Document:

EX-4.4

Exhibit 4.4

Execution Copy

     REPLACEMENT CAPITAL COVENANT, dated as of June 6, 2008 (this “Replacement Capital
Covenant”), by The Hartford Financial Services Group, Inc., a Delaware corporation (together
with its successors and assigns, the “Corporation”), in favor of and for the benefit of
each Covered Debtholder (as defined below).

RECITALS

     A. On the date hereof, the Corporation is issuing $500,000,000 aggregate principal amount of
its 8.125% Junior Subordinated Debentures due 2068 (together with any other 8.125% Junior
Subordinated Debentures due 2068 issued after the date of this Replacement Capital Covenant
pursuant to the related indenture, the “Debentures”).

     B. This Replacement Capital Covenant is the “Replacement Capital Covenant” referred to in the
Prospectus Supplement, dated June 3, 2008 (the “Prospectus Supplement”), to the
Corporation’s prospectus, dated June 3, 2008, included in post-effective amendment No. 1 to the
Corporation’s registration statement on Form S-3 (File No. 333-142044), relating to the Debentures.

     C. The Corporation is entering into and disclosing the content of this Replacement Capital
Covenant in the manner provided below with the intent that the covenants provided for in this
Replacement Capital Covenant be enforceable by each Covered Debtholder and that the Corporation be
estopped from disregarding the covenants in this Replacement Capital Covenant, in each case to the
fullest extent permitted by applicable law.

     D. The Corporation acknowledges that reliance by each Covered Debtholder upon the covenants in
this Replacement Capital Covenant is reasonable and foreseeable by the Corporation and that, were
the Corporation to disregard its covenants in this Replacement Capital Covenant, each Covered
Debtholder would have sustained an injury as a result of its reliance on such covenants.

     NOW, THEREFORE, the Corporation hereby covenants and agrees as follows in favor of and for the
benefit of each Covered Debtholder.

     SECTION 1. Definitions. Capitalized terms used in this Replacement Capital Covenant
(including the Recitals) have the meanings set forth in Annex I hereto.

     SECTION 2. Limitations on Redemption and Purchase of Debentures. The Corporation
hereby promises and covenants to and for the benefit of each Covered Debtholder that the
Corporation shall not repay, redeem, defease or repurchase, and shall cause each Subsidiary of the
Corporation not to purchase, all or any part of the

 

Debentures prior to June 15, 2048, except to the extent that the principal amount repaid or
defeased or the applicable redemption or purchase price does not exceed the sum of the Applicable
Percentages of the following amounts:

     (i) the aggregate amount of (a) the net cash proceeds the Corporation and its
Subsidiaries shall have received from the sale of Common Stock and rights to acquire Common
Stock to Persons other than the Corporation and its Subsidiaries and (b) the Market Value
of any Common Stock (determined as of the date of delivery) that the Corporation and its
Subsidiaries shall have delivered to Persons other than the Corporation and its
Subsidiaries in connection with the conversion of any convertible or exchangeable
securities, other than securities for which the Corporation or any of its Subsidiaries
shall have received equity credit from any NRSRO, in each case during the relevant
Measurement Period (without double counting proceeds received in any prior Measurement
Period); plus

     (ii) the aggregate amount of net cash proceeds the Corporation and its Subsidiaries
shall have received during the relevant Measurement Period (without double counting
proceeds received in any prior Measurement Period) from the sale of Qualifying Replacement
Securities, Mandatorily Convertible Preferred Stock and Debt Exchangeable for Common Equity
to Persons other than the Corporation and its Subsidiaries,

provided that the limitations in this Section 2 shall not restrict (i) the repayment,
redemption or other purchase of any Debentures that the Corporation shall have previously defeased
in accordance with this Replacement Capital Covenant or (ii) the exchange of the Debentures for
consideration that consists solely of an aggregate principal amount or liquidation preference (or,
in the case of Common Stock, Market Value) of Replacement Capital Securities not to exceed 100%
(or, in the case of Common Stock, not to exceed 50%) of the aggregate principal amount of
Debentures that are exchanged plus an amount in cash equal to accrued but unpaid Distributions
thereon, other than any deferred Distributions.

     SECTION 3. Covered Debt. (a) The Corporation represents and warrants that the Initial
Covered Debt is Eligible Debt.

     (b) On or during the 30-day period immediately preceding any Redesignation Date with respect
to the Covered Debt, the Corporation shall identify the series of Eligible Debt that will become
the Covered Debt on and after such Redesignation Date in accordance with the following procedures:

     (i) the Corporation shall identify each series of its then outstanding long-term
indebtedness for money borrowed that is Eligible Debt;

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     (ii) if only one series of the Corporation’s then outstanding long-term indebtedness
for money borrowed is Eligible Debt, such series shall become the Covered Debt commencing
on the related Redesignation Date;

     (iii) if the Corporation has more than one outstanding series of long-term
indebtedness for money borrowed that is Eligible Debt, then the Corporation shall identify
the series that has the latest stated final maturity date as of the date the Corporation is
applying the procedures in this Section 3(b) and such series shall become the Covered Debt
on the related Redesignation Date;

     (iv) the series of outstanding long-term indebtedness for money borrowed that is
determined to be Covered Debt pursuant to clause (ii) or (iii) above shall be the Covered
Debt for purposes of this Replacement Capital Covenant for the period commencing on the
related Redesignation Date and continuing to but not including the Redesignation Date as of
which a new series of outstanding long-term indebtedness is next determined to be the
Covered Debt pursuant to the procedures set forth in this Section 3(b); and

     (v) in connection with such identification of a new series of Covered Debt, the
Corporation shall, as provided for in Section 3(c), give a notice and file with the
Commission a Current Report on Form 8-K (or any successor form) under the Securities
Exchange Act including or incorporating by reference this Replacement Capital Covenant as
an exhibit within the time frame provided for in such section.

     (c) Notice. In order to give effect to the intent of the Corporation described in
Recital C, the Corporation covenants that (i) simultaneously with the execution of this Replacement
Capital Covenant or as soon as practicable after the date hereof, it shall (x) give notice to the
Holders of the Initial Covered Debt, in the manner provided in the indenture relating to the
Initial Covered Debt, of its entry into this Replacement Capital Covenant and the rights granted to
such Holders hereunder and (y) file a copy of this Replacement Capital Covenant with the Commission
as an exhibit to a Current Report on Form 8-K (or any successor form) under the Securities Exchange
Act, (ii) so long as the Corporation is a reporting company under the Securities Exchange Act, the
Corporation shall include in each Annual Report on Form 10-K (or any successor form) filed with the
Commission under the Securities Exchange Act a description of the covenant set forth in Section 2
and identify the Covered Debt as of the date such Form 10-K (or any successor form) is filed with
the Commission, (iii) if a series of the Corporation’s

 long-term indebtedness for money borrowed
(1) becomes Covered Debt or (2) ceases to be Covered Debt, the Corporation shall give notice of
such occurrence within 30 days to the holders of such long-term indebtedness for money borrowed in
the manner provided for in the indenture, fiscal agency agreement or other instrument under which
such long-term indebtedness for money borrowed was issued and report such change in a Current
Report on Form 8-K (or any successor form), which must include or incorporate by reference

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this Replacement Capital Covenant, and in the Corporation’s next quarterly report on Form 10-Q
(or any successor form) or Annual Report on Form 10-K (or any successor form), as applicable, (iv)
if, and only if, the Corporation ceases to be a reporting company under the Securities Exchange
Act, the Corporation shall (A) post on its website (or any other similar electronic platform
generally available to the public) the information otherwise required to be included in Securities
Exchange Act filings pursuant to clauses (ii) and (iii) of this Section 3(c) and (B) cause a notice
of the execution of this Replacement Capital Covenant to be posted on the Bloomberg screen for the
Covered Debt and each similar third-party vendor’s screen the Corporation reasonably believes is
appropriate (each an “Investor Screen”) and cause a hyperlink to a definitive copy of this
Replacement Capital Covenant to be included on the Investor Screen for the Covered Debt, in each
case to the extent permitted by Bloomberg or such similar third-party vendor, as the case may be,
and (v) promptly upon request by any Holder of Covered Debt, the Corporation shall provide such
Holder with a copy of this Replacement Capital Covenant as executed.

     (d) The Corporation agrees that, if at any time the Covered Debt is held by a trust (for
example, where the Covered Debt is part of an issuance of trust preferred securities), a holder of
the securities issued by such trust may enforce (including by instituting legal proceedings) this
Replacement Capital Covenant directly against the Corporation as though such holder owned Covered
Debt directly, and such holder shall be deemed to be a holder of “Covered Debt” for
purposes of this Replacement Capital Covenant for so long as the indebtedness held by such trust
remains Covered Debt hereunder.

     SECTION 4. Termination, Amendment and Waiver. (a) The obligations of the Corporation
pursuant to this Replacement Capital Covenant shall remain in full force and effect until the
earliest date (the “Termination Date”) to occur of (i) June 15, 2048, or, if earlier, the
date on which the Debentures are otherwise repaid, redeemed, defeased, satisfied and discharged or
purchased in full (in compliance with the terms of this Replacement Capital Covenant), (ii) the
date, if any, on which the Holders of at least a majority of the then outstanding principal amount
of the Covered Debt consent or agree in writing to the termination of this Replacement Capital
Covenant and the obligations of the Corporation hereunder, (iii) the date on which the Corporation
ceases to have any series of outstanding Eligible Senior Debt or Eligible Subordinated Debt (in
each case without giving effect to the rating requirement in clause (b) of the definition of each
such term) and (iv) the date on which the Debentures become accelerated due to the occurrence of an
event of default. From and after the Termination Date, the obligations of the Corporation pursuant
to this Replacement Capital Covenant shall be of no further force and effect.

     (b) This Replacement Capital Covenant may be amended or supplemented from time to time by a
written instrument signed by the Corporation with the consent of

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the Holders of at least a majority of the then outstanding principal amount of the Covered
Debt, provided that this Replacement Capital Covenant may be amended or supplemented from
time to time by a written instrument signed only by the Corporation (and without the consent of the
Holders of the Covered Debt) if any of the following apply (it being understood that any such
amendment or supplement may fall into one or more of the following): (i) the effect of such
amendment or supplement is solely to impose additional restrictions on, or to eliminate certain of,
the types of securities qualifying as Replacement Capital Securities and an officer of the
Corporation has delivered to the trustee or agent for such Covered Debt in the manner provided for
in the indenture, fiscal agency agreement or other instrument with respect to such Covered Debt a
written certificate to that effect, (ii) such amendment or supplement is not adverse to the rights
of the Covered Debtholders hereunder and an officer of the Corporation has delivered to the trustee
or agent for such Covered Debt in the manner provided for in the indenture, fiscal agency agreement
or other instrument with respect to such Covered Debt a written certificate stating that, in his or
her determination, such amendment or supplement is not adverse to the Covered Debtholders, or
(iii) such amendment or supplement eliminates Common Stock, rights to acquire Common Stock, Debt
Exchangeable for Common Equity and/or Mandatorily Convertible Preferred Stock as Replacement
Capital Securities if, in the case of this clause (iii), an accounting standard or interpretive
guidance of an existing accounting standard issued by an organization or regulator that has
responsibility for establishing or interpreting accounting standards used to prepare the
Corporation’s financial statements becomes effective, which, as a result, causes the Corporation to
believe that there is more than an insubstantial risk that the failure to eliminate Common Stock,
rights to acquire Common Stock, Debt Exchangeable for Common Equity and/or Mandatorily Convertible
Preferred Stock as Replacement Capital Securities would result in a reduction in the Corporation’s
earnings per share as calculated for financial reporting purposes. For the purpose of clause (ii)
in the preceding sentence, an amendment or supplement that adds new types of securities qualifying
as Replacement Capital Securities or modifies the requirements of securities qualifying as
Replacement Capital Securities will not be deemed materially adverse to the Covered Debtholders if,
following such amendment or supplement, the replacement capital covenant would constitute a
Qualifying Replacement Capital Covenant.

     (c) For purposes of Sections 4(a) and 4(b), the Holders whose consent or agreement is required
to terminate, amend or supplement the obligations of the Corporation under this Replacement Capital
Covenant shall be the Holders of the Covered Debt as of a record date established by the
Corporation that is not more than 30 days prior to the date on which the Corporation proposes that
such termination, amendment or supplement becomes effective.

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     SECTION 5. Miscellaneous. (a) This Replacement Capital Covenant shall be governed by
and construed in accordance with the laws of the State of New York.

     (b) This Replacement Capital Covenant shall be binding upon the Corporation and its successors
and assigns and shall inure to the benefit of the Covered Debtholders as they exist from
time-to-time (it being understood and agreed by the Corporation that any Person who is a Covered
Debtholder shall retain its status as a Covered Debtholder for so long as the series of long-term
indebtedness for borrowed money owned by such Person is Covered Debt and, if such Person initiates
an action, claim or proceeding to enforce its rights under this Replacement Capital Covenant after
the Corporation has violated its covenants in Section 2 and before the series of long-term
indebtedness for money borrowed held by such Person is no longer Covered Debt, such Person’s rights
under this Replacement Capital Covenant shall not terminate by reason of such series of long-term
indebtedness for money borrowed no longer being Covered Debt). Other than the Covered Debtholders
as provided in the previous sentence, no other Person shall have any rights under this Replacement
Capital Covenant or be deemed a third party beneficiary of this Replacement Capital Covenant.

     (c) All demands, notices, requests and other communications to the Corporation under this
Replacement Capital Covenant shall be deemed to have been duly given and made if in writing and (i)
if served by personal delivery upon the Corporation, on the day so delivered (or, if such day is
not a Business Day, the next succeeding Business Day) or (ii) if delivered by registered post or
certified mail, return receipt requested, or sent to the Corporation by a national or international
courier service, on the date of receipt by the Corporation (or, if such date of receipt is not a
Business Day, the next succeeding Business Day), and in each case to the Corporation at the address
set forth below, or at such other address as the Corporation may thereafter notify to Covered
Debtholders or post on its website (or any other similar electronic platform generally available to
the public) as the address for notices under this Replacement Capital Covenant:

The Hartford Financial Services Group, Inc.

One Hartford Plaza

Hartford, Connecticut 06155

Attention: General Counsel

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     IN WITNESS WHEREOF, the Corporation has caused this Replacement Capital Covenant to be
executed by its duly authorized officer, as of the day and year first above written.

	 	 	 	 	 
	 	THE HARTFORD FINANCIAL
SERVICES GROUP, INC.

 	 
	 	By:  	/s/ John N. Giamalis
 	 
	 	 	Name:  	John N. Giamalis 	 
	 	 	Title:  	Senior Vice President and Treasurer 	 
	 

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Annex I

DEFINITIONS

     “Alternative Payment Mechanism” means, with respect to any securities or combination
of securities (together in this definition, “securities”), provisions in the related
transaction documents requiring the Corporation to issue (or use Commercially Reasonable Efforts to
issue) one or more types of APM Qualifying Securities for the purpose of raising eligible proceeds
at least equal to the deferred and unpaid Distributions on such securities and apply the net
proceeds to pay such Distributions on such securities, commencing on the earlier of (x) the first
Distribution Date after commencement of a deferral period on which the Corporation pays current
Distributions (which the Corporation may pay from any source of funds) on such securities and (y)
the fifth anniversary of the commencement of such deferral period if on such date such deferral
period has not ended, and that:

     (a) define “eligible proceeds” to mean, for purposes of such Alternative
Payment Mechanism, the net proceeds (after underwriters’ or placement agents’ fees,
commissions or discounts and other expenses relating to the issuance or sale of the
relevant securities, and including the fair market value of property received by the
Corporation or any of its Subsidiaries as consideration for such securities) that the
Corporation or any of its Subsidiaries shall have received during the 180 days prior to the
relevant Distribution Date from the sale of APM Qualifying Securities, provided that in the
case of APM Qualifying Securities that are Qualifying Preferred Stock or Mandatorily
Convertible Preferred Stock the amount of net proceeds included in eligible proceeds shall
not exceed the Preferred Cap;

     (b) permit the Corporation to pay current Distributions on any Distribution Date out
of any source of funds but (i) require the Corporation to pay deferred Distributions only
out of eligible proceeds and (ii) prohibit the Corporation from paying deferred
Distributions out of any source of funds other than eligible proceeds unless an event of
default with respect to such securities has occurred;

     (c) if deferral of Distributions continues for more than one year (or such shorter
period as provided for in the terms of such securities), require the Corporation and its
Subsidiaries not to repay, redeem or purchase any of its securities ranking junior to or
equally with any APM Qualifying Securities on the liquidation, dissolution or winding-up of
the Corporation, the proceeds of which were used to pay deferred interest during the
relevant deferral period until at least one year after all deferred Distributions have been
paid (“Repurchase Restriction”), other than the following (none of which shall be
restricted or prohibited by a Repurchase Restriction):

I-1 

 

      (i) purchases, redemptions or other acquisitions of Common Stock in connection
with any employment contract, benefit plan or other similar arrangement with or for
the benefit of employees, officers, directors or consultants;

      (ii) purchases of Common Stock pursuant to a contractually binding requirement
to buy Common Stock entered into prior to the beginning of the related deferral
period, including under a contractually binding stock repurchase plan;

      (iii) as a result of any exchange, redemption or conversion of any class or
series of the Corporation’s capital stock (or any capital stock of one of the
Corporation’s Subsidiaries) for any class or series of the Corporation’s capital
stock or of any class or series of the Corporation’s indebtedness for any class or
series of the Corporation’s capital stock;

      (iv) the purchase of or payment of cash in lieu of fractional interests in the
Corporation’s capital stock in accordance with the conversion or exchange
provisions of such capital stock or the security being converted or exchanged; or

      (v) the redemption or repurchase of rights in accordance with any
stockholders’ rights plan;

      (d) limit the obligation of the Corporation to issue (or to use Commercially
Reasonable Efforts to issue) APM Qualifying Securities that are Common Stock or Qualifying
Warrants, prior to the fifth anniversary of any deferral period, to the extent that the
number of shares of Common Stock issued or issuable upon the exercise of such Qualifying
Warrants plus the number of shares of Common Stock previously issued or issuable on the
exercise of Qualifying Warrants previously issued during the applicable deferral period
would exceed 2% of the total number of issued and outstanding shares of Common Stock set
forth in the Corporation’s most recent publicly available financial statements (the
“Common Cap”);

      (e) limit the right of the Corporation to issue APM Qualifying Securities that are
Qualifying Preferred Stock or Mandatorily Convertible Preferred Stock, to the extent that
the net proceeds of any issuance of such Qualifying Preferred Stock or Mandatorily
Convertible Preferred Stock applied, together with the net proceeds of all prior issuances
of Qualifying Preferred Stock and any still-outstanding Mandatorily Convertible Preferred
Stock applied during the current and all prior deferral periods, to pay deferred
Distributions on the securities would exceed 25% of the liquidation or principal amount of
the

I-2 

 

securities that are the subject of the related Alternative Payment Mechanism (the
“Preferred Cap”);

     (f) notwithstanding the Common Cap and the Preferred Cap, permit the Corporation, at
its option, to impose a limitation on the Corporation’s obligation to issue APM Qualifying
Securities consisting of Common Stock and Qualifying Warrants to a maximum issuance cap to
be set at the Corporation’s discretion and otherwise substantially similar to the Share
Cap, provided that such limitation will be subject to the Corporation’s agreement
to use Commercially Reasonable Efforts (i) to increase such limitation when reached to
enable the Corporation to simultaneously satisfy its future fixed or contingent obligations
under such securities and other securities and derivative instruments that provide for
settlement or payment in shares of Common Stock or (ii) if the Corporation cannot increase
such limitation as contemplated in the preceding clause, by requesting its board of
directors to adopt a resolution for a stockholder vote at the next annual meeting of
stockholders of the Corporation to increase the number of shares of the Corporation’s
authorized Common Stock for purposes of satisfying the Corporation’s obligations to pay
deferred Distributions;

     (g) in the case of securities other than Qualifying Preferred Stock, include a
Bankruptcy Claim Limitation Provision; and

     (h) permit the Corporation, at its option, to provide that if the Corporation is
involved in a merger, consolidation, amalgamation, binding share exchange or conveyance,
business combination, recapitalization, transfer or lease of assets substantially as an
entirety to any other Person or a similar transaction (a “Business Combination”)
where immediately after the consummation of the Business Combination more than 50% of the
voting stock of the surviving or resulting entity or the Person to whom all or
substantially all of the Corporation’s property or assets are conveyed, transferred or
leased in such Business Combination is owned by the stockholders of the other party to the
Business Combination or Person to whom all or substantially all of the Corporation’s
property or assets are conveyed, transferred or leased, then clauses (a), (b) and (c) above
will not apply to any deferral period that is terminated on the next Distribution Date
following the date of consummation of the Business Combination;

provided (and it being understood) that:

     (1) the Corporation shall not be obligated to issue (or to use Commercially Reasonable
Efforts to issue) APM Qualifying Securities for so long as a Market Disruption Event has
occurred and is continuing;

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     (2) if, due to a Market Disruption Event or otherwise, the eligible proceeds are not
sufficient to pay all deferred Distributions on any Distribution Date, the Corporation will
apply the eligible proceeds to pay accrued and unpaid deferred Distributions on such
Distribution Date in chronological order, subject to the Common Cap, Preferred Cap and
Share Cap, as applicable; and

     (3) if the Corporation has outstanding more than one class or series of securities
under which it is obligated to sell a type of APM Qualifying Securities and apply some part
of the proceeds to the payment of deferred Distributions, then on any date and for any
period the amount of net proceeds received by the Corporation from those sales and
available for payment of deferred Distributions on such securities (in accordance with
clauses (d) and (e) of this definition) shall be applied to such securities on a pro rata
basis in proportion to the total amounts that are due on such securities.

     “APM Qualifying Securities” means, with respect to an Alternative Payment Mechanism or
a Mandatory Trigger Provision, one or more of the following (as designated in the transaction
documents for the securities that include an Alternative Payment Mechanism or a Mandatory Trigger
Provision, as applicable):

(a) Common Stock;

(b) Qualifying Warrants;

(c) Qualifying Preferred Stock; and/or

(d) Mandatorily Convertible Preferred Stock,

provided (and it being understood) that (i) if the APM Qualifying Securities for any
Alternative Payment Mechanism or Mandatory Trigger Provision include both Common Stock and
Qualifying Warrants, such Alternative Payment Mechanism or Mandatory Trigger Provision may permit,
but need not require, the Corporation to issue Qualifying Warrants, (ii) such Alternative Payment
Mechanism or Mandatory Trigger Provision may permit, but need not require, the Corporation to issue
Mandatorily Convertible Preferred Stock and (iii) the Corporation may, without the consent of the
holders of the Qualifying Replacement Securities, amend the definition of APM Qualifying Securities
to eliminate Common Stock or Qualifying Warrants, but not both, and any other security from the
definition if an accounting standard or interpretive guidance of an existing standard issued by an
organization or regulator that has responsibility for establishing or interpreting accounting
standards used to prepare the Corporation’s financial statements filed with the Securities and
Exchange Commission becomes effective, which, as a result, causes the Corporation to believe there
is more than an insubstantial risk that the failure to do so would result in a reduction in the
Corporation’s earnings per share as calculated for financial reporting purposes.

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“Applicable Percentage” means:

     (a) in the case of any shares of the Corporation’s Common Stock or rights to acquire
Common Stock, (i) 133% with respect to any repayment, redemption, defeasance or purchase
prior to June 15, 2018, (ii) 200% with respect to any repayment, redemption, defeasance or
purchase on or after June 15, 2018 and prior to June 15, 2038 and (iii) 400% with respect
to any repayment, redemption, defeasance or purchase on or after June 15, 2038.

     (b) in the case of any Mandatorily Convertible Preferred Stock, Debt Exchangeable for
Common Equity and any Qualifying Replacement Securities described in clause (a) of the
definition of such term, (i) 100% with respect to any repayment, redemption, defeasance or
purchase prior to June 15, 2038 and (ii) 300% with respect to any repayment, redemption,
defeasance or purchase on or after June 15, 2038;

     (c) in the case of any Qualifying Replacement Securities described in clause (b) of
the definition of such term, (i) 100% with respect to any repayment, redemption, defeasance
or purchase prior to June 15, 2038 and (ii) 200% with respect to any repayment, redemption,
defeasance or purchase on or after June 15, 2038; and

     (d) in the case of any Qualifying Replacement Securities described in clause (c) of
the definition of such term, 100%.

     “Bankruptcy Claim Limitation Provision” means, with respect to any securities or
combination of securities that have an Alternative Payment Mechanism or a Mandatory Trigger
Provision (together in this definition, “securities”), provisions in the terms thereof or
of the related transaction agreements that, upon any liquidation, dissolution, winding-up or
reorganization or in connection with any insolvency, receivership or proceeding under any
bankruptcy law with respect to the issuer, limit the claim of the holders of such securities to
Distributions that accumulate during (a) any deferral period, in the case of securities that have
an Alternative Payment Mechanism but no Mandatory Trigger Provision or (b) any period in which the
issuer fails to satisfy one or more financial tests set forth in the terms of such securities or
related transaction agreements, in the case of securities that have a Mandatory Trigger Provision,
to:

     (i) in the case of securities having an Alternative Payment Mechanism or Mandatory
Trigger Provision with respect to which the APM Qualifying Securities do not include
Qualifying Preferred Stock or Mandatorily Convertible Preferred Stock, 25% of the stated or
principal amount of such securities then outstanding; and

I-5 

 

     (ii) in the case of any other securities, the amount of accumulated and deferred
Distributions (including compounded amounts) that relate to the earliest two years of the
portion of the deferral period for which Distributions have not been paid.

     “Business Combination” has the meaning specified in clause (h) of the definition of
Alternative Payment Mechanism.

     “Business Day” means each day other than (a) a Saturday or Sunday or (b) a day on
which banking institutions in The City of New York, New York are authorized or required by law or
executive order to remain closed or (c) on or after June 15, 2018, a day that is not a London
Business Day.

     “Commercially Reasonable Efforts” means, for purposes of issuing APM Qualifying
Securities, Commercially Reasonable Efforts to complete the offer and sale of APM Qualifying
Securities to third parties that are not Subsidiaries of the Corporation in public offerings or
private placements. The Corporation shall not be considered to have made Commercially Reasonable
Efforts to issue APM Qualifying Securities if it determines not to pursue or complete such issuance
solely due to pricing, coupon, dividend rate or dilution considerations.

     “Commission” means the United States Securities and Exchange Commission or any
successor agency.

     “Common Cap” has the meaning specified in clause (d) of the definition of Alternative
Payment Mechanism.

     “Common Stock” means the common stock of the Corporation (including treasury shares of
common stock), common stock issued pursuant to any dividend reinvestment plan or any of the
Corporation’s employee benefit plans, any security of the Corporation that ranks upon the
liquidation, dissolution or winding-up of the Corporation junior to the Qualifying Preferred Stock
and equally with the Corporation’s common stock and that tracks the performance of, or relates to
the results of, a business, unit or division of the Corporation, and any shares of common stock or
equivalent equity interests of the surviving or resulting entity issued in exchange therefor in
connection with a Business Combination.

     “Corporation” has the meaning specified in the introduction to this Replacement
Capital Covenant.

     “Covered Debt” means (a) at the date of this Replacement Capital Covenant and
continuing to but not including the first Redesignation Date, the Initial Covered Debt and (b)
thereafter, commencing with each Redesignation Date and continuing to but not

I-6 

 

including the next succeeding Redesignation Date, the Eligible Debt identified pursuant to
Section 3(b) as the Covered Debt for such period.

     “Covered Debtholder” means each Person (whether as a Holder or a beneficial owner
holding through a participant in a clearing agency) to the extent that Person holds Covered Debt,
provided that, except as provided in Section 5(b), a Person who has sold all of its right,
title and interest in Covered Debt shall cease to be a Covered Debtholder at the time of such sale
if, at such time, the Corporation has not breached or repudiated, or threatened to breach or
repudiate, its obligations hereunder.

     “Debentures” has the meaning specified in Recital A.

     “Debt Exchangeable for Common Equity” means a security or combination of securities
(together in this definition, “securities”) that:

     (a) gives the holder a beneficial interest in (i) debt securities of the Corporation
that are not redeemable prior to the settlement date of the stock purchase contract
referred to in subclause (ii) hereof and (ii) a fractional interest in a stock purchase
contract obligating the holder to purchase Common Stock of the Corporation that will be
settled in three years or less, with the number of shares of Common Stock purchasable
pursuant to such stock purchase contract to be within a range established at the time of
issuance of such debt securities and subject to customary anti-dilution adjustments;

     (b) provides that the holders directly or indirectly grant to the Corporation a
security interest in such debt securities and their proceeds (including any substitute
collateral permitted under the transaction documents) to secure the holders’ direct or
indirect obligation to purchase Common Stock of the Corporation pursuant to the stock
purchase contract referred to in subclause (a)(ii) hereof;

     (c) includes a remarketing feature pursuant to which such debt securities of the
Corporation are remarketed to new investors not later than the settlement date of the stock
purchase contract referred to in subclause (a)(ii) hereof; and

     (d) provides for the proceeds raised in the remarketing to be used to purchase shares
of Common Stock of the Corporation under the stock purchase contract referred to in
subclause (a)(ii) hereof and, if there has not been a successful remarketing by the
settlement date of such stock purchase contract, provides that such stock purchase contract
will be settled by the Corporation exercising its remedies as a secured party with respect
to the debt securities or other collateral directly or indirectly pledged by holders of the
Debt Exchangeable for Common Equity.

I-7 

 

     “Distribution Date” means, as to any securities or combination of securities, the
date(s) on which Distributions on such securities are scheduled to be made.

     “Distribution Period” means, as to any securities or combination of securities, each
period from and including a Distribution Date for such securities to but not including the next
succeeding Distribution Date for such securities.

     “Distributions” means, as to a security or combination of securities, dividends,
interest or other income distributions to the holders or beneficial owners thereof that are not
Subsidiaries of the Corporation.

     “Eligible Debt” means, at any time, Eligible Subordinated Debt or, if no Eligible
Subordinated Debt is then outstanding, Eligible Senior Debt.

     “Eligible Senior Debt” means, at any time in respect of any issuer, each series of
outstanding unsecured long-term indebtedness for money borrowed of such issuer that ranks senior to
the Debentures and (a) upon a bankruptcy, liquidation, dissolution or winding-up of the issuer,
ranks most senior among the issuer’s then outstanding classes of unsecured indebtedness for money
borrowed, (b) is then assigned a rating by at least one NRSRO (provided that this clause
(b) shall apply on a Redesignation Date only if on such date the issuer has outstanding senior
long-term indebtedness for money borrowed that satisfies the requirements of clauses (a), (c) and
(d) that is then assigned a rating by at least one NRSRO), (c) has an outstanding principal amount
of not less than $100,000,000, and (d) was issued through or with the assistance of a commercial or
investment banking firm or firms acting as underwriters, initial purchasers or placement or
distribution agents. For purposes of this definition as applied to securities with a CUSIP number,
each issuance of long-term indebtedness for money borrowed that has (or, if such indebtedness is
held by a trust or other intermediate entity established directly or indirectly by the issuer, the
securities of such intermediate entity that have) a separate CUSIP number shall be deemed to be a
series of the issuer’s long-term indebtedness for money borrowed that is separate from each other
series of such indebtedness.

     “Eligible Subordinated Debt” means, at any time in respect of any issuer, each series
of the issuer’s then-outstanding unsecured long-term indebtedness for money borrowed that that
ranks senior to the Debentures and (a) upon a bankruptcy, liquidation, dissolution or winding-up of
the issuer, ranks subordinate to the issuer’s then outstanding series of unsecured indebtedness for
money borrowed that ranks most senior upon the issuer’s liquidation, dissolution or winding-up, (b)
is then assigned a rating by at least one NRSRO (provided that this clause (b) shall apply
on a Redesignation Date only if on such date the issuer has outstanding subordinated long-term
indebtedness for money borrowed that satisfies the requirements in clauses (a), (c) and (d) that is
then assigned a rating by at least one NRSRO), (c) has an outstanding principal amount of not less
than $100,000,000, and (d) was issued through or with the assistance of a commercial or investment
banking firm or firms acting as underwriters, initial purchasers or placement or distribution
agents.

I-8 

 

For purposes of this definition as applied to securities with a CUSIP number, each issuance of
long-term indebtedness for money borrowed that has (or, if such indebtedness is held by a trust or
other intermediate entity established directly or indirectly by the issuer, the securities of such
intermediate entity that have) a separate CUSIP number shall be deemed to be a series of the
issuer’s long-term indebtedness for money borrowed that is separate from each other series of such
indebtedness.

     “Holder” means, as to the Covered Debt then in effect, each holder of such Covered
Debt as reflected on the securities register maintained by or on behalf of the Corporation with
respect to such Covered Debt and each beneficial owner holding through a participant in a clearing
agency.

     “Initial Covered Debt” means the Corporation’s 6.1% senior notes due 2041 (CUSIP No.
416515AP9).

     “Intent-Based Replacement Disclosure” means, as to any security or combination of
securities, that the issuer has publicly stated its intention, either in the prospectus or other
offering document under which such securities were initially offered for sale or in filings with
the Commission made by the issuer under the Securities Exchange Act prior to or contemporaneously
with the issuance of such securities, that the issuer and its subsidiaries, to the extent such
securities provide the issuer with NRSRO equity credit, will redeem, repurchase or defease such
securities only with the proceeds of replacement capital securities that have terms and provisions
at the time of redemption, repurchase or defeasance that are as or more equity-like than the
securities then being redeemed, repurchased or defeased, and which proceeds were raised within 180
days prior to the applicable redemption, purchase or defeasance date.

     “London Business Day” means a day on which dealings in U.S. dollars are transacted in
the London interbank market.

     “Mandatorily Convertible Preferred Stock” means preferred stock with (a) no prepayment
obligation on the part of the issuer thereof, whether at the election of the holders or otherwise,
and (b) a requirement that the preferred stock converts into common stock of the Corporation within
three years from the date of its issuance at a conversion ratio within a range established at the
time of issuance of the preferred stock, subject to customary anti-dilution adjustments.

     “Mandatory Trigger Provision” means, as to any security or combination of securities,
provisions in the terms thereof or of the related transaction agreements that:

     (a) if the issuer of such securities fails to satisfy one or more financial tests set
forth in the terms of such securities or related transaction agreements and for so long as
such failure continues, prohibits the issuer from making payments of Distributions on such
securities from any source other than from the issuance

I-9 

 

and sale of APM Qualifying Securities and require the issuer, or in the case of
Qualifying Preferred Stock, at the option of the issuer, permit the issuer, of such
securities (in this definition, the “issuer”) to make payment of Distributions on
such securities, within a two year period beginning on the date of such failure, only
pursuant to the issuance and sale of APM Qualifying Securities, in an amount such that the
net proceeds of such sale are at least equal to the amount of deferred and unpaid
Distributions (including without limitation all deferred and accumulated amounts) on such
securities or, in the case of Qualifying Preferred Stock, current Distributions, and in
either case require the application of the net proceeds of such sale to pay such deferred
and unpaid Distributions, or in the case of Qualifying Preferred Stock, permit the
application of the net proceeds of such sale to pay current Distributions, on those
securities, provided that (i) if the Mandatory Trigger Provision does not require
such issuance and sale within one year of such failure, the amount of Common Stock or
Qualifying Warrants the net proceeds of which the issuer must apply to pay such
Distributions pursuant to such provision may not exceed the Common Cap, and (ii) the amount
of Qualifying Preferred Stock and then still-outstanding Mandatorily Convertible Preferred
Stock the net proceeds of which the issuer may apply to pay such Distributions pursuant to
such provision may not exceed the Preferred Cap;

     (b) if the provisions described in clause (a) immediately above do not require such
issuance and sale within one year of such failure, include a Repurchase Restriction;

     (c) other than in the case of Qualifying Preferred Stock, prohibit the issuer of such
securities from redeeming or purchasing any of its securities ranking junior to or equally
with any APM Qualifying Securities upon the liquidation, dissolution or winding-up of the
Corporation, the proceeds of which were used to pay deferred Distributions during the
relevant deferral period prior to the date six months after the issuer applies the net
proceeds of the sales described in clause (a) immediately above to pay such deferred
Distributions in full; and

     (d) other than in the case of Qualifying Preferred Stock, include a Bankruptcy Claim
Limitation Provision;

provided (and it being understood) that:

     (1) the issuer will not be obligated to issue (or to use Commercially Reasonable
Efforts to issue) APM Qualifying Securities for so long as a Market Disruption Event has
occurred and is continuing;

     (2) if, due to a Market Disruption Event or otherwise, the issuer is able to raise and
apply some, but not all, of the eligible proceeds necessary to pay all deferred
Distributions on any Distribution Date, the issuer will apply any

I-10

 

available eligible proceeds to pay accrued and unpaid Distributions on the applicable
Distribution Date in chronological order subject to the Common Cap, Preferred Cap and Share
Cap, as applicable; and

     (3) if the issuer has outstanding more than one class or series of securities under
which it is obligated to sell a type of APM Qualifying Securities and applies some part of
the proceeds to the payment of deferred Distributions, then on any date and for any period
the amount of net proceeds received by the issuer from those sales and available for
payment of deferred Distributions on such securities (in accordance with the Alternative
Payment Mechanism) shall be applied to such securities on a pro rata basis in proportion to
the total amounts that are due on such securities.

     No remedy other than Permitted Remedies shall arise by the terms of such securities or related
transaction agreements in favor of the holders of such securities as a result of the issuer’s
failure to pay Distributions because of the Mandatory Trigger Provision until Distributions have
been deferred for one or more Distribution Periods that total together at least ten years.

     “Market Disruption Events” means the occurrence or existence of any of the following
events or sets of circumstances:

     (a) trading in securities generally, or the securities of the Corporation
specifically, on the New York Stock Exchange or any other national securities exchange or
over-the-counter market on which the Corporation’s Common Stock is listed or traded, shall
have been suspended or materially disrupted or minimum prices shall have been established
on any such exchange or market by the Commission, the relevant exchange or any other
regulatory body or governmental authority having jurisdiction, and the establishment of
such minimum prices materially disrupts or otherwise has a material adverse effect on
trading in, or the issuance and sale of, the Corporation’s Common Stock;

     (b) the Corporation would be required to obtain the consent or approval of its
stockholders or a regulatory body (including, without limitation, any securities exchange)
or governmental authority to issue or sell APM Qualifying Securities pursuant to the
Alternative Payment Mechanism and such consent or approval has not yet been obtained
notwithstanding that the Corporation has used Commercially Reasonable Efforts to obtain the
required consent or approval;

     (c) an event occurs and is continuing as a result of which the offering document for
the offer and sale of APM Qualifying Securities would, in the reasonable judgment of the
Corporation, contain an untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements in

I-11

 

that offering document, in the light of the circumstances under which they were made,
not misleading and either (i) the disclosure of that event at such time, in the reasonable
judgment of the Corporation, is not otherwise required by law and would have a material
adverse effect on the business of the Corporation or (ii) the disclosure relates to a
previously undisclosed proposed or pending material business transaction, and the
Corporation has a bona fide reason for keeping such transaction confidential or disclosure
of such transaction would impede the ability of the Corporation to consummate such
transaction; provided that no single suspension period resulting from an event described in
this clause (c) shall exceed 90 consecutive days and multiple suspension periods resulting
from one or more market disruption events described in this clause (c) shall not exceed an
aggregate of 180 days in any 360-day period;

     (d) the Corporation reasonably believes that the offering document for the offer and
sale of APM Qualifying Securities would not be in compliance with a rule or regulation of
the Commission (for reasons other than those described in clause (c) above), and the
Corporation determines that it is unable to comply with such rule or regulation or such
compliance is impractical, provided that no single suspension period resulting from an
event described in this clause (d) shall exceed 90 consecutive days and multiple suspension
periods resulting from one or more market disruption events described in this clause (d)
shall not exceed an aggregate of 180 days in any 360-day period;

     (e) there shall have occurred a material adverse change in general domestic or
international economic, political or financial conditions, including without limitation as
a result of terrorist activities, or the effect of international conditions on the
financial markets in the United States shall be, such that the issuance of or market
trading in the APM Qualifying Securities has been materially disrupted or has ceased;

     (f) there shall have been an escalation in hostilities involving the United States,
there shall have been a declaration of a national emergency or war by the United States or
there shall have occurred any other national or international calamity or crisis such that
the issuance of or market trading in the APM Qualifying Securities has been materially
disrupted or has ceased;

     (g) a material disruption shall have occurred in commercial banking or securities
settlement or clearing services in the United States such that market trading in the APM
Qualifying Securities has been materially disrupted or has ceased; or

     (h) a banking moratorium shall have been declared by federal or state authorities of
the United States such that market trading in the APM Qualifying Securities has been
materially disrupted or has ceased.

I-12

 

     “Market Value” means, on any date, the closing sale price per share of Common Stock
(or if no closing sale price is reported, the average of the bid and ask prices or, if more than
one in either case, the average of the average bid and the average ask prices) on that date as
reported in composite transactions by the New York Stock Exchange or, if the Common Stock is not
then listed on the New York Stock Exchange, as reported by the principal U.S. securities exchange
on which the Common Stock is listed; if the Common Stock is not listed on any U.S. securities
exchange on the relevant date, the market price will be the average of the mid-point of the bid and
ask prices for the Common Stock on the relevant date submitted by at least three nationally
recognized independent investment banking firms selected by the Corporation for this purpose.

     “Measurement Date” means, with respect to any repayment, redemption, defeasance or
purchase of the Debentures (a) on or prior to the Scheduled Maturity Date, the date that is 180
days prior to delivery of notice of such repayment, defeasance or redemption or the date of such
purchase and (b) after the Scheduled Maturity Date, the date that is 90 days prior to the delivery
of notice of such repayment, redemption or defeasance or the date of such purchase, except that, if
during the 90 day (or any shorter) period preceding such date, proceeds were received by the
Corporation or any of its Subsidiaries from the sale of Replacement Capital Securities to Persons
other than the Corporation and its Subsidiaries but no repayment, redemption, defeasance or
purchase of the Debentures was made in connection therewith, the measurement date shall be the date
upon which such preceding 90-day (or shorter) period began.

     “Measurement Period” with respect to any notice date or purchase date means the period
(i) beginning on the Measurement Date with respect to such notice date or purchase date and (ii)
ending on such notice date or purchase date, as applicable. Measurement Periods cannot run
concurrently.

     “No Payment Provision” means a provision or provisions in the transaction documents
for securities (referred to in this definition as “such securities”) that:

     (a) include an Alternative Payment Mechanism; and

     (b) permit the issuer of such securities, in its sole discretion, to defer in whole or
in part payment of Distributions on such securities for one or more consecutive
Distribution Periods of up to five years or, if a Market Disruption Event has occurred and
is continuing, ten years, without any remedy other than Permitted Remedies.

     “Non-Cumulative” means, with respect to any securities, that the issuer may elect not
to make any number of periodic Distributions without any remedy arising under the terms of the
securities or related agreements in favor of the holders, other than one or more Permitted
Remedies.

I-13

 

     “NRSRO” means a nationally recognized statistical rating organization within the
meaning of Section 3(a)(62) of the Securities Exchange Act.

     “Optional Deferral Provision” means, as to any securities, provisions in the terms
thereof or of the related transaction agreements to the effect of either (a) or (b) below:

     (a) (i) the issuer of such securities may, in its sole discretion, defer in whole or
in part payment of Distributions on such securities for one or more consecutive
Distribution Periods up to five years or, if a Market Disruption Event has occurred and is
continuing, ten years, without any remedy other than Permitted Remedies and (ii) such
securities are subject to an Alternative Payment Mechanism (provided that such
Alternative Payment Mechanism need not apply during the first five years of any deferral
period and need not include a Common Cap, Preferred Cap, Share Cap, Bankruptcy Claim
Limitation or Repurchase Restrictions); or

     (b) the issuer of such securities may, in its sole discretion, defer in whole or in
part payment of Distributions on such securities for one or more consecutive Distribution
Periods up to ten years, without any remedy other than Permitted Remedies.

     “Permitted Remedies” means, with respect to any securities, one or more of the
following remedies:

     (a) rights in favor of the holders of such securities permitting such holders to elect
one or more directors of the issuer (including any such rights required by the listing
requirements of any stock or securities exchange on which such securities may be listed or
traded); and

     (b) complete or partial prohibitions on the issuer paying Distributions on or
purchasing common stock or other securities that rank equally with or junior as to
Distributions to such securities for so long as Distributions on such securities, including
deferred Distributions, remain unpaid.

     “Person” means any individual, corporation, partnership, joint venture, trust, limited
liability company, corporation or other entity, unincorporated organization or government or any
agency or political subdivision thereof.

     “Preferred Cap” has the meaning specified in the definition of Alternative Payment
Mechanism.

     “Prospectus Supplement” has the meaning specified in Recital B.

I-14

 

     “Qualifying Preferred Stock” means Non-Cumulative perpetual preferred stock issued by
the Corporation or any of its Subsidiaries that (a) ranks equally with or junior to all other
outstanding preferred stock of the issuer, other than a preferred stock that is issued or issuable
pursuant to a stockholders’ rights plan or similar plan or arrangement, and (b) contains no
remedies other than Permitted Remedies and either (i) is subject to Intent-Based Replacement
Disclosure and has a provision that prohibits the issuer from making any Distributions thereon upon
the Corporation’s failure to satisfy one or more financial tests set forth therein or (ii) is
subject to a Qualifying Replacement Capital Covenant; provided, however, that if
such Qualifying Preferred Stock includes Intent-Based Replacement Disclosure and are structured at
the time of issuance with a distribution rate step-up of more than 25 basis points prior to the
25th anniversary of such issuance, then such Qualifying Preferred Stock shall, in lieu
of Intent-Based Replacement Disclosure, be subject to a replacement capital covenant that will
remain in effect until at least the Scheduled Maturity Date and that is substantially similar to
this Replacement Capital Covenant.

     “Qualifying Replacement Capital Covenant” means (a) a replacement capital covenant
that is substantially similar to this Replacement Capital Covenant applicable to the Debentures or
(b) a replacement capital covenant, as identified by the Corporation’s Board of Directors, or a
duly authorized committee thereof, acting in good faith and in its reasonable discretion and
reasonably construing the definitions and other terms of this Replacement Capital Covenant, (i)
entered into by a company that at the time it enters into such replacement capital covenant is a
reporting company under the Securities Exchange Act and (ii) that restricts the related issuer and
its subsidiaries from repaying, redeeming or purchasing identified securities except out of the
proceeds from the sale of specified Replacement Capital Securities that have terms and provisions
at the time of repayment, redemption or purchase that are as or more equity-like than the
securities then being repaid, redeemed or purchased, raised within 180 days prior to the applicable
repayment, redemption or purchase date; provided that the term of such Qualifying Replacement
Capital Covenant shall be determined at the time of issuance of the related Replacement Capital
Securities taking into account the other characteristics of such securities.

     “Qualifying Replacement Securities” means securities or a combination of securities
(other than Common Stock, rights to acquire Common Stock, Mandatorily Convertible Preferred Stock
or Debt Exchangeable for Common Equity) that, in the determination of the Corporation’s Board of
Directors (or a duly authorized committee thereof) reasonably construing the definitions and other
terms of this Replacement Capital Covenant, meet one of the following criteria:

     (a) in connection with any repayment, redemption, defeasance or purchase of Debentures
prior to June 15, 2018:

I-15

 

     (i) securities issued by the Corporation or any of its Subsidiaries that (1)
rank equally with or junior to the Debentures upon the liquidation, dissolution or
winding-up of the Corporation, (2) have no maturity or a maturity of at least 60
years and (3)(A) are Non-Cumulative and are subject to a Qualifying Replacement
Capital Covenant or have a No Payment Provision and is subject to a Qualifying
Replacement Capital Covenant or (B) have a Mandatory Trigger Provision and have
either an Optional Deferral Provision or a No Payment Provision and are subject to
Intent-Based Replacement Disclosure; or

     (ii) securities issued by the Corporation or any of its Subsidiaries that (1)
rank equally with or junior to the Debentures upon the liquidation, dissolution or
winding-up of the Corporation, (2) have no maturity or a maturity of at least 40
years, (3) are subject to a Qualifying Replacement Capital Covenant and (4) have a
Mandatory Trigger Provision and an Optional Deferral Provision; or

     (iii) shares of preferred stock issued by the Corporation or any of its
Subsidiaries that are (1) Non-Cumulative, (2) have no prepayment obligation on the
part of the issuer thereof, whether at the election of the Holders or otherwise,
(3) have no maturity or a maturity of at least 60 years and either (A) are subject
to a Qualifying Replacement Capital Covenant or (B) have a Mandatory Trigger
Provision and are subject to Intent-Based Replacement Disclosure; or

     (b) in connection with any repayment, redemption, defeasance or purchase of Debentures
on or after June 15, 2018 and prior to 

June 15, 2038:

     (i) any securities described under clause (a) of this definition that would be
Qualifying Replacement Securities prior to June 15, 2018;

     (ii) securities issued by the Corporation or any of its Subsidiaries that (1)
rank equally with or junior to the Debentures upon the liquidation, dissolution or
winding-up of the Corporation, (2) have no maturity or a maturity of at least 60
years, (3) are subject to a Qualifying Replacement Capital Covenant and (4) have an
Optional Deferral Provision;

     (iii) securities issued by the Corporation or any of its Subsidiaries that (1)
rank equally with or junior to the Debentures upon a liquidation, dissolution or
winding-up of the Corporation, (2) are Non-Cumulative or have a No Payment
Provision, (3) have no maturity or a maturity of at least 60 years and (4) are
subject to Intent-Based Replacement Disclosure;

I-16

 

     (iv) securities issued by the Corporation or any of its Subsidiaries that (1)
rank equally with or junior to the Debentures upon the liquidation, dissolution or
winding-up of the Corporation, (2) have no maturity or a maturity of at least 40
years and (3) (A) are Non-Cumulative, or have a No Payment Provision, and subject
to a Qualifying Replacement Capital Covenant or (B) have a Mandatory Trigger
Provision and an Optional Deferral Provision and are subject to Intent-Based
Replacement Disclosure;

     (v) securities issued by the Corporation or any of its Subsidiaries that (1)
upon the liquidation, dissolution or winding-up of the Corporation, rank junior to
all of the senior and subordinated debt of the Corporation other than the
Debentures and securities that rank equally with the Debentures upon the
liquidation, dissolution or winding up of the Corporation, (2) have a Mandatory
Trigger Provision and an Optional Deferral Provision and are subject to
Intent-Based Replacement Disclosure and (3) have no maturity or a maturity of at
least 60 years;

     (vi) cumulative preferred stock issued by the Corporation or any of its
Subsidiaries that (1) has no prepayment obligation on the part of the issuer
thereof, whether at the election of the holders or otherwise, (2) has no maturity
or a maturity of at least 60 years and (3) is subject to a Qualifying Replacement
Capital Covenant; or

     (vii) other securities issued by the Corporation or any of its Subsidiaries
that (1) rank upon the liquidation, dissolution or winding-up of the Corporation
equally with or junior to the Debentures and (2) have no maturity or a maturity of
at least 30 years, are subject to a Qualifying Replacement Capital Covenant and
have a Mandatory Trigger Provision and an Optional Deferral Provision; or

     (c) in connection with any repayment, redemption, defeasance or purchase of Debentures
at any time after June 15, 2038:

     (i) any securities described under clause (b) of this definition that would be
Qualifying Replacement Securities prior to June 15, 2038;

     (ii) securities issued by the Corporation or any of its Subsidiaries that (1)
rank equally with or junior to the Debentures upon the liquidation, dissolution or
winding-up of the Corporation, (2) either (A) have no maturity or a maturity of at
least 60 years and are subject to Intent-Based Replacement Disclosure or (B) have
no maturity or a maturity of at least 40 years and are subject to a Qualifying
Replacement Capital Covenant and (C) have an Optional Deferral Provision;

I-17

 

     (iii) securities issued by the Corporation or any of its Subsidiaries that (1)
rank junior to all of the senior and subordinated debt of the Corporation other
than the Debentures and any other securities that rank equally with the Debentures
upon the liquidation, dissolution or winding-up of the Corporation, (2) have a
Mandatory Trigger Provision, an Optional Deferral Provision and are subject to
Intent-Based Replacement Disclosure and (3) have no maturity or a maturity of at
least 40 years; or

     (iv) preferred stock issued by the Corporation or any of its Subsidiaries that
either (1) has no maturity or a maturity of at least 60 years and is subject to
Intent-Based Replacement Disclosure or (2) has a maturity of at least 40 years and
is subject to a Qualifying Replacement Capital Covenant,

provided, however, that if any of the securities described in the foregoing clauses
(a), (b) and (c) is structured at the time of issuance with a distribution rate step-up (whether
interest or dividend) of more than 25 basis points prior to the 25th anniversary of such
issuance, then such security shall be subject to a replacement capital covenant that will remain in
effect until at least the Scheduled Maturity Date of the Debentures and that is otherwise
substantially similar to this Replacement Capital Covenant.

     “Qualifying Warrants” means any net share settled warrants to purchase the Common
Stock of the Corporation that (a) have an exercise price greater than the Market Value of the
Common Stock of the Corporation on the date of sale, (b) the Corporation is not entitled to redeem
for cash and (c) the holders of which are not entitled to require the Corporation to repurchase for
cash in any circumstances.

     “Redesignation Date” means, as to the Covered Debt in effect at any time, the earliest
of (a) the date that is two years prior to the final maturity date of such Covered Debt, (b) if the
Corporation elects to redeem, or the Corporation or a Subsidiary of the Corporation elects to
purchase, such Covered Debt either in whole or in part with the consequence that after giving
effect to such redemption or purchase the outstanding principal amount of such Covered Debt is less
than $100,000,000, the applicable redemption or purchase date and (c) if such Covered Debt is not
Eligible Subordinated Debt of the Corporation, the date on which the Corporation issues long-term
indebtedness for money borrowed that is Eligible Subordinated Debt.

     “Replacement Capital Covenant” has the meaning specified in the introduction to this
instrument.

     “Replacement Capital Securities” means

     (a) Common Stock and rights to acquire Common Stock;

I-18

 

     (b) Mandatorily Convertible Preferred Stock;

     (c) Debt Exchangeable for Common Equity; and

     (d) Qualifying Replacement Securities.

     “Repurchase Restrictions” has the meaning specified in clause (c) of the definition of
“Alternative Payment Mechanism.”

     “Scheduled Maturity Date” means June 15, 2038.

     “Securities Exchange Act” means the Securities Exchange Act of 1934, as amended from
time to time, including any successor statute.

     “Share Cap” means, with respect to any securities or combination of securities, a
provision limiting the total number of shares of Common Stock, Qualifying Warrants and Mandatorily
Convertible Preferred Stock that may be issued by the Corporation pursuant to the Alternative
Payment Mechanism applicable to such securities such that the number of shares of Common Stock
issued or issuable on the exercise or conversion of all Qualifying Warrants and Mandatorily
Convertible Preferred Shares issued by the Corporation pursuant to such Alternative Payment
Mechanism shall not exceed a specified number of shares of Common Stock, provided that the
product of such Share Cap and the Market Value of the Common Shares as of the date of issuance of
such Qualifying Replacement Securities shall not represent a lower proportion of the aggregate
principal or liquidation amount, as applicable, of such securities than the product of the Share
Cap applicable to the Debentures and the Current Stock Market Price of the Common Stock as of the
date of issuance of such Debentures represents of the aggregate principal amount of such Debentures
at the time of issuance.

     “Subordinated Indenture” means the Junior Subordinated Debt Indenture, dated as of
June 6, 2008, between the Corporation and The Bank of New York Trust Company, N.A., as trustee, as
amended and supplemented by the Supplemental Indenture and as further amended and supplemented from
time to time in accordance with its terms.

     “Supplemental Indenture” means the First Supplemental Indenture, dated as of June 6,
2008, between the Corporation and The Bank of New York Trust Company, N.A., as trustee, as amended
and supplemented from time to time in accordance with its terms.

     “Subsidiary” means, at any time, any Person the shares of stock or other ownership
interests of which ordinary have voting power to elect a majority of the board of directors or
other managers of such Person are at the time owned or the management and policies of which are
otherwise at the time controlled, directly or indirectly through one or more intermediaries
(including other Subsidiaries) or both, by another Person.

I-19

 

     “Termination Date” has the meaning specified in Section 4(a).

I-20exv10w39

Exhibit 10.39

Sale and Purchase

Agreement

Border Group, Inc.

A&R Whitcoulls Group Holdings Pty Limited

Spine Newco (NZ) Limited

Spine Newco Pty Limited

Baker & McKenzie

Solicitors

Email: maria.pawelek@bakernet.com

Email: john.balazs@bakernet.com

SYDNEY NSW 2000

 

 

CONTENTS

	 	 	 	 	 
	Clause	 	Page	 
	 
	 	 	 	 
	1. Interpretation
	 	 	1	 
	2. Sale and Purchase of sale shares
	 	 	11	 
	3. Consideration
	 	 	12	 
	4. Period Before Completion
	 	 	16	 
	5. Completion
	 	 	18	 
	6. Completion Accounts
	 	 	19	 
	7. Post-Completion Obligations
	 	 	20	 
	8. Restrictive Covenants
	 	 	21	 
	9. Warranties
	 	 	22	 
	10. Announcements, Confidentiality and Return of Information
	 	 	23	 
	11. Insurance
	 	 	24	 
	12. Tax matters
	 	 	25	 
	13. Costs
	 	 	26	 
	14. Notices
	 	 	26	 
	15. Non-merger
	 	 	27	 
	16. Indemnities
	 	 	27	 
	17. Invalid or unenforceable provisions
	 	 	27	 
	18. Waiver and exercise of rights
	 	 	28	 
	19. Amendment
	 	 	28	 
	20. Counterparts
	 	 	28	 
	21. Further assurances
	 	 	28	 
	22. Assignment
	 	 	28	 
	23. Entire agreement
	 	 	28	 
	24. Rights cumulative
	 	 	29	 
	25. Consents and Approvals
	 	 	29	 
	26. Jurisdiction
	 	 	29	 
	27. Service of process
	 	 	29	 
	28. Currency Conversion
	 	 	29	 
	29. Governing Law
	 	 	29	 

	 	 	 	 	 
	Schedules	 	 	 	 
	 
	 	 	 	 
	SCHEDULE 1
	 	 	 	 
	Part 1: Details of Borders Australia
	 	 	30	 
	Part 2: Details of Borders NZ
	 	 	32	 
	Part 3: Details of Borders Singapore
	 	 	33	 
	SCHEDULE 2
	 	 	 	 
	Completion
	 	 	34	 
	Part 1: Seller’s Delivery Obligations at Completion
	 	 	34	 
	Part 2: Seller’s Other Obligations at Completion
	 	 	36	 
	Part 3: First Purchasers’ Obligations at Completion
	 	 	37	 
	SCHEDULE 3
	 	 	 	 
	Post-Completion Obligations
	 	 	38	 
	SCHEDULE 4
	 	 	 	 
	Warranties
	 	 	39	 
	SCHEDULE 5
	 	 	 	 
	Limitations on Liability
	 	 	42	 
	SCHEDULE 6
	 	 	 	 
	Limitations on liability under Tax Indemnity
	 	 	45	 

 

 

	 	 	 	 	 
	SCHEDULE 7
	 	 	 	 
	Insurance
	 	 	47	 
	SCHEDULE 8
	 	 	 	 
	Properties
	 	 	48	 
	Part 1: Australian Borders Stores
	 	 	48	 
	Part 2: New Zealand Borders Stores
	 	 	48	 
	Part 3: Singapore Borders Stores
	 	 	49	 
	SCHEDULE 9
	 	 	 	 
	Completion Accounts Principles
	 	 	50	 
	ANNEXURE 1
	 	 	 	 
	Data Room Index
	 	 	3	 

 

 

DATE:

PARTIES:

	(1)	 	BORDERS GROUP, INC., a company incorporated under the laws of Michigan, United States of
America and having its registered office at 100 Phoenix Drive, Ann Arbor, Michigan 48108,
United States of America (the “Seller”);
	 
	(2)	 	A&R Whitcoulls Group Holdings Pty Limited , a company incorporated under the laws of
Australia ACN 108 801 127 of Level 14, 379, Collins Street, Melbourne, Victoria, 3000,
Australia (“ARW”);
	 
	(3)	 	SPINE NEWCO PTY LIMITED, a company incorporated under the laws of Australia ACN 127 667 314
and having its registered office at Level 31, 126 Phillip Street, Sydney, NSW 2000 (the “First
Purchaser”).
	 
	(4)	 	SPINE NEWCO (NZ) LIMITED, a company incorporated under the laws of New Zealand NZ Company
Number 2010994 and having its registered office at C/o Quigg Partners, Level 7, 28 Brandon
Street Wellington (the “Second Purchaser”).
	 
	 	 	(First Purchaser and Second Purchaser being each a “Purchaser” and collectively the
“Purchasers’)

RECITALS:

	(A)	 	The Seller has agreed to sell and the First Purchaser has agreed to purchase the Australian
Sale Shares and the Singapore Shares on the terms set out in this Agreement.
	 
	(B)	 	The Seller has agreed to sell and the Second Purchaser has agreed to purchase the NZ Shares
on the terms set out in this Agreement.

IT IS AGREED as follows:

1. INTERPRETATION

	1.1	 	Defined terms
	 
	 	 	In this Agreement, the following words and expressions shall have the following meanings:
	 
	 	 	“Accounts Date” means 2 February 2008;
	 
	 	 	“Accounts” means for each member of the Group:

	 	(a)	 	the unaudited statement of financial position as at the Accounts Date;
	 
	 	(b)	 	the unaudited statement of financial performance and statement of cash flows in
respect of the 12 month period ending on the Accounts Date;
	 
	 	(c)	 	all statements, reports and notes attached to or intended to be read with the
statement of performance, statement of financial position or statement of cash flows;
and
	 
	 	(d)	 	all directors’ declarations (if any) about those financial statements;

1

 

“Actual Store Contribution” means the aggregate of;

	 	(a)	 	the store EBITDA contribution for Borders Singapore for the 12 months between 2
February 2008 and 31 January 2009 calculated in the manner set out in the line item
entitled “Total Store EBITDA contribution” in the worksheet labelled “Summary” in
document 00.04.42 in the Data Room and will exclude any items which are unusual in
nature or one-off (e.g. cost associated with the transaction contemplated by this
Agreement and the Transaction Documents or costs associated with integrating the
businesses operated by ARW and the Group) and will be prepared in a manner consistent
with the accounting practices historically used for the preparation of management
accounts of the Business and development of the business plan for Borders Singapore;
	 
	 	(b)	 	the store EBITDA contribution for Borders Australia (excluding the financial
impact due to the renewal of the Skygarden (Sydney CBD) Lease) and Borders NZ for the
12 months between 2 February 2008 and 31 January 2009 calculated in the manner set out
in the line item entitled “Store EBITDA contribution” in the worksheet labelled
“Summary” in documents 04.02.55 and 0.4.02.65 in the Data Room and will exclude any
items which are unusual in nature or one-off (e.g. cost associated with the transaction
contemplated by this Agreement and the Transaction Documents or costs associated with
integrating the businesses operated by ARW and the Group) and will be prepared in a
manner consistent with the accounting practices historically used for the preparation
of management accounts of the Business and development of the business plan for Borders
Australia and Borders NZ; and
	 
	 	(c)	 	a proforma EBITDA contribution (using the same methodology set out in
paragraphs (a) and (b) above and using forecast amounts) for any Borders Australia,
Borders NZ and Borders Singapore store existing as at the date of this Agreement which
is closed following a resolution by the board of directors of ARW or its Related Body
Corporate for reasons other than those outside the control of ARW, its Related Bodies
Corporate or the Purchasers;

“Adjustment Note” means:

	 	(a)	 	with respect to Australia an adjustment note for the purposes of the A New Tax
System (Goods and Services Tax) Act 1999 (Cth); and
	 
	 	(b)	 	with respect to New Zealand means a credit or debit note (as the case may be)
for the purposes of the Goods and Services Tax Act 1985 (NZ); and
	 
	 	(c)	 	with respect to Singapore such document (if any) that may serve as an
adjustment note, a credit note or a debit note (as the case may be)an adjustment note
for the purposes of the Goods and Services Act, Chapter 117A of Singapore;

“Advisers” means, in relation to an entity, its legal, financial and other expert advisers;

“Aggregate Consideration” has the meaning attributed in clause 3.1;

“Agreement” means this Sale and Purchase Agreement;

“ANZ” means Australia and New Zealand Banking Group Limited and ANZ Banking Group (New
Zealand) Ltd;

“ASC Dispute Notice” means a notice in accordance with clause 3.8(b);

2

 

“ASC Expert” means an independent firm of chartered accountants selected under clause
3.8(d);

“Auditor” means Deloitte Touche Tohmatsu;

“Australian Accounting Standards” means for Borders Australia:

	 	(a)	 	the accounting standards applicable for the purposes of the Corporations Act;
	 
	 	(b)	 	the requirements of the Corporations Act for the preparation and content of
financial statements, directors’ reports and auditor’s reports; and
	 
	 	(c)	 	the generally accepted and consistently applied accounting principles and
practices in Australia, except those inconsistent with the standards or requirements
referred to in paragraphs (a) or (b);

“Australian Shares” means shares in the capital of Borders Australia as shown in part 1 of
Schedule 1;

“Australian Sale Shares” means the number of shares in the capital of Borders Australia set
out in part 1 of Schedule 1;

“Bank Guarantee” means the bank guarantee procured by the Purchasers in favour of the Seller
for the amount of the Cash Consideration;

“Borders Australia” means Borders Australia Pty Limited, a private company limited by shares
and incorporated in Australia, short particulars of which are set out in part 1 of
Schedule 1;

“Borders NZ” means Borders New Zealand Limited, a private company limited by shares and
incorporated in New Zealand, short particulars of which are set out in part 2 of Schedule 1;

“Borders Singapore” means Borders Pte. Ltd, a private company limited by shares and
incorporated in Singapore, short particulars of which are set out in part 3 of Schedule 1;

“Business” means the Australian, New Zealand and Singaporean operations of the business
carried on by Borders Australia, Borders NZ and Borders Singapore as at Completion,
including the selling of books, periodicals, sidelines, CDs and DVDs;

“Business Contract” means all agreements including Leases to which a member of the Group is
a party;

“Business Day” means a day (excluding Saturday) on which banks generally are open in
Ann Arbor, Michigan, Sydney, Auckland and Singapore for the transaction of normal banking
business;

“Cash Consideration” means $95,000,000;

“Claim” means any claim, demand or cause of action (whether based in contract, tort or
statute, or otherwise arising) in respect of this Agreement or any part of it (including but
not limited to claims under the Seller’s Warranties and the Purchasers’ Warranties (as the
case may be) or relating to the Sale Shares;

“Competing Business” has the meaning attributed in clause 8.1(a);

3

 

“Completion” means completion of the sale and purchase of the Australian Sale Shares, the NZ
Shares and the Singapore Shares in accordance with clause 5;

“Completion Accounts” means a written statement setting out the Completion Balance Sheet and
the calculations made in determining the balance sheets, in accordance with the Completion
Accounts Principles;

“Completion Accounts Principles” means the accounting principles and adjustments set out in
Schedule 9;

“Completion Balance Sheet ” means the adjusted balance sheet for the Group as at the
Completion Date, prepared in accordance with Schedule 9;

“Completion Date” means the date that is 5 days following the date of this Agreement
provided if such date is not a Business Day, then the immediately following Business Day or
such other date as the Seller and the Purchasers may agree in writing;

“Completion Net Asset Amount” means the amount of “Total Assets” less “Total Liabilities”
(using the amounts corresponding to each of those line items) as set out in the Completion
Balance Sheet;

“Confidentiality Letter” means the confidentiality letter from the Seller to ARW dated 31
July 2007;

“Corporations Act” means the Corporations Act 2001 (Cth);

“Data Room” means the written material made available by or on behalf of the Seller
(directly or via the Seller’s advisers) for the purpose of due diligence by ARW, including,
without limitation all written answers provided to questions asked by the Purchasers or
their advisers or representatives, the index of which is annexed to this Agreement as
Annexure 1;

“Directors” means the persons listed as directors of Borders Australia, Borders NZ and
Borders Singapore in parts 1, 2 and 3 of Schedule 1;

“Dispute Notice” means a notice in accordance with clause 6.4(b);

“Dollars” and “$” means the lawful currency of Australia;

“Deferred Consideration” means the aggregate of the First Tranche Deferred Consideration and
the Second Tranche Consideration;

“Encumbrances” means a mortgage, charge, pledge, lien, encumbrance, security interest, title
retention, preferential right, trust arrangement, contractual right of set-off, or any other
security agreement or arrangement in favour of any person;

“Expert” means an independent firm of chartered accountants selected under clause 6.4(d);

“Financial Year” shall be construed in accordance with section 323D of the Corporations Act,
including in relation to Borders NZ;

“First Tranche Deferred Consideration” means $5,000,000;

“Government Agency” means, whether foreign or domestic:

	 	(a)	 	a government, whether federal, state, territorial or local;
	 
	 	(b)	 	a department, office or minister of a government acting in that capacity; or

4

 

	 	(c)	 	a commission, delegate, instrumentality, agency, board, or other
governmental, semi-governmental, judicial, administrative, monetary or fiscal
authority, whether statutory or not;

“Group” means Borders Australia, Borders NZ and Borders Singapore and “member of the Group”
or “Group Company” shall be construed accordingly;

“GST” with respect to Australia has the meaning given to it in the A New Tax System (Goods
and Services Tax) Act 1999 (Cth) or any like tax and with respect to New Zealand or
Singapore means the tax payable pursuant to the Goods and Services Tax Act 1985 (NZ) and the
Goods and Services Tax Act, Chapter 117A of Singapore respectively and any like tax;

“Indebtedness” means, in respect of any company, any borrowing or indebtedness in the nature
of borrowing;

“Interest Rate” means 10% per annum;

“Intra-Group Guarantees” means the following guarantees, indemnities and counter-indemnities
given by any member of the Seller’s Group:

	 	(a)	 	Auckland Lease; guarantee provided by the Seller in favour of Sky City Metro
Limited;
	 
	 	(b)	 	Bondi Junction Lease; guarantee provided by the Seller in favour of Perpetual
Trustee Company Limited and Perpetual Trustees Victoria Limited;
	 
	 	(c)	 	Hornsby Lease; guarantee provided by the Seller in favour of Perpetual Trustees
W.A. Limited;
	 
	 	(d)	 	South Yarra Lease; guarantee provided by the Seller in favour of National
Mutual Trustees Limited; and
	 
	 	(e)	 	ANZ facilities; the corporate guarantee and indemnity dated 23 May 2006
provided by the Seller in favour of the ANZ;

“Intra-Group Indebtedness” means all Indebtedness outstanding between any member of the
Group and any member of the Seller’s Group (other than Intra-Group Trading Indebtedness);

“Intra-Group Purchases” means any transaction, contract or arrangement entered into between
any member of the Group and any member of the Seller’s Group in respect of intra-group
purchasing activities of the type contemplated under the Purchasing Agreement;

“Intra-Group Trading Indebtedness” means sums owing between any member of the Group and any
member of the Seller’s Group in respect of Intra-Group Purchases which sums have been
incurred but which would not be due and payable to the Seller’s Group at Completion had the
trading terms under the Purchasing Agreement been in place between the parties prior to
Completion;

“Inventory Discount” means the discount that the Purchasers are to be provided in respect of
stock purchases pursuant to the Purchasing Agreement;

“Law” means any statute, regulation, order, rule, subordinate legislation or other document
enforceable under any statute, regulation, rule or subordinate legislation in either
Australia, New Zealand or Singapore (as applicable);

5

 

“Leases” means the leases of real property held by the Group in respect of each of the
Properties;

“Lease Guarantees” means the following bank guarantees, security deposits and letters of
credit:

	 	(a)	 	Albany Lease, bank guarantee provided in favour of Albany Shopping Centre
Limited and Albany Shopping Centre (No 2) Limited in the amount of NZ$243,750;
	 
	 	(b)	 	Brisbane Lease, bank guarantee provided in favour of Haymarket’s Tivoli
Theatres Pty Limited, in the amount of A$475,000;
	 
	 	(c)	 	Camberwell Lease, security deposit provided in favour of Tampir Pty Ltd, in the
amount of A$151,250;
	 
	 	(d)	 	Carlton Lease, bank guarantee provided in favour of Lygon Court Pty Limited, in
the amount of A$605,000;
	 
	 	(e)	 	Knox Lease, bank guarantee provided in favour of AMP Henderson Global Investors
Limited, Knox City Shopping Centre Investments (No. 2) Pty Limited and SAS Trustees
Corporation, in the amount of A$201,250;
	 
	 	(f)	 	Macquarie Lease, bank guarantee provided in favour of AMP Life Limited and AMP
Asset Management Australia Limited, in the amount of A$405,000;
	 
	 	(g)	 	Christchurch Lease, a bank guarantee is provided in favour of Riccarton
Shopping Centre (1997) Limited, in the amount of NZ$800,000;
	 
	 	(h)	 	Parkway Parade lease, a bank guarantee in favour of Prime Asset Holdings
Limited in the amount of S$342,981.78; and
	 
	 	(i)	 	Orchard Road Leases, an aggregate security deposit in favour of Everbilt
Developers Pte Ltd in the amount of S$1,349,400;

“Liability” means any Loss, liability, cost, expense, obligation, overhead, debt or damage
(in each case whether known or unknown, actual, contingent or prospective) of any kind and
however arising, including penalties, fines and interest, irrespective of when the acts,
events or things which give rise to the liability occurred;

“Licence” means the deed relating to the license of the “Borders” brand in the agreed form;

“Licence Consideration” has the meaning attributed in clause 3.3(a)(iii);

“Losses” includes, in respect of any matter, event or circumstance, all demands, claims,
actions, proceedings, damages, payments, fines, penalties, losses, costs (including legal
costs), expenses (including taxation), disbursements or other liabilities in any case of any
nature whatsoever;

“Management Accounts” means the unaudited management accounts of Borders Singapore, Borders
Australia and Borders NZ prepared in accordance with US GAAP reflecting the accounting
standards of the Seller for the months ended 29 February 2008, 31 March 2008 and 30 April
2008;

“NZ Accounting Standards” means for Borders NZ:

	 	(a)	 	the accounting standards applicable for the purposes of the Companies Act 1993
and the Financial Reporting Act 1993;

6

 

	 	(b)	 	the requirements of the Companies Act 1993 and the Financial Reporting Act 1993
for the preparation and content of financial statements, directors’ reports and
auditors’ reports; and
	 
	 	(c)	 	the generally accepted and consistently applied accounting principles and
practices in New Zealand, except those inconsistent with the standards or requirements
referred to in paragraphs (a) or (b);

“NZ Share Consideration” has the meaning given in clause 3.3(a)(ii);

“NZ Shares” means the issued share capital of Borders NZ as shown in part 2 of Schedule 1;

“Officer” means, in relation to an entity, its directors, officers, employees;

“Orchard Road Leases” means the lease of retail space at #01-01 and #01-02 Wheelock Place
dated 28 October 2005 between Everbilt Developers Pte. Ltd and Borders Singapore and the
lease of licensed area at #01-K1, #01-K2 & #01-03 Wheelock Place dated 28 October 2005
between Everbilt Developers Pte. Ltd and Borders Singapore;

“Paperchase Business” means the business conducted from time to time by Paperchase Products
Limited, a company incorporated in the United Kingdom;

“Properties” means the properties short particulars of which are set out in parts 1, 2 and 3
of Schedule 8;

“Purchaser Associate” means:

	 	(a)	 	the Purchaser;
	 
	 	(b)	 	the Group Companies; and
	 
	 	(c)	 	any company or person (other than the Group Companies) that may be treated for
the purposes of any Tax as being at any time after Completion either a member of the
same group of companies as the Purchaser, Borders Australia, Borders NZ or Borders
Singapore or otherwise associated with the Purchaser, Borders Australia, Borders NZ or
Borders Singapore;

“Purchasers’ Group” means the group of companies comprising the Purchasers, any Related Body
Corporate from time to time of the Purchaser (including, following Completion, any member of
the Group) and “member of the Purchasers’ Group” shall be construed accordingly;

“Purchasers’ Relief” means any Relief available to the Purchasers’ Group, other than due to
a Group Company becoming part of the Purchasers’ Group, that is used by a Group Company;

“Purchasers’ Solicitors” means Clayton Utz of 1 O’Connell Street, Sydney, NSW 2000;

“Purchasers’ Warranties” means the warranties given in Part 2 of Schedule 4;

“Purchasing Agreement” means the agreement relating to the supply of products from the
Seller in the agreed form;

“Related Body Corporate ” has the same meaning as in section 50 of the Corporations Act;

“Related Party” means each of the following:

	 	(a)	 	an entity that controls a Group Company;

7

 

	 	(b)	 	a director of a Group Company;
	 
	 	(c)	 	a director of an entity that controls a Group Company;
	 
	 	(d)	 	if a Group Company is controlled by an entity that is not a body corporate -
each of the persons making up the controlling entity;
	 
	 	(e)	 	spouses and defacto spouses of the persons referred to in paragraphs (b), (c)
and (d);
	 
	 	(f)	 	parents and children of the persons referred to in paragraphs (b), (c), (d) and
(e);
	 
	 	(g)	 	an entity controlled by a related party referred in paragraphs (a) to (f)
unless the entity is also controlled by a Group Company;
	 
	 	(h)	 	an entity which was a related party of a Group Company of a kind described in
paragraphs (a) to (g) at any time in the previous six months;
	 
	 	(i)	 	an entity which believes or has reasonable grounds to believe that it is likely
to become a related party of a Group Company of a kind referred to in paragraphs (a) to
(g) at any time in the future;
	 
	 	(j)	 	an entity which acts in concert with a related party of a Group Company on the
understanding that the related party will receive a financial benefit if the Group
Company gives the entity a financial benefit;

“Relief” means (without limitation) any relief, loss, allowance, credit, set off, deduction
or exemption for any Tax purpose and any right to repayment of Tax and:

	 	(a)	 	any reference to the use or set off of a Relief shall be construed accordingly
and shall include use or set off in part; and
	 
	 	(b)	 	any reference to the loss of a Relief shall include the absence, non-existence
or cancellation of any such Relief, or to such Relief being available only in a reduced
amount;

“Repayment Amount” means the aggregate of such amounts as may be directed by the Seller in
order to discharge Intra-Group Indebtedness in accordance with paragraph 9 of part 1 of
Schedule 2 or to discharge Indebtedness in accordance with paragraph 16 of part 1 of
Schedule 2;

“Representative” means, in relation to an entity:

	 	(a)	 	each of the entity’s Related Bodies Corporate; and
	 
	 	(b)	 	each of the Officers and Advisers of the entity or any of its Related Bodies
Corporate;

“Sale Shares” means the Australian Sale Shares, the NZ Shares and the Singapore Shares to be
acquired by the Purchasers, details of which are set out in Schedule 1, together with all
rights attaching to those shares as at Completion;

“Second Tranche Deferred Consideration” has the meaning given in clause 3.6(b);

“Seller Associate” means any Related Body Corporate of the Seller;

“Seller’s Group” means the group of companies comprising the Seller and any Related Body
Corporate from time to time of the Seller but excluding each member of the Group and “member
of the Seller’s Group” shall be construed accordingly;

8

 

“Seller’s Solicitors” means Baker & McKenzie of Level 27, 50 Bridge Street, Sydney, New
South Wales, 2000;

“Seller’s Warranties” means the warranties given in Part 1 of Schedule 4;

“Seller’s Warranty Claim” means any Claim under the Seller’s Warranties;

“Singapore Accounting Standards” means for Borders Singapore

	 	(c)	 	the accounting standards applicable for the purposes of the Companies Act
(Chapter 50) of Singapore;
	 
	 	(d)	 	the Singapore Financial reporting Standards as prescribed from time to time by
the Singapore Council on Corporate Disclosure and Governance; and
	 
	 	(e)	 	the generally accepted and consistently applied accounting principles and
practices in Singapore except those inconsistent with the standards or requirements
referred to in paragraphs (a) and (b);

“Singapore Domain Names” means the following domain names registered in the name of Borders
Singapore:

	 	(a)	 	borders.com.sg; and
	 
	 	(b)	 	bordersstores.com.sg.

“Singapore Shares” means the issued share capital of Borders Singapore as shown in part 3 of
Schedule 1;

“Skygarden (Sydney CBD) Lease” means the lease of retail premises known as shops LP1, P1,
P1A, P2, P3, P4, P5, P6, P6B, P7, P8, P9, C11, C12, and C13 in Skygarden Shopping Complex
and Office Tower, 77 Castlereagh Street, Sydney between Borders Australia and Westfield
Management Limited;

“Target Net Asset Amount” means $53,200,000;

“Tax” means a tax, levy, charge, impost, deduction, withholding or duty of any nature
(including stamp and transaction duty) at any time:

	 	(a)	 	imposed or levied by any Government Agency; or
	 
	 	(b)	 	required to be remitted to, or collected, withheld or assessed by, any
Government Agency;

and includes any interest, penalty, charge, fine or fee or other amount of any kind
assessed, charged or imposed on or in respect of the preceding;

“Tax Authority” means any person, body, authority or institution which seeks to impose,
assess, enforce, administer or collect any Tax whether in Singapore, Australia, New Zealand
or elsewhere;

“Tax Indemnity” means the indemnity provided by the Seller under clause 12.1;

“Tax Liability” shall mean not only any liability to make actual payments of Tax but shall
also include any Purchasers’ Relief where the Group Company would have had a liability to
make a payment of or in respect of Tax for which the Purchaser would have been able to make
a Claim under this Agreement, in which case the amount of the Tax Liability shall be

9

 

the amount of Tax saved or relieved by the Group Company as a result of such Purchasers’
Relief PROVIDED THAT, for the purposes of this Agreement, it shall be assumed that other
Reliefs are, to the extent allowed by law, set-off or used in priority to any Purchasers’
Relief and if it cannot be determined whether a Purchasers’ Relief or another Relief is used
it shall be assumed that another Relief is used in priority to a Purchasers’ Relief;

“Transaction Documents” means this Agreement, the Purchasing Agreement, the Licence and the
Transition Services Agreement; and

“Transition Services Agreement” means the agreement relating to transitional services in the
agreed form.

	1.2	 	Agreed form

Any reference to a document in the “agreed form” is to the form of the relevant document in
the terms agreed between the Seller and the Purchasers prior to the execution of this
Agreement or prior to Completion (as applicable) and signed or initialled for identification
purposes only by or on behalf of the Seller and the Purchasers (in each case with such
amendments as may be agreed by or on behalf of the Seller and the Purchasers).

	1.3	 	In this Agreement, unless the context otherwise requires:

	 	(a)	 	a reference:

	 	(i)	 	to the singular includes the plural and the other way round;
	 
	 	(ii)	 	to a gender includes all genders;
	 
	 	(iii)	 	to a document (including this Agreement) is a reference to
that document (including any Schedules and Annexures,) as amended,
consolidated, supplemented, novated or replaced;
	 
	 	(iv)	 	to an agreement includes any deed, agreement or legally
enforceable arrangement or understanding whether written or not;
	 
	 	(v)	 	to parties means the parties to this Agreement and to a party
means a party to this Agreement;
	 
	 	(vi)	 	to a notice means all notices, approvals, demands, requests,
nominations or other communications given by one party to another under or in
connection with this Agreement;
	 
	 	(vii)	 	to a person (including a party) includes:

	 	(A)	 	an individual, company, other body corporate,
association, partnership, firm, joint venture, trust or Government
Agency;
	 
	 	(B)	 	the person’s successors, permitted assigns,
substitutes, executors and administrators; and
	 
	 	(C)	 	a reference to the representative member of the
GST group to which the person belongs to the extent that the
representative member has assumed rights, entitlements, benefits,
obligations and liabilities which would remain with the person if the
person were not a member of a GST group;

	 	(viii)	 	to a law:

10

 

	 	(A)	 	includes a reference to any constitutional
provision, subordinate legislation, treaty, decree, convention,
statute, regulation, rule, ordinance, proclamation, by-law, judgment,
rule of common law or equity or rule of any applicable stock exchange;
and
	 
	 	(B)	 	is a reference to that law as amended,
consolidated, supplemented or replaced; and
	 
	 	(C)	 	is a reference to any regulation, rule,
ordinance, proclamation, by-law or judgment made under that law;

	 	(ix)	 	to proceedings includes litigation, arbitration, and
investigation;
	 
	 	(x)	 	to a judgment includes an order, injunction, decree,
determination or award of any court or tribunal;
	 
	 	(xi)	 	to time is a reference to Sydney time;

	 	(b)	 	headings are for convenience only and are ignored in interpreting this
Agreement;
	 
	 	(c)	 	a warranty, representation, covenant or obligation given or entered into by
more than one person binds them jointly and severally;
	 
	 	(d)	 	if a period of time is specified and dates from, after or before, a given day
or the day of an act or event, it is to be calculated exclusive of that day;
	 
	 	(e)	 	if a payment or other act must (but for this clause) be made or done on a day
which is not a Business Day, then it must be made or done on the next Business Day;
	 
	 	(f)	 	the words “including” or “includes” mean “including but not limited to” or
“including without limitation”;
	 
	 	(g)	 	where a word or phrase is defined, its other grammatical forms have a
corresponding meaning;
	 
	 	(h)	 	a reference to “$” or “dollar” is to Australian currency (unless otherwise
stated); and
	 
	 	(i)	 	this Agreement must not be construed adversely to a party solely because that
party was responsible for preparing it.

2. SALE AND PURCHASE OF SALE SHARES

	2.1	 	Sale and purchase of Australian Sale Shares
	 
	 	 	The Seller agrees to sell and transfer free of all Encumbrances and the First Purchaser
agrees to purchase the Australian Sale Shares as at and with effect from the Completion
Date.
	 
	2.2	 	Sale and purchase of NZ Shares
	 
	 	 	The Seller agrees to sell and transfer free of all Encumbrances and the Second Purchaser
agrees to purchase the NZ Shares as at and with effect from the Completion Date.
	 
	2.3	 	Sale and purchase of Singapore Shares
	 
	 	 	The Seller agrees to sell and transfer free of all Encumbrances and the First Purchaser
agrees to purchase the Singapore Shares as at and with effect from the Completion Date.

11

 

	2.4	 	Rights attaching to the Sale Shares
	 
	 	 	The Sale Shares shall be sold together with all rights now or hereafter attaching to them,
including all rights to any dividend or other distribution declared, made or paid after the
date of this Agreement.
	 
	2.5	 	Waiver of restrictions on transfer
	 
	 	 	The Seller hereby irrevocably waives and agrees to procure the waiver of any restrictions on
transfer (including rights of pre-emption) which may exist in relation to the Sale Shares,
whether under the respective constitutions of Borders Australia, Borders NZ or Borders
Singapore or otherwise.
	 
	2.6	 	Sale of all the Sale Shares
	 
	 	 	Neither party shall be obliged to complete the sale and purchase of any of the Sale Shares
unless the sale and purchase of all the Sale Shares is completed simultaneously in
accordance with this Agreement.

3. CONSIDERATION

	3.1	 	Aggregate consideration
	 
	 	 	The aggregate consideration payable for the Sale Shares and the grant of the
Licence and the Inventory Discount (“Aggregate Consideration”) shall be the aggregate
of the Cash Consideration and the Deferred Consideration.
	 
	3.2	 	Payment of Cash Consideration

	 	(a)	 	On Completion the First Purchaser shall:

	 	(i)	 	pay the Cash Consideration in accordance with paragraph 1 of
part 3 of Schedule 2 less any Repayment Amount;
	 
	 
	 	(ii)	 	lend Borders Australia such amounts to be deducted from the
Cash Consideration in accordance with clause 3.2(a)(i) attributable to money
owing by Borders Australia (provided that the aggregate of the amount lent by
the First Purchaser pursuant to this clause 3.2(a)(ii) and clause 3.2(a)(iii)
and the amount lent by the Second Purchaser pursuant to clause 3.2(b) must not
exceed the total amount to be deducted from the Cash Consideration in
accordance with clause 3.2(a)(i));
	 
	 	(iii)	 	lend Borders Singapore such amounts to be deducted from the
Cash Consideration in accordance with clause 3.2(a)(i) attributable to money
owing by Borders Singapore (provided that the aggregate of the amount lent by
the First Purchaser pursuant to this clause 3.2(a)(iii) and 3.2(a)(ii) and the
amount lent by the Second Purchaser pursuant to clause 3.2(b) must not exceed
the total amount to be deducted from the Cash Consideration in accordance with
clause 3.2(a)(i)); and

	 	(b)	 	On Completion, the Second Purchaser shall
	 
	 	 	 	lend Borders NZ such amounts to be deducted from the Cash Consideration in
accordance with clause 3.2(a)(i) attributable to money owing by Borders NZ (provided
that the aggregate of the amount lent by the First Purchaser pursuant to

12

 

	 	 	 	clause 3.2(a)(ii) and clause 3.2(a)(iii) and the amount lent by the Second Purchaser
pursuant to this clause 3.2(b) must not exceed the total amount to be deducted from
the Cash Consideration in accordance with clause 3.2(a)(i)).
	 
	 	(c)	 	On Completion, the Seller shall cause Borders Australia, Borders NZ and Borders
Singapore to pay to the relevant third party or member of the Seller’s Group (as
appropriate) the amounts referred to in paragraph 3.2(a)(i) above.

	3.3	 	Apportionment of Cash Consideration

	 	(a)	 	The parties must, as soon as practicable after the date of this Agreement, and
in any event within 15 Business Days after Completion, agree on an apportionment of the
Cash Consideration into the following categories:

	 	(i)	 	the Australian Sale Shares (the “Australian Share
Consideration”);
	 
	 	(ii)	 	the NZ Shares (the “NZ Share Consideration”);
	 
	 	(iii)	 	the Licence (the “Licence Consideration”);
	 
	 	(iv)	 	the Singapore Shares (the “Singapore Consideration”); and
	 
	 	(v)	 	the Inventory Discount.

	 	(b)	 	If the parties are not able to agree on the apportionments by the time
specified in clause 3.3(a), then the parties shall appoint an expert to make a
determination on the appropriate apportionment and clauses 6.4(d) to 6.4(f) (amended as
necessary) will apply to the determination.
	 
	 	(c)	 	The costs of an expert (if any) appointed under clause 3.3(b) shall be borne by
the parties equally.

	3.4	 	Adjustment to Cash Consideration
	 
	 	 	The Cash Consideration shall be:

	 	(a)	 	increased by an amount equal to the amount by which the Completion Net Asset
Amount exceeds the Target Net Asset Amount; or
	 
	 	(b)	 	decreased by an amount equal to the amount by which the Target Net Asset Amount
exceeds the Completion Net Asset Amount,

	 	 	as agreed or determined under the Completion Accounts in accordance with clause 6.

	3.5	 	Payment of adjustment to Cash Consideration

	 	(a)	 	Any adjustment payments will be made as follows:

	 	(i)	 	if the Completion Net Asset Amount equals the Target Net Asset
Amount, no payment will be made;
	 
	 	(ii)	 	if the Completion Net Asset Amount exceeds the Target Net Asset
Amount, the First Purchaser must pay the excess to the Seller within 2 Business
Days of the Completion Accounts becoming final and binding on the parties under
clause 6; or
	 
	 	(iii)	 	if the Completion Net Asset Amount is less than the Target Net
Asset Amount, the Seller must pay the shortfall to the First Purchaser within 2

13

 

	 	 	 	Business Days of the Completion Accounts becoming final and binding on the
parties under clause 6.

	 	(b)	 	A party required to make a payment to another party under clause 3.5(a)(ii) or
3.5(a)(iii) must make the payment in immediately available funds without counter claim
or set off.
	 
	 	(c)	 	All amounts payable by a party under clause 3.5 will accrue interest on a daily
basis at the Interest Rate from and including the Completion Date to and including the
date of payment.
	 
	 	(d)	 	All amounts paid by a party under clause 3.5 (including any interest) will be
apportioned between the Australian Sale Shares, the NZ Shares and the Singapore Shares
in the same proportions as the Australian Share Consideration, the NZ Share
Consideration and the Singapore Consideration bear to one another.

	3.6	 	Payment of Deferred Consideration

	 	(a)	 	The First Tranche Deferred Consideration is payable on the date specified in
clause 3.6(e) if Actual Store Contribution is more than or equal to $34,400,000.
	 
	 	(b)	 	The Second Tranche Deferred Consideration will be equal to the lesser of:

	 	(i)	 	$10,000,000; and
	 
	 	(ii)	 	the amount that is equal to 4 x (Actual Store Contribution -
$38,900,000).

	 	(c)	 	The First Purchaser agrees to provide to the Seller monthly management accounts
of the Group from Completion until 31 January 2009 as and when they are available, and
any other information the Seller reasonably requests which relates to the Deferred
Consideration, and agrees to arrange a conference call each month for the First
Purchaser to give the Seller an update on the performance of the Group.
	 
	 	(d)	 	The First Purchaser will notify the Seller of Actual Store Contribution amount
by 28 February 2009.
	 
	 	(e)	 	The First Purchaser must pay the Seller the Deferred Consideration (to the
extent it is payable) by the later of:

	 	(i)	 	10 Business Days after the determination of the ASC Expert
pursuant to clause 3.8(e) and 3.8(f); and
	 
	 	(ii)	 	20 Business Days after the date on which the First Purchaser
provides the Seller with the notice specified in clause 3.6(d).

	 	(f)	 	If the First Purchaser is required to make a payment to the Seller under clause
3.6(e) the First Purchaser must make the payment in immediately available funds without
counter claim or set off.
	 
	 	(g)	 	All amounts payable by the First Purchaser under clause 3.6(e) will accrue
interest on a daily basis at the Interest Rate from and including the date for payment
determined in accordance with clause 3.6(e)(ii) up to and including the date of
payment.
	 
	 	(h)	 	All amounts paid by a party under clause 3.6(e) (including any interest) will
be apportioned between the Australian Sale Shares, the NZ Shares and the Singapore
Shares in the same proportions as the Australian Share Consideration, the NZ Share
Consideration and the Singapore Consideration bear to one another.

14

 

	3.7	 	Review by Seller of Actual Store Contribution

	 	(a)	 	The Purchasers must provide the Seller with copies of the relevant management
accounts, working papers and calculations reasonably necessary to review the Actual
Store Contribution amount notified under clause 3.6(d).
	 
	 	(b)	 	As part of the Seller’s review, the Seller and/or its auditor or financial
adviser is entitled, at its own cost, to conduct any audit and/or other verification
procedures it reasonably decides are necessary so that the Seller can determine whether
it accepts the Actual Store Contribution amount notified under clause 3.6(d).

	3.8	 	Notification of disputes on Actual Store Contribution

	 	(a)	 	The Actual Store Contribution amount notified under clause 3.6(d) will (subject
to the terms of any agreement in writing between the parties) be final and binding on
the parties if:

	 	(i)	 	the Seller does not issue a notice in accordance with clause
3.8(b); or
	 
	 	(ii)	 	such a notice is issued and the dispute is resolved by:

	 	(A)	 	the parties by agreement in writing (subject to the
terms of that agreement); or
	 
	 	(B)	 	determination by the ASC Expert in accordance with
clauses 3.8(d) and 3.8(f).

	 	(b)	 	If the Seller disputes the Actual Store Contribution amount notified under
clause 3.6(d), it may within 15 Business Days of receiving the notice under clause
3.6(d), issue a notice (“ASC Dispute Notice”) to the First Purchaser setting out in
reasonable detail the basis of the dispute.
	 
	 	(c)	 	The parties must negotiate in good faith to resolve any dispute within 10
Business Days after the issue of an ASC Dispute Notice.
	 
	 	(d)	 	If the dispute is not resolved under clause 3.8(c) the parties must appoint an
expert (“ASC Expert”), which must be an independent firm of chartered accountants
selected by agreement between the parties or, failing such agreement within 15 Business
Days of the Seller issuing an ASC Dispute Notice, as nominated by the President for the
time being of the Institute of Chartered Accountants of Australia. The matters in
dispute then must be promptly referred by the parties to the ASC Expert for
determination.
	 
	 	(e)	 	The ASC Expert must be directed by the parties to settle any matter in dispute
within 20 Business Days of their appointment by:

	 	(i)	 	having regard to any written submissions that the parties or
their representatives put before them within 5 Business Days of the appointment
of the ASC Expert; and
	 
	 	(ii)	 	making any enquiries or inspections as the ASC Expert considers
in its absolute discretion to be necessary; and
	 
	 	(iii)	 	(unless all the parties otherwise direct in writing)
determining the Actual Store Contribution, providing notice of its
determination to all parties.

15

 

	 	(f)	 	In making its decision the ASC Expert will act as expert and not as arbitrator.
The decision of the ASC Expert as to the matter in dispute and the Actual Store
Contribution is in the absence of manifest error, final and binding on the parties.
	 
	 	(g)	 	The costs of the ASC Expert will be borne in proportion to the amounts by which
the ASC Expert’s determination of the Actual Store Contribution differs from that
claimed by the Seller and from that claimed by the Purchasers.

4. PERIOD BEFORE COMPLETION

	4.1	 	Conduct of the Business before the Completion Date
	 
	 	 	From the date of this Agreement until the Completion Date the Seller shall procure that each
member of the Group carries on its business in the ordinary course consistent with past
practice and, unless the First Purchaser otherwise agrees in writing:

	 	(a)	 	does not dispose of assets or acquire assets other than to acquire or dispose
of stock-in-trade in the ordinary course of business;
	 
	 	(b)	 	does not create any Encumbrance over any of its assets, other than liens in the
ordinary course of business or Encumbrances granted by the Seller’s Group to third
parties over the Sale Shares as they exist as at the date of this Agreement or are
otherwise contemplated in any Transaction Document;
	 
	 	(c)	 	does not issue any shares, options or securities which are convertible into shares in a member of the Group;
	 
	 	(d)	 	does not enter into any transaction, arrangement, agreement or understanding
with a Related Party;
	 
	 	(e)	 	does not enter into a commitment for more than $250,000 or for longer than 3
years, other than in the ordinary course of business;
	 
	 	(f)	 	does not enter into, or terminate, any employment contracts for more than
$250,000 or alter the terms and conditions of any employment contract for more than
$250,000;
	 
	 	(g)	 	does not alter the provisions of its constitution;
	 
	 	(h)	 	observes its obligations under each Business Contract and each Lease and does
not materially alter or agree to materially alter any Business Contract or Lease; and
	 
	 	(i)	 	other than in the ordinary course of business, does not commence or settle any
litigation, action or proceeding for an amount in excess of $250,000, other than in the
ordinary course of business.

	4.2	 	Exceptions to restrictions

	 	(a)	 	Notwithstanding clause 4.1, the Seller may, provided it has first obtained the
First Purchaser’s consent (which consent must not be unreasonably withheld or delayed),
procure that any member of the Group:

	 	(i)	 	distributes income or returns capital to its members, pays any
management fees or makes any payment to a Related Party;
	 
	 	(ii)	 	enters into an arrangement relating to the repayment of
existing Intra-Group Indebtedness in existence at the date of this Agreement;

16

 

	 	(iii)	 	does any matter or thing that is contemplated by, or required
to give effect to, the terms of this Agreement; or
	 
	 	(iv)	 	pays any third party costs in respect of the transaction
contemplated by this Agreement or any Transaction Document including, for the
avoidance of doubt, any bank establishment fees, advisory or legal costs.

	 	(b)	 	Notwithstanding clause 4.1, it is agreed that the Seller may, and will use all
reasonable endeavours prior to Completion to (at the Seller’s cost), transfer the
Singapore Domain Names from Borders Singapore to Borders Properties, Inc. For the
avoidance of doubt, the transfer will be for nominal consideration.
	 
	 	(c)	 	Clause 4.1(h) will be deemed to have been complied with in respect of any
breach, non-compliance or similar consequence under a Business Contract or Lease where
such breach, non-compliance or similar consequence (including a failure to obtain the
consent of a landlord under a Lease) arises as a result of the entry by the Seller into
this Agreement or any Transaction Document or the performance by the Seller of its
obligations under this Agreement or any Transaction Document, the terms of which
(together with all relevant correspondence with landlords under any of the Leases or
counterparties under any of the Business Contracts) have been fairly disclosed in the
Data Room.

	4.3	 	Seller’s covenant
	 
	 	 	Subject to Encumbrances granted by the Seller’s Group over the Sale Shares as they exist as
at the date of this Agreement, the Seller covenants with the Purchasers not to deal with the
Sale Shares prior to Completion. The parties agree that damages would be an insufficient
remedy for breach of this covenant and the Seller agrees that the Purchaser will be entitled
to seek and obtain an injunction or specific performance to enforce the Seller’s obligation
under this clause without proof of actual damage and without prejudice to any of its other
rights or remedies.
	 
	4.4	 	Access and Assistance

	 	(a)	 	Subject to clause 4.4(b), between the date of this Agreement and the Completion
Date, the Seller must:

	 	(i)	 	allow the First Purchaser and persons authorised by the First
Purchaser:

	 	(A)	 	reasonable access during normal business hours
to senior management of the members of the Group;
	 
	 	(B)	 	to inspect the books of account, operational
and other records of the business of the Group,

	 	(ii)	 	provide the information, assistance and facilities that the
First Purchaser reasonably requires for the purpose of becoming familiar with
the Business and the affairs each member of the Group; and
	 
	 	(iii)	 	keep the First Purchaser informed about the conduct of the
Business; and
	 
	 	(iv)	 	on request from a Purchaser, provide reasonable assistance to
the Purchasers in:

17

 

	 	(A)	 	notifying landlords in respect of the Leases
and counterparties in respect of Business Contracts of the
transactions contemplated by this Agreement; and
	 
	 	(B)	 	obtaining consents required from the landlords
in respect of the Leases or counterparties in respect of any Business
Contracts resulting from the transactions contemplated by this
Agreement and any Transaction Document.

	 	(b)	 	The First Purchaser may only exercise its right of access under clause 4.4(a)
if:

	 	(i)	 	the access will not result in any member of the Group breaching
any obligation of confidentiality or other restriction as to disclosure of
information to the Purchasers;
	 
	 	(ii)	 	the access will not, in the reasonable opinion of the Seller,
interfere with the conduct of the Business; and
	 
	 	(iii)	 	the First Purchaser ensures that all persons provided with
access pursuant to clause 4.4(a) complies with the reasonable requirements of
the Seller in relation to that access.

	5.	 	COMPLETION
	 
	5.1	 	Timing
	 
	 	 	Completion shall take place on the Completion Date.
	 
	5.2	 	Location
	 
	 	 	Completion shall take place at the offices of the Seller’s Solicitors when all (but not some
only) of the events detailed in this clause 3 shall occur.
	 
	5.3	 	Seller’s obligations at Completion
	 
	 	 	At Completion, the Seller shall:

	 	(a)	 	deliver (or cause to be delivered) to the Purchasers the items listed in part 1
of Schedule 2 (the Purchasers receiving those items, where appropriate, as agent of
Borders Australia or Borders NZ or Borders Singapore); and
	 
	 	(b)	 	procure that all necessary steps are taken properly to effect the matters
listed in part 2 of Schedule 2 at board meetings of each member of the Group and
deliver to the Purchasers duly signed minutes of all such board meetings.

	5.4	 	Purchasers’ obligations at Completion
	 
	 	 	At Completion, the Purchasers shall do or deliver (or cause to be delivered) to the Seller
the matters or items listed in part 3 of Schedule 2.
	 
	5.5	 	Bank Guarantee

	 	(a)	 	If any of the Purchasers’ obligations under clause 5.4 to pay the Cash
Consideration in accordance with clause 3.2 crystallises and remains unpaid as at the
first Business Day after the Completion Date, then subject to clause 5.5(b), the Seller
will have the right to immediately call on the Bank Guarantee for payment of the Cash
Consideration in accordance with clause 3.2.

18

 

	 	(b)	 	The Seller will not be permitted to exercise their right under clause 5.5(a)
unless and until the Seller has complied with clause 5.3.

	5.6	 	No termination
	 
	 	 	The Purchasers shall not be entitled in any circumstances to rescind or terminate this
Agreement after Completion.
	 
	6.	 	COMPLETION ACCOUNTS
	 
	6.1	 	Preparation of Completion Accounts

	 	(a)	 	Within 35 Business Days after Completion, the First Purchaser must, at its own
cost, prepare the Completion Accounts in accordance with the Completion Accounts
Principles so as to show the Completion Balance Sheet and provide a copy of the
Completion Balance Sheet to the Seller.
	 
	 	(b)	 	The Seller must provide the First Purchaser with all reasonable assistance
(including provision of all relevant business records) to allow the First Purchaser to
prepare the Completion Accounts in the time specified in clause 6.1(a) and acknowledge
and agree that any delay by the Seller in providing the First Purchaser with all
reasonable assistance may result in the First Purchaser not being able to provide the
Completion Accounts in the time specified in clause 6.1(a).
	 
	 	(c)	 	If, as contemplated in clause 6.1(b), a delay by the Seller causes the First
Purchaser to be unable to prepare the Completion Accounts within 35 Business Days after
the Completion Date, the First Purchaser has a further 20 Business Days from the date
on which all relevant information was provided by the Seller, to prepare the Completion
Accounts.

	6.2	 	Auditor’s report

	 	(a)	 	The Completion Accounts must then be provided by the First Purchaser to the
Auditor who will be required to provide to the Seller and the Purchasers, within 15
Business Days after receipt of the Completion Accounts, a report stating that in the
opinion of the Auditor the Completion Accounts have been prepared in accordance with
the Completion Accounts Principles.

	6.3	 	Review by Seller of Completion Accounts

	 	(a)	 	The Purchasers must ensure that the Seller and the Seller’s auditor are given
reasonable access to all books, records, working papers and calculations reasonably
necessary to review the Completion Accounts.
	 
	 	(b)	 	As part of the Seller’s review, the Seller and/or its auditor or financial
adviser is entitled, at its own cost, to conduct any audit and/or other verification
procedures it reasonably decides are necessary so that the Seller can determine whether
it accepts the Completion Accounts.

	6.4	 	Notification of disputes on Completion Accounts

	 	(a)	 	The Completion Accounts will (subject to the terms of any agreement in writing
between the parties) be final and binding on the parties in the calculation of any
adjustment to the Aggregate Consideration if:

	 	(i)	 	the Seller does not issue a notice in accordance with clause
6.4(b); or

19

 

	 	(ii)	 	such a notice is issued and the dispute is resolved by:

	 	(A)	 	the parties by agreement in writing (subject to the
terms of that agreement); or
	 
	 	(B)	 	determination by the Expert in accordance with this
clause 6.4.

	 	(b)	 	If the Seller disputes the correctness of the Completion Accounts, it may
within 20 Business Days of receiving the Completion Accounts, issue a notice (“Dispute
Notice”) to the First Purchaser setting out in reasonable detail the basis of the
dispute.
	 
	 	(c)	 	The parties must negotiate in good faith to resolve any dispute within 10
Business Days after the issue of a Dispute Notice.
	 
	 	(d)	 	If the dispute is not resolved under clause 6.4(c) the parties must appoint an
expert (“Expert”), which must be an independent firm of chartered accountants selected
by agreement between the parties or, failing such agreement within 5 Business Days of
the Seller issuing a Dispute Notice, as nominated by the President for the time being
of the Institute of Chartered Accountants of Australia. The matters in dispute then
must be promptly referred by the parties to the Expert for determination.
	 
	 	(e)	 	The Expert must be directed by the parties to settle any matter in dispute
within 20 Business Days of their appointment by:

	 	(i)	 	applying the Completion Accounts Principles relating to the
matters in dispute;
	 
	 	(ii)	 	having regard to any written submissions that the parties or
their representatives put before them within 5 Business Days of the appointment
of the Expert; and
	 
	 	(iii)	 	making any enquiries or inspections as the Expert considers in
its absolute discretion to be necessary; and
	 
	 	(iv)	 	(unless all the parties otherwise direct in writing)
determining the form and content of the Completion Accounts and the Completion
Net Asset Amount, providing notice of its determination to all parties.

	 	(f)	 	In making its decision the Expert will act as expert and not as arbitrator.
The decision of the Expert as to the matter in dispute, the form and content of the
Completion Accounts and the Completion Net Asset Amount is in the absence of manifest
error, final and binding on the parties.
	 
	 	(g)	 	The costs of the Expert will be borne equally by the Seller and the First
Purchaser.

	7.	 	POST-COMPLETION OBLIGATIONS

	 	(a)	 	The Purchasers undertake to the Seller to procure the performance and
observance of those matters listed in Schedule 3.
	 
	 	(b)	 	At any time after Completion on the Seller’s request, the Purchaser will
provide (and will procure that Borders Singapore provides) all reasonable assistance to
the Seller, at the Seller’s costs, in relation to the transfer of the Singapore Domain
Names to Borders Properties, Inc. For the avoidance of doubt, the transfer will be for
nominal consideration.

20

 

	8.	 	RESTRICTIVE COVENANTS
	 
	8.1	 	Restriction of Seller
	 
	 	 	Subject to clause 8.2, the Seller undertakes with the Purchasers that, except with the
consent in writing of the Purchasers, (such consent not to be unreasonably withheld or
delayed):

	 	(a)	 	for the period of five years after Completion, it will not (and will procure
that no member of the Seller’s Group will) in Australia, New Zealand or Singapore,
either on its own account or in conjunction with or on behalf of any other person
directly or indirectly carry on or be engaged, concerned or interested, in any business
which competes with the Business (a “Competing Business”) other than as a holder of not
more than five per cent of the issued shares or debentures of any company carrying on
such a business traded on a recognised investment exchange (as that term is defined in
the Financial Services and Markets Act 2000);
	 
	 	(b)	 	for the period of five years after Completion, it will not (and will procure
that no member of the Seller’s Group will) either on its own account or in conjunction
with or on behalf of any other person solicit, entice away or attempt to solicit or
entice away from Borders Australia, Borders NZ or Borders Singapore any person employed
in a senior or managerial capacity by Borders Australia, Borders NZ or Borders
Singapore at Completion; and
	 
	 	(c)	 	for a period of 12 months after Completion, it will not (and will procure that
no member of the Seller’s Group will) either on its own account or in conjunction with
or on behalf of any other person, directly or indirectly, carry on or be engaged,
concerned or interested in the Paperchase Business in Australia, New Zealand or
Singapore.

	8.2	 	Exceptions from restrictions

	 	(a)	 	The restrictions in clause 8.1 shall cease to have any effect immediately upon
this Agreement being terminated due to an uncured material breach, including any
obligation of the Purchasers under Schedule 3.
	 
	 	(b)	 	Nothing in clause 8.1 shall prevent or restrict the Seller or any member of the
Seller’s Group from:

	 	(i)	 	carrying on or being engaged in any business or providing any
goods or services via the Internet or other electronic media, whether in
Australia, New Zealand or elsewhere provided that such business is conducted
via non-Australian, non-New Zealand or non-Singapore domiciled domain names or
URLs and the distribution of products in connection with such business is not
carried out from distribution centres located in Australia, New Zealand or
Singapore;
	 
	 	(ii)	 	carrying on or being engaged concerned or interested in,
anywhere in the world, any business (not being a Competing Business) which it
carries on at Completion or in which it is at Completion engaged, concerned or
interested (or any reasonable extension or development of any such business
provided that such extension or development does not result in that business
becoming a Competing Business);
	 
	 	(iii)	 	carrying on the Paperchase Business, whether in Australia, New
Zealand Singapore or elsewhere, other than in Australia, New Zealand and
Singapore within the period of 12 months from Completion;

21

 

	 	(iv)	 	acquiring, directly or indirectly, shares in, or the whole or
any part of the undertaking or assets of, any company which carries on a
Competing Business provided that:

	 	(A)	 	the Seller shall cease to carry on or be
concerned or interested in the Competing Business or the company
carrying on the same within one year from completion of the relevant
acquisition; and
	 
	 	(B)	 	the First Purchaser is given the first and last
right of refusal to acquire that Competing Business,

	 	 	 	but nothing in this clause 8.2(b)(iv) shall require the Seller or the
relevant members of the Seller’s Group to cease to carry on the Competing
Business or to dispose of the same within one year as therein provided if
such business or interest therein is acquired as part of a larger
acquisition or series of related acquisitions and the value properly
attributable to such part did not at the date of acquisition amount to more
than 10% of the value of such larger acquisition or series of related
acquisitions taken as a whole;
	 
	 	(v)	 	any acts or activities contemplated by any of the Transaction
Document; or
	 
	 	(vi)	 	general solicitation to the public of employment with the
Seller or any member of the Seller’s Group and to which any person described in
clause 8.1(b) responds without any other solicitation or prompting.

	9.	 	WARRANTIES
	 
	9.1	 	Seller’s Warranties

	 	(a)	 	As part of this Agreement, the Seller warrants and represents to each of the
Purchasers that each of the Seller’s Warranties is true, complete and accurate as at
the Completion Date.

	9.2	 	Purchaser Warranties
	 
	 	 	Each Purchaser warrants and represents to the Seller that each of the Purchasers’ Warranties
is true, complete and accurate as at the Completion Date.

	9.3	 	Qualifications to Seller’s Warranties
	 
	 	 	The Seller’s Warranties are subject to and qualified by the limitations and qualifications
set out in Schedule 5 and are further qualified by, and the Purchasers may not make any
Claim:

	 	(a)	 	to the extent that the facts, matters or circumstances giving rise to such
Claim are disclosed to the Purchasers in the Data Room or in this Agreement; or
	 
	 	(b)	 	to the extent any Purchaser has actual knowledge of the facts, matters or
circumstances giving rise to such Claim before entering into this Agreement.

	9.4	 	Other warranties and conditions excluded
	 
	 	 	Except as expressly set out in this Agreement, all terms, conditions, warranties and
statements (whether express, implied, written, oral, collateral, statutory or otherwise) are
excluded to the maximum extent permitted by Law.

22

 

	9.5	 	Acknowledgements
	 
	 	 	Each Purchaser acknowledges and agrees that:

	 	(a)	 	except as expressly set out in Part 1 of Schedule 4 the Seller has not made any
representation, given any advice or given any warranty or undertaking, promise or
forecast of any kind in relation to Borders Singapore, Borders Australia, Borders NZ,
the Business or this Agreement;
	 
	 	(b)	 	without limiting clause 9.5(a), no representation, no advice, no warranty, no
undertaking, no promise and no forecast is given in relation to:

	 	(i)	 	any economic, fiscal or other interpretations or evaluations by
the Seller or any other person; or
	 
	 	(ii)	 	future matters, including future or forecast costs, prices,
revenues or profits;

	 	(c)	 	without limiting clauses 9.5(a) and 9.5(b), and except for the statements made
in Part 1 of Schedule 4, no statement or representation:

	 	(i)	 	has induced or influenced any Purchaser to enter into this
Agreement or agree to any or all of its terms or to any of the transactions
contemplated in this Agreement;
	 
	 	(ii)	 	has been relied on in any way as being accurate by any
Purchaser;
	 
	 	(iii)	 	has been warranted to any Purchaser as being true; or
	 
	 	(iv)	 	has been taken into account by any Purchaser as being important
to its decision to enter into this Agreement or to agree to any or all of its
terms or to any of the transactions contemplated by this Agreement; and

	 	(d)	 	it has carried out its own investigations and has examined and acquainted
itself concerning:

	 	(i)	 	the contents of the Data Room; and
	 
	 	(ii)	 	the risks, contingencies and other circumstances which could
affect its decision to enter into this Agreement and the transactions
contemplated by this Agreement.

	10.	 	ANNOUNCEMENTS, CONFIDENTIALITY AND RETURN OF INFORMATION
	 
	10.1	 	Prior approval of announcements
	 
	 	 	Subject to the provisions of clause 10.2 below, no disclosure or announcement relating to
the existence or subject matter of this Agreement shall be made or issued by or on behalf of
the Seller or the Purchasers or any member of the Purchasers’ Group or any member of the
Group, or any other party to any Transaction Document, without the prior written approval of
the other party (which approval may be subject to reasonable conditions but shall otherwise
not be unreasonably withheld or delayed) provided that these restrictions shall not apply to
any disclosure or announcement if required by any law, applicable securities exchange,
supervisory or Government Agency.
	 
	10.2	 	Notices to customers etc.
	 
	 	 	Nothing in this Agreement will prohibit the Purchasers from making or sending after
Completion any announcement to a customer, client or supplier of Borders Australia, Borders

23

 

	 	 	NZ or Borders Singapore or their direct or ultimate shareholders informing it that the
Purchasers have purchased the Australian Sale Shares, the NZ Shares and the Singapore
Shares.
	 
	10.3	 	Consultation
	 
	 	 	The party making the communication shall use its reasonable endeavours to consult with the
other party in advance as to the form, content and timing of the communication.
	 
	10.4	 	Confidentiality
	 
	 	 	Each party shall treat as strictly confidential and will not disclose any information
received or obtained by it or its Representatives or agents as a result of entering into or
performing this Agreement which relates to:

	 	(a)	 	the provisions of this Agreement, or any document or Agreement entered into
pursuant to this Agreement;
	 
	 	(b)	 	the negotiations leading up to or relating to this Agreement; or
	 
	 	(c)	 	the other party,

	 	 	and the Seller acknowledges that it shall treat as strictly confidential all information
arising from its ownership or substantial interest in Borders Australia, Borders NZ and
Borders Singapore, provided that these restrictions shall not apply to any disclosure of
information if and to the extent the disclosure is:

	 	(i)	 	required by the law of any jurisdiction;
	 
	 	(ii)	 	required by any applicable securities exchange, supervisory or Government
Agency to which the relevant party is subject or submits, wherever situated, whether or
not the requirement for disclosure has the force of law provided that in the case of a
requirement for disclosure that does not have the force of law, legal counsel for the
discloser deems the disclosure to be appropriate;
	 
	 	(iii)	 	made to the relevant party’s Advisers, auditors or bankers or the Advisers,
auditors or bankers of any other member of the relevant party’s group of companies or a
party’s investors; or
	 
	 	(iv)	 	of information that has already come into the public domain through no fault of
the relevant party or any other member of that party’s group of companies.

	10.5	 	Return of Information
	 
	 	 	If for any reason whatsoever the transactions contemplated by this Agreement are not
consummated, the Purchasers shall return to the Seller all books and records relating or
belonging to any member of the Group and the Purchasers undertake to comply in all respects
with the terms of the Confidentiality Letter.
	 
	11.	 	INSURANCE
	 
	 	 	The provisions of Schedule 7 shall have effect in respect of insurance claims and risk.

24

 

	12.	 	TAX MATTERS
	 
	12.1	 	Tax indemnity

	 	(a)	 	The Seller shall indemnify the Purchasers against any:

	 	(i)	 	Tax payable by a Group Company to the extent that Tax:

	 	(A)	 	relates to any period, or part of a period, up
to and including Completion; or
	 
	 	(B)	 	arises as a result of entry into this Agreement
or Completion (other than any Tax to be paid by a Purchaser under
clause 13); and

	 	(ii)	 	reasonable third party costs incurred by or on behalf of a
Group Company to the extent that those costs arise from or relate to any of the
matters for which the Seller is liable under clause 12.1(a)(i),

	 	 	 	except to the extent that the Seller’s liability for Tax is limited or qualified by
the provisions of Schedules 5 or 6.

	12.2	 	GST

	 	(a)	 	If a party makes a taxable supply to another party under or in connection with
this Agreement, then (unless the consideration is expressly stated to be inclusive of
GST) the consideration for that taxable supply is exclusive of GST, and in addition to
paying that consideration the recipient must:

	 	(i)	 	pay to the supplier an amount equal to any GST for which the
supplier is liable on that taxable supply, without deduction or set-off of any
other amount; and
	 
	 	(ii)	 	make that payment as and when the consideration or part of it
must be paid or provided, except that the recipient need not pay unless the
recipient has received a tax invoice (or an Adjustment Note) for that taxable
supply.

	 	(b)	 	The supplier must promptly create an Adjustment Note for, or apply to the Tax
Authority for, a refund of, and refund to the recipient any overpayment by the
recipient for GST, but the supplier need not refund to the recipient any amount for
GST paid to the Tax Authority unless the supplier is entitled to a refund or credit of
that amount.
	 
	 	(c)	 	If a party provides payment for or any satisfaction of a Claim or a right to
Claim under or in connection with this Agreement (for example, for misrepresentation
or for a breach of any warranty or for indemnity or for reimbursement of any expense)
that gives rise to a liability for GST, the provider must pay, and indemnify the
claimant on demand against, the amount of that GST (if any).
	 
	 	(d)	 	If a party has a Claim under or in connection with this Agreement for a cost
on which that party must pay an amount for GST, the Claim is for the cost plus all
amounts for GST (except any amount for GST for which that party is entitled to an
input tax credit).
	 
	 	(e)	 	If a party has a Claim under or in connection with this Agreement whose
amount depends on actual or estimated revenue or which is for a loss of revenue,
revenue

25

 

	 	 	 	must be calculated without including any amount received or receivable as
reimbursement for GST (whether that amount is separate or included as part of a
larger amount).

	13.	 	COSTS
	 
	 	 	Each party must pay its own costs in respect of this Agreement and the documents
contemplated by this Agreement except that:

	 	(a)	 	the Purchasers must pay all stamp duty payable on this Agreement, the transfer
of the Sale Shares and any Transaction Document; and
	 
	 	(b)	 	the Seller must pay all other costs incurred by the Group in respect of the
negotiation and entry into this Agreement and any Transaction Document.

	14.	 	NOTICES
	 
	14.1	 	Save as otherwise provided in this Agreement, any notice, demand or other communication
(“Notice”) to be given by any party under, or in connection with, this Agreement shall be in
writing and signed by or on behalf of the party giving it. Any Notice shall be served by
sending it by fax to the number set out in clause 14.2, or delivering it by hand to the
address set out in clause 14.2 and in each case marked for the attention of the relevant party
set out in clause 14.2 (or as otherwise notified from time to time in accordance with the
provisions of this clause 14). Any Notice so served by fax or hand shall be deemed to have
been duly given or made as follows:

	 	(a)	 	if sent by fax, at the time of transmission; or
	 
	 	(b)	 	in the case of delivery by hand, when delivered;

	 	 	provided that in each case where delivery by fax or by hand occurs after 6pm on a Business
Day or on a day which is not a Business Day, service shall be deemed to occur at 9am on the
next following Business Day.

	14.2	 	The addresses and fax numbers of the parties for the purpose of clause 14.1 are as follows:

	 	 	 	 	 
	(a)

	 	Seller	 	 
	 

	 	Address:
	 	100 Phoenix Drive
	 

	 	 	 	Ann Arbor MI 48108
	 

	 	 	 	United States of America
	 
	 	 	 	 
	 

	 	Fax:
	 	+1 734 477 1370
	 
	 

	 	For the attention of:
	 	General Counsel
	 
	 

	 	With a copy to:	 	 
	 

	 	Address:
	 	Baker & McKenzie
	 

	 	 	 	Level 27, 50 Bridge Street,
	 

	 	 	 	Sydney NSW 2000
	 
	 	 	 	 
	 

	 	Fax:
	 	+61 2 9225 1595
	 
	 	 	 	 
	 

	 	For the attention of:
	 	Steven Glanz

26

 

	 	 	 	 	 
	(b)

	 	Purchasers	 	 
	 

	 	Address:
	 	c/- Level 31, 126 Phillip Street
	 

	 	 	 	Sydney NSW 2000
	 

	 	 	 	Australia
	 
	 	 	 	 
	 

	 	Fax:
	 	+61 2 8238 2690
	 
	 	 	 	 
	 

	 	For the attention of:
	 	Simon Pillar
	 
	 	 	 	 
	 

	 	With a copy to:	 	 
	 

	 	Address:
	 	Clayton Utz
	 

	 	 	 	Level 19, 1 O’Connell Street,
	 

	 	 	 	Sydney NSW 2000
	 
	 	 	 	 
	 

	 	Fax:
	 	+61 2 8220 6700
	 
	 	 	 	 
	 

	 	For the attention of:
	 	Philip Kapp

	14.3	 	A party may notify the other party to this Agreement of a change to its name, relevant
addressee, address or fax number for the purposes of this clause 14, provided that, such
notice shall only be effective on:

	 	(a)	 	the date specified in the notification as the date on which the change is to
take place; or
	 
	 	(b)	 	if no date is specified or the date specified is less than five Business Days
after the date on which notice is given, the date following five Business Days after
notice of any change has been given.

	14.4	 	In proving service it shall be sufficient to prove that the envelope containing such notice
was properly addressed and delivered to the address shown thereon or that the facsimile
transmission was made and a facsimile confirmation report was received, as the case may be.

	15.	 	NON-MERGER
	 
	 	 	The warranties, other representations and covenants by the parties in this Agreement are
continuing and will not merge or be extinguished on Completion.
	 
	16.	 	INDEMNITIES
	 
	 	 	The indemnities contained in this Agreement are:

	 	(a)	 	continuing, separate and independent obligations of the parties from their
other obligations, and survive the termination of this Agreement; and
	 
	 	(b)	 	absolute and unconditional and unaffected by anything which otherwise might
have the effect of prejudicing, releasing, discharging or affecting the liability of
the party giving the indemnity.

	17.	 	INVALID OR UNENFORCEABLE PROVISIONS
	 
	 	 	If a provision of this Agreement is invalid or unenforceable in a jurisdiction:

27

 

	 	(a)	 	it is to be read down or severed in that jurisdiction to the extent of the
invalidity or unenforceability; and
	 
	 	(b)	 	it does not affect the validity or enforceability of:

	 	(i)	 	that provision in another jurisdiction; or
	 
	 	(ii)	 	the remaining provisions.

	18.	 	WAIVER AND EXERCISE OF RIGHTS
	 
	18.1	 	A waiver by a party of a provision or of a right under this Agreement is binding on the party
granting the waiver only if it is given in writing and is signed by the party or an officer of
the party granting the waiver.
	 
	18.2	 	A waiver is effective only in the specific instance and for the specific purpose for which it
is given.
	 
	18.3	 	A single or partial exercise of a right by a party does not preclude another or further
exercise of that right or the exercise of another right.
	 
	18.4	 	Failure by a party to exercise or delay in exercising a right does not prevent its exercise
or operate as a waiver.
	 
	19.	 	AMENDMENT
	 
	 	 	This Agreement may be amended only by a document signed by all parties.
	 
	20.	 	COUNTERPARTS
	 
	 	 	This Agreement may be signed in counterparts and all counterparts taken together constitute
one document.
	 
	21.	 	FURTHER ASSURANCES
	 
	 	 	Each party must, at its own expense, whenever requested by another party, promptly do or
arrange for others to do everything reasonably necessary to give full effect to this
Agreement and the transactions contemplated by this Agreement.
	 
	22.	 	ASSIGNMENT
	 
	22.1	 	Subject to clause 22.2, a party must not transfer, assign, create an interest in or deal in
any other way with any of its rights under this Agreement without the prior written consent of
the other parties.
	 
	22.2	 	The Purchasers may grant to their financiers from time to time (or any security trustee on
their behalf) Encumbrances over the Purchasers’ rights under this Agreement.
	 
	23.	 	ENTIRE AGREEMENT
	 
	 	 	The Transaction Documents and the Confidentiality Letter (but only to the extent not
inconsistent with this Agreement) together represent the whole and only agreement between
the parties in relation to the sale and purchase of the Sale Shares and supersede any
previous agreement (whether written or oral) between all or any of the parties in relation
to the subject matter of any such document save that nothing in this Agreement shall exclude
any liability for, or remedy in respect of, fraudulent misrepresentation.

28

 

	24.	 	RIGHTS CUMULATIVE
	 
	 	 	The rights, remedies and powers of the parties under this Agreement are cumulative and not
exclusive of any rights, remedies or powers provided to the parties by law.
	 
	25.	 	CONSENTS AND APPROVALS
	 
	 	 	A party may give its approval or consent conditionally or unconditionally or withhold its
approval or consent in its absolute discretion unless this Agreement expressly provides
otherwise.
	 
	26.	 	JURISDICTION
	 
	 	 	Each party irrevocably and unconditionally:

	 	(a)	 	submits to the non-exclusive jurisdiction of the courts of New South Wales; and
	 
	 	(b)	 	waives any Claim or objection based on absence of jurisdiction or inconvenient
forum.

	27.	 	SERVICE OF PROCESS
	 
	 	 	Each party agrees that a document required to be served in proceedings about this Agreement
may be served:

	 	(a)	 	if originating process or a subpoena to be served on a company or registered
body by being sent by post to or left at its registered office, and in all other cases
at its address for service of notices under clause 14; or
	 
	 	(b)	 	in any other way permitted by law.

	28.	 	CURRENCY CONVERSION
	 
	 	 	Unless otherwise provided for in this Agreement, for the purpose of converting amounts
specified in one currency into another currency where required, the rate of exchange to be
used in converting amounts specified in one currency into another currency shall be the New
York closing rate for exchanges between those currencies quoted in the Wall Street Journal
for the nearest Business Day for which that rate is so quoted prior to the date of the
conversion.
	 
	29.	 	GOVERNING LAW
	 
	 	 	This Agreement is governed by the laws of New South Wales, Australia.

The parties have shown their acceptance of the terms of this Agreement by executing it at the end
of the Schedules.

29

 

SCHEDULE 1

Part 1: Details of Borders Australia

	 	 	 	 	 	 	 
	Name
	 	:	 	Borders Australia Pty Limited	 	 
	 
	 	 	 	 	 	 
	Date of Incorporation
	 	:	 	17 April 1998	 	 
	 
	 	 	 	 	 	 
	Place of Incorporation
	 	:	 	New South Wales, Australia	 	 
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	Australian Company number
	 	:	 	082 194 287	 	 
	 
	 	 	 	 	 	 
	Registered office
	 	:	 	C/- Baker & McKenzie	 	 
	 
	 	 	 	Level 27, 50 Bridge Street	 	 
	 
	 	 	 	Sydney, New South Wales	 	 
	 
	 	 	 	Australia	 	 
	 
	 	 	 	 	 	 
	Directors
	 	:	 	John Ian Campradt	 	 
	 
	 	 	 	2 Carlton Court	 	 
	 
	 	 	 	Templestowe, Victoria 3106	 	 
	 
	 	 	 	Australia	 	 
	 
	 	 	 	 	 	 
	 
	 	 	 	George Lewis Jones	 	 
	 
	 	 	 	100 Underdown Road	 	 
	 
	 	 	 	Ann Arbor, MI 48105	 	 
	 
	 	 	 	USA	 	 
	 
	 	 	 	 	 	 
	 
	 	 	 	Edward Wayne Wilhelm	 	 
	 
	 	 	 	46608 Southview Lane	 	 
	 
	 	 	 	Plymouth, MI 48170	 	 
	 
	 	 	 	USA	 	 
	 
	 	 	 	 	 	 
	Secretary
	 	:	 	None	 	 
	 
	 	 	 	 	 	 
	Issued share capital
	 	:	 	62,752,957 ordinary shares	 	 
	 
	 	 	 	 	 	 
	Australian Sale Shares
	 	 	 	40,853,840 ordinary shares	 	 
	 
	 	 	 	 	 	 
	Mortgages and charges
	 	:	 	Nil	 	 
	 
	 	 	 	 	 	 
	Registered shareholders
	 	:	 	Shareholder	 	No. of shares
	 
	 
	 	 	 	Borders Group, Inc.	 	40,853,840
	 
	 	 	 	100 Phoenix Drive	 	 
	 
	 	 	 	Ann Arbor, MI 48107	 	 
	 
	 	 	 	USA	 	 
	 
	 	 	 	40,853,840 ordinary shares	 	 
	 
	 	 	 	 	 	 
	 
	 	 	 	Borders Pte. Ltd	 	21,899,117
	 
	 	 	 	60B Martin Road, 02 08B,	 	 
	 
	 	 	 	Singapore Trademart 239067	 	 
	 
	 	 	 	Singapore	 	 
	 
	 	 	 	21,899,117 ordinary shares	 	 

30

 

	 	 	 	 	 	 	 
	Auditors 	 	:	 	 Ernst & Young	 	 
	 
	Direct subsidiaries 	 	:	 	 None	 	 

31

 

Part 2: Details of Borders NZ

	 	 	 	 	 
	Name

	 	:
	 	Borders New Zealand Limited
	 
	 	 	 	 
	Date of Incorporation

	 	:
	 	 16 February 1999
	 
	 	 	 	 
	Place of Incorporation

	 	:
	 	New Zealand
	 
	 	 	 	 
	Company number

	 	:
	 	 944114
	 
	 	 	 	 
	Registered office

	 	:
	 	C/- Minter Ellison Rudd Watts
	 

	 	 	 	Lumley Centre
	 

	 	 	 	 88 Shortland Street
	 

	 	 	 	Auckland
	 

	 	 	 	New Zealand
	 
	 	 	 	 
	Directors

	 	:
	 	George Lewis Jones
	 

	 	 	 	 100 Underdown Road
	 

	 	 	 	Ann Arbor, MI, 48105
	 

	 	 	 	USA
	 
	 	 	 	 
	 

	 	:
	 	Edward Wayne Wilhelm
	 

	 	 	 	 46608 Southview Lane
	 

	 	 	 	Plymouth MI 48170
	 

	 	 	 	USA
	 
	 	 	 	 
	Issued share capital

	 	:
	 	 14,765,100 ordinary shares
	 
	 	 	 	 
	Mortgages and charges

	 	:
	 	Nil
	 
	 	 	 	 
	Registered shareholder

	 	:
	 	Borders Group, Inc.
	 

	 	 	 	 100 Pheonix Drive
	 

	 	 	 	Ann Arbor, MI 48108
	 

	 	 	 	USA
	 

	 	 	 	 14,765,100 ordinary shares
	 
	 	 	 	 
	Auditors

	 	:
	 	Ernst & Young
	 
	 	 	 	 
	Direct subsidiaries

	 	:
	 	None

32

 

Part 3: Details of Borders Singapore

	 	 	 	 	 
	Name

	 	:
	 	Borders Pte. Ltd
	 
	 	 	 	 
	Date of Incorporation

	 	:
	 	19 July 1997
	 
	 	 	 	 
	Place of Incorporation

	 	:
	 	Singapore
	 
	 	 	 	 
	Company number

	 	:
	 	199705017Z
	 
	 	 	 	 
	Registered office

	 	:
	 	1 Marina Boulevard
	 

	 	 	 	#28-00 One Marina Boulevard
	 

	 	 	 	Singapore 018989
	 
	 	 	 	 
	Directors

	 	:
	 	Edward Wayne Wilhelm
	 

	 	 	 	46608 Southview Lane

Plymouth MI 48170
	 

	 	 	 	USA
	 
	 	 	 	 
	 

	 	:
	 	George Lewis Jones
	 

	 	 	 	100 Underdown Road
	 

	 	 	 	Ann Arbor, MI, 48105
	 

	 	 	 	USA
	 
	 	 	 	 
	 

	 	:
	 	Ricardo Rodrigues
	 

	 	 	 	501 Orchard Road
	 

	 	 	 	#04-11 Wheelock Place
	 

	 	 	 	Singapore, 238800
	 
	 	 	 	 
	Issued share capital

	 	:
	 	12,253,873 ordinary shares
	 
	 	 	 	 
	Mortgages and charges

	 	:
	 	Nil
	 
	 	 	 	 
	Registered shareholder

	 	:
	 	Borders Group, Inc.
	 

	 	 	 	100 Pheonix Drive
	 

	 	 	 	Ann Arbor, MI 48108
	 

	 	 	 	USA
	 

	 	 	 	12,253,873 ordinary shares
	 
	 	 	 	 
	Auditors

	 	:
	 	Ernst & Young
	 
	 	 	 	 
	Direct subsidiaries

	 	:
	 	None

33

 

SCHEDULE 2

Completion

Part 1: Seller’s Delivery Obligations at Completion

At Completion, the Seller shall deliver to the Purchasers:

	1.	 	duly executed transfers of all of the (i) Australian Sale Shares; (ii) NZ Shares and (iii)
Singapore Shares, into the name of the relevant Purchaser or its nominees together with (in
the case of Borders Australia and Borders Singapore) the relevant share certificates (or
indemnities in respect thereof in the agreed form) and (in the case of Borders NZ) a
certificate from its board of directors confirming that no share certificates have been issued
by that Group Company;
	 
	2.	 	executed and stamped (where applicable) originals of the Leases relating to the Properties,
such delivery to be made by the Leases being placed at the registered office/principal place
of business of Borders Australia and Borders NZ (as applicable) and, in respect of Borders
Singapore such delivery to be made by the Leases either being delivered to the Purchasers’
representative (being a Partner to be notified in writing by the Purchasers at least 2 days
prior to Completion of Allen & Gledhill in Singapore) or being placed at the principal place
of business of Borders Singapore;
	 
	3.	 	all the statutory and other books (duly written up to, but not including, Completion) of
Borders Australia, Borders NZ and Borders Singapore and their respective certificates of
incorporation and common seals in its possession, such delivery to be made by the statutory
records and other books being placed at the registered office/principal place of business of
Borders Australia and Borders NZ (as applicable) and, in respect of Borders Singapore such
delivery to be made by the statutory and other books being delivered to the Purchasers’
representative (being a Partner to be notified in writing by the Purchasers at least 2 days
prior to Completion of Allen & Gledhill in Singapore);
	 
	4.	 	certified copies of any powers of attorney under which any of the documents referred to in
this Schedule is executed or evidence reasonably satisfactory to the Purchaser of the
authority of any person signing on behalf of the Seller;
	 
	5.	 	duly executed irrevocable power of attorney in the agreed form in respect of the Australian
Sale Shares enabling the First Purchaser (during the period prior to the registration of the
transfer of the Australian Sale Shares) to exercise all voting and other rights attaching to
the Australian Sale Shares;
	 
	6.	 	duly executed irrevocable power of attorney in the agreed form in respect of the NZ Shares
enabling the Second Purchaser (during the period prior to the registration of the transfer of
the NZ Shares) to exercise all voting and other rights attaching to the NZ Shares;
	 
	7.	 	duly executed irrevocable power of attorney in the agreed form in respect of the Singapore
Shares enabling the First Purchaser (during the period prior to the registration of the
transfer of the Singapore Shares) to exercise all voting and other rights attaching to the
Singapore Shares;
	 
	8.	 	letters of resignation in the agreed form from each of the Directors and the secretary (if
any) of Borders Australia, Borders NZ and Borders Singapore, such resignations to take effect
from the close of the meetings referred to in part 2 of this Schedule 2;

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	9.	 	a duly executed acknowledgement, in the agreed form, confirming that Borders Australia,
Borders NZ and Borders Singapore do not have any Intra-Group Indebtedness (other than, for the
avoidance of doubt, Intra-Group Trading Indebtedness or any Repayment Amount));
	 
	10.	 	the Licence duly executed by Borders Properties, Inc.;
	 
	11.	 	duly executed deeds of termination and release of:

	 	(a)	 	the ‘license agreement’ between Borders Properties, Inc. and Borders Singapore;
and
	 
	 	(b)	 	the ‘trademark use agreement’ between the Seller and Borders Singapore, 
	 
	 	 	 	relating to the use of the “Borders” brand;

	12.	 	duly executed deed of termination and release of the ‘multicurrency facility’ of the Seller’s
Group to which Borders Australia is a party;
	 
	13.	 	duly executed deed of termination and release of the ‘merchandise service and purchase and
sales agreement’ between the Seller and Borders Singapore;
	 
	14.	 	the Transition Services Agreement duly executed by Borders Australia, Borders NZ, Borders
Singapore and Borders International Services, Inc.;
	 
	15.	 	the Purchasing Agreement duly executed by the Seller, Borders Australia, Borders NZ and
Borders Singapore;
	 
	16.	 	a copy of a resolution of the board of directors of the Seller (certified by a duly appointed
officer as true and correct) authorising the execution of and the performance by the Seller of
its obligations under this Agreement and each of the other documents to be executed by the
Seller;
	 
	17.	 	written confirmation from the Seller that no external Indebtedness is in existence as at the
Completion Date or (if applicable) a deed of release together with all relevant ASIC Form
312s, to the Purchasers’ reasonable satisfaction, in respect of repayment of all external
Indebtedness in existence as at the Completion Date. For the avoidance of doubt Indebtedness
for the purpose of this paragraph 16 excludes trade creditors, Intra-Group Indebtedness,
Intra-Group Trading Indebtedness and the facilities with the ANZ referred to in paragraph 17
below;
	 
	18.	 	written confirmation from ANZ, to the Purchasers’ reasonable satisfaction, that the Group’s
existing facilities with the ANZ has a zero balance as at Completion, other than in relation
to the Lease Guarantees;
	 
	19.	 	written confirmation from the Seller that no guarantee, indemnity and counter-indemnity of
any nature whatsoever has been given to a third party by any member of the Group in respect of
a liability of any member of the Seller’s Group or (if applicable) a deed of termination and
release, to the Purchaser’s reasonable satisfaction, in respect of the termination and release
without liability of any guarantee, indemnity and counter-indemnity of any nature whatsoever
given to a third party by any member of the Group in respect of a liability of any member of
the Seller’s Group; and
	 
	20.	 	written confirmation that all bonus or other incentive payments to employees of the Group
that become due and payable as a result, of the Seller entering into this Agreement or,
Completion have been paid. For the avoidance of doubt, the Seller is not liable for any bonus
or other incentive payments to employees of the Group to the extent accrued in the Completion
Balance Sheet.

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Part 2: Seller’s Other Obligations at Completion

At Completion, the Seller shall:

	1.	 	cause the Directors to hold a meeting of the Board of Borders Australia, Borders NZ and
Borders Singapore at which the relevant Directors shall pass resolutions in the agreed form
to;
	 
	1.1	 	approve the registration of the relevant Purchaser or its nominees as members of Borders
Australia or Borders NZ or Borders Singapore (as appropriate) subject only to the production
of duly stamped (where applicable) and completed transfers in respect of the Australian Sale
Shares or the NZ Shares or Singapore Shares (as appropriate);
	 
	1.2	 	appoint such persons as the Purchasers may nominate as directors, secretary and public
officer (where applicable) of Borders Australia and Borders NZ and Borders Singapore (as
appropriate);
	 
	1.3	 	revoke all authorities to the bankers of Borders Australia, Borders NZ and Borders Singapore
relating to bank accounts and to give authority to such persons as the Purchaser may nominate
to operate the same;
	 
	1.4	 	approve and authorise the changing of the address of the registered office of Borders
Australia to Level 14, 379 Collins Street, Melbourne VIC 3000 and of Borders NZ to Level 5,
131 Queen Street, Auckland, New Zealand; and
	 
	1.5	 	do and perform any other business which is necessary to give full and valid effect to the
sale and purchase of the Australian Sale Shares, the NZ Shares and the Singapore Shares,
	 
	 	 	and each Seller shall furnish to the Purchasers on Completion duly signed minutes of the
meetings.

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Part 3: First Purchasers’ Obligations at Completion

At Completion, the First Purchaser (on behalf of itself and the Second Purchaser) shall:

	1.	 	pay the Cash Consideration less any Repayment Amount by electronic funds transfer to the
Seller’s account nominated by the Seller in writing to the First Purchaser at least 1 Business
Day prior to the Completion Date;
	 
	2.	 	deliver to the Seller a counterpart of the Licence duly executed by the First Purchaser;
	 
	3.	 	deliver to the Seller a counterpart of the Transition Services Agreement duly executed by the
Purchasers;
	 
	4.	 	deliver to the Seller a counterpart of the Purchasing Agreement duly executed by the
Purchasers and ARW;
	 
	5.	 	deliver to the Seller a copy of a resolution of the board of directors of each Purchaser
(certified by a duly appointed officer as true and correct) authorising the execution of and the
performance by that Purchaser of its obligations under this Agreement and each of the other
documents to be executed by that Purchasers; and
	 
	6.	 	deliver to the Seller’s Solicitors certified copies of any powers of attorney under which any of
the Transaction Documents are executed by the Purchasers or other evidence satisfactory to the
Seller of the authority of the person signing on the Purchasers’ behalf.

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SCHEDULE 3

Post-Completion Obligations

Following Completion, the Purchasers undertake to the Seller:

	1.	 	to procure the repayment in the ordinary and usual course of business by the relevant
member(s) of the Group of all Intra-Group Trading Indebtedness owed to any member of the
Seller’s Group as at Completion as if the Intra-Group Trading Indebtedness:

	 	(a)	 	had been incurred under the terms of the Purchasing Agreement; and
	 
	 	(b)	 	was payable in accordance with the payment terms set out in the Purchasing
Agreement which, for the avoidance of doubt, will comprise a payment of $2,100,000
within 30 days of Completion and a further $2,100,000 within 60 days of Completion; and

	2.	 	to use best endeavours to obtain the release of the Seller and each member of the Seller’s
Group from any Intra-Group Guarantees to which it is a party immediately following Completion
and, pending such release they and ARW each agree:

	 	(a)	 	to indemnify the Seller and the relevant member of the Seller’s Group, against
all Liabilities incurred by it to any third party pursuant to any Intra-Group
Guarantees in respect of any liability of any member of the Group whether arising
before or after Completion (including, for the avoidance of doubt, any Liability
incurred by the Seller and/or any member of the Seller’s Group as a consequence of any
breach, non-compliance or similar consequence arising under an Intra-Group Guarantee
(including a failure to obtain the consent of any landlord under any Lease) as a result
of the entry by the Seller into this Agreement and/or any Transaction Document, or the
performance by the Seller of its obligations under this Agreement or any Transaction
Document, the terms of which (together with all relevant correspondence with landlords
under any of the Leases or under any Intra-Group Guarantee) was fairly disclosed in
the Data Room and the terms of which Intra-Group Guarantee was fairly disclosed in the
Data Room); and
	 
	 	(b)	 	not to take any action or allow any event to occur that results in any increase in the
Liability of any member of the Seller’s Group under any Intra-Group Guarantee.

	 	 	Without limiting the Purchasers’ indemnity of the Seller and each member of the Seller’s
Group under paragraph 2 above, the Purchasers will be deemed to have satisfied their
obligations to use their best endeavours under paragraph 2 above (notwithstanding any
refusal by the relevant third party to release any Intra-Group Guarantee) if the Purchasers
have used their best endeavours to obtain such release by offering the provision of a
reasonable bank guarantee in replacement of any such Intra-Group Guarantee. For the
avoidance of doubt, nothing in this paragraph will prevent ARW or any of its Related Bodies
Corporate in the first instance offering to a relevant third party a replacement corporate
guarantee for such Intra-Group Guarantee.

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SCHEDULE 4

Warranties

Part 1: Seller’s Warranties

	1.	 	THE SHARES
	 
	1.1	 	The Australian Shares comprise the whole of the issued and allotted share capital of Borders
Australia and all of the Australian Shares are fully paid or credited as fully paid.
	 
	1.2	 	The NZ Shares comprise the whole of the issued and allotted share capital of Borders NZ and
all of the NZ Shares are fully paid or credited as fully paid.
	 
	1.3	 	The Singapore Shares comprise the whole of the issued and allotted share capital of Borders
Singapore and all of the Singapore Shares are fully paid or credited as fully paid.
	 
	1.4	 	The Seller is the legal and beneficial owner of the Sale Shares set out against its name in
Part 1, Part 2 and Part 3 of Schedule 1. Borders Singapore is the legal and beneficial owner
of the Australian Shares set out against its name in Part 1 of Schedule 1. The Sale Shares
will be free of any Encumbrance on Completion, and the Seller has complete and unrestricted
power and right to sell and transfer the Sale Shares to the Purchasers.
	 
	2.	 	CAPACITY OF SELLER
	 
	2.1	 	The Seller has the unfettered right, power and entitlement to enter into and perform this
Agreement.
	 
	2.2	 	The Seller has taken all necessary actions to authorise the execution and performance of this
Agreement.
	 
	2.3	 	This Agreement is fully valid and contains binding obligations enforceable against the Seller
in accordance with its terms.
	 
	2.4	 	The execution, delivery and performance by the Seller of this Agreement will not:

	 	(a)	 	result in a material breach of the constitution of the Seller; or
	 
	 	(b)	 	result in a breach of any order, judgment or decree of any court or Government
Agency to which the Seller is a party or by which the Seller is bound and which is
material in the context of this Agreement.

	2.5	 	The Seller has not gone into liquidation or passed any resolution for winding up, no petition
for winding up has been presented against it, and no receiver, receiver and manager or other
controller or external administrator of the undertaking or assets (of any part thereof) of it
has been appointed or threatened or expected to be appointed.
	 
	3.	 	THE ACCOUNTS
	 
	3.1	 	General

	 	(a)	 	The Accounts relating to Borders Australia have been prepared in accordance
with the Australian Accounting Standards at the time they were prepared.
	 
	 	(b)	 	The Accounts relating to Borders NZ have been prepared in accordance with the
NZ Accounting Standards at the time they were prepared.

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	 	(c)	 	The Accounts relating to Borders Singapore have been prepared in accordance
with the Singapore Accounting Standards at the time they were prepared.
	 
	 	(d)	 	The Accounts give a true and fair view of the state of affairs of the relevant
member of the Group at the Accounts Date, and of the results of the relevant member of
the Group for the Financial Year ended on the Accounts Date.

	3.2	 	Management Accounts
	 
	 	 	The Management Accounts have been prepared by Borders Australia, Borders NZ and Borders
Singapore:

	 	(a)	 	in accordance with US GAAP reflecting the accounting standards of the Seller;
	 
	 	(b)	 	to accurately reflect the books and records; and
	 
	 	(c)	 	to fairly present the financial performance and position of Borders Australia,
Border NZ and Borders Singapore.

	4.	 	BUSINESS SINCE THE ACCOUNTS DATE
	 
	4.1	 	Other than as contemplated under clause 4 of this Agreement, since the Accounts Date:

	 	(a)	 	the businesses of Borders Australia, Borders NZ and Borders Singapore have been
carried on in the ordinary and usual course;
	 
	 	(b)	 	there has been no material change to any of the payment cycles of the Business
(whether at the instigation of any member of the Group, or any third party);
	 
	 	(c)	 	there has been no material change to any of the provisioning practices of the
Group;
	 
	 	(d)	 	no material adverse change in the financial position of Borders Australia or
Borders NZ or Borders Singapore has occurred other than any such material adverse
change arising from changes in the economy generally or in the industry in which
Borders Australia, Borders NZ and Borders Singapore operate;
	 
	 	(e)	 	Borders Australia, Borders NZ and Borders Singapore have not declared, paid or
made for the Financial Year ended on the Accounts Date, a dividend or other
distribution except to the extent provided in the relevant Accounts; and
	 
	 	(f)	 	Borders Australia, Borders NZ and Borders Singapore have not undergone any
capital reorganisation or change in their respective capital structures and Borders
Australia, Borders NZ and Borders Singapore have not repaid or redeemed share or loan
capital, or made (whether or not subject to conditions) an agreement or arrangement or
undertaken an obligation to do any of those things.

	5.	 	INFORMATION
	 
	5.1	 	The Seller has not knowingly or recklessly:

	 	(a)	 	omitted anything from the information and documents made available as part of
the Data Room such as to make any part of that information or document materially false
or misleading;
	 
	 	(b)	 	included anything materially false or misleading in the Data Room, or in the
information or documents contained as part of the Data Room; or

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	 	(c)	 	denied access to requested information with the intention of misleading the
Purchasers.

	5.2	 	The Data Room has been prepared in good faith.

Part 2: Purchasers’ Warranties

	1.1	 	Each Purchaser has the unfettered right, power and entitlement to enter into and perform this
Agreement.
	 
	1.2	 	Each Purchaser has taken all necessary actions to authorise the execution and performance of
this Agreement.
	 
	1.3	 	This Agreement is fully valid and contains binding obligations enforceable against the
relevant Purchaser in accordance with its terms.
	 
	1.4	 	The execution, delivery and performance by each Purchaser of this Agreement will not:

	 	(a)	 	result in a material breach of the constitution of that Purchaser; or
	 
	 	(b)	 	result in a breach of any order, judgment or decree of any court or Government
Agency to which the Purchaser is a party or by which the Purchaser is bound and which
is material in the context of this Agreement.

	1.5	 	No Purchaser has gone into liquidation or passed any resolution for winding up, no petition
for winding up has been presented against it, and no receiver, receiver and manager or other
controller or external administrator of the undertaking or assets (of any part thereof) of it
has been appointed or threatened or expected to be appointed.

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SCHEDULE 5

Limitations on Liability

	1.1	 	No reliance on and no Liability for matters outside this Agreement
	 
	 	 	Each Purchaser acknowledges, represents and warrants, and agrees with the Seller, that:

	 	(a)	 	except for the Seller’s Warranties, it enters into this Agreement and the transactions
contemplated by this Agreement solely as a result of its due diligence, investigations,
enquiries, advice and knowledge and relying on its own judgment after such
investigation and enquiries;
	 
	 	(b)	 	irrespective of whether or not the due diligence was as full or exhaustive as a Purchaser
would have wished, it has nevertheless independently and without the benefit of any
inducement, representations or warranties (other than the Seller’s Warranties and
inducements and representations expressly set out in this Agreement) from the Seller
determined to enter into this Agreement or any transaction contemplated by this
Agreement; and
	 
	 	(c)	 	each Purchaser understands the risks and uncertainties of the industry in which each
of Borders Singapore, Borders Australia and Borders NZ operates and the general
economic, regulatory and other risks that impact on or could impact on Borders
Singapore, Borders Australia and Borders NZ, their results, operations, financial
position and prospects.

	1.2	 	Limitations of Liability
	 
	 	 	Notwithstanding anything to the contrary contained in this Agreement, the Seller will not be
liable for any Seller’s Warranty Claim:

	 	(a)	 	Purchasers’ own actions: where the Seller’s Warranty Claim arises or increases
(and in this case only to the extent of the increase) as a result of or in consequence
of any act, omission, transaction or arrangement of or on behalf of a Purchaser after
the Completion Date where in either such case such act or transaction was carried out
without the consent of the Seller (at its absolute discretion);
	 
	 	(b)	 	Seller’s own action at a Purchaser’s request: where the Seller’s Warranty
Claim arises or increases (and in this case only to the extent of the increase) as a
result of any act, omission, transaction or arrangement of or on behalf of the Seller
or its Related Parties where a Purchaser has requested or consented to that act or
omission;
	 
	 	(c)	 	notice and access: unless a Purchaser has:

	 	(i)	 	given the Seller notice in writing, as soon as reasonably
practicable after the Purchaser becomes so aware, of each fact or circumstance
which gives or may give rise to the Seller’s Warranty Claim; and
	 
	 	(ii)	 	given the Seller reasonable access to all relevant business
records together with all other records, correspondence and information as the
Seller may reasonably request (but only to the extent that that information
relates to the Seller’s Warranty Claim);

	 	(d)	 	time limits: unless a Purchaser has given written notice to the Seller setting
out specific details of the Seller’s Warranty Claim, including the Purchaser’s
calculations of the Loss suffered, within 12 months after the Completion Date, and
within 6 months of the Seller receiving that notice, the Seller’s Warranty Claim has
been:

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	 	(i)	 	admitted and satisfied by the Seller; or
	 
	 	(ii)	 	settled between the Seller and relevant Purchaser; or
	 
	 	(iii)	 	referred to a Court of competent jurisdiction by a Purchaser, instituting and
serving legal proceedings against the Seller in relation to the Seller’s
Warranty Claim; and

	 	(e)	 	no consequential Loss: (whether by way of damages or otherwise) for any
indirect or consequential or economic Loss or loss of profit, however arising.

	1.3	 	Seller’s Warranty Claim thresholds
	 
	 	 	A Purchaser may not make a Seller’s Warranty Claim unless:

	 	(a)	 	the resultant loss to the Purchaser is more than $500,000; or
	 
	 	(b)	 	the total of all Seller’s Warranty Claims able to be made or that have been
made is greater than $1,500,000 in which event the Purchaser may claim the whole
amount and not just the excess.

	1.4	 	Maximum Liability for Seller’s Warranty Claims
	 
	 	 	The Seller’s total Liability for loss or damage of any kind howsoever caused, in contract,
tort (including negligence), under any statute or otherwise from, under or relating in any
way to or in connection with this Agreement or the subject matter of the transactions
contemplated by it, is limited in aggregate to $67,000,000.
	 
	1.5	 	Reimbursement for amounts recovered
	 
	 	 	Each Purchaser will reimburse the Seller for amounts paid by the Seller to that Purchaser in
respect of any Seller’s Warranty Claim to the extent to which the same is recovered by the
Purchaser from any third party, including but not limited to suppliers, manufacturers,
insurers or debt collection agencies.
	 
	1.6	 	Third party Claims
	 
	 	 	If a Purchaser becomes aware of any fact, matter or circumstance that may give rise to a
Seller’s Warranty Claim or other Claim against the Seller under or in relation to or arising
out of this Agreement, as a result of or in connection with a Claim by or Liability to a
third party then:

	 	(a)	 	that Purchaser must as soon as reasonably practicable give notice of the Claim
to the Seller which must contain reasonable details of the Claim, including an estimate
of the amount of the Loss, if any (or the reasons why an estimate is not appropriate in
the circumstances), arising out of or resulting from the Claim or the facts, matters or
circumstances that may give rise to the Claim;
	 
	 	(b)	 	subject to the Seller indemnifying the relevant Purchaser to its reasonable
satisfaction from and against any and all Losses, (including additional Tax) which may
therefore be sustained or incurred that Purchaser must either:

	 	(i)	 	take such reasonable action (including legal proceedings or
making Claims under any insurance policies) as the Seller may require to avoid,
dispute, resist, defend, appeal, compromise or mitigate the Claim; or

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	 	(ii)	 	offer the Seller the option to assume defence of the Claim
except any Claims under which relief other than monetary damages is sought
(such exception including Claims relating to criminal liability or injunctive
relief); and

	 	(c)	 	a Purchaser must not settle, make any adjustment of liability or compromise any
Claim, or any matter which gives or may give rise to a Claim, without the prior consent
of the Seller (at its absolute discretion).

The Seller must as soon as reasonably practicable notify the relevant Purchaser following receipt
by the Seller of a notice under 1.6(a) indicating whether the Seller will exercise the option in
clause 1.6(b)(ii).

If the Seller exercises the option in clause 1.6(b)(ii), then:

	 	(a)	 	subject to the Seller indemnifying the relevant Purchaser in the manner set out in clause
1.6(b), each Purchaser agrees to co-operate with the Seller and do all things
reasonably requested by the Seller in respect of the Claim;
	 
	 	(b)	 	the Seller agrees, at its own expense, to defend the Claim; and
	 
	 	(c)	 	subject to clause 1.6(d) the Seller may settle or compromise the Claim with or without the
consent of the relevant Purchaser; and

the Seller agrees to consult with the Purchaser in relation to the conduct of the Claim and
not take or persist in any course of action that might reasonably be regarded as materially
harmful to the goodwill or operation of the Business.

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SCHEDULE 6

Limitations on liability under Tax Indemnity

	1.	 	The Seller shall not be liable under the indemnity contained in clause 12.1 of this Agreement
for any Tax Liability or Claim relating to Tax to the extent that:

	 	(a)	 	such liability is fully provided for in the Completion Accounts; or
	 
	 	(b)	 	such liability was discharged (whether by payment or by the use or set-off of
any Relief) on or before Completion; or
	 
	 	(c)	 	such liability arises or is increased or that any provision or reserve which
has been made in the Accounts is insufficient by reason only of:

	 	(i)	 	any increase in rates of Tax or variation in the method of applying
or calculating the rate of Tax; or
	 
	 	(ii)	 	any change made or announced in law (including the enactment after
the Completion Date of any legislation relating to Tax and the imposition after
the Completion Date of any new Tax); or
	 
	 	(iii)	 	any change in the published practice or procedure of the relevant
Tax Authority,

in all cases being an increase or change first announced after the Completion Date,
whether or not that change purports to be effective retrospectively in whole or in
part; or

	 	(d)	 	such liability would not have arisen but for a change of accounting policy or
practice after the Completion Date (except where such change is necessary so as to
ensure compliance with generally accepted accounting principles) or in the length of
any accounting period of any Purchaser Associate after the Completion Date; or
	 
	 	(e)	 	such liability arises or is increased as a result of any failure by the
Purchaser to comply with any of its obligations under this Agreement including for the
avoidance of doubt the Purchasers’ obligations to procure that a Group Company carries
out any act or does any thing; or
	 
	 	(f)	 	such liability arises as a result of the sale of an asset or as a result of any
other event (including the expiry of a time period) that causes the crystallisation of
a chargeable or other capital gain by any Purchaser Associate, at any time after
Completion; or
	 
	 	(g)	 	any Relief (other than a Purchasers’ Relief) is available, or is for no
consideration made available by any Seller Associate, to a Group Company to set
against, reduce or eliminate the Tax Liability (and any Relief that is so available in
relation to more than one Tax Liability to which this Agreement applies shall be
deemed, so far as possible, to be used in such a way as to reduce to the maximum extent
possible the Seller’s total liability hereunder); or
	 
	 	(h)	 	such liability has been satisfied at no expense to the Purchasers; or
	 
	 	(i)	 	such liability would not have arisen or would have been reduced or eliminated
but for a failure or omission by a Group Company to make any claim, election, surrender
or disclaimer or give any notice or consent or do any other thing after Completion the
making giving or doing of which was taken into account or assumed in computing the
provision for Tax (including the provision for deferred Tax) in the Accounts; or

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	 	(j)	 	such liability would not have arisen but for a cessation, or any change in the
nature or conduct, of any trade or business carried on by a Group Company at
Completion, being a cessation or change occurring on or after Completion or the payment
of any unusual or abnormal dividend by a Group Company after Completion; or
	 
	 	(k)	 	any income, profits or gains to which such liability is attributable were
earned or received by a Group Company or accrued to a Group Company but were not
reflected in the Completion Accounts or to the extent that the liability arises because
the assets of a Group Company are greater than, or the liabilities are less than, those
taken into account in computing the provision or reserve for Tax in the Completion
Accounts provided that this paragraph (k) does not apply to an adjustment in income,
profits or gains arising from Tax losses or Tax deductions not being available for any
period up to and including Completion.

	2.	 	Notwithstanding anything to the contrary contained in this Agreement, the Seller shall not be
liable under the indemnity contained in clause 12.1 of this Agreement for any Tax Liability or
any Claim relating to Tax unless a Purchaser has given written notice to the Seller setting
out specific details of the Tax Liability within 6 years after the Completion Date.
	 
	3.	 	The Seller’s total liability for any Tax Liability or Claim relating to Tax is limited in
aggregate to $7,500,000.

46

 

SCHEDULE 7

Insurance

	1.	 	RISK ALLOCATION
	 
	 	 	Subject to Completion occurring, the risk of loss or damage to the assets of Borders
Australia, Borders NZ or Borders Singapore remains with the Seller prior to the Completion
Date.
	 
	2.	 	INSURANCE CLAIMS
	 
	 	 	The Seller shall ensure, or shall procure, that any event or circumstance which gives rise
to an insurance claim under any policy of insurance taken out by the Seller but which
provides cover for Borders Australia, Borders NZ or Borders Singapore or any of their assets
and which occurs at any time prior to and including the Completion Date (but which is not
provided for in the Completion Balance Sheet), is the subject of a claim prior to the
Completion Date (or as soon as practicable thereafter) and is otherwise dealt with in a
timely manner and the Seller, subject to Completion occurring, shall account to Borders
Australia, Borders NZ or Borders Singapore (as appropriate) in full for the proceeds of any
claim which should properly be received by Borders Australia, Borders NZ or Borders
Singapore (as appropriate) as soon as reasonably practicable after receipt less any
reasonable costs of recovery of the same.

47

 

SCHEDULE 8

Properties

Part 1: Australian Borders Stores

Contents

	 	 	 	 	 
	Borders Stores
	Victoria
	 	1	 	 	Jam Factory

	 	2	 	 	Chadstone Shopping Centre

	 	3	 	 	Knox City Shopping Centre

	 	4	 	 	Carlton (Lygon Street)

	 	5	 	 	Melbourne Central

	 	6	 	 	Highpoint Shopping Centre

	 	7	 	 	Camberwell (Camberwell Junction)

	New South Wales
	 	8	 	 	Macquarie Centre (including regional office)

	 	9	 	 	Westfield Hornsby

	 	10	 	 	Skygarden (Sydney CBD)

	 	11	 	 	Westfield Shoppingtown Bondi Junction

	 	12	 	 	Macarthur Square Shopping Centre

	 	13	 	 	Westfield Tuggerah

	 	14	 	 	Westfield Parramatta

	 	15	 	 	Chatswood

	 	16	 	 	Kotara

	 	17	 	 	Rouse Hill

	Queensland
	 	18	 	 	Bribane(CBD)

	 	19	 	 	Westfield Chermside

	 	20	 	 	Westfield Garden City

	South Australia
	 	21	 	 	Rundle Mall

	Western Australia
	 	22	 	 	Perth (CBD)

	Australian Capital Territory
	 	23	 	 	Canberra Centre

	 	 	 	 	 

	Other properties
	Victoria
	 	24	 	 	Head office, Chadstone

	 	25	 	 	Distribution centre, Sunshine

	 	26	 	 	Returns centre, Sunshine

Part 2: New Zealand Borders Stores

Contents

	 	 	 	 	 
	Borders Stores
	New Zealand
	 	27	 	 	Auckland (including regional office)

	 	28	 	 	Westfield Riccarton

48

 

	 	 	 	 	 
	 	27	 	 	Capital On the Quay

	 	30	 	 	Sylvia Park Shopping Centre

	 	31	 	 	Albany

Part 3: Singapore Borders Stores

Contents

	 	 	 	 	 
	Borders Stores
	Singapore
	 	32	 	 	Orchard Road

	 	33	 	 	Parkway Parade

49

 

SCHEDULE 9

Completion Accounts Principles

Part A — Completion Accounts Principles

	1	 	The Completion Accounts will be prepared in accordance with, in order of precedence:

	 	(a)	 	the specific principles and policies set out in Part B;
	 
	 	(b)	 	where an item is not covered by the specific principles and policies set out in
Part B, the specific accounting principles and policies used by the Group to prepare the
Management Accounts, and incorporating the methodology outlined in sub paragraph 2 of
Part A of this Schedule 9; and
	 
	 	(c)	 	to the extent that an item is not covered by the accounting principles and
policies referred to in paragraphs 1(a) or 1(b) above and where not inconsistent with
paragraph 1(a) or 1(b) above, in accordance with United States generally accepted
accounting principles (US GAAP).

	2	 	The Completion Balance Sheet will be presented in the same format as that set out in Part C
of this Schedule 9 and will be calculated by:

	 	(a)	 	aggregating the balance sheets of Borders Australia, Borders NZ and Borders
Singapore (prepared on the same basis as the balance sheets contained in the Management
Accounts) on a line-by-line basis at the Completion Date; and
	 
	 	(b)	 	adjusting such aggregated balance sheet for the adjustments listed in Part B of
this Schedule 9.

Part B — Completion adjustments

The following adjustments will be applied in the preparation of the Completion Balance Sheet:

	1	 	with the exception of GST balances, all tax balances included in the Completion Accounts will prepared as following:

	 	(a)	 	all accrued taxes that are not payable by Borders Australia, Borders NZ or
Borders Singapore as at Completion will be adjusted in the Completion Accounts such that
they have a zero balance. For the avoidance of doubt, such balances include “Accrued
Federal Income Tax “ and “Accrued Foreign Income Tax”; and
	 
	 	(b)	 	a provision for tax will be included in the Completion Accounts for accrued
Australian, New Zealand and Singapore company tax payable by Borders Australia, Borders
NZ and Borders Singapore in respect of the period up to and including Completion, but
only to the extent these are not paid as at Completion. For the avoidance of doubt the
provision for tax will be included in the Completion Accounts as a negative liability to
the extent that the amount of tax paid as at Completion is greater than the tax payable
as at Completion.

	2	 	any amounts which become payable by any member of the Group in respect of any Lease (including
under an Intra-Group Guarantee) as a result of the entry by the Seller into this Agreement and/or
any Transaction Document or the performance by the Seller of its obligations under this Agreement
or any Transaction Document will be excluded from the

50

 

	 	 	Completion Balance Sheet, the terms of which Lease or Intra-Group Guarantee (together with
all relevant correspondence with landlords under any of the Lease or Intra-Group Guarantee)
have been fairly disclosed in the Data Room;

	3	 	the balance sheet items of Borders NZ in the Completion Balance Sheet will be translated into
Australian dollars applying a currency rate of 0.91 AUD to 1.00 NZD;
	 
	4	 	the balance sheet items of Borders Singapore in the Completion Balance Sheet will be
translated into Australian dollars applying a currency rate of 0.80 AUD to 1.00 SGD;
	 
	5	 	cash and cash equivalents will form part of the Completion Balance Sheet (for the avoidance
of doubt, any outstanding cheque amounts will be deducted from the cash and cash equivalent
amounts but till floats will not be deducted cash and cash equivalents);
	 
	6	 	the amount of net property and equipment (cost less accumulated depreciation) will be
excluded from the Completion Balance Sheet.
	 
	7	 	deferred income tax assets and liabilities as per the Management Accounts will be excluded
from the Completion Balance Sheet;
	 
	8	 	Intra-Group Indebtedness will be excluded from the Completion Balance Sheet;
	 
	9	 	Intra-Group Trading Indebtedness will be included in the Completion Balance Sheet at an
amount of $4,200,000 and all other Intra-Group Trading Indebtedness (if any) will be
disregarded for the purpose of the Completion Balance Sheet;
	 
	10	 	interest bearing debt of A$0 (zero) will be included in the Completion Balance Sheet;
	 
	11	 	Taxes payable in the Completion Balance Sheet will:

	 	(a)	 	include the items in the Management Accounts balance sheet “Accrued Federal
Income Tax “ and “Accrued Foreign Income Tax” (which represent US tax balances allocated
to the Group by the Seller which must be nil at Completion); and
	 
	 	(b)	 	include an amount for Tax payable by Borders Australia, Borders NZ and Borders
Singapore but only to the extent these are not paid as at Completion.

	12	 	The following adjustment will be made to the Completion Balance Sheet, to eliminate
franchisee working capital balances:

	 	(a)	 	Merchandise inventories will exclude:

	 	(i)	 	MLY inventory in the distribution centre (FTC) at Completion,
identified in ledger accounts 1400 and by location code #7140, evidenced by a
screenshot taken from the Lawson general ledger;
	 
	 	(ii)	 	MLY inventory in the distribution centre (RC) at Completion,
identified in ledger account 1440 and by location code #7140, evidenced by a
screenshot taken from the Lawson general ledger; and
	 
	 	(iii)	 	The sum of ledger accounts, 1455_0 “Wholesale Inventory
Clearing”, 1456_0 “Wholesale Returns Clearing”, 1457_0 “Wholesale EDI
Clearing” and 1458_0 “Wholesale Dropship

51

 

	 	 	 	Clearing” in the balance sheet of
Borders Singapore as at Completion;

	 	(b)	 	Accounts Receivable will exclude “1210_0 A/R Franchise” in the balance sheet of
Borders Singapore as at Completion;
	 
	 	(c)	 	Trade Payables will exclude an amount equal to:

	 	(i)	 	The monthly average of ledge account 5520_0 “Wholesale C/O/S”
in the monthly profit and loss of Borders Singapore over the last 12 months to
the Completion Date;
	 
	 	(ii)	 	multiplied by 91.6 days divided by 365 days

	 	(d)	 	Accrued Liabilities will exclude accruals for MLY stock returns as at Completion,
as identified in ledger account 3880 and franchise location code #80101, evidenced by a
screenshot taken from the Lawson general ledger;

	13	 	straight line rent liabilities comprising the Management Accounts balance sheet items “Long
Term Straight Line Rent Liability” and “Long Term Straight Line Rent Landlord Allowance” will
be excluded from the Completion Balance Sheet;
	 
	14	 	For the avoidance of doubt, where applicable, trade payables, expenses and payables and
accrued liabilities will exclude any outstanding cheque amounts (being any amounts relating to
cheques issued by the Seller and not yet presented as at Completion) to the extent they have
been deducted from the cash and cash equivalent amounts under paragraph 3 of Part B above;
and
	 
	15	 	all bonus or other incentive entitlements to employees of the Group, to the extent not paid
by the Seller or the Group prior to or at Completion, must be fully accrued for in the
Completion Balance Sheet. This specifically includes, but is not restricted to the following:

	 	(a)	 	all bonus or other incentive payments payable based on actual performance of the
Group against plan for the period up until the Completion Date notwithstanding whether
the Seller enters into this Agreement or Completion should be accrued for in the
Completion Balance Sheet on a pro rated time basis (for the purpose of determining the
amount payable under the management short term incentive plan, “Threshold” will be equal
to 95% of plan, “Target” will be equal to plan and “Max” will be equal to 135% of plan);
and
	 
	 	(b)	 	all retention or other termination bonus or incentive payments payable as a
result of the Seller entering into this Agreement or Completion should be 100% accrued
in the Completion Balance Sheet to the extent not paid by the Seller or the Group prior
to or at Completion.

For the avoidance of doubt, the Seller is not liable for any bonus or other incentive
payments to employees of the Group to the extent accrued in the Completion Balance Sheet.

Part C — Completion Balance Sheet

The Completion Balance Sheet will be prepared as at the Completion Date incorporating the
adjustments set out in part B of this Schedule 9 and with reference to the example Completion
Balance Sheet in document 12.01.10 in the Data Room.

52

 

Completion Balance Sheet 

Aggregated as at Completion Date

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Local currency	 	Australian currency	 	 	 	 	 	 
	 	 	Borders	 	Borders	 	Borders	 	Borders	 	Borders	 	Borders	 	 	 	 	 	Completion	 	 	 	 
	 	 	Australia	 	NZ	 	Singapore	 	Australia	 	NZ	 	Singapore	 	Total	 	adjustments	 	Notes	 	Total
	Column reference	 	A	 	B	 	C	 	D	 	E	 	F	 	G	 	H	 	 	 	 	 	I
	Exchange rate (AUD/local currency)	 	 	 	 	 	 	 	 	 	 	 	 	 	1.00	 	0.91	 	0.80	 	 	 	 	 	 	 	 	 	 
	Currency	 	A$’000	 	NZ$’000	 	S$’000	 	A$’000	 	A$’000	 	A$’000	 	A$’000	 	A$’000	 	 	 	 	 	A$’000
	 	 	 	 	 	 	 
	ASSETS
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Cash & Cash Equivalents, excluding store funds
	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	 	 	 	 	5	 	 	 	 	 
	Store Funds
	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	 	 	 	 	5	 	 	 	 	 
	Outstanding Cheque Amounts
	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	 	 	 	 	5	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Cash & Cash Equivalents less outstanding cheque amounts
	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	5	 	 	 	[ ]	 
	Merchandise Inventories
	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	12	(a)	 	 	[ ]	 
	Accounts Receivable, excluding GST Receivable
	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	12	(b)	 	 	[ ]	 
	GST Receivable
	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	 	 	 	 	 	 	 	 	[ ]	 
	Other Current Assets
	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	 	 	 	 	 	 	 	 	[ ]	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Current Assets
	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	 	 	 	 	 	 	 	 	[ ]	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Net property and equipment
	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	6	 	 	 	[ ]	 
	Deferred income tax asset
	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	7	 	 	 	[ ]	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Non-Current Assets
	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	 	 	 	 	 	 	 	 	[ ]	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total Assets
	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	 	 	 	 	 	 	 	 	[ ]	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	LIABILITIES
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Intra-group Indebtedness
	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	8	 	 	 	[ ]	 
	Intra-group Trading Indebtedness
	 	 	 	 	 	 	—	 	 	 	—	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	9	 	 	 	[ ]	 
	Short Term Debt
	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	10	 	 	 	[ ]	 
	Trade Payables
	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	12	(c)	 	 	[ ]	 
	Expenses and Other Payables
	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	 	 	 	 	 	 	 	 	[ ]	 
	Accrued Liabilities, excluding Gift Certificates
	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	12	(d)	 	 	[ ]	 
	Gift Certificates
	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	 	 	 	 	 	 	 	 	[ ]	 
	Accrued bonuses
	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	15	 	 	 	 	 
	GST Payable
	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	 	 	 	 	 	 	 	 	[ ]	 
	Deferred income tax liability
	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	7	 	 	 	[ ]	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Current Liabilities
	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	 	 	 	 	 	 	 	 	[ ]	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Other Long Term Liabilities
	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	13	 	 	 	[ ]	 
	Accrued federal taxes
	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	11	(a)	 	 	[ ]	 
	Taxes Payable
	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	11	(b)	 	 	[ ]	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Non-Current Liabilities
	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	 	 	 	 	 	 	 	 	[ ]	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total liabilities
	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	 	 	 	 	 	 	 	 	[ ]	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Net Assets
	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	[ ]	 	 	 	 	 	 	 	 	 	 	 	[ ]	 
	 	 	 	 	 	 	 	 	 	 	 

Part D — Completion Net Asset Amount

	1	 	The Completion Net Asset Amount will be the amount equal to the total adjusted assets less
total adjusted liabilities as set out in column E of the Completion Balance Sheet in Part C of
this Schedule 9 prepared in accordance with the principles and policies of this Schedule 9.

53

 

Signed for and on behalf of

Borders Group, Inc.

by its duly authorised representative

in the presence of:

	 	 	 
	 
	/s/
Thomas D. Carney

	 	/s/ Edward W. Wilhelm
	 

	 	 
	Signature of witness

	 	Signature of authorised representative
	 
	 	 
	 
	 	 
	
Thomas D. Carney

	 	Edward W. Wilhelm
	 

	 	 
	Name of witness (please print)

	 	Name of authorised representative
	 

	 	(please print)

Signed by

A&R Whitcoulls Group Holdings Pty Limited

ACN 108 801 127

by two directors:

	 	 	 
	 
	/s/
Simon Pillar

	 	/s/ Nicolas Laurent
	 

	 	 
	Signature of director

	 	Signature of director
	 
	 	 
	 
	 	 
	
Simon Pillar

	 	Nicolas Laurent
	 

	 	 
	Name of director (please print)

	 	Name of director (please print)

1

 

	 	 	 	 
	Signed for and on behalf of Spine Newco Pty

Limited ACN 127 667 314 by its Attorney under a

Power of Attorney dated 4 June 2008, and the

Attorney declares that the Attorney has not

received any notice of the revocation of such

Power of Attorney, in the presence of:

	 	 	/s/ Simon Pillar                              
Signature of Attorney

	 	 	 
	/s/
Niroshan Anandacoomarasamy                    

	 	Simon Pillar                                   
	Signature of Witness

	 	Name of Attorney in full
	 
	 	 
	 
	 	 
	Niroshan Anandacoomarasamy                         

	 	 
	Name of Witness in full
	 	 

	 	 	 	 
	Signed for and on behalf of Spine Newco (NZ)

Limited Company No. 2010994 by its Attorney under

a Power of Attorney dated 4 June 2008, and the

Attorney declares that the Attorney has not

received any notice of the revocation of such

Power of Attorney, in the presence of:

	 	 	/s/ Simon Pillar                              
Signature of Attorney

	 	 	 
	/s/
Niroshan Anandacoomarasamy                    

	 	Simon Pillar                                   
	Signature of Witness

	 	Name of Attorney in full
	 
	 	 
	 
	 	 
	Niroshan Anandacoomarasamy                         

	 	 
	Name of Witness in full
	 	 

2

 

ANNEXURE 1

Data Room Index

3

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