Exhibit 10.3
EXECUTION VERSION
AMENDMENT NO. 3
to the
SECOND AMENDED AND RESTATED MULTICURRENCY
REVOLVING CREDIT AGREEMENT
     This AMENDMENT NO. 3, dated as of April 9, 2008 (this “Amendment”), to the
SECOND AMENDED AND RESTATED MULTICURRENCY REVOLVING CREDIT AGREEMENT is by and
among (a) BORDERS GROUP, INC. (“BGI”), a Michigan corporation, BORDERS, INC., a
Colorado corporation (“Borders”), WALDEN BOOK COMPANY, INC., a Colorado
corporation (“Walden”), BGP (UK) LIMITED, a company with limited liability
organized under the laws of England and Wales (“BGP (UK)” and together with BGI,
Borders and Walden, the “Co-Borrowers”), (b) BORDERS AUSTRALIA PTY LIMITED, a
company organized under the laws of Australia (the “Australian Borrower”),
(c) any other Subsidiary of BGI which becomes a Borrower hereunder pursuant to
§5.16 (together with the Co-Borrowers and the Australian Borrower, the
“Borrowers”), (d) the lending institutions from time to time party to the Credit
Agreement (as defined herein) (the “Lenders”), (e) BANK OF AMERICA, N.A., as
administrative agent and as collateral agent for itself and such other lending
institutions (the “Administrative Agent”), (f) JPMORGAN CHASE BANK, N.A. and
WELLS FARGO RETAIL FINANCE, LLC, each as a syndication agent for itself and such
other lending institutions (collectively, the “Co-Syndication Agents”), (g)
GENERAL ELECTRIC CAPITAL CORPORATION and LASALLE RETAIL FINANCE, a division of
LA SALLE BUSINESS CREDIT, LLC, each as documentation agent for itself and such
other lending institutions (collectively, the “Co-Documentation Agents”) and (h)
BANK OF AMERICA, N.A., as an Issuing Bank hereunder, and with BANC OF AMERICA
SECURITIES LLC and JPMORGAN SECURITIES INC., as Co-Lead Arrangers. Capitalized
terms used herein and not otherwise defined shall be defined as provided in §1.
     WHEREAS, the Borrowers, the Lenders and the Agents are parties to that
certain Second Amended and Restated Multicurrency Revolving Credit Agreement
dated as of July 31, 2006 (as amended by that certain Amendment No. 1, dated as
of April 2, 2007, as amended by that certain Amendment No. 2, dated as of
August 28, 2007 (the “Second Amendment”), as amended by this Amendment, and as
may be further amended, restated, amended and restated, supplemented, modified
and otherwise in effect from time to time, the “Credit Agreement”);
     WHEREAS, the Borrowers request that the Lenders and the Agents amend
certain of the terms and provisions of the Credit Agreement as set forth herein
to allow for, among other things, (i) the Pershing Square Transactions (as
hereinafter defined), and (ii) the extension of the completion deadline for
certain Permitted Restructuring Transactions, and, subject to the terms and
conditions hereof, the Lenders and Agents, have agreed to amend the Credit
Agreement as set forth herein;
     NOW, THEREFORE, the Borrowers, the Lenders and the Agents hereby agree as
follows:
     §1. Defined Terms. Capitalized terms used herein without definition,
including in the foregoing Recitals, that are defined in the Credit Agreement
shall have the same meanings herein as in the Credit Agreement.
     §2. Certain Amendments to the Credit Agreement. Subject to the satisfaction
of the conditions to effectiveness set forth in Section 6 of this Amendment, the
Credit Agreement is hereby amended as follows:
     (a) Amendment to the definition of “Aggregate Borrowing Base”. The
definition of “Aggregate Borrowing Base” in §1.1 of the Credit Agreement is
hereby amended by deleting

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the phrase “ten (10) Business Days” “ in the last paragraph of such definition
and substituting the phrase “five (5) Business Days” in lieu thereof.
     (b) Amendment to the definition of “Applicable Margin”. The definition of
“Applicable Margin” in §1.1 of the Credit Agreement is hereby amended and
restated in its entirety as follows:
     “Applicable Margin. For each period commencing on an Adjustment Date
through the date immediately preceding the next Adjustment Date (each a “Rate
Adjustment Period”), the Applicable Margin shall be the applicable margin set
forth below with respect to the arithmetic mean of the daily Aggregate Excess
Availability as determined for the Fiscal Quarter of BGI and its Subsidiaries
ended immediately prior to the applicable Rate Adjustment Period.

                                                                      Standby  
Documentary     Aggregate   Base   Eurocurrency   Letter of   Letter of    
Excess   Rate   Rate   Credit   Credit Level   Availability   Loans   Loans  
Fees   Fees
  I
  Greater than or     0.25 %     2.00 %     2.00 %     1.00 %
 
  equal to                                
 
  $ 350,000,000                                  
 II
  Greater than or     0.50 %     2.25 %     2.25 %     1.125 %
 
  equal to                                
 
  $150,000,000                                
 
  but less than                                
 
  $ 350,000,000                                  
III
  Less than     0.75 %     2.50 %     2.50 %     1.25 %
 
  $ 150,000,000                                  

     Notwithstanding the foregoing, (i) if the Borrowers fail to deliver any
Compliance Certificate pursuant to §8.4(c) hereof then, for the period
commencing on the next Adjustment Date to occur subsequent to such failure
through the date immediately following the date on which such Compliance
Certificate is delivered, the Applicable Margin shall be the Applicable Margin
set forth in Level III above and (ii) the Applicable Margin for the period from
the Third Amendment Effective Date through December 31, 2008 shall be the
Applicable Margin set forth in Level III above. For the avoidance of doubt, for
the period from January 1, 2009 to the date immediately preceding the next
Adjustment Date, the Applicable Margin shall be calculated with reference to the
Compliance Certificate delivered by the Borrowers with respect to the Fiscal
Quarter of the Borrowers ending November 1, 2008.
     Notwithstanding anything to the contrary in the foregoing, in the event
either the Borrowers or the Administrative Agent determines, in good faith, that
the calculation of the Aggregate Excess Availability on which the Applicable
Margin for any particular period was determined is inaccurate and, as a
consequence thereof, the Applicable Margin was lower or higher than it would
have been, (i) the Borrowers shall promptly (but in any event within ten
(10) Business Days) deliver (after the Borrowers discover such inaccuracy or the
Borrowers are notified by the Administrative Agent of such inaccuracy, as the
case may be) to the Administrative Agent correct financial and

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borrowing base information for such period, (ii) the Administrative Agent shall
determine and notify the Borrowers of the amount of interest that would have
been due in respect of any of the outstanding Obligations, if any, during such
period had the Applicable Margin been calculated based on the correct Aggregate
Excess Availability and (iii) the Borrowers shall promptly pay to the
Administrative Agent the difference, if any, between that amount and the amount
actually paid in respect of such period. The foregoing shall in no way limit the
rights of the Administrative Agent or the Lenders to exercise their rights to
impose the rate of interest applicable during an Event of Default as provided
herein.”
     (c) Amendment to the definition of “Cash Dominion Event”. Solely for the
period from the Third Amendment Effective Date to and including December 15,
2008, the definition of “Cash Dominion Event” in §1.1 of the Credit Agreement is
hereby amended by adding the following proviso at the end of such definition (it
being understood that after December 15, 2008 the definition of “Cash Dominion
Event” contained in §1.1 of the Credit Agreement shall revert back to the
definition in effect immediately prior to the effectiveness of this Amendment):
     “provided that, solely for the purposes of §10.1 (Fixed Charge Coverage
Ratio) for the period from the Third Amendment Effective Date to and including
December 15, 2008, “Cash Dominion Event” shall mean any time either (a) an Event
of Default shall have occurred or (b) the Total Facility Usage Ratio exceeds
92.5%.”
     (d) Amendment to the definition of “Domestic Borrowing Base”. The
definition of “Domestic Borrowing Base” in §1.1 of the Credit Agreement is
hereby amended by deleting the phrase “ten (10) Business Days” in the last
paragraph of such definition and substituting the phrase “five (5) Business
Days” in lieu thereof.
     (e) Amendment to the definition of “Indebtedness”. The definition of
“Indebtedness” in §1.1 of the Credit Agreement is hereby amended by adding the
following text at the end of such definition:
     “Notwithstanding anything to the contrary in this definition of
Indebtedness, the obligations (whether for cash, common shares of BGI or
otherwise) of BGI and its Subsidiaries to settle the Pershing Square Warrants,
any stock appreciation rights issued in lieu thereof or any debt or equity
instruments (including interest and fees thereon) issued as a result of or in
connection with the deferral of any payment in respect of the Pershing Square
Warrants or any settlement, exercise, purchase, redemption, defeasance,
retirement, payment, acquisition or otherwise thereof shall not constitute
Indebtedness hereunder.”
     (f) Amendment to the definition of “Last Out Applicable Margin”. The
definition of “Last Out Applicable Margin” in §1.1 of the Credit Agreement is
hereby amended and restated in its entirety as follows:
     “Last Out Applicable Margin. For each period commencing on an Adjustment
Date through the date immediately preceding the next Adjustment Date (each a
“Rate Adjustment Period”), the Last Out Applicable Margin shall be the
applicable margin set forth below with respect to the Consolidated EBITDA as
determined for the four (4)

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Fiscal Quarters of BGI and its Subsidiaries ended immediately prior to the
applicable Rate Adjustment Period.

                                              Eurocurrency                    
Rate Level   Consolidated EBITDA   Base Rate Loans   Loans
  I
  Greater than or equal to                
 
  $ 250,000,000       1.25 %     3.00 %
 
  Greater than or equal to                
 
  $225,000,000 but less than                
 II
  $ 250,000,000       1.50 %     3.25 %
III
  Less than $225,000,000     1.75 %     3.50 %

     Notwithstanding the foregoing, (i) if the Borrowers fail to deliver any
Compliance Certificate pursuant to §8.4(c) hereof then, for the period
commencing on the next Adjustment Date to occur subsequent to such failure
through the date immediately following the date on which such Compliance
Certificate is delivered, the Last Out Applicable Margin shall be the Last Out
Applicable Margin set forth in Level III above and (ii) the Applicable Margin
for the period from the Third Amendment Effective Date through December 31, 2008
shall be the Applicable Margin set forth in Level III above. For the avoidance
of doubt, for the period from January 1, 2009 to the date immediately preceding
the next Adjustment Date, the Applicable Margin shall be calculated with
reference to the Compliance Certificate delivered by the Borrowers with respect
to the Fiscal Quarter of the Borrowers ending November 1, 2008.
     Notwithstanding anything to the contrary in the foregoing, in the event
either the Borrowers or the Administrative Agent determines, in good faith, that
the calculation of the Consolidated EBITDA on which the Last Out Applicable
Margin for any particular period was determined is inaccurate and, as a
consequence thereof, the Last Out Applicable Margin was lower or higher than it
would have been, (i) the Borrowers shall promptly (but in any event within ten
(10) Business Days) deliver (after the Borrowers discover such inaccuracy or the
Borrowers are notified by the Administrative Agent of such inaccuracy, as the
case may be) to the Administrative Agent correct financial statements and
information for such period, (ii) the Administrative Agent shall determine and
notify the Borrowers of the amount of interest that would have been due in
respect of any of the outstanding Obligations, if any, during such period had
the Last Out Applicable Margin been calculated based on the correct Consolidated
EBITDA and (iii) the Borrowers shall promptly pay to the Administrative Agent
the difference, if any, between that amount and the amount actually paid in
respect of such period. The foregoing shall in no way limit the rights of the
Administrative Agent or the Lenders to exercise their rights to impose the rate
of interest applicable during an Event of Default as provided herein.”
     (g) Amendment to the definition of “Other Reserves”. The definition of
“Other Reserves” in §1.1 of the Credit Agreement is hereby amended and restated
in its entirety as follows:
     “Other Reserves. As determined by the Administrative Agent in its
reasonable discretion exercised in a commercially reasonable manner, such
amounts as the Administrative Agent may from time to time establish and revise
(a) to reflect events,

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conditions, contingencies or risks which do, or which the Administrative Agent
believes may reasonably be expected to, (i) adversely affect either (A) any
Collateral, the rights of the Administrative Agent, the Collateral Agent or any
of the Lenders in any Collateral or its value or (B) the security interest and
other rights of the Administrative Agent , the Collateral Agent or any of the
Lenders in the Collateral (including the enforceability, perfection and priority
thereof) or (ii) adversely affect in any material respect the business or
financial condition of any of the Borrowers individually or the Borrowers and
their Subsidiaries taken as a whole, (b) to reflect the belief of the
Administrative Agent that any Borrowing Base Report or other collateral report
or financial information furnished (or not furnished) by or on behalf of the
Borrowers to the Administrative Agent or any of the Lenders is or may have been
incomplete, inaccurate or misleading in any material respect or (c) to reflect
any obligations (other than the Loans and Letters of Credit) secured by the
Collateral (including, without limitation, Cash Management Obligations and/or
obligations in respect of Hedging Agreements). The amount of any Other Reserves
established or revised by the Administrative Agent shall in each case be based
on the Administrative Agent’s determination that such amount bears a reasonable
relationship to the applicable event, condition, contingency or risk described
in clause (a) of this definition, the applicable report or information described
in clause (b) or the applicable obligations described in clause (c) of this
definition.”
     (h) Amendment to the definition of “Restricted Payment”. The definition of
“Restricted Payment” in §1.1 of the Credit Agreement is hereby amended and
restated in its entirety as follows:
     “Restricted Payments. In relation to BGI and its Subsidiaries, any (a)
Distribution, (b) payment in cash or other property (other than common shares or
additional warrants or rights to acquire common shares or other equity
securities or stock appreciation rights of BGI) arising or resulting from the
settlement, exercise, purchase, redemption, defeasance, retirement, payment,
acquisition or otherwise of the Pershing Square Warrants or any debt or equity
instruments (including interest and fees thereon) issued as a result of or in
connection with the deferral of any payment in respect of the Pershing Square
Warrants or any settlement, exercise, purchase, redemption, defeasance,
retirement, payment, acquisition or otherwise thereof or (c) derivatives or
other transactions with any financial institution, fund, commodities or stock
exchange, clearinghouse or other Person (a “Derivatives Counterparty”)
obligating BGI or any of its Subsidiaries to make payments to such Derivatives
Counterparty as a result of any change in market value of any Capital Stock of
BGI or such Subsidiary.”
     (i) Amendments to §1.1 of the Credit Agreement. Section 1.1 of the Credit
Agreement is hereby amended by adding the following new definitions in the
appropriate alphabetical order:
     “Borders Bookshop. Bookshop Acquisitions Ltd., a company organized under
the laws of England and Wales.”
     “Borders New Zealand. Borders New Zealand Limited, a company organized
under the laws of New Zealand, and its Subsidiaries.”
     “Borders Singapore. Borders PTE. Ltd (Singapore), a company organized under
the laws of Singapore.

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     “Paperchase. Paperchase Products Limited, a company with limited liability
organized under the laws of England and Wales, and its Subsidiaries.”
     “Permitted Pershing Square Term Loan Payments. Collectively, (a) interest
and fees payable on the Pershing Square Term Loan Facility in amounts no greater
than those provided in the Pershing Square Term Loan Documents as in effect on
the Pershing Square Transaction Effective Date, (b) the payment of the
outstanding principal amount of the Pershing Square Term Loan Facility on or
after the maturity date thereof in accordance with the Pershing Square Term Loan
Documents as in effect on the Pershing Square Transaction Effective Date and
(c) any mandatory prepayment of principal made no earlier and in no greater
amount than required by the Pershing Square Term Loan Documents as in effect on
the Pershing Square Transaction Effective Date.”
     “Pershing Square. Pershing Square Capital Management, L.P. and/or its
Affiliates (other than BGI and its Subsidiaries).”
     “Pershing Square Commitment Letter. The Commitment Letter, dated as of
March 19, 2008, by and between BGI and Pershing Square Capital Management, L.P.,
together with all Exhibits attached thereto.”
     “Pershing Square Purchase Offer. The purchase offer, dated as of the
Pershing Square Transaction Effective Date, made by Pershing Square to BGI,
pursuant to which BGI may elect to sell, and provided that such sales are
consummated on or prior to January 15, 2009 (or, subject to
Section 9.5.2(d)(iv)(B), such later date as may be agreed to by BGI and Pershing
Square), any or all of the following (directly or through the sale of one or
more holding companies with no other assets): (i) one hundred percent (100%) of
the Capital Stock of each of the Australian Borrower, Borders New Zealand,
Borders Singapore and Paperchase and BGI’s interest in seventeen percent (17%)
of the Capital Stock of Borders Bookshop for a minimum aggregate purchase price
of $125 million (minus attributable indebtedness and customary purchase price
adjustments as contemplated thereunder), (ii) one hundred percent (100%) of the
Capital Stock of Paperchase and BGI’s interest in seventeen percent (17%) of the
Capital Stock of Borders Bookshop for a minimum aggregate purchase price of
$55 million (minus attributable indebtedness and customary purchase price
adjustments as contemplated thereunder) or (iii) one hundred percent (100%) of
the Capital Stock of Borders Singapore, Paperchase and BGI’s interest in
seventeen percent (17%) of the Capital Stock of Borders Bookshop for a minimum
aggregate purchase price of $57.5 million (minus attributable indebtedness and
customary purchase price adjustments as contemplated thereunder) and, in each
case, the documentation related to such proposed purchases (including, without
limitation, any stock purchase agreement relating to such purchases), all with
terms and conditions materially consistent with the purchase offer transaction
described in the Pershing Square Commitment Letter and the terms of the Pershing
Square Purchase Offer Documents delivered on or prior to the Pershing Square
Transaction Effective Date (except as such documents may be changed in a manner
not materially adverse to the Agents and the Lenders).”
     “Pershing Square Purchase Offer Documents. The Pershing Square Purchase
Offer, together with all agreements, documents, instruments and certificates
relating to the transactions contemplated thereby, all with terms and conditions
materially consistent with the purchase offer described in the Pershing Square
Commitment Letter and the terms of the Pershing Square Purchase Offer Documents
delivered on or prior to the

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Pershing Square Transaction Effective Date (except as such documents may be
changed in a manner not materially adverse to the Agents and the Lenders).”
     “Pershing Square Purchase Offer Subsidiaries. Those Subsidiaries of BGI who
are subject to the purchase offer under the Pershing Square Purchase Offer
Documents, who are the Australian Borrower, Borders New Zealand, Borders
Singapore and Paperchase.”
     “Pershing Square Term Loan Agent. Pershing Square, in its capacity as term
administrative agent and collateral agent under the Pershing Square Term Loan
Documents and any successor or permitted assigns of Pershing Square in such
capacity.”
     “Pershing Square Term Loan Documents. The term loan agreement dated on or
about the Pershing Square Transaction Effective Date, among BGI, the Pershing
Square Term Loan Agent, the Pershing Square Term Loan Lenders and the other
parties thereto, together with all agreements, documents, instruments and
certificates relating to the transactions contemplated thereby, all with terms
and conditions materially consistent with the term loan transaction described in
the Pershing Square Commitment Letter and the terms of the Pershing Square Term
Loan Documents delivered on or prior to the Pershing Square Transaction
Effective Date (except as such documents may be changed in a manner not
materially adverse to the Agents and the Lenders).”
     “Pershing Square Term Loan Facility. That certain term loan facility in an
aggregate principal amount not to exceed $42,500,000 to be provided to BGI by
the Pershing Square Term Loan Agent and the Pershing Square Term Loan Lenders
pursuant to the Pershing Square Term Loan Documents.”
     “Pershing Square Term Loan Lenders. Collectively, the lenders under the
Pershing Square Term Loan Documents.”
     “Pershing Square Term Loan Payment. See §9.19.”
     “Pershing Square Transaction Effective Date. The date upon which the
conditions to effectiveness of all of the Pershing Square Term Loan Facility are
satisfied or waived in accordance with the terms thereof, the transactions
contemplated thereby are consummated (including the issuance of the Pershing
Square Warrants and the receipt by BGI of the Pershing Square Purchase Offer)
and BGI receives the net proceeds from the Pershing Square Term Loan Facility.”
     “Pershing Square Transactions. Collectively, the transactions contemplated
by the Pershing Square Term Loan Documents, the transactions contemplated by the
Pershing Square Purchase Offer Documents and the Pershing Square Warrant
Transaction, including without limitation the performance by BGI and its
Subsidiaries of their respective obligations thereunder.”
     “Pershing Square Warrants. The warrants to purchase common stock issued by
BGI to Pershing Square on the Pershing Square Transaction Effective Date under
the Pershing Square Warrant Transaction, and including any stock appreciation
rights and/or derivatives issued in lieu of all or a portion thereof under the
Pershing Square Warrant Transaction.”

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     “Pershing Square Warrant Transaction. The issuance by BGI to Pershing
Square on the Pershing Square Transaction Effective Date of warrants to purchase
BGI common stock at $7.00 per share for a term of 7.5 years (and including any
stock appreciation rights or derivatives issued in lieu thereof or in addition
thereto), such warrants to represent 19.99% of the fully-diluted shares of BGI
on a pro forma basis giving effect to the issuance of the shares underlying such
warrants (but excluding employee stock options, and any obligations in respect
thereof) and/or the issuance of stock appreciation rights or derivatives in lieu
of Pershing Square Warrants, all on terms and conditions materially consistent
with the warrant transaction described in the Pershing Square Commitment Letter
and the terms of the documents relating to the Pershing Square Warrant
Transaction delivered on or prior to the Pershing Square Transaction Effective
Date (except as such documents may be changed in a manner not materially adverse
to the Agents and the Lenders).”
     “Third Amendment Effective Date. April 9, 2008.”
     (j) Amendment to §2.2.1 of the Credit Agreement. Section 2.2.1 of the
Credit Agreement is hereby amended by deleting the reference to “0.20%” in such
Section 2.2.1 and substituting “0.25%” in lieu thereof.
     (k) Amendment to §4.1.1 of the Credit Agreement. Section 4.1.1 of the
Credit Agreement is hereby amended by amending and restating the clause “one or
more standby or documentary letters of credit” of the first sentence of such
Section 4.1.1 in its entirety as follows:
     “one or more standby or documentary letters of credit, including without
limitation, any bankers’ acceptance issued on account of any such standby or
documentary letter of credit”
     (l) Amendment to §6.1 of the Credit Agreement. Section 6.1 of the Credit
Agreement is hereby amended by adding the following new sentence at the end of
such section:
     “Notwithstanding anything to the contrary contained in this Section 6, the
parties hereto agree that Paperchase shall not be required to be a guarantor of
any of the Obligations hereunder.”
     (m) Amendment to §8.5 of the Credit Agreement. Section 8.5 of the Credit
Agreement is hereby amended by adding the following new Sections 8.5.7, 8.5.8
and 8.5.9:
     “Section 8.5.7. [Reserved].
     Section 8.5.8. Notice of Default under the Pershing Square Term Loan
Documents.
     The Borrowers shall, and shall cause each of their Subsidiaries to, deliver
to the Lenders notice of any occurrence of any Event of Default (or event or
circumstance that with the giving of notice or the passage of time, or both,
could become an Event of Default) under the Pershing Square Term Loan Documents,
such delivery to be made promptly after becoming aware of such event or
circumstance or after such notice or other communication is received by any such
Borrower or any such Subsidiary.”

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     Section 8.5.9. Notices under the Pershing Square Purchase Offer Documents
and the Pershing Square Warrant Transaction.
     The Borrowers shall, and shall cause each of their Subsidiaries to, deliver
to the Lenders notice of (a) BGI’s exercise of any of its purchase options under
the Pershing Square Purchase Offer prior to or concurrently with the delivery of
any purchase option notice delivered to Pershing Square pursuant to the terms of
the Pershing Square Purchase Offer Documents, (b) any default or event of
default under the Pershing Square Purchase Offer by any party thereto promptly
after becoming aware thereof and (c) any notice of election to exercise or
otherwise settle any of the Pershing Square Warrants, such delivery to be made
promptly after becoming aware of any such notice.”
     (n) Amendment to §8.9 of the Credit Agreement. Sections 8.9.2 and 8.9.3 of
the Credit Agreement are hereby amended and restated in their entirety as
follows:
     “8.9.2 Collateral Reports. Up to four (4) times in each Fiscal Year, and
more frequently upon the request of the Administrative Agent, the Borrowers will
obtain and deliver to the Administrative Agent, or, if the Administrative Agent
so elects, will cooperate with the Administrative Agent in the Administrative
Agent’s obtaining, a report of an independent collateral auditor satisfactory to
the Administrative Agent (which may be affiliated with one of the Lenders) with
respect to the Accounts Receivable and inventory components included in the
Aggregate Borrowing Base and/or the Domestic Borrowing Base and/or the Last Out
Borrowing Base, which report shall indicate whether or not the information set
forth in the Borrowing Base Report most recently delivered is accurate and
complete in all material respects based upon a review by such auditors of such
Accounts Receivable (including verification with respect to the amount, aging,
identity and credit of the respective account debtors and the billing practices
of the Borrowers or its applicable Subsidiary) and inventory (including
verification as to the value, location and respective types). Such collateral
value reports shall be conducted at the Borrowers’ expense no more frequently
than four (4) times during each Fiscal Year, unless an Event of Default has
occurred and is continuing, in which event additional collateral value reports
requested by the Administrative Agent shall also be conducted and made at the
expense of the Borrowers.
     8.9.3 Appraisals.
     Up to four (4) times in each Fiscal Year, and more frequently upon the
request of the Administrative Agent, the Borrowers will obtain and deliver to
the Administrative Agent appraisal reports in form and substance and from
appraisers satisfactory to the Administrative Agent, stating the then current
fair market, orderly liquidation and forced liquidation values of all or any
portion of the inventory owned by the Borrowers and their Subsidiaries. Such
appraisals shall be conducted at the Borrowers’ expense no more frequently than
four (4) times during each Fiscal Year, unless an Event of Default has occurred
and is continuing, in which event additional appraisals requested by the
Administrative Agent shall also be conducted and made at the expense of the
Borrowers.”
     (o) Amendment to §9.2 of the Credit Agreement. Section 9.2 of the Credit
Agreement is hereby amended by (a) amending and restating §9.2(xiv) of the
Credit Agreement in its entirety as set forth below; (b) amending and restating
§9.2(xv) of the Credit Agreement in its entirety as set forth below and
(c) adding the following new §9.2(xvi) of the Credit Agreement:

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     “(xiv) (A) Liens securing Indebtedness under the Pershing Square Term Loan
Facility (as in effect on the Pershing Square Transaction Effective Date) on up
to sixty-five percent (65%) of the Capital Stock of Paperchase (together with
any “proceeds” thereof as such term is defined in the Uniform Commercial Code of
the State of New York), whether such Liens are directly on the Capital Stock of
Paperchase or indirectly on the Capital Stock of Paperchase through intermediate
Subsidiaries of BGI or (B) at any time that the Liens described in §9.2(xiv)(A)
are not in effect, Liens on assets of BGI and its Subsidiaries (other than
Collateral) not otherwise permitted by clauses (i) through (xiii) above, so long
as any Indebtedness secured thereby is permitted under the terms of §9.1, and
the aggregate fair market value of all property secured by such Liens does not
at any time exceed 10% of Consolidated Tangible Net Worth (determined as of the
last day of the Fiscal Quarter most recently ended);
     (xv) [reserved]; and
     (xvi) At any time that the Liens under §9.2(xiv)(A) above are in effect and
securing the Pershing Square Term Loan Facility, Liens on assets of BGI and its
Subsidiaries (other than Collateral) not otherwise permitted by clauses
(i) through (xiv) above, so long as any Indebtedness secured thereby is
permitted under the terms of §9.1 and the aggregate fair market value of all
property secured by such Liens does not at any time exceed $2,000,000.”
     (p) Amendment to §9.3(f) of the Credit Agreement. Section 9.3(f) of the
Credit Agreement is hereby amended by (x) amending and restating clause (iii) of
§9.3(f) in its entirety to read “(iii) [reserved],” and (y) amending the text
“to the extent not otherwise permitted by clause (i) through (iv) hereof” in
§9.3(f)(iv) to read “to the extent not otherwise permitted by clause (i) through
(iii) hereof”.
     (q) Amendments to §9.3 of the Credit Agreement. Section 9.3 of the Credit
Agreement is hereby amended by (i) deleting the “and” at the end of
Section 9.3(i); (ii) replacing the period at the end of Section 9.3(j) with the
text “; and”; and (iii) adding the following new clause (k) immediately
following existing clause (j):
     “(k) Investments constituting (i) unsecured guarantees by Subsidiaries of
BGI who are Guarantors of the obligations of BGI, as the borrower, under the
Pershing Square Term Loan Documents and (ii) Liens permitted under §9.2(xiv)(A)
for so long as the Pershing Square Term Loan Facility remains outstanding.”
     (r) Further Amendments to §9.3 of the Credit Agreement. Section 9.3 of the
Credit Agreement is hereby amended by adding the following new paragraph at the
end of Section 9.3:
     “Notwithstanding anything to the contrary contained in this Section 9.3,
after the Third Amendment Effective Date, neither BGI nor any of its
Subsidiaries shall be permitted to make any Investments in any of the Pershing
Square Purchase Offer Subsidiaries other than those Investments permitted by
this §9.3 which are necessary to maintain the operation of such Pershing Square
Purchase Offer Subsidiaries in the ordinary course of business and such
Investments in any of the Pershing Square Purchase Offer Subsidiaries shall be
made in a manner consistent with past practices in all material respects.”

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     (s) Amendment to §9.4(c) of the Credit Agreement. Section 9.4(c) of the
Credit Agreement is hereby amended and restated in its entirety as follows:
     “(c) BGI or any of its Subsidiaries may make other Restricted Payments;
provided that (i) no Default or Event of Default has occurred and is continuing
or would result therefrom, (ii) BGI shall deliver to the Lenders
contemporaneously with any Compliance Certificate delivered pursuant to §8.4(c)
a certificate of the principal financial or accounting officer of the Borrowers
certifying as accurate and complete the monthly pro forma financial projections
attached thereto and demonstrating immediately after giving effect to all
Restricted Payments projected to be made during the then next Fiscal Quarter (x)
the Total Facility Usage Ratio would not exceed 85% for such Fiscal Quarter and
(y) the Total Facility Usage Ratio would not exceed 85% as determined on a pro
forma basis over the two (2) Fiscal Quarters next following such Fiscal Quarter,
in form and substance satisfactory to the Administrative Agent, based on
reasonable projections of the financial performance of the Borrowers; and
(iii) in connection with such certificate for any Fiscal Quarter during which
the Borrowers project that the aggregate Restricted Payments to be made will
exceed $25,000,000, BGI shall deliver a certificate of an Authorized Officer of
the Borrowers dated as of the date of such certificate as to the solvency of the
Borrowers and their Subsidiaries following the payment of all such Restricted
Payments for such Fiscal Quarter and in form and substance satisfactory to the
Administrative Agent; provided that at any time the actual Restricted Payments
made during any Fiscal Quarter exceed the Restricted Payments projected to be
made for such Fiscal Quarter as set forth in the certificate described in clause
(ii) above, BGI shall promptly deliver to the Lenders a certificate of the
principal financial or accounting officer of the Borrowers certifying as
accurate and complete updated monthly pro forma financial projections attached
thereto and otherwise demonstrating compliance with the requirements set forth
in clause (ii) above based on the actual Restricted Payments made and, to the
extent applicable, providing the solvency certificate described in clause
(iii) above.”
     (t) Amendment to §9.5.2(d) of the Credit Agreement. Section 9.5.2(d) of the
Credit Agreement is hereby amended by (x) amending and restating clause (iii) of
such §9.5.2(d) in its entirety to read “(iii) [reserved],”, (y) amending and
restating clause (iv) of such §9.5.2(d) in its entirety as follows:
     “(iv) to the extent not otherwise permitted by clauses (i) through (iii)
hereof, any (A) Permitted Restructuring Transaction or (B) pursuant to the
exercise by BGI of any of its purchase options under the Pershing Square
Purchase Offer Documents, in each case, so long as (1) such transaction(s) is
consummated on or prior to April 15, 2009 and (2) no Default or Event of Default
has occurred and is continuing or would result therefrom;”
and (z) adding the text “(other than any Pershing Square Purchase Offer
Subsidiaries)” immediately before the proviso in §9.5.2(d)(v).
     (u) Amendment to §9.12 of the Credit Agreement. Section 9.12 of the Credit
Agreement is hereby amended by adding the following new sentence at the end of
such Section 9.12:
     “Notwithstanding anything to the contrary contained in this Section 9.12,
the Pershing Square Transactions shall not be prohibited under this
Section 9.12.”

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     (v) Amendment to §9.13 of the Credit Agreement. Section 9.13 of the Credit
Agreement is hereby amended by adding the following additional proviso prior to
the period at the end of such Section 9.13:
     “; provided further that BGI may amend or modify its Governing Documents
from time to time to the extent necessary to permit the Pershing Square Warrant
Transaction and the performance of its obligations thereunder.”
     (w) Amendment to §9 of the Credit Agreement. Section 9 of the Credit
Agreement is hereby amended by adding the following new §9.16 immediately
following existing §9.15:
     “9.16 Reserved.”
     (x) Amendment to §9 of the Credit Agreement. Section 9 of the Credit
Agreement is hereby amended by adding the following new §§9.18 and 9.19
immediately following existing §9.17:
     “9.18 Certain Terms of the Pershing Square Transactions; Amendment to
Pershing Square Term Loan Documents.
     (a) The Borrowers will not, and will not permit any of their Subsidiaries
to, permit or otherwise allow any of the terms and conditions of the Pershing
Square Transactions (including, without limitation, the Pershing Square Term
Loan Documents and Pershing Square Purchase Offer Documents) to do any of the
following: (i) restrict or otherwise limit the ability of BGI or its
Subsidiaries to grant security interests to and Liens upon Collateral as defined
in the Credit Agreement as of the date hereof, (ii) restrict or otherwise limit
the ability of BGI and its Subsidiaries and the Agents and the Lenders to amend
or modify, or waive or consent to the deviation from, any terms or conditions of
the Loan Documents unless the same is inconsistent with the obligations of the
Borrowers and their Subsidiaries to Pershing Square under the Pershing Square
Term Loan Documents, (iii) restrict or otherwise limit the Administrative
Agent’s ability to do any of the following: change eligibility criteria
contained in the definitions of Eligible Credit Card Receivables and Eligible
Inventory, to change and/or establish reserves taken in respect of Eligible
Inventory and Eligible Credit Card Receivables from time to time and/or to
change the advance rates against the Domestic Borrowing Base and/or the
Aggregate Borrowing Base or any components thereof (collectively, “Borrowing
Base Discretion”) or (iv) cause BGI or any of its Subsidiaries to be in default
or breach of any aspect of the Pershing Square Transactions solely as a result
of the exercise by the Administrative Agent of its Borrowing Base Discretion.
     (b) Without the written consent of the Required Lenders, the Borrowers will
not, and will not permit any of their Subsidiaries to, amend, supplement or
otherwise modify any of the Pershing Square Term Loan Documents in any manner
that (i) shortens the maturity or average life to maturity of the Pershing
Square Term Loan Facility or (ii) makes more burdensome on the Borrowers and
their Subsidiaries the terms of any required prepayments, redemptions or
repurchases (other than waivers or deferrals thereof) in respect of the Pershing
Square Term Loan Facility.”
     (c) Without the written consent of the Required Lenders, the Borrowers will
not, and will not permit any of their Subsidiaries to, amend, supplement or
otherwise

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modify any of the Pershing Square Purchase Offer Documents in any manner that
(i) makes more burdensome on BGI and its Subsidiaries the terms of the Pershing
Square Purchase Offer or the ability of BGI to exercise the Pershing Square
Purchase Offer or (ii) reduces (or has the effect of reducing) the cash purchase
price (as contemplated in the Pershing Square Purchase Offer Documents as of the
Pershing Square Transaction Effective Date) to be paid by Pershing Square to BGI
thereunder, and, in the case of clause (i) above, is materially adverse to the
Lenders.
     (d) Without the written consent of the Required Lenders, the Borrowers will
not, and will not permit any of their Subsidiaries to, amend, supplement or
otherwise modify any of the Pershing Square Warrants or any documents relating
thereto (as contemplated under the Pershing Square Warrant Transaction dated as
of the Pershing Square Transaction Effective Date) in any manner that would
result in a Change of Control (whether upon the exercise of the Pershing Square
Warrants or otherwise).
     9.19 Payments in respect of Pershing Square Term Loan Facility.
     The Borrowers may not, and may not permit any of their Subsidiaries to,
make any payment (including prepayment), redemption or repurchase of principal
(whether mandatory, voluntary, upon conversion or otherwise), or any payment of
interest and/or fees, in respect of the Pershing Square Term Loan Facility (each
such payment described above, a “Pershing Square Term Loan Payment”); provided
that the Borrowers may, and may permit any of their Subsidiaries to, make (a)
Permitted Pershing Square Term Loan Payments at any time and (b) Pershing Square
Term Loan Payments (other than Permitted Pershing Square Term Loan Payments) so
long as, in the case of this clause (b), (1) no Default or Event of Default has
occurred and is continuing or would result therefrom, and (2) BGI delivers to
the Lenders not less than five (5) Business Days prior to the date on which it
or any of its Subsidiaries agrees to or is to make such Pershing Square Term
Loan Payment a certificate, in form and substance satisfactory to the
Administrative Agent, of the principal financial or accounting officer of BGI
certifying as accurate and complete the monthly pro forma financial projections
attached thereto that demonstrate immediately after giving effect to such
Pershing Square Term Loan Payment (x) the Total Facility Usage Ratio would not
exceed 85% and (y) the Total Facility Usage Ratio would not exceed 85% as
determined on a pro forma basis over the six month period immediately following
the effective date of such Pershing Square Term Loan Payment, based on
reasonable projections of the financial performance of the Borrowers.”
     (y) Amendment to §10.1 of the Credit Agreement. Solely for the period from
Third Amendment Effective Date to and including December 15, 2008, Section 10.1
of the Credit Agreement is hereby amended by adding the following new proviso
immediately before the period at the end of such Section 10.1:
“; provided further that, (i) solely for the period from the Third Amendment
Effective Date to and including December 15, 2008, the reference to “90%” in
this sentence shall be deemed to be a reference to “92.5%”.”
     (z) Amendment to Section 12.8 of the Credit Agreement. Solely for the
period from Third Amendment Effective Date to and including December 15, 2008,
§12.8 of the Credit Agreement is hereby amended by adding the following new
proviso immediately before the period at the end of such §12.8:

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     “; provided that, solely for the period from the Third Amendment Effective
Date to and including December 15, 2008, the reference to “90%” in this sentence
shall be deemed to be a reference to “92.5%””
     (aa) Amendment to §13.1 of the Credit Agreement. Section 13.1 of the Credit
Agreement is hereby amended by adding (a) the text “or” immediately after the
semi-colon Section 13.1(o) of the Credit Agreement and (b) the following new
Section 13.1(p) immediately after the existing Section 13.1(o) of the Credit
Agreement:
     “(p) any Borrower or any of its Subsidiaries shall fail to pay at maturity,
or within any applicable period of grace, any obligation in respect of the
Pershing Square Term Loan Facility or fail to observe or perform any material
term, covenant or agreement contained in any agreement by which it is bound
evidencing or securing the Pershing Square Term Loan Facility for such period of
time as would permit (assuming the giving of appropriate notice, if required)
the holder or holders thereof or of any obligations issued thereunder to
accelerate the maturity thereof, and such failure is continuing;”
     (bb) Amendment of Schedule 1.01A to Credit Agreement. Schedule 1.01A to the
Credit Agreement (Permitted Restructuring Transactions) is hereby amended and
restated in its entirety in the form attached to this Amendment as Exhibit A.
     §3. Amendment to Section 3 of the Second Amendment; Acknowledgment that
Section 3 of Second Amendment Not Yet Effective.
     (a) The definition of “Term Loan Agent” in Section 3(e) of the Second
Amendment to the Credit Agreement is hereby amended and restated in its entirety
as follows:
     “Term Loan Agent. JPMorgan Chase Bank, National Association or any other
financial institution or fund (and, if a fund, acceptable to the Administrative
Agent in its reasonable discretion) in its capacity as term administrative agent
and collateral agent under the Term Loan Documents.”
     (b) Section 3(f) of the Second Amendment to the Credit Agreement is hereby
amended and restated as follows:
     “(f) Amendment to Credit Agreement. Section 8.5.7 of the Credit Agreement
is hereby amended and restated in its entirety as follows:
     “8.5.7. Notice of Default under the Term Loan Documents.
     The Borrowers shall, and shall cause each of their Subsidiaries to, deliver
to the Lenders notice of the occurrence of any default or event of default under
the Term Loan Documents, such delivery to be made promptly after becoming aware
of such default or event of default or after such notice or other communication
is received by any such Borrower or any such Subsidiary.”
     (c) Section 3(h) of the Second Amendment to the Credit Agreement is hereby
amended and restated as follows:

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     “(h) Amendment to §8.13 of the Credit Agreement. Section 8.13 of the Credit
Agreement is hereby amended and restated in its entirety as follows:
     “8.13 Stock Collateral. Each Loan Party will cause (i) 100% of the issued
and outstanding Capital Stock of each of its Domestic Subsidiaries which is a
Material Subsidiary and (ii) 65% (or such greater percentage that, due to a
change in applicable law after the date hereof, (1) could not reasonably be
expected to cause the undistributed earnings of such Foreign Subsidiary as
determined for U.S. federal income tax purposes to be treated as a deemed
dividend to such Foreign Subsidiary’s U.S. parent and (2) could not reasonably
be expected to cause any materially adverse tax consequences) of the issued and
outstanding Capital Stock in each Foreign Subsidiary which is a Material
Subsidiary and is directly owned by BGI or any Domestic Subsidiary to be subject
at all times to (i) a first priority, perfected Lien in favor of the Term Loan
Agent for the benefit of the Term Loan Lenders and (ii) a second priority,
perfected Lien in favor of the Collateral Agent for the benefit of the Lenders,
in each case pursuant to the terms and conditions of the Loan Documents and the
Term Loan Documents or other security documents, subject to the Intercreditor
Agreement, as the Administrative Agent shall reasonably request. Notwithstanding
the foregoing in this §8.13, the requirements of this §8.13 shall not apply to
the Capital Stock of Paperchase (whether directly on the stock of Paperchase or
through an intermediary Subsidiary of BGI) pledged to Pershing Square while the
Pershing Square Term Loan Facility is secured by such Capital Stock of
Paperchase (whether directly on the stock of Paperchase or through an
intermediary Subsidiary of BGI); provided that the exception set forth in this
sentence shall not apply to the extent that Capital Stock of Paperchase secures
the obligations under the Term Loan Documents.”
     (d) Section 3(m) of the Second Amendment to the Credit Agreement is hereby
amended by restating the introductory phrase to such Section as following:
     “(m) Amendment to Section 9.16 of the Credit Agreement. Section 9.16 of the
Credit Agreement is hereby amended and restated in its entirety as follows:”
     The parties signatory hereto acknowledge and agree that the conditions
precedent to the effectiveness of Section 3 of the Second Amendment, as amended
hereby, have not been satisfied, and accordingly, Section 3 of the Second
Amendment, as amended hereby, is not effective and shall not be effective until
the conditions precedent to the effectiveness of Section 3 of the Second
Amendment as amended hereby (including those conditions set forth in Section 7
of the Second Amendment) are satisfied or waived, as the case may be, by the
Administrative Agent.
     §4. Lender Consent to Pershing Square Transactions. The Borrowers represent
and warrant that that the Pershing Square Transactions comply with the Loan
Documents (including the limitations set forth in Section 9 of the Credit
Agreement) after giving effect to this Amendment. Each of the Required Lenders
acknowledges that it has reviewed the Pershing Square Transactions and hereby
consents to and approves BGI and its relevant Subsidiaries entering into the
Pershing Square Transactions on the Pershing Square Transaction Effective Date,
subject to the terms and conditions of the Loan Documents (it being understood
that the foregoing approval shall not, in any event, constitute any consent or
waiver in respect of any Default or Event of Default arising from, or as a
consequence of, the Pershing Square Transactions or any future matters relating
thereto).

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     §5. Affirmation of the Borrowers and Guarantors. Each of the Borrowers
hereby affirms its absolute and unconditional promise to pay to each Lender, the
Issuing Bank, each Swingline Lender and the Agents the Loans, the Reimbursement
Obligations and all other amounts due under the Notes, the Credit Agreement as
amended hereby and the other Loan Documents, at the times and in the amounts
provided for therein, and subject to the terms thereof. Each of the Guarantors
hereby affirms its guaranty of the Obligations in accordance with the provisions
of the Guaranty. Each of the Borrowers and the Guarantors confirms and agrees
that (i) the obligations of the Borrowers to the Lenders, the Swingline Lenders,
the Issuing Bank and the Agents under the Credit Agreement as amended hereby are
secured by and entitled to the benefits of the Security Documents and (ii) all
references to the term “Credit Agreement” in the Security Documents and the
other Loan Documents shall hereafter refer to the Credit Agreement as amended
hereby.
     §6. Conditions to Effectiveness. This Amendment shall be deemed effective
as of the date hereof (the “Third Amendment Effective Date”) upon the
satisfaction of the following conditions to effectiveness:
     (a) The Administrative Agent and the Lenders shall have received this
Amendment duly executed by the Borrowers, the Guarantors, the Administrative
Agent and the Required Lenders, and the Amendment shall be in full force and
effect.
     (b) The Pershing Square Transactions shall have been consummated and the
Pershing Square Term Loan Facility shall have been made available to BGI, all on
terms and conditions, and pursuant to documentation, satisfactory to the
Administrative Agent, and the Borrowers shall have delivered an officer’s
certificate dated as of the Third Amendment Effective Date certifying that the
conditions to the effectiveness of the Pershing Square Transaction have been
satisfied and attaching true and correct copies of the executed and effective
material agreements relating to the Pershing Square Transactions.
     (c) The Administrative Agent shall have received payment by the Borrowers
for the benefit of each Lender that executes and delivers to the Administrative
Agent its signature page to this Amendment by 5:00 p.m. Boston time on April 1,
2008, in facsimile, .pdf or original form, of the upfront amendment fee
described in the fee letter between the Borrowers, the Administrative Agent and
the other parties thereto in an amount agreed to by the Borrowers and the
Lenders, and payment of all such other fees that are due and payable on or prior
to the Third Amendment Effective Date.
     (d) To the extent required by the Administrative Agent, the Administrative
Agent shall have received from each of the Borrowers and each of the Guarantors
a certificate, dated as of the Third Amendment Effective Date, signed by a duly
authorized officer of such Borrower or such Guarantor, attaching and certifying
as being true, correct and complete, (i) each of its Governing Documents as in
effect on such date of certification (or certifying that there has been no
change in the Governing Documents of such Person since the Closing Date to the
extent such Governing Documents were delivered to the Administrative Agent on
the Closing Date), (ii) certified copies of the board minutes and/or resolutions
authorizing the execution, delivery and performance of this Amendment and the
other Loan Documents entered into in connection herewith and all related
documents to which such Person is a party, and (iii) giving the name and bearing
a specimen signature of each individual who shall be authorized to sign, in the
name and on behalf of such Borrower and such Subsidiary, each of Loan Documents
(as amended hereby) entered into in connection herewith and any related
documents to which such Borrower or such Subsidiary is or is to become a party,
in form and substance satisfactory to the Administrative Agent.

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     (e) The Administrative Agent shall have received from each of the Borrowers
and Guarantors a certificate, dated as of the Third Amendment Effective Date,
signed by a duly authorized officer of such Person, certifying that all assets
included in the Borrowing Base Report are owned by the Co-Borrowers (other than
BGP (UK)).
     (f) The Administrative Agent shall have received a favorable legal opinion
addressed to the Lenders, the Agents, and the Issuing Banks dated as of the
Third Amendment Effective Date, in form and substance satisfactory to the
Administrative Agent from:
     (i) Baker & McKenzie LLP, counsel to the Borrowers and their Subsidiaries;
and
     (ii) Thomas Carney, Esq., General Counsel to the Borrowers and their
Subsidiaries.
     (g) The Security Documents shall be effective to create in favor of the
Administrative Agent a legal, valid and enforceable first priority security
interest in and Lien upon the Collateral. All deliveries of instruments
necessary or desirable in the opinion of the Administrative Agent to protect and
preserve such security interests shall have been duly delivered to the
Administrative Agent.
     (h) Each of the Administrative Agent shall have received an officer’s
certificate of the Borrowers dated as of the Effective Date as to the solvency
of the Borrowers and their Subsidiaries following the consummation of the
transactions contemplated herein, in form and substance satisfactory to the
Administrative Agent.
     (i) Administrative Agent shall have received payment for all other fees and
expenses due and payable including, without limitation, reasonable legal fees
and expenses, for which invoices or reasonable estimates have been provided to
the Borrowers on or prior to the date hereof.
     Each Lender hereby (i) authorizes and directs the Administrative Agent
and/or the Collateral Agent to (A) execute, on behalf of such Lender, the
Security Documents and any other agreements, documents, filings and instruments
to be delivered in connection with this Amendment and the transactions
contemplated hereby, and (B) take any and all actions contemplated or required
by this Amendment and the Loan Documents and the transactions contemplated
hereby.
     §7. Representations and Warranties. The Borrowers hereby represent and
warrant to the Lenders, the Agents and the Issuing Bank as follows:
     (a) Representations and Warranties in Credit Agreement. The representations
and warranties of the Borrowers and their Subsidiaries contained in the Credit
Agreement, as amended hereby, are true and correct on the date hereof (except to
the extent of changes resulting from transactions contemplated or permitted by
this Credit Agreement and the other Loan Documents and changes occurring in the
ordinary course of business that singly or in the aggregate are not materially
adverse, and to the extent that such representations and warranties relate
expressly to an earlier date), and, both before and immediately after giving
effect to the Amendment, no Default or Event of Default has occurred and is
continuing.
     (b) Authority, No Conflicts, Etc. The execution, delivery and performance
of this Amendment and all related documents and the consummation of the
transactions contemplated

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hereby and thereby (a) are within the corporate (or the equivalent company)
authority of such Person, (b) have been duly authorized by all necessary
corporate (or the equivalent company) proceedings, (c) do not and will not
conflict with or result in any breach or contravention of any provision of law,
statute, rule or regulation to which any of the Borrowers or any of their
Subsidiaries is subject or any judgment, order, writ, injunction, license or
permit applicable to any of the Borrowers or any of their Subsidiaries and
(d) do not conflict with any provision of the Governing Documents of, or any
other agreement or other instrument binding upon, any of the Borrowers or any of
their Subsidiaries.
     (c) Enforceability of Obligations. This Amendment and the Credit Agreement
and the other Loan Documents as amended hereby constitute the legal, valid and
binding obligations of each Borrower and each of their respective Subsidiaries
party thereto, enforceable against each Borrower and each of their respective
Subsidiaries, in accordance with their respective terms, except as limited by
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium, or
other laws relating to or affecting creditors’ rights generally, general
equitable principles (whether considered in equity or at law) and an implied
covenant of good faith and fair dealing, and except to the extent that
availability of the remedy of specific performance or injunctive relief is
subject to the discretion of the court before which any proceeding therefor may
be brought.
     §8. No Other Amendments. Except as expressly provided in this Amendment,
all of the terms, conditions and provisions of the Credit Agreement and the
other Loan Documents shall remain the same. It is declared and agreed by each of
the parties hereto that the Credit Agreement, as amended hereby, shall continue
in full force and effect, and that this Amendment and the Credit Agreement shall
be read and construed as one instrument.
     §9. Execution in Counterparts. This Amendment may be executed in any number
of counterparts and by each party on a separate counterpart, each of which when
so executed and delivered shall be an original, but all of which together shall
constitute one instrument. In proving this Amendment, it shall not be necessary
to produce or account for more than one such counterpart signed by the party
against whom enforcement is sought. Delivery of an executed signature page of
this Amendment by facsimile or other electronic transmission shall be effective
as delivery of a manually executed counterpart thereof.
     §10. Governing Law. THIS AMENDMENT IS INTENDED TO TAKE EFFECT AS AN
AGREEMENT UNDER THE LAWS OF THE STATE OF NEW YORK AND SHALL FOR ALL PURPOSES BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF SAID STATE WITHOUT
REFERENCE TO PRINCIPLES OF CONFLICTS OR CHOICE OF LAW.
     §11. Headings, etc. Headings or captions used in this Amendment are for
convenience of reference only and shall not define or limit the provisions
hereof. This Amendment shall constitute a “Loan Document” under the Credit
Agreement.
     §12. Expenses. The Borrowers jointly and severally hereby agree to pay to
the Administrative Agent, on demand by the Administrative Agent, all reasonable
out-of-pocket costs and expenses incurred or sustained by the Administrative
Agent in connection with the preparation of this Amendment, the Security
Documents and the other documents relating hereto and to the transactions
contemplated hereby (including reasonable legal fees).
[Reminder of page intentionally left blank]

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     IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.

            BORDERS GROUP, INC.
      By:   /s/ Edward W. Wilhelm         Name:   Edward W. Wilhelm       
Title:   Senior Vice President, Finance and Chief Financial Officer       
BORDERS, INC.
WALDEN BOOK COMPANY, INC.
      By:   /s/ Edward W. Wilhelm         Name:   Edward W. Wilhelm       
Title:   Senior Vice President, Treasurer and
Assistant Secretary        BGP (UK) LIMITED
      By:   /s/ Edward W. Wilhelm         Name:   Edward W. Wilhelm       
Title:   Director        BORDERS AUSTRALIA PTY LTD
      By:   /s/ Edward W. Wilhelm         Name:   Edward W. Wilhelm       
Title:   Director              By:   /s/ George L. Jones         Name:   George
L. Jones        Title:   Director   

Signature page to Amendment No. 3

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            BANK OF AMERICA, N.A., individually and as
Administrative Agent and Swingline Lender
      By:   /s Andrew Cerussi         Name:   Andrew Cerussi        Title:  
Vice President        BANK OF AMERICA, N.A., as Issuing Bank
      By:   /s Andrew Cerussi         Name:   Andrew Cerussi        Title:  
Vice President     

Signature page to Amendment No. 3

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            For purposes of §5 hereof:
BORDERS PROPERTIES, INC.
WALDENBOOKS PROPERTIES, INC.
BORDERS OUTLET, INC.
BORDERS ONLINE, INC.
      By:   /s/ Edward W. Wilhelm         Name:   Edward W. Wilhelm       
Title:   Senior Vice President,
Treasurer and Assistant Secretary        BORDERS FULFILLMENT, INC.
      By:   /s/ Edward W. Wilhelm         Name:   Edward W. Wilhelm       
Title:   Senior Vice President, Finance
and Chief Financial Officer        BORDERS ONLINE, LLC

By   BORDERS, INC., its Sole Member

      By:   /s/ Edward W. Wilhelm         Name:   Edward W. Wilhelm       
Title:   Senior Vice President, Treasurer
and Assistant Secretary     

Signature page to Amendment No. 3

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            JPMORGAN CHASE BANK, N.A.
      By:   /s/ Lynne Ciaccia         Name:   Lynne Ciaccia        Title:   VP 
   

Signature page to Amendment No. 3

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            WELLS FARGO RETAIL FINANCE, LLC
      By:   /s/ Adam Davis         Name:   Adam Davis       Title:   Assistant
Vice President    

Signature page to Amendment No. 3

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            LASALLE RETAIL FINANCE, a Division of LaSalle
Business Credit, LLC, as Agent for LaSalle Bank
Midwest National Association
      By:   /s/ Andrew Cerussi         Name:   Andrew Cerussi        Title:  
Vice President     

Signature page to Amendment No. 3

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            GENERAL ELECTRIC CAPITAL CORPORATION
      By:   /s/ Rebecca A. Ford         Name:   Rebecca A. Ford        Title:  
Duly Authorized Signatory     

 

Signature page to Amendment No. 3

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            THE CIT GROUP/BUSINESS CREDIT, INC.
      By:   /s/ Matthew DeFranco       Name:   Matthew DeFranco       Title:  
Vice President    

Signature page to Amendment No. 3

 

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            NATIONAL CITY BUSINESS CREDIT, INC.
      By:   /s/ Matthew Potter       Name:   Matthew Potter       Title:   Vice
President    

Signature page to Amendment No. 3

 

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            BMO CAPITAL MARKETS FINANCING, INC.
      By:   /s/ Heather L. Turf         Name:   Heather L. Turf        Title:  
Vice President     

Signature page to Amendment No. 3

 

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            UBS AG, STAMFORD BRANCH
      By:   /s/ Richard L. Tavrow         Name:   Richard L. Tavrow       
Title:   Director              By:   /s/ Mary E. Evans         Name:   Mary E.
Evans        Title:   Associate Director     

Signature page to Amendment No. 3

 

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            CHARTER ONE BANK, N.A.
      By:   /s/ G. Timothy O’Rourke         Name:   G. Timothy O’Rourke       
Title:   Senior Vice President     

Signature page to Amendment No. 3

 

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            PNC BANK, NATIONAL ASSOCIATION
      By:   /s/ Louis K. McLinden         Name:   Louis K. McLinden       
Title:   Managing Director     

Signature page to Amendment No. 3

 

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            SUNTRUST BANK
      By:   /s/ Patrick Wiggins         Name:   Patrick Wiggins        Title:  
Vice President     

Signature page to Amendment No. 3

 

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            UNION BANK OF CALIFORNIA N.A.
      By:   /s/ Yuichiro Eric Ido         Name:   Yuichiro Eric Ido       
Title:   Vice President     

Signature page to Amendment No. 3

 

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            KEYBANK NATIONAL ASSOCIATION
      By:   /s/ Nadine M. Eames         Name:   Nadine M. Eames        Title:  
Vice President     

Signature page to Amendment No. 3

 

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            COMERICA BANK
      By:   /s/ Blake Arnett         Name:   Blake Arnett        Title:  
Comerica Bank     

Signature page to Amendment No. 3

 

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            U.S. BANK, NATIONAL ASSOCIATION
      By:   /s/ Matthew Kasper         Name:   Matthew Kasper        Title:  
Assistant Vice President     

Signature page to Amendment No. 3

 

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            FORTIS CAPITAL CORP.
      By:   /s/ Justin March       Name:   Justin March       Title:   Vice
President             By:   /s/ Gill Dickson         Name:   Gill Dickson       
Title:   Director     

Signature page to Amendment No. 3

 

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            REGIONS BANK
      By:   /s/ Cynthia Marinos         Name:   Cynthia Marinos       Title:  
Attorney In Fact     

Signature page to Amendment No. 3

 

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            FIFTH THIRD BANK, EASTERN MICHIGAN
      By:   /s/ Brian Jelinski       Name:   Brian Jelinski       Title:  
Assistant Vice President    

Signature page to Amendment No. 3

 

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            BNY CMI AS AGENT FOR:

THE BANK OF NEW YORK
      By:   /s/ William Lemberg         Name:   William Lemberg        Title:  
Managing Director   

Signature page to Amendment No. 3

 

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EXHIBIT A
SCHEDULE 1.01A
PERMITTED RESTRUCTURING TRANSACTIONS
AUSTRALIA

  1.   BGI (or its relevant Subsidiary) and Borders Pty. Ltd. (Singapore) sell
their respective interest in Australian Borrower to a third party purchaser.    
2.   BPI may grant a perpetual license to certain trademarks for use in
Australia by Australian Borrower and a third party purchaser on terms to be
determined.     3.   Each of the preceding transactions may be conducted
independently of the other at any time and in any sequence and shall be deemed
to include all acts and steps necessary for the described action.     4.   In
connection with the consummation of the foregoing transactions, the portion of
the Foreign Sublimit and the Commitments in respect of the Australian Borrower
shall be terminated, the Obligations of the Australian Borrower shall be repaid
in full and the Australian Borrower, after repayment in full of the Obligations
of the Australian Borrower, shall be released from its Guaranty (if any) and any
other Loan Documents to which it is party.     5.   To the extent that it is
lawful and would not cause materially adverse tax consequences to the Borrowers,
the remaining proceeds of the foregoing transactions (after repayment in full of
Obligations of the Australian Borrower) shall be applied to repay the
Obligations.     6.   The transactions described in paragraph 1 above shall
(i) be on arm’s length terms, (ii) be on terms and conditions (including
indemnity and expense reimbursement provisions) that are customary for
transactions of this type, (iii) be approved by the Board of Directors of BGI,
(iv) not result in any Borrower or Guarantor incurring any material liability or
retaining any material liability of the Australian Borrower (or any other entity
related to the transaction), other than those retained liabilities relating to
guarantees of certain store leases as in effect prior to such disposition and so
long as such retained liabilities are treated under the Credit Agreement in a
manner acceptable to the Administrative Agent and (v) be for cash consideration
and may include a retained minority equity component in the business so disposed
(or, in each case, in form and substance otherwise satisfactory to the
Administrative Agent).     7.   The Borrowers shall provide the Administrative
Agent with all relevant documentation related to the forgoing (in a reasonable
time in advance of the consummation of foregoing transactions) so that the
Administrative Agent can confirm that the foregoing conditions have been
satisfied together with a certificate of a responsible officer of BGI confirming
the same.

NEW ZEALAND

  1.   BGI (or its relevant Subsidiary) sells Borders New Zealand Limited to a
third party purchaser.     2.   BPI may grant a perpetual license to certain
trademarks for use in New Zealand by Borders New Zealand Limited and a third
party purchaser on terms to be determined.     3.   Each of the preceding
transactions may be conducted independently of the other at any time and in any
sequence and shall be deemed to include all acts and steps necessary for the
described action.     4.   To the extent that it is lawful and would not cause
materially adverse tax consequences to the Borrowers, the proceeds of the
foregoing transactions shall be applied to repay the Obligations.

 

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  5.   The transactions described in paragraph 1 above shall (i) be on arm’s
length terms, (ii) be on terms and conditions (including indemnity and expense
reimbursement provisions) that are customary for transactions of this type,
(iii) be approved by the Board of Directors of BGI, (iv) not result in any
Borrower or Guarantor incurring any material liability or retaining any material
liability of Borders New Zealand Limited (or any other entity related to the
transaction), other than those retained liabilities relating to guarantees of
certain store leases as in effect prior to such disposition and so long as such
retained liabilities are treated under the Credit Agreement in a manner
acceptable to the Administrative Agent and (v) be for cash consideration and may
include a retained minority equity component in the business so disposed (or, in
each case, in form and substance otherwise satisfactory to the Administrative
Agent).     6.   The Borrowers shall provide the Administrative Agent with all
relevant documentation related to the forgoing (in a reasonable time in advance
of the consummation of foregoing transactions) so that the Administrative Agent
can confirm that the foregoing conditions have been satisfied together with a
certificate of a responsible officer of BGI confirming the same.

UNITED STATES

  1.   Convert Walden Book Company, Inc. into a single member Limited Liability
Company (“Walden LLC”) and provide advance notice thereof to the Collateral
Agent in accordance with Section 6 of the Security Agreement.     2.   Transfer
Walden Properties, Inc. to BGI and merge it into BGI.     3.   Contribute the
newly formed Walden LLC into Borders.     4.   Walden LLC transfers its
headquarters staff to Borders.     5.   Borders forms Management, Inc. and
contributes the Ann Arbor headquarters staff to Management, Inc.     6.   Merge
Borders Outlet, Inc. into Borders.
    7.   Borders contributes its airport stores to Walden, Inc. or Walden LLC  
  8.   Borders Properties, Inc. will make periodic dividends of cash to Borders
and Borders may make periodic dividends to BGI.     9.   Each of the preceding
transactions may be conducted independently of the other at any time and in any
sequence and shall be deemed to include all acts and steps necessary for the
described action.     10.   Each of the foregoing shall be in form and substance
satisfactory to the Administrative Agent and the Collateral Agent in all
material respects and shall not affect the security interests of the Agents
under the Loan Documents.     11.   Each of the foregoing shall be accomplished
in compliance with the requirements of the Credit Agreement and the other Loan
Documents and, for the avoidance of doubt, each Domestic Subsidiary formed or
otherwise created in connection with any of the foregoing shall be a Guarantor
under the Loan Documents to the extent required by Section 8.14 of the Credit
Agreement and/or, if any assets of any such entity will be included in the
Domestic Borrowing Base or Aggregate Borrowing Base, such entity shall become a
Borrower or a Guarantor under the Loan Documents and become a party to the
relevant Security Documents prior to any such inclusion.

SINGAPORE

  1.   BGI (or its relevant Subsidiary) sells Borders Singapore to a third party
purchaser.     2.   BPI may grant a perpetual license to certain trademarks for
use in Singapore by Borders Singapore and a third party purchaser on terms to be
determined.

 

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  3.   Each of the preceding transactions may be conducted independently of the
other at any time and in any sequence and shall be deemed to include all acts
and steps necessary for the described action.     4.   To the extent that it is
lawful and would not cause materially adverse tax consequences to the Borrowers,
the proceeds of the foregoing transactions shall be applied to repay the
Obligations.     5.   The transactions described in paragraph 1 above shall
(i) be on arm’s length terms, (ii) be on terms and conditions (including
indemnity and expense reimbursement provisions) that are customary for
transactions of this type, (iii) be approved by the Board of Directors of BGI,
(iv) not result in any Borrower or Guarantor incurring any material liability or
retaining any material liability of Borders Singapore (or any other entity
related to the transaction), other than those retained liabilities relating to
guarantees of certain store leases as in effect prior to such disposition and so
long as such retained liabilities are treated under the Credit Agreement in a
manner acceptable to the Administrative Agent and (v) be for cash consideration
and may include a retained minority equity component in the business so disposed
(or, in each case, in form and substance otherwise satisfactory to the
Administrative Agent).     6.   The Borrowers shall provide the Administrative
Agent with all relevant documentation related to the foregoing (in a reasonable
time in advance of the consummation of foregoing transactions) so that the
Administrative Agent can confirm that the foregoing conditions have been
satisfied together with a certificate of a responsible officer of BGI confirming
the same.

PAPERCHASE

  1.   BGI (or its relevant Subsidiary) sells Paperchase to a third party
purchaser.     2.   BPI may grant a perpetual license to certain trademarks for
use by Paperchase and a third party purchaser on terms to be determined.     3.
  Each of the preceding transactions may be conducted independently of the other
at any time and in any sequence and shall be deemed to include all acts and
steps necessary for the described action.     4.   To the extent that it is
lawful and would not cause materially adverse tax consequences to the Borrowers,
the proceeds of the foregoing transactions shall be applied to repay the
Obligations (but only to the extent that such proceeds are not required to be
applied to the Pershing Square Term Loan Facility).     5.   The transactions
described in paragraph 1 above shall (i) be on arm’s length terms, (ii) be on
terms and conditions (including indemnity and expense reimbursement provisions)
that are customary for transactions of this type, (iii) be approved by the Board
of Directors of BGI, (iv) not result in any Borrower or Guarantor incurring any
material liability or retaining any material liability of Paperchase (or any
other entity related to the transaction), other than those retained liabilities
relating to guarantees of certain store leases as in effect prior to such
disposition and so long as such retained liabilities are treated under the
Credit Agreement in a manner acceptable to the Administrative Agent and (v) be
for cash consideration and may include a retained minority equity component in
the business so disposed (or, in each case, in form and substance otherwise
satisfactory to the Administrative Agent).     6.   The Borrowers shall provide
the Administrative Agent with all relevant documentation related to the forgoing
(in a reasonable time in advance of the consummation of foregoing transactions)
so that the Administrative Agent can confirm that the foregoing conditions have
been satisfied together with a certificate of a responsible officer of BGI
confirming the same.

BOOKSHOP ACQUISITIONS LTD.

  1.   BGI (or its relevant Subsidiary) sells its minority interest in Bookshop
Acquisitions Ltd. to a third party.

 

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  2.   To the extent that it is lawful and would not cause materially adverse
tax consequences to the Borrowers, the proceeds of the foregoing transactions
shall be applied to repay the Obligations.     3.   The transactions described
in paragraph 1 above shall (i) be on arm’s length terms, (ii) be on terms and
conditions (including indemnity and expense reimbursement provisions) that are
customary for transactions of this type, (iii) be approved by the Board of
Directors of BGI, (iv) not result in any Borrower or Guarantor incurring any
material liability or retaining any material liability of Paperchase (or any
other entity related to the transaction), other than those retained liabilities
relating to guarantees of certain store leases as in effect prior to such
disposition and so long as such retained liabilities are treated under the
Credit Agreement in a manner acceptable to the Administrative Agent and (v) be
for cash consideration and may include a retained minority equity component in
the business so disposed (or, in each case, in form and substance otherwise
satisfactory to the Administrative Agent).     4.   The Borrowers shall provide
the Administrative Agent with all relevant documentation related to the forgoing
(in a reasonable time in advance of the consummation of foregoing transactions)
so that the Administrative Agent can confirm that the foregoing conditions have
been satisfied together with a certificate of a responsible officer of BGI
confirming the same.