January 29, 2001




GEORGE R. MRKONIC

Dear George:

This letter will confirm our agreement concerning your employment with Borders
Group, Inc. ("BGI").

1. During the term of this Agreement, you will be the Vice-Chairman of BGI and,
subject to your election by the shareholders, a member of the Board of Directors
of BGI (the "Board"). You will report to the Chairman of the Board and your
place of employment shall be in Ann Arbor, Michigan.

2. In lieu of any cash compensation, you have received options for 53,191 shares
granted on the Effective Date under the Director Stock Plan. Such options have
an exercise price of $12.4375 per share (the closing price the New York Stock
Exchange on January 26, 2001), become exercisable on January 25, 2002 and expire
on April 28, 2003.

3. You shall have such duties relating to the international operations of the
Company as may be assigned to you by the Board from time to time. It is
understood that such duties shall include service as a director of international
subsidiaries and affiliates of the Company as requested by the Chief Executive
Officer of the Company. Your principal place of employment will be Ann Arbor,
Michigan unless you consent to another location.

4. You shall not be eligible to participate in the Company's medical, dental,
life insurance and other welfare plans, subject to your COBRA rights. The
Company will pay your COBRA cost during the term of this Agreement.

5. The term of this Agreement shall be from January 29, 2001 (the "Effective
Date") through January 27, 2002, unless this agreement terminates in accordance
with its terms prior to such date.

6. Subject to Section 12, during the term of this Agreement, your position with
BGI may be terminated by BGI only for "Cause" by written notice given to you
after action by a majority of the members of the Board of Directors of BGI and
only within ninety days after the occurrence of BGI learning of one of the
following events:

         (a)    Your conviction of a felony, or of a misdemeanor involving the
                money or property of BGI or any subsidiary;

         (b)    You shall have willfully engaged in misconduct that materially
                damages or injures the reputation of BGI or any subsidiary;




<PAGE>   2
                                      -2-

         (c)    You shall have breached the noncompetition provisions of this
                Agreement and such breach is not cured within 7 days after
                notice thereof from BGI; or

         (d)    Any willful and material breach of the confidentiality
                provisions of this Agreement.

For purposes of this Section 6, no act or failure to act, on your part shall be
deemed to be "willful" unless done, or omitted to be done, by you not in good
faith and without reasonable belief that such act or omission was in the best
interest of BGI.

In the event that BGI breaches this Agreement and either (i) your employment is
terminated by BGI without Cause prior to the expiration of the term, or (ii) you
voluntarily terminate your employment following any such breach which is not
cured by BGI within 30 days after BGI's receipt of written notice from you
describing the breach, the vesting of your stock options will continue through
the balance of the term. In the event that this clause is inconsistent with the
terms of the relevant plan, BGI shall provide the same benefits outside of such
plan. You shall not be obligated to seek other employment to mitigate damages
and BGI's obligations hereunder shall not be reduced by any compensation that
you may earn from other employment or self-employment.

7. You will be entitled to reimbursement for travel (at full coach rate) and
entertainment and other business expenses incurred on BGI's behalf in accordance
with BGI's policy upon submission of vouchers and documentation relating thereto
in accordance with BGI procedures.

8. You agree that during the Restricted Period neither you nor your Affiliates
will (i) Compete with BGI in the Restricted Area or (ii) directly or indirectly
(whether as owner, principal, employee, partner, lender or venturer with or
consultant to any person, firm, partnership, corporation or other entity): (A)
cause or seek to cause any of BGI's suppliers, purchasing agents or customers to
cease transacting business with BGI; or (B) cause or seek to cause any of BGI's
prospective suppliers, purchasing agents or customers not to transact business
with BGI.

For purposes of this Agreement:

              (i) The term "Affiliate" means any corporation, person or entity
which, directly or indirectly, through one or more intermediaries, you control
or is under common control with you;

              (ii)  The term "Company" means BGI and its subsidiaries.

              (iii) The term "Compete" means to manage, operate, control or
participate in, or have any ownership interests in or make loans to, or aid or
advise as an employee, consultant or otherwise, whether directly or indirectly,
any business (whether an individual, sole proprietorship, partnership,
corporation, firm, joint venture, trust or other entity) which is engaged in,
directly or indirectly, the retail (including internet) or wholesale book
business or in a business where principal business is the retail or wholesale
sale of video cassettes, videotapes, musical records, compact discs or audio
cassettes; provided, however, that you may (i) own equity securities in Kmart or
any subsidiary of Kmart and (ii) own up to 1% of a corporation where equity
securities are listed for trading on a national securities exchange;



<PAGE>   3
                                      -3-


              (iv) The term "Restricted Period" means the period from the date
hereof through December 31, 2003, provided, that in the event that you breach
the covenant not to Compete set forth above, such breach shall suspend and toll
the running of the Restricted Period from the date of such breach until such
time as such violation ceases; and

              (v) The term "Restricted Area" means anywhere in North America or
any other country in which BGI is doing business at the time of your termination
of employment.

Nothing in this Section 8 shall be deemed to prohibit you or any of your
Affiliates from owning shares of BGI.

9. You agree that you and your Affiliates will maintain in strict confidence and
will not, directly or indirectly, divulge, transmit, publish, release or
otherwise use or cause to be used in any manner to Compete with or that is
contrary to the interests of BGI, any confidential information relating to BGI's
systems, operations, processes, computer programs and data bases, records,
development data and reports, store designs, quality control specifications,
cost analysis, flow charts, know-how, customer lists, supplier lists, marketing
data, personnel data, or any other information of like nature. You acknowledge
that all information regarding BGI compiled or obtained by, or furnished to, you
in connection with your employment or association with BGI is confidential
information and BGI's exclusive property. Upon demand by BGI, you will surrender
to BGI all original and facsimile records, documents and data in your possession
pertaining to BGI. The foregoing covenant of confidentiality has no temporal,
geographical or territorial limitation.

       Notwithstanding the foregoing, this provision does not apply to the
extent, and only to the extent, such information: (a) is clearly obtainable in
the public domain; (b) becomes obtainable in the public domain, through no fault
of yours; (c) was not acquired by you in connection with your employment or
affiliation with BGI; (d) was not acquired by you from BGI or its
representatives; (e) is required to be disclosed by rule of law or by order of a
court or governmental body or agency; or (f) is reasonably necessary to be
disclosed to defend yourself or assert your rights in connection with any
proceeding to which BGI or its affiliates is a party.

10. The restrictive covenants contained herein shall be construed as independent
of the other provisions of this Agreement, and the existence of any claim or
cause of action that you may have, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by BGI of any of
the restrictive covenants contained herein.

11. You acknowledge that if you breach any of the restrictive covenants
contained herein, the injuries that will be suffered by BGI will be irreparable,
and BGI will not have an adequate remedy at law. You therefore, agree that in
the event of such a breach, BGI shall be entitled to relief by way of injunction
from any court of proper jurisdiction, in addition to all other rights that BGI
may have at law, in equity, or otherwise.

12. In the event of your death, Disability or a Change in Control of BGI, all of
your outstanding options will vest as provided in the applicable plan. In event
of the occurrence of any such events: (i) your employment shall thereupon
terminate; (ii) no other payments will be due to you; and (iii) the noncompete
provisions set forth herein shall remain in effect until December 31, 2003.
"Change in Control" shall have the meaning set forth in the Borders Group, Inc.
Stock Option Plan. "Disability" shall mean that you are unable to perform your
duties and responsibilities by reason of a specific mental or physical illness
or injury and such inability shall


<PAGE>   4
                                      -4-


have existed for an aggregate of at least 180 days in the twelve-month period.
Any question as to the existence of a Disability as to which you and BGI cannot
agree shall be determined in writing by a qualified independent physician
mutually acceptable to you and BGI. If you and BGI cannot agree as to a
qualified independent physician, each shall appoint such a physician and those
two physicians shall select a third who shall make such determination in
writing. Such determination of Disability shall be delivered to BGI and to you
and shall be final and conclusive for all purposes of this agreement.

13. You shall not be entitled to any severance or other payment upon your
employment termination, either prior to or after the expiration of the term of
this Agreement, regardless of the reason for the termination, except that,
subject to Section 12, if, prior to the expiration of the term, either your
employment is terminated by BGI without Cause or you voluntarily resign
following a breach of this Agreement by BGI which is not cured within the time
specified in Section 6, you shall receive the benefits described in Section 6 as
your sole and exclusive remedy.

14. All provisions of this Agreement are intended to be severable. In the event
any provision or restriction contained herein is held to be invalid or
unenforceable in any respect, in whole or in part, such finding shall in no way
affect the validity or enforceability of any other provisions of this Agreement.
The parties hereto further agree that any such invalid or unenforceable
provision shall be deemed modified so that it shall be enforced to the greatest
extent permissible under law, and to the extent that any court of competent
jurisdiction determines any restriction herein to be overly broad or
unenforceable, such court is hereby empowered and authorized to limit such
restriction so that it is enforceable for the longest duration of time and
largest geographical area possible.

15. Any dispute that may exist respecting (i) the interpretation or application
of any provision of the agreement (including, without limitation, the provisions
of this Section) or (ii) your entitlement to payments or other benefits after
termination of your employment shall be resolved by arbitration in Detroit,
Michigan in accordance with the rules of the American Arbitration Association
and judgment on the award may be entered in any court having jurisdiction. If
your position in any such dispute is sustained in the arbitration, BGI will pay
or reimburse you for your expenses in connection with the resolution of such
dispute (including, without limitation, counsel fees and disbursements and other
charges).

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

                                             Sincerely,

                                             BORDERS GROUP, INC.


                                             By:/s/
                                                --------------------------------

 Agreed:

/s/ GEORGE R. MRKONIC
------------------------------------
         George R. Mrkonic


Source: OneCLE Business Contracts.