<PAGE>
As filed with the Securities and Exchange Commission on September 24, 1998
Registration No. 333-_______
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
---------------------------
barnesandnoble.com inc.
(Exact Name of Registrant as Specified in Its Charter)
---------------------------
<TABLE>
<S> <C> <C> <C>
Delaware 5735 13-3926499
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
---------------------------
76 Ninth Avenue, 11th Floor
New York, New York 10011
(212) 414-6000
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
---------------------------
Stephen Riggio
Chief Executive Officer
76 Ninth Avenue, 11th Floor
New York, New York 10011
(212) 414-6000
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
---------------------------
Copies to:
Jay M. Dorman, Esq. Robert E. Buckholz, Jr., Esq.
Robinson Silverman Pearce Aronsohn & Berman LLP Sullivan & Cromwell
1290 Avenue of the Americas 125 Broad Street
New York, New York 10104 New York, New York 10004
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
CALCULATION OF REGISTRATION FEE
================================================================================
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<CAPTION>
<S> <C> <C> <C>
Title Of Each Class Of Securities Proposed Maximum Aggregate Amount Of
To Be Registered Offering Price(1) Registration Fee
- --------------------------------------------------------------------------------
Class A Common Stock, par value $.01
per share........................................ $100,000,000 $29,500
</TABLE>
================================================================================
(1) Estimated solely for the purpose of calculating the registration fee.
---------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this Registration Statement
shall become effective on such date as the Commission, acting pursuant to such
Section 8(a), may determine.
================================================================================
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
SUBJECT TO COMPLETION, DATED SEPTEMBER 24, 1998
______ Shares
barnesandnoble.com inc.
Class A Common Stock
(par value $.01 per share)
------------------------
All of the shares of Class A Common Stock offered hereby are being sold by
the Company. ---------------------
The Company is currently wholly owned by Barnes & Noble, Inc. and, upon
completion of the Offering, Barnes & Noble, Inc. will beneficially own 100% of
the _____ shares of outstanding Class B Common Stock of the Company. Holders of
Class A Common Stock generally have rights identical to holders of Class B
Common Stock, except that holders of Class A Common Stock are entitled to one
vote per share and holders of Class B Common Stock are entitled to 10 votes per
share on all matters subjected to a vote of shareholders. Holders of Class A
Common Stock are generally entitled to vote with the holders of Class B Common
Stock as one class on all matters as to which the Class B Common Stock is
entitled to vote. Following the Offering, the shares of Class B Common Stock
beneficially owned by Barnes & Noble, Inc. will represent approximately ___% of
the combined voting power of all shares of voting stock (approximately ___% if
the Underwriters' over-allotment option is exercised in full) and Barnes &
Noble, Inc. will be able to exercise control over all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions, and over the Company's dividend policy and
access to capital. Each share of Class B Common Stock is convertible into one
share of Class A Common Stock at the option of Barnes & Noble, Inc. See "Risk
Factors-- Control by Principal Stockholder", "--Relationship with Barnes &
Noble; Potential Conflicts of Interest; Receipt of Certain Benefits" and
"Description of Capital Stock".
Prior to the Offering, there has been no public market for the Class A
Common Stock. For factors to be considered in determining the initial public
offering price, see "Underwriting".
See "Risk Factors" beginning on Page 7 for certain considerations relevant
to an investment in the Class A Common Stock.
The Company intends to file an application to have the Class A Common Stock
listed on the Nasdaq National Market, under the symbol "BOOK".
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
Price to Underwriting Discounts Proceeds to
Public and Commissions(1) Company(2)
------ ------------------ ----------
<S> <C> <C> <C>
Per share....................... $ $ $
Total(3)........................ $ $ $
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting".
(2) Before deducting estimated expenses of $__________ payable by the Company.
(3) The Company has granted the Underwriters an option for ___ days to purchase
up to an additional ____ shares at the initial public offering price, less
the underwriting discount, solely to cover over-allotments. If such option
is exercised in full, the total initial public offering price, underwriting
discount and proceeds to Company will be $_________, $________ and
$_________, respectively. See "Underwriting".
------------------------
The shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that the shares
will be ready for delivery in New York, New York, on or about ____________,
1998, against payment therefor in immediately available funds.
Goldman, Sachs & Co. Salomon Smith Barney
------------------------
The date of this Prospectus is ____________,
<PAGE>
[ARTWORK]
barnesandnoble.com, Express Lane(sm), the BN Top 100(sm) and
E-nnouncements(sm) are trademarks and service marks of the Company. This
Prospectus contains other product names, trade names, trademarks and service
marks of the Company and of other organizations, all of which are the property
of their respective owners.
------------------------
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN
SUCH SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE
OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
-2-
<PAGE>
PROSPECTUS SUMMARY
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in Risk Factors and elsewhere in this Prospectus.
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the financial statements
of the Company and the notes thereto appearing elsewhere in this Prospectus.
Unless the context otherwise requires, each reference to: (i) the "Company"
refers to barnesandnoble.com inc. ("barnesandnoble.com"); and (ii) "Barnes &
Noble" refers to Barnes & Noble, Inc. See "Recapitalization" for a description
of the predecessor companies included in barnesandnoble.com. Unless otherwise
indicated, the information contained in this Prospectus, including all financial
information, assumes that: (i) the Underwriters' over-allotment option is not
exercised; and (ii) the Recapitalization (as defined and described in
"Recapitalization") has been completed.
The Company
barnesandnoble.com is a leading online retailer of books and information
related products. Since opening its online bookstore in March 1997, the Company
has sold books to over 700,000 customers in 175 countries. Exclusive marketing
agreements with major portal and content Web sites, such as America Online
("AOL"), Microsoft, Lycos, ZDNet and CNN, have extended the exposure of the
Company's online bookstore significantly. The Company has also established
remote storefronts by creating links with over 25,000 affiliate Web sites.
According to the Media Metrix measurement of Web site traffic for August 1998,
the Company's Web site is the sixth largest shopping site and, for the first six
months of 1998, one of the top 25 fastest growing Web sites in the world.
barnesandnoble.com has created a model for e-commerce based upon a
compelling value proposition. Its online bookstore offers customers an
easy-to-search catalog of virtually every book in print, rich editorial
content, community experience, deep discounts, secure ordering and fast
delivery. It recently introduced several major enhancements to its online
bookstore, including Express Lane(sm) one-click ordering, e-mail book reviews, a
powerful search engine and a software superstore.
The new arena of e-commerce provides retailers with the opportunity to
serve a rapidly growing market because consumers are increasingly accepting the
Internet as an alternative shopping channel. According to A.C.
Nielsen/CommerceNet, 70 million U.S. adults (aged 16+) are now using the
Internet, up from 49 million in 1997. Neilsen reports that 20 million Americans
have conducted an online e-commerce transaction and that 48 million Americans
are using the Internet to make shopping decisions. The Company believes that
these figures will grow substantially as Internet use becomes easier and more
pleasurable through higher speed access.
The Internet also provides e-commerce companies with an opportunity to
serve a global market. Jupiter Communications estimates that the number of
Internet-connected households worldwide will grow from approximately 45 million
at the end of 1998 to approximately 66 million by the end of 2000. The
International Data Corporation ("IDC") estimates that the number of Web users
worldwide will exceed 95 million by the end of 1998 and will grow to over 170
million users by the end of 2000.
The U.S. book market was $25.8 billion in 1996 and is expected to grow to
$31.4 billion by the year 2000, according to Veronis Suhler. According to
Euromonitor, worldwide book sales were approximately $82 billion in 1996 and are
expected to grow to approximately $90 billion by the year 2000. The Company's
early history with non-U.S. consumers indicates that the demand for U.S.
published books abroad is large and relatively untapped.
The book business is well suited for e-commerce because an online
bookseller has virtually unlimited shelf space and can offer consumers the
convenience of browsing through a vast database of books. The use of
sophisticated search engines and personalized services enables users to locate
books with unparalleled convenience and speed and to get advance notice about
titles in their areas of interest. Editorial content, such as synopses,
excerpts, book reviews and editorial recommendations, make for a more-educated
book-buying decision. The Company believes that the
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<PAGE>
presence of an online bookstore on consumers' desktops will stimulate demand and
expand the marketplace. Additionally, the Company believes that new technology,
such as portable electronic books and print-on-demand publishing, will greatly
add to the range of content that an online bookseller can offer.
The Company believes that its strategic relationship with Barnes & Noble
provides it with the following meaningful advantages relative to other online
booksellers: (i) the superior brand recognition of the Barnes & Noble trade
name, which is a strong motivating factor in attracting customers, especially
with regard to the post-early adopter market of consumers who have yet to make a
purchase online; (ii) the use of Barnes & Noble's state-of-the- art distribution
center as its primary supplier enabling the Company to offer over 650,000
in-stock titles for fast delivery, which represents the largest standing
inventory of any bookseller online; (iii) the ability to offer such a large
selection without the investment in inventory and the ongoing expenses related
to the management of such inventory; (iv) benefitting from a higher gross margin
as the Company sources significantly less merchandise through wholesalers; (v)
the enterprise value of the Barnes & Noble trade name, inclusive of its network
of over 500 retail superstores, which is a strong factor in negotiating with
online portal, content and media companies; (vi) access to the substantial
bookselling knowledge and experience of Barnes & Noble's management; and (vii)
the ability to leverage Barnes & Noble's considerable experience and expertise
in direct marketing.
Furthermore, in addition to its relationship with Barnes & Noble, the
Company believes that its distinguishing competitive advantages include
barnesandnoble.com's: (i) leading-edge online bookstore which has recently been
enhanced and upgraded to include a more powerful search engine, streamlined
navigation, Express Lane(sm) one-click ordering, E-nnouncements(sm) e-mail
customer notification services and a "software superstore," which includes a
strategic alliance with Intel; (ii) offering of the largest standing inventory
and the fastest shipping on the largest number of book titles of any online
bookseller; (iii) strategic marketing agreements with leading high-traffic
Web sites, such as Lycos, ZDNet, Web Crawler, Disney, The New York Times,
Pathfinder, CNN and USA Today and its four-year agreement with AOL, pursuant to
which the Company is the exclusive bookseller on AOL's online service, the
single largest online channel of any kind, serving approximately 13 million
members; and (iv) affiliate network of over 25,000 independent-party Web sites
which contain "remote storefronts" that link users of each of these Web sites to
the Company's online bookstore.
barnesandnoble.com's operating strategy is to rapidly build its brand and
customer base by: (i) continually improving the user experience of its online
bookstore; (ii) expanding the editorial content of its book database; (iii)
introducing interactive features that foster a community built around books and
authors; (iv) strengthening and expanding strategic alliances with major portals
and high-traffic Web sites; (v) increasing the number of Web sites in its
affiliate network; (vi) expanding its product offerings to include complementary
information products; (vii) investing in technologies to further develop a
state-of-the-art, interactive e-commerce platform and industry leading customer
service, fulfillment and logistics systems; and (viii) leveraging its strategic
relationship with Barnes & Noble.
Prior to the effectiveness of this Prospectus, all outstanding indebtedness
of the Company owed to Barnes & Noble will be converted into a capital
contribution by Barnes & Noble to the Company; as of August 1, 1998 that amount
was $67.5 million. Barnes & Noble will contribute an additional $100 million to
the Company prior to the Offering and, following the Offering, the Company
intends to enter into an agreement with Barnes & Noble whereby Barnes & Noble
will make a $100 million revolving credit facility available to the Company on
terms no less favorable to the Company than the Company would receive from an
unaffiliated third party.
barnesandnoble.com was originally incorporated on January 14, 1997 in the
State of Delaware under the name Barnes & Noble Online, Inc. See
"Recapitalization." The Company's principal executive offices are located at 76
Ninth Avenue, 11th floor, New York, New York 10011. The Company's phone number
is 212-414-6000, its online bookstore is located at www.barnesandnoble.com and
on AOL at AOL, keyword bn.
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<PAGE>
The Offering
Class A Common Stock offered hereby.................... __________ shares
Common Stock to be outstanding after the Offering:
Class A Common Stock................................. __________ shares (1)
Class B Common Stock (2)............................. __________ shares
Use of proceeds........................................ To fund anticipated
operating losses,
including sales and
marketing expenses
and payments due
under strategic
alliances;
enhancements to the
Company's online
bookstore and other
capital expenditures;
working capital; and
other general
corporate purposes,
including possible
investments in
complementary
businesses and
acquisitions. See
"Use of Proceeds."
Voting Rights.......................................... The holders of Class
A Common Stock
generally have rights
identical to holders
of Class B Common
Stock, except that
holders of Class A
Common Stock are
entitled to one vote
per share and holders
of Class B Common
Stock are entitled to
ten votes per share.
Holders of both
classes of Common
Stock generally will
vote together as a
single class on all
matters presented to
the stockholders for
their vote or
approval except as
otherwise required by
applicable Delaware
law. See "Risk
Factors--Control by
Principal
Stockholder" and
"Description of
Capital Stock--Common
Stock."
Proposed Nasdaq National Market
("Nasdaq") symbol ................................... "BOOK"
- -------------
(1) Excludes options to purchase _____ shares of Class A Common Stock under the
1998 Incentive Plan which will be outstanding as of the closing of the
Offering. See "Management--1998 Incentive Plan" and "Description of Capital
Stock."
(2) Shares of Class B Common Stock are convertible at any time into shares of
Class A Common Stock on a one-for-one basis. See "Description of Capital
Stock."
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<PAGE>
Summary Financial Data
(in thousands of dollars, except per share data)
The summary financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and notes thereto appearing elsewhere
in this Prospectus. The Company's fiscal year is comprised of 52 or 53 weeks,
ending on the Saturday closest to the last day of January. The reporting period
for the fiscal year ended January 31, 1998 ("Fiscal Year 1997") contained 52
weeks.
<TABLE>
<CAPTION>
26 weeks
ended
---------------------------------
(unaudited)
Fiscal Year August 2, August 1,
1997 1997 1998
------------------ ------------------ --------------
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Statement of Operations Data:
Net sales............................................ $ 14,601 $ 2,383 $ 21,870
Operating loss....................................... (15,647) (2,580) (36,607)
Net loss............................................. (9,232) (1,522) (21,599)
Basic and diluted net loss per share (1).............
Basic and diluted weighted average shares
outstanding(1)..................................
As of August 1, 1998
------------------------------------------------
(unaudited)
As of Pro forma
January 31, Pro as ad-
1998 Actual forma (2) justed (3)
----------------- ----------------- --------- -------------
Balance Sheet Data:
Cash and cash equivalents............................ $ -- $ -- $ 100,000
Working capital...................................... (71) 3,456 103,456
Total assets......................................... 37,076 46,176 146,176
Stockholders' equity (4)............................. 24,224 36,628 136,628
(1) For a description of the basic and diluted earnings per share ("EPS")
calculations and the basic and diluted weighted average shares outstanding,
see Note 2 of Notes to Financial Statements.
(2) Adjusted to give effect to the $100 million capital contribution from
Barnes & Noble to the Company, to be effected prior to the consummation of
the Offering. See "Recapitalization."
(3) Adjusted to give effect to the sale of the _________ shares of Class A
Common Stock offered by the Company hereby, at an assumed initial public
offering price of $_____ per share after deducting the estimated
underwriting discount and offering expenses payable by the Company. See
"Use of Proceeds" and "Capitalization."
(4) Gives retroactive effect to conversion of the outstanding indebtedness of
the Company to Barnes & Noble into a capital contribution. See
"Recapitalization."
-6-
<PAGE>
RISK FACTORS
The following risk factors, as well as the other information contained in
this Prospectus, should be considered carefully before purchasing the Class A
Common Stock offered hereby. This Prospectus contains forward-looking statements
that address, among other things, the Company's business strategy, use of
proceeds, projected capital expenditures, liquidity, possible business
relationships, and possible effects of changes in government regulation. These
statements may be found under "Prospectus Summary," "Risk Factors," "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and "Business" as well as in this Prospectus generally.
Actual events or results may differ materially from those discussed in
forward-looking statements as a result of various factors, including those
factors discussed below and set forth in this Prospectus generally.
Limited Operating History; Accumulated Deficit; Anticipated Losses
The Company launched its online bookstore in March 1997. Accordingly, the
Company has only a limited operating history upon which an evaluation of the
Company and its prospects can be based. In addition, the Company accumulated net
losses of $30.8 million as of August 1, 1998, primarily as a result of its
strategic investments. The Company anticipates incurring significant additional
costs to fund increased marketing initiatives, additional strategic alliances,
enhancements to the Company's online bookstore, and technological and hardware
improvements. Although the Company anticipates increases in revenues,
significant operating losses are anticipated for at least the foreseeable
future. To the extent that such expenses do not result in appropriate revenue
increases, the Company's business may be materially adversely affected.
Competition
Both the e-commerce market and retail bookselling business are highly
competitive. Since the introduction of e-commerce to the Internet, the number of
e-commerce Web sites competing for customers' attention has increased rapidly.
The Company expects future competition to intensify given the relative ease with
which new Web sites can be developed. The Company currently competes with
numerous booksellers including other Internet-based companies, such as
Amazon.com, and traditional book retailers.
The Company believes that the primary competitive factors in e-commerce are
brand recognition, site content, ease of use, price, fulfillment speed, customer
support and reliability. The Company's success will depend heavily upon its
ability to provide a compelling and satisfying shopping experience. Other
factors that will affect the Company's success include the Company's continued
ability to attract experienced marketing, technology, operations and management
talent. One of the Company's main competitors has a longer online operating
history and a larger existing customer base than the Company. The Company is
aware that certain of its competitors have and may continue to adopt aggressive
pricing and marketing strategies. Increased competition may adversely affect
operating margins and result in loss of market share and a diminished brand
franchise. The nature of the Internet as an electronic marketplace (which may,
among other things, facilitate competitive entry and comparison shopping) may
render it inherently more competitive than traditional retailing formats. See
"Business-Competition."
Management of Growth
Recent growth has placed, and is expected to continue to place, a
significant strain on the Company's managerial, operational and technical
resources. The Company expects operating expenses and staffing levels to
increase substantially in the future. To manage its growth, the Company must
expand its operational and technical capabilities and manage its employee base
while effectively administering multiple relationships with various third
parties. There can be no assurance that the Company will be able to manage its
expanding operations effectively. Any failure of the Company to implement
cohesive management and operating systems, add resources on a cost effective
basis or manage the Company's expansion could have a material adverse effect on
the Company's business.
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<PAGE>
Potential Fluctuations in Quarterly Results
The Company expects to experience significant fluctuations in future
quarterly operating results that may be caused by many factors, including the
following: (i) the pace of development of the market for e-commerce; (ii)
changes in pricing policies by the Company or its competitors; (iii) changes in
the level of marketing and other operating expenses to support future growth;
(iv) the extent of international expansion; (v) seasonal trends; (vi)
competitive factors; and (vii) general economic conditions. Consequently, the
Company believes that period-to-period comparisons of its operating results will
not necessarily be meaningful and should not be relied upon as any indication of
future performance. It is likely that the Company's future quarterly operating
results from time to time will not meet the expectations of securities analysts
or investors, which may have a material adverse effect on the market price of
the Class A Common Stock.
Control by Principal Stockholder
Upon the consummation of the Offering, Barnes & Noble will beneficially own
all of the Class B Common Stock which will, following the closing of the
Offering, represent approximately ___% of the outstanding Common Stock
(approximately ____% if the Underwriter's over-allotment option is exercised in
full) and approximately ___% of the voting power of the Common Stock
(approximately ___% if the Underwriter's over-allotment option is exercised in
full). As a result, Barnes & Noble will be able to exercise control over all
matters requiring stockholder approval, including the election of directors and
approval of significant corporate transactions. This concentration of ownership
may have the effect of delaying or preventing a change in control of the
Company. See "--Relationship with Barnes & Noble; Potential Conflicts of
Interest; Receipt of Certain Benefits," "--Dependence on Key Supplier,"
"Business--Relationship With Barnes & Noble," "Management," "Principal
Stockholders," "Certain Transactions with Barnes & Noble" and "Description of
Capital Stock."
Relationship with Barnes & Noble; Potential Conflicts of Interest; Receipt of
Certain Benefits
Barnes & Noble's continuing beneficial ownership of a majority of the
voting power of the Common Stock and the ownership of Barnes & Noble common
stock by directors and officers of the Company or their service as directors or
officers of both the Company and Barnes & Noble, could create conflicts of
interest when those directors and officers are faced with decisions that could
have different implications for the Company and Barnes & Noble, including
potential acquisitions of businesses, effects of competition, the issuance or
disposition of securities, the election of new or additional directors, the
payment of dividends by the Company and other matters. The Company has not
instituted any formal plan or arrangement to address potential conflicts of
interest that may arise among the Company, Barnes & Noble and their affiliates.
However, under Delaware corporate law, officers and directors of the Company owe
fiduciary duties to the Company and its stockholders.
In addition, the Company obtains certain products and services from Barnes
& Noble, including obtaining the benefits of Barnes & Noble's purchasing
discounts, state-of-the-art distribution center, proprietary book title database
and the promotion of the online bookstore throughout Barnes & Noble's mail-order
catalogs. The inability of the Company to obtain these products or services for
any reason, including any termination of the agreements between the Company and
Barnes & Noble with respect to such products and services, could materially
adversely affect the Company's business. The Company also receives certain tax
benefits from Barnes & Noble pursuant to a tax sharing agreement (the "Tax
Sharing Agreement") which continues so long as Barnes & Noble retains at least
an 80% voting and economic ownership interest in the Company. Under the Tax
Sharing Agreement, the Company is reimbursed for any income tax benefits which
Barnes & Noble receives by including the Company in its U.S. consolidated income
tax returns. If voting or economic ownership of the Company by Barnes & Noble
were to fall below 80% for any reason, the Company would lose such benefits,
which could have an adverse effect on the Company's financial condition. The
Company has entered into an agreement (the "License Agreement") with Barnes &
Noble College Bookstores, Inc. ("B&N College"), of which the principal
shareholder is also a principal shareholder/director/executive officer of Barnes
& Noble, pursuant to which the Company was granted a perpetual,
-8-
<PAGE>
exclusive license (the "License") to use the Barnes & Noble name and trademark
(excluding sales of college textbooks). The License is not revokable unless the
Company is in default or there has been a "change in control" (as defined
therein) of the Company. Loss of the License could have a material adverse
effect on the Company's business. See "--Dependence on Key Supplier,"
"Business--Relationship with Barnes & Noble" and "Certain Transactions with
Barnes & Noble."
Beneficial ownership of at least 80% of the total voting power and value of
the outstanding Common Stock is required in order for Barnes & Noble to continue
to include the Company in its consolidated group for income tax purposes. Each
member of a consolidated group for income tax purposes is jointly and severally
liable for the income tax liability of each other member of the consolidated
group. Each member of the Barnes & Noble controlled group, which includes Barnes
& Noble, the Company and Barnes & Noble's other subsidiaries, is also jointly
and severally liable for pension and benefit funding and termination liabilities
of other group members, as well as certain benefit plan taxes. Accordingly, the
Company could be liable under such provisions in the event any such liability is
incurred, and not discharged, by any other member of the Barnes & Noble
consolidated or controlled group.
In addition, by virtue of its controlling beneficial ownership and the
terms of the Tax Sharing Agreement, Barnes & Noble will effectively control all
of the Company's tax decisions. Under the Tax Sharing Agreement, Barnes & Noble
has sole authority to respond to and conduct all tax proceedings (including tax
audits) relating to the Company, to file all returns on behalf of the Company
and to determine the amount of the Company's liability to (or entitlement to
payment from) Barnes & Noble. This arrangement may result in conflicts of
interests between the Company and Barnes & Noble. For example, under the Tax
Sharing Agreement, Barnes & Noble may choose to contest, compromise or settle
any adjustment or deficiency proposed by the relevant taxing authority in a
manner that may be beneficial to Barnes & Noble and detrimental to the Company.
As a subsidiary of Barnes & Noble, the Company receives various services
from Barnes & Noble and its subsidiary Marboro Books Corp. ("Marboro")
including, among others, services for payroll processing, benefits
administration, insurance (property and casualty, medical, dental and life),
tax, merchandising, traffic, fulfillment and telecommunications. In accordance
with the terms of each of the services agreements between the Company and Barnes
& Noble, Inc. and the Company and Marboro (the "Services Agreements"), the
Company has paid, and expects to continue to pay, fees to Barnes & Noble and
Marboro in an amount equal to 105% of the Company's proportionate share of the
costs of such services. In the opinion of management, these allocations were
made on a reasonable and consistent basis; however, they are not necessarily
indicative of, and it is not practicable for management to estimate, the level
of expenses which might have been incurred had the Company been operating as a
separate, stand-alone company.
Dependence on Key Supplier
Through its distribution facilities, Barnes & Noble accounted for
approximately 34.8% of the Company's purchases during Fiscal Year 1997 and
approximately 56.8% of the Company's purchases for the 26 weeks ended August 1,
1998. The Company expects to continue to source most of its merchandise through
Barnes & Noble in the future. Barnes & Noble charges the Company the costs
associated with such purchases, including cost of freight, handling and other
costs incurred by Barnes & Noble in connection with providing such inventory.
Prior to the consummation of the Offering, the Company will enter into a Supply
Agreement (the "Supply Agreement") with Barnes & Noble pursuant to which Barnes
& Noble will agree to continue to supply products to the Company on the current
terms. The Company believes that such terms are more favorable than terms at
which the Company otherwise would be able to make such purchases on its own. The
Supply Agreement may be terminated by the Company at any time on 30 days'
notice, and may be terminated by Barnes & Noble, on 90 days notice, at any time
after (i) the tenth anniversary of the date of this Prospectus, or (ii) a
"change in control" of the Company (as defined therein). There can be no
assurance that if the Supply Agreement were terminated, the Company would be
able to find an alternative, comparable supplier capable of providing product on
terms satisfactory to the Company. To date, Barnes & Noble has satisfied the
Company's requirements on a timely basis. However, to the extent that Barnes &
Noble does not
-9-
<PAGE>
have sufficient capacity and is unable to satisfy on a timely basis increasing
requirements of the Company, such capacity constraint could have a material
adverse effect on the Company's business. See "--Relationship with Barnes &
Noble; Potential Conflicts of Interest; Receipt of Certain Benefits,"
"Business--Relationship with Barnes & Noble" and "Certain Transactions with
Barnes & Noble."
Risks of the Internet as a Medium for Commerce
Use of the Internet by consumers is at a relatively early stage of
development, and market acceptance of the Internet as a medium for commerce is
subject to a high level of uncertainty. The Company's future success will depend
on its ability to significantly increase revenues, which will require the
development and widespread acceptance of the Internet as a medium for commerce.
There can be no assurance that the Internet will be a successful retailing
channel. The Internet may not prove to be a viable commercial marketplace
because of inadequate development of the necessary infrastructure, such as
reliable network backbones, or complementary services, such as high speed modems
and security procedures for financial transactions. The viability of the
Internet or its viability for commerce may prove uncertain due to delays in the
development and adoption of new standards and protocols (for example, the next
generation Internet Protocol) to handle increased levels of Internet activity or
due to increased government regulation or taxation. If use of the Internet does
not continue to grow, or if the necessary Internet infrastructure or
complementary services are not developed to effectively support growth that may
occur, the Company's business could be materially adversely affected. In
addition, the nature of the Internet as an electronic marketplace (which may,
among other things, facilitate competitive entry and comparison shopping) may
render it inherently more competitive than conventional retailing formats.
Rapid Technology Change
To remain competitive, the Company must continue to enhance and improve the
responsiveness, functionality and features of its online bookstore. The Internet
and the e-commerce industry are characterized by rapid technological change,
changes in user and customer requirements and preferences, frequent new product
and service introductions embodying new technologies and the emergence of new
industry standards and practices that could render the Company's existing online
bookstore and proprietary technology and systems obsolete. The Company's success
will depend, in part, on its ability to license leading technologies useful in
its business, enhance its existing services, develop new services and technology
that address the increasingly sophisticated and varied needs of its existing and
prospective customers and respond to technological advances and emerging
industry standards and practices on a cost-effective and timely basis. The
development of Web site and other proprietary technology entails significant
technical, financial and business risks. There can be no assurance that the
Company will successfully implement new technologies or adapt its online
bookstore, proprietary technology and transaction-processing systems to customer
requirements or emerging industry standards. If the Company is unable, for
technical, legal, financial or other reasons, to adapt in a timely manner in
response to changing market conditions or customer requirements, the Company's
business could be materially adversely affected.
Security Risks
Despite the implementation of network security measures by the Company, its
infrastructure is potentially vulnerable to computer break-ins and similar
disruptive problems caused by its customers or others. Consumer concern over
Internet security has been, and could continue to be, a barrier to commercial
activities requiring consumers to send their credit card information over the
Internet. Computer viruses, break-ins or other security problems could lead to
misappropriation of proprietary information and interruptions, delays or
cessation in service to the Company's customers. Moreover, until more
comprehensive security technologies are developed, the security and privacy
concerns of existing and potential customers may inhibit the growth of the
Internet as a medium for commerce.
-10-
<PAGE>
Risk of System Failure or Inadequacy
The Company's operations are dependent on its ability to maintain its
computer and telecommunications equipment in effective working order and to
protect its systems against damage from fire, natural disaster, power loss,
telecommunications failure or similar events. In addition, the growth of the
Company's customer base may strain or exceed the capacity of its computer and
telecommunications systems and lead to degradations in performance or systems
failure. From time to time, the Company has experienced capacity constraints and
failure of its information systems which have resulted in decreased levels of
service delivery or interruptions in service to its customers. While the Company
continually reviews and seeks to upgrade its technical infrastructure and
provides for certain system redundancies and backup power to limit the
likelihood of systems overload or failure, any damage, failure or delay that
causes interruptions in the Company's operations could have a material adverse
effect on the Company's business.
Risks Associated with Domain Names
The Company currently holds various Web domain names relating to its brand,
including the "www.barnesandnoble.com" domain name. The acquisition and
maintenance of domain names generally is regulated by governmental agencies and
their designees. For example, in the U.S., the National Science Foundation has
appointed Network Solutions, Inc. as the current exclusive registrar for the
".com," ".net" and ".org" generic top-level domains. The regulation of domain
names in the U.S. and in foreign countries is expected to change in the near
future. Such changes in the U.S. are expected to include a transition from the
current system to a system which is controlled by a non-profit corporation and
the creation of additional top-level domains. Requirements for holding domain
names will also be affected. As a result, there can be no assurance that the
Company will be able to acquire or maintain relevant domain names in all
countries in which it conducts business. Furthermore, the relationship between
regulations governing domain names and laws protecting trademarks and similar
proprietary rights is unclear. The Company, therefore, may be unable to prevent
third parties from acquiring domain names that are similar to, infringe upon or
otherwise decrease the value of its trademarks and other proprietary rights. Any
such inability could have a material adverse effect on the Company's business.
Government Regulation and Legal Uncertainties
E-commerce is new and rapidly changing, and federal and state regulation
relating to the Internet and e-commerce is evolving. Currently, there are few
laws or regulations directly applicable to access to or e-commerce on the
Internet. Due to the increasing popularity of the Internet, it is possible that
laws and regulations may be enacted with respect to the Internet, covering
issues such as user privacy, pricing, taxation, content and quality of products
and services. The adoption of such laws or regulations could reduce the rate of
growth of the Internet, which could potentially decrease the usage of the
Company's online bookstore or could otherwise have a material adverse effect on
the Company's business.
Sales and Other Taxes
The Company, in accordance with current industry practice, does not
currently collect sales or other taxes in respect of shipments of goods into
states other than New York, New Jersey and Virginia or foreign countries other
than Canada. However, one or more states or foreign countries may seek to impose
sales or other tax collection obligations on out-of-jurisdiction companies such
as the Company which engage in e-commerce. A successful assertion by one or more
states or foreign countries that the Company should collect sales or any other
taxes on the sale of merchandise could have a material adverse effect on the
Company's business. While the Company does not believe that its relationship
with Barnes & Noble would subject the Company to sales or use taxes in any
jurisdiction where Barnes & Noble operates a retail store, there can be no
guarantee that a jurisdiction would not seek to impose a sales or use tax based
on that relationship, or that if asserted by a jurisdiction, that the Company
would be successful in any challenge to such assertion. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
-11-
<PAGE>
Dependence Upon Strategic Alliances
The Company relies on certain strategic alliances to attract users to its
online bookstore. The Company has entered into strategic alliances to attract
users from numerous other Web sites or online service providers, including AOL
and Lycos. The Company believes that such alliances result in increased traffic
to its online bookstore. The Company's ability to generate revenues from
e-commerce may depend on the increased traffic, purchases, advertising and
sponsorships that the Company expects to generate through such strategic
alliances. There can be no assurance that these alliances will be maintained
beyond their initial terms or that additional third-party alliances will be
available to the Company on acceptable commercial terms or at all. The inability
to enter into new, and to maintain any one or more of its existing, significant
strategic alliances could have a material adverse effect on the Company's
business. See "Business--Marketing and Promotion."
No Dividends
The Company has never paid or declared a dividend on its Common Stock and
does not anticipate doing so for the foreseeable future. See "Dividend Policy."
Shares Eligible for Future Sale
The sale of a substantial number of shares of Common Stock, or the
perception that such sales could occur, could adversely affect prevailing market
prices for the Class A Common Stock. In addition, any such sale or perception
could make it more difficult for the Company to sell equity securities or equity
related securities in the future at a time and price that the Company deems
appropriate. Upon consummation of the Offering, the Company will have a total of
_____ shares of Common Stock outstanding, of which the _________ shares of Class
A Common Stock sold in the Offering will be freely tradable, and of which ______
shares of Class B Common Stock will be "restricted" securities within the
meaning of Rule 144 under the Securities Act. The Class B Common Stock is
convertible into Class A Common Stock on a share-for-share basis at the option
of the holder of the Class B Common Stock. Any shares of Class A Common Stock
into which the shares of Class B Common Stock have been converted will also be
"restricted" securities within the meaning of Rule 144 under the Securities Act
of 1933 (the "Securities Act"). Additionally, the Company has granted options to
certain directors and officers and employees of the Company to purchase an
aggregate of _______ shares of Class A Common Stock. The Company and certain
officers, directors and Barnes & Noble, the Company's principal stockholder, who
hold an aggregate of ______ shares of Common Stock and options to purchase
______ shares of Class A Common Stock, have agreed that they will not without
the prior written consent of the representatives of the Underwriters, directly
or indirectly offer, sell, contract to sell, grant any option to purchase or
otherwise dispose of any shares of Common Stock or any other equity security of
the Company, or any securities convertible into or exercisable or exchangeable
for, or warrants, options or rights to purchase or acquire, Common Stock or any
other equity security of the Company, or enter into any agreement to do any of
the foregoing, for a period of 180 days from the date of this Prospectus. As a
result of the foregoing, _____ shares of Class A Common Stock reserved for
issuance upon the exercise of outstanding stock options or the conversion of
Class B Common Stock will become eligible for resale following such 180-day
period, subject to such additional restrictions to the extent applicable and
subject to Rule 144. No prediction can be made as to the effect, if any, that
future sales of shares of Common Stock, or the availability of shares for future
sales, will have on the market price of the Class A Common Stock from time to
time or the Company's ability to raise capital through an offering of its equity
securities. See "Principal Stockholders," "Description of Capital Stock,"
"Shares Eligible for Future Sale" and "Underwriting."
Absence of Prior Public Market
Prior to the Offering, there has been no public market for the Class A
Common Stock. Although the Company intends to file an application to have the
Class A Common Stock listed on Nasdaq, there can be no assurance that an active
public market will develop for the Class A Common Stock. The initial public
offering price will be determined
-12-
<PAGE>
through negotiations between the Company and the Underwriters. Among the factors
considered in determining the initial public offering price will be the future
prospects of the Company and its industry in general, sales, earnings, and
certain other financial and operating information of the Company in recent
periods, and the market prices of securities and certain financial and other
operating information of companies engaged in activities similar to those of the
Company. The initial public offering price may not be indicative of the market
price for the Class A Common Stock after the Offering, which price may decline
below the initial public offering price. See "Underwriting."
Dilution
Based upon the estimated initial public offering price of $________ per
share, purchasers of the Class A Common Stock offered hereby will experience an
immediate dilution in net tangible book value of $_______ per share of Class A
Common Stock purchased. To the extent outstanding options to purchase Class A
Common Stock are exercised, there may be further dilution. See "Dilution."
Broad Discretion in Use of Proceeds
Although the Company has generally provided for the use of the proceeds
from the Offering, as of the date of this Prospectus, the Company cannot specify
with certainty the amount of the net proceeds of the Offering which will be
allocated for each purpose. Accordingly, the Company's management will have
broad discretion in the application of the net proceeds. See "Use of Proceeds."
Anti-Takeover Effects of Certain Charter, Bylaws and Delaware Law
Provisions; Possible Issuance of Preferred Stock
Following the Offering, the Company's Board of Directors will have the
authority to issue up to 5,000,000 shares of Preferred Stock without any further
vote or action by the stockholders, and to determine the price, rights,
preferences, privileges and restrictions, including voting rights of such
shares. Since the Preferred Stock could be issued with voting, liquidation,
dividend and other rights superior to those of the Class A Common Stock, the
rights of the holders of Class A Common Stock will be subject to, and may be
adversely affected by, the rights of the holders of any such Preferred Stock.
The issuance of Preferred Stock could have the effect of making it more
difficult for a third party to acquire a majority of the outstanding voting
stock of the Company. Further, certain provisions of the Company's Amended and
Restated Certificate of Incorporation (the "Amended Certificate") including
provisions that create a classified Board of Directors, and certain provisions
of the Company's Amended and Restated By-laws (the "Amended By-laws") and of
Delaware law could have the effect of delaying or preventing a change in control
of the Company. See "Description of Capital Stock--Anti-Takeover Effects of
Certain Provisions of Delaware Law and the Amended Certificate and Amended
By-laws."
Year 2000 Compliance
Many currently installed computer systems and software products are coded
to accept only two-digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four-digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and software used by many companies may need to be upgraded to comply
with such "Year 2000" requirements. Significant uncertainty exists in the
software industry concerning the potential effects associated with such
compliance. There can be no assurance that the Company's computer systems
contain all necessary date code changes, or that, in the year 2000, the
Company's computer systems will be compatible with third-party software that may
be integrated or used in conjunction with the Company's computer systems.
Additionally, there can be no assurance that the computer systems necessary to
run and maintain any of the Web sites which direct customers to the Company's
online bookstore, or computer systems of the Company's suppliers, will be year
2000 compliant. The failure of the computer systems of the Company or its
suppliers or service producers to be year 2000 compliant could have a material
adverse effect on the Company's business. See "Management Discussion and
Analysis of Financial Condition and Results of Operations."
-13-
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the __________ shares of
Class A Common Stock offered hereby at an assumed initial public offering price
of $____ per share are estimated to be $ million after deducting underwriting
discounts and commissions and estimated Offering expenses.
The net proceeds from the Offering will be used by the Company to fund
anticipated operating losses, including sales and marketing expenses and
payments due under strategic alliances; enhancements to the Company's online
bookstore and other capital expenditures; working capital; and other general
corporate purposes. In addition, the Company may use a portion of the net
proceeds of the Offering to acquire or invest in complementary businesses,
technologies, services or products, although there are no current agreements
with respect to any such acquisitions, investments or other transactions. As of
the date of this Prospectus, the Company cannot specify with certainty the
particular uses for the net proceeds to be received upon completion of the
Offering. Accordingly, the Company's management will have broad discretion in
the application of the net proceeds.
Pending utilization of the net proceeds of the Offering, the Company
intends to invest the funds in short-term, interest-bearing obligations.
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on its capital
stock since inception and does not expect to pay any cash dividends for the
foreseeable future. The Company currently intends to retain future earnings, if
any, to finance the expansion of its business.
-14-
<PAGE>
CAPITALIZATION
The following table sets forth, as of August 1, 1998, (i) the actual
capitalization of the Company giving effect to the Recapitalization; (ii) the
pro forma capitalization to reflect the Recapitalization and the additional $100
million capital contribution by Barnes & Noble which will occur prior to the
consummation of the Offering; and (iii) the pro forma as adjusted capitalization
to reflect the Recapitalization, the $100 million capital contribution by Barnes
& Noble and the issuance and sale of the shares of Class A Common Stock offered
by the Company hereby at an assumed initial public offering price of $_______
per share and the application of the estimated net proceeds therefrom. See "Use
of Proceeds." This table should be read in conjunction with the Financial
Statements and the notes thereto and the other financial information included
elsewhere in this Prospectus.
</TABLE>
<TABLE>
<CAPTION>
As of August 1, 1998(1)
------------------------------------------------------
(unaudited)
Pro Forma
Actual Pro Forma As Adjusted
------------------ ------------ ------------
(in thousands)
<S> <C> <C> <C>
Cash................................................................. $ -- $ 100,000 $
=================== =============== =============
Stockholders' equity:
Preferred Stock, $.01 par value: no shares issued and
outstanding..................................................... $ -- $ -- $ --
------------------- --------------- -------------
Class A Common Stock $.01 par value: 0 shares issued and
outstanding on an actual and pro forma basis; and
___________ shares issued and outstanding on a pro
forma as adjusted basis(2)(3)................................... -- --
Class B Common Stock, $.01 par value: _______ shares
issued and outstanding .........................................
Additional paid-in capital........................................... 67,459 167,459
Accumulated deficit.................................................. (30,831) (30,831)
------------------- --------------- -------------
Total stockholders' equity........................................... 36,628 136,628
------------------- --------------- -------------
Total capitalization............................................ $ 36,628 $ 136,628 $
=================== =============== =============
</TABLE>
- --------------------------
(1) Prior to the effectiveness of this Prospectus, all outstanding indebtedness
of the Company owed to Barnes & Noble will be converted into a capital
contribution by Barnes & Noble to the Company; as of August 1, 1998 that
amount was $67.5 million. Barnes & Noble will contribute an additional $100
million to the Company prior to the consummation of the Offering. In
addition, following the Offering the Company intends to enter into an
agreement with Barnes & Noble whereby Barnes & Noble will make a $100
million revolving credit facility available to the Company on terms no less
favorable to the Company than the Company would receive from an
unaffiliated third party. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
(2) See Note 10 of the Notes to Financial Statements.
(3) Excludes ________ shares of Class A Common Stock issuable upon exercise of
options which will be outstanding prior to the closing of the Offering. See
"Management--1998 Incentive Plan," "Description of Capital Stock" and Note
10 of Notes to Financial Statements
-15-
<PAGE>
DILUTION
The pro forma net tangible book value of the Common Stock as of August 1,
1998, after giving effect to the Recapitalization and the additional $100
million capital contribution to be made by Barnes & Noble prior to the
consummation of the Offering, was $136.6 million, or $_____ per share of Common
Stock. Pro forma net tangible book value per share is equal to the amount of the
Company's total tangible assets less total liabilities, divided by the number of
shares of Common Stock outstanding as of August 1, 1998. Assuming the sale by
the Company of __________ shares of Class A Common Stock offered hereby at an
assumed initial public offering price of $_____ per share and the application of
the estimated net proceeds therefrom, the pro forma net tangible book value of
the Company as of August 1, 1998 would have been $_____ million, or $_____ per
share of Common Stock. This represents an immediate increase in pro forma net
tangible book value of $_____ per share to existing stockholders and an
immediate dilution in pro forma net tangible book value of $_____ per share to
new investors. The following table illustrates this per-share dilution:
<TABLE>
<S> <C>
Initial public offering price per share......................................................... $
------------
Pro forma net tangible book value per share as of August 1, 1998........................... $
------------
Pro forma increase per share attributable to new investors.................................
------------
Pro forma net tangible book value per share after the offering..................................
------------
Pro forma dilution per share to new investors................................................... $
============
</TABLE>
The following table summarizes, on a pro forma basis as of August 1, 1998,
the total number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price per share paid by
existing stockholders and by new investors:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------------- -----------------------------------
Average Price
Number Percent Amount Percent Per Share
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)..................... $ % $
---------- ----- ----------- ----- -----------
New investors................................
---------- ----- ----------- ----- -----------
Total(1)................................ 100.0% $ 100.0% $
========== ====== =========== ===== ===========
</TABLE>
- --------------------------
(1) Excludes ________ shares of Class A Common Stock issuable upon exercise of
options which will be outstanding prior to the closing of the Offering. See
"Management--1998 Incentive Plan," "Description of Capital Stock" and Note
10 of Notes to Financial Statements.
-16-
<PAGE>
SELECTED FINANCIAL DATA
(in thousands of dollars, except per share data)
The selected financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and notes thereto appearing elsewhere
in this Prospectus. The selected statement of operations data for Fiscal Year
1997, and the selected balance sheet data as of January 31, 1998 have been
derived from the Financial Statements, which have been audited by BDO Seidman,
LLP, independent certified public accountants, and are included elsewhere in
this Prospectus. The selected statement of operations data for the 26 weeks
ended August 2, 1997 and August 1, 1998 and the selected balance sheet data as
of August 1, 1998 have been derived from the unaudited financial statements of
the Company which, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the financial condition and results of operation for these
periods. The operating results are not necessarily indicative of the operating
results for any future period.
<TABLE>
<CAPTION>
26 weeks
ended
----------------------------------
Fiscal Year August 2, August 1,
1997 1997 1998
------------------- -------------------- -------------
(unaudited)
<S> <C> <C> <C>
Statement of Operations Data:
Net sales....................................... $ 14,601 $ 2,383 $ 21,870
Cost of sales................................... 11,752 1,966 16,759
------ ----- ------
Gross profit.................................... 2,849 417 5,111
Operating expenses:
Marketing and sales........................ 8,807 1,113 29,446
Product development........................ 5,009 926 4,319
General and administrative................. 2,010 350 4,895
Depreciation and amortization.............. 2,670 608 3,058
----- --- -----
Total operating expenses..................... 18,496 2,997 41,718
------ ----- ------
Loss before taxes............................... (15,647) (2,580) (36,607)
Benefit for income taxes........................ (6,415) (1,058) (15,008)
------- ------- --------
Net loss........................................ $ (9,232) $ (1,522) $ (21,599)
======= ======= ========
</TABLE>
Basic and diluted net loss per share............
Basic and diluted weighted average
shares outstanding...........................
<TABLE>
<CAPTION>
As of As of
January 31, August 1,
1998 1998
-------------------- ------------
(unaudited)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............................ $ -- $ --
Working capital...................................... (71) 3,456
Total assets......................................... 37,076 46,176
Stockholder's equity................................. 24,224 36,628
</TABLE>
-17-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Financial
Statements and related Notes thereto included elsewhere in this Prospectus. This
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from those
anticipated in these forward-looking statements as a result of certain factors
including, but not limited to, those set forth under "Risk Factors" and
elsewhere in this Prospectus.
Overview
In 1996, recognizing increasing opportunities in the e-commerce market,
Barnes & Noble began expending significant resources to enter this market. The
Company was originally incorporated on January 14, 1997 in the State of Delaware
and launched its online bookstore in March 1997.
The Company historically has relied on Barnes & Noble to provide financing
for its operations. The cash flows reflected as capital contributions from
Barnes & Noble in the statements of cash flows represent the financing of the
Company's operations by Barnes & Noble and are included as adjustments to
paid-in capital pursuant to the Recapitalization. These cash flows are not
indicative of the cash flows that would have resulted had barnesandnoble.com
been operating as a separate stand-alone company during the periods presented.
Since its incorporation, the Company has incurred significant net losses as
a result of its strategic investments and, as of August 1, 1998, had accumulated
net losses of $30.8 million. As it seeks to aggressively expand the business of
its online bookstore, the Company believes that its operating expenses will
significantly increase as a result of the financial commitments related to the
development of marketing channels, future strategic relationships, and
enhancements to its online bookstore and other capital expenditures. The Company
expects that it will continue to incur losses and generate negative cash flow
from operations for the foreseeable future. Since the Company has relatively low
gross margins, the ability of the Company to enhance profitability depends upon
its ability to substantially increase its net sales. In view of the rapidly
changing nature of the Company's business and its limited operating history, the
Company believes that period-to-period comparisons of its operating results,
including the Company's gross profit margin and operating expenses as a
percentage of sales, are not necessarily meaningful and should not be relied
upon as an indication of future performance.
The financial information included herein may not necessarily be indicative
of the financial position, results of operations and cash flows had
barnesandnoble.com been operating as a separate stand-alone company during the
periods presented.
-18-
<PAGE>
Results Of Operations
The following table sets forth statement of operations data as a percentage
of net sales for the periods indicated:
<TABLE>
<CAPTION>
26 weeks ended
----------------------------------
Fiscal Year August 2, August 1,
1997 1997 1998
----------- ------------------ ---------------
(unaudited)
<S> <C> <C> <C>
Statement of Operations Data:
Net sales............................................ 100.0% 100.0% 100.0%
Cost of sales........................................ 80.5 82.5 76.6
Gross margin......................................... 19.5 17.5 23.4
Operating expenses:
Marketing and sales............................. 60.3 46.7 134.6
Product development............................. 34.3 38.9 19.8
General and administrative...................... 13.8 14.7 22.4
Depreciation and amortization................... 18.3 25.5 14.0
-------- ------- -------
Total operating expenses............................ 126.7 125.8 190.8
--------- ------- --------
Loss before taxes.................................... (107.2) (108.3) (167.4)
Benefit for income taxes............................. (44.0) (44.4) (68.6)
-------- ------- -------
Net loss............................................. (63.2)% (63.9)% (98.8)%
======== ======= ========
</TABLE>
Net Sales
Net sales include the sale of books and related product, net of returns and
outbound shipping charges. The Company launched its online bookstore in
March 1997, when it became the exclusive bookseller in AOL's Marketplace. Net
sales increased from $2.4 million for the 26 weeks ended August 2, 1997 to $21.9
million for the 26 weeks ended August 1, 1998. The increase was primarily
attributed to a significant increase in units sold due to the growth of the
Company's online bookstore and the related customer base.
International sales represented 13.0% and 11.3% of net sales for the 26
weeks ended August 2, 1997 and August 1, 1998, respectively.
Cost of Sales
Cost of sales consists primarily of the cost of merchandise sold and
outbound and inbound shipping costs. Cost of sales increased substantially in
absolute dollars in the 26 weeks ended August 1, 1998 compared with the 26 weeks
ended August 2, 1997, due to the Company's increased sales volume. As a
percentage of sales, cost of sales decreased from 82.5% for the 26 weeks ended
August 2, 1997 to 76.6% for the comparable period in 1998. The improvement is
primarily attributed to the increase in the percentage of purchases made through
the Barnes & Noble distribution facilities from 7.8% in the 26 weeks ended
August 2, 1997 to 56.8% in the 26 weeks ended August 1, 1998.
In the future, the Company may expand or increase the discount it offers to
its customers as well as expand its product offerings to areas which may have
lower gross margins than its existing business.
-19-
<PAGE>
Marketing and Sales Expenses
Marketing and sales expenses consist of expenditures related to advertising
and promotion, public relations and payroll and related expenses for personnel
engaged in marketing, selling and fulfillment activities. Marketing and sales
expenses increased from $1.1 million for the 26 weeks ended August 2, 1997 to
$29.4 million for the 26 weeks ended August 1, 1998. This increase is primarily
due to increased advertising and promotional expenditures, including costs
associated with strategic Internet marketing agreements with leading
high-traffic Web sites and AOL, as well as increased personnel and related
expenses required to implement the Company's marketing strategy and fulfill the
increased sales volume. During May 1998, the Company began an aggressive
branding and marketing campaign that the Company anticipates to continue and,
accordingly, the Company expects marketing and sales expenses to increase
significantly in absolute dollars.
Product Development Expenses
Product development expenses consist principally of payroll and related
expenses for development, editorial and network operations personnel and
consultants, systems and telecommunications infrastructure and costs of acquired
content. Product development expense increased from $0.9 million for the 26
weeks ended August 2, 1997 to $4.3 million for the 26 weeks ended August 1,
1998. This increase was primarily due to increased staffing and associated costs
related to building and enhancing the features, content and functionality of the
Company's online bookstore and transaction-processing systems, as well as
increased investment in systems and telecommunications infrastructure. The
Company expects product development expenses to increase in absolute dollars as
the Company continues to enhance the online bookstore experience and expand its
staff and incur additional costs related to the growth of its business.
General and Administrative Expenses
General and administrative expenses consist of payroll and related expenses
for executive, accounting and administrative personnel, recruiting, professional
fees, other general corporate expenses and the allocation of costs from Barnes &
Noble in accordance with the Services Agreements. General and administrative
expenses increased from $0.4 million for the 26 weeks ended August 2, 1997 to
$4.9 million for the 26 weeks ended August 1, 1998. This increase was primarily
due to increased salaries and related expenses associated with the recruiting
and hiring of additional personnel. The Company expects general and
administrative expenses to continue to increase in absolute dollars as the
Company expands its staff and incurs additional costs to support the growth of
its business.
Depreciation and Amortization
Depreciation and amortization increased from $0.6 million for the 26 weeks
ended August 2, 1997 to $3.1 million for the 26 weeks ended August 1, 1998 due
to the increased capital investment in the Company's online bookstore and
systems.
Income Taxes
The Company has entered into the Tax Sharing Agreement pursuant to which
the operating results of the Company are included in the consolidated tax
returns of Barnes & Noble, and the Company is reimbursed for any tax benefits
realized by Barnes & Noble as a result of such inclusion. The tax provisions are
based upon management's estimate of the Company's annualized effective tax rate.
Net Loss
As a result of the factors discussed above, the Company's net loss
increased from $1.5 million for the 26 weeks ended August 2, 1997 to $21.6
million for the 26 weeks ended August 1, 1998.
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Quarterly Results of Operations and Seasonality
The following table sets forth certain unaudited quarterly statement of
operations data for the six quarters ended August 1, 1998. This unaudited
quarterly information has been derived from unaudited financial statements of
the Company and, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the information for the periods covered. The quarterly data
should be read in conjunction with the Financial Statements and the notes
thereto. The operating results for the quarter are not necessarily indicative of
the operating results for any future period.
<TABLE>
<CAPTION>
Quarter Ended
(unaudited)
----------------------------------------------------------------------------------------------
May 3, August 2, November 1, January 31, May 2, August 1,
1997 1997 1997 1998 1998 1998
--------- ---------- ---------- ----------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net sales.......................... $ 190 $ 2,193 $ 4,005 $ 8,213 $ 9,368 $ 12,502
Cost of sales...................... 151 1,815 3,457 6,329 7,184 9,575
--------- ---------- ---------- ----------- ---------- ----------
Gross profit....................... 39 378 548 1,884 2,184 2,927
--------- ---------- ---------- ----------- ---------- ----------
Operating expenses:
Marketing and sales........... 176 937 2,288 5,406 9,738 19,708
Product development........... 80 846 1,944 2,139 2,153 2,166
General and
administrative.............. 71 279 588 1,072 2,502 2,393
Depreciation and
amortization................ -- 608 924 1,138 1,395 1,663
--------- --------- ---------- ----------- ---------- ----------
Total operating expenses........... 327 2,670 5,744 9,755 15,788 25,930
--------- --------- ---------- ----------- ---------- ----------
Loss before taxes.................. (288) (2,292) (5,196) (7,871) (13,604) (23,003)
Benefit for income taxes........... (118) (940) (2,130) (3,227) (5,577) (9,431)
--------- --------- ---------- ----------- ---------- ----------
Net loss........................... $ (170) $ (1,352) $ (3,066) $ (4,644) $ (8,027) $ (13,572)
========= ========= ========== ========== ========= ==========
</TABLE>
-21-
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended
(unaudited)
----------------------------------------------------------------------------------------------
May 3, August 2, November 1, January 31, May 2, August 1,
1997 1997 1997 1998 1998 1998
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales....................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................... 79.5 82.8 86.3 77.1 76.7 76.6
---------- ---------- ---------- ---------- ---------- ----------
Gross margin............... 20.5 17.2 13.7 22.9 23.3 23.4
---------- ---------- ---------- ---------- ---------- ----------
Operating expenses:
Marketing and sales........ 92.6 42.7 57.1 65.8 103.9 157.7
Product development........ 42.1 38.6 48.5 26.0 23.0 17.3
General and administrative. 37.4 12.7 14.7 13.0 26.7 19.1
Depreciation and
amortization............ -- 27.7 23.1 13.9 14.9 13.3
---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses........ 172.1 121.7 143.4 118.7 168.5 207.4
---------- ---------- ---------- ---------- ---------- ----------
Loss before taxes............... (151.6) (104.5) (129.7) (95.8) (145.2) (184.0)
Benefit for income taxes........ (62.1) (42.9) (53.2) (39.3) (59.5) (75.4)
---------- ---------- ---------- ---------- ---------- ----------
Net loss........................ (89.5)% (61.6)% (76.5)% (56.5)% (85.7)% (108.6)%
========== ========== ========== ========== ========== ==========
</TABLE>
The Company expects to experience significant fluctuations in its future
quarterly operating results due to a variety of factors, many of which are
outside the Company's control. Factors that may adversely affect the Company's
quarterly operating results include (i) the Company's ability to retain existing
customers, attract new customers at a steady rate and maintain customer
satisfaction, (ii) the Company's ability to acquire product and to manage
fulfillment operations, (iii) the Company's ability to maintain gross margins in
its existing business and in future product lines and markets, (iv) the
development, announcement, or introduction of new sites, services and products
by the Company and its competitors, (v) price competition, (vi) the level of use
of the Internet and increasing consumer acceptance of the Internet for the
purchase of consumer products such as those offered by the Company, (vii) the
Company's ability to upgrade and develop its systems and infrastructure, (viii)
the Company's ability to attract new personnel in a timely and effective manner,
(ix) the level of traffic on the Company's online bookstore, (x) the Company's
ability to manage effectively its development of new business segments and
markets, (xi) the Company's ability to successfully manage the integration of
operations and technology of acquisitions and other business combinations, (xii)
technical difficulties, system downtime or Internet brownouts, (xiii) the amount
and timing of operating costs and capital expenditures relating to expansion of
the Company's business, operations and infrastructure, (xiv) the level of
returns experienced by the Company, (xv) governmental regulation and taxation
policies, (xvi) disruptions in service by common carriers due to strikes or
otherwise, and (xvii) general economic conditions and economic conditions
specific to the Internet, e-commerce and the book industry. Additionally, the
Company expects that it will experience seasonality in its business, reflecting
a combination of seasonal fluctuations in Internet usage and traditional retail
seasonality patterns.
Income Taxes
Pursuant to the Tax Sharing Agreement, for so long as Barnes & Noble
retains at least an 80% voting and economic ownership interest in the Company,
the operating results of the Company will be included in the
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<PAGE>
consolidated tax returns of Barnes & Noble and the Company will be reimbursed
for any tax benefits realized by Barnes & Noble as a result of such inclusion.
Liquidity and Capital Resources
Net cash flows used by operating activities were $5.9 million for Fiscal
Year 1997. Net cash flows used by operating activities were attributed to a $9.2
million net loss and an $11.3 million increase in prepaid expenses and other
current assets, partially offset by a $9.7 million increase in accrued
liabilities and $2.7 million of depreciation and amortization. Net cash flows
used by operating activities were $7.5 million and $21.9 million for the 26
weeks ended August 2, 1997 and August 1, 1998, respectively. For the 26 weeks
ended August 2, 1997, net cash flows used by operating activities were primarily
attributed to a $1.5 million net loss and a $5.9 million increase in prepaid
expenses and other current assets. For the 26 weeks ended August 1, 1998, net
cash flows used by operating activities were primarily attributed to a $21.6
million net loss and a $2.6 million decrease in accrued liabilities, partially
offset by $3.1 million of depreciation and amortization.
Net cash used in investing activities of $27.5 million, $8.3 million, and
$12.1 million for Fiscal Year 1997 and for the 26 weeks ended August 2, 1997 and
August 1, 1998, respectively, was primarily attributed to the purchase of fixed
assets.
Net cash provided by financing activities of $33.5 million, $15.8 million
and $34.0 million for Fiscal Year 1997 and for the 26 weeks ended August 2, 1997
and August 1, 1998, respectively, resulted from capital contributions from
Barnes & Noble.
On November 1, 1997, the Company and AOL formed a strategic alliance
pursuant to an Interactive Marketing Agreement (the "AOL Agreement") which
provides for the Company to be featured as the exclusive online book retailer
within AOL's Shopping Channel. The AOL Agreement also gives the Company an
extensive package of placements and visibility throughout the AOL service. In
consideration of the marketing, promotion, advertising and other services AOL
will provide under the AOL Agreement, the Company will pay AOL a total of $40.0
million over the term of the AOL Agreement, of which $8.0 million has been paid
as of September 1, 1998, $2.5 million will be paid for the balance of the
Company's fiscal year 1998, $7.5 million will be paid in the Company's fiscal
year 1999 and $11.0 million will be paid in each of the Company's fiscal years
2000 and 2001. The Company expects to amortize the costs associated with the AOL
Agreement over the contract term of four years.
On July 31, 1997, the Company entered into a three-year exclusive agreement
with Lycos (the "Lycos Agreement"), pursuant to which Lycos' Web site is linked
to the Company's online bookstore on the Web. Under the Lycos Agreement,
visitors to Lycos' Web site may readily access the Company's online bookstore on
the Web, which is promoted by Lycos using content provided by the Company, for
the online purchase of books and related information. The Lycos Agreement
provides for the Company to pay Lycos an annual fee of $4.5 million per year
through the year 2000. In addition, the Company is required to pay Lycos a
percentage of all revenues received from orders initiated from the Lycos Web
site to the extent that such percentage exceeds the annual fee in any given
year. Pursuant to the terms of the Lycos Agreement, Lycos is obligated to offer
the Company the right of first refusal to negotiate with Lycos for renewal of
the Lycos Agreement.
A 1992 Supreme Court decision confirmed that the Commerce Clause of the
United States Constitution prevents a state from requiring the collection of its
sales and use tax by a mail-order company unless such company has a physical
presence in the state. However there continues to be uncertainty due to
inconsistent application of the Supreme Court decision by state and federal
courts. The Company attempts to conduct its operations with its interpretation
of the applicable legal standard, but there can be no assurance that such
compliance will not be challenged. In recent challenges, various states have
sought to require companies to begin collection of sale and use taxes and/or pay
taxes from previous sales. As of the date of this Prospectus, the Company has
not received assessments from any state. The Supreme Court decision also
established that Congress has the power to enact
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<PAGE>
legislation which would permit states to require collection of sales and use
taxes by mail-order companies. Congress has from time to time considered
proposals for such legislation. The Company anticipates that any legislative
change, if adopted, would be applied on a prospective basis. While there is no
case law on the issue, the Company believes that this analysis would also apply
to its online business. Recently several states and local jurisdictions have
expressed an interest in taxing e-commerce companies who do not have any
contacts with their jurisdictions other than selling products online to
customers in such jurisdictions. The current administration has proposed a
moratorium on new taxes or levies on e-commerce for a three-year period, and two
bills are currently pending before Congress to provide such a moratorium.
However, as of the date hereof, no such moratorium is in effect. Any such taxes
could have an adverse effect on e-commerce, including the Company's online
business. See "Risk Factors--Sales and Other Taxes."
The Company's capital requirements depend on numerous factors, including
the rate of market acceptance of the Company's online bookstore, the ability to
expand the Company's customer base, the cost of upgrades to its online
bookstore, the level of expenditures for sales and marketing and other factors.
The timing and amount of such capital requirements cannot accurately be
predicted. Additionally, the Company will continue to evaluate possible
investments in businesses, products and technologies, and plans to expand its
sales and marketing programs and conduct more aggressive brand promotions.
Following the Offering, the Company intends to enter into an agreement with
Barnes & Noble whereby Barnes & Noble will make a $100 million revolving credit
facility available to the Company on terms no less favorable than the Company
would receive from an unaffiliated third party. The Company believes that the
net proceeds from the Offering, together with the $100 million capital
contribution to be made by Barnes & Noble to the Company prior to the
consummation of the Offering, the anticipated $100 million revolving credit
facility from Barnes & Noble and the Company's operating revenue will be
sufficient to meet anticipated cash needs for at least the next 24 months.
Year 2000
Many currently installed computer systems and software products are coded
to accept only two-digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four-digit entries to
distinguish 21st century dates from 20th century dates. This "Year 2000" issue
potentially affects all individuals and companies (including the Company, its
customers, business partners, vendors, suppliers, service providers and banks)
using computer systems.
The Company is continuing its comprehensive evaluation of all computer
systems and microprocessors to ensure that they are all Year 2000 compliant.
Since the Company's systems and software are relatively new, substantially all
are prepared for the year 2000.
Management does not anticipate that the Company will incur significant
operating expenses or be required to invest heavily in computer systems
improvements to be Year 2000 compliant. In addition, communications are ongoing
with other companies that have systems which interface with those of the
Company, to determine the extent to which those companies are addressing their
Year 2000 compliance.
The Company is developing contingency plans which identify alternative
vendors, suppliers and service providers in the event current vendors, suppliers
or service providers suffer significant disruption as a result of Year 2000
compliance failures.
Should some of the Company's systems not be available due to Year 2000
problems, in a reasonably likely worst case scenario, the Company may experience
significant delays in its ability to perform certain functions, but does not
expect an inability to perform critical functions or to otherwise conduct its
business.
-24-
<PAGE>
BUSINESS
General
barnesandnoble.com is a leading online retailer of books and information
related products. Since opening its online bookstore in March 1997, the Company
has sold books to over 700,000 customers in 175 countries. Exclusive
distribution deals with major portal and content Web sites, such as AOL,
Microsoft, Lycos, ZDNet and CNN, have extended the exposure of the Company's
online bookstore. The Company has also established remote storefronts by
creating links with over 25,000 affiliate Web sites. According to the Media
Metrix measurement of Web site traffic for August 1998, the Company's Web site
is the sixth largest shopping site and, for the first six months of 1998, one of
the top 25 fastest growing Web sites in the world.
barnesandnoble.com has created a model for e-commerce based upon a
compelling value proposition. Its online bookstore offers customers an
easy-to-search catalog of virtually every book in print, rich editorial
content, community experience, deep discounts, secure ordering and fast
delivery. It recently introduced several major enhancements to its online
bookstore, including Express Lane(sm) one-click ordering, e-mail book reviews, a
powerful search engine and a software superstore.
The Company believes that its strategic relationship with Barnes & Noble
provides it with the following meaningful advantages relative to other online
booksellers:
o The superior brand recognition of the Barnes & Noble trade name, which
is a strong motivating factor in attracting customers, especially with
regard to the post-early adopter market of consumers who have yet to
make a purchase online;
o The use of Barnes & Noble's state-of-the-art distribution center as its
primary supplier enabling the Company to offer over 650,000 in-stock
titles for fast delivery, which represents the largest standing
inventory of any bookseller online;
o The ability to offer such a large selection without the investment in
inventory and the ongoing expense related to the management of such
inventory;
o Benefitting from a higher gross margin as the Company sources
significantly less merchandise through wholesalers;
o The enterprise value of the Barnes & Noble trade name, inclusive of its
network of over 500 retail superstores, which is a strong factor in
negotiating with online portal, content and media companies;
o Access to the substantial bookselling knowledge and experience of
Barnes & Noble's management; and
o The ability to leverage Barnes & Noble's considerable experience and
expertise developed in direct marketing.
Furthermore, in addition to its relationship with Barnes & Noble, the
Company believes that its distinguishing competitive advantages include
barnesandnoble.com's:
o Leading-edge online bookstore which has recently been enhanced and
upgraded to include a more powerful search engine, streamlined
navigation, Express Lane(sm) one-click ordering, E-nnouncements(sm)
e-mail customer notification services and a "software superstore,"
which includes a strategic alliance with Intel;
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<PAGE>
o Offering of the largest standing inventory and the fastest shipping on
the largest number of book titles of any online bookseller;
o Strategic marketing agreements with leading high-traffic Web sites
such as those of Lycos, ZDNet, Web Crawler, Disney, The New York Times,
Pathfinder, CNN and USA Today as well as its four-year agreement with
AOL, pursuant to which the Company is the exclusive bookseller on AOL's
online service, the single largest online channel of any kind, serving
approximately 13 million members; and
o Affiliate network of over 25,000 independent-party Web sites which
contain "remote storefronts" that link users of each of these Web sites
to the Company's online bookstore.
Industry Background
E-Commerce. The new arena of e-commerce provides retailers with the
opportunity to serve a rapidly growing market because consumers are increasingly
accepting the Internet as an alternative shopping channel. The Internet is
becoming an increasingly accepted method of purchasing goods among consumers.
According to A.C. Nielsen/CommerceNet, 70 million U.S. adults (aged 16+) are now
using the Internet, up from 49 million in 1997. Neilsen reports that 20 million
Americans have now conducted an online e-commerce transaction and that 48
million Americans are using the Internet to make shopping decisions. The Company
believes that these figures will grow substantially as Internet use becomes
easier and more pleasurable through higher-speed access.
The Internet also provides e-commerce companies with an opportunity to
serve a global market. Jupiter Communications estimates that the number of
Internet connected households worldwide will grow from approximately 45 million
at the end of 1998 to approximately 66 million by the end of 2000. IDC estimates
that the number of Web users worldwide will exceed 95 million by the end of 1998
and will grow to over 170 million users by the end of 2000.
The Book Industry. The US book market was $25.8 billion in 1996 and is
expected to grow to $31.4 billion by the year 2000, according to Veronis Suhler.
According to Euromonitor, worldwide book sales were approximately $82 billion in
1996 and are expected to grow to approximately $90 billion by the year 2000. The
Company's early history with non-U.S. consumers indicates that the demand for
U.S. published books abroad is large and relatively untapped.
Why the Book Industry is Well Suited for E-Commerce. The book business is
well suited for e-commerce because an online bookseller has virtually unlimited
shelf space and can offer consumers the convenience of browsing through a vast
database of books. The use of sophisticated search engines and personalized
service enables users to locate books with unparalleled convenience and speed
and to get advance notice about titles in their areas of interest. Editorial
content, such as, synopses, excerpts, book reviews and editorial
recommendations, make for a more-educated book-buying decision. The Company
believes that the presence of an online bookstore on consumers' desktops will,
in and of itself, stimulate demand and expand the marketplace. Additionally, the
Company believes that new technology, such as portable electronic books and
print-on-demand publishing, will greatly add to the range of content that an
online bookseller can offer.
Business Strategy
barnesandnoble.com's operating strategy is to rapidly build its brand and
customer base by:
Continually Enhancing the User Experience of its Online Bookstore. The
Company is committed to making every aspect of browsing and shopping on its
Online Bookstore an easy and pleasurable experience. It makes continual efforts
to insure that the performance metrics of its online bookstore are industry
leading, especially with regard to download times and speed of search. The
Company also strives to make the entire ordering process intuitive and speedy.
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<PAGE>
Expanding the Editorial Content of its Book Database. The Company believes
that quality editorial content is an important factor in choosing an online
bookstore. Its goal is to have a cover scan, title synopsis, book review and
excerpt for every book in its database. Furthermore, it intends to invest in
exclusive editorial content that serves to distinguish its site from those of
its competitors. One such example is the recently introduced microsite for The
Reader's Catalog, an authoritative guide to the 40,000 best books in print, as
individually selected and reviewed by an editorial board of advisors under the
supervision of The New York Review of Books.
Introducing Interactive Features that Foster a Community Built Around Books
and Authors. The Company is an innovator in online author chats. Since the
launch of its online bookstore, over 250 authors have participated in author
chats, including Kurt Vonnegut, Frank McCourt, Esther Dyson and Anna Quindlen.
The Company intends to invest in technologies that enable online chats to be a
more compelling experience. It also intends to expand the number of user reviews
significantly by promoting this feature more aggressively, thus making its
customers part of a vibrant online book community.
Strengthening and Expanding Strategic Alliances. The Company will continue
to provide its major strategic partners with outstanding merchandising.
Additionally, the Company intends to syndicate its growing proprietary editorial
content causing its strategic partners to view the Company as a primary source
for information about books and authors. The Company also believes that its
connection to Barnes & Noble enables it to negotiate more competitively for new
deals as major media and content companies highly value a connection to the
entire Barnes & Noble enterprise.
Increasing the Number of Web Sites in its Affiliate Network. The Company's
affiliate network, which was launched in October 1997, currently has over 25,000
affiliates and is growing at a rate of approximately 400 affiliates per week.
The Company believes that its affiliate program goes beyond that of its
competitors because it pays the highest commissions and offers the best
technology tools, with such features as online, real-time sales reporting.
Expanding its Product Offering. The Company intends to become the best
place to buy books online as well as the most authoritative source for
information about books and authors. While its major focus is and will be
selling books, the Company believes that offering complementary information
products, such as magazines, software, music and videos, is a natural extension
of bookselling. Furthermore, the Company believes that its entire range of
technologies, inclusive of its database and search engine, automated shopping
cart, Express Lane(sm) one-click ordering system and related EDI interfaces with
vendors will enable it to position itself as a delivery mechanism for
downloadable content, such as electronic books.
Investing in Technologies. The Company believes that it currently utilizes
a state-of-the-art interactive e- commerce platform. Nevertheless, it plans to
continue to invest in technologies that improve its ability to support its
future growth while offering customers the most convenient, user-friendly and
secure online shopping experience possible. In particular, the Company plans to
invest in technologies that serve to enhance its ability to conduct personalized
one-to-one marketing.
Leveraging its Relationship with Barnes & Noble. The Company believes that
its strategic relationship with Barnes & Noble provides it with inherent
advantages over strictly online booksellers, including being able to use the
Barnes & Noble state-of-the-art distribution center as its primary supplier,
leverage its well-respected brand name and tapping into the substantial
bookselling experience of its management. The Company additionally has access to
the Barnes & Noble data warehouse, which compiles consumer purchasing data from
over 1,000 stores which will generate approximately $3 billion in 1998 annual
sales and is the single largest repository of data about U.S. consumer book
purchasing habits.
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<PAGE>
Cross-Marketing with Barnes & Noble's Mail-Order Business. Barnes & Noble
has a large direct-mail catalog business with over 400,000 customers in 107
countries and mails approximately 20 different catalogs each year. The Company
includes catalogs in all packages shipped to its customers, and has found that
its customers respond favorably to these catalogs. The Company plans to utilize
its expertise in database marketing and data mining to develop targeted
catalogs, which it believes will increase the lifetime value of its customers.
The Company also promotes and will continue to promote its online bookstore
throughout Barnes & Noble's mail-order catalogs, whose circulation in 1998 is
expected to reach 16 million catalogs.
The barnesandnoble.com Online Bookstore
The Company believes that the following factors make its online bookstore
an easy and convenient way to shop for books:
Large, Easily Searchable Selection. The Company's online database lists
virtually every book in print, offering over one million titles from over 30,000
publishers. The Company's recently enhanced search engine and sort capabilities
allow consumers to search and browse through the vast database in an intuitive
and easy way, with accurate and meaningful results received on virtually every
search.
Largest Standing Inventory. The Company currently offers the largest
standing inventory of books of any online bookseller. By using the Barnes &
Noble distribution center as its primary supplier, the Company is able to offer
the most extensive selection of titles available for immediate shipping without
having to invest in large inventories. As of August 1998, the Barnes & Noble
distribution center stocked over 650,000 titles. The Company believes that its
approach of offering titles that are "truly available" differs from those of its
competitors whose online bookstores post listings of titles that are believed to
be "in print."
Deep Discounts. The Company was the first online bookseller to introduce
deep discounts. It offers most in-stock hard cover books at a 30% discount off
publishers' list prices and most in-stock paperbacks at a 20% discount off
publishers' list prices. The Company also offers what it believes to be the
largest selection of bargain book titles with thousands of titles available at
discounts up to 90% off publishers' list prices.
Easy and Secure Ordering. barnesandnoble.com guarantees that all
transactions are safe and secure. The Company has created a set of secure
applications that allow customers to establish an account to store an address
book, credit card information and shipping preferences. Once the account has
been established, the customer can either shop the traditional e-commerce path
by adding items to their shopping cart or use the Company's proprietary Express
Lane(sm) one-click ordering feature.
Fast Delivery. The Company believes that consumers will increasingly demand
an assured in-stock position and fast delivery from online booksellers. It also
believes that it offers the fastest delivery on the largest number of titles of
any online bookseller, because the Barnes & Noble distribution center is able to
provide it with immediate shipment on over 650,000 titles.
Rich Editorial Content. barnesandnoble.com strives to provide its users
with the most accurate and authoritative online database about books and
authors. The Company's online database currently includes editorial content such
as synopses, book reviews, author biographies and user reviews on over 500,000
titles. Included in this content are book reviews from many respected industry
sources, such as The New York Times Book Review, Publisher's Weekly and Kirkus
Reviews. The barnesandnoble.com Web site recently introduced a microsite
featuring the highly acclaimed The Reader's Catalog, a listing of over 40,000
recommended titles, individually selected and reviewed by an editorial board
under the supervision of the New York Review of Books. The Company's in-house
group of editorial experts also write and commission feature articles, columns
and interviews.
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<PAGE>
Online community. The Company has introduced author chats to its online
bookstore that are a natural extension of the type of community building
activities pioneered in Barnes & Noble's superstores. It was the first online
bookseller to introduce a regular series of real-time author chats and since
going online over 250 authors from a wide variety of literary genres have
participated in these events, including Kurt Vonnegut, Esther Dyson, Frank
McCourt and Anna Quindlen. The Company also encourages users to write their own
book reviews, contribute to literary bulletin boards and participate in online
book groups.
Personalized services. The Company's e-nnouncements program allows users to
sign up for free e-mail book reviews. Users sign up by area of interest and
receive monthly bulletins about new and noteworthy publications, handpicked by
barnesandnoble.com editors. The Company is pursuing advanced personalization
applications using collaborative filtering and other technologies and expects
that it will eventually be able to provide its customers with customized
"personal bookstores" based upon their expressed personal preferences and
purchasing history.
High level of customer service. The Company believes that high levels of
customer service and support are critical to retain and expand its customer
base. It monitors orders from the time they are placed through delivery by
providing numerous points of electronic, telephonic and personal communication
to its customers. The Company's customer service representatives are available
seven days a week and maintain constant customer service availability via
e-mail.
The Company also currently offers magazines and software on its online
bookstore, and intends to add other complementary information products, such as
music and videos.
Marketing and Promotion
Online strategic alliances. Since inception, barnesandnoble.com has
aggressively pursued strategic alliances with premier online companies and
high-traffic Web sites in order to drive traffic to its online bookstore. The
Company believes that its connection to Barnes & Noble greatly facilitates its
ability to enter into agreements with many high profile portal and content
sites. The Company's largest strategic alliance is with America Online. In
November 1997 it entered into a four-year agreement with AOL to be the exclusive
bookseller on AOL's commercial service, which is the largest online service of
any kind, serving approximately 13 million members. The Company has also entered
into exclusive strategic alliances with Lycos, ZDNet, Disney, The New York
Times, CNN, Pathfinder and USA Today. The Company believes that most of the
valuable marketing alliances with current high-traffic Web sites have already
been secured, making it difficult for new entrants to gain online market share.
Affiliate network. In addition to securing alliances with high-traffic Web
sites, barnesandnoble.com has, during the past year, established an affiliate
network consisting of over 25,000 Web sites operated by third parties, whereby
Web sites can earn commissions by linking users from their site to the Company's
online bookstore. The Company believes that its affiliate program goes beyond
that of other online booksellers by: (1) paying higher commissions; (2) enabling
members to take content from the Company's online bookstore to enhance their
merchandising; and (3) providing members with real-time reporting and analysis
tools. The Company recently entered into an agreement with Tripod and Angelfire,
two leading Internet sites that allow users to market their own home pages,
enabling their significant member base to easily join the Company's affiliate
network. The Company intends to add to the scope and reach of its affiliate
network through such innovative programs as its recently announced "Book
Benefits Network" which links non-profit Web sites to the Company's online
bookstore. Book Benefit members include The New York Public Library, The
Children's Defense Fund and CARE.
Advertising. In May 1998, the Company began a comprehensive national print,
radio, television and online banner campaign to significantly increase awareness
of the Company's Web site. It intends to continue to advertise in each of those
forms of media, allocating expenditures in relation to the effectiveness of the
advertising.
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International. The Company believes that the demand for U.S. published
books abroad is substantial and untapped. Its international customers have a
significantly higher average order than its U.S. customers and currently
represent 11.3% of the Company's net sales. These international sales have been
achieved with virtually no additional advertising or marketing effort. The
Company plans to increase efforts in this area, which may require international
advertising and the production of customized versions of its online bookstore to
suit local tastes and preferences.
Relationship with Barnes & Noble
Distribution Center. The Company believes that its strategic alliance with
Barnes & Noble provides it with inherent advantages over strictly online
booksellers, therefore enabling it to operate as a low-cost producer and to
provide fast shipping. Since the Company purchases most of its goods from Barnes
& Noble, whose distribution center is in close proximity to the Company's
fulfillment center, the Company is not burdened with the costs associated with
establishing and operating its own large physical distribution center. The
Company also benefits from Barnes & Noble's extensive expertise in the
management of a large inventory and title base. Because Barnes & Noble purchases
goods for a retail company with annual sales of approximately $3 billion, its
distribution center purchases books at the maximum allowable discounts from
publishers and benefits from reduced freight expense. The Barnes & Noble
distribution center is able to pass those discounts to barnesandnoble.com, less
nominal freight and handling costs. Furthermore, by utilizing the Barnes & Noble
distribution center, the Company is able to offer the most extensive online
selection of titles readily available for immediate shipping. As of August 1998,
Barnes & Noble's distribution center stocked over 650,000 titles, and Barnes &
Noble plans to increase title selection inventory to over 750,000 titles by the
end of 1998 and to over one million titles by Spring 1999.
Name Recognition. The Company believes that the brand name recognition of
Barnes & Noble provides significant strategic advantage in the marketplace,
particularly with respect to capturing a significant share of mainstream
consumers who are expected to become Web users and e-commerce consumers in the
coming years. With store locations in 48 states the Barnes & Noble name is seen
by millions of consumers each week and the Company believes that as more
mainstream consumers come online they will feel comfortable purchasing products
from a brand they know and trust.
Experience. The Company's relationship with Barnes & Noble also gives the
Company access to the wealth of experience of Barnes & Noble's management, which
is widely respected as among the most experienced and innovative in the
bookselling industry. The Company also has access to Barnes & Noble's data
warehouse, which is the industry's single largest source of U.S. consumer book
buying preferences. This data offers the Company's editors a substantial amount
of information to assist them in merchandising the Company's online bookstore.
Additionally, the Company also plans to utilize Barnes & Noble's expertise in
database marketing and data mining to develop targeted catalogs, which it
believes will increase the lifetime value of its customers.
Capital. Prior to the effectiveness of this Prospectus, all outstanding
indebtedness of the Company owed to Barnes & Noble will be converted into a
capital contribution by Barnes & Noble to the Company; as of August 1, 1998,
that amount was $67.5 million. Barnes & Noble will contribute an additional $100
million to the Company prior to the consummation of the Offering and, following
the Offering, the Company intends to enter into an agreement with Barnes & Noble
whereby Barnes & Noble will make a $100 million revolving credit facility
available to the Company on terms no less favorable to the Company than the
Company would receive from an unaffiliated third party.
Order Fulfillment
The Company utilizes an extensive electronic shopping network for order
fulfillment, which is connected to the Barnes & Noble distribution center and
various book wholesalers, including the Ingram Book Company, Baker & Taylor and
Bookazine. From these sources the Company can quickly obtain approximately
900,000 different titles. Orders not filled through this network are forwarded
to the Company's special order group, which places orders directly with
publishers.
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Internet customer orders are processed at the Company's fulfillment center
in central New Jersey which is in close proximity to the Barnes & Noble
distribution center. Also located in central New Jersey are customer service
personnel and the special-order group. Additionally, the Company has an in-house
telemarketing center in northern New Jersey.
Technology
The Company believes that it currently has a state-of-the-art interactive
e-commerce platform, and it plans to continue to invest in technologies that
will enable it to offer its customers the most convenient and user-friendly
online shopping experience possible. The Company has been able to quickly
establish suites of "best of breed" solutions by following a strategy of
leveraging existing systems and the best demonstrated processes of Barnes &
Noble, licensing existing commercial technology when available and focusing its
internal development efforts on those proprietary systems necessary to provide
the highest level of value and service to its customers. The overall mix of
technologies and applications currently in use by the Company allow it to
support a distributed, scalable and secure e-commerce environment.
The Company uses the latest Intel-based Server Technology provided by
Hewlett Packard in a fully redundant configuration to power its online
bookstore, which is hosted in three separate locations. One of such locations is
at AOL, and is exclusively for AOL subscribers (barnesandnoble@aol). By hosting
at AOL the AOL online bookstore is optimized for performance for AOL customers.
MCI is the primary host location for the online bookstore on the Web
(barnesandnoble.com). In addition, another host location at the Company's
corporate headquarters in New York provides additional capacity and redundancy.
All hosting locations are configured with burstable bandwith to avoid any
network saturation and three separate Internet service providers are used. By
using a "round robin" strategy and cycling users through multiple active sites
the Company has significantly reduced its exposure to downtime and service
outages.
The Company's integrated systems and tools provide functionality in the
following areas:
Title DataBase and Search Functionality. The Company has been able to
establish a comprehensive and accurate book database by employing a
multi-channel data sourcing strategy. The Company obtains its primary title
database directly from Barnes & Noble. Weekly updates are automatically sent to
the Company's servers, which utilize Microsoft SQL Server 6.5 for database
management. The Company complements this primary title database content feed
with data from multiple external sources and is able to programmatically
evaluate data, identify inconsistencies and correct inaccuracies. The Company
has also developed a powerful proprietary search engine. This software allows a
user to conduct book searches using a variety of criteria, including author,
title, keywords, subject area, ISBN number, book format, subject, price and a
series of children's age ranges. Search results can then be sorted by
user-defined sequences including "bestseller," "date published," a "Readers
Catalog highly recommended book," or in alphabetical sequence.
E-Commerce. The Company has developed its e-commerce applications using the
Microsoft Site Server Architecture. Working with Microsoft, the Company has
created a set of server applications that allow customers to establish an
account to store an address book, credit cards and ordering preferences. A
customer needs to set up an account only once. Once the account has been
established the customer can either shop the traditional "e-commerce" path by
adding items to their shopping cart or use the Company's proprietary Express
LaneSM ordering feature to check out with just one click. Options to gift-wrap,
gift message and select from a variety of shipping methods all allow customers
to customize their orders.
Community, Interactive and Personalization. The Company has established
several applications to facilitate interaction with its customers. An
"Auditorium," which uses Microsoft's Chat technology, is used to host real-time
author chats each night on the Company's online bookstore. Personal
recommendations are generated through collaborative filtering technology.
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Order Processing. The Company has created a proprietary application to
expedite orders into the fulfillment process. This application has real-time
connectivity to Barnes & Noble's distribution center, Ingram Book Company, Baker
& Taylor, and Bookazine. In addition to immediately securing the inventory for
the customer, application logic determines the best possible choice of shipping
warehouse by evaluating purchase margin, postage cost and customer delivery
time.
Order Fulfillment and Customer Service. The Company has developed
proprietary applications which enable it to receive product and assign it to
customers based upon various ordering, handling and shipping criteria. The
Company has also developed proprietary e-mail applications which are used for
customer service.
Sales Tracking and Analysis. The Company licenses technology from Be Free
Inc. to support its affiliate program. This software provides sophisticated
sales tracking for the members of the affiliate network with real time reporting
and analysis tools. The Company has built a comprehensive data warehouse to
store and analyze customer, sales and online bookstore activity data.
Competition
Both the e-commerce market and retail bookselling business are highly
competitive. Since the introduction of e- commerce to the Internet, the number
of e-commerce Web sites competing for customers' attention has increased
rapidly. The Company expects future competition to intensify given the relative
ease with which new Web sites can be developed. The Company currently competes
with numerous booksellers including other Internet-based companies, such as
Amazon.com, and traditional book retailers.
The Company believes that the primary competitive factors in e-commerce are
brand recognition, site content, ease of use, price, fulfillment speed, customer
support and reliability. The Company's success will depend heavily upon its
ability to provide a compelling and satisfying shopping experience. Other
factors that will affect the Company's success include the Company's continued
ability to attract experienced marketing, technology, operations and management
talent. One of the Company's main competitors has a longer online operating
history and a larger existing customer base than the Company. The Company is
aware that certain of its competitors have and may continue to adopt aggressive
pricing and marketing strategies. Increased competition may adversely affect
operating margins and result in loss of market share and a diminished brand
franchise. The nature of the Internet as an electronic marketplace (which may,
among other things, facilitate competitive entry and comparison shopping) may
render it inherently more competitive than traditional retailing formats.
Employees
As of September 1, 1998, the Company employed approximately 423 full- and
part-time employees. The Company also employs independent contractors to perform
duties in various departments, including software development, editorial and
administration. The Company's employees are not represented by unions, and the
Company considers its relationship with its employees to be excellent. The
Company believes that its success is dependent on its ability to attract and
retain qualified personnel in numerous areas, including software development.
See "Risk Factors--Management of Growth."
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Facilities
The Company's principal administrative, marketing and technical facilities
are located in New York, New York and total approximately 63,000 square feet.
The Company's distribution and merchandising facilities, which are located in
New Jersey, total approximately 100,000 square feet. The Company believes that
these facilities will be sufficient to accommodate its anticipated growth over
the next 12 months. The Company does not own any real estate.
Legal Proceedings
The Company is involved in various routine legal proceedings incidental to
the conduct of its business. Management does not believe that any of these legal
proceedings will have a material adverse effect on the financial condition of
the Company.
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MANAGEMENT
Executive Officers and Directors
Name Age Position
---- --- --------
Leonard Riggio..................... 57 Chairman of the Board
Stephen Riggio..................... 43 Chief Executive Officer
and a Director
Jeffrey Killeen.................... 45 Chief Operating Officer
William F. Duffy................... 42 Vice President, Operations, Chief
Financial Officer and a Director
John Kristie....................... 36 Vice President, Information
Technology and a Director
Brenda Marsh....................... 44 Vice President, Merchandising
Carl Rosendorf..................... 47 Vice President, Marketing, Sales
and Business Development
Michael N. Rosen................... 57 Secretary and a Director
Irene R. Miller (1)................ 46 Director
- --------------------------
(1) Member of the Compensation Committee.
Mr. Leonard Riggio has been Chairman of the Board since its inception. Mr.
Riggio has been Chairman of the Board, Chief Executive Officer and a principal
stockholder of Barnes & Noble since its inception in 1986. Since 1965, Mr.
Riggio has been Chairman of the Board, Chief Executive Officer and the principal
stockholder of B&N College. For more than the past five years, Mr. Riggio has
been Chairman of the Board and a principal beneficial owner of MBS Textbook
Exchange, Inc. ("MBS"), one of the nations's largest wholesalers of college
textbooks. Mr. Riggio is also the principal member and sole Manager of
Babbage's Etc. LLC, a national retailer of personal computer software and video
games. Mr. Leonard Riggio is the brother of Mr. Stephen Riggio.
Mr. Stephen Riggio has been Chief Executive Officer and a director of the
Company since its inception. He has been Vice Chairman of Barnes & Noble since
December 1997 and a director of Barnes & Noble since April 1997. Prior to that
time, from February 1995 to December 1997, Mr. Riggio was Chief Operating
Officer of Barnes & Noble and, from July 1993 to February 1995, he was President
of B. Dalton Bookseller, Inc., a wholly-owned subsidiary of Barnes & Noble.
Prior to that time, from January 1987 to February 1995, Mr. Riggio was Executive
Vice President, Merchandising of Barnes & Noble. Mr. Stephen Riggio is the
brother of Mr. Leonard Riggio.
Mr. Jeffrey Killeen has been Chief Operating Officer of the Company since
January 1998. Prior to that time, from 1994 to 1998, he was President and Chief
Executive Officer of Pacific Bell Interactive Media, and its predecessor
company, ESS Ventures, LLC, where he built At Hand, a critically acclaimed
business directory and shopping services Web site. During 1993 and 1994, Mr.
Killeen was President of American Insurance Services Group, a major electronic
publisher serving the insurance industry. Prior to that time, Mr. Killeen had a
distinguished 18-year career at the Dun & Bradstreet Corporation, where he held
positions of increasing responsibility at three different Dun & Bradstreet
subsidiaries. His last position there was as Senior Vice President, Marketing,
Publishing and New Business Development for its Reuben H. Donnelley subsidiary,
a leading publisher of Yellow Pages and related directory information services.
While at Dun & Bradstreet, Mr. Killeen also played a key role in the creation
and growth of two new business units, Dun's Marketing Services, a
business-to-business database marketing service, and SalesNet, a
computer-assisted telemarketing service.
Mr. William F. Duffy has been Vice President, Operations, Chief Financial
Officer and a director of the Company since its inception. Mr. Duffy is
responsible for all of the financial matters, operations, fulfillment, and
customer service of the Company. From April 1996 to January 1998, Mr. Duffy
served as the Vice President of Finance and Chief Accounting Officer of Barnes &
Noble. From 1994 to 1997, Mr. Duffy served as the Vice President and General
Manager of Marboro, a wholly-owned subsidiary of Barnes & Noble, through which
Barnes & Noble operates its mail-order catalog business, where he was
responsible for all of the merchandising, marketing, management information
systems, creative and fulfillment operations. From 1991 to 1993, Mr. Duffy was
the Vice President of Finance for Jamesway Corporation.
Mr. John Kristie has been Vice President, Information Technology and a
director of the Company since its inception, and is responsible for the
technology infrastructure and product development for the Company. His work over
the past year has been highlighted in Hewlett Packard's annual report and he was
awarded Web Week's Eight Who Made a Difference award in 1997 for his role in the
launch of the Company's online bookstore on the Web. Mr. Kristie has spent the
last 14 years developing information systems in the retail industry. From 1995
to 1997,
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Mr. Kristie served as the Director of Applications Development for Barnes &
Noble where he was responsible for the development of store, merchandising and
financial systems. During that period, Mr. Kristie made many contributions to
Barnes & Noble including an innovative inventory replenishment system based on
the latest data warehouse technology by [Red Brick systems]. Prior to that time,
from 1987 to 1995, Mr. Kristie served in a variety of information systems
positions with progressive responsibility at Waldenbooks.
Ms. Brenda Marsh joined the Company as Vice President, Merchandising in
July 1998. From 1988 until 1997, she served first as Senior Vice President, and
then President, of Sales and Market Development for the general book group of
HarperCollins, where she was responsible for domestic and international sales.
Previously, Ms. Marsh was Vice President of Sales at Viking Penguin, and prior
to that, the Director of Sales for St. Martin's Press. She began her career in
the book business as a sales representative for Columbia University Press, and
Simon & Schuster. Ms. Marsh has more than 20 years of experience working in
sales and marketing for the publishing industry.
Mr. Carl Rosendorf has been Vice President, Marketing, Sales and Business
Development of the Company since June 1997. Prior to that time, from November
1994 to July 1996, Mr. Rosendorf was one of the founders and President of
Cybersmith, a premier Internet cafe. From 1988 to 1994, Mr. Rosendorf served as
Executive Vice President of B&N College, one of the nation's largest operators
of college bookstores, where he was responsible for coordinating all retail
operations, including buying, merchandising, store design and construction.
Mr. Rosendorf has a career in bookselling which spans over 20 years.
Mr. Michael N. Rosen has been Secretary and a director of the Company since
its inception. Mr. Rosen has been a senior member of Robinson Silverman Pearce
Aronsohn & Berman LLP, counsel to the Company, for more than the past five
years. Mr. Rosen is also a director of Barnes & Noble, B&N College and MBS.
Ms. Irene R. Miller has been a director of the Company since its inception.
Ms. Miller was Chief Financial Officer of Barnes & Noble from September 1993 to
June 1997 and Vice Chairman of Barnes & Noble from September 1995 to June 1997.
She joined Barnes & Noble in January 1991 and held various positions until she
was appointed Chief Financial Officer in 1993. From July 1986 to December 1990,
Ms. Miller held various positions in the Retail Industry Group for Morgan
Stanley & Co. Incorporated's Investment Banking Department, most recently as a
Principal. From 1982 to 1986, she was a Vice President of Corporate Finance at
Rothschild, Inc. Ms. Miller is also a director of Barnes & Noble, Oakley, Inc.
and Benckiser N.V.
Additional Directors; Classes of Directors
Prior to or immediately following the consummation of the Offering,
additional independent directors who are not affiliated with the Company will be
elected to the Company's Board of Directors and certain current directors, other
than Leonard Riggio and Stephen Riggio, will resign from the Board of Directors.
Prior to the consummation of the Offering, the Board of Directors will be
divided into three classes, each of whose members will serve for a staggered
three-year term. Upon the expiration of the term of a class of directors,
directors in such class will be elected for three-year terms at the annual
meeting of stockholders in the year in which such term expires.
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Executive Officers
Executive officers of the Company are elected by the Board of Directors on
an annual basis and serve until the next annual meeting of the Board of
Directors or until their successors have been duly elected and qualified.
Board Committees
Prior to or immediately following the consummation of the Offering, the
Company will establish an Audit Committee of the Board of Directors which will
consist solely of two or more independent directors. The Audit Committee will
review, act on and report to the Board of Directors with respect to various
auditing and accounting matters, including the selection of the Company's
auditors, the scope of the annual audits, fees to be paid to the auditors, the
performance of the Company's independent auditors and the accounting practices
of the Company.
Since its inception, the Company's Compensation Committee of the Board of
Directors has consisted of Ms. Irene Miller. Prior to or following the
consummation of the Offering, the Company will appoint new outside directors to
the Compensation Committee of the Board of Directors and Ms. Miller will
resign from such Committee. The Compensation Committee determines the salaries
and incentive compensation of the officers of the Company and provides
recommendations for the salaries and incentive compensation of the other
employees and the consultants of the Company. The Compensation Committee also
administers the Company's incentive compensation plan.
Compensation Committee Interlocks and Insider Participation
The Company's Compensation Committee currently consists of Ms. Irene
Miller, who has not been an officer or employee of the Company at any time since
the Company's inception. Prior to or immediately following the consummation of
the Offering, the Company will appoint new outside directors to the Compensation
Committee of the Board of Directors and Ms. Miller will resign from such
Committee. No executive officer of the Company serves as a member of the board
of directors or compensation committee of any entity that has one or more
executive officers serving as a member of the Company's Board of Directors or
Compensation Committee except that Leonard Riggio, the Company's Chairman of the
Board, is also the Chairman of the Board of Barnes and Noble, and Stephen
Riggio, the Company's Chief Executive Officer and a director, is also the Vice
Chairman and a director of Barnes & Noble. In addition, Irene Miller and
Michael Rosen, who are each directors of the Company, are also members of the
Board of Directors of Barnes & Noble.
Compensation of Directors
Directors who are not employees or officers of the Company are expected to
receive compensation in form and amounts to be determined. In addition all
directors are reimbursed for certain expenses in connection with attendance at
Board of Directors and committee meetings. Other than with respect to
reimbursement of expenses, directors who are employees or officers of the
Company do not receive additional compensation for service as a director. Prior
to or immediately following the consummation of the Offering, the Company will
appoint new outside directors to the Compensation Committee of the Board of
Directors and Ms. Miller will resign from such Committee.
Limitation of Liability and Indemnification Matters
The Company has included in its Amended Certificate provisions to indemnify
its directors and officers to the extent permitted by Delaware law. The Amended
Certificate also includes provisions to eliminate the personal liability of its
directors and officers to the Company and its stockholders to the fullest extent
permitted by Delaware law. Under current law, such exculpation would extend to
an officer's or director's breaches of fiduciary duty, except for (i) breaches
of such person's duty of loyalty, (ii) those instances where such person is
found not to have acted in good faith, (iii) those instances where such person
received an improper personal benefit as the result of such breach and (iv) acts
in violation of Section 174 of the Delaware General Corporation Law.
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<PAGE>
The Company's Amended By-laws provide that the Company will indemnify its
directors, officers and employees against judgments, fines, amounts paid in
settlement and reasonable expenses.
Executive Compensation
The following table summarizes the compensation paid or accrued by the
Company, for services rendered to the Company during Fiscal Year 1997, to the
Company's Chief Executive Officer and the Company's three other most highly
compensated executive officers (collectively, the "Named Executive Officers").
The Company did not pay or accrue compensation in excess of $100,000 to any
other executive officer of the Company in Fiscal Year 1997. The Company did not
grant any restricted stock awards or stock appreciation rights or make any
long-term incentive plan payouts during Fiscal Year 1997.
Summary Compensation Table
Annual Compensation
--------------------------
Name and Principal Positions Salary($) Bonus($)
---------------------------- --------- --------
Stephen Riggio..................................
Chief Executive Officer
Jeffrey Killeen.................................
Chief Operating Officer
John Kristie....................................
Vice President, Information Technology
Carl Rosendorf..................................
Vice President, Marketing, Sales and Business
Development
1998 Incentive Plan
General. The Company's 1998 Incentive Plan (the "1998 Incentive Plan")
provides that options to acquire shares of Class A Common Stock ("Shares") may
be granted to key officers, employees, consultants, advisors and directors of
the Company or any of its subsidiaries or affiliates as shall be selected from
time to time by a committee of not fewer than two Directors of the Company, as
designated by the Board of Directors. The purpose of the 1998 Incentive Plan is
to assist the Company in attracting and retaining selected individuals to serve
as directors, officers, consultants, advisors and employees of the Company who
will contribute to the Company's success and to achieve long-term objectives
which will inure to the benefit of all stockholders of the Company through the
additional incentive inherent in the ownership of the Common Stock. Awards under
the 1998 Incentive Plan may take the form of stock options ("Options"),
including corresponding share appreciation rights ("SARs") and reload options,
restricted stock awards and stock purchase awards.
Share Authorization. The maximum number of Shares that may be the subject
of awards under the 1998 Incentive Plan is _________ Shares and in any given
year, the maximum number of Shares with respect to which Options or SARs may be
granted to any employee is _______ Shares. Shares covered by any unexercised
portions of terminated Options, Shares forfeited by participants and Shares
subject to any awards that are otherwise surrendered by a participant without
receiving any payment or other benefit with respect thereto may again be subject
to new awards under the 1998 Incentive Plan. In the event the purchase price of
an Option is paid in whole or in part through the delivery of Shares, the number
of Shares issuable in connection with the exercise of the Option shall not again
be available for the grant of awards under the 1998 Incentive Plan. Shares
subject to Options, or portions thereof, with respect to which SARs are
exercised, are not again available for the grant of awards under the 1998
Incentive Plan.
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The Shares to be issued or delivered under the 1998 Incentive Plan are
authorized and unissued Shares, or issued Shares that have been acquired by the
Company, or both.
1998 Incentive Plan Administration. The 1998 Incentive Plan is
administered by the Compensation Committee of the Company's Board of Directors
(the "Committee"). The Board of Directors may remove from, add members to, or
fill vacancies in the Committee. The Committee is authorized, subject to the
provisions of the 1998 Incentive Plan, to establish such rules and regulations
as it may deem appropriate for the conduct of meetings and proper administration
of the 1998 Incentive Plan. Subject to the provisions of the 1998 Incentive
Plan, the Committee shall have authority, in its sole discretion, to grant
awards under the 1998 Incentive Plan, to interpret the provisions of the 1998
Incentive Plan and, subject to the requirements of applicable law, to prescribe,
amend, and rescind rules and regulations relating to the 1998 Incentive Plan or
any award thereunder as it may deem necessary or advisable.
Options. "Incentive Stock Options" meeting requirements of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), and "Nonqualified
Stock Options" that do not meet such requirements are both available for grant
under the 1998 Incentive Plan. The term of each Option will be determined by the
Committee, but no Option will be exercisable prior to six months from the date
of grant or more than ten years after the date of grant (except in the case of
Options that are nonqualified Stock Options, where the Committee can specify a
longer period). Options may also be subject to restrictions on exercise, such as
exercise in periodic installments, as determined by the Committee. In general,
the exercise price for Incentive Options must be at least equal to 100% of the
fair market value of the Shares on the date of the grant and the exercise price
for Nonqualified Stock Options will be determined by the Committee at the time
of the grant. The exercise price can be paid in cash, or if approved by the
Committee, by tendering Shares owned by the participant. Options are not
transferable except by will or the laws of descent and distribution and may
generally be exercised only by the participant (or his guardian or legal
representative) during his or her lifetime, provided, however, the Nonqualified
Stock Options may, under certain circumstances, be transferable to family
members and trusts for the benefit of the participant or his family members.
Share Appreciation Rights. The 1998 Incentive Plan provides that SARs may
be granted in connection with the grant of Options. Each SAR must be associated
with a specific Option and must be granted at the time of grant of such Option.
A SAR is exercisable only to the extent the related Option is exercisable. Upon
the exercise of a SAR, the recipient is entitled to receive from the Company,
without the payment of any cash (except for any applicable withholding taxes),
up to, but no more than, an amount in cash or Shares equal to the excess of (A)
the fair market value of one Share on the date of such exercise over (B) the
exercise price of any related Option, multiplied by the number of Shares in
respect of which such SAR shall have been exercised. Upon the exercise of a SAR,
the related Option, or the portion thereof in respect of which such SAR is
exercised, will terminate. Upon the exercise of an Option granted in tandem with
a SAR, such tandem SAR will terminate.
Reload Options. The Committee may grant, concurrently with the award of any
Option (an "Underlying Option"), a reload option (a "Reload Option") to such
participant to purchase for cash or Shares a number of Shares equal to the
number of Shares delivered by the participant to the Company to exercise the
Underlying Option. Although an Underlying Option may be an Incentive Stock
Option, a Reload Option is not intended to qualify as an Incentive Stock Option.
A Reload Option will have the same expiration date as the Underlying Option and
an exercise price equal to the fair market value of the Shares on the date of
grant of the Reload Option. A Reload Option is exercisable six months from the
date of grant. A Reload Option permits a participant to retain the potential
Share appreciation in the number of already-owned Shares that are used to
exercise an Underlying Option. Retention of such potential appreciation is
accomplished by granting options for the number of Shares used to pay the
exercise price of the Underlying Option. In this way, Reload Options provide a
participant with the opportunity to build up ownership of Shares covered by an
Underlying Option earlier during the Option term than through a single exercise
at or near the end of the Option term.
Restricted Stock. The Company may award restricted Shares under the 1998
Incentive Plan. Such a grant gives a participant the right to receive Shares
subject to a risk of forfeiture based upon certain conditions. The forfeiture
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restrictions on the Shares may be based upon performance standards, length of
service or other criteria as the Committee may determine. Until all restrictions
are satisfied, lapsed or waived, the Company will maintain custody over the
restricted Shares but the participant will be able to vote the Shares and will
be entitled to all distributions paid with respect to the Shares, as provided by
the Committee. During such restrictive period, the restricted Shares may not be
sold, assigned, transferred, pledged or otherwise encumbered. Upon termination
of employment, the participant forfeits the right to the Shares to the extent
the applicable performance standards, length of service requirements, or other
measurement criteria have not been met.
Stock Purchase Awards. The 1998 Incentive Plan also permits the grant of
stock purchase awards. Participants who are granted a stock purchase award are
provided with a stock purchase loan to enable them to pay the purchase price for
the Shares acquired pursuant to the award. A stock purchase loan will have a
term of years to be determined by the Committee. The purchase price of Shares
acquired with a stock purchase loan is the price equal to the fair market value
on the date of the award. The 1998 Incentive Plan provides that up to 100% of
the stock purchase loan may be forgiven over the loan term subject to such terms
and conditions as the Committee shall determine, provided that the participant
has not resigned as an employee of the Company. At the end of the loan term, the
unpaid balance of the stock purchase loan will be due and payable. The interest
rate on a stock purchase loan will be determined by the Committee. Stock
purchase loans will be secured by a pledge to the Company of the Shares
purchased pursuant to the stock purchase award and such loans will be recourse
or non-recourse to a participant, as determined from time to time by the
Committee.
Antidilution Provisions. The number of Shares authorized to be issued under
the 1998 Incentive Plan and subject to outstanding awards (and the grant or
exercise price thereof) may be adjusted to prevent dilution or enlargement of
rights in the event of any dividend or other distribution, recapitalization,
stock split, reverse stock split, reorganization, merger, consolidation,
split-up, spin-off, combination, repurchase or exchange of Shares or other
securities, the issuance of warrants or other rights to purchase Shares or other
securities, or other similar capitalization change.
Change in Control. Upon the occurrence of a change in control of the
Company, all Options and related SARs may become immediately exercisable, the
restricted Shares may fully vest and stock purchase loans may be forgiven in
full.
Termination and Amendment. The 1998 Incentive Plan will terminate by its
terms and without any action by the Board of Directors in 2008. No awards may be
made after that date. Awards outstanding on such termination date will remain
valid in accordance with their terms.
The Committee may amend or alter the terms of awards under the 1998
Incentive Plan, including to provide for the forgiveness in whole or in part of
stock purchase loans, the release of the Shares securing such loans or the
termination or modification of the vesting or performance provisions of the
grants of restricted Shares, but no such action shall in any way impair the
rights of a participant under any award, without such participant's consent.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of the date of this Prospectus by (i) each
person known by the Company to own beneficially more than 5% of the outstanding
shares of Common Stock, (ii) each of the Company's directors, (iii) the Named
Executive Officers, and (iv) all current executive officers and directors as a
group.
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<TABLE>
<CAPTION>
Percentage of Shares Percentage of
Beneficially Owned Voting Power
Name and Address Numbers of Shares --------------------------------- -----------------------------------
of Beneficial Owner Beneficially Owned(1) Before Offering After Offering Before Offering After Offering
- ------------------- --------------------- --------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Barnes & Noble, Inc....... (2)
122 Fifth Avenue
New York, NY 10011
Leonard Riggio(3).........
Stephen Riggio............
Jeffrey Killeen...........
William F. Duffy..........
John Kristie..............
Carl Rosendorf............
Irene R. Miller...........
Michael N. Rosen..........
All current executive officers
and directors as a group
(___ persons)(___)
</TABLE>
- ------------------
* Represents less than 1% of the Company's outstanding Common Stock.
(1) Unless otherwise indicated below, the persons and entities named in the
table have sole voting and sole investment power with respect to all shares
beneficially owned, subject to community property laws where applicable.
Shares of Common Stock subject to options that are currently exercisable or
exercisable within 60 days of the date of this Prospectus are deemed to be
outstanding and to be beneficially owned by the person holding such options
for the purpose of computing the percentage ownership of such person but
are not treated as outstanding for the purpose of computing the percentage
ownership of any other person.
(2) Represents shares of Class B Common Stock owned by Holdings, which is a
wholly-owned subsidiary of Barnes & Noble. See "Description of Capital
Stock."
(3) Mr. Riggio beneficially owns approximately 23.8% of the common stock of
Barnes & Noble, which will, following the Offering, beneficially own
approximately ___% of the voting power of the Common Stock.
CERTAIN TRANSACTIONS WITH BARNES & NOBLE
Income Taxes
In accordance with the terms of the Tax Sharing Agreement, the Company is
reimbursed for any income tax benefits which Barnes & Noble receives by
including the Company in its U.S. consolidated income tax returns for as long as
Barnes & Noble retains at least an 80% voting and economic ownership interest in
the Company. Conversely, the Company would reimburse Barnes & Noble for its
share of any tax liability recorded by the Company. Such payment or receipt is
calculated based upon a comparison of the tax calculations including and
excluding the Company. Additionally, the Tax-Sharing Agreement provides for the
payment of taxes and entitlement to tax refunds for periods prior to the
Offering.
Barnes & Noble is a common parent of an affiliated group of companies
within the meaning of Section 1504(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). Such section of the Code requires that Barnes & Noble own
at least an 80% voting and economic ownership interest in the Company to
continue to include the Company in its U.S. consolidated income tax returns. The
Company believes that, for the foreseeable future, it will continue to be able
to receive a tax benefit from Barnes & Noble equal to the benefit which Barnes &
Noble will receive on its U.S. consolidated income tax returns.
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Certain Relationships
Through its distribution facilities, Barnes & Noble accounted for
approximately 34.8% of the Company's purchases during 1997 and approximately
56.8% of the Company's purchases for the 26 weeks ended August 1, 1998. The
Company expects to continue to source most of its merchandise through Barnes &
Noble in the future. Barnes & Noble charges the Company the costs associated
with such purchases, including cost of freight, handling and other costs
incurred by Barnes & Noble in connection with providing such inventory. Prior to
the consummation of the Offering, the Company will enter into the Supply
Agreement with Barnes & Noble pursuant to which Barnes & Noble will agree to
continue to supply products to the Company on the current terms. The Company
believes that such terms are more favorable than terms at which the Company
otherwise would be able to make such purchases on its own. The Supply Agreement
may be terminated by the Company at any time on 30 days' notice, and may be
terminated by Barnes & Noble, on 90 days' notice, at any time after the earlier
of (i) the tenth anniversary of the date of this Prospectus, or (ii) a "change
in control" of the Company. "Change in Control" is defined as the occurrence of
any of the following: (a) at any time Barnes & Noble no longer beneficially owns
a majority (by vote) of the Common Stock, a majority of the members of the Board
of Directors of the Company are no longer composed of: (i) individuals who are
members of the Board of Directors on the date of this Prospectus, (ii)
individuals whose election or nomination to the Board of Directors was approved
by individuals referred to in the preceding clause (i) constituting at the time
of such election or nomination at least a majority of the Board of Directors, or
(iii) individuals whose election or nomination to the Board of Directors was
approved by individuals referred to in the preceding clauses (i) and (ii)
constituting at the time of such election or nomination at least a majority of
the Board of Directors; or (b) any person (or any two or more persons that are
deemed to be a "group" under Sections 13(d)(3) and 14(d)(2) of the Securities
Exchange Act of 1934, as amended) acquiring, directly or indirectly, effective
control (whether through legal or beneficial ownership of capital stock of the
Company, by contract or otherwise) of more than 25% (by vote) of the outstanding
Common Stock and no other person or group has a greater beneficial interest in
the outstanding Common Stock.
The Company has entered into the License Agreement, pursuant to which it
has been granted a perpetual, exclusive license to use the Barnes & Noble name
and trademark in its operations (excluding sales of college textbooks). The
License is not revokable unless the Company is in default or there is a "change
in control" (as defined above) of the Company. The Company pays B&N College an
annual fee of $50,000 for the License.
The Company also licenses from Barnes & Noble, for an annual fee of $50,000
the right to use Barnes & Noble's title database, inventory sourcing and special
order software, customer lists and demographic information. The license
agreement renews annually unless terminated by either party on at least 90 days
written notice prior to the commencement of the renewal year.
As a subsidiary of Barnes & Noble, the Company receives various services
from Barnes & Noble and its subsidiaries including, among others, services for
payroll processing, benefits administration, insurance (property and casualty,
medical, dental and life), tax, merchandising, traffic, fulfillment and
telecommunications. In accordance with the terms of the Services Agreements, the
Company has paid, and expects to continue to pay, fees to Barnes & Noble and its
subsidiaries in an amount equal to 105% of the Company's proportionate share of
the costs of such services. In the opinion of management, these allocations were
made on a reasonable and consistent basis; however, they are not necessarily
indicative of, and it is not practicable for management to estimate, the level
of expenses which might have been incurred had the Company been operating as a
separate, stand-alone company.
RECAPITALIZATION
As of September 1, 1998, barnesandnoble.com is a wholly-owned subsidiary of
Barnes & Noble. Prior to the consummation of the Offering: (i) Barnes & Noble
will establish barnesandnoble.com Holdings Corp. ("Holdings") as a wholly-owned
Delaware subsidiary; and (ii) Holdings will establish barnesandnoble.com Merger
Corp.
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("b&n.com Merger Corp.") as a wholly-owned Delaware subsidiary. Following the
establishment of these new companies, and prior to the effectiveness of this
Prospectus, barnesandnoble.com will be merged into b&n.com Merger Corp., which
will be the surviving corporation and will change its name to barnesandnoble.com
inc. Therefore, prior to the effectiveness of this Prospectus,
barnesandnoble.com will be a wholly-owned subsidiary of Holdings, which will be
a wholly-owned subsidiary of Barnes & Noble. In addition, prior to the
effectiveness of this Prospectus, all outstanding indebtedness of the Company
owed to Barnes & Noble will be converted into a capital contribution; as of
August 1, 1998, that amount was $67.5 million. (The foregoing events are
collectively referred to in this Prospectus as the "Recapitalization.")
In addition to the Recapitalization, Barnes & Noble will contribute an
additional $100 million to the Company prior to the consummation of the Offering
and, following the Offering, the Company intends to enter into an agreement with
Barnes & Noble whereby Barnes & Noble will make a $100 million revolving credit
facility available to the Company on terms no less favorable to the Company than
the Company would receive from an unaffiliated third party.
DESCRIPTION OF CAPITAL STOCK
General
The following description of the capital stock of the Company and certain
provisions of the Company's Amended Certificate, and the Amended By-laws, each
of which will be in effect prior to the date of this Prospectus, are summaries
thereof and are qualified by reference to the Amended Certificate and the
Amended By-laws, copies of which have been filed with the Commission as exhibits
to the Company's Registration Statement, of which this Prospectus forms a part.
The authorized capital stock of the Company consists of ___________ shares
of Class A Common Stock, par value $.01 per share, _______ shares of Class B
Common Stock, par value $.01 per share and 5,000,000 shares of Preferred Stock,
par value $.01 per share.
Common Stock
As of September 1, 1998, there were __________ shares of Class B Common
Stock outstanding and held of record by one stockholder, Holdings, a
wholly-owned subsidiary of Barnes & Noble. Based upon the number of shares
outstanding as of that date and giving effect to the issuance of the shares of
Class A Common Stock offered by the Company hereby, there will be shares of
Common Stock outstanding upon the closing of the Offering.
Voting Rights. The holders of Class A Common Stock and Class B Common Stock
generally have identical rights, except that holders of Class A Common Stock are
entitled to one vote per share while holders of Class B Common Stock are
entitled to ten votes per share on all matters to be voted on by stockholders.
Holders of shares of Class A Common Stock and Class B Common Stock are not
entitled to cumulate their votes in the election of directors. Generally, all
matters to be voted on by stockholders must be approved by a majority (or, in
the case of election of directors, by a plurality) of the votes entitled to be
cast by all shares of Class A Common Stock and Class B Common Stock present in
person or represented by proxy, voting together as a single class, subject to
any voting rights granted to holders of any Preferred Stock. Except as otherwise
provided by law, and subject to any voting rights granted to holders of any
outstanding Preferred Stock, amendments to the Amended Charter must be approved
by a majority of the combined voting power of all of Class A Common Stock and
Class B Common Stock, voting together as a single class. However, amendments to
the Company's Amended Charter that would alter or change the powers, preferences
or special rights of the Class A Common Stock or the Class B Common Stock so as
to affect them adversely also must be approved by a majority of the votes
entitled to be cast by the holders of the shares affected by the amendment,
voting as a separate class. Notwithstanding the foregoing, any amendment to the
Company's Restated Certificate of
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Incorporation to increase or decrease the authorized shares of any class shall
be approved upon the affirmative vote of the holders of a majority of the Common
Stock, voting together as a single class.
Dividends. Holders of Class A Common Stock and Class B Common Stock will
share ratably in any dividend declared by the board of directors, subject to any
preferential rights of any outstanding Preferred Stock. Dividends consisting of
shares of Class A Common Stock and Class B Common Stock may be paid only as
follows: (i) shares of Class A Common Stock may be paid only to holders of
shares of Class A Common Stock, and shares of Class B Common Stock may be paid
only to holders of Class B Common Stock; and (ii) shares shall be paid
proportionally with respect to each outstanding share of Class A and Class B
Common Stock. The Company may not subdivide or combine shares of either class of
Common Stock without at the same time proportionally subdividing or combining
shares of the other class.
Conversion. Each share of Class B Common Stock is convertible at the
option of the holder thereof into one share of Class A Common Stock. Following
the occurrence of a Tax-Free Spin-Off of the Company ("Tax-Free Spin-Off"), if
any, shares of Class B Common Stock shall not be convertible into shares of
Class A Common Stock at the option of the holder thereof.
Any shares of Class B Common Stock transferred to a person other than
Barnes & Noble or any of its subsidiaries (except a "Strategic Alliance
Partner," as defined below) shall automatically convert to shares of Class A
Common Stock upon such disposition. A "Strategic Alliance Partner" shall mean
any entity, or group of affiliated entities, acquiring Class B Common Stock
constituting, in the aggregate, at least 10% of the outstanding Common Stock and
which, in the good faith determination of the Company's Board of Directors as
determined, prior to such acquisition, is considered to constitute a strategic
alliance in the best interests of the Company's business and stockholders.
Shares of Class B Common Stock transferred to stockholders of Barnes & Noble as
a dividend intended to be a Tax-Free Spin-Off shall not convert to shares of
Class A Common Stock upon the occurrence of a Tax-Free Spin-Off. Following a
Tax-Free Spin- Off, shares of Class B Common Stock shall be transferable as
Class B Common Stock, subject to applicable laws; provided, however, that shares
of Class B Common Stock shall automatically convert into shares of Class A
Common Stock on the fifth anniversary of the Tax-Free Spin-Off, unless prior to
such Tax-Free Spin-Off, Barnes & Noble delivers to the Company an opinion of
counsel reasonably satisfactory to the Company to the effect that such
conversion could preclude Barnes & Noble from obtaining a favorable ruling from
the Internal Revenue Service that the distribution would be a Tax-Free Spin-Off.
If such an opinion is received, approval of such conversion shall be submitted
to a vote of the holders of the Common Stock as soon as practicable after the
fifth anniversary of the Tax- Free Spin-Off unless Barnes & Noble delivers to
the Company an opinion of counsel reasonably satisfactory to the Company prior
to such anniversary that such vote could adversely affect the status of the
Tax-Free Spin-Off. Approval of such conversion will require the affirmative vote
of the holders of a majority of the shares of both the Class A Common Stock and
Class B Common Stock present and voting, voting together as a single class, with
each share entitled to one vote for such purpose. No assurance can be given that
such conversion would be consummated. The requirement to submit such conversion
to a vote of the holders of Common Stock is intended to ensure tax treatment of
the Tax-Free Spin-Off is preserved should the Internal Revenue Service challenge
such automatic conversion as violating the 80% vote requirement. Barnes & Noble
has no current plans with respect to a Tax-Free Spin-Off of the Company.
All shares of the Class B Common Stock shall automatically convert into
Class A Common Stock if a Tax-Free Spin-Off has not occurred and the number of
outstanding shares of Class B Common Stock beneficially owned by Barnes & Noble
falls below 20% of the aggregate number of outstanding shares of Common Stock.
This will prevent Barnes & Noble from decreasing its economic interest in the
Company to less than 20% while still retaining control of more than 80% of the
Company's voting power. Automatic conversion of the Class B Common Stock into
Class A Common Stock if a Tax-Free Spin-Off has not occurred and Barnes & Noble
decreases its economic interest in the Company to less than 20% is intended to
ensure that Barnes & Noble retains voting control by virtue of its ownership of
Class B Common Stock only if it has a substantial economic interest in the
Company. All conversions will be effected on a share-for-share basis.
Other Rights. In the event of any merger or consolidation of the Company
with or into another company in connection with which shares of Common Stock are
converted into or exchangeable for shares of stock, other
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securities or property (including cash), all holders of Common Stock, regardless
of class, will be entitled to receive the same kind and amount of shares of
stock and other securities and property (including cash).
On liquidation, dissolution or winding up of the Company, after payment in
full of the amounts required to be paid to holders of Preferred Stock, if any,
all holders of Common Stock, regardless of class, are entitled to share ratably
in any assets available for distribution to holders of shares of Common Stock.
No shares of either class of Common Stock are subject to redemption or have
preemptive rights to purchase additional shares of Common Stock.
Upon consummation of the Offering, all the outstanding shares of Class A
Common Stock and Class B Common Stock will be legally issued, fully paid and
nonassessable.
Preferred Stock
Upon the closing of the Offering, the Board of Directors will be
authorized, without further stockholder approval, to issue from time to time up
to an aggregate of 5,000,000 shares of Preferred Stock in one or more series and
to fix or alter the designations, preferences, rights and any qualifications,
limitations or restrictions of the shares of each such series thereof, including
the dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption (including sinking fund provisions), redemption price or prices,
liquidation preferences and the number of shares constituting any series or
designations of such series. Upon the closing of the Offering, there will be no
shares of Preferred Stock outstanding. The Company has no present plans to issue
any shares of Preferred Stock. See " -- Anti-Takeover Effects of Certain
Provisions of Delaware Law and the Company's Amended Certificate and Amended
By-laws."
Options
Prior to the closing of the Offering, options to purchase a total of ______
shares ("Option Shares") of Class A Common Stock will be outstanding,
approximately ________ of which are subject to lock-up agreements entered into
with the Underwriters. Beginning ________ days after the date of this
Prospectus, approximately _______ Option Shares which are not subject to lock-up
agreements will be eligible for sale in reliance on Rule 701 promulgated under
the Securities Act. The total number of shares of Class A Common Stock that may
be subject to the granting of options under the 1998 Incentive Plan shall be
equal to ________ shares of Common Stock. See "Management --1998 Incentive
Plan" and "Shares Eligible for Future Sale."
Anti-Takeover Effects of Certain Provisions of Delaware Law and the Amended
Certificate and Amended By-laws
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law (as amended from time to time, the "DGCL"). Subject to
certain exceptions, Section 203 prohibits a publicly-held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the interested stockholder attained
such status with the approval of the Board of Directors or unless the business
combination is approved in a prescribed manner. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the interested stockholder. Subject to certain exceptions, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, fifteen percent (15%) or more
of the corporation's voting stock. The restrictions in this statute would not
apply to a "business combination" with Barnes & Noble or any of its
subsidiaries. This statute could prohibit or delay the accomplishment of mergers
or other takeover or change in control attempts with respect to the Company and,
accordingly, may discourage attempts to acquire the Company.
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In addition, certain provisions of the Amended Certificate and Amended
By-laws, which provisions will be in effect prior to the closing of the Offering
and are summarized in the following paragraphs, may be deemed to have an
anti-takeover effect and may delay, defer or prevent a tender offer or takeover
attempt that a stockholder might consider in its best interest, including those
attempts that might result in a premium over the market price for the shares
held by stockholders.
Classified Board of Directors
The Company's Board of Directors will be divided into three classes of
directors serving staggered three-year terms. As a result, approximately
one-third of the Board of Directors will be elected each year. These provisions,
when coupled with the provision of the Amended Certificate authorizing the Board
of Directors to fill vacant directorships or increase the size of the Board of
Directors, may deter a stockholder from removing incumbent directors and
simultaneously gaining control of the Board of Directors by filling the
vacancies created by such removal with its own nominees.
Special Meeting of Stockholders
The Amended Certificate provides that special meetings of stockholders of
the Company may be called only by the Chairman of the Board of Directors or a
majority of the Board of Directors.
Advance Notice Requirements for Stockholder Proposals and Director Nominations
The Amended By-laws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for election
as directors at an annual meeting of stockholders, must provide timely notice
thereof in writing. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the Company, not less
than 120 days nor more than 150 days prior to the first anniversary of the date
of the Company's notice of annual meeting provided with respect to the previous
year's annual meeting of stockholders; provided, that if no annual meeting of
stockholders was held in the previous year or the date of the annual meeting of
stockholders has been changed to be more than 30 calendar days earlier than or
60 calendar days after such anniversary, notice by the stockholder, to be
timely, must be so received not more than 90 days nor later than the later of
(i) 60 days prior to the annual meeting of stockholders or (ii) the close of
business on the 10th day following the date on which notice of the date of the
meeting is given to stockholders' or made public, whichever first occurs. The
Amended By-laws also specify certain requirements as to the form and content of
a stockholder's notice. These provisions may preclude stockholders from bringing
matters before an annual meeting of stockholders or from making nominations for
directors at an annual meeting of stockholders.
Authorized But Unissued Shares
The authorized but unissued shares of Common Stock and Preferred Stock are
available for future issuance without stockholder approval. These additional
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital, corporate acquisitions and
employee benefit plans. The existence of authorized but unissued shares of
Common Stock and Preferred Stock could render more difficult or discourage an
attempt to obtain control of the Company by means of a proxy contest, tender
offer, merger or otherwise.
The DGCL provides generally that the affirmative vote of a majority of the
shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or by-laws, unless a corporation's certificate of
incorporation or by-laws, as the case may be, requires a greater percentage.
Following the offering, Holdings, as the beneficial owner of approximately ___%
of the voting power of the outstanding Common Stock, will, on its own, be able
to cause the Company to amend its Amended Certificate and Amended By-laws.
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Transfer Agent and Registrar
The transfer agent and registrar for the Common Stock is _________________,
New York, New York.
SHARES ELIGIBLE FOR FUTURE SALE
The sale of a substantial number of shares of Common Stock, or the
perception that such sales could occur, could adversely affect prevailing market
prices for the Class A Common Stock. In addition, any such sale or perception
could make it more difficult for the Company to sell equity securities or
equity-related securities in the future at a time and price that the Company
deems appropriate. Upon consummation of the Offering, the Company will have a
total of _____ shares of Common Stock outstanding, of which the ______ shares of
Class A Common Stock sold in the Offering will be freely tradable, and of which
______ shares of Class B Common Stock will be "restricted" securities within the
meaning of Rule 144 under the Securities Act. The Class B Common Stock is
convertible into Class A Common Stock on a share-for-share basis at the option
of the holder of the Class B Common Stock. Any shares of Class A Common Stock
into which the shares of Class B Common Stock have been converted will also be
"restricted" securities within the meaning of Rule 144 under the Securities Act.
Additionally, the Company has granted options to certain directors and officers
and employees of the Company to purchase an aggregate of _______ shares of Class
A Common Stock. The Company and certain officers, directors and Barnes & Noble,
the Company's principal stockholder, who hold an aggregate of ______ shares of
Common Stock and options to purchase ______ shares of Class A Common Stock, have
agreed that they will not without the prior written consent of the
representatives of the Underwriters, directly or indirectly offer, sell,
contract to sell, grant any option to purchase or otherwise dispose of any
shares of Common Stock or any other equity security of the Company, or any
securities convertible into or exercisable or exchangeable for, or warrants,
options or rights to purchase or acquire, Common Stock or any other equity
security of the Company, or enter into any agreement to do any of the foregoing,
for a period of 180 days from the date of this Prospectus. As a result of the
foregoing, _____ shares of Class A Common Stock reserved for issuance upon the
exercise of outstanding stock options or the conversion of Class B Common Stock
will become eligible for resale following such 180-day period, subject to such
additional restrictions to the extent applicable and subject to Rule 144. No
prediction can be made as to the effect, if any, that future sales of shares of
Common Stock, or the availability of shares for future sales, will have on the
market price of the Class A Common Stock from time to time or the Company's
ability to raise capital through an offering of its equity securities.
Holdings and the Company have agreed, subject to certain limited
exceptions, not to sell or otherwise dispose of any shares of Common Stock for a
period of 180 days after the date of this Prospectus without the prior written
consent of the Representatives. See "Underwriting."
It is anticipated that a Registration Statement on Form S-8 covering the
Class A Common Stock that may be issued pursuant to the options granted under
the 1998 Incentive Plan will be filed after the consummation of this Offering.
The shares of Class A Common Stock issued pursuant to the Form S-8 Registration
Statement generally may be resold in the public market without restriction or
limitation, except in the case of affiliates of the Company who generally may
only resell such shares in accordance with the provisions of Rule 144, other
than the holding period requirement.
VALIDITY OF CLASS A COMMON STOCK
The validity of the shares of Class A Common Stock offered hereby will be
passed upon for the Company by Robinson Silverman Pearce Aronsohn & Berman LLP,
1290 Avenue of the Americas, New York, New York 10104 and for the Underwriters
by Sullivan & Cromwell, 125 Broad Street, New York, New York 10004. Michael N.
Rosen, Secretary and a director of barnesandnoble.com, is a senior member of
Robinson Silverman Pearce Aronsohn & Berman LLP.
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EXPERTS
The financial statements included in this Prospectus and in the
Registration Statement have been audited by BDO Seidman, LLP, independent
certified public accountants, to the extent and for the periods set forth in
their reports appearing elsewhere herein and in the Registration Statement, and
are included in reliance upon such reports given upon the authority of said firm
as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act of 1933 (herein together with all amendments and
exhibits thereto referred to as the "Registration Statement"), of which this
Prospectus forms a part, with respect to the Class A Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement. For further information with respect to the Company and
the Class A Common Stock offered hereby, reference is hereby made to the
Registration Statement. Statements contained in this Prospectus as to the
contents of any agreement or other document are not necessarily complete, and in
each instance, reference is made to the copy of such agreement or document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference. Upon completion of the Offering, the Company
will be required to file annual, quarterly and other information with the
Commission. A copy of the Registration Statement and any other documents filed
with the Commission may be inspected without charge at the Commission's
principal office in Washington, D.C. at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Commission's Regional Offices at Seven World Trade Center,
Suite 1300, New York, New York 10048, and Northwest Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, and copies may be obtained
at prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. In addition, the Registration
Statement and certain other filings made with the Commission through its
Electronic Data Gathering Analysis and Retrieval ("EDGAR") system are publicly
available through the Commission's Web site located at http://www.sec.gov. The
Registration Statement has been filed with the Commission through EDGAR.
Information concerning the Company is also available for inspection at the
offices of Nasdaq, 1735 K Street, NW, Washington, D.C., 20006-1500.
-47-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants..................... F-2
Balance Sheets......................................................... F-3
Statements of Operations............................................... F-4
Statements of Changes in Stockholders' Equity.......................... F-5
Statements of Cash Flows............................................... F-6
Notes to Financial Statements.......................................... F-7
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To The Board of Directors:
[The following is the form of opinion we will be in a position to issue upon the
consummation of the Recapitalization as defined and described in Note 10 of the
financial statements.]
We have audited the accompanying balance sheet of barnesandnoble.com inc.
(a Delaware corporation) as of January 31, 1998, and the related statements of
operations, stockholder's equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of barnesandnoble.com inc. as
of January 31, 1998 and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
/s/ BDO SEIDMAN, LLP
BDO SEIDMAN, LLP
New York, New York
March 10, 1998 (except for
the Recapitalization as defined and described
in Note 10, which is as of
________, 1998)
F-2
<PAGE>
barnesandnoble.com inc.
BALANCE SHEETS
(in thousands of dollars, except per share data)
<TABLE>
<CAPTION>
January 31, August 1,
1998 1998
----------- -----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Receivables, net $ 347 $ 712
Merchandise inventories 525 634
Prepaid expenses and other current assets 11,325 11,074
------- ------
Total current assets 12,197 12,420
------- ------
Fixed assets, net 24,782 31,418
Other noncurrent assets 97 2,338
---------- ----------
Total assets $ 37,076 $ 46,176
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 2,614 $ 1,957
Accrued liabilities 9,654 7,007
---------- ----------
Total current liabilities 12,268 8,964
---------- ----------
Deferred taxes 584 584
Stockholder's equity:
Common Stock Series A; $0.01 par value;
_______ shares authorized; none issued
and outstanding -- --
Common Stock Series B; $0.01 par value;
_______ shares authorized; _________ shares
issued and outstanding
Additional paid-in capital 33,456 67,459
Accumulated deficit (9,232) (30,831)
---------- ----------
Total stockholder's equity 24,224 36,628
---------- ----------
Commitments and contingencies
Total liabilities and ---------- ----------
stockholder's equity $ 37,076 $ 46,176
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
barnesandnoble.com inc.
STATEMENTS OF OPERATIONS
(in thousands of dollars, except per share data)
<TABLE>
<CAPTION>
26 weeks
ended
----------------------------
(unaudited)
Fiscal Year August 2, August 1,
1997 1997 1998
--------- ---------- ----------
<S> <C> <C> <C>
Net sales $ 14,601 $ 2,383 $ 21,870
Cost of sales 11,752 1,966 16,759
--------- ---------- ----------
Gross profit 2,849 417 5,111
--------- ---------- ----------
Operating expenses:
Marketing and sales 8,807 1,113 29,446
Product development 5,009 926 4,319
General and administrative 2,010 350 4,895
Depreciation and amortization 2,670 608 3,058
--------- ---------- ----------
Total operating expenses 18,496 2,997 41,718
--------- ---------- ----------
Loss before taxes (15,647) (2,580) (36,607)
Benefit for income taxes (6,415) (1,058) (15,008)
--------- ---------- ----------
Net loss $ (9,232) $ (1,522) $ (21,599)
========= ========== ==========
</TABLE>
Basic and diluted net loss per share
Basic and diluted weighted average
shares outstanding
See accompanying notes to financial statements.
F-4
<PAGE>
barnesandnoble.com inc.
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(in thousands of dollars)
<TABLE>
<CAPTION>
Additional
Common paid-in Accumulated
stock capital deficit Total
----- ------- ------- -----
<S> <C> <C> <C> <C>
Balance February 1, 1997 $ - $ - $ - $ -
Net loss for Fiscal Year 1997 - - (9,232) (9,232)
Capital contribution from Barnes &
Noble, Inc., net - 33,456 - 33,456
--------- -------- -------- --------
Balance January 31, 1998 - 33,456 (9,232) 24,224
Net loss for the 26 weeks ended
August 1, 1998 (unaudited) - - (21,599) (21,599)
Capital contribution from Barnes &
Noble, Inc., net (unaudited) - 34,003 - 34,003
--------- -------- -------- --------
Balance August 1, 1998 (unaudited) $ - $ 67,459 $(30,831) $ 36,628
========= ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
barnesandnoble.com inc.
STATEMENTS OF CASH FLOWS
(in thousands of dollars)
<TABLE>
<CAPTION>
26 weeks
ended
------------------------------
(unaudited)
Fiscal Year August 2, August 1,
1997 1997 1998
--------- -------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (9,232) $ (1,522) $ (21,599)
Adjustments to reconcile net loss to net cash
flows from operating activities:
Depreciation and amortization 2,670 608 3,058
Loss on sale of fixed assets - - 205
Increase in receivables, net (347) (900) (365)
Increase in merchandise inventories (525) (513) (109)
(Increase) decrease in prepaid expenses and
other current assets (11,325) (5,877) 251
Increase (decrease) in accounts payable 2,614 671 (657)
Increase (decrease) in accrued liabilities 9,654 28 (2,647)
Net change in deferred taxes 584 - -
--------- -------- ---------
Net cash flows from operating activities (5,907) (7,505) (21,863)
--------- -------- ---------
Cash flows from investing activities:
Purchases of fixed assets (27,452) (8,278) (10,094)
Proceeds from sale of fixed assets - - 200
Increase in other noncurrent assets (97) (8) (2,246)
--------- -------- ---------
Net cash flows from investment activities (27,549) (8,286) (12,140)
--------- -------- ---------
Cash flows from financing activities:
Capital contribution from Barnes & Noble,
Inc., net 33,456 15,791 34,003
--------- -------- ---------
Net cash flows from financing activities 33,456 15,791 34,003
--------- -------- ---------
Net change in cash and cash equivalents - - -
Cash and cash equivalents at beginning
of period - - -
--------- -------- ---------
Cash and cash equivalents at end of period $ - $ - $ -
========= ======== =========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
barnesandnoble.com inc.
NOTES TO FINANCIAL STATEMENTS
1. Background and Basis of Presentation
barnesandnoble.com. inc. (barnesandnoble.com or the Company) is a
wholly-owned subsidiary of Barnes & Noble, Inc. (Barnes & Noble). Prior to the
effectiveness of the Offering Prospectus, the Company will effect the
Recapitalization (as defined in Note 10). The accompanying financial statements
reflect the Recapitalization as of the earliest period presented.
The Company historically has relied on Barnes & Noble to provide
financing for its operations. Capital contributions from Barnes & Noble in the
statements of cash flows are included as adjustments to paid-in capital pursuant
to the Recapitalization. The cash flows are not indicative of the cash flows
that would have resulted had the Company been operating as a separate
stand-alone company during the periods presented.
The financial information as of August 1, 1998 and for the 26 weeks
ended August 2, 1997 and August 1, 1998 is unaudited, but includes all
adjustments (consisting only of normal recurring adjustments) that the Company
considers necessary for a fair presentation of the financial position at such
dates and the operations and cash flows for the periods then ended. Operating
results for the 26 weeks ended August 1, 1998 are not necessarily indicative of
results that may be expected for the entire year.
2. Summary of Significant Accounting Policies
Year-end
The Company's fiscal year is comprised of 52 or 53 weeks, ending on the
Saturday closest to the last day of January. The reporting period ended January
31, 1998 (Fiscal Year 1997) contained 52 weeks.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the period reported. Actual results
could differ from those estimates.
Merchandise Inventories
Inventories are valued at the lower of cost or market as determined on
a first-in, first-out basis. The Company purchases a substantial majority of its
products from two major vendors, Ingram Book Group (Ingram) and Barnes & Noble.
Ingram accounted for 52.2% of the Company's inventory purchases during Fiscal
Year 1997. Barnes & Noble accounted for 34.8% of the Company's inventory
purchases during Fiscal Year 1997. The Company expects to source most of its
merchandise through Barnes & Noble in the future. Barnes & Noble charges the
Company the cost associated with such purchases, including cost of freight and
handling incurred by Barnes & Noble in connection with providing such inventory.
Fixed Assets
Fixed assets are carried at cost less accumulated depreciation and
amortization. Computers and equipment are depreciated using the straight line
method over the estimated useful lives of 3 to 10 years. Leasehold improvements
are capitalized and amortized over the shorter of their estimated useful lives
or the terms of the respective leases. The Company has elected early adoption of
Statement of Position 98-1, "Accounting for
F-7
<PAGE>
barnesandnoble.com inc.
NOTES TO FINANCIAL STATEMENTS
(continued)
the Costs of Computer Software Developed or Obtained for Internal Use,"
otherwise effective for fiscal years beginning after December 15, 1998.
Accordingly, direct internal and external costs associated with the development
of the features, content and functionality of the Company's online bookstore,
transaction-processing systems, telecommunications infrastructure and network
operations, incurred during the application development stage, have been
capitalized, and are amortized over the estimated useful lives of three years.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets held and used is measured by a
comparison of the carrying amount of an asset to undiscounted pre-tax future net
cash flows expected to be generated by that asset. An impairment loss is
recognized for the amount by which the carrying amount of the assets exceeds the
fair value of the assets.
Net Sales
Sales of the Company's products are recognized, net of any discounts, at
the time the products are shipped to customers. Sales returns, which are not
significant, are recognized at the time returns are made. International net
sales were $1.5 million for Fiscal Year 1997.
Advertising Costs
The Company expenses the costs of advertising for magazines,
television, radio, and other media the first time the advertising takes place.
Advertising expense was $3.7 million for Fiscal Year 1997 and $11.8 million for
the 26 weeks ended August 1, 1998.
Product Development
Product development expenses included in the accompanying statements of
operations consist principally of indirect costs associated with the development
and all costs associated with the maintenance of the features, content and
functionality of the Company's online bookstore, transaction-processing systems,
telecommunications infrastructure and network operations.
Income Taxes
Due to the inclusion of the Company in Barnes & Noble's U.S.
consolidated income tax returns, and in accordance with the terms of a
tax-sharing agreement (which continues so long as Barnes & Noble retains at
least an 80% voting and economic ownership interest in the Company) between the
Company and Barnes & Noble, the Company is reimbursed for any tax benefits which
Barnes & Noble receives as a result of such inclusion. Conversely, the Company
would reimburse Barnes & Noble for its share of any tax liability recorded by
the Company. The benefit for income taxes includes federal, state and local
income taxes currently payable or receivable and those deferred because of
temporary differences between the financial statement and tax bases of assets
and liabilities. The deferred tax assets and liabilities are measured using
enacted tax rates and laws that are expected to be in effect when the
differences reverse. Additionally, the tax-sharing agreement provides for the
payment of taxes and entitlement to tax refunds for periods prior to the
offering.
F-8
<PAGE>
barnesandnoble.com inc.
NOTES TO FINANCIAL STATEMENTS
(continued)
Net Loss per Share
The computation of basic earnings per share includes no dilutive effect of
common stock equivalents and is computed by dividing loss available to common
stockholders by the weighted-average number of common shares outstanding for the
period. The computation of diluted earnings per share reflects, in periods in
which they have a dilutive effect, the impact of common shares issuable upon
exercise of convertible securities. The Company computes basic and diluted net
loss per share by dividing net loss by the weighted-average shares of common
stock outstanding during the periods.
3. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following:
January 31, August 1,
1998 1998
---------------- --------------
(unaudited)
(000's)
Lycos marketing advances $ 4,500 $ 2,250
AOL marketing advances 2,500 3,400
Other marketing advances 3,922 3,952
Other current assets 403 1,472
--------- --------
$ 11,325 $ 11,074
========= ========
On July 31, 1997, the Company entered into a three-year exclusive agreement
with Lycos (the "Lycos Agreement"), pursuant to which Lycos' Web site is linked
to the Company's online bookstore on the Web. Under the Lycos Agreement,
visitors to Lycos' Web site may readily access the Company's online bookstore on
the Web, which is promoted by Lycos using content provided by the Company, for
the online purchase of books and related information. The Lycos Agreement
provides for the Company to pay Lycos an annual fee of $4.5 million per year
through the year 2000. In addition, the Company is required to pay Lycos a
percentage of all revenues received from orders initiated from the Lycos Web
site to the extent that such percentage exceeds the annual fee in any given
year. Pursuant to the terms of the Lycos Agreement, Lycos is obligated to offer
the Company the right of first refusal to negotiate with Lycos for renewal of
the Lycos Agreement.
On November 1, 1997, the Company and AOL formed a strategic alliance
pursuant to an Interactive Marketing Agreement (the "AOL Agreement") which
provides for the Company to be featured as the exclusive online book retailer
within AOL's Shopping Channel. The AOL Agreement also gives the Company an
extensive package of placements and visibility throughout the AOL service. In
consideration of the marketing, promotion, advertising and other services AOL
will provide under the AOL Agreement, the Company will pay AOL a total of $40.0
million over the term of the AOL Agreement, of which $7.0 million has been paid
as of August 1, 1998, $3.5 million will be paid for the balance of the Company's
Fiscal Year 1998, $7.5 million will be paid in the Company's Fiscal Year 1999
and $11.0 million will be paid in each of the Company's Fiscal Years 2000 and
2001. The Company amortizes the costs associated with the AOL Agreement over the
initial contract term of four years.
F-9
<PAGE>
barnesandnoble.com inc.
NOTES TO FINANCIAL STATEMENTS
(continued)
4. Fixed Assets
Fixed assets, at cost, consist of the following:
<TABLE>
<CAPTION>
January 31, August 1,
1998 1998
------------------------ -----------------------------
(unaudited)
(000's)
<S> <C> <C>
Computers and equipment $ 14,072 $ 16,307
Leasehold Improvements 6,674 8,369
Software 6,706 11,268
------------------------ -----------------------------
27,452 35,944
Less accumulated depreciation 2,670 4,526
------------------------ -----------------------------
Fixed assets, net $ 24,782 $ 31,418
======================== =============================
</TABLE>
5. Accrued Liabilities
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
January 31, August 1,
1998 1998
------------------------ -----------------------------
(unaudited)
(000's)
<S> <C> <C>
Accrued advertising $ 180 $ 4,269
Accrued fixed assets 8,126 622
Accrued compensation 531 585
Other 817 1,531
------------------------ -----------------------------
Total accrued liabilities $ 9,654 $ 7,007
======================== =============================
</TABLE>
6. Income Taxes
Details of the benefit for income taxes consist of the following:
Fiscal Year
1997
----
(000's)
Current:
Federal $(5,975)
State (1,024)
-------
(6,999)
Deferred:
Federal 499
State 85
-------
584
-------
Total $(6,415)
=======
F-10
<PAGE>
barnesandnoble.com inc.
NOTES TO FINANCIAL STATEMENTS
(continued)
A reconciliation between the benefit for income taxes and the expected
benefit for income taxes at the Federal statutory rate follows:
Fiscal Year
1997
----
(000's)
Expected benefit for income taxes
at federal statutory rate $ (5,476)
State income tax benefit, net of federal taxes (939)
----------
Benefit for income taxes $ (6,415)
==========
The Company's deferred tax liability is the result of temporary differences
related to depreciation of $0.6 million.
Due to the inclusion of the Company in Barnes & Noble's consolidated income
tax returns, the Company has recorded tax benefits for operating losses in each
of the above years. In accordance with the terms of the Tax Sharing Agreement,
Barnes & Noble has reimbursed the Company for current tax benefits received by
Barnes & Noble as a result of such inclusion. Had the Company been operating on
a stand-alone basis, such losses would have created an operating loss carry
forward for which the Company would have been unable to record a benefit.
7. Lease Commitment
The Company currently leases warehouse facilities, office space and
equipment under noncancelable operating leases. Rental expense under operating
lease agreements for Fiscal Year 1997 was $0.2 million.
Future minimum lease payments under noncancelable operating leases as of
January 31, 1998 are:
(000's)
1998 $ 865
1999 891
2000 918
2001 945
2002 1,065
Thereafter 5,517
----------
$ 10,201
==========
8. Related Party Transactions
Through its distribution facilities, Barnes & Noble accounted for
approximately 34.8% of the Company's purchases during Fiscal Year 1997, and the
Company expects to source most of its purchases through Barnes & Noble in the
future. Barnes & Noble charges the Company the costs associated with such
purchases, including cost of freight, handling and other costs incurred by
Barnes & Noble in connection with providing such inventory. Prior to the
consummation of the Offering, the Company will enter into a Supply Agreement
(the "Supply Agreement") with Barnes & Noble pursuant to which Barnes & Noble
will agree to supply products to the Company on the current terms. The Company
believes that such terms are more favorable than the terms at which the Company
otherwise would be able to make such purchases on its own. The Supply Agreement
may be terminated by the Company at any time on 30 days' notice, and may be
terminated by Barnes & Noble, on 90 days
F-11
<PAGE>
barnesandnoble.com inc.
NOTES TO FINANCIAL STATEMENTS
(continued)
notice, at any time after (i) the tenth anniversary of the date of the
Prospectus, or (ii) a "change in control" (as defined) of the Company.
As a subsidiary of Barnes & Noble, the Company receives various services
from Barnes & Noble and its subsidiaries, including, among others, services for
payroll processing, benefits administration, insurance (property and casualty,
medical, dental and life), tax, traffic, fulfillment and telecommunications. In
accordance with the terms of services agreements between the Company and Barnes
& Noble and its subsidiaries, the Company has paid, and expects to continue to
pay, fees to Barnes & Noble and its subsidiaries in an amount equal to 105% of
its proportionate share of such costs. The Company paid $0.2 million for such
services during Fiscal Year 1997. In the opinion of management, these
allocations were made on a reasonable and consistent basis; however, they are
not necessarily indicative of, and it is not practical for management to
estimate the level of, expenses which might have been incurred had the Company
been operating as a separate stand-alone company.
The Company has entered into an agreement (the License Agreement) with
B&N College, of which the principal shareholder is also a principal
shareholder/director/executive officer of Barnes & Noble. Pursuant to the
License Agreement the Company was granted a perpetual, exclusive license (the
License) to use the Barnes & Noble name and trademark (excluding sales of
college textbooks). The License is not revokable unless the Company is in
default or there is a "change in control" (as defined therein) of the Company.
The Company pays Barnes & Noble an annual fee of $50,000 for the License.
The Company also licenses from Barnes & Noble, for an annual fee of
$50,000, the right to use Barnes & Noble's title database, inventory sourcing
and special order software, customer lists and demographic information. The
license agreement renews annually unless terminated by either party on at least
90 days written notice prior to the commencement of the renewal year.
The Company believes that the transactions discussed above, as well as the
terms of any future transactions and agreements (including renewals of any
existing agreements) between the Company and its affiliates, are and will be at
least as favorable to the Company as could be obtained from unaffiliated
parties. The Board of Directors will be advised in advance of any such proposed
transaction or agreement and will utilize such procedures in evaluating the
terms and provisions of such proposed transaction or agreement as are
appropriate in light of the fiduciary duties of directors under Delaware law. In
addition, prior to or following the consummation of the Offering, the Board of
Directors will establish an Audit Committee, consisting of two independent
directors. One of the responsibilities of the Audit Committee will be to review
related party transactions.
9. Litigation
The Company is involved in various routine legal proceedings incidental to
the conduct of its business. Management does not believe that any of these legal
proceedings will have a material adverse effect on the financial condition of
the Company.
10. Subsequent Events
On September __, 1998, the Company filed a registration statement with the
Securities and Exchange Commission for the sale of __________ shares of its
Class A Common Stock (the Offering). The Company intends to use the proceeds
from the Offering for general corporate purposes, including working capital to
fund anticipated operating losses and capital expenditures.
As of September 1, 1998, barnesandnoble.com is a wholly-owned subsidiary of
Barnes & Noble. Prior to the effectiveness of the Offering Prospectus: (i)
Barnes & Noble will establish barnesandnoble.com Holdings Corp. (Holdings) as
a wholly-owned Delaware subsidiary and (ii) Holdings will establish
barnesandnoble.com Merger Corp. (b&n.com Merger Corp.) as a wholly-owned
Delaware subsidiary. Following the establishment of
F-12
<PAGE>
barnesandnoble.com inc.
NOTES TO FINANCIAL STATEMENTS
(continued)
these new companies, and prior to the effectiveness of the Offering Prospectus,
barnesandnoble.com will be merged into b&n.com Merger Corp., which will be the
surviving corporation and will change its name to barnesandnoble.com inc.
Therefore, immediately prior to the effectiveness of the Offering Prospectus,
barnesandnoble.com will be a wholly-owned subsidiary of Holdings, which will be
a wholly-owned subsidiary of Barnes & Noble. In addition, prior to the
effectiveness of the Offering Prospectus, all outstanding indebtedness of the
Company owed to Barnes & Noble will be converted into a capital contribution; as
of August 1, 1998, that amount was $67.5 million. (The foregoing events are
collectively referred to as the Recapitalization.)
In addition to the Recapitalization, Barnes & Noble will contribute an
additional $100 million to the Company prior to the consummation of the Offering
and, following the Offering, the Company intends to enter into an agreement with
Barnes & Noble whereby Barnes & Noble will make a $100 million revolving credit
facility available to the Company on terms no less favorable to the Company than
the Company would receive from an unaffiliated third party.
In ______, 1998, the Company adopted the 1998 Incentive Plan (the "Plan").
Under the Plan, __________ shares of common stock have been reserved for future
issuance.
On April 21, 1998, the Company acquired a 19.9% interest in Nuvomedia, a
privately held company principally engaged in developing electronic media
products.
F-13
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
(the "Underwriting Agreement"), the Company has agreed to sell to the
underwriters named below (the "Underwriters"), and each of the Underwriters, for
whom Goldman, Sachs & Co. and Salomon Smith Barney Inc. are acting as
representatives, has severally agreed to purchase from the Company, the
aggregate number of shares of Class A Common Stock set forth opposite its name
below:
Number of
Shares of
Class A
Underwriter Common Stock
------------
Goldman, Sachs & Co...............................
Salomon Smith Barney Inc..........................
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.
The Underwriters propose to offer the shares of Class A Common Stock, in
part, directly to the public at the initial public offering price set forth on
the cover page of this Prospectus and, in part, to certain securities dealers at
such price less a concession not in excess of $______ per share. The
Underwriters may allow, and such dealers may re-allow, a concession not in
excess of $______ per share to certain brokers and dealers. After the shares of
Class A Common Stock are released for sale to the public, the offering price and
other selling terms may from time to time be varied by the representatives.
The Company has granted the Underwriters an option exercisable for ___ days
after the date of this Prospectus to purchase up to an aggregate of _____
additional shares of Class A Common Stock to cover over-allotments, if any. If
the Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them, as shown in the foregoing table, bears to the _____ shares of Class A
Common Stock offered.
The Company has agreed that, during the period beginning from the date of
this Prospectus and continuing to and including the date 180 days after the date
of this Prospectus, it will not offer, sell, contract to sell or otherwise
dispose of any securities of the Company (other than pursuant to employee stock
option plans existing, or on the conversion or exchange of convertible or
exchangeable securities outstanding, on the date of this Prospectus) which are
substantially similar to the shares of Class A Common Stock or which are
convertible into or exchangeable for securities which are substantially similar
to the shares of Class A Common Stock without the prior written consent of the
representatives, except for the shares of Class A Common Stock offered in
connection with the Offering.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
Prior to this Offering, there has been no public market for the shares of
Class A Common Stock. The initial public offering price will be negotiated among
the Company and the representatives. Among the factors to be considered in
determining the initial public offering price of the Class A Common Stock, in
addition to
U-1
<PAGE>
prevailing market conditions, will be the Company's historical performance,
estimates of the business potential and earnings prospects of the Company, an
assessment of the Company's management and the consideration of the above
factors in relation to market valuation of companies in related businesses.
In connection with the Offering, the Underwriters may purchase and sell
shares of the Class A Common Stock in the open market. These transactions may
include over-allotment and stabilizing transactions and purchases to cover short
positions created by the Underwriters in connection with the Offering.
Stabilizing transactions consist of certain bids or purchases for the purpose of
preventing or retarding a decline in the market price of the Class A Common
Stock; short positions created by the Underwriters involve the sale by the
Underwriters of a greater number of shares of Class A Common Stock than they are
required to purchase from the Company in the Offering. The Underwriters also may
impose a penalty bid, whereby selling concessions allowed to broker-dealers in
respect of the securities sold in the Offering may be reclaimed by the
Underwriters if such shares of Class A Common Stock are repurchased by the
Underwriters in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Class A Common
Stock, which may be higher than the price that might otherwise prevail in the
open market; and these activities, if commenced, may be discontinued at any
time. These transactions may be effected on the NASDAQ, in the over-the-counter
market or otherwise.
The Underwriters have reserved for sale, at the initial public offering
price, up to ________ shares of the Class A Common Stock offered hereby for
employees and directors of the Company and certain other individuals who have
expressed an interest in purchasing such shares of Class A Common Stock in the
Offering. The number of shares available for sale to the general public will be
reduced to the extent such persons purchase such reserved shares. Any reserved
shares not so purchased will be offered by the Underwriters to the general
public on the same basis as other shares offered hereby.
The representatives of the Underwriters have informed the Company that they
do not expect sales to accounts over which the Underwriters exercise
discretionary authority to exceed five percent of the total number of shares of
Class A Common Stock offered by them.
U-2
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, and, if given or
made, such information or representations must not be relied upon as having been
authorized. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the securities to
which it relates or an offer to sell or the solicitation of an offer to buy such
securities in any circumstances in which such offer or solicitation is unlawful.
Neither the delivery of this Prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information contained
herein is correct as of any time subsequent to its date.
---------------------------
TABLE OF CONTENTS
Page
Prospectus Summary...........................................3
Risk Factors.................................................7
Use of Proceeds.............................................14
Dividend Policy.............................................14
Capitalization..............................................15
Dilution....................................................16
Selected Financial Data.....................................17
Management's Discussion and Analysis of
Financial Condition and Results of Operations.............18
Business....................................................25
Management..................................................34
Principal Stockholders......................................39
Certain Transactions with Barnes & Noble....................40
Recapitalization............................................41
Description of Capital Stock................................42
Shares Eligible for Future Sale.............................46
Validity of Class A Common Stock............................46
Experts.....................................................47
Additional Information......................................47
Index to Financial Statements..............................F-1
Underwriting...............................................U-1
Through and including __________, 1998 (the 25th day after the date of
this Prospectus) all dealers effecting transactions in the Class A Common Stock,
whether or not participating in this distribution, may be required to deliver a
Prospectus. This is in addition to the obligation of dealers to deliver a
Prospectus when acting as Underwriters and with respect to their unsold
allotments or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
_______________ Shares
barnesandnoble.com inc.
Class A Common Stock
(par value $.01 per share)
_________________________
PROSPECTUS
_________________________
Goldman, Sachs & Co.
Salomon Smith Barney
Representatives of the Underwriters
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated expenses, other than
Underwriting discounts and commissions, in connection with the issuance and
distribution of the shares of Class A Common Stock being registered, all of
which are being borne by the Company:
Registration fee............................................ $ 29,500
Nasdaq listing fee.......................................... 50,000
Transfer agent and registrar fees........................... *
Printing and engraving...................................... *
Legal fees.................................................. *
Blue Sky fees and expenses.................................. *
Accounting fees............................................. *
Miscellaneous ............................................. *
--------
Total $
- -----------------
* To be filed by amendment
Item 14. Indemnification of Directors and Officers.
The Company's Amended and Restated Certificate of Incorporation and By-laws
require the Company to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed proceeding
by reason of the fact that he is or was a director or officer of the Company or
any other person designated by the Board of Directors (which may include any
person serving at the request of the Company as a director, officer, employee,
agent, fiduciary or trustee of another corporation, partnership, joint venture,
trust, employee benefit plan or other entity or enterprise), in each case,
against certain liabilities (including damages, judgments, amounts paid in
settlement, fines, penalties and expenses (including attorneys' fees and
disbursements)), except where such indemnification is expressly prohibited by
applicable law, where such person has engaged in willful misconduct or
recklessness or where such indemnification has been determined to be unlawful.
Such indemnification as to expenses is mandatory to the extent the individual is
successful on the merits of the matter. Delaware law permits the Company to
provide similar indemnification to employees and agents who are not directors or
officers. The determination of whether an individual meets the applicable
standard of conduct may be made by the disinterested directors, independent
legal counsel or the stockholders. Delaware law also permits indemnification in
connection with a proceeding brought by or in the right of the Company to
procure a judgment in its favor. Insofar as indemnification for liabilities
arising under the Securities Act of 1933, as amended (the "Act") may be
permitted to directors, officers, or persons controlling the Company pursuant to
the foregoing provisions, the Company has been informed that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in that Act and is therefore unenforceable.
II-1
<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits:
The following is a list of exhibits filed as part of this Registration
Statement.
Exhibit
Number Description
1.1 Form of Underwriting Agreement. *
3.1 Amended and Restated Certificate of Incorporation of the Company *
3.2 Amended and Restated Bylaws of the Company.*
5.1 Opinion of Robinson Silverman Pearce Aronsohn & Berman LLP regarding
legality of the shares of Common Stock being registered.*
10.1 The Company's 1998 Incentive Plan.*
10.2 Agreement dated July 31, 1997 by and between the Company and Lycos,
Inc.*
10.3 Agreement dated November 1, 1997 by and between the Company and America
Online, Inc.*
10.4 Services Agreement dated as of January 14, 1997 between the Company and
Barnes & Noble, Inc.*
10.5 Services Agreement
dated as of January 14, 1997 between the Company and Marboro Books
Corp.*
10.6 Database License Agreement dated as of January 14, 1997 between the
Company and Barnes & Noble, Inc.*
10.7 Trademark License Agreement dated as of January 14, 1997 between the
Company and Barnes & Noble, Inc.*
10.8 Tax Sharing Agreement dated as of January 14, 1997 between the Company
and Barnes & Noble, Inc.*
10.9 Form of Supply Agreement between the Company and Barnes & Noble Inc.*
23.1 Consent of BDO Seidman, LLP.
23.2 Consent of Robinson Silverman Pearce Aronsohn & Berman LLP (included in
its opinion filed as Exhibit 5 hereto).*
24.1 Power of Attorney (included on signature page to this Registration
Statement).
27.1 Financial Data Schedule.
- -------------------
* To be filed by amendment.
Item 17. Undertakings.
(i) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser.
(ii) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
II-2
<PAGE>
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(iii) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act, the information omitted from the form of
prospectus filed as part of this Registration Statement in
reliance upon Rule 430A and contained in a form of prospectus
filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of
this Registration Statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in New York, New York on
September 24, 1998.
barnesandnoble.com inc.
By: /s/ Stephen Riggio
-------------------------------------------
Stephen Riggio, Chief Executive Officer
(Principal Executive Officer)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED.
Each person in so signing also makes, constitutes and appoints Stephen
Riggio, Leonard Riggio and Michael N. Rosen, and each of them acting alone, his
true and lawful attorney-in-fact, with full power of substitution, to execute
and cause to be filed with the Securities and Exchange Commission pursuant to
the requirements of the Securities Act of 1933, as amended, any and all
amendments and post-effective amendments to this Registration Statement, and
including any Registration Statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act, with
exhibits thereto and other documents in connection therewith, and hereby
ratifies and confirms all that said attorney-in-fact or his substitute or
substitutes may do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
Name Capacity Date
<S> <C> <C>
/s/ Leonard Riggio Chairman of the Board September 24, 1998
- -----------------------------------
Leonard Riggio
/s/ Stephen Riggio Chief Executive Officer September 24, 1998
- ----------------------------------- and a Director
Stephen Riggio (Principal Executive Officer)
/s/ William F. Duffy Chief Financial Officer, Vice September 24, 1998
- ----------------------------------- President, Operations and a
William F. Duffy Director (Principal Financial
Officer)
/s/ John Kristie Vice President, Information September 24, 1998
- ----------------------------------- Technology and a Director
John Kristie
/s/ Michael N. Rosen Secretary and a Director September 24, 1998
- -----------------------------------
Michael N. Rosen
/s/ Irene R. Miller Director September 24, 1998
- -----------------------------------
Irene R. Miller
S-1
</TABLE>
<PAGE>
Exhibit 23.1
Consent of Independent Certified Public Accountants
barnesandnoble.com inc.
New York, New York
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement on Form S-1 of our report dated March 10, 1998 (except
for the Recapitalization as defined and described in Note 10, which is as of
________, 1998), relating to the financial statements of barnesandnoble.com inc.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
New York, New York
September 24, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
barnesandnoble.com inc.'s financial statements for the years ended January 31,
1998 and for the six months ended August 1, 1998 included in its Prospectus, and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> JAN-31-1998 JAN-30-1999
<PERIOD-START> FEB-02-1997 FEB-01-1998
<PERIOD-END> JAN-31-1998 AUG-01-1998
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 347 712
<ALLOWANCES> 0 0
<INVENTORY> 525 634
<CURRENT-ASSETS> 12,197 12,420
<PP&E> 27,452 35,944
<DEPRECIATION> 2,670 4,526
<TOTAL-ASSETS> 37,076 46,176
<CURRENT-LIABILITIES> 12,268 8,964
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 24,224 36,628
<TOTAL-LIABILITY-AND-EQUITY> 37,076 46,176
<SALES> 0 0
<TOTAL-REVENUES> 14,601 21,870
<CGS> 11,752 16,759
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 18,496 41,718
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (15,647) (36,607)
<INCOME-TAX> (6,415) (15,008)
<INCOME-CONTINUING> (9,232) (21,599)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (9,232) (21,599)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
