from time to time, at the request
of the Administrative Agent, do all such things and execute all such documents as the
Administrative Agent may reasonably consider necessary or desirable to give full effect to this
Section 5 and to perfect and preserve the rights and powers of the Lenders and the Agents
hereunder. Each Guarantor acknowledges and confirms that it has established its own adequate means
of obtaining from the Borrower on a continuing basis all information desired by it concerning the
financial condition of the Borrower and that it will look to the Borrower and not to any Agent or
any Lender in order for it to keep adequately informed of changes of the financial condition of the
Borrower.

     5.9. Successors and Assigns. This Section 5 shall be binding upon each Guarantor, its
successors and assigns, and shall inure to the benefit of the Agents and the Lenders and their
respective successors, and permitted transferees and assigns. Without limiting the generality of
the foregoing sentence, each Lender may, in accordance with the provisions of Section 13 and
subject to the limitations set forth therein, assign or otherwise transfer this Credit Agreement,
the other Loan Documents or any other agreement or note held by it evidencing, securing or
otherwise executed in connection with the Obligations, or sell participations in any interest
therein, to another Person, and such other Person shall thereupon become vested, to the extent set
forth in the agreement evidencing such assignment, transfer or participation, with all the rights
in respect thereof granted to such Lender herein. None of the Guarantors may assign any of its
obligations hereunder. The Borrower may cause additional Subsidiaries of the Borrower to become
Guarantors hereunder by causing such Subsidiary or Subsidiaries to agree to be bound by the
provisions of this Section 5, to execute and deliver a Joinder Agreement to the Administrative
Agent and to deliver such legal opinions and other documents and instruments as the Administrative
Agent may request.

     5.10. Contribution. To the extent any of the Guarantors makes a payment hereunder in excess
of the aggregate amount of the benefit received by such Person in respect of the extensions of
credit under the Credit Agreement (the “Benefit Amount”), then such Person, after the payment in
full in cash of all of the Guaranteed Obligations shall be entitled to recover from each such
Person such excess payment, pro rata in accordance with the ratio of the Benefit Amount received by
such other Person to the total Benefit Amounts received by each of the Guarantors, and the right to
such recovery shall be deemed to be in asset and property of such Person so funding; provided that
all such rights to recovery shall be subordinate and junior in right of payment to the final and
indefeasible repayment in full in cash of all of the Obligations.

     5.11. Security of Borrower. (a) The Obligations shall be secured by a perfected first
priority security interest in 14,724 shares of the Capital Stock of Paperchase and 42,300,000
shares of the Capital Stock of Superstores, each pledged by BGP (UK) (such shares, the “Pledged
Shares”), which shall constitute, through such of BGP (UK)’s direct and indirect holdings,
approximately 65% of the Capital Stock of Paperchase. The terms and conditions of such first
priority security interest are set forth in the Pledge Agreement.

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6. REPRESENTATIONS AND WARRANTIES.

     The Borrower represents and warrants to the Lenders and the Agents as follows:

     6.1. Corporate Authority.

     6.1.1. Incorporation; Good Standing. Each of the Borrower and its Subsidiaries (a) is
a corporation (or similar business entity) duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or formation, (b) has all
requisite corporate (or the equivalent company) power to own its property and conduct its
business as now conducted and as presently contemplated, and (c) is in good standing as a
foreign corporation (or similar business entity) and is duly authorized to do business in
each jurisdiction where such qualification is necessary except where a failure to be so
qualified would not have a Material Adverse Effect.

     6.1.2. Authorization. The execution, delivery and performance of this Credit
Agreement and the other Loan Documents to which the Borrower or any of its Subsidiaries is
or is to become a party and the transactions contemplated hereby and thereby (a) are within
the corporate (or the equivalent company) authority of such Person, (b) have been duly
authorized by all necessary corporate (or the equivalent company) proceedings, (c) do not
and will not conflict with or result in any breach or contravention of any provision of
law, statute, rule or regulation to which the Borrower or any of its Subsidiaries is
subject or any judgment, order, writ, injunction, license or permit applicable to the
Borrower or any of its Subsidiaries and (d) do not conflict with any provision of the
Governing Documents of, or any Contract binding upon, the Borrower or any of its
Subsidiaries.

     6.1.3. Enforceability. The execution and delivery of this Credit Agreement and the
other Loan Documents to which the Borrower or any of its Subsidiaries is or is to become a
party will result in valid and legally binding obligations of such Person enforceable
against it in accordance with the respective terms and provisions hereof and thereof,
except as enforceability is limited by bankruptcy, insolvency, reorganization, moratorium
or other laws relating to or affecting generally the enforcement of creditors’ rights and
except to the extent that availability of the remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceeding therefor may
be brought.

     6.2. Governmental Approvals. The execution, delivery and performance by the Borrower and any
of its Subsidiaries of this Credit Agreement and the other Loan Documents to which the Borrower or
any of its Subsidiaries is or is to become a party and the transactions contemplated hereby and
thereby do not require the approval or consent of, or filing with, any governmental agency or
authority other than those already obtained.

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     6.3. Title to Properties; Leases. Except as indicated on Schedule 6.3 hereto, the Borrower
and its Subsidiaries own all of the Properties reflected in the consolidated balance sheet of the
Borrower and its Subsidiaries as at the Balance Sheet Date or acquired since that date (except
Property sold or otherwise disposed of in the ordinary course of business since that date), subject
to no Liens or other rights of others, except Permitted Liens.

     6.4. Fiscal Year; Financial Statements and Projections.

     6.4.1. Fiscal Year. The Borrower and each of its Subsidiaries has a Fiscal Year which
is the 52/53 week period ending on the Saturday closest to the last day in January;
provided that the Borrower and its Subsidiaries may change any Fiscal Year end date to a
date not more than seven (7) days before or after the then scheduled end date of such
Fiscal Year with written notice to the Administrative Agent not less than thirty (30) days
prior to the commencement of such Fiscal Year. The Fiscal Quarters and Fiscal Year of the
Borrower and its Subsidiaries are accurately described in Section 1.1 hereof (except as
otherwise noticed to the Administrative Agent pursuant to the proviso of the preceding
sentence).

     6.4.2. Financial Statements. There has been furnished to each of the Lenders (a) a
consolidated balance sheet and consolidated statements of income and cash flow of the
Borrower and its Subsidiaries as at the Balance Sheet Date, certified by Ernst & Young LLP,
and (b) a consolidated balance sheet and consolidated statements of income and cash flow of
(i) the Borrower and its Subsidiaries and (ii) the Paperchase Companies for the FQ3 2007.
Such balance sheets and statements of income and cash flow have been prepared in accordance
with GAAP and fairly present the financial condition of the Borrower and its Subsidiaries
and the Paperchase Companies, as applicable, as at the close of business on the date
thereof and the results of operations for the fiscal year then ended. There are no
contingent liabilities of the Borrower or any of its Subsidiaries or any of the Paperchase
Companies as of such date involving material amounts, known to the officers of the
Borrower, which were not disclosed in such balance sheets and the notes related thereto.

     6.4.3. Projections. The projections of the annual operating budgets of the Borrower
and its Subsidiaries, on a consolidated basis, balance sheets and cash flow statements for
the monthly periods until January 2009 and the preliminary monthly projections of the
Borrower and its Subsidiaries for the Fiscal Years 2008 and 2009, respectively, copies of
which have been delivered to each Lender, disclose all assumptions made with respect to
general economic, financial and market conditions used in formulating such projections. To
the knowledge of the Borrower or any of its Subsidiaries, no facts exist that (individually
or in the aggregate) would result in any material change in any of such projections. The
projections are based upon reasonable estimates and assumptions, have been prepared on the
basis of the assumptions stated therein and reflect the reasonable estimates of the
Borrower and its Subsidiaries and the

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Paperchase Companies, as applicable, of the results of operations and other
information projected therein.

     6.5. No Material Adverse Effect, Etc. Since the Balance Sheet Date there has been no event or
occurrence which has had a Material Adverse Effect as defined in clauses (c) and (d) of the
definition of “Material Adverse Effect” in Section 1.1. Since the Balance Sheet Date, the Borrower
has not made any Restricted Payment except as set forth in Schedule 6.5 hereto.

     6.6. Intellectual Property.

     6.6.1. Franchises, Patents, Copyrights, Etc. (i) The Borrower and each of its
Subsidiaries and (ii) the Paperchase Companies possesses all franchises, patents,
copyrights, trademarks, trade names, licenses and permits, and rights in respect of the
foregoing, adequate for the conduct of its business as currently conducted without known
conflict with any rights of others.

     6.6.2. Paperchase Companies Intellectual Property. Schedule 6.6.2 lists all of the
material patents, copyrights, trademarks and trade names (“Intellectual Property”) owned by
the Paperchase Companies or used by them (other than relating to “Borders” or “Borders
Books” or similar marks, copyrights or names) in the conduct of their business as currently
conducted, and identifies the owner of such Intellectual Property and, if the owner is not
any of the Paperchase Companies, the license agreement or other arrangement by which any
such Paperchase Company have the right to use such Intellectual Property.

     6.7. Litigation. Except as set forth in Schedule 6.7 hereto, there are no claims, actions,
suits, arbitrations, proceedings or investigations or orders, judgment, awards, decrees,
injunctions, settlements or stipulations of any kind pending or threatened against the Borrower or
any of its Subsidiaries before any Governmental Authority, that, (a) might reasonably be expected
to, either in any case or in the aggregate, (i) have a Material Adverse Effect or (ii) materially
impair the right of the Borrower and its Subsidiaries, considered as a whole, to carry on business
as now conducted by them, or result in any liability not adequately covered by insurance, or for
which adequate reserves are not maintained on the consolidated balance sheet of the Borrower and
its Subsidiaries, or (b) which question the validity of this Credit Agreement or any of the other
Loan Documents, or any action taken or to be taken pursuant hereto or thereto.

     6.8. No Materially Adverse Contracts, Etc. Neither the Borrower nor any of its Subsidiaries
is subject to any Governing Document or other legal restriction, or any judgment, decree, order,
law, statute, rule or regulation that has or is expected in the future to have a Material Adverse
Effect. Neither the Borrower nor any of its Subsidiaries is a party to any contract, lease,
license, consent, arrangement or other agreement (“Contract”) that has or is expected, in the
judgment of the Borrower’s officers, to have any Material Adverse Effect.

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     6.9. Compliance With Other Instruments, Laws, etc. (i) Neither the Borrower nor any of its
Subsidiaries is in violation of any provision of its Governing Documents, or any Contract to which
it may be subject or by which it or any of its Properties may be bound or any decree, order,
judgment, statute, permit, rule or regulation, in any of the foregoing cases in a manner that could
result in the imposition of substantial penalties or have a Material Adverse Effect and (ii) no
Default or Event of Default under the Existing Credit Agreement has occurred or is continuing.

     6.10. Tax Status. Each of the Borrower and its Subsidiaries (a) has made or filed all
federal, state and foreign income and all other tax returns, reports and declarations required by
any jurisdiction to which it is subject, (b) has paid in full all taxes and other governmental
assessments and charges shown or determined to be due on such returns, reports and declarations,
except those being contested in good faith and by appropriate proceedings and (c) has set aside on
its books provisions reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any jurisdiction, and none of the
officers of the Borrower know of any basis for any such claim.

     6.11. No Event of Default. No Default or Event of Default has occurred and is continuing.

     6.12. Holding Company and Investment Company Acts. Neither the Borrower nor any of their
Subsidiaries is a “holding company”, or a “subsidiary company” of a “holding company”, or an
“affiliate” of a “holding company”, as such terms are defined in the Public Utility Holding Company
Act of 2005; nor is it is subject to regulation as a “public utility” under the Federal Power Act,
as amended; nor is it an “investment company”, or an “affiliated company” or a “principal
underwriter” of an “investment company”, as such terms are defined in the Investment Company Act of
1940.

     6.13. Certain Transactions. Except as set forth on Schedule 6.13, none of the officers,
directors, or employees of the Borrower or any of its Subsidiaries is presently a party to any
transaction involving payments in excess of $500,000 with the Borrower or any of its Subsidiaries
(other than for services as employees, officers and directors), including any contract, agreement
or other arrangement providing for the furnishing of services to or by, providing for rental of
real or personal property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Borrower, any corporation, partnership, trust
or other entity in which any officer or any such employee has a substantial interest or is an
officer, trustee or partner.

     6.14. Employee Benefit Plans.

     6.14.1. In General. Each Employee Benefit Plan and each Guaranteed Pension Plan has
been maintained and operated in compliance in all material respects with the provisions of
ERISA and all Applicable Pension Legislation and, to the extent applicable, the Code,
including but not limited to the provisions

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thereunder respecting prohibited transactions and the bonding of fiduciaries and other
persons handling plan funds as required by Section 412 of ERISA. The Borrower has
heretofore delivered to the Administrative Agent the most recently completed annual report,
Form 5500, with all required attachments, and actuarial statement required to be submitted
under Section 103(d) of ERISA, with respect to each Guaranteed Pension Plan.

     6.14.2. Terminability of Welfare Plans. No Employee Benefit Plan, which is an
employee welfare benefit plan within the meaning of Section 3(1) or Section 3(2)(B) of
ERISA, provides benefit coverage subsequent to termination of employment, except as
required by Title I, Part 6 of ERISA or the applicable state insurance laws, provided,
however, that the Borrower may include retirees in its employee welfare plans and pay a
portion of the cost of such coverage so long as (a) the premium based cost of the coverage
does not exceed, in the aggregate $2,000,000 and (b) such coverage is terminable at any
time by the Borrower. The Borrower may terminate each such Plan at any time (or at any
time subsequent to the expiration of any applicable bargaining agreement) in the discretion
of the Borrower without liability to any Person other than for claims arising prior to
termination.

     6.14.3. Guaranteed Pension Plans. Each contribution required to be made to a
Guaranteed Pension Plan, whether required to be made to avoid the incurrence of an
accumulated funding deficiency, the notice or lien provisions of Section 302(f) of ERISA,
or otherwise, has been timely made. No waiver of an accumulated funding deficiency or
extension of amortization periods has been received with respect to any Guaranteed Pension
Plan, and neither the Borrower nor any ERISA Affiliate is obligated to or has posted
security in connection with an amendment to a Guaranteed Pension Plan pursuant to Section
307 of ERISA or Section 401(a)(29) of the Code. No liability to the PBGC (other than
required insurance premiums, all of which have been paid) has been incurred by the Borrower
or any ERISA Affiliate with respect to any Guaranteed Pension Plan and there has not been
any ERISA Reportable Event (other than an ERISA Reportable Event as to which the
requirement of 30 days notice has been waived), or any other event or condition which
presents a material risk of termination of any Guaranteed Pension Plan by the PBGC. Based
on the latest valuation of each Guaranteed Pension Plan (which in each case occurred within
twelve months of the date of this representation), and on the actuarial methods and
assumptions employed for that valuation, the aggregate benefit liabilities of all such
Guaranteed Pension Plans within the meaning of Section 4001 of ERISA did not exceed the
aggregate value of the assets of all such Guaranteed Pension Plans, disregarding for this
purpose the benefit liabilities and assets of any Guaranteed Pension Plan with assets in
excess of benefit liabilities.

     6.14.4. Multiemployer Plans. Neither the Borrower nor any ERISA Affiliate has
incurred any material liability (including secondary liability) to any Multiemployer Plan
as a result of a complete or partial withdrawal from such Multiemployer Plan under Section
4201 of ERISA or as a result of a sale of assets

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described in Section 4204 of ERISA. Neither the Borrower nor any ERISA Affiliate has
been notified that any Multiemployer Plan is in reorganization or insolvent under and
within the meaning of Section 4241 or Section 4245 of ERISA or is at risk of entering
reorganization or becoming insolvent, or that any Multiemployer Plan intends to terminate
or has been terminated under Section 4041A of ERISA.

     6.15. Use of Proceeds. The proceeds of the Loans shall be used (i) to pay fees and expenses
in connection with the transactions contemplated by this Credit Agreement, the Purchase Offer,
dated April 9, 2008 (the “Purchase Offer”), and the Warrant and Registration Rights Agreement,
dated April 9, 2008 (the “Warrant and Registration Rights Agreement”), and (ii) to the extent of
remaining proceeds, for working capital and general corporate purposes.

     6.16. Environmental Compliance. The Borrower has taken all appropriate inquiry into the
previous ownership of the Real Estate consistent with good commercial or customary practice and,
based upon such diligent investigation, has determined that, to the best of the Borrower’s
knowledge:

     (a) neither the Borrower, its Subsidiaries or any operator of the Real Estate or any
operations thereon is in violation, or alleged violation, of any judgment, decree, order, law,
license, rule or regulation pertaining to environmental matters, including, without limitation,
those arising under the Resource Conservation and Recovery Act (“RCRA”), the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 as amended (“CERCLA”), the Superfund
Amendments and Reauthorization Act of 1986 (“SARA”), the Federal Clean Water Act, the Federal Clean
Air Act, the Toxic Substances Control Act, or any state, local or foreign law, statute, regulation,
ordinance, order or decree relating to health, safety or the environment (hereinafter
“Environmental Laws”), which violation would have a material adverse effect on the environment or a
Material Adverse Effect;

     (b) neither the Borrower nor any of its Subsidiaries has received notice from any third party
including, without limitation, any Governmental Authority, (i) that any one of them has been
identified by the United States Environmental Protection Agency (“EPA”) as a potentially
responsible party under CERCLA with respect to a site listed on the National Priorities List, 40
C.F.R. Part 300 Appendix B; (ii) that any hazardous waste, as defined by 42 U.S.C. Section 6903(5),
any hazardous substances as defined by 42 U.S.C. Section 9601(14), any pollutant or contaminant as
defined by 42 U.S.C. Section 9601(33) and any toxic substances, oil or hazardous materials or other
chemicals or substances regulated by any Environmental Laws (“Hazardous Substances”) which any one
of them has generated, transported or disposed of has been found at any site at which a
Governmental Authority has conducted or has ordered that the Borrower or any of its Subsidiaries
conduct a remedial investigation, removal or other response action pursuant to any Environmental
Law; or (iii) that it is or shall be a named party to any claim, action, cause of action,
complaint, or legal or administrative proceeding (in each case, contingent or otherwise) arising
out of any third party’s incurrence of costs,

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expenses, losses or damages of any kind whatsoever in connection with the release of Hazardous
Substances;

     (c) except as set forth on Schedule 6.16 attached hereto: (i) no portion of the Real Estate
has been used for the handling, processing, storage or disposal of Hazardous Substances except in
accordance with applicable Environmental Laws; and no underground tank or other underground storage
receptacle for Hazardous Substances is located on any portion of the Real Estate except in
accordance with applicable Environmental Laws; (ii) in the course of any activities conducted by
the Borrower, its Subsidiaries or operators of its properties, no Hazardous Substances have been
generated or are being used on the Real Estate except in accordance with applicable Environmental
Laws; (iii) there have been no releases (i.e., any past or present releasing, spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting, escaping, disposing or dumping) or
threatened releases of Hazardous Substances on, upon, into or from the properties of the Borrower
or its Subsidiaries, which releases would have a material adverse effect on the value of any of the
Real Estate or adjacent properties or the environment; (iv) to the best of the Borrower’s
knowledge, there have been no releases on, upon, from or into any real property in the vicinity of
any of the Real Estate which, through soil or groundwater contamination, may have come to be
located on, and which would have a material adverse effect on the value of, the Real Estate; and
(v) in addition, any Hazardous Substances that have been generated on any of the Real Estate have
been transported offsite only by carriers having an identification number issued by the EPA (or the
equivalent thereof in any foreign jurisdiction), treated or disposed of only by treatment or
disposal facilities maintaining valid permits as required under applicable Environmental Laws,
which transporters and facilities have been and are, to the best of the Borrower’s knowledge,
operating in compliance with such permits and applicable Environmental Laws; and

     (d) neither the Borrower nor any of its Subsidiaries, or any of the Real Estate is subject to
any applicable Environmental Law requiring the performance of Hazardous Substances site
assessments, or the removal or remediation of Hazardous Substances, or the giving of notice to any
Governmental Authority or the recording or delivery to other Persons of an environmental disclosure
document or statement by virtue of the transactions set forth herein and contemplated hereby, or to
the effectiveness of any other transactions contemplated hereby.

     6.17. Subsidiaries. Schedule 6.17, as the same may be updated pursuant to Section 6.22
hereof, states the name of each of the Borrower’s Subsidiaries and Joint Ventures and, in each
case, such entity’s jurisdiction of incorporation, the outstanding shares (referred to herein as
the “Subsidiary Shares”) and the owners thereof if it is a corporation, such entity’s outstanding
partnership interests (the “Partnership Interests”) if it is a partnership and such entity’s
outstanding membership interests (the “Membership Interests”) if it is a limited liability company.
The Borrower and each of its Subsidiaries has good and marketable title to all of the Subsidiary
Shares, Partnership Interests, and Membership Interests it purports to own, free and clear in each
case of any Lien. All Subsidiary Shares, Partnership Interests and Membership Interests have been
validly issued and all Subsidiary Shares are fully paid and nonassessable. All capital

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contributions and other consideration required to be made or paid in connection with the
issuance of the Partnership Interests have been made or paid, as the case may be. There are no
options, warrants or other rights outstanding to purchase any such Subsidiary Shares, Partnership
Interests or Membership Interests except as indicated on Schedule 6.17.

     6.18. No Other Guarantors. Except for the Borrower and Guarantors (as defined herein), there
are no other Guarantors or Co-Borrowers (each as defined in the Existing Credit Agreement in effect
on the date hereof) party to the Existing Credit Agreement.

     6.19. Disclosure. None of this Credit Agreement or any of the other Loan Documents contains
any untrue statement of a material fact or omits to state a material fact (known to the Borrower or
any of its Subsidiaries in the case of any document or information not furnished by it or any of
its Subsidiaries) necessary in order to make the statements herein or therein not misleading.
There is no fact known to the Borrower or any of its Subsidiaries which has a Material Adverse
Effect, or which is reasonably likely in the future to have a Material Adverse Effect, exclusive of
effects resulting from changes in general economic conditions, legal standards or regulatory
conditions.

     6.20. Senior Debt Status. The Obligations of the Borrower under this Credit Agreement and
each of the other Loan Documents to which it is a party do rank and will rank at least pari passu
in priority of payment with all other Indebtedness of the Borrower except Indebtedness of the
Borrower to the extent secured by Permitted Liens. There is no Lien upon or with respect to any of
the properties or income of the Borrower or any Subsidiary of the Borrower which secures
Indebtedness or other obligations of any Person except for Permitted Liens.

     6.21. Solvency. After giving effect to each incurrence of Indebtedness hereunder, and the
payment of all Premiums, costs and expenses payable by the Borrower hereunder, each of the
Borrower, the Guarantors and the Paperchase Companies is Solvent.

     6.22. Updates to Schedules. Should any of the information or disclosures provided on any of
the Schedules attached hereto become outdated or incorrect in any material respect, the Borrower
shall promptly provide the Administrative Agent in writing with such revisions or updates to such
Schedule as may be necessary or appropriate to update or correct same; provided that, except for
the amendment of Schedule 1, as contemplated by Section 13, and the amendment of Schedule 6.17 in
connection with any new Subsidiary of the Borrower as permitted herein, no Schedule shall be deemed
to have been amended, modified or superseded by any such correction or update, nor shall any breach
of warranty or representation resulting from the inaccuracy or incompleteness of any such Schedule
be deemed to have been cured thereby, unless and until the Administrative Agent (which may request
the consent of the Required Lenders) shall have accepted in writing such revisions or updates to
such Schedule.

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     6.23. Insurance. The Borrower and each of its Subsidiaries maintain with financially sound
and reputable insurers insurance with respect to its properties and businesses against such
casualties and contingencies as are set forth on Schedule 6.23 hereto, and such insurance is in
accordance with sound business practices in accordance with industry standards and the terms of the
Security Documents (as defined in the Existing Credit Agreement as in effect from time to time) and
the Pledge Agreement.

     6.24. Perfection of Security Interest. All filings, assignments, pledges and deposits of
documents or instruments have been made and all other actions have been taken that are necessary or
advisable, under applicable law, to establish and perfect the Administrative Agent’s security
interest in the Collateral, including, with respect to any United Kingdom security, the filing of
any applicable UK security documents at the Companies Registration Office under Section 395 of the
Companies Act of 1985 and such other filing as may be required under English law. The Collateral
and the Administrative Agent’s rights with respect to the Collateral are not subject to any setoff,
claims, withholdings or other defenses and the Borrower and all Subsidiaries of the Borrower that
are a party to Pledge Agreement are the owners of the Collateral free from any Lien.

     6.25. Foreign Assets Control Regulations, Etc. None of the requesting or borrowing of the
Loans, the requesting or issuance, extension or renewal of any Letters of Credit or the use of the
proceeds of any thereof will violate the Trading With the Enemy Act (50 U.S.C. Section 1 et seq.,
as amended) (the “Trading With the Enemy Act”) or any of the foreign assets control regulations of
the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) (the “Foreign
Assets Control Regulations”) or any enabling legislation or executive order relating thereto (which
for the avoidance of doubt shall include, but shall not be limited to (a) Executive Order 13224 of
September 21, 2001 Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten
to Commit, or Support Terrorism (66 Fed. Reg. 49079 (2001)) (the “Executive Order”) and (b) the
Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct
Terrorism Act of 2001 (Public Law 107-56)). Furthermore, neither the Borrower nor any of their
Subsidiaries or other Affiliates (a) is or will become a “blocked person” as described in the
Executive Order, the Trading With the Enemy Act or the Foreign Assets Control Regulations or (b)
engages or will engage in any dealings or transactions, or be otherwise associated, with any such
“blocked person.”

     6.26. No Additional Issuances. The Borrower or any of its Subsidiaries have not issued any
additional debt, equity or related financial instruments (other than borrowings under the Existing
Credit Agreement or exercises or grants under employee plans in the ordinary course of business)
since the date of the Commitment Letter.

     6.27. No Amendments. No amendments with respect to employment agreements, Change of Control
severance agreements, Employee Benefit Plans, equity compensation plans or other compensation
arrangements or plans are required to avoid the Transactions triggering Change of Control,
severance, accelerated payment or funding, increased potential severance or similar payments or
rights (assuming the

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warrants contemplated by the Warrant and Registration Rights Agreement are initially issued as
Cash Settled Warrants (as defined in the Warrant and Registration Rights Agreement)).

     6.28. Existing Indebtedness. (i) All Indebtedness of the Borrower and its Subsidaries for
borrowed money (other than as permitted by Section 8.1(a)-(h)) and (ii) all Indebtedness for the
Paperchase Companies is set forth on Schedule 8.1 hereto.

7. AFFIRMATIVE COVENANTS.

     The Borrower covenants and agrees that, so long as any Loan or Note is outstanding or any
Lender has any obligation to make any Loans:

     7.1. Punctual Payment. The Borrower will duly and punctually pay or cause to be paid the
principal and interest on the Loans, the Premiums and all other amounts provided for in this Credit
Agreement and the other Loan Documents to which the Borrower or any of its Subsidiaries is a party,
all in accordance with the terms of this Credit Agreement and such other Loan Documents.

     7.2. Maintenance of Office. The Borrower will maintain its chief executive office at 100
Phoenix Drive, Ann Arbor, Michigan or at such other place in the United States of America as the
Borrower shall designate upon written notice to the Administrative Agent, where notices,
presentations and demands to or upon the Borrower in respect of the Loan Documents to which the
Borrower is a party may be given or made.

     7.3. Records and Accounts. The Borrower will (a) keep, and cause each of its Subsidiaries to
keep, true and accurate records and books of account in which full, true and correct entries will
be made in accordance with GAAP, (b) maintain adequate accounts and reserves for all taxes
(including income taxes), depreciation, depletion, obsolescence and amortization of its properties
and the properties of its Subsidiaries, contingencies, and other reserves, and (c) at all times
engage Ernst & Young LLP or other independent certified public accountants satisfactory to the
Administrative Agent as the independent certified public accountants of the Borrower and its
Subsidiaries and will not permit more than thirty (30) days to elapse between the cessation of such
firm’s (or any successor firm’s) engagement as the independent certified public accountants of the
Borrower and its Subsidiaries and the appointment in such capacity of a successor firm as shall be
satisfactory to the Administrative Agent.

     7.4. Financial Statements, Certificates and Information. The Borrower will deliver to each of
the Lenders:

     (a) as soon as practicable, but in any event not later than ninety (90) days after the end of
each Fiscal Year of the Borrower, the consolidated balance sheet of the Borrower and its
Subsidiaries as at the end of such year, and the related consolidated statements of income and
consolidated statements of cash flow for such year, each setting forth in comparative form the
figures for the previous fiscal year and all such consolidated statements to be in reasonable
detail, prepared in accordance with GAAP,

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and certified, without qualification and without an expression of uncertainty as to the
ability of the Borrower or any of its Subsidiaries to continue as going concerns, by Ernst & Young
LLP or by other independent certified public accountants satisfactory to the Administrative Agent,
which shall include a written statement from such accountants to the effect that they have read a
copy of this Credit Agreement, and that, in making the examination necessary to said certification,
they have obtained no knowledge of any Default or Event of Default, or, if such accountants shall
have obtained knowledge of any then existing Default or Event of Default, they shall disclose in
such statement any such Default or Event of Default; provided that such accountants shall not be
liable to the Lenders for failure to obtain knowledge of any Default or Event of Default;

     (b) as soon as practicable, but in any event not later than forty-five (45) days after the end
of each of the first three Fiscal Quarters of the Borrower, copies of the unaudited consolidated
balance sheet of the Borrrower and its Subsidiaries and of the Paperchase Companies as at the end
of such quarter, and the related consolidated statements of income and consolidated statements of
cash flow for the portion of the Borrower’s fiscal year then elapsed, all in reasonable detail and
prepared in accordance with GAAP, together with a certification by the principal financial or
accounting officer of the Borrower that the information contained in such financial statements
fairly presents the financial position of the Borrower and its Subsidiaries and the Paperchase
Companies on the date thereof (subject to year-end adjustments);

     (c) contemporaneously with the filing or mailing thereof, copies of all material of a
financial nature filed with the Securities and Exchange Commission or sent to the stockholders of
the Borrower;

     (d) from time to time such other financial data and information (including accountants,
management letters) as the Administrative Agent or any Lender may reasonably request.

     Documents required to be delivered pursuant to this Section 7.4 (to the extent any such
documents are included in materials otherwise filed with the United States Securities and Exchange
Commission) may be delivered electronically and if so delivered, shall be deemed to have been
delivered on the date (i) on which the Borrower posts such documents, or provides a link thereto on
the Borrower’s website on the Internet at the website address listed in Section 14.6; or (ii) on
which such documents are posted on the Borrower’s behalf on an Internet or intranet website, if
any, to which each Lender and each Agent has access (whether a commercial, third-party website or
whether sponsored by the Administrative Agent); provided that: (i) the Borrower shall deliver paper
copies of such documents to the Administrative Agent or any Lender that requests the Borrower to
deliver such paper copies until a written request to cease delivering paper copies is given by the
Administrative Agent, such Lender and (ii) the Borrower shall notify the Administrative Agent and
each Lender (by telecopier or electronic mail) of the posting of any such documents and provide to
the Administrative Agent by electronic mail electronic versions (i.e., soft copies) of such
documents. The Administrative Agent shall have no obligation to request the delivery or to maintain
copies of the documents referred to above, and in any event shall have no responsibility to monitor
compliance by

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the Borrower with any such request for delivery, and each Lender shall be solely responsible
for requesting delivery to it or maintaining its copies of such documents.

     7.5. Notices.

     7.5.1. Defaults. The Borrower will promptly notify the Administrative Agent and each
of the Lenders in writing of the occurrence of any Default or Event of Default, together
with a reasonably detailed description thereof, and the actions the Borrower proposes to
take with respect thereto. If any Person shall give any notice or take any other action in
respect of a claimed default (whether or not constituting an Event of Default) under this
Credit Agreement or any other note, evidence of indebtedness, indenture or other obligation
to which or with respect to which the Borrower or any of its Subsidiaries is a party or
obligor, whether as principal, guarantor, surety or otherwise, the Borrower shall forthwith
give written notice thereof to the Administrative Agent and each of the Lenders, describing
the notice or action and the nature of the claimed default.

     7.5.2. Environmental Events. The Borrower will promptly give notice to the
Administrative Agent and each of the Lenders (a) of any violation of any Environmental Law
that the Borrower or any of its Subsidiaries reports in writing or is reportable by such
Person in writing (or for which any written report supplemental to any oral report is made)
to any Governmental Authority and (b) upon becoming aware thereof, of any inquiry,
proceeding, investigation, or other action, including a notice from any agency of potential
environmental liability, of any Governmental Authority that could have a Material Adverse
Effect.

     7.5.3. Notice of Litigation, Judgments and Claims Against Assets. The Borrower will,
and will cause each of its Subsidiaries to, give notice to the Administrative Agent and
each of the Lenders in writing within fifteen (15) days of becoming aware of any
litigation, arbitration, claim or proceedings threatened in writing or any pending
litigation, arbitration, claim and proceedings affecting the Borrower or any of its
Subsidiaries or their assets or to which the Borrower or any of its Subsidiaries is or
becomes a party involving an uninsured claim against the Borrower or any of its
Subsidiaries or their assets that could reasonably be expected to have a Material Adverse
Effect on any of the Borrower or any of its Subsidiaries or any of the Paperchase Companies
and stating the nature and status of such litigation, arbitration, claim or proceedings.
The Borrower will, and will cause each of its Subsidiaries to, give notice to the
Administrative Agent and each of the Lenders, in writing, in form and detail satisfactory
to the Administrative Agent, within ten (10) days of any judgment, award, injunction,
order, decree, settlement or stipulation not covered by insurance, final or otherwise,
against (i) the Borrower or any of its Subsidiaries in an amount in excess of $15,000,000
or otherwise affecting any of their material assets and (ii) against any of the Paperchase
Companies in an amount in excess of $10,000,000 or otherwise affecting any of their
material assets. The Borrower will, and will cause each of its Subsidiaries to, promptly
upon becoming aware thereof, notify the

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Administrative Agent in writing of any setoff, claims, or other defenses to which any
Collateral or the Administrative Agent’s rights with respect to any Collateral are subject
if any such setoff, claim, or other defense would reasonably be expected to have a Material
Adverse Effect.

     7.5.4. Notice Regarding Certain Events. The Borrower will furnish or cause to be
furnished to the Administrative Agent and the Lenders written notice of (a) promptly after
the adoption thereof, any amendment to the organizational documents of the Borrower or its
Subsidiaries; and (b) promptly, the enactment or adoption of any law which could reasonably
be expected to have a Material Adverse Effect.

     7.5.5. Notices Regarding Existing Credit Agreement. The Borrower shall, and shall
cause each of its Subsidiaries to, deliver to the Lenders notice of any occurrence of any
pending Event of Default (or event or circumstance that with the giving of notice or the
passage of time, or both, could become an Event of Default) under the Existing Credit
Agreement, such delivery to be made promptly after becoming aware of such event or
circumstance or after such notice or other communication is received by any the Borrower or
any such Subsidiary.

     7.6. Legal Existence; Maintenance of Properties. Except as otherwise permitted hereunder, the
Borrower will do or cause to be done all things necessary to preserve and keep in full force and
effect its legal existence, rights and franchises and those of the Guarantors and will not, and
will not cause or permit any of its Subsidiaries to, convert to a limited liability company or a
limited liability partnership. It (a) will cause all of its Properties and those of its
Subsidiaries used or useful in the conduct of its business or the business of its Subsidiaries to
be maintained, in full force and effect and kept in good condition, repair and working order and
supplied with all necessary equipment, (b) will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as consistent with commercially
reasonable business judgment may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times, (c) consistent with
commercially reasonable business judgment, will maintain in full force and effect all Intellectual
Property , licenses, other Intellectual Property related Contracts, permits and other
authorizations necessary for the ownership, use and operation of its Properties and business, and
(d) will, and will cause each of its Subsidiaries to, continue to engage primarily in the
businesses now conducted by them and in related businesses; provided that subject to Section 8 and
other limitations and restrictions set forth in this Agreement, nothing in this Section 7.6 shall
prevent the Borrower from discontinuing the operation and maintenance of any of its Properties or
any of those of its Subsidiaries, including the existence of any Subsidiary of the Borrower or the
conversions of any Subsidiary of the Borrower to a limited liability company or limited liability
partnership, if such discontinuance or conversion is, consistent with commercially reasonable
business judgment , desirable in the conduct of its or their business and that do not individually
or in the aggregate have a Material Adverse Effect and, with respect to the conversions of the
Borrower or a Guarantor to a limited liability company or limited liability partnership,
simultaneously with such conversion, the Borrower or such Guarantor shall have

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executed and delivered to the Administrative Agent all documentation which the Administrative
Agent reasonably determine is necessary to continue the Borrower’s or such Guarantor’s obligations
in respect of this Credit Agreement and the Collateral Agent’s Liens in respect of the Collateral.

     7.7. Taxes. The Borrower will, and will cause each of its Subsidiaries to, duly pay and
discharge, or cause to be paid and discharged, before the same shall become overdue, all taxes,
assessments and other governmental charges imposed upon it and its Real Estate, sales and
activities, or any part thereof, or upon the income or profits therefrom, as well as all claims for
labor, materials, or supplies that if unpaid might by law become a Lien or charge upon any of its
property; provided that any such tax, assessment, charge, levy or claim need not be paid if the
validity or amount thereof shall currently be contested in good faith by appropriate proceedings
and if the Borrower or such Subsidiary shall have set aside on its books adequate reserves with
respect thereto; and provided further the Borrower and each of their Subsidiaries will pay all such
taxes, assessments, charges, levies or claims forthwith upon the commencement of proceedings to
foreclose any Lien that may have attached as security therefor.

     7.8. Compliance with Laws, Contracts, Licenses, and Permits. Each of the Borrower will, and
will cause each of its Subsidiaries to, comply with (a) the applicable laws and regulations
wherever its business is conducted, including all Environmental Laws, (b) the provisions of its
Governing Documents, (c) all Contracts by which it or any of its properties may be bound and (d)
all applicable decrees, orders, injunctions, awards, settlements, stipulations and judgments,
where, with respect to clauses (a), (c) and (d) only, failure to so comply could have a Material
Adverse Effect. If any authorization, consent, approval, permit or license from any officer,
agency or instrumentality of any government shall become necessary or required in order that the
Borrower or any of its Subsidiaries may fulfill any of its obligations hereunder or any of the
other Loan Documents to which the Borrower or such Subsidiary is a party, the Borrower will, or (as
the case may be) will cause such Subsidiary to, immediately take or cause to be taken all
reasonable steps within the power of the Borrower or such Subsidiary to obtain such authorization,
consent, approval, permit or license and furnish the Administrative Agent and the Lenders with
evidence thereof.

     7.9. Employee Benefit Plans. The Borrower will (a) promptly upon filing the same with the
Department of Labor or Internal Revenue Service upon request of the Administrative Agent, furnish
to the Administrative Agent a copy of the most recent actuarial statement required to be submitted
under Section 103(d) of ERISA and Annual Report, Form 5500, with all required attachments, in
respect of each Guaranteed Pension Plan, (b) promptly upon receipt or dispatch, furnish to the
Administrative Agent any notice, report or demand sent or received in respect of a Guaranteed
Pension Plan under Sections 302, 4041, 4042, 4043, 4063, 4065, 4066 and 4068 of ERISA, or in
respect of a Multiemployer Plan, under Sections 4041A, 4202, 4219, 4242, or 4245 of ERISA and (c)
promptly furnish to the Administrative Agent a copy of all actuarial statements required to be
submitted under all Applicable Pension Legislation.

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     7.10. Use of Proceeds. The Borrower will use the proceeds of the Loans for the purposes set
forth in Section 6.15.

     7.11. Subsidiary Guaranties. If, with respect to any of the Borrower’s Domestic Subsidiaries
which are not Guarantors hereunder, (a) any such Domestic Subsidiary’s total assets determined in
accordance with GAAP at the end of any Fiscal Quarter constitute more than 10% of Consolidated
Tangible Net Worth determined at the end of such Fiscal Quarter or (b) any such Domestic
Subsidiary’s net income determined in accordance with GAAP for any rolling four Fiscal Quarter
period exceeds 10% of Consolidated Net Income for such four Fiscal Quarters, the Borrower shall
cause such Domestic Subsidiary to become a Guarantor and agree to be bound by the provisions of
Section 5 hereof, to execute a Joinder Agreement and to deliver such legal opinions and other
documents and instruments as the Administrative Agent may request.

     7.12. Further Assurances. The Borrower will, and will cause each of its Subsidiaries to,
cooperate with the Lenders and the Administrative Agent and execute such further instruments and
documents as the Lenders or the Administrative Agent shall reasonably request to carry out to their
satisfaction the transactions contemplated by this Credit Agreement and the other Loan Documents.
The Borrower will, and will cause each of its Subsidiaries to, maintain the security interest in
the Pledged Shares created by the Loan Documents as a first priority perfected security interest
and shall take all action reasonably requested by the Administrative Agent to maintain such
perfection.

     7.13. Paperchase Companies as Separate Entities. The Borrower shall cause each of the
Paperchase Companies(i) to be maintained and governed as a separate entity and managed by its
properly empowered board of directors and officers in accordance with appropriate corporate
formalities, (ii) to keep appropriate books and records of its transactions and not to commingle
its assets and properties with those of the Borrower and its other Subsidiaries or any other Person
and (iii) not to enter into any transaction involving the Paperchase Companies, on the one hand,
and the Borrower and its other Subsidiaries, on the other hand, unless such transaction is properly
approved as a corporate matter and and properly documented in its corporate books and records.

     7.14. Permitted Restructuring Transactions. Notwithstanding the foregoing in this Section 7,
the provisions of this Section 7 shall not restrict the ability of the Borrower and its
Subsidiaries from consummating any Permitted Restructuring Transaction made permitted under Section
8.5.2(d)(iv).

8. CERTAIN NEGATIVE COVENANTS.

     The Borrower covenants and agrees that, so long as any Loan or Note is outstanding or any
Lender has any obligation to make any Loans:

     8.1. Restrictions on Indebtedness. The Borrower will not, and will not permit any of its
Subsidiaries to, create, incur, assume, guarantee or be or remain liable, contingently or
otherwise, with respect to any Indebtedness other than:

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     (a) Indebtedness arising under the Existing Credit Agreement (as effect on the date hereof and
after giving effect to any amendments or modifications thereto which do not result in aggregating
amounts available thereto in excess of $1,300,000,000) and Indebtedness to the Lenders and the
Agents arising under any of the Loan Documents;

     (b) endorsements for collection, deposit or negotiation and warranties of products or
services, in each case incurred in the ordinary course of business;

     (c) Indebtedness incurred in connection with the acquisition after the Closing Date of any
Property (and in any event not more than ninety (90) days from the date of such acquisition) by the
Borrower or such Subsidiary as contemplated by Section 8.2(x);

     (d) obligations under or guaranties of Capitalized Leases;

     (e) Indebtedness in respect of Hedging Agreements entered into for hedging purposes only and
not for speculation; provided that nothing in this Section 8.1(e) shall be deemed to prohibit
equity hedging arrangements that constitute Restricted Payments permitted pursuant to Section 8.4;

     (f) Indebtedness existing on the Closing Date and listed and described on Schedule 8.1 hereto
including any extensions or refinancings thereof on substantially similar terms as the Indebtedness
being refinanced and provided there is no increase in the amount thereof;

     (g) unsecured Indebtedness of any of the Borrower’s Subsidiaries to, or in respect of
Obligations of, the Borrower or another Subsidiary of the Borrower consisting of intercompany loans
and, if no Default or Event of Default shall have occurred and be continuing at the time such
Indebtedness is incurred, any other Investments;

     (h) unsecured Indebtedness of the Borrower to, or in respect of obligations of, a Subsidiary
of the Borrower consisting of intercompany loans and, if no Default or Event of Default shall have
occurred and be continuing at the time such Indebtedness is incurred, any other Investments;

     (i) unsecured Indebtedness of the Borrower having a maturity at least three (3) months after
the Maturity Date, in aggregate principal amount not to exceed $200,000,000; provided that at the
time of incurrence such Indebtedness, no Default or Event of Default has occurred and is continuing
or would result therefrom; and

     (j) Indebtedness of the Borrower and its Subsidiaries in addition to Indebtedness otherwise
permitted by clause (a) to (i) above with an aggregate principal Dollar Equivalent amount
outstanding not to exceed 40% of Consolidated Tangible Net Worth (determined as of the last day of
the Fiscal Quarter most recently ended), provided that at the time of incurrence of such
Indebtedness no Default or Event of Default has occurred and is continuing or would result
therefrom.

     8.2. Restrictions on Liens. The Borrower will not, nor will permit any of its Subsidiaries
to, (a) create or incur or suffer to be created or incurred or to exist any Lien

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upon any of its Property of any character whether now owned or hereafter acquired, or upon the
income or profits therefrom; (b) transfer any of such Property or assets or the income or profits
therefrom for the purpose of subjecting the same to the payment of Indebtedness or performance of
any other obligation in priority to payment of its general creditors; (c) acquire, or agree to
acquire, any Property or assets upon conditional sale or other title retention or purchase money
security agreement, device or arrangement; (d) suffer to exist for a period of more than thirty
(30) days after the same shall have been incurred any Indebtedness or claim or demand against it
that if unpaid might by law or upon bankruptcy or insolvency, or otherwise, be given any priority
whatsoever over its general creditors; or (e) sell, assign, pledge or otherwise transfer any
“receivables” as defined in clause (g) of the definition of the term “Indebtedness,” with or
without recourse; provided that the Borrower or any of its Subsidiaries may create or incur or
suffer to be created or incurred or to exist:

     (i) (A) Liens under the Security Documents (as defined in the Existing Credit
Agreement in effect on the date hereof and after giving effect to any amendments or
modifications thereto) and (B) Liens on the Collateral in favor of the Collateral Agent
securing the Obligations;

     (ii) other with respect to Intellectual Property owned by any of the Paperchase
Companies, Liens in favor of the Borrower on all or part of the assets of Subsidiaries of
the Borrower securing Indebtedness owing by Subsidiaries of the Borrower to the Borrower;

     (iii) Liens to secure taxes, assessments and other government charges in respect of
obligations and Liens to secure claims for labor, material or supplies, in each cash in
respect of obligations not overdue or which are being contested in good faith and by
appropriate proceedings and for which the Borrower or such Subsidiary has set aside on its
books adequate reserves with respect thereto;

     (iv) deposits or pledges made in connection with, or to secure payment of, workmen’s
compensation, general liability, unemployment or other insurance, old age pensions or other
social security obligations;

     (v) Liens on properties in respect of judgments or awards that have been in force for
less than the applicable period for taking an appeal so long as execution is not levied
thereunder or in respect of which the Borrower or such Subsidiary shall at the time in good
faith be prosecuting an appeal or proceedings for review and in respect of which a stay of
execution shall have been obtained pending such appeal or review;

     (vi) Liens of carriers, warehousemen, mechanics and materialmen, and other like Liens,
securing obligations incurred in the ordinary course of business, in respect of obligations
not overdue or which in the aggregate do not have a Material Adverse Effect;

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     (vii) encumbrances on Real Estate consisting of easements, rights of way, zoning
restrictions, restrictions on the use of real property and defects and irregularities in
the title thereto, landlord’s or lessor’s liens and other minor Liens, provided that none
of such Liens (A) interferes materially with the use of the property affected in the
ordinary conduct of the business of the Borrower and its Subsidiaries, and (B) individually
or in the aggregate have a Material Adverse Effect;

     (viii) pledges or deposits made in the ordinary course of business to secure
performance of bids, tenders, contracts (other than for the repayment of Indebtedness) or
leases, not in excess of the aggregate amount due thereunder, or to secure statutory
obligations, or surety, appeal, indemnity, performance or other similar bonds required in
the ordinary course of business;

     (ix) Liens existing on the Closing Date and listed on Schedule 8.2 hereto, provided
that the principal amount secured thereby is not thereafter increased and no additional
assets become subject to such Lien;

     (x) purchase money security interests in or purchase money mortgages on Property
acquired after the Closing Date to secure purchase money Indebtedness of the type and
amount permitted by Section 8.1(c), incurred in connection with the acquisition of such
Property and in any event not more than ninety (90) days from the date of such acquisition,
which security interests or mortgages cover only the Property so acquired;

     (xi) Liens in respect of the interests of lessors under Capitalized Leases permitted
under this Credit Agreement securing obligations of the Borrower or its Subsidiaries to the
lessor under such Capitalized Leases;

     (xii) Liens granted to the Agents and the Lenders pursuant to Section 14.1 hereof;

     (xiii) Liens (x) in favor of credit card issuers and/or processors securing standard
fees due by the Borrower or its Subsidiaries in the ordinary course, which fees are within
the general parameters customary in the credit card processing industry and (y) in favor of
banking institutions securing standard fees due by the Borrower or its Subsidiaries in the
ordinary course in connection with deposit and other bank accounts held at such banking
institution, which fees are within the general parameters customary in the banking
industry; and

     (xiv) other than with respect to Intellectual Property owned by any of the Paperchase
Companies, Liens on assets of the Borrower and its Subsidiaries (other than Collateral) not
otherwise permitted by clauses (i) through (xiii) above, so long as any Indebtedness
secured thereby is permitted under the terms of Section 8.1, and the aggregate fair market
value of all property secured by such Liens does not at any time exceed $2,000,000.

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     8.3. Restrictions on Investments. The Borrower will not, nor will permit any of its
Subsidiaries to, make or permit to exist or to remain outstanding any Investment except Investments
in or by:

     (a) cash equivalents or short-term marketable securities;

     (b) money market mutual funds denominated in Euros, Australian Dollars, British Pound
Sterling, Canadian Dollars, Japanese Yen, New Zealand Dollars, Mexican Pesos or Singaporean Dollars
in countries in which the Borrower or any of its Subsidiaries operates a business provided that (i)
each such fund in which the Borrower or any of its Subsidiaries makes an Investment has assets of
not less than $50,000,000 and (ii) the proportional Investment in each such fund by the Borrower or
such Subsidiary does not exceed five percent (5%) of the aggregate amount of all Investments in
such fund;

     (c) Investments existing on the Closing Date and listed on Schedule 8.3 hereto;

     (d) Investments consisting of (1) loans and advances to employees (i) for moving,
entertainment, travel and other similar expenses in the ordinary course of business, (ii) for any
other purpose, with such Investments under this clause (ii) not to exceed (x) $10,000,000 in the
aggregate principal amount at any time outstanding and (y) $1,500,000 in the aggregate principal
amount at any time outstanding to any single employee and (2) amounts held in accounts under
deferred compensation plans of the Borrower where investments are directed by employees;

     (e) trade credit extended on usual and customary terms in the ordinary course of business;

     (f) (i) Investments by any Co-Borrower (as defined in the Existing Credit Agreement in effect
on the date hereof) (other than BGP (UK)) or any other Guarantor which is a party to the Security
Agreement (as defined in the Existing Credit Agreement in effect on the date hereof) in any other
Co-Borrower (other than BGP (UK)) or other Guarantor which is a party to the Security Agreement,
(ii) Investments by any European Borrower (as defined in the Existing Credit Agreement in effect on
the date hereof) or the Australian Borrower (as defined in the Existing Credit Agreement in effect
on the date hereof) in any Co-Borrower (other than BGP (UK)) or any other Guarantor which is a
party to the Security Agreement, (iii) reserved, and (iv) to the extent not otherwise permitted by
clauses (i) through (iii) hereof, Investments by the Borrower in any Subsidiary of the Borrower or
by any Subsidiary of the Borrower in the Borrower or another Subsidiary of the Borrower; provided
that (A) no Default or Event of Default has occurred and is continuing or would result therefrom,
and (B) with respect to any Investment or series of related Investments that exceeds $25,000,000,
the Borrower delivers to the Lenders on or before the date on which it or any of its Subsidiaries
agrees to or consummates such Investment a certificate of the principal financial or accounting
officer of the Borrower certifying as accurate and complete the monthly pro forma financial
projections attached thereto and demonstrating immediately after giving effect

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to such Investment (x) the Total Facility Usage Ratio would not exceed 85% and (y) the Total
Facility Usage Ratio would not exceed 85% as determined on a pro forma basis over the six month
period immediately following the effective date of such Investment, in form and substance
satisfactory to the Administrative Agent, based on reasonable projections of the financial
performance of the Borrower.

     (g) Acquisitions (other than by any of the Paperchase Companies); provided that (i) no Default
or Event of Default has occurred and is continuing or would result therefrom, and (ii) such
Acquisition is permitted under Section 8.6;

     (h) guarantees of any obligations of landlords of the Borrower to the extent that the
obligations relate to funds arranged by the Borrower and used to finance or refinance any stores of
the Borrower and such funds are intended to be repaid through lease payments of the Borrower;

     (i) Investments in respect of Hedging Agreements entered into for hedging purposes only and
not for speculation; provided that nothing in this Section 8.3(i) shall be deemed to prohibit
equity hedging arrangements that constitute Restricted Payments permitted pursuant to Section 8.4;

     (j) Investments by the Borrower and its Subsidiaries (other than by any of the Paperchase
Companies) (other than those Investments set forth in clauses (a) through (i) above); provided that
(i) no Default or Event of Default has occurred and is continuing or would result therefrom, (ii)
with respect to any Investment or series of related Investments that exceeds $25,000,000, the
Borrower delivers to the Lenders on or before the date on which it or any of its Subsidiaries
agrees to or consummates such Investment a certificate of the principal financial or accounting
officer of the Borrower certifying as accurate and complete the monthly pro forma financial
projections attached thereto and demonstrating immediately after giving effect to such Investment
(x) the Total Facility Usage Ratio would not exceed 85% and (y) the Total Facility Usage Ratio
would not exceed 85% as determined on a pro forma basis over the six month period immediately
following the effective date of such Investment, in form and substance satisfactory to the
Administrative Agent, based on reasonable projections of the financial performance of the Borrower,
and (iii) with respect to any Investment that exceeds $25,000,000, the Borrower shall deliver a
certificate of an Authorized Officer of the Borrower dated as of the date of such Investment as to
the solvency of the Borrower and its Subsidiaries following the consummation of such Investment and
in form and substance satisfactory to the Administrative Agent;

     (k) Investments constituting (i) unsecured guarantees by Subsidiaries of the Borrower who are
Guarantors of the Obligations and (ii) Liens permitted under Section 8.2(i)(B) for so long as the
Term Loan Facility remains outstanding; and

     (l) Investments constituting guarantees by the guarantors and co-borrowers under the Existing
Credit Agreement.

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     Notwithstanding the foregoing, any restriction on Investments that would constitute a breach
under Section 9.14 of the Existing Credit Agreement as effect on the date hereof shall not be
restricted by this Section 8.3.

     8.4. Restricted Payments. The Borrower will not, and will not permit any of its Subsidiaries
to, make any Restricted Payments without the consent of the Required Lenders except that:

     (a) the Borrower may engage in stock splits (including reverse stock splits);

     (b) Subsidiaries may make Distributions to the Borrower or a Wholly-owned Subsidiary of the
Borrower; and

     (c) the Borrower or any of its Subsidiaries may make other Restricted Payments; provided that
(i) no Default or Event of Default has occurred and is continuing or would result therefrom, (ii)
the Borrower shall deliver to the Lenders contemporaneously with any Compliance Certificate
delivered pursuant to §8.4(c) of the Existing Credit Agreement as effect on the date hereof a
certificate of the principal financial or accounting officer of the Borrower certifying as accurate
and complete the monthly pro forma financial projections attached thereto and demonstrating
immediately after giving effect to all Restricted Payments projected to be made during the then
next Fiscal Quarter (x) the Total Facility Usage Ratio would not exceed 85% for such Fiscal Quarter
and (y) the Total Facility Usage Ratio would not exceed 85% as determined on a pro forma basis over
the two (2) Fiscal Quarters next following such Fiscal Quarter, in form and substance satisfactory
to the Administrative Agent, based on reasonable projections of the financial performance of the
Borrower and (iii) in connection with such certificate for any Fiscal Quarter during which the
Borrower projects that the aggregate Restricted Payments to be made will exceed $25,000,000, the
Borrower shall deliver a certificate of an Authorized Officer of the Borrower dated as of the date
of such certificate as to the solvency of the Borrower and its Subsidiaries following the payment
of all such Restricted Payments for such Fiscal Quarter and in form and substance satisfactory to
the Administrative Agent; provided that at any time the actual Restricted Payments made during any
Fiscal Quarter exceed the Restricted Payments projected to be made for such Fiscal Quarter as set
forth in the certificate described in clause (ii) above, the Borrower shall promptly deliver to the
Lenders a certificate of the principal financial or accounting officer of the Borrower certifying
as accurate and complete updated monthly pro forma financial projections attached thereto and
otherwise demonstrating compliance with the requirements set forth in clause (ii) above based on
the actual Restricted Payments made and, to the extent applicable, providing the solvency
certificate described in clause (iii) above. Notwithstanding the foregoing, no Restricted Payments
shall be made if such payment would constitute a breach under the Existing Credit Agreement.

     8.5. Merger, Consolidation, Disposition of Assets and Sale Leaseback Transactions.

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     8.5.1. Mergers and Consolidations. Subject to Sections 8.13 and 8.14, the Borrower
will not, nor will permit any of its Subsidiaries to, become a party to any merger,
amalgamation or consolidation, except, so long as no Default or Event of Default shall have
occurred and be continuing or would result therefrom, (a) any Subsidiary of the Borrower
may consolidate or merge into the Borrower, a Guarantor or any Wholly-owned Subsidiary of
the Borrower, provided the Borrower, a Guarantor or the Wholly-owned Subsidiary is the
surviving corporation of such consolidation or merger, (b) any Subsidiary of the Borrower
(other than a Guarantor) may consolidate or merge into any other Subsidiary of the Borrower
(other than a Guarantor) and (c) any Subsidiary of the Borrower may merge or consolidate
into another Person; provided that (i) no Default or Event of Default has occurred and is
continuing or would result therefrom, (ii) the Borrower delivers to the Lenders on or
before the date on which any of its Subsidiaries agrees to or consummates such merger or
such consolidation a certificate of the principal financial or accounting officer of the
Borrower certifying as accurate and complete the monthly pro forma financial projections
attached thereto and demonstrating immediately after giving effect to such merger or such
consolidation (x) the Total Facility Usage Ratio would not exceed 85% and (y) the Total
Facility Usage Ratio would not exceed 85% as determined on a pro forma basis over the six
month period immediately following the effective date of such merger or such consolidation,
in form and substance satisfactory to the Administrative Agent, based on reasonable
projections of the financial performance of the Borrower, (iii) the disposition of the
assets of the Borrower or such Subsidiary would have been permitted under Section 8.5.2,
(iv) the Paperchase Businesses, without prior consent by the Required Lenders, may not be
subject to any of (a), (b) and (c) above (except that a merger in connection with a
Disposition of the Paperchase Businesses as permitted by Section 8.14(c) shall be
permitted) and (v)(A) the surviving entity, immediately after giving effect to such merger
or consolidation, in accordance with Section 7.11, is the Borrower or is or becomes a
Guarantor by executing and delivering to the Administrative Agent a Joinder Agreement and
the documents referred to therein and (B) such transaction, if it had been structured as an
Acquisition by the Borrower or Subsidiary of the Borrower, would not have been prohibited
under Section 8.6.

     8.5.2. Disposition of Assets. The Borrower will not, nor will permit any of its
Subsidiaries to, become a party to or agree to or effect or allow any disposition of assets
or Property, other than:

     (a) the sale of inventory, the non-exclusive licensing of Intellectual Property and the
disposition of obsolete or excess assets, in each case in the ordinary course of business
consistent with past practices;

     (b) any sale, transfer, assignment or lease of Property, including without limitation any
store closures, in the ordinary course of business which are no longer necessary or required in the
conduct of the Borrower’s or Subsidiary’s business;

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     (c) any sale or transfer of any Property owned by the Borrower or any Subsidiary of a Borrower
in order then or thereafter to lease such Property or lease other Property that the Borrower or any
Subsidiary of a Borrower intends to use for substantially the same purpose as the property being
sold or transferred (a “sale-leaseback transaction”) in the ordinary course of business and
provided that (i) no Default or Event of Default shall have occurred and is continuing or would
result therefrom and (ii) the Paperchase Businesses or any interest thereon are not adversely
affected;

     (d) (i) any sale, transfer or lease of Property by any Co-Borrower (as defined in the Existing
Credit Agreement in effect on the date hereof) (other than BGP (UK)) or any other Guarantor (as
defined in the Existing Credit Agreement in effect on the date hereof) which is a party to the
Security Agreement (as defined in the Existing Credit Agreement in effect on the date hereof) to
any other Co-Borrower (other than BGP (UK)) or other Guarantor which is a party to the Security
Agreement, (ii) any sale, transfer or lease of Property by any European Borrower (as defined in the
Existing Credit Agreement in effect on the date hereof) or the Australian Borrower (as defined in
the Existing Credit Agreement in effect on the date hereof) to any Co-Borrower (other than BGP
(UK)) or any other Guarantor which is a party to the Security Agreement, (iii) reserved, (iv) to
the extent not otherwise permitted by clauses (i) through (iii) hereof, any (A) Permitted
Restructuring Transaction or (B) pursuant to the exercise by the Borrower of any of its purchase
options under the Pershing Square Purchase Offer Documents (as defined in the Existing Credit
Agreement in effect on date hereof), in each case, so long as (1) such transaction(s) is
consummated on or prior to April 15, 2009 and (2) no Default or Event of Default has occurred and
is continuing or would result therefrom; and (v) to the extent not otherwise permitted by clauses
(i) through (iv) hereof, any sale, transfer or lease of Property by the Borrower to any Subsidiary
of the Borrower or by any Subsidiary of the Borrower to the Borrower or another Subsidiary of the
Borrower (other than any Pershing Square Purchase Offer Subsidiaries (as defined in the Existing
Credit Agreement in effect on the date hereof)); provided that (A) no Default or Event of Default
has occurred and is continuing or would result therefrom, (B) the Paperchase Businesses shall not
be sold, transferred or leased except as explicitly provided for in this Credit Agreement, (C) with
respect to any such sale, transfer or lease of property the fair market value of which exceeds
$5,000,000 whether in one or a series of related dispositions, the Borrower delivers to the Lenders
on or before the date on which any of its Subsidiaries agrees to or consummates such sale, transfer
or lease a certificate of the principal financial or accounting officer of the Borrower certifying
as accurate and complete the monthly pro forma financial projections attached thereto and
demonstrating immediately after giving effect to such sale, transfer or lease (and including all
other sales, transfers or leases that have occurred since the most recent certificate delivered
pursuant to this clause (B)) (x) the Total Facility Usage Ratio would not exceed 85% and (y) the
Total Facility Usage Ratio would not exceed 85% as determined on a pro forma basis over the six
month period immediately following the effective date of such sale, transfer or lease, in form and
substance satisfactory to the Administrative Agent, based on reasonable projections of the
financial performance of the Borrower and (C) before and after giving effect to such disposition,
the Borrower is in compliance with Section 8.14 under the Existing Credit Agreement in effect on
the date hereof.

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     (e) any sale, transfer or lease of Property in the ordinary course of business which is
replaced by substantially similar or improved substitute Property;

     (f) a sale or transfer of the Paperchase Businesses in accordance with Section 8.14(c); and

     (g) other dispositions of assets (i) that do not have a Material Adverse Effect and are not
Collateral (ii) where the aggregate Net Book Value of such assets to be sold or otherwise disposed
of plus the Net Book Value of all other such assets not included in the Collateral of the Borrower
and its Subsidiaries sold or otherwise disposed of under this clause (f)) during the period of time
from the Closing Date through the date of such sale does not, at the time of such sale or other
disposition, exceed 15% of the Consolidated Tangible Net Worth at such time, (iii) are sold or
otherwise disposed of in an arm’s length transaction for fair market value (after giving effect to
all tax benefits, if any, associated with such sale or other disposition) and (iv) no Default or
Event of Default exists or would result from such sale.

     8.6. Acquisitions. The Borrower will not, and will not permit any of its Subsidiaries to,
enter into any stock or asset acquisitions (other than the acquisition of assets in the ordinary
course of such Person’s business, or become or agree to become a general or limited partner, joint
venturer or member in any partnership, joint venture or limited liability company, as the case may
be; other than Acquisitions which satisfy the following criteria: (i) no Default or Event of
Default has occurred and is continuing or would result therefrom, (ii) such Acquisition shall be in
(x) substantially the same or a similar type of business as the Borrower and its Subsidiaries or
(y) any other business not included in clause (x) above (an “unrelated business”); provided that
(1) the Borrower and its Subsidiaries shall not, without the written consent of the Required
Lenders, be permitted to make any Acquisition in an unrelated business with respect to which (a)
the total assets (determined in accordance with GAAP) acquired in connection therewith constitute
more than 10% of Consolidated Tangible Net Worth determined at the end of the most recently ended
Fiscal Quarter or (b) the net income attributable to the stock or assets acquired in such
Acquisition (determined in accordance with GAAP) for any rolling four Fiscal Quarter period exceeds
10% of Consolidated Net Income for such four Fiscal Quarters, (2) the Administrative Agent may
determine, in its reasonable discretion, whether any such Acquisition relates to substantially the
same or a similar type of business as the Borrower and its Subsidiaries or to an unrelated
business, and (3) if the assets or the business subject to any such Acquisition is in an unrelated
business, the Administrative Agent (as defined in the Existing Credit Agreement in effect on the
date hereof) shall be entitled to conduct all due diligence on, and to collect any information
relating to, such assets as the Administrative Agent (as defined in the Existing Credit Agreement
in effect on the date hereof) may reasonably require prior to including any such assets in the
Aggregate Borrowing Base (as defined in the Existing Credit Agreement effect on the date hereof)
and/or the Domestic Borrowing Base (as defined in the Existing Credit Agreement in effect on the
date hereof), as applicable, (iii) the Board of Directors and (if required by applicable law) the
shareholders of any Person to be acquired have approved the terms of the Acquisition, (iv) the
Borrower delivers to the Lenders on or before the date on which it or any of its Subsidiaries
agrees to or

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consummates such Acquisition a certificate of the principal financial or accounting officer of
the Borrower certifying as accurate and complete the monthly pro forma financial projections
attached thereto and demonstrating immediately after giving effect to such Acquisition (x) the
Total Facility Usage Ratio would not exceed 85% and (y) the Total Facility Usage Ratio would not
exceed 85% as determined on a pro forma basis over the six month period immediately following the
effective date of such Acquisition, in form and substance satisfactory to the Administrative Agent,
based on reasonable projections of the financial performance of the Borrower, and (v) the Borrower
is in compliance, both before and after giving effect thereto, with Section 7.11, and (v) with
respect to any Acquisition for which the consideration paid by (i) the Borrower or its Subsidiaries
exceeds $25,000,000 or (ii) by any of the Paperchase Companies exceeds $5,000,000, the Borrower
shall deliver a certificate of an Authorized Officer of the Borrower dated as of the date of such
Acquisition as to the solvency of the Borrower and its Subsidiaries or the Paperchase Companies, as
applicable, following the consummation of such Acquisition and in form and substance satisfactory
to the Administrative Agent.

     8.7. Compliance with Environmental Laws. The Borrower will not, and will not permit any of
its Subsidiaries to, (a) use any of the Real Estate or any portion thereof for the handling,
processing, storage or disposal of Hazardous Substances, (b) cause or permit to be located on any
of the Real Estate any underground tank or other underground storage receptacle for Hazardous
Substances, (c) generate any Hazardous Substances on any of the Real Estate, (d) conduct any
activity at any Real Estate or use any Real Estate in any manner so as to cause a release (i.e.,
releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting,
escaping, leaching, disposing or dumping) or threatened release of Hazardous Substances on, upon or
into the Real Estate or (e) otherwise conduct any activity at any Real Estate or use any Real
Estate in any manner that would violate any Environmental Law or bring such Real Estate in
violation of any Environmental Law.

     8.8. Employee Benefit Plans. Neither the Borrower nor any ERISA Affiliate will:

     (a) engage in any “prohibited transaction” within the meaning of Section 406 of ERISA or
Section 4975 of the Code which could result in a material liability for the Borrower or any of its
Subsidiaries; or

     (b) permit any Guaranteed Pension Plan to incur an “accumulated funding deficiency”, as such
term is defined in Section 302 of ERISA, whether or not such deficiency is or may be waived; or

     (c) fail to contribute to any Guaranteed Pension Plan to an extent which, or terminate any
Guaranteed Pension Plan in a manner which, could result in the imposition of a lien or encumbrance
on the assets of the Borrower or any of its Subsidiaries pursuant to Section 302(f) or Section 4068
of ERISA; or

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     (d) amend any Guaranteed Pension Plan in circumstances requiring the posting of security
pursuant to Section 307 of ERISA or Section 401(a)(29) of the Code; or

     (e) permit or take any action which would result in the aggregate benefit liabilities (with
the meaning of Section 4001 of ERISA) of all Guaranteed Pension Plans exceeding the value of the
aggregate assets of such Plans, disregarding for this purpose the benefit liabilities and assets of
any such Plan with assets in excess of benefit liabilities; or

     (f) permit or take any action which would contravene any Applicable Pension Legislation.

     8.9. Business Activities. The Borrower will not, and will not permit any of its Subsidiaries
to, engage directly or indirectly (whether through Subsidiaries or otherwise) in any type of
business other than (a) with respect to the Borrower, the businesses conducted by them on the
Closing Date, substantially as conducted and operated by such Person as of such date and (b) with
respect to any Subsidiary of the Borrower, substantially as conducted and operated by the Borrower
on the Closing Date or in businesses reasonably incidental and complementary thereto; provided that
the Borrower and its Subsidiaries shall be permitted to engage in any businesses permitted to be
acquired in accordance with Section 8.6.

     8.10. Fiscal Year. Except as provided in Section 6.4.1, the Borrower will not, and will not
permit any of it Subsidiaries to, change its Fiscal Quarter or change its Fiscal Year.

     8.11. Transactions with Affiliates. The Borrower will not, and will not permit any of its
Subsidiaries to, engage in any transaction with any Affiliate (an “Affiliate Transaction”) (other
than for services as employees, officers and directors or for transactions between and among
Borrower and/or Guarantors not otherwise prohibited under this Credit Agreement) (i) with respect
to which the total consideration to be paid or received by (x) the Borrower or any of its
Subsidiaries (other than any of the Paperchase Companies) would exceed $5,000,000 but be less than
$10,000,000 or (y) any of the Paperchase Companies would exceed $1,000,000 but be less that
$3,000,000, unless the Administrative Agent has provided its written consent to such Affiliate
Transaction or unless such transaction is in the ordinary course of business consistent with past
practice or (ii) with respect to which the total consideration to be paid or received by (x) the
Borrower or any of its Subsidiaries would exceed $10,000,000 or (y) any of the Paperchase Companies
would exceed $3,000,000, including, in each case, any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any such Affiliate or, to the
knowledge of the Borrower, any corporation, partnership, trust or other entity in which any such
Affiliate has a substantial interest or is an officer, director, trustee or partner, on terms more
favorable to such Person than would have been obtainable on an arm’s-length basis in the ordinary
course of business (after taking into consideration the totality of the relationship between the

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Borrower and the relevant Affiliate of which such transaction is a part) and provided such
transaction is not otherwise prohibited by this Credit Agreement. Notwithstanding anything to the
contrary contained in this Section 8.11, (i) the Pershing Square Transactions (as defined in the
Existing Credit Agreement in effect on the date hereof) shall not be prohibited under this Section
8.11 and (ii) any restriction on Affiliate Transactions that would constitute a breach under
Section 9.14 of the Existing Credit Agreement shall not be restricted by this Section 8.11. For the
avoidance of doubt, this Section 8.11 does not cover any dispositions or licenses concerning
Intellectual Property.

     8.12. Changes in Governing Documents. The Borrower will not, and will not permit any of its
Subsidiaries to, amend in any respect its Governing Documents in the event such change would be
adverse to the Lenders; provided that the Borrower or any Guarantor shall be permitted to change
its respective jurisdiction of organization or formation so long as the Borrower or such Guarantor
provides the Administrative Agent and the Collateral Agent with written notice not less than thirty
(30) days prior to such change; provided further that the Borrower may amend or modify its
Governing Documents from time to time to the extent necessary to permit the Pershing Square Warrant
Transaction (as defined in the Existing Credit Agreement in effect on the date hereof) and the
performance of its obligations thereunder.

     8.13. Inconsistent Agreements. After the date hereof, the Borrower shall not, and shall not
permit any of its Subsidiaries to, enter into or become subject to any restriction on the ability
of the Borrower or such Subsidiary to make dividends or distributions in cash or kind to the
Borrower or such Subsidiary, to make loans, advances or other payments of whatsoever nature to the
Borrower or such Subsidiary, or to make transfers or distributions of all or any part of its assets
to the Borrower or such Subsidiary either in its Governing Documents or in any agreement or
contract to which it is a party (other than restrictions in this Credit Agreement and the other
Loan Documents), nor shall any of them enter into any indenture, agreement, instrument or other
arrangement or any amendment of an existing indenture, agreement, instrument or other arrangement
which, (a) directly or indirectly prohibits or restrains, or has the effect of prohibiting or
restraining, or could reasonably be expected to impose materially adverse conditions upon, the
incurrence of the Obligations under the Loan Documents, any provisions of this Credit Agreement
(including without limitation Section 5 hereof) or the amending of any of the Loan Documents, or
(b) contains any provision which would be violated or breached by the making of Loans to the
Borrower, the incurrence of Indebtedness by the Borrower hereunder, or by the performance by the
Borrower or any of its Subsidiaries of any of its obligations under any Loan Document.

     8.14. Additional Paperchase Companies Covenants. In addition to the other provisions in
this Section 8, the Borrower covenants and agrees as to the Paperchase Companies that

     (a) except as required by applicable laws, the business of the Paperchase Companies shall be
conducted in the ordinary and usual course and the Paperchase Companies shall use their reasonable
best efforts to preserve their business organizations intact and maintain existing relations and
goodwill in all material respects with

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Governmental Authorities, customers, suppliers, distributors, creditors, lessors, licensors,
vendors, employees, outside contractors, agents and business associates and keep available the
services of the Paperchase Companies’ employees, outside contractors and agents;

     (b) the Borrower shall use reasonable commerical efforts to find third-party buyers for the
Paperchase Companies for a purchase price in excess of the purchase price set forth in the Purchase
Offer, including (i) promptly hiring a financial advisor, (ii) establishing a data room and broadly
soliciting potential purchasers, and (iii) providing the Lenders such information as they may
reasonably request; and

     (c) the Borrower or any of its Subsidiaries will not transfer, sell, lease, license, mortgage,
pledge, surrender, encumber, divest, cancel, abandon or allow to lapse or expire or otherwise
dispose of any material assets (including Intellectual Property), licenses, operations, rights,
product lines, businesses or interests therein of the Paperchase Companies, including capital stock
of the Paperchase Companies, provided that the Borrower or any of its Subsidiaries may sell the
Paperchase Businesses substantially as a whole for cash so long as the Net Cash Proceeds of such
sale are promptly applied as mandatory prepayments pursuant to Section 3.3 in amounts sufficient to
repay the outstanding Loans in full, including all accrued and unpaid amounts under the Term Loan
Facility;

     8.15. Permitted Restructuring Transactions. Notwithstanding the foregoing, the provisions of
this Section 8 (other than Sections 8.5.2(d)(iv) and 8.14) shall not restrict the ability of the
Borrower and its Subsidiaries from consummating any Permitted Restructuring Transaction.

9. CLOSING CONDITIONS.

     The obligations of the Lenders to make the Loans shall be subject to the satisfaction of the
following conditions precedent:

     9.1. Loan Documents. Each of the Loan Documents shall have been duly executed and delivered
by the respective parties thereto, shall be in full force and effect and shall be in form and
substance satisfactory to each of the Lenders. Each Lender and the Administrative Agent shall have
received a fully executed copy of each such documents.

     9.2. Certified Copies of Governing Documents. Each of the Lenders shall have received from
the Borrower and each of its Subsidiaries a copy, certified by a duly authorized officer of such
Person to be true and complete on the Closing Date, of each of its Governing Documents and the
Existing Credit Agreement (as amended) as in effect on such date of certification.

     9.3. Corporate or Other Action. All corporate (or other) action (including certified copies
of the board minutes and/or resolutions authorizing the execution of the Loan Documents to which
such Person is a party) necessary for the valid execution, delivery and performance by the Borrower
and the Guarantors of this Credit Agreement

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and the other Loan Documents to which it is or is to become a party shall have been duly and
effectively taken, and evidence thereof satisfactory to the Lenders shall have been provided to
each of the Lenders.

     9.4. Incumbency Certificate. Each of the Lenders and the Administrative Agent shall have
received from the Borrower and the Guarantors an incumbency certificate, dated as of the Closing
Date, signed by a duly authorized officer of the Borrower or such Guarantor, and giving the name
and bearing a specimen signature of each individual who shall be authorized: (a) to sign, in the
name and on behalf of the Borrower and such Guarantors, each of the Loan Documents to which the
Borrower or such Guarantor is or is to become a party; (b) in the case of the Borrower, to make a
Notice of Borrowing; and (c) to give notices and to take other action on its behalf under the Loan
Documents.

     9.5. UCC Search Results. The Administrative Agent shall have received the results of Uniform
Commercial Code searches (and the equivalent thereof in all applicable foreign jurisdictions),
indicating that the Borrower and the Paperchase Businesses have no Liens other than Permitted Liens
and otherwise in form and substance satisfactory to the Administrative Agent.

     9.6. Solvency Certificate. Each of the Lenders and the Administrative Agent shall have
received an officer’s certificate of the Borrower dated as of the Closing Date as to the solvency
of the Borrower and its Subsidiaries following the consummation of the transactions contemplated
herein and in form and substance satisfactory to the Lenders.

     9.7. Opinion of Counsel. Each of the Lenders and the Agents shall have received a favorable
legal opinion addressed to the Lenders and the Agents dated as of the Closing Date, in form and
substance satisfactory to the Lenders and the Agents, from:

     (a) Baker & McKenzie, counsel to the Borrower and the Guarantors; and

     (b) Thomas Carney, Esq., General Counsel to the Borrower and the Guarantors.

     9.8. Payment of Premium and Expenses. The Borrower shall have paid to the Lenders or the
Administrative Agent, as appropriate, the Closing Discount pursuant to Section 2.2.1 and the fees
and expenses of (i) the Administrative Agent’s Special Counsel and (ii) Blackstone Advisory
Services, L.P.

     9.9. Disbursement Instructions. The Administrative Agent shall have received a Notice of
Borrowing and disbursement instructions from the Borrower, indicating how the proceeds of the Loans
are to be disbursed.

     9.10. Validity of Liens. The Pledge Agreement shall be effective to create in favor of the
Administrative Agent a legal, valid and enforceable first priority security interest in and Lien
upon the Collateral
free and clear of other Liens. The Pledged Shares shall entitle the holder to
the proportional interest of approximately 65% in Paperchase

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free and clear of all material
liabilities relating to the Borrower and its Subsidiaries (other
than liabilities to the extent relating to Paperchase and Superstores). All filings,
recordings, deliveries of instruments and other actions necessary or desirable in the opinion of
the Administrative Agent to protect and preserve such security interests shall have been duly
effected. The Administrative Agent shall have received evidence thereof in form and substance
satisfactory to the Administrative Agent.

     9.11. Consents and Approvals. Each of the Lenders and the Administrative Agent shall have
received evidence that all consents and approvals necessary to complete all transactions
contemplated hereby, including the approval by the “Required Lenders” (as defined in the Existing
Credit Agreement in effect on the date hereof) of the Transactions have been obtained.

     9.12. Other Transactions. The execution and delivery of the Purchase Offer and the Warrant
and Registration Rights Agreement shall take effect simultaneously with the transactions
contemplated by this Credit Agreement.

     9.13. Representations True; No Event of Default. Each of the representations and warranties
of the Borrower and any of its Subsidiaries contained in this Credit Agreement, the other Loan
Documents or in any document or instrument delivered pursuant to or in connection with this Credit
Agreement shall be true and correct as of the date as of which they were made and shall also be
true and correct at and as of the time of the making of such Loan, with the same effect as if made
at and as of that time (except to the extent of changes resulting from transactions contemplated or
permitted by this Credit Agreement and the other Loan Documents and changes occurring in the
ordinary course of business that singly or in the aggregate do not result in a Material Adverse
Effect, and to the extent that such representations and warranties relate expressly to an earlier
date) and no Default or Event of Default shall have occurred and be continuing. The Administrative
Agent shall have received a certificate of the Borrower signed by an authorized officer of the
Borrower to such effect.

     9.14. No Legal Impediment. No change shall have occurred in any law or regulations thereunder
or interpretations thereof that in the reasonable opinion of any Lender would make it illegal for
such Lender to make such Loan.

     9.15. Proceedings and Documents. All proceedings in connection with the transactions
contemplated by this Credit Agreement, the other Loan Documents and all other documents incident
thereto shall be satisfactory in substance and in form to the Lenders and to the Administrative
Agent and their counsel, and the Lenders, the Administrative Agent and such counsel shall have
received all information and such counterpart originals or certified or other copies of such
documents as the Administrative Agent may reasonably request.

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10. [Reserved]

11. EVENTS OF DEFAULT; ACCELERATION; ETC.

     11.1. Events of Default and Acceleration. If any of the following events (“Events of Default”
or, if the giving of notice or the lapse of time or both is required, then, prior to such notice or
lapse of time, “Defaults”) shall occur:

     (a) the Borrower shall fail to pay any principal of the Loans when the same shall become due
and payable, whether at the stated date of maturity or any accelerated date of maturity or at any
other date fixed for payment, and the Administrative Agent shall have delivered to the Borrower
written notice of such Default;

     (b) the Borrower or any of its Subsidiaries shall fail to pay any interest on the Loans, any
fees, or other sums due hereunder or under any of the other Loan Documents, within three (3) days
following the date upon which the same shall become due and payable, whether at the stated date of
maturity or any accelerated date of maturity or at any other date fixed for payment, and the
Administrative Agent shall have delivered to the Borrower written notice of such Default;

     (c) the Borrower shall fail to comply with any of its covenants contained in Sections 7.1,
7.4, 7.5.1, the first sentence of 7.6, 7.11 or 8 (other than 8.7 and 8.8), and the Administrative
Agent shall have delivered to the Borrower written notice of such Default;

     (d) the Borrower or any of its Subsidiaries shall fail to perform any term, covenant or
agreement contained herein or in any of the other Loan Documents (other than those specified
elsewhere in this Section 11.1) for thirty (30) days after written notice of such failure has been
given to the Borrower by the Administrative Agent (such grace period to be applicable only in the
event such Default can be remedied by corrective action of the Borrower as determined by the
Administrative Agent in its sole discretion);

     (e) any representation or warranty of the Borrower or any of its Subsidiaries in this Credit
Agreement or any of the other Loan Documents or in any other document or instrument delivered
pursuant to or in connection with this Credit Agreement shall prove to have been false in any
material respect upon the date when made or deemed to have been made or repeated, and the
underlying events or circumstances are not cured within thirty (30) days after written notice of
such Default has been given to the Borrower by the Administrative Agent (such grace period to be
applicable only in the event the underlying events or circumstances can be remedied by corrective
action of the Borrower as determined by the Administrative Agent in its sole discretion);

     (f) (i) the Borrower or any of its Subsidiaries shall fail to pay at maturity, or within any
applicable period of grace, any obligation for Indebtedness with an aggregate outstanding principal
amount in excess of $25,000,000 or fail to observe or perform any material term, covenant or
agreement contained in any agreement by which it is bound evidencing or securing Indebtedness with
an aggregate outstanding principal amount in

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excess of $25,000,000 for such period of time as would permit (assuming the giving of
appropriate notice if required) the holder or holders thereof or of any obligations issued
thereunder to accelerate the maturity thereof, or any such holder or holders shall rescind or shall
have a right to rescind the purchase of any such obligations; or (ii) any of the Paperchase
Companies shall fail to pay at maturity, or within any applicable period of grace, any obligation
for Indebtedness with an aggregate outstanding principal amount in excess of $10,000,000 or fail to
observe or perform any material term, covenant or agreement contained in any agreement by which it
is bound evidencing or securing Indebtedness with an aggregate outstanding principal amount in
excess of $10,000,000 for such period of time as would permit (assuming the giving of appropriate
notice if required) the holder or holders thereof or of any obligations issued thereunder to
accelerate the maturity thereof, or any such holder or holders shall rescind or shall have a right
to rescind the purchase of any such obligations, and, in in the case of each of clauses (i) and
(ii), such Default is not cured within fifteen (15) days after written notice of such Default has
been given to the Borrower by the Administrative Agent;

     (g) the Borrower or any of its Subsidiaries shall make an assignment for the benefit of
creditors, or admit in writing its inability to pay or generally fail to pay its debts as they
mature or become due, or shall petition or apply for the appointment of a trustee or other
custodian, liquidator, receiver or administrator of the Borrower or any of its Subsidiaries or of
any substantial part of the assets of the Borrower or any of its Subsidiaries or shall commence any
case or other proceeding relating to the Borrower or any of its Subsidiaries under any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation or
similar law of any jurisdiction, now or hereafter in effect, or shall take any action to authorize
or in furtherance of any of the foregoing, or if any such petition or application shall be filed or
any such case or other proceeding shall be commenced against the Borrower or any of its
Subsidiaries and the Borrower or any of its Subsidiaries shall indicate its approval thereof,
consent thereto or acquiescence therein or such petition or application shall not have been
dismissed within forty-five (45) days following the filing thereof;

     (h) a decree or order is entered appointing any such trustee, custodian, liquidator, receiver
or administrator or adjudicating the Borrower or any of its Subsidiaries bankrupt or insolvent, or
approving a petition in any such case or other proceeding, or a decree or order for relief is
entered in respect of the Borrower or any Subsidiary of the Borrower in an involuntary case under
federal bankruptcy laws as now or hereafter constituted;

     (i) there shall remain in force, undischarged, unsatisfied and unstayed, for more than sixty
days, whether or not consecutive, any final judgment against the Borrower or any of its
Subsidiaries that, with other outstanding final judgments, undischarged, against (i) the Borrower
or any of its Subsidiaries exceeds in the aggregate $25,000,000 or (ii) any of the Paperchase
Companies exceeds in the aggregate $10,000,000, and, in the case of each of clauses (i) and (ii),
such Default is not cured within fifteen (15) days after written notice of such Default has been
given to the Borrower by the Administrative Agent;

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     (j) if any of the Loan Documents shall be cancelled, terminated, revoked or rescinded, in each
case otherwise than in accordance with the terms thereof or with the express prior written
agreement, consent or approval of the Lenders, or any action at law, suit or in equity or other
legal proceeding to cancel, revoke or rescind any of the Loan Documents or contest the
Administrative Agent’s security interests and liens in any portion of the Collateral or the
priority of the Administrative Agent’s security interests and liens in any portion of the
Collateral contemplated by the Pledge Agreement, shall be commenced by or on behalf of the Borrower
or any of its Subsidiaries party thereto or any of their respective stockholders, or any court or
any other governmental or regulatory authority or agency of competent jurisdiction shall make a
determination that, or issue a judgment, order, decree or ruling to the effect that, any one or
more of the Loan Documents is illegal, invalid or unenforceable in accordance with the terms
thereof, and the Administrative Agent shall have delivered to the Borrower written notice of such
Default;

     (k) the Borrower or any ERISA Affiliate incurs any liability to the PBGC or a Guaranteed
Pension Plan pursuant to Title IV of ERISA in an aggregate amount exceeding $25,000,000, or the
Borrower or any ERISA Affiliate is assessed withdrawal liability pursuant to Title IV of ERISA by a
Multiemployer Plan requiring aggregate annual payments exceeding $25,000,000, or any of the
following occurs with respect to a Guaranteed Pension Plan: (i) an ERISA Reportable Event, or a
failure to make a required installment or other payment (within the meaning of Section 302(f)(1) of
ERISA), provided that the Administrative Agent determines in its reasonable discretion that such
event (A) could be expected to result in liability of (x) the Borrower or any of its Subsidiaries
or (y) any of the Paperchase Companies to the PBGC or such Guaranteed Pension Plan in an aggregate
amount exceeding, in the case of (x), $25,000,000 or, in the case of (y), $10,000,000, and (B)
could constitute grounds for the termination of such Guaranteed Pension Plan by the PBGC, for the
appointment by the appropriate United States District Court of a trustee to administer such
Guaranteed Pension Plan or for the imposition of a lien in favor of such Guaranteed Pension Plan;
or (ii) the appointment by a United States District Court of a trustee to administer such
Guaranteed Pension Plan; or (iii) the institution by the PBGC of proceedings to terminate such
Guaranteed Pension Plan, and in the case of each of clauses (i), (ii) or (iii), such Default is not
cured within thirty (30) days after written notice of such Default has been given to the Borrower
by the Administrative Agent;

     (l) the Borrower or any of its Subsidiaries shall be enjoined, restrained or in any way
prevented by the order of any Governmental Authority from conducting any material part of its
business and such order shall continue in effect for more than thirty (30) days and such restraint
or enjoinment or similar restriction by any Governmental Authority would have a Material Adverse
Effect, and the Administrative Agent shall have delivered to the Borrower written notice of such
Default;

     (m) there shall occur the loss, suspension or revocation of, or failure to renew, any license
or permit now held or hereafter acquired by the Borrower or any of its Subsidiaries if such loss,
suspension, revocation or failure to renew would have a Material Adverse Effect, and such Default
is not cured within thirty (30) days after

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written notice of such Default has been given to the Borrower by the Administrative Agent
(such grace period to be applicable only in the event such Default can be remedied by corrective
action of the Borrower as determined by the Administrative Agent in its sole discretion)

     (n) a Change of Control shall occur, and the Administrative Agent shall have delivered to the
Borrower written notice of such Default;

     (o) any Lien under the Pledge Agreement on any Collateral shall, at any time, cease to be in
full force and effect (other than in accordance with the terms of the Pledge Agreement and this
Credit Agreement) for any reason other than the satisfaction in full of all of the Obligations or
the release of any such Lien in accordance with the terms hereof or (ii) the Pledge Agreement or
any Lien created thereunder on any Collateral shall be declared invalid or unenforceable or the
Borrower shall assert in writing that any such Lien is invalid or unenforceable, and, in any such
case, such event or circumstance continues for 10 days, and the Administrative Agent shall have
delivered to the Borrower written notice of such Default; and

     (p) an Event of Default under the Existing Credit Agreement;

then, and in any such event, so long as the same may be continuing, the Administrative Agent may,
and upon the request of the Required Lenders shall, by notice in writing to the Borrower declare
all amounts owing with respect to this Credit Agreement, the Notes and the other Loan Documents to
be, and they shall thereupon forthwith become, immediately due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby expressly waived by the
Borrower; provided that in the event of any Event of Default specified in Sections 11.1(g) or (h),
all such amounts shall become immediately due and payable automatically and without any requirement
of notice from the Administrative Agent or any Lender.

     11.2. Remedies. In case any one or more of the Events of Default shall have occurred and be
continuing, and whether or not the Lenders shall have accelerated the maturity of the Loans
pursuant to Section 11.1, each Lender, if owed any amount with respect to the Loans, may, with the
consent of the Required Lenders but not otherwise, proceed to protect and enforce its rights by
suit in equity, action at law or other appropriate proceeding, whether for the specific performance
of any covenant or agreement contained in this Credit Agreement and the other Loan Documents or any
instrument pursuant to which the Obligations to such Lender are evidenced, including as permitted
by applicable law the obtaining of the ex parte appointment of a receiver, and, if such amount
shall have become due, by declaration or otherwise, proceed to enforce the payment thereof or any
other legal or equitable right of such Lender. No remedy herein conferred upon any Lender or any
Agent or the holder of any Note is intended to be exclusive of any other remedy and each and every
remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or
hereafter existing at law or in equity or by statute or any other provision of law.

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     11.3. Distribution of Proceeds. In the event that, following the occurrence or during the
continuance of any Default or Event of Default, the Administrative Agent or any Lender, as the case
may be, receives any monies in connection with the enforcement of its rights hereunder or under any
of the other Loan Documents, such monies shall be distributed for application as follows:

     (a) First, to the payment of, or (as the case may be) the reimbursement of the Administrative
Agent for or in respect of all reasonable costs, expenses, disbursements and losses which shall
have been incurred or sustained by the Administrative Agent or the Collateral Agent in connection
with the collection of such monies by the Administrative Agent or the Collateral Agent, for the
exercise, protection or enforcement by the Administrative Agent of all or any of the rights,
remedies, powers and privileges of the Administrative Agent or the Collateral Agent under this
Credit Agreement or any of the other Loan Documents in support of any provision of adequate
indemnity to the Administrative Agent or the Collateral Agent against any taxes or liens which by
law shall have, or may have, priority over the rights of the Administrative Agent or the Collateral
Agent to such monies;

     (b) Second, to pay any fees, indemnities or expense reimbursements then due to the
Administrative Agent from the Borrower or any Guarantor pursuant to the terms of any Loan Document;

     (c) Third, to pay interest due in respect of the Loans;

     (d) Fourth, to pay or prepay principal of the Loans;

     (e) Fifth, to the payment of any other Obligation due to the Administrative Agent or any
Lender by the Borrower or any Guarantor;

     (f) Sixth, the excess, if any, shall be returned to the Borrower or to such other Persons as
are entitled thereto.

12. THE AGENTS.

     12.1. Authorization.

     (a) Effective on the Closing Date, (i) the Borrower and the Lenders hereby irrevocably
appoints Pershing Square Capital as Administrative Agent, (ii) each of the Lenders authorizes the
Administrative Agent to appoint Pershing Square Capital as Collateral Agent hereunder and under the
other Loan Documents. The Borrower and the Lenders authorize Pershing Square Capital to take all
actions and file all such documents and statements to reflect such assignment.

     (b) Each of the Lenders hereby irrevocably appoints Pershing Square Capital to act on its
behalf as Administrative Agent hereunder and under the other Loan Documents. The Administrative
Agent is authorized to take such action on behalf of each of the Lenders and to exercise all such
powers as are hereunder and under any of the other Loan Documents and any related documents
delegated to the Administrative Agent,

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together with such powers as are reasonably incident thereto, including the authority, without
the necessity of any notice to or further consent of the Lenders, from time to time to take any
action with respect to any Collateral or the Pledge Agreement which may be necessary to perfect,
maintain perfected or insure the priority of the security interest in and liens upon the Collateral
granted pursuant to the Pledge Agreement, provided that no duties or responsibilities not expressly
assumed herein or therein shall be implied to have been assumed by the Administrative Agent.

     (c) The relationship between each Agent and each of the Lenders is that of an independent
contractor. The use of the terms “Administrative Agent” and “Collateral Agent” is for convenience
only and is used to describe, as a form of convention, the independent contractual relationship
between each such Agent and each of the Lenders.

     (d) As an independent contractor empowered by the Lenders to exercise certain rights and
perform certain duties and responsibilities hereunder and under the other Loan Documents, the
Collateral Agent is nevertheless a “representative” of the Lenders, as that term is defined in
Article 1 of the Uniform Commercial Code, for purposes of actions for the benefit of the Lenders
and the Administrative Agent with respect to all collateral security and guaranties contemplated by
the Loan Documents. Such actions include the designation of the Collateral Agent as “secured
party” or the like on all financing statements and other documents and instruments, whether
recorded or otherwise, relating to the attachment, perfection, priority or enforcement of any
security interests in collateral security intended to secure the payment or performance of any of
the Obligations, all for the benefit of the Lenders and the Administrative Agent.

     (e) Each Lender appoints the Collateral Agent to act on its behalf as security trustee under
and in connection with the Collateral, the Pledge Agreement and any other documents associated
therewith, and agrees that the Collateral Agent shall hold the Charged Assets (as such term is
defined in the Pledge Agreement) on trust for the Lenders on the terms and conditions contained
therein. Nothing in this Credit Agreement shall constitute the Collateral Agent (except as
expressly provided in this Section 12.1(e) or in the Pledge Agreement) as a trustee or fiduciary of
any other person. The perpetuity period under the rule against perpetuities, if applicable to this
Credit Agreement, shall be the period of eighty years from the date of this Credit Agreement. The
Collateral Agent shall have all of the benefits and immunities (i) provided to the Collateral Agent
in this Section 12 with respect to any acts taken or omissions suffered by the Collateral Agent in
connection with the Collateral, the Pledge Agreement and any other documents associated therewith,
as fully as if the term “Administrative Agent” as used in this Section 12 included the Collateral
Agent with respect to such acts or omissions (and including any affiliates of the Collateral Agent
and the officers, directors, employees, agents and attorneys-in-fact of the Collateral Agent and
any affiliates thereof), and (ii) as additionally provided herein with respect to the Collateral
Agent.

     12.2. Employees and Agents. The Administrative Agent may exercise its powers and execute its
duties by or through employees or agents and shall be entitled to take, and to rely on, advice of
counsel concerning all matters pertaining to its rights and duties under this Credit Agreement and
the other Loan Documents. The Administrative

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Agent may utilize the services of such Persons as the Administrative Agent in its sole
discretion may reasonably determine, and all reasonable fees and expenses of any such Persons shall
be paid by the Borrower.

     12.3. No Liability. None of the Administrative Agent nor any of their shareholders,
directors, officers or employees nor any other Person assisting them in their duties nor any agent
or employee thereof, shall be liable for any waiver, consent or approval given or any action taken,
or omitted to be taken, in good faith by it or them hereunder or under any of the other Loan
Documents, or in connection herewith or therewith, or be responsible for the consequences of any
oversight or error of judgment whatsoever, except that the Administrative Agent or such other
Person, as the case may be, may be liable for losses due to its willful misconduct or gross
negligence. The Administrative Agent shall be entitled to rely, and shall be fully protected in
relying, upon any writing, communication, signature, resolution, representation, notice, consent,
certificate, affidavit, letter, telegram, facsimile, telex, electronic mail message, statement or
other document or conversation believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or Persons, and upon advice and statements of legal counsel
(including counsel to the Borrower), independent accountants and other experts selected by the
Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to
take any action under any Loan Document unless it shall first receive such advice or concurrence of
the Required Lenders as it deems appropriate and, if it so requests, it shall first be indemnified
to its satisfaction by the Lenders against any and all liability and expense which may be incurred
by it by reason of taking or continuing to take any such action; provided that the Administrative
Agent shall not be required to take any action that, in its opinion or the opinion of its counsel,
may expose the Administrative Agent to liability or that is contrary to any Loan Document or
applicable law. The Administrative Agent shall in all cases be fully protected in acting, or in
refraining from acting, under this Credit Agreement or any other Loan Document in accordance with a
request or consent of the Required Lenders (or such greater number of Lenders as may be expressly
required hereby in any instance) and such request and any action taken or failure to act pursuant
thereto shall be binding upon all the Lenders. Except as expressly set forth hereunder and in the
other Loan Documents, the Administrative Agent shall have no duty to disclose, and shall not be
liable for the failure to disclose, any information relating to the Borrower or any of its
Affiliates that is communicated to or obtained by the Person serving as the Administrative Agent or
any of its Affiliates in any capacity. The Administrative Agent shall be deemed not to have
knowledge of any Default unless and until notice describing such Default is given to the
Administrative Agent by the Borrower or a Lender.

     12.4. No Representations.

     12.4.1. General. The Administrative Agent shall not be responsible for the execution
or validity or enforceability of this Credit Agreement, the Notes, any of the other Loan
Documents or any instrument at any time constituting, or intended to constitute, collateral
security for the Notes, or for the value of any such collateral security or for the
validity, enforceability or collectability of any such amounts owing with respect to the
Notes, or for any recitals or statements,

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warranties or representations made herein or in any of the other Loan Documents or in
any certificate or instrument hereafter furnished to it by or on behalf of the Borrower or
any of its Subsidiaries, or be bound to ascertain or inquire as to the performance or
observance of any of the terms, conditions, covenants or agreements herein or in any
instrument at any time constituting, or intended to constitute, collateral security for the
Notes or to inspect any of the properties, books or records of the Borrower or any of its
Subsidiaries. The Administrative Agent shall not be bound to ascertain whether any notice,
consent, waiver or request delivered to it by the Borrower or any holder of any of the
Notes shall have been duly authorized or is true, accurate and complete. The
Administrative Agent has not made nor does it now make any representations or warranties,
express or implied, nor does it assume any liability to the Lenders, with respect to the
credit worthiness or financial conditions of the Borrower or any of its Subsidiaries. Each
Lender acknowledges that it has, independently and without reliance upon the Administrative
Agent or any other Lender, and based upon such information and documents as it has deemed
appropriate, made its own credit analysis and decision to enter into this Credit Agreement.

     12.4.2. Closing Documentation, Etc. For purposes of determining compliance with the
conditions set forth in Section 9, each Lender that has executed this Credit Agreement
shall be deemed to have consented to, approved or accepted, or to be satisfied with, each
document and matter either sent, or made available, by the Administrative Agent to such
Lender for consent, approval, acceptance or satisfaction, or required thereunder to be
consented to or approved by or acceptable or satisfactory to such Lender, unless an officer
of the Administrative Agent active upon the Borrower’s account shall have received notice
from such Lender prior to the Closing Date specifying such Lender’s objection thereto and
such objection shall not have been withdrawn by notice to the Administrative Agent to such
effect on or prior to the Closing Date.

     12.5. Payments.

     12.5.1. Payments to Administrative Agent. A payment by the Borrower to the
Administrative Agent hereunder or any of the other Loan Documents for the account of any
Lender shall constitute a payment to such Lender. The Administrative Agent agrees promptly
to distribute to each Lender such Lender’s pro rata share of payments received by the
Administrative Agent for the account of the Lenders, except as otherwise expressly provided
herein or in any of the other Loan Documents.

     12.5.2. Distribution by Administrative Agent. If in the opinion of the Administrative
Agent the distribution of any amount received by it in such capacity hereunder, under the
Notes or under any of the other Loan Documents might involve it in liability, it may
refrain from making distribution until its right to make distribution shall have been
adjudicated by a court of competent jurisdiction. If a court of competent jurisdiction
shall adjudge that any amount received and distributed by the Administrative Agent is to be
repaid, each Person

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to whom any such distribution shall have been made shall either repay to the
Administrative Agent its proportionate share of the amount so adjudged to be repaid or
shall pay over the same in such manner and to such Persons as shall be determined by such
court.

     12.5.3. Delinquent Lenders. Notwithstanding anything to the contrary contained in
this Credit Agreement or any of the other Loan Documents, any Lender that fails (a) to make
available to the Administrative Agent its pro rata share of any Loan or (b) to comply with
the provisions of Section 14.1 with respect to making dispositions and arrangements with
the other Lenders, where such Lender’s share of any payment received, whether by setoff or
otherwise, is in excess of its pro rata share of such payments due and payable to all of
the Lenders, in each case as, when and to the full extent required by the provisions of
this Credit Agreement, shall be deemed delinquent (a “Delinquent Lender”) and shall be
deemed a Delinquent Lender until such time as such delinquency is satisfied. A Delinquent
Lender shall be deemed to have assigned any and all payments due to it from the Borrower,
whether on account of outstanding Loans, interest, fees or otherwise, to the remaining
nondelinquent Lenders for application to, and reduction of, their respective pro rata
shares of all outstanding Loans. The Delinquent Lender hereby authorizes the
Administrative Agent to distribute such payments to the nondelinquent Lenders in proportion
to their respective pro rata shares of all outstanding Loans. A Delinquent Lender shall be
deemed to have satisfied in full a delinquency when and if, as a result of application of
the assigned payments to all outstanding Loans of the nondelinquent Lenders, the Lenders’
respective pro rata shares of all outstanding Loans have returned to those in effect
immediately prior to such delinquency and without giving effect to the nonpayment causing
such delinquency.

     12.6. Holders of Notes. The Administrative Agent may deem and treat the payee of any Note as
the absolute owner or purchaser thereof for all purposes hereof until it shall have been furnished
in writing with a different name by such payee or by a subsequent holder, assignee or transferee.

     12.7. Indemnity. The Lenders ratably, in accordance with their respective percentages of the
aggregate Total Commitment, agree hereby to indemnify and hold harmless the Administrative Agent
and its affiliates (including any of the officers, directors, employees, agents and
attorneys-in-fact of any thereof) from and against any and all claims, actions and suits (whether
groundless or otherwise), losses, damages, costs, expenses (including any expenses for which the
Administrative Agent or such affiliate has not been reimbursed by the Borrower as required by
Section 14.2), and liabilities of every nature and character arising out of or related to this
Credit Agreement, the Notes, or any of the other Loan Documents or the transactions contemplated or
evidenced hereby or thereby, or the Administrative Agent’s actions taken hereunder or thereunder,
except to the extent that any of the same shall be directly caused by the Administrative Agent’s
willful misconduct or gross negligence.

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     12.8. The Agents as Lenders. In its individual capacity, Pershing Square shall have the same
obligations and the same rights, powers and privileges in respect to its Commitment and the Loans
made by it, and as the holder of any of the Notes, as it would have were it not also an Affiliate
of the Administrative Agent.

     12.9. Resignation. The Administrative Agent may resign at any time by giving sixty (60) days
prior written notice thereof to the Lenders and the Borrower. Upon any such resignation, the
Required Lenders shall have the right to appoint a successor Administrative Agent. If no successor
Administrative Agent shall have been so appointed by the Required Lenders and shall have accepted
such appointment within thirty (30) days after the retiring Administrative Agent’s giving of notice
of resignation, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a
successor Administrative Agent. Upon the acceptance of any appointment as an Administrative Agent
hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties of the retiring
Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and
obligations hereunder. After any retiring Administrative Agent’s resignation, the provisions of
this Credit Agreement and the other Loan Documents shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was acting as Administrative
Agent.

     Any resignation by Pershing Square Capital as Administrative Agent pursuant to this Section
12.9 shall also constitute its resignation as Collateral Agent to the extend that Pershing Square
Capital is acting in such capacities at such time. Upon the acceptance of a successor’s
appointment as Administrative Agent hereunder, (a) such successor shall succeed to and become
vested with all of the rights, powers, privileges and duties of the Collateral Agent and (b) the
Collateral Agent shall be discharged from all of its duties and obligations hereunder or under the
other Loan Documents.

     12.10. Notification of Defaults and Events of Default. Each Lender hereby agrees that, upon
learning of the existence of a Default or an Event of Default, it shall promptly notify the
Administrative Agent thereof. The Administrative Agent hereby agrees that upon receipt of any
notice under this Section 12.10 it shall promptly notify the other Lenders of the existence of such
Default or Event of Default.

     12.11. Administrative Agent May File Proofs of Claim.

     (a) In case of the pendency of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial, administrative or like
proceeding or any assignment for the benefit of creditors relative to the Borrower or any of its
Subsidiaries, the Administrative Agent (irrespective of whether the principal of any Loan shall
then be due and payable as herein expressed or by declaration or otherwise and irrespective of
whether the Administrative Agent shall have made any demand on the Borrower) shall be entitled and
empowered, by intervention in such proceeding, under any such assignment or otherwise:

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     (i) to file and prove a claim for the whole amount of the principal and interest owing
and unpaid in respect of the Loans and all other Obligations that are owing and unpaid and
to file such other documents as may be necessary or advisable in order to have the claims
of the Lenders and the Administrative Agent (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Lenders and the Administrative
Agent and their respective agents and counsel and all other amounts due the Lenders and the
Administrative Agent under the terms of this Credit Agreement) allowed in such proceeding
or under any such assignment; and

     (ii) to collect and receive any monies or other property payable or deliverable on any
such claims and to distribute the same;

     (b) Any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar
official in any such proceeding or under any such assignment is hereby authorized by each Lender to
make such payments to the Administrative Agent and, in the event that the Administrative Agent
shall consent to the making of such payments directly to the Lenders, nevertheless to pay to the
Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and
advances of the Administrative Agent and its agents and counsel, and any other amounts due the
Administrative Agent under the terms of this Credit Agreement.

     (c) Nothing contained herein shall authorize the Administrative Agent to consent to or accept
or adopt on behalf of any Lender any plan of reorganization, arrangement, adjustment or composition
affecting the Obligations owed to such Lender or the rights of any Lender or to authorize the
Administrative Agent to vote in respect of the claim of any Lender in any such proceeding or under
any such assignment.

     12.12. Duties in the Case of Enforcement. In case one of more Events of Default have occurred
and shall be continuing, and whether or not acceleration of the Obligations shall have occurred,
the Administrative Agent shall, if (a) so requested by the Required Lenders and (b) the Lenders
have provided to the Administrative Agent such additional indemnities and assurances against
expenses and liabilities as the Administrative Agent may reasonably request, proceed to enforce the
provisions of the Pledge Agreement authorizing the sale or other disposition of all or any part of
the Collateral and exercise all or any such other legal and equitable and other rights or remedies
as it may have in respect of such Collateral. The Required Lenders may direct the Administrative
Agent in writing as to the method and the extent of any such sale or other disposition, the Lenders
hereby agreeing to indemnify and hold the Administrative Agent harmless from all liabilities
incurred in respect of all actions taken or omitted in accordance with such directions, provided
that the Administrative Agent need not comply with any such direction to the extent that the
Administrative Agent reasonably believes the Administrative Agent’s compliance with such direction
to be unlawful or commercially unreasonable in any applicable jurisdiction.

     12.13. Release of Collateral and Guarantors. The Lenders hereby authorize the Administrative
Agent to enter into any agreement or execute any document evidencing

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the release of any liens and security interests in connection with any sale or other
disposition of Collateral permitted hereunder or to subordinate any Lien on any property granted to
or held by the Administrative Agent under any Loan Document to the holder of any Lien on such
Property that is permitted by Section 8.2. The Lenders hereby authorize the Administrative Agent
to enter into any agreement or execute any document evidencing the release of any Guarantor from
its obligations under this Credit Agreement and the other Loan Documents if such Person ceases to
be a Subsidiary as a result of a transactions not prohibited hereunder. Upon request by the
Administrative Agent at any time, the Required Lenders will confirm in writing the Administrative
Agent’s authority to release or subordinate its interest in particular types or items of property,
or to release any Guarantor from its obligations under the Guaranty pursuant to this Section 12.13.

     12.14. Matters Relating to Collateral. Each of the Lenders hereby agrees that the Required
Lenders shall instruct the Administrative Agent with respect to any notices, instructions or
otherwise to be provided by the Lenders or any of them to the Collateral Agent pursuant to the
terms hereunder and under the Pledge Agreement. Each Lender further agrees that is shall not
provide any notice, instruction or otherwise to the Collateral Agent other than through the
Administrative Agent, acting on the instruction of the Required Lenders hereunder.

13. SUCCESSORS AND ASSIGNS.

     13.1. General Conditions. The provisions of this Credit Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and assigns permitted
hereby, except that the Borrower may not assign or otherwise transfer any of their rights or
obligations hereunder without the prior written consent of each Lender and no Lender may assign or
otherwise transfer any of its rights or obligations hereunder except (a) to an Eligible Assignee in
accordance with the provisions of Section 13.2, (b) by way of participation in accordance with the
provisions of Section 13.4 or (c) by way of pledge or assignment of a security interest subject to
the restrictions of Section 13.6 (and any other attempted assignment or transfer by any party
hereto shall be null and void). Nothing in this Credit Agreement, expressed or implied, shall be
construed to confer upon any Person (other than the parties hereto, their respective successors and
assigns permitted hereby, Participants to the extent provided in Section 13.4 and, to the extent
expressly contemplated hereby, the Related Parties of each of the Agents and the Lenders) any legal
or equitable right, remedy or claim under or by reason of this Credit Agreement or any of the other
Loan Documents.

     13.2. Assignments. Any Lender may at any time assign to one or more Eligible Assignees all or
a portion of its rights and obligations under this Credit Agreement (including all or a portion of
its Commitment and the Loans at the time owing to it); provided that:

     (a) each partial assignment shall be made as an assignment of a proportionate part of all the
assigning Lender’s rights and obligations under this Credit Agreement with respect to the Loans or
the Commitment, as applicable, assigned;

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     (b) any assignment of a Commitment must be approved by the Administrative Agent (whether or
not the proposed assignee is itself a Lender with a Commitment or would otherwise qualify as an
Eligible Assignee); and

     (c) the parties to each assignment shall execute and deliver to the Administrative Agent an
Assignment and Acceptance.

     Subject to acceptance and recording thereof by the Administrative Agent pursuant to Section
13.3, from and after the effective date specified in each Assignment and Acceptance, the Eligible
Assignee thereunder shall be a party to this Credit Agreement and, to the extent of the interest
assigned by such Assignment and Acceptance have the rights and obligations of a Lender under this
Credit Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned
by such Assignment and Acceptance, be released from its obligations under this Credit Agreement
(and, in the case of an Assignment and Acceptance covering all of the assigning Lender’s rights and
obligations under this Credit Agreement, such Lender shall cease to be a party hereto) but shall
continue to be entitled to the benefits of (i) Sections 4.1.2, 4.3 and 4.4 and (ii) Section 13.3
notwithstanding such assignment, with respect to facts and circumstances occurring prior to the
effective date of such assignment. Any assignment or transfer by a Lender of rights or obligations
under this Credit Agreement that does not comply with this paragraph shall be treated for purposes
of this Credit Agreement as a sale by such Lender of a participation in such rights and obligations
in accordance with Section 13.4.

     13.3. Register. The Administrative Agent, acting solely for this purpose as an agent of the
Borrower, shall maintain at the Administrative Agent’s Office a copy of each Assignment and
Acceptance delivered to it and a register for the recordation of the names and addresses of the
Lenders, and the Commitments of, and principal amounts of the Loans owing to, each Lender pursuant
to the terms hereof from time to time (the “Register”). The entries in the Register shall be
conclusive, and the Borrower, the Agents and the Lenders may treat each Person whose name is
recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of
this Credit Agreement, notwithstanding notice to the contrary. The Register shall be available for
inspection by the Borrower and any Lender, at any reasonable time and from time to time upon
reasonable prior notice.

     13.4. Participations. Any Lender may at any time, without the consent of, or notice to, the
Borrower or the Agents sell participations to any Person (other than a natural person) (each, a
“Participant”) in all or a portion of such Lender’s rights and/or obligations under this Credit
Agreement (including all or a portion of its Commitment and/or the Loans owing to it); provided
that (a) such Lender’s obligations under this Credit Agreement shall remain unchanged, (b) such
Lender shall remain solely responsible to the other parties hereto for the performance of such
obligations and (c) the Borrower, the Agents and the other Lenders shall continue to deal solely
and directly with such Lender in connection with such Lender’s rights and obligations under this
Credit Agreement. Any agreement or instrument pursuant to which a Lender sells such a
participation shall provide that such Lender shall retain the sole right to enforce this Credit
Agreement and to approve any amendment, modification or waiver of any

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provision of this Credit Agreement; provided that such agreement or instrument may provide
that such Lender will not, without the consent of the Participant, agree to any amendment,
modification or waiver that would reduce the principal of or the interest rate on any Loans, extend
the term or increase the amount of the Commitment of such Lender as it relates to such Participant,
reduce the amount of any fees to which such Participant is entitled or extend any regularly
scheduled payment date for principal or interest. Subject to Section 13.5, the Borrower agrees
that each Participant shall be entitled to the benefits of Sections 4.1.2, 4.3 and 4.4 to the same
extent as if it were a Lender and had acquired its interest by assignment pursuant to Section 13.2.
To the extent permitted by law, each Participant also shall be entitled to the benefits of Section
14.1 as though it were a Lender, provided such Participant agrees to be subject to Section 14.1 as
though it were a Lender.

     13.5. Payments to Participants. A Participant shall not be entitled to receive any greater
payment under Sections 4.1.2, 4.3 and 4.4 than the applicable Lender would have been entitled to
receive with respect to the participation sold to such Participant, unless the sale of the
participation to such Participant is made with the Borrower’s prior written consent. A Participant
that would be a Non-U.S. Lender if it were a Lender shall not be entitled to the benefits of
Section 4.1.2 unless the Borrower is notified of the participation sold to such Participant and
such Participant agrees, for the benefit of the Borrower, to comply with Section 4.1.3 as though it
were a Lender.

     13.6. Miscellaneous Assignment Provisions. Any Lender may at any time grant a security
interest in all or any portion of its rights under this Credit Agreement to secure obligations of
such Lender, including without limitation (a) any pledge or assignment to secure obligations to any
of the twelve Federal Reserve Banks organized under Section 4 of the Federal Reserve Act, 12 U.S.C.
Section 341 and (b) with respect to any Lender that is a Fund, to any lender or any trustee for, or
any other representative of, holders of obligations owed or securities issued by such Fund as
security for such obligations or securities or any institutional custodian for such Fund or for
such lender; provided that no such grant shall release such Lender from any of its obligations
hereunder, provide any voting rights hereunder to the secured party thereof, substitute any such
secured party for such Lender as a party hereto or affect any rights or obligations of the Borrower
or Administrative Agent hereunder. The words “execution,” “signed,” “signature,” and words of like
import in any Assignment and Assumption shall be deemed to include electronic signatures or the
keeping of records in electronic form, each of which shall be of the same legal effect, validity or
enforceability as a manually executed signature or the use of a paper-based recordkeeping system,
as the case may be, to the extent and as provided for in any applicable law, including the Federal
Electronic Signatures in Global and National Commerce Act, or any other state laws based on the
Uniform Electronic Transactions Act.

     13.7. New Notes. Upon its receipt of an Assignment and Acceptance executed by the parties to
such assignment, together with each Note subject to such assignment, the Administrative Agent shall
(a) record the information contained therein in the Register, and (b) give prompt notice thereof to
the Borrower and the Lenders (other than the assigning Lender). Within five (5) Business Days
after receipt of such notice and upon

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the request of the Assignee, the Borrower, at its own expense, shall execute and deliver to
the Administrative Agent, in exchange for each surrendered Note, a new Note to the order of such
Assignee in an amount equal to the amount assumed by such Assignee pursuant to such Assignment and
Acceptance and, if the assigning Lender has retained some portion of its obligations hereunder, a
new Note to the order of the assigning Lender in an amount equal to the amount retained by it
hereunder. Such new Notes shall provide that they are replacements for the surrendered Notes,
shall be in an aggregate principal amount equal to the aggregate principal amount of the
surrendered Notes, shall be dated the effective date of such Assignment and Acceptance and shall
otherwise be in substantially the form of the assigned Notes. The surrendered Notes shall be
cancelled and returned to the Borrower.

14. PROVISIONS OF GENERAL APPLICATION.

     14.1. Setoff. The Borrower hereby grant to each Agent and each of the Lenders a continuing
lien, security interest and right of setoff as security for all liabilities and obligations to each
Agent and each Lender, whether now existing or hereafter arising, upon and against all deposits,
credits, collateral and property, now or hereafter in the possession, custody, safekeeping or
control of such Agent or such Lender or any Lender Affiliate and their successors and assigns or in
transit to any of them. Regardless of the adequacy of any Collateral, if any of the Obligations
are due and payable and have not been paid or any Event of Default shall have occurred, any
deposits or other sums credited by or due from any of the Lenders to the Borrower and any
securities or other property of the Borrower in the possession of such Lender may be applied to or
set off by such Lender against the payment of Obligations and any and all other liabilities,
direct, or indirect, absolute or contingent, due or to become due, now existing or hereafter
arising, of the Borrower to such Lender. ANY AND ALL RIGHTS TO REQUIRE ANY LENDER TO EXERCISE ITS
RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS, PRIOR TO
EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE
BORROWER ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED. Each of the Lenders agrees with
each other Lender that (i) if an amount to be set off is to be applied to Indebtedness of the
Borrower to such Lender, other than Indebtedness evidenced by the Notes held by such Lender, such
amount shall be applied ratably to such other Indebtedness and to the Indebtedness evidenced by all
such Notes held by such Lender, and (ii) if such Lender shall receive from the Borrower, whether by
voluntary payment, exercise of the right of setoff, counterclaim, cross action, enforcement of the
claim evidenced by the Notes held by such Lender by proceedings against the Borrower at law or in
equity or by proof thereof in bankruptcy, reorganization, liquidation, receivership or similar
proceedings, or otherwise, and shall retain and apply to the payment of the Note or Notes held by
such Lender any amount in excess of its ratable portion of the payments received by all of the
Lenders with respect to the Notes held by all of the Lenders, such Lender will make such
disposition and arrangements with the other Lenders with respect to such excess, either by way of
distribution, pro tanto assignment of claims, subrogation or otherwise as shall result in each
Lender receiving in respect of the Notes held by it its proportionate payment as contemplated by
this Credit Agreement; provided that if all or

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any part of such excess payment is thereafter recovered from such Lender, such disposition and
arrangements shall be rescinded and the amount restored to the extent of such recovery, but without
interest.

     14.2. Expenses. The Borrower agrees to pay (a) the reasonable costs of producing and
reproducing this Credit Agreement, the other Loan Documents and the other agreements and
instruments mentioned herein, (b) any taxes (including any interest and penalties in respect
thereto) payable by any Agent or any of the Lenders (other than taxes based upon any Agent’s or any
Lender’s net income) on or with respect to the transactions contemplated by this Credit Agreement
(the Borrower hereby agreeing to indemnify the Agents and each Lender with respect thereto), (c)
the reasonable fees, expenses and disbursements of the Administrative Agent’s Special Counsel or
any local counsel to the Administrative Agent incurred in connection with the preparation,
administration or interpretation of the Loan Documents and other instruments mentioned herein, each
closing hereunder, any amendments, modifications, approvals, consents or waivers hereto or
hereunder, or the cancellation of any Loan Document upon payment in full in cash of all of the
Obligations or pursuant to any terms of such Loan Document for providing for such cancellation, (d)
the fees, expenses and disbursements of the Administrative Agent or any of its affiliates incurred
by the Administrative Agent or such affiliate in connection with the preparation, syndication,
administration or interpretation of the Loan Documents and other instruments mentioned herein, (e)
all reasonable out-of-pocket expenses (including without limitation reasonable attorneys’ fees and
costs, which attorneys may be employees of any Lender or any Agent, and reasonable consulting,
accounting, appraisal, investment banking and similar professional fees and charges) incurred by
any Lender or any Agent in connection with the enforcement of or preservation of rights under any
of the Loan Documents against the Borrower or any of its Subsidiaries or the administration thereof
after the occurrence of a Default or Event of Default (including all such out-of-pocket expenses
incurred during any workout, restructuring or negotiation) and (f) all reasonable fees, expenses
and disbursements of any Lender or any Agent incurred in connection with Uniform Commercial Code
searches. The covenants contained in this Section 14.2 shall survive payment or satisfaction in
full of all other obligations.

     14.3. Indemnification. The Borrower and the Guarantors jointly and severally agree to
indemnify and hold harmless each Agent and each Lender and any of their respective Affiliates
(including any affiliates and/or the officers, directors, employees, agents, attorneys-in-fact or
advisors of any of the same) (each such Person being called an “Indemnitee”) from and against any
and all claims, actions and suits whether groundless or otherwise, and from and against any and all
liabilities, losses, damages and expenses of every nature and character arising out of this Credit
Agreement or any of the other Loan Documents or the transactions contemplated hereby or the
Transactions, in each case including, without limitation, the reasonable fees and disbursements of
counsel and allocated costs of internal counsel incurred in connection with any such investigation,
litigation or other proceeding. In litigation, or the preparation therefor, each Lender and each
Agent and any of their Affiliates shall be entitled to select their own counsel and, in addition to
the foregoing indemnity, the Borrower and the Guarantors jointly and severally agree to pay
promptly the reasonable fees and expenses of such counsel. No

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Indemnitee shall be liable for any damages arising from the use by others of any information
or other materials obtained through IntraLinks or other similar information transmission systems in
connection with this Credit Agreement. No Indemnitee shall be liable for any damages arising from
the use by unintended recipients of any information or other materials distributed by it through
telecommunications, electronic or other information transmission systems in connection with this
Credit Agreement or the other Loan Documents or the transactions contemplated hereby or thereby or
the Transactions. If, and to the extent that the obligations of the Borrower and the Guarantors
under this Section 14.3 are unenforceable for any reason, the Borrower and the Guarantors hereby
jointly and severally agree to make the maximum contribution to the payment in satisfaction of such
obligations which is permissible under applicable law. The covenants contained in this Section
14.3 shall survive payment or satisfaction in full of all other Obligations.

     14.4. Treatment of Certain Confidential Information.

     14.4.1. Confidentiality. Each of the Lenders and the Agents agrees, on behalf of
itself and each of its affiliates, directors, officers, employees and representatives, to
use reasonable precautions to keep confidential, in accordance with their customary
procedures for handling confidential information of the same nature and in accordance with
safe and sound banking practices, any non-public information supplied to it by the Borrower
or any of its Subsidiaries pursuant to this Credit Agreement that is identified by such
Person as being confidential at the time the same is delivered to the Lenders or the
Agents, provided that nothing herein shall limit the disclosure of any such information (a)
after such information shall have become public other than through a violation of this
Section 14.4, or becomes available to any of the Lenders or the Agents on a nonconfidential
basis from a source other than the Borrower, (b) to the extent required by statute, rule,
regulation or judicial process, (c) to counsel for any of the Lenders or the Agents, (d) to
bank examiners or any other regulatory authority having jurisdiction over any Lender or any
Agent, or to auditors or accountants, (e) to any Agent, any Lender or any Financial
Affiliate, (f) in connection with any litigation to which any one or more of the Lenders,
the Agents or any Financial Affiliate is a party, or in connection with the enforcement of
rights or remedies hereunder or under any other Loan Document, (g) to a Lender Affiliate or
a Subsidiary or affiliate of any Agent, (h) to any actual or prospective assignee or
participant or any actual or prospective counterparty (or its advisors) to any swap or
derivative transactions referenced to credit or other risks or events arising under this
Credit Agreement or any other Loan Document so long as such assignee, participant or
counterparty, as the case may be, agrees to be bound by the provisions of Section 14.4 or
(i) with the consent of the Borrower. Moreover, each of the Agents, the Lenders and any
Financial Affiliate is hereby expressly permitted and licensed by the Borrower during the
term of this Credit Agreement and the Pledge Agreement and thereafter to refer to the
Borrower and its Subsidiaries in connection with any advertising, promotion or marketing
undertaken by such Agent, such Lender or such Financial Affiliate and, for such purpose,
such Agent, such Lender or such Financial Affiliate may utilize any trade name, trademark,
logo or other distinctive symbol

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associated with the Borrower or any of its Subsidiaries or any of their businesses
without payment of royalty or other compensation to the Borrower or any of its Subsidiaries
(and subject, during the term hereof and before an Event of Default to sufficient quality
control by Borrower and the applicable Subsidiaries).

     14.4.2. Prior Notification. Unless specifically prohibited by applicable law or court
order, each of the Lenders and the Agents shall, prior to disclosure thereof, notify the
Borrower of any request for disclosure of any such non-public information by any
governmental agency or representative thereof (other than any such request in connection
with an examination of the financial condition of such Lender by such governmental agency)
or pursuant to legal process.

     14.4.3. Other. In no event shall any Lender or any Agent be obligated or required to
return any materials furnished to it or any Financial Affiliate by the Borrower or any of
its Subsidiaries. The obligations of each Lender under this Section 14.4 shall supersede
and replace the obligations of such Lender under any confidentiality letter in respect of
this financing signed and delivered by such Lender to the Borrower prior to the date hereof
and shall be binding upon any assignee of, or purchaser of any participation in, any
interest in any of the Loans from any Lender.

     14.5. Survival of Covenants, Etc. All covenants, agreements, representations and warranties
made herein, in the Notes, in any of the other Loan Documents or in any documents or other papers
delivered by or on behalf of the Borrower or any of its Subsidiaries pursuant hereto shall be
deemed to have been relied upon by the Lenders, the Agents, notwithstanding any investigation
heretofore or hereafter made by any of them, and shall survive the making by the Lenders of any of
the Loans, as herein contemplated, and shall continue in full force and effect so long as any
amount due under this Credit Agreement or the Notes or any of the other Loan Documents remains
outstanding or any Lender has any obligation to make any Loans, and for such further time as may be
otherwise expressly specified in this Credit Agreement. All statements contained in any
certificate or other paper delivered to any Lender or any Agent at any time by or on behalf of the
Borrower or any of its Subsidiaries pursuant hereto or in connection with the transactions
contemplated hereby shall constitute representations and warranties by the Borrower or such
Subsidiary hereunder.

     14.6. Notices. Except as otherwise expressly provided in this Credit Agreement, all notices
and other communications made or required to be given pursuant to this Credit Agreement or the
Notes shall be in writing (which includes by setting forth such notice or other communication on a
site on the World Wide Web (a “Website Posting”) if notice of such Website Posting (including the
information necessary to access such site) has previously been delivered to the applicable parties
hereto by another means set forth in this Section 14.6) and shall be delivered in hand, mailed by
United States registered or certified first class mail, postage prepaid, sent by overnight courier,
or sent by telegraph, telecopy, facsimile or telex and confirmed by delivery via courier or postal
service, addressed as follows:

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     (a) if to the Borrower, at 100 Phoenix Drive, Ann Arbor, Michigan USA 48108, Attention: Edward
W. Wilhelm, Senior Vice President and Chief Financial Officer, with a copy to Thomas D. Carney,
General Counsel, at the same address, or at such other address for notice as the Borrower shall
last have furnished in writing to the Person giving the notice;

     (b) if to the Administrative Agent, at 888 Seventh Avenue, 29th Floor, New York,
New York 10019, USA, Attention: Roy J. Katzovicz, with a copy to Sullivan & Cromwell LLP, 125 Broad
Street, New York, New York 10004, USA, Attention: Andrew G. Dietderich, or such other address for
notice as the Administrative Agent shall last have furnished in writing to the Person giving the
notice;

     (c) if to any Lender, at 888 Seventh Avenue, 29th Floor, New York, New York 10019,
USA, Attention: Roy J. Katzovicz, with a copy to Sullivan & Cromwell LLP, 125 Broad Street, New
York, New York 10004, USA, Attention: Andrew G. Dietderich, or such other address for notice as
such Lender shall have last furnished in writing to the Person giving the notice; and

     (d) the Borrower’s website on the Internet is available at the website address
www.bordersgroupinc.com.

     Any such notice or demand shall be deemed to have been duly given or made and to have become
effective (i) if delivered by hand, overnight courier or facsimile to a responsible officer of the
party to which it is directed, at the time of the receipt thereof by such officer or the sending of
such facsimile, (ii) if sent by registered or certified first-class mail, postage prepaid, on the
third Business Day following the mailing thereof, (iii) if delivered by a Website Posting, upon
delivery of a notice or other communication of such posting (including the information necessary to
access such site) by another means set forth in this Section 14.6 and (iv) notices and other
communications sent to an e-mail address shall be deemed received on the next Business Day
following the sending thereof (unless the sender receives a return email or otherwise indicating
that such notice or other communication has not been received by the recipient at such email
address, in which case the sender shall deliver such notice or communication by an alternate
means), provided that if such notice or other communication is not sent during the normal business
hours of the recipient, such notice or communication shall be deemed to have been sent at the
opening of business on the next Business Day for the recipient. Any notice or other communication
to be made hereunder or under the Notes, even if otherwise required to be in writing under other
provisions of this Credit Agreement or the Notes, may alternatively be made in an electronic record
transmitted electronically under such authentication and other procedures as the parties hereto may
from time to time agree in writing (but not an electronic record), and such electronic transmission
shall be effective at the time set forth in such procedures. Unless otherwise expressly provided
in such procedures, such an electronic record shall be equivalent to a writing under the other
provisions of this Credit Agreement or the Notes, and such authentication, if made in compliance
with the procedures so agreed by the parties hereto in writing (but not an electronic record),
shall be equivalent to a signature under the other provisions of this Credit Agreement or the
Notes.

-79-

 

     14.7. GOVERNING LAW. THIS AGREEMENT AND, EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED THEREIN,
THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE
STATE OF NEW YORK (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW (OTHER THAN THE NEW
YORK GENERAL OBLIGATIONS LAW SECTION 5-1401)). THE BORROWER AGREES THAT ANY SUIT FOR THE
ENFORCEMENT OF THIS CREDIT AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE
COURTS OF THE STATE OF NEW YORK OR ANY FEDERAL COURT SITTING THEREIN AND CONSENTS TO THE
NONEXCLUSIVE JURISDICTION OF SUCH COURT AND SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON THE
BORROWER BY MAIL AT THE ADDRESS SPECIFIED IN SECTION 14.6. THE BORROWER HEREBY WAIVES ANY
OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT
SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT.

     14.8. Headings. The captions in this Credit Agreement are for convenience of reference only
and shall not define or limit the provisions hereof.

     14.9. Counterparts. This Credit Agreement and any amendment hereof may be executed in several
counterparts and by each party on a separate counterpart, each of which when executed and delivered
shall be an original, and all of which together shall constitute one instrument. In proving this
Credit Agreement it shall not be necessary to produce or account for more than one such counterpart
signed by the party against whom enforcement is sought. Delivery by facsimile by any of the
parties hereto of an executed counterpart hereof or of any amendment or waiver hereto shall be as
effective as an original executed counterpart hereof or of such amendment or waiver and shall be
considered a representation that an original executed counterpart hereof or such amendment or
waiver, as the case may be, will be delivered.

     14.10. Entire Agreement, Etc. The Loan Documents and any other documents executed in
connection herewith or therewith express the entire understanding of the parties with respect to
the transactions contemplated hereby. Neither this Credit Agreement nor any term hereof may be
changed, waived, discharged or terminated, except as provided in Section 14.12.

     14.11. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES ITS RIGHT TO A JURY TRIAL WITH
RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS CREDIT AGREEMENT,
THE NOTES OR ANY OF THE OTHER LOAN DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER OR
THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS,
STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY, INCLUDING ANY COURSE OF CONDUCT,
COURSE OF DEALINGS, STATEMENTS OR ACTIONS OF THE ADMINISTRATIVE AGENT OR ANY LENDER RELATING TO THE

-80-

 

ADMINISTRATION OF THE LOANS OR ENFORCEMENT OF THE LOAN DOCUMENTS AND AGREES THAT IT WILL NOT
SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS
NOT BEEN WAIVED. Except as prohibited by law, the Borrower hereby waives any right it may have to
claim or recover in any litigation referred to in the preceding sentence any special, exemplary,
punitive or consequential damages or any damages other than, or in addition to, actual damages.
The Borrower (a) certifies that no representative, agent or attorney of any Lender or any Agent has
represented, expressly or otherwise, that such Lender or such Agent would not, in the event of
litigation, seek to enforce the foregoing waivers and (b) acknowledges that each Agent and the
Lenders have been induced to enter into this Credit Agreement, the other Loan Documents to which it
is a party by, among other things, the waivers and certifications contained herein.

     14.12. Consents, Amendments, Waivers, Etc. Any consent or approval required or permitted by
this Credit Agreement to be given by the Lenders may be given, and any term of this Credit
Agreement, the other Loan Documents or any other instrument related hereto or mentioned herein may
be amended, and the performance or observance by any of the Borrower or any of its Subsidiaries of
any terms of this Credit Agreement, the other Loan Documents or such other instrument or the
continuance of any Default or Event of Default may be waived (either generally or in a particular
instance and either retroactively or prospectively) with, but only with, the written consent of the
Borrower and the written consent of the Required Lender. Notwithstanding the foregoing, no
amendment, modification or waiver shall:

     (a) without the written consent of the Borrower and each Lender directly affected thereby:

     (i) reduce or forgive the principal amount of any Loans, or reduce the rate of
interest on the Notes or the amount of any Premium (other than interest accruing pursuant
to Section 4.6.2 following the effective date of any waiver by the Required Lenders of the
Default or Event of Default relating thereto);

     (ii) postpone or extend the Maturity Date or any other regularly scheduled dates for
payments of principal of, or interest on, the Loans or any Premiums or other amounts
payable to such Lender (it being understood that (A) a waiver of the application of the
default rate of interest pursuant to Section 4.6.2, and (B) any vote to rescind any
acceleration made pursuant to Section 11.1 of amounts owing with respect to the Loans and
other Obligations shall require only the approval of the Required Lenders); and

     (iii) other than pursuant to a transaction permitted by the terms of this Credit
Agreement or the Pledge Agreement, release all or substantially all of the Collateral or
release all or substantially all of the Guarantors from their guaranty obligations.

-81-

 

     (b) without the written consent of all of the Lenders, amend or waive this Section 14.12 or
the definition of Required Lenders (it being understood that the addition of one or more additional
credit facilities, the allowance of the credit extensions, interest and fees thereunder to share
ratably or on a subordinated basis with the Loans, interest and fees in the benefits of the Loan
Documents and the inclusion of the holders of such facilities in the determination of Required
Lenders shall require only the approval of the Required Lenders); or

     (c) without the written consent of the Administrative Agent, amend or waive Section 12, the
amount or time of payment of the Administrative Agent’s fee payable for the Administrative Agent’s
account or any other provision applicable to the Administrative Agent.

No waiver shall extend to or affect any obligation not expressly waived or impair any right
consequent thereon. No course of dealing or delay or omission on the part of any Agent or any
Lender in exercising any right shall operate as a waiver thereof or otherwise be prejudicial
thereto. No notice to or demand upon the Borrower shall entitle the Borrower to other or further
notice or demand in similar or other circumstances.

     14.13. Severability. The provisions of this Credit Agreement are severable and if any one
clause or provision hereof shall be held invalid or unenforceable in whole or in part in any
jurisdiction, then such invalidity or unenforceability shall affect only such clause or provision,
or part thereof, in such jurisdiction, and shall not in any manner affect such clause or provision
in any other jurisdiction, or any other clause or provision of this Credit Agreement in any
jurisdiction.

15. USA PATRIOT ACT NOTICE.

     Each Lender and each Agent (for itself and not on behalf of any Lender) hereby notifies the
Borrower that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56
(signed into law October 26, 2001)) (the “Act”), it is required to obtain, verify and record
information that identifies the Borrower, which information includes the name and address of the
Borrower and other information that will allow such Lender or such Agent, as applicable, to
identify the Borrower in accordance with the Act.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

-82-

 

     IN WITNESS WHEREOF, the undersigned have duly executed this Credit Agreement as a sealed
instrument as of the date first set forth above.

	 	 	 	 	 
	 	BORDERS GROUP, INC.

 	 
	 	By:  	/s/
Edward W. Wilhelm	 
	 	 	Name:  	Edward W. Wilhelm 	 
	 	 	Title:  	Senior Vice President, Finance and Chief Financial
Officer 	 

-83-

 

	 	 	 	 	 

	 	 	 	 	 
	 	 	PERSHING SQUARE CREDIT PARTNERS LLC
	 
	 	 	 	 
	 

	 	By:
	 	PERSHING SQUARE CAPITAL 
MANAGEMENT, L.P., its Managing 
Member
	 
	 	 	 	 
	 

	 	By:
	 	PS MANAGEMENT GP, LLC, its 
General Partner
	 
	 	 	 	 
	 

	 	By:	 	/s/ William A. Ackman
	 

	 	 	 	 

	 

	 	 	 	Name: William A. Ackman
	 

	 	 	 	Title: Managing Member
	 
	 	 	 	 
	 	 	PSRH, INC.
	 
	 	 	 	 
	 

	 	By:
	 	PERSHING SQUARE CAPITAL MANAGEMENT, L.P., its Authorized
Representative
	 
	 	 	 	 
	 

	 	By:
	 	PS MANAGEMENT GP, LLC, its General Partner
	 
	 	 	 	 
	 

	 	By:	 	/s/ William A. Ackman
	 

	 	 	 	 

	 

	 	 	 	Name: William A. Ackman
	 

	 	 	 	Title: Managing Member

-84-

 

	 	 	 	 	 
	 	PERSHING SQUARE CAPITAL MANAGEMENT, L.P., as Administrative Agent and as
Collateral Agent

 	 
	 	By:  	PS MANAGEMENT GP, LLC, its General Partner
 	 
	 
	 	By:  	/s/
William A. Ackman	 
	 	 	Name:  	William A. Ackman 	 
	 	 	Title:  	Managing Member 	 

-85-

 

	 	 	 	 	 

     FOR PURPOSES OF Section 5 HEREOF:

	 	 	 	 	 
	 	 	WALDEN BOOK COMPANY, INC.
	 
	 	 	 	 
	 

	 	By:	 	/s/ Edward W. Wilhelm
	 

	 	 	 	 
	 

	 	 	 	Name: Edward W. Wilhelm
	 

	 	 	 	Title: Senior Vice President,
	 

	 	 	 	          Treasurer and Assistant Secretary
	 
	 	 	 	 
	 	 	BGP (UK) LIMITED
	 
	 	 	 	 
	 

	 	By:	 	/s/ Edward W. Wilhelm
	 

	 	 	 	 
	 

	 	 	 	Name: Edward W. Wilhelm

Title: Director
	 
	 	 	 	 
	 	 	BORDERS PROPERTIES, INC.
	 	 	BORDERS ONLINE, INC.
	 
	 	 	 	 
	 

	 	By:	 	/s/ Edward W. Wilhelm
	 

	 	 	 	 
	 

	 	 	 	Name: Edward W. Wilhelm
	 

	 	 	 	Title: Senior Vice President,
	 

	 	 	 	          Treasurer and Assistant Secretary
	 
	 	 	 	 
	 	 	BORDERS FULFILLMENT, INC.
	 
	 

	 	By:	 	/s/ Edward W. Wilhelm
	 

	 	 	 	 
	 

	 	 	 	Name: Edward W. Wilhelm
	 

	 	 	 	Title: Senior Vice President,
	 

	 	 	 	          Finance and Chief Financial Officer
	 
	 	 	 	 
	 	 	BORDERS ONLINE, LLC
	 
	 	 	 	 
	 

	 	By:
	 	BORDERS, INC., its Sole Member
	 
	 	 	 	 
	 

	 	By:	 	/s/ Edward W. Wilhelm
	 

	 	 	 	 
	 

	 	 	 	Name: Edward W. Wilhelm
	 

	 	 	 	Title: Senior Vice President, 
          Treasurer and Assistant Secretary

-86-exv10w2

 

Exhibit
10.2

Dated April 9, 2008

BGP (UK) LIMITED

(as Chargor)

in favour of

PERSHING SQUARE CAPITAL MANAGEMENT, L.P.

(as Collateral Agent)

 

DEED OF CHARGE OVER SHARES

 

 

 

CONTENTS

	 	 	 	 	 	 	 
	CLAUSE	 	 	 	PAGE
	1
	 	Definitions and interpretation	 	 	1	 
	2
	 	Undertaking to pay	 	 	4	 
	3
	 	Security	 	 	4	 
	4
	 	Restrictions and further assurance	 	 	4	 
	5
	 	Charged Shares	 	 	5	 
	6
	 	General undertakings	 	 	7	 
	7
	 	Representations and warranties	 	 	7	 
	8
	 	Enforcement	 	 	10	 
	9
	 	Collateral Agent’s rights	 	 	10	 
	10
	 	Order of distributions	 	 	11	 
	11
	 	Limited recourse	 	 	11	 
	12
	 	Liability of Collateral Agent and Delegates	 	 	12	 
	13
	 	Power of Attorney	 	 	12	 
	14
	 	Protection of third parties	 	 	13	 
	15
	 	Saving provisions	 	 	13	 
	16
	 	Discharge of Security interest	 	 	16	 
	17
	 	Trust and Perpetuity Period	 	 	16	 
	18
	 	Enforcement expenses	 	 	17	 
	19
	 	Payments	 	 	17	 
	20
	 	Rights, waivers and determinations	 	 	18	 
	21
	 	Separate and independent obligations	 	 	19	 
	22
	 	Indemnities	 	 	19	 
	23
	 	Notices	 	 	19	 
	24
	 	Counterparts	 	 	20	 
	25
	 	Governing law	 	 	20	 
	26
	 	Jurisdiction	 	 	20	 

THE SCHEDULES

	 	 	 	 	 	 	 
	SCHEDULE	 	 	 	PAGE
	SCHEDULE 1
	 	Rights of Collateral Agent	 	 	21	 
	SCHEDULE 2
	 	Shares in Paperchase Products Limited and Borders Superstores (UK) Limited	 	 	23	 

 

 

THIS DEED OF CHARGE (this “Deed”) is dated April 9, 2008 and made between:

	(1)	 	BGP (UK) LIMITED, a limited liability company incorporated under the laws of England and
Wales (registered number 03434045), having its registered office at 100 New Bridge Street,
London EC4V 6JA, England;
	 
	 	 	(the “Chargor”); and
	 
	(2)	 	PERSHING SQUARE CAPITAL MANAGEMENT, L.P., a limited partnership organized under the laws of
Delaware, having its registered office at 888 Seventh Avenue, 29th Floor, New York,
New York 10019, USA (the “Collateral Agent”, as trustee for and on behalf of the Lenders).

WHEREAS:

	(A)	 	The Chargor is entering into this Deed in connection with the Loan Documents.
	 
	(B)	 	The board of directors of the Chargor is satisfied that entering into this Deed is for the
purposes and to the benefit of the Chargor and its business.
	 
	(C)	 	The Collateral Agent and the Chargor intend this document to take effect as a deed.
	 
	(D)	 	The Collateral Agent holds the benefit of this Deed on trust for the Lenders on the terms and
conditions of the Loan Documents.

IT IS AGREED as follows:

	1	 	DEFINITIONS AND INTERPRETATION
	 
	1.1	 	Definitions
	 
	 	 	In this Deed:
	 
	 	 	“Authorisation” means an authorisation, consent, approval, resolution, licence, exemption,
filing, notarisation or registration;
	 
	 	 	“Charged Assets” means the assets from time to time subject, or expressed to be
subject, to the Charge or any part of those assets;
	 
	 	 	“Charge” means all or any of the Security created or expressed to be created by or
pursuant to this Deed;
	 
	 	 	“Currency of Account” means the currency in which the relevant indebtedness is
denominated or, if different, is payable;
	 
	 	 	“Delegate” means a delegate or sub-delegate appointed under Clause 9.2 (Delegation);

1

 

	 	 	“Dividends” means, in relation to any Share, all present and future

	 	(a)	 	dividends and distributions of any kind and any other sum received or
receivable in respect of that Share,
	 
	 	(b)	 	rights, shares, money or other assets accruing or offered by way of
redemption, bonus, option or otherwise in respect of that Share,
	 
	 	(c)	 	allotments, offers and rights accruing or offered in respect of that Share,
and
	 
	 	(d)	 	other rights and assets attaching to, deriving from or exercisable by virtue
of the ownership of, that Share;

	 	 	“Enforcement Event” means an Event of Default or Default (as applicable) which has
resulted in the Administrative Agent issuing a notice under Section 11.1 (Acceleration) of
the Facility Agreement;
	 
	 	 	“Facility Agreement” means the Senior Secured Credit Agreement dated April 9, 2008, as
amended from time to time, by and among (a) Borders Group, Inc., as Borrower, (b) Borders,
Inc., Walden Book Company, Inc., BGP (UK) Limited, Borders Properties, Inc., Borders
Online, LLC, Borders Fulfillment, Inc., Borders Online, Inc., all of foregoing in this
clause (b), the Guarantors, (c) Pershing Square Credit Partners LLC and PSRH, Inc., as
Lenders and (d) Pershing Square Capital Management, L.P. as Administrative Agent and as
Collateral Agent;
	 
	 	 	“Insolvency Act” means the Insolvency Act 1986;
	 
	 	 	“LPA” means the Law of Property Act 1925;
	 
	 	 	“Paperchase” means Paperchase Products Limited, a limited liability company
incorporated under the laws of England and Wales (registered number 03185938), having its
registered office at 12 Alfred Place, London WC1E 7EB, England;
	 
	 	 	“Payment Obligations” means

	 	(a)	 	the Obligations; and
	 
	 	(b)	 	all present and future moneys, debts and liabilities due, owing or incurred
by the Chargor to any Lender under or in connection with this Deed (whether actual or
contingent);

	 	 	“Perfection Requirements” means the making of the appropriate registrations of this Deed
with the Registrar of Companies pursuant to the relevant provisions of the Companies Act
1985;

2

 

	 	 	“Security” means a mortgage, charge, pledge, lien or other security interest securing any
obligation of any person or any other agreement or arrangement having a similar effect;
	 
	 	 	“Shares” of the Chargor means

	 	(a)	 	all of the shares in Paperchase and Superstores issued and outstanding at the
date of this Deed described in Schedule 2 (Shares) and held by the Chargor;
	 
	 	(b)	 	all rights relating to any of those shares referred to in (a) above which are
deposited with or registered in the name of, any depositary, custodian, nominee,
clearing house or system, investment manager, chargee or other similar person or their
nominee, in each case whether or not on a fungible basis (including any rights against
any such person); and
	 
	 	(c)	 	all warrants, options and other rights to subscribe for, purchase or
otherwise acquire any of those shares referred to in (a) above,

	 	 	in each case now or in the future owned by it or (to the extent of its interest) in which
it now or in the future has an interest;
	 
	 	 	“Superstores” means Borders Superstores (UK) Limited, a limited liability company
incorporated under the laws of England and Wales (registered number 03898929), having its
registered office at 100 New Bridge Street, London EC4V 6JA, England; and
	 
	 	 	“VAT” means value added tax as provided for in the Value Added Tax Act 1994 and any other
tax of a similar nature.
	 
	1.2	 	Incorporation of defined terms
	 
	 	 	Unless a contrary indication appears, terms defined in the Facility Agreement have the same
meaning in this Deed.
	 
	1.3	 	Construction
	 
	 	 	Any reference in this Deed to a “Loan Document” or any other agreement or instrument is a
reference to that Loan Document or other agreement or instrument as amended, novated,
supplemented, extended, restated (however fundamentally and whether or not more onerous) or
replaced and includes any change in the purpose of, any extension of or any increase in any
facility or the addition of any new facility under that Loan Document or other agreement or
instrument;
	 
	 	 	An Enforcement Event is “continuing” if it has not been remedied or waived; and

3

 

	 	 	With the exception of Sections 1.2(a), 1.2(g), 1.2(h) and 1.2(k), the other provisions in
Section 1.2 (Rules of Interpretation) of the Facility Agreement apply to this Deed with all
necessary changes.
	 
	1.4	 	Third Party Rights
	 
	 	 	A person who is not a Party has no right under the Contracts (Rights of Third Parties) Act
1999 to enforce or to enjoy the benefit of any term of this Deed.
	 
	2	 	UNDERTAKING TO PAY
	 
	2.1	 	Payment Obligations
	 
	 	 	The Chargor shall pay each of its Payment
Obligations when due in accordance with its
terms or, if they do not specify a time for
payment, immediately on demand by the
Collateral Agent.
	 
	2.2	 	Proportionate payment
	 
	 	 	Each sum appropriated by the Collateral Agent in accordance with the Loan Documents in or
towards payment of a particular part of the Payment Obligations shall to the extent of that
appropriation discharge the Borrower’s and the Chargor’s obligations in respect of that
part of the Payment Obligations, both to any Lender to which the same is owed and to the
Collateral Agent.
	 
	3	 	SECURITY
	 
	3.1	 	Charge of Shares
	 
	 	 	The Chargor, with full title guarantee and as continuing security for the payment of all
the Payment Obligations, charges in favour of the Collateral Agent (as agent for and on
behalf of the Lenders) by way of first fixed charge all of its rights, title, interest and
benefit, present and future, in, under and to Shares and Dividends.
	 
	3.2	 	Share Certificates, etc.
	 
	 	 	The Chargor shall on the date of this Deed deliver to the Collateral Agent, or as the
Collateral Agent directs, all certificates representing the Shares and transfers of the
Shares executed with the name of the transferee in blank and shall promptly deliver to the
Collateral Agent any other documents and do all such things relating to the Shares which
the Collateral Agent requires.
	 
	4	 	RESTRICTIONS AND FURTHER ASSURANCE
	 
	4.1	 	Security
	 
	 	 	The Chargor shall not:

4

 

	 	(a)	 	create nor permit to subsist Security over any Charged Asset, nor do anything
else prohibited by Section 8.2 (Restrictions on Liens) of the Facility Agreement,
except as permitted therein;
	 
	 	(b)	 	except as permitted in the Facility Agreement, sell, transfer and/or
otherwise dispose of all or any part of the Charged Assets or the right to receive or
to be paid the proceeds arising on the disposal of the same, or agree or attempt to do
so; or
	 
	 	(c)	 	dispose of the equity of redemption in respect of all or any part of the
Charged Assets.

	4.2	 	Disposal
	 
	 	 	The Chargor shall not, nor shall it agree to, enter into a single transaction or a series
of transactions (whether related or not and whether voluntary or involuntary) to sell,
transfer or otherwise dispose of any Charged Asset, except (i) in the case of Dividends, as
permitted by Clause 5.4 (Dividends before enforcement) or (ii) as permitted in the Facility
Agreement.
	 
	4.3	 	Further assurance
	 
	 	 	The Chargor shall, at the cost of the Chargor and in such form as the Collateral Agent may
require, promptly do whatever the Collateral Agent requires:

	 	(a)	 	to perfect, preserve or protect the Charge or the priority of the Charge; or
	 
	 	(b)	 	to facilitate the realisation of the Charged Assets following the occurrence
of an Enforcement Event or the exercise of any rights vested in the Administrative
Agent or any Delegate,

	 	 	including:

	 	(i)	 	while an Enforcement Event is continuing, executing any
transfer, conveyance, charge, assignment or assurance of the Charged Assets
(whether to the Collateral Agent or its nominees or otherwise);
	 
	 	(ii)	 	making any registration; and
	 
	 	(iii)	 	giving any notice, order or direction.

	5	 	CHARGED SHARES
	 
	5.1	 	Acquisition
	 
	 	 	The Chargor shall promptly notify the Collateral Agent of:

5

 

	 	(a)	 	its acquisition of, or agreement to acquire, any Shares; and
	 
	 	(b)	 	the declaration, payment, allotment, offer or issue of any Dividend.

	5.2	 	Voting before enforcement
	 
	 	 	Subject to Clause 5.3 (Voting after enforcement), the Chargor shall be entitled to exercise
or direct the exercise of the voting and other rights attached to any Share as it sees fit
where:

	 	(a)	 	it does so for a purpose not inconsistent with any Loan Document; and
	 
	 	(b)	 	the exercise of or failure to exercise those rights would not have an adverse
effect on the value of the relevant Shares or the Charged Assets and would not
otherwise materially prejudice the interests of any Lender under any Loan Document,

	 	 	and the Collateral Agent shall use its reasonable endeavours to comply or procure
compliance with any directions of the Chargor in respect of the exercise of those rights
and shall deliver to the Chargor any forms of proxy it reasonably requires in connection
with that exercise.
	 
	5.3	 	Voting after enforcement
	 
	 	 	At any time while an Enforcement Event is continuing and the Collateral Agent has given
notice to the Chargor:

	 	(a)	 	the Collateral Agent shall be entitled to exercise or direct the exercise of
the voting and other rights attached to any Share as it sees fit (acting reasonably);
and
	 
	 	(b)	 	the Chargor shall comply or procure the compliance with any directions of the
Collateral Agent in respect of the exercise of those rights and shall promptly execute
and/or deliver to the Collateral Agent such forms of proxy as it reasonably requires
with a view to enabling such person as it selects to exercise those rights.

	5.4	 	Dividends before enforcement
	 
	 	 	Subject to Clause 5.5 (Dividends after enforcement), the Chargor is entitled to retain any
cash income derived from his respective Shares and the Collateral Agent shall (or, as the
case may be, ensure that its nominee shall) pay the same to the Chargor or as the Chargor
may direct.

6

 

	5.5	 	Dividends after enforcement
	 
	 	 	At any time while an Enforcement Event is continuing and the Collateral Agent has given
notice to the Chargor the Collateral Agent (or, as the case may be, its nominee) shall be
entitled to retain any Dividend received by it and apply the same as in discharge of the
Payment Obligations.
	 
	5.6	 	Power of attorney
	 
	 	 	If any Shares are not held in the Chargor’s name other than pursuant to this Deed, the
Chargor shall promptly deliver to the Collateral Agent an irrevocable power of attorney,
expressed to be given by way of security for the performance of the covenants, conditions
and obligations of the Chargor contained in this Deed and executed as a deed by the person
in whose name that Share is held. That power of attorney shall appoint the Collateral
Agent and each Delegate as the attorney of person in whose name that Share is held and
shall be in such form as the Collateral Agent requires.
	 
	5.7	 	Communications
	 
	 	 	The Chargor shall promptly deliver to the Collateral Agent a copy of each circular, notice,
report, set of accounts or other document received by it or its nominee pursuant to any
statutory obligation to provide such circular, notice, report, set of accounts or other
document in connection with any Share.
	 
	6	 	GENERAL UNDERTAKINGS
	 
	6.1	 	No prejudicial conduct
	 
	 	 	Save as permitted by the terms of the Facility Agreement, the Chargor shall not do, nor
permit to be done, anything which could prejudice the Charge.
	 
	6.2	 	Perfection
	 
	 	 	The Chargor shall promptly comply with the Perfection Requirements relating to the Charge.
	 
	7	 	REPRESENTATIONS AND WARRANTIES
	 
	 	 	The Chargor makes the following representations and warranties to the Collateral Agent on
the date of this Deed:
	 
	7.1	 	Status

		 	(a) It is a corporation, duly incorporated and validly existing under the law of its
jurisdiction of incorporation; and

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		 	(b) It has the power to own its assets and carry on its business as it is being conducted.

	7.2	 	Binding obligations
	 
	 	 	The obligations expressed to be assumed by it in each Loan Document are legal, valid,
binding and enforceable, subject to, in the case of this Deed, the Perfection Requirements
and any legal reservations set out in the legal opinion of Baker & McKenzie dated the date
of this Deed.
	 
	7.3	 	Non-conflict with other obligations
	 
	 	 	The entry into and performance by it of, and the transactions contemplated by, the Loan
Documents do not and will not conflict with:

	 	(a)	 	any law or regulation applicable to it;
	 
	 	(b)	 	its constitutional documents; or
	 
	 	(c)	 	any agreement or instrument binding upon it or any of its assets,

	 	 	nor (except for the Charge) result in the existence of, or oblige it to create, any
Security over any of its assets.
	 
	7.4	 	Power and authority
	 
	 	 	It has the power to enter into, perform and deliver, and has taken all necessary action to
authorise its entry into, performance and delivery of, the Loan Documents to which it is a
party and the transactions contemplated by those Loan Documents.
	 
	7.5	 	Validity and admissibility in evidence
	 
	 	 	All Authorisations required:

		 	(a) to enable it lawfully to enter into, exercise its rights and comply with its
obligations in this Deed;
	 
		 	(b) to make this Deed admissible in evidence in its jurisdiction of incorporation; and
	 
		 	(c) to enable it to create the Charge and to ensure that the Charge has and will have the
priority and ranking which it is expressed to have,
	 
	 	 	have been obtained or effected and are in full force and effect save for the Perfection
Requirements.

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	7.6	 	Governing law and enforcement
	 
		 	(a) Subject to any legal reservations set out in the legal opinion of Baker & McKenzie
dated the date of this Deed, the choice of English law as the governing law of this Deed
will be recognised and enforced in its jurisdiction of incorporation; and
	 
		 	(b) Subject to any legal reservations set out in the legal opinion of Baker & McKenzie
dated the date of this Deed, any judgment obtained in England in relation to this Deed will
be recognised and enforced in its jurisdiction of incorporation.
	 
	7.7	 	No default
	 
		 	(a) No Enforcement Event or event or circumstance which would (with the expiry of a grace
period, the giving of notice, the making of any determination under the Loan Documents or
any combination of any of the foregoing) be an Enforcement Event is continuing, or might
reasonably be expected to result from the entry into or performance of, or the transactions
contemplated by, any Loan Document; and
	 
		 	(b) No other event or circumstance is outstanding which constitutes a default under any
other agreement or instrument which is binding on it or to which its assets are subject
which might have a Material Adverse Effect.
	 
	7.8	 	Ranking
	 
		 	(a) Subject to the Perfection Requirements, this Deed creates in favour of the Collateral
Agent the Security which it is expressed to create fully perfected and with the ranking and
priority it is expressed to have; and
	 
		 	(b) Without limiting paragraph (a) above, its Payment Obligations rank at least pari passu
with the claims of all its other unsecured and unsubordinated creditors, except for
obligations mandatorily preferred by law applying to companies generally.
	 
	7.9	 	No existing Security
	 
	 	 	Except for the Charge, no Security exists on or over the Charged Assets.
	 
	7.10	 	Share Capital
	 
	 	 	The Shares constitute approximately sixty-five (65) per cent. (through the Chargor’s direct
and indirect holdings in Paperchase) of the issued share capital in Paperchase and, other
than as disclosed in the Facility Agreement, no person has or is entitled to any
conditional or unconditional option, warrant or other right to

9

 

	 	 	call for the issue or allotment of, or subscribe for, purchase or otherwise acquire any
share capital of Paperchase or Superstores (including any right of pre-emption, conversion
or exchange).
	 
	7.11	 	Repetition
	 
	 	 	Each of the representations and warranties in Clauses 7.1 (Status) to 7.4 (Power and
authority), 7.6 (Governing law and enforcement) and 7.7 (No default) and 7.8 (Ranking) are
deemed to be made by the Chargor by reference to the facts and circumstances then existing
on the date of this Deed and the first day of each Interest Period under the Facility
Agreement during the continuance of the Security created under this Deed.
	 
	8	 	ENFORCEMENT
	 
	8.1	 	When enforceable
	 
	 	 	As between the Chargor and the Collateral Agent, the Charge shall be enforceable and the
powers conferred by Section 101 of the LPA, as varied and extended by this Deed, shall be
exercisable, while an Enforcement Event is continuing.
	 
	8.2	 	Power of sale
	 
	 	 	The statutory power of sale, of appointing a receiver and the other statutory powers
conferred on mortgagees by Section 101 of the LPA as varied and extended by this Deed shall
arise on the date of this Deed.
	 
	8.3	 	Section 103 LPA
	 
	 	 	Section 103 of the LPA shall not apply to this Deed.
	 
	9	 	COLLATERAL AGENT’S RIGHTS
	 
	9.1	 	Rights of Collateral Agent
	 
	 	 	At any time while an Enforcement Event is continuing, whether or not the Collateral Agent
shall have taken possession of the Charged Assets, the Collateral Agent shall have the
rights set out in Schedule 1 (Rights of Collateral Agent).
	 
	9.2	 	Delegation
	 
	 	 	The Collateral Agent may delegate in any manner to any person any rights exercisable by the
Collateral Agent under any Loan Document. Any such delegation may be made upon such terms
and conditions (including power to sub-delegate) as the Collateral Agent thinks fit.

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	10	 	ORDER OF DISTRIBUTIONS
	 
	10.1	 	Application of proceeds
	 
	 	 	Subject to the Facility Agreement and Clause 5.4 (Dividends before enforcement), all
amounts received or recovered by the Collateral Agent or any Delegate following the
occurrence of an Enforcement Event and in exercise of their respective rights under this
Deed shall, subject to the rights of any creditors having priority, be applied in the order
provided in Clause 10.2 (Order of distributions).
	 
	10.2	 	Order of distributions
	 
	 	 	The order referred to in Clause 10.1 (Application of proceeds) is:

	 	(a)	 	in or towards the payment of all costs, losses, liabilities and expenses of
and incidental to the appointment of any Delegate and the exercise of any of his
rights, including his remuneration and all outgoings paid by him;
	 
	 	(b)	 	in or towards the payment of the Obligations in accordance with Section 11.3
of the Facility Agreement;
	 
	 	(c)	 	in or towards the payment of the Payment Obligations (other than Obligations)
in accordance with Clause 2 (Undertaking to pay); and
	 
	 	(d)	 	in payment of any surplus to the Chargor or other person entitled to it.

	11	 	LIMITED RECOURSE
	 
	 	 	The Collateral Agent on behalf of each Lender agrees that, for purposes of this Deed, the
Chargor shall be liable for any claims any Lender may have against the Borrower only to the
extent of the Charged Assets and any proceeds derived therefrom, and accordingly the
liability of the Chargor under this Deed shall not exceed and shall be limited to an amount
equal to that received by the Collateral Agent as a result of the enforcement of the
Security granted by the Chargor pursuant to this Deed. Any claim remaining unsatisfied
after the realisation of the Security created under this Deed and the application of the
proceeds thereof in accordance with the terms of the Loan Documents shall be extinguished
and thereafter the Lenders shall have no further claim against the Chargor; provided that
the foregoing shall not in any way limit the Chargor’s obligations in its capacity as
Guarantor under the Facility Agreement.

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	12	 	LIABILITY OF COLLATERAL AGENT AND DELEGATES
	 
	12.1	 	Possession
	 
	 	 	If the Collateral Agent or any Delegate takes possession of the Charged Assets, it or he
may at any time relinquish possession thereof.
	 
	12.2	 	Collateral Agent’s liability
	 
	 	 	Neither the Collateral Agent nor any Delegate shall (either by reason of taking possession
of the Charged Assets or for any other reason and whether as mortgagee in possession or
otherwise) be liable to the Chargor, any Lender or any other person for any costs, losses,
liabilities or expenses relating to the realisation of any Charged Assets or from any act,
default, omission or misconduct of the Collateral Agent, any Delegate or their respective
officers, employees or agents in relation to the Charged Assets or in connection with the
Loan Documents except to the extent caused by its or his own gross negligence or wilful
misconduct.
	 
	13	 	POWER OF ATTORNEY
	 
	13.1	 	Appointment
	 
	 	 	The Chargor by way of security irrevocably appoints the Collateral Agent and every Delegate
severally its attorney (with full power of substitution), on its behalf and in its name or
otherwise, at such time and in such manner as the attorney thinks fit:

	 	(a)	 	to do anything which the Chargor is obliged to do (but has not done) under
the terms of this Deed (including to execute charges over, transfers, conveyances,
assignments and assurances of, and other instruments, notices, orders and directions
relating to, the Charged Assets); and
	 
	 	(b)	 	to exercise any of the rights conferred on the Collateral Agent or any
Delegate in relation to the Charged Assets or under this Deed, the LPA or the
Insolvency Act.

	13.2	 	Ratification
	 
	 	 	The Chargor ratifies and confirms and agrees to ratify and confirm whatever any such
attorney shall do in the exercise or purported exercise of the power of attorney granted by
it in Clause 13.1 (Appointment).

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	14	 	PROTECTION OF THIRD PARTIES
	 
	14.1	 	No duty to enquire
	 
	 	 	No person dealing with the Collateral Agent, any Lender or any Delegate shall be concerned
to enquire:

	 	(a)	 	whether the rights conferred by or pursuant to any Loan Document are
exercisable;
	 
	 	(b)	 	whether any consents, regulations, restrictions or directions relating to
such rights have been obtained or complied with;
	 
	 	(c)	 	otherwise as to the propriety or regularity of acts purporting or intended to
be in exercise of any such rights; or
	 
	 	(d)	 	as to the application of any money borrowed or raised.

	14.2	 	Protection to purchasers
	 
	 	 	All the protection to purchasers contained in Sections 104 and 107 of the LPA, Section
42(3) of the Insolvency Act or in any other applicable legislation shall apply to any
person purchasing from or dealing with the Collateral Agent, any Lender or any Delegate.
	 
	15	 	SAVING PROVISIONS
	 
	15.1	 	Continuing Security Interest
	 
	 	 	Subject to Clause 16 (Discharge of Security Interest), the Charge is continuing Security
and will extend to the ultimate balance of the Payment Obligations, regardless of any
intermediate payment or discharge in whole or in part.
	 
	15.2	 	Reinstatement
	 
	 	 	If any payment by the Chargor or any discharge given by a Lender (whether in respect of the
obligations of the Borrower or any security for those obligations or otherwise) is avoided
or reduced as a result of insolvency or any similar event:

	 	(a)	 	the liability of the Chargor and the Charge shall continue as if the payment,
discharge, avoidance or reduction had not occurred; and
	 
	 	(b)	 	each Lender shall be entitled to recover the value or amount of that security
or payment from the Chargor, as if the payment, discharge, avoidance or reduction had
not occurred.

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	15.3	 	Waiver of defences
	 
	 	 	Neither the obligations of the Chargor under this Deed nor the Charge will be affected by
an act, omission, matter or thing which, but for this Clause 15 (Saving Provisions), would
reduce, release or prejudice any of its obligations under any Loan Document (without
limitation and whether or not known to it or any Lender) including:

	 	(a)	 	any time, waiver or consent granted to, or composition with, the Borrower or
other person;
	 
	 	(b)	 	the release of the Borrower or any other person under the terms of any
composition or arrangement with any creditor of the Borrower;
	 
	 	(c)	 	the taking, variation, compromise, exchange, renewal or release of, or
refusal or neglect to perfect, take up or enforce any rights against, or security over
assets of, the Borrower or other person or any non-presentation or non-observance of
any formality or other requirement in respect of any instrument or any failure to
realise the full value of any security;
	 
	 	(d)	 	any incapacity or lack of power, authority or legal personality of or
dissolution or change in the members or status of the Borrower or any other person;
	 
	 	(e)	 	any amendment (however fundamental) or replacement of a Loan Document or any
other document or security;
	 
	 	(f)	 	any unenforceability, illegality or invalidity of any obligation of any
person under any Loan Document or any other document or security; or
	 
	 	(g)	 	any insolvency or similar proceedings; or
	 
	 	(h)	 	any postponement, discharge, reduction, non-provability or other similar
circumstance affecting any obligation of the Borrower or other person under any Loan
Document resulting from any insolvency, liquidation or dissolution proceedings or from
any law, regulation or order.

	15.4	 	Immediate recourse
	 
	 	 	The Chargor waives any right it may have of first requiring any Lender (or any trustee or
agent on its behalf) to proceed against or enforce any other rights or security or claim
payment from any person before claiming from the Chargor under this Deed. This waiver
applies irrespective of any law or any provision of a Loan Document to the contrary.

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	15.5	 	Appropriations
	 
	 	 	Until all the Payment Obligations have been irrevocably paid in full and all facilities
which might give rise to such Payment Obligations have terminated, each Lender (or any
trustee or agent on its behalf) may:

	 	(a)	 	refrain from applying or enforcing any other moneys, security or rights held
or received by that Lender (or any trustee or agent on its behalf) in respect of those
amounts, or apply and enforce the same in such manner and order as it sees fit
(whether against those amounts or otherwise) and the Chargor shall not be entitled to
the benefit of the same; and
	 
	 	(b)	 	hold in an interest-bearing suspense account any monies received from the
Chargor or on account of the Chargor’s liability under this Deed.

	15.6	 	Deferral of Chargor’s rights
	 
	 	 	Until all the Payment Obligations have been irrevocably paid in full and all facilities
which might give rise to such Payment Obligations have been terminated and unless the
Collateral Agent otherwise directs, the Chargor shall not exercise any rights which it may
have by reason of performance by it of its obligations under the Loan Documents:

	 	(a)	 	to be indemnified by the Borrower;
	 
	 	(b)	 	to claim any contribution from any other chargor or any other guarantor of
the Borrower’s obligations under the Loan Documents; and/or
	 
	 	(c)	 	to take the benefit (in whole or in part and whether by way of subrogation or
otherwise) of any rights of the Lenders under the Loan Documents or of any guarantee
or other Security taken pursuant to, or in connection with, the Loan Documents by any
Lender.

	15.7	 	Additional Security
	 
	 	 	The Charge is in addition to and is not in any way prejudiced by any other guarantees or
Security now or subsequently held by any Lender.
	 
	15.8	 	Tacking
	 
	 	 	Each Lender shall comply with its obligations under the Loan Documents.

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	16	 	DISCHARGE OF SECURITY INTEREST
	 
	16.1	 	Final redemption
	 
	 	 	Subject to Clause 16.2 (Retention of Security), (i) if the Collateral Agent is satisfied
that all the Payment Obligations have been irrevocably paid or discharged in full and that
all facilities which might give rise to such Payment Obligations have been terminated or
repaid or (ii) the Charged Assets are sold as permitted in the Facility Agreement, the
Collateral Agent shall at the request and cost of the Chargor release, reassign or
discharge (as appropriate) the Charged Assets from the Charge.
	 
	16.2	 	Retention of Security
	 
	 	 	If the Collateral Agent, acting reasonably, considers that any amount paid or credited to
any Lender under any Loan Document is capable of being avoided or otherwise set aside, that
amount shall not be considered to have been paid for the purposes of determining whether
all the Payment Obligations have been irrevocably paid.
	 
	16.3	 	Consolidation
	 
	 	 	Section 93 of the LPA shall not apply to the Charge.
	 
	17	 	TRUST AND PERPETUITY PERIOD
	 
	17.1	 	Trust
	 
	 	 	The Collateral Agent holds the security constituted by this Deed on trust for the Lenders
on the terms and conditions contained in this Deed, and in particular, Section 12 of the
Facility Agreement.
	 
	17.2	 	Perpetuity period
	 
	 	 	Without prejudice to Section 12 of the Facility Agreement, the Collateral Agent shall not
have any duty and shall not be bound to:

	 	(a)	 	account to any Lender for any sum or profit element of any sum received by it
for its own account;
	 
	 	(b)	 	ensure that any payment or other financial benefit in respect of any of the
Charged Assets is duly and punctually paid, received or collected;
	 
	 	(c)	 	ensure the taking up of any (or any offer of any) stocks, shares, rights,
moneys or other property accruing or offered at any time by way of

16

 

	 	 	 	interest, dividend, redemption, bonus, rights, preference, option, warrant or
otherwise in respect of any of the Charged Assets; or
	 
	 	(d)	 	insure any property or to require any other person to maintain any such
insurance and shall not be responsible for any loss which may be suffered by any
person as a result of the lack of or inadequacy or insufficiency of any such
insurance.

Nothing in this Deed constitutes the Collateral Agent as a trustee or fiduciary of any other
person. The rights, powers and discretions conferred upon the Collateral Agent by this Deed shall
be supplemental to the Trustee Act 1925 and the Trustee Act 2000 and in addition to any which may
be vested in the Collateral Agent by general law or otherwise. Section 1 of the Trustee Act 2000
shall not apply to that trust. In the case of any inconsistency with the Trustee Act 2000, the
terms of this Deed and the Facility Agreement shall constitute a restriction or exclusion for the
purposes of that Act.
The perpetuity period under the rule against perpetuities, if applicable hereto, shall be the
period of eighty years from the date of the Facility Agreement.

	18	 	ENFORCEMENT EXPENSES
	 
	 	 	The Chargor shall, within three Business Days of a demand by the Collateral Agent, pay to
the Collateral Agent the amount of all costs, losses, liabilities and expenses (including
legal expenses and including any stamp tax duty, stamp tax duty reserve tax, registration
or other similar taxes) incurred by any Lender or any Delegate in relation to any Loan
Document (including the administration, protection, realisation, enforcement or
preservation of any rights under or in connection with this Deed, or any consideration by
the Collateral Agent as to whether to realise or enforce the same, and/or any amendment,
waiver, consent or release of any Loan Document and/or any other document referred to in
this Deed).
	 
	19	 	PAYMENTS
	 
	19.1	 	Demands
	 
	 	 	Any demand for payment made by any Lender shall be valid and effective even if it contains
no statement of the relevant Payment Obligations or an inaccurate or incomplete statement
of them.
	 
	19.2	 	Payments
	 
	 	 	All payments by the Chargor under this Deed (including damages for its breach) shall be
made in the Currency of Account and to such account, with such financial institution and in
such other manner as the Collateral Agent may direct. All amounts payable by the Chargors
under this Deed are exclusive of any VAT.  The

17

 

	 	 	Chargors will, in addition to all such amounts, pay any applicable VAT on those amounts.
	 
	19.3	 	Continuation of accounts
	 
	 	 	At any time after:

	 	(a)	 	the receipt by any Lender of notice (either actual or otherwise) of any
subsequent Security affecting the Charged Assets of the Chargor; or
	 
	 	(b)	 	the presentation of a petition or the passing of a resolution in relation to
the dissolution or winding-up of the Chargor;

	 	 	any Lender may open a new account in the name of the Chargor with that Lender (whether or
not it permits any existing account to continue). If that Lender does not open such a new
account, it shall nevertheless be treated as if it had done so when the relevant event
occurred. No monies paid into any account, whether new or continuing, after that event
shall discharge or reduce the amount recoverable pursuant to any Loan Document to which the
Chargor is party.
	 
	20	 	RIGHTS, WAIVERS AND DETERMINATIONS
	 
	20.1	 	Ambiguity
	 
	 	 	Where there is any ambiguity or conflict between the rights conferred by law and those
conferred by or pursuant to any Loan Document, the terms of that Loan Document shall
prevail.
	 
	20.2	 	Exercise of rights
	 
	 	 	No failure to exercise, nor any delay in exercising, on the part of any Lender or Delegate,
any right or remedy under any Loan Document shall operate as a waiver, nor shall any single
or partial exercise of any right or remedy prevent any further or other exercise or the
exercise of any other right or remedy. The rights and remedies provided in the Loan
Documents are cumulative and not exclusive of any rights or remedies provided by law.
	 
	20.3	 	Determinations
	 
	 	 	Any determination by, or certificate of, any Lender or any Delegate under any Loan Document
is, in the absence of manifest error, conclusive evidence of the matters to which it
relates.

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	21	 	SEPARATE AND INDEPENDENT OBLIGATIONS
	 
	 	 	The Security created by the Chargor by or in connection with any Loan Document is separate
from and independent of the Security created or intended to be created by any other chargor
by or in connection with any other Loan Document.
	 
	22	 	INDEMNITIES
	 
	22.1	 	Environmental indemnity
	 
	 	 	The Chargor shall indemnify each Lender against any and all costs, losses, liabilities or
expenses, together with any associated taxes, incurred by such Lender arising (directly or
indirectly) out of or in connection with any breach or potential breach of or liability
(whether civil and/or criminal) under any Environmental Law arising out of or in connection
with the Collateral Agent becoming the holder of Shares in accordance with the provisions
of this Deed.
	 
	22.2	 	Indemnities separate
	 
	 	 	Each indemnity in each Loan Document shall:

	 	(a)	 	constitute a separate and independent obligation from the other obligations
in that or any other Loan Document;
	 
	 	(b)	 	give rise to a separate and independent cause of action;
	 
	 	(c)	 	apply irrespective of any indulgence granted by any Lender;
	 
	 	(d)	 	continue in full force and effect despite any judgment, order, claim or proof
for a liquidated amount in respect of any Payment Obligation or any other judgment or
order; and
	 
	 	(e)	 	apply whether or not any claim under it relates to any matter disclosed by
the Chargor or otherwise known to any Lender.

	23	 	NOTICES
	 
	23.1	 	Communications in writing
	 
	 	 	Any communication to be made under or in connection with this Deed shall be made in writing
and, unless otherwise stated, may be made by fax or letter.
	 
	23.2	 	Addresses
	 
	 	 	The address and fax number (and the department or officer, if any, for whose attention the
communication is to be made) of each party for any communication or document to be made or
delivered under or in connection with this Deed is:

19

 

	 	(a)	 	in the case of the Collateral Agent, that identified on the signature pages
of this Deed;
	 
	 	(b)	 	in the case of the Chargor, that identified on the signature pages of this
Deed;
	 
	 	(c)	 	in the case of the Borrower, that identified in Section 14.6(a) of the
Facility Agreement;
	 
	 	(d)	 	in the case of the Administrative Agent, that identified in Section 14.6(b)
of the Facility Agreement; and
	 
	 	(e)	 	in the case of each Lender, that identified in Section 14.6(c) of the
Facility Agreement,

		 	or any substitute address, fax number or department or officer as the party may notify to
the Administrative Agent (or as the Administrative Agent may notify to the other parties,
if a change is made by the Administrative Agent) in accordance with Section 14.6 of the
Facility Agreement.
	 
	23.3	 	Delivery

	 	(a)	 	Any communication or document made or delivered by one person to another
under or in connection with this Deed will be effective in accordance with Section
14.6 of the Facility Agreement; and
	 
	 	(b)	 	All notices from or to the Borrower shall be sent through the Administrative
Agent.

	24	 	COUNTERPARTS
	 
	 	 	This Deed may be executed in any number of counterparts, and this has the same effect as if
the signatures on the counterparts were on a single copy of this Deed.
	 
	25	 	GOVERNING LAW
	 
	 	 	This Deed shall be governed by, and construed in accordance with, English law.

	 
	26	 	JURISDICTION
	 
	 	 	The courts of England have exclusive jurisdiction to settle any dispute arising out of or
in connection with this Deed (including a dispute regarding its existence, validity or
termination).
	 
	 	 	IN WITNESS WHEREOF this Deed has been duly delivered on the date stated at the beginning of
this Deed.

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SCHEDULE 1

Rights of Collateral Agent

At any time while an Enforcement Event is continuing, the Collateral Agent shall have the right,
either in its own name or in the name of the Chargor or otherwise and in such manner and on such
terms and conditions as the Collateral Agent thinks fit, and either alone or jointly with any other
person:

	(a)	 	Enter into possession
	 
	 	 	to take possession of and collect the Charged Assets and to require payment to it of all
Dividends;
	 
	(b)	 	Deal with Charged Assets
	 
	 	 	to sell, transfer, assign, exchange or otherwise dispose of or realise the Charged Assets
to any person either by public offer or auction, tender or private contract and for a
consideration of any kind (which may be payable or delivered in one amount or by
instalments spread over a period or deferred);
	 
	(c)	 	Borrow money
	 
	 	 	to borrow or raise money either unsecured or on the security of the Charged Assets (either
in priority to the Charge or otherwise);
	 
	(d)	 	Claims
	 
	 	 	to settle, adjust, refer to arbitration, compromise and arrange any claims, accounts,
disputes, questions and demands with or by any person who is or claims to be a creditor of
the Chargor or relating to the Charged Assets;
	 
	(e)	 	Legal actions
	 
	 	 	to bring, prosecute, enforce, defend and abandon actions, suits and proceedings in relation
to the Charged Assets or any business of the Chargor in any way relating to this Charge;
	 
	(f)	 	Redemption of Security
	 
	 	 	to redeem any Security (whether or not having priority to the Charge) over the Charged
Assets and to settle the accounts of any person with an interest in the Charged Assets;

21

 

	(g)	 	Rights of ownership
	 
	 	 	to exercise and do (or permit the Chargor or any nominee of the Chargor to exercise and do)
all such rights and things as the Collateral Agent would be capable of exercising or doing
if it were the absolute beneficial owner of the Charged Assets; and
	 
	(h)	 	Other powers
	 
	 	 	to do anything else it may think fit for the realisation of the Charged Assets or
incidental to the exercise of any of the rights conferred on the Collateral Agent under or
by virtue of any Loan Document to which the Chargor is party, the LPA or the Insolvency
Act.

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SCHEDULE 2

shares in paperchase products limited

	 	 	 
	BGP (UK) Limited

	 	14,724 shares

shares in borders superstores (uk) limited

	 	 	 	 	 
	BGP (UK) Limited
	 	42,300,000 shares

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	SIGNED as a DEED by BGP (UK) Limited
	acting by

	Edward W. Wilhelm, 	a Director and	 	/s/ Edward W. Wilhelm 
	 	 	 	 	 
	 	Edward Jackson,	a Director/the Secretary	 	/s/ Edward Jackson
	 
	Address

	100 Phoenix Dr. 	 	 	 	 
	

	 Ann Arbor, MI 48108	 	 	 	 
	 
	Fax No

	734-477-1370	 	 	 	 
	 
	Attention

	Edward W. Wilhelm	 	 	 	 

24

 

	 	 	 	 
	SIGNED as a DEED by Pershing Square Capital 
Management, L.P.
(as the Collateral Agent)

acting by PS Management GP, LLC, the General Partner,

acting by William A. Ackman, the Managing Member,

/s/ William A. Ackman
	 
	 	 	 
	 

	 	and

Roy J. Katzovicz, the General Counsel

/s/ Roy J. Katzovicz	 
	 
	 	 	 
	Address

	 	888 Seventh Avenue, 29th Floor	 
	 
	 	 	 
	 

	 	New York, New York 10019	 
	 
	 	 	 
	Fax No
	 	 	 
	 
	 	 	 
	Attention

	 	William A. Ackman	 

25

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