Construction Agency Agreement

EXECUTION COPY


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CONSTRUCTION AGENCY AGREEMENT


dated as of June 21, 2002


among


ATLANTIC FINANCIAL GROUP, LTD.


and


BORDERS, INC., as Construction
Agent


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TABLE OF CONTENTS
Page


ARTICLE I DEFINITIONS ........................................................... 1 1.1. Defined Terms ......................................................... 1


ARTICLE II APPOINTMENT OF CONSTRUCTION AGENT ..................................... 2 2.1. Appointment ........................................................... 2 2.2. Acceptance; Construction .............................................. 2 2.3. Commencement of Construction .......................................... 2 2.4. Supplements to this Agreement ......................................... 2 2.5. Term .................................................................. 3 2.6. Identification of Properties; Construction Documents .................. 3 2.7. Scope of Authority .................................................... 3 2.8. Covenants of the Construction Agent ................................... 4


ARTICLE III THE BUILDINGS ......................................................... 5 3.1. Amendments; Modifications ............................................. 5 3.2. Casualty and Condemnation ............................................. 6


ARTICLE IV PAYMENT OF FUNDS ...................................................... 6 4.1. Funding of Property Acquisition Costs and Property Buildings Costs .... 6


ARTICLE V CONSTRUCTION AGENCY EVENTS OF DEFAULT ................................. 7 5.1. Construction Agency Events of Default ................................. 7 5.2. Damages ............................................................... 7 5.3. Remedies, Remedies Cumulative ......................................... 8 5.4. Construction Return Procedures ........................................ 8


ARTICLE VI NO CONSTRUCTION AGENCY FEE ............................................ 9 6.1. Lease as Fulfillment of Lessor's Obligations .......................... 9


ARTICLE VII LESSOR'S RIGHTS; CONSTRUCTION AGENT'S RIGHTS .......................... 10 7.1. Exercise of the Lessor's Rights ....................................... 10 7.2. Lessor's Right to Cure Construction Agent's Defaults .................. 10


ARTICLE VIII MISCELLANEOUS ......................................................... 10 8.1. Successors and Assigns ................................................ 10 8.2. Notices ............................................................... 10 8.3. GOVERNING LAW ......................................................... 10 8.4. Amendments and Waivers ................................................ 11 8.5. Counterparts .......................................................... 11 8.6. Severability .......................................................... 11 8.7. Headings and Table of Contents ........................................ 11 8.8. Documentary Conventions ............................................... 11


EXHIBITS


Exhibit A Form of Supplement to Construction Agency Agreement


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CONSTRUCTION AGENCY AGREEMENT


CONSTRUCTION AGENCY AGREEMENT, dated as of June 21, 2002 (as amended, supplemented or otherwise modified from time to time, this "Agreement"), between ATLANTIC FINANCIAL GROUP, LTD., a Texas limited partnership, (the "Lessor"), and BORDERS, INC., a Colorado corporation ("Borders", and in its capacity as construction agent, the "Construction Agent").


PRELIMINARY STATEMENT


A. Lessor, Borders Group, Inc. ("BGI"), and certain Subsidiaries of BGI that may become signatories thereto, as Guarantors, Borders and certain other Subsidiaries of BGI that may become signatories thereto, as Lessees, the Lenders signatory thereto, Fleet National Bank, as Co-Arranger and Syndication Agent, and SunTrust Bank, Co-Arranger, Documentation Agent and as agent for such Lenders (in such capacity, the "Agent") are parties to that certain Master Agreement, dated as of June 21, 2002 (as amended, supplemented or otherwise modified from time to time pursuant thereto, the "Master Agreement").


B. Subject to the terms and conditions hereof, (i) the Lessor desires to appoint Borders as the Construction Agent to act as its sole and exclusive agent for the identification and acquisition of the Land pursuant to the Master Agreement and construction of the Buildings in accordance with the Plans and Specifications and pursuant to the Master Agreement, and (ii) the Construction Agent desires, for the benefit of the Lessor, to cause the Buildings to be constructed in accordance with the Plans and Specifications and pursuant to the Master Agreement and this Agreement, in each case in accordance with the terms herein set forth.


NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto covenant and agree as follows:


ARTICLE I


DEFINITIONS


1.1. Defined Terms. Capitalized terms used but not otherwise defined in this Agreement shall have the meanings set forth in Appendix A to the Master Agreement.


ARTICLE II


APPOINTMENT OF CONSTRUCTION AGENT


2.1. Appointment. Pursuant to and subject to the terms and conditions set forth herein and in the Master Agreement and the other Operative Documents, the Lessor hereby irrevocably designates and appoints Borders as the Construction Agent to act as its exclusive agent for (i) the identification and acquisition from time to time of Land to be acquired or leased by the Lessor and leased or subleased to a Lessee and (ii) the construction of the Buildings in accordance with the Plans and Specifications on such Land.


2.2. Acceptance; Construction. Borders hereby unconditionally accepts the designation and appointment as Construction Agent. The Construction Agent will cause the Buildings to be constructed on the Land substantially in accordance with the Plans and Specifications and in accordance with the Operative Documents, and to be equipped in all material respects with all Applicable Law and insurance requirements. If a Leased Property will be leased by a Lessee other than Borders, Borders may appoint such Lessee as its sub-construction agent with respect to such Leased Property, provided that such appointment shall not affect Borders' obligations hereunder, which obligations shall be primary and shall remain in full force and effect.


2.3. Commencement of Construction. Subject to Construction Force Majeure Events, the Construction Agent hereby agrees, unconditionally and for the benefit of the Lessor, to cause Construction of a Building to commence on each parcel of Land as soon as is reasonably practicable, in its reasonable judgment, after the Closing Date in respect of such Land. For purposes hereof, Construction of a Building shall be deemed to commence on the date after the Closing Date for the related Leased Property (the "Construction Commencement Date") on which excavation for the foundation for such Building or any other Construction of such Building commences. Without limiting the foregoing, no phase of such Construction shall be undertaken until all permits then required for such phase have been issued therefor.


2.4. Supplements to this Agreement. On the Closing Date of each parcel of Land, the Lessor and the Construction Agent shall each execute and deliver to the Agent a supplement to this Agreement in the form of Exhibit A to this Agreement, appropriately completed, pursuant to which the Lessor and the Construction Agent shall, among other things, each acknowledge and agree that the Construction of such parcel of Land will be governed by the terms of this Agreement. Following the execution and delivery of a supplement to this Agreement as provided above, such supplement and all supplements previously delivered under this Agreement shall constitute a part of this Agreement. On or prior to the Closing Date of each parcel of Land, the Construction Agent shall prepare and deliver to the Lessor and the Agent a construction budget (the "Construction Budget") for the related Leased Property, setting forth in reasonable detail the budget for the Construction of the proposed Building on such Land in accordance with the Plans and Specifications therefor, and all related costs, including the capitalized interest and Yield


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expected to accrue during the related Construction Term; such Construction Budget shall include a line item for the amount of self-insurance or deductibles applicable to such Leased Property.


2.5. Term. This Agreement shall commence on the date hereof and shall terminate with respect to any given Leased Property upon the first to occur of:


(a) payment by the Lessee of the Leased Property Balance and
termination of the Lease with respect to such Leased Property in
accordance with the Lease;


(b) the expiration or earlier termination of the Lease;


(c) termination of this Agreement pursuant to Article V
hereof;


(d) the Completion Date for such Leased Property and the
completion of all punch list items as set forth in Section 2.8(d); and


(e) the payment by the Construction Agent of the Leased
Property Balance or the Construction Failure Payment with respect to
such Leased Property pursuant to this Agreement.


2.6. Identification of Properties; Construction Documents. The Construction Agent may execute any of its duties and obligations under this Agreement by or through agents, contractors, developers, Affiliates, employees or attorneys-in-fact, and the Construction Agent shall enter into such agreements with architects and contractors as the Construction Agent deems necessary or desirable for the construction of the Buildings pursuant hereto (the "Construction Documents"); provided, however, that no such delegation shall limit or reduce in any way the Construction Agent's duties and obligations under this Agreement; provided, further, that contemporaneously with the execution and delivery of a Construction Document, the Construction Agent will execute and deliver to the Lessor the Security Agreement and Assignment, pursuant to which the Construction Agent assigns to the Lessor, among other things, all of the Construction Agent's rights under and interests in such Construction Documents. Each construction contract shall be with a reputable general contractor with experience in constructing projects that are similar in scope and type to the proposed Building, and shall provide for at least 10% retainage.


2.7. Scope of Authority. (a) Subject to the terms, conditions, restrictions and limitations set forth in the Operative Documents, the Lessor hereby expressly authorizes the Construction Agent, or any agent or contractor of the Construction Agent, and the Construction Agent unconditionally agrees, for the benefit of the Lessor, to take all action necessary or desirable for the performance and satisfaction of all of the Construction Agent's obligations hereunder with respect to the Leased Properties acquired or leased by the Lessor, including, without limitation:


(i) the identification and assistance with the acquisition or
lease of Land in accordance with the terms and conditions of the Master
Agreement;


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(ii) all design and supervisory functions relating to the
construction of the Buildings and performing all engineering work
related to the construction of the Buildings;


(iii) negotiating and entering into all contracts or
arrangements to procure the equipment and services necessary to
construct the Buildings on such terms and conditions as are customary
and reasonable in light of local standards and practices;


(iv) obtaining all necessary permits, licenses, consents,
approvals and other authorizations, including those required under
Applicable Law, from all Governme ...