================================================================= BORDERS GROUP BANKRUPTCY NEWS Issue Number 3 ----------------------------------------------------------------- Copyright 2011 (ISSN XXXX-XXXX) February 22, 2011 ----------------------------------------------------------------- Bankruptcy Creditors' Service, Inc. 215-945-7000 FAX 215-945-7001 ----------------------------------------------------------------- BORDERS GROUP BANKRUPTCY NEWS is published by Bankruptcy Creditors' Service, Inc., 572 Fernwood Lane, Fairless Hills, Pennsylvania 19030, on an ad hoc basis (generally every 10 to 20 days) as significant activity occurs in the Debtors' cases. New issues are prepared by Michille Deiparine, Ivy B. Magdadaro and Peter A. Chapman, Editors. Subscription rate is US$45 per issue. Any re-mailing of BORDERS GROUP BANKRUPTCY NEWS is prohibited. ================================================================= IN THIS ISSUE ------------- [00031] BORDERS GETS INTERIM ACCESS TO $400-MIL. IN DIP FINANCING [00032] DEBTORS' MOTION TO CONTINUE TO HONOR INSURANCE PROGRAMS [00033] DEBTORS' MOTION TO SET UP CLAIMS TRADING PROTOCOL [00034] DEBTORS' MOTION FOR INJUNCTION AGAINST UTILITY COMPANIES [00035] DEBTORS' MOTION TO ESTABLISH LEASE REJECTION PROCEDURES [00036] DEBTORS' 1ST OMNIBUS MOTION TO REJECT UNEXPIRED LEASES [00037] DEBTORS' MOTION TO EMPLOY ORDINARY COURSE PROFESSIONALS [00038] DEBTORS' MOTION FOR INTERIM COMPENSATION PROCEDURES [00039] DEBTORS' MOTION TO HIRE AP SERVICES AS CRISIS MANAGERS [00040] DEBTORS' APPLICATION TO EMPLOY KASOWITZ BENSON AS COUNSEL [00041] DEBTORS' APPLICATION TO TAP BAKER & MCKENZIE AS COUNSEL [00042] DEBTORS' APPLICATION TO TAP JEFFRIES AS INVESTMENT BANKER [00043] DEBTORS' APPLICATION TO EMPLOY DJM REALTY AS REALTOR [00044] DEBTORS' APPLICATION TO HIRE GARDEN CITY AS NOTICE AGENT [00045] DEBTORS' APPLICATION TO HIRE GCG AS ADMINISTRATIVE AGENT [00046] NUMEROUS PARTIES SEEK TO APPEAR IN BORDERS CHAP.11 CASE KEY DATE CALENDAR ----------------- 02/16/11 Voluntary Chapter 11 Petition Date 03/18/11 Deadline to Provide Utilities with Adequate Assurance 04/05/11 Deadline to File Schedules of Assets and Liabilities 04/05/11 Deadline to File Statement of Financial Affairs 04/05/11 Deadline to File Lists of Contracts and Leases 05/17/11 Deadline to Remove Actions Pursuant to F.R.B.P. 9027 06/16/11 Expiration of Debtors' Exclusive Plan Proposal Period 06/16/11 Deadline to Make Decisions About Lease Dispositions 08/15/11 Expiration of Debtors' Exclusive Solicitation Period 02/15/13 Deadline for Debtors' Commencement of Avoidance Actions Organizational Meeting to Form Creditors' Committees First Meeting of Creditors under 11 USC Sec. 341 Bar Date for filing Proofs of Claim ----------------------------------------------------------------- [00031] BORDERS GETS INTERIM ACCESS TO $400-MIL. IN DIP FINANCING ----------------------------------------------------------------- See prior entry at [00014] and prior related entry at [00015] (Debtors' Motion to Obtain $505-Mil. in DIP Financing). Parties Reflect Revisions in DIP Credit Agreement Borders Group, Inc. and its debtor affiliates filed with the U.S. Bankruptcy Court for the Southern District of New York on February 18, 2011, a consent and agreement to correct pages to their Senior Secured, Superpriority Debtor-in-Possession Credit Agreement with certain lender parties. The Consent Agreement dated February 17, 2011, is entered among BGI and Borders Inc., as borrowers; General Electric Capital Corporation, as working capital agent for secured parties and revolving lender and as issuer with respect to the Cash Management Letter of Credit; GA Capital, LLC, as agent for the Term B Lenders, and lenders party to the DIP Credit Agreement. GE Capital Markets Inc. serves as sole lead arranger and bookrunner on the Working Capital Facility. The CIT Group/Business Credit Inc. serves as syndication agent. Under the Consent Agreement, the parties have agreed to include certain language in the DIP Credit Agreement that was inadvertently omitted from the final execution version, which include: (i) All payments received by the Working Capital Agreement with respect to any obligation and all funds transferred and credited to the Working Capital Collection Account and all net proceeds from any disposition of revolving priority collateral will be applied to these revised terms: (A) the payment of interest with respect to the FILO Loans, and (B attorney costs as fees and costs and expenses due and payable. (ii) In the event of default, the Working Capital Agent will apply any and all payments proceeds of Revolving Priority Collateral to these additional or revised terms: (a) to the payment of L/C Reimbursement Obligations with respect the Cash Management Letter of Credit and cash collateralization in an amount equal to 104% of unmatured L/C Reimbursement Obligations in an amount equal to 104% of unmatured L/C Reimbursement Obligations with respect to the Cash Management Letter of Credit to the extent not then due and payable; (b) to fund the DIP Indemnity Account; and (c) to payment of all obligation with respect to the Term B Loans. As previously reported, BGI obtained Court approval for interim access of up to $400,000,000 of the proposed $505, 000,000 DIP Credit Facility. The postpetition financing consists of a $450,000,000 Working Capital Facility and a $55,000,000 Term Loan B Facility. The Working Capital Facility is in turn comprised of a $410,000,000 million revolver credit facility, a $20,000,000 "first in last out" term loan, and an additional $20,000,000 cash management facility. The DIP Credit Agreement is further revised to reflect: -- a $10,000,000 commitment from GECC and $10,000,000 commitment from Crystal Financial LLC with respect to the FILO Loan. -- a $375,000,000 commitment from GECC, instead of $410,000,000, and a $35,000,000 from CIT Bank with respect to the Revolver Loan. A blacklined version showing all changes made to the DIP Credit Agreement filed with the Court on February 16, 2011, is available for free at: http://bankrupt.com/misc/Borders_Feb17DIPCreditPact.pdf ----------------------------------------------------------------- [00032] DEBTORS' MOTION TO CONTINUE TO HONOR INSURANCE PROGRAMS ----------------------------------------------------------------- The Debtors sought and obtained an interim order from the Court authorizing them to continue to honor their insurance policies without interruption, on the same basis, and in accordance with the same practices and procedures that were in effect prior to the Petition Date. In the ordinary course of business, the Debtors maintain numerous insurance policies that provide coverage for, among other things, general liability, automobile liability, property damage, earthquake damage, directors' and officers' liability, commercial crime, fiduciary liability, media liability and cyber liability. The Insurance Policies are maintained through several different insurance carriers, a list of which is available for free at: http://bankrupt.com/misc/Borders_InsurancePoliciesList.pdf For the 2010/2011 policy period, the annual premiums for the Insurance Policies totaled approximately $4.97 million, according to David M. Friedman, Esq., at Kasowitz, Benson, Torres & Friedman LLP, in New York. The Court has also authorized the Debtors to pay, in their sole discretion, all insurance obligations, including all premiums, claims, deductibles, administrative fees and expenses, broker's fees, and all other costs, charges and obligations arising under or relating to the Insurance Policies, which become due during the interim period. The Debtors are further authorized to renew their Insurance Policies or obtain replacement coverage, as needed, in the ordinary course of business. The Debtors are also permitted to enter into postpetition premium financing agreements or PFAs related to the Insurance Policies and new insurance policies, as needed. Mr. Friedman relates that the Debtors have financed certain insurance premiums through PFAs with third-party lenders. For the 2011/2012 policy period, the Debtors plan to finance all lines of coverage, besides director and officer liability insurance, through PFAs using two third- party lenders -- Westfield Insurance Company and AFCO. Both PFAs have been finalized as of the Petition Date. Mr. Friedman specifies that the Debtors maintain casualty insurance, letters of credit and executive insurance. The Debtors' casualty lines of insurance coverage (i.e., general liability and auto liability) each contain some form of deductible, whereby the Insurance Carrier provides coverage from the initial dollar of exposure and then seeks reimbursement from the Debtors for the deductible amount established under the terms of the applicable Insurance Policy and pursuant to any agreements for deductible and/or loss limit reimbursement. The casualty Insurance Policies are secured by a letter of credit. The Debtors have posted two separate letters of credit through Bank of America, N.A., in the amount of $22,188,000 and $1,400,000 to secure their deductible obligations under the general liability, auto liability and workers' compensation Insurance Policies. The Debtors have also made premium payments in the approximate aggregate amount of $1.5 million for their Insurance Policies designated as executive insurance policies for the 2010/2011 policy period. These policies include the Debtors' director and officer liability policies and related special coverage. Insurance Brokers The Debtors employ several parties, including the Hylant Group, Inc., Marsh Inc., and Mercer Insurance Group, as their insurance brokers, to assist with the procurement and negotiation of many of their Insurance Policies: * The Debtors' current contract with Hylant covers the period beginning on July 1, 2010, and ending on June 30, 2011. Pursuant to its contract with the Debtors, Hylant has been paid a flat fee of $50,000. * The Debtors' current contract with Marsh covers the period beginning on August 1, 2010, and ending on July 31, 2012. For the period commencing August 1, 2010 and ending on July 31, 2011, Marsh is to be paid $264,000 in quarterly installments. Under this fee agreement, the Debtors still owe Marsh $66,000, which they have wrapped into their PFA with AFCO. Starting on August 1, 2011 and through the end of the contract term, the Debtors will pay Marsh $275,000 in quarterly installments. * The broker fee owed to Mercer is incorporated into the Marsh contract fee agreement, and no separate amount is owed to Mercer. Workers' Compensation Program The Debtors maintain workers' compensation liability insurance or pay into a state-administered workers' compensation fund in all 50 states and the Commonwealth of Puerto Rico; and provide employees with workers' compensation coverage for claims arising in any jurisdiction from or related to the workers' employment by the Debtors. Consistent with the Court's order, the Debtors are authorized, but not directed, to maintain and administer their Workers' Compensation Programs in the ordinary course of business and pay all claims and costs related to it. Moreover, the Debtors' banks are directed to receive, honor, process and pay checks or electronic transfers drawn on the Debtors' bank accounts relating to the Insurance Obligations. The Court will convene a hearing on March 15, 2011, to consider final approval of the Debtors' request. ----------------------------------------------------------------- [00033] DEBTORS' MOTION TO SET UP CLAIMS TRADING PROTOCOL ----------------------------------------------------------------- The Debtors sought and obtained interim Court approval of uniform procedures designed to protect the potential value of their net operating tax loss carryforward amounts, potential net unrealized built-in losses in their assets, capital loss carryforwards and certain other tax and business credit. The Debtors estimate that, as of February 16, 2011, they have: (i) NOLs of at least $300 million; (ii) potential consolidated Built-in Losses in the range of about $100 million; (iii) Capital Loss Carryforwards of about $56 million; and (iv) carryforward wage credits of approximately $1.7 million. The Tax Attributes are valuable assets of the Debtors' estates because the Internal Revenue Code of 1986, as amended, generally permits corporations to carry over their losses and tax credits to offset future income, thus reducing tax liability, David M. Friedman, Esq., at Kasowitz, Benson, Torres & Friedman LLP, in New York, relates. To that end, the Claims Trading Procedures are designed to (a) impose restrictions and notification procedures to ensure the Debtors receive the full benefits of the automatic stay, and (b) notify holders of the stock of Borders Group, Inc. and holders of claims against the Debtors of the injunction imposing restrictions and notification requirements by making available to all holders of Borders Stock or Claims (x) an interim procedures notice to be effective nunc pro tunc February 16, 2011, and (y) a final procedures notice. A copy of the Claims Trading Procedures is available for free at: http://bankrupt.com/misc/Borders_ClaimsTradingProtocol.pdf The Debtors aver that their ability to preserve the Tax Attributes may be seriously jeopardized unless procedures are established to ensure that trading in certain interests in their estates and claims against them are either precluded or closely monitored and made subject to Court approval. On the other hand, the Debtors also recognize that some trading in BGI Stock and Claims may not, under certain circumstances, pose a serious risk to their Tax Attributes and thus, the relief requested in the NOL Motion is narrowly tailored to permit certain trading to continue. The Debtors also preserve the ability to waive, in writing, in appropriate circumstances, any and all restrictions, stays and notification procedures contained in the NOL Motion. Judge Arthur J. Gonzalez ruled that until further Court order to the contrary, any acquisition, disposition or other transfer in violation of the restrictions set forth in the Claims Trading Procedures will be null and void ab initio as an act in violation of the automatic stay pursuant to Sections 362 and 105(a) of the Bankruptcy Code. The Debtors will serve notice of the entry of the Interim Order describing the authorized trading restrictions and notification requirements to: (i) the U.S. Trustee for Region 2,; (ii) creditors holding the thirty largest unsecured claims against the Debtors' estates; (iii) counsel for the DIP Agents; (iv) Kelley Drye & Warren LLP, attorneys for certain landlords; (v) Lowenstein Sandler PC, attorneys for certain trade vendors; (vi) Fried, Frank, Harris, Shriver & Jacobson LLP, attorneys for General Growth Properties, Inc.; (vii) Bingham McCutchen LLP, attorneys for Bank of America, N.A.; (viii) any person who has filed Schedule 13D, 10 or 13G with the U.S. Securities and Exchange Commission since January 1, 2010 with regard to the beneficial ownership of Borders Stock; (ix) any record holder of Borders Stock or through a nominee holder, to that nominee holder or the designated mailing agent for that nominee holder; (x) the SEC; and (xi) the Internal Revenue Service. The Debtors will also post the Interim Procedures Notice on their case administration website hosted by The Garden City Group, Inc. at www.bordersreorganization.com The Debtors will submit a notice of the entry of the Interim Order for publication on the Bloomberg newswire service and arrange for publication of that notice in national editions of The Wall Street Journal and The New York Times. Nothing in the Interim Order will preclude any person or entity desirous of acquiring or disposing of any claim or interest from requesting relief from the Interim Order subject to the Debtors' rights to oppose that relief, Judge Gonzalez held. Likewise, nothing in the Interim Order or in the NOL Motion will be deemed to prejudice, impair or otherwise alter or affect the rights of any holders of interests in or claims against the Debtors, including in connection with the treatment of any of those interests or claims under any Chapter 11 plan, Judge Gonzalez clarified. The Debtors may waive, in writing, any and all restrictions, stays, and notification procedures contained in the Interim Order. Any objection to the final approval of the NOL Motion must be made on or before March 8, 2011. If timely objections are received, the Court will hold a hearing to consider final approval of the NOL Motion on March 15. If no Objections are timely filed, the Debtors will submit to the Court a final order granting the NOL Motion. ----------------------------------------------------------------- [00034] DEBTORS' MOTION FOR INJUNCTION AGAINST UTILITY COMPANIES ----------------------------------------------------------------- Pursuant to Section 366(c)(2) of the Bankruptcy Code, a utility may alter, refuse or discontinue a Chapter 11 debtor's utility service if the utility does not receive from the debtor or the trustee adequate "assurance of payment" within 30 days of the commencement of the debtor's Chapter 11 case. Borders Group Inc. and its debtor affiliates own and manage over 600 stores, distributions centers, and corporate office centers. These properties are located throughout the United States and its territories, and each requires the continuous provision of utility services -- such as electricity, natural gas, oil, water, sewer, telecom, trash collection, or other services -- from hundreds of local and/or regional utilities, as that term is used under Section 366 of the Bankruptcy Code. A list of the utility companies that provide Utility Services to the Debtors as of the Petition Date is available for free at: http://bankrupt.com/misc/Borders_UtilityCompanies.pdf The Debtors estimate that their average monthly obligations to the Utility Companies total about $4,576,421. The Debtors employ two third-party processors, Cass Information Systems, Inc. and Icomm Consulting, Inc., to help aggregate and manage the utility payments for their various properties. The Debtors paid Cass, on the average, $6,000 per month in 2010 and owe the firm less than $25,000 for prepetition accrued but unpaid service and administrative fees as of the Petition Date. The Debtors paid Icomm, on the average, $20,000 per month in 2010 and owed the firm less than $50,000 for prepetition accrued but unpaid service and administrative fees as of the Petition Date. By this motion, the Debtors ask the Court to prohibit the Utility Companies from altering, refusing, or discontinuing service to, or discriminating against, them solely on the basis of the commencement of their Chapter 11 cases, a debt they owe for services rendered prior to the Petition Date, or on account of any perceived inadequacy of their proposed adequate assurance of payment to the Utilities. The Debtors specifically propose to deposit, as adequate assurance, $2,288,210, into a newly created, segregated, interest-bearing escrow account within 30 days of the Petition Date, subject to certain procedures. The Adequate Assurance Deposit is equivalent to approximately two weeks of the Debtors' estimated aggregate utility expenses. The Debtors believe that the Adequate Assurance Deposit, in conjunction with their ability to pay for future utility services in the ordinary course of business, constitutes sufficient adequate assurance of future payment to the Utility Companies to satisfy the requirements of Section 366. Nonetheless, if any Utility Company believes additional assurance is required, it may request that assurance pursuant to these procedures: (a) The Debtors will fax, e-mail, serve by overnight mail, or otherwise expeditiously send a copy of the Utilities Injunction Motion and order, which includes the proposed Adequate Assurance Procedures, to each Utility Company and the Payment Administrators immediately upon entry of the order by the Court. (b) The Debtors will deposit the Adequate Assurance Deposit in the Adequate Assurance Account immediately upon entry of the order granting the Utilities Injunction Motion; provided that to the extent any Utility Company receives any value from the Debtors as adequate assurance of payment, the Debtors may reduce the Adequate Assurance Deposit maintained in the Adequate Assurance Account by that amount. (c) The portion of the Adequate Assurance Deposit attributable to each Utility Company will be returned to the Debtors on the earlier of (i) the Debtors' termination of services from that Utility Company, or (ii) the conclusion of these Chapter 11 cases, if not applied earlier. (d) Any Utility Company desiring assurance of future payment for utility service beyond the Proposed Adequate Assurance must serve a request so that it is received by the Debtors by no later than 30 days after the Petition Date at these addresses: Borders Group, Inc. 100 Phoenix Drive, Ann Arbor, Michigan 48108 Facsimile: (734) 477-1285 Kasowitz, Benson, Torres & Friedman LLP Counsel to the Debtors 1633 Broadway, New York, New York 10019 Facsimile: (212) 506-1800 (e) Any Additional Assurance Request must: (i) be made in writing; (ii) specify the amount and nature of assurance of payment that would be satisfactory to the Utility Company; (iii) set forth the locations for which utility services are provided and the relevant account numbers; (iv) describe any deposits, prepayments or other security currently held by the requesting Utility Company; and (v) explain why the requesting Utility Company believes the Proposed Adequate Assurance is not sufficient adequate assurance of future payment. (f) Upon the Debtors' receipt of an Additional Assurance Request, the Debtors will have 20 days from the Request Deadline to negotiate with the requesting Utility Company to resolve that Request. The Debtors and the applicable Utility Company may also agree to extend the Resolution Period. (g) If a Utility Company fails to file a timely Additional Assurance Request or file a Procedures Objection, it will be: (i) deemed to have received adequate assurance of payment "satisfactory" to that Utility Company in compliance with Section 366; and (ii) forbidden to discontinue, alter, or refuse service to, or discriminate against, the Debtors on account of any unpaid prepetition charges, or require additional assurance of payment other than the Proposed Adequate Assurance. (h) The Debtors may resolve any Additional Assurance Request by mutual agreement with the requesting Utility Company without further order of the Court, and may, in connection with any resolution, provide the requesting Utility Company with additional assurance of future payment in a form satisfactory to the Utility Company, including, but not limited to, cash deposits, prepayments or other forms of security, if the Debtors believe that additional assurance is reasonable. (i) If the Debtors determine that an Additional Assurance Request is not reasonable, and are not able to resolve that request during the Resolution Period, the Debtors, during or promptly after the Resolution Period, will request a hearing before the Court to determine the adequacy of assurances of payment made to the requesting Utility Company. (j) Pending the resolution of the Additional Assurance Request at a Determination Hearing, the Utility Company making that request will be restrained from discontinuing, altering or refusing service to the Debtors. The Debtors further propose that any Utility Company that objects to the Adequate Assurance Procedures must file a written objection and serve that Procedures Objection on the notice parties, so that it is received by the objection deadline set by the Court for the Utilities Motion. Accordingly, the Debtors ask the Court to approve their proposed Adequate Assurance of payment for postpetition Utility Services and their proposed adequate assurance procedures. The Debtors seek permission from the Court to pay the Payment Administrators and to continue payments to the Payment Administrators in the ordinary course of business. To the extent the Debtors subsequently identify additional Utility Companies, they seek to amend the Utility Service List to add or remove any Utility Company. The Debtors ask the Court to deem that any order on the Utilities Injunction Motion be deemed to apply to any subsequently identified Utility Company, regardless of when each Utility Company is added to the Utility Service List. David M. Friedman, Esq., at Kasowitz, Benson, Torres & Friedman LLP, in New York, stresses that interruption or termination of the Utility Services during the Debtors' Chapter 11 cases would severely hinder the Debtors' business operations and their ability to successfully reorganize as unplanned "dark" stores or unexpected delays in the processing of products at their distribution facilities could result in consumers and the market misinterpreting those business disruptions as indications of the Debtors' imminent liquidation. Moreover, Mr. Friedman assures the Court that the Debtors intend to pay any postpetition obligations to the Utility Companies in a timely fashion and in the ordinary course. The Debtors will make the payments from their cash reserves as of the Petition Date and through anticipated access to a debtor-in-possession financing facility, he relates. Indeed, he notes, the Debtors have provided about $1.5 million of surety bonds or cash deposits to secure certain of their obligations with respect to some of the Utility Companies. ----------------------------------------------------------------- [00035] DEBTORS' MOTION TO ESTABLISH LEASE REJECTION PROCEDURES ----------------------------------------------------------------- The Debtors ask the Court to approve certain proposed expedited procedures for the future rejection of unexpired leases. The Debtors are parties to hundreds of unexpired leases, including real property leases for their retail locations. The Debtors previously filed a motion seeking, among other things, to sell certain assets through store closing sales and expect closing 202 of their underperforming retail stores. David M. Friedman, Esq., at Kasowitz, Benson, Torres & Friedman LLP, in New York, asserts that although the Debtors are still reviewing the Leases and may assume certain Leases in connection with the administration of their Chapter 11 cases, there will inevitably be a large number of Leases that no longer provide any benefit to their estates and should be rejected. To facilitate an expeditious and efficient process for rejecting those burdensome Leases, the Debtors propose to implement these procedures: (A) The Debtors will file on their Chapter 11 case dockets a notice setting forth the proposed rejection of one or more Leases, and will serve the Rejection Notice on: (i) the non-Debtor counterparty under the applicable Lease at the last known address available to the Debtors; (ii) counsel to the statutory committee of unsecured creditors appointed in these Chapter 11 cases; (iii) counsel for the DIP Agents: (x) Morgan, Lewis & Bockius LLP, counsel for the Working Capital Agent, (y) Riemer & Braunstein LLP, counsel for GA Capital LLC; (iv) Kelley Drye & Warren LLP, attorneys for certain landlords; (v) Lowenstein Sandler PC, attorneys for certain trade vendors; and (vi) the U.S. Trustee for Region 2. (B) With respect to non-residential real property Leases to be rejected, the Rejection Notice will set forth (i) the street address of real property that is the subject of the Lease, (ii) the remaining term of the Lease, and (iii) the name and address of the affected landlord. With respect to personal property Leases to be rejected, the Rejection Notice will provide (i) the name and address of the Lease counterparty, and (ii) a brief description of the personal property Lease to be rejected. All Rejection Notices will be accompanied by a copy of an order granting the Rejection Procedures Motion. (C) Should a party-in-interest object to the Debtors' proposed rejection of a Lease, that party must file an objection with the Court so as to be actually received by these parties within 10 days after the date the Rejection Notice is filed: (i) counsel for the Debtors, Kasowitz, Benson, Torres & Friedman LLP; (ii) the U.S. Trustee; (iii) counsel for the Creditors' Committee; (iv) counsel for the DIP Agents: (x) Morgan, Lewis & Bockius LLP, counsel for the Working Capital Agent, (y) Riemer & Braunstein LLP; (v) Kelley Drye & Warren LLP, attorneys for certain landlords; and (vi) Lowenstein Sandler PC, attorneys for certain trade vendors. (D) If no objection to a Rejection Notice is timely filed, the applicable Lease will be deemed rejected on the effective date set forth in the Rejection Notice, or, if no date is set forth, the date the Rejection Notice is filed with the Court. (E) If a timely objection to a Rejection Notice is filed and received in accordance with the Rejection Procedures, the Debtors will schedule a hearing on that objection and will provide at least five days' notice of that hearing to the objecting party and the Objection Notice Parties. If the Court ultimately upholds the Debtors' determination to reject the applicable Lease, then the applicable Lease will be deemed rejected (i) as of the Rejection Date, or (ii) as otherwise determined by the Court. (F) Claims arising out of the rejection of Leases must be filed, on or before the later of (i) the deadline for filing proofs of claim established by the Court in the Debtors' Chapter 11 cases, or (ii) 45 days after the Rejection Date. If no proof of claim is timely filed, such claimant will be forever barred from asserting a claim for rejection damages and from participating in any distributions that may be made in connection with these Chapter 11 cases. (G) If the Debtors have deposited funds with a Lease counterparty as a security deposit or other arrangement, the Lease counterparty may not setoff or otherwise use that deposit without the prior authority of the Court or agreement of the parties. The proposed Rejection Procedures will essentially streamline the Debtors' ability to reject burdensome Leases and thus, minimize unnecessary postpetition obligations, while providing Lease counterparties with adequate notice of the rejection of any Lease and an opportunity to object to the rejection within a reasonable time period, Mr. Friedman asserts. The Debtors also seek Court permission, prior to and through the Rejection Date, to remove from premises that are the subject of any rejected Lease personal property that the Debtors have installed in or about the leased premises, which property is either owned by the Debtors, leased by the Debtors from third parties, or subject to any equipment financing agreements with third parties. To the extent the Debtors determine that any of their interest in the property has little or no value and that the preservation of the property will only add expenses to their estates, the Debtors seek the Court's authority to abandon the property remaining at premises subject to a rejected Lease as of the Rejection Date. The Debtors clarify that no personal property subject to a true lease will be abandoned without first rejecting the underlying lease for that property. If the Debtors propose to abandon personal property that is (i) subject to a true lease, and (ii) located at a premises that is the subject of a Rejection Notice, that Rejection Notice will indicate the abandonment, and the Debtors propose that the automatic stay be deemed modified to permit the personal property lessor to retrieve that abandoned property within seven days of the date the Rejection Notice is filed. ----------------------------------------------------------------- [00036] DEBTORS' 1ST OMNIBUS MOTION TO REJECT UNEXPIRED LEASES ----------------------------------------------------------------- The Debtors seek the Court's permission to reject these four unexpired non-residential real property leases, effective as of the Petition Date: Rent per Lessor Leased Premises Month ------ --------------- --------- Hawkins-Smith, Milwaukee Marketplace, $57,940 Hawkins-Smith 1123 N. Milwaukee Management, Inc. Boise, Idaho 1600 Pearl Street, LLC 1600 Pearl Street Mall, 74,291 Boulder, Colorado 80302 Camelot LLC Block E, 600 Hennepin Ave, Suite 130, Minneapolis, 60,918 Minnesota BDC Grove City 3900 Gantz Rd. Grove 50,000 Portfolio, LP City, Ohio The Debtors relate that the store and distribution center locations associated with each of the Leases to be rejected were closed before the Petition Date and that they have vacated the Leased Premises. They have removed personal property at the Leased Premises to the extent that (i) it was cost effective to do so, and (i) it could be utilized in their ongoing business operations. The Debtors also disposed of a limited amount of personal property that has no value or unnecessary to their operations and left behind Personal Property of de minimis value in the Leased Premises. The Debtors note that as of the Petition Date, they continue to pay rent, certain property taxes, utilities, insurance and other related charges associated with the Leases. By rejecting the Leases, the Debtors estimate that they will be able to achieve cost savings of about $22.7 million in rent and other related obligations over the remaining terms of the Leases. ----------------------------------------------------------------- [00037] DEBTORS' MOTION TO EMPLOY ORDINARY COURSE PROFESSIONALS ----------------------------------------------------------------- In the ordinary course of business, the Debtors retain the services of several professionals, a schedule of which is available for free at http://bankrupt.com/misc/Borders_OCPs.pdf The continuing employment of the Ordinary Course Professionals, many of whom are already familiar with the Debtors' business and financial affairs, is crucial to avoid disruption of the Debtors' normal business operations, David M. Friedman, Esq., at Kasowitz, Benson, Torres & Friedman LLP, in New York, tells the Court. By this motion, the Debtors seek the Court's permission to employ the OCPs subject to certain procedures set forth in the ordinary course, nunc pro tunc to the Petition Date. The Debtors propose these procedures to govern the retention of the OCPs: (1) Within 30 days of the later of (i) the entry of an order granting the OCP Motion, or (ii) the date on which the OCP commences services for the Debtors, each OCP will provide to the Debtors' counsel: (a) a declaration certifying that the professional does not represent or hold any interest materially adverse to the Debtors or their estates with respect to the matter in which the professional is to be employed; and (b) a completed retention questionnaire. (2) The Debtors will subsequently file the Ordinary Course Professional Declaration and Retention Questionnaire with the Court and serve a copy upon: (i) the U.S. Trustee for Region 2 and counsel for any statutory committee of unsecured creditors appointed in the Debtors' Chapter 11 cases. The Reviewing Parties will have 15 days following service to notify the Debtors, the other Reviewing Party, and the relevant OCP, in writing, of any objection to the retention of that OCP based on the contents of the Ordinary Course Professional Declaration or Retention Questionnaire. If no timely objection is filed, the retention, employment, and compensation of that OCP will be deemed approved, without further order from the Court, nunc pro tunc to the Petition Date or the date the OCP is retained, as applicable. If an objection is filed and that objection cannot be resolved 21 days, the matter will be set for a hearing before the Court. (3) The Debtors propose that they be permitted to pay each OCP, without a prior application to the Court by that professional, 100% of postpetition fees and disbursements incurred, upon the submission to, and approval by, the Debtors of an appropriate invoice setting forth in reasonable detail the nature of the services rendered and disbursements actually incurred. If any amount owed for an OCP's postpetition fees and disbursements exceeds a total of $40,000 per month, then the full amount of payments to the professional for that month will be subject to prior Court approval. (4) The Debtors propose to cap payments to each OCP at $300,000 for the entire period in which these Chapter 11 cases are pending, subject to further order of the Court. In the event an OCP seeks more than $40,000 per month, that professional will be required to file a fee application for the full amount of its fees and expenses for that month in accordance with Sections 330 and 331 of the Bankruptcy Code, the Federal Rules of Bankruptcy Procedure, the Local Bankruptcy Rules for the Southern District of New York, the Fee Guidelines promulgated by the U.S. Trustee, and any applicable orders of the Court. The Debtors reserve the right to seek to amend the monthly compensation upon notice and hearing. In the event an OCP seeks more than $300,000 for the entire period in which these Chapter 11 cases are pending, that OCP will be required to file a retention application to be retained as a professional pursuant to Section 327 of the Bankruptcy Code. (5) Every 90 days commencing from the date of entry of the order on the OCP Motion, the Debtors will file a statement with the Court, and serve that statement on the Reviewing Parties, which statement will include these details for each OCP: (a) the name of the OCP, (b) for each month during the relevant period, the amounts paid as compensation for services rendered and as reimbursement of expenses incurred, and (c) the aggregate amount paid to date to the OCP for services rendered and expenses incurred. The Debtors reserve the right to retain additional OCPs during the pendency of their Chapter 11 cases and to otherwise supplement the list of OCPs from time to time as necessary. Mr. Friedman asserts that the relief sought in the OCP Motion will save the Debtors' estates the substantial expenses associated with separate employment and fee applications for each of the professional firms. ----------------------------------------------------------------- [00038] DEBTORS' MOTION FOR INTERIM COMPENSATION PROCEDURES ----------------------------------------------------------------- Pursuant to Section 331 of the Bankruptcy Code, the Debtors ask the Court to approve uniform procedures to establish an orderly and regular process for allowance and payment of interim compensation and reimbursement of expenses for professionals retained in their Chapter 11 cases. The Debtors propose these interim compensation procedures: (A) On or before the 20th day of each month following the month for which compensation is sought, each Retained Professional seeking compensation will serve a monthly statement by hand or overnight delivery, on (i) the Debtors; (ii) counsel for the Debtors; (iii) counsel for the Official Committee of Unsecured Creditors, if appointed; (iv) the U.S. Trustee for Region 2; and (v) counsel for the DIP Agents. (B) On or before the 20th day of each month following the month for which compensation is sought, each professional seeking compensation will file a Monthly Fee Statement with the Court; however, a courtesy copy need not be delivered to the Judge's chambers. The Monthly Fee Order does not alter the fee application requirements outlined in Sections 330 and 331 of the Bankruptcy Code. Professionals are still required to serve and file interim and final applications for approval of fees and expenses in accordance with the relevant provisions of the Bankruptcy Code, the Federal Rules of Bankruptcy Procedure and the Local Rules for the U.S. Bankruptcy Court, Southern District of New York. (C) Each Monthly Statement must contain a list of the individuals and the titles of those individuals who provide services during the statement period, their billing rates, the aggregate hours spent by each individual, a reasonably detailed breakdown of the disbursements incurred, and contemporaneously maintained time entries for each individual in increments of tenths of an hour. (D) If any party-in-interest has an objection to the compensation or reimbursement sought in a particular Monthly Fee Statement, that party will, by no later than the 35th day following the month for which compensation is sought, file with the Court and serve on the professional whose Monthly Fee Statement is objected to, and the other persons designated to receive statements, a written "Notice of Objection to Fee Statement," detailing the nature of the objection and the amount of fees or expenses at issue. (E) At the expiration of the 35 day-period, the Debtors will promptly pay 80% of the fees and 100% of the expenses identified in each Monthly Fee Statement to which no objection has been served. (F) If a Notice of Objection to Fee Statement is filed, the Debtors will withhold payment of that portion of the Monthly Fee Statement to which the objection is directed and promptly pay the remainder of the fees and disbursements in the proposed percentages unless the professional whose statement is objected to seeks an order from the Court, directing payment to be made. (G) If the parties to an objection are able to resolve their dispute following the filing of a Notice of Objection To Fee Statement and if the party whose Monthly Fee Statement was objected to files a statement indicating that the objection is withdrawn and detailing the terms of the resolution, then the Debtors will promptly pay that portion of the Monthly Fee Statement which is no longer subject to an objection. (H) All objections that are not resolved by the parties or Court order will be preserved and presented to the Court at the next interim or final fee application hearing to be heard by the Court. (I) The service of an objection will not prejudice the objecting party's right to object to any fee application made to the Court in accordance with the Bankruptcy Code on any ground whether raised in the objection or not. Furthermore, the decision by any party not to object to a Monthly Fee Statement will not be a waiver of any kind or prejudice that party's right to object to any fee application subsequently made to the Court in accordance with the Bankruptcy Code. (J) Approximately every 120 days, but no more than every 150 days, each of the professionals will serve and file with the Court an application for interim or final Court approval and allowance, pursuant to Sections 330 and 331. (K) Any professional who fails to file an application seeking approval of compensation and expenses previously paid when due will (1) be ineligible to receive further monthly payments of fees or expenses as provided until further order of the Court, and (2) may be required to disgorge any fees paid since retention or the last fee application, whichever is later. (L) The pendency of an application or a Court order that payment of compensation or reimbursement of expenses was improper as to a particular statement will not disqualify a professional from the future payment of compensation or reimbursement of expenses, unless otherwise ordered by the Court. (M) Neither the payment of, nor the failure to pay, in whole or in part, monthly compensation and reimbursement will have any effect on the Court's interim or final allowance of compensation and reimbursement of expenses of any professionals. (N) Counsel for each official committee may, in accordance with the procedure for monthly compensation and reimbursement of professionals, collect and submit statements of expenses, with supporting vouchers, from members of the committee he or she represents; provided, however, that the committee counsel ensures that these reimbursement requests comply with the Court's Administrative Orders dated June 24, 1991, and April 21, 1995. The Debtors propose that each Retained Professional that has been approved by the Court as of the Petition Date may seek, in its first Monthly Statement, compensation for work performed and reimbursement for expenses incurred during the period beginning on the Petition Date and ending on March 31, 2011. The first Interim Fee Application for that professional will cover the Interim Fee Period from the Petition Date through and including May 31, 2011. All professionals not retained as of the Petition Date will file their first Monthly Statement for the period from the effective date of their retention through the end of the first full month following the effective date of their retention, and otherwise in accordance with the procedures set forth in the Interim Compensation Procedures Motion. The Debtors maintain that the proposed Interim Compensation Procedures will enable them to closely monitor the costs of administration, forecast cash flows, and implement efficient cash management procedures. ----------------------------------------------------------------- [00039] DEBTORS' MOTION TO HIRE AP SERVICES AS CRISIS MANAGERS ----------------------------------------------------------------- The Debtors seek the Court's authority to: (a) employ AP Services LLC nunc pro tunc to the Petition Date to provide them interim management and restructuring services pursuant to Section 363 of the Bankruptcy Code; and (b) designate Ken Hiltz of AlixPartners LLP and as associated with APS as their senior vice president for restructuring. The parties have entered into an engagement letter where APS has agreed that Ken Hiltz will serve as the Debtors' SVPR. Lisa Donahue will act as Supervising Partner. Working collaboratively with the Debtors' senior management team and board of directors, as well as the Debtors' other professionals, Mr. Hiltz and Ms. Donahue will assist the Debtors in evaluating and implementing strategic and tactical options through the restructuring process. APS has also agreed to provide certain temporary staff to assist Mr. Hiltz and the Debtors in their restructuring efforts. As restructuring advisors, the Debtors expect Mr. Hiltz and the Temporary Staff to, among other things: (a) assist management in the development and implementation of a restructuring strategy designed to maximize enterprise value, taking into account the unique interests of all constituencies; (b) work with them and their team to further identify and implement both short-term and long-term liquidity generating initiatives, including forecasting and reporting cash flow performance during a potential chapter 11; (c) assist in overseeing the implementation of an operational restructuring plan that is designed to streamline the Debtors' cost base and efficiency of operations while preserving the Debtors' customer base, and that incorporates the constraints and opportunities resulting from a potential chapter 11 filing; (d) assist them in evaluating and implementing a store closing program under a chapter 11 bankruptcy filing scenario, together with other Debtor professionals; (e) assist them in implementing an improved inventory management program, given the constraints and opportunities resulting from a potential chapter 11 filing; (f) assist the Debtors' management and its professionals specifically assigned to sourcing, negotiating and implementing any financing, including debtor-in-possession and exit financing facilities, in conjunction with the Plan of Reorganization and the overall restructuring; (g) assist with the preparation of the statement of affairs, schedules and other regular reports required by the Bankruptcy Court; (h) provide assistance in such areas as testimony before the Bankruptcy Court on matters that are within APS' areas of expertise; (i) manage the claims and claims reconciliation processes; and (j) assist with other matters as may be requested that fall within APS's expertise and that are mutually agreeable. The Engagement Letter contains standard indemnification language with respect to APS's services. The standard hourly rates charged by APS professionals anticipated to be assigned to the Debtors' cases are: Name Description Hourly Rate ---- ----------- ----------- Ken Hiltz Sr. VP-Restructuring $855 Lisa Donahue Supervising Partner $895 Holly Etlin GOB Sales $855 Pilar Tarry Ch.11 Admin. Lead $645 Eva Anderson SG&A Cost Reduction $695 Ojas Shah Weekly Cash/Business $560 Planning Model Lead Clayton Gring Ch.11 Admin. Lead $560 Keith Jelinek Revenue and Merchandise $695 Performance Improvement Adam Hollerbach Revenue and Merchandise $440 Performance Improvement Robby Spigner Financial Analysis Support $395 Todd Brents Bankruptcy Process and $790 Operational Support Roles Tom Studebaker Bankruptcy Process and $560 Operational Support Roles Jarod Clarrey Bankruptcy Process and $415 Operational Support Roles Jeff Webb Bankruptcy Process and $600 Operational Support Roles Jonathan O'Reilly Bankruptcy Process and $490 Operational Support Roles The Debtors also propose to reimburse APS, upon receipt of periodic billings, for all reasonable and necessary expenses incurred in connection with their Chapter 11 cases, including transportation costs, lodging, food, telephone, copying, and messenger services. Moreover, the Debtors and APS have agreed on success fee compensation based on certain metrics. The Debtors will pay a Success Fee: (i) If the Debtors file a plan of reorganization which is confirmed and the Debtors emerge from bankruptcy within six months of filing for bankruptcy, APS will be paid a Success Fee for $2 million. (ii) If the Debtors file a plan of reorganization which is confirmed and the Debtors emerge from bankruptcy within 12 months of filing for bankruptcy, APS will be paid a Success Fee for $1 million. Because APS is not being employed as a professional under Section 327 of the Bankruptcy Code, it will not submit quarterly fee applications pursuant to Sections 330 and 331 of the Bankruptcy Code. APS will, however, file with the Court, and provide notice to the United States Trustee and all official committees, reports of compensation earned and expenses incurred on at least a quarterly basis. APS received an initial retainer of $350,000 on February 11, 2011, from the Debtors. Pursuant to the Engagement Letter, invoiced amounts have been recouped against the Retainer, and payments on the invoices have been used to replenish the Retainer. During the 90-day period before the Petition Date, the Debtors paid APS a total of $490,000 for fees incurred in providing services to the Debtors in contemplation of, and in connection with, prepetition restructuring activities. Mr. Hiltz assures the Court that APS (i) is a "disinterested person" within the meaning of Section 101(14) of the Bankruptcy Code, (ii) does not hold or represent an interest adverse to the Debtors' estates, and (iii) has no connection to the Debtors, their creditors, or their related parties. Mr. Hiltz disclosed his firm's connections to certain potential parties-in-interest -- which include ACE American Insurance Company, Akin Gump Straus Hauer & Feld, AT&T, Bank of New York Mellon, CB Richard Ellis, CIT Bank, Comerica Bank, Deloitte Tax LLP, Ernst & Young, FTI Consulting, General Growth Properties Inc., Google Inc., Grant Thornton, JPMorgan Chase Bank NA, Smurfit Stone Container, Sony Music Entertainment, Suntrust Bank, UBS AG, U.S. Bank N.A., Verizon Communications, Zurich, among others -- but maintained that those connections are in matters not related to the Debtors' Chapter 11 cases. ----------------------------------------------------------------- [00040] DEBTORS' APPLICATION TO EMPLOY KASOWITZ BENSON AS COUNSEL ----------------------------------------------------------------- The Debtors seek the Court's permission to employ Kasowitz, Benson, Torres & Friedman LLP as their general counsel, nunc pro tunc to the Petition Date. As the Debtors' counsel, Kasowitz Benson will: (a) render assistance and advice, and represent the Debtors with respect to the administration of these cases and oversight of the Debtors' affairs, including all issues arising from or impacting the Debtors or the Chapter 11 cases; (b) take all necessary actions to protect and preserve the Debtors' estates during the administration of these Chapter 11 cases, including prosecuting actions by the Debtors, defending actions commenced against the Debtors, negotiating, and objecting, where necessary, to claims filed against the Debtors' estates; (c) assist the Debtors in maximizing the value of their assets for the benefit of all creditors, including, without limitation, in connection with assumption or rejection of executory contracts and unexpired leases; (d) pursue confirmation of a joint plan of reorganization or liquidation and approval of an associated disclosure statement; (e) prepare, on behalf of the Debtors, necessary applications, motions, answers, orders, reports and other legal papers; (f) appear in Court and representing the interests of the Debtors; and (g) performing all other legal services for the Debtors that are appropriate, necessary and proper in these Chapter 11 cases. The Debtors will pay Kasowitz Benson professionals according to the firm's customary hourly rates: Title Rate per Hour ----- ------------- Partners $550 to $1,000 Special Counsel $525 to $750 Associates $250 to $675 Staff Attorneys $235 to $390 Paralegals $135 to $225 Kasowitz Benson's principal attorneys designated to represent the Debtors and their current standard hourly rates are: Title Rate per Hour ----- ------------- David M. Friedman $950 David S. Rosner $875 Andrew K. Glenn $800 Jeffrey R. Gleit $640 Alan Lungen $610 Daniel Fliman $525 Michele Angell $360 Julia A. Balduzzi $250 Simone Lelchuk $275 Other Kasowitz Benson attorneys and paralegals may from time to time serve the Debtors in connection with this engagement. The Debtors will also reimburse Kasowitz Benson for the necessary and actual expenses incurred by the firm in relation to its engagement. David M. Friedman, Esq., a member at Kasowitz Benson, discloses that his firm has received prepetition retainers from the Debtors on these dates: Date Retainer Amount ---- --------------- January 11, 2011 $250,000 January 24, 2011 $250,000 February 1, 2011 $250,000 February 7, 2011 $250,000 February 11,2011 $1,000,000 Kasowitz Benson has applied the Retainer against its prepetition fees and expenses. In due course, Kasowitz Benson will complete the calculation of its prepetition fees and expenses, and the surplus of the Retainer will be carried forward and applied to postpetition fees and expenses, Mr. Friedman relates. Kasowitz Benson will file a supplemental disclosure of its net postpetition Retainer as soon as practicable. Because the Retainer exceeds its prepetition fees and expenses, Kasowitz Benson does not hold a prepetition claim against the Debtors, Mr. Friedman tells the Court. Kasowitz Benson has represented, represents, and may represent these parties in matters totally unrelated to the Debtors' Chapter 11 cases: * Source Interlink Companies, Inc. * News America Marketing * News America Incorporated * Dow Jones & Company * Twentieth Century Fox * LG&E * Missouri Gas Energy * Akin Gump, Strauer, Hauss & Feld * Experian * EMI Music Publishing * FTI Consulting * Barnes & Noble, Inc. * Ernst & Young * Equity One * Coventry II DDR * Bennett LeBow * Howard LeBow * Howard Lorber * Dayton Power & Light Co. In light with the firm's representation of Barnes & Noble, a competitor of the Debtors, Mr. Friedman relates that The firm has taken, in light of its representation of Barnes & Noble, a competitor of the Debtors, has taken certain steps to set up an ethical wall and make certain that attorneys who perform work on behalf of Barnes & Noble do not participate in the Debtors' matters in any respect, and similarly, that members of the Borders team do not participate in Barnes & Noble matters. Despite that disclosure, Mr. Friedman maintains that Kasowitz Benson is a "disinterested person" as the term is defined under Section 101(14)(C) of the Bankruptcy Code. ----------------------------------------------------------------- [00041] DEBTORS' APPLICATION TO TAP BAKER & MCKENZIE AS COUNSEL ----------------------------------------------------------------- The Debtors seek the Court's permission to employ Baker & McKenzie LLP as their special corporate counsel, nunc pro tunc to the Petition Date. As the Debtors' special counsel, Baker & McKenzie will represent and advise the Debtors in connection with, among other things, securities laws, corporate governance and equity and debt financing matters as sought by the Debtors. Baker & McKenzie has represented the Debtors in relation to the "Representative Matters" for more than 10 years. Borders Chief Financial Officer Scott Henry notes that based on Baker & McKenzie's experience with the Debtors and ongoing familiarity with the Representative Matters, continued retention of Baker is essential to avoid duplicate and unnecessary expense. The Debtors will pay Baker & McKenzie professionals in accordance with the firm's customary hourly rates: Title Rate per Hour ----- ------------- U.S. Partners $500 to $1,000 U.S. Of Counsel $400 to $700 U.S. Associates $295 to $540 U.S. Trainees/Paralegals $100 to $250 Baker & McKenzie's current hourly rates for associates and partners outside the United States, depending on the jurisdiction, vary from $200 to $1,200. The Debtors will also reimburse McKenzie for the necessary expenses incurred by the firm. Craig A. Roeder, Esq., a partner at Baker & McKenzie -- Craig.Roeder@bakermckenzie.com -- relates that during the 90 day- period before the Petition Date, his firm received $344,831 from the Debtors for services rendered and expenses incurred. As of the Petition Date, Baker & McKenzie had unpaid invoices to the Debtors for legal services totaling $106,159. Baker also holds a retainer from the Debtors of $175,878,000, which it will apply to amounts owed to Baker & McKenzie, he adds. Mr. Roeder says to the extent his firm has represented or may represent certain parties, the firm will have no professional relationship with the Debtors' known secured creditors, significant unsecured creditors or the Debtors' vendors, counterparties to contracts, insurers, equity security holders, or the officers, directors and control persons of the Debtors or other known significant parties-in-interest. He assures the Court that Baker does not and will not represent any of these entities in connection with the Representative Matters, a list of which is available for free at: http://bankrupt.com/misc/Borders_BakerClients.pdf Mr. Roeder maintains that Baker & McKenzie is a "disinterested person" as the term is defined under Section 101(14) of the Bankruptcy Code. ----------------------------------------------------------------- [00042] DEBTORS' APPLICATION TO TAP JEFFRIES AS INVESTMENT BANKER ----------------------------------------------------------------- The Debtors seek the Court's permission to employ Jefferies & Company, Inc., as their investment banker nunc pro tunc to the Petition Date. As investment banker, Jeffries is contemplated to provide investment banking advisory and financial advisory services to the Debtors: (A) Investment banking and advisory services. The firm will provide advice and assistance to the Debtors in connection with analyzing, structuring, negotiating and effecting, and acting as exclusive financial advisor to the Debtors in connection with any restructuring of the Debtors' outstanding indebtedness, any liquidation under Chapter 7 or Chapter 11 of the Bankruptcy Code, or any execution of an agreement on a sale of the Debtors' assets or equity. (B) Financial advisory services. The firm will: (1) familiarize itself with and analyze the business, operations, properties, financial condition and prospects of the Debtors; (2) advise the Debtors on the current state of the "restructuring market;" (3) assist and advise the Debtors in developing the terms of and a general strategy for accomplishing a Restructuring; (4) assist and advise the Debtors in implementing and negotiating a Restructuring, including soliciting, reviewing and analyzing proposals for debtor-in- possession and exit financing as appropriate; (5) assist and advise the Debtors in evaluating and analyzing a Restructuring, including the value of the securities or debt instruments, if any, that may be issued in any restructuring; (6) advise the Debtors with respect to the placement of any debt securities of the Debtors, and at the Debtors' request, meet with management, the board, creditor groups or other parties-in-interest and provide those parties with information subject to appropriate confidentiality arrangements and assist in the preparation; (7) participate in hearings before the Court; and (8) render other financial advisory services as may from time to time be agreed upon by the Debtors and Jefferies. The Debtors will pay Jefferies in accordance with this fee structure: * Monthly Fee. A monthly advisory fee equal to $200,000 per month. Each Monthly Fee will be due on the first business day of each month for the term of the Jefferies Agreement. 50% of the Monthly Fees exceeding $1.2 million actually paid to Jefferies will be creditable once against any Restructuring Fee, but not the Liquidation Fee, if applicable, due to Jefferies. * Restructuring Fee. Upon the consummation of a Restructuring or similar transaction, a restructuring fee in an amount equal to $5.5 million; provided that in the event that a Restructuring is a liquidation of all or substantially all of the Debtors' assets, other than as a going concern and with respect to which the Company ceases operations, under Chapter 7 or Chapter 11 of the Bankruptcy Code, the Restructuring Fee will be $1.5 million. To be clear, no Liquidation Fee will be due as a result of a sale conducted and consummated by a Chapter 7 trustee. * Debt Securities Fee. Promptly upon the purchase or placement of Debt Securities with a party who is not a creditor or controlling shareholder of the Debtors as of the date hereof, a fee equal to 3.0% of the greater of the aggregate gross proceeds received or to be received from the sale of Debt Securities or the aggregate principal amount of Debt Securities, including, without limitation, aggregate amounts committed by investors to purchase Debt Securities, it being understood that Jefferies will receive 100% of that Debt Securities Fee. The Debtors will also reimburse necessary and reasonable expenses Jefferies incur, provided that those reimbursable expenses will not exceed $300,000 without the Debtors' prior approval. Richard K. Glein, senior vice president of Jefferies & Company, Inc., relates that before the Petition Date, Jefferies received $250,000 in fees and $15,000 as an expense deposit from the Debtors for prepetition services rendered and expenses incurred. Jefferies will hold any amounts received prepetition in excess of fees and expenses that accrued prepetition, if any, and apply those excess amounts toward fees and expenses that accrue postpetition. Mr. Glein discloses that Jefferies: (a) currently represents or formerly represented parties in matters unrelated to the Debtors' Chapter 11 cases, a schedule of which is available for free at: http://bankrupt.com/misc/Borders_JefferiesClients.pdf (b) either made a market in or published research on the securities of the entities, a schedule of which is available for free at: http://bankrupt.com/misc/Borders_JefferiesMarketEntities.pdf Mr. Glein notes that certain affiliates of Jefferies serve as managers for a number of investment vehicles. Jefferies employees working in connection with the Debtors' Chapter 11 cases have no control over investment decisions or business decisions made for the Managed Funds, he clarifies. Jefferies also has a debt securities and bank loan trading affiliate, Jefferies High Yield Trading, LLC. However, JHYT is a legally separate entity and is separated from Jefferies' investment banking department and its managing directors and employees advising the Debtors, by an "informational barrier," he explains. Mr. Glein also discloses that Jefferies or an affiliate holds about 3,000 shares of one or more of the Debtors' equity. Jefferies has made a good faith effort to sell or otherwise dispose of the Equity but has been unable to do so, he reveals. While Jefferies believes that its holdings do not cause it to be not disinterested for purposes of the Debtors' Chapter 11 cases, in order to avoid any appearance of not being disinterested, Jefferies, on behalf of itself and its affiliates, is forever and irrevocably disclaiming any interest in the Equity and is forever and irrevocably waiving any rights to any distribution to which the Equity is or may be entitled, Mr. Glein avers. Jefferies previously advised Bennett S. LeBow and LeBow Gamma Limited Partnership on an equity investment with the Debtors in 2010. Jefferies has not advised, is not advising, and will not advise Mr. LeBow or LeBow Ganuna Limited Partnership in connection with the Debtors' Chapter 11 cases, Mr. Glein assures the Court. Despite those disclosures, Mr. Glein maintains that Jefferies is a "disinterested person" as the term is defined under Section 101(14) of the Bankruptcy Code. ----------------------------------------------------------------- [00043] DEBTORS' APPLICATION TO EMPLOY DJM REALTY AS REALTOR ----------------------------------------------------------------- The Debtors seek the Court's permission to employ DJM Realty Services LLC as their real estate consultant, nunc pro tunc to the Petition Date. As the Debtors' real estate consultant, DJM will: (a) on the Debtors' behalf and in accordance with the goals and parameters established by the Debtors, will attempt to negotiate (i) modification of certain of the Debtors' Leases to obtain rent reductions or other advantageous modifications; (ii) the termination, assignment or other disposition of certain of the Leases, including assisting the Debtors at an auction of the Leases, if needed; (iii) waivers or reductions of any amounts payable to cure a default upon assumption of a lease pursuant to Section 365(b)(1)(A) of the Bankruptcy Code; and (iv) to obtain extensions of time to assume or reject Leases. The Debtors retain complete discretion to accept or reject any proposed lease modification or other leasehold concession; (b) report periodically to the Debtors regarding the status of negotiations; and (c) work with the Debtors and their counsel to document accurately all rent reductions, lease term modifications and other leasehold concessions, including reviewing documents and assisting in resolving any problems that may arise. Pursuant to a services agreement between the Debtors and DJM, the term of the firm's engagement will be on a month-to-month basis, cancellable by either party on at least five days' prior notice to the other party. The Debtors have agreed to pay DJM these amounts: (1) Lease Modifications. As to each Lease assumed by the Debtors for which DJM's efforts result in a fully executed Lease modification agreement including a Lease modification of a monetary term in accordance with the Debtors' directions to DJM, including but not limited to rent reductions and deferrals of rent payments, DJM's fee will be: (i) $1 million if Total Savings equal at least $96 million; (ii) $1.5 million if Total Savings equal at least $105 million; and (iii) $2 million if Total Savings equal at least $120 million. For each additional $15 million of Total Savings exceeding $120 million, DJM will receive an additional fee of $500,000. "Total Savings" refers to the sum of Savings for all Renegotiation Transactions but limited to Savings during the first three years of the modified Lease term. "Savings" for any Renegotiation Transaction refers to the difference between the Occupancy Cost prescribed in the Lease for the period to be modified and the renegotiated Occupancy Cost for the period to be modified, from the effective date of that Occupancy Cost modification through the end of the Lease term, including any option term exercised as part of the modification. (2) Lease Dispositions. For each closing of a transaction in which any Lease is assigned or otherwise transferred to a third party, DJM will earn a fee in an amount equal to 3% of the Gross Proceeds of that disposition. Lease dispositions will include the disposition of the Debtors' interest in any sublease. (3) Reduction in Bankruptcy Claims. For any Lease rejected by the Debtors, if the landlord agrees to reduce or waive the claim it could reasonably assert under Section 502(b)(6) of the Bankruptcy Code or otherwise, DJM will receive a fee in an amount equal to 3% percent of the savings of any distribution that otherwise would have been payable to the landlord in the Debtors' bankruptcy cases. Claim reductions will include reductions in any claims related to any subleases. (4) Extensions of Time to Assume or Reject Leases. If directed by the Debtors to negotiate with landlords to obtain extensions of time to assume or reject Leases, no separate fee will be payable to DJM for that work. (5) DJM's fees will be earned and payable on the earlier to occur of the date that Total Savings is equal to at least $96 million and thereafter, the applicable additional fees will be paid when and if Total Savings is equal to any additional thresholds as set forth in the Services Agreement. (6) DJM will be compensated for additional consulting services rendered at the Debtors' specific request and agreed to by DJM and that are not otherwise provided for in the Services Agreement at the rate of $400 per hour. A full-text copy of the DJM Services Agreement is available for free at http://bankrupt.com/misc/Borders_ServicesAgr.pdf The Debtors will also pay to DJM a $100,000 non-refundable monthly retainer for each month of the term of the Services Agreement. Edward Zimmer, a senior managing director at DJM, made disclosures of DJM's connections with other entities, a copy of which is available for free at: http://bankrupt.com/misc/Borders_DJMDisclosures.pdf Despite those disclosures, Mr. Zimmer insists that DJM is a "disinterested person" as the term is defined under Section 101(14) of the Bankruptcy Code. ----------------------------------------------------------------- [00044] DEBTORS' APPLICATION TO HIRE GARDEN CITY AS NOTICE AGENT ----------------------------------------------------------------- The Debtors sought and obtained the Court's permission to employ The Garden City Group, Inc. as their notice and claims agent. As the Debtors' notice agent, GCG will: (a) notify all potential creditors of the filing of the Debtors' bankruptcy petitions and of the setting of the date for the first meeting of creditors pursuant to Section 341 (a) of the Bankruptcy Code, under the proper provisions of the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure; (b) maintain an official copy of the Debtors' schedules of assets and liabilities and statement of financial affairs, listing the Debtors' known creditors and the amounts owed thereto; (c) notify all potential creditors of the existence and amount of its claims as evidenced by the Debtors' books and records and as set forth in the Schedules; (d) furnish a notice of the last date for the filing of proofs of claim and a form for the filing of a proof of claim, after that notice and form are approved by the Court; (e) maintain a post office box for the purpose of receiving claims; (f) print, copy, and serve on the appropriate creditors and parties-in-interest any and all relevant notices, motions, orders and other pleadings; (g) for all notices, file with the Clerk an affidavit or certificate of service which includes a copy of the notice, a list of persons to whom it was mailed, and the date mailed, within seven days of service; (h) docket all claims received by the clerk's office, maintain the official claims register for the Debtors on behalf of the Clerk, and, upon the Clerk's request, provide the Clerk with a certified duplicate, unofficial Claims Register; (i) specify, in the Claims Register, the following information for each claim docketed: (i) the claim number assigned, (ii) the date received, (iii) the name and address of the claimant and agent, if applicable, who filed the claim, and (iv) the classifications of the claim; (j) implement necessary security measures to ensure the completeness and integrity of the Claims Register and the safekeeping of the original claims; (k) record all transfers of claims and provide any notices of those transfers as required by Rule 3001(e); (l) relocate, by messenger or overnight courier, all of the court-filed proofs of claim to the offices of GCG, not less than weekly; (m) upon completion of the docketing process for all claims received to date for each case, turn over to the Clerk copies of the claims register for the Clerk's review; (n) make changes in the Claims Registers pursuant to Court order; (o) maintain the official mailing list for the Debtors of all entities that have filed a proof of claim, which list will be available upon request by a party-in-interest or the Clerk; (p) if the case is converted to Chapter 7, contact the Clerk's Office within seven days of the entry of the order converting the case; (q) 30 days prior to the close of these Chapter 11 cases, arrange to have submitted to the Court a proposed order dismissing the notice and claims agent and terminating the services of that agent upon completion of its duties and responsibilities and upon the closing of this case; (r) file with the Court the final version of the claims register immediately before the close of the Chapter 11 cases; and (s) at the close of the Chapter 11 cases, box and transport all original documents, in proper format, as provided by the Clerk's Office, to the Federal Archives Record Administration, located at Central Plains Region, 200 Space Center Drive, Lee's Summit in Missouri. The Claims Register maintained by GCG will be open to the public for examination without charge during regular business hours. The Debtors will pay GCG's professionals according to the firm's customary hourly rates: Tasks Rate per Hour ----- ------------- Administrative & Data Entry $45 to $55 Mailroom and Claims Control $55 Customer Service Representatives $57 Project Administrators $70 to $85 Quality Assurance Staff $80 to $125 Project Supervisors $95 to $110 Systems & Technology Staff $100 to $200 Graphic Support for web site $125 Project Managers $125 to $175 Directors, Sr. Consultants and Asst VP $200 to $250 Vice President and above $250 GCG will also be reimbursed for necessary and actual expenses incurred. Craig E. Johnson, a senior director of GCG -- craig.johnson@gcginc.com -- disclosed that his firm has received an initial retainer of $50,000 from the Debtors for its services under Section 156(c) of Title 28 of the U.S. Code and will apply the retainer first against all prepetition fees and expenses and then against the first bill for fees and expenses that GCG will incur in these Chapter 11 cases. Mr. Johnson maintains that GCG is a "disinterested person," as that term is defined in Section 101(14) of the Bankruptcy Code. ----------------------------------------------------------------- [00045] DEBTORS' APPLICATION TO HIRE GCG AS ADMINISTRATIVE AGENT ----------------------------------------------------------------- See prior related entry at [00044] (Debtors' Application to Hire Garden City as Notice Agent). The Debtors seek the Court's authority to employ The Garden City Group, Inc. as their administrative agent pursuant to Section 327 of the Bankruptcy Code. Contemporaneous with their Section 327 application, the Debtors filed an application under Section 156(c) of Title 28 of the U.S. Code for permission to retain GCG as the notice and claims agent in these Chapter 11 cases. Given that the administration of the Debtors' Chapter 11 cases will require GCG to perform duties outside the scope of Section 156(c), the Debtors supplement the Section 156(c) Application with the Section 327 Application. As the Debtors' administrative agent, GCG will: (a) create and maintain a publicly-accessible case administration web site containing information about the Debtors, their Chapter 11 cases, and their restructuring, including but not limited to the posting of a claim register, key pleadings, scheduled hearings, and press releases; (b) host a toll-free telephone hotline that provides information regarding these Chapter 11 case; (c) assist with the preparation and filing of the Debtors' Schedules of Assets and Liabilities and Statement of Financial Affairs; (d) respond to creditor inquiries via telephone, letter, e- mail or facsimile, as appropriate; (e) generate and provide claim reports and claim objection exhibits, as requested by the Debtors and its professionals; (f) manage the preparation, compilation, and mailing of documents to creditors and other parties-in-interest in connection with the solicitation of a Chapter 11 plan; (g) manage the publication of legal notices, as requested; (h) collect and tabulate votes in connection with any and all Plans filed by the Debtors and provide ballot reports to the Debtor and its professional; (i) generate an official ballot certification and testify, if necessary, in support of the ballot tabulation results; and (j) manage any distribution pursuant to a confirmed Plan. The Debtors will pay GCG's professionals according to the firm's customary hourly rates: Title Rate per Hour ----- ------------- Senior Management $200 to $250 Project Managers $125 to $175 Administrative and Clerical Staff $40.50 to $110 The Debtors will also reimburse GCG for necessary and actual expenses incurred. Craig E. Johnson, a senior director at GCG, disclosed that his firm has received an initial retainer of $50,000 from the Debtors for its services under the Section 327 Application and the Section 156( c) Application, and will apply the retainer first against all prepetition fees and expenses and then against the first bill for fees and expenses that GCG will incur in these Chapter 11 cases. Mr. Johnson maintains that GCG is a "disinterested person" as the term is defined under Section 101(14) of the Bankruptcy Code. ----------------------------------------------------------------- [00046] NUMEROUS PARTIES SEEK TO APPEAR IN BORDERS CHAP.11 CASE ----------------------------------------------------------------- See prior related entry at [00030] (Mall Owners Seek to Appear in Borders' Bankruptcy Case). Numerous parties-in-interest have filed with the U.S. Bankruptcy Court for the Southern District of New York notices of appearances and requests for service of filings related in the Chapter 11 cases of Borders Group Inc. and its debtor affiliates barely a week since the bookstore chain filed for bankruptcy protection. The parties include: (1) Ross Dress for Less, Inc. and Ross Stores, Inc.; Vernon Montclair LLC; HRI/Lutherville Station, LLC; Kravco Simon Company; Aronov Realty; Trademark Property Company; UBS Realty Investors LLC; Federal Realty Investment Trust and Centro Properties Group (2) CTJ-Louisville, LLC; Miller ATMF-Auburn Hills, LLC; Sand Lake Properties Limited Partnership; Centres East, Ltd.; CJM-Niles, LLC; CJM-Tallahassee, L.L.C.; Ocoee Properties Limited Partnership; Miller Flint, LLC; CJM-Viewmont, Limited Partnership; Miller-Millcreek, LLC; RLV Winchester Center LP; Eastown Plaza, LLC; Utica Borders Associates Limited Partnership; The Corners Center, LLC; Omaha Store No. 166, LLC; Oklahoma City Store No. 151, L.L.C.; Lawrence Store No. 203, L.L.C.; Indianapolis Store No. 16, L.L.C.; Agree-Milestone Center Project, L.L.C.; Agree-Columbia Crossing Project, L.L.C.; Agree Limited Partnership; Phoenix Drive, LLC and Ann Arbor Store No. 1, L.L.C. (3) Glimcher Properties Limited Partnership (4) Penguin Group (USA) Inc. (5) Hachette Book Group, Inc. (6) PREIT Services, LLC, as agent for various landlords, and Springfield Square South, L.P. (7) Steadfast Companies; Passco Companies, LLC; Coring Companies; Cousins Properties Incorporated; The Related Companies; Crossland, RREEF and The Macerich Company (8) General Electric Capital Corporation (9) Governor's Square Company dba Governor's Square Mall (10) Westfield, LLC (11) CheetahMail, Inc. and Experian Marketing Services, Inc. (12) Patricia Tomasco (13) Red Development, LLC (14) Seattle's Best Coffee LLC (15) F+W Media, Inc. (16) Broad One L.P. (17) Taubman Landlords (18) Pyramid Management Group LLC (19) Monmouth Plaza Enterprises, LLC (20) Dallas County, Tarrant County (21) Weingarten Realty Investors (22) City of Newport News, Virginia (23) 425 Market Exchange Two LLC; Somers Exchange One LLC; 333 Market Exchange One LLC and SRI Six Hamilton Square LLC (24) Universal Music Group Distribution, Corp. (25) Kin Properties, Inc. and the KPI Landlords (26) Teachers Insurance and Annuity Association of America; Edens & Avant; Riverview Plaza (E&A), LLC; E&A/I&G Simsbury Commons Limited Partnership; New England Development; Triangle Realty, LLC; CambridgeSide Galleria Associates Trust; Cambridgeside Partners Limited Partnership; S.R. Weiner & Associates Inc.; W/S Brunswick Properties II LLC; Route 140 School Street LLC; W/S Wareham Properties LLC and Legacy Place LLC (27) CambridgeSide Galleria Associates Trust; Cambridgeside Partners Limited Partnership; E&A/I&G Simsbury Commons Limited Partnership; Edens & Avant; Legacy Place LLC; New England Development; Riverview Plaza (E&A), LLC; Route 140 School Street LLC; S.R. Weiner & Associates Inc.; Teachers Insurance and Annuity Association of America; Triangle Realty, LLC; W/S Brunswick Properties II LLC and W/S Wareham Properties LLC (28) Inland Southwest Management, LLC; Inland Commercial Property Management, Inc.; Inland US Management, LLC; Inland Continental Property Management Corp. and Inland American Retail Management, LLC (29) Bank of America (30) Ingram Book Group Inc. (31) The Quarto Group, PLC; Global Book Publishing; Walter Foster/Paint Chips Productions and other affiliated Companies (32) Warner-Elektra-Atlantic Corporation (33) Source Interlink Companies, Inc. (34) Randhurst Shopping Center, LLC; Deerfield Towne Center Holding Company and Winter Park Town Center Ltd. (35) Arlington Heights, Ltd. (36) Rocks Tysons Two, LLC (37) Taubman Landlords (38) Lewisville Independent School District (39) Arborland, L.L.C. (40) GA Capital, LLC (41) Oxford University Press, Inc. and Random House, Inc. (42) The McClatchy Company dba the Sacramento Bee (43) Gateway-DC Properties Inc. (44) Gateway Woodside, Inc. (45) OCW - Retail, Hyannis LLC (46) Core Fund Loop Property, LLC (47) Hilco Merchant Resources, LLC, SB Capital Group, LLC, Tiger Capital Group, LLC and Gordon Brothers Partners, LLC (48) Texas Ad Valorem Tax Jurisdictions (49) Lebanon Valley Mall Company (50) Shelbyville Road Plaza, LLC (51) Waters Place, LLC *** End of Issue No. 3 ***