Document:

exv10w3

Exhibit 10.3

THIS STOCK APPRECIATION RIGHT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE OR
OTHER JURISDICTION. THIS STOCK APPRECIATION RIGHT MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED EXCEPT (1) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OR (2) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF
THE STATES AND OTHER JURISDICTIONS, AND IN THE CASE OF A TRANSACTION EXEMPT FROM
REGISTRATION, UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO IT THAT SUCH TRANSACTION DOES NOT REQUIRE REGISTRATION UNDER THE
SECURITIES ACT AND SUCH OTHER APPLICABLE LAWS. THE TRANSFER OF THIS STOCK
APPRECIATION RIGHT IS SUBJECT TO CERTAIN RESTRICTIONS SET FORTH IN A SECURITIES
PURCHASE AGREEMENT BETWEEN THE COMPANY AND THE PURCHASER OF THIS STOCK APPRECIATION
RIGHT. THE COMPANY AND ITS TRANSFER AGENT WILL NOT BE OBLIGATED TO RECOGNIZE OR GIVE
EFFECT TO ANY TRANSFER MADE IN VIOLATION OF SUCH RESTRICTIONS. A COPY OF SUCH
RESTRICTIONS MAY BE OBTAINED FROM THE COMPANY UPON WRITTEN REQUEST.

STOCK APPRECIATION RIGHT

			
	 	 	 
	Date of Issuance:                     , 2010
	 	Certificate No. S-          

     FOR VALUE RECEIVED, Borders Group, Inc., a Michigan corporation (the “Company”),
hereby grants to LeBow Gamma Limited Partnership, a Delaware limited partnership, and its
successors and permitted assigns (the “Holder”), the right to receive from the Company an
amount, payable as provided herein, determined by multiplying (a) 35,130,000 Share Equivalents by
(b) an amount equal to the excess, if any, of (i) the Average VWAP for the 20 Trading Days
preceding, but not including, the date the applicable Exercise Notice is delivered to the Company
over (ii) $2.25 (as adjusted from time to time hereunder, the “Base Price”). The number of
Share Equivalents and the Base Price are subject to adjustment pursuant to provisions contained in
this Stock Appreciation Right.

     This Stock Appreciation Right was issued pursuant to that certain Securities Purchase
Agreement dated as of                     , 2010 (the “Securities Purchase Agreement”) by and between
the Company and the Holder. For the avoidance of doubt, this Stock Appreciation Right is the
“Stock Appreciation Right” referred to in the Securities Purchase Agreement. The
Securities Purchase Agreement contains terms and conditions governing the rights of the Holder with
respect to this Stock Appreciation Right, and all provisions of the Securities Purchase Agreement
are hereby incorporated herein in full by reference.

     Certain capitalized terms used in this Stock Appreciation Right are defined in Section
4. Unless otherwise indicated herein, capitalized terms used in this Stock Appreciation Right
have the same meanings set forth in the Securities Purchase Agreement.

     This Stock Appreciation Right is subject to the following provisions:

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     Section 1. Exercise of Stock Appreciation Right.

     1.1 Exercise Period. The Holder may exercise the rights represented by this Stock
Appreciation Right in accordance with Section 1.2 at any time and from time to time after
June 1, 2011 to and including the fifth anniversary of the Date of Issuance (the “Exercise
Period”).

     1.2 Exercise Procedure.

     (a) The Holder may exercise the rights represented by this Stock Appreciation Right to
cause the Company to redeem this Stock Appreciation Right in whole or in part pursuant to
this Section 1.2.

     (b) This Stock Appreciation Right will be deemed to have been exercised when the
Company has received all of the following items (the “Exercise Time”):

     (i) a completed Exercise Notice in substantially the form attached as
Exhibit I (an “Exercise Notice”) executed by the Person exercising
all or part of the rights represented by this Stock Appreciation Right (the
“Exercising Person”);

     (ii) this Stock Appreciation Right; and

     (iii) if this Stock Appreciation Right is not registered in the name of the
Exercising Person, subject to compliance with Section 6, an Assignment in
substantially the form attached as Exhibit II evidencing the assignment of
this Stock Appreciation Right to the Exercising Person.

     1.3 Redemption of Stock Appreciation Right and Payment of Exercise Amount.

     (a) Subject to Section 1.3(c), in the event that this Stock Appreciation Right
is exercised in accordance with Section 1.2 on or after April 1, 2014 (or such
earlier date as all indebtedness and other amounts outstanding under the Loan Documents has
been repaid in full), the Company will promptly, and in any event within five Business Days,
redeem the portion of this Stock Appreciation Right exercised in accordance with Section
1.2 and pay to the Exercising Person an amount (the “Exercise Amount”) in cash
equal to (a) the number of Share Equivalents for which this Stock Appreciation Right is
being exercised, as set forth in the applicable Exercise Notice, multiplied by (b) an amount
equal to the excess, if any, of (i) the Average VWAP for the 20 Trading Days preceding, but
not including, the date upon which the applicable Exercise Notice is delivered to the
Company over (ii) the Base Price as then in effect. The Exercise Amount will be paid by the
Company to the Exercising Person pursuant to this Section 1.3(a) by wire transfer of
immediately available funds to a bank account designated by the Exercising Person in its
Exercise Notice.

     (b) Subject to Section 1.3(c), in the event that this Stock Appreciation Right
is exercised in accordance with Section 1.2 prior to April 1, 2014, the Company will
pay the Exercise Amount by delivery to the Exercising Person of a promissory note (an
“Exercise Note”) having an initial principal amount equal to Exercise Amount. Each
Exercise Note will provide that the Company will redeem the portion of the Stock
Appreciation Right exercised in accordance with Section 1.2 on April 1, 2014, will
provide for a single payment of principal on April 1, 2014 and will bear interest at a rate
per annum (payable on maturity) that is 2% greater than the highest rate of interest payable
under any debt facility or debt instrument issued by the Company that ranks senior to this
Stock Appreciation Right; provided that such interest rate can

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never be lower than 10%. Each Exercise Note will provide for customary events of default,
will require payment in full upon any the occurrence of any Change in Control Event and may
be prepaid by the Company at any time prior to maturity without premium or penalty. The
Company will use its reasonable best efforts to promptly cause each Exercise Note to be
secured by a third priority security interest in and to the collateral securing the
Company’s obligations under the Loan Documents (including any amendments thereto), or any
definitive documentation that has since the date hereof and prior to the Exercise Time been
entered into in connection with any refinancing thereof; provided that in the event the
Company has not been able to secure the Exercise Notes prior to the date of its next
refinancing, the Company will cause the Exercise Notes to be secured by a third priority
security interest in and to the collateral securing the Company’s obligations under any
definitive documentation entered into in connection with such refinancing. Each Exercise
Note will be delivered to the Exercising Person promptly and in any event within five
Business Days after the date of the exercise of this Stock Appreciation Right in accordance
with Section 1.2.

     (c) If a portion of this Stock Appreciation Right is exercised in accordance with
Section 1.2, and notwithstanding Sections 1.3(a) and 1.3(b), the
Board of Directors determines in good faith based upon the written advice of an external
independent financial advisor and an external independent legal advisor, each such advisor
to be reasonably acceptable to the Holder, that the payment of all or a portion of the
Exercise Amount (such portion or full amount, the “Adverse Exercise Amount”) in cash
or by delivery of an Exercise Note accordance with Section 1.3(a) or 1.3(b),
as applicable, would render the Company insolvent under applicable law or cause the
directors of the Company under applicable law to become personally liable for the payment of
an unlawful dividend or distribution (in either case, an “Adverse Event”), then the
Company may pay solely the Adverse Exercise Amount (any such other portion of the Exercise
Amount due and payable hereunder, if applicable, to be paid by the Company to the Exercising
Person in accordance with Sections 1.3(a) and 1.3(b), as applicable) by, at
the Exercising Person’s option, (i) delivery of an appropriate substitute instrument to be
mutually agreed by the parties in good faith, with such instrument to have an aggregate face
value equal to the Adverse Exercise Amount and which shall also include, if applicable,
interest payable at a rate per annum (payable on maturity) that is 4% greater than the
highest rate of interest payable under any debt facility or debt instrument issued by the
Company that ranks senior to this Stock Appreciation Right; provided that such interest rate
can never be lower than 12% or (ii) delivery to the Exercising Person Common Shares having
an aggregate Fair Market Value determined as of the date of issuance by the Company to the
Exercising Person equal to the Adverse Exercise Amount. The Company will use reasonable
best efforts to cause any instrument delivered to the Holder pursuant to paragraph (i)
hereof, to the extent applicable, to promptly be secured by a third priority security
interest in and to the collateral securing the Company’s obligations under the Loan
Documents (including any amendments thereto), or any definitive documentation that has since
the date hereof and prior to the Exercise Time been entered into by the Company in
connection with any refinancing thereof; provided that in the event the Company has not been
able to pay in full the amount outstanding thereunder prior to the date of its next
refinancing, the Company will pay to the Exercising Person as of the date of such
refinancing the full Adverse Exercise Amount in cash in immediately available funds. A
certificate or certificates evidencing any Company Shares issued by the Company pursuant to
this Section 1.3(c) will be delivered to the Exercising Person promptly and in any
event within five Business Days after the date of the exercise of this Stock Appreciation
Right in accordance with Section 1.2. As soon as practicable following the issuance
of such Common Shares, the Company will use its reasonable best efforts in accordance with
Article V of the Securities Purchase Agreement to file with the SEC and cause
to become effective a registration statement covering the public resale of such Company
Shares by the Exercising Person.

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     (d) Notwithstanding anything to the contrary herein, upon the occurrence of a Change of
Control Event, the Company will redeem the portion of the Stock Appreciation Right then
outstanding and will pay to the Exercising Person as of the date of such Change of Control
Event, an amount in cash in immediately available funds equal to (i) the number of Share
Equivalents pursuant to this Stock Appreciation Right that are outstanding, multiplied by
(ii) an amount equal to the excess, if any, of (A) the Average VWAP for the 20 Trading Days
preceding, but not including, the date upon which the applicable Exercise Notice is
delivered to the Company over (B) the Base Price as then in effect.

     1.4 Right to Issue Substitute Warrants. The Company will have the right to (subject
to applicable law and the rules of the Trading Market), at any time, and from time to time on or
prior to June 1, 2011, to duly call and convene a meeting of the shareholders of the Company and to
seek at such meeting the consent of the shareholders of the Company to the issuance of a stock
purchase warrant (the “Substitute Warrant”) exercisable to purchase 35,130,000 Common
Shares and to the issuance of the underlying Common Shares (as adjusted for stock splits, stock
dividends, subdivisions and combinations of Common Shares) as a substitute for this Stock
Appreciation Right. The Substitute Warrant will be substantially in the form of the Warrant
attached hereto as Exhibit III, with such rights (including those with respect to
adjustment of the exercise price and number warrant shares issuable) provided therein to be deemed
operative from the Date of Issuance hereunder.

     1.5 No Purchases of Common Shares. By delivery of an Exercise Notice pursuant to
Section 1.2, the Exercising Person will be deemed to have represented and warranted to the
Company that neither the Exercising Person or any of its Affiliates, nor any Group of which the
Exercising Person or any of its Affiliates is a member, has, during the period during which the
Average VWAP has been calculated in connection with such Exercise Notice, acquired any Common
Shares or established or increased, directly or indirectly, a call equivalent position, as defined
in Rule 16(a)-1(b) under the Exchange Act, with respect to the Company’s equity securities.

     1.6 Automatic Exercise. Notwithstanding anything to the contrary herein, if all or
any portion of this Stock Appreciation Right has not been exercised in accordance with the terms of
this Stock Appreciation Right prior to the day immediately preceding the fifth anniversary of the
Date of Issuance (the “Automatic Exercise Date”), and if as of such date, the Average VWAP
exceeds the Base Price, then the then-unexercised portion of this Stock Appreciation Right will be
automatically exercised in accordance with Section 1.2.

     Section 2. Adjustment of Base Price and Number of Share Equivalents.

     2.1 Stock Dividends and Other Transactions. In case the Company (a) pays a dividend
in Common Shares or make a distribution in Common Shares to holders of its outstanding Common
Shares, (b) subdivides its outstanding Common Shares into a greater number of shares, (c) combines
its outstanding Common Shares into a smaller number of Common Shares, or (d) issues any shares of
its capital stock in a reclassification of the Common Shares, then the number of Share Equivalents
subject to this Stock Appreciation Right immediately prior thereto will be adjusted appropriately
to take into account such event. Upon each such adjustment pursuant to this Section 2.1 of
the number of Share Equivalents subject to this Stock Appreciation Right, the Base Price will be
adjusted by multiplying the Base Price in effect immediately prior to such adjustment by a
fraction, the numerator of which will be the number of Share Equivalents subject to this Stock
Appreciation Right immediately before such adjustment
and the denominator of which will be the number of Share Equivalents subject to this Stock
Appreciation Right immediately after such adjustment. An adjustment made pursuant to this
Section 2.1 will become effective at the close of business on the date such event becomes
effective.

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     2.2 Issuance of Rights. Except in connection with the Rights Offering (in accordance
with the terms and conditions set forth in Section 6.5 of the Securities Purchase Agreement), if
and whenever on or after the Date of Issuance of this Stock Appreciation Right the Company issues
rights, options or warrants to purchase Common Shares to all or substantially all of the holders of
Common Shares (such rights, options or warrants being herein called “Rights”) providing for
an exercise or conversion price per share less than the then current Fair Market Value (the
“Exercise Price”), then immediately upon such issuance, the Base Price will be reduced to
the Base Price determined by multiplying the Base Price in effect immediately prior to such
issuance or sale by a fraction, the numerator of which will be the sum of (a) the number of Common
Shares Deemed Outstanding immediately prior to such issuance multiplied by the Exercise Price, plus
(b) the consideration, if any, received by the Company upon such issuance, and the denominator of
which will be the product derived by multiplying the Exercise Price times the number of shares of
Common Shares Deemed Outstanding immediately after such issuance or sale. Upon each such
adjustment of the Base Price pursuant to this Section 2.2, the number of Share Equivalents
subject to this Stock Appreciation Right will be the number of Share Equivalents subject to this
Stock Appreciation Right immediately prior to such adjustment multiplied by a fraction, the
numerator of which will be the Base Price in effect immediately before such adjustment and the
denominator of which will be the Base Price in effect immediately after such adjustment.

     2.3 Dividends and Distributions. If the Company fixes a record date for the payment
of a dividend or the making of a distribution with respect to all or substantially all of its
Common Shares of securities, evidences of indebtedness, assets, cash or rights (other than (i) a
dividend or distribution covered by Section 2.1(a) or (ii) in connection with an Exempt
Issuance), the Base Price to be in effect after the record date for such dividend or distribution
will be determined by multiplying (a) the Base Price in effect immediately prior to such record
date by (b) a fraction, the numerator of which will be the Fair Market Value per Common Share as of
the last trading day before the date (the “ex-date”) on which the Common Shares first trade
without the right to receive such dividend or distribution, less the Fair Market Value of the cash,
securities (other than Common Shares) or other property paid per share in such dividend or
distribution, and the denominator of which will be the Fair Market Value per Common Share as of the
last trading day before the ex-date. Upon any adjustment of the Base Price pursuant to this
Section 2.3, the total number of Share Equivalents subject to this Stock Appreciation Right
will be such number of Share Equivalents subject to this Stock Appreciation Right immediately prior
to such adjustment multiplied by a fraction, the numerator of which will be the Base Price in
effect immediately before such adjustment and the denominator of which will be the Base Price in
effect immediately after such adjustment.

     2.4 Tender Offers. If a publicly-announced tender offer made by the Company or any of
its Subsidiaries for all or any portion of the Common Shares expires and tendering holders of
Common Shares are paid aggregate consideration when paid which exceeds the aggregate Fair Market
Value based on the Fair Market Value of the Common Shares acquired in such tender offer as of the
last trading date before the date on which such tender offer is first publicly announced (such
excess, the “Excess Tender Amount”), then the Base Price to be in effect after the tender
offer expires will be determined by multiplying (a) the Base Price in effect immediately prior to
such adjustment by (b) a fraction, the numerator of which will be the Fair Market Value per Common
Share as of the last trading day before the date on which such tender offer is first publicly
announced less the Excess Per Pro Forma Share, and the denominator of which will be the Fair Market
Value per Common Share as of the last trading day before the date on which such tender offer is
first publicly announced. As used herein, “Excess Per Pro Forma
Share” means (i) the Excess Tender Amount divided by (ii) the number of Common Shares
outstanding at expiration of the tender offer after giving pro forma effect to the purchase of
shares in the tender offer. Upon any adjustment of the Base Price pursuant to this Section
2.4, the total number of Share Equivalents subject to this Stock Appreciation Right will be
such number of Share Equivalents subject to this Stock Appreciation Right immediately prior to such
adjustment multiplied by a fraction, the numerator of which

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will be the Base Price in effect
immediately before such adjustment and the denominator of which will be the Base Price in effect
immediately after such adjustment.

     2.5 Notice of Adjustment. Whenever the number of Share Equivalents or the Base Price
is adjusted, as herein provided, the Company will promptly mail by registered or certified mail,
return receipt requested, to the Holder notice of such adjustment or adjustments setting forth the
number of Share Equivalents subject to this Stock Appreciation Right and the Base Price of such
Share Equivalents after such adjustment, setting forth a brief statement of the facts requiring
such adjustment and setting forth the computation by which such adjustment was made. Such notice,
in the absence of manifest error, will be conclusive evidence of the correctness of such
adjustment.

     Section 3. Notice of Corporate Action. If at any time:

     (a) the Company takes a record of the holders of its Common Shares for the purpose of
entitling them to receive a dividend or other distribution, or any right to subscribe for or
purchase any evidences of its indebtedness, any shares of stock of any class or any other
securities or property, or to receive any other right,

     (b) there is a Change of Control Event; or

     (c) there is a voluntary or involuntary dissolution, liquidation or winding up of the
Company,

     then, in any one or more of such cases, the Company will give to the Holder, if lawful and
practicable to do so, at least 10 days’ prior written notice of the date on which a record date
will be selected for such dividend, distribution or right or for determining rights to vote in
respect of any such reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, liquidation or winding up, and in the case of any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or
winding up, at least 10 days’ prior written notice of the date when the same will take place. Such
notice in accordance with the foregoing clause also will specify (i) the date on which any such
record is to be taken for the purpose of such dividend, distribution or right, the date on which
the holders of Common Shares will be entitled to any such dividend, distribution or right, and the
amount and character thereof and (ii) the date on which any such reorganization, reclassification,
merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up is to
take place and the time, if any such time is to be fixed, as of which the holders of Common Shares
will be entitled to exchange their Common Shares for securities or other property deliverable upon
such disposition, dissolution, liquidation or winding up. Each such written notice will be
sufficiently given if addressed to the Holder at the last address of the Holder appearing on the
books of the Company and delivered in accordance with Section 8.

     Section 4. Definitions. The following terms have meanings set forth below:

     “Average VWAP” means the price of a Common Share calculated based on the average of
the daily volume weighted average prices of the Common Shares as reported by Bloomberg L.P. (based
on trades of Common Shares executed during each Trading Day from 9:30 a.m. (New York City time) to
4:00 p.m. (New York City time)) for the 20 Trading Days preceding, but not including, the date
on which an Exercise Notice is delivered to the Company in accordance with Section 1.2.

     “Change of Control Event” means an event or series of events constituting or resulting
in a “change in control” as defined in the Loan Documents (including any amendments thereto) or as
defined

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in any successor definitive documentation that is entered into by the Company in connection
with any refinancing of the Loan Documents.

     “Common Shares” means the common shares of the Company, no par value per share.

     “Common Shares Deemed Outstanding” means, at any given time, the number of Common
Shares actually outstanding at such time, plus the number of Common Shares deemed to be outstanding
pursuant to Section 2.2, regardless of whether the Rights are actually exercisable at such
time.

     “Fair Market Value” means:

     (a) in the case of the Common Shares, the closing price of the Common Shares on the
Trading Market on the immediately preceding Business Day of the event in question;

     (b) in the case of cash, the amount thereof; and

     (c) in the case of any property other than Common Shares or cash, the value of such
property as determined in good faith by the Board of Directors of the Company.

     If at any time the Common Shares are not listed on any Trading Market, the “Fair Market
Value” will be the fair market value thereof determined jointly by the Company and the Holder.
If the parties are unable to reach agreement within a reasonable period of time, such Fair Market
Value will be determined by an appraiser jointly selected by the Company and the Holder. The
determination of such appraiser will be final and binding upon the parties, and the fees and
expenses of such appraiser will be borne equally by the Company and the Holder.

     “Share Equivalent” means a right to receive a contingent redemption obligation of the
Company and payment from the Company upon the exercise of this Stock Appreciation Right to the
extent that the value of one Common Share determined based on the Average VWAP, exceeds the Base
Price as then in effect. Share Equivalents will be deemed solely a right to receive such a payment
upon the exercise of this Stock Appreciation Right and in no event will the Holder or any
Exercising Party have the right to acquire any Common Shares or other equity securities of the
Company pursuant to this Stock Appreciation Right or have any other rights as a shareholder of the
Company by reason of this Stock Appreciation Right.

     “Trading Day” means a regular trading day on the Trading Market.

     Section 5. No Voting Rights; Limitations of Liability. This Stock
Appreciation Right will not entitle the Holder to any voting rights or other rights as a
shareholder of the Company. No provision hereof, and no enumeration herein of the rights or
privileges of the Holder, will give rise to any liability of the Holder as a shareholder of the
Company.

     Section 6. Stock Appreciation Right Transferable; Restrictions. Subject to
the transfer conditions and restrictions referred to in the legend endorsed hereon and in Section
6.4 of the Securities Purchase Agreement, this Stock Appreciation Right and all rights hereunder
are transferable, in whole or in part, without charge to the Holder, upon surrender of this Stock
Appreciation Right with a properly
executed Assignment in substantially the form of Exhibit II at the principal office of
the Company. The Holder acknowledges and agrees that this Stock Appreciation Right, if not
registered, will have the restrictions upon resale imposed by state and federal securities laws and
each Stock Appreciation Right exchangeable in accordance with Section 8 will bear a legend
in the following form:

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“THIS STOCK APPRECIATION RIGHT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE OR
OTHER JURISDICTION. THIS STOCK APPRECIATION RIGHT MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED EXCEPT (1) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OR (2) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF
THE STATES AND OTHER JURISDICTIONS, AND IN THE CASE OF A TRANSACTION EXEMPT FROM
REGISTRATION, UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO IT THAT SUCH TRANSACTION DOES NOT REQUIRE REGISTRATION UNDER THE
SECURITIES ACT AND SUCH OTHER APPLICABLE LAWS. THE TRANSFER OF THIS STOCK
APPRECIATION RIGHT IS SUBJECT TO CERTAIN RESTRICTIONS SET FORTH IN A SECURITIES
PURCHASE AGREEMENT BETWEEN THE COMPANY AND THE PURCHASER OF THIS STOCK APPRECIATION
RIGHT. THE COMPANY AND ITS TRANSFER AGENT WILL NOT BE OBLIGATED TO RECOGNIZE OR GIVE
EFFECT TO ANY TRANSFER MADE IN VIOLATION OF SUCH RESTRICTIONS. A COPY OF SUCH
RESTRICTIONS MAY BE OBTAINED FROM THE COMPANY UPON WRITTEN REQUEST.”

     Section 7. Stock Appreciation Right Exchangeable for Different Denominations.
This Stock Appreciation Right is exchangeable, upon the surrender hereof by the Holder at the
principal office of the Company, for new Stock Appreciation Rights of like tenor representing in
the aggregate the rights hereunder, and each of such new Stock Appreciation Right will represent
such portion of such rights as is designated by the Holder at the time of such surrender. The date
the Company initially issues this Stock Appreciation Right will be deemed to be the “Date of
Issuance” hereof regardless of the number of times new certificates representing the unexpired
and unexercised rights formerly represented by this Stock Appreciation Right are issued.

     Section 8. Replacement of Securities. If any certificate or instrument
evidencing this Stock Appreciation Right is mutilated, lost, stolen or destroyed, the Company will
issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the
case of mutilation), or in lieu of and substitution therefor, a new certificate or instrument, but
only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or
destruction, including an affidavit of loss and indemnity, which will not include a requirement to
post bond. The applicant for a new certificate or instrument under such circumstances will also
pay any reasonable third-party costs associated with the issuance of such replacement securities.

     Section 9. Notices. All notices referred to in this Stock Appreciation Right
will be in writing and will be deemed to have been given when delivered in the manner and to the
addresses provided in Section 7.3 of the Securities Purchase Agreement.

     Section 10. Amendments; Waivers. No provision of this Stock Appreciation
Right may be waived, modified, supplemented or amended except in a written instrument signed, in
the case of an amendment, by the Company and the Holder or, in the case of a waiver, by the party
against whom enforcement of any such waived provision is sought. Subject to applicable law and the
rules of the Trading Market, the Company and the Holder may at any time amend this Stock
Appreciation Right. No waiver of any default with respect to any provision, condition or
requirement of this Stock Appreciation

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Right will be deemed to be a continuing waiver in the future
or a waiver of any subsequent default or a waiver of any other provision, condition or requirement
hereof, nor will any delay or omission of any party to exercise any right hereunder in any manner
impair the exercise of any such right.

     Section 12. Headings. The headings herein are for convenience only, do not
constitute a part of this Stock Appreciation Right and will not be deemed to limit or affect any of
the provisions hereof.

     Section 13. Governing Law and Venue. All questions concerning the
construction, validity, enforcement and interpretation of this Stock Appreciation Right will be
governed by and construed and enforced in accordance with the internal procedural and substantive
laws of the State of New York, without regard to the principles of conflicts of law thereof. The
Company and, by its acceptance of this Stock Appreciation Right, the Holder each agrees that all
legal proceedings concerning the construction, validity, enforcement and interpretation of this
Stock Appreciation Right (whether brought against the Company or the Holder or their respective
Affiliates, directors, officers, shareholders, employees or agents) will be solely and exclusively
subject to the jurisdiction (a) in the United States District Court for the state of New York
located in the Southern District of New York and (b) in a state court of the State of New York
located in the county of New York. The Company and, by its acceptance of this Stock Appreciation
Right, the Holder each hereby irrevocably and unconditionally submits to the exclusive jurisdiction
of the foregoing courts for the adjudication of any dispute arising in connection with this Stock
Appreciation Right and hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper or is an inconvenient venue for such proceeding. The
Company and, by its acceptance of this Stock Appreciation Right, the Holder each hereby irrevocably
waives personal service of process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with
evidence of delivery) to such party at the address in effect for notices to it under this Agreement
and agrees that such service will constitute good and sufficient service of process and notice
thereof. Nothing contained herein will be deemed to limit in any way any right to serve process in
any other manner permitted by law.

     Section 14. WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT OR PROCEEDING IN ANY
JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE COMPANY AND, BY ITS ACCEPTANCE OF
THIS STOCK APPRECIATION RIGHT, THE HOLDER EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT
PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES
FOREVER TRIAL BY JURY.

     Section 15. Successors and Assigns. This Stock Appreciation Right will be
binding upon the parties and their respective successors and assigns. The Company may not assign
or delegate this Stock Appreciation Right or any rights or obligations hereunder without the
consent of the Holder.

* * * * *

9

 

          IN WITNESS WHEREOF, the Company has executed and delivered this Stock Appreciation Right on
                    , 2010.

	 	 	 	 	 
	BORDERS GROUP, INC.

 	 	 
	By:  	 	 	 
	 	Name:  	 	 	 
	 	Title:  	 	 	 

10

 

	 	 	 	 	 

EXHIBIT I

FORM OF EXERCISE NOTICE

[To be executed only upon exercise of Stock Appreciation Right]

To BORDERS GROUP, INC.:

     The undersigned registered holder of the attached Stock Appreciation Right (the “Stock
Appreciation Right”) hereby irrevocably exercises the Stock Appreciation Right with respect
                     Share Equivalents (as defined in the Stock Appreciation Right) and requests that the
applicable Exercise Amount (as defined in the Stock Appreciation Right) be delivered to the bank
account indicated below.

     The undersigned hereby confirms the accuracy and completeness of the representation and
warranty set forth in Section 1.5 of the Stock Appreciation Right with respect to the exercise of
the Stock Appreciation Right pursuant to this notice.

	 	 	 	 	 
	 	 	 
	Dated: 	
 	 
	 
	 	 	 
	 	
 	 
	 	(Street Address) 	 
	 	 	 
	 	

 	 
	 	(City)          (State)          (Zip Code) 	 
	 	 	 
	 

     Bank Account Information:

 

 

 

11

 

EXHIBIT II

FORM OF ASSIGNMENT

To BORDERS GROUP, INC.:

     FOR VALUE RECEIVED, the undersigned registered holder of the attached Stock Appreciation Right
(the “Stock Appreciation Right”) hereby sells, assigns and transfers unto                          
the rights represented by the Stock Appreciation Right with respect to                      Share Equivalents
(as defined in the Stock Appreciation Right) and appoints                      as its agent and
attorney-in-fact to make such transfer on the books of Borders Group, Inc. maintained for such
purpose, with full power of substitution in the premises.

	 	 	 	 	 
	 	 	 
	Dated: 	
 	 
	 
	 	 	 
	 	
 	 
	 	(Street Address) 	 
	 	 	 
	 	

 	 
	 	(City)          (State)          (Zip Code) 	 
	 	 	 
	 

12exv10w4

Exhibit 10.4

May 20, 2010

Borders Group, Inc.

100 Phoenix Drive

Ann Arbor, Michigan 48108

Computershare Inc.

Computershare Trust Company, N.A.

250 Royall Street

Canton, Massachusetts 02021

	 	Re: 	 	Amendment of Warrant and Registration Rights Agreement.

Ladies and Gentlemen:

     Borders Group, Inc., a Michigan corporation (the “Company”), and Computershare Inc., a
Delaware corporation, and its wholly-owned subsidiary, Computershare Trust Company, N.A., a
federally-chartered trust company (collectively, the “Warrant Agent”), are parties to a Warrant and
Registration Rights Agreement dated as of April 9, 2008, as amended (the “Warrant Agreement”).
Except as otherwise provided herein, all capitalized terms used without definition herein have the
respective meanings provided in the Warrant Agreement.

     BGP Holdings Corp., Pershing Square, L.P. and Pershing Square II, L.P. (collectively,
“Pershing Square”) are the record holders and beneficial owners of all 14,700,000 outstanding
Warrants issued pursuant to the Warrant Agreement.

     The Company proposes to enter into a Securities Purchase Agreement (the “Securities Purchase
Agreement”) with LeBow Gamma Limited Partnership, a Delaware limited partnership (the “Purchaser”).
Pursuant to the Securities Purchase Agreement, the Company expects to issue to the Purchaser
11,111,111 shares (the “Purchaser Shares”) of the Company’s common stock, no par value per share
(“Common Shares”). Subject to approval by the shareholders of the Company in accordance with the
listing rules of the New York Stock Exchange (the “Shareholder Approval”), the Company is also
obligated pursuant to the Securities Purchase Agreement to issue to the Purchaser a stock purchase
warrant (the “Purchaser Warrant”) exercisable to acquire 35,130,000 Common Shares (as adjusted as
provided in the Purchaser Warrant, the “Purchaser Warrant Shares”). In the event that the
Shareholder Approval is not obtained, the Company will be obligated pursuant to the Securities
Purchase Agreement to issue to the Purchaser a Stock Appreciation Right (the “Purchaser Stock
Appreciation Right”). In accordance with Section 1.3(c) of the Purchaser Stock Appreciation Right,
the Purchaser may, under certain limited circumstances, elect to receive Common Shares (“Section
1.3(c) Shares”) upon its exercise of the Purchaser Stock Appreciation Right. In addition, in
accordance with Section 1.4 of the Purchaser Stock Appreciation Right, the Company has the right
under certain circumstances to replace the Purchaser Stock Appreciation Right in whole or in part
with a warrant substantially in the form of the Purchaser Warrant (the “Purchaser Substitute
Warrant”).

     Copies of the Securities Purchase Agreement, form of Purchaser Warrant and form of Purchaser
Stock Appreciation Right are attached hereto as Exhibit A.

 

 

     In order to facilitate the transactions contemplated by the Securities Purchase Agreement, the
Company, Pershing Square and the Warrant Agent hereby agree that the definition of the term “Change
of Control Event” as set forth in the Warrant Agreement is hereby amended to add the following at
the end of such definition:

     “Notwithstanding the foregoing, in accordance with the letter agreement dated
as of May 20, 2010 (the “Letter Agreement”) between and among the Company, the
Warrant Agent and BGP Holdings Corp., Pershing Square, L.P. and Pershing Square
II, L.P. (collectively, “Pershing Square”), the acquisition by the Purchaser, any
Affiliate of the Purchaser, any BSL Affiliate (in each case, and only for purposes
of this sentence, as such terms are defined in the Securities Purchase Agreement)
or any permitted transferee, successor or assignee thereof of (i) up to 11,111,111
shares of Common Stock, (ii) if the Shareholder Approval is obtained, the
Purchaser Warrant and the Purchaser Warrant Shares issuable upon the exercise of
the Purchaser Warrant, (iii) if the Shareholder Approval is not obtained, the
Purchaser Stock Appreciation Right, (iv) if the Purchaser Stock Appreciation Right
is issued, any Section 1.3(c) Shares in accordance with Section 1.3(c) of the
Purchaser Stock Appreciation Right and (v) if the Purchaser Stock Appreciation
Right is issued, any Purchaser Substitute Warrant issued in accordance with
Section 1.4 of the Purchaser Stock Appreciation Right and any Common Shares issued
upon the exercise of any Purchaser Substitute Warrant, shall not by themselves
constitute a Change of Control Event, so long as (i) the Company is in compliance
with the Warrant Agreement, as amended and supplemented from time to time, and
(ii) the Company seeks the Shareholder Approval at or prior to its next annual
general meeting of shareholders, the Company recommends the Shareholder Approval
without material qualification, and all shares of Common Stock held by Purchaser,
any Affiliate of Purchaser or any BSL Affiliate are voted in favor of the
Shareholder Approval to the fullest extent permitted by the rules of the Trading
Market and applicable law. All capitalized terms used without definition in the
preceding sentence shall have the respective meanings provided in the Letter
Agreement.”

     In accordance with Section 5.5 of the Warrant Agreement, concurrently with the issuance of the
Purchaser Shares to the Purchaser pursuant to the Securities Purchase Agreement, the Company will
cause the Warrant Agent to issue to Pershing Square such number of additional Warrants (having the
same terms as the current outstanding Warrants) that are exercisable to acquire 2,701,837 Common
Shares, at an initial exercise price, subject to adjustment as provided in the Warrant Agreement,
of $0.65 per share.

     In accordance with Section 5.5 of the Warrant Agreement, the Company will concurrently with
the issuance of the Purchaser Warrant or the Purchaser Stock Appreciation Right to the Purchaser
pursuant to the Securities Purchase Agreement cause the Warrant Agent to issue to Pershing Square
additional Warrants (having the same terms as the current outstanding Warrants) that are
exercisable to acquire 8,542,399 Common Shares at an initial exercise price, subject to adjustment
as provided in the Warrant Agreement, of $0.65 per share.

2

 

     In the event of any amendment or modification of the Securities Purchase Agreement (or any
related document) from the forms of such documents provided to Pershing Square as of the date
hereof, as attached hereto as Exhibit A, which change affects the amount or pricing terms of any
securities issued or issuable in connection therewith, and as a condition to effecting any such
change, the Company and Pershing Square will agree upon any necessary adjustments to the Exercise
Price and the issuance of new Warrants to Pershing Square, as applicable, in each case in
accordance with and as contemplated by the Warrant Agreement.

* * * * *

3

 

     Except as amended as expressly provided herein, the parties agree that the Warrant
Agreement will remain in full force and effect in accordance with its terms and conditions.

	 	 	 	 	 
	 	BGP HOLDINGS CORP.

 	 
	 	By:  	/s/ William A. Ackman
 	 
	 	Its:	Authorized Representative  	 
	 	 	 	 
	 
	 	PERSHING SQUARE, L.P.

 	 
	 	By:  	Pershing Square Capital Management, L.P.
 	 
	 	Its:	 Investment Manager         	 
	 	 	 	 
	 	By:  	     PS Management GP, LLC
 	 
	 	Its:	 General Partner             	 
	 	 	 	 
	 	By:  	     /s/ William A. Ackman
 	 
	 	Its:	 Managing Member           	 
	 	 	 	 
	 
	 	PERSHING SQUARE II, L.P.

 	 
	 	By:  	Pershing Square Capital Management, L.P.
 	 
	 	Its:	 Investment Manager         	 
	 	 	 	 
	 	By:  	     PS Management GP, LLC
 	 
	 	Its:	 General Partner             	 
	 
	 	By:  	     /s/ William A. Ackman
 	 
	 	Its:	 Managing Member           	 
	 	 	 	 
	 

Agreed and acknowledged

this May 20, 2010:

BORDERS GROUP, INC.

	 	 	 	 	 

	By:

	 	/s/ Mark R. Bierley	 	 
	Its:

	 	 

Executive Vice President and Chief Financial Officer
	 	 
	 
	 	 	 	 
	COMPUTERSHARE INC.	 	 
	 
	 	 	 	 
	By:

	 	/s/ Neda Sheridan	 	 
	Its:

	 	 

Vice President
	 	 
	 
	 	 	 	 
	COMPUTERSHARE TRUST COMPANY, N.A.	 	 
	 
	 	 	 	 
	By:

	 	/s/ Neda Sheridan	 	 
	Its:

	 	 

Vice President
	 	 

4

 

	 	 	 	 	 

EXHIBIT A

5

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