================================================================= BORDERS GROUP BANKRUPTCY NEWS Issue Number 9 ----------------------------------------------------------------- Copyright 2011 (ISSN XXXX-XXXX) March 29, 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 P. 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 ------------- [00137] DEBTORS' MOTION TO FIX JUNE 1, 2011 AS CLAIMS BAR DATE [00138] BORDERS BEGINS LIQUIDATION OF 26 ADDITIONAL STORES [00139] DEBTORS' MOTION FOR INJUNCTION AGAINST UTILITY COMPANIES [00140] DEBTORS' APPLICATION TO TAP DELOITTE TAX AS TAX ADVISOR [00141] DEBTORS' APPLICATION TO EMPLOY DELOITTE CONSULTING [00142] DEBTORS' APPLICATION TO EMPLOY ERNST & YOUNG AS AUDITOR [00143] DEBTORS' APPLICATION TO EMPLOY MERCER AS CONSULTANT [00144] COVENTRY RETAIL'S MOTION TO LIFT STAY TO EVICT DEBTOR [00145] TOYS CENTER'S MOTION TO COMPEL POSTPETITION RENT PAYMENT [00146] PALLET COMPANIES' MOTION TO ALLOW $8,270 ADMIN. CLAIM [00147] ENTITIES FILE NOTICES OF SUBSTANTIAL STOCK OWNERSHIP [00148] ROSETTA STONE RECORDS $0.9-MIL. CHARGE RELATED TO BORDERS KEY DATE CALENDAR ----------------- 02/16/11 Voluntary Chapter 11 Petition Date 02/24/11 U.S. Trustee Appoints Official Creditors' Committee 03/18/11 Deadline to Provide Utilities with Adequate Assurance 03/22/11 First Meeting of Creditors under 11 USC Sec. 341 04/01/11 Deadline to File Schedules of Assets and Liabilities 04/01/11 Deadline to File Statement of Financial Affairs 04/01/11 Deadline to File Lists of Contracts and Leases 05/17/11 Deadline to Remove Actions Pursuant to F.R.B.P. 9027 06/31/11 [Proposed] Bar Date for filing Proofs of Claim 06/16/11 Expiration of Debtors' Exclusive Plan Proposal Period 08/15/11 Expiration of Debtors' Exclusive Solicitation Period 09/14/11 Deadline to Make Decisions About Lease Dispositions 02/15/13 Deadline for Debtors' Commencement of Avoidance Actions ----------------------------------------------------------------- [00137] DEBTORS' MOTION TO FIX JUNE 1, 2011 AS CLAIMS BAR DATE ----------------------------------------------------------------- Borders Group, Inc. and its debtor affiliates ask Judge Martin Glenn of the U.S. Bankruptcy Court for the Southern District of New York to establish: (a) June 1, 2011, at 5:00 p.m., as the deadline for each person or entity to file a proof of claim with respect to a prepetition claim, including secured claims and priority claims as well as claims under Section 503(b)(9) of the Bankruptcy Code against any of the Debtors; and (b) August 15, 2011, at 5:00 p.m., as the deadline for governmental units to file a proof of claim with respect to a prepetition claim against any of the Debtors. Rule 3003(c)(3) of the Federal Rules of Bankruptcy Procedure provides that the court will fix the time within which proofs of claim must be filed in a Chapter 11 case pursuant to Section 501 of the Bankruptcy Code. Bankruptcy Rule 3003(c)(2) provides that any creditor whose claim is not scheduled in a debtor's statements of financial affairs, schedules of assets and liabilities, and schedules of executory contracts or whose claim is scheduled as disputed, contingent or unliquidated must file a proof of claim. The Debtors expect to file their Statement of Financial Affairs and Schedules on or before April 1, 2011. Moreover, Section 502(b)(9) of the Bankruptcy Code provides that "a claim of a governmental unit shall be timely filed it is filed before 180 days after the date of the order for relief or such later time as the Federal Rules of Bankruptcy Procedure may provide. . . ." The Debtors propose that all proofs of claim filed in their Chapter 11 cases be consistent with these procedures: (A) Proofs of Claim must: * conform to the proposed form of proof of claim form; * be (i) signed; (ii) include supporting documentation or an explanation as to why documentation is not available; (iii) be in the English language; and (iv) be denominated in the United States currency; and * specify the name and case number of the Debtor against which the claim is filed; if the holder asserts a claim against more than one Debtor or has claims against different Debtors, a separate proof of claim form must be filed with respect to each Debtor. To the extent a claimant inserts an incomplete debtor name, such as "Borders," that claim will be attributed to Borders, Inc. (B) Proofs of claim will be deemed filed only when received by The Garden City Group or the Clerk on before on or applicable Bar Date. Claimants must deliver the original proof of claim to this address: If by first-class mail, to: The Garden City Group, Inc. Attn: Borders Group, Inc. P.O. Box 9690 Dublin, Ohio 43017-4990 If by hand delivery or overnight courier, to: The Garden City Group, Inc. Attn: Borders Group, Inc. 5151 Blazer Parkway, Suite A Dublin, Ohio 43017 Or United States Bankruptcy Court, SDNY One Bowling Green Room 534 New York, New York 10004 (C) Neither the Court nor GCG will be required to accept Proofs of Claim sent by facsimile, telecopy, or electronic mail transmission. (D) Any person or entity that asserts a claim that arises from the rejection of an executory contract or unexpired lease must file a Proof of Claim based on that rejection by the later of (i) the applicable Bar Date, and (ii) the date that is 45 days following entry of an order approving the rejection or be forever barred from doing so. (E) In the event the Debtors supplement or amend their Schedules to (a) designate a claim as disputed, contingent, or unliquidated; (b) change the amount of a claim; (c) change the classification of a claim; (d) remove a claim; or (e) add a claim that is not listed on the Schedules, the Debtors will notify the claimant of the supplement or amendment. The deadline for any holder of a claim so designated, changed, or added to file a Proof of Claim on account of any claim is the later of (i) applicable Bar Date, and (ii) the date that is 30 days after the Debtors provide notice of the supplement or amendment. (F) Any person or entity that relies on the Schedules has the responsibility to determine that the claim is accurately listed in the Schedules. These persons or entities are not required to file a Proof of Claim on or before the applicable Bar Date: (i) Any person or entity that has already filed a proof of claim against the Debtors with the Clerk or GCG in a form substantially similar to the Proof of Claim Form. (ii) Any person or entity whose claim is listed on the Schedules filed by the Debtors, provided that (A) the claim is not scheduled as disputed, contingent or unliquidated; and (B) the claimant does not disagree with the amount, nature, and priority of the claim as set forth in the Schedules; and (C) the claimant does not dispute that the claim is an obligation of the specific Debtor against which the claim is listed on the Schedules. (iii) Any holder of a claim that has been allowed by order of the Court. (iv) Any person or entity whose claim has been paid in full by any of the Debtors. (v) Any holder of a claim for which specific deadlines have previously been fixed by the Court. (vi) Any Debtor having a claim against another Debtor or any of the non-debtor subsidiaries of Borders Group, Inc. having a claim against any of the Debtors. (vii) Any holder of a claim allowable under Sections 503(b) and 507(a)(2) of the Bankruptcy Code as an expense in Administration. (viii) Any person or entity that holders an interest in the Debtors, which ownership is based exclusively on the ownership of common stocks, membership interests, partnership interests, or warrants or rights to purchase, sell or subscribe to a security or interest; provided that interest holders that wish to assert claims against any of the Debtors that arise out of or relate to the ownership or purchase of an interest, including claims arising out of or relating to the sale, issuance, or distribution of the interest, must file Proofs of Claim on or before the applicable Bar Date. (ix) Any person or entity holding a claim for principal, interest, and other fees and expenses on or under the Prepetition Credit Facilities or the DIP Facility. The Debtors propose that any holder of a claim against them who is required, but fails, to file a proof of claim in accordance with the Bar Date Order on or before the Bar Date will be forever barred, estopped, and enjoined from asserting that claim against the Debtors. The Debtors and their property will be forever discharged from any and all indebtedness or liability with respect to that claim, and that holder will not be permitted to vote to accept or reject any plan of reorganization filed in these Chapter 11 cases, or participate in any distribution in the Debtors' Chapter 11 cases on account of that claim or to receive further notices regarding the claim. Pursuant to the Rule 2002(a)(7), (f), (1) of the Federal Rules of Bankruptcy Procedure and the Procedural Guidelines, the Debtors propose to serve a Proof of Claim Form and a Bar Date Notice, at least 35 days prior to the General Bar Date, to these parties: (i) The United States Trustee for Region 2; (ii) Counsel for the Official Committee of Unsecured Creditors; (iii) All persons or entities that have requested notice of the proceedings in these Chapter 11 cases; (iv) All persons or entities that have filed claims; (v) All known creditors and other known holders of claims as of the date of a Bar Date Order, including all persons or entities listed in the Schedules as holding claims for which the Debtors have addresses; (vi) All parties to executory contracts and unexpired leases of the Debtors; (vii) The attorneys of record to all parties to pending litigation against any of the Debtors; (viii) The U.S. Internal Revenue Service, the U.S. Securities and Exchange Commission, the United States Attorney's Office for the Southern District of New York, and all applicable government entities; and (ix) All other parties in the Debtors' creditor matrix. The Bar Date Notice notifies parties of: -- the Bar Dates; -- who must file a Proof of Claim; -- the procedures for filing a Proof of Claim; -- the consequence for failing to timely file a Proof of Claim; and -- where parties can find further information. With regard to their current employees, the Debtors may provide notice of the Bar Date to those employees using a notice substantially similar to the Bar Date Notice. The Debtors will also post the Proof of Claim Form and Bar Date Notice on the Web site established by GCG for the Debtors' cases at www.bordersreorganization.com The Debtors also propose to publish a publication notice in The New York Times at least 28 days prior to the General Bar Date, thus satisfying the requirement of Bankruptcy Rule 2002(a)(7). The Debtors propose to publish the Publication Notice, in their sole discretion, in other newspapers, trade journals, or similar publications. Andrew K. Glenn, Esq., at Kasowitz, Benson, Torres & Friedman LLP, in New York, notes that the Debtors will be providing no less than 35 days' notice to all known creditors. The Debtors believe that the proposed Bar Dates and notice procedures provide sufficient time for all parties-in-interest, including foreign creditors, to assert their claims. "Because the proposed procedures will provide notice to all known parties-in-interest by mail and notice to any unknown parties in interest by publication, the proposed notice procedures are reasonably calculated to provide notice to all parties that may wish to assert a claim in these Chapter 11 cases," Mr. Glenn asserts. The Court will consider the Debtors' request on April 7, 2011. Objections are due no later than March 31. ----------------------------------------------------------------- [00138] BORDERS BEGINS LIQUIDATION OF 26 ADDITIONAL STORES ----------------------------------------------------------------- See prior entry at [00125]. Debtors Ink Agency Agreement for 26 Stores Borders Group, Inc. entered into an agency agreement with a joint venture governing the liquidation of the 26 additional Borders stores, which store closing sales commenced on March 24, 2011. A list of the Closing Stores is available for free at: http://bankrupt.com/misc/Borders_26ClosingStores.pdf Under the agency agreement, the joint venture composed of Hilco Merchant Resources, LLC; SB Capital Group, LLC; Tiger Capital Group, LLC; and Gordon Brothers Retail Partners, LLC will act as the Debtors' exclusive agent for the limited purpose of: (a) selling all of the merchandise located in the Closing Stores through a promotional store closing or similar themed sale; and (b) disposing of the Agent furniture, fixtures & equipment or FFE in those Closing Stores. As a guaranty of the Agent's performance under the Agency Agreement, Borders will (i) receive 85.75% -- the Guaranty Percentage -- of the aggregate cost value of the merchandise included in the sale -- the Guaranty Amount -- plus (ii) all cash in the Closing Stores on and as of the start of business on the Sale Commencement Date, which cash the Agent will purchase and reimburse Borders on a dollar for dollar basis. The Guaranty Percentage has been fixed upon the aggregate Cost Value of the Merchandise not being less than $23,500,000 and no more than $26,000,000 as of March 24, 2011, excluding New Stand Inventory, periodical items, and cafe items. A table setting forth the Cost Value and corresponding Adjusted Guaranty -- the "Merchandise Threshold" -- is available for free at http://bankrupt.com/misc/Borders_MerchandiseThresholdSched.pdf As compensation to the Agent, Borders will pay to the Agent proceeds above the Guaranteed Amount and expense. The Agent will also be entitled to receive a commission based on the net proceeds of the sale of the Agent Sale FF&E, subject to certain conditions set forth in the Agency Agreement. A full-text copy of the Agency Agreement is available for free at: http://bankrupt.com/misc/Borders_Mar24AgencyAgr.pdf ----------------------------------------------------------------- [00139] DEBTORS' MOTION FOR INJUNCTION AGAINST UTILITY COMPANIES ----------------------------------------------------------------- See prior entries at [00112], [00080], [00064] and [00034]. In a supplement to their Utility Injunction Motion, the Debtors ask the Court to: (a) permit them to pay a two-week cash deposit as adequate assurance for postpetition utility service; (b) authorize them to provide alternative forms of adequate protection to Utility Companies not willing to accept the Adequate Assurance Cash Deposit, as long as those forms comply with the requirements of Section 366(c)(1)(A)(i) though (vi) of the Bankruptcy Code; (c) approve the Adequate Assurance Procedures, as modified by the Court's directives at a March 15, 2011 interim hearing; and (d) continue to prohibit the Utility Companies from altering, refusing, or discontinuing service to, or discriminating against, them solely on the basis of the filing of these Chapter 11 cases, a debt that is owed by the Debtors for services rendered prior to the Petition Date, or on account of any perceived inadequacy of the Debtors' proposed adequate assurance. Andrew K. Glenn, Esq., at Kasowitz, Benson, Torres & Friedman LLP, in New York, relates that at the Interim Hearing, the Court stated that an escrow account does not constitute adequate assurance under Section 366 of the Bankruptcy Code. The Court nevertheless entered an interim order on March 16, 2011, prohibiting Utility Companies from ceasing to provide utility services to the Debtors through April 7, 2011, the final hearing on the Debtors' Utility Motion. In accordance with the Interim Order, on March 16, 2011, the Debtors placed $2,288,211 into a segregated cash escrow account to be used to fund direct cash deposits to the Utility Companies. In addition, the Debtors will provide each Utility Company listed in the Original Utility Injunction Motion that did not object to the Original Utility Injunction Motion, or submit a timely request for, additional adequate assurance with a two-week cash deposit. By March 18, 2011, the Court-approved deadline for Utility Companies to request additional adequate assurance, the Debtors had received about 30 requests for additional adequate assurance above the proposed offer of a two-week cash deposit held in the escrow account. The Debtors also received five formal objections to the Original Utility Injunction Motion, four of which objections have been resolved and one objection was adjourned to April 7, 2011. The Debtors are also negotiating with Utility Companies that submitted Additional Assurance Requests, and hope to have all matters resolved prior to the Final Hearing. Accordingly, the Debtors propose these Modified Adequate Assurance Procedures: (1) To the extent not already provided or agreed by the Debtors and a Utility Company, the Debtors will pay each Utility Company an Adequate Assurance Cash Deposit, provided that: (a) the Utility Company does not already hold a deposit equal to or greater than two weeks of Utility Services; (b) the Utility Company has not objected to the Original Utility Injunction Motion or submitted an Additional Assurance Request; and (c) the Debtor has not terminated services with the Utility Company prior to March 24, 2011. (2) Any Utility Company that (i) failed to serve by March 18, 2011 an Additional Assurance Request, (ii) did not timely file an objection to the Original Utility Injunction Motion, or (iii) accepted by depositing into its own account the Adequate Assurance Cash Deposit is deemed to have adequate assurance that is satisfactory to it within the meaning of Section 366, subject to its right to seek additional adequate assurance in accordance with Section 366. (3) The Debtors are authorized to enter into agreements to provide adequate assurance of payment to certain Utility Companies that timely filed objections to the Original Utility Injunction Motion or timely submitted Additional Assurance Requests that may provide for, among other things, the application of prepetition security deposits against prepetition invoices, applying any prepetition balance as an adequate assurance deposit, alternative forms of adequate assurance, additional adequate assurance amounts, and agreements to comply with particular state laws. These Adequate Assurance Agreements will be deemed to satisfy the requirements of Section 366. (4) The Debtors will have until April 1, 2011, to negotiate with the requesting Utility Company to resolve its Additional Assurance Request. (5) If the Debtors are not able to resolve an Adequate Assurance Request during the Resolution Period, the Debtors may request a hearing before the Court to determine the adequacy of assurance of payment to be made to the requesting Utility Company pursuant to Section 366(c)(3)(A). (6) Any Utility Company receiving an Adequate Assurance Cash Deposit pursuant to the Interim Order will return the unused portion of such deposit upon the earlier of (i) the Debtors' termination of services from that Utility Company, or (ii) the conclusion of these Chapter 11 cases, including the effective date of a Chapter 11 plan or a sale of all or substantially all of the Debtors' assets pursuant to Section 363 of the Bankruptcy Code. By preserving a Utility Company's ability to seek additional adequate assurance, the proposed Modified Adequate Assurance Procedures properly balance the Debtors' rights with those of the Utility Companies, Mr. Glenn insists. The Debtors clarify that nothing in the Supplement should be construed as impairing their right to contest the amount of any Utility Services that may be owed to any Utility Company, and the Debtors expressly reserve all of their rights with respect to the Supplement. A final hearing on the Utility Injunction Motion is scheduled for April 7, 2011. Objections are due no later than March 31. ----------------------------------------------------------------- [00140] DEBTORS' APPLICATION TO TAP DELOITTE TAX AS TAX ADVISOR ----------------------------------------------------------------- The Debtors seek the Court's permission to employ Deloitte Tax LLP as their tax advisor, nunc pro tunc to the Petition Date. As the Debtors' tax advisor, Deloitte Tax will: (a) advise the Debtors in their work with their counsel and financial advisors on the potential cash tax effects of restructuring and bankruptcy and the post-restructuring tax profile, including plan of reorganization tax costs; (b) assist the Debtors on the analysis of the cumulative Section 3.82 of the Internal Revenue Code ownership change to date and the potential impact of proposed transactions thereon; (c) advise the Debtors regarding the restructuring and bankruptcy emergence process from a tax perspective, including the tax work plan; (d) advise the Debtors on the cancellation of debt income for income tax purpose under Section 108 of the Internal Revenue Code; (e) advise the Debtors on post-bankruptcy tax attributes available under the applicable tax regulations and the reduction of those attributes based on the Debtors' operating projections, including a technical analysis of the effects of Section 1.1502-28 of Title 26 of the Code of Federal Regulations and the interplay with Sections 108 and 1017 of the Internal Revenue Code; (f) advise the Debtors on the potential effect of the "alternative minimum tax" in various post-emergence scenarios; (g) advise the Debtors on the effects of tax rules under Section 382(1)(5) and (1)(6) of the Internal Revenue Code pertaining to the post-bankruptcy net operating loss carryovers and limitations on their utilization and the Debtors' ability to qualify for Section 382(1)(5); (h) advise the Debtors on net built-in gain or net built-in loss position at the time of "ownership change," including limitations on use of tax losses generated from post- restructuring or post-bankruptcy asset or stock sales; (i) advise the Debtors as to the proper treatment of postpetition interest for state and federal income tax purposes; (j) advise the Debtors as to the proper state and federal income tax treatment of reorganization costs, including restructuring related professional fees and other costs, the categorization and analysis of those costs and the technical positions related to it; (k) advise the Debtors on the Debtors' evaluation and modeling of the tax effects of liquidating, disposing of assets, merging or converting entities as part of the restructuring, including the effects on federal and state tax attributes, state incentives, apportionment and other tax planning; (l) advise the Debtors on state income tax treatment and planning for restructuring or bankruptcy provisions in various jurisdictions including cancellation of indebtedness calculation, adjustments to tax attributes and limitations on tax attribute utilization; (m) advise the Debtors on responding to tax notices and audits from various taxing authorities; (n) assist the Debtors with identifying potential tax refunds and advise the Debtors on procedures for tax refunds from tax authorities; (o) advise the Debtors on income tax return reporting of bankruptcy issues and related matters; (p) advise the Debtors in their review and analysis of the tax treatment of items adjusted for financial reporting purposes as a result of "fresh start" accounting as required for the emergence date of the U.S. financial statements in an effort to identify the appropriate tax treatment of adjustments to equity and other tax basis adjustments to assets and liabilities recorded; (q) assist in documenting as appropriate, the tax analysis, development of the Debtors' opinions, recommendation, observations and correspondence for any proposed restructuring alternative tax issue or other tax matter; (r) advise the Debtors in their efforts to calculate tax basis on the stock in each of the Debtors' subsidiaries or other entity interests; and (s) advise the Debtors regarding other state or federal income tax questions that may arise in the course of this engagement, as requested by the Debtors, and as may be agreed to by Deloitte Tax. The Debtors will pay Deloitte Tax's professionals according to the firm's customary hourly rates: Title Rate per Hour ----- ------------- Partner, Principal, or Director $650 to $700 Senior Manager $560 Manager $485 Senior $325 Staff $230 The Debtors will also reimburse Deloitte Tax for expenses the firm incurred or will incurred. Daniel Maher, a partner at Deloitte Tax, relates that his firm has been providing necessary services to the Debtors since the Petition Date, totaling $280,000, for which the firm will seek to be paid in its First Interim Fee Application. Mr. Maher also discloses that Deloitte Tax provided prepetition services to the Debtors for which the Debtors paid $50,000, including certain retainers in the 90-day period prior to the Petition Date. As of the Petition Date, about $6,000 was remaining with respect to the retainer, he says. As of the Petition Date, no amounts were outstanding with respect to invoices issued by Deloitte Tax before the Petition Date, he adds. Mr. Maher further discloses that: (a) Deloitte Tax provides services in matters unrelated to the Debtors' Chapter 11 cases to certain of the Debtors' largest unsecured creditors and other Potential Parties or their affiliates, a list of which is available for free at: http://bankrupt.com/misc/Borders_DeloitteTaxClients.pdf (b) Akin Gump Strauss Hauer & Feld LLP; Baker & McKenzie; Bullivant Houser Bailey PC; Dickinson Wright PLLC; Dykema; Finnegan Henderson Farabow Garrett & Dunner LLP; Fish & Richardson P.C.; Fredrikson & Byron P.A.; Jackson Lewis LLP; Jones Day; Loeb & Loeb; Lowenstein Sandler PC; McConnell Valdes; Pillsbury Winthrop Shaw Pittman LLP; Sheppard Mullin Richter and Wilkie Farr & Gallagher LLP have provided, provide, and may provide legal services to Deloitte Tax or its affiliates in matters unrelated to the Debtors' Chapter 11 cases, or Deloitte Tax or its affiliates have provided, provide, and may provide services to those firms or their clients. (c) In the ordinary course of its business, Deloitte Tax and its affiliates have business relationships in unrelated matters with its principal competitors, which together with their affiliates may be Potential Parties in these Chapter 11 cases. (d) Certain financial institutions or their affiliates are (i) lenders to an affiliate of Deloitte Consulting, or (ii) have financed a portion of the capital or capital loan requirements of various partners and principals, of Deloitte Tax and its affiliates. (e) Certain firms around the world, including Deloitte LLP, an affiliate of Deloitte Tax, are members of Deloitte Touche Tohmatsu Limited. Certain of the non-US member firms of DTT or their affiliates have provided, provide or may provide professional services to certain of the Debtors' affiliates. (f) In connection with a matter that is unrelated to the Debtors and their Chapter 11 cases, Deloitte & Touche LLP, an affiliate of Deloitte Tax, entered into a confidential settlement agreement with a number of plaintiffs, one of whom is an individual who is a principal with an entity that is a bondholder of the Debtors or an affiliate thereof. (g) Deloitte & Touche and certain of its affiliates provide professional services to certain members of the Debtors' Official Committee of Unsecured Creditors in matters unrelated to the Debtors' Chapter 11 cases, including as a retained professional in the bankruptcy cases of General Growth Properties, Inc. (h) Personnel of Deloitte Tax and its affiliates are likely to be ordinary course customers of the Debtors; however, Deloitte Tax has not conducted any research to determine whether, in fact, those relationships exist. Despite those disclosures, Mr. Maher maintains that Deloitte Tax is a "disinterested person" as the term is defined in Section 101(14) of the Bankruptcy Code. ----------------------------------------------------------------- [00141] DEBTORS' APPLICATION TO EMPLOY DELOITTE CONSULTING ---------------------------------------------------------------- The Debtors seek the Court's permission to employ Deloitte Consulting LLP as their consulting services provider, nunc pro tunc to March 7, 2011. As the Debtors' consulting services provider, Deloitte Consulting will provide information technology services and human resources services: * Under Information Technology Services, Deloitte Consulting will: (a) provide day-to-day advice and assistance to the Debtors' acting Chief Information Officer and assist him in assessing the portfolio of information technology related contracts with the objective of rationalizing those contracts in light of the Debtors' bankruptcy filing; and (b) assist with the Debtors' assessment of the reasonableness of staffing within the Debtors' IT function, including understanding and documenting roles, responsibilities, staff counts and other demographic information in order to right-size the IT organization. * Under Human Resources Services, Deloitte will assist: (a) with the Debtors' assessment of the near- and long- term costs and benefits from outsourcing IT; (b) the Debtors in their review of the current payroll implementation landscape; (c) the Debtors in a review of the feasibility of accelerating the current payroll implementation timeline and ability to retire legacy applications; and (d) the Debtors with a recommendation on a revised payroll implementation strategy, if needed. The Debtors will pay Deloitte Consulting's professionals according to the firm's customary hourly rates, which are: Title Rate per Hour ----- ------------- Partner, Principal $835 Director $755 Senior Manager $695 Manager $645 Senior Consultant $525 Consultant/Analyst $410 Deloitte Consulting will also be reimbursed for expenses it incurred or will incur. Joseph Krolczyk, a director at Deloitte Consulting, disclosed that his firm has been providing necessary services to the Debtors since March 7, 2011, for $400,000 for which the firm intends to seek payment in its first interim fee application. Mr. Krolczyk also incorporated in his declaration the disclosures made by Daniel Maher at Deloitte Tax LLP, an affiliate of Deloitte Consulting, in connection with the Debtors' Application to Employ Deloitte Tax. Notwithstanding those disclosures, Deloitte Consulting is a "disinterested person" as that term is defined in Section 101(14) of the Bankruptcy Code, Mr. Krolczyk maintains. ----------------------------------------------------------------- [00142] DEBTORS' APPLICATION TO EMPLOY ERNST & YOUNG AS AUDITOR ----------------------------------------------------------------- The Debtors seek the Court's permission to employ Ernst & Young LLP as their accounting, tax, and audit services provider, nunc pro tunc to the Petition Date. As the Debtors' auditor, E&Y LLP will provide the Debtors with accounting, tax and audit services: (1) Statement of Work #1 - Business Tax Returns Preparation E&Y LLP will provide the following services under SOW #1, subject to the provisions of the related Master Services Agreement: * Complete Puerto Rico Corporate Income Tax Return; * Complete Quarterly Estimated Income Tax Returns; * Complete 2010 Corporate Annual Report; * Complete 2011-2012 Volume of Business Tax Declaration; * Complete 2010 Puerto Rico Personal Property Tax Return; * Original estimated tax payment computations; and * Extension requests. (2) Statement of Work #2 - Fresh Start Accounting E&Y will provide the following services under SOW #2, subject to the provisions of the related MSA: * Review emergence transaction to understand potential accounting implications; * Identify relevant existing authoritative guidance or literature; * Provide a general interpretation of relevant accounting standards, including; general provisions and high-level application to the illustrative fact pattern E&Y LLP provides; * Review emergence transaction to understand tax implications associated with the application of fresh start accounting; * Provide general commentary and observations related to E&Y LLP's detailed work plans to implement fresh start accounting, as well as highlighting for management the interdependencies between workstreams and disciplines that will require active oversight by E&Y LLP's project management office; * Provide Fresh-Start Accounting training to management; * Provide blank templates to be used by management to facilitate their modeling of goodwill and the emergence balance sheet based upon the effects of the Plan of Reorganization and the application of Fresh Start Accounting; * Review management's documentation of accounting conclusions related to its interpretation of the tax and accounting implications of applying Fresh Start Accounting; and * Reviewing other process memos prepared by management describing the controls put into place over data flows between departments and to and from the designated valuation service providers. (3) U.S. Plan Audit E&Y LLP will audit and report on the financial statements and supplemental schedules of the Borders Group, Inc. Savings Plan for the year ended December 31, 2010, which are to be included in that Plan's Form 5500 filing with the Employee Benefits Security Administration of the Department of Labor and that Plan's Form 11-K filing with the U.S. Securities and Exchange Commission. (4) Puerto Rico Plan Audit E&Y LLP will audit and report on the financial statements and supplemental schedules of the Borders Group, Inc. Savings Plan for Employees Working in Puerto Rico for the year ended December 31, 2010, which are to be included in that Plan's Form 5500 filing with the Employee Benefits Security Administration of the Department of Labor. E&Y LLP intends to charge the Debtors for the services rendered in these Chapter 11 cases based on its hourly rates for those services: SOW #1- Business Tax Returns Preparation Title Rate per Hour ----- ------------- Partner, Principal and Director $319 to $352 Senior Manager, Manager $243 to 268 SOW #2 - Fresh-start Title Rate per Hour ----- ------------- Professional Practice Director Partner $500 to $550 Professional Practice Director Manager $300 to $350 Bankruptcy Subject Matter Professional (Partner) $375 to $400 (Senior Manager) $295 Partner, Principal and Director $319 to $352 Senior Manager, Manager $243 to $268 Senior $154 to $170 Staff $106 to $117 Integrated Audit Engagement Letter Title Rate per Hour ----- ------------- Professional Practice Director Partner $500 to $550 Professional Practice Director Manager $300 to $350 Bankruptcy Subject Matter Professional (Partner) $375 to $400 (Senior Manager) $295 Partner, Principal and Director $319 to $352 Senior Manager, Manager $243 to $268 Senior $154 to $170 Staff $106 to $117 U.S. Plan Audit Engagement Title Rate per Hour ----- ------------- Partner, Principal and Director $319 to $352 Senior Manager, Manager $243 to $268 Senior $154 to $170 Staff $106 to $117 PR Plan Audit Engagement Title Rate per Hour ----- ------------- Partner, Principal and Director $319 to $352 Senior Manager, Manager $243 to $268 Senior $154 to $170 Staff $106 to $117 The Debtors will also reimburse E&Y for actual and necessary expenses the firm incurs. Brian T. Coughlin, a partner at E&Y LLP, discloses that his firm is represented by Alston & Bird LLP in the Chapter 11 cases of the Debtors and other bankruptcy cases. E&Y LLP understands that Alston & Bird anticipates that it may also be asked to appear on behalf of a significant creditor in the Debtors' bankruptcy cases. Before the Petition Date, Ernst & Young Puerto Rico LLC and Ernst & Young LLP (United Kingdom) provided services to the Debtors or their non-debtor affiliates, according to Mr. Coughlin. Ernst & Young (Malaysia) and Ernst & Young LLP (United Kingdom) will not be providing services to the Debtors or their non-debtor affiliates during these bankruptcy cases, he tells the Court. After the Petition Date, E&Y LLP utilized a global services center operated by Ernst & Young Private Ltd. or EYPL, and EYGBS (India) Private Ltd. for certain services provided to the Debtors. The Debtors will not be required to pay for those minimal postpetition Services provided by E&Y GTC, and E&Y LLP will not be utilizing E&Y GTC in support of services in the Debtors' bankruptcy cases going forward, Mr. Coughlin says. E&Y LLP also intends to subcontract with its affiliate, Ernst & Young Puerto Rico LLC, in connection with Services under the Integrated Audit Engagement Letter and SOW #1. E&Y LLP intends to charge the Debtors for the hourly fees and the expenses incurred for services performed by E&Y PR. E&Y has provided or is providing services to parties-in-interest in matters unrelated to the Debtors' Chapter 11 cases, a schedule of which is available for free at: http://bankrupt.com/misc/Borders_E&YPotentialParties.pdf Mr. Coughlin continues that E&Y LLP has yet to confirm that the work that it may be doing for, or may have done for Bangor Hydro Electric Co., City of Clearwater, Cushman & Wakefield, and Reliant Energy is unrelated to the Debtors and these Chapter 11 cases. Mr. Coughlin also relates that E&Y LLP is a party or participant in certain litigation matters involving parties-in-interest in these Chapter 11 cases, a list of which is available for free at: http://bankrupt.com/misc/Borders_E&YLitigationMatters.pdf E&Y LLP was owed $137,766 by the Debtors in respect of services provided to the Debtors after the Petition Date. During the 90- day period immediately preceding the Petition Date, the Debtors paid to E&Y LLP amounts totaling $244,124, of which $190,100 constituted advance payments for fees and expenses not yet incurred. As of the Petition Date, E&Y LLP was holding a credit balance of $175,178, which retainer is to be applied by E&Y LLP in payment of compensation and reimbursement of expenses incurred during the pendency of the Debtors' Chapter 11 cases. Mr. Coughlin maintains that E&Y LLP is a "disinterested person" as the term is defined under Section 101(14) of the Bankruptcy Code. ----------------------------------------------------------------- [00143] DEBTORS' APPLICATION TO EMPLOY MERCER AS CONSULTANT ----------------------------------------------------------------- The Debtors seek the Court's permission to employ Mercer (US) Inc. as their compensation consultant, nunc pro tunc to the Petition Date. As the Debtors' consultant, Mercer will: (a) review current compensation programs and 2011 business plan and restructuring plans and, when requested, execute a site visit and executive interviews to review current talent challenges; (b) develop an executive compensation program that would be appropriate and motivational during the restructuring period, including, without limitation, cash-based short- term incentives, new equity participation arrangements, and post-bankruptcy employment security arrangements; (c) participate, when requested, in discussions among the Debtors, their creditor constituencies, and the United States Trustee for Region 2, among other things, to explain the purposes and terms of applicable compensation programs and provide the results of Mercer's analysis of same; and (d) if requested, provide testimony regarding Mercer's findings, conclusions and recommendations, as applicable, including without limitation, at any deposition or hearing held in connection with the Debtors' restructuring, confirmation of a plan of reorganization, or in connection with proceedings to approve any particular compensation programs and payments during the pendency of the Debtors' Chapter 11 cases. The Debtors will pay Mercer's professionals according to the firm's customary hourly rates: Title Rate per Hour ----- ------------- Partner $700 to $950 Principal $500 to $700 Senior Associate $350 to $550 Associate $250 to $400 Analyst $150 to $300 Researcher $50 to $150 Mercer will also be reimbursed for expenses to be incurred. John Dempsey, a partner at Mercer, relates that the Debtors and his firm promptly began negotiating the terms of Mercer's Engagement Letter before the Petition Date. However, in advance of the Debtors' bankruptcy filing on February 16, 2011, it was necessary for Mercer to begin performing certain services on a limited basis in order to ensure the prompt and efficient development of the Debtors' incentive and compensation plans. Mercer received a prepetition retainer from the Debtors for $40,000. As of the Petition Date, the balance of the retainer totaled $5,722, according to Mr. Dempsey. Mr. Dempsey further discloses that certain parties were former or current clients of Mercer in matters unrelated to the Debtors' Chapter 11 cases, a schedule of which is available for free at: http://bankrupt.com/misc/Borders_MercerClients.pdf Mr. Dempsey insists that Mercer is a "disinterested person" as defined under Section 101(14) of the Bankruptcy Code. ----------------------------------------------------------------- [00144] COVENTRY RETAIL'S MOTION TO LIFT STAY TO EVICT DEBTOR ----------------------------------------------------------------- See prior entries at [00131] and [00052]. Judge Glenn entered another stipulated order terminating a lease between the Debtors and Coventry Retail, LP and resolving Coventry's Lift Stay Motion, which is substantially similar to the stipulated order signed by the Court last March 24, 2011. ----------------------------------------------------------------- [00145] TOYS CENTER'S MOTION TO COMPEL POSTPETITION RENT PAYMENT ----------------------------------------------------------------- See prior entries at [00119] and [00091]. Toys Center, LLC withdrew its motion to compel payment of postpetition rent and its objection to the Debtors' motion to extend Lease Decision Period. Toys Center expressly reserved all of its rights and remedies. ----------------------------------------------------------------- [00146] PALLET COMPANIES' MOTION TO ALLOW $8,270 ADMIN. CLAIM ----------------------------------------------------------------- Pallet Companies, Inc. d/b/a IFCO Systems sold and delivered pallets to the Debtors worth $8,270. IFCO insists that the sales to the Debtors fall during the 20-day period prior to commencement of these Chapter 11 cases under Section 503(b)(9) of the Bankruptcy Code. Accordingly, IFCO asks the Court to grant it an administrative expense priority claim for $8,270 and direct the Debtor to immediately pay the claim. ----------------------------------------------------------------- [00147] ENTITIES FILE NOTICES OF SUBSTANTIAL STOCK OWNERSHIP ----------------------------------------------------------------- See prior entries at [00134] and [00093] and related entry at [00033] (Debtors' Motion to Set Up Claims Trading Protocol). Simon and LeBow File Notices of Ownership Simon & Schuster, Inc. and LeBow Gamma Limited Partnership filed with the Court on March 25 and 28, 2011, notices of substantial ownership of Borders Group, Inc. claim and stock. Specifically, Simon & Schuster disclosed that it beneficially owns a $36,223,773 claim against the Debtors for invoices between August 19, 2010 and January 4, 2011. LeBow said it owns shares of Borders common stock and options to acquire shares of Borders common stock, but redacted the amount of shares owned. ----------------------------------------------------------------- [00148] ROSETTA STONE RECORDS $0.9-MIL. CHARGE RELATED TO BORDERS ----------------------------------------------------------------- Rosetta Stone Inc. recorded a charge of $0.9 million associated with the potential loss of its accounts receivable from Borders Group, Inc. as a result of Borders' bankruptcy filing during the quarter ended December 31, 2010, Rosetta disclosed in its Form 10-K filing with the U.S. Securities and Exchange Commission for the year ended December 31, 2010. Rosetta also changed the accounting for revenue and bookings for the three months ended December 31, 2010, for Borders on a cash basis, which reduced both revenue and bookings by approximately $1.7 million and $2 million respectively. "Additional store closures by Borders could result in more inventory liquidations and negatively impact sales of our products by other retailers," Rosetta said. Rosetta develops, markets, and sells language learning solutions consisting of software, online services, and audio practice tools primarily under the Rosetta Stone brand. *** End of Issue No. 9 ***