Document:

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                                                                   EXHIBIT 10.42

                            LEASE GUARANTY AGREEMENT
                                (Rapid City, SD)

         THIS AGREEMENT dated as of the 2nd day of February, 2001, is made in
favor of BB RAPID CITY ASSOCIATES, L.L.C., an Ohio limited liability company
(the "Landlord"), having an address at 1765 Merriman Road, Akron, Ohio 44313, by
BORDERS GROUP, INC., a Michigan corporation ("Guarantor"), having its principal
office at 100 Phoenix Drive, Ann Arbor, Michigan 48108.

                              W I T N E S S E T H:

         Contemporaneously herewith, Landlord, as lessor, is entering into a
certain lease of even date herewith with Borders, Inc., a Colorado corporation,
as lessee ("Tenant"), with respect to the property located in the City of Rapid
City, County of Pennington, and State of South Dakota (the "Lease"), which
property is more particularly described in Exhibit A thereto. Guarantor owns all
of the outstanding capital stock of Tenant and is executing this agreement as an
inducement to Landlord to enter into the Lease.

         NOW THEREFORE, in consideration of the premises, Guarantor, intending
to be legally bound, hereby guarantees as follows:

         1. Guarantor hereby absolutely, unconditionally and irrevocably
guarantees to Landlord the full and punctual performance by Tenant of all of the
terms, conditions, covenants, agreements and obligations to be performed and
observed by Tenant under the Lease (the "Obligations"). This is a Guaranty of
payment and performance, and not of collection, and Landlord shall not be
obligated to enforce or exhaust its remedies against Tenant before proceeding to
enforce this Guaranty. Guarantor does hereby become surety to Landlord for and
with respect to all of the Obligations.

         2. Guarantor hereby covenants and agrees to and with Landlord that if
default shall at any time be made by Tenant in the payment of any such rent or
other sums or charges payable by Tenant under the Lease or in the performance of
any of the covenants, terms, conditions or agreements contained in the Lease,
Guarantor will forthwith pay such rent or other sums or charges to Landlord, and
any arrears thereof, and will forthwith faithfully perform and fulfill all of
such covenants, terms, conditions and agreements and will forthwith pay to
Landlord all damages and all costs and expenses that may arise in consequence of
any default by Tenant under the Lease.

         Guarantor's liability hereunder is direct and may be enforced without
Landlord being required to resort to any other right, remedy or security and
this Guaranty shall be enforceable against Guarantor, without the necessity for
any suit or proceedings on Landlord's part of any kind or nature whatsoever
against Tenant, and, for so long as the Tenant under the Lease is

<PAGE>   2

Border's, Inc., without the necessity of any notice of non-payment,
non-performance or non-observance or the continuance of any such default or of
any notice of acceptance of this Guaranty or of Landlord's intention to act in
reliance hereon or of any other notice or demand to which Guarantor might
otherwise be entitled, all of which Guarantor hereby expressly waives; and
Guarantor hereby expressly agrees that the validity of this Guaranty and the
obligations of Guarantor hereunder shall in no wise be terminated, affected or
impaired by reason of the assertion or the failure to assert by Landlord against
Tenant, of any of the rights or remedies reserved to Landlord pursuant to the
provisions of the Lease.

         If: (i) the Lease or this Guaranty is placed in the hands of an
attorney for enforcement or collection or is enforced or collected through any
legal proceeding; (ii) an attorney is retained to represent Landlord in any
proceeding (including, without limitation, any bankruptcy, reorganization,
receivership or other proceeding affecting creditors' rights) involving a claim
under or related to the Lease or this Guaranty, then Guarantor shall pay to
Landlord upon demand all reasonable attorneys' fees, costs and expenses,
including, without limitation, court costs and filing fees, and all other
reasonable costs and expenses incurred in connection therewith (all of which are
referred to herein as "Enforcement Costs"), in addition to all other amounts due
hereunder.

         3. Guarantor hereby assents to all of the provisions of the Lease and
waives demand, protest, notice of any indulgences or extensions granted to
Tenant, any requirement of diligence or promptness on the part of Landlord in
the enforcement of the Lease and any notice thereof, and any other notice
whereby to charge Guarantor; provided, however, Guarantor shall be furnished
with a copy of any notice of or relating to default under or termination of the
Lease to which Tenant is entitled or which is served upon Tenant at the time the
same is sent to or served upon Tenant. Guarantor shall have no liability for any
penalties, default interest, or other charges required to be paid by Tenant to
Landlord under the Lease in connection with such default unless such notice of
default has been delivered to Guarantor as required herein.

         4. This Guaranty shall be a continuing Guaranty, and (whether or not
Guarantor shall have notice or knowledge of any of the following) the liability
and obligation of Guarantor hereunder shall be absolute and unconditional and
shall remain in full force and effect without regard to and shall not be
released, discharged or in any way impaired by: (a) the release or discharge of
Tenant in any creditors', receivership, bankruptcy proceeding, reorganization,
insolvency, arrangement, readjustment, composition, liquidation, or similar
proceeding relating to Tenant or its properties; (b) any alteration of or
amendment to the Lease or any assignment or transfer thereof; (c) any permitted
sale, assignment, sublease, pledge or mortgage of the rights of Tenant under the
Lease; (d) any application or release of any security or other guaranty given
for the performance and observance of the covenants and conditions in the Lease
on Tenant's part to be performed and observed; (e) any exercise or non-exercise
of any right, power, remedy or privilege under or in respect of the Lease or
this Guaranty or any waiver, consent or approval by Landlord with respect to any
of the covenants, terms, conditions or agreements contained in the Lease or any
indulgences, forbearances or extensions of time for performance or observance
allowed to Tenant from time to time and for any length of time; (f) any
limitation on the liability or obligation of Tenant under the Lease or its
estate in bankruptcy or of any remedy for the

<PAGE>   3

enforcement thereof, resulting from the operation of any present or future
provision of the federal bankruptcy law or any other statute or from the
decision of any court; (g) any sublease or transfer by Tenant or any assignment,
mortgage or pledge of its interest under the Lease; (h) any termination of the
Lease prior to the expiration of its Term; or (i) any agreement entered into
between the Landlord and any assignee or sublessee.

         5. This Agreement shall apply for the primary term of the Lease, and
any extension thereof pursuant to Section 2.2(b) of the Lease for so long as the
Project Loan (as defined in the Lease) and any amounts due and payable under the
Project Loan Agreement are outstanding, but not otherwise.

         6. All of Landlord's rights and remedies under the Lease and under this
Guaranty are intended to be distinct, separate and cumulative and no such right
and remedy therein or herein mentioned is intended to be in exclusion of or a
waiver of any of the others. No termination of the Lease or taking or recovering
of the premises demised thereby shall deprive Landlord of any of its rights and
remedies against Guarantor under this Guaranty.

         7. Guarantor hereby waives any requirement that Landlord protect,
secure, perfect or insure any security interest or lien or any property subject
thereto or exhaust any right to take any action against any person or any
collateral (including any rights relating to marshaling of assets).

         8. The Obligations will be paid strictly in accordance with the terms
of the Lease, regardless of the value, genuineness, validity, regularity or
enforceability of the Obligations, and of any law, regulation or order now or
hereafter in effect in any jurisdiction affecting any of such terms or the
rights of the Landlord with respect thereto. The liability of Guarantor to the
extent herein set forth shall be absolute and unconditional, not subject to any
reduction, limitation, impairment, termination, defense, offset, counterclaim or
recoupment whatsoever (all of which are hereby expressly waived by Guarantor)
whether by reason of any claim of any character whatsoever, including, without
limitation, any claim of waiver, release, surrender, alteration or compromise,
or by reason of any liability at any time to Guarantor or otherwise, whether
based upon any obligations or any other agreements or otherwise, howsoever
arising, whether out of action or inaction or otherwise and whether resulting
from default, willful misconduct, negligence or otherwise, and without limiting
the foregoing irrespective of: (a) any lack of validity or enforceability of the
Lease or of any agreement or instrument relating thereto; (b) any change in the
time, manner or place of payment of, or in any other term in respect of, all or
any of the Obligations, or any other amendment or waiver of or consent to
Obligations, or any other amendment or waiver of or consent to any departure
from the Lease or any other agreement relating to any Obligations; (c) any
increase in, addition to, exchange or release of, or nonperfection of any lien
on or security interest in, any collateral or any release or amendment or waiver
of or consent to any departure from or failure to enforce any other guarantee,
for all or any of the indebtedness; (d) any other circumstance which might
otherwise constitute a defense available to, or a discharge of, Tenant in
respect of the obligations of Guarantor in respect hereof; (e) the absence of
any action on the part of the Landlord to obtain payment for the Obligations
from Tenant; (f) any insolvency, bankruptcy, reorganization or dissolution, or
any proceeding of Tenant or Guarantor, including, without limitation, rejection
of the guaranteed Obligations in

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such bankruptcy; or (g) the absence of notice or any delay in any action to
enforce any Obligations or to exercise any right or remedy against Guarantor or
Tenant, whether hereunder, under any Obligations or under any agreement or any
indulgence, compromise or extension granted.

         9. Guarantor further agrees that, to the extent that Tenant or
Guarantor makes a payment or payments to the Landlord, which payment or payments
or any part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside and/or required to be repaid to Tenant or Guarantor or
their respective estate, trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then to the
extent of such payment or repayment, this Guaranty and the advances or part
thereof which have been paid, reduced or satisfied by such amount shall be
reinstated and continued in full force and effect as of the date of such initial
payment, reduction or satisfaction occurred.

         10. For so long as the Project Loan and any amounts owing by Landlord
to Lender under the Project Loan Documents (as defined in the Lease) remain
outstanding, Guarantor shall have no rights (direct or indirect) of subrogation,
contribution, reimbursement, indemnification or other rights of payment or
recovery from any person or entity (including, without limitation, the Tenant)
for any payments made by the Guarantor hereunder, and Guarantor hereby waives
and releases absolutely and unconditionally, any such rights of subrogation,
contribution, reimbursement, indemnification and other rights of recovery which
it may now or hereafter acquire.

         11. Guarantor represents and warrants to Landlord that (a) the
execution and delivery of this Guaranty has been duly authorized by the Board of
Directors of Guarantor, (b) the making of this Guaranty does not require any
vote or consent of shareholders of Guarantor and (c) Tenant is a wholly owned
subsidiary of Guarantor.

         12. This Agreement shall inure to the benefit of Landlord and its
successors and assigns and any assignee of Landlord's interest in the Lease, and
shall be binding upon Guarantor and its successors and assigns and upon Tenant
and its successors and assigns.

         13. This Agreement may not be changed or terminated orally, but only by
a written instrument signed by the party against whom enforcement of any change
or termination is sought.

         14. Any notice required hereunder to be sent to Guarantor shall be
sufficiently given by mailing by certified or registered mail, postage prepaid,
addressed as follows:

                           Borders Group, Inc.
                           100 Phoenix Drive
                           Ann Arbor, Michigan  48108
                           Attention:  Vice President and General Counsel
<PAGE>   5

         15. This Agreement shall be governed by and construed in accordance
with the laws of the State of Michigan.

         IN WITNESS WHEREOF, Guarantor has duly executed this Agreement by its
duly authorized officer as of the day and year first above written.

                                   BORDERS GROUP, INC., a Michigan corporation

                                   By:/s/ BRUCE A. QUINNELL
                                      ------------------------------------------
                                            Name:    Bruce A. Quinnell
                                            Title:   Vice Chairman

STATE OF MICHIGAN          )
                            SS.
COUNTY OF WASHTENAW        )

         The foregoing instrument was executed before me the _____ day of
__________, 2001, by Bruce A. Quinnell, Vice Chairman of Borders Group, Inc., a
Michigan corporation, on behalf of the corporation.

         IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.

                                      /s/
                                      ------------------------------------------
                                                                   Notary Public

                                                                  LEASE GUARANTY
                                                                  RAPID CITY, SD<PAGE>   1
                                                                   EXHIBIT 10.43

                             ENVIRONMENTAL INDEMNITY

         This ENVIRONMENTAL INDEMNITY (this "Environmental Indemnity") is made
as of this 2nd day of February, 2001, by Borders, Inc., a Colorado corporation
("Borders"), and Borders Group, Inc., a Michigan corporation ("BGI," and
collectively with Borders, the "Indemnitor") to Wilmington Trust Company, not in
its individual capacity, but solely as owner trustee under a certain Collateral
Trust Indenture dated as of January 22, 2001 ("Lender").

                              Preliminary Statement

         I. BB Rapid City Associates, L.L.C., an Ohio limited liability company
("Borrower"), is the owner of the real property located in Rapid City, South
Dakota, legally described in Exhibit A attached hereto (that real property,
together with any additional real property hereafter encumbered by the lien of
the Mortgage (as hereinafter defined) and all improvements now or hereafter
located therein and all rights and interests of Borrower therein, being
hereinafter collectively called the "Premises");

         II. Pursuant to the terms of that certain Project Loan Agreement dated
as of even date herewith between the Borrower and the Lender, concurrently
herewith Lender shall make a loan to Borrower in the amount of $3,702,953.27
(the principal, interest, and all other sums due and owing under the loan being
hereinafter collectively called the "Loan"), which Loan shall be evidenced by a
Project Loan Note by Borrower to Lender (such Project Loan Note, together with
all modifications, increases, and supplements thereof, being hereinafter
collectively called the "Note") and secured by, among other things, a Mortgage
or Deed of Trust made by Borrower to Lender (such Mortgage or Deed of Trust,
together with all modifications, consolidations, increases, supplements, and
spreaders thereof, being hereinafter collectively called the "Mortgage") which
will encumber the Premises (which Note, Mortgage and all other documents
evidencing and securing the Loan are hereinafter collectively called the "Loan
Documents"); and

         III. Concurrently herewith, Borders is entering into that certain Lease
dated as of even date herewith between Borders, as lessee, and the Borrower, as
lessor, pursuant to which Borders shall lease the Premises from Borrower.

         IV. BGI is the sole shareholder of Borders.

         V. To induce Lender to make the Loan to finance the Premises and in
consideration thereof, Indemnitor has agreed to provide certain indemnities;

         NOW, THEREFORE, in consideration of the matters described hereinabove
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Indemnitor agrees as follows:

         Indemnitor shall, at its sole cost and expense, indemnify, defend (with
counsel approved by Lender), protect, and hold harmless Lender and Lender's
officers, trustees, directors, shareholders, employees, and agents (which
officers, trustees, directors, shareholders, employees

                                                         Environmental Indemnity
                                                                  Rapid City, SD

<PAGE>   2

and agents are hereinafter collectively called "Lender's Representatives")
against and from any and all damages, losses, liabilities, obligations,
penalties, claims, sums paid in settlement of claims, litigation, demands,
defenses, judgments, suits, proceedings, costs, disbursements, fines,
encumbrances, liens, and expenses of any kind or of any nature whatsoever
(collectively, the "Indemnified Expenses") that may at any time (including,
without limitation after the repayment of the Loan or after foreclosure of the
Mortgage, exercise of power of sale under the Mortgage, or conveyance of the
Premises in lieu of foreclosure) be imposed upon, incurred by, or asserted or
awarded against, Lender or any Lender Representative and that arise directly or
indirectly from or out of any Environmental Problem (defined below), regardless
of whether that Environmental Problem arises before or after the date hereof or
before or after any repayment of the loan or any conveyance of the Premises by
foreclosure of the Mortgage, exercise of power of sale under the Mortgage, or
conveyance in lieu of foreclosure, regardless (except as provided below) of
whether or not that Environmental Problem is the fault of Borrower, Indemnitor,
or any other person or entity, and regardless of whether or not the
Environmental Problem was disclosed in any Environmental Report (defined below)
performed for, or on behalf of, Lender in connection with the Loan or whether or
not Lender has actual or constructive knowledge of the Environmental Problem
from any other source.

         A. Indemnified Expenses shall, include, without limitation, all of the
following: (i) costs incurred in the removal of Hazardous Substances (defined
below), costs incurred in investigation, monitoring, clean-up, and containment
of Hazardous Substances, costs incurred to mitigate damages, foreclosure costs,
costs incurred for remediation and restoration, and other response costs; (ii)
costs incurred to cure any violations of Environmental Laws (defined below);
(iii) damages for personal injury or death, property loss, or other loss; (iv)
civil and criminal fines and penalties; (v) costs incurred to remove any liens
imposed by law in favor of the federal or any state or local government or
governmental agency or authority in connection with an Environmental Problem;
(vi) reasonable attorneys', accountants', consultants', and experts' fees and
disbursements, reasonable administrative costs, and other reasonable
out-of-pocket expenses (including any such fees, disbursements, costs, and
expenses incurred as a result of groundless, false, or fraudulent claims or
proceedings brought against Lender or Lender's Representatives); (vii)
diminution in the market value of the Premises realized upon the sale thereof,
whether by foreclosure or otherwise; (viii) to the extent the appropriate
governmental authorities have brought claims against Lender or Lender's
Representatives damages for injury to, destruction of, or loss of, natural
resources; (ix) sums paid to tenants and other third parties (or offset against
rents or other sums payable by such tenants and other third parties) for
indemnification pursuant to leases or other agreements wherein such tenants or
other third parties are entitled to indemnification or payment on account of
Environmental Problems or pursuant to statutory or common law; (x) consequential
damages; (xi) sums paid and any other liability to the federal government, any
state or local government, any federal, state, or local governmental authority,
or any other person or entity for any costs described above; (xii) sums paid in
satisfaction of judgments; (xiii) settlement costs; and (xiv) all other costs
and expenses of any kind or nature.

         B. Without limiting Indemnitor's obligations hereunder, in the event of
any Environmental Problem, Lender may, in Lender's sole discretion: (i) by
notice to Indemnitor, obligate Indemnitor to take such action as may be required
by applicable Environmental Laws to correct or ameliorate the Environmental
Problem, in which event Indemnitor shall take such action at Indemnitor's sole
expense; (ii) itself take such action as may be required by applicable
Environmental Laws to correct or ameliorate the Environmental Problem, to the
extent permitted

                                                         Environmental Indemnity
                                                                  Rapid City, SD

<PAGE>   3

under the Loan Documents and under the law, in which event Indemnitor shall
cooperate with Lender and shall indemnify Lender for the reasonable costs
incurred in taking such action in accordance with this Environmental Indemnity;
and/or (iii) exercise any other rights or remedies that Lender may have; but
Lender shall have no obligation to do any of the foregoing. Lender shall have
the options described above whether or not action to correct or ameliorate the
Environmental Problem is ordered by any court, governmental authority, or other
person or entity. For so long as (a) Borrower owns the Premises, (b) neither
Lender nor any other party is operating the Premises under a
mortgage-in-possession or receivership arrangement, and (c) there is no
outstanding default under the documents evidencing and securing the Loan, Lender
shall not be entitled to take the actions described in clause (ii) above unless
Indemnitor fails to commence the actions required pursuant to (i) above within a
reasonable period of time following receipt of Lender's notice or Indemnitor
fails at any time thereafter to diligently pursue such actions.

         C. If the Premises are conveyed by foreclosure of the Mortgage,
exercise of power of the sale under the Mortgage, or conveyance in lieu of
foreclosure (any such conveyance being hereinafter called a "Foreclosure
Conveyance"), then the indemnity provided for under this instrument shall not
apply to any Environmental Problem that arises solely after and not on or before
the date of the conveyance unless the Environmental Problem results in whole or
in part from acts or omissions by Indemnitor or Borrower or from acts or
omissions prior to the date of the conveyance by any other person or entity. The
indemnity provided for under this instrument shall, however, apply to
Indemnified Expenses incurred after the date of the conveyance that arise from
any Environmental Problem in existence on or before the date of the conveyance
or any Environmental Problem otherwise not excluded from coverage under the
immediately preceding sentence, even if that Environmental Problem is not
discovered until after the date of the conveyance. For purposes of this clause
C, a condition in existence on or before the date of the conveyance shall be
deemed to be an Environmental Problem on or before that date even if the
condition becomes an Environmental Problem as a result of a change in
Environmental Laws that becomes effective after that date. Indemnitor shall have
the burden of proving that any Environmental Problem arises after the date of
the conveyance, and if Indemnitor is unable to satisfy such burden of proof,
then Indemnitor's obligations hereunder with respect to that Environmental
Problem shall be effective and shall not be reduced or diminished.

         D. Notwithstanding anything in this instrument to the contrary, the
indemnity provided under this instrument shall not apply to any Indemnified
Expenses to the extent that they result from the gross negligence, willful
misconduct or bad faith of Lender.

         E. Lender shall terminate this Environmental Indemnity effective as of
the first anniversary (the "Repayment Anniversary") of the repayment in full of
the Loan, provided:

            (i)   The repayment shall have been made at a time and in a manner
                  permitted under the Loan Documents;

            (ii)  Indemnitor shall pay to Lender all sums due under this
                  Environmental Indemnity and Indemnitor shall not otherwise be
                  in default under this Environmental Indemnity;

                                                         Environmental Indemnity
                                                                  Rapid City, SD

<PAGE>   4

            (iii) On the Repayment Anniversary, neither Lender nor the then
                  owner of the Premises shall be aware of any Environmental
                  Problem, and the then owner of the Premises shall provide a
                  certification to Lender, in form satisfactory to Lender, to
                  that effect; and

            (iv)  Neither Lender nor any affiliate or subsidiary of Lender shall
                  have at any time or in any manner participated in the
                  management or control of, or taken possession of or title to,
                  the Premises or any portion thereof whether as mortgagee in
                  possession or otherwise, nor shall Lender have taken any
                  action or exercised such dominion and control over the
                  Premises that, in Lender's sole discretion, could cause Lender
                  to be considered an "owner" or "operator" under CERCLA
                  (defined below) or to have similar status under any other
                  Environmental Laws, nor shall any receiver have at any time or
                  in any manner participated in the management or control of, or
                  taken possession of or title to, the Premises or any portion
                  thereof; provided, that this Subsection E(iv) shall only be
                  effective to restrict the termination of this Environmental
                  Indemnity as it applies to the property for which Lender's
                  "owner", "operator" or comparable status is incurred.

If all of the above conditions are satisfied, then Lender shall execute and
deliver to Indemnitor an instrument effecting such termination. No such
termination shall affect any rights or remedies, not derived from this
Environmental Indemnity, that Lender may have against Indemnitor or Borrower
with respect to Environmental Problems.

         F. Lender shall terminate this Environmental Indemnity effective as of
the first anniversary (the "Conveyance Anniversary") of any Foreclosure
Conveyance (defined in paragraph D above), provided:

            (i)   Indemnitor shall pay to Lender all sums due under this
                  Environmental Indemnity and Indemnitor shall not otherwise be
                  in default under this Environmental Indemnity;

            (ii)  as of the date of the Conveyance Anniversary no Environmental
                  Problem is in existence; and

            (iii) On the Conveyance Anniversary, neither Lender nor the then
                  owner of the Premises shall be aware of any Environmental
                  Problem, and the then owner of the Premises shall provide a
                  certification to Lender, in form satisfactory to Lender, to
                  that effect.

If all of the above conditions are satisfied, then Lender shall execute and
deliver to Indemnitor an instrument effecting such termination. No such
termination shall affect any rights or remedies, not derived from this
Environmental Indemnity, that Lender may have against Indemnitor or Borrower
with respect to Environmental Problems.

                  Indemnitor further agrees as follows:

                  1. For purposes of this Agreement:

                                                         Environmental Indemnity
                                                                  Rapid City, SD
<PAGE>   5

                  (a) "Environmental Laws" shall mean any and all present and
         future laws, statutes, ordinances, rules, regulations, orders, and
         determinations of any governmental authority, pertaining to health,
         hazardous substances, natural resources, conservation, wildlife,
         pollution, or the environment, including, without limitation, the
         Comprehensive Environmental Response, Compensation and Liability Act of
         1980, as amended by the Superfund Amendments and Reauthorization Act of
         1986, and as the same may be further amended (hereinafter collectively
         called "CERCLA").

                  (b) "Environmental Problem" shall mean any of the following:

                           (A) the presence, reasonable grounds for the
                  suspected presence, or reasonable grounds for the alleged
                  presence of any Hazardous Substance on, in, under, or above
                  all or any portion of the Premises or any surrounding areas in
                  a quantity or concentration requiring corrective action or
                  remedial action under applicable Environmental Laws; or

                           (B) the release, reasonable grounds for the suspected
                  release, reasonable grounds for the threatened release, or
                  reasonable grounds for the alleged release of any Hazardous
                  Substance from or onto the Premises;

                           (C) the violation, reasonable grounds for the
                  suspected violation, reasonable grounds for the threatened
                  violation, or reasonable grounds for the alleged violation of
                  any Environmental law with respect to the Premises;

                           (D) the failure, reasonable grounds for the suspected
                  failure, reasonable grounds for the threatened failure, or
                  reasonable grounds for the alleged failure to obtain or to
                  abide by the terms or conditions of any permit or approval
                  required under any Environmental Law with respect to the
                  Premises.

         A condition described above shall be deemed to be an Environmental
         Problem regardless of whether or not any federal, state, or local
         governmental authority or agency has taken any action in connection
         with the condition.

                  (c) "Environmental Reports" shall mean: for (A) Phase I
         Environmental Reports, the American Society of Testing and Materials
         Standard E 1527-97, Standard Practice for Environmental Site
         Assessments (or any successor document); and for (B) other reports, a
         report that complies with industry standards and Lender's reasonable
         requirements, and that is prepared by a person or entity with expertise
         in identifying and analyzing Environmental Problems, that reports or
         describes, based on an assessment performed by or on behalf of that
         person or entity, Environmental Problems that are or may be in
         existence with respect to the Premises.

                                                         Environmental Indemnity
                                                                  Rapid City, SD

<PAGE>   6

                  (d) "Hazardous Substances" shall mean any substance that is
         defined or listed as a hazardous, toxic or dangerous substance under
         any present or future Environmental Law or that is otherwise regulated
         or prohibited or subject to investigation or remediation under any
         present or future Environmental Law because of its hazardous, toxic, or
         dangerous properties, including, without limitation, (i) any substance
         that is a "hazardous substance" under CERCLA, (ii) petroleum, natural
         gas, natural gas liquids, liquefied natural gas, and synthetic gas
         usable for fuel (or mixtures of natural gas and such synthetic gas),
         (iii) radioactive materials, and (iv) asbestos.

              2. The obligations of Indemnitor hereunder are independent of the
         obligations of Borrower under the Loan Documents. A separate action or
         actions may be brought and prosecuted against Indemnitor hereunder,
         whether or not an action is brought against Borrower under the Loan
         Documents and whether or not Borrower is joined in any action against
         Indemnitor.

              3. This Environmental Indemnity is not given as additional
         security for the Loan and is entirely independent of the Loan, and
         shall not be measured or affected by any amounts at any time owing
         under the Loan Documents, the sufficiency or insufficiency of any
         collateral (including, without limitation, the Premises) given to
         Lender to secure repayment of the Loan, or the consideration given by
         Lender or any other party in order to acquire the Premises or any
         portion thereof. None of the obligations of Indemnitor hereunder shall
         be in any way secured by the lien of the Mortgage or any other Loan
         Document.

              4. Except as otherwise provided herein, Indemnitor's obligations
         hereunder shall survive repayment of the Loan and shall survive any
         conveyance of the Premises (including, without limitation, any
         Foreclosure Conveyance).

              5. This instrument shall bind Indemnitor and the successors of
         Indemnitor. This instrument shall inure to the benefit of Lender and
         the successors and assigns of Lender (including, without limitation,
         (a) any participants of Lender with respect to the Loan and any person
         or entity to which the Loan is transferred or collaterally assigned,
         (b) any person or entity to which the Premises are conveyed by
         Foreclosure Conveyance (a "Foreclosure Transferee"), and (c) the
         successors and assigns of Lender or any other Foreclosure Transferee as
         owner of the Premises).

              6. The obligations of Indemnitor under this instrument are not
         limited or impaired by any provisions in the Loan Documents exculpating
         Borrower or Borrower's partners from personal liability thereunder or
         limiting Lender's recourse against Borrower of Borrower's partners.

              7. The obligations of Indemnitor under this instrument are not
         limited or impaired by the accuracy or inaccuracy of the
         representations and warranties made by Borrower under the Loan
         Documents.

                                                         Environmental Indemnity
                                                                  Rapid City, SD

<PAGE>   7

              8. Lender shall at all times be free to inspect the Premises and
         to perform such other investigations and tests as Lender deems
         necessary in connection with this Environmental Indemnity (upon not
         less than 24 hours notice except in the event of an emergency), but
         Lender shall not be obligated to do so.

              9. Indemnitor's obligations hereunder shall apply to and include
         claims or actions brought by or on behalf of employees of Borrower and
         Indemnitor, and Indemnitor waives any immunity to which Indemnitor may
         otherwise be entitled under any industrial or worker's compensation
         laws.

              10. If Indemnitor fails to indemnify Lender as provided herein,
         Lender shall be subrogated to any rights Indemnitor may have against
         third parties relating to the matters covered by this instrument.

              11. The rights of Lender under this Environmental Indemnity shall
         be in addition to any other rights and remedies of Lender against
         Indemnitor under any other document or instrument now or hereafter
         executed by Indemnitor, or at law or in equity (including, without
         limitation, any right of reimbursement or contribution pursuant to
         CERCLA), and shall not in any way be deemed a waiver of any of such
         rights; provided, that nothing in this paragraph shall be construed to
         permit a double recovery from Indemnitor.

              12. Indemnitor may settle any action or proceeding covered hereby
         only with Lender's prior written consent.

              13. Any defense of Lender by Indemnitor hereunder shall be
         conducted by attorneys reasonably satisfactory to Lender. If the
         interests of Lender and Indemnitor in any action or proceeding conflict
         in such a manner and to such an extent as to require, consistent with
         applicable standards of professional responsibility, the retention of
         separate counsel for Lender and Indemnitor, then Lender may retain
         Lender's own counsel at Indemnitor's expense.

              14. Indemnitor shall pay to Lender, immediately upon demand
         therefor, interest on any payment due from Indemnitor to Lender
         hereunder from the date such payment is demanded by Lender to and
         including the date of payment at the "Prime Rate" in effect from time
         to time as published by The Wall Street Journal.

              15. Indemnitor shall pay Lender's attorneys' fees and all other
         costs and expenses incurred by Lender in the enforcement of this
         instrument or the collection of any sums due under this instrument.

              16. Indemnitor shall, at Lender's request from time to time,
         provide Lender with copies of any general liability, environmental
         impairment, and other insurance policies held by Indemnitor that may
         cover any of Indemnitor's obligations hereunder.

              17. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
         HEREUNDER SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED AND
         ENFORCED IN ACCORDANCE

                                                         Environmental Indemnity
                                                                  Rapid City, SD

<PAGE>   8

         WITH, THE LAWS OF THE STATE IN WHICH THE PREMISES ARE LOCATED.

              18. Any notice, request, demand, consent, approval, or other
         communication under this instrument (collectively "Notice") shall be in
         writing, signed by the party giving such Notice and shall be sent by
         registered or certified mail, postage prepaid, return receipt
         requested, addressed to the party for whom it is intended at its
         address as follows (as that address may be changed as hereinafter
         provided):

         If to Indemnitor:         Borders Group, Inc.
                                   100 Phoenix Drive
                                   Ann Arbor, MI  48104
                                   Attn:  General Counsel

         With a copy to:           Dickinson Wright PLLC
                                   38525 Woodward Avenue
                                   Bloomfield Hills, MI  48304
                                   Attn:  Judith E. Gowing

         If to Lender:             Wilmington Trust Company
                                   Rodney Square North
                                   1100 North Market Street
                                   Wilmington, DE  19890-0001
                                   Attn:  Corporate Trust Administration

         With a copy to:           McDermott, Will & Emery
                                   227 West Monroe Street
                                   Chicago, IL 60606
                                   Attn:  Elizabeth L. Majers

         Notice shall be deemed given on the third day after the same is
         deposited in an official United States post office. Any party may from
         time to time, by Notice to the other party given as above set forth,
         change its address for purposes of receipt of any such Notice.

              19. Indemnitor represents to Lender that Indemnitor is unaware of
         any Environmental Problem. Indemnitor shall promptly notify Lender in
         writing of any Environmental Problem of which Indemnitor becomes aware.

              20. If there is more than one Indemnitor: (a) the obligations of
         each Indemnitor are joint and several; (b) a release of any one or more
         Indemnitors or any limitation of this Agreement in favor of or for the
         benefit of one or more Indemnitors shall not in any way be deemed a
         release of or limitation in favor of or for the benefit of any other
         Indemnitor; (c) the unenforceability for any reason of this instrument
         against one or more Indemnitors shall not affect or impair the
         obligations hereunder of any remaining Indemnitor; and (d) a separate
         action hereunder may be brought and prosecuted against one or more
         Indemnitors. Each

                                                         Environmental Indemnity
                                                                  Rapid City, SD

<PAGE>   9

         Indemnitor shall have no right of contribution (including, without
         limitation, any right of contribution under CERCLA) or subrogation
         against any other Indemnitor hereunder unless and until all obligations
         of such Indemnitor have been satisfied. To the extent that any waiver
         of an Indemnitor's rights of subrogation and contribution as set forth
         herein is found by a court of competent jurisdiction to be void or
         voidable for any reason, then those rights of subrogation or
         contribution shall in any event be junior and subordinate to the rights
         of Lender against any Indemnitor hereunder.

              21. Indemnitor authorizes Lender without notice or demand and
         without affecting Indemnitor's liability hereunder from time to time
         to: (a) change any of the terms of the Loan Documents or release
         Borrower from any obligations thereunder; (b) take and hold additional
         security for the payment of the indebtedness evidenced by the Loan
         Documents, and exchange, enforce, waive and release any such security;
         (c) release from the lien of the Mortgage all or part of the Premises;
         or (d) apply the Premises and direct the order or manner of sale
         thereof as Lender in its discretion may determine. Indemnitor's
         liability hereunder shall also not be affected by any such change,
         release, or application that arises by operation of law; provided, that
         in the event BGI no longer owns a controlling interest in Borders, BGI
         shall have received written notice of any change in the terms of the
         Loan Documents as referenced in the foregoing clause (a).

              22. Indemnitor waives:

                  (a) Presentment, demand, protest, notice of protest, notice of
         dishonor and notice of non-payment, non-performance or non-observance,
         and notice of acceptance of this instrument;

                  (b) The right, if any, to the benefit of, or to direct the
         application of, any security held by Lender, including the Premises;
         and, until all of the indebtedness evidenced by the Note has been paid
         in full, all rights of subrogation, any right to enforce any remedy
         which Lender now has or hereafter may have against Borrower, and any
         right to participate in any security now or hereafter held by Lender;

                  (c) The right to require Lender to proceed against Borrower or
         to proceed against any security now or hereafter held by Lender or to
         pursue any other remedy in Lender's power;

                  (d) The benefits, if Indemnitor is entitled to any benefits,
         of any or all anti-deficiency statutes or single-action legislation;

                  (e) Any defense arising out of the absence, impairment, or
         loss of any right of reimbursement or subrogation or other right or
         remedy of Indemnitor against Borrower or against any security resulting
         from the exercise of election of any remedies by Lender, including a
         judicial foreclosure or the exercise of the power of sale under the
         Mortgage, and any defense arising by reason of any

                                                         Environmental Indemnity
                                                                  Rapid City, SD

<PAGE>   10

         disability or other defense of Borrower or by reason of the cessation,
         from any cause, of the liability of Borrower;

                  (f) The benefit of or right to assert any statute of
         limitations affecting Indemnitor's liability hereunder or the
         enforcement thereof to the extent permitted by law;

                  (g) Any homestead exemption rights;

                  (h) Any right to deferral or modification of Indemnitor's
         obligations hereunder by reason of any bankruptcy, reorganization,
         arrangement, moratorium, or other debtor relief proceeding regarding
         Indemnitor; and

                  (i) Any defense arising out of any bankruptcy, reorganization,
         arrangement, moratorium, or other debtor relief proceeding regarding
         Borrower, or the death of Borrower.

              23. Subject to paragraph 5 hereof, no party shall be a third-party
         beneficiary hereunder, and no provision hereof shall operate or inure
         to the use and benefit of a third party.

              24. Indemnitor expressly hereby waives all rights to a trial by
         jury in any action, counterclaim or proceeding based upon, or related
         to, the subject matter of this Environmental Indemnity. This waiver
         applies to all claims against all parties to such actions and
         proceedings, including parties who are not parties to this
         Environmental Indemnity. This waiver is knowingly, intentionally, and
         voluntarily made by Indemnitor and Indemnitor expressly acknowledges
         that neither Lender nor any person acting on behalf of Lender has made
         any representations of fact to induce this waiver of trial by jury or
         in any way to modify or nullify its effect. Indemnitor further
         acknowledges that Indemnitor has been represented (or has had the
         opportunity to be represented) in the signing of this Environmental
         Indemnity and in the making of this waiver by independent legal
         counsel, selected of Indemnitor's own free will, and that Indemnitor
         has had the opportunity to discuss this waiver with counsel. Indemnitor
         further acknowledges that Indemnitor has read and understands the
         meaning and ramifications of this Environmental Indemnity and,
         specifically, this waiver provision.

              25. Any (a) rights and claims that Indemnitor may now have or
         hereafter acquire against Borrower or any other guarantor of all or any
         of the Loan that arise from the existence or performance of
         Indemnitor's obligations under this Environmental Indemnity, including,
         without limitation, any right of subrogation, reimbursement,
         exoneration, contribution, or indemnification, and any right to
         participate in any claim or remedy of Lender against Borrower or any
         collateral which Lender now has or hereafter acquires (all such claims
         and rights are referred to as "Indemnitor's Conditional Rights"), and
         (b) other indebtedness of Borrower now or hereafter owed to or held by
         Indemnitor (all such other indebtedness is referred to as
         "Indemnitor-Borrower Indebtedness") shall be

                                                         Environmental Indemnity
                                                                  Rapid City, SD
<PAGE>   11

         subordinate to Lender's right to full payment and performance of the
         Loan and shall not be enforced unless and until the Loan is fully paid
         and performed. If, notwithstanding the foregoing provisions, any amount
         shall be paid to any Indemnitor hereunder on account of any such
         Indemnitor's Conditional Rights or Indemnitor-Borrower Indebtedness and
         either (i) such amount is paid to such Indemnitor at any time when the
         Loan shall not have been paid or performed in full, or (ii) regardless
         of when such amount is paid to such Indemnitor, any payment made by
         Borrower to Lender is at any time determined to be a Preferential
         Payment (as hereinafter defined), then such amount paid to such
         Indemnitor shall be held in trust for the benefit of Lender and shall
         forthwith be paid to Lender to be credited and applied upon the Loan,
         whether matured or unmatured, in such order as Lender, in its sole and
         absolute discretion, shall determine. As used herein, the term
         "Preferential Payment" shall mean any payment all or any part of which
         is subsequently invalidated, declared to be fraudulent or preferential,
         set aside or required to be repaid by Lender or paid over to a trustee,
         receiver or any other entity, whether pursuant to any bankruptcy act or
         otherwise.

              26. If Borrower pays any sum otherwise payable by Indemnitor
         hereunder and if such sum must be repaid to Borrower pursuant to any
         bankruptcy or insolvency law, then Indemnitor's obligation to pay such
         sum hereunder shall not be diminished and shall continue in full force
         and effect.

              27. If any term of this Environmental Indemnity or any application
         of any such term shall be invalid, illegal, or unenforceable, the
         remainder of this Environmental Indemnity and any other application of
         such term shall remain effective.

              28. No delay in exercising any right or power hereunder shall
         operate as a waiver, and no waiver of any right or power or consent by
         Lender shall be valid unless in writing. The failure of Lender to
         insist upon strict compliance with any of the terms of this
         Environmental Indemnity shall not be considered to be a waiver of any
         such terms, nor shall it prevent Lender from insisting upon strict
         compliance with this Environmental Indemnity at any time thereafter.

              29. No provision of this Environmental Indemnity may be changed,
         waived, discharged or terminated except by an instrument in writing
         signed by the party against whom enforcement of the change, waiver,
         discharge, or termination is sought.

                [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

                                                         Environmental Indemnity
                                                                  Rapid City, SD

<PAGE>   12

         IN WITNESS WHEREOF, Indemnitor has caused this instrument to be
executed as of the date first written above.

                                          BORDERS, INC.

                                          By:/s/ EDWARD W. WILHELM
                                             -----------------------------------
                                          Name:    Edward W. Wilhelm
                                          Its:     Vice President

                                          BORDERS GROUP, INC.

                                          By:/s/  BRUCE A. QUINNELL
                                             -----------------------------------
                                          Name:    Bruce A. Quinnell
                                          Its:     Vice Chairman

                                                         Environmental Indemnity
                                                                  Rapid City, SD

<PAGE>   13

                                 ACKNOWLEDGMENTS

STATE OF MICHIGAN          )
                           ) SS
COUNTY OF ___________      )

         The foregoing instrument was executed before me this _____ day of
January, 2001 by Bruce A. Quinnell, Vice Chairman of Borders Group, Inc., a
Michigan corporation, on behalf of the corporation.

                                    /s/
                                    -------------------------------------
                                    Notary Public
                                    ____________________ County, Michigan
                                    My Commission Expires:_______________

STATE OF MICHIGAN          )
                           ) SS
COUNTY OF ___________      )

         The foregoing instrument was executed before me this _____ day of
January, 2001 by Edward W. Wilhelm, Vice President of Borders, Inc., a Colorado
corporation, on behalf of the corporation.

                                    /s/
                                    -------------------------------------
                                    Notary Public
                                    ____________________ County, Michigan
                                    My Commission Expires:_______________

                                                         Environmental Indemnity
                                                                  Rapid City, SD

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