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Borders Group Finalizes Improved Financing Agreement with Pershing Square


ANN ARBOR, Mich. — Borders Group, Inc. (NYSE: BGP) today announced that it has finalized a revised financing agreement with Pershing Square Capital Management, L.P. The agreement features terms that are more advantageous to Borders Group than Pershing Square’s original financing commitment described in the company’s March 20 news release and March 21 8-K filing.

“We are pleased to have reached a final financing agreement with Pershing Square that includes more advantageous terms and still provides Borders with the necessary funding to continue implementing our key initiatives,” said Borders Group Chief Executive Officer George Jones. “The process of reviewing alternative financing proposals over the past two weeks was beneficial as it yielded an outcome that is better for our company and our shareholders. We are pleased to have the backing of Pershing Square, our largest shareholder, as we move forward and we appreciate their continued confidence. Borders is now turning its focus to the broader strategic alternatives process.”

The revised financing agreement consists of the same three components that were in the original Pershing Square commitment, but with specific revisions as follows:

· A lower interest rate of 9.8% on the $42.5 million senior secured term loan. The original Pershing Square financing commitment carried a 12.5% interest rate.

· An increased backstop purchase offer (“put”) of $135 million for the international subsidiaries. The original Pershing Square financing commitment included a purchase obligation at a price of $125 million. As previously stated, Borders Group believes its international subsidiaries are worth substantially more than the amended backstop purchase offer price and the company has retained the right to continue its ongoing strategic alternatives process for these businesses.

· A reduction in the number of warrants issued at closing to Pershing Square to 9.55 million warrants to purchase company common stock at $7.00 per share and a reduction in the term of all warrants issued to Pershing Square from 7.5 years to 6.5 years. The original Pershing Square financing commitment included 14.7 million in up-front warrants at $7.00 per share. Under the new agreement, Borders Group is required to issue an additional 5.15 million warrants to Pershing Square if any of the following three conditions occurs: the company exercises the put related to the sale of the international subsidiaries, a definitive agreement relating to a change-of-control of the company is not signed by October 1, 2008, or the company terminates the strategic alternatives process.

The financing agreement was unanimously approved by the disinterested members of the company’s board of directors after a full review by the company and its financial and legal advisors of the Pershing Square agreement and other alternatives. It has also been approved by the lenders under the company’s revolving credit facility. The full text of the Borders Group financing agreement with Pershing Square will be filed by the company with the Securities and Exchange Commission in a Form 8-K.

J. P. Morgan Securities Inc. and Merrill Lynch & Co. acted as financial advisors to the company in the evaluation of its financing alternatives and Merrill Lynch & Co. provided a fairness opinion to the board of directors regarding the financing.


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