SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 27, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-12302
BARNES & NOBLE, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 06-1196501
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
122 Fifth Avenue, New York, NY 10011
(Address of Principal Executive Offices) (Zip Code)
(212) 633-3300
Registrant's Telephone Number, Including Area Code
Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Number of shares of $.001 par value common stock outstanding as of
August 23, 1996: 33,015,613
<PAGE>
BARNES & NOBLE, INC. AND SUBSIDIARIES
July 27, 1996
Index to Form 10-Q
Page No.
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
Consolidated Statements of Operations - For the 13
weeks and the 26 weeks ended July 27, 1996 and
July 29, 1995...................................... 3
Consolidated Balance Sheets - July 27, 1996, July
29, 1995 and January 27, 1996...................... 4
Consolidated Statements of Cash Flows - For the 26
weeks ended July 27, 1996 and July 29, 1995........ 6
Notes to Consolidated Financial Statements........... 7
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 9
PART II - OTHER INFORMATION.................................... 16
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
BARNES & NOBLE, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(thousands of dollars, except per share data)
(unaudited)
<TABLE>
<CAPTION>
13 weeks ended 26 weeks ended
July 27, July 29, July 27, July 29,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 524,321 420,080 1,033,076 822,051
Cost of sales, buying and
occupancy 340,236 273,226 673,712 535,178
--------- ------- --------- -------
Gross profit 184,085 146,854 359,364 286,873
--------- ------- --------- -------
Selling and administrative
expenses 105,185 86,436 209,412 173,557
Rental expenses 54,149 43,057 107,264 84,557
Depreciation and amortization 14,266 11,132 27,855 21,691
Pre-opening expenses 4,863 2,751 9,352 5,519
--------- ------- --------- -------
Operating profit 5,622 3,478 5,481 1,549
Interest (net of interest
income of $86, $516,
$277 and $1,100,
respectively) and
amortization of deferred
financing expenses 10,169 7,075 18,513 13,125
--------- ------- --------- -------
Loss before benefit for
income taxes (4,547) (3,597) (13,032) (11,576)
Benefit for income taxes (1,826) (1,018) (4,918) (3,711)
--------- ------- --------- -------
Net loss $ (2,721) (2,579) (8,114) (7,865)
========= ======= ========= =======
Net loss per common share $ (0.08) (0.08) (0.25) (0.26)
Weighted average common
shares outstanding 33,005,000 30,412,000 32,986,000 30,360,000
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
BARNES & NOBLE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(thousands of dollars)
July 27, July 29, January 27,
1996 1995 1996
---- ---- ----
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 16,557 8,034 9,276
Receivables, net 44,462 40,253 49,019
Merchandise inventories 682,703 514,690 740,351
Prepaid expenses and other current
assets 51,245 31,863 49,542
--------- --------- ---------
Total current assets 794,967 594,840 848,188
--------- --------- ---------
Property and equipment:
Land and land improvements 681 759 681
Buildings and leasehold improvement 306,726 247,535 249,603
Fixtures and equipment 239,304 168,375 204,528
--------- --------- ---------
546,711 416,669 454,812
Less accumulated depreciation and
amortization 158,827 128,093 134,932
--------- --------- ---------
Net property and equipment 387,884 288,576 319,880
--------- --------- ---------
Intangible assets, net 95,170 132,101 96,799
Other noncurrent assets 59,351 33,466 50,475
--------- --------- ---------
Total assets $1,337,372 1,048,983 1,315,342
========= ========= =========
(Continued)
4
<PAGE>
BARNES & NOBLE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
(thousands of dollars)
July 27, July 29, January 27,
1996 1995 1996
---- ---- ----
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving credit facility $ 110,000 78,000 -
Accounts payable 323,045 282,183 415,698
Accrued liabilities 182,598 118,279 205,990
--------- --------- ---------
Total current liabilities 615,643 478,462 621,688
--------- --------- ---------
Long-term debt 290,000 190,000 262,400
Other long-term liabilities 38,325 24,591 31,019
Stockholders' equity:
Common stock; $.001 par value;
100,000,000 shares authorized
July 27, 1996 and 40,000,000 shares
authorized July 29, 1995 and January
27, 1996; 33,014,713, 30,426,410 and
32,958,614 shares issued and
outstanding, respectively 33 30 33
Additional paid-in capital 443,052 352,356 441,769
Retained earnings (deficit) (49,681) 3,544 (41,567)
--------- --------- ---------
Total stockholders' equity 393,404 355,930 400,235
--------- --------- ---------
Commitments and contingencies
--------- --------- ---------
Total liabilities and stockholders'
equity $1,337,372 1,048,983 1,315,342
========= ========= =========
See accompanying notes to consolidated financial statements.
5
<PAGE>
BARNES & NOBLE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(thousands of dollars)
(unaudited)
26 weeks ended
July 27, July 29,
1996 1995
---- ----
Cash flows from operating activities:
Net loss $ (8,114) (7,865)
Adjustments to reconcile net loss to net cash flows
from operating activities:
Depreciation and amortization 28,708 22,843
Losses on disposal of property and equipment 319 1,103
Increase in other long-term liabilities for
scheduled rent increases in long-term leases 7,461 4,242
Changes in operating assets and liabilities, net (55,698) (85,790)
-------- --------
Net cash flows from operating activities (27,324) (65,467)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (94,718) (65,606)
Proceeds from sales of property and equipment 169 4
Net (increase) decrease in other noncurrent assets (9,729) 59
-------- --------
Net cash flows from investing activities (104,278) (65,543)
-------- --------
Cash flows from financing activities:
Net increase in revolving credit facility 37,600 78,000
Proceeds from issuance of long-term debt 100,000 -
Proceeds from exercise of common stock options 1,283 5,622
-------- --------
Net cash flows from financing activities 138,883 83,622
-------- --------
Net increase (decrease) in cash and cash equivalents 7,281 (47,388)
Cash and cash equivalents at beginning of period 9,276 55,422
-------- --------
Cash and cash equivalents at end of period $ 16,557 8,034
======== ========
Changes in operating assets and liabilities, net:
Receivables, net $ 4,557 (10,114)
Merchandise inventories 57,648 (10,721)
Prepaid expenses and other current assets (1,703) (7,521)
Accounts payable and accrued liabilities (116,200) (57,434)
-------- --------
Changes in operating assets and
liabilities, net $ (55,698) (85,790)
======== ========
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 16,965 12,692
Income taxes $ 14,553 12,997
See accompanying notes to consolidated financial statements.
6
<PAGE>
BARNES & NOBLE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the 26 weeks ended July 27, 1996 and July 29, 1995
(thousands of dollars)
(unaudited)
The unaudited consolidated financial statements include the accounts of
Barnes & Noble, Inc. and its wholly-owned subsidiaries (collectively, the
Company).
In the opinion of the Company's management, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly its consolidated
financial position as of July 27, 1996 and the results of its operations and its
cash flows for the 26 weeks then ended. These consolidated financial statements
are condensed and therefore do not include all of the information and footnotes
required by generally accepted accounting principles. The consolidated financial
statements should be read in conjunction with the Company's annual report on
Form 10-K for the 52 weeks ended January 27, 1996. The Company follows the same
accounting policies in preparation of interim reports. Certain amounts in the
consolidated financial statements for periods prior to January 27, 1996 have
been reclassified to conform to the current presentation.
Due to the seasonal nature of the business, the results of operations for
the 26 weeks ended July 27, 1996 are not indicative of the results to be
expected for the 53 weeks ending February 1, 1997.
(1) Merchandise Inventories
Merchandise inventories are stated at the lower of cost or market. Cost is
determined using the retail inventory method on the first-in, first-out (FIFO)
basis for 79%, 69% and 73% of the Company's merchandise inventories as of July
27, 1996, July 29, 1995 and January 27, 1996, respectively. The remaining
merchandise inventories are valued on the last-in, first-out (LIFO) method.
If substantially all of the merchandise inventories currently valued at
LIFO costs were valued at current costs, merchandise inventories would increase
approximately $6,426, $13,107 and $8,326 as of July 27, 1996, July 29, 1995 and
January 27, 1996, respectively.
(2) Income Taxes
The tax provisions for the 26 weeks ended July 27, 1996 and July 29, 1995
are based upon management's estimate of its annualized effective tax rates.
Permanent differences, primarily amortization of goodwill, increase the
provision for income taxes.
(3) Stockholders' Equity
During the 26 weeks ended July 27, 1996, options to purchase approximately
423,000 shares of the Company's Common Stock were granted, at market value on
date of grant, to employees under the Company's 1996 Employee Incentive Plan.
7
<PAGE>
BARNES & NOBLE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the 26 weeks ended July 27, 1996 and July 29, 1995
(thousands of dollars)
(unaudited)
(4) Subsequent Event
On July 29, 1996, the Company agreed with Neostar Retail Group, Inc.
(Neostar) and its wholly-owned subsidiary, Software Etc. Stores, Inc. (Software
Etc.) to cancel agreements under which Software Etc. had been operating software
departments within the Company's bookstores. The Company purchased the
merchandise inventories and other assets of the software departments from
Neostar and Software Etc. for approximately $9,000, pursuant to an asset
purchase agreement. The Company has assumed the operations of such software
departments.
8
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The primary sources of the Company's cash for seasonal working
capital requirements and capital investments are net cash flows from
operating activities, funds available under its revolving credit
facility and vendor financing.
Cash and cash equivalents were $16.6 million as of July 27, 1996 in
comparison to $8.0 million as of July 29, 1995. Cash flows from
operating activities improved significantly during the 26 weeks ended
July 27, 1996 to ($27.3) million from ($65.6) million during the same
period of the prior fiscal year, primarily due to the Company's
management of merchandise inventory and working capital. During the
26 weeks ended July 27, 1996, cash flows were used primarily for
capital expenditures related to the Company's superstore expansion
and, to a lesser extent, for increases in working capital related to
such expansion.
The Company opened 36 superstores during the 26 weeks ended July 27,
1996 compared to 24 superstores during the 26 weeks ended July 29,
1995 comprising over 1.0 million square feet compared to 0.6 million
square feet of retail space, respectively. The Company plans to open
approximately 90 superstores in fiscal 1996.
Total debt as of July 27, 1996 and July 29, 1995 was $400.0 million
and $268.0 million, respectively. Borrowings under the Company's
revolving credit facility averaged $96.4 million and $34.6 million
during the 26 weeks ended July 27, 1996 and July 29, 1995,
respectively, and peaked at $143.3 million and $86.4 million during
the same periods. The rise in short-term borrowings under the
revolving credit facility resulted in part from the increased number
of new stores opened during the period.
Capital expenditures totaled $94.7 million and $65.6 million during
the 26 weeks ended July 27, 1996 and July 29, 1995, respectively.
These expenditures were primarily for new superstores, refurbishments
of existing mall bookstores and enhancements to the Company's
management information and in-store systems.
Based upon current operating levels and the planned superstore
expansion, management believes cash flows generated from operations,
short-term vendor financing and its borrowing capacity under its
senior credit facility will be sufficient to meet the Company's
working capital and debt service requirements, fund restructuring
reserves and support the continued rollout of superstores.
The Company did not declare or pay any cash dividends during the
26-week periods ended July 27, 1996 and July 29, 1995.
9
<PAGE>
Results of Operations
13 weeks ended July 27, 1996 and July 29, 1995
Revenues
Revenues increased 24.8%, or $104.2 million, to $524.3 million during
the 13 weeks ended July 27, 1996 from $420.1 million during the 13
weeks ended July 29, 1995. Superstore revenues grew 40.1% to $399.1
million during the 13 weeks ended July 27, 1996, an increase of
$114.1 million from $285.0 million during the 13 weeks ended July 29,
1995. With the Company's continued expansion of its superstore
business, superstore revenues, as a percentage of total revenues,
rose to 76.1% during the 13 weeks ended July 27, 1996, up from 67.8%
for the same period in the prior year. Mall bookstores generated
23.0% of total revenues during the 13 weeks ended July 27, 1996 in
comparison to 30.8% of total revenues during the same period one year
ago.
The increase in revenues during the 13 weeks ended July 27, 1996 was
primarily attributable to an increase in comparable superstore sales
of 4.5% and revenues from the 109 superstores opened since July 29,
1995 which was partially offset by the negative impact the Olympics
had on the last nine days of the period.
During the 13 weeks ended July 27, 1996, the Company opened 16
superstores and closed one, bringing the Company's total number of
superstores to 390. The Company opened one and closed 15 mall
bookstores during the quarter and ended the period with 617 mall
bookstores. As of July 27, 1996 the Company operated 1,007 stores in
49 states and the District of Columbia.
Cost of Sales, Buying and Occupancy
During the 13 weeks ended July 27, 1996, cost of sales, buying and
occupancy increased $67.0 million, or 24.5%, to $340.2 million from
$273.2 million for the same period one year ago. As a percentage of
revenues, cost of sales, buying and occupancy remained relatively
constant and were 64.9% and 65.0% during the 13 weeks ended July 27,
1996 and July 29, 1995, respectively.
Selling and Administrative Expenses
Selling and administrative expenses increased $18.8 million, or
21.7%, to $105.2 million during the 13 weeks ended July 27, 1996 from
$86.4 million during the 13 weeks ended July 29, 1995. Selling and
administrative expenses decreased as a percentage of revenues to
20.1% during the 13 weeks ended July 27, 1996 from 20.6% during the
prior year period primarily due to the Company's focus on expense
controls and the continued improvement in the Company's operating
leverage resulting from the maturation of the Company's superstores.
10
<PAGE>
Rental Expenses, Depreciation and Amortization
Rental expenses increased $11.0 million, or 25.8%, to $54.1 million
during the 13 weeks ended July 27, 1996 from $43.1 million during the
13 weeks ended July 29, 1995. As a percentage of revenues, rental
expense was 10.3% and 10.2% for the 13 weeks ended July 27, 1996 and
July 29, 1995, respectively. Depreciation and amortization increased
$3.2 million, or 28.2%, to $14.3 million during the 13 weeks ended
July 27, 1996 from $11.1 million during the 13 weeks ended July 29,
1995. The increase was primarily a result of the 109 new superstores
opened since July 29, 1995 which comprised approximately 2.9 million
square feet.
Pre-opening Expenses
Pre-opening expenses increased $2.1 million, or 76.8%, to $4.9
million during the 13 weeks ended July 27, 1996 from $2.8 million
during the 13 weeks ended July 29, 1995 primarily as a result of the
increased number of superstores and superstore retail space discussed
above as well as the timing of new superstore openings throughout the
year. The Company opened 36 superstores, representing over
1.0 million square feet of retail space, during the 26 weeks ended
July 27, 1996. This compares to 24 superstore openings, representing
approximately 0.6 million square feet during the 26 weeks ended
July 29, 1995.
Operating Profit
As a result of the factors discussed above, the Company's operating
profit improved 61.6% to $5.6 million during the 13 weeks ended July
27, 1996 from $3.5 million during the 13 weeks ended July 29, 1995.
Interest Expense, Net and Amortization of Deferred Financing Expenses
Interest expense, net of interest income, and amortization of
deferred financing expenses increased to $10.2 million during the 13
weeks ended July 27, 1996 from $7.1 million during the 13 weeks ended
July 29, 1995. The increase in net interest expense reflects an
increase in average borrowings during the 13 weeks ended July 27,
1996 in comparison to the prior year period related to the funding of
capital expenditures and working capital for the Company's superstore
expansion program.
Benefit For Income Taxes
The benefit for income taxes during the 13 weeks ended July 27, 1996
was $1.8 million compared to $1.0 million during the 13 weeks ended
July 29, 1995. The tax benefits during the 13 weeks ended July 27,
1996 and July 29, 1995 were based upon management's estimate of the
Company's annualized effective tax rates. Permanent differences,
primarily amortization of goodwill, increase the provision for income
taxes.
11
<PAGE>
Net Loss
As a result of the factors discussed above, the Company's results of
operations were a net loss of ($2.7) million during the 13 weeks
ended July 27, 1996 compared to a net loss of ($2.6) million during
the 13 weeks ended July 29, 1995. During the 13 weeks ended July 27,
1996, the net loss per common share of ($0.08) per share was
unchanged from the same period in the prior year.
12
<PAGE>
Results of Operations
26 weeks ended July 27, 1996 and July 29, 1995
Revenues
Revenues increased 25.7%, or $211.0 million, to $1,033.1 million
during the 26 weeks ended July 27, 1996 from $822.1 million for the
26 weeks ended July 29, 1995. Superstore revenues grew 41.5% to
$780.6 million during the 26 weeks ended July 27, 1996, an increase
of $229.0 million from $551.6 million during the 26 weeks ended July
29, 1995. As a result of the Company's expansion of its superstore
business, superstore revenues, as a percentage of total revenues,
rose to 75.6% during the 26 weeks ended July 27, 1996, up from 67.1%
for the same period in the prior year. Mall bookstores generated
23.5% of total revenues during the 26 weeks ended July 27, 1996 in
comparison to 31.5% of total revenues during the same period one year
ago.
The increase in revenues during the 26 weeks ended July 27, 1996 was
primarily attributable to an increase in comparable superstore sales
of 5.2% and revenues from the 109 superstores opened since July 29,
1995 which was partially offset by the negative impact the Olympics
had on the last nine days of the period.
During the 26 weeks ended July 27, 1996, the Company opened 36
superstores and closed four. The Company opened three and closed 25
mall bookstores during the 26 weeks ended July 27, 1996.
Cost of Sales, Buying and Occupancy
During the 26 weeks ended July 27, 1996, cost of sales, buying and
occupancy increased $138.5 million, or 25.9%, to $673.7 million from
$535.2 million for the same period one year ago. As a percentage of
revenues, cost of sales, buying and occupancy remained relatively
constant and were 65.2% and 65.1% during the 26 weeks ended July 27,
1996 and July 29, 1995, respectively.
Selling and Administrative Expenses
Selling and administrative expenses increased $35.8 million, or
20.7%, to $209.4 million during the 26 weeks ended July 27, 1996 from
$173.6 million during the 26 weeks ended July 29, 1995. Selling and
administrative expenses decreased as a percentage of revenues to
20.3% during the 26 weeks ended July 27, 1996 from 21.1% during the
prior year period primarily due to the Company's focus on expense
controls and the continued improvement in the Company's operating
leverage resulting from the maturation of the Company's superstores.
13
<PAGE>
Rental Expenses, Depreciation and Amortization
Rental expenses increased $22.7 million, or 26.9%, to $107.3 million
during the 26 weeks ended July 27, 1996 from $84.6 million during the
26 weeks ended July 29, 1995. As a percentage of revenues, rental
expense was 10.4% and 10.3% for the 26 weeks ended July 27, 1996 and
July 29, 1995, respectively. Depreciation and amortization increased
$6.2 million, or 28.4%, to $27.9 million during the 26 weeks ended
July 27, 1996 from $21.7 million during the 26 weeks ended July 29,
1995. The increase was primarily a result of the 109 new superstores
opened since July 29, 1995 which comprised approximately 2.9 million
square feet.
Pre-opening Expenses
Pre-opening expenses increased $3.9 million, or 69.5%, to $9.4
million during the 26 weeks ended July 27, 1996 from $5.5 million
during the 26 weeks ended July 29, 1995 primarily as a result of the
increased number of superstores and superstore retail space discussed
above as well as the timing of new superstore openings throughout the
year. The Company opened 36 superstores, representing over
1.0 million square feet of retail space, during the 26 weeks ended
July 27, 1996. This compares to 24 superstore openings, representing
approximately 0.6 million square feet during the 26 weeks ended
July 29, 1995.
Operating Profit
As a result of the factors discussed above, the Company's operating
profit improved to $5.5 million during the 26 weeks ended July 27,
1996 from $1.5 million during the 26 weeks ended July 29, 1995.
Interest Expense, Net and Amortization of Deferred Financing Expenses
Interest expense, net of interest income, and amortization of
deferred financing expenses increased to $18.5 million during the 26
weeks ended July 27, 1996 from $13.1 million during the 26 weeks
ended July 29, 1995. The increase in net interest expense reflects an
increase in average borrowings during the 26 weeks ended July 27,
1996 in comparison to the prior year period related to the funding of
capital expenditures and working capital for the Company's superstore
expansion program.
Benefit For Income Taxes
The benefit for income taxes during the 26 weeks ended July 27, 1996
was $4.9 million compared to $3.7 million during the 26 weeks ended
July 29, 1995. The tax benefits for the 26 weeks ended July 27, 1996
and July 29, 1995 were based upon management's estimate of the
Company's annualized effective tax rates. Permanent differences,
primarily amortization of goodwill, increase the provision for income
taxes.
14
<PAGE>
Net Loss
As a result of the factors discussed above, the Company's results of
operations were a net loss of ($8.1) million during the 26 weeks
ended July 27, 1996 compared to a net loss of ($7.9) million during
the 26 weeks ended July 29, 1995. During the 26 weeks ended July 27,
1996, the net loss per common share improved to ($0.25) per share
from ($0.26) per share for the same period in the prior year.
15
<PAGE>
PART II - OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on May 29,
1996. The following individuals were elected to the Company's Board
of Directors to hold office for a term of three years and until their
respective successors are duly elected and qualified.
Nominee In Favor Withheld
------- -------- --------
William C.J. Angenent 26,282,361 1,096,037
Matthew A. Berdon 27,292,137 86,261
Margaret T. Monaco 27,326,983 51,415
The results of the voting on the following items were as follows:
Approval of an amendment to the Company's Restated Certificate of
Incorporation increasing the number of authorized shares of Common
Stock from 40,000,000 shares to 100,000,000 shares:
In Favor Against Abstained
-------- ------- ---------
21,987,441 5,027,843 363,114
Approval of the Barnes & Noble, Inc. 1996 Incentive Plan:
Broker
In Favor Against Abstained Non-Vote
-------- ------- --------- --------
14,575,788 9,255,238 487,876 3,059,496
Ratification of the selection of BDO Seidman, LLP as independent
certified public accountants for the fiscal year ending February 1,
1997:
In Favor Against Abstained
-------- ------- ---------
27,276,801 52,350 49,247
16
<PAGE>
Item 6: Exhibits and Reports on Form 8-K
(a) The following Exhibit is filed as an Exhibit to this form:
Exhibit
No. Description
------- -----------
10.1 Asset Purchase Agreement dated as of July 29,
1996 among Neostar Retail Corp., Inc. (and its
wholly-owned subsidiary, Software Etc. Stores,
Inc.) and Barnes & Noble, Inc.
(b) No report on Form 8-K was filed by the registrant during the
fiscal quarter for which this report is filed.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BARNES & NOBLE, INC.
(Registrant)
Date: September 9, 1996 By: /s/ Irene R. Miller
-------------------
Irene R. Miller
Vice Chairman and Chief Financial
Officer (Principal Financial and
Accounting Officer and duly
authorized officer of the Registrant)
18
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION PAGE NO.
- ------- ----------- --------
10.1 Asset Purchase Agreement dated as of July 29, 1996
among Neostar Retail Corp., Inc. (and its wholly-
owned subsidiary, Software Etc. Stores, Inc.) and
Barnes & Noble, Inc.
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement"), dated as of July 29,
1996, by and among NEOSTAR RETAIL GROUP, INC. ("NeoStar"), and its wholly owned
subsidiary SOFTWARE ETC. STORES, INC. ("Software Etc."), each a Delaware
corporation with its principal executive offices at 2250 William D. Tate Avenue,
Grapevine, Texas 76051 (each a "Seller" and, collectively, "Sellers"), and
BARNES & NOBLE, INC., a Delaware corporation ("B&N"), and its wholly owned
subsidiaries BARNES & NOBLE SUPERSTORES, INC., a Delaware corporation ("B&N
Superstores") and B. DALTON BOOKSELLER, INC., a Minnesota corporation ("B.
Dalton"), each with its principal executive offices at 122 Fifth Avenue, New
York, New York 10011 (each a "Buyer" and, collectively, the "Buyers").
WITNESSETH:
WHEREAS, Sellers operate 111 software leased departments located in the
book superstores of B&N Superstores at the addresses set forth on Schedule A
(collectively, the "Leased Departments") under a Leased Department Agreement,
dated as of December 1, 1994 (the "LD Agreement"), between Software Etc. and B&N
Superstores;
WHEREAS, Sellers operate 15 store-within-a-store software departments
located in the book superstores of B&N Superstores at the addresses set forth on
Schedule B (collectively, the "B&N SWIS Departments") under an Operating
Agreement, dated as of November 11, 1994 (the "B&N Operating Agreement"),
between Software Etc. and B&N Superstores;
WHEREAS, Sellers operate 10 store-within-a-store software departments
located in the bookstores of B. Dalton at the addresses set forth on Schedule C
(collectively, the "B. Dalton SWIS Departments") under an Operating Agreement,
dated as of January 27, 1988 (the "B. Dalton Operating Agreement"), between
Software Etc. and B. Dalton (the Leased Departments, the B&N SWIS
Departments and the B. Dalton SWIS Departments, each a "Transferred Department"
and, collectively, the "Transferred Departments"); and
WHEREAS, on the terms, conditions and exceptions set forth herein, Buyers
and Sellers desire to terminate Sellers' operation of the Transferred
Departments and, in connection therewith, Buyers desire to purchase from
Sellers, and Sellers desire to sell to Buyers, the inventory, furniture,
fixtures, equipment and other fixed assets of Sellers at the Transferred
Departments so that Buyers may operate the Transferred Departments directly and
for their own account;
<PAGE>
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Purchase and Sale of Assets.
(a) On the terms and conditions set forth herein, Sellers hereby sell
to Buyers, and Buyers hereby purchase from Sellers, the following assets of
Sellers (collectively, the "Assets"):
(i) all merchandise inventories located at the Transferred Departments
as of the date hereof, together with all of Sellers' inventory of video
movies in Sellers' two distribution centers in Grapevine, Texas and Dallas,
Texas (the "Distribution Centers") or in transit to the Transferred
Departments as of the date hereof (collectively, "Video Movies"), in each
case as adjusted pursuant to Sections 2(a) and 5(b), but excluding in all
cases video game systems, software for video game systems and other
video-game related products (such excluded inventory, the "Excluded
Inventory", and all of the foregoing inventory other than the Excluded
Inventory, collectively, the "Inventory"); and
(ii) all furniture, fixtures, equipment and other fixed assets of
Sellers located at the Transferred Departments, as adjusted pursuant to
Section 5(b) (collectively, the "Fixed Assets"), subject to Section 1(b).
(b) Notwithstanding the provisions of Section 1(a), Sellers shall
retain title to all Point-of-Sale Equipment (as hereinafter defined) at the
Transferred Departments, which equipment shall be returned by Buyers to Sellers
by October 4, 1996. "Point-of-Sale Equipment" shall mean all of Sellers'
personal computers with or connected to cash drawers, printers and electronic
data capture machines.
(c) Contemporaneously herewith, Sellers have delivered to Buyers a
Bill of Sale (the "Bill of Sale") transferring the Assets to Buyers as of the
date hereof, and have caused to be delivered to Buyers duly executed and
recordable UCC-3 Financing Statements of Sellers' lenders (the "Termination
Statements"). Sellers shall pay or reimburse Buyers on demand for all costs of
publicly recording or filing the Termination Statements.
(d) Sellers hereby assign to Buyers (to the extent assignable) all of
their right, title and interest in and to any vendor, manufacturer or other
third party warranties with respect to any of the Assets or any rights to return
any Assets to a vendor, manufacturer or other third party for cash, credit or
replacement.
-2-
<PAGE>
2. Purchase Price.
(a) The purchase price (the "Purchase Price") for the Assets shall be
the aggregate value of the Inventory (as such term is defined below) as of the
close of business on August 3, 1996 (the "Valuation Time"), valued in accordance
with generally accepted accounting principles at the lower of Sellers' cost or
the market value thereof. Accordingly, to the extent the actual contents of the
Inventory described in Section 1(a) changes between the date hereof and the
Valuation Time due to (i) the operation of the Transferred Departments and the
Distribution Centers in the ordinary course of business, consistent with prior
practice, including increases in Inventory due to receipts of products or
decreases in Inventory due to sales or returns to vendors, or (ii) errors or
omissions in Sellers' records disclosed by the Physical Inventory (as
hereinafter defined), the definition of Inventory for all purposes of this
Agreement shall mean the Inventory (A) actually on hand at the Transferred
Departments at the Valuation Time, and (B) with respect to Video Movies only,
either in transit from any Distribution Center to any Transferred Department or
to any distribution center of Buyers (but solely to the extent actually received
by such Transferred Department or distribution center of Buyers), or actually on
hand at the Distribution Centers, at the Valuation Time, in all cases subject to
any additional adjustment pursuant to Section 5(b).
(b) The Purchase Price shall be determined based upon a physical
counting of the Inventory at each Transferred Department and Distribution Center
(the "Physical Inventory"). The Physical Inventory shall be conducted at each
Transferred Department and Distribution Center between the Valuation Time and
the opening of business on August 4, 1996 at such Transferred Department or
Distribution Center. The Physical Inventory shall be taken by Sellers' personnel
in accordance with written instructions prepared or approved by Buyers. The
Physical Inventory shall be observed by Buyers' personnel at each Transferred
Department and Distribution Center. Each party shall be responsible for the
costs and expenses of its respective personnel in conducting or observing the
Physical Inventory.
(c) On the date hereof, Buyers have paid by one or more wire transfers
of immediately available funds to one or more accounts designated by Sellers
$9,000,000 in the aggregate constituting the good faith estimate by Sellers and
Buyers of the Purchase Price (the "Estimated Purchase Price").
(d) On or before September 4, 1996, (i) Buyers and Sellers shall
calculate the Purchase Price based upon the Physical Inventory, (ii) if the
Estimated Purchase Price exceeds the Purchase Price, Sellers shall pay to Buyers
the full amount of such difference, and (iii) if the Purchase Price exceeds the
-3-
<PAGE>
Estimated Purchase Price, Buyers shall pay to Sellers the full amount of such
difference.
(e) Buyers and Sellers acknowledge and agree that Buyers are not
assuming, and are not in any respect whatsoever liable or responsible for, any
liabilities of any Seller whatsoever, including any liabilities with respect to
the operation of the Transferred Departments prior to August 4, 1996. Sellers
agree to pay or otherwise discharge all such liabilities.
3. Representations and Warranties of Sellers. Sellers jointly and severally
represent and warrant to Buyers that:
(a) Each Seller is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware, with full corporate
power and authority to own, lease or operate its properties and to carry on its
business as now conducted.
(b) Software Etc. is duly licensed or qualified as a foreign
corporation in any jurisdiction where a Transferred Department is located and in
any other jurisdiction where such license or qualification is required as a
consequence of its business or the assets or properties which it owns or leases,
except in the latter case where the failure to be so licensed or qualified would
not have a material adverse effect on any Seller or the Assets. NeoStar is duly
licensed or qualified as a foreign corporation in any jurisdiction where such
license or qualification is required as a consequence of its business or the
assets or properties which it owns or leases, except where the failure to be so
licensed or qualified would not have a material adverse effect on any Seller or
the Assets.
(c) The execution, delivery and performance by each Seller of this
Agreement and the Bill of Sale (collectively, the "Sale Agreements") have been
duly authorized by all necessary action. The Sale Agreements have been duly
executed by each Seller and constitute its legal, valid and binding obligations
enforceable in accordance with their respective terms, except as enforceability
may be limited by applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally.
(d) Each Seller has obtained all necessary authorizations, consents
and approvals, governmental and otherwise, required for its execution and
delivery of the Sale Agreements and the performance of its obligations
thereunder, including the consents of any lenders. The execution, delivery and
performance of the Sale Agreements by each Seller will not, with or without the
giving of notice or the passage of time, or both, (i) require the consent of or
filing with any third party or governmental authority, other than those which
have been previously obtained in writing and delivered to Buyers, or
-4-
<PAGE>
(ii) conflict with, result in a default, right to accelerate or loss of rights
under, or result in the creation of any lien, charge or encumbrance, pursuant
to any provision of (A) the certificate of incorporation or by-laws of any
Seller, or (B) any franchise, mortgage, indenture, deed of trust, lease,
license, agreement, including any credit or loan agreement, understanding, law,
ordinance, rule, regulation, order, judgment or decree, to which any Seller is
a party or by which either of them (or any of their respective assets,
properties, operations or businesses) may be bound, subject to or affected.
(e) Each item in the Inventory is (i) usable and salable in the
ordinary course of business at or above the purchase price therefor paid by
Buyers hereunder, and (ii) not obsolete (or of a version which is not reasonably
marketable), or to the best of Seller's knowledge, damaged or defective. The
Fixed Assets are in good condition and repair, and suitable for the purposes
used. The Inventory is adequate and sufficient for the operation of the
Transferred Departments as they are currently being operated by Sellers. Sellers
have good and marketable title to the Assets and are transferring hereunder to
Buyers legal and beneficial title and ownership of the Assets. The Termination
Statements have been executed by all parties thereto and are in recordable form.
Upon the public filing of the Termination Statements, Buyers shall own the
Assets free and clear of all liens, claims, encumbrances, security interests and
restrictions of any kind. Except as expressly provided herein, (A) Sellers make
no warranty, express or implied, as to the merchantability or fitness for use of
any of the Assets, and (B) the Fixed Assets are being sold by Sellers to Buyers
on an "as is, where is" basis.
(f) The operation of the business at the Transferred Departments by
Sellers has been in compliance with existing laws, rules and regulations
applicable to such business as conducted, and the ownership and operation of the
Transferred Departments by Buyers after the date hereof in the same manner as
operated by Sellers on the date hereof does not conflict with the rights of any
other person or entity, or violate any agreement, instrument, judgment or decree
to which any Seller is a party or by which either of them, or any of their
respective assets, properties, operations or businesses, may be bound, subject
to or affected.
(g) Sellers have not failed to replenish the inventories at the
Transferred Departments in a normal and customary manner consistent with past
practice, or transferred any inventories (other than Excluded Inventory) out of
the Transferred Departments, other than sales and returns made in a normal and
customary manner consistent with past practice.
(h) There is no claim, legal action, suit, arbitration, governmental
investigation or other legal or
-5-
<PAGE>
administrative proceeding, nor any order, decree or judgment, pending or in
effect against any Seller or relating to the Assets which (i) would have a
material adverse effect on any Seller or the Assets, or (ii) seeks to prevent
the transactions referred to herein or the execution, delivery or performance by
any Seller of the Sales Agreements.
(i) No Seller has dealt with any broker, finder or similar
representative who is entitled to a fee or other compensation by reason of any
of the Sale Agreements or the consummation of any of the transactions referred
to therein.
4. Representations and Warranties of Buyers. Buyers jointly and severally
represent and warrant to Sellers that:
(a) Each Buyer is a corporation duly organized, validly existing and
in good standing under the laws of its state of organization, with full
corporate power and authority to own, lease or operate its properties and to
carry on its business as now conducted.
(b) The execution, delivery and performance of this Agreement by each
Buyer has been duly authorized by all necessary action.
(c) This Agreement has been duly executed by each Buyer and
constitutes its legal, valid and binding obligation enforceable in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency or similar laws affecting creditors' rights generally.
(d) The execution, delivery and performance of this Agreement by each
Buyer will not, with or without the giving of notice or the passage of time, or
both, (i) require the consent of or filing with any third party or governmental
authority, or (ii) conflict with, result in a default, right to accelerate or
loss of rights under, or result in the creation of any lien, charge or
encumbrance, pursuant to any provision of (A) the certificate of incorporation
or by-laws of any Buyer, or (B) any franchise, mortgage, indenture, deed of
trust, lease, license, agreement, understanding, law, ordinance, rule,
regulation, order, judgment, or decree, to which any Buyer is a party or by
which any of them (or any of their respective assets, properties, operations or
businesses) may be bound, subject to or affected.
(e) There is no claim, legal action, suit, arbitration, governmental
investigation or other legal or administrative proceeding, nor any order, decree
or judgment, pending or in effect against any Buyer which seeks to prevent the
transactions referred to herein or the execution, delivery or performance by any
Buyer of the Sales Agreements.
-6-
<PAGE>
(f) No Buyer has dealt with any broker, finder or similar
representative who is entitled to a fee or other compensation by reason of any
of the Sale Agreements or the consummation of any of the transactions referred
to therein.
5. Transitional Operations; Other Agreements.
(a) From the date hereof through and including the Valuation Time,
Sellers shall continue their operation of the Transferred Departments in the
ordinary course of business, consistent with past practice, and Sellers shall be
entitled to the revenues generated thereby. Sellers shall be responsible for and
shall pay all costs and expenses of such operations, including all amounts due
to any Buyer under the agreements referred to in Section 6. Sellers and Buyers
acknowledge and agree that such operations shall result in a modification of the
value and contents of the Inventory as contemplated by Section 2(a). Each day
from the first day after the date hereof through and including August 4, 1996,
Sellers' shall furnish Buyers' with a report as to all transactions during the
preceding day affecting the value or contents of the Inventory.
(b) Buyers and Sellers acknowledge and agree that, pursuant to the LD
Agreement, three (3) additional software leased departments are scheduled to
open shortly in new book superstores of B&N Superstores to be located at the
addresses set forth on Schedule D (collectively, the "New Leased Departments").
Unless otherwise directed by Buyers in each case, Sellers' shall complete on
schedule the delivery of the opening inventory (other than Excluded Inventory)
and furniture, fixtures, equipment and other fixed assets to the New Leased
Departments, and the hiring of department managers and personnel to staff the
New Leased Departments. For all purposes of this Agreement, (i) the New Leased
Departments shall be considered Transferred Departments, (ii) all opening
inventory of the New Leased Departments shall be considered Inventory, subject
to adjustment as provided in Section 2(a), and (iii) all furniture, fixtures,
equipment and other fixed assets of Sellers at the New Leased Departments shall
be considered Fixed Assets, and all Point-of-Sale Equipment included therein
shall be subject to the provisions of Section 1(b). If any opening inventory of
a New Leased Department has not been delivered by the Valuation Time, Buyers
shall pay Sellers for their cost of such inventory promptly following delivery
of such inventory to such New Leased Department and Buyers' receipt of Sellers'
invoice therefor.
(c) As of the close of business on August 3, 1996, Sellers shall
remove from the Transferred Departments all of their cash on hand, unissued gift
certificates and negotiable instruments, all of which shall remain the property
of Sellers. As of the opening of business on August 4, 1996, Buyers shall
commence operation of the Transferred Departments. From such date
-7-
<PAGE>
through and including September 4, 1996 (the "Transition Period"), or at Buyers'
option earlier in the case of any or all personnel at one or more Transferred
Departments, Sellers shall staff the Transferred Departments with the personnel
employed at such locations as of the date hereof, and Sellers shall not transfer
or terminate the employment of any such personnel without the prior approval of
the applicable District Manager of Buyers. In the event Sellers' employment of
any such personnel during the Transition Period is terminated (either by such
personnel voluntarily or by Sellers with the prior approval of the applicable
District Manager of Buyers), Sellers shall supply suitable replacements. With
respect to the New Leased Departments, Sellers shall staff them with suitable
personnel during the Transition Period. Buyers shall reimburse Sellers for their
actual payroll and benefit costs (excluding severence benefits which are dealt
with separately in Section 5(d)) incurred in staffing the Transferred
Departments in accordance with this Section 5(c). The foregoing reimbursement
shall not include any payroll or benefit costs (e.g. bonuses) relating to any
period prior to August 4, 1996. During the Transition Period, all personnel of
any Seller staffing the Transferred Departments shall take directions solely
from Buyers.
(d) During the Transition Period, Buyers shall interview Sellers'
personnel at the Transferred Departments to make hiring determinations and
Buyers may extend offers of employment to any or all such personnel. By
September 4, 1996, Buyers shall inform Sellers of the Sellers' personnel at the
Transferred Departments to whom Buyers have offered employment. Sellers shall
terminate, as of September 4, 1996 (or any earlier date specified by Buyers as
to any or all personnel at a Transferred Department), the employment of all
employees to whom Buyers have offered employment and who have accepted Buyers'
offer of employment. Buyers shall reimburse Sellers for the lesser of (i) 50% of
their aggregate severance payments with respect to personnel at the Transferred
Departments terminated by Sellers at any time during the Transition Period, and
(ii) $100,000.
(e) Sellers shall reimburse Buyers on demand for any gift certificate
issued by any Seller and honored by Buyers at a Transferred Department on or
after August 4, 1996. Buyers shall not be obligated to honor any such
certificates and may do so at their sole discretion. If Buyers accept any
merchandise returns at the Transferred Departments on or within 180 days after
August 4, 1996 with respect to merchandise purchased from Sellers before August
4, 1996, then Sellers shall reimburse Buyers for the full amount of Buyers' cost
therefor promptly following the delivery of such returned merchandise to
Sellers. Buyers shall not be obligated to accept any such merchandise returns
and may do so at their sole discretion.
-8-
<PAGE>
(f) If any credit card purchase at a Transferred Department on or
after August 4, 1996 is processed through Sellers' systems, Sellers agree to
process such receivable as rapidly as they process their own credit card
receivables and to remit any and all funds received therefor to Buyers within
three (3) business days of Sellers' receipt thereof.
(g) If with respect to any Inventory any right to return such
Inventory to the vendor or manufacturer are unavailable to Buyers for any
reason, such as due to (i) the policies, procedures or practices of any vendor
or manufacturer, or the refusal of such vendor or manufacturer to accept such
return, or (ii) the absence on the part of Sellers of, or the inability of
Sellers to assign to Buyers, any such return rights, then Buyers may return to
Sellers such Inventory for cash or credit in the amount of Buyers' purchase
price therefor. By November 4, 1996, Buyers shall return or notify Sellers of
its intention to return any Inventory (other than Inventory returned to Buyers
by its customers on or after October 15, 1996).
(h) On or after August 4, 1996, any Buyer may, at its option, place
orders with Sellers for additional inventory and purchase such inventory at
Sellers' cost plus freight charges. Sellers agree to fulfill such inventory
orders as promptly as practicable. Any such inventory shall be fully returnable
to Sellers for cash or credit by the later of (i) January 31, 1997, or (ii)
sixty (60) days following the latest of (A) the date of Buyers' receipt of such
inventory, (B) the date of Buyers receipt of Sellers' invoice for such
inventory, or (C) the date such inventory is returned to Buyers by its customers
(provided such customer return date is not more than 180 days after the date of
such customer's purchase). As to any Video Movies included in the Assets and
located at any Distribution Center at the Valuation Time, Sellers agree to
deliver such Video Movies in accordance with and promptly following receipt of
Buyers' instructions with respect thereto.
(i) On a royalty-free basis, Buyers may use the existing "Software
Etc." signage and marks at the Transferred Departments for so long as is
reasonably necessary to enable Buyers to change such signage and marks with a
minimum of disruption and expense, such signage and marks to be used by Buyers
only in a manner consistent with the past practice of the Transferred
Departments. Sellers shall retain ownership of such signage and marks and Buyers
shall have no ownership interest therein.
(j) In addition to the Transferred Departments, as of the date hereof
Sellers are operating (i) 13 software stores in book superstores of B&N
Superstores located at the addresses set forth on Schedule E, such stores
operated under, and constituting the sole "Combo Stores" as defined in, the B&N
Operating Agreement
-9-
<PAGE>
(collectively, the "Combo Stores"), and (ii) one (1) "Gamestop" video game
store-within-a-store (the "Gamestop Store") at the B. Dalton bookstore located
at Moreno Valley Mall, Moreno, California, under the B. Dalton Operating
Agreement. Buyers and Sellers acknowledge and agree that, notwithstanding the
transactions occuring hereunder, (A) Sellers shall continue to operate the Combo
Stores under and subject to the terms and conditions of the B&N Operating
Agreement, which shall remain unchanged and in full force and effect, subject to
Section 6(b), and (B) Sellers shall continue to operate the Gamestop Store under
and subject to the terms and conditions of the B. Dalton Operating Agreement,
which shall remain unchanged and in full force and effect, subject to Section
6(c).
(k) On the date of any payment is to be made pursuant to Section 2(d),
Sellers, on the one hand, and Buyers, on the other hand, shall settle through
payment or offset all intercompany amounts owed between them such that on such
date, after giving effect to the payment to be made under Section 2(d), neither
Sellers nor Buyers shall owe to the other any amount as of such date.
6. Status of Prior Agreements.
(a) As of the opening of business on August 4, 1996:
(i) the LD Agreement shall remain in effect only with respect to
amounts and obligtions arising or relating to any period prior to such date,
and, in calculating Store Contribution (under and as defined in the LD
Agreement) for any Transferred Department operated thereunder for the period
subsequent to Software Etc.'s most recent fiscal year end: (A) inventory
shrinkage for such Transferred Department shall not exceed the lesser of (x)
actual inventory shrinkage at such Transferred Department for such period and
(y) one percent (1.0%) of sales at such Transferred Department for such period;
and (B) bad debts, including cash over and short, for such Transferred
Department shall not exceed the lesser of (x) actual bad debts at such
Transferred Department for such period and (y) two tenths of one percent (0.2%)
of sales at such Transferred Department for such period;
(ii) the B&N Operating Agreement shall remain in effect only with
respect to (A) amounts and obligations arising or relating to any period prior
to such date, and (B) the Combo Stores;
(iii) the B. Dalton Operating Agreement shall remain in effect only
with respect to (A) amounts and obligations arising or relating to any period
prior to such date, and (B) the Gamestop Stores; and
-10-
<PAGE>
(iv) the Amended and Restated Services Agreement, dated as of November
11, 1994, between B&N and Software Etc. shall remain in effect only with respect
to (A) amounts and obligations arising or relating to any period prior to such
date, and (B) the real estate services provided pursuant to Section 1(a)(iii) of
such agreement, for mall stores and renewals only, including the compensation
therefor to be paid under Section 2(c)(ii) of such agreement.
(b) Prior to August 4, 1996, Buyers and Sellers agree to use their
best efforts to avoid disclosing the provisions of Sections 6(a)(i)(A) and
6(a)(i)(B) to any of their respective store personnel.
7. Access to Books and Records. For a period of three (3) years from and
after the date hereof, at any reasonable time and from time to time, upon
reasonable notice, Buyers and their respective representatives shall have the
right to review Sellers' books and records with respect to the Transferred
Departments and Sellers' operation thereof. Sellers' agree to maintain and
preserve such records for at least three (3) years following the date hereof.
8. Indemnification.
(a) Sellers, jointly and severally, hereby indemnify and agree to hold
each Buyer harmless from, against and in respect of (and shall on demand
reimburse any Buyer for):
(i) any and all loss, liability, damage or expense, including
attorneys' fees and expenses, suffered or incurred by any Buyer by reason of any
untrue representation, breach of warranty or nonfulfillment of any covenant or
agreement by any Seller contained in any of the Sale Agreements or in any
agreement, certificate, document or instrument delivered to any Buyer pursuant
thereto or in connection therewith;
(ii) any and all loss, liability, damage or expense, including
attorneys' fees and expenses, suffered or incurred by any Buyer in respect of
or in connection with any liabilities of any Seller;
(iii) any and all debts, liabilities or obligations of any Seller, or
which relate to the Assets or the Transferred Departments, direct or indirect,
fixed, contingent or otherwise, which exist after August 3, 1996 but which are
based upon or arise from any act, omission, transaction, circumstance, sale or
manufacture of goods or services, state of facts or other condition which
occurred or existed on or before August 3, 1996, whether or not then known, due
or payable;
-11-
<PAGE>
(iv) any loss, liability, cost or expense, including attorneys' fees
and expenses, suffered or incurred by any Buyer by reason of any non-compliance
with the bulk sales law of any state; and
(v) any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including attorneys' fees and
expenses, incident to any of the foregoing or incurred in investigating or
attempting to avoid the same or to oppose the imposition thereof, or in
enforcing this indemnity.
(b) Buyers, jointly and severally, hereby agree to indemnify and hold
each Seller harmless from, against and in respect of (and shall on demand
reimburse any Seller for):
(i) any and all loss, liability, damage or expense, including
attorneys' fees and expenses, suffered or incurred by any Seller by reason of
any untrue representation, breach of warranty or nonfulfillment of any covenant
or agreement by any Buyer contained in this Agreement or in any agreement,
certificate, document or instrument delivered to any Seller pursuant hereto or
in connection herewith; and
(ii) any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including attorneys' fees and
expenses, incident to any of the foregoing or incurred in investigating or
attempting to avoid the same or to oppose the imposition thereof, or in
enforcing this indemnity.
9. Survival of Representations and Warranties. Each statement,
representation, warranty, indemnity, covenant and agreement made by any Seller
in any of the Sale Agreements or in any document, certificate or other
instrument delivered by or on behalf of any Seller pursuant to any of the Sale
Agreements or in connection therewith shall be deemed the joint and several
statement, representation, warranty, indemnity, covenant and agreement of
Sellers. Each statement, representation, warranty, indemnity, covenant and
agreement made by any Buyer in this Agreement or in any document, certificate or
other instrument delivered by or on behalf of any Buyer pursuant to this
Agreement or in connection herewith shall be deemed the joint and several
statement, representation, warranty, indemnity, covenant and agreement of
Buyers. All statements, representations, warranties, indemnities, covenants and
agreements made by each of the parties hereto shall survive the date hereof and
the closing of the transactions referred to herein.
10. Notices. Any and all notices or other communications required or
permitted to be given under any of the provisions of this Agreement shall be in
writing and shall be
-12-
<PAGE>
deemed to have been given when delivered personally or by overnight courier, or
when mailed by first-class registered or certified mail, return receipt
requested, addressed to the parties at their respective addresses set forth on
the first page of this Agreement, in each case to "Attention: President" (or at
such other address and/or attention as any party may specify by notice to all
other parties given as aforesaid).
11. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of each party hereto, and their successors and assigns.
12. Further Assurances. Each party hereto shall cooperate, take such
further action, and execute such further documents as may be reasonably
requested by any other party in order to carry out the terms of this Agreement
and the transactions referred to herein, and to comply with all applicable laws.
13. Entire Agreement. The Sale Agreements constitute the entire agreement
of the parties hereto with respect to the subject matter hereof, and may not be
modified, amended or terminated, nor may any provision thereof be waived, except
by a writing signed by the parties hereto.
14. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements made
and to be wholly performed in such State.
15. Severability. If any provisions of this Agreement are held to be
invalid, illegal or unenforceable by a court of competent jurisdiction, such
provisions shall be modified to the minimum extent possible to make them valid,
legal and enforceable and the remaining provisions of this Agreement shall not
in any way be affected or impaired thereby.
16. Headings. The headings used herein are for the convenience of the
parties, are not substantive and shall not be used to interpret or construe any
of the provisions hereof.
17. Counterparts. This Agreement may be executed in one or more
counterparts, all of which taken together shall be deemed one original.
18. Interpretation. Wherever the term "including" is used in this
Agreement, it shall be deemed to be followed by the phrase "without limitation."
Any references in this Agreement to Sections or Schedules shall mean Sections or
Schedules of this Agreement, unless otherwise specified.
-13-
<PAGE>
19. No Implied Rights or Remedies. Except as otherwise expressly provided
herein, nothing herein expressed or implied is intended or shall be construed to
confer upon or give to any person, firm, corporation or other entity, other than
the parties hereto and their respective successors and assigns, any rights or
remedies under or by reason of the Sales Agreements.
[BALANCE OF PAGE INTENTIONALLY BLANK]
-14-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first written above.
SELLERS:
NEOSTAR RETAIL GROUP, INC.
By: /s/ Opal Ferraro
----------------------
Name: Opal Ferraro
Title: Vice-President
SOFTWARE ETC. STORES, INC.
By: /s/ Opal Ferraro
---------------------
Name: Opal Ferraro
Title: Vice-President
BUYERS:
BARNES & NOBLE, INC.
By: /s/ Thomas A. Tolworthy
----------------------------
Thomas A. Tolworthy
Vice President
BARNES & NOBLE SUPERSTORES, INC.
By: /s/ Thomas A. Tolworthy
----------------------------
Thomas A. Tolworthy
President
B. DALTON BOOKSELLER, INC.
By: /s/ Kristine M. Terrill
----------------------------
Kristine M. Terrill
President
<PAGE>
<TABLE>
<CAPTION>
Schedule A
B&N Store Street Zip
Store # Name/Location Address City State Code
- ------- ------------------------- -------------------------------- ------------------ ----- -----
<S> <C> <C> <C> <C> <C>
2514 GALLERIA 3225 W. 69TH STREET EDINA MN 55435
2569 WALNUT CREEK 1149 S. MAIN STREET WALNUT CREEK CA 94596
2573 UNIVERSITY VILLAGE 2700 N.E. UNIVERSITY VILLAGE SEATTLE WA 98105
2575 3ST PROMENADE 1201 3RD STREET SANTA MONICA CA 90401
2588 KALAMAZOO 6134 SOUTH WESTNEDGE AVE. PORTAGE MI 49002
2589 HUNTINGTON 380 WALT WHITMAN ROAD HUNTINGTON STATION NY 11746
2592 BROWARD MALL 591 SOUTH UNIVERITY DRIVE PLANTATION FL 33324
2597 PARAMUS III 765 ROUTE 17 SOUTH PARAMUS NJ 07652
2608 CITADEL 795 CITADEL DRIVE EAST COLORADO SPRINGS CO 80909
2609 FREEHOLD 3981 US HWY 9 FREEHOLD NJ 07728
2611 FORT COLLINS 4045 SOUTH COLLEGE FORT COLLINS CO 80525
2614 ROSEVILLE II 2100 NORTH SNELLING AVE. ROSEVILLE MN 55113
2626 OREM 330 EAST 1300 SOUTH OREM UT 84058
2627 ROCHESTER HILLS 2800 S. ROCHESTER ROAD ROCHESTER HILLS MI 48307
2628 LINCOLN CENTER 1972 BROADWAY NEW YORK NY 10023
2631 NEW HOPE COMMONS 5400 NEW HOPE COMMONS DURHAM NC 27707
2632 FL/NAPLES/WATERSIDE SHOPS 5377 TAMIIAMI TRAIL NAPLES FL 33942
2635 WESTHEIMER & VOSS 7626 WESTHEIMER CROSSING HOUSTON TX 77063
2638 CHESTERFIELD 1200 HUGUENOT ROAD MIDLOTHIAN VA 23113
2639 FT. UNION 7119 SOUTH 1300 EAST STREET MIDVALE UT 84047
2642 VALENCIA 23630 VALENCIA BLVD SANTA CLARITA CA 91355
2645 FRAMINGHAM 1 WORCESTER ROAD FRAMINGHAM MA 01701
2647 CARY II 760 SE MAYNARD CARY NC 27511
2653 OLYMPIA 1530 BLACK LAKE BLVD, SW OLYMPIA WA 98502
2655 BAY SHORE 5900 N PORT WASHINGTON RD, #C-17 GLENDALE WI 53217
2657 LEWISVILLE II 2325 S STEMMONS FWY LEWISVILLE TX 75067
2658 LITTLE ROCK 11500 FINANCIAL CTR PKWY LITTLE ROCK AR 72211
2659 SOUTH BEND 4601 GRAPE ROAD MISHAWAKE IN 46545
2662 OAKVIEW 3333 OAKVIEW DRIVE OMAHA NE 68144
2664 MARLTON 200 WEST ROUTE 70 MARLTON NJ 08053
2665 AMARILLO 2415 SOUNCY ROAD AMARILLO TX 79121
2666 GRAND RAPIDS 3670 28TH STREET SE KENTWOOD MI 49512
2667 GRAPEVINE 1217 STATE HWY 114 W, #112 GRAPEVINE TX 76051
2670 WEST OAKS VILLAGE 2450 STATE HWY 6 HOUSTON TX 77077
2672 MANKATO 1859 ADAMS STREET MANKATO MN 56001
2673 GEORGETOWN 3040 M STREET NW WASHINGTON DC DC 20007
2674 CHEYENNE 1851 DELL RANGE BLVD CHEYENNE WY 82000
2675 UNION SQUARE 33 EAST 17TH STREET NEW YORK NY 10003
2679 VANCOUVER 7700 NE 4TH PLAIN BLVD VANCOUVER WA 98662
2680 PIMA & SHEA 10500 N 90TH STREET SCOTTSDALE AZ 85258
2682 BELLINGHAM 4099 GUIDE MERIDIAN BELLINGHAM WA 98226
2683 SAN JOSE BLVD 11112 SAN JOSE BLVD JACKSONVILLE FL 32223
2684 FIESTA TRAIL 12635 IH 10 WEST, #545 SAN ANTONIO TX 78230
2685 INGRAM FESTIVAL 6065 NW LOOP 410, #185 SAN ANTONIO TX 78238
2686 MIDLAND 2617 WEST LOOP 250 N MIDLAND TX 79705
2687 UNIVERSITY VILLAGE 1612 S UNIVERSITY DRIVE, #401 FORT WORTH TX 76107
2688 COLUMBIA SC 278-A HARBISON BLVD COLUMBIA SC 29212
2689 SPECTRUM 31 FORTUNE DRIVE, SUITE 100 IRVINE CA 92718
2690 FISHERMANS WHARF 2550 TAYLOR STREET SAN FRANCISCO CA 94133
2692 EVANSVILLE 624 SOUTH GREEN RIVER ROAD EVANSVILLE IN 47715
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Schedule A
B&N Store Street Zip
Store # Name/Location Address City State Code
- ------- ------------------------- -------------------------------- ------------------ ----- -----
<S> <C> <C> <C> <C> <C>
2693 TALLAHASSEE 1480 APALACHEE PKWY TALLAHASSEE FL 32300
2694 MAY AVE 6100 NORTH MAY AVE OKLAHOMA CITY OK 73112
2696 PORT HURON 4325 24TH AVE PORT HURON MI 48059
2697 OXFORD VALLEY 210 COMMERCE BLVD FAIRLESS HILLS PA 19030
2698 NORTH ROCK 3045 NORTH ROCK ROAD WICHITA KS 67226
2701 COOL SPRINGS 1701 MALLORY LANE BRENTWOOD TN 37027
2703 SPECTRUM CENTER 1851 FOUNTAIN DRIVE RESTON VA 20190
2705 LOUISVILLE 801 SOUTH HURSTBOURNE PKWY LOUISVILLE KY 40222
2706 FEDERAL WAY 31325 PACIFIC HWY SOUTH FEDERAL WAY WA 98003
2708 WACO 4909 WEST WACO DRIVE WACO TX 76710
2709 PICO-WESTWOOD 10850 WEST PICO BLVD W LOS ANGELES CA 90064
2710 MONTGOMERY 4075 EASTERN BLVD MONTGOMERY AL 36116
2711 FT MYERS 13701 SOUTH TAMIAMI TRAIL FORT MYERS FL 33912
2712 SEVEN CORNERS 6201 ARLINGTON BLVD, SUITE 516 FALLS CHURCH VA 22044
2714 CHAMPAIGN 65 EAST MARKET VIEW DRIVE CHAMPAIGN IL 61820
2715 MEDIA CITY 731 N SAN FERNANDO BLVD BURBANK CA 91502
2716 MACON 265 TOM HILL SR BLVD MACON GA 31210
2717 UNIVERSITY II 5850-A UNIVERSITY VILLAGE HUNTSVILLE AL 35806
2718 WESTMINISTER 9370 SHERIDAN BLVD WESTMINISTER CO 80030
2719 CAPE GIRADEAU 3035 WILLIAM STREET CAPE GIRADEAU MO 63702
2720 MADISON 7433 MINERAL POINT ROAD MADISON WI 53717
2721 FAYETTEVILLE 4144 NORTH COLLEGE AVE FAYETTEVILLE AR 72703
2722 CRESTWOOD 9618 WATSON CRESTWOOD MO 63126
2723 JOLIET 2621 PLAINFIELD ROAD JOLIET IL 60435
2724 YOUNGSTOWN 381 BOARDMAN-POLAND ROAD YOUNGSTOWN OH 44512
2725 QUAIL SPRINGS 13800 NORTH MAY AVE OKLAHOMA CITY OK 73134
2726 TOPEKA 6130 SW 17TH STREET TOPEKA KS 66615
2727 AUGUSTA, GA 1336 AUGUSTA WEST PKWY AUGUSTA GA 30909
2729 RANCHO CUCOMUNGA 11090 FOOTHILL BLVD RANCHO CUCOMUNGA CA 91730
2730 LAFAYETTE 5705 JOHNSTON STREET LAFAYETTE LA 70503
2731 MANSFIELD 832 N LEXINGTON SPRINGMILL MANSFIELD OH 44906
2732 INDEPENDENCE 19120 EAST 19TH STREET INDEPENDENCE MO 64057
2734 TRI-COUNTY 895 EAST KEMPER ROAD SPRINGDALE OH 45246
2736 MYRTLE BEACH 1145 SEABOARD STREET MYRTLE BEACH SC 29577
2737 SARASOTA II 4010 SOUTH TAMIAMI TRAIL SARASOTA FL 34231
2738 SUGARLAND II 2545 TOWN CENTER BLVD SUGARLAND TX 77479
2740 BOISE II 1315 NORTH MILWAUKEE BOISE ID 83704
2741 BLOOMINGTON 2813 EAST 3RD STREET BLOOMINGTON IN 47408
2742 AUGUSTA 9 MARKET PLACE DRIVE, RR#4 AUGUSTA ME 04330
2743 HUNTINGTON BEACH 7777 EDINGER AVE HUNTINGTON BEACH CA 92647
2744 EASTSIDE 9521 VISCOUNT EL PASO TX 79925
2745 HENDERSON 567 NORTH STEPHANIE HENDERSON NV 89014
2746 ARROWHEAD 7685 WEST BELL ROAD PEORIA AZ 85382
2748 TANASBOURNE 18300 NW EVERGREEN PKWY BEAVERTON OR 97006
2753 BOWLING GREEN 1680 CAMPBELL LANE BOWLING GREEN KY 42104
2756 YUMA 819 W 32ND STREET YUMA AZ 85364
2759 FREMONT 3900 MOWRY AVE FREMONT CA 94538
2761 WINSTON SALEM 1925 HAMPTON INN COURT WINSTON-SALEM NC 27103
2763 DAYTONA BEACH 1900 W INTERNATIONAL SPEEDWAY DAYTONA BEACH FL 32114
2765 BILLINGS 530 S 24TH STREET WEST BILLINGS MT 59102
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Schedule A
B&N Store Street Zip
Store # Name/Location Address City State Code
- ------- ------------------------- -------------------------------- ------------------ ----- -----
<S> <C> <C> <C> <C> <C>
2769 KANKAKEE 1577 NORTH STATE ROUTE 50 BOURBONNAIS IL 60914
2771 MEDFORD 1400 BIDDLE ROAD MEDFORD OR 97501
2782 WILLOW GROVE 102 PARK AVENUE WILLOW GROVE PA 19090
2783 WESTGATE 1600 SARATOGA AVE SAN JOSE CA 95129
2790 PITTSFORD 3349 MONROE AVE ROCHESTER NY 14618
2798 SAUGUS 444A BROADWAY SAUGUS MA 01906
2802 SAN PEDRO 321 NW LOOP 410, #104 SAN ANTONIO TX 78216
2668 LEAWOOD 4751 WEST 117TH STREET LEAWOOD KS 66211
2778 PEORIA 5001 NORTH BIG HOLLOW ROAD PEORIA IL 61615
2739 CORAL GABLES 152 MIRACLE MILE CORAL GABLES FL 33134
2757 BEES CAVE 701 CAPITAL OF TEXAS HWY AUSTIN TX 78768
- ----------------------------------------------------------------------------------------------------------
Store Count 111
==========================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Schedule B
B&N Store Street Zip
Store # Name/Location Address City State Code
- ------- ------------------- ----------------------------- ------------ ----- -----
<S> <C> <C> <C> <C> <C>
1876 SHARON S.C. 4720 SHARON ROAD CHARLOTTE NC 28210
1955 MANSELL COMMONS 7660 NORTH POINT PKWY, #200 ALPHARETTA GA 30202
2558 GREENVILLE HAYWOOD 735 HAYWOOD ROAD GREENVILLE SC 29607
2561 DOWNTOWN PITTSBURGH 339 SIXTH AVENUE PITTSBURGH PA 15222
2570 SPRINGDALE MOBILE 3250 AIRPORT BLVD B-30 MOBILE AL 36606
2571 RENO 5695 SOUTH VIRGINIA RENO NV 89502
2572 ERIE 5909 PEACH STREET ERIE PA 16509
2574 COUNTRY CLUB PLAZA 420 W 47TH STREET KANSAS CITY MO 64112
2580 BIRMINGHAM GALLERIA 3780 RIVERCHASE VILLAGE, #300 HOOVER AL 35244
2583 ENCINO 16461 VENTURA BLVD ENCINO CA 91356
2587 CEDAR RAPIDS 333 COLLINS ROAD NE, BLDG 1 CEDAR RAPIDS IA 52402
2595 BRANDON SQUARE 122 BRANDON TOWN CENTER BRANDON FL 33511
2602 KITSAP 3108 NW RANDALL WAY SILVERDALE WA 98383
2606 FARGO 1201 42ND STREET SW FARGO ND 58103
2622 OLD ORCHARD 55 OLD ORCHARD CENTER SKOKIE IL 60077
- -------------------------------------------------------------------------------------------
Store Count 15
===========================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Schedule C
B&N Store Street Zip
Store # Name/Location Address City State Code
- ------- -------------------- ------------------------ ------------ ----- -----
<S> <C> <C> <C> <C> <C>
52 CRABTREE VALLEY MALL 4325 GLENWOOD AVE RALEIGH NC 27612
136 ALTAMONTE MALL 451 ALTAMONTE AVE ALTAMONTE SPRINGS FL 32701
147 UNIV SQUARE 2112 UNIVERSITY MALL TAMPA FL 33612
184 MONMOUTH MALL ROUTE 35 AT WYCKOFF ROAD EATONTOWN NJ 07724
300 FIFTH AVE 666 FIFTH AVE NEW YORK NY 10103
333 N WABASH 129 N WABASH AVENUE CHICAGO IL 60602
368 PARADISE VALLEY MALL 4550 E CACTUS ROAD PHOENIX AZ 85032
400 NEW ORLEANS 714 CANAL STREET NEW ORLEANS LA 70130
707 CITY CENTER 40 SOUTH 7TH STREET MINNEAPOLIS MN 55402
836 N MICHIGAN 645 NORTH MICHIGAN AVE CHICAGO IL 60611
- --------------------------------------------------------------------------------------------
Store Count 10
============================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Schedule D
B&N Store Street Zip
Store # Name/Location Address City State Code
- ------- ---------------- -------------------------------- -------- ----- -----
<S> <C> <C> <C> <C> <C>
2643 TOWN AND COUNTRY 12850 MEMORIAL DRIVE, SUITE 1600 HOUSTON TX 77024
2767 CARROLLWOOD 11802 N. DALE MABRY AVE TAMPA FL 33618
2768 METAIRIE 3721 VETERANS MEMORIAL HWY METAIRIE LA 70002
- ---------------------------------------------------------------------------------------
Store Count 3
=======================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Schedule E
B&N Store Street Zip
Store # Name/Location Address City State Code
- ------- ----------------- ----------------------------- ---------------- ----- -----
<S> <C> <C> <C> <C> <C>
1884 SPRINGFIELD 240 ROUTE 22 WEST SPRINGFIELD NJ 07081
1927 ANN ARBOR 3245 WASHTENAW ANN ARBOR MI 48104
1944 STEVENS CREEK 3600 STEVENS CREEK BLVD SAN JOSE CA 95117
2536 ARBORETUM 10000 RESEARCH BLVD AUSTIN TX 78759
2537 N RICHLAND HILLS 8525 AIRPORT FREEWAY N RICHLAND HILLS TX 76180
2541 BATTLEFIELD 3110 S GLENSTONE AVE SPRINGFIELD MO 65804
2554 COLORADO BLVD 960 S COLORADO BLVD DENVER CO 80222
2566 PRESTON & 544 2201 PRESTON ROAD, SUITE E PLANO TX 75093
2577 NORTH ARLINGTON 934 EAST COPELAND ROAD ARLINGTON TX 76011
2582 VANDERBILT SQUARE 3003 W HOLCOMBE BLVD HOUSTON TX 77025
2585 WOODLAND HILLS 8620 EAST 71ST STREET TULSA OK 74133
2607 SOUTH CENTER 300 ANDOVER PARK W, SUITE 200 TUKWILA WA 98188
2616 THE WOODLANDS 1310 LAKE WOODLANDS DRIVE THE WOODLANDS TX 77380
- ---------------------------------------------------------------------------------------------
Store Count 13
=============================================================================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> JAN-28-1996
<PERIOD-END> JUL-27-1996
<CASH> 16,557
<SECURITIES> 0
<RECEIVABLES> 44,462
<ALLOWANCES> 0
<INVENTORY> 682,703
<CURRENT-ASSETS> 794,967
<PP&E> 546,711
<DEPRECIATION> 158,827
<TOTAL-ASSETS> 1,337,372
<CURRENT-LIABILITIES> 615,643
<BONDS> 290,000
0
0
<COMMON> 33
<OTHER-SE> 393,371
<TOTAL-LIABILITY-AND-EQUITY> 1,337,372
<SALES> 524,321
<TOTAL-REVENUES> 524,321
<CGS> 340,236
<TOTAL-COSTS> 340,236
<OTHER-EXPENSES> 73,278
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,169
<INCOME-PRETAX> (4,547)
<INCOME-TAX> (1,826)
<INCOME-CONTINUING> (2,721)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,721)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> 0.000
</TABLE>
