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Borders Group Chapter 11 Declaration

Scott henry: "i am familiar with the day-to-day operations, business, and financial affairs" "debtors have commenced these chapter 11 cases to pursue an operational and financial restructuring" "first Day Motions" are motions that The Debtors have requested of the court.

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3K views82 pages

Borders Group Chapter 11 Declaration

Scott henry: "i am familiar with the day-to-day operations, business, and financial affairs" "debtors have commenced these chapter 11 cases to pursue an operational and financial restructuring" "first Day Motions" are motions that The Debtors have requested of the court.

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DistressedDebtInvest
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© Attribution Non-Commercial (BY-NC)
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David M. Friedman (DFriedman@[Link]) David S. Rosner (DRosner@[Link]) Andrew K, Glenn (AGlenn@[Link]) Jeffrey R. Gleit (JGleit@[Link]) KASOWITZ, BENSON, TORRES & FRIEDMAN LLP 1633 Broadway New York, New York 10019 Telephone: (212) 506-1700 Facsimile: (212) 506-1800 Attorneys for Debtors and Debtors in Possession. UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK Inre Chapter 11 BORDERS GROUP, INC, et al,' Case No. 11 ) Debtors. (Joint Administration Pending) DECLARATION OF SCOTT HENRY PURSUANT TO LOCAL BANKRUPTCY RULE 1007-2 IN SUPPORT OF FIRST DAY MOTIONS Scott Henry declares, pursuant to section 1746 of title 28 of the United States Code, as follows: 1, Lam Bxeeutive Vice President and Chief Financial Officer of the above captioned debtors and debtors in possession (collectively, “Borders” or the “Debtors”) and, in such capacity, Iam familiar with the day-to-day operations, business, and financial affairs of each of the Debtors. ' The Debtors in these cases, along with the last four digits of each Debtor's federal tax identifiention number, are: Borders Group, lnc. (4588); Borders International Services, Inc. (5075); Borders, Ine. (4285); Borders Direct, LLC (0084); Borders Properties, Inc, (1978); Borders Online, Inc. (8425); Borders Online, LLC (8996); and BGP (UK) Limited. 2. [submit this declaration (“Declarati "”) pursuant to Rule 1007-2 of the Local Bankruptey Rules for the Southem District of New York (the “Local Bankruptey Rules") to assist the Court and other parties in interest in understanding the circumstances that compelled the commencement of these chapter 11 cases on February 16, 2011 (the “Commencement Date") and in support of (i) the Debtors’ petitions (the “Petitions”) for relief under chapter 11 of title 11 of the United States Code (the “Bankruptey Code”); and (ii) the relief, in the form of motions and applications, that the Debtors have requested of the Court (collectively, the “Eirst Day Motion: 3. The Debtors have commenced these chapter 11 cases to pursue an operational and financial restructuring, to restore and revitalize Borders as the second largest chain of bookstores in the nation, and to save thousands of jobs. Among other things, we hope, through the approval of certain First Day Motions, to regain access to capital that Borders sorely needs to remain viable, and to shed approximately 200 stores that we cannot afford to keep. 4. Inaddition, the First Day Motions seek relief aimed at preserving the value of the Debtors and maintaining the continuity of their operations by, among other things: (i) maintaining the operations of the Debtors’ retail properties; (ii) preserving the Debtors’ relationships with their customers, landlords, licensees, franchisees, and strategic business partners; (ii) maintaining vendor confidence and employee morale; (iv) ensuring the continuation of the Debtors’ cash management system and other business operations without interruption; and (V) establishing certain administrative procedures to facilitate an orderly transition into, and uninterrupted operations throughout, the chapter 11 reorganization process. Except as otherwise indicated, all facts set forth in this Declaration are based upon my personal knowledge, my discussions with members of the Debtors” senior management, the Debtors’ financial and legal advisors, my review of relevant documents, ot my opinion based upon my experience, knowledge, and information concerning the Debtors’ operations and financial affairs. If called upon to testify, I would testify to the facts set forth in this Declaration and that I am authorized to submit this Declaration on behalf of the Debtors. 6. Section I of this Declaration provides a general overview of the Debtors? business, organizational structure, capital structure, the circumstances giving rise to the ‘commencement of these chapter 11 cases, and certain of the Debtors’ restructuring goals. Section Il summarizes the relief requested in each of the First Day Motions. Finally, Section IIT lists the schedules of information required by Local Bankruptcy Rule 1007-2. L GENERAL BACKGROUND, 7. Borders Group, Inc. (“BGI”), through its subsidiaries,” is an operator of book, music and movie superstores (the “Superstores”) and mall-based bookstores. At January 29, 2011, the Debtors operated 642 stores,* under the Borders, Waldenbooks, Borders Express and Borders Outlet names, as well as Borders-branded airport stores in the United States, of which 639 stores are located in the United States and 3 in Puerto Rico. Two of Borders’ flagship stores (along with other less prominent stores) are located in Manhattan. In addition, the Debtors operate a proprietary e-commerce web site, [Link], launched in May 2008, which includes both in-store and online e-commerce components. BGI common stock is publicly traded on the New York Stock Exchange under ticker symbol BGP.* ‘A corporate organization chart is annexed as Exhibit A hereto Not including seasonal kiosks operated under Day By Day Calendar Co. described below. The Debtors’ operate approximately 488 Superstores. The Superstores maintain the widest selection of merchandise of the Debtors" branded stores. * On February 3, 2011, Borders Group, Inc. was notified by NYSE Regulation, Inc. (“NYSE Regulation”) that it ‘was not in compliance with the continued listing standard of the New York Stock Exchange, In. (the “NYSE” 8. For the fiscal year ended January 29, 201 1, the Debtors recorded net sales of approximately $2.3 billion, As of December 25, 2010, the Debtors had incurred net year-to-date losses of approximately $168.2 million. A. Employees 9. Asof February 11, 2011, the Debtors employed a total of approximately 6,100 full-time employees, approximately 11,400 part-time employees, and approximately 600 contingent employees (who are required to work one shift per month, and usually do so at special events), all of whom are located in the United States and Puerto Rico. The Debtors’ employees are not subject to any collective bargaining agreements. B. The Properties 10, All of the Debtors’ retail stores and distribution centers are subject to leases (the “Leases”. The annual cash rent expense for the retail locations and distribution centers is approximately $286.9 million, 11. The Debtors’ store leases generally have an average initial term of 15 to 20 years with multiple three- to five-year renewal options. At January 29, 2011, the average unexpired term under the Debtors” existing store leases in the United States was 5.9 years prior to the exercise of any options. The Debtors also lease all of their Superstores in Puerto Rico, with initial lease terms of approximately 15 to 20 years and which all expire in 2017 or later. As of January 29, 2011, the average unexpired term under the Puerto Rico leases is approximately 78 years requiring a minimum average closing price of $1.00 per share over a consecutive 30 trading day period, The ‘notification letter stated that as of January 28, 2011, the 30 trading day average closing price of BGI's common stock was $0.97 per share. Subject to providing required notice to the NYSE, the company is entitled to a six- ‘month period fom the date of the NYSE Regulation notification to cure this deficiency, 12, Borders Specialty Retail store leases generally have renewal terms of one to five years, At January 29, 2011, the average unexpired term under Borders Specialty Retail existing store leases is approximately 1 year. 13, Inanattempt to cut costs and increase profitability, over the last several years the Debtors began reviewing the profitability of their existing stores and ceased opening new stores, During 2009 the Debtors closed 219 stores, primarily Waldenbooks Specialty Retail stores, and in 2010 the Debtors closed 45 retail stores. 14, On January 19, 2011, Borders, Inc, sold its seasonal kiosk-based calendar ‘business operated as Day by Day Calendar Co. (the “Seasonal Business”) and certain related records for approximately $9.1 million to Calendar Holdings LLC. The Debtors will retain all revenue generated by, and be responsible for all costs associated with, the Seasonal Business through February 28, 2011. As of the Commencement Date, all 416 Seasonal Business kiosks hhave been shut down. C. ‘The Debtors’ Debt ructure 15. The Prepetition Revolver. The Debtors ate party to a certain Third Amended and Restated Revolving Credit Agreement, dated March 31, 2010 (the “repetition Revolver Credit Agreement” and, together with all related documents and agreements, the “Prepetition Revolver Agreements”), with Bank of America, N.A., as administrative agent (the “Prepetition Revolver Agent”), and other lenders (collectively, the “Prepetition Revolver Lenders”), under which the Prepetition Revolver Lenders committed to provide up to $970.5 million in loans under a secured revolving credit facility (the “Prepetition Revolver”). Bank of America, N.A. and General Electric Capital Corporation are the co-collateral agents, Wells Fargo Retail Finance, LLC and General Electric Capital Corporation (*GECC”) are co-syndication agents and JPMorgan Chase Bank, N.A. is the documentation agent for the Prepetition Revolver Agreement, ‘The Prepetition Revolver Credit Agreement amended and restated a Second Amended and Restated Multicurreney Revolving Credit Agreement, dated as of July 31, 2006. 16, The commitments of the Prepetition Revolver Lenders to provide the Prepetition Revolver are divided into an existing tranche maturing on July 31, 2011 and an extended tranche maturing on March 31, 2014. The total commitments of the Prepetition Revolver Lenders aggregate $970.5 million through July 31, 2011, and $700 million through March 31, 2014. As of the Petition Date, approximately $196.05 million was outstanding under the Prepetition Revolver. 17. The Prepetition Revolver is secured by a first priority security interest in substantially all of the inventory, accounts receivable, cash and cash equivalents and certain other collateral of the borrowers and guarantors under the Prepetition Revolver Agreements, a first priority pledge of equity interests in certain of our subsidiaries, and a second priority security interest in equity interests in certain other subsidiaries, intellectual property, equipment and certain other property (collectively, the “Prepetition Collateral”). 18, repetition Term Loan Agreement. ‘The Debtors also entered into a Term Loan Agreement, dated March 31, 2010 (the “Prepetition Term Loan Agreement” and, together with. all related documents and agreements, the “Prepetition Term Loan Agreements”) with GA Capital LLC, as administrative agent (together with the Prepetition Revolver Agent, the “Prepetition Agents”), and other lenders (the “Prepetition Term Lenders” and, together with the Prepetition Revolver Lenders, the “Prepetition Lenders”). Under the Prepetition Term Loan ‘Agreements, the Prepetition Term Lenders committed to provide a secured term loan facility (the “Prepetition Term Loan Facility” and, together with the Prepetition Revolver, the “Prepetition s”) comprised of an $80 million tranche and a $10 million tranche. At the Petition Date, approximately $48.6 million is outstanding under the $80 million tranche, which matures on March 31, 2014. No amounts are outstanding under the $10 million tranche. 19, The Prepetition Term Loan Facility is secured by a first-priority security interest in the Borders Group, Ine.’s ownership interests in certain subsidiaries, intellectual property (subject to certain subordination provisions), and the fixed assets of the borrowers and guarantors under the Prepetition Term Loan Faeility, and by a second priority security interest in all of the other Prepetition Collateral. 20. Vendor Financing. Prior to December 2010, the Debtors relied on unsecured vendor credit to finance approximately 44% of the Debtors’ inventory. As of the ‘Commencement Date, the Debtors owed approximately $303.2 million to vendors for inventory, net of vendors in debit balances, In January 201 1, the Debtors generally paid cash on delivery for inventory. D. Relationship with Vendors 21. The Debiors are a retail operation and rely on their vendors, including book publishers, and music and video distributors, for goods to maintain their business. The Debtors purchase substantially all of their music and movie merchandise directly from distributors and utilize their own distribution centers to ship approximately 95% of their music and movie inventory to stores. In addition, the Debtors have a strategic partnership with Kobo, Inc. (“Kobo”) to provide eBook produet to the Debtors’ Internet and mobile device customers.’ The Debtors? Superstores also feature Kobo’s electronic reading device, among other available devices. Approximately 90% of the Debtors" Superstores feature a café operated by the Debtors >The Debtors also own approximately 19% of the equity interests in Kobo. under the “Scattle’s Best” tradename, where coffee, tea and other café goods purchased from Seatile’s Best Coffe, LLC are sold. 22. Ingeneral, unsold books and magazines can be retumed to vendors at cost. The Debtors’ Superstores and Specialty Retail stores retum books to the company’s centralized returns center to be processed for return to the publishers. Generally, the Debtors can return ‘music and movie merchandise (o their vendors at cost plus an additional fee to cover handling and processing costs. 23, As described below, prior to the Commencement Date, the Debtors initiated talks ‘with vendors for the purpose of restructuring certain obligations to them. E, Customer Programs 24, As part of their efforts to build customer and store loyalty, the Debtors have established several customer loyalty programs. Such programs include “Borders Rewards,” a free program which allows holders of the Debtors’ rewards club cards to eam points or rewards for each qualifying purchase, among other benefits, and “Borders Rewards Plus,” « paid program where members can receive additional discounts and benefits. These programs have been very popular with consumers and are @ hallmark of the Debtors’ brand. AAs of January 29, 2011, approximately 42.4 million individuals and organizations were members of Borders Rewards and Borders Rewards Plus. Since January 31, 2009, Borders Rewards and Borders Rewards Plus have collectively added 12 million new members. In addition, the Debtors provide coupons and other special discounts to their customers. F, International Operations 25. As of the Commencement Date, the Debtors’ only operations outside of the United States and Puerto Rico were pursuant to franchise agreements with companies not affiliated with the Debtors, ‘The Debtors have agreements with (i) Berjaya Corporation Berhad Berjaya”), a publicly-listed diversified corporation headquartered in Malaysia, establishing a franchise arrangement under which Berjaya operates stores in Malaysia bearing the Debtors” tradename, and (ii) Al Maya Group (“ALMaya”), a diversified corporation headquartered in the United Arab Emirates, establishing a franchise agreement under which Al Maya or its affiliates operates stores in the United Arab Emirates and other Gulf Cooperation Council countries that bear the Debtors" tradename. 26. Onorabout July 12, 2010, the Debtors sold their interests in U.K.-based Paperchase Products Limited (“Paperchase”), a designer and retailer of stationery, cards and gifts, for approximately $31.2 million, which was used to pay down debt, including $25 million under the Prepetition Term Loan Agreement, Paperchase display sections remain in a significant number of the Debtors” stores pursuant to a services agreement with Paperchase entered into concurrently with the Paperchase sale agreement, ‘The Debtors have no remaining active operations in the U.K. 27. BGT currently has certain guaranty obligations remaining outstanding in connecti ‘with its liquidated foreign operations in various jurisdictions in an aggregate amount of up to approximately $109.3 million, without regard to periodic rent reviews that are provided for in certain of the leases, which may inerease such obligations. G. Intellectual Property 28. The Debtors own a number of valuable trademarks in conneetion with their branding of stores and products, including Borders®, Borders Book Shop®, Borders Books & Musie®, Borders Books Music Cafe®, Borders Books Music Movies Cafe®, Borders Express®, Borders Outlet®, Borders Rewards®, and Waldenbooks®, among other marks, all of which are registered trademarks used by the Debtors. H. Events Leading to the Bankruptcy Filing 29, A variety of extemal economic and competitive factors have led to a substantial decline in the Debtors’ profitability and liquidity. Foremost among those extemal factors are the economic factors which have led to a decline in consumer discretionary spending, and the rise of competitive forees in the marketplace. 30. The U.S. book retailing business is a mature industry, and has experienced little or no growth in recent years. Books represent the Debtors’ primary product category in terms of sales, The Debtors, as well as all book, music and movie retailers, face commoditization in their primary product categories and an extremely competitive marketplace (including both store- based and online competitors), product formats that are evolving from physical formats to digital formats, and the Debtors" loss of market share, These factors, among others, have contributed to declines in the Debtors’ comparable store sales measures and sales per square foot measures over the last several years, These declines have, in turn, negatively impacted profitability. 31. Web-based retailing has continued to inerease in market share as a distribution method for physical book, music, and movie merchandise. In addition, the Internet has enabled changes in the formats of many of the product categories the Debtors offer. Sales of music in the physical compact dise and movies in the DVD format, for example, have declined over the past several years, as consumers have increasingly turned to digital downloads of music and movies. ‘This trend, which is expected to continue, is also beginning to manifest itself in the book category with the increasing popularity of electronic book readers, Although sales of electronic books currently represent a small percentage of total book sales, they have been steadily increasing and are expected to increase significantly over the next several yeurs. However, the shift toward digital formats represents an opportunity for the Debtors as the company continues 10 to strengthen web-based capabilities, both through [Link] and through strategic partnerships with Kobo and others. 32. The environment in which the Debiors’ retail outlets operate is intensely competitive and includes not only Intemet-based retailers and book superstore operators, but also mass merchants and other non-bookseller retailers. Because of this, the industry has experienced significant price competition over the last several years, which has decreased gross margin percentages 33. The Debtors” financial condition and results of operations also are dependent upon discretionary spending by consumers, which has deteriorated significantly over the last several years, 34. Notwithstanding these market conditions, the Debtors still have a sizeable core of profitable stores, and have been preparing their operations to be competitive in the changing, marketplace. However, in analyzing their cost structure, the Debtors have found that they also have a number of stores which are simply unprofitable and are substantially impacting the Debtors” overall performance and ability to pay their debts. I. _ Prepetition Restructuring Negotiations 35. Asthe Debtors were facing market and liquidity pressures, they sought cooperation from their primary creditor constituencies to reassess and manage their cost structure and sought replacement financing in order to maintain their businesses and avoid a chapter 11 filing, Beginning in December 2010, the Debtors began discussions with various lending institutions with respect to obtaining a new credit facility to replace the Prepetition Revolver Credit Agreement and Prepetition Term Loan Agreement, 36, Also, in December 2010, the Debtors announced that due to liquidity issues they ‘would withhold payments to certain vendors and seek to restructure those obligations on a u consensual basis, In January 2011, the Debtors increased their holdback of vendor payments and began to withhold payments to landlords as well. Prior to the Commencement Date, approximately $178.8 million was past due to vendors, and approximately $18.6 million was past due to landlords. 37. In connection with their efforts to restructure these past due amounts, the Debtors entered into confidential agreements with a number of substantial vendors and their professional advisors. With the Debtors’ support and funding, many of these vendors retained the law firm of Lowenstein Sandler PC as counsel and Alvarez & Marsal (“A&M”) as their financial advisor to negotiate with the Debtors. 38. _ In January 2011, the Debtors began negotiations with certain of their landlords in an attempt to obtain relief from their lease obligations. With the Debtors’ support and funding, group of major landlords retained the law firm of Kelley Drye & Warren LLP as counsel and A&M as their financial advisor to assist with the negotiations. 39, ‘Throughout January 2011, the Debtors negotiated with their vendors, landlords and their respective professionals with respect to a potential out-of-court restructuring of their debis, all of which was contingent upon the Debiors obtaining replacement financing for the Revolver. 40. On January 27, 2011, the Debtors announced that they received a commitment secured from GE Capital, Restructuring Finance (“GE Capital”) to provide a $550 million sei credit facility (the “GE Prepetition Commitment”) that would provide the Debtors sufficient Siquidity to run their businesses. The GE Prepetition Commitment, however, required the syndication of $175 million of the total commitment and required the Debtors to raise an additional $125 million of junior capital. To secure this junior capital, the Debtors approached both third-party capital providers and trade vendors about investing fresh capital or converting outstanding accounts payable into a junior note. Despite active discussions with numerous vendors and third-parties, the Debtors were unable to obtain commitments for subordinate financing to satisfy the requirements of the GE Prepetition Commitment within the required timeframe. As a result, the Debtors could not obtain the necessary financing on an out-of-court basis and tumed their attention to sourcing DIP financing. 41. The Debtors directed their financial advisor Jefferies & Company, Ine. (“Jefferies”) to contact and obtain proposals from various sources of postpetition debtorin- possession (“DIP”) financing fo fund the Debtors’ operations. Jefferies contacted 40 potential debtor-in-possession financing providers, including 32 potential new lenders, 4 lenders under the Prepetition Revolver Credit Agreement, and 4 lenders under the Prepetition Term Loan Facility, ‘Twenty-three of such parties executed confidentiality agreements with the Debtors. Jefferies held multiple diligence calls with these potential lenders, created a dataroom to share confidential information, and actively worked with these parties with the goal of obtaining the best overall financing package for the Debtors. 42, When soliciting proposals from potential lenders, Jefferies asked all interested parties to provide terms for: (i) first-lien DIP financing; Gi) second-lien DIP financing; or (iii) a combination of both. The Debtors received two term sheets and commitment letters for first lien DIP finaneing and three proposals for junior DIP facilities. These parties were the only lenders who indicated a willingness to proceed with the requested financing in a manner that would meet the time and business constraints of the Debtors. None of the potential lenders were willing to provide financing in the form of unsecured credit allowable under section 503(b)(1), as an B administrative expense under section 364(a) or (b) of the Bankruptcy Code, or on a junior lien basis under section 364(c). 43. One of the first lien DIP proposals that the Debtors received was ftom GE Capital. The Debtors received the initial DIP proposal from GE Capital on January 28, 2011 that provided for a fully committed $550 million senior secured debtor-in-possession credit facility (the “GE DIP Commitment”) and, unlike the GE Prepetition Commitment, removed the requirement that the Debtors obt n $125 million in junior finaneing. While this proposal included improved terms when compared to the GE Prepetition Commitment, the Debtors, with the assistance of their financial and legal advisors, continued negotiating with GE Capital and Bank of America (agent for the Prepetition Revolver Lenders) to secure more favorable terms. In addition, as discussed below, this proposal did not have the consent of the Prepetition Term Lenders 44, On February 9, 2011, after multiple discussions regarding potential improvements to the GE Capital DIP Commitment, GE Capital provided a revised term sheet and commitment documentation for a fully committed $450 million senior secured debtor-in-possession credit facility. That proposal substantially addressed the post-petition liquidity needs of the Debtors and was more favorable than any other proposal which the Debtors had received. The GE DIP Commitment, however, contemplated financing that would be senior to the Prepetition Term Lenders’ pre-Commencement Date loans and did not have the Prepetition Term Lenders’ consent, GE Capital advised the Debtors that it would not proceed with DIP financing without their consent. 45, The Debtors continued to seek financing that would be satisfactory to the Prepetition Term Lendlers, who are parties to an intercreditor agreement with the Prepetition 4 Revolver Lenders, and who hold second liens on certain Prepetition Collateral. The Debtors and GE Capital engaged in active discussions with GA Capital and other Prepetition Term Lenders ona facility that would be satisfactory to all parties. After intensive, lengthy and arduous negotiations between the Debtors, GE Capital, and GA Capital, all three parties were able to agree on the terms of the $505 million DIP Loan, which are set forth in that certain term sheet, dated February 14, 2011. 46. As described above, the Debtors have determined that certain unprofitable stores need to be eliminated. The Debtors have also determined that to maximize the value of their property at such locations, including inventory, fixtures and equipment, that such property must be liquidated instead of being transferred to any of the Debtors" other locations. Accordingly, and as more fully described below, the Debtors began discussions with experienced and reputable liquidator(s), and began a bidding process which culminated with the selection of a stalking horse bidder. The Debtors scheduled an auction to occur on the Commencement Date to select a liquidator to conduct store closing sales. The Debtors and their advisors invited the following groups to attend the Auetion (as defined herein): (a) Hilo (as defined herein), (b) ‘Tiger Capital, (c) SB Capital Group, (4) Great American Group LLC, (¢) Gordon Brothers Retail Partners LLC, (f) GECC, the Debtors’ agent for the DIP Facility, (g) GA Capital, the Debtors’ agent for the Term B DIP Faci , (h) Kelley Drye & Warren LLP, representing certain of the Debtors* largest landlords, and (i) Lowenstein Sandler PC and Alvarez & Marsal, representing certain of the Debtors’ publishers holding a substantial amount of the Debtors" prepetition trade debts, Throughout this process the Debtors used every effort to keep their key constituents informed regarding the store closure process. 1s J Restructuring Goals 47, The Debtors enter these proceedings with the goal of restructuring their debts and climinating burdensome costs that are negatively impacting what, at core, is a strong business. [As described above, as the marketplace is changing, the Debtors are making strides to meet these changes and to retum to profitability. However, to survive, the Debtors must address their costs, including their store footprint, in order to continue to be viable. Accordingly, the Debtors have worked with their advisors and stakeholders to attempt to identify and, with the Court's approval, to liquidate, unprofitable stores and otherwise to revitalize core operations. 48. The Debtors’ post-Commencement Date operational strategy will focus on five key areas: (Continuing to expand and enhance the Borders Rewards Plus customer program; (i) Strengthening their position as a purveyor of content by aggressively ‘growing [Link] and eBook market share; (ii?) Expanding and enhancing the company's overall retail mix, including non- book offerings, to improve profitability and offset the digital effect; (iv) Aggressively reduce costs across the business, including costs in the supply chain network and store portfolio; and (v) — Onastand-alone basis and in conjunction with strategic partners, make improvements at the store-level and in systems to enhance and differentiate the customer experience. 49. The Debtors believe that implementation of this strategic plan provides the best course for returning the Debtors to profitability, and provides the best value for their stakeholders, Moreover, the Debtors expect to continue to provide the best options, convenience and service for their loyal customers and will continually seek to develop new opportunities to better serve customers. Through this restructuring, the Debtors will be in a better position to be able to meet those goals. 16 IL SUMMARY OF FIRST DAY PLEADINGS® 50. Concurrent with the filing of the Petitions, the Debtors filed the following First Day Motions, which we believe are necessary to enable the Debtors’ business to operate with minimum of disruption and loss of productivity. The Debtors intend to seek entry of Court orders approving each of the First Day Motions as soon as possible in accordance with the Bankruptcy Code, the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”), and the Local Bankruptey Rules. A. Debtors’ Motion Pursuant to Fed. R. Bankr, P, 1015(b) int Administration of Chapter 11 Cases Pursuant to this motion (the “Joint Administration Motion”), the Debtors request that the Court authorize and direct the joint administration of these chapter 11 cases and the consolidation thereof for procedural purposes only. 52, The Debtors believe that many, if not all, of the motions, applications, and other pleadings filed in these chapter 11 cases will relate to relief sought jointly by all of the Debtors, For example, virtually all of the relief sought by the Debtors in the First Day Motions filed contemporaneously with the Petitions and this Declaration is sought on behalf of all of the Debtors, Joint administration of the Debtors’ chapter 11 eases, for procedural purposes only, under a single docket entry, will also ease the administrative burdens on the Court by allowing those chapter 11 eases to be administered as a single joint proceeding instead of eight independent chapter 11 cases. 53, _Toint administration of these chapter 11 cases will create a centralized location for the numerous documents that are likely to be filed and served in these cases by the Debtors, ‘All capitalized terms not defined in the following summary shall have the meanings ascribed to them in the ‘underlying motions. 7 creditors, and parties in interest, and for all notices and orders entered by the Court. A single docket will also make it easier for all parties in each of the chapter 11 cases to stay apprised of all of the various matters before the Court, The Debtors will also likely realize substantial cost savings and reduced administrative burdens by sending notices to a single matrix of creditors and Rule 2002 list, rather than maintaining several separate notice lists. 54, For the foregoing reasons, the Debtors believe, and I agree, that it is in the best interests of the Debtors, their estates and creditors, and all other parties in interest in these chapter 11 cases, that the Court grant the relief requested in the Joint Administration Motion, B. Debtors’ Motion Pursuant to 11 U.S.C. §§ 105(a), 342(a), and 521(a)(1), Fed. R. Bankr. P. 1007(a) and 2002(a), (d), (f), and (1), and Local Bankruptey Rule 1007-1 Requesting (1) a Waiver of the Requirements That Debtors File Lists of Creditors and Equity Security Holders, and (11) Approval to File a Consolidated List of the Debtors’ 30 Largest Unsecured Creditors, and (IIL) Approval of the Form and Manner of Notifying Creditors of the Commencement of Debtors’ Chapter 11 Cases and the First Meeting of Creditors 55. By this motion (the “Creditor and Equity List Waiver Motion”), the Debtors request a waiver of the requirement to file a list of creditors and equity security holders, Contemporaneously herewith, the Debtors have filed a motion to retain and employ Garden City Group as notice and claims processing agent (the “Notice and Claims Agent”) in these chapter 11 cases. As soon as practicable after entry of an order granting the requested waiver of the requirement to file a list of ereditors, the Debtors will furnish their list of creditors to the Notice and Claims Agent so that the Notice and Claims Agent may undertake the mailing of the Notice of Commencement (as defined below) to the parties on the Debtors’ list of ereditors. Creditors and equity security holders will be notified of the commencement of these cases through their receipt of the Notice of Commencement. 56, Inaddition, the Debtors request approval of the proposed form providing notice of the commencement of these chapter 11 cases (the “Notice of Commencement”) and the authority 18 to have their Notice and Claims Agent undertake the mailing of the Notice of Commencement to creditors. In addition to the mailing by the Notice and Claims Agent of the Notice of Commencement, the Debtors propose to publish, as soon as practicable, the Notice of Commencement: (j) once in the global edition of The Wall Street Journal and the national edition of The New York Times, and (ii) on the website of the Debtors’ Notice and Claims Agent, at [Link] 57. Given that the Notice and Claims Agent will receive a list of creditors and equity security holders and will use the list to furnish the Notice of Commencement to creditors and equity security holders, filing ¢ list of creditors and equity security holders concurrently with the petitions will serve no useful purpose. 58. For the foregoing reasons, the Debtors believe, and I agree, that itis in the best interests of the Debtors, their estates and creditors, and other all parties in interest in these chapter 11 eases, that the Court grant the relief requested in the Creditor and Equity List Waiver Motion. Debtors’ Motion Pursuant to 11 U.S.C. § 521 and Fed. R. Bankr. P. 1007(c) Requesting an Extension of the Time to File Schedules of Assets and Liabilities, Schedules of Executory Contracts and Unexpired Leases, 1 Affairs and Statements of Finan 59. By this motion (the “Schedules Extension Motion”), the Debtors request an additional thirty (30) days to file their schedules of assets and liabilities, schedules of executory contracts and unexpired leases, and statements of financial affairs (collectively the “Schedules and Statements”), without prejudice to the Debtors’ ability to request additional time if necessary. The requested extension would give the Debtors a total of forty-four (44) days from the Commencement Date to file their Schedules and Statements. 19 60. The Debtors’ management and employees have been working to compile the information necessary to complete the Schedules and Statements, While the Debtors maintain extensive books and records, completing the Schedules and Statements will require the collection, analysis, and compilation of a massive amount of data, The Debtors are parties to numerous contracts, leases, and licenses that must be assembled and reviewed as part of the process of completing the Schedules and Statements. Meanwhile, the Debtors are experiencing the considerable stresses of preparing for the filing of these chapter 11 cases, transitioning into chapier 11, and the preexisting, ongoing responsibilities of operating their global business day- to-day. 61. Thus, due to the number of the Debtors’ creditors, the size and complexity of the Debtors” business, the diversity of their operations and assets, and the limited staffing available to gather, process and complete the Schedules and Statements, I do not believe the fourteen days: provided by Bankruptcy Rule 1007(c) will be sufficient to complete the Schedules and Statements, Granting the Debtors additional time to collect the data needed to prepare and file the Schedules and Statemenis will greatly enhance their accuracy. 62. For the foregoing reasons, the Debtors believe, and I agree, that it isin the best interests of the Debtors, their estates and creditors, and all other parties in interest in these chapter 11 cases, that the Court grant the relief requested in the Schedules Extension Motion. D. Debtors’ Motion Pursuant to 11 U.S.C. §§ 105(a), 345(b), 363(b), 363(¢), and 364(a) and Fed. R, Bankr. P. 6003 and 6004 Requesting (1) Authority to (A) Continue to Operate the Debtors’ Cash Management System, (B) Honor Certain Prepetition Obligations on Account of Service Charges Related thereto, (C) Maintain Existing Bank Accounts and Business Forms; (D) Maintain the Ability to Use Debit, Wire and ACH Payments, and (E) Honor the Use of Certain Corporate Credit Cards, and (11) an Extension of Time to Comply with Section 345(b) of the Bankruptcy Code 63. By this motion (the “Cash Management Motion”), pursuant to sections 105(a), 345(b), 363(b), 363(c), and 364(a) of the Bankruptcy Code and Bankruptey Rules 6003 and 20 6004, the Debtors request: (i) authority to (a) continue to operate the cash management system (the “Cash Management System”), as described more fully in the Cash Management Motion, consistent with their prepetition practices; (b) honor certain prepetition obligations on account of er Charges (as defined in the Cash Management Motion) related to the Cash Management System; (c) maintain existing bank accounts and business forms, (D) maintain the ability to use debit, wire and ACH payments, and (E) honor the use of certain corporate credit cards; and (ii) an extension of time to comply with section 345(b) of the Bankruptey Code. 64, The Cash Management System constitutes an ordinary course and essential business practice providing significant benelits to the Debtors, including, among other things, the ability to: (i) control corporate funds; (fi) ensure the maximum availability of funds when and where necessary; and (iii) reduce administrative expenses by facilitating the movement of funds and the development of more timely and accurate account balance information. 63, Asapractical matter, because the Debtors transact business through distinct distribution channels that generate revenue from customer sales, it would be extremely difficult and expensive to establish and maintain a different cash management system. ‘The Debtors, therefore, request that the Court authorize continuation of the existing Cash Management System afler the Commencement Date, The existing Cash Management System is the most efficient and cost-effective mechanism for managing the Debtors’ receipts and disbursements. 66. Forthe foregoing reasons, the Debtors believe, and I agree, that itis in the best interests of the Debtors, their estates and ereditors, and other all parties in interest in these chapter 11 cases, that the Court grant the relief requested in the Cash Management Motion. 21 E. Debtors’ Motion for Entry of Interim and Final Orders Pursuant fo 11 U.S.C. §§ 105, 361, 362, 363, 364 and 507 (1) Approving Postpetition Financing, (2) Authorizing Use of Cash Collateral, (3) Granting Liens and Providing Superpriority Administrative Expense Status, (4) Granting Adequate Protection, Modifving Automatic Stay, and (6) Scheduling a Final Hearing 67. Byt s motion (the “DIP Motion”), the Debtors request entry of interim and final onders (collectively, the “DIP Orders”) authorizing the Debtors to: (i) obtain senior secured, superpriority, postpetition finaneing in the form of a first lien new money superpriority priming, credit facility with a maximum outstanding prineipal amount of up to $505,000,000 (the “DIP Loan”) pursuant to the terms and conditions of that certain Senior Secured, Super-Priority Debtor-in-Possession Credit Agreement (as the same may be amended, supplemented, restated, or otherwise modified from time to time, the “DIP Credit Agreement”) by and between BGI and Borders, Ine, (together with BGT, the “Borrowers”, and all direct and indirect subsidiaries of the Borrowers as guarantors (the “Guarantors”, and together with the Borrowers, the “Credit Parties”), GE Capital Markets, Inc., as working capital lead arranger (in such capacity, the “Working Capital Lead Arranges”), GEC, as administrative agent for the revolver lenders (in such capacity, the “Working Capital Agent”) and GA Capital, LLC (in such capacity, the “Term [Link]” and, together with the Working Capital Agent, the “DIP Agents”) for the term lenders party to the DIP Credit Agreement (each revolver lender and each term lender, individually a “DIP Lender” and, collectively, including the DIP Agents, the “DIP Lenders”); (i) execute and deliver the DIP Credit Agreement and all other documents and agreements related to the DIP Loan (collectively, the “DIP Loan Documents”); (iii) use proceeds from the DIP Loan and Cash Collateral for the purpose of (1) providing the Debtors’ working capital and other corporate nceds during the pendency of these chapter 11 cases, (2) paying fees and expenses of the professionals retained by the Debtors, any statutory committee appointed in these chapter 11 cases (any such committee, a “Statutory Committee”), the DIP Lenders and the DIP Agents, (3) 2 paying amounts owing to the DIP Lenders and the DIP Agents, and (4) refinancing the Prepetition Facilities, in each case, subject to the Budget’ and subject to the financial covenants, terms, conditions, and limitations set forth in the DIP Loan Documents and the DIP Orders; and (iv) grant to the DIP Agents, for the benefit of the DIP Lenders, a security interest in, and vali enforceable, non-avoidable and automatically fully perfected liens on and in, the now existing or after-acquired DIP Collateral (with the priority set forth in the DIP Orders) to secure all obligations and indebtedness arising under or in respect of the DIP Loan, the DIP Loan Documents and the DIP Orders, The security interests securing the DIP Loan shall have priority over any and all security interests of any creditor that are junior to the Prepetition Facilities. 68. The DIP Motion further requests entry of interim and final orders: (i) authorizing the Borrower, on an interim basis, to borrow from the DIP Lenders up to a maximum outstanding principal amount of $40,000,000 of the DIP Loan for the purposes set forth in section (a)(ii) and in the DIP Orders and the DIP Loan Documents; (ii) authorizing the Guarantors to guaranty the DIP Obligations to be secured by the interests referred to in section (aY(iv) above; (ii) granting to the DIP Agents and the DIP Lenders superpriority administrative expense claims in cach of these chapter 11 cases with respect to the DIP Obligations, subject to the Carve-Out; (iv) providing adequate protection (the “Adequate Protection”) to the Prepetition Agents and the Prepetition Lenders; (v) modifying the automatic stay imposed by section 362 of the Bankruptcy Code to the extent necessary to implement and effectuate the terms of the DIP Loan Documents and the DIP Orders; and (vi) scheduling a final hearing to consider the relief requested herein on a final basis. Capitalized terms used but not defined have the meanings given to them in the Interim Order. 23 69, Material provisions of the DIP Credit Agreement are set out in the DIP Motion pursuant to, and in accordance with, Bankruptey Rule 4001(c)(1)(B)()-(xi) (relating to obtaining credit), Bankruptey Rule 4001 (b)(1)(B)(i)-(iv) (relating to the use of cash collateral), and Local Rule 4001-2(a)-(i) (relating to the use of cash collateral and obtaining credit). 70, Asset forth above and in the DIP Motion and the Declaration of Richard Klein filed in support of the DIP Motion, the DIP Loan is the product of hard fought, good faith negotiations. Approval of the DIP Credit Agreement will provide the Debtors with immediate and ongoing access to borrowing availability to pay their current and ongoing operating expenses, inchiding posipetition wages and salaries, vendor obligations, and other operational costs (such as rent and utilities), Unless these expenditures are made, the Debtors could be forced to cease operations, which would immediately frustrate the Debtors’ ability to reorganize. Moreover, the implementation of the DIP Loan will be viewed favorably by the Debtors” employees, customers, and vendors, thereby promoting a successful reorganization. 71. For the foregoing reasons, the Debtors believe, and I agree, that it is in the best interests of the Debtors, their estates and creditors, and other all parties in interest in these chapter 11 eases that the Court grant the relief requested in the DIP Motion. F. Debtors’ Motion Pursuant to 11 U.S.C. §§ 103(a), 363(b), and 503(b) and Fed. R, Bankr. P, 4001, 6003, and 6004 for (1) Authority to (A) Continue the Debtors’ Insurance Programs and (B) Pay All Obligations in Respect ‘Thercof, and (11) to Direct Financial Institutions to Honor and Process Cheeks und Transfers Related (o Such Insurance Obligation: 72. By this motion (the “Insuranee Motion’ |, the Debtors request authority to (i) continue their insurance policies that provide coverage for, among other things, general liability, automobile liability, property damage, earthquake damage, directors’ and officers’ liability, comtercial crime, fiduciary liability, media liability and cyber liability (the “Insurance Policies”) on an uninterrupted basis in accordance with the same practices and procedures in 24 effect prior to the Commencement Date, and to renew their Insurance Policies or obtain replacement coverage, as needed in the ordinary course of business, without further Court approval, and (ii) pay, in their sole discretion, all undisputed premiums, claims, deductibles, administrative fees, broker fees, and other obligations relating to the Insurance Policies, as applicable, that were or are due and payable, and relate to the period before or after the Commencement Date (collectively, the “Insurance Obligations”). 73, The Debtors further request that the Court direct and authorize their banks and financial institutions (collectively, “Banks") to receive, honor, process, and pay, to the extent funds are available in the Debtors” accounts, any and all checks drawn, or electronic fund transfers requested or to be requested, on the Debtors’ general disbursement accounts to the extent that such checks or electronic fund transfers relate to any of the Insurance Obligations. ‘The Debtors also request permission to issue new postpetition checks or effect new electronic fund iransfers with respect to the Insurance Obligations to replace any prepetition checks or electronic fund transfers that may be dishonored or rejected. 74. The Debtors have financed certain insurance premiums through Premium. Financing Arrangements (“PEAS”) with third-party lenders. To reduce the administrative burden, as well as the expense of operating as debtors in possession, the Debtors seek the Court's authority to enter into postpetition PFAs without further Court approval, during the pendency of these chapter 11 cases. Due to the importance of continuing insurance coverage with respect to the Debiors’ business activities as well as preserving the Debtors’ liquidity by potentially financing the insurance premiums through PFAs, the Debtors believe it isin the best interests of their estates to enter into postpetition PFAS as they deem, within their business judgment, to be necessary. 75, The nature of the Debtors” business and the extent of their operations make it essential to maintain the Insurance Policies on an ongoing and uninterrupted basis. If the Debtors fail to pay the Insurance Obligations, the insurance carriers may seek to terminate the existing Insurance Policies, or they may decline to renew the programs or refuse to insure the Debtors in the future, Absent adequate insurance coverage, the Debiors could, among other things, be exposed to substantial lability for damages to persons and/or their property. 76. — Lastly, the Debtors are required by law and the operating guidelines of the Office of the United States Trustee to maintain certain of the Insurance Policies, including workers" ‘compensation, general liability, and casualty insurance, Accordingly, the continuation of the Insurance Policies and payment of all prepetition and post-petition Insurance Obligations are essential to preserve the Debtors” business and the value of these estates for all creditors, 77. For the foregoing reasons, the Debtors believe, and 1 agree, that itis in the best interests of the Debtors, their estates and creditors, and other all parties in interest in these chapter 11 cases, that the Court grant the relief requested in the Insurance Motion, G. Debtors’ Motion Pursuant to 11 U.S.C. §§ 105(a), 363(b), and 507 and Fed. R. Bankr. P. 6003 and 6004 For Authorization to (1) Pay Certain Employee Obligations and Maintain and Continue Employee Benefits and Programs, and (11) For Banks to Honor and Process Checks and Transfers Related to Such Obligations 78. By this motion (the “Employee Wage Motion”), pursuant to sections 105(a), 363(b), and 507 of the Bankruptcy Code and Bankruptey Rules 6003 and 6004, the Debtors request that the Court: (i) authorize the Debtors to (a) pay, in their sole discretion, all obli incurred under or related to Compensation Obligations, Payroll Tax Obligations, Gamishment Obligations, Supplemental Workforce Obligations, Independent Contractor Obligations, ‘Business Expenses, Incentive Obligations, Severance Payments, and Employee Benefit Obligations (each as defined in the Employee Wage Motion, and collectively, the “Employee 26 Obligations”) and all fees and costs incident to the foregoing, including amounts owed to thind- party administrators, and (b) maintain and continue to honor and pay all amounts with respect to their practices, programs, and policies for their employees as they were in effect as of the Commencement Date, and as such may be modified, amended, or supplemented from time to time in the ordinary course of business: and (ii) authorize and direct applicable banks and ‘financial institutions at which the Debtors maintain disbursement and other accounts, at the Debtors’ instruction, to reeeive, honor, process, and pay, to the extent of funds on deposit, any and all checks or electronic funds transfers to the extent that such checks or transfers relate to any of the Employee Obligations. As of the Commencement Date, to the best of the Debtors” understanding, only one employee is owed more than $11,725 in accrued and unpaid prepetition wages or salaries,* excluding outstanding and uncashed payroll checks. 79. The Debtors seek this authority to minimize the personal hardship that their employees would suffer if the Employee Obligations were not paid when due and to maintain the morale and dedication of their essential workforce at this critical time. 80. The Debtors believe, and I agree, that if the relief requested in the Employee Wage Motion is not granted, the employees, supplemental workers, and independent contractors would suffer undue hardship and, in many instances, financial difficulties, since these monies are needed to enable them to meet their personal obligations. In addition, without the requested relief, the Debtors’ stability would be substantially undermined by the potential threat that otherwise loyal employees, supplemental workers and independent contractors at all levels ‘would seek other employment, * The Debtors” Chief Executive Officer may be owed an amount in excess of $11,725 in acerued and unpaid propetition wages or salaries. AC this time, the Debtors do not seck authority to pay any amounts in excess of $11,725 with respect thereto. 81, _ For the foregoing reasons, the Debtors believe, and I agree, that it is in the best interests of the Debtors, their estates and creditors, and all other parties in interest in these chapter 11 eases, that the Court grant the relief requested in the Employee Wage Motion. H. Debtors? Motion Pursuant to 11 U.S.C. §§ 105(a), 363(b), 507(a)(8), and 541 and Fed. R. Bankr. P. 6003 and 6004 Requesting Authority to Pay Prepeti s and Assessments 82. By this motion (the :x Motion”), pursuant to sections 363(0), 507(a}(8), 541, and 105(a) of the Bankruptey Code, the Debtors request entry of an order (i) authorizing, but not directing, the Debtors to pay, in their sole discretion, all prepetition taxes determined to be owed or assessed including: Sales Taxes; Use Taxes; Import Taxes; Franchise and Income Taxes; Real and Personal Property Taxes; Business License Assessments; Annual Report Taxes. and any penalties and interest thereon (each as defined below and collectively, the “Taxes and ‘Assessments”) to various state and local taxing authorities (or, with respect to Import Taxes, to ULS. Customs and Border Protection), including those obligations subsequently determined upon audit to be owed during the administration of the chapter 11 cases, as and when they become due, and those obligations due and owing to third party administrators in connection therewith, and to continue such payments to third-party administrators in the ordinary course of business, 83. Payment of the prepetition Taxes and Assessments is critical to the Debtors’ continued, uninterrupted operations. Nonpayment of these obligations may cause taxing authorities to take precipitous action, including, but not limited to, filing liens, preventing the Debtors from conducting business in the applicable jurisdictions, seeking to lift the automatic stay, and imposing personal liability on the Debtors’ officers and directors, all of which would dlisrupt the Debtors’ day-to-day operations and could potentially impose significant costs on these estates. 28 84, The authority to pay the taxing authorities in accordance with the Debtors’ prepetition business practices will enable the Debtors to continue to operate their business in chapter 11 without disruption, Accordingly, for the foregoing reasons, the Debtors’ believe, and agree, that it is in the best interests of the Debtors, their estates and creditors, and all other pparties in interest in these chapter 11 cases, that the Court grant the relief requested in the Tax Motion. 1. _ Debtors’ Motion Pursuant to 11 U.S.C. §§ 105(a), 362(a)(3) and 541 Requesting Approval of (1) Certain Proposed Notification Procedures and (1) Restrictions on Certain Transfers of Claims and Equity Interests Effective Nune Pro Tunc to the Commencement Date 85. By this motion (the “NOL Motion”), the Debtors request, pursuant to sections 105(a), 362(a)(3) and 541 of the Bankruptcy Code, that the Court establish procedures to protect the potential value of their net operating tax loss carryforward amounts (“NOLs”), potential net ‘unrealized built-in losses in their assets (the “Built-in Losses”), capital loss carryforwards (the “Capital Loss Carryforwards”), and certain other tax and business credits (the “Tax Credits,” and together with the NOLs, the Builtsin Losses, and the Capital Loss Carryforwards, the “Tax Attributes”), The proposed procedures are designed to (i) impose restrictions and notification procedures to ensure the Debtors receive the full benefits of the automatic stay, and (ii) notify holders of the stock of BGI (“Borders Stock”), and holders of claims against the Debtors (“Claims”), of the injunction by making available to all holders of Borders Stock and/or Claims (a) an interim procedures notice to be effective mune pro tune to the date the NOI, Motion was filed, and (b) a final procedures notice. 86, ‘The Debtors believe, and I agree, that the proposed procedures are necessary to preserve the ability of the Debtors to use the Tax Attributes, which are valuable assets of these estates, while providing latitude for trading in interests and claims below specified levels. The Debtors’ ability to preserve the Tax Attributes may be seriously jeopardized unless such postpetition procedures are established to ensure that trading in certain interests in and claims against the Debtors are either precluded or elosely monitored and made subject to Court approval, However, the Debtors recognize that some trading in Borders Stock and Claims may not, under certain circumstances, pose # serious risk to the ‘Tax Attributes, and thus, (i) the relief requested is narrowly tailored to permit certain trading to continue, and (ji) the Debtors preserve the ability to waive, in writing, in appropriate circumstances, any and all restrictions, stays, and notification procedures contained in the NOL Motion, 87. _ For the foregoing reasons, the Debtors believe, and I agree, that it is in the best interests of the Debtors, their estates and creditors, and all other parties in interest in these chapter 11 cases, that the Court grant the relief requested in the NOL Motion. J. Debtors’ Motion Pursuant to 11 U.S.C. §§ 105(a) and $03(b)(1) for Authorization to Honor Certain Prepetition Customer Programs. 88, By this motion (the “Customer Programs Motion”), the Debtors request authority to continue their Customer Programs (as defined below) in the ordinary course of business and to perform and honor their prepetition obligations thereunder without disruption. Prior to the ‘Commencement Date, both in the ordinary course of business and as is customary in the retail industry, the Debtors engaged in certain activities to develop and sustain a positive reputation with the consumers to whom they market their products. In connection with these activities, the Debtors maintain various customer programs and policies (collectively, the “Customer Programs”) designed to ensure customer satisfaction, promote sales growth, meet competitive pressures, develop and sustain customer loyalty, improve profitability, and generate goodwill for the Debtors’ brand, thereby retaining current customers and attracting new ones, with the ultimate goal of enhancing net income. 30 89, The Customer Programs inelude: (i) the “Borders Rewards” and “Borders Rewards Plus” customer loyalty programs (approximately $7,959,000 in “Borders Bucks,” i.., “rewards” of merchandise credit were issued for January 2011, of which $5,253,384 was not redeemed and expired at the end of the day on January 31, 2011); (i) gift eards (with an aggregate amount outstanding of approximately $275,045,213 as of January 29,2011, but of which the Debtors expect only approximately $113,141,505 to be redeemed, given past redemption rates); (ii) retun policies; (iv) credit card processing agreements; (v) employee shopping discounts of 33%, plus complimentary membership in Borders Rewards Plus for employees that complete such training, as well as discounts at the Debtors’ airport stores to ainport employees and military personnel; (vi) quantity discounts of 10-20%, depending on how many copies of a single title customers purchase; (vii) educator discounts of 25% on products for classroom use for the approximately $10,000 educators that hold discount cards; (viii) business and educator services discounts of 25% at the Debtors’ Borders branded outlets for individual and organizational members of the Business and Edueator Services Program with deferred billing aecounts or discount cards; and (ix) coupons and promotional codes. 90. The continuity, viability, and revitalization of the Debtors’ business as well as their brand as one of the leading retail providers of media merchandise, are dependent upon the development and maintenance of the loyalty of their customers. It is essential that the Debtors be permitted to continue their Customer Programs and honor their prepetition obligations thereunder. If the Debtors are unable to do so, their operations and brand will be irreparably harmed by the loss of certain of their customers to the Debtors’ competitors. Certain of the Debtors’ competitors maintain customer programs that are similar, if not identical, to certain of those offered by the Debtors. Therefore, the Debtors" inability to honor their Customer 31 Programs would place them at a severe disadvantage relative to these competitors, and would be very detrimental to the Debtors’ reorganization efforts. 91. Considering the potential for loss of competitiveness absent the relief requested herein, and the resulting impact on the Debtors’ business, authorization to continue the Customer Programs in the ordinary course of business and to perform and honor the Debtors’ prepetition obligations thereunder, as deemed appropriate in the Debtors’ business judgment, is essential to a seamless transition into chapter 11, 92. For the foregoing reasons, the Debtors believe, and I agree, that it is in the best interests of the Debtors, their estates and creditors, and all other parties in interest in these chapter 11 cases, that the Court grant the relief requested in the Customer Programs Motion. K. _ Motion Pursuant to 11 U.S.C. §§ 105(a) and 363 Requesting (1) Authority to Pay Certain Prepetition Claims of Distribution Network Vendors and Other Lien Claimants, and (11) Direction of Banks and Other Financial Institutions to Honor Related Cheeks and Electronic Payment Requests 93. By this motion (the “Distribution Network Vendor Motion”), pursuant to sections 105(a) and 363 of the Bankruptcy Code, the Debtors request authority to pay outstanding prepetition Distribution Network Vendor Claims (defined below). In addition, the Debtors request authority, but not direction, to pay certain miscellaneous lien claims, including, but not limited to, mechanics’ liens and materialmans’ liens (the “Miscellaneous Lien Claims”), on a case-by-case basis and at the Debtors” sole discretion, that either have resulted or reasonably could result in a lien being asserted against the Debtors" property. The Debtors also seek ‘authority from the Court to pay Interstate Freight (employed by the Debtors to help aggregate and manage payments related to the Debtors’ Distribution Network Vendors) all prepetition accrued but unpaid service and administrative fees and to continue such payments to Interstate Freight in the ordinary course of the Debtors’ business. The Debtors further request that this Court authorize and direct all banks and other financial institutions (each a “Bank” and collectively, the “Banks”) on which checks are drawn or electronic funds are transferred with, respect to Distribution Network Vendor Claims (defined below) or Miscellaneous Lien Claims to receive, process, honor, and pay, to the extent of funds on deposit, any and all such checks or electronic transfers, whether such checks or transfers were issued before or after the Commencement Date, upon the receipt by each Bank of such notice of authorization without farther order of the Court, 94. An integral component of the Debtors’ retail operations is the efficient flow of inventory (the “Retail Inventory”) to the Debtors’ distribution centers, stores and customers, ‘Accordingly, the Debtors rely heavily on numerous common carriers, movers, shippers, warehousemen, customs brokers and certain other third-party vendors and service providers (collectively, the “Distribution Network Vendors”) to ship, transport, store, move through customs and deliver inventory through established international distribution networks. ‘The Distribution Network Vendors maintain possession of books and other inventory vital to the Debtors’ operations. As of the Commencement Date, many of the Distribution Network Vendors had claims for storage, transportation and related services previously provided to the Debtors (collectively, with any related taxes and custom duties, the “Distribution Network ‘Vendor Claims”). 95, Ifthe Distribution Network Vendors and Miscellaneous Lien claimants (the “Miscellaneous Lien Claimants”) are not paid by the Debtors, the Debtors believe the Retail Inventory held by the Distribution Network Vendors and Miscellaneous Lien Claimants may be subject to possessory liens under applicable state law. Moreover, itis essential that the Debtors be permitted immediately to pay the Distribution Network Vendor Claims to insure that the flow of books and inventory throughout the Debtors’ distribution network (including inventory being delivered from the Debtors to their customers) remains constant, timely and efficient. Should the Debiors’ flow of inventory be interrupted for even a brief time, the Debtors could suffer disruption of their business at multiple locations, with a corresponding loss of customer confidence. ‘The Debtors cannot afford any material disruption of their business operations or present anything less than a “business as usual” appearance to the public. 96. Payment of the Distribution Network Vendor Claims is not simply necessary for the continued operations of the Debtors, but critical to the survival of the Debtors” business. The sale of the Retail Inventory - especially the new releases, which are the lifeblood of the Debtors’ operations -- depend upon the Debtors’ ability to receive the Retail Inventory in a timely fashion. Moreover, the Debtors believe in their sound business judgment that continuation of their positive relationship with the Distribution Network Vendors and Miscellaneous Lien Claimants is imperative to their continued operations and greatly increases the likelihood of a successful reorganization, is in the best 97. For the foregoing reasons, the Debtors believe, and agree, that it interests of the Debtors, their estates and creditors, and other all parties in interest in these chapter 11 cases, that the Court grant the relief requested in the Distribution Network Vendor Motion, L. Debtors’ Omnibus Motion Pursuant to 11 U.S.C. §§ 365(a) and 554(a) and Fed, R. Bankr. P. 6006, 6007 and 9014 For Approval of Rejection of Certain dential Real Property and Authorization to 98. By this Motion (the “Lease Motion”), the Debtors request that, pursuant to sections 365(a) and $54(a) of the Bankruptcy Code and Bankruptcy Rules 6006, 6007 and 9014, the Court (i) approve the Debtors’ rejection of four (4) unexpired leases of nonresidential real 34 property (each, a “Lease,” and collectively, the “Leases |, effective as of the Commencement Date, and (ii) authorize the Debtors to abandon certain equipment, fixtures, furniture or other personal property (the “Personal Property”) located in the premises associated with the rejected Leases (the “Leased Premises”), 99, The Debtors believe, and I agree, that because the Debtors no longer maintain operational retail stores or distribution center at the Leased Premises, continued compliance with the terms of the Leases would be burdensome and would provide no corresponding benefit to the Debtors or the stakeholders in these chapter 11 cases. In addition to the Debtors’ obligation to pay rent, the Debtors also are obligated to pay for certain utilities, insurance and other related charges associated with the Leases. However, the landlords are not subject to any uncertainty regarding the Debtors’ intent with respect to the Leases, due to these prepetition store and distribution center closures and the Debtors’ vacation of the Leased Premises. Moreover, the landlords will not be unduly prejudiced if the rejection is deemed effective as of the Commencement Date because they will receive notice of the Lease Rejection Motion and have suflicient opportunity to act accordingly, and will be relieved of their owm obligations under the Leases. 100. Furthermore, the Debtors believe, and I agree, that any Personal Property abandoned to the landlords of the Leased Premises is of inconsequential value or benefit to the Debtors’ estates and/or burdensome, Because the Debtors have closed the store and distribution center locations at the Leased Premises, the Personal Property no longer is necessary for their business operations 35 101. For the foregoing reasons, the Debtors have determined, and I agree, that it is in the best interests of the Debtors, their estates and creditors, and all other parties in interest in these chapter 11 cases, that the Court grant the relief requested in the Lease Rejection Motion, M. Debtors’ Emergency Motion for Entry of Order (I) Authorizing the Debtors to Sell Certain Assets Through Store Closing Sales and to Enter Into Agency Agreement with (A) Joint Venture Composed of Hilco Merchant Resources, LLC, SB Capital Group, LLC, and Tiger Capital Group, LLC or (B) Other Successful Bidder at the ‘Auction, (II) Approving Stalking Horse Protections, (III) Authorizing Debtors to ‘Abandon Unsold Property, (LV) Waiving Compliance With Contractual Store Closing Sale Restrictions, (V) Exempting (A) State and Local “Fast Pay” Laws and (B) Laws Restricting Store Closing Sales, and (VI) Granting Related Relief 102, By this motion (the “Store Closing Sales Motion”), the Debtors seek an order () authorizing the Debtors to sell certain assets, consisting of Merchandise and Owned Furniture, Fixtures and Equipment located at approximately 200 of their stores (the “Closing Stores”) and, at the Debtors’ option, up to 75 other stores, through store closing sales (the “SCSs"), free and cleat of all liens, claims or encumbrances and to enter info an Agency Agreement in substantially the form annexed to the Store Closing Sales Motion as Exhibit B, with a joint venture composed of Hilco Mercbant Resources, LLC, SB Capital Group, LLC and Tiger Capital Group, LLC (the “Stalking Horse Bidder”), or alternatively with the successful bidder at the Auction (the “Suocessful Bidder”), (ii) approving stalking horse protections in connection with the Debtors’ auction (the “Auction”) to select a liquidator to conduct the SCSs, (iii) authorizing Debtors to abandon certain unsold Merchandise and Owned FF&E after conclusion of the SCSs, (iv) waiving compliance with provisions in the Debtors’ agreements restricting store closing sales, (v) exempting the Debtors from state and local rules, statutes or ordinances restricting store ng sales and from state “fast pay” laws and regulations, and (vi) granting related relief. 103. Historically, the Debtors, in the ordinary course of their business, have continually reviewed their store portfolio to close underperforming or otherwise unprofitable 36 stores. The Debtors have endeavored to renegotiate leases and obtain landlord concessions wherever possible, and particularly in their least profitable stores, Where the Debtors eannot obtain necessary rent concessions at unprofitable stores, or if a lease expired on its own terms ‘and the landlord desired to retake the premises, the Debtors have regularly closed stores and conducted closing sales for the efficient self-liquidation of inventory and FF&E. 104. In some instances, when conducting such closing sales, the Debtors have retained liquidation firms to consult and advise the Debtors regarding the liquidation process. For example, in late 2010, the Debtors retained Hilco Merchant Resources, LLC (“Hileo”) to consult ‘with respect to several store closing sales, Currently, Hilco acts as consultant with respect to 19 closing sales the Debtors commenced pre-petition, In this regard, condueting store closing sales swith the assistance of liquidators (and in particular Hileo) is part of the Debtors’ ordinary course operations. 105. Prior to the Commencement Date, the Debtors, in consultation with their advisors and their key constituents, concluded that it was in the best interests of the Debtors and their stakeholders to close and liquidate the inventory at the Closing Stores because those stores could Indeed, the Debtors not sustain continued operations and were not saleable as going concerns incur significant losses at these stores. The Debtors, with input from financial advisors, determined that SCSs conducted by one or more experienced and reputable liquidator(s) would achieve the maximum values for the assets located in the Closing Stores and would minimize administrative expenses. Indeed, given the breadth of the SCSs, it would be impossible for the Debtors to self-administer the SCSs without outside liquidator assistance, Prior to the Commencement Date, the Debtors and their advisors engaged in a strategic process to solicit bids to select the stalking horse and conduet the SCSs. 7 106, On February 2011, the Debtors, through their then advisors at FTI Consulting, Tne. (“FID), began contacting the nations’ largest liquidation firms to gauge interest in a process to solicit bids for SCSs. At that time, the Debtors’ advisors informally contacted representatives of each of those liquidation firms and learned shortly thereafter ~ as is customary of transactions of this size ~ that the nation’s largest liquidator firms would form two groups for purposes of bidding on the SCSs. One group consists of Great American Group LLC and Gordon Brothers Retail Partners LLC (collectively, the “GB Group”) and the other consists of Hileo Trading LLC, ‘Tiger Capital, and SB Capital Group (collectively, the “Hileo Group”). Based on those discussions, and the small universe of liquidation firms that could handle a liquidation of this size and breadth, the Debtors’ advisors concluded that a quick solicitation process would provide optimal retums, while ensuring adequate notice to all possible participants, 107. On February 7, 2011, the Debtors through FTI transmitted bid solicitation packages (the “Bid Solicitation Packages”) containing: (a) a form non-disclosure agreement, and (b) a bid solicitation letter (the “Bid Solicitation Letter”) informing the parties of the Debtors” {intentions to conduct SCSs and setting forth clear procedures for parties to request more information and to submit bids, ‘The Bid Solicitation Letter specifically instructed interested parties to complete the non-disclosure agreement, at which time the parties would be provided diligence materials and a draft form agency agreement, The Bid Solicitation Packages were transmitted to the GB Group and the Hileo Group. 108, On February 8 and 9, 2011, the entities in the GB Group and the Hileo Group signed non-disclosure agreements, Also on February 8, 2011, the Debtors’ advisors provided each of those parties copies of a draft form agency agreement and began providing them diligence materials, including (a) detailed information regarding the Closing Stores including, as to cach Closing Store: (j) the address, (ii) a schedule of Occupancy Expenses to be paid by the liquidators, (ii) 2010 P&Ls, (iv) historical weekly sales by SKU, and (v) inventory by SKU; (b) ‘a summary of the Debtors’ perpetual inventory; (¢) promotional calendars for the first and second quarters of 2011; (d) a detailed listing of certain inventory contained in the Debtors? distribution center to be ineluded in the sale; and (¢) employee manuals and benefits plan summary (collectively, the “Diligence Information”). 109. On February 9, 2011, the Debtors retained AP Services to provide restructuring advisory services. Upon retaining AP Services, the Debtors asked AP Services to undertake various tasks with respect to the Debtors” preparation for bankruptcy filing and to assume certain tasks previously assigned to PTI, including soliciting and negotiating bids for the SCSs, 110. On February 10, 2011, FTI began transitioning its work concerning the store closing sale process to AP Services. Both firms, along with management (the same individuals of which have been involved with the process throughout) and counsel, held a call that day to provide an information download, identify tasks and responsible parties, and discuss outstanding diligence requests from potential bidders. ‘Thereafter, the AP Services team headed by Holly Etlin, coordinated the process to solicit and negotiate bids to conduct the SCS. See Declaration of Holly Felder Etlin In Support of Store Closing Sale Motion, filed with the Store Closing Sales Motion. 111. Oa February 13, 2011, the Debtors, in consultation with their advisors considered the two bids received from the Hilco Group and the GB Group, including the marked-up agency agreements sent by both. Compared to the GB Group's bid, the Hileo Group's bid provides higher guaranty percentage. In addition, the Hileo Group's terms on inventory thresholds, cost- to-retail adjustments and expense reimbursement are more favorable to the Debtors, decreusing 39 the Debtors’ potential exposure to excess expenses or inventory adjustments. As such, the Debtors selected the Hileo Group's bid as the Stalking Horse Bid (which would still be subject to further testing at the Auction). The Debtors’ advisors then worked with the Hileo Group and its professionals to revise the draft form agency agreement, which resulted in the Agency ‘Agreement executed by the Debtors on February 16, 2011 and which is subject to Court approval and an additional auction process. 112, To ensure that the Hilco Group’s bid was the highest and best offer, the Debtors scheduled the Auction to occur on the Commencement Date to select a liquidator to conduct store closing sales. The Debtors and their advisors invited the following groups to attend the auction: (a) Hilco, (b) Tiger Capital, (¢) SB Capital Group, (d) Great American Group LLC, (e) Gordon Brothers Retail Partners LLC, (£) GECC, the Debtors’ agent for the DIP Facility, (g) GA Capital, the Debtors’ agent for the Term B DIP Facility, (b) the Kelley Drye & Warren LLP, representing a group of the Debtors" largest landlords, and (f) Lowenstein Sandler PC and ‘Alvarez & Marsal, representing certain of the Debtors’ publishers holding a substantial amount of the Debiors’ prepetition trade debts. 113. Atthe Auction, the Debtors end their advisors, in consultation with their key constituents, will establish the terms and conditions of the Auction consistent with the Agency ‘Agreement, which will include that (a) the initial overbid must exceed the Stalking Horse Bid by at least the sum of @) 0.5% of the Cost Value of Merchandise (as defined in the Agency ‘Agreement) plus (i) a $1,000,000 break-up fee, (b) any subsequent overbid must exceed the prior bid by at least 0.25% of the Cost Value of Merchandise, and (¢) that any successful bidder must exccute an agency agreement in substantially the form of the Agency Agreement, with only the terms and form of consideration changed. As evidenced by the Auction, throughout this. 40 process the Debtors used every effort to keep their key constituents informed regarding the store closure process. 114. For the foregoing reasons, the Debtors believe, and I agree, that itis in the best interests of the Debtors, their estates and creditors, and other all parties in interest in these chapter 11 cases, that the Court grant the relief requested in the Store Closing Sales Motion. N. Debtors’ Motion Pursuant to {1 U.S.C. § 105(a) and Fed. R. Bankr. P, 1015(c) and 9007 for Authorization to Implement Certain Notice and Case Management Procedures 115, By this Motion (the “Case Management Motion”), the Debtors request authorization to implement certain case management procedures (the “Procedures” in connection with the administration of these chapter 11 cases pursuant to section 105(a) of the Bankruptcy Code and Bankruptey Rules 1015(c) and 9007. 116, The Debtors request that the Court enter an order providing for certain notice, case management and administrative procedures in the chapter 11 eases. Given the number of parties in interest in the chapter 11 cases, requiring that service be made upon each of these parties would waste the Debtors’ limited resources, Thus, the Debtors believe that requiring paper service of certain pleadings only upon the main parties in interest, as well as authorizing service on all parties by e-mail, will be efficient and save the estates significant time and expense. Additionally, due to the likely volume of motions and other pleadings that will be filed in these cases, the Debtors have proposed that such special hearing procedures be created, including the creation of regularly scheduled omnibus hearings at which the Court, the Debtors and other parties in interest can address several motions at once, thereby avoiding the substantial time and expense of scheduling separate hearings on cach discrete matter. 4 117. For the foregoing reasons, the Debtors have determined, and I agree, that it is in the bes in interest in terests of the Debtors, their estates and creditors, and all other partie: these chapter 11 cases, that the Court grant the relief requested in the Case Management Motion. mm. INFORMATION REQUIRED BY LOCAL BANKRUPTCY RULE 1007-2 118. Local Bankruptey Rule 1007-2 requires certain information related to the Debtors, which is set forth below. 119. Certain large publishers that each determined to jointly retain the same professionals (the “Publishers”) was formed in January 2011 to facilitate negotiations between the Debtors and certain of their primary vendors. The Publishers are represented by Lowenstein Sandler PC, as counsel, and A&M as financial advisors. In addition, in January 2011 certain landlords for the Debtors’ retail outlets each determined to jointly retain the same professionals (the “Landlords”) to facilitate negotiations with the Debtors. The Landlords are represented by Kelly Drye & Warren LLP, as counsel, and A&M as financial advisors. Schedule 1 hereto contains the names and addresses for counsel of each of these stakeholders. 120. In accordance with Local Bankruptcy Rule 1007-2(a)(4), Schedule 2 hereto is a list of the names, addresses, and, where available, telephone numbers of the creditors holding the thirty largest unsecured claims (excluding insiders) against the Debtors, on a consolidated basis, ‘Such list includes the amount of the claim, the nature of the claim and, if appropriate, an indication of whether such claim is contingent, unliquidated, disputed, or partially secured, subject, however, to the reservations of rights stated on Schedule 2 regarding, among other things, the actual validity of any such claims, alist of 121, In accordance with Local Bankruptcy Rule 1007-2(a)(5), Schedule 3 the names and addresses of the holders of the five largest secured claims. Such list ineludes the 42 amount of the claim, an estimate of the value of the collateral, and whether the claim or lien is disputed, subject, however, to the reservations of rights stated on Schedule 3. 122, In accordance with Local Bankruptcy Rule 1007-2(a)(6), Schedule 4 hereto provides a summary of the Debtors’ assets and liabilities. 123. In accordance with Local Bankruptcy Rule 1007-2(a)(7), Schedule 5 hereto provides a list of the number and classes of shares of stock, debentures or other securities of the debtor that are publicly held, and, where known, the number of holders thereof, listing separately those held by each of the Debtors’ officers and directors and the amounts so held. 124, In accordance with Local Bankruptcy Rule 1007-2(a)(8), Schedule 6 is a list of the Debtors’ property not in the Debtors’ possession, including property in the possession or custody of any custodian, public officer, mortgagee, pledgee, assignee of rents, or secured creditor, or agent for any such entity, 125, In accordance with Local Bankruptey Rule 1007-2(a)(9), Schedule 7 hereto is a list of the premises owned, leased, or held under other arrangement, from which the Debtors operate their business. 126, In accordance with Local Bankruptey Rule 1007-2(a)(10), ichedule & hereto provides the location of the Debtors’ substantial assets, the location of their books and records, and the value of any assets held by the Debtors outside the territorial limits of the United States. 127. In accordance with Local Bankruptcy Rule 1007-2(2)(11), Schedule 9 hereto is a list of litigation commenced against the Debtors. 128. In accordance with Local Bankruptcy Rule 1007-2(a)(12), Schedule 10 hereto contains the names of the individuals who comprise the Debtors” existing senior management, their tenure with the Debtors, and a brief summary of their relevant responsibilities and experience. 129, The Debtors intend to continue to operate as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptey Code. 130. In accordance with Local Bankruptey Rule 1007-2(b)(1) and (b)(2), Schedule LL hereto is the estimated amount of: (j) the payroll to employees of the Debtors, (ii) payments to officers, directors, and stockholders, and (ili) payments to financial and business consultants for the 30-day period following the commencement of these chapter I cases. 131. In accordance with Local Bankruptcy Rule 1007-2(b)(3), Schedule 12 hereto contains the estimated cash receipts and disbursements, net cash gain or loss, obligations and receivables expected to acerue but remain unpaid, other than professional fees, for the 30-day period following the commencement of these chapter 11 cases. [CONTINUED NEXT PAGE] 44 J declare under penalty of perjury that the foregoing is true and correct to the best of my knowledge, information and belief. Dated: February !(92011 ‘New York, New York aa Ce == ‘Name: Scott Henry Title: Executive Vice President and Chief Financial Officer EXHIBIT A CORPORATE ORGANIZATION CHART Borders Group, ine. Worldwide Organizational Chart (including Incorp. Datos and Locations, Employer ID and Foreign Registration Numbers) 136 of January 28,2011 ' Torte © ee en i | Ls 7 | ETT = SCHEDULE 1 COUNSEL FOR CERTAIN CREDITORS Certain similarly situated parties each utilized common counsel in early January 2011 to facilitate negotiations between the Debtors and certain of their primary vendors and landlords, respectively, ‘The contact information for such counsel is as follows Lowenstein Sandler PC, counsel for the Publishers 1251 Avenue of the Americas ‘New York, New York 10020 Tel: (212) 262-6700 Fax: (212) 262-7402 ‘Attn: Kenneth A, Rosen, Esq. Bruce Nathan, Esq Bruce Buechler, Esq. Kelley Drye & Warren LLP, counsel for the Landlords 101 Park Avenue New York, New York 10178 Tel: (212) 808-7800 Fax: (212) 808-7897 Attn: James $. Carr, Esq, SCHEDULE 2 THIRTY LARGEST UNSECURED CLAIMS HOLDERS Pursuant to Local Rule 1007-2(a)(4), the following provides information with respect to the holders of the 30 largest unsecured claims against the Debtors on a consolidated basis. ‘The information contained herein shall not constitute an admission of liability by, nor is it binding on, the Debtors. The Debtors reserve all rights to assert that any debt or claim listed herein is a disputed claim or debt, and to challenge the priority, nature, amount or status of any such claim or debt, In the event of any inconsistencies between the summaries set forth below and the respective corporate and legal documents relating to such obligations, the descriptions in the corporate and legal documents shall control. The schedule estimates outstanding claim ‘amounts as of February 10, 2011. The Debtors have excluded from this schedule any claims that «will be addressed by First Day Motions filed in connection with these chapter 11 cases. Employees and former employees owed amounts under non-qualified pension plans and deferred compensation plans also are not included in this schedule. o @ a o o Name of creditor and | Name, telephone number and complete | Nature of claim | Indicate ifelaim | Amount of claim ccompleie matling mailing address, including sip code, of | (rade debt, } is contingent, | (ifseewred also faddress, chiding zip | employee, agent or department of bank lean, unliguidated, | state value of code creditor jamilir with claim who may be | government | disputed or) security contacted conract et) | subject tosetoff (in thousands) Penguin Putnam Ine. | Tim Crofton “Trade debt $41,11891447 200 Old Tappan Read | Phone: (201) 767-2918 Bldg. 1 Fox; (201) 767-5029 ‘Attn: Lindsay Carter_—_| [Link] [Link] (Old Teppan, NI 07675 Tiachette Book Group | Tom Maciag “Trade debt '$56,879,656.30 USA. Phone: (800) 759-0190 PO Box 8828, Fax: (800) 2869471 Boston, MA 02114-8828 | TomMaciap@[Link] ‘Simon & Schuster Inc. | Dennis Bulow ‘Trade debt 353,757,484.75, 3? Morgen Phone: (800) 732-1685 ‘Atta; Lockbox 70650 | Fax: 201) 767-5029 1318, Dearborn 6° FI, | deaniseulaui@simonandschuster-com Chicago, 160603, ‘Random House ‘Anne Davis “Trade debt '$33,461,061.80 Box 223384 Phone: (410) 386-7414 500 Ross Si, 154-0455, (410) 386-7439 Pitsburgh, PA 15262 | endavis@[Link] Harper Collins Tanet Gervasio Trade debt $25,793,450 Publishers Phone: (570) 941-1495, PO Box 361846 Bax; (570) 941-1553, Pitsburgh, PA 15251- | [Link]@[Link] 6845 ‘Macnillian/ MPS Peter Garabedian “Trade debt 311 434,306.30 1S Finh Avenue Phone: ($40) 672-7600 ext 1544 New York NY 10010 | Fax: (540) 672-7510 Peter Garahedian djmscrillan com wo @ @ oO ¢ Name ofereditor and | Name, telephone number and complete | Nature ofclaim | indicate felaim | Amowrt of claim ‘complete mailing mailing address, including rip code. of | (trade debt, | és contingent, | (if secured also faddress, cluding zip | employee, agent or department of Dank foan, tnliquidated. — | stare value of code Creditor familiar with claim who may be | goverament | disputed or | security) ‘contacted ‘contrac ere) | subject to setoff (in thousands) Toh Wiley and Sons | Kevin Glennon “Trade debt S11 191,435.29 Tne. Phone: (732) 302-2210 ‘Aan: Kevin Glennon | Fax: (732) 320-2300 432 Elizabeth Avenue | kglennon@[Link] Somerset, NJ 08873, Perseus Distribution | Charles Gallagher “Trade debt $9,776.291.64 ves Phone: (212) 223-2069 ext.134 15636 Collections Center | Pax: (212) 223-1504 Drive ‘charles gallagher@[Link] Chicago, IL 60698, ‘Source Interlink ‘Alene Mangino Trade debt 136879,008.55 Companies Phone: (239) 9994450 275000 Riverview Fax: (238) 495.5158 Center Blva ‘Alene Mangino@[Link] Ste 201 Bonita Springs, FL 34134 ‘Twentieth Century Fox | Al Leonard ‘Trade debt S645 46735 Bank of America Phone: (310) 369-5083 ‘Att: Lockbox #402665. | Fax; G10) 369-8799 6000 Feldwood Road | Al-Leanard@[Link] College Park, GA 30349 ‘Seute's Best Coffee Ine. | Prank Sanith “Frade debe & ‘34991 81825 PO Box $4348, Phone: (206) 318-5258. Commission Seattic, WA 98124-5648 | Fax: (206) 624-3262 ‘rank smith @isealesbestcom, FEW Media Inc. “Amanda Enderle “Trade debt $4,546,275.13 PO Box 715157 Phone: N/A. Columbus, OH 43271- | Fax: (573) 591-4082 5157 Amanda Enéerle@[Link] ‘Houghton Miflin in Diamond ‘Trade debt $4400,755.51 Harcourt Phone: (800) S21-3185 ext.3234 ‘Atm: Mary A. Durance, | Fax: (407) 363-6917 Finance Famnes Diamond@[Link] Cradle Dept. 9400 Sout Pk Center Loop (Orlando, FL 32819 ‘Sony Muse Neil Carora Trade debt HITS ‘Baterainment Ine, Phone: (800) 414-6922 ‘fo Mellon Banke Fax: (201) 777-3604 Dept. Ch 10247 ‘[Link]@[Link] Palatine, 60055-0247, ‘Workman Publishing | Phil Gerace Trade debt SH S70 Company Phone: (212) 254-5900 225 Varick St Fax; 12) 254-8098 oP. ‘phil@[Link]. New York, NY 10014- 4881 @ @ @) @ Gy Name of credit and | Name, telephone number and complete | Nanwe ofclaim | Indicate felaom } Amount of cain complete maling Imailng adress, including sip cove, of | (rade debs, | iscortngent, | (fzeeured also ‘address including in| employe, agent or depariment of | Bank loan | unguided | sare vate of cede ‘reir familar with claim whe my be | government | disputed | secrty) ‘omacted ontrach etc) | subst to seta" {fin thousands) Diamond Comic Larry Swanson “Trade debt +$3,906,349.94 Distrbutors Phone: (410) 427-9239 1966 Greenspring Dr.# | Faxc ($10) 560-7143 300 slany(@[Link] ‘Timonium, MD 21093 UMGD Toe Flores, Trade STRAT eto Rank ofAmercs | Phone: (800) 79-6699 PO Rox 98279 Fax: G17) 5955190 Chicago, 1.60693 ___| [Link] ‘Wamer Elekta Atlantis | James Theodoulou Trade debi HIG RTIAT Dept ch 10125 Phone: (818) 238-6489 Palatng 60088-0125 | Fax: (818) 729-3568 James. Theodoulow@[Link]: The MeGraved Phil Ruppel Trade Gr SOT AT Companies Phone (800) 7224726 POBox 2258 Fax: (614) 755-8654 Carol Steam 1 60132- | philip ruppel@[Link] 2258 Sony Pictures Home Bat | Neil Carfora Trade debt $2950, 939 fo Mellon Bank Phone (310) 255-8593 PO Box 120001 Fax (310) 861-3068, Dept, 0648 ‘Nel Carfora@[Link] Dallas, TX 75312-0648 Pearson Education Ine, | Jim Grolon Trade debt TETRA TOOTS 20) Old Tappan Road | Phone: (201) 964-6104 ‘1d Teppan N107675 | Fax: 201) 767-5029 jiinaroRon@[Link] Rasoma Stone LA ‘Matt Syale Trade debe SNES Dept. Ch 17714 Phone: (S40) 256-5428 ex S135 Palatine L 60055-7714 | Fax: (S40) 432.0953 _msysaki@[Link]. ‘National Book Network | Jef Harris Trade debt SU S36 TRS lee Phone: (717) 7943800 PO Box 62188 Fax (717) 794-3804 Balcimore, MD 21264 | jhavis@nbabooks om 2188 WW Norton & Company | Katherine Pino Trade debt THRE ns Phone: 212) 384-5500 Box 2626 Fax: (800) 458-6515, PO Box 8500 [Link] Piiadeipia, PA 19178- 2626 Zondervan Corporation | Angel arms Trade debe SRT Department CH10303_ Phone: (800) 727-1309 Palatine, 1 60038-1303 | Fax: (616) 698-3350 _angela.harms@[Link], EMI Music Gil Cstaniada Trade debs 3178235778 Dept. CH 17714 Phone: 323) S71-5416 Palatine, 1L 60055-0380 Fax: (800) 288-2362 [Link]@[Link] oO @ i} @ o Name ofereditor and | Name, telephone number and complete | Nature afclaim | Indicate ifclaim | Amount of claim complete mailing mailing address, including ip code, of (trade debt, | ts contingent, | (ifsecwred also address, including sip | employee, agent or department of Dan far wliquidated | state value of ode creditor familiar withclaim wha may be | government | disputed or _ | security) contacted contract, ete) | subject to setogy (in thousands) Hay Houre Ine Reid Tracy “Trade debt $1,025,588.77 PO Box 5100 Phone: (760) 431-7695 2076 Loker Ave W Fax: (960) 929-2035 Carlsbad, CA92018__| RTracy@[Link] Elsevier Science eamett Hamilton “Trade debt $1,606,992.18 PO Box 0848 Phone: (314) 523-5036 Carol Steam, 1. 60132- | Fax: G14) 453-7020 oss EHamilton@[Link] PapynasReeycled ‘Connie Holland “Trade debt '$1,490,890.68 Greetings Phone: (800) 777-9498, 3613 Solutions Center | Pays (773) 858-8329 ‘Chicago, IL 60677-3006 | [Link]@prgreetings.com_ Publications Ind id | Tom Broughton “Trade debt '1,079,42086 Dept 77 3401 Phone: (212) 986-1782 ‘Chicago,IL 60678-3401 Fax: (847) 676-3671 ‘TRroughon@[Link] SCHEDULE 3 FIVE LARGEST SECURED CLAIMS HOLDERS Pursuant to Local Rule 1007-2(a)(5), the following lists the creditors holding, as of February 11, 2011, the five largest secured, noncontingent claims against the Debtors, on a consolidated basis, excluding claims of insiders as defined in 11 U.S.C. § 101. The information contained herein shall not constitute an admission of liability by, nor is it binding on, the Debtors. The Debtors reserve all rights to assert that any debt or claim listed herein is a disputed claim or debt, and to challenge the priority, nature, amount or status of any such claim or debt. The descriptions of the collateral securing the underlying obligations are {intended only as brief summaries. In the event of any inconsistencies between the summaries set forth below and the respective corporate and legal documents relating to such obligations, the descriptions in the corporate and legal documents shall control. In addition to the parties listed below, the Debtors may have unliquidated and/or contingent claims as a result of parties asserting a security interest against the Debtors’ assets through UCC filings or parties that have a security interest in any collateral posted with whom the Debtors" have engaged to perform interest rate swaps on their debt. Bank of 100 Federal Street ‘$196.05 million | Substantially all | Undisputed America, N.A. | Boston, Massachusetts 02110 assets, other than as “Attention: Kathleen Dimock real estate interests* administrative | Phone: (617) 434-3830 agent Fax: (617) 434-4312 GA. Capital, | One Post Office Square, SBE million | Substantially all’ | Tindisputed as Suite 3765 assets, other than administrative | Boston, Massachusetts 02109 real estate interests agent ‘Attention: Daniel Platt Phone: (617) 692-8308 Fax: (617) 692-8301 “Estimated value of the collateral is as follows: (i) cach of inventory, credit card receivables, trade names and the Borders’ Rewards electronic database have been valued by outside sources, with an aggregate value in the range of $425 million to $480 million, of which amount approximately $410 million constitutes inventory valued on the basis of net orderly liquidation value, (i) the balance of the collateral, including, but not limited to, FF&E and certain equity interests, have not been valued by outside sources and the value is currently unknown. Both debt facilities are oversecured. SCHEDULE 4 SUMMARY OF DEBTORS’ ASSETS AND LIABILITIES Pursuant to Local Rule 1007-2(a)(6), the following financial data (unaudited and subject to change) is the latest available information and reflects the Debtors’ financial condition, as consolidated as of December 25, 2010. ‘The following financial data shall not constitute an admission of liability by the Debtors. The Debtors reserve all rights to assert that any debt ot claim included herein is a contingent, unliquidated or disputed claim or debt or challenge the priority, nature, amount or status of any claim or debt Total Assets (Book Value): $1,275,430,500 ‘Total Liabilities: $1,293,112,600 SCHEDULE 5 DEBTORS’ PUBLICLY HELD SECURITIES Pursuant to Local Rule 1007-2(a)(7), the following table sets forth, as of February 8, 2011, the number and classes of shares of stock, debentures, and other securities of the Debtors that are publicly held, and, where known, the number of holders thereof, Common Stock | 72,042,189 2,413 SCHEDULE 6 PROPERTY NOT IN THE DEBTORS’ PO! Pursuant to Local Rule 1007-2(a)(8), the following lists the Debtors” property that is in the possession or custody of any custodian, public officer, mortgagee, pledgee, assignee of rents, secured creditor, or agent for any such entity, In the ordinary course of business, property of the Debtors is likely to be in the possession of various other persons, including printers, fulfilment houses, suppliers, maintenance providers, shippers, common cattiers, custodians, public officers, or agents. Through these arrangements, the Debtors’ ownership interest is not affected, and the Debtors do not believe that these assets constitute a material aspect of their estates. In light of the movement of this property, providing a comprehensive list of the persons or entities in possession of the property, their addresses and telephone numbers, and the location of any court proceeding affecting such property would be impractical. However, other than inventory in transit and deposits held by utilities in the approximate aggregate amount of $1.5 million, assets owned by the Debtors but outside of the Debtors” control are worth less than $100,000 in the aggregate. SCHEDULE 7 DEBTORS’ OPERATING PREMISE Pursuant to Local Rule 1007-2(a)(9), the following lists the property or premises owned, leased or held under other arrangement from which the Debtors operate their businesses. Location Information rs (Su mall Format Stores) Store Number Location Name Location Address. 10-001 Ann Atbor Downtown 612 Bact Liberty 10 Ann Arbor Downtown (Ground 600-616 Liberty oo1G Lease) 10.002 Kenny Rosd 4545 Kenny Road 10. Vilage OF Shorewood His 3750 University Ave coor 40-005 Emerybay Marketplace 15908 Shelinound Street 10.009 Crosegates Shopping Canter 1775 North Highland Road 50.010 White Flirt Mat 11301 Rockvile ike 40.012 Water Tower Place 1821 22N Street 30014 The Comers 31150 Southfield Road 40.015 Buckhead Triangle 3855 Roswell Road 40018 Cestloton Comer 9812 Castaton Comer Lane 10. Castleton Square Castleton Square oter {0016S Castlaton Comer (Simply Amish) 812 Castleton Comer Lane 10.018 Tucson Fiesta 4295 N, Oracle Rod 10.018 Novi Town Conter 43075 Crescent Soulevard 40-020 Oak Brook Court 1500 16Th Street 1a. Philadelphia, PA 4 South Broad Steet 021k 10-022 Jay Scut Plaza Hyland Drive 10.028 Regency Park Shopping Center 9108 Metal 10.028 La Place Fashion Centre 201 Richmond Rosd 10. Tyson's Comer 2027 Leesburg Pike (20R 10-030 Rosemont Shopping Center +149 Lancaster Avenue 10-031 Bonaventure Shopping Center 1601 Piymouth Road 10.032 Preston Oaks Shopping Center 10720 Preston Road 10.033 Deerfietd, 49 Waukegan Road 10. Westfield Garden State Plaza Garden State Plaza asi 10088 Grand Central Fashion Plaza 1041 High Rige Rac 10.089 Garden City Shopping Center 61 Hillside Road 10.040 Sunrise Highiay 5151 Sunrise Highway 10041 Park City Center ‘940 Plaza Boulevard 40-_Luthorile Staton Shopping —_—17OW. Ridgely Road O

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