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CORPORATE GOVERNANCE GUIDELINES
OF
BORDERS GROUP, INC.


INTRODUCTION

The following Corporate Governance Guidelines (the “Guidelines”) have been adopted by the Board of Directors (the “Board”) of Borders Group, Inc. (the “Company”) to assist the Board in the exercise of its responsibilities.  These Guidelines reflect the Board’s commitment to monitor the effectiveness of policy and decision making both at the Board and management level, with a view to enhancing shareholder value over the long term. The Guidelines are subject to modification from time to time by the Board.

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BOARD SIZE AND INDEPENDENCE

The by-laws provide that the Board will have not less than 3 nor more than 11 members. The Board will fix the exact number of directors at any time after considering the recommendation of the Nominating and Corporate Governance Committee.

At least 2/3 of the directors shall be independent. No director shall qualify as “independent” unless the Board affirmatively determines that the director has no material relationship with the Company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company).  In making such determinations, the Board shall be subject to the standards set forth below, as well as any additional standards that the Board shall adopt.

A director is not independent if:

(i) The director is, or has been within the past three years, an employee of the Company, or an immediate family member of the director is, or has been within the past three years, an executive officer of the Company.

(ii) The director or an immediate family member has received, during any twelve-month period in the last three years, more than $120,000 in direct compensation from the Company, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service).

(iii) (A) The director is a current partner or employee of a company that is the Company’s internal or external auditor; (B) the director has an immediate family member who is a current partner of such a firm; (C) the director has an immediate family member who is a current employee of such a firm and personally works on the Company’s audit; or (D) the director or an immediate family member was within the last three years (but is no longer) a partner or employee of such a firm and personally worked on the Company’s audit within that time.

(iv) The director or an immediate family member is, or has been within the last three years, employed as an executive officer of another company where any of the Company’s present executive officers at the same time serves or served on that other company’s compensation committee.

(v) The director is a current employee, or an immediate family member of the director is a current executive officer, of a company that has made payments to, or received payments from, the Company for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million, or 2% of such other company’s consolidated gross revenues.

In addition, a director who is a party to any transaction or who has any relationship to the Company that would require disclosure in the Company’s Proxy Statement under Item 404 of Regulation S-K of the Securities and Exchange Commission, or whose immediate family member is a party to any such transaction or has any such relationship, shall be deemed to have a material relationship with the Company and thus not be independent unless either: (A) the transaction or relationship is of a nature covered by (i) - (v) above but does not meet the thresholds contained in such provisions, or (B) the Board determines, after reviewing the nature and amounts involved in the transaction or relationship, that the director’s ability to act in a fair and impartial manner will not be affected thereby.

For purposes of these Guidelines, a person’s immediate family includes a person's spouse, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law, and anyone (other than domestic employees) who shares such person's home

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BOARD MEMBERSHIP

The Nominating and Corporate Governance Committee has the responsibility for identifying and recommending to the Board individuals to serve as directors of the Company. Prior to making its recommendations for new board members, such Committee shall discuss the qualifications of the individuals being considered with other the directors and with the Chief Executive Officer of the Company.

Directors who reach the age of 72, as well as directors who are officers of the Company and cease to serve as such and directors who change job responsibilities, shall submit an offer of resignation to the Board. Such offer shall be reviewed by the Nominating and Corporate Governance Committee, which shall make a recommendation to the Board as to whether or not such offer of resignation shall be accepted.

The Nominating and Corporate Governance Committee shall consider all director nominations annually.

The Board believes that variety in the lengths of service among the directors benefits the Company.  Therefore, no term limits have been established.

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VOTING FOR DIRECTORS

In an uncontested election of Directors (i.e., an election where the only nominees are those recommended by the Board of Directors), any nominee for Director who receives a greater number of votes “withheld” from his or her election than votes “for” his or her election will promptly tender his or her resignation to the Chairman of the Board following certification of the shareholder vote.

The Nominating and Corporate Governance Committee will promptly consider the resignation submitted by a Director receiving a greater number of votes “withheld” from his or her election than votes “for” his or her election, and the Nominating and Corporate Governance Committee will recommend to the Board whether to accept the tendered resignation or reject it.  In considering whether to accept or reject the tendered resignation, the Nominating and Corporate Governance Committee will consider all factors deemed relevant by the members of the Nominating and Corporate Governance Committee including, without limitation, (i) the stated reasons why shareholders “withheld” votes for election from such Director, (ii) the length of service and qualifications of the Director whose resignation has been tendered, (iii) the impact that the Director’s resignation would have on the Company’s compliance with the requirements of the Securities and Exchange Commission, the New York Stock Exchange and the Company’s Corporate Governance Guidelines; (iv) whether the resignation  of the Director could result in the triggering of change in control or similar provisions under any contract by which the Company is bound or any benefit plan of the Company and, if so, the potential impact thereof; and (v)  the Director’s contributions to the Company. In considering the application of such factors to each individual Director, the Board also shall consider the potential impact of the resignation of any other Director or Directors who received a greater number of votes “withheld” from his or her election than votes “for” his or her election in the applicable election.

In making its recommendation to the Board, the Committee may consider possible remedies in addition to acceptance of the resignation. Such remedies may include the deferral of action on the tendered resignation and the development and implementation a specific plan to cure the issues underlying the voting results. If the Committee recommends such an alternative, the Committee shall agree upon a plan with the Director and shall monitor the Director’s progress in implementing the plan. If at any time the Committee is not satisfied with the Director’s progress in implementing the plan, it may recommend to the Board that the resignation be accepted.

The Board will act on the Nominating and Corporate Governance Committee’s recommendation no later than 90 days following the date of the shareholders’ meeting where the election occurred.  In considering the Nominating and Corporate Governance Committee’s recommendation, the Board will consider the factors considered by the Nominating and Corporate Governance Committee and such additional information and factors the Board believes to be relevant.  Following the Board’s decisions on the Nominating and Corporate Governance Committee’s recommendation, the Company will promptly publicly disclose the Board’s decision whether to accept the resignation as tendered (providing a full explanation of the process by which the decision was reached and, if applicable, the reasons for rejecting the tendered resignation) in a Form 8-K filed with the Securities and Exchange Commission.

To the extent that the Board accepts one or more Directors’ resignations, the Nominating and Corporate Governance Committee will recommend to the Board whether to fill such vacancy or vacancies or to reduce the size of the Board.

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RESPONSIBILITIES OF THE BOARD

Each member of the Board shall have the responsibility to exercise his or her business judgment in good faith and in a manner that he or she reasonably believes to be in the best interests of the Company. Board members should attend all Board, Committee and shareholders meetings except in cases of unavoidable conflicts, and the Nominating and Corporate Governance Committee shall consider any instances of excessive absenteeism in recommending nominees to serve as directors.  Board members are expected to review materials relating to Board and Committee meetings in advance of the meetings and to devote the time necessary to discharge their responsibilities appropriately. Board members are expected to maintain as confidential all nonpublic information received in that capacity and all discussions relating to their service as Board members.

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BOARD MEETINGS

The Board shall meet at least quarterly and may meet more frequently if the Chairman deems it appropriate.

Non-management directors shall meet without management in regular executive sessions at each Board meeting. The Chairman of the Board, if a non-management director, shall chair the sessions of the non-management directors except in situations in which he or she is conflicted, in which case the Lead Independent Director shall serve as chair.

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LEAD INDEPENDENT DIRECTOR

The Nominating and Corporate Governance Committee shall designate a Lead Independent Director if the Chairman of the Board is not an independent director, and may designate a Lead Independent Director at any other time. In addition to such other duties as may be called for by the By-Laws of Company or established by the Board from time to time, the Lead Independent Director shall preside at all meetings of independent directors and at all portions of Board meetings and sessions of non-management directors during which the Chairman is conflicted.

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BOARD COMMITTEES

The Board utilizes an active committee structure.  The Committees are the Audit, Compensation and Nominating and Corporate Governance Committees, each of which is to be chaired by, and comprised entirely of, independent directors. Each Committee shall have a formal charter approved by the Board, which shall set forth, among other matters, the responsibilities of the Committee.

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COMMITTEE ASSIGNMENTS

The Nominating and Corporate Governance Committee is charged with recommending committee assignments to the Board each year.  In developing these recommendations, it takes into account the background and experiences of the individual members of the Board and the desirability of rotating assignments in appropriate situations. Director’s compensation must be the sole remuneration from the Company for members of the Audit, Compensation and Nominating and Corporate Governance Committees.

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BOARD AND COMMITTEE AGENDA

The Chairman of the Board, in consultation with the Lead Independent Director and senior management, develops the agenda for Board meetings. The Chairperson of the applicable committee, in consultation with the Chairman of the Board, sets the agenda for committee meetings.

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DIRECTOR COMPENSATION

The Nominating and Corporate Governance Committee shall periodically review director compensation and makes recommendations as appropriate to the full Board. The objective of the Borders Group compensation program for non-employee directors is to provide a level of compensation appropriate to attract and retain talented individuals to serve as directors of the Company.  To assist in determining an overall compensation level for non-employee directors, the Committee shall review the compensation practices of selected peer companies. Subject to shareholder approval of the applicable plans, a portion of the director’s compensation shall be paid in the form of equity-based compensation to align the directors’ interests with those of the shareholders.

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DIRECTOR ORIENTATION AND CONTINUING EDUCATION

The Nominating and Corporate Governance Committee shall oversee the orientation of new Board members in a manner designed to enhance the knowledge and skills necessary or appropriate for the performance of the director’s duties and responsibilities. The Committee also may recommend continuing education programs for directors as a group or for individual directors. The Company shall pay for the continuing education programs recommended by the Committee.

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DIRECTOR EVALUATIONS

The Board shall conduct annual evaluations of the performance of the Board as a whole, each Committee of the Board and each Board member. The Nominating and Corporate Governance Committee shall coordinate such evaluations, and shall consider the results of the evaluations when it makes its recommendations to the Board with respect to membership on the Board.

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BOARD EVALUATION OF THE CHIEF EXECUTIVE OFFICER

The Compensation Committee shall periodically review the performance of the CEO.  Such review shall include a meeting with the CEO to discuss his or her performance, at which at least two members of the Committee shall be present. The Compensation Committee is formally charged with setting performance goals for the CEO and other executive officers of the Company under the Company’s Annual Incentive Plan.

The Compensation Committee shall periodically report to the full Board on its actions, including actions relating to performance and compensation of the CEO.

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DIRECTOR ACCESS TO MANAGERS AND OUTSIDE ADVISORS

Each director may consult with any manager or employee of the Company or with any outside advisor to the Company at any time.  If appropriate, it is expected that the director will inform the Chairman when significant issues are being discussed.

The Board, as well as each Committee of the Board, shall have the right to retain, at the Company’s expense, such outside advisors as the Board or applicable Committee shall deem appropriate.

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STRATEGIC PLANNING

The Board shall dedicate a substantial portion of one meeting per year to presentations by management and a discussion of the Company’s strategic plan.  The Board also expects management to periodically report to the Board on the Company’s programs and actions to implement the strategic plan.

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SUCCESSION PLANNING

Succession planning for the top positions in the Company shall be an agenda item for at least one Board meeting annually. Such planning shall include the formulation of policies and principles for CEO selection and performance review, as well as policies regarding succession planning in the event of an emergency or the retirement of the CEO.

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BUSINESS CONDUCT POLICY AND CODE OF ETHICS

The Company shall maintain a Business Conduct Policy and a Code of Ethics, which shall be reviewed periodically by the Nominating and Corporate Governance Committee. Material waivers of the requirements of the Policy or Code shall be subject to the approval of the Board.

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OUTSIDE DIRECTORSHIPS BY EXECUTIVE OFFICERS

Each executive officer shall advise the Nominating and Corporate Governance Committee, through the Secretary of the Company, of all of his or her directorships in publicly held companies. Prior to accepting a new directorship in a publicly held company, the executive officer shall obtain the approval of the Nominating and Corporate Governance Committee. Such Committee or the Board may limit the number of such directorships for any executive officer if it believes that they will interfere with the executive officer’s responsibilities to the Company.

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PERIODIC REVIEW

The Board reviews these guidelines from time to time.

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