10-Q

   SECURITIES AND EXCHANGE COMMISSION

      Washington, D.C. 20549

FORM 10 - Q

(Mark One)

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
	SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended May 3, 2008
	OR
[  ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
	SECURITIES EXCHANGE ACT OF 1934

                 For the transition period from ______ to _______.

         Commission file number 1-13740

BORDERS GROUP, INC.

 (Exact name of registrant as specified in its charter)

MICHIGAN	38-3294588
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification  No.)

100 Phoenix Drive, Ann Arbor, Michigan 48108

 (Address of principal executive offices)

(zip code)

(734) 477-1100

 (Registrant's telephone number, including area code)

Indicate by “X” whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  x    Accelerated filer  ¨    Non-accelerated filer  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

The number of shares of common stock outstanding at May 28, 2008 was 60,508,251.

BORDERS GROUP, INC.

INDEX

	Page
Part I - Financial Information
Item 1.       Financial Statements	1
Item 2.       Management's Discussion and Analysis of
Financial Condition and Results of
Operations	12
Item 3.       Quantitative and Qualitative Disclosures about
Market Risk	22
Item 4.       Controls and Procedures	22
Part II - Other information
Item 1.       Legal Proceedings	22
Item 1A.    Risk Factors	22
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 3.       Defaults Upon Senior Securities	N/A
Item 4.       Submission of Matters to a Vote of
Security holders	N/A
Item 4T.    Controls and Procedures	N/A
Item 5.       Other Information	N/A
Item 6.       Exhibits	23
Signatures	24

BORDERS GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars in millions except per share data)

(UNAUDITED)

	13 Weeks Ended
	May 3, 2008			May 5, 2007
Sales	$	784.7		$	792.3
Other revenue		7.8			6.4
Total revenue		792.5			798.7
Cost of merchandise sold, including occupancy costs		611.8			613.8
Gross margin		180.7			184.9
Selling, general and administrative expenses		227.1			222.8
Pre-opening expense		1.2			1.3
Asset impairments and other writedowns		-			0.9
Operating loss		(47.6	)		(40.1	)
Interest expense		5.7			9.3
Loss before income tax		(53.3	)		(49.4	)
Income tax benefit		(21.6	)		(20.3	)
Loss from continuing operations		(31.7	)		(29.1	)
Loss from operations of discontinued operations (net of income tax benefit of $- and $2.2)		-			(5.4	)
Loss from disposal of discontinued operations (net of income tax benefit of $- and $ 0.6)		-			(1.4	)
Loss from discontinued operations (net of income tax benefit of $- and $2.8)		-			(6.8	)
Net loss	$	(31.7	)	$	(35.9	)
Loss per common share data
Diluted:
Loss from continuing operations per common share	$	(0.53	)	$	(0.50	)
Loss from discontinued operations per common share	$	-		$	(0.11	)
Net loss per common share	$	(0.53	)	$	(0.61	)
Weighted average common shares outstanding (in millions)		59.4			58.6
Basic:
Loss from continuing operations per common share	$	(0.53	)	$	(0.50	)
Loss from discontinued operations per common share	$	-		$	(0.11	)
Net loss per common share	$	(0.53	)	$	(0.61	)
Weighted average common shares outstanding (in millions)		59.4			58.6
Dividends declared per common share	$	-		$	0.11

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

BORDERS GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in millions except per share data)

(UNAUDITED)

	May 3, 2008		May 5, 2007		February 2, 2008
Assets
Current assets:
Cash and cash equivalents	$	40.4	$	79.0	$	61.0
Merchandise inventories		1,241.2		1,429.6		1,327.2
Accounts receivable and other current assets		145.0		106.3		117.8
Taxes, including income taxes		6.5		-		-
Current assets of discontinued operations		-		141.2		-
Total current assets		1,433.1		1,756.1		1,506.0
Property and equipment, net of accumulated depreciation of    $1,070.1, $975.6 and $1,042.8 at May 3, 2008, May 5, 2007    and February 2, 2008, respectively		636.2		610.6		638.8
Other assets		67.6		64.9		64.9
Deferred income taxes		50.2		57.5		52.5
Goodwill		40.5		40.3		40.5
Noncurrent assets of discontinued operations		-		127.2		-
Total assets	$	2,227.6	$	2,656.6	$	2,302.7
Liabilities, Minority Interest and Stockholders’ Equity
Current liabilities:
Short-term borrowings and current portion of long-term debt	$	585.5	$	677.0	$	548.6
Trade accounts payable		495.1		532.8		550.3
Accrued payroll and other liabilities		286.0		296.1		344.6
Taxes, including income taxes		-		21.5		18.3
Deferred income taxes		8.6		16.3		6.0
Current liabilities of discontinued operations		-		127.8		-
Total current liabilities		1,375.2		1,671.5		1,467.8
Long-term debt		6.4		5.2		5.4
Other long-term liabilities		394.8		321.6		350.4
Noncurrent liabilities of discontinued operations		-		55.0		-
Total liabilities		1,776.4		2,053.3		1,823.6
Minority interest		2.3		1.9		2.2
Total liabilities and minority interest		1,778.7		2,055.2		1,825.8
Stockholders' equity:
Common stock; 300,000,000 shares authorized;
60,489,390, 58,740,987 and 58,794,224 shares issued
and outstanding at May 3, 2008, May 5, 2007 and
February 2, 2008, respectively		186.1		178.4		184.0
Accumulated other comprehensive income		44.0		31.6		42.4
Retained earnings		218.8		391.4		250.5
Total stockholders' equity		448.9		601.4		476.9
Total liabilities, minority interest and stockholders' equity	$	2,227.6	$	2,656.6	$	2,302.7

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

BORDERS GROUP, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

FOR THE 13 WEEKS ENDED MAY 3, 2008

(dollars in millions except share amounts)

(UNAUDITED)

	Common Stock		Accumulated Other Comprehensive	Retained
	Shares	Amount	Income	Earnings	Total
Balance at February 2, 2008	58,794,224	$  184.0	$42.4	$ 250.5	$ 476.9
Net loss	-	-	-	(31.7)	(31.7)
Currency translation adjustment	-	-	1.6	-	1.6
Comprehensive loss	-	-	-	-	(30.1)
Issuance of common stock	1,695,166	2.1	-	-	2.1
Balance at May 3, 2008	60,489,390	$    186.1	$ 44.0	$    218.8	$      448.9

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

BORDERS GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in millions)

(UNAUDITED)

	13 weeks Ended
	May 3, 2008			May 5, 2007
Cash provided by (used for):
Net loss	$	(31.7	)	$	(35.9	)
Net loss from discontinued operations		-			(6.8	)
Net loss from continuing operations		(31.7	)		(29.1	)
Operations
Adjustments to reconcile loss from continuing operations to    operating cash flows:
Depreciation		28.9			25.6
Loss on disposal of assets		0.1			0.1
Increase in deferred income taxes		(1.4	)		(3.0	)
(Increase) decrease in other long-term assets		(2.8	)		0.4
Increase in other long-term liabilities		5.0			5.1
Cash provided by (used for) current assets and current liabilities:
(Increase) decrease in inventories		88.9			(78.6	)
Decrease in accounts receivable		16.7			20.7
Increase in prepaid expenses		(10.9	)		(0.5	)
Decrease in trade accounts payable		(56.5	)		(30.5	)
Decrease in taxes payable		(18.5	)		(41.0	)
Decrease in expenses payable and accrued liabilities		(50.6	)		(34.9	)
Net cash used for operating activities of continuing operations		(32.8	)		(165.7	)
Investing
Capital expenditures		(29.6	)		(34.1	)
Net cash used for investing activities of continuing operations		(29.6	)		(34.1	)
Financing
Proceeds from the excess tax benefit of stock option exercises		-			0.2
Net funding from credit facility		2.7			173.8
Funding from short-term note financing		42.5			-
Issuance of long-term debt		1.1			-
Issuance of common stock		2.1			2.7
Payment of cash dividends		(6.5	)		(6.5	)
Net cash provided by financing activities of continuing operations		41.9			170.2
Effect of exchange rates on cash and cash equivalents of continuing operations		(0.1	)		(0.4	)
Net cash provided by operating activities of discontinued operations		-			4.1
Net cash used for investing activities of discontinued operations		-			(2.3	)
Net cash used for financing activities of discontinued operations		-			(1.4	)
Effect of exchange rates on cash and cash equivalents of discontinued operations		-			-
Net cash provided by discontinued operations		-			0.4
Net decrease in cash and cash equivalents		(20.6	)		(29.6	)
Cash and cash equivalents at beginning of year		61.0			108.6
Cash and cash equivalents at end of period	$	40.4		$	79.0

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

BORDERS GROUP, INC.

NOTES TO UNAUDITED CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions except per share data)

NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of Borders Group, Inc. (“the Company”) have been prepared in accordance with Rule 10-01 of Regulation S-X and do not include all the information and notes required by accounting principles generally accepted in the United States for complete financial statements. All adjustments, consisting only of normal recurring adjustments, have been made which, in the opinion of management, are necessary for a fair presentation of the results of the interim periods. The results of operations for such interim periods are not necessarily indicative of results of operations for a full year. The unaudited condensed consolidated financial statements should be read in conjunction with the Company's consolidated financial statements and notes thereto, included in its Annual Report on Form 10-K for the fiscal year ended February 2, 2008.

The Company’s fiscal year ends on the Saturday closest to the last day of January. Fiscal 2008 will consist of 52 weeks, and will end on January 31, 2009. References herein to years are to the Company’s fiscal years.

At May 3, 2008, the Company operated 547 superstores under the Borders name, including 514 in the United States, 23 in Australia, five in New Zealand, three in Puerto Rico, and two in Singapore. The Company also operated 476 mall-based and other bookstores, including stores operated under the Waldenbooks, Borders Express and Borders Outlet names, as well as Borders-branded airport stores. In addition, the Company owned and operated United Kingdom-based Paperchase Products Limited (“Paperchase”), a designer and retailer of stationery, cards and gifts. As of May 3, 2008, Paperchase operated 114 stores, primarily in the United Kingdom, and Paperchase shops exist in 325 domestic Borders superstores.

On June 4, 2008, the Company entered into an agreement to sell its bookstores in Australia, New Zealand, and Singapore. See “Note 8 – Subsequent Events”for further discussion of the Company’s sale of these businesses.

NOTE 2 — CONTINGENCIES

On October 29, 2002, Gary Gerlinger, individually and on behalf of all other similarly situated consumers in the United States who, during the period from August 1, 2001 to the present, purchased books online from either Amazon.com, Inc. (“Amazon”) or the Company, instituted an action against the Company and Amazon in the United States District Court for the Northern District of California. The Complaint alleges that the agreement pursuant to which an affiliate of Amazon operates Borders.com as a co-branded site (the “Mirror Site”) violates federal anti-trust laws, California statutory law and the common law of unjust enrichment. The Complaint seeks injunctive relief, damages, including treble damages or statutory damages where applicable, attorneys fees, costs and disbursements, disgorgement of all sums obtained by allegedly wrongful acts, interest and declaratory relief. On November 1, 2005, the Court granted the Company’s Motion to Dismiss all of the remaining claims of the plaintiff. The anti-trust claims were dismissed with prejudice, and the unfair competition claims were dismissed without prejudice. On May 27, 2008 the Ninth Circuit Court of Appeals affirmed the decision of the trial court.

Certain states and private litigants have sought to impose sales or other tax collection efforts on out-of-jurisdiction companies that engage in e-commerce. The Company and Amazon have been named as defendants in actions filed by a private litigant on behalf of the state of Illinois under the state’s False Claims Act relating to the failure to collect use taxes on Internet sales in Illinois for periods both before and after the implementation of the Web Site Agreement. The Complaints seek judgments, jointly and severally, against the defendants for, among other things, injunctive relief, treble the amount of damages suffered by the state of Illinois as a result of the alleged violations of the defendants, penalties, costs and expenses, including legal fees. Similar actions previously filed against the Company in Tennessee and Nevada have been dismissed.

Although an adverse resolution of any of the matters described above could have a material adverse effect on the results of the operations of the Company for the applicable period or periods, the Company does not believe that these matters will have a material effect on its liquidity or financial position.

In addition to the matters described above, the Company is, from time to time, involved in or affected by other litigation incidental to the conduct of its businesses.

BORDERS GROUP, INC.

NOTES TO UNAUDITED CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions except per share data)

NOTE 3 - FINANCING

Credit Facility: The Company has a Multicurrency Revolving Credit Agreement, as amended (the “Credit Agreement”), which expires in July 2011. The Credit Agreement provides for borrowings of up to $1,125.0 million secured by eligible inventory and accounts receivable and related assets. Borrowings under the Credit Agreement are limited to a specified percentage of eligible inventories and accounts receivable and bear interest at a variable base rate plus the applicable increment or LIBOR plus the applicable increment at the Company’s option. The Credit Agreement (i) includes a fixed charge coverage ratio requirement of 1.1 to 1 that is applicable only if outstanding borrowings under the facility exceed 90% of permitted borrowings thereunder, (ii) contains covenants that limit, among other things, the Company’s ability to incur indebtedness, grant liens, make investments, consolidate or merge or dispose of assets, (iii) prohibits dividend payments and share repurchases that would result in borrowings under the facility exceeding 90% of permitted borrowings thereunder, and (iv) contains default provisions that are typical for this type of financing, including a cross default provision relating to other indebtedness of more than $25.0 million.

In April of 2008, the Company amended its Credit Agreement. Pursuant to this amendment lenders (i) approved a loan to the Company by Pershing Square Capital Management, L.P., as described below, (ii) permitted increased borrowing availability until December 15, 2008, from 90% of permitted borrowings to 92.5%, (iii) until December 15, 2008, made the fixed charge coverage ratio and the cash dominion event apply only if outstanding borrowings under the facility exceed 92.5% of permitted borrowings, rather than 90%, and (iv) increased the interest rate, commitment fees and letter of credit fees thereunder.

The Company had borrowings outstanding under the Credit Agreement of $551.1, $674.1 and $547.3 at May 3, 2008, May 5, 2007 and February 2, 2008, respectively, excluding any borrowings outstanding related to the Company’s discontinued U.K. and Ireland bookstore operations. The U.K. and Ireland bookstore operations had borrowings outstanding of $40.6 at May 5, 2007.

As of May 3, 2008, the Company was in compliance with its debt covenants. The Company currently does not meet the Credit Agreement’s fixed charge coverage ratio requirement; however, borrowings under the Credit Agreement have not exceeded 90% of permitted borrowings.

Term Loan: On April 9, 2008, the Company completed a financing agreement with Pershing Square Capital Management, L.P. (“Pershing Square”) on behalf of certain of its affiliated investment funds. Under the terms of the agreement, Pershing Square has loaned $42.5 to the Company and will purchase, at the Company’s discretion, certain of the Company’s international businesses pursuant to a $135.0 backstop purchase commitment. The terms of the Pershing Square financing agreement have been approved by the lenders under the Company’s current revolving credit facility, and the revolving credit facility has been amended accordingly.

Debt of Consolidated VIEs: At May 3, 2008, the Company is the primary beneficiary of two variable interest entities (“VIEs”), due to the Company’s guarantee of the debt of these entities. As a result, the Company consolidates these VIEs and has recorded property and equipment, net of accumulated depreciation, of $4.9, long-term debt (including current portion) of $5.2 and minority interest of $0.3 at May 3, 2008.

BORDERS GROUP, INC.

NOTES TO UNAUDITED CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions except per share data)

NOTE 4 - SEGMENT INFORMATION

The Company is organized based upon the following operating segments: domestic Borders superstores, Waldenbooks Specialty Retail stores, International stores (including Borders and Paperchase stores), and Corporate (consisting of certain corporate governance and incentive costs). Segment data includes charges allocating all corporate support costs to each segment. Transactions between segments, consisting principally of inventory transfers, are recorded primarily at cost. The Company evaluates the performance of its segments and allocates resources to them based on operating income and anticipated future contribution.

	13 Weeks Ended
	May 3, 2008			May 5, 2007
Sales
Domestic Borders superstores	$	600.7		$	615.0
Waldenbooks Specialty Retail		96.0			108.1
International		88.0			69.2
Total sales	$	784.7		$	792.3
Operating loss
Domestic Borders superstores	$	(30.0	)	$	(22.0	)
Waldenbooks Specialty Retail		(13.6	)		(14.0	)
International		(1.3	)		(1.0	)
Corporate		(2.7	)		(3.1	)
Total operating loss	$	(47.6	)	$	(40.1	)
Total assets
Domestic Borders superstores	$	1,617.8		$	1,767.0
Waldenbooks Specialty Retail		205.1			318.9
International		243.6			194.2
Corporate		161.1			108.1
Total assets of continuing operations	$	2,227.6		$	2,388.2
Discontinued operations		-			268.4
Total assets	$	2,227.6		$	2,656.6

Total assets for the Corporate segment include certain corporate headquarters asset balances, which have not been allocated to the other segments; however, depreciation expense associated with such assets has been allocated to the other segments as follows:

	13 Weeks Ended
	May 3, 2008		May 5, 2007
Domestic Borders superstores	$	1.8	$	2.8
Waldenbooks Specialty Retail		0.4		-
International		-		-
Total	$	2.2	$	2.8

                                          BORDERS GROUP, INC.

NOTES TO UNAUDITED CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions except per share data)

NOTE 5 - DISCONTINUED OPERATIONS

On September 21, 2007, the Company sold its U.K. and Ireland bookstore operations to Bookshop Acquisitions Ltd., a corporation formed by Risk Capital Partners, a private equity firm in the United Kingdom. The consideration for the sale was: (i) cash of $20.4; (ii) the potential for up to an additional $20.4 of contingent deferred consideration, which will be payable in whole or in part only if specified sales levels are achieved by the U.K. and Ireland bookstore operations in future years; (iii) a 19.9% equity interest in Bookshop Acquisitions Ltd., which is expected to be diluted to approximately seventeen percent (17%); and (iv) 7% loan notes of approximately $3.4 which mature in 2017 or sooner upon the occurrence of certain events.

The sale agreement included all 41 Borders superstores located in the U.K. and the Borders superstore in Ireland, as well as all 28 Books etc. stores. All assets and liabilities, with the exception of outstanding lease guarantees relating to four stores, remained with the entities sold, which are now owned by Risk Capital Partners. The maximum potential liability under these lease guarantees is approximately $190.0. The leases provide for periodic rent reviews, which could increase the Company’s potential liability. One of the applicable lease guaranty agreements provides that the guaranty will automatically terminate if Borders U.K. Limited achieves a specified level of net assets. This potential limitation has not been considered in calculating the maximum exposures set forth above. In addition, in the event of a default under the primary leases and the landlord does not require the Company to take a new (replacement) lease, the landlord would have an obligation to attempt to re-lease the premises, which could further reduce the Company’s potential liability. The Company has recorded a contingent liability of approximately $5.8 based upon the likelihood that the Company will be required to perform under the guarantees.

Also under the terms of the sale agreement, the Company indemnified the U.K. and Ireland operations from the tax liability, if any, imposed upon it as a result of the forgiveness of the portions of intercompany indebtedness owing from the Company. The maximum potential liability is approximately $10.7, and the Company has recorded a liability of approximately $4.4 based upon the likelihood that the Company will be required to perform under the indemnification.

The Company did not record any amount related to the contingent deferred consideration of $20.4. The Company will record this amount once the realization of such amount is resolved beyond a reasonable doubt. The Company has attributed only a nominal value to its equity interest in Bookshop Acquisitions Ltd. and to its 7% loan notes.

The disposal resulted in a loss of $1.4 for the 13 weeks ended May 5, 2007, while the operation of the disposed businesses resulted in a loss of $5.4 for the 13 weeks ended May 5, 2007.

The financial results of the U.K. and Ireland operations included in discontinued operations were as follows:

	13 Weeks Ended
	May 5, 2007
Total revenue	$	87.1
Loss from operations of discontinued operations before income tax		(7.6	)
Loss from operations of discontinued operations (net of income tax benefit of $2.2)		(5.4	)
Loss on disposal of discontinued operations (net of income tax benefit of $0.6)		(1.4	)
Loss from discontinued operations (net of income tax benefit of $2.8)		(6.8	)

                                           BORDERS GROUP, INC.

NOTES TO UNAUDITED CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions except per share data)

	May 5, 2007
Cash and cash equivalents	$	4.9
Merchandise inventories		92.7
Accounts receivable and other current assets		43.6
Current assets of discontinued operations	$	141.2
Property and equipment (net of accumulated depreciation)	$	103.9
Other assets		23.3
Noncurrent assets of discontinued operations	$	127.2
Short-term borrowings and current portion of long-term debt	$	40.6
Accounts payable		30.3
Accrued payroll and other liabilities		43.2
Other liabilities		13.7
Current liabilities of discontinued operations	$	127.8
Long-term liabilities	$	55.0
Noncurrent liabilities of discontinued operations	$	55.0
NOTE 6 — FAIR VALUE MEASUREMENTS In February 2008, the Company adopted FASB Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (FAS 157), which provides a consistent definition of fair value that focuses on exit price and prioritizes, within a measurement of fair value, the use of market-based inputs over entity-specific inputs. FAS 157 requires expanded disclosures about fair value measurements and establishes a three-level hierarchy for fair value measurements based on the observability of inputs to the valuation of an asset or liability as of the measurement date. The standard also requires that a company consider its own nonperformance risk when measuring liabilities carried at fair value, including derivatives. In February 2008, the FASB approved FASB Staff Position No. 157-2, “Effective Date of FASB Statement No. 157” (FSP No. 157-2), that permits companies to partially defer the effective date of FAS 157 for one year for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. FSP No. 157-2 does not permit companies to defer recognition and disclosure requirements for financial assets and financial liabilities or for nonfinancial assets and nonfinancial liabilities that are remeasured at least annually. FAS 157 is effective for financial assets and financial liabilities and for nonfinancial assets and nonfinancial liabilities that are remeasured at least annually for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The provisions of FAS 157 are applied prospectively. The Company has decided to defer adoption of FAS 157 for one year for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. The effect of the adoption of FAS 157 on February 3, 2008 was not material and no adjustment to retained earnings was required.

BORDERS GROUP, INC.

NOTES TO UNAUDITED CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions except per share data)

NOTE 7 — PERSHING SQUARE FINANCING ARRANGEMENT

On April 9, 2008, the Company completed a financing agreement with Pershing Square Capital Management, L.P. (“Pershing Square”) on behalf of certain of its affiliated investment funds. Under the terms of the agreement, Pershing Square has loaned $42.5 to the Company and will purchase, at the Company’s discretion, certain of the Company’s international businesses pursuant to a $135.0 backstop purchase commitment. The terms of the Pershing Square financing agreement have been approved by the lenders under the Company’s current revolving credit facility, and the revolving credit facility has been amended accordingly. Based on current internal projections, the Company believes that the financing agreement with Pershing Square will allow the Company to be fully funded during fiscal 2008, where absent these measures, liquidity issues may otherwise have arisen during the year.

The financing agreement with Pershing Square consists of three main components:

1. A $42.5 senior secured term loan maturing January 15, 2009 with an interest rate of 9.8% per annum. The term loan is secured by an indirect pledge of approximately 65% of the stock of Paperchase Products Ltd. (“Paperchase”) pursuant to a Deed of Charge Over Shares. In the event that Paperchase is sold, all proceeds from the sale are required to be used to prepay the term loan. The representations, covenants and events of default therein are otherwise substantially identical to the Company’s existing Multicurrency Revolving Credit Agreement (as amended, the “Credit Agreement”), other than some relating to Paperchase. Such exceptions are not expected to interfere with the operations of Paperchase or the Company in the ordinary course of business.

2. A backstop purchase offer that will give the Company the right but not the obligation, until January 15, 2009, to require Pershing Square to purchase its Paperchase, Australia, New Zealand and Singapore subsidiaries, as well as its approximately 17% interest in Bookshop Acquisitions, Inc. (Borders U.K.) after the Company has pursued a sale process to maximize the value of those assets. Pershing Square’s purchase obligation is at a price of $135.0 (less any debt attributable to those assets) and on customary terms to be negotiated. Proceeds of any such purchase by Pershing Square are to be first applied to repay amounts outstanding under the $42.5 term loan. Although the Company believes that these businesses are worth substantially more than the backstop purchase offer price, the relative certainty of this arrangement provides the Company with valuable flexibility to pursue strategic alternatives. The Company has retained the right, in its sole discretion, to forego the sale of these assets or to require Pershing Square to consummate the transaction. Pershing Square has no right of first refusal or other preemptive right with respect to the sale of these businesses by the Company to other parties.

3. The issuance to Pershing Square of 9.55 million warrants to purchase the Company’s common stock at $7.00 per share. The Company is also required to issue an additional 5.15 million warrants to Pershing Square if any of the following three conditions occurs: the Company requires Pershing Square to purchase its international subsidiaries as described in (2) above, a definitive agreement relating to certain business combinations involving the Company is not signed by October 1, 2008, or the Company terminates the strategic alternatives process. The warrants will be cash-settled in certain circumstances and have a term of 6.5 years.

The warrants feature full anti-dilution protection, including preservation of the right to convert into the same percentage of the fully-diluted shares of the Company’s common stock that would be outstanding on a pro forma basis giving effect to the issuance of the shares underlying the warrants at all times, and “full-ratchet” adjustment to the exercise price for future issuances (in each case, subject to certain exceptions), and adjustments to compensate for all dividends and distributions.

For accounting purposes, the Company allocated the proceeds from the financing agreement with Pershing Square between the senior secured term loan, the warrants, and the backstop purchase offer based upon their relative fair market values. This resulted in the recognition of a discount on the secured term loan of $7.2, which will be amortized to earnings over the term of the loan using the effective interest method.  As of May 3, 2008, the discount on the term loan totaled $6.6, and is categorized as “Short-term borrowings and current portion of long-term debt” in the Company’s consolidated balance sheets. The warrants were recorded as liabilities at their fair market value of $40.8 on the date of issuance.  The warrants are required to be remeasured to their fair value at the end of each period with the change in fair value recognized in earnings. As of May 3, 2008, the fair value of the warrants was $37.2, and is categorized as “Other long-term liabilities” in the Company’s consolidated balance sheets. The decrease in the fair value from the date of issuance through the end of the first quarter of $3.6 (all of which is unrealized) was recognized as income and is categorized as an offset to “Interest expense” on the Company’s consolidated statements of operations.  This fair value measurement is based upon significant unobservable inputs, referred to as a Level 3 measurement under FASB Statement of Financial Accounting Standards No. 157, “Fair Value Measurements.”  An intangible asset in the amount of $33.7 related to the backstop purchase offer was also recorded, and is categorized as “Accounts receivable and other current assets” on the Company’s balance sheets. The intangible asset will be expensed if it becomes probable that the backstop purchase offer will not be executed. If the backstop purchase offer is executed, the intangible asset will be added to the carrying value of the related businesses, and expensed upon sale.

BORDERS GROUP, INC.

NOTES TO UNAUDITED CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions except per share data)

NOTE 8 — SUBSEQUENT EVENTS

On June 4, 2008, the Company entered into a Sale and Purchase Agreement with companies affiliated with A&R Whitcoulls Group Holdings Pty Limited (“the Purchasers”), pursuant to which the Company agreed to sell all of the outstanding shares of Borders Australia Pty Limited, Borders New Zealand Limited and Borders Pte. Ltd to the Purchasers. Funds managed by Pacific Equity Partners Pty Limited are the principal shareholders of A&R Whitcoulls Group Holdings Pty Limited, a leading bookseller in Australia and New Zealand.  The following is a summary of the principal terms of the Agreement:

The Purchasers will pay the following consideration to the Company (amounts are in US dollars based on current exchange rates):

a.   A cash payment of $90.8 at closing, subject to a final purchase price adjustment to reflect changes in working capital.

b.   A deferred payment of $4.8, payable on or about January 1, 2009 if certain actual operating results for fiscal 2008 exceed a specified level, approximating 2007 results; and

c.   A deferred payment of up to $9.6 payable on or about March 31, 2009 if certain actual operating results for fiscal 2008 exceed a specified level.

As a result of the sale transaction, a portion of the intangible asset resulting from the Pershing Square Financing Agreement will be added to the carrying value of the related businesses, and expensed upon disposition.

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

Borders Group, Inc., through its subsidiaries, Borders, Inc. (“Borders”), Walden Book Company, Inc. (“Waldenbooks”), Borders (UK) Limited, Borders Australia Pty Limited and others (individually and collectively, “the Company”), is the second largest operator of book, music and movie superstores and the largest operator of mall-based bookstores in the world based upon both sales and number of stores. At May 3, 2008, the Company operated 547 superstores under the Borders name, including 514 in the United States, 23 in Australia, five in New Zealand, three in Puerto Rico, and two in Singapore. The Company also operated 476 mall-based and other bookstores, including stores operated under the Waldenbooks, Borders Express and Borders Outlet names, as well as Borders-branded airport stores. In addition, the Company owned and operated United Kingdom-based Paperchase Products Limited (“Paperchase”), a designer and retailer of stationery, cards and gifts. As of May 3, 2008, Paperchase operated 114 stores, primarily in the United Kingdom, and Paperchase shops exist in 325 domestic Borders superstores.

On June 4, 2008, the Company entered into an agreement to sell its bookstores in Australia, New Zealand, and Singapore, as discussed below under the caption “Liquidity and Capital Resources” within Management’s Discussion and Analysis.

Business Strategy

Strategic alternatives review process. On March 20, 2008, the Company announced that it would undergo a strategic alternative review process. J.P. Morgan Securities Inc. and Merrill Lynch & Co. have been retained as the Company’s financial advisors to assist in this process. The review will include the investigation of a wide range of alternatives including the sale of the Company and/or certain divisions for the purpose of maximizing shareholder value.

Throughout the first quarter of 2008, the Company continued to implement its strategic plan, the principal components of which are as follows:

Grow comparable store sales and profitability in the domestic Borders superstores. The Company continues to focus on improving key retailing practices at its domestic superstores, including increasing effectiveness of merchandise presentation, improving assortment planning, replenishment and supply chain effectiveness, and ensuring consistency of execution across the chain. A key component in this strategy is the development of a concept store, five of which opened during the first quarter of 2008. The concept store includes the implementation of “destination businesses” within certain of the Company’s most popular categories, which will help to distinguish the Company’s domestic superstores from competitors. The concept store also includes a Seattle’s Best Coffee cafe and a Paperchase shop, which continue to be drivers of both sales and increased profitability for their categories. The Company plans to open additional concept stores in 2008, and will implement select features of the concept store in its existing superstores based on financial analysis of costs and benefits. To address declining sales in the music category, as well as increasing space available for improved merchandising presentation and expansion of higher margin categories, the Company has begun reducing inventories and reallocating floor space in its stores. Also, the Company made changes in 2007 to its loyalty program, Borders Rewards, which has grown to over 26 million members. The changes were intended to increase profitability, to drive revenue through partnerships with other organizations, and to drive sales by employing customer data to tailor promotions that meet specific customer needs and interests.

Right-size the Waldenbooks Specialty Retail business. The Waldenbooks Specialty Retail segment has generally experienced negative comparable store sales percentages for the past several years, primarily due to the overall decrease in mall traffic, sluggish bestsellers and increased competition from all channels. The Company is working to aggressively right-size the Waldenbooks mall store base, which could result in additional asset impairments and store closure costs in the next few years, but will position the Company to improve sales, profitability and free cash flow in the long term. The Company will retain stable locations that meet acceptable profit and return on investment objectives and in those stores, change product assortment and formats to drive sales and profitability.

Explore strategic alternatives in the International segment. As previously announced, the Company has suspended growth and investment in its International businesses, while focusing on improving the profitability of the investments the Company has already made. A key component in this strategy was the sale of the Company’s U.K. and Ireland bookstores during the third quarter of 2007, as discussed below.  On June 4, 2008, the Company entered into an agreement to sell its Australia, New Zealand and Singapore superstores to companies affiliated with A&R Whitcoulls Group Holdings Pty Limited. The Company is continuing to explore strategic alternatives for Paperchase. The Company believes the Borders brand has global potential, however, and believes that future International growth will most profitably utilize a franchise business model, which the Company has applied successfully in Malaysia and the United Arab Emirates.

Leverage innovation, technology and strategic alliances to differentiate our business. In order to achieve the goals of the strategic plan detailed above, the Company plans to enhance its current systems environment. This includes a focus on the systems supporting the domestic Borders superstore business, including merchandise buying, replenishment and supply chain, as well as in-store technology enhancements. In addition, this effort includes development of a proprietary e-commerce platform, which includes both in-store and online e-commerce components. The proprietary e-commerce Web site will also allow the Company to engage in key partnerships that are expected to build incremental revenues and margins, connect e-commerce sales to the Company’s Borders Rewards loyalty program and integrate Borders.com into the domestic Borders superstores. The Company launched its e-commerce Web site in May of 2008.

The Company plans to continue to execute this strategy throughout fiscal 2008, factoring in its belief that 2008 will be a challenging year for retailers due to continued uncertainty in the economic environment, and will focus on maximizing cash flow and profitability. The Company plans to reduce capital spending by investing in projects with short paybacks and high returns, will review all cost structures with the goal of reducing expenses to improve profitability, and will continue to reduce the working capital needs of the business and drive inventory productivity, thus improving cash flow and lowering supply chain costs. As a result, the Company expects capital expenditures in fiscal 2008 to range between $80 and $85 million. In addition, the Company expects to reduce expenses, including corporate, stores and distribution expense, by $60 million in 2008 and by an additional $60 million in fiscal 2009.

Other Information

The Company operates a loyalty program, Borders Rewards. Membership in Borders Rewards is free, with no enrollment costs or annual fees. Members can earn Borders Bucks in increments of $5 for each cumulative $150 they spend on qualifying purchases in a calendar year at Borders and Waldenbooks stores nationwide. Borders Bucks expire 30 days after receipt by the member if not redeemed. In addition, the Company will be offering Bonus Rewards Events, whereby members get special deals periodically throughout the year.

The Company has an agreement with Berjaya Corporation Berhad (“Berjaya”), a publicly-listed diversified corporation headquartered in Malaysia, establishing a franchise arrangement under which Berjaya will operate Borders stores in Malaysia. The Company also has an agreement with Al Maya Group (“Al Maya”), a diversified corporation headquartered in the United Arab Emirates, establishing a franchise agreement under which Al Maya or its affiliates operates Borders stores in the United Arab Emirates and other Gulf Cooperation Council (“GCC”) countries.

The Company, through its subsidiaries, had agreements with Amazon.com, Inc. (“Amazon”) to operate Web sites utilizing the Borders.com and Waldenbooks.com, (the “Web Sites”). Under these agreements, Amazon was the merchant of record for all sales made through the Web Sites, and determined all prices and other terms and conditions applicable to such sales. Amazon was responsible for the fulfillment of all products sold through the Web Sites and retained all payments from customers. The Company received referral fees for products purchased through the Web Sites. The agreements contained mutual indemnification provisions, including provisions that define between the parties the responsibilities with respect to any liabilities for sales, use and similar taxes, including penalties and interest, associated with products sold on the Web Sites. Taxes were not collected with respect to products sold on the Web Sites except in certain states. As previously discussed, the Company launched its proprietary e-commerce site during May of 2008, and the Amazon agreements have been terminated subject to the survival of certain provisions.

Discontinued Operations

On September 21, 2007, the Company sold its U.K. and Ireland bookstore operations to Bookshop Acquisitions Ltd., a corporation formed by Risk Capital Partners, a private equity firm in the United Kingdom. The consideration for the sale was: (i) cash of $20.4 million; (ii) the potential for up to an additional $20.4 million of contingent deferred consideration, which will be payable in whole or in part only if specified sales levels are achieved by the U.K. and Ireland bookstore operations in future years; (iii) a 19.9% equity interest in Bookshop Acquisitions Ltd., which is expected to be diluted to approximately seventeen percent (17%); and (iv) 7% loan notes of approximately $3.4 million which mature in 2017 or sooner upon the occurrence of certain events.

The sale agreement included all 41 Borders superstores located in the U.K. and the Borders superstore in Ireland, as well as all 28 Books etc. stores. All assets and liabilities, with the exception of outstanding lease guarantees relating to four stores, remained with the entities sold, which are now owned by Risk Capital Partners. The maximum potential liability under these lease guarantees is approximately $190.0 million. The leases provide for periodic rent reviews, which could increase the Company’s potential liability. One of the applicable lease guaranty agreements provides that the guaranty will automatically terminate if Borders U.K. Limited achieves a specified level of net assets. This potential limitation has not been considered in calculating the maximum exposures set forth above. In addition, in the event of a default under the primary leases and the landlord does not require the Company to take a new (replacement) lease, the landlord would have an obligation to attempt to re-lease the premises, which could further reduce the Company’s potential liability. The Company has recorded a contingent liability of approximately $5.8 million based upon the likelihood that the Company will be required to perform under the guarantees.

Also under the terms of the sale agreement, the Company indemnified the U.K. and Ireland operations from the tax liability, if any, imposed upon it as a result of the forgiveness of the portions of intercompany indebtedness owing from the Company. The maximum potential liability is approximately $10.7 million, and the Company has recorded a liability of approximately $4.4 million based upon the likelihood that the Company will be required to perform under the indemnification.

The Company did not record any amount related to the contingent deferred consideration of $20.4 million. The Company will record this amount once the realization of such amount is resolved beyond a reasonable doubt. The Company has attributed only a nominal value to its equity interest in Bookshop Acquisitions Ltd. and to its 7% loan notes.

The disposal resulted in a loss of $1.4 million for the 13 weeks ended May 5, 2007, while the operation of the disposed businesses resulted in a loss of $5.4 million for the 13 weeks ended May 5, 2007.

Results of Operations

The following table presents the Company's consolidated statements of operations data, as a percentage of sales, for the periods indicated. All amounts reflect the results of the Company’s continuing operations unless otherwise noted.

	13 Weeks Ended
	May 3, 2008			May 5, 2007
Sales		100.0	%		100.0	%
Other revenue		1.0			0.8
Total revenue		101.0			100.8
Cost of merchandise sold (includes occupancy)		78.0			77.5
Gross margin		23.0			23.3
Selling, general and administrative expenses		28.9			28.1
Pre-opening expense		0.2			0.2
Asset impairments and other writedowns		-			0.1
Operating loss		(6.1	)		(5.1	)
Interest expense		0.7			1.2
Loss before income tax		(6.8	)		(6.3	)
Income tax benefit		(2.8	)		(2.6	)
Loss from continuing operations		(4.0	)%		(3.7	)%

Consolidated Results - Comparison of the 13 weeks ended May 3, 2008 to the 13 weeks ended May 5, 2007

Sales

Consolidated sales decreased $7.6 million, or 1.0%, to $784.7 million in 2008 from $792.3 million in 2007. This resulted primarily from decreased sales in the Borders and Waldenbooks Specialty Retail segments, partially offset by increased sales in the International segment.

Comparable store sales measures include stores open more than one year, with new stores included in the calculation upon their 13th month of operation. Comparable store sales measures for Waldenbooks Specialty Retail include the Company’s mall-based seasonal businesses, and comparable store sales measures for International Borders superstores include sales from licensed departments operating within the superstores. International comparable store sales are calculated in local currency.

Comparable store sales for domestic Borders superstores decreased 4.1% in 2008. This was primarily due to the music category which declined by 25.8% as a result of continuing negative sales trends and the Company’s reduction in inventory and floor space devoted to the category. Excluding the impact of the decline in the music category, comparable stores sales declined by 1.7%. The book category declined slightly by 1.2%, while the comparable store sales of Bargain Books, children’s, Seattle’s Best Coffee cafes, and gifts and stationery categories increased. The impact of price changes on comparable store sales was not significant.

Waldenbooks Specialty Retail’s comparable store sales decreased 0.8% in 2008, primarily due to a decline in customer traffic. The impact of price changes on comparable store sales was not significant.

Comparable store sales for International Borders superstores increased 3.1% in 2008. The comparable store sales increase was primarily driven by positive comparable store sales in Australia and Puerto Rico partially offset by a decline in comparable store sales in New Zealand and Singapore. The impact of price changes on comparable store sales was not significant.

Other revenue

Other revenue for the Borders and International segments primarily consists of income recognized from unredeemed gift cards, as well as revenue from franchises. Other revenue for the Borders segment also includes wholesale revenue earned through sales of merchandise to other retailers, as well as referral fees received from Amazon as part of the Web Site agreement. Other revenue in the International segment also includes revenue earned through a transitional services agreement with the new owners of Borders U.K. Other revenue in the Waldenbooks Specialty Retail segment primarily consists of income recognized from unredeemed gift cards.

Other revenue increased $1.4 million, or 21.9%, to $7.8 million in 2008 from $6.4 million in 2007. The increase was due to increased other revenue in the International segment, while the domestic Borders Superstores and Waldenbooks Specialty Retail segments remained flat. The increase in the International segment was mainly due to increased royalty income from franchise stores.

Gross margin

Consolidated gross margin decreased $4.2 million, or 2.3%, to $180.7 million in 2008 from $184.9 million in 2007. As a percentage of sales, consolidated gross margin decreased 0.3%, to 23.0% in 2008 from 23.3% in 2007. This was due to decreases as a percentage of sales in the Borders and Waldenbooks Specialty Retail segments, partially offset by an increase in the International segment. The decrease in the Borders segment was primarily the result of increased occupancy expense as a percentage of sales, while the decrease in the Waldenbooks Specialty Retail segment was mainly due to an increase in markdowns as a percentage of sales. The increase in the International segment was primarily due to decreased distribution center and occupancy costs, partially offset by increased promotional discounts.

The Company classifies the following items as “Cost of merchandise sold (includes occupancy)” on its consolidated statements of operations: product costs and related discounts, markdowns, freight, shrinkage, capitalized inventory costs, distribution center costs (including payroll, rent, supplies, depreciation, and other operating expenses), and store occupancy costs (including rent, common area maintenance, depreciation, repairs and maintenance, taxes, insurance, and others). The Company’s gross margin may not be comparable to that of other retailers, which may exclude the costs related to their distribution network from cost of sales and include those costs in other financial statement lines.

Selling, general and administrative expenses

Consolidated selling, general and administrative expenses (“SG&A”) increased $4.3 million, or 2.0%, to $227.1 million in 2008 from $222.8 million in 2007. As a percentage of sales, SG&A increased 0.8%, to 28.9% in 2008 from 28.1% in 2007, due to increases in all segments. The domestic Borders Superstores increase was primarily due to increases (as a percentage of sales) in corporate payroll and operating expenses, store expenses, and store payroll. The increase in the Waldenbooks Specialty Retail segment was the result of increased corporate operating expenses and store expenses as a percentage of sales. The increase in SG&A as a percentage of sales was also impacted by negative comparable store sales in Borders and Waldenbooks Specialty Retail segments. The International increase was primarily due to increased store payroll and store expenses.

The Company classifies the following items as “Selling, general and administrative expenses” on its consolidated statements of operations: store and administrative payroll, rent, depreciation, utilities, supplies and equipment costs, credit card and bank processing fees, bad debt, legal and consulting fees, certain advertising income and expenses and others.

Interest expense

Consolidated interest expense decreased $3.6 million, or 38.7%, to $5.7 million in 2008 from $9.3 million in 2007. This was primarily a result of income recognized on the fair market value adjustment of the warrant liability of $3.6 million. Also impacting interest expense was lower debt levels during the first quarter of 2008 as compared to the first quarter of 2007, offset by the amortization of the term loan discount.

Taxes

The effective tax rate differed for the quarters presented from the federal statutory rate primarily as a result of a change in the mix of earnings between high and low tax jurisdictions. The Company's effective tax rate used was 40.5% in 2008 compared to 41.1% in 2007. This decrease is primarily due to a greater portion of losses being realized in jurisdictions with lower tax rates.

Loss from continuing operations

Due to the factors mentioned above, loss from continuing operations as a percentage of sales increased to 4.0% in 2008 from 3.7% in 2007, and loss from continuing operations dollars increased to $31.7 million in 2008 from $29.1 million in 2007.

Segment Results

The Company is organized based upon the following operating segments: domestic Borders superstores, Waldenbooks Specialty Retail stores, International stores (including Borders and Paperchase stores), and Corporate (consisting of certain corporate governance and incentive costs). See “Note 4 - Segment Information” in the notes to consolidated financial statements for further information relating to these segments.

Domestic Borders Superstores

	13 Weeks Ended
(dollar amounts in millions)	May 3, 2008			May 5, 2007
Sales	$	600.7		$	615.0
Other revenue	$	5.0		$	4.9
Operating loss	$	(30.0	)	$	(22.0	)
Operating income (loss) as % of sales		(5.0	)%		(3.6	)%
Store openings		5			4
Store closings		-			1
Store count		514			502

Domestic Borders Superstores  - Comparison of the 13 weeks ended May 3, 2008 to the 13 weeks ended May 5, 2007

Sales

Domestic Borders Superstore sales decreased $14.3 million, or 2.3%, to $600.7 million in 2008 from $615.0 million in 2007. This decrease was driven by decreased comparable store sales of $24.5 million, partially offset by non-comparable sales of $10.2 million associated with 2008 and 2007 store openings.

Other revenue

Other revenue remained essentially flat in 2008 compared to 2007, increasing $0.1 million or 2.0%, to $5.0 million in 2008 from $4.9 million in 2007.

Gross margin

Gross margin as a percentage of sales decreased 0.5%, to 23.1% in 2008 from 23.6% in 2007. This was primarily due to increased occupancy expense of 0.5% as a percentage of sales. The increase in occupancy as a percentage of sales resulted from the de-leveraging of costs driven by negative comparable store sales.

Gross margin dollars decreased $6.7 million, or 4.6%, to $138.6 million in 2008 from $145.3 million in 2007, due primarily to the decrease in gross margin percentage noted above and the decrease in comparable store sales.

Selling, general and administrative expenses

SG&A as a percentage of sales increased 1.0%, to 27.9% in 2008 from 26.9% in 2007. The increase was due to increased corporate payroll and operating expenses of 1.3% as a percentage of sales, primarily as a result of spending to support strategic initiatives and the decrease in sales. In addition, store payroll and store expenses increased 0.4% as a percentage of sales, driven by severance related to the Company’s expense reduction initiative. Partially offsetting these increases were decreased advertising costs of 0.7% as a percentage of sales.

SG&A dollars increased $2.1 million, or 1.3%, to $167.6 million in 2008 from $165.5 million in 2007, primarily due to increased spending to support strategic initiatives.

Operating loss

Due to the factors mentioned above, operating loss as a percentage of sales increased to 5.0% in 2008 compared to 3.6% in 2007, and operating loss dollars increased $8.0 million, or 36.4%, to $30.0 million in 2008 compared to $22.0 million in 2007.

Waldenbooks Specialty Retail

	13 Weeks Ended
(dollar amounts in millions)	May 3, 2008			May 5, 2007
Sales	$	96.0		$	108.1
Other revenue	$	0.4		$	0.5
Operating loss	$	(13.6	)	$	(14.0	)
Operating loss as % of sales		(14.2	)%		(13.0	)%
Store openings		-			-
Store closings		14			11
Store count		476			553

Waldenbooks Specialty Retail - Comparison of the 13 weeks ended May 3, 2008 to the 13 weeks ended May 5, 2007

Sales

Waldenbooks Specialty Retail sales decreased $12.1 million, or 11.2%, to $96.0 million in 2008 from $108.1 million in 2007. This was comprised of decreased non-comparable store sales associated with 2008 and 2007 store closings of $11.5 million and decreased comparable store sales of $0.6 million.

Other revenue

Other revenue remained essentially flat in 2008 compared to 2007, decreasing $0.1 million, or 20%, to $0.4 million in 2008 from $0.5 million in 2007.

Gross margin

Gross margin as a percentage of sales decreased 0.5%, to 18.2% in 2008 from 18.7% in 2007. This was primarily due to increased markdowns as a percentage of sales.

Gross margin dollars decreased $2.8 million, or 13.9%, to $17.4 million in 2008 from $20.2 million in 2007, primarily due to store closings, the decline in the gross margin rate noted above and the decline in comparable store sales.

Selling, general and administrative expenses

SG&A as a percentage of sales increased 0.6%, to 32.3% in 2008 from 31.7% in 2007. This was primarily due to a 0.9% increase in store payroll and expenses as a percentage of sales. Partially offsetting these increases was a 0.3% decrease in corporate payroll and operating expenses due to the Company’s expense reduction initiative.

SG&A dollars decreased $3.2 million, or 9.4%, to $31.0 million in 2008 from $34.2 million in 2007, primarily due to store closures.

Operating loss

Due to the factors mentioned above, operating loss as a percentage of sales increased to 14.2% in 2008 from 13.0% in 2007, while operating loss dollars decreased $0.4 million to $13.6 million in 2008 from $14.0 million in 2007.

International

	13 Weeks Ended
(dollar amounts in millions)	May 3, 2008			May 5, 2007
Sales	$	88.0		$	69.2
Other revenue	$	2.4		$	1.0
Operating loss	$	(1.3	)	$	(1.0	)
Operating loss as % of sales		(1.5	)%		(1.4	)%
Superstore store openings		1			2
Superstore store count		33			70

International - - Comparison of the 13 weeks ended May 3, 2008 to the 13 weeks ended May 5, 2007

Sales

International sales increased $18.8 million, or 27.2%, to $88.0 million in 2008 from $69.2 million in 2007. Of this increase, $6.9 million was due to the translation of foreign currencies to U.S. dollars. Excluding the effect of foreign currency translation, sales increased 17.3%, primarily the result of new superstore opening and positive comparable store sales.

Other revenue

Other revenue increased $1.4 million, or 140%, to $2.4 million in 2008 from $1.0 million in 2007. This was primarily due to increased royalty income from franchise stores.

Gross margin

Gross margin as a percentage of sales increased 0.4%, to 28.0% in 2008 from 27.6% in 2007, primarily the result of decreased distribution center and occupancy costs of 1.3% as a percentage of sales, partially offset by increased discounts of 0.9% as a percentage of sales.

Gross margin dollars increased $5.3 million, or 27.3%, to $24.7 million in 2008 from $19.4 million in 2007. Of this increase, $1.6 million is the result of translation of foreign currencies to U.S. dollars. The remainder of the increase is due to new store openings and the increase in the gross margin rate described above.

Selling, general and administrative expenses

SG&A as a percentage of sales increased 0.6%, to 29.2% in 2008 from 28.6% in 2007. This was primarily the result of increased store payroll and expenses of 1.1% as a percentage of sales. Partially offsetting the increases were decreased administrative payroll expense of 0.3% as a percentage of sales and decreased advertising costs of 0.2% as a percentage of sales.

SG&A dollars increased $5.8 million, or 29.0%, to $25.8 million in 2008 from $20.0 million in 2007. Of this increase, $1.8 million is primarily due to the translation of foreign currencies to U.S. dollars. The remainder of the increase is due to new store openings and the increased store payroll and operating expenses required.

Operating loss

Due to the factors mentioned above, operating loss as a percentage of sales increased to 1.5% in 2008 from 1.4% in 2007, and operating loss dollars increased $0.3 million, or 30%, to $1.3 million in 2008 from $1.0 million in 2007.

Corporate

	13 Weeks Ended
(dollar amounts in millions)	May 3, 2008			May 5, 2007
Operating loss	$	(2.7	)	$	(3.1	)

The Corporate segment includes various corporate governance and incentive costs.

Corporate - - Comparison of the 13 weeks ended May 3, 2008 to the 13 weeks ended May 5, 2007

Operating loss dollars decreased $0.4 million to $2.7 million in 2008 from $3.1 million in 2007. This was primarily due to costs incurred to explore financing alternatives in 2007.

Liquidity and Capital Resources

The Company’s principal capital requirements are to fund investment in its strategic plan, including continued investment in new corporate information technology systems such as its e-commerce Web site and enhancements to its merchandising systems, and maintenance spending on stores, distribution centers and corporate information technology. The Company will also require funds to open its 14 new concept Borders superstores in the U.S. during 2008, five of which opened in the first quarter.

Net cash used for operating activities of continuing operations was $32.8 million and $165.7 million for 13 weeks ended May 3, 2008 and May 5, 2007, respectively. Operating cash outflows for the period represent operating results, increases in prepaid expenses, deferred income taxes, other long-term liabilities and other long-term assets, as well as decreases in accounts payable, taxes payable, expenses payable and accrued liabilities. The current period operating cash inflows primarily reflect non-cash charges for depreciation, decreases in inventories and accounts receivables, as well as increases in other long-term liabilities and a loss on disposal of assets.

During the first quarter of 2008 the Company implemented an initiative to actively reduce inventory in its stores. As a result, the Company significantly reduced inventories in the music category, as well as space allocated to that category.  In addition, the Company reduced inventories in book and DVD categories as well, in order to make its inventories more productive. These two factors significantly contributed to the reduction in inventories and generated $88.9 million in cash in the quarter. As a result of the decline in inventories, account payable decreased $56.5 million during the first quarter of 2008. The Company will continue to actively manage inventory levels throughout 2008 to drive inventory productivity and to maximize cash flows.

Net cash used for investing activities of continuing operations was $29.6 million, which primarily funded capital expenditures for new stores, new corporate information technology systems including spending on the Company’s e-commerce Web site, and maintenance of existing stores, distribution centers and management information systems. Net cash used for investing activities was $34.1 million in 2007 from continuing operations.

Net cash provided by financing activities of continuing operations was $41.9 million in 2008, resulting primarily from the funding generated by the short-term note financing from Pershing Square of $42.5 million and funding from the credit facility of $2.7 million, as well as proceeds from the issuance of long-term debt of $1.1 million and the issuance of common stock of $2.1 million. Partially offsetting these items were the payment of cash dividends on shares of the Company’s common stock declared in the fourth quarter of 2007 of $6.5 million. Net cash used for financing activities was $170.2 million in 2007 from continuing operations.

The Company expects capital expenditures to be between $80.0 and $85.0 million in 2008, compared to the $142.7 million of capital expenditures in 2007. The Company has critically reviewed all capital expenditures to focus on necessary maintenance spending and projects with very high return on capital. Capital expenditures in 2008 will result primarily from investment in management information systems, the Company’s new e-commerce Web site, as well as a reduced number of new superstore openings. In addition, capital expenditures will result from maintenance spending for existing stores, distribution centers and management information systems. The Company currently plans to open approximately 14 domestic Borders superstores in 2008. Average cash requirements for the opening of a prototype Borders Books and Music superstore are $2.8 million, representing capital expenditures of $1.6 million, inventory requirements (net of related accounts payable) of $1.0 million, and $0.2 million of pre-opening costs. Average cash requirements to open a new airport or outlet mall store range from $0.3 million to $0.8 million, depending on the size and format of the store. Average cash requirements for a major remodel of a Borders superstore are between $0.1 million and $0.5 million. The Company plans to lease new store locations predominantly under operating leases.

The Board of Directors has suspended the company’s quarterly dividend program in order to preserve capital for operations and strategic initiatives.

The Company has a Multicurrency Revolving Credit Agreement, as amended (the “Credit Agreement”), which expires in July 2011. The Credit Agreement provides for borrowings of up to $1,125.0 million secured by eligible inventory and accounts receivable and related assets. Borrowings under the Credit Agreement are limited to a specified percentage of eligible inventories and accounts receivable and bear interest at a variable base rate plus the applicable increment or LIBOR plus the applicable increment at the Company’s option. The Credit Agreement (i) includes a fixed charge coverage ratio requirement of 1.1 to 1 that is applicable only if outstanding borrowings under the facility exceed 90% of permitted borrowings thereunder, (ii) contains covenants that limit, among other things, the Company’s ability to incur indebtedness, grant liens, make investments, consolidate or merge or dispose of assets, (iii) prohibits dividend payments and share repurchases that would result in borrowings under the facility exceeding 90% of permitted borrowings thereunder, and (iv) contains default provisions that are typical for this type of financing, including a cross default provision relating to other indebtedness of more than $25.0 million. The Company had borrowings outstanding under the Credit Agreement of $551.1 million, $674.1 million and $547.3 million at May 3, 2008, May 5, 2007 and February 2, 2008, respectively, excluding any borrowings outstanding related to the Company’s recently disposed U.K. and Ireland bookstore operations. The U.K. and Ireland bookstore operations had borrowings outstanding of $40.6 million at May 5, 2007.

In April of 2008, the Company amended its Credit Agreement. Pursuant to this amendment lenders (i) approved a loan to the Company by Pershing Square Capital Management, L.P., as described below, (ii) permitted increased borrowing availability until December 15, 2008, from 90% of permitted borrowings to 92.5%, (iii) until December 15, 2008, made the fixed charge coverage ratio and the cash dominion event apply only if outstanding borrowings under the facility exceed 92.5% of permitted borrowings, rather than 90%, and (iv) increased the interest rate, commitment fees and letter of credit fees thereunder.

On April 9, 2008, the Company completed a financing agreement with Pershing Square Capital Management, L.P. (“Pershing Square”) on behalf of certain of its affiliated investment funds. Under the terms of the agreement, Pershing Square has loaned $42.5 million to the Company and will purchase, at the Company’s discretion, certain of the Company’s international businesses pursuant to a $135.0 million backstop purchase commitment. The terms of the Pershing Square financing agreement have been approved by the lenders under the Company’s current revolving credit facility, and the revolving credit facility has been amended accordingly. Based on current internal projections, the Company believes that the financing agreement with Pershing Square will allow the Company to be fully funded during fiscal 2008, where absent these measures, liquidity issues may otherwise have arisen during the year.

The financing agreement with Pershing Square consists of three main components:

1. A $42.5 million senior secured term loan maturing January 15, 2009 with an interest rate of 9.8% per annum. The term loan is secured by an indirect pledge of approximately 65% of the stock of Paperchase Products Ltd. (“Paperchase”) pursuant to a Deed of Charge Over Shares. In the event that Paperchase is sold, all proceeds from the sale are required to be used to prepay the term loan. The representations, covenants and events of default therein are otherwise substantially identical to the Company’s existing Multicurrency Revolving Credit Agreement (as amended, the “Credit Agreement”), other than some relating to Paperchase. Such exceptions are not expected to interfere with the operations of Paperchase or the Company in the ordinary course of business.

2. A backstop purchase offer that will give the Company the right but not the obligation, until January 15, 2009, to require Pershing Square to purchase its Paperchase, Australia, New Zealand and Singapore subsidiaries, as well as its approximately 17% interest in Bookshop Acquisitions, Inc. (Borders U.K.) after the Company has pursued a sale process to maximize the value of those assets. Pershing Square’s purchase obligation is at a price of $135.0 million (less any debt attributable to those assets) and on customary terms to be negotiated. Proceeds of any such purchase by Pershing Square are to be first applied to repay amounts outstanding under the $42.5 million term loan. Although the Company believes that these businesses are worth substantially more than the backstop purchase offer price, the relative certainty of this arrangement provides the Company with valuable flexibility to pursue strategic alternatives. The Company has retained the right, in its sole discretion, to forego the sale of these assets or to require Pershing Square to consummate the transaction. Pershing Square has no right of first refusal or other preemptive right with respect to the sale of these businesses by the Company to other parties.

3. The issuance to Pershing Square of 9.55 million warrants to purchase the Company’s common stock at $7.00 per share. The Company is also required to issue an additional 5.15 million warrants to Pershing Square if any of the following three conditions occurs: the Company requires Pershing Square to purchase its international subsidiaries as described in (2) above, a definitive agreement relating to certain business combinations involving the Company is not signed by October 1, 2008, or the Company terminates the strategic alternatives process. The warrants will be cash-settled in certain circumstances and have a term of 6.5 years. The warrants feature full anti-dilution protection, including preservation of the right to convert into the same percentage of the fully-diluted shares of the Company’s common stock that would be outstanding on a pro forma basis giving effect to the issuance of the shares underlying the warrants at all times, and “full-ratchet” adjustment to the exercise price for future issuances (in each case, subject to certain exceptions), and adjustments to compensate for all dividends and distributions.

For accounting purposes, the Company allocated the proceeds from the financing agreement with Pershing Square between the senior secured term loan, the warrants, and the backstop purchase offer based upon their relative fair market values. This resulted in the recognition of a discount on the secured term loan of $7.2 million, which will be amortized to earnings over the term of the loan using the effective interest method.  As of May 3, 2008, the discount on the term loan totaled $6.6 million, and is categorized as “Short-term borrowings and current portion of long-term debt” in the Company’s consolidated balance sheets. The warrants were recorded as liabilities at their fair market value of $40.8 million on the date of issuance.  The warrants are required to be remeasured to their fair value at the end of each period with the change in fair value recognized in earnings. As of May 3, 2008, the fair value of the warrants was $37.2 million, and is categorized as “Other long-term liabilities” in the Company’s consolidated balance sheets. The decrease in the fair value from the date of issuance through the end of the first quarter of $3.6 million (all of which is unrealized) was recognized as income and is categorized as an offset to “Interest expense” on the Company’s consolidated statements of operations.  This fair value measurement is based upon significant unobservable inputs, referred to as a Level 3 measurement under FASB Statement of Financial Accounting Standards No. 157, “Fair Value Measurements.”  An intangible asset in the amount of $33.7 million related to the backstop purchase offer was also recorded, and is categorized as “Accounts receivable and other current assets” on the Company’s balance sheets. The intangible asset will be expensed if it becomes probable that the backstop purchase offer will not be executed. If the backstop purchase offer is executed, the intangible asset will be added to the carrying value of the related businesses, and expensed upon sale.

The Company plans to execute its strategic initiatives principally with funds generated from operations, financing through the Credit Agreement, the Pershing Square financing previously discussed, or, if applicable, as it relates to the backstop purchase offer, alternative dispositions of the foreign subsidiaries, and other sources of new financing as deemed necessary and available. Based on current internal sales projections, the Company believes that the financing agreement with Pershing Square will allow the Company to be fully funded during fiscal 2008, where absent these measures, liquidity issues may otherwise have arisen during the year.

On June 4, 2008, the Company entered into a Sale and Purchase Agreement with companies affiliated with A&R Whitcoulls Group Holdings Pty Limited (“the Purchasers”), pursuant to which the Company agreed to sell all of the outstanding shares of Borders Australia Pty Limited, Borders New Zealand Limited and Borders Pte. Ltd to the Purchasers. Funds managed by Pacific Equity Partners Pty Limited are the principal shareholders of Whitcoulls Group Holdings Pty Limited, a leading bookseller in Australia and New Zealand.  The following is a summary of the principal terms of the Agreement:

The Purchasers will pay the following consideration to the Company:

a.   A cash payment of $90.8 million at closing, subject to a final purchase price adjustment to reflect changes in working capital.

b.   A deferred payment of $4.8 million, payable on or about January 1, 2009 if certain actual operating results for fiscal 2008 exceed a specified level, approximating 2007 results; and

c.   A deferred payment of up to $9.6 million payable on or about March 31, 2009 if certain actual operating results for fiscal 2008 exceed a specified level.

As a result of the sales transaction, a portion of the intangible asset resulting from the Pershing Square Financing Agreement will be added to the carrying value of the related businesses, and expensed upon disposition.

Off-Balance Sheet Arrangements

At May 3, 2008, the Company is the primary beneficiary of two variable interest entities (“VIEs”), due to the Company’s guarantee of the debt of these entities. As a result, the Company consolidates these VIEs and has recorded property and equipment, net of accumulated depreciation, of $4.9 million, long-term debt (including current portion) of $5.2 million and minority interest of $0.3 million at May 3, 2008.

As discussed previously, the Company guarantees the leases of four stores that it previously owned in the U.K. and Ireland. The maximum potential liability under these lease guarantees is approximately $190.0 million. The leases provide for periodic rent reviews, which could increase the Company’s potential liability. One of the applicable lease guaranty agreements provides that the guaranty will automatically terminate if Borders U.K. Limited achieves a specified level of net assets. This potential limitation has not been considered in calculating the maximum exposures set forth above. In addition, in the event of a default under the primary leases and the landlord does not require the Company to take a new (replacement) lease, the landlord would have an obligation to attempt to re-lease the premises, which could further reduce the Company’s potential liability. The Company has recorded a contingent liability of approximately $5.8 million based upon the likelihood that the Company will be required to perform under the guarantees.

The Company also has indemnified the U.K. and Ireland operations from the tax liability, if any, imposed upon it as a result of the forgiveness of the portions of intercompany indebtedness owing from the Company. The maximum potential liability is approximately $10.7 million, and the Company has recorded a liability of approximately $4.4 million based upon the likelihood that the Company will be required to perform under the indemnification.

Seasonality

The Company’s business is highly seasonal, with significantly higher sales and substantially all operating income realized during the fourth quarter.

Critical Accounting Policies and Estimates

In the ordinary course of business, the Company has made a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of its financial statements in conformity with accounting principles generally accepted in the United States. Actual results could differ from those estimates under different assumptions and conditions. Such estimates have been disclosed in the Company's last Annual Report on Form 10-K for the fiscal year ended February 2, 2008.  There have been no significant changes in these estimates during the first quarter of fiscal 2008.

New Accounting Guidance

In February 2008, the Company adopted FASB Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (FAS 157), which provides a consistent definition of fair value that focuses on exit price and prioritizes, within a measurement of fair value, the use of market-based inputs over entity-specific inputs. FAS 157 requires expanded disclosures about fair value measurements and establishes a three-level hierarchy for fair value measurements based on the observability of inputs to the valuation of an asset or liability as of the measurement date. The standard also requires that a company consider its own nonperformance risk when measuring liabilities carried at fair value, including derivatives. In February 2008, the FASB approved FASB Staff Position No. 157-2, “Effective Date of FASB Statement No. 157” (FSP No. 157-2), that permits companies to partially defer the effective date of FAS 157 for one year for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. FSP No. 157-2 does not permit companies to defer recognition and disclosure requirements for financial assets and financial liabilities or for nonfinancial assets and nonfinancial liabilities that are remeasured at least annually. FAS 157 is effective for financial assets and financial liabilities and for nonfinancial assets and nonfinancial liabilities that are remeasured at least annually for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The provisions of FAS 157 are applied prospectively. The Company has decided to defer adoption of FAS 157 for one year for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. The effect of the adoption of FAS 157 on February 3, 2008 was not material and no adjustment to retained earnings was required.

In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an Amendment of FASB Statement No. 133” (FAS 161), that expands the disclosure requirements of Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (FAS 133). FAS 161 requires additional disclosures regarding: (1) how and why an entity uses derivative instruments; (2) how derivative instruments and related hedged items are accounted for under FAS 133; and (3) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. In addition, FAS 161 requires qualitative disclosures about objectives and strategies for using derivatives described in the context of an entity’s risk exposures, quantitative disclosures about the location and fair value of derivative instruments and associated gains and losses, and disclosures about credit-risk-related contingent features in derivative instruments. FAS 161 is effective for fiscal years and interim periods within these fiscal years, beginning after November 15, 2008. As of the end of Q1 2008, the Company held no derivative instruments.

Related Party Transactions

The Company has not engaged in any related party transactions, with the exception of the financing agreement with Pershing Square Capital Management, L.P., as discussed on page 10 of this report, which would have had a material effect on the Company’s financial position, cash flows, or results of operations.

Forward Looking Statements

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. One can identify these forward-looking statements by the use of words such as “projects,” “expect,” “estimated,” “look toward,” “going forward,” “continuing,” “planning,” “returning,” “guidance,” “goal,” “will,” “may,” “intend,” “anticipates,” and other words of similar meaning. One can also identify them by the fact that they do not relate strictly to historical or current facts. These statements are likely to address matters such as the Company’s future financial performance (including earnings per share, EBIT margins and inventory turns, liquidity, same-store sales, and anticipated capital expenditures and depreciation and amortization amounts), its exploration of strategic alternatives, its financing agreement with Pershing Square and the benefits thereof, strategic plans and expected financing and benefits relating to such plans (including steps to be taken to improve the performance of domestic superstores, the downsizing of the Waldenbooks Specialty Retail segment and the development of a proprietary Web site).

These statements are subject to risks and uncertainties that could cause actual results and plans to differ materially from those included in the Company’s forward-looking statements. These risks and uncertainties include, but are not limited to, consumer demand for the Company’s products, particularly during the holiday season, which is believed to be related to general economic and geopolitical conditions, competition and other factors; the availability of adequate capital to fund the Company’s operations and to carry out its strategic plans; the performance of the Company’s information technology systems and the development of improvements to the systems necessary to implement the Company’s strategic plan, and, with respect to the exploration of strategic alternatives including the sale of certain parts of the Company or the sale of the entire Company, the ability to attract interested third parties.

The sections “Forward Looking Statements” in Item 1 and “Risk Factors” in Item 1A of the company’s Annual Report on Form 10-K for the fiscal year ended February 2, 2008 filed with the Securities and Exchange Commission contain more detailed discussions of these and other risk factors that could cause actual results and plans to differ materially from those included in the forward-looking statements, and those discussions are incorporated herein by reference. The company does not undertake any obligation to update forward-looking statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to market risk during the normal course of business from changes in interest rates and foreign currency exchange rates. The exposure to these risks is managed though a combination of normal operating and financing activities, which may include the use of derivative financial instruments in the form of interest rate swaps and forward foreign currency exchange contracts.

There have been no material changes in this Item since the Company’s last Annual Report on Form 10-K for the fiscal year ended February 2, 2008.

Item 4.  Controls and Procedures

Controls and Procedures: The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of May 3, 2008 (the “Evaluation Date”).  Based on such evaluation, such officers have concluded that the Company’s controls and procedures were effective to ensure that information required to be disclosed in this quarterly report is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), to allow timely decisions regarding required disclosure.

Changes in Internal Control:There have been no changes in our internal control over financial reporting that occurred in the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II – Other Information

Item 1.  Legal Proceedings

For a description of certain legal proceedings affecting the Company, please review “Note 2 – Contingencies”, on page 5 of this Report, which is incorporated herein by reference.

Item 1A. Risk Factors

The Company is subject to numerous risks and uncertainties, which could adversely affect the Company’s business, financial condition, operating results and cash flows.  Such risks and uncertainties have been disclosed in the Company's last Annual Report on Form 10-K for the fiscal year ended February 2, 2008.  There have been no significant changes in these risks and uncertainties during the first quarter of fiscal 2008.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

There were no shares repurchased during the first quarter of fiscal 2008.

Item 6.  Exhibits

Exhibits:

3.1(1)	Restated Articles of Incorporation of Borders Group, Inc.
3.2(2)	Amendment to the Restated Articles of Incorporation of Borders Group, Inc.
3.3(3)	Restated bylaws of Borders Group, Inc.
3.4(4)	First Amendment to the Restated By laws of Borders Group, Inc.
3.5(2)	Second Amendment to the Restated By laws of Borders Group, Inc.
3.6(5)	Third Amendment to the Restated By laws of Borders Group, Inc.
3.7(6)	Fourth Amendment to the Restated By laws of Borders Group, Inc.
10.39(7)	Sale and Purchase Agreement between Borders Group, Inc., A&R Whitcoulls Group Holdings Pty Limited, Spine Newco (NZ) Limited and Spine Newco Pty Limited.
10.40(7)	Brand License Deed between Borders Properties, Inc. and Spine Newco Pty Limited.
10.41(7)	Purchasing Agreement between Borders Group, Inc., Borders Australia Pty Limited, Borders New Zealand Limited, Borders Pte. Limited, Spine Newco Pty Limited, Spine Newco (NZ) Limited and A&R Whitcoulls Group Holdings Pty Limited.
10.42(7)	Transition Services Agreement between Borders International Services, Inc., Borders Australia Pty Limited, Borders New Zealand Limited, Borders Pte. Limited, Spine Newco Pty Limited, and Spine Newco (NZ) Limited.
10.43	Stock Option Agreement between Mr. Jones and the Company.
10.44	Restricted Share Agreement between Mr. Jones and the Company.
10.45	Form of Executive Officer Severance Agreement.
10.46	Form of Restricted Share Agreement for Executive Officers.
10.47	Form of Enhanced Incentive Bonus for Executive Officers.
10.48	Form of Enhanced Incentive Bonus Agreement between Mr. Jones and the Company.
31.1	Statement of George L. Jones, President and Chief Executive Officer of Borders Group, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Statement of Edward W. Wilhelm, Executive Vice President and Chief Financial Officer of Borders Group, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Statement of George L. Jones, President and Chief Executive Officer of Borders Group, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Statement of Edward W. Wilhelm, Executive Vice President and Chief Financial Officer of Borders Group, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(1)	Incorporated by reference from the Company’s Annual Report on Form 10-K dated January 24, 1999 (File No. 1-13740).
(2)	Incorporated by reference from the Company’s Current Report on Form 8-K dated May 25, 2007 (File No. 1-13740).
(3)	Incorporated by reference from the Company’s Annual Report on Form 10-K dated January 24, 2001 (File No. 1-13740).
(4)	Incorporated by reference from the Company’s Current Report on Form 8-K dated July 13, 2006 (File No. 1-13740).
(5)	Incorporated by reference from the Company’s Current Report on Form 8-K dated October 2, 2007 (File No. 1-13740).
(6)	Incorporated by reference from the Company’s Current Report on Form 8-K dated January 17, 2008 (File No. 1-13740).
(7)	Incorporated by reference from the Company’s Current Report on Form 8-K dated June 4, 2008 (File No. 1-13740).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized.

BORDERS GROUP, INC.

 (REGISTRANT)

Date:    June 6, 2008 By:/s/ Edward W. Wilhelm

          Edward W. Wilhelm

          Executive Vice President and

          Chief Financial Officer

         (Principal Financial and

          Accounting Officer) 

 EXHIBIT INDEX

DESCRIPTION OF EXHIBITS

Exhibits:

3.1(1)	Restated Articles of Incorporation of Borders Group, Inc.
3.2(2)	Amendment to the Restated Articles of Incorporation of Borders Group, Inc.
3.3(3)	Restated bylaws of Borders Group, Inc.
3.4(4)	First Amendment to the Restated By laws of Borders Group, Inc.
3.5(2)	Second Amendment to the Restated By laws of Borders Group, Inc.
3.6(5)	Third Amendment to the Restated By laws of Borders Group, Inc.
3.7(6)	Fourth Amendment to the Restated By laws of Borders Group, Inc.
10.39(7)	Sale and Purchase Agreement between Borders Group, Inc., A&R Whitcoulls Group Holdings Pty Limited, Spine Newco (NZ) Limited and Spine Newco Pty Limited.
10.40(7)	Brand License Deed between Borders Properties, Inc. and Spine Newco Pty Limited.
10.41(7)	Purchasing Agreement between Borders Group, Inc., Borders Australia Pty Limited, Borders New Zealand Limited, Borders Pte. Limited, Spine Newco Pty Limited, Spine Newco (NZ) Limited and A&R Whitcoulls Group Holdings Pty Limited.
10.42(7)	Transition Services Agreement between Borders International Services, Inc., Borders Australia Pty Limited, Borders New Zealand Limited, Borders Pte. Limited, Spine Newco Pty Limited, and Spine Newco (NZ) Limited.
10.43	Stock Option Agreement between Mr. Jones and the Company.
10.44	Restricted Share Agreement between Mr. Jones and the Company.
10.45	Form of Executive Officer Severance Agreement.
10.46	Form of Restricted Share Agreement for Executive Officers.
10.47	Form of Enhanced Incentive Bonus for Executive Officers.
10.48	Form of Enhanced Incentive Bonus Agreement between Mr. Jones and the Company.
31.1	Statement of George L. Jones, President and Chief Executive Officer of Borders Group, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Statement of Edward W. Wilhelm, Executive Vice President and Chief Financial Officer of Borders Group, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Statement of George L. Jones, President and Chief Executive Officer of Borders Group, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Statement of Edward W. Wilhelm, Executive Vice President and Chief Financial Officer of Borders Group, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(1)	Incorporated by reference from the Company’s Annual Report on Form 10-K dated January 24, 1999 (File No. 1-13740).
(2)	Incorporated by reference from the Company’s Current Report on Form 8-K dated May 25, 2007 (File No. 1-13740).
(3)	Incorporated by reference from the Company’s Annual Report on Form 10-K dated January 24, 2001 (File No. 1-13740).
(4)	Incorporated by reference from the Company’s Current Report on Form 8-K dated July 13, 2006 (File No. 1-13740).
(5)	Incorporated by reference from the Company’s Current Report on Form 8-K dated October 2, 2007 (File No. 1-13740).
(6)	Incorporated by reference from the Company’s Current Report on Form 8-K dated January 17, 2008 (File No. 1-13740).
(7)	Incorporated by reference from the Company’s Current Report on Form 8-K dated June 4, 2008 (File No. 1-13740).

 

EX-31.1

EXHIBIT 31.1

STATEMENT OF GEORGE L. JONES,

PRESIDENT AND CHIEF EXECUTIVE OFFICER OF BORDERS GROUP, INC.

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, George L. Jones, certify that:

1)      I have reviewed this quarterly report on Form 10-Q of Borders Group, Inc.;

2)      Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleadingwith respect to the period covered by this report;

3)      Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in allmaterial respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presentedin this report;

4)      The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in ExchangeAct Rules 13a-15(f) and 15d-15(f))for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5)      The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control overfinancial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or personsperforming the equivalent functions):

a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:    _June 6, 2008

By: /s/GEORGE L. JONES

          George L. Jones

          President and Chief Executive Officer

          Borders Group, Inc.

EX-31.2

EXHIBIT 31.2

STATEMENT OF EDWARD W. WILHELM,

EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER OF BORDERS GROUP, INC.

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Edward W. Wilhelm, certify that:

1)      I have reviewed this quarterly report on Form 10-Q of Borders Group, Inc.;

2)      Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleadingwith respect to the period covered by this report;

3)      Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in allmaterial respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presentedin this report;

4)      The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in ExchangeAct Rules 13a-15(f) and 15d-15(f))for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5)      The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control overfinancial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or personsperforming the equivalent functions):

a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:    June 6, 2008

By: /s/EDWARD W. WILHELM

            Edward W. Wilhelm

                            Executive Vice President and

                            Chief Financial Officer

          (Principal Financial and

           Accounting Officer)

EX-32.1

EXHIBIT 32.1

STATEMENT OF GEORGE L. JONES,

PRESIDENT AND CHIEF EXECUTIVE OFFICER OF BORDERS GROUP, INC.

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, George L. Jones, certify that the Form 10-Q for the quarter ended May 3, 2008, of Borders Group, Inc. fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and that the information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of Borders Group, Inc.

Date: _June 6, 2008______________________

/s/GEORGE L. JONES ________________________________

George L. Jones

President and Chief Executive Officer

Borders Group, Inc.

EX-32.2

EXHIBIT 32.2

STATEMENT OF EDWARD W. WILHELM,

EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER OF BORDERS GROUP, INC.

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Edward W. Wilhelm, certify that the Form 10-Q for the quarter ended May 3, 2008, of Borders Group, Inc. fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and that the information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of Borders Group, Inc.

Date: _June 6, 2008_____________________________

/s/EDWARD W. WILHELM ______________________________________

Edward W. Wilhelm

Executive Vice President and Chief Financial Officer

Borders Group, Inc.

EX-10.43

BORDERS GROUP, INC.

2004 LONG-TERM INCENTIVE PLAN

STOCK OPTION AGREEMENT

Optionee:  George L. Jones

Employee ID: 00313956

Optioned Shares:  200,000 shares of Borders Group, Inc. Common Stock

Option Type:  Non-statutory Stock Option

Per Share Option Price:  $5.85

Option Date:  April 2, 2008

Date Option Becomes Exercisable:  33 1/3% on April 2, 2009, 66 2/3% on April 2, 2010, 100% on April 2, 2011

Termination Date: April 1, 2015

This Stock Option Agreement (the “Agreement”) is entered into and delivered as of the Option Date by and between Borders Group, Inc. (the “Company”) and the Optionee, an employee of the Company or a subsidiary of the Company.  The Optionee, by accepting the Option, and the Company hereby agree as follows:

1. The Company, pursuant to the above Plan, which is incorporated herein by reference, and subject to the terms and conditions thereof, hereby grants to the Optionee an option to purchase the Optioned Shares at the Per Share Option Price (the “Option”).

2. The Option granted hereby shall not be treated as an incentive stock option under the Internal Revenue Code of 1986, as amended.

3. The Option granted hereby shall terminate, subject to the provisions of the Plan, no later than at the close of business on the Termination Date.

4. The Optionee shall comply with and be bound by all the terms and conditions contained in this Agreement and the Plan.

5. The Option granted hereby shall be exercisable during the Optionee’s lifetime only by the Optionee in accordance with the terms of the Plan and shall not be assignable or transferable except by will or applicable laws of descent and distribution; provided, however, that the Option may be exercised pursuant to the terms of this Agreement and the Plan after the death of the Optionee by his Designated Beneficiary.

6. The obligation of the Company to sell and deliver any Common Stock under this Option is specifically subject to all applicable laws, rules, regulations and governmental and stockholder approvals.

7. Any notice by the Optionee to the Company hereunder shall be in writing and shall be deemed duly given if sent by registered or certified mail addressed to the Company at its principal offices.  Any notice by the Company to the Optionee shall be in writing and shall be deemed duly given if sent by registered or certified mail addressed to the Optionee at the address set forth in the books and records of the Company.

8. In the event of a Change of Control prior to the Optionee’s termination of employment with the Company and its Subsidiaries, the Option shall, to the extent unvested, vest in full, except to the extent replaced by a Qualifying Replacement Award (as defined below).  A Qualifying Replacement Award shall mean a stock option or stock appreciation right relating to publicly traded shares of the Company or its successor in the Change of Control (or of the appropriate affiliate of such successor) that (i) has a value, as of such replacement, that is at least equal to the value of the Option (this provision shall be deemed satisfied to the extent that the exercise price and number of shares subject to the Option are equitably adjusted to reflect the relative market values of the common stock of the Company and the successor entity as of the Change of Control), (ii) is subject to the same vesting schedule and terms as the Option, (iii) provides for an acceleration of vesting in the event of a termination of the Optionee’s employment prior to April 2, 2011 that is (1) by the Company other than for Cause (as defined in the Plan, unless Cause is defined in an individual employment or severance agreement to which the Optionee is party, in which case such definition shall apply), (2) by the Optionee for Good Reason (as defined below), or (3) due to the Optionee’s death or Disability, and (iv) otherwise contains terms and conditions substantially similar to, and in any event no less favorable to the Optionee than, the terms and conditions of this Option.  Without limiting the generality of the foregoing, a Qualifying Replacement Award may take the form of a continuation of this Option award if the requirements of the preceding sentence are satisfied.

9. For purposes of Paragraph 8, a termination shall be deemed to be for “Good Reason” if such termination is (i) effectuated pursuant to a “good reason” or similar constructive termination right in an individual employment or severance agreement to which the Optionee is party, or (ii) if the Optionee is not party to any such agreement, initiated by the Optionee following the occurrence of any of the following: (1) an involuntary relocation that increases the Optionee’s commute by more than 35 miles, (2) a material reduction in either the Optionee’s base pay or the Optionee’s overall compensation opportunity from the levels in effect immediately prior to the Change of Control, or (3) a material reduction in the Optionee’s authority, duties, or responsibilities below the levels in effect immediately prior to the Change of Control.  Notwithstanding the foregoing, a termination shall be deemed to be for Good Reason under clause (ii) of this Paragraph 9 only if the Optionee provides written notice to the Company of the existence of one or more of the conditions described therein within 90 days following the Optionee’s knowledge of the initial existence of such condition, the Company fails to cure such condition during the 30-day period (the “Cure Period”) following its receipt of such notice, and the Optionee terminates employment within 180 days following the conclusion of the Cure Period.

10. The validity and construction of this Agreement shall be governed by the laws of the State of Michigan.

The Optionee has executed this Agreement as of the day and year first above written.

Optionee:

                                                                                            George L. Jones   

Signature                                                                           Print Name

Please sign both copies of this agreement, return one copy to the Stock Option Plan Administrator/Benefits Department and retain the other for your records .

EX-10.44

Borders Group, Inc.

2004 Long-Term Incentive Plan

Restricted Share Grant Agreement

This Restricted Share Grant Agreement (the “Agreement”), dated as of April 2, 2008 (the “Grant Date”), is made by and between Borders Group, Inc. (the “Company”) and George Jones(the “Participant”).

RECITALS

WHEREAS, the Company has established and maintains the Borders Group, Inc. 2004 Long-Term Incentive Plan (the “Plan”);

WHEREAS, the Participant is a key employee of the Company;

WHEREAS, the Company desires to grant to the Participant shares of common stock (“Common Stock”) under the Plan, subject to certain restrictions and limitations; and

WHEREAS, the Participant desires to receive a grant of such shares from the Company;

NOW, THEREFORE, in consideration of the promises and mutual agreements contained herein, the adequacy and sufficiency of which are hereby acknowledged, the Company and the Participant agree as follows:

1.           Grant of Restricted Shares.

(a)           Number of Shares/Vesting.  The Company hereby grants to the Participant 461,148 shares of Common Stock under the Plan, subject to the terms and conditions set forth below (the “Restricted Shares”).  The Restricted Shares shall be subject to the following vesting conditions:  A number of Restricted Shares equal to the Performance-Earned Amount (as defined below) shall vest on April 2, 2011, subject to the Participant’s continued employment with the Company and its Subsidiaries through such date, and any Restricted Shares outstanding on April 2, 2011 in excess of the Performance-Earned Amount shall be forfeited by the Participant and cancelled by the Company.  Subject to Section 1(b), upon the Participant’s termination of employment with the Company and its Subsidiaries prior to April 2, 2011, all Restricted Shares shall be forfeited by the Participant and cancelled by the Company; provided, however, that if the Participant’s termination of employment is due to his death or Disability (and occurs prior to a Change of Control), then a number of Restricted Shares equal to the product of (x) the Performance-Earned Amount (determined as of the date of such termination), multiplied by (y) a fraction, the numerator of which is the number of days elapsed from April 2, 2008 through  the date of such termination, and the denominator of which is 1095, shall vest in full.  Section 12 of the Plan shall not apply to a termination due to Retirement.

(b)           In the event of a Change of Control prior to the Participant’s termination of employment with the Company and its Subsidiaries, a number of Restricted Shares equal to the Performance-Earned Amount (determined as of such Change of Control) shall vest in full; provided, however, that no Restricted Shares shall vest upon a Change of Control in the event that the Restricted Shares are replaced by a Qualifying Replacement Award (as defined below).  A Qualifying Replacement Award shall mean an award of publicly traded restricted shares of the Company or its successor in the Change of Control (or of the appropriate affiliate of such successor) that (i) has a value, as of such replacement, that is at least equal to the value of the Restricted Shares, (ii) is subject to the same time-vesting schedule and terms as the Restricted Shares, (iii) provides that a portion of the restricted shares equal to the Performance-Earned Amount determined as of the date of termination of employment with the Company or its successor in the Change of Control (or of the appropriate affiliate of such successor) (as adjusted to reflect conversion into the shares subject to the Qualifying Replacement Award) shall vest in the event of a termination of the Participant’s employment prior to April 2, 2011 that is (1) by the Company other than for Cause (as defined in the Plan, unless Cause is defined in an individual employment or severance agreement to which the Participant is party, in which case such definition shall apply), (2) by the Participant for Good Reason (within the meaning of Section 1(f)), or (3) due to the Participant’s death or Disability, and (iv) otherwise contains terms and conditions substantially similar to, and in any event no less favorable to the Participant than, the terms and conditions of the Restricted Shares.  Without limiting the generality of the foregoing, a Qualifying Replacement Award may take the form of a continuation of this Restricted Share award if the requirements of the preceding sentence are satisfied.  For the avoidance of doubt, if a Qualifying Replacement Award vests following a Change of Control due to continued service through April 2, 2011, the number of shares earned shall equal the Performance-Earned Amount determined as of April 2, 2011 (as adjusted to reflect conversion into the shares subject to the Qualifying Replacement Award).

(c)           Determination of Performance-Earned Amount.   The Performance-Earned Amount shall be determined based upon the highest volume-weighted average trading price of a share of Common Stock (or, following a Change of Control, a number or fraction of shares subject to the Qualifying Replacement Award equal to the value of one share of Common Stock at the time of the Change of Control) over any period of 10 consecutive trading days (such price, the “Highest Average Price”) occurring between April 2, 2008 and the first to occur of April 2, 2011 or the termination of employment with the Company or its successor in the Change of Control (or of the appropriate affiliate of such successor), in accordance with the matrix set forth below.  The Highest Average Price targets set forth in the matrix below may be appropriately adjusted by the Committee in its discretion in the event of the occurrence of an event described in Section 16 of the Plan.

Highest Average Price per Share of Common Stock	Performance-Earned Amount
Below $7.50	0
At or above $7.50 but below $10.00	211,148
At or above $10.00 but below $12.50	294,482
At or above $12.50 but below $15.00	377,815
$15.00 or more	461,148

(d)           Additional Documents/Capitalized Terms.  The Participant agrees to execute such additional documents and forms as the Company may require for purposes of this Agreement.  Any capitalized terms not defined herein shall have the same meaning as set forth in the Plan document.

(e)           Issuance of Restricted Shares.  As soon as practicable following receipt of this executed Agreement, the Company shall issue on behalf of the Participant the number of Restricted Shares that the Participant has been granted.  Such Restricted Shares, which shall be fully paid and nonassessable upon their issuance, shall be represented by a certificate or certificates registered in the name of the Participant and stamped with an appropriate legend evidencing the nature of the Restricted Shares.  The certificates shall be held by the Company or such other custodian as may be designated by the Company as a depository for safekeeping until the forfeiture restrictions lapse pursuant to the terms of this Agreement. The Participant shall execute such additional documents and forms as the Company may require for these purposes.  Subject to the terms and provisions of Michigan law, the Participant shall have all the rights of a stockholder upon the issuance of the Restricted Shares, including the right to vote the Restricted Shares and to receive all dividends or other distributions paid or made with respect to the Restricted Shares, provided that the Restricted Shares shall be subject to the restrictions set forth in this Agreement.

(f)      Good Reason Termination.  For purposes of Section 1(b), a termination shall be deemed to be for “Good Reason” if such termination is (i) effectuated pursuant to a “good reason” or similar constructive termination right in an individual employment or severance agreement to which the Participant is party, or (ii) if the Participant is not party to any such agreement, initiated by the Participant following the occurrence of any of the following: (1) an involuntary relocation that increases the Participant’s commute by more than 35 miles, (2) a material reduction in either the Participant’s base pay or the Participant’s overall compensation opportunity from the levels in effect immediately prior to the Change of Control, or (3) a material reduction in the Participant’s authority, duties, or responsibilities below the levels in effect immediately prior to the Change of Control.  Notwithstanding the foregoing, a termination shall be deemed to be for Good Reason under clause (ii) of this Section 1(f) only if the Participant provides written notice to the Company of the existence of one or more of the conditions described therein within 90 days following the Participant’s knowledge of the initial existence of such condition, the Company fails to cure such condition during the 30-day period (the “Cure Period”) following its receipt of such notice, and the Participant terminates employment within 180 days following the conclusion of the Cure Period.

2.           Restrictions on Transfer.  Until the Restricted Shares are vested in accordance with Section 1 of this Agreement, the Restricted Shares held by the Participant (and any other securities issued in respect of the Restricted Shares) may not be sold, exchanged, assigned, transferred, conveyed, gifted, delivered, encumbered, discounted, pledged, hypothecated, or otherwise disposed of, whether voluntarily, involuntarily, or by operation of law.

3.           Withholding.  The Participant shall be liable for any and all U.S. federal, state or local taxes of any kind required by law to be withheld with respect to the vesting of Restricted Shares.  When the Restricted Shares vest, the Participant shall surrender to the Company a sufficient number of whole shares of Common Stock as necessary to cover all applicable required withholding taxes and social security contributions related to such vesting.  The Company will provide the Participant with a cash refund for any fraction of surrendered shares of Common Stock not necessary for required withholding taxes and social security contributions.  Instead of requiring the Participant to surrender shares as described above, the Company may, in its discretion, (a) require the Participant to remit to the Company on the date on which the Restricted Shares vest cash in an amount sufficient to satisfy all applicable required withholding taxes and social security contributions related to such vesting, or (b) deduct from his regular salary payroll cash, on a payroll date following the date on which the Restricted Shares vest, in an amount sufficient to satisfy such obligations.

4.           Grant Subject to Plan Provisions.  The grant of Restricted Shares is made pursuant to the Plan, the terms of which are incorporated herein by reference, and in all respects will be interpreted in accordance with the Plan.  The Committee has the authority to interpret and construe this Agreement pursuant to the terms of the Plan, and its decisions are conclusive as to any questions arising hereunder.  In the event of any conflict between the terms of this Agreement and the terms of the Plan, the terms of the Plan shall control.  For purposes of the Plan, 200,000 of the 211,148 Restricted Shares subject to a Highest Average Price hurdle of $7.50 have been designated as Awards subject to the attainment of performance criteria in order to protect against the loss of deductibility under Section 162(m) of the Code, and the remaining Restricted Shares have not been so designated.

5.           Notification of Election Under Section 83(b) of the Code.  If the Participant shall, in connection with the grant of Restricted Shares under this Agreement, make the election permitted under Section 83(b) of the Internal Revenue Code (i.e., an election to include in gross income in the year of transfer the amounts specified in Section 83(b) of the Internal Revenue Code), then the Participant shall notify the Company of such election within 10 days of filing notice of the election with the Internal Revenue Service.

6.           No Employment or Other Rights.  The grant of Restricted Shares does not confer upon the Participant any right to be employed by the Company or any Subsidiary and will not interfere in any way with the right of the Company or any Subsidiary to terminate the Participant’s employment at any time.  The right of the Company or any Subsidiary to terminate the Participant’s employment at will at any time for any reason is specifically reserved.  The Participant will not have any interest in any fund or specific assets of the Company by reason of this grant.

7.           Nontransferability.  Except for tax withholding, the Participant’s rights and interests under this Agreement may not be sold, transferred, assigned, pledged or otherwise encumbered or disposed of except, in the event of the Participant’s death, by will or by the laws of descent and distribution.

8.           Applicable Law.  The validity, construction, interpretation and effect of this instrument will be governed by and construed in accordance with the laws of the State of Michigan, without giving effect to the conflicts of laws provisions thereof.

9.           Notice.  Any notice to the Company or the Committee provided for in this Agreement shall be addressed to Borders Group, Inc. in care of The Secretary, Borders Group, Inc., 100 Phoenix Dr., Ann Arbor, MI 48108 and any notice to the Participant will be addressed to the Participant at the current address shown on the books and records of the Company or its Subsidiary.  Any notice shall be sent by registered or certified mail.

10.           Discretionary Nature of Plan.  The Plan is discretionary in nature, and the Company may suspend, modify, amend or terminate the Plan in its sole discretion at any time, subject to the terms of the Plan and any applicable limitations imposed by law.  This Restricted Share grant under the Plan is a one-time benefit and does not create any contractual or other right to receive additional Restricted Shares or other benefits in lieu of Restricted Shares in the future.  Future grants, if any, will be at the sole discretion of the Committee, including, but not limited to, the timing of any grant, the number of Restricted Shares granted, and the vesting provisions.

11.           Entire Agreement.  This Agreement and the Plan contain the entire agreement between the Participant and the Company regarding the grant of Restricted Shares and supersede all prior arrangements or understandings with respect thereto.

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by a duly authorized representative and the Participant has hereunto set his hand effective as of the Grant Date.

Borders Group, Inc.

By:                                                      

Its: Executive Vice President, Human Resources

As of: April 2, 2008

I hereby accept the Restricted Shares granted pursuant to this Agreement, and I agree to be bound by the terms of the Plan and this Agreement.  I hereby further agree that all the decisions and determinations of the Committee will be final and binding.

Participant                                               Date

CHIDMS1/2512118.2

 W/1239026v3

EX-10.45

Borders Group, Inc.

100 Phoenix Drive

Ann Arbor, MI  48108

t: 734-477-1100

f: 734-477-1370

www.bordersgroupinc.com

April 29, 2008

Name

Dear Name:

This letter will confirm our understanding concerning your employment with Borders Group, Inc. (the “Company”).  You are sometimes referred to herein as the “Executive.”

1. Subject to all of the other provisions of this agreement, if your employment with the Company is terminated by the Company other than for Cause or Disability, or by you for Good Reason, the Company will pay to you:

(a) Your base salary through the month during which termination occurred, plus any other amount due you at the time of termination under any bonus plan of the Company; and

(b) Monthly severance payments for the period specified in Section 5 equal to (i) your monthly base salary at the time of termination, plus (ii) 1/12th of the “target” bonus amount targeted for you for the fiscal year in which termination occurred.

No payments shall be made under this agreement if your employment with the Company is terminated because of your death or is terminated by the Company for Cause or Disability or if you terminate your employment for any reason other than Good Reason.

2.           Subject to all of the other provisions of this agreement, if your employment is terminated by the Company other than for Cause or Disability, or by you for Good Reason, during the one-year period following a Change in Control, the monthly severance payments to be made to you under Section 1(b) shall be for an extended period as specified in Section 5 and shall be based upon (a) your monthly base salary at the time of termination or immediately prior to the Change in Control, whichever base salary amount is greater, plus (b) 1/12th of the “target” bonus amount targeted for you for the fiscal year in which termination occurred or the fiscal year immediately prior to the Change in Control, whichever bonus amount is greater.

3.           You agree to make reasonable efforts to seek (and to immediately notify the Company of) other employment and to the extent that you receive compensation from other employment, the severance payments provided herein shall be correspondingly reduced.  Notwithstanding the foregoing, this Section 3 shall have no application with respect to terminations of employment that occur as of, or following, a Change in Control.

4.           All payments hereunder shall be subject to applicable withholding and deductions.

5.           Monthly severance payments shall commence in the month following termination and shall continue for twelve months or, in the case of payments under Section 2, for twenty-four months; provided however, that, if the monthly payment period would otherwise extend beyond the later of: (i) March 15th of the year following the calendar year in which your termination of employment occurs, or (ii) 2 1/2 months following the end of the fiscal year in which your termination of employment occurs, an amount equal to the sum of all of the remaining payments that would have been made to you in monthly installments shall, in lieu thereof, be paid to you in one lump sum on the last day of the month immediately preceding the month in which the later of the dates specified in (i) or (ii) above falls. In calculating the amount of any lump sum payment, it shall be assumed that any income that you are earning from other employment on the payment date would continue for the remainder of the applicable period following your termination of employment. No repayment shall be required if your income increases after the lump-sum payment date, and no additional payments shall be made by the Company after the lump sum payment.

6.           Termination by the Company for “Cause” means termination based on (i) conduct which is a material violation of Company policy or which is fraudulent or unlawful or which materially interferes with your ability to perform your duties, (ii) misconduct which damages or injures the Company or substantially damages the Company’s reputation, or (iii) gross negligence in the performance of, or willful failure to perform, your duties and responsibilities.

7.           Termination by you for “Good Reason” means a termination that follows the occurrence of any of the following: (i) an involuntary relocation that increases your commute by more than 35 miles, (ii) a material diminution in your base salary (other than pursuant to across-the-board reductions prior to a Change in Control that apply uniformly to similarly situated employees generally), (iii) following a Change in Control, a material diminution in your overall compensation opportunity from the level in effect immediately prior to the Change in Control, or (iv) following a Change in Control, a material reduction in your authority, duties, or responsibilities below the levels in effect immediately prior to the Change in Control.  Notwithstanding the foregoing, a termination shall be deemed to be for Good Reason hereunder only if you provide written notice to the Company of the existence of one or more of the conditions described herein within 90 days following your knowledge of the initial existence of such condition, the Company fails to cure such condition during the 30-day period (the “Cure Period”) following its receipt of such notice, and you terminate employment within 180 days following the conclusion of the Cure Period.

8.           Termination by the Company for “Disability” means termination based on inability to perform your duties and responsibilities by reason of illness or incapacity for a total of 180 days in any twelve-month period.

9.           A “Change in Control” shall mean:

(a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control:  (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 9; or

(b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or

(c) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or

(d) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.

10.Payments shall be reduced to the extent, if any, determined in accordance with the following provisions:

(a) For purposes of this Section 10:  (i) a "Payment" shall mean any payment or distribution in the nature of compensation to or for the benefit of the Executive, whether paid or payable pursuant to this Agreement or otherwise; (ii) "Agreement Payment" shall mean a Payment paid or payable pursuant to this Agreement (disregarding this Section); (iii) “Net After-Tax Receipt” shall mean the Present Value of a Payment net of all taxes imposed on the Executive with respect thereto under Sections 1 and 4999 of the Code and under applicable state and local laws, determined by applying the highest marginal rate under Section 1 of the Code and under state and local laws which applied to the Executive’s taxable income for the immediately preceding taxable year, or such other rate(s) as the Executive shall certify, in the Executive’s sole discretion, as likely to apply to the Executive in the relevant tax year(s); (iv) "Present Value" shall mean such value determined in accordance with Sections 280G(b)(2)(A)(ii) and 280G(d)(4) of Code; (v) "Reduced Amount" shall mean the amount of Agreement Payments that (A) has a Present Value that is less than the Present Value of all Agreement Payments and (B) results in aggregate Net After-Tax Receipts for all Payments that are greater than the Net After-Tax Receipts for all Payments that would result if the aggregate Present Value of Agreement Payments were any other amount that is less than the Present Value of all Agreement Payments; and (vi) “Code” shall mean the Internal Revenue Code of 1986, as amended.

(b) Anything in the Agreement to the contrary notwithstanding, in the event Ernst & Young or such other accounting firm as shall be designated by the Company (the "Accounting Firm") shall determine that receipt of all Payments would subject the Executive to tax under Section 4999 of the Code, the Accounting Firm shall determine whether some amount of Agreement Payments meets the definition of “Reduced Amount.”  If the Accounting Firm determines that there is a Reduced Amount, then the aggregate Agreement Payments shall be reduced to such Reduced Amount.

(c) If the Accounting Firm determines that aggregate Agreement Payments should be reduced to the Reduced Amount, the Company shall promptly give the Executive notice to that effect and a copy of the detailed calculation thereof. For purposes of reducing the aggregate Agreement Payments to the Reduced Amount, only amounts payable under this Agreement (and no other Payments) shall be reduced.   The reduction of the aggregate Agreement Payments to the Reduced Amount, if applicable, shall be made by reducing the amounts payable to the Executive pursuant to Section 1(b) (as modified by Section 5) of this Agreement.  All determinations made by the Accounting Firm under this Section shall be binding upon the Company and the Executive and shall be made within 60 days of a termination of employment of the Executive.  As promptly as practicable following such determination, the Company shall pay to or distribute for the benefit of the Executive such Agreement Payments as are then due to the Executive under this Agreement and shall promptly pay to or distribute for the benefit of the Executive in the future such Agreement Payments as become due to the Executive under this Agreement.

(d) As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that amounts will have been paid or distributed by the Company to or for the benefit of the Executive pursuant to this Agreement which should not have been so paid or distributed ("Overpayment") or that additional amounts which will have not been paid or distributed by the Company to or for the benefit of the Executive pursuant to this Agreement could have been so paid or distributed ("Underpayment"), in each case, consistent with the calculation of the Reduced Amount hereunder.  In the event that the Accounting Firm, based upon the assertion of a deficiency by the Internal Revenue Service against either the Company or the Executive which the Accounting Firm believes has a high probability of success determines that an Overpayment has been made, any such Overpayment paid or distributed by the Company to or for the benefit of the Executive shall be repaid to the Company together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code; provided, however, that no such amount shall be payable by the Executive to the Company if and to the extent such  payment would not either reduce the amount on which the Executive is subject to tax under Section 1 and Section 4999 of the Code or generate a refund of such taxes.  In the event that the Accounting Firm, based upon controlling precedent or substantial authority, determines that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code.

(e)   All fees and expenses of the Accounting Firm in implementing the provisions of this Section 10 shall be borne by the Company.

11.           The obligation to make the payments hereunder is conditioned upon your execution, delivery to the Company and non-revocation of a release, in form reasonably satisfactory to the Company within 60 days after the date of your termination of employment, of any claims you may have as a result of your employment or termination of employment under any federal, state or local law, excluding any claim for benefits which may be due you in normal course under any employee benefit plan of the Company which provides benefits after termination of employment.

12.           You agree that any right to receive severance payments hereunder will cease if during the one-year period following your termination of employment you directly or indirectly become an employee, director, advisor of, or otherwise affiliated with, any other entity or enterprise whose business is in competition with the business of the Company or any of its subsidiaries or affiliates.

13.           The severance payments hereunder may not be transferred, assigned or encumbered in any manner, either voluntarily or involuntarily.  In the event of your death after your employment has been terminated by the Company other than for Cause or Disability, or by you for Good Reason, any payments then or thereafter due hereunder will be made to your estate.

14.           The payments provided hereunder shall constitute the exclusive payments due you from, and the exclusive obligation of, the Company in the event of any termination of your employment, except for any benefits which may be due you in normal course under any employee benefit plan of the Company which provides benefits after termination of employment, it being understood and agreed that no severance plan shall be deemed to be an employee benefit plan for this purpose.

15.           Notwithstanding anything herein to the contrary, your employment with the Company is terminable at will with or without cause; subject, however, to the obligations of the Company under this agreement.

16.           If a dispute arises concerning any provisions of this agreement, it shall be resolved by arbitration in Ann Arbor, Michigan in accordance with the rules of the American Arbitration Association.  Judgment on the award rendered may be entered in any court having jurisdiction and enforced accordingly.

17.           This letter agreement sets forth the entire understanding with respect to the subject matter hereof and supersedes all prior agreements, written or oral or express or implied, between you and the Company or any subsidiary or other affiliate of the Company as to such subject matter.  This letter agreement may not be amended, nor may any provision hereof be modified or waived, except by an instrument in writing duly signed by you and the Company.

18.           If any provision of this letter agreement, or any application thereof to any circumstances, is invalid, in whole or in part, such provision or application shall to that extent be severable and shall not affect other provisions or applications of this letter agreement.

Please indicate your agreement by signing below and retain one copy for your records.

Agreed and Accepted:                                                                Sincerely,

BORDERS GROUP, INC.

By:                                                      

Name                                                                                      Name:  Daniel T. Smith

                                                                                                                Its:  Executive Vice President, HumanResources

Borders, Inc. and Walden Book Company, Inc. are subsidiaries of Borders Group, Inc.

EX-10.46

Borders Group, Inc.

2004 Long-Term Incentive Plan

Restricted Share Grant Agreement

This Restricted Share Grant Agreement (the “Agreement”), dated as of April 1, 2008 (the “Grant Date”), is made by and between Borders Group, Inc. (the “Company”) and Name (the “Participant”).

RECITALS

WHEREAS, the Company has established and maintains the Borders Group, Inc. 2004 Long-Term Incentive Plan (the “Plan”);

WHEREAS, the Participant is a key employee of the Company;

WHEREAS, the Company desires to grant to the Participant shares of common stock (“Common Stock”) under the Plan, subject to certain restrictions and limitations; and

WHEREAS, the Participant desires to receive a grant of such shares from the Company;

NOW, THEREFORE, in consideration of the promises and mutual agreements contained herein, the adequacy and sufficiency of which are hereby acknowledged, the Company and the Participant agree as follows:

1.           Grant of Restricted Shares.

(a)           Number of Shares/Vesting.  The Company hereby grants to the Participant # shares of Common Stock under the Plan, subject to the terms and conditions set forth below (the “Restricted Shares”).  The Restricted Shares shall be subject to the following vesting schedule:

Date                                                                                                Vesting

       April 1, 2011                                                                                                                100%

Subject to Section 1(b), upon the Participant’s termination of employment with the Company and its Subsidiaries prior to April 1, 2011, all Restricted Shares shall be forfeited by the Participant and cancelled by the Company; provided, however, that if the Participant’s termination of employment is due to his death or Disability (and occurs prior to a Change of Control), then the unvested portion of the Restricted Shares shall be treated in accordance with the terms of Section 12 of the Plan.  Section 12 of the Plan shall not apply to a termination due to Retirement.

(b)           In the event of a Change of Control prior to the Participant’s termination of employment with the Company and its Subsidiaries, the Restricted Shares shall vest in full, except to the extent they are replaced by a Qualifying Replacement Award (as defined below).  A Qualifying Replacement Award shall mean an award of publicly traded restricted shares of the Company or its successor in the Change of Control (or of the appropriate affiliate of such successor) that (i) has a value, as of such replacement, that is at least equal to the value of the Restricted Shares, (ii) is subject to the same vesting schedule and terms as the Restricted Shares, (iii) provides for an acceleration of vesting in the event of a termination of the Participant’s employment prior to April 1, 2011 that is (1) by the Company other than for Cause (as defined in the Plan, unless Cause is defined in an individual employment or severance agreement to which the Participant is party, in which case such definition shall apply), (2) by the Participant for Good Reason (within the meaning of Section 1(e)), or (3) due to the Participant’s death or Disability, and (iv) otherwise contains terms and conditions substantially similar to, and in any event no less favorable to the Participant than, the terms and conditions of the Restricted Shares.  Without limiting the generality of the foregoing, a Qualifying Replacement Award may take the form of a continuation of this Restricted Share award if the requirements of the preceding sentence are satisfied.

(c)           Additional Documents/Capitalized Terms.  The Participant agrees to execute such additional documents and forms as the Company may require for purposes of this Agreement.  Any capitalized terms not defined herein shall have the same meaning as set forth in the Plan document.

(d)           Issuance of Restricted Shares.  As soon as practicable following receipt of this executed Agreement, the Company shall issue on behalf of the Participant the number of Restricted Shares that the Participant has been granted.  Such Restricted Shares, which shall be fully paid and nonassessable upon their issuance, shall be represented by a certificate or certificates registered in the name of the Participant and stamped with an appropriate legend evidencing the nature of the Restricted Shares.  The certificates shall be held by the Company or such other custodian as may be designated by the Company as a depository for safekeeping until the forfeiture restrictions lapse pursuant to the terms of this Agreement. The Participant shall execute such additional documents and forms as the Company may require for these purposes.  Subject to the terms and provisions of Michigan law, the Participant shall have all the rights of a stockholder upon the issuance of the Restricted Shares, including the right to vote the Restricted Shares and to receive all dividends or other distributions paid or made with respect to the Restricted Shares, provided that the Restricted Shares shall be subject to the restrictions set forth in this Agreement.

(e)      Good Reason Termination.  For purposes of Section 1(b), a termination shall be deemed to be for “Good Reason” if such termination is (i) effectuated pursuant to a “good reason” or similar constructive termination right in an individual employment or severance agreement to which the Participant is party, or (ii) if the Participant is not party to any such agreement, initiated by the Participant following the occurrence of any of the following: (1) an involuntary relocation that increases the Participant’s commute by more than 35 miles, (2) a material reduction in either the Participant’s base pay or the Participant’s overall compensation opportunity from the levels in effect immediately prior to the Change of Control, or (3) a material reduction in the Participant’s authority, duties, or responsibilities below the levels in effect immediately prior to the Change of Control.  Notwithstanding the foregoing, a termination shall be deemed to be for Good Reason under clause (ii) of this Section 1(e) only if the Participant provides written notice to the Company of the existence of one or more of the conditions described therein within 90 days following the Participant’s knowledge of the initial existence of such condition, the Company fails to cure such condition during the 30-day period (the “Cure Period”) following its receipt of such notice, and the Participant terminates employment within 180 days following the conclusion of the Cure Period.

2.           Restrictions on Transfer.  Until the Restricted Shares are vested in accordance with Section 1 of this Agreement, the Restricted Shares held by the Participant (and any other securities issued in respect of the Restricted Shares) may not be sold, exchanged, assigned, transferred, conveyed, gifted, delivered, encumbered, discounted, pledged, hypothecated, or otherwise disposed of, whether voluntarily, involuntarily, or by operation of law.

3.           Withholding.  The Participant shall be liable for any and all U.S. federal, state or local taxes of any kind required by law to be withheld with respect to the vesting of Restricted Shares.  When the Restricted Shares vest, the Participant shall surrender to the Company a sufficient number of whole shares of Common Stock as necessary to cover all applicable required withholding taxes and social security contributions related to such vesting.  The Company will provide the Participant with a cash refund for any fraction of surrendered shares of Common Stock not necessary for required withholding taxes and social security contributions.  Instead of requiring the Participant to surrender shares as described above, the Company may, in its discretion, (a) require the Participant to remit to the Company on the date on which the Restricted Shares vest cash in an amount sufficient to satisfy all applicable required withholding taxes and social security contributions related to such vesting, or (b) deduct from his regular salary payroll cash, on a payroll date following the date on which the Restricted Shares vest, in an amount sufficient to satisfy such obligations.

4.           Grant Subject to Plan Provisions.  The grant of Restricted Shares is made pursuant to the Plan, the terms of which are incorporated herein by reference, and in all respects will be interpreted in accordance with the Plan.  The Committee has the authority to interpret and construe this Agreement pursuant to the terms of the Plan, and its decisions are conclusive as to any questions arising hereunder.  In the event of any conflict between the terms of this Agreement and the terms of the Plan, the terms of the Plan shall control.

5.           Notification of Election Under Section 83(b) of the Code.  If the Participant shall, in connection with the grant of Restricted Shares under this Agreement, make the election permitted under Section 83(b) of the Internal Revenue Code (i.e., an election to include in gross income in the year of transfer the amounts specified in Section 83(b) of the Internal Revenue Code), then the Participant shall notify the Company of such election within 10 days of filing notice of the election with the Internal Revenue Service.

6.           No Employment or Other Rights.  The grant of Restricted Shares does not confer upon the Participant any right to be employed by the Company or any Subsidiary and will not interfere in any way with the right of the Company or any Subsidiary to terminate the Participant’s employment at any time.  The right of the Company or any Subsidiary to terminate the Participant’s employment at will at any time for any reason is specifically reserved.  The Participant will not have any interest in any fund or specific assets of the Company by reason of this grant.

7.           Nontransferability.  Except for tax withholding, the Participant’s rights and interests under this Agreement may not be sold, transferred, assigned, pledged or otherwise encumbered or disposed of except, in the event of the Participant’s death, by will or by the laws of descent and distribution.

8.           Applicable Law.  The validity, construction, interpretation and effect of this instrument will be governed by and construed in accordance with the laws of the State of Michigan, without giving effect to the conflicts of laws provisions thereof.

9.           Notice.  Any notice to the Company or the Committee provided for in this Agreement shall be addressed to Borders Group, Inc. in care of The Secretary, Borders Group, Inc., 100 Phoenix Dr., Ann Arbor, MI 48108 and any notice to the Participant will be addressed to the Participant at the current address shown on the books and records of the Company or its Subsidiary.  Any notice shall be sent by registered or certified mail.

10.           Discretionary Nature of Plan.  The Plan is discretionary in nature, and the Company may suspend, modify, amend or terminate the Plan in its sole discretion at any time, subject to the terms of the Plan and any applicable limitations imposed by law.  This Restricted Share grant under the Plan is a one-time benefit and does not create any contractual or other right to receive additional Restricted Shares or other benefits in lieu of Restricted Shares in the future.  Future grants, if any, will be at the sole discretion of the Committee, including, but not limited to, the timing of any grant, the number of Restricted Shares granted, and the vesting provisions.

11.           Entire Agreement.  This Agreement and the Plan contain the entire agreement between the Participant and the Company regarding the grant of Restricted Shares and supersede all prior arrangements or understandings with respect thereto.

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by a duly authorized representative and the Participant has hereunto set his hand effective as of the Grant Date.

Borders Group, Inc.

By:                                                      

Its: Executive Vice President, Human Resources

As of: April 1, 2008

I hereby accept the Restricted Shares granted pursuant to this Agreement, and I agree to be bound by the terms of the Plan and this Agreement.  I hereby further agree that all the decisions and determinations of the Committee will be final and binding.

Participant                                               Date

CHIDMS1/2512118.2

EX-10.47

Borders Group, Inc.

100 Phoenix Drive

Ann Arbor, MI  48108

[

date
re	2008 Additional Bonus
to	Name

As a key employee who is critical to the strategic alternative evaluation process, Borders Group, Inc. (the “Company”) is pleased to inform you that you have been selected to participate in the Company’s 2008 enhanced annual bonus program (the “Program”).  Your participation in the Program is contingent upon your signature below acknowledging your acceptance of the terms of the Program set forth below.

1.   For purposes of the Company’s Annual Bonus Incentive Plan (the “Bonus Plan”), your “target” bonus for this year will be 80%of your base salary (your “Target Bonus”), your “threshold” bonus for this year will be 20% (your “Threshold Bonus”), and your “maximum” bonus for this year under the Bonus Plan will 240%  (your “Maximum Bonus”).  For levels of performance goal achievement between threshold and target levels, the amount of your annual bonus under the Bonus Plan will be straight-line interpolated between your Threshold Bonus and your Target Bonus, and for levels of performance goal achievement between target and maximum levels, the amount of your annual bonus under the Bonus Plan will be straight-line interpolated between your Target Bonus and your Maximum Bonus (in all cases, applied proportionally to each performance objective on a per-objective basis). Notwithstanding the foregoing, the maximum bonus that you can be paid under the Bonus Plan is the lesser of (x) $900,000 and (y) two times the salary midpoint for your salary grade (such lesser amount, your “Plan Limit”).   Eligibility for an annual bonus under the Bonus Plan remains subject to the continued service requirements and other terms of the Bonus Plan.

2.   Subject to your continued employment with the Company and its affiliates through the date (the “Bonus Payment Date”) that bonuses are paid under the Bonus Plan, you will receive an additional bonus payment (the “Additional Bonus”) equal to your Target Bonus, payable on the Bonus Payment Date.  The Additional Bonus will be paid regardless of the amount, if any, earned under the Bonus Plan, and will be paid independently of the Bonus Plan.  Further, in the event that you would have earned a bonus under the Bonus Plan pursuant to paragraph 1 above that would have exceeded your Plan Limit, the amount of your Additional Bonus will be increased by the excess of (x) the amount that you would have earned pursuant to paragraph 1 above absent the Plan Limit over (y) the Plan Limit.  Notwithstanding the foregoing, in the event of a Change of Control (as defined in the Bonus Plan) prior to the conclusion of the fiscal year, the Additional Bonus (which will in such case equal your Target Bonus) will be paid to you (in full satisfaction of the Company’s obligations under this paragraph) as soon as practicable following the date of such Change of Control, so long as you had remained employed with the Company and its affiliates through the date of such Change of Control.

3.   You acknowledge that the Program is in place only for the Company’s 2008 fiscal year.  You further acknowledge and agree that (i) for purposes of any employment or severance agreement, plan, or program that uses a target bonus amount as a component for calculation of severance or any other compensation item or benefit, your target bonus for the 2008 fiscal year is the Target Bonus, (ii) for purposes of any employment or severance agreement, plan, or program that uses an actual bonus amount as a component for calculation of severance or any other compensation item or benefit, your actual bonus for the 2008 fiscal year shall be deemed to equal (x) the amount, if any, that is actually payable to you pursuant to the Bonus Plan minus (y) 50% of the portion, if any, of such amount that exceeds your Target Bonus, and (iii) the Additional Bonus under the Program is a one-time benefit that will not be taken into account as an annual bonus for purposes of other Company programs.

If you wish to participate in the Program, please confirm your agreement to the terms set forth above by your signature below.

Acknowledged and Agreed:

__________________________                                                                           __________________

Name                                                                           Date

EX-10.48

Borders Group, Inc.

100 Phoenix Drive

Ann Arbor, MI  48108

date
re	2008 Additional Bonus
to	George Jones

As a key employee who is critical to the strategic alternative evaluation process, Borders Group, Inc. (the “Company”) is pleased to inform you that you have been selected to participate in the Company’s 2008 enhanced annual bonus program (the “Program”).  Your participation in the Program is contingent upon your signature below acknowledging your acceptance of the terms of the Program set forth below.

1.   For purposes of the Company’s Annual Bonus Incentive Plan (the “Bonus Plan”), your “target” bonus for this year will be 80% of your base salary (your “Target Bonus”), your “threshold” bonus for this year will be 20% (your “Threshold Bonus”), and your “maximum” bonus for this year under the Bonus Plan will be 240% (your “Maximum Bonus”).  For levels of performance goal achievement between threshold and target levels, the amount of your annual bonus under the Bonus Plan will be straight-line interpolated between your Threshold Bonus and your Target Bonus, and for levels of performance goal achievement between target and maximum levels, the amount of your annual bonus under the Bonus Plan will be straight-line interpolated between your Target Bonus and your Maximum Bonus (in all cases, applied proportionally to each performance objective on a per-objective basis). Notwithstanding the foregoing, the maximum bonus that you can be paid under the Bonus Plan is the lesser of (x) $900,000 and (y) three times the salary midpoint for your salary grade (such lesser amount, your “Plan Limit”).   Eligibility for an annual bonus under the Bonus Plan remains subject to the continued service requirements and other terms of the Bonus Plan.

2.   Subject to your continued employment with the Company and its affiliates through the date (the “Bonus Payment Date”) that bonuses are paid under the Bonus Plan, you will receive an additional bonus payment (the “Additional Bonus”) equal to your Target Bonus, payable on the Bonus Payment Date.  The Additional Bonus will be paid regardless of the amount, if any, earned under the Bonus Plan, and will be paid independently of the Bonus Plan.  Further, in the event that you would have earned a bonus under the Bonus Plan pursuant to paragraph 1 above that would have exceeded your Plan Limit, the amount of your Additional Bonus will be increased by the excess of (x) the amount that you would have earned pursuant to paragraph 1 above absent the Plan Limit over (y) the Plan Limit.  Notwithstanding the foregoing, in the event of a Change of Control (as defined in the Bonus Plan) prior to the conclusion of the fiscal year, the Additional Bonus (which will in such case equal your Target Bonus) will be paid to you (in full satisfaction of the Company’s obligations under this paragraph) as soon as practicable following the date of such Change of Control, so long as you had remained employed with the Company and its affiliates through the date of such Change of Control.

3.   You acknowledge that the Program is in place only for the Company’s 2008 fiscal year.  You further acknowledge and agree that (i) for purposes of any employment or severance agreement, plan, or program that uses a target bonus amount as a component for calculation of severance or any other compensation item or benefit, your target bonus for the 2008 fiscal year is the Target Bonus, (ii) for purposes of any employment or severance agreement, plan, or program that uses an actual bonus amount as a component for calculation of severance or any other compensation item or benefit, your actual bonus for the 2008 fiscal year shall be deemed to equal (x) the amount, if any, that is actually payable to you pursuant to the Bonus Plan minus (y) 50% of the portion, if any, of such amount that exceeds your Target Bonus, and (iii) the Additional Bonus under the Program is a one-time benefit that will not be taken into account as an annual bonus for purposes of other Company programs.

If you wish to participate in the Program, please confirm your agreement to the terms set forth above by your signature below.

Acknowledged and Agreed:

__________________________                                                                           __________________

George Jones                                                                           Date