By-laws - BORDERS GROUP INC - 4-24-2001

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EXHIBIT 3.2 RESTATED BY-LAWS OF BORDERS GROUP, INC. ARTICLE I OFFICES SECTION 1. Registered Office. The registered office of Borders Group, Inc. (hereinafter called the "Corporation") shall be in the City of Ann Arbor, County of Washtenaw, State of Michigan. SECTION 2. Other Offices. The Corporation may also have offices at such other places both within and without the State of Michigan as the Board of Directors may from time to time determine. ARTICLE II MEETINGS OF STOCKHOLDERS SECTION 1. Place of Meetings. Meetings of the stockholders for the election of directors or for any other purpose shall be held at such time and place, either within or without the State of Michigan as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. SECTION 2. Annual Meetings. The Annual Meetings of Stockholders shall be held on such date and at such time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, at which meetings the stockholders shall elect by a plurality vote a Board of Directors, and transact such other business as may properly be brought before the meeting. Written notice of the Annual Meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than 10 days nor more than 60 days before the date of the meeting. SECTION 3. Special Meetings. Unless otherwise prescribed by law or by the Articles of Incorporation, Special Meetings of Stockholders, for any purpose or purposes, may be called only by the Chief Executive Officer or by the Board of Directors acting pursuant to a resolution adopted by a majority of the entire Board of Directors. Written notice of a Special Meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called shall be given not less than 10 days nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting. SECTION 4. Quorum. Except as otherwise provided by law or by the Articles of Incorporation, the holders of a majority of the capital stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. SECTION 5. Voting. Each stockholder represented at a meeting of stockholders shall be entitled to cast one vote for each share of the capital stock entitled to vote thereat held by such stockholder. Such votes may be cast in person or by proxy but no proxy shall be voted on or after three years from its date, unless such proxy provides for a longer period. The Board of Directors, in its discretion, or the officer of the Corporation presiding or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. SECTION 5. Voting. Each stockholder represented at a meeting of stockholders shall be entitled to cast one vote for each share of the capital stock entitled to vote thereat held by such stockholder. Such votes may be cast in person or by proxy but no proxy shall be voted on or after three years from its date, unless such proxy provides for a longer period. The Board of Directors, in its discretion, or the officer of the Corporation presiding at a meeting of stockholders, in his discretion, may require that any votes cast at such meeting shall be cast by written ballot. SECTION 6. List of Stockholders Entitled to Vote. The officer of the Corporation who has charge of the stock ledger of the Corporation shall prepare and make a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder at the time and place of the meeting during the whole time thereof. SECTION 7. Stock Ledger. The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by Section 6 of this Article II or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders. SECTION 8. Notice of Stockholder Business and Nominations. (A) Annual Meetings of Stockholders. (1) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders (a) pursuant to the Corporation's notice of meeting, (b) by or at the direction of the Board of Directors or (c) by any stockholder of the Corporation who was a stockholder of record at the time of giving of notice provided for in this By-Law, who is entitled to vote at the meeting and who complied with the notice procedures set forth in this By-Law. (2) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (c) of paragraph (A)(1) of this By-Law, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation and such other business must be a proper matter for stockholder action. To be timely, a stockholder's notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 90th day nor earlier than the close of business on the 120th day prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for giving of a stockholder's notice as described above. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule 14a-11 thereunder (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (b) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made, and (c) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the Corporation's books, and of such the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the Corporation's books, and of such beneficial owner and (ii) the class and number of shares of the Corporation which are owned beneficially and of record by such stockholder and such beneficial owner. (3) Notwithstanding anything in the second sentence of paragraph (A)(2) of this By-Law to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement naming all the nominees for director or specifying the size of the increased Board of Directors made by the Corporation at least 100 days prior to the first anniversary of the preceding year's annual meeting, a stockholder's notice required by this By-Law shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the Corporation. (B) Special Meetings of Stockholders. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation's notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporation's notice of meeting (a) by or at the direction of the Board of Directors or (b) by any stockholders for the Corporation who is a stockholder of record at the time of giving of notice provided for in this By-Law, who shall be entitled to vote a the meeting and who complies with the notice procedures set forth in this By-Law. In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any such stockholder may nominate a person or persons (as the case may be), for election to such position(s) as specified in the Corporation's notice of meeting, if the stockholder's notice required by paragraph (A)(2) of this By-Law shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the 120th day prior to such special meeting and not later than the close of business on the later of the 90th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall the public announcement of an adjournment of a special meeting commence a new time period for the giving of a stockholder's notice as described above. (C) General. (1) Only such persons who are nominated in accordance with the procedures set forth in this ByLaw shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this By-Law. Except as otherwise provided by law, the Certificate of Incorporation or the By-Laws of the Corporation, the Chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made, or proposed, as the case may be, in accordance with the procedures set forth in this By-Law and, if any proposed nomination or business in not in compliance with this By-Law, to declare that such defective proposal or nomination shall be disregarded. (2) For purposes of this Law "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14, or 15(d) of the Exchange Act. (3) Notwithstanding the foregoing provisions of this By-Law, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this By-Law. Nothing in this By-Law shall be deemed to affect any rights of (i) stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or (ii) the holders of any series of Preferred Stock to elect directors under specified circumstances. ARTICLE III DIRECTORS SECTION 1. Number and Election of Directors. The Board of Directors shall consist of not less than three nor more than eleven members, with the exact number of directors to be determined from time to time by resolution ARTICLE III DIRECTORS SECTION 1. Number and Election of Directors. The Board of Directors shall consist of not less than three nor more than eleven members, with the exact number of directors to be determined from time to time by resolution adopted by the affirmative vote of a majority of the directors then in office. Except as provided in Section 2 of this Article, directors shall be elected by a plurality of the votes cast at annual meetings of stockholders, and each director so elected shall hold office until the next annual meeting and until his successor is duly elected and qualified, or until his earlier resignation or removal. Any director may resign at any time upon notice to the Corporation. Directors need not be stockholders. SECTION 2. Vacancies. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and qualified, or until their earlier resignation or removal. SECTION 3. Duties and Powers. The business of the Corporation shall be managed by or under the direction of the Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Articles of Incorporation or by these By-Laws directed or required to be exercised or done by the stockholders. SECTION 4. Meetings. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of Michigan. Regular meetings of the Board of Directors may be held without notice at such time and at such place as may from time to time be determined by the Board of Directors. Special meetings of the Board of Directors may be called by the Chairman of the Board, if there be one, the President, or by a majority of the directors then in office. Notice thereof stating the place, date and hour of the meeting shall be given to each director either by mail not less than forty-eight (48) hours before the date of the meeting, by telephone or telegram or similar means of communication on twenty-four (24) hours notice, or on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances. SECTION 5. Quorum. Except as may be otherwise specifically provided by law, the Articles of Incorporation or these By-Laws, at all meetings of the Board of Directors, a majority of the entire Board of Directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. SECTION 6. Actions of Board Without a Meeting. Unless otherwise provided by the Articles of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all the members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. SECTION 7. Meeting by Means of Conference Telephone. Unless otherwise provided by the Articles of Incorporation or these By-Laws, members of the Board of Directors of the Corporation, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 7 shall constitute presence in person at such meeting. SECTION 8. Compensation. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall shall hold office until the next annual election and until their successors are duly elected and qualified, or until their earlier resignation or removal. SECTION 3. Duties and Powers. The business of the Corporation shall be managed by or under the direction of the Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Articles of Incorporation or by these By-Laws directed or required to be exercised or done by the stockholders. SECTION 4. Meetings. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of Michigan. Regular meetings of the Board of Directors may be held without notice at such time and at such place as may from time to time be determined by the Board of Directors. Special meetings of the Board of Directors may be called by the Chairman of the Board, if there be one, the President, or by a majority of the directors then in office. Notice thereof stating the place, date and hour of the meeting shall be given to each director either by mail not less than forty-eight (48) hours before the date of the meeting, by telephone or telegram or similar means of communication on twenty-four (24) hours notice, or on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances. SECTION 5. Quorum. Except as may be otherwise specifically provided by law, the Articles of Incorporation or these By-Laws, at all meetings of the Board of Directors, a majority of the entire Board of Directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. SECTION 6. Actions of Board Without a Meeting. Unless otherwise provided by the Articles of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all the members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. SECTION 7. Meeting by Means of Conference Telephone. Unless otherwise provided by the Articles of Incorporation or these By-Laws, members of the Board of Directors of the Corporation, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 7 shall constitute presence in person at such meeting. SECTION 8. Compensation. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. SECTION 9. Interested Directors. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because the votes of such director are counted for such purpose if (i) the material facts as to the relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors; or (ii) the material facts as to the relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. SECTION 9. Interested Directors. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because the votes of such director are counted for such purpose if (i) the material facts as to the relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors; or (ii) the material facts as to the relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. ARTICLE IV COMMITTEES SECTION 1. Audit Committee. There shall be an audit committee consisting of not less than two members of the Board of Directors who are not officers of the Corporation or any of its subsidiaries with the members thereof designated by the entire Board of Directors. The audit committee shall review and make recommendations regarding the Corporation's employment of independent accountants, the annual audit of the Corporation's financial statements and the Corporation's internal controls, accounting practices and policies. From time to time, as considered necessary and desirable, the committee shall confer with such accountants for the exchanging of views relating to the scope and results of the auditing of books and accounts of the Corporation and shall provide to the Board of Directors such assistance as may be required with respect to the corporate and reporting practices of the Corporation. The audit committee shall perform such other duties as the Board of Directors may prescribe. SECTION 2. Compensation Committee. There shall be a compensation committee consisting of not less than two members of the Board of Directors who are not officers of the Corporation or any of its subsidiaries with the members thereof designated by the entire Board of Directors. The compensation committee shall make recommendations to the Board of Directors regarding the nature and amount of compensation for executive officers of the Corporation and, as may be prescribed by the Board of Directors, administer certain of the Corporation's employee benefit plans. The compensation committee shall perform such other duties as the Board of Directors may prescribe. SECTION 3. Committee Vacancies; Quorum, Voting and Procedures. Each member of a committee shall serve at the pleasure of the Board of Directors, and vacancies on a committee may be filled by the Board of Directors at any time. The Board of Directors may also increase the number of members of a committee at any time. A majority of all members of a committee shall constitute a quorum, and the affirmative vote of a majority of all the members of a committee shall constitute the action of the committee. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of any such committee. In the absence or disqualification of a member of a committee, and in the absence of a designation by the Board of Directors of an alternate member to replace the absent or disqualified member, the member or members thereof present at any meeting and not disqualified from voting, whether or not a quorum is constituted, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any absent or disqualified member. Each committee shall determine its own rules of procedure and shall meet as provided by such rules, or by resolution of the Board of Directors, or on the call of any member thereof. Each committee shall keep regular minutes and report to the Board of Directors when required. SECTION 3. Committee Vacancies; Quorum, Voting and Procedures. Each member of a committee shall serve at the pleasure of the Board of Directors, and vacancies on a committee may be filled by the Board of Directors at any time. The Board of Directors may also increase the number of members of a committee at any time. A majority of all members of a committee shall constitute a quorum, and the affirmative vote of a majority of all the members of a committee shall constitute the action of the committee. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of any such committee. In the absence or disqualification of a member of a committee, and in the absence of a designation by the Board of Directors of an alternate member to replace the absent or disqualified member, the member or members thereof present at any meeting and not disqualified from voting, whether or not a quorum is constituted, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any absent or disqualified member. Each committee shall determine its own rules of procedure and shall meet as provided by such rules, or by resolution of the Board of Directors, or on the call of any member thereof. Each committee shall keep regular minutes and report to the Board of Directors when required. SECTION 4. Other Committees. From time to time, the Board of Directors may constitute and appoint any other committee or committees which the Board of Directors may deem necessary or proper for the conduct of the Corporation's business. Any such committee created by the Board of Directors shall have such duties, powers and authority as shall be specified in the resolution constituting such committee. ARTICLE V OFFICERS SECTION 1. General. The officers of the Corporation shall be chosen by the Board of Directors and shall be a President, a Secretary and a Treasurer. The Board of Directors, in its discretion, may also choose a Chairman of the Board (who must be a director), one or more Vice Chairmen of the Board (who need not be directors), and one or more Vice Presidents, Assistant Secretaries, Assistant Treasurers and other officers. Any number of offices may be held by the same person, unless otherwise prohibited by law, the Articles of Incorporation or these By-Laws. The officers of the Corporation need not be stockholders of the Corporation nor, except in the case of the Chairman of the Board, need such officers be directors of the Corporation. SECTION 2. Election. The Board of Directors at its first meeting held after each annual meeting of stockholders shall elect the officers of the Corporation who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors; and all officers of the Corporation shall hold office until their successors are chosen and qualified, or until their earlier resignation or removal. Any officer elected by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors. The salaries of all officers of the Corporation shall be fixed by the Board of Directors or a committee thereof. SECTION 3. Voting Securities Owed by the Corporation. Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Corporation may be executed in the name of and on behalf of the Corporation by the President or any Vice President and any such officer may, in the name of and on behalf of the Corporation, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of security holders of any corporation in which the Corporation may own securities and at any such meeting shall possess and may exercise any and all rights and power incident to the ownership of such securities and which, as the owner thereof, the Corporation might have exercised and possessed if present. The Board of Directors, may, by resolution, from time to time confer like powers upon any other person or persons. SECTION 4. Chief Executive and Chief Operating Officers. The Board of Directors shall designate one of the Corporation's officers as the chief executive officer and may, from time to time, but shall not be required to do so, designate one of the officers as the chief operating officer. In the absence of any designation, the President shall serve as the chief executive officer. Subject to the direction of the Board of Directors, the chief executive officer shall have general supervision of the Corporation's business, departments, officers, and employees, and shall prescribe duties of other officers and employees insofar as they are not specified by the By-Laws or by the SECTION 3. Voting Securities Owed by the Corporation. Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Corporation may be executed in the name of and on behalf of the Corporation by the President or any Vice President and any such officer may, in the name of and on behalf of the Corporation, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of security holders of any corporation in which the Corporation may own securities and at any such meeting shall possess and may exercise any and all rights and power incident to the ownership of such securities and which, as the owner thereof, the Corporation might have exercised and possessed if present. The Board of Directors, may, by resolution, from time to time confer like powers upon any other person or persons. SECTION 4. Chief Executive and Chief Operating Officers. The Board of Directors shall designate one of the Corporation's officers as the chief executive officer and may, from time to time, but shall not be required to do so, designate one of the officers as the chief operating officer. In the absence of any designation, the President shall serve as the chief executive officer. Subject to the direction of the Board of Directors, the chief executive officer shall have general supervision of the Corporation's business, departments, officers, and employees, and shall prescribe duties of other officers and employees insofar as they are not specified by the By-Laws or by the Board of Directors. The chief executive officer shall preside at all meetings of the stockholders and Board of Directors. The chief operating officer shall have such duties as may be designated by the chief executive officer or by the Board of Directors. SECTION 5. Chairman of the Board. The Chairman of the Board shall perform such duties as may be designated by the chief executive officer or by the Board of Directors. In the chief executive officer's absence or disability, the Chairman shall preside at meetings of the stockholders and Board of Directors. SECTION 6. Vice Chairman of the Board. The Vice Chairman of the Board shall perform such duties as may be designated by the chief executive officer or by the Board of Directors. In the chief executive officer's and Chairman's absence or disability, the Vice Chairman shall preside at meetings of the stockholders and Board of Directors. SECTION 7. President. The President shall perform such duties as may be designated by the chief executive officer or by the Board of Directors, and shall have authority to execute on behalf of the Corporation any and all contracts, agreements, bonds, deeds, mortgages, leases or other obligations of the Corporation. In the absence or incapacity of the President, the Board of Directors shall determine which other officer shall perform the duties of that office. SECTION 8. Vice Presidents. The Vice Presidents shall perform such duties as may be designated by the chief executive officer, subject to the direction of the Board of Directors. Any Vice President shall have authority to execute on behalf of the Corporation any and all contracts, agreements, bonds, deeds, mortgages, leases or other obligations of the Corporation. SECTION 9. Treasurer. The Treasurer shall have the custody of and the responsibility for all funds and securities of the Corporation, subject to the control of the Board of Directors. The Treasurer shall keep bank accounts in the name of the Corporation. The Treasurer shall perform all duties incident to the position of Treasurer, subject to the control of the Board of Directors, and shall have authority to sign and endorse all notes, checks, drafts and other obligations of the Corporation. SECTION 10. Secretary. The Secretary shall keep a record in proper books provided for that purpose of all the meetings and proceedings of the Board of Directors and the minutes of the stockholders meetings, and shall keep such other records and shall perform such other duties as the Board of Directors or the chief executive officer shall designate. The Secretary shall notify the directors and stockholders of their respective meetings, shall attend to the giving and service of all notices of the Corporation, and shall in general do and perform all the duties pertaining to the office, subject to the control of the Board of Directors. SECTION 11. Other Officers. Such other officers as the Board of Directors may choose shall perform such duties and have such powers as from time to time may be assigned to them by the chief executive officer or the perform all duties incident to the position of Treasurer, subject to the control of the Board of Directors, and shall have authority to sign and endorse all notes, checks, drafts and other obligations of the Corporation. SECTION 10. Secretary. The Secretary shall keep a record in proper books provided for that purpose of all the meetings and proceedings of the Board of Directors and the minutes of the stockholders meetings, and shall keep such other records and shall perform such other duties as the Board of Directors or the chief executive officer shall designate. The Secretary shall notify the directors and stockholders of their respective meetings, shall attend to the giving and service of all notices of the Corporation, and shall in general do and perform all the duties pertaining to the office, subject to the control of the Board of Directors. SECTION 11. Other Officers. Such other officers as the Board of Directors may choose shall perform such duties and have such powers as from time to time may be assigned to them by the chief executive officer or the Board of Directors. The Board of Directors may delegate to any other officer of the Corporation the power to choose such other officers and to prescribe their respective duties and powers. ARTICLE VI STOCK SECTION 1. Form of Certificates. Every holder of stock in the Corporation shall be entitled to have a certificate signed, in the name of the Corporation (i) by the Chairman of the Board, the President or a Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by the holder in the Corporation. SECTION 2. Signatures. When a certificate is countersigned by (i) a transfer agent other than the Corporation or its employees, or (ii) a registrar other than the Corporation or its employees, any other signature on a certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person was such officer, transfer agent or registrar at the date of issue. SECTION 3. Lost Certificates. The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or such owner's legal representative, to advertise the same in such manner as the Board of Directors shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. SECTION 4. Transfers. Stock of the Corporation shall be transferable in the manner prescribed by law and in these By-Laws. Transfers of stock shall be made on the books of the Corporation only by the person named in the certificate or by such person's attorney lawfully constituted in writing and upon the surrender of the certificate therefor, which shall be canceled before a new certificate shall be issued. SECTION 5. Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than 60 days nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. SECTION 6. Beneficial Owners. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other SECTION 4. Transfers. Stock of the Corporation shall be transferable in the manner prescribed by law and in these By-Laws. Transfers of stock shall be made on the books of the Corporation only by the person named in the certificate or by such person's attorney lawfully constituted in writing and upon the surrender of the certificate therefor, which shall be canceled before a new certificate shall be issued. SECTION 5. Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than 60 days nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. SECTION 6. Beneficial Owners. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law. ARTICLE VII NOTICES SECTION 1. Notices. Whenever written notice is required by law, the Articles of Incorporation or these ByLaws, to be given to any director, member of a committee or stockholder, such notice may be given by mail, addressed to such director, member of a committee or stockholder, at his or her address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Written notice may also be given personally or by telegram, telex or cable. SECTION 2. Waivers of Notice. Whenever any notice is required by law, the Articles of Incorporation or these By-Laws, to be given to any director, member of a committee or stockholder, a waiver thereof in writing, signed, by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE VIII GENERAL PROVISIONS SECTION 1. Dividends. Dividends upon the capital stock of the Corporation, subject to the provisions of the Articles of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, and may be paid in cash, in property, or in shares of the capital stock. SECTION 2. Disbursements. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. SECTION 3. Fiscal Year. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors. SECTION 4. Corporate Seal. The corporate seal shall have inscribed thereon the name of the Corporation and the words "Corporate Seal, Michigan". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. SECTION 5. Control Share Acquisitions. Chapter 7B of the Michigan Business Corporation Act (being Section 450.1790 through 450.1799 of Michigan Compiled Laws) shall not apply to control share acquisitions of shares of the Corporation's capital stock. SECTION 2. Disbursements. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. SECTION 3. Fiscal Year. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors. SECTION 4. Corporate Seal. The corporate seal shall have inscribed thereon the name of the Corporation and the words "Corporate Seal, Michigan". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. SECTION 5. Control Share Acquisitions. Chapter 7B of the Michigan Business Corporation Act (being Section 450.1790 through 450.1799 of Michigan Compiled Laws) shall not apply to control share acquisitions of shares of the Corporation's capital stock. ARTICLE IX AMENDMENTS SECTION 1. These By-Laws may be altered, amended or repealed, in whole or in part, or new By-Laws may be adopted by the stockholders or by the Board of Directors, provided, however, that notice of such alteration, amendment, repeal or adoption of new By-Laws be contained in the notice of such meeting of stockholders or Board of Directors as the case may be. All such amendments must be approved by either the holders of a majority of the outstanding capital stock entitled to vote thereon or by a majority of the entire Board of Directors then in office. SECTION 2. Entire Board of Directors. As used in this Article IX and in these By-Laws generally, the term "entire Board of Directors" means the exact number of directors determined pursuant to Section 1 of Article III. EXHIBIT 10.2 June 6, 2000 (First_Name)(Last_Name) Dear (First_Name): This letter will confirm our understanding concerning your employment with Borders Group, Inc. (the "Company"). You are sometimes referred to herein as the "Executive." 1. Subject to the mitigation provisions set forth below and to paragraphs 8 and 9 hereof, if your employment with the Company is terminated by the Company other than for Cause or Disability or if you terminate your employment with the Company for Good Reason, the Company will pay to you: (a) Your base salary through the month during which termination occurred, plus any other amount due you at the time of termination under any bonus plan of the Company; and (b) Monthly severance payments equal to (i) your monthly base salary at the time of termination, plus (ii) 1/12th of the "threshold" bonus amount targeted for you for the fiscal year in which termination occurred. Such monthly severance payments shall commence in the month following termination (to be paid on or about the 15th day of the month) and shall continue for twelve months; provided however, that if termination of your employment occurs within a one-year period following a Change in Control, the severance payments shall continue for twenty-four months and, subject to the mitigation provisions set forth below and to paragraphs 8 and 9 hereof, shall be equal to (i) your monthly base salary at the time of termination or immediately prior to the Change in Control, whichever base salary amount is greater, plus (ii) 1/12th of the "threshold" bonus amount targeted for you for the fiscal year in which termination occurred or EXHIBIT 10.2 June 6, 2000 (First_Name)(Last_Name) Dear (First_Name): This letter will confirm our understanding concerning your employment with Borders Group, Inc. (the "Company"). You are sometimes referred to herein as the "Executive." 1. Subject to the mitigation provisions set forth below and to paragraphs 8 and 9 hereof, if your employment with the Company is terminated by the Company other than for Cause or Disability or if you terminate your employment with the Company for Good Reason, the Company will pay to you: (a) Your base salary through the month during which termination occurred, plus any other amount due you at the time of termination under any bonus plan of the Company; and (b) Monthly severance payments equal to (i) your monthly base salary at the time of termination, plus (ii) 1/12th of the "threshold" bonus amount targeted for you for the fiscal year in which termination occurred. Such monthly severance payments shall commence in the month following termination (to be paid on or about the 15th day of the month) and shall continue for twelve months; provided however, that if termination of your employment occurs within a one-year period following a Change in Control, the severance payments shall continue for twenty-four months and, subject to the mitigation provisions set forth below and to paragraphs 8 and 9 hereof, shall be equal to (i) your monthly base salary at the time of termination or immediately prior to the Change in Control, whichever base salary amount is greater, plus (ii) 1/12th of the "threshold" bonus amount targeted for you for the fiscal year in which termination occurred or the fiscal year immediately prior to the Change in Control, whichever bonus amount is greater. Notwithstanding the foregoing, you agree to make reasonable efforts to seek (and to immediately notify the Company of) other employment and to the extent that you receive compensation from other employment, the severance payments provided herein shall be correspondingly reduced. No payments shall be due if your employment with the Company is terminated because of your retirement or death or is terminated by the Company for Cause or Disability or by you other than for Good Reason (except for any benefits which may be due you in normal course under any employee benefit plan of the Company which provides benefits after termination of employment). All payments hereunder shall be subject to applicable withholding and deductions. 2. Termination by the Company for "Cause" means termination based on (i) conduct which is a material violation of Company policy or which is fraudulent or unlawful or which materially interferes with your ability to perform your duties, (ii) misconduct which damages or injures the Company or substantially damages the Company's reputation, or (iii) gross negligence in the performance of, or willful failure to perform, your duties and responsibilities. 3. Termination by you for "Disability" means termination based on inability to perform your duties and responsibilities by reason of illness or incapacity for a total of 180 days in any twelve-month period. 4. Termination by you for "Good Reason" means termination based on the occurrence without your express consent of any of the following: (i) a reduction in your base salary, other than for Cause or Disability and other than as part of an across-the-board salary reduction generally imposed on executives of the Company (unless such across-the-board salary reduction occurs within a one-year period following a Change in Control of the Company), or (ii) within a one-year period following a Change in Control of the Company, a material diminution which materially interferes with your ability to perform your duties, (ii) misconduct which damages or injures the Company or substantially damages the Company's reputation, or (iii) gross negligence in the performance of, or willful failure to perform, your duties and responsibilities. 3. Termination by you for "Disability" means termination based on inability to perform your duties and responsibilities by reason of illness or incapacity for a total of 180 days in any twelve-month period. 4. Termination by you for "Good Reason" means termination based on the occurrence without your express consent of any of the following: (i) a reduction in your base salary, other than for Cause or Disability and other than as part of an across-the-board salary reduction generally imposed on executives of the Company (unless such across-the-board salary reduction occurs within a one-year period following a Change in Control of the Company), or (ii) within a one-year period following a Change in Control of the Company, a material diminution by the Company of benefits (taken as a whole) provided to you immediately prior to the Change in Control. 5. A "Change in Control" shall mean: (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 5; or (b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial (c) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (d) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. 6. Payments shall be reduced to the extent, if any, determined in accordance with the following provisions: (a) For purposes of this Section 6: (i) a "Payment" shall mean any payment or distribution in the nature of compensation to or for the benefit of the Executive, whether paid or payable pursuant to this Agreement or otherwise; (ii) "Agreement Payment" shall mean a Payment paid or payable pursuant to this Agreement (disregarding this Section); (iii) "Net After-Tax Receipt" shall mean the Present Value of a Payment net of all taxes imposed on the Executive with respect thereto under Sections 1 and 4999 of the Code and under applicable state and local laws, determined by applying the highest marginal rate under Section 1 of the Code and under state and local laws which applied to the Executive's taxable income for the immediately preceding taxable year, or such other rate(s) as the Executive shall certify, in the Executive's sole discretion, as likely to apply to the Executive in the relevant tax year(s); (iv) "Present Value" shall mean such value determined in accordance with Sections 280G(b)(2)(A)(ii) and 280G(d)(4) of Code; (v) "Reduced Amount" shall mean the amount of Agreement Payments that (A) has a Present Value that is less than the Present Value of all Agreement Payments and (B) results in aggregate Net After-Tax Receipts for all Payments that are greater than the Net After-Tax Receipts for all Payments that would result if the aggregate Present Value of Agreement Payments were any other amount that is less than the Present Value of all Agreement Payments; and (vi) "Code" shall mean the Internal Revenue Code of 1986, as amended. (b) Anything in the Agreement to the contrary notwithstanding, in the event PricewaterhouseCoopers or such other accounting firm as shall be designated by the Company (the "Accounting Firm") shall determine that receipt of all Payments would subject the Executive to tax under Section 4999 of the Code, the Accounting Firm shall determine whether some amount of Agreement Payments meets the definition of "Reduced Amount." If the Accounting Firm determines that there is a Reduced Amount, then the aggregate Agreement Payments shall be reduced to such Reduced Amount. (c) If the Accounting Firm determines that aggregate Agreement Payments should be reduced to the Reduced Amount, the Company shall promptly give the Executive notice to that effect and a copy of the detailed calculation thereof, and the Executive may then elect, in his or her sole discretion, which and how much of the Agreement Payments shall be eliminated or reduced (as long as after such election the Present Value of the aggregate Agreement Payments equals the Reduced Amount), and shall advise the Company in writing of his or her election within ten days of his or her receipt of notice. If no such election is made by the Executive within such ten-day period, the Company may elect which of such Agreement Payments shall be eliminated or reduced (as long as after such election the Present Value of the aggregate Agreement Payments equals the Reduced Amount) Payments and (B) results in aggregate Net After-Tax Receipts for all Payments that are greater than the Net After-Tax Receipts for all Payments that would result if the aggregate Present Value of Agreement Payments were any other amount that is less than the Present Value of all Agreement Payments; and (vi) "Code" shall mean the Internal Revenue Code of 1986, as amended. (b) Anything in the Agreement to the contrary notwithstanding, in the event PricewaterhouseCoopers or such other accounting firm as shall be designated by the Company (the "Accounting Firm") shall determine that receipt of all Payments would subject the Executive to tax under Section 4999 of the Code, the Accounting Firm shall determine whether some amount of Agreement Payments meets the definition of "Reduced Amount." If the Accounting Firm determines that there is a Reduced Amount, then the aggregate Agreement Payments shall be reduced to such Reduced Amount. (c) If the Accounting Firm determines that aggregate Agreement Payments should be reduced to the Reduced Amount, the Company shall promptly give the Executive notice to that effect and a copy of the detailed calculation thereof, and the Executive may then elect, in his or her sole discretion, which and how much of the Agreement Payments shall be eliminated or reduced (as long as after such election the Present Value of the aggregate Agreement Payments equals the Reduced Amount), and shall advise the Company in writing of his or her election within ten days of his or her receipt of notice. If no such election is made by the Executive within such ten-day period, the Company may elect which of such Agreement Payments shall be eliminated or reduced (as long as after such election the Present Value of the aggregate Agreement Payments equals the Reduced Amount) and shall notify the Executive promptly of such election. All determinations made by the Accounting Firm under this Section shall be binding upon the Company and the Executive and shall be made within 60 days of a termination of employment of the Executive. As promptly as practicable following such determination, the Company shall pay to or distribute for the benefit of the Executive such Agreement Payments as are then due to the Executive under this Agreement and shall promptly pay to or distribute for the benefit of the Executive in the future such Agreement Payments as become due to the Executive under this Agreement. (d) As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that amounts will have been paid or distributed by the Company to or for the benefit of the Executive pursuant to this Agreement which should not have been so paid or distributed ("Overpayment") or that additional amounts which will have not been paid or distributed by the Company to or for the benefit of the Executive pursuant to this Agreement could have been so paid or distributed ("Underpayment"), in each case, consistent with the calculation of the Reduced Amount hereunder. In the event that the Accounting Firm, based upon the assertion of a deficiency by the Internal Revenue Service against either the Company or the Executive which the Accounting Firm believes has a high probability of success determines that an Overpayment has been made, any such Overpayment paid or distributed by the Company to or for the benefit of the Executive shall be treated for all purposes as a loan to the Executive which the Executive shall repay to the Company together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code; provided, however, that no such loan shall be deemed to have been made and no amount shall be payable by the Executive to the Company if and to the extent such deemed loan and payment would not either reduce the amount on which the Executive is subject to tax under Section 1 and Section 4999 of the Code or generate a refund of such taxes. In the event that the Accounting Firm, based upon controlling precedent or substantial authority, determines that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code. (e) All fees and expenses of the Accounting Firm in implementing the provisions of this Section 6 shall be borne by the Company. 7. The severance payments hereunder may not be transferred, assigned or encumbered in any manner, either voluntarily or involuntarily. In the event of your death, any payments then or thereafter due hereunder will be made to your estate. 8. The payments provided hereunder shall constitute the exclusive payments due you from, and the exclusive by the Company to or for the benefit of the Executive shall be treated for all purposes as a loan to the Executive which the Executive shall repay to the Company together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code; provided, however, that no such loan shall be deemed to have been made and no amount shall be payable by the Executive to the Company if and to the extent such deemed loan and payment would not either reduce the amount on which the Executive is subject to tax under Section 1 and Section 4999 of the Code or generate a refund of such taxes. In the event that the Accounting Firm, based upon controlling precedent or substantial authority, determines that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code. (e) All fees and expenses of the Accounting Firm in implementing the provisions of this Section 6 shall be borne by the Company. 7. The severance payments hereunder may not be transferred, assigned or encumbered in any manner, either voluntarily or involuntarily. In the event of your death, any payments then or thereafter due hereunder will be made to your estate. 8. The payments provided hereunder shall constitute the exclusive payments due you from, and the exclusive obligation of, the Company in the event of any termination of your employment, except for any benefits which may be due you in normal course under any employee benefit plan of the Company which provides benefits after termination of employment, it being understood and agreed that no severance plan shall be deemed to be an employee benefit plan for this purpose. The obligation to make the payments hereunder is conditioned upon your execution and delivery to the Company of a release, in form satisfactory to the Company, of any claims you may have as a result of your employment or termination of employment under any federal, state or local law, excluding any claim for benefits which may be due you in normal course under any employee benefit plan of the Company which provides benefits after termination of employment. The obligation to make the payments hereunder is further conditioned upon the terms set forth in paragraph 9 hereof. 9. You agree that any right to receive severance payments hereunder will cease if during the one-year period following your termination of employment you directly or indirectly become an employee, director, advisor of, or otherwise affiliated with, any other entity or enterprise whose business is in competition with the business of the Company or any of its subsidiaries or affiliates. 10. Notwithstanding anything herein to the contrary, your employment with the Company is terminable at will with or without cause; subject, however, to the obligations of the Company under this agreement. 11. If a dispute arises concerning any provisions of this agreement, it shall be resolved by arbitration in Ann Arbor, Michigan in accordance with the rules of the American Arbitration Association. Judgment on the award rendered may be entered in any court having jurisdiction and enforced accordingly. 12. This letter agreement sets forth the entire understanding with respect to the subject matter hereof and supersedes all prior agreements, written or oral or express or implied, between you and the Company or any subsidiary or other affiliate of the Company as to such subject matter. This letter agreement may not be amended, nor may any provision hereof be modified or waived, except by an instrument in writing duly signed by you and the Company. 13. If any provision of this letter agreement, or any application thereof to any circumstances, is invalid, in whole or in part, such provision or application shall to that extent be severable and shall not affect other provisions or applications of this letter agreement. Please indicate your agreement by signing below and retain one copy for your records. Agreed and Accepted: Sincerely, 12. This letter agreement sets forth the entire understanding with respect to the subject matter hereof and supersedes all prior agreements, written or oral or express or implied, between you and the Company or any subsidiary or other affiliate of the Company as to such subject matter. This letter agreement may not be amended, nor may any provision hereof be modified or waived, except by an instrument in writing duly signed by you and the Company. 13. If any provision of this letter agreement, or any application thereof to any circumstances, is invalid, in whole or in part, such provision or application shall to that extent be severable and shall not affect other provisions or applications of this letter agreement. Please indicate your agreement by signing below and retain one copy for your records. Agreed and Accepted: Sincerely, BORDERS GROUP, INC. /s/ -----------------------------(First_Name) (Last_Name) By: /s/ BRUCE A. QUINNELL ----------------------Name: Bruce A. Quinnell Its: Vice Chairman EXHIBIT 10.4 AMENDMENT TO THE BORDERS GROUP, INC. STOCK OPTION PLAN The Borders Group, Inc. Stock Option Plan (the "Plan"), as restated in the Proxy Statement of Borders Group, Inc. (the "Company") dated April 9, 1997 and approved by the shareholders of the Company on May 15, 1997, is hereby amended as follows pursuant to a resolution duly adopted by the Board of Directors of the Company: 1. Section 8 of the Plan is amended in its entirety to read as follows: 8. Term of Plan. No option shall be granted under the Plan after December 31, 2005. Options granted on or before December 31, 2005, however, may extend beyond such date and the provisions of the Plan shall continue to apply thereto. Notwithstanding the foregoing, no option may be granted after December 31, 2000 to any executive officer or director of the Company in contravention of any applicable rule of the New York Stock Exchange. 2. Except as herein amended, the Plan shall remain in full force and effect. BORDERS GROUP, INC. By: /s/ ------------------------ December 14, 2000 EXHIBIT 10.7 AGREEMENT THIS AGREEMENT ("Agreement") dated as of January 25, 2001, by and among KMART CORPORATION, EXHIBIT 10.4 AMENDMENT TO THE BORDERS GROUP, INC. STOCK OPTION PLAN The Borders Group, Inc. Stock Option Plan (the "Plan"), as restated in the Proxy Statement of Borders Group, Inc. (the "Company") dated April 9, 1997 and approved by the shareholders of the Company on May 15, 1997, is hereby amended as follows pursuant to a resolution duly adopted by the Board of Directors of the Company: 1. Section 8 of the Plan is amended in its entirety to read as follows: 8. Term of Plan. No option shall be granted under the Plan after December 31, 2005. Options granted on or before December 31, 2005, however, may extend beyond such date and the provisions of the Plan shall continue to apply thereto. Notwithstanding the foregoing, no option may be granted after December 31, 2000 to any executive officer or director of the Company in contravention of any applicable rule of the New York Stock Exchange. 2. Except as herein amended, the Plan shall remain in full force and effect. BORDERS GROUP, INC. By: /s/ ------------------------ December 14, 2000 EXHIBIT 10.7 AGREEMENT THIS AGREEMENT ("Agreement") dated as of January 25, 2001, by and among KMART CORPORATION, a Michigan corporation ("Kmart"), having an address at 3100 West Big Beaver Road, Troy, Michigan 48084, BORDERS GROUP, INC., a Michigan corporation ("BGI"), and BORDERS, INC., a Colorado corporation ("Borders"), each of BGI and Borders having an address at 100 Phoenix Drive, Ann Arbor, Michigan 48108. A. Borders is a wholly-owned subsidiary of BGI. B. Prior to the date hereof, Borders entered into certain leases, as tenant, with various landlords, which leases are described on Schedule "1", Schedule "2" and Schedule "3" attached hereto and incorporated herein by this reference (the "Leases"), for certain real properties described in the Leases and referenced by street address on said Schedules "1", "2" and "3". C. Prior to the date hereof, Kmart executed certain lease guaranty agreements pursuant to which Kmart guaranteed certain obligations of Borders under the Leases (the "Guaranties"). D. Prior to the date hereof, Kmart, Borders and BGI entered into that certain Lease Guaranty, Indemnification and Reimbursement Agreement, dated May 24, 1995 (the "LGIRA"), whereby Borders and BGI agreed, among other things, to indemnify Kmart in connection with the obligations of Borders under the Leases and to accept certain financial and other covenants in favor of Kmart. E. Borders and BGI have requested that Kmart waive certain requirements of Borders and BGI under the LGIRA in consideration of the agreement of BGI and Borders to cause Kmart to be released from certain of the Guaranties, and Kmart desires to satisfy such request, subject to and in accordance with the terms and conditions of this Agreement. EXHIBIT 10.7 AGREEMENT THIS AGREEMENT ("Agreement") dated as of January 25, 2001, by and among KMART CORPORATION, a Michigan corporation ("Kmart"), having an address at 3100 West Big Beaver Road, Troy, Michigan 48084, BORDERS GROUP, INC., a Michigan corporation ("BGI"), and BORDERS, INC., a Colorado corporation ("Borders"), each of BGI and Borders having an address at 100 Phoenix Drive, Ann Arbor, Michigan 48108. A. Borders is a wholly-owned subsidiary of BGI. B. Prior to the date hereof, Borders entered into certain leases, as tenant, with various landlords, which leases are described on Schedule "1", Schedule "2" and Schedule "3" attached hereto and incorporated herein by this reference (the "Leases"), for certain real properties described in the Leases and referenced by street address on said Schedules "1", "2" and "3". C. Prior to the date hereof, Kmart executed certain lease guaranty agreements pursuant to which Kmart guaranteed certain obligations of Borders under the Leases (the "Guaranties"). D. Prior to the date hereof, Kmart, Borders and BGI entered into that certain Lease Guaranty, Indemnification and Reimbursement Agreement, dated May 24, 1995 (the "LGIRA"), whereby Borders and BGI agreed, among other things, to indemnify Kmart in connection with the obligations of Borders under the Leases and to accept certain financial and other covenants in favor of Kmart. E. Borders and BGI have requested that Kmart waive certain requirements of Borders and BGI under the LGIRA in consideration of the agreement of BGI and Borders to cause Kmart to be released from certain of the Guaranties, and Kmart desires to satisfy such request, subject to and in accordance with the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the foregoing recitals and for other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, Kmart, BGI and Borders agree as follows: 1. Release of Kmart from Obligations under the Leases and Related Guaranties. 1.1 Group A Leases. As soon as practicable after the date hereof but in no event later than April 15, 2001, BGI shall cause Ernst & Young LLP (or another national accounting firm) to prepare audited financial statements (the "Financial Statements") for Walden Book Company, Inc., a wholly-owned subsidiary of BGI ("Walden"), as of the end of Walden's current fiscal year. If the Financial Statements confirm that Walden has a tangible net worth in excess of $250 million, then (i) Borders shall promptly, after receipt of the Financial Statements, assign the Leases described on Schedule "1" attached hereto and incorporated herein by this reference (the "Group A Leases") to Walden, and Walden shall assume the Group A Leases pursuant to an Assignment and Assumption Agreement with respect to each Group A Lease in the form of Exhibit A attached hereto and incorporated herein by this reference (the "Assignment Agreement"), and (ii) Walden shall send to the landlords under the Group A Leases the Financial Statements, the Assignment Agreements and the other documentation set forth in Exhibit B; provided, however, that the foregoing requirements set forth in clauses (i) and (ii) shall not apply to any Group A Lease as to which, subsequent to the date hereof, the applicable Kmart Guaranty shall have previously been released; and, provided further, that, notwithstanding the foregoing, in the case of the Group A Lease for the premises in Aventura, Florida (Reference No. 83 on Schedule "1" hereto), in lieu of taking the actions referenced in clauses (i) and (ii) of this sentence, BGI shall guarantee to the applicable ground lessor the obligations of the ground lessee under the underlying ground lease and shall provide such ground lessor evidence that BGI's net worth exceeds $250 million and notice that BGI's replacement guaranty has caused the termination of the applicable Guaranty from Kmart. If the Financial Statements do not confirm that Walden has a net worth in excess of $250 million, then this Agreement shall terminate and be of no further force or effect, except with respect to the obligations of BGI and Borders pursuant to Section 3 hereof. to an Assignment and Assumption Agreement with respect to each Group A Lease in the form of Exhibit A attached hereto and incorporated herein by this reference (the "Assignment Agreement"), and (ii) Walden shall send to the landlords under the Group A Leases the Financial Statements, the Assignment Agreements and the other documentation set forth in Exhibit B; provided, however, that the foregoing requirements set forth in clauses (i) and (ii) shall not apply to any Group A Lease as to which, subsequent to the date hereof, the applicable Kmart Guaranty shall have previously been released; and, provided further, that, notwithstanding the foregoing, in the case of the Group A Lease for the premises in Aventura, Florida (Reference No. 83 on Schedule "1" hereto), in lieu of taking the actions referenced in clauses (i) and (ii) of this sentence, BGI shall guarantee to the applicable ground lessor the obligations of the ground lessee under the underlying ground lease and shall provide such ground lessor evidence that BGI's net worth exceeds $250 million and notice that BGI's replacement guaranty has caused the termination of the applicable Guaranty from Kmart. If the Financial Statements do not confirm that Walden has a net worth in excess of $250 million, then this Agreement shall terminate and be of no further force or effect, except with respect to the obligations of BGI and Borders pursuant to Section 3 hereof. 1.2 Group B Leases. Commencing upon BGI's delivery of the Financial Statements to Kmart pursuant to Section 1.1 to confirm that Walden's tangible net worth exceeds $250 million, except to the extent the applicable Guaranty shall have previously been released subsequent to the date hereof, BGI and Borders shall use their reasonable best efforts (without the payment of money other than for their own overhead and for the fees of their own counsel, advisors, representatives and other third party service providers representing BGI or Borders, and without being required to take any action other than as described in the following clauses (i), (ii), (iii) and (iv)) to cause Kmart to be fully, absolutely and unconditionally released from any and all obligations and liabilities under the Leases described on Schedule "2" attached hereto and incorporated herein by this reference (the "Group B Leases") and the related Guaranties by (i) offering in writing (each such offer, a "BGI Guaranty Offer") to each landlord under the Group B Leases, as a substitute for the applicable Kmart Guaranty and in exchange for such landlord's release of Kmart as aforesaid, a guaranty from BGI of the obligations of Borders under such landlord's Group B Lease, (ii) responding diligently to requests for information (including, without limitation, financial statements of BGI) and other queries by landlords under the Group B Leases in connection with the BGI Guaranty Offer, (iii) negotiating in good faith the terms of any guaranty to be issued by BGI, and (iv) keeping Kmart apprised as to the progress of their efforts under this Section 1.2 and seeking to effect and evidence any releases obtained pursuant to this Section 1.2 with documentation in form and substance acceptable to Kmart in Kmart's sole and absolute discretion. 1.3 Group C Leases. Each of BGI and Borders represents and warrants that Kmart has been fully, absolutely and unconditionally released from any and all obligations and liabilities under the Leases described on Schedule "3" attached hereto and incorporated herein by this reference (the "Group C Leases") and the related Guaranties pursuant to notices referenced in Schedule "4". 1.4 Continuing Obligation. The rights and obligations of the parties set forth in Sections 1.1 and 1.2 shall survive the effective date of the Amendment (as defined below), if any, and shall continue until Kmart has been fully, absolutely and unconditionally released from any and all obligations and liabilities under the Leases and the related Guaranties. 2. Amendment of LGIRA. 2.1 Conditions. BGI, Borders and Kmart have executed an amendment to the LGIRA in the form of Exhibit C attached hereto and incorporated herein by this reference (the "Amendment"), which Amendment has been delivered to Skadden, Arps, Slate, Meagher & Flom ("Escrow Agent") to be held in escrow pending satisfaction of the following conditions (the "Conditions"): (a) BGI shall have delivered the Financial Statements to Kmart and the Financial Statements shall disclose that Walden's tangible net worth exceeds $250 million; (b) The Assignment Agreement shall have been executed by Borders and Walden, to the extent required under Section 1.1 hereof; any, and shall continue until Kmart has been fully, absolutely and unconditionally released from any and all obligations and liabilities under the Leases and the related Guaranties. 2. Amendment of LGIRA. 2.1 Conditions. BGI, Borders and Kmart have executed an amendment to the LGIRA in the form of Exhibit C attached hereto and incorporated herein by this reference (the "Amendment"), which Amendment has been delivered to Skadden, Arps, Slate, Meagher & Flom ("Escrow Agent") to be held in escrow pending satisfaction of the following conditions (the "Conditions"): (a) BGI shall have delivered the Financial Statements to Kmart and the Financial Statements shall disclose that Walden's tangible net worth exceeds $250 million; (b) The Assignment Agreement shall have been executed by Borders and Walden, to the extent required under Section 1.1 hereof; (c) Borders shall have sent to each landlord under the Group A Leases a copy of the Financial Statements, the applicable Assignment Agreement and the other documentation (if any) set forth in Exhibit B, in accordance with the provisions of Section 1.1 (or, in the case of the Group A Lease for the Aventura, Florida premises, the other documentation required under Section 1.1 above); (d) BGI and Borders shall have sent a BGI Guaranty Offer to each landlord under the Group B Leases as required under Section 1.2; and (e) During the 120 day period following satisfaction of the Condition set forth in clause (c) above (the "Objection Period"), Objection Notices (as defined below) shall have been received by the parties hereto (and shall not have been withdrawn by the applicable landlords) in respect of no more that seven Group A Leases; provided, however, that if Objection Notices shall have been received by any of the parties hereto (and not withdrawn) during the Objection Period in respect of more that seven Group A Leases but any one or more of such Objection Notices shall have been withdrawn in writing within 95 days following the end of the Objection Period such that there shall be seven or fewer Group A Leases in respect of which Objection Notices are outstanding, then the Condition set forth in this clause (e) shall be deemed to have been satisfied as of the date following the Objection Period on which there are seven or fewer Group A Leases in respect of which Objection Notices are outstanding. The term "Objection Notice" shall mean, collectively, one or more notices from a landlord under a Group A Lease which are received by any of the parties hereto during the Objection Period and which contest the termination of the Guaranty applicable to such landlord's Group A Lease. If any of the parties hereto shall receive an Objection Notice it shall promptly provide written notice thereof (including a copy thereof) to the other parties hereto and to Escrow Agent. The parties hereto and Escrow Agent have executed a separate agreement of even date herewith to evidence the agreement of Escrow Agent to hold the Amendment in trust in accordance with the terms hereof and to release the Amendment to Kmart and BGI upon receipt of notice from BGI or Kmart certifying that the Conditions have been satisfied. The Amendment shall not be effective until it is released by Escrow Agent, and Escrow Agent is hereby directed to date the Amendment (by filling in the date in the first paragraph thereof) as of the date of its release from escrow (the "Effective Date"). 2.2 Alternative Arrangement. If the Conditions shall have been satisfied but Objection Notices in respect of more than three Group A Leases shall have been received by any of the parties hereto prior to the Effective Date, then (x) Borders and BGI shall exercise their reasonable best efforts (without the payment of money other than for their own overhead and for the fees of their own counsel, advisors, representatives and other third party service providers representing BGI or Borders) to cause each landlord who issued an Objection Notice to withdraw its Objection Notice by offering to provide such landlord a guaranty from BGI of the tenant's obligations under such landlord's Group A Lease and by taking such other actions as Borders or BGI shall determine in their sole discretion to be appropriate, and (y) if, despite such efforts described in clause (x), there shall remain more than Objection Period and which contest the termination of the Guaranty applicable to such landlord's Group A Lease. If any of the parties hereto shall receive an Objection Notice it shall promptly provide written notice thereof (including a copy thereof) to the other parties hereto and to Escrow Agent. The parties hereto and Escrow Agent have executed a separate agreement of even date herewith to evidence the agreement of Escrow Agent to hold the Amendment in trust in accordance with the terms hereof and to release the Amendment to Kmart and BGI upon receipt of notice from BGI or Kmart certifying that the Conditions have been satisfied. The Amendment shall not be effective until it is released by Escrow Agent, and Escrow Agent is hereby directed to date the Amendment (by filling in the date in the first paragraph thereof) as of the date of its release from escrow (the "Effective Date"). 2.2 Alternative Arrangement. If the Conditions shall have been satisfied but Objection Notices in respect of more than three Group A Leases shall have been received by any of the parties hereto prior to the Effective Date, then (x) Borders and BGI shall exercise their reasonable best efforts (without the payment of money other than for their own overhead and for the fees of their own counsel, advisors, representatives and other third party service providers representing BGI or Borders) to cause each landlord who issued an Objection Notice to withdraw its Objection Notice by offering to provide such landlord a guaranty from BGI of the tenant's obligations under such landlord's Group A Lease and by taking such other actions as Borders or BGI shall determine in their sole discretion to be appropriate, and (y) if, despite such efforts described in clause (x), there shall remain more than three Group A Leases in respect of which Objection Notices are outstanding on the date which is 90 days after the Effective Date, then BGI or Borders shall provide Kmart an Acceptable Letter of Credit (as defined below) as security for the obligation of Borders and BGI under Section 2 of the LGIRA to indemnify Kmart for any payments Kmart makes under any of the Guaranties. An "Acceptable Letter of Credit" shall be a letter of credit which: (i) is issued by a national bank; (ii) has a face amount equal to the lesser of (A) $3 million and (B) the product of (x) Six Hundred Seven Thousand Four Hundred Thirty-Five Dollars ($607,435) multiplied by (y) the number of Group A Leases in excess of three in respect of which Objection Notices remain outstanding at the expiration of the aforesaid 90 day period commencing on the Effective Date; (iii) shall be renewed annually for five years following the Effective Date; and (iv) is otherwise in form and substance reasonably acceptable to Kmart. 3. Payment of Legal Fees. BGI and Borders shall reimburse Kmart from time to time for legal fees and costs incurred by Kmart in connection with this Agreement, including legal fees and costs relating to: (i) review of the Guaranties for termination rights, (ii) negotiation and drafting of this Agreement and the Amendment, (iii) review of documentation effecting and evidencing the release of Kmart from any and all obligations and liabilities under the Leases and related Guaranties, and (iv) enforcement of the parties' respective rights and obligations under this Agreement; provided, however, that in no event shall BGI or Borders be required to reimburse Kmart more than Fifty-Eight Thousand Dollars ($58,000) for legal fees and costs incurred pursuant to subsections (i), (ii) and (iii) of this Section 3. There shall be no such cap with respect to fees and costs incurred by Kmart pursuant to subsection (iv) hereof. The obligations of the parties set forth in this Section 3 shall survive termination of this Agreement pursuant to Sections 1.1 or 4.10 hereof, with respect to fees and costs incurred pursuant to subsections (i), (ii) and (iii) prior to the termination of the Agreement, and with respect to fees and costs incurred pursuant to subsection (iv), whenever incurred. 4. Miscellaneous. 4.1 Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given upon receipt if delivered personally or sent by facsimile transmission (receipt of which is confirmed) or by courier service promising overnight delivery (with delivery confirmed the next day) or three (3) Business Days after sent by registered or certified mail (postage prepaid, return receipt requested). Notices shall be addressed as follows: prior to the termination of the Agreement, and with respect to fees and costs incurred pursuant to subsection (iv), whenever incurred. 4. Miscellaneous. 4.1 Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given upon receipt if delivered personally or sent by facsimile transmission (receipt of which is confirmed) or by courier service promising overnight delivery (with delivery confirmed the next day) or three (3) Business Days after sent by registered or certified mail (postage prepaid, return receipt requested). Notices shall be addressed as follows: To Kmart: Kmart Corporation 3100 West Big Beaver Road Troy, Michigan 48084-33163 Attention: General Counsel Facsimile: (248) 643-1054 Treasurer Facsimile: (248) 643-5398 Skadden, Arps, Slate, Meagher & Flom (Illinois) 333 West Wacker Drive Chicago, Illinois 60606 Attention: John Wm. Butler, Jr., Esq. Marian P. Wexler, Esq. Facsimile: (312) 407-0411 Borders Group, Inc. 100 Phoenix Drive Ann Arbor, Michigan 48108 Attention: General Counsel Facsimile: (734) 477-1285 Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, New York 10019 Attention: Richard D. Katcher, Esq. Robin Panovka, Esq. With a copy to: To BGI or Borders: With a copy to: Facsimile: (212) 403-2000 Any party may from time to time change its address for the purpose of notices by a similar notice specifying the new address but no such change shall be effective as against any person or entity until such person or entity shall have actually received it. 4.2 Final Agreement. This Agreement contains the final and entire agreement among the parties with respect to the transactions contemplated hereby and supersedes all written or verbal representations, warranties, commitments and other understandings prior to the date hereof. No reference shall be made to any draft of this Agreement for purposes of interpretation or resolution of ambiguity or otherwise. 4.3 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 4.4 Unenforceability. If any provision hereof shall be held to be unenforceable or invalid by any court of competent jurisdiction or as a result of future legislative action, such holding or action shall be strictly construed and shall not alter the enforceability, validity or effect of any other provision hereof. 4.5 Successors and Assigns. This Agreement shall be binding upon, inure to the benefit of, and be enforceable hereof. No reference shall be made to any draft of this Agreement for purposes of interpretation or resolution of ambiguity or otherwise. 4.3 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 4.4 Unenforceability. If any provision hereof shall be held to be unenforceable or invalid by any court of competent jurisdiction or as a result of future legislative action, such holding or action shall be strictly construed and shall not alter the enforceability, validity or effect of any other provision hereof. 4.5 Successors and Assigns. This Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the parties hereto and their respective successors and permitted assigns; provided, however, that in no event shall any party to this Agreement assign or transfer any of its right, title or interest in or to this Agreement without the written consent of the other parties to this Agreement, which consent may be withheld in the sole and absolute discretion of such parties. 4.6 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Michigan. 4.7 Further Actions. Subject to the terms and conditions herein provided, each of the parties hereto agrees to use all commercially reasonable efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things necessary, proper or advisable, whether under applicable laws and regulations or otherwise, to make effective the transactions contemplated by this Agreement. If at any time after the date hereof any further action is necessary or desirable to carry out the purposes of this Agreement, the parties hereto shall take or cause to be taken all such necessary action, including the execution and delivery of such further instruments and documents as may be reasonably requested by the other party for such purposes or otherwise to make effective the transactions contemplated hereby. 4.8 Interpretation. The term "including" (and with correlative "include") shall mean including without limiting the generality of any description preceding such term. 4.9 Amendment. This Agreement may be amended only by a written instrument duly executed by a duly authorized officer of each of the parties hereto. 4.10 Termination. If this Agreement shall be terminated pursuant to Sections 1.1 or if the Condition set forth in Section 2.1(e) hereof shall not have been satisfied by the first anniversary of the date of the satisfaction of the Condition set forth in Section 2.1(c), then Escrow Agent shall promptly destroy the Amendment and this Agreement (including Section 1.4 hereof) shall terminate as of such date and the parties shall have no further obligation hereunder, except with respect to the obligations of BGI and Borders pursuant to Section 3 hereof. 4.11 Headings. The section headings contained in this Agreement are for reference purposes only and shall not affect in any manner the meaning or interpretation of this Agreement. IN WITNESS WHEREOF, the undersigned have executed and delivered this Agreement as of the date first written above. KMART CORPORATION By:/s/ --------------------------------Name: Title: BORDERS GROUP, INC. IN WITNESS WHEREOF, the undersigned have executed and delivered this Agreement as of the date first written above. KMART CORPORATION By:/s/ --------------------------------Name: Title: BORDERS GROUP, INC. By:/s/ --------------------------------Name: Title: BORDERS, INC. By:/s/ --------------------------------Name: Title: EXHIBIT "A" ASSIGNMENT AND ASSUMPTION OF LEASE ASSIGNMENT AND ASSUMPTION OF LEASE (this "Assignment") dated as of ____________________, 2001, between BORDERS, INC., a Colorado corporation having an address at 100 Phoenix Drive, Ann Arbor, Michigan 48101 ("Assignor") and WALDEN BOOK COMPANY, INC., a ____________________ corporation having an address at [100 Phoenix Drive, Ann Arbor, Michigan 48108] ("Assignee"). Background Assignor has agreed to assign, and Assignee has agreed to assume, from and after the date hereof, the obligations of the tenant under that certain lease (the "Lease") dated ____________________, between Assignee, as tenant, and ____________________, as landlord, with respect to premises located at ____________________ [, as such lease has been amended by amendment[s] dated ___________________]. Assignment and Assumption In consideration of Ten Dollars and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by Assignor and Assignee: (i) Assignor does hereby assign, transfer and set over unto Assignee all of Assignor's right, title and interest in the Lease, and (ii) Assignee does hereby assume the performance of all of the terms, covenants and conditions of the Lease on Assignor's part to be performed thereunder from and after the date hereof and agrees to perform all of the terms, covenants and conditions of the Lease from and after the date hereof, all with the same force and effect as though the Assignee had signed such Lease as the tenant named therein. TO HAVE AND TO HOLD, the same unto Assignee, its successors and assigns, from and after the date hereof, subject to the terms, covenants, conditions and provisions contained in the Lease. EXHIBIT "A" ASSIGNMENT AND ASSUMPTION OF LEASE ASSIGNMENT AND ASSUMPTION OF LEASE (this "Assignment") dated as of ____________________, 2001, between BORDERS, INC., a Colorado corporation having an address at 100 Phoenix Drive, Ann Arbor, Michigan 48101 ("Assignor") and WALDEN BOOK COMPANY, INC., a ____________________ corporation having an address at [100 Phoenix Drive, Ann Arbor, Michigan 48108] ("Assignee"). Background Assignor has agreed to assign, and Assignee has agreed to assume, from and after the date hereof, the obligations of the tenant under that certain lease (the "Lease") dated ____________________, between Assignee, as tenant, and ____________________, as landlord, with respect to premises located at ____________________ [, as such lease has been amended by amendment[s] dated ___________________]. Assignment and Assumption In consideration of Ten Dollars and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by Assignor and Assignee: (i) Assignor does hereby assign, transfer and set over unto Assignee all of Assignor's right, title and interest in the Lease, and (ii) Assignee does hereby assume the performance of all of the terms, covenants and conditions of the Lease on Assignor's part to be performed thereunder from and after the date hereof and agrees to perform all of the terms, covenants and conditions of the Lease from and after the date hereof, all with the same force and effect as though the Assignee had signed such Lease as the tenant named therein. TO HAVE AND TO HOLD, the same unto Assignee, its successors and assigns, from and after the date hereof, subject to the terms, covenants, conditions and provisions contained in the Lease. This Assignment and Assumption of Lease shall inure to the benefit of, and be binding upon, Assignor, Assignee and their respective successors and assigns. IN WITNESS WHEREOF, the Assignor and Assignee have duly executed this instrument as of the day first above written. ASSIGNOR: BORDERS, INC. By:/s/ ----------------------------------------Name: Title: ASSIGNEE: WALDEN BOOK COMPANY, INC. By:/s/ ----------------------------------------Name: Title: IN WITNESS WHEREOF, the Assignor and Assignee have duly executed this instrument as of the day first above written. ASSIGNOR: BORDERS, INC. By:/s/ ----------------------------------------Name: Title: ASSIGNEE: WALDEN BOOK COMPANY, INC. By:/s/ ----------------------------------------Name: Title: EXHIBIT "B" NOTICE OF ASSIGNMENT [Borders Letterhead] [Date] VIA CERTIFIED MAIL RETURN RECEIPT REQUESTED [Landlord Name and Address] Re: [Describe Lease] (the "LEASE") Dear [Landlord]: This notice is delivered to advise you that the above-referenced Lease has been assigned by the tenant, Borders, Inc. ("BORDERS"), to Walden Book Company, Inc. ("WALDEN"), an affiliate of Borders, effective on [Effective Date of Assignment] (the "EFFECTIVE DATE"). Copies of the Assignment and Assumption Agreement between Borders and Walden and the audited financial statements for Walden as of the end of its most recent fiscal year are enclosed herewith. As you can see, Walden's financial statements indicate that, as of the end of its fiscal year 2000, it had a net worth in excess of [$250,000,000/FOR #79 and #89 - $200,000,000] [FOR #89 - and has maintained its net worth in excess of $200,000,000 continuously throughout the prior fiscal year]. Therefore, Walden has satisfied the net worth requirements set forth in the Lease Guaranty Agreement dated [Date] between [Landlord] and Kmart Corporation (the "GUARANTY"), and this letter shall constitute notice that the Guaranty is hereby terminated as of the Effective Date. Please address any and all notices and other communications to the tenant under or in connection with the Lease to Walden at the address of the tenant set forth in the Lease or otherwise provided to you pursuant to the terms of the Lease. Thank you in advance for your cooperation. EXHIBIT "B" NOTICE OF ASSIGNMENT [Borders Letterhead] [Date] VIA CERTIFIED MAIL RETURN RECEIPT REQUESTED [Landlord Name and Address] Re: [Describe Lease] (the "LEASE") Dear [Landlord]: This notice is delivered to advise you that the above-referenced Lease has been assigned by the tenant, Borders, Inc. ("BORDERS"), to Walden Book Company, Inc. ("WALDEN"), an affiliate of Borders, effective on [Effective Date of Assignment] (the "EFFECTIVE DATE"). Copies of the Assignment and Assumption Agreement between Borders and Walden and the audited financial statements for Walden as of the end of its most recent fiscal year are enclosed herewith. As you can see, Walden's financial statements indicate that, as of the end of its fiscal year 2000, it had a net worth in excess of [$250,000,000/FOR #79 and #89 - $200,000,000] [FOR #89 - and has maintained its net worth in excess of $200,000,000 continuously throughout the prior fiscal year]. Therefore, Walden has satisfied the net worth requirements set forth in the Lease Guaranty Agreement dated [Date] between [Landlord] and Kmart Corporation (the "GUARANTY"), and this letter shall constitute notice that the Guaranty is hereby terminated as of the Effective Date. Please address any and all notices and other communications to the tenant under or in connection with the Lease to Walden at the address of the tenant set forth in the Lease or otherwise provided to you pursuant to the terms of the Lease. Thank you in advance for your cooperation. Very Truly Yours, BORDERS, INC. By:/s/ -----------------------cc: Kmart Corporation EXHIBIT "C" FIRST AMENDMENT TO LEASE GUARANTY, INDEMNIFICATION AND REIMBURSEMENT AGREEMENT THIS FIRST AMENDMENT TO LEASE GUARANTY, INDEMNIFICATION AND REIMBURSEMENT AGREEMENT ("Amendment") is made as of the _____ day of ___________, 2000, by and among KMART CORPORATION, a Michigan corporation ("Kmart"), having an address at 3100 West Big Beaver Road, Troy, Michigan 48084, BORDERS GROUP, INC., a Michigan corporation ("BGI"), and BORDERS, INC., a Colorado corporation ("Borders"), each of BGI and Borders having an address at 100 Phoenix Drive, Ann Arbor, Michigan 48108. EXHIBIT "C" FIRST AMENDMENT TO LEASE GUARANTY, INDEMNIFICATION AND REIMBURSEMENT AGREEMENT THIS FIRST AMENDMENT TO LEASE GUARANTY, INDEMNIFICATION AND REIMBURSEMENT AGREEMENT ("Amendment") is made as of the _____ day of ___________, 2000, by and among KMART CORPORATION, a Michigan corporation ("Kmart"), having an address at 3100 West Big Beaver Road, Troy, Michigan 48084, BORDERS GROUP, INC., a Michigan corporation ("BGI"), and BORDERS, INC., a Colorado corporation ("Borders"), each of BGI and Borders having an address at 100 Phoenix Drive, Ann Arbor, Michigan 48108. A. Prior to the date hereof, Kmart, Borders and BGI entered into that certain Lease Guaranty, Indemnification and Reimbursement Agreement, dated May 24, 1995 (the "LGIRA"), whereby Borders and BGI agreed, among other things, to indemnify Kmart in connection with the obligations of Borders under the Leases (as defined in the LGIRA) and to accept certain financial and other covenants in favor of Kmart. B. Prior to the date hereof, Kmart, Borders and BGI entered into that certain Agreement, dated January ___, 2001 (the "Agreement"), whereby Kmart agreed to amend the LGIRA upon the satisfaction of certain conditions set forth in Section 2 of the Agreement. C. The conditions set forth in Section 2 of the Agreement have been satisfied, and thus Kmart, Borders and BGI desire to amend the LGIRA in accordance with the Agreement. NOW, THEREFORE, in consideration of the foregoing recitals and for other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, Kmart, BGI and Borders agree as follows: 1. Representation of Satisfaction of Conditions. Each of Borders and BGI represent and warrant to Kmart that the conditions set forth in Section 2 of the Agreement have been fully satisfied. Without limiting the foregoing sentence, BGI and Borders are unconditionally and irrevocably committed to continue to take the actions required under Section 1.2 of the Agreement to seek to cause Kmart to be fully, absolutely and unconditionally released from any and all obligations and liabilities relating to the Group B Leases (as defined in the Agreement) and related Guaranties (as defined in the Agreement). 2. Amendment of LGIRA. The LGIRA is amended as follows: (a) Sections 5(a) and 5(b) of the LGIRA (other than the definition of the term "Indebtedness") are hereby deleted in their entirety; (b) Clause (ii) of Section 5(c) is hereby deleted in its entirety; and (c) Clause (i) of Section 5(e) is hereby deleted in its entirety. 3. Prior Agreements/Conflicts. This Amendment contains all of the agreements of the parties hereto with respect to the matters contained herein, and no prior agreement (other than the Agreement and the LGIRA as modified by this Amendment), arrangement or understanding pertaining to any of such matters shall be effective for any purpose. 4. LGIRA Ratification. With the sole exception of the matters expressly set forth in this Amendment, each and every one of the terms, conditions, agreements and provisions of the LGIRA shall remain unchanged and in full force and effect, and all of rights and obligations of the parties under the LGIRA are hereby reaffirmed, ratified, and confirmed in their entirety. 5. Counterparts. This Amendment may be executed in several counterparts and all such counterparts shall constitute one agreement binding on the parties hereto. 3. Prior Agreements/Conflicts. This Amendment contains all of the agreements of the parties hereto with respect to the matters contained herein, and no prior agreement (other than the Agreement and the LGIRA as modified by this Amendment), arrangement or understanding pertaining to any of such matters shall be effective for any purpose. 4. LGIRA Ratification. With the sole exception of the matters expressly set forth in this Amendment, each and every one of the terms, conditions, agreements and provisions of the LGIRA shall remain unchanged and in full force and effect, and all of rights and obligations of the parties under the LGIRA are hereby reaffirmed, ratified, and confirmed in their entirety. 5. Counterparts. This Amendment may be executed in several counterparts and all such counterparts shall constitute one agreement binding on the parties hereto. 6. Headings. The section headings contained in this Amendment are for reference purposes only and shall not affect in any manner the meaning or interpretation of this Amendment. IN WITNESS WHEREOF, the undersigned have executed and delivered this Amendment as of the date first written above. KMART CORPORATION By:/s/ --------------------------------------Name: Title: BORDERS GROUP, INC. By:/s/ --------------------------------------Name: Title: BORDERS, INC. By:/s/ --------------------------------------Name: Title: EXHIBIT 10.12 FOURTH AMENDMENT TO THE BORDERS GROUP, INC. MANAGEMENT STOCK PURCHASE PLAN Borders Group Management Stock Purchase Plan (as amended, the "Plan") is hereby amended in the following particulars effective as of December 14, 2000: 1. Paragraph (b) of Article 5 of the Plan is hereby amended to read as follows: "PRICE. Except with respect to Restricted Shares purchased pursuant to Article 16 hereof, the price of each Restricted Share purchased under the Plan by any Participant who is not a Section 16 Person shall be discounted (i) twenty percent (20%) from its Fair Market Value, in the event that the Participant elects a Restricted Period of EXHIBIT 10.12 FOURTH AMENDMENT TO THE BORDERS GROUP, INC. MANAGEMENT STOCK PURCHASE PLAN Borders Group Management Stock Purchase Plan (as amended, the "Plan") is hereby amended in the following particulars effective as of December 14, 2000: 1. Paragraph (b) of Article 5 of the Plan is hereby amended to read as follows: "PRICE. Except with respect to Restricted Shares purchased pursuant to Article 16 hereof, the price of each Restricted Share purchased under the Plan by any Participant who is not a Section 16 Person shall be discounted (i) twenty percent (20%) from its Fair Market Value, in the event that the Participant elects a Restricted Period of two years pursuant to Article 5(d) hereof; or (ii) thirty percent (30%) from its Fair Market Value, in the event that the Participant elects a Restricted Period of three years pursuant to Article 5(d) hereof; or (iii) forty percent (40%) from its Fair Market Value, in the event that the Participant elects a Restricted Period of four years pursuant to Article 5(d) hereof. The price of each Restricted Share purchased under the Plan by a Section 16 Person shall be discounted twenty percent (20%)." 2. Paragraph (d) of Article 5 of the Plan is hereby amended to read as follows: "RESTRICTED PERIOD. Except with respect to Restricted Shares purchased pursuant to Article 16 hereof, and subject to Article 5(h) hereof and such exceptions as may be determined by the Committee in its discretion, Participants who are not Section 16 Persons may elect a Restricted Period for Restricted Shares purchased under the Plan of (i) two (2) years, (ii) three (3) years, or (iii) four (4) years from the date of purchase. The Restricted Period for Restricted Shares purchased under the Plan by Section 16 Persons shall be three (3) years from the date of purchase. For purposes of calculating the Restricted Period, the date of purchase with respect to annual purchases shall be deemed to be the date the Annual Bonus is payable. Any election described in this paragraph shall be made in accordance with rules established by the Committee." 3. Paragraph (a) of Article 16 of the Plan is hereby amended by the addition at the end thereof of the following: "Notwithstanding anything to the contrary in the Plan, the Restricted Period for Restricted Shares purchased pursuant to this Article shall be three (3) years." Except as herein amended, the Plan remains in full force and effect. BORDERS GROUP, INC. By: /s/ ------------------ EXHIBIT 10.21 THIRD AMENDMENT TO THE BORDERS GROUP, INC. DIRECTOR STOCK PLAN The Borders Group, Inc. Director Stock Plan (the "Plan") is hereby amended in the following particulars, effective as of December 14, 2000: 1. The word "nonemployee" is hereby deleted from Section 1.1 of the Plan, so that directors who are employees EXHIBIT 10.21 THIRD AMENDMENT TO THE BORDERS GROUP, INC. DIRECTOR STOCK PLAN The Borders Group, Inc. Director Stock Plan (the "Plan") is hereby amended in the following particulars, effective as of December 14, 2000: 1. The word "nonemployee" is hereby deleted from Section 1.1 of the Plan, so that directors who are employees of the Company may benefit from the Plan in accordance with the terms of the Plan, as amended. 2. Paragraph (i) of Article 2 of the Plan is hereby amended in its entirety to read as follows: "Participant" shall mean a nonemployee member of the Board, except that such term shall include a member of the Board who is an employee of the Company for purposes of any Restricted Shares granted under Section 4.2 (b) and (b) options granted under Section 19.1 (b) and any related provisions of the Plan. 3. Section 4.2 of the Plan is hereby amended to make the existing provisions paragraph (a) and to add the following paragraph (b): "(b) The Committee, in its discretion, may grant Restricted Shares to directors who are employees of the Company." 4. Article 19 is of the Plan is hereby amended in its entirety to read as follows: "19. Stock Options 19.1 Grant of Options. (a) On the date of each Annual Meeting of shareholders of the Company commencing with the May 16, 1996 Annual Meeting, each eligible director shall receive an Option to purchase 5,000 shares of common stock of the Company. (b) The Committee, in its discretion, may grant options, including compensation replacement options, to directors who are employees of the Company. 19.2 Eligibility for Annual Grants under Section 19.1(a). Each director of the Company who (i) is not an officer or employee of the Company , (ii) is serving as a director of the Company on the date of an Annual Meeting, and (iii) has held at least of 10,000 shares of common shares of common stock of the Company since the preceding Annual Meeting, shall be eligible to receive Options on that date; provided, however, that the minimum shareholding requirement shall not be applicable to a director who is being initially elected on the date of the applicable Annual Meeting. In calculating the number of shares owned by a director for purposes of the minimum shareholding requirement, all shares previously issued to the director under Section 4 of the Plan and then held by the director, whether restricted or unrestricted, shall be deemed owned by the director. 19.3 Terms and Conditions of Options. The Options granted to directors under this Plan shall have the following terms and conditions: (a) EXERCISE PRICE. The exercise price shall be the Fair Market Value per Share on the date of grant. (b) TERM OF OPTIONS. The term of each Option shall be ten years from the date of grant or such other term as shall be determined by the Committee. 19.2 Eligibility for Annual Grants under Section 19.1(a). Each director of the Company who (i) is not an officer or employee of the Company , (ii) is serving as a director of the Company on the date of an Annual Meeting, and (iii) has held at least of 10,000 shares of common shares of common stock of the Company since the preceding Annual Meeting, shall be eligible to receive Options on that date; provided, however, that the minimum shareholding requirement shall not be applicable to a director who is being initially elected on the date of the applicable Annual Meeting. In calculating the number of shares owned by a director for purposes of the minimum shareholding requirement, all shares previously issued to the director under Section 4 of the Plan and then held by the director, whether restricted or unrestricted, shall be deemed owned by the director. 19.3 Terms and Conditions of Options. The Options granted to directors under this Plan shall have the following terms and conditions: (a) EXERCISE PRICE. The exercise price shall be the Fair Market Value per Share on the date of grant. (b) TERM OF OPTIONS. The term of each Option shall be ten years from the date of grant or such other term as shall be determined by the Committee. (c) VESTING AND EXERCISE DATE. Each Option granted under Section 19.1 (a) shall vest and become exercisable on the third anniversary of the date of grant; provided, however, that (i) such an Option shall be forfeited in its entirety if the director ceases, at any time prior to his or her exercise of the Option, to hold the minimum number of shares that he or she was required to hold for the one year period prior to the grant to be eligible therefor; (ii), and all such options held by a director who has served as a director for six years or more shall vest as of the date upon which he or she ceases to serve as a director. Options granted under Section 19.1 (b) shall vest as of a date or dates determined by the Committee at the time of grant. In addition, all outstanding Options shall vest and become immediately exercisable in the event of a Change in Control. (d) DISCONTINUANCE OF SERVICE AS A DIRECTOR. An Option may be exercised by a director only while he or she is serving as a director or employee or within three months thereafter and only if the Option is fully vested and exercisable and has not expired on the date of exercise; provided however, that if on the later of date upon which the director ceases to serve as a director or as an employee, he or she has ten or more years of full time service as a director and/or an employee of the Company, or if termination of service as a director or an employee results from the death or Disability of the director, such three month period shall be extended to three years. In the event of a death of a director, either before or after termination of his or her service as a director, an Option which is otherwise exercisable may be exercised by the person or persons whom the director shall have designated in writing on forms prescribed by and filed with the Board ("Beneficiaries") or, if no such designation has been made, by the person or persons to whom the director's rights shall have passed by the laws of decent and distribution ("Successors"). In the event of a Disability of a director, an option which is otherwise exercisable may be exercised by the director's legal representative or guardian. The Board may require an indemnity and/or such other evidence or assurances as it may deem necessary in connection with an exercise by a legal representative, guardian, Beneficiary, or Successor. (e) EXERCISE AND PAYMENT. Subject to the terms hereof, an Option may be exercised by noticed in writing to the Company specifying the number of shares to be purchased. Payment for the number of shares purchased upon the exercise of an Option shall be made in full at the per share exercise price and such purchase price shall be paid by delivery to the Company of cash (including check or similar draft), in United States dollars or previously owned whole shares otherwise not subject to holding periods under Rule 16b-3. Shares used in payment of the purchase price shall be valued at their Fair Market Value as of the date of notice of exercise is received by the Company. Any shares delivered to the Company shall be in such form as acceptable to the Company. (f) WITHHOLDING TAXES. The Company may defer making delivery of shares under the Plan until satisfactory arrangements have been made for the payment of any tax attributable to the exercise of the Option. A director may pay all or any portion of all taxes: (i) in cash; (ii) by having the Company withhold whole Shares; (iii) the person or persons whom the director shall have designated in writing on forms prescribed by and filed with the Board ("Beneficiaries") or, if no such designation has been made, by the person or persons to whom the director's rights shall have passed by the laws of decent and distribution ("Successors"). In the event of a Disability of a director, an option which is otherwise exercisable may be exercised by the director's legal representative or guardian. The Board may require an indemnity and/or such other evidence or assurances as it may deem necessary in connection with an exercise by a legal representative, guardian, Beneficiary, or Successor. (e) EXERCISE AND PAYMENT. Subject to the terms hereof, an Option may be exercised by noticed in writing to the Company specifying the number of shares to be purchased. Payment for the number of shares purchased upon the exercise of an Option shall be made in full at the per share exercise price and such purchase price shall be paid by delivery to the Company of cash (including check or similar draft), in United States dollars or previously owned whole shares otherwise not subject to holding periods under Rule 16b-3. Shares used in payment of the purchase price shall be valued at their Fair Market Value as of the date of notice of exercise is received by the Company. Any shares delivered to the Company shall be in such form as acceptable to the Company. (f) WITHHOLDING TAXES. The Company may defer making delivery of shares under the Plan until satisfactory arrangements have been made for the payment of any tax attributable to the exercise of the Option. A director may pay all or any portion of all taxes: (i) in cash; (ii) by having the Company withhold whole Shares; (iii) by delivering to the Company whole Shares previously owned by the director having a Fair Market Value not greater than the amount to be withheld; provided, however, that the amount to be withheld may not exceed the director's estimated total Federal, State and local tax obligations associated with the transaction. (g) NON-TRANSFERABILITY. No Option or any rights with respect thereto shall be subject to any debts or liabilities of an Director, nor be assignable or transferable except by will or the laws of decent and distribution, or be exercisable during the Director's lifetime other than by him or her, nor shall shares be issued to or in the name of anyone other than the Director, provided, however that an Option may be exercised after the death of an Director in accordance with Section 19.3 above and, provided further that any shares issued to an Director may be, at the request of the Director, issued in the name of the Director and/or one other person, as joint tenants with right of survivorship and not as tenants-in-common, or in the name of a trust for the benefit of the Director or for the benefit of the Director and others. (h) TERMINATION BY A DIRECTOR. A director may at any time elect, in a written notice filed with the Board, to terminate an Option with respect to any number of shares as to which such Option shall not have been exercised. (i) TYPE OF OPTION. All Options issued under the Plan shall be non-qualified Options. (j) RIGHTS AS A STOCKHOLDER. A director shall not have any rights as a stockholder with respect to shares covered by his or her Option until the date of issuance to him or her of a certificate evidencing such shares after the exercise of such Option and payment in full of the exercise price. No adjustment will be made for dividends or other rights for which the record date is prior to the date such certificate is issued. Except as herein amended, the Plan shall remain in full force and effect. Borders Group, Inc. By /s/ BRUCE A. QUINNELL --------------------Vice Chairman --------------------- with respect to any number of shares as to which such Option shall not have been exercised. (i) TYPE OF OPTION. All Options issued under the Plan shall be non-qualified Options. (j) RIGHTS AS A STOCKHOLDER. A director shall not have any rights as a stockholder with respect to shares covered by his or her Option until the date of issuance to him or her of a certificate evidencing such shares after the exercise of such Option and payment in full of the exercise price. No adjustment will be made for dividends or other rights for which the record date is prior to the date such certificate is issued. Except as herein amended, the Plan shall remain in full force and effect. Borders Group, Inc. By /s/ BRUCE A. QUINNELL --------------------Vice Chairman --------------------- EXHIBIT 10.22 FOURTH AMENDMENT TO THE BORDERS GROUP, INC. DIRECTOR STOCK PLAN The Borders Group, Inc. Director Stock Plan (the "Plan") is hereby amended in the following particulars, effective January 1, 2001: 1. Section 4.2 of the Plan is hereby amended in its entirety to read as follows: 4.2 Grants of Restricted Shares for Annual Fee. In the case of an individual who is a Participant at the beginning of a Plan Year, his or her fee for service as a director for the Plan Year shall be provided in the form of a grant of 2,000 Restricted Shares made on the first business day of the Plan Year, subject to adjustment as provided herein. In the event that granting 2,000 Restricted Shares would result in the Fair Market Value of such grant equaling more than $75,000, the number of Restricted Shares granted shall be reduced so that the Fair Market Value of the Restricted Shares granted equals $75,000. In the event that granting 2,000 Restricted Shares would result in the Fair Market Value of such grant equaling less than $40,000, the number of Restricted Shares granted shall be increased so that the Fair Market Value of the Restricted Shares granted equals $40,000. In the case of an individual who is not a Participant at the beginning of a Plan Year, his or her fee for service as a director for the Plan Year shall be provided in the form of a grant of Restricted Shares made on the last business day of the Plan Quarter in which he or she becomes a Participant. The number of Restricted Shares granted to the director shall be number of Restricted Shares granted to an individual who was a Participant at the beginning of a Plan Year multiplied by a fraction, the numerator of which is the number of days remaining in the Plan Year from and after the date upon which the individual becomes a director and the denominator of which is 365. Fractional Shares, if any, shall be paid in cash. The number of Restricted Shares to be granted to directors shall also be subject to adjustment as provided in Article 11 hereof. Except as herein amended, the Plan shall remain in full force and effect. Borders Group, Inc. By: /s/ BRUCE A. QUINNELL ------------------------ EXHIBIT 10.22 FOURTH AMENDMENT TO THE BORDERS GROUP, INC. DIRECTOR STOCK PLAN The Borders Group, Inc. Director Stock Plan (the "Plan") is hereby amended in the following particulars, effective January 1, 2001: 1. Section 4.2 of the Plan is hereby amended in its entirety to read as follows: 4.2 Grants of Restricted Shares for Annual Fee. In the case of an individual who is a Participant at the beginning of a Plan Year, his or her fee for service as a director for the Plan Year shall be provided in the form of a grant of 2,000 Restricted Shares made on the first business day of the Plan Year, subject to adjustment as provided herein. In the event that granting 2,000 Restricted Shares would result in the Fair Market Value of such grant equaling more than $75,000, the number of Restricted Shares granted shall be reduced so that the Fair Market Value of the Restricted Shares granted equals $75,000. In the event that granting 2,000 Restricted Shares would result in the Fair Market Value of such grant equaling less than $40,000, the number of Restricted Shares granted shall be increased so that the Fair Market Value of the Restricted Shares granted equals $40,000. In the case of an individual who is not a Participant at the beginning of a Plan Year, his or her fee for service as a director for the Plan Year shall be provided in the form of a grant of Restricted Shares made on the last business day of the Plan Quarter in which he or she becomes a Participant. The number of Restricted Shares granted to the director shall be number of Restricted Shares granted to an individual who was a Participant at the beginning of a Plan Year multiplied by a fraction, the numerator of which is the number of days remaining in the Plan Year from and after the date upon which the individual becomes a director and the denominator of which is 365. Fractional Shares, if any, shall be paid in cash. The number of Restricted Shares to be granted to directors shall also be subject to adjustment as provided in Article 11 hereof. Except as herein amended, the Plan shall remain in full force and effect. Borders Group, Inc. By: /s/ BRUCE A. QUINNELL -----------------------Bruce A. Quinnell Its: Vice Chairman EXHIBIT 10.32 January 29, 2001 ROBERT DiROMUALDO Dear Bob: This letter will confirm our agreement concerning your employment with Borders Group, Inc. ("BGI"). 1. During the term of this Agreement, you will be the Chairman of BGI and, subject to your election by the shareholders, a director of BGI. You will report to the Board of Directors of BGI (the "Board"). 2. In lieu of any cash compensation, you have received options for 53,191 shares granted on the Effective Date hereof under the Director Stock Plan. Such options have an exercise price of $12.4375 per share (the closing EXHIBIT 10.32 January 29, 2001 ROBERT DiROMUALDO Dear Bob: This letter will confirm our agreement concerning your employment with Borders Group, Inc. ("BGI"). 1. During the term of this Agreement, you will be the Chairman of BGI and, subject to your election by the shareholders, a director of BGI. You will report to the Board of Directors of BGI (the "Board"). 2. In lieu of any cash compensation, you have received options for 53,191 shares granted on the Effective Date hereof under the Director Stock Plan. Such options have an exercise price of $12.4375 per share (the closing price the New York Stock Exchange on January 26, 2001), become exercisable on January 25, 2002 and expire on April 28, 2003. 3. You shall have such duties as shall be assigned to you by the Board of Directors. Such duties shall involve primarily consulting with the Chief Executive Officer of the Company with respect to strategic and organizational issues as requested by the Chief Executive Officer. 4. You shall not be eligible to participate in the Company's medical, dental, life insurance and other welfare plans, subject to your COBRA rights. The Company will pay your COBRA cost during the term of this Agreement. 5. The term of this Agreement shall be from January 29, 2001 (the "Effective Date") through January 27, 2002, unless this agreement terminates in accordance with its terms prior to such date. 6. Subject to Section 12, during the term of this Agreement, your position with BGI may be terminated by BGI only for "Cause" by written notice given to you after action by a majority of the members of the Board of Directors of BGI and only within ninety days after the occurrence of BGI learning of one of the following events: (a) Your conviction of a felony, or of a misdemeanor involving the money or property of BGI or any subsidiary; (b) You shall have willfully engaged in misconduct that materially damages or injures the reputation of BGI or any subsidiary; (c) You shall have breached the noncompetition provisions of this Agreement and such breach is not cured within 7 days after notice thereof from BGI; or (d) Any willful and material breach of the confidentiality provisions of this Agreement. -2For purposes of this Section 6, no act or failure to act, on your part shall be deemed to be "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that such act or omission was in the best interest of BGI. In the event that BGI breaches this Agreement and either (i) your employment is terminated by BGI without Cause prior to the expiration of the term, or (ii) you voluntarily terminate your employment following any such breach which is not cured by BGI within 30 days after BGI's receipt of written notice from you describing the breach, the vesting of your stock options will continue through the balance of the term. In the event that this clause is inconsistent with the terms of the relevant plan, BGI shall provide the same benefits outside of such plan. You shall not be obligated to seek other employment to mitigate damages and BGI's obligations hereunder shall not be reduced by any compensation that you may earn from other employment or self-employment. 7. You will be entitled to reimbursement for travel (at full coach rate) and entertainment and other business -2For purposes of this Section 6, no act or failure to act, on your part shall be deemed to be "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that such act or omission was in the best interest of BGI. In the event that BGI breaches this Agreement and either (i) your employment is terminated by BGI without Cause prior to the expiration of the term, or (ii) you voluntarily terminate your employment following any such breach which is not cured by BGI within 30 days after BGI's receipt of written notice from you describing the breach, the vesting of your stock options will continue through the balance of the term. In the event that this clause is inconsistent with the terms of the relevant plan, BGI shall provide the same benefits outside of such plan. You shall not be obligated to seek other employment to mitigate damages and BGI's obligations hereunder shall not be reduced by any compensation that you may earn from other employment or self-employment. 7. You will be entitled to reimbursement for travel (at full coach rate) and entertainment and other business expenses incurred on BGI's behalf in accordance with BGI's policy upon submission of vouchers and documentation relating thereto in accordance with BGI procedures. 8. You agree that during the Restricted Period neither you nor your Affiliates will (i) Compete with BGI in the Restricted Area or (ii) directly or indirectly (whether as owner, principal, employee, partner, lender or venturer with or consultant to any person, firm, partnership, corporation or other entity): (A) cause or seek to cause any of BGI's suppliers, purchasing agents or customers to cease transacting business with BGI; or (B) cause or seek to cause any of BGI's prospective suppliers, purchasing agents or customers not to transact business with BGI. For purposes of this Agreement: (i) The term "Affiliate" means any corporation, person or entity which, directly or indirectly, through one or more intermediaries, you control or is under common control with you; (ii) The term "Company" means BGI and its subsidiaries. (iii) The term "Compete" means to manage, operate, control or participate in, or have any ownership interests in or make loans to, or aid or advise as an employee, consultant or otherwise, whether directly or indirectly, any business (whether an individual, sole proprietorship, partnership, corporation, firm, joint venture, trust or other entity) which is engaged in, directly or indirectly, the retail (including internet) or wholesale book business or in a business where principal business is the retail or wholesale sale of video cassettes, videotapes, musical records, compact discs or audio cassettes; provided, however, that you may (i) own equity securities in Kmart or any subsidiary of Kmart and (ii) own up to 1% of a corporation where equity securities are listed for trading on a national securities exchange; (iv) The term "Restricted Period" means the period from the date hereof through December 31, 2003, provided, that in the event that you breach the covenant not to Compete set forth above, such breach shall suspend and toll the running of the Restricted Period from the date of such breach until such time as such violation ceases; and -3(v) The term "Restricted Area" means anywhere in North America or any other country in which BGI is doing business at the time of your termination of employment. Nothing in this Section 8 shall be deemed to prohibit you or any of your Affiliates from owning shares of BGI. 9. You agree that you and your Affiliates will maintain in strict confidence and will not, directly or indirectly, divulge, transmit, publish, release or otherwise use or cause to be used in any manner to Compete with or that is contrary to the interests of BGI, any confidential information relating to BGI's systems, operations, processes, computer programs and data bases, records, development data and reports, store designs, quality control specifications, cost analysis, flow charts, know-how, customer lists, supplier lists, marketing data, personnel data, or any other information of like nature. You acknowledge that all information regarding BGI compiled or obtained by, or furnished to, you in connection with your employment or association with BGI is confidential information -3(v) The term "Restricted Area" means anywhere in North America or any other country in which BGI is doing business at the time of your termination of employment. Nothing in this Section 8 shall be deemed to prohibit you or any of your Affiliates from owning shares of BGI. 9. You agree that you and your Affiliates will maintain in strict confidence and will not, directly or indirectly, divulge, transmit, publish, release or otherwise use or cause to be used in any manner to Compete with or that is contrary to the interests of BGI, any confidential information relating to BGI's systems, operations, processes, computer programs and data bases, records, development data and reports, store designs, quality control specifications, cost analysis, flow charts, know-how, customer lists, supplier lists, marketing data, personnel data, or any other information of like nature. You acknowledge that all information regarding BGI compiled or obtained by, or furnished to, you in connection with your employment or association with BGI is confidential information and BGI's exclusive property. Upon demand by BGI, you will surrender to BGI all original and facsimile records, documents and data in your possession pertaining to BGI. The foregoing covenant of confidentiality has no temporal, geographical or territorial limitation. Notwithstanding the foregoing, this provision does not apply to the extent, and only to the extent, such information: (a) is clearly obtainable in the public domain; (b) becomes obtainable in the public domain, through no fault of yours; (c) was not acquired by you in connection with your employment or affiliation with BGI; (d) was not acquired by you from BGI or its representatives; (e) is required to be disclosed by rule of law or by order of a court or governmental body or agency; or (f) is reasonably necessary to be disclosed to defend yourself or assert your rights in connection with any proceeding to which BGI or its affiliates is a party. 10. The restrictive covenants contained herein shall be construed as independent of the other provisions of this Agreement, and the existence of any claim or cause of action that you may have, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by BGI of any of the restrictive covenants contained herein. 11. You acknowledge that if you breach any of the restrictive covenants contained herein, the injuries that will be suffered by BGI will be irreparable, and BGI will not have an adequate remedy at law. You therefore, agree that in the event of such a breach, BGI shall be entitled to relief by way of injunction from any court of proper jurisdiction, in addition to all other rights that BGI may have at law, in equity, or otherwise. 12. In the event of your death, Disability or a Change in Control of BGI, all of your outstanding options will vest as provided in the applicable plan. In event of the occurrence of any such events: (i) your employment shall thereupon terminate; (ii) no other payments will be due to you; and (iii) the noncompete provisions set forth herein shall remain in effect until December 31, 2003. "Change in Control" shall have the meaning set forth in the Borders Group, Inc. Stock Option Plan. "Disability" shall mean that you are unable to perform your duties and responsibilities by reason of a specific mental or physical illness or injury and such inability shall have existed for an aggregate of at least 180 days in the twelve-month period. Any question as to the existence of a Disability as to which you and BGI cannot agree shall be determined in writing by a qualified independent physician mutually acceptable to you and BGI. If you and BGI cannot agree as to a qualified independent physician, each shall appoint such a physician and those two physicians shall select a third who shall make such determination in writing. Such determination of Disability shall be delivered to BGI and to you and shall be final and conclusive for all purposes of this agreement. -413. You shall not be entitled to any severance or other payment upon your employment termination, either prior to or after the expiration of the term of this Agreement, regardless of the reason for the termination, except that, subject to Section 12, if, prior to the expiration of the term, either your employment is terminated by BGI without Cause or you voluntarily resign following a breach of this Agreement by BGI which is not cured within the time specified in Section 6, you shall receive the benefits described in Section 6 as your sole and exclusive remedy. 14. All provisions of this Agreement are intended to be severable. In the event any provision or restriction contained herein is held to be invalid or unenforceable in any respect, in whole or in part, such finding shall in no -413. You shall not be entitled to any severance or other payment upon your employment termination, either prior to or after the expiration of the term of this Agreement, regardless of the reason for the termination, except that, subject to Section 12, if, prior to the expiration of the term, either your employment is terminated by BGI without Cause or you voluntarily resign following a breach of this Agreement by BGI which is not cured within the time specified in Section 6, you shall receive the benefits described in Section 6 as your sole and exclusive remedy. 14. All provisions of this Agreement are intended to be severable. In the event any provision or restriction contained herein is held to be invalid or unenforceable in any respect, in whole or in part, such finding shall in no way affect the validity or enforceability of any other provisions of this Agreement. The parties hereto further agree that any such invalid or unenforceable provision shall be deemed modified so that it shall be enforced to the greatest extent permissible under law, and to the extent that any court of competent jurisdiction determines any restriction herein to be overly broad or unenforceable, such court is hereby empowered and authorized to limit such restriction so that it is enforceable for the longest duration of time and largest geographical area possible. 15. Any dispute that may exist respecting (i) the interpretation or application of any provision of the agreement (including, without limitation, the provisions of this Section) or (ii) your entitlement to payments or other benefits after termination of your employment shall be resolved by arbitration in Detroit, Michigan in accordance with the rules of the American Arbitration Association and judgment on the award may be entered in any court having jurisdiction. If your position in any such dispute is sustained in the arbitration, BGI will pay or reimburse you for your expenses in connection with the resolution of such dispute (including, without limitation, counsel fees and disbursements and other charges). Please confirm your agreement by signing below and retain one copy for your records. Sincerely, BORDERS GROUP, INC. By:/s/ -----------------------------------Agreed: /s/ ROBERT F. DIROMUALDO ---------------------------------Robert F. DiRomualdo EXHIBIT 10.33 January 29, 2001 GEORGE R. MRKONIC Dear George: This letter will confirm our agreement concerning your employment with Borders Group, Inc. ("BGI"). 1. During the term of this Agreement, you will be the Vice-Chairman of BGI and, subject to your election by the shareholders, a member of the Board of Directors of BGI (the "Board"). You will report to the Chairman of the Board and your place of employment shall be in Ann Arbor, Michigan. 2. In lieu of any cash compensation, you have received options for 53,191 shares granted on the Effective Date under the Director Stock Plan. Such options have an exercise price of $12.4375 per share (the closing price the New York Stock Exchange on January 26, 2001), become exercisable on January 25, 2002 and expire on April 28, 2003. EXHIBIT 10.33 January 29, 2001 GEORGE R. MRKONIC Dear George: This letter will confirm our agreement concerning your employment with Borders Group, Inc. ("BGI"). 1. During the term of this Agreement, you will be the Vice-Chairman of BGI and, subject to your election by the shareholders, a member of the Board of Directors of BGI (the "Board"). You will report to the Chairman of the Board and your place of employment shall be in Ann Arbor, Michigan. 2. In lieu of any cash compensation, you have received options for 53,191 shares granted on the Effective Date under the Director Stock Plan. Such options have an exercise price of $12.4375 per share (the closing price the New York Stock Exchange on January 26, 2001), become exercisable on January 25, 2002 and expire on April 28, 2003. 3. You shall have such duties relating to the international operations of the Company as may be assigned to you by the Board from time to time. It is understood that such duties shall include service as a director of international subsidiaries and affiliates of the Company as requested by the Chief Executive Officer of the Company. Your principal place of employment will be Ann Arbor, Michigan unless you consent to another location. 4. You shall not be eligible to participate in the Company's medical, dental, life insurance and other welfare plans, subject to your COBRA rights. The Company will pay your COBRA cost during the term of this Agreement. 5. The term of this Agreement shall be from January 29, 2001 (the "Effective Date") through January 27, 2002, unless this agreement terminates in accordance with its terms prior to such date. 6. Subject to Section 12, during the term of this Agreement, your position with BGI may be terminated by BGI only for "Cause" by written notice given to you after action by a majority of the members of the Board of Directors of BGI and only within ninety days after the occurrence of BGI learning of one of the following events: (a) Your conviction of a felony, or of a misdemeanor involving the money or property of BGI or any subsidiary; (b) You shall have willfully engaged in misconduct that materially damages or injures the reputation of BGI or any subsidiary; -2(c) You shall have breached the noncompetition provisions of this Agreement and such breach is not cured within 7 days after notice thereof from BGI; or (d) Any willful and material breach of the confidentiality provisions of this Agreement. For purposes of this Section 6, no act or failure to act, on your part shall be deemed to be "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that such act or omission was in the best interest of BGI. In the event that BGI breaches this Agreement and either (i) your employment is terminated by BGI without Cause prior to the expiration of the term, or (ii) you voluntarily terminate your employment following any such breach which is not cured by BGI within 30 days after BGI's receipt of written notice from you describing the breach, the vesting of your stock options will continue through the balance of the term. In the event that this clause is inconsistent with the terms of the relevant plan, BGI shall provide the same benefits outside of such plan. You shall not be obligated to seek other employment to mitigate damages and BGI's obligations hereunder shall not be reduced by any compensation that you may earn from other employment or self-employment. -2(c) You shall have breached the noncompetition provisions of this Agreement and such breach is not cured within 7 days after notice thereof from BGI; or (d) Any willful and material breach of the confidentiality provisions of this Agreement. For purposes of this Section 6, no act or failure to act, on your part shall be deemed to be "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that such act or omission was in the best interest of BGI. In the event that BGI breaches this Agreement and either (i) your employment is terminated by BGI without Cause prior to the expiration of the term, or (ii) you voluntarily terminate your employment following any such breach which is not cured by BGI within 30 days after BGI's receipt of written notice from you describing the breach, the vesting of your stock options will continue through the balance of the term. In the event that this clause is inconsistent with the terms of the relevant plan, BGI shall provide the same benefits outside of such plan. You shall not be obligated to seek other employment to mitigate damages and BGI's obligations hereunder shall not be reduced by any compensation that you may earn from other employment or self-employment. 7. You will be entitled to reimbursement for travel (at full coach rate) and entertainment and other business expenses incurred on BGI's behalf in accordance with BGI's policy upon submission of vouchers and documentation relating thereto in accordance with BGI procedures. 8. You agree that during the Restricted Period neither you nor your Affiliates will (i) Compete with BGI in the Restricted Area or (ii) directly or indirectly (whether as owner, principal, employee, partner, lender or venturer with or consultant to any person, firm, partnership, corporation or other entity): (A) cause or seek to cause any of BGI's suppliers, purchasing agents or customers to cease transacting business with BGI; or (B) cause or seek to cause any of BGI's prospective suppliers, purchasing agents or customers not to transact business with BGI. For purposes of this Agreement: (i) The term "Affiliate" means any corporation, person or entity which, directly or indirectly, through one or more intermediaries, you control or is under common control with you; (ii) The term "Company" means BGI and its subsidiaries. (iii) The term "Compete" means to manage, operate, control or participate in, or have any ownership interests in or make loans to, or aid or advise as an employee, consultant or otherwise, whether directly or indirectly, any business (whether an individual, sole proprietorship, partnership, corporation, firm, joint venture, trust or other entity) which is engaged in, directly or indirectly, the retail (including internet) or wholesale book business or in a business where principal business is the retail or wholesale sale of video cassettes, videotapes, musical records, compact discs or audio cassettes; provided, however, that you may (i) own equity securities in Kmart or any subsidiary of Kmart and (ii) own up to 1% of a corporation where equity securities are listed for trading on a national securities exchange; -3(iv) The term "Restricted Period" means the period from the date hereof through December 31, 2003, provided, that in the event that you breach the covenant not to Compete set forth above, such breach shall suspend and toll the running of the Restricted Period from the date of such breach until such time as such violation ceases; and (v) The term "Restricted Area" means anywhere in North America or any other country in which BGI is doing business at the time of your termination of employment. Nothing in this Section 8 shall be deemed to prohibit you or any of your Affiliates from owning shares of BGI. 9. You agree that you and your Affiliates will maintain in strict confidence and will not, directly or indirectly, divulge, transmit, publish, release or otherwise use or cause to be used in any manner to Compete with or that is -3(iv) The term "Restricted Period" means the period from the date hereof through December 31, 2003, provided, that in the event that you breach the covenant not to Compete set forth above, such breach shall suspend and toll the running of the Restricted Period from the date of such breach until such time as such violation ceases; and (v) The term "Restricted Area" means anywhere in North America or any other country in which BGI is doing business at the time of your termination of employment. Nothing in this Section 8 shall be deemed to prohibit you or any of your Affiliates from owning shares of BGI. 9. You agree that you and your Affiliates will maintain in strict confidence and will not, directly or indirectly, divulge, transmit, publish, release or otherwise use or cause to be used in any manner to Compete with or that is contrary to the interests of BGI, any confidential information relating to BGI's systems, operations, processes, computer programs and data bases, records, development data and reports, store designs, quality control specifications, cost analysis, flow charts, know-how, customer lists, supplier lists, marketing data, personnel data, or any other information of like nature. You acknowledge that all information regarding BGI compiled or obtained by, or furnished to, you in connection with your employment or association with BGI is confidential information and BGI's exclusive property. Upon demand by BGI, you will surrender to BGI all original and facsimile records, documents and data in your possession pertaining to BGI. The foregoing covenant of confidentiality has no temporal, geographical or territorial limitation. Notwithstanding the foregoing, this provision does not apply to the extent, and only to the extent, such information: (a) is clearly obtainable in the public domain; (b) becomes obtainable in the public domain, through no fault of yours; (c) was not acquired by you in connection with your employment or affiliation with BGI; (d) was not acquired by you from BGI or its representatives; (e) is required to be disclosed by rule of law or by order of a court or governmental body or agency; or (f) is reasonably necessary to be disclosed to defend yourself or assert your rights in connection with any proceeding to which BGI or its affiliates is a party. 10. The restrictive covenants contained herein shall be construed as independent of the other provisions of this Agreement, and the existence of any claim or cause of action that you may have, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by BGI of any of the restrictive covenants contained herein. 11. You acknowledge that if you breach any of the restrictive covenants contained herein, the injuries that will be suffered by BGI will be irreparable, and BGI will not have an adequate remedy at law. You therefore, agree that in the event of such a breach, BGI shall be entitled to relief by way of injunction from any court of proper jurisdiction, in addition to all other rights that BGI may have at law, in equity, or otherwise. 12. In the event of your death, Disability or a Change in Control of BGI, all of your outstanding options will vest as provided in the applicable plan. In event of the occurrence of any such events: (i) your employment shall thereupon terminate; (ii) no other payments will be due to you; and (iii) the noncompete provisions set forth herein shall remain in effect until December 31, 2003. "Change in Control" shall have the meaning set forth in the Borders Group, Inc. Stock Option Plan. "Disability" shall mean that you are unable to perform your duties and responsibilities by reason of a specific mental or physical illness or injury and such inability shall -4have existed for an aggregate of at least 180 days in the twelve-month period. Any question as to the existence of a Disability as to which you and BGI cannot agree shall be determined in writing by a qualified independent physician mutually acceptable to you and BGI. If you and BGI cannot agree as to a qualified independent physician, each shall appoint such a physician and those two physicians shall select a third who shall make such determination in writing. Such determination of Disability shall be delivered to BGI and to you and shall be final and conclusive for all purposes of this agreement. 13. You shall not be entitled to any severance or other payment upon your employment termination, either prior to or after the expiration of the term of this Agreement, regardless of the reason for the termination, except that, subject to Section 12, if, prior to the expiration of the term, either your employment is terminated by BGI without -4have existed for an aggregate of at least 180 days in the twelve-month period. Any question as to the existence of a Disability as to which you and BGI cannot agree shall be determined in writing by a qualified independent physician mutually acceptable to you and BGI. If you and BGI cannot agree as to a qualified independent physician, each shall appoint such a physician and those two physicians shall select a third who shall make such determination in writing. Such determination of Disability shall be delivered to BGI and to you and shall be final and conclusive for all purposes of this agreement. 13. You shall not be entitled to any severance or other payment upon your employment termination, either prior to or after the expiration of the term of this Agreement, regardless of the reason for the termination, except that, subject to Section 12, if, prior to the expiration of the term, either your employment is terminated by BGI without Cause or you voluntarily resign following a breach of this Agreement by BGI which is not cured within the time specified in Section 6, you shall receive the benefits described in Section 6 as your sole and exclusive remedy. 14. All provisions of this Agreement are intended to be severable. In the event any provision or restriction contained herein is held to be invalid or unenforceable in any respect, in whole or in part, such finding shall in no way affect the validity or enforceability of any other provisions of this Agreement. The parties hereto further agree that any such invalid or unenforceable provision shall be deemed modified so that it shall be enforced to the greatest extent permissible under law, and to the extent that any court of competent jurisdiction determines any restriction herein to be overly broad or unenforceable, such court is hereby empowered and authorized to limit such restriction so that it is enforceable for the longest duration of time and largest geographical area possible. 15. Any dispute that may exist respecting (i) the interpretation or application of any provision of the agreement (including, without limitation, the provisions of this Section) or (ii) your entitlement to payments or other benefits after termination of your employment shall be resolved by arbitration in Detroit, Michigan in accordance with the rules of the American Arbitration Association and judgment on the award may be entered in any court having jurisdiction. If your position in any such dispute is sustained in the arbitration, BGI will pay or reimburse you for your expenses in connection with the resolution of such dispute (including, without limitation, counsel fees and disbursements and other charges). Please confirm your agreement by signing below and retain one copy for your records. Sincerely, BORDERS GROUP, INC. By:/s/ -------------------------------Agreed: /s/ GEORGE R. MRKONIC -----------------------------------George R. Mrkonic EXHIBIT 10.41 PARTICIPATION AGREEMENT Among BORDERS GROUP, INC., BORDERS, INC., WILMINGTON TRUST COMPANY, EXHIBIT 10.41 PARTICIPATION AGREEMENT Among BORDERS GROUP, INC., BORDERS, INC., WILMINGTON TRUST COMPANY, not in its individual capacity except as expressly stated herein, but solely as Owner Trustee, DORIS PROJECT FUNDING CORP., as Owner Beneficiary, FIRST SECURITY BANK, N.A., as Collateral Trustee, And THE PURCHASERS IDENTIFIED HEREIN Dated as of January 22, 2001 Participation Agreement ARTICLE I Section 1.1 Section 1.2 Section 1.3 Section 1.4 ARTICLE II Section 2.1 Section 2.2 Section 2.3 Section 2.4 Section 2.5 Section 2.6 Section 2.7 Section 2.8 Section 2.9 Section 2.10 Section 2.12 Section 2.13 TERMS OF ISSUANCE OF THE NOTES....................................... Issuance and Sale of Notes........................................... Closing.............................................................. Wire Transfer........................................................ Failure to Deliver................................................... CONDITIONS TO THE CLOSING............................................ Representations and Warranties....................................... Performance; No Default.............................................. Indenture............................................................ Notes................................................................ Collateral Assignments of Project Loan Documentation................. Assignments of Mortgage, et al....................................... Certification of Cost................................................ Surveys, Appraisals, Environmental Reports and Zoning................ Mortgagee's Title Insurance; Endorsements............................ Estoppels............................................................ Compliance Certificate............................................... Opinions of Counsel.................................................. Participation Agreement ARTICLE I Section 1.1 Section 1.2 Section 1.3 Section 1.4 ARTICLE II Section 2.1 Section 2.2 Section 2.3 Section 2.4 Section 2.5 Section 2.6 Section 2.7 Section 2.8 Section 2.9 Section 2.10 Section 2.12 Section 2.13 Section 2.14 Section 2.15 Section 2.16 Section 2.17 Section 2.18 Section 2.19 ARTICLE III Section 3.1 Section 3.2 Section 3.3 Section 3.4 Section 3.5 Section 3.6 TERMS OF ISSUANCE OF THE NOTES....................................... Issuance and Sale of Notes........................................... Closing.............................................................. Wire Transfer........................................................ Failure to Deliver................................................... CONDITIONS TO THE CLOSING............................................ Representations and Warranties....................................... Performance; No Default.............................................. Indenture............................................................ Notes................................................................ Collateral Assignments of Project Loan Documentation................. Assignments of Mortgage, et al....................................... Certification of Cost................................................ Surveys, Appraisals, Environmental Reports and Zoning................ Mortgagee's Title Insurance; Endorsements............................ Estoppels............................................................ Compliance Certificate............................................... Opinions of Counsel.................................................. Purchase Permitted By Applicable Law, etc............................ Payment of Special Counsel and other Fees............................ Payment of Recording Fees, Charges and Taxes......................... Private Placement Number............................................. Offeree Letter....................................................... Proceedings and Documents............................................ REPRESENTATIONS AND WARRANTIES....................................... Representations of the Issuer........................................ Representations of the Collateral Trustee............................ Representations of the Guarantor..................................... Representations of the Tenant........................................ Representations of the Owner Beneficiary............................. Representations of the Purchasers.................................... -i- Participation Agreement ARTICLE IV Section 4.1 Section 4.2 GUARANTOR COVENANTS.................................................. Reporting Requirements............................................... Inspection Rights.................................................... Participation Agreement ARTICLE IV Section 4.1 Section 4.2 Section 4.3 Section 4.4 ARTICLE V Section 5.1 ARTICLE VI Section 6.1 Section 6.2 ARTICLE VII GUARANTOR COVENANTS.................................................. Reporting Requirements............................................... Inspection Rights.................................................... Transaction Expenses................................................. Payment of Certain Fees and Expenses................................. DIRECT PAYMENT....................................................... Direct Payment....................................................... DEFINITIONS.......................................................... General Definitions.................................................. Indenture Definitions................................................ OTHER COVENANTS AND AGREEMENTS....................................... Section 7.1 Covenants of the Trust Company, the Issuer, the Collateral Trustee and the Owner Beneficiary...................................................... Section 7.2 Section 7.3 Section 7.4 ARTICLE VIII Section 8.1 Section 8.2 ARTICLE IX Section 9.1 Section 9.2 ARTICLE X Section 10.1 Section 10.2 Section 10.3 Section 10.4 Section 10.5 Section 10.6 Section 10.7 Section 10.8 Section 10.9 Guarantor's Operative Document Rights................................ Covenants of the Collateral Trustee.................................. Collateral Trustee Project Loan Agreement Rights..................... TRANSFER OF INTEREST................................................. Restrictions of Transfer............................................. Effect of Transfer................................................... INDEMNIFICATION...................................................... General Indemnity.................................................... General Tax Indemnity................................................ MISCELLANEOUS........................................................ Amendments, Etc...................................................... Notices, Etc......................................................... No Waiver; Remedies.................................................. Binding Effect; Term; Assignability.................................. Governing Law........................................................ Execution in Counterparts............................................ Third Party Beneficiaries............................................ Survival of Covenants and Representations............................ Severability......................................................... -ii- Participation Agreement Section 10.10 Section 10.11 Confidential Information....................................................27 Issuer Recourse.............................................................28 Participation Agreement Section 10.10 Section 10.11 Section 10.12 Confidential Information....................................................27 Issuer Recourse.............................................................28 Owner Beneficiary Exculpation...............................................28 -iii- Participation Agreement ATTACHMENTS TO PARTICIPATION AGREEMENT SCHEDULE I EXHIBIT A EXHIBIT B EXHIBIT C EXHIBIT D EXHIBIT E-1 EXHIBIT E-2 EXHIBIT F EXHIBIT G EXHIBIT H-1 EXHIBIT H-2 EXHIBIT I ------------Name and Address of Purchasers [SCHEDULE I HAS BEEN REDACTED] Description of Closing Opinion of Special Counsel for Purchasers Description of Closing Opinion of Counsel for Issuer Description of Closing Opinion of Counsel for Collateral Trustee Description of Closing Opinion of Counsel for Guarantor and Tenant Description of Closing Opinion of Counsel for Project Borrowers Description of Closing Opinion of Special Counsel for Project Borrowers Representations and Warranties of Issuer Representations and Warranties of Collateral Trustee Representations and Warranties of Guarantor Representations and Warranties of Tenant Representations and Warranties of Owner Beneficiary -iv- Participation Agreement PARTICIPATION AGREEMENT INTRODUCTORY THIS PARTICIPATION AGREEMENT (the "Participation Agreement") is dated as of January 22, 2001, and is among Borders Group, Inc., a Michigan corporation (the "Guarantor"), Borders, Inc., a Colorado corporation (the "Tenant"), Doris Project Funding Corp., a Delaware corporation, as owner beneficiary under the Trust Agreement (as hereinafter defined) (the "Owner Beneficiary"), Wilmington Trust Company, not in its individual capacity except as expressly stated herein (in such individual capacity, referred to herein as the "Trust Company"), but solely as owner trustee under the Trust Agreement (in such capacity as owner trustee, the "Issuer"), First Security Bank, N.A., as Collateral Trustee under the Collateral Trust Indenture dated as of January 22, 2001 (the "Indenture") between the Issuer and the Collateral Trustee (the "Collateral Trustee") and the Purchasers listed on Schedule I hereto (the "Purchasers"). WHEREAS, Issuer wishes to issue its 8.69% Senior Secured Notes due 2016 (the "Notes") in accordance with the terms of the Indenture (as hereinafter defined), which Notes shall have the tenor, and shall be secured in the manner, set forth in the Indenture. Participation Agreement ATTACHMENTS TO PARTICIPATION AGREEMENT SCHEDULE I EXHIBIT A EXHIBIT B EXHIBIT C EXHIBIT D EXHIBIT E-1 EXHIBIT E-2 EXHIBIT F EXHIBIT G EXHIBIT H-1 EXHIBIT H-2 EXHIBIT I ------------Name and Address of Purchasers [SCHEDULE I HAS BEEN REDACTED] Description of Closing Opinion of Special Counsel for Purchasers Description of Closing Opinion of Counsel for Issuer Description of Closing Opinion of Counsel for Collateral Trustee Description of Closing Opinion of Counsel for Guarantor and Tenant Description of Closing Opinion of Counsel for Project Borrowers Description of Closing Opinion of Special Counsel for Project Borrowers Representations and Warranties of Issuer Representations and Warranties of Collateral Trustee Representations and Warranties of Guarantor Representations and Warranties of Tenant Representations and Warranties of Owner Beneficiary -iv- Participation Agreement PARTICIPATION AGREEMENT INTRODUCTORY THIS PARTICIPATION AGREEMENT (the "Participation Agreement") is dated as of January 22, 2001, and is among Borders Group, Inc., a Michigan corporation (the "Guarantor"), Borders, Inc., a Colorado corporation (the "Tenant"), Doris Project Funding Corp., a Delaware corporation, as owner beneficiary under the Trust Agreement (as hereinafter defined) (the "Owner Beneficiary"), Wilmington Trust Company, not in its individual capacity except as expressly stated herein (in such individual capacity, referred to herein as the "Trust Company"), but solely as owner trustee under the Trust Agreement (in such capacity as owner trustee, the "Issuer"), First Security Bank, N.A., as Collateral Trustee under the Collateral Trust Indenture dated as of January 22, 2001 (the "Indenture") between the Issuer and the Collateral Trustee (the "Collateral Trustee") and the Purchasers listed on Schedule I hereto (the "Purchasers"). WHEREAS, Issuer wishes to issue its 8.69% Senior Secured Notes due 2016 (the "Notes") in accordance with the terms of the Indenture (as hereinafter defined), which Notes shall have the tenor, and shall be secured in the manner, set forth in the Indenture. WHEREAS, subject to the terms and conditions set forth herein and on the basis of the representations and warranties hereinafter set forth, the Purchasers are willing to purchase from the Issuer all of the Notes. WHEREAS, capitalized terms used in this Participation Agreement shall have the respective meanings as specified in Article VI hereof. NOW, THEREFORE, in consideration of and for the mutual benefit of the parties hereto, each of the undersigned does hereby agree as follows: ARTICLE I Participation Agreement PARTICIPATION AGREEMENT INTRODUCTORY THIS PARTICIPATION AGREEMENT (the "Participation Agreement") is dated as of January 22, 2001, and is among Borders Group, Inc., a Michigan corporation (the "Guarantor"), Borders, Inc., a Colorado corporation (the "Tenant"), Doris Project Funding Corp., a Delaware corporation, as owner beneficiary under the Trust Agreement (as hereinafter defined) (the "Owner Beneficiary"), Wilmington Trust Company, not in its individual capacity except as expressly stated herein (in such individual capacity, referred to herein as the "Trust Company"), but solely as owner trustee under the Trust Agreement (in such capacity as owner trustee, the "Issuer"), First Security Bank, N.A., as Collateral Trustee under the Collateral Trust Indenture dated as of January 22, 2001 (the "Indenture") between the Issuer and the Collateral Trustee (the "Collateral Trustee") and the Purchasers listed on Schedule I hereto (the "Purchasers"). WHEREAS, Issuer wishes to issue its 8.69% Senior Secured Notes due 2016 (the "Notes") in accordance with the terms of the Indenture (as hereinafter defined), which Notes shall have the tenor, and shall be secured in the manner, set forth in the Indenture. WHEREAS, subject to the terms and conditions set forth herein and on the basis of the representations and warranties hereinafter set forth, the Purchasers are willing to purchase from the Issuer all of the Notes. WHEREAS, capitalized terms used in this Participation Agreement shall have the respective meanings as specified in Article VI hereof. NOW, THEREFORE, in consideration of and for the mutual benefit of the parties hereto, each of the undersigned does hereby agree as follows: ARTICLE I TERMS OF ISSUANCE OF THE NOTES Section 1.1 Issuance and Sale of Notes. The Issuer hereby agrees to sell to the Purchasers, and each of the Purchasers agrees, severally and not jointly, to purchase from the Issuer, the Notes on the Closing Date at a price of 100% of the principal amount thereof and in the aggregate principal amount set forth opposite its name on Schedule I hereto (the "Purchase Price"). The Issuer hereby directs the Collateral Trustee to execute the certificate of authentication appended to each Note. Section 1.2 Closing. The closing of the transaction contemplated by the Indenture and this Participation Agreement, including, without limitation, the issuance and sale of the Notes, shall be held at the offices of Dickinson Wright PLLC, 38525 Woodward Avenue, Suite 2000, Bloomfield Hills, Michigan 48304, at 11:00 a.m., Bloomfield Hills, Michigan time, on February 2, 2001 or at such other date and time as may be mutually acceptable to the parties hereto (the "Closing Date"). Participation Agreement Section 1.3 Wire Transfer. On the Closing Date, the Purchase Price for each Note shall be paid by the Purchaser thereof directly to the Issuer by wire transfer of immediately available funds for the account of the Issuer at Comerica Bank, Detroit, Michigan, ABA #072 000 096, Account No. 1851004075, For Credit of First American Title Insurance Company, Ref: Borders Trust 2001. Section 1.4 Failure to Deliver. If on the Closing Date the Issuer fails to tender to any Purchaser the Notes to be purchased by such Purchaser or if the conditions to the obligation of such Purchaser specified in Article II have not been fulfilled, such Purchaser may thereupon elect to be relieved of all further obligations under this Participation Agreement. Nothing in this Section shall operate to relieve the Issuer, the Owner Beneficiary, the Participation Agreement Section 1.3 Wire Transfer. On the Closing Date, the Purchase Price for each Note shall be paid by the Purchaser thereof directly to the Issuer by wire transfer of immediately available funds for the account of the Issuer at Comerica Bank, Detroit, Michigan, ABA #072 000 096, Account No. 1851004075, For Credit of First American Title Insurance Company, Ref: Borders Trust 2001. Section 1.4 Failure to Deliver. If on the Closing Date the Issuer fails to tender to any Purchaser the Notes to be purchased by such Purchaser or if the conditions to the obligation of such Purchaser specified in Article II have not been fulfilled, such Purchaser may thereupon elect to be relieved of all further obligations under this Participation Agreement. Nothing in this Section shall operate to relieve the Issuer, the Owner Beneficiary, the Guarantor or the Tenant from their respective obligations hereunder or to waive any of such Purchaser's rights against the Issuer, the Owner Beneficiary, the Guarantor or the Tenant. In addition to execution and delivery of the Notes, the Issuer shall, at the request of Purchaser, execute and deliver on the Closing Date such receipts, endorsements, and other documents acknowledging receipt of the Purchase Price as such Purchaser may reasonably request. ARTICLE II CONDITIONS TO THE CLOSING The obligation of each Purchaser to purchase and pay for the Notes to be sold to such Purchaser on the Closing Date is subject to the fulfillment to its satisfaction, prior to or on the Closing Date, of the following conditions: Section 2.1 Representations and Warranties. (a) The representations and warranties of the Issuer contained in Exhibit F to this Participation Agreement shall be true and correct on and with respect to the Closing Date. (b) The representations and warranties of the Collateral Trustee contained in Exhibit G to this Participation Agreement shall be true and correct on and with respect to the Closing Date. (c) The representations and warranties of the Guarantor contained in Exhibit H-1 to this Participation Agreement shall be true and correct on and with respect to the Closing Date. (d) The representations and warranties of the Tenant contained in Exhibit H-2 to this Participation Agreement shall be true and correct on and with respect to the Closing Date. (e) The representations and warranties of the Owner Beneficiary contained in Exhibit I to this Participation Agreement shall be true and correct on and with respect to the Closing Date. -2- Participation Agreement Section 2.2 Performance; No Default. (a) The Issuer and the Collateral Trustee shall have performed all of their respective obligations and complied with all agreements and conditions required to be performed and complied with on or prior to the Closing Date as set forth in this Participation Agreement. (b) No default or event of default shall have occurred and be continuing with respect to any Project Loan Note, any Lease or any other Project Loan Document and no event shall have occurred and be continuing under the provisions of any such instrument or agreement which, with the lapse of time or the giving of notice, or both, would constitute a default or an event of default thereunder. Participation Agreement Section 2.2 Performance; No Default. (a) The Issuer and the Collateral Trustee shall have performed all of their respective obligations and complied with all agreements and conditions required to be performed and complied with on or prior to the Closing Date as set forth in this Participation Agreement. (b) No default or event of default shall have occurred and be continuing with respect to any Project Loan Note, any Lease or any other Project Loan Document and no event shall have occurred and be continuing under the provisions of any such instrument or agreement which, with the lapse of time or the giving of notice, or both, would constitute a default or an event of default thereunder. Section 2.3 Indenture. The Indenture shall have been duly executed and delivered by the Issuer and the Collateral Trustee, and such parties shall have performed, complied with or satisfied all agreements and conditions contained in the Indenture required to be performed or complied with on or prior to the Closing Date to the satisfaction of such Purchaser. Section 2.4 Notes. The Issuer shall have issued, and the Collateral Trustee shall have authenticated, the respective Note to such Purchaser and each of the other Purchasers, and each of the other Purchasers shall have purchased the Notes to be purchased by them at the Closing as specified in Schedule I hereto. Section 2.5 Collateral Assignments of Project Loan Documentation. The Issuer shall have executed and delivered in favor of the Collateral Trustee a Collateral Assignment of Project Loan Documentation for each Project Loan, together with, (i) with respect to each Project Loan, the related executed original Project Loan Note, together with executed originals of the related Project Loan Agreement, Mortgage, Assignment of Lease and Rents and Environmental Indemnity, and a duly completed UCC financing statement listing the related Project Borrower, as debtor, and the Issuer, as secured party, and listing as collateral all fixtures located on the respective Mortgaged Property, to be filed in such filing offices as such Purchaser may reasonably determine, (ii) with respect to each Project Loan, a duly completed UCC financing statement listing the related Project Borrower, as debtor, the Issuer, as secured party, and the Collateral Trustee, as assignee, relating to the UCC financing statement referred to in clause (i) above to be filed in each filing office as such Purchaser may reasonably determine and (iii) duly completed UCC financing statement listing the Issuer, as debtor, and the Collateral Trustee, as secured party, and listing as collateral the security interests created by each Collateral Assignment of Project Loan Documentation to be filed in such filing office(s) as such Purchaser shall reasonably determine. Section 2.6 Assignments of Mortgage, et al. The Issuer shall have executed and delivered in favor of the Collateral Trustee an Assignment of Mortgage for each Mortgage and a Reassignment of Lease and Rents for each Assignment of Lease and Rents, in recordable form for recording in the appropriate filing office in which the respective Mortgaged Property is located. Section 2.7 Certification of Cost. Certification of the actual cost for each of the Mortgaged Properties certified by the Guarantor shall have been delivered to such Purchaser or its special counsel and shall be satisfactory to such Purchaser in scope and form. -3- Participation Agreement Section 2.8 Surveys, Appraisals, Environmental Reports and Zoning. Surveys, real property appraisals and environmental reports for each of the Mortgaged Properties shall have been delivered to such Purchaser or its special counsel and shall be satisfactory to such Purchaser in scope and form. Such Purchaser shall have received sufficient evidence necessary to determine that all zoning laws, regulations and ordinances have been complied with for each Mortgaged Property. Section 2.9 Mortgagee's Title Insurance; Endorsements. Loan title insurance policies issued by a title insurance Participation Agreement Section 2.8 Surveys, Appraisals, Environmental Reports and Zoning. Surveys, real property appraisals and environmental reports for each of the Mortgaged Properties shall have been delivered to such Purchaser or its special counsel and shall be satisfactory to such Purchaser in scope and form. Such Purchaser shall have received sufficient evidence necessary to determine that all zoning laws, regulations and ordinances have been complied with for each Mortgaged Property. Section 2.9 Mortgagee's Title Insurance; Endorsements. Loan title insurance policies issued by a title insurance company naming the Collateral Trustee as the insured mortgagee reasonably satisfactory to such Purchaser (or, in the alternative, a commitment to issue a loan title insurance policy issued by a title insurance company reasonably satisfactory to such Purchaser and marked and initialed by an authorized agent of such title company to show all changes to be made in connection with the actual issuance of such title insurance policy) and dated the date of the recording of the Mortgages shall have been issued for each Mortgaged Property and shall be satisfactory in scope and form to such Purchaser. Section 2.10 Estoppels. The Tenant shall have executed and delivered the Tenant Estoppel and shall deliver estoppel certificates in respect of each reciprocal easement and/or operating agreement affecting any Mortgaged Property in form and scope, and executed by such parties, as may be reasonably satisfactory to each Purchaser. Section 2.11 INTENTIONALLY OMITTED Section 2.12 Compliance Certificate. (a) Issuer Officer's Certificate. The Issuer shall have delivered to the Purchasers an Officer's Certificate, dated the Closing Date, certifying that the conditions specified in Sections 2.1(a), 2.2 and 2.3 (to the extent relating to the obligations of the Issuer) have been fulfilled. (b) Issuer Existence and Authority. On or prior to the Closing Date, such Purchaser shall have received, in form and substance reasonably satisfactory to such Purchaser and special counsel to the Purchasers, such documents and evidence with respect to the Issuer as special counsel to the Purchasers may reasonably request in order to establish the existence and good standing of the Issuer and the authorization of the transactions contemplated by this Participation Agreement and all other Operative Documents to which it is a party. (c) Collateral Trustee's Officer's Certificate. The Collateral Trustee shall have delivered to the Purchasers an Officer's Certificate, dated the Closing Date, certifying that the conditions specified in Sections 2.1(b), 2.2(a) and 2.3 (to the extent relating to the obligations of the Collateral Trustee) have been fulfilled. (d) Collateral Trustee's Existence and Authority. Such Purchaser shall have received, in form and substance reasonably satisfactory to such Purchaser and special counsel to the Purchasers, such documents and evidence with respect to the Collateral Trustee as special counsel to the Purchasers may reasonably request in order to establish the existence of the Collateral Trustee and the authorization of the transactions contemplated by this Participation Agreement and all other Operative Documents to which it is a party. -4- Participation Agreement (e) Guarantor's Officer's Certificate. The Guarantor shall have delivered to the Purchasers an Officer's Certificate, dated the Closing Date, certifying that, to such officer's knowledge, the representations and warranties contained in Exhibit H-1 to this Participation Agreement are true and correct on and with respect to the Closing Date. (f) Guarantor's Existence and Authority. Such Purchaser shall have received, in form and substance reasonably satisfactory to such Purchaser and special counsel to the Purchasers, such documents and evidence with respect to the Guarantor as special counsel to the Purchasers may reasonably request in order to establish the existence and good standing of the Guarantor and the authorization of the transactions contemplated by this Participation Agreement and all other Operative Documents to which it is a party. Participation Agreement (e) Guarantor's Officer's Certificate. The Guarantor shall have delivered to the Purchasers an Officer's Certificate, dated the Closing Date, certifying that, to such officer's knowledge, the representations and warranties contained in Exhibit H-1 to this Participation Agreement are true and correct on and with respect to the Closing Date. (f) Guarantor's Existence and Authority. Such Purchaser shall have received, in form and substance reasonably satisfactory to such Purchaser and special counsel to the Purchasers, such documents and evidence with respect to the Guarantor as special counsel to the Purchasers may reasonably request in order to establish the existence and good standing of the Guarantor and the authorization of the transactions contemplated by this Participation Agreement and all other Operative Documents to which it is a party. (g) Tenant's Officer's Certificate. The Tenant shall have delivered to the Purchasers an Officer's Certificate, dated the Closing Date, certifying that, to such officer's knowledge, the representations and warranties contained in Exhibit H-2 to this Participation Agreement are true and correct on and with respect to the Closing Date. (h) Tenant's Existence and Authority. Such Purchaser shall have received, in form and substance reasonably satisfactory to such Purchaser and special counsel to the Purchasers, such documents and evidence with respect to the Tenant as special counsel to the Purchasers may reasonably request in order to establish the existence and good standing of the Tenant and the authorization of the transactions contemplated by this Participation Agreement and all other Operative Documents to which it is a party. Section 2.13 Opinions of Counsel. Each Purchaser shall have received opinions in form and substance satisfactory to such Purchaser from: (a) Richards, Layton & Finger, special counsel for the Issuer, dated the Closing Date and covering the matters set forth in Exhibit B and covering such other matters incident to the transactions contemplated hereby as such Purchaser may reasonably request (and the Issuer hereby instructs its counsel to deliver such opinions to the Purchasers), (b) Ray, Quinney & Nebeker, counsel for the Collateral Trustee, dated the Closing Date and covering the matters set forth in Exhibit C and covering such other matters incident to the transactions contemplated hereby as such Purchaser may reasonably request (and the Collateral Trustee hereby instructs its counsel to deliver such opinion to the Purchasers), (c) Dickinson Wright PLLC, special counsel for the Guarantor and the Tenant, dated the Closing Date and covering the matters set forth in Exhibit D and covering such other matters incident to the transactions contemplated hereby as such Purchaser may reasonably request, (d) various local counsel and special local counsel for the Project Borrowers dated on or prior to the Closing Date and covering the matters set forth in Exhibit E-1 and Exhibit E-2 and covering such other matters incident to the transactions contemplated hereby as such Purchaser may reasonably request, and -5- Participation Agreement (e) McDermott, Will & Emery, special counsel to the Purchasers in connection with such transactions, dated the Closing Date and substantially in the form set forth in Exhibit A and covering such other matters incident to such transactions as the Purchasers may reasonably request. Section 2.14 Purchase Permitted By Applicable Law, etc. On the Closing Date, the purchase of the Notes by such Purchaser shall (a) be permitted by the laws and regulations of each jurisdiction to which such Purchaser is subject, without recourse to provisions (such as Section 1405(a)(8) of the New York Insurance Law) permitting limited investments by insurance companies without restriction as to the character of the particular investment, (b) not violate any applicable law or regulation (including, without limitation, Regulation T, U or X of the Board of Governors of the Federal Reserve System) and (c) not subject such Purchaser to any tax, penalty or liability Participation Agreement (e) McDermott, Will & Emery, special counsel to the Purchasers in connection with such transactions, dated the Closing Date and substantially in the form set forth in Exhibit A and covering such other matters incident to such transactions as the Purchasers may reasonably request. Section 2.14 Purchase Permitted By Applicable Law, etc. On the Closing Date, the purchase of the Notes by such Purchaser shall (a) be permitted by the laws and regulations of each jurisdiction to which such Purchaser is subject, without recourse to provisions (such as Section 1405(a)(8) of the New York Insurance Law) permitting limited investments by insurance companies without restriction as to the character of the particular investment, (b) not violate any applicable law or regulation (including, without limitation, Regulation T, U or X of the Board of Governors of the Federal Reserve System) and (c) not subject such Purchaser to any tax, penalty or liability under or pursuant to any applicable law or regulation, which law or regulation was not in effect on the date hereof. If requested by any Purchaser, such Purchaser shall have received an Officer's Certificate of the Issuer certifying as to such matters of fact as it may reasonably specify to enable such Purchaser to determine whether such purchase is so permitted. Section 2.15 Payment of Special Counsel and other Fees. The Guarantor shall have paid, on or before the Closing Date, the fees, charges and disbursements of McDermott, Will & Emery, special counsel for the Purchasers. Section 2.16 Payment of Recording Fees, Charges and Taxes. All title insurance charges and premiums and all fees, charges and taxes in connection with the recordation or filing and re-recordation or re-filing of the Project Loan Documents and any other agreement or instrument, financing statement or any publication of notice required to be filed or recorded to protect the validity of the liens securing the obligations of the Project Loans shall have been paid in full by the Guarantor. Section 2.17 Private Placement Number. A Private Placement Number issued by Standard & Poor's CUSIP Service Bureau (in cooperation with the Securities Valuation Office of the National Association of Insurance Commissioners) shall have been obtained for the Notes. Section 2.18 Offeree Letter. An offeree letter shall have been issued by McDonald Investments, Inc. to the Purchasers satisfactory to each Purchaser in scope and form. Section 2.19 Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated by this Participation Agreement and all documents and instruments incident to such transactions shall be reasonably satisfactory to such Purchaser and its special counsel, and such Purchaser and its special counsel shall have received all such counterpart originals or certified or other copies of such documents as such Purchaser may reasonably request. For purposes of this Article II, the payment of the Purchase Price by such Purchaser for each Note to be purchased by it hereunder shall constitute conclusive evidence that such Purchaser is satisfied that each and every condition set forth in this Article II has been fulfilled or that such Purchaser has waived compliance of any such condition; provided, however, that nothing contained in this paragraph shall be construed as a waiver of the truth and accuracy of any representation or warranty made by any party on or prior to the Closing Date in connection with the transactions contemplated by the Participation Agreement and the Indenture. -6- Participation Agreement ARTICLE III REPRESENTATIONS AND WARRANTIES Section 3.1 Representations of the Issuer. In order to induce each Purchaser to purchase the Notes from the Issuer, the Issuer represents and warrants that all representations and warranties set forth in Exhibit F to this Participation Agreement ARTICLE III REPRESENTATIONS AND WARRANTIES Section 3.1 Representations of the Issuer. In order to induce each Purchaser to purchase the Notes from the Issuer, the Issuer represents and warrants that all representations and warranties set forth in Exhibit F to this Participation Agreement are true and correct as of the date hereof and are incorporated herein by reference with the same force and effect as though herein set forth in full. Section 3.2 Representations of the Collateral Trustee. In order to induce each Purchaser to purchase Notes from the Issuer, the Collateral Trustee represents and warrants that all representations and warranties set forth in Exhibit G to this Participation Agreement are true and correct as of the date hereof and are incorporated herein by reference with the same force and effect as though herein set forth in full. Section 3.3 Representations of the Guarantor. In order to induce each Purchaser to purchase the Notes from the Issuer, the Guarantor represents and warrants that all representations and warranties set forth in Exhibit H-1 to this Participation Agreement are true and correct as of the date hereof and are incorporated herein by reference with the same force and effect as though herein set forth in full. Section 3.4 Representations of the Tenant. In order to induce each Purchaser to purchase the Notes from the Issuer, the Tenant represents and warrants that all representations and warranties set forth in Exhibit H-2 to this Participation Agreement are true and correct as of the date hereof and are incorporated herein by reference with the same force and effect as though herein set forth in full. Section 3.5 Representations of the Owner Beneficiary. In order to induce each Purchaser to purchase the Notes from the Issuer, the Owner Beneficiary represents and warrants that all representations and warranties set forth in Exhibit I to this Participation Agreement are true and correct as of the date hereof and are incorporated herein by reference with the same force and effect as though herein set forth in full. Section 3.6 Representations of the Purchasers. (a) Each Purchaser represents and warrants that at least one of the following statements concerning each source of funds to be used by it to pay the Purchase Price is accurate as of the Closing Date: (i) the source of funds to be used by it to pay the purchase price of the Notes is an "insurance company general account" within the meaning of Department of Labor Prohibited Transaction Exemption ("PTE") 95-60 (issued July 12, 1995) and there is no employee benefit plan, treating as a single plan, all plans maintained by the same employer or employee organization, with respect to which the amount of the general -7- Participation Agreement account reserves and liabilities for all contracts held by or on behalf of such plan, exceed ten percent (10%) of the total reserves and liabilities of such general account (exclusive of separate account liabilities) plus surplus, as set forth in the NAIC Annual Statement filed with its state of domicile; (ii) all or a part of such funds constitute assets of one or more separate accounts, trusts or a commingled pension trust maintained by it, and it has disclosed to each of the Collateral Trustee, the Issuer, the Owner Beneficiary and each Project Borrower, the names of such employee benefit plans whose assets in such separate account or accounts or pension trusts exceed 10% of the total assets or are expected to exceed 10% of the total assets of such account or accounts or trusts as of the date of such purchase (for the purpose of this clause (ii), all employee benefit plans maintained by the same employer or employee organization are deemed to be a single plan); (iii) all or part of such funds constitute assets of a bank collective investment fund maintained by it, and it has Participation Agreement account reserves and liabilities for all contracts held by or on behalf of such plan, exceed ten percent (10%) of the total reserves and liabilities of such general account (exclusive of separate account liabilities) plus surplus, as set forth in the NAIC Annual Statement filed with its state of domicile; (ii) all or a part of such funds constitute assets of one or more separate accounts, trusts or a commingled pension trust maintained by it, and it has disclosed to each of the Collateral Trustee, the Issuer, the Owner Beneficiary and each Project Borrower, the names of such employee benefit plans whose assets in such separate account or accounts or pension trusts exceed 10% of the total assets or are expected to exceed 10% of the total assets of such account or accounts or trusts as of the date of such purchase (for the purpose of this clause (ii), all employee benefit plans maintained by the same employer or employee organization are deemed to be a single plan); (iii) all or part of such funds constitute assets of a bank collective investment fund maintained by it, and it has disclosed to each of the Collateral Trustee, the Issuer, the Owner Beneficiary and each Project Borrower, the names of such employee benefit plans whose assets in such collective investment fund exceed 10% of the total assets or are expected to exceed 10% of the total assets of such fund as of the date of such purchase (for the purpose of this clause (iii), all employee benefit plans maintained by the same employer or employee organization are deemed to be a single plan); (iv) all or part of such funds constitute assets of one or more employee benefit plans, each of which has been identified to each of the Collateral Trustee, the Issuer, the Owner Beneficiary and each Project Borrower, in writing; (v) it is acquiring the Notes for the account of one or more pension funds, trust funds or agency accounts, each of which is a "governmental plan" as defined in Section 3(32) of ERISA; (vi) the source of funds is an "investment fund" managed by a "qualified professional asset manager" or "QPAM" (as defined in Part V of PTE 84-14, issued March 13, 1984), provided that no other party to the transactions described in this Participation Agreement and no "affiliate" of such other party (as defined in Section V(c) of PTE 84-14) has at this time, or during the immediately preceding one year exercised the authority to appoint or terminate said QPAM as manager of the assets of any plan identified in writing pursuant to this clause (vi) or to negotiate the terms of said QPAM's management agreement on behalf of any such identified plans; or (vii) if it is other than an insurance company, all or a portion of such funds consists of funds which do not constitute "plan assets". (b) Each Purchaser represents that it is an "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act of 1933, as amended) acting for its own account (and not for the account of others) or as a fiduciary or agent for others (which others are also "accredited investors"). Each Purchaser further represents that such Purchaser is acquiring the Notes for the purpose of investment and not with a view to the distribution thereof, -8- Participation Agreement and that such Purchaser has no present intention of selling, negotiating or otherwise disposing of the Notes; it being understood, however, that the disposition of such Purchaser's property shall at all times be and remain within its control. Each Purchaser understands that the Notes have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), or under any state securities laws, and may not be resold in the absence of registration unless such sale is exempt from registration under the Securities Act and any applicable state securities laws. ARTICLE IV Participation Agreement and that such Purchaser has no present intention of selling, negotiating or otherwise disposing of the Notes; it being understood, however, that the disposition of such Purchaser's property shall at all times be and remain within its control. Each Purchaser understands that the Notes have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), or under any state securities laws, and may not be resold in the absence of registration unless such sale is exempt from registration under the Securities Act and any applicable state securities laws. ARTICLE IV GUARANTOR COVENANTS Section 4.1 Reporting Requirements. The Guarantor hereby covenants and agrees that until payment in full of all principal, premium, if any, and interest outstanding from time to time under the Notes, the Guarantor will furnish or cause to be furnished to the Collateral Trustee and each Noteholder: (a) As soon as available and in any event within forty-five (45) calendar days after the end of each of its first three fiscal quarters in each fiscal year, consolidating and consolidated financial statements of the Guarantor and its Subsidiaries, consisting of a consolidating and consolidated balance sheet as of the end of such fiscal quarter and related consolidating and consolidated statements of income, stockholders' equity and cash flows for the fiscal quarter then ended and the fiscal year through that date, all in reasonable detail and certified (subject to normal year-end audit adjustments) by an authorized officer of the Guarantor as having been prepared in accordance with GAAP, consistently applied, and setting forth in comparative form the respective financial statements for the corresponding date and period in the previous fiscal year. (b) As soon as available and in any event within ninety (90) days after the end of each fiscal year of the Guarantor, consolidating and consolidated financial statements of the Guarantor and its Subsidiaries consisting of a consolidating and consolidated balance sheet as of the end of such fiscal year, and related consolidating and consolidated statements of income, stockholders' equity and cash flows for the fiscal year then ended, all in reasonable detail and setting forth in comparative form the financial statements as of the end of and for the preceding fiscal year, and certified by independent certified public accountants of nationally recognized standing satisfactory to the Collateral Trustee. The certificate or report of accountants shall be free of qualifications (other than any consistency qualification that may result from a change in the method used to prepare the financial statements as to which such accountants concur) and shall not indicate the occurrence or existence of any event, condition or contingency which would materially impair the prospect of payment or performance of any covenant, agreement or duty of the Guarantor under any of the Credit Documents, the Project Loan Documents or the other Operative Documents to which it is a party. (c) Concurrently with the delivery of the financial statements described in the foregoing paragraphs (a) and (b), a certificate executed by the President or any Vice President of -9- Participation Agreement the Guarantor certifying that no Event of Default has occurred and is then continuing as of the date of such financial statements and as of the date of such certificate. (d) Concurrently with the delivery of the financial statements described in the foregoing paragraph (b), a report setting forth for the corresponding fiscal year (i) with respect to each Mortgaged Property (A) the return on net assets for such Mortgaged Property, (B) the net sales for such Mortgaged Property and the corresponding percentage changes for the year earlier period, and (C) the net sales per square foot for such Mortgaged Property and (ii) with respect to each Mortgaged Property on an average basis for all other "super stores" operated by the Participation Agreement the Guarantor certifying that no Event of Default has occurred and is then continuing as of the date of such financial statements and as of the date of such certificate. (d) Concurrently with the delivery of the financial statements described in the foregoing paragraph (b), a report setting forth for the corresponding fiscal year (i) with respect to each Mortgaged Property (A) the return on net assets for such Mortgaged Property, (B) the net sales for such Mortgaged Property and the corresponding percentage changes for the year earlier period, and (C) the net sales per square foot for such Mortgaged Property and (ii) with respect to each Mortgaged Property on an average basis for all other "super stores" operated by the Tenant and open in the same fiscal year of the Tenant as such Mortgaged Property has opened (A) the average return on net assets for all such "super stores," (B) the average net sales for all such "super stores," (C) the average net sales per square foot for all such "super stores" and (D) the corresponding figures and corresponding percentage change for the year earlier period. (e) promptly, copies of all financial statements and reports and all press releases that the Guarantor sends to its creditors or shareholders, and copies of all financial statements and regular, periodical or special reports (including Forms 10K, 10Q and 8K) that the Guarantor or the Tenant may make to, or file with, the Securities and Exchange Commission, or any successor thereto. (f) Such other information respecting the condition or operations, financial or otherwise, of the Guarantor and the Tenant as the Collateral Trustee or any Noteholder may from time to time reasonably request. Section 4.2 Inspection Rights. The Guarantor shall permit representatives of the Noteholders: (a) If no Default or Event of Default then exists, at the expense of such Noteholders and upon reasonable prior notice to the Guarantor, to visit the principal executive office of the Guarantor, to discuss the affairs, finances and accounts of the Guarantor and its Subsidiaries with the Guarantor's officers, and (with the consent of the Guarantor, which consent will not be unreasonably withheld) its independent public accountants, and (with the consent of the Guarantor, which consent will not be unreasonably withheld) to visit the Mortgaged Properties, all at such reasonable times and as often as may be reasonably requested in writing; and (b) If a Default or an Event of Default then exists, at the expense of the Guarantor, to visit and inspect any of the offices or properties of the Guarantor or any Subsidiary, to examine all their respective books of account, records, reports and other papers, to make copies and extracts therefrom, and to discuss their respective affairs, finances and accounts with their respective officers and independent public accountants (and by this provision the Guarantor authorizes said accountants to discuss the affairs, finances and accounts of the Guarantor and its Subsidiaries), all at such times and as often as may be requested. It is understood and agreed by each such Noteholder that the confidentiality of "Confidential Information" disclosed to such Noteholder under this Section 4.2 shall be maintained in accordance with the provisions of Section 10.10 hereof. -10- Participation Agreement Section 4.3 Transaction Expenses. Whether or not the transactions contemplated hereby are consummated, the Guarantor will pay all costs and expenses (including reasonable attorneys' fees of a special counsel and, if reasonably required, local or other counsel) incurred by each Purchaser in connection with such transactions. Guarantor will also pay all costs and expenses (including reasonable attorneys' fees of a special counsel and, if reasonably required, local or other counsel) incurred by any Noteholder in connection with any amendments, waivers or consents under or in respect of this Participation Agreement or the other Operative Documents (whether or not such amendment, waiver or consent becomes effective), including, without limitation: (a) the costs and expenses incurred in enforcing or defending (or determining whether or how to enforce or defend) any rights under this Participation Agreement or the other Operative Documents or in responding to any Participation Agreement Section 4.3 Transaction Expenses. Whether or not the transactions contemplated hereby are consummated, the Guarantor will pay all costs and expenses (including reasonable attorneys' fees of a special counsel and, if reasonably required, local or other counsel) incurred by each Purchaser in connection with such transactions. Guarantor will also pay all costs and expenses (including reasonable attorneys' fees of a special counsel and, if reasonably required, local or other counsel) incurred by any Noteholder in connection with any amendments, waivers or consents under or in respect of this Participation Agreement or the other Operative Documents (whether or not such amendment, waiver or consent becomes effective), including, without limitation: (a) the costs and expenses incurred in enforcing or defending (or determining whether or how to enforce or defend) any rights under this Participation Agreement or the other Operative Documents or in responding to any subpoena or other legal process or informal investigative demand issued in connection with this Participation Agreement or the other Operative Documents, or by reason of being a holder of the Notes, and (b) the costs and expenses, including financial advisors' fees, incurred in connection with the insolvency or bankruptcy of the Guarantor or the Tenant or in connection with any work-out or restructuring of the transactions contemplated hereby and by the Notes. The Guarantor will pay, and will save each Purchaser harmless from, all claims in respect of any fees, costs or expenses if any, of brokers and finders. The obligations of the Guarantor under this Section 4.3 will survive the payment or transfer of any Note, the enforcement, amendment or waiver of any provision of this Participation Agreement or the other Operative Documents, and the termination of any Lease. Section 4.4 Payment of Certain Fees and Expenses. The Guarantor shall pay or cause to be paid (a) the initial and annual fee and reasonable out-of-pocket expenses of the Trust Company and any necessary co-trustees (including reasonable counsel fees and expenses) or any successor, for acting as owner trustee pursuant to the Trust Agreement, (b) the initial and annual fee of the Owner Beneficiary and any successor beneficial owner, for acting as beneficial owner pursuant to the Trust Agreement, (c) the initial and annual fee of the Collateral Trustee and any necessary co-trustees (including reasonable counsel fees and expenses) or any successor collateral trustee, for acting as Collateral Trustee, (d) the initial and annual fee of Lord Securities Corporation, a Delaware corporation, as manager of the Owner Beneficiary pursuant to a management agreement between the Owner Beneficiary and Lord Securities Corporation which has been delivered to the Guarantor, and (e) all costs and expenses incurred by the Trust Company, the Collateral Trustee and the Owner Beneficiary in entering into any future amendments or supplements with respect to any of the Operative Documents, whether or not such amendments or supplements are ultimately entered into, or in giving or withholding of waivers or consents hereto or thereto or, in the case of the Trust Company, in complying with any further assurances with respect to the Collateral. ARTICLE V DIRECT PAYMENT Section 5.1 Direct Payment. Notwithstanding anything to the contrary contained in the Indenture or the Notes, in the case of any Note owned by any Purchaser or any other Noteholder which has given written notice to the Collateral Trustee requesting that the -11- Participation Agreement provisions of this Section 5.1 shall apply, the Collateral Trustee will punctually pay when due all distributions thereof with respect to said Notes pursuant to the terms of the Indenture, without any presentment thereof, directly to such Noteholder at its address set forth in Schedule I hereto or such other address as such Noteholder may from time to time designate in writing to the Collateral Trustee or, if a bank account with a United States bank is so designated for such Noteholder, the Collateral Trustee will make such payments in immediately available funds to such bank account, no later than 11:00 a.m., New York City time, on the date due, marked for attention as indicated, or in such other manner or to such other account in any United States bank as such Noteholder may from time to time direct in writing. Participation Agreement provisions of this Section 5.1 shall apply, the Collateral Trustee will punctually pay when due all distributions thereof with respect to said Notes pursuant to the terms of the Indenture, without any presentment thereof, directly to such Noteholder at its address set forth in Schedule I hereto or such other address as such Noteholder may from time to time designate in writing to the Collateral Trustee or, if a bank account with a United States bank is so designated for such Noteholder, the Collateral Trustee will make such payments in immediately available funds to such bank account, no later than 11:00 a.m., New York City time, on the date due, marked for attention as indicated, or in such other manner or to such other account in any United States bank as such Noteholder may from time to time direct in writing. ARTICLE VI DEFINITIONS Section 6.1 General Definitions. As used herein, the following terms have the respective meanings set forth below: "After Tax Basis" shall mean with respect to any payment to be received by a Tax Indemnitee, the amount of such payment supplemented by a further payment or payments so that, after deducting from such aggregate payments the amount of all taxes (net of any actual current credits, deductions or other tax benefits arising from the payment by the Tax Indemnitee of any amount, including taxes, for which the payment to be received is made) actually imposed currently on the Tax Indemnitee by any Governmental Authority or taxing authority with respect to such payments, the balance of such payment shall be equal to the original payment to be received; provided, however, that for the purposes of this definition it shall be assumed that for any Noteholder as an Indemnified Person (or any Affiliate thereof) Federal, state and local income taxes are payable at the highest marginal Federal, state and local statutory income tax rates applicable to corporations from time to time. "Annual Statements" is defined on Exhibit H-1 paragraph (6). "Claims" shall mean any and all obligations, liabilities, losses, actions, suits, penalties, claims, demands, costs and expenses (including, without limitation, reasonable attorney's fees and expenses) of any nature whatsoever. "Collateral Trustee" is defined in the Introductory paragraphs of this Participation Agreement. "Closing Date" is defined in Section 1.2. "Confidential Information" is defined in Section 10.10 of this Participation Agreement. "Environmental Laws" shall have the meaning assigned thereto in the Lease Appendix. -12- Participation Agreement "Environmental Violation" shall have the meaning assigned thereto in the Lease Appendix. "GAAP" shall mean generally accepted accounting principles as are in effect from time to time and applied on a basis consistent with the Historical Statements both as to classification of items and amounts. "Governmental Authority" shall have the meaning assigned thereto in the Lease Appendix. "Guarantor" is defined in the Introductory paragraphs of this Participation Agreement. "Hazardous Substance" shall have the meaning assigned thereto in the Lease Appendix. "Historical Statements" is defined on Exhibit H-1 paragraph (6). Participation Agreement "Environmental Violation" shall have the meaning assigned thereto in the Lease Appendix. "GAAP" shall mean generally accepted accounting principles as are in effect from time to time and applied on a basis consistent with the Historical Statements both as to classification of items and amounts. "Governmental Authority" shall have the meaning assigned thereto in the Lease Appendix. "Guarantor" is defined in the Introductory paragraphs of this Participation Agreement. "Hazardous Substance" shall have the meaning assigned thereto in the Lease Appendix. "Historical Statements" is defined on Exhibit H-1 paragraph (6). "Impositions" shall mean, except to the extent described in the following sentence, any and all liabilities, losses, expenses and costs of any kind whatsoever for fees, taxes, levies, imposts, duties, charges, assessments or withholdings ("Taxes") (including (i) real and personal property taxes, including personal property taxes on any property covered by a Lease that is classified by any governmental authority as personal property, and real estate or ad valorem taxes in the nature of property taxes; (ii) sales taxes, use taxes and other similar taxes (including rent taxes and intangibles taxes); (iii) any excise taxes; (iv) real estate transfer taxes, conveyance taxes, stamp taxes and documentary recording taxes and fees; (v) taxes that are or are in the nature of franchise, income, value added, privilege and doing business taxes, license and registration fees; and (vi) assessments on any Mortgaged Property, including all assessments for public improvements or benefits, whether or not such improvements are commenced or completed within the term of such Lease), and in each case all interest, additions to tax and penalties thereon, which at any time prior to, during or with respect to the term of such Lease or in respect of any period for which the Tenant shall be obligated to pay Supplemental Rent (as defined in the respective Leases), may be levied, assessed or imposed by any Federal, state, city, county or local authority upon or with respect to (a) any Mortgaged Property or any part thereof or interest therein; (b) the financing, refinancing, demolition, construction, substitution, subleasing, assignment, control, condition, occupancy, servicing, maintenance, repair, ownership, possession, activity conducted on, delivery, insuring, use, operation, improvement, transfer of title, return or other disposition of such Mortgaged Property or any part thereof or interest therein; (c) the Notes or the Project Loan Notes or other indebtedness with respect to any Mortgaged Property or any part thereof or interest therein; (d) the rentals, receipts or earnings arising from any Mortgaged Property or any part thereof or interest therein; (e) the Operative Documents or any payment made or accrued pursuant thereto; (f) the income or other proceeds received with respect to any Mortgaged Property, or any part thereof or interest therein upon the sale or disposition thereof; (g) the issuance of the Notes or the Project Loan Notes; or (h) otherwise in connection with the transactions contemplated by the Operative Documents. The term "Imposition" shall not mean or include: -13- Participation Agreement (i) Taxes and impositions (other than Taxes that are, or are in the nature of, sales, use, rental, value added, transfer or property taxes) that are imposed on a Tax Indemnitee by the United States federal government that are based on or measured by the net income (including taxes based on capital gains and minimum taxes) of such Person; provided that this clause (i) shall not be interpreted to prevent a payment from being made on an After Tax Basis if such payment is otherwise required to be so made; (ii) Taxes and impositions (other than Taxes that are, or are in the nature of, sales, use, rental, value added, transfer or property taxes) that are imposed by any state or local jurisdiction and that are based upon or measured by the gross or net income or gross or net receipts (including any minimum taxes, withholding taxes or taxes on or measured by capital stock, franchise or doing business taxes) except that this clause (ii) shall not apply to (and thus shall not exclude) any such Taxes imposed on a Tax Indemnitee by the state (or any local taxing authority thereof or therein) where any Mortgaged Property is located, possessed or used under each Participation Agreement (i) Taxes and impositions (other than Taxes that are, or are in the nature of, sales, use, rental, value added, transfer or property taxes) that are imposed on a Tax Indemnitee by the United States federal government that are based on or measured by the net income (including taxes based on capital gains and minimum taxes) of such Person; provided that this clause (i) shall not be interpreted to prevent a payment from being made on an After Tax Basis if such payment is otherwise required to be so made; (ii) Taxes and impositions (other than Taxes that are, or are in the nature of, sales, use, rental, value added, transfer or property taxes) that are imposed by any state or local jurisdiction and that are based upon or measured by the gross or net income or gross or net receipts (including any minimum taxes, withholding taxes or taxes on or measured by capital stock, franchise or doing business taxes) except that this clause (ii) shall not apply to (and thus shall not exclude) any such Taxes imposed on a Tax Indemnitee by the state (or any local taxing authority thereof or therein) where any Mortgaged Property is located, possessed or used under each Lease; provided that this clause (ii) shall not be interpreted to prevent a payment from being made on an After Tax Basis if such payment is otherwise required to be so made; (iii) any Tax or imposition to the extent, but only to such extent, it relates to any act, event or omission that occurs after the termination of a Lease with respect to a Mortgaged Property (but not any Tax or imposition that relates to any period prior to the termination of each Lease); (iv) any Tax or imposition for so long as, but only for so long as, it is being contested in accordance with the provisions of Section 9.2(g); (v) any interest or penalties imposed on a Tax Indemnitee as a result of the failure of such Tax Indemnitee to file any return or report timely and in the form prescribed by law or to pay any Tax or imposition, except to the extent such failure is a result of a breach by such Tax Indemnitee of its obligations under Section 9.2; provided, that this clause (v) shall not apply (x) if such interest or penalties arise as a result of a position taken (or requested to be taken) by the Tenant in a contest controlled by the Tenant under Section 9.2(g) or (y) to any such interest or penalties that result from such Tax Indemnitee's complying with the reporting procedures set forth in Section 9.2; (vi) any Taxes or impositions imposed on the Tenant that are a result of the Tenant not being considered a "United States person" as defined in Section 7701(a)(30) of the Code; (vii) any Taxes or impositions that are enacted or adopted by their express terms as a substitute for any Tax that would not have been indemnified against pursuant to the terms of Section 9.2; (viii) any Taxes which are imposed on a Tax Indemnitee as a result of a breach of a covenant or representation by such Tax Indemnitee in any Operative Document -14- Participation Agreement (unless caused by the Tenant's breach of its representations, warranties and covenants) or as a result of the gross negligence or willful misconduct of such Tax Indemnitee itself (as opposed to gross negligence or willful misconduct imputed to such Tax Indemnitee), but not Taxes imposed as a result of ordinary negligence of such Tax Indemnitee; (ix) any Taxes or impositions imposed on the Tenant to the extent that such Taxes are actually reimbursed to the Tenant by another Person other than an Affiliate of the Tenant; (x) any Taxes or impositions imposed upon the Tenant with respect to any voluntary transfer, sale, financing or Participation Agreement (unless caused by the Tenant's breach of its representations, warranties and covenants) or as a result of the gross negligence or willful misconduct of such Tax Indemnitee itself (as opposed to gross negligence or willful misconduct imputed to such Tax Indemnitee), but not Taxes imposed as a result of ordinary negligence of such Tax Indemnitee; (ix) any Taxes or impositions imposed on the Tenant to the extent that such Taxes are actually reimbursed to the Tenant by another Person other than an Affiliate of the Tenant; (x) any Taxes or impositions imposed upon the Tenant with respect to any voluntary transfer, sale, financing or other voluntary disposition by a Project Borrower (other than a transfer contemplated and permitted by the Operative Documents, including any transfer in connection with (1) the exercise by the Tenant of any purchase option under any Lease, (2) the occurrence of an Event of Default, or (3) a Casualty Event or Condemnation Event affecting any Mortgaged Property) of any interest in any Mortgaged Property or any interest in, or created pursuant to, the Operative Documents or any voluntary transfer of any interest in the Tenant (other than in connection with the existence of a Lease Event of Default) or any involuntary transfer of any of the foregoing interests resulting from the bankruptcy or insolvency of the Tenant (other than in connection with the existence of an Event of Default); (xi) any gift or inheritance Taxes; (xii) any Taxes or impositions imposed on a Tax Indemnitee, to the extent such Tax Indemnitee actually receives a credit (or otherwise has a reduction in a liability for Taxes) in respect thereof against Taxes that are not indemnified hereunder (but only to the extent such credit is not taken into account in calculating the indemnity payment on an After Tax Basis); (xiii) any Tax or imposition to the extent that such Tax or imposition is imposed on a Tax Indemnitee in respect of a transaction or business in the jurisdiction imposing such Tax other than the transactions arising out of the Operative Documents; or (xiv) any Tax or imposition imposed on a direct or indirect transferee, successor or assign of the Tenant to the extent of the excess of such Taxes over the amount of such Taxes that would have been imposed had there not been a transfer by the Tenant of an interest arising under the Operative Documents; provided that there shall not be excluded under this clause (xiv) any such Tax or imposition if such direct or indirect transferee, successor or assign of the Tenant acquired its interest as a result of a transfer in connection with an Event of Default; provided, further, that there shall not be excluded under this clause (xiv) any amount necessary to make any payment on an After Tax Basis. -15- Participation Agreement Any tax or imposition excluded from the defined term "Imposition" in any one of the foregoing clauses (i) through (xiv) shall not be construed as constituting an Imposition by any provision of any other of the aforementioned clauses. "Indemnified Person" shall mean the Trust Company, the Issuer, the Collateral Trustee, in its individual capacity and its trust capacity, each Noteholder, and the Owner Beneficiary and their respective successors, assigns, directors, shareholders, partners, officers, employees, agents and Affiliates. "Indenture" is defined in the Introductory paragraphs of this Participation Agreement. "Interim Statements" is defined on Exhibit H-1 paragraph (6). "Issuer" is defined in the Introductory paragraphs of this Participation Agreement. Participation Agreement Any tax or imposition excluded from the defined term "Imposition" in any one of the foregoing clauses (i) through (xiv) shall not be construed as constituting an Imposition by any provision of any other of the aforementioned clauses. "Indemnified Person" shall mean the Trust Company, the Issuer, the Collateral Trustee, in its individual capacity and its trust capacity, each Noteholder, and the Owner Beneficiary and their respective successors, assigns, directors, shareholders, partners, officers, employees, agents and Affiliates. "Indenture" is defined in the Introductory paragraphs of this Participation Agreement. "Interim Statements" is defined on Exhibit H-1 paragraph (6). "Issuer" is defined in the Introductory paragraphs of this Participation Agreement. "Lease Appendix" shall mean the appendix of defined terms attached to each Lease. "Material Adverse Effect" shall have the meaning assigned thereto in the Lease Appendix. "Noteholder" shall mean the Person in whose name a Note is registered in accordance with the provisions of the Indenture. "Notes" is defined in the Introductory paragraphs of this Participation Agreement. "Officer's Certificate" shall mean a certificate of the chief financial officer, treasurer, or other officer of such Person whose responsibilities extend to the subject matter of such certificate. "Owner Beneficiary" is defined in the Introductory paragraph of this Participation Agreement. "Person" shall mean any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Purchase Price" is defined in Section 1.1. "Purchasers" is defined in the Introductory paragraphs of this Participation Agreement. "Related Person" is defined in Section 10.12 of this Participation Agreement. "Subsidiary" of any Person shall mean any corporation, partnership, joint venture, trust or estate of which (or in which) more than 50% of: -16- Participation Agreement (i) the outstanding capital stock having voting power to elect a majority of the board of directors of such corporation (irrespective of whether at the time capital stock of any other class or classes of such corporation shall or might having voting power upon the occurrence of any contingency), (ii) the interest in the capital or profits of such partnership or joint venture, or (iii) the beneficial interest of such trust or estate, is at the time directly or indirectly owned by such Person, by such Person and one or more of its Subsidiaries or by one or more of such Person's Subsidiaries. Participation Agreement (i) the outstanding capital stock having voting power to elect a majority of the board of directors of such corporation (irrespective of whether at the time capital stock of any other class or classes of such corporation shall or might having voting power upon the occurrence of any contingency), (ii) the interest in the capital or profits of such partnership or joint venture, or (iii) the beneficial interest of such trust or estate, is at the time directly or indirectly owned by such Person, by such Person and one or more of its Subsidiaries or by one or more of such Person's Subsidiaries. "Tax Indemnitee" shall mean a Project Borrower, the Noteholders, the Issuer, the Trust Company, the Collateral Trustee, in its individual capacity and its trust capacity, the Owner Beneficiary and their respective successors, assigns, participants, directors, shareholders, partners, officers, employees, agents and Affiliates. "Taxes" is defined in the definition of "Imposition." "Tenant" is defined in the Introductory paragraph of this Participation Agreement. "Trust Company" is defined in the Introductory paragraphs of this Participation Agreement. "Trust Estate" shall have the meaning assigned thereto in the Trust Agreement. Section 6.2 Indenture Definitions. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned thereto in the Indenture. ARTICLE VII OTHER COVENANTS AND AGREEMENTS Section 7.1 Covenants of the Trust Company, the Issuer, the Collateral Trustee and the Owner Beneficiary. The Trust Company, the Issuer, the Collateral Trustee and the Owner Beneficiary hereby covenant and agree (as to itself only) with the other parties hereto that, so long as this Participation Agreement is in effect: (a) Discharge of Lien. Each of the Owner Beneficiary, the Issuer and the Trust Company will not create or permit to exist at any time, and will, at its own cost and expense, promptly take such action as may be necessary duly to discharge, or to cause to be discharged, all Liens on the Mortgaged Property or the other Collateral (other than the Liens arising under or contemplated by the Operative Documents) attributable to it or any of its Affiliates. (b) Trust Agreement. Without prejudice to any right under the Trust Agreement of the Trust Company to resign, or the Owner Beneficiary's right under the Trust Agreement to -17- Participation Agreement remove the institution acting as owner trustee under the Trust Agreement, the Owner Beneficiary hereby agrees with the Collateral Trustee and the Tenant (i) not to terminate or revoke the trust created by the Trust Agreement, (ii) not to amend, supplement, terminate or revoke or otherwise modify any provision of the Trust Agreement in such a manner as to adversely affect the rights of any such party without the prior written consent of such party, (iii) to comply with all of the terms of the Trust Agreement, the nonperformance of which would adversely affect such party and (iv) not to remove the Trust Company as owner trustee under the Trust Agreement. (c) Successor Trust Company. Subject to Section 8.1 of the Trust Agreement, a successor owner trustee under the Trust Agreement may be appointed, and a corporation may become the owner trustee under the Trust Participation Agreement remove the institution acting as owner trustee under the Trust Agreement, the Owner Beneficiary hereby agrees with the Collateral Trustee and the Tenant (i) not to terminate or revoke the trust created by the Trust Agreement, (ii) not to amend, supplement, terminate or revoke or otherwise modify any provision of the Trust Agreement in such a manner as to adversely affect the rights of any such party without the prior written consent of such party, (iii) to comply with all of the terms of the Trust Agreement, the nonperformance of which would adversely affect such party and (iv) not to remove the Trust Company as owner trustee under the Trust Agreement. (c) Successor Trust Company. Subject to Section 8.1 of the Trust Agreement, a successor owner trustee under the Trust Agreement may be appointed, and a corporation may become the owner trustee under the Trust Agreement, only with the consent of the Tenant and the Collateral Trustee, which consent shall not be unreasonably withheld or delayed. (d) Indebtedness; Other Business. Neither the Issuer nor the Owner Beneficiary shall contract for, create, incur or assume any indebtedness, or enter into any business or other activity, other than pursuant to or under the Operative Documents. (e) No Violation. Neither the Collateral Trustee nor the Owner Beneficiary will instruct the Issuer to take any action in violation of the terms of any Operative Document. (f) No Voluntary Bankruptcy. The Owner Beneficiary shall not (i) commence any case, proceedings or other action under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization, arrangement, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (ii) seek appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial benefit of its creditors; and neither the Owner Beneficiary nor the Issuer shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in this paragraph. (g) Change of Principal Place of Business. The Issuer and the Owner Beneficiary shall give prompt notice to the Tenant and the Collateral Trustee if the Trust Company's principal place of business or chief executive office, or the office where the records concerning the accounts or contract rights relating to the Mortgaged Properties are kept, shall cease to be located at the location described in Exhibit F, paragraph 8 or if it shall change its name, identity or corporate structure. (h) Operative Documents. Neither the Issuer nor the Owner Beneficiary shall consent to or permit, and the Owner Beneficiary shall not take any action for the purpose of permitting the Issuer to consent to or permit, any amendment, supplement or other modification of the terms and provisions of the Operative Documents, in each case without the prior written consent of the Tenant and the Collateral Trustee. Section 7.2 Guarantor's Operative Document Rights. Each of the parties hereto agrees that, unless and until any Lease Event of Default shall have occurred and be continuing, it will not enter into any amendments or modifications of any Operative Document without the prior written consent of the Guarantor. -18- Participation Agreement Section 7.3 Covenants of the Collateral Trustee The Collateral Trustee (in its individual capacity and in its trust capacity) hereby covenants and agrees with the other parties hereto that, so long as this Participation Agreement is in effect: (a) Discharge of Lien. The Collateral Trustee (in its individual capacity and in its trust capacity) will not create or permit to exist at any time, and will, at its own cost and expense, promptly take such action as may be necessary duly to discharge, or to cause to be discharged, all Liens on any Mortgaged Property or the Collateral attributable to it or any of its Affiliates (other than Liens arising under or pursuant to any Operative Document); provided, however, that the Collateral Trustee shall not be required to so discharge any such Lien while the same Participation Agreement Section 7.3 Covenants of the Collateral Trustee The Collateral Trustee (in its individual capacity and in its trust capacity) hereby covenants and agrees with the other parties hereto that, so long as this Participation Agreement is in effect: (a) Discharge of Lien. The Collateral Trustee (in its individual capacity and in its trust capacity) will not create or permit to exist at any time, and will, at its own cost and expense, promptly take such action as may be necessary duly to discharge, or to cause to be discharged, all Liens on any Mortgaged Property or the Collateral attributable to it or any of its Affiliates (other than Liens arising under or pursuant to any Operative Document); provided, however, that the Collateral Trustee shall not be required to so discharge any such Lien while the same is being contested in good faith by appropriate proceedings diligently prosecuted so long as such proceedings shall not involve any material danger or impairment of the Liens of the Operative Documents or of the sale, forfeiture or loss of, and shall not interfere with the use or disposition of, any Mortgaged Property or title thereto or any interest therein or the payment of rent under any Lease or the Trust Estate (as defined in the Trust Agreement). (b) Successor Collateral Trustee. A successor Collateral Trustee may be appointed, and a corporation may become the Collateral Trustee under the Indenture, only with the consent of the Tenant and the Purchasers, which consent in the case of the Tenant shall be limited to approval of such successor Collateral Trustee's fees. Section 7.4 Collateral Trustee Project Loan Agreement Rights. Notwithstanding anything to the contrary contained in any Project Loan Document, the Collateral Trustee, the Guarantor, the Tenant, the Purchasers, the Issuer, the Trust Company and the Owner Beneficiary hereby agree that the Collateral Trustee, as agent on behalf of the Issuer in accordance with the Collateral Trust Indenture, shall have the right to make all decisions, receive all payments and take all actions on behalf of the Issuer under each Project Loan Document. ARTICLE VIII TRANSFER OF INTEREST Section 8.1 Restrictions of Transfer. The Owner Beneficiary may not, directly or indirectly, assign, convey or otherwise transfer any of its right, title or interest in or to the Trust Estate or the Trust Agreement. Any transfer by the Owner Beneficiary as above provided, shall only be effected pursuant to an agreement in form and substance reasonably satisfactory to the Collateral Trustee, the Trust Company, the Tenant, and their respective counsel. Section 8.2 Effect of Transfer. From and after any transfer effected in accordance with this Section 8, the transferor shall be released, to the extent of such transfer, from its liability hereunder and under the other documents to which it is a party in respect of obligations to be performed on or after the date of such transfer. Notwithstanding any transfer of all or a portion of the Owner Beneficiary's interest as provided in this Section 8, the transferor shall be entitled to all benefits accrued and all rights vested prior to such transfer, including, without limitation, rights to indemnification under any such document. -19- Participation Agreement ARTICLE IX INDEMNIFICATION Section 9.1 General Indemnity. The Guarantor and the Tenant, jointly and severally, hereby assume liability for and agree to defend, indemnify and hold harmless each Indemnified Person on an After Tax Basis from and against any and all Claims, which may be imposed on, incurred by or asserted against an Indemnified Person (other than to the extent such Claims arise from the gross negligence, willful misconduct or willful breach of such Indemnified Person) in any way relating to or arising out of the execution, delivery, performance or enforcement of this Participation Agreement, or any other Operative Document or on or with respect to any Mortgaged Participation Agreement ARTICLE IX INDEMNIFICATION Section 9.1 General Indemnity. The Guarantor and the Tenant, jointly and severally, hereby assume liability for and agree to defend, indemnify and hold harmless each Indemnified Person on an After Tax Basis from and against any and all Claims, which may be imposed on, incurred by or asserted against an Indemnified Person (other than to the extent such Claims arise from the gross negligence, willful misconduct or willful breach of such Indemnified Person) in any way relating to or arising out of the execution, delivery, performance or enforcement of this Participation Agreement, or any other Operative Document or on or with respect to any Mortgaged Property, including, without limitation, Claims in any way relating to or arising out of (a) the financing or refinancing, purchase, acceptance, rejection, ownership, design, leasing, subleasing, possession, use, operation, repair, modification, condition, sale, return, repossession (whether by summary proceedings or otherwise), or any other disposition of a Mortgaged Property or any part thereof; (b) any latent or other defects in any Property whether or not discoverable by any Indemnified Person or the Tenant; (c) the Operative Documents, or any transaction contemplated thereby; (d) any breach by the Guarantor or the Tenant of any of their representations or warranties under the Operative Documents or failure by the Guarantor or the Tenant to perform or observe any covenant or agreement to be performed by them under any of the Operative Documents; and (e) personal injury, death or property damage, including Claims based on strict liability in tort; but excluding (i) Claims (except Claims against the Trust Company (including claims arising from Taxes or other impositions set forth in clause (iii) of the exclusions to the definition of "Impositions" set forth in Article VI)) to the extent such Claims arise solely out of events occurring after the expiration of the terms of all Leases and after the Tenant's discharge of all its obligations under the Operative Documents or (ii) any Taxes (disregarding with respect to the Trust Company the exclusions set forth in clause (v), to the extent attributable to action taken or not taken by the Issuer at the direction of the Owner Beneficiary or the Collateral Trustee, and clause (ix) of the exclusions to the definition of Impositions set forth in Article VI) including any Claim (or any portion of a Claim) made upon an Indemnified Person by a third party that at its origin is based upon a Tax (other than amounts necessary to make any payments hereunder on an After Tax Basis, where the Tenant is otherwise specifically required to make such payments on an After Tax Basis). The Guarantor and the Tenant shall be entitled to control, and shall assume full responsibility for the defense of any Claim; provided, however, that any Indemnified Person named in such Claim, may each retain separate counsel at the expense of the Tenant and the Guarantor; provided, further, that such parties shall use reasonable efforts to share counsel to the extent practicable and minimize the fees of counsel being reimbursed hereunder. The Tenant, the Guarantor and each Indemnified Person agree to give each other prompt written notice of any Claim hereby indemnified against but the giving of any such notice by an Indemnified Person shall not be a condition to the Tenant's and Guarantor's obligation under this Section 9.1, except to the extent failure to give such notice prejudices the Tenant's or Guarantor's rights hereunder. After an Indemnified Person has been fully indemnified for a Claim pursuant to this Section 9.1, and so long as no default shall have occurred and be continuing under any Lease, the Tenant and the Guarantor shall be subrogated to any right of such Indemnified Person (except against another Indemnified Person) with respect to such Claim. -20- Participation Agreement Section 9.2 General Tax Indemnity. (a) Indemnification. The Tenant shall pay and assume liability for, and hereby agrees to indemnify, protect and defend each Mortgaged Property and all Tax Indemnitees, and hold them harmless against, all Impositions on an After Tax Basis. Each Tax Indemnitee agrees to use good-faith efforts (but not including increasing liability for Taxes not indemnifiable hereunder) to minimize the amount of Taxes indemnifiable by the Tenant during any taxable year; provided that this sentence shall not be construed to limit or impair any right of the Issuer set forth in the Operative Documents. Each Tax Indemnitee further agrees to comply with recommendations made by the Tenant regarding techniques to minimize Taxes indemnifiable hereunder; provided that (i) the Tenant agrees to make payments to (or otherwise indemnify) such Tax Indemnitee against any cost or expense arising from Participation Agreement Section 9.2 General Tax Indemnity. (a) Indemnification. The Tenant shall pay and assume liability for, and hereby agrees to indemnify, protect and defend each Mortgaged Property and all Tax Indemnitees, and hold them harmless against, all Impositions on an After Tax Basis. Each Tax Indemnitee agrees to use good-faith efforts (but not including increasing liability for Taxes not indemnifiable hereunder) to minimize the amount of Taxes indemnifiable by the Tenant during any taxable year; provided that this sentence shall not be construed to limit or impair any right of the Issuer set forth in the Operative Documents. Each Tax Indemnitee further agrees to comply with recommendations made by the Tenant regarding techniques to minimize Taxes indemnifiable hereunder; provided that (i) the Tenant agrees to make payments to (or otherwise indemnify) such Tax Indemnitee against any cost or expense arising from instituting the Tenant's recommendations and (ii) such Tax Indemnitee determines in its sole discretion that such recommendations will not have an adverse impact on such Tax Indemnitee. (b) Refunds. Provided that no Default or Event of Default has occurred and is continuing, if any Tax Indemnitee obtains a refund or a reduction in a liability (but only if such reduction relates to a Tax not otherwise indemnifiable hereunder and has not been taken into account in determining the amount of a payment on an After Tax Basis) as a result of any Imposition paid or reimbursed by the Tenant (in whole or in part), such Tax Indemnitee shall promptly pay to the Tenant the lesser of (x) the amount of such refund or reduction in liability and (y) the amount previously so paid or advances by the Tenant, in each case net of reasonable expenses not already paid or reimbursed by the Tenant. (c) Payments. (i) Subject to the terms of Section 9.2(g), the Tenant shall pay or cause to be paid all Impositions directly to the taxing authorities where feasible and otherwise to the Tax Indemnitee, as appropriate, and the Tenant shall at its own expense, upon such Tax Indemnitee's reasonable request, furnish to such Tax Indemnitee copies of official receipts or other satisfactory proof evidencing such payment. (ii) In the case of Impositions for which no contest is conducted pursuant to Section 9.2(g) and which the Tenant pays directly to the taxing authorities, the Tenant shall pay such Impositions prior to the latest time permitted by the relevant taxing authority for timely payment. In the case of Impositions for which the Tenant reimburses a Tax Indemnitee, the Tenant shall do so within twenty (20) days after receipt by the Tenant of demand by such Tax Indemnitee describing in reasonable detail the nature of the Imposition and the basis for the demand (including the computation of the amount payable), but in no event shall the Tenant be required to pay such reimbursement prior to thirty (30) days before the latest time permitted by the relevant taxing authority for timely payment. In the case of Impositions for which a contest is conducted pursuant to Section 9.2(g), the Tenant shall pay such Impositions or reimburse such Tax Indemnitee for such Impositions, to the extent not previously paid or reimbursed pursuant to Section 9.2(a), prior to the latest time permitted by the relevant taxing authority for timely payment after conclusion of all contests under Section 9.2(g). (iii) Impositions imposed with respect to a Mortgaged Property for a billing period during which a Lease expires or terminates with respect to such Mortgaged Property (unless the Tenant has exercised the purchase option set forth in the respective Lease with -21- Participation Agreement respect to such Mortgaged Property) shall be adjusted and prorated on a daily basis between the Tenant and the applicable Project Borrower, whether or not such Imposition is imposed before or after such expiration or termination and each party shall pay or reimburse the other for each party's pro rata share thereof. (iv) At the Tenant's request, the amount of any indemnification payment by the Tenant pursuant to Section 9.2(a) shall be verified and certified by an independent public accounting firm mutually acceptable to the Tenant and the Tax Indemnitee. The fees and expenses of such independent public accounting firm shall be paid by the Tenant unless such verification shall result in an adjustment in the Tenant's favor of 5 % or more of the payment as computed by the Tax Indemnitee, in which case such fee shall be paid by the Tax Indemnitee. Participation Agreement respect to such Mortgaged Property) shall be adjusted and prorated on a daily basis between the Tenant and the applicable Project Borrower, whether or not such Imposition is imposed before or after such expiration or termination and each party shall pay or reimburse the other for each party's pro rata share thereof. (iv) At the Tenant's request, the amount of any indemnification payment by the Tenant pursuant to Section 9.2(a) shall be verified and certified by an independent public accounting firm mutually acceptable to the Tenant and the Tax Indemnitee. The fees and expenses of such independent public accounting firm shall be paid by the Tenant unless such verification shall result in an adjustment in the Tenant's favor of 5 % or more of the payment as computed by the Tax Indemnitee, in which case such fee shall be paid by the Tax Indemnitee. (d) Reports and Returns. (i) The Tenant shall be responsible for preparing and filing any real and personal property or ad valorem tax returns in respect of each Mortgaged Property. In case any other report or tax return shall be required to be made with respect to any obligations of the Tenant under or arising out of Section 9.2(a) and of which the Tenant has knowledge or should have knowledge, the Tenant, at its sole cost and expense, shall notify the relevant Tax Indemnitee of such requirement and (except if such Tax Indemnitee notifies the Tenant that such Person intends to file such report or return) (A) to the extent required or permitted by and consistent with applicable laws, make and file in its own name such return, statement or report; and (B) in the case of any other such return, statement or report required to be made in the name of such Tax Indemnitee, advise such Tax Indemnitee of such fact and prepare such return, statement or report for filing by such Tax Indemnitee or, where such return, statement or report shall be required to reflect items in addition to any obligations of the Tenant under or arising out of Section 9.2(a), provide such Tax Indemnitee at the Tenant's expense with information sufficient to permit such return, statement or report to be properly made with respect to any obligations of the Tenant under or arising out of Section 9.2(a). Such Tax Indemnitee shall, upon the Tenant's request and at the Tenant's expense, provide any data maintained by such Tax Indemnitee (and not otherwise within the control of the Tenant) with respect to each Mortgaged Property which the Tenant may reasonably require to prepare any required tax returns or reports. (e) Income Inclusions. If as a result of the payment or reimbursement by the Tenant of any costs and expenses of the Issuer, the Owner Beneficiary or any of their respective Affiliates incurred in connection with the transactions contemplated by the Operative Documents, the Issuer, the Owner Beneficiary or any of their respective Affiliates shall suffer a net increase in any federal, state or local income tax liability, the Tenant shall indemnify the Issuer, the Owner Beneficiary or any of their respective Affiliates (without duplication of any indemnification required by Section 9.2(a)) on an After Tax Basis for the amount of such increase. The calculation of any such net increase shall take into account any current or future tax savings realized or reasonably expected to be realized by the Issuer, the Owner Beneficiary or any of their respective Affiliates, in respect thereof, as well as any interest, penalties and additions to tax payable by the Issuer, the Owner Beneficiary or any of their respective Affiliates. (f) Withholding Taxes. As between the Tenant and the Issuer, the Tenant shall be responsible for, and the Tenant shall indemnify and hold harmless the Issuer (without duplication of any indemnification required by Section 9.2 (a)) on an After Tax Basis against, any obligation -22- Participation Agreement for United States withholding taxes imposed in respect of the interest payable on the Project Loan Notes to the extent, but only to the extent, the Issuer has actually paid funds to a taxing authority with respect to such withholding taxes (and, if the Issuer receives a demand for such payment from any taxing authority, the Tenant shall discharge such demand on behalf of the Issuer). (g) Contests of Tax. (i) If a written claim is made against any Tax Indemnitee or if any proceeding shall be commenced against such Tax Indemnitee (including a written notice of such proceeding), for any Imposition, such Tax Indemnitee shall promptly notify the Tenant in writing and shall not take action with respect to such claim or proceeding without the consent of the Tenant for thirty (30) days after the receipt of such notice by the Tenant; provided, however, that, in the case of any such claim or proceeding, if action shall be required by law or Participation Agreement for United States withholding taxes imposed in respect of the interest payable on the Project Loan Notes to the extent, but only to the extent, the Issuer has actually paid funds to a taxing authority with respect to such withholding taxes (and, if the Issuer receives a demand for such payment from any taxing authority, the Tenant shall discharge such demand on behalf of the Issuer). (g) Contests of Tax. (i) If a written claim is made against any Tax Indemnitee or if any proceeding shall be commenced against such Tax Indemnitee (including a written notice of such proceeding), for any Imposition, such Tax Indemnitee shall promptly notify the Tenant in writing and shall not take action with respect to such claim or proceeding without the consent of the Tenant for thirty (30) days after the receipt of such notice by the Tenant; provided, however, that, in the case of any such claim or proceeding, if action shall be required by law or regulation to be taken prior to the end of such 30-day period, such Tax Indemnitee shall, in such notice to the Tenant, inform the Tenant, and no action shall be taken with respect to such claim or proceeding without the consent of the Tenant before the termination of such shorter period; provided, further, that the failure of such Tax Indemnitee to give the notices referred to this sentence shall not diminish the Tenant's obligation hereunder except to the extent such failure precludes the Tenant from contesting all or part of such claim. (ii) If, within thirty (30) days of receipt of such notice from the Tax Indemnitee (or such shorter period as the Tax Indemnitee is required by law or regulation for the Tax Indemnitee to commence such contest), the Tenant shall request in writing that such Tax Indemnitee contest such Imposition, the Tax Indemnitee shall, at the expense of the Tenant, in good faith conduct and control such contest (including, without limitation, by pursuit of appeals) relating to the validity, applicability or amount of such Tax (provided, however, that (A) if such contest can be pursued independently from any other proceeding involving a tax liability of such Tax Indemnitee, the Tax Indemnitee, at the Tenant's request, shall allow the Tenant to conduct and control such contest and (B) in the case of any contest, the Tax Indemnitee may request the Tenant to conduct and control such contest) by, in the sole discretion of the Person conducting and controlling such contest, (1) resisting payment thereof, (2) not paying the same except under protest, if protest is necessary and proper, (3) if the payment be made, using reasonable efforts to obtain a refund thereof in appropriate administrative and judicial proceedings, or (4) taking such other action as is reasonably requested by the Tenant from time to time. (iii) The party controlling any contest shall consult in good faith with the noncontrolling party and shall keep the non-controlling party reasonably informed as to the conduct of such contest; provided that all decisions ultimately shall be made in the sole discretion of the controlling party. The parties agree that a Tax Indemnitee may at any time decline to take further action with respect to the contest of any Imposition and may settle such contest if such Tax Indemnitee shall waive its rights to any indemnity from the Tenant that otherwise would be payable in respect of such claim (and any future claim by any taxing authority with respect to other taxable periods that are based, in whole or in part, upon the resolution of such claim) and shall pay to the Tenant any amount previously paid or advanced by the Tenant pursuant to this Section 9.2 by way of indemnification or advance for the payment of an Imposition. -23- Participation Agreement (iv) Notwithstanding the foregoing provisions of this Section 9.2, a Tax Indemnitee shall not be required to take any action and the Tenant shall not be permitted to contest any Tax in its own name or that of the Tax Indemnitee unless (A) the Tenant shall have agreed to pay and shall pay to such Tax Indemnitee on demand and on an After Tax Basis all reasonable costs, losses and expenses that such Tax Indemnitee actually incurs in connection with contesting such Tax, including, without limitation, all reasonable legal, accounting and investigatory fees and disbursements, (B) in the case of a claim that must be pursued in the name of a Tax Indemnitee (or an Affiliate thereof), the amount of the potential indemnity (taking into account all similar or logically related claims that have been or could be raised in an audit involving such Tax Indemnitee) for which the Tenant may be liable to pay an indemnity under this Section 9.2 exceeds $1,000,000, (C) the Tax Indemnitee shall have reasonably determined that the action to be taken will not result in any material danger of sale, forfeiture or loss of any Mortgaged Property, or any part thereof or interest therein, will not interfere with the payment of rent under any Lease, and will not result in risk of criminal liability, (D) if such contest shall involve the payment of the Imposition prior to the Participation Agreement (iv) Notwithstanding the foregoing provisions of this Section 9.2, a Tax Indemnitee shall not be required to take any action and the Tenant shall not be permitted to contest any Tax in its own name or that of the Tax Indemnitee unless (A) the Tenant shall have agreed to pay and shall pay to such Tax Indemnitee on demand and on an After Tax Basis all reasonable costs, losses and expenses that such Tax Indemnitee actually incurs in connection with contesting such Tax, including, without limitation, all reasonable legal, accounting and investigatory fees and disbursements, (B) in the case of a claim that must be pursued in the name of a Tax Indemnitee (or an Affiliate thereof), the amount of the potential indemnity (taking into account all similar or logically related claims that have been or could be raised in an audit involving such Tax Indemnitee) for which the Tenant may be liable to pay an indemnity under this Section 9.2 exceeds $1,000,000, (C) the Tax Indemnitee shall have reasonably determined that the action to be taken will not result in any material danger of sale, forfeiture or loss of any Mortgaged Property, or any part thereof or interest therein, will not interfere with the payment of rent under any Lease, and will not result in risk of criminal liability, (D) if such contest shall involve the payment of the Imposition prior to the contest, the Tenant shall provide to the Tax Indemnitee an interest-free advance in an amount equal to the Imposition that the Tax Indemnitee is required to pay (with no additional net after-tax cost to such Tax Indemnitee), (E) in the case of a claim that must be pursued in the name of a Tax Indemnitee (or an Affiliate thereof), the Tenant shall have provided to such Tax Indemnitee an opinion of independent tax counsel selected by the Tax Indemnitee and reasonably satisfactory to the Tenant stating that a reasonable basis exists to contest such claim (or, in the case of an appeal of an adverse determination, an opinion of such counsel to the effect that there is substantial authority for the position asserted in such appeal) and (F) no Event of Default shall have occurred and be continuing. In no event shall a Tax Indemnitee be required to appeal an adverse judicial determination to the United State Supreme Court. In addition, a Tax Indemnitee shall not be required to contest any claim in its name (or that of an Affiliate) if the subject matter thereof shall be of a continuing nature and shall have previously been decided adversely by a court of competent jurisdiction pursuant to the contest provisions of this Section 9.2, unless there shall have been a change in law (or interpretation thereof) and the Tax Indemnitee shall have received, at the Tenant's expense, an opinion of independent tax counsel selected by the Tax Indemnitee and reasonably acceptable to the Tenant stating that as a result of such change in law (or interpretation thereof), it is more likely than not that the Tax Indemnitee will prevail in such contest. ARTICLE X MISCELLANEOUS Section 10.1 Amendments, Etc. No amendment or waiver of any provision of this Participation Agreement, and no consent to any departure by any party herefrom, shall in any event be effective unless the same shall be in writing and signed by the parties hereto, and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. Section 10.2 Notices, Etc. All notices and other communications provided for hereunder shall be in writing (including telecopier) and telecopied, if the sender on the same day sends a confirming copy of such notice by a recognized overnight delivery service (charges -24- Participation Agreement prepaid), or sent by courier, charges prepaid, for delivery at the following address (or at such other address as shall be designated by such party in a written notice to the other Persons listed below): (a) if to the Issuer, to Wilmington Trust Company Rodney Square North 1100 North Market Street Wilmington, Delaware 19890-0001 Attention: Corporate Trust Administration Facsimile: (302) 651-8882 (b) if to Guarantor or Tenant, to: Participation Agreement prepaid), or sent by courier, charges prepaid, for delivery at the following address (or at such other address as shall be designated by such party in a written notice to the other Persons listed below): (a) if to the Issuer, to Wilmington Trust Company Rodney Square North 1100 North Market Street Wilmington, Delaware 19890-0001 Attention: Corporate Trust Administration Facsimile: (302) 651-8882 (b) if to Guarantor or Tenant, to: Borders Group, Inc. 100 Phoenix Drive Ann Arbor, MI 48108 Attention: Vice President and General Counsel Facsimile: (734) 477-1285 With a copy to: Dickinson Wright PLLC 38525 Woodward Avenue Suite 2000 Bloomfield Hills, MI 48304 Attention: Judith E. Gowing (c) if to Owner Beneficiary, to: c/o Lord Securities Corporation Two Wall Street New York City, NY 10005 Attention: Rick L. Taiano, Vice President Facsimile: (212) 346-9012 (d) if to the Collateral Trustee, to: First Security Bank, N.A. 79 South Main Street, 3rd Floor Salt Lake City, UT 84111 Attention: Corporate Trust Services Facsimile: (801) 246-5053 (e) if to a Purchaser, to its address specified in Schedule I hereto -25- Participation Agreement Unless otherwise stated herein, all such notices and communications shall be effective (i) if sent by courier, when delivered by hand on the day of delivery or (ii) if telecopied, when received (provided such receipt is (x) verified by a telephone call to the recipient or (y) confirmed by a transmission report evidencing successful transmission). Copies of all notices and other communications sent pursuant to the Indenture and the Trust Agreement shall be sent to the Guarantor and Tenant. Section 10.3 No Waiver; Remedies. No remedy conferred herein is intended to be exclusive of any other remedy, but every such remedy shall be cumulative and shall be in addition to every other remedy herein conferred or now or hereafter existing in law or in equity. No failure to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. Participation Agreement Unless otherwise stated herein, all such notices and communications shall be effective (i) if sent by courier, when delivered by hand on the day of delivery or (ii) if telecopied, when received (provided such receipt is (x) verified by a telephone call to the recipient or (y) confirmed by a transmission report evidencing successful transmission). Copies of all notices and other communications sent pursuant to the Indenture and the Trust Agreement shall be sent to the Guarantor and Tenant. Section 10.3 No Waiver; Remedies. No remedy conferred herein is intended to be exclusive of any other remedy, but every such remedy shall be cumulative and shall be in addition to every other remedy herein conferred or now or hereafter existing in law or in equity. No failure to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. Section 10.4 Binding Effect; Term; Assignability. This Participation Agreement shall be binding upon the parties hereto and shall inure to the benefit of the parties hereto and their respective successors and assigns. Section 10.5 Governing Law. This Participation Agreement shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of New York excluding choice-of-law principles of the law of such State that would require the application of the laws of a jurisdiction other than such State. Section 10.6 Execution in Counterparts. This Participation Agreement may be executed in two or more counterparts and by each party hereto in a separate counterpart, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. Section 10.7 Third Party Beneficiaries. Nothing expressed or implied herein is intended or shall be construed to confer upon or to give to any Person, other than the parties hereto, any right, remedy or claim under or by reason of this Participation Agreement, and any terms, covenants, conditions, promises and agreements contained herein shall be for the sole and exclusive benefit of the parties hereto and their respective successors and assigns. Section 10.8 Survival of Covenants and Representations. All covenants, representations and warranties made by any party to any other party herein or in any Note delivered pursuant hereto, whether or not in connection with the Closing Date, shall be considered to have been relied upon by such other party and shall survive the issuance of the Notes and the delivery of this Participation Agreement and shall survive until all of the Project Loans have been paid in full. Section 10.9 Severability. Should any part of this Participation Agreement for any reason by declared invalid, such decision shall not affect the validity of any remaining portion, which remaining portion shall remain in full force and effect as if this Participation Agreement had been executed with the invalid portion thereof eliminated and it is hereby declared the intention of the parties hereto that they would have executed the remaining portion of this -26- Participation Agreement Participation Agreement without including therein any such part, parts or portion which may, for any reason, be hereafter declared invalid. Section 10.10 Confidential Information. For the purposes of this Section 10.10, "Confidential Information" means information delivered to the Collateral Trustee or Noteholder by or on behalf of the Guarantor or the Tenant in connection with the transactions contemplated by or otherwise pursuant to this Participation Agreement that is confidential or proprietary in nature and that was clearly marked or labeled or otherwise adequately identified when received by the Collateral Trustee or any Noteholder as being confidential information of the Guarantor or the Tenant, provided that such term does not include information that (a) was publicly known or otherwise known to the Collateral Trustee or any Noteholder prior to the time of such Participation Agreement Participation Agreement without including therein any such part, parts or portion which may, for any reason, be hereafter declared invalid. Section 10.10 Confidential Information. For the purposes of this Section 10.10, "Confidential Information" means information delivered to the Collateral Trustee or Noteholder by or on behalf of the Guarantor or the Tenant in connection with the transactions contemplated by or otherwise pursuant to this Participation Agreement that is confidential or proprietary in nature and that was clearly marked or labeled or otherwise adequately identified when received by the Collateral Trustee or any Noteholder as being confidential information of the Guarantor or the Tenant, provided that such term does not include information that (a) was publicly known or otherwise known to the Collateral Trustee or any Noteholder prior to the time of such disclosure, (b) subsequently becomes publicly known through no act or omission by the Collateral Trustee or any Noteholder or any Person acting on behalf of the Collateral Trustee or any Noteholder, (c) otherwise becomes known to the Collateral Trustee or any Noteholder other than through disclosure by the Guarantor or the Tenant or (d) constitutes financial statements delivered to the Collateral Trustee or any Noteholder under Section 4.1 that are otherwise publicly available. The Collateral Trustee and each Noteholder will maintain the confidentiality of such Confidential Information in accordance with procedures adopted by the Collateral Trustee and each Noteholder in good faith to protect confidential information of third parties delivered to the Collateral Trustee or such Noteholder, provided that the Collateral Trustee and each Noteholder may deliver or disclose Confidential Information to: (i) directors, trustees, officers, employees, attorneys and affiliates of the Collateral Trustee or any Noteholder (to the extent such disclosure reasonably relates to the administration of the investment represented by the Notes); (ii) financial advisors and other professional advisors of the Collateral Trustee or any Noteholder who agree to hold confidential the Confidential Information in accordance with the terms of this Section 10.10; (iii) with prior written notice to the Guarantor, any Institutional Holder to which any Noteholder sells or offers to sell a Note or any part thereof or any participation therein (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 10.10 and a copy of such written agreement has been delivered to the Guarantor); (v) with prior written notice to the Guarantor, any Person from which any Noteholder offers to purchase any security of the Guarantor (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 10.10 and a copy of such written agreement has been delivered to the Guarantor); (vi) any federal or state regulatory authority having jurisdiction over the Collateral Trustee or any Noteholder but only to the extent such information is expressly required to be disclosed by such regulatory authority (with written notice of such disclosure given to the Guarantor promptly following such disclosure); (vii) the National Association of Insurance Commissioners or any similar organization, or any nationally recognized rating agency that requires access to information about the investment portfolio of any Noteholder (with written notice of such disclosure given to the Guarantor promptly following such disclosure); or (viii) with prior written notice to the Guarantor, any other Person to which such delivery or disclosure may be necessary, but only (w) to effect compliance with any law, rule, regulation or order applicable to the Collateral Trustee or any Noteholder, (x) in response to any subpoena or other legal process, (y) in connection with any litigation to which the Collateral Trustee or any Noteholder is a party or (z) if an Event of Default has occurred and is continuing, to the extent the Collateral Trustee or any Noteholder may reasonably determine such delivery and disclosure to be necessary or -27- Participation Agreement appropriate in the enforcement or for the protection of the rights and remedies under the Notes and this Participation Agreement. Each Noteholder, by its acceptance of a Note or participation interest therein, will be deemed to have agreed to be bound by and to be entitled to the benefits of this Section 10.10 as though it were a party to this Participation Agreement. On reasonable request by the Guarantor or the Tenant in connection with the delivery to any Noteholder of information required to be delivered to such Noteholder under this Participation Agreement or requested by such Noteholder (other than a Noteholder that is a party to this Participation Agreement or its Participation Agreement appropriate in the enforcement or for the protection of the rights and remedies under the Notes and this Participation Agreement. Each Noteholder, by its acceptance of a Note or participation interest therein, will be deemed to have agreed to be bound by and to be entitled to the benefits of this Section 10.10 as though it were a party to this Participation Agreement. On reasonable request by the Guarantor or the Tenant in connection with the delivery to any Noteholder of information required to be delivered to such Noteholder under this Participation Agreement or requested by such Noteholder (other than a Noteholder that is a party to this Participation Agreement or its nominee), such Noteholder will enter into an agreement with the Guarantor and the Tenant embodying the provisions of this Section 10.10. Section 10.11 Issuer Recourse. The parties hereto agree that all of the statements, representations, warranties, covenants and agreements made by the Issuer contained in this Participation Agreement are made and intended only for the purpose of binding the Trust Estate (as defined in the Trust Agreement) and establishing the existence of rights and remedies which can be exercised and enforced against the Trust Estate. Therefore, anything contained in this Participation Agreement to the contrary notwithstanding, no recourse shall be had with respect to this Participation Agreement against the Trust Company or against any institution or person which becomes a successor trustee or co-trustee under the Trust Agreement or any officer, director, trustee, servant or direct or indirect parent or controlling person or persons of any of them; provided, however, that this Section 10.11 shall not be construed to prohibit any action or proceeding against any party hereto for its own willful misconduct or grossly negligent conduct; and provided, further, that nothing contained in this Section 10.11 shall be construed to limit the exercise and enforcement in accordance with the terms of this Participation Agreement of rights and remedies against the Trust Estate. The foregoing provisions of this Section 10.11 shall survive the termination of this Participation Agreement. Section 10.12 Owner Beneficiary Exculpation. Notwithstanding any other provision herein, no recourse under any obligation, covenant, agreement or instrument of the Owner Beneficiary contained in any Operative Document or with respect hereto shall be had against any incorporator, member, manager, employee, agent or partner of the Owner Beneficiary or its stockholders or their affiliates (each a "Related Person") whether arising by breach of contract, otherwise at law or in equity (including any claim or tort, whether express or implied); it being expressly understood that the agreements and other obligations of the Owner Beneficiary herein and with respect hereto are solely its corporate obligations. Any and all personal liability of any Related Person for breaches of any such obligation, covenant, agreement or instrument as aforesaid are hereby expressly waived as a condition of and in consideration of the Owner Beneficiary's execution of this Participation Agreement. Notwithstanding any other provision herein, the provisions of this Section 10.12 shall survive the termination of this Participation Agreement. -28- Participation Agreement IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. WILMINGTON TRUST COMPANY, not in its individual capacity except as expressly stated herein, but solely as Issuer By:/s/ ----------------------------------------Name: ---------------------------------Title: --------------------------------- Participation Agreement IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. WILMINGTON TRUST COMPANY, not in its individual capacity except as expressly stated herein, but solely as Issuer By:/s/ ----------------------------------------Name: ---------------------------------Title: --------------------------------- SCHEDULE I (to Participation Agreement) Participation Agreement IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. DORIS PROJECT FUNDING CORP. as Owner Beneficiary By:/s/ DWIGHT JENKINS -------------------------Name: Dwight Jenkins Title: Vice President I-2 Participation Agreement IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. FIRST SECURITY BANK, N.A. as Collateral Trustee By:/s/ ------------------------------Name: -----------------------Title: ----------------------- I-3 Participation Agreement IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. DORIS PROJECT FUNDING CORP. as Owner Beneficiary By:/s/ DWIGHT JENKINS -------------------------Name: Dwight Jenkins Title: Vice President I-2 Participation Agreement IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. FIRST SECURITY BANK, N.A. as Collateral Trustee By:/s/ ------------------------------Name: -----------------------Title: ----------------------- I-3 Participation Agreement IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. BORDERS GROUP, INC. By:/s/ BRUCE A. QUINNELL ----------------------------------Name: Bruce A. Quinnell Title: Vice Chairman I-4 Participation Agreement IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. BORDERS, INC. Participation Agreement IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. FIRST SECURITY BANK, N.A. as Collateral Trustee By:/s/ ------------------------------Name: -----------------------Title: ----------------------- I-3 Participation Agreement IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. BORDERS GROUP, INC. By:/s/ BRUCE A. QUINNELL ----------------------------------Name: Bruce A. Quinnell Title: Vice Chairman I-4 Participation Agreement IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. BORDERS, INC. By:/s/ EDWARD W. WILHELM -----------------------------Name: Edward W. Wilhelm Title: Vice President I-5 Participation Agreement IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. STATE OF WISCONSIN INVESTMENT BOARD Participation Agreement IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. BORDERS GROUP, INC. By:/s/ BRUCE A. QUINNELL ----------------------------------Name: Bruce A. Quinnell Title: Vice Chairman I-4 Participation Agreement IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. BORDERS, INC. By:/s/ EDWARD W. WILHELM -----------------------------Name: Edward W. Wilhelm Title: Vice President I-5 Participation Agreement IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. STATE OF WISCONSIN INVESTMENT BOARD By:/s/ ----------------------------Name: ---------------------Title: --------------------- I-6 Participation Agreement IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. MODERN WOODMEN OF AMERICA By:/s/ Participation Agreement IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. BORDERS, INC. By:/s/ EDWARD W. WILHELM -----------------------------Name: Edward W. Wilhelm Title: Vice President I-5 Participation Agreement IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. STATE OF WISCONSIN INVESTMENT BOARD By:/s/ ----------------------------Name: ---------------------Title: --------------------- I-6 Participation Agreement IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. MODERN WOODMEN OF AMERICA By:/s/ ----------------------------Name: ---------------------Title: --------------------- I-7 Participation Agreement IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. FEDERATED LIFE INSURANCE Participation Agreement IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. STATE OF WISCONSIN INVESTMENT BOARD By:/s/ ----------------------------Name: ---------------------Title: --------------------- I-6 Participation Agreement IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. MODERN WOODMEN OF AMERICA By:/s/ ----------------------------Name: ---------------------Title: --------------------- I-7 Participation Agreement IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. FEDERATED LIFE INSURANCE COMPANY By:/s/ ----------------------------Name: ---------------------Title: --------------------- I-8 Participation Agreement IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. Participation Agreement IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. MODERN WOODMEN OF AMERICA By:/s/ ----------------------------Name: ---------------------Title: --------------------- I-7 Participation Agreement IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. FEDERATED LIFE INSURANCE COMPANY By:/s/ ----------------------------Name: ---------------------Title: --------------------- I-8 Participation Agreement IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. FEDERATED MUTUAL INSURANCE COMPANY By:/s/ ----------------------------Name: ---------------------Title: --------------------- I-9 Participation Agreement IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. Participation Agreement IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. FEDERATED LIFE INSURANCE COMPANY By:/s/ ----------------------------Name: ---------------------Title: --------------------- I-8 Participation Agreement IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. FEDERATED MUTUAL INSURANCE COMPANY By:/s/ ----------------------------Name: ---------------------Title: --------------------- I-9 Participation Agreement IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. COUNTRY LIFE INSURANCE COMPANY By:/s/ ----------------------------Name: ---------------------Title: Participation Agreement IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. FEDERATED MUTUAL INSURANCE COMPANY By:/s/ ----------------------------Name: ---------------------Title: --------------------- I-9 Participation Agreement IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. COUNTRY LIFE INSURANCE COMPANY By:/s/ ----------------------------Name: ---------------------Title: Participation Agreement IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. COUNTRY LIFE INSURANCE COMPANY By:/s/ ----------------------------Name: ---------------------Title: --------------------- I-10 Participation Agreement IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. AUTO CLUB INSURANCE ASSOCIATION By:/s/ ----------------------------Name: ---------------------Title: --------------------- I-11 Participation Agreement IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. BERKSHIRE LIFE INSURANCE COMPANY By:/s/ ----------------------------Name: ---------------------Title: --------------------- I-12 Participation Agreement IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be executed by their Participation Agreement IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. AUTO CLUB INSURANCE ASSOCIATION By:/s/ ----------------------------Name: ---------------------Title: --------------------- I-11 Participation Agreement IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. BERKSHIRE LIFE INSURANCE COMPANY By:/s/ ----------------------------Name: ---------------------Title: --------------------- I-12 Participation Agreement IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. HOMESTEADERS LIFE CO. By:/s/ ----------------------------Name: ---------------------Title: --------------------- I-13 Participation Agreement DESCRIPTION OF CLOSING OPINION OF COUNSEL FOR PURCHASERS Participation Agreement IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. BERKSHIRE LIFE INSURANCE COMPANY By:/s/ ----------------------------Name: ---------------------Title: --------------------- I-12 Participation Agreement IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. HOMESTEADERS LIFE CO. By:/s/ ----------------------------Name: ---------------------Title: --------------------- I-13 Participation Agreement DESCRIPTION OF CLOSING OPINION OF COUNSEL FOR PURCHASERS The closing opinion of McDermott, Will & Emery, special counsel to the Purchasers, called for by ss.2.13(e) of the Participation Agreement, shall be dated the Closing Date and addressed to each Purchaser, shall be satisfactory in form and substance to each Purchaser and shall cover such matters relating to the sale of the Notes as each Purchaser may reasonably request. With respect to matters of fact on which such opinion is based, such counsel shall be entitled to rely on appropriate certificates of public officials and other officers of the parties involved in the transaction. EXHIBIT A (to Participation Agreement) Participation Agreement DESCRIPTION OF CLOSING OPINIONS OF COUNSEL FOR ISSUER Participation Agreement IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. HOMESTEADERS LIFE CO. By:/s/ ----------------------------Name: ---------------------Title: --------------------- I-13 Participation Agreement DESCRIPTION OF CLOSING OPINION OF COUNSEL FOR PURCHASERS The closing opinion of McDermott, Will & Emery, special counsel to the Purchasers, called for by ss.2.13(e) of the Participation Agreement, shall be dated the Closing Date and addressed to each Purchaser, shall be satisfactory in form and substance to each Purchaser and shall cover such matters relating to the sale of the Notes as each Purchaser may reasonably request. With respect to matters of fact on which such opinion is based, such counsel shall be entitled to rely on appropriate certificates of public officials and other officers of the parties involved in the transaction. EXHIBIT A (to Participation Agreement) Participation Agreement DESCRIPTION OF CLOSING OPINIONS OF COUNSEL FOR ISSUER The closing opinions of Richards, Layton & Finger, special counsel to the Issuer, called for by SECTION 2.13 (A) of the Participation Agreement, shall be dated the Closing Date and addressed to each Purchaser, shall be satisfactory in form and substance to each Purchaser and shall be to the effect that: 1. The Trust Company is a Delaware banking corporation, duly organized and validly existing in good standing under the laws of the State of Delaware and has all necessary power and authority to enter into and perform its obligations under the Indenture and act as the Owner Trustee and to enter into and perform its obligations, as Trust Company or Owner Trustee, as the case may be, under each of the other Operative Documents to which the Trust Company or the Owner Trustee, as the case may be, is a party. 2. The execution, delivery and performance of each Operative Document to which it is a party, either in its individual capacity or as the Owner Trustee, as the case may be, has been duly authorized by all necessary action on its part and neither the execution and delivery thereof, nor the consummation of the transactions contemplated thereby, nor compliance by it with any of the terms and provisions thereof (i) does or will require, to our knowledge, any approval or consent of any trustee or holder of any of its indebtedness or obligations, (ii) does or will contravene any current State of Delaware or United States federal law, governmental rule or regulations relating to its banking or trust powers, (iii) does or will contravene or result in any breach of or constitute any default under, or result in the creation of any Lien upon any of its property under, its charter or by-laws, or, to Participation Agreement DESCRIPTION OF CLOSING OPINION OF COUNSEL FOR PURCHASERS The closing opinion of McDermott, Will & Emery, special counsel to the Purchasers, called for by ss.2.13(e) of the Participation Agreement, shall be dated the Closing Date and addressed to each Purchaser, shall be satisfactory in form and substance to each Purchaser and shall cover such matters relating to the sale of the Notes as each Purchaser may reasonably request. With respect to matters of fact on which such opinion is based, such counsel shall be entitled to rely on appropriate certificates of public officials and other officers of the parties involved in the transaction. EXHIBIT A (to Participation Agreement) Participation Agreement DESCRIPTION OF CLOSING OPINIONS OF COUNSEL FOR ISSUER The closing opinions of Richards, Layton & Finger, special counsel to the Issuer, called for by SECTION 2.13 (A) of the Participation Agreement, shall be dated the Closing Date and addressed to each Purchaser, shall be satisfactory in form and substance to each Purchaser and shall be to the effect that: 1. The Trust Company is a Delaware banking corporation, duly organized and validly existing in good standing under the laws of the State of Delaware and has all necessary power and authority to enter into and perform its obligations under the Indenture and act as the Owner Trustee and to enter into and perform its obligations, as Trust Company or Owner Trustee, as the case may be, under each of the other Operative Documents to which the Trust Company or the Owner Trustee, as the case may be, is a party. 2. The execution, delivery and performance of each Operative Document to which it is a party, either in its individual capacity or as the Owner Trustee, as the case may be, has been duly authorized by all necessary action on its part and neither the execution and delivery thereof, nor the consummation of the transactions contemplated thereby, nor compliance by it with any of the terms and provisions thereof (i) does or will require, to our knowledge, any approval or consent of any trustee or holder of any of its indebtedness or obligations, (ii) does or will contravene any current State of Delaware or United States federal law, governmental rule or regulations relating to its banking or trust powers, (iii) does or will contravene or result in any breach of or constitute any default under, or result in the creation of any Lien upon any of its property under, its charter or by-laws, or, to our knowledge, without independent investigation, any indenture, mortgage, chattel mortgage, deed of trust, conditional sales contract, bank loan or credit agreement or other agreement or instrument to which it is a party or by which it or its properties may be bound or affected or (iv) does or will require any approval, consent, filing (other than the filing of the financing statements in the Office of the Secretary of State of the State of Delaware as described in paragraph 7 below), registration or qualification with any governmental body of the State of Delaware or any of the federal governmental body of the United States of America governing the banking or trust powers of the Trust Company. 3. The Indenture and each other Operative Document to which Trust Company is a party have been duly executed and delivered by Trust Company, and the Indenture and each such other Operative Document to the extent entered into by the Trust Company constitutes a legal, valid and binding obligation enforceable against the Trust Company in accordance with the terms thereof. 4. Each Operative Document to which the Owner Trustee is a party have been duly executed and delivered by the Owner Trustee and constitutes a legal, valid and EXHIBIT B (to Participation Agreement) Participation Agreement DESCRIPTION OF CLOSING OPINIONS OF COUNSEL FOR ISSUER The closing opinions of Richards, Layton & Finger, special counsel to the Issuer, called for by SECTION 2.13 (A) of the Participation Agreement, shall be dated the Closing Date and addressed to each Purchaser, shall be satisfactory in form and substance to each Purchaser and shall be to the effect that: 1. The Trust Company is a Delaware banking corporation, duly organized and validly existing in good standing under the laws of the State of Delaware and has all necessary power and authority to enter into and perform its obligations under the Indenture and act as the Owner Trustee and to enter into and perform its obligations, as Trust Company or Owner Trustee, as the case may be, under each of the other Operative Documents to which the Trust Company or the Owner Trustee, as the case may be, is a party. 2. The execution, delivery and performance of each Operative Document to which it is a party, either in its individual capacity or as the Owner Trustee, as the case may be, has been duly authorized by all necessary action on its part and neither the execution and delivery thereof, nor the consummation of the transactions contemplated thereby, nor compliance by it with any of the terms and provisions thereof (i) does or will require, to our knowledge, any approval or consent of any trustee or holder of any of its indebtedness or obligations, (ii) does or will contravene any current State of Delaware or United States federal law, governmental rule or regulations relating to its banking or trust powers, (iii) does or will contravene or result in any breach of or constitute any default under, or result in the creation of any Lien upon any of its property under, its charter or by-laws, or, to our knowledge, without independent investigation, any indenture, mortgage, chattel mortgage, deed of trust, conditional sales contract, bank loan or credit agreement or other agreement or instrument to which it is a party or by which it or its properties may be bound or affected or (iv) does or will require any approval, consent, filing (other than the filing of the financing statements in the Office of the Secretary of State of the State of Delaware as described in paragraph 7 below), registration or qualification with any governmental body of the State of Delaware or any of the federal governmental body of the United States of America governing the banking or trust powers of the Trust Company. 3. The Indenture and each other Operative Document to which Trust Company is a party have been duly executed and delivered by Trust Company, and the Indenture and each such other Operative Document to the extent entered into by the Trust Company constitutes a legal, valid and binding obligation enforceable against the Trust Company in accordance with the terms thereof. 4. Each Operative Document to which the Owner Trustee is a party have been duly executed and delivered by the Owner Trustee and constitutes a legal, valid and EXHIBIT B (to Participation Agreement) Participation Agreement binding obligation of the Owner Trustee, enforceable against the Owner Trustee in accordance with the terms thereof. 5. To our knowledge, without independent investigation, no investigation or proceeding of or before any arbitrator or any governmental body, federal, state or local, is pending or threatened by or against the Trust Company or the Owner Trustee (a) with respect to any of the Operative Documents or any of the transactions contemplated thereby, or (b) which could reasonably be expected to have a material adverse effect on the assets, liabilities, operations, business or financial condition of the Trust Company or the Owner Trustee. 6. Insofar as Article 9 of the Uniform Commercial Code as in effect in the State of Delaware (the "UCC") is applicable (without regard to conflicts of laws principles), and assuming that the security interests of the Collateral Trustee in the Collateral have been duly created and have attached (and are of the type that may be perfected by Participation Agreement binding obligation of the Owner Trustee, enforceable against the Owner Trustee in accordance with the terms thereof. 5. To our knowledge, without independent investigation, no investigation or proceeding of or before any arbitrator or any governmental body, federal, state or local, is pending or threatened by or against the Trust Company or the Owner Trustee (a) with respect to any of the Operative Documents or any of the transactions contemplated thereby, or (b) which could reasonably be expected to have a material adverse effect on the assets, liabilities, operations, business or financial condition of the Trust Company or the Owner Trustee. 6. Insofar as Article 9 of the Uniform Commercial Code as in effect in the State of Delaware (the "UCC") is applicable (without regard to conflicts of laws principles), and assuming that the security interests of the Collateral Trustee in the Collateral have been duly created and have attached (and are of the type that may be perfected by the filing of a UCC financing statement), no action is required to perfect such security interests in the State of Delaware, except for the filing of a UCC financing statement in the Office of the Secretary of State of the State of Delaware. The opinion of Richards, Layton & Finger shall cover such other matters of Delaware law relating to the collateral assignment of the Project Loans and the issuance of the Notes and the transactions contemplated thereby as each Purchaser may reasonably request. With respect to matters of fact on which such opinions are based, such counsel shall be entitled to rely on appropriate Certificates of public officials and other officers of the parties involved in the transaction and the representations contained in the Participation Agreement. B-2 Participation Agreement DESCRIPTION OF CLOSING OPINIONS OF COUNSEL FOR COLLATERAL TRUSTEE The closing opinion of Ray, Quinney & Nebeker, counsel to the Collateral Trustee called for by SECTION 2.13 (B) of the Participation Agreement, shall be dated the Closing Date and addressed to each Purchaser and shall be satisfactory in form and substance to each Purchaser and shall be to the effect that: 1. The Collateral Trustee is a national banking association validly existing under the laws of the United States and is duly qualified to act as Collateral Trustee. 2. The Collateral Trustee has the requisite power and authority to execute, deliver and perform its respective obligations under the Participation Agreement and the Indenture and the other Operative Documents to which it is a party ( the "Collateral Trustee Documents") and has taken all necessary action to authorize the execution, delivery and performance by it of each of the Collateral Trustee Documents. 3. Each of the Collateral Trustee Documents has been duly authorized, executed and delivered by the Collateral Trustee and constitutes the legal, valid and binding obligation or contract of the Collateral Trustee enforceable against the Collateral Trustee in accordance with its respective terms, subject to bankruptcy, insolvency, fraudulent conveyance and similar laws affecting creditors' rights generally, and general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law). 4. The Notes delivered on the date hereof have been duly authenticated by the Collateral Trustee in accordance with the terms of the Indenture. 5. No authorization, consent, approval, license, exemption of or filing or registration with any court or governmental department, commission, board, bureau, agency or instrumentality by the Collateral Trustee or any affiliate thereof is necessary to the valid execution, delivery or performance of the Collateral Trustee Documents. The opinion of Ray, Quinney & Nebeker shall cover such other matters relating to the transactions contemplated Participation Agreement DESCRIPTION OF CLOSING OPINIONS OF COUNSEL FOR COLLATERAL TRUSTEE The closing opinion of Ray, Quinney & Nebeker, counsel to the Collateral Trustee called for by SECTION 2.13 (B) of the Participation Agreement, shall be dated the Closing Date and addressed to each Purchaser and shall be satisfactory in form and substance to each Purchaser and shall be to the effect that: 1. The Collateral Trustee is a national banking association validly existing under the laws of the United States and is duly qualified to act as Collateral Trustee. 2. The Collateral Trustee has the requisite power and authority to execute, deliver and perform its respective obligations under the Participation Agreement and the Indenture and the other Operative Documents to which it is a party ( the "Collateral Trustee Documents") and has taken all necessary action to authorize the execution, delivery and performance by it of each of the Collateral Trustee Documents. 3. Each of the Collateral Trustee Documents has been duly authorized, executed and delivered by the Collateral Trustee and constitutes the legal, valid and binding obligation or contract of the Collateral Trustee enforceable against the Collateral Trustee in accordance with its respective terms, subject to bankruptcy, insolvency, fraudulent conveyance and similar laws affecting creditors' rights generally, and general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law). 4. The Notes delivered on the date hereof have been duly authenticated by the Collateral Trustee in accordance with the terms of the Indenture. 5. No authorization, consent, approval, license, exemption of or filing or registration with any court or governmental department, commission, board, bureau, agency or instrumentality by the Collateral Trustee or any affiliate thereof is necessary to the valid execution, delivery or performance of the Collateral Trustee Documents. The opinion of Ray, Quinney & Nebeker shall cover such other matters relating to the transactions contemplated by the Operative Documents as each Purchaser may reasonably request. With respect to matters of fact on which such opinion is based, such counsel shall be entitled to rely on appropriate certificates of public officials and other officers of the parties involved in the transaction. EXHIBIT C (to Participation Agreement) Participation Agreement DESCRIPTION OF CLOSING OPINION OF COUNSEL FOR GUARANTOR AND TENANT The closing opinion of Dickinson Wright PLLC, special counsel to the Guarantor and the Tenants, called for by SECTION 2.13(C) of the Participation Agreement, shall be dated on the Closing Date and shall be satisfactory in form and substance to each Purchaser and shall be to the effect that: 1. The Guarantor is a corporation duly organized, validly existing and in good standing under the laws of Michigan and has the corporate power and authority to enter into and perform its obligations under the Participation Agreement and each other Operative Document to which the Guarantor is a party (the "Guarantor Documents"). 2. Each of the Guarantor Documents has been duly authorized, executed and delivered by the Guarantor and constitutes the legal, valid and binding obligations of the Guarantor, enforceable against the Guarantor in accordance with its terms, subject to bankruptcy, insolvency, fraudulent conveyance and similar laws affecting Participation Agreement DESCRIPTION OF CLOSING OPINION OF COUNSEL FOR GUARANTOR AND TENANT The closing opinion of Dickinson Wright PLLC, special counsel to the Guarantor and the Tenants, called for by SECTION 2.13(C) of the Participation Agreement, shall be dated on the Closing Date and shall be satisfactory in form and substance to each Purchaser and shall be to the effect that: 1. The Guarantor is a corporation duly organized, validly existing and in good standing under the laws of Michigan and has the corporate power and authority to enter into and perform its obligations under the Participation Agreement and each other Operative Document to which the Guarantor is a party (the "Guarantor Documents"). 2. Each of the Guarantor Documents has been duly authorized, executed and delivered by the Guarantor and constitutes the legal, valid and binding obligations of the Guarantor, enforceable against the Guarantor in accordance with its terms, subject to bankruptcy, insolvency, fraudulent conveyance and similar laws affecting creditors' rights generally, and general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law). 3. The execution, delivery and compliance by the Guarantor with all of the provisions of the Guarantor Documents will not conflict with or result in any breach of any of the provisions or constitute a default under or result in the creation or imposition of any lien or encumbrance upon any of the property of the Guarantor pursuant to the provisions of the charter or the by-laws of the Guarantor or any material agreement or other instrument to which the Guarantor is a party or by which the Guarantor may be bound or any existing law or governmental regulation relating to or having jurisdiction over the Guarantor or its activities. 4. No approval, consent or withholding of objection on the part of, or filing, registration or qualification with, any governmental body, federal or state, is necessary in connection with the execution, delivery and performance by the Guarantor of the Guarantor Documents. 5. The Tenant is a corporation duly organized, validly existing and in good standing under the laws of Colorado and has the corporate power and authority to enter into and perform the Participation Agreement and each other Operative Document to which the Tenant is a party (the "Tenant Documents"). 6. The Tenant is duly licensed or qualified and is in good standing as a foreign corporation in each jurisdiction in which any Mortgaged Property is located. EXHIBIT D (to Participation Agreement) Participation Agreement 7. Each of the Tenant Documents has been duly authorized, executed and delivered by the Tenant and constitutes the legal, valid and binding obligations of the Tenant, enforceable against the Tenant in accordance with its terms, subject to bankruptcy, insolvency, fraudulent conveyance and similar laws affecting creditors' rights generally, and general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law). 8. The execution, delivery and compliance by the Tenant with all of the provisions of the Tenant Documents will not conflict with or result in any breach of any of the provisions of or constitute a default under or result in the creation or imposition of any lien or encumbrance upon any of the property of the Tenant pursuant to the provisions of the charter or the by-laws of the Tenant or any material agreement or other instrument to which the Tenant is a party or by which the Tenant may be bound or any existing law or governmental regulation relating to or having jurisdiction over the Tenant or its activities. Participation Agreement 7. Each of the Tenant Documents has been duly authorized, executed and delivered by the Tenant and constitutes the legal, valid and binding obligations of the Tenant, enforceable against the Tenant in accordance with its terms, subject to bankruptcy, insolvency, fraudulent conveyance and similar laws affecting creditors' rights generally, and general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law). 8. The execution, delivery and compliance by the Tenant with all of the provisions of the Tenant Documents will not conflict with or result in any breach of any of the provisions of or constitute a default under or result in the creation or imposition of any lien or encumbrance upon any of the property of the Tenant pursuant to the provisions of the charter or the by-laws of the Tenant or any material agreement or other instrument to which the Tenant is a party or by which the Tenant may be bound or any existing law or governmental regulation relating to or having jurisdiction over the Tenant or its activities. 9. No approval, consent or withholding of objection on the part of, or filing, registration or qualification with, any governmental body, federal or state, is necessary in connection with the execution, delivery and performance by the Tenant of the Tenant Documents. 10. The issuance and sale of the Project Loan Notes under the circumstances contemplated by the Project Loan Agreements do not, under existing law, require the registration of the Project Loan Notes under the Securities Act of 1933, as amended, or the qualification of an indenture under the Trust Indenture Act of 1939, as amended. 11. To the best of our knowledge after due inquiry, there is no action, proceeding or governmental investigation pending or threatened that (i) questions the validity of or challenges any of the Tenant Documents or any of the transactions contemplated thereby, (ii) would have an adverse effect on the benefits intended to be realized by the Issuer, the Collateral Trustee or the Purchasers under any of the Tenant Documents, or (iii) could reasonably be expected to have, either in any case or in the aggregate, a materially adverse effect on the business, properties, assets, operations or financial condition of Guarantor or the Tenant. 12. The issuance and delivery of the Notes under the circumstances contemplated by the Participation Agreement and the Indenture do not, under existing law, require the registration of the Notes under the Securities Act of 1933, as amended, or the qualification of an indenture under the Trust Indenture Act of 1939, as amended. 13. [NON-CONSOLIDATION OPINION CONCERNING PROJECT BORROWERS]. The opinion of Dickinson Wright PLLC shall cover such other matters relating to the transactions contemplated by the Operative Documents as each Purchaser may reasonably D-2 Participation Agreement request. With respect to matters of fact on which such opinion is based, such counsel shall be entitled to rely on appropriate Certificates of public officials and other officers of the parties involved in the transaction. D-3 Participation Agreement DESCRIPTION OF CLOSING OPINION OF EACH LOCAL COUNSEL FOR THE PROJECT BORROWERS The closing opinion of various local counsel to the Project Borrowers, called for by SECTION 2.13(D) of the Participation Agreement, shall be dated the Closing Date and shall be satisfactory in form and substance to each Participation Agreement request. With respect to matters of fact on which such opinion is based, such counsel shall be entitled to rely on appropriate Certificates of public officials and other officers of the parties involved in the transaction. D-3 Participation Agreement DESCRIPTION OF CLOSING OPINION OF EACH LOCAL COUNSEL FOR THE PROJECT BORROWERS The closing opinion of various local counsel to the Project Borrowers, called for by SECTION 2.13(D) of the Participation Agreement, shall be dated the Closing Date and shall be satisfactory in form and substance to each Purchaser and shall be to the effect that: 1. The Project Borrower is duly formed, validly existing and in good standing under the laws of its jurisdiction of formation, and is duly qualified to transact business as a limited liability company in the State of _______________ (the "STATE"). 2. Each of the Lease Documents has been duly authorized, executed and delivered by the Project Borrower. 3. Each of the Project Loan Documents has been duly authorized, executed and delivered by the Project Borrower. 4. No authorization, consent, approval, license, exemption or filing or registration with any court or governmental department, commission, board, bureau, agency or instrumentality in the State by the Project Borrower or any affiliate of the Project Borrower is necessary for the valid execution, delivery or performance by the Project Borrower of any of the Lease Documents or any of the Project Loan Documents. 5. The execution, delivery and performance by the Project Borrower of each Lease Document and each Project Loan Document do not (i) violate (A) the organizational documents pursuant to which the Project Borrower is organized, or (B) to our knowledge, any order, writ, judgment, injunction, decree, determination or award applicable to the Project Borrower, (ii) result in a breach or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument (including, without limitation, the Lease) to which it is a party or by which it or its properties are bound, where such breach or default would have a material adverse effect on the financial condition, properties or operations of the Project Borrower, or (iii) result in, or require, the creation or imposition of any mortgage, deed of trust, pledge, lien, security interest or other charge or encumbrance (other than those arising pursuant to the Project Loan Documents). 6. There are no actions, suits or proceedings pending or, to our knowledge after due inquiry, threatened against or affecting the Project Borrower in any court or before any governmental authority or arbitration board or tribunal that could reasonably be expected to materially and adversely affect the execution, delivery or performance by the Project Borrower of its obligations under any of the Lease Documents or any of the Project Loan Documents, or the enforceability of the Project Borrower's obligations thereunder. EXHIBIT E-1 (to Participation Agreement) Participation Agreement DESCRIPTION OF CLOSING OPINION OF EACH SPECIAL LOCAL COUNSEL FOR THE PROJECT BORROWERS The closing opinion of various special local counsel to the Project Borrowers, called for by SECTION 2.13(D) Participation Agreement DESCRIPTION OF CLOSING OPINION OF EACH LOCAL COUNSEL FOR THE PROJECT BORROWERS The closing opinion of various local counsel to the Project Borrowers, called for by SECTION 2.13(D) of the Participation Agreement, shall be dated the Closing Date and shall be satisfactory in form and substance to each Purchaser and shall be to the effect that: 1. The Project Borrower is duly formed, validly existing and in good standing under the laws of its jurisdiction of formation, and is duly qualified to transact business as a limited liability company in the State of _______________ (the "STATE"). 2. Each of the Lease Documents has been duly authorized, executed and delivered by the Project Borrower. 3. Each of the Project Loan Documents has been duly authorized, executed and delivered by the Project Borrower. 4. No authorization, consent, approval, license, exemption or filing or registration with any court or governmental department, commission, board, bureau, agency or instrumentality in the State by the Project Borrower or any affiliate of the Project Borrower is necessary for the valid execution, delivery or performance by the Project Borrower of any of the Lease Documents or any of the Project Loan Documents. 5. The execution, delivery and performance by the Project Borrower of each Lease Document and each Project Loan Document do not (i) violate (A) the organizational documents pursuant to which the Project Borrower is organized, or (B) to our knowledge, any order, writ, judgment, injunction, decree, determination or award applicable to the Project Borrower, (ii) result in a breach or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument (including, without limitation, the Lease) to which it is a party or by which it or its properties are bound, where such breach or default would have a material adverse effect on the financial condition, properties or operations of the Project Borrower, or (iii) result in, or require, the creation or imposition of any mortgage, deed of trust, pledge, lien, security interest or other charge or encumbrance (other than those arising pursuant to the Project Loan Documents). 6. There are no actions, suits or proceedings pending or, to our knowledge after due inquiry, threatened against or affecting the Project Borrower in any court or before any governmental authority or arbitration board or tribunal that could reasonably be expected to materially and adversely affect the execution, delivery or performance by the Project Borrower of its obligations under any of the Lease Documents or any of the Project Loan Documents, or the enforceability of the Project Borrower's obligations thereunder. EXHIBIT E-1 (to Participation Agreement) Participation Agreement DESCRIPTION OF CLOSING OPINION OF EACH SPECIAL LOCAL COUNSEL FOR THE PROJECT BORROWERS The closing opinion of various special local counsel to the Project Borrowers, called for by SECTION 2.13(D) of the Participation Agreement, shall be dated the Closing Date and shall be satisfactory in form and substance to each Purchaser and shall be to the effect that: 1. The Project Loan Documents constitute the legal, valid and binding obligations of the Project Borrower, enforceable against the Project Borrower in accordance with their respective terms. 2. The Lease Documents constitute the legal, valid and binding obligations of the Project Borrower, the Tenant, and the Guarantor (where applicable), enforceable against each in accordance with their respective terms. Participation Agreement DESCRIPTION OF CLOSING OPINION OF EACH SPECIAL LOCAL COUNSEL FOR THE PROJECT BORROWERS The closing opinion of various special local counsel to the Project Borrowers, called for by SECTION 2.13(D) of the Participation Agreement, shall be dated the Closing Date and shall be satisfactory in form and substance to each Purchaser and shall be to the effect that: 1. The Project Loan Documents constitute the legal, valid and binding obligations of the Project Borrower, enforceable against the Project Borrower in accordance with their respective terms. 2. The Lease Documents constitute the legal, valid and binding obligations of the Project Borrower, the Tenant, and the Guarantor (where applicable), enforceable against each in accordance with their respective terms. 3. The Mortgage is in proper form satisfactory for recording in the appropriate public office for the recording of instruments affecting title to real property in each county in which any portion of the real property described therein is located, and upon such recordation shall constitute a valid lien upon the real property interest described therein, as security for the Project Loan and the Project Borrower's obligations under the Project Loan Agreement in favor of the Issuer. No other recordation or filing is required to create or preserve the validity of such lien. 4. The Assignment of Lease and Rents is in proper form satisfactory for recording in the appropriate public office for the recording of instruments affecting title to real property in each county in which any portion of the real property described therein is located, and upon such recordation shall create a valid collateral or assignment of, or a valid security interest in, the Project Borrower's interests described therein in favor of the Issuer. 5. The Memorandum of Lease is in proper form satisfactory for recording in the appropriate public office for the recording of instruments affecting title to real property in each county in which any portion of the leased property described in the Lease is located. 6. The Assignment of Mortgage is in proper form satisfactory for recording in the appropriate public office for the recording of instruments affecting title to real property in each county in which any portion of the real property described therein is located, and upon such recordation shall create a valid collateral assignment of, or a valid security interest in, the Issuer's interests described therein in favor of the Collateral Trustee. 7. The Reassignment of Lease and Rents is in proper form satisfactory for recording in the appropriate public office for the recording of instruments affecting title to real property in each county in which any portion of the real property described therein is located, and upon such recordation shall create a valid collateral assignment of, or a valid security interest in, the Issuer's interests described therein in favor of the Collateral Trustee. EXHIBIT E-2 (to Participation Agreement) Participation Agreement 8. The Mortgage creates a security interest in the portions of the Mortgaged Property constituting fixtures, if any, and no financing or other statements are required to be filed to perfect such security interest under the Uniform Commercial Code as in effect in the State (the "UCC"), provided that the Mortgage is properly recorded in each county in which any portion of such fixtures are located. 9. To the extent that any property which secures the Project Loan or which constitutes Collateral and in which a security interest can be granted under the UCC (the "CODE COLLATERAL") is deemed located in the State for purposes of the UCC, upon the recordation or filing of the Financing Statements (as defined in the opinion) in the Filing Offices (as defined in the opinion), the Issuer and the Collateral Trustee, as applicable, shall have a perfected security interest in and perfected lien upon the Code Collateral to the extent that perfection thereof is Participation Agreement 8. The Mortgage creates a security interest in the portions of the Mortgaged Property constituting fixtures, if any, and no financing or other statements are required to be filed to perfect such security interest under the Uniform Commercial Code as in effect in the State (the "UCC"), provided that the Mortgage is properly recorded in each county in which any portion of such fixtures are located. 9. To the extent that any property which secures the Project Loan or which constitutes Collateral and in which a security interest can be granted under the UCC (the "CODE COLLATERAL") is deemed located in the State for purposes of the UCC, upon the recordation or filing of the Financing Statements (as defined in the opinion) in the Filing Offices (as defined in the opinion), the Issuer and the Collateral Trustee, as applicable, shall have a perfected security interest in and perfected lien upon the Code Collateral to the extent that perfection thereof is obtained by the filing of financing statements. To continue the effectiveness of the Financing Statements, continuation statements must be filed in the office in which the Financing Statements have been filed within six months prior to the expiration of each fifth anniversary of the date of filing of the Financing Statements. Any such continuation statement must be signed by the secured party, who should identify the original statement by file number and state that the original statement is still effective. No other recordation or filing is required to preserve such interest in or lien upon the Code Collateral. Other than the filing fee required to be paid at the time of recording the Financing Statements, no other fees, taxes or other charges are due in the State in connection with the execution, delivery, filing and recording of the Financing Statements. 10. The execution, delivery and performance by the Project Borrower of the Lease Documents and the Project Loan Documents do not violate any provision of law, rule or regulation of the State. 11. Based solely on the interest specified in the Project Loan Documents of 8.69% per annum on the outstanding but unpaid principal on the Project Loan Note, the Project Loan Documents and the transactions contemplated thereby do not violate the usury laws of the State. 12. The execution, delivery and performance by the Tenant of the Lease Documents do not violate any provision of law, rule or regulation of the State. 13. The execution, delivery and performance by the parties thereto of the Credit Documents do not violate any provision of law, rule or regulation of the State. 14. No fees, taxes, or other charges, including, without limitation, intangible documentary stamp, mortgage, transfer or recording taxes or similar charges, are payable to the government of the State or to any jurisdiction therein on account of the execution, delivery or ownership of the Project Loan Documents, the Lease Documents and the Credit Documents, the creation of the indebtedness evidenced or secured thereby, the creation of the liens and security interests thereunder, or the filing, recording, or registration of the Mortgage, the Assignment of E-2-2 Participation Agreement Mortgage, the Assignment of Lease and Rents, the Reassignment of Lease and Rents or the Financing Statement except for nominal filing or recording fees. 15. Neither the Issuer, the Collateral Trustee nor any of the Noteholders is required to pay any tax, to be qualified to do business in the State, to file any reports, or to comply with any statutory or regulatory rule or requirement applicable only to financial institutions chartered or qualified to do business in the State solely by reason of the execution, delivery or acceptance of the Project Loan Documents, the Lease Documents or the Credit Documents. The validity and enforceability of, and the exercise of any right or remedy under or with respect to, the Project Loan Documents, the Lease Documents and the Credit Documents will not be precluded by any failure to so qualify or file. 16. The Mortgage and the Financing Statements conform to all requirements of the laws of the State and the Participation Agreement Mortgage, the Assignment of Lease and Rents, the Reassignment of Lease and Rents or the Financing Statement except for nominal filing or recording fees. 15. Neither the Issuer, the Collateral Trustee nor any of the Noteholders is required to pay any tax, to be qualified to do business in the State, to file any reports, or to comply with any statutory or regulatory rule or requirement applicable only to financial institutions chartered or qualified to do business in the State solely by reason of the execution, delivery or acceptance of the Project Loan Documents, the Lease Documents or the Credit Documents. The validity and enforceability of, and the exercise of any right or remedy under or with respect to, the Project Loan Documents, the Lease Documents and the Credit Documents will not be precluded by any failure to so qualify or file. 16. The Mortgage and the Financing Statements conform to all requirements of the laws of the State and the Mortgage contains remedial, waiver and other provisions which will allow the Issuer and, upon recording of the Assignment of Mortgage, the Collateral Trustee to realize the practical benefits intended to be conferred thereby. The Project Loan Documents and the Lease Documents grant to the Issuer and, upon recording of the Credit Documents, to the Collateral Trustee, remedies including, but not limited to, the rights to (a) foreclose the Project Borrower's interests in the property securing the Project Loan, (b) execute upon the Project Borrower's interests in the property securing the Project Loan, (c) apply to a state court of the State for the appointment of a receiver, (d) cite the Project Borrower's failure to pay taxes as evidence of waste, and (e) collect the rents from the property securing the Project Loan. Each of the remedies listed in the preceding sentence is a remedy commonly sought by lenders whose loans are secured by real and personal property in the State. Enforcement of the remedies provided in the Project Documents and the Lease Documents with respect to the Project Borrower or its property will not, except as expressly limited by the terms of the Project Documents and the Lease Documents, deprive the Issuer and, upon recording of the Credit Documents, the Collateral Trustee of their rights to seek a deficiency judgment or limit the rights of the Issuer and the Collateral Trustee to foreclose on other security or collateral securing the Project Loan. 17. In connection with the remedies provided in the Mortgage: (a) The exercise at any time and in any order of any remedies available against the Code Collateral or any other Mortgaged Property will not affect nor be affected by the exercise of any remedies relating to the Mortgaged Property, unless the Project Loan has been paid in full and all obligations under the Project Loan Documents have been performed in full. (b) The exercise of any remedies with respect to any security or collateral located outside of the State securing the Project Loan will not affect or limit the Issuer's or the Collateral Trustee's ability to foreclose against, or exercise any other remedies with respect to the Mortgaged Property, except to the extent that the fair value of such security or collateral so E-2-3 Participation Agreement sold or disposed of has been appropriately applied to the repayment of the Project Loan or unless the Project Loan has been paid in full and all obligations under the Project Loan Documents have been performed in full. (c) There is no "one form of action" or similar law in the State that would limit the Issuer or the Collateral Trustee or any other secured party from choosing only one remedy to enforce its or their rights under the Mortgage or the other Project Loan Documents. E-2-4 Participation Agreement sold or disposed of has been appropriately applied to the repayment of the Project Loan or unless the Project Loan has been paid in full and all obligations under the Project Loan Documents have been performed in full. (c) There is no "one form of action" or similar law in the State that would limit the Issuer or the Collateral Trustee or any other secured party from choosing only one remedy to enforce its or their rights under the Mortgage or the other Project Loan Documents. E-2-4 Participation Agreement REPRESENTATIONS AND WARRANTIES OF ISSUER Capitalized terms used herein shall have the respective meanings as set forth in the Participation Agreement. Each of the Trust Company and the Issuer represents and warrants (as to itself only) as follows (provided that the representations in the following paragraphs 6 through 17 are made solely by the Issuer): 1. It is a corporation duly organized and validly existing and in good standing under the laws of the State of Delaware and has the power and authority to enter into and perform its obligations under the Operative Documents to which the Trust Company is a party (the "Issuer Documents"). 2. The execution, delivery and performance by the Issuer of each of the Issuer Documents have been duly authorized by all necessary action on its part and neither the execution and delivery thereof, nor the consummation of the transactions contemplated thereby, nor compliance by it with any of the terms and provisions thereof does or will (i) require any approval or consent of any trustee or holders of any of its indebtedness or obligations, (ii) contravene any current law, governmental rule or regulation of the State of Delaware or any United States federal law, rule or regulation, in each case relating to it, (iii) contravene or result in any breach of or constitute any default under, or result in the creation of any Lien upon any of its property under, its organizational documents, or any indenture, mortgage, chattel mortgage, deed of trust, conditional sales contract, bank loan or credit agreement or other agreement or instrument to which it is a party or by which it or its properties may be bound or affected or (iv) require any authority, approval or other action by any Governmental Authority or agency of the State of Delaware or any federal authority governing the banking or trust powers of the Issuer. 3. Each of the Issuer Documents has been, or will be, duly executed and delivered by the Trust Company or the Issuer, as the case may be, and constitutes, or upon execution and delivery will constitute, a legal, valid and binding obligation enforceable against the Trust Company (to the extent expressly provided therein) or the Issuer, as the case may be, in accordance with its respective terms. 4. No litigation, investigation or proceeding of or before any arbitrator or Governmental Authority of the State of Delaware or of the United States government governing the banking or trust powers of the Issuer is pending or, to the knowledge of the Issuer, threatened by or against the Issuer (a) with respect to any of the Issuer Documents or any of the transactions contemplated thereby, or (b) which could have a material adverse effect on the business or financial condition of the Issuer or the validity or enforceability of any of the Issuer Documents. Participation Agreement EXHIBIT F (to Participation Agreement) 5. It has not assigned or transferred, or granted any lien in respect of, any of its rights, title or interest in or under Participation Agreement REPRESENTATIONS AND WARRANTIES OF ISSUER Capitalized terms used herein shall have the respective meanings as set forth in the Participation Agreement. Each of the Trust Company and the Issuer represents and warrants (as to itself only) as follows (provided that the representations in the following paragraphs 6 through 17 are made solely by the Issuer): 1. It is a corporation duly organized and validly existing and in good standing under the laws of the State of Delaware and has the power and authority to enter into and perform its obligations under the Operative Documents to which the Trust Company is a party (the "Issuer Documents"). 2. The execution, delivery and performance by the Issuer of each of the Issuer Documents have been duly authorized by all necessary action on its part and neither the execution and delivery thereof, nor the consummation of the transactions contemplated thereby, nor compliance by it with any of the terms and provisions thereof does or will (i) require any approval or consent of any trustee or holders of any of its indebtedness or obligations, (ii) contravene any current law, governmental rule or regulation of the State of Delaware or any United States federal law, rule or regulation, in each case relating to it, (iii) contravene or result in any breach of or constitute any default under, or result in the creation of any Lien upon any of its property under, its organizational documents, or any indenture, mortgage, chattel mortgage, deed of trust, conditional sales contract, bank loan or credit agreement or other agreement or instrument to which it is a party or by which it or its properties may be bound or affected or (iv) require any authority, approval or other action by any Governmental Authority or agency of the State of Delaware or any federal authority governing the banking or trust powers of the Issuer. 3. Each of the Issuer Documents has been, or will be, duly executed and delivered by the Trust Company or the Issuer, as the case may be, and constitutes, or upon execution and delivery will constitute, a legal, valid and binding obligation enforceable against the Trust Company (to the extent expressly provided therein) or the Issuer, as the case may be, in accordance with its respective terms. 4. No litigation, investigation or proceeding of or before any arbitrator or Governmental Authority of the State of Delaware or of the United States government governing the banking or trust powers of the Issuer is pending or, to the knowledge of the Issuer, threatened by or against the Issuer (a) with respect to any of the Issuer Documents or any of the transactions contemplated thereby, or (b) which could have a material adverse effect on the business or financial condition of the Issuer or the validity or enforceability of any of the Issuer Documents. Participation Agreement EXHIBIT F (to Participation Agreement) 5. It has not assigned or transferred, or granted any lien in respect of, any of its rights, title or interest in or under any Project Loan, except in accordance with the Issuer Documents. 6. The Issuer is not in default under or with respect to any of its contractual obligations in any respect which could have a material adverse effect on the business or financial condition of the Issuer or the validity or enforceability of any of the Issuer Documents. No Default or Event of Default has occurred and is continuing. 7. The proceeds of the Loans shall be applied by the Issuer solely to make Project Loans to the Project Borrowers. 8. The Issuer's principal place of business, chief executive office and office where the documents, accounts and records relating to the transaction contemplated by this Participation Agreement and each other Operative Document are located is in Wilmington, Delaware and the Issuer's mailing address is: c/o Wilmington Trust Company, Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890. Participation Agreement EXHIBIT F (to Participation Agreement) 5. It has not assigned or transferred, or granted any lien in respect of, any of its rights, title or interest in or under any Project Loan, except in accordance with the Issuer Documents. 6. The Issuer is not in default under or with respect to any of its contractual obligations in any respect which could have a material adverse effect on the business or financial condition of the Issuer or the validity or enforceability of any of the Issuer Documents. No Default or Event of Default has occurred and is continuing. 7. The proceeds of the Loans shall be applied by the Issuer solely to make Project Loans to the Project Borrowers. 8. The Issuer's principal place of business, chief executive office and office where the documents, accounts and records relating to the transaction contemplated by this Participation Agreement and each other Operative Document are located is in Wilmington, Delaware and the Issuer's mailing address is: c/o Wilmington Trust Company, Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890. 9. No part of the proceeds of any Loans will be used for "purchasing" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under Regulation U of the Board of Governors of the Federal Reserve System as now and from time to time hereafter in effect. If requested by any Purchaser, the Issuer will furnish to such Purchaser a statement to the foregoing effect in conformity with the requirements of FR Form U-1 referred to in said Regulation U. 10. The Issuer is not an "investment company" or a company controlled by an "investment company" within the meaning of the Investment Company Act. 11. The originally executed copy of each Project Loan Note and an originally executed copy of each other Project Loan Document has been delivered to the Collateral Trustee on or prior to the Closing Date. 12. As of the Closing Date, no Project Loan Note or any related Project Loan Document has been assigned or pledge to a third party other than the Collateral Trustee. The Issuer has good and marketable title to each Project Loan Note and related Project Loan Documents purported to be collaterally assigned by the Issuer, and the Issuer is the sole owner thereof and has full right and power to hold and to create a Lien on such Project Loan Note and related Project Loan Documents in favor of the Trustee. 13. The Issuer has collaterally assigned to the Collateral Trustee the Project Loan Documents and the Collateral Trustee has a first perfected Lien on all such Project Loan Documents. F-2 Participation Agreement 14. The Issuer represents and warrants that the Issuer has not, directly or indirectly, nor has any agent on its behalf, offered or will offer any Note or any similar security to or has solicited or will solicit an offer to acquire any Note or any similar security from any person in such manner as to bring the issuance and sale of the Notes within the provisions of Section 5 of the Securities Act of 1933, as amended. 15. The consummation of the transactions provided for in the Issuer Documents and compliance by the Issuer with the provisions thereof and the collateral assignment of the Project Loans thereunder will not involve any prohibited transaction within the meaning of the Employee Retirement Income Security Act of 1974, as amended, or Section 4975 of the Internal Revenue Code of 1986, as amended. 16. The Issuer has not waived or agreed to any waiver under, or agreed to any amendment or other modification of, any Project Loan Note, or any Project Loan Document. Participation Agreement 14. The Issuer represents and warrants that the Issuer has not, directly or indirectly, nor has any agent on its behalf, offered or will offer any Note or any similar security to or has solicited or will solicit an offer to acquire any Note or any similar security from any person in such manner as to bring the issuance and sale of the Notes within the provisions of Section 5 of the Securities Act of 1933, as amended. 15. The consummation of the transactions provided for in the Issuer Documents and compliance by the Issuer with the provisions thereof and the collateral assignment of the Project Loans thereunder will not involve any prohibited transaction within the meaning of the Employee Retirement Income Security Act of 1974, as amended, or Section 4975 of the Internal Revenue Code of 1986, as amended. 16. The Issuer has not waived or agreed to any waiver under, or agreed to any amendment or other modification of, any Project Loan Note, or any Project Loan Document. 17. The Issuer has not nor has anyone acting on its behalf offered, transferred, pledged, sold or otherwise disposed of any Note, any interest in any Note or any other similar security to, or solicited any offer to buy or accept a transfer, pledge or other disposition of any Note, any interest in the Notes or any other similar security, or otherwise approached or negotiated with respect to the Notes, any interest in the Notes or any other similar security with, any person in any manner which would, or made any general solicitation by means of general advertising or in any other manner or taken any other action which would, constitute a distribution of the Notes under the Securities Act of 1933, as amended, or which would render the disposition of the Notes a violation of Section 5 of the Securities Act of 1933, as amended, or require registration pursuant thereto. F-3 Participation Agreement REPRESENTATIONS AND WARRANTIES OF COLLATERAL TRUSTEE Capitalized terms used herein shall have the respective meanings as set forth in the Participation Agreement. The Collateral Trustee hereby represents and warrants that: 1. The Collateral Trustee is a national banking association duly organized, validly existing, and in good standing under the laws of the United States of America. 2. The Collateral Trustee has full power, authority and legal right under the laws of the United States pertaining to its banking and trust powers to execute, deliver, and perform each of the Operative Documents to which it is a party (the "Trustee Documents") and to authenticate and deliver the Notes and has taken all necessary action to authorize the execution, delivery, and performance by it of each of the Trustee Documents and to authenticate and deliver the Notes. 3. The execution, delivery and performance by the Collateral Trustee of each of the Trustee Documents will not contravene any law, rule or regulation of the States of New York or Utah or any United States governmental authority or agency regulating the Collateral Trustee's banking or trust powers or any judgment or order applicable to or binding on the Collateral Trustee and will not contravene or result in any breach of, or constitute a default under, the Collateral Trustee's articles of association or by-laws or the provision of any indenture, mortgage, contract or other agreement to which it is a party or by which it or any of its properties is bound. 4. The execution, delivery and performance by the Collateral Trustee of each of the Trustee Documents and the authentication of the Notes will not require the authorization, consent, or approval of, the giving of notice to, the filing or registration with, or the taking of any other action in respect of, any United States or State of Utah governmental authority or agency regulating the banking and trust activities of the Collateral Trustee. 5. Each of the Trustee Documents have been duly executed and delivered by the Collateral Trustee and constitutes the legal, valid, and binding agreements of the Collateral Trustee, enforceable in accordance with their Participation Agreement REPRESENTATIONS AND WARRANTIES OF COLLATERAL TRUSTEE Capitalized terms used herein shall have the respective meanings as set forth in the Participation Agreement. The Collateral Trustee hereby represents and warrants that: 1. The Collateral Trustee is a national banking association duly organized, validly existing, and in good standing under the laws of the United States of America. 2. The Collateral Trustee has full power, authority and legal right under the laws of the United States pertaining to its banking and trust powers to execute, deliver, and perform each of the Operative Documents to which it is a party (the "Trustee Documents") and to authenticate and deliver the Notes and has taken all necessary action to authorize the execution, delivery, and performance by it of each of the Trustee Documents and to authenticate and deliver the Notes. 3. The execution, delivery and performance by the Collateral Trustee of each of the Trustee Documents will not contravene any law, rule or regulation of the States of New York or Utah or any United States governmental authority or agency regulating the Collateral Trustee's banking or trust powers or any judgment or order applicable to or binding on the Collateral Trustee and will not contravene or result in any breach of, or constitute a default under, the Collateral Trustee's articles of association or by-laws or the provision of any indenture, mortgage, contract or other agreement to which it is a party or by which it or any of its properties is bound. 4. The execution, delivery and performance by the Collateral Trustee of each of the Trustee Documents and the authentication of the Notes will not require the authorization, consent, or approval of, the giving of notice to, the filing or registration with, or the taking of any other action in respect of, any United States or State of Utah governmental authority or agency regulating the banking and trust activities of the Collateral Trustee. 5. Each of the Trustee Documents have been duly executed and delivered by the Collateral Trustee and constitutes the legal, valid, and binding agreements of the Collateral Trustee, enforceable in accordance with their respective terms, subject to bankruptcy, insolvency, fraudulent conveyance and similar laws affecting creditors' rights generally, and general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law). 6. The Collateral Trustee is not or will not, as a result of the performance of its duties under the Indenture, be required to be registered as an "investment company" within the meaning of the Investment Company Act of 1940, as amended. EXHIBIT G (to Participation Agreement) Participation Agreement REPRESENTATIONS AND WARRANTIES OF GUARANTOR 1. The Guarantor is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation. The Guarantor has the lawful power to own or lease its properties and to engage in the business it presently conducts or proposes to conduct. 2. The Guarantor has full power to enter into, execute, deliver and carry out the Operating Documents to which it is a party (the "Guarantor Documents") and to perform obligations under each of the Guarantor Documents and all such actions have been duly authorized by all necessary proceedings on its part. 3. The Guarantor has duly and validly executed and delivered each of the Guarantor Documents. Each such Participation Agreement REPRESENTATIONS AND WARRANTIES OF GUARANTOR 1. The Guarantor is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation. The Guarantor has the lawful power to own or lease its properties and to engage in the business it presently conducts or proposes to conduct. 2. The Guarantor has full power to enter into, execute, deliver and carry out the Operating Documents to which it is a party (the "Guarantor Documents") and to perform obligations under each of the Guarantor Documents and all such actions have been duly authorized by all necessary proceedings on its part. 3. The Guarantor has duly and validly executed and delivered each of the Guarantor Documents. Each such Guarantor Document constitutes the legal, valid and binding obligation of the Guarantor enforceable against the Guarantor in accordance with its terms, except to the extent that enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforceability of creditors' rights generally or limiting the right of specific performance. 4. Neither the execution and delivery of the Guarantor Documents nor the consummation of the transactions therein contemplated nor the compliance with the terms and provisions thereof will (i) violate any provision of any existing law, statute, rule or regulation applicable to the Guarantor or (ii) conflict with, constitute a default under or result in any breach of (a) the terms and conditions of the certificate of incorporation, by-laws or other organizational documents of the Guarantor or (b) any agreement or instrument or order, writ, judgment, injunction or decree to which the Guarantor is a party or by which the Guarantor or any of its properties may be subject or bound, or (iii) result in the creation or enforcement of any Lien, charge or encumbrance whatsoever upon any property (now or hereafter acquired) of the Guarantor. 5. Except as disclosed in the Form 10Q for the quarter ending July 23, 2000 (including Note 2 -- Commitments and Contingencies to the Financial Statements) by Guarantor with the Securities and Exchange Commission, there are no actions, suits, proceedings or investigations pending or, to the knowledge of the Guarantor threatened against the Guarantor or any of its Subsidiaries before any Governmental Authority which individually or in the aggregate could reasonably be expected to have a Material Adverse Effect. Neither the Guarantor nor any of its Subsidiaries is in violation of any order, writ, injunction or any decree of any Governmental Authority which individually or in the aggregate could reasonably be expected to have a Material Adverse Effect. 6. The Guarantor has delivered to each of the Purchasers copies of its audited consolidated financial statements dated January 23, 2000 (the "Annual Statements"). In addition, the Guarantor has delivered to each of the Purchasers copies of its unaudited EXHIBIT H-1 (to Participation Agreement) Participation Agreement consolidated interim financial statements dated July 23, 2000 (the "Interim Statements") (the Annual Statements and the Interim Statements being collectively referred to as the "Historical Statements"). The Historical Statements were compiled from the books and records maintained by the Guarantor's management, are correct and complete and fairly represent the consolidated financial condition of the Guarantor and its Subsidiaries as of their dates and the results of operations for the fiscal periods then ended and have been prepared in accordance with GAAP consistently applied (except as disclosed in such financial statements), subject (in the case of the Interim Statements) to normal year end audit adjustments. 7. Neither the Guarantor nor any of its Subsidiaries (including the Tenant) has any material liabilities, contingent or otherwise, or forward or long-term commitments that are not disclosed in the Historical Statements referenced in Participation Agreement consolidated interim financial statements dated July 23, 2000 (the "Interim Statements") (the Annual Statements and the Interim Statements being collectively referred to as the "Historical Statements"). The Historical Statements were compiled from the books and records maintained by the Guarantor's management, are correct and complete and fairly represent the consolidated financial condition of the Guarantor and its Subsidiaries as of their dates and the results of operations for the fiscal periods then ended and have been prepared in accordance with GAAP consistently applied (except as disclosed in such financial statements), subject (in the case of the Interim Statements) to normal year end audit adjustments. 7. Neither the Guarantor nor any of its Subsidiaries (including the Tenant) has any material liabilities, contingent or otherwise, or forward or long-term commitments that are not disclosed in the Historical Statements referenced in the foregoing paragraph (6) or in the notes thereto, other than as incurred in the ordinary course of business after the date of such statements. Except as disclosed therein or on the schedules thereto, there are no unrealized or anticipated losses from any commitments of the Guarantor or any Subsidiary of the Guarantor which individually or in the aggregate could reasonably be expected to have a Material Adverse Effect. Since the date of the Interim Statements, no circumstances or events have occurred which could reasonably be expected to have a Material Adverse Effect. 8. On the Closing Date, no Guarantor Documents or any certificate, statement, financial or otherwise, agreement or other documents furnished to the Purchasers in connection therewith, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained therein, in light of the circumstances under which they were made, not misleading. On the Closing Date, there is no fact known to the Guarantor which could reasonably be expected to have a Material Adverse Effect and which has not been set forth in this Certificate or in the certificates, Historical Statements, agreements or other documents furnished in writing to the Purchasers prior to or on the Closing Date in connection with the transactions contemplated by the Guarantor Documents. 9. No consent, approval, exemption, order or authorization of, or registration or filing with any Governmental Authority or any other Person is required by law or any agreement in connection with the execution and delivery by the Guarantor of the Guarantor Documents, the consummation of the transactions therein contemplated and the compliance with the terms and provisions thereof. 10. No Event of Default or Default has occurred and is continuing. Neither the Guarantor nor any of its Subsidiaries (including the Tenant) is in violation of (i) any term of its certificate of incorporation, by-laws, or other organizational documents or (ii) any agreement or instrument or order, writ, judgment, injunction or decree to which it is a party or by which it or any of its properties may be subject or bound where such violation individually or in the aggregate could reasonably be expected to have a Material Adverse Effect. 11. The Guarantor and its Subsidiaries (including the Tenant) are in compliance in respects with all applicable laws in all jurisdictions in which the Guarantor or any of its H-1-2 Participation Agreement Subsidiaries is presently or will be doing business except where the failure to do so individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect. 12. All contracts which are material to the business operations of the Guarantor and its Subsidiaries (including the Tenant) are valid, binding and enforceable upon the Guarantor and each such Subsidiary, as applicable, and each of the other parties thereto in accordance with their respective terms, and there is no default thereunder, to the Guarantor's knowledge, with respect to parties other than the Guarantor or its Subsidiaries which could be expected to have a Material Adverse Effect. 13. (a) Except as otherwise disclosed in the January 2001 Phase I Environmental Site Assessments prepared by Participation Agreement Subsidiaries is presently or will be doing business except where the failure to do so individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect. 12. All contracts which are material to the business operations of the Guarantor and its Subsidiaries (including the Tenant) are valid, binding and enforceable upon the Guarantor and each such Subsidiary, as applicable, and each of the other parties thereto in accordance with their respective terms, and there is no default thereunder, to the Guarantor's knowledge, with respect to parties other than the Guarantor or its Subsidiaries which could be expected to have a Material Adverse Effect. 13. (a) Except as otherwise disclosed in the January 2001 Phase I Environmental Site Assessments prepared by EMG for each Mortgaged Property (the "Reports"), there are no circumstances at, on or under any Mortgaged Property that constitute a material breach of or material noncompliance with any of the Environmental Laws, and there are no past or present Environmental Violations at, on or under any Mortgaged Property or, to the knowledge of the Guarantor at, on or under adjacent property, that prevent compliance with the Environmental Laws at any Mortgaged Property or that otherwise would require that any removal, remediation or other corrective action or cleanup be taken with respect to any Mortgaged Property. (b) No Mortgaged Property and no structures, improvements, equipment, fixtures, activities or facilities thereon or thereunder contain or use Hazardous Substances except in compliance with Environmental Laws. Except as may otherwise be disclosed in the Reports, there are no processes, facilities, operations, equipment or any other activities at, on or under such property, or, to the knowledge of the Guarantor at, on or under adjacent property, that have resulted or are currently resulting in the release or threatened release of Hazardous Substances onto any Mortgaged Property, except to the extent that such releases or threatened releases are not a breach of or otherwise not a violation of the Environmental Laws. (c) There are no above ground storage tanks, underground storage tanks or underground piping associated with such tanks, used for the management of Hazardous Substances at, on or under any Mortgaged Property that (a) do not have a full operational secondary containment system in place, and (b) are not otherwise in compliance with all Environmental Laws. Except as may otherwise be disclosed in the Reports, there are no abandoned underground storage tanks or underground piping associated with such tanks, previously used for the management of Hazardous Substances at, on or under any Mortgaged Property that have not either been closed in place in accordance with Environmental Laws or removed in compliance with all applicable Environmental Laws and no contamination associated with the use of such tanks exists on such property. (d) All material permits, licenses, authorizations, plans and approvals necessary under the Environmental Laws for the conduct of business by the H-1-3 Participation Agreement Tenant on the Mortgaged Properties as presently conducted have been obtained. All material notices, reports and other filings required by the Environmental Laws to be submitted to a Governmental Authority which pertain to past and current operations on the Mortgaged Properties have been submitted. (e) All present, and, based upon the Reports, to the best of Guarantor's knowledge, all past on-site generation, storage, processing, treatment, recycling, reclamation, disposal or other use or management of Hazardous Substances at, on, or under any Mortgaged Property and all off-site transportation, storage, processing, treatment, recycling, reclamation, disposal or other use or management of Hazardous Substances has been done in material compliance with the Environmental Laws. 14. The representations and warranties of the Guarantor set forth in each Guarantor Document are true and correct in all material respects. The Guarantor is in compliance with its obligations under the Guarantor Documents and there exists no Default or Event of Default by the Guarantor under any of the Guarantor Participation Agreement Tenant on the Mortgaged Properties as presently conducted have been obtained. All material notices, reports and other filings required by the Environmental Laws to be submitted to a Governmental Authority which pertain to past and current operations on the Mortgaged Properties have been submitted. (e) All present, and, based upon the Reports, to the best of Guarantor's knowledge, all past on-site generation, storage, processing, treatment, recycling, reclamation, disposal or other use or management of Hazardous Substances at, on, or under any Mortgaged Property and all off-site transportation, storage, processing, treatment, recycling, reclamation, disposal or other use or management of Hazardous Substances has been done in material compliance with the Environmental Laws. 14. The representations and warranties of the Guarantor set forth in each Guarantor Document are true and correct in all material respects. The Guarantor is in compliance with its obligations under the Guarantor Documents and there exists no Default or Event of Default by the Guarantor under any of the Guarantor Documents. 15. The aggregate amount of Project Loan Debt Service (as defined in the Project Loan Agreements) and payable as Basic Rent due under all Leases for each calendar month occurring while the Notes are scheduled to be outstanding equals the Monthly Amortization for such calendar month. 16. Neither the Guarantor nor any of its affiliates or partners, members, directors or officers is or has been the subject of, or a defendant in: (a) an enforcement action or prosecution (or settlement in lieu thereof) brought by a governmental authority relating to a violation of securities, tax, fiduciary or criminal laws, or (ii) a civil action (or settlement in lieu thereof) brought by investors in a common investment vehicle for violation of duties owed to the investors. Guarantor covenants that it will notify the Collateral Trustee within five (5) days in the event any such action or prosecution is initiated while the Notes are outstanding. 17. To the Guarantor's knowledge, no trustee or employee of the State of Wisconsin Investment Board identified on the list attached hereto as Annex I, either directly or indirectly (a) currently holds, except as may be specifically set forth below, a personal interest in the Guarantor or any of its Subsidiaries (together, the "Entity") or the Entity's property or securities, or (b) will, in connection with the Notes, receive (i) a personal interest in the Entity or the Entity's property or securities, nor (ii) anything of substantial economic value for his or her private benefit from the Entity or anyone acting on its behalf. As to ownership of an interest in the Entity's publicly traded securities, "knowledge" hereunder is based on an examination of record holders of the Entity's securities and actual knowledge of the Guarantor. H-1-4 ANNEX I Jon D. Hammes John Petersen III Eric O. Stanchfield Andrea Steen Crawford Albert O. Nicholas George H. Hahner George F. Lightbourn James R. Nelsen William R. Sauey Patricia Lipton Joseph Gorman Keith Johnson Teresa Lau ANNEX I Jon D. Hammes John Petersen III Eric O. Stanchfield Andrea Steen Crawford Albert O. Nicholas George H. Hahner George F. Lightbourn James R. Nelsen William R. Sauey Patricia Lipton Joseph Gorman Keith Johnson Teresa Lau Jon Traver Robert Severance Chuck Carpenter Dave Lewandowski Steve Spiekerman Jim Gannon Eve Hennessee Monica Jaehnig Jon Vanderploeg Carrie Thome Tom Olson Mike Wagner Tom Drake John Nelson Chad Neumann Mark Traster Jackie Doeler Dan Kane H-1-5 Participation Agreement REPRESENTATIONS AND WARRANTIES OF TENANT 1. Tenant is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation. Tenant has the lawful power to own or lease its properties and to engage in the business it presently conducts or proposes to conduct. Tenant is duly licensed or qualified and in good standing in each jurisdiction in which any Property is located. 2. Tenant has full power to enter into, execute, deliver and carry out the Operating Documents to which it is a party (the "Tenant Documents") and to perform obligations under each of the Tenant Documents and all such actions have been duly authorized by all necessary proceedings on its part. Participation Agreement REPRESENTATIONS AND WARRANTIES OF TENANT 1. Tenant is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation. Tenant has the lawful power to own or lease its properties and to engage in the business it presently conducts or proposes to conduct. Tenant is duly licensed or qualified and in good standing in each jurisdiction in which any Property is located. 2. Tenant has full power to enter into, execute, deliver and carry out the Operating Documents to which it is a party (the "Tenant Documents") and to perform obligations under each of the Tenant Documents and all such actions have been duly authorized by all necessary proceedings on its part. 3. Tenant has duly and validly executed and delivered each of the Tenant Documents. Each such Tenant Document constitutes the legal, valid and binding obligation of Tenant enforceable against Tenant in accordance with its terms, except to the extent that enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforceability of creditors' rights generally or limiting the right of specific performance. 4. Neither the execution and delivery of the Tenant Documents nor the consummation of the transactions therein contemplated nor the compliance with the terms and provisions thereof will (i) violate any provision of any existing law, statute, rule or regulation applicable to Tenant or (ii) conflict with, constitute a default under or result in any breach of (a) the terms and conditions of the certificate of incorporation, by-laws or other organizational documents of Tenant or (b) any agreement or instrument or order, writ, judgment, injunction or decree to which Tenant is a party or by which Tenant or any of its properties may be subject or bound, or (iii) result in the creation or enforcement of any Lien, charge or encumbrance whatsoever upon any property (now or hereafter acquired) of Tenant. 5. There are no actions, suits, proceedings or investigations pending or, to the knowledge of Tenant threatened against Tenant or any of its Subsidiaries before any Governmental Authority which individually or in the aggregate could reasonably be expected to have a Material Adverse Effect. Neither Tenant nor any of its Subsidiaries is in violation of any order, writ, injunction or any decree of any Governmental Authority which individually or in the aggregate could reasonably be expected to have a Material Adverse Effect. 6. On the Closing Date, no Tenant Documents or any certificate, statement, financial or otherwise, agreement or other documents furnished to the Purchasers in connection therewith, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained therein, in light of the circumstances under which they were made, not misleading. On the Closing Date, there is no fact known to Tenant which could reasonably be expected to have a Material Adverse Effect and which has not been set forth in this Certificate or in the certificates, Historical Statements, agreements or other documents EXHIBIT H-2 (to Participation Agreement) Participation Agreement furnished in writing to the Purchasers prior to or on the Closing Date in connection with the transactions contemplated by the Tenant Documents. 7. No consent, approval, exemption, order or authorization of, or registration or filing with any Governmental Authority or any other Person is required by law or any agreement in connection with the execution and delivery by Tenant of the Tenant Documents, the consummation of the transactions therein contemplated and the compliance with the terms and provisions thereof. 8. (a) Except as otherwise disclosed in the January 2001 Phase I Environmental Site Assessments prepared by Participation Agreement furnished in writing to the Purchasers prior to or on the Closing Date in connection with the transactions contemplated by the Tenant Documents. 7. No consent, approval, exemption, order or authorization of, or registration or filing with any Governmental Authority or any other Person is required by law or any agreement in connection with the execution and delivery by Tenant of the Tenant Documents, the consummation of the transactions therein contemplated and the compliance with the terms and provisions thereof. 8. (a) Except as otherwise disclosed in the January 2001 Phase I Environmental Site Assessments prepared by EMG for each Mortgaged Property (the "Reports"), there are no circumstances at, on or under any Mortgaged Property that constitute a material breach of or material noncompliance with any of the Environmental Laws, and there are no past or present Environmental Violations at, on or under any Mortgaged Property or, to the knowledge of Tenant at, on or under adjacent property, that prevent compliance with the Environmental Laws at any Mortgaged Property or that otherwise would require that any removal, remediation or other corrective action or cleanup be taken with respect to any Mortgaged Property. (b) No Mortgaged Property and no structures, improvements, equipment, fixtures, activities or facilities thereon or thereunder contain or use Hazardous Substances except in compliance with Environmental Laws. Except as may otherwise be disclosed in the Reports, there are no processes, facilities, operations, equipment or any other activities at, on or under such property, or, to the knowledge of Tenant at, on or under adjacent property, that have resulted or are currently resulting in the release or threatened release of Hazardous Substances onto any Mortgaged Property, except to the extent that such releases or threatened releases are not a breach of or otherwise not a violation of the Environmental Laws. (c) There are no above ground storage tanks, underground storage tanks or underground piping associated with such tanks, used for the management of Hazardous Substances at, on or under any Mortgaged Property that (a) do not have a full operational secondary containment system in place, and (b) are not otherwise in compliance with all Environmental Laws. Except as may otherwise be disclosed in the Reports, there are no abandoned underground storage tanks or underground piping associated with such tanks, previously used for the management of Hazardous Substances at, on or under any Mortgaged Property that have not either been closed in place in accordance with Environmental Laws or removed in compliance with all applicable Environmental Laws and no contamination associated with the use of such tanks exists on such property. (d) All material permits, licenses, authorizations, plans and approvals necessary under the Environmental Laws for the conduct of business by Tenant on the Mortgaged Properties as presently conducted have been obtained. All material notices, reports and other filings required by the Environmental Laws to H-2-2 Participation Agreement be submitted to a Governmental Authority which pertain to past and current operations on the Mortgaged Properties have been submitted. (e) All present, and, based upon the Reports, to the best of Tenant's knowledge, all past on-site generation, storage, processing, treatment, recycling, reclamation, disposal or other use or management of Hazardous Substances at, on, or under the Mortgaged Property and all off-site transportation, storage, processing, treatment, recycling, reclamation, disposal or other use or management of Hazardous Substances has been done in material compliance with the Environmental Laws. 9. The representations and warranties of Tenant set forth in each Tenant Document are true and correct in all material respects. Tenant is in compliance with its obligations under the Tenant Documents and there exists no Default or Event of Default by Tenant under any of the Tenant Documents. Participation Agreement be submitted to a Governmental Authority which pertain to past and current operations on the Mortgaged Properties have been submitted. (e) All present, and, based upon the Reports, to the best of Tenant's knowledge, all past on-site generation, storage, processing, treatment, recycling, reclamation, disposal or other use or management of Hazardous Substances at, on, or under the Mortgaged Property and all off-site transportation, storage, processing, treatment, recycling, reclamation, disposal or other use or management of Hazardous Substances has been done in material compliance with the Environmental Laws. 9. The representations and warranties of Tenant set forth in each Tenant Document are true and correct in all material respects. Tenant is in compliance with its obligations under the Tenant Documents and there exists no Default or Event of Default by Tenant under any of the Tenant Documents. 10. Upon the execution and delivery of each Lease, (i) Tenant will have unconditionally accepted the Mortgaged Property subject to such Lease, (ii) no offset will exist with respect to any Basic Rent or other sums payable under such Lease and (iii) no Basic Rent or Supplemental Rent under any Lease will have been prepaid except as otherwise required by the Operative Documents. 11. No portion of any Mortgaged Property is located in an area identified as a special flood hazard area by the Federal Emergency Management Agency or other applicable agency, or if any such Mortgaged Property is located in an area identified as a special flood hazard area by the Federal Emergency Management Agency or other applicable agency, then flood insurance has been obtained for such Mortgaged Property in accordance with Article XV of each Lease and in accordance with the National Flood Insurance Act of 1968, as amended. 12. Tenant has obtained insurance coverage for each Mortgaged Property which meets the requirements of Article XV of each Lease and all of such coverage is in full force and effect. 13. To the actual knowledge of Tenant, each Mortgaged Property (i) complies in all material respects with all applicable laws, rules and regulations of all governmental authorities (including, without limitation, all zoning and land use laws and Environmental Laws); or (ii) does not comply with certain state and local land use, zoning and related legal requirements (other than Environmental Laws) which have been identified in writing to the Purchasers and which the Purchasers have deemed immaterial. 14. To the actual knowledge of Tenant, all consents, licenses and building permits required by all applicable laws, rules and regulations of all governmental authorities, occupancy and operation of each Mortgaged Property (i) have been obtained and are in full force and effect; or (ii) have not been obtained (such consents, licenses and building permits having been identified in writing to the Purchasers and which the Purchasers have deemed immaterial). H-2-3 Participation Agreement REPRESENTATIONS AND WARRANTIES OF OWNER BENEFICIARY Capitalized terms used herein shall have the respective meanings as set forth in the Participation Agreement. The Owner Beneficiary hereby represents and warrants that: 1. The Owner Beneficiary is a corporation duly organized, validly existing and in good standing under the laws of Delaware. 2. The Owner Beneficiary has full power, authority and legal right to execute, deliver, and perform each of the Operative Documents to which it is a party (the "Owner Beneficiary Documents") and has taken all necessary Participation Agreement REPRESENTATIONS AND WARRANTIES OF OWNER BENEFICIARY Capitalized terms used herein shall have the respective meanings as set forth in the Participation Agreement. The Owner Beneficiary hereby represents and warrants that: 1. The Owner Beneficiary is a corporation duly organized, validly existing and in good standing under the laws of Delaware. 2. The Owner Beneficiary has full power, authority and legal right to execute, deliver, and perform each of the Operative Documents to which it is a party (the "Owner Beneficiary Documents") and has taken all necessary corporate action to authorize the execution, delivery, and performance by it of each of the Owner Beneficiary Documents. 3. The execution, delivery and performance by the Owner Beneficiary of each of the Owner Beneficiary Documents will not contravene any law, rule or regulation or any judgment or order applicable to or binding on the Owner Beneficiary and will not contravene or result in any breach of, or constitute a default under, the Owner Beneficiary's certificate of incorporation or by-laws or the provision of any indenture, mortgage, contract or other agreement to which it is a party or by which it or any of its properties is bound. 4. The execution, delivery and performance by the Owner Beneficiary of each of the Owner Beneficiary Documents will not require the authorization, consent, or approval of, the giving of notice to, the filing or registration with, or the taking of any other action in respect of, any governmental authority. 5. Each of the Owner Beneficiary Documents have been duly executed and delivered by the Owner Beneficiary and constitutes the legal, valid, and binding agreements of the Owner Beneficiary, enforceable in accordance with their respective terms, subject to bankruptcy, insolvency, fraudulent conveyance and similar laws affecting creditors' rights generally, and general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law). 6. The Owner Beneficiary is not or will not, as a result of the performance of its duties under the Indenture, be required to be registered as an "investment company" within the meaning of the Investment Company Act of 1940, as amended. EXHIBIT I (to Participation Agreement) EXHIBIT 10.42 LEASE GUARANTY AGREEMENT (Rapid City, SD) THIS AGREEMENT dated as of the 2nd day of February, 2001, is made in favor of BB RAPID CITY ASSOCIATES, L.L.C., an Ohio limited liability company (the "Landlord"), having an address at 1765 Merriman Road, Akron, Ohio 44313, by BORDERS GROUP, INC., a Michigan corporation ("Guarantor"), having its principal office at 100 Phoenix Drive, Ann Arbor, Michigan 48108. W I T N E S S E T H: Contemporaneously herewith, Landlord, as lessor, is entering into a certain lease of even date herewith with Borders, Inc., a Colorado corporation, as lessee ("Tenant"), with respect to the property located in the City of Rapid City, County of Pennington, and State of South Dakota (the "Lease"), which property is more particularly described in Exhibit A thereto. Guarantor owns all of the outstanding capital stock of Tenant and is executing this EXHIBIT 10.42 LEASE GUARANTY AGREEMENT (Rapid City, SD) THIS AGREEMENT dated as of the 2nd day of February, 2001, is made in favor of BB RAPID CITY ASSOCIATES, L.L.C., an Ohio limited liability company (the "Landlord"), having an address at 1765 Merriman Road, Akron, Ohio 44313, by BORDERS GROUP, INC., a Michigan corporation ("Guarantor"), having its principal office at 100 Phoenix Drive, Ann Arbor, Michigan 48108. W I T N E S S E T H: Contemporaneously herewith, Landlord, as lessor, is entering into a certain lease of even date herewith with Borders, Inc., a Colorado corporation, as lessee ("Tenant"), with respect to the property located in the City of Rapid City, County of Pennington, and State of South Dakota (the "Lease"), which property is more particularly described in Exhibit A thereto. Guarantor owns all of the outstanding capital stock of Tenant and is executing this agreement as an inducement to Landlord to enter into the Lease. NOW THEREFORE, in consideration of the premises, Guarantor, intending to be legally bound, hereby guarantees as follows: 1. Guarantor hereby absolutely, unconditionally and irrevocably guarantees to Landlord the full and punctual performance by Tenant of all of the terms, conditions, covenants, agreements and obligations to be performed and observed by Tenant under the Lease (the "Obligations"). This is a Guaranty of payment and performance, and not of collection, and Landlord shall not be obligated to enforce or exhaust its remedies against Tenant before proceeding to enforce this Guaranty. Guarantor does hereby become surety to Landlord for and with respect to all of the Obligations. 2. Guarantor hereby covenants and agrees to and with Landlord that if default shall at any time be made by Tenant in the payment of any such rent or other sums or charges payable by Tenant under the Lease or in the performance of any of the covenants, terms, conditions or agreements contained in the Lease, Guarantor will forthwith pay such rent or other sums or charges to Landlord, and any arrears thereof, and will forthwith faithfully perform and fulfill all of such covenants, terms, conditions and agreements and will forthwith pay to Landlord all damages and all costs and expenses that may arise in consequence of any default by Tenant under the Lease. Guarantor's liability hereunder is direct and may be enforced without Landlord being required to resort to any other right, remedy or security and this Guaranty shall be enforceable against Guarantor, without the necessity for any suit or proceedings on Landlord's part of any kind or nature whatsoever against Tenant, and, for so long as the Tenant under the Lease is Border's, Inc., without the necessity of any notice of non-payment, non-performance or non-observance or the continuance of any such default or of any notice of acceptance of this Guaranty or of Landlord's intention to act in reliance hereon or of any other notice or demand to which Guarantor might otherwise be entitled, all of which Guarantor hereby expressly waives; and Guarantor hereby expressly agrees that the validity of this Guaranty and the obligations of Guarantor hereunder shall in no wise be terminated, affected or impaired by reason of the assertion or the failure to assert by Landlord against Tenant, of any of the rights or remedies reserved to Landlord pursuant to the provisions of the Lease. If: (i) the Lease or this Guaranty is placed in the hands of an attorney for enforcement or collection or is enforced or collected through any legal proceeding; (ii) an attorney is retained to represent Landlord in any proceeding (including, without limitation, any bankruptcy, reorganization, receivership or other proceeding affecting creditors' rights) involving a claim under or related to the Lease or this Guaranty, then Guarantor shall pay to Landlord upon demand all reasonable attorneys' fees, costs and expenses, including, without limitation, court costs and filing fees, and all other reasonable costs and expenses incurred in connection therewith (all of which are referred to herein as "Enforcement Costs"), in addition to all other amounts due hereunder. Border's, Inc., without the necessity of any notice of non-payment, non-performance or non-observance or the continuance of any such default or of any notice of acceptance of this Guaranty or of Landlord's intention to act in reliance hereon or of any other notice or demand to which Guarantor might otherwise be entitled, all of which Guarantor hereby expressly waives; and Guarantor hereby expressly agrees that the validity of this Guaranty and the obligations of Guarantor hereunder shall in no wise be terminated, affected or impaired by reason of the assertion or the failure to assert by Landlord against Tenant, of any of the rights or remedies reserved to Landlord pursuant to the provisions of the Lease. If: (i) the Lease or this Guaranty is placed in the hands of an attorney for enforcement or collection or is enforced or collected through any legal proceeding; (ii) an attorney is retained to represent Landlord in any proceeding (including, without limitation, any bankruptcy, reorganization, receivership or other proceeding affecting creditors' rights) involving a claim under or related to the Lease or this Guaranty, then Guarantor shall pay to Landlord upon demand all reasonable attorneys' fees, costs and expenses, including, without limitation, court costs and filing fees, and all other reasonable costs and expenses incurred in connection therewith (all of which are referred to herein as "Enforcement Costs"), in addition to all other amounts due hereunder. 3. Guarantor hereby assents to all of the provisions of the Lease and waives demand, protest, notice of any indulgences or extensions granted to Tenant, any requirement of diligence or promptness on the part of Landlord in the enforcement of the Lease and any notice thereof, and any other notice whereby to charge Guarantor; provided, however, Guarantor shall be furnished with a copy of any notice of or relating to default under or termination of the Lease to which Tenant is entitled or which is served upon Tenant at the time the same is sent to or served upon Tenant. Guarantor shall have no liability for any penalties, default interest, or other charges required to be paid by Tenant to Landlord under the Lease in connection with such default unless such notice of default has been delivered to Guarantor as required herein. 4. This Guaranty shall be a continuing Guaranty, and (whether or not Guarantor shall have notice or knowledge of any of the following) the liability and obligation of Guarantor hereunder shall be absolute and unconditional and shall remain in full force and effect without regard to and shall not be released, discharged or in any way impaired by: (a) the release or discharge of Tenant in any creditors', receivership, bankruptcy proceeding, reorganization, insolvency, arrangement, readjustment, composition, liquidation, or similar proceeding relating to Tenant or its properties; (b) any alteration of or amendment to the Lease or any assignment or transfer thereof; (c) any permitted sale, assignment, sublease, pledge or mortgage of the rights of Tenant under the Lease; (d) any application or release of any security or other guaranty given for the performance and observance of the covenants and conditions in the Lease on Tenant's part to be performed and observed; (e) any exercise or nonexercise of any right, power, remedy or privilege under or in respect of the Lease or this Guaranty or any waiver, consent or approval by Landlord with respect to any of the covenants, terms, conditions or agreements contained in the Lease or any indulgences, forbearances or extensions of time for performance or observance allowed to Tenant from time to time and for any length of time; (f) any limitation on the liability or obligation of Tenant under the Lease or its estate in bankruptcy or of any remedy for the enforcement thereof, resulting from the operation of any present or future provision of the federal bankruptcy law or any other statute or from the decision of any court; (g) any sublease or transfer by Tenant or any assignment, mortgage or pledge of its interest under the Lease; (h) any termination of the Lease prior to the expiration of its Term; or (i) any agreement entered into between the Landlord and any assignee or sublessee. 5. This Agreement shall apply for the primary term of the Lease, and any extension thereof pursuant to Section 2.2(b) of the Lease for so long as the Project Loan (as defined in the Lease) and any amounts due and payable under the Project Loan Agreement are outstanding, but not otherwise. 6. All of Landlord's rights and remedies under the Lease and under this Guaranty are intended to be distinct, separate and cumulative and no such right and remedy therein or herein mentioned is intended to be in exclusion of or a waiver of any of the others. No termination of the Lease or taking or recovering of the premises demised thereby shall deprive Landlord of any of its rights and remedies against Guarantor under this Guaranty. 7. Guarantor hereby waives any requirement that Landlord protect, secure, perfect or insure any security interest or lien or any property subject thereto or exhaust any right to take any action against any person or any collateral enforcement thereof, resulting from the operation of any present or future provision of the federal bankruptcy law or any other statute or from the decision of any court; (g) any sublease or transfer by Tenant or any assignment, mortgage or pledge of its interest under the Lease; (h) any termination of the Lease prior to the expiration of its Term; or (i) any agreement entered into between the Landlord and any assignee or sublessee. 5. This Agreement shall apply for the primary term of the Lease, and any extension thereof pursuant to Section 2.2(b) of the Lease for so long as the Project Loan (as defined in the Lease) and any amounts due and payable under the Project Loan Agreement are outstanding, but not otherwise. 6. All of Landlord's rights and remedies under the Lease and under this Guaranty are intended to be distinct, separate and cumulative and no such right and remedy therein or herein mentioned is intended to be in exclusion of or a waiver of any of the others. No termination of the Lease or taking or recovering of the premises demised thereby shall deprive Landlord of any of its rights and remedies against Guarantor under this Guaranty. 7. Guarantor hereby waives any requirement that Landlord protect, secure, perfect or insure any security interest or lien or any property subject thereto or exhaust any right to take any action against any person or any collateral (including any rights relating to marshaling of assets). 8. The Obligations will be paid strictly in accordance with the terms of the Lease, regardless of the value, genuineness, validity, regularity or enforceability of the Obligations, and of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Landlord with respect thereto. The liability of Guarantor to the extent herein set forth shall be absolute and unconditional, not subject to any reduction, limitation, impairment, termination, defense, offset, counterclaim or recoupment whatsoever (all of which are hereby expressly waived by Guarantor) whether by reason of any claim of any character whatsoever, including, without limitation, any claim of waiver, release, surrender, alteration or compromise, or by reason of any liability at any time to Guarantor or otherwise, whether based upon any obligations or any other agreements or otherwise, howsoever arising, whether out of action or inaction or otherwise and whether resulting from default, willful misconduct, negligence or otherwise, and without limiting the foregoing irrespective of: (a) any lack of validity or enforceability of the Lease or of any agreement or instrument relating thereto; (b) any change in the time, manner or place of payment of, or in any other term in respect of, all or any of the Obligations, or any other amendment or waiver of or consent to Obligations, or any other amendment or waiver of or consent to any departure from the Lease or any other agreement relating to any Obligations; (c) any increase in, addition to, exchange or release of, or nonperfection of any lien on or security interest in, any collateral or any release or amendment or waiver of or consent to any departure from or failure to enforce any other guarantee, for all or any of the indebtedness; (d) any other circumstance which might otherwise constitute a defense available to, or a discharge of, Tenant in respect of the obligations of Guarantor in respect hereof; (e) the absence of any action on the part of the Landlord to obtain payment for the Obligations from Tenant; (f) any insolvency, bankruptcy, reorganization or dissolution, or any proceeding of Tenant or Guarantor, including, without limitation, rejection of the guaranteed Obligations in such bankruptcy; or (g) the absence of notice or any delay in any action to enforce any Obligations or to exercise any right or remedy against Guarantor or Tenant, whether hereunder, under any Obligations or under any agreement or any indulgence, compromise or extension granted. 9. Guarantor further agrees that, to the extent that Tenant or Guarantor makes a payment or payments to the Landlord, which payment or payments or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to Tenant or Guarantor or their respective estate, trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then to the extent of such payment or repayment, this Guaranty and the advances or part thereof which have been paid, reduced or satisfied by such amount shall be reinstated and continued in full force and effect as of the date of such initial payment, reduction or satisfaction occurred. 10. For so long as the Project Loan and any amounts owing by Landlord to Lender under the Project Loan Documents (as defined in the Lease) remain outstanding, Guarantor shall have no rights (direct or indirect) of subrogation, contribution, reimbursement, indemnification or other rights of payment or recovery from any person or entity (including, without limitation, the Tenant) for any payments made by the Guarantor hereunder, and such bankruptcy; or (g) the absence of notice or any delay in any action to enforce any Obligations or to exercise any right or remedy against Guarantor or Tenant, whether hereunder, under any Obligations or under any agreement or any indulgence, compromise or extension granted. 9. Guarantor further agrees that, to the extent that Tenant or Guarantor makes a payment or payments to the Landlord, which payment or payments or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to Tenant or Guarantor or their respective estate, trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then to the extent of such payment or repayment, this Guaranty and the advances or part thereof which have been paid, reduced or satisfied by such amount shall be reinstated and continued in full force and effect as of the date of such initial payment, reduction or satisfaction occurred. 10. For so long as the Project Loan and any amounts owing by Landlord to Lender under the Project Loan Documents (as defined in the Lease) remain outstanding, Guarantor shall have no rights (direct or indirect) of subrogation, contribution, reimbursement, indemnification or other rights of payment or recovery from any person or entity (including, without limitation, the Tenant) for any payments made by the Guarantor hereunder, and Guarantor hereby waives and releases absolutely and unconditionally, any such rights of subrogation, contribution, reimbursement, indemnification and other rights of recovery which it may now or hereafter acquire. 11. Guarantor represents and warrants to Landlord that (a) the execution and delivery of this Guaranty has been duly authorized by the Board of Directors of Guarantor, (b) the making of this Guaranty does not require any vote or consent of shareholders of Guarantor and (c) Tenant is a wholly owned subsidiary of Guarantor. 12. This Agreement shall inure to the benefit of Landlord and its successors and assigns and any assignee of Landlord's interest in the Lease, and shall be binding upon Guarantor and its successors and assigns and upon Tenant and its successors and assigns. 13. This Agreement may not be changed or terminated orally, but only by a written instrument signed by the party against whom enforcement of any change or termination is sought. 14. Any notice required hereunder to be sent to Guarantor shall be sufficiently given by mailing by certified or registered mail, postage prepaid, addressed as follows: Borders Group, Inc. 100 Phoenix Drive Ann Arbor, Michigan 48108 Attention: Vice President and General Counsel 15. This Agreement shall be governed by and construed in accordance with the laws of the State of Michigan. IN WITNESS WHEREOF, Guarantor has duly executed this Agreement by its duly authorized officer as of the day and year first above written. BORDERS GROUP, INC., a Michigan corporation By:/s/ BRUCE A. QUINNELL -----------------------------------------Name: Bruce A. Quinnell Title: Vice Chairman STATE OF MICHIGAN COUNTY OF WASHTENAW ) SS. ) The foregoing instrument was executed before me the _____ day of __________, 2001, by Bruce A. Quinnell, Vice Chairman of Borders Group, Inc., a Michigan corporation, on behalf of the corporation. 15. This Agreement shall be governed by and construed in accordance with the laws of the State of Michigan. IN WITNESS WHEREOF, Guarantor has duly executed this Agreement by its duly authorized officer as of the day and year first above written. BORDERS GROUP, INC., a Michigan corporation By:/s/ BRUCE A. QUINNELL -----------------------------------------Name: Bruce A. Quinnell Title: Vice Chairman STATE OF MICHIGAN COUNTY OF WASHTENAW ) SS. ) The foregoing instrument was executed before me the _____ day of __________, 2001, by Bruce A. Quinnell, Vice Chairman of Borders Group, Inc., a Michigan corporation, on behalf of the corporation. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. /s/ -----------------------------------------Notary Public LEASE GUARANTY RAPID CITY, SD EXHIBIT 10.43 ENVIRONMENTAL INDEMNITY This ENVIRONMENTAL INDEMNITY (this "Environmental Indemnity") is made as of this 2nd day of February, 2001, by Borders, Inc., a Colorado corporation ("Borders"), and Borders Group, Inc., a Michigan corporation ("BGI," and collectively with Borders, the "Indemnitor") to Wilmington Trust Company, not in its individual capacity, but solely as owner trustee under a certain Collateral Trust Indenture dated as of January 22, 2001 ("Lender"). Preliminary Statement I. BB Rapid City Associates, L.L.C., an Ohio limited liability company ("Borrower"), is the owner of the real property located in Rapid City, South Dakota, legally described in Exhibit A attached hereto (that real property, together with any additional real property hereafter encumbered by the lien of the Mortgage (as hereinafter defined) and all improvements now or hereafter located therein and all rights and interests of Borrower therein, being hereinafter collectively called the "Premises"); II. Pursuant to the terms of that certain Project Loan Agreement dated as of even date herewith between the Borrower and the Lender, concurrently herewith Lender shall make a loan to Borrower in the amount of $3,702,953.27 (the principal, interest, and all other sums due and owing under the loan being hereinafter collectively called the "Loan"), which Loan shall be evidenced by a Project Loan Note by Borrower to Lender (such Project Loan Note, together with all modifications, increases, and supplements thereof, being hereinafter collectively called the "Note") and secured by, among other things, a Mortgage or Deed of Trust made by Borrower to Lender (such Mortgage or Deed of Trust, together with all modifications, consolidations, increases, EXHIBIT 10.43 ENVIRONMENTAL INDEMNITY This ENVIRONMENTAL INDEMNITY (this "Environmental Indemnity") is made as of this 2nd day of February, 2001, by Borders, Inc., a Colorado corporation ("Borders"), and Borders Group, Inc., a Michigan corporation ("BGI," and collectively with Borders, the "Indemnitor") to Wilmington Trust Company, not in its individual capacity, but solely as owner trustee under a certain Collateral Trust Indenture dated as of January 22, 2001 ("Lender"). Preliminary Statement I. BB Rapid City Associates, L.L.C., an Ohio limited liability company ("Borrower"), is the owner of the real property located in Rapid City, South Dakota, legally described in Exhibit A attached hereto (that real property, together with any additional real property hereafter encumbered by the lien of the Mortgage (as hereinafter defined) and all improvements now or hereafter located therein and all rights and interests of Borrower therein, being hereinafter collectively called the "Premises"); II. Pursuant to the terms of that certain Project Loan Agreement dated as of even date herewith between the Borrower and the Lender, concurrently herewith Lender shall make a loan to Borrower in the amount of $3,702,953.27 (the principal, interest, and all other sums due and owing under the loan being hereinafter collectively called the "Loan"), which Loan shall be evidenced by a Project Loan Note by Borrower to Lender (such Project Loan Note, together with all modifications, increases, and supplements thereof, being hereinafter collectively called the "Note") and secured by, among other things, a Mortgage or Deed of Trust made by Borrower to Lender (such Mortgage or Deed of Trust, together with all modifications, consolidations, increases, supplements, and spreaders thereof, being hereinafter collectively called the "Mortgage") which will encumber the Premises (which Note, Mortgage and all other documents evidencing and securing the Loan are hereinafter collectively called the "Loan Documents"); and III. Concurrently herewith, Borders is entering into that certain Lease dated as of even date herewith between Borders, as lessee, and the Borrower, as lessor, pursuant to which Borders shall lease the Premises from Borrower. IV. BGI is the sole shareholder of Borders. V. To induce Lender to make the Loan to finance the Premises and in consideration thereof, Indemnitor has agreed to provide certain indemnities; NOW, THEREFORE, in consideration of the matters described hereinabove and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Indemnitor agrees as follows: Indemnitor shall, at its sole cost and expense, indemnify, defend (with counsel approved by Lender), protect, and hold harmless Lender and Lender's officers, trustees, directors, shareholders, employees, and agents (which officers, trustees, directors, shareholders, employees Environmental Indemnity Rapid City, SD and agents are hereinafter collectively called "Lender's Representatives") against and from any and all damages, losses, liabilities, obligations, penalties, claims, sums paid in settlement of claims, litigation, demands, defenses, judgments, suits, proceedings, costs, disbursements, fines, encumbrances, liens, and expenses of any kind or of any nature whatsoever (collectively, the "Indemnified Expenses") that may at any time (including, without limitation after the repayment of the Loan or after foreclosure of the Mortgage, exercise of power of sale under the Mortgage, or conveyance of the Premises in lieu of foreclosure) be imposed upon, incurred by, or asserted or awarded against, Lender or any Lender Representative and that arise directly or indirectly from or out of any Environmental Problem (defined below), regardless of whether that Environmental Problem arises before or after the date hereof or before or after any repayment of the loan or any conveyance of the Premises by foreclosure of and agents are hereinafter collectively called "Lender's Representatives") against and from any and all damages, losses, liabilities, obligations, penalties, claims, sums paid in settlement of claims, litigation, demands, defenses, judgments, suits, proceedings, costs, disbursements, fines, encumbrances, liens, and expenses of any kind or of any nature whatsoever (collectively, the "Indemnified Expenses") that may at any time (including, without limitation after the repayment of the Loan or after foreclosure of the Mortgage, exercise of power of sale under the Mortgage, or conveyance of the Premises in lieu of foreclosure) be imposed upon, incurred by, or asserted or awarded against, Lender or any Lender Representative and that arise directly or indirectly from or out of any Environmental Problem (defined below), regardless of whether that Environmental Problem arises before or after the date hereof or before or after any repayment of the loan or any conveyance of the Premises by foreclosure of the Mortgage, exercise of power of sale under the Mortgage, or conveyance in lieu of foreclosure, regardless (except as provided below) of whether or not that Environmental Problem is the fault of Borrower, Indemnitor, or any other person or entity, and regardless of whether or not the Environmental Problem was disclosed in any Environmental Report (defined below) performed for, or on behalf of, Lender in connection with the Loan or whether or not Lender has actual or constructive knowledge of the Environmental Problem from any other source. A. Indemnified Expenses shall, include, without limitation, all of the following: (i) costs incurred in the removal of Hazardous Substances (defined below), costs incurred in investigation, monitoring, clean-up, and containment of Hazardous Substances, costs incurred to mitigate damages, foreclosure costs, costs incurred for remediation and restoration, and other response costs; (ii) costs incurred to cure any violations of Environmental Laws (defined below); (iii) damages for personal injury or death, property loss, or other loss; (iv) civil and criminal fines and penalties; (v) costs incurred to remove any liens imposed by law in favor of the federal or any state or local government or governmental agency or authority in connection with an Environmental Problem; (vi) reasonable attorneys', accountants', consultants', and experts' fees and disbursements, reasonable administrative costs, and other reasonable out-of-pocket expenses (including any such fees, disbursements, costs, and expenses incurred as a result of groundless, false, or fraudulent claims or proceedings brought against Lender or Lender's Representatives); (vii) diminution in the market value of the Premises realized upon the sale thereof, whether by foreclosure or otherwise; (viii) to the extent the appropriate governmental authorities have brought claims against Lender or Lender's Representatives damages for injury to, destruction of, or loss of, natural resources; (ix) sums paid to tenants and other third parties (or offset against rents or other sums payable by such tenants and other third parties) for indemnification pursuant to leases or other agreements wherein such tenants or other third parties are entitled to indemnification or payment on account of Environmental Problems or pursuant to statutory or common law; (x) consequential damages; (xi) sums paid and any other liability to the federal government, any state or local government, any federal, state, or local governmental authority, or any other person or entity for any costs described above; (xii) sums paid in satisfaction of judgments; (xiii) settlement costs; and (xiv) all other costs and expenses of any kind or nature. B. Without limiting Indemnitor's obligations hereunder, in the event of any Environmental Problem, Lender may, in Lender's sole discretion: (i) by notice to Indemnitor, obligate Indemnitor to take such action as may be required by applicable Environmental Laws to correct or ameliorate the Environmental Problem, in which event Indemnitor shall take such action at Indemnitor's sole expense; (ii) itself take such action as may be required by applicable Environmental Laws to correct or ameliorate the Environmental Problem, to the extent permitted Environmental Indemnity Rapid City, SD under the Loan Documents and under the law, in which event Indemnitor shall cooperate with Lender and shall indemnify Lender for the reasonable costs incurred in taking such action in accordance with this Environmental Indemnity; and/or (iii) exercise any other rights or remedies that Lender may have; but Lender shall have no obligation to do any of the foregoing. Lender shall have the options described above whether or not action to correct or ameliorate the Environmental Problem is ordered by any court, governmental authority, or other person or entity. For so long as (a) Borrower owns the Premises, (b) neither Lender nor any other party is operating the Premises under a mortgage-in-possession or receivership arrangement, and (c) there is no outstanding default under the documents evidencing and securing the Loan, Lender shall not be entitled to take the actions described in clause (ii) above unless Indemnitor fails to commence the actions required pursuant to (i) above within a reasonable period of time following receipt of Lender's notice or Indemnitor fails at any time under the Loan Documents and under the law, in which event Indemnitor shall cooperate with Lender and shall indemnify Lender for the reasonable costs incurred in taking such action in accordance with this Environmental Indemnity; and/or (iii) exercise any other rights or remedies that Lender may have; but Lender shall have no obligation to do any of the foregoing. Lender shall have the options described above whether or not action to correct or ameliorate the Environmental Problem is ordered by any court, governmental authority, or other person or entity. For so long as (a) Borrower owns the Premises, (b) neither Lender nor any other party is operating the Premises under a mortgage-in-possession or receivership arrangement, and (c) there is no outstanding default under the documents evidencing and securing the Loan, Lender shall not be entitled to take the actions described in clause (ii) above unless Indemnitor fails to commence the actions required pursuant to (i) above within a reasonable period of time following receipt of Lender's notice or Indemnitor fails at any time thereafter to diligently pursue such actions. C. If the Premises are conveyed by foreclosure of the Mortgage, exercise of power of the sale under the Mortgage, or conveyance in lieu of foreclosure (any such conveyance being hereinafter called a "Foreclosure Conveyance"), then the indemnity provided for under this instrument shall not apply to any Environmental Problem that arises solely after and not on or before the date of the conveyance unless the Environmental Problem results in whole or in part from acts or omissions by Indemnitor or Borrower or from acts or omissions prior to the date of the conveyance by any other person or entity. The indemnity provided for under this instrument shall, however, apply to Indemnified Expenses incurred after the date of the conveyance that arise from any Environmental Problem in existence on or before the date of the conveyance or any Environmental Problem otherwise not excluded from coverage under the immediately preceding sentence, even if that Environmental Problem is not discovered until after the date of the conveyance. For purposes of this clause C, a condition in existence on or before the date of the conveyance shall be deemed to be an Environmental Problem on or before that date even if the condition becomes an Environmental Problem as a result of a change in Environmental Laws that becomes effective after that date. Indemnitor shall have the burden of proving that any Environmental Problem arises after the date of the conveyance, and if Indemnitor is unable to satisfy such burden of proof, then Indemnitor's obligations hereunder with respect to that Environmental Problem shall be effective and shall not be reduced or diminished. D. Notwithstanding anything in this instrument to the contrary, the indemnity provided under this instrument shall not apply to any Indemnified Expenses to the extent that they result from the gross negligence, willful misconduct or bad faith of Lender. E. Lender shall terminate this Environmental Indemnity effective as of the first anniversary (the "Repayment Anniversary") of the repayment in full of the Loan, provided: (i) The repayment shall have been made at a time and in a manner permitted under the Loan Documents; (ii) Indemnitor shall pay to Lender all sums due under this Environmental Indemnity and Indemnitor shall not otherwise be in default under this Environmental Indemnity; Environmental Indemnity Rapid City, SD (iii) On the Repayment Anniversary, neither Lender nor the then owner of the Premises shall be aware of any Environmental Problem, and the then owner of the Premises shall provide a certification to Lender, in form satisfactory to Lender, to that effect; and (iv) Neither Lender nor any affiliate or subsidiary of Lender shall have at any time or in any manner participated in the management or control of, or taken possession of or title to, the Premises or any portion thereof whether as mortgagee in possession or otherwise, nor shall Lender have taken any action or exercised such dominion and control over the Premises that, in Lender's sole discretion, could cause Lender to be considered an "owner" or "operator" under CERCLA (defined below) or to have similar status under any other Environmental Laws, nor shall any receiver have at any time or in any manner participated in the management or control of, or taken possession of or title to, the Premises or any portion thereof; provided, that this Subsection E(iv) shall only be effective to restrict the termination of this Environmental Indemnity as it applies to the property for which Lender's "owner", "operator" or comparable status is incurred. (iii) On the Repayment Anniversary, neither Lender nor the then owner of the Premises shall be aware of any Environmental Problem, and the then owner of the Premises shall provide a certification to Lender, in form satisfactory to Lender, to that effect; and (iv) Neither Lender nor any affiliate or subsidiary of Lender shall have at any time or in any manner participated in the management or control of, or taken possession of or title to, the Premises or any portion thereof whether as mortgagee in possession or otherwise, nor shall Lender have taken any action or exercised such dominion and control over the Premises that, in Lender's sole discretion, could cause Lender to be considered an "owner" or "operator" under CERCLA (defined below) or to have similar status under any other Environmental Laws, nor shall any receiver have at any time or in any manner participated in the management or control of, or taken possession of or title to, the Premises or any portion thereof; provided, that this Subsection E(iv) shall only be effective to restrict the termination of this Environmental Indemnity as it applies to the property for which Lender's "owner", "operator" or comparable status is incurred. If all of the above conditions are satisfied, then Lender shall execute and deliver to Indemnitor an instrument effecting such termination. No such termination shall affect any rights or remedies, not derived from this Environmental Indemnity, that Lender may have against Indemnitor or Borrower with respect to Environmental Problems. F. Lender shall terminate this Environmental Indemnity effective as of the first anniversary (the "Conveyance Anniversary") of any Foreclosure Conveyance (defined in paragraph D above), provided: (i) Indemnitor shall pay to Lender all sums due under this Environmental Indemnity and Indemnitor shall not otherwise be in default under this Environmental Indemnity; (ii) as of the date of the Conveyance Anniversary no Environmental Problem is in existence; and (iii) On the Conveyance Anniversary, neither Lender nor the then owner of the Premises shall be aware of any Environmental Problem, and the then owner of the Premises shall provide a certification to Lender, in form satisfactory to Lender, to that effect. If all of the above conditions are satisfied, then Lender shall execute and deliver to Indemnitor an instrument effecting such termination. No such termination shall affect any rights or remedies, not derived from this Environmental Indemnity, that Lender may have against Indemnitor or Borrower with respect to Environmental Problems. Indemnitor further agrees as follows: 1. For purposes of this Agreement: Environmental Indemnity Rapid City, SD (a) "Environmental Laws" shall mean any and all present and future laws, statutes, ordinances, rules, regulations, orders, and determinations of any governmental authority, pertaining to health, hazardous substances, natural resources, conservation, wildlife, pollution, or the environment, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, and as the same may be further amended (hereinafter collectively called "CERCLA"). (b) "Environmental Problem" shall mean any of the following: (A) the presence, reasonable grounds for the suspected presence, or reasonable grounds for the alleged presence of any Hazardous Substance on, in, under, or above all or any portion of the Premises or any surrounding areas in a quantity or concentration requiring corrective action or remedial action under applicable Environmental Laws; or (a) "Environmental Laws" shall mean any and all present and future laws, statutes, ordinances, rules, regulations, orders, and determinations of any governmental authority, pertaining to health, hazardous substances, natural resources, conservation, wildlife, pollution, or the environment, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, and as the same may be further amended (hereinafter collectively called "CERCLA"). (b) "Environmental Problem" shall mean any of the following: (A) the presence, reasonable grounds for the suspected presence, or reasonable grounds for the alleged presence of any Hazardous Substance on, in, under, or above all or any portion of the Premises or any surrounding areas in a quantity or concentration requiring corrective action or remedial action under applicable Environmental Laws; or (B) the release, reasonable grounds for the suspected release, reasonable grounds for the threatened release, or reasonable grounds for the alleged release of any Hazardous Substance from or onto the Premises; (C) the violation, reasonable grounds for the suspected violation, reasonable grounds for the threatened violation, or reasonable grounds for the alleged violation of any Environmental law with respect to the Premises; (D) the failure, reasonable grounds for the suspected failure, reasonable grounds for the threatened failure, or reasonable grounds for the alleged failure to obtain or to abide by the terms or conditions of any permit or approval required under any Environmental Law with respect to the Premises. A condition described above shall be deemed to be an Environmental Problem regardless of whether or not any federal, state, or local governmental authority or agency has taken any action in connection with the condition. (c) "Environmental Reports" shall mean: for (A) Phase I Environmental Reports, the American Society of Testing and Materials Standard E 1527-97, Standard Practice for Environmental Site Assessments (or any successor document); and for (B) other reports, a report that complies with industry standards and Lender's reasonable requirements, and that is prepared by a person or entity with expertise in identifying and analyzing Environmental Problems, that reports or describes, based on an assessment performed by or on behalf of that person or entity, Environmental Problems that are or may be in existence with respect to the Premises. Environmental Indemnity Rapid City, SD (d) "Hazardous Substances" shall mean any substance that is defined or listed as a hazardous, toxic or dangerous substance under any present or future Environmental Law or that is otherwise regulated or prohibited or subject to investigation or remediation under any present or future Environmental Law because of its hazardous, toxic, or dangerous properties, including, without limitation, (i) any substance that is a "hazardous substance" under CERCLA, (ii) petroleum, natural gas, natural gas liquids, liquefied natural gas, and synthetic gas usable for fuel (or mixtures of natural gas and such synthetic gas), (iii) radioactive materials, and (iv) asbestos. 2. The obligations of Indemnitor hereunder are independent of the obligations of Borrower under the Loan Documents. A separate action or actions may be brought and prosecuted against Indemnitor hereunder, whether or not an action is brought against Borrower under the Loan Documents and whether or not Borrower is joined in any action against Indemnitor. 3. This Environmental Indemnity is not given as additional security for the Loan and is entirely independent of the Loan, and shall not be measured or affected by any amounts at any time owing under the Loan Documents, the sufficiency or insufficiency of any collateral (including, without limitation, the Premises) given to Lender to secure repayment of the Loan, or the consideration given by Lender or any other party in order to acquire the Premises or any portion thereof. None of the obligations of Indemnitor hereunder shall be in any way secured by the lien of the Mortgage or any other Loan Document. (d) "Hazardous Substances" shall mean any substance that is defined or listed as a hazardous, toxic or dangerous substance under any present or future Environmental Law or that is otherwise regulated or prohibited or subject to investigation or remediation under any present or future Environmental Law because of its hazardous, toxic, or dangerous properties, including, without limitation, (i) any substance that is a "hazardous substance" under CERCLA, (ii) petroleum, natural gas, natural gas liquids, liquefied natural gas, and synthetic gas usable for fuel (or mixtures of natural gas and such synthetic gas), (iii) radioactive materials, and (iv) asbestos. 2. The obligations of Indemnitor hereunder are independent of the obligations of Borrower under the Loan Documents. A separate action or actions may be brought and prosecuted against Indemnitor hereunder, whether or not an action is brought against Borrower under the Loan Documents and whether or not Borrower is joined in any action against Indemnitor. 3. This Environmental Indemnity is not given as additional security for the Loan and is entirely independent of the Loan, and shall not be measured or affected by any amounts at any time owing under the Loan Documents, the sufficiency or insufficiency of any collateral (including, without limitation, the Premises) given to Lender to secure repayment of the Loan, or the consideration given by Lender or any other party in order to acquire the Premises or any portion thereof. None of the obligations of Indemnitor hereunder shall be in any way secured by the lien of the Mortgage or any other Loan Document. 4. Except as otherwise provided herein, Indemnitor's obligations hereunder shall survive repayment of the Loan and shall survive any conveyance of the Premises (including, without limitation, any Foreclosure Conveyance). 5. This instrument shall bind Indemnitor and the successors of Indemnitor. This instrument shall inure to the benefit of Lender and the successors and assigns of Lender (including, without limitation, (a) any participants of Lender with respect to the Loan and any person or entity to which the Loan is transferred or collaterally assigned, (b) any person or entity to which the Premises are conveyed by Foreclosure Conveyance (a "Foreclosure Transferee"), and (c) the successors and assigns of Lender or any other Foreclosure Transferee as owner of the Premises). 6. The obligations of Indemnitor under this instrument are not limited or impaired by any provisions in the Loan Documents exculpating Borrower or Borrower's partners from personal liability thereunder or limiting Lender's recourse against Borrower of Borrower's partners. 7. The obligations of Indemnitor under this instrument are not limited or impaired by the accuracy or inaccuracy of the representations and warranties made by Borrower under the Loan Documents. Environmental Indemnity Rapid City, SD 8. Lender shall at all times be free to inspect the Premises and to perform such other investigations and tests as Lender deems necessary in connection with this Environmental Indemnity (upon not less than 24 hours notice except in the event of an emergency), but Lender shall not be obligated to do so. 9. Indemnitor's obligations hereunder shall apply to and include claims or actions brought by or on behalf of employees of Borrower and Indemnitor, and Indemnitor waives any immunity to which Indemnitor may otherwise be entitled under any industrial or worker's compensation laws. 10. If Indemnitor fails to indemnify Lender as provided herein, Lender shall be subrogated to any rights Indemnitor may have against third parties relating to the matters covered by this instrument. 11. The rights of Lender under this Environmental Indemnity shall be in addition to any other rights and remedies of Lender against Indemnitor under any other document or instrument now or hereafter executed by Indemnitor, or at law or in equity (including, without limitation, any right of reimbursement or contribution pursuant to CERCLA), and shall not in any way be deemed a waiver of any of such rights; provided, that nothing in this paragraph shall be construed to permit a double recovery from Indemnitor. 8. Lender shall at all times be free to inspect the Premises and to perform such other investigations and tests as Lender deems necessary in connection with this Environmental Indemnity (upon not less than 24 hours notice except in the event of an emergency), but Lender shall not be obligated to do so. 9. Indemnitor's obligations hereunder shall apply to and include claims or actions brought by or on behalf of employees of Borrower and Indemnitor, and Indemnitor waives any immunity to which Indemnitor may otherwise be entitled under any industrial or worker's compensation laws. 10. If Indemnitor fails to indemnify Lender as provided herein, Lender shall be subrogated to any rights Indemnitor may have against third parties relating to the matters covered by this instrument. 11. The rights of Lender under this Environmental Indemnity shall be in addition to any other rights and remedies of Lender against Indemnitor under any other document or instrument now or hereafter executed by Indemnitor, or at law or in equity (including, without limitation, any right of reimbursement or contribution pursuant to CERCLA), and shall not in any way be deemed a waiver of any of such rights; provided, that nothing in this paragraph shall be construed to permit a double recovery from Indemnitor. 12. Indemnitor may settle any action or proceeding covered hereby only with Lender's prior written consent. 13. Any defense of Lender by Indemnitor hereunder shall be conducted by attorneys reasonably satisfactory to Lender. If the interests of Lender and Indemnitor in any action or proceeding conflict in such a manner and to such an extent as to require, consistent with applicable standards of professional responsibility, the retention of separate counsel for Lender and Indemnitor, then Lender may retain Lender's own counsel at Indemnitor's expense. 14. Indemnitor shall pay to Lender, immediately upon demand therefor, interest on any payment due from Indemnitor to Lender hereunder from the date such payment is demanded by Lender to and including the date of payment at the "Prime Rate" in effect from time to time as published by The Wall Street Journal. 15. Indemnitor shall pay Lender's attorneys' fees and all other costs and expenses incurred by Lender in the enforcement of this instrument or the collection of any sums due under this instrument. 16. Indemnitor shall, at Lender's request from time to time, provide Lender with copies of any general liability, environmental impairment, and other insurance policies held by Indemnitor that may cover any of Indemnitor's obligations hereunder. 17. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE Environmental Indemnity Rapid City, SD WITH, THE LAWS OF THE STATE IN WHICH THE PREMISES ARE LOCATED. 18. Any notice, request, demand, consent, approval, or other communication under this instrument (collectively "Notice") shall be in writing, signed by the party giving such Notice and shall be sent by registered or certified mail, postage prepaid, return receipt requested, addressed to the party for whom it is intended at its address as follows (as that address may be changed as hereinafter provided): If to Indemnitor: Borders Group, Inc. 100 Phoenix Drive Ann Arbor, MI 48104 Attn: General Counsel Dickinson Wright PLLC 38525 Woodward Avenue Bloomfield Hills, MI 48304 Attn: Judith E. Gowing With a copy to: WITH, THE LAWS OF THE STATE IN WHICH THE PREMISES ARE LOCATED. 18. Any notice, request, demand, consent, approval, or other communication under this instrument (collectively "Notice") shall be in writing, signed by the party giving such Notice and shall be sent by registered or certified mail, postage prepaid, return receipt requested, addressed to the party for whom it is intended at its address as follows (as that address may be changed as hereinafter provided): If to Indemnitor: Borders Group, Inc. 100 Phoenix Drive Ann Arbor, MI 48104 Attn: General Counsel Dickinson Wright PLLC 38525 Woodward Avenue Bloomfield Hills, MI 48304 Attn: Judith E. Gowing Wilmington Trust Company Rodney Square North 1100 North Market Street Wilmington, DE 19890-0001 Attn: Corporate Trust Administration McDermott, Will & Emery 227 West Monroe Street Chicago, IL 60606 Attn: Elizabeth L. Majers With a copy to: If to Lender: With a copy to: Notice shall be deemed given on the third day after the same is deposited in an official United States post office. Any party may from time to time, by Notice to the other party given as above set forth, change its address for purposes of receipt of any such Notice. 19. Indemnitor represents to Lender that Indemnitor is unaware of any Environmental Problem. Indemnitor shall promptly notify Lender in writing of any Environmental Problem of which Indemnitor becomes aware. 20. If there is more than one Indemnitor: (a) the obligations of each Indemnitor are joint and several; (b) a release of any one or more Indemnitors or any limitation of this Agreement in favor of or for the benefit of one or more Indemnitors shall not in any way be deemed a release of or limitation in favor of or for the benefit of any other Indemnitor; (c) the unenforceability for any reason of this instrument against one or more Indemnitors shall not affect or impair the obligations hereunder of any remaining Indemnitor; and (d) a separate action hereunder may be brought and prosecuted against one or more Indemnitors. Each Environmental Indemnity Rapid City, SD Indemnitor shall have no right of contribution (including, without limitation, any right of contribution under CERCLA) or subrogation against any other Indemnitor hereunder unless and until all obligations of such Indemnitor have been satisfied. To the extent that any waiver of an Indemnitor's rights of subrogation and contribution as set forth herein is found by a court of competent jurisdiction to be void or voidable for any reason, then those rights of subrogation or contribution shall in any event be junior and subordinate to the rights of Lender against any Indemnitor hereunder. 21. Indemnitor authorizes Lender without notice or demand and without affecting Indemnitor's liability hereunder from time to time to: (a) change any of the terms of the Loan Documents or release Borrower from any obligations thereunder; (b) take and hold additional security for the payment of the indebtedness evidenced by the Loan Documents, and exchange, enforce, waive and release any such security; (c) release from the lien of the Mortgage all or part of the Premises; or (d) apply the Premises and direct the order or manner of sale thereof as Lender in its discretion may determine. Indemnitor's liability hereunder shall also not be affected by any such change, release, or application that arises by operation of law; provided, that in the event BGI no longer owns a controlling interest in Borders, BGI shall have received written notice of any Indemnitor shall have no right of contribution (including, without limitation, any right of contribution under CERCLA) or subrogation against any other Indemnitor hereunder unless and until all obligations of such Indemnitor have been satisfied. To the extent that any waiver of an Indemnitor's rights of subrogation and contribution as set forth herein is found by a court of competent jurisdiction to be void or voidable for any reason, then those rights of subrogation or contribution shall in any event be junior and subordinate to the rights of Lender against any Indemnitor hereunder. 21. Indemnitor authorizes Lender without notice or demand and without affecting Indemnitor's liability hereunder from time to time to: (a) change any of the terms of the Loan Documents or release Borrower from any obligations thereunder; (b) take and hold additional security for the payment of the indebtedness evidenced by the Loan Documents, and exchange, enforce, waive and release any such security; (c) release from the lien of the Mortgage all or part of the Premises; or (d) apply the Premises and direct the order or manner of sale thereof as Lender in its discretion may determine. Indemnitor's liability hereunder shall also not be affected by any such change, release, or application that arises by operation of law; provided, that in the event BGI no longer owns a controlling interest in Borders, BGI shall have received written notice of any change in the terms of the Loan Documents as referenced in the foregoing clause (a). 22. Indemnitor waives: (a) Presentment, demand, protest, notice of protest, notice of dishonor and notice of non-payment, nonperformance or non-observance, and notice of acceptance of this instrument; (b) The right, if any, to the benefit of, or to direct the application of, any security held by Lender, including the Premises; and, until all of the indebtedness evidenced by the Note has been paid in full, all rights of subrogation, any right to enforce any remedy which Lender now has or hereafter may have against Borrower, and any right to participate in any security now or hereafter held by Lender; (c) The right to require Lender to proceed against Borrower or to proceed against any security now or hereafter held by Lender or to pursue any other remedy in Lender's power; (d) The benefits, if Indemnitor is entitled to any benefits, of any or all anti-deficiency statutes or single-action legislation; (e) Any defense arising out of the absence, impairment, or loss of any right of reimbursement or subrogation or other right or remedy of Indemnitor against Borrower or against any security resulting from the exercise of election of any remedies by Lender, including a judicial foreclosure or the exercise of the power of sale under the Mortgage, and any defense arising by reason of any Environmental Indemnity Rapid City, SD disability or other defense of Borrower or by reason of the cessation, from any cause, of the liability of Borrower; (f) The benefit of or right to assert any statute of limitations affecting Indemnitor's liability hereunder or the enforcement thereof to the extent permitted by law; (g) Any homestead exemption rights; (h) Any right to deferral or modification of Indemnitor's obligations hereunder by reason of any bankruptcy, reorganization, arrangement, moratorium, or other debtor relief proceeding regarding Indemnitor; and (i) Any defense arising out of any bankruptcy, reorganization, arrangement, moratorium, or other debtor relief proceeding regarding Borrower, or the death of Borrower. 23. Subject to paragraph 5 hereof, no party shall be a third-party beneficiary hereunder, and no provision hereof shall operate or inure to the use and benefit of a third party. disability or other defense of Borrower or by reason of the cessation, from any cause, of the liability of Borrower; (f) The benefit of or right to assert any statute of limitations affecting Indemnitor's liability hereunder or the enforcement thereof to the extent permitted by law; (g) Any homestead exemption rights; (h) Any right to deferral or modification of Indemnitor's obligations hereunder by reason of any bankruptcy, reorganization, arrangement, moratorium, or other debtor relief proceeding regarding Indemnitor; and (i) Any defense arising out of any bankruptcy, reorganization, arrangement, moratorium, or other debtor relief proceeding regarding Borrower, or the death of Borrower. 23. Subject to paragraph 5 hereof, no party shall be a third-party beneficiary hereunder, and no provision hereof shall operate or inure to the use and benefit of a third party. 24. Indemnitor expressly hereby waives all rights to a trial by jury in any action, counterclaim or proceeding based upon, or related to, the subject matter of this Environmental Indemnity. This waiver applies to all claims against all parties to such actions and proceedings, including parties who are not parties to this Environmental Indemnity. This waiver is knowingly, intentionally, and voluntarily made by Indemnitor and Indemnitor expressly acknowledges that neither Lender nor any person acting on behalf of Lender has made any representations of fact to induce this waiver of trial by jury or in any way to modify or nullify its effect. Indemnitor further acknowledges that Indemnitor has been represented (or has had the opportunity to be represented) in the signing of this Environmental Indemnity and in the making of this waiver by independent legal counsel, selected of Indemnitor's own free will, and that Indemnitor has had the opportunity to discuss this waiver with counsel. Indemnitor further acknowledges that Indemnitor has read and understands the meaning and ramifications of this Environmental Indemnity and, specifically, this waiver provision. 25. Any (a) rights and claims that Indemnitor may now have or hereafter acquire against Borrower or any other guarantor of all or any of the Loan that arise from the existence or performance of Indemnitor's obligations under this Environmental Indemnity, including, without limitation, any right of subrogation, reimbursement, exoneration, contribution, or indemnification, and any right to participate in any claim or remedy of Lender against Borrower or any collateral which Lender now has or hereafter acquires (all such claims and rights are referred to as "Indemnitor's Conditional Rights"), and (b) other indebtedness of Borrower now or hereafter owed to or held by Indemnitor (all such other indebtedness is referred to as "Indemnitor-Borrower Indebtedness") shall be Environmental Indemnity Rapid City, SD subordinate to Lender's right to full payment and performance of the Loan and shall not be enforced unless and until the Loan is fully paid and performed. If, notwithstanding the foregoing provisions, any amount shall be paid to any Indemnitor hereunder on account of any such Indemnitor's Conditional Rights or Indemnitor-Borrower Indebtedness and either (i) such amount is paid to such Indemnitor at any time when the Loan shall not have been paid or performed in full, or (ii) regardless of when such amount is paid to such Indemnitor, any payment made by Borrower to Lender is at any time determined to be a Preferential Payment (as hereinafter defined), then such amount paid to such Indemnitor shall be held in trust for the benefit of Lender and shall forthwith be paid to Lender to be credited and applied upon the Loan, whether matured or unmatured, in such order as Lender, in its sole and absolute discretion, shall determine. As used herein, the term "Preferential Payment" shall mean any payment all or any part of which is subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid by Lender or paid over to a trustee, receiver or any other entity, whether pursuant to any bankruptcy act or otherwise. 26. If Borrower pays any sum otherwise payable by Indemnitor hereunder and if such sum must be repaid to Borrower pursuant to any bankruptcy or insolvency law, then Indemnitor's obligation to pay such sum hereunder shall not be diminished and shall continue in full force and effect. subordinate to Lender's right to full payment and performance of the Loan and shall not be enforced unless and until the Loan is fully paid and performed. If, notwithstanding the foregoing provisions, any amount shall be paid to any Indemnitor hereunder on account of any such Indemnitor's Conditional Rights or Indemnitor-Borrower Indebtedness and either (i) such amount is paid to such Indemnitor at any time when the Loan shall not have been paid or performed in full, or (ii) regardless of when such amount is paid to such Indemnitor, any payment made by Borrower to Lender is at any time determined to be a Preferential Payment (as hereinafter defined), then such amount paid to such Indemnitor shall be held in trust for the benefit of Lender and shall forthwith be paid to Lender to be credited and applied upon the Loan, whether matured or unmatured, in such order as Lender, in its sole and absolute discretion, shall determine. As used herein, the term "Preferential Payment" shall mean any payment all or any part of which is subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid by Lender or paid over to a trustee, receiver or any other entity, whether pursuant to any bankruptcy act or otherwise. 26. If Borrower pays any sum otherwise payable by Indemnitor hereunder and if such sum must be repaid to Borrower pursuant to any bankruptcy or insolvency law, then Indemnitor's obligation to pay such sum hereunder shall not be diminished and shall continue in full force and effect. 27. If any term of this Environmental Indemnity or any application of any such term shall be invalid, illegal, or unenforceable, the remainder of this Environmental Indemnity and any other application of such term shall remain effective. 28. No delay in exercising any right or power hereunder shall operate as a waiver, and no waiver of any right or power or consent by Lender shall be valid unless in writing. The failure of Lender to insist upon strict compliance with any of the terms of this Environmental Indemnity shall not be considered to be a waiver of any such terms, nor shall it prevent Lender from insisting upon strict compliance with this Environmental Indemnity at any time thereafter. 29. No provision of this Environmental Indemnity may be changed, waived, discharged or terminated except by an instrument in writing signed by the party against whom enforcement of the change, waiver, discharge, or termination is sought. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] Environmental Indemnity Rapid City, SD IN WITNESS WHEREOF, Indemnitor has caused this instrument to be executed as of the date first written above. BORDERS, INC. By:/s/ EDWARD W. WILHELM ----------------------------------Name: Edward W. Wilhelm Its: Vice President BORDERS GROUP, INC. By:/s/ BRUCE A. QUINNELL ----------------------------------Name: Bruce A. Quinnell Its: Vice Chairman IN WITNESS WHEREOF, Indemnitor has caused this instrument to be executed as of the date first written above. BORDERS, INC. By:/s/ EDWARD W. WILHELM ----------------------------------Name: Edward W. Wilhelm Its: Vice President BORDERS GROUP, INC. By:/s/ BRUCE A. QUINNELL ----------------------------------Name: Bruce A. Quinnell Its: Vice Chairman Environmental Indemnity Rapid City, SD ACKNOWLEDGMENTS STATE OF MICHIGAN COUNTY OF ___________ ) ) SS ) The foregoing instrument was executed before me this _____ day of January, 2001 by Bruce A. Quinnell, Vice Chairman of Borders Group, Inc., a Michigan corporation, on behalf of the corporation. /s/ ------------------------------------Notary Public ____________________ County, Michigan My Commission Expires:_______________ STATE OF MICHIGAN COUNTY OF ___________ ) ) SS ) The foregoing instrument was executed before me this _____ day of January, 2001 by Edward W. Wilhelm, Vice President of Borders, Inc., a Colorado corporation, on behalf of the corporation. /s/ ------------------------------------Notary Public ____________________ County, Michigan My Commission Expires:_______________ Environmental Indemnity Rapid City, SD ACKNOWLEDGMENTS STATE OF MICHIGAN COUNTY OF ___________ ) ) SS ) The foregoing instrument was executed before me this _____ day of January, 2001 by Bruce A. Quinnell, Vice Chairman of Borders Group, Inc., a Michigan corporation, on behalf of the corporation. /s/ ------------------------------------Notary Public ____________________ County, Michigan My Commission Expires:_______________ STATE OF MICHIGAN COUNTY OF ___________ ) ) SS ) The foregoing instrument was executed before me this _____ day of January, 2001 by Edward W. Wilhelm, Vice President of Borders, Inc., a Colorado corporation, on behalf of the corporation. /s/ ------------------------------------Notary Public ____________________ County, Michigan My Commission Expires:_______________ Environmental Indemnity Rapid City, SD EXHIBIT 21.1 Subsidiaries of Borders Group, Inc. SUBSIDIARY ---------BB Holdings, Inc. Borders, Inc. Borders Fulfillment, Inc. Borders Management, LLC Borders Online, LLC Borders Outlet, Inc. Borders Properties, Inc. Planet Music, Inc. Niche Marketing Limited, Inc. d/b/a All Wound Up! The Library, Ltd. WB Holdings, Inc. Walden Book Company, Inc. Waldenbooks Properties, Inc. Books (UK) Limited formerly Books etc. Limited Borders New Zealand Limited Borders PTE. Limited Borders Australia PTY, Limited BGI U.K. Limited STATE OF INCORPORATION ---------------------Michigan Colorado Delaware Delaware Delaware Colorado Delaware North Carolina Ohio Ohio Missouri Michigan Colorado Delaware U.K. New Zealand Singapore Australia U.K. EXHIBIT 21.1 Subsidiaries of Borders Group, Inc. SUBSIDIARY ---------BB Holdings, Inc. Borders, Inc. Borders Fulfillment, Inc. Borders Management, LLC Borders Online, LLC Borders Outlet, Inc. Borders Properties, Inc. Planet Music, Inc. Niche Marketing Limited, Inc. d/b/a All Wound Up! The Library, Ltd. WB Holdings, Inc. Walden Book Company, Inc. Waldenbooks Properties, Inc. Books (UK) Limited formerly Books etc. Limited Borders New Zealand Limited Borders PTE. Limited Borders Australia PTY, Limited BGI U.K. Limited BGP U.K. Limited Paperchase Products Limited * STATE OF INCORPORATION ---------------------Michigan Colorado Delaware Delaware Delaware Colorado Delaware North Carolina Ohio Ohio Missouri Michigan Colorado Delaware U.K. New Zealand Singapore Australia U.K. U.K. U.K. * BGI owns 19.9% with an option to acquire the remaining shares. EXHIBIT 23.1 Consent of Independent Auditors We consent to the incorporation by reference in the Registration Statement (Form S-3 No. 333-80669) of Borders Group, Inc., in the Registration Statement (Form S-8 No. 333-88805) pertaining to the Borders Group, Inc. 1998 Stock Option Plan and in the Registration Statement (Form S-8 No. 333-79559) pertaining to the Borders Group, Inc. Management Stock Purchase Plan, Borders Group, Inc. Stock Option Plan, Borders Group, Inc. Employee Stock Purchase Plan, Borders Group, Inc. Director Stock Plan, Borders Group, Inc. 401 (k) Plan, and Borders Group, Inc. Savings Plan for Employees Working in Puerto Rico of our report dated March 15, 2001, with respect to the consolidated financial statements of Borders Group, Inc. included in this Annual Report (Form 10-K) for the year ended January 28, 2001. /s/ Ernst & Young LLP Detroit, Michigan April 20, 2001 EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Forms S-8 (No. 33379559 and No. 333-88805) and on Form S-3 (No. 333-80669) of Borders Group, Inc. of our report dated EXHIBIT 23.1 Consent of Independent Auditors We consent to the incorporation by reference in the Registration Statement (Form S-3 No. 333-80669) of Borders Group, Inc., in the Registration Statement (Form S-8 No. 333-88805) pertaining to the Borders Group, Inc. 1998 Stock Option Plan and in the Registration Statement (Form S-8 No. 333-79559) pertaining to the Borders Group, Inc. Management Stock Purchase Plan, Borders Group, Inc. Stock Option Plan, Borders Group, Inc. Employee Stock Purchase Plan, Borders Group, Inc. Director Stock Plan, Borders Group, Inc. 401 (k) Plan, and Borders Group, Inc. Savings Plan for Employees Working in Puerto Rico of our report dated March 15, 2001, with respect to the consolidated financial statements of Borders Group, Inc. included in this Annual Report (Form 10-K) for the year ended January 28, 2001. /s/ Ernst & Young LLP Detroit, Michigan April 20, 2001 EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Forms S-8 (No. 33379559 and No. 333-88805) and on Form S-3 (No. 333-80669) of Borders Group, Inc. of our report dated March 6, 2000 relating to the financial statements, which appears in this Annual Report on Form 10-K. /s/ PRICEWATERHOUSECOOPERS LLP Bloomfield Hills, Michigan April 20, 2001 BORDERS GROUP, INC. EXHIBIT 99.1 CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 - "SAFE HARBOR" FOR FORWARD-LOOKING STATEMENTS This report and other written reports and oral statements made from time to time by Borders Group, Inc. (the "Company") may contain so-called "forward-looking statements, all of which are subject to risks and uncertainties. One can identify these forward-looking statements by the use of words such as "expects," "anticipates," "plans," "agenda," "will," "estimates," "believes," "may," "indicates," "forecasts," "focusing," "guidance," "outlook," "projects," "initiatives," "strives," "seeks," "goals," "anticipate," "looks," "should," and other words of similar meaning. One also can identify them by the fact that they do not relate strictly to historical or current facts. These statements are likely to address the company's growth strategy, future financial performance (including sales and earnings projections), shareholder value, share repurchases, strategic alternatives, potential alliances or the anticipated benefits therefrom, marketing and expansion plans, retail convergence initiatives, such as Title Sleuth and related capabilities, and the impact of growth initiatives. One must carefully consider any such statement and should understand that many factors could cause actual results to differ materially from the EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Forms S-8 (No. 33379559 and No. 333-88805) and on Form S-3 (No. 333-80669) of Borders Group, Inc. of our report dated March 6, 2000 relating to the financial statements, which appears in this Annual Report on Form 10-K. /s/ PRICEWATERHOUSECOOPERS LLP Bloomfield Hills, Michigan April 20, 2001 BORDERS GROUP, INC. EXHIBIT 99.1 CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 - "SAFE HARBOR" FOR FORWARD-LOOKING STATEMENTS This report and other written reports and oral statements made from time to time by Borders Group, Inc. (the "Company") may contain so-called "forward-looking statements, all of which are subject to risks and uncertainties. One can identify these forward-looking statements by the use of words such as "expects," "anticipates," "plans," "agenda," "will," "estimates," "believes," "may," "indicates," "forecasts," "focusing," "guidance," "outlook," "projects," "initiatives," "strives," "seeks," "goals," "anticipate," "looks," "should," and other words of similar meaning. One also can identify them by the fact that they do not relate strictly to historical or current facts. These statements are likely to address the company's growth strategy, future financial performance (including sales and earnings projections), shareholder value, share repurchases, strategic alternatives, potential alliances or the anticipated benefits therefrom, marketing and expansion plans, retail convergence initiatives, such as Title Sleuth and related capabilities, and the impact of growth initiatives. One must carefully consider any such statement and should understand that many factors could cause actual results to differ materially from the Company's forward-looking statements. These factors include inaccurate assumptions and a broad variety of risks and uncertainties, including some that are known and some that are not. Although it is not possible to predict or identify all such factors, they may include the following: - consumer demand for the Company's products, particularly during the holiday season, which is believed to be related to a number of factors, including general economic conditions and overall consumer spending patterns, weather conditions and, with respect to the mall business, overall mall traffic; - an unexpected increase in competition, including Internet competition and competition resulting from electronic or other alternative methods of delivery of books, music, videos and other products to consumers, or unanticipated margin or other disadvantages relative to our competitors; - the continued availability of adequate capital to fund the Company's operations, including (i) the Company's ability to replace on satisfactory terms its current revolving credit facility, which expires in October, 2002, and (ii) the availability of satisfactory financing for Borders superstores, including permanent financing for properties that have been temporarily financed through the Company's lease financing facility; - higher than anticipated interest, occupancy, labor, distribution and inventory shrinkage costs; - unanticipated adverse litigation expenses or results; BORDERS GROUP, INC. EXHIBIT 99.1 CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 - "SAFE HARBOR" FOR FORWARD-LOOKING STATEMENTS This report and other written reports and oral statements made from time to time by Borders Group, Inc. (the "Company") may contain so-called "forward-looking statements, all of which are subject to risks and uncertainties. One can identify these forward-looking statements by the use of words such as "expects," "anticipates," "plans," "agenda," "will," "estimates," "believes," "may," "indicates," "forecasts," "focusing," "guidance," "outlook," "projects," "initiatives," "strives," "seeks," "goals," "anticipate," "looks," "should," and other words of similar meaning. One also can identify them by the fact that they do not relate strictly to historical or current facts. These statements are likely to address the company's growth strategy, future financial performance (including sales and earnings projections), shareholder value, share repurchases, strategic alternatives, potential alliances or the anticipated benefits therefrom, marketing and expansion plans, retail convergence initiatives, such as Title Sleuth and related capabilities, and the impact of growth initiatives. One must carefully consider any such statement and should understand that many factors could cause actual results to differ materially from the Company's forward-looking statements. These factors include inaccurate assumptions and a broad variety of risks and uncertainties, including some that are known and some that are not. Although it is not possible to predict or identify all such factors, they may include the following: - consumer demand for the Company's products, particularly during the holiday season, which is believed to be related to a number of factors, including general economic conditions and overall consumer spending patterns, weather conditions and, with respect to the mall business, overall mall traffic; - an unexpected increase in competition, including Internet competition and competition resulting from electronic or other alternative methods of delivery of books, music, videos and other products to consumers, or unanticipated margin or other disadvantages relative to our competitors; - the continued availability of adequate capital to fund the Company's operations, including (i) the Company's ability to replace on satisfactory terms its current revolving credit facility, which expires in October, 2002, and (ii) the availability of satisfactory financing for Borders superstores, including permanent financing for properties that have been temporarily financed through the Company's lease financing facility; - higher than anticipated interest, occupancy, labor, distribution and inventory shrinkage costs; - unanticipated adverse litigation expenses or results; - unanticipated work stoppages; - higher than anticipated costs associated with the closing of underperforming stores; - unanticipated increases in the cost of the merchandise sold by the Company; - the performance of the Company's strategic initiatives, including the Internet and international expansion; - the stability and capacity of the Company's information systems; - unanticipated costs or problems relating to the informational technology systems required for the operations of the Company; - changes in foreign currency exchange rates; and - the continued ability of the Company to locate and develop suitable sites for its superstore expansion and kiosk programs. - unanticipated work stoppages; - higher than anticipated costs associated with the closing of underperforming stores; - unanticipated increases in the cost of the merchandise sold by the Company; - the performance of the Company's strategic initiatives, including the Internet and international expansion; - the stability and capacity of the Company's information systems; - unanticipated costs or problems relating to the informational technology systems required for the operations of the Company; - changes in foreign currency exchange rates; and - the continued ability of the Company to locate and develop suitable sites for its superstore expansion and kiosk programs. The Company does not undertake any obligation to update forward-looking statements.