<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 18, 1999
REGISTRATION NO. 333-64211
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
PRE-EFFECTIVE AMENDMENT NO. 1
TO
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
BARNESANDNOBLE.COM INC.
(AS A SUCCESSOR REGISTRANT TO THE BARNESANDNOBLE.COM INC. WHICH FILED THE
ORIGINAL REGISTRATION STATEMENT)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 5735 13-4048787
(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)
------------------------
JONATHAN BULKELEY
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:
<TABLE>
<S> <C>
JAY M. DORMAN, ESQ. ROBERT E. BUCKHOLZ, JR., ESQ.
H. LEIGH FELDMAN, ESQ. SULLIVAN & CROMWELL
ROBINSON SILVERMAN PEARCE ARONSOHN & BERMAN LLP 125 BROAD STREET
1290 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10004
NEW YORK, NEW YORK 10104
</TABLE>
------------------------
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. / /
------------------------
<TABLE>
<S> <C> <C>
CALCULATION OF REGISTRATION FEE
TITLE OF EACH CLASS PROPOSED MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE(2)
Class A Common Stock, par value $.001 per share..................... $200,000,000 $57,300
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) $29,500 of this amount was paid with the original filing in 1998 with
respect to $100,000,000. The fee with respect to the additional $100,000,000
being registered hereby is $27,800, which amount is being paid herewith.
------------------------
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.
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- --------------------------------------------------------------------------------
<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 MARCH 18, 1999
Shares
barnesandnoble.com inc.
Class A Common Stock
(par value $.001 per share)
----------------------
All of the shares of Class A Common Stock offered hereby are being sold by
the Company. Immediately following the Offering, the Company will become the
sole Manager of barnesandnoble.com llc, the entity through which the Company
will operate its business.
Holders of Class A Common Stock generally have rights identical to holders
of Class B Common Stock and Class C Common Stock, except that in all matters to
be voted on by stockholders, each holder of the Class A Common Stock is entitled
to one vote per share while each holder of the Class B Common Stock and Class C
Common Stock is entitled to a high number of votes per share. Following the
Offering, the shares of Class B Common Stock and Class C Common Stock 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 each such class will, pursuant to the Company's
Amended and Restated Certificate of Incorporation, have the right to directly
elect three of the Company's directors. Therefore, as the respective owners of
the Class B Common Stock and the Class C Common Stock, Barnes & Noble, Inc. and
Bertelsmann AG will, collectively, be able to exercise control over all matters
requiring stockholder approval, including the election of all 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 and Class C
Common Stock is convertible into, and each Membership Unit in barnesandnoble.com
llc, other than those owned by the Company, is exchangeable for, one share of
Class A Common Stock at any time at the option of the holder thereof. See "Risk
Factors--Control by Principal Stockholders," "--Potential Conflicts of Interest
with Barnes & Noble and Bertelsmann," "--Receipt of Certain Benefits from Barnes
& Noble," "Management--Governance Documents," "Corporate History and
Recapitalization" and "Description of Capital Stock and Membership Units".
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".
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 business associates and related
persons of the Company 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.
See "Risk Factors" beginning on page 9 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 "BNBN".
----------------------
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>
Initial Public Underwriting Proceeds to
Offering Price Discounts(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 30 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 the 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 , 1999,
against payment therefor in immediately available funds.
Goldman, Sachs & Co. Merrill Lynch & Co.
Co-Lead Co-Lead
----------------------
Salomon Smith Barney
Wit Capital Corporation
as e-Manager(Trademark)
----------------------
The date of this Prospectus is , 1999.
<PAGE>
barnesandnoble.com, bn.com, Express Lane(Service Mark), the BN Top
100(Service Mark) and E-nnouncements(Service Mark) 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," as
the context requires, refers either to barnesandnoble.com inc., the company
whose shares of Class A Common Stock are being offered hereby, or, collectively,
to barnesandnoble.com inc. and barnesandnoble.com llc;
(ii) "barnesandnoble.com" refers to barnesandnoble.com llc, the Delaware limited
liability company of which the Company will be the sole Manager and through
which the Company will operate its business; (iii) "Barnes & Noble" refers to
Barnes & Noble, Inc. and its subsidiaries; and (iv) "Bertelsmann" refers to
Bertelsmann AG and its subsidiaries. See "Corporate History and
Recapitalization" for a description of the ownership history and corporate
structure of barnesandnoble.com and the Company. 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 "Corporate History and
Recapitalization," has been completed.
THE COMPANY
The Company is a leading online retailer of books and complementary
information, entertainment and intellectual property-based products. Since
opening its initial online store in March 1997, the Company has sold products to
over 1.5 million customers in 181 countries. The Company has created a model for
e-commerce based upon a compelling value proposition. The Company's suite of
online stores is anchored by its online bookstore and also includes online
stores offering software, magazines, music and video products, all seamlessly
integrated within the Company's Web site located at www.barnesandnoble.com. The
Company's online bookstore contains over 8 million in-print and out- of-print
books. The Company has the largest in-stock position of books available for
immediate shipping to customers. In addition to its vast product selection, the
Company's online stores offer customers fast delivery, deep discounts, secure
ordering, rich editorial content and community experience.
According to Media Metrix, an Internet and digital media measurement
company, in December 1998, the Company's Web site was the fourth most trafficked
shopping site and was among the top 25 largest sites on the Internet on an
overall basis, and was ranked one of 1998's fastest growing Web sites. Exclusive
distribution and co-marketing agreements with major Web portals and content
sites, such as America Online ("AOL"), Microsoft and Lycos, have extended the
Company's brand and consumer exposure to its online stores. The Company has also
established a network of remote storefronts across the Internet by creating
direct links with over 75,000 affiliate Web sites.
During 1998, the Company introduced many major enhancements to its online
stores, including Express LaneSM one-click ordering, a powerful and user
friendly search engine, email book reviews and product-notification services,
software and magazine stores, a gift center and bargain books store and online
gift certificates. Also during 1998, the Company established an out-of-print
book service and began to add music and video to its product offerings,
initiatives scheduled to be fully rolled out during 1999.
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 Jupiter
Communications, an independent media research firm, as of the end of 1998 almost
10 million U.S. households had made at least one online purchase. By the end of
2002 this population is expected to grow to approximately 36.5 million,
representing nearly 60% of overall U.S. online households. Further,
International Data Corporation ("IDC") estimates that the number of Web
3
<PAGE>
users worldwide will exceed 130 million by the end of 1999 and will grow to over
315 million users by the end of 2002.
The book, music, video and software businesses are particularly well suited
for e-commerce because an online store has virtually unlimited shelf space and
can offer consumers anywhere the convenience of browsing through vast product
information databases. The use of sophisticated search engines and personalized
services enables users to locate books and music, for example, with convenience
and speed and to get advance notice about titles in their areas of personal
interest. The Company believes that the presence of an online store on
consumers' desktops will, in and of itself, stimulate demand and expand the
marketplace.
The Company believes that its relationships with Barnes & Noble, the
world's largest bookseller, and Bertelsmann, one of the world's largest media
companies, provide it with meaningful advantages relative to other online
retailers, including: (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 an online purchase; (ii) the use of Barnes & Noble's
state-of-the-art distribution center as its primary product supplier, which
enables the Company to offer over 750,000 in-stock book titles for fast
delivery, representing the largest standing inventory of any online bookseller;
(iii) the enterprise value of Barnes & Noble and Bertelsmann, including Barnes &
Noble's network of over 500 retail superstores and Bertelsmann's position as one
of the largest integrated media companies in the world, which provides an
important and leverageable advantage in negotiating with online portals,
distribution partners, and content and media companies as well as with other
strategic partners; (iv) the potential ability to conduct cross-marketing,
co-promotion and customer acquisition programs with Bertelsmann's U.S. book
clubs, which will provide the Company with access to millions of established
book buyers; (v) the ability to directly link and cross-promote the Company's
online bookstore with the online bookstores marketed by Bertelsmann Online
("BOL") in the United Kingdom, Germany, France, the Netherlands and Italy, which
will enable the Company to more rapidly acquire new streams of international
customers; and (vi) ongoing access to the substantial bookselling and direct
marketing knowledge and experience of the management of Barnes & Noble and
Bertelsmann.
The Company seeks to become the leading online retailer for consumers who
want to purchase books and complementary information-based products. Central to
achieving this objective, the Company's operating strategy is focused on rapidly
extending its brand and scaling its customer base by: (i) continually enhancing
the user experience of its online stores; (ii) offering a large product
selection and fast delivery; (iii) continuing to expand the product offering
within its online stores; (iv) advertising as well as cross-marketing with
Barnes & Noble and Bertelsmann properties; (v) leveraging its other
relationships with Barnes & Noble and Bertelsmann to the fullest extent
possible; (vi) strengthening and expanding its strategic alliances with
third-party Web sites and content providers; (vii) pursuing acquisitions, joint
ventures and other similar strategic investments and relationships with
complementary businesses and companies; (viii) continuing to increase the number
of Web sites in its affiliate network; and (ix) continuing to invest in
technology to further develop state-of-the-art product, service and logistics
platforms.
The Company was originally incorporated on January 14, 1997 in the State of
Delaware under the name Barnes and Noble Online, Inc. Prior to October 31, 1998,
the business of the Company was conducted through a wholly-owned subsidiary of
Barnes & Noble. Effective October 31, 1998, Barnes & Noble and Bertelsmann
completed a transaction which established barnesandnoble.com as the owner and
operator of the Company's business (the "Formation Transaction"), with each of
Barnes & Noble and Bertelsmann having a 50% membership interest therein.
Immediately following the Offering, the Company will own an approximately %
interest in, and will become the sole Manager of, barnesandnoble.com. See
"Corporate History and Recapitalization."
4
<PAGE>
Below is a chart which sets forth the structure of the Company as of the
date of the completion of the Offering:
[Graphic]
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, and its online stores are located at www.barnesandnoble.com and on
AOL (keyword bn).
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Class A Common Stock offered by the
Company................................... shares
Common Stock to be outstanding after the
Offering:
Class A Common Stock(1)................... shares(2)
Class B Common Stock(1)................... shares
Class C Common Stock(1)................... shares
Use of Proceeds
By the Company............................ To acquire Membership Units in barnesandnoble.com
("Membership Units") representing a % equity interest in
barnesandnoble.com (or Membership Units,
representing a % equity interest in barnesandnoble.com, if the
Underwriters' over-allotment option is exercised in full). See "Use
of Proceeds" and "Corporate History and Recapitalization."
By barnesandnoble.com..................... To fund anticipated operating losses, including sales and marketing
expenses and payments due under strategic alliances; enhancements to
the Company's online stores 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 and Class C Common Stock
(collectively "High Vote Stock"), except that each holder of
Class A Common Stock is entitled to one vote per share of Class A
Common Stock owned by them and each holder of High Vote Stock is
entitled to the amount of votes per share of High Vote Stock owned
by them equal to: (i) ten, multiplied by the sum of (a) the
aggregate number of High Vote Stock owned by such holder and
(b) the aggregate number of Membership Units owned by such holder;
divided by (ii) the number of shares of High Vote Stock owned by
such holder. Pursuant to the Company's Amended and Restated
Certificate of Incorporation (the "Amended Charter"), the holders of
the High Vote Stock have the right to directly elect six of the
Company's directors. Otherwise, holders of Class A Common Stock and
High Vote Stock (collectively "Common Stock") generally will vote
together as a single class on all matters (including the election of
the directors who are not elected directly by the holders of the
High Vote Stock) presented to the stockholders for their vote or
approval except as otherwise required by applicable Delaware law.
See "Risk Factors--Control by Principal Stockholders" and
"Description of Capital Stock and Membership Units--Common Stock."
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
barnesandnoble.com Membership Units to be
outstanding after the Offering(1).........
Proposed Nasdaq National Market
symbol.................................... "BNBN"
</TABLE>
- ------------------
(1) Shares of High Vote Stock are convertible into, and Membership Units not
owned by the Company are exchangeable for, shares of Class A Common Stock at
any time by the holder thereof on a one-for-one basis. See "Description of
Capital Stock and Membership Units."
(2) Excludes options to purchase shares of Class A Common Stock under the
Incentive Plan which will be outstanding as of the closing of the Offering.
See "Management--Incentive Plan" and "Description of Capital Stock and
Membership Units."
7
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS OF DOLLARS)
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 following table sets forth the historical summary data
for barnesandnoble.com for the years ended December 31, 1997 and 1998. This data
has 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. Also set forth below are the pro forma Statement
of Operations Data for the Company for the year ended December 31, 1998, which
reflects the Recapitalization and the completion of the Offering as if they had
occurred on January 1, 1998, and the Balance Sheet Data for the Company as of
December 31, 1998, which reflects the Recapitalization, the contribution by
Bertelsmann of an additional $50 million and the completion of the Offering as
if they had occurred on December 31, 1998. The operating results are not
necessarily indicative of the operating results for any future period.
<TABLE>
<CAPTION>
BARNESANDNOBLE.COM LLC BARNESANDNOBLE.COM INC.
---------------------- -----------------------
YEAR ENDED
DECEMBER 31,
---------------------- 1998
1997 1998 PRO FORMA(1)
--------- --------- -----------------------
(UNAUDITED)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................. $ 11,949 $ 61,834 $ 61,834
Loss before minority interest............................. (13,552) (83,148) (83,148)
Minority interest(2)...................................... -- --
Net loss.................................................. $ (13,552) $ (83,148) $
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------- 1998
1997 1998 PRO FORMA(1)
--------- --------- -----------------------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ -- $ 96,940 $
Working capital........................................... 3,176 78,681
Total assets.............................................. 26,327 202,144
Minority interest(3)...................................... -- --
Equity(4)................................................. $ 19,213 $ 169,149 $
</TABLE>
- ------------------
(1) Reflects the structure of the Company as of the date of the completion
of the Offering, the contribution by Bertelsmann of an additional
$50 million and the issuance and sale by barnesandnoble.com of
Membership Units to the Company in exchange for the
estimated net proceeds of the Offering. See "Corporate History and
Recapitalization."
(2) Represents the % allocation of loss to Barnes & Noble and Bertelsmann.
(3) Includes the reclassification of the equity interest of Barnes & Noble
and Bertelsmann to minority interest, and the additional $50 million
contribution by Bertelsmann.
(4) The actual amounts as of December 31, 1997 and December 31, 1998
reflect the members' equity of barnesandnoble.com. The pro forma amount
reflects the reclassification of members' equity to minority interest,
and the stockholders' equity of the Company after the Offering.
8
<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 initial online store 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 has accumulated
net losses of $96.7 million as of December 31, 1998, primarily as a result of
development costs associated with opening its online stores and its marketing
efforts, which include payments to strategic alliance partners, such as AOL,
Microsoft and Lycos, as well as payments made for advertising. The Company
anticipates incurring significant additional costs to fund increased marketing
initiatives, additional strategic alliances, enhancements to the Company's
online stores, 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 customer 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 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. 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. Increased competitiveness among
online retailers may result in reduced operating margins, loss of market share
and a diminished brand franchise. See "Business--Competition."
With respect to the sale of books, which constitutes the Company's largest
source of revenue, the Company currently competes with numerous booksellers
including other Internet-based companies, such as Amazon.com, and traditional
book retailers. With respect to the sale of music, software and videos, the
Company competes with numerous merchants including other Internet-based
companies, such as Amazon.com, CDnow, Reel.com, Beyond.com and traditional
retailers. The Company's main online competitor, Amazon.com, has a longer online
operating history and a larger existing customer base than the Company. The
Company is aware that Amazon.com has and may continue to adopt aggressive
pricing and marketing strategies. The Company is also aware of other online
retailers that are offering substantial discounts on products, including books,
music, software and videos, which are subsidized by advertising revenue from
their Web sites. An increase in the prevalence of this type of business model
could lead to additional pricing pressures on the Company's products. If and
when the Company decides to add additional products in its online stores, it
will most probably face intense competition for those products as well. See
"Business--Competition."
9
<PAGE>
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.
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS
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, and (vi) the
Company's ability to upgrade and develop its systems and infrastructure.
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. The Company's future quarterly
operating results from time to time may 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. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Quarterly Results of Operations
and Seasonality."
CONTROL BY PRINCIPAL STOCKHOLDERS
Upon the consummation of the Offering, Barnes & Noble, which will
beneficially own all of the issued and outstanding Class B Common Stock and
approximately % of the outstanding Membership Units, and Bertelsmann, which
will beneficially own all of the issued and outstanding Class C Common Stock and
approximately % of the outstanding Membership Units, will, collectively,
beneficially own all of the High Vote Stock and approximately % of the
outstanding Membership Units 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).
Pursuant to the Amended Charter, the holders of the High Vote Stock will have
the right to directly elect six of the Company's nine directors, and will
control the election of the remaining three directors as well. Accordingly,
although Barnes & Noble and Bertelsmann will each own only a small percentage of
the outstanding Common Stock, they will collectively control the Company through
their ownership of the High Vote Stock. This control may continue in the future
through the High Vote Stock even if Barnes & Noble and Bertelsmann, through
their ownership of Common Stock and Membership Units, own a minority economic
interest in the Company's business. See "Management--Governance Documents,"
"Corporate History of Recapitalization" and "Description of Capital Stock and
Membership Units."
Through the High Vote Stock, Barnes & Noble and Bertelsmann will,
collectively, be able to exercise control over all matters requiring stockholder
approval, including the election of all directors and approval of significant
corporate transactions. Similarly, through their control of the Company, Barnes
& Noble and Bertelsmann will also control all activities of barnesandnoble.com,
including the approval of significant transactions. This ownership may have the
effect of delaying or preventing a change in control of the Company. See "--Risk
of Deadlock," "--Potential Conflicts of Interest with Barnes & Noble and
Bertelsmann," "--Receipt of Certain Benefits from Barnes & Noble," "--Dependence
on Key Supplier," "Business--Leveraging Its Relationship With Barnes & Noble,"
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"Management--Governance Documents," "Principal Stockholders," "Certain
Transactions" and "Description of Capital Stock and Membership Units."
RISK OF DEADLOCK
Since Barnes & Noble and Bertelsmann own equal amounts of each of the
Company and barnesandnoble.com, it is possible that if they should disagree on
any significant matter or the direction of the Company, that the business of the
Company may be affected during the time of such disagreement. If such
disagreement cannot be resolved, or if their relationship should deteriorate as
a result of such disagreement, it could have a material adverse effect on the
Company. See "--Control by Principal Stockholders."
POTENTIAL CONFLICTS OF INTEREST WITH BARNES & NOBLE AND BERTELSMANN
Following the Offering, Barnes & Noble will beneficially own approximately
% of the voting power of the Company. Officers and directors of each of
Barnes & Noble and the Company, collectively, beneficially own approximately
% and %, respectively of the Class A Common Stock, and Mr. Leonard
Riggio, who is the Chairman of both the Company and Barnes & Noble, currently
beneficially owns % of the common stock of Barnes & Noble and % of the
Class A Common Stock. Additionally each of Stephen Riggio, who is the Vice
Chairman and a director of Barnes & Noble, and Michael Rosen, who is the
Secretary and a director of Barnes & Noble, is a director of the Company. Barnes
& Noble's continuing beneficial ownership 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. Additionally,
under Delaware law, contracts between a corporation and a director, or another
corporation in which a director has a financial interest, may be approved under
certain circumstances by disinterested directors or by stockholders.
Following the Offering, Bertelsmann will beneficially own approximately
% of the voting power of the Company. Bertelsmann, among other things, owns
Random House, Inc., the largest book publisher in the U.S., BMG Entertainment,
one of the largest music companies in the U.S., and BOL, which operates online
stores in the United Kingdom, Germany, France, the Netherlands and Italy. In
connection with the Formation Transaction, the Company agreed that it would not
engage in the sale of non-English language books except through links to
Bertelsmann Web sites and Bertelsmann agreed that, with certain exceptions, its
sales of English language books through the Internet would be made exclusively
through barnesandnoble.com Web sites. However, it is possible that Bertelsmann's
businesses may compete directly with the Company in other areas where neither
Barnes & Noble nor Bertelsmann have agreed to any type of exclusivity, such as
in the sale over the Internet of videos, software or music. Bertelsmann
currently owns Getmusic.com, an Internet music retailer. Pursuant to the
Formation Transaction, the Company has entered into agreements which allow
Bertelsmann to view, obtain and use the Company's technology, which, except as
indicated above, may be used by Bertelsmann to compete with the Company.
Bertelsmann's continuing beneficial ownership of the Common Stock could create
conflicts of interest when Bertelsmann is faced with decisions that could have
different implications for the Company and Bertelsmann, 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, Bertelsmann and their affiliates. However, under
Delaware corporate law, officers
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and directors of the Company owe fiduciary duties to the Company and its
stockholders. See "-Limitations on the Company's Business" and
"Management--Governance Documents."
LIMITATIONS ON THE COMPANY'S BUSINESS
Pursuant to the Second Amended and Restated Limited Liability Company
Agreement of barnesandnoble.com (the "Operating Agreement"), the Company
provides the exclusive means for both Barnes & Noble and Bertelsmann, subject to
certain exceptions, to sell English language books in English speaking countries
through the Internet. However, the Company is prohibited from selling non-
English language books except through links with Bertelsmann Web sites, for
which the Company receives no revenue. Pursuant to the Operating Agreement, the
Company is also prohibited from entering the Internet book club business. The
Amended and Restated Trademark License Agreement among Barnes & Noble College
Bookstores, Inc. ("B&N College") and barnesandnoble.com (the "Trademark License
Agreement"), prohibits the Company from using the Barnes & Noble name for
selling textbooks, except for sales of textbooks that are immaterial, incidental
and unsolicited. These restrictions will limit the Company's opportunities to
grow its business through these prohibited activities. See
"Management-Governance Documents."
RECEIPT OF CERTAIN BENEFITS FROM BARNES & NOBLE
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 store in Barnes & Noble stores located in certain
states. 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. Additional growth by the Company may
require it to expand its distribution facilities beyond the Barnes & Noble
distribution facilities which it currently utilizes.
barnesandnoble.com has entered into several agreements with Barnes & Noble,
including: (i) a Supply Agreement (the "Supply Agreement"), pursuant to which
Barnes & Noble supplies merchandise to the Company; (ii) the Trademark License
Agreement, pursuant to which the Company licenses the Barnes & Noble name; and
(iii) an Amended and Restated Database and Software License Agreement, pursuant
to which the Company licenses the Barnes & Noble database.
The Company also 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 each of the services agreements between barnesandnoble.com and
Barnes & Noble and its subsidiaries (the "Services Agreements"),
barnesandnoble.com has paid, and expects to continue to pay, fees to Barnes &
Noble and its subsidiaries in an amount equal to the costs of such services plus
incremental overhead. 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 barnesandnoble.com been operating
as a separate, stand-alone company.
Should the Company's relationship with Barnes & Noble terminate, and, as a
result of such termination, the Company were to lose the benefits of the
foregoing agreements, it could have a material adverse effect on the Company.
See "Certain Transactions."
DEPENDENCE ON KEY SUPPLIER
Through its distribution facilities, Barnes & Noble accounted for
approximately 38.5% and 60.3% of the Company's purchases during 1997 and 1998,
respectively. Pursuant to the Supply Agreement, the Company may, at its option,
source its merchandise through Barnes & Noble, with Barnes & Noble charging the
Company the cost of such merchandise plus incremental overhead. The Company
believes that such terms are more favorable than the terms at which the Company
otherwise would be able to make such
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purchases on its own. In connection with the Offering, this agreement will be
amended to provide that it may be terminated by the Company upon the approval of
a majority of the Bertelsmann nominated directors, upon 30 days' prior written
notice to Barnes & Noble, and may be terminated by Barnes & Noble: (i) on
continuing default by barnesandnoble.com; (ii) on a bankruptcy or liquidation
event of barnesandnoble.com or of Barnes & Noble; and (iii) at any time after
June 1, 2004 if Bertelsmann shall have effected a permitted transfer to any
third party pursuant to the Operating Agreement or if either Barnes & Noble or
Bertelsmann owns less than 15% of the outstanding Membership Units. The Company
believes that, due to its relationship with Barnes & Noble, the terms of this
Agreement are more favorable to the Company than terms the Company could have
obtained from a third party. 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 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 "--Potential Conflicts of Interest
with Barnes & Noble and Bertelsmann,"--"Receipt of Certain Benefits from Barnes
& Noble" and "Certain Transactions."
DEPENDENCE UPON STRATEGIC ALLIANCES
The Company relies on certain strategic alliances with third-party Web
sites and content providers to attract users to its online stores. The Company
has entered into various agreements with companies to attract users from
numerous other Web sites or online service providers, including AOL, Microsoft
and Lycos. The Company believes that such alliances result in increased traffic
to its online stores. 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 agreements will be maintained beyond their initial
terms or that additional third-party agreements 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."
RISKS OF THE INTERNET AS A MEDIUM FOR COMMERCE
Consumer use of the Internet as a medium for commerce is a recent
phenomenon and is subject to a high level of uncertainty. 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.
While the number of Internet users has been rising, the Internet
infrastructure may not expand fast enough to meet the increased levels of
demand. The increased use of the Internet as a medium for commerce raises
concerns regarding Internet security, reliability, pricing, accessibility and
quality of service. 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, comparison shopping and advertising revenue supported business models)
may render it inherently more competitive than conventional retailing formats.
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RAPID TECHNOLOGY CHANGE
To remain competitive, the Company must continue to enhance and improve the
responsiveness, functionality and features of its online stores. 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
stores 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 a 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 stores, 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. Further, the adoption of new
Internet, networking or telecommunications technologies may require the Company
to devote substantial resources to modify and adapt its services.
SECURITY RISKS
Public concern over Internet security has been, and may continue to be, a
hinderance to mass market commercial use of the Internet. 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. 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. Any
computer break-in could affect consumer confidence in the security of the
Company and could seriously damage its business. Moreover, until more
comprehensive security technologies are developed, the security and privacy
concerns of existing and potential customers may hinder the growth of the
Internet as a mass market medium for commerce.
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 "www.barnesandnoble.com." Currently, the acquisition and maintenance
of domain names 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
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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 the Company's 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 the access of the Internet 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,
copyrights, distribution, antitrust and quality of products and services.
Additionally, the rapid growth of e-commerce may trigger the development of
tougher consumer protection laws. 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 stores or could otherwise have a material adverse
effect on the Company's business. In addition, applicability to the Internet of
existing laws governing issues such as property ownership, copyrights and other
intellectual property issues, taxation, libel, obscenity and personal privacy is
uncertain. The vast majority of such laws were adopted prior to the advent of
the Internet and related technologies and, as a result, do not contemplate or
address the unique issues of the Internet and related technologies.
Further, several telecommunications carriers have requested the Federal
Communications Commission ("FCC") to regulate telecommunications over the
Internet. Due to the increasing use of the Internet and the burden it has placed
on the current telecommunications infrastructure, telephone carriers have
requested the FCC to regulate Internet service providers and online service
providers and impose access fees on those providers. If the FCC imposes access
fees, the costs of using the Internet could increase dramatically. This could
result in the reduced use of the Internet as a medium for commerce, which could
adversely effect the Company's business.
INVESTMENT COMPANY ACT CONSIDERATIONS
If the Company were to cease participation in the management of
barnesandnoble.com, its interest in barnesandnoble.com could be deemed an
"investment security" for purposes of the Investment Company Act of 1940, as
amended (the "Investment Company Act"). In general, a person is an "investment
company" if, subject to certain exceptions, it owns investment securities having
a value exceeding 40% of the value of its total assets (exclusive of U.S.
government securities and cash items). The sole asset of the Company is its
membership interest in barnesandnoble.com. A determination that such investment
was an investment security could result in the Company being an investment
company under the Investment Company Act and becoming subject to the
registration and other requirements of the Investment Company Act. In order to
register, the Company would be subject to U.S. tax on its worldwide income,
subject to any applicable foreign tax credits. The Company and
barnesandnoble.com intend to conduct their operations so that the Company is not
deemed to be an investment company under the Investment Company Act; however, if
anything were to happen which would cause the Company to be deemed to be an
investment company under the Investment Company Act, it will have a material
adverse effect on the Company.
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
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which engage in e-commerce. A successful assertion by one or more states or
foreign countries that the Company should collect sales or 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."
Recent federal legislation limits the imposition of state and local taxes
on Internet-related sales. In 1998, Congress passed the Internet Tax Freedom Act
which places a three-year moratorium on state and local taxes on (i) Internet
access, unless such tax was already imposed prior to October 1, 1998, and (ii)
discriminatory taxes on electronic commerce. There is a possibility that
Congress may not renew this legislation in 2001. If Congress chooses not to
renew this legislation, state and local governments would be free to impose
taxes on electronically purchased goods which could materially adversely affect
the Company.
Due to the high level of uncertainty regarding the imposition of taxes on
electronic commerce, a number of states, as well as a Congressional advisory
commission, are reviewing appropriate tax treatment for online companies engaged
in e-commerce. Any additional laws or regulations could materially adversely
affect the Company.
FEDERAL TRADE COMMISSION REVIEW
The Federal Trade Commission (the "FTC") is currently reviewing Barnes &
Noble's proposed acquisition of the Ingram Book Company ("Ingram") pursuant to
the pre-merger notification procedure of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act"). In connection with that review, the
FTC is also reviewing the Formation Transaction, and Bertelsmann's investment in
the Company. Should the FTC determine that the Formation Transaction violated
antitrust laws, it could seek to impose a number of remedies or penalties on the
Company, including the unwinding of the Formation Transaction. Should this
occur, the Company could be materially adversely affected. See "Business--Legal
Proceedings."
RISKS RELATING TO FUTURE ACQUISITIONS
While the Company will continually be searching for acquisition
opportunities, there can be no assurance that the Company will be successful in
identifying attractive acquisitions. If any potential acquisition opportunities
are identified, there can be no assurance that the Company will consummate such
acquisitions or, if any such acquisition does occur, that it will be successful
in enhancing the Company's business. The Company may in the future face
competition for acquisition opportunities, which may inhibit the Company's
ability to consummate suitable acquisitions and increase the expense of
completing acquisitions. In addition, to the extent that the Company completes
acquisitions, such acquisitions could pose a number of special risks, including
the diversion of management's attention, the assimilation of the operation and
personnel of the acquired companies, the integration of acquired assets with
existing assets, adverse short-term effect on reported operating results, the
amortization of acquired intangible assets and the loss of key employees.
Additionally, with respect to most of its future acquisitions, the Company's
stockholders will not have a chance to review the financial statements of
companies being acquired or to vote on such acquisitions.
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 through negotiations between the Company and
the Underwriters. See "Underwriting."
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RISKS OF POSSIBLE EXTREME VOLATILITY OF MARKET PRICE OF COMMON STOCK
The Offering price that the Company has determined, with the assistance of
the Underwriters, may have no relation to the price at which the Class A Common
Stock trades after completion of the Offering. 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 market price of the Class A Common Stock may be extremely volatile for many
reasons, including: (i) actual or anticipated variations in the Company's
revenues and operating results; (ii) announcements of the development of
improved technology; (iii) the use of new sales formats by the Company or its
competitors; (iv) changes in the financial forecasts by securities analysts; (v)
new conditions or trends in the Internet and e-commerce; and (vi) general market
conditions.
Recently, market prices for Internet-based companies have experienced
extreme price and volume fluctuations, particularly after initial public
offerings. These fluctuations are often unrelated or disproportionate to the
operating performance of those companies and may not be sustainable.
NO DIVIDENDS
The Company has not declared or paid any dividends on its Common Stock, and
barnesandnoble.com has not made any distributions to its members, since their
respective dates of inception. Both the Company and barnesandnoble.com do not
currently anticipate paying any such dividends or distributions, except for
amounts which may be distributed by barnesandnoble.com to cover income tax
liabilities, if any, of its members arising from the taxable income of
barnesandnoble.com. Cash distributions by barnesandnoble.com may also be
restricted by future debt covenants. See "Dividend Policy."
HOLDING COMPANY STRUCTURE
The Company is a holding company, the sole asset of which is its Membership
Units in barnesandnoble.com; the Company has no independent means of generating
revenues. As a member of barnesandnoble.com, the Company will incur income taxes
on its proportionate share of any net taxable income of barnesandnoble.com.
barnesandnoble.com intends to distribute cash to its members in amounts
sufficient to cover their tax liabilities, if any. To the extent the Company
needs funds to pay such taxes or for any other purpose and barnesandnoble.com is
unable to provide such funds, it could have a material adverse effect on the
Company. See "Dividend Policy."
DILUTION
Based upon the estimated initial public offering price of $ per
share, purchasers of the Class A Common Stock offered hereby will (assuming the
exchange of all outstanding Membership Units and the conversion of all
outstanding shares of High Vote Stock into shares of Class A Common Stock)
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."
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ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER, BY-LAWS AND DELAWARE LAW PROVISIONS;
POSSIBLE ISSUANCE OF PREFERRED STOCK
Following the Offering, the beneficial ownership of the High Vote Stock and
% of the Membership Units by Barnes & Noble and Bertelsman will give them
voting control of the Company and will have the effect of preventing a change in
control of the Company without their consent. Additionally, following the
Offering, the Company's Board of Directors will have the authority to issue up
to five million 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 Amended Charter, 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 and Membership Units--Anti-Takeover Effects of
Certain Provisions of Delaware Law and the Amended Charter 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. The Company's computer
equipment and software and devices with embedded technology that are
date-sensitive may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions. 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.
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
store, or computer systems of the Company's suppliers or shippers, will be year
2000 compliant. The failure of the computer systems of the Company or its
suppliers, service producers or shippers to be year 2000 compliant could have a
material adverse effect on the Company's business.
Should the Company and/or its suppliers not become Year 2000 compliant, in
a reasonably likely worst case scenario, consumers may not be able to access the
Company's Web site without serious disruptions or there may be disruptions in
shipping products purchased on the Company's Web site. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Year
2000."
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: (i) 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 High Vote Stock will be "restricted" securities
within the meaning of Rule 144 under the Securities Act; and
(ii) barnesandnoble.com will have outstanding Membership Units, of which
will be beneficially owned by Barnes & Noble and Bertelsmann. Each share
of High Vote Stock is convertible, and each of the Membership Units not
owned by the Company are exchangeable, into one share of Class A Common Stock at
the option of the holder thereof. Any shares of Class A Common Stock into which
the shares of High Vote Stock or Membership Units have been converted or
exchanged will also be "restricted" securities within the
18
<PAGE>
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 of its officers and directors, and
Barnes & Noble and Bertelsmann, the Company's controlling stockholders, who
beneficially own 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 High Vote Stock and exchange of Membership Units not owned by the
Company will become eligible for resale following such 180-day period, subject
to such additional restrictions to the extent applicable and subject to
Rule 144. million of such shares of Class A Common Stock have "demand"
and "piggyback" registration rights attached to them. 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 and Membership Units," "Shares Eligible for Future
Sale" and "Underwriting."
19
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the shares of Class A Common
Stock offered hereby are estimated to be $ million ($ million if
the Underwriters' over-allotment option is exercised in full) assuming an
initial public offering price of $ per share and after deducting
underwriting discounts and commissions and estimated Offering expenses.
The Company will use the net proceeds of the Offering to acquire
Membership Units ( Membership Units if the Underwriters'
over-allotment option is exercised in full), representing a % (or %,
as the case may be) ownership interest in barnesandnoble.com. The price of the
Membership Units to be acquired by the Company will equal the net price of
shares of the Class A Common Stock sold in the Offering. See "Underwriting."
Net proceeds to barnesandnoble.com will be used to fund anticipated
operating losses, including sales and marketing expenses and payments due under
strategic alliances; enhancements to the Company's online stores and other
capital expenditures; working capital; and other general corporate purposes. In
addition, barnesandnoble.com may use a portion of such net proceeds 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 by barnesandnoble.com 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, barnesandnoble.com
intends to invest the funds in appropriate investments as determined by the
Company's management.
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on its capital
stock since inception and barnesandnoble.com has not declared any distributions
to its members since inception. Neither the Company nor barnesandnoble.com
expects to pay any cash dividends or distributions for the foreseeable future,
except barnesandnoble.com expects to pay distributions to its members to the
extent necessary to enable such members (including the Company) to pay taxes
incurred with respect to taxable income of barnesandnoble.com. The Company
currently intends to retain future earnings, if any, to finance the expansion of
its business.
20
<PAGE>
CAPITALIZATION
The following table sets forth: (i) the actual capitalization of
barnesandnoble.com as of December 31, 1998; and (ii) the capitalization of the
Company as adjusted to reflect the Recapitalization and the issuance and sale by
the Company of the shares of Class A Common Stock offered by the Company hereby
at an assumed initial offering price of $ per share, the receipt of the
estimated proceeds therefrom and the purchase of Membership Units.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------------
ACTUAL(1) PRO FORMA(2)
-------------- ------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C>
Cash and cash equivalents......................................................... $ 96,940 $
Debt.............................................................................. -- --
Minority interest................................................................. --
Members' equity................................................................... 169,149 --
Stockholders' equity:
Preferred Stock; $0.001 par value; 50,000,000 shares authorized; none issued and
outstanding.................................................................. --
Common Stock Series A; $0.001 par value; 500,000,000 shares authorized; none
issued and outstanding on an actual basis, issued and outstanding on a
pro forma basis.............................................................. --
Common Stock Series B; $0.001 par value; 100,000,000 shares authorized; none
issued and outstanding on an actual basis, issued and outstanding on a
pro forma basis.............................................................. --
Common Stock Series C; $0.001 par value; 100,000,000 shares authorized; none
issued and outstanding on an actual basis, issued and outstanding on a
pro forma basis..............................................................
Paid-in capital.................................................................
-------- --------
Total stockholders' equity................................................... --
-------- --------
Total capitalization....................................................... $169,149 $
-------- --------
-------- --------
</TABLE>
- ------------------
(1) Reflects investments by members set forth in members' equity.
(2) Reflects stockholders' equity of the Company and the reclassification of
member investments to minority interest.
21
<PAGE>
DILUTION
The following table illustrates the dilution in pro forma net tangible book
value (total assets less total liabilities) on a per share basis, assuming the
exchange of all outstanding Membership Units for, and the conversion of all
outstanding shares of High Vote Stock into, shares of Class A Common Stock
as of the date of the Offering. See "Shares Eligible for Future Sale."
<TABLE>
<S> <C>
Initial public offering price per share................................................. $ 00.00
Pro forma net tangible book value per share at December 31, 1998 Increase in pro forma
net tangible book value per share attributable to new investors purchasing shares
in the Offering....................................................................
--------
Pro forma net tangible book value per share after the Offering..........................
--------
Pro forma dilution per share to new investors assuming full conversion of all Membership
Units into shares of Class A Common Stock............................................. $
--------
--------
</TABLE>
The following table summarizes the relative investment in
barnesandnoble.com of the existing members and the Company, giving pro forma
effect to the sale of Membership Units to the Company. The foregoing table
assumes no exercise of the Underwriters' over-allotment options.
<TABLE>
<CAPTION>
MEMBERSHIP CONSIDERATION AVERAGE
------------------ ------------------- PRICE PER
UNITS PERCENT PAID PERCENT UNIT
------- ------- -------- ------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Existing members........................................ % $ % $
------- ----- -------- ----- -------
The Company.............................................
------- ----- -------- ----- -------
Total................................................. 100.0% $ 100.0% $
------- ----- -------- ----- -------
------- ----- -------- ----- -------
</TABLE>
22
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS OF DOLLARS)
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 following table sets forth the historical selected data
for barnesandnoble.com for the years ended December 31, 1997 and 1998. This data
has 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. Also set forth below are the pro forma Statement
of Operations Data for the Company for the year ended December 31, 1998, which
reflects the Recapitalization and the completion of the Offering as if they had
occurred on January 1, 1998, and the pro forma Balance Sheet Data for the
Company as of December 31, 1998, which reflects the Recapitalization, the
contribution by Bertelsmann of an additional $50 million and the completion of
the Offering as if they had occurred on December 31, 1998. The operating results
are not necessarily indicative of the operating results for any future period.
<TABLE>
<CAPTION>
BARNESANDNOBLE.COM BARNESANDNOBLE.COM INC
LLC
--------------------- ----------------------
YEAR ENDED
DECEMBER 31,
--------------------- 1998
1997 1998 PRO FORMA(1)
-------- -------- ----------------------
(UNAUDITED)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................................................... $ 11,949 $ 61,834 $ 61,834
Cost of sales................................................ 10,117 47,569 47,569
-------- -------- ------------
Gross profit............................................ 1,832 14,265 14,265
-------- -------- ------------
Operating expenses:
Marketing and sales........................................ 8,855 70,423 70,423
Product development........................................ 3,256 8,532 8,532
General and administrative................................. 3,273 19,166 19,166
-------- -------- ------------
Total operating expenses................................ 15,384 98,121 98,121
-------- -------- ------------
Operating loss............................................... (13,552) (83,856) (83,856)
Interest income, net......................................... -- 708 708
-------- -------- ------------
Loss before minority interest................................ (13,552) (83,148) (83,148)
Minority interest(2)......................................... -- --
-------- -------- ------------
Net loss..................................................... $(13,552) $(83,148) $
-------- -------- ------------
-------- -------- ------------
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------- 1998
1997 1998 PRO FORMA(1)
------- -------- ----------------------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................... $ -- $ 96,940 $
Working capital.............................................. 3,176 78,681
Total assets................................................. 26,327 202,144
Minority interest(3)......................................... -- --
Equity(4).................................................... $19,213 $169,149 $
</TABLE>
- ------------------
(1) Reflects the structure of the Company as of the date of the completion of
the Offering, the Recapitalization, the contribution by Bertelsmann of an
additional $50 million and the issuance and sale by barnesandnoble.com of
Membership Units to the Company in exchange for the estimated net
proceeds of the Offering. See "Corporate History and Recapitalization."
(2) Represents the % allocation of loss to Barnes & Noble and Bertelsmann.
(3) Includes the reclassification of the equity interest of Barnes & Noble and
Bertelsmann to minority interest, and the additional $50 million
contribution by Bertelsmann.
(4) The actual amounts as of December 31, 1997 and December 31, 1998 reflect the
members' equity of barnesandnoble.com. The pro forma amount reflects the
reclassification of members' equity to minority interest, and stockholders'
equity of the Company after the Offering.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company, pursuant to the terms of the Operating Agreement, is a holding
company that will act as the sole Manager of, and will control,
barnesandnoble.com and, as of the date of the Prospectus, has no other business.
See "Management--Governance Documents." The following is a discussion of the
operations of barnesandnoble.com and should be read in conjunction with the
Financial Statements of barnesandnoble.com 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 initial online store in March 1997. See "Corporate History and
Recapitalization."
Since its incorporation, the Company has incurred significant net losses
primarily as a result of development costs associated with opening its online
stores and its marketing efforts, which include payments to strategic alliance
partners, such as AOL, Microsoft and Lycos, as well as payments made for
advertising. As of December 31, 1998, the Company had accumulated net losses of
$96.7 million. As it seeks to aggressively expand the business of its online
stores, 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 stores 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 compared
to traditional "bricks and mortar" retailers, 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 the Company
been operating as a separate stand-alone company during the periods presented.
24
<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>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1998
------ ------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................................................ 100.0% 100.0%
Cost of sales........................................................................ 84.7 76.9
------ ------
Gross profit......................................................................... 15.3 23.1
Operating expenses:
Marketing and sales................................................................ 74.1 113.9
Product development................................................................ 27.2 13.8
General and administrative......................................................... 27.4 31.0
------ ------
Total operating expenses........................................................ 128.7 158.7
------ ------
Operating loss....................................................................... (113.4) (135.6)
Interest income net.................................................................. -- 1.1
------ ------
Net Loss............................................................................. (113.4)% (134.5)%
------ ------
------ ------
</TABLE>
NET SALES
Net sales include the sale of books and related products, net of returns
(which are not significant), and outbound shipping charges. The Company launched
its initial online store in March 1997, when it became the exclusive bookseller
in AOL's Marketplace. Net sales increased 419% from $11.9 million for the year
ended December 31, 1997 to $61.8 million for the year ended December 31, 1998.
The increase was primarily attributed to a significant increase in units sold
due to the growth of the Company's online stores and the related customer base.
International sales represented 9.9% and 10.0% of net sales for the year ended
December 31, 1997 and December 31, 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 year ended December 31, 1998 compared with the year
ended December 31, 1997, due to the Company's increased sales volume. As a
percentage of sales, cost of sales decreased from 84.7% for the year ended
December 31, 1997 to 76.9% 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 facility, which increased from 38.5% in the year
ended December 31, 1997 to 60.3% in the year ended December 31, 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.
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 691% from $8.9 million for the year ended December 31, 1997
to $70.4 million for the year ended December 31, 1998. This increase was
primarily due to the Company's aggressive marketing and branding campaign which
was commenced in 1998 and included advertising and promotional expenditures,
costs associated with strategic marketing agreements with leading high-traffic
Web sites and AOL, and increased personnel and related expenses required to
implement the Company's marketing strategy and to fulfill the increased sales
volume. The Company expects to continue this campaign and, accordingly, the
Company anticipates marketing and sales expenses to increase significantly in
absolute dollars although not by as great a
25
<PAGE>
percentage change. For a discussion of costs associated with material marketing
agreements, see "--Liquidity and Capital Resources."
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 licensed
content and updates thereto. Product development expense increased 158% from
$3.3 million for the year ended December 31, 1997 to $8.5 million for the year
ended December 31, 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 stores 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 customer online
shopping experience, 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, depreciation and amortization and the
allocation of costs from Barnes & Noble in accordance with the Services
Agreements. General and administrative expenses increased 482% from $3.3 million
for the year ended December 31, 1997 to $19.2 million for the year ended
December 31, 1998. This increase was primarily due to increased salaries and
related expenses associated with the recruiting and hiring of additional
personnel and a $4.5 million increase in depreciation and amortization. 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.
INTEREST INCOME, NET
Net interest income on cash, cash equivalent and short-term investments of
$0.7 million in 1998 was recorded subsequent to the Formation Transaction and
the investment by Bertelsmann in the Company.
NET LOSS
As a result of the factors discussed above, the Company's net loss
increased 511% from $13.6 million for the year ended December 31, 1997 to $83.1
million for the year ended December 31, 1998.
QUARTERLY RESULTS OF OPERATIONS AND SEASONALITY
The following table sets forth certain unaudited quarterly statement of
operations data for the eight quarters ended December 31, 1998. This unaudited
quarterly information has been derived from unaudited financial statements of
the Company and, in the opinion of management, includes 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.
26
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED
(UNAUDITED)
----------------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1997 1997 1997 1997 1998 1998 1998 1998
--------- -------- ------------- ------------ --------- -------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................... $ 44 $ 1,593 $ 3,252 $ 7,060 $ 9,013 $ 11,380 $ 15,561 $ 25,880
Cost of sales................ 49 1,384 2,726 5,958 7,003 8,733 12,001 19,832
------- -------- --------- -------- --------- -------- --------- --------
Gross profit................. (5) 209 526 1,102 2,010 2,647 3,560 6,048
------- -------- --------- -------- --------- -------- --------- --------
Operating expenses:
Marketing and sales......... 81 413 2,954 5,407 6,613 19,471 14,685 29,654
Product
development............... 74 458 1,098 1,626 1,804 2,129 2,046 2,553
General and
administrative............ 23 154 1,336 1,760 3,089 4,782 5,397 5,898
------- -------- --------- -------- --------- -------- --------- --------
Total operating expenses..... 178 1,025 5,388 8,793 11,506 26,382 22,128 38,105
------- -------- --------- -------- --------- -------- --------- --------
Operating loss............... (183) (816) (4,862) (7,691) (9,496) (23,735) (18,568) (32,057)
Interest income, net ........ -- -- -- -- -- -- -- 708
------- -------- --------- -------- --------- -------- --------- --------
Net loss..................... $ (183) $ (816) $ (4,862) $ (7,691) $ (9,496) $(23,735) $ (18,568) $(31,349)
------- -------- --------- -------- --------- -------- --------- --------
------- -------- --------- -------- --------- -------- --------- --------
<CAPTION>
QUARTER ENDED
(UNAUDITED)
----------------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1997 1997 1997 1997 1998 1998 1998 1998
--------- -------- ------------- ------------ --------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF NET SALES:
Net sales.................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................ 111.4 86.9 83.8 84.4 77.7 76.7 77.1 76.6
------- -------- --------- -------- --------- -------- --------- --------
Gross margin................ (11.4) 13.1 16.2 15.6 22.3 23.3 22.9 23.4
------- -------- --------- -------- --------- -------- --------- --------
Operating expenses:
Marketing and sales......... 184.1 25.9 90.8 76.6 73.4 171.1 94.4 114.6
Product development......... 168.2 28.8 33.8 23.0 20.0 18.7 13.1 9.9
General and
administrative............ 52.2 9.6 41.1 24.9 34.3 42.1 34.7 22.8
------- -------- --------- -------- --------- -------- --------- --------
Total operating expenses..... 404.5 64.3 165.7 124.5 127.7 231.9 142.2 147.3
------- -------- --------- -------- --------- -------- --------- --------
Operating loss............... (415.9) (51.2) (149.5) (108.9) (105.4) (208.6) (119.3) (123.9)
Interest income, net......... -- -- -- -- -- -- -- 2.8
------- -------- --------- -------- --------- -------- --------- --------
Net loss..................... (415.9)% (51.2)% (149.5)% (108.9)% (105.4)% (208.6)% (119.3)% (121.1)%
------- -------- --------- -------- --------- -------- --------- --------
------- -------- --------- -------- --------- -------- --------- --------
</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 Company's
ability to upgrade and develop its systems and infrastructure; (vii) 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;
(viii) the Company's ability to attract new and qualified personnel in a timely
and effective manner; (ix) the level of traffic on the Company's online store;
(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.
Through October 31, 1998 the Company, as a wholly-owned subsidiary, was
included in Barnes & Noble's U.S. consolidated income tax returns. As such, any
benefit for income taxes due to losses generated by the Company were realized by
Barnes & Noble. Effective November 1, 1998 the
27
<PAGE>
Company, as a result of the Formation Transaction, was no longer a subsidiary of
Barnes & Noble and as a limited liability company is not considered a taxable
entity for Federal income tax purposes and most state income tax purposes. Any
taxable income or losses recorded subsequent to the Formation Transaction are
reported by the members on their respective income tax returns. As result of the
Formation Transaction, no tax benefits have been allocated to the Company for
its losses for all periods presented.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flows used by operating activities were $14.4 million in 1997 and
$54.7 million in 1998. Cash used in operating activities in 1997 was
attributable to a net loss of $13.6 million and increases in prepaid expenses
and other current assets of $9.2 million, partially offset by increases in
accounts payable and accrued liabilities as well as depreciation and
amortization. Cash used by operating activities in 1998 was attributable to a
net loss of $83.1 million partially offset by increases in payables to
affiliates and accrued liabilities as well as depreciation and amortization.
Net cash flows used by investing activities were $18.3 million and
$81.5 million in 1997 and 1998, respectively. The increase in 1997 was primarily
attributable to purchases of fixed assets. The increase in 1998 was attributable
to purchases of fixed assets and an increase of $50.4 million in restricted
cash. For a discussion of restricted cash, see "Note 2 of Notes to Financial
Statements of barnesandnoble.com."
Net cash flows from financing activities of $32.8 million and
$233.1 million in 1997 and 1998, respectively, resulted from member
contributions to barnesandnoble.com.
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 December 31, 1998, $10.0 million will be paid for in 1999 and $11.0
million will be paid in each of 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 stores on the Web. Under the Lycos Agreement, visitors
to Lycos' Web site may readily access the Company's online stores 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 October 1, 1998, the Company entered into a one-year e-commerce merchant
agreement with Microsoft Corporation (the "MSN Agreement"), pursuant to which
MSN.com's portal site is linked to the Company's online stores. The agreement
also provides the Company with a broad set of feature placements throughout
MSN.com. In consideration of the services provided under the MSN Agreement, the
Company has paid Microsoft $3.0 million. In addition, the Company is required to
pay Microsoft a percentage of all revenues generated through links from MSN.com,
with all payments of fees first credited against the initial payment of
$3.0 million.
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
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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 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 Internet Tax Freedom Act imposed a moratorium on new taxes or
levies on e-commerce for a three-year period. However, there is a possibility
that Congress may not renew this legislation in 2001. Any such taxes could have
an adverse effect on e-commerce, including the Company's 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 stores, the ability to
expand the Company's customer base, the cost of upgrades to its online stores,
the level of expenditures for sales and marketing, the level of investment in
distribution 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. The Company believes that the net proceeds
from the Offering, the $50 million additional capital contribution which
Bertelsmann has agreed to contribute prior to the Offering, the Company's
$135 million of current cash and its operating revenue will be sufficient to
meet anticipated cash needs for at least the next 12 months.
YEAR 2000
Many currently installed computer systems and software products are coded
to accept only two-digit entries in the date code field. The Company's computer
equipment and software and devices with embedded technology that are
date-sensitive may recognize a date using "00" as the year 1900 rather than the
year 2000. 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. All programming for the Web site has occurred in
the last two years with full awareness of year 2000 issues.
Management does not anticipate that the Company will incur material
operating expenses or be required to invest heavily in computer systems
improvements to be Year 2000 compliant. Most expenses have related to, and are
expected to continue to relate to, the operating costs associated with time
spent by employees in the evaluation process and year 2000 generally.
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,
service providers and shippers in the event current vendors, suppliers, service
providers or shippers 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.
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BUSINESS
GENERAL
The Company is a holding company that will act as sole Manager of
barnesandnoble.com and will have no other business. The business of
barnesandnoble.com is described below.
The Company is a leading online retailer of books and complementary
information, entertainment and intellectual property-based products. Since
opening its initial online store in March 1997, the Company has sold products to
over 1.5 million customers in 181 countries. The Company has created a model for
e-commerce based upon a compelling value proposition. The Company's suite of
online stores is anchored by its online bookstore, and also includes online
stores offering software, magazines, music and video products, all seamlessly
integrated within the Company's Web site located at www.barnesandnoble.com. The
Company's online bookstore, which contains over 8 million books, offers
customers an easy-to-search catalog of virtually every book currently in print,
as well as an extended searchable catalog of millions of out-of-print, pre-owned
and rare books. The Company has the largest in-stock position of books available
for immediate shipping to customers. In addition to what the Company believes is
its unparalleled selection of books as compared to that available from other
online retailers, the Company offers its customers fast delivery, deep
discounts, easy and secure ordering, rich editorial content and community
experience.
According to Media Metrix, in December 1998 the Company's Web site was the
fourth most trafficked shopping site and was among the top 25 largest sites on
the Internet on an overall basis, and was ranked as one of 1998's fastest
growing Internet sites. Exclusive distribution and co-marketing agreements with
major Web portals and content sites, such as AOL, Microsoft and Lycos, have
extended the Company's brand and consumer exposure to its online stores. The
Company has also established a network of remote storefronts across the Internet
by creating direct links with over 75,000 affiliate Web sites.
During 1998, the Company introduced many major enhancements to its online
stores, including Express Lanesm one-click ordering, a powerful and user
friendly search engine, email book reviews and product-notification services,
software and magazine stores, a gift center and bargain books store and online
gift certificates. Also during 1998, the Company established an out-of-print
book service and began to add music and video to its product offerings,
initiatives scheduled to be fully rolled out during 1999.
The Company believes that its relationships with Barnes & Noble, the
world's largest bookseller, and Bertelsmann, one of the world's largest media
companies, provide it with meaningful advantages relative to other online
retailers in its category, including:
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 an online purchase;
o The use of Barnes & Noble's state-of-the-art distribution center as
its primary product supplier, which enables the Company to:
(i) offer over 750,000 in-stock book titles for fast delivery,
representing the largest standing inventory of any online
bookseller; (ii) offer such a large selection without needing to
make any investment in inventory and the ongoing expense related to
the management of such inventory; and (iii) benefit from a higher
gross margin as the Company sources significantly less merchandise
through wholesalers;
o The enterprise value of Barnes & Noble and Bertelsmann, including
Barnes & Noble's network of over 500 retail superstores and
Bertelsmann's position as one of the largest integrated media
companies in the world, which provides an important and leverageable
advantage in negotiating with online portals, distribution partners,
content and media companies as well as with other strategic
partners;
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o The ability to conduct cross-marketing, co-promotion and customer
acquisition programs with Bertelsmann's U.S. book clubs, which will
provide the Company with: (i) access to millions of established book
buyers; (ii) the opportunity to directly promote its online store to
this vast audience of proven buyers; and (iii) a potential new
stream of customers that it will be able to acquire at a
significantly lower acquisition cost as compared to customers
acquired via its other marketing channels;
o The potential ability to directly link and cross-promote the
Company's online stores with the online stores operated by BOL in
the United Kingdom, Germany, France, the Netherlands and Italy,
which will enable the Company to more rapidly acquire new streams of
international customers, as well as to offer its existing customer
base access to a vast selection of foreign language books, which the
Company believes will help it further strengthen customer loyalty
and repeat business; and
o Ongoing access to the substantial bookselling and direct marketing
knowledge and experience of the management of Barnes & Noble and
Bertelsmann.
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 Jupiter Communications, an independent media research firm, as of
the end of 1998 almost 10 million U.S. households have made at least one online
purchase and by the end of 2002 this population is expected to grow to
approximately 36.5 million, representing nearly 60 percent of overall U.S.
online households. The Company believes that these figures will grow
substantially as Internet use becomes easier and more pleasurable through
higher-speed access and less expensive and alternative Internet access devices.
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 315 million users by the end of 2002. The Company's growth
rate may be different.
THE BOOK INDUSTRY. The size of the U.S. consumer book market, according to
Veronis Suhler, an investment banking firm specializing in, among other things,
the publishing industry, was $15.4 billion in 1997 and is expected to grow to
$16.4 billion by the year 2000. Worldwide book sales, according to Euromonitor,
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.
ONLINE SHOPPING FORECAST. Industry analysts, including Forrester Research
and Jupiter Communications, forecast continued and accelerating acceptance of
the Internet as a channel that consumers will turn to for a wide range of
products. Within the categories where the Company has placed its primary focus,
namely books and complementary information-based products such as music, video
and software, industry analysts forecast a large and rapidly growing market for
online sales. Forrester Research estimates that U.S. online sales of books will
grow to nearly $3 billion by 2002. In addition, Forrester Research estimates
U.S. online sales in 2002 for music to be $1.9 billion, software to be
$2.8 billion and video to be $976 million.
PRODUCTS THAT ARE WELL SUITED FOR E-COMMERCE. The book, music, video and
software businesses are particularly well suited for e-commerce because an
online store has virtually unlimited shelf space and can offer consumers
anywhere the convenience of browsing through vast product information databases.
The use of sophisticated search engines and personalized services enables users
to locate books and music, for example, with unparalleled convenience and speed
and to get advance notice about titles in their areas of personal interest.
Editorial content, such as synopses,
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excerpts, reviews and editorial recommendations, and in the case of music,
downloadable sound samples, make for a more-educated and entertaining purchasing
decision. The Company believes that the presence of online stores 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 retailer can offer.
BUSINESS STRATEGY
The Company seeks to become the leading online retailer for consumers who
want to purchase books and complementary information-based products. To achieve
this objective, the Company has focused its efforts on providing the highest
possible levels of value and service, which it believes are reflected in the
completeness of its product selection, the ease-of-use of its Web site, the
prices of its products and the speed of delivery it can offer its customers.
While the principal focus of the Company will be online bookselling, it will
continue to seek opportunities that expand its product offering to complementary
information, entertainment and intellectual property-based products, and to
present them to customers with the highest contextual relevance. It is the
Company's goal to be recognized as the most innovative and customer-focused of
e-commerce merchants, making online purchasing a simple, personal and gratifying
experience that results in the highest levels of customer loyalty.
Central to achieving these objectives, the Company's operating strategy is
focused on rapidly extending its brand and scaling its customer and revenue base
by:
CONTINUALLY ENHANCING THE USER EXPERIENCE. The Company is committed
to making every aspect of browsing and shopping in its online stores an
easy and pleasurable experience. It makes continual efforts to improve the
design, layout and navigation of all elements of its Web site, as well as
to ensure that the site's performance metrics are competitive, especially
with regard to page download times and the speed of all search functions.
The Company also strives to make the entire ordering and checkout process
easy, intuitive, fast and secure.
OFFERING A LARGE PRODUCT SELECTION AND FAST DELIVERY. The Company
offers more books, currently over 8 million, than any other online
bookseller. This includes virtually every English language book currently
in print as well as millions of out-of-print, pre-owned and rare books. The
Company's online databases act as a highly searchable catalog for the
spectrum of English language books. The Company, through Barnes & Noble,
maintains the largest in-stock position of any online bookseller, enabling
it to uniquely serve customers by having over 750,000 titles available for
immediate shipping. During 1999, as the Company expands its product
offering into music and video, it will adopt a similar strategy of having
extensive music and video titles available for fast delivery to customers.
EXPANDING ITS PRODUCT OFFERING. The Company intends to be 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. The Company launched its magazine and software
online stores during 1998, and began a limited introduction of music and
video products in late 1998, with a full rollout scheduled for 1999.
Furthermore, the Company believes that its entire range of technologies,
inclusive of its database and search engine, automated shopping cart,
Express Lanesm 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.
BUILDING BRAND AWARENESS AND DRIVING CUSTOMER ACQUISITION THROUGH
ADVERTISING AND PROMOTION. The Company will continue to invest in building
its online brand and in communicating the benefits and convenience of
shopping at its online stores. The Company believes that it is well
positioned to benefit from the large post-early-adopter market that is now
beginning to come online, many of whom have yet to make their first online
purchase. A variety of media, including online, radio, television, print
and outdoor advertising, will be selectively deployed
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in 1999 to further the Company's goal of rapidly growing its customer base,
which as of March 1, 1999, stood at approximately 1.5 million customers.
The Company will also benefit from cross-marketing with Barnes & Noble
retail stores, wherever possible, as well as from cross-marketing with
Bertelsmann's U.S. book clubs and with BOL in Europe. In all of its
advertising and promotion initiatives, the Company seeks to continuously
drive down new customer acquisition costs, as well as to get customers to
return to its site more frequently and to increase the size of their
average purchase per visit.
LEVERAGING ITS RELATIONSHIP WITH BARNES & NOBLE. The Company believes
that its 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 utilize 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 generated
over $3 billion in 1998 annual sales) and is the single largest repository
of data about U.S. consumer book purchasing habits. In addition to such
benefits, this relationship also raises the potential of certain conflicts
of interest, as well as certain restrictions on the Company's business. See
"Risk Factors--Potential Conflicts of Interest with Barnes & Noble and
Bertelsmann" and "Management--Governance Documents."
LEVERAGING ITS RELATIONSHIP WITH BERTELSMANN. The Company intends to
conduct various cross-marketing, co-promotion and customer acquisition
programs with Bertelsmann's U.S. book clubs. These programs will provide
the Company with access to millions of established book buyers. The Company
will also directly link and cross-promote its Web site with those of BOL,
which has country and language-specific sites in the United Kingdom,
Germany, France, the Netherlands and Italy. The Company believes that these
programs will generate both new customers and new revenue streams. In
addition to such benefits, this relationship also raises the potential of
certain conflicts of interest, as well as certain restrictions on the
Company's business. See "Risk Factors--Potential Conflicts of Interest with
Barnes & Noble and Bertelsmann" and "Management--Governance Documents."
STRENGTHENING AND EXPANDING STRATEGIC ALLIANCES. The Company will
continue to provide its major strategic partners with merchandising
support, strengthening their ability to generate sales for the Company and
to promote the Company's brand. The Company also believes that its
connection to Barnes & Noble and Bertelsmann enables it to negotiate more
competitively for new strategic and marketing partners as major media and
content companies place a high value on the connection to the entire Barnes
& Noble/Bertelsmann enterprise.
PURSUING ACQUISITIONS. The Company will also pursue acquisitions,
joint ventures and other similar strategic investments and relationships
with complementary businesses and companies in order to augment or expand
its current offerings. While the Company is continually examining those
possibilities, it has not entered into any agreements with respect to any
such acquisitions, joint ventures or strategic investments. There can be no
assurance that any acquisition will be successful or that companies
acquired by the Company will be profitable.
INCREASING THE NUMBER OF WEB SITES IN ITS AFFILIATE NETWORK. The
Company's affiliate network, which was launched in October 1997, currently
has over 75,000 affiliates and is growing at a rate of approximately 1,000
affiliates per week. The Company believes that its affiliate program goes
beyond that of its competitors because it couples high commissions with
strong technology tools, with such features as online, real-time sales
reporting.
CONTINUING TO INVEST IN TECHNOLOGY. The Company believes that it
currently utilizes a state-of-the-art interactive e-commerce platform. The
Company 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.
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THE COMPANY'S ONLINE STORES
The principal focus of the Company will be online bookselling, but it will
continue to seek out opportunities to expand its product offering to
complementary information, entertainment and intellectual property-based
products, and to present them to customers with the highest contextual
relevance. Accordingly, in addition to its online bookstore the Company provides
online stores for software, magazines, music, video and other information-based
products of a complementary nature. All of its online stores are seamlessly
integrated and presented to customers within the Company's single Web site. The
Company's initial online bookstore, launched in 1997, was augmented by the
introduction of a magazine store and a software store in 1998. Music and video
products were introduced in limited scale in late 1998, with full rollouts
planned for 1999.
The Company believes that the following factors make its online bookstore
an easy and convenient way to shop for books:
LARGE 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. In October 1998, pursuant to an exclusive
Agreement with Advanced Book Exchange, Inc. (the "ABE Agreement"), the
Company introduced its out-of-print book service, which now includes
millions of rare, pre-owned, hard-to-find and out-of-print books. The ABE
Agreement may be terminated by either party upon 180 days prior written
notice, at which time the Company would turn to one of several other
vendors for this service. The Company's combined in-print/out-of-print book
selection is currently over 8 million.
LARGE STANDING INVENTORY FOR 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 the Company offers
the fastest delivery on the largest number of titles of any online
bookseller, because the Barnes & Noble distribution center is able to
provide the Company with immediate shipment on over 750,000 titles.
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. The Company guarantees that all
transactions are safe and secure. The Company has created a set of
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 Lanesm one-click ordering feature.
RICH EDITORIAL CONTENT. The Company 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
650,000 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 Company's Web site recently
introduced a microsite featuring the highly acclaimed '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.
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
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superstores. It was the first online bookseller to introduce a regular
series of real-time author chats, and since going online, over 300 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. As a result,
the Company's Web site contains thousands of reader reviews.
PERSONALIZED SERVICES. The Company's e-nnouncementssm 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 the Company's 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's magazine store currently offers customers the ability to
obtain subscriptions to over 500 magazines in 25 categories. The Company
guarantees that it offers the lowest publisher-authorized subscription prices
available to consumers anywhere on the Internet.
The Company's software store currently offers over 2,000 software titles in
eight major categories, including software for business and productivity, games,
kids and entertainment and for home and reference. The over 2,000 titles that
the Company offers encompasses a title mix that represents 80% of all of the
software sold in the U.S.
During 1999, the Company plans to expand its offering of music and videos
by introducing online music and video stores, as well as other complementary
information and entertainment-based products.
MARKETING AND PROMOTION
ONLINE STRATEGIC ALLIANCES. Since inception, the Company has aggressively
pursued strategic alliances with premier online companies and high-traffic Web
sites in order to drive traffic to its online stores. The Company believes that
its affiliation with Barnes & Noble and Bertelsmann greatly facilitates its
ability to enter into agreements with many high profile portal and content
sites. The Company's largest strategic alliance is with AOL. 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 16 million members. The Company has also entered into
exclusive strategic alliances with Microsoft, Lycos, ZDNet, Disney, The New York
Times, CNN, TicketMaster, Pathfinder and USA Today. See "Management's Discussion
and Analysis of Financial Condition--Liquidity and Capital Resources."
AFFILIATE NETWORK. In addition to securing alliances with high-traffic Web
sites, the Company has established an affiliate network consisting of over
75,000 Web sites operated by third parties, whereby Web sites can earn
commissions by linking users from their site to the Company's online stores. The
Company believes that its affiliate program goes beyond that of other online
retailers by: (i) paying higher commissions; (ii) enabling members to take
content from the Company's online bookstore to enhance their merchandising; and
(iii) 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 bases 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.
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ADVERTISING. During 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. In 1999, the Company intends to begin
cross-marketing with Bertelsmann's U.S. book clubs, gaining access to millions
of established book buyers.
INTERNATIONAL. The Company believes that the demand for English language
books abroad is substantial and untapped. The Company recently began to
implement a cross-linking and cross-marketing program with BOL's Web sites in
the United Kingdom, Germany, France, the Netherlands and Italy, pursuant to
which BOL customers who wish to order English language books are linked to the
Company's Web site.
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 ("Ingram"), Baker &
Taylor and Bookazine. From these sources the Company can quickly obtain
approximately 900,000 different titles, the majority of which are currently
sourced from the Barnes & Noble distribution center. Orders not filled through
this network are forwarded to the Company's special order group, which places
orders directly with publishers. Barnes & Noble previously announced its
agreement to purchase Ingram. Although the Company contemplates that such
acquisition may benefit the Company, given its relationship with Barnes & Noble,
the Company believes that the non-occurrence of such acquisition would not have
a material adverse effect on the Company.
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 Web site, which
is hosted in three separate locations. The Company maintains its primary host
location in its corporate headquarters in New York. A second host location is
operated by MCI, which provides additional capacity and redundancy. The third
such location is at AOL, which is optimized and exclusively for AOL subscribers
(keyword bn). All hosting locations are configured with expandable bandwidth to
avoid any network saturation and six 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
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multiple external sources and is able to systematically 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 SiteServer 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.
During 1998, the Company also added the capability for customers to buy,
send and redeem online gift certificates.
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.
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 customer 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 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. 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. Increased competitiveness among
online retailers may result in reduced operating margins, loss of market share
and a diminished brand franchise.
With respect to the sale of books, which constitutes the Company's largest
source of revenue, the Company currently competes with numerous booksellers
including other Internet-based companies,
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such as Amazon.com, and traditional book retailers. With respect to the sale of
music, software and videos, the Company competes with numerous merchants
including other Internet-based companies, such as Amazon.com, CDnow, Reel.com,
Beyond.com and traditional retailers. The Company's main online competitor,
Amazon.com, has a longer online operating history and a larger existing customer
base than the Company. The Company is aware that Amazon.com has and may continue
to adopt aggressive pricing and marketing strategies. The Company is also aware
of other online retailers that are offering substantial discounts on products,
including books, music, software and videos, which are subsidized by advertising
revenue from their Web sites. An increase in the prevalence of this type of
business model could lead to additional pricing pressures on the Company's
products. If and when the Company decides to add additional products in its
online stores, it will most probably face intense competition for those products
as well.
EMPLOYEES
As of March 1, 1999, the Company employed approximately 654 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."
FACILITIES
The Company's principal administrative, marketing and technical facilities
are located in approximately 63,000 square feet of office space in New York, New
York. This lease expires in 2007.
Barnes & Noble leases a 300,000 square foot facility, located in New
Jersey, of which the Company utilizes approximately 100,000 square feet for its
distribution and customer services. The Company pays Barnes & Noble for its
proportionate share of such lease. This lease expires in March 2003; however,
Barnes & Noble has an option to extend the lease for up to three additional
successive two-year periods.
While the Company's existing facilities are adequate for its current needs,
due to the Company's recent growth, management has determined that additional
office space will be required. The Company is currently negotiating to obtain
additional administrative, distribution and service facilities. The Company does
not believe it will have any problems securing such additional space. 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.
In August 1998, The Intimate Bookshop, Inc. and its owner, Wallace Kuralt,
filed a lawsuit in the United States District Court for the Southern District of
New York against Barnes & Noble, including the Company, Borders Group, Inc.,
Amazon.com, certain publishers and others alleging violation of the
Robinson-Patman Act and other federal law, New York statutes governing trade
practices and common law. The complaint seeks certification of a class
consisting of all retail booksellers in the United States, whether or not
currently in business, which were in business and were members of the American
Booksellers Association at any time during the four-year period preceding the
filing of the complaint. The complaint alleges that the named plaintiffs have
suffered damages of approximately $11.2 million or more and requests treble
damages on behalf of the named plaintiffs and each of the purported class
members, as well as of injunctive and declaratory relief (including an
injunction requiring the closure of all of defendants' stores within 10 miles of
any location where plaintiff either has or had a retail bookstore during the
four years preceding the filing of the complaint, and prohibiting the opening by
defendants of any bookstore in such areas for the next 10 years), disgorgement
of alleged
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discriminatory discounts, rebates, deductions and payments, punitive damages,
interest, costs, attorneys fees and other relief. The Company intends to
vigorously defend this action.
The FTC is currently reviewing Barnes & Noble's proposed acquisition of
Ingram pursuant to the pre-merger notification procedure of the HSR Act. In
connection with that review, the FTC is also reviewing the Formation
Transaction, and Bertelsmann's investment in the Company. Should the FTC
determine that the Formation Transaction violated applicable antitrust laws, it
could seek to impose a number of remedies or penalties on the Company, including
the unwinding of the Formation Transaction. The Company believes that the
Formation Transaction was completed in compliance with, and did not violate,
applicable antitrust laws.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following are the executive officers and directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Leonard Riggio(1).................................... 58 Chairman of the Board
Jonathan Bulkeley.................................... 38 Chief Executive Officer
Gerald Luterman...................................... 55 Chief Financial Officer
Gary King............................................ 41 Chief Information Officer
Carl Rosendorf....................................... 47 Senior Vice President, Marketing, Sales and Business
Development
William F. Duffy..................................... 43 Vice President, Operations
John Kristie......................................... 37 Vice President, Information Technology
Brenda Marsh......................................... 45 Vice President, Merchandising
Michael N. Rosen..................................... 58 Secretary and a Director
Stephen Riggio....................................... 44 Director
Thomas Middelhoff(1)................................. 45 Director
Markus Wilhelm....................................... 41 Director
Klaus Eierhoff....................................... 35 Director
- -------------------------------------------------------------------------------------------------------------------
(1) Member of the Special Committee and the Nominating Committee.
</TABLE>
MR. LEONARD RIGGIO has been Chairman of the Board of the Company 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 nation'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. JONATHAN BULKELEY has been Chief Executive Officer of the Company since
January 1999. From July 1995 to December 1998, he was managing director of AOL's
joint venture with Bertelsmann in the United Kingdom, responsible for the
development, creation and marketing of interactive online services in the United
Kingdom. Mr. Bulkeley moved to the United Kingdom to create AOL's operation
there. During his tenure, AOL-UK became the United Kingdom's top online provider
with over 500,000 subscribers. Previously, he was Vice President of Business
Development at AOL in the United States, responsible for the development of new
revenue streams, primarily advertising and e-commerce transactions. Under
Mr. Bulkeley's direction, AOL launched aggressive programs to attract both
advertisers and direct marketers. Prior to that position, he was General Manager
of Media, in charge of the development and production of all AOL media
partnerships. Before joining AOL in 1993, Mr. Bulkeley spent eight years at Time
Inc. in a variety of roles. He was Director of Marketing and Development for
Money magazine for three years. Prior to that, he held sales and marketing
positions at Time and Discover magazines. Mr. Bulkeley is a graduate of Yale
University.
MR. GERALD LUTERMAN has been Chief Financial Officer of the Company since
February 1999, and is responsible for the Company's financial management and
investor relations. From March 1996 to January 1999, Mr. Luterman was a Senior
Vice President and Chief Financial Officer for Arrow Electronics, in charge of
the financial activities and functions of that company. Arrow Electronics is a
distributor of electronic components and computer products to industrial and
commercial customers. From 1985 to 1996, he was employed at American Express
Travel Related Services in a number of senior financial executive positions of
increasing responsibility, including Chief Financial Officer,
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Consumer Card Division from 1992 to 1996. Prior to this period, he held senior
executive positions with Booz-Allen & Hamilton (1983-1985) and Xomox Corporation
(1971-1983). Mr. Luterman holds an MBA from Harvard Business School and is a
member of the Canadian Institute of Chartered Accountants.
MR. GARY KING has been Chief Information Officer of the Company since
January 1999, and is responsible for developing and implementing global
information technologies, as well as allocating and evaluating the effectiveness
of overall technology resources. From 1987 to December 1998, he was with Avon
Products serving most recently as Vice President for Global Information
Technologies. At Avon, he was responsible for the strategic planning,
evaluation, selection and implementation of all information technology and
computing architectures for Avon's $1 billion businesses in Europe, the Middle
East and Africa. He led a team of information technology professionals in 22
markets, supporting a business that produced more than 100,000 orders daily. He
also created an integrated global network for Avon, which resulted in increased
sales, cost savings, and service improvements. Prior to Avon, Mr. King worked in
a number of information systems management positions for Burroughs and Unisys.
Mr. King holds a degree in computer science.
MR. CARL ROSENDORF was Vice President, Marketing, Sales and Business
Development of the Company since June 1997, and was promoted to Senior Vice
President, in January 1999. 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
stores, 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. In June 1998,
Mr. Rosendorf was named by Advertising Age Magazine as one of the year's Digital
Media Masters.
MR. WILLIAM F. DUFFY has been Vice President, Operations of the Company
since its inception. He was also Chief Financial Officer of the Company from
inception to January 1999 and a director of the Company from inception to
October 1998. Mr. Duffy is responsible for 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 Books Corp., a wholly-owned subsidiary of Barnes & Noble through which
Barnes & Noble operates its mail-order 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 of the
Company since its inception, and is responsible for the technology
infrastructure and product development for the Company. He was a director of the
Company from inception to October 1998. 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,
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.
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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 ("Robinson Silverman"), 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.
MR. STEPHEN RIGGIO has been a director of the Company since its inception.
He was Chief Executive Officer of the Company from inception to December 1998.
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.
DR. THOMAS MIDDELHOFF has been a director of the Company since November 1,
1998. Dr. Middelhoff has been Chairman and Chief Executive Officer of
Bertelsmann since November 1, 1998. In 1995, Dr. Middelhoff was appointed to the
board of AOL. From 1994 to 1998, Dr. Middelhoff was a Member of the Executive
Board of Bertelsmann, where he was the head of Corporate Development and the
Coordinator of Bertelsmann's multimedia businesses. Prior to that time,
Dr. Middelhoff was appointed to the board of the Industry Division of
Bertelsmann and Chairman of the Board of Managing Directors of Mohndruck.
Dr. Middelhoff received his doctorate in Business Administration.
MR. MARKUS WILHELM has been a director of the Company since November 1,
1998. Mr. Wilhelm has been the President of Doubleday Direct, Inc. since May
1993, and its Chief Executive Officer and Chief Compliance Officer since July
1994. Mr. Wilhelm is responsible for Doubleday Direct's U.S., Canadian, British
and Australian book club businesses, including their overall marketing,
operations and administration. On March 15, 1998, Mr. Wilhelm was elected
Chairman of the Board of Doubleday Interactive, Inc., a U.S. Internet service
provider. On August 19, 1998, as director of BOL.US Online, Inc. and BOL.Global,
Inc., Mr. Wilhelm developed and launched bol.com.
DR. KLAUS EIERHOFF has been a director of the Company since November 1,
1998. Dr. Eierhoff has been President and Chief Executive Officer of Bertelsmann
Multimedia Group and a member of the Executive Board of Bertelsmann since
January, 1998. From 1990 to 1997, Dr. Eierhoff served as a member of the
Executive Board of Karstadt AG, where he was responsible for the Logistics,
Organization and EDP Departments. From 1987 to 1990, Dr. Eierhoff served as
Managing Director of Bertelsmann Distribution GmbH. Prior to that time,
Dr. Eierhoff was a member of the Board of Management of Bertelsmann Distribution
GmbH. Dr. Eierhoff received his doctorate in Organization.
ADDITIONAL DIRECTORS; CLASSES OF DIRECTORS
Prior to or immediately following the consummation of the Offering, three
additional independent directors who are not affiliated with the Company, Barnes
& Noble or Bertelsmann will be elected to the Company's Board of Directors. The
identity of these directors is not currently known.
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. Each class will consist of one director elected by the holders
of the Class B Common Stock (each a "Class B Director"), one director elected by
the holders of the Class C Common Stock (each a "Class C Director"), and one
director elected by all stockholders of the Company voting together as a single
class. 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. The
Chairman of the Board is appointed by the Class B Directors, subject to approval
of the Class C Directors. The Chief Executive Officer is appointed by the
Special Committee of the Board of Directors.
The executive officers of the Company will also constitute the executive
officers of barnesandnoble.com, each holding the same respective office.
BOARD COMMITTEES
Prior to or immediately following the consummation of the Offering, the
Company will establish a Special Committee of the Board of Directors. The
Special Committee will consist of two members, one of whom shall be selected by
the Class B Directors and one of whom shall be selected by the Class C
Directors. The initial members of the Special Committee will be Leonard Riggio
and Thomas Middelhoff. The purpose of the Special Committee will be to evaluate
certain major corporate actions, such as mergers, acquisitions, capital
expenditures or borrowings in excess of $20 million (each a "Major Action").
Each Major Action will require the approval of the Special Committee prior to
being submitted for the approval of the Board of Directors. If the number of the
outstanding shares of Class B Common Stock (together with Membership Units owned
by such holders) falls below 15% of the number of outstanding Membership Units
or the holders of the Class B Common Stock transfer shares of Common Stock
and/or Membership Units constituting more than 10% of the number of outstanding
Membership Units, then the holders of the Class B Common Stock shall lose the
right to elect a member to the Special Committee, the Class B Common Stock
director shall resign from the Special Committee, and the Special Committee
shall thereafter only consist of the Class C Common Stock director, provided,
that the holders of the Class C Common Stock still have the right to appoint a
member to the Special Committee. If the amount of the outstanding shares of
Class C Common Stock (together with Membership Units owned by such holders)
falls below 15% of the number of outstanding Membership Units or the holders of
the Class C Common Stock transfer shares of Common Stock and/or Membership Units
constituting more than 10% of the number of outstanding Membership Units, then
the holders of the Class C Common Stock shall lose the right to elect a member
to the Special Committee, the Class C Common Stock director shall resign from
the Special Committee and the Special Committee shall thereafter only consist of
the Class B Common Stock director, provided, that the holders of the Class B
Common Stock still have the right to appoint a member to the Special Committee.
Prior to or immediately following the consummation of the Offering, the
Company will establish an Executive Committee which will consist of Mr. Leonard
Riggio, Dr. Thomas Middelhoff and one additional director. The Executive
Committee will exercise all of the power and authority of the Board of Directors
to the extent permitted by law, provided that certain major events will require
the approval of the full Board of Directors.
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.
Prior to or immediately following the consummation of the Offering, the
Company will establish a Compensation Committee of the Board of Directors which
will consist solely of two or more independent directors. The Compensation
Committee will determine 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 will also administer the Company's 1998 Incentive Plan
(described below).
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Prior to or immediately following the consummation of the Offering, the
Company will establish a Nominating Committee of the Board of Directors. The
Nominating Committee will consist of a Class B Director, a Class C Director, and
an additional director chosen by the Class B Directors, subject to the approval
of the Class C Directors. The role of the Nominating Committee will be to
conduct searches for potential directors and to recommend candidates to the full
Board of Directors for its consideration. Leonard Riggio, as the Class B
Director, and Thomas Middelhoff, as the Class C Director, will be initial
members of the Nominating Committee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to or immediately following the consummation of the Offering, the
Company will appoint two of the new outside directors to constitute the
Compensation Committee of the Board of Directors. 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, Stephen Riggio, a director of the Company, is also the Vice
Chairman and a director of Barnes & Noble and Michael Rosen, who is the
Secretary and a director of the Company, is also the Secretary and a director of
Barnes & Noble.
COMPENSATION OF DIRECTORS
Directors who are not employees or officers of the Company, Barnes & Noble
or Bertelsmann 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 two of the new outside directors to the Compensation
Committee of the Board of Directors.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company has included in its Amended Charter provisions to indemnify its
directors and officers and the officers of barnesandnoble.com to the extent
permitted by Delaware law. The Amended Charter also includes provisions to
eliminate the personal liability of its directors and officers and the officers
of barnesandnoble.com 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.
The Company's Amended By-laws provide that the Company will indemnify its
directors, officers and employees and the officers and employees of
barnesandnoble.com against judgments, fines, amounts paid in settlement and
reasonable expenses.
Insofar as the indemnification for liabilities resulting under the
Securities Act may be permitted to directors or officers of the Company or the
officers of barnesandnoble.com, the Company has been informed that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
GOVERNANCE DOCUMENTS
The Amended Charter will provide for the Company's three classes of Common
Stock and staggered Board of Directors, and will also contain the provisions
governing the voting rights of the High Vote stock, and the conversion of the
High Vote Stock and the exchange of Membership Units not owned by the Company
into shares of Class A Common Stock. For a description of these provisions, see
"--Additional Directors; Classes of Directors" and "Description of Capital Stock
and Membership
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Units." Pursuant to the Amended Charter, the Board of Directors will consist of
nine directors, provided that if there shall be less than three classes of
Common Stock issued and outstanding, then the number of directors constituing
the Board of Directors shall consist of a number of directors equal to three
multiplied by the number of classes of Common Stock then issued and outstanding.
The Amended Charter will also provide that each of the Class B Common Stock and
the Class C Common Stock has the right to directly elect three directors to the
Board of Directors and Barnes & Noble and Bertelsmann, by a vote of at least 75%
of their respective Class B Common Stock and Class C Common Stock (each voting
separately as a class), may, without a vote of the holders of the Class A Common
Stock, approve a merger of barnesandnoble.com into the Company.
The Amended By-laws will provide for the Committees of the Board of
Directors, including the Special Committee. For a description of the Committees
of the Board of Directors, see "--Board Committees." The Amended By-laws will
also provide that certain major events, including the Major Actions, will
require the approval of the full Board of Directors. Additionally, the Amended
By-laws will provide that all actions by or on behalf of the Company with
respect to the execution, delivery, termination, amendment or waiver of any
agreement between Barnes & Noble and the Company will require the approval of a
majority of the Class C Directors, and all actions by or on behalf of the
Company with respect to the execution, delivery, termination, amendment or
waiver of any agreement between Bertelsmann and the Company will require the
approval of a majority of the Class B Directors.
In connection with the Offering, the Company, Barnes & Noble and
Bertelsmann will enter into a Stockholders Agreements (the "Stockholders
Agreement") which will contain certain "demand" and "piggyback" registration
rights with respect to any Class A Common Stock issued upon conversion of High
Vote Stock or in exchange for Membership Units. See "Description of Capital
Stock and Membership Units--Registration Rights." The Stockholders Agreement
will also contain certain restrictions on the ability of Barnes & Noble and
Bertelsmann to transfer their shares of Common Stock and certain rights of first
refusal with respect to such transfers. Such restrictions and first refusal
rights are similar to those contained in the Operating Agreement. Pursuant to
the Stockholders Agreement, each of Barnes & Noble and Bertelsmann has also
agreed that, with respect to the directors not elected directly by it, it will
vote its High Vote Stock in favor of three directors nominated by the Board of
Directors.
In connection with the Offering, the Company, Barnes & Noble and
Bertelsmann will enter into the Operating Agreement, pursuant to which, the
Company will become the sole Manager of barnesandnoble.com and will control
barnesandnoble.com. Additionally, the Operating Agreement will provide that the
Company shall be the exclusive means by which each of Barnes & Noble and
Bertelsmann sell English language books in English speaking countries through
the Internet, except that the Web sites of Bertelsmann's publishing companies
may sell the books they publish on their Web sites, and BOL.UK may sell English
language books published in the United Kingdom. The Company may only sell
non-English language books through links to BOL's Web sites. The Operating
Agreement will also prohibit the Company from operating Internet book clubs.
Further, the Operating Agreement will contain certain restrictions against
transfer and rights of first refusal between Barnes & Noble and Bertelsmann with
respect to their Membership Units. Pursuant to the Operating Agreement, Barnes &
Noble and Bertelsmann have agreed to certain non-competition restrictions
through the later of (i) the date they cease to own any Membership Units or
Common Stock and (ii) two years following the date the number of shares of
Common Stock, together with the number of Membership Units, held by such party
constitutes less than 10% of the then outstanding Membership Units.
For a description of certain restrictions on the Company's business see
"Risk Factors--Limitations on the Company's Business," and for a description of
the structure of the Company, see "Corporate History and Recapitalization."
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE.
The following table summarizes the compensation paid or accrued by the
Company, for services rendered to the Company during 1998, to the Company's
Chief Executive Officer and the Company's four other most highly compensated
executive officers (collectively, the "Named Executive Officers"). The salaries
of the executive officers of the Company are paid by barnesandnoble.com.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ---------------
-------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1) OPTIONS COMPENSATION(2)
- ------------------------------------- --------- -------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Stephen Riggio(3)
Former Chief Executive Officer..... $ -- $ -- $ -- 1,200,000 $ --
Jeffrey Killeen(4)
Chief Operating Officer............ 490,385 100,000 -- 1,800,000 167,121(5)
Carl Rosendorf
Senior Vice President, Marketing,
Sales and Business Development..... 271,154 33,333 1,500 750,000 --
William F. Duffy(6)
Vice President, Operations......... 255,507 110,000 23,864 525,000 --
John Kristie
Vice President, Information
Technology......................... 233,654 44,000 3,200 525,000 --
</TABLE>
- ------------------
(1) Consists of payments made under the Company's Retirement Plan, Deferred
Compensation Plan and Defined Contribution Plan.
(2) In accordance with the rules of the Securities and Exchange Commission,
other compensation in the form of perquisites and other personal benefits
has been omitted for each of the Named Executive Officers because the
aggregate amount of such perquisites and other personal benefits constituted
less than the lesser of $50,000 or 10% of the total of annual salary and
bonuses for each of such Named Executive Officers in 1998.
(3) As of January 4, 1999, Jonathan Bulkeley became the Chief Executive Officer
of the Company. Mr. Riggio's salary was paid by Barnes & Noble in 1998.
(4) Mr. Killeen's employment with the Company terminated as of February 19,
1999.
(5) Consists solely of reimbursement of certain relocation expenses.
(6) Prior to February 1, 1998, Mr. Duffy's salary was paid by Barnes & Noble.
46
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information with respect to stock
option grants to the Named Executive Officers during the year ended
December 31, 1998.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
INDIVIDUAL GRANTS(1)(2) AT ASSUMED ANNUAL
----------------------------------------------------------------- RATES
% OF TOTAL OF STOCK PRICE
NUMBER OF OPTIONS APPRECIATION FOR
SECURITIES GRANTED TO EXERCISE OPTION TERM(3)
UNDERLYING EMPLOYEES PRICE PER ------------------------
NAME OPTION GRANTED IN FISCAL YEAR SHARE EXPIRATION DATE 5.0% 10.0%
- ----------------------- --------------- -------------- ------------ --------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Stephen Riggio......... 1,200,000 7.7% $4.00 2/1/2008 $3,024,000 $ 7,644,000
Jeffrey Killeen........ 1,800,000(4) 11.5 4.00 2/1/2008 4,536,000 11,466,000
Carl Rosendorf......... 750,000 4.8 4.00 2/1/2008 1,890,000 4,777,500
William F. Duffy....... 525,000 3.4 4.00 2/1/2008 1,323,000 3,344,250
John Kristie........... 525,000 3.4 4.00 2/1/2008 1,323,000 3,344,250
</TABLE>
- ------------------
(1) All options were granted with an exercise price equal to or above the fair
market value of the Common Stock at the date of grant as determined by the
Company's Board of Directors. Adjusted based on an assumed stock split of
one million to one.
(2) All options granted in 1998 vest and become exercisable in equal annual
installments on each February 1 of the years 1999, 2000, 2001 and 2002.
(3) In accordance with the rules of the Commission, the amounts shown on this
table reflect hypothetical gains that could be achieved for the respective
options if exercised at the end of the option term. These gains are based on
assumed rates of stock appreciation of 5.0% and 10.0%, compounded annually
from the date the respective options were granted to their expiration date.
The gains shown are net of the option exercise price, but do not include
deductions for taxes or other expenses associated with the exercise. Actual
gains, if any, on stock option exercises will depend on the future
performance of the Common Stock and the date on which the options are
exercised.
(4) Mr. Killeen forfeited 1.2 million of his options which were not vested at
the time of his termination of employment.
47
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table sets forth certain information with respect to the
value of unexercised options held by the Named Executive Officers at
December 31, 1998. None of the Named Executive Officers exercised any options
during the year ended December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT DECEMBER 31, IN-THE-MONEY OPTIONS
1998 AT DECEMBER 31, 1998(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Stephen Riggio....................................... -- 1,200,000 $ -- $
Jeffrey Killeen...................................... -- 1,800,000(2) --
Carl Rosendorf....................................... -- 750,000 --
William F. Duffy..................................... -- 525,000 --
John Kristie......................................... -- 525,000 --
</TABLE>
- ------------------
(1) Based upon the per share initial public offering price of the Class A Common
Stock.
(2) Mr. Killeen forfeited 1.2 million of his options which were not vested at
the time of his termination of employment.
EMPLOYEES' RETIREMENT PLAN
Prior to October 31, 1998, employees of the Company were covered by a
pension plan administered by Barnes & Noble. Under the terms of the Formation
Transaction, the assets and liabilities of the Barnes & Noble pension plan have
been bifurcated and a separate Employees' Retirement Plan maintained by the
Company (the "Retirement Plan") has been established for the benefit of the
Company's employees.
The Retirement Plan is a defined benefit pension plan covering all
employees whose services are performed within the U.S. (including Puerto Rico)
who are at least 21 years of age and who have completed at least one year of
service and work a minimum of 1,000 hours per year. Vesting occurs after five
years of service. The Retirement Plan provides Company-funded benefits based
upon an employee's years of service and highest average annual salary for any
five consecutive years in the last ten years of service.
A participant's annual benefit is determined for an employee, including an
officer, generally as (i) 0.7% of the participant's average annual pay as
determined in accordance with the Retirement Plan up to Social Security-covered
compensation, multiplied by the participant's years of credited service, plus
(ii) 1.3% of the participant's average annual pay as determined in accordance
with the Retirement Plan in excess of Social Security-covered compensation,
multiplied by the participant's years of credited service. A participant's
maximum benefit is limited pursuant to Section 415 of the Internal Revenue Code
of 1986, as amended (the "Code"), to $130,000 for 1998, indexed annually.
Compensation recognized under the Retirement Plan is limited to $160,000 for
1997, 1998 and 1999, indexed annually in accordance with
Sections 401(a)(17) and 415(d) of the Code.
The Retirement Plan provides that, for as long as the Barnes & Noble
pension plan provides for future benefit accruals, if a participant in the
Employees' Retirement Plan becomes employed by Barnes & Noble or an affiliate by
a direct transfer of employment from the Company, increases in such person's age
and the compensation paid by Barnes & Noble during that employment with Barnes &
Noble will be taken into account in calculating benefits under the Retirement
Plan accrued through the date of such transfer. The Retirement Plan also
provides that, with respect to any person who becomes employed by the Company,
upon a direct transfer of employment from Barnes & Noble or an affiliate,
service with Barnes & Noble shall be taken into account for purposes of vesting,
eligibility and early retirement subsidies under the Retirement Plan.
48
<PAGE>
Credited years of service under the Retirement Plan as of December 31, 1998
for the individuals named in Summary Compensation Table above are: Stephen
Riggio--0, Jeffrey Killeen--1, Carl Rosendorf--2, William F. Duffy--5, John
Kristie--4.
The following table illustrates the maximum annual amounts payable at age
65 under the Retirement Plan, based on various levels of highest average annual
salary and years of credited service:
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE
---------------------------------------------------
ASSUMED HIGHEST AVERAGE SALARY 15 20 25 30 35
- ------------------------------------------------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$125,000.............................................. $21,405 $28,540 $35,675 $42,810 $49,945
$150,000.............................................. 26,280 35,040 43,800 52,560 61,320
$160,000 and above(1)................................. 28,230 37,040 47,050 56,460 65,870
</TABLE>
- ------------------
(1) The benefits shown corresponding to this compensation reflect the
compensation limit under Section 401(a)(17) of the Code. A participant's
compensation in excess of $150,000 (as adjusted to reflect cost-of-living
increases) is disregarded for purposes of determining highest average
earnings in plan years beginning in 1994 through 1996; a participant's
compensation in excess of $160,000 (as adjusted to reflect cost-of-living
increases) is disregarded for purposes of determining highest average
earnings in plan years beginning in or after 1997. Benefits accrued as of
the last day of the plan year beginning in 1993 on the basis of compensation
in excess of $150,000 are preserved.
DEFERRED COMPENSATION PLAN
Prior to October 31, 1998 certain employees of the Company participated in
a deferred compensation plan administered by Barnes & Noble. Under the terms of
the Formation Transaction, a separate Deferred Compensation Plan maintained by
the Company has been established effective November 1, 1998 for the benefit of
the Company's employees eligible to participate therein, and the trustee of any
grantor trust established under the Barnes & Noble Plan is to transfer to the
Company's Deferred Compensation plan amounts equal to the contributions of the
Company's employees in deferral accounts under the Barnes & Noble Plan.
The Company's Deferred Compensation Plan is a non-qualified plan,
eligibility for which is limited to "Eligible Executives," who include
(i) Company employees who became Company employees on November 1, 1998 and were
eligible to participate in the Barnes & Noble deferred compensation plan on
October 31, 1998, and (ii) Company employees whose base salary for a calendar
year exceeds $130,000. An Eligible Executive may elect in each year he or she is
an Eligible Executive to defer no less than $5,000 and no more than 50% of his
or her base salary to a Deferral Account under the Deferred Compensation Plan.
An Eligible Executive who receives a bonus may elect to defer no less than
$2,500 and no more than 100% of his or her bonus to his or her Deferral Account.
The Deferral Account of each eligible Executive who elects to participate in the
Deferred Compensation Plan (a "Participant") shall be credited or debited with
investment earnings or losses based upon the performance of the investment fund
or index selected by the Participant from among alternatives selected by an
Administrative Committee appointed by the Compensation Committee of the Board of
Directors.
A Participant is entitled to a distribution of his or her Deferral Account
upon retirement or following termination of employment, as elected by the
Participant, but no later than the beginning of the year in which the
Participant would attain age 70 1/2. A Participant may elect whether to receive
the distribution in a lump sum or in annual installments over not more than
fifteen (15) years.
Amounts payable under the Deferred Compensation Plan are a general
unsecured obligation of the Company, payable out of the Company's general assets
to the extent not paid by a grantor trust which the Company may establish. The
Company may amend or terminate the Deferred Compensation Plan at any time.
49
<PAGE>
DEFINED CONTRIBUTION PLAN
The Company is a participating employer in a defined contribution plan (the
"Savings Plan"), sponsored by Barnes & Noble, for the benefit of substantially
all of its employees who meet certain eligibility requirements, primarily age
and length of service. The Savings Plan allows employees to invest up to 15% of
their current gross cash compensation on a pre-tax or post-tax basis, at their
option. The Company's contributions to the Savings Plan are generally in amounts
based upon a certain percentage of the employees' pre-tax contributions. The
Company provides matching contributions to participants in the amount of 50% of
the first 5% contributed by them, which contributions are made in the form of
Barnes & Noble common stock.
EMPLOYMENT ARRANGEMENTS
The Company entered into an Employment Agreement with Jonathan Bulkeley
(the "Bulkeley Agreement") pursuant to which, as of January 4, 1999,
Mr. Bulkeley became the Chief Executive Officer of the Company. The Bulkeley
Agreement may be terminated by either party on 60 days prior written notice to
the other, pursuant to which Mr. Bulkeley agreed to serve as the Chief Executive
Officer of the Company. Pursuant to the Bulkeley Agreement, Mr. Bulkeley
receives an annual base salary of $400,000. Additionally, Mr. Bulkeley has been
granted options to purchase a total of 3.6 million shares of Class A Common
Stock with options at an exercise price of $4.67 per share assuming a stock
split of one million to one). One-quarter of such options vested on February 1,
1999 and the remaining options vest in equal installments on the first, second,
third and fourth anniversary of February 1, 1999. Unvested options will
terminate upon certain conditions in connection with termination of
Mr. Bulkeley's employment. The Company maintains life insurance coverage in the
face amount of $1.5 million on Mr. Bulkeley. Mr. Bulkeley has the exclusive
right to designate the beneficiaries of such policy. In the event of
Mr. Bulkeley's death, the Bulkeley Agreement shall terminate, and
Mr. Bulkeley's legal representative shall receive from the Company the base
salary, benefits or other payments which would otherwise be due to the end of
the month during which the termination of employment occurred. In the event
termination results from an incapacity, then the Company shall continue paying
Mr. Bulkeley disability benefits no less favorable than those paid to senior
executives of Barnes & Noble, including but not limited to the proceeds of
disability insurance. If the Company terminates Mr. Bulkeley for cause, provided
Mr. Bulkeley is given at least thirty days prior notice and the opportunity to
cure the alleged deficiency, then Mr. Bulkeley shall receive his salary through
the end of the month in which the termination occurred. If Mr. Bulkeley's
employment is terminated by the Company without cause, Mr. Bulkeley shall
receive the base salary that would otherwise be due at the end of the month
multiplied by twenty-four, plus the monthly cost to the Company of the
continuation of certain benefits at then current levels multiplied by twelve.
The Bulkeley Agreement also contains confidentiality and non-competition
provisions.
INCENTIVE PLAN
GENERAL. The Company's 1999 Incentive Plan (the "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 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 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. The Incentive Plan is substantially the same as the 1998
Incentive Plan (the "LLC Incentive Plan") established by barnesandnoble.com. The
Incentive Plan provides for the grant of replacement options ("Replacement
Options") to employees of the Company who received options under the LLC
Incentive Plan. In connection with the
50
<PAGE>
consummation of the Offering, the Company will issue Replacement Options to all
holders of outstanding options under the LLC Incentive Plan. As of December 31,
1998, options for Membership Units (which will be exercisable into
shares of Class A Common Stock) have been issued to certain officers,
directors and employees of the Company under the LLC Incentive Plan.
Additionally, the Company will, prior to the Offering, grant options exercisable
into up to shares of Class A Common Stock with an exercise price equal to
the per share initial public offering price. The Company will contribute all
proceeds received by it upon the exercise of options under the Incentive Plan to
barnesandnoble.com in exchange for Membership Units at a price per Membership
Unit equal to the exercise price of such options. See "Corporate History and
Recapitalization" and "Description of Capital Stock and Membership
Units--Options."
SHARE AUTHORIZATION. The maximum number of Shares that may be the subject
of awards under the Incentive Plan (other than Replacement Options) is
Shares and in any given year, the maximum number of Shares with respect to which
awards 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 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 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 Incentive
Plan. The Shares to be issued or delivered under the Incentive Plan are
authorized and unissued Shares, or issued Shares that have been acquired by the
Company, or both.
INCENTIVE PLAN ADMINISTRATION. The 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
Incentive Plan, to establish such rules and regulations as it may deem
appropriate for the conduct of meetings and proper administration of the
Incentive Plan. Subject to the provisions of the Incentive Plan, the Committee
shall have authority, in its sole discretion, to grant awards under the
Incentive Plan, to interpret the provisions of the Incentive Plan and, subject
to the requirements of applicable law, to prescribe, amend, and rescind rules
and regulations relating to the 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 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 Stock 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 delivery of a promissory note or 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
or her 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 or her family members.
SHARE APPRECIATION RIGHTS. The 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
51
<PAGE>
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 and, to the extent authorized by the Committee, the number of
Shares used to satisfy tax withholding obligations. 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 or the
related tax withholding obligation. 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
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
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 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 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 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.
52
<PAGE>
TERMINATION AND AMENDMENT. The 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 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.
53
<PAGE>
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.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
PERCENTAGE OF
BENEFICIALLY OWNED VOTING POWER
-------------------- --------------------
NAME AND ADDRESS NUMBER OF SHARES BEFORE AFTER BEFORE AFTER
OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OFFERING OFFERING OFFERING OFFERING
- ----------------------------------------------- --------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Barnes & Noble, Inc. ..........................
122 Fifth Avenue
New York, NY 10011 (2) % % % %
------- ------ ------ ------ ------
Bertelsmann AG ................................
Carl-Bertelsmann--Strasse 270
33311 Gutersloh, Germany (2)
------- ------ ------ ------ ------
Leonard Riggio(3)..............................
------- ------ ------ ------ ------
Jeffrey Killeen................................
------- ------ ------ ------ ------
John Kristie...................................
------- ------ ------ ------ ------
Carl Rosendorf.................................
------- ------ ------ ------ ------
William F. Duffy...............................
------- ------ ------ ------ ------
Stephen Riggio.................................
------- ------ ------ ------ ------
Michael N. Rosen...............................
------- ------ ------ ------ ------
Thomas Middelhoff..............................
------- ------ ------ ------ ------
Markus Wilhelm.................................
------- ------ ------ ------ ------
Klaus Eierhoff.................................
------- ------ ------ ------ ------
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 High Vote Stock which is convertible into, and
Membership Units which are exchangeable for, shares of Class A Common Stock
on a one-for-one basis at any time at the option of the holder thereof. See
"Description of Capital Stock and Membership Units."
(3) Mr. Riggio beneficially owns approximately 23% of the common stock of Barnes
& Noble, which will, following the Offering, beneficially own approximately
% of the voting power of the Common Stock.
54
<PAGE>
CERTAIN TRANSACTIONS
Following the Offering, the Company will own approximately % of
barnesandnoble.com and will be its sole Manager, and Barnes & Noble and
Bertelsmann, collectively, either directly or through subsidiaries will control
each of the Company and barnesandnoble.com. Mr. Leonard Riggio, the Chairman of
the Board of both the Company and Barnes & Noble, currently owns approximately
23% of the Common Stock of Barnes & Noble and all of the outstanding voting
stock of B&N College.
In connection with the Offering, Barnes & Noble and Bertelsmann will enter
into the Stockholders Agreement which will provide, among other things, for the
management of the Company and the Operating Agreement, pursuant to which, the
Company will become the sole Manager of barnesandnoble.com and will control
barnesandnoble.com, provided that certain actions by the Board of Directors
require approval of each of Barnes & Noble and Bertelsmann. For a description of
the agreements, see "Management--Governance Documents."
Pursuant to the Supply Agreement, Barnes & Noble supplies products to
barnesandnoble.com at a price equal to cost plus incremental overhead. Through
its distribution facilities, Barnes & Noble accounted for approximately 38.5% of
the Company's purchases during 1997 and approximately 60.3% of the Company's
purchases for the year ended December 31, 1998. The Company expects to continue
to source most of its merchandise through Barnes & Noble in the future. This
Agreement remains effective until terminated by either party. In connection with
the Offering, the Agreement will be amended to provide that it may be terminated
by the Company upon the approval of a majority of the Bertelsmann nominated
directors, upon thirty (30) days' prior written notice to Barnes & Noble and may
be terminated by Barnes & Noble: (i) on continuing default by
barnesandnoble.com; (ii) on a bankruptcy or liquidation event of
barnesandnoble.com or of Barnes & Noble; and (iii) at any time after June 1,
2004 if Bertelsmann shall have effected a permitted transfer to any third party
pursuant to the Operating Agreement or if either Barnes & Noble or Bertelsmann
owns less than 15% of the outstanding Membership Units. The Company believes
that, due to its relationship with Barnes & Noble, the terms of this Agreement
are more favorable to the Company than terms it could have received in the
absence of such relationship.
In connection with the Formation Transaction, the Company, B&N College and
barnesandnoble.com entered into the Trademark License Agreement, pursuant to
which the Company licenses the use of the Barnes & Noble name. In connection
with the Offering, the Agreement will be amended to provide that B&N College may
terminate this agreement with notice (i) on continuing default by
barnesandnoble.com, (ii) on a bankruptcy or liquidation event of
barnesandnoble.com, and (iii) at any time beginning one year after a transfer by
Bertelsmann (or any successor in interest) of any of its Membership Units to any
third party deriving more than 50% of its revenue from book sales at the time of
the transfer. The Trademark License Agreement prohibits the Company from using
the Barnes & Noble name for selling textbooks, except for sales of textbooks
that are immaterial, incidental and unsolicited. The Company believes that, due
to its relationship with Barnes & Noble, the terms of this Agreement are more
favorable to the Company than terms it could have received in the absence of
such relationship.
In connection with the Formation Transaction, Barnes & Noble, the Company
and barnesandnoble.com, entered into an Amended and Restated Database and
Software License Agreement, pursuant to which barnesandnoble.com licenses from
Barnes & Noble, the nonexclusive right to use Barnes & Noble's title database,
inventory sourcing and special order software, customer lists and demographic
information. In connection with the Offering, the Agreement will be amended to
provide that it may be terminated by the Company upon the approval of a majority
of the Bertelsmann nominated directors, upon 30 days' prior written notice to
Barnes & Noble, and may be terminated by Barnes & Noble with notice: (i) on
continuing default by the Company; (ii) on a bankruptcy or liquidation event of
the Company or of Barnes & Noble; and (iii) at any time beginning one year after
a transfer by Bertelsmann (or any successor in interest) of any of its
Membership Units to any third party deriving more than 50% of its revenue from
book sales at the time of transfer. The Company believes that, due
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to its relationship with Barnes & Noble, the terms of this Agreement are more
favorable to the Company than terms it could have received in the absence of
such relationship.
In connection with the Formation Transaction, barnesandnoble.com entered
into a Trademark License Agreement with BOL, pursuant to which the Company was
granted a perpetual, exclusive license to use BOL's name and trademark in its
operations. This License remains effective until barnesandnoble.com either
defaults or becomes subject to certain bankruptcy events. The Company believes
that, due to its relationship with Bertelsmann, the terms of this Agreement are
more favorable to the Company than terms the Company could have obtained from an
unaffiliated third party.
In connection with the Formation Transaction, barnesandnoble.com entered
into a Technology Sharing and License Agreements with BOL, the subsidiary
through which Bertelsmann conducts its Internet business, pursuant to which BOL
granted barnesandnoble.com a perpetual, non-revocable license, to view, access
and use BOL's computer technology and systems, and the Company granted BOL a
perpetual, non-revocable license to view, access and use the Company's computer
technology and systems. These agreements remain effective until (i) the date
both parties mutually agree to terminate, or (ii) from and after the date either
Barnes & Noble or Bertelsmann cease having a membership interest of ten percent
(10%) or more in the Company. Following termination, each party may continue to
use in perpetuity any technology it obtained from the other prior to such
termination. The Company believes that, due to its relationship to Bertelsmann,
the terms of these agreements are more favorable to each party than terms either
party could have obtained from an unaffiliated third party.
Because barnesandnoble.com is partly owned by Barnes & Noble, it 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, until June 30, 1999, as consideration for such services,
barnesandnoble.com will pay Barnes & Noble and its subsidiaries an amount equal
to Direct Cost (as defined below) plus Incremental Expense (as defined below).
"Direct Cost" means, with respect to each service provided, the direct
out-of-pocket expenses paid or incurred to third parties in connection with
providing such service, including, without limitation, shipping, handling,
travel expenses, payments to third parties (including, without limitation, all
professional fees), printing and postage. "Incremental Expense" means, with
respect to each service provided, all expenses paid or incurred by Barnes &
Noble and its affiliates in excess of the cost that would have been incurred in
the absence of the performance of the service. 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
barnesandnoble.com been operating as a separate, stand-alone company. If by June
30, 1999, the parties have not agreed upon a new mutually agreeable payment
structure, Barnes & Noble will no longer be obligated to provide such services.
In addition, the Services Agreements may be terminated: (i) by
barnesandnoble.com upon thirty (30) to sixty (60) days prior written notice to
Barnes & Noble or its subsidiaries, with respect to certain services provided
therein; (ii) by Barnes & Noble and its subsidiaries (a) on one hundred eighty
(180) days' prior written notice to barnesandnoble.com, with respect to certain
services provided for therein, (b) upon certain bankruptcy events of Barnes &
Noble or barnesandnoble.com, (c) within the sixty (60) day period following the
one hundred eightieth (180) day after a transfer pursuant to provisions
regarding the rights of first refusal, or (d) if barnesandnoble.com defaults; or
(iii) upon the date that either Barnes & Noble or Bertelsmann cease to own at
least 10% of the outstanding Membership Units of barnesandnoble.com. The Company
believes that, due to its relationship with Barnes & Noble, the terms of the
Services Agreements are more favorable to the Company than terms the Company
could have obtained from an unaffiliated third party.
Thomas Middelhoff is a director of the Company and is also a director of
AOL, with which the Company has entered into the AOL Agreement. For a
description of the AOL Agreement, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
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Michael N. Rosen, a director of the Company, is also a senior member of
Robinson Silverman, which firm is outside counsel to the Company.
CORPORATE HISTORY AND RECAPITALIZATION
For purposes of this section, the full corporate names for the Company and
barnesandnoble.com are used. barnesandnoble.com inc. was originally incorporated
on January 14, 1997 in the State of Delaware under the name Barnes & Noble
Online, Inc. Prior to October 31, 1998, the business of the Company was
conducted by barnesandnoble.com inc., which was 100% owned by Barnes & Noble. As
of October 31, 1998, in connection with the Formation Transaction,
barnesandnoble.com inc. contributed substantially all of its assets and
liabilities to barnesandnoble.com llc and Bertelsmann contributed $150 million
in cash to barnesandnoble.com llc and has agreed to contribute an additional
$50 million to barnesandnoble.com llc prior to the completion of the Offering.
Bertelsmann also paid Barnes & Noble $75 million and will pay Barnes & Noble an
additional $25 million following the consummation of the Offering. The
completion of the foregoing transactions will result in Barnes & Noble and
Bertelsmann each having a 50% beneficial interest in barnesandnoble.com llc.
Subsequent to the Formation Transaction barnesandnoble.com inc. changed its name
to B&N Sub Corp.
Prior to the effective date of the Offering (i) Barnes & Noble will cause
B&N Sub Corp. to establish a new wholly-owned Delaware subsidiary named
barnesandnoble.com inc. and (ii) B&N Sub Corp. will transfer its ownership of
barnesandnoble.com inc. to B&N.com Holding Corp. ("BN.com Holding Corp."). This
will result in Barnes & Noble owning 100% of BN.com Holding Corp. which will,
through its ownership of the Class B Common Stock, own 100% of newly formed
barnesandnoble.com inc. The foregoing transactions in this paragraph are
collectively referred to as the "Recapitalization." Immediately following the
Recapitalization, barnesandnoble.com inc. will issue shares of Class C Common
Stock constituting a 50% interest in barnesandnoble.com inc. to the wholly-owned
subsidiary of Bertelsmann owning the Membership Units. The completion of the
foregoing transactions will result in Barnes & Noble and Bertelsmann each having
a 50% beneficial interest in barnesandnoble.com inc. through their ownership of
all of the outstanding High Vote Stock.
In connection with the Offering, barnesandnoble.com inc. will issue the
shares of Class A Common Stock offered hereby to the public and will
immediately thereafter take the proceeds received therefrom and contribute them
to barnesandnoble.com llc in exchange for Membership Units in
barnesandnoble.com llc. Therefore, immediately subsequent to the Offering:
(i) barnesandnoble.com inc. will be owned % by Barnes & Noble, % by
Bertelsmann and % by the public stockholders purchasing shares of Class A
Common Stock hereunder (however, as a result of their ownership of High Vote
Stock, Barnes & Noble and Bertelsmann will each beneficially control % of
the voting power ( % in the aggregate) of barnesandnoble.com inc.); and (ii)
barnesandnoble.com llc will be owned % by Barnes & Noble, % by
Bertelsmann and % by barnesandnoble.com inc. barnesandnoble.com inc. will be
the sole Manager of barnesandnoble.com llc; however, Barnes & Noble and
Bertelsmann will, as a result of their ownership of the High Vote Stock, control
both barnesandnoble.com inc. and barnesandnoble.com llc. See
"Management--Governance Documents."
DESCRIPTION OF CAPITAL STOCK AND MEMBERSHIP UNITS
GENERAL
The following description of the capital stock of the Company and certain
provisions of the Amended Charter, 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 Charter 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 500 million shares
of Class A Common Stock, par value $.001 per share, 100 million shares of
Class B Common Stock, par value $.001 per
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share, 100 million shares of Class C Common Stock, par value $.001 per share and
50 million shares of Preferred Stock, par value $.001 per share.
COMMON STOCK
As of the date of this Prospectus, there were shares of
Class B Common Stock issued and outstanding and beneficially held of record by
Barnes & Noble and shares of Class C Common Stock issued and
outstanding and beneficially held of record by Bertelsmann. Based upon the
number of shares outstanding as of such 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 High Vote Stock
generally have identical rights, except each holder of Class A Common Stock is
entitled to one vote per share of Class A Common Stock owned by them and each
holder of High Vote Stock is entitled to the amount of votes per share of High
Vote Stock owned by them equal to: (i) ten, multiplied by the sum of (a) the
aggregate number of High Vote Stock owned by such holder and (b) the aggregate
number of Membership Units owned by such holder; divided by (ii) the number of
shares of High Vote Stock owned by such holder. Holders of the Class B Common
Stock are entitled to elect three directors to the Company's Board of Directors
and holders of the Class C Common Stock are entitled to elect three directors to
the Company's Board of Directors. The remaining directors will be elected by all
of the stockholders of the Company voting together as a single class. Holders of
shares of Class A Common Stock and High Vote 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 High Vote 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 High Vote 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 High Vote 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 Amended Charter 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. Barnes & Noble and Bertelsmann, by a vote of at
least 75% of their respective Class B Common Stock and Class C Common Stock
(each voting separately as a class), may, without a vote of the holders of the
Class A Common Stock, approve a merger of barnesandnoble.com into the Company.
DIVIDENDS. Holders of Class A Common Stock and High Vote 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 High Vote 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 High Vote Stock may be paid only to holders
of High Vote Stock; and (ii) shares shall be paid proportionally with respect to
each outstanding share of Class A and High Vote 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 OF HIGH VOTE STOCK. Each share of High Vote Stock is
convertible at the option of the holder thereof into one share of Class A Common
Stock. Any shares of High Vote Stock transferred to a person other than Barnes &
Noble or any of its subsidiaries or Bertelsmann or any of its subsidiaries shall
automatically convert to shares of Class A Common Stock upon such disposition.
If the number of outstanding shares of Class B Common Stock plus the number of
Membership Units owned by the holder of the Class B Common Stock falls below 15%
of the number of outstanding Membership Units, then all outstanding shares of
Class B Common Stock shall automatically convert into Class A Common
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Stock. If the number of the outstanding shares of Class C Common Stock plus the
number of Membership Units owned by the holder of the Class C Common Stock falls
below 15% of the number of outstanding Membership Units, then all outstanding
shares of Class C Common Stock shall automatically convert into Class A Common
Stock.
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 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 any 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 High Vote 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 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 Charter 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 Incentive Plan shall be equal to
shares of Common Stock. See "Management--Incentive Plan" and "Shares Eligible
for Future Sale."
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF DELAWARE LAW AND THE AMENDED
CHARTER AND AMENDED BY-LAWS
The Company is not subject to the provisions of Section 203 of the Delaware
General Corporation Law (as amended from time to time, the "DGCL"). However,
certain provisions of the Amended Charter 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.
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The relevant portions of the Amended Charter and Amended By-laws are
designed to discourage certain types of transactions that may involve an actual
or threatened change of control of the Company. These provisions are meant to
encourage persons interested in acquiring control of the Company to first
consult with the Board of Directors to negotiate terms of a potential business
combination or offer. Further, these provisions protect against an unsolicited
proposal for a takeover of the Company that may effect the long-term value of
the Company's stock or that may be otherwise unfair to the stockholders of the
Company.
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. The Board of Directors will consist of nine directors, provided that if
there shall be less than three classes of Common Stock issued and outstanding,
then the Board of Directors shall consist of a number of directors equal to
three multiplied by the number of classes of Common Stock then issued and
outstanding. Further, the Board of Directors has the sole power and authority to
increase or decrease, within the range, the number of directors. Vacancies on
the Board of Directors may be filled for the unexpired term, or for a new term
when there is an increase in the size, only by an affirmative vote of at least a
majority of the remaining directors then in office.
As provided for in the Amended Charter and Amended By-laws, directors may
only be removed from office for cause by an affirmative vote of the holders of
at least eighty (80%) percent of the voting stock, voting together as a single
class. These provisions, when coupled with the provision of the Amended Charter
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 By-laws provide that special
meetings of stockholders of the Company may be called only by the Chairman of
the Board of Directors, a member of the Special Committee, 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 30 days nor more than 60 days prior to the annual
meeting; provided, that in the event that less than 40 days' notice or prior
public disclosure of the date of the annual meeting is given or made to
stockholders, notice by the stockholder to be timely must be received by 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.
AMENDMENTS. 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. The affirmative vote of the holders of at least 70% of the issued
and outstanding Common Stock, voting as one class, is required to amend or
repeal the Amended Charter. Subject to the Amended By-laws, the Board of
Directors may from time to time make, amend, supplement or repeal the Amended
By-laws by vote of a majority of the Board of Directors; provided, however, that
the
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stockholders may change or amend or repeal any provision of the Amended By-laws
by the affirmative vote of the holders of a majority of the Common Stock, voting
as one class, (y) if a Class B Director is then entitled to be a member of the
Special Committee, by the affirmative vote of the holders of a majority of the
Class B Common Stock, voting separately as a class, and (z) if a Class C
Director is then entitled to be a member of the Special Committee, by the
affirmative vote of the holders of a majority of the Class C Common Stock,
voting separately as a class.
MEMBERSHIP UNITS
Immediately following the Offering there will be million
Membership Units issued and outstanding, million of which will be
beneficially owned by Barnes & Noble, million of which will be
beneficially owned by Bertelsmann, and million of which will be
beneficially owned by the Company.
The number of outstanding Membership Units owned by the Company will at all
times equal the number of shares of outstanding Common Stock. The net cash
proceeds received by the Company from any issuance of shares of Common Stock,
including with regard to the exercise of options issued under the Incentive
Plan, shall be concurrently transferred to the Company in exchange for
Membership Units equal in number to such Common Stock issued by the Company.
Pursuant to the terms of the Amended Charter, each Membership Unit not
owned by the Company is exchangeable into one share of Class A Common Stock at
any time by the holder thereof. See "Management--Governance Documents" and
"Corporate History and Recapitalization."
REGISTRATION RIGHTS
Pursuant to the Stockholders Agreement, holders ("Holders") of shares of
Class A Common Stock ("Registrable Securities") issued or to be issued upon
conversion of shares of High Vote Stock and upon the exchange of Membership
Units were granted certain registration rights.
The Stockholders Agreement provides that each Holder is entitled to
unlimited "piggyback" registration rights. Holders may also, subject to certain
limitations, "demand" that the Company register the Registrable Securities held
by them, provided that the amount of Registrable Securities subject to such
demand constitutes at least 5% of the outstanding Common Stock on the date of
such demand or has a market value in excess of $25 million. The Company will pay
for all such registrations.
Shares of Class A Common Stock cease to be Registrable Securities (i) upon
the consummation of any sale of such shares pursuant to an effective
registration statement or Rule 144 under the Securities Act or (ii) when they
become eligible for sale under Rule 144(k) under the Securities Act.
Immediately following the Offering, million shares of Class A Common
Stock to be issued upon conversion of High Vote Stock or exchange of Membership
Units will have the foregoing registration rights.
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: (i) 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 High Vote Stock will be "restricted" securities
within the
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meaning of Rule 144 under the Securities Act; and (ii) barnesandnoble.com will
have outstanding Membership Units, of which will be beneficially owned
by Barnes & Noble and Bertelsmann. Each share of High Vote Stock is convertible,
and each of the Membership Units not owned by the Company are exchangeable,
into one share of Class A Common Stock at the option of the holder thereof. Any
shares of Class A Common Stock into which the shares of High Vote Stock or
Membership Units have been converted or exchanged 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 of its officers and directors, and
Barnes & Noble and Bertelsmann, the Company's controlling stockholders, who
beneficially own 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 High Vote Stock and exchange of Membership Units not owned by
the Company will become eligible for resale following such 180-day period,
subject to such additional restrictions to the extent applicable and subject to
Rule 144. million of such shares of Class A Common Stock have "demand" and
"piggyback" registration rights attached to them. 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.
Barnes & Noble, Bertelsmann 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 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 the Company, is a senior member of Robinson
Silverman Pearce Aronsohn & Berman LLP.
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.
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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. With respect to statements contained in this Prospectus
as to the contents of any agreement or other document 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.
63
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
barnesandnoble.com inc.
Report of Independent Certified Public Accountants...................................................... F-2
Balance Sheet........................................................................................... F-3
Notes to Balance Sheet.................................................................................. F-4
barnesandnoble.com llc
Report of Independent Certified Public Accountants...................................................... F-6
Balance Sheets.......................................................................................... F-7
Statements of Operations................................................................................ F-8
Statements of Changes in Members' Equity................................................................ F-9
Statements of Cash Flows................................................................................ F-10
Notes to Financial Statements........................................................................... F-11
</TABLE>
F-1
<PAGE>
[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 1 of the financial statements.]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors:
We have audited the accompanying balance sheet of barnesandnoble.com inc. (a
Delaware corporation) as of , 1999. The financial statement is
the responsibility of the Company's management. Our responsibility is to express
an opinion on the financial statement 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 balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of barnesandnoble.com inc. as of
, 1999, in conformity with generally accepted accounting
principles.
_________/s/ BDO SEIDMAN, LLP_________
BDO Seidman, LLP
New York, New York
, 1999
F-2
<PAGE>
BARNESANDNOBLE.COM INC.
BALANCE SHEET
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
, 1999
<S> <C>
ASSETS
Cash.......................................................................................... $ 1
--------
Total assets........................................................................ $ 1
--------
--------
STOCKHOLDERS' EQUITY
Preferred Stock; $0.001 par value; 50,000,000
shares authorized; none issued and outstanding..............................................
Common Stock Series A; $0.001 par value; 500,000,000
shares authorized; none issued and outstanding..............................................
Common Stock Series B; $0.001 par value; 100,000,000
shares authorized; shares issued and outstanding....................................
Common Stock Series C; $0.001 par value; 100,000,000
shares authorized; shares issued and outstanding....................................
Paid-in capital............................................................................... $ 1
--------
Total stockholders' equity.......................................................... $ 1
--------
--------
</TABLE>
See accompanying notes to balance sheet.
F-3
<PAGE>
BARNESANDNOBLE.COM INC.
NOTES TO BALANCE SHEET
1. ORGANIZATION
barnesandnoble.com inc. was organized in the state of Delaware on
January 14, 1997 under the name Barnes & Noble Online, Inc. Prior to October 31,
1998, the business was transacted by a wholly-owned subsidiary of Barnes &
Noble, Inc. ("Barnes & Noble"). Effective October 31, 1998, Barnes & Noble and
Bertelsmann AG ("Bertelsmann") completed a transaction that established
barnesandnoble.com llc as the owner and operator of the business (the "Formation
Transaction"). In connection with the Formation Transaction, barnesandnoble.com
inc. contributed substantially all of its assets and liabilities to
barnesandnoble.com llc.
Prior to the effective date of the Offering (i) Barnes & Noble will cause
B&N Sub Corp. to establish a new wholly-owned Delaware subsidiary named
barnesandnoble.com inc. and (ii) B&N Sub Corp. will transfer its ownership of
barnesandnoble.com inc. to B&N.com Holding Corp. ("BN.com Holding Corp.") This
will result in Barnes & Noble owning 100% of BN.com Holding Corp. which will,
through its ownership of the Class B Common Stock, own 100% of newly formed
barnesandnoble.com inc. The foregoing transactions in this paragraph are
collectively referred to as the "Recapitalization." Immediately following the
Recapitalization, barnesandnoble.com inc. will issue shares of Class C Common
Stock constituting a 50% interest in barnesandnoble.com inc. to a wholly-owned
subsidiary of Bertelsmann. The completion of the foregoing transactions will
result in Barnes & Noble and Bertelsmann each having a 50% beneficial interest
in barnesandnoble.com inc. through their ownership of all of the outstanding
Class B and Class C Common Stock.
For purposes of comparability, the operations from inception have been
reflected in the financial statements of barnesandnoble.com llc included
elsewhere herein. Therefore, the balance sheet of barnesandnoble.com inc. is
presented as if barnesandnoble.com llc (and not barnesandnoble.com inc.) had
always operated the Company's business and reflects the financial position of
the Company subsequent to the Formation Transaction after giving effect to the
Recapitalization and the issuance of Class C Common Stock to Bertelsmann.
2. STOCKHOLDERS' EQUITY
COMMON STOCK
There are three classes of common stock authorized: Class A Common Stock
("Class A Common"), Class B Common Stock ("Class B Common") and Class C Common
Stock ("Class C Common"). The holders of Class A Common Stock generally have
rights identical to holders of Class B Common Stock and Class C Common Stock
(collectively "High Vote Stock"), except that each holder of Class A Common
Stock is entitled to one vote per share of Class A Common Stock owned by them
and each holder of High Vote Stock is entitled to the number of votes per share
of High Vote Stock owned by them equal to: (i) ten, multiplied by the sum of (a)
the aggregate number of High Vote Stock owned by such holder and (b) the
aggregate number of Membership Units owned by such holder; divided by (ii) the
number of shares of High Vote Stock owned by such holder. Pursuant to the
Company's Amended and Restated Certificate of Incorporation (the "Amended
Charter"), the High Vote Stock has the right to directly elect six of the
Company's directors. Otherwise, holders of Class A Common Stock and High Vote
Stock (collectively "Common Stock") generally will vote together as a single
class on all matters (including the election of the directors who are not
elected directly by the holders of the High Vote Stock) presented to the
stockholders for their vote or approval except as otherwise required by
applicable Delaware law.
F-4
<PAGE>
BARNESANDNOBLE.COM INC.
NOTES TO BALANCE SHEET--(CONTINUED)
2. STOCKHOLDERS' EQUITY--(CONTINUED)
PREFERRED STOCK
The Board of Directors is authorized to issue up to an aggregate of 50
million Shares of Preferred Stock. The rights and characteristics of the
Preferred Stock are at the discretion of the Board of Directors. As of
, 1999 there was no Preferred Stock outstanding.
3. PUBLIC OFFERING
The Company filed a registration statement on Form S-1 with the Securities
and Exchange Commission for a public offering (the "Offering") of Class A Common
Stock on September 24, 1998. The number of shares to be offered and the initial
offering price will be determined at a future date. The Company intends to use
all of the net proceeds of the Offering to buy membership units in
barnesandnoble.com llc. barnesandnoble.com llc intends to use such proceeds of
the membership unit sale to fund future operations.
4. INCENTIVE PLAN
The Company established a 1999 Incentive Plan which provides that options
to acquire shares of Class A Common Stock may be granted to key officers,
employees, and other key people. Generally, options may be granted at fair
market value, begin vesting one year after grant in 25% increments, expire ten
years from issuance and are conditioned upon continued employment during the
vesting period.
In addition, the 1999 Incentive Plan provides for the grant of replacement
options to key officers and employees of barnesandnoble.com llc who received
options under a prior plan. In that regard, the Company intends to grant
replacement options at prices ranging from to per share. The Company
will not record compensation expense in connection with the issuance of such
options because they will contain the same terms on an equivalent share basis as
the options they will replace.
F-5
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Members of barnesandnoble.com llc:
We have audited the accompanying balance sheets of barnesandnoble.com llc
(a Delaware limited liability company) as of December 31, 1997 and December 31,
1998, and the related statements of operations, members' equity and cash flows
for the years 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 audits.
We conducted our audits 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 audits provide 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 llc as of
December 31, 1997 and December 31, 1998 and the results of its operations and
its cash flows for the years then ended, in conformity with generally accepted
accounting principles.
/s/ BDO SEIDMAN, LLP
--------------------------------------
BDO Seidman, LLP
New York, New York
January 29, 1999
F-6
<PAGE>
BARNESANDNOBLE.COM LLC
BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................................................... $ -- $ 96,940
Receivables, net................................................................ 430 2,387
Merchandise inventories......................................................... 615 1,579
Prepaid expenses and other current assets....................................... 9,245 10,770
-------- ----------
Total current assets......................................................... 10,290 111,676
-------- ----------
Fixed assets, net................................................................. 15,953 39,770
Restricted cash................................................................... -- 50,393
Other noncurrent assets........................................................... 84 305
-------- ----------
Total assets................................................................. $ 26,327 $ 202,144
-------- ----------
-------- ----------
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................................ $ 3,857 $ --
Accrued liabilities............................................................. 3,257 19,804
Due to affiliate................................................................ -- 13,191
-------- ----------
Total current liabilities.................................................... 7,114 32,995
-------- ----------
MEMBERS' EQUITY:
Members' equity................................................................. 19,213 169,149
Commitments and contingencies
-------- ----------
Total liabilities and members' equity........................................ $ 26,327 $ 202,144
-------- ----------
-------- ----------
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE>
BARNESANDNOBLE.COM LLC
STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1997 1998
-------- --------
<S> <C> <C>
Net sales.......................................................................... $ 11,949 $ 61,834
Cost of sales...................................................................... 10,117 47,569
-------- --------
Gross profit..................................................................... 1,832 14,265
-------- --------
Operating expenses:
Marketing and sales.............................................................. 8,855 70,423
Product development.............................................................. 3,256 8,532
General and administrative....................................................... 3,273 19,166
-------- --------
Total operating expenses...................................................... 15,384 98,121
-------- --------
Operating loss..................................................................... (13,552) (83,856)
Interest income, net............................................................... -- 708
-------- --------
Net loss........................................................................... $(13,552) $(83,148)
-------- --------
-------- --------
</TABLE>
See accompanying notes to financial statements.
F-8
<PAGE>
BARNESANDNOBLE.COM LLC
STATEMENTS OF CHANGES IN MEMBERS' EQUITY
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
MEMBERS'
EQUITY
--------
<S> <C>
Balance January 1, 1997.............................................................................. $ --
Net loss for year ended December 31, 1997.......................................................... (13,552)
Capital contribution from Barnes & Noble, Inc., net................................................ 32,765
--------
Balance December 31, 1997............................................................................ 19,213
Net loss for year ended December 31, 1998.......................................................... (83,148)
Capital contribution from Barnes & Noble, Inc., net................................................ 83,084
Capital contribution from Bertelsmann AG, net of $50 million subscription receivable .............. 150,000
--------
Balance December 31, 1998............................................................................ $169,149
--------
--------
</TABLE>
See accompanying notes to financial statements.
F-9
<PAGE>
BARNESANDNOBLE.COM LLC
STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1997 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................................................ $(13,552) $(83,148)
Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation and amortization.................................................... 2,280 6,823
Loss on sale of fixed assets..................................................... -- 205
Increase in receivables, net..................................................... (430) (1,957)
Increase in merchandise inventories.............................................. (615) (964)
Increase in prepaid expenses and other current assets............................ (9,245) (1,525)
Increase (decrease) in accounts payable.......................................... 3,857 (3,857)
Increase in due to affiliate..................................................... -- 13,191
Increase in accrued liabilities.................................................. 3,257 16,547
-------- --------
Net cash flows from operating activities....................................... (14,448) (54,685)
-------- --------
Cash flows from investing activities:
Purchases of fixed assets........................................................ (18,233) (31,035)
Increase in restricted cash...................................................... -- (50,393)
Proceeds from sale of fixed assets............................................... -- 200
Increase in other noncurrent assets.............................................. (84) (231)
-------- --------
Net cash flows from investing activities....................................... (18,317) (81,459)
-------- --------
Cash flows from financing activities:
Capital contributions from members............................................... 32,765 233,084
-------- --------
Net cash flows from financing activities....................................... 32,765 233,084
-------- --------
Net change in cash and cash equivalents............................................... -- 96,940
Cash and cash equivalents at beginning of year........................................ -- --
-------- --------
Cash and cash equivalents at end of year.............................................. $ -- $ 96,940
-------- --------
-------- --------
</TABLE>
See accompanying notes to financial statements.
F-10
<PAGE>
BARNESANDNOBLE.COM LLC
NOTES TO FINANCIAL STATEMENTS
1. BACKGROUND AND BASIS OF PRESENTATION
barnesandnoble.com llc (the "LLC") is a limited liability company whose
members are Barnes & Noble, Inc. ("Barnes & Noble") and Bertelsmann AG
("Bertelsmann") through wholly-owned subsidiaries each with 50 percent ownership
as of December 31, 1998.
Prior to October 31, 1998, the business of the LLC was transacted by
barnesandnoble.com inc. as a wholly-owned subsidiary of Barnes & Noble.
Effective October 31, 1998, Barnes & Noble and Bertelsmann completed a
transaction that established the LLC as the owner and operator of the business
(the "Formation Transaction"). In connection with the Formation Transaction,
Barnes & Noble contributed substantially all of the assets and liabilities of
barnesandnoble.com inc. to the LLC and Bertelsmann contributed $150 million and
has agreed to contribute an additional $50 million prior to the public offering.
At the completion of the Formation Transaction, Barnes & Noble and Bertelsmann
each have 50% interest in the LLC. The accompanying financial statements reflect
the Formation Transaction as of the earliest period presented.
Prior to the Formation Transaction, the LLC relied on Barnes & Noble to
provide financing for its operations. Capital contributions from Barnes & Noble
have been included in members' equity in the statement of cash flows for all
periods presented. The cash flows are not indicative of the cash flows that
would have resulted had the LLC been operating as a separate stand-alone LLC
during the periods presented.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand and highly liquid
investments with original maturities of three months or less.
RESTRICTED CASH
The amount classified as restricted cash in the accompanying financial
statements represents the portion of the Bertelsmann investment that will remain
in a reserve account, including accumulated interest. Upon the $50 million
contribution by Bertelsmann, the restricted cash will become available to the
LLC. The funds in the reserve account are invested in investment grade
commercial paper and bank notes with maturities not to exceed 180 days.
MERCHANDISE INVENTORIES
Inventories are valued at the lower of cost or market as determined on a
first-in, first-out basis. The LLC purchases a substantial majority of its
products from two major vendors, Ingram Book Group ("Ingram") and Barnes &
Noble. Ingram accounted for 50.1% and 25.9% of the LLC's inventory purchases
during the years ended December 31, 1997 and December 31, 1998, respectively.
Barnes & Noble accounted for 38.5% and 60.3% of the LLC's inventory purchases
during the years ended December 31, 1997 and December 31, 1998, respectively.
Barnes & Noble charges the LLC the cost
F-11
<PAGE>
BARNESANDNOBLE.COM LLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
associated with such purchases, plus incremental overhead 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 LLC elected early adoption of
Statement of Position 98-1, "Accounting for 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 LLC's online store, 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 LLC 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. To date no such impairment has been recognized.
NET SALES
Sales of the LLC's products are recognized, net of discounts and estimated
returns, at the time the products are shipped to customers. International net
sales were $1.2 million and $6.2 million in 1997 and 1998, respectively.
ADVERTISING COSTS
The LLC expenses the costs of advertising for magazines, television, radio,
and other media the first time the advertising takes place. Advertising expense
was $3.1 million and $32.4 million for the years ended December 31, 1997 and
December 31, 1998, respectively.
PRODUCT DEVELOPMENT
Product development expenses included in the accompanying statements of
operations consist principally of indirect development costs and all costs
associated with the maintenance of the features, content and functionality of
the LLC's online stores, transaction-processing systems, telecommunications
infrastructure and network operations.
INCOME TAXES
Through October 31, 1998 the LLC, as a wholly-owned subsidiary, was
included in Barnes & Noble's U.S. consolidated income tax returns. As such, any
benefit for income taxes due to losses generated by the LLC were realized and
recognized by Barnes & Noble. Effective November 1, 1998 the LLC, as a result of
the Formation Transaction, was no longer a subsidiary of Barnes & Noble and as a
limited liability company is not considered a taxable entity for Federal income
tax purposes and most state income tax purposes. Any taxable income or losses
recorded subsequent to the Formation Transaction are reported by the members on
their respective income tax returns. As result of the
F-12
<PAGE>
BARNESANDNOBLE.COM LLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Formation Transaction, no tax benefits have been allocated to the LLC for its
losses for all periods presented.
CONCENTRATION OF CREDIT RISK
The LLC is subject to concentrations of credit risk from its holdings of
cash, cash equivalents and short-term investments. The LLC's credit risk is
managed by investing its cash in high-quality money market instruments and
securities of the U.S. government and its agencies, foreign governments and
high-quality corporate issuers. In addition, the LLC's accounts receivable are
not significant and are due from domestic banks. The LLC believes it had no
unusual concentrations of credit risk at December 31, 1998.
3. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Lycos marketing advantages.................................... $ 4,500 $ 3,000
MSN marketing advances........................................ -- 2,400
AOL marketing advances........................................ 2,500 1,400
Other marketing advances...................................... 2,130 2,505
Other current assets.......................................... 115 1,465
-------- --------
$ 9,245 $ 10,770
-------- --------
-------- --------
</TABLE>
On July 31, 1997, the LLC entered into a three-year exclusive agreement
with Lycos (the "Lycos Agreement"), pursuant to which Lycos' Web site is linked
to the LLC's online stores on the Web. Under the Lycos Agreement, visitors to
Lycos' Web site may readily access the LLC's online stores on the Web, which is
promoted by Lycos using content provided by the LLC, for the online purchase of
books and related information. The Lycos Agreement provides for the LLC to pay
Lycos an annual fee of $4.5 million per year through the year 2000. In addition,
the LLC 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 LLC the right of first refusal to
negotiate with Lycos for renewal of the Lycos Agreement.
On October 1, 1998, the LLC entered into a one-year e-commerce merchant
agreement with Microsoft Corporation (the "MSN agreement"), pursuant to which
Microsoft's MSN.com portal site is linked to the LLC's online store. The
agreement also provides the LLC with a broad set of feature placements
throughout MSN.com. In consideration of the services provided under the MSN
Agreement the LLC has paid to Microsoft $3.0 million. In addition, the LLC is
required to pay Microsoft a percentage of revenues generated through links from
MSN.com, with all payments of fees first credited against the initial payment of
$3.0 million.
On November 1, 1997, the LLC and America Online ("AOL") formed a strategic
alliance pursuant to an Interactive Marketing Agreement (the "AOL Agreement")
which provides for the LLC to be featured as the exclusive online book retailer
within AOL's Shopping Channel. The AOL Agreement also gives the LLC 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 LLC 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 December 31, 1998, $10.0 million will be paid in 1999 and
$11.0 million
F-13
<PAGE>
BARNESANDNOBLE.COM LLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. PREPAID EXPENSES AND OTHER CURRENT ASSETS--(CONTINUED)
will be paid in each of the years 2000 and 2001. The LLC amortizes the payments
associated with the AOL Agreement based on impressions over the subsequent
12 months.
4. FIXED ASSETS
Fixed assets, at cost, consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Computers and equipment....................................... $ 9,305 $ 22,319
Leasehold improvements........................................ 1,789 8,418
Software...................................................... 7,139 16,938
-------- --------
18,233 47,675
Less accumulated depreciation................................. 2,280 7,905
-------- --------
Fixed assets, net........................................... $ 15,953 $ 39,770
-------- --------
-------- --------
</TABLE>
5. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Accrued advertising........................................... $ 124 $ 10,727
Accrued fixed assets.......................................... -- 3,156
Accrued compensation.......................................... 200 2,509
Other......................................................... 2,933 3,412
-------- --------
$ 3,257 $ 19,804
-------- --------
-------- --------
</TABLE>
6. LEASE COMMITMENT
The LLC currently leases warehouse facilities, office space and equipment
under noncancelable operating leases. Rental expense under operating lease
agreements was $0.2 million and $1.3 million for the years ended December 31,
1997 and December 31, 1998, respectively.
Future minimum lease payments under noncancelable operating leases as of
December 31, 1998 are:
<TABLE>
<CAPTION>
FUTURE
MINIMUM LEASE
YEAR ENDING PAYMENTS
DECEMBER 31,
- -------------------------------------------------------- -------------
(IN
THOUSANDS)
<S> <C>
1999.................................................... $ 2,035
2000.................................................... 2,062
2001.................................................... 2,089
2002.................................................... 2,201
2003.................................................... 1,286
Thereafter.............................................. 4,434
<CAPTION>
-------
<S> <C>
$14,107
<CAPTION>
-------
-------
</TABLE>
F-14
<PAGE>
BARNESANDNOBLE.COM LLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. RELATED PARTY TRANSACTIONS
Through its distribution facilities, Barnes & Noble accounted for
approximately 38.5% and 60.3%, or $3.9 million and $26.9 million, of the LLC's
purchases during 1997 and 1998, respectively, and the LLC expects to source most
of its purchases through Barnes & Noble in the future. The LLC has entered into
an agreement (the "Supply Agreement") with Barnes & Noble whereby Barnes & Noble
charges the LLC the costs associated with such purchases plus incremental
overhead incurred by Barnes & Noble in connection with providing such inventory.
The LLC believes that such terms are more favorable than the terms at which the
LLC otherwise would be able to make such purchases on its own. As of
December 31, 1998, $13.2 million was payable to Barnes & Noble in connection
with such purchases. The Supply Agreement is subject to certain termination
provisions.
The LLC has entered into agreements (the "Services Agreements") whereby the
LLC 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 LLC and Barnes & Noble and its subsidiaries,
the LLC has paid, and expects to continue to pay, fees to Barnes & Noble and its
subsidiaries in an amount equal to the direct costs plus incremental expenses
associated with providing such services. The LLC paid $0.2 million and
$0.9 million for such services during 1997 and 1998, respectively. In the
opinion of management, these charges 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 LLC been operating as a separate stand-alone company.
The LLC has entered into an agreement (the "License Agreement") with Barnes
& Noble College Bookstores, Inc., of which the principal stockholder is also a
principal stockholder/director/executive officer of Barnes & Noble and a manager
of the LLC. Pursuant to the License Agreement, the LLC has been granted an
exclusive license (the "License") to use the Barnes & Noble name and trademark
(excluding sales of college textbooks). The License Agreement is subject to
certain termination provisions.
The LLC has entered into an agreement (the "Database and Software License
Agreement") whereby the LLC licenses from Barnes & Noble, the right to use
Barnes & Noble's title database, inventory sourcing and special order software,
customer lists and demographic information. The Database and Software License
Agreement is renewable and is subject to certain termination provisions.
The LLC 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 LLC and its affiliates, are and will be at
least as favorable to the LLC as could be obtained from unaffiliated parties.
The Board of Managers must approve in advance 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.
8. LITIGATION
The LLC 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 LLC.
In August 1998, The Intimate Bookshop, Inc. and its owner, Wallace Kuralt,
filed a lawsuit in the United States District Court for the Southern District of
New York against Barnes & Noble, including the LLC, Borders Group, Inc.,
Amazon.com, certain publishers and others alleging violation of the
Robinson-Patman Act and other federal law, New York statutes governing trade
practices and common law. The Complaint seeks certification of a class
consisting of all retail booksellers in the United States,
F-15
<PAGE>
BARNESANDNOBLE.COM LLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. LITIGATION--(CONTINUED)
whether or not currently in business, which were in business and were members of
the American Booksellers Association at any time during the four-year period
preceding the filing of the complaint. The complaint alleges that the named
plaintiffs have suffered damages of $11.2 million or more and requests treble
damages on behalf of the named plaintiffs and each of the purported class
members, as well as of injunctive and declaratory relief (including an
injunction requiring the closure of all of defendants' stores within 10 miles of
any location where plaintiff either has or had a retail bookstore during the
four years preceding the filing of the Complaint, and prohibiting the opening by
defendants of any bookstore in such areas for the next 10 years), disgorgement
of alleged discriminatory discounts, rebates, deductions and payments, punitive
damages, interest, costs, attorneys fees and other relief. The LLC intends to
vigorously defend this action.
The FTC is currently reviewing Barnes & Noble's proposed acquisition of
Ingram pursuant to the pre-merger notification procedures of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976. In connection with that
review, the FTC is also reviewing the Formation Transaction, and Bertelsmann's
investment in the Company. Should the FTC determine that the Formation
Transaction violated applicable antitrust laws, it could seek to impose a number
of remedies or penalties on the Company, including the unwinding of the
Formation Transaction. The Company believes that the Formation Transaction was
completed in compliance with, and did not violate, applicable antitrust laws.
9. EMPLOYEES' RETIREMENT AND DEFINED CONTRIBUTION PLANS
The LLC, through Barnes & Noble, maintains a noncontributory defined
benefit pension plan (the "Pension Plan") for the benefit of substantially all
of its employees who meet certain eligibility requirements, primarily age and
length of service. Benefits provided by the Pension Plan are based on years of
credited service, the employee's compensation for any of five consecutive years
in the last ten years of service and covered earnings for Social Security
benefits. The LLC's contributions to the Pension Plan are generally in amounts
determined by independent consulting actuaries. The Pension Plan has been
separated from the Barnes & Noble Pension Plan as of October 31, 1998. Pension
expense allocable to LLC for either year was not material.
The LLC, through Barnes & Noble, also sponsors a defined contribution plan
(the "Savings Plan") for the benefit of substantially all of its employees who
meet certain eligibility requirements, primarily age and length of service. The
Savings Plan allows employees to invest up to 15% of their current gross cash
compensation on a pre-tax or post-tax basis, at their option. The LLC's
contributions to the Savings Plan are generally in amounts based upon a certain
percentage of the employees' pre-tax contributions. The LLC charged $82 to
employee benefit expenses for fiscal 1998.
Actuarial assumptions used in determining the funded status of the Pension
Plan are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
Discount rate (beginning of year)................................................................. 7.3%
Discount rate (end of year)....................................................................... 7.3%
Expected long-term rate of return on plan assets.................................................. 9.5%
Assumed rate of compensation increase............................................................. 4.3%
</TABLE>
F-16
<PAGE>
BARNESANDNOBLE.COM LLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. EMPLOYEES' RETIREMENT AND DEFINED CONTRIBUTION PLANS--(CONTINUED)
The following table sets forth the funded status of the Pension Plan and
the pension liability recognized for the Pension Plan in the accompanying
consolidated balance sheets:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
--------------
(IN THOUSANDS)
<S> <C>
Actuarial present value of benefit obligation:
Vested benefits................................................................................ $ (160)
Nonvested benefits............................................................................. (115)
----------
Accumulated benefit obligation................................................................... (275)
Effect of projected future compensation increases................................................ (363)
----------
Projected benefit obligation..................................................................... (638)
Plan assets at market value...................................................................... 429
----------
Projected benefit obligation in excess of plan assets............................................ (209)
Unrecognized net loss............................................................................ --
Unrecognized net obligation remaining............................................................ --
Unrecognized prior service cost.................................................................. 209
----------
Pension liability.............................................................................. $ 0
----------
----------
</TABLE>
10. STOCK INCENTIVE PLAN
As of December 31, 1998, barnesandnoble.com LLC had one incentive plan (the
"1998 Plan") under which stock options have been granted or may be granted to
key officers, employees, consultants, advisors, and managers of
barnesandnoble.com LLC or any of its subsidiaries and affiliates. The
Compensation Committee of the Board of Managers is responsible for the
administration of the 1998 Plan. Generally, options are granted at fair market
value, begin vesting one year after grant in 25% increments, expire ten years
from issuance and are conditioned upon continual employment during the vesting
period. The 1998 Plan allows barnesandnoble.com LLC to grant options to purchase
Membership Units. In connection with the Offering, options granted under
the 1998 Plan will be replaced with options to purchase shares of the Class A
Common Stock of barnesandnoble.com inc. under the 1999 Incentive Plan.
A summary of the status of stock options as of December 31, 1998 issued
under the 1998 Plan is presented below:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
----------------------------------
MEMBERSHIP
UNITS WEIGHTED AVERAGE
(IN THOUSANDS) EXERCISE PRICE
-------------- ----------------
<S> <C> <C>
Granted in 1998 and Outstanding at December 31, 1998......................... 15,849 $ 4.52
-------- ------
-------- ------
</TABLE>
The above Membership Units of 15,849,000 were based upon total Membership
Units outstanding of 100,000,000. Such Membership Units are subject to
adjustment based upon the actual number of units sold to barnesandnoble.com inc.
in connection with its planned public offering.
F-17
<PAGE>
BARNESANDNOBLE.COM LLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
10. STOCK INCENTIVE PLAN--(CONTINUED)
The following table summarizes information as of December 31, 1998
concerning outstanding and exercisable options:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------ OPTIONS EXERCISABLE
WEIGHTED-AVERAGE ----------------------------------
RANGE OF NUMBER REMAINING WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
EXERCISE OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
PRICES (IN THOUSANDS) LIFE PRICE (IN THOUSANDS) PRICE
- ----------- -------------- ---------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
$4.00-$5.00 15,849 9.57 years $ 4.52 -- $ --
</TABLE>
During the year ended December 31, 1998, there was no compensation expense
recorded for options granted.
The pro forma calculation of compensation expense based on the minimum
value at the stock option grant dates (which excludes any volatility factor) in
accordance with the Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123") was immaterial.
F-18
<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., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Salomon Smith Barney Inc. and Wit Capital Corporation 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:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
CLASS A
UNDERWRITERS COMMON STOCK
- ------------------------------------------------------------------------------------------------- ------------
<S> <C>
Goldman, Sachs & Co..............................................................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.........................................................................
Salomon Smith Barney Inc.........................................................................
Wit Capital Corporation..........................................................................
----
Total.......................................................................................
----
----
</TABLE>
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.
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 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
U-1
<PAGE>
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 National Market, in the
over-the-counter market or otherwise.
At the request of the Company, 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
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.
A prospectus in electronic format is being made available on an Internet
Web site maintained by Wit Capital. In addition, all dealers purchasing shares
from Wit Capital in the Offering have agreed to make a prospectus in electronic
format available on Web sites maintained by each of these dealers.
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.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
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
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................................. 3
Risk Factors........................................ 9
Use of Proceeds..................................... 20
Dividend Policy..................................... 20
Capitalization...................................... 21
Dilution............................................ 22
Selected Financial Data............................. 23
Management's Discussion and Analysis of Financial
Condition and Results of Operations............... 24
Business............................................ 30
Management.......................................... 40
Principal Stockholders.............................. 54
Certain Transactions................................ 55
Corporate History and Recapitalization.............. 57
Description of Capital Stock and Membership Units... 57
Shares Eligible for Future Sale..................... 61
Validity of Class A Common Stock.................... 62
Experts............................................. 62
Additional Information.............................. 63
Index to Financial Statements....................... F-1
Underwriting........................................ U-1
</TABLE>
Through and including , 1999 (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 $ .001 per share)
----------------------------
PROSPECTUS
----------------------------
Goldman, Sachs & Co.
Merrill Lynch & Co.
Salomon Smith Barney
Wit Capital Corporation
as e-Manager(Trademark)
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:
<TABLE>
<S> <C>
Registration fee.............................................. $57,300
Nasdaq listing fee............................................ 50,000
Transfer agent and registrar fees............................. *
Printing and engraving........................................ *
Legal fees.................................................... *
Blue Sky fees and expenses.................................... *
Accounting fees............................................... *
Miscellaneous................................................. *
-------
Total.................................................... $
</TABLE>
- ------------------
* To be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Amended and Restated Certificate of Incorporation and Amended
and Restated 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 barnesandnoble.com llc, as the case may be, 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 or
officers of the Company or barnesandnoble.com llc, as the case may be, 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.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In March, 1999, the Company issued 100 shares of Common Stock to a
subsidiary of Barnes & Noble Inc. in a private placement. No underwriters,
brokers or other agents were involved in this transaction. These securities were
issued pursuant to an exemption from registration provided by Section 4(2) of
the Securities Act.
In connection with the Offering, the Company will issue additional shares
of Common Stock to subsidiaries of each of Barnes & Noble Inc. and Bertelsmann
AG in a private placement. No underwriters, brokers or other agents will be
involved in this transaction. These securities will be issued pursuant to an
exemption from registration provided by Section 4(2) of the Securities Act.
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.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- --------------------------------------------------------------------------------------------------------
<S> <C>
1.1 -- Form of Underwriting Agreement.*
3.1 -- Form of Amended and Restated Certificate of Incorporation of the Company.
3.2 -- Form of Amended and Restated By-laws 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 -- Form of the Company's 1999 Incentive Plan.
10.2 -- Interactive Services Agreement, dated as of July 31, 1997, by and between the Company and Lycos,
Inc.**
10.3 -- Interactive Marketing Agreement, dated as of November 1, 1997, by and between the Company and
America Online, Inc.**
10.4 -- Ecommerce Merchant Agreement, dated as of October 27, 1997 between the Company and Microsoft
Corporation, together with Amendment No. 4 to Ecommerce Merchant Agreement.**
10.5 -- Formation Agreement, effective as of 11:59 p.m., October 31, 1998, among Bertelsmann AG, BOL.US
Online, Inc., Barnes & Noble, Inc., the Company inc., B&N.com Holding Corp. and B&N.com Member
Corp.
10.6 -- Form of Second Amended and Restated Limited Liability Company Agreement of barnesandnoble.com llc,
dated as of March, 1999.
10.7 -- Form of Stockholders Agreement, dated as of March, 1999, between Barnes & Noble, Inc. and
Bertelsmann AG.
10.8 -- Technology Sharing and Licensing Agreement, dated as of October 31, 1998, between
barnesandnoble.com llc, as Licensor, and BOL.Global, Inc., as Licensee.
10.9 -- Technology Sharing and Licensing Agreement, dated as of October 31, 1998, between
barnesandnoble.com llc, as Licensee, and BOL. Global, Inc., as Licensor.
10.10 -- Amended and Restated Services Agreement, dated as of October 31, 1998, among the Company,
barnesandnoble.com llc and Barnes & Noble, Inc.
10.11 -- Amended and Restated Services Agreement, dated as of October 31, 1998, among the Company,
barnesandnoble.com llc and Marboro Books Corp.
10.12 -- Amended and Restated Trademark License Agreement, dated as of October 31, 1998, between Barnes &
Noble College Bookstores, Inc. and barnesandnoble.com llc
10.13 -- Trademark License Agreement dated as of October 31, 1998 between BOL.Global, Inc. and
barnesandnoble.com llc.
10.14 -- Supply Agreement, dated as of October 31, 1998, between barnesandnoble.com llc and Barnes & Noble,
Inc.
10.15 -- Amended and Restated Database and Software License Agreement, dated as of October 31, 1998, among
the Company, barnesandnoble.com llc and Barnes & Noble, Inc.
10.16 -- Form of Amendment No. 1, dated as of March __, 1999, to the Amended and Restated Services
Agreement, among the Company, barnesandnoble.com llc and Barnes & Noble, Inc.*
10.17 -- Form of Amendment No. 1, dated as of March __, 1999, to the Amended and Restated Services
Agreement, among the Company, barnesandnoble.com llc and Marboro Books Corp.*
10.18 -- Form of Amendment No. 1, dated as of March __, 1999, to the Amended and Restated Trademark License
Agreement, between Barnes & Noble College Bookstores, Inc. and barnesandnoble.com llc.*
10.19 -- Form of Amendment No. 1, dated as of March __, 1999, to the Trademark License Agreement, between
BOL.Global, Inc. and barnesandnoble.com llc.*
10.20 -- Form of Amendment No. 1, dated as of March __, 1999, to the Supply Agreement, between
barnesandnoble.com llc and Barnes & Noble Inc.*
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- --------------------------------------------------------------------------------------------------------
<S> <C>
10.21 -- Form of Amendment No. 1, dated as of March __, 1999, to the Amended and Restated Database and
Software License Agreement, among the Company, barnesandnoble.com llc and Barnes & Noble Inc.*
10.22 -- Indenture of Lease and Amendments thereto, dated as of June 7, 1994, between SDI Technologies,
Inc., as Landlord, and B. Dalton Bookseller, Inc., as Tenant.
10.23 -- Lease, dated as of June 30, 1997, between P.A. Building Company, as Landlord, and Barnes & Noble,
Inc., as Tenant.
10.24 -- Employment Agreement (Chief Executive Officer), dated as of November 1, 1998, among
barnesandnoble.com llc, Barnes & Noble, Inc., Bertelsmann AG and Jonathan Bulkeley.*
10.25 -- Deferred Compensation Plan of the Company.
10.26 -- Retirement Plan of the Company.
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.
</TABLE>
- ------------------
* To be filed by amendment.
** Confidential Treatment Requested. Confidential portions of this document have
been redacted and have been filed separately with the Securities and Exchange
Commission.
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 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
MARCH 18, 1999.
barnesandnoble.com inc.
By: /s/ LEONARD RIGGIO
-----------------------------------
Leonard Riggio
Chairman of the Board
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 Leonard
Riggio, Jonathan Bulkeley 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 March 18, 1999
Leonard Riggio
/s/ JONATHAN BULKELEY Chief Executive Officer March 18, 1999
Jonathan Bulkeley (Principal Executive Officer)
/s/ GERALD LUTERMAN Chief Financial Officer March 18, 1999
Gerald Luterman (Principal Accounting and Financial Officer)
/s/ MICHAEL N. ROSEN Secretary and a Director March 18, 1999
Michael N. Rosen
Director March 18, 1999
Stephen Riggio
/s/ THOMAS MIDDELHOFF Director March 18, 1999
Thomas Middelhoff
/s/ MARKUS WILHELM Director March 18, 1999
Markus Wilhelm
/s/ KLAUS EIERHOFF Director March 18, 1999
Klaus Eierhoff
</TABLE>
S-1
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
barnesandnoble.com inc.
barnesandnoble.com inc., a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
1. The name of this corporation is barnesandnoble.com inc. The original
Certificate of Incorporation was filed on March 11, 1999.
2. This Amended and Restated Certificate of Incorporation restates and
amends the original Certificate of Incorporation to read in its entirety as
follows:
"FIRST: The name of the corporation is barnesandnoble.com inc. (the
"Corporation").
SECOND: The registered office of the Corporation is to be located at
Loockerman Square, Suite L-100, City of Dover, County of Kent, State of
Delaware. The name of its registered agent at such address is The Prentice-Hall
Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware (the "GCL").
FOURTH: (a) Authorized Capital Stock. The total number of shares of
stock that the Corporation shall have the authority to issue is 750,000,000
shares, consisting of: (i) 500,000,000 shares of Class A Common Stock, par value
$.001 per share (the "Class A Common Stock"); (ii) 100,000,000 shares of Class B
Common Stock, par value $.001 per share (the "Class B Common Stock"); (iii)
100,000,000 shares of Class C Common Stock, par value $.001 per share (the
"Class C Common Stock"); and (iv) 50,000,000 shares of Preferred Stock, par
value $.001 per share (the "Preferred Stock"), issuable in one or more series as
hereinafter provided. The Class A Common Stock, the Class B Common Stock and the
Class C Common Stock shall hereinafter collectively be called the "Common
Stock." The number of authorized shares of any class or classes of capital stock
of the Corporation may be increased or decreased (but not below the number of
shares thereof then outstanding) by each of the following, voting separately as
a class: (x) the affirmative vote of the holders of a majority of the voting
power of the stock of the Corporation entitled to vote generally in the election
of directors ("Voting Stock") irrespective of the provisions of Section
242(b)(2) of the GCL or any corresponding
<PAGE>
provision hereinafter enacted; (y) if a Class B Director (as defined below) is
then entitled to be a member of the Special Committee (as defined in the By-laws
of the Corporation (the "Bylaws")), by the affirmative vote of the holders of a
majority of the Class B Common Stock; and (z) if a Class C Director (as defined
below) is then entitled to be a member of the Special Committee, by the
affirmative vote of the holders of a majority of the Class C Common Stock.
(b) Terms of Common Stock; Voting; Directors.
(i) Rights and Privileges; Voting Rights. (A)
All shares of Common Stock will be identical in all respects and will entitle
the holders thereof to the same rights and privileges, except as otherwise
provided in this Certificate of Incorporation.
(B) The holders of shares of Common
Stock shall have the following voting rights:
(1) Each holder of Class A
Common Stock shall be entitled to the following number of votes in person or by
proxy on all matters submitted to a vote of the stockholders of the Corporation:
one (1) multiplied by the number of shares of Class A Common Stock held by such
holder.
(2) Each holder of Class B
Common Stock and/or Class C Common Stock shall be entitled to the following
number of votes in person or by proxy on all matters submitted to a vote of the
stockholders of the Corporation: ten (10) multiplied by the sum of (x) the
number of shares of Class B Common Stock and/or Class C Common Stock held by
such holder and (y) the number of Membership Units (as defined below) held by
such holder. "Membership Units" shall mean membership units in
barnesandnoble.com llc, the Delaware limited liability company in which the
Corporation is the sole Manager, or any successor entity thereto (the "Operating
Company"), issued under its Limited Liability Company Agreement (as amended, the
"LLC Agreement").
(3) Except as may be provided
pursuant to resolutions of the Board, adopted pursuant to the provisions of this
Certificate of Incorporation and the By-laws, establishing any series of
Preferred Stock and granting to the holders of such shares of Preferred Stock
rights to elect additional directors under specified circumstances, and subject
to Article FOURTH, Clause (b)(iii)(D) and (E) and Article SIXTH, Clause (b)
below, the Board of Directors shall consist of nine (9) directors; provided,
however, that if there shall be less than three (3) classes of Common Stock
issued and outstanding, the Board of Directors shall consist of three (3)
directors multiplied by the number of classes of Common Stock issued and
outstanding. Subject to Article FOURTH, Clause (b)(iii)(D) and (E) and Article
SIXTH, Clause (b) below: (x) the holders of the Class B Common Stock, voting
separately as a class, shall be entitled to elect three (3) of the nine (9)
directors of the Board, one (1) director for each of the three (3) classes
referred to in Clause (a) of Article SIXTH below (each a "Class B Director");
(y) the holders of the Class C Common Stock, voting separately as a class, shall
be
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<PAGE>
entitled to elect three (3) of the nine (9) directors of the Board, one (1)
director for each of the three (3) classes referred to in Clause (a) of Article
SIXTH below (each a "Class C Director"); and (z) the remaining three (3)
directors, one (1) director for each of the three (3) classes referred
to in Clause (a) of Article SIXTH below (each a "Class A Director"), shall be
elected by the vote of the holders of the Common Stock, voting as one class.
(4) Except as otherwise
required in this Certificate of Incorporation or the By-laws or by applicable
law, the holders of shares of Common Stock shall vote together as one class on
all matters submitted to a vote of stockholders of the Corporation (or if any
holders of shares of Preferred Stock are entitled to vote together with the
holders of Common Stock, as a single class with such holders of shares of
Preferred Stock).
(C) Notwithstanding anything in this
Certificate of Incorporation to the contrary, no vote of the holders of Class A
Common Stock, and only the vote of seventy-five percent (75%) of the holders of
each of the Class B Common Stock and the Class C Common Stock, each voting
separately as a class, shall be required to approve a merger of the Operating
Company (and optionally any one or more of its subsidiaries) into the
Corporation, and to amend this Certificate of Incorporation accordingly;
provided that the Corporation is the surviving entity in the merger and the
economic and voting interests of the holders of Class A Common Stock in the
merged entities (taken as a whole) immediately after such merger is the same as
the economic and voting interests of the holders of Class A Common Stock in the
merged entities (taken as a whole) immediately before such merger.
(ii) Dividends and Distributions.
(A) Subject to the preferences
applicable to Preferred Stock, if any, outstanding at any time, the holders of
shares of Common Stock shall be entitled to receive such dividends and other
distributions in cash, property or shares of stock of the Corporation as may be
declared thereon by the Corporation's Board of Directors (the "Board") from time
to time out of assets or funds of the Corporation legally available therefor;
provided, that, subject to the provisions of this Section, the Corporation shall
not pay dividends or make distributions to any holders of any class of Common
Stock unless simultaneously with such dividend or distribution, as the case may
be, the Corporation makes the same dividend or distribution with respect to each
outstanding share of Common Stock regardless of class.
(B) In the case of dividends or other
distributions payable in Class A Common Stock, Class B Common Stock or Class C
Common Stock including distributions pursuant to stock splits or divisions of
Class A Common Stock, Class B Common Stock or Class C Common Stock which occur
after the first date upon which the Corporation has issued shares of any of
Class A Common Stock, Class B Common Stock or Class C Common Stock, only shares
of Class A Common Stock shall be distributed with respect to Class A Common
Stock, only shares of Class B Common Stock shall be distributed with respect to
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Class B Common Stock, and only shares of Class C Common Stock shall be
distributed with respect to Class C Common Stock. In the case of any such
dividend or distribution payable in shares of Class A Common Stock, Class B
Common Stock or Class C Common Stock, the number of shares of each class of
Common Stock payable per share of such class of Common Stock shall be equal in
number.
(C) In the case of dividends or other
distributions consisting of other voting securities of the Corporation or of
voting securities of any corporation which is a wholly owned subsidiary of the
Corporation, the Corporation shall declare and pay such dividends in three
separate classes of such voting securities, identical in all respects, except
that: (1) the voting rights of each such security paid to the holders of Class B
Common Stock and Class C Common Stock, when compared to the voting rights of
each such security paid to the holders of Class A Common Stock, shall have
voting rights determined pursuant to the same formula as provided in Clause
(b)(i)(B)(2) of Article FOURTH above; (2) such security paid to the holders of
Class B Common Stock shall convert into the security paid to the holders of
Class A Common Stock upon the same terms and conditions applicable to the
conversion of Class B Common Stock into Class A Common Stock and shall have the
same restrictions on transfer and ownership applicable to the transfer and
ownership of Class B Common Stock; (3) such security paid to the holders of
Class C Common Stock shall convert into the security paid to the holders of
Class A Common Stock upon the same terms and conditions applicable to the
conversion of Class C Common Stock into Class A Common Stock and shall have the
same restrictions on transfer and ownership applicable to the transfer and
ownership of Class C Common Stock; and (4) with respect only to dividends or
other distributions of voting securities of any corporation which is a wholly
owned subsidiary of the Corporation, the respective voting rights of each such
security paid to holders of Class A Common Stock, Class B Common Stock and Class
C Common Stock with respect to the election of directors shall otherwise be as
comparable as is practicable to those of the Class A Common Stock, Class B
Common Stock and Class C Common Stock, respectively.
(D) In the case of dividends or other
distributions consisting of securities convertible into, or exchangeable for,
voting securities of the Corporation or voting securities of another corporation
which is a wholly owned subsidiary of the Corporation, the Corporation shall
provide that such convertible or exchangeable securities and the underlying
securities be identical in all respects (including, without limitation, the
conversion or exchange rate), except that: (1) the voting rights of each
security underlying the convertible or exchangeable security paid to the holders
of Class B Common Stock and Class C Common Stock, when compared to the voting
rights of each security underlying the convertible or exchangeable security paid
to the holders of the Class A Common Stock, shall have voting rights determined
pursuant to the same formula as provided in Clause (b)(i)(B)(2) of Article
FOURTH above; (2) such underlying securities paid to the holders of the Class B
Common Stock shall convert into the underlying securities paid to the holders of
Class A Common Stock upon the same terms and conditions applicable to the
conversion of Class B Common Stock into Class A
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<PAGE>
Common Stock and shall have the same restrictions on transfer and ownership
applicable to the transfer and ownership of the Class B Common Stock; and (3)
such underlying securities paid to the holders of the Class C Common Stock shall
convert into the underlying securities paid to the holders of Class A Common
Stock upon the same terms and conditions applicable to the conversion of Class C
Common Stock into Class A Common Stock and shall have the same restrictions on
transfer and ownership applicable to the transfer and ownership of the Class C
Common Stock.
(iii) Conversion of Class B Common Stock and Class
C Common Stock; Exchange of Membership Units.
(A) Each holder of Class B Common Stock
or Class C Common Stock shall be entitled to convert, at any time and from time
to time, any or all of the shares of such holder's Class B Common Stock or Class
C Common Stock, as the case may be, on a one-for-one basis, into the same number
of fully paid and non-assessable shares of Class A Common Stock. Such right
shall be exercised by the surrender to the Corporation of the certificate or
certificates representing the shares of Class B Common Stock or Class C Common
Stock to be converted at any time during normal business hours at the principal
executive offices of the Corporation or at the office of the Corporation's
transfer agent (the "Transfer Agent"), accompanied by a written notice of the
holder of such shares stating that such holder desires to convert such shares,
or a stated number of the shares represented by such certificate or
certificates, into an equal number of shares of Class A Common Stock, and (if so
required by the Corporation or the Transfer Agent) by instruments of transfer,
in form satisfactory to the Corporation and to the Transfer Agent, duly executed
by such holder or such holder's duly authorized attorney, and transfer tax
stamps or funds therefor, if required pursuant to Article FOURTH, Clause
(b)(iii)(I) below.
(B) Subject to adjustment as provided in
Article FOURTH, Clause (b)(iv) below, each holder (other than the Corporation)
of a Membership Unit shall be entitled to exchange, at any time and from time to
time, any or all of such holder's Membership Units, on a one-for-one basis, into
the same number of fully paid and non-assessable shares of Class A Common Stock.
Such right shall be exercised by the surrender to the Corporation of the
certificate or certificates representing the Membership Units to be exchanged at
any time during normal business hours at the principal executive offices of the
Corporation or at the office of the Transfer Agent, accompanied by a written
notice of the holder of such Membership Units stating that such holder desires
to exchange such Membership Units, or a stated number of Membership Units
represented by such certificate or certificates, into an equal number of shares
of Class A Common Stock, and by instruments of transfer to the Corporation, in
form satisfactory to the Corporation and to the Transfer Agent, duly executed by
such holder or such holder's duly authorized attorney, and transfer tax stamps
or funds therefor, if required pursuant to Article FOURTH, Clause (b)(iii)(I)
below.
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<PAGE>
(C) Each share of Class B Common Stock or
Class C Common Stock transferred by one or more Parent Entities (as defined
below) to one or more persons or entities other than Parent Entities shall
automatically convert into one (1) fully paid and non-assessable share of Class
A Common Stock upon such disposition, provided that no such conversion shall
occur solely as a result of the pledge or hypothecation of any Class B Common
Stock or Class C Common Stock by a Parent Entity. "Parent Entities" shall mean,
collectively, Barnes & Noble, Inc. ("B&N"), Bertelsmann AG ("BAG"), and any of
their respective Affiliates (other than an Affiliate in which a Restricted
Transferee owns an interest). "Affiliate" and "Restricted Transferee" shall have
the meanings ascribed thereto in the LLC Agreement.
(D) If at any time the number of shares of
Class B Common Stock outstanding, together with the number of outstanding
Membership Units held by the holders of such Class B Common Stock, constitutes
less than fifteen percent (15%) of the number of then outstanding Membership
Units, then each share of Class B Common Stock then issued and outstanding shall
thereupon be converted automatically as of such date into one (1) fully paid and
non-assessable share of Class A Common Stock. Upon the determination by the
Corporation that such automatic conversion has occurred, notice of such
automatic conversion shall be given by the Corporation by means of a press
release and written notice to all holders of Class B Common Stock, and shall be
given as soon as practicable, and the Secretary of the Corporation shall be
instructed to, and shall promptly, request from each holder of Class B Common
Stock that each such holder promptly deliver, and each such holder shall
promptly deliver, the certificate representing each such share of Class B Common
Stock to the Corporation for exchange hereunder, together with instruments of
transfer, in form satisfactory to the Corporation and the Transfer Agent, duly
executed by such holder or such holder's duly authorized attorney, and together
with transfer tax stamps or funds therefor, if required pursuant to Article
FOURTH, Clause (b)(iii)(I) below. Effective upon such automatic conversion of
the Class B Common Stock, the Class B Directors shall be deemed to have resigned
from the Board and all committees of the Board upon which they serve, and the
Board and all such committees shall be deemed reduced in size (and no vacancies
shall be created) by such resignations.
(E) If at any time the number of shares of
Class C Common Stock outstanding, together with the number of outstanding
Membership Units held by the holders of such Class C Common Stock, constitutes
less than fifteen percent (15%) of the number of then outstanding Membership
Units, then each share of Class C Common Stock then issued and outstanding shall
thereupon be converted automatically as of such date into one (1) fully paid and
non-assessable share of Class A Common Stock. Upon the determination by the
Corporation that such automatic conversion has occurred, notice of such
automatic conversion shall be given by the Corporation by means of a press
release and written notice to all holders of Class C Common Stock, and shall be
given as soon as practicable, and the Secretary of the Corporation shall be
instructed to, and shall promptly, request from each holder of Class C Common
Stock that each such holder promptly deliver, and each such holder shall
promptly deliver, the certificate representing each such share of Class C Common
Stock to the Corporation
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<PAGE>
for exchange hereunder, together with instruments of transfer, in form
satisfactory to the Corporation and the Transfer Agent, duly executed by such
holder or such holder's duly authorized attorney, and together with transfer tax
stamps or funds therefor, if required pursuant to Article FOURTH, Clause
(b)(iii)(I) below. Effective upon such automatic conversion of the Class C
Common Stock, the Class C Directors shall be deemed to have resigned from the
Board and all committees of the Board upon which they serve, and the Board and
all such committees shall be deemed reduced in size (and no vacancies shall be
created) by such resignations.
(F) As promptly as practicable following
the surrender for conversion of a certificate representing shares of Class B
Common Stock or Class C Common Stock in the manner provided in Article FOURTH,
Clauses (b)(iii)(A), (C), (D) or (E) above, or the surrender for exchange of a
certificate representing Membership Units in the manner provided in Article
FOURTH, Clause (b)(iii)(B) above, as applicable, and the payment in cash of any
amount required by the provisions of Article FOURTH, Clause (b)(iii)(I) below,
the Corporation will deliver or cause to be delivered at the office of the
Transfer Agent, a certificate or certificates representing the number of full
shares of Class A Common Stock issuable upon such conversion or exchange, issued
in such name or names as such holder may direct. Such conversion or exchange
shall be deemed to have been effected immediately prior to the close of business
on the date of the surrender of the certificate or certificates representing
shares of Class B Common Stock, Class C Common Stock or Membership Units, as the
case may be. Upon the date any such conversion or exchange is made or effected,
all rights of the holder of such shares of Class B Common Stock, Class C Common
Stock or Membership Units as such holder shall cease, and the person or persons
in whose name or names the certificate or certificates representing the shares
of Class A Common Stock are to be issued shall be treated for all purposes as
having become the record holder or holders of such shares of Class A Common
Stock; provided, however, that if any such surrender and payment occurs on any
date when the stock transfer books of the Corporation shall be closed, the
person or persons in whose name or names the certificate or certificates
representing shares of Class A Common Stock are to be issued shall be deemed the
record holder or holders thereof for all purposes immediately prior to the close
of business on the next succeeding day on which the stock transfer books are
open.
(G) In the event of a reclassification or
other similar transaction as a result of which the shares of Class A Common
Stock are converted into another security, then a holder of Class B Common
Stock, Class C Common Stock or Membership Units shall be entitled to receive
upon conversion or exchange the amount of such security that such holder would
have received if such conversion or exchange had occurred immediately prior to
the record date of such reclassification or other similar transaction. No
adjustments in respect of dividends shall be made upon the conversion or
exchange of any share of Class B Common Stock, Class C Common Stock or
Membership Unit; provided, however, that if a share of Class B Common Stock,
Class C Common Stock or Membership Unit shall be converted or exchanged
subsequent to the record date for the payment of a dividend or other
distribution on shares of Class B Common Stock, Class C Common Stock or
Membership Units but prior to
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<PAGE>
such payment, then the registered holder of such share or Membership Unit at the
close of business on such record date shall be entitled to receive the dividend
or other distribution payable on such share or Membership Unit on such date
notwithstanding the conversion or exchange thereof or the default in payment of
the dividend or distribution due on such date.
(H) The Corporation covenants that it will
at all times reserve and keep available out of its authorized but unissued
shares of Class A Common Stock, solely for the purpose of issuance upon
conversion or exchange of the outstanding shares of Class B Common Stock, Class
C Common Stock or Membership Units, such number of shares of Class A Common
Stock that shall be issuable upon the conversion of all such outstanding shares
of Class B Common Stock and Class C Common Stock and the exchange of all such
outstanding Membership Units; provided that nothing contained herein shall be
construed to preclude the Corporation from satisfying its obligations in respect
of the conversion or exchange of the outstanding shares of Class B Common Stock,
Class C Common Stock or Membership Units by delivery of purchased shares of
Class A Common Stock which are held in the treasury of the Corporation. The
Corporation covenants that if any shares of Class A Common Stock require
registration with or approval of any governmental authority under any federal or
state law before such shares of Class A Common Stock may be issued upon
conversion or exchange, the Corporation will cause such shares to be duly
registered or approved, as the case may be. The Corporation will use its best
efforts to list the shares of Class A Common Stock required to be delivered upon
conversion or exchange prior to such delivery upon each national securities
exchange upon which the outstanding Class A Common Stock is listed at the time
of such delivery. The Corporation covenants that all shares of Class A Common
Stock that shall be issued upon conversion or exchange of the shares of Class B
Common Stock, Class C Common Stock or Membership Units will, upon issue, be
validly issued, fully paid and non-assessable.
(I) The issuance of certificates for shares
of Class A Common Stock upon conversion or exchange of shares of Class B Common
Stock, Class C Common Stock or Membership Units shall be made without charge to
the holders of such shares or Membership Units for any stamp or other similar
tax in respect of such issuance; provided, however, that if any such certificate
is to be issued in a name other than that of the holder of the share or shares
of Class B Common Stock or Class C Common Stock converted or the Membership
Units exchanged, then the person or persons requesting the issuance thereof
shall pay to the Corporation the amount of any tax that may be payable in
respect of any transfer involved in such issuance or shall establish to the
satisfaction of the Corporation that such tax has been paid or is not payable.
(J) Shares of Class B Common Stock or
Class C Common Stock that are converted into shares of Class A Common Stock as
provided herein shall continue to be authorized shares of Class B Common Stock
or Class C Common Stock, as the case may be, and available for reissue by the
Corporation; provided, however, that no shares of Class B
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Common Stock or Class C Common Stock shall be reissued except as expressly
permitted by Article FOURTH, Clause (b)(ii) above and Article FOURTH, Clause
(b)(iv) below.
(iv) Stock Splits. The Corporation shall not in
any manner subdivide (by any stock split, stock dividend, reclassification,
recapitalization or otherwise) or combine (by reverse stock split,
reclassification, recapitalization or otherwise) the outstanding shares of one
class of Common Stock unless the outstanding shares of all classes of Common
Stock shall be proportionately subdivided or combined. The exchange rights for
Membership Units shall be adjusted accordingly if there is: (A) any subdivision
(by any unit split, unit distribution, reclassification, recapitalization or
otherwise) or combination (by reverse unit split, reclassification,
recapitalization or otherwise) of the Membership Units that is not accompanied
by an identical subdivision or combination of the Common Stock; or (B) any
subdivision (by any stock split, stock dividend, reclassification,
recapitalization or otherwise) or combination (by reverse stock split,
reclassification, recapitalization or otherwise) of the Common Stock that is not
accompanied by an identical subdivision or combination of the Membership Units.
(v) Options, Rights or Warrants.
(A) The Corporation shall not make any
offering of options, rights or warrants to subscribe for shares of Class B
Common Stock or Class C Common Stock. If the Corporation makes an offering of
options, rights or warrants to subscribe for shares of any class or classes of
capital stock, other than Class B Common Stock or Class C Common Stock, to all
holders of a class of Common Stock, then the Corporation shall simultaneously
make an identical offering to all holders of the other classes of Common Stock
other than to any class of Common Stock the holders of which, voting as a
separate class, determine that such offering need not be made to such class. All
such options, rights or warrants offerings shall offer the respective holders of
Class A Common Stock, Class B Common Stock and Class C Common Stock the right to
subscribe at the same rate per share.
(B) Subject to Article FOURTH, Clauses
(b)(iii)(E) and (b)(v)(A) above, the Corporation shall have the power to create
and issue, whether or not in connection with the issue and sale of any shares of
stock or other securities of the Corporation, rights or options entitling the
holders thereof to purchase from the Corporation any shares of its capital stock
of any class or classes at the time authorized (other than Class B Common Stock
or Class C Common Stock), such rights or options to have such terms and
conditions, and to be evidenced by or in such instrument or instruments, as
shall be approved by the Board.
(vi) Mergers, Consolidation, Etc. In the event
that the Corporation shall enter into any consolidation, merger, combination or
other transaction in which shares of Common Stock are exchanged for or changed
into other stock or securities, cash and/or any other property, then, and in
such event, the shares of each class of Common Stock shall be exchanged for or
changed into either (A) the same amount of stock, securities, cash and/or any
other
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property, as the case may be, into which or for which each share of any other
class of Common Stock is exchanged or changed; provided, however, that if shares
of Common Stock are exchanged for or changed into shares of capital stock, such
shares so exchanged for or changed into may differ to the extent and only to the
extent that the Class A Common Stock, the Class B Common Stock and the Class C
Common Stock differ as provided herein, or (B) if holders of each class of
Common Stock are to receive different distributions of stock, securities, cash
and/or any other property, an amount of stock, securities, cash and/or property
per share having a value, as determined by an independent investment banking
firm of national reputation selected by the Board, equal to the value per share
into which or for which each share of any other class of Common Stock is
exchanged or changed.
(vii) Liquidation Rights. In the event of any
dissolution, liquidation or winding-up of the affairs of the Corporation,
whether voluntary or involuntary, after payment or provision for payment of the
debts and other liabilities of the Corporation and after making provision for
the holders of each series of Preferred Stock, if any, the remaining assets and
funds of the Corporation, if any, shall be divided among and paid ratably to the
holders of the shares of the Class A Common Stock, the Class B Common Stock and
the Class C Common Stock treated as a single class.
(viii) No Preemptive Rights. Except as provided
in Article FOURTH, Clause (b)(v) above, the holders of shares of Common Stock
are not entitled to any preemptive right to subscribe for, purchase or receive
any part of any new or additional issue of stock of any class, whether now or
hereafter authorized, or of bonds, debentures or other securities convertible
into or exchangeable for stock.
(c) Preferred Stock.
(i) Authorization. Subject to the voting and
approval procedures set forth in the By-laws, the Board is hereby expressly
granted authority to authorize in accordance with law from time to time the
issue of one or more series of Preferred Stock and with respect to any such
series to fix by resolution or resolutions the numbers, powers, designations,
preferences and relative, participating, optional or other special rights of
such series and the qualifications, limitations or restrictions thereof,
including but without limiting the generality of the foregoing, the following:
(A) entitling the holders thereof to
cumulative, non-cumulative or partially cumulative dividends, or to no
dividends;
(B) entitling the holders thereof to receive
dividends payable on a parity with, junior to, or in preference to, the
dividends payable on any other class or series of capital stock of the
Corporation;
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(C) entitling the holders thereof to
rights upon the voluntary or involuntary liquidation, dissolution or winding up
of, or upon any other distribution of the assets of, the Corporation, on a
parity with, junior to or in preference to, the rights of any other class or
series of capital stock of the Corporation;
(D) providing for the conversion, at the
option of the holder or of the Corporation or both, of the shares of Preferred
Stock into shares of any other class or classes of capital stock of the
Corporation or of any series of the same or any other class or classes or into
property of the Corporation or into the securities or properties of any other
corporation or person, including provision for adjustment of the conversion rate
in such events as the Board shall determine, or providing for no conversion;
(E) providing for the redemption, in
whole or in part, of the shares of Preferred Stock at the option of the
Corporation or the holder thereof, in cash, bonds or other property, at such
price or prices (which amount may vary under different conditions and at
different redemption dates), within such period or periods, and under such
conditions as the Board shall so provide, including provisions for the creation
of a sinking fund for the redemption thereof, or providing for no redemption;
(F) lacking voting rights or having
limited voting rights or enjoying general, special or multiple voting rights;
and
(G) specifying the number of shares
constituting that series and the distinctive designation of that series.
All shares of any one series of Preferred Stock shall be identical in all
respects with the other shares of such series, except that shares of any one
series of Preferred Stock issued at different times may differ as to the dates
from which dividends thereon shall be cumulative. The Board may change the
powers, designation, preferences, rights, qualifications, limitations and
restrictions of, and number of shares in, any series of Preferred Stock as to
which no shares are issued and outstanding.
(ii) Dividends. Dividends on outstanding shares
of Preferred Stock shall be paid or declared and set apart for payment before
any dividends shall be paid or declared and set apart for payment on the Common
Stock with respect to the same dividend period.
(iii) Liquidation Rights. If upon any voluntary
or involuntary liquidation, dissolution or winding up of the Corporation, the
assets available for distribution to holders of shares of Preferred Stock of all
series shall be insufficient to pay such holders the full preferential amount to
which they are entitled, then such assets shall be distributed in accordance
with the respective priorities and preferential amounts (including unpaid
cumulative dividends, if
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any, and interest thereon, if any) payable with respect thereto, and among
shares of any series of Preferred Stock, ratably among the shares of such
series.
FIFTH: The duration of this Corporation is to be perpetual.
SIXTH: (a) Classification of Directors. Subject to Article FOURTH,
Clause (b)(iii)(D) and (E) above and Article SIXTH, Clause (b) below, the
directors, other than those who may be elected by the holders of any series of
Preferred Stock, shall be classified, with respect to the time for which they
severally hold office, into three classes of three (3) directors each, one class
initially to be elected for a term expiring at the annual meeting of
stockholders to be held in 2000, another class initially to be elected for a
term expiring at the annual meeting of stockholders to be held in 2001 and
another class initially to be elected for a term expiring at the annual meeting
of stockholders to be held in 2002, with the members of each class to hold
office until their successors have been elected and qualified. Subject to
Article FOURTH, Clause (b)(iii)(D) and (E) above and Article SIXTH, Clause (b)
below, each class of three (3) directors shall consist of one (1) Class A
Director, one (1) Class B Director and one (1) Class C Director. At each annual
meeting of stockholders, the successors of the class of directors whose term
expires at that meeting shall be elected to hold office for a term expiring at
the annual meeting of stockholders held in the third (3rd) year following the
year of their election. Directors need not be stockholders of the Corporation.
(b) Reduction in Number. (i) At any time that the holders
of Class B Common Stock transfer (other than to Parent Entities) in the
aggregate (i.e. together with all other shares of Common Stock and/or Membership
Units previously transferred by holders of Class B Common Stock other than to
Parent Entities) a number of shares of Common Stock and/or Membership Units
constituting an aggregate of more than ten percent (10%) of the number of
outstanding Membership Units (a "Class B Triggering Event"), then the number of
Class B Directors (and the resulting size of the Board) shall be reduced from
three (3) to two (2) by the automatic resignation of one of the Class B
Directors (such resigning Class B Director to be selected by the Class B
Directors within ten (10) days prior to the occurrence of the Class B Triggering
Event). In the absence of such selection within said ten-day period, the Class C
Directors shall select the Class B Director who shall be deemed to have
resigned. In calculating whether the Class B Triggering Event has occurred, each
time a transfer of shares of Common Stock and/or Membership Units occurs (other
than to a Parent Entity), a calculation shall be made with respect to the
percentage that such number of shares and/or units transferred bears to the
number of then outstanding Membership Units. This percentage shall be added to
the aggregate of such percentages calculated at the respective times of all
prior transfers by the holders of the Class B Common Stock (other than to a
Parent Entity).
(ii) At any time that the holders of Class
C Common Stock transfer (other than to Parent Entities) in the aggregate (i.e.
together with all other shares of Common Stock and/or Membership Units
previously transferred by holders of Class C Common
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Stock other than to Parent Entities) a number of shares of Common Stock and/or
Membership Units constituting an aggregate of more than ten percent (10%) of the
number of outstanding Membership Units (a "Class C Triggering Event"), then the
number of Class C Directors (and the resulting size of the Board) shall be
reduced from three (3) to two (2) by the automatic resignation of one of the
Class C Directors (such resigning Class C Director to be selected by the Class C
Directors within ten (10) days prior to the occurrence of the Class C Triggering
Event). In the absence of such selection within said ten-day period, the Class B
Directors shall select the Class C Director who shall be deemed to have
resigned. In calculating whether the Class C Triggering Event has occurred, each
time a transfer of shares of Common Stock and/or Membership Units occurs (other
than to a Parent Entity), a calculation shall be made with respect to the
percentage that such number of shares and/or units transferred bears to the
number of then outstanding Membership Units. This percentage shall be added to
the aggregate of such percentages calculated at the respective times of all
prior transfers by the holders of the Class C Common Stock (other than to a
Parent Entity).
(c) Vacancies in the Board. Except as provided in Article
FOURTH, Clause (b)(iii)(D) and (E) and Article SIXTH, Clause (b) above, any
vacancies resulting from death, resignation, disqualification, removal or other
cause with respect to a Class A Director shall be filled by the affirmative vote
of the remaining directors then in office, even if less than a quorum of the
Board. Any vacancies resulting from death, resignation, disqualification,
removal or other cause with respect to a Class B Director shall be filled only
by the affirmative vote of the remaining Class B Directors then in office, even
if less than a quorum of the Board, or by a sole remaining Class B Director. In
the absence of a sole remaining Class B Director, such vacancies shall be filled
by a majority vote of the holders of the Class B Common Stock, voting separately
as a class. Any vacancies resulting from death, resignation, disqualification,
removal or other cause with respect to a Class C Director shall be filled only
by the affirmative vote of a majority of the remaining Class C Directors then in
office, even if less than a quorum of the Board, or by a sole remaining Class C
Director. In the absence of a sole remaining Class C Director, such vacancies
shall be filled by a majority vote of the holders of the Class C Common Stock,
voting separately as a class. Any director elected in accordance with this
Clause (c) shall hold office until the annual meeting of stockholders at which
the term of office of the class to which such director has been elected expires,
and until such director's successor shall have been duly elected and qualified.
(d) Removal of Directors. (i) Subject to Article SIXTH, Clause
(d)(ii) below, any director may be removed from office only for cause by the
affirmative vote of the holders of at least seventy percent (70%) of the voting
power of the Voting Stock, voting together as a single class.
(ii) Notwithstanding the foregoing, (i) any Class
A Director may be removed at any time , with or without cause, by majority vote
of the holders of the Voting Stock, voting together as one class, (ii) any Class
B Director may be removed at any time, with or
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without cause, by majority vote of the holders of the Class B Common Stock,
voting separately as a class, and (iii) any Class C Director may be removed at
any time, with or without cause, by majority vote of the holders of the Class C
Common Stock, voting separately as a class.
SEVENTH: The affirmative vote of the holders of at least seventy
percent (70%) of the issued and outstanding Voting Stock, voting as one class,
shall be required to amend or repeal this Certificate of Incorporation;
provided, however, that no such amendment shall adversely affect the rights of
the holders of Class A Common Stock, Class B Common Stock or Class C Common
Stock, respectively, unless the holders of such Class A Common Stock, Class B
Common Stock or Class C Common Stock, as the case may be, voting separately as a
class, shall by majority vote approve such amendment. Subject to Section 4.1 of
the By-laws, the Board may from time to time make, amend, supplement or repeal
the By-laws by vote of a majority of the Board; provided, however, that the
stockholders may change or amend or repeal any provision of the By-laws by each
of: (i) the affirmative vote of the holders of a majority of the Voting Stock,
voting as one class; (ii) if a Class B Director is then entitled to be a member
of the Special Committee, by the affirmative vote of the holders of a majority
of the Class B Common Stock, voting separately as a class; and (iii) if a Class
C Director is then entitled to be a member of the Special Committee, by the
affirmative vote of the holders of a majority of the Class C Common Stock,
voting separately as a class.
EIGHTH: Unless and except to the extent that the By-laws of the
Corporation shall so require, the election of directors of the Corporation need
not be by written ballot.
NINTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, provided that such action is
approved in the manner, and otherwise complies with the requirements, set forth
in this Certificate of Incorporation, and all rights conferred upon stockholders
herein are granted subject to this reservation.
TENTH: A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability: (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) under Section 174 of the GCL; or (iv) for any
transaction from which the director derived an improper personal benefit. If the
GCL is amended to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the GCL, as so amended. Any repeal or modification of this provision shall be
prospective only and shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or modification.
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ELEVENTH: The Corporation, to the fullest extent permitted by Section
145 of the GCL, as the same may be amended and supplemented, may indemnify any
and all persons whom it shall have power to indemnify under said section from
and against any and all of the expenses, liabilities or other matters referred
to in or covered by said section, and the indemnification provided for herein
shall not be deemed exclusive of any other rights to which those indemnified may
be entitled under any by-law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person."
3. This Amended and Restated Certificate of Incorporation has been duly
adopted by the Board of Directors of the Corporation and consented to in writing
and authorized by the holders of all of the issued and outstanding stock
entitled to vote thereon.
4. This Amended and Restated Certificate of Incorporation was duly
adopted in accordance with the applicable provisions of Sections 228 and 242 of
the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, barnesandnoble.com inc. has caused this Amended and
Restated Certificate of Incorporation to be signed and attested as of
the ____ day of _________, 1999.
barnesandnoble.com inc.
By:______________________________
Name:
Title:
Attest:
By:_______________________
Name:
Title:
<PAGE>
Adopted as of ______________, 1999
AMENDED AND RESTATED
BY-LAWS
OF
barnesandnoble.com inc.
ARTICLE I.
OFFICES
SECTION 1.1 Delaware Office. The office of barnesandnoble.com
inc. (the "Corporation") within the State of Delaware shall be in the City of
Dover, County of Kent.
SECTION 1.2 Other Offices. The Corporation may also have an
office or offices and keep the books and records of the Corporation, except as
otherwise may be required by law, in such other place or places, either within
or without the State of Delaware, as the Board of Directors of the Corporation
(the "Board") may from time to time determine or the business of the Corporation
may require.
ARTICLE II.
MEETINGS OF STOCKHOLDERS
SECTION 2.1 Place of Meetings. All meetings of holders of
shares of capital stock of the Corporation shall be held at the office of the
Corporation in the State of Delaware or at such other place, within or without
the State of Delaware, as may from time to time be fixed by the Board or
specified or fixed in the respective notices or waivers of notice thereof.
SECTION 2.2 Annual Meetings. An annual meeting of stockholders
of the Corporation for the election of directors and for the transaction of such
other business as may properly come before the meeting (an "Annual Meeting")
shall be held at such place, on such date, and at such time as the Board shall
each year fix, which date shall be within thirteen (13) months of the last
annual meeting of stockholders or, if no such meeting has been held, the date of
incorporation.
SECTION 2.3 Special Meetings. Except as required by law and
subject to the rights of holders of any series of Preferred Stock (as defined
below), special meetings of
<PAGE>
stockholders may be called at any time only by the Chairman of the Board, a
member of the Special Committee (as defined below) or by the Board pursuant to a
resolution approved by a majority of the then authorized number of directors.
Any such call must specify the matter or matters to be acted upon at such
meeting and only such matter or matters shall be acted upon thereat.
SECTION 2.4 Notice of Meetings. Except as otherwise may be
required by law, notice of each meeting of stockholders, whether an Annual
Meeting or a special meeting, shall be in writing, shall state the purpose or
purposes of the meeting, the place, date and hour of the meeting and, unless it
is an Annual Meeting, shall indicate that the notice is being issued by or at
the direction of the person or persons calling the meeting, and a copy thereof
shall be delivered or sent by mail, not less than ten (10) or more than sixty
(60) days before the date of said meeting, to each stockholder entitled to vote
at such meeting. If mailed, such notice shall be directed to such stockholder at
such stockholder's address as it appears on the stock records of the
Corporation, unless he shall have filed with the Secretary of the Corporation a
written request that notices to him be mailed to some other address in which
case it shall be directed to him at such other address. Notice of an adjourned
meeting need not be given if the time and place to which the meeting is to be
adjourned was announced at the meeting at which the adjournment was taken,
unless (i) the adjournment is for more than thirty (30) days, or (ii) the Board
shall fix a new record date for such adjourned meeting after the adjournment.
SECTION 2.5 Quorum. At each meeting of stockholders of the
Corporation, the holders of shares having a majority of the voting power of the
capital stock of the Corporation issued and outstanding and entitled to vote
thereat shall be present or represented by proxy to constitute a quorum for the
transaction of business, except as otherwise provided by law. Where a separate
vote by a class or classes is required, a majority of the shares of such class
or classes in person or represented by proxy shall constitute a quorum entitled
to take action with respect to that vote on that matter.
SECTION 2.6 Adjournments. In the absence of a quorum at any
meeting of stockholders or any adjournment or adjournments thereof, the Chairman
of the Board or holders of shares having a majority of the voting power of the
capital stock present or represented by proxy at the meeting may adjourn the
meeting from time to time until a quorum shall be present or represented by
proxy. At any such adjourned meeting at which a quorum shall be present or
represented by proxy, any business may be transacted which might have been
transacted at the meeting as originally called if a quorum had been present or
represented by proxy thereat.
SECTION 2.7 Order of Business. (a) At any Annual Meeting, only
such business shall be conducted as shall have been brought before the Annual
Meeting (i) by or at the direction of the Board, or (ii) by any stockholder who
complies with the procedures set forth in this Section 2.7.
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(b) For business properly to be brought before an
Annual Meeting by a stockholder, the stockholder must have given timely notice
thereof in proper written form to the Secretary of the Corporation. To be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the Corporation not less than thirty (30)
days nor more than sixty (60) days prior to the Annual Meeting; provided,
however, that in the event that less than forty (40) days' notice or prior
public disclosure of the date of the Annual Meeting is given or made to
stockholders, notice by the stockholder to be timely must be received not later
than the close of business on the tenth day following the day on which such
notice of the date of the Annual Meeting was mailed or such public disclosure
was made. To be in proper written form, a stockholder's notice to the Secretary
of the Corporation shall set forth in writing as to each matter the stockholder
proposes to bring before the Annual Meeting: (i) a brief description of the
business desired to be brought before the Annual Meeting and the reasons for
conducting such business at the Annual Meeting; (ii) the name and address, as
they appear on the Corporation's books, of the stockholder proposing such
business; (iii) the class and number of shares of the Corporation which are
beneficially owned by the stockholder; and (iv) any material interest of the
stockholder in such business. Notwithstanding anything in these By-laws to the
contrary, no business shall be conducted at an Annual Meeting except in
accordance with the procedures set forth in this Section 2.7. The chairman of an
Annual Meeting shall, if the facts warrant, determine and declare to the Annual
Meeting that business was not properly brought before the Annual Meeting in
accordance with the provisions of this Section 2.7 and, if he should so
determine, he shall so declare to the Annual Meeting and any such business not
properly brought before the Annual Meeting shall not be transacted.
SECTION 2.8 Proxies and Voting. Except as otherwise provided
in a resolution of the Board adopted pursuant to the Amended and Restated
Certificate of Incorporation of the Corporation (the "Certificate of
Incorporation") and these By-laws establishing a series of Preferred Stock of
the Corporation ("Preferred Stock"), at each meeting of stockholders, each
holder of shares of the Corporation's Class A Common Stock, par value $.001 per
share ("Class A Common Stock"), shall be entitled to one (1) vote for each such
share, and each holder of the Corporation's Class B Common Stock, par value
$.001 per share ("Class B Common Stock"), and Class C Common Stock, par value
$.001 per share ("Class C Common Stock", and together with the Class A Common
Stock and the Class B Common Stock, the "Common Stock"), shall be entitled to
the respective number of votes as set forth in the Certificate of Incorporation,
in each case determined with reference to the number of shares of Common Stock
and Membership Units in the Operating Company (as such terms are defined in the
Certificate of Incorporation) standing in such holder's name on the stock
records of the Corporation maintained in accordance with Section 7.2 hereof (i)
at the time fixed pursuant to Section 7.4 of these By-laws as the record date
for the determination of stockholders entitled to vote at such meeting, or (ii)
if no such record date shall have been fixed, then at the close of business on
the day next preceding the day on which notice thereof shall be given. At each
meeting of stockholders, all matters (except as otherwise provided in Section
3.3 of these By-laws and except in cases where a larger vote is required by law
or by the Certificate of Incorporation or these By-laws) shall be
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decided by a majority of the votes cast at such meeting by the holders of shares
of capital stock present or represented by proxy and entitled to vote thereon, a
quorum being present. At any meeting of the stockholders, every stockholder
entitled to vote may vote in person or by proxy authorized by an instrument in
writing or by a transmission permitted by law filed in accordance with the
procedure established for the meeting. Any copy, facsimile telecommunication or
other reliable reproduction of the writing or transmission created pursuant to
this Section 2.8 may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used, provided that such copy, facsimile telecommunication
or other reproduction shall be a complete reproduction of the entire original
writing or transmission. All voting, including on the election of directors but
excepting where otherwise required by law, may be by a voice vote; provided,
however, that upon demand therefore by a stockholder entitled to vote or by such
stockholder's proxy, a stock vote shall be taken. Every stock vote shall be
taken by ballots, each of which shall state the name of the stockholder or proxy
voting and such other information as may be required under the procedure
established for the meeting.
SECTION 2.9 Inspectors. For each election of directors by the
stockholders and in any other case in which it shall be advisable, in the
opinion of the Board, that the voting upon any matter shall be conducted by
inspectors of election, the Board shall appoint an inspector or inspectors of
election. If, for any such election of directors or the voting upon any such
other matter, any inspector appointed by the Board shall be unwilling or unable
to serve, or if the Board shall fail to appoint inspectors, the chairman of the
meeting shall appoint the necessary inspector or inspectors. The inspector(s) so
appointed, before entering upon the discharge of their duties, shall be sworn
faithfully to execute the duties of inspectors with strict impartiality, and
according to the best of their ability, and the oath so taken shall be
subscribed by them. Such inspectors shall determine the number of shares of
capital stock of the Corporation outstanding and the voting power of each of the
shares represented at the meeting, the existence of a quorum, and the validity
and effect of proxies, and shall receive votes, ballots or consents, hear and
determine all challenges and questions arising in connection with the right to
vote, count and tabulate all votes, ballots or consents, determine the result,
and do such acts as are proper to conduct the election or vote with fairness to
all stockholders. On request of the chairman of the meeting or any stockholder
entitled to vote thereat, the inspectors shall make a report in writing of any
challenge, question or matter determined by them and shall execute a certificate
of any fact found by them. No director or candidate for the office of director
shall act as an inspector of election of directors. Inspectors need not be
stockholders.
SECTION 2.10 Consent of Stockholders in Lieu of Meeting. Any
action required to be taken at any Annual Meeting or special meeting of
stockholders of the Corporation, or any action which may be taken at any Annual
Meeting or special meeting of the stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent or consents in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to
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authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted and shall be delivered to the Corporation by
delivery to its registered office in Delaware, its principal place of business,
or an officer or agent of the Corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to the
Corporation's registered office shall be made by hand or by certified or
registered mail, return receipt requested.
Every written consent shall bear the date of signature of each
stockholder who signs the consent and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty (60) days of
the date the earliest dated consent is delivered to the Corporation, a written
consent or consents signed by a sufficient number of holders to take action are
delivered to the Corporation in the manner prescribed in the first paragraph of
this Section.
ARTICLE III.
DIRECTORS
SECTION 3.1 Powers. (a) Subject to Section 4.1 hereof, the
business of the Corporation shall be managed under the direction of the Board.
The Board may, subject to the approval procedures of Sections 3.1(b) and 4.1
hereof, except as otherwise required by law, exercise all such powers and do all
such acts and things as may be exercised or done by the Corporation, including,
without limiting the generality of the foregoing, the unqualified power:
(i) to declare dividends from time to time in
accordance with law;
(ii) to purchase or otherwise acquire any property,
rights or privileges on such terms as it shall determine;
(iii) to authorize the creation, making and issuance,
in such form as it may determine, of written obligations of every kind,
negotiable or non-negotiable, secured or unsecured, and to do all things
necessary in connection therewith;
(iv) to remove any officer of the Corporation with or
without cause, and from time to time to devolve the powers and duties of any
officer upon any other person for the time being;
(v) to confer upon any officer of the Corporation the
power to appoint, remove and suspend subordinate officers, employees and agents;
(vi) to adopt from time to time such stock, option,
stock purchase, bonus or other compensation plans for directors, officers,
employees and agents of the Corporation and its subsidiaries as it may
determine;
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(vii) to adopt from time to time such insurance,
retirement, and other benefit plans for directors, officers, employees and
agents of the Corporation and its subsidiaries as it may determine; and
(viii) to adopt from time to time regulations, not
inconsistent with these By-laws, for the management of the Corporation's
business and affairs.
(b) Subject to Section 4.1 hereof, and without limiting the
powers of the Board set forth in Section 3.1(a), the Corporation shall not, and
shall not permit any Subsidiary (as defined below) to, and no officer, employee
or agent of the Corporation or any Subsidiary shall, take any of the actions
specified in Schedule 3.1(b), without the prior approval of the Board.
"Subsidiary" shall mean barnesandnoble.com llc, the Delaware limited liability
company in which the Corporation is the sole Manager, or any successor entity
thereto (the "Operating Company"), and any other corporation, limited liability
company, partnership or other entity in which the Corporation, directly or
indirectly, has a controlling equity interest.
(c) Notwithstanding anything to the contrary contained in
ARTICLES III and IV hereof, any variance from the license agreement relating to
the name "Barnes & Noble", or any substantially similar name or derivation
thereof, including "B&N" and "BN", shall require the approval of the Class B
Directors (as defined in the Certificate of Incorporation).
(d) Notwithstanding anything to the contrary contained in
ARTICLES III and IV hereof, the following actions shall at all times be taken by
the Board, by or on behalf of the Corporation, without the approval, consent or
authorization of the Class B Directors or the Class C Directors (as defined in
the Certificate of Incorporation), as the case may be, as indicated below:
(i) All action by or on behalf of the Corporation
with respect to the execution, delivery, or termination in accordance with the
terms of any agreement between Barnes & Noble, Inc. (or any of its Affiliates,
as defined in the Limited Liability Company Agreement of the Operating Company,
as amended (the "LLC Agreement")) and the Corporation shall be taken by the
Board without the approval, consent or authorization of the Class B Directors.
All action with respect to matters relating to the enforcement or waiver of any
rights granted the Corporation under any such agreement shall be taken solely
pursuant to the direction of the Board without the approval, consent or
authorization of the Class B Directors. All determinations of Gross Asset Value
(as defined in the LLC Agreement) with respect to any asset contributed to the
Operating Company by Barnes & Noble, Inc. or any of its Affiliates shall be made
by the Board without the approval, consent or authorization of the Class B
Directors.
(ii) All action by or on behalf of the Corporation
with respect to the execution, delivery, or termination in accordance with the
terms of any agreement between Bertelsmann AG (or any of its Affiliates) and the
Corporation shall be taken by the Board
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without the approval, consent or authorization of the Class C Directors. All
action with respect to matters relating to the enforcement or waiver of any
rights granted the Corporation under any such agreement shall be taken solely
pursuant to the direction of the Board without the approval, consent or
authorization of the Class C Directors. All determinations of Gross Asset Value
with respect to any asset contributed to the Operating Company by Bertelsmann AG
or any of its Affiliates shall be made by the Board without the approval,
consent or authorization of the Class C Directors.
SECTION 3.2 Number; Terms and Vacancies. The Corporation shall
have the number of directors as is set forth in the Certificate of
Incorporation. The Board shall be classified in the manner set forth in the
Certificate of Incorporation. Any vacancies on the Board resulting from death,
resignation, disqualification, removal or other cause shall be filled in the
manner provided in the Certificate of Incorporation.
SECTION 3.3 Nominations; Election. Nominations for the
election of directors may be made by the Board or a committee appointed by the
Board, or by any stockholder entitled to vote generally in the election of
directors who complies with the procedures set forth in this Section 3.3.
Directors shall be at least 21 years of age. Directors need not be stockholders.
At each meeting of stockholders for the election of directors at which a quorum
is present, the persons receiving a plurality of the votes cast shall be elected
directors. All nominations by stockholders shall be made pursuant to timely
notice in proper written form to the Secretary of the Corporation. To be timely,
a stockholder's notice shall be delivered to or mailed and received at the
principal executive offices of the Corporation not less than thirty (30) days
nor more than sixty (60) days prior to the meeting; provided, however, that in
the event that less than forty (40) days' notice or prior public disclosure of
the date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not later than the close of
business on the tenth day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. To be in proper
written form, such stockholder's notice shall set forth in writing: (a) as to
each person whom the stockholder proposes to nominate for election or reelection
as a director, all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended, including, without limitation, such person's written
consent to being a nominee and to serving as a director if elected; and (b) as
to the stockholder giving the notice, the (i) name and address, as they appear
on the Corporation's books, of such stockholder and (ii) the class and number of
shares of the Corporation which are beneficially owned by such stockholder. At
the request of the Board, any person nominated by the Board for election as a
director shall furnish to the Secretary of the Corporation the information
required to be set forth in a stockholder's notice of nomination which pertains
to the nominee.
SECTION 3.4 Place of Meetings. Meetings of the Board shall be
held at the Corporation's office in the State of Delaware or at such other
places, within or without such
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State, as the Board may from time to time determine or as shall be specified or
fixed in the notice or waiver of notice of any such meeting.
SECTION 3.5 Regular Meetings. Regular meetings of the Board
shall be held in accordance with a yearly meeting schedule as determined by the
Board; or such meetings may be held on such other days and at such other times
as the Board may from time to time determine. Regular meetings of the Board
shall be held not less frequently than quarterly.
SECTION 3.6 Special Meetings. Special meetings of the Board
may be called by a majority of the directors then in office (rounded up to the
nearest whole number) or by the Chairman of the Board or any member of the
Special Committee and shall be held at such place, on such date, and at such
time as they or he shall fix.
SECTION 3.7 Notice of Meetings. Notice of each special meeting
of the Board stating the time, place and purposes thereof, shall be (i) mailed
to each director not less than five (5) days prior to the meeting, addressed to
such director at his or her residence or usual place of business, or (ii) shall
be sent to him by facsimile, telex, cable or telegram so addressed, or shall be
given personally or by telephone, on twenty four (24) hours' notice.
SECTION 3.8 Quorum and Manner of Acting. The presence of at
least a majority of the authorized number of directors shall be necessary and
sufficient to constitute a quorum for the transaction of business at any meeting
of the Board. If a quorum shall not be present at any meeting of the Board, a
majority of the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present. Except where a different vote is required or permitted by law,
the Certificate of Incorporation or these By-laws or otherwise, the act of a
majority of the directors present at any meeting at which a quorum shall be
present shall be the act of the Board. Any action required or permitted to be
taken by the Board may be taken without a meeting if all the directors consent
in writing to the adoption of a resolution authorizing the action. The
resolution and the written consents thereto by the directors shall be filed with
the minutes of the proceedings of the Board. Any one or more directors may
participate in any meeting of the Board by means of a conference telephone or
similar communications equipment allowing all persons participating in the
meeting to hear each other at the same time. Participation by such means shall
be deemed to constitute presence in person at a meeting of the Board.
SECTION 3.9 Resignation. Any director may resign at any time
by giving written notice to the Corporation; provided, however, that written
notice to the Board, the Chairman of the Board, the Chief Executive Officer of
the Corporation or the Secretary of the Corporation shall be deemed to
constitute notice to the Corporation. Such resignation shall take effect upon
receipt of such notice or at any later time specified therein and, unless
otherwise specified therein, acceptance of such resignation shall not be
necessary to make it effective.
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SECTION 3.10 Removal of Directors. Subject to the rights of
holders of Preferred Stock to elect directors under circumstances specified in a
resolution of the Board, adopted pursuant to the provisions of the Certificate
of Incorporation or these By-laws establishing such series, and further subject
to the respective rights of holders of Class A Common Stock, Class B Common
Stock and Class C Common Stock to remove Class A Directors, Class B Directors
and Class C Directors as provided in the Certificate of Incorporation, any
director may be removed from office only for cause by the affirmative vote of
the holders of at least seventy percent (70%) of the voting power of the Voting
Stock (as defined below), voting together as a single class. "Voting Stock"
shall mean the Common Stock and any Preferred Stock entitled to vote generally
in the election of directors of the Corporation.
SECTION 3.11 Compensation of Directors. The Board may provide
for the payment to any of the directors, other than officers or employees of the
Corporation, of a specified amount for services as director or member of a
committee of the Board, or of a specified amount for attendance at each regular
or special Board meeting or committee meeting, or of both, and all directors
shall be reimbursed for expenses of attendance at any such meeting; provided,
however, that nothing herein contained shall be construed to preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor.
ARTICLE IV.
COMMITTEES OF THE BOARD
SECTION 4.1 Appointment and Powers of Special Committee.
(a) The Board shall establish a two (2) member Special Committee (the "Special
Committee") consisting of one (1) Class B Director selected by two Class B
Directors (or the sole remaining Class B Director) and one (1) Class C Director
selected by two Class C Directors (or the sole remaining Class C Director). The
purpose of the Special Committee shall be to evaluate the matters set forth on
Schedule 4.1 of these By-laws and to report to the Board for approval only those
matters specified on said Schedule which have been unanimously approved by the
Special Committee. The Board shall not approve any action set forth on Schedule
4.1 unless and until such action has been unanimously approved by the Special
Committee.
(b) At any time that either (i) the number of
shares of Class B Common Stock outstanding, together with the number of
outstanding Membership Units held by the holders of such Class B Common Stock,
constitutes less than fifteen percent (15%) of the number of then outstanding
Membership Units, or (ii) a Class B Triggering Event (as defined in the
Certificate of Incorporation) has occurred, the Special Committee shall have
only one (1) member (who shall be selected by two of the Class C Directors (or
the sole remaining Class C Director)) and the member of the Special Committee
elected by the Class B Directors shall be deemed to have resigned effective as
of such time.
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(c) At any time that either (i) the number of shares
of Class C Common Stock outstanding, together with the number of outstanding
Membership Units held by the holders of such Class B Common Stock, constitutes
less than fifteen percent (15%) of the then outstanding number of Membership
Units, or (ii) a Class C Triggering Event (as defined in the Certificate of
Incorporation) has occurred, the Special Committee shall have only one (1)
member (who shall be selected by two of the Class B Directors (or the sole
remaining Class B Director)) and the member of the Special Committee elected by
the Class C Directors shall be deemed to have resigned effective as of such
time.
(d) At any time that both of the deemed resignations
referred to in Section 4.1(b) and (c) shall have occurred, the Special Committee
shall be deemed dissolved as of such time, and this Section 4.1 shall cease to
have any effect.
SECTION 4.2 Appointment and Powers of Executive Committee. So
long as there are at least three (3) classes of Common Stock outstanding, the
Board of Directors, by the affirmative vote of two (2) Class A Directors (or the
sole remaining Class A Director), two (2) Class B Directors (or the sole
remaining Class B Director), and two (2) Class C Directors (or the sole
remaining Class C Director), may designate an Executive Committee of the Board,
which shall consist of one (1) Class A Director, one (1) Class B Director and
one (1) Class C Director. If there are less than two (2) classes of Common Stock
outstanding, the Board may establish an Executive Committee with such members as
it chooses. Any Executive Committee designated under this Section 4.2 may
exercise the power and authority of the Board to declare dividends, to authorize
the issuance of stock or to adopt a certificate of ownership and merger pursuant
to Section 253 of the Delaware General Corporation Law if the resolution that
designates the committee or a supplemental resolution of the Board shall so
provide, subject to the approval procedures of Section 4.1 hereof. Except as
provided by Delaware law, during the interval between the meetings of the Board,
the Executive Committee shall possess and may exercise all the powers of the
Board in the management and direction of all the business and affairs of the
Corporation (except the matters hereinafter assigned to any other Committee of
the Board), in such manner as the Executive Committee shall deem in the best
interests of the Corporation in all cases in which specific directions shall not
have been given by the Board. The Executive Committee may determine its manner
of acting and fix the time and place of its meetings, unless the Board shall
otherwise provide. Either the Chairman of the Board or any member of the
Executive Committee may call the meetings of the Executive Committee.
SECTION 4.3 Appointment and Powers of Audit Committee. The
Board may, by resolution adopted by the affirmative vote of a majority of the
authorized number of directors, designate an Audit Committee of the Board, which
shall consist of such number of members as the Board shall determine. The Audit
Committee shall: (i) make recommendations to the Board as to the independent
accountants to be appointed by the Board; (ii) review with the independent
accountants the scope of their examinations; (iii) receive the reports of the
independent accountants and meet with representatives of such accountants for
the purpose of reviewing and
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considering questions relating to their examination and such reports; (iv)
review, either directly or through the independent accountants, the internal
accounting and auditing procedures of the Corporation; (v) review related party
transactions; and (vi) perform such other functions as may be assigned to it
from time to time by the Board. The Audit Committee may determine its manner of
acting and fix the time and place of its meetings, unless the Board shall
otherwise provide. A majority of the members of the Audit Committee shall
constitute a quorum for the transaction of business by the committee and the act
of a majority of the members of the committee present at a meeting at which a
quorum shall be present shall be the act of the committee.
SECTION 4.4 Appointment and Powers of Nominating Committee.
The Board shall establish a three (3) member Nominating Committee for purposes
of selecting nominees to be recommended by the Board for election as directors.
One (1) member of the Nominating Committee shall be selected by the Class B
Directors and one (1) member of the Nominating Committee shall be selected by
the Class C Directors. The remaining member of the Nominating Committee shall be
selected by the Class B Directors, subject to the approval of the Class C
Directors.
SECTION 4.5 Compensation Committee; Other Committees. The
Board may, by resolution adopted by the affirmative vote of a majority of the
authorized number of directors, designate members of the Board to constitute a
Compensation Committee and such other committees of the Board as the Board may
determine. Such committees shall in each case consist of such number of
directors as the Board may determine, and shall have and may exercise, to the
extent permitted by law, such powers as the Board may delegate to them in the
respective resolutions appointing them. Each such committee may determine its
manner of acting and fix the time and place of its meetings, unless the Board
shall otherwise provide. A majority of the members of any such committee shall
constitute a quorum for the transaction of business by the committee and the act
of a majority of the members of such committee present at a meeting at which a
quorum shall be present shall be the act of the committee.
SECTION 4.6 Action by Consent; Participation by Telephone or
Similar Equipment. Unless the Board shall otherwise provide, any action required
or permitted to be taken by any committee may be taken without a meeting if all
members of the committee consent in writing to the adoption of a resolution
authorizing the action. The resolution and the written consents thereto by the
members of the committee shall be filed with the minutes of the proceedings of
the committee. Unless the Board shall otherwise provide, any one or more members
of any such committee may participate in any meeting of the committee by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other. Participation by
such means shall constitute presence in person at a meeting of the committee.
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SECTION 4.7 Resignations; Removals. Any member of any
committee may resign at any time by giving notice to the Corporation; provided,
however, that notice to the Board, the Chairman of the Board, the Chief
Executive Officer of the Corporation, the chairman of such committee or the
Secretary of the Corporation shall be deemed to constitute notice to the
Corporation. Such resignation shall take effect upon receipt of such notice or
at any later time specified therein; and, unless otherwise specified therein,
acceptance of such resignation shall not be necessary to make it effective. Any
member of any such committee may be removed at any time, either with or without
cause, by the affirmative vote of a majority of the authorized number of
directors at any meeting of the Board called for that purpose; except that any
member of the Special Committee or the Executive Committee elected by the Class
B Directors may be removed at any time, either with or without cause, by the
affirmative vote of a majority of the Class B Directors, and any member of the
Special Committee or the Executive Committee elected by the Class C Directors
may be removed at any time, either with or without cause, by the affirmative
vote of a majority of the Class C Directors. Any member of the Special Committee
or the Executive Committee may be removed for cause by the affirmative vote of
two (2) Class A Directors (or the sole Class A Director), two (2) Class B
Directors (or the sole Class B Director) and two (2) Class C Directors (or the
sole Class C Director), even if less than a quorum of the Board. Any vacancies
on any committee of the Board shall be filled in the manner set forth above in
respect of the appointment of such committee.
ARTICLE V.
OFFICERS
SECTION 5.1 Number and Qualification. The Corporation shall
have such officers as may be necessary or desirable for the business of the
Corporation. The officers of the Corporation shall consist of a Chairman of the
Board, a Chief Executive Officer, one or more Vice Presidents, a Secretary, a
Treasurer and such other officers as may from time to time be appointed by the
Board. Officers shall be elected by the Board, which shall consider that subject
at its first meeting after every Annual Meeting of stockholders. Each officer
shall hold office until his or her successor is elected and qualified or until
his or her earlier resignation or removal. Any number of offices may be held by
the same person. The failure to elect a Chairman of the Board, Chief Executive
Officer, Vice President, Secretary or Treasurer shall not affect the existence
of the Corporation.
SECTION 5.2 Chairman of the Board. The Chairman of the Board
shall have general and active responsibility for the management of the business
of the Corporation and shall be responsible for implementing all orders and
resolutions of the Board. The Chairman of the Board shall also be a director and
shall preside at all meetings of the stockholders and directors. The Chief
Executive Officer shall report to the Chairman of the Board. The Chairman of the
Board shall perform the duties and exercise the powers of the Chief Executive
Officer in the event of the Chief Executive Officers's absence or disability.
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SECTION 5.3 Chief Executive Officer. The Chief Executive
Officer shall supervise the daily operations of the business of the Corporation,
and shall report to the Chairman of the Board. Subject to the provisions of
these By-laws and to the direction of the Chairman of the Board or the Board, he
or she shall perform all duties and have all powers which are commonly incident
to the office of Chief Executive Officer or which are delegated to him or her by
the Chairman of the Board or the Board. He or she shall have power to sign all
stock certificates, contracts and other instruments of the Corporation which are
authorized and shall have general supervision and direction of all of the other
officers, employees and agents of the Corporation.
SECTION 5.4 Vice President. Each Vice President shall have
such powers and duties as may be delegated to him or her by the Chairman of the
Board or the Board.
SECTION 5.5 Treasurer. The Treasurer shall have the
responsibility for maintaining the financial records of the Corporation. He or
she shall make such disbursements of the funds of the Corporation as are
authorized and shall render from time to time an account of all such
transactions and of the financial condition of the Corporation. The Treasurer
shall also perform such other duties as the Chairman of the Board or the Board
may from time to time prescribe.
SECTION 5.6 Secretary. The Secretary shall issue all
authorized notices for, and shall keep minutes of, all meetings of the
stockholders and the Board. He or she shall have charge of the corporate books
and shall perform such other duties as the Chairman of the Board or the Board
may from time to time prescribe.
SECTION 5.7 Delegation of Authority. The Chairman of the Board
or the Board may from time to time delegate the powers or duties of any officer
to any other officers or agents, notwithstanding any provision hereof.
SECTION 5.8 Removal. Any officer of the Corporation may be
removed at any time, with or without cause, by the Chairman of the Board or the
Board.
SECTION 5.9 Resignations. Any officer may resign at any time
by giving written notice to the Corporation; provided, however, that notice to
the Board, Chairman of the Board, the Chief Executive Officer or the Secretary
shall be deemed to constitute notice to the Corporation. Such resignation shall
take effect upon receipt of such notice or at any later time specified therein;
and, unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
SECTION 5.10 Vacancies. Any vacancy among the officers,
whether caused by death, resignation, removal or any other cause, shall be
filled in the manner prescribed for election or appointment to such office.
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SECTION 5.11 Action with Respect to Securities of Other
Corporations. Unless otherwise directed by the Board, the Chairman of the Board
or any officer of the Corporation authorized by the Chairman of the Board shall
have power to vote and otherwise act on behalf of the Corporation, in person or
by proxy, at any meeting of stockholders of or with respect to any action of
stockholders of any other corporation in which this Corporation may hold
securities and otherwise to exercise any and all rights and powers which this
Corporation may possess by reason of its ownership of securities in such other
corporation.
SECTION 5.12 Bonds of Officers. If required by the Chairman of
the Board or the Board, any officer of the Corporation shall give a bond for the
faithful discharge of his or her duties in such amount and with such surety or
sureties as the Board may require.
SECTION 5.13 Compensation. The salaries of the officers shall
be fixed from time to time by the Board, unless and until the Board appoints a
Compensation Committee.
SECTION 5.14 Officers of Operating Companies or Divisions. The
Chairman of the Board shall have the power to appoint, remove and prescribe the
terms of office, responsibilities, duties and salaries of, the officers of the
operating companies or divisions, other than those who are officers of the
Corporation.
ARTICLE VI.
CONTRACTS, CHECKS, LOANS, DEPOSITS, ETC.
SECTION 6.1 Contracts. Subject to the approval procedures of
Sections 3.1(b) and 4.1 hereof, the Board may authorize any officer or officers,
agent or agents, in the name and on behalf of the Corporation, to enter into any
contract or to execute and deliver any instrument, which authorization may be
general or confined to specific instances; and, unless so authorized by the
Board, no officer, agent or employee shall have any power or authority to bind
the Corporation by any contract or engagement or to pledge its credit or to
render it liable pecuniarily for any purpose or for any amount.
SECTION 6.2 Checks, etc. Subject to the approval procedures of
Sections 3.1(b) and 4.1 hereof, all checks, drafts, bills of exchange or other
orders for the payment of money out of the funds of the Corporation, and all
notes or other evidences of indebtedness of the Corporation, shall be signed in
the name and on behalf of the Corporation in such manner as shall from time to
time be authorized by the Board, which authorization may be general or confined
to specific instances.
SECTION 6.3 Loans. Subject to the approval procedures of
Sections 3.1(b) and 4.1 hereof, no loan shall be contracted on behalf of the
Corporation, and no negotiable paper shall be issued in its name, unless
authorized by the Board, which authorization may be general
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or confined to specific instances, and bonds, debentures, notes and other
obligations or evidences of indebtedness of the Corporation issued for such
loans shall be made, executed and delivered as the Board shall authorize.
SECTION 6.4 Deposits. Subject to the approval procedures of
Sections 3.1(b) and 4.1 hereof, all funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositors as may be selected by or in
the manner designated by the Board. The Board or its designees may make such
special rules and regulations with respect to such bank accounts, not
inconsistent with the provisions of the Certificate of Incorporation or these
By-laws, as they may deem advisable.
ARTICLE VII.
CAPITAL STOCK
SECTION 7.1 Certificates of Stock. Each stockholder shall be
entitled to a certificate signed by, or in the name of the Corporation by, the
Chairman of the Board, Chief Executive Officer or a Vice President, and by the
Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer,
certifying the number of shares owned by him or her. Any or all of the
signatures on the certificate may be by facsimile.
SECTION 7.2 Stock List. A complete list of stockholders
entitled to vote at any meeting of stockholders, arranged in alphabetical order
for each class of stock and showing the address of each such stockholder and the
number of shares of the Corporation, and the number of Membership Units in the
Operating Company, which are registered in such stockholder's name, shall be
maintained by the Corporation and open to the examination of any such
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or if not so specified, at the place
where the meeting is to be held. The Corporation shall cause the Operating
Company to provide complete, current and accurate records of the holdings of
Membership Units in the Operating Company to be made available to the
Corporation at all times to be used for the purposes of maintaining the
above-described stock list.
The stock list shall also be kept at the place of the meeting
during the whole time thereof and shall be open to the examination of any such
stockholder who is present. This list shall presumptively determine the identity
of the stockholders entitled to vote at the meeting and the number of shares
held by each of them.
SECTION 7.3 Transfers of Stock. Transfers of stock shall be
made only upon the transfer books of the Corporation kept at an office of the
Corporation or by transfer agents designated to transfer shares of the stock of
the Corporation. Except where a certificate is issued
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in accordance with Section 7.5 of these By-laws, an outstanding certificate for
the number of shares involved shall be surrendered for cancellation before a new
certificate is issued therefor.
SECTION 7.4 Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders, or to receive payment of any dividend or other distribution or
allotment of any rights or to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
the Board may fix a record date, which record date shall not precede the date on
which the resolution fixing the record date is adopted and which record date
shall not be more than sixty (60) nor less than ten (10) days before the date of
any meeting of stockholders, nor more than sixty (60) days prior to the time for
such other action as hereinbefore described; provided, however, that if no
record date is fixed by the Board, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the day next preceding the day
on which the meeting is held, and, for determining stockholders entitled to
receive payment of any dividend or other distribution or allotment of rights or
to exercise any rights of change, conversion or exchange of stock or for any
other purpose, the record date shall be at the close of business on the day on
which the Board adopts a resolution relating thereto.
A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board may fix a new record date for the
adjourned meeting.
In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
may fix a record date, which shall not precede the date upon which the
resolution fixing the record date is adopted by the Board, and which record date
shall be not more than ten (10) days after the date upon which the resolution
fixing the record date is adopted. Any stockholder of record seeking to have the
stockholders authorize or take corporate action by written consent shall, by
written notice to the Secretary of the Corporation, request the Board to fix a
record date. The Board shall promptly, but in all events within 10 (ten) days
after the date on which such a request is received, adopt a resolution fixing
the record date. If no record date has been fixed by the Board and no prior
action by the Board is required by the Delaware General Corporation Law, the
record date shall be the first date on which a signed written consent setting
forth the action taken or proposed to be taken is delivered to the Corporation
in the manner prescribed by Section 2.10 hereof. If no record date has been
fixed by the Board and prior action by the Board is required by the Delaware
General Corporation Law with respect to the proposed action by written consent
of the stockholders, the record date for determining stockholders entitled to
consent to corporate action in writing shall be at the close of business on the
day on which the Board adopts the resolution taking such prior action.
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SECTION 7.5 Lost, Stolen or Destroyed Certificates. In the
event of the loss, theft or destruction of any certificate of stock, another may
be issued in its place pursuant to such regulations as the Board may establish
concerning proof of such loss, theft or destruction and concerning the giving of
satisfactory bond or bonds of indemnity.
SECTION 7.6 Regulations. The issue, transfer, conversion and
registration of certificates of stock shall be governed by such other
regulations as the Board may establish.
ARTICLE VIII.
NOTICES
SECTION 8.1 Notices. Except as otherwise specifically provided
herein or required by law, all notices required to be given to any stockholder,
director, officer, employee or agent shall be in writing and may in every
instance be effectively given by hand delivery to the recipient thereof, by
depositing such notice in the mails, postage paid, or with a recognized
overnight delivery service or by sending such notice by prepaid telegram,
mailgram or by facsimile transmission. Any such notice shall be addressed to
such stockholder, director, officer, employee or agent at such person's last
known address as the same appears on the books of the Corporation. The time when
such notice is received, if hand delivered, or dispatched, if delivered through
the mails or by overnight delivery service, or by telegram, mailgram or
facsimile, shall be the time of the giving of the notice.
SECTION 8.2 Waivers. A written waiver of any notice, signed by
a stockholder, director, officer, employee or agent, whether before or after the
time of the event for which notice is to be given, shall be deemed equivalent to
the notice required to be given to such stockholder, director, officer, employee
or agent. Neither the business nor the purpose of any meeting need be specified
in such a waiver.
ARTICLE IX.
MISCELLANEOUS
SECTION 9.1 Facsimile Signatures. In addition to the
provisions for use of facsimile signatures elsewhere specifically authorized in
these By-laws, facsimile signatures of any officer or officers of the
Corporation may be used whenever and as authorized by the Board or a committee
thereof.
SECTION 9.2 Corporate Seal. The Board may provide a suitable
seal, containing the name of the Corporation, which seal shall be in the charge
of the Secretary of the Corporation. If and when so directed by the Board or a
committee thereof, duplicates of the seal
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may be kept and used by the Corporation's Treasurer or by an Assistant Secretary
or Assistant Treasurer.
SECTION 9.3 Reliance Upon Books, Reports and Records. Each
director, each member of any committee designated by the Board, and each officer
of the Corporation shall, in the performance of his or her duties, be fully
protected in relying in good faith upon the books of account or other records of
the Corporation and upon such information, opinions, reports or statements
presented to the Corporation by any of its officers or employees, or committees
of the Board so designated, or by any other person as to matters which such
director or committee member reasonably believes are within such other person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Corporation.
SECTION 9.4 Fiscal Year. The fiscal year of the
Corporation shall be as fixed by the Board.
SECTION 9.5 Time Periods. In applying any provision of these
By-laws which requires that an act be done or not be done a specified number of
days prior to an event or that an act be done during a period of a specified
number of days prior to an event, calendar days shall be used, the day of the
doing of the act shall be excluded, and the day of the event shall be included.
ARTICLE X.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 10.1 Right to Indemnification. Each person who was or
is made a party or is threatened to be made a party to or is otherwise involved
in any action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter, a "proceeding"), by reason of the fact that he or
she is or was a director or an officer of the Corporation or is or was serving
at the request of the Corporation as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan
(hereinafter, an "indemnitee"), whether the basis of such proceeding is alleged
action in an official capacity as a director, officer, employee or agent or in
any other capacity while serving as a director, officer, employee or agent,
shall be indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than such law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by such indemnitee in connection
therewith; provided, however, that, except as provided in Section 10.3 hereof
with respect to proceedings to enforce rights to indemnification, the
Corporation shall indemnify any such indemnitee in connection with a proceeding
(or part
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thereof) initiated by such indemnitee only if such proceeding (or part thereof)
was authorized by the Board.
SECTION 10.2 Right to Advancement of Expenses. The right to
indemnification conferred in Section 10.1 hereof shall include the right to be
paid by the Corporation the expenses (including attorneys' fees) incurred in
defending any such proceeding in advance of its final disposition (hereinafter,
an "advancement of expenses"); provided, however, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an indemnitee
in his or her capacity as a director or officer (and not in any other capacity
in which service was or is rendered by such indemnitee, including, without
limitation, service to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking (hereinafter, an "undertaking"),
by or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter, a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Section 10.2 or otherwise. The rights to indemnification and to the advancement
of expenses conferred in Sections 10.1 and 10.2 hereof shall be contract rights
and such rights shall continue as to an indemnitee who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators.
SECTION 10.3 Right of Indemnitee to Bring Suit. If a claim
under Section 10.1 or 10.2 hereof is not paid in full by the Corporation within
sixty (60) days after a written claim has been received by the Corporation,
except in the case of a claim for an advancement of expenses, in which case the
applicable period shall be twenty (20) days, the indemnitee may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim. If successful in whole or in part in any such suit, or in a suit
brought by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the indemnitee shall be entitled to be paid also the
expense of prosecuting or defending such suit. In (i) any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not in a suit
brought by the indemnitee to enforce a right to an advancement of expenses) it
shall be a defense that, and (ii) any suit brought by the Corporation to recover
an advancement of expenses pursuant to the terms of an undertaking, the
Corporation shall be entitled to recover such expenses upon a final adjudication
that, the indemnitee has not met any applicable standard for indemnification set
forth in the Delaware General Corporation Law. Neither the failure of the
Corporation (including its Board, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a
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right to indemnification or to an advancement of expenses hereunder, or brought
by the Corporation to recover an advancement of expenses pursuant to the terms
of an undertaking, the burden of proving that the indemnitee is not entitled to
be indemnified, or to such advancement of expenses, under this Article X or
otherwise shall be on the Corporation.
SECTION 10.4 Non-Exclusivity of Rights. The rights to
indemnification and to the advancement of expenses conferred in this Article X
shall not be exclusive of any other right which any person may have or hereafter
acquire by any statute, the Corporation's Certificate of Incorporation or
By-laws, agreement, vote of stockholders or disinterested directors or
otherwise.
SECTION 10.5 Insurance. The Corporation may maintain
insurance, at its expense, to protect itself and any director, officer, employee
or agent of the Corporation or another corporation, partnership, joint venture,
trust or other enterprise against any expense, liability or loss, whether or not
the Corporation would have the power to indemnify such person against such
expense, liability or loss under the Delaware General Corporation Law.
SECTION 10.6 Indemnification of Employees and Agents of the
Corporation. The Corporation may, to the extent authorized from time to time by
the Board, grant rights to indemnification and to the advancement of expenses to
any employee or agent of the Corporation to the fullest extent of the provisions
of this Article X with respect to the indemnification and advancement of
expenses of directors and officers of the Corporation.
ARTICLE XI.
AMENDMENTS
Subject to the approval procedures in Section 4.1 hereof, the
Board may from time to time make, amend, supplement or repeal these By-laws by
vote of a majority of the Board; provided, however, that the stockholders may
change or amend or repeal any provision of these By-laws by each of: (a) the
affirmative vote of the holders of a majority of the Voting Stock, voting as one
class; (b) if a Class B Director is then entitled to be a member of the Special
Committee, by the affirmative vote of the holders of a majority of the Class B
Common Stock, voting separately as a class; and (c) if a Class C Director is
then entitled to be a member of the Special Committee, by the affirmative vote
of the holders of a majority of the Class C Common Stock, voting separately as a
class. In addition to and not in limitation of the foregoing, these By-laws or
any of them may be amended or supplemented in any respect at any time, either:
(i) at any meeting of stockholders, provided that any amendment or supplement
proposed to be acted upon at any such meeting shall have been described or
referred to in the notice of such meeting; or (ii) at any meeting of the Board,
provided that any amendment or supplement proposed to be acted upon at any such
meeting shall have been described or referred to in the notice of such meeting
or an announcement with respect thereto shall have been made at the last
previous Board
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meeting, and provided further that no amendment or supplement adopted by the
Board shall vary or conflict with any amendment or supplement adopted by the
stockholders.
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SCHEDULE 3.1(b)
ACTIONS REQUIRING BOARD APPROVAL
(Except as indicated below, capitalized terms used and not defined in this
Schedule shall have the respective meanings ascribed thereto in the By-laws
to which this Schedule is attached.)
1. Any amendment, change or other modification or restatement of the
Certificate of Incorporation or By-laws of the Corporation, the LLC
Agreement, or similar constitutive documents of any other Subsidiary;
or the merger, consolidation, dissolution or liquidation of the
Corporation, the Operating Company or any other Subsidiary, or any
transaction having the same effect.
2. Except pursuant to (a) incentive plans approved by the Board or (b) a
conversion or exchange right set forth in the Certificate of
Incorporation, the LLC Agreement or similar constitutive documents of
any other Subsidiary, the issuance, authorization, cancellation,
alteration, modification, redemption or any change in, of, or to, any
equity security of the Corporation or any Membership Unit (as defined
in the LLC Agreement) or other equity interest in the Operating Company
or any other Subsidiary, or any option, put, call or warrant with
respect to the foregoing.
3. The transfer or other disposition (other than inventory or obsolete
assets of the Corporation, the Operating Company or any other
Subsidiary) of, or placing any encumbrance (other than encumbrances
arising by operation of law) on, any material asset of the Corporation,
the Operating Company or any other Subsidiary, except Permitted
Encumbrances (as defined in the LLC Agreement).
4. The acquisition of any interest in, or the making of any loan or
extension of credit to, another person or entity by the Corporation,
the Operating Company or any other Subsidiary for or in an amount in
excess of $5,000,000, except for short-term cash management with
recognized money market institutions; any capital expenditure (or
series of related capital expenditures) by the Corporation, the
Operating Company or any other Subsidiary in excess of $5,000,000; or
any debt, loan or borrowing of the Corporation, the Operating Company
or any other Subsidiary (other than borrowings under revolving credit
facilities approved by the Board) exceeding $5,000,000 outstanding in
the aggregate at any time, or any revolving credit facility of the
Corporation, the Operating Company or any other Subsidiary permitting
aggregate borrowings at any one time outstanding to exceed $5,000,000.
5. Other than involving an amount below $50,000, any transaction or
agreement between the Corporation, the Operating Company or any other
Subsidiary on the one hand and either BAG, BN or their respective
Affiliates (as such terms are defined in the LLC Agreement)
<PAGE>
on the other hand, or any amendment or modification of, or waiver with
respect to, any such agreement or transaction.
6. Adoption and approval of any Business Plan for the Corporation, the
Operating Company or any other Subsidiary.
7. Adoption of any incentive or other employee benefit plan by the
Corporation, the Operating Company or any other Subsidiary or any
material amendment to any such existing plan.
8. Hiring any personnel of the Corporation, the Operating Company or any
other Subsidiary with an annual salary in excess of $250,000 or
increasing the compensation of any such personnel above $250,000.
9. Appointment or dismissal of auditors for the Corporation, the Operating
Company or any other Subsidiary.
10. The conduct by the Corporation, the Operating Company or any other
Subsidiary of any business other than the Business (as defined in the
LLC Agreement) and any ancillary or related businesses, or the
establishment of any entity (or the creation of any entity owned
jointly with any other party) by the Corporation, the Operating Company
or any other Subsidiary to conduct any business.
11. Any action by, in respect of or otherwise involving any entity in which
the Corporation, the Operating Company or any other Subsidiary has or
acquires a controlling equity interest which would require Board
approval under Section 3.1(b) if such action was by, in respect of or
otherwise involving the Corporation, the Operating Company or any other
Subsidiary, as described above.
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<PAGE>
SCHEDULE 4.1
MATTERS FOR THE SPECIAL COMMITTEE
(Except as indicated below, capitalized terms used and not defined in
this Schedule shall have the respective meanings ascribed thereto in
the By-laws to which this Schedule is attached.)
1. Any amendment, change or other modification or restatement of the
Certificate of Incorporation or By-laws of the Corporation, the LLC
Agreement or similar constitutive documents of any other Subsidiary; or
the merger, consolidation, dissolution or liquidation of the
Corporation, the Operating Company or any other Subsidiary, or any
transaction having the same effect.
2. Except pursuant to (a) incentive plans approved by the Board or (b) a
conversion or exchange right set forth in the Certificate of
Incorporation, the LLC Agreement or similar constitutive documents of
any other Subsidiary, the issuance, authorization, cancellation,
alteration, modification, redemption or any change in, of, or to, any
equity security of the Corporation or any Membership Unit (as defined
in the LLC Agreement) or other equity interest in the Operating Company
or any other Subsidiary, or any option, put, call or warrant with
respect to the foregoing.
3. The transfer or other disposition (other than inventory or obsolete
assets of the Corporation, the Operating Company or any other
Subsidiary) of, or placing any encumbrance (other than encumbrances
arising by operation of law) on, any material asset of the Corporation,
the Operating Company or any other Subsidiary, except Permitted
Encumbrances (as defined in the LLC Agreement).
4. The acquisition of any interest in, or the making of any loan or
extension of credit to, another person or entity by the Corporation,
the Operating Company or any other Subsidiary for or in an amount in
excess of $20,000,000, except for short-term cash management with
recognized money market institutions; any capital expenditure (or
series of related capital expenditures) by the Corporation, the
Operating Company or any other Subsidiary in excess of $20,000,000; or
any debt, loan or borrowing of the Corporation, the Operating Company
or any other Subsidiary (other than borrowings under revolving credit
facilities approved by the Board) exceeding $20,000,000 outstanding in
the aggregate at any time, or any revolving credit facility of the
Corporation, the Operating Company or any other Subsidiary permitting
aggregate borrowings at any one time outstanding to exceed $20,000,000.
5. The conduct by the Corporation, the Operating Company or any other
Subsidiary of any business other than the Business (as defined in the
LLC Agreement) and any ancillary or related businesses, or the
establishment of any entity (or the creation of any entity owned
<PAGE>
jointly with any other party) by the Corporation, the Operating Company
or any other Subsidiary to conduct any business.
6. Any action by, in respect of or otherwise involving any entity in which
the Corporation, the Operating Company or any other Subsidiary has or
acquires a controlling equity interest which would require Special
Committee approval under Section 4.1 if such action was by, in respect
of, or otherwise involving the Corporation, the Operating Company or
any other Subsidiary, as described above.
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<PAGE>
barnesandnoble.com inc.
1999 INCENTIVE PLAN
barnesandnoble.com inc., a corporation formed under the laws
of the State of Delaware (the "Company"), hereby establishes and adopts the
following 1999 Incentive Plan (the "Plan").
RECITALS
WHEREAS, the Company desires to encourage high levels of
performance by those individuals who are key to the success of the Company, to
attract new individuals who are highly motivated and who will contribute to the
success of the Company and to encourage such individuals to remain as directors,
officers, employees, consultants and/or advisors of the Company and its
subsidiaries and affiliates by increasing their proprietary interest in the
Company's growth and success.
WHEREAS, to attain these ends, the Company has formulated the
Plan embodied herein to authorize the granting of incentive awards through
grants of stock options ("Options"), grants of stock appreciation rights, grants
of Stock Purchase Awards (hereafter defined), and grants of Restricted Stock
Awards (hereafter defined) to those individuals whose judgment, initiative and
efforts are, have been or are expected to be responsible for the success of the
Company.
NOW, THEREFORE, the Company hereby constitutes, establishes
and adopts the following Plan and agrees to the following provisions:
ARTICLE 1.
PURPOSE OF THE PLAN
1.1. Purpose. The purpose of the Plan is to assist the
Company in attracting and retaining selected individuals to serve as directors,
officers, consultants, advisors and employees of the Company and its
subsidiaries and affiliates 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
Company's shares of Class A Common Stock, $.001 par value per share ("Shares").
Options granted under the Plan will be either "incentive stock options,"
intended to qualify as such under the provisions of Section 422 of the Internal
Revenue Code of 1986, as from time to time amended (the "Code"), or
"nonqualified stock options." For purposes of the Plan, the term "subsidiary"
shall mean "subsidiary corporation," as such term is defined in Section 424(f)
of the Code, and "affiliate" shall have the meaning set forth in Rule 12b-2 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). For
purposes of the Plan, the term "Award" shall include a grant of an Option, a
grant of a stock appreciation right, a grant of a Stock Purchase Award, a grant
of a Restricted Stock Award, or any other award made under the terms of the
Plan.
<PAGE>
ARTICLE 2.
SHARES SUBJECT TO AWARDS
2.1. Number of Shares. Subject to the adjustment provisions
of Section 9.10 hereof, the aggregate number of Shares which may be issued under
Awards under the Plan, whether pursuant to Options, stock appreciation rights,
Stock Purchase Awards or Restricted Stock Awards shall not exceed twenty-two
million (22,000,000). Options to purchase fractional Shares may be granted or
issued under the Plan. For purposes of this Section 2.1, the Shares that shall
be counted toward such limitation shall include all Shares:
(1) issued or issuable pursuant to Options that have been or
may be exercised;
(2) issued or issuable pursuant to Stock Purchase Awards; and
(3) issued as, or subject to issuance as, a Restricted Stock
Award.
2.2. Shares Subject to Terminated Awards. The Shares covered
by any unexercised portions of terminated Options granted under Articles 4 and
6, Shares forfeited as provided in Section 8.2(a) and Shares subject to any
Awards which are otherwise surrendered by the Participant without receiving any
payment or other benefit with respect thereto may again be subject to new Awards
under the 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 Plan. Shares subject to Options, or portions thereof,
which have been surrendered in connection with the exercise of stock
appreciation rights shall not again be available for the grant of Awards under
the Plan.
2.3. Character of Shares. Shares delivered under the Plan
may be authorized and unissued Shares or Shares acquired by the Company, or
both.
2.4. Limitations on Grants to Individual Participant.
Subject to adjustments pursuant to the provisions of Section 9.10 hereof, the
number of Shares which may be granted hereunder to any employee during any
fiscal year under all forms of Awards shall not exceed six million (6,000,000)
Shares. If an Option is canceled, the canceled Option shall continue to be
counted toward the six million Share limit for the year granted. An Option (or a
stock appreciation right) that is repriced during any fiscal year is treated as
the cancellation of the Option (or stock appreciation right) and a grant of a
new Option (or stock appreciation right), both of which shall be counted toward
the six million Share limit for that fiscal year.
ARTICLE 3.
ELIGIBILITY AND ADMINISTRATION
3.1. Awards to Employees and Directors. (a) Participants who
receive (i) Options under Articles 4 and 6 hereof or stock appreciation rights
under Article 5 ("Optionees"), and (ii) Stock Purchase Awards under Article 7 or
Restricted Stock Awards under Article 8 (in either case, a "Participant"), shall
consist of such key officers, employees, consultants, advisors and directors of
the Company or any of its subsidiaries or affiliates as the Committee shall
select from time to time, provided, however, that an Option that is intended to
qualify as an "incentive stock option" may be granted only to an individual that
is an employee of the Company or any of its subsidiaries. The Committee's
designation of an Optionee or Participant in any year shall not require the
Committee to designate such
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<PAGE>
person to receive Awards or grants in any other year. The designation of an
Optionee or Participant to receive Awards or grants under one portion of the
Plan shall not require the Committee to include such Optionee or Participant
under other portions of the Plan.
(b) No Option which is intended to qualify as an "incentive
stock option" may be granted to any employee who, at the time of such grant,
owns, directly or indirectly (within the meaning of sections 422(b)(6) and
424(d) of the Code), shares of stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or any of
its subsidiaries or affiliates, unless at the time of such grant, (i) the option
price is fixed at not less than 110% of the Fair Market Value (as defined below)
of the Shares subject to such Option, determined on the date of the grant, and
(ii) the exercise of such Option is prohibited by its terms after the expiration
of five years from the date such Option is granted.
3.2. Administration. (a) The Plan shall be administered by a
committee (the "Committee") consisting of not fewer than two directors of the
Company (the directors of the Company being hereinafter referred to as the
"Directors"), as designated by the Directors. The Directors may remove from, add
members to, or fill vacancies in the Committee. Each member of the Committee
shall be a "Non-Employee Director" within the meaning of Rule 16b-3(b)(3)(i) of
the Exchange Act and an "outside director" within the meaning of Section
162(m)(4)(C)(i) of the Code, except that if the Directors determine that (i) the
Plan cannot or need not satisfy the requirements of Rule 16b-3 of the Exchange
Act (such that grants of Awards are not or need not be exempt from Section 16(b)
of the Exchange Act), then there may be less than two members of the Committee
and the members of the Committee need not be "Non-Employee Directors" or (ii)
they no longer want the Plan to comply with the requirements of Code Section
162(m) and the regulations thereunder or the Plan need not comply with such
requirements, then there may be less than two members of the Committee and the
members of the Committee need not be "outside directors."
(b) The Committee is authorized, subject to the provisions of
the Plan, to establish such rules and regulations as it may deem appropriate for
the conduct of meetings and proper administration of the Plan. All actions of
the Committee shall be taken by majority vote of its members.
(c) Subject to the provisions of the Plan, the Committee
shall have authority, in its sole discretion, to grant Awards under the Plan, to
interpret the provisions of the Plan and, subject to the requirements of
applicable law, including (if applicable) Rule 16b-3 of the Exchange Act, to
prescribe, amend, and rescind rules and regulations relating to the Plan or any
Award thereunder as it may deem necessary or advisable. All decisions made by
the Committee pursuant to the provisions of the Plan shall be final, conclusive
and binding on all persons, including the Company, its stockholders, Directors
and employees, and other Plan participants.
ARTICLE 4.
OPTIONS
4.1. Grant of Options. The Committee shall determine, within
the limitations of the Plan, those key individuals and the Directors and
employees of the Company and its subsidiaries and affiliates to whom Options are
to be granted under the Plan, the number of Shares that may be purchased under
each such Option and the option price, and shall designate such Options at the
time of the grant as either "incentive stock options" or "nonqualified stock
options"; provided, however, that Options granted to employees of an affiliate
(that is not also a subsidiary) or to non-employees of the Company may only be
"nonqualified stock options."
4.2. Stock Option Agreements; etc. All Options granted
pursuant to Article 4 and Article 6 herein (a) shall be authorized by the
Committee and (b) shall be evidenced in writing by stock option agreements
("Stock Option Agreements") in such form and containing such terms and
conditions as the Committee shall determine which are not inconsistent with the
provisions of the Plan, and, with respect to any Stock Option Agreement granting
Options which are intended to qualify as "incentive stock options," are not
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<PAGE>
inconsistent with Section 422 of the Code. Granting of an Option pursuant to the
Plan shall impose no obligation on the recipient to exercise such option. Any
individual who is granted an Option pursuant to this Article 4 and Article 6
herein may hold more than one Option granted pursuant to such Articles at the
same time and may hold both "incentive stock options" and "nonqualified stock
options" at the same time. To the extent that any Option does not qualify as an
"incentive stock option" (whether because of its provisions, the time or manner
of its exercise or otherwise) such Option or the portion thereof which does not
so qualify shall constitute a separate "nonqualified stock option."
4.3. Option Price. Subject to Section 3.1(b), the option
price per each Share purchasable under any "incentive stock option" granted
pursuant to this Article 4 and any "nonqualified stock option" granted pursuant
to Article 6 herein shall not be less than 100% of the Fair Market Value (as
hereinafter defined) of such Share on the date of the grant of such Option. The
option price per each Share purchasable under any "nonqualified stock option"
granted pursuant to this Article 4 shall be such amount as the Committee shall
determine at the time of the grant of such Option.
4.4. Conditions. Certain Options to be granted under the
Plan (the "Replacement Options") are intended to provide Optionees with options
that are the economic equivalent of options received by such Optionees between
November 1, 1998 and the date of the adoption of this Plan from
barnesandnoble.com llc (collectively, the "Prior Options"). Any Replacement
Option shall be in lieu of, and shall replace in its entirety, the equivalent
Prior Option, which Prior Option shall be null and void and of no further force
or effect, and any Stock Option Agreement granting any Replacement Option shall
so provide.
4.5. Other Provisions. Options granted pursuant to this
Article 4 shall be made in accordance with the terms and provisions of Article 9
hereof and any other applicable terms and provisions of the Plan.
ARTICLE 5.
STOCK APPRECIATION RIGHTS
5.1. Grant and Exercise. Stock appreciation rights may be
granted in conjunction with all or part of any Option granted under the Plan
provided such rights are granted at the time of the grant of such Option. A
"stock appreciation right" is a right to receive cash or Shares, as provided in
this Article 5, in lieu of the purchase of a Share under a related Option. A
stock appreciation right or applicable portion thereof shall terminate and no
longer be exercisable upon the termination or exercise of the related Option,
and a stock appreciation right granted with respect to less than the full number
of Shares covered by a related Option shall not be reduced until, and then only
to the extent that, the exercise or termination of the related Option exceeds
the number of Shares not covered by the stock appreciation right. A stock
appreciation right may be exercised by the holder thereof (the "Holder"), in
accordance with Section 5.2 of this Article 5, by giving written notice thereof
to the Company and surrendering the applicable portion of the related Option.
Upon giving such notice and surrender, the Holder shall be entitled to receive
an amount determined in the manner prescribed in Section 5.2 of this Article 5.
Options which have been so surrendered, in whole or in part, shall no longer be
exercisable to the extent the related stock appreciation rights have been
exercised.
5.2. Terms and Conditions. Stock appreciation rights shall
be subject to such terms and conditions, not inconsistent with the provisions of
the Plan, as shall be determined from time to time by the Committee, including
the following:
(a) Stock appreciation rights shall be exercisable only at
such time or times and to the extent that the Options to which they
relate shall be exercisable in accordance with the provisions of the
Plan.
(b) Upon the exercise of a stock appreciation right, a
Holder shall be entitled to receive up to, but no more than, an amount
in cash or whole Shares equal to the excess of the then Fair Market
Value of one Share over the option
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<PAGE>
price per Share specified in the related Option multiplied by the
number of Shares in respect of which the stock appreciation right shall
have been exercised. The Holder shall specify in his written notice of
exercise, whether payment shall be made in cash or in whole Shares.
Each stock appreciation right may be exercised only at the time and so
long as a related Option, if any, would be exercisable or as otherwise
permitted by applicable law.
(c) Upon the exercise of a stock appreciation right, the
Option or part thereof to which such stock appreciation right is
related shall be deemed to have been exercised for the purpose of the
limitation of the number of Shares to be issued under the Plan, as set
forth in Section 2.1 of the Plan.
(d) With respect to stock appreciation rights granted
in connection with an Option that is intended to be an "incentive stock
option", the following shall apply: (i) no stock appreciation right
shall be transferable by a Holder otherwise than by will or by the laws
of descent and distribution, and stock appreciation rights shall be
exercisable, during the Holder's lifetime, only by the Holder; and (ii)
stock appreciation rights granted in connection with an Option may be
exercised only when the Fair Market Value of the Shares subject to the
Option exceeds the option price at which Shares can be acquired
pursuant to the Option.
ARTICLE 6.
RELOAD OPTIONS
6.1. Authorization of Reload Options. Concurrently with the
award of any Option (such Option hereinafter referred to as the "Underlying
Option") to any participant in the Plan, the Committee may grant a reload option
(a "Reload Option") to such participant to purchase for cash or Shares a number
of Shares as specified below. A Reload Option shall be exercisable for an amount
of Shares equal to (i) the number of Shares delivered by the Optionee to the
Company to exercise the Underlying Option, and (ii) to the extent authorized by
the Committee, the number of Shares used to satisfy any tax withholding
requirement incident to the exercise of the Underlying Option, subject to the
availability of Shares under the Plan at the time of such exercise. The grant of
a Reload Option shall become effective upon the exercise of an Underlying Option
by delivering to the Company Shares held by the Optionee for at least six
months. Notwithstanding the fact that the Underlying Option may be an "incentive
stock option," a Reload Option is not intended to qualify as an "incentive stock
option" under Section 422 of the Code.
6.2. Reload Option Amendment. Each Stock Option Agreement
shall state whether the Committee has authorized Reload Options with respect to
the Underlying Option. Upon the exercise of an Underlying Option, the Reload
Option will be evidenced by an amendment to the underlying Stock Option
Agreement.
6.3. Reload Option Price. The option price per Share
deliverable upon the exercise of a Reload Option shall be the Fair Market Value
of a Share on the date the grant of the Reload Option becomes effective.
6.4. Term and Exercise. Each Reload Option is fully
exercisable six months from the effective date of grant. The term of each Reload
Option shall be equal to the remaining option term of the Underlying Option.
6.5. Termination of Employment. No Reload Option shall be
granted to an Optionee when Options are exercised pursuant to the terms of this
Plan following termination of the Optionee's employment, unless the Committee,
in its sole discretion, shall determine otherwise.
6.6. Applicability of Other Sections. Except as otherwise
provided in this Article 6, the provisions of Article 9 applicable to Options
shall apply equally to Reload Options.
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<PAGE>
ARTICLE 7.
STOCK PURCHASE AWARDS
7.1. Grant of Stock Purchase Awards. The term "Stock
Purchase Award" means the right to purchase Shares of the Company and to pay for
such Shares through a loan made by the Company to an employee (a "Purchase
Loan") as set forth in this Article 7.
7.2. Terms of Purchase Loans. (a) Purchase Loan. Each
Purchase Loan shall be evidenced by a promissory note. The term of the Purchase
Loan shall be a period of years, as determined by the Committee, and the
proceeds of the Purchase Loan shall be used exclusively by the Participant for
purchase of Shares from the Company at a purchase price equal to their Fair
Market Value on the date of the Stock Purchase Award.
(b) Interest on Purchase Loan. A Purchase Loan shall be
non-interest bearing or shall bear interest at whatever rate the Committee shall
determine (but not in excess of the maximum rate permissible under applicable
law), payable in a manner and at such times as the Committee shall determine.
Those terms and provisions as the Committee shall determine shall be
incorporated into the promissory note evidencing the Purchase Loan.
(c) Forgiveness of Purchase Loan. Subject to Section 7.4
hereof, the Company may forgive the repayment of up to 100% of the principal
amount of the Purchase Loan, subject to such terms and conditions as the
Committee shall determine and set forth in the promissory note evidencing the
Purchase Loan. A Participant's Purchase Loan can be prepaid at any time, and
from time to time, without penalty.
7.3. Security for Loans. (a) Stock Power and Pledge.
Purchase Loans granted to Participants shall be secured by a pledge of the
Shares acquired pursuant to the Stock Purchase Award. Such pledge shall be
evidenced by a pledge agreement (the "Pledge Agreement") containing such terms
and conditions as the Committee shall determine. Purchase Loans shall be
recourse or non-recourse with respect to a Participant, as determined from time
to time by the Committee. The share certificates for the Shares purchased by a
Participant pursuant to a Stock Purchase Award shall be issued in the
Participant's name, but shall be held by the Company as security for repayment
of the Participant's Purchase Loan together with a stock power executed in blank
by the Participant (the execution and delivery of which by the Participant shall
be a condition to the issuance of the Stock Purchase Award). The Participant
shall be entitled to exercise all rights applicable to such Shares, including,
but not limited to, the right to vote such Shares and the right to receive
dividends and other distributions made with respect to such Shares. When the
Purchase Loan and any accrued but unpaid interest thereon has been repaid or
otherwise satisfied in full, the Company shall deliver to the Participant the
share certificates for the Shares purchased by a Participant under the Stock
Purchase Award.
(b) Release and Delivery of Share Certificates During the
Term of the Purchase Loan. The Company shall release and deliver to each
Participant certificates for Shares purchased by a Participant pursuant to a
Stock Purchase Award, in such amounts and on such terms and conditions as the
Committee shall determine, which shall be set forth in the Pledge Agreement.
(c) Release and Delivery of Share Certificates Upon Repayment
of the Purchase Loan. The Company shall release and deliver to each Participant
certificates for the Shares purchased by the Participant under the Stock
Purchase Award and then held by the Company, provided the Participant has paid
or otherwise satisfied in full the balance of the Purchase Loan and any accrued
but unpaid interest thereon. In the event the balance of the Purchase Loan is
not repaid, forgiven or otherwise satisfied within 90 days after (i) the date
repayment of the Purchase Loan is due (whether in accordance with its term, by
reason of
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acceleration or otherwise), or (ii) such longer time as the Committee,
in its discretion, shall provide for repayment or satisfaction, the Company
shall retain those Shares then held by the Company in accordance with the Pledge
Agreement.
(d) Recourse Purchase Loans. Notwithstanding Sections 7.3(a),
(b) and (c) above, in the case of a recourse Purchase Loan, the Committee may
make a Purchase Loan on such terms as it determines, including without
limitation not requiring a pledge of the acquired shares.
7.4. Termination of Employment. (a) Termination of
Employment by Death, Disability or by the Company Without Cause; Change of
Control. In the event of a Participant's termination of employment by reason of
death, "disability" or by the Company without "cause," or in the event of a
"change of control," the Committee shall have the right (but shall not be
required) to forgive the remaining unpaid amount (principal and interest) of the
Purchase Loan in whole or in part as of the date of such occurrence. "Change of
Control," "disability" and "cause" shall have the respective meanings as set
forth in the promissory note evidencing the Purchase Loan.
(b) Termination of Employment by Voluntary Resignation.
Subject to Section 7.4(a) above, in the event of a Participant's termination of
employment for any reason, the Participant shall repay to the Company the entire
balance of the Purchase Loan and any accrued but unpaid interest thereon, which
amounts shall become immediately due and payable, unless otherwise determined by
the Committee.
7.5. Restrictions on Transfer. No Stock Purchase Award or
Shares purchased through such an Award and pledged to the Company as collateral
security for the Participant's Purchase Loan (and accrued and unpaid interest
thereon) may be otherwise pledged, sold, assigned or transferred (other than by
will or by the laws of descent and distribution).
ARTICLE 8.
RESTRICTED STOCK AWARDS
8.1. Restricted Stock Awards. (a) Grant. A grant of Shares
made pursuant to this Article 8 is referred to as a "Restricted Stock Award."
The Committee may grant to any employee an amount of Shares in such manner, and
subject to such terms and conditions relating to vesting, forfeitability and
restrictions on delivery and transfer (whether based on performance standards,
periods of service or otherwise) as the Committee shall establish (such Shares,
"Restricted Shares"). The terms of any Restricted Stock Award granted under this
Plan shall be set forth in a written agreement (a "Restricted Stock Agreement")
which shall contain provisions determined by the Committee and not inconsistent
with this Plan. The provisions of Restricted Stock Awards need not be the same
for each Participant receiving such Awards.
(b) Issuance of Restricted Shares. As soon as practicable
after the date of grant of a Restricted Stock Award by the Committee, the
Company shall cause to be transferred on the books of the Company, Shares
registered in the name of the Company, as nominee for the Participant,
evidencing the Restricted Shares covered by the Award; provided, however, such
Shares shall be subject to forfeiture to the Company retroactive to the date of
grant, if a Restricted Stock Agreement delivered to the Participant by the
Company with respect to the Restricted Shares covered by the Award is not duly
executed by the Participant and timely returned to the Company. All Restricted
Shares covered by Awards under this Article 8 shall be subject to the
restrictions, terms and conditions contained in the Plan and the Restricted
Stock Agreement entered into by and between the Company and the Participant.
Until the lapse or release of all restrictions applicable to an Award of
Restricted Shares, the share certificates representing such Restricted Shares
shall be held in custody by the Company or its designee.
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(c) Stockholder Rights. Beginning on the date of grant of
the Restricted Stock Award and subject to execution of the Restricted Stock
Agreement as provided in Sections 8.1(a) and (b), the Participant shall become a
stockholder of the Company with respect to all Shares subject to the Restricted
Stock Agreement and shall have all of the rights of a stockholder, including,
but not limited to, the right to vote such Shares and the right to receive
distributions made with respect to such Shares; provided, however, that any
Shares distributed as a dividend or otherwise with respect to any Restricted
Shares as to which the restrictions have not yet lapsed shall be subject to the
same restrictions as such Restricted Shares and shall be represented by book
entry and held as prescribed in Section 8.1(b).
(d) Restriction on Transferability. None of the Restricted
Shares may be assigned or transferred (other than by will or the laws of descent
and distribution), pledged or sold prior to lapse or release of the restrictions
applicable thereto.
(e) Delivery of Shares Upon Release of Restrictions. Upon
expiration or earlier termination of the forfeiture period without a forfeiture
and the satisfaction of or release from any other conditions prescribed by the
Committee, the restrictions applicable to the Restricted Shares shall lapse. As
promptly as administratively feasible thereafter, subject to the requirements of
Section 10.1, the Company shall deliver to the Participant or, in case of the
Participant's death, to the Participant's beneficiary, one or more stock
certificates for the appropriate number of Shares, free of all such
restrictions, except for any restrictions that may be imposed by law.
8.2. Terms of Restricted Shares. (a) Forfeiture of
Restricted Shares. Subject to Section 8.2(b), all Restricted Shares shall be
forfeited and returned to the Company and all rights of the Participant with
respect to such Restricted Shares shall terminate unless the Participant
continues in the service of the Company as an employee until the expiration of
the forfeiture period for such Restricted Shares and satisfies any and all other
conditions set forth in the Restricted Stock Agreement. The Committee in its
sole discretion, shall determine the forfeiture period (which may, but need not,
lapse in installments) and any other terms and conditions applicable with
respect to any Restricted Stock Award.
(b) Waiver of Forfeiture Period. Notwithstanding anything
contained in this Article 8 to the contrary, the Committee may, in its sole
discretion, waive the forfeiture period and any other conditions set forth in
any Restricted Stock Agreement under appropriate circumstances (including the
death, disability or retirement of the Participant or a material change in
circumstances arising after the date of an Award) and subject to such terms and
conditions (including forfeiture of a proportionate number of the Restricted
Shares) as the Committee shall deem appropriate.
ARTICLE 9.
GENERALLY APPLICABLE PROVISIONS
9.1. Option Period. Subject to Section 3.1(b), the period
for which an Option is exercisable shall not exceed ten years from the date such
Option is granted, provided, however, in the case of an Option that is not
intended to be an "incentive stock option," the Committee may prescribe a period
in excess of ten years. After the Option is granted, the option period may not
be reduced.
9.2. Fair Market Value. If the Shares are listed or admitted
to trading on a securities exchange registered under the Exchange Act, the "Fair
Market Value" of a Share as of a specified date shall mean the per Share closing
price of the Shares for the day immediately preceding the date as of which Fair
Market Value is being determined (or if there was no reported closing price on
such date, on the last preceding date on which the closing price was reported)
reported on the principal securities exchange on which the Shares are listed or
admitted to trading. If the Shares are not listed or admitted to trading on any
such exchange but are listed as a national market security on the National
Association of Securities Dealers, Inc. Automated Quotations System ("NASDAQ"),
traded in the over-the-counter
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market or listed or traded on any similar system then in use, the Fair Market
Value of a Share shall be the last sales price for the day immediately preceding
the date as of which the Fair Market Value is being determined (or if there was
no reported sale on such date, on the last preceding date on which any reported
sale occurred) reported on such system. If the Shares are not listed or admitted
to trading on any such exchange, are not listed as a national market security on
NASDAQ and are not traded in the over-the-counter market or listed or traded on
any similar system then in use, but are quoted on NASDAQ or any similar system
then in use, the Fair Market Value of a Share shall be the average of the
closing high bid and low asked quotations on such system for the Shares on the
date in question. If the Shares are not publicly traded, Fair Market Value shall
be determined by the Committee in its sole discretion using appropriate
criteria, including without limitation the respective values of other companies
comparable to the Company in terms of product lines, markets, profitability,
growth rates, and other considerations. The Committee may, in its sole
discretion, seek the advice of outside experts in connection with any such
determination. An Option shall be considered granted on the date the Committee
acts to grant the Option or such later date as the Committee shall specify.
9.3. Exercise of Options. Options granted under the Plan
shall be exercised by the Optionee thereof (or by his executors, administrators,
guardian or legal representative, as provided in Sections 9.6 and 9.7 hereof) as
to all or part of the Shares covered thereby, by the giving of written notice of
exercise to the Company, specifying the number of Shares to be purchased,
accompanied by payment of the full purchase price for the Shares being
purchased. Full payment of such purchase price shall be made within five (5)
business days following the date of exercise and shall be made (i) in cash or by
certified check or bank check, (ii) with the consent of the Committee, by
delivery of a promissory note in favor of the Company upon such terms and
conditions as determined by the Committee, (iii) with the consent of Committee,
by tendering previously acquired Shares (valued at its Fair Market Value, as
determined by the Committee as of the date of tender), or (iv) with the consent
of the Committee, any combination of (i), (ii) and (iii); provided, however,
that payment may not be pursuant to (iii) above unless the Optionee shall have
owned the Shares being tendered in payment for a period of at least six months
prior to the date of exercise of the Option. In connection with a tender of
previously acquired Shares pursuant to clause (iii) above, the Committee, in its
sole discretion, may permit the Optionee to constructively exchange Shares
already owned by the Optionee in lieu of actually tendering such Shares to the
Company, provided that adequate documentation concerning the ownership of the
Shares to be constructively tendered is furnished in form satisfactory to the
Committee. The notice of exercise, accompanied by such payment, shall be
delivered to the Company at its principal business office or such other office
as the Committee may from time to time direct, and shall be in such form,
containing such further provisions consistent with the provisions of the Plan,
as the Committee may from time to time prescribe. In no event may any Option
granted hereunder be exercised for a fraction of a Share. The Company shall
effect the transfer of Shares purchased pursuant to an Option as soon as
practicable, and, within a reasonable time thereafter, such transfer shall be
evidenced on the books of the Company. No person exercising an Option shall have
any of the rights of a holder of Shares subject to an Option until certificates
for such Shares shall have been issued following the exercise of such Option. No
adjustment shall be made for cash dividends or other rights for which the record
date is prior to the date of such issuance.
9.4. Non-Transferability of Options. Except as provided in
Section 9.11, no Option shall be assignable or transferable by the Optionee,
other than by will or the laws of descent and distribution, and may be exercised
during the life of the Optionee only by the Optionee or his guardian or legal
representative.
9.5. Termination of Employment. In the event of the
termination of employment of an Optionee or the termination or separation from
service of an advisor or consultant or a Director (who is an Optionee) for any
reason (other than death or disability as provided below), any Option(s) granted
to such Optionee under this Plan and not previously exercised or expired shall
be deemed canceled and terminated on the day of such termination or separation,
unless the Committee decides, in its sole discretion, to extend the term of the
Option for a period not to exceed three months after the date of such
termination or separation, provided, however, that in no instance may the term
of the Option, as so extended, exceed the maximum term established pursuant to
Section 3.1(b)(ii) or 9.1 above. Notwithstanding the foregoing, in the event of
the termination or separation from service of an Optionee for any reason other
than death or disability, under conditions satisfactory to the Company, the
Committee may, in its sole discretion, allow any "nonqualified stock options"
granted to such Optionee under the Plan and not previously exercised or expired
to be exercisable for a period of time to be
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specified by the Committee, provided, however, that in no instance may the term
of the Option, as so extended, exceed the maximum term established pursuant to
Section 9.1 above.
9.6. Death. In the event an Optionee dies while employed by
the Company or any of its subsidiaries or affiliates or during his term as a
Director of the Company or any of its subsidiaries or affiliates, as the case
may be, any Option(s) granted to him not previously expired or exercised shall,
to the extent exercisable on the date of death, be exercisable by the estate of
such Optionee or by any person who acquired such Option by bequest or
inheritance, at any time within one year after the death of the Optionee, unless
earlier terminated pursuant to its terms, provided, however, that if the term of
such Option would expire by its terms within six months after the Optionee's
death, the term of such Option shall be extended until six (6) months after the
Optionee's death, provided further, however, that in no instance may the term of
the Option, as so extended, exceed the maximum term established pursuant to
Section 3.1(b)(ii) or 9.1 above.
9.7. Disability. In the event of the termination of
employment of an Optionee or the separation from service of a Director (who is
an Optionee) due to total disability, the Optionee, or his guard ian or legal
representative, shall have the unqualified right to exercise any Option(s) which
have not been previously exercised or expired and which the Optionee was
eligible to exercise as of the first date of total disability (as determined by
the Committee), at any time within one year after such termination or
separation, unless earlier terminated pursuant to its terms, provided, however,
that if the term of such Option would expire by its terms within six (6) months
after such termination or separation, the term of such Option shall be extended
until six months after such termination or separation, provided further,
however, that in no instance may the term of the Option, as so extended, exceed
the maximum term established pursuant to Section 3.1(b)(ii) or 9.1 above. The
term "total disability" shall, for purposes of this Plan, be defined in the same
manner as such term is defined in Section 22(e)(3) of the Code.
9.8. Six-Month Holding Period. Notwithstanding anything to
the contrary in the Plan, each Option (or the Shares underlying the Option)
granted to an individual who is subject to Section 16 of the Ex change Act, must
be held by such individual for a combined period of at least six (6) months from
the date the Option is granted (or until such earlier date as satisfies any
legal requirement for exemption under Rule 16b-3 of the Exchange Act and as
satisfies all other applicable law); provided that the sale, transfer or other
disposition of any Shares underlying any such Option shall be permitted within
such period to the extent the sale, transfer or other disposition is exempt
under Rule 16b-3 of the Exchange Act and all other applicable law.
9.9. Amendment and Modification of the Plan. The Board of
Directors of the Company may, from time to time, alter, amend, suspend or
terminate the Plan as it shall deem advisable, subject to any requirement for
stockholder approval imposed by applicable law or any rule of any stock exchange
or quotation system on which Shares are listed or quoted; provided that the
Board of Directors may not amend the Plan in any manner that would result in
noncompliance with Rule 16b-3 of the Exchange Act (if applicable) or any other
applicable law, except as otherwise provided in Sections 3.2 or 9.11 hereof; and
further provided that the Board of Directors may not, without the approval of
the Company's stockholders, amend the Plan to increase the number of Shares that
may be the subject of Options under the Plan (except for adjustments pursuant to
Section 9.10 hereof). In addition, no amendments to, or termination of, the Plan
shall in any way impair the rights of an Optionee or a Participant under any
Award previously granted without such Optionee's or Participant's consent.
9.10. Adjustments. In the event that the Committee shall
determine that any dividend or other distribution (whether in the form of cash,
Shares, other securities, or other property), 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 corporate transaction or event affects the Shares with respect to which
Options have been or may be issued under the Plan, such that an adjustment is
determined by the Committee to be appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available
under the Plan, then the Committee shall, in such manner as the Committee may
deem equitable, adjust any or all of (i) the number and type of Shares that
thereafter may be made the subject of Options, (ii) the number and type of
Shares subject to outstanding Options and stock appreciation rights, and (iii)
the grant or exercise price
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with respect to any Option, or, if deemed appropriate, make provision for a cash
payment to the holder of any outstanding Option; provided, in each case, that
with respect to "incentive stock options," no such adjustment shall be
authorized to the extent that such adjustment would cause such options to
violate Section 422(b) of the Code or any successor provision; and provided
further, that the number of Shares subject to any Option denominated in Shares
shall always be a whole number. In the event of any reorganization, merger,
consolidation, split-up, spin-off, or other business combination involving the
Company (collectively, a "Reorganization"), the Compensation Committee of the
Board of Directors or the Board of Directors may cause any Award outstanding as
of the effective date of the Reorganization to be canceled in consideration of a
cash payment or alternate Award made to the holder of such canceled Award equal
in value to the fair market value of such canceled Award. The determination of
fair market value shall be made by the Compensation Committee of the Board of
Directors or the Board of Directors, as the case may be, in their sole
discretion.
9.11. Other Provisions. Notwithstanding anything in this Plan
to the contrary, if the Board of Directors determine that the Plan cannot, or
that an Award need not, satisfy the requirements of Rule 16b- 3 of the Exchange
Act (such that grants of Awards are not or need not be exempt from Section 16(b)
of the Exchange Act), then the Committee shall have the authority to waive or
modify those provisions of the Plan which are intended to satisfy such Rule
16b-3 requirements. In addition, the Committee may allow an Optionee who has
been granted "nonqualified stock options" and any stock appreciation rights
granted in tandem therewith to transfer any or all of such options (along with
any tandem stock appreciation rights) to any one or more of the following
persons: (i) the spouse, parent, issue, spouse of issue, or issue of spouse
("issue" shall include all descendants whether natural or adopted) of such
Optionee; or (ii) a trust for the benefit of those persons described in clause
(i) above or for the benefit of such Optionee, or for the benefit of any such
persons and such Optionee; or (iii) any entity in which the Optionee or its
transferee is a beneficial owner; provided, however, that such transferee shall
be bound by all of the terms and conditions of this Plan and shall execute an
agreement satisfactory to the Company evidencing such obligation; and provided
further, however, that such Optionee shall remain bound by the terms and
conditions of this Plan. The Company shall cooperate with an Optionee's
transferee and the Company's transfer agent in effectuating any transfer
permitted pursuant to this Section 9.11.
ARTICLE 10.
MISCELLANEOUS
10.1. Tax Withholding. All payments or distributions made
pursuant to the Plan to an Optionee or Participant (or permitted transferee)
shall be net of any applicable federal, state and local withholding taxes
arising as a result of the grant of any Award, exercise of an Option or stock
appreciation rights or any other event occurring pursuant to this Plan. The
Company shall have the right to withhold from such Optionee or Participant (or
permitted transferee) such withholding taxes as may be required by law, or to
otherwise require the Optionee or Participant (or permitted transferee) to pay
such withholding taxes. If the Optionee or Participant (or permitted transferee)
shall fail to make such tax payments as are required, the Company or its
subsidiaries or affiliates shall, to the extent permitted by law, have the right
to deduct any such taxes from any payment of any kind otherwise due to such
Optionee or Participant (or permitted transferee) or to take such other action
as may be necessary to satisfy such withholding obligations. In satisfaction of
the requirement to pay withholding taxes, the Optionee or Participant (or
permitted transferee) may make a written election, which may be accepted or
rejected in the discretion of the Committee, to have withheld a portion of the
Shares then issuable to the Optionee (or permitted transferee) pursuant to the
Plan, having an aggregate Fair Market Value equal to the withholding taxes.
10.2. Right of Discharge Reserved. Nothing in the Plan nor
the grant of an Award hereunder shall confer upon any employee, Director or
other individual the right to continue in the employment or service of the
Company or any subsidiary or affiliate of the Company or affect any right that
the Company or any subsidiary or affiliate of the Company may have to terminate
the employment or service of (or to demote or to exclude from future Options
under the Plan) any such employee, Director or other in dividual at any time for
any reason. Except as specifically provided by the Committee, the Company shall
not be liable for the loss of existing or potential profit
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from an Award granted in the event of termination of an employment or other
relationship even if the termination is in violation of an obligation of the
Company or any subsidiary or affiliate of the Company to the employee or
Director.
10.3. Nature of Payments. All Awards made pursuant to the
Plan are in consideration of services performed or to be performed for the
Company or any subsidiary or affiliate of the Company. Any income or gain
realized pursuant to Awards under the Plan and any stock appreciation rights
constitutes a special incentive payment to the Optionee, Participant or Holder
and shall not be taken into account, to the extent permissible under applicable
law, as compensation for purposes of any of the employee benefit plans of the
Company or any subsidiary or affiliate of the Company except as may be
determined by the Committee or by the Directors or directors of the applicable
subsidiary or affiliate of the Company.
10.4. Severability. If any provision of the Plan shall be
held unlawful or otherwise invalid or unenforceable in whole or in part, such
unlawfulness, invalidity or unenforceability shall not affect any other
provision of the Plan or part thereof, each of which remain in full force and
effect. If the making of any payment or the provision of any other benefit
required under the Plan shall be held unlawful or otherwise invalid or
unenforceable, such unlawfulness, invalidity or unenforceability shall not
prevent any other payment or benefit from being made or provided under the Plan,
and if the making of any payment in full or the provision of any other benefit
required under the Plan in full would be unlawful or otherwise invalid or
unenforceable, then such unlawfulness, invalidity or unenforceability shall not
prevent such payment or benefit from being made or provided in part, to the
extent that it would not be unlawful, invalid or unenforceable, and the maximum
payment or benefit that would not be unlawful, invalid or unenforceable shall be
made or provided under the Plan.
10.5. Gender and Number; Definition of Company. In order to
shorten and to improve the understandability of the Plan document by eliminating
the repeated usage of such phrases as "his or her" and any masculine terminology
herein shall also include the feminine, and the definition of any term herein in
the singular shall also include the plural except when otherwise indicated by
the context. In addition, the term Company as used herein shall include
subsidiaries and affiliates of BarnesandNoble.com Inc. where the context makes
such inclusion appropriate.
10.6. Governing Law. The Plan and all determinations made and
actions taken thereunder, to the extent not otherwise governed by the Code or
the laws of the United States, shall be governed by the laws of the State of
Delaware and construed accordingly.
10.7. Effective Date of Plan; Termination of Plan. The Plan
shall be effective on the date of the approval of the Plan by the holders of a
majority of the shares entitled to vote at a duly constituted meeting of the
stockholders; provided, however, that the adoption of the Plan is subject to
such stockholder approval within 12 months after the date of adoption of the
Plan by the Board of Directors. The Plan shall be null and void and of no effect
if the foregoing condition is not fulfilled and in such event each Award and
related stock appreciation rights shall, notwithstanding any of the preceding
provisions of the Plan, be null and void and of no effect. Awards may be granted
under the Plan at any time and from time to time on or prior to December 31,
2008, on which date the Plan will expire except as to Awards and related stock
appreciation rights then outstanding under the Plan. Such outstanding Awards and
stock appreciation rights shall remain in effect until they have been exercised
or terminated, or have expired.
10.8. Captions. The captions in this Plan are for convenience
of reference only, and are not intended to narrow, limit or affect the substance
or interpretation of the provisions contained herein.
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CONFIDENTIAL TREATMENT REQUESTED.
Confidential portions of this document have been redacted
and have been filed with the Commission.
INTERACTIVE SERVICES AGREEMENT
This Interactive Services Agreement (this "Agreement") dated as of July 31,
1997, is by and between Lycos, Inc., a Delaware corporation ("Lycos"), having an
office at 500 Old Connecticut Path, Framingham, Massachusetts 01701-4576 and
BarnesandNoble.com, Inc. a Delaware corporation ("B&N"), having an office at 122
Fifth Avenue, New York, New York 10011.
RECITALS
WHEREAS, B&N is a retailer of books and offers books and other items for
sale through its Web service which is accessible through the URL
www.barnesandnoble.com (the "B&N Site");
WHEREAS, Lycos is the owner or licensee of certain Web services, including,
without limitation, the Lycos Catalog of the Internet, Pictures and Sounds, Top
5% Reviews and other search and content areas (collectively, the "Lycos
Services"), which are accessible through the URL www.lycos.com (the "Lycos
Site");
WHEREAS, B&N desires that Lycos integrate links from the Lycos Services and
certain other areas on the Lycos Site to the B&N Site and that Lycos performs
various search services on behalf of B&N so that users of the Lycos Services
will have access to the B&N Site through the Lycos Services;
WHEREAS, B&N and Lycos desire to enter other arrangements as more
particularly described herein.
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, B&N and Lycos hereby agree as follows:
1. Certain Definitions.
As used herein, the following terms shall have the meaning herein
ascribed:
"Lycos PowerSearch API" means the application programming interface
created and maintained by Lycos that allows B&N to create pre-defined searches
of the Lycos Catalog for the viewers of the B&N Site and insert the searches as
hypertext links into the HTML pages of the B&N Site, such that when a viewer
clicks on such link, the query is sent to Lycos and the results are sent back to
the B&N Site which displays the data in its HTML page.
"Lycos Search API" means the application programming interface created
and maintained by Lycos that allows a viewer of the B&N Site to search the Lycos
Catalog from search boxes in the HTML pages of the B&N Site, such that when a
viewer of the B&N Site enters a search query, the query is sent to Lycos, and
the results are sent back to B&N to place into the B&N Site.
<PAGE>
"Web" means the World Wide Web, a system for accessing and viewing
text, graphics, sound and other media via the collection of computer networks
known as the Internet.
"Web Search Results" means the results of a query sent to the Lycos
search engine that are then displayed in HTML format by the user of the Lycos
Search API.
2. Link to B&N Site; Search Services.
(a) Subject to the terms and conditions of this Agreement as promptly
as practicable after the date hereof and, in any event, no later than September
10, 1997 (the "Effective Date"), Lycos agrees continuously throughout the term
of this Agreement to (i) provide links to the B&N Site from selected Web pages
within the Lycos Site, including the Lycos Home Page, WebGuides and Lycos
Shopping (collectively, the "Lycos Pages"), so as to provide users of the Lycos
Site access to the B&N Site, (ii) provide links from relevant book content
related Web pages within Lycos WebGuides to relevant categories on the B&N Site;
and (iii) provide links to the B&N Site from selected Web pages within the Lycos
Search Results Pages. In addition, from time to time, during the term of this
Agreement, Lycos agrees to include links from selected Web pages within Lycos
WebGuides to pages within the Books of the Week and/or Book Review sections of
the B&N Site (all of such links referred to in the first sentence and this
sentence being referred to herein as the "B&N Links"). All B&N Links may be
modified and/or expanded from time to time throughout the term of this Agreement
pursuant to mutual agreement of the parties hereto, except that Lycos may modify
the placement of the B&N Links on the Lycos Home Page and Lycos Search Results
Pages in a manner determined by Lycos, subject to compliance with clause (b)
below. Except as described in clause (c) below, each Web page within the B&N
Site which is accessed by the B&N Links will display the look and feel of the
B&N Site area, which shall include, but not be limited to, page format,
navagational bars, colors, fonts, the B&N logo, all hyperlinks appearing on the
linked B&N Site area and, in general, the overall design of the B&N Site. To the
extent access to the B&N Site from the Lycos Site is deemed to be a
reproduction, transmission or distribution, Lycos is further granted a
worldwide, royalty-free license to use, reproduce, transmit, distribute and
publicly display the B&N Site so as to make the B&N Site available to users of
the Lycos Site via the Web; provided, however, that nothing in the preceding
clause shall be deemed to be in conflict with the Terms of Usage contained on
the B&N Site attached hereto as Exhibit A (as in effect on the date hereof), as
amended from time to time, which may be applicable to users of the B&N Site, and
provided, further, that in no event shall the preceding clause grant a license
to Lycos in any of the content on the B&N Site.
(b) With respect to the link from the Lycos Home Page to the B&N Site
described in clause (a) above, Lycos agrees that ***
(c) Throughout the term of this Agreement, Lycos will integrate search
capabilities within selected Web pages in the Lycos Site in order to enable a
user of the Lycos Services to search the B&N Site for particular books. The
search will be conducted through the B&N Site with the search results being
presented on a page which is created in a Lycos template incorporating the look
and feel of the Lycos Pages, including page format,
*** Confidential portions of this document have been redacted and have been
filed separately with the Commission.
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navigational bars, colors and the Lycos logo (the "Branded Results Page"). Every
Branded Results Page will have a URL similar to www.bandn.lycos.com. In
addition, every Branded Results Page will provide the user with the ability to
initiate another search of the B&N Site through the display of a drop-down
search-related box stating "Search BarnesandNoble.com for books on [related
subject]" or similar text to be jointly determined by B&N and Lycos. B&N will
serve and maintain the Branded Results Page throughout the term of this
Agreement.
(d) Lycos will spider the HTML contents of the B&N Site and
incorporate spidered information from the B&N Site into the Lycos Catalog of the
Internet.
(e) Subject to the terms and conditions of this Agreement, B&N hereby
grants Lycos the right to reproduce and display all logos, trademarks, trade
names and similar identifying material relating to B&N (the "B&N Marks") in
connection with the promotion, marketing and distribution of the Lycos Services,
provided, that Lycos shall not make any specific use of any B&N Mark which
refers to B&N exclusively without first submitting a sample of such to B&N and
obtaining B&N's prior consent, which consent shall not be unreasonably withheld.
(f) ***
(or another area within the B&N Site designated by B&N) and shall continuously
appear in the Shopping Pages throughout the term of this Agreement.
(g) ***.
3. Obligations of B&N.
(a) B&N shall display the "Powered by Lycos" logo on all Web pages
solely where search boxes, Web Search Results, and PowerSearch links are
deployed through the use of Lycos search tools, as well as appropriate copyright
notices. ***. During the term of this Agreement, the Lycos Services will be the
exclusive Web search and navigation service available through the B&N Site,
excluding the proprietary search tools developed by B&N for searching the B&N
Site.
(b) B&N agrees to include Lycos branded bookmarks with the shipment of
all books purchased online through the B&N Site.
(c) ***, B&N agrees to deploy the Lycos Search API tools on the B&N
Site in order to integrate searches of the Lycos Catalog and Lycos Pictures and
Sounds, in the manner determined by B&N, in its sole discretion, which
determination will be made and provided to Lycos within thirty days of the
execution of this Agreement.
(d) B&N will make its personnel available to Lycos to assist Lycos in
establishing the B&N Links between the Lycos Site and the B&N Site referred to
herein, including establishing links to the Book Lists, Book of
*** Confidential portions of this document have been redacted and have been
filed separately with the Commission.
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the Week and Book Reviews sections of the B&N Site. B&N personnel will also
assist Lycos in implementing the feature of passing queries from Lycos to the
Lycos Search API located on the B&N Site.
(e) B&N will also make its editorial staff available to Lycos in order
to utilize the Lycos PowerSearch API tool for the creation of searches of the
Web for positioning on the B&N Site.
(f) Concurrently with the execution of this Agreement, Barnes & Noble,
Inc. will execute and deliver to Lycos the Promotion Agreement in the form of
Exhibit B attached hereto.
4. License Grant by Lycos.
(a) Lycos will provide B&N the Lycos Search API tools, which B&N,
solely at its option, may deploy on the B&N Site in order to integrate search of
the Lycos Catalog of the Internet and Lycos Pictures and Sounds. B&N will be
responsible for implementing the API within the B&N Site so as to make Web
Search Results available to users of the B&N Site.
(b) Subject to the terms and conditions of this Agreement, Lycos
hereby grants to B&N the right to use the Lycos Search API so as to provide
users of the B&N Site access to Web Search Results. To the extent such access is
deemed to be a reproduction, transmission or distribution, B&N is further
granted a worldwide, royalty-free license to use, reproduce, transmit,
distribute and publicly display Web Search Results so as to make the Web Search
Results available to users of the B&N Site via the Web.
(c) Subject to the terms and conditions of this Agreement, Lycos
hereby grants B&N the right to reproduce and display all logos, trademarks,
trade names and similar identifying material relating to the Lycos Search and
Lycos PowerSearch APIs and the Lycos bookmarks (the "Lycos Marks") in connection
with the promotion, marketing and distribution of the Web searches being
available through the B&N Site and the shipment of the Lycos bookmarks. Upon
Lycos' request, B&N will make available samples of any uses of the Lycos Marks
for approval by Lycos, such approval to be in Lycos' sole and exclusive
discretion.
5. Royalties and Fees.
(a) In consideration of Lycos' obligations under this Agreement, B&N
shall pay Lycos ***
(d) B&N shall calculate and report in writing to Lycos within thirty
days after each quarter the Net Revenues derived during such quarter on all
transactions initiated by viewers sent to the B&N Site from the Lycos Services,
and, if required under Section 5(b) above, make payment to Lycos of the
applicable royalty. B&N shall permit Lycos to audit B&N's books and records with
respect to Net Revenues, during normal business hours and no more than once
quarterly upon five (5) business days' notice, in order to ensure B&N's
compliance with this Section 5. B&N will pay all costs and expenses of such
audit in the event there is a discrepancy of 10% or more.
*** Confidential portions of this document have been redacted and have been
filed separately with the Commission.
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6. Term of Agreement.
The term of this Agreement shall commence on the date hereof and will
continue until ***
7. Representations and Warranties of the Parties.
In order to induce Lycos to enter into this Agreement, B&N hereby
warrants and represents as follows:
(a) Status. B&N is a corporation in good standing under the laws of
the state of its organization, and has the full right, power and authority to
enter into this Agreement and to grant the rights herein granted.
(b) No Conflicting Obligations. The performance by B&N pursuant to
this Agreement and/or the rights herein granted to Lycos will not conflict with
or result in a breach or violation of any of the terms or provisions, or
constitute a default under any organizational instruments of B&N or any
agreement to which B&N is a party or to which it is bound.
(c) Right to License. B&N possesses the full right and authority to
provide access to the B&N Site and to license the B&N Marks. B&N is the sole
owner and/or has the right to license, and shall continue to own and/or have the
right to license, throughout the term of the Agreement, all right, title and
interest in and to the B&N Site, except for content written, prepared or
otherwise developed by users of the B&N Site ("User Content").
(d) Compliance with Laws and Regulations. B&N shall comply with all
applicable laws, statutes, ordinances, rules and regulations of each country,
state, city or other political entity.
(e) Clearances. Throughout the term of this Agreement, B&N shall
maintain the B&N Site and its INTERNIC registration. All fees of any nature,
including, without limitation, residuals, royalties, reuse, health and welfare
payments, and similar or dissimilar fees due to third parties (including
writers, composers and performers) for rights necessary to exploit the B&N Site,
as provided herein, shall be the sole responsibility of B&N.
(f) No Infringement. B&N has the right to enter into this Agreement
and to grant to Lycos the license provided herein and neither the B&N Site
(other than User Content) nor the B&N Marks nor any other materials or any
elements or parts thereof, nor the provision of access to the B&N Site pursuant
to the provisions hereof by Lycos, shall violate or infringe upon the copyright,
literary, privacy, publicity, trademark, service mark or any other personal,
moral or property right of any person, nor shall same constitute a libel or
defamation of any person whatsoever.
(g) General. EXCEPT FOR THE FOREGOING REPRESENTATIONS AND WARRANTIES,
B&N MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND, EITHER EXPRESS OR
IMPLIED, AS TO ANY MATTER INCLUDING, BUT NOT LIMITED TO, IMPLIED WARRANTIES OF
FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY OR OTHERWISE WHICH WOULD
EXTEND BEYOND THE REPRESENTATIONS AND WARRANTIES CONTAINED HEREIN.
*** Confidential portions of this document have been redacted and have been
filed separately with the Commission.
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8. Representations and Warranties of Lycos. In order to induce B&N to enter
into this Agreement, Lycos represents and warrants that:
(a) Corporate Status. Lycos is a corporation in good standing under
the laws of the State of Delaware, and has the full right, power and authority
to enter into this Agreement and to grant the rights herein granted.
(b) No Conflicting Obligations. The performance by Lycos pursuant to
this Agreement and/or the rights herein granted to B&N will not result in a
breach or violation of any of the terms or provisions, or constitute a default
under any organizational instruments of Lycos or any agreement to which Lycos is
a party or to which it is bound.
(c) Right to License. Lycos possesses the full right and authority to
license the Lycos Services and the Lycos Marks. Lycos is the sole owner and/or
has the right to license, and shall continue to own and/or have the right to
license, throughout the term of this Agreement, all right, title and interest,
including without limitation all rights under copyright in and to the Lycos
Services and all materials created by employees of Lycos and/or third parties,
for or in connection with the Lycos Services, and each element thereof.
(d) Compliance with Laws and Regulations. Lycos shall comply with all
applicable laws, statutes, ordinances, rules and regulations of each country,
state, city or other political entity.
(e) Clearances. Lycos shall clear all rights in the Lycos Services and
all elements thereof for use as provided herein. All fees of any nature,
including, without limitation, residuals, royalties, reuse, health and welfare
payments, and similar or dissimilar fees due to third parties (including
writers, composers and performers) for rights necessary to exploit the Lycos
Services, as provided herein, shall be the sole responsibility of Lycos.
(f) No Infringement. Lycos has the right to enter into this Agreement
and to grant to B&N the license provided herein and neither the Lycos Services
nor any other materials or any elements or parts thereof or other material
delivered or to be delivered to B&N hereunder, shall violate or infringe upon
the copyright, literary, privacy, publicity, trademark, service mark or any
other personal, moral or property right of any person, nor shall same constitute
a libel or defamation of any person whatsoever.
(g) General. EXCEPT FOR THE FOREGOING REPRESENTATIONS AND WARRANTIES,
LYCOS MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND, EITHER EXPRESS OR
IMPLIED, AS TO ANY MATTER INCLUDING, BUT NOT LIMITED TO, IMPLIED WARRANTIES OF
FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY OR OTHERWISE WHICH WOULD
EXTEND BEYOND THE REPRESENTATIONS AND WARRANTIES CONTAINED HEREIN.
9. Indemnification.
(a) B&N Indemnity. B&N will at all times indemnify and hold harmless
Lycos and its officers, directors, shareholders, successors and
*** Confidential portions of this document have been redacted and have been
filed separately with the Commission.
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assigns from and against any and all third party claims, damages, liabilities,
costs and expenses, including reasonable legal fees and expenses, arising out of
or relating to any breach of any warranty, representation, covenant or agreement
made by B&N in this Agreement. Lycos shall give B&N prompt written notice of any
claim, action or demand for which indemnity is claimed. B&N shall have the
right, but not the obligation, to control the defense and/or settlement of any
claim in which it is named as a party. Lycos shall have the right to participate
in any defense of a claim by B&N with counsel of Lycos' choice at its own
expense. The foregoing indemnity is conditioned upon: prompt written notice by
Lycos to B&N of any claim, action or demand for which indemnity is claimed;
complete control of the defense and settlement thereof by B&N; and such
reasonable cooperation by Lycos in the defense as B&N may request.
(b) Lycos Indemnity. Lycos will at all times defend, indemnify and
hold harmless B&N and its officers, directors, shareholders, successors and
assigns from and against any and all third party claims, damages, liabilities,
costs and expenses, including reasonable legal fees and expenses, arising out of
or relating to any breach of any warranty, representation, covenant or agreement
made by Lycos in this Agreement. B&N shall give Lycos prompt written notice of
any claim, action or demand for which indemnity is claimed. Lycos shall have the
right, but not the obligation, to control the defense and/or settlement of any
claim in which it is named as a party. B&N shall have the right to participate
in any defense of a claim by Lycos with counsel of B&S's choice at its own
expense. The foregoing indemnity is conditioned upon: prompt written notice by
B&N to Lycos of any claim, action or demand for which indemnity is claimed;
complete control of the defense and settlement thereof by Lycos; and such
reasonable cooperation by B&N in the defense as Lycos may request.
10. Confidentiality; Press Releases.
(a) Non-Disclosure Agreement. The parties agree and acknowledge that,
as a result of negotiating, entering into and performing this Agreement, each
party has and will have access to certain of the other party's Confidential
Information (as defined below). Each party also understands and agrees that
misuse and/or disclosure of that information could adversely affect the other
party's business. Accordingly, the parties agree that, during the term of this
Agreement and thereafter, each party shall use and reproduce the other party's
Confidential Information only for purposes of this Agreement and only to the
extent necessary for such purpose and shall restrict disclosure of the other
party's Confidential Information to its employees, consultants or independent
contractors with a need to know and shall not disclose the other party's
Confidential Information to any third party without the prior written approval
of the other party. Notwithstanding the foregoing, it shall not be a breach of
this Agreement for either party to disclose Confidential Information of the
other party if required to do so under law or in a judicial or other
governmental investigation or proceeding, provided the other party has been
given prior notice and the disclosing party has sought all available safeguards
against widespread dissemination prior to such disclosure.
(b) Confidential Information Defined. As used in this Agreement, the
term "Confidential Information" refers to: (i) the terms and conditions of this
Agreement; (ii) each party's trade secrets, business plans,
*** Confidential portions of this document have been redacted and have been
filed separately with the Commission.
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strategies, methods and/or practices; and (iii) other information relating to
either party that is not generally known to the public, including information
about either party's personnel, products, customers, marketing strategies,
services or future business plans. Notwithstanding the foregoing, the term
"Confidential Information" specifically excludes (i) information that is now in
the public domain or subsequently enters the public domain by publication or
otherwise through no action or fault of the other party; (ii) information that
is known to either party without restriction, prior to receipt from the other
party under this Agreement, from its own independent sources as evidenced by
such party's written records, and which was not acquired, directly or
indirectly, from the other party; (iii) information that either party receives
from any third party reasonably known by such receiving party to have a legal
right to transmit such information, and not under any obligation to keep such
information confidential; and (iv) information independently developed by either
party's employees or agents provided that either party can show that those same
employees or agents had no access to the Confidential Information received
hereunder.
(c) Press Releases. Lycos and B&N shall jointly prepare press releases
concerning the existence of this Agreement and the terms hereof. B&N shall
sponsor a public relations event in which B&N and Lycos will jointly announce
the relationship contemplated hereby. Otherwise, no public statements concerning
the existence or terms of this Agreement shall be made or released to any medium
except with the prior approval of Lycos and B&N or as required by law.
11. Termination. Either party may terminate this Agreement if (a) the other
party files a petition for bankruptcy or is adjudicated bankrupt; (b) a petition
in bankruptcy is filed against the other party and such petition is not
dismissed within sixty days of the filing date; (c) the other party becomes
insolvent or makes an assignment for the benefit of its creditors pursuant to
any bankruptcy law, or (d) a receiver is appointed for the other party or its
business. In addition, either party may terminate this Agreement upon the
occurrence of a material breach by the other party if such breach is not cured
within ninety (90) days after written notice is received by the breaching party
identifying the matter constituting the material breach. ***
12. Relationship of Parties. B&N and Lycos are independent contractors
under this Agreement, and nothing herein shall be construed to create a
partnership, joint venture or agency relationship between B&N and Lycos. Neither
party has authority to enter into agreements of any kind on behalf of the other.
13. Assignment, Binding Effect. Neither Lycos nor B&N may assign this
Agreement or any of its rights or delegate any of its duties under this
Agreement without the prior written consent of the other.
14. Choice of Law. This Agreement, its interpretation, performance or any
breach thereof, shall be construed in accordance with, and all questions with
respect thereto shall be determined by, the laws of the Commonwealth of
Massachusetts applicable to contracts entered into and wholly to be performed
within said state.
*** Confidential portions of this document have been redacted and have been
filed separately with the Commission.
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15. Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
16. Section Headings. Section headings are for convenience only and are not
a part of this Agreement.
17. Entire Agreement. This Agreement contains the entire understanding of
the parties hereto with respect to the transactions and matters contemplated
hereby, supersedes all previous agreements between Lycos and B&N concerning the
subject matter, and cannot be amended except by a writing signed by both
parties. No party hereto has relied on any statement, representation or promise
of any other party or with any other officer, agent, employee or attorney for
the other party in executing this Agreement except as expressly stated herein.
18. Limitations of Liability.
UNDER NO CIRCUMSTANCES SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY
FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES (EVEN IF
THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES), ARISING FROM
ANY PROVISION OF THIS AGREEMENT (INCLUDING SUCH DAMAGES INCURRED BY THIRD
PARTIES), SUCH AS, BUT NOT LIMITED TO, LOSS OF REVENUE OR ANTICIPATED PROFITS OR
LOST BUSINESS. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR DAMAGES IN EXCESS OF
THE AMOUNT RECEIVED BY LYCOS UNDER THIS AGREEMENT, PROVIDED THAT THIS SECTION
DOES NOT LIMIT EITHER PARTY'S LIABILITY TO THE OTHER FOR (A) WILLFUL AND
MALICIOUS MISCONDUCT; (B) DIRECT DAMAGES TO REAL OR TANGIBLE PERSONAL PROPERTY;
(C) BODILY INJURY OR DEATH CAUSED BY NEGLIGENCE; OR (D) INDEMNIFICATION
OBLIGATIONS HEREUNDER.
* * *
*** Confidential portions of this document have been redacted and have been
filed separately with the Commission.
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IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the date set forth above.
BARNESANDNOBLE.COM, INC. LYCOS, INC.
By: /s/ Steve Riggio By: /s/ Robert J. Davis
Name: Steve Riggio Name: Robert J. Davis
Title: Chief Operating Officer Title: President and CEO
Date: 7/31/97 Date: 7/31/97
In consideration of, and as a material inducement for, Lycos, Inc. entering
into this Agreement, the undersigned, Barnes & Noble, Inc. (the "Guarantor")
hereby unconditionally guarantees the full and prompt payment of the obligations
of BarnesandNoble.com, Inc. ("B&N") under the Agreement and hereby covenants to
and agrees with Lycos that if default shall at any time be made by B&N in the
payment of its obligations, Guarantor shall and will promptly make such payments
to Lycos. Subject to the last sentence hereof, this guaranty is an irrevocable,
absolute and unconditional guaranty of payment and of performance. This guaranty
shall be a continuing guaranty, and the liability of Guarantor hereunder shall
in no way be affected, modified, impaired or diminished by reason of any
assignment, renewal, modification or extension of the Agreement or by reason of
any bankruptcy, insolvency, reorganization, assignment for the benefit of
creditors, receivership or similar action affecting B&N. ***
BARNES & NOBLE, INC.
By: /s/ Stephen Riggio
Name:
Title:
*** Confidential portions of this document have been redacted and have been
filed separately with the Commission.
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EXHIBIT A
***
*** Confidential portions of this document have been redacted and have been
filed separately with the Commission.
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EXHIBIT B
***
*** Confidential portions of this document have been redacted and have been
filed separately with the Commission.
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EXHIBIT C
***
*** Confidential portions of this document have been redacted and have been
filed separately with the Commission.
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CONFIDENTIAL TREATMENT REQUESTED. Confidential portions of this document
have been redacted and have been separately filed with the Commission.
INTERACTIVE MARKETING AGREEMENT
This Interactive Marketing Agreement (the "Agreement"), dated as of
November 1, 1997 (the "Effective Date"), is between America Online, Inc.
("AOL"), a Delaware corporation, with offices at 22000 AOL Way, Dulles, Virginia
20166, and BarnesandNoble.com Inc. ("B&N"), a Delaware corporation, with offices
at 122 Fifth Avenue, New York, New York 10011. AOL and B&N may be referred to
individually as a "Party" and collectively as "Parties."
INTRODUCTION
AOL and B&N each desires to enter into an interactive marketing
relationship whereby AOL will promote and distribute an interactive site
referred to (and further defined) herein as the Affiliated B&N Site. This
relationship is further described below and is subject to the terms and
conditions set forth in this Agreement. Defined terms used but not defined in
the body of the Agreement will be as defined on Exhibit A attached hereto.
TERMS
1. PROMOTION, DISTRIBUTION AND MARKETING.
1.1. AOL Promotion of Affiliated B&N Site.
As described more fully herein, AOL shall provide B&N with
promotions through the AOL Network for the Affiliated B&N
Site (the "Promotions"). The Promotions shall be generally
in accordance with the Carriage Plan and other materials
attached hereto as Exhibit G, subject to changes therein in
AOL's reasonable editorial discretion which are (i)
consistent with the mutual objectives, intentions and
relationships of the Parties as set forth in this Agreement
and (ii) designed to satisfy the sales and Impression
thresholds and Level requirements set forth in this
Agreement. Specific placements for Promotions will include
an "Anchor Tenant" position within the *** integrated links
to the Affiliated B&N Site from within the ***, and a
placement during at *** of the aggregate Impressions each
*** made on the ***. AOL reserves the right to redesign or
modify the organization, structure, "look and feel,"
navigation, practices and other elements of the AOL Service
at any time, provided that, if such redesign or
modification materially and adversely affects the
effectiveness of the Promotions in selling Products, AOL
will provide the Promotions with comparable promotional
placement to that existing during the Initial Term prior to
such redesign or modification, reasonably satisfactory to
B&N.
1.2. Impressions.
1.2.1. Impressions Commitments. AOL will deliver or cause
to be delivered at least the following annual
Impressions
*** Confidential portions of this document have been redacted and have been
filed separately with the Commission.
<PAGE>
for the Promotions (each an "Annual Minimum"): ***
in Year 1, *** in Year 2, *** in Year 3 and *** in
Year 4.
In addition, for each Year during the Initial
Term, AOL shall deliver or cause to be delivered
to B&N an additional *** in Level A, *** in Level
B and *** in Level C (as such Levels are defined
below). The placements for such additional
Impressions within such Levels shall be as
determined by AOL in its reasonable editorial
discretion. B&N shall notify AOL prior to the
beginning of each Year (except in the case of Year
1, promptly after the date of execution of this
Agreement) of its election as to whether to use
such Impressions during such Year ***, provided
that any change in election from the prior Year's
election shall be subject to AOL's approval in its
sole discretion. The Promotions associated with
such Impressions shall link directly to ***
associated with the Affiliated B&N Site.
Notwithstanding the foregoing, AOL shall have the
right before any Year (other than Year 1) to buy
out B&N's remaining rights to such additional
Impressions by ***.
1.2.2. Distribution. The Annual Minimums for each Year
will be delivered across inventory Levels A, B and
C (as defined, and collectively, the "Levels"). In
Year 1, AOL will deliver no less than *** of each
Annual Minimum in Level A, approximately *** of
each Annual Minimum in Level B, and no more than
*** of each Annual Minimum in Level C. In each of
Year 2, Year 3 and Year 4, AOL will deliver no
less than *** of each Annual Minimum in Level A,
approximately *** of each Annual Minimum in Level
B, and no more than *** of each Annual Minimum in
Level C. AOL will use reasonable efforts to
accommodate B&N's requests to re-allocate the
Impressions distribution among the Levels (subject
to availability), provided that the Parties can
mutually agree upon a formula for adjusting the
aggregate Impressions commitments and thresholds
described in this Agreement based on the relative
value of the Impressions being re-allocated. AOL
will use reasonable efforts to deliver at least
*** of each Annual Minimum within *** year
(excluding the *** of 1997) and at least *** of
each Annual Minimum between November 1 and
Christmas Day of each calendar year (excluding
such period of 1997), in each case across Levels
substantially in accordance with the percentages
set forth above. Unless B&N agrees otherwise, not
more than *** of Impressions in Year 1 will be
***. In any other Year, the Parties will mutually
agree in good faith on the maximum percentage of
listbox Impressions based upon the relative Book-
selling performance of such listbox Impressions.
AOL, in its discretion, may provide Promotions
with Impressions on the *** or Impressions of
similar quality to the *** as of the date hereof
as determined by AOL in its reasonable discretion
***. If in Year 1, Transaction Revenues for such
Year do not equal or exceed *** and B&N is not
then in breach under this Agreement, then AOL
shall provide Promotions with at ***
*** Confidential portions of this document have been redacted and have been
filed separately with the Commission.
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in Year 2. If in Year 2, Transaction Revenues for
such Year do not equal or exceed *** and B&N is
not then in breach under this Agreement, then AOL
shall provide Promotions with at least *** in Year
3. If in Year 3, Transaction Revenues for such
Year do not equal or exceed *** and B&N is not
then in breach under this Agreement, then AOL
shall provide Promotions with at least *** during
Year 4. All *** Impressions shall be deemed bonus
Impressions and shall not be applied toward the
Annual Minimums. (Notwithstanding the foregoing,
AOL is not guaranteeing that the Affiliated B&N
Site will achieve any specific level of
Transaction Revenues and AOL will not be in breach
of this Agreement solely based upon the failure of
the Affiliated B&N Site to achieve any specific
level of Transaction Revenues.)
1.2.3. Windfalls. AOL will not be obligated to provide in
excess of the Annual Minimum for the applicable
Year. If AOL exceeds an Annual Minimum by more
than *** in the applicable Year (e.g., by more
than *** in Year 1), the excess Impressions above
such Annual Minimum (the "Excess") will serve to
reduce the subsequent Year's Annual Minimum by an
amount equal to the Excess, subject to an
aggregate reduction of no greater than *** of the
prior Year's Annual Minimum.
1.2.4. Shortfalls. AOL will, in good faith, attempt to
fulfill each Year's Annual Minimum; provided that
a shortfall in Impressions at the end of a Year (a
"Shortfall") will not be deemed a breach of the
Agreement by AOL unless such shortfall results
from the bad faith or willful misconduct of AOL.
Any Shortfall will be added to the Annual Minimum
for the subsequent Year. In the event there is a
Shortfall in Impressions as of the end of the
Initial Term (a "Final Shortfall"), AOL will
provide B&N (for its use) with advertising which
has a total value, *** discounted by ***, equal to
the value of the Final Shortfall (determined by
multiplying the percentage of Impressions that
were not delivered by the total, guaranteed
payment provided for below, and taking into
consideration the relative value of the
Impressions included in such Final Shortfall).
Such advertising shall be delivered to B&N on the
AOL Network within a reasonable period of time
following the Initial Term.
1.2.5. Satisfaction. AOL will not be required to deliver
or cause to be delivered in excess of *** (the
"Aggregate Threshold"). The Annual Minimum for a
given Year will be deemed to be satisfied in the
event gross Site Revenues for such Year *** (in
the case of Year 1), *** (in the case of Year 2),
*** (in the case of Year 3) and *** (in the case
of Year 4). All Impressions commitments hereunder
(including, without limitation, any shortfall
remedies, but not including placement commitments)
will be deemed to be satisfied at any such time as
gross Site Revenues ***.
*** Confidential portions of this document have been redacted and have been
filed separately with the Commission.
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1.3. Promotions. The specific B&N Content to be contained within
the Promotions (including, without limitation, advertising
banners and contextual promotions) (the "Promo Content")
will be determined by B&N, subject to ***. B&N will
consistently and meaningfully update the Promo Content to
be contained within the Promotions on a no-less-than ***.
The Parties shall jointly consult from time to time
regarding the Promo Content to ensure that it is designed
to maximize performance. Except to the extent expressly
described herein, including without limitation as provided
in Section 1.1, the specific form, placement, duration and
timing of the Promotions will be as determined by AOL in
its reasonable editorial discretion. The Parties
acknowledge that the pages on the AOL Network *** and,
accordingly, ***. In the event for any reason any pages on
the AOL Network ***, B&N Promotions *** without B&N's prior
written approval, which will not be unreasonably withheld
or delayed taking into consideration (i) AOL's
demonstration of its ability to reliably track Impressions
*** and (ii) the comparable effectiveness of such ***, in
each case as demonstrated by test results reasonably
acceptable to B&N. In addition, upon B&N's request from
time to time ***, where possible, prior to a proposed
B&N-sponsored event (e.g., author chats), AOL shall provide
B&N with an ***, subject to AOL approval of ***, which
shall not be unreasonably withheld or delayed (taking into
consideration AOL's reasonable assessment of the *** which
a proposed *** will ***). AOL shall also supply *** to
allow B&N to sell Books to ***. B&N and AOL shall cooperate
to promote such *** events on the AOL Service (including
through ***). In connection with any such event, in
addition to the aforementioned notice requirement, B&N will
comply with AOL's other standard requirements related to
booking and implementation of ***.
1.4. B&N Promotion of Affiliated B&N Site and AOL. B&N will
promote the AOL Service and the availability of the
Affiliated B&N Site as set forth in Exhibit B.
1.5. Monthly Review. Within thirty (30) days (or such lesser
period as monthly reports are generally provided to AOL's
other significant commerce partners) after the end of each
calendar month during the Term, AOL will provide B&N with a
review of performance of the Promotions for such month,
which will include standard AOL reporting with respect to
Impressions and available "click-through" information,
demographic and usage information generally made available
by AOL to its significant commerce partners, and other
information reasonably requested by B&N.
2. AFFILIATED B&N SITE.
2.1. Content. B&N will market and sell through the Affiliated
B&N Site a comprehensive offering of Books. Subject to the
restrictions set forth below in this Section 2.1 and the
other terms and conditions of this Agreement, B&N may also
market and sell through the Affiliated B&N Site (i) the
following other products *** and (ii) ***. B&N will review,
delete, edit, create, update and otherwise manage all
Content available on or through the Affiliated B&N Site
which it controls in accordance with the terms of this
Agreement. B&N will ensure that the Affiliated B&N Site
does not in any respect promote, advertise or
*** Confidential portions of this document have been redacted and have been
filed separately with the Commission.
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market any Interactive Service. Except as otherwise set
forth in this Agreement or agreed to by AOL, neither the
Promotions nor any pages on the Affiliated B&N Site
directly linked to the Promotions ("Linked Pages") will
contain promotions, links, sponsorships or other Content
(a) relating to any Products other than Books or (b)
otherwise in conflict with AOL's standard advertising
policies. On any pages within the Affiliated B&N Site
directly linked to the Linked Pages, Content relating to
any Products other than Books will be ***. Subject to the
last sentence of Section 3.3, the Affiliated B&N Site will
not contain any material, non-Book-related, third party
Content components (e.g. an aggregated offering of
sports-related links), except as otherwise mutually agreed
upon by the Parties. Nothing in this Section 2.1 is
intended to restrict B&N from selling *** on the Affiliated
B&N Site or the Linked Pages, except for products which AOL
has notified B&N in writing are restricted as a result of
written agreements entered into by AOL with third party
retailers of such products (subject to the last sentence of
Section 3.3).
2.2. Production Work. Except as agreed to in writing by the
Parties pursuant to the "Production Work" section of the
Standard Legal Terms & Conditions attached hereto as
Exhibit E, B&N will be responsible for all production work
associated with the Affiliated B&N Site, including all
related costs and expenses.
2.3. Hosting; Communications. B&N will be responsible for all
communications, hosting and connectivity costs and expenses
associated with the Affiliated B&N Site. In addition, B&N
shall provide all computer, telephone and other equipment
or resources necessary for B&N to access the AOL Service.
B&N will create a mirrored version of the Affiliated B&N
Site in order to comply with the terms of this Agreement.
B&N will bear responsibility for the cost of such mirrored
site, which site will be hosted by AOL provided that (i)
AOL's hosting price and terms are reasonably competitive in
all material respects with others in the industry and (ii)
the quality of service supplied by AOL is reasonably
satisfactory to B&N. B&N will utilize a dedicated high
speed connection to maintain quick and reliable transport
of information to and from the B&N data center and AOL's
designated data center.
2.4. Technology. B&N shall take all commercially reasonable
steps necessary to conform its promotion and sale of
Products through the Affiliated B&N Site to the
then-existing technologies identified by AOL which are
optimized for the AOL Service. AOL shall be entitled to
require reasonable changes to the Content (including,
without limitation, the features or functionality) within
any Linked Pages to the extent such Content will, in AOL's
good faith judgment, adversely affect any technical aspect
of the AOL Service. AOL reserves the right to review and
test the Affiliated B&N Site from time to time to determine
whether the site is compatible with AOL's then-available
client and host software and the AOL Service.
2.5. Product Offering. B&N will use *** to ensure that the
Affiliated B&N Site includes all of the Products and other
Content (including, without limitation, any features,
offers, contests,
*** Confidential portions of this document have been redacted and have been
filed separately with the Commission.
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functionality or technology) that are then made available
by or on behalf of B&N through any Additional B&N Channel;
provided, however, that: (a) such inclusion will not be
required where it is commercially or technically
impractical to either Party (i.e., inclusion would cause
either Party to incur substantial incremental costs); (b)
any non-Book-related Product offerings which would
otherwise be required by such inclusion remain subject to
Section 2.1 and the other terms of this Agreement; and (c)
certain limited special promotions for third parties may be
omitted, provided that comparable promotions are offered on
the Affiliated B&N Site pursuant to Section 2.8.
2.6. Special Features/Collections. B&N will, upon AOL's
reasonable request, create for offering on the Affiliated
B&N Site (within thirty (30) days of such request) and
manage specific, co-branded (i) topical collections of
books (including an "AOL Books" collection) and (ii)
topical search features, each to be linked to corresponding
portions of the AOL Service.
2.7. Pricing and Terms. B&N will use commercially reasonable
efforts to ensure that: (a) the prices (and any other
required consideration) for Products in the Affiliated B&N
Site ***; (b) the terms and conditions related to Products
in the Affiliated B&N Site are ***; and (c) both the prices
and the terms and conditions related to Products in the
Affiliated B&N Site are ***.
2.8. Special Offers. B&N will promote through the Affiliated B&N
Site on a regular and consistent basis special offers
exclusively available to AOL Members, e.g., price
discounts, shipping specials, etc. (the "Special Offers").
B&N will provide AOL with reasonable prior notice of
Special Offers so that AOL can market the availability of
such Special Offers in the manner AOL deems appropriate in
its editorial discretion, subject to the terms and
conditions hereof.
2.9. Operating Standards. B&N will ensure that the Affiliated
B&N Site complies at all times with the standards set forth
in Exhibit C. To the extent site standards are not
established in Exhibit C with respect to any aspect or
portion of the Affiliated B&N Site (or the Products or
other Content contained therein), B&N will provide such
aspect or portion at a level of accuracy, quality,
completeness, and timeliness which substantially meets or
exceeds prevailing standards in the online book retailing
industry. The sale by B&N of electronically delivered Books
through the Affiliated B&N Site shall be subject to
capacity and technical limitations, and downloading fees
and related expenses, reasonably imposed or incurred by
AOL.
2.10. Traffic Flow. Except as otherwise approved by AOL, B&N will
take commercially reasonable efforts to ensure that AOL
traffic is either kept within the Affiliated B&N Site or
channeled back into the AOL Service (with the exception of
advertising links sold and implemented pursuant to the
Agreement). The Parties will work together on implementing
mutually acceptable links back from the Affiliated B&N Site
to the AOL Service.
*** Confidential portions of this document have been redacted and have been
filed separately with the Commission.
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2.11. Marketing to AOL Purchasers. To the extent B&N sends any
form of communications to persons who were reasonably
ascertainable by B&N to be AOL Purchasers, B&N will promote
the Affiliated B&N Site as the location at which to
purchase Products (as compared to any more general or other
site or location).
3. AOL EXCLUSIVITY AND RELATED OBLIGATIONS.
3.1. AOL Service. B&N will be the exclusive marketer of the
Exclusive Service within *** during the Initial Term ***.
3.2. Greenhouse/DCI/International. B&N will be the exclusive
marketer of the Exclusive Service through ***. B&N will be
the exclusive National Book Retailer promoted by ***
(excluding brand advertising for local, physical retail
locations (other than locations operated by a National Book
Retailer) promoted through a corresponding ***). Through
the ***, B&N will be the exclusive *** and operated
National Book Retailer promoted ***. Collectively, these
restrictions are referred to herein as the "Ancillary
Exclusivities" (and, with the AOL Service Exclusivity, the
"Combined Exclusivities").
3.3. Third Party Limitations. To the extent a third party would
be affected by the foregoing exclusivity (a "Restricted
Party") and such party is not solely a provider of the
Exclusive Service (i.e., it is also engaged in activities
other than Book-selling), such exclusivity shall only apply
to the marketing of the Exclusive Service by such
Restricted Party; provided that the foregoing exception
shall apply *** in the case of a National Book Retailer
identified on Exhibit F (including affiliates promoted in
any way under the same brand name marketing any of the
Products referred to in Section 2.1(i) ("Related
Products")) (each an "Identified National Book Retailer"),
provided that the restrictions in this Section 3.3 will not
be violated if (i) AOL enters into an agreement with
respect to Related Products with any third party not then
an Identified National Book Retailer, (ii) such third party
thereafter becomes an Identified National Book Retailer by
way of merger, acquisition or otherwise, and (iii) AOL was
not aware of such contemplated transaction at the time it
entered into the Related Product agreement with such third
party. AOL shall not online, through the AOL Service, in
any respect (i) prior to the end of Year 2, promote,
advertise, market or distribute (including by way of direct
links) *** any Identified National Book Retailer, or (ii)
during the Initial Term, promote, advertise, market or
distribute (including by way of direct links) *** any
Identified National Book Retailer. In addition, AOL shall
use commercially reasonable efforts, in entering into
agreements after the date of execution of this Agreement
*** to restrict the ability of such parties to online
promote, advertise (excluding banner or similar
advertising), market or distribute (including by way of
direct links) the products of, any Identified National Book
Retailer through such *** appearing (a) *** or (b) through
its affiliated site linked directly to the ***, as the case
may be. To the extent AOL enters into any Significant
Agreement which does not contain the foregoing restriction,
then the restrictions imposed on B&N *** of this Agreement
shall be deemed modified to be only as restrictive on a
comparable basis *** as the restrictions
*** Confidential portions of this document have been redacted and have been
filed separately with the Commission.
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<PAGE>
actually imposed by AOL on the other party to such
Significant Agreement. AOL shall notify B&N promptly of its
entering into any Significant Agreement which would require
the modification to Section 2.1 described in the previous
sentence.
3.4. Exceptions. Notwithstanding anything to the contrary in
this Section, no provision of this Agreement will limit
relationships between AOL and/or the Additional Parties and
any third parties, relating to: (i) the promotion,
advertising or sale (collectively, "Promotion") of Books
through an auction or club format by or for any entity
other than an Identified National Book Retailer; (ii) the
Promotion of "audio books"/"books on tape" by or for any
entity other than an Identified National Book Retailer;
(iii) the Promotion of Books by or for any entity other
than an Identified National Book Retailer for whom such
sales do not constitute at least 10% of annual revenues;
(iv) the Promotion of used Books other than used college
textbooks (subject to the exception described below) by or
for any entity other than an Identified National Book
Retailer; (v) publisher Content regarding or promoting
specific Books (other than Books generally) published by
such publisher, unless expressly promoting an Identified
National Book Retailer; (vi) brand advertising solely
promoting physical retail locations for any entity other
than an Identified National Book Retailer; and (vii) AOL
commitments existing prior to the Effective Date, of which
the only material commitment is the Agreement dated June
30, 1997 (the "CUC Agreement) between AOL and CUC
International, Inc. ("CUC") which provides for the ***;
provided that the restrictions in this Section 3.4 related
to Identified National Book Retailers will not be violated
if (x) AOL enters into an agreement with any third party
not then an Identified National Book Retailer which, if
such party were an Identified National Book Retailer, would
not be permitted under this Section 3.4, (y) such third
party thereafter becomes an Identified National Book
Retailer by way of merger, acquisition or otherwise, and
(z) AOL was not aware of such contemplated transaction at
the time it entered into the agreement with such third
party. One year from the time B&N reasonably demonstrates
to AOL that B&N is one of the top three sellers of used
Books with respect to gross sales revenue and scope of
offering, *** will be deemed to also cover third parties
marketing a competitive offering of used Books. B&N
acknowledges that, notwithstanding this Section 3.4, ***.
3.5. Additional Provisions Regarding Greenhouse Properties, DCI
Areas and International Services. AOL shall acquire from
*** for the benefit of B&N, without payment of any
consideration in addition to the amounts payable by B&N
under Sections 4.1 and 4.2, the rights and commitments set
forth in this Agreement relating to such entities. In the
event that the sale, transfer or other disposition to an
unaffiliated third party of any of the Greenhouse
Properties results in a material decrease in the
Impressions being delivered through the Greenhouse
Properties, AOL shall deliver or cause to be delivered to
B&N comparable substitute Impressions through replacement
properties. In addition, AOL shall use commercially
reasonable efforts ***, and B&N acknowledges that it may be
required to pay additional compensation in connection
therewith. In the event such additional amounts would be
payable by B&N, B&N shall be entitled
*** Confidential portions of this document have been redacted and have been
filed separately with the Commission.
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to elect to forego adding such additional international
service to the International Services.
4. PAYMENTS.
4.1. Guaranteed Payments. B&N will pay AOL a guaranteed amount
of *** as follows: (a) *** upon the execution of this
Agreement, *** by February 1, 1998 and *** by each of May
1, 1998 and September 1, 1998; (b) *** by each of January
1, 1999, April 1, 1999, July 1, 1999 and October 1, 1999;
and (c) *** by each of February 1, 2000, May 1, 2000,
August 1, 2000, November 1, 2000, February 1, 2001, May 1,
2001, August 1, 2001 and November 1, 2001.
4.2. Sharing of Site Revenues. In (i) the period in any Year
following the point at which Site Revenues exceed *** (in
the case of Year 1), *** (in the case of Year 2), *** (in
the case of Year 3) and *** (in the case of Year 4), (ii)
any period following the point at which Site Revenues
exceed *** in the aggregate and (iii) any Renewal Term, B&N
shall pay to AOL with respect to Site Revenues after such
point: (a) *** of Advertising Revenues; plus (b) *** of
Transaction Revenues with respect to each Product other
than ***; plus (c) if in Year 1 or Year 2, *** of
Transaction Revenues with respect to each ***; plus (d) if
in Year 3 or Year 4, *** of Transaction Revenues with
respect to ***. In the case of Transaction Revenues arising
from and traceable to a third party area on the AOL Service
("Affiliate Sales"), Transaction Revenues shall be net of
the actual commission paid by B&N to the entity controlling
such third party area; provided that, in no event shall the
payment to AOL with respect to Affiliate Sales be less than
*** of Transaction Revenues. In the case of any Transaction
Revenues arising through the International Services in
excess of *** any Year, B&N shall pay to AOL *** of
Transaction Revenues arising during the remainder of such
Year; provided that such incremental Transaction Revenues
shall not count towards the aggregated revenue thresholds
listed above in this Section 4.2.
4.3. Alternative Revenue Streams. In the event B&N or its
Affiliates receives or desires to receive, directly or
indirectly, any compensation in connection with the
Affiliated B&N Site other than Site Revenues described
herein (an "Alternative Revenue Stream"), B&N will promptly
inform AOL in writing, and the Parties will negotiate in
good faith regarding whether B&N will be allowed to market
Products producing such Alternative Revenue Stream to AOL
Members through the Affiliated B&N Site, and if so, the
equitable portion of such Alternative Revenue Stream (if
applicable) that will be shared with AOL.
4.4. Wired Payments; Late Payments. All payments required under
this Section 4 will be paid in immediately available,
non-refundable funds wired to AOL's account. All amounts
owed hereunder not paid within fifteen (15) days following
the date such amounts are due and payable will bear
interest from such fifteenth day at the prime rate in
effect at such time.
4.5. Auditing Rights. Each Party shall maintain complete, clear
and accurate records of all expenses, revenues, fees and
other transactions in connection with the performance of
this
*** Confidential portions of this document have been redacted and have been
filed separately with the Commission.
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Agreement. For the sole purpose of ensuring compliance with
this Agreement, each Party shall have the right, at its
expense and not more than once every twelve (12) months, to
direct an independent certified public accounting firm to
conduct a reasonable and necessary inspection of portions
of the books and records of the other Party which are
relevant to such other Party's performance pursuant to this
Agreement. Any such audit may be conducted after twenty
(20) business days prior written notice.
4.6. Taxes. B&N shall collect and pay and indemnify and hold AOL
harmless from, any sales, use, excise, import or export
value added or similar tax or duty not based on AOL's net
income, including any penalties and interest, as well as
any costs associated with the collection or withholding
thereof, including attorneys' fees.
4.7. Reports.
4.7.1. Sales Reports. B&N will provide AOL in an
automated manner with a monthly report in a
mutually agreed format, detailing the following
activity in such period (and any other information
mutually agreed upon by the Parties or reasonably
required for measuring revenue activity by B&N
through the Affiliated B&N Site, if available):
summary sales information by day (date, number of
Products, number of orders, and total Transaction
Revenues). If commercially feasible, B&N will
report Transaction Revenues by AOL Network area
and by Product categories. More generally, each
payment to be made pursuant to this Section 4
shall be accompanied by a report containing
information which supports the payment, including
information identifying (i) Transaction Revenues
and all items deducted or excluded to produce
Transaction Revenues, including, without
limitation, chargebacks and credits for returned
or cancelled goods or services (and, where
possible, an explanation of the type of reason
therefor, e.g., bad credit card information, poor
customer service, etc.) and (ii) any applicable
Advertising Revenues.
4.7.2. Fraudulent Transactions. To the extent permitted
by applicable laws, B&N will provide AOL with a
prompt report of any fraudulent order, including
the date, screenname and amount associated with
such order, following B&N obtaining knowledge that
the order is, in fact, fraudulent.
5. TERM; RENEWAL; TERMINATION.
5.1. Term. Unless earlier terminated as set forth herein, the
initial term of this Agreement will be for *** (the
"Initial Term").
5.2. Renewal. Upon conclusion of the Initial Term, AOL will have
the right to renew this Agreement for up to *** (each a
"Renewal Term" and together with the Initial Term, the
"Term") with respect to the AOL Service or the AOL Service
and the other AOL Network areas or portions thereof, by
providing B&N with notice
*** Confidential portions of this document have been redacted and have been
filed separately with the Commission.
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of AOL's intention to renew the Agreement for a subsequent
Renewal Term no later than *** days prior to the
commencement of such Renewal Term. During any Renewal Term:
(i) *** and (ii) AOL will not be required to undertake any
*** (iii) for so long as AOL may elect to maintain ***
commitments contained herein during a Renewal Term, B&N
will continue to perform its ***.
5.3. Termination for Breach. Either Party may terminate this
Agreement at any time in the event of a material breach of
the Agreement by the other Party which remains uncured
after thirty (30) days written notice thereof to the other
Party (or such shorter period as may be specified elsewhere
in this Agreement); provided that AOL will not be required
to provide notice to B&N in connection with B&N's failure
to make any payment to AOL required hereunder and the cure
period with respect to any scheduled payment shall be
fifteen (15) days from the date for such payment provided
for herein.
5.4. Termination for Bankruptcy/Insolvency. Either Party may
terminate this Agreement immediately following written
notice to the other Party if the other Party (i) ceases to
do business in the normal course, (ii) becomes or is
declared insolvent or bankrupt, (iii) is the subject of any
proceeding related to its liquidation or insolvency
(whether voluntary or involuntary) which is not dismissed
within ninety (90) calendar days or (iv) makes an
assignment for the benefit of creditors.
5.5. Termination on Change of Control. In the event of a Change
of Control of B&N ***, AOL may terminate this Agreement by
providing thirty (30) days prior written notice to B&N of
such intent to terminate. ***.
5.6. Termination for Impressions Shortfall. If, as of the end of
any Year, the Shortfall with respect to such Year is
greater than ***, B&N may terminate this Agreement by
providing thirty (30) days prior written notice to AOL of
such intent to terminate, such notice to be given within
forty-five (45) days after the end of such Year and to be
effective as of the end of the first Quarter immediately
following such Year.
6. MANAGEMENT COMMITTEE/ARBITRATION. If the Parties are unable to resolve
any dispute, controversy or claim arising under this Agreement
(excluding any disputes relating to intellectual property rights or
confidentiality) (each a "Dispute"), such Dispute shall be submitted to
the Management Committee for resolution. If the Management Committee is
unable to resolve the Dispute within ten (10) business days after
submission to them, the Dispute shall be solely and finally settled by
expedited arbitration in New York, New York under the auspices of the
American Arbitration Association; provided that the Federal Rules of
Evidence shall apply in toto to any such Dispute and, subject to the
arbitrators' discretion to limit the time for and scope of discovery,
the Federal Rules of Civil Procedure shall apply with respect to
discovery; and provided further that, consistent with the parties'
desire to avoid waste of time and unnecessary expense, any Dispute
arising from any provision of the Agreement which expressly or
implicitly provides for the parties to reach mutual agreement as to
certain terms therein shall not be submitted to arbitration but shall
be resolved in good faith by the Management Committee. The arbitrator
may
*** Confidential portions of this document have been redacted and have been
filed separately with the Commission.
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enter a default decision against any Party who fails to participate in
the arbitration proceedings. For purposes herein, the "Management
Committee" shall mean a committee made up of one (1) senior executive
from each of the Parties for the purpose of resolving Disputes under
this Section and generally overseeing the relationship between the
Parties contemplated by this Agreement. Any judgment by the arbitrator
may be enforced in any court of competent jurisdiction. The arbitrator
may not amend the provisions of the Agreement without the written
agreement of the Parties.
7. BROADBAND DISTRIBUTION. To the extent that the AOL Service is delivered
through a broadband distribution modem (e.g., cable modem): (i) B&N
will, at its expense, ***; (ii) ***; and (iii) in the event that AOL's
marketing of the Affiliated B&N Site as provided for herein ***, then
the Parties shall negotiate in good faith regarding a mutually
acceptable framework ***.
8. STANDARD TERMS. The Standard Online Commerce Terms & Conditions set
forth on Exhibit D attached hereto and Standard Legal Terms &
Conditions set forth on Exhibit E attached hereto are each hereby made
a part of this Agreement.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the
Effective Date.
AMERICA ONLINE, INC. BARNESANDNOBLE.COM INC.
By: /s/ illegible By: /s/ Carl S. Rosendorf
--------------------------- --------------------------
Print Name: illegible Print Name: Carl S. Rosendorf
------------------- ------------------------
Title: Senior Vice President Title: Vice President
------------------------ ------------------------
*** Confidential portions of this document have been redacted and have been
filed separately with the Commission.
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EXHIBIT A
Definitions
The following definitions will apply to this Agreement:
Additional B&N Channel. Any other online distribution channel through which B&N
makes available an offering comparable in nature to the Affiliated B&N Site.
Advertising Revenues. The combination of AOL Advertising Revenues and Internet
Advertising Revenues:
AOL Advertising Revenues. Aggregate amounts collected plus the fair
market value of any other compensation received (such as barter
advertising, but excluding coop advertising (which includes advertising
of B&N and B&N Products by members of B&N's "Affiliates Program", and
third party Content permitted under Section 2.1) by B&N or its agents,
as the case may be, arising from the license or sale of advertisements,
promotions, links or sponsorships ("Advertisements") to appear within
any pages of the Affiliated B&N Site which may be exclusively available
to AOL Members ("AOL-based Advertisements"), less applicable
Advertising Sales Commissions.
Internet Advertising Revenues. For each Advertisement on a page of the
Affiliated B&N Site which is not exclusively available to AOL Members,
the product of: (a) the amount collected plus the fair market value of
any other compensation received (such as barter advertising, but
excluding coop advertising (which includes advertising of B&N and B&N
Products by members of B&N's "Affiliates Program", and third party
Content permitted under Section 2.1) by B&N or its agents arising from
the license or sale of such Advertisement attributable to a given
period of time, less applicable Advertising Sales Commissions, and (b)
the quotient of (i) Impressions on the page containing such
Advertisement by AOL Members for such period of time divided by (ii)
total Impressions on the page containing such Advertisement by all
users for such period of time (the "Internet Advertising Quotient") (or
such other percentage or formula as is mutually agreed upon in writing
by the Parties). B&N will be responsible for calculating the Internet
Advertising Quotient related to Internet Advertising Revenues.
Advertising Sales Commission. (i) Actual amounts paid as commission to third
party agencies in connection with sale of the Advertisement or (ii) 15% in the
event the Party has sold the Advertisement directly and will not be deducting
any third party agency commissions.
Affiliated B&N Site. The specific area in the AOL Service to be promoted and
distributed by AOL hereunder through which B&N can market and complete
transactions regarding its Products.
AOL Look and Feel. The elements of graphics, design, organization, presentation,
layout, user interface, navigation and stylistic convention (including the
digital implementations thereof) which are generally associated with Interactive
Sites within the AOL Service or AOL.com.
AOL Member. Any authorized user of the AOL Network, including any sub- accounts
using the AOL Network under an authorized master account.
*** Confidential portions of this document have been redacted and have been
filed separately with the Commission.
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AOL Network. (i) The AOL Service and (ii) any other product or service owned,
operated, distributed or authorized to be distributed by or through AOL or its
affiliates worldwide through which such party elects to offer Promotions.
AOL Purchaser. Any person or entity who enters the Affiliated B&N Site from the
AOL Network, including, without limitation, from any third party area therein
(to the extent entry from such third party area is traceable through both
Parties' commercially reasonable efforts), and generates Transaction Revenues
(regardless of whether such person or entity provides an e-mail address during
registration which includes a domain other than an "AOL.com" domain); provided
that any person or entity reasonably traceable as an AOL Purchaser at the time
of a subsequent purchase who has previously satisfied the definition of AOL
Purchaser will remain an AOL Purchaser, and such subsequent purchase by such
person or entity through a B&N Interactive Site will also give rise to
Transaction Revenues hereunder (and will not be conditioned on the person or
entity's satisfaction of the first clause of this definition set forth above).
AOL Service. The U.S. version of the proprietary America Online(R) brand
service, specifically excluding (a) AOL.com or any other AOL Interactive Site,
(b) any international versions of the AOL Service (e.g., the International
Services), (c) "Driveway," "AOL NetFind," "AOL Instant Messenger" or any
similar, separate sub-product which may be available through the U.S. version of
the America Online(R) brand service, (d) DCI Areas, Greenhouse Properties or any
similar "sub-service" offered by or through the U.S. version of the America
Online(R) brand service, (e) classifieds, yellow pages, search and directory
resources or similar directory products, (f) any other programming or content
area offered by or through the U.S. version of the America Online(R) brand
service over which AOL does not exercise operational control, and (g) any third
party information provider areas or brands which may be acquired by AOL
subsequent to the Effective Date (collectively, the "Excluded Areas"), ***.
Books. New, paper-based, retail books, and electronically delivered versions of
such books (provided such books have ISBN numbers and are enhanced only as to
navigation as such term is currently understood), and new and used college
textbooks (in each case for so long as B&N actively markets such Product
category).
Change of Control. (a) The consummation of a reorganization, merger or
consolidation or sale or other disposition of substantially all of the assets of
a Party other than to an entity controlled by, controlling or under common
control with, such Party; or (b) the acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1933, as amended) of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under such Act) of more than 50% of either (i) the then
outstanding shares of common stock of such Party; or (ii) the combined voting
power of the then outstanding voting securities of such Party entitled to vote
generally in the election of directors.
Confidential Information. Any information relating to or disclosed in the course
of the Agreement, which is or should be reasonably understood to be confidential
or proprietary to the disclosing Party, including, but not limited to, the
material terms of this Agreement, information about AOL Members and B&N
customers, technical processes and formulas, source codes, product designs,
sales, cost and other unpublished financial information, product and business
plans, projections, and marketing data. "Confidential
*** Confidential portions of this document have been redacted and have been
filed separately with the Commission.
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Information" will not include information (a) already lawfully known to or
independently developed by the receiving Party, (b) disclosed in published
materials, (c) generally known to the public, (d) lawfully obtained from any
third party, or (e) information required to be disclosed by law.
Content. Information, materials, features, Products, advertisements, promotions,
links, pointers and software, including any modifications, upgrades, updates,
enhancements and related documentation.
DCI Areas. The comprehensive, local, interactive programming areas created by
Digital Cities, Inc. ("DCI") and distributed under the DCI brand through
AOL-based content forms on the AOL Service (excluding the applicable Excluded
Areas).
Exclusive Service. The marketing of Books online ***.
Greenhouse Properties. Subject to Section 3.5 of the Agreement, the following
interactive content properties majority-owned by Greenhouse Networks, Inc.
("GHN") and distributed under a "Greenhouse"-affiliated brand through AOL-based
content forms on the AOL Service (excluding the applicable Excluded Areas):
Entertainment Asylum, Electra, Love@AOL, Santa's Homepage, and Extreme Fans.
Impressions. User exposure to the page containing the applicable Promotion, as
such exposure may be reasonably determined and measured by AOL in accordance
with its standard methodologies and protocols.
Interactive Service. Any entity or division that as its primary business offers
online or Internet connectivity (or any successor form of connectivity),
aggregates and/or distributes a broad selection of third-party interactive
Content, or provides interactive navigational services ***.
Interactive Site. Any interactive site or area (other than the Affiliated B&N
Site or the AOL Network) which is managed, maintained, owned or controlled by a
Party or its agents, including, by way of example and without limitation, (i) a
Party's site on the World Wide Web portion of the Internet or (ii) a channel or
area delivered through a "push" product such as the Pointcast Network or
interactive environment such as Microsoft's proposed "Active Desktop."
International Services. The versions of the AOL Service currently marketed in
the United Kingdom, France, Japan, Australia and Canada under the AOL brand by
affiliates of AOL, and any future non-U.S. online Internet services marketed
under the AOL brand by AOL or any of its affiliates added pursuant to Section
3.5 of the Agreement, in each case excluding the applicable Excluded Areas.
Level A. Inventory within the AOL Network that would, in both Parties'
reasonable judgment, fall within the ***, based on (the "Measurement Criteria")
(i) *** (or, for promotional inventory which does not have a published ***),
(ii) *** over the prior three month period (or shorter period of availability)
for such inventory, and (iii) ***. ***.
Level B. Inventory within the AOL Network that would, in both Parties'
reasonable judgment, fall within the *** based on the Measurement Criteria. ***.
*** Confidential portions of this document have been redacted and have been
filed separately with the Commission.
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Level C. Inventory within the AOL Network that would, in both Parties'
reasonable judgment, fall within the *** based on the Measurement Criteria. ***.
Licensed Content. All Content offered through the Affiliated B&N Site pursuant
to this Agreement, including any modifications, upgrades, updates, enhancements,
and related documentation.
National Book Retailer. The entities listed on Exhibit F, together with any
future third party entities that have book-retailing operations comparable in
scope and nature to, and materially competitive with, B&N.
Site Revenues. The combination of Transaction Revenues and Advertising Revenues.
Product. Any product, good or service which B&N offers, sells or licenses to AOL
Purchasers through (i) the Affiliated B&N Site (including through any
Interactive Site linked thereto) or (ii) an "offline" means (e.g., toll-free
number) for receiving orders related to specific offers within the Affiliated
B&N Site requiring purchasers to reference a specific promotional identifier or
tracking code.
Quarter. Beginning with the Effective Date, (i) for Year 1, the first two
three-month periods followed by two four-month periods, (ii) for Year 2, the
first three three-month periods followed by one four-month period, and (iii) for
each of Year 3 and Year 4, four three-month periods. For example, in Year 1, the
Quarters would be November 1, 1997 - January 31, 1998, February 1, 1998 - April
30, 1998, May 1, 1998 - August 30, 1998 and September 1, 1998 - December 31,
1998.
Transaction Revenues. Aggregate amounts paid by AOL Purchasers to B&N or its
agents in connection with the sale, licensing, distribution or provision of any
Products, excluding, in each case, (a) handling, shipping, and service charges,
(b) amounts collected for sales or use taxes or duties, and (c) credits and
chargebacks for returned or cancelled goods or services, but not excluding cost
of goods sold or any similar cost.
Year. The first four Quarters in the case of Year 1, the second four Quarters in
the case of Year 2, the third four Quarters in the case of Year 3 and the fourth
four Quarters in the case of Year 4.
*** Confidential portions of this document have been redacted and have been
filed separately with the Commission.
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EXHIBIT B
B&N Cross-Promotion
Online
In each B&N Interactive Site (excluding those devoted to providing information
about physical Barnes & Noble store locations), B&N will include on its homepage
a "Try AOL" feature through which users can obtain promotional information about
AOL products and services and, at AOL's option, download or order AOL's
then-current version of client software for the AOL Service or software for any
other AOL products or services (e.g., AOL's Instant Messenger service).
Offline
In instances when B&N makes promotional reference to its Interactive Sites
(e.g., in television, radio and print advertisements), B&N will include a
specific reference (verbally where possible) of the Affiliated B&N Site's
availability through America Online(R) which is at least equal in prominence to
references for any other B&N Interactive Site. Any listings of the URL(s) for
B&N Interactive Sites by B&N will include a listing of the AOL "keyword" for the
Affiliated B&N Site of at least equal prominence to the URL reference.
- ----------
1 AOL will pay B&N a standard bounty for each person who registers for the
AOL Network using B&N's special identifier for this promotion and
subsequently pays AOL monthly usage fees across at least two (2) billing
cycles for the use of the AOL Network. Note that if this promotion is
delivered through Microsoft's Active Desktop or any other "push" product
(an "Operating System"), such feature will link users directly to AOL
software within the Operating System or direct users without Internet
access to an AOL application setup program within the Operating System (all
subject to any standard policies of the Operating System).
*** Confidential portions of this document have been redacted and have been
filed separately with the Commission.
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EXHIBIT C
Operating Standards
General. Subject to limitations imposed by AOL pursuant to the Agreement (such
as limiting the offering of non-Book Products or third party Content under
Section 2.1), the Affiliated B&N Site (including the Products and other Content
contained therein) will generally be in the top three (3) in the online book
retailing industry with respect to all material, published performance and
quality averages or standards. In that regard, the (i) pricing of Products, (ii)
scope and selection of Products, (iii) quality of Products, (iv) customer
service and fulfillment associated with the marketing and sale of Products, (v)
design/graphical user interface and ease-of-use of the Affiliated B&N Site and
(vi) functionality associated with the Affiliated B&N Site, will, with respect
to each measure, be competitive in all material respects with that which is
offered by any National Book Retailer. AOL reserves the right to conduct focus
group testing to assess the competitiveness of the design, ease-of-use and
functionality of the Affiliated B&N Site.
Hosting; Capacity. B&N will provide all computer servers, routers, switches and
associated hardware in an amount reasonably necessary to meet anticipated
traffic demands, adequate power supply (including generator back-up) and ORWELL,
adequate insurance, adequate service contracts and all necessary equipment
racks, floor space, network cabling, and power distribution to support the
Affiliated B&N Site (collectively, "Hosting Infrastructure"). In the event B&N
fails to satisfy this requirement, AOL will have the right (in addition to any
other remedies available to AOL hereunder) to regulate the promotions it
provides to B&N hereunder to the extent necessary to minimize user delays until
such time as B&N corrects its infrastructure deficiencies.
Speed; Accessibility. B&N will ensure that the performance and availability of
the Affiliated B&N Site: (a) is monitored on a continuous, 24/7 basis and (b)
remains competitive in all material respects with the performance and
availability of other similar sites based on similar form technology. B&N will
use commercially reasonable efforts to ensure that: (a) the functionality and
features within the Affiliated B&N Site are optimized for the AOL client
software then in use by AOL Members; and (b) the Affiliated B&N Site is designed
and populated in a manner that minimizes delays when AOL Members attempt to
access such site.
Service Level Response. B&N agrees to use commercially reasonable efforts to
provide the following service levels in response to problems with or
improvements to the Affiliated B&N Site.
1. For material functions of software that are or have become entirely or
substantially inoperable, B&N will provide a bug fix or workaround within
two business days after the first report of such error.
2. For functions of the software that are impaired or that otherwise fail to
operate in accordance with agreed upon specifications, B&N will provide a
bug fix or workaround within three business days after the first report of
such error.
3. For errors disabling only certain non-essential functions, B&N will provide
a bug fix or workaround within sixty days after the first report of such
error.
*** Confidential portions of this document have been redacted and have been
filed separately with the Commission.
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4. For all other errors, B&N will address these requests on a case-by-case
basis as soon as reasonably feasible.
Monitoring. AOL Network Operations Center (NOC) will work with a B&N- designated
technical contact in the event of any performance malfunction or other emergency
related to the Affiliated B&N Site and will either assist or work in parallel
with B&N's contact using B&N tools and procedures, as applicable. The Parties
will develop a process to monitor performance and member behavior with respect
to access, capacity, security and related issues both during normal operations
and during special promotions/events. The Parties will also enter into a Service
Level Agreement with AOL on customary terms and conditions which will provide
B&N with (a) technical due diligence, and supplemental quarterly review, of the
Affiliated B&N Site, and (b) a primary AOL technical contact.
Telecommunications. The Parties agree to explore encryption methodology to
secure data communications between the Parties' data centers. The network
between the Parties will be configured such that no single component failure
will significantly impact AOL Members. The network will be sized such that no
single line runs at more than 70% average utilization for a five-minute peak in
a daily period.
Security Review. B&N and AOL will work together to perform an initial security
review of, and to perform tests of, the B&N system, network, and service
security in order to evaluate the security risks and provide recommendations to
B&N, including periodic follow-up reviews as reasonably required by B&N or AOL.
B&N will use commercially reasonable best efforts to fix any security risks or
breaches of security as may be identified by AOL's Operations Security. Specific
services to be performed on behalf of B&N by AOL's Operations Security team will
be as determined by AOL in its sole discretion. The Affiliated B&N Site will use
Internet Industry Standard encryption for private member information (i.e.
40-bit SSL encryption).
Technical Performance. B&N will perform the following technical obligations (and
any reasonable updates thereto from time to time by AOL):
1. B&N will design the Affiliated B&N Site to support the Windows versions of
the Microsoft Internet Explorer 4.0, 3.02 (32-bit) and 3.01 (16-bit)
browsers, and make commercially reasonable efforts to support all other AOL
browsers listed at: http://webmaster.info.aol.com/BrowTable.html.
2. B&N will configure the server from which it serves the site to examine the
HTTP User-Agent field in order to identify the AOL Member-Agents listed at:
http://webmaster.info.aol.com/Brow2Text.html (the "AOL Member-Agents").
3. B&N will design its site to support HTTP 1.0 or later protocol as defined
in RFC 1945 (available at http://ds.internic.net/rfc/rfc1945.text) and to
adhere to AOL's parameters for refreshing cached information listed at
http://webmaster.info.aol.com/CacheText.html.
4. B&N will provide continuous navigational ability for AOL Members to return
to a mutually agreed-upon point on the AOL Network from the Affiliated B&N
Site.
5. B&N will use commercially reasonable efforts to ensure that the majority of
the Affiliated B&N Site (in particular its graphics) is designed to conform
with the AOL proxy and caching system.
*** Confidential portions of this document have been redacted and have been
filed separately with the Commission.
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EXHIBIT D
Standard Online Commerce Terms & Conditions
1. AOL Network Distribution. Except for members of B&N's "Affiliates Program,"
B&N will not authorize or permit any third party to distribute or promote the
Affiliated B&N Site through the AOL Network absent AOL's prior written approval.
Nothing in this Section 1 is intended to modify any agreement between AOL and
any member of B&N's "Affiliates Program."
2. Provision of Other Content. In the event that AOL notifies B&N that (i) as
reasonably determined by AOL, any Content within the Affiliated B&N Site
violates AOL's then-standard Terms of Service (as set forth on the America
Online(R) brand service), the terms of this Agreement or any other standard,
written AOL policy or (ii) AOL reasonably objects to the inclusion of any
Content within the Affiliated B&N Site (other than any specific items of Content
which may be expressly identified in this Agreement), then B&N shall take
commercially reasonable steps to block access by AOL Members to such Content
using B&N's then-available technology. In the event that B&N cannot, through its
commercially reasonable efforts, block access by AOL Members to the Content in
question, then B&N shall provide AOL prompt written notice of such fact. AOL may
then, at its option, restrict access from the AOL Network to the Content in
question using technology available to AOL. B&N will cooperate with AOL's
reasonable requests to the extent AOL elects to implement any such access
restrictions.
3. Contests. B&N will take all steps necessary to ensure that any contest,
sweepstakes or similar promotion conducted or promoted through the Affiliated
B&N Site (a "Contest") complies with all applicable federal, state and local
laws and regulations.
4. Navigational Icons. Subject to the prior consent of B&N, which consent will
not be unreasonably withheld with respect to links within the AOL Network, AOL
will be entitled to establish navigational icons, links and pointers connecting
the Affiliated B&N Site (or portions thereof) with other content areas on or
outside of the AOL Network.
5. Disclaimers. Upon AOL's request, B&N agrees to include within the Rainman
Screens a product disclaimer (the specific form and substance to be mutually
agreed upon by the Parties) indicating that transactions are solely between B&N
and AOL Members purchasing products from B&N.
6. AOL Look and Feel. B&N acknowledges and agrees that AOL will own all right,
title and interest in and to the elements of graphics, design, organization,
presentation, layout, user interface, navigation and stylistic convention
(including the digital implementations thereof) which are generally associated
with online areas contained within the AOL Network ("the AOL Look and Feel"),
subject to B&N's ownership rights in any B&N trademarks, copyrighted material or
other material in which B&N has a proprietary interest, within the Affiliated
B&N Site.
7. Management of the Affiliated B&N Site. B&N will manage, review, delete, edit,
create, update and otherwise manage all Products available on or through the
Affiliated B&N Site, in a timely and professional manner and in accordance with
the terms of this Agreement. B&N will use its best efforts to ensure that the
Affiliated B&N Site is current, accurate and well-
*** Confidential portions of this document have been redacted and have been
filed separately with the Commission.
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organized at all times. B&N warrants that the Affiliated B&N Site, including all
Products and Contents available therein: (i) will not infringe on or violate any
copyright, trademark, U.S. patent or any other third party right, including
without limitation, any music performance or other music-related rights; (ii)
will not violate AOL's then-applicable Terms of Service; and (iii) will not
contain any Product which violates any applicable law or regulation, including
those relating to contests, sweepstakes or similar promotions. AOL will have no
obligations with respect to the Products available on or through the Affiliated
B&N Site, including, but not limited to, any duty to review or monitor any such
Products.
8. Duty to Inform. B&N will promptly inform AOL of any information of which it
has knowledge related to the B&N Service or Affiliated B&N Site which could
reasonably lead to a claim, demand, or liability of or against AOL and/or its
affiliates by any third party.
9. Customer Service. It is the sole responsibility of B&N to provide customer
service to persons or entities purchasing Products through the AOL Network
("Customers"). B&N will bear full responsibility for all customer service,
including without limitation, order processing, billing, fulfillment, shipment,
collection and other customer service associated with any Products offered, sold
or licensed through the Affiliated B&N Site, and AOL will have no obligations
whatsoever with respect thereto. B&N will receive all emails from Customers via
a computer available to B&N's customer service staff and generally respond to
such emails within one business day of receipt. B&N will receive all orders
electronically and generally process all orders within one business day of
receipt, provided Products ordered are not advance order items. B&N will ensure
that all orders of Products are received, processed, fulfilled and delivered on
a timely and professional basis. B&N will offer AOL Members who purchase
Products through such Affiliated B&N Site a money back satisfaction guarantee.
B&N will bear all responsibility for compliance with federal, state and local
laws in the event that Products are out of stock or are no longer available at
the time an order is received. B&N will also comply with the requirements of any
federal, state or local consumer protection or disclosure law. Payment for
Products will be collected by B&N directly from customers. B&N's order
fulfillment operation will be subject to AOL's reasonable review.
10. Production Work. In the event that B&N requests AOL's production assistance
in connection with (i) ongoing programming and maintenance related to the
Affiliated B&N Site, (ii) a redesign of or addition to the Affiliated B&N Site
(e.g., a change to an existing screen format or construction of a new custom
form), (iii) production to modify work performed by a third party provider or
(iv) any other type of production work, B&N will work with AOL to develop a
detailed production plan for the requested production assistance (the
"Production Plan"). Following receipt of the Production Plan, AOL will notify
B&N of (i) AOL's availability to perform the requested production work, (ii) the
proposed fee or fee structure for the requested production and maintenance work
and (iii) the estimated development schedule for such work. To the extent the
Parties reach agreement regarding implementation of an agreed-upon Production
Plan, such agreement will be reflected in a separate work order signed by the
Parties. To the extent B&N elects to retain a third party provider to perform
any such production work, work produced by such third party provider must
generally conform to AOL's production Standards & Practices (a copy of which
will be supplied by AOL to B&N upon request). The specific production resources
which AOL allocates to any production work to be performed on behalf of B&N will
be as determined by AOL in its sole discretion.
*** Confidential portions of this document have been redacted and have been
filed separately with the Commission.
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11. Overhead Accounts. AOL will grant B&N a reasonable number of overhead
accounts on the AOL Network. B&N will be responsible for the actions taken under
or through its overhead accounts, which actions are subject to AOL's applicable
Terms of Service and for any surcharges, including, without limitation, all
premium charges, transaction charges, and any applicable communication
surcharges incurred by any overhead Account issued to B&N, but B&N will not be
liable for charges incurred by any overhead account relating to AOL's standard
monthly usage fees and standard hourly charges, which charges AOL will bear.
Upon the termination of this Agreement, all overhead accounts, related screen
names and any associated usage credits or similar rights, will automatically
terminate. AOL will have no liability for loss of any data or content related to
the proper termination of any overhead account.
12. Merchant Certification Program. If B&N elects to participate in any
generally applicable "Certified Merchant" program operated by AOL or its
authorized agents or contractors, B&N will need to, on an ongoing basis, meet
certain reasonable standards relating to provision of electronic commerce
through the AOL Network and B&N may also be required to pay certain reasonable
certification fees to the applicable entity operating the program.
*** Confidential portions of this document have been redacted and have been
filed separately with the Commission.
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EXHIBIT E
Standard Legal Terms & Conditions
1. Promotional Materials/Press Releases. Each Party will submit to the other
Party, for its prior written approval, which will not be unreasonably withheld
or delayed, any marketing, advertising, press releases, and all other
promotional materials related to the Affiliated B&N Site and/or referencing the
other Party and/or its trade names, trademarks, logos and service marks (the
"Materials"); provided, however, that either Party's use of unaltered screen
shots of the Affiliated B&N Site for promotional purposes will not require the
approval of the other Party so long as the AOL Network is clearly identified as
the source of such screen shots. Each Party will solicit and reasonably consider
the views of the other Party in designing and implementing such Materials. Once
approved, the Materials may be used by a Party and its affiliates for the
purpose of promoting the Affiliated B&N Site and the content contained therein
and reused for such purpose until such approval is withdrawn with reasonable
prior notice. In the event such approval is withdrawn, reasonable quantities of
existing inventories of Materials may be depleted. Notwithstanding the
foregoing, either Party may issue press releases and other disclosures as
required by law or as reasonably advised by legal counsel without the consent of
the other Party and in such event, prompt notice thereof will be provided to the
other Party.
2. License. B&N hereby grants AOL a non-exclusive worldwide license to market,
license, distribute, reproduce, display, perform, transmit and promote the
Affiliated B&N Site and, for the benefit of the Affiliated B&N Site, the
Products contained therein (or any portion thereof) through such areas or
features of the AOL Network as AOL deems appropriate. AOL Members will have the
right to access and use the Affiliated B&N Site. Subject to the foregoing
license, B&N retains all right, title and interest in the Affiliated B&N Site
and the Contents thereof.
3. Trademark License. In designing and implementing the Materials and subject to
the other provisions contained herein, including without limitation Section 1
above, (a) B&N will be entitled to use the following trade names, trademarks,
and service marks of AOL (collectively, the "AOL Marks"): the "America
Online(R)" brand service, "AOL(TM)" service/software and AOL's triangle logo;
and AOL and its Affiliates will be entitled to use the "Barnes & Noble(R)"
trademark (the "B&N Mark, and together with the AOL Marks, the "Marks");
provided that each Party: (i) does not create a unitary composite mark involving
a Mark of the other Party without the prior written approval of such other
Party; and (ii) displays symbols and notices clearly and sufficiently indicating
the trademark status and ownership of the other Party's Marks as instructed by
the other Party.
4. Ownership of Trademarks. Each Party acknowledges the ownership of the other
Party in the Marks of the other Party and agrees that all use of the other
Party's Marks will inure to the benefit, and be on behalf, of the other Party.
Each Party acknowledges that its utilization of the other Party's Marks will not
create in it, nor will it represent it has, any right, title, or interest in or
to such Marks other than the licenses expressly granted herein. Each Party
agrees not to do anything contesting or impairing the trademark rights of the
other Party.
5. Quality Standards. Each Party agrees that the nature and quality of its
products and services supplied in connection with the other Party's Marks
*** Confidential portions of this document have been redacted and have been
filed separately with the Commission.
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will conform to quality standards set by the other Party. Each Party agrees to
supply the other Party, upon request, with a reasonable number of samples of any
Materials publicly disseminated by such Party which utilize the other Party's
Marks. Each Party will comply with all applicable laws, regulations, and customs
and obtain any required government approvals pertaining to use of the other
Party's marks.
6. Infringement Proceedings. Each Party agrees to promptly notify the other
Party of any unauthorized use of the other Party's Marks of which it has actual
knowledge. Each Party will have the sole right and discretion to bring
proceedings alleging infringement of its Marks or unfair competition related
thereto; provided, however, that each Party agrees to provide the other Party
with its reasonable cooperation and assistance with respect to any such
infringement proceedings.
7. Representations and Warranties. Each Party represents and warrants to the
other Party that: (i) such Party has the full corporate right, power and
authority to enter into this Agreement and to perform the acts required of it
hereunder; (ii) the execution of this Agreement by such Party, and the
performance by such Party of its obligations and duties hereunder, do not and
will not violate any agreement to which such Party is a party or by which it is
otherwise bound; (iii) when executed and delivered by such Party, this Agreement
will constitute the legal, valid and binding obligation of such Party,
enforceable against such Party in accordance with its terms; and (iv) such Party
acknowledges that the other Party makes no representations, warranties or
agreements related to the subject matter hereof that are not expressly provided
for in this Agreement. Each Party further represents and warrants to the other
Party that it is the sole and exclusive owner of the B&N Mark or the AOL Marks,
as the case may be, and/or has the right and power to license to the other Party
the B&N Mark or the AOL Marks, as the case may be, and such license does not and
will not (i) breach, conflict with or constitute a default under any agreement
or other instrument applicable to such Party or binding upon its assets or
properties or (ii) infringe upon any trademark, trade name, service mark,
copyright or other proprietary right of any other person or entity.
8. Confidentiality. Each Party acknowledges that Confidential Information may be
disclosed to the other Party during the course of this Agreement. Each Party
agrees that it will take reasonable steps, at least substantially equivalent to
the steps it takes to protect its own proprietary information, during the term
of this Agreement, and for a period of five (5) years following expiration or
termination of this Agreement, to prevent the duplication or disclosure of
Confidential Information of the other Party, other than by or to its employees
or agents who must have access to such Confidential Information to perform such
Party's obligations hereunder. Notwithstanding the foregoing, either Party may
issue a press release or other disclosure containing Confidential Information
without the consent of the other Party, to the extent such disclosure is
required by law, rule, regulation or government or court order. In such event,
the disclosing Party will provide at least five (5) business days prior written
notice of such proposed disclosure to the other Party. Further, in the event
such disclosure is required of either Party under the laws, rules or regulations
of the Securities and Exchange Commission or any other applicable governing
body, such Party will (i) redact mutually agreed-upon portions of this Agreement
to the fullest extent permitted under applicable laws, rules and regulations and
(ii) submit a request to such governing body that such portions and other
provisions of this Agreement receive confidential treatment under the laws,
rules and regulations of the Securities and
*** Confidential portions of this document have been redacted and have been
filed separately with the Commission.
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<PAGE>
Exchange Commission or otherwise be held in the strictest confidence to the
fullest extent permitted under the laws, rules or regulations of any other
applicable governing body.
9. Limitation of Liability; Disclaimer; Indemnification.
9.1. Liability. UNDER NO CIRCUMSTANCES WILL EITHER PARTY BE LIABLE TO THE OTHER
PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES
(EVEN IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES),
ARISING FROM BREACH OF THE AGREEMENT, THE SALE OF PRODUCTS, THE USE OR INABILITY
TO USE THE AOL NETWORK, THE AOL SERVICE, AOL.COM OR THE AFFILIATED B&N SITE, OR
ARISING FROM ANY OTHER PROVISION OF THIS AGREEMENT, SUCH AS, BUT NOT LIMITED TO,
LOSS OF REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS ("COLLECTIVELY,
"DISCLAIMED DAMAGES"); PROVIDED THAT EACH PARTY WILL REMAIN LIABLE TO THE OTHER
PARTY TO THE EXTENT ANY DISCLAIMED DAMAGES ARE CLAIMED BY A THIRD PARTY AND ARE
SUBJECT TO INDEMNIFICATION PURSUANT TO SECTION 9.3. EXCEPT AS PROVIDED IN
SECTION 9.3, NEITHER PARTY WILL BE LIABLE TO THE OTHER PARTY FOR MORE THAN
$40,000,000; PROVIDED THAT EACH PARTY WILL REMAIN LIABLE FOR THE AGGREGATE
AMOUNT OF ANY PAYMENT OBLIGATIONS OWED TO THE OTHER PARTY PURSUANT TO SECTION 4.
9.2. No Additional Warranties. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT,
NEITHER PARTY MAKES ANY, AND EACH PARTY HEREBY SPECIFICALLY DISCLAIMS ANY
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING THE AOL NETWORK,
THE AOL SERVICE, AOL.COM OR THE AFFILIATED B&N SITE, INCLUDING ANY IMPLIED
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND IMPLIED
WARRANTIES ARISING FROM COURSE OF DEALING OR COURSE OF PERFORMANCE. WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING, AOL SPECIFICALLY DISCLAIMS ANY
WARRANTY REGARDING THE PROFITABILITY OF THE AFFILIATED B&N SITE.
9.3. Indemnity. Either Party will defend, indemnify, save and hold harmless the
other Party and the officers, directors, agents, affiliates, distributors,
franchisees and employees of the other Party from any and all third party
claims, demands, liabilities, costs or expenses, including reasonable attorneys'
fees ("Liabilities"), resulting from the indemnifying Party's material breach of
any duty, representation, or warranty of this Agreement, except where
Liabilities result from the gross negligence or knowing and willful misconduct
of the other Party.
9.4. Claims. Each Party agrees to (i) promptly notify the other Party in writing
of any indemnifiable claim and give the other Party the opportunity to defend or
negotiate a settlement of any such claim at such other Party's expense, and (ii)
cooperate fully with the other Party, at that other Party's expense, in
defending or settling such claim. AOL reserves the right, at its own expense, to
assume the exclusive defense and control of any matter otherwise subject to
indemnification by B&N hereunder, and in such event, B&N will have no further
obligation to provide indemnification for such matter hereunder.
9.5. Acknowledgment. AOL and B&N each acknowledges that the provisions of this
Agreement were negotiated to reflect an informed, voluntary allocation between
them of all risks (both known and unknown) associated with the transactions
contemplated hereunder. The limitations and disclaimers related to warranties
and liability contained in this Agreement are intended to limit the
circumstances and extent of liability. The provisions of this Section 9 will be
enforceable independent of and severable from any other enforceable or
unenforceable provision of this Agreement.
*** Confidential portions of this document have been redacted and have been
filed separately with the Commission.
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<PAGE>
10. Solicitation of AOL Members. During the term of this Agreement, and for the
two-year period following the expiration or termination of this Agreement,
neither B&N nor its agents will use the AOL Network to (i) solicit, or
participate in the solicitation of AOL Members when that solicitation is for the
benefit of any entity (including B&N) which could reasonably be construed to be
or become in competition with AOL or (ii) promote any services which could
reasonably be construed to be in competition with AOL including, but not limited
to, services available through the Internet. In addition, B&N may not send AOL
Members e-mail communications promoting B&N's Products through the AOL Network
without a "Prior Business Relationship." For purposes of this Agreement, a
"Prior Business Relationship" will mean that the AOL User has either (i) engaged
in a transaction with B&N through the AOL Network or (ii) voluntarily provided
information to B&N through a contest, registration, or other communication,
which included notice to the AOL User that the information provided by the AOL
User could result in an e-mail being sent to that AOL User by B&N or its agents.
A Prior Business Relationship does not exist by virtue of an AOL User's visit to
an Affiliated B&N Site (absent the elements above). More generally, B&N will be
subject to any standard policies regarding e-mail distribution through the AOL
Network which AOL may implement.
11. Collection of User Information. B&N is prohibited from collecting AOL Member
screennames from public or private areas of the AOL Network, except as
specifically provided below. B&N will ensure that any survey, questionnaire or
other means of collecting AOL Member screennames or AOL User email addresses,
names, addresses or other identifying information ("User Information"),
including, without limitation, requests directed to specific AOL Member
screennames and automated methods of collecting screennames (an "Information
Request") complies with (i) all applicable laws and regulations and (ii) any
privacy policies which have been issued by AOL in writing during the Term (the
"AOL Privacy Policies"). Each Information Request will clearly and conspicuously
specify to the AOL Members at issue the purpose for which User Information
collected through the Information Request will be used (the "Specified
Purpose").
12. Use of User Information. B&N will restrict use of the User Information
collected through an Information Request to the Specified Purpose. In no event
will B&N (i) provide User Information to any third party (except to the extent
specifically (a) permitted under the AOL Privacy Policies or (b) authorized by
the members in question), (ii) rent, sell or barter User Information, (iii)
identify, promote or otherwise disclose such User Information in a manner that
identifies AOL Members as end-users of the AOL Service, AOL.com or the AOL
Network or (iv) otherwise use any User Information in contravention of Section
10 above. Notwithstanding the foregoing, in the case of AOL Members who purchase
Products from B&N, B&N will be entitled to use User Information from such AOL
Members as part of B&N's aggregate list of Customers; provided that B&N's use
does not in any way identify, promote or otherwise disclose such User
Information in a manner that identifies AOL Members as end-users of the AOL
Service, AOL.com or the AOL Network. In addition, B&N will not use any User
Information for any purpose (including any Specified Purpose) not directly
related to the business purpose of the Affiliated B&N Site.
13. Excuse. Neither Party will be liable for, or be considered in breach of or
default under this Agreement on account of, any delay or failure to perform as
required by this Agreement as a result of any causes or conditions which are
beyond such Party's reasonable control and which such Party is unable to
overcome by the exercise of reasonable diligence.
*** Confidential portions of this document have been redacted and have been
filed separately with the Commission.
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<PAGE>
14. Independent Contractors. The Parties to this Agreement are independent
contractors. Neither Party is an agent, representative or partner of the other
Party. Neither Party will have any right, power or authority to enter into any
agreement for or on behalf of, or incur any obligation or liability of, or to
otherwise bind, the other Party. This Agreement will not be interpreted or
construed to create an association, agency, joint venture or partnership between
the Parties or to impose any liability attributable to such a relationship upon
either Party.
15. Notice. Any notice, approval, request, authorization, direction or other
communication under this Agreement will be given in writing and will be deemed
to have been delivered and given for all purposes on the delivery date if
delivered by electronic mail on the AOL Network or (i) on the delivery date if
delivered personally to the Party to whom the same is directed or by a
commercial overnight carrier, with written verification of receipt, or (ii) five
business days after the mailing date, whether or not actually received, if sent
by U.S. mail, return receipt requested, postage and charges prepaid, or any
other means of rapid mail delivery for which a receipt is available, (a) if to
AOL, to David Colburn with a copy to Adam Lehman, each at the address of AOL set
forth in the first paragraph of this Agreement, and (b) if to B&N, to Carl
Rosendorf at the address of AOL set forth in the first paragraph of this
Agreement, with a copy to Jay Dorman at Robinson Silverman Pearce Aronsohn &
Berman LLP, 1290 Avenue of the Americas, New York, New York 10104.
16. No Waiver. The failure of either Party to insist upon or enforce strict
performance by the other Party of any provision of this Agreement or to exercise
any right under this Agreement will not be construed as a waiver or
relinquishment to any extent of such Party's right to assert or rely upon any
such provision or right in that or any other instance; rather, the same will be
and remain in full force and effect.
17. Return of Information. Upon the expiration or termination of this Agreement,
each Party will, upon the written request of the other Party, return or destroy
(at the option of the Party receiving the request) all confidential information,
documents, manuals and other confidential materials specified by the other
Party.
18. Survival. Sections 8 through 12 of this Exhibit will survive the completion,
expiration, termination or cancellation of this Agreement.
19. Entire Agreement. This Agreement sets forth the entire agreement and
supersedes any and all prior agreements of the Parties with respect to the
transactions set forth herein, including without limitation the Interactive
Marketing Agreement between the Parties dated as of January 24, 1997, except for
advertising ordered prior to the execution of the Agreement plus approximately
$44,000 of additional advertising to be ordered under Section 3.3 of the prior
agreement. Neither Party will be bound by, and each Party specifically objects
to, any term, condition or other provision which is different from or in
addition to the provisions of this Agreement (whether or not it would materially
alter this Agreement) and which is proffered by the other Party in any
correspondence or other document, unless the Party to be bound thereby
specifically agrees to such provision in writing.
20. Amendment. No change, amendment or modification of any provision of this
Agreement will be valid unless set forth in a written instrument signed by the
Party subject to enforcement of such amendment.
*** Confidential portions of this document have been redacted and have been
filed separately with the Commission.
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<PAGE>
21. Further Assurances. Each Party will take such action (including, but not
limited to, the execution, acknowledgment and delivery of documents) as may
reasonably be requested by any other Party for the implementation or continuing
performance of this Agreement.
22. Assignment. Neither Party will assign this Agreement or any right, interest
or benefit under this Agreement without the prior written consent of the other
Party,***. Subject to the foregoing, this Agreement will be fully binding upon,
inure to the benefit of and be enforceable by the Parties hereto and their
respective successors and assigns.
23. Construction; Severability. In the event that any provision of this
Agreement conflicts with the law under which this Agreement is to be construed
or if any such provision is held invalid by a court with jurisdiction over the
Parties to this Agreement, (i) such provision will be deemed to be restated to
reflect as nearly as possible the original intentions of the Parties in
accordance with applicable law, and (ii) the remaining terms, provisions,
covenants and restrictions of this Agreement will remain in full force and
effect.
24. Remedies. Except where otherwise specified, the rights and remedies granted
to a Party under this Agreement are cumulative and in addition to, and not in
lieu of, any other rights or remedies which the Party may possess at law or in
equity; provided that, in connection with any dispute hereunder, B&N will be not
entitled to offset any disputed amounts that it claims to be due and payable
from AOL against amounts otherwise payable by B&N to AOL.
25. Applicable Law; Jurisdiction. This Agreement will be interpreted, construed
and enforced in all respects in accordance with the laws of the Commonwealth of
Virginia except for its conflicts of laws principles.
26. Export Controls. Both Parties will adhere to all applicable laws,
regulations and rules relating to the export of technical data and will not
export or re-export any technical data, any products received from the other
Party or the direct product of such technical data to any proscribed country
listed in such applicable laws, regulations and rules unless properly
authorized.
27. Headings. The captions and headings used in this Agreement are inserted for
convenience only and will not affect the meaning or interpretation of this
Agreement.
28. Counterparts. This Agreement may be executed in counterparts, each of which
will be deemed an original and all of which together will constitute one and the
same document.
*** Confidential portions of this document have been redacted and have been
filed separately with the Commission.
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<PAGE>
EXHIBIT F
National Book Retailers
***
***
***
***
***
***
*** Confidential portions of this document have been redacted and have been
filed separately with the Commission.
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<PAGE>
EXHIBIT G
***
See attached items.
*** Confidential portions of this document have been redacted and have been
filed separately with the Commission.
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<PAGE>
Microsoft Confidential
CONFIDENTIAL TREATMENT REQUESTED. Confidential portions of this
document have been redacted and have been separately filed with
the Commission.
ECOMMERCE MERCHANT
AGREEMENT FOR The Plaza on MSN
- --------------------------------------------------------------------------------
P R E A M B L E
- --------------------------------------------------------------------------------
The Microsoft Network, L.L.C., a Delaware limited liability company ("MSP"), by
and through its manager, Microsoft Corporation ("Microsoft"), agrees with the
undersigned ("Merchant") that the Merchant specified in the Schedule will be
offered a link mall service to "Merchant Site", www.barnesandnoble.com, as part
of The Microsoft Network pursuant to the General Terms and all Exhibits and
Riders attached hereto. Terms not defined shall have the meanings ascribed to
them in the General Terms attached hereto.
- --------------------------------------------------------------------------------
S C H E D U L E
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Merchant Name: BarnesandNoble.com Inc.
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- --------------------------------------------------------------------------------
Entity Type (if incorporated, state place of incorporation): Delaware
Principal Place of Business (list state if in U.S.A.; list country if outside
U.S.A.):
Merchant Address
122 Fifth Avenue, New York, NY 10011
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- --------------------------------------------------------------------------------
*** Confidential Portions of this document have redacted and have been
separately filed with the Commission.
<PAGE>
Address for Notices:
(122 Fifth Avenue, NY 10011
Phone: Attention: Carl Rosendoft, Vice President, New Business Development
Facsimile Number: 212-727-7343
Email Address ([email protected])
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MSP SERVICES:
MSP will provide live link(s) from the Microsoft Web Site(s) as designated by
MSP in its sole discretion, to The Plaza on MSN on MSN's Premier Service. From
The Plaza on MSN on MSN's Premier Service, MSP will provide a link directly to
the Merchant Web Site.
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- --------------------------------------------------------------------------------
Merchant SERVICES:
Merchants co-branded URL: http://www.barnesandnoblt.com
Merchants e-mail address for Customer Service to the co-branded site: (your
customer service e-mail address here)
Merchant.
Merchant shall deliver via e-mail to MSP within seven (7) days after the last
day of each week an accounting setting forth the amount of Gross Revenue, the
basis of the calculation thereof, the amount of commission payable, if any, for
such period and sales/title tracking information (which shall include a tracking
mechanism that determines through which Microsoft Web Site a Microsoft customers
has obtained access to the Merchant site, in addition to Monthly User
information which must include at a minimum:
- Traffic by referring web link
- Number of page views
- Number of unique users)
In addition, Merchant will supply MSP with a password, beginning December 1,
1997, which will enable MSP to enter a password protected area on the Merchant
Site and obtain MSP's accounting statistics as of a recent date.
In addition, within thirty (30) days after the end of each three-month
anniversary of the date of execution of this Agreement, Merchant will provide
MSP with a statement of activity containing information similar in nature to
that described in the clause above.
Merchant will maintain sole responsibility for all costs for Merchant Site
development, management, tracking, support, and maintenance. Merchant will
ensure that the site content is refreshed as appropriate on a regular basis.
Merchant will make every reasonable effort to ensure that site is "live" for all
customers. MSP will maintain sole responsibility for all costs for The Plaza on
MSN's Premier Service, including development, management, support, and
maintenance.
*** Confidential Portions of this document have redacted and have been
separately filed with the Commission.
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<PAGE>
Merchant is solely responsible for product quality, product availability,
product fulfillment and customer service for all Products and or services
offered and/or sold on the Merchant Site. MSP acts as a link operator only, and
will provide marketing support only as noted in this contract under Special
Provisions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Fees:
Guaranteed ***: During the Term Merchant shall pay $*** to MSP ***. Merchant is
responsible for ensuring that all payments are made on a timely basis, MSP will
not invoice Merchant for any amounts owing pursuant to this Agreement
Commission: In addition to the Guaranteed Fee, Merchant shall pay MSP *** of
Merchant's Gross Revenue less actual returns and actual bad debt incurred during
the applicable period. Each *** period (based on the anniversary date of
execution of this Agreement) Merchant shall be entitled to *** (or the
equivalent of ***) of the Guaranteed Fee applicable to *** period from any
Commissions owing to MSP for the applicable *** period. *** All payments of the
Fees must be in a form acceptable to MSP, in its sole discretion, and addressed
to Deborah Levinger, c/o Microsoft Corporation, One Microsoft Way, Redmond, WA
98052
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Term Start Date:
15 October 1997
Term end Date:
***
Renewal Options (if any):
***
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Special Provisions (if any):
Merchant will provide the following:
- - Electronic mail capabilities between the customer and Merchant and customer
service standards & practices***.
- - ***
- - ***
*** Confidential Portions of this document have redacted and have been
separately filed with the Commission.
-3-
<PAGE>
- - The Plaza on MSN on MSN's Premier Service's "GO BACK to The Plaza" button or
similar reverse link agreed upon by both parties - to be used for linking from
the Merchant site back to The Plaza on MSN on MSN Premier Service at
www.plaza.msn.com. This link will be available on Merchant site no later than
January 1, 1998.
- - ***
MSP will provide the following:
- - The Plaza on MSN on MSN's Premier Service's "GO BACK to The Plaza" button or
similar reverse link agreed upon by both parties - to be used for linking from
the Merchant site back to The Plaza on MSN on MSN Premier Service at
www.plaza.msn.com. This will be determined by MSP in its sole discretion, and
will be available on Merchant site no later than January 1,1998.
- - ***
- - ***
- - ***
- - Provided that Merchant's Site is fully functional and all other aspects
necessary to link between The Plaza on MSN on MSN's Premier Service and such
Merchant Site are completed no later than 15 October 1997 then MSP***. General
"bookseller" shall mean any bookseller excluding specialty booksellers and/or
Merchants whose primary business is not selling books, but may sell books as a
part of their total product offering.
- - ***
MSP disclaims any implied warrants, promises, or guarantees of site traffic to
Merchants, number of unique users/consumers, Merchant product promotion
rotation, or industry-specific exclusivity. Merchant disclaims any implied
warranties, promises, or guarantees of commissions (other than the Guaranteed
Fee) payable to MSP hereunder.
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- --------------------------------------------------------------------------------
E N D O F S C H E D U L E
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
*** Confidential Portions of this document have redacted and have been
separately filed with the Commission.
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<PAGE>
THIS AGREEMENT CONSISTS OF THE PREAMBLE, THE SCHEDULE, THE GENERAL TERMS, AND
ALL ATTACHED RIDERS AND EXHIBITS THAT ARE SIGNED ON BEHALF OF BOTH MSP AND
Merchant.
THE MICROSOFT NETWORK, L.L.C. BarnesandNoble.com Inc.
("MSP"), by and through its ("Merchant")
manger, MICROSOFT CORPORATION
("Microsoft")
By (signature) /s/ D. Levinger By (signature) /s/ Carl S. Rosendorf, VP
Name D. Levinger Name Carl Rosendorf
Title Business Manager, The Plaza Title Vice President-New Business
The Plaza Development
Date: 10/27/97 Date:
GENERAL TERMS
1. Definitions. As used herein, the following terms are defined and used in this
Agreement as follows:
1.1 Affiliate. When used in reference to either party, any company or
entity which controls, or is controlled by, or is under common control with such
party.
1.2 Gross Revenue. The aggregate of all kinds of consideration, including,
but not limited to, cash, barter and any other in-kind consideration, received
by Merchant or any other party on behalf of Merchant for purchases initiated at
The Plaza on MSN on MSN's Premier Service, any Microsoft Web Site, the MSN
Transition Page or the Mirrored Web Site.
1.3 Microsoft Web Sites. Web sites operated by or affiliated with MSP which
may include, at MSP's sole discretion for the purposes hereof, MSN Premier
Service, MSNBC, msn.com, home.microsoft.com and/or other services as they become
available.
1.4 MSN. The Microsoft Network online service, operating on open Microsoft
and/or internet-based platforms, including, without limitation, (a) www.msn.com
and related Web Sites (which may include those managed by third parties and
those based overseas by MSP or Microsoft), and (b) MSN-branded Web pages that
are part of a third party's Web Site.
1.5 Plaza Tenant. Each Web Site operator participating in The Plaza on MSN
on MSN's Premier Service.
1.6 The Plaza on MSN on MSN's Premier Service. The MSN service referred to
as "The Plaza on MSN on MSN's Premier Service on MSN" or by such other name as
MSP may determine in its sole discretion (as solely branded by MSP or co-branded
with its sponsors) in which goods and services from Plaza Tenants are offered
for purchase.
1.7 Product. Any product or service sold or otherwise provided by Merchant
to a customer or internet user during access by such customer or internet user
to the Merchant Site by means of The Plaza on MSN on MSN's Premier Service, or
any other Microsoft Web Site.
*** Confidential Portions of this document have redacted and have been
separately filed with the Commission.
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<PAGE>
1.8 Web (and related terms). That part of the Internet known as the World
Wide Web, containing, inter alia, pages written in hypertext markup language
(HTML). A "Web page" is a document on the Web which has a distinct URL address.
A "Web Site" is a collection of inter-related Web pages.
1.9 Net Sales. Gross Revenue less amounts collected by Merchant for sales
taxes, duties, gift wrapping, shipping, handling, and similar charges, amounts
due to credit card fraud and bad debt and credits for returned goods. All
available books on the Merchant Site will be included in the computation of Net
Sales, regardless of whether the book is a Fast Delivery or a Special Order
item.
2. Term. ***
3. Merchant Obligations.
3.1 Generally. Merchant will enable access to the Merchant Site throughout
the Term. The Merchant will monitor all sales and other activity in the Merchant
Site to verify ongoing operation of the Merchant Site and its capacity to track
customers and/or Internet users accessing the Merchant Site by means of The
Plaza on MSN on MSN's Premier Service. Merchant will ensure that customers and
Internet users are timely advised of their purchases and will, for audit
purposes only, provide MSP with electronic copies.
3.2 No Exclusivity. The Merchant Site is not exclusive to MSN; that is, at
all times during the Term, the Merchant Site may offer any Internet users the
right and/or ability to purchase Products at the Merchant Site by any means.
4. MSP Obligations.
4.1 ***
5. Promotion and Marketing.
5.1 Generally. *** All such activities as undertaken by either party will
comply with applicable laws and regulations.
5.2 Use of Materials. (a) Subject to Merchant's prior written approval,
which shall not be unreasonably withheld, MSP may use the name and logo of the
Merchant Site (as provided in Section 15) in promoting, advertising and
marketing The Plaza on MSN on MSN's Premier Service, provided that references to
Merchant and/or the Merchant Site and use of Merchant and/or Merchant Site logos
will be in compliance with Section 15 and be less prominent than references to
The Plaza on MSN on MSN's Premier Service and/or use of MSN logos or screen
shots. Provided that Merchant provides MSP with not less than three current,
preapproved screen shots of the Merchant Site, MSP's use of other screen shots
from the Merchant Site in MSN marketing for The Plaza on MSN on MSN's Premier
Service will be subject to Merchant's prior written approval. All requests for
Merchant's approval shall be deemed approved if Merchant fails to respond to any
request by MSP under this paragraph within 5 business days. Merchant will use
its best efforts to use the materials in accordance with MSP's policies. MSP
will provide Merchant with such policies as they are amended from time to time.
All approvals expire upon expiration of this contract. (b) Subject to MSP's
written approval, which will not be unreasonably withheld, Merchant may use
MSN's name and logo, and MSN-furnished marketing materials, provided that all
such use will be in compliance with Section 15 and MSP policies. Merchant agrees
to use MSN-furnished marketing materials solely for the purpose of promoting,
advertising and marketing the availability of the Merchant Site on The Plaza on
MSN on MSN's Premier Service. Merchant may not use screen shots of MSN areas or
sites outside the
*** Confidential Portions of this document have redacted and have been
separately filed with the Commission.
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<PAGE>
Merchant Site for any purpose. All requests for MSP's approval shall be deemed
approved if MSP fails to respond to any request by Merchant under this paragraph
within 5 business days. Merchant will use its best efforts to use the materials
in accordance with MSP's policies; provided that MSP furnishes to Merchant such
policies as they are amended from time to time. All approvals expire upon
expiration of this contract.
6. Sponsorship and Advertising. MSP may include paid advertising, consisting of
Web link banners, in The Plaza on MSN on MSN's Premier Service. MSP may also
designate sponsors of all or any portion of The Plaza on MSN on MSN's Premier
Service as it deems advisable.
7. Product Transactions.
7.1 MSP will be entitled to the fee(s) specified in the Schedule.
7.2 Statements. Refer to applicable terms of Schedule.
(a) MSP may, at its expense, cause an audit to be made of the
applicable records in order to verify statements issued by Merchant. Such audit
shall be conducted upon no less than 5 days advance notice to Merchant during
regular business hours at Merchant's offices and in such a manner as not to
interfere with Merchant's normal business activities. Such audits shall be made
no more often than once every twelve (12) months during the Term and for a
period of two (2) years following the end of the Term. If an audit reveals that
Merchant has under-paid MSP by ten percent (10%) or more of the amounts due for
any audited period of time, Merchant agrees, in addition to recomputing and
making immediate payment to MSP of all amounts due, plus interest at the highest
prime rate set forth from time to time in the Wall Street Journal in the United
States plus two percentage points (or, if less, at a rate equal to the highest
rate permitted under applicable law), based on the actual and true amounts due
and owing, to pay MSP all reasonable costs and expenses incurred by MSP in
conducting such audit, including, but not limited to, any amounts paid to any
auditor or attorney. MSP shall have the right to audit a Merchant's site for
accuracy of site traffic and customer transactions.
7.3 Taxes. Merchant acknowledges and agrees that MSP has no responsibility
with respect to tax billing or collecting relating to sales made and/or charges
assessed to customers or other internet users accessing the Merchant Site by
means of The Plaza on MSN on MSN's Premier Service or any other Microsoft Web
Site.
8. Hosting. Merchant is solely responsible for hosting of the Merchant Site
(including the MSN Transition Page) and MSP is solely responsible for hosting of
all programs, content, pages and materials comprising The Plaza on MSN on MSN's
Premier Service.
9. Tracking.
9.1 Generally. Merchant agrees to (a) use usage tracking tools that can
provide MSP the specified tracking information and resources to enable
assessment and verification of data relating to Merchant Site usage by means of
The Plaza on MSN on MSN's Premier Service, (b) provide access to MSP to log
files relating to Merchant Site usage by means of The Plaza on MSN on MSN's
Premier Service, delivered and formatted in a manner reasonably specified by
MSP, and (c) follow such other directions and procedures as are reasonably
determined to be necessary by MSP to enable resolution of customer and/or
internet user support issues relating to usage of the Merchant Site by means of
The Plaza on MSN on MSN's Premier Service.
*** Confidential Portions of this document have redacted and have been
separately filed with the Commission.
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<PAGE>
10. Confidentiality. Neither party will use or disclose to any third party, any
confidential information of the non-disclosing party. As used herein, the term
"confidential information" means all non-public information that a party
designates as being confidential, or which, under the circumstances of
disclosure ought to be treated as confidential including but not limited to the
terms of this Agreement, know-how and materials provided pursuant to this
Agreement, provided that either party may disclose the terms of this Agreement
in confidence to its immediate legal and financial consultants and advisors as
required in the ordinary course of such party's business, provided that such
immediate legal and financial consultants and advisors agree in advance to be
bound by the confidentiality provisions set forth in this Section 10. All
tangible materials containing Confidential Information ("Confidential
Materials"), including documents, tapes, computer disks and other fixed storage
devices (whether or not machine or user readable), are the properly of the
providing party. No later than 15 business days following the End Date,
Confidential Materials in either party's possession must be resumed or destroyed
(with appropriate certification of destruction if not returned). This Section 10
will survive any suspension, termination or expiration of this Agreement. ***
11. Warranties.
11.1 By Merchant. Merchant warrants, represents and agrees that (a)
Products offered, sold or otherwise provided as part of the Merchant Site are
made, offered, sold or otherwise provided in compliance with applicable laws and
will not infringe the copyrights, trademarks, service marks or any other
proprietary right of any third party, (b) Merchant will use its best efforts to
ensure that the operation of the Merchant Site is in compliance with MSP's
policies, procedures and/or technical specifications which may be provided by
MSP from time to time during the Term and all applicable laws, and (c) Merchant
has the power and authority to enter into and perform its obligations under this
Agreement.
11.2 By MSP. MSP warrants, represents and agrees that MSP has the power and
authority to enter into and perform its obligations under this Agreement.
11.3 Each Party represents and warrants to the other Party that: (i) such
Party has the full corporate right, power and authority to enter into this
Agreement and to perform the acts required of it hereunder; (ii) the execution
of this Agreement by such Party, and the performance by such Party of its
obligations and duties hereunder, do not and will not violate any agreement to
which such Party is a party or by which it is otherwise bound; and (iii) when
executed and delivered by such Party, this Agreement will constitute the legal,
valid and binding obligation of such Party, enforceable against such Party in
accordance with its terms.
11.4 No Additional Warranties. THIS SECTION 11 CONTAINS THE ONLY WARRANTIES
MADE BY MERCHANT AND MSP. ANY AND ALL OTHER WARRANTIES, INCLUDING FOR
NON-INFRINGEMENT AND THE OPERATION, FUNCTIONALITY, INTERRUPTION OR LACK OF
RESOURCES OF MSN OR THE MERCHANT SITE, ARE EXPRESSLY EXCLUDED AND DECLINED. EACH
PARTY DISCLAIMS ANY IMPLIED WARRANTIES, PROMISES AND CONDITIONS OF
MERCHANTABILITY AND/OR FITNESS FOR A PARTICULAR PURPOSE, WHETHER AS TO MSN OR
THE MERCHANT SITE, THE TECHNOLOGY DEPLOYED IN CONNECTION THEREWITH, OR PRODUCTS
OR SERVICES OFFERED AND/OR SOLD IN CONNECTION THEREWITH.
11.5 Liability. TO THE MAXIMUM EXTENT PERMITTED BY LAW, NEITHER PARTY IS
LIABLE TO THE OTHER FOR ANY INDIRECT, SPECIAL, EXEMPLARY, CONSEQUENTIAL,
INCIDENTAL OR PUNITIVE DAMAGES INCURRED BY THE OTHER PARTY EVEN IF THE OTHER
PARTY HAS BEEN ADVISED THAT SUCH DAMAGES ARE POSSIBLE.
*** Confidential Portions of this document have redacted and have been
separately filed with the Commission.
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<PAGE>
11.6 Survival. Each party's representations and warranties survive the
termination of this Agreement.
12. Indemnification.
12.1 Scope of Obligation. Each party will indemnify and hold harmless the
other party, and the other party's Affiliates, from and against any claims,
actions, losses, liabilities, damages, settlements, judgments, arbitration
awards, costs and expenses (including reasonable outside attorneys' fees and
expenses) (collectively "Claims") resulting from such party's breach (or, with
respect to the defense thereof, alleged breach) of its covenants, warranties and
representations as set forth in this Agreement or resulting from either party's
approved use of materials obtained from the other party hereunder (including,
without limitation, logos, trademarks or trademarks of the other party) which
infringes the trademark or copyright or other proprietary rights of any third
party; provided, however, that neither party shall be obligated to indemnify the
other party for claims arising out of use of materials created by third party
users of the Microsoft Web Sites or the Merchant Site, as the case may be. For
purposes hereof, Merchant's indemnity obligation hereunder extends equally to
MSP and Microsoft.
12.2 Manner of Exercise. If a party requests to be indemnified ("requesting
party"), it must give prompt notice to the other party ("requested party")
specifying all relevant details of the Claim. The requested party may, at its
option, defend the Claim, in which event the requesting party will cooperate
fully and may participate in such defense with counsel of its own choice,
provided that it will be responsible for all expenses relating to such separate
counsel. If the requested party assumes the defense of a Claim, its obligation
will be limited to paying the attorneys' fees, costs and expenses associated
with such defense (except as otherwise expressly provided herein) and holding
harmless the requesting party from and against any judgment paid on account of
such Claim or monetary settlement the requested party has made (with the
requesting party's approval, not to be unreasonably withheld) or approved. The
requesting party may, if needed or desired, join the requested party as a party
in any litigation in respect of a Claim for which indemnity is requested. No
settlement may be made without the requested party's prior approval. Neither
party is responsible for loss of profits or consequential damages incurred by
the other due to a Claim. If either party fails to fulfill its material
obligations, the other party will be deemed excused from its obligations
pursuant to Section 12.1.
12.3 Survival. This Section 12 will survive any suspension, termination or
expiration of this Agreement.
13. Default and Breach.
13.1 Events of Default. After giving notice to the defaulting party and
following the completion of the applicable cure period set forth in Section
13.2, the nondefaulting party may declare the other party to be in breach of
this Agreement and may exercise the remedies specified in Section 13.3 upon the
occurrence of any of the following default events:
(a) failure to perform or comply with any material provision of this
Agreement, including without limitation either party's failure to file or
provide required statements and/or make payments due;
(b) admission in writing of an inability to pay debts as they mature,
or making an assignment for the benefit of creditors;
(c) impairment of financial condition such that the other party has
justifiable grounds to believe and can reasonably demonstrate that the impaired
party will be unable to fulfill its obligations under this Agreement; or
*** Confidential Portions of this document have redacted and have been
separately filed with the Commission.
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<PAGE>
(d) filing of a petition under any bankruptcy act, receivership
statute or similar law or statute, by either party, or the filing of such a
petition by any third party against either party, or the making of an
application for a receiver by either party, where such petition or application
is not dismissed or otherwise favorably resolved within 60 days.
13.2 Cure Period. (a) Subject to Section 13.2(b), upon receiving a default
notice, the defaulting party will have 15 business days to cure the default,
provided that if the default is not reasonably susceptible of cure within such
period, the non-defaulting party's right to exercise the remedies specified in
Section 13.3 will be suspended for so long as the other party diligently pursues
all reasonable steps to cure as expeditiously as possible. Notwithstanding the
foregoing, such suspension (i) will not arise for default events that are
incapable of cure, and (ii) may nonetheless result in early termination of this
Agreement upon notice given by the non-defaulting party if cure is uncompleted
after 90 days.
(b) Notwithstanding Section 13.2(a), (i) the non-payment of monies due
must always be cured within the 15-business day cure period. and (ii) unless
both parties otherwise expressly agrees in writing, there shall be a 48-hour
cure period with respect to the operation of the Merchant Site in accordance
with MSP's published policies, procedures and technical specifications, and in
compliance with applicable laws.
13.3 Remedies. If either party fails to timely cure an event of default (if
cure is authorized pursuant to Section 13.2), subject only to Section 16.3, the
nondefaulting party will have the right to declare the other party in breach of
this Agreement and suspend performance or, alternatively, terminate this
Agreement upon notice, whereupon the non-defaulting party's obligations will
immediately cease. The non-defaulting party's rights are cumulative and not in
lieu of any other rights and remedies under this Agreement or otherwise provided
by law or in equity. Upon suspension or termination, neither party will hold
itself out as having rights or powers pursuant to this Agreement (except in
respect of provisions of this Agreement that survives suspension or
termination). Time is of the essence of this Agreement.
14. Notices. All notices given hereunder must be in writing and personally
delivered, or sent by registered or certified mail (return receipt requested),
facsimile, email or overnight courier. A notice sent by facsimile or email must
be confirmed by sending a copy of such notice by registered or certified mail or
overnight courier. Notices will be deemed given on the date received. Notices to
MSP must be sent to One Microsoft Way, Redmond, WA 98052-6399 USA (facsimile
number (206) 936-7329), Attention: Director, Business Development. Notices to
Merchant must be sent to the address for notices specified in the Schedule.
Either party may change its address for notices at any time by giving notice to
the other party as provided herein.
15. Intellectual Property. Each party will use the appropriate trademark,
product description and trademark symbol (either "TM" or "R") and copyright
symbol (C), and clearly indicate ownership of trademarks, trade names and/or
product names ("Marks") and copyrights, whenever first mentioned in any
advertisement, brochure or other material in connection with MSN or the Merchant
Site. Each party will, upon request, provide the other party with samples of
marketing literature that include the other party's Marks or copyrights. Each
party agrees that, as between the parties, (a) the other party's Marks and
copyrights and the good will associated therewith are and will remain the sole
property of the other party; (b) this Agreement does not
*** Confidential Portions of this document have redacted and have been
separately filed with the Commission.
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<PAGE>
confer in either party any right of ownership in the other party's Marks or
copyrights; (c) all uses by one party of the other party's Marks and/or
copyrights will inure to the benefit of the owning party; and (d) when using the
other party's materials, if any such materials contain copyright, patent,
trademark or other notices evidencing the other party's ownership of rights in
intellectual property, the using party will not delete, modify, remove or
diminish the prominence of any such notices.
16. Other Provisions.
16.1 No Ongoing Waiver. No waiver of any breach of any provision of this
Agreement constitutes a waiver of any prior, concurrent or subsequent breach of
the same or any other provisions, and will not be effective unless made in
writing and signed by an authorized representative of the waiving party.
16.2 Excuse. Neither party is liable for, and will not be considered in
default or breach of this Agreement on account of, any delay or failure to
perform as required by this Agreement as a result of causes or conditions beyond
such party's reasonable control which such party is unable to overcome by the
exercise of reasonable diligence, provided that the affected party will use
reasonable efforts to resume normal performance as promptly as possible.
16.3 Dispute Resolution. If a dispute arises hereunder, upon either party's
written request (containing a statement specifying the basis of the dispute),
the parties will each appoint a senior representative to attempt in good faith
to resolve the dispute. Except for disputes where preliminary injunctive relief
is an appropriate remedy, no formal legal proceedings may be commenced with
respect to any dispute until either party determines in good faith (but no
earlier than five business days following the initiation of discussion) that
amicable resolution through continued negotiation appears unlikely.
16.4 Governing Law; Venue; Attorneys' Fees. This Agreement is governed by
the laws of the State of Washington, U.S.A. All actions, proceedings or
litigation relating hereto will be instituted and prosecuted solely within King
County, State of Washington, U.S.A. MSP and Merchant hereby consent to the
jurisdiction of the state courts of Washington and the federal courts located
within such state with respect to any action, dispute or other matter arising
out of or relating to this Agreement. In any legal proceeding between the
parties relating to the enforcement of any rights arising out of or relating to
this Agreement, the primarily prevailing party will be entitled to recover its
reasonable attorneys' fees and court costs.
16.5 Riders, Schedules, and Exhibits. All Riders, Schedules, and Exhibits
attached to this Agreement that are contemporaneously signed on behalf of both
parties are incorporated herein by this reference.
16.6 Assignment; Transfer of Control. (a) This Agreement may not be
assigned, by operation of law or otherwise, by either party without the other
party's prior written consent. Notwithstanding the foregoing, any assignment of
this Agreement to a person or entity acquiring all or substantially all of the
assets of either party where such assignment results in the transfer of
management or control or significant ownership interest in either party will
give the non-assigning party the right to terminate this Agreement as provided
in Section 16.6(b). In any assignment proposed, the proposed assignee must agree
in writing to be bound by the terms of this Agreement. Any assignment contrary
to this Section 16.6(a) will be void and of no effect.
*** Confidential Portions of this document have redacted and have been
separately filed with the Commission.
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<PAGE>
(b) In the event of the anticipated sale or transfer of management or
control of (or a significant ownership interest in) either party ("Transfer"),
assigning party will give notice to the non-assigning party of such Transfer
(including the proposed transferee) not less than 30 days prior to the effective
date of such Transfer (if such Transfer is voluntary) or as soon as possible
after the Transfer (if such Transfer is involuntary). Upon the occurrence of a
Transfer, the non-assigning party may elect to terminate this Agreement. The
non-assigning party must give notice to the assigning party of the non-assigning
party's election to terminate this Agreement due to the Transfer within 15
business days after the later of the following dates: (i) the date on which the
non-assigning party ascertains the occurrence of the Transfer, or (ii) the date
on which the non-assigning party receives the assigning party's notice of such
Transfer.
(c) Neither party will pledge or hypothecate its rights or delegate
its obligations under this Agreement except as part of a permitted assignment of
rights.
16.7 Relationship of Parties. This Agreement does not create or constitute
a partnership, joint venture or agency relationship or the grant of a franchise
as defined in the Washington Franchise Investment Protection Act, RCW 19.100, as
amended, or 16 CFR Section 436.2 or otherwise.
16.8 Section Headings. Headings and captions used in this Agreement
(including attached Riders and Exhibits) are for convenience only and do not
supersede or modify any provisions.
16.9 Amendments. This Agreement may only be amended by a written instrument
duly signed by authorized representatives of both MSP and Merchant.
16.10 Third Party Enforcement. Merchant agrees that its obligations under
this Agreement may be enforced by or on behalf of any Affiliate of MSP.
16.11 Meaning of "purchase" or "sale". As used herein, a "purchase" or
"sale" includes a license and/or a licensing arrangement; where applicable, use
of such terminology will not be deemed to waive, impair, or otherwise affect the
intellectual property rights of MSP, Microsoft or Merchant.
16.12 This Agreement shall not be modified except by a written agreement
dated subsequent to the date of this Agreement and signed on behalf of Merchant
and MSP by their respective duly authorized representatives.
16.13 If any provision of this Agreement shall be held by a court of
competent jurisdiction to be illegal, invalid or unenforceable, the remaining
provisions shall remain in full force and effect.
17. Entire Agreement. This Agreement embodies the entire agreement between the
parties and supersedes all previous and contemporaneous agreements,
understandings and arrangements with respect to the subject matter hereof,
whether oral or written. Independent Investigation. Both parties acknowledge
that they have read this Agreement and agree to all its terms and conditions.
Both parties understand that they may at any time (directly or indirectly)
solicit customer referrals and enter into agreements with other entities on
terms that may differ from those contained in this Agreement. It is further
understood that both parties may operate web sites that are similar to or
compete with each others web sites. Both parties agree that they are not relying
on any representation, guarantee or statement other than set forth in this
Agreement.
*** Confidential Portions of this document have redacted and have been
separately filed with the Commission.
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<PAGE>
Revised: 8/27/1997
EXHIBIT A
MSP Policies
GUIDELINES FOR DISPLAYING THE PLAZA
ON MSN TM LINK LOGO
***
CONTRACT NUMBER:___________
AMENDMENT NUMBER 4 TO
ECOMMERCE MERCHANT AGREEMENT
This AMENDMENT NUMBER 4 TO THE ECOMMERCE MERCHANT AGREEMENT, dated as of the
27th day of October 1997 (the "Agreement"), is made by and between Microsoft
Corporation, a Washington U.S.A. corporation ("Microsoft"), and
barnesandnoble.com inc., a Delaware U.S.A. Corporation ("Merchant"), to amend
the Agreement as set forth herein. Unless otherwise defined herein all defined
terms have the same meanings set forth in the Agreement:
WHEREAS, Microsoft's online e-commerce offerings are undergoing upgrading and
improvement, and therefore an amendment to the terms set forth in the Agreement
is necessary;
Now, therefore, for good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties hereto agree that the following
shall be added to the Agreement and, as to the financial terms, obligations and
other matters expressly set forth herein, shall supercede the terms of the
Agreement:
1. Microsoft maintains a web-based portal site intended for users in the United
States and currently known as "MSN.COM" ("Portal Site").
1.1. Microsoft currently anticipates that, among other things, the Portal
Site will feature a home page as its top-most page ("Home Page") and
several secondary pages grouped by content theme ("Channels"). The
Channels will be available from the Home Page via persistent hypertext
links prominently displayed above the fold in a bar on the leftmost
portion of the Home Page. Examples of Channels that Microsoft currently
expects to feature on the Portal Site include: Autos, Business,
Computing, Games, Health, News, Personal Finance, Real Estate, Shopping,
Sports, Travel, and Women. Absent technical issues or other such
critical obstacles, Microsoft currently anticipates that the Channels
will launch on or about October 1, 1998 ("Launch Date").
1.2. The Portal Site will also feature a Microsoft developed (or licensed)
web-search capability ("Search") utilizing key words as the search
parameter.
*** Confidential Portions of this document have redacted and have been
separately filed with the Commission.
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<PAGE>
1.3. The Home Page will also feature a text-based advertising space above the
fold ("Home Page Ad Space"). The Home Page further will feature a
section of persistent hypertext links that will be available on every
page of the Portal Site ("Quick Links"). The Quick Links will link to
specific secondary pages such as, by way of example, an online
encyclopedia, yellow page-style business listings, and television
listings.
1.4. The Shopping Channel shall feature persistent sections on its topmost
page above the fold as follows:
1.4.1. a rotating set of graphic buttons consisting of merchants' logos
and providing links to those merchants' sites in a section
labeled "Plaza Merchants";
1.4.2. a section that will feature on a rotating basis specials from
merchants in a section called "Plaza Specials"; and
1.4.3. a section that feature recommendations for gifts based on
seasonal or holiday themes (e.g., back-to-school, Christmas,
Father's Day) that will feature appropriate hypertext links to
merchants' sites.
1.5. The Shopping Channel will have a series of persistent secondary pages
that will group merchants by product category. Each of these secondary
pages will be entitled "Departments." Persistent links to the
Departments will be placed on the Shopping Channel Home Page in a
section entitled "Shopping Categories." The Shopping Channel will
feature a "Book Department" featuring only book-related merchants and
content.
2. ***
2.1. ***
2.2. Microsoft will provide Merchant with a persistent Quick Link labeled
"Buy Books" that will link to the Merchant Site. ***
2.3. ***:
2.3.1. ***
2.3.2. ***
2.3.3. ***
2.3.4. ***
2.4. ***
2.5. ***
2.6. ***
2.7. ***
*** Confidential Portions of this document have redacted and have been
separately filed with the Commission.
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<PAGE>
2.8. ***
3. Microsoft's efforts as described above *** of the Merchant Site during the
Term.
4. Except as otherwise set forth in Section 2.6, the term of the rights and
obligations under this Amendment ("Term") shall commence on October 1, 1998
***.
5. In consideration for the above-described rights and obligations set forth
herein, Merchant shall pay to Microsoft the following amounts:
5.1. Guaranteed Fee: As a nonrefundable advance against the Commissions set
forth in Section 5.2, Merchant shall pay *** to Microsoft upon execution
of this Amendment.
5.2. Commission: In addition to the Guaranteed Fee, Merchant shall pay
Microsoft *** of Merchant's Gross Revenue less actual returns and actual
bad debt incurred during the Term. *** All payments of the Fees shall
*** and addressed to Deborah Levinger, c/o Microsoft Corporation, One
Microsoft Way, Redmond, WA 98052
5.3. Merchant is responsible for ensuring that all payments are made on a
timely basis, MSP will not invoice Merchant for any amounts owing
pursuant to this Agreement.
6. ***
7. The parties agree to exercise mutual good faith efforts to promote buying
books via the Portal Site.
8. ***
Except as expressly provided herein, the Agreement is not otherwise modified in
any respect, and the same as hereby supplemented and amended is hereby ratified
and confirmed in all respects (including, specifically, Merchant's tracking and
reporting obligations, and the requirement of a "GO BACK" button on the Merchant
Site).
*** Confidential Portions of this document have redacted and have been
separately filed with the Commission.
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<PAGE>
WHEREBY, the parties enter into this Amendment as of the later of the two
signature dates below.
MICROSOFT CORPORATION BARNESANDNOBLE.COM INC
_______________________ _______________________
By (signature) By (signature)
_______________________ _______________________
Name (print) Name (print)
_______________________ _______________________
Title Title
_______________________ _______________________
Date Date
*** Confidential Portions of this document have redacted and have been
separately filed with the Commission.
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<PAGE>
FORMATION AGREEMENT
AMONG
BERTELSMANN AG, BOL.US ONLINE, INC.,
BARNES & NOBLE, INC.,
barnesandnoble.com inc.,
B&N.com Holding Corp. and B&N.com Member Corp
Effective As of 11:59 PM, October 31, 1998
<PAGE>
FORMATION AGREEMENT
This FORMATION AGREEMENT is dated as of November 12, 1998 (the "Closing
Date"), but effective as of 11:59 PM on October 31, 1998 (the "Effective Date"),
by and among Bertelsmann AG, an Aktiengesellschaft organized and existing under
the laws of Germany, with offices located at Carl-Bertelsmann-Strasse 270, 33311
Gutersloh, Germany ("BAG"), BOL.US Online, Inc., a Delaware corporation, with
offices located at 1540 Broadway, New York, New York 10036 ("USO"), Barnes &
Noble, Inc., a Delaware corporation, with offices located at 122 Fifth Avenue,
New York, New York 10011 ("BN"), barnesandnoble.com inc., a Delaware
corporation, with offices located at 76 Ninth Avenue, New York, New York 10011
("Transferor"), B&N.com Member Corp., a Delaware corporation, with offices
located at 76 Ninth Avenue, New York, New York 10011 ("B&N.com Member") and
B&N.com Holding Corp., a Delaware corporation, with offices located at 122 Fifth
Avenue, New York, New York 10011 ("B&N.com Holding").
W I T N E S S E T H:
WHEREAS, BN is the sole shareholder of each of the Transferor and
B&N.com Holding, and Transferor is the sole shareholder of B&N.com Member;
WHEREAS, the Transferor has, as of October 31, 1998: (i) formed
barnesandnoble.com llc, a Delaware limited liability company (the "Company");
(ii) contributed all of its assets (except its interests in NuvoMedia, Inc. and
B&N.com Member) and liabilities to the Company in exchange for a one hundred
percent (100%) Membership Interest (as hereinafter defined); and (iii)
transferred a one percent (1%) Membership Interest to B&N.com Member;
WHEREAS, USO intends, as of the Closing Date, to pay the Transferor
Seventy-Five Million Dollars ($75 million) for a 21.42857% Membership Interest;
WHEREAS, USO intends, as of the Closing Date, to make a capital
contribution to the Company in exchange for an additional 28.57143% Membership
Interest, which, together with the 21.42857% Membership Interest referred to
above, would give USO an aggregate fifty percent (50%) Membership Interest;
WHEREAS, immediately subsequent to the payments described above, but
immediately prior to the execution of the Limited Liability Company Agreement
(as hereinafter defined), each of Transferor and B&N.com Member Corp. intend to
assign all of their Membership Interests (which together will aggregate a fifty
percent (50%) Membership Interest) to B&N.com Holding;
WHEREAS, as of the Closing Date, immediately subsequent to the
assignment referred to above, BN, B&N.com Holding, BAG and USO intend to enter
into the Limited Liability Company Agreement, in order to set forth the rights
and obligations of the members of the Company; and
WHEREAS, the parties hereto desire to set forth, inter alia, the terms
and conditions of their agreements and understanding concerning their respective
undertakings to effectuate the payments and contributions to be made by USO in
exchange for its fifty percent (50%) Membership Interest and the entering into
of the Limited Liability Company Agreement.
NOW, THEREFORE, in consideration of the premises and of the
<PAGE>
respective representations, warranties, covenants, agreements and conditions
contained herein, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
The following terms shall, for the purposes of this Agreement, have the
following meanings (terms defined in the singular or the plural include the
plural or the singular, as the case may be):
Section 1.1 "Affiliate" shall mean, as to any Person, any other Person
that, directly or indirectly, controls, is under common control with, or is
controlled by, that Person. For purposes of this definition, "control"
(including, with its correlative meanings, the terms "controlled by" and "under
common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities or by contract or otherwise. In the case of BOL,
the term "Affiliates" shall include all Persons in which BOL directly or
indirectly owns an equity interest to the extent such Person operates under the
name BOL (or a derivative thereof) provided that no Restricted Transferee (as
defined in the Limited Liability Company Agreement) owns an interest therein.
Section 1.2 "BN Contribution Schedule" shall mean the schedule of
assets and liabilities that Transferor will contribute or cause to be
contributed to the Company in the form annexed as Schedule 1.2 to the Disclosure
Letter which shall describe specifically the contracts, software, leases and
liabilities being contributed, as well as other assets and liabilities of
Transferor in general terms, as included in the Financial Statements (as
modified through the Closing Date).
Section 1.3 "BOL" shall mean BOL.Global, Inc., a corporation organized
under the laws of Delaware.
Section 1.4 "Closing" shall mean the closing of the transactions
contemplated by this Agreement.
Section 1.5 "Closing Date" shall have the meaning assigned to such term
in the first paragraph of this Agreement.
Section 1.6 "Code" shall mean the Internal Revenue Code of 1986, as
amended.
Section 1.7 "Code Affiliate" shall mean any Person which could be
treated as a single employer along with the Transferor or the Company under
Section 414(b) or (c) of the Code.
Section 1.8 "Disclosure Letter" shall mean that Disclosure Letter dated
the date hereof prepared by Transferor to which the Schedules referred to herein
are attached.
Section 1.9 "Employee Plan" shall have the meaning assigned to such
term in Section 4.1(q)(i) of this Agreement.
Section 1.10 "Encumbrance" shall mean any mortgage, pledge, security
interest, lien, restriction on use or transfer, other than those
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<PAGE>
imposed by law, voting agreement, adverse claim or encumbrance or charge of any
kind (including any agreement to give any of the foregoing), any conditional
sale or other title retention agreement, any lease in the nature thereof, and
the filing of, or any agreement to give, any financing statement under the
Uniform Commercial Code or similar law of any jurisdiction.
Section 1.11 "Environment" shall mean soil, land surface or subsurface
strata, surface waters (including navigable waters, ocean waters, streams,
ponds, drainage basins, and wetlands), groundwaters, drinking water supply,
stream sediments, ambient air (including indoor air), plant and animal life, and
any other environmental medium or natural resource.
Section 1.12 "Environmental, Health, and Safety Liabilities" shall mean
any cost, damages, expense, liability, obligation, or other responsibility
arising from or under Environmental Law or Occupational Safety and Health Law
and consisting of or relating to:
(a) any environmental, health, or safety matters or conditions
(including on-site or off-site contamination, occupational safety and health,
and regulation of chemical substances or products);
(b) fines, penalties, judgments, awards, settlements, legal or
administrative proceedings, damages, losses, claims, demands and response,
investigative, remedial, or inspection costs and expenses arising under
Environmental Law or Occupational Safety and Health Law;
(c) financial responsibility under Environmental Law or
Occupational Safety and Health Law for cleanup costs or corrective action,
including any investigation, cleanup, removal, containment, or other remediation
or response actions ("Cleanup") required by applicable Environmental Law or
Occupational Safety and Health Law (whether or not such Cleanup has been
required or requested by any Governmental Body or any other Person) and for any
natural resource damages; or
(d) any other compliance, corrective, investigative, or remedial
measures required under Environmental Law or Occupational Safety and Health Law.
The terms "removal," "remedial," and "response action," include the types of
activities covered by the United States Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. Section 9601 et seq., as amended
("CERCLA").
Section 1.13 "Environmental Law" shall mean any legal requirement that
requires or relates to:
(a) advising appropriate authorities, employees, and the public
of intended or actual releases of pollutants or hazardous substances or
materials, violations of discharge limits, or other prohibitions and of the
commencements of activities, such as resource extraction or construction, that
could have significant impact on the Environment;
(b) preventing or reducing to acceptable levels the release of
pollutants or hazardous substances or materials into the Environment;
(c) reducing the quantities, preventing the release, or
minimizing the hazardous characteristics of wastes that are generated;
(d) assuring that products are designed, formulated, packaged,
and used so that they do not present unreasonable risks to human
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health or the Environment when used or disposed of;
(e) protecting resources, species, or ecological amenities;
(f) reducing to acceptable levels the risks inherent in the
transportation of hazardous substances, pollutants, oil, or other potentially
harmful substances;
(g) cleaning up pollutants that have been released, preventing
the threat of release, or paying the costs of such clean up or prevention; or
(h) making responsible parties pay private parties, or groups of
them, for damages done to their health or the Environment, or permitting
self-appointed representatives of the public interest to recover for injuries
done to public assets.
Section 1.14 "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended, or any successor law, and regulations and rules issued
pursuant to that Act or any successor law.
Section 1.15 "Facilities" shall mean any real property, leaseholds, or
other interests currently or formerly owned or operated by the Transferor or the
Company and any buildings, plants, structures, or equipment (including motor
vehicles, tank cars, and rolling stock) currently or formerly owned or operated
by the Transferor or the Company.
Section 1.16 "Fulfillment Agreements" shall mean each of the
Fulfillment Agreements between the Company and BOL (or its Affiliates),
regarding the fulfillment by the Company and BOL (or its Affiliates) of certain
customer product orders, each of which shall be negotiated in good faith after
the Closing Date.
Section 1.17 "GAAP" shall mean United States generally accepted
accounting principles as in effect from time to time, consistently applied.
Section 1.18 "Governmental Body" shall mean any domestic or foreign
national, state or municipal or other local government or multinational body
(including, but not limited to, the European Union), any subdivision, agency,
commission or authority thereof, or any quasi-governmental or private body
exercising any regulatory authority thereunder and any corporation, partnership
or other entity directly or indirectly owned by or subject to the control of any
of the foregoing.
Section 1.19 "Hazardous Materials" shall mean any waste or other
substance that is listed, defined, designated, or classified as, or otherwise
determined to be, hazardous, radioactive, or toxic or a pollutant or a
contaminant under or pursuant to any Environmental Law, including any admixture
or solution thereof, and specifically including petroleum and all derivatives
thereof or synthetic substitutes therefor and asbestos or asbestos-containing
materials.
Section 1.20 "Limited Liability Company Agreement" shall mean the
Amended and Restated Limited Liability Company Agreement by and between B&N.com
Holding, USO, BAG and BN, to be entered into at the Closing as the same may be
amended or modified from time to time in accordance with the terms thereof.
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Section 1.21 "Members" shall mean B&N.com Holding, USO and all other
Persons who become members of the Company in accordance with the terms of the
Limited Liability Company Agreement, and the term "Member" shall mean any of
them.
Section 1.22 "Membership Interest" shall mean a Member's entire
interest in the Company, including, but not limited to, (i) the Percentage
Interest now or hereafter owned by it; (ii) its share in any Net Income, Net
Loss and any distributions of the Company; and (iii) its right to participate in
the management of the Company or any other decision of the Members pursuant to
the Limited Liability Company Agreement.
Section 1.23 "Name License Agreements" shall mean each of the
agreements between the Company and BOL and between the Company and BN College
(as defined in the Limited Liability Company Agreement) relating to the right to
use the trade names, trademarks and domain names associated with BOL and "Barnes
and Noble," respectively.
Section 1.24 "Net Profits" and "Net Losses" shall mean the income and
loss of the Company as determined in accordance with the accounting methods
followed by the Company for Federal income tax purposes including income exempt
from tax and described in Code Section 705(a)(1)(B), treating as deductions
items of expenditure described in, or under Treasury Regulations deemed
described in, Code Section 705(a)(2)(B) and treating as an item of gain (or
loss) the excess (deficit), if any, of the fair market value of distributed
property over (under) its book value. Depreciation, depletion, amortization,
income and gain (or loss) with respect to Company assets shall be computed with
reference to their book value rather than to their adjusted basis in the
Company.
Section 1.25 "Occupational Safety and Health Law" shall mean any legal
requirement designed to provide safe and healthful working conditions and to
reduce occupational safety and health hazards, and any program, whether
governmental or private (including those promulgated or sponsored by industry
associations and insurance companies), designed to provide safe and healthful
working conditions.
Section 1.26 "Percentage Interest" shall mean a Member's aggregate
economic percentage interest in the Company as set forth on Schedule I to the
Limited Liability Company Agreement as each such percentage may be adjusted from
time to time in accordance with the Limited Liability Company Agreement.
Section 1.27 "Permitted Encumbrances" shall mean:
(a) such matters as are set forth in Schedule 1.27 of the
Disclosure Letter; and
(b) (i) Encumbrances reflected in the financial statements of
the Company which have been delivered to USO pursuant to this Agreement
(including, but not limited to, purchase money liens which are not overdue as of
a particular date or which are being contested in good faith), (ii) Encumbrances
arising out of contracts entered into in the ordinary course of the Business (as
defined in the Limited Liability Company Agreement), (iii) mechanics',
materialmen's or similar inchoate liens relating to liabilities not yet due and
payable and (iv) liens for current taxes not yet delinquent, to the extent the
validity thereof is being contested in good faith by
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appropriate proceedings, which proceedings have the effect of preventing
foreclosure or enforcement of such liens and where adequate reserves are
established and maintained in accordance with GAAP.
Section 1.28 "Person" shall mean an individual, sole proprietorship,
corporation, partnership, limited liability company, joint venture, trust,
unincorporated organization, mutual company, joint stock company, estate, union,
employee organization, bank, trust company, land trust, business trust or other
organization, whether or not a legal entity, or a Governmental Body.
Section 1.29 "Related Person" shall mean with respect to a particular
individual:
(a) each other member of such individual's family;
(b) any Person that is directly or indirectly controlled by such
individual or one or more members of such individual's family;
(c) any Person in which such individual or members of such
individual's family hold (individually or in the aggregate) an interest equal to
or in excess of twenty percent (20%); and
(d) any Person with respect to which such individual or one or
more members of such individual's family serves as a manager, director, officer,
partner, executor or trustee (or in a similar capacity).
Section 1.30 "Release" shall mean any release, spill, emission,
leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching
or migration into the indoor or outdoor environment, including, without
limitation, the movement of Hazardous Materials through ambient air, soil,
surface water, ground water, wetlands, land or subsurface strata.
Section 1.31 "Software Licenses" shall mean the Software License
between the Company and BOL relating to the exploitation of software owned by
the Company and the Software License between the Company and BOL relating to the
exploitation of software owned by BOL.
Section 1.32 "Taxes" shall mean any federal, state, local or foreign
income, receipts, sales, franchise, ad valorem, profits, license, lease, use,
payroll, withholding, employment, property, excise, occupation, customs, duties
or other tax, fee or assessment of any kind whatever, including penalties
thereon.
Section 1.33 "Tax Return" shall mean any return (including any
information return), report, statement, schedule, notice, form, or other
document or information filed with or submitted to, or required to be filed with
or submitted to, any Governmental Body in connection with the determination,
assessment, collection, or payment of any Tax or in connection with the
administration, implementation, or enforcement of or compliance with any legal
requirement relating to any Tax.
Section 1.34 "Threat of Release" shall mean a substantial likelihood of
a Release that may require action in order to prevent or mitigate damage to the
Environment that may result from such Release.
Section 1.35 "Transfer" shall mean any sale, assignment, conveyance,
transfer, donation or any other means to dispose of, or pledge,
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hypothecate or otherwise encumber in any manner whatsoever, or permit or suffer
any Encumbrance of any interest in the Company (whether profits, management or
Percentage Interest).
ARTICLE II
FORMATION AND CONTRIBUTIONS
Section 2.1 Transferor Contribution. As of the Effective Date,
Transferor has: (i) formed the Company; (ii) contributed to the Company all of
Transferor's assets (except for its interests in NuvoMedia, Inc. and B&N.com
Member) and liabilities in exchange for a one hundred percent (100%) Membership
Interest; and (iii) transferred a one percent (1%) Membership Interest to
B&N.com Member. The Company shall have assumed all of the liabilities of
Transferor, subject to and consistent with the terms and conditions of this
Agreement.
Section 2.2 USO Payment. On the Closing Date, USO agrees to pay
Transferor (or its designee), in immediately available funds by wire transfer to
an account designated by Transferor, Seventy-Five Million Dollars ($75 million)
for a 21.42857% Membership Interest.
Section 2.3 Additional USO Payment to Transferor. Within twenty (20)
days after receipt of notice from Transferor certifying the occurrence of the
sale of stock to the public, on a nationally recognized stock exchange, pursuant
to an initial public stock offering in a corporation which owns at least twenty
percent (20%) (or such lesser percentage to which the parties hereto mutually
agree) of the Membership Interest (or any other entity formed for purposes of
taking the Business of the Company public), USO shall pay to BN the Additional
Sum (as hereinafter defined) provided that such amount shall be payable only if
the value of the Membership Interest owned beneficially by USO (as of and after
giving effect to such offering) based on the value ascribed to the Company in
such offering (on a fully diluted basis taking into consideration, inter alia,
such stock offering) (the "Value") is in excess of the total investment of USO
(as of the date of the consummation of the public offering) in the Company (i.e.
$225 million plus all capital contributions, if any, made by USO pursuant to
Section 5.3 of the Limited Liability Company Agreement) less all capital
returned to USO as of or prior to such time, including capital returned out of
the proceeds of the initial public offering (the "Investment"). The term
"Additional Sum" shall mean the lesser of: (i) Twenty-Five Million Dollars ($25
million); or (ii) the amount of the Value less the Investment. The obligation of
USO to make payment under this Section 2.3 shall expire if an initial public
stock offering is not consummated prior to December 31, 2001 and USO shall not
thereafter have any obligation to make payment by reason of this Section unless
notice is given by Transferor (or its Affiliate), in accordance with the
foregoing, prior to such date.
Section 2.4 USO Contribution.
(a) As of the Closing Date, USO agrees to contribute (or shall
be deemed to have contributed) to the Company, in exchange for an additional
28.57143% Membership Interest (which, together with the 21.42857% Membership
Interest described in Section 2.2, will give USO an aggregate fifty percent
(50%) Membership Interest), One Hundred Fifty Million Dollars ($150 million) in
cash, in immediately available funds, by wire transfer to accounts designated by
the Company as set forth in Section 5.1(b) of the
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Limited Liability Company Agreement.
(b) Subject to the terms and conditions set forth in this
Agreement, USO shall make contributions to the Company as set forth in Section
5.3 of the Limited Liability Company Agreement in accordance with the terms and
conditions of the Limited Liability Company Agreement.
Section 2.5 Transferor Assignment. Immediately subsequent to the USO
payments described in Sections 2.2 and 2.4, but immediately prior to the
execution of the Limited Liability Company Agreement, each of Transferor and
B&N.com Member shall assign all of their Membership Interests (which together
shall aggregate a fifty percent (50%) Membership Interest) to B&N.com Holding.
Section 2.6 Closing Obligations. At the Closing:
(a) Transferor shall deliver or cause to be delivered to USO:
(i) evidence of the formation and good standing of the
Company;
(ii) a certificate representing fifty percent (50%) of
the Membership Interest, free and clear of Encumbrances, duly issued in the name
of USO;
(iii) the Limited Liability Company Agreement, executed
by Transferor; and
(iv) each of the Name License Agreement, Software
Licenses, Amended and Restated Services Agreement with BN, Amended and Restated
Services Agreement with Marboro, Amended and Restated Database and Software
License Agreement, Contribution, Assignment and Assumption Agreement, and Supply
Agreement to which BN (or any Affiliate) is a party, duly executed by BN (or its
Affiliate which is a party thereto) and the Company.
(b) USO shall deliver or cause to be delivered to Transferor:
(i) the payment described in Section 2.2;
(ii) the capital contribution described in Section
2.4(a);
(iii) the Limited Liability Company Agreement, executed
by USO; and
(iv) each of the Name License Agreement and Software
Licenses to which USO (or any Affiliate) is a party, duly executed by USO (or
its Affiliates) and the Company.
ARTICLE III
CLOSING
Section 3.1 Closing. The Closing of the transactions contemplated by
this Agreement relating to the transfer of Membership Interests to USO shall
take place on November 12, 1998 ("Closing Date"), at 1290 Avenue of the
Americas, 31st Floor, New York, New York, or at such other
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time, date and place as the parties hereto may agree.
Section 3.2 Deliveries. At the Closing, each of USO and Transferor
shall make (or cause to be made) the deliveries described in Section 2.6.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1 Representations and Warranties of Transferor. Transferor
represents and warrants to USO that, as of the Effective Date and the Closing
Date, with the exception of actions taken to consummate the transactions
described in or contemplated by this Agreement, each of the following statements
are true and correct:
(a) Organization and Existence. BN and the Transferor are each
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Each of BN and the Transferor has full corporate power and
authority to own and lease the properties and assets it now owns and leases and
to carry on its business as and where such properties and assets are now owned
or leased and such business is now conducted. Each of BN and the Transferor is
in good standing and duly qualified to conduct its business as a foreign
corporation in each of the jurisdictions in which the ownership or leasing of
its properties or assets or the conduct of its business requires such
qualification, except where any failure to be so qualified would not have a
material adverse effect.
(b) Authority and Approval. Transferor has the requisite
corporate power and authority to enter into this Agreement and each of BN and
Transferor are authorized to perform their respective obligations hereunder.
Transferor has, or on the Closing Date will have, the requisite corporate power
and authority to enter into the Limited Liability Company Agreement and to
perform its obligations thereunder. This Agreement is a valid and binding
obligation of Transferor, enforceable against Transferor in accordance with its
terms, subject to (a) applicable bankruptcy, insolvency or other similar laws
relating to creditors' rights generally and (b) general principles of equity.
When executed, the Limited Liability Company Agreement will be a valid and
binding obligation of B&N.com Holding enforceable against Transferor in
accordance with its terms, subject to (a) applicable bankruptcy, insolvency or
other similar laws relating to creditors' rights generally and (b) general
principles of equity. No other act, approval or proceedings on the part of BN
is, or will be, required to authorize the execution and delivery of this
Agreement and the Limited Liability Company Agreement by B&N.com Holding or the
consummation of the transactions contemplated by each such agreement.
(c) No Conflict. This Agreement and the Limited Liability
Company Agreement and the execution and delivery of each such agreement by
Transferor and B&N.com Holding, respectively do not, and the fulfillment and
compliance with the terms and conditions of each such agreement and the
consummation of the transactions contemplated by each such agreement will not:
(i) conflict with, result in a breach of, constitute a
default under, or require the consent of any Person under, any of the terms,
conditions or provisions of the articles of incorporation or by-laws of BN or
Transferor or B&N.com Holding or the constituent documents of the Company;
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(ii) violate any provision of, or require any consent,
authorization or approval under, any law or administrative regulation or any
judicial, administrative or arbitration order, award, judgment, writ, injunction
or decree applicable to BN, B&N.com Holding, the Company or Transferor;
(iii) conflict with, result in a breach of, constitute a
default under (whether with or without notice or the lapse of time or both), or
accelerate or permit the acceleration of the performance required by, or require
any consent, authorization or approval under, the termination of, or the right
to terminate, any material indenture, mortgage, lease, license, franchise,
permit, approval, agreement or instrument to which BN, B&N.com Holding, the
Company or Transferor is a party or by which it is bound or to which its assets
or properties are subject; or
(iv) result in the creation or imposition of any
Encumbrance upon the assets or property of BN, B&N.com Holding, the Company or
Transferor under any such material indenture, mortgage, lease, license,
franchise, permit, approval, agreement or instrument.
Neither BN, the Company nor Transferor is subject to any order, judgment, decree
or award of any court or other judicial, administrative or regulatory body or
arbitrator having prospective effect on the assets or the business of BN, the
Company or Transferor.
(d) Financial Statement.
(i) BN has delivered to USO true, complete and correct
copies of the: (i) audited balance sheets as of January 31, 1998 of the
Transferor; (ii) audited statements of operations and statements of cash flows
of Transferor for the year ended January 31, 1998; (iii) unaudited balance sheet
of Transferor as of August 1, 1998, and (iv) unaudited statements of operations
for the six (6) month period ended August 1, 1998 (collectively, the "Financial
Statements").
(ii) The Financial Statements have been prepared in
accordance with GAAP, and present fairly the financial condition of Transferor
as of such dates and the results of its operations and changes in cash flow for
such periods.
(e) No Undisclosed Liabilities. Except for: (i) liabilities
which are reflected or reserved against in the Financial Statements, (ii) normal
and usual current commercial liabilities incurred in the ordinary course of
business, or (iii) as set forth in Schedule 4.1(e) of the Disclosure Letter, the
properties, assets or liabilities listed in the BN Contribution Schedule which
will be transferred to the Company are not subject to any material liabilities
or obligations of any nature, whether absolute, accrued, contingent or otherwise
and whether due or to become due.
(f) Litigation. Schedule 4.1(f) of the Disclosure Letter
contains a complete and accurate list and description of all material claims,
demands, suits, actions, proceedings, settlements, awards and judgments upon or
against the Company, B&N.com Holding or the Transferor relating to any of the
properties, assets or liabilities listed in the BN Contribution Schedule. Except
as set forth in Schedule 4.1(f) of the Disclosure Letter and to the extent
relating to the assets set forth in the BN Contribution Schedule:
(i) neither the Company, B&N.com Holding nor the
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Transferor is charged with a violation of, or to its knowledge threatened with a
charge of a violation of, any provision of any foreign or United States federal,
state or local law or regulation; and
(ii) neither the Company, B&N.com Holding nor the
Transferor is operating its business under or subject to, or in default with
respect to, any order, writ, injunction, judgment or decree to which the
Company, Transferor or its predecessors is a party or by which it or its assets
or property is bound, issued by any foreign or United States court or federal,
state, municipal or governmental department, commission, board, agency or
instrumentality.
(g) Capitalization. BN owns all of the issued and outstanding
shares of stock of Transferor. Transferor and B&N.com Member own (or will own as
of the Effective Date) an interest equal to one hundred percent (100%) of all
Membership Interests, free and clear of all Encumbrances. No legend or other
reference to any purported Encumbrance appears upon any certificate representing
a Membership Interest, except as required by the Limited Liability Company
Agreement. All of the Membership Interests have been duly authorized and validly
issued and are fully paid and nonassessable. Other than the Limited Liability
Company Agreement, there are no contracts relating to the issuance, sale, or
transfer of any interest in the Company. None of the Membership Interests was
issued in violation of any Legal requirement. The Company does not own, or have
any contract to acquire, any equity securities or other securities of any Person
or any direct or indirect equity or ownership interest in any other Person. Upon
consummation of the transactions contemplated in this Agreement, USO will own a
Membership Interest (free and clear of all Encumbrances) equal to fifty percent
(50%) of the aggregate Membership Interests.
(h) Title to Properties; Encumbrances.
(i) As of the Closing Date the Company will have good and
valid title to all material assets reflected on the Financial Statement or
thereafter acquired, except those sold or otherwise disposed of since the date
of the Financial Statement in the ordinary course of business consistent with
past practice and not in violation of this Agreement, in each case free and
clear of all Encumbrances, except Permitted Encumbrances.
(ii) Schedule 4.1(h)of the Disclosure Letter sets forth a
complete list of all real property and interests in real property leased by the
Company (the "Leased Property"). The Company has good and valid title to the
leasehold estates in all the Leased Property free and clear of all Encumbrances
except;
A. leases, subleases and similar agreements set
forth in Schedule 4.1(h) of the Disclosure
Letter;
B. Permitted Encumbrances;
C. easements, covenants, rights-of-way and other
similar restrictions of record;
D. any conditions that may be shown by a current,
accurate survey or physical inspection of any
Leased Property made prior to Closing; and
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E. zoning, building and other similar
restrictions;
F. Encumbrances, easements, covenants,
rights-of-way and other similar restrictions
that have been placed by any developer,
landlord or other third party on property over
which the Transferor or the Company has
easement rights or on any Leased Property and
subordination or similar agreements relating
thereto; and
G. unrecorded easements, covenants, rights-of-way
and other similar restrictions, none of which
items set forth in this clause (iv),
individually or in the aggregate, materially
impair the continued use and operation of the
property to which they relate in the business
of the Transferor or the Company as presently
conducted.
Neither the Transferor nor the Company owns any real estate.
(i) Condition and Sufficiency of Assets. Except as set forth in
Schedule 4.1(i)of the Disclosure Letter, to the Company's knowledge, the
buildings, plants, structures, and equipment intended to be contributed to the
Company are structurally sound, are in good operating condition and repair, and
are in compliance, in all material respects, with applicable legal requirements,
are adequate for the uses to which they are being put, and none of such
buildings, plants, structures, or equipment is in need of maintenance or repairs
except for ordinary, routine maintenance and repairs that are not material in
nature or cost.
(j) Accounts Receivable. Except as set forth in Schedule 4.1(j)
of the Disclosure Letter, all the accounts receivable that are reflected on the
Financial Statement or on the accounting records of the Company as of the
Closing Date (collectively, the "Accounts Receivable") represent or will
represent valid obligations arising from sales actually made or services
actually performed in the ordinary course of business. There is no contest,
claim or right of set-off, other than returns in the ordinary course of
business, under any contract with any obligor of an Accounts Receivable relating
to the amount or validity of such Accounts Receivable.
(k) Inventory. All the inventory contributed or to be
contributed to the Company, whether or not reflected in the Financial Statement,
consists of a quality and quantity usable and salable in the ordinary course of
business, except for obsolete items and items of below- standard quality, all of
which shall have been written off or written down to net realizable value in the
Financial Statement or on the Company's accounting records as of the Closing
Date, as the case may be.
(l) Taxes. Except as otherwise disclosed in Schedule 4.1(l) of
the Disclosure Letter:
(i) each of the Transferor and the Company have filed
when due all material Tax Returns required by applicable law to be filed with
respect to the Transferor and the Company and all Taxes shown to be due on such
Tax Returns have been paid;
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(ii) all Taxes relating to periods ending on or before
the Closing Date owed by the Transferor or the Company, if required to have been
paid, have been paid (except for Taxes which are being contested in good faith);
(iii) any liability of the Transferor or the Company for
Taxes not yet due and payable, or which are being contested in good faith, has
been provided for on the Financial Statement in accordance with generally
accepted accounting principles; and
(iv) there are no Tax Encumbrances with respect to
Transferor that may affect the Company.
(m) No Material Adverse Change. Since the date of the Financial
Statement, there has not been any material adverse change in the business,
operations, properties, assets, or condition of the Transferor or the Company.
(n) Absence of Certain Changes and Events. Except as set forth
in Schedule 4.1(n) of the Disclosure Letter or as a result of the transactions
contemplated herein, since August 1, 1998 each of the Transferor and the Company
have conducted business only in the ordinary course of business and there has
not been any:
(i) change in the Company's Membership Interests; grant
of any option or right to purchase Membership Interests; issuance of any
security convertible into such Membership Interests; purchase, redemption,
retirement, or other acquisition by the Company of any Membership Interests; or
declaration or payment of any dividend or other distribution or payment in
respect of Membership Interests;
(ii) amendment to the organizational documents of the
Company, except as contemplated in the Limited Liability Company Agreement;
(iii) (A) increase, decrease or modification of, nor any
commitment to increase, decrease or modify, the rate or terms of compensation
(including base salary or bonus) payable or to become payable to any officer or
director of the Transferor or the Company, or (B) adoption, entry into,
modification or amendment of, nor any commitment to adopt, enter into, modify or
amend the terms of any Employee Plan, except in connection with the transactions
contemplated by this Agreement;
(iv) damage to or destruction or loss of any asset or
property of the Transferor or the Company, whether or not covered by insurance,
materially and adversely affecting the properties, assets, business, or
financial condition of the Transferor or the Company, taken as a whole;
(v) entry into, termination of, receipt of notice of
termination of, or cancellation or waiver of any claims or rights with respect
to, any material contract to which Transferor or the Company are or were
parties;
(vi) sale (other than sales of inventory in the ordinary
course of business), lease, or other disposition of any material asset or
property of the Transferor or the Company, distribution of any dividend (whether
in kind or in cash), or mortgage, pledge, or imposition of any lien or other
encumbrance on any material asset or property of the Transferor or
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the Company;
(vii) material change in the accounting methods used by
the Transferor or Company; or
(viii) agreement in writing by the Transferor or the
Company to do any of the foregoing.
(o) Insurance. The Transferor maintains, in full force and
effect, and the Company will acquire, by assignment from Transferor, insurance
with responsible and reputable insurance companies or associations in amounts,
on such terms and covering such risks, including fire and other risks insured
against by extended coverage, as is reasonably deemed necessary by BN and
Transferor. Transferor has maintained, in full force and effect, and the Company
will acquire from Transferor by assignment, public liability insurance,
insurance against claims for personal injury or death or property damage
occurring in connection with the activities of the Transferor and the Company
and any properties owned, occupied, or controlled by Transferor or the Company,
except for failure to obtain or maintain as would not have a material adverse
effect on the Transferor or the Company.
(p) Environmental Matters. Except as set forth in Schedule
4.1(p) of the Disclosure Letter:
(i) The Company, to its knowledge, is not in violation of
any material Environmental Law where such violation will have a material adverse
effect on the Company and neither BN, Transferor nor the Company has received
any written communication regarding an alleged violation of any Environmental
Law from any Person or Governmental Body or written notice of any actual or
threatened obligation to undertake or bear the cost of any Environmental, Health
and Safety Liabilities with respect to any of the Facilities or any other
properties or assets (whether real, personal or mixed) in which Transferor or
the Company has or had an interest. Neither BN, the Transferor or the Company
has received any written notice of potential responsibility or letter of inquiry
from any private party or governmental agency for any Facility of Transferor or
the Company or for any off-site facility under CERCLA or any state or local
counterpart thereof.
(ii) There are no pending or, to the knowledge of BN,
Transferor or the Company, threatened claims, Encumbrances, or other
restrictions of any nature, resulting from any material Environmental, Health,
and Safety Liabilities or arising under or pursuant to any material
Environmental Law, with respect to or affecting any of the Facilities or any
other properties and assets (whether real, personal, or mixed) in which
Transferor or the Company has or had an interest.
(iii) No Hazardous Materials have been used, stored,
manufactured or processed at the Facility except as necessary to the conduct of
its business and in compliance with all material Environmental Laws applicable
to the use, storage, manufacture or processing thereof, or except as will not
have a material adverse effect on the Company. Transferor has obtained (and will
assign to the Company or obtain in the name of the Company) and is in compliance
with all material environmental permits and other material authorizations
required for its operations at the Facilities by any applicable material
Environmental Laws.
(iv) BN, Transferor and the Company do not, to their
knowledge, have any material Environmental, Health, and Safety Liabilities
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with respect to the Facilities or with respect to any other properties and
assets (whether real, personal, or mixed) in which Transferor or the Company (or
any predecessor), has or had an interest, or any such other property or assets.
(v) Except such as were made in full compliance with all
applicable Environmental Laws or except as would not cause a material adverse
effect to the Company, there has been no disposal, Release or, Threat of
Release, of any Hazardous Materials at or from the Facilities or at any other
locations where any Hazardous Materials were generated, manufactured, refined,
transferred, produced, imported, used, or processed from or by the Facilities,
or from or by any other properties and assets (whether real, personal, or mixed)
in which BN, Transferor or the Company has or had an interest.
(vi) Transferor has delivered to USO true and complete
copies and results of any material reports, studies, analyses, tests or
monitoring possessed or initiated by Transferor or the Company pertaining to the
Facilities and/or concerning compliance by the Transferor and the Company, with
any material Environmental Laws.
(q) Employee Benefits.
(i) Schedule 4.1(q)(i) of the Disclosure Letter sets
forth a list of each formal or informal, oral or written plan, fund, program,
agreement, payroll practice or other arrangement which the Transferor or Company
sponsors, contributes to, participates in, or has or may have any liability or
obligation (including any terminated plan) with respect to current or former
employees or independent contractors of the Transferor or Company or their
respective dependents, and (A) which is an "employee benefit plan" as defined in
Section 3(3) of ERISA, (B) whether or not an "employee benefit plan" as so
defined, which provides any pension, profit sharing, severance, termination,
equity, savings, bonus, change in control, incentive, holiday, vacation,
perquisite, fringe or similar benefit to current or former employees or
independent contractors of the Transferor or Company or their respective
dependents, or (C) which is an employment, retainer, or consulting agreement to
which the Transferor or Company is a party (each of the foregoing in (A), (B) or
(C) an "Employee Plan," and collectively, the "Employee Plans"). Transferor has
delivered or made available to USO true and complete copies of the plan
documents, written instruments and/or agreements governing such Employee Plans.
(ii) A favorable determination letter from the Internal
Revenue Service has been issued with respect to each Employee Plan intended to
qualify under Section 401(a) of the Code, and nothing has occurred since the
date of such determination letter which could result in disqualification of such
Employee Plan. As of the Closing Date, neither the Transferor nor the Company
has any liability or obligations with respect to any plan maintained by a Code
Affiliate which is subject to Title IV of ERISA, other than with respect to the
BN Pension Plan (as defined in Section 5.9 (b)(ii)(A)). The Transferor has
furnished to USO the most recent actuarial valuation with respect to the BN
Pension Plan.
(iii) Each Employee Plan has been maintained in material
compliance with its terms and all provisions of applicable law, and no
prohibited transaction within the meaning of Section 406 of ERISA or Section
4975(c) of the Code has occurred with respect to any Employee Plan as a result
of any act or omission of Transferor or a Code Affiliate. BN has paid
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all contributions required to be paid with respect to the Transferor's employees
under all Employee Plans as and when due.
(iv) Neither the Transferor nor any Code Affiliate has
incurred any withdrawal liability under Title IV of ERISA with respect to any
"multiemployer plan" as defined in Section 4001(a)(3) of ERISA, nor shall the
Transferor or any Code Affiliate incur such withdrawal liability as a result of
the transactions contemplated hereby.
(v) Except as required by the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended, or any similar state statutes, no
Employee Plan provides medical, life insurance or other welfare benefits to or
with respect to former employees or independent contractors of the Transferor.
Except as set forth on Schedule 4.1(q)(v) of the Disclosure Letter, the
transactions contemplated hereby shall not trigger, increase or accelerate any
payment or benefit under any Employee Plan, whether or not such payment or
benefit would constitute an "excess parachute payment" as defined in Section
280G of the Code. No severance or termination benefits shall be payable to any
employee or independent contractor of the Transferor or Company as a result of
or in connection with the transactions contemplated hereby.
(vi) Schedule 4.1(q)(vi) of the Disclosure Letter sets
forth a list of each employee of the Transferor or the Company who participates
in the BN Deferred Comp Plan (as defined in Section 5.9(b)(iii)(A)) as of the
Closing Date and the value of the Deferral Account (as defined thereunder) of
each such participant as of the date set forth on Schedule 4.1(q)(vi) of the
Disclosure Letter. None of the Employee Plans includes a "flexible spending
account" within the meaning of Proposed Treasury Regulation Section 1.125-2,
Q&A-7(c). With regard to any voluntary employees' beneficiary association (as
defined in Section 501(c)(9) of the Code) ("VEBA") which is maintained under or
with respect to any Employee Plan, as of the Closing Date there are no assets
accumulated or held under such VEBA with respect to such employees.
(r) Labor and Employment. There is no collective bargaining
agreement, memorandum agreement or other labor contract covering employees of
the Transferor or the Company, and, to the knowledge of the Transferor or the
Company, no union or other labor organization is seeking to organize such
employees, or to be recognized as a collective bargaining representative of such
employees. There is no pending or, to the knowledge of the Transferor,
threatened strike, work stoppage, material unfair labor practice claim or other
material labor dispute against or affecting the Transferor, the Company or their
respective employees. A list of each current employee of the Transferor and the
Company and his position, status (active, disabled or on other leave) annual
compensation (including latest bonus), date of hire and date of birth will be
provided to USO prior to the Closing Date.
(s) Contracts.
(i) Schedule 4.1(s)(i) of the Disclosure Letter hereto is
a true and complete list of all contracts which are material to the business,
operations, assets and liabilities of the Transferor and which will be assigned
to the Company (the "Contracts").
(ii) Except as otherwise disclosed on Schedule 4.1(s)(ii)
of the Disclosure Letter, the Contracts are valid, binding, and enforceable in
accordance with their terms (assuming the other parties thereto are bound,
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as to which none of BN, Transferor and the Company has any reasonable basis to
believe otherwise) and in full force and effect, except where any such
invalidity or failure to be binding, enforceable or in full force and effect
would not have a material adverse effect.
(iii) Except as otherwise disclosed on Schedule
4.1(s)(iii) of the Disclosure Letter, neither the Transferor nor the Company is,
and to the knowledge of BN, Transferor and the Company, no other party to such
Contract is, in default thereunder, and no event has occurred which, with or
without the passage of time or the giving of notice or both, would constitute a
default thereunder, except in each case for default as would not have,
individually or in the aggregate, a material adverse effect on the conduct of
business by, or the assets and liabilities of, the Transferor or the Company.
(iv) Except as set forth on Schedule 4.1(s)(iv) of the
Disclosure Letter, all of the Contracts are assignable without obtaining third
party consent to the Company, and none of such Contracts has change in control
provisions that would allow another party the right to terminate the Contract or
take action that is adverse to the Transferor or the Company, except with
respect to Contracts as would not have, individually or in the aggregate, a
material adverse effect on the conduct of business or the assets and liabilities
of the Transferor or the Company.
(t) Patents, Trademarks, Software.
(i) Except as disclosed on Schedule 4.1(t) of the
Disclosure Letter hereto, the Transferor owns, and the Company will own as of
the Closing, free and clear of all Encumbrances, the right to use, sell, license
or dispose of such patents, copyrights, trademarks, service marks, and
applications and registrations therefor, and trade names, trade secrets,
customer lists, proprietary technology processes and formulae, source code,
object code, know-how, inventions, other confidential and proprietary
information and other intellectual property rights as are necessary to permit
the Transferor and the Company to carry on the business as currently conducted
by the Transferor, except for failures to own free and clear, license to use or
otherwise have sufficient rights to use as would not have a material adverse
effect (the "Rights"). Schedule 4.1(t) of the Disclosure Letter sets forth all
registered patents, copyrights, trademarks and service marks included in the
Rights, all of which are in full force and effect and are not subject to any
Taxes or maintenance fees, except as set forth on Schedule 4.1(t) of the
Disclosure Letter, or except where the failure to be in full force or effect or
to be so subject would not have a material adverse effect. Except as set forth
on Schedule 4.1(t) of the Disclosure Letter, or pursuant to the Transferor's
"Affiliates Program", neither BN, Transferor nor the Company has licensed or
granted to anyone the right to use the name "Barnes and Noble" in connection
with business conducted on the Internet or any other name associated with or
used by the Transferor in connection with the business conducted by the
Transferor or the Company. Except as set forth on Schedule 4.1(t) of the
Disclosure Letter, none of BN, Transferor nor the Company (i) has licensed or
granted to anyone rights of any nature to use any Rights that would limit the
exercise of such Rights by the Transferor or the Company, or that would limit or
prevent the Transferor or the Company from using, selling, licensing or
disposing of Rights in any market or geographic region, including in direct
competition with any licensee of such Rights in such geographic region; (ii)
except for the $50,000 annual royalty payable by the Company to BN College, is
obligated to pay royalties, fees or other payments to anyone for use of any
single Right; and (iii) has received notice
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from any third party or otherwise has knowledge that any Rights or any services
or products marketed or sold by the Transferor or the Company violates any
intellectual property right of a third party, except for such violations as
would not have a material adverse affect. To Transferor's knowledge, there
exists no infringement by any third party of any Rights that would have a
material adverse effect and there is no pending or, to the knowledge of either
Transferor or the Company, threatened claim or litigation against the Transferor
or the Company contesting its use of any Rights, asserting the misuse of any
Rights, or asserting the infringement or other violation of any rights of a
third party, nor, to the knowledge of either Transferor or the Company, is there
any reasonable basis for any such claim, where, in any such case, individually
or in the aggregate, such infringement, claim or litigation would have a
material adverse effect.
(ii) All copyrightable works, inventions and know-how
conceived by employees or, to the knowledge of BN, the Transferor or the
Company, independent contractors of the Transferor or the Company within the
scope of their employment or retention, as the case may be, and related to the
business conducted by the Transferor were and are "works for hire," or if they
were or are not, then all right, title and interest therein were transferred and
assigned to, or vested in, the Transferor or the Company except where the
failure to be "works for hire" or to have been so transferred, assigned or
vested would not have a material adverse effect.
(iii) Except as set forth on Schedule 4.1(t) of the
Disclosure Letter, the consummation of the transactions contemplated by this
Agreement will not alter, impair or extinguish any of the Rights, the
alteration, impairment or extinguishing of which would have a material adverse
effect. Following the consummation of the transactions contemplated hereby, the
Company will own, free and clear of all Encumbrances, or have the exclusive
right to use, sell, license or dispose of or otherwise will have sufficient
rights to use, the Rights, except for failures to own free and clear, license to
use or otherwise have sufficient rights to use as would not have a material
adverse effect.
(iv) To the best of BN's and Transferor's knowledge, the
software used by Transferor with respect to the Business, including embedded
software, either: (i) is not affected (with respect to performance and
functionality) by dates prior to, during and after the year 2000; or (ii)
insofar as such software is so affected, Transferor has taken reasonable steps
to assure that any problems which may arise with respect to dates prior to,
during and after the year 2000 will be corrected sufficiently in advance of the
year 2000.
(u) Relationships with Related Persons. Except as set forth on
Schedule 4.1(u) of the Disclosure Letter, neither BN nor any Related Person
of BN or its officers or directors has any interest in any property (whether
real, personal, or mixed and whether tangible or intangible), which will be
used in or pertaining to the Company's business. Neither BN nor any Related
Person of BN owns (of record or as a beneficial owner) an equity interest or
any other financial or profit interest in, a Person that has (i) had business
dealings or a material financial interest in any transaction with the Transferor
or the Company other than business dealings or transactions conducted in the
ordinary course of business with the Company at substantially prevailing
market prices and on substantially prevailing market terms, or (ii) engaged in
competition with the Transferor or the Company with respect to any line of the
products or services of such Person in any market presently served by such
company. Except as set forth in Schedule 4.1(u) of
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the Disclosure Letter, neither BN nor any Related Person of BN or of the Company
is a party to any contract with, or has any claim or right against the Company.
(v) Disclosure. No representation or warranty by Transferor
contained in this Agreement, nor any statement contained in the Limited
Liability Company Agreement or in any Schedule, certificate, list or other
instrument furnished or to be furnished by Transferor or BN to USO pursuant to
this Agreement or the Limited Liability Company Agreement or in connection with
the transactions contemplated by either, contains any untrue statement of a
material fact or omits to state a material fact which is necessary in order to
make the statements contained herein or therein, in the light of the
circumstances under which they were made, not misleading. There is no fact
known to Transferor which materially adversely affects the condition (financial
or otherwise), properties, assets, business, operations or prospects of
Transferor as they relate to the assets listed on the BN Contribution Schedule
which has not been set forth herein or in the Schedules hereto. All documents
delivered or to be delivered by Transferor or BN to USO pursuant to this
Agreement are or will be true and complete copies of what they purport to be.
Section 4.2 Representations and Warranties of USO. USO represents and
warrants to Transferor that:
(a) Organization and Existence. USO is a corporation duly
organized, validly existing and in good standing under the laws of Delaware. USO
has full legal power and authority to own and lease the properties and assets it
now owns and leases and to carry on its business as and where such properties
and assets are now owned or leased and such business is now conducted.
(b) Authority and Approval. Each of BAG and USO has the legal
Spower and authority to enter into this Agreement and to perform its obligations
hereunder. Each of BAG and USO has, or on the Closing Date will have, the legal
power and authority to enter into the Limited Liability Company Agreement and to
perform its obligations thereunder. This Agreement is a legal, valid and binding
obligation of each of BAG and USO, enforceable against each of BAG and USO in
accordance with its terms, subject to:
(i) applicable bankruptcy, insolvency or other similar
laws relating to creditors' rights generally; and
(ii) general principles of equity. When executed, the
Limited Liability Company Agreement will be a valid and binding obligation of
USO enforceable against USO in accordance with its terms, subject to (a)
applicable bankruptcy, insolvency or other similar laws relating to creditors'
rights generally and (b) general principles of equity. No other act, approval or
proceeding on the part of USO is or will be required to authorize the execution
and delivery of this Agreement and the Limited Liability Company Agreement by
USO or the consummation of the transactions contemplated by each such agreement.
(c) No Conflict. This Agreement and the Limited Liability
Company Agreement and the execution and delivery of each such agreement by each
of BAG and USO do not, and the fulfillment and compliance with the terms and
conditions of each such agreement and the consummation of the transactions
contemplated by each will not:
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(i) conflict with any of, or require the consent of any
Person under, the terms, conditions or provisions of the certificate of
incorporation, by-laws or other corporate documents of each of BAG and USO;
(ii) conflict with, result in a breach of, constitute a
default under (whether with or without notice or the lapse of time or both), or
accelerate or permit the acceleration of the performance required by, or require
any consent, authorization or approval under, any indenture, mortgage, lease,
agreement or instrument to which USO is a party or by which it is bound or to
which any of its assets or property is subject; or
(iii) result in the creation of any Encumbrance upon the
assets or property of USO under any such indenture, mortgage, lease, agreement
or instrument.
USO is not subject to any order, judgment, decree or award of any court or other
judicial, administrative or regulatory body or arbitrator having prospective
effect.
(d) Disclosure. No representation or warranty by either BAG or
USO contained in this Agreement, nor any statement contained in the Limited
Liability Company Agreement or in any Schedule, certificate, list or other
instrument furnished or to be furnished by either BAG or USO to Transferor
pursuant to this Agreement or the Limited Liability Company Agreement or in
connection with the transactions contemplated by either, contains any untrue
statement of a material fact or omits to state a material fact which is
necessary in order to make the statements contained herein or therein, in the
light of the circumstances under which they were made, not misleading. All
documents delivered or to be delivered by either BAG or USO to Transferor
pursuant to this Agreement are or will be true and complete copies of what they
purport to be.
ARTICLE V
COVENANTS
Section 5.1 Filings. Each of the parties hereto agree to cooperate
fully with the other in the preparation and filing, whether before or after the
Closing Date, of all documents and instruments required to be filed by BN, BAG,
USO, the Transferor, B&N.com Holding or the Company, in connection with the
transactions contemplated by this Agreement and the Limited Liability Company
Agreement, including, without limitation, any business certificate, or any
trade, assumed or fictitious name certificates, or any applications for
authority to do business, or any registrations or assignments of registrations
of any patents, trademarks, trade names, service marks, copyrights or similar
rights.
Section 5.2 Access and Investigation. Between the Effective Date and
the Closing Date, the Transferor and the Company and its representatives shall,
subject to the provisions of Section 9.1: (a) afford USO and its representatives
and prospective lenders and their representatives (collectively, "USO's
Advisors") full and free access to Transferor's and Company's personnel,
properties, contracts, books and records, and other documents and data relating
to the Transferor and/or the Company, (b) furnish USO and USO's Advisors with
copies of all such contracts, books and records, and other existing documents
and data relating to the Transferor and the
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Company and/or the Transferor as USO may reasonably request, and (c) furnish USO
and USO's Advisors with such additional financial, operating, and other data and
information as USO may reasonably request relating to the Transferor and/or the
Company.
Section 5.3 Operation of the Business of the Transferor and Company.
Between the Effective Date and the Closing Date, the Transferor and the Company
shall, other than with respect to actions contemplated in or by this Agreement
or set forth on Schedule 4(n) of the Disclosure Letter:
(a) conduct the business of the Transferor and the Company only
in the ordinary course of business;
(b) use its best efforts to preserve intact the current business
organization of the Transferor and the Company, keep available the services of
the current managers, officers, employees, and agents of the Transferor and the
Company, and maintain the relations and good will with suppliers, customers,
landlords, creditors, employees, agents, and others having business
relationships with the Transferor and the Company;
(c) confer with USO concerning operational matters of a material
nature with respect to the Transferor and the Company; and
(d) otherwise report periodically to USO concerning the status
of the business, operations, and finances of the Transferor and the Company.
Section 5.4 Negative Covenant. Except as otherwise expressly permitted
by this Agreement, between the Effective Date and the Closing Date, the
Transferor and the Company shall not, without the prior consent of USO, take any
affirmative action, or fail to take any reasonable action within its control, as
a result of which any of the changes or events listed in Section 4.1(n) (other
than as set forth in Schedule 4(n) of the Disclosure Letter) is likely to occur.
Section 5.5 Required Approvals. Transferor and USO acknowledge that
there are no filings required by legal requirements to be made by either party
in order to consummate the contemplated transactions including, but not limited
to, filings under the HSR Act.
Section 5.6 No Negotiation. Until such time, if any, as this Agreement
is terminated pursuant to Section 7.1, the Transferor and its Affiliates shall
not, directly or indirectly, solicit, initiate, or encourage any inquiries or
proposals from, discuss or negotiate with, provide any non-public information
to, or consider the merits of any unsolicited inquiries or proposals from, any
Person (other than USO) relating to any transaction involving the potential sale
of the business or assets (other than in the ordinary course of business) of the
Transferor or the Company, or any of the Membership Interests in the Company, or
(except into or with an Affiliate) any merger, consolidation, business
combination, or similar transaction involving the Transferor or the Company.
Section 5.7 Delayed Receipts. In the event that the Transferor receives
any property, assets, payment or otherwise which constitutes a part of the
business contributed to the Company, such item shall be promptly contributed to
the Company.
Section 5.8 Stock Options. As of the Effective Date, the
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Company shall adopt the barnesandnoble.com inc. 1998 Incentive Plan (the
"Incentive Plan") with such changes therein as are necessary to reflect the
issuer as a limited liability company and not a corporation, and any other
mutually agreeable changes that do not adversely affect the awards set forth in
Schedule 5.8 of the Disclosure Letter. The awards to date under the Incentive
Plan are set forth in Section 5.8 of the Disclosure Letter. All such awards
(other than 600,000 of Stephen Riggio's 800,000, which shall be forfeited) shall
be converted into the same number of units in the Company, at the same exercise
price per unit and vesting schedule, as set forth on Schedule 5.8 of the
Disclosure Letter and the existing Membership Interests shall be converted into
33,333,334 taking into account the units to be issued to USO pursuant hereto as
well as the Membership Interests currently outstanding, and any units to be
issued in connection with the aforementioned awards shall be in addition to and
not in reduction of the aforementioned 33,333,334 units.
Section 5.9 Employees and Employee Benefits
(a) The employment of all current employees of the Transferor
shall terminate as of the Effective Date, and the Transferor and USO shall cause
the Company to offer employment to such employees, effective as of November 1,
1998 (the "Start Date"), at rates of compensation and with employee benefits
which, subject to Section 5.8, are substantially equivalent to the respective
rates of compensation and benefits paid or provided to such employees by the
Transferor as of the Effective Date. The employees of the Transferor who accept
such offer of employment shall be referred to as "Company Employees." BN, the
Transferor, USO and the Company shall take such action as is necessary to cause
the Company to adopt or enter into, effective as of the Start Date (except as
set forth in Section 5.9(b)(i)A.), benefit plans, funds, programs, agreements,
payroll practices or other arrangements which effectuate the provisions of this
Section 5.9.
(b) As soon as practicable after the Closing Date, but effective
(except as set forth in Section 5.9(b)(i)A.) as of the Start Date, the following
shall occur:
(i) Defined Contribution Plan
A. As of the Closing Date, the Company shall become a
Participating Employer in and adopt the Barnes & Noble, Inc. 401(k) Savings Plan
as in effect as of the Closing Date (the "BN 401(k) Plan") and employees of the
Company shall participate thereunder under the same terms and conditions as BN
employees, and shall earn service credit thereunder for service with the Company
on the same basis as employees of BN receive credit for service with BN.
B. BN shall take all actions necessary to cause the BN
401(k) Plan to provide for investment of the Employer Contribution Accounts of
the Company's Employees participating in the BN 401(k) Plan in BN stock for as
long as BN is an "affiliate" of the Company within the meaning of Section
407(d)(7) of ERISA.
C. BN shall indemnify, defend and hold harmless the
Company and USO against all Damages (as defined in Section 8.2) which arise as a
result of or in connection with the form or operation of the BN 401(k) Plan
under ERISA, the Code or otherwise, provided that BN shall have no such duty
with respect to Damages which arise out of an act or omission of the Company.
The Company shall have the right to terminate its participation in
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the BN 401(k) Plan at any time, in which event the Company shall establish a
separate 401(k) Plan (the "Company 401(k) Plan") maintained solely with respect
to employees of the Company, and BN and the Company shall take all actions
necessary to cause the assets and liabilities of Company Employees under the BN
401(k) Plan to be transferred to the Company 401(k) Plan.
(ii) Defined Benefit Plan
A. The Company shall adopt a defined benefit pension plan
designed to qualify under Section 401(a) of the Code (the "Company Pension
Plan") which is substantially equivalent to the Barnes and Noble, Inc.
Employees' Retirement Plan (the "BN Pension Plan") as in effect as of the
Effective Date and provides service credits as set forth in the provisions of
this Section 5.9(b)(ii). BN shall cause the trustees of the BN Pension Plan to
transfer to the trust maintained pursuant to the Company Pension Plan, as soon
as practicable after the Closing Date, an amount of assets in cash equal in
value to the BN Pension Plan's projected benefit obligation determined as of the
Effective Date with respect to Company Employees who are participants in the BN
Pension Plan as of the Effective Date and the BN Pension Plan shall transfer to
the Company Pension Plan the liabilities under the BN Pension Plan determined as
of the Effective Date with respect to such Company Employees. The amount of such
assets and liabilities shall be calculated as soon as practicable after the
Closing Date by the BN Pension Plan's actuary based upon the assumptions set
forth on Schedule 5.9(b)(ii)(A) of the Disclosure Letter, provided that the
value of the assets to be transferred shall (x) be no less than the amount
necessary to satisfy the requirements of Section 414(1) of the Code, (y) be
increased by interest at the rate set forth on Schedule 5.9(b)(ii)(A) of the
Disclosure Letter, for the period from the Effective Date to the date of
transfer, and (z) be decreased to reflect benefit payments by the BN Pension
Plan with respect to Company Employees during the period from the Effective Date
to the date of transfer. The calculation made pursuant to the preceding sentence
shall be available for review prior to such transfer by USO's actuary at USO's
expense. The Company shall cause the Trustee of the Company Pension Plan to
accept such transfer of assets and liabilities. Neither the Company nor the
Company Pension Plan shall assume liability for the valuation of assets and
liabilities under the BN Pension Plan necessary to file a Form 5500 for the BN
Pension Plan. Neither BN, a Code Affiliate of BN nor the BN Pension Plan shall
assume liability for the valuation of assets and liabilities of the Company
Pension Plan necessary to file a Form 5500 for the Company Pension Plan.
B. The BN Pension Plan shall provide that service with
the Company shall be taken into account for purposes of eligibility, vesting and
early retirement subsidies for any person who becomes employed by BN or a Code
Affiliate of BN by virtue of a direct transfer of employment from the Company.
The Company Pension Plan shall provide that service with Transferor, BN or any
Code affiliate of BN shall be taken into account for purposes of eligibility,
vesting and early retirement subsidies for any person who becomes employed by
the Company by virtue of a direct transfer of employment from BN or a Code
Affiliate of BN, provided that such service rendered prior to the Start Date by
a Company Employee also shall be recognized for benefit accrual purposes under
the Company Pension Plan (but in no event will a Company Employee receive
duplicate service credit for benefit accrual purposes under the Company Pension
Plan for the same period of service).
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C. The Company Pension Plan shall provide that in the
event that any person becomes employed by BN or a Code Affiliate of BN by virtue
of a direct transfer of employment from the Company, the accrued benefit of such
person under the Company Pension Plan through the date of such transfer shall be
calculated by taking into account increases in such person's age and
compensation paid from BN or such Code Affiliate of BN after the date of such
direct transfer of employment. The BN Pension Plan shall provide that in the
event that any person becomes employed by the Company by virtue of a direct
transfer of employment from BN or a Code Affiliate of BN, the accrued benefit of
such person under the BN Pension Plan through the date of such transfer shall be
calculated by taking into account increases in such person's age and
compensation paid from the Company after the date of such direct transfer of
employment. This Section 5.9(b)(ii)C. shall cease to apply if and when either of
the Company Pension Plan or the BN Pension Plan is terminated or is amended to
cease future accruals for all participants under the respective plan.
D. The Company Pension Plan shall not be amended or
terminated for a period of one year after the Closing Date except that (x) the
Company Pension Plan shall be amended to match an amendment to the BN Pension
Plan adopted within that one year period which does not result in an increase in
benefits under the Company Pension Plan, (y) the Company Pension Plan may be
amended as required by applicable law, and (z) the Company Pension Plan may be
terminated within such one year period to match a termination of the BN Pension
Plan effected within that one year period.
E. Each of the BN Pension Plan and the Company Pension
Plan shall provide that, to the extent that under a provision thereof a
termination of employment renders a participant entitled to immediate payment of
a benefit, a participant who terminates employment with an employer sponsoring
one plan for the purpose of becoming employed by a sponsoring employer of the
other plan shall not be considered to have terminated employment for the purpose
of such provision.
(iii) Deferred Compensation Plan
A. The Company shall establish a deferred compensation
plan (the "Company Deferred Comp Plan") which is substantially equivalent to the
Barnes & Noble, Inc. Deferred Compensation Plan listed as Item 9 on Schedule
4.1(q)(i) of the Disclosure Letter (the "BN Deferred Comp Plan") as in effect on
the Closing Date. The Company Deferred Comp Plan shall give credit for all
service under the BN Deferred Comp Plan.
B. The Administrative Committee of the BN Deferred Comp
Plan shall cause the trustee of any grantor trust established thereunder to
transfer, as soon as practicable after the Closing Date, an amount in cash equal
to the Deferral Account (as defined in the BN Deferred Comp Plan) of a Company
Employee to the Company Deferred Comp Plan.
C. The Company Deferred Comp Plan and the BN Deferred
Comp Plan shall each provide, or shall be amended as soon as practicable after
the Closing Date to provide, that a participant in such plan who transfers
employment to an employer who sponsors the other plan shall not be deemed to
have terminated employment for purposes of eligibility to receive a benefit on
the basis of termination of employment. In the event of such a transfer, the
plan maintained by the employer from which the participant transfers shall, as
soon as practicable after the date of the employment
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transfer, transfer to the other plan from the assets of any grantor trust
established thereunder attributable to such participant an amount equal to the
Deferral Account (as defined in the respective plan).
(c) With respect to each Company Employee:
(i) BN or the Transferor shall be responsible for, and
shall indemnify and hold harmless the Company and USO against, any actions,
claims or proceedings brought by or on behalf of any Company Employee at any
time, including, but not limited to, wrongful termination, breach of fiduciary
duty, discrimination, sexual harassment, workers compensation or other
employment-related matters, to the extent such claims are based solely upon
actions, events or circumstances which occurred before the Start Date, except:
(x) to the extent that such matter is fully disclosed to USO pursuant to this
Agreement; or (y) to the extent adequate reserves have been established in the
financial statements of Transferor (as delivered to USO pursuant to this
Agreement).
(ii) Subject to Section 5.9(b), BN or the Employee Plans
shall have liability for or shall be responsible for all benefits provided
pursuant to any Employee Plan, including, but not limited to, (A) deferred
compensation, non-qualified and incentive plans or policies with respect to
services rendered on or before the Effective Date and (B) medical, dental and
other welfare benefits under any Employee Plan based on claims incurred prior to
the Start Date under the terms of such Employee Plans, provided, however, that
effective as of the Start Date a health plan adopted by the Company shall assume
the obligation, if any, of the Barnes and Noble, Inc. Comprehensive Medical and
Dental Plan (the "BN Health Plan") to provide health continuation benefits
pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended, to any person (y) who is a "qualified beneficiary" (within the meaning
of Section 4980B(g)(1)(A) of the Code) under the BN Health Plan by virtue of
such person's current or former employment with the Transferor or by virtue of
being the spouse or dependent child of a current or former employee of the
Transferor, and (z) with respect to whom a "qualifying event" (within the
meaning of Section 4980B(f)(3) of the Code) has occurred. Notwithstanding the
foregoing, the Company shall be responsible for satisfying obligations with
respect to accrued vacation and sick time and personal holidays of Company
Employees. Subject to Section 5.9(b), BN shall cause the Employee Plans to
provide effective as of the Start Date that any employee of the Company who
becomes employed by BN or a Code Affiliate of BN upon a direct transfer of
employment from the Company shall be credited with such employee's service with
the Company for purposes of determining benefits under such Employee Plans made
available or provided to employees of BN or the Code Affiliate of BN. Such
credit shall include credit for any co-payments and deductibles paid prior to
the transfer of employment.
(iii) Subject to Section 5.9(b), BN and USO shall cause
the Company to take such action as is necessary such that each Company Employee
and each person who becomes an employee of the Company subsequent to the Start
Date upon a direct transfer of employment from BN or a Code Affiliate of BN
shall be credited with such Company Employee's or such person's service with the
Transferor, BN or the Code Affiliate of BN, as the case may be, for purposes of
determining benefits under any employee benefit plans, funds, programs,
agreements, payroll practices or other arrangements (including, but not limited
to, vacation) made available or provided to employees of the Company. Such
credit shall include credit for co-payments and deductibles paid prior to the
Start Date (in the case of Company
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Employees) and prior to transfer of employment (in all other cases). For Company
Employees, the amount of service to be credited shall be based on the years of
service for such Company Employee.
ARTICLE VI
CONDITIONS TO CLOSING
Section 6.1 Conditions to the Obligations of USO. The obligations of
USO to proceed with the Closing are subject to the satisfaction on or prior to
the Closing Date of all of the following conditions, any one or more of which
may be waived in whole or in part by USO:
(a) Representations and Warranties True. The representations and
warranties contained in Section 4.l and in all schedules and certificates
delivered by Transferor to USO pursuant to this Agreement shall be true and
accurate on and as of the Closing Date with the same effect as though made on
and as of such date, except for such changes, if any, as may be expressly
permitted by this Agreement or agreed to in writing by the parties hereto.
(b) Performance of Covenants. Transferor shall have performed
and complied in all material respects with each and every covenant, agreement
and condition required to be performed or complied with by it hereunder on or
prior to the Closing Date.
(c) Licenses, Consents, etc. Transferor shall have obtained all
licenses, approvals, and permits of governmental authorities required to be
obtained by it for or in connection with the transactions contemplated hereby,
and all consents and approvals, if any, of other parties, including, but not
limited to, the consent of creditors or contracting parties of Transferor, in
each case in which the failure to obtain such consent or approval of other
parties would have a material adverse effect on the assets, properties and
liabilities identified on the BN Contribution Schedule or would materially
interfere with the right or ability of the Company to use the assets and
properties listed on the BN Contribution Schedule or interfere with the rights
or ability of Transferor to transfer good and unencumbered title to or lawful
use of the assets and properties identified in the BN Contribution Schedule, and
no such governmental license, approval or permit or consent or approval of any
third party shall have been withdrawn or suspended.
(d) No Injunction. On the Closing Date, there shall be no
injunction, writ, restraining order or any other order of any nature issued by a
court or governmental agency of competent jurisdiction directing that any of the
transactions provided for in this Agreement or the Limited Liability Company
Agreement not be consummated as herein or therein provided.
(e) No Actions. On the Closing Date, there shall be no action or
proceeding pending or threatened by or before any court or other judicial,
administrative or regulatory body to restrain or prohibit the transactions
contemplated by this Agreement or the Limited Liability Company Agreement.
(f) Corporate Authorization. Transferor shall have delivered to
USO a certificate of the Secretary of Transferor, in form reasonably
satisfactory to USO and its counsel, dated the Closing Date, certifying that (i)
a true and correct copy of the articles of incorporation and by-laws of
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<PAGE>
the Transferor, as amended as of the Closing Date, is attached thereto, and (ii)
the authorization and approval of this Agreement and the Limited Liability
Company Agreement and the transactions contemplated hereby and thereby by the
Board of Directors of Transferor in accordance with the provisions of its
by-laws.
(g) Other Agreements. Transferor shall execute and deliver or
cause to be executed and delivered, on its own behalf or on behalf of the
Company, whichever applicable, the agreements identified in Section 2.6.
(h) Officer's Certificate. Transferor shall have delivered to
USO a certificate signed by a duly authorized officer of Transferor, dated the
Closing Date, in form and substance reasonably satisfactory to USO and its
counsel, certifying as to the satisfaction on the Closing Date of the conditions
specified in Sections 6.1(a) through (g) hereof and Section 2.6.
Section 6.2 Conditions to the Obligations of Transferor. The
obligations of Transferor to proceed with the Closing are subject to the
satisfaction on or prior to the Closing Date of all of the following conditions,
any one or more of which may be waived in whole or in part by Transferor:
(a) Representations and Warranties True. The representations and
warranties contained in Section 4.2 and in all certificates delivered by USO to
Transferor pursuant to this Agreement shall be true and accurate on and as of
the Closing Date with the same effect as though made on and as of such date,
except for such changes, if any, as may be expressly permitted by this Agreement
or agreed to in writing by the parties hereto.
(b) Performance of Covenants. USO shall have performed and
complied in all material respects with each and every covenant, agreement and
condition required to be performed or complied with by it hereunder on or prior
to the Closing Date.
(c) Licenses, Consents, etc. USO shall have obtained all
licenses, approvals, and permits of governmental authorities required to be
obtained by it for or in connection with the transactions contemplated hereby.
(d) No Injunction. On the Closing Date, there shall be no
injunction, writ, restraining order or any other order of any nature issued by a
court or governmental agency of competent jurisdiction directing that any of the
transactions provided for in this Agreement or the Limited Liability Company
Agreement not be consummated as herein or therein provided.
(e) No Actions. On the Closing Date, there shall be no action or
proceeding pending or threatened by or before any court or other judicial,
administrative or regulatory body to restrain or prohibit the transactions
contemplated by this Agreement or the Limited Liability Company Agreement.
(f) Corporate Authorization. USO shall have delivered to
Transferor a certificate of a duly authorized officer of USO, in form reasonably
satisfactory to Transferor and its counsel, dated the Closing Date, certifying
that (i) a true and correct copy of the certificate of incorporation and by-laws
of USO, as amended as of the Closing Date is attached thereto, and (ii) the
authorization and approval of this Agreement and the Limited Liability Company
Agreement and the transactions contemplated
- 27 -
<PAGE>
hereby and thereby by the Board of Directors of USO in accordance with the
provisions of its by-laws.
(g) Other Agreements. USO shall execute and deliver or cause to
be executed and delivered, on its own behalf, or by its Affiliates, as the case
may be, or on behalf of the Company, whichever applicable, the agreements
identified in Section 2.6.
(h) Officer's Certificate USO shall have delivered to Transferor
a certificate signed by a duly authorized officer of USO, dated the Closing
Date, in form and substance reasonably satisfactory to Transferor and its
counsel, certifying as to the satisfaction on the Closing Date of the conditions
specified in Sections 6.2(a) through (g) hereof and Section 2.6.
ARTICLE VII
TERMINATION
Section 7.1 Termination. This Agreement may be terminated before the
Closing Date only as follows:
(a) By written agreement of Transferor and USO at any time.
(b) By USO, by written notice to Transferor at any time, if,
through no fault of USO, one or more of the conditions specified in Section 6.1
is not satisfied at the time at which the Closing would otherwise occur
(provided that Transferor shall have fifteen (15) days after written notice to
cure such conditions) or satisfaction of such a condition is or becomes
impossible.
(c) By Transferor, by written notice to USO at any time, if,
through no fault of Transferor, one or more of the conditions specified in
Section 6.2 is not satisfied at the time at which the Closing would otherwise
occur (provided that USO shall have fifteen (15) days after written notice to
cure such conditions) or satisfaction of such a condition is or becomes
impossible.
(d) By Transferor or USO, by written notice to the other, if,
through no fault of the terminating party, the Closing has not taken place for
any reason on or before April 30, 1999.
ARTICLE VIII
NATURE AND SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
Section 8.1 Nature and Survival of Representations and Warranties. All
representations and warranties made by Transferor or USO in this Agreement and
in any schedules, certificates or other documents delivered in connection with
the transactions contemplated hereby shall survive the Closing for a period of
twelve (12) months after the end of the Company's first fiscal year.
Section 8.2 Indemnification.
(a) Transferor shall promptly indemnify, defend and hold
harmless USO and the Company against all damage, loss, liability, recovery,
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<PAGE>
deficiency cost or expense, including, without limitation, reasonable attorneys'
fees and costs related thereto ("Damages"), suffered or incurred by USO or the
Company, to the extent such Damages result in a diminution in the value of USO's
Company Interest, arising from or in connection with any misrepresentation or
breach of any representation or warranty or nonfulfillment of a covenant or
agreement made by Transferor set forth in this Agreement or in any Exhibit,
Schedule or certificate delivered pursuant hereto. No investigation by USO at or
prior to the Closing shall relieve Transferor of any liability hereunder, except
with respect to any written disclosures, Schedules, Exhibits, certificates or
documents furnished in connection with this Agreement.
(b) USO shall promptly indemnify, defend and hold harmless
Transferor and the Company against all Damages suffered or incurred by
Transferor or the Company, to the extent such Damages result in a diminution in
the value of Transferor's Company Interest, arising from or in connection with
any misrepresentation or breach of representation or warranty or nonfulfillment
of a covenant or agreement made by USO set forth in this Agreement or in any
Exhibit, Schedule or certificate delivered pursuant hereto. No investigation by
Transferor at or prior to the Closing shall relieve USO of any liability
hereunder, except with respect to any written disclosures, Schedules, Exhibits,
certificates or documents furnished in connection with this Agreement.
Section 8.3 Brokers. Transferor shall indemnify, defend and hold
harmless USO, and USO shall indemnify, defend and hold harmless Transferor, from
and against all loss, liability, damage or expense (including reasonable
attorneys' fees) in connection with any claim by any Person for brokers' or
finders' fees or commissions or similar payments and related expenses based upon
any agreement or understanding alleged to have been made with respect to the
transactions contemplated hereby by such Person with USO (in the case of USO as
the indemnifying party) or with Transferor (in the case of Transferor as the
indemnifying party).
Section 8.4 Indemnification Procedure. Transferor or USO, as the case
may be, shall notify the party against whom indemnification is sought promptly
of any claim it may have or any claim by any third party coming to its attention
which may result in any liability hereunder on the other's part. Neither
Transferor nor USO shall have any liability under this Article VIII unless
notice of a claim for indemnity has been given to the other party, with
sufficient detail of the events giving rise to such claim, on or prior to the
date twelve (12) months after the end of the Company's first fiscal year, with
the exception of any claim under Section 8.3, which claim may be asserted until
the expiration of the relevant statute of limitations. The indemnifying party
shall be entitled at its own expense to conduct the defense of any third party
claim with counsel of its own choosing, subject to approval by the party seeking
indemnification (whose approval shall not be unreasonably withheld), but the
party seeking indemnification shall be entitled to participate in such defense
with counsel of its own choosing and at its own expense, provided that control
of the defense will remain with counsel for the indemnifying party if the
indemnifying party has acknowledged unequivocally in writing its obligation to
indemnify the other in regard to the claims to be defended against. Failure to
give notice as provided herein shall not relieve the indemnifying party of its
obligations hereunder, except to the extent that the defense of any claim is
prejudiced by such failure to give notice. The indemnifying party shall have the
right to compromise or settle for money damages only any claim giving rise to an
obligation for indemnification hereunder; any claim
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<PAGE>
compromised or settled by the indemnified party shall not be subject to
indemnification hereunder.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Confidentiality. Transferor and USO will, in their
respective capacities, receive and at all times, both before and after the
Closing or termination of this Agreement, treat in confidence, any information
of the disclosing party (or their respective Affiliates) which is disclosed to
the receiving party, pertaining to the finances, technology, production methods
and processes', general business operations, prices charged and pricing
policies, marketing practices or policies, litigation, identity of customers, or
any other confidential aspect (collectively, the "Confidential Matters") of the
disclosing partner or of the Company, except for any such information which:
(i) at the time of disclosure is publicly available or
becomes publicly available through no act or omission of the receiving party;
(ii) was in the receiving party's possession, otherwise
than as a result of a confidential or fiduciary relationship, prior to the
disclosure thereof by the disclosing party; or
(iii) is thereafter disclosed to the receiving party by a
third party which did not acquire the information under an obligation of
confidentiality.
Section 9.2 Governing Law; Jurisdiction. This Agreement shall be
governed by and be construed in accordance with the law of the State of New
York, without regard however to the conflicts of laws principles thereof. Any
action or proceeding seeking to enforce any provision of, or based on any right
arising out of, or otherwise relating to, this Agreement shall be brought
against Transferor or USO in the courts of the State of New York or, if it has
or can acquire jurisdiction, in the United States District Court for the
Southern District of New York, and each of the parties, for itself and its
shareholders, hereby submits to the exclusive jurisdiction of such courts (and
of the appropriate appellate courts) in any such action or proceeding and waives
any objection to venue laid therein.
Section 9.3 Notices. All notices and other communications hereunder
shall be in writing and shall be given and delivered by messenger, transmitted
by telecopy or telegram (in either case followed by reputable overnight courier
sent the same day), by reputable overnight courier or mailed by certified mail,
postage prepaid, return receipt requested, to the parties at the following
addresses (or such other address as shall be specified by such party by like
notice), and shall be deemed given on the date on which so delivered by
messenger or reputable overnight courier, on the next business day following the
date on which so transmitted by telecopy, telegram or on the next business day
following the date on which so transmitted by telecopy, telegram or on the third
business day following the date on which mailed by certified mail:
If to BAG:
Bertelsmann AG
Carl-Bertelsmann-Strasse 270
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<PAGE>
33311 Gutersloh, Germany
Attention: Dr. Klaus Eierhoff
Fax: (011) 49 5241 809 555
If to USO:
BOL.US Online, Inc.
1540 Broadway
New York, New York 10036
Attention: Robert J. Sorrentino
Telefax: 212-782-1010/1103
with a copy for each of BAG and USO to:
Walter, Conston, Alexander & Green, P.C.
90 Park Avenue
New York, New York 10016
Attention: Aydin S. Caginalp, Esq.
Telefax: 212-210-9444
If to Transferor:
barnesandnoble.com inc.
76 Ninth Avenue, 11th Floor
New York, New York 10011
Attention: Leonard Riggio
Telefax: (212) 675-0413
If to BN:
Barnes & Noble, Inc.
122 Fifth Avenue
New York, New York 10011
Attention: Mr. Leonard Riggio
Telefax: (212) 675-0413
with a copy for each of Transferor and BN to:
Robinson Silverman Pearce
Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, New York 10104
Attention: Michael N. Rosen, Esq.
Telefax: 212-541-1400
Section 9.4 Additional Acts. Each of the parties hereto shall deliver
such further documents and agreements, and do such further acts and things as
may be necessary or expedient to carry out the provisions of this Agreement.
Section 9.5 Entire Agreement; Waiver, Modifications. This Agreement and
the other contemporaneous agreements referred to herein constitute a complete
statement of all of the arrangements among the parties as of the date hereof
with respect to the transactions contemplated hereby and thereby, and all other
prior agreements of the parties with respect hereto or thereto are hereby merged
into this Agreement and such other contemporaneous agreements. No modification,
discharge or waiver, in whole
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<PAGE>
or in part, of any of the provisions hereof shall be valid unless in writing and
signed by the party against whom the same is sought to be enforced. A failure or
omission of either party hereto to insist, in any instance, upon strict
performance by the other party of any term or provision of this Agreement or to
exercise any of its rights hereunder shall not be deemed a modification of any
term or provision hereof, or a waiver or relinquishment of the future
performance of any such term or provision by such party, nor shall such failure
or omission constitute a waiver of the right of such party to insist upon future
performance by the other party of any such term or provision or any other term
or provision of this Agreement.
Section 9.6 Headings; Interpretations. The headings in this Agreement
are intended solely for convenience of reference and shall be given no effect in
the construction or interpretation of this Agreement. Unless the context
otherwise requires, the singular includes the plural, and the plural includes
the singular.
Section 9.7 No Assignment. This Agreement shall inure to the benefit
of, and be binding upon, the parties hereto and any Person that acquires an
interest in the Company as permitted by the terms hereof or the Limited
Liability Company Agreement. Otherwise, this Agreement is not assignable.
Section 9.8 Invalidity. In the event that any provision of this
Agreement is declared by a court of competent jurisdiction to be void or
unenforceable, the remainder of this Agreement shall not be affected thereby and
shall remain in full force and effect to the extent feasible in the absence of
the void and unenforceable provision. The parties furthermore agree to execute
and deliver such amendatory contractual provisions to accomplish lawfully as
nearly as possible the goals and purposes of the provision so held to be void or
unenforceable.
Section 9.9 Third Party Beneficiary. The Company shall be a third party
beneficiary of this Agreement.
Section 9.10 Press Release. Transferor and USO shall cooperate with
each other to issue a press release at such time, and in such form and
substance, which is mutually agreeable to both parties.
Section 9.11 Nonassignable Contracts.
(a) In the event that the transactions contemplated by this
Agreement involve the assignment of rights under any contract, agreement,
license, claim, or of other rights, assets, or property, which are nonassignable
without the consent, authorization or approval of the other party or parties
thereto or any other third party (a "Nonassignable Contract"), and such consent,
authorization or approval shall not have been obtained by Transferor prior to
the Effective Date, then, notwithstanding anything in this Agreement to the
contrary (and without relieving Transferor of any liability or obligation it may
have under this Agreement), any such Nonassignable Contract shall not be
assigned (except any rights to receive payments thereunder) until all such
necessary consents, authorizations and approvals with respect to such
Nonassignable Contract shall have been obtained, whereupon Transferor shall,
without further consideration, promptly assign or cause the assignment of same
to the Company. Notwithstanding any other provision in this Agreement, in the
event that the Transferor complies with Sections 9.11(a) and 9.11(b), Transferor
shall not be held liable or accountable for failing to deliver, assign or make
available to the Company
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<PAGE>
any of the licenses or other agreements assigned under this Agreement.
(b) Until such time, if any, as all the necessary consents,
authorizations and approvals shall have been obtained for the assignment of a
Nonassignable Contract, Transferor, at its own expense, shall retain, preserve
and hold in trust for the sole benefit of the Company all rights, interests and
claims with respect to such Nonassignable Contract from and after the Effective
Date; and Transferor shall, at the request of the Company, take all such action,
enter into such arrangements and do or cause to be done such things as shall be
reasonably requested by the Company to provide, make available and secure to the
Company all of the funds, income and payments that would have inured to the
Company upon an outright assignment of such Nonassignable Contract to the extent
permitted by law and by contract. Except as provided by law or the Nonassignable
Contract in question, the performance obligations of Transferor under such
Nonassignable Contract as shall arise both (x) exclusively in respect of periods
from and after the date on which the aforesaid funds are so made available
thereunder and (y) exclusively in connection with the exploitation of such funds
by the Company, shall be deemed to be sublicensed or subcontracted to the
Company but only until such time (if any) as the rights under such Nonassignable
Contract have been effectively assigned to the Company. Transferor shall pay
over to the Company any amounts received by Transferor after the Effective Date
in respect of any Nonassignable Contract, and the Company shall pay over to
Transferor any amounts paid, or expenses incurred, by Transferor in performing
any Nonassignable Contract after the Effective Date.
Section 9.12 Obligations of BN and BAG. By their signatures below, BN
agrees to be liable for any failure by Transferor to perform any of its
obligations under this Agreement, the Limited Liability Company Agreement and
any other agreements executed in connection herewith to which it is a party, and
BAG agrees to be liable for any failure by USO to perform any of its obligations
under this Agreement, the Limited Liability Company Agreement and any other
agreements executed in connection herewith to which it is a party.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending legally to be bound,
have caused this Agreement to be duly executed as of the day and year first
herein above written.
BERTELSMANN AG
By: /s/ Thomas Middelhoff
-----------------------------------
BOL.US Online, Inc.
By: /s/ Robert Sorrentino
-----------------------------------
BARNES & NOBLE, INC.
By: /s/ Leonard Riggio
-----------------------------------
barnesandnoble.com inc.
By: /s/ Leonard Riggio
-----------------------------------
B&N.com Member Corp.
By: /s/ Leonard Riggio
-----------------------------------
B&N.com Holding Corp.
By: /s/ Leonard Riggio
-----------------------------------
<PAGE>
-----------------------------------
SECOND AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
barnesandnoble.com llc
Effective as of ____________,1999
------------------------------------
<PAGE>
SECOND AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
barnesandnoble.com llc
THIS SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT
(the "Agreement") of barnesandnoble.com llc, a Delaware limited liability
company (the "Company"), is made and entered into, effective as of
_____________, 1999, by and among Barnes & Noble, Inc., a corporation organized
and existing under the laws of Delaware, with its principal place of business at
122 Fifth Avenue, New York, New York 10011 ("BN"), B&N.com Holding Corp., a
corporation organized and existing under the laws of Delaware, with its
principal place of business at 122 Fifth Avenue, New York, New York 10011 ("BN
Holding"), barnesandnoble.com inc., a corporation organized and existing under
the laws of Delaware, with its principal place of business at 76 Ninth Avenue,
New York, New York 10011 (the "Public Corp."), Bertelsmann AG, an
Aktiengesellschaft organized and existing under the laws of Germany, with its
principal place of business at Carl-Bertelsmann-Strasse 270, 33311 Gutersloh,
Germany ("BAG") and BOL.US Online, Inc., a corporation organized and existing
under the laws of Delaware, with its principal place of business at 1540
Broadway, New York, New York 10036 ("USO").
WHEREAS, the Company was formed as a limited liability company pursuant
to the Delaware Limited Liability Company Law (6 Del. C. Section 18-101, et
seq., as it may be amended from time to time, or any successor statute (the
"LLCL")) by the filing of a Certificate of Formation with the Office of the
Secretary of State of the State of Delaware on October 27, 1998;
WHEREAS, the parties entered into an Amended and Restated Limited
Liability Company Agreement (the "Amended Agreement"), dated as of October 31,
1998, to provide for the admission of USO as a Member and to establish the
respective rights and obligations of BN Holding and USO with respect to the
Company; and
WHEREAS, the parties hereto desire to amend and restate the Amended
Agreement to reflect the addition of the Public Corp. as a Member and the sole
Manager of the LLC pursuant to the terms and conditions hereof.
NOW, THEREFORE, in consideration of the conditions and provisions
contained herein, the parties hereby agree as follows:
<PAGE>
ARTICLE I. DEFINITIONS
Section 1.1 DEFINITIONS. The following terms shall, for the purposes of
this Agreement and the Schedules and Exhibits hereto, have the following
meanings (terms defined in the singular or the plural include the plural or the
singular, as the case may be):
"Affiliate" of any Person shall mean any other Person that, directly or
indirectly, controls, is under common control with or is controlled by that
Person. For purposes of this definition, "control" (including, with its
correlative meanings, the terms "controlled by" and "under common control
with"), as used with respect to any Person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting securities
or by contract or otherwise. In the case of BOL, the term "Affiliates" shall
include all Persons in which BOL directly or indirectly owns an equity interest
to the extent such Person operates under the name BOL (or a derivative thereof)
provided that no Restricted Transferee owns any equity interest therein.
"Bankruptcy" of a Member shall mean (a) the filing by a Member of a
voluntary petition seeking liquidation, reorganization, arrangement or
readjustment, in any form, of its debts under Title 11 of the United States Code
(or corresponding provisions of future laws) or any other federal, foreign or
state insolvency law, or a Member's filing of an answer consenting to or
acquiescing in any such petition; (b) the making by a Member of any assignment
for the benefit of its creditors or the admission by a Member in writing of its
inability to pay its debts as they mature; or (c) the expiration of 60 days
after the filing of an involuntary petition under Title 11 of the United States
Code (or corresponding provisions of future laws), seeking an application for
the appointment of a receiver for the assets of a Member, or an involuntary
petition seeking liquidation, reorganization, arrangement or readjustment of its
debts under any other federal, foreign or state insolvency law, provided that
the same shall not have been vacated, set aside or stayed within such 60-day
period.
"BN College" shall mean Barnes & Noble College Bookstores, Inc., a New
York corporation, and any successor thereto.
"BN Directors" shall mean, collectively, the Class B Directors as
defined in the Certificate of Incorporation.
"BOL" shall mean BOL.Global, Inc., a corporation organized under the
laws of Delaware.
"Book Clubs" shall mean the business commonly known as "book clubs,"
"negative option mail-order" and "positive option mail-order" and similar
operations, which offer access to a customary and limited number of titles, to
which access is made available to the consumers by any means including through
Websites. For the avoidance of doubt, reference to such clubs or mail order or
similar operations shall include the business of acquiring customers by
direct-toconsumer methods and of selling and distributing such products by
direct marketing to customers who selected such products which were offered at
regular intervals or as special offers irrespective of the manner by which
customers are solicited or acquired.
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"By-laws" shall mean the By-laws of the Public Corp.
"Business" shall mean sale, through one or more Websites, of books to
consumers (regardless of the form in which such books are delivered and
regardless of whether the form of delivery is now known or hereafter devised),
as well as videos, magazines, software or music. For the sake of clarity, all
other activities which do not directly involve consumers, as well as the
following, are excluded from the definition of "Business":
1. the retail sale of books through traditional
retail stores;
2. sale of college textbooks through Websites;
3. Book Clubs regardless of the medium or means (whether
now known or hereafter devised, including through
Websites) through which access to such Book Clubs is
made available to consumers;
4. mail-order operations; and
5. wholesale distribution of books.
"Business Day" shall mean any day, other than a Saturday or Sunday, on
which federally chartered banks in the United States are open for business.
"Certificate of Formation" shall mean the Certificate of Formation of
the Company filed on October 27, 1998 with the Secretary of State of the State
of Delaware pursuant to the LLCL.
"Certificate of Incorporation" shall mean the Amended and Restated
Certificate of Incorporation of the Public Corp. as filed on ___________, 1999
with the Secretary of State of the State of Delaware pursuant to the Delaware
General Corporation Law.
"Class A Common Stock" shall mean Class A Common Stock of the Public
Corp.
"Code" shall mean the Internal Revenue Code of 1986, as amended, or any
corresponding provisions of succeeding law.
"Company" shall have the meaning given to that term in the first
paragraph of this Agreement.
"Distributable Cash" shall mean the excess of the Company's positive
cash flow on a consolidated basis (excluding any consolidation with any
stockholder of the Public Corp.) over the Company's consolidated working capital
needs as determined in U.S. dollars in accordance with GAAP. The Company's
positive cash flow on a consolidated basis shall mean the excess of consolidated
cash receipts (excluding the proceeds of any borrowing by the Company or any
subsidiary thereof) over consolidated cash disbursements for any given period.
The Company's working capital needs shall be determined in good faith by the
Manager and shall include, but not
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be limited to, reasonable reserves for current and future operating expenses,
debt service, business expansion and acquisitions, contingencies and
emergencies.
"Depreciation" shall mean for any fiscal year or portion thereof of the
Company, an amount equal to the depreciation, amortization or other cost
recovery deduction allowable with respect to an asset for such period for
federal income tax purposes, except that (1) with respect to any asset whose
Gross Asset Value differs from its adjusted tax basis for federal income tax
purposes and which difference is being eliminated by the remedial allocation
method of Treasury Regulation Section 1.704-3(d), Depreciation shall be the
amount of book basis recovered under the rules of such Section, and (2) with
respect to any asset whose Gross Asset Value differs from its adjusted basis for
federal income tax purposes at the beginning of such period, Depreciation shall
be an amount that bears the same relationship to such beginning Gross Asset
Value as the depreciation, amortization or cost recovery deduction in such
period for federal income tax purposes bears to such beginning adjusted tax
basis; provided, however, that if the adjusted basis for federal income tax
purposes of an asset at the beginning of such period is zero, Depreciation shall
be determined with reference to such beginning Gross Asset Value using any
reasonable method selected by the Manager.
"Encumbrance" shall mean any mortgage, pledge, security interest, lien,
restriction on use or transfer, other than those imposed by law, voting
agreement, adverse claim or encumbrance or charge of any kind (including any
agreement to give any of the foregoing), any conditional sale or other title
retention agreement, any lease in the nature thereof, and the filing of, or any
agreement to give, any financing statement under the Uniform Commercial Code or
similar law of any jurisdiction.
"English Language Books" shall mean books published in the English
language.
"Fiscal Year" of the Company shall mean the twelve (12) month period
ending on December 31st.
"Foreign Language Books" shall mean books published in a language other
than English.
"GAAP" shall mean generally accepted accounting principles as in effect
from time to time, consistently applied, with respect to the jurisdiction to
which it refers.
"Governmental Body" shall mean any domestic or foreign national, state
or municipal or other local government or multi-national body (including, but
not limited to, the European Union), any subdivision, agency, commission or
authority thereof, or any quasi-governmental or private body exercising any
regulatory authority thereunder and any corporation, partnership or other entity
directly or indirectly owned by or subject to the control of any of the
foregoing.
"Gross Asset Value" shall mean, with respect to any Company asset, such
asset's adjusted basis for federal income tax purposes, except as follows:
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(i) The initial Gross Asset Value of any asset
contributed by a Member to the Company shall be the gross fair market
value of such asset, as determined by the Manager in accordance with
Section 3.1(d) of the By-laws;
(ii) The Gross Asset Value of the Company assets
shall be adjusted to equal their respective gross fair market values
(taking Code Section 7701(g) into account, as determined by the
Manager, as of the following times: (x) the acquisition of an
additional interest in the Company by any new or existing Member in
exchange for more than a de minimis Capital Contribution; (y) the
distribution by the Company to a Member of more than a de minimis
amount of Company property as consideration for an interest in the
Company; and (z) the liquidation of the Company within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(g); provided, however, that
adjustments pursuant to clauses (x) and (y) above shall be made only if
the Manager reasonably determines that such adjustments are necessary
or appropriate to reflect the relative economic interests of the
Members in the Company;
(iii) The Gross Asset Value of any Company asset
distributed to any Member shall be adjusted to equal the gross fair
market value (taking Code Section 7701(g) into account) of such asset
on the date of distribution as determined by the Manager; and
(iv) The Gross Asset Values of Company assets shall
be increased (or decreased) to reflect any adjustments to the adjusted
basis of such assets pursuant to Code Section 734(b) or Code Section
743(b), but only to the extent that such adjustments are taken into
account in determining Capital Accounts pursuant to Regulations Section
1.704-1(b)(2)(iv)(m); provided, however, that Gross Asset Values shall
not be adjusted pursuant to this paragraph (iv) to the extent the
Manager determines that an adjustment pursuant to paragraph (ii) above
is necessary or appropriate in connection with a transaction that would
otherwise result in an adjustment pursuant to this paragraph (iv).
If the Gross Asset Value of an asset has been determined or adjusted pursuant to
paragraphs (i), (ii) or (iv) above, such Gross Asset Value shall thereafter be
adjusted by the Depreciation taken into account with respect to such asset for
purposes of computing Net Profits and Net Losses.
"Incentive Plan" shall mean the 1999 Incentive Plan of the Public
Corp. or any other incentive plan adopted by the Public Corp. in accordance with
the approval procedures set forth in the Certificate of Incorporation or
By-laws.
"Manager" shall mean the Public Corp. or any successor thereto.
"Member" shall mean, at any time, BN Holding, USO and the Public Corp.
if, at such time, they own Membership Units in the Company and any Person who at
such time owns Membership Units in the Company.
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"Member-Funded Debt" shall mean any non-recourse debt of the Company
which is loaned or guaranteed by any Member and/or is treated as "partner
non-recourse debt" under Section 1.704-2(b)(4) of the Treasury Regulations.
"Membership Unit" shall mean the unit representing a Member's interest
in the Company, including such Member's (i) ownership interest in the Company,
(ii) right to share in any Net Profits, Net Losses and any distributions of the
Company, and (iii) right, if any, to participate in the management of the
Company or any other decision of the Members pursuant to this Agreement.
"Minimum Gain" shall mean an amount equal to the excess of the
principal amount of debt, for which no Member is liable ("non-recourse debt"),
secured by any property of the Company over the adjusted basis of such Property
which represents the minimum taxable gain which would be recognized by the
Company if the non-recourse debt were foreclosed upon and the property were
transferred to the creditor in satisfaction thereof, and which is referred to as
"minimum gain" in Section 1.704-2(b)(2) of the Treasury Regulations. A Member's
share of Minimum Gain shall be determined pursuant to the above-cited Treasury
Regulations.
"Name License Agreements" shall mean each of the agreements between the
Company and BOL and between the Company and BN College relating to the right to
use the trade names, trademarks and domain names associated with BOL and "Barnes
and Noble," respectively.
"Net Profits" and "Net Losses" shall mean the net income or net loss of
the Company (including capital gains and losses) as determined in accordance
with the accounting methods followed by the Company for federal income tax
purposes including income exempt from tax and described in Code Section
705(a)(1)(B) and treating as deductions items of expenditure described in, or
under Treasury Regulations deemed described in, Code Section 705(a)(2)(B). For
purposes of computing Net Profits and Net Losses, gain or loss resulting from
the disposition of property, which gain or loss is recognized for federal income
tax purposes, shall be computed by reference to the Gross Asset Value of such
property rather than its adjusted tax basis. In lieu of the depreciation,
amortization and other cost recovery deductions taken into account in computing
taxable income or loss for federal income tax purposes, there shall be taken
into account Depreciation. In addition: (i) In the event the Gross Asset Value
of any Company asset is adjusted pursuant to subparagraphs (ii) or (iii) of the
definition of Gross Asset Value, the amount of such adjustment shall be treated
as an item of gain (if the adjustment increases the Gross Asset Value of the
asset) or an item of loss (if the adjustment decreases the Gross Asset Value of
the asset) from the disposition of such asset and shall be taken into account
for purposes of computing Net Profit or Net Losses; and (ii) Notwithstanding any
other provision of this definition, any items which are specially allocated
pursuant to sections 5.4(f), (g), (h), (i), (j), and (k) hereof shall not be
taken into account for purposes of computing Net Profits or Net Losses. The
amounts of the items of Company income, gain, loss or deduction available to be
specially allocated pursuant to sections 5.4(f), (g), (h), (i), (j), and (k)
hereof shall be determined by applying rules analogous to those set forth in
this definition of "Net Profits" and "Net Losses."
"Percentage Interest" shall mean a Member's aggregate economic
percentage interest in the Company as determined by dividing the number of
Membership Units owned by such
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Member by the number of Membership Units then owned by all Members. The
Percentage Interests of the Members as of the effective date of this Agreement
are set forth on Schedule I.
"Permitted Encumbrances" shall mean as of a particular date (i)
Encumbrances reflected in the financial statements of the Company (including
purchase money liens which are not overdue as of a particular date or which are
being contested in good faith), (ii) Encumbrances arising out of contracts
entered into in the ordinary course of the Business, (iii) mechanics',
materialmen's or similar inchoate liens relating to liabilities not yet due and
payable and (iv) liens for current taxes not yet delinquent, to the extent the
validity thereof is being contested in good faith by appropriate proceedings,
which proceedings have the effect of preventing foreclosure or enforcement of
such liens and where adequate reserves are established and maintained in
accordance with GAAP.
"Person" shall mean an individual, sole proprietorship, corporation,
partnership, limited liability company, joint venture, trust, unincorporated
organization, mutual company, joint stock company, estate, union, employee
organization, bank, trust company, land trust, business trust or other
organization, whether or not a legal entity, or a Governmental Body.
"Prime Rate" for any period shall mean the interest rate for such
period as announced by Citibank N.A. (or its successors) at its principal office
in New York City as its base rate for loans.
"Restricted Member" shall mean USO and BN Holding.
"Restricted Transferee" shall mean amazon.com, inc., Borders Group,
Inc., America Online, Inc. ("AOL"), Microsoft, Inc. or Yahoo, Inc. or any of
their respective Affiliates.
"Services Agreements" shall mean the Amended and Restated Services
Agreement, dated as of October 31, 1998, by and between the Company and BN, and
the Amended and Restated Services Agreement, dated as of October 31, 1998, by
and between the Company and Marboro Books Corp., a New York corporation and a
wholly owned subsidiary of BN.
"Software Licenses" shall mean the Technology Sharing and License
Agreement between the Company and BOL, dated as of October 31, 1998, relating to
the exploitation of software owned by the Company, the Technology Sharing and
License Agreement between the Company and BOL, dated as of October 31, 1998,
relating to the exploitation of software owned by BOL, and the Amended and
Restated Database and Software License Agreement between BN and the Company,
dated as of October 31, 1998, relating to the exploitation of software owned by
BN.
"Supply Agreement" shall mean the Supply Agreement, dated as of October
31, 1998, between BN and the Company, as amended.
"Tax Year" shall mean the twelve (12) month period ending on October
31st.
"Transfer" shall mean, whether directly or indirectly by merger,
operation of law or otherwise, any sale, assignment, conveyance, transfer,
donation or any other means to dispose of,
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or pledge, hypothecate or otherwise encumber in any manner whatsoever, or permit
or suffer any Encumbrance of any interest in the Company (whether profits,
management or Percentage Interest).
"Treasury Regulations" means the regulations promulgated by the U.S.
Department of the Treasury under the Code.
"USO Directors" shall mean, collectively, the Class C Directors as
defined in the Certificate of Incorporation.
"Website" shall mean any interactive site or area, including any
interactive site or area located on the World Wide Web portion of the Internet
or on any commercial service or network (including services such as AOL), which
is accessed via the use of any protocols, standards or platforms (including
Internet or Internet derivative protocols, standards and platforms) for remote
access by narrowband or broadband telecommunications, including POTS, ISDN,
cable, fiber optics and hybrid CD-ROM, regardless of whether access to such site
or area is secured through cable, telephone, satellite or otherwise and
regardless of whether the same is received or operated in conjunction with a
personal computer or television, together with any successor into which any of
the foregoing may evolve.
Section 1.2 USAGE GENERALLY; INTERPRETATION. Whenever the context may
require, any pronoun includes the corresponding masculine, feminine and neuter
forms. All references herein to Articles, Sections and Schedules shall be deemed
to be references to Articles, Sections and Schedules of this Agreement unless
the context otherwise requires. The words "include", "includes" and "including"
shall be deemed to be followed by the phrase "without limitation". The words
"hereof", "herein" and "hereunder" and words of similar import when used in this
Agreement refer to this Agreement as a whole and not to any particular provision
of this Agreement. Unless otherwise expressly provided herein, any agreement,
instrument or statute defined or referred to herein or in any agreement or
instrument that is referred to herein means such agreement, instrument or
statute as from time to time amended, modified or supplemented, including (in
the case of agreements or instruments) by waiver or consent and (in the case of
statutes) by succession of comparable successor statutes and references to all
attachments thereto and instruments incorporated therein. Except to the extent a
provision of this Agreement expressly incorporates federal income tax rules by
reference to sections of the Code or Treasury Regulations or is expressly
prohibited or ineffective under the LLCL, this Agreement shall govern, even when
inconsistent with, or different from, the provisions of the LLCL or any other
law or rule. To the extent any provision of this Agreement is prohibited or
ineffective under the LLCL, this Agreement shall be deemed to be amended to the
least extent necessary in order to make this Agreement effective under the LLCL.
In the event the LLCL is subsequently amended or interpreted in such a way to
make any provision of this Agreement that was formerly invalid valid, such
provision shall be considered to be valid from the effective date of such
interpretation or amendment.
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ARTICLE II. ORGANIZATIONAL AND OTHER MATTERS; MEMBERSHIP
Section 2.1 FORMATION; ADMISSION. The Company was formed as a limited
liability company under the provisions of the LLCL by the filing on October 27,
1998 of the Certificate of Formation with the Secretary of State of the State of
Delaware. Each of the Persons listed on Schedule I, by virtue of the execution
of this Agreement, are Members of the Company. The rights and liabilities of the
Members shall be as provided in the LLCL, except as is otherwise expressly
provided herein. This Agreement hereby amends and restates the Amended Agreement
in its entirety.
Section 2.2 NAME. The name of the Company shall be, and the business of
the Company shall be conducted under the name of, barnesandnoble.com llc.
Section 2.3 BUSINESS PURPOSE/OPERATION.
(a) The purpose of the Company is to engage in the Business
and/or such other businesses as determined by the Manager in accordance with
Sections 3.1 and 4.1 of the By-laws.
(b) The Company shall operate one or more Websites for the
purpose of selling English Language Books.
(c) The Websites operated by BOL and its Affiliates shall
allow access to customers of the Company who wish to order Foreign Language
Books, and the Websites operated by the Company shall promote (in a manner
approved by the Manager) the availability of Foreign Language Books which shall
be accessed through "hot links", pointers and key word indexes which transport
the customers to one or more Websites operated by BOL or its Affiliates. BOL and
its Affiliates shall be the exclusive Website to which customers of the Company
shall be allowed access with respect to the Business through any form of links,
pointers or key words for purposes of ordering Foreign Language Books (to the
extent that BOL is capable of servicing such orders), except as may be limited
by reason of applicable laws or agreements relating to sale and distribution of
books in the country to which shipment will be made. If BOL or any of its
Affiliates is unable to provide a certain Foreign Language Book, the Company may
provide access to third-party Websites ("Alternative Site") which offers books
in such language provided that the Company shall discontinue access to such
Alternative Site, and resume BOL's exclusive Website promotion and access for
such Foreign Language Book, at such time as BOL offers books in such foreign
language. In the event that BOL expands to offer music, videos, magazines or
software in languages other than English in the future, the Company may offer
access to such Websites operated by BOL or its Affiliates in the same manner as
available with respect to books. Nothing herein shall obligate BMG Music, a New
York partnership, of which Bertelsmann Music Group, Inc. and Ariola Eurodisc,
Inc. are the partners or any other Person owned directly or indirectly by BAG
which is engaged in the music business (collectively, "BMG") to conduct business
with BOL, the Company or in any manner whatsoever affect the conduct of business
by BMG through a Website.
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(d) The Websites operated by the Company shall allow access to
customers of BOL and its Affiliates who wish to order English Language Books,
and the Websites operated by BOL and its Affiliates shall promote (in a manner
approved by the Manager and the applicable boards of directors of BOL and its
Affiliates) the availability of English Language Books which shall be accessed
through "hot links", pointers and key word indexes which transport the customers
to one or more Websites operated by the Company. The Company shall be the
exclusive Website to which customers of BOL and its Affiliates shall be allowed
access with respect to the Business through any form of links, pointers or key
words for purposes of ordering English Language Books, except as may be limited
by reason of applicable laws or agreements relating to sale and distribution of
books in the country to which shipment will be made. In the event that the
Company expands to offer music, videos, magazines or software in the English
language in the future, BOL may offer access to such Websites operated by the
Company in the same manner as available with respect to books. Nothing herein
shall obligate BMG to conduct business with BOL, the Company or in any manner
whatsoever affect the conduct of business by BMG through a Website.
(e) Notwithstanding the foregoing, the parties hereto will
work together, in good faith, so that each BOL Website (other than BOL.UK,
BOL.Australia and BOL.New Zealand) shall offer its customers access to English
Language Books through two equal sized buttons, one of which shall access
BOL.UK, BOL.Australia and BOL.New Zealand, respectively, and one of which shall
access the Company. In the case of BOL.UK, BOL.Australia and BOL.New Zealand,
there will be a button for barnesandnoble.com of equal size as other BOL
entities.
(f) Orders for English Language Books placed by customers of
BOL or its Affiliates who enter Websites operated by BOL or its Affiliates will
be filled by the Company.
(g) Orders for Foreign Language Books placed by customers of
the Company who enter Websites operated by the Company will be filled by BOL or
its Affiliates.
(h) BN or its Affiliates will provide services for the benefit
of the Company pursuant to the Services Agreements and the Supply Agreement.
(i) In order to minimize confusion and maximize name
recognition, the Company shall agree with BOL on cobranding of trademarks and
trade names which will be used by the Company, BOL and its Affiliates, including
identifying an affiliation or a relationship between the Company and BOL on the
first screen and/or home page and for purposes of "bridging screens", assuring
seamless order processing and avoiding confusion to the public.
(j) Any party may engage in any activity relating to
development and exploitation of content, regardless of the medium which is used
(i.e. traditional media or Websites), except that actual sale of books on
Websites will be permitted only as set forth in this Section 2.3 and Sections
7.5, 7.6 and 7.7.
(k) Nothing herein shall affect the right of any party, or of
BN, BAG or any of their respective Affiliates, to engage in any other business,
including sale in any manner
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whatsoever (including through Websites) of music, videos, software, magazines or
any other product other than books through Websites, except as provided in
Section 2.3(a) relating to Book Clubs.
(l) Notwithstanding anything to the contrary contained herein
or in any of the agreements referred to in this Agreement, BN shall not
commingle any of its (or any of its Affiliates') funds with the funds which it
(or any of its Affiliates) collects on behalf of the Company.
(m) With respect to all existing agreements to which BN (or
any of its Affiliates) is the contracting party for the sole benefit of the
Company, and which are renewed or extended during the term of this Agreement,
the Company shall use its good faith efforts to substitute itself in place of BN
(or its applicable Affiliate) as a party to, and the sole obligor under, such
agreements.
(n) BN Holding, USO and the Public Corp. are fully aware of,
have been advised and agree that each of BN Holding, USO and their respective
Affiliates are engaged in, and may, in the future, conduct activities, which are
directly or indirectly competitive with the Company without any benefit to the
Company or its Members, except to the extent explicitly set forth in this
Agreement. Each party hereby consents to such activity and agrees that such
conduct or competition will not, in and of itself, constitute any breach of
corporate or partnership opportunity, breach of fiduciary responsibility,
conflict of interest, or otherwise, or impose any obligation on BN Holding or
USO or their Affiliates.
(o) The parties acknowledge that BAG and BN or their
Affiliates may, as a result of receipt of or exposure to confidential
information, increase or enhance the knowledge and experience retained in the
unaided memories of each of their directors, officers, employees or contractors.
Notwithstanding anything to the contrary in this Agreement, BAG and BN and their
respective Affiliates and their respective directors, employees, agents or
contractors may use and disclose such residual information (as defined below) in
their respective businesses or for any purpose whatsoever, including the design,
development, manufacture, marketing, sale, licensing, distribution and
maintenance of the products and services of such Member and its Affiliates;
provided that: (i) such Member and its Affiliates (and their respective
directors, employees, agents or contractors) have not (x) intentionally
memorized the confidential information so as to reduce it to an intangible form
for the purpose of creating residual information or using same, or (y) avoided
their obligation to maintain the confidentiality of confidential information by
having a person commit such information to memory so as to reduce it to an
intangible form; and (ii) such right shall not represent a license under any
patents, copyrights or maskwork rights. Notwithstanding anything to the contrary
in this Agreement or any other agreement between the parties which is referenced
herein or in any information or documents disclosed hereunder, the receipt by a
Member or its Affiliate of confidential information shall not create any
obligation in any way limiting or restricting the assignment and/or reassignment
of such Member's (or its Affiliate's) employees within such Member and its
Affiliates. The term "residual information" shall mean the ideas, concepts,
know-how, methods, techniques, and other information in nontangible form which
may be retained in unaided memory by those directors, officers, employees or
contractors who have had access to confidential information.
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Section 2.4 OFFICES. The Company's principal office shall be located
at 76 Ninth Avenue, 11th Floor, New York, New York 10011. The Company may have
other offices at such other places within or without the State of New York as
the Manager from time to time may select.
Section 2.5 TERM. The Company commenced on the date of the filing of
the Certificate of Formation, and the term of the Company shall continue until
the close of business on January 31, 2075, subject to extension under Section
9.1(a), or until the earlier dissolution of the Company in accordance with the
provisions of ARTICLE IX or as otherwise provided by law.
Section 2.6 MEMBERS. The Members of the Company as of the date of
this Agreement are BN Holding, USO and the Public Corp. Subject to the prior
written consent of all Members, a new Person may be admitted from time to time
as a Member; provided, however, that each such new Member shall execute an
appropriate supplement to this Agreement pursuant to which the new Member agrees
to be bound by the terms and conditions of this Agreement, as it may be amended
from time to time. Admission of a new Member shall not be cause for the
dissolution of the Company.
Section 2.7 PLACE OF MEMBERS' MEETINGS. Meetings of the Members
(each, a "Members' Meeting") shall be held at the principal office of the
Company, or at such other place as the Members shall mutually agree.
Section 2.8 MEETINGS. A Members' Meeting may be called by any Member
for any matter which is appropriate for consideration thereat. Members' Meetings
shall be held from time to time, but no fewer than once in each calendar year.
Meetings shall be chaired by the Chairman of the Company, and the Secretary of
the Meeting shall be appointed by the Chairman.
Section 2.9 TELEPHONIC MEETINGS. Members' Meetings may be held
through the use of conference telephone or similar communications equipment so
long as all Persons participating in such Members' Meetings can hear one another
at the time of such Members' Meeting. Participation in a Members' Meeting via
conference telephone or similar communications equipment in accordance with the
preceding sentence constitutes presence in person at the Members' Meeting.
Section 2.10 NOTICE OF MEETINGS. Written notice of each Members'
Meeting shall state the place, date and hour of such Members' Meeting, and the
general nature of the business to be transacted. Notice shall be given in the
manner prescribed in Section 11.2 not fewer than ten (10) days nor more than
sixty (60) days before the date thereof.
Section 2.11 WAIVERS. Notice of a Members' Meeting need not be given
to any Member who signs a waiver of notice, in person or by proxy, whether
before or after the Members' Meeting. The attendance of any Member at a Members'
Meeting, in person or by proxy, without protesting prior to the conclusion of
such Members' Meeting the lack of notice of such Members' Meeting, shall
constitute a waiver of notice by such Member, provided that such Member has been
given an adequate opportunity at the meeting to protest such lack of notice.
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Section 2.12 QUORUM. Members holding a majority of the Membership
Units shall constitute a quorum at a Members' Meeting for the transaction of any
business; provided, however, that in order to constitute a quorum, each of such
Members must be represented in person or by proxy. Holders of a majority of such
Membership Units present may adjourn the Members' Meeting, whether or not a
quorum is present. An adjournment may include notice of the date, hour and place
that the Members shall reconvene. Notice of the adjournment (with the new date,
time and place) shall be given to all Members who were absent at the time of the
adjournment and, unless such date, hour and place are announced at the Members'
Meeting, to the other Members.
Section 2.13 PROXIES. Every Member entitled to vote at a Members'
Meeting may authorize another Person or Persons to act for it by proxy. Every
proxy must be signed by the Member or his attorney-in-fact. No proxy shall be
valid after the expiration of eleven (11) months from the date thereof unless
otherwise provided in the proxy. Every proxy shall be revocable in writing at
the pleasure of the Member executing it.
Section 2.14 VOTING POWER. Each Membership Unit shall be entitled to
one (1) vote on all matters to be voted on by the Members.
Section 2.15 WRITTEN CONSENT. Any action required or permitted to be
taken at any Members' Meeting may be taken without a meeting if all Members
consent thereto in writing. Any such written consents shall be filed with the
minutes of the proceedings.
ARTICLE III. MANAGER; POWERS
Section 3.1 MANAGER
(a) The business, property and affairs of the Company shall be
managed under the direction of the Manager.
(b) Without limiting the foregoing provisions of this Section
3.1, the Manager shall have the general power to manage or cause the management
of the Company within the scope of the business purpose set forth in Section
2.3, including the following powers which may, subject to any limitations set
forth in this Agreement (including those set forth in Sections 4.3 and 4.4), be
delegated to the officers of the Company:
(i) to have developed and prepared a Business
Plan each year which will set forth the operating goals and plans for the
Company;
(ii) to execute and deliver or to authorize the
execution and delivery of contracts, deeds, leases, licenses, instruments of
transfer and other documents in the ordinary course of business on behalf of
the Company;
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(iii) to employ, retain, consult with and dismiss
such personnel as may be required for accomplishment of the business purpose set
forth in Section 2.3;
(iv) to establish and enforce limits of authority
and internal controls with respect to all personnel and functions;
(v) to engage attorneys, consultants and
accountants for the Company;
(vi) to develop or cause to be developed accounting
procedures for the maintenance of the Company's books of account;
(vii) to appoint auditors; and
(viii) to do all such other acts as shall be
specifically authorized in this Agreement or by the Members in writing from
time to time.
Section 3.2 COMPENSATION. The Manager shall not be entitled to
compensation for services rendered to the Company in its capacity as Manager.
ARTICLE IV. OFFICERS
Section 4.1 OFFICERS. The officers of the Company (the "Officers")
shall at all times be identical to the then officers of the Public Corp. Any
changes in the officers of the Public Corp., whether by election, resignation,
removal, death or otherwise, shall automatically and concurrently take effect
with respect to the Officers of the Company. No Officer may resign unless such
Officer concurrently resigns as an officer of the Public Corp. Any resignation
by an Officer shall constitute such Officer's concurrent resignation from the
Public Corp.
Section 4.2 MANAGEMENT POLICIES. The Chief Executive Officer and other
officers and employees of the Company shall develop and implement management
policies consistent with the general policies and programs established by the
Chairman of the Company and the Manager, as approved, in accordance with the
By-laws, by its Board of Directors and, where required by the By-laws, the
Special Committee (as defined in the By-laws).
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ARTICLE V. FINANCE AND CAPITAL
Section 5.1 CAPITAL CONTRIBUTIONS. The Members have made, on or prior
to the date hereof, capital contributions and have acquired the number of
Membership Units as specified opposite their respective names on Schedule I.
Section 5.2 ADDITIONAL CAPITAL CONTRIBUTIONS. Except as set forth in
Section 10.5, no Member shall be required or permitted to make additional
capital contributions to the Company without the consent of all of the Members.
Section 5.3 MEMBERS' CAPITAL ACCOUNTS. No Member shall have any right
to withdraw any portion of its Capital Account, except as otherwise provided
herein. For purposes hereof, "Capital Account" shall mean the separate capital
account maintained for each Member in accordance with Treasury Regulations (as
hereinafter defined) Section 1.704-1(b), as of any particular date. Each
Member's initial Capital Account (as determined immediately after all of the
events described in Section 5.1 hereof) is set forth on Schedule I, which
initial Capital Accounts apply the principles of Treasury Regulation Section
1.704-1(b)(2)(iv)(d) and thereafter such Capital Accounts shall be adjusted as
follows:
(a) The Capital Account of each Member shall be increased by:
(i) The amount of any Net Profits (and any items of
income or gain), allocated on or after the date hereof to such Member;
(ii) The amount, if any, of any Company liabilities
assumed by such Member or taken subject to or in connection with the
distribution of property to such Member by the Company on or after the date
hereof;
(iii) The amount of any cash contributed by the Member
to the Company;and
(iv) The fair market value of property contributed to
the Company by such Member on or after the date hereof.
(b) The Capital Account of each Member shall be decreased by:
(i) The amount of cash distributed to such Member by
the Company on or after the date hereof;
(ii) The amount of any Net Losses (and any items of
deduction or loss) allocated to such Member on or after the date hereof;
(iii) The fair market value of any property distributed
to such Member by the Company on or after the date hereof; and
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(iv) The amount of any liabilities of such Member
assumed by the Company or taken subject to or in connection with the
contribution of property by such Member to the Company on or after the date
hereof.
The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Treasury Regulations under Section 704(b) of the Code and, to the extent not
inconsistent with the provisions of this Agreement, shall be interpreted and
applied in a manner consistent with such Treasury Regulations.
Section 5.4 PROFITS/LOSSES.
(a) Allocation of Income and Loss.
(i) Net Profits shall be allocated among the Members
in proportion to their Percentage Interests.
(ii) Net Losses shall be allocated among the Members
in proportion to their Percentage Interests.
(iii) Whenever a proportionate part of the Net Profits
or Net Losses is allocated to a Member, every item of income, gain, loss,
deduction or credit entering into the computation of such Net Profits or Net
Losses or arising from the transactions with respect to which such Net Profits
or Net Losses were realized shall be credited or charged, as the case may be, to
such Member in the same proportion; provided, however, that "recapture income",
if any, shall be allocated to the Members who were allocated the corresponding
depreciation deductions.
(iv) If any Member Transfers all or any portion of its
Membership Units during any Fiscal Year, Net Profits and Net Losses attributable
to such transferred Membership Units for such Fiscal Year shall be apportioned
between the transferor and the transferee or computed as to such Members on the
basis of an interim closing of the books and records of the Company, provided in
all events that any apportionment described above shall be permissible under the
Code and applicable regulations thereunder.
(b) Tax credits, if any, shall be allocated among the Members
in proportion to their Percentage Interests.
(c) When the Gross Asset Value of a Company asset differs from
its basis for federal or other income tax purposes, solely for purposes of the
relevant tax and not for purposes of computing Capital Account balances, income,
gain, loss, deduction and credit with respect to such asset shall be allocated
among the Members under the remedial allocation method under Treasury Regulation
Section 1.704-3(d). The Members agree that, as of October 31, 1998, all such
differences related to goodwill, and the corresponding remedial allocations
shall be made ratably over a fifteen (15) year period.
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(d) Determinations by the Members. All matters concerning the
allocation of Net Profits and Net Losses (and items of income, gain, loss and
deduction) among the Members, tax elections (except as may otherwise be required
by the income tax laws) and accounting procedures not expressly and specifically
provided by the terms of this Agreement, shall be determined in good faith by
the Manager, and on a basis which is in conformity with the requirements imposed
under Code Section 704 and the Treasury Regulations thereunder as equitably
applied among the Members.
(e) Interest. Except for interest payable pursuant to Member
loans permitted to be made hereunder, no interest shall be paid by the Company
on capital contributions, balances in Member's Capital Accounts or any other
funds contributed to the Company or distributed or distributable by the Company
under this Agreement.
(f) Minimum Gain Chargeback. Notwithstanding any provision of
Section 5.4, if there is a net decrease in Minimum Gain during a taxable year of
the Company (including any Minimum Gain attributable to Member-Funded Debt),
each Member at the end of such year shall be allocated, before any other
allocations of Net Profits or Net Losses for such year, items of income and gain
for such year (and, if necessary, subsequent years) in the amount and in the
proportions described in Section 1.704-2(f) of the Treasury Regulations.
(g) Qualified Income Offset. Notwithstanding the allocations
provided for in Section 5.4(a), (b), (c), (d) or (e), no allocation of an item
of loss or deduction shall be made to a Member to the extent such allocation
would cause or increase a deficit Capital Account balance in such Member's
Capital Account as of the end of the taxable year to which such allocation
relates, after taking into account any adjustment, allocation or distribution
described in Section l.704-1(b)(2)(ii)(d)(4), (5) or (6) of the Treasury
Regulations and such losses or deductions shall be allocated to other Members in
accordance with the positive balances in such Members' capital accounts so as to
allocate the maximum permissible losses or deductions to each Member under
Treasury Regulation 1.704-1(b)(2)(ii)(d). If any such adjustment, allocation or
distribution unexpectedly occurs, the Members shall be allocated items of income
and gain in an amount and manner to eliminate any Capital Account deficit
attributable to such adjustment, allocation or distribution as quickly as
possible. For purposes of this Section 5.4(g), there shall be excluded from a
Member's deficit Capital Account balance at the end of a taxable year of the
Company: (x) such Member's share, determined in accordance with Section 704(b)
of the Code and Section 1.704-2(g) of the Treasury Regulations, of Minimum Gain
(provided that in the case of Minimum Gain attributable to Member-Funded Debt,
such Minimum Gain shall be allocated only to the Member or Members to which such
debt is attributable pursuant to Section 1.704-2(i) of the Treasury
Regulations); (y) the amount of any loans (other than Member-Funded Debt) for
which such Member is personally liable (whether as a result of a guarantee or
otherwise); and (z) the amount such Member is obligated to restore to the
Company under Section 1.704-l(b)(2)(ii) of the Treasury Regulations.
(h) Member-Funded Debt. Notwithstanding the allocations
provided for in Section 5.4(a), (b), (c), (d) or (e), if there is a net increase
in Minimum Gain during a taxable year of the Company that is attributable to
Member-Funded Debt then, first depreciation, to the extent
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the increase in such Minimum Gain is allocable to depreciable property, and then
a proportionate part of other deductions and expenditures described in Section
705(a)(2)(B) of the Code, shall be allocated to the lending or guaranteeing
Member, provided that, the total amount of deductions so allocated for any year
shall not exceed the increase in Minimum Gain attributable to such Member-Funded
Debt in such year.
(i) Regulatory Allocations. The allocations set forth in
Sections 5.4(f), (g), (h) and (k) (the "Regulatory Allocations") are intended to
comply with certain requirements of Section 1.704-1(b) of the Treasury
Regulations. The Regulatory Allocations shall be taken into account in
allocating other Net Profits and Net Losses and items of income, gain, loss and
deduction so that, to the extent possible, the net amount of such other
allocations and the Regulatory Allocations to each Member shall be equal to the
net amount that would have been allocated to such Member if the Regulatory
Allocations had not been made.
(j) Special Allocations. With respect to Company assets as of
October 31, 1998 that are subject to Section 5.4(c), if the remedial allocation
provisions of Section 5.4(c) or the provisions of Section 6.8(b) shall not apply
in the manner contemplated by BN Holding and USO, then notwithstanding Section
5.4(a), Net Profits and Net Losses or items of income, gain, deduction or loss
otherwise allocable to BN Holding and USO shall be allocated between BN Holding
and USO so that the tax consequences are as nearly as possible identical to
those tax consequences contemplated by BN Holding and USO.
(k) Section 754 Adjustments. To the extent an adjustment to
the adjusted tax basis of any Company asset pursuant to Code Section 734(b) or
Code Section 743(b) is required, pursuant to Treasury Regulation Section
1.704-1(b)(2)(iv)(m), to be taken into account in determining capital accounts,
the amount of such adjustment shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis) and such gain or loss shall be allocated to the Members in
accordance with Treasury Regulation Section 1.704-1(b)(2)(iv)(m).
Section 5.5 BANKING; INVESTMENTS. All funds of the Company shall be
deposited in such bank account or accounts, or invested, and withdrawals from
any such bank account shall be made upon such signature or signatures, as shall
be established and designated by the Manager, subject to any approval by the
Special Committee required by the By-laws.
Section 5.6 DISTRIBUTIONS.
(a) Except as otherwise required by law or as provided in this
Agreement, no Member shall have any right to withdraw any portion of its Capital
Account without the consent of all the other Members.
(b) The Company shall distribute Distributable Cash to each
Member in proportion to such Member's Percentage Interest, at such times and in
such amounts as the Manager shall determine.
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(c) Notwithstanding the foregoing, if as a result of any Net
Profits allocated to the Public Corp., after giving effect to all cumulative Net
Losses allocated to the Public Corp. available to the Public Corp. to offset any
such Net Profits, the Public Corp. is obligated to pay any federal, state or
local income taxes, then the Company shall distribute Distributable Cash as
follows:
(i) The Manager shall determine the amount of funds
which the Public Corp. requires to pay such taxes with respect to the
most recently ended Tax Year of the Company, after giving effect to
the amount of cumulative Net Losses available to the Public Corp. for
such Tax Year (the "Tax Amount"); and
(ii) The Company shall distribute to each Member an
amount equal to: (x) the Percentage Interest of such Member multiplied
by a collective amount (the "Collective Amount") equal to (y) the Tax
Amount divided by (z) the Percentage Interest of the Public Corp.
(expressed as a decimal). In the event that the Collective Amount
distributable to all Members pursuant to the preceding sentence exceeds
the amount of Distributable Cash, the amount otherwise distributable to
each Member shall be multiplied by a fraction, the numerator of which
shall be the Distributable Cash and the denominator of which shall be
the Collective Amount. The distribution under this provision shall be
made within one hundred twenty (120) days after the date of each Tax
Year of the Company.
Section 5.7 RETURN OF CONTRIBUTION. Except as required by the LLCL, no
Member shall be personally liable for the return of any capital contribution, or
any portion thereof, or the return of any additions to the Capital Accounts of
the other Members, or any portion thereof, it being agreed that any return of
capital as may be made at any time, or from time to time, shall be made solely
from the assets of the Company, and only in accordance with the terms hereof.
ARTICLE VI. ACCOUNTING; TAX MATTERS
Section 6.1 BOOKS; FISCAL YEAR. The Company shall maintain complete and
accurate books of account of the Company's affairs at the Company's principal
place of business. Such books shall be kept in accordance with U.S. GAAP. The
Company's accounting period for tax purposes shall be the Fiscal Year. The
Company's accounting year for all other purposes shall be the Fiscal Year,
however, the Company shall also report its results for the twelve (12) month
period ended as of June 30 of each year to BAG in German GAAP.
Section 6.2 REPORTS. The Company shall close the books of account after
the close of each month in each Fiscal Year. The Company shall prepare and
distribute to each Member a monthly statement of such Member's distributive
share of income and expense for income tax reporting purposes, as well as a
report on sales, income, expenses and other reports as are normally prepared for
USO, BN Holding and the Public Corp. and in sufficient detail to permit each of
USO, BN Holding and the Public Corp. to report its respective share of income,
expense
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and such other GAAP items as each of USO, BN Holding and the Public Corp. may
reasonably request. Such information shall be made available to each Member no
later than fourteen (14) days after the end of each month (provided that the
Company shall have twenty-one (21) days until June 30, 1999 and eighteen (18)
days until December 31, 1999, respectively, after each month end) and no later
than August 15 of each Fiscal Year in respect of such Fiscal Year. After the end
of each Fiscal Year, the Company shall send to each Member a report indicating
such information with respect to the Member as is necessary for purposes of
reporting such amounts for federal, state and local income tax purposes.
Section 6.3 COMPANY INFORMATION. Upon reasonable request, the Company
shall supply to any Member information regarding the Company, its sales,
receipts, payments, all accounting information and records as well as all
activities of the Company. Each Member and its representatives shall have free
access during normal business hours to discuss the operations and business of
the Company with employees or agents of the Company, and to inspect, audit or
make copies of all books, records and other information relative to the
operations and business of the Company at their own expense; provided, however,
that each Member shall preserve the confidentiality of such information. The
Chairman or the Chief Executive Officer of the Company shall provide all
information requested by a Member.
Section 6.4 RECORDS. The Company shall keep or cause to be kept
appropriate books and records in accordance with the LLCL with respect to the
Company's business, which books and records shall at all times be kept at the
principal office of the Company. Without limiting the foregoing, the Company
shall keep at its principal office the following:
(a) a current list of the full name and the last known street
address of each Member;
(b) a copy of the Certificate of Formation and this Agreement
and all amendments thereto;
(c) copies of the Company's federal, state and local income
tax returns and reports, if any, for the three most recent Fiscal Years;
(d) copies of any financial statements, if any, of the Company
for the six most recent Fiscal Years; and
(e) such other documents with respect to the Company's
business as may reasonably be required from time to time by the Manager.
Section 6.5 TAX CHARACTERIZATION. It is intended that the Company be
characterized and treated as a partnership for, and solely for, U.S. federal,
state and local income tax purposes. For such purpose, (i) the Company shall be
subject to all the provisions of Subchapter K of Chapter 1 of Subtitle A of the
Code, and (ii) all references to a "Partner," to "Partners" and to the
"Partnership" in the provisions of the Code and Treasury Regulations cited
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in this Agreement shall be deemed to refer to a Member, Members and the Company,
respectively.
Section 6.6 TAX RETURNS. The Members shall provide each other with
copies of all correspondence or summaries of other communication with any taxing
authority regarding any aspect of items of Company income, gain, loss or
deduction and no Member shall enter into settlement negotiations with respect to
the tax treatment of any Company item of income, gain, loss or deduction without
first giving reasonable advance notice of such intended action to the other
Members.
Section 6.7 TAX MATTERS PARTNER. Pursuant to Code Section
6231(a)(7)(A), the Public Corp. shall be the "Tax Matters Partner" of the
Company for all purposes of the Code and any corresponding state or local
statute. Each Member consents to such designation and agrees to take such
further action as may be required, by regulation or otherwise, or as may be
requested by any Member, to effectuate such designation. The Tax Matters Partner
shall cooperate with the other Members and shall promptly provide the other
Members with copies of notices or other materials from, and inform the other
Members of discussions engaged in with, any taxing authority and shall provide
the other Members with notice of all scheduled administrative proceedings,
including meetings with agents, technical advice conferences and appellate
hearings, as soon as possible after receiving notice of the scheduling of such
proceedings. The Tax Matters Partner will schedule such proceedings only after
consulting the other Members with a view to accommodating the reasonable
convenience of both the Tax Matters Partner and the other Members. The Tax
Matters Partner shall not agree to extend the period of limitations for
assessments; file a petition or complaint in any court; file a request for an
administrative adjustment of partnership items after any return has been filed;
or enter into any settlement agreement with respect to Company items of income,
gain, loss or deduction except at the direction of the Members. The Tax Matters
Partner may request extensions to file any tax return or statement without the
written consent of, but shall so inform, the other Members. The provisions of
this Agreement regarding the Company's tax returns shall survive the termination
of the Company and the transfer of any Member's interest in the Company and
shall remain in effect for the period of time necessary to resolve any and all
matters regarding the taxation of the Company and items of Company income, gain,
loss and deduction.
Section 6.8 TAX ELECTIONS.
(a) The Manager shall determine whether to make any available
tax election.
(b) Effective for its taxable year ended October 31, 1999,
the Company shall file with its tax return a written statement (the "ss. 754
Election"), signed by the Manager, setting forth (i) the name and address of the
Company, (ii) a declaration that the Company elects under ss. 754 to apply the
provisions of ss. 734(b) and ss. 743(b) and (iii) such other information as may
be required under Treas. Reg. ss. 1.754-1. The Company shall allocate such
special basis adjustments under ss. 734(b) and ss. 743(b) pursuant to ss. 755.
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(c) The Company shall pay all costs incurred by the Company in
connection with such special basis adjustments arising from such permitted
ownership Transfers or distributions, including reasonable attorneys' and
accountants' fees. In addition, both the transferor and the transferees of a
permitted ownership interest Transfer (or the transferee of any Company
distribution) shall (within sixty (60) days of such permitted Transfer or
distribution), provide the Company with complete and accurate information
regarding such Transfer (or distribution) to enable the Company to make special
basis adjustments and other computations in connection therewith.
Section 6.9 WITHHOLDING. Each Member hereby authorizes the Company to
withhold from or pay on behalf of or with respect to such Member any amount of
federal, state, local or foreign taxes that the Manager determines that the
Company is required to withhold or pay with respect to any amount distributable
or allocable to such Member pursuant to this Agreement, including any taxes
required to be withheld by the Company pursuant to Sections 1441, 1442, 1445 or
1446 of the Code. Any amount paid on behalf of or with respect to a Member shall
constitute a loan by the Company to such Member, which loan shall be repaid by
such Member within fifteen (15) days after notice from the Manager that such
payment must be made unless (a) the Company withholds such payment from a
distribution which would otherwise be made to such Member or (b) the Manager
determines, in its sole discretion, that such payment may be satisfied out of
the available funds of the Company which would, but for such payment, be
distributed to such Member. Any amounts withheld pursuant to the foregoing
clauses (a) and (b) of this Section 6.9 shall be treated as having been
distributed to such Member.
ARTICLE VII. TRANSFERS/EXCLUSIVITY/NONCOMPETITION
Section 7.1 PROHIBITED TRANSFERS. Except as expressly permitted in this
Agreement, no Restricted Member or any of their respective Affiliates, including
any direct or indirect beneficial owner or ultimate parent of any such entity
(including BN and BAG), shall, directly or indirectly, Transfer any of the
right, title or interest in (i) any Membership Units or (ii) any of their
Affiliates which beneficially own, either directly or indirectly, any Membership
Units.
Section 7.2 PERMITTED TRANSFERS. Notwithstanding anything in this
Agreement to the contrary:
(a) Each Restricted Member may Transfer all (but not less than
all) of the Membership Units owned by it and its rights under this Agreement
under any of the following circumstances:
(i) Each Restricted Member may Transfer all (but not
less than all) of the Membership Units owned by it together with its rights
under this Agreement to any transferee which is an Affiliate of the transferring
Member provided that no Restricted Transferee owns an interest in such
transferee.
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(ii) Each Restricted Member (or any permitted
transferee under clause (a) above) may Transfer all (but not less than all) of
the Membership Units owned by it together with its rights under this Agreement
if such Transfer is part of the Transfer (i) by BAG and its Affiliates of all
(or substantially all) of the publishing business in the United States, operated
by BAG and its Affiliates, or (ii) by BN and its Affiliates, of all (or
substantially all) of its retail book store business.
(iii) In the event of any such Transfer, a transferee
(or subsequent transferee) shall be entitled to the rights and privileges set
forth in this Agreement and shall be bound and obligated by the provisions of
this Agreement. As a condition to such Transfer permitted pursuant to this
Section 7.2(a), each transferee shall, prior to such transfer, agree in writing
to be bound by all of the provisions of this Agreement and no such transferee
shall be permitted to make any Transfer which the original transferor was not
permitted to make. In connection with any Transfer pursuant to this Section
7.2(a), the transferee shall execute and deliver to the non-transferring Members
and the Company such documents as may reasonably be requested by the
non-transferring Members or the Company to evidence the same.
(b) Each Restricted Member may Transfer some or all of the
Membership Units owned by it to the other Restricted Member.
(c) Any Restricted Member may Transfer some or all of the
Membership Units owned by it to the Public Corp. in exchange for Class A Common
Stock in accordance with the Certificate of Incorporation.
Section 7.3 RIGHTS OF FIRST REFUSAL.
(a) Except with respect to Transfers permitted pursuant to
Sections 7.2, if, on or after October 31, 1999, a Restricted Member desires to
Transfer any of its Membership Units to any other Person (other than a
Restricted Transferee) in a bona fide transaction solely for cash consideration,
such Member (the "Offeror") shall be entitled to do so provided that such
Offeror first offers to sell such Membership Interest to the other Restricted
Member (the "Offeree") at the same price and the same terms and conditions as
the Offeror would receive from such other Person. If the Offeror shall Transfer
Membership Units which are equal to more than ten percent (10%) of the then
aggregate outstanding Membership Units, the member of the Special Committee
elected by the BN Managers (if BN Holding or its Affiliate is the Offeror) or by
the USO Managers (if USO or its Affiliate is the Offeror) shall be deemed to
have resigned effective immediately upon such Transfer. The Offeror shall submit
to the Company and the Offeree a written notice (the "Offer Notice") stating in
reasonable detail such price and such terms and conditions and identifying the
Person and all Persons who beneficially own more than five percent (5%) of such
Person, proposing to purchase the Membership Units. The Offeree shall have a
period of thirty (30) days after the receipt of the Offer Notice in which to
accept or reject such offer. If the Offeree elects to accept such offer, which
acceptance must be for all and not part of the Membership Units offered for
sale, it shall so indicate within such thirty (30) day period by notice to the
Offeror. The notice required to be given by the Offeree shall specify a date for
the closing of the purchase which, subject to the expiration or early
termination of any
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waiting period required by any Governmental Body and the receipt of any required
approvals of any Governmental Body, shall not be more than thirty (30) days
after the date of the giving of such notice.
(b) If the Offeree does not exercise its right to purchase all
of the Membership Units offered for sale pursuant to the provisions of this
Section 7.3, the Offeror of such Membership Units shall have the right to sell
all (but not less than all) of such offered Membership Units to the Person
identified in the Offer Notice, subject to the provisions of this Agreement on
the same terms and conditions including the Membership Unit price as specified
in the Offer Notice, free from the restrictions of Section 7.1 of this Agreement
(for purposes of such specific transaction, but not for purposes of any
subsequent transaction) in a bona fide transaction, for a period of ninety (90)
days from the date that the Offer expires hereunder, provided that any such
purchaser shall, prior to such transfer, agree in writing to be bound by all of
the provisions of this Agreement. At the end of such ninety (90) day period, the
Offeror shall notify the Company and the other Member in writing whether its
Membership Units have been sold in a bona fide transaction during such period.
To the extent not sold during such ninety (90) day period, all of such
Membership Units shall again become subject to all of the restrictions and
provisions hereof.
(c) The purchase price per unit for the Membership Units shall
be the price per unit offered to be paid by the prospective transferee described
in the Offer Notice, which price shall be paid in cash.
(d) The closing of the purchase shall take place at the office
of the Company or such other location as shall be mutually agreeable and the
purchase price shall be paid at the closing by wire transfer of immediately
available funds. At the closing, the Offeror shall deliver to the Offeree the
certificates evidencing the Membership Units to be conveyed, duly endorsed and
in negotiable form as well as the items listed in Section 7.4.
Section 7.4 CLOSING DELIVERIES. The Offeror at a closing under this
ARTICLE VII shall deliver to the Purchaser the following:
(a) A duly executed "Deed of Transfer of Membership Interest"
in the Company conveying to the Offeree the Membership Units being purchased by
the Offeree, free and clear of any Encumbrances, except those in this Agreement
which are expressly assumed.
(b) A statement from the Offeror that: (i) except as set forth
therein, the Offeror has no claim as against the Company for unpaid dividends,
compensation, bonuses, profit-sharing or rights or other claims of whatsoever
kind, nature or description and that all amounts due and payable by the Company
to the Offeror have been paid; and (ii) it shall guarantee the performance of
the Offeror's obligations under this Agreement.
Section 7.5 EXCLUSIVITY. The Members agree that the following
provisions shall be applicable during such time as BN and BAG (directly or
indirectly through its respective Affiliates) own Membership Units:
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(a) The Company shall be the exclusive vehicle for each of BN
and BAG (and their respective Affiliates) to engage in the Business with respect
to English Language Books in English-speaking countries, except that BAG (and
its Affiliates) may engage in the sale of English Language Books through BOL.UK,
BOL.Australia and BOL.New Zealand in accordance with the provisions set forth in
Section 2.3(e). "English-speaking countries" shall mean the U.S., Canada, the
U.K., Australia, New Zealand and South Africa.
(b) BN (and its Affiliates) shall not engage in the: (i) sale
of Foreign Language Books through Websites except through links to Websites
operated by BAG and its Affiliates; or (ii) establishment or operation of Book
Clubs through Websites.
(c) Notwithstanding any provision of this Agreement to the
contrary:
(i) Either BN or BAG (or its respective Affiliates)
may engage in any activity described in clauses (1), (2), (4) (provided that
Websites may only be used for e-mail purposes in connection with operations
described in clause (4)) or (5) of the definition of Business;
(ii) BAG (or its Affiliates) may engage in any
activity described in clause (3) of the definition of Business;
(iii) BAG (or its Affiliates) may engage in the sale to
consumers through Websites of English Language Books, which are published by
BAG, or its Affiliates, at such times as unrelated third party publishers (which
are regarded as major publishers by industry sources) are engaged in such sales
activity;
(iv) BN (or its Affiliates) may engage in the sale to
consumers through Websites of English Language Books which are published by BN
(or its Affiliates), at such times as unrelated third party publishers (which
are regarded as major publishers by industry sources) are engaged in such sales
activity;
(v) Either BAG or BN (or its respective Affiliates) may
engage in the distribution of videos, music, software or magazines independent
of the Company;
(vi) BAG (or its Affiliates) or BN (or its Affiliates)
may engage in the following activities relating to sale, distribution or
delivery of electronic or digitized material:
1) the actual act of transforming copyrighted
material into electronic or digitized form;
2) the services involved in providing
clearinghouse functions; and
3) the offering of such electronic or digitized
materials to wholesalers, retailers, distributors or consumers, whether through
Websites or otherwise,
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including (but with respect to BAG and its Affiliates only) through Book Clubs,
but only to the extent that the offering party is the publisher of such
material;
(vii) With respect to countries that are not
English-speaking countries, BAG (and its Affiliates) may sell English language
books without restriction; and
(viii) Each of the Members acknowledges and agrees that
good faith de minimus sales that would otherwise constitute a violation of this
Section 7.5 shall not be considered to be such a violation.
Section 7.6 EXCEPTIONS TO EXCLUSIVITY.
Notwithstanding anything in this Agreement to the contrary, the
following shall be exempt from the restrictions set forth in Section 7.5:
(a) Any Person in which either BAG, BN, or any of their
respective Affiliates owns:
(i) ten percent (10%) or less, in case the primary
activity of such Person is the Business. For purposes of the preceding sentence,
the primary activity of a Person shall be deemed to be the Business only if it
derives twenty-five percent (25%) or more of its net revenues from the conduct
of Business for the fiscal year of such Person preceding the acquisition;
(ii) twenty percent (20%) or less, in the case of any
Person the primary activity of which involves or is focused on sectors outside
of the Business and where the contribution from the Business, in net revenues,
is less than twenty-five percent (25%) (on a consolidated basis) but more than
ten percent (10%) (on a consolidated basis) for the fiscal year of such Person
preceding the acquisition;
(iii) any percentage of another Person, without
limitation, if the net revenues of such Person from the conduct of Business (on
a consolidated basis) is less than ten percent (10%) of its total net revenues
for the fiscal year of such Person preceding the acquisition; or
(iv) any acquisition of another Person where such
Person is directly engaged in the Business (directly or through one or more
units) to an extent greater than that permitted by the above provisions of this
Agreement provided that, within a period of twelve (12) months after the date of
the acquisition, the acquiring party either: (a) makes an orderly divestiture of
such portions of the acquired business which are conducted by the acquired
Person or its Affiliates to a third party; or (b) the acquiring party offers and
sells such identifiable unit which is engaged in the Business to the Company. In
case an offer is made to the Company under the preceding sentence, the purchase
price shall be determined by the offering party subject to acceptance, on behalf
of the Company, by Managers who are not appointed by the offering party.
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(v) For purposes of this Section, the ownership
interest of each of BN and BAG, respectively, shall be aggregated with the
ownership interest of any Person in which it directly or indirectly through a
chain of other Persons owns an interest of fifty percent (50%) or more.
Section 7.7 NONCOMPETITION AFTER SALE OF MEMBERSHIP UNITS.
The restrictions set forth in Section 7.5 , and the provisions of
Sections 2.3(c), (d), and (e), shall apply to a Restricted Member at all times
during which:
(a) such Member owns Membership Units; and
(b) for two (2) years after the date on which such Member
ceases to own at least ten percent (10%) of the total Membership Units
outstanding.
ARTICLE VIII. LIMITED LIABILITY; INDEMNIFICATION
Section 8.1 LIMITED LIABILITY. Except as otherwise provided under the
LLCL, the debts, obligations and liabilities of the Company, whether arising in
contract, tort or otherwise, shall be solely the debts, obligations and
liabilities of the Company and neither any Member nor the Manager shall be
obligated or liable for any such debt, obligation or liability of the Company.
Except as otherwise provided by the laws of the State of Delaware, the debts,
obligations and liabilities of any Member, whether arising in contract, tort or
otherwise, shall be solely the debts, obligations and liability of such Member
and neither any Member, the Manager (in its capacity as such) nor the Company
shall be obligated or liable for any such debt, obligation or liability of such
Member.
Section 8.2 INDEMNIFICATION.
(a) The Company shall indemnify, defend and hold harmless any
Member, the Manager or other Person (and any of their respective officers,
directors, managers, employees and agents), who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Company) by reason of the fact
that he, she or it is or was a Member, the Manager, or an officer, director,
manager, employee or agent of the Company, the Manager or any Member, or is or
was serving at the request of the Company as a director, officer, manager,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, from and against expenses (including attorneys' fees and
expenses), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such Person in connection with such claim, action, suit
or proceeding if such Person acted in good faith and in a manner such Person
reasonably believed to be in, or not opposed to, the best interests of the
Company, and, with respect to any criminal sanction or proceeding, had no
reasonable cause to believe that his, her or its conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its
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equivalent, shall not, of itself, create a presumption that the Person did not
act in good faith and in a manner which he, she or it reasonably believed to be
in, or not opposed to, the best interests of the Company, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that his, her
or its conduct was unlawful.
(b) Expenses incurred in defending a civil or criminal action,
suit or proceeding shall be paid by the Company in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of any Member, the Manager, or any officer, director, manager,
employee or agent of the Company, the Manager or any Member to repay such amount
if it shall be ultimately determined by a court of competent jurisdiction from
which no further appeal may be taken or the time for appeal has lapsed that such
Person is not entitled to be indemnified by the Company pursuant to the terms
and conditions of this Section 8.2.
(c) The Company shall maintain insurance on behalf of any
Person who is or was a Member, the Manager, or an officer, director, employee or
agent of the Company, the Manager or any Member, or is or was serving at the
request of the Company as an officer, director, manager, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against and incurred by such Person in any such
capacity, or arising out of such Person's status as such, whether or not the
Company would have the power to indemnify such Person against such liability
under this Section 8.2.
(d) The indemnification and advancement of expenses provided
by, or granted pursuant to, this Section 8.2 shall continue as to a Person who
has ceased to be a Member, the Manager, or any officer, director, manager,
employee or agent of the Company, the Manager or any Member, and shall inure to
the benefit of the heirs, executors, administrators and other legal successors
of such Person.
(e) The indemnification provided by this Section 8.2 shall not
be deemed exclusive of any other rights to indemnification to which those
seeking indemnification may be entitled under any agreement, determination of
Members or otherwise.
(f) Any indemnification hereunder shall be satisfied only out
of the assets of the Company (including insurance and any agreements pursuant to
which the Company and indemnified Persons are entitled to indemnification), and
the Members shall not, in such capacity, be subject to personal liability by
reason of these indemnification provisions.
(g) No Person shall be denied indemnification in whole or in
part under this Section 8.2 because such Person had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Agreement.
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ARTICLE IX. DISSOLUTION; LIQUIDATION
Section 9.1 DISSOLUTION. The Company shall be dissolved and its affairs
wound up, upon the first to occur of any of the following events (each of which
shall constitute a "Dissolution Event"):
(a) The expiration of the term set forth in Section 2.5 hereof
unless the Company is continued with the consent of all Members;
(b) The written consent of all Members;
(c) The entry of a decree of judicial dissolution with respect
to the Company;
(d) Any event which makes it unlawful for the business of the
Company to be carried on by the Members;
(e) Any other event not inconsistent with any provision hereof
causing a dissolution of a limited liability company under the LLCL; or
(f) The Bankruptcy of any Member; provided, however, that upon
any such event, the Company shall be deemed dissolved, but such dissolution
shall not cause the termination of the Company, it being understood and agreed
that, upon any such dissolution, the remaining Members may elect to continue to
carry on the Company business pursuant to, and subject to, all of the terms and
provisions of this Agreement.
Section 9.2 WITHDRAWAL OF MEMBERS. No Member shall have the right to
voluntarily withdraw as a Member of the Company other than following the sale of
all Membership Units owned by such Member, which sale shall be in accordance
with ARTICLE VII. Prior to October 31, 2008, no Member shall seek a decree of
judicial dissolution with respect to the Company.
Section 9.3 DISTRIBUTION UPON DISSOLUTION.
(a) Upon dissolution, the Company shall not be terminated and
shall continue until the winding up of the affairs of the Company is completed
and a certificate of cancellation has been issued by the Secretary of State of
Delaware. Upon the winding up of the Company, the Manager, or any other Person
designated by the Manager (the "Liquidation Agent"), shall take full account of
the assets and liabilities of the Company and shall, unless the Members agree
otherwise, liquidate the assets of the Company as promptly as is consistent with
obtaining the fair value thereof. The proceeds of any liquidation shall be
applied and distributed in the following order:
(i) First, to the payment of debts and liabilities of
the Company (including payment of all indebtedness to Members and/or their
Affiliates) and the expenses of liquidation;
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(ii) Second, to the establishment of any reserve which
the Liquidation Agent shall deem reasonably necessary for any contingent or
unforeseen liabilities or obligations of the Company ("Contingencies"). Such
reserve may be paid over by the Liquidation Agent to any attorney-at-law, or
acceptable party, as escrow agent, to be held for disbursement in payment of any
Contingencies and, at the expiration of such period as shall be deemed advisable
by the Liquidation Agent for distribution of the balance in the manner
hereinafter provided in this Section 9.3; and
(iii) Any balance, in accordance with the Percentage
Interest of each Member.
(b) It is the intent of the Members that the allocations
provided in Section 5.4 hereof result in the distributions required pursuant to
Section 9.3 being in accordance with positive capital accounts as provided for
in the Treasury Regulations under Section 704(b) of the Code. However, if after
giving hypothetical effect to the allocations required by Section 5.4, the
capital accounts of the Members are in such ratios or balances that
distributions pursuant to Section 9.3 would not be in accordance with the
positive capital accounts of the Members as required by Treasury Regulations
under Section 704(b) of the Code, such failure shall not affect or alter the
distributions required by Section 9.3. Rather, the Members will have the
authority to make other allocations of Net Profits or Net Losses, or items of
income, gain, loss or deduction among the Members which, to the extent possible,
will result in the capital accounts of each Member having a balance prior to the
distribution equal to the amount of the distributions to be received by each
Member pursuant to Section 9.3.
Section 9.4 TIME FOR LIQUIDATION. A reasonable amount of time shall be
allowed for the orderly liquidation of the assets of the Company and the
discharge of liabilities to creditors so as to enable the Liquidation Agent to
minimize the losses attendant upon such liquidation.
Section 9.5 WINDING UP AND FILING ARTICLES OF CANCELLATION. Upon the
commencement of the winding up of the Company, articles of cancellation shall be
delivered by the Company to the Secretary of State of Delaware for filing. The
articles of cancellation shall set forth the information required by the LLCL.
The winding up of the Company shall be completed when all debts, liabilities,
and obligations of the Company have been paid and discharged or reasonably
adequate provision therefor has been made and all the remaining assets of the
Company have been distributed to the Members.
ARTICLE X. MEMBERSHIP UNITS; CERTIFICATES
Section 10.1 CERTIFICATES. Membership Units shall be represented by a
certificate or certificates, setting forth upon the face thereof that the
Company is a limited liability company formed under the laws of the State of
Delaware, the name of the Member to which it is issued and the number of
Membership Units which such certificate represents. Such certificates shall be
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entered in the books of the Company as they are issued, and shall be signed by
the Chairman or the Chief Executive Officer of the Company and may be sealed
with the Company's seal or a facsimile thereof. Upon any Transfer permitted
under this Agreement, the transferring Member shall surrender to the Company and
the Company shall issue to the transferring Member certificates representing the
remaining Membership Units held by such transferring Member after taking into
account such Transfer. All certificates representing Membership Units (unless
registered under the Securities Act of 1933, as amended (the "Securities Act")),
shall bear the following legend:
THE MEMBERSHIP UNITS REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY SECURITIES REGULATORY AUTHORITY OF ANY
STATE, AND MAY NOT BE SOLD, ASSIGNED, PLEDGED, ENCUMBERED,
TRANSFERRED, GRANTED AN OPTION WITH RESPECT TO OR OTHERWISE
DISPOSED OF, (I) UNLESS AND UNTIL THEY HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OR SUCH SALE, ASSIGNMENT, PLEDGE, ENCUMBRANCE,
TRANSFER, OPTION GRANT OR OTHER DISPOSITION IS EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT AND (II) EXCEPT IN
ACCORDANCE WITH THE PROVISIONS OF THE AMENDED AND RESTATED LIMITED
LIABILITY COMPANY AGREEMENT OF THE COMPANY, A COPY OF WHICH IS
AVAILABLE FOR INSPECTION AT THE OFFICES OF THE COMPANY.
Section 10.2 LOST OR DESTROYED CERTIFICATES. The Company may issue a
new certificate for Membership Units in place of any certificate or certificates
theretofore issued by it, alleged to have been lost or destroyed, upon the
making of an affidavit of that fact, and providing an indemnity in form and
substance reasonably satisfactory to the Manager, by the Person claiming the
certificate to be lost or destroyed.
Section 10.3 TRANSFER OF MEMBERSHIP UNITS. Except for Transfers duly
made in accordance with ARTICLE VII, no Transfer of Membership Units shall be
valid as against the Company except upon surrender to and cancellation of the
certificate therefor, accompanied by an assignment or transfer by the Member,
subject to any restrictions on Transfer contained in this Agreement.
Section 10.4 SPLITS AND RECLASSIFICATIONS. The Company shall not in any
manner subdivide (by any unit split, unit distribution, reclassification,
recapitalization or otherwise) or combine (by reverse unit split,
reclassification, recapitalization or otherwise) the outstanding Membership
Units unless an identical event is occurring with respect to the Class A Common
Stock, in which event the Membership Units shall be combined or subdivided
concurrently with and in the same manner as the Class A Common Stock.
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Section 10.5 INCENTIVE PLANS; REGISTERED AND PRIVATE OFFERINGS.
(a) At any time the Public Corp. issues a share of Class A
Common Stock pursuant to an Incentive Plan (whether pursuant to the exercise of
a stock option or the grant of a restricted share award or otherwise), the
following shall occur: (i) the Public Corp. shall be deemed to contribute to the
capital of the Company an amount of cash equal to the current per share market
price of a share of Class A Common Stock on the date such share is issued (or,
if earlier, the date the related option is exercised); (ii) the Company shall be
deemed to purchase from Public Corp. a share of Class A Common Stock for an
amount of cash equal to the amount of cash deemed contributed by the Public
Corp. to the Company in clause (i) above (and such share is deemed delivered to
its owner under the Incentive Plan); (iii) the net proceeds (including the
amount of any payments made on a loan with respect to a stock purchase award)
received by the Public Corp. with respect to such share, if any, shall be
concurrently transferred to the Company (and such net proceeds so transferred
shall not constitute a capital contribution); and (iv) the Company shall issue
to the Public Corp. one (1) Membership Unit registered in the name of the Public
Corp. The Company shall retain any net proceeds that are paid directly to the
Company.
(b) At any time the Public Corp. issues a share of Class A
Common Stock pursuant to a primary public offering registered under the
Securities Act of 1933, as amended, or in a private placement, the net proceeds
received by the Public Corp. with respect to such share, if any, shall be
concurrently transferred to the Company and the Company shall issue to the
Public Corp. one (1) Membership Unit registered in the name of the Public Corp.
Section 10.6 REGULATIONS. The Manager may make such additional rules
and regulations, not inconsistent with this Agreement, as it may deem expedient
with respect to the issue, transfer and recordation of certificates for the
Membership Units.
Section 10.7 REGISTERED MEMBERS. The Company shall be entitled to
recognize the exclusive right of a Person registered on its records as the owner
of the Membership Units to receive distributions and to vote as owner of
Membership Units and shall not be bound to recognize any equitable or other
claim to or interest in such Membership Units on the part of any other Person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by the LLCL.
ARTICLE XI. MISCELLANEOUS
Section 11.1 SEVERABILITY. The terms, conditions, and provisions of
this Agree ment are fully severable, and the decision or judgment of any court
of competent jurisdiction rendering void or unenforceable any one or more of
such terms, conditions or provisions shall not render void or unenforceable any
of the other terms, conditions or provisions hereof and such void or
unenforceable term shall be replaced with a valid and enforceable term which
would to the greatest degree possible reflect the original intentions of the
parties hereunder.
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Section 11.2 NOTICES. All notices and other communications hereunder
shall be in writing and shall be given and delivered by messenger, transmitted
by telecopy or telegram (in either case followed by reputable overnight courier
sent the same day), by reputable overnight courier or mailed by certified mail,
postage prepaid, return receipt requested, to the parties at the following
addresses (or such other address as shall be specified by such party by like
notice), and shall be deemed given on the date on which so delivered by
messenger or reputable overnight courier, on the next business day following the
date on which so transmitted by telecopy, tele gram or on the third business day
following the date on which mailed by certified mail:
If to the Company or the Public Corp., to:
barnesandnoble.com llc
76 Ninth Avenue
11th Floor
New York, New York 10011
Attention: Chief Executive Officer
Fax: (212) 414-6652
If to BN, BN Holding or any BN Managers, to:
Barnes & Noble, Inc.
122 Fifth Avenue
New York, New York 10011
Attention: Mr. Leonard Riggio
Fax: (212) 675-0413
with a copy to:
Robinson Silverman Pearce
Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, New York 10104
Attention: Michael Rosen, Esq.
Fax: (212) 541-1400
If to USO, to:
BOL.US Online, Inc.
1540 Broadway
New York, New York 10036
Attention: Robert J. Sorrentino
Fax: (212) 782-1010/1103
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If to BAG, to:
Bertelsmann AG
Carl-Bertelsmann-Strasse 270
33311 Gutersloh, Germany
Attention: Dr. Klaus Eierhoff
Fax: (011) 49 5241 809 555
with a copy for each of USO and BAG to:
Walter, Conston, Alexander & Green, P.C.
90 Park Avenue
New York, New York 10016
Attention: Aydin S. Caginalp, Esq.
Fax: (212) 210-9444
Section 11.3 CAPTIONS. The captions at the heading of each Article or
Section of this Agreement are for convenience of reference only, and are not to
be deemed a part of the Agreement itself.
Section 11.4 ENTIRE AGREEMENT. This Agreement, including the Schedules
hereto and the other agreements and documents referenced herein or contemplated
hereby, constitutes the entire agreement and understanding of the parties hereto
with respect to the matters herein set forth, and all prior negotiations and
understandings relating to the subject matter of this Agreement are merged
herein and are superseded and canceled by this Agreement.
Section 11.5 COUNTERPARTS. This Agreement may be executed and delivered
in one or more counterparts, each of which shall be deemed an original, and all
of which shall be deemed to constitute one and the same agreement.
Section 11.6 AMENDMENTS; WAIVER. Amendments to this Agreement may be
made from time to time, provided, however, that (a) no amendment, modification
or waiver of this Agreement or any provision hereof shall be valid or effective
unless in writing and signed by each and every Member, and (b) no amendment,
modification or waiver of Section 10.4 shall be valid or effective unless
approved by a majority of the holders of Class A Common Stock, voting separately
as a class. No consent to, or waiver, discharge or release (each, a "Waiver")
of, any provision of or breach under this Agreement shall be valid or effective
unless in writing and signed by the party giving such Waiver, and no specific
Waiver shall constitute a Waiver with respect to any other provision or breach,
whether or not of similar nature. Failure on the part of any party hereto to
insist in any instance upon strict, complete and timely performance by another
party hereto of any provision of or obligation under this Agreement shall not
constitute a Waiver by such party of any of its rights under this Agreement or
otherwise.
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Section 11.7 FURTHER ASSURANCES. Each party shall perform all other
acts and execute and deliver all other documents as may be necessary or
appropriate to carry out the purposes and intent of this Agreement.
Section 11.8 GOVERNING LAW. This Agreement shall in all respects be
governed by and construed in accordance with the laws of the State of Delaware
without giving effect to its rules on conflicts of laws.
Section 11.9 THIRD PARTY BENEFICIARY. Except as provided in Section
11.6 with respect to certain approval rights of holders of Class A Common Stock,
nothing set forth in the Agreement shall be construed to confer any benefit to
any third party who is not a party to this Agreement.
Section 11.10 ASSIGNMENT. This Agreement is personal to the parties
hereto and neither party may (except as set forth in ARTICLE VII) assign or
Transfer the rights accruing hereunder nor may performance of any duties by
either party hereunder be delegated or assumed by any other Person or legal
entity without the prior written consent of the other parties hereto.
Section 11.11 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the respective successors and permitted assigns
of each party hereto; provided, that no party hereto may Transfer (or cause or
permit to be created or existing any lien on) or assign any of such party's
Membership Units (or any portion thereof or any beneficial interest therein) or
this Agreement or such party's rights, interests or obligations hereunder,
except in accordance with the terms of this Agreement.
Section 11.12 RELATIONSHIP. This Agreement does not constitute any
Member, Manager, or any employee or agent of the Company as the agent or legal
manager of any Member for any purpose whatsoever and no Member, Manager, or any
employee or agent of the Company is granted hereby any right or authority to
assume or to create any obligation or responsibility, express or implied, on
behalf of or in the name of any Member or to bind any Member in any manner or
thing whatsoever.
Section 11.13 CONSENT TO JURISDICTION. The exclusive jurisdiction and
venue for any disputes arising out of or in connection with this Agreement will
be any state or federal court located in New York County, New York, and each
party hereby consents to personal jurisdiction in such court and consents to
service of process by means of certified or registered mail, return receipt
requested.
Section 11.14 EQUITABLE REMEDIES. Each party acknowledges that no
adequate remedy of law would be available for a breach of ARTICLES VII and VIII
of this Agreement, and that a breach of any of such Sections or Articles of this
Agreement by one party would irreparably injure the other and accordingly agrees
that in the event of a breach of any of such Sections or Articles of this
Agreement, the respective rights and obligations of the parties hereunder shall
be enforceable by specific performance, injunction or other equitable remedy
(without bond or security being required), and each party waives the defense in
any action and/or
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proceeding brought to enforce this Agreement that there exists an adequate
remedy or that the other party is not irreparably injured. Nothing in this
Section 11.14 is intended to exclude the possibility of equitable remedies with
respect to breaches of other Sections or Articles of this Agreement.
Section 11.15 FEES AND EXPENSES. Except as specifically set forth
herein, each party shall be responsible for any legal and other fees and
expenses incurred by such party in connection with the negotiation and
preparation of this Agreement and the transactions contemplated hereby.
Section 11.16 OBLIGATIONS OF BN AND BAG. By their signatures below, BN
agrees to be liable for any failure by BN Holding to perform any of its
obligations under this Agreement and any other agreements executed in connection
herewith to which it is a party, and
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BAG agrees to be liable for any failure by USO to perform any of its obligations
under this Agreement and any other agreements executed in connection herewith to
which it is a party.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
Bertelsmann AG
By:_______________________
Name:
Title:
BOL.US Online, Inc.
By:_______________________
Name:
Title:
Barnes & Noble, Inc.
By:________________________
Name:
Title:
B&N.com Holding Corp.
By:_______________________
Name:
Title:
barnesandnoble.com inc.
By:_______________________
Name:
Title:
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SCHEDULE I
MEMBERS; MEMBERSHIP UNITS; CAPITAL ACCOUNTS
Member Membership Units Capital Account
- ------ ---------------- ---------------
barnesandnoble.com inc. ___________ $
Membership Units
B&N.com Holding Corp. ____________ $
Membership Units
BOL.US Online, Inc. ___________ $
Membership Units
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<PAGE>
Exhibit 10.7
-----------------------------------
STOCKHOLDERS AGREEMENT
OF
barnesandnoble.com inc.
As of _____________, 1999
------------------------------------
<PAGE>
STOCKHOLDERS AGREEMENT
OF
barnesandnoble.com inc.
THIS STOCKHOLDERS AGREEMENT, dated as of _________, 1999, by and among
Barnes & Noble, Inc., a corporation organized and existing under the laws of
Delaware, with its principal place of business at 122 Fifth Avenue, New York,
New York 10011 ("BN"), B&N.com Holding Corp., a corporation organized and
existing under the laws of Delaware, with its principal place of business at 122
Fifth Avenue, New York, New York 10011 ("BN Holding"), barnesandnoble.com inc.,
a corporation organized and existing under the laws of Delaware, with its
principal place of business at 76 Ninth Avenue, New York, New York 10011 (the
"Company"), Bertelsmann AG, an Aktiengesellschaft organized and existing under
the laws of Germany, with its principal place of business at
Carl-Bertelsmann-Strasse 270, 33311 Gutersloh, Germany ("BAG") and BOL.US
Online, Inc., a corporation organized and existing under the laws of Delaware,
with its principal place of business at 1540 Broadway, New York, New York 10036
("USO"). BN Holding and USO are sometimes hereafter referred to, collectively,
as the "Stockholders" and, individually, as a "Stockholder."
WHEREAS, the Company has an authorized capital of 750,000,000 shares of
common stock, consisting of 500,000,000 shares of Class A Common Stock, $.001
par value per share (the "Class A Common Stock"), 100,000,000 shares of Class B
Common Stock, $.001 par value per share (the "Class B Common Stock"),
100,000,000 shares of Class C Common Stock, $.001 par value per share (the
"Class C Common Stock", and together with the Class A Common Stock and the Class
B Common Stock, the "Common Stock"), and 50,000,000 shares of Preferred Stock,
$.001 par value per share.
WHEREAS, as of the date hereof BN Holding owns all of the issued and
outstanding shares of Class B Common Stock and USO owns all of the issued and
outstanding shares of Class C Common Stock;
WHEREAS, as of the date hereof BN Holding, USO and the Company are the
sole members of barnesandnoble.com llc, a Delaware limited liability company
(the "Operating Company"), with each owning an interest in the Operating Company
through the ownership of Membership Units of the Operating Company ("Membership
Units"), which Membership Units (other than Membership Units owned by the
Company) are, in accordance with the terms of the Company's Certificate of
Incorporation, exchangeable at the holder's option at any time into shares of
Class A Common Stock;
WHEREAS, BN Holding is a wholly owned subsidiary of BN and USO
(indirectly) is a wholly owned subsidiary of BAG;
<PAGE>
WHEREAS, the Stockholders desire to promote their mutual interests by
imposing certain restrictions and obligations on each other and on the shares of
Common Stock, and, further, to provide for matters pertaining to the management
and governance of the Company.
NOW, THEREFORE, in consideration of the conditions and provisions
contained herein, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. The following terms shall, for the purposes of
this Agreement and the Schedules and Exhibits hereto, have the following
meanings (terms defined in the singular or the plural include the plural or the
singular, as the case may be):
"Affiliate" of any Person shall mean any other Person that, directly or
indirectly, controls, is under common control with or is controlled by that
Person. For purposes of this definition, "control" (including, with its
correlative meanings, the terms "controlled by" and "under common control
with"), as used with respect to any Person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting securities
or by contract or otherwise. In the case of BOL, the term "Affiliates" shall
include all Persons in which BOL directly or indirectly owns an equity interest
to the extent such Person operates under the name BOL (or a derivative thereof)
provided that no Restricted Transferee owns any equity interest therein.
"BN Directors" shall mean, collectively, the Class B Directors as
defined in the Certificate of Incorporation.
"Board" shall mean the Board of Directors of the Company.
"BOL" shall mean BOL.Global, Inc., a corporation organized under the
laws of Delaware.
"Business Day" shall mean any day, other than a Saturday or Sunday, on
which federally chartered banks in the United States are open for business.
"By-laws" shall mean the By-laws of the Company as in effect as of the
date of this Agreement, as the same may be amended from time to time in
accordance with the terms thereof.
"Certificate of Incorporation" shall mean the Certificate of
Incorporation of the Company as in effect as of the date of this Agreement, as
the same may be amended from time to time in accordance with the terms thereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
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<PAGE>
"Commission" shall mean the Securities and Exchange Commission, or any
successor agency performing the functions currently performed by the Securities
and Exchange Commission.
"Encumbrance" shall mean any mortgage, pledge, security interest, lien,
restriction on use or transfer, other than those imposed by law, voting
agreement, adverse claim or encumbrance or charge of any kind (including any
agreement to give any of the foregoing), any conditional sale or other title
retention agreement, any lease in the nature thereof, and the filing of, or any
agreement to give, any financing statement under the Uniform Commercial Code or
similar law of any jurisdiction.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated thereunder,
as amended.
"Governmental Body" shall mean any domestic or foreign national, state
or municipal or other local government or multi-national body (including, but
not limited to, the European Union), any subdivision, agency, commission or
authority thereof, or any quasi-governmental or private body exercising any
regulatory authority thereunder and any corporation, partnership or other entity
directly or indirectly owned by or subject to the control of any of the
foregoing.
"Operating Agreement" shall mean the Second Amended and Restated
Limited Liability Company Agreement of the Operating Company, as the same may be
amended from time to timer in accordance with the terms thereof.
"Person" shall mean an individual, sole proprietorship, corporation,
partnership, limited liability company, joint venture, trust, unincorporated
organization, mutual company, joint stock company, estate, union, employee
organization, bank, trust company, land trust, business trust or other
organization, whether or not a legal entity, or a Governmental Body.
"Public Sale" shall mean a sale pursuant to an offering registered
under the Securities Act or in a transaction pursuant to Rule 144 of the
Securities Act.
"Restricted Transferee" shall mean amazon.com inc., Borders Group,
Inc., America Online, Inc., Microsoft, Inc. or Yahoo, Inc. or any of their
respective Affiliates.
"Securities Act" shall mean the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder, as amended.
"Transfer" shall mean, whether directly or indirectly by merger,
operation of law or otherwise, any sale, assignment, conveyance, transfer,
donation or any other means to dispose of, or pledge, hypothecate or otherwise
encumber in any manner whatsoever, or permit or suffer any Encumbrance.
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<PAGE>
"USO Directors" shall mean, collectively, the Class C Directors as
defined in the Certificate of Incorporation.
Section 1.2 Usage Generally; Interpretation. Whenever the context may
require, any pronoun includes the corresponding masculine, feminine and neuter
forms. All references herein to Articles and Sections shall be deemed to be
references to Articles and Sections of this Agreement unless the context
otherwise requires. The words "include", "includes" and "including" shall be
deemed to be followed by the phrase "without limitation". The words "hereof",
"herein" and "hereunder" and words of similar import when used in this Agreement
refer to this Agreement as a whole and not to any particular provision of this
Agreement. Unless otherwise expressly provided herein, any agreement, instrument
or statute defined or referred to herein or in any agreement or instrument that
is referred to herein means such agreement, instrument or statute as from time
to time amended, modified or supplemented, including (in the case of agreements
or instruments) by waiver or consent and (in the case of statutes) by succession
of comparable successor statutes and references to all attachments thereto and
instruments incorporated therein.
ARTICLE II
VOTING PROVISIONS
Section 2.1 Voting Agreements. The Stockholders agree to vote all
shares of Common Stock held by them or their respective Affiliates so as to
cause the following:
(a) The election of each Class A Director (as defined in the
Certificate of Incorporation) proposed for election by the Nominating
Committee of the Board of Directors of the Company;
(b) The election of such Chairman of the Board as shall be
selected by the BN Directors, unless (if such nominee is not Leonard
Riggio or Stephen Riggio) the USO Directors reject such nominee for
good reason; and
(c) The election of such Chief Executive Officer as shall be
selected by the Special Committee (as defined in the By-laws) pursuant
to a search by a nationally recognized search service selected by the
Special Committee. In connection with such process: (i) applicants
shall be interviewed by the Chairman of the Board and by the members of
the Special Committee; and (ii) any member of the Special Committee may
make recommendations.
Section 2.2 Limitations. The provisions of Sections 2.1(b) and 2.1(c)
hereof shall cease to apply upon the occurrence of a Class B Triggering Event or
Class C Triggering Event (as each such term is defined in the Certificate of
Incorporation).
ARTICLE III
TRANSFERS.
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s<PAGE>
Section 3.1 Prohibited Transfers. Except as expressly permitted in this
Agreement, no Stockholder or any of their respective Affiliates, including any
direct or indirect beneficial owner or ultimate parent of any such entity
(including BN and BAG), shall, directly or indirectly, Transfer any of the
right, title or interest in (i) any shares of Common Stock or (ii) any of their
Affiliates which beneficially own, either directly or indirectly, any shares of
Common Stock. Except for Transfers duly made in accordance with this Article
III, no Transfer of Common Stock by a Stockholder shall be valid as against the
Company and its stockholders.
Section 3.2 Permitted Transfers.
(a) Notwithstanding anything in this Agreement to the contrary,
each Stockholder may Transfer all (but not less than all) of the shares of
Common Stock owned by it and its rights under this Agreement under any of the
following circumstances:
(i) Each Stockholder may Transfer all (but not less than all)
of the shares of Common Stock owned by it together with its rights under this
Agreement to any transferee which is an Affiliate of the transferring
Stockholder provided that (x) no Restricted Transferee owns an interest in such
transferee, and (y) all Membership Units owned by such transferor are also
transferred concurrently to such transferee; and
(ii) Each Stockholder (or any permitted transferee under
clause (i) above) may Transfer all (but not less than all) of the shares of
Common Stock owned by it together with its rights under this Agreement if such
Transfer is part of the Transfer (x) by BAG and its Affiliates of all (or
substantially all) of the publishing business in the United States, operated by
BAG and its Affiliates, or (y) by BN and its Affiliates, of all (or
substantially all) of its retail book store business, provided in each case that
all Membership Units owned by such transferor are also transferred concurrently
to such transferee.
(iii) In the event of any Transfer pursuant to Sections
3.2(a)(i) or (ii), a transferee (or subsequent transferee) shall be entitled to
the rights and privileges set forth in this Agreement and shall be bound and
obligated by the provisions of this Agreement. As a condition to such Transfer
permitted pursuant to this Section 3.2(a), each transferee that will own shares
of Common Stock shall, prior to such transfer, agree in writing to be bound by
all of the provisions of this Agreement and no such transferee shall be
permitted to make any Transfer which the original transferor was not permitted
to make. In connection with any Transfer pursuant to this Section 3.2(a), the
transferee shall execute and deliver to the non-transferring Stockholder and the
Company such documents as may reasonably be requested by the non-transferring
Stockholder or the Company to evidence the same.
(b) Each Stockholder may Transfer some or all of the shares of
Common Stock owned by it to the other Stockholder.
(c) Each Stockholder may Transfer some or all of the Class A
Common Stock owned by it in a Public Sale.
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<PAGE>
Section 3.3 Rights of First Refusal.
(a) Except with respect to Transfers permitted pursuant to Section
3.2, if, on or after October 31, 1999, a Stockholder desires to Transfer any
shares of Common Stock to any other Person (other than a Restricted Transferee)
in a bona fide transaction solely for cash consideration, such Stockholder (the
"Offeror") shall be entitled to do so provided that such Offeror first offers to
sell such shares of Common Stock to the other Stockholder (the "Offeree") at the
same price and the same terms and conditions as the Offeror would receive from
such other Person. If the Offeror Transfers an amount of shares of Common Stock
which (together with any Membership Units also being transferred by the Offeror)
are equal to or more than ten percent (10%) of the then aggregate outstanding
Membership Units, the member of the Special Committee elected by the BN
Directors (if BN Holding or its Affiliate is the Offeror) or by the USO
Directors (if USO or its Affiliate is the Offeror) shall be deemed to have
resigned effective immediately upon such Transfer. The Offeror shall submit to
the Company and the Offeree a written notice (the "Offer Notice") stating in
reasonable detail such price and such terms and conditions and identifying the
Person and all Persons who beneficially own more than five percent (5%) of such
Person, proposing to purchase the shares of Common Stock, and the amount of
Membership Units, if any, also being sold. The Offeree shall have a period of
thirty (30) days after the receipt of the Offer Notice in which to accept or
reject such offer. If the Offeree elects to accept such offer, which acceptance
must be for all and not part of the Common Stock and Membership Units offered
for sale, it shall so indicate within such thirty (30) day period by notice to
the Offeror. The notice required to be given by the Offeree shall specify a date
for the closing of the purchase which, subject to the expiration or early
termination of any waiting period required by any Governmental Body and the
receipt of any required approvals of any Governmental Body, shall not be more
than thirty (30) days after the date of the giving of such notice.
(b) If the Offeree does not exercise its right to purchase all of
the shares of Common Stock offered for sale pursuant to the provisions of this
Section 3.3, the Offeror of such shares of Common Stock shall have the right to
sell to the Person identified in the Offer Notice, subject to the provisions of
this Agreement, all of such shares of Common Stock and Membership Units on the
same terms and conditions including the price as specified in the Offer Notice,
free from the restrictions of Section 3.1 of this Agreement (for purposes of
such specific transaction, but not for purposes of any subsequent transaction)
in a bona fide transaction, for a period of ninety (90) days from the date that
the Offer expires hereunder, provided that any such purchaser shall prior to
such transfer, if such purchaser shall be receiving shares of Common Stock,
agree in writing to be bound by all of the provisions of this Agreement. At the
end of such ninety (90) day period, the Offeror shall notify the Company and the
Offeree in writing whether its shares of Common Stock have been sold in a bona
fide transaction during such period. To the extent not sold during such ninety
(90) day period, all of such shares of Common Stock shall again become subject
to all of the restrictions and provisions hereof.
(c) The purchase price per share of the shares of Common Stock
shall be the price per share offered to be paid by the prospective transferee
described in the Offer Notice, which price shall be paid in cash.
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<PAGE>
(d) The closing of the purchase shall take place at the office of
the Company or such other location as shall be mutually agreeable and the
purchase price shall be paid at the closing by wire transfer of immediately
available funds. At the closing, the Offeror shall deliver to the Offeree the
certificates evidencing the shares of Common Stock to be conveyed, duly endorsed
and in negotiable form as well as the items listed in Section 3.4.
Section 3.4 Closing Deliveries. The Offeror at a closing under this
Article III shall deliver to the Offeree the following:
(a) A duly executed "Deed of Transfer" conveying to the Offeree
the shares of Common Stock being purchased by the Offeree, free and clear of any
Encumbrances, except those in this Agreement which are expressly assumed.
(b) A statement from the Offeror that: (i) except as set forth
therein, the Offeror has no claim as against the Company for unpaid dividends,
compensation, bonuses, profit-sharing or rights or other claims of whatsoever
kind, nature or description and that all amounts due and payable by the Company
to the Offeror have been paid; and (ii) it shall guarantee the performance of
the Purchaser's obligations under this Agreement.
Section 3.5 Continuity of Agreements.
(a) In the event of a permitted Transfer under Section 3.2 or 3.3
(other than a permitted transfer to an Affiliate), the Company's rights under
the Fulfillment Agreements and the Supply Agreement (as such terms are defined
in the Operating Agreement) shall terminate on the date which is six (6) months
after the date of Transfer unless otherwise provided therein.
(b) Notwithstanding the foregoing Section 3.5(a), in the event
that (i) USO is the transferring party in a transfer subject to Section 3.3, and
has complied with Section 3.3, and (ii) the Transfer is to any entity which is a
competitor of the Company and derives more than fifty percent (50%) of its
revenues from the sale of books, BN College shall have the right, by notice
given no later than ninety (90) days after the consummation of the Transfer by
USO under Section 3.3(a), to terminate the Amended and Restated Trademark
License Agreement dated as of October 31, 1998, as amended, insofar as relates
to the right granted to the Company and the Operating Company to use the name
"Barnes and Noble" or any substantially similar name or derivation, including
"B&N" or "BN".
ARTICLE IV
REGISTRATION RIGHTS IN CLASS A COMMON STOCK.
The shares of Class A Common Stock that are issued by the Company
(i) upon conversion of Class B Common Stock or Class C Common Stock, or (ii) in
exchange for Membership Units pursuant to the Certificate of Incorporation shall
have the registration rights set forth on Annex A attached hereto, which is
incorporated herein by reference and made a part hereof as if included in full
herein. The parties agree that, subject to the advance notice requirements set
forth in the Certificate of Incorporation, any such conversion or exchange shall
occur, at the option of the
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<PAGE>
exchanging or converting Stockholder, contemporaneously with the registration of
the Class A Common Stock to be received, or the consummation of the sale of such
Class A Common Stock pursuant to such registration, or at such other time as
such Stockholder shall request in writing.
ARTICLE V
CERTIFICATES
As long as this Agreement shall remain in full force and effect, there
shall be inscribed upon each certificate of Common Stock held by a Stockholder
the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
TRANSFERRED, PLEDGED, ASSIGNED, HYPOTHECATED OR IN ANY WAY DISPOSED OF
OR ENCUMBERED EXCEPT PURSUANT TO THE TERMS AND CONDITIONS OF A CERTAIN
STOCKHOLDERS AGREEMENT DATED AS OF _____________, 1999, AND ANY
AMENDMENTS THERETO, AMONG BARNESANDNOBLE.COM INC., B&N.COM HOLDING
CORP., BOL.US ONLINE, INC., BARNES & NOBLE, INC. AND BERTELSMANN AG, A
COPY OF WHICH IS ON FILE AT THE OFFICE OF THE COMPANY. THE HOLDER AND
THE OWNER HEREOF IS SUBJECT TO THE OBLIGATIONS THEREIN SET FORTH AND
CONTAINED AND ANY SUCH DISPOSITION OR ENCUMBRANCE IN VIOLATION OF SAID
STOCKHOLDERS AGREEMENT SHALL BE NULL AND VOID.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE, AND MAY NOT BE SOLD,
ASSIGNED, PLEDGED, ENCUMBERED, TRANSFERRED, GRANTED AN OPTION WITH
RESPECT TO OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION
OR DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL REASONABLY
ACCEPTABLE TO THE COMPANY THAT SUCH SALE OR TRANSFER IS EXEMPT FROM
REGISTRATION UNDER THE ACT.
ARTICLE VI
TERMINATION
This Agreement, other than Article IV which shall terminate in
accordance with the provisions set forth in Section 9 of Annex A of this
Agreement, shall terminate upon the occurrence of any of the following events:
(a) The written agreement of the parties hereto;
(b) The date on which there are no more shares of Common Stock
owned by any Stockholder; and
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<PAGE>
(c) The dissolution of the Company.
ARTICLE VII
MISCELLANEOUS
Section 7.1 Severability. The terms, conditions, and provisions of this
Agreement are fully severable, and the decision or judgment of any court of
competent jurisdiction rendering void or unenforceable any one or more of such
terms, conditions or provisions shall not render void or unenforceable any of
the other terms, conditions or provisions hereof and such void or unenforceable
term shall be replaced with a valid and enforceable term which would to the
greatest degree possible reflect the original intentions of the parties
hereunder.
Section 7.2 Notices. All notices and other communications hereunder
shall be in writing and shall be given and delivered by messenger, transmitted
by telecopy or telegram (in either case followed by reputable overnight courier
sent the same day), by reputable overnight courier or mailed by certified mail,
postage prepaid, return receipt requested, to the parties at the following
addresses (or such other address as shall be specified by such party by like
notice), and shall be deemed given on the date on which so delivered by
messenger or reputable overnight courier, on the next business day following the
date on which so transmitted by telecopy, telegram or on the third business day
following the date on which mailed by certified mail:
If to the Company, to:
barnesandnoble.com inc.
76 Ninth Avenue
11th Floor
New York, New York 10011
Attention: Chief Executive Officer
Fax: (212) 414-6652
If to BN or BN Holding, to:
Barnes & Noble, Inc.
122 Fifth Avenue
New York, New York 10011
Attention: Mr. Leonard Riggio
Fax: (212) 675-0413
with a copy to:
Robinson Silverman Pearce
Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, New York 10104
Attention: Michael Rosen, Esq.
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<PAGE>
Fax: (212) 541-1400
If to USO, to:
Bertelsmann AG
Carl-Bertelsmann-Strasse 270
33311 Gutersloh, Germany
Attention: Dr. Klaus Eierhoff
Fax: (011) 49 5241 809 555
with a copy for each of USO to:
Walter, Conston, Alexander & Green, P.C.
90 Park Avenue
New York, New York 10016
Attention: Aydin S. Caginalp, Esq.
Fax: (212) 210-9444
Section 7.3 Captions. The captions at the heading of each article or
section of this Agreement are for convenience of reference only, and are not to
be deemed a part of the Agreement itself.
Section 7.4 Entire Agreement. This Agreement, including the annexes
hereto and the other agreements and documents referenced herein or contemplated
hereby, constitutes the entire agreement and understanding of the parties hereto
with respect to the matters herein set forth, and all prior negotiations and
understandings relating to the subject matter of this Agreement are merged
herein and are superseded and canceled by this Agreement.
Section 7.5 Counterparts. This Agreement may be executed and delivered
in one or more counterparts, each of which shall be deemed an original, and all
of which shall be deemed to constitute one and the same agreement.
Section 7.6 Amendments; Waiver. Amendments to this Agreement may be
made from time to time, provided, however, that no amendment, modification or
waiver of this Agreement or any provision hereof shall be valid or effective
unless in writing and signed by each and every Stockholder. No consent to, or
waiver, discharge or release (each, a "Waiver") of, any provision of or breach
under this Agreement shall be valid or effective unless in writing and signed by
the party giving such Waiver, and no specific Waiver shall constitute a Waiver
with respect to any other provision or breach, whether or not of similar nature.
Failure on the part of any party hereto to insist in any instance upon strict,
complete and timely performance by another party hereto of any provision of or
obligation under this Agreement shall not constitute a Waiver by such party of
any of its rights under this Agreement or otherwise.
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<PAGE>
Section 7.7 Further Assurances. Each party shall perform all other acts
and execute and deliver all other documents as may be necessary or appropriate
to carry out the purposes and intent of this Agreement.
Section 7.8 Governing Law. This Agreement shall in all respects be
governed by and construed in accordance with the laws of the State of Delaware
without giving effect to its rules on conflicts of laws.
Section 7.9 Third Party Beneficiary. Nothing set forth in the Agreement
shall be construed to confer any benefit to any third party who is not a party
to this Agreement.
Section 7.10 Assignment. This Agreement is personal to the parties
hereto and neither party may (except as set forth in Article III) assign or
Transfer the rights accruing hereunder nor may performance of any duties by
either party hereunder be delegated or assumed by any other Person or legal
entity without the prior written consent of the other parties hereto.
Section 7.11 Successors And Assigns. This Agreement shall be binding
upon and inure to the benefit of the respective successors and permitted assigns
of each party hereto; provided, that no party hereto may Transfer (or cause or
permit to be created or existing any lien on) or assign such party's Common
Stock (or any portion thereof or any beneficial interest therein) or this
Agreement or such party's rights, interests or obligations hereunder, except in
accordance with the terms of this Agreement.
Section 7.12 Relationship. This Agreement does not constitute any
Stockholder, director, or any employee or agent of the Company or the Operating
Company as the agent or legal manager of any Stockholder for any purpose
whatsoever and no Stockholder, Director, or any employee or agent of the Company
or the Operating Company is granted hereby any right or authority to assume or
to create any obligation or responsibility, express or implied, on behalf of or
in the name of any Stockholder or to bind any Stockholder in any manner or thing
whatsoever.
Section 7.13 Consent to Jurisdiction. The exclusive jurisdiction and
venue for any disputes arising out of or in connection with this Agreement will
be any state or federal court located in New York County, New York, and each
party hereby consents to personal jurisdiction in such court and consents to
service of process by means of certified or registered mail, return receipt
requested.
Section 7.14 Equitable Remedies. Each party acknowledges that no
adequate remedy of law would be available for a breach of Articles II, III and
IV of this Agreement, and that a breach of any of such Articles of this
Agreement by one party would irreparably injure the other parties and
accordingly agrees that in the event of a breach of any of such Articles of this
Agreement, the respective rights and obligations of the parties hereunder shall
be enforceable by specific performance, injunction or other equitable remedy
(without bond or security being required), and each party waives the defense in
any action and/or proceeding brought to enforce this Agreement that there exists
an adequate remedy or that the other party is not irreparably
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<PAGE>
injured. Nothing in this Section 7.14 is intended to exclude the possibility of
equitable remedies with respect to breaches of other sections of this Agreement.
Section 7.15 Fees and Expenses. Except as specifically set forth
herein, each party shall be responsible for any legal and other fees and
expenses incurred by such party in connection with the negotiation and
preparation of this Agreement and the transactions contemplated hereby.
Section 7.16 Obligations of Barnes & Noble and Bertelsmann. By their
signatures below, BN agrees to be liable for any failure by BN Holding to
perform any of its obligations under this Agreement, and any other agreements
executed in connection herewith to which it is a party, and BAG agrees to be
liable for any failure by USO to perform any of its obligations under this
Agreement, and any other agreements executed in connection herewith to which it
is a party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
barnesandnoble.com inc.
By: _________________________________
Name:
Title:
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<PAGE>
B&N.COM HOLDING CORP.
By: _________________________________
Name:
Title:
BOL.US ONLINE, INC.
By: _________________________________
Name:
Title:
BARNES & NOBLE, INC..
By: _________________________________
Name:
Title:
BERTELSMANN AG
By: _________________________________
Name:
Title:
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<PAGE>
Annex A
-------
Registration Rights
Section 1. Definitions
Section 1.1 Capitalized terms used herein without definition have the
meanings assigned to such terms in the Shareholders Agreement to which this
Annex A is a part of. As used in this Annex A, the following terms shall have
the following meanings:
"Holder" means any Person who owns Registrable Securities.
"IPO" means the initial public offering of the Class A Common
Stock pursuant to an offering registered under the Securities Act.
"Lock-Up Agreement" means the agreement between each
Stockholder and an underwriter for the IPO, pursuant to which such Stockholder
agrees that it will not offer to sell, contract to sell, or otherwise sell,
dispose of, loan, pledge or grant any rights with respect to any shares of
Common Stock, any options or warrants to purchase any shares of common stock, or
any securities convertible into or exchangeable for any shares of Common Stock
now owned or hereafter acquired directly by the Stockholder or with respect to
which the Stockholder has or hereafter acquires the power of disposition.
"Lock-Up Period" means the respective period agreed to by each
Stockholder and an underwriter for the IPO during which time such Stockholder
agrees that it will not offer to sell, contract to sell, or otherwise sell,
dispose of, loan, pledge or grant any rights with respect to any shares of
Common Stock, any options or warrants to purchase any shares of common stock, or
any securities convertible into or exchangeable for any shares of Common Stock
now owned or hereafter acquired directly by the Stockholder or with respect to
which the Stockholder has or hereafter acquires the power of disposition.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Prospectus" means any prospectus included in a Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
Registration Statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by any Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference in such Prospectus.
"Registrable Securities" means shares of Class A Common Stock
issued upon conversion of shares of Class B Common Stock or Class C Common Stock
or in exchange for
<PAGE>
Membership Units; provided, however, that the shares of Class A Common Stock
that are Registrable Securities shall cease to be Registrable Securities (x)
upon the consummation of any sale of such shares pursuant to an effective
Registration Statements under the Securities Act or Rule 144 promulgated
thereunder or (y) at such time as such shares of Class A Common Stock (which are
issued or which may become issued upon conversion or exchange of any other
security) become eligible for sale under Rule 144(k) under the Securities Act.
"Registration Statement" means any Registration Statement and
any additional Registration Statement, including (in each case) the Prospectus,
amendments and supplements to such Registration Statement or Prospectus,
including pre- and post-effective amendments, all exhibits thereto, and all
material incorporated by reference in such Registration Statement to be filed
pursuant to the terms of this Annex A.
"Rule 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 158" means Rule 158 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Underwritten Registration or Underwritten Offering" means a
registration in connection with which securities of the Company are sold to an
underwriter for reoffering to the public pursuant to an effective Registration
Statement.
Section 2. "Piggy-Back" Registrations
Section 2.1 If at any time after the IPO the Company shall determine to
register for its own account or the account of others under the Securities Act
(including (i) in connection with a public offering by the Company other than
the IPO or (ii) a demand for registration made by any stockholder of the Company
including any of the parties hereto) any of its equity securities (other than on
Form S-4 or Form S-8 or their then equivalents relating to shares of Common
Stock to be issued solely in connection with any acquisition of an entity or
business or shares of Common Stock issuable in connection with stock option or
other employee benefit plans) it shall send to each Holder written notice of
such determination and if, within 30 days after receipt of such notice, such
Holder shall so request in writing, the Company shall use its best efforts to
include in such Registration Statement all or any part of the Registrable
Securities such Holder requests to be registered.
Section 2.2 If, in connection with any offering described in Section
2.1 of this Annex A involving an underwriting of common stock to be issued by
the Company, the managing underwriter shall impose a limitation on the number of
shares of such common stock which may
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be included in the Registration Statement because in its judgment, such
limitation is necessary to affect an orderly public distribution, then, in the
discretion of such managing underwriter, the Company shall include in such
Registration Statements only such portion of the Registrable Securities with
respect to which such Holders have requested inclusion pursuant hereto as such
limitation permits after the inclusion of all shares of common stock to be
registered by the Company for its own account. Any exclusion of Registrable
Securities shall be made pro rata among such Holders seeking to include such
shares, in proportion to the number of such shares sought to be included by such
Holders.
Section 3. "Demand" Registrations
Section 3.1 At any time commencing at least 180 days after the
effective date of any registration statement covering the IPO, each Holder (a
"Demand Holder") may make a written request (each a "Demand Request") for
registration under the Securities Act (a "Demand Registration") of all or part
of the Registrable Securities held by such Holder; provided, however, that the
Registrable Securities requested to be registered shall, on the date that the
Demand Request is delivered, (i) constitute at least five percent (5%) of the
shares of Common Stock outstanding, or (ii) have an aggregate minimum market
value of at least $25,000,000 before calculation of underwriting discounts and
commissions. Each Demand Request shall specify the number of Registrable Shares
proposed to be sold by such Demand Stockholder.
Section 3.2 Within 15 days after receipt of each Demand Request, the
Company shall give written notice of such Demand Request to all non-requesting
Holders and shall use its best efforts to cause such of the Registrable
Securities as may be requested by any Holders thereof (including the Holder or
Holders giving the initial notice of intent to offer) to be filed with the
Commission not later than 120 days after receipt of a Demand Request (the
"Demand Filing Date") and shall use all commercially reasonable efforts to cause
the same to be declared effective by the Commission as promptly as practicable
after such filing. Both the Demand Request and any request to join in such
Demand Request shall be considered a single Demand Request. Any inclusion of
Registrable Shares owned by a Demand Holder pursuant to a Demand Request
(including a notice to join in a prior Demand Request) shall be deemed to have
been effected pursuant to a single Demand Request.
Section 3.3 Notwithstanding any other provision set forth in this
Section 3, no Holder shall be entitled to deliver a Demand Request within 90
days after the effectiveness of any Registration Statement filed (i) by the
Company pursuant to an Underwritten Offering by the Company other than the IPO
or (ii) on behalf of any Demand Holder or any other holder of demand
registration rights.
Section 3.4 A registration will not count as a Demand Registration
until it has become effective (unless the Demand Holder withdraws all of its
Registrable Securities and the Company has performed its obligations hereunder
in all material respects, in which case such demand will count as a Demand
Registration); provided, that if, after it has become effective, an offering of
Registrable Securities pursuant to a registration is interfered with by any stop
order, injunction, or other order or requirement of the Commission or other
governmental agency or court, such
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registration will be deemed not to have been effected and will not count as a
Demand Registration.
Section 3.5 The Company may defer the filing (but not the preparation)
of a registration statement required by this Section 3 until a date not later
than 120 days after the Demand Filing Date if:
(a) at the time the Company receives the Demand Request, there
is (i) material non-public information regarding the Company which the Board
reasonably determines not to be in the Company's best interest to disclose and
which the Company is not otherwise required to disclose, or (ii) there is a
significant business opportunity (including but not limited to the acquisition
or disposition of assets (other than in the ordinary course of business) or any
merger, consolidation, tender offer or other similar transaction) available to
the Company which the Board reasonably determines not to be in the Company's
best interest to disclose; or
(b) prior to receiving the Demand Request, the Board had
determined to effect an Underwritten Offering and the Company had taken
substantial steps and is proceeding with reasonable diligence to effect such
offering.
A deferral of the filing of a registration statement pursuant to this
Section 3.5 shall be lifted, and the requested registration statement shall be
filed forthwith, if, (x) in the case of a deferral pursuant to clause (a)(i),
the material non-public information is made public by the Company, (y) in the
case of a deferral pursuant to clause (a)(ii), the significant business
opportunity is disclosed by the Company or is terminated, or (z) in the case of
a deferral pursuant to clause (b), the proposed registration for the Company's
account is abandoned. In order to defer the filing of a registration statement
pursuant to this Section 3.5, the Company shall promptly (but in any event
within 10 days), upon determining to seek such deferral, deliver to each Demand
Holder a certificate signed by an executive officer of the Company stating that
the Company is deferring such filing pursuant to this Section 3.5 and an
approximation of the anticipated delay. Within 20 days after receiving such
certificate, the holders of a majority of the Registrable Securities held by the
Demand Holder and for which registration was previously requested may withdraw
such Demand Request by giving written notice to the Company; if withdrawn, the
Demand Request shall be deemed not to have been made for all purposes of this
Annex A.
Section 4. Registration Procedures
Whenever any Holder has requested that any Registrable Securities be
registered pursuant to this Annex A, the Company will use its reasonable best
efforts to effect the registration of such Registrable Securities and in
furtherance thereof the Company shall:
(a) prepare and file with the Commission on any appropriate
form under the Securities Act with respect to such Registrable Securities and
use its commercially reasonable efforts to cause such Registration Statement to
become effective;
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(b) prepare and file with the Commission such amendments,
including post-effective amendments and supplements to the Registration
Statement as may be necessary to keep the Registration Statement continuously
effective as to the applicable Registrable Securities for a period of not less
than 180 days (or such lesser period as is necessary for the underwriters in an
underwritten offering to sell unsold allotments) and prepare and file with the
Commission such additional Registration Statements in order to register for
resale under the Securities Act all of the Registrable Securities; (ii) cause
the related Prospectus to be amended or supplemented by any required Prospectus
supplement, and as so supplemented or amended to be filed pursuant to Rule 424
(or any similar provisions then in force) promulgated under the Securities Act;
(iii) respond as promptly as possible to any comments received from the
Commission with respect to the Registration Statements or any amendment thereto
and as promptly as possible provide the Holders true and complete copies of all
correspondence from and to the Commission relating to the Registration
Statements; and (iv) comply in all material respects with the provisions of the
Securities Act and the Exchange Act with respect to the disposition of all
Registrable Securities covered by the Registration Statements during the
applicable period in accordance with the intended methods of disposition by the
Stockholders thereof set forth in the Registration Statements as so amended or
in such Prospectus as so supplemented;
(c) (i) furnish to the Holders of Registrable Securities to be
sold, their counsel and any managing underwriters, copies of all such documents
proposed to be filed, which documents (other than those incorporated by
reference) will be subject to the review of such Stockholders, their counsel and
such managing underwriters, and (ii) cause its officers and directors, counsel
and independent certified public accountants to respond to such inquiries as
shall be necessary, in the reasonable opinion of respective counsel to such
Holders and such underwriters, to conduct a reasonable investigation within the
meaning of the Securities Act. The Company shall not file a Registration
Statement to which the holder of a majority of the Registrable Securities or its
counsel or any managing underwriters shall reasonably object in writing within
three (3) Business Days of their receipt thereof;
(d) notify the Holders of Registrable Securities to be sold,
their counsel and any managing underwriters as promptly as possible (and in the
case of (i), below, not less than five (5) days prior to such filing) and
confirm such notice in writing no later than one (1) Business Day following the
day:
(i) when a Prospectus or any Prospectus supplement or
post-effective amendment to the Registration Statements is proposed to be filed;
(ii) when the Commission notifies the Company whether
there will be a "review" of such Registration Statements and whenever the
Commission comments in writing on such Registration Statements;
(iii) with respect to the Registration Statements or
any post-effective amendment, when the same has become effective;
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<PAGE>
(iv) of any request by the Commission or any other
Federal or state governmental authority for amendments or supplements to the
Registration Statements or Pro spectus or for additional information;
(v) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statements covering any
or all of the Registrable Securities or the initiation of any Proceedings for
that purpose;
(vi) if at any time any of the representations and
warranties of the Company contained in any agreement (including any underwriting
agreement) contemplated hereby ceases to be true and correct in all material
respects;
(vii) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; and
(viii) of the occurrence of any event that makes any
statement made in the Registration Statements or Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in any
material respect or that requires any revisions to the Registration Statements,
Prospectus or other documents so that, in the case of the Registration
Statements or the Prospectus, as the case may be, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(e) use its best efforts to avoid the issuance of, or, if
issued, obtain the withdrawal of (i) any order suspending the effectiveness of
the Registration Statements or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, at the earliest practicable moment;
(f) if requested by any managing underwriter to be sold in
connection with an Underwritten Offering, (i) promptly incorporate in a
Prospectus supplement or post-effective amendment to the Registration Statement
such information as the Company reasonably agrees should be included therein and
(ii) make all required filings of such Prospectus supplement or such
post-effective amendment as soon as practicable after the Company has received
notification of the matters to be incorporated in such Prospectus supplement or
post-effective amendment; provided, however, that the Company shall not be
required to take any action pursuant to this clause (f) that would, in the
opinion of counsel for the Company, violate applicable law or be materially
detrimental to the business prospects of the Company;
(g) furnish to each Holder of Registrable Securities to be
sold, their counsel and any managing underwriters, without charge, at least one
conformed copy of each Registration Statements and each amendment thereto,
including financial statements and schedules, all documents incorporated or
deemed to be incorporated therein by reference, and all exhibits to the extent
requested by such Person (including those previously furnished or incorporated
by reference) promptly after the filing of such documents with the Commission;
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<PAGE>
(h) promptly deliver to each Holder of Registrable Securities
to be sold, their counsel, and any underwriters, without charge, as many copies
of the Prospectus or Prospectuses (including each form of prospectus) and each
amendment or supplement thereto as such Persons may reasonably request; and the
Company hereby consents to the use of such Prospectus and each amendment or
supplement thereto by each of the selling Stockholders and any underwriters in
connection with the offering and sale of the Registrable Securities covered by
such Prospectus and any amendment or supplement thereto;
(i) prior to any public offering of Registrable Securities,
use its best efforts to register or qualify or cooperate with the selling
Holders, any underwriters and their counsel in connection with the registration
or qualification (or exemption from such registration or qualification) of such
Registrable Securities for offer and sale under the securities or Blue Sky laws
of such jurisdictions within the United States as any selling Holder or
underwriter requests in writing, to keep each such registration or qualification
(or exemption therefrom) effective for at least 180 days and to do any and all
other acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by a Registration Statement;
provided, however, that the Company shall not be required to qualify generally
to do business in any jurisdiction where it is not then so qualified or to take
any action that would subject it to general service of process in any such
jurisdiction where it is not then so subject or subject the Company to any
material tax in any such jurisdiction where it is not then so subject;
(j) cooperate with the selling Holders and any managing
underwriters to facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold pursuant to a Registration
Statements, which certificates shall be free, to the extent permitted by
applicable law, of all restrictive legends, and to enable such Registrable
Securities to be in such denominations and registered in such names as any such
managing underwriters or Stockholders may request at least two Business Days
prior to any sale of Registrable Securities;
(k) upon the occurrence of any event contemplated by Section
4(d)(viii) of this Annex A, as promptly as possible, prepare a supplement or
amendment, including a post-effective amendment, to the Registration Statement
or a supplement to the related Prospectus or any document incorporated or
deemed to be incorporated therein by reference, and file any other required
document so that, as thereafter delivered, neither the Registration Statements
nor such Prospectus will contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading;
(l) use its best efforts to cause all Registrable Securities
relating to such Registration Statement to be listed on the securities exchange,
quotation system, market or over-the-counter bulletin board on which similar
securities issued by the Company are then listed;
(m) enter into such agreements (including an underwriting
agreement in form, scope and substance as is customary in Underwritten
Offerings) and take all such other actions in connection therewith (including
those reasonably requested by any managing underwriters in order to expedite or
facilitate the disposition of such Registrable Securities, and whether or not an
underwriting agreement is entered into):
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<PAGE>
(i) make such representations and warranties to such
selling Holders and such underwriters as are customarily made by issuers to
underwriters in underwritten public offerings, and confirm the same if and when
requested;
(ii) in the case of an Underwritten Offering, obtain
and deliver copies thereof to the managing underwriters, if any, of opinions of
counsel to the Company and updates thereof addressed to each such underwriter,
in form, scope and substance reasonably satisfactory to any such managing
underwriters and counsel to the selling Stockholders covering the matters
customarily covered in opinions requested in Underwritten Offerings and such
other matters as may be reasonably requested by such counsel and underwriters;
(iii) immediately prior to the effectiveness of the
Registration Statement, and, in the case of an Underwritten Offering, at the
time of delivery of any Registrable Securities sold pursuant thereto, obtain and
deliver copies to the selling Holders and the managing underwriters, if any, of
"cold comfort" letters and updates thereof from the independent certified public
accountants of the Company (and, if necessary, any other independent certified
public accountants of any subsidiary of the Company or of any business acquired
by the Company for which financial statements and financial data is, or is
required to be, included in the Registration Statements), addressed to each
selling Holder and each of the underwriters, if any, in form and substance as
are customary in connection with Underwritten Offerings;
(iv) if an underwriting agreement is entered into,
the same shall contain indemnification provisions and procedures no less
favorable to the selling Holders and the underwriters, if any, other than those
set forth in Section 8 of this Annex A (or such other provisions and procedures
acceptable to the managing underwriters, if any; and
(v) deliver such documents and certificates as may be
reasonably requested by the selling Holders, their counsel and any managing
underwriters to evidence the continued validity of the representations and
warranties made pursuant to clause (i) above and to evidence compliance with any
customary conditions contained in the underwriting agreement or other agreement
entered into by the Company;
(n) make available for inspection by the selling Holders, any
representative of such Holders, any underwriter participating in any disposition
of Registrable Securities, and any attorney or accountant retained by such
selling Holder or underwriters, at the offices where normally kept, during
reasonable business hours, all financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries, and cause the
officers, directors, agents and employees of the Company and its subsidiaries to
supply all information in each case reasonably requested by any such Holder,
representative, underwriter, attorney or accountant in connection with the
Registration Statements; provided, however, that any information that is
determined in good faith by the Company in writing to be of a confidential
nature at the time of delivery of such information shall be kept confidential by
such Persons, unless (i) disclosure of such information is required by court or
administrative order or is necessary to respond to inquiries of regulatory
authorities; (ii) disclosure of such information, in the opinion of counsel to
such Person, is required by law; (iii) such information becomes generally
available to the public other than as a result of a disclosure or failure to
safeguard by
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such Person; or (iv) such information becomes available to such Person from a
source other than the Company and such source is not known by such Person to be
bound by a confidentiality agreement with the Company;
(o) comply in all material respects with all applicable rules
and regulations of the Commission and make generally available to its security
holders earning statements satisfying the provisions of Section 11(a) of the
Securities Act and Rule 158 not later than 45 days after the end of any 12-month
period (or 90 days after the end of any 12-month period if such period is a
fiscal year) (i) commencing at the end of any fiscal quarter in which
Registrable Securities are sold to underwriters in a firm commitment or best
efforts Underwritten Offering and (ii) if not sold to underwriters in such an
offering, commencing on the first day of the first fiscal quarter of the Company
after the effective date of the Registration Statements, which statement shall
conform to the requirements of Rule 158;
(p) the Company may require each selling Holder to furnish to
the Company information regarding such Holder and the distribution of such
Registrable Securities as is required by law to be disclosed in the Registration
Statements, and the Company may exclude from such registration the Registrable
Securities of any such Stockholder who unreasonably fails to furnish such
information within a reasonable time after receiving such request. If the
Registration Statements refers to any Stockholder by name or otherwise as the
holder of any securities of the Company, then such Stockholder shall have the
right to require (if such reference to such Stockholder by name or otherwise is
not required by the Securities Act or any similar Federal statute then in force)
the deletion of the reference to such Stockholder in any amendment or supplement
to the Registration Statements filed or prepared subsequent to the time that
such reference ceases to be required.
Section 5. Lock-Up Agreement
Each Holder agrees, if such Holder is so requested by the managing
underwriter in the Initial Public Offering, to enter into a Lock-Up Agreement,
provided that the lock-up period shall not exceed 180 days.
Section 6. Stockholder Covenants
Each Holder hereby covenants and agrees that:
(a) it will not sell any Registrable Securities under the
Registration Statement until it has received notice from the Company that such
Registration Statement and any post-effective amendments thereto have become
effective;
(b) it and its officers, directors or Affiliates, if any, will
comply with the prospectus delivery requirements of the Securities Act as
applicable to them in connection with sales of Registrable Securities pursuant
to a Registration Statement;
(c) by its acquisition of such Registrable Securities that,
upon receipt of a notice from the Company of the occurrence of any event of the
kind described in Section 4(d)(iv),
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(v), (vi), (vii) and (viii) of this Annex A, such Holder will forthwith
discontinue disposition of such Registrable Securities under the Registration
Statements until such Holder's receipt of the copies of the supplemented
Prospectus and/or amended Registration Statements or until it is advised in
writing (the "Advice") by the Company that the use of the applicable Pro spectus
may be resumed, and, in either case, has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by
reference in such Pro spectus or Registration Statement.
Section 7. Registration Expenses
Except to the extent limited by the applicable state law, all fees and
expenses incident to the performance of or compliance with this Annex A by the
Company shall be borne by the Company whether or not pursuant to an Underwritten
Offering and whether or not any Registration Statements is filed or becomes
effective and whether or not any Registrable Securities are sold pursuant to any
Registration Statements. The fees and expenses referred to in the foregoing
sentence shall include, without limitation (i) all registration and filing fees
(including, without limitation, fees and expenses (A) with respect to filings
required to be made with any securities exchange or market on which Registrable
Securities are required hereunder to be listed and (B) in compliance with state
securities or Blue Sky laws (including, without limitation, fees and
disbursements of counsel for the Stockholders in connection with Blue Sky
qualifications of the Registrable Securities and determination of the
eligibility of the Registrable Securities for investment under the laws of such
jurisdictions as the managing underwriters, if any)); (ii) printing expenses
(including, without limitation, expenses of printing certificates for
Registrable Securities and of printing prospectuses if the printing of
prospectuses is requested by the managing underwriters, if any; (iii) messenger,
telephone and delivery expenses, (iv) fees and disbursements of counsel for the
Company; (v) Securities Act liability insurance, if the Company so desires such
insurance; (vi) fees and expenses of all other Persons retained by the Company
in connection with the consummation of the transactions contemplated by this
Annex A; and (vii) all of its internal expenses of the Company incurred in
connection with the consummation of the transactions contemplated by this Annex
A (including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties, the expense of any annual
audit, the fees and expenses incurred in connection with the listing of the
Registrable Securities on any securities exchange as required hereunder (all
such expenses being referred to herein as "Registration Expenses"); provided,
however, that except as expressly set forth herein, in no event shall
Registration Expenses include any underwriting discounts, commissions, or fees
attributable to the sale of the Registrable Securities or any counsel,
accountants or other persons retained by the Holders incurred in connection with
the consummation of the transactions contemplated by this Annex A.
Section 8. Indemnification and Contribution
Section 8.1 Indemnification by the Company. The Company shall,
notwithstanding any termination of this Annex A, indemnify and hold harmless
each Holder and their agents, brokers, investment advisors and employees of each
of them and each underwriter of the Registrable Securities and their officers,
directors, affiliates, partners and any broker or dealer through whom such
shares may be sold and each Person, if any, who controls (within the
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meaning of Section 15 of the Securities Act) such Holder or any such underwriter
to the fullest extent permitted by applicable law, from and against any and all
losses, claims, damages, liabilities, costs (including, without limitation,
costs of preparation and attorneys' fees) and expenses (collectively, "Losses"),
as incurred, arising out of or relating to any untrue or alleged untrue
statement of a material fact contained in any Registration Statement, any
Prospectus or any form of prospectus or in any amendment or supplement thereto
or in any preliminary prospectus, or arising out of or relating to any omission
or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein (in the case of any Prospectus or form
of prospectus or supplement thereto, in light of the circumstances under which
they were made) not misleading (in the case of any Prospectus or form of
Prospectus or supplement thereto, in light of the circumstances under which they
were made), except to the extent, but only to the extent, that such untrue
statements or omissions are based solely upon information regarding such Holder
furnished in writing to the Company by such Holder expressly for use therein,
which information was reasonably relied on by the Company for use therein or to
the extent that such information relates to such Holder or such Holder's
proposed method of distribution of Registrable Securities and was reviewed and
expressly approved in writing by such Holder expressly for use in any
Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto. The Company shall notify the Holders promptly
of the institution, threat or assertion of any Proceeding of which the Company
is aware in connection with the transactions contemplated by this Annex A.
Section 8.2 Indemnification by Holders. Each Holder shall, severally
and not jointly, indemnify and hold harmless the Company, the directors,
officers, agents and employees, each Person who controls the Company (within the
meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act),
and the directors, officers, agents or employees of such controlling Persons, to
the fullest extent permitted by applicable law, from and against all Losses (as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review) arising solely out of or based solely upon any untrue
statement of a material fact contained in the Registration Statements, any
Prospectus, or any form of prospectus, or arising solely out of or based solely
upon any omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading to the extent, but only to the
extent, that such untrue statement or omission is contained in any information
so furnished in writing by such Holder to the Company specifically for inclusion
in the Registration Statement or such Prospectus and that such information was
reasonably relied upon by the Company for use in the Registration Statement,
such Prospectus or such form of prospectus or to the extent that such
information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by such Holder expressly for use in the Registration Statement, such
Prospectus or such form of Prospectus. In no event shall the liability of any
selling Holder hereunder be greater in amount than the dollar amount of the net
proceeds received by such Holder upon the sale of the Registrable Securities
giving rise to such indemnification obligation.
Section 8.3 Conduct of Indemnification Proceedings.
(a) If any Proceeding shall be brought or asserted against any
Person entitled to indemnity hereunder (an "Indemnified Party"), such
Indemnified Party promptly shall notify
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the Person from whom indemnity is sought (the "Indemnifying Party") in writing,
and the Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Party and the
payment of all fees and expenses incurred in connection with defense thereof;
provided, that the failure of any Indemnified Party to give such notice shall
not relieve the Indemnifying Party of its obligations or liabilities pursuant to
this Annex A, except (and only) to the extent that it shall be finally
determined by a court of competent jurisdiction (which determination is not
subject to appeal or further review) that such failure shall have proximately
and materially adversely prejudiced the Indemnifying Party.
(b) An Indemnified Party shall have the right to employ
separate counsel in any such Proceeding and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed
in writing to pay such fees and expenses; or (2) the Indemnifying Party shall
have failed promptly to assume the defense of such Proceeding and to employ
counsel reasonably satisfactory to such Indemnified Party in any such
Proceeding; or (3) the named parties to any such Proceeding (including any
impeded parties) include both such Indemnified Party and the Indemnifying Party,
and such Indemnified Party shall have been advised by counsel that a conflict of
interest is likely to exist if the same counsel were to represent such
Indemnified Party and the Indemnifying Party (in which case, if such Indemnified
Party notifies the Indemnifying Party in writing that it elects to employ
separate counsel at the expense of the Indemnifying Party, the Indemnifying
Party shall not have the right to assume the defense thereof and such counsel
shall be at the expense of the Indemnifying Party). The Indemnifying Party shall
not be liable for any settlement of any such Proceeding effected without its
written consent, which consent shall not be unreasonably withheld. No
Indemnifying Party shall, without the prior written consent of the Indemnified
Party, effect any settlement of any pending Proceeding in respect of which any
Indemnified Party is a party, unless such settlement includes an unconditional
release of such Indemnified Party from all liability on claims that are the
subject matter of such Proceeding.
(c) All fees and expenses of the Indemnified Party (including
reasonable fees and expenses to the extent incurred in connection with
investigating or preparing to defend such Proceeding in a manner not
inconsistent with this Section) shall be paid to the Indemnified Party, as
incurred, within 10 Business Days of written notice thereof to the Indemnifying
Party (regard less of whether it is ultimately determined that an Indemnified
Party is not entitled to indemnification hereunder; provided, that the
Indemnifying Party may require such Indemnified Party to undertake to reimburse
all such fees and expenses to the extent it is finally judicially determined
that such Indemnified Party is not entitled to indemnification hereunder).
Section 8.4 Contribution.
(a) If a claim for indemnification under Section 8.1 or 8.2 is
unavailable to an Indemnified Party because of a failure or refusal of a
governmental authority to enforce such indemnification in accordance with its
terms (by reason of public policy or otherwise), then each Indemnifying Party,
in lieu of indemnifying such Indemnified Party, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such Losses, in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party and Indemnified Party in connection with the actions, statements or
omissions that resulted in such Losses as well as any
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<PAGE>
other relevant equitable considerations. The relative fault of such Indemnifying
Party and Indemnified Party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission of a material fact,
has been taken or made by, or relates to information supplied by, such
Indemnifying Party or Indemnified Party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action, statement or omission. The amount paid or payable by a party as a result
of any Losses shall be deemed to include, subject to the limitations set forth
herein, any reasonable attorneys' or other reasonable fees or expenses incurred
by such party in connection with any Proceeding to the extent such party would
have been indemnified for such fees or expenses if the indemnification provided
for in this Section was available to such party in accordance with its terms. In
no event shall the liability of any selling Holder hereunder be greater in
amount than the dollar amount of the net proceeds received by such Holder upon
the sale of the Registrable Securities giving rise to such indemnification
obligation.
(b) The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 8 were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 8, no Stockholder shall be
required to contribute, in the aggregate, any amount in excess of the amount by
which the proceeds actually received by such Stockholder from the sale of the
Registrable Securities subject to the Proceeding exceeds the amount of any
damages that such Stockholder has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
(c) The indemnity and contribution agreements contained in
this Section 8 are in addition to any liability that the Indemnifying Parties
may have to the Indemnified Parties.
Section 8.5 Rule 144. Following the IPO, the Company covenants that:
(a) it will file the reports required to be filed by the
Company under the Securities Act and the Exchange Act, so to enable the Holders
to sell Registrable Securities pursuant to Rule 144 under the Securities Act;
(b) it shall cooperate with any Holder in connection with any
sale, transfer or other disposition by such Holder of any Registrable Securities
pursuant to Rule 144 under the Securities Act;
(c) it will take such action as any Holder may reasonably
request, all to the extent required from time to time to enable such Holder to
sell its Common Stock without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144 promulgated under the
Securities Act, including providing any legal opinions; and
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<PAGE>
(d) upon the request of any Holder, it shall deliver to such
Holder a written certification of a duly authorized officer as to whether it has
complied with such requirements.
Section 9. Term of Registration Rights.
The rights of Holders with respect to the registration rights
granted pursuant to this Annex A shall remain in effect, subject to the terms
hereof, so long as there are Registrable Securities or securities which are
convertible or exchangable for Registrable Securities issued and outstanding.
Section 10. Miscellaneous.
Section 10.1 Entire Agreement; Amendments. This Annex A contains the
entire understanding of the parties with respect to the subject matter hereof
and supersede all prior agreements and understandings, oral or written, with
respect to such matters.
Section 10.2 Notices. Any and all notices or other communications or
deliveries required or permitted to be provided pursuant to this Annex A shall
be in writing and shall be deemed to have been received (a) upon hand delivery
(receipt acknowledged) or delivery by telex (with correct answer back received),
telecopy or facsimile (with transmission confirmation report) at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered on a business day after normal business hours where
such notice is to be received) or (b) on the second business day following the
date of mailing by express courier service, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first occur.
The address for the Company shall be: barnesandnoble.com inc., 76 Ninth Avenue,
11th Floor, New York, New York 10011; Attention: Chief Executive Officer; fax:
(212) 414-6652. The addresses for each Holder shall be maintained by the
Company. Copies of all notices shall be sent to Robinson Silverman Pearce
Aronsohn & Berman, LLP, 1290 Avenue of the Americas, New York, New York 10104,
Attn: Michael Rosen, Esq.; fax: (212) 541-1400, or such other address as may be
designated in writing hereafter, in the same manner, by such person.
Section 10.3 Remedies. In the event of a breach by the Company or by a
Holder, of any of their obligations under this Annex A, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Annex A, including recovery of damages,
will be entitled to specific performance of its rights under this Annex A. The
Company and each Holder agree that monetary damages would not provide adequate
compensation for any losses incurred by reason of a breach by it of any of the
provisions of this Annex A and hereby further agrees that, in the event of any
action for specific performance in respect of such breach, it shall waive the
defense that a remedy at law would be adequate.
Section 10.4 No Inconsistent Agreements. Neither the Company nor any of
its subsidiaries has, as of the date hereof, nor shall the Company or any of its
subsidiaries, on or after the date of this Annex A, enter into any agreement
with respect to its securities that is inconsistent with the rights granted to
the Holders in this Annex A or otherwise conflicts with the
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<PAGE>
provisions hereof. Neither the Company nor any of its subsidiaries has
previously entered into any agreement granting any registration rights with
respect to any of its securities to any Person. Without limiting the generality
of the foregoing, the Company shall not grant to any Person the right to request
the Company to register any securities of the Company under the Securities Act
unless the rights so granted are subject in all respects to the prior rights in
full of the Holders, and are not otherwise in conflict or inconsistent with the
provisions of this Annex A.
Section 10.5 Amendments and Waivers. No provision of this Annex A may
be waived or amended except in a written instrument signed, in the case of an
amendment, by both the Company and the Holders; or, in the case of a waiver, by
the party against whom enforcement of any such waiver is sought. No waiver of
any default with respect to any provision, condition or requirement of this
Annex A shall be deemed to be a continuing waiver in the future or a waiver of
any other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right accruing to it thereafter. Notwithstanding the
foregoing, no such amendment shall be effective to the extent that it applies to
less than all of the Holders. The Company shall not offer or pay any
consideration to a Holder for consenting to such an amendment or waiver unless
the same consideration is offered to each Holder and the same consideration is
paid to each Holder which consents to such amendment or waiver.
Section 10.6 Successors and Assigns. This Annex A shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties. The rights of each Holder hereunder, including the right to have
the Company register for resale Registrable Securities in accordance with the
terms of this Annex A, shall be automatically assignable by each Holder together
with the Registrable Security, or the securities into which such Registrable
Securities are convertible or exchangeable into, to which such rights relate if:
(i) the Holder agrees in writing with the transferee or assignee to assign such
rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such transferee or assignee, and (b) the securities with
respect to which such registration rights are being transferred or assigned,
(iii) following such transfer or assignment the further disposition of such
securities by the transferee or assignees is restricted under the Securities Act
and applicable state securities laws, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this Section, the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions of this Annex A, and (v) such transfer shall have been made in
accordance with the applicable requirements of any agreement applicable to the
transfer of such shares, including, without limitation, the Stockholders
Agreement.. The rights to assignment shall apply to the Holders (and to
subsequent) successors and assigns.
Section 10.7 No Third-Party Beneficiaries. This Annex A is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
Section 10.8 Cumulative Remedies. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.
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<PAGE>
Section 10.9 Severability. If any term, provision, covenant or
restriction of this Annex A is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
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<PAGE>
TECHNOLOGY SHARING AND LICENSE AGREEMENT
This Technology Sharing and License Agreement (hereinafter the
"Agreement") entered into effective as of the 31st day of October, 1998, by and
between BOL.GLOBAL, INC., a Delaware corporation, having its principal offices
at 1540 Broadway, New York, New York 10036 ("Licensee"), and barnesandnoble.com
llc, a Delaware limited liability company, having its principal offices at 76
Ninth Avenue, 11th Floor, New York, New York 10011 (hereinafter referred to as
"Licensor" and, together with Licensee, the "Parties").
This Agreement is delivered pursuant to the terms of the Formation
Agreement, of even date herewith, among BAG, USO, BN, Transferor, BN.Com Member
and BN.com Holding.
I. CERTAIN DEFINITIONS
"Applications Programming Interface" or "API" means the
specifications of a Licensed Product which define the external programming
requirements necessary to interface between that Licensed Product and other
Object Code and shall include the following set of items implementing the
Applications Programming Interface: (a) Documentation describing the
Applications Programming Interface; (b) Object Code and Documentation relating
thereto designed for use on, and implementing the Applications Programming
Interface on, the applicable target system; and (c) validation procedures and
Documentation for the target system.
"Code" shall mean Object Code and Source Code.
"Components" shall mean information, materials, products, features,
services, content, computer software, designs, artistic renderings, drawings,
sketches, characters, layouts and the digital implementations thereof.
"Copyrights" shall mean the copyrights owned by Licensor in the
Licensed Products.
"Derivative Works" shall mean all "derivative works" and
"compilations" within the meanings of such terms as defined in the U.S.
Copyright Act (17 U.S.C. Section 101 et seq.).
"Documentation" (including its correlative "Document") means, at any
given time, the most current version of all available manuals and other written
materials, including style
<PAGE>
guides, owned at any point in time on or after the date hereof by Licensor or
any of its Affiliates that relate to the Licensed Products, including materials
useful for understanding and operating the Object Code of the Licensed Products
and machine-readable text or graphic files subject to display or printout.
"Effective Date" shall mean the date of the execution of this
Agreement by both Parties.
"Excluded Product" shall mean any technology, product or service
which is not owned exclusively by Licensor unless Licensor has the right to
sublicense such technology, product or service to a third party without the
payment of any fees or expenses, provided that the term Excluded Product shall
not include the Licensed Products, any enhancement or derivative thereof or any
replacement thereto.
"Intellectual Property Rights" shall have the meaning given in
Section VI C.
"Internet" shall mean any collection of computer networks composed of
backbone networks including, without limitation, APRAnet, NSFNet, MILNET,
mid-level networks, regional networks and stub networks. These may include
commercial, university and other research networks and military networks and may
span many different physical networks around the world with various protocols
including the Internet Protocol, as the same may evolve in the future.
"Joint Enhancements" shall mean any enhancements, added
functionalities, additions, extensions or improvements to the Licensed Products
that are created or developed jointly by Licensor, its Affiliates or their
agents, on the one hand, and Licensee, on the other hand, including any
Components which are jointly contributed to the Licensed Products.
"LLC Agreement" means the Amended and Restated Limited Liability
Company Agreement, effective as of the date hereof, between BAG, USO, BN, and BN
Holding.
"Licensed Products" means all Subject Products delivered by Licensor
to Licensee prior to the expiration of the Term.
"Licensee Services" means Online Commerce Services conducted by
Licensee.
"Licensee Works" shall have the meaning given in Section II D.
"Licensor Derivative Works" shall mean Derivative Works, including
any translations and customizations created by Licensor or Licensee for use with
the Online Commerce Services.
<PAGE>
"Licensor Enhancements" shall mean any enhancements, added
functionalities, additions, extensions of or improvements to the Licensed
Products that are created or developed by Licensor, its Affiliates or their
agents, including any Components which are contributed to the Licensed Products
by such Persons.
"Licensor Proprietary Object Code" means all Object Code which
Licensor and/or its Affiliates own.
"Licensor Services" shall mean the Online Commerce Services conducted
by Licensor and its Affiliates.
"Object Code" shall mean (i) machine executable programming
instructions, substantially in binary form, which are intended to be directly
executable by an operating system after suitable processing and linking but
without the intervening steps of compilation or assembly, or (ii) other
executable code (e.g., programming instructions written in procedural or
interpretive languages).
"Online Commerce Services" shall mean services related to the online
retail sale of Products to customers through one or more Websites.
"Permitted Sublicensees" shall mean any entity which offers access to
Products as part of its Internet online service or other Websites to procure
sales pursuant to a license agreement with Licensee containing terms and
conditions consistent with this Agreement, provided that Licensee, at the time
it granted a sublicense, owned at least twenty-five percent (25%) of the equity
interest in the sublicensee and no Restricted Transferor as defined in the LLC
Agreement had at such time any interest in such sublicensee.
"Products" shall mean books, videos, music, magazines, software and
other items approved by Licensor in writing.
"Source Code" shall mean the human readable form of Object Code and
related system documentation, including comments, procedural language and
material useful for understanding, implementing and maintaining such
instructions (for example, logic manuals, flow charts and principles of
operation).
"Subject Products" means all Licensor Proprietary Object Code that
is:
a) necessary and/or appropriate for use in launching and
operating Licensee Services;
b) embodied in development tools that are used to develop,
create, and enhance Licensed Products for use in connection with Licensee
Services;
<PAGE>
c) an upgrade, enhancement, or modification of an item set forth
in the foregoing subsections (a) and (b), whether patentable or not, that is
necessary and/or appropriate for use in launching and operating Licensee
Services, or developing, creating, and enhancing Licensed Products for use in
connection with Licensee Services, as the case may be; or
d) an upgrade, enhancement, or modification to a Third Party
Product created by Licensor, that is incorporated by Licensor into the Online
Commerce Services by Licensor, and for which Licensor has received all necessary
rights to license to Licensee as set forth in this Agreement.
Subject Products exclude: (i) Excluded Product; (ii) all development
tools, regardless of the creator, except those set forth in subsection (b) above
and (iii) Third Party Products or upgrades, enhancements, or modifications to
same, except those set forth in subsection (d) above.
"Third Party Products" refers to computer software products and
related documentation licensed by Licensor from third parties and necessary
and/or appropriate for use in launching and operating Licensee Services,
including software products and related documentation readily available in the
market place pursuant to a "shrink-wrap" license or similar form license
agreement. For the avoidance of doubt, the term "Third Party Products" shall not
include Licensed Products.
"Website" shall man any interactive site or area, including any
interactive site or area located on the World Wide Web portion of the Internet
or on any commercial service or network (including America Online), which is
accessed via the use of any protocols, standards and platforms (including
Internet or Internet derivative protocols, standards and platforms) for remote
access by narrowband or broadband telecommunications, including POTS, ISDN,
cable, fiber optics and hybrid CD-ROM, regardless of whether access to such site
or area is secured through cable, telephone, satellite or otherwise and
regardless of whether the same is received or operated in conjunction with a
personal computer or television, together with any successor into which any of
the foregoing may evolve.
Any capitalized term which is not specifically defined herein shall
have the meaning given to that term in the LLC Agreement.
II. LICENSE GRANT AND REQUIREMENTS
A. Licensed Products. Subject to the terms and conditions of this
Agreement, Licensor hereby grants to Licensee a perpetual, non-revokable,
non-transferable (except as set forth
<PAGE>
in this Agreement) license for the Licensed Products.
B. Third Party Products. Subject to the terms and conditions of this
Agreement, and subject to the payment of applicable third-party royalties or
fees, if any, as specified in Section X of this Agreement, Licensor hereby
grants to Licensee the same license rights in respect of Third Party Products
(to the extent that Licensor is legally entitled to sublicense such rights to
Licensee as of the Effective Date) as Licensor has granted to Licensee in
respect of the Licensed Products under Section II A. Licensee acknowledges and
agrees that, with respect to some Third Party Products, the grant to Licensee of
the rights specified in this Section II B may require the consent of the owners
of such Third Party Products. Licensor shall use commercially reasonable efforts
to obtain such consents. Licensor shall notify Licensee of any failure to obtain
such a consent. Licensor shall also notify Licensee of the extent to which
Licensor is not legally entitled to grant to Licensee, with respect to a Third
Party Product, any or all of the rights specified in this Section II B. Licensee
may then, in its discretion, attempt to obtain from the applicable third party
the appropriate consent or a direct license of such rights, as the case may be.
Licensor shall use commercially reasonable efforts to assist Licensee in such
efforts. If it is necessary to make any payment to a third party in order to
secure the approval of a third party to consent to a license to the Licensee,
such amount shall be paid by the Company provided that the Company shall not be
required to make any payment which is unreasonable in amount given the nature
and scope of the license to be procured.
C. Documentation. Subject to the terms and conditions of this
Agreement, Licensor hereby grants to Licensee a perpetual, non-revokable,
non-transferable (except as expressly provided herein) right to:
(i) use, translate into foreign languages, display, reproduce
and distribute internally any Documentation relating to the Licensed Products;
and
(ii) upon receipt of prior written approval from Licensor, which
approval shall not be unreasonably withheld or delayed, furnish to providers of
services to Licensee the Documentation comprising the information provider's
guide and the remote managed gateways guide. Any such prior written approval
shall be required only once for each information provider for each of the
information provider's guide or the remote managed gateways guide.
D. APIs; Licensee Works. Subject to the terms and conditions of this
Agreement, Licensor hereby grants to Licensee a perpetual, non-revokable,
non-transferable (except as expressly provided herein) right to:
<PAGE>
(i) use and make copies of the Application Programming
Interfaces for the sole purpose of developing software products that access,
and/or interface with, such Application Programming Interfaces ("Licensee
Works"); and
(ii) sublicense the rights granted pursuant to Section II D(i)
to independent developers that are engaged by or for Licensee to prepare
Licensee Works for the benefit of Licensee.
E. License Limitations. With respect to proprietary software, the
following shall apply:
(i) The licenses granted pursuant to Sections II A through D
include, and Licensee shall have the right hereunder, to receive, use or make
copies of the Source Code for the Licensed Products and, to the extent permitted
under applicable agreements, the Third Party Products.
(ii) The licenses granted pursuant to Sections II A through D
include the right to (a) adapt, alter, modify, translate or create derivative
works of the Licensed Products, Third Party Products (to the extent permitted
under applicable agreements) and Documentation; (b) reverse engineer, decompile,
disassemble, or reconstruct the Source Code for the Licensed Products or Third
Party Products (to the extent permitted under applicable agreements); and (c)
reverse engineer, reconstruct, ascertain, adapt, alter or modify, the
proprietary protocols, algorithms, internal instructions and command sets used
in the operation of the Licensed Products and the Third Party Products (to the
extent permitted under applicable agreements).
F. Proprietary Notices. Licensee agrees not to obfuscate, remove or
alter any of the patent, copyright, trademark, trade secret, proprietary and
other legal notices contained, in or displayed by the use of, the Licensed
Products, Documentation or Third Party Products. Licensee further agrees to
produce, in each copy of the Licensed Products, Documentation or Third Party
Products that is made by Licensee, such patent, copyright, trademark, trade
secret, proprietary and other legal notices that are included in the Licensed
Products, Documentation or Third Party Products, as provided by Licensor to
Licensee.
G. Translations. For each translated Document, Licensee shall provide
Licensor with one complete copy of such translated Document in both print and
computer-readable format. Licensee shall only refer to the English language
Documentation in any communication with Licensor, including receipt of technical
support from Licensor.
H. Compliance with Encryption and Export/Import Laws. Licensor and
Licensee shall comply, and Licensee shall require all distributors to comply,
with all of then-current applicable
<PAGE>
laws, rules and regulations of the United States (and any other countries having
jurisdiction) relating to the use of encryption technology and the import and
export of technology, software and technical data, including, but not limited
to, any regulations of the United States Office of Export Administration, to the
extent permitted by applicable law in the applicable jurisdiction, and of any
other applicable governmental agencies, and shall not export or re-export any
technology, software, technical data or the direct product of such technology,
software and technical data to any proscribed country listed in such applicable
laws, regulations and rules unless properly authorized.
III. DELIVERY, INSTALLATION AND TESTING OF THE LICENSED PRODUCTS
A. Throughout the Term, Licensee shall be given reasonable access by
Licensor to the Subject Products. If Licensee is interested in any Subject
Product, the Licensee shall request such Subject Product in writing in
reasonable detail from Licensor. Following receipt of such notice, Licensor
shall deliver such Subject Product to Licensee. Once delivery of such Subject
Product is made, then such Subject Product shall become a Licensed Product.
B. After delivery of Licensed Products, the Licensee shall carry out
functionality tests of such Licensed Products for a ten (10) day period ("Test
Period") in order to verify that such Licensed Products have substantially the
same features and functions as the Licensed Products being offered by Licensor
through the Licensor Services. During the tests, the Licensee will notify
Licensor without delay in writing of any substantial inconsistency between what
was delivered and what is being used for the Licensor Services found by it and
Licensor will, as soon as reasonably possible, commence to correct such
inconsistency at the cost of Licensor and delivery to the Licensee the resulting
corrections and a new Test Period shall begin for verification according to the
same procedure. Licensor's obligation to correct any inconsistency in the
Licensed Products shall be limited to correcting the Licensed Products so that
they have substantially the same features and functions as the Licensed Products
being offered by Licensor through the Licensor Services. The Licensee shall
accept the Licensed Products immediately after it has been verified that they
have substantially the same features and functions as the Licensed Products
being offered by Licensor through the Licensor Services. If the Licensee does
not notify Licensor of its non-acceptance during the Test Period, the Licensed
Products will be deemed accepted. The Licensee shall begin its tests no later
than ten (10) days after delivery pursuant to Section III A.
IV. PATENTS AND OTHER INTELLECTUAL PROPERTY
<PAGE>
A. All patents, copyrights, and all other intellectual property
rights in the Licensed Products which may be obtainable will remain the property
of Licensor.
B. Licensor shall retain all ownership rights in and to the Licensed
Products, Licensor Enhancements and Licensor Derivative Works. Licensee assigns
any interest it may be deemed to possess in any Licensed Products, Licensor
Enhancements and Licensor Derivative Works to Licensor and will assist Licensor
in every reasonable way, at Licensor's expense, to obtain, secure, perfect,
maintain, defend and enforce, for Licensor's benefit, all intellectual property
rights with respect to such properties.
C. The respective ownership interests of Licensor and Licensee in any
Joint Enhancements shall be as agreed upon by the parties at the time such Joint
Enhancements are created or contributed; provided, however, that, if the parties
cannot reach agreement as to the ownership of any Joint Enhancement, then such
Joint Enhancement shall be deemed to be jointly owned by Licensor and Licensee
and any subsequent use of such Joint Enhancement by either Party shall require
the prior approval of the other Party, which approval shall not be unreasonably
withheld or delayed.
D. Title to all developments, enhancements and improvements which are
not Licensor Derivative Works or Licensor Enhancements, which either originate
with or are paid for by Licensee (other than payments to Licensor, its
Affiliates or their agents), shall be the property of Licensee. Licensee hereby
grants Licensor a non-exclusive, royalty free worldwide license, with the right
to sublicense, to use all such developments, enhancements and improvements in
the Licensor Services and related Licensed Products.
V. MARKING
A. Licensee shall have included in all sales, marketing literature
and invoices relating to Licensed Products a statement to the effect that "this
product or portions thereof is produced under license from __________________",
and either "Patent Pending" or, if applicable, "U.S. Patent Number X,XXX,XXX."
B. Licensee shall have marked the appropriate portions of all
Licensed Products with the applicable United States of America and foreign
Patent numbers in accordance with the applicable laws of the countries in which
the materials are intended to be used and offered.
C. Licensee shall neither register nor use any Licensor trademarks,
trade names, service marks, patents, copyrights and similar rights of any type
under the law of any Governmental Body, including all applications and
registrations relating to
<PAGE>
any of the foregoing (collectively, "Intellectual Property Rights"), except as
specifically provided herein. Any use of Licensor's Intellectual Property Rights
will inure to the benefit of Licensor. Licensee acknowledges that it does not
have any rights or any title whatsoever in or to Licensor's Intellectual
Property Rights, except as specifically provided herein.
D. The following notice (text) shall appear on the entry screen of
the Licensed Products and at the bottom of each respective query result in a
manner specified by Licensor:
"________(R) Copyright (C) 199_-199_ ______________ All
Rights Reserved.
E. The font of the text is to be no smaller than the main text font
size used in the Licensor Services.
F. Licensee shall at all times hereafter take such steps in the
marketing and sale of the Licensed Products to protect the Copyrights and all
Code, databases, Intellectual Property Rights, data and materials supplied by
Licensor, using measures at least as secure as those used by Licensee in
protecting its own proprietary software.
VI. TERMINATION
Unless earlier terminated as provided in the LLC Agreement, this
Agreement shall be effective during the period (the "Term") from the date of
this Agreement until the date on which the Parties hereto mutually agree to
terminate this Agreement; provided that, from and after the date on which either
party ceases having a Membership Interest of ten percent (10%) or more,
notwithstanding anything else contained in this Agreement, this Agreement shall
continue in full force and effect in accordance with the terms hereof, except
that: (i) the provisions of Article III of this Agreement shall no longer be
operative; and (ii) Licensor shall no longer have the obligation to deliver any
Subject Products, or anything else, to Licensee under this Agreement.
VII. WARRANTIES; DISCLAIMER; EXCLUSIVE REMEDY
A. Licensor represents, warrants and covenants to Licensee that:
(i) to Licensor's knowledge, Licensor is the sole and
exclusive owner of the Licensed Products, and Licensor
has the exclusive right to use the Licensed Products;
subject to the rights of Licensor's current
<PAGE>
licenses to offer the Licensor Services on a worldwide
basis;
(ii) no third party has any rights to use the Licensed
Products in connection with versions of catalogs or
databases which are localized and customized for the
Territory;
(iii) to its knowledge, the Licensed Products do not
infringe the rights of any Person. Licensor has not
received any notice from any Person of any alleged or
actual infringement which would materially and
adversely affect the Business;
(iv) the Licensed Products and their use, development or
exploitation are not, to its knowledge, subject to any
rights of any Person other than Licensee including, but
not limited to, any Encumbrance, except as to licenses
as specified in Section VII(A)(i) above;
(v) the Licensed Products are not subject to any agreement,
consent or any rights of any other Person, except as to
licenses as specified in Section VII(A)(i) above; and
(vi) Licensor is not required to pay any consideration to
any Person, other than its normal compensation and
benefits to employees (all of which have been paid on a
current basis) to use, develop or exploit the Licensed
Products.
B. LICENSOR WARRANTS THAT THE LICENSED PRODUCTS FURNISHED HEREUNDER
WILL FUNCTION SUBSTANTIALLY AS SET FORTH IN THE DOCUMENTATION FURNISHED TO THE
LICENSEE IN CONNECTION WITH THIS AGREEMENT. THIS IS A LIMITED WARRANTY AND,
EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS AGREEMENT, IT IS
THE ONLY WARRANTY MADE BY LICENSOR HEREUNDER. SUBJECT TO AND EXCEPT FOR THE
FOREGOING, LICENSOR MAKES NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED
AS TO ANY MATTER INCLUDING, BUT NOT LIMITED TO, WARRANTY OF FITNESS FOR A
PARTICULAR PURPOSE, OR MERCHANTABILITY, OR EXCLUSIVITY, OR RESULTS OBTAINED FROM
USE OF ANY INTELLECTUAL PROPERTY DEVELOPED UNDER THIS AGREEMENT. IF ANY
MODIFICATIONS ARE MADE TO THE LICENSED PRODUCTS BY LICENSEE THIS WARRANTY SHALL
IMMEDIATELY TERMINATE. LICENSEE MUST NOTIFY IN WRITING WITHIN NINETY (90) DAYS
OF DELIVERY OF THE LICENSED PRODUCTS OF ANY DEFECT IN SUCH PRODUCTS.
C. NEITHER PARTY HERETO SHALL BE LIABLE TO THE OTHER FOR
<PAGE>
INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES SUCH AS LOSS OF PROFITS OR INABILITY
TO USE SAID LICENSED PRODUCTS OR ANY APPLICATIONS THEREOF.
D. LICENSEE AGREES THAT IT WILL NOT MAKE ANY WARRANTY ON BEHALF OF
LICENSOR, EXPRESSED OR IMPLIED TO ANY PERSON CONCERNING THE APPLICATION OF OR
THE RESULTS TO BE OBTAINED WITH THE TECHNOLOGY UNDER THIS AGREEMENT
E. EXCEPT WITH RESPECT TO DIRECT THIRD-PARTY CLAIMS: (i) LICENSOR'S
SOLE OBLIGATION AND LICENSEE'S SOLE REMEDY UNDER THE LIMITED WARRANTY, CONTAINED
IN PARAGRAPH VIII IS THAT LICENSOR WILL USE BEST EFFORTS TO REPAIR OR REPLACE
THE LICENSED PRODUCTS IF THEY DO NOT CONFORM TO THIS WARRANTY; AND (ii) LICENSEE
AGREES THAT LICENSOR'S SOLE LIABILITY HEREUNDER ARISING OUT OF ANY THEORY OF
CONTRACT, NEGLIGENCE, STRICT LIABILITY IN TORT OR OTHERWISE, INCLUDING WITHOUT
LIMITATION, ANY BREACH OF LICENSOR'S REPRESENTATIONS AND WARRANTIES CONTAINED IN
THIS AGREEMENT, SHALL NOT EXCEED $1,000,000.
VIII. INFRINGEMENT
A. If any unmodified part of the Licensed Products provided to
Licensee by Licensor is alleged or held to infringe a proprietary right of a
third party, Licensor shall, at its own expense, and in its sole discretion,
either: (1) procure for Licensee and the end-users or customers of Licensee the
right to continue to use the allegedly infringing Licensed Products; or (2)
replace or modify the Licensed Products to make them non-infringing.
B. Licensor shall defend, at its own expense (or in Licensor's
discretion, settle), indemnify and hold the Licensee harmless from and against
any loss, injury, demand, cost, expense or claim (including reasonable
attorneys' fees) arising out of any allegation that the Licensed Products
infringe any patents, copyrights, trade secrets or other proprietary rights of
any third party ("Claim of Infringement"), provided that the Licensee timely
notifies Licensor in writing of any such claim, provided that failure to timely
notify Licensor shall not constitute a defense unless Licensor is harmed as a
result.
C. (i) In furtherance of the foregoing, Licensor agrees to defend any
claims or suits brought against the Licensee, and will indemnify and hold
harmless such Licensee against any award of damages and costs made against
Licensee by settlement or a final judgment of a court of competent jurisdiction
in any suit at law or in equity insofar as, and only to the extent that, the
same is based on a claim by any Person (other than USO, BN or any of their
respective Affiliates) that the Licensed Products owned and delivered by
Licensor or any direct or indirect subsidiary
<PAGE>
under this Agreement infringe any patent issued by any country within the
Territory (a "Patent Infringement Claim"). The Licensee shall give Licensor
prompt written notice of any Patent Infringement Claim against Licensee.
Licensor shall give Licensee prompt written notice of any Patent Infringement
Claims against Licensor.
(ii) Licensor shall have control over the defense of any Patent
Infringement Claim, including appeals, negotiations and the right to effect a
settlement or compromise thereof, provided that (i) Licensor may not partially
settle any Patent Infringement Claim without the written consent of Licensee,
unless such settlement releases Licensee fully from such claim, (ii) Licensor
shall promptly provide Licensee with copies of all pleadings or similar document
relating to any Patent Infringement Claim, (iii) Licensor shall consult with the
Licensee with respect to the defense and settlement of any Patent Infringement
Claim, and (iv) in any litigation to which Licensee is a party, Licensee shall
be entitled to be separately represented at its own expense by counsel of its
own selection.
(iii) Should any Licensed Products become or, in Licensor's opinion,
be likely to become, the subject of any Patent Infringement Claim, Licensor
shall, at its sole option and expense, and for purposes of eliminating or
mitigating any indemnification obligations hereunder (a) procure the right for
the Licensee to continue using the Licensed Products or (b) replace or modify
such Licensed Products so that they become non-infringing (provided that the
provisions of this paragraph D shall apply to any such modified Licensed
Products).
(iv) Licensor shall have no liability for any Patent Infringement
Claim or any other claim of intellectual property infringement or trade secret
misappropriation to the extent (A) such infringement is based upon adherence to
specifications, designs or instructions furnished by Licensee, (B) such claim is
based upon the combination, operation or use of any Licensed Products with
products or content owned by any Person other than Licensor, (C) such claim is
based upon the combination by the Licensee of any Licensed Products or
modification of any products or content supplied by any Person other than
Licensor, (D) such claim is based upon an authorized Licensee's use of a
Licensed Product in a manner which is inconsistent with the terms of this
Agreement and if such infringement would not have occurred except for such use
or (E) such claim is based upon use of a version of the Licensed Products other
than the latest version of the Licensed Products, if such claim could have been
avoided by use of the latest version and such latest version has been made
reasonably available to Licensee in accordance with the terms of this Agreement.
<PAGE>
IX. LICENSE FEES AND COSTS; ROYALTIES
A. All costs and expenses incurred by Licensee in carrying out its
obligations under this Agreement shall be paid by Licensee, and Licensee shall
not be entitled to any reimbursement from Licensor. Licensee shall possess or
obtain at its own expense all necessary licenses and permits and shall comply
with all laws, ordinances, rules or regulations affecting the importation into
and/or resale or transfer of Licensed Products. Except as specifically provided
herein, all costs and expenses incurred by Licensor in carrying out its
obligations under this Agreement shall be paid by Licensor.
B. Except as otherwise expressly provided in this Article IX, the
licenses granted in Sections II A through D shall be royalty-free as between the
Licensor and Licensee, provided, however, that to the extent that any royalty
shall be deemed by applicable tax law to exist by virtue of this Agreement,
Licensee will be responsible for any withholding or value added taxes associated
therewith.
C. Each Party shall be responsible for any third party royalties in
accordance with such Party's allocable percentage share of use.
D. All amounts payable to Licensor under this Agreement shall be due
and payable by Licensee within thirty days of the date of invoice. If any
payment is not received within thirty days of the date of invoice, interest will
be imposed on such amount at a rate of interest per annum equal to two percent
(2%) above the Prime Rate from the day such amount was due.
X. CONFIDENTIALITY
A. At all times following the date hereof, each Party shall keep
strictly confidential and not disclose, use, divulge, publish or otherwise
reveal, directly or through another Person, (A) any confidential, non-public
information of a subsidiary of the other Party which was disclosed pursuant to
this Agreement, or (B) any confidential, non-public information; (i) relating to
the business of the other Party and obtained as a result of the preparation and
negotiation of this Agreement, the performance by the Parties of their
obligations hereunder, or the joint conduct by the Parties of activities
pursuant to this Agreement; or (ii) relating to the business of the Company, in
each case including, but not limited to, documents and/or information regarding
customers, costs, profits, markets, sales, products, product development, key
personnel, pricing policies, operational methods, technology, know-how,
technical processes, formulae, or plans for future development of or concerning
the other Party or the Company (collectively, "Confidential Information"),
except as
<PAGE>
may be necessary for the directors, employees or agents of its and its
Affiliates to perform their respective obligations under this Agreement or in
connection with filings with Governmental Bodies under the LLC Agreement or as
otherwise required under applicable law, including, in the case of Licensor, the
rules and regulations promulgated under the Securities Exchange Act of 1934;
provided that neither Party shall make any disclosure required under applicable
law before providing the other Party with a reasonable opportunity to seek a
protective order. Each Party shall cause any Persons receiving information in
accordance with the terms hereof to retain it in confidence. Upon termination of
this Agreement, each Party shall either destroy or return to the other all
memoranda, notes, records, reports and other documents (including all copies
thereof) relating to the Confidential Information of the other Party and the
Company which such Information of the other Party and the Company which such
Party may then possess or have under its control (except information owned by
the Company which such Party continues to own after such termination).
Notwithstanding the foregoing, the following shall not constitute Confidential
Information: (w) information which was already otherwise known to the recipient
at the time of its receipt in connection with this Agreement, (x) information
which is or becomes freely and generally available to the public through no
wrongful act of the recipient, (y) information which is rightfully received by
the recipient from a third party legally entitled to disclose such information
without breach by the recipient of this Agreement or (z) in connection with
legal action initiated by a Party to enforce rights under this Agreement,
provided that adequate safeguards (such as protective orders) are maintained.
B. The Parties agree that each Party (and its Affiliates) shall
retain all customer rights throughout the world to the business conducted by
such Party, with the exception of common undertakings of Licensor and Licensee
which are expressly agreed to in writing prior to such undertaking.
XI. BREACH
No acquiescence in any breach of this Agreement by either Party shall
operate to excuse any subsequent or prior breach provided, however: (i) a breach
of this Agreement by Licensee due to the actions or inactions of Licensor or any
Member of the Board appointed by Licensor shall not constitute a breach; and
(ii) any notice of breach shall be given to all Members of the Board and in
connection with the cure of such breach, Licensee shall take all action required
by Members who are not designated by Licensor.
<PAGE>
XII. PRIOR AGREEMENT
This Agreement supersedes all previous agreements relating to the
subject matter hereof, whether oral or in a writing, and constitutes the entire
agreement of the Parties hereto and shall not be amended or altered in any
respect except in a writing executed by the Parties.
XIII. GOVERNING LAW/ARBITRATION
A. This Agreement, and the rights and liabilities of the Parties
hereunder, shall be governed by the laws of the State of New York, without
regard, however, to the conflicts of laws principles thereof.
B. Any action or proceeding seeking to enforce any provision of, or
based on any right arising out of, or otherwise relating to, this Agreement
shall be brought against the Parties in the courts of the State of New York or,
if it has or can acquire jurisdiction, in the United States District Court for
the Southern District of New York, and each of the Parties, for itself and its
shareholders, hereby submits to the exclusive jurisdiction of such courts (and
of the appropriate appellate courts) in any such action or proceeding and waives
any objection to venue laid therein.
XIV. Notices.
All notices and other communications hereunder shall be in writing
and shall be given and delivered by messenger, transmitted by telecopy or
telegram (in either case followed by reputable overnight courier sent the same
day), by reputable overnight courier or mailed by certified mail, postage
prepaid, return receipt requested, to the parties at the following addresses (or
such other address as shall be specified by such party by like notice), and
shall be deemed given on the date on which so delivered by messenger or
reputable overnight courier, on the next business day following the date on
which so transmitted by telecopy, telegram or on the next business day following
the date on which so transmitted by telecopy, telegram or on the third business
day following the date on which mailed by certified mail:
If to Licensee:
BOL.US Online, Inc.
1540 Broadway
New York, New York 10036
Attention: Robert J. Sorrentino
<PAGE>
Telefax: 212- 782-1010/1103
with a copy to:
Walter, Conston, Alexander & Green, P.C.
90 Park Avenue
New York, New York 10016
Attention: Aydin S. Caginalp, Esq.
Telefax: 212-210-9444
If to Licensor:
barnesandnoble.com llc.
76 Ninth Avenue, 11th Floor
New York, New York 10011
Attention: Chief Executive Officer
Telefax: 212-414-6652
with a copy to:
Robinson Silverman Pearce
Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, New York 10104
Attention: Michael N. Rosen, Esq.
Telefax:(212) 541-1400
XV. ASSIGNMENT
Licensee shall neither assign nor transfer this Agreement or any
interest herein, or enter into any merger agreement effectively transferring
this Agreement to another party, without the prior written consent of Licensor,
except that Licensee may (i) sublicense the Licensed Products to Permitted
Sublicensees, or (ii) assign this Agreement to any Person in the context of the
sale or other transfer of all or the majority of its respective stock or assets
of Licensee, including in connection with a restructuring or reorganization of
its respective business, provided that any assignment to a Restricted Transferee
shall require the prior written consent of Licensor, which Licensor may withhold
in its sole discretion. Licensor may assign this Agreement and/or subcontract
its performance hereunder upon notice to Licensee, to any of its Affiliates,
provided that Licensor shall remain obligated to discharge its obligations under
this Agreement.
XVI. CONSTRUCTION; CAPTIONS; EXHIBITS
A. The terms and provisions of this Agreement and the wording used
herein shall in all cases be interpreted and
<PAGE>
construed simply in accordance with their fair meanings and not strictly for or
against any Party hereto.
B. The captions at the headings of each Article and Section of this
Agreement are for convenience of reference only, and are not intended to be used
or applied to describe, interpret, construe, define or limit the scope, extent,
intent or operation of this Agreement or of any term or provision hereof.
C. All appendixes, exhibits and schedules are hereby incorporated by
reference and are part of this Agreement as if expressly set forth at length
herein.
XVII. SEVERABILITY
If any provision of this Agreement shall be held to be incomplete, illegal,
invalid or unenforceable, or if it becomes necessary to amend the Agreement in
order to comply with an administrative or governmental order, the remaining
provisions of the Agreement shall stay in force and the unenforceable, void or
incomplete provision shall be replaced by a valid provision or amendment
reflecting the economic and business objectives of the original Agreement as
best as possible, provided however, that if any replacement provision or
amendment would lead to a change in the fundamental economic and business terms
of this Agreement, each Party shall have the right to terminate this Agreement
in accordance with Section VII of this Agreement.
XVIII. CONFORMITY WITH LOCAL LAW/CONSISTENCY
The Parties covenant and agree that this Agreement shall be amended
to the extent necessary to provide each party with the full benefit of the
confidentiality provisions and the remedies provided under this Agreement. The
parties agree to amend this Agreement and to negotiate in good faith
supplemental agreements with each other or with governmental authorities as may
be required to cause this Agreement to comply with applicable laws, including,
without limitation, data protection laws, and as may be necessary to give full
effect to the intent of the parties as stated herein. Notwithstanding anything
to the contrary contained in this Section, this Agreement shall be modified to
the extent necessary to protect the rights of Licensor and Licensee in their
property under the laws of each particular country as determined by the parties
in their reasonably discretion.
(The balance of this page is left intentionally blank).
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed in duplicate counterparts, each of which shall be deemed to constitute
an original, effective as of the date first above written.
barnes and noble.com llc
By: /s/ Marie J. Toulantis
-----------------------------------
Name and Title: Marie J. Toulantis,
Executive Vice
President, Finance
BOL.GLOBAL, INC.
By:/s/ Robert Sorrentino
-----------------------------------
Name and Title: Robert Sorrentino,
President
<PAGE>
Attachment A
1. Licensed Products
<PAGE>
TECHNOLOGY SHARING AND LICENSE AGREEMENT
This Technology Sharing and License Agreement (hereinafter the
"Agreement") entered into effective as of the 31st day of October, 1998, by and
between BOL.GLOBAL, INC., a Delaware corporation, having its principal offices
at 1540 Broadway, New York, New York 10036 ("Licensor"), and barnesandnoble.com
llc, a Delaware limited liability company, having its principal offices at 76
Ninth Avenue, 11th Floor, New York, New York 10011 (hereinafter referred to as
"Licensee" and, together with Licensor, the "Parties").
This Agreement is delivered pursuant to the terms of the Formation
Agreement, of even date herewith, among BAG, USO, BN, Transferor, BN.Com Member
and BN.com Holding.
I. CERTAIN DEFINITIONS
"Applications Programming Interface"or "API" means the specifications
of a Licensed Product which define the external programming requirements
necessary to interface between that Licensed Product and other Object Code and
shall include the following set of items implementing the Applications
Programming Interface: (a) Documentation describing the Applications Programming
Interface; (b) Object Code and Documentation relating thereto designed for use
on, and implementing the Applications Programming Interface on, the applicable
target system; and (c) validation procedures and Documentation for the target
system.
"Code" shall mean Object Code and Source Code.
"Components" shall mean information, materials, products, features,
services, content, computer software, designs, artistic renderings, drawings,
sketches, characters, layouts and the digital implementations thereof.
"Copyrights" shall mean the copyrights owned by Licensor in the
Licensed Products.
"Derivative Works" shall mean all "derivative works" and
"compilations" within the meanings of such terms as defined in the U.S.
Copyright Act (17 U.S.C. Section 101 et seq.).
"Documentation" (including its correlative "Document") means, at any
given time, the most current version of all available manuals and other written
materials, including style guides, owned at any point in time on or after the
date hereof by Licensor or any of its Affiliates that relate to the Licensed
Products, including materials useful for understanding and operating the Object
Code of the Licensed Products and machine-readable text or graphic files subject
to display or printout.
"Effective Date" shall mean the date of the execution of this
Agreement by both Parties.
"Excluded Product" shall mean any technology, product or service
which
- 1 -
<PAGE>
is not owned exclusively by Licensor unless Licensor has the right to sublicense
such technology, product or service to a third party without the payment of any
fees or expenses, provided that the term Excluded Product shall not include the
Licensed Products, any enhancement or derivative thereof or any replacement
thereto.
"Intellectual Property Rights" shall have the meaning given in
Section VI C.
"Internet" shall mean any collection of computer networks composed of
backbone networks including, without limitation, APRAnet, NSFNet, MILNET,
mid-level networks, regional networks and stub networks. These may include
commercial, university and other research networks and military networks and may
span many different physical networks around the world with various protocols
including the Internet Protocol, as the same may evolve in the future.
"Joint Enhancements" shall mean any enhancements, added
functionalities, additions, extensions or improvements to the Licensed Products
that are created or developed jointly by Licensor, its Affiliates or their
agents, on the one hand, and Licensee, on the other hand, including any
Components which are jointly contributed to the Licensed Products.
"LLC Agreement" means the Amended and Restated Limited Liability
Company Agreement, effective as of the date hereof, between BAG, USO, BN, and BN
Holding.
"Licensed Products" means all Subject Products delivered by Licensor
to Licensee prior to the expiration of the Term.
"Licensee Services" means Online Commerce Services conducted by
Licensee.
"Licensee Works" shall have the meaning given in Section II D.
"Licensor Derivative Works" shall mean Derivative Works, including
any translations and customizations created by Licensor or Licensee for use with
the Online Commerce Services.
"Licensor Enhancements" shall mean any enhancements, added
functionalities, additions, extensions of or improvements to the Licensed
Products that are created or developed by Licensor, its Affiliates or their
agents, including any Components which are contributed to the Licensed Products
by such Persons.
"Licensor Proprietary Object Code" means all Object Code which
Licensor and/or its Affiliates own.
"Licensor Services" shall mean the Online Commerce Services conducted
by Licensor and its Affiliates.
"Object Code" shall mean (i) machine executable programming
instructions, substantially in binary form, which are intended to be directly
executable by an operating system after suitable processing and linking but
without the intervening steps of compilation or assembly, or (ii) other
executable code (e.g., programming instructions written in procedural or
interpretive languages).
- 2 -
<PAGE>
"Online Commerce Services" shall mean services related to the online
retail sale of Products to customers through one or more Websites.
"Permitted Sublicensees" shall mean any entity which offers access to
Products as part of its Internet online service or other Websites to procure
sales pursuant to a license agreement with Licensee containing terms and
conditions consistent with this Agreement, provided that Licensee, at the time
it granted a sublicense, owned at least twenty-five percent (25%) of the equity
interest in the sublicensee and no Restricted Transferor as defined in the LLC
Agreement had at such time any interest in such sublicensee.
"Products" shall mean books, videos, music, magazines, software and
other items approved by Licensor in writing.
"Source Code" shall mean the human readable form of Object Code and
related system documentation, including comments, procedural language and
material useful for understanding, implementing and maintaining such
instructions (for example, logic manuals, flow charts and principles of
operation).
"Subject Products" means all Licensor Proprietary Object Code that
is:
a) necessary and/or appropriate for use in launching and
operating Licensee Services;
b) embodied in development tools that are used to develop,
create, and enhance Licensed Products for use in connection with Licensee
Services;
c) an upgrade, enhancement, or modification of an item set forth
in the foregoing subsections (a) and (b), whether patentable or not, that is
necessary and/or appropriate for use in launching and operating Licensee
Services, or developing, creating, and enhancing Licensed Products for use in
connection with Licensee Services, as the case may be; or
d) an upgrade, enhancement, or modification to a Third Party
Product created by Licensor, that is incorporated by Licensor into the Online
Commerce Services by Licensor, and for which Licensor has received all necessary
rights to license to Licensee as set forth in this Agreement.
Subject Products exclude: (i) Excluded Product; (ii) all development
tools, regardless of the creator, except those set forth in subsection (b) above
and (iii) Third Party Products or upgrades, enhancements, or modifications to
same, except those set forth in subsection (d) above.
"Third Party Products" refers to computer software products and
related documentation licensed by Licensor from third parties and necessary
and/or appropriate for use in launching and operating Licensee Services,
including software products and related documentation readily available in the
market place pursuant to a "shrink-wrap" license or similar form license
agreement. For the avoidance of doubt, the term "Third Party Products" shall not
include Licensed Products.
"Website" shall man any interactive site or area, including any
interactive site or area located on the World Wide Web portion of the Internet
or on any commercial service or network (including America Online), which is
accessed via the use of any protocols, standards and platforms
- 3 -
<PAGE>
(including Internet or Internet derivative protocols, standards and platforms)
for remote access by narrowband or broadband telecommunications, including POTS,
ISDN, cable, fiber optics and hybrid CD-ROM, regardless of whether access to
such site or area is secured through cable, telephone, satellite or otherwise
and regardless of whether the same is received or operated in conjunction with a
personal computer or television, together with any successor into which any of
the foregoing may evolve.
Any capitalized term which is not specifically defined herein shall
have the meaning given to that term in the LLC Agreement.
II. LICENSE GRANT AND REQUIREMENTS
A. Licensed Products. Subject to the terms and conditions of this
Agreement, Licensor hereby grants to Licensee a perpetual, non-revokable,
non-transferable (except as set forth in this Agreement) license for the
Licensed Products.
B. Third Party Products. Subject to the terms and conditions of this
Agreement, and subject to the payment of applicable third-party royalties or
fees, if any, as specified in Section X of this Agreement, Licensor hereby
grants to Licensee the same license rights in respect of Third Party Products
(to the extent that Licensor is legally entitled to sublicense such rights to
Licensee as of the Effective Date) as Licensor has granted to Licensee in
respect of the Licensed Products under Section II A. Licensee acknowledges and
agrees that, with respect to some Third Party Products, the grant to Licensee of
the rights specified in this Section II B may require the consent of the owners
of such Third Party Products. Licensor shall use commercially reasonable efforts
to obtain such consents. Licensor shall notify Licensee of any failure to obtain
such a consent. Licensor shall also notify Licensee of the extent to which
Licensor is not legally entitled to grant to Licensee, with respect to a Third
Party Product, any or all of the rights specified in this Section II B. Licensee
may then, in its discretion, attempt to obtain from the applicable third party
the appropriate consent or a direct license of such rights, as the case may be.
Licensor shall use commercially reasonable efforts to assist Licensee in such
efforts. If it is necessary to make any payment to a third party in order to
secure the approval of a third party to consent to a license to the Licensee,
such amount shall be paid by the Company provided that the Company shall not be
required to make any payment which is unreasonable in amount given the nature
and scope of the license to be procured.
C. Documentation. Subject to the terms and conditions of this
Agreement, Licensor hereby grants to Licensee a perpetual, non-revokable,
non-transferable (except as expressly provided herein) right to:
(i) use, translate into foreign languages, display, reproduce
and distribute internally any Documentation relating to the Licensed Products;
and
(ii) upon receipt of prior written approval from Licensor, which
approval shall not be unreasonably withheld or delayed, furnish to providers of
services to Licensee the Documentation comprising the information provider's
guide and the remote managed gateways guide. Any such prior written approval
shall be required only once for each information provider for each of the
information provider's guide or the remote managed gateways guide.
- 4 -
<PAGE>
D. APIs; Licensee Works. Subject to the terms and conditions of this
Agreement, Licensor hereby grants to Licensee a perpetual, non-revokable,
non-transferable (except as expressly provided herein) right to:
(i) use and make copies of the Application Programming
Interfaces for the sole purpose of developing software products that access,
and/or interface with, such Application Programming Interfaces ("Licensee
Works"); and
(ii) sublicense the rights granted pursuant to Section II D(i)
to independent developers that are engaged by or for Licensee to prepare
Licensee Works for the benefit of Licensee.
E. License Limitations. With respect to proprietary software, the
following shall apply:
(i) The licenses granted pursuant to Sections II A through D
include, and Licensee shall have the right hereunder, to receive, use or make
copies of the Source Code for the Licensed Products and, to the extent permitted
under applicable agreements, the Third Party Products.
(ii) The licenses granted pursuant to Sections II A through D
include the right to (a) adapt, alter, modify, translate or create derivative
works of the Licensed Products, Third Party Products (to the extent permitted
under applicable agreements) and Documentation; (b) reverse engineer, decompile,
disassemble, or reconstruct the Source Code for the Licensed Products or Third
Party Products (to the extent permitted under applicable agreements); and (c)
reverse engineer, reconstruct, ascertain, adapt, alter or modify, the
proprietary protocols, algorithms, internal instructions and command sets used
in the operation of the Licensed Products and the Third Party Products (to the
extent permitted under applicable agreements).
F. Proprietary Notices. Licensee agrees not to obfuscate, remove or
alter any of the patent, copyright, trademark, trade secret, proprietary and
other legal notices contained, in or displayed by the use of, the Licensed
Products, Documentation or Third Party Products. Licensee further agrees to
produce, in each copy of the Licensed Products, Documentation or Third Party
Products that is made by Licensee, such patent, copyright, trademark, trade
secret, proprietary and other legal notices that are included in the Licensed
Products, Documentation or Third Party Products, as provided by Licensor to
Licensee.
G. Translations. For each translated Document, Licensee shall provide
Licensor with one complete copy of such translated Document in both print and
computer-readable format. Licensee shall only refer to the English language
Documentation in any communication with Licensor, including receipt of technical
support from Licensor.
H. Compliance with Encryption and Export/Import Laws. Licensor and
Licensee shall comply, and Licensee shall require all distributors to comply,
with all of then-current applicable laws, rules and regulations of the United
States (and any other countries having jurisdiction) relating to the use of
encryption technology and the import and export of technology, software and
technical data, including, but not limited to, any regulations of the United
States Office of Export Administration, to the extent permitted by applicable
law in the applicable jurisdiction, and of any other applicable governmental
agencies, and shall not export or re-export any technology, software,
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<PAGE>
technical data or the direct product of such technology, software and technical
data to any proscribed country listed in such applicable laws, regulations and
rules unless properly authorized.
III. DELIVERY, INSTALLATION AND TESTING OF THE LICENSED PRODUCTS
A. Throughout the Term, Licensee shall be given reasonable access by
Licensor to the Subject Products. If Licensee is interested in any Subject
Product, the Licensee shall request such Subject Product in writing in
reasonable detail from Licensor. Following receipt of such notice, Licensor
shall deliver such Subject Product to Licensee. Once delivery of such Subject
Product is made, then such Subject Product shall become a Licensed Product.
B. After delivery of Licensed Products, the Licensee shall carry out
functionality tests of such Licensed Products for a ten (10) day period ("Test
Period") in order to verify that such Licensed Products have substantially the
same features and functions as the Licensed Products being offered by Licensor
through the Licensor Services. During the tests, the Licensee will notify
Licensor without delay in writing of any substantial inconsistency between what
was delivered and what is being used for the Licensor Services found by it and
Licensor will, as soon as reasonably possible, commence to correct such
inconsistency at the cost of Licensor and delivery to the Licensee the resulting
corrections and a new Test Period shall begin for verification according to the
same procedure. Licensor's obligation to correct any inconsistency in the
Licensed Products shall be limited to correcting the Licensed Products so that
they have substantially the same features and functions as the Licensed Products
being offered by Licensor through the Licensor Services. The Licensee shall
accept the Licensed Products immediately after it has been verified that they
have substantially the same features and functions as the Licensed Products
being offered by Licensor through the Licensor Services. If the Licensee does
not notify Licensor of its non-acceptance during the Test Period, the Licensed
Products will be deemed accepted. The Licensee shall begin its tests no later
than ten (10) days after delivery pursuant to Section III A.
IV. PATENTS AND OTHER INTELLECTUAL PROPERTY
A. All patents, copyrights, and all other intellectual property
rights in the Licensed Products which may be obtainable will remain the property
of Licensor.
B. Licensor shall retain all ownership rights in and to the Licensed
Products, Licensor Enhancements and Licensor Derivative Works. Licensee assigns
any interest it may be deemed to possess in any Licensed Products, Licensor
Enhancements and Licensor Derivative Works to Licensor and will assist Licensor
in every reasonable way, at Licensor's expense, to obtain, secure, perfect,
maintain, defend and enforce, for Licensor's benefit, all intellectual property
rights with respect to such properties.
C. The respective ownership interests of Licensor and Licensee in any
Joint Enhancements shall be as agreed upon by the parties at the time such Joint
Enhancements are created or contributed; provided, however, that, if the parties
cannot reach agreement as to the ownership of any Joint Enhancement, then such
Joint Enhancement shall be deemed to be jointly owned by Licensor and Licensee
and any subsequent use of such Joint Enhancement by either Party shall require
the prior approval of the other Party, which approval shall not be unreasonably
withheld or delayed.
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<PAGE>
D. Title to all developments, enhancements and improvements which are
not Licensor Derivative Works or Licensor Enhancements, which either originate
with or are paid for by Licensee (other than payments to Licensor, its
Affiliates or their agents), shall be the property of Licensee. Licensee hereby
grants Licensor a non-exclusive, royalty free worldwide license, with the right
to sublicense, to use all such developments, enhancements and improvements in
the Licensor Services and related Licensed Products.
V. MARKING
A. Licensee shall have included in all sales, marketing literature
and invoices relating to Licensed Products a statement to the effect that "this
product or portions thereof is produced under license from _______________", and
either "Patent Pending" or, if applicable, "U.S. Patent Number X,XXX,XXX."
B. Licensee shall have marked the appropriate portions of all
Licensed Products with the applicable United States of America and foreign
Patent numbers in accordance with the applicable laws of the countries in which
the materials are intended to be used and offered.
C. Licensee shall neither register nor use any Licensor trademarks,
trade names, service marks, patents, copyrights and similar rights of any type
under the law of any Governmental Body, including all applications and
registrations relating to any of the foregoing (collectively, "Intellectual
Property Rights"), except as specifically provided herein. Any use of Licensor's
Intellectual Property Rights will inure to the benefit of Licensor. Licensee
acknowledges that it does not have any rights or any title whatsoever in or to
Licensor's Intellectual Property Rights, except as specifically provided herein.
D. The following notice (text) shall appear on the entry screen of
the Licensed Products and at the bottom of each respective query result in a
manner specified by Licensor:
"________" Copyright " 199_-199_ ______________ All Rights Reserved.
E. The font of the text is to be no smaller than the main text font
size used in the Licensor Services.
F. Licensee shall at all times hereafter take such steps in the
marketing and sale of the Licensed Products to protect the Copyrights and all
Code, databases, Intellectual Property Rights, data and materials supplied by
Licensor, using measures at least as secure as those used by Licensee in
protecting its own proprietary software.
VI. TERMINATION
Unless earlier terminated as provided in the LLC Agreement, this
Agreement shall be effective during the period (the "Term") from the date of
this Agreement until the date on which the Parties hereto mutually agree to
terminate this Agreement; provided that, from and after the date on which either
party ceases having a Membership Interest of ten percent (10%) or more,
notwithstanding anything else contained in this Agreement, this Agreement shall
continue in full force and effect in accordance with the terms hereof, except
that: (i) the provisions of Article III of this Agreement shall no longer be
operative; and (ii) Licensor shall no longer
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<PAGE>
have the obligation to deliver any Subject Products, or anything else, to
Licensee under this Agreement.
VII. WARRANTIES; DISCLAIMER; EXCLUSIVE REMEDY
A. Licensor represents, warrants and covenants to Licensee that:
(i) to Licensor's knowledge, Licensor is the sole and
exclusive owner of the Licensed Products, and Licensor
has the exclusive right to use the Licensed Products;
subject to the rights of Licensor's current licenses to
offer the Licensor Services on a worldwide basis;
(ii) no third party has any rights to use the Licensed
Products in connection with versions of catalogs or
databases which are localized and customized for the
Territory;
(iii) to its knowledge, the Licensed Products do not
infringe the rights of any Person. Licensor has not
received any notice from any Person of any alleged or
actual infringement which would materially and
adversely affect the Business;
(iv) the Licensed Products and their use, development or
exploitation are not, to its knowledge, subject to any
rights of any Person other than Licensee including, but
not limited to, any Encumbrance, except as to licenses
as specified in Section VII(A)(i) above;
(v) the Licensed Products are not subject to any agreement,
consent or any rights of any other Person, except as to
licenses as specified in Section VII(A)(i) above; and
(vi) Licensor is not required to pay any consideration to
any Person, other than its normal compensation and
benefits to employees (all of which have been paid on a
current basis) to use, develop or exploit the Licensed
Products.
B. LICENSOR WARRANTS THAT THE LICENSED PRODUCTS FURNISHED HEREUNDER
WILL FUNCTION SUBSTANTIALLY AS SET FORTH IN THE DOCUMENTATION
FURNISHED TO THE LICENSEE IN CONNECTION WITH THIS AGREEMENT.
THIS IS A LIMITED WARRANTY AND, EXCEPT FOR THE REPRESENTATIONS
AND WARRANTIES CONTAINED IN THIS AGREEMENT, IT IS THE ONLY
WARRANTY MADE BY LICENSOR HEREUNDER. SUBJECT TO AND EXCEPT FOR
THE FOREGOING, LICENSOR MAKES NO WARRANTIES OF ANY KIND, EITHER
EXPRESS OR IMPLIED AS TO ANY MATTER INCLUDING, BUT NOT LIMITED
TO, WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, OR
MERCHANTABILITY, OR EXCLUSIVITY, OR RESULTS OBTAINED FROM USE OF
ANY INTELLECTUAL PROPERTY DEVELOPED UNDER THIS AGREEMENT. IF ANY
MODIFICATIONS ARE MADE TO THE LICENSED PRODUCTS BY LICENSEE THIS
WARRANTY SHALL IMMEDIATELY TERMINATE. LICENSEE MUST NOTIFY IN
WRITING WITHIN NINETY (90) DAYS OF DELIVERY OF THE LICENSED
PRODUCTS OF ANY DEFECT IN SUCH PRODUCTS.
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<PAGE>
C. NEITHER PARTY HERETO SHALL BE LIABLE TO THE OTHER FOR INDIRECT,
SPECIAL OR CONSEQUENTIAL DAMAGES SUCH AS LOSS OF PROFITS OR
INABILITY TO USE SAID LICENSED PRODUCTS OR ANY APPLICATIONS
THEREOF.
D. LICENSEE AGREES THAT IT WILL NOT MAKE ANY WARRANTY ON BEHALF OF
LICENSOR, EXPRESSED OR IMPLIED TO ANY PERSON CONCERNING THE
APPLICATION OF OR THE RESULTS TO BE OBTAINED WITH THE TECHNOLOGY
UNDER THIS AGREEMENT
E. EXCEPT WITH RESPECT TO DIRECT THIRD-PARTY CLAIMS: (i) LICENSOR'S
SOLE OBLIGATION AND LICENSEE'S SOLE REMEDY UNDER THE LIMITED
WARRANTY, CONTAINED IN PARAGRAPH VIII IS THAT LICENSOR WILL USE
BEST EFFORTS TO REPAIR OR REPLACE THE LICENSED PRODUCTS IF THEY
DO NOT CONFORM TO THIS WARRANTY; AND (ii) LICENSEE AGREES THAT
LICENSOR'S SOLE LIABILITY HEREUNDER ARISING OUT OF ANY THEORY OF
CONTRACT, NEGLIGENCE, STRICT LIABILITY IN TORT OR OTHERWISE,
INCLUDING WITHOUT LIMITATION, ANY BREACH OF LICENSOR'S
REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS AGREEMENT,
SHALL NOT EXCEED $1,000,000.
VIII. INFRINGEMENT
A. If any unmodified part of the Licensed Products provided to
Licensee by Licensor is alleged or held to infringe a proprietary right of a
third party, Licensor shall, at its own expense, and in its sole discretion,
either: (1) procure for Licensee and the end-users or customers of Licensee the
right to continue to use the allegedly infringing Licensed Products; or (2)
replace or modify the Licensed Products to make them non-infringing.
B. Licensor shall defend, at its own expense (or in Licensor's
discretion, settle), indemnify and hold the Licensee harmless from and against
any loss, injury, demand, cost, expense or claim (including reasonable
attorneys' fees) arising out of any allegation that the Licensed Products
infringe any patents, copyrights, trade secrets or other proprietary rights of
any third party ("Claim of Infringement"), provided that the Licensee timely
notifies Licensor in writing of any such claim, provided that failure to timely
notify Licensor shall not constitute a defense unless Licensor is harmed as a
result.
C. (i) In furtherance of the foregoing, Licensor agrees to defend any
claims or suits brought against the Licensee, and will indemnify and hold
harmless such Licensee against any award of damages and costs made against
Licensee by settlement or a final judgment of a court of competent jurisdiction
in any suit at law or in equity insofar as, and only to the extent that, the
same is based on a claim by any Person (other than USO, BN or any of their
respective Affiliates) that the Licensed Products owned and delivered by
Licensor or any direct or indirect subsidiary under this Agreement infringe any
patent issued by any country within the Territory (a "Patent Infringement
Claim"). The Licensee shall give Licensor prompt written notice of any Patent
Infringement Claim against Licensee. Licensor shall give Licensee prompt written
notice of any Patent Infringement Claims against Licensor.
(ii) Licensor shall have control over the defense of any Patent
Infringement Claim, including appeals, negotiations and the right to effect a
settlement or compromise thereof, provided that (i) Licensor may not
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<PAGE>
partially settle any Patent Infringement Claim without the written consent of
Licensee, unless such settlement releases Licensee fully from such claim, (ii)
Licensor shall promptly provide Licensee with copies of all pleadings or similar
document relating to any Patent Infringement Claim, (iii) Licensor shall consult
with the Licensee with respect to the defense and settlement of any Patent
Infringement Claim, and (iv) in any litigation to which Licensee is a party,
Licensee shall be entitled to be separately represented at its own expense by
counsel of its own selection.
(iii) Should any Licensed Products become or, in Licensor's
opinion, be likely to become, the subject of any Patent Infringement Claim,
Licensor shall, at its sole option and expense, and for purposes of eliminating
or mitigating any indemnification obligations hereunder (a) procure the right
for the Licensee to continue using the Licensed Products or (b) replace or
modify such Licensed Products so that they become non-infringing (provided that
the provisions of this paragraph D shall apply to any such modified Licensed
Products).
(iv) Licensor shall have no liability for any Patent
Infringement Claim or any other claim of intellectual property infringement or
trade secret misappropriation to the extent (A) such infringement is based upon
adherence to specifications, designs or instructions furnished by Licensee, (B)
such claim is based upon the combination, operation or use of any Licensed
Products with products or content owned by any Person other than Licensor, (C)
such claim is based upon the combination by the Licensee of any Licensed
Products or modification of any products or content supplied by any Person other
than Licensor, (D) such claim is based upon an authorized Licensee's use of a
Licensed Product in a manner which is inconsistent with the terms of this
Agreement and if such infringement would not have occurred except for such use
or (E) such claim is based upon use of a version of the Licensed Products other
than the latest version of the Licensed Products, if such claim could have been
avoided by use of the latest version and such latest version has been made
reasonably available to Licensee in accordance with the terms of this Agreement.
IX. LICENSE FEES AND COSTS; ROYALTIES
A. All costs and expenses incurred by Licensee in carrying out its
obligations under this Agreement shall be paid by Licensee, and Licensee shall
not be entitled to any reimbursement from Licensor. Licensee shall possess or
obtain at its own expense all necessary licenses and permits and shall comply
with all laws, ordinances, rules or regulations affecting the importation into
and/or resale or transfer of Licensed Products. Except as specifically provided
herein, all costs and expenses incurred by Licensor in carrying out its
obligations under this Agreement shall be paid by Licensor.
B. Except as otherwise expressly provided in this Article IX, the
licenses granted in Sections II A through D shall be royalty-free as between the
Licensor and Licensee, provided, however, that to the extent that any royalty
shall be deemed by applicable tax law to exist by virtue of this Agreement,
Licensee will be responsible for any withholding or value added taxes associated
therewith.
C. Each Party shall be responsible for any third party royalties in
accordance with such Party's allocable percentage share of use.
D. All amounts payable to Licensor under this Agreement shall be due
and payable by Licensee within thirty days of the date of invoice. If any
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<PAGE>
payment is not received within thirty days of the date of invoice, interest will
be imposed on such amount at a rate of interest per annum equal to two percent
(2%) above the Prime Rate from the day such amount was due.
X. CONFIDENTIALITY
A. At all times following the date hereof, each Party shall keep
strictly confidential and not disclose, use, divulge, publish or otherwise
reveal, directly or through another Person, (A) any confidential, non-public
information of a subsidiary of the other Party which was disclosed pursuant to
this Agreement, or (B) any confidential, non-public information; (i) relating to
the business of the other Party and obtained as a result of the preparation and
negotiation of this Agreement, the performance by the Parties of their
obligations hereunder, or the joint conduct by the Parties of activities
pursuant to this Agreement; or (ii) relating to the business of the Company, in
each case including, but not limited to, documents and/or information regarding
customers, costs, profits, markets, sales, products, product development, key
personnel, pricing policies, operational methods, technology, know-how,
technical processes, formulae, or plans for future development of or concerning
the other Party or the Company (collectively, "Confidential Information"),
except as may be necessary for the directors, employees or agents of its and its
Affiliates to perform their respective obligations under this Agreement or in
connection with filings with Governmental Bodies under the LLC Agreement or as
otherwise required under applicable law, including, in the case of Licensor, the
rules and regulations promulgated under the Securities Exchange Act of 1934;
provided that neither Party shall make any disclosure required under applicable
law before providing the other Party with a reasonable opportunity to seek a
protective order. Each Party shall cause any Persons receiving information in
accordance with the terms hereof to retain it in confidence. Upon termination of
this Agreement, each Party shall either destroy or return to the other all
memoranda, notes, records, reports and other documents (including all copies
thereof) relating to the Confidential Information of the other Party and the
Company which such Information of the other Party and the Company which such
Party may then possess or have under its control (except information owned by
the Company which such Party continues to own after such termination).
Notwithstanding the foregoing, the following shall not constitute Confidential
Information: (w) information which was already otherwise known to the recipient
at the time of its receipt in connection with this Agreement, (x) information
which is or becomes freely and generally available to the public through no
wrongful act of the recipient, (y) information which is rightfully received by
the recipient from a third party legally entitled to disclose such information
without breach by the recipient of this Agreement or (z) in connection with
legal action initiated by a Party to enforce rights under this Agreement,
provided that adequate safeguards (such as protective orders) are maintained.
B. The Parties agree that each Party (and its Affiliates) shall
retain all customer rights throughout the world to the business conducted by
such Party, with the exception of common undertakings of Licensor and Licensee
which are expressly agreed to in writing prior to such undertaking.
XI. BREACH
No acquiescence in any breach of this Agreement by either Party shall
operate to excuse any subsequent or prior breach provided, however: (i) a breach
of this Agreement by Licensee due to the actions or inactions of Licensor or any
Member of the Board appointed by Licensor shall not
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<PAGE>
constitute a breach; and (ii) any notice of breach shall be given to all Members
of the Board and in connection with the cure of such breach, Licensee shall take
all action required by Members who are not designated by Licensor.
XII. PRIOR AGREEMENT
This Agreement supersedes all previous agreements relating to the
subject matter hereof, whether oral or in a writing, and constitutes the entire
agreement of the Parties hereto and shall not be amended or altered in any
respect except in a writing executed by the Parties.
XIII. GOVERNING LAW/ARBITRATION
A. This Agreement, and the rights and liabilities of the Parties
hereunder, shall be governed by the laws of the State of New York, without
regard, however, to the conflicts of laws principles thereof.
B. Any action or proceeding seeking to enforce any provision of, or
based on any right arising out of, or otherwise relating to, this Agreement
shall be brought against the Parties in the courts of the State of New York or,
if it has or can acquire jurisdiction, in the United States District Court for
the Southern District of New York, and each of the Parties, for itself and its
shareholders, hereby submits to the exclusive jurisdiction of such courts (and
of the appropriate appellate courts) in any such action or proceeding and waives
any objection to venue laid therein.
XIV. Notices.
All notices and other communications hereunder shall be in writing
and shall be given and delivered by messenger, transmitted by telecopy or
telegram (in either case followed by reputable overnight courier sent the same
day), by reputable overnight courier or mailed by certified mail, postage
prepaid, return receipt requested, to the parties at the following addresses (or
such other address as shall be specified by such party by like notice), and
shall be deemed given on the date on which so delivered by messenger or
reputable overnight courier, on the next business day following the date on
which so transmitted by telecopy, telegram or on the next business day following
the date on which so transmitted by telecopy, telegram or on the third business
day following the date on which mailed by certified mail:
If to Licensor:
BOL.US Online, Inc.
1540 Broadway
New York, New York 10036
Attention: Robert J. Sorrentino
Telefax: 212- 782-1010/1103
with a copy to:
Walter, Conston, Alexander & Green, P.C.
90 Park Avenue
New York, New York 10016
Attention: Aydin S. Caginalp, Esq.
Telefax: 212-210-9444
If to Licensee:
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<PAGE>
barnesandnoble.com llc.
76 Ninth Avenue, 11th Floor
New York, New York 10011
Attention: Chief Executive Officer
Telefax: 212-414-6652
with a copy to:
Robinson Silverman Pearce
Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, New York 10104
Attention: Michael N. Rosen, Esq.
Telefax:(212) 541-1400
XV. ASSIGNMENT
Licensee shall neither assign nor transfer this Agreement or any
interest herein, or enter into any merger agreement effectively transferring
this Agreement to another party, without the prior written consent of Licensor,
except that Licensee may (i) sublicense the Licensed Products to Permitted
Sublicensees, or (ii) assign this Agreement to any Person in the context of the
sale or other transfer of all or the majority of its respective stock or assets
of Licensee, including in connection with a restructuring or reorganization of
its respective business, provided that any assignment to a Restricted Transferee
shall require the prior written consent of Licensor, which Licensor may withhold
in its sole discretion. Licensor may assign this Agreement and/or subcontract
its performance hereunder upon notice to Licensee, to any of its Affiliates,
provided that Licensor shall remain obligated to discharge its obligations under
this Agreement.
XVI. CONSTRUCTION; CAPTIONS; EXHIBITS
A. The terms and provisions of this Agreement and the wording used
herein shall in all cases be interpreted and construed simply in accordance with
their fair meanings and not strictly for or against any Party hereto.
B. The captions at the headings of each Article and Section of this
Agreement are for convenience of reference only, and are not intended to be used
or applied to describe, interpret, construe, define or limit the scope, extent,
intent or operation of this Agreement or of any term or provision hereof.
C. All appendixes, exhibits and schedules are hereby incorporated by
reference and are part of this Agreement as if expressly set forth at length
herein.
XVII. SEVERABILITY
If any provision of this Agreement shall be held to be incomplete,
illegal, invalid or unenforceable, or if it becomes necessary to amend the
Agreement in order to comply with an administrative or governmental order, the
remaining provisions of the Agreement shall stay in force and the unenforceable,
void or incomplete provision shall be replaced by a valid provision or amendment
reflecting the economic and business objectives of the original Agreement as
best as possible, provided however, that if any replacement provision or
amendment would lead to a change in the fundamental economic and business terms
of this Agreement, each Party shall have the
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<PAGE>
right to terminate this Agreement in accordance with Section VII of this
Agreement.
XVIII. CONFORMITY WITH LOCAL LAW/CONSISTENCY
The Parties covenant and agree that this Agreement shall be amended
to the extent necessary to provide each party with the full benefit of the
confidentiality provisions and the remedies provided under this Agreement. The
parties agree to amend this Agreement and to negotiate in good faith
supplemental agreements with each other or with governmental authorities as may
be required to cause this Agreement to comply with applicable laws, including,
without limitation, data protection laws, and as may be necessary to give full
effect to the intent of the parties as stated herein. Notwithstanding anything
to the contrary contained in this Section, this Agreement shall be modified to
the extent necessary to protect the rights of Licensor and Licensee in their
property under the laws of each particular country as determined by the parties
in their reasonably discretion.
(The balance of this page is left intentionally blank).
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed in duplicate counterparts, each of which shall be deemed to constitute
an original, effective as of the date first above written.
barnes and noble.com llc
By: /s/ Marie J. Toulantis
------------------------------------
Name and Title: Marie J. Toulantis,
Executive Vice
President, Finance
BOL.GLOBAL, INC.
By: /s/ Robert Sorrentino
------------------------------------
Name and Title: Robert Sorrentino,
President
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<PAGE>
Attachment A
1. Licensed Products
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<PAGE>
AMENDED AND RESTATED SERVICES AGREEMENT
AMENDED AND RESTATED SERVICES AGREEMENT, dated as of October 31,
1998, by and among Barnes & Noble, Inc., a Delaware corporation having an office
located at 122 Fifth Avenue, New York, New York 10011 ("B&N"),
barnesandnoble.com llc, a Delaware limited liability company having an office
located at 76 Ninth Avenue, 11th Floor, New York, New York 10011 (the "LLC"),
and barnesandnoble.com inc. (formerly known as Barnes & Noble Online, Inc.)
("Online"), amending and restating that certain Services Agreement dated as of
January 15, 1997 between B&N and Online (the "Prior Agreement").
W I T N E S S E T H:
WHEREAS, B&N and Online have entered into the Prior Agreement;
WHEREAS, Online is transferring substantially all of its assets and
business to the LLC for a 100% membership interest in the LLC and will
thereafter assign its interest in the LLC to an entity that will be entering
into an Amended and Restated Limited Liability Company Agreement with BOL.US
Online, Inc. (the "LLC Agreement"; capitalized terms used herein without
definition shall have the meanings assigned to them in the LLC Agreement); and
WHEREAS, in connection therewith, B&N, the LLC and Online desire to
amend and restate the Prior Agreement.
NOW, THEREFORE, in consideration of the mutual promises and
agreements herein contained and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
1. Services. (a) During the term of this Agreement, B&N shall to the
extent requested by the LLC, either directly or through one or more of its
subsidiaries, provide the following services and benefits to the LLC:
(i) Personnel. B&N's personnel department shall provide the LLC
with substantially the same services that it provides to B&N, including,
without limitation, hiring, termination, personnel transfer, and benefits
administration and employee relations services.
<PAGE>
(ii) Payroll. B&N's payroll department shall provide the LLC
with substantially the same services that it provides to B&N, including,
without limitation, processing payroll, preparing payroll tax returns,
mailing payroll checks, participating in payroll related audits and
preparing W-2 and 1099 forms.
(iii) Insurance. B&N shall obtain for the LLC property, casualty
(including general liability and workers' compensation), and crime and
fiduciary insurance on an annual basis, and surety insurance on an as
needed basis, provided that B&N shall be solely liable for workers'
compensation claims of employees or former employees of Online incurred
prior to the date hereof, and the discharge of such liability by B&N shall
be considered a service rendered by B&N under this Section 1(a).
(iv) Employee Benefits. Except as otherwise provided in the
Formation Agreement, B&N shall provide all the LLC employees with benefits
substantially similar to benefits provided by B&N to its employees,
including without limitation medical, dental, life, travel accident and
disability insurance, and pension and 401(k) benefits, provided, that B&N
shall obtain for the LLC insurance (including, without limitation,
stop-loss insurance for any benefits which are self-insured) with respect
to medical, dental and disability benefits, and with respect to such other
benefit as the LLC may request on an annual basis reasonably acceptable to
the LLC (and, with respect to actions taken prior to the Closing Date,
reasonably acceptable to USO). The actions taken by B&N pursuant to Section
5.9(b)(ii) and (iii) of the Formation Agreement, including without
limitation the valuation of pension and deferred compensation assets and
liabilities to be transferred to LLC employee benefit plans, shall not be
considered a service rendered by B&N pursuant to this Section 1(a) except
for third party costs.
(v) General Corporate. B&N's tax department, traffic department,
travel department and cash management department shall provide the LLC with
substantially the same services that it provides to B&N.
(vi) Order Fulfillment. From time to time as requested by the
LLC, B&N's Distribution Center in Jamesburg, New Jersey shall provide
fulfillment services with respect to orders placed by the LLC's customers,
and B&N shall promptly notify the LLC if any fulfillment services requested
cannot be provided for any reason. Fulfillment services consist of shipping
and handling product. The LLC is responsible for providing B&N with the
product which is to be fulfilled.
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<PAGE>
(vii) Telecommunications. B&N shall provide the LLC with access
to B&N's telecommunications facilities.
(viii) Miscellaneous. B&N shall provide to the LLC such other
services and benefits as the parties hereto shall mutually agree from time
to time.
(b) The services and benefits referred to in Section 1(a) above shall
be provided upon the same terms and conditions as they are provided to B&N and
its employees. B&N shall not provide its employees or itself with any priority
or preference with respect to such services or benefits.
2. Payment. (a) Through June 30, 1999, in full consideration for the
services referred to in Section 1(a) above, the LLC shall pay B&N, for each
service referred to in Section 1(a) above, an amount equal to Direct Cost (as
defined below) plus Incremental Expense (as defined below). B&N shall deliver
invoices for services rendered to the LLC on a monthly basis and payment for
such services shall be made by the LLC to B&N monthly, in arrears. "Direct Cost"
means, with respect to each service provided pursuant to this Agreement, the
direct out-of-pocket expenses paid or incurred to third parties in connection
with providing such service, including, without limitation, shipping, handling,
travel expenses, payments to third parties (including, without limitation, all
professional fees), printing and postage. "Incremental Expense" means, with
respect to each service provided pursuant to this Agreement, all expenses paid
or incurred by B&N and its Affiliates in excess of the cost that would have been
incurred in the absence of the performance of the service.
(b) During the period between the date of this Agreement and June 30,
1999, B&N and the LLC shall discuss and mutually agree upon amounts to be paid
commencing on July 1, 1999 by the LLC to B&N with respect to each service being
provided by B&N to the LLC hereunder, which amounts shall include, without
limitation, appropriate allocation of B&N overhead costs. In the event that by
June 30, 1999, B&N and the LLC are unable to mutually agree on the amount to be
paid by the LLC with respect to any service being provided by B&N pursuant to
the term of this Agreement, then the obligation of B&N to perform such service
pursuant to the terms of this Agreement shall terminate as of June 30, 1999.
3. Inspection. The LLC and its agents and representatives, at the
LLC's expense, shall have the right to examine the books and records of B&N that
relate to the costs and expenses referred to in this Agreement, provided,
however, that such examination may only be conducted during regular business
hours and upon ten (10) days' prior written notice.
-3-
<PAGE>
4. No Property Transferred. This Agreement solely relates to the
provision of services. No tangible personal property of any party hereto shall
be under the control or possession of, or transferred to, the other party as a
result of this Agreement, except as expressly provided herein.
5. No Agency. The parties hereto are independent contractors and
nothing in this Agreement is intended to, nor shall it, create any agency,
partnership or joint venture relationship between them. With respect to any
third party, no party hereto, or any of its officers, directors, employees or
agents, shall have the right or authority to bind or otherwise obligate the
other party hereto in any way as a consequence of this Agreement.
6. Termination. (a) The LLC may, in accordance with the provisions of
Section 4.7(a) of the LLC Agreement, terminate this Agreement on thirty (30)
days' prior written notice to B&N with respect to any or all of the services and
benefits referred to in Section 1(a), and on sixty (60) days' prior written
notice to B&N with respect to the service and benefits referred to in Section 6
above.
(b) With the exception of any rights under Section 1(a)(vi) of
this Agreement, which shall only terminate in accordance with Section 6(c)
below, B&N may terminate this Agreement: (i) on one hundred eighty (180) days'
prior written notice to the LLC, with respect to any or all of the services and
benefits referred to in Section 1(a) above; and (ii) immediately on written
notice to the LLC in the event the LLC or its property becomes the subject as
debtor of a bankruptcy or insolvency proceeding or otherwise is unable to pay
its debts when due.
(c) The services provided under Section 1(a)(vi) above shall
terminate on the date that either B&N and its Affiliates or BAG and its
Affiliates cease to own a Membership Interest of at least 10% of the outstanding
Membership Interests, but may be terminated earlier as follows:
(i) the LLC may, in accordance with the provisions of
Section 4.7(a) of the LLC Agreement, terminate this Agreement on thirty
(30) days' prior written notice to B&N.
(ii) B&N may terminate this Agreement:
(A) within the sixty (60) day period following the one
hundred and eightieth day (180) after a transfer pursuant to
Section 7.3 of the LLC Agreement;
-4-
<PAGE>
(B) the LLC is in default of the terms of this Agreement
and such default continues for more than thirty (30) days after
written notice thereof to the LLC and BAG (as such term is
defined in the LLC Agreement), provided that such default is not
principally as a result of the action or inaction of the BN
Managers;
(C) in the event that B&N or the LLC shall (A) apply for
or consent to the appointment of, or the taking possession by, a
receiver, custodian, trustee, examiner, liquidator or the like
of itself or of all or any substantial part of its property, (B)
make a general assignment for the benefit of its creditors, (C)
commence a voluntary case under the Federal Bankruptcy Code of
1978, as amended, or (D) file a petition as a debtor seeking to
take advantage of any other law relating to bankruptcy,
insolvency, reorganization, liquidation, dissolution,
arrangement or winding-up, or composition or readjustment of its
debts; or
(D) if a proceeding or case shall be commenced against
any of B&N or the LLC, without such party's application or
consent, seeking (A) its reorganization, liquidation,
dissolution, arrangement or winding-up, or the composition or
readjustment of its debts, (B) the appointment of a receiver,
custodian, trustee, examiner or liquidator or the like of such
party or of all or any substantial part of its property, or (C)
similar relief in respect of such party under any law relating
to bankruptcy, insolvency, reorganization, liquidation,
dissolution, arrangement or winding-up, or composition or
adjustment of debts, and such proceeding or case shall continue
undismissed, or an order, judgment or decree approving or
ordering any of the foregoing shall be entered and continue
unstayed and in effect, for a period of 60 or more days.
7. Miscellaneous. (a) This Agreement shall be governed by the
internal laws of the State of New York without giving effect to the conflict of
law principles thereof.
(b) This Agreement sets forth the entire agreement between the
parties hereto with respect to the subject matter hereof and is intended to
supersede all prior negotiations, understandings and agreements. This Agreement
supersedes, and amends in its entirety, the Prior Agreement. No
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<PAGE>
provision of this Agreement may be waived or amended, except by a writing signed
by B&N and the LLC.
(c) This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original and together which shall constitute
one and the same instrument.
(d) The failure of any party to exercise any right or remedy
provided for herein shall not be deemed a waiver of any right or remedy
hereunder.
(e) If any provision of this Agreement is determined by a court
of competent jurisdiction to be invalid or otherwise unenforceable, such
determination shall not affect the validity or enforceability of any remaining
provisions of this Agreement. If any provision of this Agreement is invalid
under any applicable statute or rule of law, it shall be enforced to the maximum
extent possible so as to effect the intent of the parties, and the remainder of
this Agreement shall continue in full force and effect.
(f) Any and all notices or other communications hereunder shall
be sufficiently given if in writing and sent by hand, telecopier, reputable
overnight courier or by certified mail, return receipt requested, postage
prepaid, addressed to the party to receive the same at its address as set forth
on page 1 hereof, or to such other address as the party to receive the same
shall have specified by written notice given in the manner provided for in this
Section 7(f). Such notices or other communications shall be deemed to have been
given on the date of such delivery. Any party may change its address for the
purpose of this Agreement by notice to the other parties given as aforesaid.
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<PAGE>
(g) This Agreement shall be binding upon and inure to the
benefit of each of the parties hereto and their respective successors and
assigns, provided that the LLC may not assign any of its rights hereunder
without the prior written consent of B&N.
(h) The section headings used herein are for the convenience of
the parties only, are not substantive and shall not be used to interpret or
construe any of the provisions contained herein.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the date first above written.
BARNES & NOBLE, INC.
By: /s/ Marie J. Toulantis
---------------------------------
Name: Marie J. Toulantis
Title: Executive Vice
President of Finance
barnesandnoble.com llc
By: barnesandnoble.com inc.,
its managing member
By: /s/ Marie J. Toulantis
-----------------------------
Name: Marie J. Toulantis
Title: Executive Vice
President, Finance
barnesandnoble.com inc.
By: /s/ Marie J. Toulantis
---------------------------------
Name: Marie J. Toulantis
Title: Executive Vice
President, Finance
-7-
<PAGE>
AMENDED AND RESTATED SERVICES AGREEMENT
AMENDED AND RESTATED SERVICES AGREEMENT, dated as of October 31,
1998, by and among Marboro Books Corp., a New York corporation having an office
located at One Pond Road, Rockleigh, New Jersey 07647 ("Marboro"),
barnesandnoble.com llc, a Delaware limited liability company having an office
located at 76 Ninth Avenue, 11th Floor, New York, New York 10011 (the "LLC"),
and barnesandnoble.com inc. (formerly known as Barnes & Noble Online, Inc.)
("Online"), amending and restating that certain Services Agreement dated as of
January 15, 1997 between Marboro and Online (the "Prior Agreement").
W I T N E S S E T H:
WHEREAS, Marboro and Online have entered into the Prior Agreement;
WHEREAS, Online is transferring substantially all of its assets and
business to the LLC for a 100% membership interest in the LLC and will
thereafter assign its interest in the LLC to an entity that will be entering
into an Amended and Restated Limited Liability Company Agreement with BOL.US
Online, Inc. (the "LLC Agreement"; capitalized terms used herein without
definition shall have the meanings assigned to them in the LLC Agreement); and
WHEREAS, in connection therewith, Marboro, the LLC and Online desire
to amend and restate the Prior Agreement.
NOW, THEREFORE, in consideration of the mutual promises and
agreements herein contained and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
1. Services. (a) During the term of this Agreement, to the extent
requested by the LLC, Marboro shall provide the following services and benefits
to the LLC:
(i) Accounts Payable and General Ledger. Marboro shall, to the
fullest extent it is able, provide the LLC with the use of its existing
internal accounts payable and general ledger systems, provided that the LLC
shall be responsible for the input of all necessary information.
<PAGE>
(ii) Order Fulfillment. From time to time as requested by the
LLC, Marboro shall provide fulfillment services with respect to orders
placed by customers of the LLC. Marboro shall promptly notify the LLC if
any fulfillment services requested cannot be provided for any reason.
Fulfillment services consist of shipping and handling product. The LLC is
responsible for providing Marboro with any of the LLC's product which is to
be fulfilled by Marboro pursuant to this Section 1(a)(ii).
(iii) Office Space. Marboro shall provide the LLC with a
mutually agreeable amount of office space at Marboro's Rockleigh, New
Jersey offices. In connection therewith, the LLC employees shall be
entitled to reasonable use of all related office facilities.
(iv) Telecommunications. Marboro shall provide the LLC with
access to Marboro's telecommunications facilities.
(v) Miscellaneous. Marboro shall provide to the LLC such other
services and benefits as the parties hereto shall mutually agree from time
to time.
(b) The services and benefits referred to in Section 1(a) above shall
be provided upon the same terms and conditions as they are provided to Marboro
and its employees. Marboro shall not provide its employees or itself with any
priority or preference with respect to such services or benefits.
2. Payment. (a) Through June 30, 1999, in full consideration for the
services referred to in Section 1(a) above, the LLC shall pay Marboro, for each
service referred to in Section 1(a) above, an amount equal to Direct Cost (as
defined below) plus Incremental Expense (as defined below). Marboro shall
deliver invoices for services rendered to the LLC on a monthly basis and payment
for such services shall be made by the LLC to Marboro monthly, in arrears.
"Direct Cost" means, with respect to each service provided pursuant to this
Agreement, the direct out-of-pocket expenses paid or incurred to third parties
in connection with providing such service, including, without limitation,
shipping and handling, travel expenses, payments to third parties (including,
without limitation, all professional fees and the LLC's pro rata share of rent
with respect to Marboro's Rockleigh, New Jersey offices, as is reasonably
allocable to the LLC based on actual usage according to the respective square
footage used by the LLC in proportion to the total square footage of the
Rockleigh facility), printing and postage. "Incremental Expense" means, with
respect to each service provided pursuant to this Agreement, all expenses paid
or incurred by Marboro and its Affiliates in excess of the cost that
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<PAGE>
would have been incurred in the absence of the performance of the service.
(b) During the period between the date of this Agreement and June 30,
1999, Marboro and the LLC shall discuss and mutually agree upon amounts to be
paid commencing on July 1, 1999 by the LLC to Marboro with respect to each
service being provided by Marboro to the LLC hereunder, which amounts shall
include, without limitation, appropriate allocation of Marboro overhead costs.
In the event that by June 30, 1998, Marboro and the LLC are unable to mutually
agree on the amount to be paid by the LLC with respect to any service being
provided by Marboro pursuant to the term of this Agreement, then the obligation
of Marboro to perform such service pursuant to the terms of this Agreement shall
terminate as of June 30, 1999.
3. Inspection. The LLC and its agents and representatives, at the
LLC's expense, shall have the right to examine the books and records of Marboro
that relate to the costs and expenses referred to in this Agreement, provided,
however, that such examination may only be conducted during regular business
hours and upon ten (10) days' prior written notice.
4. No Property Transferred. This Agreement solely relates to the
provision of services. No tangible personal property of any party hereto shall
be under the control or possession of, or transferred to, the other party as a
result of this Agreement, except as expressly provided herein.
5. No Agency. The parties hereto are independent contractors and
nothing in this Agreement is intended to, nor shall it, create any agency,
partnership or joint venture relationship between them. With respect to any
third party, no party hereto, or any of its officers, directors, employees or
agents, shall have the right or authority to bind or otherwise obligate the
other party hereto in any way as a consequence of this Agreement.
6. Termination. (a) The LLC may, in accordance with the provisions of
Section 4.7 (a) of the LLC Agreement, terminate this Agreement on thirty (30)
days' prior written notice to Marboro, with respect to any or all of the
services and benefits referred to in Section 1(a) above.
(b) With the exception of any rights under Section 1(a)(ii) of
this Agreement, which shall only terminate in accordance with Section 6(c)
below, Marboro may terminate this Agreement: (i) on one hundred eighty (180)
days' prior written notice to the LLC, with respect to any or all of the
services and benefits referred to in Section 1(a) above; and (ii) immediately on
written notice to the LLC in the event the LLC or its property
-3-
<PAGE>
becomes the subject as debtor of a bankruptcy or insolvency proceeding or
otherwise is unable to pay its debts when due.
(c) The services provided under Section 1(a)(ii) above shall
terminate on the date that either BN and its Affiliates or BAG and its
Affiliates cease to own a Membership Interest of at least 10% of the outstanding
Membership Interests, but may be terminated earlier as follows:
(i) the LLC may, in accordance with the provisions of
Section 4.7(a) of the LLC Agreement, terminate this Agreement on thirty
(30) days' prior written notice to Marboro.
(ii) Marboro may terminate this Agreement:
(A) within the sixty (60) day period following the one
hundred and eightieth day (180) after a transfer pursuant to
Section 7.3 of the LLC Agreement;
(B) the LLC is in default of the terms of this Agreement
and such default continues for more than thirty (30) days after
written notice thereof to the LLC and BAG (as such term is
defined in the LLC Agreement), provided that such default is not
principally as a result of the action or inaction of the BN
Managers;
(C) in the event that BN or the LLC shall (A) apply for
or consent to the appointment of, or the taking possession by, a
receiver, custodian, trustee, examiner, liquidator or the like
of itself or of all or any substantial part of its property, (B)
make a general assignment for the benefit of its creditors, (C)
commence a voluntary case under the Federal Bankruptcy Code of
1978, as amended, or (D) file a petition as a debtor seeking to
take advantage of any other law relating to bankruptcy,
insolvency, reorganization, liquidation, dissolution,
arrangement or winding-up, or composition or readjustment of its
debts; or
(D) if a proceeding or case shall be commenced against
any of BN or the LLC, without such party's application or
consent, seeking (A) its reorganization, liquidation,
dissolution, arrangement or winding-up, or the composition or
readjustment of its debts, (B) the appointment of a receiver,
custodian, trustee, examiner or liquidator or the like of such
party or of all or
-4-
<PAGE>
any substantial part of its property, or (C) similar
relief in respect of such party under any law relating to
bankruptcy, insolvency, reorganization, liquidation,
dissolution, arrangement or winding-up, or composition or
adjustment of debts, and such proceeding or case shall
continue undismissed, or an order, judgment or decree
approving or ordering any of the foregoing shall be
entered and continue unstayed and in effect, for a period
of 60 or more days.
7. LLC Catalogs. In addition to the services set forth above, Marboro
shall provide the LLC with certain catalog services, such as production and
distribution of catalogs for the LLC. The LLC shall pay Marboro for such
services on a monthly basis, in arrears, an amount to be mutually determined by
the parties in good faith.
8. Miscellaneous. (a) This Agreement shall be governed by the
internal laws of the State of New York without giving effect to the conflict of
law principles thereof.
(b) This Agreement sets forth the entire agreement between the
parties hereto with respect to the subject matter hereof and is intended to
supersede all prior negotiations, understandings and agreements. This Agreement
supersedes, and amends in its entirety, the Prior Agreement. No provision of
this Agreement may be waived or amended, except by a writing signed by Marboro
and the LLC.
(c) This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original and together which shall constitute
one and the same instrument.
(d) The failure of any party to exercise any right or remedy
provided for herein shall not be deemed a waiver of any right or remedy
hereunder.
(e) If any provision of this Agreement is determined by a court
of competent jurisdiction to be invalid or otherwise unenforceable, such
determination shall not affect the validity or enforceability of any remaining
provisions of this Agreement. If any provision of this Agreement is invalid
under any applicable statute or rule of law, it shall be enforced to the maximum
extent possible so as to effect the intent of the parties, and the remainder of
this Agreement shall continue in full force and effect.
(f) Any and all notices or other communications hereunder shall
be sufficiently given if in writing and sent by hand, telecopier, reputable
overnight courier or by certified mail, return receipt requested, postage
prepaid, addressed to the
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<PAGE>
party to receive the same at its address as set forth on page 1 hereof, or to
such other address as the party to receive the same shall have specified by
written notice given in the manner provided for in this Section 8(f). Such
notices or other communications shall be deemed to have been given on the date
of such delivery. Any party may change its address for the purpose of this
Agreement by notice to the other parties given as aforesaid.
(g) This Agreement shall be binding upon and inure to the
benefit of each of the parties hereto and their respective successors and
assigns, provided that the LLC may not assign any of its rights hereunder
without the prior written consent of Marboro.
(h) The section headings used herein are for the convenience of
the parties only, are not substantive and shall not be used to interpret or
construe any of the provisions contained herein.
-6-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the date first above written.
MARBORO BOOKS CORP.
By: /s/ Marie J. Toulantis
---------------------------------
Name: Marie J. Toulantis
Title: Executive Vice President,
Finance
barnesandnoble.com llc
By: barnesandnoble.com inc.,
its managing member
By: /s/ Marie J. Toulantis
------------------------------
Name: Marie J. Toulantis
Title: Executive Vice
President, Finance
barnesandnoble.com inc.
By: /s/ Marie J. Toulantis
----------------------------------
Name: Marie J. Toulantis
Title: Executive Vice
President, Finance
-7-
<PAGE>
AMENDED AND RESTATED
TRADEMARK LICENSE AGREEMENT
AGREEMENT, dated as of October 31, 1998 among Barnes & Noble College
Bookstores, Inc, a New York corporation having an office located at 33 East 17th
Street, New York, New York 10003 ("Licensor"), barnesandnoble.com llc, a
Delaware limited liability company having an office located at 76 Ninth Avenue,
11th Floor, New York, New York 10011 ("Licensee"), and barnesandnoble.com inc.
(formerly known as Barnes & Noble Online, Inc.) ("Online"), amending and
restating that certain Trademark License Agreement dated as of January 15, 1997
between Licensor and Online (the "Prior Agreement").
WHEREAS, Licensor is the registered owner of the trademark "Barnes &
Noble" and the owner of the trademark "barnesandnoble.com" (collectively, the
"Trademark") and uses the name "Barnes & Noble" in the operation of its
business;
WHEREAS, Licensor and Online have entered into the Prior Agreement;
WHEREAS, Online is transferring substantially all of its assets and
business to Licensee for a 100% membership interest in Licensee and will
thereafter assign its interest in Licensee to an entity that will be entering
into an Amended and Restated Limited Liability Company Agreement with BOL.US
Online, Inc. (the "LLC Agreement"; capitalized terms used herein without
definition shall have the meanings assigned to them in the LLC Agreement); and
WHEREAS, in connection therewith, Licensor, Licensee and Online
desire to amend and restate the Prior Agreement.
NOW, THEREFORE, in consideration of the mutual promises and
agreements herein contained and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
1. Grant of License. Licensor hereby grants to Licensee an exclusive,
perpetual (except as set forth in Section 2 below), worldwide right and license
(the "License") to use the Trademark in the operation of the Business, to
sublicense the Trademark to BOL and parties operating under the BOL name solely
in order to develop and maintain the links described in Article II of the LLC
Agreement, and to further sublicense the "barnesandnoble.com" name as the BN
Managers, in their sole discretion, see fit in connection with the operation of
the Business, all on the terms and conditions set forth herein, provided,
however, that the License does not include the right to use the Trademark for
the promotion or sale of college textbooks through Websites (except as otherwise
provided in Section 3(e) below). Nothing in the License is intended to permit
Licensee to use the
<PAGE>
Business, all on the terms and conditions set forth herein, provided, however,
that the License does not include the right to use the Trademark for the
promotion or sale of college textbooks through Websites (except as otherwise
provided in Section 3(e) below). Nothing in the License is intended to permit
Licensee to use the Trademark for any other purpose, including, without
limitation, the operation of retail bookstores.
2. Term; Effects of Termination. (a) The term of this Agreement (the
"Term") shall commence on the date hereof and shall continue until terminated as
provided herein. Licensor may terminate this Agreement, on prior written notice
to Licensee, in the event that: (i) Licensee is in default of the terms of this
Agreement and such default continues for more than thirty (30) days after
written notice thereof to Licensee and BAG, provided that such default is not
principally as a result of the action or inaction of the BN Managers; or (iii)
Licensee files a petition in bankruptcy or is adjudicated a bankrupt or
insolvent, or makes an assignment for the benefit of creditors, or an
arrangement pursuant to any bankruptcy law, or if Licensee discontinues or
dissolves its business or if a receiver is appointed for Licensee or for
Licensee's business and such receiver is not discharged within 30 days.
Additionally, Licensor may terminate this Agreement in accordance with the terms
of Section 7.5(b) of the LLC Agreement.
(b) Upon termination of this Agreement: (i) the License shall
terminate; (ii) Licensee shall cease to use the Trademark; and (iii) Licensee
shall execute and deliver to Licensor any documents reasonably requested by
Licensor to confirm Licensor's ownership of the Trademark and the termination of
the License.
3. Restrictions on Use. (a) Licensee shall use the Trademark only in
a manner and form: (i) designed to maintain the high quality of the Trademark;
(ii) consistent with the use of the Trademark by Licensor and its other
licensees; (iii) that protects Licensor's ownership interest therein; and (iv)
that complies will all applicable federal, state, local and foreign laws, rules
and regulations, including, without limitation, all applicable trademark laws,
rules and regulations.
(b) Licensee expressly acknowledges that its use of the
Trademark hereunder inures to the benefit of Licensor and shall not confer on
Licensee any proprietary rights to the Trademark, which shall at all times
remain with Licensor and its assignees.
(c) Licensee shall not question, contest or challenge, either
during or after the Term, Licensor's ownership of the Trademark, and Licensee
shall claim no interest therein, except the right to use the Trademark on the
terms and conditions
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<PAGE>
set forth herein. Licensee shall not attempt to register the Trademark.
(d) Licensee shall, at its expense, take such action, including,
without limitation, commencing litigation or other legal proceedings, as
Licensee considers necessary to protect the barnesandnoble.com trademark from
infringement by any person or party, and Licensee shall be entitled to all
amounts received in connection therewith. Nothing in this Agreement is intended
to nor shall it limit or impair Licensor's rights, during or after the Term, to
protect the Trademark from infringement by any person or party, including
without limitation Licensee. During and after the Term Licensor may, but shall
not be obligated to, take such action as it deems necessary or appropriate to
prevent or stop such infringement. Licensee shall promptly notify Licensor in
writing of any infringement or suspected infringement involving the Trademark.
(e) Nothing in this Agreement is intended to nor shall it limit
or impair Licensor's rights, during the Term, to: (i) use or otherwise license
the Trademark to the extent not licensed to Licensee hereunder; or (ii) to use
or license the Trademark for use to sell textbooks and other items customarily
sold by Licensor in its college bookstores, whether through stores, Websites or
otherwise, and Licensee agrees that it will not promote the sale of or sell
textbooks in its conduct of the Business. Licensor agrees that sales of
textbooks by Licensee in the Business that are immaterial, incidental and
unsolicited shall not be a violation of the foregoing restriction. Similarly,
Licensee agrees that sales by Licensor, or its other licensees, through Websites
or otherwise, of books and other merchandise promoted by Licensee in the
Business that are immaterial, incidental and unsolicited shall not be a
violation of the exclusive license granted to Licensee hereunder.
(f) Nothing in this Agreement is intended to nor shall it limit
or impair Licensor's rights, after the Term, to use or license the Trademark in
any way whatsoever.
4. Representations and Warranties; Indemnity. (a) Licensor represents
and warrants to Licensee that: (i) it is the registered owner of the "Barnes &
Noble" trademark and the owner of the "barnesandnoble.com" trademark; (ii) it
has the right and power to grant the License to Licensee as provided herein; and
(iii) the grant of the License to Licensee as provided herein does not require
the consent of any third party.
(b) Licensor shall indemnify and hold Licensee harmless against
any and all claims, actions, suits or proceedings asserting that Licensee's use
of the Trademark pursuant to this Agreement infringes the statutory or common
law trademark rights of any third party. Licensor shall, at its sole
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<PAGE>
cost and expense, defend all such claims, actions, suits and proceedings on
behalf of Licensee, with counsel of Licensor's choice, provided that Licensee
promptly notifies Licensor of such claims, actions, suits or proceedings.
5. Injunctive Relief. Licensee acknowledges that money damages would
not adequately compensate Licensor in the event of a breach by Licensee of its
obligations hereunder, and that injunctive relief would be essential for
Licensor to adequately protect itself hereunder. Accordingly, Licensee agrees
that, in addition to any other remedies available to Licensor at law or in
equity, Licensor shall be entitled to injunctive relief in the event Licensee is
in breach of any covenant or agreement contained herein.
6. Miscellaneous. (a) This Agreement shall be governed by the
internal laws of the State of New York without giving effect to the conflict of
law principles thereof.
(b) This Agreement sets forth the entire agreement between the
parties hereto with respect to the subject matter hereof and is intended to
supersede all prior negotiations, understandings and agreements. This Agreement
supersedes, and amends in its entirety, the Prior Agreement. No provision of
this Agreement may be waived or amended, except by a writing signed by Licensor
and Licensee.
(c) This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original and together which shall constitute
one and the same instrument.
(d) The failure of any party to exercise any right or remedy
provided for herein shall not be deemed a waiver of any right or remedy
hereunder.
(e) If any provision of this Agreement is determined by a court
of competent jurisdiction to be invalid or otherwise unenforceable, such
determination shall not affect the validity or enforceability of any remaining
provisions of this Agreement. If any provision of this Agreement is invalid
under any applicable statute or rule of law, it shall be enforced to the maximum
extent possible so as to effect the intent of the parties, and the remainder of
this Agreement shall continue in full force and effect.
(f) Any and all notices or other communications hereunder shall
be sufficiently given if in writing and sent by hand, telecopier, reputable
overnight courier or by certified mail, return receipt requested, postage
prepaid, addressed to the party to receive the same at its address as set forth
on page 1 hereof, or to such other address as the party to receive the same
shall have specified by written notice given in the manner
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<PAGE>
provided for in this Section 6(f). Such notices or other communications shall be
deemed to have been given on the date of such delivery. Any party may change its
address for the purpose of this Agreement by notice to the other parties given
as aforesaid.
(g) This Agreement shall be binding upon and inure to the
benefit of each of the parties hereto and their respective successors and
assigns, provided that Licensee may not assign any of its rights hereunder
without the prior written consent of Licensor.
(h) The section headings used herein are for the convenience of
the parties only, are not substantive and shall not be used to interpret or
construe any of the provisions contained herein.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the date first set forth above.
BARNES & NOBLE COLLEGE
BOOKSTORES, INC.
By: /s/ Michael N. Rosen
---------------------------------
Name: Michael N. Rosen
Title: Secretary
barnesandnoble.com llc
By: barnesandnoble.com inc.,
its managing member
By: /s/ Marie J. Toulantis
-----------------------------
Name: Marie J. Toulantis
Title: Executive Vice President,
Finance
barnesandnoble.com inc.
By: /s/ Marie J. Toulantis
---------------------------------
Name: Marie J. Toulantis
Title: Executive Vice President,
Finance
-5-
<PAGE>
TRADEMARK LICENSE AGREEMENT
AGREEMENT, dated as of October 31, 1998 among BOL.Global, Inc., a
Delaware corporation having an office located at 1540 Broadway, New York, New
York 10036 ("Licensor") and barnesandnoble.com llc, a Delaware limited liability
company having an office located at 76 Ninth Avenue, 11th Floor, New York, New
York 10011 ("Licensee").
WHEREAS, Licensor is the registered owner of the trademarks set forth
on Schedule 1 attached hereto (collectively, the "Trademark") and uses the
Trademark in the operation of its business.
NOW, THEREFORE, in consideration of the mutual promises and
agreements herein contained and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
1. Grant of License. Licensor hereby grants to Licensee a
non-exclusive, perpetual (except as set forth in Section 2 below), worldwide
right and license (the "License") to use the Trademark in the operation of the
Business (as such term is defined in the Amended and Restated Limited Liability
Company Agreement of Licensee (the "LLC Agreement"; capitalized terms used
herein without definition shall have the meanings assigned to them in the LLC
Agreement), and to sublicense the Trademark as the USO Managers, in their sole
discretion, see fit in connection with the operation of the Business, all on the
terms and conditions set forth herein. Nothing in the License is intended to
permit Licensee to use the Trademark for any other purpose.
2. Term; Effects of Termination. (a) The term of this Agreement (the
"Term") shall commence on the date hereof and shall continue until terminated as
provided herein. Licensor may terminate this Agreement, on prior written notice
to Licensee, in the event that: (i) Licensee is in default of the terms of this
Agreement and such default continues for more than thirty (30) days after
written notice thereof to Licensee and BN, provided that such default is not
principally as a result of the action or inaction of the USO Managers; or (iii)
Licensee files a petition in bankruptcy or is adjudicated a bankrupt or
insolvent, or makes an assignment for the benefit of creditors, or an
arrangement pursuant to any bankruptcy law, or if Licensee discontinues or
dissolves its business or if a receiver is appointed for Licensee
<PAGE>
or for Licensee's business and such receiver is not discharged within 30 days.
(b) Upon termination of this Agreement: (i) the License shall
terminate; (ii) Licensee shall cease to use the Trademark; and (iii) Licensee
shall execute and deliver to Licensor any documents reasonably requested by
Licensor to confirm Licensor's ownership of the Trademark and the termination of
the License.
3. Restrictions on Use. (a) Licensee shall use the Trademark only in
a manner and form: (i) designed to maintain the high quality of the Trademark;
(ii) consistent with the use of the Trademark by Licensor and its other
licensees; (iii) that protects Licensor's ownership interest therein; and (iv)
that complies will all applicable federal, state, local and foreign laws, rules
and regulations, including, without limitation, all applicable trademark laws,
rules and regulations.
(b) Licensee expressly acknowledges that its use of the
Trademark hereunder inures to the benefit of Licensor and shall not confer on
Licensee any proprietary rights to the Trademark, which shall at all times
remain with Licensor and its assignees.
(c) Licensee shall not question, contest or challenge, either
during or after the Term, Licensor's ownership of the Trademark, and Licensee
shall claim no interest therein, except the right to use the Trademark on the
terms and conditions set forth herein. Licensee shall not attempt to register
the Trademark.
(d) Licensor shall, at its expense, take such action, including,
without limitation, commencing litigation or other legal proceedings, as
Licensee considers necessary to protect the Trademark from infringement by any
person or party. Nothing in this Agreement is intended to nor shall it limit or
impair Licensor's rights, during or after the Term, to protect the Trademark
from infringement by any person or party, including without limitation Licensee.
During and after the Term Licensor may, but shall not be obligated to, take such
action as it deems necessary or appropriate to prevent or stop such
infringement. Licensee shall promptly notify Licensor in writing of any
infringement or suspected infringement involving the Trademark.
(e) Nothing in this Agreement is intended to nor shall it limit
or impair Licensor's rights, during the Term, to use or otherwise license the
Trademark to the extent not licensed to Licensee hereunder. Licensee agrees that
sales by Licensor, or its other licensees, through Websites or otherwise, of
books and other merchandise promoted by Licensee in the Business that
-2-
<PAGE>
are immaterial, incidental and unsolicited shall not be a violation of the
exclusive license granted to Licensee hereunder.
(f) Nothing in this Agreement is intended to nor shall it limit
or impair Licensor's rights, after the Term, to use or license the Trademark in
any way whatsoever.
4. Representations and Warranties; Indemnity. (a) Licensor represents
and warrants to Licensee that: (i) it is the registered owner of the Trademark;
(ii) it has the right and power to grant the License to Licensee as provided
herein; and (iii) the grant of the License to Licensee as provided herein does
not require the consent of any third party.
(b) Licensor shall indemnify and hold Licensee harmless against
any and all claims, actions, suits or proceedings asserting that Licensee's use
of the Trademark pursuant to this Agreement infringes the statutory or common
law trademark rights of any third party. Licensor shall, at its sole cost and
expense, defend all such claims, actions, suits and proceedings on behalf of
Licensee, with counsel of Licensor's choice, provided that Licensee promptly
notifies Licensor of such claims, actions, suits or proceedings.
5. Injunctive Relief. Licensee acknowledges that money damages would
not adequately compensate Licensor in the event of a breach by Licensee of its
obligations hereunder, and that injunctive relief would be essential for
Licensor to adequately protect itself hereunder. Accordingly, Licensee agrees
that, in addition to any other remedies available to Licensor at law or in
equity, Licensor shall be entitled to injunctive relief in the event Licensee is
in breach of any covenant or agreement contained herein.
6. Miscellaneous. (a) This Agreement shall be governed by the
internal laws of the State of New York without giving effect to the conflict of
law principles thereof.
(b) This Agreement sets forth the entire agreement between the
parties hereto with respect to the subject matter hereof and is intended to
supersede all prior negotiations, understandings and agreements. No provision of
this Agreement may be waived or amended, except by a writing signed by Licensor
and Licensee.
(c) This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original and together which shall constitute
one and the same instrument.
(d) The failure of any party to exercise any right or remedy
provided for herein shall not be deemed a waiver of any right or remedy
hereunder.
-3-
<PAGE>
(e) If any provision of this Agreement is determined by a court
of competent jurisdiction to be invalid or otherwise unenforceable, such
determination shall not affect the validity or enforceability of any remaining
provisions of this Agreement. If any provision of this Agreement is invalid
under any applicable statute or rule of law, it shall be enforced to the maximum
extent possible so as to effect the intent of the parties, and the remainder of
this Agreement shall continue in full force and effect.
(f) Any and all notices or other communications hereunder shall
be sufficiently given if in writing and sent by hand, telecopier, reputable
overnight courier or by certified mail, return receipt requested, postage
prepaid, addressed to the party to receive the same at its address as set forth
on page 1 hereof, or to such other address as the party to receive the same
shall have specified by written notice given in the manner provided for in this
Section 6(f). Such notices or other communications shall be deemed to have been
given on the date of such delivery. Any party may change its address for the
purpose of this Agreement by notice to the other parties given as aforesaid.
(g) This Agreement shall be binding upon and inure to the
benefit of each of the parties hereto and their respective successors and
assigns, provided that Licensee may not assign any of its rights hereunder
without the prior written consent of Licensor.
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<PAGE>
(h) The section headings used herein are for the convenience of
the parties only, are not substantive and shall not be used to interpret or
construe any of the provisions contained herein.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the date first set forth above.
BOL.GLOBAL, INC.
By: /s/ Robert Sorentino
--------------------------------
Name: Robert Sorentino
Title: President
barnesandnoble.com llc
By: barnesandnoble.com inc.,
its managing member
By: /s/ Marie J. Toulantis
--------------------------------
Name: Marie J. Toulantis
Title: Executive Vice
President, Finance
-5-
<PAGE>
SUPPLY AGREEMENT
SUPPLY AGREEMENT, dated as of October 31, 1998, between Barnes &
Noble, Inc., Delaware corporation having an office located at 122 Fifth Avenue,
New York, New York 10011 ("B&N"), and barnesandnoble.com llc, a Delaware limited
liability company having an office located at 76 Ninth Avenue, 11th Floor, New
York, New York 10011 (the "LLC"). Capitalized terms used herein without
definition shall have the meanings assigned to such terms in the Amended and
Restated Limited Liability Company Agreement effective as of October 31, 1998 of
the LLC, as the same may be amended or modified from time to time (the "LLC
Agreement").
WHEREAS, to enable the LLC to obtain the benefits of any purchasing
discounts available to B&N, the parties desire that B&N shall from time to time
order Products (as defined below) on behalf of the LLC, on the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises and
agreements herein contained and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
1. Orders. (a) During the term of this Agreement, the LLC may from
time to time, in its sole discretion, place orders for Products with B&N (each
an "Order"). "Products" shall mean books, magazines and other products generally
sold by B&N in its retail stores. Nothing in this Agreement is intended to limit
the LLC from placing orders for Products with any other entity.
(b) Once an Order is placed by the LLC, B&N shall use its
commercially reasonable efforts to fill such Order as promptly as practical in
accordance with the terms of such Order. Products ordered hereunder by the LLC
shall be delivered to the LLC's warehouse at 308A Herrod Blvd., Dayton, New
Jersey 08810, unless otherwise mutually agreed upon by the parties hereto. B&N
shall give Orders placed by the LLC equal priority with Orders placed by any
other entity, including, without limitation, B&N. B&N shall not be responsible
for any delays by third-party suppliers in the filling of any Order.
2. Price. For all Products ordered by the LLC under this Agreement,
B&N shall charge the LLC B&N's cost for such Products plus Incremental Overhead
(as defined below). Payment for Orders shall be due 30 days from the date of
such Order, provided that B&N shall refund any payments made for Orders which
B&N is unable to fill within 30 days of such determination by B&N. "Incremental
Overhead" shall mean the cost incurred by B&N and its Affiliates to third
parties, including, without limitation, costs for shipping and handling, and any
direct labor costs incurred by B&N and its Affiliates in excess of the cost that
would have been incurred in the absence of the performance by B&N and its
Affiliates of B&N's obligations hereunder.
3. No Agency. The parties hereto are independent contractors and
nothing in this Agreement is intended to, nor shall it, create any agency,
partnership or joint venture relationship between them. With respect to any
<PAGE>
third party, no party hereto, or any of its officers, directors, employees or
agents, shall have the right or authority to bind or otherwise obligate the
other party hereto in any way as a consequence of this Agreement.
4. Termination. This Agreement shall terminate on the date that
either B&N and its Affiliates or BAG and its Affiliates cease to own a
Membership Interest of at least 10% of the outstanding Membership Interests, but
may be terminated earlier as follows:
(a) the LLC may, in accordance with the provisions of Section
4.7(a) of the LLC Agreement, terminate this Agreement on thirty (30) days' prior
written notice to B&N.
(b) B&N may terminate this Agreement:
(i) within the sixty (60) day period following the one hundred
and eightieth day (180) after a transfer pursuant to Section 7.3 of the LLC
Agreement;
(ii) the LLC is in default of the terms of this Agreement and
such default continues for more than thirty (30) days after written notice
thereof to the LLC and BAG (as such term is defined in the LLC Agreement),
provided that such default is not principally as a result of the action or
inaction of the BN Managers;
(iii) in the event that B&N or the LLC shall (A) apply for or
consent to the appointment of, or the taking possession by, a receiver,
custodian, trustee, examiner, liquidator or the like of itself or of all or
any substantial part of its property, (B) make a general assignment for the
benefit of its creditors, (C) commence a voluntary case under the Federal
Bankruptcy Code of 1978, as amended, or (D) file a petition as a debtor
seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, liquidation, dissolution, arrangement or
winding-up, or composition or readjustment of its debts; or
(iv) if a proceeding or case shall be commenced against any of
B&N or the LLC, without such party's application or consent, seeking (A)
its reorganization, liquidation, dissolution, arrangement or winding-up, or
the composition or readjustment of its debts, (B) the appointment of a
receiver, custodian, trustee, examiner or liquidator or the like of such
party or of all or any substantial part of its property, or (C) similar
relief in respect of such party under any law relating to bankruptcy,
insolvency, reorganization, liquidation, dissolution, arrangement or
winding-up, or composition or adjustment of debts, and such proceeding or
case shall continue undismissed, or an order, judgment or decree approving
or ordering any of the foregoing shall be entered and continue unstayed and
in effect, for a period of 60 or more days.
5. Miscellaneous. (a) This Agreement shall be governed by the
internal laws of the State of New York without giving effect to the conflict of
law principles thereof.
(b) Neither party shall be liable to fulfill its obligations
hereunder, or for delays in performance, due to causes beyond its reasonable
control, including, but not limited to, acts of God, acts or omissions of
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<PAGE>
civil or military authority, fires, strikes, floods, epidemics, riots or acts of
war.
(c) This Agreement sets forth the entire agreement between the
parties hereto with respect to the subject matter hereof and is intended to
supersede all prior negotiations, understandings and agreements. No provision of
this Agreement may be waived or amended, except by a writing signed by the
parties hereto.
(d) This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original and together which shall constitute
one and the same instrument.
(e) The failure of either party to exercise any right or remedy
provided for herein shall not be deemed a waiver of any right or remedy
hereunder.
(f) If any provision of this Agreement is determined by a court
of competent jurisdiction to be invalid or otherwise unenforceable, such
determination shall not affect the validity or enforceability of any remaining
provisions of this Agreement. If any provision of this Agreement is invalid
under any applicable statute or rule of law, it shall be enforced to the maximum
extent possible so as to effect the intent of the parties, and the remainder of
this Agreement shall continue in full force and effect.
(g) Any and all notices or other communications hereunder shall
be sufficiently given if in writing and sent by hand, telecopier, reputable
overnight courier or by certified mail, return receipt requested, postage
prepaid, addressed to the party to receive the same at its address as set forth
on page 1 hereof, or to such other address as the party to receive the same
shall have specified by written notice given in the manner provided for in this
Section 5(g). Such notices or other communications shall be deemed to have been
given on the date of such delivery. Either party may change its address for the
purpose of this Agreement by notice to the other party given as aforesaid.
(h) This Agreement shall be binding upon and inure to the
benefit of each of the parties hereto and their respective successors and
assigns, provided that the LLC may not assign any of its rights hereunder
without the prior written consent of B&N.
(i) The section headings used herein are for the convenience of
the parties only, are not substantive and shall not be used to interpret or
construe any of the provisions contained herein.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the date first set forth above.
BARNES & NOBLE, INC.
By: /s/ Marie J. Toulantis
--------------------------------
Name: Marie J. Toulantis
Title: Executive Vice
President of Finance
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<PAGE>
barnesandnoble.com llc
By: barnesandnoble.com inc., its managing
member
By: /s/ Marie J. Toulantis
--------------------------
Name: Marie J. Toulantis
Title: Executive Vice
President, Finance
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<PAGE>
AMENDED AND RESTATED
DATABASE AND SOFTWARE LICENSE AGREEMENT
AGREEMENT, dated as of October 31, 1998 among Barnes & Noble, Inc.
("Licensor"), a Delaware corporation having an office located at 122 Fifth
Avenue, New York, New York 10011, barnesandnoble.com llc, a Delaware limited
liability company having an office located at 76 Ninth Avenue, 11th Floor, New
York, New York 10011 ("Licensee"), and barnesandnoble.com inc. (formerly known
as Barnes and Noble Online, Inc.) ("Online"), amending and restating that
certain Database and Software License Agreement dated as of January 15, 1997
between B&N and Online ("Prior Agreement").
WHEREAS, Licensor and Online have entered into the Prior Agreement;
WHEREAS, Online is transferring substantially all of its assets and
business to Licensee for a 100% membership interest in Licensee and will
thereafter assign its interest in Licensee to an entity that will be entering
into an Amended and Restated Limited Liability Company Agreement with BOL.US
Online, Inc. (the "LLC Agreement"; capitalized terms used herein without
definition shall have the meanings assigned to them in the LLC Agreement); and
WHEREAS, in connection therewith, Licensor, Licensee and Online
desire to amend and restate the Prior Agreement.
NOW, THEREFORE, in consideration of the mutual promises and
agreements herein contained and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
1. Grant of License. (a) Subject to Section 8 below, Licensor hereby
grants to Licensee a nonexclusive right and license (the "License") for the
duration of the Term (as hereinafter defined) to use the following databases,
software and informational materials, including without limitation any
additions, revisions and modifications made thereto by Licensor and Licensee
during the Term (collectively, the "Licensed Materials"):
(i) Licensor's title database;
(ii) Licensor's electronic shopping and special order software;
(iii) Licensor's customer lists; and
(iv) all demographic information compiled by Licensor.
(b) The Licensed Materials may only be used by Licensee for
purposes of conducting Licensee's Business, to sublicense the Licensed Materials
to BOL and parties operating under the BOL name solely in order to develop and
maintain the links described in Article II of the LLC Agreement and to further
sublicense the Licensed Materials as the BN Managers, in their sole discretion,
see fit in connection with the operation of the Business. Nothing in the
License: (i) is intended to permit Licensee to use the Licensed Materials for
any other purpose, including without limitation the operation of retail
bookstores; or (ii) shall be construed to broaden the
<PAGE>
areas of business in which Licensor may engage under the terms of the LLC
Agreement.
(c) The Licensed Materials shall be made available to Licensee
at such times and in such format as the parties shall mutually agree. Licensor
shall use its commercially reasonable best efforts to keep the Licensed
Materials current and accurate in all material respects during the Term.
Licensee shall have the right to make changes, modifications, additions and
deletions to the Licensed Materials subject to any third party license rights.
If Licensee makes any additions, revisions or modifications to the Licensed
Materials, it shall promptly make such additions, revisions or modifications
available to Licensor for its use.
(d) To the extent any of the Licensed Materials are provided to
Licensor through any agreement with a third party, Licensor shall furnish
Licensee with a copy of such agreement and Licensee agrees to comply with the
terms thereof. Licensee further agrees to comply with any reasonable
restrictions on the use of the Licensed Materials established by Licensor.
2. Term; Effects of Termination. (a) The term of this Agreement (the
"Term") shall commence on the date hereof and shall continue until terminated as
provided herein. Subject to Section 8 below, Licensor may terminate this
Agreement, on prior written notice to Licensee, in the event that: (i) Licensee
is in default of the terms of this Agreement and such default continues for more
than thirty (30) days after written notice thereof to Licensee and BAG, provided
that such default is not a result of the action or inaction of the BN Managers;
or (ii) Licensee files a petition in bankruptcy or is adjudicated a bankrupt or
insolvent, or makes an assignment for the benefit of creditors, or an
arrangement pursuant to any bankruptcy law, or if Licensee discontinues or
dissolves its business or if a receiver is appointed for Licensee or for
Licensee's business and such receiver is not discharged within 30 days.
Additionally, subject to Section 8 below, Licensor may terminate this Agreement
if Licensee makes any transfer which would allow for the termination of the Name
License Agreement pursuant to Section 7.5(b) of the LLC Agreement.
(b) Upon termination of this Agreement, subject to Section 8
below: (i) the License shall terminate; (ii) Licensee shall cease to use the
Licensed Materials; (iii) Licensee shall promptly return to Licensor all copies
of the Licensed Materials and (iv) Licensee shall execute and deliver to
Licensor any documents reasonably requested by Licensor to confirm Licensor's
ownership of the Licensed Materials.
3. Non-exclusivity. Nothing in this Agreement is intended to prevent
Licensor from entering into license agreements with others with respect to all
or any part of the Licensed Materials.
4. Limited Warranty. Licensor hereby represents and warrants to
Licensee that: (a) it owns or otherwise has the right to use the Licensed
Materials; (b) it has the right and power to grant the License to Licensee as
provided herein; and (c) the grant of the License to Licensee as provided herein
does not require the consent of any third party. EXCEPT AS EXPRESSLY PROVIDED IN
THE FOREGOING SENTENCE, LICENSOR MAKES NO REPRESENTATION OR WARRANTY WHATSOEVER,
WHETHER EXPRESS OR IMPLIED, WITH RESPECT TO ANY OF THE LICENSED MATERIALS OR ANY
INFORMATION, REPORTS OR OUTPUT GENERATED THEREBY. LICENSOR HEREBY DISCLAIMS ANY
IMPLIED WARRANTIES OF MERCHANTABILITY OR
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<PAGE>
FITNESS FOR ANY PARTICULAR PURPOSE. IN NO EVENT SHALL LICENSOR BE LIABLE TO
LICENSEE HEREUNDER FOR ANY CONSEQUENTIAL, PUNITIVE OR INCIDENTAL DAMAGES.
5. Ownership of Licensed Materials. All Licensed Materials, including
any copies, translations or compilations of all or any part thereof, and any
revisions, modifications or additions thereto made by Licensor or Licensee, are
and shall remain the sole exclusive property of Licensor, except for any
revisions, modifications or additions thereto which were made solely by
Licensee, which shall be owned by Licensee, but with respect to which Licensor
shall hereby be granted a non-exclusive, perpetual, non-revokable,
non-transferrable license to use. This Section 5 shall survive the termination
of this Agreement.
6. Confidentiality. Licensee acknowledges that the Licensed Materials
constitute valuable, confidential and proprietary information and trade secrets
of Licensor. Accordingly, Licensee shall not, except as permitted by the LLC
Agreement, the Agreements executed in connection therewith or the Business Plan,
directly or indirectly, during or after the Term, disclose or divulge to any
third party, or permit any third party to use or have access to, any of the
Licensed Materials, without the prior written consent of Licensor.
7. Injunctive Relief. Licensee acknowledges that money damages would
not adequately compensate Licensor in the event of a breach by Licensee of its
obligations hereunder, and that injunctive relief would be essential for
Licensor to adequately protect itself hereunder. Accordingly, Licensee agrees
that, in addition to any other remedies available to Licensor at law or in
equity, Licensor shall be entitled to injunctive relief in the event Licensee is
in breach of any covenant or agreement contained herein.
8. Sale of Licensor Interest; Effects of Termination. Notwithstanding
anything to the contrary contained herein, from and after the End Date (as
defined below) the License granted hereunder with respect to anything that
became a part of the Licensed Materials prior to the End Date shall become a
non-exclusive, perpetual, non-revokable, non-transferrable License and from and
after the End Date the License shall not cover any additional Licensed Materials
and from and after the End Date Licensor shall not have any obligation under
this Agreement to deliver any additional Licensed Materials to Licensee and
Licensee shall have no right to receive any additional Licensed Materials from
Licensor. "End Date" means the earlier to occur of (i) the date Licensor or any
of its Affiliates no longer have any interest in Licensee and (ii) the date that
this Agreement is terminated. This Section 8 shall survive the termination of
this Agreement.
9. Miscellaneous. (a) This Agreement shall be governed by the
internal laws of the State of New York without giving effect to the conflict of
law principles thereof.
(b) This Agreement sets forth the entire agreement between the
parties hereto with respect to the subject matter hereof and is intended to
supersede all prior negotiations, understandings and agreements. This Agreement
supersedes, and amends in its entirety, the Prior Agreement. No provision of
this Agreement may be waived or amended, except by a writing signed by Licensor
and Licensee.
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<PAGE>
(c) This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original and together which shall constitute
one and the same instrument.
(d) The failure of any party to exercise any right or remedy
provided for herein shall not be deemed a waiver of any right or remedy
hereunder.
(e) If any provision of this Agreement is determined by a court
of competent jurisdiction to be invalid or otherwise unenforceable, such
determination shall not affect the validity or enforceability of any remaining
provisions of this Agreement. If any provision of this Agreement is invalid
under any applicable statute or rule of law, it shall be enforced to the maximum
extent possible so as to effect the intent of the parties, and the remainder of
this Agreement shall continue in full force and effect.
(f) Any and all notices or other communications hereunder shall
be sufficiently given if in writing and sent by hand, telecopier, reputable
overnight courier or by certified mail, return receipt requested, postage
prepaid, addressed to the party to receive the same at its address as set forth
on page 1 hereof, or to such other address as the party to receive the same
shall have specified by written notice given in the manner provided for in this
Section 9(f). Such notices or other communications shall be deemed to have been
given on the date of such delivery. Any party may change its address for the
purpose of this Agreement by notice to the other parties given as aforesaid.
(g) This Agreement shall be binding upon and inure to the
benefit of each of the parties hereto and their respective successors and
assigns, provided that Licensee may not assign any of its rights hereunder
without the prior written consent of Licensor.
(h) The section headings used herein are for the convenience of
the parties only, are not substantive and shall not be used to interpret or
construe any of the provisions contained herein.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the date first set forth above.
BARNES & NOBLE, INC.
By: /s/ Marie J. Toulantis
-----------------------------------
Name: Marie J. Toulantis
Title: Executive Vice President
of Finance
barnesandnoble.com inc.
By: /s/ Marie J. Toulantis
-----------------------------------
Name: Marie J. Toulantis
Title: Executive Vice President,
Finance
-----------------------------------
barnesandnoble.com llc
By: barnesandnoble.com inc., its
managing member
By: /s/ Marie J. Toulantis
-------------------------------
Name: Marie J. Toulantis
Title: Executive Vice
President, Finance
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INDENTURE OF LEASE
THIS INDENTURE OF LEASE ("Lease") made as of the 7th day of June,
1994, by and between SDI TECHNOLOGIES, INC., a Delaware corporation, (successor
in interest to Soundesign Corporation), having an office at 1299 Main Street,
Rahway, New Jersey 07065 ("Landlord"), and B. DALTON BOOKSELLER, INC., a
Minnesota corporation, having an office at 122 Fifth Avenue, New York, New York
10011 ("Tenant").
FUNDAMENTAL LEASE PROVISIONS
Building: 308 Herrod Boulevard
South Brunswick, New Jersey
Landlord: SDI Technologies, Inc.
1299 Main Street
Rahway, New Jersey 07065
Tenant: B. Dalton Bookseller, Inc.
122 Fifth Avenue
New York, New York 10011
Tenant's Trade Name: Barnes & Noble
Main Term: Expires: September 30, 1995
Approximately 15 months
Renewal Term(s): See Addendum To Lease
Rent Commencement Date: The later to occur of (a) July 1, 1994
and (b) the date on which Landlord
delivers to Tenant the approvals
described in Section 4 of the Addendum to
Lease.
Basic Rent: See Addendum To Lease
GLA of the Premises: 100,000 square feet
Use: For the warehousing, processing,
packaging and distribution of books, book
related products, and other items
customarily sold in Barnes & Noble, B.
Dalton and Doubleday stores, for general
offices in connection therewith, and for
no other purpose.
<PAGE>
ARTICLE 1. INTRODUCTORY PROVISIONS
Section 1.01 References and Conflicts. The items described in the
Fundamental Lease Provisions are intended for easy reference and shall be deemed
to incorporate all of the terms and provisions relating thereto contained
elsewhere herein and shall be read in conjunction therewith. In the event of a
conflict between any such Fundamental Lease Provisions and any other provision
hereof, such other provision shall control.
Section 1.02 General Definitions.
(a) "Building" means the 300,137 square foot building located on
the Land and in which the Premises are located.
(b) "Common Areas" means all areas, facilities and improvements
provided on the Land or in the Building from time to time for the non-exclusive
common use of tenants and other invitees of and to the Building, and shall
include, but not be limited to, parking areas and facilities, stairways,
escalators, elevators, service corridors, seating areas, truckways, ramps,
delivery areas, landscaped areas, pedestrian and vehicular accessways, retaining
walls, lighting facilities and ingress and egress areas thereto, except in each
instance to the extent specifically included in the Premises or in portions of
the Land and/or Building leased to other tenants.
(c) "Fee Mortgage" means a certain mortgage made by Exit 8A,
L.P. ("Overlandlord") in favor of The Bank of Tokyo, Ltd., New York Agency (the
"Credit Bank") and Midlantic Bank, as successor Trustee (the "Trustee), to
secure a Letter of Credit issued by the Credit Bank in favor of the Trustee, for
the account of Overlandlord, in connection with the issuance by the New Jersey
Economic Development Authority ("NJEDA") of certain NJEDA bonds designated "New
Jersey Economic Development Authority Bonds (Exit 8A, L.P. - 1988 Project) (the
"Bonds") and the loan of the proceeds of the sale of the Bonds to Overlandlord
for the acquisition and construction of the Building, and all renewals,
modifications, consolidations, replacements or extensions thereof; and "Fee
Mortgagee" means the Credit Bank, Trustee of NJEDA, as applicable, or the holder
of or secured party under any renewal, modification, consolidation, replacement
or extension of any such Fee Mortgage.
(d) "GLA" means with respect to the Premises and all other
leasable areas, the number of square feet of area in the Building for the
exclusive use by the occupant thereof and its customers and invitees. GLA of the
Premises means 100,000 square feet. GLA of the Building means 300,137 square
feet, subject to Section 1.03 hereof. Such GLA of the Building and the GLA of
the Premises shall be utilized to calculate the GLA Fraction (as defined in
Section 1.02(d) and to make any other calculations required to determine the
Common Area Maintenance Costs (as hereinafter defined) and Tenant's
proportionate share of Taxes (as hereinafter defined). It is agreed that the GLA
of the Building and/or the Premises will be recalculated upon any increase or
decrease in the size thereof, but not solely as a result of a change in the
manner of determining GLA.
(e) "GLA Fraction" means a fraction, the numerator of which
shall be the GLA of the Premises and the denominator of which shall be the GLA
of the Building.
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(f) "Land" means those certain lots, parcels or pieces of land
situate, lying and being in South Brunswick, New Jersey, located at 308 Herrod
Boulevard and being more particularly described in Exhibit A annexed hereto and
made a part hereof.
(g) "Lease Interest Rate" means the lessor of (i) the rate
announced by Citibank, N.A. or its successor from time to time as its prime or
base rate, plus 2%, or (ii) the maximum payable legal rate, if any.
(h) "Premises" means the space situated in the Building and on
the Land in the locations marked as "Premises" on Exhibit B (including Tenant's
exclusive loading docks and exclusive parking area).
(i) "Underlying Lease" means a certain Agreement of Lease in
respect of the Land and the Building, dated June 28, 1988, between Overlandlord,
as landlord, and Soundesign Corporation, as tenant, and any amendment,
modification, renewal, replacement or extension thereof.
Section 1.03 Changes to Building. Landlord may at any time and from
time to time add land to or eliminate land from the Building, or eliminate land
from the Building, or eliminate or add any improvements, or changes or consent
to a change in the shape, size, location, number, height or extent of the
improvements to any portion of the Building. Landlord shall not, however, change
the dimensions of the Premises or materially adversely affect the access to or
parking for the Premises or Tenant's ability to conduct its business in the
Premises without Tenant's prior written consent. Landlord shall, upon any such
changes to the Building, recalculate the GLA the Building for the purposes
hereof.
ARTICLE 2. LEASE OF PREMISES
Section 2.01 Lease of Premises. Landlord, in consideration of the
Rent (as hereinafter defined) to be paid and the covenants to be performed by
Tenant, does hereby demise and lease unto Tenant, and Tenant hereby leases and
takes and hires from Landlord, for the Term and any Renewal Term(s) ("Term"), at
the rental, and upon the covenants and conditions herein set forth, the Premises
(including the exclusive right to use the loading docks and exclusive parking
area identified on Exhibit B).
Section 2.02 Premises Leased "AS-IS". Landlord agrees to deliver the
Premises to Tenant on the date hereof, broom clean, and Tenant agrees that
Landlord is under no obligation to prepare the Premises for Tenant's occupancy.
Tenant represents that the Premises, sidewalks, parking areas, loading docks and
Common Areas, and the present uses and non-uses thereof, have been examined by
Tenant, and Tenant agrees that it will accept the same in the condition or state
in which they or any of them are at the date hereof, without representation or
warranty, express or implied in fact or by law. Tenant acknowledges that
Landlord has prior to the date hereof removed the fence located in the Premises.
Notwithstanding anything to the contrary herein contained, Landlord represents
to Tenant that (a) to the best of Landlord's knowledge, except for such specific
requirements as are occasioned by Tenant's proposed manner of use of the
Premises, the Building is in compliance with all requirements of applicable law
which are conditions precedent to issuance of a certificate of occupancy for the
Premises, (b) to the best of Landlord's knowledge, the Building structure is
free from material defects, the Building systems are in good working order, and
there are no material leaks in the roof of the Premises, and (c) to the best of
Landlord's knowledge, there are no Hazardous Materials (as hereinafter
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defined) in the Premises. Landlord shall use its best efforts to enforce
Tenant's exclusive right to use Tenant's exclusive loading docks and parking
areas as set forth on Exhibit B, against all other persons including, without
limitation, other tenants of the Building and their employees, agents and
invitees.
ARTICLE 3. TERM
Section 3.01 Term of this Lease. The "Term of this Lease" (sometimes
herein called the "Term") shall include the Preliminary Term, the Main Term and
any renewal term ("Renewal Term").
Section 3.02 Preliminary Term. The "Preliminary Term" shall begin as
of the date of this Lease and, unless sooner terminated as herein provided,
continue thereafter through the day immediately prior to the Rent Commencement
Date.
Section 3.03 Main Term. The "Main Term" shall mean the period
starting on the Rent Commencement Date and, subject to the other terms and
conditions of this Lease, ending on the date set forth under Fundamental Lease
Provisions. "Lease Year" means each successive twelve (12) month period during
the Term commencing with the first day of the month in which the Rent
Commencement Date occurs, except that the first Lease year shall mean the Main
Term.
ARTICLE 4. RENT
Section 4.01 Tenant's Agreement to Pay Rent. Tenant hereby agrees to
pay for the use and occupancy of the Premises during the Term, at the times and
in the manner herein provided, the Basic Rent and Additional Rent. As used in
this Lease, the term "Rent" means, collectively, the Basic Rent and Additional
Rent.
Section 4.02 Rent Commencement Date. As used in this Lease, the term
"Rent Commencement Date" shall mean the date set forth under Fundamental Lease
Provisions as such.
Section 4.03 Basic Rent. Tenant shall pay Landlord as Basic Rent for
each Lease year the amount set forth on the Addendum To Lease attached hereto
and made a part hereof (the "Addendum To Lease"), which basic Rent shall be
payable in equal monthly installments, in advance, on the first day of each
calendar month, except that if the Rent Commencement Date is not the first day
of a calendar month, then that porion of such rent which is attributable to the
days in that first partial calendar month shall be paid, in advance, on the Rent
Commencement Date.
Section 4.04 Additional Rent. In addition to Basic Rent, Tenant shall
pay, as additional rent (herein sometimes collectively called "Additional
Rent"), all other sums of money or charges of whatever nature required to be
paid by Tenant to Landlord pursuant to this Lease, whether or not the same is
designated as "Additional Rent."
Section 4.05 Where Rent Payable And To Whom: No Deductions.
(a) Rent payable by Tenant under this Lease shall be paid when
due, without prior demand therefor (in the case of Basic Rent) and without
deduction, setoff, counterclaim, or abatement (except as otherwise herein
provided), by Tenant to Landlord at the address of Landlord set forth under
Fundamental Lease provisions, or to such payee and/or at such other
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place as may be designated from time to time by notice from Landlord to Tenant.
At the end of the Term of this Lease provided Tenant is not in default, Landlord
shall refund to Tenant any amount of excess Rent paid to Landlord and any other
amounts due from Landlord to Tenant.
(b) In the event any installment of Basic Rent under this Lease
shall not be paid to Landlord within ten (10) days of when due, a "Later Charge"
of five cents ($.05) per each dollar so overdue may be charged by Landlord, as
Additional Rent, for the purpose of defraying Landlord's administrative expenses
incident to the handling of such overdue payments.
ARTICLE 5. TAXES AND ASSESSMENTS
Section 5.01 Tenant's Proportionate Share. Commencing on the Rent
Commencement Date, Tenant shall pay to Landlord, as Additional Rent, Tenant's
proportionate share during the Main Term and any Renewal Term of all real estate
and other ad valorem taxes and assessments of every kind and nature (including,
but not limited to, general and special assessments, foreseen as well as
unforeseen) with respect to the Land and Building. Landlord represents that the
Land and Building are assessed separate from any other property. Such taxes and
assessments are collectively called the "Taxes" in this Lease. Tenant's
proportionate share of the Taxes shall be an amount equal to the product
obtained by multiplying the Taxes, and Landlord's reasonable expenses in
obtaining or attempting to obtain any refund or reduction thereof, by the GLA
Fraction (with daily proration for any Partial Lease year). With respect to any
assessments which may be levied as part of the Taxes, or which may be evidenced
by improvements or other bonds, or other bonds, or may be paid in installments,
only the amount of such installment (with daily proration for any Partial Lease
year) and statutory interest shall be included within the computation of Taxes
hereunder. Nothing contained in this Lease, however, shall be deemed or
construed to require Tenant to pay or discharge: (a) any tax or increase thereof
which may be levied as a result of the voluntary or involuntary assignment or
transfer of all or any portion of Landlord's interest not he Land and/or the
Building; (b) any tax upon the income, profits or business of Landlord; (c) any
personal property taxes, capital levy, franchise, gross receipts, revenue,
inheritance or estate taxes, income or profit, gift, payroll or stamp tax which
may be levied against the estate or interest of Landlord, however such taxes may
be designated, even though such taxes may become a lien against the Land and/or
the Building, unless during the Term and any Renewal Term, in lieu of the whole
or any part of Taxes, there shall be substituted therefor any of the foregoing,
but only to the extent the same would be payable if the Building was the only
property of the Landlord; or (d) any assessment for special improvements
heretofore installed or to be installed in connection with the initial
development of the building, such as, without limitation, the widening of the
exterior roads, the installation and/or hook up to sewers and sewer lines,
sanitary and storm drainage systems and other utility lines and installations
(whether public or private). Taxes which are attributable to the first and last
Lease Years shall be prorated based on a three hundred sixty-five (365) day year
and apportioned between Landlord and Tenant such that Tenant shall only be
responsible for Tenant's proportionate share of Taxes which are allocable to the
main Term and any Renewal Term.
Section 5.02 Payment By Tenant. The tax payment required under this
Article shall be paid by Tenant to Landlord quarterly, within thirty (30) days
of Landlord's presentation to Tenant of evidence of the amount of Taxes so paid,
together with a copy of the bill from the taxing authority and a calculation of
Tenant's proportionate share thereof.
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Section 5.03 Tenant's Business Taxes. Tenant shall pay before
delinquency all taxes, assessments, license fees and public charges levied,
assessed or imposed upon its business operation, as well as upon its leasehold
interest, trade fixtures, furnishings, equipment, leasehold improvements,
alterations, changes and additions made by Tenant, merchandise and personal
property of any kind owned, installed or used by Tenant in, on or upon the
Premises.
Section 5.04 Sales Tax. Tenant, and not Landlord, shall pay, when due
and payable, any sales or use tax, or other excise, tax or assessment, if any,
now or hereafter levied or assessed upon or against Tenant's or Landlord's
interest in the Rent to be paid under this Lease, or any portion thereof, or
Landlord's interest in this Lease. If at any time during the Term, a tax,
imposition, assessment or excise on rents or other tax, however described, is
levied or assessed against Landlord's interest in this Lease or the Rent
hereunder, as a substitute in whole or in part for any Taxes, then Tenant hereby
agrees that the amount thereof shall be deemed to be Taxes to the extent of such
substitution. Should the appropriate taxing authority require that any such tax,
excise and/or assessment be collected by Landlord for or on behalf of such
taxing authority, then such tax, excise and/or assessment shall be paid by
Tenant to Landlord as Additional Rent in accordance with the terms of any notice
from Landlord to Tenant to such effect.
Section 5.05 Refunds. Tenant shall be entitled to Tenant's
proportionate share of any refund or rebate of Taxes, less Landlord's reasonable
expenses incurred in connection therewith, which are allocable to the Main Term
and any Renewal Term.
ARTICLE 6. UTILITIES
Section 6.01 Utilities. Tenant shall obtain and pay for Tenant's use
of all gas, water, electricity, telephone, sanitary sewer and other utility
services used, rendered, or supplied to or in connection with the Premises by
direct application to or arrangement with the applicable public utility company
or companies servicing the Building.
Section 6.02 No Liability. Landlord shall not in any way be liable or
responsible to Tenant for any loss or damage or expense which Tenant may sustain
or incur if either the quantity or character of electric, gas, water, telephone,
sanitary sewer or other utility service is changed or interrupted or is no
longer available or suitable for Tenant's requirements, except and to the extent
due to the acts or negligence of Landlord, its agents, employees or contractors,
in which event the provisions of Section 22.17 hereof shall apply.
Section 6.03 Failure to Pay. Landlord may, in the event the charge
for any such utility is not paid by Tenant, pay the same to the utility company
or agency furnishing the same, and any amounts paid by Landlord shall be paid by
Tenant as Additional Rent hereunder for the month next following such payment by
Landlord, together with interest thereon at the Lease Interest Rate.
Section 6.04 Trash and Garbage Removal. Tenant shall be solely
responsible for trash and garbage removal from the Premises. In the event
Landlord elects to furnish such service to the tenants in the Building, Tenant
agrees to use only the service provided by Landlord and to pay for such service
monthly, as Additional Rent, in accordance with a uniform schedule of charges to
be established by Landlord; provided, however, that
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Landlord's charges therefor shall be commercially reasonable for the services so
provided.
ARTICLE 7. USE OF PREMISES
Section 7.01 Sole Use And Trade Name. Tenant shall use the premises
solely for the purpose and under the trade name set forth under fundamental
Lease Provisions. Tenant shall, at its expense, procure any and all governmental
licenses and permits, including without limitation, certificates of occupancy,
required for the conduct of Tenant's business on the Premises (provided,
however, that Landlord shall, at its expense, perform such work, if any, to the
structure or external portions of the Building and Common Areas as is necessary
to obtain Tenant's certificate of occupancy if and to the extent not required,
directly or indirectly, as a result of Tenant's manner of use of the Premises)
and shall, at all times, comply with the requirements of each such license and
permit. Landlord does not represent or warrant that it will obtain for Tenant
(or that Tenant will be able to obtain) any license or permit.
Section 7.02 Operational Requirements. Tenant agrees that it:
(a) will keep all mechanical apparatus free of vibration and
noise which my be transmitted beyond the confines of the Premises; will not
cause or permit strong, unusual, offensive or objectionable noise, odors, fumes,
dust or vapors to emanate or be dispelled from the Premises nor burn trash or
store or permit accumulations of any trash, garbage, rubbish or other refuse
outside of the Premises except in compactors or other receptacles until removed
from the Premises;
(b) will not load or permit the loading or unloading or permit
the loading or unloading of merchandise, supplies or other property, nor ship,
nor receive, outside Tenant's exclusive parking area and entrance shown on
Exhibit B as Tenant's exclusive loading dock and other areas and entrances
comprising a part of the Premises; will not permit the parking or standing
outside of said area of trucks, trailers, or other vehicles or equipment engaged
in such loading or unloading in a manner which may unreasonably interfere with
the use of any Common Areas or any pedestrian or vehicular use; will deep its
exclusive loading dock area(s), if any, free of refuse;
(c) will not paint or decorate any part of the exterior of the
Premises, or change the architectural treatment thereof, without first obtaining
Landlord's written approval of such painting or decoration;
(d) will keep the inside and outside of all glass in the doors
and windows of the Premises clean and will replace any glass broken with glass
of the same kind, size and quality; will not place or maintain any merchandise,
vending machines or other articles, on the sidewalks adjacent to the Premises or
elsewhere on the exterior thereof; will maintain the Premises at its own expense
in a clean, orderly and sanitary condition and free of insects, rodents, vermin,
and other pests;
(e) will comply with all applicable federal, state and local
environmental and other laws, rules, regulations, guidelines, judgments or
orders and all recommendations of any public agency having authority over
insurance rates with respect to the manner of use or occupancy of the Premises
by Tenant; and will not use or permit the use of any porion of the Premises for
any unlawful purpose; and
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(f) will not place or suffer to be placed or maintain on the
exterior walls of or roof over the Premises any sign, advertising matter or
other thing of any kind, without Landlord's prior written approval, which shall
not unreasonably be withheld or delayed.
ARTICLE 8. COMMON AREAS
Section 8.01 Use Of Common Areas. Tenant and its employees and
invitees are, except as otherwise specifically provided in this Lease,
authorized, empowered and privileged during the Term to use the Common Areas for
their respective intended purposes in common with other persons.
Section 8.02 Common Area Maintenance Costs; Roof.
(a) All Common Area Maintenance Costs incurred by Landlord shall
be charged and prorated in the manner hereinafter set forth. In this Lease, the
term "Common Area Maintenance Costs" shall mean all sums reasonably incurred in
connection with the management of the Building and the operation, maintenance
and repair of the Common Areas, including but not limited to, the costs and
expenses of:
(i) operating, maintaining, repairing, replacing,
lighting (including, without limitation, the cost of the electricity therefor),
cleaning, painting, and stripping of, and removing snow, ice and debris from,
the Common Areas, maintaining and repairing sanitary drainage systems and other
utility systems, Building signs and directories, directional signs and markers,
and on-site traffic regulation and control signs and devices;
(ii) premiums for insurance, if any, provided by Landlord
with respect to the Building and the Common Areas, including, without
limitation, liability insurance for bodily injury, death and property damage and
insurance on the Building and Common Areas against fire, extended coverage,
theft or other casualties;
(iii) exterior planting, replanting and replacing of
flowers, shrubbery, plants, trees and other landscaping, and all water used to
irrigate flowers, shrubbery, plants, trees and other landscaping constituting a
part of the Common Areas;
(iv) repair and maintenance of the Building structure and
roof (subject to the provisions of Section 8.06);
(v) maintenance and repair of any machinery and equipment
used in operation and maintenance of the Common Areas and all personal property
taxes and other charges incurred in connection with such equipment, if any; and
(vi) all license and permit fees and surcharges in
connection with any of the foregoing.
(b) Notwithstanding the foregoing, Common Area Maintenance Costs
shall not include:
(i) the cost of any repair or replacement required of
Landlord pursuant to the reconstruction obligations of Section 11.01;
(ii) depreciation;
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(iii) the salary of any of Landlord's home office
personnel;
(iv) all costs incurred in connection with or directly
related to the original construction (as distinguished from operation and
maintenance) of the Building and/or the Premises or any expansion or renovation
thereof;
(v) interest or payments on any financing for the
Building;
(vi) the cost of correcting defects in or inadequacies of
the design or construction of the Building or replacement of any of the original
materials or equipment required as a result of such defects or inadequacies;
(vii) any expense resulting from the negligence of
Landlord, its agents, servants or employees;
(viii) the cost of any repair to remedy damage caused by
or resulting from the negligence of any other tenants in the Building;
(ix) reserves for anticipated future expenses;
(x) legal and accounting fees, leasing commissions, so-
called "take-over" or "buy out" obligations, advertising expenses and other
costs incurred in connection with development or leasing of the Building or
future re-leasing of the Building;
(xi) any items for which Landlord is reimbursed by
insurance (or for which Landlord would have been so reimbursed but for
Landlord's failure to comply with its obligations under Section 10.02 hereof) or
otherwise compensated, including direct reimbursement by any tenant;
(xii) any bad debt loss, rent loss or reserves for bad
debts or rent loss;
(xiii) the cost (or any depreciation or amortization
thereof) of any alteration, addition, replacement, improvement, fixture and
equipment which under generally accepted accounting principles consistently
applied as pertaining to the real estate industry are properly classified as a
capital expense;
(xiv) the cost of providing improvements within the
premises of any tenants in the Building at any time;
(xv) any and all costs associated with the operation of
the business of the entity which constitutes Landlord, which costs are not
directly related to the operation, management, maintenance and repair of the
Building (by way of example, without limiting the foregoing, the formation of
the entity, internal accounting and legal matters, including but not limited to
preparation of tax returns and financial statements and gathering of data
therefor, costs of defending any lawsuits (including, without limitation,
expenses and legal fees incurred in enforcing leases against tenants), costs of
selling, syndicating, financing, mortgaging or hypothecating any of Landlord's
interest in the Building, and costs of any disputes between Landlord and its
employees);
(xvi) rent payable under any Underlying Lease;
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(xvii) all costs and expenses associated with the removal
and clean-up of asbestos, hazardous wastes or toxic substances;
(xviii) off-premises supervisory personnel or property
manager(s);
(xix) Taxes;
(xx) expenses relating to vacant or vacated space,
including, without limitation, utility and renovation costs; and
(xxi) amounts paid to entities affiliated with Landlord
to the extent that such amounts are commercially unreasonable.
(c) Landlord may cause any or all maintenance services for the
Common Areas to be provided by an independent contractor or contractors or other
parties.
Section 8.03 Tenant's Proportionate Share.
(a) Tenant shall pay to the Landlord, as Additional Rent,
Tenant's proportional Rent, Tenant's proportionate share of Common Area
Maintenance Costs in the manner set forth in Section 8.03(b) and (c) below.
Tenant's proportionate share of Common Area Maintenance Costs for each Lease
year shall be an amount equal to the Common Area Maintenance Costs incurred by
Landlord during that period multiplied by the GLA Fraction.
(b) Tenant shall pay Landlord on the Rent Commencement Date and
on the first day of each calendar month of the Main Term thereafter amounts
estimated by Landlord to be Tenant's monthly proportionate share of the Common
Area Maintenance Costs. Landlord may adjust either or both of said amounts at
the end of any calendar month on the basis of Landlord's experience and
reasonably anticipated costs; provided, however, that there shall be no more
than four (4) such adjustments in any Lease Year.
(c) Within ninety (90) days following the end of each Lease Year
or, if Landlord shall elect not to collect monthly estimates of Tenant's
proportionate share of Common Area Maintenance Costs, periodically but not more
often than quarterly, Landlord shall furnish to Tenant a statement covering such
period just expired, certified as correct by an authorized representative of
Landlord, showing Common Area Maintenance Costs and the amount of Tenant's
proportionate share of each of such costs for such period and the payments
theretofore made by Tenant with respect thereto. If Tenant's aggregate payments
for such Costs, if any, are greater than Tenant's proportionate share of such
Costs, Landlord shall reimburse Tenant for the amount of any such excess; if
such payments, if any, are less than such proportionate share, Tenant shall pay
to landlord the difference upon request, in either case within thirty (30) days
of the Tenant's receipt of such statement.
Section 8.04 Changes By Landlord. Landlord shall at all times have
the fight and privilege of determining the nature and extent of the Common
Areas, and of making such changes, rearrangements, additions or reductions
therein and thereto from time to time which in its opinion are deemed to be
desirable and for the best interest of a significant number of the persons using
the Common Areas, or which are made as a result of any federal, state or local
environmental or other law, rule, regulation, guideline, judgment or order,
including but not limited to, the location, relocation, enlargement, reduction
or addition of driveways, entrances,
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exits, automobile parking spaces, employee and invitee parking areas, the
direction of flow of traffic, installation of prohibited areas, landscaped
areas, and any and all other facilities of the Common Areas. Landlord (or others
entitled to) may from time to time make alterations, reductions, or additions to
the Common Areas or Building or any lands added thereto, construct additional
buildings or improvements on the Common Areas or elsewhere and make alterations
thereto, build additional stories on the Building, construct multi-level or
elevated or underground parking facilities, and construct roofs, walls, and any
other improvements over, or in connection with any part of, or all of, the
Common Areas in order to enclose same. Landlord shall not, however, change the
dimensions or location of the Premises or materially adversely affect the access
to or parking for the Premises and no such changes shall materially adversely
affect the conduct of Tenant's business.
Section 8.05 Exclusive Parking Area. Tenant and its employees shall
park their vehicles only in Tenant's exclusive parking area designated as such
on Exhibit B. Tenant shall furnish Landlord with a list of Tenant's and its
employees' vehicle license numbers within fifteen (15) days after landlord's
request therefor and Tenant shall thereafter notify Landlord of any and all
changes, additions and deletions to or from such list within five (5) days after
each such change occurs. Tenant shall notify each of its employees of the
provisions of this Section prior to their commencing any employment connected
with the Premises. Notwithstanding anything to the contrary herein contained,
Tenant shall only park or store truck trailers in Tenant's exclusive parking
area and adjacent to Tenant's exclusive loading docks and not in the Common
Areas. Landlord shall have the right to restrict the use of the designated
driveways and parking areas to one or more specified tenants, provided that any
such restriction does not materially adversely affect access to or parking for
the Premises or materially adversely affect the conduct of Tenant's business
thereat. Tenant shall cause its officers, employees and invitees to remove their
motor vehicles from Tenant's exclusive parking area and Common Areas at the end
of each working day. If any motor vehicle owned or operated by Tenant or by any
of its officers, employees or invitees remains in Tenant's exclusive parking
area or Common Areas overnight and the same interferes with the cleaning or
maintenance thereof (including snow removal), Tenant shall reimburse Landlord
for any costs incurred by Landlord for moving such motor vehicles and shall hold
harmless Landlord and its contractor from and against all claims for damages on
account of any loss or damage to such motor vehicle, except to the extent caused
by the negligence or willful misconduct of Landlord or its agents.
Section 8.06 Roof. Notwithstanding anything to the contrary herein
contained, Tenant shall, at Tenant's sole cost and expense, repair all leaks to
the roof comprising a part of the Premises, provided that the aggregate cost
thereof does not exceed $3,000.00 during the Main Term and $3,000.00 in any
Renewal Term. Landlord shall make all other repairs and replacements thereto as
more fully provided in Section 12.03 hereof.
ARTICLE 9. CONSTRUCTION WORK
Section 9.01 Approvals And Standards. Tenant shall not perform any
construction or make any alterations, additions or changes in or to the Premises
at any time during the Term (herein sometimes collectively called "Construction
Work") without Landlord's prior written consent, which consent shall not
unreasonably be withheld, conditioned or delayed. In no event shall Tenant make
or cause to be made any penetration through any roof, floor or exterior, party
or corridor wall without the prior written consent of
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Landlord. Tenant shall be directly responsible for any and all damages,
including, without limitation, damages to the Building, the Premises and the
premises of other tenants in the Building resulting from any of Tenant's
Construction Work, whether or not Landlord's consent therefor was obtained. Any
and all Construction Work which is consented to by Landlord shall be performed
in accordance with (a) plans and specifications prepared by a licensed architect
or engineer and approved in writing by the Landlord before the commencement of
the Construction Work, if applicable, (b) if applicable, all necessary
governmental approvals and permits, which approvals and permits Tenant shall
obtain at its sole expense, and (c) all applicable laws, rules, regulations and
building codes relating thereto. All Construction Work shall be performed in a
good and workmanlike manner and diligently prosecuted to completion. Any
Construction Work performed by Tenant without Landlord's consent shall be
returned to its original condition at Tenant's expense upon request by Landlord.
Tenant shall perform any Construction Work in such a manner as not to
unreasonably obstruct the access to the premises of any other occupant of the
building or unreasonably obstruct the Common Areas. Landlord hereby approves
Tenant's rack design for the Premises as set forth on Exhibit C attaches hereto
and made a part hereof, subject to Tenant's obligation to obtain all necessary
governmental approvals, including a certificate of occupancy, in connection
therewith.
Section 9.02 Insurance And Reconstruction. In the event Tenant shall
perform any Construction Work, none of the Construction Work need be insured by
Landlord under such insurance as Landlord may carry upon the Building, nor shall
Landlord be required under any provisions of this Lease relating to
reconstruction of the Premises to reconstruct or reinstall any such Construction
Work.
Section 9.03 Mechanic's Liens.
(a) Tenant will not permit to be created or to remain
undischarged any lien, encumbrance or charge (arising out of any work done or
materials or supplies furnished by any contractor, subcontractor, mechanic,
laborer or materialman or pursuant to any mortgage, conditional sale, security
agreement or chattel mortgage, or otherwise by or for Tenant) which might be or
become a lien or encumbrance or charge upon the Building or any portion thereof
or the income therefrom. Tenant will not suffer any other matter or thing
whereby the estate, rights and interests of Landlord in the Building or any
portion thereof might be impaired. If any lien or notice of lien on account of
any alleged debt of Tenant or any notice of contract by a party engaged by
Tenant or Tenant's contractor to work on the Premises shall be filed against the
Building or any portion thereof, Tenant shall within thirty (30) days after
demand from Landlord, cause the same to be discharged of record by payment,
deposit, bond, order of a court of competent jurisdiction or otherwise. If
Tenant shall fail to cause such lien or notice of lien to be discharged within
the period aforesaid, then, in addition to any other right or remedy, landlord
may, but shall not be obligated to, discharge such lien by deposit or by bonding
proceedings, and in any such event Landlord shall be entitled, if Landlord so
elects, to compel the prosecution of an action for the foreclosure of such lien
by the lienor and to pay the amount of the judgment in favor of the lienor with
interest, costs and allowances. Any amount so paid by Landlord and all costs and
expenses, including attorney's fees, incurred by Landlord in connection
therewith, shall constitute Additional Rent payable by Tenant under this Lease
and shall be paid by Tenant to Landlord on Rent payable by Tenant under this
Lease and shall be paid by Tenant to Landlord on demand. Nothing herein
contained shall obligate Tenant to pay or discharge any lien created by
Landlord.
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(b) Tenant shall pay promptly all persons furnishing labor or
materials with respect to any work performed by Tenant or Tenant's contractor in
the Premises. No work which Landlord permits Tenant to do shall be deemed to be
for the immediate use and benefit of Landlord so that no mechanic's or other
lien shall be allowed against the estate of Landlord by reason of any consent by
Landlord to Tenant to improve the Premises.
(c) the provision(s) of this Section 9.03 shall apply with
respect to any Construction Work performed in the Premises by Tenant or any
permitted assignee or sublessee at any time during the Term hereof.
ARTICLE 10. INDEMNITY AND INSURANCE
Section 10.01 Tenant's Insurance.
(a) Tenant further covenants and agrees that from and after the
date of delivery of the Premises from Landlord to Tenant, Tenant will carry and
maintain, at its sole cost and expense, general public liability insurance
covering the Premises and Tenant's use thereof, against claims for personal or
bodily injury or death and property damage occurring upon, in or about the
Premises, such insurance to afford protection of not less than $3,000,000 for
injury to or death of any number of persons arising out of any one occurrence
and such insurance against property damage to afford protection of not less than
$1,000,000 for any instance of property damage or a combined single minimum
coverage of not less than $3,000,000. The insurance coverage required under this
Section 10.01(a) shall, in addition, extend to any liability of Tenant arising
our of the indemnities provided for in Section 10.03 and during the period of
any Construction Work.
(b) All policies of insurance provided for in Section 10.01(a)
shall be issued in form reasonably acceptable to landlord by insurance companies
with a financial rating of not less than VIII and a general policy holders
rating for "A" as rated in the most current available "Best's" Insurance
Reports, and qualified to do business in the State of New Jersey. Each such
policy:
(i) shall be issued in the name of Tenant with Landlord
and any managing agent of Landlord (of which Tenant has been notified in
writing) as additional insureds thereunder;
(ii) shall (or a certificate thereof shall) be delivered
to Landlord at or prior to delivery of possession of the Premises to Tenant and
thereafter within thirty (30) days prior to the expiration of each such policy,
and, as often as any such policy shall expire or terminate, renewal or
additional policies shall be procured and maintained by Tenant in like manner
and to like extent;
(iii) shall contain a provision that the insurer will
give to Landlord at least thirty (30) days notice in writing in advance of any
material change, cancellation, termination or lapse, or the effective date of
any reduction in the amount of insurance;
(iv) shall be written as a primary policy which does not
contribute to and is not in excess of coverage which Landlord may carry; and
(v) shall contain a provision that Landlord, although
named as an insured, shall nevertheless be entitled to recover under said
policies for any loss occasioned to it, its servants, agents and employees by
reason of the negligence of Tenant.
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(c) Tenant agrees to permit Landlord at all reasonable time to
inspect the policies of insurance of Tenant with respect to the Premises for
which policies or copies thereof are not delivered to Landlord.
(d) Tenant shall be responsible for the maintenance and
replacement of the plate glass, if any, on the Premises but shall be entitled,
at its election, to self-insure such risk.
(e) Tenant may maintain the insurance required hereunder under
blanket policies covering the Premises and any other premises of Tenant or
companies affiliated with Tenant, provided that the coverage afforded will not
be reduced or diminished by reason of the use of such blanket policy.
Section 10.02 Landlord's Insurance.
(a) Landlord shall at all times during the Term carry and
maintain the following types of insurance in the amounts specified and in the
form hereinafter provided for:
(i) Public Liability and Property Damage. General public
Liability Insurance covering the Common Areas against claims for bodily injury
or death and property damage occurring upon, in or about the Common Areas, such
insurance to afford protection to the limit of not less than $3,000,000 in
respect of injury or death to any number of persons arising out of any one
occurrence and such insurance against property damage to afford protection to
the limit of not less than $1,000,000 in respect of any instance of property
damage or a combined single minimum coverage of not less than $3,000,000.
(ii) Landlord's Real and Personal Property. Insurance
covering the Building (excluding Tenant's improvements and personal property) in
an amount not less than one hundred percent (100%) of full replacement cost
(exclusive of the cost of excavations, foundations and footings), from time to
time during the Term, providing protection against perils included within the
standard state form of fire and extended coverage insurance policy, together
with insurance against sprinkler damage, vandalism and malicious mischief, and
such other risks as Landlord may from time to time determine and with any such
deductibles as Landlord amy from time to time determine.
(b) Any insurance provided for in Section 10.02(a) may be
maintained by means of a policy or policies of blanket insurance, covering
additional items or locations or insureds, provided that the requirements of
Section 10.02(a) are otherwise satisfied.
(c) Tenant shall have no rights in any policy or policies
maintained by Landlord and shall not be entitled to be a named insured
thereunder, by reason of payment as part of the Common Area Maintenance Costs,
of its proportionate share of Landlord's premiums for the insurance provided for
in this Section 10.02.
Section 10.03 Indemnification by Tenant. Tenant agrees that Landlord
shall not be liable for any damage or liability or any kind or for injury or
death of persons or damage to property of tenant or any other person during the
Term, from any cause whatsoever by reason of the construction, use, occupancy or
enjoyment of the Premises by Tenant or any person therein or holding under
Tenant. Tenant does hereby indemnify and save harmless Landlord from all claims,
actions, demands, costs and expenses and liability whatsoever, including
reasonable attorneys' fees, on account of
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any such real or claimed damage or liability, and form all liens, claims and
demands occurring in, or at the Premises, or arising out of the construction,
use, occupancy or enjoyment of the Premises and its facilities, or any repairs
or alterations which Tenant may make upon the Premises, or occasioned in whole
or in part by any act or omission of Tenant, its agents, contractors, servants,
employees or invitees. Tenant shall not, however, be liable for damage or injury
occasioned by the acts of Landlord or its agents, contractors, servants or
employees.
Section 10.04 Mutual Waivers. Landlord and Tenant hereby waive any
rights each may have against the other on account of any loss or damage
occasioned to the property of Landlord or Tenant, as the case may be, arising
from any risk generally covered by fire and extended coverage insurance,
provided that such waiver does not invalidate such policies or prohibit recovery
thereunder. The parties hereto each, on behalf of their respective insurance
companies insuring the property of either Landlord or Tenant against any such
loss, waive any right of subrogation that such insurer or insurers may have
against Landlord or Tenant, as the case may be. Tenant and Landlord shall each
use its best efforts to obtain such waiver from its insurers.
Section 10.05 Compliance With Governmental Requirements. Tenant
agrees at its own expense to comply with all requirements of governmental
authorities having jurisdiction over the premises and its use and occupancy, to
the extent attributable, directly or indirectly, to Tenant's manner of use of
the Premises, including but not limited to, installation of fire extinguishers
or automatic dry chemical extinguishing systems, any changes, modifications or
alterations in the sprinkler system, if any, or additional sprinkler had or the
location of partitions, trade fixtures or other contents of the Premises.
Landlord agrees at its own expense to comply with all requirements of
governmental authorities having jurisdiction over the Land and the Building, if
and to the extent (a) Tenant is not otherwise obligated hereunder so to do and
(b) the failure to so comply with require Tenant to vacate all or any material
portion of the Premises or materially adversely affect the conduct of Tenant's
business therein or thereat or subject Tenant to loss, liability, cost or
expense upon any failure to so vacate all or such portion of the Premisses.
Section 10.06 Effect On Landlord's Insurance. Tenant shall not do or
suffer to be done, or keep or suffer to be kept, anything in, upon or about the
Premises which will contravene Landlord's policies of insurance against loss or
damage by fire or other hazards, or which will prevent Landlord from procuring
such policies in companies acceptable to Landlord or which will in any way cause
an increase in the insurance rates upon any portion of the Building. Landlord
acknowledges and agrees that Tenant's rack design, as set forth on Exhibit C,
shall not be deemed to so increase such insurance premiums.
Section 10.07 Limit Of Landlord's Responsibility. Except as otherwise
provided for in Section 22.17 hereof, Landlord shall not be responsible or
liable to Tenant for any loss or damage that may be occasioned through the acts
or omissions of persons occupying space adjoining the Premises or any other part
of the Building, or for any loss or damage to the Tenant or its property from
bursting, stoppage or leasing of water, gas, sewer or steam pipes or for any
damage or loss of property within the Premises from any cause whatsoever. Such
limitation of responsibility and liability shall not, however, apply to
Landlord's active negligence or willful acts, except to the extent such
negligence and willful acts are waived by Tenant pursuant to Section 10.04.
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ARTICLE 11. RECONSTRUCTION
Section 11.01 Landlord's Duty To Reconstruct. In the event the
Building is damaged or destroyed by fire or other casualty, Landlord shall
(subject to being able to obtain all necessary permits and approvals therefor,
including, without limitation, permits and approvals required from any agency or
body administering environmental laws, rules or regulations), within thirty (30)
days after such damage or destruction (unless Landlord or Tenant terminates this
Lease pursuant to Section 11.02), commence to (a) repair or reconstruct the
Building, and (b) repair or reconstruct the Premises to substantially the same
condition as the Premises were originally delivered to Tenant. Landlord shall
prosecute all such work diligently to completion.
Section 11.02 Termination. Landlord shall have the option to
terminate this Lease upon giving written notice to Tenant of the exercise
thereof within thirty (30) days after the Building is damaged or destroyed if:
(a) the Premises are rendered wholly unfit for carrying on
Tenant's business after damage to or destruction thereof from any cause; or
(b) the Building is materially damaged or destroyed as a result
of any risk not covered by insurance which Landlord is obligated to procure
pursuant to Section 10.02(a)(ii) and Landlord simultaneously terminates all
other leases in the Building; or
(c) the reasonably estimated cost of each repair or
reconstruction exceeds twenty-five percent (25%) of the replacement cost
(exclusive of the cost of excavations, foundations and footings) of the Building
and Landlord simultaneously terminates all other leases in the Building; or
(d) twenty-five percent (25%) or more of the GLA in the Building
immediately prior to the damage or destruction is rendered unfit for carrying on
business therein and Landlord simultaneously terminates all other leases in the
Building.
Unless so terminated, this Lease shall continue in full force and
effect; provided, however, if Landlord shall not have elected to terminate this
Lease and (i) the repair or reconstruction shall not be substantially completed
within ninety (90) days after such damage or destruction, or (ii) the Premises
cannot reasonably be expected to be materially restored on or prior to the date
which is ninety (90) days prior to the expiration of the Main Term or any
Renewal Term, or (iii) if the Premises is rendered unfit for carrying on
Tenant's business and Tenant therefore ceases to conduct business thereat for a
period of ninety (90) days or (iv) if access to the Premises is denied upon such
fire or casualty and cannot be restored within ninety (90) days after such
denial, Tenant shall have the right to terminate this Lease upon written notice
to Landlord. Upon any termination of this Lease under any of the provisions of
this Section, the Rent shall be adjusted as of the date of such termination and
the parties shall be released thereby without further obligation to the other
party coincident with the surrender of possession of the Premises to the
Landlord, except for items which have theretofore accrued and are then unpaid.
Section 11.03 Abatement Of Rent. If this Lease is not terminated by
Landlord or Tenant pursuant to Section 11.02 after damage or destruction of the
Building, and if the Premises are rendered wholly or partially unfit
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for carrying on Tenant's business, or if access thereto is denied by such damage
or destruction, then the Basic Rent and the Additional Rent payable by Tenant
under this Lease during the period which the Premises are so rendered unfit or
access thereto is denied shall be abated in direct proportion to the percentage
of the GLA of the Premises which is rendered unfit.
ARTICLE 12. MAINTENANCE OF PREMISES, BUILDING AND COMMON AREAS
Section 12.01 Tenant's Use Of Roof. Tenant is hereby given a non-
exclusive right to use that part of the roof of the building located within the
lines formed by projecting the perimeter wall lines of the premises vertically,
such use being solely for the maintenance and repair by Tenant of the heating,
ventilating and air conditioning system serving the office portion of the
Premises; provided that no roof penetrations shall be made without Landlord's
written consent, and provided further that Tenant shall, at its expense,
promptly repair any damage or wear to the roof resulting in whole or in part
from such use.
Section 12.02 Tenant's Duty To Maintain Premises. Tenant will at all
times, from and after delivery of possession of the Premises to Tenant, at its
own cost and expense, maintain the Premises in good and tenantable condition,
and make all needed repairs to the Premises and every part thereof. Tenant's
obligations under this Section shall include, but not be limited to, repairing
and maintaining items as are required by any governmental agency having
jurisdiction thereof (whether the same is ordinary or extraordinary, foreseen or
unforeseen), walls, ceilings, utility meters, pipes and conduits outside the
Premises which are installed by Tenant or that exclusively serve the Premises,
all fixtures, heating, ventilating and air conditioning equipment (whether such
heating, ventilating and air conditioning equipment is located inside the
Premises or on the roof of the building and whether such equipment was installed
by landlord or Tenant), sprinkler equipment and other equipment within the
Premises, automatic adjusting loading bay devices or docks, all Tenant's signs,
security grilles or similar enclosures, locks and closing devices, and all
window sash, casement or frames, doors and door frames; provided, however, that
Tenant shall not be required to make structural repairs and replacements to the
Premises or any part thereof unless required, directly or indirectly, as a
result of Tenant's manner of use of the Premises.
Section 12.03 Landlord's Duty to Maintain Building. Landlord will at
all times, from and after delivery of possession of the Premises to Tenant, at
its own cost and expense subject to reimbursement of Common Area Maintenance
Costs (if applicable), make all structural repairs and replacements, interior
and exterior, to the building and the Premises, including the roof (subject to
Section 8.06), roof membrane, parapet, leaders and gutters, foundations and
bearing walls, whether ordinary or extraordinary, shall maintain and repair all
Building systems which are not Tenant's obligation to maintain and repair
pursuant to Section 12.02 and the Common Areas, shall replace the heating,
ventilation and air conditioning equipment serving the Premises if inoperable or
inadequate for its intended use and not repairable, in each case unless and to
the extent caused by or required as a result of the misuse, act or neglect of
Tenant or Tenant's agents, employees or invitees.
Section 12.04 Right Of Access To The Premises. Landlord and its
authorized representatives may enter the Premises upon reasonable advance notice
during usual business hours for the purpose of inspecting the same. Tenant
further agrees that Landlord may from time to time go upon the Premises and make
any additions, alterations, or repairs to the Premises or
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to any utilities, systems or equipment located in, above or under the Premises
which are required of Landlord pursuant to this Lease, are deemed necessary by
Landlord in the exercise of sound property management practices, or are required
in order to comply with the laws, ordinances, rules or regulations of any public
authority or of risk insurers or of any similar public or private body;
provided, however, that if in the course of prosecuting any such additions,
alterations or repairs (other than such as are required by reason of Tenant's
failure to perform its obligations hereunder or its agents, employees or
invitees misuse, neglect or negligent acts), Tenant's use of the Premises in
substantially the manner thereto fore used is materially adversely affected,
tenant shall be entitled to an abatement of the Rent for the period and to the
extent of such material adverse affect.
Section 12.05 Conflict. To the extent, if any, that there is a
conflict between this Article and Article 11, or between this Article and
Article 21, then Article 11 or Article 21, as applicable, shall prevail.
ARTICLE 13. FIXTURES AND PERSONAL PROPERTY
Section 13.01 Tenant's Property; Removal. Any trade fixtures,
removable light fixtures, signs, computers, shelving, inventory, showcases,
equipment and other personal property of Tenant not a part of the Premises on
the date hereof and not permanently affixed to the Premises shall remain the
property of Tenant. Landlord acknowledges that Tenant's racks shall not be
deemed to be permanently affixed to the Premises. Tenant shall have the right,
at any time and from time to time during the Term, to remove any and all of its
personal property which it may have stored or installed in the Premises. Tenant
at its expense shall immediately repair any damage occasioned to the Premises by
reason of installation or removal of any such personal property unless such
damage is caused by Landlord's negligence or willful misconduct and shall
replace any such personal property which is a part of the Premises on the date
hereof and is removed by Tenant. If this Lease expires or is terminated for any
reason except termination by Landlord pursuant to Section 11.02 and Tenant fails
to remove such items from the Premises prior to such expiration or termination,
or if this Lease is terminated by Landlord pursuant to Section 11.02 and Tenant
fails to remove such items from the Premises on or before thirty (30) days after
the effective date of such termination, then in any such event all such personal
property shall thereupon become the property of Landlord, without further act by
either party hereto, unless Landlord elects to require their removal, in which
case Tenant shall promptly remove same and restore the Premises to its prior
condition at Tenant's expense.
Section 13.02 Improvements To Premises. All improvements to the
Premises by Tenant, including, but not limited to alterations, changes and
additions by Tenant, floor coverings and partitions, but excluding trade
fixtures and signs and other personal property specified in Section 13.01, shall
become the property for Landlord upon expiration or earlier termination of this
Lease; provided, however, that Landlord may designate by written notice to
Tenant those alterations, changes, and additions made in the Premises after the
Rent Commencement Date which shall be removed by Tenant at the expiration or
termination of this Lease, in which event Tenant shall promptly remove the same
and repair any damage to the Premises caused by such removal or installation of
such alterations, changes or additions; provided, however, that Tenant shall not
be required to remove computer or telephone wiring.
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ARTICLE 14. ASSIGNMENT AND SUBLETTING
Section 14.01 Prohibited. Tenant shall not transfer, assign, sublet,
enter into license or concession agreements, or mortgage or hypothecate this
Lease of the Tenant's interest in and to the Premises or any part thereof
(herein collectively referred to as "Transfer") without first obtaining in each
and every instance the prior written consent of Landlord, which consent shall
not unreasonably be withheld or delayed, and of any Overlandlord and Fee
mortgagee. Any attempted Transfer shall not be binding upon Landlord and Fee
Mortgagee. Any attempted Transfer shall not be binding upon Landlord and shall
confer no rights upon any third person, unlet consented to as aforesaid. Any
Transfer of this Lease from Tenant by liquidation or otherwise by operation of
law, including, but not limited to, an assignment for the benefit of creditors,
shall be included in the term "Transfer" for the purposes of this Lease and
shall be a violation of this Section. Consent by Landlord to any Transfer shall
not constitute a waiver of the necessity for such consent to any subsequent
Transfer. If this Lease or Tenant's interest in the Premises or any part thereof
be transferred after having obtained Landlord's prior written consent thereto,
Tenant agrees nevertheless to remain fully liable for the full performance of
each and every obligation under this Lease to be performed by Tenant.
Section 14.02 Merger, Consolidation, etc. Notwithstanding anything
contained herein to the contrary, Tenant may, without the consent of Landlord,
from time to time and at any time but provided that the conditions hereinafter
set forth are fulfilled (i) assign or otherwise transfer this Lease to or (ii)
sublet or otherwise permit the use of all or any portion of the Premises by, any
of the following (each, a "Related entity"): (a) any parent, subsidiary or
affiliate corporation or entity; or (b) any corporation resulting from the
consolidation or merger of Tenant into or with any other entity; or (c) any
person, firm, entity or corporation acquiring a majority of Tenant's issued and
outstanding capital stock or substantially all of Tenant's physical assets; or
(d) any corporation or entity to which Tenant transfers or assigns a majority of
the leases for Tenant's "Barnes & Noble" and/or "B. Dalton" stores. As used
herein, the expression "affiliate corporation or entity" means a person or
business entity, corporate or otherwise, that, through one or more
intermediaries, controls or is controlled by, or is under common control with
Tenant or is purchasing the business which Tenant conducts at the Premises. The
word "control" means the right and power to direct or cause the direction of the
management and policies of a person or business entity, corporation or
otherwise, through ownership of voting securities, by contract or otherwise. In
no event shall any stock transfer or public offering by Tenant, by any
corporation holding the stock of Tenant or by any corporation to which this
Lease has been transferred be deemed an assignment or require landlord's
consent.
ARTICLE 15. DEFAULTS BY TENANT
Section 15.01 Events Of Default. This Lease is made upon the
condition that Tenant shall punctually and faithfully perform all of the
covenants, conditions and agreements by it to be performed as in this Lease set
forth. The following shall each be deemed to be an event of default (each of
which is sometimes referred to as an "Event of Default" in this Lease):
(a) the failure by Tenant to pay the Rent or any installment or
year-end adjustment thereof when due pursuant to section 4.03 and 4.04, when
such failure continues for a period of ten (10) days after written notice
thereof;
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(b) if Tenant abandons the Premises;
(c) the failure of Tenant to observe or perform any of the
covenants, terms or conditions set forth in Article 14 (relating to assignment
and subletting), when such failure continues for a period of ten (10) days after
written notice thereof;
(d) the failure of Tenant to observe or perform any of the other
covenants, terms or conditions set forth in this Lease, when such failure
continues for a period of thirty (30) days after written notice thereof from
Landlord to Tenant (unless such failure cannot reasonably be cured within thirty
(30) days and Tenant shall have commenced to cure said failure within thirty
(30) days and continues to pursue the curing of the same until completed);
(e) the estate created in Tenant hereby is taken in execution or
by other process of law, or all or a substantial part of the assets of Tenant is
placed in the hands of a liquidator, receiver or trustee (and such receivership
or trusteeship or liquidation continues for a period of thirty (30) days), or
Tenant makes an assignment for the benefit of creditors, or admits in writing
that it cannot meet its obligations as they become due; or
(f) subject to Section 365 of the Bankruptcy Law, Tenant is
adjudicated a bankrupt, or Tenant institutes any proceedings under any federal
or state insolvency or bankruptcy law as the same now exists or under an
amendment thereof which may hereafter be enacted, or under any other act
relating to the subject of bankruptcy wherein the Tenant seeks to be adjudicated
a bankrupt, or to be discharged of its debts, or to effect a plan of
liquidation, composition or reorganization, or should any involuntary
proceedings be filed against Tenant under any such insolvency or bankruptcy law
(and such proceeding not be removed within sixty (60) days thereafter). If any
insolvency proceedings, such as those referred to in this Section 15.01(g),
agree instituted against Tenant, the Premises shall not become an asset in any
such proceedings.
Section 15.02 Landlord's Remedies. Landlord may treat any Event of
Default as a breach of this Lease. Landlord's failure to insist upon strict
performance of any covenant, term or condition of this Lease or to exercise any
right or remedy it has herein shall not be deemed a waiver or relinquishment for
the future of such performance, right or remedy. In addition to any and all
other rights or remedies of Landlord in this Lease or by law or equity provided,
Landlord shall have the following rights and remedies if there shall occur any
Event of Default:
(a) to terminate the Lease, and to re-enter the Premises and
take possession thereof and to remove all persons therefrom, and Tenant shall
have no further claim or right hereunder;
(b) to bring suit for the collection of Rent and for damage
(including, without limitation, reasonable attorneys' fees and the cost of
repairing and reletting the Premises) without entering into possession of the
Premises or canceling this Lease. Commencement of any action by Landlord for
Rent and damages shall not be construed as an election to terminate this Lease
and shall not absolve or discharge Tenant from any of its obligations or
liabilities for the remainder of the Term; and
(c) to retake possession of the Premises from Tenant by summary
proceedings. To the extent permitted by law, Tenant waives notice of re-entry or
institution of legal proceedings and any right of redemption, re-
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entry or repossession. Commencement of any action by Landlord for re-entry shall
not be construed as an election to terminate this Lease and shall not absolve or
discharge Tenant from any of its obligations or liabilities for the remainder of
the Term. If, in the event of any ouster, Landlord re-lets the Premises, Tenant
shall continue to be liable for the payment of any deficiencies in Rent after
such re-let. In the event of any re-entry, Landlord shall have the right but not
the obligation to remove any personal property from the Premises and place the
same in storage at a public warehouse at the expense and risk of the owner.
Section 15.03 Damages Upon Termination.
(a) If Landlord elects to terminate this Lease under the
provisions of Section 15.02(a) above, Landlord may recover from Tenant damages
computed in accordance with the following formula in addition to its other
remedies:
(i) the worth at the time of judgment of any unpaid Rent
which has been earned at the time of such termination; plus
(ii) the worth at the time of judgment of the amount by
which the unpaid Rent which would have been earned after termination until the
time of judgment (provided the same is prior to the date scheduled to be the
expiration of the Term) exceeds the amount of such rental loss Tenant proves
could have been reasonably avoided; plus
(iii) the worth at the time of judgment of the amount by
which the unpaid Rent for the balance of the Term after the time of judgment
exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided; plus
(iv) any other amount necessary to compensate Landlord
for all the detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom including, without limitation, the cost of the
repairing and reletting the Premises and reasonable attorneys' fees (but no
other consequential damages); plus
(v) at the Landlord's election, such other amounts in
addition to or in lieu of the foregoing as may be permitted from time to time by
applicable law. Damages shall be due and payable from the date of termination.
As used in this Section, the phrase "worth at the time of judgment" is computed
by adding to the past Rent due or discounting from unpaid future Rent, interest
at the rate of eight and one-half percent (8.5%) per annum.
Section 15.04 Landlord's Self-Help. In addition to Landlord's rights
of self-help set forth elsewhere in this Lease, upon an Event of Default,
Landlord shall have the right, but not the obligation, upon giving Tenant at
least three (3) days prior written notice of its election to do so (in the event
of any emergency no prior notice shall be required) to perform such obligations
on behalf of and for the account of Tenant and to take all such action to
perform such obligations. In such event, Landlord's reasonable costs and
expenses incurred therein shall be paid for by Tenant as Additional Rent,
forthwith, upon demand therefor, with interest thereon from the date Landlord
performs such work at the Lease Interest Rate. The performance by Landlord of
any such obligation shall not constitute a release or waiver of Tenant
therefrom.
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ARTICLE 16. LIABILITY OF LANDLORD
Section 16.01 Limitation. Tenant agrees that the obligations of
Landlord under or with respect to this Lease do not constitute personal
obligations of Landlord or of the partners, trustees, directors, officers,
shareholders, beneficiaries or advisors of Landlord or of any partnership which
is a partner of Landlord, or any of them, and shall not create or involve any
claim against, or personal liability on the part of, Landlord or the partners,
trustees, directors, advisors, shareholders or officers of Landlord or of any
partnership which is a partner of Landlord and that Tenant and all persons
claiming by or under Tenant will look solely to the interest of Landlord and
Overlandlord (for so long as Overlandlord is Exit 8A, L.P. or any entity
affiliated therewith) in the Land and Building for satisfaction of any liability
of Landlord in respect of this Lease and will not seek recourse against any
other assets of Landlord or against the partners, trustees, directors, advisors,
shareholders or officers of Landlord or of any partnership which is a partner of
Landlord, or any of them, or any of their personal assets for such satisfaction.
Section 16.02 Transfer Of Landlord's Interest. In the event of
the sale or other transfer of Landlord's right, title and interest in the
Premises or the Building (except in the case of a sale-leaseback financing
transaction in which Landlord is the lessee), and Landlord thereupon and without
further act by either party hereto shall be released from all liability and
obligations hereunder derived from this Lease arising out of any act, occurrence
or omission relating to the Premises or this Lease occurring after the
consummation of such sale or transfer. Tenant shall have no right to terminate
this Lease nor to abate Rent nor to deduct from nor setoff nor counterclaim
against Rent because of any sale or transfer (including, without limitation, any
sale-leaseback) by Landlord or its successors or assigns.
ARTICLE 17. SUBORDINATION AND ATTORNMENT
This Lease is and shall be subject and subordinate to (a) any
Underlying Lease and to any amendment, modification, renewal or extension
thereof and (b) any Fee Mortgage and to each and every advance made thereunder
and to all renewals, modifications, amendments, consolidations, replacements or
extension thereof. This clause shall be self operative and no further
instrument of subordination shall be required; provided, however that Landlord
shall use its best efforts to obtain from any Overlandlord and Fee Mortgagee a
nondisturbance and attornment agreement in form reasonably satisfactory to
Tenant and such Overlandlord or Fee Mortgagee, as applicable. In no event shall
the acquisition of title to the Building by a purchaser which, simultaneously
therewith, leases the entire building back to the seller thereof be treated as
an assumption, by operation of law or otherwise, of Landlord's obligations
hereunder, but Tenant shall look solely to such seller-lessee, and its
successors from time to time to time in title, for performance of Landlord's
obligations hereunder. For all purposes, such seller-lessee, and its successors
in title, shall be the landlord hereunder unless and until Landlord's position
shall have been assumed by such purchaser-lessor. Tenant agrees that, upon the
request of Landlord, or any such Fee Mortgagee or Overlandlord, Tenant shall
execute and deliver whatever instruments may be reasonably required for such
purposes and to carry out the intent of this Article.
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ARTICLE 18. ESTOPPEL CERTIFICATES
Section 18.01 Tenant's Agreement To Deliver. From time to time,
within twenty (20) days after request in writing therefor from Landlord, Tenant
agrees to execute and deliver to Landlord or to any Fee Mortgagee, a statement
in writing in such form as is reasonably required by Landlord or such Fee
Mortgagee, stating (a) the Rent Commencement Date and date of expiration of the
Main Term or any Renewal Terms, as applicable, (b) the Basic Rent and
Additional Rent payable hereunder and the date(s) through which paid, (c) the
amount of any Security Deposit hereunder, (d) the square footage of the portion
of the building leased hereby, (e) whether, to the best of Tenant's knowledge,
there exist any uncured defaults hereunder on the part of either Landlord or
Tenant and (f) such other matters as are reasonably requested by Landlord or
such Fee Mortgagee.
ARTICLE 19. QUIET ENJOYMENT
Section 19.01 Faithful Performance. Upon payment by the Tenant of the
Rent herein provided for, and upon the observance and performance of all of the
agreements, covenants, terms and conditions on Tenant's part to be observed and
performed, Tenant shall peaceably and quietly hold and enjoy the Premises for
the Term without hindrance or interruption by Landlord or any other person or
persons lawfully or equitably claiming by, through or under Landlord, subject,
nevertheless, to the terms and conditions of this Lease, and mortgages, leases
and other matters to which this Lease is subordinate.
ARTICLE 20. SURRENDER AND HOLDING OVER
Section 20.01 Delivery After Term. Tenant shall deliver up and
surrender to Landlord possession of the Premises upon expiration or earlier
termination of the Term, broom clean, free of debris, in good order, condition
and state of repair (excepting ordinary wear and tear), and shall deliver the
keys to Landlord. If not sooner terminated as herein provided, this Lease shall
terminate at the end of the Main Term as provided for in Article 3 without the
necessity of notice from either Landlord or Tenant to terminate the same,
Tenant hereby waiving notice to vacate the Premises and agreeing that Landlord
shall be entitled to the benefit of all provisions of law respecting the
summary recovery of possession of premises from a tenant holding over to the
same extent as if statutory notice had been given.
Section 20.02 Effect Of Holding Over; Rent. If Tenant or any party
claiming under Tenant remains in possession of the Premises, or any part
thereof, after any termination of this Lease, no tenancy or interest in the
Premises shall result therefrom but such holding over shall be an unlawful
detainer and all such parties shall be subject to immediate eviction and
removal, and Tenant shall pay upon demand to Landlord during any period which
Tenant shall hold the Premises after the Term has expired, as liquidated
damages, a sum equal to all Additional Rent provided for in this Lease plus an
amount computed at the rate of 200% of the then applicable Basic Rent for such
period.
ARTICLE 21. CONDEMNATION
Section 21.01 All Of Premises Taken. If the whole of the Premises
shall be taken or condemned either permanently or temporarily for any public or
quasi-public use or purpose by any competent authority in appropriation
proceedings or by any right of eminent domain or by agreement or conveyance in
lieu thereof (each being hereinafter referred to as "Condemnation"), this Lease
shall terminate as of the day possession shall be taken by such
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authority, and Tenant shall pay Rent and perform all of its obligations under
this Lease up to that date with a refund by Landlord of any Rent as shall have
been paid in advance for a period subsequent to the date of the taking.
Section 21.02 Less Than All Of The Premises Taken. If less than
all but more than twenty-five percent (25%) of the GLA in the Premises is taken
by Condemnation, or if (regardless of the percentage of the GLA in the Premises
which is taken), the remainder of the Premises cannot be used for the carrying
on of Tenant's business, then in either event Landlord or Tenant shall have the
right to terminate this Lease upon notice in writing to the other party within
ninety (90) days after possession is taken by such Condemnation. If this Lease
is so terminated, it shall terminate as of the day possession shall be taken by
such authority, and Tenant shall pay Rent and perform all of its obligations
under this Lease up to that date with a proportionate refund by Landlord of any
Rent as may have been paid in advance for a period subsequent to the date of the
taking. If this Lease is not so terminated, it shall terminate only with respect
to the parts of the Premises so taken as of the day of possession shall be taken
by such authority, and Tenant shall pay Rent up to that day with a refund by
Landlord of any Rent as may have been paid for a period subsequent to the date
of the taking on account of the portion of the Premises taken and, thereafter,
the Rent shall be reduced in direct proportion to the amount of GLA of the
Premises taken and Landlord agrees, at Landlord's cost and expense, as soon as
reasonably possible to restore the portion of the Premises remaining to a
complete unit of similar quality and character as existed prior to such
appropriation or taking (to the extent feasible); provided that Landlord shall
not be required to expend more on such restoration than an amount equal to the
condemnation award received by Landlord (less all expenses, costs, legal fees
and court costs incurred by Landlord in connection with such award) for the GLA
so taken multiplied by a fraction, the numerator of which is the GLA in the
Premises which was taken and the denominator of which is the GLA in the Building
which was taken, and Rent shall be equitably abated hereunder on account of any
material portion of the Premises remaining which Tenant cannot use and occupy
during the period of any such restoration.
Section 21.03 Building Taken. If any part of the Building is
taken by Condemnation so as to render, in Landlord's sole judgment, the
remainder unsuitable for use as a warehouse and/or industrial building, Landlord
shall have the right to terminate this Lease upon notice in writing to Tenant
within thirty (30) days after possession is taken by such Condemnation, provided
all other leases of the Building are simultaneously so terminated. If Landlord
so terminates this Lease, it shall terminate as of the day possession is taken
by the condemning authority, and Tenant shall pay Rent and perform all of this
other obligations under this Lease up to that date with a refund by Landlord of
any Rent as may have been paid in advance for a period subsequent to such
possession.
Section 21.04 Ownership Of Award. As between Landlord and Tenant, all
damages for any condemnation of all or any part of the Building, including, but
not limited to, all damages as compensation for diminution in value of the
leasehold, reversion and fee, and Tenant's leasehold improvements, shall belong
to the Landlord without any deduction therefrom for any present or future
estate of the Tenant, and Tenant hereby assigns to Landlord all its right,
title and interest to any such award. Although all damages in the event of any
condemnation are to belong to the Landlord, whether such damages are awarded as
compensation for diminution in value of the leasehold, reversing or fee of the
Premises, or Tenant's leasehold, reversion or fee of the Premises, or Tenant's
leasehold improvements, Tenant shall have the right to claim and recover from
the condemning authority, but
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not from Landlord, such compensation as may be separately awarded or recoverable
by Tenant in Tenant's own right on account of any and all damage to Tenant's
business by reason of the condemnation and for or on account of any cost or loss
which Tenant might incur in removing Tenant's merchandise, furniture and
fixtures.
ARTICLE 22. MISCELLANEOUS
Section 22.01 Interpretation.
(a) The captions, table of contents and index of defined
terms appearing in this Lease are inserted only as a matter of convenience and
in no way amplify, define, limit, construe or describe the scope or intent of
such Sections of this Lease not in any way affect this Lease. Except where
otherwise expressly provided, each reference in this Lease to a Section or
Article shall mean the referenced Section or Article in this Lease.
(b) The parties hereto agree that all provisions of this
Lease are to be construed as covenants and agreements as though the words
importing such covenants and agreements were used in each separate provision
hereof.
(c) Although the Lease was drawn by Landlord, this Lease
shall not be construed for or against Landlord or Tenant, but this Lease shall
be interpreted in accordance with the general tenor of the language in an
effort to reach the intended result.
Section 22.02 Relationship Of Parties. Nothing herein contained shall
be deemed or construed by the parties hereto, or by any third party, as
creating the relationship of principal and agent or of partnership or of joint
venture between the parties hereto, it being understood and agreed that no
provision contained herein, nor any acts of the parties herein, shall be deemed
to create any relationship between the parties hereto other than the
relationship of landlord and tenant nor cause Landlord to be responsible in any
way for the acts, debts or obligations of Tenant.
Section 22.03 Notices. Any notice, demand, request, approval, consent
or any other instrument which may be or is required to be given under this
lease shall be in writing and, shall be deemed to have been given (i) when sent
by reputable overnight carrier or (ii) when mailed by United States registered
or certified mail, return receipt requested, postage prepaid, addressed to
landlord or Tenant to the respective addresses set forth under Fundamental
Lease provisions of this Lease and/or such other address or addresses as either
party may designate by notice to the other in accordance with this Section.
Section 22.04 Successors. This lease and the covenants and
conditions herein contained shall inure to the benefit of and be binding upon
(subject to Article 16) Landlord, its successors and assigns, and shall be
binding upon Tenant, its heirs, successors and assigns and shall inure to the
benefit of Tenant and only such assigns of Tenant to whom the assignment by
Tenant has been consented to by Landlord.
Section 22.05 Broker's Commission. Tenant warrants and represents to
Landlord that Tenant has dealt with no broker, consultant, finder or like agent
who or which might be entitled to a commission in connection with this Lease
other than as set forth on the Addendum To Lease ("Broker"). Based upon such
representation and warranty, Landlord agrees to pay Broker a
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commission pursuant to a separate agreement between Landlord and Broker. Tenant
agrees and does hereby indemnify and save Landlord and its successors, legal
representatives and assigns harmless from and against all claims, actions,
damages, costs and expenses and liability whatsoever, including reasonable
attorney's fees and disbursements, that may arise from any claim by any other
broker, consultant, finder or like agent claiming to have dealt with Tenant. The
foregoing representation and covenant shall survive the expiration of this
Lease.
Section 22.06 Unavoidable Delays. In the event that either party
hereto shall be delayed or hindered in or prevented from the performance of any
act required hereunder by reason of strikes, lockouts, inability to procure
labor or materials, failure of power, restrictive governmental laws or
regulations, riots, insurrection, war, fire or other casualty or other reason
of a similar or dissimilar nature beyond the reasonable control of the party
delayed in performing work or doing acts required under the terms of this
Lease, then performance of such shall be excused for the period of the delay
and the period for the performance of any such act shall be extended for a
period equivalent to the period of such delay. After the Rent Commencement Date
the provisions of this Section shall not operate to excuse Tenant from prompt
payment of Rent or any other payments required by the terms of this Lease and
shall not extend the Term. Delays or failures to perform resulting from lack of
funds shall not be deemed delays beyond the reasonable control of a party.
Section 22.07 Severability. It is the intention of the parties hereto
that if any provision of this Lease is capable of two constructions, one of
which would render the provision invalid and the other which would render the
provision valid, then the provision shall have the meaning which renders it
valid. If any term or provision, or any portion thereof, of this Lease, or the
application thereof to any person or circumstances shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the application of
such term or provision to the persons or circumstances other than those to
which it is held invalid or unenforceable, shall not be affected thereby, and
each term and provision of this Lease shall be valid and be enforced to the
fullest extent permitted by law.
Section 22.08 Other Tenants. Landlord reserves the right to effect
such other tenancies in the Building as Landlord shall determine in the
exercise of its sole business judgment.
Section 22.09 Applicable Law. The laws of the State of New Jersey
shall govern the validity, performance and enforcement of this Lease.
Section 22.10 Waiver.
(a) The waiver by Landlord or Tenant of any term, covenant,
agreement or condition herein contained shall not be deemed to be a waiver of
any subsequent breach of the same or any other terms, covenant, agreement or
condition herein contained. The subsequent acceptance of Rent hereunder by
Landlord or payment of Rent by Tenant shall not be deemed to be a waiver of any
preceding breach by Tenant or Landlord, as the case may be, of any term,
covenant, agreement or condition of this Lease, other than the failure of
Tenant to pay the particular Rent so accepted, regardless of Landlord's
knowledge of such preceding breach at the time of acceptance of such Rent. No
covenant, term, agreement or condition of this Lease shall be deemed to have
been waived by Landlord or Tenant, unless such waiver be in writing by Landlord
or Tenant, as the case may be.
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(b) No waiver of any covenant, term, agreement or condition
of this forfeiture, or for any other reason. No waiver by Landlord in respect
to one or more tenants or occupants of the Building shall constitute a waiver
in favor of any other tenant. Landlord's or Tenant's consent to, or approval
of, any act by Tenant requiring Landlord's consent or approval, or by Landlord
requiring Tenant's consent or approval as specifically herein provided, as
applicable, shall not be deemed to waive or render unnecessary Landlord's or
Tenant's, as applicable, consent to or approval of any subsequent similar act
by Tenant or Landlord.
Section 22.11 Accord And Satisfaction. No payment by Tenant or
receipt by Landlord of a lesser amount than the Rent herein stipulated shall be
deemed to be other than on account of the earliest stipulated Rent nor shall
any endorsement or statement on any check or any letter accompanying such check
or payment as Rent be deemed an accord and satisfaction, and Landlord may
accept such check or payment without prejudice to Landlord's right to recover
the balance of such Rent or pursue any other remedy provided for in this Lease
or available at law or in equity.
Section 22.12 Corporate Tenants. Tenant hereby covenants and warrants
that: Tenant is a duly constituted corporation qualified to do business in the
State of New Jersey, all Tenant's franchise and corporate taxes have been paid
to date; all future forms, reports, fees and other documents necessary for
Tenant to comply with applicable laws will be filed by Tenant when due; and the
persons executing this Lease on behalf of Tenant are duly authorized by the
governing body of such corporation to execute and deliver this Lease on behalf
of the corporation.
Section 22.13 Recording. Neither this Lease nor short form or
memorandum hereof shall be recorded by either party hereto.
Section 22.14 Entire Agreement.
(a) There are no oral agreements between the parties
affecting this Lease, and this Lease supersedes and cancels any and all
previous negotiations, arrangements, letters of intent, lease proposals,
brochures, agreements, representations, promises, warranties, and
understandings between the parties hereto or displayed by Landlord to Tenant
with respect to the subject matter thereof, and none thereof shall be used to
interpret or construe this Lease.
(b) This Lease, including the Exhibits and addenda hereto,
sets forth all the covenants, promises, agreements, conditions and
understandings between Landlord and Tenant concerning the Premises and the
Building. No alteration, amendment, change or addition to this Lease shall be
binding upon landlord or Tenant unless reduced to a writing signed by each
party and delivered to the other.
Section 22.15 Execution Of Lease. The submission of this Lease for
examination does not constitute a reservation of or option for the Premises or
any other space within the Building and shall vest no right in either party.
This Lease shall become effective as a lease only upon execution and legal
delivery thereof by the parties hereto. This Lease may be executed in more than
one counterpart, and each such counterpart shall be deemed to be an original
document.
Section 22.16. Hazardous Materials. Tenant represents and warrants
that it shall not place or permit to be placed upon the Premises or Common Areas
any materials under federal, state, or local law, statute, ordinance or
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regulations, or court or administrative order or decrees, or private agreement
(collectively hereinafter "Environmental Requirements"), which requires special
handling in collection, storage, treatment or disposal (such materials
hereinafter being referred to as "Hazardous Materials"). Tenant agrees to (i)
give written notice to Landlord immediately upon Tenant's acquiring knowledge of
the presence of any Hazardous Materials on the Premises or Common Areas with a
full description thereof; (ii) promptly comply with and insure that all of
Tenant's subtenants comply with any Environmental Requirements requiring the
removal, treatment or disposal of such Hazardous Materials and provide Landlord
with satisfactory evidence of such compliance; and (iii) defend, indemnify and
hold harmless Landlord from any and all claims, costs, and expenses which may
now or in the future be asserted, imposed, or incurred as a result of the
introduction by Tenant, its agents, employees, invitees or subtenants of any
Hazardous Materials on the Premises or Common Area. Tenant shall, at its own
cost and expense, comply with the Industrial Site Recovery Act, N.J.S.A.
13:1K-6, et seq., the regulations promulgated thereunder and any successor
legislation and regulations ("ISRA") during the Term, to the extent that same is
necessary as a result of an assignment of this Lease by Tenant or sublease or
license of the Premises by Tenant or termination of the Lease as a result of a
default of Tenant (but not if the termination is due to the default of
Landlord), but Landlord shall execute such documents as may be required by ISRA
in connection therewith. Nothing herein contained shall require Tenant to incur
any costs or otherwise to comply with any Environmental Requirements unless and
to the extent Tenant is otherwise specifically required so to do under this
Section 22.18. In event that any of Tenant's obligations under this Section
22.18 are not completed prior to the termination of this Lease, Tenant shall
have the right to access the Premises as necessary to complete its obligations
hereunder; provided, however, that by virtue of such acts Tenant shall not be
deemed a holdover Tenant or otherwise subject to any of the obligations of
Tenant under this Lease, including, but not limited to, the payment of Rent.
Tenant shall provide all information within Tenant's control requested by
Landlord or the Industrial Site Evaluation Element or its successor ("Element")
of the New Jersey Department of Environmental Protection and Energy or its
successor ("NJDEPE") for preparation of a non-applicability affidavit or other
type of submission, should Landlord or NJDEPE so request, and Tenant shall
promptly execute such affidavit or submission provided that Tenant finds the
information contained in the affidavit or submission to be complete and
accurate. If ISRA compliance becomes necessary on the Premises due to any action
or non-action on the part of Landlord or Overlandlord, including, but not
limited to, Overlandlord's execution of a sales agreement for the Premises, any
change in ownership of the Premises, initiation of bankruptcy proceedings by or
against the Landlord or the Landlord under any Underlying Lease, Landlord's or
Overlandlord's financial reorganization or sale of the controlling share of
Landlord's or Overlandlord's assets, then Landlord and Overlandlord shall comply
with ISRA and all requirements of the Element and NJDEPE at landlord's own
expense. Notwithstanding anything to the contrary herein contained, Landlord
consents to Tenant's use in and about the premises of propane operated forklifts
provided that Tenant complies with applicable law relating thereto and all
rules, regulations and requirements of governmental authorities having
jurisdiction over the use, operation and storage of such devices.
Section 22.17 Tenant's Self Help and Termination Rights.
Notwithstanding anything to the contrary herein contained, Tenant shall have
the right to terminate this Lease upon twenty (20) days written notice to
landlord if, due to Landlord's failure to comply with its obligations hereunder
or any act or omission (including the breach of any representation or warranty
of or by Landlord hereunder) by Landlord, its agents, employees
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or contractors, the conduct of Tenant's business in the Premises is materially
and adversely interrupted or impaired such that fifty percent (50%) or more of
the GLA in the Premises is rendered wholly unfit for carrying on Tenant's
business therein for a period of thirty (30) consecutive days. In addition to
the foregoing, in the event of any emergency condition occurring in or about the
Premises which materially and adversely effects Tenant's use and occupancy of
the Premises, Tenant shall be entitled, upon twenty-four (24) hours telephonic
notice to Landlord and Landlord's failure promptly to respond thereto, to take
such actions nd expend such monies as shall reasonably be required in order to
correct such emergency condition. Landlord shall reimburse Tenant for any
reasonable cost thereof within thirty (30) days of written request therefor,
including evidence of all costs so incurred, if Landlord was otherwise obligated
under this Lease to cure such emergency condition, failing which Tenant shall be
entitled to withhold from the next Rent due and payable hereunder such
reasonable cost.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease
as of the day and year first above written.
LANDLORD:
SDI TECHNOLOGIES, INC.
a Delaware corporation
By:/s/ Samuel Laniado
---------------------------------
Name: Samuel Laniado
Title: Executive Vice President
TENANT:
B. DALTON BOOKSELLER, INC.,
a Minnesota corporation
By:/s/ Stephen Riggio
---------------------------------
Name:
Title:
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ADDENDUM TO LEASE
This Addendum to Lease is hereby made a part of that certain Lease
between SDI TECHNOLOGIES, INC., as Landlord, and B. DALTON BOOKSELLER, INC., as
Tenant, for those Premises identified on Exhibit B annexed hereto.
In the event a conflict arises between the provision of this Addendum
to Lease and any other part of this Lease, this Addendum shall modify and
supersede such other part of this Lease to the extent necessary to eliminate
any such conflict, but no further. All terms which are defined in this Lease
shall have the same meaning when used herein.
1. Basic Rent. Tenant shall pay to Landlord Basic Rent in the manner ad as
more fully described in the Lease, as follows:
Main Term Annual Monthly
--------- ------ -------
Rent Commencement Date- $290,000.00 $24,166.67
9/30/95
2. Renewal Option. Tenant shall have the right, option and privilege of
extending the Term hereof for three (3) successive Renewal Terms of twelve (12)
months each (the "Renewal Option") (each such Renewal Terms to be exercised
consecutively). In the event Tenant elects to exercise the Renewal Options),
the following shall apply:
(a) Tenant shall notify Landlord, in writing, of the exercise of the
Renewal Option(s) at least six (6) months prior to the expiration date as then
constituted; and
(b) The Renewal Term(s) shall be subject to all of the terms,
covenants and conditions of the Lease, including, without limitation, the
obligation to pay Basic Rent, as follows:
Renewal Term Annual Monthly
------------ ------ -------
1 $305,000.00 $25,416.67
2 $325,000.00 $27,083.34
3 $345,000.00 $28,750.00
3. Broker. Supplementing the provisions of Section 22.05 of the Lease,
Broker, as more fully described therein, shall mean Benchmark Associates, Inc.,
having an office at 377 Hoes Lane, Piscataway, New Jersey 08854.
4. Consent of Fee Mortgagee. This Lease and Tenant's right to possession
of the Premises is conditioned upon and subject to the express written consent
of NJEDA and the Credit Bank to the terms and provisions hereof. Landlord shall
supply to Tenant and Tenant will, promptly upon the execution hereof, deliver
to Landlord a duly completed NJEDA Project Occupancy Information Form For
Closed Projects (the "NJEDA Form"). Landlord shall thereupon submit the NJEDA
Form, together with a fully executed copy hereof, for such approval. This Lease
shall be deemed cancelled and of no further force and effect, and neither party
hereto shall any have rights or obligations to the other hereunder, if NJEDA
and the Credit Bank shall fail to so approve this Lease within thirty (30) days
of the date hereof. Landlord shall not be liable to Tenant for any failure or
delay in obtaining
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such approvals. Landlord shall provide prompt written notice to Tenant of
receipt of such approvals, together with a copy thereof, and Tenant shall
thereupon be entitled to possession of the Premises subject to and in accordance
with the provisions hereof.
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FIRST AMENDMENT OF LEASE
THIS AMENDMENT between SDI Technologies, Inc. ("Landlord") and B. Dalton
Bookseller, Inc. ("Tenant") is executed this 18 day of March, 1997.
W I T N E S S E T H
WHEREAS, the Tenant is currently leasing 100,000 square feet of space from
the Landlord at the building located at 308 Herrod Boulevard, South Brunswick,
New Jersey (the "Building") under the following Lease and desires to extend the
term of the Lease under the following terms and conditions;
NOW THEREFORE, in consideration of the additional terms and conditions
herein contained and other good and valuable consideration, the receipt and
legal sufficiency of which are hereby acknowledged, the parties agree as
follows:
(c) EXTENSION OF LEASE AGREEMENT. Under the Indenture of Lease dated
June 7, 1994 between the parties (the "Lease"), Tenant is leasing 100,000
square feet of space (the "Original Space") in the Building. The parties agree
that the Term of the Lease shall be extended until September 30, 1999 at the
rent specified herein.
(d) RENT. Effective October 1, 1997, the Annual Basic Rent for the
Original Space shall be Three and 45/100 Dollars ($3.45) per square foot with
payments continued to be made monthly.
(e) OPTIONS TO RENEW. Provided Tenant is not in default under any of
the terms of the Lease beyond any applicable cure period, Tenant shall have the
right, option and privilege of extending the Term hereof for seven (7)
successive Renewal Terms of twelve (12) months each (each a "Renewal Option"),
each such Renewal Option to be exercised consecutively except as follows. In the
event Tenant elects to exercise the Renewal Options, the following shall apply:
(a) Tenant shall notify Landlord in writing of the exercise of a
Renewal Option at least six (6) months prior to the expiration date as then
constituted; and
(b) The Renewal Term(s) shall be subject to all the terms, covenants
and conditions of the Lease and Addendum, including without limitation, the
obligation to pay Annual Basic Rent (on a monthly basis) as follows;
Renewal Option Renewal Term Annual Basic Rent
1 10/1/1999-9/30/2000 $3.60 per sq.ft.
2 10/1/2000-9/30/2001 $4.00 per sq.ft.
3 10/1/2001-9/30/2002 $4.10 per sq.ft.
4 10/1/2002-9/30/2003 $4.20 per sq.ft.
5 10/1/2003-9/30/2004 $4.50 per sq.ft.
6 10/1/2004-9/30/2005 $4.75 per sq.ft.
7 10/1/2005-9/30/2006 $5.00 per sq.ft.
(c) Notwithstanding the above, Tenant shall have the right to elect
to exercise Renewal Options 2 through 4 at one time in which case the Annual
Basic Rent shall be $4.00 per square foot for the entire three (3) year Renewal
Term. Likewise, Tenant shall also have the right to elect to exercise Renewal
Options 5 through 7 at one time in which case the Annual
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Basic Rent shall be $4.50 per square foot for the entire three (3) year Renewal
Term. The exercise by Tenant of any of the Renewal Options set forth in this
subparagraph (c) shall not affect Tenant's right to exercise subsequent Renewal
Options which may be available to Tenant hereunder.
(d) In addition, the Renewal Terms shall also be subject to the
conditions set forth in the Addendum of Lease to the original Lease.
(f) RIGHT OF FIRST OFFER. (a) Landlord is currently leasing
approximately 200,000 square feet of space (the "Michigan Space") in the
Building to Michigan Distribution Centers, Inc. (the "Michigan Lease"). If
Landlord does not renew or extend the Michigan Lease for all or any part of the
Michigan Space, Tenant shall have the right of first offer ("Right of First
Offer") to lease all or any portion of the Michigan Space (the "Offer Space") on
the same terms and conditions as contained in the Lease provided (i) Tenant is
not in default under any of the terms of the Lease beyond the applicable cure
period and (ii) the Annual Basic Rent for the Offer Space shall not exceed, on a
per square foot basis, 110% of the per square foot rent then being paid by
Tenant under the Lease. Landlord shall have the obligation to notify Tenant in
writing of the availability of all or any portion of the Offer Space before
Landlord advertises its availability to any third party. Tenant shall have
fifteen (15) days from the receipt of Landlord's notice to notify Landlord in
writing that the Tenant wishes to lease the Offer Space upon the same terms and
conditions as contained in the Lease. In the event that Tenant does not exercise
its Right of First Offer within the 15 days as set forth above, Tenant shall
have two (2) additional successive periods, each of 15 days, to the extent the
date on which Tenant must exercise its Right of First Offer provided Tenant
informs Landlord that Tenant needs such additional time. If Tenant fails to
exercise such Right of First Offer within the time periods provided above, the
Right of First Offer shall terminate.
(b) At Tenant's option, all of the work required to separate the
Offer Space from the Michigan Space (including, without limitation, erection of
a demising wall or fence and the separation of utilities) shall either be
performed (i) by Tenant, at Tenant's sole cost and expense, or (ii) by Landlord
in which case Landlord's Separation Costs (hereinafter defined) shall be paid by
Tenant by dividing the total Separation Costs by the number of months remaining
in the Term and paying such resulting amount, together with interest at the rate
of ten percent (10%) per annum, in equal monthly installments on the first day
of each month until the Separation Costs are fully paid. For purposes hereof,
"Separation Costs" shall mean the costs incurred by Landlord in separating the
Offer Space from the Michigan Space as documented by paid invoices and final
lien waivers from all contractors, subcontractors and materialmen and pursuant
to a construction budget and specifications approved by Tenant in writing.
(g) CONSTRUCTION OF OFFICE SPACE. Landlord shall construct up to
6,000 square feet of office space ("Office Space") for Tenant within Tenant's
current space under the following terms and conditions. As soon as possible,
Landlord shall select an architect approved by Tenant who shall draw up plans to
the Tenant's specifications. Tenant shall have the right to review, modify and
approve in writing such plans. Based upon the approved plans, Landlord shall
obtain bids from at least three (3) bondable, reputable contractors who are
licensed in the State of New Jersey. Landlord and Tenant shall review each of
the bids and construction budgets. Tenant shall have the right to modify the
scope of construction to reduce the cost thereof. Upon mutual approval by
Landlord and Tenant of a bid and construction budget, Landlord shall enter into
a fixed price construction contract. No change
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orders shall be performed unless agreed to in writing by Tenant (the fixed price
of the construction contract, together with change orders approved by Tenant,
are hereinafter referred to as the "Fixed Price"). Upon completion of the
construction in accordance with Tenant's specifications and the approved plans,
Tenant shall reimburse Landlord for all costs of construction including
architectural fees upon receipt of a certificate of occupancy, paid invoices and
final lien waivers. In no event shall Tenant be obligated to pay an amount
greater than the Fixed Price. Landlord shall use its best efforts to complete
the construction within 120 days from the date Landlord obtains a building
permit (such 120-day period, as same may be extended pursuant to the immediately
succeeding sentence, hereinafter referred to as the "Outside Date"). It is
understood that the Landlord's obligation to perform shall be extended in the
event of any occurrence of an unavoidable delay as set forth in Section 22.06 of
the Lease provided Landlord gives Tenant written notice of the event causing
such delay within five (5) business days of its occurrence, failing which
Landlord shall be deemed to have waived the force majeure delay. In the event
the Landlord shall be in default of its obligation to complete construction by
the Outside Date, Tenant's sole remedy shall be to complete the construction
itself using its own contractor but Tenant shall not be obligated to reimburse
Landlord or its contractor for the costs incurred by Landlord unless and to the
extent that Tenant is able to use the improvements performed by Landlord, and,
in addition, Tenant shall receive a credit against the next monthly installments
of Basic Annual Rent and additional rent in an amount equal to the basic rent
attributable to the Office Space on a per square foot basis during the period
that Tenant completes construction of the Office Space. All plans and
construction work shall be subject to local building codes and approvals of the
applicable governmental authorities.
(h) ADDITIONAL RENT AND RENT PAYMENTS. The provisions of the Lease
with respect to any costs or changes in addition to the basic rent such as for
taxes, insurance, utilities, and all other "net lease" provisions shall likewise
be applicable to the leasing of the Offer Space such that Tenant's proportionate
share thereof shall increase by the amount of space contained within the Offer
Space, and shall continue to apply to the extension of the Lease. The rent shall
continue to be payable monthly in advance on the first day of each month.
(i) SURVIVAL OF LEASE TERMS AND CONDITIONS. All other terms and
conditions of the Lease shall remain in effect and shall apply with respect to
the extension of the Lease or the leasing of the Offer Space herein.
WITNESS: B. DALTON BOOKSELLER, INC.
/s/ Jan Rizzo By: /s/ William F. Duffy, V.P. Finance
- --------------------------- ----------------------------------
WITNESS: SDI TECHNOLOGIES
/s/ By: /s/
- --------------------------- ----------------------------------
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<PAGE>
WITNESS: EXIT 8A, L.P., Overlandlord
/s/ By: /s/
- --------------------------- ----------------------------------
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<PAGE>
SECOND AMENDMENT TO LEASE AGREEMENT
THIS SECOND AMENDMENT TO LEASE AGREEMENT (the "Second Amendment") is made
as of the 7th day of November, 1997, by and between SDI Technologies, Inc., a
Delaware corporation, having an office at 1299 Main Street, Rahway, New Jersey
07065, ("Landlord"), and B. Dalton Bookseller, Inc., a Minnesota corporation,
having an office at 122 Fifth Avenue, New York, New York 10011 ("Tenant").
RECITALS:
WHEREAS, Landlord and Tenant are parties to that certain Indenture of
Lease, dated as of June 7, 1994 (as amended, the "Lease"); and
WHEREAS, Tenant is currently leasing 100,000 square feet of space, as more
particularly set forth in the Lease (the "Premises"), from Landlord at the
building located at 308 Herrod Boulevard, South Brunswick, New Jersey (the
"Building"); and
WHEREAS, Landlord and Tenant desire to set forth their agreement modifying
the terms and conditions of the Lease and specifically Section 5 of the First
Amendment of the Lease, dated March 18, 1997.
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereby agree as follows:
1. Landlord grants Tenant the right to construct approximately 11,500
square feet of offices and to renovate approximately 2,800 square feet of the
Premises (collectively the "Work")
2. Landlord has inspected the plans and specifications of the Tenant's
architect for the Work (identified and attached hereto as Exhibit A), and
Landlord hereby grants its approval for the Work as shown on Exhibit A.
3. Tenant shall pay for all costs of construction, (including
architectural fees) and supervise all phases of construction. Tenant agrees
that all plans and construction work shall be subject to local building codes
and approvals of the applicable governmental authorities and Tenant warrants
that the Work will be performed in conformity with Exhibit A.
4. Landlord agrees that at the end of the term of the Lease, and all
subsequent extensions thereof, that Tenant has no responsibility nor obligation
to restore Building to the condition in which it existed prior to the Work and
that Landlord will make no demand or request for such restoration.
5. Tenant and Landlord represent and warrant to each other that such party
has not had any dealings with any realtor, broker or agent in connection with
this Second Amendment or the negotiation hereof, and each party agrees to
defend, indemnify and hold the other party harmless from any cost, expense or
liability, including reasonable attorney's fees, for any breach of this
representation.
6. The Lease is hereby modified and supplemented. Wherever there exists a
conflict between this Second Amendment and the Lease, the provisions of this
Second Amendment shall control. Except as otherwise indicated
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herein, capitalized terms shall be defined in the manner set forth in the Lease.
Except as modified and supplemented hereby, the Lease is hereby confirmed and
shall remain in full force and effect.
7. This Second Amendment shall be binding against, and shall accrue to the
benefit of, Landlord and Tenant's successors and assigns.
THIS SECOND AMENDMENT is executed and delivered as of the date first above
written.
WITNESS: TENANT
B. DALTON BOOKSELLER, INC.
/s/ Alan Lichtenstein By:/s/ William F. Duffy, V.P. Finance
- ---------------------------- ----------------------------------
WITNESS: LANDLORD
SDI TECHNOLOGIES, INC.
/s/ Illegible By:/s/ Samuel Laniado
- ---------------------------- -------------------------
WITNESS: EXIT 8A, L.P., Overlandlord
/s/ Illegible By:/s/ Samuel Laniado
- ---------------------------- -------------------------
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<PAGE>
THIRD AMENDMENT TO LEASE AGREEMENT
THIS THIRD AMENDMENT TO LEASE AGREEMENT (the "Third Amendment") is made as
of the 12 day of February, 1998, by and between SDI Technologies, Inc., a
Delaware corporation, having an office at 1299 Main Street, Rahway, New Jersey
07065, ("Landlord"), and B. Dalton Bookseller, Inc., a Minnesota corporation,
having an office at 122 Fifth Avenue, New York, New York 10011 ("Tenant").
RECITALS:
WHEREAS, Landlord and Tenant are parties to that certain Indenture of
Lease, dated as of June 7, 1994, as amended by that certain First Amendment to
Lease dated March 18, 1997, as further amended by that certain Second Amendment
to Lease, dated November 7, 1997 (the "Lease"); and
WHEREAS, Tenant is currently leasing 100,000 square feet of space, as more
particularly set forth in the Lease (the "Premises"), from Landlord at the
building located at 308 Herrod Boulevard, South Brunswick, New Jersey
(the"Building" and the "Land"); and
WHEREAS, Tenant desires to lease the remainder of the leasable space in
the Building from Landlord consisting of an additional 200,000+/- square feet
(the "Additional Space") which Additional Space is presently occupied by Total
Logistic Control, Inc. (hereinafter "TLC"); and
WHEREAS, Landlord and Tenant desire to set forth their agreement modifying
the terms and conditions of the Lease to: (i) extend the term of the Lease,
(ii) add additional space to the Premises, and (iii) otherwise modify the lease
as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereby agree as follows:
23. Landlord hereby agrees to use its best efforts to deliver
approximately 100,000+/- square feet of the Additional Space located in the
center section of the Building (the "First Space") to Tenant on March 1, 1998
(the "First Space Delivery Date"), and from and after the First Space Delivery
Date Tenant agrees to accept and lease the First Space pursuant to the terms
set forth herein. The First Space is outlined in red ink on the leasing plan of
the Building annexed hereto as Exhibit "A".
24. Landlord hereby agrees to use its best efforts to deliver the
remainder of the Additional Space (the "Second Space"), consisting of
100,000+/- square feet to Tenant on September 1, 1998 or such earlier date
designated by Landlord pursuant to a written notice given to Tenant at least
forty-five (45) days prior to the date on which the Second Space shall be
delivered to Tenant (the "Second Space Delivery Date"). Tenant shall accept and
lease the Second Space from and after the Second Space Delivery Date. The
Second Space is outlined in blue ink on the leasing plan of the Building
annexed hereto as Exhibit "A".
3. From and after the First Space Delivery Date, references in the initial
lease and in the First and Second Amendments to the term "Term" shall be
amended and replaced so that the term "Term" shall thereafter mean the
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period of sixty (60) full months, plus any partial month so that the Initial
Term ends on the last day of the sixtieth (60th) calendar month after the First
Space Delivery Date (the "Initial Term"). In addition, Tenant shall have the
option to extend the Term for three separate successive periods, each consisting
of two years (respectively, the "First Renewal Period", the "Second Renewal
Period" and the "Third Renewal Period"). Tenant shall, if Tenant elects to
exercise an option, give written notice to Landlord of its election to renew no
later than One Hundred Eighty (180) days prior to the commencement of such
renewal period. "Term" shall mean the Initial Term, plus any renewal(s)
exercised by Tenant, if any.
4. From and after the First Space Delivery Date, the amounts set forth as
Annual Basic Rent shall be deemed deleted and, thereafter, the Annual Basic
Rent shall be determined by multiplying the then gross leasable area of the
Premises by: (i) Three and 82/100 Dollars ($3.82) during the Initial Term; (ii)
Four and 50/100 Dollars ($4.50) during the First Renewal Period; (iii) Four and
80/100 Dollars ($4.80) during the Second Renewal Period; and (iv) Five and
25/100 Dollars ($5.25) during the Third Renewal Period. Payments of Annual
Basic Rent shall be made as set forth in the initial lease.
5. From and after delivery and acceptance of the First Space, Premises
shall mean the premises originally demised under the Lease and the First Space,
and, after delivery of the Second Space, Premises shall mean the premises
originally demised under the Lease, the First Space and the Second Space.
6. Landlord shall enter into an agreement with TLC terminating TLC's right
under any existing lease, occupancy agreement, license or any other agreement
to occupy or possess, (i) the First Space as of the First Space Delivery Date,
and (ii) the Second Space as of the Second Space Delivery Date. Landlord shall
use best efforts to obtain vacant possession of the Additional Space no later
than the delivery dates set forth in paragraphs 1 and 2 above, which best
efforts shall include, but not be limited to, the diligent taking of all
necessary action, legal and otherwise, in order to obtain such possession of
the First Space and the Second Space from TLC. Annexed hereto and made a part
hereof as Exhibit "B" is a copy of the fully executed termination agreement
between Landlord and TLC with respect to TLC's surrender of space.
7. Upon delivery of the First Space to Tenant in the Required Delivery
Condition (hereinafter defined), Tenant shall pay to Landlord the sum of Three
Hundred and Fifty Thousand ($350,000.00) Dollars in consideration of Landlord's
obtaining the Additional Space and entering into this Third Amendment.
8. As a condition precedent to Tenant's obligation to accept possession of
the First Space and/or Second Space, as the case may be, Landlord shall deliver
the First Space and Second Space vacant and in the Required Delivery Condition
(as defined herein) or, if necessary, perform all work necessary to place the
First Space and Second Space in the Required Delivery Condition, provided
however, that Landlord shall not be obligated to incur more than Twenty
Thousand ($20,000.00) Dollars (the "Cap") in connection with any work necessary
to deliver the First Space and Second Space in the Required Delivery Condition.
If Landlord shall be unable to deliver the First Space and/or the Second Space
in the Required Delivery Condition because the expense for the combined work
for both spaces exceeds the Cap, then Landlord shall deliver a reasonably
detailed statement listing the work which has or will be done, the work which
will not be completed,
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along with an itemized breakdown of the costs for each item of work actually
completed, anticipated to be completed, or work which will not be done by
Landlord because the expense exceeds the Cap. The Required Delivery Condition
shall mean:
(i) The First Space and Second Space shall be delivered broom
clean, in good condition and in compliance with all
applicable laws and codes, including without limitation,
the Americans with Disabilities Act. All Building
equipment and systems shall be in good working order
including, without limitation, the dock equipment, HVAC,
plumbing system and electrical system (with respect to
equipment that is not able to be tested due to adverse
temperatures, including, but not limited to the air
conditioning system(s), Landlord's obligation to ensure
that such systems are in good working order shall
continue until such time such systems may be properly
tested); the concrete floor shall be free of chipping,
large cracks and/or holes; and the parking lot shall be
free of pot-holes; and
(ii) The office shall be delivered in good condition
and shall be subject to a general "clean-up",
including, without limitation, to the extent
necessary, the installation of new carpeting,
painting and installation of new ceiling tiles.
9. From and after the First Space Delivery Date and the Second Space
Delivery Date, Tenant shall have the right to (i) construct office space in an
area or areas in the First Space and/or Second Space, as determined by Tenant
("Office Space Construction"), and (ii) enlarge the parking area contained in
and on the Land ("Parking Area Enhancement").
10. In conjunction with the Office Space Construction and Parking Area
Enhancement, Tenant shall obtain all necessary permits and approvals from
applicable governmental authorities, shall complete such work in accordance
with all laws, ordinances and local building codes, and shall pay for all costs
of construction, (including architectural fees) and supervise all phases of
construction. Landlord hereby agrees to cooperate and assist Tenant with the
application for and the obtaining of any permits and approvals required by the
governmental authorities. At the end of the term, Landlord agrees that Tenant
shall not be required to remove any of its improvements, including the Office
Space Construction and Parking Area Enhancement, if any.
11. The following shall modify certain provisions of the initial lease,
dated June 7, 1994:
(iii) As of the First Space Delivery Date, any reference to
"an exclusive parking area," "exclusive loading dock"
and "Exhibit B" (including Section 7.02(b) and 8.05)
shall be deemed deleted, and Tenant shall have the right
to use all of the parking area and loading docks, which
do not exclusively service the remaining TLC space and
after the Second Space Delivery Date there shall be no
restrictions as Tenant's use of the parking areas and
loading docks;
(iv) From and after the Second Space Delivery Date,
Tenant shall have the option, after notice to
Landlord, and at Tenant's sole cost and expense,
to perform all or a part of any of the
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common area maintenance obligations set forth in
Section 8.02(i) and (iii);
(v) From and after the Second Space Delivery Date,
Landlord shall be limited to making the changes
to the common area, as referenced in Section
8.04, solely as a result of any federal, state or
local environmental or other law, rule,
regulation, guideline, judgment or order;
(vi) Section 13.01 shall be modified to provide that
any "conveyor" installed by Tenant shall also be
deemed not to have been permanently affixed to
the Premises;
(vii) From and after the First Space Delivery Date,
Article 17 shall be modified to provide that the
Lease shall only be subject and subordinate to
(i) any Underlying Lease and (ii) any Fee
Mortgage provided a non-disturbance agreement has
been delivered to Tenant; and
(viii) From and after the Second Space Delivery Date,
Section 22.08 shall be deemed deleted.
12. Tenant and Landlord represent and warrant to each other that such
party has not had any dealings with any realtor, broker or agent in connection
with this Third Amendment or the negotiation hereof, except for Benchmark
Associates, Inc. having an office at 5 Tuttle Avenue, Bedminister, New Jersey
07921 (the "Broker"), and each party agrees to defend, indemnify and hold the
other party harmless from any cost, expense or liability, including reasonable
attorney's fees, for any breach of this representation, except that Landlord,
pursuant to a separate written agreement, shall pay Broker and shall indemnify
and hold Tenant harmless from any claim of Broker.
13. The Lease is hereby modified and supplemented. Wherever there exists a
conflict between this Third Amendment and the Lease, the provisions of this
Third Amendment shall control. Except as otherwise indicated herein,
capitalized terms shall be defined in the manner set forth in the Lease. Except
as modified and supplemented hereby, the Lease is hereby confirmed and shall
remain in full force and effect.
14. This Third Amendment shall be binding against, and shall accrue to the
benefit of, Landlord and Tenant's successors and assigns.
15. Landlord hereby represents that Landlord has the full power and
authority to enter into the Third Amendment and to consummate the transactions
contemplated hereby; the execution, delivery and performance by Landlord of
this Third Amendment has been duly authorized by all requisite corporate action
on the part of Landlord; and that no consent is required in order for the
Landlord to enter into this Third Amendment or to perform its obligations
hereunder.
16. Time shall be of the essence as to the dates contained herein.
THIS THIRD AMENDMENT is executed and delivered as of the date first
above written.
TENANT
B. DALTON BOOKSELLER, INC.
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WITNESS:
/s/ Alan Lichtenstein By: /s/ William F. Duffy
- --------------------------- ----------------------------------
Name: William F. Duffy
Title: V.P. Finance
LANDLORD
SDI TECHNOLOGIES, INC.
WITNESS:
/s/ Alan Lichtenstein By: /s/ Samuel Laniado
- --------------------------- ----------------------------------
Name:
Title:
APPROVED AND CONSENTED THE DATE FIRST WRITTEN ABOVE:
OVERLANDLORD
EXIT 8A, L.P.
WITNESS:
/s/ Alan Lichtenstein By: /s/ Samuel Laniado
- --------------------------- ----------------------------------
Name:
Title:
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MODIFIED FORM OF LOFT LEASE
The Real Estate Board of New York, Inc.
AGREEMENT OF LEASE, made as of this 30th day of June, 1997, between P.A.
BUILDING COMPANY, a New York Partnership, having an office c/o Sylvan Lawrence
Company, Inc., 100 William Street, New York, New York 10038 party of the first
part, hereinafter referred to as LANDLORD, and BARNES & NOBLE, INC., having an
office at 122 Fifth Avenue, New York, New York 10011 party of the second part
hereinafter referred to as TENANT
WITNESSETH: Landlord hereby leases to Tenant and Tenant hereby hires from
Landlord Rooms 1119-1136 (Substantially as indicated on the plan attached
hereto as Exhibit A) in the building known as 111 Eighth Ave. (a/k/a 76 9th
Ave.) (sometimes hereinafter called the "Building") in the Borough of
Manhattan, City of New York, for the term of approximately 10 years, four
months commencing on the "Commencement Date" and ending on the "Expiration
Date" (as said terms are defined in Article 76 hereof) (or until such term
shall sooner cease and expire as hereinafter provided) both dates inclusive, at
an annual rental rate of eight hundred ninety three thousand and four dollars
($893,004) per annum from the Commencement Date (defined in Article 76 hereof)
to and including the date immediately preceding the fifth anniversary of the
Commencement Date; one million twenty thousand five hundred seventy six dollars
($1,020,576) per annum from the fifth anniversary of the Commencement Date to
and including the Expiration Date (defined in Article 76 hereof), which Tenant
agrees to pay in lawful money of the United States which shall be legal tender
in payment of al debts and dues, public and private, at the time of payment, in
equal monthly installments in advance of the first day of each month during
said term, at the office of Landlord or such other place as Landlord may
designate, without any set off or deduction whatsoever, except that Tenant
shall pay the first monthly installment(s) on the execution hereof (unless this
lease be a renewal).
In the event that, at the commencement of the term of this lease, or
thereafter, Tenant shall be in default in the payment of rent to Landlord
pursuant to the terms of another lease with Landlord or with Landlord's
predecessor in interest, Landlord may at Landlord's option and without notice
to Tenant add the amount of such arrearages to any monthly installment of rent
payable hereunder and the same shall be payable to Landlord as additional rent.
The parties hereto, for themselves, their heirs, distributees, executors,
administrators, legal representatives, successors and assigns, hereby covenant
as follow:
Rent
1. Tenant shall pay the rent as above and as hereinafter provided.
Occupancy
2. Tenant shall use and occupy demised premises for general offices and
distribution in connection with Tenant's publishing and retail book stores
business and for no other purpose.
Alterations:
3. Tenant shall make no changes in or to the demised premises of any
nature without Landlord's prior written consent. Subject to the prior written
consent of Landlord which consent shall not be unreasonably withheld
<PAGE>
or delayed, and to the provisions of this article, Tenant at Tenant's expense,
may make alterations, installations, additions or improvements which are
non-structural and which do not affect utility services or plumbing and
electrical lines, in or to the interior of the demised premises by using
contractors or mechanics first approved by Landlord, which approval as to
contractors and mechanics shall not be unreasonably withheld or delayed;
provided, with regard to Landlord's obligation to not unreasonably withhold or
delay such approval as to any contractors or subcontractors proposed by Tenant,
such contractors and mechanics (including, but not limited to all of their
employees) must be in all instances compatible with labor employed in, at and
by the Building. Anything to the contrary contained herein notwithstanding,
Tenant shall not be required to obtain Landlord's consent to make cosmetic
changes and/or non-structural interior alterations in or to the demised
premises which do not affect any Building systems and cost in the aggregate
less than seventy-five thousand dollars ($75,000.00) with respect to any single
project to be performed over a period of less than four (4) months, provided
Tenant (a) provides Landlord with a plan or sketch detailing the work to be
done in the demised premises, prior to the commencement of such work, (b)
Tenant performs such work subject to and in accordance with all of the
applicable provisions of this Article 3 and of Article 50 hereof dealing with
the performance of Tenant's Work (except for the obtaining of Landlord's
consent thereto) and (c) Tenant supplies Landlord with an estimate establishing
that such work will not exceed the $75,000 limit described herein.. All
fixtures and all paneling, partitions, railings and like installations,
installed in the premises at any time, either by Tenant or by Landlord in
Tenant's behalf, shall, upon installation, become the property of Landlord and
shall remain upon and be surrendered with the demised premises unless Landlord,
by notice to Tenant no later than twenty days prior to the date fixed as the
termination of this lease, elects to relinquish Landlord's right thereto and to
have them removed by Tenant, in which event, the same shall be removed from the
premises by Tenant prior to the expiration of the lease, at Tenant's expense.
Anything to the contrary contained in the immediately preceding sentence
notwithstanding, Landlord's right to elect to have fixtures, etc. removed from
the demised premises by Tenant at Tenant's expense shall not apply to such
items which are of a nature which is reasonably deemed to be a normal standard
tenant installation but rather such right on the part of Landlord shall be
limited to those items which are not normal standard tenant installations. For
purposes of this Article 3 normal standard tenant installations shall be deemed
to mean any system for the distribution of heating, ventilation and
air-conditioning, dry wall partitioning, lighting, flooring, ceiling,
carpeting, electrical outlets and equipment, painting, plumbing, doorways and
work of a similar nature, but specifically excluding without limitation
Tenant's equipment, decorations, louvers, furniture, safes, platforms, vaults,
computer floors and furnishings of a similar nature the cost of removal of
which would exceed the cost to remove a normal standard Tenant installation. If
at any time Tenant shall submit its plans and specifications for Tenant's Work
to Landlord for Landlord's consent Tenant shall request in writing pursuant to
this Footnote 3C (hereinafter called a "Footnote 3C Request") that Landlord
identify from such plans and specifications those items considered by Landlord
as not normal standard tenant installations, then Landlord shall serve notice
upon Tenant setting forth those items shown on such plans and specifications
which are considered by Landlord to be not normal standard tenant
installations, such notice to be given in connection with the giving of
Landlord's consent to the performance of the work shown on such plans and
specifications (but the provisions of this sentence shall not apply with
respect to any item or items which is not the subject of a Footnote 3C Request
which is made in conjunction with the submission of Tenant's plans and
specifications for Landlord's consent as provided herein). Nothing in this
article shall be
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construed to give Landlord title to or to prevent Tenant's removal of trade
fixtures, moveable office furniture and equipment, but upon removal of any such
from the premises or upon removal of other installations as may be required by
Landlord as provided in this Article 3, Tenant shall immediately and at its
expense, repair and restore the the affected portion(s) of the premises to the
condition existing prior to installation and repair any damage to the demised
premises or the building due to such removal. All property which Tenant shall
have the right to remove or be requested by Landlord to remove as provided in
this Article 3 remaining in the premises after* shall be deemed abandoned and
may, at the election of Landlord, either be retained as Landlord's property or
may be removed from the premises by Landlord at Tenant's expense. Tenant shall,
before making any alterations, additions, installations or improvements, at its
expense, obtain all permits, approvals and certificates required by any
governmental or quasi-governmental bodies and (upon completion) certificates of
final approval thereof and shall deliver promptly duplicates of all such
permits, approvals and certificates to Landlord Landlord, upon request by
Tenant, shall cooperate, at no cost and expense to Landlord, with Tenant's
efforts to obtain any of the aforesaid permits, approvals and certificates and
Landlord shall promptly execute and deliver to Tenant any consents,
certificates or documents required in connection therewith, provided (i)
Landlord has no reasonable objection to the item (the "Item") requested of
Landlord or the information to be contained in the Item, (ii) the Item is
complete and accurate, and (iii) Tenant has the right under this Lease to
proceed with the action relating to the Item. Tenant agrees to carry and will
cause Tenant's contractors and sub-contractors to carry such workman's
compensation, general liability, personal and property damage insurance as
Landlord may reasonably require. If any mechanic's lien is filed against the
demised premises, or the building of which the same forms a part, for work
claimed to have been done for, or materials furnished to, Tenant, whether or
not done pursuant to this article, the same shall be discharged by Tenant
within thirty (30) days after Tenant is notified thereof, at Tenant's expense,
by filing the bond required by law or otherwise.
Repairs:
4. Landlord shall maintain and repair the public portions of the building,
both exterior and interior and the Buildings's mechanical, electrical, plumbing
and heating (i.e., perimeter radiation) systems, if any, serving the demised
premises, provided, however, that Landlord shall not be liable for any defects
or deficiencies thereof which shall be caused by Tenant's equipment
alterations, or installation, and Landlord shall make all structural repairs
necessary to maintain the structural integrity of the Building; provided and to
the extent only in each of the foregoing instances that: (i) Landlord's failure
to make the subject repair would adversely affect (except to an insignificant
degree) the use and enjoyment of the demised premises for the conduct of
Tenant's business as permitted by this Lease; and (ii) Landlord's obligations
with respect to the electrical and plumbing facilities shall be only to the
point where the same enter the demised premises, from which point Tenant shall
be responsible for the portions of the plumbing and electrical systems to the
extent that such portions then service only the demised premises. In addition,
Tenant shall maintain in good order and repair and shall be responsible for all
portions of the mechanical, plumbing, electrical and heating systems servicing
the demised premises (as well as any air conditioning and ventilation system)
installed as part of Tenant's Work, or any replacements or supplements thereof.
Notwithstanding the foregoing, Landlord shall not be responsible for making any
such repair resulting from or necessitated by (1) the act, omission or
negligence of Tenant, Tenant's agents, contractors or employees, or (2) the
performance of any Tenant's Work. Tenant shall, throughout the
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term of this lease, take good care of the demised premises and the fixtures and
appurtenances therein and at Tenant's sole cost and expense, make all
non-structural repairs thereto as and when needed to preserve them in good
working order and condition, reasonable wear and tear, obsolescence and damage
from the elements, fire or other casualty, expected. Notwithstanding the
foregoing, all damage or injury to the demised premises or to any other part of
the building, or to its fixtures, equipment and appurtenances, whether
requiring structural or nonstructural repairs, caused by or resulting from
carelessness, omission, neglect or improper conduct of Tenant, Tenant's
servants, employees, invitees or licensees, shall be repaired promptly by
Tenant at its sole cost and expense, to the satisfaction of Landlord reasonably
exercised. All the aforesaid repairs shall be of quality or class equal to the
original work or construction. If the Tenant fails after thirty (30) days
notice to proceed with due diligence to make repairs required to be made by
Tenant, the same may be made by the Landlord at the expense of Tenant and the
reasonable, documented expenses thereof incurred by Landlord shall be
collectible as additional rent after rendition of a bill or statement therefor.
Anything to the contrary contained in the immediately preceding sentence
notwithstanding, the time period provided for in the immediately preceding
sentence shall be deemed to be ten (10) days if such shorter time period is
advisable in Landlord's reasonable opinion as a precaution against damage to
the Building, including but not limited to the systems of the Building; also,
there shall be no notice period in the case of emergencies. If the demised
premises be or become infested with vermin, Tenant shall at Tenant's expense
cause the same to be exterminated from time to time to the satisfaction of
Landlord. Tenant shall give Landlord prompt notice of any defective condition
in any plumbing, heating system or electrical lines located in, servicing or
passing through the demised premises and following such notice, Landlord shall
remedy the condition with due diligence but at the expense of Tenant if repairs
are necessitated by damage or injury attributable to Tenant, Tenant's servants,
agents, employees, invitees or licensees as aforesaid. Except as specifically
provided in Article 9 or elsewhere in this lease, there shall be no allowance
to the Tenant for a diminution of rental value and no liability on the part of
Landlord by reason of inconvenience, annoyance or injury to business arising
from Landlord, Tenant or others making or failing to make any repairs,
alterations, additions or improvements in or to any portion of the building or
the demised premises or in and to the fixtures, appurtenances or equipment
thereof. The provisions of this Article 4 with respect to the making of repairs
shall not apply in the case of fire or other casualty which are dealt with in
Article 9 hereof.
Window Cleaning:
5. Tenant will not clean nor require, or allow any window in the demised
premises to be cleaned from the outside in violation of Section 202 of the New
York State Labor Law or any other applicable law or of the Rules of the Board
of Standards and Appeals, or of any other board or body having or asserting
jurisdiction.
Requirements of Law, Fire Insurance, Floor Loads:
6. Prior to the commencement of the lease term, if Tenant is then in
possession and at all times thereafter, Tenant, at Tenant's sole cost and
expense, shall promptly comply with all present and future laws, orders and
regulations of all state, federal, municipal and local governments,
departments, commissions and boards and any direction of any public officer
pursuant to law,
Illegible Illegible
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PLEASE INITIAL
and all orders, rules and regulations of the New York Board of Fire
Underwriters or any similar body which shall impose any violation, order or
duty upon Landlord or Tenant with respect to the demised premises arising out
of Tenant's particular use or manner of use thereof (it being agreed that a
law, rule or regulation which has general applicability to all office tenants
shall not be deemed to be a law, rule or regulation which applies to Tenant's
particular use) or with respect to the building if arising out of Tenant's
particular use or manner of use of the premises or the building (including the
use permitted under the lease). Except as provided in Article 29 hereof,
nothing herein shall require Tenant to make structural repairs or alterations
unless Tenant has by its particular use or manner of use of the demised
premises or method of operation therein, violated any such laws, ordinances,
orders, rules, regulations or requirements with respect thereto. Tenant may,
after securing Landlord to Landlord's satisfaction against all damages,
interest, penalties and expenses, including, but not limited to, reasonable
attorneys' fees, by cash deposit or by surety bond in an amount and in a
company satisfactory to Landlord, contest and appeal any such laws, ordinances,
orders, rules, regulations or requirements provided same is done with all
reasonable promptness and provided such appeal shall not subject Landlord to
prosecution for a criminal offense or constitute a default under any lease or
mortgage under which Landlord may be obligated, or cause the demised premises
or any part thereof to be condemned or vacated. Tenant shall not do or permit
any act or thing to be done in or to the demised premises which is contrary to
law, or which will invalidate or be in conflict with public liability, fire or
other policies of insurance at any time carried by or for the benefit of
Landlord with respect to the demised premises or the building of which the
demised premises form a part, or which shall or might subject Landlord to any
liability or responsibility to any person or for property damage, nor shall
Tenant keep anything in the demised premises except as now or hereafter
permitted by the Fire Department, Board of Fire Underwriters, Fire Insurance
Rating Organization or other authority having jurisdiction, and then only in
such manner and such quantity so as not to increase the rate for fire insurance
applicable to the building, nor use the premises in a manner which will
increase the insurance rate for the building or any property located therein
over that which would otherwise be. Tenant shall pay all costs, expenses,
fines, penalties or damages, which may be imposed upon Landlord by reason of
Tenant's failure to comply with the provisions of this article and if by reason
of such failure the fire insurance rate shall, at the beginning of this lease
or at any time thereafter, be higher than it otherwise would be, then Tenant
shall reimburse Landlord, as additional rent hereunder, for that portion of all
fire insurance premiums thereafter paid by Landlord which shall have been
charged because of such failure by Tenant, and shall make such reimbursement
upon the first day of the month following such outlay by Landlord. In any
action or proceeding wherein Landlord and Tenant are parties a schedule or
"make-up" of rate for the building or demised premises issued by the New York
Fire Insurance Exchange, or other body making fire insurance rates applicable
to said premises shall be conclusive evidence of the facts therein stated and
of the several items and charges in the fire insurance rate then applicable to
said premises Landlord represents that the floor load capacity of the demised
premises is 200 pounds per square foot live load (except in the lavatory areas
where it is 100 pounds live load). Tenant shall not place a load upon any floor
of the demised premises exceeding the floor load per square foot area which it
was designed to carry and which is allowed by law or occupy the demised
premises with a density exceeding the density which is allowed by law and the
Certificate of Occupancy for the Building, calculated on a pro-rata basis if
Tenant does not occupy the entire floor. Landlord reserves the
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<PAGE>
right to reasonably prescribe the weight and position of all safes heavy,
business machines and mechanical equipment which (considered together) would
overload the floor load capacity or cause vibration, noise, cold or heat that
may be transmitted to the Building structure or to any leased space or space
available to lease to such a degree as reasonably to be objectionable to
Landlord or to any other tenant or occupant in the Building. Such installations
shall be placed and maintained by Tenant, at Tenant's expense, in settings
sufficient, in Landlord's judgment, to absorb and prevent vibration, noise and
annoyance.
Subordination:
7. This lease is subject and subordinate to all ground or underlying
leases and to all mortgages which may now or hereafter affect such leases or
the real property of which demised premises are a part and to all renewals,
modifications, consolidations, replacements and extensions of any such
underlying leases and mortgages. This clause shall be self-operative and no
further instrument of subordination shall be required by any ground or
underlying lessee or by any mortgagee, affecting any lease or the real property
of which the demised premises are a part. In confirmation of such
subordination, Tenant shall execute promptly any certificate that Landlord may
request.
(See Article 77 hereof)
Property -- Loss, Damage, Reimbursement, Indemnity:
8. Landlord or its agents shall not be liable for any damage to property
to Tenant or of others entrusted to employees of the building, nor for loss of
or damage to any property of Tenant by theft or otherwise, nor for any injury
or damage to persons or property resulting from any cause of whatsoever nature,
unless caused by or due to the negligence of Landlord, its agents, servants or
employees; nor shall Landlord or its agents be liable for any such damage
caused by other tenants or persons in, upon or about said building or caused by
operations in construction of any private, public or quasi public work. If at
anytime any windows of the demised premises are temporarily closed, darkened or
bricked up for purposes of building maintenance or repair or cleaning of the
Building or rigging or for any reason beyond Landlord's reasonable control (or
permanently closed, darkened or bricked up, if required by law), or for any
other reason whatsoever other than Landlord's arbitrary acts, Landlord shall
not be liable for any damage Tenant may sustain thereby and Tenant shall not be
entitled to any compensation therefor nor abatement or diminution of rent nor
shall the same release Tenant from its obligations hereunder nor constitute an
eviction. Tenant shall not move any safe, heavy machinery, heavy equipment,
bulky matter, or fixtures into or out of the building without Landlord's prior
written consent which consent shall not be unreasonably withheld or delayed.
Subject to all applicable provisions of this Lease and the Rules and
Regulations and Additional Rules and Regulations of the Building, Tenant shall
have the non-exclusive right to use the westerly truck elevators and truck well
on the eleventh (11th) floor of the Building servicing the demised premises, to
transport trucks, forklifts and similar equipment to the demised premises
during normal business hours without Landlord's consent. If such safe,
machinery, equipment, bulky matter or fixtures requires special handling, all
work in connection therewith shall comply with the Administrative Code of the
City of New York and all other laws and regulations applicable thereto and
shall be done during such hours as Landlord may designate. Tenant shall
indemnify and save harmless Landlord against and from all liabilities,
obligations, damages, penalties, claims, costs and expenses for which Landlord
shall not be reimbursed by insurance, including reasonable attorneys fees,
paid, suffered or incurred as a result
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<PAGE>
of any breach by Tenant, Tenant's agents, contractors, employees, invitees, or
licensees, of any covenant or condition of this lease, or the carelessness,
negligence or improper conduct of the Tenant, Tenant's agents, contractors,
employees, invitees or licensees. Tenant's liability under this lease extends
to the acts and omissions of any subtenant, and any agent, contractor,
employee, invitee or licensee of any sub-tenant. In case any action or
proceeding is brought against Landlord by reason of any such claim, Tenant,
upon written notice from Landlord, will, at Tenant's expense, resist or defend
such action or proceeding by counsel approved by Landlord in writing, such
approval not to be unreasonably withheld. Subject to the terms of Article 9
hereof relating to waivers of subrogation, Landlord agrees to indemnify, defend
(with counsel of Landlord's choosing) and save Tenant harmless (except for
loss, liability, costs, fines, penalties, personal injury or damage resulting
from the negligence or misconduct of Tenant, its officers, employees or agents
or from any breach of this Lease by Tenant) from and against any and all
claims, causes of action, suits, damage, liability, costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses)
arising from any negligence or willful misconduct of Landlord or its officers,
employees or agents; provided, however, that this indemnity shall in no event
cover liability for consequential damages or for special or indirect damages in
the nature of consequential damages.
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Rider to be added if necessary.
Destruction, Fire and Other Casualty:
9. (a) If the demised premises or any part thereof should be damaged by
fire or other casualty, Tenant shall give immediate notice thereof to Landlord
and this lease shall continue in full force and effect except as hereinafter
set forth. (b) If the demised premises are partially damaged or rendered
partially unusable by fire or other casualty, the damages thereto shall be
repaired by and at the expense of Landlord and the rent, until such repair
shall be substantially completed, shall be apportioned from the _____ following
the casualty according to the part of the premises which _____ usable. (c) If
the demised premises are totally damaged or rendered wholly unusable by fire or
other casualty, then the rent shall be proportionately paid up to the time of
the casualty and thenceforth shall cease until the date when the premises shall
have been repaired and restored by Landlord, subject to Landlord's right to
elect not to restore the same as hereinafter provided. (d) (whether or not the
demised premises are damaged whole or in part) if the building shall be so
damaged that Landlord shall decide to demolish it or to rebuild it, then, in
any of such events, Landlord may elect to terminate this lease by written
notice to Tenant given within 90 days after such fire or casualty specifying a
date for the expiration of the lease, which date shall not be more than 60 days
after the giving of such notice, and upon the date specified in such notice the
term of the lease shall expire as fully and completely as if such date were the
date set forth above for the termination of this lease and Tenant shall
forthwith quit, surrender and vacate the premises without prejudice however to
Landlord's rights and remedies against Tenant under the lease provisions in
effect prior to such termination, and any rent owing shall be paid up to such
date and any payments of rent made by Tenant which were on account of any
period subsequent to such date shall be returned to Tenant. Unless Landlord
shall serve a termination notice as provided for herein, Landlord shall make
the repairs and restorations under the conditions of (b) and (c) hereof, with
all reasonable expedition subject to delays due to adjustment of insurance
claims, labor troubles and cause beyond Landlord's control. If Landlord does
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not complete the repairs required of Landlord under this Article 9 within one
(1) year after the date of the subject damage, subject to an extension of such
time period, not to exceed three (3) months, on a day-by-day basis for each day
that Landlord is not able to so complete the subject repairs due to reasons
beyond the reasonable control of Landlord [e.g., force majeure, strike(s),
interference by governmental authority] (provided Landlord notifies Tenant of
such delays within fifteen (15) business days after Landlord learns of their
occurrence, and if Landlord fails to so notify Tenant of any such delay, then
the period of such delay as to which Tenant is not so notified shall be deemed
not to extend such time period), or if in the reasonable judgment of Landlord's
contractor or architect, made within ninety (90) days of the date of the
subject damage, the subject repairs cannot be completed within one (1) year
after the date of the subject damage (assuming the absence of any force majeure
delay), Tenant may terminate this Lease provided Tenant gives Landlord thirty
(30) days' prior written notice of Tenant's exercise of said right on the part
of Tenant to so terminate this Lease. Such written notice by Tenant must be
given to Landlord within thirty (30) days after the end of Landlord's period
provided above in this sentence to complete the subject repair or within thirty
(30) days after Landlord shall have given Tenant Landlord's written notice that
in Landlord's reasonable opinion the subject repairs cannot be completed within
the subject one (1) year period, as the case may be. If Tenant shall duly give
such notice, then the term of this Lease shall cease and expire at the
expiration of such thirty (30) day period as if that were the Expiration Date
originally set forth in the Lease. After any such casualty, Tenant shall
cooperate with Landlord's restoration by removing from the premises as promptly
as reasonably possible, all of Tenant's salvageable inventory and movable
equipment, furniture, and other property. Tenant's liability for rent shall
result thirty (30) days after written notice from Landlord that the premises
are substantially ready for Tenant's occupancy. (e) Nothing contained
hereinabove shall relieve Tenant from liability that may exist as a result of
damage from _____ or other casualty. Notwithstanding the foregoing, each party
shall look f_____ to any insurance in its favor before making any claim against
the other pa_____ for recovery for loss or damages resulting from fire or other
casualty, and _____ the extent that such insurance is in force and collectable
and to the extent permitted by law, landlord and Tenant each hereby releases
and waives right of recovery against the other or any one claiming through or
under e_____ of them by way of subrogation or otherwise. The foregoing release
and waiver shall be in force only if both releasors' insurance policies contain
_____ clause providing that such a release or waiver shall not invalidate the
insurance and also, provided that such a policy can be obtained without
additional premiums. Tenant acknowledges that Landlord will not carry insurance
_____ Tenant's furniture and/or furnishings or any fixtures or equipment,
improvements, or appurtenances removable by Tenant and agrees that Landlord
_____ not be obligated to repair any damage thereto or replace the same. (f)
Tenant hereby waives the provisions of Section 227 of the Real Property Law and
agrees that the provisions of this article shall govern and control in lieu
thereof.
Eminent Domain:
10. If the whole or any material part of the demised premises shall be
acquired or condemned by Eminent Domain for any public or quasi public use or
purpose, then and in that event, the term of this lease shall cease and
terminate from _____ date of title vesting in such proceeding and Tenant shall
have no cla_____ for the value of any unexpired term of said lease.
Assignment, Mortgage, Etc.:
11. Tenant, for itself, its heirs, distributees, executors,
administrators, legal representatives, successors and assigns expressly
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covenants that it shall not assign, mortgage or encumber this agreement, nor
underlet, or suffer or permit the demised premises or any part thereof to be
used by others, without prior written consent of Landlord in each instance. If
this lease be assigned or if the demised premises or any part thereof by
underlet or occupied by anybody other than Tenant, Landlord may, after default
by Tenant, collect rent from the assignee, under-tenant or occupant, and apply
the net amount collected to the rent herein reserved, but no such assignment,
underletting, occupancy or collection shall be deemed a waiver of this
covenant, or the acceptance of the assignee, under-tenant or occupant as
tenant, or a relative of Tenant from the further performance by Tenant of
covenants on the part of Tenant herein contained. The consent by Landlord to an
assignment or underletting shall not in any wise be construed to relieve Tenant
from obtaining the express consent in writing of Landlord to any further
assignment or underletting.
Electric Current:
12. Rates and conditions in respect to submetering or _____ inclusion, as
the case may be, to be added in RIDER attached hereto. Tenant covenants and
agrees that at times its use of electric current shall not exceed capacity of
existing feeders to the building or the risers or wiring installation and
Tenant may not use any electrical equipment which, in Landlord's opinion,
reasonably exercised, will overload such installations _____ interfere with the
use thereof by other tenants of the building. the change at any time of the
character of electric service shall in no wise make Landlord liable or
responsible to Tenant, for any loss, damages or expenses which Tenant may
sustain.
Access to Premises:
13. Landlord or Landlord's agents shall have the right (but shall not be
obligated) to enter the demised premises in any emergency at any time, and, at
other reasonable times upon reasonable prior notice to Tenant or an authorized
employee of Tenant at the demised premises (which notice may be given orally),
to examine the same and to make such repairs, replacements or improvements as
Landlord may deem necessary and reasonably desirable to the demised premises or
to any other portion of the building or when Landlord may elect to perform
following Tenant's failure to make repairs or perform any work which Tenant is
obligated to perform under this lease, or for the purpose of complying with
laws, regulations and other directors of governmental authorities. Tenant shall
permit Landlord to use and maintain and replace pipes and conduits in and
through the demised premises and to erect new pipes and conduits therein.
Landlord may, during the progress of any work in the demised premises, take the
necessary materials and equipment into said premises without the sa_____
constituting an eviction nor shall the Tenant be entitled to any abandon
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PLEASE INITIAL
ment of rent while such work is in progress nor to any damages by reason of
loss or interruption of business or otherwise. Throughout the term hereof
Landlord shall have the right to enter the demised premises at reasonable
hours upon reasonable prior notice to Tenant or an authorized employee of
Tenant at the demised premises (which notice may be given orally), for the
purpose of showing the same to prospective purchasers or mortgagees of the
building, and during the last six months of the term for the purpose of
showing the same to prospective tenants and may, during said six month
period, place upon the premises the usual notices "To Let" and "For Sale"
which notices Tenant shall permit to remain thereon without molestation. If
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Tenant is not present to open and permit an entry into the premises, Landlord
or Landlord's agents may enter the same whenever such entry may be necessary or
permissible by master key or forcibly, in an emergency or as a safeguard to
preserve property or avoid injury to persons provided Landlord shall either
secure or leave attended the demised premises after such entry, and provided
reasonable care is exercised to safeguard Tenant's property and such entry
shall not render Landlord or its agents liable therefor, nor in any event shall
the obligations of Tenant hereunder be affected. If during the last month of
the term Tenant shall have removed all or substantially all of Tenant's
property therefrom, Landlord may immediately enter, alter, renovate or
redecorate the demised premises without limitation or abatement of rent, or
incurring liability to Tenant for any compensation and such act shall have no
effect at any time, without the same constituting an eviction and without
incurring liability to Tenant therefor to change the arrangement and/or
location of public entrances, passageways, doors, doorways, corridors,
elevators, stairs, toilets, or other public parts of the building (provided the
rearrangement of such passage way, corridors and doors shall not materially and
adversely affect accessibility to the demised premises unless (Y) such change
shall be pursuant to law or a legal requirement, the rules and regulations of
any Board of Fire Underwriters or similar agency having jurisdiction or a
requirement of any public utility providing service to the Building or (Z) by
reason of then existing Building conditions or the nature and/or manner of the
work to be performed or change to be made no other practical alternative exists
therefor) and to change the name, number or designation by which the building
may be known. With regard to work to be performed by or on behalf of Landlord
under this Article 13, Landlord agrees to only bring material and equipment
into the demised premises when it is reasonably likely that same will be needed
on the day on which same is brought into the demised premises and Landlord
shall have the right to store upon the demised premises only reasonable
quantities of same. Landlord shall exercise reasonable diligence so as to
minimize the disturbance to Tenant but nothing contained herein shall be deemed
to require Landlord to perform the same on an overtime or premium pay basis,
unless Tenant is willing to reimburse Landlord for the difference between the
normal full-time pay basis and overtime or premium pay basis and the
performance of same on such overtime or premium pay basis is available and
reasonably practicable.
Vault, Vault Space, Area:
14. No Vaults, vault space or area, whether or not enclosed or covered,
not within the property line of the building is leased hereunder, anything
contained in or indicated on any sketch, blue print or plan, or anything
contained elsewhere in this lease to the contrary notwithstanding, Landlord
make no representation as to the location of the property line of the building.
All vaults and vault space and all such areas not within the property line of
the building, which Tenant may be permitted to use and/or occupy, is to be used
and/or occupied under a revocable license, and if any such license be revoked,
or if the amount of such space or area be diminished or required by any
federal, state or municipal authority or public utility, Landlord shall not be
subject to any liability nor shall Tenant be entitled to any compensation or
diminution or abatement of rent, nor shall such revocation, diminution or
requisition be deemed constructive or actual eviction. Any tax, fee or charge
of municipal authorities for such vault or area shall be paid by Tenant.
Occupancy:
15. Included in this Lease as Exhibit B is the current Certificate of
Occupancy (the "Certificate of Occupancy") for the Building dated August 27,
1974 (which has not been amended) which Landlord represents to be in full force
and effect as of the date of this Lease. Landlord agrees not to apply
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for amendment to the Certificate of Occupancy for the Building if and to the
extent same will prevent Tenant from using the demised premises in a manner
presently permitted under the Certificate of Occupancy as attached to this
Lease as Exhibit B. Tenant will not at any time use or occupy the demised
premises in violation of the certificate of occupancy issued for the building
of which the demised premises are a part. Tenant has inspected the premises and
accepts them as is, subject to the riders annexed hereto with respect to
Landlord's work, if any. In any event, Landlord makes no representation as to
the condition of the premises and Tenant agrees to accept the same subject to
violations whether or not of record, except that Landlord, at Landlord's cost
and expense, shall cure and discharge all outstanding violations of record
issued against the demised premise as of the Commencement Date of this Lease if
and only to the extent such violations: (a) impair the use and occupancy of the
demised premises by Tenant for the purposes permitted pursuant to Article 2
hereof, except to an insignificant degree; or (b) must be cured in connection
with the performance of Tenant's Work to be performed initially following the
Commencement Date to build the space out for Tenant's use and occupancy for the
purposes permitted pursuant to Article 2 hereof.
Bankruptcy:
16. (a) If at the date fixed as the commencement of the term of this lease
or if at any time during the term hereby demised there shall be filed by or
against Tenant in any court pursuant to any statute either of the United States
or of any state, a petition in bankruptcy or insolvency or for reorganization
or for the appointment of a receiver or trustee of all or a portion of Tenant's
property, and within ninety (90) days days thereof, Tenant fails to secure a
dismissal thereof, or if Tenant make an assignment for the benefit of creditors
or petition for or enter into an arrangement, this lease, at the option of
Landlord, exercised within a reasonable time after notice of the happening of
any one or more of such events, may be cancelled and terminated by written
notice to the Tenant (but if any of such events occur prior to the commencement
date, this lease shall be ipso facto cancelled and terminated) provided,
however and on the condition that, in addition to the occurrence of any of the
foregoing events, Tenant is in default in the payment of any rent, additional
rent or other sums or charges provided to be paid by Tenant under the Lease or
is otherwise in default under this Lease beyond any applicable cure period, and
whether such cancellation and termination occur prior to or during the term,
neither Tenant nor any person claiming through or under Tenant by virtue of any
statute or of any order of any court, shall be entitled to possession or to
remain in possession of the premises demised but shall forthwith quit and
surrender the premises, and Landlord, in addition to the other rights and
remedies Landlord has by virtue of any other provision herein or elsewhere in
this lease contained or by virtue of any statute or rule of law, may retain as
liquidated damages, any rent, security deposit or moneys received by him from
Tenant or others in behalf of Tenant. If this lease shall be assigned in
accordance with its terms, the provisions of this Article 16 shall be
applicable only to the party then owning Tenant's interest in this lease.
(b) It is stipulated and agreed that in the event of the termination of
this lease pursuant to (a) hereof, Landlord shall forthwith, notwithstanding
any other provisions of this lease to the contrary, be entitled to recover from
Tenant as and for liquidated damages an amount equal to the difference between
the rent reserved hereunder for the unexpired portion of the term demised and
the fair and reasonable rental value of the demised premises for the period for
which such instalment was payable shall be discounted to the date of
termination at the rate of four per cent (4%) per annum. If such premises or
any part thereof be re-let by the Landlord for the unexpired term of said
lease, or any part thereof, before presentation of proof of such
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liquidated damages to any court, commission or tribunal, the amount of rent
reserved upon such re-letting shall be deemed to be the fair and reasonable
rental value for the part or the whole of the premises so re-let during the
term of the re-letting. Nothing herein contained shall limit or prejudice the
right of the Landlord to prove for and obtain as liquidated damages by reason
of such termination, an amount equal to the maximum allowed by any statute or
rule of law in effect at the time when, and governing the proceedings in which,
such damages are to be proved, whether or not such amount be greater, equal to,
or less than the amount of the difference referred to above.
Default
17. (1) If Tenant defaults in fulfilling any of the covenants of this
lease including the covenants for the payment of rent or additional rent; or if
the demised premises are abandoned; or if any execution or attachment shall be
issued against Tenant or any of Tenant's property whereupon the demised
premises shall be taken or occupied by someone other than Tenant or if Tenant
shall fail to move into or take possession of the premises within ninety (90)
days after the commencement of the term of this lease, of which fact Landlord
shall be the sole judge (which judgment shall be reasonably exercised) then, in
any one or more of such events, upon Landlord serving a written twenty (20)
days [except said period shall be ten (10) days after written notice with
respect to default in the payment of rent or additional rents notice upon
Tenant specifying the nature of said default and upon the expiration of said
twenty (20) days [except said period shall be ten (10) days with respect to
default in the payment of rent or additional rent] if Tenant shall have failed
to comply with or remedy such default, or in the case of a non-monetary default
if the said default or omission complained of shall be of a nature that the
same cannot be completely cured or remedied with said twenty (20) days period,
and if Tenant shall not have diligently commenced curing such default within
such twenty (20) days period, and shall not thereafter with reasonable
diligence and in good faith proceeded to remedy or cure such default, then
Landlord may serve a written three (3) days' notice of cancellation of this
lease upon Tenant, and upon the expiration of said three (3) days, this lease
and the term thereunder shall end and expire as fully and completely as if the
expiration of such three (3) day period were the day herein definitely fixed
for the end and expiration of this lease and the term thereof and the Tenant
shall then quit and surrender the demised premises to Landlord but Tenant shall
remain liable as hereinafter provided.
(2) If the notice provided for in (1) hereof shall have been given and the
term shall expire as aforesaid; or if Tenant shall make default in the payment
of the rent reserved herein or any item of additional rent herein mentioned or
any part of either or in making any other payment herein required and such
default shall continue for ten (10) days after Landlord shall have given to
Tenant a written notice specifying such default: then and in any of such events
Landlord may without notice, re-enter the demised premises either by force or
otherwise, and dispossess Tenant by summary proceedings or otherwise, and the
legal representative of Tenant or other occupant of the demised premises and
remove their effects and hold the premises as if this lease had not been made,
and Tenant hereby waives the service of notice of intention to re-enter or to
institute legal proceedings to that end. If Tenant shall make default hereunder
prior to the date fixed as the commencement of any renewal or extension of this
lease, Landlord may cancel and terminate such renewal or extension agreement by
written notice.
Remedies of Landlord and Waiver of Redemption:
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18. In case of any such default, re-entry, expiration and/or dispossess by
summary proceedings or otherwise, (a) the rent shall become due thereupon and
be paid up to the time of such re-entry, dispossess and/or expiration, together
with such reasonable expenses as Landlord may incur for legal expenses,
attorneys' fees, brokerage, and/or putting the demised premises in good order,
or for preparing the same for re-rental; (b) Landlord may re-let the premises
or any part or parts thereof, either in the name of Landlord or otherwise, for
a term or terms, which may at Landlord's option be less than or exceed the
period which would otherwise have constituted the balance of the term of this
lease and may grant concessions or free rent or charge a higher rental than
that in this lease, and/or (c) Tenant or the legal representatives of Tenant
shall also pay Landlord as liquidated damages for the failure of Tenant to
observe and perform said Tenant's covenants herein contained, any deficiency
between the rent hereby reserved and/or covenanted to be paid and the net
amount, if any, of the rents collected on account of the lease or leases of the
demised premises for each month of the period which would otherwise have
constituted the balance of the term of this lease. The failure of Landlord to
re-let the premises or any part or parts thereof shall not release or affect
Tenant's liability for damages. In computing such liquidated damages there
shall be added to the said deficiency such reasonable expenses as Landlord may
incur in connection with re-letting, such as legal expenses, attorneys' fees,
brokerage, advertising and for keeping the demised premises in good order or
for preparing the same for re-letting. Any such liquidated damages shall be
paid in monthly installments by Tenant on the rent day specified in this lease
and any suit brought to collect the amount of the deficiency for any month
shall not prejudice in any way the rights of Landlord to collect the deficiency
for any subsequent month by a similar proceeding. Landlord, in putting the
demised premises in good order or preparing the same for re-rental may, at
Landlord's option, make such alterations, repairs, replacements, and/or
decorations shall not operator or be construed to release Tenant from liability
hereunder as aforesaid. Landlord shall in no event be liable in any way
whatsoever for failure to re-let the demised premises; or in the event that the
demised premises are re-let, for failure to collect the rent thereof under such
reletting, and in no event shall Tenant be entitled to receive any excess, if
any, of such net rents collected over the sums payable by Tenant to Landlord
hereunder. In the event of a breach or threatened breach by Tenant of any of
the covenants or provisions hereof, Landlord shall have the right of injunction
and the right to invoke any remedy allowed at law or in equity as if re-entry,
summary proceedings and other remedies were not herein provided for. Mention in
this lease of any particular remedy, shall not preclude Landlord from any other
remedy, in law or in equity. Tenant hereby expressly waives any and all rights
of redemption granted by or under any present or future laws in the event of
Tenant being evicted or dispossessed for any cause, or in the event of Landlord
obtaining possession of demised premises, by reason of the violation by Tenant
of any of the covenants and conditions of this lease, or otherwise.
Fees and Expenses
19. If tenant shall default in the observance or performance of any term
or covenant on tenant's part to be observed or performed under or by virtue of
any of the terms or provisions in any article of this lease, then (a) Landlord
may remedy such default for the account of Tenant, immediately and without
notice in case of emergency or as a safeguard to preserve property or avoid
injury to persons or when such default shall subject Landlord to criminal
prosecution or subject the property to lien or sale, or in any other case if
Tenant shall fail to remedy such default with all reasonable dispatch after
Landlord shall have notified Tenant in writing of such default and the
applicable grace period for curing such default shall
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have expired; and (b) and if landlord, in connection therewith or in connection
with any default by tenant in the covenant to pay rent hereunder, makes any
expenditures or incurs any obligations for the payment of money, including but
not limited to attorney's fees, in instituting, prosecuting or defending any
action or proceeding, such sums so paid or obligations incurred with interest
and costs shall be deemed to be additional rent hereunder and shall be paid by
tenant to landlord within five (5) days of rendition of any bill or statement
to tenant therefor, and if tenant's lease term shall have expired at the time
of making such expenditures or incurring of such obligations, such sums shall
be recoverable by landlord as damages.
No Representations by Landlord:
20. Neither Landlord nor Landlord's agents have made any representations
or promises with respect to the physical condition of the building, the land
upon which it is erected or the demised premises, the rents, leases, ex-
Illegible Illegible
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PLEASE INITIAL
penses of operation or any other matter or thing affecting or related to the
premises except as herein expressly set forth and no rights, easements or
licenses are acquired by Tenant by implication or otherwise except as expressly
set forth in the provisions of this lease. Tenant has inspected the building
and the demised premises and is thoroughly acquainted with their condition, and
agrees to take the same "as is" and acknowledges that the taking of possession
of the demised premises by Tenant shall be conclusive evidence that the said
premises and the building of which the same form a part were in good and
satisfactory condition at the time such possession was so taken, except as to
latent defects. All understandings and agreements heretofore made between the
parties hereto are merged in the contract, which alone fully and completely
expresses the agreement between Landlord and Tenant and any executory agreement
hereafter made shall be ineffective to change, modify, discharge or effect an
abandonment of it in whole or in part, unless such executory agreement is in
writing and signed by the party against whom enforcement of the change,
modification, discharge or abandonment is sought.
End of Term:
21. Upon the expiration or other termination of the term of this lease,
Tenant shall quit and surrender to Landlord the demised premises, broom clean,
in good order and condition, ordinary wear excepted, and Tenant shall remove
all its property except as specifically provided elsewhere in this Lease.
Tenant's obligation to observe or perform this covenant shall survive the
expiration or other termination of this lease. If the last day of the term of
this lease or any renewal thereof, falls on Sunday, this lease shall expire at
noon on the preceding Saturday unless it be a legal holiday in which case it
shall expire at noon on the preceding business day.
Quiet Enjoyment:
22. Landlord covenants and agrees with Tenant that upon Tenant paying the
rent and additional rent and observing and performing all the terms, covenants
and conditions, on Tenant's part to be observed and performed, Tenant may
peaceably and quietly enjoy the premises hereby demised, subject, nevertheless,
to the terms and conditions of this lease including, but not limited to,
Article 33 hereof and to the ground leases, underlying leases and mortgages
hereinbefore mentioned.
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Failure to Give Possession:
23. If Landlord is unable to give possession of the demised premises on
the date of the commencement of the term hereof, because of the holding-over or
retention of possession of any tenant, undertenant or occupants, or if the
premises are located in a building being constructed, because such building has
not been sufficiently completed to make the premises ready for occupancy or
because of the fact that a certificate of occupancy has not been procured or
for any other reason, Landlord shall not be subject to any liability for
failure to give possession on said date and the validity of the lease shall not
be impaired under such circumstances, nor shall the same be construed in any
wise to extend the term of this lease, but the rent payable hereunder shall be
abated (provided Tenant is not responsible for the inability to obtain
possession) until after Landlord shall have given Tenant written notice that
the premises are substantially ready for Tenant's occupancy. If permission is
given to Tenant to enter into the possession of the demised premises or to
occupy premises other than the demised premises prior to the date specified as
the commencement of the term of this lease, Tenant covenants and agrees that
such occupancy shall be deemed to be under all the terms, covenants, conditions
and provisions of this lease, except as to the covenant to pay rent. The
provisions of this article are intended to constitute "an express provision to
the contrary" within the meaning of Section 223-a of the New York Real Property
Law." Landlord represents that as of the date of this Lease, the entire demised
premises is vacant and not affected by any tenancies or other occupancy
agreements.
No Waivers:
24. The failure of Landlord to seek redress for violation of, or to insist
upon the strict performance of any covenant or condition of this lease or of
any of the Rules or Regulations set forth or hereafter adopted by Landlord,
shall not prevent a subsequent act which would have originally constituted a
violation from having all the force and effect of an original violation. The
receipt by Landlord of rent with knowledge of the breach of any covenant of
this lease shall not be deemed a waiver of such breach and no provision of this
lease shall be deemed to have been waived by Landlord unless such waiver be in
writing signed by Landlord. No payment by Tenant or receipt by Landlord of a
lesser amount than the monthly rent herein stipulated shall be deemed to be
other than on account of the earliest stipulated rent, nor shall any
endorsement or statement of any check or any letter accompanying any check or
payment as rent be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of such rent or pursue any other remedy in this lease provided. No act
or thing done by Landlord or Landlord's agents during the term hereby demised
shall be deemed an acceptance of a surrender of said premises and no agreement
to accept such surrender shall be valid unless in writing signed by Landlord.
No employee of Landlord or Landlord's agent shall have any power to accept the
keys to said premises prior to the termination of the lease and the delivery of
keys to any such agent or employee shall not operate as a termination of the
lease or a surrender of the premises.
Waiver of Trial by Jury:
25. It is mutually agreed by and between Landlord and Tenant that the
respective parties hereto shall and they hereby do waive trial by jury in any
action, proceeding or counterclaim brought by either of the parties hereto
against the other (except for personal injury or property damage) on any
matters whatsoever arising out of or in any way connected with this lease, the
relationship of Landlord and Tenant, Tenant's use of or occupancy of said
premises, and any emergency statutory or any other statutory remedy. It is
further mutually agreed that in the event Landlord commences any summary
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proceeding for possession of the premises, Tenant will not interpose any
counterclaim of whatever nature or description in any such proceeding unless
Tenant's failure to interpose such counterclaim would result in a waiver of
Tenant's right to assert same in a separate proceeding.
Inability to Perform:
26. This lease and the obligation of Tenant to pay rent hereunder and
perform all of the other covenants and agreements hereunder on part of Tenant
to be performed shall in no wise be affected, impaired or excused because
Landlord is unable to fulfill any of its obligations under this lease or to
supply or is delayed in supplying any service expressly or impliedly to be
supplied or is unable to make, or is delayed in making any repair, additions,
alterations or decorations or is unable to supply or is delayed in supplying
any equipment or fixtures if Landlord is prevented or delayed from so doing by
reason of strike or labor troubles or any cause whatsoever including, but not
limited to, government preemption in connection with a National Emergency or by
reason of any rule, order or regulation of any department or subdivision
thereof of any government agency or by reason of the conditions of supply and
demand which have been or are affected by war or other emergency.
Bills and Notices:
27. Except as otherwise in this lease provided any notice or demand,
consent, approval or disapproval, communication or statement (collectively
called "Notices") required or permitted to be given by the terms and provisions
of this lease (other than routine bills and invoices), or by any law or
governmental regulation, either by Landlord to Tenant or by Tenant to Landlord,
shall be in writing and unless otherwise required by such law or regulation,
and except as hereinafter provided in this Article 27 shall be sent by United
States mail with all postage and fees prepaid as registered or certified mail,
return receipt requested, or by a nationally recognized overnight courier, such
as Federal Express, with charges and fees prepaid, to Landlord, as follows:
P.A. Building Company
c/o Sylvan Lawrence Company, Inc.
100 William Street
New York, New York 10038
with a copy to:
P.A. Building Company
c/o Sylvan Lawrence Company, Inc.
100 William Street
New York, New York 10038
Attention: Legal Department
and to Tenant, as follows:
Barnes & Noble, Inc.
122 Fifth Avenue
New York, New York 10011
Attention: Vice President of Real Estate
Each party may, by Notice given as above provided, designate a different
address or addresses for Notices.
Any Notice so given shall be deemed given and shall be effective upon
receipt, or in the case of refusal to receive same, as of the date of such
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refusal. Routine bills and invoices may be delivered by regular mail or by hand
to Tenant at the address to which Notices to Tenant are to be sent as provided
herein with a copy to Tenant at the following address:
Accounts Payable Department
1400 Old Country Road
Westbury, New York 11590
Attention: Property Accounting
Water Charges:
28. If Tenant requires, uses or consumes water for any purpose in addition
to ordinary lavatory purposes (of judge) Landlord may install a water meter and
thereby measure Tenant's water consumption for all purposes. Tenant shall pay
Landlord for the cost of the meter and the cost of the installation thereof and
throughout the duration of Tenant's occupancy Tenant shall keep said meter and
installation equipment in good working order and repair at Tenant's own cost
and expense in default of which Landlord may cause such meter and equipment to
be replaced or repaired and collect the cost thereof from Tenant. Tenant agrees
to pay for water consumed, as shown on said meter as and when bills are
rendered, and on default in making such payment Landlord may pay such charges
and collect the same from Tenant. Tenant covenants and agrees to pay the sewer
rent, charge or any other tax, rent, levy or charge which now or hereafter is
assessed, imposed or a lien upon the demised premises or the realty of which
they are part pursuant to law, order or regulation made or issued in connection
with the use, consumption, maintenance or supply of water, water system or
sewage or sewage connection or system. The bill rendered by Landlord shall be
payable by Tenant as additional rent. If the building or the demised premises
or any part thereof be supplied with water through a meter through which water
is also supplied to other premises Tenant shall pay to Landlord as additional
rent, on the first day of each month, ($315.00) of the total meter charges, as
Tenant's portion, the foregoing sum may from time to time be increased by
Landlord to reflect any increase in the cost of water to Landlord or Tenant's
consumption of water. If requested by Tenant, with reasonable back-up such
increased cost or increased consumption (as the case may be). Independently of
and in addition to any or the remedies reserved to Landlord hereinabove or
elsewhere in this Lease, Landlord may sue for and collect any monies to be paid
by Tenant or paid by Landlord for any of the reasons or purposes hereinabove
set forth.
Sprinklers:
29. Anything elsewhere in this lease to the contrary notwithstanding, if
the New York Board of Fire Underwriters or the New York Fire Insurance Exchange
or any bureau, department or official of the federal, state or city government
require or recommend the installation of a sprinkler system in the demised
premises or that any changes, modifications, alterations, or additional
sprinkler heads or other equipment be made or supplied in an existing sprinkler
system by reason of Tenant's business, or the location of partitions, trade
fixtures, or other contents of the demised premises, or for any other reason
attributable to Tenant (e.g., Tenant alterations) or if any such sprinkler
system installations, changes, modifications, alterations, additional sprinkler
heads or other such equipment, become necessary for the foregoing reasons to
prevent the imposition of a penalty or charge against the full allowance for a
sprinkler system in the fire insurance rate set by any said Exchange or by any
fire insurance company. Tenant shall, at Tenant's expense, promptly make such
sprinkler system installations, changes, modifications, alterations, and supply
additional sprinkler heads or other equipment as required whether the work
involved shall be structural or non-structural in nature. Tenant shall pay to
Landlord as additional rent the
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sum of $315.00 on the first day of each month during the term of this lease, as
Tenant's portion of the contract price for sprinkler supervisory service, which
sum may from time to time be adjusted upwards by Landlord to reflect any
increase in Landlord's costs for sprinkler supervisory service. Landlord, at
Tenant's request, shall provide Tenant with reasonable back-up information in
support of any such increase in Landlord's cost for sprinkler supervisory
service.
Elevators, Heat, Cleaning:
30. As long as this Lease is in full force and effect Landlord shall: (a)
provide elevator facilities on business days* from 8 a.m. to 6 p.m. including
freight elevator service and at least one (l) passenger elevator shall be on
call at all other times (b) furnish heat to the demised premises, when and as
required by law, on business days* from 8 a.m. to 6 p.m. and (c) at Landlord's
expense cause to be kept clean the public halls and public portions of the
building, which are used in common by all tenants. Tenant shall at Tenant's
expense, keep the demised premises clean and in order, to the satisfaction of
Landlord, and for that purpose shall employ the person or persons, or
corporation approved by Landlord which approval shall not be unreasonably
withheld or delayed provided such contractor (including, but not limited to all
of its employees) shall be in all instances compatible with labor employed in,
at and by the Building. Tenant shall pay to Landlord the cost of removal of any
of Tenant's refuse and rubbish from the building. Bills for the same shall be
rendered by Landlord to Tenant at such time as Landlord may elect and shall be
due and payable when rendered, and the amount of such bills shall be deemed to
be, and be paid as, additional rent. Tenant shall, however, have the option of
independently contracting for the removal of such rubbish and refuse in the
event that Tenant does not wish to have same done by employees of Landlord.
Under such circumstances, however, the removal of such refuse and rubbish by
others shall be subject to such rules and regulations as, in the judgment of
Landlord, are necessary for the proper operation of the building. Landlord
reserves the right to stop service of the heating, elevator, plumbing and
electric system, when necessary, by reason of accident, or emergency, or for
repairs, alterations, replacements or improvements, in the judgment of Landlord
desirable or necessary to be made, until said repairs, alterations,
replacements or improvements shall have been completed. And Landlord shall have
no responsibility or liability for failure to supply heat, elevator, plumbing
and electric service, during said period or when prevented from so doing by
strikes, accidents or by any cause beyond Landlord's control, or by laws,
orders or regulations of any Federal, State or Municipal Authority, or failure
of coal, oil or other suitable fuel supply, or inability by exercise of
reasonable diligence to obtain coal, oil or other suitable fuel. If the
building of which the demised premises are a part supplies manually operated
elevator service, Landlord may proceed with alterations necessary to substitute
automatic control elevator service upon ten (10) day written notice to Tenant
without in any way affecting the obligations of Tenant hereunder, provided that
the same shall be done with the minimum amount of inconvenience to Tenant, and
Landlord pursues with due diligence the completion of the alterations.
If Tenant requires or uses heating or ventilation facilities for more
extended hours or on Saturdays, Sundays or on Federal, State, City and Building
union holidays or requires or uses freight and/or truck elevator facilities
beyond that which is otherwise expressly provided herein, Landlord, shall upon
not less than twenty-four (24) hours prior request, except with regard to such
requests for Saturdays, Sundays, or Federal, State, City and Building union
holidays or the next business day after a Saturday, Sunday or Federal, State,
City or Building union holiday such request must be given on or before 4 p.m.
on the next to last business day
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prior to the subject Saturday, Sunday, or Federal, State, City or Building
union holiday or the next business day after a Saturday, Sunday or Federal,
State, City or Building union holiday [if any such request is not in writing
given to and acknowledged by an authorized representative of Landlord or
Landlord's agent at Landlord's or Landlord's agent's office at the Building
(and not subject to the terms and conditions of Article 27 of this Lease) then
such request must thereafter be confirmed in writing (including but not limited
to facsimile transmittal to (212) 989-0615 or such other number as Landlord may
provide to Tenant by written notice given in accordance with the terms of
Article 27 of this Lease) at Landlord's or Landlord's agent's office at the
Building on the same day as the original request during regular Building
business hours], by Tenant, furnish the same at Tenant's expense. Landlord
shall have no responsibility or liability for failure to supply the services
described herein. As used in this subparagraph the term "authorized
representative" shall mean and be limited to the Building Manager (presently
Edward Alexander) and the Director of Leasing at the Building (presently Leon
Grossman) or to the person holding such other position or positions as Landlord
may substitute therefor by written notice given to Tenant in accordance with
the terms of Article 27 of this Lease. Tenant's expense for overtime service
shall be computed according to the schedule of current charges by Landlord for
overtime services attached hereto as Exhibit C, or according to Landlord's then
published rate schedule for the Building, which may be amended from time to
time and shall be kept on file, at the Building office, which schedule is
generally applied to tenants in the Building for overtime service charges.
Security:
31. Tenant has deposited with Landlord the sum of $510,284 as security for
the faithful performance and observance by Tenant of the terms, provisions and
conditions of this lease; it is agreed that in the event Tenant defaults in
respect of any of the terms, provisions and conditions of this lease,
including, but not limited to, the payment of rent and additional rent,
Landlord may use, apply or retain the whole or any part of the security so
deposited to the extent required for the payment of any rent and additional
rent or any other sum as to which Tenant is in default or for any
* (i.e., Mondays through Fridays, Federal, State, City and Building union
holidays excepted)
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sum which Landlord may expend or may be required to expend by reason of
Tenant's default in respect of any of the terms, covenants and conditions of
this lease, including but not limited to, any damages or deficiency in the
reletting of the premises, whether such damages or deficiency accrued before or
after summary proceedings or other re-entry by Landlord. In the event that
Tenant shall fully and faithfully comply with all of the terms, provisions,
covenants and conditions of this lease, the security shall be returned to
Tenant after the date fixed as the end of the Lease and after delivery of
entire possession of the demised premises to Landlord. In the event of a sale
of the land and building or leasing of the building, of which the demised
premises form a part, Landlord shall have the right to transfer the security to
the vendee or lessee and Landlord shall thereupon be released by Tenant from
all liability for the return of such security; and Tenant agrees to look to the
new Landlord solely for the return of said security; and it is agreed that the
provisions hereof shall apply to every transfer or assignment made of the
security to a new Landlord. Tenant further covenants that it will not assign or
encumber or attempt to assign or encumber the monies deposited herein as
security and that neither Landlord nor its successors or assigns shall be bound
by any such assignment, encumbrance, attempted assignment or attempted
encumbrance. (See Article 72 hereof)
Captions:
32. The Captions are inserted only as a matter of convenience and for
reference and in no way define, limit or describe the scope of this lease nor
the intent of any provision thereof.
Definitions:
33. The term "Landlord" as used in this lease means only the owner, or the
mortgagee in possession, for the time being of the land and building (or the
owner of a lease of the building or of the land and building) of which the
demised premises form a part, so that in the event of any sale or sales of said
land and building or of said lease, or in the event of said building, or of the
land and building, the said Landlord shall be and hereby is entirely freed and
relieved of all covenants and obligations of Landlord hereunder, and it shall
be deemed an construed without further agreement between the parties or their
successors in interest, or between the parties and the purchaser, at any such
sale, or the said lessee of the building, or of the land and building, that the
purchaser or the lessee of the building, or of the land and building, that the
purchaser or the lessee of the building has assumed and agreed to carry out any
and all covenants and obligations of Landlord hereunder. The words "re-enter"
and "re-entry" as used in this lease are not restricted to their technical
legal meaning. The term "business days" as used in this lease shall exclude
Saturdays (except such portion thereof as is covered by specific hours in
Article 30 hereof), Sundays and all days observed by the State or Federal
Government as legal holidays and those designated as holidays by the applicable
building service union employees service contract or by the applicable
Operating Engineers contract with respect to HVAC service.
Adjacent Excavation-- Shoring:
34. If an excavation shall be made upon land adjacent to the demised
premises, or shall be authorized to be made, Tenant shall afford to the person
causing or authorized to cause such excavation, license to enter upon the
demised premises for the purpose of doing such work as said person shall deem
necessary to preserve the wall or the building of which demised premises form a
part from injury or damage and to support the same by proper foundations
without any claim for damages or indemnity against Landlord, or diminution or
abatement of rent.
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Rules and Regulations:
35. Tenant and Tenant's servants, employees, agents, visitors, and
licensees shall observe faithfully, and comply strictly with, the Rules and
Regulations and such other and further reasonable Rules and Regulations as
Landlord or Landlord's agents may from time to time adopt; provided, however
that in the case of any conflict or inconsistency between the provisions of
this Lease and of any Rules and Regulations or Additional Rules and Regulations
as originally or as hereafter adopted, the provisions of this Lease shall
govern. Notice of any additional rules or regulations shall be given as
provided in Article 27 of this Lease. In case Tenant disputes the
reasonableness of any additional Rule or Regulation hereafter made or adopted
by Landlord or Landlord's agents, the parties hereto agree to submit the
question of the reasonableness of such Rule or Regulation for decision to the
New York office of the American Arbitration Association whose determination
shall be final and conclusive upon the parties hereto. The right to dispute the
reasonableness of any additional Rule or Regulation upon Tenant's part shall be
deemed waived unless the same shall be asserted by service of a notice, in
writing upon Landlord within ten (10) days after the giving of notice thereof.
Nothing in this lease contained shall be construed to impose upon Landlord any
duty or obligation to enforce the Rules and Regulations or terms, covenants or
conditions in any other lease, as against any other tenant and Landlord shall
not be liable to Tenant for violation of the same by any other tenant, its
servants, employees, agents, visitors or licensees. Landlord agrees not to
discriminatorily enforce against Tenant any Rules and Regulations which
Landlord shall not then be enforcing against any other tenant of the Building
to the extent only that such Rules and Regulations shall then be applicable to
other tenants at the Building.
Glass:
36. Landlord shall replace, at the expense of Tenant, any and all plate
and other glass damaged or broken from any cause whatsoever in and about the
demised premises. Landlord may insure, and keep insured, at Tenant's expense,
all plate and other glass in the demised premises for and in the name of
Landlord. Bills for the premiums therefor shall be rendered by Landlord to
Tenant at such times as Landlord may elect, and shall be due from, and payable
by, Tenant when rendered, and the amount thereof shall be deemed to be, and be
paid as, additional rent.
Successors and Assigns:
37. The covenants, conditions and agreements contained in this lease shall
bind and inure to the benefit of Landlord and Tenant and their respective
heirs, distributees, executors, administrators, successors, and except as
otherwise provided in this lease, their assigns.
RIDERS CONTAINING ARTICLES "38" THROUGH "77" INCLUSIVE ARE ANNEXED HERETO AND
MADE A PART HEREOF.
IN WITNESS WHEREOF, Landlord and Tenant have respectively signed and
sealed this lease as of the day and year first above written.
Witness for Landlord: P.A. BUILDING COMPANY
By: SYLVAN LAWRENCE COMPANY, INC., Agent
------------------------------------
/s/ Seymour Cohn [L.S.]
- ------------------------------ ----------------------------------
Seymour Cohn
Chairman and Secretary
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Witness for Tenant:
/s/ Illegible BARNES & NOBLE, INC. [L.S.]
- ------------------------------ ----------------------------------
/s/ Stephen Riggio
---------------------------------------
Stephen Riggio, Chief Operating Officer
- ------------------------------ Federal I.D.# 06-1196501
Address of Witness --------------------
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38. ELECTRICITY
(a) Tenant agrees to purchase all electric current (the "Demised Premises
Electric Current") consumed in the demised premises from Landlord or from a
meter company (the "Meter Company") designated by Landlord. Landlord (or, at
Landlord's option, Tenant in a manner first submitted to and approved by
Landlord) shall, at Tenant's sole cost and expense, make connection(s) to the
Building electric current riser(s) from which Demised Premises Electric Current
shall emanate by installing equipment designated and/or approved by Landlord at
point(s) designated and/or approved by Landlord, including but not limited to
(i), (ii) disconnect switch(es), and/or (iii) distribution/circuit breaker
panel(s). Anything to the contrary contained in the immediately preceding
sentence notwithstanding, Landlord, at Landlord's sole cost and expense, shall
initially provide and install a submeter or submeters as determined by Landlord
in Landlord's sole discretion (such submeter(s) being hereinafter referred to
as the "Meter") to measure the consumption of Demised Premises Electric
Current. Landlord or Meter Company shall bill Tenant for Demised Premises
Electric Current at such times as Landlord may elect (Tenant shall afford
Landlord and Meter Company access to read the Meter for each such billing) and
Tenant shall pay each such bill in full within ten (10) days of the date
Landlord or Meter Company renders the subject bill. If the Meter malfunctions
Tenant shall be billed for Demised Premises Electric Current in an amount
reasonably estimated by Landlord or Meter Company to be the amount Tenant would
have been billed had the Meter functioned properly but not more than the amount
billed for the prior billing period during which the Meter functioned properly
(as reasonably adjusted for any change in seasons) unless there has been a
significant increase in Tenant's hours of operation or a significant addition
to the electricity operated machinery, equipment and appliances in the demised
premises or a utility rate increase, in either which event, the charge for the
prior month or prior billing period shall be adjusted to account for such
increase(s).
(b) The charge ("Tenant's Electric Current Charge") to Tenant for Demised
Premises Electric Current shall be the sum of (i) Net Charge, (ii) Landlord's
Adjustment, (iii) Utility Tax, and (iv) Sales Tax. The factors reflected in
Tenant's Electric Current Charge are defined as follows: "Rate" shall mean (x)
the then in effect charges per kilowatt hour of energy consumption and per
kilowatt demand Lease specified in Service Classification No. 4 Commercial and
Industrial - Redistribution Rate 1 (non-Time-of-Day) (or successor thereto or
substitute therefor) of the utility company (the "Utility Company") furnishing
electric current (the "Building Electric Current") consumed in the Building.
"Basic Charge" shall mean the sum of (i) the product of Demised Premises
Electric Current kilowatt hours of energy consumption multiplied by the Energy
Charge (or successor thereto or substitute therefor) specified in the Rate,
plus (ii) the product of Demised Premises Electric Current kilowatt demand
consumption multiplied by the Demand Charge (or successor thereto or substitute
therefor) specified in the Rate.
"Tenant's Fuel Adjustment Charge" shall mean the product of Demised
Premises Electric Current kilowatt hours of energy consumption multiplied by
the then in effect Utility Company's Fuel Adjustment Charge (or successor
thereto or substitute therefor) per kilowatt hour charged to Landlord.
"Net Charge" shall mean Basic Charge plus Tenant's Fuel Adjustment Charge.
"Landlord's Adjustment" shall mean ten percent (10%) of the Net Charge.
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"Utility Tax" shall mean the product of (i) the sum of Net Charges plus
Landlord's Adjustment, multiplied by (ii) the sum of the then in effect utility
tax (also known as gross receipt tax) (or successor thereto or substitute
therefor) rates (set forth as a percentage) of New York State, New York City
and any other government or quasi-governmental entitie(s) having jurisdiction,
to the extent utility taxes are imposed or payable with respect to the Net
Charge and Landlord's Adjustment.
"Sales Tax" shall mean the product of (i) the sum of Net Charge,
Landlord's Adjustment and Utility Tax, multiplied by (ii) the sum of the then
in effect sales tax rates (set forth as a percentage) of New York State, New
York City and any other governmental or quasi-governmental entitie(s) having
jurisdiction, to the extent sales taxes are imposed or payable with respect to
the Net Charge, Landlord's Adjustment and Utility Tax.
If any charge or tax to be paid by Landlord regarding Demised Premises
Electric Current becomes effective after the date of this Lease or otherwise is
not reflected in Tenant's Electric Current Charge as provided for above, said
charge or tax shall be added to Tenant's Electric Current Charge.
(c) If the demised premises covers an entire floor of the Building, the
Meter shall measure electric current consumed in the hallways and lavatories of
said floor as Demised Premises Electric Current. If the demised premises covers
less than an entire floor of the Building, the Meter shall not measure electric
current consumed in the hallways and lavatories of said floor; Landlord's
utility consultant shall measure the consumption of said electric current by
survey and Landlord shall charge Tenant Tenant's proportionate share for said
electric current based upon the portion of the rentable square footage of said
floor which is covered by the demised premises. At Tenant's request, Landlord
shall deliver to Tenant the results of such surveys and supporting
documentation as reasonably requested by Tenant..
(d) Tenant agrees that electric current shall not be furnished to or
consumed by any electrically operated machinery or equipment in the demised
premises which requires approval by any governmental or quasi-governmental
entity or by the New York Board of Fire Underwriters or the New York Fire
Insurance Exchange or any similar entity having jurisdiction unless and until
the subject approval is unconditionally granted to Tenant and Tenant gives
Landlord a copy of the subject approval. Tenant agrees that no changes and/or
additions shall be made to electrically operated machinery, equipment,
appliances or the lighting system (or the use of said electrically operated
machinery, equipment, appliances or lighting system) located in the demised
premises without Landlord's prior written consent which consent shall not be
unreasonably withheld or delayed. Subject to the last sentence of this
subparagraph (d), Tenant may install and make substitutions and additions to
"ordinary office equipment" without Landlord's consent. "Ordinary office
equipment" shall mean, lighting, lamps, typewriters, adding machines, fax
machines, postage machines, copying machines, computers, dictaphones, table
fans and similar office equipment and machinery typically used in commercial
offices generally in Manhattan. Demised Premises Electric Current shall not be
consumed in any manner which in Landlord's sole judgment overloads any riser(s)
and/or switch(es) in the Building.
(e) Tenant shall not make any changes and/or additions to the electrical
wiring, disconnect switches or circuit breaker panels in the demised premises
without Landlord's prior written consent which consent shall not be
unreasonably withheld or delayed. If and to the extent Tenant is permitted to
perform electrical work, only rigid conduit may be employed. Tenant, in a
manner first submitted to and approved by Landlord, (or, at
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<PAGE>
Landlord's option, Landlord, in whole or in part) shall, at Tenant's sole cost
and expense, maintain in good order and condition all equipment involved in
furnishing Demised Premises Electric Current to the extent said equipment is
located in the demised premises or solely serves the demised premises including
but not limited to the Meter and all risers, wiring, switches and connections.
If Landlord shall perform any such maintenance on Tenant's behalf pursuant to
the provisions of this paragraph 38(e), then Tenant shall pay Landlord (or
Landlord's agent if so directed by Landlord within fifteen (15) days after
demand therefor, an amount equal to the documented costs incurred by Landlord
for the performance of such maintenance to the extent Landlord's costs are
commercially reasonable considering amounts that could reasonably be charged by
other reputable contractors utilizing the same class of labor as customarily
used by Landlord for work at the Building, obtaining the same levels of
insurance and bonds as customarily required by Landlord of contractors
performing similar work at the Building and performing the equivalent scope of
work.
(f) If at any time submetering the redistribution of electric current at
the Building is prohibited by law or by order or ruling of the Public Service
Commission of the State of New York or by judicial decision (collectively, by
"Legal Requirement"), Landlord shall have the option, which Landlord may elect
to exercise in landlord's sole discretion, to furnish unmetered electric
current (the "Unmetered Electric") to the demised premises. Tenant shall pay
Landlord for Unmetered Electric, for each calendar month, a sum equal to
one-twelfth (1/12) (or a pro rata fraction of any partial calendar month) of
the cumulative Tenant's Electric Current Charge for the twelve (12) full
calendar months immediately preceding Landlord's furnishing Unmetered Electric.
Tenant shall pay for Unmetered Electric in advance on the first (1st) day of
each applicable calendar month [or on the first (1st) day of Landlord's
furnishing Unmetered Electric for an applicable partial calendar month].
Anything to the contrary contained in this paragraph (f) notwithstanding, if
(i) modifications or additions are made to the electrically operated equipment
located in the demised premises as determined by survey conducted by Landlord's
utility consultant, (ii) the hours of operation in the demised premises
increases as determined by survey conducted by Landlord's utility consultant,
and/or (iii) rates, taxes and/or other charges for electric current supplied to
the Building are increased (including, without limitation, by way of new
introduction), then Tenant's cost for Unmetered Electric charged by Landlord
shall be reasonably increased to reflect the same retroactive to the date on
which the same initially occurred or existed.
(g) Anything to the contrary in paragraph (f) of this Article
notwithstanding, if submetering Demised Premises Electric Current is terminated
as a result of any Legal Requirement, Landlord shall have the option, which
Landlord may elect to exercise in Landlord's sole discretion, to require
Tenant, within thirty (30) days of the date of Landlord's notice, to apply to
Utility Company for electric service and Tenant shall promptly take all steps
necessary and appropriate to obtain said electric service. In the event that
submetering Demised Premises Electric Current is terminated, Landlord shall not
discontinue furnishing electric service until Tenant has had a reasonable
period of time in which to obtain direct electric service from the Utility
Company (or successor thereto) provided that Tenant shall use reasonable
diligence in making such arrangements, but in no event longer than the period
allowed by Legal Requirements or the Utility Company for Tenant to go direct.
Upon Utility Company's commencing to furnish Tenant with said electric service
Landlord and Meter Company shall be relieved of any further obligation to
furnish Demised Premises Electric Current and Tenant shall comply with all
rules and regulations of Utility Company. If
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submetering Demised Premises Electric Current is terminated due to Legal
Requirement, the work to change the method by which electric current is
furnished to the demised premises shall be performed by Landlord, and all cost
incidental thereto shall be shared equally between Landlord and Tenant.
38. ELECTRICITY (continued)
(h) Tenant shall not apply to Utility Company for, or obtain from Utility
Company, direct service of electric current to the demised premises without
obtaining Landlord's prior written consent. If Tenant obtains Landlord's
consent to Tenant's obtaining direct electric service to the demised premises,
Landlord shall have the right to withdraw said Landlord's consent if in
Landlord's sole judgment such direct service in any way requires the use of
Building conduits or coordination with Building electric service or impacts on
Building Electric Current and/or Building electric service including but not
limited to the rates charged for Building Electric Current or Landlord's
potential, ability or right to obtain additional, supplemental or different
electric current or electric service for the Building. If Tenant is permitted
in accordance with this Article to obtain electric current for the demised
premises directly from Utility Company, the work related thereto shall be
performed by Tenant at Tenant's sole cost and expense or, at Landlord's option,
in whole or in part by Landlord at Tenant's sole cost and expense to the extent
Landlord's costs are commercially reasonable considering amounts that could
reasonably be charged by other reputable contractors utilizing the same class
of labor as customarily used by Landlord for work at the Building, obtaining
the same levels of insurance and bonds as customarily required by Landlord of
contractors performing similar work at the Building and performing the
equivalent scope of work. If Tenant performs the work described in the
immediately proceeding sentence, Landlord shall have the right, but not the
obligation, to station a qualified observer or observers at the site of the
subject work during the performance of said work at Tenant's sole cost and
expense, and the presence of any such observers shall not decrease or modify
Tenant's responsibility, nor create any responsibility on the part of Landlord,
regarding said work, including but not limited to the performance, design
and/or proper functioning of said work.
(i) Landlord shall not be liable in any way for any delay, interruption,
failure, variation or defect in the supply or character of electric current
furnished to the demised premises by reason of any requirement, act or omission
of the public utility providing the Building with electricity or for any other
reason whatsoever other than the gross negligence or wilful misconduct of
Landlord but in no event shall Landlord be liable to Tenant for special,
indirect or consequential damages. Landlord shall have the right from time to
time at Landlord's cost and expense and with Tenant's consent, which shall not
be unreasonably withheld or delayed, to replace lighting fixtures in the
demised premises with substitute lighting fixtures reasonably equivalent in
aggregate light level.
(k) At any time during the term of this Lease, at Landlord's option,
Tenant shall deposit (the "Deposit") with Landlord or Meter Company, as
directed by Landlord, a sum equal to the highest monthly amount of Tenant's
Electric Current Charge payable at any given time during the term of this Lease
(during the first year of the term of this Lease the amount of the Deposit
shall be determined by Landlord's good faith estimate) as security for the
payment of Tenant's Electric Current Charge. If Tenant fails to timely pay
Tenant's Electric Current Charge, in addition to remedies set forth elsewhere
in this Lease (including without limitation in this Article)
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available to Landlord in the event of Tenant's default, Landlord shall have the
right to apply the Deposit against the subject sum (and if Landlord does so
apply the Deposit, Tenant shall immediately deposit with Landlord the sum
necessary to restore the Deposit to its full amount.)
(l) The bill furnished to Tenant for Tenant's Electric Current Charge
shall constitute a final determination between Landlord and Tenant as to
Tenant's Electric Current charge for the period represented thereby unless
Tenant, within one hundred-twenty (120) days after delivery of said bill by
Landlord to Tenant time being deemed of the essence, gives Landlord written
notice that Tenant disputes the accuracy of said bill and has retained at
Tenant's sole cost and expense a utility consultant of Tenant's selection,
which Tenant's notice must specify the particular respects in which the bill is
claimed by Tenant to be incorrect and set forth and all relevant additional
information Tenant may reasonably request of Landlord as well as the name,
address and telephone number of Tenant's utility consultant. Tenant's right set
forth in the immediately preceding sentence to give Landlord notice of Tenant's
dispute with the accuracy of the above-described bill or to reasonably request
relevant additional information is subject to and contingent upon Tenant's (i)
timely paying in full Landlord's bill in question, (ii) paying all Landlord's
reasonable expenses incurred in connection with Tenant's dispute and/or request
for information including without limitation out-of-pocket expenses, and wages
and benefits of Landlord's and Landlord's agent's employees for sid employees'
hours of work directly relating to Tenant's dispute and/or request for
information unless it is determined by judicial determination or an agreement
between Landlord and Tenant that the bill in question was overstated by more
than five percent (5%), and (iii) being represented in connection with Tenant's
dispute only by Tenant's principals, officers and employees, and outside
parties, if any, compensated only by hourly fee or flat rate and not by a
percentage of Tenant's related recovery. Tenant acknowledges that Landlord's
books and records are confidential and are not available for examination but
upon Tenant's written request therefor Landlord shall provide Tenant with
adequate back up information reasonably satisfactory to Tenant regarding the
subject billing, which information shall be kept confidential by Tenant. Such
information may only be disclosed to representatives and professional advisors
of Tenant who need to see the same for the sole purpose of verifying the
accuracy of any such bill which Tenant disputes pursuant to the provisions of
this subparagraph 38(1). Tenant shall inform such representatives and advisors
of the confidential nature of such information and shall obtain the written
agreement of such representatives and advisors to treat such information
confidentially. If Landlord's consultant and Tenant's consultant shall be
unable to reach agreement regarding Tenant's dispute pursuant to this paragraph
38(1) within a reasonable period of time, then such two consultants shall
designate a third consultant to make the determination in accordance with the
applicable provisions of this Article 38, and the determination of such third
consultant shall be binding and conclusive on both Landlord and Tenant. If the
determination of such third consultant shall substantially confirm the findings
of Landlord's consultant then Tenant shall pay the cost of such third
consultant. If such third consultant shall substantially confirm the
determination of Tenant's consultant, then Landlord shall pay the cost of such
third consultant. If such third consultant shall make a determination
substantially different from that of both Landlord's and Tenant's consultant's,
then the cost of such third consultant shall be borne equally by Landlord and
Tenant. In the event that Landlord's consultant and Tenant's consultant shall
be unable to agree upon the designation of a third consultant, within twenty
(20) days after Tenant's consultant shall have made its determination
(different from that of Landlord's consultant) then either party shall have the
right to request the
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Real Estate Board of New York, Inc. or any successor organization thereto to
designate a third consultant whose decision shall be conclusive and binding
upon the parties, and the costs of such third consultant designated by the Real
Estate Board of New York, Inc. or any successor organization thereto shall be
borne as hereinbefore provided in the case of a third consultant designated by
the Landlord's and Tenant's consultants. Notwithstanding the foregoing
provisions of this subparagraph, Tenant, pending the resolution of any contest
pursuant to the terms hereof shall continue to pay the Tenant's Electric
Current Charge as determined in the first instance by Landlord or the Meter
Company and upon the resolution of such contest, the Tenant's Electric Current
Charge disputed by Tenant shall be adjusted for the period in question in
accordance therewith with appropriate credit allowed to Tenant if required
thereby. Landlord's utility consultant, as selected by Landlord in its sole
discretion, may be a representative or employee of the Meter Company, or any
other utility consultant as selected by Landlord.. Tenant shall pay Tenant's
Electric Current Charge as computed by Landlord pending resolution of any
related dispute, subject to adjustment upon resolution.
(m) Anything to the contrary contained in this Article notwithstanding, in
no event shall the charge payable by Tenant pursuant to this Article for
Demises Premises Electric Current be less than one hundred ten percent (110%)
of Landlord's actual cost to supply the subject Demised Premises Electric
Current.
(n) Subject to the applicable provisions of this Lease, including, but not
limited to, the provisions of Articles 12, 26 and 30 hereof and the provisions
of this Article 38, Landlord agrees, as soon as reasonably practicable after
the date hereof (in accordance with good construction scheduling practice and
so as not to delay the performance of the initial Tenant's Work) and for the
balance of the term of this Lease, Landlord will make available to Tenant at a
point on or to the demising wall(s) convenient to Landlord (hereinafter called
the "Point") a total connected electrical load capability of up to 6 watts per
square foot of the demised premises (hereinafter called the "Electric
Capacity") for Tenant to distribute, at Tenant's sole cost and expense, through
the demised premises for lighting, receptacle loads and Tenant supplied air
conditioning and other equipment. Landlord shall not be required to provide
Tenant with electric service having any capacity greater than that provided in
the previous sentence, except as otherwise expressly set forth in paragraph (o)
below. The Point will be in the general area of column line 24 and the existing
bus duct riser closet "E".
(o) Provided that Tenant is not then in default under the terms and
provisions of this Lease beyond the expiration of applicable notice and cure
periods, Tenant shall have the option (the "Additional Electric Capacity
Option") to cause Landlord, at Tenant's sole cost and expense, to increase the
Electric Capacity to be made available to Tenant hereunder by up to an
additional 307 amperes of 460 volt electric power (the "Additional Electric
Capacity").
Tenant shall exercise the Additional Electric Capacity Option by Tenant's
written notice (the "Additional Electric Capacity Notice") delivered to
Landlord on or before, but in no event later than, December 1, 1997 (TIME BEING
OF THE ESSENCE with regard to the date by which Tenant shall have the right to
give the foregoing notice).
In the event that Tenant shall duly exercise its Additional Electric
Capacity Option with respect to the Additional Electric Capacity within the
time and within the manner hereinbefore specified, then subject to the
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applicable provisions of this Lease, including without limitation, Articles 12,
26 and 30 of this Lease and this Article 38, Landlord agrees, as soon as
reasonably practicable after the date that Tenant shall duly exercise its
Additional Electric Capacity Option and in accordance with good construction
scheduling practice, to make available to Tenant at the Point, the Additional
Electric Capacity duly elected by Tenant pursuant to the provisions of this
paragraph, for Tenant to distribute, at Tenant's sole cost and expense, through
the demised premises for lighting, receptacle loads and Tenant's equipment. In
consideration therefor, Tenant shall pay to Landlord as additional rent the
following charges:
(i) an initial charge for the Additional Electric Capacity of $250.00 per
amp of Additional Electric Capacity which shall be paid in full by
Tenant simultaneously with the exercise of its Additional Electric
Capacity Option; and
(ii) the sum of $10,000.00 which reflects an amount equal to the costs and
expenses to bring the Additional Electric Capacity from the bus duct
riser (the "Bus Duct Riser") on the eleventh (11th) floor of the
Building to the Point which amount is inclusive of the cost
differential, if any, between (1) the cost of Building standard
electric equipment required to provide the Electric Capacity from the
Bus Duct Riser to the demised premises, and (2) the cost to Landlord
for the equipment necessary to reasonably accommodate the Additional
Electric Capacity; which sum shall be paid by Tenant in full
simultaneously with the exercise of its Additional Electric Capacity
Option.
Tenant acknowledges and agrees that the foregoing charges regarding the
Additional Electric Capacity are in addition to the Tenant's obligation to pay
the Tenant's Electric Current Charge for Demised Premises Electric Current
furnished to the demised premises pursuant to this Article 38.
Landlord shall not be required to provide Tenant with electric service
having any capacity greater than that provided for in the provisions of
paragraph (n) of this Lease as modified by this paragraph (o).
Neither the Additional Electric Capacity Option nor the Additional
Electric Capacity may be severed from this Lease or separately sold, assigned
or transferred by Tenant. If Tenant within the applicable time period, time
being deemed of the essence, does not send the Additional Electric Capacity
Notice pursuant to the provisions of this paragraph (o) of Article 38, then
this paragraph (o) and reference to this paragraph (o) set forth in paragraph
(n) above shall have no further force and effect, and Tenant shall have forever
waived and relinquished its right to the Additional Electric Capacity.
39. REAL ESTATE TAX ESCALATION
In addition to basic annual rent, Tenant agrees to pay landlord as
additional rent sums computed in accordance with this Article.
"Taxes" shall mean any real estate tax, assessment, governmental levy,
school or county tax or any other governmental or quasi-governmental charge,
general or special, ordinary or extraordinary, foreseen or unforeseen, of any
kind or nature whatsoever, which is or may be assessed or imposed upon the
Building in which the demised premises are located, the land underlying the
Building, and the sidewalks, plazas, vaults, streets and alleys in front of or
adjacent to the Building, including without limitation any tax, excise or
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fee measured by or payable with respect to any rent or mortgage levied against
Landlord and/or said land and/or Building and/or against the holder of any
mortgage affecting said land or Building succeeding to the position of owner of
the land and Building under the laws of the United States, the State of New
York, the City of New York, or any political subdivision thereof, as a
substitute for or in addition to taxes presently or hereafter imposed on said
land and/or Building or resulting from or due to any change in the method of
taxation, provided that any such substitute or additional tax on rent shall be
considered as if rent were the only income of Landlord, but excluding any
income, franchise, corporate, estate, inheritance, succession, capital stock or
transfer tax levied on Landlord. In addition, Taxes shall not include penalties
for late payment of such Taxes provided and on condition that Tenant shall
timely pay in full Landlord's bill(s) for additional rent pursuant to this
Article 39.
"Basic Tax" shall mean Taxes for fiscal year July 1, 1997 to June 30,
1998. "Tenant's Proportionate Share" shall be deemed to be 2.8%.
"Tax Year" shall mean every twelve month consecutive period commencing
July 1, 1998 and ending June 30, 1999 and each succeeding twelve (12) month
period commencing each first day of the real estate tax fiscal year (presently
July 1st) during the term of this Lease.
If Taxes for any Tax Year shall be greater than Basic Tax, then Tenant
shall pay Landlord as additional rent an amount (the "Real Estate Tax
Escalation") equal to Tenant's Proportionate Share of the amount by which Taxes
for the subject Tax Year are greater than Basic Tax. Real Estate Tax Escalation
shall be payable by Tenant to Landlord in installments in the same manner that
Taxes are payable by Landlord pursuant to law, or at Landlord's option in
advance by monthly installments due on the first day of each calendar month,
commencing July 1, 1998. For so long as P.A. Building Company is the sole owner
of the Building, Landlord shall not elect to have Tenant pay the Real Estate
Tax Escalation on a monthly basis unless (i) during the term, Taxes are
required to be paid as tax escrow payments to a superior mortgagee or ground
lessor (which superior mortgagee or ground lessor is not an affiliate of
Landlord) in full or in monthly, quarterly, or other installments or on any
date or dates other than as presently required, in which event, at Landlord's
option, Tenant's Real Estate Tax Escalation payments shall be correspondingly
accelerated or revised so that Tenant's Real Estate Tax Escalation payments are
due at least thirty (30) days prior to the date payments are due to the
superior mortgagee or ground lessor but in no event shall Tenant be required to
make such regularly scheduled payments more often than monthly and if such
payments are to be made monthly such payments (unless adjusted, corrected or
reduced pursuant to the provisions of this Article 39) shall be in equal or
near equal amounts based on the applicable billing period.
If Basic Tax shall subsequently be adjusted, corrected or reduced, whether
as the result of protest of an existing or a tentative assessment, by
agreement, as the result of legal proceedings, or otherwise, Basic Tax for
purpose of computing Real Estate Tax Escalation shall be Basic Tax as so
adjusted, corrected or reduced. Until Basic Tax is so adjusted, corrected or
reduced, if ever, Tenant shall pay Real Estate Tax Escalation based upon the
unadjusted, uncorrected or unreduced Basic Tax, and upon such adjustment,
correction or reduction occurring any Real Estate Tax Escalation paid by Tenant
prior to such occurrence shall be recomputed and Tenant shall pay Landlord any
additional Real Estate Tax Escalation found due by such recomputation within
twenty (20) days of Landlord's billing Tenant therefor
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(which bill shall set forth the pertinent data comprising such recomputation).
If Taxes for any Tax Year shall be adjusted as the result of protest of
any assessment, by means of agreement or as the result of legal proceedings,
Real Estate Tax Escalation for said Tax Year shall be determined on the basis
of said adjusted Taxes. If Tenant shall have paid the subject Real Estate Tax
Escalation prior to said adjustment, Landlord shall credit Tenant against
future Real Estate Tax Escalation any excess in Tenant's payment resulting from
the subject recomputation of Real Estate Tax Escalation less Tenant's
Proportionate share of any cost, expense or fees (including experts' and
customary attorneys' fees and disbursements) incurred by Landlord in obtaining
said adjustment to Taxes. If an adjustment to Taxes occurs but no corresponding
Real Estate Tax Escalation has been paid, Tenant shall pay as additional rent
Tenant's Proportionate share of any cost, expenses or fees (including experts'
and customary attorneys' fees and disbursements) incurred by Landlord in
obtaining said adjustment to Taxes within ten (10) days of Landlord's billing
Tenant therefor.
Except for adjustments, corrections or reductions to Basic Tax or Taxes
for any Tax Year as specifically provided for above in this Article, the bill
furnished to Tenant for Real Estate Tax Escalation shall constitute a final
determination between Landlord and Tenant as to Real Estate Tax Escalation for
the period represented thereby unless Tenant, within one hundred-twenty (120)
days after delivery of said bill by Landlord to Tenant time being deemed of the
essence, gives Landlord written notice that Tenant disputes the accuracy of
said bill which Tenant's notice must specify the particular respects in which
the bill is claimed by Tenant to be incorrect and set forth any and all
relevant additional information Tenant may reasonably request of Landlord.
Tenant's right set forth in the immediately preceding sentence to give Landlord
notice of Tenant's dispute with the accuracy of the above-described bill or to
reasonably request relevant additional information is subject to and contingent
upon Tenant's (i) timely paying in full Landlord's bill in question, (ii)
paying all Landlord's reasonable expenses incurred in connection with Tenant's
dispute and/or request for information including without limitation
out-of-pocket expenses, and wages and benefits of Landlord's and Landlord's
agent's employees for said employees' hours of work directly relating to
Tenant's dispute and/or request for information, and (iii) being represented in
connection with Tenant's dispute only by Tenant's principals, officers and
employees, and outside parties, if any, compensated only by hourly fee or flat
rate and not by a percentage of Tenant's related recovery. Tenant acknowledges
that Landlord's books and records are confidential and are not available for
examination, but upon Tenant's written request therefor Landlord shall provide
Tenant with adequate back-up information reasonably satisfactory to Tenant
including Landlord's calculation used to determine Tenant, Real Estate Tax
Escalation. (Upon Tenant's written request therefor Landlord shall submit to
Tenant a copy of the applicable tax bill from the taxing authority, if then
available). Tenant shall pay Real Estate Tax Escalation as computed by Landlord
pending resolution of any related dispute, subject to adjustment upon
resolution.
Amounts due hereunder shall be equitably prorated to reflect any period of
less than a full Tax Year at the commencement or end of the term of this Lease
or any change in the area of the demised premises. If the fiscal tax year or
the method of tax payment shall hereafter be changed, appropriate adjustment to
the provisions of this Article shall be made accordingly to reflect any such
change; it being the intention of Landlord and Tenant that Tenant shall pay to
Landlord, within twenty (20) days after demand, as additional rent, any
occupancy tax, rent tax and any other tax of similar
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nature or intent hereafter enacted, which Landlord is hereafter required to pay
with respect to the demised premises or this Lease which is in lieu of, or
constitutes a modification of, the current New York City occupancy tax payable
by tenants; provided, however, that (a) Landlord provides Tenant with written
notice of the amount of tax, and (b) Tenant shall not be required to make any
such payments to Landlord prior to ten (10) days before the same are due and
payable to such taxing authorities sufficient factors shall always exist to
determine Real Estate Tax Escalation. No computation under this Article shall
result in a reduction to the basic annual rent in effect at the time of the
subject computation. Tenant's liability under this Article shall survive the
termination of this Lease.
40. OPERATING EXPENSE ESCALATION INDEX
The basic annual rent payable under this Lease shall be adjusted from time
to time in the manner provided for in this Article.
(a) The terms "Wages" and "Base Wages" as used in this Article are hereby
respectively defined as follows:
"Wages" shall be the sum of (i) the minimum regular hourly wage rate
payable to porters (one such person, a "Porter") employed at Class A office
buildings pursuant to the commercial building agreement (the "Commercial
Building Agreement") between the Realty Advisory Board on Labor Relations, Inc.
and Local 32B-32J, Service Employees International Union, AFL-CIO, or successor
parties, or as required by law, plus (ii) the value per year of all sums and
benefits other than cash wages available or paid to a Porter pursuant to the
Commercial Building Agreement or as required by law; applied for a Porter
having the status of an Experienced Employee (defined in the Commercial
Building Agreement) working fifty-two full-time weeks per year without absence
who shall be deemed to have been employed as an Experienced Employee for one
year as of the date of this Lease and deemed to be continuously employed with
increasing seniority throughout the term of this Lease. The terms of the
immediately preceding sentence shall be effective whether or not the Building
of which the demised premises forms a part is a Class A office building or
employs such a Porter, as Wages is intended to be a substitute comparative
index as opposed to an actual operating expense escalation calculation and is
not intended to reflect the actual cost of wages and other expenses for the
Building or increases or decreases thereto. Benefits included in the
calculation of the clause (ii) portion of Wages set forth above shall include
but shall not be limited to birthday, vacation, sick and clinic days (the value
of each "day off" shall be deemed equal to the per diem cash wages of a
Porter), social security, insurance for unemployment, disability and workers'
compensation and contributions to the health and welfare fund, training fund
and pension and annuity fund, contractual bonuses and special payments. If the
commercial Building Agreement expires or is otherwise terminated, then until
commencement of the new Commercial Building Agreement Wages shall be determined
in accordance with the last effective Commercial Building Agreement, except the
minimum regular hourly wage rate shall be deemed to increase annually by the
average of its annual percentage increase over the term of the last effective
Commercial Building Agreement; the terms of any new Commercial Building
Agreement shall be applied and payments shall be adjusted retroactively to the
first day of coverage thereunder. If any classification, category, definition,
description, entity or party referred to in this Article is succeeded (or
modified), replaced or eliminated, the successor or replacement, or a
substitute determined by Landlord in Landlord's sole judgment in the event of
an elimination, shall be utilized to make calculations under this Article; it
being the intention of Landlord and
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Tenant that sufficient factors shall always exist to determine Wages in a
manner materially the same as the manner employed by Landlord on the date of
this Lease.
"Base Wages" shall be Wages in effect January 1, 1997.
(b) If a basic annual rent increase shall become effective, or if Wages
shall increase any time after the date of this Lease under the terms of the
Commercial Building Agreement or by virtue of amendments or successions to the
Commercial Building Agreement including without limitation increases in the
minimum regular hourly wage rate and/or the accrual of benefits based on the
Porter's seniority, then effective from the date of such increase in the basis
annual rent or Wages the basic annual rent payable under this Lease shall be
increased (the "Adjustment") by an amount equal to the product of (i) the
number of percentage points (including any fraction of a percentage point) by
which Wages shall exceed Base Wages, multiplied by (ii) the factor of .0075*,
multiplied by (iii) the basis annual rent in effect at the time of the
computation.
As an illustration of the above-stated computation:
if Wages shall exceed Base Wages by 3.5% and the basic annual rent is
$1,000.00 per annum at the time of the computation, then the Adjustment shall
be the product of (i) 3.5, multiplied by (ii) .0075 multiplied by (iii)
$1,000.00, as shown immediately below:
3.5 x .0075 = .2625 x $1,000.00 = $26.25
(c) Landlord shall notify Tenant when an Adjustment is due and amount and
calculation thereof. Landlord's notice thus furnished to Tenant shall
constitute a final determination of the Adjustment for the period represented
thereby unless Tenant, within one hundred-twenty (120) days after the relevant
Landlord's notice is furnished to Tenant time being deemed of the essence gives
Landlord written notice specifying each item in Landlord's statement Tenant
claims to be incorrect as well as any and all relevant additional information
Tenant may reasonably request of Landlord. Tenant's right set forth in the
immediately preceding sentence to give Landlord written notice of Tenant's
dispute with the correctness of the above-described Landlord's statement or to
reasonably request relevant additional information is subject to and contingent
upon Tenant's (i) timely paying in full Landlord's statement in question, (ii)
paying all Landlord's reasonable expenses incurred in connection with Tenant's
dispute and/or request for information including without limitation
out-of-pocket expenses, and wages and benefits of Landlord's and Landlord's
agent's employees for said employees' hours of work directly relating to
Tenant's dispute and/or request for information unless it is determined by
judicial determination or an agreement between Landlord and Tenant that the
bill in question was overstated by more than five percent (5%), and (iii) being
represented in connection with Tenant's dispute only Tenant's principals,
officers and employees, and outside parties, if any, compensated only by hourly
fee or flat rate and not by a percentage of Tenant's related recovery. Tenant
acknowledges that Landlord's books and records are confidential and are not
available for examination but upon Tenant's written request therefor Landlord
shall provide Tenant with adequate back up information reasonably satisfactory
to Tenant regarding the subject billing, which information shall be kept
confidential by Tenant. Such information may only be disclosed to
representatives and professional advisors of Tenant who need to see the same
for the sole purpose of verifying the accuracy of any such bill which Tenant
disputes pursuant to the provisions of this subparagraph 40(c). Tenant shall
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inform such representatives and advisors of the confidential nature of such
information and shall obtain the written agreement of such representatives and
advisors to treat such information confidentially. Tenant shall pay Adjustments
as billed by Landlord pending resolution of any related dispute subject to
adjustment upon resolution. An Adjustment shall commence as of the effective
date of the subject increase in the basic annual rent or increase is Wages, and
all monthly installments of basic annual rent from and including the effective
date of such increase in the basic annual rent or Wages shall reflect
one-twelfth (1/12th) of the annual amount of such Adjustment. If notice of an
Adjustment is given to Tenant subsequent to the effective date of such
Adjustment, Tenant shall pay Landlord the total amount of such monthly payment
increases for said period prior to notification within twenty (20) days of
Tenant's being billed therefor. If a change in Wages shall be made retroactive,
Tenant shall pay Landlord the amount of the resulting retroactive Adjustment
within twenty (20) days of Tenant's being billed therefor. Any Adjustment for
less than a year or for less than a month shall be prorated. No computation
under this Article shall result in a reduction to the basic annual rent in
effect at the time of the subject computation. Tenant's liability under this
Article shall survive the termination of this Lease.
41. ASSIGNMENT, SUBLETTING, MORTGAGING
(a) Tenant will not by operation of law or otherwise, assign, mortgage or
encumber this Lease, not sublet or permit the demised premises or any part
thereof to be used by others, without Landlord's prior express written consent
in each instance. The consent by Landlord to any assignment or subletting shall
not in any manner be construed to relieve Tenant from obtaining Landlord's
express written consent to any other or further assignment or subletting nor
shall any such consent by Landlord serve to relieve or release Tenant from its
obligations to fully and faithfully observe and perform all of the terms,
covenants and conditions of this Lease on Tenant's part to be observed and
performed.
(b) If Tenant shall desire to assign or to sublet all or any portion of
the demised premises, Tenant shall give notice thereof to Landlord and in said
notice shall set forth all pertinent business terms of the proposed assignment
or subletting as well as the name and address of the proposed assignee or
sublessee, information as to financial condition of such assignee or sublessee,
the nature and character of the business and credit of such assignee or
sublessee, and proposed use which the assignee or sublessee desires to make of
the demised premises. Tenant shall in addition, at Landlord's request, furnish
such other further information as Landlord in good faith may reasonably request
concerning such proposed assignment or subletting. After receipt of such notice
from Tenant, Landlord shall have the following options to be exercised within
twenty (20) business days from the later to occur of (1) the receipt of
Tenant's notice, or (2) if Landlord shall in good faith reasonably request
additional information from Tenant, the receipt of such additional information
when furnished by Tenant:
(i) In the event Tenant's notice is of Tenant's desire to make an
assignment or a subletting of all or substantially all of the demised premises
Landlord shall have the option to cancel and terminate this Lease as of the
date proposed by Tenant for such assignment or subletting, which options shall
be exercised within the aforesaid twenty (20) business day period and on which
date the term of this Lease shall cease and expire with the same force and
effect as if such date were originally provided herein as the expiration of the
term hereof.
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(ii) In the event Tenant's notice is of Tenant's desire to make a
subletting for less than all or substantially all of the demised premises,
Landlord shall have the option, to be exercised within said twenty (20)
business day period, of cancelling and terminating this Lease only as to such
portion of the demised premises to take effect as of the proposed effective
date thereof as stated in Tenant's notice. In the event Landlord exercises its
option under this subparagraph (ii) the rent and all other charges payable
hereunder shall be equitably adjusted and apportioned based upon demised
premises remaining bears to the total rentable area of the demised Premises
Prior to said termination in part. If Landlord shall not exercise its foregoing
options within the time set forth, its consent to any such proposed assignment
or subletting shall not be unreasonably withheld or unduly delayed, provided,
however, that Landlord may withhold consent thereto if in the exercise of its
sole reasonable judgment it determines that:
(i) The financial condition and general reputation of the proposed
assignee or subtenant are not consistent with the extent of the obligation
undertaken by the proposed assignment or sublease.
(ii) The proposed use of the demised premises is not appropriate for the
Building or in keeping with the character of the existing tenancies or
permitted by Tenant's Lease (however, the proposed use shall not be limited to
the uses provided for in Article 2 of this Lease if such use otherwise complies
with the requirements of this Article 41). Anything to the contrary contained
in this Article 41 notwithstanding, Tenant shall be prohibited from assigning
this Lease or subletting the demised premises in whole or in part if the use
intended for the demised premises in conjunction with any such assignment or
sublease shall be or include any of the following: governmental or
quasi-governmental offices, offices of foreign countries, employment agency,
employment center, school, medical offices or medical care, not-for-profit
organization, messenger service, club(s), entertainment, broadcast or
transmission facility (including production facilities relating thereto)
laboratory, testing, training, classrooms, sales and service of food and
beverage, sale of alcohol, retail, wholesale or other sales offices of any kind
whatsoever (other than for sales over the internet, which are not (i) on an
off-the-street basis or (ii) consummated with customers at the demised
premises), health club, restaurant or a use which is open to the public and/or
a use which conflicts with an exclusive use clause granted under any lease then
in effect at the Building. Upon Tenant's written request made in conjunction
with a proposed sublease (but in no event more often than once in any
consecutive twelve month period), Landlord shall deliver to Tenant a list of
such exclusive use clauses, if any, in other tenant's leases then in effect at
the Building as of the date of Landlord's notice, but nothing contained herein
shall be deemed to restrict in any way, Landlord's right to grant additional
exclusive use clauses at any time and from time to time after the date of such
notice.
(iii) The nature of the occupancy of the proposed assignee or subtenant
will cause an excessive density of employees or traffic or make excessive
demands on the Building's services or facilities or in any other way lessen the
character of the Building.
(iv) The Tenant proposes to assign or sublet to a party that at the time
is a tenant or occupant of premises in the Building of which the demised
premises are a part (or to a subsidiary or related entity of such a tenant or
occupant) or to a party who who was engaged in active negotiations with
Landlord or Landlord's agent (directly, or through a broker) with respect to
space in the Building during the preceding six (6) month period.
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(v) the Tenant advertises or publicly notices (e.g., newspapers, radio,
billboard, television, circular, fliers) to assign or sublet all or a portion
of the demised premises at a rental rate less than the rental rate Landlord is
then asking for other space in the Building or less than the then market rental
rate. Subject to the above stated terms and conditions of this clause (v),
Tenant shall be permitted to list with a broker the Lease to be assigned or all
or such portion of the demised premises to be sublet without any restriction as
to the rental rate.
In the event Landlord should withhold or delay its consent to any proposed
assignment or sublease, the sole remedy of Tenant shall be to institute action
for specific performance if Tenant believes that such withholding or delaying
of consent was unreasonable and Tenant hereby expressly waives any claim for
monetary damages by reason of such withholding or delaying of consent by
Landlord. Notwithstanding the foregoing provisions of this paragraph 41(c), if
Tenant disputes the reasonableness of Landlord's decision to refuse to consent
to any proposed assignment or sublease as to which Landlord has agreed
expressly in this Lease not to unreasonably withhold or delay its consent in
accordance with the provisions of this Lease, then such dispute shall be
settled and finally determined by arbitration in the City of New York in
accordance with the following provisions hereof. Within seven (7) business days
next following the giving of any notice by Tenant to Landlord stating that
Tenant wishes such dispute to be so determined, Landlord and Tenant shall each
give notice to the other setting forth the name and address of an arbitrator
designated by the party giving such notice, time being of the essence. If
either party shall fail to give notice of such designation within said seven
(7) business days, then the arbitrator to be chosen by such party shall be
chosen in the same manner as hereinafter provided for the appointment of the
third arbitrator in the case where the two arbitrators chosen hereunder are
unable to agree upon such appointment. The two arbitrators shall, within five
(5) business days after the designation of the second arbitrator, designate a
third arbitrator. If the two arbitrators shall fail to agree upon the
designation of a third arbitrator within five (5) business days after the
designation of the second arbitrator, then either party may apply to the
President of the Real Estate Board of New York, Inc. or any successor
organization thereto (the "Board") for the designation of such arbitrator;
provided, however, nothing contained herein shall be construed to require
submission of any dispute to the Board. If the Board shall fail to appoint said
third arbitrator within thirty (30) days after such request is made, then
either party may apply, on notice to the other, to the American Arbitration
Association or any successor organization for the appointment of such third
arbitrator. All arbitrators shall be persons who shall have had at least ten
(10) years continuous experience in the business of managing and operating
office buildings having in excess of 500,000 rentable square feet or acting as
real estate agents for office buildings of that size in the Borough of
Manhattan and shall be related to neither Landlord nor Tenant. The three
arbitrators shall conduct such hearings as they deem appropriate rendering
their award in writing and give notice to Landlord and Tenant of their award
within seven (7) business days, if at all possible, after the designation of
the third arbitrator; the concurrence of any two of said arbitrators shall be
binding upon Landlord and Tenant. Any award of the arbitrators shall be limited
solely to (i) a determination as to whether Landlord acted reasonably in
withholding any such consent or approval, and (ii) if the arbitrators determine
that Landlord acted unreasonably, an order directing Landlord to promptly
consent to said assignment or subletting. No such award shall include an award
for damages. Judgment upon any award rendered in any arbitration held pursuant
to this Footnote 41M may be entered in any court having jurisdiction. However,
the award in any arbitration held pursuant to this Footnote 41M shall be final
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and binding upon Landlord and Tenant, whether or not a judgment shall be
entered in any court. Each party shall pay its own counsel fees and expenses,
if any, in connection with any arbitration under this Footnote 41M, each party
shall pay the fees and expenses of the one of the two original arbitrators
appointed by or for such party and the fees and expenses of the third
arbitrator shall be borne by the parties equally. If the resolution of any such
dispute shall be adverse to Landlord, Landlord, nevertheless shall not be
liable to Tenant for a breach of Landlord's covenant not to unreasonably
withhold such consent, and Tenant's sole remedy in such event shall be to enter
into the proposed assignment or subletting subject to all applicable provisions
of this Lease.
(d) Further, and as a condition of Landlord's consent, to any assignment
of subletting:
1. Tenant at the time of requesting Landlord's consent shall
not be in default in the payment of any rent, additional rent, or
other sums or charges provided to be paid by Tenant hereunder and
further that Tenant is not then in material default otherwise under
this Lease beyond the expiration of the applicable notice and cure
period.
2. That each assignee of this Lease shall assume in writing
all of the terms, covenants and conditions of this Lease on the part
of Tenant hereunder to be performed and observed.
3. That an original or duplicate original of the instrument
of assignment and assumption or the sublease agreement shall be
delivered to Landlord within five (5) days following the making
thereof; and
4. That any instrument of sublease shall specifically state
that each sublease is subject to all of the terms, covenants and
conditions of this Lease.
If Tenant shall duly comply with all of the foregoing then, as aforesaid,
Landlord shall not unreasonably withhold or unduly delay its consent to such
assignment or subletting, provided further, however, and on condition that at
the time of requesting Landlord's consent Tenant shall pay to Sylvan Lawrence
Company, Inc. the sum of $1,000.00 as a processing fee for each assignment
and/or subletting which shall include the Landlord's legal costs in connection
with the Tenant's request for consent.
(e) It is agreed that if Landlord shall not exercise any of its foregoing
options and shall consent to such assignment or subletting, and Tenant shall
thereupon assign this Lease or sublet all or any portion of the demised
premises, then and in that event Tenant shall pay to Landlord, as additional
rent, (i) in the event of an assignment, the amount of monies, if any, which
the assignee has agreed to and does pay to Tenant in consideration of the
making of such assignment less however all out of pocket costs actually
incurred by Tenant in connection with the making of such assignment, including
but not limited to any brokerage fees, advertising and alteration costs; and
(ii) in the event of a subletting, (x) the amount, if any, by which the fixed
basic rent and additional rent payable by the sublessee to Tenant shall exceed
the fixed basic rent plus additional rent allocable to that part of the demised
premises affected by such sublease pursuant to the provisions of this Lease,
plus (y) the amounts, if any, payable by such sublessee to Tenant pursuant to
any side agreement as consideration (partial or otherwise) for Tenant making
such subletting less reasonable out of pocket costs actually incurred by Tenant
in connection with the making of such sublease, including, but not limited to
any reasonable brokerage fees,
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advertising and alteration costs incurred pursuant to the express terms of said
sublease to prepare the affected portion of the demised premises for occupancy
by such subtenant. Such additional rent payments shall be made monthly within
ten (10) days after Tenant is credited with the same by the assignee or
sublessee. At the time of submitting the proposed assignment or sublease to
Landlord, Tenant shall certify to Landlord in writing whether or not the
assignee or sublessee has agreed to pay any monies to Tenant in consideration
of the making of the assignment or sublease other than as specified and set
forth in such instruments, and if so Tenant shall certify the amounts and time
of payment thereof in reasonable detail.
(f) If this lease shall be assigned, or if the demised premises or any
part thereof be sublet or occupied by any person or persons other than Tenant,
Landlord may, after default by Tenant, collect rent from the assignee,
subtenant or occupant and apply the net amount collected (which may be treated
by Landlord as rent or as use and occupancy) to the rent herein reserved but no
such assignment, subletting, occupancy or collection of rent shall be deemed a
waiver of the covenants in this Article, nor shall it be deemed acceptance of
the assignee, subtenant or occupant as a tenant, or a release of Tenant from
the full performance by Tenant of all the terms, conditions and covenants of
this Lease.
(g) Each permitted assignee or transferee shall assume and be deemed to
have assumed this Lease and shall be and remain liable jointly and severally
with Tenant for the payment of the rent, additional rent, and adjustment of
rent, and for the due performance of all the terms, covenants, conditions and
agreements herein contained on Tenant's part to be performed for the term of
this Lease and any
41. ASSIGNMENT, SUBLETTING, MORTGAGING (continued)
----------------------------------------------
renewals and modifications hereof. No assignment shall be binding on Landlord
unless, as hereinbefore provided, such assignee or Tenant shall deliver to
Landlord a duplicate original of the instrument of assignment which contains a
covenant of assumption by the assignee of all of the obligations aforesaid and
shall obtain from Landlord the aforesaid written consent prior thereto. Any
assignment, sublease or agreement permitting the use and occupancy of the
premises to which Landlord shall not have expressly consented in writing shall
be deemed null and void and of no force and effect.
(h) Any sale, transfer or assignment of a majority of the issued and
outstanding stock of a corporate tenant shall be deemed an assignment of this
lease other than any transfer of the capital stock of any corporate tenant
through the "over-the-counter market" or through any recognized exchange, other
than by those deemed "insiders" within the meaning of the Securities Act of
1934 as amended.
(i) Notwithstanding anything to the contrary contained in this Lease, so
long as Barnes & Noble, Inc. or any B&N affiliate (as hereinafter defined) is
the Tenant, Tenant shall have the right, without the consent or approval of
Landlord, and without the payment of any excess rents to Landlord pursuant to
the provisions of Article 41(e) hereof or recapture by Landlord pursuant to the
provisions of Article 41(b) hereof, to:
(1) assign its interest in this Lease to (a) any entity which is a
successor to Tenant either by merger or consolidation, or to any
entity purchasing all or substantially all of Tenant's assets or a
majority of the issued and outstanding stock of Tenant (provided such
merger,
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consolidation or transfer of assets or stock is for a valid business
purpose in connection with the transfer in whole of the publishing and
retail book stores business of Tenant as an ongoing concern and not
principally for the purpose of transferring the leasehold estate
created by this Lease, and provided further that the assignee has a
tangible net worth at least equal to or in excess of three hundred
million dollars at the time of such transaction, such net worth to be
certified by an independent certified public accountant reasonably
satisfactory to Landlord), or (b) any entity which shall directly or
indirectly control, be under the control of, or be under common
control with, Barnes & Noble, Inc. (any such entity being herein
defined as a "B&N affiliate"), or
(2) sublease all or any portion of the demised premises to a B&N
affiliate; in each such instance subject however to Tenant's
compliance with all of the provisions of subparagraph (d) hereof, to
the extent applicable and provided further that any such assignee or
sublessee shall continue to use the demised premises for the purposes
set forth in Article 2 only, for the remainder of the term of this
Lease. For purposes hereof, "control" shall be deemed to mean the
direct or indirect ownership of more than fifty percent (50%) of the
issued and outstanding voting stock of a corporation or other majority
equity and control interest if not a corporation.
(j) Tenant agrees to promptly effect and timely pay for all costs of the
removal of any broker's liens which are placed on the Building at any time of
connection with any such assignment or subletting (or promptly make
reimbursement to Landlord in the event Landlord chooses to directly effect such
removal). The provisions contained in this sub-paragraph (j) shall survive the
expiration or sooner termination of this Lease. Tenant's failure to comply with
the provisions contained in this subparagraph (j) shall be deemed to be a
material default under this Lease, entitling Landlord to all of the remedies
provided for under this Lease for default, including but not limited to
Landlord's right to terminate this Lease in the event hereof.
PLEASE INITIAL:
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Landlord Tenant
42. INSURANCE
---------
Tenant, throughout the term of this Lease, shall maintain in full force
and effect for the benefit of and naming Tenant as insured (i) commercial
general liability insurance including products/completed operations coverage
and blanket contractual liability coverage against claims for personal injury,
bodily injury and death to persons, and damage to property, occurring in, on,
or about the demised premises, naming Landlord, Landlord's principals and
Landlord's agent as additional insureds, providing primary plus umbrella
coverage with limits of not less than five million dollars ($5,000,000) per
occurrence without deduction, (ii) customary "all-risks" property insurance
covering the demised premises in an amount equal to the full replacement value
sufficient from time to time, to cover the replacement costs for all Tenant's
alterations, improvements, fixtures and personal property located in or on the
demised premises, with a deductible amount not to exceed $200,000; provided,
however, that Tenant agrees to waive any rights of recovery against Landlord
and/or Landlord's agents with respect to losses payable in an amount equal to
the foregoing deductible less $1,000, (iii) statutory worker's compensation and
employers liability insurance, and (iv)
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any other insurance Landlord reasonably requires with respect to risks relating
to Tenant's use or manner of use of the Premises.
Prior to Tenant's occupying the demised premises, Tenant shall deliver to
Landlord, for each insurance policy (the "Insurance Policy") required under
this Article, a certificate of insurance (the "Certificate of Insurance")
setting forth the subject amount of coverage and other material terms of the
Insurance Policy together with proof of payment of the subject premium. On a
date no later than thirty (30) days prior to the expiration date of each
Insurance Policy, Tenant shall deliver to Landlord the Certificate of Insurance
for the renewal of or substitute for the subject Insurance Policy together with
proof of payment of the subject premium. Each Insurance Policy and renewal
thereof or substitution therefor shall (i) contain a provision requiring the
subject insurer (the "Insurance Carrier") to notify Landlord in writing by
certified mail return receipt requested not less than thirty (30) days prior to
the cancellation of the subject Insurance Policy (Tenant is responsible to have
deleted from the subject Certificate of Insurance any disclaimer to Insurance
Carrier's obligation to give Landlord prior written notice of cancellation of
the Insurance Policy), and (ii) be issued by an Insurance Carrier licensed to
do business in the State of New York having a Best's rating of at least A/VII.
Each of Landlord and Tenant (i) waives the right to recover damages from
the other party to this Lease regarding any damage to or loss of property, and
(ii) agrees that said party's subject Insurance Policy shall include a waiver
by said party and the subject Insurance Carrier of said party's right to
transfer to the subject Insurance Carrier said party's right to recover damages
from the other party to this Lease regarding damage to or loss of property
provided, (a) said waiver of subrogation is generally available in insurance
policies covering property in New York City, and (b) if either Landlord or
Tenant's subject Insurance Policy requires payment of an additional premium for
said waiver of subrogation, the party to this Lease obtaining the benefit of
said waiver of subrogation shall be obligated to pay said additional premium.
Tenant shall indemnify and hold harmless (including attorneys' fees and
disbursements) Landlord, Landlord's principals and Landlord's agent from and
against any liability to, or claim by or on behalf, of any person, entity,
governmental or quasi-governmental authority or any other party for injury,
death, or damage arising from or relating to (i) Tenant or Tenant's agents,
representatives, employees, invitees, licenses, contractors or customers use of
the Premises, (ii) any work or thing done or omitted to be done by Tenant or
Tenant's agents, representatives, employees, invitees, licensees, contractors
or customers, or (iii) any default by Tenant under the terms and conditions of
this Lease or (iv) any act, omission or negligence of Tenant or its agents,
employees or contractors in or about the Building. In the event any action or
proceeding shall be brought against Landlord, Landlord's principals and/or
Landlord's agent in connection with any claim described in the immediately
preceding sentence, Tenant shall defend such party in said action or
proceeding, at Tenant's sole cost and expense, with legal counsel reasonably
satisfactory to Landlord (Tenant's subject Insurance Carrier's legal counsel
shall be deemed to be satisfactory).
43. ATTORNMENT
----------
At the option of Landlord or any successor landlord or any ground lessor
or holder of any mortgage affecting the Building (which option shall be subject
to the provisions set forth in Article 77 hereof). Tenant agrees that neither
the cancellation nor termination of any ground or underlying
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lease to which this Lease is now or may hereafter become subject or
subordinate, nor any foreclosure of a mortgage affecting the Building, nor the
institution of any suit, action, summary or other proceeding against Landlord
or any successor landlord, or any foreclosure proceedings brought by the holder
of any such mortgage to recover possession of the Building, shall by operation
of law or otherwise result in cancellation or termination of this Lease or the
obligations of Tenant under this Lease, and upon the request of any Landlord,
successor landlord, ground lessor or the holder of such mortgage, Tenant
covenants and agrees to attorn to the Landlord or to any successor to the
Landlord's interest in the Building, or to such holder of such mortgage or to
the purchaser of the mortgaged premises in foreclosure. If in connection with
obtaining financing for the Building, a bank, insurance company or other
lending institution or individual requests reasonable modification to the terms
of this Lease as a condition to such financing. Tenant will not unreasonably
withhold, delay or defer its consent and agreement thereto, provided such
modification does not, (i) increase the basic annual rent or additional rents
payable by Tenant, (ii) reduce or extend the term hereof, or (iii) except to a
de minimis extent, adversely affect Tenant's rights hereunder or increase
Tenant's obligations hereunder.
44. ADDITIONAL RENT
---------------
All costs, charges and expenses which Tenant agrees or is obligated to pay
or assumes under the terms of this Lease shall be deemed to be additional rent,
and in the event of non-payment thereof Landlord shall have all of the rights
and remedies with respect thereto as are provided for in this Lease in the case
of non-payment of rent, in addition to all rights and remedies otherwise
available to Landlord at law and in equity.
45. MERCHANDISE, REFUSE, ETC.
-------------------------
Tenant shall at no time leave any merchandise, supplies, materials or
refuse in the hallways or other common areas of the Building or in any other
area of the Building other than the demised premises. Tenant covenants that all
garbage and refuse shall be kept in proper containers, securely covered, until
removed from the Building so as to prevent the escape of objectionable fumes
and odors and the spread of vermin, rodents, insects and other pests
(collectively, the "Pests"), and Tenant further covenants that no refuse and/or
garbage shall be placed by Tenant, its employees, agents, invitees, and/or on
the sidewalks adjacent to the Building. Tenant shall keep the demised premises
free of Pests, and in this regard Tenant shall employ an exterminator first
approved by Landlord to service the demised premises as necessary.
46. AIR CONDITIONING, OTHER PERMITS
-------------------------------
Anything to the contrary contained in this Lease notwithstanding, Tenant
agrees to pay the cost of any and all permits and fees required by any branch
or department of the borough, county, city, state or federal government in
connection with any air conditioning or other equipment hereafter installed in
the demised premises by Tenant.
47. MECHANICS LIENS
---------------
Anything to the contrary contained in this Lease notwithstanding, Tenant
agrees that if any mechanic's lien shall be filed against the Building for work
claimed to have been done for or materials claimed to have been furnished to
the demised premises for the account of Tenant, said mechanic's lien shall be
discharged by Tenant, by payment or by bond, at Tenant's sole
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cost and expense, within thirty (30) days after Tenant is notified of the
filing of said mechanic's lien. In the event any such mechanic's lien is not
timely discharged as provided for in the immediately preceding sentence.
Landlord, upon ten (10) days prior notice given to Tenant, shall have the right
to elect to discharge same on behalf of and at the expense of Tenant and Tenant
shall promptly reimburse Landlord, as additional rent, for all costs,
disbursements, fees and expenses, including without limitation attorney's fees
and disbursements, incurred in connection with discharging said mechanic's
lien.
48. LIMITATION OF LANDLORD LIABILITY
--------------------------------
Tenant shall look solely to the estate and property of Landlord or any
successor-in-interest to Landlord, as applicable, in the Building and the land
on which the Building is located for the satisfaction of Tenant's remedies for
the collection of any judgment (or other judicial process or determination)
against the subject Landlord in the event of any default by Landlord under this
Lease, and no other property or assets of such Landlord shall be subject to
levy, execution or other enforcement procedure for the satisfaction of Tenant's
remedies provided, however, that Tenant shall have the right to look to the
proceeds of the sale of the Building [or to the proceeds of any lump sum
payment made in consideration of a net leasing of the entire Building to a
single net lessee which is in the nature of a cashing out of the Landlord's
interest in the Building] but only with respect to any claim which Tenant has
asserted against Landlord, either prior to or within ninety (90) days after
Tenant is notified of the sale or net leasing of the Building; and provided
further that Tenant has commenced a legal action or proceeding with respect to
such claim prior to or within such ninety (90) day period (time being of the
essence with respect to the assertion of such claim and commencement of such
legal actions or proceedings within such ninety (90) day period).
49. LATE PAYMENTS
-------------
If Tenant shall fail to pay any installment of basic annual rent or
additional rent when first due hereunder (irrespective of any grace period as
may be applicable thereto) and such failure to pay shall continue for more than
ten (10) days after such payment was first due, then interest at the maximum
legal interest rate that then may be charged to parties of the same legal
capacity as Tenant shall accrue from and after the date on which any such sum
was first due and payable and such interest shall be deemed to accrue as
additional rent hereunder and shall be paid to Landlord promptly after demand
made from time to time, but in any event no later than the time of payment of
the delinquent sum.
PLEASE INITIAL
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LANDLORD TENANT
50. TENANT'S WORK
-------------
Tenant accepts the demised premises in its "as is" condition in all
respects as of the commencement of the term of this Lease subject to the
provisions set forth in Articles 74 and 75 hereof and the provisions set forth
in the last sentence of this Footnote 50A. As soon as reasonably practicable
after the date hereof, Landlord, at Landlord's expense, shall initially [one
time only] place the windows in the demised premises in good operating order,
if necessary. Tenant shall not use or permit the use of the
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demised premises or any part thereof in any way which would violate any of the
terms and conditions of this Lease or for any unlawful purposes or in any
unlawful manner or, provided Landlord complies with its foregoing obligations
set forth in Footnote 15A hereof, in violation of the Certificate of Occupancy
for the demised premises or the Building. If any governmental license or permit
(other than a modification or amendment to the existing Certificate of
Occupancy or any replacement thereof) shall be required for the proper and
lawful conduct of Tenant's business in the demised premises or any part
thereof, Tenant, at its expense, shall duly procure and thereafter maintain
such license or permit and submit the same to Landlord for inspection. Tenant
shall at all times comply with the terms and conditions of each such license or
permit. Additionally, should Tenant's alterations or Tenant's use of the
demised premises require any modification or amendment of any Certificate of
Occupancy in conjunction with a purpose or purposes consistent with the terms
and conditions of this Lease, Landlord shall, at Tenant's sole cost and expense
(unless Tenant shall elect to forgo such use or elect not to perform such
alteration, as the case may be, within thirty days after Landlord shall have
given Tenant a notice specifying the same) subject to Article 61 of this Lease,
take all actions reasonably necessary in order to procure any such modification
or amendment and Tenant shall reimburse Landlord (as additional rent) within
ten (10) days after demand for all costs and expenses Landlord incurs in
effecting said modifications or amendments (regardless of whether such costs
incurred by Landlord are for work outside of the demised premises). Anything to
the contrary contained in the immediately preceding sentence notwithstanding,
Landlord shall be responsible for the cost to obtain the dismissal of all
violations of record required as part of the work required with regard to
pursuing the change to the Certificate of Occupancy, except Tenant shall be
responsible for the cost to obtain the dismissal of said violations of record
which relate to the demised premises or Tenant's use thereof during the term of
this Lease for which Tenant is required under the terms of this Lease to obtain
dismissal. The foregoing provisions are not intended to be deemed Landlord's
consent to any alterations or to a use of the demised premises not otherwise
permitted hereunder nor to require Landlord to effect such modifications or
amendments of any Certificate of Occupancy.
All instances of Tenant's performing work, making alterations, furnishing
and installing equipment, etc. under this Lease shall be defined as "Tenant's
Work". Tenant agrees to perform Tenant's Work, subject to the following terms
and conditions, at Tenant's sole cost and expense:
(i) All Tenant's Work shall comply with all applicable provisions of this
Lease, including but not limited to Articles 3 and 6 of this Lease, and all
applicable governmental and quasi-governmental rules and regulations and the
rules and regulations of any Board of Fire Underwriters or similar agency
having jurisdiction.
(ii) Prior to performing Tenant's Work, Tenant shall (a) submit to
Landlord complete plans and specifications (which shall include one set of
sepias and five sets of drawings and specifications for each discipline) and a
reasonable estimate of cost covering the subject Tenant's Work, all prepared by
Tenant's registered architect, licensed professional engineer and/or licensed
contractor, and (b) obtain Landlord's written consent to and approval of said
complete plans and specifications which consent and approval as to any Tenant's
Work in and to the interior of the demised premises which Tenant's Work is
non-structural and which does not affect Building systems shall not be
unreasonably withheld or delayed. If Landlord shall fail to respond to Tenant's
request for approval to such plans and specifications within twenty (20)
business days from Landlord's receipt of same, then such
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failure to respond shall be deemed to be Landlord's approval of same provided
that Tenant shall have expressly referenced in its request for approval this
Footnote 50C and the effect of Landlord's failure to respond within such twenty
(20) business day period. If Landlord shall disapprove Tenant's plans and
specifications, Landlord shall set forth its reasons for such disapproval and
itemize with reasonable particularity those portions of Tenant's plans and
specifications so disapproved.. Landlord shall have no responsibility for the
correctness of Tenant's plans and specifications and estimate of cost for
Tenant's Work, or for field conditions, other conditions not previously
considered, erroneous assumptions or any other factors which may interfere
with, obstruct or otherwise affect the performance and completion of Tenant's
Work in accordance with the plans and specifications as consented to in writing
by Landlord, and Tenant may not modify or deviate from said plans and
specifications as consented to in writing by Landlord in the performance of
Tenant's Work for any reason whatsoever without first obtaining Landlord's
prior written consent except to an insignificant degree with respect to work
which is non-structural and which does not affect any Building system(s)
Landlord's consent to Tenant's plans and specifications shall apply to concept
only and shall not pertain to nor create any responsibility on the part of
Landlord regarding compliance with laws, performance, design and/or proper
functioning of Tenant's Work. Tenant shall be solely responsible for the proper
functioning of Tenant's Work including but not limited to its effect upon the
Building and Building systems. Landlord's consent to Tenant's plans and
specifications explicitly excludes any work beyond Building lines except for
sidewalk work specifically shown on said plans and specifications which
sidewalk work must match the existing sidewalk with full flag replacement. If
Landlord obtains outside opinion(s) from an architect, engineer and/or other
professional service in determining whether to grant or withhold consent to
Tenant's plans and specifications, Tenant agrees to pay the costs Landlord so
incurs. Landlord's right to retain parties, at Tenant's sole cost and expense,
to provide expert opinions shall only be exercised by Landlord if Landlord in
Landlord's reasonable opinion decides that Landlord has a reasonable need for
the subject outside expert opinion, and in such event such expert opinion must
be obtained at commercially reasonable rates.
(iii) Tenant and Tenant's contractors shall employ only labor in the
performance of Tenant's Work which shall be compatible with all other labor in
the Building; Tenant agrees to employ only first class workmanlike contractors
and labor which are first approved in writing by Landlord which approval as to
any such contractor or subcontractor proposed by Tenant to perform any Tenant's
Work in and to the interior of the demised premises which Tenant's Work is
nonstructural and which does not affect Building systems shall not be
unreasonably withheld or delayed, provided such contractors and mechanics
(including, but not limited to all of their employees) must be in all instances
compatible with labor employed in, at and by the Building.
(iv) Tenant shall be responsible for Tenant, any contractors employed by
Tenant, any subcontractors employed by Tenant's contractors, and any labor
employed to render services and furnish labor at the demised premises being
covered by worker's compensation insurance and Tenant shall furnish Landlord
with each subject certificate before commencement of any Tenant's Work.
(v) Tenant shall procure each and every permit, license, franchise, or
other authorization required for the performance of Tenant's Work and Tenant
shall furnish Landlord with each such item before commencement of any Tenant's
Work.
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<PAGE>
(vi) Promptly following the completion of Tenant's Work, Tenant shall
obtain and furnish to Landlord all appropriate certifications from all
authorities having jurisdiction to the effect that Tenant's Work has been
performed and completed in accordance with the filed plans, if any, and with
all laws, rules, regulations and orders of said authorities having
jurisdictions.
(vii) Tenant shall furnish Landlord with a list of all Tenant's
contractors, subcontractors, material suppliers and laborers (collectively
defined as "Tenant's Personnel"). Tenant shall be responsible for Tenant's
Personnel furnishing to Landlord (a) a partial release of lien-simultaneously
with each payment by Tenant to Tenant's Personnel for any labor performed or
materials furnished and (b) a final release of lien immediately upon a final
payment by Tenant to any of Tenant's Personnel for any labor performed or
materials furnished.
(vii) Tenant agrees to guaranty payment for Tenant's Work and hold
harmless and indemnify Landlord relative to Tenant's Work and any and all
claims arising out of Tenant's Work.
(ix) Anything to the contrary contained in this Lease notwithstanding, for
any period during which Tenant's Work is being performed, Landlord shall not be
required to provide cleaning services provided for under the terms of this
Lease, if any, and Tenant shall be responsible for the removal of refuse and
rubbish from the demised premises and the Building on a daily basis in
conformity with Building requirements.
(x) In the event Tenant's Work requires the shut down of any of the
Building's facilities or systems (including but not limited to sprinkler lines,
steam lines, gas lines and plumbing lines), such shut down shall be permitted
only in the event and at such times that the shut down does not, in Landlord's
sole judgement, adversely affect the Building's facilities or systems or
interfere with Landlord or other tenants of the Building and Tenant shall pay
Landlord upon demand the Building standard rate charges, including overtime
costs and charges if applicable, for each such shut down of the Building's
facilities or systems.
PLEASE INITIAL
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LANDLORD TENANT
51. ESTOPPEL CERTIFICATE
--------------------
Tenant agrees, at any time, and from time to time, upon not less than ten
(10) days prior written notice from Landlord, to execute, acknowledge, and
deliver to Landlord, a notarized statement in writing addressed to Landlord
and/or any other party designated by Landlord certifying (a) that this Lease is
unmodified (or if this Lease has been modified specifying any such
modification) and in full force and effect, (b) the dates to which rent,
additional rent, and other charges have been paid, (c) whether or not, to the
best of Tenant's knowledge, there exists any default by Landlord or Tenant in
the performance of any term or condition of this Lease and if so specifying the
nature of each such default, and (d) such other information as Landlord may
reasonably require; it being intended that any such statement delivered
pursuant to this Article may be relied upon by Landlord, and by any mortgagee
or prospective mortgagee under any mortgage affecting the Building and/or the
land on which the Building is located, and by any purchaser, prospective
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purchaser, net lessee or prospective net lessee of the Building and/or the land
on which the Building is located. Time shall be deemed of the essence with
regard to Tenant's material obligations set forth in this Article and Tenant's
failure to timely fulfill the requirements contained in this Article shall be
deemed a material default under the terms of this Lease giving rise to all of
Landlord's rights, including but not limited to Landlord's right to terminate
this Lease, and in addition Tenant shall be liable for all damages, (excluding
consequential damages) which may be substantial, sustained by Landlord due, in
whole or in part, to Tenant's failure to timely provide Landlord with the
Tenant's statement described in this Article. Tenant agrees, at any time, upon
demand of Landlord, to immediately deliver to landlord an original execution
counterpart of this Lease (including all modifications and relevant
correspondence) or an exact copy of this Lease (including all modifications and
relevant correspondence) certified by Tenant to be a true and complete copy of
this Lease.
52. HOLDOVER
--------
If Tenant shall hold possession of the demised premises after the
expiration of the term of this Lease or the prior termination of this Lease,
and the Lease is not renewed or a new lease is not entered into between the
parties, the parties hereby agree that Tenant's occupancy of the demised
premises after the expiration of the term or prior termination of this Lease
shall be deemed that of a trespasser commencing on the first day after the
expiration of the term or prior termination of this Lease. Notwithstanding the
fact that Tenant shall be deemed to be a trespasser, after the expiration of
the term or prior termination of this Lease, Tenant shall continue to be fully
responsible for the faithful performance by Tenant of all of the terms set
forth in this Lease, except Tenant shall pay on the first day of each month
after the expiration or sooner termination of this Lease for use and occupancy
of the demised premises an amount equal to the higher of (i) an amount for the
first two (2) months of the holdover equal to one and one half (1 1/2) times
and thereafter three times the sum of (a) the monthly installment of basic
annual rent payable by Tenant during the last year of the original term of this
Lease (i.e., the year immediately prior to the holdover period) plus (b) all
monthly installments of additional rent payable by Tenant pursuant to the terms
of this Lease that would have been billable monthly by Landlord had the term of
the Lease not expired; or (ii) an amount equal to the then market rental value
of the demised premises as shall be established by Landlord giving notice to
Tenant of Landlord's good faith estimate of such market rental value.
Tenant shall occupy the demised premises during the holdover period in its
"as is" condition as of the expiration of the term or prior termination of this
Lease and Landlord shall not be required to perform any work, furnish any
materials or make any repairs within the demised premises during the holdover
period. Nothing contained in this Lease shall be construed as a consent by
Landlord to the possession by Tenant of the demised premises beyond the
expiration of the term or prior termination of this Lease, and Landlord, upon
said expiration of the term or prior termination of this Lease shall be
entitled to the benefits of all legal remedies that may now be in force or may
hereafter be enacted relating to immediate repossession of the demised premises
by Landlord and in addition Landlord shall be entitled to recover any and all
damages, direct and/or consequential, sustained by Landlord (including but not
limited to special damages) as a result of Tenant's holdover, which recovery of
damages shall be distinguished from and not be offset by any payment made by
Tenant for the use and occupancy of the demised premises.
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53. NO EMPLOYMENT AGENCY MESSENGER SERVICE, RETAIL OR RESIDENTIAL USE OF
DEMISED PREMISES
--------------------------------------------------------------------
It is an express condition of this Lease that the demised premises be used
for commercial purposes only in accordance with the provisions herein
contained. In no event may the demised premises be used for Employment Agency,
Messenger Service, Retail or Residential purposes and Tenant covenants and
agrees to use the demised premises only for the commercial purposes specified
in Article 2 of this Lease. Accordingly, his expressly agreed that any
violation by Tenant of its agreements, representations and obligations pursuant
to this Article shall constitute a material default by Tenant under the terms
of this Lease entitling Landlord to exercise any and all rights granted
Landlord pursuant to Articles 17 and 18 of this Lease, including without
limitation, the right to terminate this Lease and recover possession of the
demised premises by reason of Tenant's default.
54. WAIVER OF COUNTERCLAIM
----------------------
Tenant waives its right and agrees not to interpose any counterclaim or
offset of whatever nature or description in any proceeding or action which may
be instituted by Landlord against Tenant to recover possession of the demised
premises, for the collection of rent, additional rent, other charges, or for
damages, unless Tenant's failure to interpose such counterclaim would result in
a waiver of Tenant's right to assert same in a separate Proceeding. This
clause, as well as the "waiver of jury trial" provisions of this Lease, shall
survive the termination or any cancellation of this Lease. Nothing, however,
contained in this Article shall preclude Tenant from instituting a separate
action against Landlord with respect to any claim that Tenant may have against
Landlord or from moving to consolidate such action with any action or
proceeding which may have been instituted by Landlord; it being understood,
however, that Landlord may oppose any motion of consolidation.
PLEASE INITIAL
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LANDLORD TENANT
56. TWENTY-FOUR HOUR ACCESS
-----------------------
Subject to force majeure, any other cause beyond Landlord's reasonable
control and the provisions of Articles 13 and 26 of this Lease, it is
understood and agreed that Tenant shall be permitted access to the demised
premises on the eleventh (11th) floor of the Building seven (7) days per week,
twenty-four (24) hours per day, three hundred sixty-five (365) days per year.
57. SUPERVISION OF TENANT'S INVITEES, EMPLOYEES, ETC.
-------------------------------------------------
Tenant acknowledges and agrees that the Building of which the demised
premises forms a part is a first-class loft building. Tenant further
acknowledges that as an inducement to Landlord to enter into this Lease with
Tenant, Tenant has and does represent, covenant and agree that Tenant will take
all necessary measures and institute all procedures as may be found necessary
to insure that Tenant's clients, invitees, and personnel do not loiter or
congregate in the public area of the Building (including but not limited to the
corridors, elevators, lobbies, lavatories, etc.) and that such clients,
invitees and personnel will at all times conduct themselves in a
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proper business-like manner when passing through such public areas of the
Building for purposes of access and egress to and from the demised premises.
Tenant further acknowledges and agrees that any breach by Tenant of its
foregoing agreements and representations will materially injure Landlord who
has intentions to rent space in the Building to major tenants and who does not
wish to have other present tenants of the Building disturbed, annoyed or
inconvenienced. Accordingly, it is expressly agreed that any violation by
Tenant of its agreements, representations and obligations pursuant to this
article shall constitute a material default by Tenant under the terms of this
Lease entitling Landlord to exercise any and all rights granted Landlord
pursuant to Articles 17 and 18 of this Lease including without limitation the
right to terminate this Lease and recover possession of the demised premises by
reason of Tenant's default.
PLEASE INITIAL
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LANDLORD TENANT
59. COMPLIANCE WITH LAWS
--------------------
Except as otherwise expressly set forth in Footnotes 15B and 59G hereof
and Article 74 hereof, Tenant shall be responsible for compliance with all now
and hereafter existing laws, rules, regulations, requirements, etc.
(collectively the "Laws"), and any and all modifications and amendments
thereto, including but not limited to New York City Local Laws 5/73, 10/80,
10/81, 16/84, 76/85 and 58/87 and the Americans with Disabilities Act, of any
governmental or quasi-governmental entity having jurisdiction over the Building
of which the demised premises forms a part, including without limitation the
United States, the State and City of New York, and all departments and
divisions thereof, relating to the demised premises and/or the Building of
which the demised premises forms a part, including but not limited to all
systems, sub-systems, assemblies, components, exterior, public areas, toilets,
elevators, partitioning, layout, wiring, conduits, lighting, exit signs,
sprinklers, communications, pressurization, and installations in, to and of the
demised premises and/or the Building of which the demised premises forms a
part, as more particularly set forth below in this Article. Work required under
this Article and related maintenance (collectively, the "Compliance Work")
performed by Tenant shall be performed in accordance with and subject to tall
applicable provisions of this Lease and the Laws. Tenant shall be responsible
to perform at Tenant's sole cost and expenses all Compliance Work wholly within
the demised premises to the extent required to be performed by Tenant pursuant
to the provisions of this Lease. Prior to performing any Compliance Work,
Tenant shall, except in an emergency, give Landlord fifteen (15) business days
prior written notice. Landlord shall have the option (the "Landlord's
Compliance Work Option") to perform Compliance Work on Tenant's behalf at
Tenant's sole cost and expense. Landlord's Compliance Work Option shall not
apply to the performance of the initial Tenant's Work to be performed by Tenant
in the demised premises within the first nine (9) months after the Commencement
Date of this Lease. Any Compliance Work to be performed by Landlord (or by its
agent or an outside contractor to be hired by Landlord or its agent) on
Tenant's behalf pursuant to the provisions of this Article 59 shall be
performed for a commercially reasonable price, given the scope of the work and
the class of labor generally used by Landlord in the Building for work of
similar scope. If Landlord fails to exercise Landlord's Compliance Work Option,
Tenant shall promptly perform the subject Compliance Work in accordance with
this Article. Landlord shall perform at Tenant's sole cost and expense subject
to Article 61 of this Lease all Compliance Work wholly or partially outside the
demised premises which relates solely to the demised premises. Landlord's sole
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responsibility with respect to any work Landlord performs on Tenant's behalf,
under this Article or otherwise, shall be limited to the workmanlike manner of
said work and Tenant shall be responsible for the drawing of plans for said
work in compliance with Laws and the costs incurred in obtaining of all
certifications, permits, approvals, job sign-offs and violation sign-offs
relating to said work. Anything to the contrary contained in this Article 59
notwithstanding, Tenant shall not be obligated to perform any Compliance Work
necessary to comply with any Laws or governmental requirements, unless
compliance shall be required by reason of (i) any cause or condition arising
out of any Tenant's Work or alterations made by Tenant or by Landlord on behalf
of Tenant, or (ii) Tenant's particular use, manner of use or occupancy on
behalf of Tenant of the demised premises (as opposed to mere office use), or
(iii) any breach of any of Tenant's covenants or agreements under this Lease or
(iv) any requirements arising out of the Americans with Disabilities Act,
Public Law 101-336, 42 U.S.C. SS 12101 et seq. ("Disabilities Act") within the
demised premises. Landlord shall be responsible for complying with all other
Laws and governmental requirements which are not the responsibility of Tenant
pursuant to this Lease (including compliance with the requirements of the
Disabilities Act which impose a duty on Landlord with respect to the common
areas of the Building) provided, however, that Landlord shall not be obligated
hereunder to perform any such compliance work except to the extent that
Landlord's failure so to comply impairs Tenant's use of the demised premises
for the purposes permitted in Article 2 hereof; and provided further that
Landlord may defer compliance with any such Law or governmental regulation
which Landlord is responsible for pursuant to this sentence so long as Landlord
shall be contesting the validity or applicability thereof and so long as such
contest does not prevent or materially delay Tenant in obtaining any permits or
other authorization necessary for Tenant's initial installation work.
60. CESSATION OF SERVICES AFTER TERMINATION OF LEASE
------------------------------------------------
If Tenant shall be in default in the payment of rent __ additional rent
under this Lease or otherwise shall be in default under this Lease beyond the
expiration of applicable notice and cure periods and Landlord shall in
accordance with the applicable provisions of this Lease elect to terminate this
Lease on account of any such default, whether such termination be effected by
notice given to Tenant pursuant to Article 17 of this Lease or by Landlord
instituting appropriate legal action against Tenant, or if Tenant shall vacate
the demised premises, Landlord shall have the right, from a______ after the
date of termination of this Lease or the date of Tenant vacating the demised
premises, to cease furnishing any services to demised premises beyond that
which is included as part of the basic annual rent hereunder, unless paid for
in advance by Tenant and the cessation furnishing any such additional services
shall not constitute an actual constructive, partial or total eviction, and
notwithstanding the fa____ that Landlord may have ceased furnishing any such
additional services to the demised premises, Tenant expressly covenants and
agrees that Landlord shall be entitled to recover liquidated damages from
Tenant under the holdover provisions of this Lease for any period that Tenant
hold over in the demised premises subsequent to any above-described termination
of this Lease, or in the case of Tenant's having vacated the demised premises,
Tenant shall be required to pay full rent and additional rent under this Lease.
61. LANDLORD'S OVERHEAD, SUPERVISION AND APPROVAL CHARGES
-----------------------------------------------------
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Whenever Landlord or its agent (collectively, the "Landlord") (i) installs
a water meter or provides metered water pursuant to Article 28 of this Lease,
(ii) at Tenant's request or pursuant to an express provision in this Lease or
(ii) performs work or furnishes services for Tenant at separate charge, or
(iii) on Tenant's behalf performs work which Tenant should have performed but
failed to perform prior to the expiration of the time period applicable
thereto, in addition to all other charges that Tenant may be required to pay
under this Lease, Tenant shall pay Landlord (or Landlord's agent if so directed
by Landlord), within ten (10) days of Landlord's submission of the bill
therefor, an amount equal to 15% of the total amount expended by or on behalf
of Landlord and/or Tenant in connection with the same (representing charge for
overhead and for supervision). Landlord and Tenant acknowledge and agree that
the 15% markup provided herein for overhead and supervision shall not be added
to the Tenant's Electric Current Charge to be computed pursuant to the
provisions of Article 38 hereof, the computation of which includes a
"Landlord's Adjustment" of 10% of the Net Charge as provided therein.
If Tenant submits any plan or specification to Landlord for approval,
Tenant shall pay Landlord (or Landlord's agent if so directed by Landlord) the
sum of $500 simultaneously with said submission of the subject plan or
specification. Said sum shall be payable irrespective of whether or not
approval of such plan or specification is granted or such plan or specification
is returned to Tenant with objections thereto. Such charge of $500 and the fees
of any architect or engineer hired by Landlord for the purpose described in the
last paragraph of this Article 61 shall be waived for Tenant's plans and
specifications relating to the initial Tenant's Work to be performed by Tenant
in and to the demised premises prior to April 30, 1998
If any plan or specification submitted to Landlord shall require, in
Landlord's reasonable opinion, the expert opinion of an independent architect,
engineer or other professional service in order for Landlord to determine
whether or not to approve or withhold approval thereto. Landlord may retain an
architect, engineer or other professional service for such purpose and Tenant
agrees to pay Landlord (or Landlord's agent if so directed by Landlord) an
amount equal to the fee of such architect, engineer or other professional
service actually paid by Landlord for reviewing such plan or specification.
PLEASE INITIAL
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LANDLORD TENANT
62. APPLICATION OF SECURITY
-----------------------
If Landlord shall apply all or a portion of the Tenant's security deposit
under this Lease towards the curing of a default by Tenant, Tenant shall,
within ten (10) days of Landlord's giving Tenant written notice of such
application of Tenant's security deposit, deposit with Landlord an amount equal
to the sum so applied by Landlord so as to restore the security deposit to the
amount held by Landlord prior to such application; Tenant's failure to timely
deposit such amount with Landlord in full shall constitute a material default
on the part of Tenant under this Lease.
63. BROKER
------
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Tenant covenants and represents that Tenant has dealt with no broker in
connection with this Lease or the demised premises other than Sylvan Lawrence
Company, Inc. and Lexington Real Estate Company. Tenant agrees to indemnify and
hold harmless Landlord and Landlord's agent, Sylvan Lawrence Company, Inc.,
from responsibility, loss, costs and damages in connection with any claim for
commission or other fees made by any broker, other than the broker(s) named in
the immediately preceding sentence, claiming to have dealt with Tenant in
connection with this Lease or the demised premises. Tenant shall have no
obligation to pay a commission or other fee regarding this Lease to the
broker(s) named in the first sentence of this Article unless Tenant has
undertaken to do so by separate written agreement between Tenant and Lexington
Real Estate Company. Landlord covenants and represents that Landlord to the
best of its knowledge has dealt with no broker in connection with this Lease
for the demised premises other than Sylvan Lawrence Company, Inc. and Lexington
Real Estate Company. Landlord agrees to indemnify and hold harmless Tenant from
responsibility, loss, costs and damages in connection with any claim for
commission or other fees made by any broker, other than the brokers named in
the immediately preceding sentence, who dealt with Landlord in connection with
this Lease or the demised premises on a disclosed basis. Landlord agrees to pay
to the brokers specified in this Article 63 [i.e., Lexington Real Estate
Company and Sylvan Lawrence Company, Inc.] such compensation, commissions or
charges, if any, to which they are entitled pursuant to the separate agreements
between said brokers and Landlord.
64. RIDER PORTIONS PREVAIL
----------------------
The rider portions of this Lease shall be read in conjunction with the
printed standard form of lease to which the rider portions are annexed. If
there is any inconsistency or ambiguity between the terms of the rider portions
of this Lease and the standard form of lease, the rider potions of this Lease
shall prevail.
65. NO OTHER PRESENTATIONS, CONSTRUCTION, GOVERNING LAW
---------------------------------------------------
Tenant expressly acknowledges and agrees that Landlord and Landlord's
agents have not made and are not making, and Tenant is not relying upon, any
warranty, representation, promise or statement, except to the extent the same
are expressly set forth in this Lease or in a written agreement between
Landlord and Tenant entered into simultaneously with the execution and delivery
of this Lease and which expressly refers to this Lease. This Lease shall be
governed in all respects by the laws of the State of New York.
66. ELEVATOR AND BUILDING SYSTEM INSTALLATIONS
------------------------------------------
Throughout the term of this Lease, including renewals and extensions,
Tenant agrees that Landlord shall have the right, upon Landlord's giving Tenant
not less than thirty (30) days prior written notice, to reclaim a portion or
portions of the demised premises solely for the purpose of (i) installing
additional elevator(s) in the Building and/or (ii) improving Building
system(s), provided the amount of such reclaimed space shall be limited to such
space as is required for the proper installation, access and operation of (i)
said elevator(s) and space which is required for public purposes relating to
said elevator(s) and/or (ii) the subject improvement(s) to Building system(s)
and shall be in an area which shall not materially and adversely affect
Tenant's use of the demised premises as permitted in Article 2 hereof. The
total square footage which Landlord may recapture over the term
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of this Lease pursuant to this Article 66 shall not exceed 400 square feet.
Landlord shall be permitted access to the demised premises to perform the work
to install and maintain said elevator(s) and/or improvement(s) to Building
system(s), including the right to take all necessary materials and equipment
into the demised premises without the same constituting an eviction, and Tenant
shall not be entitled to any abatement of rent while such work is in progress
or any damages by reason of loss or interruption of business or otherwise. Upon
Landlord's reclaiming a portion of the demised premises as provided for in the
immediately preceding sentence, Tenant's Proportionate Share defined in Article
40 of this Lease shall be proportionately reduced on a pro rata basis to
correspond to the percentage decrease in the rentable square footage of the
demised premises calculated by comparing the size of the demised premises prior
to said reclaiming of space to the size of the reclaimed space. In addition,
the basic annual rent provided on page 1 of this Lease shall be proportionately
reduced on a pro-rata basis to correspond to the percentage decrease in the
rentable square footage of the demised premises calculated by comparing the
size of the demised premises prior to said reclaiming of space to the size of
the subject reclaimed space. Landlord agrees to use Landlord's reasonable
efforts to perform such installation in a manner which minimizes interference
with Tenant's use of the demised premises and Landlord shall be responsible to
make repairs and restoration reasonably required as a direct result of such
installation. Except as otherwise specifically set forth in this Article, the
terms and conditions of this Lease shall not be modified by reason of the
installation(s) and maintenance thereto. Anything to the contrary contained in
this Article 66 notwithstanding:
(A) No portion or portions of the demised premises to be reclaimed by
Landlord under this Article 66 shall be deemed to materially and
adversely affect Tenant's use of the demised premises, as permitted by
Article 2 of the Lease, if the affected portion or portions of the
demised premises or the Tenant's installation therein, as applicable,
can be reconfigured so that the demised premises will be usable by
Tenant without material adverse affect resulting from Landlord's
reclaiming the subject portion of the demised premises under this
Article 66.
(B) With regard to work to be performed by or on behalf of Landlord
under this Article 66, Landlord shall exercise reasonable diligence so
as to minimize the disturbance to Tenant but nothing contained herein
shall be deemed to require Landlord to perform the same on an overtime
or premium pay basis, unless Tenant is willing to reimburse Landlord
for the difference between the normal full-time pay basis and overtime
or premium pay basis and the performance of same on such overtime or
premium pay basis is available and reasonably practicable.
(C) Subject to the terms of this Article 66 [as modified by these
clauses (A) through (E),] Landlord shall at its sole cost and expense
install any reasonably necessary partition wall(s) and restore the
portions of the demised premises (and systems, if any, serving said
portions) affected by work under this Article 66, to substantially the
conditions they were in immediately prior to the performance of such
work.
(D) With regard to the work to be performed by or on behalf of
Landlord under this Article 66, Landlord agrees to only bring material
and equipment into the demised premises when it is reasonably likely
that same will be needed on the day on which same is brought into the
demised
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premises and Landlord shall have the right to store upon the demised
premises only reasonable quantities of same.
(E) The reclaimed square footage shall no longer be deemed part of the
demised premises for purposes of this Lease.
67. PROVISIONS SEVERABLE
--------------------
If any term or provision of this Lease or the application thereof to any
person or circumstance shall to any extent be invalid or unenforceable, the
remainder of this Lease, or the application of such term or provision to
persons or circumstances other than those to which it is held invalid or
unenforceable, shall not be affected thereby, and each term and provision of
this Lease shall be valid and enforceable to the fullest extent permitted by
law.
68. EXECUTION AND DELIVERY OF LEASE
--------------------------------
Landlord's submission of this Lease to Tenant for review and execution
shall confer no rights nor impose any obligations on either Landlord or Tenant
unless and until both Landlord and Tenant shall have executed this Lease and
fully executed duplicate originals of this Lease shall have been delivered to
each of Landlord and Tenant.
69. UNCOLLECTIBLE CHECKS
---------------------
If Landlord receives a check from Tenant for the payment of basic annual
rent, additional rent and/or any other charges due under this Lease which is
uncollectible by Landlord due to insufficient funds in Tenant's account or for
any other reason, Tenant shall pay Landlord, or at Landlord's option Tenant
shall pay Landlord's agent, a service charge in the sum of one hundred dollars
($100) as additional rent representing Landlord's time and expense in
processing such uncollectable check. Landlord shall have the right at any time
and from time to time during the term of this Lease to require that Tenant's
checks in payment of basic annual rent, additional rent and/or any other
charges due under this Lease be drawn on a member bank of the New York Clearing
House Association. Notwithstanding the provisions of the immediately preceding
sentence, Tenant may make the payments set forth therein by check drawn on a
national bank having its principal office in the Continental United States or
drawn on an account at a bank or branch of a bank located in New York City
provided that Tenant shall submit such checks to Landlord at such time as to
ensure that each such check will clear (i.e., funds therefor will be available
to Landlord) no later than a check drawn on a bank which is a member of the New
York Clearing House Association would have cleared if same had been timely
submitted to Landlord on the due date therefor set forth in this Lease. The
provisions of this Article shall not limit Landlord from enforcing any other
rights Landlord may have under this Lease in the event of Landlord's receipt of
any uncollectable check, and Landlord's right to collect a service charge
provided for above shall be in addition to all other rights of Landlord
contained in this Lease.
PLEASE INITIAL
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LANDLORD TENANT
70. EFFECT OF GOVERNMENTAL LIMITATION ON RENTS AND OTHER CHARGES
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------------------------------------------------------------
If any law, decision, order, rule or regulation (collectively the
"Limiting Law") of any governmental authority shall have the effect of limiting
for any period of time (the "Period of Limitation") the amount of basic annual
rent and/or additional rent or other amounts payable by Tenant under this Lease
to an amount less than the amount provided for under the terms of this Lease,
then:
I. The following provisions shall apply:
(a) Throughout the Period of Limitation, Tenant shall remain liable
for the maximum amount of basic annual rent and/or additional rent and other
amounts which are legally payable; and
(b) When the Period of Limitation ends, or if the Limiting Law is
repealed, or following any order or ruling that substantially restrains or
prohibits enforcement of the Limiting Law, Tenant shall pay Landlord, within
thirty (30) days after demand (to the extent that payment of such amounts is
not prohibited by law), all amounts that would have been due from Tenant to
Landlord during the Period of Limitation but which were not paid because of the
Limiting Law; and thereafter, Tenant shall pay Landlord basic annual rent
and/or additional rent and all other amounts due pursuant to this Lease
calculated as if there had been no Period of Limitation, provided, however,
that Tenant shall have no obligation to make any reimbursement to Landlord
pursuant to this Article 70 if either the intervening period of limitation ends
or if the Limiting Law is repealed after the Expiration Date of this Lease
(including any renewal or extension thereof).
71. ELECTRICAL AND ELECTRONIC EQUIPMENT, ETC.
-----------------------------------------
With regard to all electrical and/or electronic equipment, machinery,
fixtures, furnishings, products, lighting and/or methodologies installed in or
used at the demised premises, including but not limited to telecommunications,
mainframe and personal computers and uninterrupted power supply, and all
subject connections including but not limited to wire, conduit, and fiber optic
and other cable, Tenant agrees that at all times the same shall:
(i) Comply with Underwriters Laboratory standards and National
Electric Code and New York City Electric Code requirements and any and all
other such standards and requirements which are applicable.
(ii) Not produce Radio Frequency Interference Emissions or
Electromagnetic Interference Emissions in excess of the limit described in The
Federal Communications Commission Code part 15, subpart J, class A or any other
such applicable limit.
(iii) Produce a maximum of five percent (5%) Total harmonic current
Distortion (defined by The Institute of Electrical and Electronic Engineers
Committee #519 of 1992 and adapted by The American Standards institute) at the
demised premises' electric distribution panel(s), motor control center(s)
and/or automatic transfer switch(es). Tenant shall provide Landlord with
evidence satisfactory to Landlord of Tenant's compliance with Tenant's
obligations under this clause (iii) in the form of appropriate Total Harmonic
Current Distortion analysis as and when requested by Landlord in a manner and
format acceptable to Landlord by spectrum analyzer or other device acceptable
to Landlord. Tenant shall correct any failure of Tenant to be in compliance
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with Tenant's obligations under this clause (iii) within five (5) days of
Tenant's knowledge of such failure of compliance or Landlord shall have the
right, but not the obligation, to remedy or reduce the excess distortion in any
manner Landlord may choose in Landlord's sole discretion at Tenant's sole cost
and expense.
(iv) For the purpose of confirming Tenant's compliance with the
terms of clauses (i), (ii) and (iii) of this Article, be subject to Landlord's
review and/or approval, at Tenant's sole cost and expense with respect to
Landlord's out-of-pocket costs for said review and/or approval, upon
installation, connection, modification and/or replacement, and from
time-to-time, as reasonably required by Landlord.
Tenant's full compliance with the terms of this Article set forth above
notwithstanding and anything to the contrary contained in this Lease
notwithstanding, Tenant shall be responsible for all adverse affects of
backflow, backfeed, harmonics and other like-type conditions, whether to, in,
at, or outside the Building, which emanate from, are caused by, or relate to
the demised premises and/or the systems serving the demised premises and/or the
equipment, machinery, fixtures, furnishings, products and lighting located in
the demised premises.
PLEASE INITIAL
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LANDLORD TENANT
72. SECURITY
--------
(a) The security deposit in the sum of $510,284.00 (the "LC Amount") shall
be delivered and deposited by Tenant with Landlord simultaneously upon the
execution of this Lease by Tenant in the form of a clean, non-documentary,
unconditional and irrevocable letter of credit in form and content reasonably
satisfactory to Landlord for the benefit of and delivered to Landlord from a
member bank of the New York Clearing House Association having its principal
place of business or its duly licensed branch or correspondent bank (which too
must be a member of the New York Clearing House Association) for presentation
in this Borough of Manhattan of the City of New York. Such letter of credit
shall have an expiration date no earlier than the first anniversary of the date
of issuance thereof and shall be automatically renewed from year-to-year unless
terminated by the issuer thereof by notice to Landlord given not less than
forty-five (45) days prior to the expiration thereof (as to the giving of which
notice time shall be of the essence). It is hereby understood and agreed that
Tenant must continue to provide Landlord with an enforceable letter of credit
for the LC Amount throughout the entire term of this Lease without any gaps
between the expiration of an existing letter of credit and the date that any
succeeding replacement letter of credit becomes effective. In this regard,
Tenant shall, throughout the term of this Lease deliver to Landlord, in the
event of the termination of any such letter of credit, replacement letters of
credit in lieu thereof (each such letter of credit and such extensions or
replacements thereof, as the case may be, is hereinafter referred to as a
"Letter of Credit") no later than forty-five (45) days prior to the expiration
date of the preceding Letter of Credit (as to which obligation time shall be of
the essence). The term of each such Letter of Credit shall be automatically
renewable from year-to-year as aforesaid and each Letter of Credit and the
issuer thereof shall satisfy all of the requirements set forth in this Article
72 therefor. If Tenant shall fail to obtain and provide Landlord any
replacement Letter of Credit within the time limit set forth in this Paragraph
72(a) (time being deemed of the essence with respect to such time limit)
Landlord may cash in
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the existing Letter of Credit for the then full LC Amount and thereafter
continue to hold the LC Amount as cash security as provided in subparagraph (b)
hereof. Each Letter of Credit shall be in a form in which the presentation of
the Letter of Credit shall be accepted by the issuing bank upon just the
presentation of the Letter of Credit to said issuing bank. Each Letter of
Credit shall also be fully assignable by Landlord without any requirements that
Landlord pay a processing fee or other Bank fee as a condition for said
assignment. It is understood and agreed that the funds secured by the Letter of
Credit described in this Article shall be controlled in a like manner as funds
deposited under the terms of Article 31 of this Lease and any remaining funds
shall be retained by Landlord as additional security in accordance with
subparagraph (b) of this Article 72 of the Lease. If the Letter of Credit
should lapse or expire for any reason whatsoever at any time during the term or
any renewal period of this Lease, Tenant must immediately deposit with Landlord
the sum of LC Amount cash to be held by Landlord pursuant to Article 31 and
subparagraph (b) of this Lease. If Tenant fails to deposit said LC Amount in
cash with Landlord within ten (10) days of notice to Tenant by Landlord of the
lapse or expiration of the Letter of Credit, Tenant shall be deemed to be in
material default under this Lease giving rise to all of Landlord's rights and
remedies in the event of such default including but not limited to the right to
terminate this Lease in the event thereof in which case the parties agree that
Landlord may immediately institute a summary hold-over proceeding in Civil
Court, New York County, to recover physical possession of the demised premises.
(b) Subject to clause (a) set forth immediately above, the security
deposited pursuant to Article 31 of this Lease shall be placed in an interest
bearing account in the CHASE MANHATTAN BANK, 380 Madison Avenue, New York, New
York, subject to Landlord's sole right to change the depository at any time to
any banking organization having a place of business in the State of New York.
It is also understood and agreed that 1.0% per annum of the security funds,
shall be retained by Landlord as an administrative fee. Interest earned
thereon, less the foregoing administrative fee of 1.0% per annum of the
security funds shall be returned to Tenant at the same time as, and under the
same terms and conditions described above relating to the principal amount of
the security deposit.
(c) Provided that (i) Tenant shall not be in default of the terms,
provisions, covenants and conditions of this Lease, including the timely
payment of all basic annual rent and additional rent due hereunder beyond the
applicable notice and cure period, (ii) the original security deposited
hereunder pursuant to Article 31 of the Lease is still on deposit with Landlord
as aforesaid and Landlord shall not have previously applied the whole or any
part of the security so deposited by reason of Tenant's default and (iii)
Tenant shall not have suffered any material adverse change in Tenant's
financial condition so as to render Tenant unlikely to meet all of its
obligations under this Lease for the balance of the term thereof, then the LC
Amount required to be maintained hereunder shall be reduced to $339,649.00 on
October 1, 2002, and Tenant shall deliver to Landlord a replacement Letter of
Credit or amendment to the then current Letter of Credit to indicate that the
LC Amount has been reduced to $339,649.00. Thereafter, Landlord's and Tenant's
rights to the security deposited hereunder, as reduced in accordance with the
preceding sentence, shall be the same as if that sum had been provided for as
the original securitY deposited hereunder.
73. RELOCATION
----------
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(a) Anything to the contrary contained in this Lease notwithstanding,
Landlord, upon not less than sixty (60) days prior written notice to Tenant,
shall have the right to substitute, as of a date specified in said notice (the
"Effective Date") (hereinafter defined), other space (the "Substitute Space")
in the Building of which the demised premises forms a part as the demised
premises hereunder in lieu of the space (the "Prior Space") then constituting
the demised premises hereunder immediately prior to the giving of such notice.
The Effective Date shall be the date on which both of the conditions set forth
in subclauses (i) and (ii) below are satisfied: (i) Landlord has substantially
completed preparing the Substitute Space for Tenant's occupancy pursuant to the
terms hereof; and (ii) either (a) in the case where Tenant elects to perform
Tenant's Moving Work (defined below) the date ten (10) business days after
Landlord has substantially completed preparing the Substitute Space for
Tenant's occupancy in accordance with the terms of this Article 73 of which
date of substantial completion Landlord shall have given Tenant not less than
five (5) business days notice (herein called the "Ready Notice"), or (b) in the
case where Tenant elects to have Landlord perform Tenant's Moving Work, the
date on which Landlord has substantially completed Tenant's Moving Work.
(c) Automatically on the Effective Date, the Substitute Space shall
constitute the demised premises hereunder and all of the terms of this Lease
shall apply thereto, and the Prior space shall automatically be deleted from
the coverage of this Lease and the term of this Lease insofar as the Prior
Space only is concerned shall be deemed to have ceased and expired with the
same force and effect as if the Effect Date were originally provided in this
Lease as the expiration date hereof but this Lease shall continue in full force
and effect for the full term hereof with respect to the Substitute Space).
(d) Tenant covenants and agrees to quit and surrender vacant full
possession of the Prior Space to Landlord on the Effective Date free and clear
of any leases, tenancies and rights of occupancy of anyone claiming by or
through Tenant. If Tenant shall fail or refuse to surrender such vacant full
possession of the Prior Space to Landlord on or before the Effective Date (for
any reason other than Landlord's failure to furnish moving labor to Tenant),
then and in such event Tenant shall pay to Landlord for each day or fraction
thereof that Tenant shall fail to surrender such vacant full possession of the
Prior Space to Landlord (in addition to all rent and additional rent provided
to be paid under this Lease which is applicable from and after the Effective
Date to the Substitute Space) an agreed-upon sum equal to three times the
quotient obtained by dividing (i) the sum of the monthly installment of basic
annual rent then payable under this Lease plus one-twelfth (1/12) of all
additional rent then payable under this Lease by (ii) thirty (30) (the "Daily
Rate for the Prior Space"). Such Daily Rate for the Prior Space is in the
nature of liquidated damages to Landlord for Tenant's failure to surrender such
vacant full possession of the Prior Space to Landlord on or before the
Effective Date. The foregoing provision for payment by Tenant of the Daily Rate
for the Prior Space shall be without prejudice to Landlord's instituting
summary or such other proceedings as Landlord may desire in order to obtain as
promptly as possible vacant full possession of the Prior Space. The foregoing
provision for payment by Tenant of the Daily Rate for the Prior Space relates
solely and directly to Landlord and Tenant's mutual agreement to the daily
value of the Prior Space to each of Landlord and Tenant taking into
consideration Tenant's agreement to comply with the terms of this Article and
to surrender vacant full possession of the Prior Space to Landlord on or before
the Effective Date, time being deemed of the essence; therefore, in addition to
Tenant's agreement to make payment of the Daily Rate for the Prior Space for
each subject day, Tenant agrees to pay
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<PAGE>
Landlord the total amount of any loss, damage, cost or injury (including
attorneys' fees and disbursements) suffered by Landlord with regard to any
existing or potential transaction which is adversely affected by Tenant's
failure or refusal to timely surrender the Prior Space.
(e) Anything to the contrary contained in this Article 73 notwithstanding,
in addition to Landlord's obligation set forth above in this Article 73,
Landlord shall, at Landlord's cost and expense, perform the following:
1. Landlord shall build-out the Substitute Space to be substantially
equivalent to the Prior Space as it exists at the time of the relocation.
In this respect Landlord shall provide space which contains not less than
the total usable area contained in the Prior Space and which is newly
decorated, layed out and partitioned in substantially the same manner as
the Prior Space (subject to Landlord's right to make reasonable
substitutions which do not diminish the quality or utility of the
buildout).
2. The Substitute Space shall be substantially comparable in configuration
as the Prior Space.
3. Landlord shall furnish Tenant, with plans and specifications for the
subject relocation including drawings, mechanicals and scheduling
information which shall be consistent with Landlord's rights and
obligations under this Article 73.
Anything to the contrary contained in this Article 73 notwithstanding,
Tenant within ten (10) days after receipt of Landlord's aforesaid 60-day
notice, may elect to (i) perform Tenant's Moving Work at Landlord's sole
cost and expense, or (ii) have Landlord perform Tenant's Moving Work at
Landlord's sole expense. Tenant's Moving Work shall mean the moving of
Tenant's complete operation from the Prior Space to the Substitute Space,
including the moving and reinstallation of all Tenant's furniture and
equipment including, without limitation, Tenant's computers and shall
include the costs of acquiring and during the relocation process
temporarily operating duplicate (or if duplicate is no longer reasonably
available, then substantially duplicate) and additional equipment which
shall be reasonably necessary in accordance with accepted industry
standards, if any, to ensure that no disruption of Tenant's computer based
sales operation occurs during such relocation to the Substitute Space and
costs of temporary labor during the relocation process to operate such
duplicate (or substantially duplicate) and additional equipment. In all
instances the foregoing costs shall be reasonable and competitive.
If Tenant elects to have Landlord perform Tenant's Moving Work, then:
1. At Tenant's request, Landlord shall perform the subject relocation in
continuous fashion (with industry standard breaks permitted such as for
lunch, etc.) on consecutive eight hour days.
2. At Tenant's request, the subject relocation will be made over a
week-end to 7 a.m. Tuesday [plus additional day(s) to correspond to any
holiday during the relocation] but in no event shall such relocation occur
during the month of December. If such move cannot be effected in a single
weekend, Landlord and Tenant shall cooperate to phase the move over 2 or 3
consecutive weekends.
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<PAGE>
If Tenant elects to perform Tenant's Moving Work itself, then:
1. Tenant, from and after the date of the Landlord's buildout of the
Substitute Space being substantially completed, shall have the right
to perform Tenant's Moving Work. Landlord shall provide Tenant for
the period of such performance a priority use of the Building's
freight elevators to facilitate Tenant's Moving Work and otherwise
cooperate with Tenant's efforts in connection therewith.
2. Tenant, after Tenant's Moving Work is complete, shall furnish
Landlord with a statement including but not limited to cancelled
checks and receipts setting forth and verifying Tenant's expenses
which shall have been actually, directly and solely incurred in
connection with Tenant's Moving Work, and within thirty (30) days
after the receipt of such statement, Landlord shall pay Tenant the
amount set forth thereon or give Tenant written notice of Landlord's
objections to Tenant's statement that the costs are either (i) not
properly documented or (ii) not reasonable and competitive or (iii)
not reimbursable because they were not so incurred in connection with
Tenant's Moving Work. In all instances the foregoing costs shall be
reasonable and competitive.
3. If Tenant has not completed Tenant's Moving Work by the Effective
Date, then Landlord may give Tenant a notice informing Tenant that if
Tenant's Moving Work is not completed five (5) business days after
the date of such notice, Landlord will have the right at any time
thereafter and without further notice to immediately prosecute and
complete Tenant's Moving Work.
Landlord's build-out of the Substitute Space shall be considered
"substantially completed" when such work (or so much thereof as Tenant shall
require) is completed other than minor or insubstantial details of
construction, decorative or mechanical adjustment that shall not interfere with
Tenant's business operations as permitted by Article 2 of the Lease ("Punch
List Items"). Landlord shall diligently prosecute to completion all such Punch
List Items after receipt of Tenant's notice to Landlord setting forth actual
Punch List Items, which Tenant shall give to Landlord within ten (10) days
after the date of substantial completion set forth in the Ready Notice.
Tenant shall provide Landlord with Tenant's full cooperation to assist
Landlord in the performance of all of Landlord's obligations set forth in this
Article 73.
(f) If Landlord shall exercise its rights pursuant to this Article 73
to relocate Tenant to Substitute Space, Landlord and Sylvan Lawrence Company,
Inc. shall not be liable in any way to Tenant (or to any permitted subtenant)
for any loss, liability, injury or damage whatsoever arising out of, in
connection with, or as a consequence of the relocation of Tenant's business
operation from the Prior Space to the Substitute Space and/or the performance
of any of Landlord's obligations under this Article 73, including without
limitation, the performance of Tenant's Moving Work, unless (but only to the
extent) any of the foregoing shall be due to the gross negligence or wilful
misconduct of Landlord, its agents or employees but in no event shall Landlord
be liable to Tenant for special, indirect or consequential damages.
Anything to the contrary contained herein notwithstanding, Tenant shall not be
relocated pursuant to the provisions of this Article 73 prior to the date which
is the earlier to occur of (Y) January 1, 1998, and (Z) the date on
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which the portion of the initial Tenant's Work consisting of Permanent Building
Improvements to be performed by Tenant in the demised premises as contemplated
by the PBI Letter is substantially completed.
PLEASE INITIAL
SC illegible
LANDLORD TENANT
74. ADA BATHROOMS
-------------
As soon as reasonably practicable after the Commencement Date, Landlord,
at Landlord's expense, using Building standard materials and labor selected by
Landlord, shall initially perform the following work in the Building: (Y)
refurbish one (1) existing mens lavatory and one (1) existing womens lavatory
in the center portion of the eleventh (11th) floor of the Building to a
Building standard finish to be designated by Landlord and, in addition, upon
completion of such refurbishment the aforesaid lavatories shall comply with the
Disabilities Act (as defined in Footnote 59G hereof); and (Z) refurbish the
existing mens lavatory and existing womens lavatory in the 9th Avenue portion
of the eleventh floor to a Building standard finish to be designated by
Landlord. At Landlord's option, Landlord may elect to perform the work
described in clause (Y) to the existing mens lavatory and existing womens
lavatory in the 9th Avenue portion of the 11th floor in lieu of performing said
work to the lavatories in the center portion of the 11th floor, in which case
Landlord's only obligation with respect to such lavatories in the center
portion of the 11th floor pursuant to the provisions of this Article 74 shall
be to refurbish them to a Building standard finish to be designated by
Landlord. Except as set forth in the immediately preceding two sentences,
Landlord shall have no liability or responsibility for Disabilities Act
compliance with respect to any other bathroom(s) or lavatory on the eleventh
(11th) floor of the Building.
75. LIABILITY FOR ASBESTOS
----------------------
Landlord represents that there are no visible asbestos containing
materials located in the demised premises which is presently in a friable state
(which asbestos containing materials is not presently accessible to the Tenant
or otherwise encapsulated in accordance with City, State and Federal codes).
Accordingly, the foregoing representation shall not apply to asbestos
containing tiles and glue located within the demised premises which are not
presently friable. In addition, Landlord shall not be responsible for asbestos
containing materials brought into the demised premises by Tenant or that which
is disbursed by Tenant in an area in the demised premises which is presently
encapsulated in accordance with City, State and Federal codes as described
above.
76. COMMENCEMENT OF TERM
--------------------
(a) The "Commencement Date" of the term of this Lease shall be the later
to occur of (i) the date on which Landlord delivers vacant possession of the
demised premises to Tenant and (ii) Landlord completes construction of a
demising wall or walls required to separate the demised premises from other
space on the floor not leased to Tenant hereunder (which wall(s) shall be
taped, speckled and ready to receive Building standard paint).
(b) The "Expiration Date" of the term of this Lease shall be the last day
of the 124th month following the Commencement Date.
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(c) Landlord shall, in accordance with the foregoing, fix the Commencement
Date and shall notify Tenant of the date so fixed. When the Commencement Date
has so been determined, the parties shall within fifteen (15) days thereafter,
at either party's request, execute a written agreement confirming such date as
the Commencement Date. Any failure of the parties to execute such written
agreement shall not affect the validity of the Commencement Date as fixed and
determined by Landlord as aforesaid.
77. SUPPLEMENT TO ARTICLE 7 (SUBORDINATION)
---------------------------------------
Landlord represents that Landlord is the fee owner of the land and
Building of which the demised premises form a part and that no mortgage affects
said land and Building on the date of this Lease other than the mortgage(s)
referred to in the form of nondisturbance agreement annexed hereto as Exhibit
D. Landlord agrees to cause the holder(s) of such mortgage(s) referred to in
said Exhibit D to execute and deliver such non-disturbance agreement to Tenant
simultaneously with the execution and delivery of this Lease to Tenant.
Anything to the contrary contained in this Article 77 or Articles 7 and 43
hereof notwithstanding, this Lease shall not be subordinate to any leasehold or
fee mortgage or ground or underlying lease made after the execution and
delivery of this Lease unless an agreement in recordable form from the
lessor(s) under such ground or underlying lease(s) or from the holder(s) of
such mortgage(s) on the customary form of such lessor(s) and/or holder(s)
provides in substance that unless Tenant shall be in default under this Lease
and the time to cure such default has expired without cure of such default:
(i) Neither Tenant nor any person claiming through or under Tenant
shall be named or joined as a party defendant in any action, suit or
proceeding which may be instituted or taken by (1) the lessor under
any ground or underlying lease for the purpose of terminating such
lease by reason of any default or event of default thereunder, or (2)
the holder of any such mortgage to foreclose its mortgage or collect
the debt secured thereby;
(ii) Neither Tenant nor any person claiming through or under Tenant
shall be evicted from the demised premises, nor shall the leasehold
estate or possession of Tenant or any person claiming through or under
Tenant be terminated or disturbed, nor shall any of the rights of
Tenant or any person claiming through or under Tenant be affected in
any way, by reason of any default or event of default under any such
ground or underlying lease or under any such mortgage; and in any case
the rights under this Lease of Tenant shall not be diminished, reduced
or adversely affected in any way whatsoever by reason of any default
or event of default under such ground or underlying lease or such
mortgage or the termination of such ground or underlying lease or the
foreclosing of such mortgage by reason of any default or event of
default thereunder; and
(iii) If, at any time, the lessor under such ground or underlying
lease, or the holder of such mortgage (or any person, or such person's
successors or assigns, who acquires the interest of Landlord under
this Lease through foreclosure or a deed in lieu of foreclosure, or
otherwise) shall succeed to the rights of Landlord under this Lease as
a result of a default or event of default on the part of Landlord
under such ground or underlying lease or under such mortgage, as the
case may be, then (1) this Lease shall not terminate, (2) Tenant shall
attorn to and recognize the person so succeeding to Landlord's rights
(herein sometimes called "Successor Lessor") as Tenant's landlord
under this
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Lease upon the then executory terms and conditions of this Lease, and
(3) Successor Lessor shall accept such attornment and recognize Tenant
as the Successor Lessor's tenant under this Lease. Upon such
attornment and recognition this Lease shall continue in full force and
effect as if it were a direct lease between the Successor Lessor and
Tenant upon all of the then executory terms, conditions and covenants
(including any right under this Lease on the part of Tenant to extend
the term of this Lease) as are set forth in this Lease.
77. SUPPLEMENT TO ARTICLE 7 (SUBORDINATION) CONTINUED
-------------------------------------------------
If Tenant shall fail to so execute, acknowledge and return such
non-disturbance agreement as above provided, then this Lease shall be
subordinate to such leasehold or fee mortgage or ground or underlying lease, as
the case may be, notwithstanding the fact that the holder or lessor thereof and
Tenant shall have not executed and exchanged a non-disturbance agreement, but
if Tenant has executed such non-disturbance agreement, this Lease shall not be
subject and subordinate to such leasehold or fee mortgage or ground or
underlying lease, as the case may be, until Tenant receives the non-disturbance
agreement executed by the lessor or holder of such mortgage.
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EXHIBIT "A"
[FLOOR PLAN 11TH FLOOR WEST]
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<PAGE>
EXHIBIT "B"
DEPARTMENT OF BUILDINGS
BOROUGH OF MANHATTAN, THE CITY OF NEW YORK
Date: August 27, 1974 No. _______
CERTIFICATE OF OCCUPANCY
NO CHANGES OF USE OR OCCUPANCY NOT CONSISTENT WITH THIS CERTIFICATE SHALL
BE MADE UNLESS FIRST APPROVED BY THE BOROUGH SUPERINTENDENT
This certificate supersedes C.O. No.
THIS CERTIFIES that the altered building located at 111 Eighth Avenue,
Block 739, Lot 1.
That the zoning lot and premises above referred to are situated, bounded and
described as follows:
BEGINNING at a point on the south side of 16th Street distant 0 feet from the
corner formed by the intersection of 16th Street and Ninth Avenue running
thence east 800 feet; thence north 206'6" feet; running thence feet; thence
________________ feet; thence ___________ feet; to the point or place of
beginning, conforms substantially to the approved plans and specifications, and
to the requirements of the Building Code, the Zoning Resolution and all other
laws and ordinances, and of the rules of the Board of Standards and Appeals,
applicable to a building of its class and kind at the time the permit was
issued; and
CERTIFIES FURTHER that, any provisions of Section 646e of the New York
Charter have been complied with as certified by a report of the Fire
Commissioner of the Borough Superintendent. Class 1 or Alt. No. 1100-73.
Construction classification - fireproof. Occupancy classification - commercial.
Height 17 stories, 237' 5" feet. Date of completion _________. Located in M
1-5. Zoning District at time of issuance of permit August 19, 1974.
This certificate is issued subject to the limitations hereinafter
specified and to the following resolutions of the Board of Standards and
Appeals: ___________ and The City Planning Commission: ________________.
PERMISSIBLE USE AND OCCUPANCY
Off-Street Parking Spaces _____________________________________________
Off-Street Loading Berths _____________________________________________
LIVE LOADS PERSONS
STORY Lbs. per Sq. Ft. ACCOMMODATED USE
- ----- ---------------- ------------ ---
Sub-sub- on ground 54 Boiler room, elevator
Cellar pits, mechanical equipment,
use group 16 and 17.
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Sub-Cellar on ground 136 Mechanical equipment,
and 300 elevator pits, utility
tunnel, use group 17.
Cellar 300,200 476 Storage, mechanical
equipment, pistol range,
auto parking for one hundred
and fifty-five (155) cars,
truck parking, truck repairs,
electric switchboard, locker
rooms, telephone room, use
group 17.
1st 300,150, 476 Stores, Bank, post
100 office, loading berth
warehousing, auto parking for
sixty-six (66) cars, use
group 17.
Mezz. 60 136 Offices, mechanical
equipment, locker room,
telephone and electric room,
use group 17.
2nd 200,100 476 Offices, manufacturing,
mechanical equipment,
storage, auto parking for one
hundred and twenty-one (121)
cars, auto storage, auto
repairs, warehousing, use
group 17, car wash.
- continued -
Sewage Disposal:
Sanitary Drainage ________________ Discharge
(DOES) (DOES NOT) Into
Either
Sanitary
or
Combined
Sewer
Storm Drainage:___________________ Discharge
(DOES) (DOES NOT) Into
Either
Storm or
Combined
Sewer
/s/ Cornelius F. Dennis
------------------------
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<PAGE>
EXHIBIT "B" (continued)
PERMISSIBLE USE AND OCCUPANCY (continued)
LIVE LOADS PERSONS
STORY Lbs. per Sq. Ft. ACCOMMODATED USE
- ----- ---------------- ------------ ---
3rd & 4th 200,100 476 Offices, manufacturing,
mechanical equipment, storage,
use group 6 and 17.
5th 200,100 476 Offices, manufacturing,
mechanical equipment, storage,
medical center, X-ray lab, use
group 6 and 17.
6th 200,100 476 Offices, manufacturing,
mechanical equipment, storage,
use group 6 and 17.
7th 200,100 476 Offices, manufacturing,
mechanical equipment, storage,
Dental offices, printing,
Lithography Lab, use group 17.
8th 200,100 476 Offices, manufacturing,
mechanical equipment, storage,
printing, lithography lab,
Blueprinting, use group 17.
9th 200,100 476 Offices, manufacturing,
mechanical equipment, storage,
laboratories, warehousing, use
group 17.
10th 200,100 476 Offices, manufacturing,
mechanical equipment, storage,
computer, use group 6 and 17.
11th 200,100 476 Offices, manufacturing,
mechanical equipment, storage,
Laboratory, use group 6 and
17, Dining room.
12th 200,100 476 Offices, manufacturing,
mechanical equipment, storage,
laboratory, use group 6 and
17.
13th 200,100 476 Offices, manufacturing,
mechanical equipment,
Printing, Binding, storage,
Perfume Lab, warehousing Food
Flavoring Lab, use group 6 and
17.
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<PAGE>
14th 200,100 476 Offices, manufacturing,
mechanical equipment,
warehousing, use group 17.
15th 200,100 476 Offices, mechanical equipment
room, Employees' auditorium
and projection room, use
group 6 and 17.
16th 200,100 476 Offices, dining and kitchen,
mechanical equipment room,
electric switchboard, testing
laboratory, use group 6 and
17.
17th 200,150 136 Mechanical equipment room,
elevator machine room,
storage, office,
Communication headquarters
and antennas, use group 17.
Roof 40 136 Roof.
Existing sprinklers
throughout entire building.
/s/ Cornelius F. Dennis
-----------------------------
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EXHIBIT C
DATE: January 21, 1997
TO: All Tenants - 111 Eighth Avenue
FROM: Edward Alexander
RE: BUILDING CHARGES - 1997 RATES
------------------------------
The following is a list of charges for building services:
FREIGHT & TRUCK ELEVATORS - $99.00 per hour for exclusive use or after-hours
use. On Saturday, Sunday and Holidays there is a minimum 8-hour charge. After
hours during a regular work day, the charge will be made in 1-hour increments.
PORTER SERVICE - Regular time $39.00 per hour
Overtime $63.00 per hour
HANDYMAN CHARGES - Regular time $55.00 per hour
Overtime $69.00 per hour
ENGINEERS - Regular time $69.00 per hour
Overtime $98.00
SPRINKLER SYSTEM - Shut down & turn on $218.00 per zone
HOT & COLD WATER RISERS - Shut down & turn on $218.00 per zone
RUBBISH REMOVAL - $96.00 per yard
DIRECTORY STRIPS - $45.00 per line
H.V.A.C. - Rates to be determined by specific building
equipment usage.
All material used shall be charged at 21% above our cost. Please note that
these charges are temporary and may be changed at any time.
Very truly yours,
SYLVAN LAWRENCE COMPANY, INC.
/s/ Edward Alexander
---------------------
Edward Alexander
Building Manager
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EXHIBIT D
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
THIS AGREEMENT dated the ____ day of June, 1997, between Sasopco, Inc.,
hereinafter called the "Mortgagee", and Barnes & Noble, Inc., hereinafter
called "Tenant".
W I T N E S S E T H
- - - - - - - - - -
(a) Tenant has entered into a certain lease dated June , 1997 with P.A.
Building Company (hereinafter called "Landlord"), covering a portion of the
eleventh (11th) floor (the "demised premises") in a certain building known as
and located at 111 Eighth Avenue, New York, New York; and
(b) Mortgagee is the owner and holder of a certain mortgage or mortgages
affecting the Building (the "Mortgage") and the parties desire to set forth
their agreements as hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and of the sum of Ten Dollars ($10.00) and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, it
is hereby agreed,as follows:
1. Said lease is and shall be subject and subordinate to the Mortgage
insofar as it affects the real property of which the demised premises form a
part, and to all renewals, modifications, consolidations, replacements and
extensions thereof, to the full extent of the principal sum secured thereby and
interest thereon.
2. Tenant agrees that it will attorn to and recognize any purchaser at a
foreclosure sale under the Mortgage, any transferee who acquires the demised
premises by deed in lieu of foreclosure, and the successors and assigns of such
purchasers, as its Landlord for the unexpired balance (and any extensions, if
exercised) of the term of said lease upon the same terms and conditions set
forth in said lease.
3. In the event that it should become necessary to foreclose the Mortgage,
Mortgagee thereunder will not terminate said lease nor, subject to the
provisions of paragraph 4 hereof, diminish Tenant's rights under the Lease nor
join Tenant in summary or foreclosure proceedings so long as Tenant is not in
default under any of the terms, covenants, or conditions of said lease beyond
the time permitted therein to cure such default.
4. In the event that Mortgagee shall succeed to the interest of Landlord
under such lease, Mortgagee shall not be
(a) liable for any accrued obligations, or for the act or omission of any
prior landlord (including Landlord) accruing prior to the date upon
which Mortgagee shall succeed to the interest of Landlord under the
Lease but the foregoing shall not excuse Landlord's maintenance and
repair obligations under the Lease to the extent provided therein or
Landlord's obligation set forth in the PBI Letter with respect to the
Reimbursement Amount; or
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<PAGE>
(b) liable for the return of any security deposit (unless such security
deposit shall have been received by the Mortgagee); or
(c) subject to any offsets or defenses which Tenant might have against
any prior landlord (including Landlord); or
(d) bound by any rent or additional rent which Tenant might have paid for
more than the current month to any prior landlord (including
Landlord) other than the first months rent and additional rent paid
pursuant to the escalation provisions of the Lease; or
(e) bound by any amendment or modification of the lease made without its
consent.
The foregoing provisions of this Paragraph 4 shall not apply to any
mortgagee which is an affiliate of the landlord under said lease (i.e.
controls, is controlled by, or is under common control with landlord). In
addition, Mortgagee shall be entirely freed and relieved of all covenants,
obligations and liabilities of landlord under the Lease accruing from and after
the date Mortgagee transfers title to the Building.
This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto, and their successors and assigns.
IN WITNESS WHEREOF, the parties hereto have executed these presents the
day and year first above written.
Mortgagee:
Sasopco, Inc.
By: /s/
- ------------------------------ ---------------------------
Witness Name:
Title:
Tenant:
Barnes & Noble, Inc.
- ------------------------------
Witness
By: /s/
-------------------------------
Name:
Title:
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<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this _______ day of June, 1997, before me personally came
, to me known who, being duly sworn by me,
did depose and say that he resides at ; that he is a
of SASOPCO, INC., the corporation described in and
which executed the above instrument; and that he signed his name thereto by
authority of the corporation.
STATE OF NEW YORK )
) SS.:
COUNTY OF NEW YORK )
On this ______ day of June, 1997, before me personally came
, to me known who, being duly sworn by me, did depose and say
that he resides at
; that he is a of BARNES & NOBLE, INC. the
corporation described in and which executed the above instrument; and that he
signed his name thereto by order and authority of the board of directors of
said Corporation.
----------------------------------
Notary Public
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<PAGE>
RULES AND REGULATIONS
REGARDING THE WORKERS' COMPENSATION REFORM ACT OF 1996
ADDED TO AND MADE A PART OF THE LEASE
1. Each and every time Tenant's Work (defined in the Lease) is to be
performed by any contractor (the "Contractor") or sub-contractor (the
"Sub-Contractor") in, to or regarding the demised premises, Tenant must first
provide Landlord with Tenant's written agreement, in form and substance
satisfactory to Landlord, to indemnify and hold harmless Landlord, Landlord's
principals and Landlord's agent from and against any and all claims, costs,
liability, responsibility, damages and expenses (including attorneys' fees and
disbursements) with regard to any accident or incident involving any employee
of Tenant, Contractor and/or Sub-Contractor, including but not limited to (i)
injury to any employee of any Contractor or Sub-Contractor, and from any act by
or omission of any employee of any Contractor or SubContractor.
2. Each and every time any Contractor or Sub-Contractor performs Tenant's
Work in, to or regarding the demised premises, said Contractor or
Sub-Contractor must carry commercial general liability coverage, including
contractual, personal injury and products/completed operations liability
insurance coverage, automobile liability insurance coverage, umbrella liability
insurance coverage and workers' compensation insurance coverage, all at limits
reasonably required by the landlord (the "Landlord") under the Lease, and the
subject Contractor or Sub-Contractor must provide Landlord with a certificate
of insurance confirming the above-described insurance coverage prior to
commencing any work at the Building, and the following parties must be named as
additional insureds on a separate attachment to each said certificate of
insurance (i.e., not co-mingled with others): Landlord, Sylvan Lawrence and
Seymour Cohn, Partners; Estate of Sylvan Lawrence and Seymour Cohn,
individually and as partners of (insert the name of Landlord); Sylvan Lawrence
and Seymour Cohn, Partners; Seymour Cohn as Executor of the Estate of Sylvan
Lawrence; and Sylvan Lawrence Company, Inc., as Agent.
3. For each Contractor and Sub-Contractor performing work in, to or
regarding the demised premises, Tenant must first provide Landlord with a
written agreement, in form and substance satisfactory to Landlord, under which
the subject Contractor or Sub-Contractor agrees to indemnity and hold harmless
Landlord, Landlord's principals, Landlord's agent and Tenant from and against
any and all claims, costs, liability, responsibility, damages and expenses
(including attorneys' fees and disbursements) with regard to any accident or
incident involving any employee of the subject Contractor or Sub-Contractor,
including but not limited to (i) injury to any employee of the subject
Contractor or Sub-Contractor, and from any act by or omission of any employee
of the subject Contractor or Sub-Contractor.
4. No Contractor or Sub-Contractor shall be permitted to perform Tenant's
Work in, to or regarding the demised premises unless and until Landlord has
been provided with a true copy of all relevant written agreements and
certificates required by these Additional Rules and Regulations.
5. No Contractor or Sub-Contractor shall be permitted to perform work in,
to or regarding the demised premises unless and until said Contractor or
Sub-Contractor has first officially checked in with the Landlord's
representative at the Building, and Landlord's representative acknowledges that
said Contractor or Sub-Contractor has officially checked in, to confirm
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<PAGE>
that said Contractor or Sub-Contractor has fulfilled all obligations necessary
in order to be permitted to perform work at the Building.
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<PAGE>
ADDITIONAL RULES AND REGULATIONS
111 EIGHTH AVENUE
The Rules and Regulations are established to safeguard the interest of the
Tenant, the Landlord, and others, lawfully engaged in and about the Demised
Premises and the Building.
Such Rules and Regulations are to be observed and enforced at all times in
accordance with the provisions of the within Lease.
1. Trucks using the Tenant Shipping Platforms on the ground floor of the
building, and the upper Floor Truck Lobbies will load and discharge at the
place or places thereat and therein as indicated by the duly authorized
representative of Landlord in charge or such operation.
2. Elevators for Freight Handling Service will be operated during usual
business hours of usual business days, unless special arrangement is made with
Landlord for operation at other times.
3. The use of the private right of way and the truck elevators will be
subject to and under the sole direction and control of the duly authorized
representative of the Landlord in charge of such operation. When in the
interest of continuity of service and/or in the interest of the common service,
Tenant's freight departing from or arriving at the building by truck may at the
direction of Landlord be handled over and through Tenant's Shipping Platforms
on the ground floor and the freight elevators. Landlord reserves the right to
direct such handling in lieu of truck elevator service, provided the exercise
of such right by Landlord to direct such alternate handling of freight is not
unreasonably employed.
4. In the interest of preserving the continuity of freight elevator
service, freight will not be floored upon the freight elevator, but will at all
times be handled and moved upon suitable vehicles of the indoor industrial
wheeler type permitting such freight to be economically and expeditiously
wheeled on and off the freight elevators. Freight which cannot be handled upon
such equipment will be handled in such other manner as may be approved by
Landlord.
5. Tenant Shipping Platforms located on first or ground floor of the
Building are designed to accomplish the immediate transfer and/or movement of
merchandise between the freight elevators and trucks. The use of such facility
by Tenant, its agents, servants, employees, representatives and/or contractors
will be confined to such purpose, under the reasonable direction and control of
the duly authorized representative of Landlord in charge of such operation.
No storage, or holding of merchandise on such Tenant Shipping Platforms
awaiting the arrival of trucks, or awaiting transfer by Tenant from such Tenant
Shipping Platforms to the demised premises will be permitted. No automobiles of
Tenant, its employees, servants, licensees, contractors, customers, visitors or
agents may enter on or be stored in any portion of the building, except in
areas designated by Landlord and provided Tenant pays for such parking at rates
designated by Landlord, its agents or parking lessees.
Any violation of this rule or disregard of directions issued by Landlord
will give the Landlord the right to handle, transfer, remove and/or store such
freight in or to other premises in the building. When such handling, transfer,
removal and/or storage is performed by Landlord, and when it shall
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<PAGE>
be deemed necessary by Landlord to preserve the continuity of common service
provided by this facility, any and all expense will be for the account of
Tenant and at his expense. Landlord will not be responsible for any loss or
damage which the merchandise may suffer by such handling, removing and/or
storing unless resulting from negligence on the part of Landlord, its agents,
servants and/or employees.
6. Agents, servants, employees of Tenant will be in no case, and under no
condition, be permitted to operate any freight, passenger or truck elevator.
7. The Building is equipped with scuppers for carrying off water which may
result from sprinkler operation or other causes. Tenant shall not, under any
circumstances, deposit or permit to be deposited sweepings, and/or any other
rubbish in the said scuppers, and Tenant will keep the scuppers within the
demised premises at all times free of any and all rubbish, sweepings, and/or
other obstructions of any nature whatsoever.
8. Tenant shall not, under any circumstances, permit the collection of
sweepings and/or any other rubbish in the expansion joints of the Building, or
in any other portions of the Building outside of the demised premises. All such
sweepings and/or rubbish so contained within the demised premises shall be
removed daily by Tenant in such manner as Landlord shall direct. Tenant will
keep the said expansion joints free of any and all rubbish, sweepings and/or
any other obstruction of any nature whatsoever. Tenant will not place machinery
and/or equipment in such a position that the said machinery and/or equipment
straddles an expansion joint, or erect a partition which intersects an
expansion joint, unless one end of such machinery, equipment and/or partition
is free to permit the expansion and/or contraction of the Building.
9. Tenant shall not connect Tenant's security system, if any, to
Landlord's Class E fire alarm system, or any other Building system, without
first obtaining Landlord's prior written approval. The requirement for Tenant
to obtain Landlord's prior approval covers all aspects of the installation,
maintenance and operation of Tenant's security system. Any general approval by
Landlord of plans and specifications presented to Landlord by or on behalf of
Tenant shall not be deemed to be Landlord's approval of Tenant's security
system and/or the connection of Tenant's security system to Landlord's Class E
fire alarm system or any other Building system even if such security system
and/or the connection of such security system are set forth in the subject
plans and specifications, but rather Tenant must separately obtain Landlord's
written approval which specifically and exclusively addresses the connection of
Tenant's security system to Landlord's Class E fire alarm system or any other
Building system.
10. Tenant shall only be permitted to install and maintain a fire alarm
sub-system within the demised premises in accordance with the requirements set
forth below. Tenant's fire alarm sub-system must: (i) meet all Building
requirements now and hereafter in effect; (ii) initially be pre-approved and
signed-off as a stand alone system by all governmental and quasi-governmental
authorities having jurisdiction; (iii) at all time be covered by a maintenance
contract, with a contractor designated by Landlord, setting forth minimum
maintenance standards required by Landlord and/or applicable laws; and (iv) be
hooked up to Landlord's Class E fire alarm system, by a contractor designated
by Landlord, in accordance with plans and specifications approved by Landlord
in Landlord's sole discretion. Contractors to be designated by Landlord as
provided for above in this Rule and Regulation shall charge commercially
reasonable prices. In the event of
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<PAGE>
a false alarm caused by Tenant's fire alarm sub-system, tenant shall be: (i)
responsible for all resulting costs incurred by Landlord and/or any other
party; and (ii) additionally charged, as additional rent, the standard Building
administrative fee for each such incident [presently in the sum of two thousand
five hundred dollars ($2,500.00) subject to future adjustment].
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<PAGE>
ACKNOWLEDGMENTS
AGENT FOR LANDLORD )
STATE OF NEW YORK )
COUNTY OF NEW YORK )
On this 1st day of July, 1997 before me personally came Seymour Cohn who
executed the foregoing instrument and who, being duly sworn by me, did depose
and say that he is the Chairman of Sylvan Lawrence Company, Inc., the
corporation which executed the foregoing instrument as agent for P.A. Building
Company that he knows the seal of said corporation; that the seal affixed to
said instrument is such corporate seal; that it has so affixed by order of the
Board of Directors of said corporation; and that he signed his name thereto by
like order.
/s/ Richard S. Schwartz
-------------------------------
Notary Public
CORPORATE TENANT )
STATE OF NEW YORK )
COUNTY OF NEW YORK )
On this 24th day of June, 1997, before me personally came Stephen Riggio
to me known, who being by me duly sworn, did depose and say that he resides in
122 5th Ave., NY, NY; that he is the Chief Operating Officer of Barnes & Noble,
Inc. the corporation described in and which executed the foregoing instrument
TENANT: that he knows the seal of said corporation; that the seal affixed to
said instrument is such corporate seal; that it was so affixed by order of the
Board of Directors of said corporation, and that he signed his name thereto by
like order.
/s/ Jean M. Bollerman
--------------------------------
Notary Public
INDIVIDUAL TENANT )
STATE OF NEW YORK )
COUNTY OF )
On this day of 19__ before me personally came
to me known and known to me to be the individual described in and who TENANT
executed the foregoing instrument and acknowledged to me he executed the same.
-------------------------
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<PAGE>
IMPORTANT - PLEASE READ
RULES AND REGULATIONS ATTACHED TO AND
MADE A PART OF THIS LEASE
IN ACCORDANCE WITH ARTICLE 35.
1. The sidewalks, entrances, driveways, passages, courts, elevators,
vestibules, stairways, corridors or halls shall not be obstructed or encumbered
by any Tenant or used for any purpose other than for ingress to and egress from
the demised premises and for delivery of merchandise and equipment in a prompt
and efficient manner using elevators and passageways designated for such
delivery by Landlord. There shall not be used in any space, or in the public
hall of the building, either by any Tenant or by jobbers or others in the
delivery or receipt of merchandise, any hand trucks, except those equipped with
rubber tires and sideguards. If said premises are situate on the ground floor
of the building Tenant thereof shall further, at Tenant's expense, keep the
sidewalks and curb in front of said premises clean and free from ice, snow,
dirt and rubbish.
2. The water and wash closets and plumbing fixtures shall not be used for
any purposes other than those for which they were designed or constructed and
no sweepings, rubbish, rags, acids or other substances shall be deposited
therein, and the expense of any breakage, stoppage, or damage resulting from
the violation of this rule shall be borne by the tenant who, or whose clerks,
agents, employees or visitors, shall have caused it.
3. No carpet, rug or other article shall be hung or shaken out of any
window of the building; and no Tenant shall sweep or throw or permit to be
swept or thrown from the demised premises any dirt or other substances into any
of the corridors or halls, elevators, or out of the doors or windows or
stairways of the building, and Tenant shall not use, keep or permit to be used
or kept any foul or noxious gas or substance in the demised premises, or permit
or suffer the demised premises to be occupied or used in a manner offensive or
objectionable to Landlord or other occupants of the building by reason of
noise, odors and/or vibrations, or interfere in any way, with other Tenants or
those having business therein, nor shall any animals or birds be kept in or
about the building. Smoking or carrying lighted cigars or cigarettes in the
elevators of the building is prohibited.
4. No awnings or other projections shall be attached to the outside walls
of the building without the prior written consent of Landlord.
5. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed painted or affixed by any Tenant on any part of the outside of the
demised premises or the building or on the inside of the demised premises if
the same is visible from the outside of the premises without the prior written
consent of Landlord, except that the name of Tenant may appear on the entrance
door of the premises. In the event of the violation of the foregoing by any
Tenant, Landlord may remove same without any liability, and may charge the
expense incurred by such removal to Tenant or Tenants violating this rule.
Interior signs on doors and directory tablet shall be inscribed, painted or
affixed for each Tenant by Landlord at the expense of such Tenant, and shall be
of a size, color any style acceptable to Landlord.
6. No Tenant shall mark, paint, drill into, or in any way deface any
part of demised premises or the building of which they form a part. No boring,
cutting, stringing of wires shall be permitted, except with the prior written
consent of Landlord, and as Landlord may direct. No Tenant shall lay
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<PAGE>
linoleum, or other similar floor covering, so that the same shall come in
direct contact with the _________ of the demised premises, and, if linoleum or
other similar floor covering is ___________ to be used an interlining of
builder's deadening felt shall be first affixed to the floor by a paste or
other material, soluble in water, the use of cement or other ____________
adhesive material being expressly prohibited.
7. No additional locks or bolts of any kind shall be placed upon any of
the doors or windows by any Tenant, nor shall any changes be made in existing
locking mechanism thereof. Each Tenant must, upon the termination of his
Tenancy, return to Landlord all keys of stores, offices and toilet rooms,
either furnished otherwise procured by, such Tenant, and in the event of the
loss of any key so furnished, such Tenant shall pay to Landlord the cost
thereof.
8. Freight, furniture, business equipment, merchandise and bulky matter of
any description shall be delivered to and removed from the premises only on the
freight elevators and through the service entrances and corridors, and only
during hours __________ in a manner approved by Landlord. Landlord reserves the
right to inspect freight to be brought into the building and to exclude from
the building all freight which violates any of these Rules and Regulations or
the lease of which these Rules and Regulations are a part.
9. No tenant shall obtain for use upon the demised premises ice, drinking
water, towel and other similar services, or accept barbering or bootblacking
services in the demised premises, except from persons authorized by Landlord,
and at _____ and under regulations fixed by Landlord Canvassing, soliciting and
peddling the building is prohibited and each Tenant shall cooperate to prevent
the same.
10. Landlord reserves the right to exclude from the building between the
hours of 6 P.M. and 8 A.M. and at all hours on Sundays, and legal holidays all
persons who do not present a pass to the building signed by Landlord. Landlord
will furnish passes to persons for whom any Tenant requests same in writing.
Each Tenant be responsible for all persons for whom he requests such pass and
shall be liable Landlord for all acts of such persons.
11. Landlord shall have the right to prohibit any advertising by any
Tenant who, in Landlord's opinion, tends to impair the reputation of the
building or its who, ability as a building for offices, and upon written notice
from Landlord, Tenant ____ refrain from or discontinue such advertising.
12. Tenant shall not bring or permit to be brought or kept in or on the
demised premises, any inflammable, combustible or explosive fluid, material,
chemical or _______stance, or cause or permit any odors of cooking or other
processes, or any _________ or other objectionable odors to permeate in or
emanate from the demised premises.
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BARNESANDNOBLE.COM LLC
DEFERRED COMPENSATION PLAN
Effective as of November 1, 1998
<PAGE>
Prior to November 1, 1998, Barnes & Noble, Inc. ("B&N") maintained the Barnes &
Noble, Inc. Deferred Compensation Plan (the "Prior Plan") for the eligible
employees of B&N and its subsidiaries.
Effective as of October 31, 1998, B&N and Bertelsmann, A.G. entered into an
agreement to form a joint venture, barnesandnoble.com LLC (the "Agreement").
Pursuant to terms of the Agreement, all employees of Barnes & Noble. Com, Inc.
were transferred to the employ of barnesandnoble.com LLC (the "Company").
Under the terms of the Agreement, the Company agreed to establish a new
nonqualified deferred compensation plan to cover eligible employees of the
Company or any of its subsidiaries.
The Company also agreed under the Agreement to accept a transfer of the account
balances maintained under the Prior Plan on behalf of the employees of the
Company who immediately prior to November 1, 1998 were employees of B&N.
Accordingly, the Company adopted, as of November 1, 1998, the barnesandnoble.com
LLC Deferred Compensation Plan (the "Plan") as a new plan and as an amendment
and continuation of the Prior Plan.
All benefits payable under the Plan, which constitutes a nonqualified, unfunded
deferred compensation plan for select group of management or highly-compensated
employees under Title I of ERISA shall be paid out of general assets of the
Company. The Company may establish and fund a trust in order to aid it in
providing benefits due under the Plan.
<PAGE>
BARNESANDNOBLE.COM LLC
DEFERRED COMPENSATION PLAN
TABLE OF CONTENTS
Page
ARTICLE 1. DEFINITIONS.........................................................1
ARTICLE 2. PARTICIPATION......................................................14
2.01 Participation Requirements..................................14
2.02 Determination of Eligibility Service........................14
2.03 Events Affecting Participation..............................15
2.04 Participation upon Reemployment.............................15
ARTICLE 3. SERVICE............................................................16
3.01 Years of Vesting Service....................................16
3.02 Credited Service............................................18
3.03 Restoration of Retired Participant or Other Former
Eligible Employee to Service................................19
ARTICLE 4. ELIGIBILITY FOR AND AMOUNT OF BENEFITS.............................23
4.01 Normal Retirement...........................................23
4.02 Late Retirement.............................................24
4.03 Early Retirement............................................26
4.04 Vesting.....................................................27
4.05 Spouse's Pension............................................27
4.06 Maximum Benefit Limitation..................................31
4.07 Transfers and Employment with an Affiliate..................32
ARTICLE 5. PAYMENT OF PENSIONS................................................34
5.01 Automatic Form of Payment...................................34
5.02 Optional Forms of Payment...................................35
5.03 Election of Options.........................................37
5.04 Commencement of Payments....................................39
5.05 Distribution Limitation.....................................40
5.06 Direct Rollover of Certain Distributions....................40
ARTICLE 6. CONTRIBUTIONS......................................................43
6.01 Employer's Contributions....................................43
6.02 Return of Contributions.....................................43
ARTICLE 7. ADMINISTRATION OF PLAN.............................................45
7.01 Plan Sponsor and Plan Administrator.........................45
<PAGE>
BARNESANDNOBLE.COM LLC
RETIREMENT PLAN
TABLE OF CONTENTS
(cont'd)
Page
7.02 Administrative Responsibilities.............................45
7.03 Delegation of Responsibilities..............................46
7.04 Certified Earnings and Bonding..............................46
7.05 Service in More Than One Fiduciary Capacity.................46
7.06 Indemnification.............................................47
7.07 Establishment of Rules......................................47
7.08 Correction of Errors........................................47
7.09 Prudent Conduct.............................................48
7.10 Actuary.....................................................48
7.11 Maintenance of Accounts.....................................48
7.12 Records.....................................................48
7.13 Appointment of Investment Manager...........................48
7.14 Expenses of Administration..................................49
7.15 Claims and Review Procedures................................49
ARTICLE 8. MANAGEMENT OF FUNDS................................................53
8.01 Funding Agent...............................................53
8.02 Exclusive Benefit Rule......................................54
8.03 Funding Policy..............................................54
ARTICLE 9. GENERAL PROVISIONS.................................................55
9.01 Nonalienation...............................................55
9.02 Conditions of Employment Not Affected by Plan...............55
9.03 Facility of Payment.........................................56
9.04 Information.................................................56
9.05 Top-Heavy Provisions........................................56
9.06 Offsets.....................................................60
9.07 Construction................................................60
9.08 Prevention of Escheat.......................................61
ARTICLE 10. AMENDMENT, MERGER, AND TERMINATION................................62
10.01 Amendment of Plan...........................................62
10.02 Merger, Consolidation, or Transfer..........................62
10.03 Additional Participating Employers..........................63
10.04 Termination of Plan.........................................63
10.05 Limitation Concerning Highly-Compensated Employees
or Highly-Compensated Former Employees......................64
<PAGE>
BARNESANDNOBLE.COM LLC
RETIREMENT PLAN
TABLE OF CONTENTS
(cont'd)
Page
APPENDIX A. ACTUARIAL FACTORS.................................................66
APPENDIX B. SPECIAL PROVISIONS APPLICABLE TO PARTICIPANTS WHO TRANSFER
DIRECTLY BETWEEN AN EMPLOYER AND BARNES & NOBLE, INC..............68
<PAGE>
BARNESANDNOBLE.COM LLC
ARTICLE 1. DEFINITIONS
1.01 "Accrued Benefit" means, as of any date of determination, the normal
retirement Pension of a Participant computed under Section 4.01 on the
basis of the Participant's Final Average Compensation, the number of years
of Credited Service and other applicable components of the Plan formula, as
of that date.
1.02 "Actuarial Equivalent" means the equivalent value when computed on the
basis of the IRS Mortality Table and IRS Interest Rate, except as otherwise
specified in the Plan or Appendix A.
1.03 "Administrator" means the Company in its role described in Article 7.
1.04 "Affiliate" means any company not participating in the Plan which is (i) a
member of a controlled group of corporations (as defined in Section 414(b)
of the Code) which also includes as a member the Employer; (ii) any trade
or business under common control (as defined in Section 414(c) of the Code)
with the Employer; (iii) any organization (whether or not incorporated)
which is a member of an affiliated service group (as defined in Section
414(m) of the Code) which includes the Employer; or (iv) any other entity
required to be aggregated with the Employer pursuant to regulations under
Section 414(o) of the Code. Notwithstanding the foregoing sentence, for
purposes of Section 4.06, Section 3.01(e)(iii), and Section 3.02(c)(iii),
the definitions in Sections 414(b) and (c) of the Code shall be modified as
provided in Section 415(h) of the Code.
1.05 "Annuity Starting Date" means, unless the Plan expressly provides
otherwise, the first day of the first period for which an amount is due as
an annuity or any other form.
<PAGE>
Page 2
1.06 "Barnes & Noble, Inc." means Barnes & Noble, Inc. or one of its affiliates,
as such term is defined in the Barnes & Noble Plan.
1.07 "Barnes & Noble Plan" means the Barnes & Noble, Inc. Employees' Retirement
Plan as in effect on October 31, 1998.
1.08 "Beneficiary" means the person or persons named by a Participant by written
designation filed with the Administrator to receive payments after the
Participant's death.
1.09 "Board of Directors" means the Board of Managers of the Company, as from
time to time constituted, or such body or entity that succeeds to the
authority of the Board of Managers.
1.10 "Break in Service" means a period which constitutes a break in an Eligible
Employee's Years of Vesting Service, as provided in Section 3.01(c).
1.11 "Certified Earnings" means, except as otherwise provided in an Appendix
hereto, the basic cash remuneration paid to an Eligible Employee for
services rendered to the Employer, determined prior to any pre-tax
contributions under a "qualified cash or deferred arrangement" (as defined
under Section 401(k) of the Code and its applicable regulations) or under a
"cafeteria plan" (as defined under Section 125 of the Code and its
applicable regulations), including salary, hourly wages, commissions,
overtime pay, and bonus pay, but excluding (a) expense allowances or
reimbursements, payments or contributions to or for the benefit of the
Participant under this Plan or any other employee benefit plan, deferred
compensation payments under any deferred compensation plan, merchandise
discounts or benefits in the form or use of property, except to
<PAGE>
Page 3
the extent such amounts are required to be included in determining the
Eligible Employee's regular rate of pay under the Federal Fair Labor
Standards Act for purposes of computing his overtime pay, (b) any bonus
paid to the Eligible Employee under a plan or policy of the Employer that
is paid in a calendar year other than the calendar year in which such bonus
would normally be paid under such plan or policy, or (c) amounts paid by
any entity other than the Employer.
Notwithstanding the foregoing with respect to an Eligible Employee who is
first employed by the Company on the Effective Date and who immediately
prior to such date was either (i) a participant in the Barnes & Noble, Inc.
Plan, or (ii) was employed by Barnes & Noble, Inc. and then in the process
of satisfying the eligibility requirements for participation in the Barnes
& Noble Plan, basic cash remuneration paid to said Eligible Employee as an
employee of Barnes & Noble, Inc. prior to the Effective Date shall be
recognized as Certified Earnings under this Section 1.11 and shall be
included in the calculation of Final Average Compensation under Section
1.21 to the extent such remuneration would have been recognized as
"certified earnings under the provisions of the Plan had it been paid to
such Participant while an Eligible Employee.
Certified Earnings taken into account for any purpose under the Plan,
including the determination of Final Average Compensation, shall not exceed
$150,000, as adjusted in accordance with Sections 401(a)(17)(B) and
415(d)(1)A) of the Code. With respect to a Participant who had the
liabilities attributable to his benefits accrued under the Barnes & Noble
Plan prior to the Effective Date transferred from the Barnes & Noble Plan
to this Plan, Certified Earnings taken into account for any purpose under
the Plan, including the determination of Final Average Compensation with
respect to the period January 1, 1989 through December 31, 1993, shall not
exceed $200,000 per year; provided, however, as of January 1 of each
calendar year on and after
<PAGE>
Page 4
January 1, 1990 and before January 1, 1994, the applicable limitation as
determined by the Commissioner of Internal Revenue for that calendar year
shall become effective as the maximum Certified Earnings to be taken into
account for Plan purposes for that calendar year only in lieu of the
$200,000 limitation set forth above.
1.12 "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
1.13 "Company" means barnesandnoble.com LLC and any successor thereof by merger,
purchase, or otherwise.
1.14 "Covered Compensation" means, for any Participant, the average, rounded to
the nearest $3,000, of the taxable wage bases in effect under Section 230
of the Social Security Act for each year in the 35-year period ending with
the calendar year in which the Participant attains (or will attain) his
Social Security Retirement Age. In determining a Participant's Covered
Compensation for any Plan Year, the taxable wage base for the current Plan
Year and any subsequent Plan Year shall be assumed to be the same as the
taxable wage base in effect as of the beginning of the Plan Year for which
the determination is made.
1.15 "Credited Service" means service recognized for purposes of computing the
amount of any benefit, determined as provided in Section 3.02.
1.16 "Effective Date" means November 1, 1998.
1.17 "Eligible Employee" means any Employee who receives from an Employer
compensation other than a pension, severance pay, retainer or fee under
contract, but excluding any individual
<PAGE>
Page 5
classified by the Employer as a Leased Employee or independent contractor,
regardless of their classification by the Internal Revenue Service for tax
withholding purposes, any person who is included in a unit of Employees
covered by a collective bargaining agreement which does not provide for his
membership in the Plan, any non-resident alien with no U.S.-source income
[as described in Code Section 861(a)(3)], and any Employee whose services
are performed outside the continental United States (including Alaska and
Puerto Rico) or Hawaii, or whose base of operations is outside the
continental U.S. (including Alaska and Puerto Rico) or Hawaii.
1.18 "Employee" means any person who is employed by an Employer.
1.19 "Employer" means the Company with respect to its employees; or any other
company participating in the Plan as provided in Section 10.03 with respect
to its employees.
1.20 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
1.21 "Final Average Compensation" means the average annual Certified Earnings of
a Participant during the five consecutive calendar years in the last ten or
fewer calendar years during which he completes at least 1,000 Hours of
Service in each such calendar year affording the highest such average, or
during all of the calendar years in which he completes 1,000 Hours of
Service, if less than five years. The calendar year in which the
Participant first completes an Hour of Service and/or the calendar years in
which he incurs a Termination of Employment shall be included in the
determination of Final Average Compensation, even if he completed less than
1,000 Hours of Service in each of such calendar years, if the inclusion of
Certified Earnings in either or both of
<PAGE>
Page 6
such calendar years results in a higher Final Average Compensation,
provided that such calendar years are within the last ten consecutive
calendar years.
1.22 "Five Percent Owner" means with respect to a corporation, any person who
owns (or is considered as owning within the meaning of Code Section 318)
more than 5 percent of the outstanding stock of the corporation or stock
possessing more than 5 percent of the total voting power of the
corporation.
1.23 "Funding Agent" means the trustee or trustees or the legal reserve life
insurance company by whom the funds of the Plan are held, as provided in
Article 8.
1.24 "Highly-Compensated Employee" means any employee of the Employer or an
Affiliate (whether or not eligible for the Plan) who:
(a) was a Five Percent Owner for such Plan Year or the prior Plan Year, or
(b) for the preceding Plan Year received Statutory Compensation in excess
of $80,000 (as adjusted by the Secretary of the Treasury from time to
time), and, if the Employer so elects, was among the highest 20 percent
of employees for the preceding Plan Year when ranked by Statutory
Compensation paid for that year excluding, for purposes of determining
the number of such employees, such employees as the Administrator may
determine on a consistent basis pursuant to Section 414(q) of the Code.
For this purpose, "Statutory Compensation" shall mean the wages,
salaries, and other amounts paid in respect of an employee for services
actually rendered to an Employer or an Affiliate and including amounts
excluded from the income of an employee pursuant to Sections 125,
402(e)(3), 402(h)(1)(B), and 403(b) of the Code, but excluding deferred
compensation, stock options, and other distributions which receive
special tax benefits under the Code.
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Notwithstanding the foregoing, employees who are nonresident aliens and who
receive no earned income from the Employer or an Affiliate which
constitutes income from sources within the United States shall be
disregarded for all purposes of this Section.
The provisions of this Section shall be further subject to such additional
requirements as shall be described in Section 414(q) of the Code and its
applicable regulations, which shall override any aspects of this Section
inconsistent therewith.
1.25 "Hour of Service" means, with respect to any applicable computation period,
(a) each hour for which the Employee is paid or entitled to payment for the
performance of duties for the Employer or an Affiliate,
(b) each hour for which an Employee is paid or entitled to payment by the
Employer or an Affiliate on account of a period during which no duties
are performed, whether or not the employment relationship has
terminated, due to vacation, holiday, illness, incapacity (including
disability), layoff, jury duty, military duty or leave of absence, but
not more than 501 hours for any single continuous period,
(c) each hour for which back pay, irrespective of mitigation of damages, is
either awarded or agreed to by the Employer or an Affiliate, excluding
any hour credited under (a) or (b), which shall be credited to the
computation period or periods to which the award, agreement or payment
pertains, rather than to the computation period in which the award,
agreement or payment is made,
(d) solely for purposes of determining whether an Employee has incurred a
Break in Service under the Plan, each hour for which an Employee would
normally be credited under paragraph (a) or (b) above during a period
of Parental Leave but not more than 501 hours
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for any single continuous period. In the case in which hours cannot be
determined, eight hours of service per day of such absence shall be
credited. However, the number of hours credited to an Employee under
this paragraph (d) during the computation period in which the Parental
Leave began, when added to the hours credited to an Employee under
paragraphs (a) through (c) above during that computation period, shall
not exceed 501. If the number of hours credited under this paragraph
(d) for the computation period in which the Parental Leave began is
zero, the provisions of this paragraph (d) shall apply as though the
Parental Leave began in the immediately following computation period,
and
(e) solely for purposes of determining whether an Employee has incurred a
Break in Service under the Plan, each hour for which an Employee would
normally be credited under paragraph (a) or (b) above during a period
of leave for the birth, adoption or placement of a child, to care for a
spouse or an immediate family member with a serious illness or for the
Employee's own illness pursuant to the Family and Medical Leave Act of
1993 and its regulations.
For purposes of paragraph (b), a payment shall be deemed to be made by or
due from an Employer or Affiliate regardless of whether such payment is
made by or due from an Employer or Affiliate directly, or indirectly
through, among others, a trust fund or insurer to which the Employer or
Affiliate contributes or pays premiums, and regardless of whether
contributions made or due to the trust fund, insurer or other entity are
for the benefit of particular Employees or are on behalf of a group of
Employees in the aggregate.
No more than 501 hours shall be credited under paragraph (b) above for the
non-performance of duties for any single continuous period (whether or not
such period occurs in a single computation period).
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No hours shall be credited on account of any period during which the
Employee performs no duties and receives payment solely for the purpose of
complying with unemployment compensation, workers' compensation or
disability insurance laws.
The Hours of Service credited shall be determined as required by Title 29
of the Code of Federal Regulations, Section 2530.200b-2(b) and (c). In
crediting Hours of Service hereunder, each Employee for whom the Employer
or Affiliate does not maintain hourly work records and who completes at
least one Hour of Service (pursuant to paragraphs (a), (b), or (c) above)
during any week shall be credited with 45 Hours of Service for such week.
For each other Employee, Hours of Service shall be credited based on the
number of hours actually worked.
Notwithstanding the foregoing, with respect to an Employee who is first
employed by the Company on the Effective Date and who immediately prior to
such date was employed by Barnes & Noble, Inc., Hours of Service shall
include each hour of service rendered by said Employee as an employee of
Barnes & Noble, Inc. prior to November 1, 1998 to the extent said hour of
service would have been recognized under the Plan had it been rendered as
an Employee.
1.26 "IRS Interest Rate" means the annual rate of interest on 30-year Treasury
Securities as published by the Commissioner in the calendar month preceding
the applicable Stability Period.
1.27 "IRS Mortality Table" means the mortality table prescribed by the Secretary
of the Treasury under Section 417(e)(3)(A)(ii)(I) of the Code as in effect
on the first day of the applicable Stability Period.
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1.28 "Leased Employee" means any person as so defined in Section 414(n) of the
Code.
1.29 "Limitation Year" means the calendar year.
1.30 "Normal Retirement Age" means an Eligible Employee's 65th birthday or the
fifth anniversary of the date he becomes a Participant, if later.
1.31 "Normal Retirement Date" means the last day of the calendar month in which
an Eligible Employee reaches his Normal Retirement Age.
1.32 "Parental Leave" means a period in which the Eligible Employee is absent
from work immediately following his active employment because of the
Eligible Employee's pregnancy, the birth of the Eligible Employee's child,
the placement of a child with the Eligible Employee in connection with the
adoption of that child by the Eligible Employee, or for purposes of caring
for that child for a period beginning immediately following birth or
placement.
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1.33 "Participant" means any person included in the participation of the Plan,
as provided in Article 2.
1.34 "Pension" means annual payments under the Plan as provided in Article 5.
1.35 "Plan" means the barnesandnoble.com LLC Retirement Plan, as set forth in
this document or as amended from time to time.
1.36 "Plan Year" means the calendar year.
1.37 "Protected Benefit" means, as of any date of determination, the Accrued
Benefit of a Participant and
(a) any right of the Participant under the terms of the Plan as of such
date to have such Accrued Benefit commence on a date other than the
Normal Retirement Date,
(b) any right of the Participant under the terms of the Plan as of such
date to have such Accrued Benefit payable in an optional form of
payment, and
(c) the methodology under the terms of the Plan as of such date for
determining the amount of benefit payable as a result of the exercise
of any right of the Participant expressed in paragraph (a) or (b)
above.
For the sole purposes of paragraph (c) above, any provision of the Plan
that requires payment of a Participant's Pension in a form other than that
described in Section 5.01(a) shall be considered to be the exercise of a
right by the Participant therefor.
1.38 "Qualified Joint and Survivor Annuity" means an annuity described in
Section 5.01(b).
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1.39 "Social Security Retirement Age" means age 65 with respect to a Participant
who was born before January 1, 1938; age 66 with respect to a Participant
who was born after December 31, 1937 and before January 1, 1955; and age 67
with respect to a Participant who was born after December 31, 1954.
1.40 "Spousal Consent" means the irrevocable, written consent given by a
Participant's spouse to an election made by the Participant of a specified
form of Pension, a designation of a specified Beneficiary as provided in
Article 5, or the waiver of the spouse's benefit payable under Section
4.05. The specified form or specified Beneficiary shall not be changed
unless further Spousal Consent is given, unless the spouse expressly waives
the right to consent to any future changes. Spousal Consent shall be duly
witnessed by a notary public and shall acknowledge the effect on the spouse
of the Participant's election. The requirement for Spousal Consent may be
waived by the Administrator in the event that the Participant establishes
to its satisfaction that he has no spouse, that such spouse cannot be
located, that a legal separation has occurred or under such other
circumstances as may be permitted under applicable Treasury Department
regulations. Spousal Consent shall be applicable only to the particular
spouse who provides such consent.
1.41 "Stability Period" means the Plan Year in which occurs the Annuity Starting
Date for the distribution.
1.42 "Suspendible Month" means a month in which the Participant completes at
least 40 Hours of Service with the Employer or an Affiliate.
1.43 "Termination of Employment" means, except as otherwise provided in an
Appendix hereto, the date the Employee's employment with the Employer and
all Affiliates ceases, as determined by
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the Employer, due to his resignation, discharge, retirement, death, failure
to return to active service at the end of an authorized leave of absence or
the authorized extension(s) thereof, failure to return to service when duly
called following a temporary layoff, or the occurrence of any event or
circumstance under the policy of the Employer or Affiliate, or predecessor
employer, in effect from time to time that results in the termination of
the Employer/Employee relationship; provided, however, that a Termination
of Employment shall not be deemed to have occurred while an Employee, prior
to his Normal Retirement Date, is receiving, or fulfilling a six-month
waiting period to be eligible to receive, payments under a long-term
disability plan of the Employer (assuming the Employee makes timely
application therefor).
1.44 "Trustee" means the trustee or trustees of the separate trust forming part
of this Plan and any additional or successor trustees as may be appointed
by the Company pursuant to Article 8.
1.45 "Trust Fund" means the aggregate of assets described in Article 8.
1.46 "Year of Eligibility Service" means the period of service recognized for
purposes of determining eligibility for participation in the Plan,
determined as provided in Section 2.02.
1.47 "Years of Vesting Service" means the period of service recognized for
purposes of determining eligibility for certain benefits under the Plan,
determined as provided in Section 3.01.
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ARTICLE 2. PARTICIPATION
2.01 Participation Requirements
Every Eligible Employee employed on the Effective Date who was a
participant in the Barnes & Noble Plan on October 31, 1998 shall become a
Participant on November 1, 1998. Every other Eligible Employee shall become
a Participant in the Plan as of the first day of the calendar month
coinciding with or immediately following (a) the date he completes one Year
of Eligibility Service or (b) his 21st birthday, whichever is later,
provided he is then an Eligible Employee.
2.02 Determination of Eligibility Service
Solely for purposes of this Article and except as otherwise provided in an
Appendix, a Year of Eligibility Service shall be the 12-month period
beginning on the date an Eligible Employee first completes an Hour of
Service upon hire or rehire, or any Plan Year beginning after that date, in
which he completes at least 1,000 Hours of Service. In the event an
Eligible Employee incurs a Break in Service prior to his completing one
Year of Eligibility Service, upon his reemployment, he shall be credited
with one Year of Eligibility Service for the 12-month period beginning on
the date he first completes an Hour of Service after he incurs a Break in
Service or any Plan Year beginning after that date, in which he completes
at least 1,000 Hours of Service. Notwithstanding the foregoing, with
respect to an Employee who is first employed by the Company on the
Effective Date and who was employed by Barnes & Noble, Inc. immediately
prior to that date and then in the process of satisfying the eligibility
requirements for participation in the Barnes & Noble Plan, the service said
Eligible Employee rendered as an employee of Barnes & Noble prior to the
Effective Date shall be recognized in determining if such Eligible Employee
has completed a Year of Eligibility Service to the extent said period of
employment would have been recognized under the Plan had it been rendered
as an Employee.
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2.03 Events Affecting Participation
Except as otherwise provided in an Appendix hereto, a person's
participation in the Plan shall end when he is no longer employed by the
Employer or an Affiliate if he is not entitled to either an immediate or a
deferred Pension under the Plan. Participation shall continue while on
approved leave of absence from service or during a period while he is not
an Eligible Employee but is in the employ of the Employer or an Affiliate,
but no Years of Vesting Service or Credited Service shall be counted for
that period, except as specifically provided in Article 3 and Section 4.07,
and such person's benefit shall be determined in accordance with the
provisions of the Plan in effect on the date he ceased to be an Eligible
Employee.
2.04 Participation upon Reemployment
If an Eligible Employee's participation in the Plan ends and he again
becomes an Eligible Employee, he shall be considered a new Eligible
Employee for all purposes of the Plan, except as provided in Section 3.03.
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ARTICLE 3. SERVICE
3.01 Years of Vesting Service
(a) A Plan Year in which an Eligible Employee completes at least 1,000
Hours of Service counts as a full Year of Vesting Service. Except as
provided below, no Years of Vesting Service is counted for any Plan
Year in which an Eligible Employee completes less than 1,000 Hours of
Service, except that the Plan Year during which he first completed an
Hour of Service and the Plan Year containing his Termination of
Employment shall be aggregated for the purpose of determining if the
Eligible Employee shall be credited with an additional Year of Vesting
Service, provided the Eligible Employee works at an annualized rate of
1,000 Hours of Service in the Plan Year in which his Termination of
Employment occurs.
(b) An Eligible Employee shall incur a one-year Break in Service for any
Plan Year after the year in which an Eligible Employee first becomes
employed during which he does not complete more than 500 Hours of
Service. If an Eligible Employee who has not completed the vesting
requirements for a vested Pension has a Break in Service in which the
number of consecutive one-year Breaks in Service equals or exceeds
five, the service rendered before his most recent Break in Service
shall be excluded from his Years of Vesting Service. If an Eligible
Employee terminates his employment with the Employer and all Affiliates
and is reemployed after having a Break in Service, his service before
the Break in Service shall be excluded from his Years of Vesting
Service, except as provided in Section 3.03. A period during which an
Eligible Employee is on a leave of absence approved by the Employer or
on temporary layoff shall not be considered as a Break in Service,
provided he returns to work at the end of an approved leave of absence
or upon recall when notified after a temporary layoff.
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(c) If an Eligible Employee shall have been absent from the service of the
Employer because of service in the uniformed forces of the United
States and if he shall have returned to the service of the Employer
having applied to return while his reemployment rights were protected
by law, that absence shall not count as a Break in Service, but instead
shall be counted as Years of Vesting Service.
(d) Each of the following periods of service shall be counted in a person's
Years of Vesting Service to the extent that it would be recognized
under paragraphs (a) through (c) above with respect to Eligible
Employees:
(i) a period of service as an Employee, but not an Eligible Employee,
of the Employer,
(ii) a period of service as an employee of an Affiliate (excluding any
period of service prior to the date the entity became an
Affiliate, unless otherwise provided by the Board of Directors),
(iii) in the case of a person who is a Leased Employee before or after
a period of service as an Eligible Employee or a period of
service described in (i) or (ii) above, a period during which he
has performed services for the Employer or an Affiliate as a
Leased Employee, and
(iv) in the case of a person who is first employed by the Company as
an Employee on the Effective Date and who immediately prior to
such date was employed by Barnes & Noble, Inc., the period of
service he rendered prior to November 1, 1998 as an employee of
Barnes & Noble, Inc.
The Break in Service rules of Sections 3.01 and 3.03 shall be applied
as though all such periods of service were service as an Eligible
Employee.
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3.02 Credited Service
(a) Except as otherwise provided below or in an Appendix hereto, a full
year of Credited Service shall be counted for each Plan Year during
which an Eligible Employee completes 1,000 Hours of Service as an
Eligible Employee. If an Eligible Employee does not complete 1,000
Hours of Service during the Plan Years in which he first completes an
Hour of Service or incurs his Termination of Employment, he shall
receive credit for a fractional year equal to the actual number of
months worked during such Plan Years, provided that he was working at
the rate of 1,000 Hours of Service per Plan Year. For purposes of the
preceding sentence, an Eligible Employee shall receive credit for a
month of service, provided he has worked 15 or more days during such
month.
(b) Credited Service shall include, to the extent required by law, any
period of absence from service with the Employer due to service in the
uniformed forces of the United States which is counted in an Eligible
Employee's Years of Vesting Service as provided in Section 3.01(d) and
which occurs after the date the Employee meets the requirements to be
an Eligible Employee.
(c) Except as provided in paragraph (d) below, Credited Service shall not
be credited for any period in which a Participant is (i) not an
Eligible Employee but is in the employ of the Employer, or (ii) in the
employ of an Affiliate, or (iii) performing services for the Employer
or an Affiliate as a Leased Employee.
(d) Credited Service shall include, with respect to a person who becomes an
Employee on the Effective Date and who immediately prior to that date
was employed by Barnes & Noble, Inc., the period of employment rendered
as an "eligible employee" of Barnes & Noble, Inc. prior to the
Effective Date, to the extent such employment was recognized for
benefit accruals under the
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terms of the Barnes & Noble Plan and in the event said Eligible
Employee was not a participant in the Barnes & Noble Plan on October
31, 1998, but was then in the process of satisfying the eligibility
requirements for participation in the Barnes & Noble Plan, to the
extent said period of employment would have been recognized under the
provisions of this Plan for benefit accrual purposes had it been
rendered as an Eligible Employee.
3.03 Restoration of Retired Participant or Other Former Eligible Employee
to Service
(a) If a Participant in receipt of a Pension is restored to service with
the Employer as an Eligible Employee, the following shall apply:
(i) His Pension shall continue through the month in which he
completes at least 960 Hours of Service, after which (A) if his
restoration to service occurs after his Normal Retirement Date,
his Pension shall be suspended during each Suspendible Month
(unless the provisions of Sections 4.02(c) and 5.04(b) are
applicable), and any optional benefit shall remain in effect,
unless the Participant shall elect otherwise; if the Participant
had commenced payment prior to his Normal Retirement Date,
however, any additional Pension he accrues after his restoration
to service shall be paid to his surviving spouse in accordance
with the provisions of Section 4.05 if he should die in active
service, and (B) if his restoration to service occurs before his
Normal Retirement Date, his Pension shall be suspended during
each Suspendible Month (unless the provisions of Sections 4.02(c)
and 5.04(b) are applicable), and any election of an optional
benefit in effect shall be void.
(ii) Any Years of Vesting Service and Credited Service to which he was
entitled when he retired or terminated service shall be restored
to him.
(iii) Upon later retirement or termination his Pension shall be based
on the benefit formula then in effect and his Certified Earnings
and Credited Service before and after the period
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when he was not in the service of the Employer reduced by an
amount that is the Actuarial Equivalent of the benefits, if any,
he received before the earlier of the date of his restoration to
service or his Normal Retirement Date.
(iv) The part of the Participant's Pension upon later retirement
payable with respect to Credited Service rendered before his
previous Termination of Employment shall never be less than the
amount of his previous Pension modified to reflect any option in
effect on his later retirement.
(v) Upon later retirement of a Participant in service after his
Normal Retirement Date, payment of the Participant's Pension
shall resume no later than the third month after the latest
Suspendible Month during the period of restoration, and shall be
adjusted, if necessary, in compliance with Title 29 of the Code
of Federal Regulations, Section 2530.203-3 in a consistent and
nondiscriminatory manner.
(vi) If a monthly Pension payment is made for a calendar month and it
is determined after the Participant's later retirement and
subsequent recommencement of benefits that such payment was
subject to permanent withholding pursuant to the provisions of
this paragraph (a), the amount of such payment shall be applied
as an offset against subsequent monthly payments unless the
Participant has previously repaid the overpayment. However, the
amount of any such offset shall not exceed, in any month after
the Participant attains Normal Retirement Age, 25 percent of the
monthly total benefit payment that would have been paid but for
the offset.
(vii) The Employer shall notify a Participant of any suspension under
subparagraph (i) above. The notice shall conform to the
requirements of Section 2530.203-3(b)(4) of the Department of
Labor Regulations. The provisions of this Section shall be
administered in accordance with Section 2530.203-3 of the
Department of Labor Regulations.
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(b) If a Participant entitled to but not in receipt of a Pension, or a
former Participant, or an Eligible Employee who was never a Participant
is reemployed without having had a Break in Service, his Years of
Vesting Service and Credited Service shall be determined as provided in
Sections 3.01 and 3.02, and if reemployed as an Eligible Employee, he
shall, in the case of a former Participant, immediately be restored as
a Participant as of his date of reemployment, and in the case of an
Eligible Employee who was never a Participant, become a Participant in
accordance with Section 2.01. However, if a former Participant received
a lump sum settlement in lieu of a Pension, the Credited Service to
which he was entitled at the time of his termination of service shall
be restored to him in accordance with the provisions of Section
3.03(c)(ii).
(c) If a Participant entitled to but not in receipt of a Pension or a
former Participant who received a lump sum settlement in lieu of a
Pension is reemployed after having had a Break in Service, the
following shall apply:
(i) The Years of Vesting Service to which he was previously entitled
shall be restored to him, and if reemployed as an Eligible
Employee, he shall immediately be restored as a Participant as of
his date of reemployment.
(ii) Any Credited Service to which the Participant was entitled at the
time of his termination of service shall be restored to him,
except that if he received a lump sum settlement by the end of
the second Plan Year following the Plan Year in which he incurred
a Termination of Employment, that Credited Service shall not be
restored to him.
(iii) Upon later termination or retirement of a Participant whose
previous Credited Service has been restored under this paragraph
(c), his Pension shall be based on the benefit formula then in
effect and his Certified Earnings and Credited Service before and
after the period when he was not in the service of the Employer,
and shall be reduced, if applicable, but not below zero, by an
amount of Actuarial Equivalent value to any lump
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sum settlement received upon his prior termination. However, in
no event shall the reduction provided for in the preceding
sentence exceed the portion of the Participant's Pension based on
the period of Credited Service included in the calculation of the
lump sum payment.
(d) If a former Participant who is not entitled to a Pension is restored to
service, either as an Eligible Employee or as an Employee, after having
had a Break in Service, the following shall apply:
(i) He shall again become a Participant as of his date of restoration
to service as an Eligible Employee.
(ii) Upon his restoration to participation, the Years of Vesting
Service to which he was previously entitled shall be restored to
him if the total number of consecutive one-year Breaks in Service
does not equal or exceed five.
(iii) Any Credited Service to which the Participant was entitled at the
time of his Termination of Employment of service which is
included in the Years of Vesting Service so restored shall be
restored to him.
(iv) Upon later termination or retirement of a Participant whose
previous Credited Service has been restored under this paragraph
(d), his Pension, if any, shall be based on the benefit formula
then in effect and his Certified Earnings and Credited Service
before and after the period when he was not an Eligible Employee.
(e) If an Eligible Employee who was never a Participant is restored to
service with the Employer, after having had a Break in Service, the
Years of Vesting Service to which he was previously entitled under
Section 3.01 shall be restored to him if he would be entitled to
nonforfeitable benefits under the Plan if he were a Participant, or
otherwise, if the total number of consecutive one-year Breaks in
Service does not equal or exceed five.
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ARTICLE 4. ELIGIBILITY FOR AND AMOUNT OF BENEFITS
4.01 Normal Retirement
(a) The right of a Participant to his normal retirement Pension shall be
nonforfeitable as of his Normal Retirement Age. A Participant who has
attained his Normal Retirement Age may retire from service with the
Employer and all Affiliates and receive a normal retirement Pension
beginning on his Normal Retirement Date, or he may postpone his
retirement and remain in service after his Normal Retirement Date, in
which event the provisions of Section 4.02 shall be applicable.
(b) Subject to the provisions of Section 5.01, the annual normal retirement
Pension payable upon retirement on a Participant's Normal Retirement
Date (provided he is alive on such date) shall be equal to .7 percent
of the Participant's Final Average Compensation not in excess of
Covered Compensation, plus 1.3 percent of such Final Average
Compensation in excess of Covered Compensation, multiplied by the
number of years of his Credited Service up to 35 such years; provided,
however, that the annual normal retirement Pension of a Participant who
had the liabilities attributable to his benefits accrued under the
Barnes & Noble Plan prior to the Effective Date transferred from the
Barnes & Noble Plan to this Plan and who is affected by the imposition
of the $150,000 limitation on Certified Earnings provided in Section
1.11 shall be equal to the greater of (i) the Participant's Pension
calculated under the provisions of the Plan as determined with regard
to such imposition or (ii) a Pension equal to the Participant's Accrued
Benefit determined as of December 31, 1993 plus the Participant's
Accrued Benefit based solely on service after such date under the
provisions of the Plan as determined with regard to such imposition.
For purposes of the Plan, the Accrued Benefit as of December 31, 1993
shall be determined with regard to the $200,000 limitation on Certified
Earnings provided in
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Section 1.09, but not less than the Participant's Accrued Benefit
determined as of December 31, 1988. However, the annual normal
retirement Pension shall never be less than the greatest annual amount
of reduced early retirement Pension which the Participant could have
received under Section 4.03 before his Normal Retirement Date and no
increase in Covered Compensation shall decrease a Participant's Accrued
Benefit under the Plan.
(c) Except as otherwise provided in Section 401(l) of the Code and
applicable regulations thereunder, the cumulative permitted disparity
fraction for purposes of computing a Participant's normal retirement
Pension shall not exceed 35.
(d) Notwithstanding the foregoing, the minimum monthly Pension payable to a
Participant shall be equal to $2.00 multiplied by his years of Credited
Service.
4.02 Late Retirement
(a) If a Participant postpones his retirement as provided in Section
4.01(a), upon his Termination of Employment from the Employer and all
Affiliates, he shall be entitled to a late retirement Pension beginning
on the first day of the calendar month after the Administrator receives
his written application to retire, which shall be his late retirement
date.
(b) A Participant who remains in service after his Normal Retirement Date
shall be entitled to a monthly retirement Pension for each month during
the postponement period which does not constitute a Suspendible Month.
Upon later retirement, the Participant shall be entitled to an
immediate late retirement Pension beginning on the Participant's late
retirement date (provided he is alive on such date), and subject to the
provisions of Section 5.01, shall be equal to the amount determined in
accordance with Section 4.01 based on the Participant's Credited
Service
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and Final Average Compensation as of his late retirement date reduced
by an amount that is the Actuarial Equivalent of any benefits he
previously received pursuant to the preceding sentence; provided that
if the Participant's actual late retirement date is later than the
first day of the first Plan Year following his Normal Retirement Date,
his late retirement Pension shall be recomputed as of the first day of
each subsequent Plan Year before the Participant's actual late
retirement date (and as of his actual late retirement date) as if each
such date were the Participant's late retirement date; and provided
further that no reduction hereunder as of the date of any such
recomputation shall reduce the Participant's late retirement Pension
below the amount of late retirement Pension payable to the Participant
prior to such recomputation.
(c) In the event a Participant commences receipt of his Pension while in
active service under Section 5.04(b), such commencement date shall be
the Participant's Annuity Starting Date for purposes of Article 5, and
the Participant shall receive a late retirement Pension commencing on
such date in an amount determined as if he had retired on such date and
shall be paid in accordance with the Participant's form of payment
election made pursuant to Article 5. As of each succeeding December 31
prior to the Participant's actual late retirement date (and as of his
actual late retirement date), the Participant's Pension shall be
recomputed to reflect additional accruals. The Participant's recomputed
Pension shall then be reduced by the Actuarial Equivalent of the total
payments of his late retirement Pension made with respect to monthly
payments that were not suspendible months of continued employment which
were paid prior to each such recomputation to arrive at the
Participant's late retirement Pension; provided that no such reduction
shall reduce the Participant's late retirement Pension below the amount
of late retirement Pension payable to the Participant prior to the
recomputation of such Pension.
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(d) Notwithstanding paragraphs (b) and (c) above, in the event a
Participant remains in service after the April 1 following the calendar
year in which he or she attains age 70 1/2, and does not commence
payment of his Pension while in service under the provisions of Section
5.04(b), then his Pension shall be the greater of (i) his Pension
determined at his actual late retirement date taking into account the
Participant's Credited Service and Final Average Compensation at that
date, or (ii) the sum of an amount of Actuarial Equivalent to his
Pension determined at the end of the Plan Year preceding such April 1
plus the additional benefit accruals under the Plan's terms after the
end of the Plan Year preceding such April 1 to reflect the delay in the
payment of benefits. Amounts of Actuarial Equivalent shall be
calculated using the Plan's late retirement actuarial equivalence
factors and shall be applied on a year-by-year basis measured from the
aforesaid date and shall offset any benefits that would otherwise
accrue during the year.
4.03 Early Retirement
(a) A Participant who has not reached his Normal Retirement Date but who,
prior to his Termination of Employment from the Employer and all
Affiliates, has reached his 55th birthday and completed five Years of
Vesting Service may retire from service with the Employer and all
Affiliates and receive an early retirement Pension beginning on the
first day of the calendar month after the Administrator receives his
written application to retire, which shall be his early retirement date
(provided he is living on such date).
(b) The early retirement Pension shall be a deferred Pension beginning on
the Participant's Normal Retirement Date, and subject to the provisions
of Section 5.01, shall be equal to his Accrued Benefit. However, the
Participant may elect to receive an early retirement Pension beginning
on the first day of any calendar month before his Normal Retirement
Date, provided that an early payment date shall be subject to the
notice and timing requirements described in Section 5.03(b)
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and (c). In that case, the Participant's Pension shall be reduced
pursuant to Table 2 of Appendix A.
4.04 Vesting
(a) A Participant shall be 100 percent vested in, and have a nonforfeitable
right to, his Accrued Benefit upon completion of five Years of Vesting
Service, counted since the first day of the Plan Year in which his 18th
birthday occurs. If the Participant incurs a Termination of Employment
for reasons other than retirement or death, he shall be eligible to
receive his vested Pension after the Administrator receives his written
application for the Pension.
(b) The vested Pension shall begin on the Participant's Normal Retirement
Date, and subject to the provisions of Section 5.01, shall be equal to
his Accrued Benefit. However, the Participant may elect to have his
vested Pension begin on the first day of any calendar month before his
Normal Retirement Date (provided he is living on such date). In that
case, the Participant's Pension shall be reduced pursuant to Table 2 of
Appendix A.
4.05 Spouse's Pension
(a) If a married Participant:
(i) dies in active service after reaching age 55 and completing 15
years of Credited Service, or
(ii) dies in active service prior to reaching age 55 and completing 15
years of Credited Service but after having met the requirements
for a Pension pursuant to Section 4.01, 4.02, 4.03 or 4.04, or
(iii) dies after retiring on any Pension, or after terminating service
with entitlement to a vested Pension, but in either case before
his Annuity Starting Date,
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a spouse's Pension shall be payable to his surviving spouse for life
provided that he and his spouse have been married throughout the
one-year period ending on the date of his death.
(b) The spouse's Pension shall commence on what would have been the
Participant's Normal Retirement Date (or the first day of the month
following his date of death, if later). However, the Participant's
spouse may elect to begin receiving payments as of the first day of any
month following the Participant's date of death and prior to what would
have been his Normal Retirement Date, provided such election is made on
a form provided by the Administrator during the 90-day period ending on
the date the payments to the spouse commence.
(c) (i) The spouse's Pension payable to the eligible spouse, if any, of a
married Participant described in paragraph (a)(i) above shall be
equal to 50 percent of the monthly Pension the Participant would
have received if he had a Termination of Employment on the day
before his death and elected to have his Pension commence on his
Normal Retirement Date in the form of a single life annuity. This
spouse's Pension shall be payable for the life of the eligible
spouse and shall not be reduced for commencement prior to what
would have been the Participant's Normal Retirement Date.
(ii) Before reduction in accordance with paragraph (d) below (with
regard to a Participant who has had a Termination of Employment),
the spouse's Pension payable to the eligible spouse, if any, of a
Participant described in paragraph (a)(ii) or (a)(iii) above,
shall be equal to the amount of benefit the spouse would have
received if the Pension to which the Participant was entitled at
his date of death had commenced on his Normal Retirement Date (or
the first day of the month following his date of death, if later)
in the form of a Qualified Joint and Survivor Annuity and the
Participant had died immediately thereafter. However, if within
the 90 day period prior to his Annuity Starting Date a
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Participant has elected an optional form of Pension which provides
for monthly payments to his spouse for life in an amount equal to
at least 50 percent but not more than 100 percent of the monthly
amount payable under the option for the life of the Participant
and such option is the Actuarial Equivalent of the Qualified Joint
and Survivor Annuity, such optional form of Pension shall be used
for computing the spouse's Pension instead of the Qualified Joint
and Survivor Annuity. The spouse's Pension shall be further
adjusted to reflect its commencement prior to the Participant's
Normal Retirement Date as follows:
(A) if the spouse of a Participant who dies after having met the
requirements for early retirement elects early commencement in
accordance with paragraph (b) above, the amount of the Pension
payable to the spouse will be based on the amount of early
retirement Pension to which the Participant would have been
entitled if he had requested benefit commencement at that
earlier date, reduced in accordance with Section 4.03(b); and
(B) if the spouse of any other Participant who dies prior to his
Annuity Starting Date elects early commencement in accordance
with paragraph (b) above, the amount of the Pension payable to
the spouse shall be based on the amount of vested Pension to
which the Participant would have been entitled if he had
requested benefit commencement at that earlier date, reduced
in accordance with Section 4.04(c).
(d) With respect to a Participant who has incurred a Termination of
Employment and whose spouse would have been entitled to a spouse's
Pension under this Section had the Participant's death occurred prior
to his Annuity Starting Date, the Pension subsequently payable to such
Participant or the spouse's Pension payable to his spouse after his
death, whichever is applicable, shall be reduced by the applicable
percentage shown in the following table for each full month that the
provisions of this Section 4.05 are in effect with respect to the
Participant after his Termination
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of Employment and prior to the Participant's Annuity Starting Date or
his date of death, if earlier. Notwithstanding the foregoing, no such
reduction shall be made with respect to any period before the later of
(i) the date the Administrator furnishes the Participant the notice of
his right to waive the spouse's Pension in accordance with paragraph
(e) below or (ii) the commencement of the election period specified in
paragraph (f) below.
Monthly Reduction for Spouse's Coverage
After Retirement or
Other Termination of Service
Age Reduction
------------------- ---------
55 but less than 65 .05%
45 but less than 55 .03%
less than 45 .01%
(e) The Employer shall furnish to each Participant a written explanation in
nontechnical language which describes (i) the terms and conditions of
the spouse's Pension, including an explanation of the relative
financial effect on the Participant's Pension of an election to waive
the spouse's Pension, (ii) the Participant's right to make, and the
effect of, an election to waive the spouse's Pension, (iii) the rights
of the Participant's spouse, and (vi) the right to make, and the effect
of, a revocation of such an election. The Employer shall furnish the
written explanation of the spouse's Pension to each Participant as soon
as practicable following the date the Participant incurs a Termination
of Employment, but in no case later than one year after such date. The
written explanation described above shall be furnished to a Participant
even though he is not married.
(f) An election to waive the spouse's Pension provided under this Section,
or any revocation of that election, may be made at any time during the
period beginning on the date of the Participant's Termination of
Employment and ending on the Participant's Annuity Starting Date or his
date of death, if earlier. Any election to waive the spouse's Pension
or any revocation of that election shall be made on a form provided by
the Administrator, and shall be effective when received by
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the Administrator. Any election to waive the spouse's Pension shall be
effective only if it includes Spousal Consent to such election.
4.06 Maximum Benefit Limitation
Notwithstanding any provision of the Plan to the contrary, the maximum
annual Pension payable to a Participant under the Plan shall be subject to
the limitations set forth in Section 415 of the Code and any regulations or
rulings issued thereunder. If the Pension begins before the Participant's
62nd birthday, the dollar limitation described in Section 415(b)(1)(A) of
the Code shall be the Actuarial Equivalent of the maximum benefit payable
at age 62. If the Pension begins after the Participant's Social Security
Retirement Age, such dollar limitation shall be the Actuarial Equivalent of
the maximum benefit payable at the Social Security Retirement Age. If the
Pension is payable neither as a life annuity nor as a qualified joint and
survivor annuity with the Participant's spouse as beneficiary, the maximum
limitation shall be the Actuarial Equivalent of the maximum limitation
otherwise applicable. Actuarial Equivalent for the purposes of this Section
4.06 shall be determined in accordance with Section 415(b) of the Code and
the regulations or rulings issued thereunder and using the Plan's early
retirement, late retirement or optional benefit factors as appropriate, or
if less, using factors calculated from the IRS Mortality Table, if
applicable, and (i) with respect to an adjustment required under Section
415(b)(2)(B) or (C) of the Code, the IRS Interest Rate if the Pension is
subject to the provisions of Section 417(e)(3) of the Code or 5 percent
otherwise; and (ii) with respect to an adjustment required under Section
415(b)(2)(D) of the Code, an interest rate of 5 percent.
For limitation years commencing prior to January 1, 2000, if a Participant
is a participant in any qualified defined contribution plan required to be
taken into account for purposes of applying the combined plan limitations
contained in Section 415(e) of the Code, then for any year the sum of
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Page 32
the defined benefit plan fraction and the defined contribution plan
fraction, as such terms are defined in said Section 415(e), shall not
exceed 1.0.
As of January 1 of each calendar year, the dollar limitation, as determined
by the Commissioner of Internal Revenue for that calendar year, shall
become effective as the maximum permissible dollar amount of Pensions
payable under the Plan during the Limitation Year ending within that
calendar year, including Pensions payable to Participants who retired prior
to that Limitation Year.
The benefit payable to a Participant's spouse under a qualified joint and
survivor annuity or under a qualified preretirement survivor annuity shall
be subject to the dollar limitation which would apply if the benefits were
payable to the Participant in the form of a life annuity. The amount of the
benefit payable to the spouse, and which is subject to the preceding
sentence, shall be computed from the Participant's accrued benefit and the
Participant's actual or deemed benefit election, under Section 4.05, before
application of this Section 4.06.
4.07 Transfers and Employment with an Affiliate
(a) If an Eligible Employee (i) becomes employed by the Employer in any
capacity other than as an Eligible Employee as defined in Article 1,
(ii) becomes employed by an Affiliate, or (iii) becomes a Leased
Employee, he shall retain any Credited Service he has under this Plan.
Upon his later retirement or termination of employment with the
Employer or Affiliate (or upon benefit commencement in the case of a
Leased Employee), any benefits to which the Eligible Employee is
entitled under the Plan shall be determined under the Plan provisions
in effect on the date he ceases to be an Eligible Employee as defined
in Article 1, and only on the basis of his Credited Service accrued and
Certified Earnings paid while he was an Eligible Employee as defined in
Article 1.
<PAGE>
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(b) Subject to the Break in Service provisions of Article 3, in the case of
a person who (i) was originally employed by the Employer in any
capacity other than as an Eligible Employee as defined in Article 1,
(ii) was originally employed by an Affiliate, or (iii) was originally
providing services to the Employer as a Leased Employee, and thereafter
becomes an Eligible Employee, upon his later retirement or termination
of employment, the benefits payable under the Plan shall be computed
under the Plan provisions in effect at that time, and only on the basis
of the Credited Service accrued and Certified Earnings paid while he is
an Eligible Employee as defined in Article 1.
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ARTICLE 5. PAYMENT OF PENSIONS
5.01 Automatic Form of Payment
(a) If the Participant is not married on his Annuity Starting Date, his
Pension shall be payable in monthly installments ending with the last
monthly payment before death, unless the Participant has elected an
optional benefit as provided in Section 5.02.
(b) If the Participant is married on his Annuity Starting Date, and if he
has not elected an optional form of benefit as provided in Section
5.02, the Pension payable shall be in the form of a Qualified Joint and
Survivor Annuity that is the Actuarial Equivalent of the Pension
otherwise payable, providing for a reduced Pension payable to the
Participant during his life, and after his death providing that
one-half of that reduced Pension will continue to be paid during the
life of, and to, the spouse to whom he was married on his Annuity
Starting Date. Notwithstanding the preceding, if an option described in
Section 5.02 provides for payments continuing after the Participant's
death for the life of a Beneficiary at a rate of at least 50 percent
but not more than 100 percent of the Pension payable for the life of
the Participant and if such option, with the spouse to whom the
Participant is married on his Annuity Starting Date named as
Beneficiary, would be of greater actuarial value than the joint and
survivor annuity described above, such option with such spouse as
Beneficiary shall be the Qualified Joint and Survivor Annuity.
(c) In any case, a lump sum payment that is the Actuarial Equivalent shall
be made in lieu of all benefits if the present value of the Pension
payable to or on the behalf of the Participant determined as of the
Participant's Normal Retirement Date or actual Termination of
Employment, if later, amounts to $5,000 or less. In determining the
amount of a lump sum payment payable under this paragraph, (i)
Actuarial Equivalent shall mean a benefit, in the case
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Page 35
of a lump sum benefit payable prior to a Participant's Normal
Retirement Date, of equivalent value to the benefit which would
otherwise have been provided commencing at the Participant's Normal
Retirement Date, and (ii) the Actuarial Equivalent shall be determined
by using the IRS Mortality Table and the IRS Interest Rate. Unless
otherwise permitted by applicable law, the determination as to whether
a lump sum payment is due shall be made as soon as practicable
following the Participant's termination of service or death. Any lump
sum benefit payable shall be made as soon as practicable following such
determination and in any event prior to the date Pension payments would
have otherwise commenced as an annuity.
In the event a Participant is not entitled to any Pension upon his
Termination of Employment, he shall be deemed cashed-out under the
provisions of this paragraph (c) as of the date he terminated service.
However, if a Participant described in the preceding sentence is
subsequently restored to service, the provisions of Section 3.03 shall
apply to him without regard to such sentence.
5.02 Optional Forms of Payment
Any Participant may, subject to the provisions of Section 5.03, elect to
convert the Pension otherwise payable to him into an optional benefit that
is the Actuarial Equivalent, as provided in one of the options named below.
Life Annuity A Pension payable during the Participant's
life with no Pension payable after his death.
Ten-Year Certain A modified Pension payable during the
and Life Option Participant's life; if the Participant dies
within 120 months of his Annuity Starting
Date, the balance of those monthly payments
shall be paid to the Beneficiary named by him
when he elected
<PAGE>
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the option; provided that if the Beneficiary
does not survive the 120-month period, a lump
sum payment that is the Actuarial Equivalent
as determined in Table 1 of Appendix A of the
remaining payments shall be paid to the estate
of the last to survive of the Participant and
the Beneficiary.
50% Joint & A modified Pension payable during the
Survivor Option Participant's life and after his death payable
at 50 percent of the rate of his modified
Pension during the life of, and to, the
Beneficiary named by him when he elected the
option. The Pension payable to the Participant
shall be determined by multiplying the amount
that would be paid to the Participant as a
single life annuity by a reduction factor of
90 percent, increased by 1/2 of 1 percent (but
not to more than 100 percent) for each year by
which the Beneficiary is older than the
Participant and decreased by 1/2 of 1 percent
for each year the Beneficiary is younger than
the Participant.
75% Joint & A modified Pension payable during the
Survivor Option Participant's life and after his death payable
at 75 percent of the rate of his modified
Pension during the life of, and to, the
Beneficiary named by him when he elected the
option. The Pension payable to the Participant
shall be determined by multiplying the amount
that would be paid to the Participant as a
single life annuity by a reduction factor of
85 percent, increased by 1/2 of 1 percent (but
not to more than 100 percent) for each year by
which the Beneficiary is older than the
Participant and decreased by 1/2 of 1 percent
for each year the Beneficiary is younger than
the Participant.
100% Joint & A modified Pension payable during the
Survivor Option Participant's life and after his death payable
at 100 percent of the rate of his modified
Pension during the life of, and to, the
Beneficiary named by him when he elected the
option. The Pension payable to the Participant
shall be determined by multiplying the amount
that would be paid to the Participant
<PAGE>
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as a single life annuity by a reduction factor
of 80 percent, increased by 1/2 of 1 percent
(but not to more than 100 percent) for each
year by which the Beneficiary is older than
the Participant and decreased by 1/2 of 1
percent for each year the Beneficiary is
younger than the Participant.
Lump Sum or If the total present value of the Pension
Installment Option payable is more than $5,000 but less than
$7,000, the Participant may elect either a
single cash lump sum or monthly installments
over a period to be selected by the
Participant. In determining the amount of a
lump sum optional benefit available under this
Section, (a) Actuarial Equivalent shall mean a
benefit, in the case of a lump sum benefit
payable prior to a Participant's Normal
Retirement Date, of equivalent value to the
benefit which would otherwise have been
provided commencing at the Participant's
Normal Retirement Date, and (b) Actuarial
Equivalent shall be determined on the basis of
the IRS Mortality Table and the IRS Interest
Rate.
If a Participant dies after Pension payments have commenced, any payments
continuing on to his spouse or Beneficiary shall be distributed at least as
rapidly as under the method of distribution being used as of the
Participant's date of death.
5.03 Election of Options
(a) A married Participant's election of any option shall only be effective
if Spousal Consent to the election is received by the Administrator,
unless:
(i) the option provides for monthly payments to his spouse for life
after the Participant's death, in an amount equal to at least 50
percent but not more than 100 percent of the monthly amount
payable under the option to the Participant, and
(ii) the option is of actuarial equivalent value to the Qualified
Joint and Survivor Annuity.
<PAGE>
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(b) The Employer shall furnish to each Participant, a written explanation
in nontechnical language of the terms and conditions of the Pension
payable to the Participant in the normal and optional forms described
in Sections 5.01 and 5.02. Such explanation shall include a general
description of the eligibility conditions for, and the material
features and relative values of, the optional forms of Pensions under
the Plan, any rights the Participant may have to defer commencement of
his Pension, the requirement for Spousal Consent as provided in
paragraph (a) above, and the right of the Participant to make, and to
revoke, elections under Section 5.02.
(c) The Employer must provide the notice required by paragraph (b) no more
than 90 days and no less than 30 days prior to the Participant's
Annuity Starting Date. A Participant's Annuity Starting Date may not
occur less than 30 days after receipt of the notice described in
paragraph (b). An election under Section 5.02 shall be made on a form
provided by the Administrator and may be made during the 90-day period
ending on the Participant's Annuity Starting Date, but not prior to the
date the Participant receives the written explanation described in
paragraph (b).
(d) Notwithstanding the provisions of paragraph (c) above, a Participant
may, after having received the notice, affirmatively elect to have his
benefit commence sooner than 30 days following his receipt of the
notice, provided all of the following requirements are met:
(i) the Administrator clearly informs the Participant that he has a
period of at least 30 days after receiving the notice to decide
when to have his benefits begin, and if applicable, to choose a
particular optional form of payment;
(ii) the Participant affirmatively elects a date for his benefits to
begin, and if applicable, an optional form of payment, after
receiving the notice;
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(iii) the Participant is permitted to revoke his election until the
later of his Annuity Starting Date or seven days following the
day he received the notice;
(iv) payment does not commence less than seven days following the day
after the notice is received by the Participant; and
(v) the Participant's Annuity Starting Date is after the date the
notice is provided.
(e) An election of an option under Section 5.02 may be revoked on a form
provided by the Administrator, and subsequent elections and revocations
may be made at any time and from time to time during the election
period specified in paragraph (c) or (d) above, whichever is
applicable. An election of an optional benefit shall be effective on
the Participant's Annuity Starting Date and may not be modified or
revoked after his Annuity Starting Date unless otherwise provided under
paragraph (d) above. A revocation of any election shall be effective
when the completed form is filed with the Administrator. If a
Participant who has elected an optional benefit dies before the date
the election of the option becomes effective, the election shall be
revoked except as provided in Section 4.05(c). If the Beneficiary
designated under an option dies before the date the election of the
option becomes effective, the election shall be revoked.
5.04 Commencement of Payments
(a) Except as otherwise provided in Article 4 or this Article 5 or under
Title 29 of the Code of Federal Regulation Section 2530.203-3 as
promulgated by the U.S. Department of Labor, payment of a Participant's
Pension shall begin as soon as administratively practicable following
the latest of (i) the Participant's 65th birthday, (ii) the fifth
anniversary of the date on which he became a Participant, or (iii) the
Participant's Termination of Employment, (but not more than 60 days
after the close of the Plan Year in which the latest of (i), (ii) or
(iii) occurs); provided,
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however, that if the amount of the payment to be made cannot be
determined by 60 days following the Plan Year in which the latest of
(i), (ii), or (iii) occur, a payment retroactive to that date shall be
made.
(b) Notwithstanding the preceding paragraph, in the case of a Participant
in active service who is a five percent owner (as defined in Section
416(i) of the Code) of the Employer, the Participant's Pension shall
begin not later than the April 1 following the calendar year in which
he attains age 70 1/2. In the case of any other Participant in active
service who attains age 70 1/2, payment of such Participant's Pension
shall begin not later than April 1 of the calendar year following the
calendar year in which he attains age 70 1/2, provided that such
commencement in active service shall not be required with respect to a
Participant who attains age 70 1/2prior to January 1, 1988 and who is
not a 5-percent owner as described above.
5.05 Distribution Limitation
Notwithstanding any other provision of this Article 5, all distributions
from this Plan shall conform to the regulations issued under Section
401(a)(9) of the Code, including the incidental death benefit provisions of
Section 401(a)(9)(G) of the Code. Further, such regulations shall override
any Plan provision that is inconsistent with Section 401(a)(9) of the Code.
For purposes of Section 401(a)(9) of the Code, the life expectancies of
Participants and their spouses shall not be recalculated.
5.06 Direct Rollover of Certain Distributions
(a) Notwithstanding any provision of the Plan to the contrary that would
otherwise limit a distributee's election under this Article, a
distributee may elect, at the time and in the manner
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prescribed by the Administrator, to have any portion of an eligible
rollover distribution paid directly to an eligible retirement plan
specified by the distributee in a direct rollover.
(b) The following definitions apply to the terms used in this Section:
(i) An "eligible rollover distribution" is any distribution of all or
any portion of the balance to the credit of the distributee,
except that an eligible rollover distribution does not include:
any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for
the life (or life expectancy) of the distributee or the joint
lives (or joint life expectancies) of the distributee and the
distributee's designated beneficiary, or for a specified period
of ten years or more; any distribution to the extent such
distribution is required under Section 401(a)(9) of the Code; and
the portion of any distribution that is not includible in gross
income (determined without regard to the exclusion for net
unrealized appreciation with respect to employer securities);
(ii) An "eligible retirement plan" is an individual retirement account
described in Section 408(a) of the Code, an individual retirement
annuity described in Section 408(b) of the Code, an annuity plan
described in Section 403(a) of the Code, or a qualified trust
described in Section 401(a) of the Code, that accepts the
distributee's eligible rollover distribution. However, in the
case of an eligible rollover distribution to the surviving
spouse, an eligible retirement plan is an individual retirement
account or individual retirement annuity;
(iii) A "distributee" includes an Eligible Employee or former Eligible
Employee. In addition, the Eligible Employee's or former Eligible
Employee's surviving spouse and the Eligible Employee's or former
Eligible Employee's spouse or former spouse who is the alternate
<PAGE>
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payee under a qualified domestic relations order, as defined in
Section 414(p) of the Code, are distributees with regard to the
interest of the spouse or former spouse; and
(iv) A "direct rollover" is a payment by the Plan to the eligible
retirement plan specified by the distributee.
In the event that the provisions of this Section 5.06 or any part
thereof cease to be required by law as a result of subsequent
legislation or otherwise, this Section or any applicable part thereof
shall be ineffective without the necessity of further amendments to the
Plan.
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ARTICLE 6. CONTRIBUTIONS
6.01 Employer's Contributions
It is the intention of the Employer to continue the Plan and make the
contributions that are necessary to maintain the Plan on a sound actuarial
basis and to meet the minimum funding standards prescribed by law. However,
subject to the provisions of Article 10, the Employer may discontinue its
contributions for any reason at any time.
6.02 Return of Contributions
(a) If a contribution is conditioned on initial qualification of the Plan
under Section 401(a) of the Code, and if the Commissioner of Internal
Revenue, on timely application made after the establishment of the
Plan, determines that the Plan is not initially so qualified, or
refuses, in writing, to issue a determination as to whether the Plan is
so qualified, said contribution shall be returned to the Company
without interest. The return shall be made within one year after the
date of the final determination of the denial of qualification. The
provisions of this paragraph (a) shall apply only if the application
for the determination is made by the time prescribed by law for filing
the Company's return for the taxable year in which the Plan was
adopted, or such later date as the Secretary of the Treasury may
prescribe.
(b) The Employer's contributions to the Plan are conditioned upon their
deductibility under Section 404 of the Code. If all or part of the
Employer's deductions for contributions to the Plan are disallowed by
the Internal Revenue Service, the portion of the contributions to which
that disallowance applies shall be returned to the Employer without
interest, but reduced by any investment loss attributable to those
contributions. The return shall be made within one year after the date
of the disallowance of deduction.
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(c) The Employer may recover without interest the amount of its
contributions to the Plan made on account of a mistake in fact, reduced
by any investment loss attributable to those contributions, if recovery
is made within one year after the date of those contributions.
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ARTICLE 7. ADMINISTRATION OF PLAN
7.01 Plan Sponsor and Plan Administrator
The Company shall be the "plan administrator" and the "plan sponsor" of the
Plan, as such terms are used in ERISA and the Code.
7.02 Administrative Responsibilities
(a) Except as expressly otherwise provided herein, the Company shall be the
named fiduciary that has the authority to control and manage the
administration and operation of the Plan, and shall have the sole and
complete discretion to interpret and administer the terms of the Plan
and to determine eligibility for benefits and the amount of any such
benefits pursuant to the terms of the Plan, and in so doing the Company
may correct defects, supply omissions and reconcile inconsistencies to
the extent necessary to effectuate the Plan, and such actions shall be
binding and conclusive on all persons. The Company shall prescribe such
forms, make such rules, regulations, interpretations and computations
and shall take such other action to administer the Plan as it may deem
appropriate. In administering the Plan, the Company shall act in a
nondiscriminatory manner to the extent required by Section 401(a) and
related provisions of the Code and shall at all times discharge its
duties with respect to the Plan in accordance with the standards set
forth in Section 404(a)(1) of ERISA.
(b) Except in cases where the Plan expressly requires action on behalf of
the Company to be taken by the Board of Directors, action on behalf of
the Company may be taken by any of the following:
(i) the Board of Directors;
(ii) the chief executive officer of the Company; or
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(iii) any person or persons or committee to whom responsibilities for
the operation and administration of the Plan are allocated, by
resolution of the Board of Directors or by written instrument
executed by the chief executive officer of the Company and filed
with its permanent records, but action of such person or persons
or committee shall be within the scope of said allocation.
7.03 Delegation of Responsibilities
The Company may engage such attorneys, actuaries, accountants, consultants
or other persons to render advice or to perform services with regard to any
of its responsibilities under the Plan as it shall determine to be
necessary or appropriate. The duties and responsibilities of the Company
under the Plan shall be carried out by the directors, officers and
employees of the Company, acting on behalf of the Company in their
capacities as directors, officers and employees and not as individual
fiduciaries.
7.04 Certified Earnings and Bonding
Except to the extent permitted by applicable regulations, no Eligible
Employee shall receive any compensation from the Plan for his services
rendered to the Plan. The Company shall purchase such bonds as may be
required under ERISA.
7.05 Service in More Than One Fiduciary Capacity
Any individual, entity or group of persons may serve in more than one
fiduciary capacity with respect to the Plan and/or the funds of the Plan.
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7.06 Indemnification
In addition to any other applicable arrangements for indemnification, the
Employers jointly and severally agree to indemnify and hold harmless, to
the extent permitted by law, each director, officer, and employee of the
Employers against any and all liabilities, losses, costs, or expenses
(including legal fees) of whatsoever kind and nature which may be imposed
on, incurred by, or asserted against such person at any time by reason of
such person's services as a fiduciary in connection with the Plan, but only
if such person did not act dishonestly, or in bad faith, or in willful
violation of the law or regulations under which such liability, loss, cost,
or expense arises.
7.07 Establishment of Rules
Subject to the limitations of the Plan, the Administrator from time to time
shall establish rules for the administration of the Plan and the
transaction of Plan business. The Administrator shall have discretionary
authority to interpret the Plan and to make factual determinations
(including but not limited to, determination of an individual's eligibility
for Plan participation, the right and amount of any benefit payable under
the Plan and the date on which any individual ceases to be a Participant).
The determination of the Administrator as to the interpretation of the Plan
or any disputed question shall be conclusive and final to the extent
permitted by applicable law.
7.08 Correction of Errors
It is recognized that in the operation and administration of the Plan
certain mathematical and accounting errors may be made or mistakes may
arise by reason of factual errors in information supplied to the Employer
or Funding Agent. The Company shall have power to cause such equitable
adjustments to be made to correct for such errors as the Company in its
discretion considers appropriate. Such adjustments shall be final and
binding on all persons.
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7.09 Prudent Conduct
The Administrator shall use that degree of care, skill, prudence and
diligence that a prudent man acting in a like capacity and familiar with
such matters would use in a similar situation.
7.10 Actuary
As an aid to the Administrator in fixing the rate of contributions payable
to the Plan, the actuary designated by the Company shall make annual
actuarial valuations of the contingent assets and liabilities of the Plan,
and shall submit to the Company the rates of contribution recommended for
use.
7.11 Maintenance of Accounts
The Administrator shall maintain accounts showing the fiscal transactions
of the Plan and shall keep in convenient form such data as may be necessary
for actuarial valuations of the Plan.
7.12 Records
Each Employer, each fiduciary with respect to the Plan, and each other
person performing any functions in the operation or administration of the
Plan or the management or control of the assets of the Plan shall keep such
records as may be necessary or appropriate in the discharge of their
respective functions hereunder, including records required by ERISA or any
other applicable law. Records shall be retained as long as necessary for
the proper administration of the Plan and at least for any period required
by ERISA or other applicable law.
7.13 Appointment of Investment Manager
The Company, in its sole discretion, shall determine the investment policy
for the Plan. However, the Company may, in its sole discretion, appoint one
or more investment managers to
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manage the assets of the Plan (including the power to acquire and dispose
of all or part of such assets) as the Company shall designate. In that
event, the authority over and responsibility for the management of the
assets so designated shall be the sole responsibility of that investment
manager.
For purposes of this Article, the term "investment manager" means an
individual who:
(a) Has the power to manage, acquire or dispose of any asset of the Plan;
(b) Is (i) registered as an investment advisor under the Investment
Advisors Act of 1940, (ii) is a bank, as defined in that Act, or (iii)
is an insurance company qualified to perform services described in
paragraph (a) above; and
(c) Has acknowledged in writing that he is a fiduciary with respect to the
Plan.
7.14 Expenses of Administration
All expenses that arise in connection with the administration of the Plan,
including but not limited to the compensation of the Trustee,
administrative expenses and proper charges and disbursements of the Trustee
and compensation and other expenses and charges of any enrolled actuary,
counsel, accountant, specialist, or other person who has been retained by
the Company in connection with the administration thereof, shall be paid
from the funds of the Plan held by the Trustee under the trust agreement
adopted for use in implementing the Plan, to the extent not paid by the
Employer.
7.15 Claims and Review Procedures
(a) Applications for benefits and inquiries concerning the Plan (or
concerning present or future rights to benefits under the Plan) shall
be submitted to the Company in writing. An application
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for benefits shall be submitted on the prescribed form and shall be
signed by the Participant, or in the case of a benefit payable after
his death, by his Beneficiary.
(b) In the event that an application for benefits is denied in whole or in
part, the Company shall notify the applicant in writing of the denial
and of the right to review of the denial. The written notice shall set
forth, in a manner calculated to be understood by the applicant,
specific reasons for the denial, specific references to the provisions
of the Plan on which the denial is based, a description of any
information or material necessary for the applicant to perfect the
application, an explanation of why the material is necessary, and an
explanation of the review procedure under the Plan. The written notice
shall be given to the applicant within a reasonable period of time (not
more than 90 days) after the Company received the application, unless
special circumstances require further time for processing and the
applicant is advised of the extension. In no event shall the notice be
given more than 180 days after the Company received the application.
(c) The Company shall from time to time appoint a committee (the "Review
Panel") that shall consist of three individuals who may, but need not,
be Eligible Employees. The Review Panel shall be the named fiduciary
that has the authority to act with respect to any appeal from a denial
of benefits or a determination of benefit rights.
(d) An applicant whose application for benefits was denied in whole or
part, or the applicant's duly authorized representative, may appeal the
denial by submitting to the Review Panel a request for a review of the
application within 60 days after receiving written notice of the denial
from the Company. The Company shall give the applicant or his
representative an opportunity to review pertinent materials, other than
legally privileged documents, in preparing the request for a
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review. The request for a review shall be in writing and addressed to
the Review Panel. The request for a review shall set forth all of the
grounds on which it is based, all facts in support of the request and
any other matters that the applicant deems pertinent. The Review Panel
may require the applicant to submit such additional facts, documents or
other materials as it may deem necessary or appropriate in making its
review.
(e) The Review Panel shall act on each request for a review within 60 days
after receipt, unless special circumstances require further time for
processing and the applicant is advised of the extension. In no event
shall the decision on review be rendered more than 120 days after the
Review Panel received the request for a review. The Review Panel shall
give prompt written notice of its decision to the applicant and or the
Company. In the event that the Review Panel confirms the denial of the
application for benefits in whole or in part, the notice shall set
forth, in a manner calculated to be understood by the applicant, the
specific reasons for the decision and specific references to the
provisions of the Plan on which the decision is based.
(f) The Review Panel shall adopt such rules, procedures and interpretations
of the Plan as it deems necessary or appropriate in carrying out its
responsibilities under this Section 7.15. In carrying out such
responsibilities, the Review Panel shall have the sole and complete
discretion to interpret and administer the terms of the Plan and to
determine eligibility for benefits and the amount of any such benefits
pursuant to the terms of the Plan, and in so doing the Review Panel may
correct defects, supply omissions and reconcile inconsistencies to the
extent necessary to effectuate the Plan, and such actions shall be
binding and conclusive on all persons.
(g) No legal action for benefits under the Plan shall be brought unless and
until the claimant (i) has submitted a written application for benefits
in accordance with paragraph (a), (ii) has been
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notified by the Company that the application is denied, (iii) has filed
a written request for a review of the application in accordance with
paragraph (d) and (iv) has been notified in writing that the Review
Panel has affirmed the denial of the application; provided, however,
that legal action may be brought after the Company or the Review Panel
has failed to take any action on the claim within the time prescribed
by paragraphs (b) and (e) above.
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ARTICLE 8. MANAGEMENT OF FUNDS
8.01 Funding Agent
(a) All the funds of the Plan shall be held by a Funding Agent appointed
from time to time by the Company under a trust instrument or an
insurance or annuity contract adopted, or as amended, by the Company
for use in providing the benefits of the Plan and paying its expenses
not paid directly by the Company. The Company shall have the right to
determine the form and substance of each trust agreement and group
annuity contract under which any part of the funds of the Plan is held,
subject only to the requirement that they are not inconsistent with the
provisions of the Plan. Any such trust agreement may contain provisions
pursuant to which the trustee will make investments on direction of a
third party. The Company shall have no liability for the payment of
benefits under the Plan nor for the administration of the funds paid
over to the Funding Agent.
(b) The Company shall issue such written directions to the Funding Agent as
are necessary to accomplish distributions to the Participants and
Beneficiaries in accordance with the provisions of the Plan.
(c) The Funding Agent shall be entitled to receive such reasonable
compensation for its services as may be agreed upon with the Company.
The Funding Agent shall also be entitled to reimbursement for all
reasonable and necessary costs, expenses, and disbursements incurred by
it in the performance of its services. Such compensation and
reimbursements shall be paid from the Trust Fund if not paid directly
by the Company.
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8.02 Exclusive Benefit Rule
Except as otherwise provided in the Plan, no part of the corpus or income
of the funds of the Plan shall be used for, or diverted to, purposes other
than for the exclusive benefit of Participants and other persons entitled
to benefits under the Plan and paying Plan expenses not otherwise paid by
the Employer, before the satisfaction of all liabilities with respect to
them. No person shall have any interest in or right to any part of the
earnings of the funds of the Plan, or any right in, or to, any part of the
assets held under the Plan, except as and to the extent expressly provided
in the Plan.
8.03 Funding Policy
The Company shall adopt a procedure, and revise it from time to time as it
shall consider advisable, for establishing and carrying out a funding
policy and method consistent with the objectives of the Plan and the
requirements of ERISA. It shall advise each Funding Agent of the funding
policy in effect from time to time.
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ARTICLE 9. GENERAL PROVISIONS
9.01 Nonalienation
Except as required by any applicable law, no benefit under the Plan shall
in any manner be anticipated, assigned or alienated, and any attempt to do
so shall be void. However, payment shall be made in accordance with the
provisions of any judgment, decree, or order which:
(a) creates for, or assigns to, a spouse, former spouse, child or other
dependent of a Participant the right to receive all or a portion of the
Participant's benefits under the Plan for the purpose of providing
child support, alimony payments or marital property rights to that
spouse, child or dependent,
(b) is made pursuant to a State domestic relations law,
(c) does not require the Plan to provide any type of benefit, or any
option, not otherwise provided under the Plan, and
(d) otherwise meets the requirements of Section 206(d) of ERISA, as
amended, as a "qualified domestic relations order," as determined by
the Administrator.
If the present value of any series of payments meeting the criteria set
forth in clauses (a) through (d) above amounts to $5,000 or less, a lump
sum payment that is the Actuarial Equivalent, determined in the manner
described in Section 5.01(c), shall be made in lieu of the series of
payments.
9.02 Conditions of Employment Not Affected by Plan
Participation in the Plan shall not confer any legal rights upon any
Eligible Employee or other person for a continuation of employment, nor
shall it interfere with the right of the Employer (which right is hereby
reserved) to discharge any Eligible Employee and to treat him without
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regard to the effect which that treatment might have upon him as a
Participant or potential Participant of the Plan.
9.03 Facility of Payment
If in the opinion of the Administrator a Participant or other person
entitled to a benefit hereunder is unable to care for his affairs because
of illness or accident or because he is a minor, the Administrator may
direct that any benefit due him, unless claim shall have been made for the
benefit by a duly appointed guardian or other legal representative, be paid
to his spouse, a child, a parent or other blood relative, or any other
person or institution then in the opinion of the Administrator caring for
or maintaining the Participant or other person during this period, or to a
person with whom he resides. Any payment so made shall be a complete
discharge of the liabilities of the Plan for that benefit.
9.04 Information
Each Participant or other person entitled to a benefit, before any benefit
shall be payable to him or on his account under the Plan, shall file with
the Company the information that it shall require to establish his rights
and benefits under the Plan.
9.05 Top-Heavy Provisions
(a) The following definitions apply to the terms used in this Section:
(i) "applicable determination date" means the last day of the
preceding Plan Year;
(ii) "top-heavy ratio" means the ratio of (A) the present value of
the cumulative Accrued Benefits under the Plan for key employees
to (B) the present value of the cumulative Accrued Benefits
under the Plan for all key employees and non-key employees;
provided, however, that if an individual has not performed
services for the Employer at
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any time during the five-year period ending on the applicable
determination date, any accrued benefit for such individual (and
the account of such individual) shall not be taken into account;
(iii) "applicable valuation date" means the date within the preceding
Plan Year as of which annual Plan costs are or would be computed
for minimum funding purposes;
(iv) "key employee" means an employee who is in a category of
employees determined in accordance with the provisions of
Section 416(i)(1) and (5) of the Code and any regulations
thereunder, and where applicable, on the basis of the Eligible
Employee's remuneration (which, with respect to any Eligible
Employee, shall mean the wages, salaries, and other amounts paid
in respect of such Eligible Employee by the Employer or an
Affiliate for personal services actually rendered, determined
before any pre-tax contributions under a "qualified cash or
deferred arrangement," as defined in Section 401(k) of the Code
and its applicable regulations, or under a "cafeteria plan," as
defined in Section 125 of the Code and its applicable
regulations, and shall include, but not by way of limitation,
bonuses, overtime payments, and commissions, and shall exclude
deferred compensation, stock options, and other distributions
which receive special tax benefits under the Code);
(v) "non-key employee" means any employee who is not a key employee;
(vi) "average remuneration" means the average annual remuneration of
a Participant for the five consecutive years of his Years of
Vesting Service during which he received the greatest aggregate
remuneration, as limited by Section 401(a)(17) of the Code, from
the Employer or an Affiliate, excluding any remuneration for
service after the last Plan Year with respect to which the Plan
is top-heavy;
(vii) "required aggregation group" means each other qualified plan of
the Employer or an Affiliate (including plans that terminated
within the five-year period ending on the
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determination date) in which there are members who are key
employees or which enables the Plan to meet the requirements of
Section 401(a)(4) or 410 of the Code; and
(viii) "permissive aggregation group" means each plan in the required
aggregation group and any other qualified plan(s) of the
Employer or an Affiliate in which all members are non-key
employees, if the resulting aggregation group continues to meet
the requirements of Sections 401(a)(4) and 410 of the Code.
(b) For purposes of this Section, the Plan shall be "top-heavy" with
respect to any Plan Year if as of the applicable determination date the
top-heavy ratio exceeds 60 percent. The top-heavy ratio shall be
determined as of the applicable valuation date in accordance with
Section 416(g)(3) and (4)(B) of the Code on the basis of the UP-1984
Mortality Table and an interest rate of 5 percent per year compounded
annually. For purposes of determining whether the Plan is top-heavy,
the present value of Accrued Benefits under the Plan will be combined
with the present value of accrued benefits or account balances under
each other plan in the required aggregation group, and in the
Employer's discretion, may be combined with the present value of
accrued benefits or account balances under any other qualified plan(s)
in the permissive aggregation group. The accrued benefit of a non-key
employee under the Plan or any other defined benefit plan in the
aggregation group shall be (i) determined under the method, if any,
that uniformly applies for accrual purposes under all plans maintained
by the Employer or an Affiliate, or (ii) if there is no such method, as
if such benefit accrued not more rapidly than the slowest accrual rate
permitted under the fractional rule described in Section 411(b)(1)(C)
of the Code.
(c) The following provisions shall be applicable to Participants for any
Plan Year with respect to which the Plan is top-heavy:
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(i) In lieu of the vesting requirements specified in Section 4.04, a
Participant shall be vested in, and have a nonforfeitable right
to, a percentage of his Accrued Benefit determined in accordance
with the provisions of Section 1.01 and subparagraph (ii) below,
as set forth in the following vesting schedule:
Years of Vesting Percentage
Service Vested
----------------- ----------
Less than 2 years 0%
2 years 20
3 years 40
4 years 60
5 or more years 100
(ii) The Accrued Benefit of a Participant who is a non-key employee
shall not be less than 2 percent of his average remuneration
multiplied by the number of years of his Years of Vesting
Service, not in excess of 10, during the Plan Years for which the
Plan is top-heavy. That minimum benefit shall be payable at a
Participant's Normal Retirement Date. If payments commence at a
time other than the Participant's Normal Retirement Date, the
minimum Accrued Benefit shall be the Actuarial Equivalent of that
minimum benefit.
(iii) The multiplier "1.25" in Sections 415(e)(2)(B)(i) and (3)(B)(i)
of the Code shall be reduced to "1.0," and the dollar amount
"$51,875" in Section 415(e)(6)(B)(i)(I) of the Code shall be
reduced to "$41,500."
(d) If the Plan is top-heavy with respect to a Plan Year and ceases to be
top-heavy for a subsequent Plan Year, the following provisions shall be
applicable:
(i) The Accrued Benefit in any such subsequent Plan Year shall not be
less than the minimum Accrued Benefit provided in paragraph
(c)(ii) above, computed as of the end of the most recent Plan
Year for which the Plan was top-heavy.
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(ii) If a Participant has completed three years of Years of Vesting
Service on or before the last day of the most recent Plan Year
for which the Plan was top-heavy, the vesting schedule set forth
in paragraph (c)(i) above shall continue to be applicable.
(iii) If a Participant has completed at least two, but less than three,
years of Years of Vesting Service on or before the last day of
the most recent Plan Year for which the Plan was top-heavy, the
vesting provisions of Section 4.04 shall again be applicable;
provided, however, that in no event shall the vested percentage
of a Participant's Accrued Benefit be less than the percentage
determined under paragraph (c)(i) above as of the last day of the
most recent Plan Year for which the Plan was top-heavy.
9.06 Offsets
Notwithstanding the foregoing provisions, the monthly amounts otherwise
payable hereunder shall be reduced by the amount (expressed on a comparable
basis that is an Actuarial Equivalent) of the monthly pension, if any, to
which the Participant is entitled under any other pension plan that meets
the requirements of Section 401(a) of the Code, or any comparable section
or sections of any future legislation that amends, supplements, or
supersedes said section, and that is financed in whole or in part by an
Employer but only to the extent such other pension is attributable to
employer contributions and to the same period of service for which the
pension is being paid under this Plan.
9.07 Construction
(a) The Plan shall be construed, regulated and administered under ERISA as
in effect from time to time, and the laws of the State of New York,
except where ERISA controls.
(b) The masculine pronoun shall mean the feminine where appropriate, and
vice versa.
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(c) The titles and headings of the Articles and Sections in this Plan are
for convenience only. In case of ambiguity or inconsistency, the text
rather than the titles or headings shall control.
9.08 Prevention of Escheat
If the Administrator cannot ascertain the whereabouts of any person to whom
a payment is due under the Plan, the Administrator may, no earlier than
three years from the date such payment is due, mail a notice of such due
and owing payment to the last known address of such person as shown on the
records of the Administrator or the Employer. If such person has not made
written claim therefor within three months of the date of the mailing, the
Administrator may, if it so elects and upon receiving advice from counsel
to the Plan, direct that such payment and all remaining payments otherwise
due such person be canceled on the records of the Plan and the amount
thereof applied to reduce the contributions of the Employer. Upon such
cancellation, the Plan shall have no further liability therefor except
that, in the event such person or his Beneficiary later notifies the
Administrator of his whereabouts and requests the payment or payments due
to him under the Plan, the amount so applied shall be paid to him in
accordance with the provisions of the Plan.
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ARTICLE 10. AMENDMENT, MERGER, AND TERMINATION
10.01 Amendment of Plan
The Company, by action of its Board of Directors or by action of a person
so authorized by resolution of the Board of Directors, reserves the right
at any time and from time to time, and retroactively if deemed necessary
or appropriate, to amend in whole or in part any or all of the provisions
of the Plan. However, no amendment shall make it possible for any part of
the funds of the Plan to be used for, or diverted to, purposes other than
for the exclusive benefit of persons entitled to benefits under the Plan,
before the satisfaction of all liabilities with respect to them. No
amendment shall be made which has the effect of decreasing the Protected
Benefit of any Participant or of reducing the nonforfeitable percentage of
the Accrued Benefit of a Participant below the nonforfeitable percentage
computed under the Plan as in effect on the date on which the amendment is
adopted, or if later, the date on which the amendment becomes effective.
10.02 Merger, Consolidation, or Transfer
The Board of Directors may, in its sole discretion, merge this Plan with
another qualified plan or transfer a portion of the assets and liabilities
under the Plan to another qualified plan, subject to any applicable legal
requirements. However, the Plan may not be merged or consolidated with,
and its assets or liabilities may not be transferred to, any other plan
unless each person entitled to benefits under the Plan would, if the
resulting plan were then terminated, receive a benefit immediately after
the merger, consolidation, or transfer which is equal to or greater than
the benefit he would have been entitled to receive immediately before the
merger, consolidation, or transfer if the Plan had then terminated.
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10.03 Additional Participating Employers
(a) If any company is now or becomes a subsidiary or associated company of
an Employer, the Board of Directors may include the employees of that
company in the membership of the Plan upon appropriate action by that
company necessary to adopt the Plan. In that event, or if any persons
become Eligible Employees of an Employer as the result of merger or
consolidation or as the result of acquisition of all or part of the
assets or business of another company, the Board of Directors shall
determine to what extent, if any, credit and benefits shall be granted
for previous service with the subsidiary, associated or other company,
but subject to the continued qualification of the trust for the Plan
as tax-exempt under the Code.
(b) Any subsidiary or associated company may terminate its participation
in the Plan upon appropriate action by it, in which event the funds of
the Plan held on account of Participants in the employ of that company
shall be determined by the Administrator and shall be applied as
provided in Section 10.04 if the Plan should be terminated, or shall
be segregated by the Trustee as a separate trust, pursuant to
certification to the Trustee by the Administrator, continuing the Plan
as a separate plan for the employees of that company under which the
board of directors of that company shall succeed to all the powers and
duties of the Board of Directors, including the appointment of the
administrator.
10.04 Termination of Plan
The Company, by action of its Board of Directors, may terminate the Plan
for any reason at any time. In case of termination of the Plan, the rights
of Participants to their Protected Benefits as of the date of the
termination, to the extent then funded or protected by law, if greater,
shall be nonforfeitable. The funds of the Plan shall be used for the
exclusive benefit of persons entitled to benefits under the Plan as of the
date of termination, except as provided in Section 6.02.
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However, any funds not required to satisfy all liabilities of the Plan for
benefits because of erroneous actuarial computation shall be returned to
the Employer. The Administrator shall determine on the basis of actuarial
valuation the share of the funds of the Plan allocable to each person
entitled to benefits under the Plan in accordance with Section 4044 of
ERISA, or corresponding provision of any applicable law in effect at the
time. In the event of a partial termination of the Plan, the provisions of
this Section shall be applicable to the Participants affected by that
partial termination.
10.05 Limitation Concerning Highly-Compensated Employees
or Highly-Compensated Former Employees
(a) The provisions of this Section shall apply (i) in the event the Plan
is terminated, to any Participant who is a Highly-Compensated Employee
or highly-compensated former employee (as those terms are defined in
Section 414(q) of the Code) of the Employer or an Affiliate and (ii)
in any other event, to any Participant who is one of the 25
Highly-Compensated Employees or highly-compensated former employees of
the Employer or Affiliate with the greatest compensation in any Plan
Year. The amount of the annual payments to any one of the Participants
to whom this Section applies shall not be greater than an amount equal
to the annual payments that would be made on behalf of the Participant
during the year under a single life annuity that is the Actuarial
Equivalent of the sum of the Participant's Accrued Benefit and the
Participant's other benefits under the Plan.
(b) If, (i) after payment of Pension or other benefits to any one of the
Participants to whom this Section applies, the value of Plan assets
equals or exceeds 110 percent of the value of current liabilities (as
that term is defined in Section 412(l)(7) of the Code) of the Plan,
(ii) the value of the Accrued Benefit and other benefits of any one of
the Participants to whom this Section applies is less than 1 percent
of the value of current liabilities of the Plan, or (iii) the value of
the
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benefits payable to a Participant to whom this Section applies does
not exceed the amount described in Section 411(a)(11)(A) of the Code,
the provisions of paragraph (a) above will not be applicable to the
payment of benefits to such Participant.
(c) Notwithstanding paragraph (a) of this Section, in the event the Plan
is terminated, the restriction of this Section shall not be applicable
if the benefit payable to any Highly-Compensated Employee and any
highly-compensated former employee is limited to a benefit that is
nondiscriminatory under Section 401(a)(4) of the Code.
(d) If it should subsequently be determined by statute, court decision
acquiesced in by the Commissioner of Internal Revenue, or ruling by
the Commissioner of Internal Revenue, that the provisions of this
Section are no longer necessary to qualify the Plan under the Code,
this Section shall be ineffective without the necessity of further
amendment to the Plan.
<PAGE>
Page 66
BARNESANDNOBLE.COM LLC
RETIREMENT PLAN
APPENDIX A. ACTUARIAL FACTORS
TABLE 1
TEN-YEAR CERTAIN & LIFE FACTOR REDUCTION CHART
Nearest Age Factor
----------- --------
65 .930
64 .935
63 .940
62 .945
61 .950
60 .955
59 .960
58 .965
57 .970
56 .975
55 .980
54 .985
53 .990
52 .995
51 or less 1.000
<PAGE>
Page 67
BARNESANDNOBLE.COM LLC
RETIREMENT PLAN
APPENDIX A
(cont'd)
TABLE 2
REDUCTION FACTORS IF BENEFITS BEGIN BEFORE NORMAL RETIREMENT DATE
LIFE ONLY BENEFITS
(Interpolate for ages less than a whole year.)
Reduction Reduction
Age Factor Age Factor
--- --------- --- ---------
64 .933 44 .194
63 .867 43 .179
62 .800 42 .165
61 .733 41 .153
60 .667 40 .141
59 .633 39 .131
58 .600 38 .121
57 .567 37 .112
56 .533 36 .104
55 .500 35 .097
54 .456 34 .090
53 .417 33 .083
52 .381 32 .077
51 .349 31 .072
50 .320 30 .067
49 .293 29 .062
48 .270 28 .058
47 .248 27 .054
46 .228 26 .050
45 .210 25 .047
<PAGE>
Page 68
BARNESANDNOBLE.COM LLC
RETIREMENT PLAN
APPENDIX B.
SPECIAL PROVISIONS APPLICABLE TO PARTICIPANTS
WHO TRANSFER DIRECTLY BETWEEN AN EMPLOYER
AND BARNES & NOBLE, INC.
Except as otherwise modified or expanded in this Appendix B, the provisions of
this Plan, as contained in the text to which this Appendix is attached, shall
determine the benefits payable to or on behalf of a Participant covered under
this Appendix. The Plan Sections referenced below are hereby modified or
expanded in accordance with the following special provisions applicable to said
Participant.
ARTICLE 1. DEFINITIONS
Section 1.11 - Certified Earnings
If, after the Effective Date, a Participant transfers directly from the employ
of an Employer to the employ of Barnes & Noble, Inc. ("Transferred
Participant"), the remuneration paid to said Transferred Participant after said
transfer and during any period of employment with Barnes & Noble, Inc. which is
recognized under the provisions of Section 3.01 of this Appendix B as Years of
Vesting Service shall be recognized as "Certified Earnings" under Section 1.11
and included in the calculation of Final Average Compensation under Section 1.21
of the Plan to the extent such remuneration would have been recognized as
Certified Earnings under Section 1.11 of the Plan had it been earned while
employed as an Eligible Employee.
Notwithstanding any Plan provisions to the contrary, the provisions of this
Section 1.11 of this Appendix B shall cease to be applicable on and after the
date the Barnes & Noble Plan ceases to provide future benefit accruals for the
employees of Barnes & Noble, Inc. (the "Freeze Date") and any remuneration
<PAGE>
Page 69
paid to a Transferred Participant after the Freeze Date shall not be recognized
as Certified Earnings under the provisions of the Plan and this Appendix B.
Anything contained herein to the contrary notwithstanding, if any Transferred
Participant ceases to be employed by Barnes & Noble, Inc. and is subsequently
reemployed by Barnes & Noble, Inc. remuneration paid to said Participant during
the period of subsequent employment with Barnes & Noble, Inc. shall not be
recognized as Certified Earnings under Section 1.11.
If, after the Effective Date, an Employee transfers directly from the employ of
Barnes & Noble, Inc. to the employ of the Employer, the remuneration paid to
said Eligible Employee prior to the transfer and during any period of employment
with Barnes & Noble, Inc., as an "eligible employee" as such term is defined
under the provisions of the Barnes & Noble Plan which is recognized under the
provisions of Section 3.01 of this Appendix B as Years of Vesting Service shall
be recognized as "Certified Earnings" under Section 1.11 and included in the
calculation of Final Average Compensation under Section 1.21 of the Plan to the
extent such remuneration would have been recognized as Certified Earnings under
Section 1.11 of the Plan had it been earned while employed as an Eligible
Employee.
Section 1.43 - Termination of Employment
If an Employee transfers directly from the employ of an Employer to the employ
of Barnes & Noble, Inc., a Termination of Employment under the provisions of
this Plan shall not be deemed to have occurred while said Employee remains in
the continuous employ of Barnes & Noble, Inc.
ARTICLE 2. PARTICIPATION
Section 2.02 - Determination of Eligibility Service
With respect to an Eligible Employee who, after the Effective Date, transfers
directly from the employ of Barnes & Noble, Inc. to the employ of an Employer,
the period of said Employee's service rendered immediately prior to said
transfer as an employee of Barnes & Noble, Inc. shall be recognized as Years
<PAGE>
Page 70
of Eligibility Service under Section 2.02 of the Plan, to the extent said period
of employment would have been recognized under the Plan had it been rendered as
an Employee.
ARTICLE 3. SERVICE
Section 3.01 - Years of Vesting Service
If, after the Effective Date, a Participant transfers directly from the employ
of an Employer to the employ of Barnes & Noble, Inc., the period of said
Participant's employment with Barnes & Noble, Inc. rendered after said direct
transfer shall be recognized as Years of Vesting Service under the provisions of
Section 3.01, to the extent said period of employment would have been recognized
under the Plan had it been rendered as an Employee. The increases in said
Participant's age during any period of employment with Barnes & Noble, Inc.,
which is recognized as Years of Vesting Service under the provisions of this
Section 3.01, shall be recognized for eligibility and early retirement subsidy
purposes under the provisions of this Plan, and such Participant shall not incur
a Termination of Employment under this Plan while he remains in the continuous
employ of Barnes & Noble, Inc.
Anything contained herein to the contrary notwithstanding, if any such
Participant ceases to be employed by Barnes & Noble, Inc. and is subsequently
reemployed by Barnes & Noble, Inc., the subsequent employment with Barnes &
Noble, Inc. shall not be recognized as Years of Vesting Service under Section
3.01.
If an Employee, after the Effective Date, transfers directly from the employ of
Barnes & Noble, Inc. to the employ of the Employer, the period of said
Participant's employment with Barnes & Noble, Inc. rendered prior to said direct
transfer shall be recognized as Years of Vesting Service under the provisions of
Section 3.01, to the extent said period of employment would have been recognized
under the Plan had it been rendered as an Employee.
<PAGE>
BARNESANDNOBLE.COM LLC
RETIREMENT PLAN
Effective as of November 1, 1998
<PAGE>
BARNESANDNOBLE.COM LLC
RETIREMENT PLAN
INTRODUCTION
The barnesandnoble.com LLC Retirement Plan (the "Plan") was established
effective November 1, 1998 to cover employees of barnesandnoble.com LLC. This
Plan was adopted by barnesandnoble.com LLC as an amendment and continuation of
the Barnes & Noble, Inc. Employees' Retirement Plan and shall provide past
service benefits for certain employees for whom liabilities and assets were
transferred to this Plan from the Barnes and Noble, Inc. Employees' Retirement
Plan.
Participation in the Plan is available, as set forth herein, to eligible
employees of barnesandnoble.com LLC and of such affiliates of barnesandnoble.com
LLC as may become participating employers under the Plan.
<PAGE>
BARNESANDNOBLE.COM LLC RETIREMENT PLAN
TABLE OF CONTENTS
Page
Article ----
- -------
INTRODUCTION
1. DEFINITIONS.......................................................1
2. PARTICIPATION.....................................................3
3. DEFERRALS ........................................................5
4. MAINTENANCE OF ACCOUNTS...........................................8
5. PAYMENT OF BENEFITS..............................................10
6. AMENDMENT OR TERMINATION.........................................14
7. GENERAL PROVISIONS...............................................15
8. ADMINISTRATION...................................................20
9. SIGNATURE AND VERIFICATION.......................................21
<PAGE>
ARTICLE 1. DEFINITIONS
1.01 "Administrative Committee" shall mean the person or persons appointed by
the Compensation Committee of the Board of Directors to administer the Plan
as provided in Section 8.01.
1.02 "Associated Company" shall mean (a) any corporation that is a member of a
controlled group of corporations (as defined in Code Section 414(b)) that
includes the Company, (b) any trade or business (whether or not
incorporated) that is under common control (as defined in Code Section
414(c)) with the Company, (c) any member of an affiliated service group (as
defined in Code Section 414(m)) that includes the Company; and (d) any
other entity required to be aggregated with the Company pursuant to final
or temporary regulations under Code Section 414(o).
1.03 "Base Salary" shall mean the annual base fixed compensation paid
periodically during the calendar year, determined prior to any pre-tax
contributions under a "qualified cash or deferred arrangement" (as defined
under Code Section 401(k) and its applicable regulations) or under a
"cafeteria plan" (as defined under Code Section 125 and its applicable
regulations) and any deferrals under Article 3, but excluding any overtime,
bonuses, or any other form of compensation; except to the extent otherwise
deemed "Base Salary" for purposes of the Plan under rules as are adopted by
the Compensation Committee.
1.04 "Beneficiary" shall mean the person or persons designated by a Participant
pursuant to the provisions of Section 5.06 in a time and manner determined
by the Administrative Committee to receive the amounts, if any, payable
under the Plan upon the death of the Participant.
1.05 "Bonus" shall mean the cash amount, if any, awarded to an employee of the
Company under the Company's executive bonus program, or other compensation
program approved by the Compensation Committee as a bonus hereunder.
1.06 "Board of Directors" or "Board" shall mean the Board of Managers of the
Corporation, as from time to time constituted, or such body or entity that
succeeds to the authority of the Board of Managers.
1.07 "Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
1.08 "Company" shall mean the Corporation, and any successor thereto, with
respect to its employees and any Associated Company authorized by the
Compensation Committee to participate in the Plan, with respect to their
employees.
1.09 "Compensation Committee" shall mean the Compensation Committee of the Board
of Directors.
<PAGE>
Page 2
1.10 "Corporation" shall mean barnesandnoble.com LLC or any successor by merger,
purchase, or otherwise.
1.11 "Deferral Account" shall mean the bookkeeping account maintained for each
Participant to record the amount of Base Salary and/or Bonus such
Participant has elected to defer in accordance with Article 3, adjusted
pursuant to Article 4.
1.12 "Deferral Agreement" shall mean the completed agreement, including any
amendments, attachments and appendices thereto, in such form approved by
the Administrative Committee, between an Eligible Executive and the
Company, under which the Eligible Executive agrees to defer a portion of
his Base Salary and/or Bonus under the Plan.
1.13 "Deferrals" shall mean the amount of deferrals credited to a Participant
pursuant to Section 3.02.
1.14 "Effective Date" shall mean November 1, 1998.
1.15 "Employee" shall mean any person who is employed by the Company.
1.16 "Eligible Executive" shall mean an Employee of the Company who is eligible
to participate in the Plan as provided in Section 2.01.
1.17 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time.
1.18 "Participant" shall mean, except as otherwise provided in Article 2, each
Eligible Executive who has executed a Deferral Agreement pursuant to the
requirements of Section 2.02 and is credited with an amount under Section
3.03.
1.19 "Plan" shall mean the barnesandnoble.com LLC Deferred Compensation Plan as
set forth in this document and any appendices thereto, as it may be amended
from time to time.
1.20 "Plan Year" shall mean the 12-month period commencing on any January 1;
provided, however, that the first Plan Year shall commence on November 1,
1998 and end on December 31, 1998.
1.21 "Prior Plan" shall mean the Barnes & Noble, Inc. Deferred Compensation Plan
as in effect on October 31, 1998.
1.22 "Reporting Date" shall mean any day on which the New York Stock Exchange is
open.
1.23 "Retirement" shall mean any termination of employment by an Eligible
Executive (i) after the date the Eligible Executive has attained age 55 and
has completed five "Years of Service" (as such term is defined under the
barnesandnoble.com LLC Retirement Plan as in effect on the date of such
termination) or (ii) as a result of his "Total and Permanent Disability"
(as such term is defined under the Barnes & Noble, Inc. 401(k) Savings Plan
as in effect on the date of such termination).
<PAGE>
Page 3
ARTICLE 2. PARTICIPATION
2.01 Eligibility
(a) An Employee whose Base Salary as of October 1 of a calendar year
exceeds $130,000, shall be an Eligible Executive with respect to the
Plan Year following such calendar year and thereby eligible to
participate in this Plan and execute a Deferral Agreement authorizing
Deferrals under this Plan with respect to his Base Salary or Bonus
which would otherwise be payable in the Plan Year following such
October 1.
(b) An Employee who is first employed or reemployed after October 1 of a
calendar year, and whose Base Salary on such employment or reemployment
date, whichever is applicable, exceeds $130,000 shall be an Eligible
Executive with respect to the following Plan Year and thereby eligible
to participate in the Plan with respect to his Base Salary or Bonus
which is otherwise paid in the Plan Year following his date of
employment or reemployment, whichever is applicable.
(c) Notwithstanding the foregoing, an Employee who was an Eligible
Executive under the Prior Plan as of October 31, 1998 and who became an
Employee of the Corporation on November 1, 1998 shall be an Eligible
Executive with respect to the first Plan Year which commences November
1, 1998 and thereby eligible to participate in the Plan with respect to
such Plan Year, subject to the provisions of Section 3.01(a)(v).
(d) Notwithstanding the foregoing, an Employee who is first employed or
reemployed on or after January 1, 1999 and whose Base Salary on such
date of employment or reemployment, whichever is applicable, exceeds
$130,000 shall be an Eligible Executive with respect to the Plan Year
in which his date of employment or reemployment occurs and thereby
eligible to participate in the Plan with respect to such Plan Year,
subject to the provisions of Section 3.01(a)(v).
2.02 In General
(a) An individual who is determined to be an Eligible Executive with
respect to a Plan Year and who desires to have deferrals credited on
his behalf pursuant to Article 3 for such Plan Year must execute a
Deferral Agreement with the Administrative Committee authorizing
Deferrals under this Plan for such year in accordance with the
provisions of Sections 3.01 and 3.02.
(b) The Deferral Agreement shall be in writing and be properly completed
upon a form approved by the Administrative Committee, which shall be
the sole judge of the proper completion thereof. Such Deferral
Agreement shall provide, subject to the provisions of Section 3.02, for
the deferral of a portion of the Eligible Executive's Base Salary
and/or Bonus earned after the effective date of the election and shall
include such other provisions as the Administrative Committee deems
appropriate.
<PAGE>
Page 4
2.03 Termination of Participation
(a) Participation shall cease when all benefits to which a Participant is
entitled to hereunder are distributed to him.
(b) If a former Participant who has terminated employment with the Company
and whose participation in the Plan ceased under Section 2.03(a) is
reemployed as an Eligible Executive, the former Participant may again
become a Participant in accordance with the provisions of Section 2.01.
<PAGE>
Page 5
ARTICLE 3. DEFERRALS
3.01 Filing Requirements
(a) (i) Prior to the close of business on October 1 of any Plan Year
commencing on or after the Effective Date, an Employee who is
determined to be an Eligible Executive on the basis of his Base
Salary on such October 1 in accordance with Section 2.01(b) may
elect, subject to Section 3.02(a), to defer a portion of his Base
Salary that is otherwise earned and payable in the Plan Year
following such October 1 and/or a portion of his Bonus otherwise
payable in the Plan Year following such October 1 by filing a
Deferral Agreement with the Administrative Committee.
(ii) In the event October 1 does not fall on a business day, such
filing must be made by the close of business on the next business
day.
(iii) Notwithstanding the foregoing, if an Employee becomes an Eligible
Executive with respect to a Plan Year pursuant to the provisions
of Section 2.01(b) he may elect, subject to Section 3.02(a), to
defer a portion of his Base Salary or Bonus which would otherwise
be payable in the Plan Year next following his date of employment
or reemployment, by filing a Deferral Agreement with the
Administrative Committee prior to the close of business on the
tenth business day following the date of his employment or
reemployment, whichever is applicable; provided, however that the
Bonus may be deferred only if the amount otherwise payable in
that year has not already been determined by appropriate action
of the Company.
(iv) Notwithstanding the foregoing, if an Employee becomes an Eligible
Executive with respect to the first Plan Year which commences
November 1, 1998, pursuant to the provisions of Section 2.01(c),
any deferral agreement in effect under the Prior Plan with
respect to the 1998 calendar year shall continue to be in effect
for the first Plan Year with respect to any Base Salary or Bonus
that is otherwise earned and payable to said Eligible Executive
in said first Plan Year.
(v) Notwithstanding the foregoing, if an Employee becomes an Eligible
Executive with respect to a Plan Year pursuant to the provisions
of Section 2.01(d) he may elect, subject to Section 3.02(a), to
defer a portion of his Base Salary or Bonus otherwise payable in
that Plan Year by filing a Deferral Agreement with the
Administrative Committee prior to the close of business on the
tenth business day following the date of his employment or
reemployment, whichever is applicable. Such Deferral Agreement
shall be effective only with respect to Base Salary and Bonus
otherwise payable to the Eligible Executive commencing with the
first practicable payroll period following the Administrative
Committee's receipt of the Deferral Agreement; provided however,
Bonus may only be deferred if the Bonus otherwise payable in that
Plan Year has not already been determined by appropriate action
of the Company.
<PAGE>
Page 6
(b) A Participant's election to defer a portion of Base Salary or Bonus for
any Plan Year shall become irrevocable on the last day the deferral of
such Base Salary or Bonus may be elected under Section 3.01(a). A
Participant may revoke or change his election to defer a portion of
Base Salary or Bonus at any time prior to the date the election becomes
irrevocable. Any such revocation or change shall be made in a form and
manner determined by the Administrative Committee.
(c) Except as otherwise provided in Section 3.01(a)(v), a Participant's
Deferral Agreement shall apply only with respect to Base Salary earned
in the calendar year following the calendar year in which the Deferral
Agreement is filed with the Administrative Committee under Section
3.01(a). A Participant's Deferral Agreement shall only apply to a Bonus
determined after the Deferral Agreement is filed with the
Administrative Committee under Section 3.01(a). Subject to the
provisions of Section 3.02, an Eligible Executive must file, in
accordance with the provisions of Section 3.01(a), a new Deferral
Agreement for each Plan Year the Eligible Executive is eligible for and
elects to defer a portion of Bonus or Base Salary.
(d) If a Participant ceases to be an Eligible Executive on the basis of his
Base Salary as of October 1 of a calendar year but continues to be
employed by the Company, he shall continue to be a Participant and his
Deferral Agreement currently in effect for the Plan Year in which such
October 1 occurs shall remain in force for the remainder of such Plan
Year, but such Participant shall not be eligible to defer any portion
of his Base Salary or Bonus earned in a subsequent Plan Year until such
time as he shall once again become an Eligible Executive.
3.02 Amount of Deferral
(a) (i) An Eligible Executive may defer for any Plan Year a specified
dollar amount of his Base Salary otherwise earned and payable in
that Plan Year, provided such amount is not less than $5,000 and
does not exceed 50% of his Base Salary payable in that Plan Year.
(ii) An Eligible Executive may defer for any Plan Year a specified
dollar amount of his Bonus otherwise payable in that Plan Year,
provided such amount is not less than $2,500 and does not exceed
100% of his Bonus payable in that Plan Year.
(b) The Administrative Committee may establish other maximum or minimum
limits on the amount of Base Salary or Bonus which may be deferred
and/or the timing of such deferral. Eligible Executives shall be given
written notice of any such limits at least ten business days prior to
the date they take effect.
(c) Notwithstanding anything in this Plan to the contrary, if an Eligible
Executive:
(i) receives a withdrawal of deferred cash contributions on account of
hardship from any plan which is maintained by the Company and
which meets the requirements of Code Section 401(k) (or any
successor thereto); and
<PAGE>
Page 7
(ii) is precluded from making contributions to such 401(k) plan for at
least 12 months after receipt of the hardship withdrawal;
no amounts shall be deferred under this Plan under the Eligible
Executive's Deferral Agreement with respect to Base Salary or Bonus
until such time as the Eligible Executive is again permitted to
contribute to such 401(k) plan. Any Base Salary or Bonus payment which
would have been deferred pursuant to a Deferral Agreement but for the
application of this Section 3.02(c) shall be paid to the Eligible
Executive as if he had not entered into the Deferral Agreement.
3.03 Crediting to Deferral Account
The amount of Deferrals shall be credited to such Participant's Deferral
Account no later than the first business day of the first calendar month
following the date the Base Salary or Bonus would have been paid to the
Participant in the absence of a Deferral Agreement.
3.04 Vesting
A Participant shall at all times be 100% vested in his Deferral Account.
<PAGE>
Page 8
ARTICLE 4. MAINTENANCE OF ACCOUNTS
4.01 Adjustment of Account
(a) As of each Reporting Date, each Deferral Account shall be credited or
debited with the amount of earnings or losses with which such Deferral
Account would have been credited or debited, assuming it had been
invested in one or more investment funds, or earned the rate of return
of one or more indices of investment performance, designated by the
Administrative Committee and elected by the Participant pursuant to
Section 4.02 for purposes of measuring the investment performance of
his Deferral Account.
(b) The Administrative Committee shall designate at least one investment
fund or index of investment performance and may designate other
investment funds or investment indices to be used to measure the
investment performance of a Participant's Deferral Account. The
designation of any such investment funds or indices shall not require
the Company to invest or earmark their general assets in any specific
manner. The Administrative Committee may change the designation of
investment funds or indices from time to time, in its sole discretion,
and any such change shall not be deemed to be an amendment affecting
Participants' rights under Section 6.02. The Administrative Committee
shall provide Participants with an advance notice of any changes in the
designation of investment funds or indices.
4.02 Investment Performance Elections
In the event the Administrative Committee designates more than one
investment fund or index of investment performance under Section 4.01, each
Participant shall file an investment election with the Administrative
Committee with respect to the investment of his Deferral Account within
such time period and on such form as the Administrative Committee may
prescribe. The election shall designate the investment fund or funds or
index or indices of investment performance which shall be used to measure
the investment performance of the Participant's Deferral Account.
4.03 Changing Investment Elections
(a) A Participant may change his election of the investment fund or funds
or index or indices of investment performance used to measure the
future investment performance of his future Deferrals within such time
periods and in such manner prescribed by the Administrative Committee.
The election shall be effective as soon as administratively practicable
after the date on which the notice is timely filed.
(b) A Participant may change his election of investment funds or index or
indices of investment performance used to measure the future investment
performance of his existing account balance within such time periods
and in such manner prescribed by the Administrative Committee. The
election shall be effective as soon as administratively practicable
after the date on which the notice is timely filed.
<PAGE>
Page 9
4.04 Individual Accounts
The Administrative Committee shall maintain, or cause to be maintained on
its books, records showing the individual balance of each Participant's
Deferral Account. At least once a calendar quarter each Participant shall
be furnished with a statement setting forth the value of his Deferral
Account.
4.05 Valuation of Accounts
(a) The Administrative Committee shall value or cause to be valued each
Participant's Deferral Account on each Reporting Date. On each
Reporting Date there shall be allocated to the Deferral Account of each
Participant the appropriate amount determined in accordance with
Section 4.01.
(b) Whenever an event requires a determination of the value of
Participant's Deferral Account, the value shall be computed as of the
Reporting Date coincident with, or immediately following, the date of
the event.
<PAGE>
Page 10
ARTICLE 5. PAYMENT OF BENEFITS
5.01 Commencement of Payment
(a) The distribution of the portion of Participant's Deferral Account
attributable to deferrals of Base Salary or Bonus for each Plan Year
made pursuant to the Deferral Agreement applicable to such Plan Year
shall commence, pursuant to Section 5.02, on or as soon as practicable
after the occurrence of one of the following events, as designated by
the Participant on such Deferral Agreement:
(i) the month following the Participant's Retirement;
(ii) the month following the Participant's termination of employment;
or
(iii) the beginning of a designated year not later than the year in
which the Participant would attain age 70 1/2.
In the event a Participant elects (iii) above, he may not elect a year
that commences less than three (3) full calendar years subsequent to
the calendar year in which the amount is first treated as being
credited to the Participant's Deferral Account.
(b) Notwithstanding the foregoing, in the event a Participant terminates
employment or retires prior to the designated distribution event date
elected pursuant to paragraph (a)(iii) above, the distribution of his
entire Deferral Account shall commence, pursuant to Section 5.02, as
soon as practicable after the month following his termination of
employment or Retirement.
(c) A Participant shall not change his designation of the event which
entitles him to distribution of any portion of his Deferral Account,
except as otherwise provided in Section 5.03.
(d) Commencement of payment with respect to any amounts transferred to the
Plan from the Prior Plan shall be governed by the Participant's
election made under the Prior Plan with respect to said transferred
amounts, unless otherwise provided in Section 5.03.
5.02 Method of Payment
(a) Except as otherwise provided in the second and third sentences of this
paragraph (a) and paragraph (b) below, the distribution of the portion
of the Participant's Deferral Account attributable to deferrals of Base
Salary or Bonus made pursuant to a particular Deferral Agreement shall
be made in cash in a single lump sum. However, with respect to a
Participant who elects payments to commence pursuant to Section
5.01(a)(i), at the time such Participant makes an election of a
distribution event date under Section 5.01 the Participant may also
elect that the portion of his Deferral Account attributable to
deferrals of Base Salary or Bonus made pursuant to Deferral Agreements
for Plan Years commencing prior to January 1, 1999 shall be made
payable as of such distribution event date in ratable annual cash
installments for a period of years, not to exceed 15 years,
<PAGE>
Page 11
designated by the Participant on his Deferral Agreement instead of in a
single lump sum cash payment. Effective as of September 1, 1998, if a
Participant elects to commence payments of the portion of his Deferral
Account attributable to deferrals of Base Salary or Bonus applicable to
a Plan Year commencing on or after January 1, 1999 pursuant to Section
5.01(a)(i), such Participant may also elect at the time he makes an
election of a distribution event date under Section 5.01 regarding a
deferral of Base Salary or Bonus made pursuant to a Deferral Agreement
applicable to a Plan Year commencing on or after January 1, 1999 to
have the portion of his Deferral Account attributable to such deferral
payable as of such distribution event date in ratable annual
installments for a period of years, not to exceed 15 years, as
designated by the Participant on his Deferral Agreement, instead of in
a single lump sum cash payment.
During an installment payment period, the Participant's Deferral
Account shall continue to be credited with earnings or losses as
described in Section 4.01. The first installment or lump sum payment
shall be made as soon as administratively practicable following the
Reporting Date coincident with or preceding the applicable distribution
event date designated pursuant to Section 5.01 or 5.03. However, in the
event payment is to be made pursuant to Section 5.01(b), the lump sum
payment shall be made as soon as administratively practicable following
the Reporting Date coincident with or next following the Participant's
termination of employment or date of Retirement, if earlier. Subsequent
installments, if any, shall be paid as soon as practicable following
the beginning of the following calendar year and each subsequent year
of the installment period. The amount of each installment shall equal
the balance of the portion of the Participant's Deferral Account
subject to such installment payment option as of each Reporting Date of
determination divided by the number of remaining installments
(including the installment being determined).
(b) If a Participant dies before payment of the entire balance of his
Deferral Account, an amount equal to the unpaid portion thereof as of
the date of his death shall be payable in one lump sum to his
Beneficiary as soon as practicable after the Reporting Date coincident
with or next following the Participant's date of death.
(c) A Participant shall not change his method of payment, except as
otherwise provided in Section 5.03.
(d) The method of payment with respect to amounts transferred to this Plan
from the Prior Plan shall be governed by the Participant's election
made under the Prior Plan with respect to said transferred amounts,
unless otherwise provided in Section 5.03.
5.03 Change of Distribution Election
A Participant may change his elections under Section 5.01 or Section 5.02
at any time by duly completing, executing, and filing with the
Administrative Committee a new election on an appropriate form designated
by the Administrative Committee; provided however, that for any such change
of election
<PAGE>
Page 12
to be effective, a full calendar year must pass between the calendar year
during which the Participant duly makes the change of election and the
calendar year during which any portion of the Participant's Deferral
Account is first to become payable after taking the change of election into
account.
5.04 Withdrawals
(a) Subject to approval by the Administrative Committee and the provisions
of paragraph (b) below, at any time before the total amount of a
Participant's Deferral Account is distributed from the Plan in
accordance with the foregoing provisions of this Article 5, a
Participant who is in active service may elect to withdraw all or any
fixed dollar portion of the amount of his Deferral Account by duly
completing, executing, and filing with the Administrative Committee the
appropriate form designated by the Administrative Committee. The
withdrawal payment to the Participant shall be made in a lump sum as
soon as practicable after the Reporting Date coincident with or next
following the date the corresponding withdrawal request is duly
approved by the Administrative Committee.
(b) In the event the Administrative Committee approves a Participant's
withdrawal request, then the Participant shall be subject to a
forfeiture penalty of 10 percent of the amount of the withdrawal,
unless the Participant proves to the Compensation Committee with such
evidence as the Compensation Committee may deem appropriate that the
withdrawal request is occasioned by severe financial hardship. In the
event such Participant incurs a forfeiture penalty under this Section
5.04(b), such amount shall be permanently forfeited and debited from
the Participant's Deferral Account by the Company at the time the
withdrawal payment is made to the Participant, and any such amounts
forfeited and debited from the Participant's Deferral Account shall, in
no event and in no manner, be ever again credited to the individual
under this Plan.
5.05 Tax Increases
Notwithstanding the provisions of Sections 5.01 and 5.03, in the event a
Participant's Deferral Account is being paid in installment payments under
Section 5.02, and during said payout period Federal personal income tax
rates for the highest marginal tax rate are scheduled to increase by 5 or
more percentage points, at the direction of the Compensation Committee, any
remaining installment payments to be paid after the effective date of such
increase shall be paid in one lump sum prior to said effective date.
5.06 Designation of Beneficiary
Each Participant shall file with the Administrative Committee a written
designation of one or more persons as the Beneficiary who shall be entitled
to receive the amount, if any, payable under the Plan upon his death
pursuant to Section 5.02(b). A Participant may, from time to time, revoke
or change his Beneficiary designation without the consent of any prior
Beneficiary by filing a new designation with the Administrative Committee.
The last such designation received by the Administrative Committee shall be
controlling; provided, however, that no designation, or change or
revocation thereof, shall be effective unless received by the
Administrative Committee prior to the Participant's death, and in no event
shall it be effective as of a date prior to such receipt. If no such
Beneficiary
<PAGE>
Page 13
designation is in effect at the time of a Participant's death, or if no
designated Beneficiary survives the Participant, the Participant's
surviving spouse, if any, shall be deemed to have been designated his
Beneficiary, otherwise the Participant's estate shall be deemed to have
been designated as his Beneficiary, and shall receive the payment of the
amount, if any, payable under the Plan upon his death.
5.08 Debiting Accounts
Any amounts debited from a Participant's Deferral Account by reason of a
distribution, withdrawal, or otherwise under this Article 5, shall be
debited from the Participant's Deferral Account and the investment options
under which such amount is credited, and such other accounts, subaccounts,
options, or other allocations in the same proportion that the Participant's
entire Deferral Account is credited at the time such debit is made, as
determined by the Administrative Committee.
<PAGE>
Page 14
ARTICLE 6. AMENDMENT OR TERMINATION
6.01 Right to Terminate
The Corporation may, by action of the Board of Directors, terminate this
Plan and the related Deferral Agreements at any time. In the event the Plan
and related Deferral Agreements are terminated, each Participant or
Beneficiary shall receive a single sum payment in cash equal to the balance
of the Participant's Deferral Account. The single sum payment shall be made
as soon as practicable following the date the Plan is terminated and shall
be in lieu of any other benefit which may be payable to the Participant or
Beneficiary under this Plan.
6.02 Right to Amend
The Compensation Committee may amend or modify this Plan and the related
Deferral Agreements in any way either retroactively or prospectively;
provided, however, no amendment or modification shall reduce the balance of
a Participant's Deferral Account as of the date of such amendment or
modification, as adjusted pursuant to Article 4. Not withstanding the
foregoing, a change in any investment fund or index under Section 4.01
shall not be deemed to adversely affect any Participant's rights to his
Deferral Account.
<PAGE>
Page 15
ARTICLE 7. GENERAL PROVISIONS
7.01 Funding
(a) All amounts payable in accordance with this Plan shall constitute a
general unsecured obligation of the Company. Such amounts, as well as
any administrative costs relating to the Plan, shall be paid out of the
general assets of the Company, to the extent not paid by a grantor
trust established pursuant to paragraph (b) below. The Administrative
Committee may decide that a Participant's Account may be reduced to
reflect allocable administrative expense.
(b) The Corporation may, for administrative reasons, establish a grantor
trust for the benefit of Participants participating in the Plan. The
assets of said trust will be held separate and apart from other
Corporation funds, and shall be used exclusively for the purposes set
forth in the Plan and the applicable trust agreement, subject to the
following conditions:
(i) the creation of said trust shall not cause the Plan to be other
than "unfunded" for purposes of Title I of ERISA;
(ii) the Corporation shall be treated as "grantor" of said trust for
purposes of Code Section 677; and
(iii) said trust agreement shall provide that its assets may be used to
satisfy claims of the Corporation's general creditors, and the
rights of such general creditors are enforceable by them under
federal and state law.
7.02 No Contract of Employment
The Plan is not a contract of employment and the terms of employment of any
Participant shall not be affected in any way by this Plan or related
instruments, except as specifically provided therein. The establishment of
the Plan shall not be construed as conferring any legal rights upon any
person for a continuation of employment, nor shall it interfere with the
rights of the Company to discharge any person and to treat him without
regard to the effect which such treatment might have upon him under this
Plan. Each Participant and all persons who may have or claim any right by
reason of his participation shall be bound by the terms of this Plan and
all Deferral Agreements entered into pursuant thereto.
7.03 Unsecured Interest
Neither the Company nor the Compensation Committee nor the Administrative
Committee in any way guarantees the performance of the investment funds or
indices a Participant may designate under Article 4. No special or separate
fund shall be established, and no segregation of assets shall be made, to
assure the payments thereunder. No Participant hereunder shall have any
right, title, or interest whatsoever in any specific assets of the Company.
Nothing contained in this Plan and no action taken pursuant to its
provisions shall create or be construed to create a trust of any kind or a
fiduciary relationship between the Company and a Participant or any other
person. To the
<PAGE>
Page 16
extent that any person acquires a right to receive payments under this
Plan, such right shall be no greater than the right of any unsecured
creditor of the Company.
7.04 Facility of Payment
In the event that the Administrative Committee shall find that a
Participant or Beneficiary is unable to care for his affairs because of
illness or accident or is a minor or has died, the Administrative Committee
may direct that any benefit payment due him, unless claim shall have been
made therefor by a duly appointed legal representative, be paid on his
behalf to his spouse, a child, a parent or other blood relative, and any
such payment so made shall thereby be a complete discharge of the liability
of the Plan for that payment.
7.05 Withholding Taxes
The Company shall have the right to deduct from each payment to be made
under the Plan any required withholding taxes.
7.06 Nonalienation
Subject to any applicable law, no benefit under the Plan shall be subject
in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance or charge, and any attempt to do so shall be void, nor
shall any such benefit be in any manner liable for or subject to
garnishment, attachment, execution or levy, or liable for or subject to the
debts, contracts, liabilities, engagements or torts of a person entitled to
such benefits.
7.07 Mergers/Transfers
(a) This Plan shall be binding upon and inure to the benefit of the Company
and its successors and assignees and the Participant, his designees and
his estate. Nothing in this Plan shall preclude the Company from
consolidating or merging into or with, or transferring all or
substantially all of its assets to, another corporation which assumes
this Plan and all obligations of the Company hereunder. Upon such a
consolidation, merger or transfer of assets and assumption, the term
"Company" shall refer to such other corporation and this Plan shall
continue in full force and effect.
(b) Notwithstanding any Plan provisions to the contrary, at the discretion
and direction of the Corporation, liabilities with respect to benefits
accrued by a Participant under a Plan maintained by such Participant's
former employer may be transferred to this Plan and upon such transfer
become the obligation of the Company.
7.08 Limitation of Liability
The Company, the members of the Compensation Committee and of the
Administrative Committee, and any officer, employee or agent of the Company
shall not incur any liability individually or on behalf of any other
individuals or on behalf of the Company for any act or failure to act, made
in good faith in relation to this Plan.
<PAGE>
Page 17
7.09 Indemnification
The Company, the members of the Compensation Committee and of the
Administrative Committee, and the officers, employees and agents of the
Company shall, unless prohibited by any applicable law, be indemnified
against any and all liabilities arising by reason of any act or failure to
act in relation to the Plan including, without limitation, expenses
reasonably incurred in the defense of any claim relating to the Plan,
amounts paid in any compromise or settlement relating to the Plan and any
civil penalty or excise tax imposed by any applicable statute, if:
(a) the act or failure to act shall have occurred
(i) in the course of the person's service as an officer, employee or
agent of the Company or as a member of the Compensation Committee
or of the Administrative Committee,
(ii) in connection with a service provided with or without charge to
the Plan or to the Participants or Beneficiaries of the Plan, if
such service was requested by the Compensation Committee or the
Administrative Committee; and
(b) the act or failure to act is in good faith and in, or not opposed to,
the best interests of the Company.
This determination shall be made by the Corporation and, if such
determination is made in good faith and not arbitrarily or capriciously,
shall be conclusive.
The foregoing indemnification shall be from the assets of the Company.
However, the Company's obligation hereunder shall be offset to the extent
of any otherwise applicable insurance coverage under a policy maintained by
the Company or any other person, or other source of indemnification.
7.10 Claims Procedure
(a) Submission of Claims
Claims for benefits under the Plan shall be submitted in writing to the
Administrative Committee or to an individual designated by the
Administrative Committee for this purpose.
(b) Denial of Claim
If any claim for benefits is wholly or partially denied, the claimant
shall be given written notice within 90 days following the date on
which the claim is filed, which notice shall set forth the following:
(i) the specific reason or reasons for the denial;
<PAGE>
Page 18
(ii) specific reference to pertinent Plan provisions on which the
denial is based;
(iii) a description of any additional material or information necessary
for the claimant to perfect the claim and an explanation of why
such material or information is necessary; and
(iv) an explanation of the Plan's claim review procedure.
If special circumstances require an extension of time for processing
the claim, written notice of an extension shall be furnished to the
claimant prior to the end of the initial period of 90 days following
the date on which the claim is filed. Such an extension may not exceed
a period of 90 days beyond the end of said initial period.
If the claim has not been granted and written notice of the denial of
the claim is not furnished within 90 days following the date on which
the claim is filed, the claim shall be deemed denied for the purpose of
proceeding to the claim review procedure.
(c) Claim Review Procedure
The claimant or his authorized representative shall have 60 days after
the earlier of (i) receipt of written notification of denial of a claim
or (ii) expiration of the 90-day period (or any extended period up to
180 days pursuant to Section 7.10(b)) following the date on which the
claim is filed, to request a review of the denial by making written
request to the Administrative Committee, and may review pertinent
documents and submit issues and comments in writing within such 60-day
period.
Not later than 60 days after receipt of the request for review, the
Administrative Committee shall render and furnish to the claimant a
written decision, which shall include specific reasons for the decision
and shall make specific references to pertinent Plan provisions on
which it is based. If special circumstances require an extension of
time for processing, the decision shall be rendered as soon as
possible, but not later than 120 days after receipt of the request for
review, provided that written notice and explanation of the delay are
given to the claimant prior to commencement of the extension. Such
decision by the Administrative Committee shall not be subject to
further review. If a decision on review is not furnished to a claimant
within the specified time period, the claim shall be deemed to have
been denied on review.
(d) Exhaustion of Remedy
No claimant shall institute any action or proceeding in any state or
federal court of law or equity or before any administrative tribunal or
arbitrator for a claim for benefits under the Plan until the claimant
has first exhausted the procedures set forth in this Section.
7.11 Acceleration of Payment
Notwithstanding any other provision of the Plan to the contrary, the
Company shall make payments hereunder to a Participant before such payments
are otherwise due if it
<PAGE>
Page 19
determines, based on a change in the tax or revenue laws of the United
States of America, a published ruling or similar announcement issued by the
Internal Revenue Service, a regulation issued by the Secretary of the
Treasury or his delegate, a decision by a court of competent jurisdiction
involving a Participant or Beneficiary, or a closing agreement made under
Code Section 7121 that is approved by the Internal Revenue Service and
involves a Participant or Beneficiary, that a Participant or Beneficiary
has recognized or will recognize income for federal income tax purposes
with respect to amounts that are or will be payable to him under the Plan
before they are paid to him.
7.12 Payment of Expenses
All administrative expenses of the Plan and all benefits under the Plan
shall be paid from the general assets of the Company, except as otherwise
may be provided herein.
7.13 Construction
(a) The Plan is intended to constitute an unfunded deferred compensation
arrangement for a select group of management or highly compensated
employees and therefore exempt from the requirements of parts 2, 3 and
4 of Subtitle B of Title I of ERISA (pursuant to Sections 201(2),
301(a)(3) and 401(a)(1) of ERISA), and all rights hereunder shall be
governed by ERISA. Subject to the preceding sentence, the Plan shall be
construed, regulated and administered in accordance with the laws of
the State of New York, subject to the provisions of applicable federal
laws.
(b) The masculine pronoun shall mean the feminine wherever appropriate.
(c) The illegality of any particular provision of this document shall not
affect the other provisions, and the document shall be construed in all
respects as if such invalid provision were omitted.
(d) Article or Section references herein shall mean references to such
Articles or Sections as contained herein, unless otherwise indicated.
<PAGE>
Page 20
ARTICLE 8. ADMINISTRATION
8.01
(a) The Administrative Committee shall have the exclusive responsibility
and complete discretionary authority to control the operation,
management and administration of the Plan, with all powers necessary to
enable it to properly carry out such responsibilities, including, but
not limited to, the power to interpret the Plan and any related
documents, to establish procedures for making any elections called for
under the Plan, to make factual determinations regarding any and all
matters arising hereunder, including, but not limited to, the right to
determine eligibility for benefits, the right to construe the terms of
the Plan, the right to remedy possible ambiguities, inequities,
inconsistencies or omissions, and the right to resolve all
interpretive, equitable or other questions arising under the Plan. The
decisions of the Administrative Committee on all matters shall be
final, binding and conclusive on all persons to the extent permitted by
law. The Administrative Committee may appoint one or more individuals
and delegate such of its power and duties described herein as it deems
desirable to any such individuals as to any matter within the
jurisdiction of such delegations.
(b) To the extent permitted by law, all agents and representatives of the
Administrative Committee shall be indemnified by the Company and saved
harmless against any claims and the expenses of defending against such
claims, resulting from any action or conduct relating to the
administration of the Plan, except claims arising from gross
negligence, willful neglect or willful misconduct.
<PAGE>
Page 21
ARTICLE 9. SIGNATURE AND VERIFICATION
IN WITNESS WHEREOF, the Corporation has caused this Plan to be executed this
___________ day of ______________, 19__.
________________________________________
________________________________________
Attest: _____________________
<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 , 1999,
relating to the financial statements of barnesandnoble.com inc. and January 29,
1999, relating to the financial statements of barnesandnoble.com llc.
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
March 18, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
barnesandnoble.com inc.'s financial statements as of ____________, 1999 included
in its Prospectus, and is qualified in its entirety by reference to such
financial statement
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1
<TOTAL-LIABILITY-AND-EQUITY> 1
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0.000
<EPS-DILUTED> 0.000
</TABLE>
