WARRANT AND REGISTRATION RIGHTS AGREEMENT

Exhibit 4.1

EXECUTION COPY

WARRANT AND REGISTRATION RIGHTS AGREEMENT

between

BORDERS GROUP, INC.

and

COMPUTERSHARE INC. AND
COMPUTERSHARE TRUST COMPANY, N.A.,
Warrant Agent

Dated as of April 9, 2008

TABLE OF CONTENTS

				Page
1.		DEFINITIONS			2
2.		ORIGINAL ISSUE OF WARRANTS			8
		2.1. Form of Warrant Certificates			8
		2.2 Execution and Delivery of Warrant Certificates			8
3.		EXERCISE PRICE; EXERCISE OF WARRANTS AND EXPIRATION OF WARRANTS			9
		3.1 Exercise Price			9
		3.2. Exercise of Warrants			9
		3.3. Expiration of Warrants			9
		3.4. Method of Exercise; Payment of Exercise Price			10
		3.5. Compliance with the Securities Act			10
		3.6. Exercise Only for Cash Prior to Required Shareholder Approval and Incentive Plans Amendments			13
4.		REGISTRATION RIGHTS AND PROCEDURES AND LISTING			13
		4.1. Registration			13
		4.2. Expenses of Registration			14
		4.3. Obligations of the Company			14
		4.4. Suspension of Sales			17
		4.5. Termination of Registration Rights			18
		4.6. Furnishing Information			18
		4.7. Indemnification			18
		4.8. Contribution			20
		4.9. Representations, Warranties and Indemnities to Survive			20
		4.10. Lock-Up Agreements			21
		4.11. Rule 144 Reporting			21

				Page
		4.12. Obtaining Stock Exchange Listing			21
5.		ADJUSTMENTS			22
		5.1. Adjustments upon Certain Transactions			22
		5.2. Dividends and Distributions			22
		5.3. Tender Offers			23
		5.4. Consolidation, Merger or Sale			24
		5.5. Securities Issuances			25
		5.6. Full-Ratchet Adjustment for Lower Revaluations			25
		5.7. Adjustments after Certain Transfers or a Qualifying Public Stock Merger			26
		5.8. Affiliate Transactions			26
		5.9. Fractional Shares			26
		5.10. Notice of Adjustment			27
6.		REDEMPTION UPON A CHANGE OF CONTROL OR DELISTING			27
		6.1. Mandatory Redemption			27
		6.2. Public Stock Merger			28
7.		WARRANT TRANSFER BOOKS			28
8.		WARRANT HOLDERS			29
		8.1. No Voting Rights			29
		8.2. Right of Action			29
		8.3. Right to Defer Cash Settlement Payments			29
9.		WARRANT AGENT			30
		9.1. Nature of Duties and Responsibilities Assumed			30
		9.2. Compensation and Reimbursement			31
		9.3. Warrant Agent May Hold Company Securities			31

				Page
		9.4. Resignation and Removal; Appointment of Successor			32
		9.5. Damages			33
10.		REPRESENTATIONS AND WARRANTIES			33
		10.1. Existence, Power and Ownership			33
		10.2. Authorization			33
		10.3. No Conflicts			33
		10.4. Consents			33
		10.5. Enforceable Obligations			34
		10.6. Capitalization			34
11.		COVENANTS			34
		11.1. Reservation of Common Stock for Issuance on Exercise of Warrants			34
		11.2. Notice of Dividends			34
12.		MISCELLANEOUS			35
		12.1. Money and Other Property Deposited with the Warrant Agent			35
		12.2. Payment of Taxes			35
		12.3. Surrender of Certificates			35
		12.4. Mutilated, Destroyed, Lost and Stolen Warrant Certificates			35
		12.5. Removal of Legends			36
		12.6. Notices			36
		12.7. Applicable Law			37
		12.8. Persons Benefiting			37
		12.9. Counterparts			37
		12.10. Amendments			37
		12.11. Headings			38

				Page
		12.12. Entire Agreement			38
SIGNATURES
EXHIBIT A — Form of Warrant Certificate					A-1

WARRANT AND REGISTRATION RIGHTS AGREEMENT

     AGREEMENT dated as of April 9, 2008 between Borders Group, Inc., a Michigan corporation (the “Company”) and Computershare Inc., a Delaware corporation, and its wholly owned subsidiary Computershare Trust Company, N.A., a federally chartered trust company (collectively together with their successors and assigns, the “Warrant Agent” or individually “Computershare” and the “Trust Company” respectively).

WITNESSETH:

     WHEREAS, the Company is issuing and delivering warrant certificates (the “Warrant Certificates”) evidencing Warrants to purchase up to an aggregate of nine million five hundred fifty thousand (9,550,000) shares, subject to adjustment, of its Common Stock (the “First Issuance”), in connection with (i) the execution and delivery of a senior secured term loan facility agreement dated the date hereof (the “Term Loan Agreement”) among the Company, the guarantors named therein, Pershing Square Credit Partners LLC and PSRH, Inc. (the “Lenders”) and Pershing Square Capital Management, L.P., as agent, pursuant to which the Lenders will make a term loan to the Company of up to $42,500,000 and (ii) the execution and delivery of a purchase offer, pursuant to which Pershing Square Capital Management, L.P. is making an offer to purchase (the “Purchase Offer”) the Company’s business in Australia, New Zealand and Singapore, which consists of Borders Australia Pty. Ltd, Borders New Zealand Limited and Borders Pte., Ltd (Singapore) and their subsidiaries (the “Oceania/Singapore Business”), and the Company’s United Kingdom business which includes Paperchase Products Ltd and its subsidiaries and the Company’s 17% equity interest in Bookshop Acquisitions Ltd (the “UK Business”, and together with the Oceania/Singapore Business, the “Foreign Businesses”) for an aggregate cash price of $135,000,000 (less any attributable indebtedness for borrowed money of the Foreign Businesses);

     WHEREAS, the Company has agreed to issue and deliver, subject to and upon the occurrence of a Second Issuance Event (as defined herein), Warrant Certificates evidencing Warrants to purchase up to an aggregate of five million one hundred fifty thousand (5,150,000) additional shares, subject to adjustment, of its Common Stock (the “Second Issuance”), in consideration of the Purchase Offer and other good and valuable consideration;

     WHEREAS, the Warrants will be cash settled until the approval by the Company’s shareholders of the issuance of the Common Stock upon the exercise of the Warrants, in compliance with Section 312.03 of the New York Stock Exchange Listed Company Manual and after such event, subject to certain additional limitations provided herein, the Warrants will be exercisable into Common Stock of the Company; and

     WHEREAS, the Company desires the Warrant Agent to act on behalf of the Company, and the Warrant Agent is willing to act, in connection with the issuance,

transfer, exchange, replacement and exercise of the Warrant Certificates (as defined herein) and other matters as provided herein;

     NOW, THEREFORE, in consideration of the foregoing and for the purpose of defining the terms and provisions of the Warrants and the respective rights and obligations thereunder of the Company and the record holders of the Warrants, the Company and the Warrant Agent each hereby agrees as follows:

     As used in this Agreement, the following terms shall have the following meanings:

           Affiliate : with respect to any Person, a Person that directly or indirectly controls, is controlled by or is under direct or indirect common control with such Person. For purposes of this definition, “control” when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

           Articles of Incorporation : the Company’s Amended and Restated Articles of Incorporation, as amended from time to time.

           Board : the board of directors of the Company.

           Business Day : any day that is not a day on which banking institutions are authorized or required to be closed in the state in which the principal office of the Warrant Agent is located.

           Cash Redemption Value : the meaning set forth in Section 6.1.

           Change of Control Event : an event or series of events by which (i) any Person or group of Persons shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the SEC under said Act), directly or indirectly, of thirty-five percent (35%) or more of the outstanding shares of Common Stock, (ii) all or substantially all of the consolidated assets of the Company are sold, leased, exchanged or transferred to any Person or group of Persons, (iii) the Company is consolidated, merged, amalgamated, reorganized or otherwise enters into a similar transaction in which it is combined with another Person, unless the Persons who beneficially own the outstanding Voting Securities of the Company immediately before consummation of the transaction beneficially own a majority of the outstanding Voting Securities of the combined or surviving entity immediately thereafter, (iv) the majority of the seats (other than vacant seats) on the Board (or similar governing body) ceases to be occupied by Persons who either (a) were members of the Board on the date hereof or (b) were nominated for election by the Board, a majority of whom were directors on the date hereof or whose election or nomination for election was previously approved by a majority of such directors or (v) the approval by the holders of capital stock of the Company of any plan

or proposal for the liquidation or dissolution of the Company; provided that no event or series of events shall constitute a Change of Control Event prior to a Public Stock Merger if such event or series of events is not approved by a majority of the disinterested directors of the Company and the Initial Investor is the acquirer or part of the acquiring group for purposes of clause (i) or (ii), is combined with the Company for purposes of clause (iii), or has individually or as part of a group participated in the solicitation of proxies or consents that caused the applicable changes in membership of the Board for purposes of clause (iv). For purposes of this definition, a “group” means a group of Persons within the meaning of Section 13 of the Exchange Act.

           Common Stock : the common stock, par value $0.001 per share, of the Company.

           Company : the meaning set forth in the preamble to this Agreement and its successors and assigns.

           Default Interest Rate : the meaning set forth in Section 3.6.

           Deferred Amounts : the meaning set forth in Section 8.3.

           Delisting Event : means any event or series of events as a result of which the Underlying Common Stock ceases to be listed on the NYSE or NASDAQ (or any successor national securities exchanges).

           Effective Issuance Price : the meaning set forth in Section 5.6.

           Excess Tender Amount : the meaning set forth in Section 5.3.

           Exchange Act : the Securities Exchange Act of 1934, as amended.

           ex-date : the meaning set for in Section 5.2.

           Exercise Date : the meaning set forth in Section 3.2.

           Exercise Price : the meaning set forth in Section 3.1.

           Existing Facility : the Company’s Second Amended and Restated Multicurrency Revolving Credit Agreement, dated as of July 31, 2006, as amended, as of the date hereof.

           Expiration Date : the meaning set forth in Section 3.3.

           Fair Market Value :

          (i) in the case of shares of stock where, at least four months prior to the issuance thereof, other shares of the same class had already been listed on the NYSE or NASDAQ, the average of the daily volume-weighted average prices of such stock for

the five consecutive trading days immediately preceding the day as of which Fair Market Value is being determined.

          (ii) in the case of securities not covered by (i) above, the Fair Market Value of such securities shall be determined by an Independent Financial Expert appointed for such purpose, using one or more valuation methods that the Independent Financial Expert in its best professional judgment determines to be most appropriate, assuming such securities are fully distributed and are to be sold in an arm’s-length transaction and there was no compulsion on the part of any party to such sale to buy or sell and taking into account all relevant factors.

          (iii) in the case of cash, the amount thereof.

          (iv) in the case of other property, the Fair Market Value of such property shall be determined by an Independent Financial Expert appointed for such purpose, using one or more valuation methods that the Independent Financial Expert in its best professional judgment determines to be most appropriate, assuming such property is to be sold in an arm’s-length transaction and there was no compulsion on the part of any party to such sale to buy or sell and taking into account all relevant factors.

           First Issuance : the meaning set forth in the preamble to this Agreement.

           Foreign Business : the meaning set forth in the preamble to this Agreement.

           Fully Diluted Basis : the Voting Securities that would be outstanding after giving effect to the conversion, exchange or exercise of all the Warrants and all other outstanding securities of the Company that are convertible or exchangeable into Voting Securities, and the exercise of all outstanding Rights to Purchase Voting Securities, in each case, whether or not presently convertible, exchangeable or exercisable.

           Holders : from time to time, the holders of the Warrants and, unless otherwise provided or indicated herein, the holders of the Registrable Securities.

           Incentive Plans Amendments : amendments to any material employment agreements, change in control arrangements, severance agreements, equity compensation plans or other compensation arrangements or plans (including, without limitation, the Annual Incentive Bonus Plan, but excluding the Borders Group Inc. Non-Qualified Deferred Compensation Plan for Nonemployee Directors, The Borders Group, Inc. Non-Qualified Deferred Compensation Plan, effective as of January 1, 2005 and the Non-Qualified Deferred Compensation Plan (frozen)) to provide that neither the granting of the Warrants nor the exercise of the Warrants for Common Stock will trigger accelerated equity vesting, accelerated payment or funding, severance, increased potential severance (including double-trigger change in control vesting) or other change of control payments or rights for any of the Company or its subsidiaries, officers, employees or directors.

           Independent Financial Expert : a nationally recognized investment banking firm mutually agreed by the Company and the Person holding the greatest number of Warrants, which firm does not have a material financial interest or other material economic relationship with either the Company or the Person holding the greatest number of Warrants or its Affiliates. If the Company and the Holder of the greatest number of Warrants are unable to agree on an Independent Financial Expert, each of them shall choose promptly a separate Independent Financial Expert and these two Independent Financial Experts shall choose promptly a third Independent Financial Expert to determine the fair value of the Warrants.

           Initial Investor : means Pershing Square Capital Management, L.P., its Affiliates and their respective managed funds.

           Lenders : the meaning set forth in the preamble to this Agreement.

           Oceania/Singapore Business : the meaning set forth in the preamble to the Agreement.

           Person : any individual, corporation, partnership, joint venture, association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.

           Premium Per Pro Forma Share : the meaning set forth in Section 5.3.

           Prospectus : the prospectus included in any Registration Statement, as amended or supplemented by any prospectus supplement with respect to the terms of the offering of any of the Registrable Securities covered by such Registration Statement and by all other amendments and supplements to the prospectus, including post-effective amendments and all material incorporated by reference in such prospectus.

           Purchase Offer : the meaning set forth in the preamble to the Agreement.

           Public Stock Merger : means an event described in clause (iii) of the definition of Change of Control Event pursuant to which all of the outstanding shares of Common Stock of the Company are exchanged for, converted into or constitute solely (except to the extent of applicable appraisal rights) the right to receive common stock listed on a recognized national securities exchange, and with respect to which the Warrants will be exercisable into such common stock.

           Qualifying Employee Stock : the meaning set forth in Section 5.5.

           Qualifying Public Stock Merger : means a Public Stock Merger pursuant to which the surviving or resulting parent entity (into whose listed common stock the Warrants would be exercisable) is an entity with market capitalization in excess of $1,000,000,000.

           Registration Rights : the rights of Holders set forth in Article 4 to have shares of Registrable Securities registered under the Securities Act for sale under one or more effective Registration Statements.

           Registration Statement : any registration statement filed by the Company under the Securities Act pursuant to the Registration Rights, including the Prospectus, any amendments and supplements to such Registration Statement, including post-effective amendments, and all exhibits and all material incorporated by reference in such registration statement.

           Register, registered, and registration : shall refer to a registration effected by preparing and (a) filing a Registration Statement in compliance with the Securities Act and applicable rules and regulations thereunder, and the declaration or ordering of effectiveness of such Registration Statement or (b) filing a Prospectus and/or prospectus supplement in respect of an appropriate effective Registration Statement on Form S-3.

           Registrable Securities : means all Warrants and Common Stock issuable under the Warrants to the Initial Investor as of the date hereof and at any time during the term of this Agreement. Registrable Securities shall continue to be Registrable Securities (whether they continue to be held by the Initial Investor or they are sold to other Persons) until (i) they are sold pursuant to an effective Registration Statement under the Securities Act, (ii) they may be sold by their holder pursuant to Rule 144 without limitation thereunder on volume or manner of sale or (iii) they shall have otherwise been transferred and new securities not subject to transfer restrictions under any federal securities laws and not bearing any legend restricting further transfer shall have been delivered by the Company, all applicable holding periods shall have expired, and no other applicable and legally binding restriction on transfer by the holder thereof shall exist.

           Registration Expenses : mean all expenses incurred by the Company in effecting any registration pursuant to this Agreement, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company, blue sky fees and expenses, and expenses of the Company’s independent accountants in connection with any regular or special reviews or audits incident to or required by any such registration, but shall not include Selling Expenses.

           Reorganization Event : the meaning set for in Section 5.4.

           Required Shareholder Approval : shall mean the approval by the Company’s shareholders of the issuance of the Underlying Common Stock upon the exercise of the Warrants, in compliance with Section 312.03 of the New York Stock Exchange Listed Company Manual.

           Rights to Purchase Voting Securities : means options, warrants and rights issued by the Company (whether presently exercisable or not) to purchase Voting Securities or securities of the Company that are convertible or exchangeable (whether presently convertible or exchangeable or not) into or exercisable (whether presently

exercisable or not) for Voting Securities but, for the avoidance of doubt, not including a stockholders rights plan.

           Rule 144, Rule 405 and Rule 415 : mean, in each case, such rule promulgated under the Securities Act (or any successor provision), as the same shall be amended from time to time.

           sale : the meaning set forth in Section 3.5 of this Agreement.

           Scheduled Black-Out Period : means the period from and including the last day of a fiscal quarter of the Company to and including the Business Day after the day on which the Company publicly releases its earnings for such fiscal quarter.

           SEC : the Securities and Exchange Commission

           Second Issuance : the meaning set forth in the preamble to this Agreement.

           Second Issuance Event : means the earlier to occur of (i) October 1, 2008, if no definitive agreement with respect to a transaction described in clause (iii) of the definition of Change in Control Event of the Company has been entered into prior to such date (or if such a definitive agreement has been terminated or abandoned and the Company is not party to an agreement with respect to another transaction described in such clause (iii) (a “Subsequent Agreement”) for any continuous period of 180 days thereafter); (ii) the date notice is given by the Company that the Company is exercising its rights under that certain Purchase Offer Letter, dated as of the date hereof, between the Company and Pershing Square Capital Management, L.P.; and (iii) the date of any public announcement by the Company that it is suspending or terminating the strategic alternatives review process initially announced on March 20, 2008, or the failure by the Company to confirm it is continuing to pursue its strategic alternatives review process upon reasonable request by the Initial Investor after the termination of a definitive agreement contemplated in clause (i) and prior to the entry of any Subsequent Agreement.

           Securities Act : the Securities Act of 1933, as amended.

           Selling Expenses : mean all discounts, selling commissions and stock transfer taxes applicable to the sale of Registrable Securities.

           Significant Holder : a holder of (a) economic exposure (through ownership of Common Stock or related derivatives) with respect to an aggregate number of shares of Common Stock equal to at least 15% of the outstanding number of shares of Common Stock on a Fully Diluted Basis and (b) an aggregate number of Warrants entitling the Holder to receive upon exercise an aggregate number of shares of Common Stock equal to at least 5% of the outstanding number of shares of Common Stock on a Fully Diluted Basis, in each of cases (a) and (b) excluding from Fully Diluted Basis any warrants and options issued in the ordinary course of business under employee benefit plans and any

Common Stock issued after the date hereof upon the exercise of such warrants and options .

           Shelf Registration Statement : the meaning set forth in Section 4.1(b).

           Term Loan Agreement : the meaning set forth in the preamble of this Agreement.

           UK Business : the meaning set forth in the preamble to this Agreement.

           Underlying Common Stock : the shares of Common Stock issuable or issued upon the exercise of the Warrants.

           Voting Securities : means the Common Stock and any other securities of the Company of any kind or class having power generally to vote in the election of directors.

           Warrant Agent : the meaning set forth in the preamble to this Agreement.

           Warrant Certificates : the meaning set forth in the preamble to this Agreement.

           Warrant Certificates : the Warrant Certificates issued in substantially the form attached hereto as Exhibit A.

           Warrants : the warrants issued by the Company from time to time pursuant to this Agreement.

     Certain terms, used in Articles 4, 5 and 6, are defined in those Sections.

     2.1. Form of Warrant Certificates . The Warrant Certificates shall be in registered form only and substantially in the form attached hereto as Exhibit A, shall be dated the date on which countersigned by the Warrant Agent and may have such legends and endorsements typed, stamped, printed, lithographed or engraved thereon as provided in Section 3.5(e) and as required by the Articles of Incorporation or as may be required to comply with any law or with any rule or regulation pursuant thereto or with any rule or regulation of any securities exchange on which the Warrants may be listed.

     2.2. Execution and Delivery of Warrant Certificates .

          (a) Simultaneously with the execution of this Agreement, Warrant Certificates evidencing 9,550,000 Warrants entitling the holder to purchase an aggregate of 9,550,000 shares of Common Stock, subject to adjustment, shall be executed by the Company and delivered to the Warrant Agent for countersignature, and the Warrant

Agent shall thereupon countersign and deliver such Warrant Certificates to the Initial Investor.

          (b) Not later than the fifth business days after the occurrence of a Second Issuance Event, provided no event described in clause (iii) of the definition of Change of Control Event shall have been consummated, Warrant Certificates evidencing 5,150,000 Warrants entitling the holder to purchase an aggregate of 5,150,000 shares of Common Stock, subject to adjustment, shall be executed by the Company and delivered to the Warrant Agent for countersignature, and the Warrant Agent shall thereupon countersign and deliver such Warrant Certificates to the Initial Investor.

          (c) From time to time, the Warrant Agent shall countersign and deliver Warrant Certificates in required denominations to Persons entitled thereto in connection with any transfer or exchange permitted under this Agreement. The Warrant Agent is hereby irrevocably (but subject to Article 8) authorized to countersign and deliver Warrant Certificates as required by this Section 2.2, Section 3.4, Article 7, Section 12.4, and Section 12.5 or otherwise as provided herein. The Warrant Certificates shall be executed on behalf of the Company by its President or Vice President, either manually or by facsimile signature printed thereon. The Warrant Certificates shall be manually countersigned by the Warrant Agent and shall not be valid for any purpose unless so countersigned. In case any officer of the Company whose signature shall have been placed upon any of the Warrant Certificates shall cease to be such officer of the Company before countersignature by the Warrant Agent and issue and delivery thereof, such Warrant Certificates may, nevertheless, be countersigned by the Warrant Agent and issued and delivered with the same force and effect as though such person had not ceased to be such officer of the Company.

     3.1. Exercise Price . Each Warrant Certificate shall, when countersigned by the Warrant Agent, entitle the Holder thereof, subject to the provisions of this Agreement, to purchase, except as provided in Section 3.4 and Section 3.6 hereof, one share of Common Stock for each Warrant represented thereby, subject to all adjustments made on or prior to the date of exercise thereof, at an exercise price (the “Exercise Price”) of $7.00 per share, subject to all adjustments made on or prior to the date of exercise thereof as herein provided.

     3.2. Exercise of Warrants . The Warrants shall be exercisable in whole or in part from time to time on any Business Day (each, an “Exercise Date”) beginning on the date hereof and ending on the Expiration Date, in the manner provided for herein.

     3.3. Expiration of Warrants . Any unexercised Warrants shall expire and the rights of the Holders of such Warrants to purchase Underlying Common Stock shall terminate at the close of business on October 9, 2014 (the “Expiration Date”).

     3.4. Method of Exercise; Payment of Exercise Price . In order to exercise a Warrant, the Holder thereof must surrender the Warrant Certificate evidencing such Warrant to the Warrant Agent, with the form on the reverse of or attached to the Warrant Certificate duly executed, together with any required payment in full of the Exercise Price then in effect for the shares of Underlying Common Stock as to which a Warrant Certificate is submitted for exercise (subject to Section 3.6). Any such payment of the Exercise Price shall be payable in cash or other same-day funds. All funds received upon the tender of Warrants shall be deposited by the Warrant Agent for the account of the Company, unless otherwise instructed in writing by the Company. The Company acknowledges that the bank accounts maintained by Computershare in connection with its performance under this Agreement will be in Computershare’s name and that Computershare may receive investment earnings in connection with the investment at Computershare’s risk and for its benefit of funds held in those accounts from time to time. If fewer than all the Warrants represented by a Warrant Certificate are surrendered, such Warrant Certificate shall be surrendered and a new Warrant Certificate of the same tenor and for the number of Warrants that were not surrendered shall promptly be executed and delivered to the Warrant Agent by the Company. The Warrant Agent shall promptly countersign the new Warrant Certificate, register it in such name or names as may be directed in writing by the Holder and deliver the new Warrant Certificate to the Person or Persons entitled to receive the same.

     Upon surrender of a Warrant Certificate in conformity with the foregoing provisions, the Warrant Agent or Computershare, as applicable, shall thereupon promptly notify the Company, and the Company shall instruct its transfer agent to transfer to the Holder of such Warrant Certificate appropriate evidence of ownership of any shares of Underlying Common Stock or other securities or property (including any money) to which the Holder is entitled, registered or otherwise placed in, or payable to the order of, such name or names as may be directed in writing by the Holder, and shall deliver such evidence of ownership and any other securities or property (including any money) to the Person or Persons entitled to receive the same, together with an amount in cash in lieu of any fraction of a share as provided in Section 5.9. Upon payment of the Exercise Price therefor, a Holder shall be deemed to own and have all of the rights associated with any Underlying Common Stock or other securities or property (including money) to which it is entitled pursuant to this Agreement upon the surrender of a Warrant Certificate in accordance with this Agreement. If the Holder shall direct that such securities be registered in a name other than that of the Holder, such direction shall be tendered in conjunction with a signature guarantee from an eligible guarantor institution participating in a signature guarantee program approved by the Securities Transfer Association, and any other reasonable evidence of authority that may be required by the Warrant Agent.

     3.5. Compliance with the Securities Act . (a) No Warrant may be exercised (and the Warrant Agent shall be under no obligation to process any exercise), and no Registrable Securities may be sold, transferred or otherwise disposed of (any such sale, transfer or other disposition, a “sale”), except in compliance with this Section 3.5.

          (b) A Holder may exercise its Warrants if it is an “accredited investor” or a “qualified institutional buyer”, as defined in Regulation D and Rule 144A under the Securities Act, respectively, and, a Holder may sell its Registrable Securities to a transferee that is an “accredited investor” or a “qualified institutional buyer”, as such terms are defined in such Regulation and such Rule, respectively, provided that each of the following conditions is satisfied:

     (i) with respect to any “accredited investor” that is not an institution, such Holder or transferee, as the case may be, provides certification establishing to the reasonable satisfaction of the Company that it is an “accredited investor”;

     (ii) such Holder or transferee represents that it is acquiring the Underlying Common Stock (in the case of an exercise) or Registrable Securities (in the case of a sale) for its own account and that it is not acquiring such Underlying Common Stock or the Registrable Securities with a view to, or for offer or sale in connection with, any distribution thereof (within the meaning of the Securities Act) that would be in violation of the securities laws of the United States or any applicable state thereof, but subject, nevertheless, to the disposition of its property being at all times within its control; and

     (iii) such Holder or transferee agrees to be bound by the provisions of this Section 3.5 with respect to any exercise of the Warrants and any sale of the Registrable Securities.

          (c) a Holder may exercise its Warrants and may sell its Registrable Securities in accordance with Regulation S under the Securities Act.

          (d) a Holder may exercise its Warrants or sell its Registrable Securities if:

     (i) such Holder gives written notice to the Company of its intention to exercise or effect such sale, which notice shall describe the manner and circumstances of the proposed transaction in reasonable detail;

     (ii) such notice includes a certification by the Holder, to the effect that such proposed exercise or sale may be effected without registration under the Securities Act or under applicable Blue Sky laws; and

     (iii) such Holder or transferee complies with Sections 3.5(b)(ii) and 3.5(b)(iii).

          (e) subject to Section 12.5, all stock certificates issued pursuant to the exercise of the Warrants shall bear the following legend:

THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR

QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS. SUCH SHARES MAY BE OFFERED, SOLD OR TRANSFERRED ONLY IN COMPLIANCE WITH THE REQUIREMENTS OF SUCH ACT AND OF ANY APPLICABLE STATE SECURITIES LAWS AND SUBJECT TO THE PROVISIONS OF THE WARRANT AND REGISTRATION RIGHTS AGREEMENT DATED AS OF APRIL 9, 2008 BETWEEN BORDERS GROUP, INC. (THE “COMPANY”), AND COMPUTERSHARE INC. AND ITS WHOLLY OWNED SUBSIDIARY COMPUTERSHARE TRUST COMPANY, N.A., WARRANT AGENT. A COPY OF SUCH WARRANT AND REGISTRATION RIGHTS AGREEMENT IS AVAILABLE AT THE OFFICES OF THE COMPANY.

          (f) subject to Section 12.5, each certificate representing the Warrants shall bear the following legend:

THESE WARRANTS AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS. THESE WARRANTS AND SUCH SECURITIES MAY BE OFFERED, SOLD OR TRANSFERRED ONLY IN COMPLIANCE WITH THE REQUIREMENTS OF SUCH ACT AND OF ANY APPLICABLE STATE SECURITIES LAWS AND SUBJECT TO THE PROVISIONS OF THE WARRANT AND REGISTRATION RIGHTS AGREEMENT DATED AS OF APRIL 9, 2008 BETWEEN BORDERS GROUP, INC. (THE “COMPANY”) AND COMPUTERSHARE INC. AND ITS WHOLLY OWNED SUBSIDIARY COMPUTERSHARE TRUST COMPANY, N.A., WARRANT AGENT. A COPY OF SUCH WARRANT AND REGISTRATION RIGHTS AGREEMENT IS AVAILABLE AT THE OFFICES OF THE COMPANY.

          (g) the provisions of Section 3.5(a) shall not apply to:

     (i) any exercise of a Warrant in connection with a sale of the Registrable Securities issued upon such exercise in a transaction that is registered under the Securities Act.

     (ii) any sale of Registrable Securities in a transaction that is registered under the Securities Act.

     3.6. Exercise Only for Cash Prior to Required Shareholder Approval and Incentive Plans Amendments . Until such time as the Company has notified the Warrant Agent that Required Shareholder Approval and the Incentive Plans Amendments have been obtained, upon exercise of any Warrants and against surrender thereof, the Company shall pay, within five business days from the date of exercise, to the Holders of Warrants an amount in cash in immediately available funds equal to the excess, if any, of the Fair Market Value as of the date of exercise of the number of shares of Common Stock the Holders would have been entitled to receive if the provisions of this Section were not applicable over the Exercise Price in respect of such shares. Any cash payment due from the Company to a Holder pursuant to this Section 3.6 shall be due and payable on the fifth business day after the date of such exercise and, if not then paid, shall bear interest thereafter at a default interest rate (the “Default Interest Rate”) equal to 18% compounded on each monthly anniversary, and payable upon demand, but subject to Section 8.3. The cash settlement of the Warrants provided for under this Section 3.6 shall cease to apply on the same business day the Company notifies the Warrant Agent in writing that the Required Shareholder Approval and the Incentive Plans Amendments have both been obtained. Notwithstanding the foregoing, no Holder may exercise any Warrants for cash prior to the earlier of (i) January 1, 2009 and (ii) the public announcement of the entry into a definitive agreement with respect to, or the completion of, a Change of Control Event or other extraordinary transaction involving the Company to which the Initial Investor is not a party; provided, however, if the definitive agreement relates to a Public Stock Merger, no Holder may exercise Warrants for cash prior to the consummation of the Public Stock Merger.

     4.1. Registration .

          (a) Subject to the conditions of this Section 4.1, the Company covenants and agrees that no later than October 1, 2008, the Company shall have prepared and filed with the SEC a Registration Statement, which, if possible, shall be a Shelf Registration Statement (as defined below) covering any Registrable Securities (or otherwise designate an existing Shelf Registration Statement filed with the SEC to cover the Registrable Securities), and, to the extent the Shelf Registration Statement has not theretofore been declared effective or is not automatically effective upon such filing, the Company shall use commercially reasonable efforts to cause such Shelf Registration Statement to be declared or become effective as promptly as practicable, but in no event later than January 1, 2009, and use commercially reasonable efforts to keep such Shelf Registration Statement continuously effective and in compliance with the Securities Act and usable for resale of such Registrable Securities for a period from the date of its initial effectiveness until such time as there are no Registrable Securities remaining.

          (b) Any registration pursuant to this Section 4.1 shall, to the extent possible, be effected by means of a shelf registration under the Securities Act (a “Shelf Registration Statement”) in accordance with the methods and distribution set forth in the Shelf Registration Statement and Rule 415. If a Holder intends to distribute any Registrable Securities by means of an underwritten offering, (1) it shall so advise the Company and (2) the Holders holding a majority interest in the Registrable Securities electing to participate in such underwritten offering shall have the right to appoint book runners and all other applicable underwriting participants, subject to the approval of the Company not to be unreasonably withheld or delayed. The Company shall have the right to select a non-bookrunning co-manager, subject to the approval of the majority of participating Holders not to be unreasonably withheld or delayed.

          (c) The Company shall not be required to effect a registration (including a resale of Registrable Securities from an effective Shelf Registration Statement) pursuant to this Section 4.1: (i) with respect to securities that are not Registrable Securities; (ii) during any Scheduled Black-Out Period; or (iii) if the Company has notified the Holders that in the good faith judgment of the Company, it would be materially detrimental to the Company or its security holders for such registration to be effected at such time, in which event the Company shall have the right to defer such registration for a period of not more than ninety (90) days; provided that such right to delay a registration shall be exercised by the Company (A) only if the Company has generally exercised (or is concurrently exercising) similar black-out rights against holders of similar securities that have registration rights, if any, and (B) for not more than three periods in any twelve (12) month period and not more than one hundred twenty (120) days in the aggregate in any twelve (12) month period.

     4.2. Expenses of Registration . Except as specifically provided herein, all Registration Expenses incurred in connection with any registration, qualification or compliance hereunder shall be borne by the Company. All Selling Expenses incurred in connection with any registrations hereunder, shall be borne by the holders of the securities so registered pro rata on the basis of the aggregate offering or sale price of the securities so registered.

     4.3. Obligations of the Company . Whenever required to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably practicable, subject to the provisions of this Article 4:

          (a) Prepare and file with the SEC a prospectus supplement with respect to a proposed offering of Registrable Securities pursuant to an effective Registration Statement and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, subject to Sections 4.1(c) and 4.4, use commercially reasonable efforts to keep such Registration Statement effective or such prospectus supplement current, until the termination of the period contemplated in Section 4.5.

          (b) Prepare and file with the SEC such amendments and supplements to the applicable Registration Statement and the Prospectus or prospectus supplement used in connection with such Registration Statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by such Registration Statement for the period set forth in paragraph (a) above.

          (c) Furnish to the Holders and any underwriters such number of copies of the applicable Registration Statement and each such amendment and supplement thereto (including in each case all exhibits) and of a Prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned or to be distributed by them.

          (d) Use its commercially reasonable efforts to register and qualify the securities covered by such Registration Statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders or any managing underwriter(s), to keep such registration or qualification in effect for so long as such Registration Statement remains in effect, and to take any other action which may be reasonably necessary to enable such seller to consummate the disposition in such jurisdictions of the securities owned by such Holder; provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions.

          (e) Notify each Holder of Registrable Securities at any time when a Prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the applicable Prospectus, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing.

          (f) Give written notice to the Holders of Registrable Securities covered by a Registration Statement:

     (i) when any Registration Statement filed pursuant to Section 4.1 or any amendment thereto has been filed with the SEC and when such Registration Statement or any post-effective amendment thereto has become effective;

     (ii) of any request by the SEC for amendments or supplements to any Registration Statement or the Prospectus included therein or for additional information;

     (iii) of the issuance by the SEC of any stop order suspending the effectiveness of any Registration Statement or the initiation of any proceedings for that purpose;

     (iv) of the receipt by the Company or its legal counsel of any notification with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and

     (v) of the happening of any event that requires the Company to make changes in any effective Registration Statement or the Prospectus in order to make the statements therein not misleading (which notice shall be accompanied by an instruction to suspend the use of the Prospectus until the requisite changes have been made).

          (g) Use its commercially reasonable efforts to prevent the issuance or obtain the withdrawal of any order suspending the effectiveness of any Registration Statement referred to in Section 4.3(f)(iii) at the earliest practicable time.

          (h) Upon the occurrence of any event contemplated by Section 4.3(f)(v), reasonably promptly prepare a post-effective amendment to such Registration Statement or a supplement to the related Prospectus or file any other required document so that, as thereafter delivered to the Holders and any underwriters, the Prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. If the Company notifies the Holders in accordance with Section 4.3(f)(v) to suspend the use of the Prospectus until the requisite changes to the Prospectus have been made, then the Holders and any underwriters shall suspend use of such Prospectus and use their commercially reasonable efforts to return to the Company all copies of such Prospectus (at the Company’s expense) other than permanently filed copies then in such Holder’s or underwriter’s possession.

          (i) Use commercially reasonable efforts to procure the cooperation of the Company’s transfer agent in settling any offering or sale of Registrable Securities, including with respect to the transfer of physical stock certificates into book-entry form in accordance with any procedures reasonably requested by the Holders or any managing underwriter(s).

          (j) Use its commercially reasonable efforts to take such actions as are under its control to become or remain a well-known seasoned issuer (as defined in Rule 405 under the Securities Act) (and not become an ineligible issuer (as defined in Rule 405 under the Securities Act)) during the period when such Registration Statement remains in effect.

          (k) Enter into an underwriting agreement in form, scope and substance as is customarily entered into for similar underwritten offerings of equity securities by similar companies and take all such other actions reasonably requested by the Holders of a majority of the Registrable Securities being sold in connection therewith or by the managing underwriter(s), if any, to expedite or facilitate the underwritten disposition of such Registrable Securities, and in connection therewith as customary for any similar

underwritten offering, (i) make such representations and warranties to the Holders that are selling stockholders and the managing underwriter(s), if any, with respect to the business of the Company and its subsidiaries, and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, in form, substance and scope as are customarily made by the issuer in similar underwritten offerings of equity securities by similar companies, and, if true, confirm the same if and when requested, (ii) use its commercially reasonable efforts to furnish underwriters opinions of counsel to the Company, addressed to the managing underwriter(s), if any, covering the matters customarily covered in the opinions requested in similar underwritten offerings of equity securities by similar companies, (iii) use its commercially reasonable efforts to obtain “cold comfort” letters from the independent certified public accountants of the company (and, if necessary, any other independent certified public accountants of any business acquired by the Company for which financial statements and financial data are included in the Registration Statement) who have certified the financial statements included in such Registration Statement, addressed to each of the managing underwriter(s), if any, such letters to be in customary form and covering matters of the type customarily covered in “cold comfort” letters in connection with similar underwritten offerings of equity securities by similar companies, (iv) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures customary in similar underwritten offerings of equity securities by similar companies, and (v) deliver such documents and certificates as may be reasonably requested by the Holders of a majority of the Registrable Securities being sold in connection therewith, their counsel and the managing underwriter(s), if any, to evidence the continued validity of the representations and warranties made pursuant to clause (i) above and to evidence compliance with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company.

          (l) Make available for inspection by a representative of Holders that are selling at least 100,000 Registrable Securities, the managing underwriter(s), if any, and any attorneys or accountants retained by such Holders or managing underwriter(s), at the offices where normally kept, during reasonable business hours, financial and other records, pertinent corporate documents and properties of the Company, and cause the officers, directors and employees of the Company to supply all information in each case reasonably requested by any such representative, managing underwriter(s), attorney or accountant in connection with such Registration Statement; provided that this clause (l) shall only be applicable to a representative of such Holders that are selling stockholders and any attorneys or accountants retained by such Holders if such Holder is named in the applicable prospectus supplement as a person who may be deemed to be an underwriter with respect to an offering and sale of Registrable Securities.

     4.4. Suspension of Sales . During any Scheduled Black-Out Period and upon receipt of written notice from the Company that a Registration Statement, Prospectus or prospectus supplement contains or may contain an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that circumstances exist that make inadvisable use of such Registration Statement, Prospectus or prospectus supplement, the Holder of

Registrable Securities shall forthwith discontinue disposition of Registrable Securities until termination of such Scheduled Black-Out Period or until the Holder has received copies of a supplemented or amended Prospectus or prospectus supplement, or until such Holder is advised in writing by the Company that the use of the Prospectus and, if applicable, prospectus supplement may be resumed, and, if so directed by the Company, such Holder shall deliver to the Company (at the Company’s expense) all copies, other than permanent file copies then in such Holder’s possession, of the Prospectus and, if applicable, prospectus supplement covering such Registrable Securities current at the time of receipt of such notice. The total number of days that any such suspension may be in effect in any 180 day period shall not exceed 60 days.

     4.5. Termination of Registration Rights . A Holder’s Registration Rights as to any securities held by such Holder (and its affiliates, partners, members and former members) shall not be available unles