NON-QUALIFIED DEFERRED COMPENSATION PLAN

I, Thomas D. Carney, General Counsel of Borders Group, Inc., hereby certify that the attached document is a correct copy of the Borders Group, Inc. Non-Qualified Deferred Compensation Plan for Nonemployee Directors effective as of March 1, 2004.

Dated this 4th day of March, 2004.

                                                                               (Corporate Seal)

1.1   Purpose of the Plan, Effective Date .  The Borders Group, Inc. Non-Qualified Deferred Compensation Plan for Nonemployee Directors (the “Plan”) has been established by Borders Group, Inc. (the “Company”), effective as of March 1, 2004 (the “Effective Date”), with respect to nonemployee members of the Board of Directors of the Company (“Eligible Directors”).  The purpose of the Plan is to provide those Eligible Directors with an opportunity to defer the receipt and income taxation of a portion of such directors’ fees.

1.2   Plan Administrator, Plan Year .  The Plan is administered by the Company (the “Plan Administrator”).  The Plan is administered on the basis of a Plan Year which, with respect to the initial Plan Year, is the period beginning on the Effective Date and ending on December 31, 2004, and thereafter is the calendar year.  Article 8 describes certain specific powers, duties and responsibilities of the Plan Administrator with respect to the administration of the Plan.

1.3   Supplements .  From time to time supplements may by amendment be attached to and form a part of this Plan.  Such supplements may modify or supplement the provisions of the Plan as they apply to the Eligible Directors, shall specify the person affected by such supplements and shall supersede the other provisions of the Plan to the extent necessary to eliminate inconsistencies between the Plan provisions and the provisions of such supplements.

2.1   Eligibility . Each nonemployee director as of the Effective Date of the Plan shall be an Eligible Director as of the Effective Date.  Each other nonemployee director of the Company shall be an Eligible Director as of the date he first becomes a nonemployee director of the Company.

2.2   Participation .  Each Eligible Director may irrevocably elect to have Deferral Contributions made on his behalf for a Plan Year, or portion of a Plan Year, pursuant to Section 3.2 and thereby become a Plan Participant.  “Participant” means any individual who has been admitted to, and has not been removed from, participation in the Plan pursuant to this Article 2.  A Participant must complete such forms and provide such data in a timely manner as is required by the Plan Administrator.  Such forms and data may include, without limitation, his acceptance of the terms and conditions of the Plan and his designation of a beneficiary to receive any death benefits payable hereunder.

2.3   Cessation of Active Participation .  

(a)   Cessation of Eligible Status .  A Participant shall be considered an active Participant during any period when Deferral Contributions are being made to the Plan on his behalf.  A Participant’s active participation in the Plan shall cease as of the date he ceases to be a nonemployee director of the Company, whether because of death, retirement, resignation, removal, employment by the Company or any of its subsidiaries, or any other reason.  Upon cessation of, or removal from, active participation in the Plan, a Participant’s deferrals under the Plan shall cease.

(b)   Inactive Participant Status .  Even if his active participation in the Plan ends, a director or former director shall remain an inactive Participant in the Plan until the earlier of (i) the date the full amount of his Deferral Contribution Account (as defined in Section 3.1) is distributed from the Plan, or (ii) the date he again recommences active participation in the Plan as an Eligible Director by electing to have Deferral Contributions made to the Plan on his behalf pursuant to Section 3.2.  During the period of time that a director or former director is an inactive Participant in the Plan, his Deferral Contribution Account shall continue to be credited with earnings and losses pursuant to the terms of Section 3.5, and he shall continue to be eligible to direct the manner in which his Deferral Contribution Account shall be deemed invested pursuant to Section 4.2.

(c)   Participation after Recommencement of Service .  If an Eligible Director ceases to be a nonemployee director of the Company and then becomes a nonemployee director of the Company again, he shall become eligible to participate or to recommence his participation in the Plan as of the date he again becomes a nonemployee director.

3.1   Participants’ Deferral Contribution Accounts .  The Plan Administrator shall establish and maintain on behalf of each Participant a separate bookkeeping account (a “Deferral Contribution Account”) under the Plan.  With respect to any Participant, this Deferral Contribution Account shall represent the amount of his Deferral Contributions (as defined in Section 3.2) and earnings or losses attributable thereto.

Each Participant shall at all times have a 100 percent vested interest in his Deferral Contribution Account. Each Participant’s Deferral Contribution Account shall be maintained until the value thereof has been distributed to or on behalf of such Participant or his beneficiary.

3.2   Deferral Contributions .  Each Participant may irrevocably elect to have Deferral Contributions made on his behalf for a Plan Year by completing and submitting to the Plan Administrator (or its designee) a Deferral Election (as defined in Section 3.3) setting forth the terms of his election.  A “Deferral Contribution” means that portion of a Participant’s Compensation that the Participant elects to defer receipt of, in lieu of receiving such Compensation currently.  “Compensation” means the cash retainer payable to a nonemployee director for service on the Board, for service as a member of any Board committee, or for service as the chairman of any Board committee, together with other cash fees, if any, payable to a nonemployee director in that capacity for attending meetings or otherwise for service on the Board or any Board committee.  Grants of equity awards, including but not limited to restricted stock and stock options, and reimbursement of expenses do not constitute Compensation for purposes of this Plan.  A Participant may elect to defer a fixed dollar amount, or an amount designated in whole percentages, that is no more than 100 percent of his Compensation for such Plan Year.  Deferral Contributions may only be made from Compensation earned while the Participant is serving as a nonemployee director of the Company.

3.3   Deferral Election .  A Participant must complete and submit a written Deferral Election to the Plan Administrator providing for the reduction of his Compensation for the appropriate amount of Deferral Contributions.  The following terms and conditions shall apply to Deferral Elections:  

(a)   Initial Deferral Election .  The Eligible Director’s initial Deferral Election under the Plan with respect to his Compensation for any Plan Year shall be effective for any Compensation earned after the date the Deferral Election becomes effective, except that a deferral election made during March 2004 will not apply to any Compensation earned on or before March 31, 2004.  To be effective, the initial Deferral Election under the Plan with respect to Compensation must be made within the time period prescribed by the Plan Administrator (generally, before the first day of the Plan Year for which Deferral Contributions attributable to Compensation will be made or, if later during such Plan Year, within 30 days after the date on which the Eligible Director first becomes an Eligible Director pursuant to Section 2.1). Until such time as an Eligible Director submits an initial Deferral Election in a timely manner, he shall be deemed to have elected not to make Deferral Contributions and to have elected not to become a Participant in the Plan.

(b)   Subsequent Deferral Election .  A Participant’s subsequent Deferral Election with respect to his Compensation for any Plan Year must be made within the time period prescribed by the Plan Administrator, but before the first day of the Plan Year for which the Compensation to be deferred is payable.

(c)   Term .  Each Participant’s Deferral Election shall remain in effect for the Compensation earned during a Plan Year until the date the Participant ceases to be an active Participant.

(d)   Crediting Contributions .  For each Plan Year that a Participant has a Deferral Election in effect, the Plan Administrator shall credit the amount of such Participant’s Deferral Contributions to his Deferral Contribution Account on the day such amount would have been paid to him but for his Deferral Election (or such other date or time as the Plan Administrator, in its sole discretion, determines from time-to-time).

3.4   Debiting of Distributions and Forfeitures .  As of each business day, the Plan Administrator shall debit each Participant’s Deferral Contribution Account for any amount distributed or forfeited from such Deferral Contribution Account since the immediately preceding business day.

3.5   Crediting of Earnings or Losses on Contributions .  As of each business day, the Plan Administrator shall credit to each Participant’s Deferral Contribution Account the amount of earnings or losses applicable thereto for the period since the immediately preceding business day.  To effect such crediting of earnings and losses, the Plan Administrator shall, as of each business day, first subtract all distributions and forfeitures since the immediately preceding business day from the Deferral Contribution Account, add to the Deferral Contribution Account the amount of the contributions, and allocate the net earnings or losses to the Participant’s Deferral Contribution Account based on the individual account activity of the Deferral Contribution Account during such period pursuant to a share accounting method under which each Participant’s deemed investment in an Investment Fund (as defined in Section 4.1) shall be accounted for in deemed shares in funds selected by the Plan Administrator and offered within the Plan for purposes of calculating earnings and losses for Participants’ Deferral Contribution Accounts.  For this purpose, the Plan Administrator shall adopt uniform rules which conform generally to accepted accounting practices.

3.6   Errors in Deferral Contribution Accounts .  If an error or omission is discovered in the Deferral Contribution Account of a Participant, the Plan Administrator, in its sole discretion, shall cause appropriate equitable adjustments to be made as soon as administratively practicable following the discovery of such error or omission.

4.1   Selection by Plan Administrator .  From time to time, the Plan Administrator shall select two or more investment funds (the “Investment Funds”) for purposes of determining the rate of return on amounts deemed invested in accordance with the terms of the Plan. The Plan Administrator will notify Participants in writing prior to the beginning of each Plan Year and at such other times as the Plan Administrator deems necessary or desirable of the Investment Funds available under the Plan for such Plan Year.  The Plan Administrator may change, add or remove Investment Funds on a prospective basis at any time and in any manner it deems appropriate.

4.2   Participant Direction of Deemed Investments .  Each Participant generally may direct the manner in which his Deferral Contribution Account shall be deemed invested in and among the Investment Funds; provided, such investment directions shall be made in accordance with the following terms:

(a)   Nature of Participant Direction .  The selection of Investment Funds by a Participant shall be for the sole purpose of determining the rate of return to be credited to his Deferral Contribution Account, and shall not be treated or interpreted in any manner whatsoever as a requirement or direction to actually invest assets in any Investment Fund or any other investment media. The Plan, as an unfunded, nonqualified deferred compensation plan, at no time shall have any actual investment of assets relative to the benefits or Deferral Contribution Accounts hereunder.

(b)   Investment of Contributions .  Except as otherwise provided in this Section 4.2, each Participant may make an investment election, made in such form as the Plan Administrator may direct or permit, prescribing the percentage of his future contributions that will be deemed invested in each Investment Fund. An initial investment election of a Participant shall be made as of the date the Participant commences or recommences participation in the Plan and shall apply to all contributions credited to such Participant’s Deferral Contribution Account after such date. Such Participant may make subsequent investment elections at such times as permitted by the Plan Administrator, and such elections shall apply to all such specified contributions credited to such Participant’s Deferral Contribution Account after the effective date of such election.  Any investment election timely and properly made pursuant to this subsection with respect to future contributions shall remain effective until changed by the Participant.

(c)   Investment of Existing Deferral Contribution Account Balances .  Each Participant may make an investment election, effective as of the date the Participant commences or recommences participation in the Plan, prescribing a different percentage of his existing Deferral Contribution Account balance that will be deemed invested in each Investment Fund.  Such Participant may make subsequent investment elections at such times as permitted by the Plan Administrator prescribing a different percentage of his existing Deferral Contribution Account balance that will be deemed invested in each Investment Fund.  Each such election which is timely and properly made shall remain in effect until changed by such Participant.

(d)   Plan Administrator Discretion .  The Plan Administrator shall have complete discretion to adopt and revise procedures to be followed in making such investment elections.  Such procedures may include, but are not limited to, the process of making elections, the permitted frequency of making elections, the incremental size of elections, the deadline for making elections and the effective date of such elections. Any procedures adopted by the Plan Administrator that are inconsistent with the deadlines or procedures specified in this Section 4.2 shall supersede such provisions of this Section 4.2 without the necessity of a Plan amendment.

5.1   Benefit Payments Upon Termination of Service .

(a)   General .  In accordance with the terms of subsection (b) hereof, if a Participant has both ceased to be a director of the Company and is not an employee of the Company or any of its subsidiaries, he (or his beneficiary, in the event of his death) shall be entitled to receive a distribution of the total of (i) the entire amount credited to his Deferral Contribution Account, as adjusted for earnings or losses attributable thereto, determined as of the business day on which such distribution is processed; plus (ii) the amount of Deferral Contributions, if any, made since such business day; and minus (iii) the amount of any distributions made to the Participant since such business day.  For purposes of this subsection, the “business day on which such distribution is processed” refers to the business day established for such purpose by administrative practice, even if actual payment is made at a later date due to delays in valuation, administration or any other procedure.

(b)   Timing of Distribution .  Unless a Participant otherwise elects on his Deferral Election, the distribution of the benefit payable to a Participant under this Section shall be made or commence as soon as reasonably practicable after the last business day of the calendar quarter in which the Participant both ceases to be a director of the Company and terminates his employment, if any, with the Company and any of its su