-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UxrkYJxu7m2SHUt3GtuCvNC6KZvRG7FjDRv4QbvBFTH/p8/UdJrlwfAkhVw3DyRv pcSiexSfQMZZ6i76Xc9XsQ== 0000910643-98-000105.txt : 19981125 0000910643-98-000105.hdr.sgml : 19981125 ACCESSION NUMBER: 0000910643-98-000105 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19981112 ITEM INFORMATION: ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19981124 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BARNES & NOBLE INC CENTRAL INDEX KEY: 0000890491 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-MISCELLANEOUS SHOPPING GOODS STORES [5940] IRS NUMBER: 061196501 STATE OF INCORPORATION: DE FISCAL YEAR END: 0129 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-12302 FILM NUMBER: 98758149 BUSINESS ADDRESS: STREET 1: 1400 OLD COUNTRY ROAD CITY: WESTBURY STATE: NY ZIP: 11590-5130 BUSINESS PHONE: 5163388119 MAIL ADDRESS: STREET 1: 1400 OLD COUNTRY ROAD CITY: WESTBURY STATE: NY ZIP: 590-5130 8-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report (Date of earliest event reported) November 12, 1998 ------------- BARNES & NOBLE, INC. - ----------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Charter) Delaware 1-12302 06-1196501 - ----------------------------------------------------------------------------- (State or Other Jurisdiction (Commission (IRS Employer of Incorporation) File Number) Identification No.) 122 Fifth Avenue, New York, NY 10011 - ----------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (212) 633-3300 ------------- - ----------------------------------------------------------------------------- (Former Name or Former Address, if Changed Since Last Report) Item 2. Acquisition or Disposition of Assets. On November 12, 1998, Barnes & Noble, Inc ( the "Company") completed the establishment of its previously announced 50%/50% joint venture with Bertelsmann AG, an Akteingesellschaft organized and existing under the laws of Germany ("BAG"), to operate the Company's online retail business, barnesandnoble.com ("barnesandnoble.com"). Under the terms of the Formation Agreement among the Company, BAG and certain of their respective subsidiaries (the "Formation Agreement"), effective as of October 31, 1998, the Company established barnesandnoble.com llc, a Delaware limited liability company (the "LLC"), to own and operate barnesandnoble.com. BOL US Online, Inc., a Delaware corporation ("USO") and wholly owned subsidiary of BAG, became a 50% member of the LLC following a $150 million cash contribution to the LLC and a $75 million cash payment to the Company. USO has also agreed to contribute an additional $50 million in capital to the LLC upon the request of the Chairman and Chief Executive Officer of the LLC. Additionally, USO will pay B&N, at the time of any initial public offering of the business of the LLC prior to December 31, 2001, an additional amount, not to exceed $25 million, equal to the amount, if any, by which the value of USO's interest in the LLC at the time of such offering exceeds the value of USO's total investment in the LLC through the date of such offering. The Formation Agreement is attached hereto as Exhibit 10.1. The Amended and Restated Limited Liability Company Agreement (the "LLC Agreement") sets forth the agreement of the parties as to the operation and governance of the LLC. Pursuant to the LLC Agreement, the LLC has two 50% members: B&N.com Holding Corp., a wholly owned subsidiary of the Company ("B&N Holding"), and USO. Pursuant to the LLC Agreement the parties have agreed that, with certain exceptions, the LLC will be the exclusive means through which they sell English language books on the Internet, and the LLC Agreement also provides for links between BAG's non-English language sites and the LLC for the sale of books. The LLC Agreement contains non-compete provisions which are operative during the term of the joint venture and for a period of time thereafter. The LLC will be managed by a board of managers consisting of six managers, with three managers appointed by B&N Holding and three managers appointed by USO. Leonard Riggio, the Chairman and Chief Executive Officer of the Company, is the LLC's initial Chairman, and Jonathan Bulkeley, who has served as head of America Online's United Kingdom operations for the past three years, will be the LLC's initial Chief Executive Officer and report to Mr. Riggio. Certain major decisions of the LLC require the consent of a majority of each of the B&N Holding managers and the USO managers, certain related party transactions between the LLC and either B&N or BAG require the consent of a majority of the other party's managers and other decisions require a majority of all managers. As required by the Formation Agreement, USO has agreed in the LLC Agreement to make additional capital contributions to the LLC of up to $50 million. The LLC Agreement also contains provisions restricting sales and transfers of membership interests in the LLC. Pursuant to the LLC Agreement the parties have also agreed to share certain technology. The LLC Agreement is attached hereto as Exhibit 10.2. Item 5. Other Events. On November 6, 1998, the Company announced an agreement to purchase the Ingram Book Group, a group of privately held subsidiaries of Ingram Industries Inc., for $600 million, consisting of approximately $200 million in cash and approximately $400 million in common stock of the Company. The Ingram Book Group includes: Ingram Book Company, the nation's largest wholesaler of general trade books; Retailer Services Inc.; Ingram Periodicals Inc.; Spring Arbor Distributors Inc.; Publisher Resources Inc.; Ingram International Inc.; Tennessee Book Company; Lighting Print Inc.; and Ingram Library Services Inc. The closing of the transaction is subject to satisfaction of certain conditions, including the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. Upon the completion of the transaction, the Ingram Book Group is expected to become a major component of the Company's distribution network through Ingram Book Group's eleven strategically located distribution centers. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. Exhibit 10.1 - Formation Agreement dated November 12, 1998 among Barnes & Noble, Inc., B&N.com Holding Corp., barnesandnoble.com inc., B&N.com Member Corp., Bertelsmann AG and BOL.US Online, Inc. Exhibit 10.2 - Amended and Restated Limited Liability Company Agreement of barnesandnoble.com llc among Barnes & Noble, Inc., B&N.com Holding Corp., Bertelsmann AG and BOL.US Online, Inc. EX-10.1 2 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 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 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): 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. 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). 1.3 "BOL" shall mean BOL.Global, Inc., a corporation organized under the laws of Delaware. 1.4 "Closing" shall mean the closing of the transactions contemplated by this Agreement. 1.5 "Closing Date" shall have the meaning assigned to such term in the first paragraph of this Agreement. 1.6 "Code" shall mean the Internal Revenue Code of 1986, as amended. 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. 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. 1.9 "Employee Plan" shall have the meaning assigned to such term in Section 4.1(q)(i) of this Agreement. 1.10 "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. 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. 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"). 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 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. 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. 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. 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. 1.17 "GAAP" shall mean United States generally accepted accounting principles as in effect from time to time, consistently applied. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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 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. 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. 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). 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. 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. 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. 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. 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. 1.35 "Transfer" shall mean 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 of any interest in the Company (whether profits, management or Percentage Interest). ARTICLE II FORMATION AND CONTRIBUTIONS 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. 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. 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. 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 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. 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. 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 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 time, date and place as the parties hereto may agree. 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 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; (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 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 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; (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 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 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 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, 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 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 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. 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 power 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: (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 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. 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 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. 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. 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. 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. 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. 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. 5.8 Stock Options. As of the Effective Date, the 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. 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 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). 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 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 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 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 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. 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 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 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 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. 8.2 Indemnification. (a) Transferor shall promptly indemnify, defend and hold harmless USO and the Company against all damage, loss, liability, recovery, 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. 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). 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 compromised or settled by the indemnified party shall not be subject to indemnification hereunder. ARTICLE IX MISCELLANEOUS 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. 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. 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 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 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. 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 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. 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. 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. 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. 9.9 Third Party Beneficiary. The Company shall be a third party beneficiary of this Agreement. 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. 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 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. 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. 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 ______________________________ EX-10.2 3 ___________________________________ AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF barnesandnoble.com llc Effective as of October 31, 1998 ____________________________________ AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF barnesandnoble.com llc THIS 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 11:59 p.m. on the 31st day of October, 1998, 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"), 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, barnesandnoble.com inc., a wholly-owned subsidiary of BN, has, as of October 31, 1998: (i) contributed to the Company all of its assets (except its interests in NuvoMedia, Inc. and B&N.com Member Corp., a wholly- owned subsidiary of barnesandnoble.com inc. ("B&N.com Member")) and liabilities in exchange for a one hundred percent (100%) Membership Interest (as hereinafter defined), and (ii) transferred a one percent (1%) Membership Interest to B&N.com Member ; WHEREAS, USO has, as of the Closing Date (as defined in the Formation Agreement), pursuant to the Formation Agreement (as hereinafter defined), paid barnesandnoble.com inc. (or its designee) Seventy-Five Million Dollars ($75 million) for a 21.42857% Membership Interest; WHEREAS, USO has, as of the Closing Date, pursuant to the Formation Agreement, made 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, has given USO an aggregate fifty percent (50%) Membership Interest; WHEREAS, immediately subsequent to the payments described above, but immediately prior to the execution of this Agreement, each of barnesandnoble.com inc. and B&N.com Member has assigned all of its Membership Interests (which together will aggregate a fifty percent (50%) Membership Interest) to BN Holding; and WHEREAS, the parties hereto desire to amend and restate the Limited Liability Company Agreement (the "Original Agreement") of the Company, dated as of October 27, 1998, to provide for the admission of USO as a Member and to establish herein the respective rights and obligations of BN Holding and USO with respect to the Company. NOW, THEREFORE, in consideration of the conditions and provisions con- tained herein, BN Holding and USO hereby agree as follows: ARTICLE I. DEFINITIONS 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 Managers" shall mean, collectively, the Managers designated by BN Holding pursuant to Section 3.2 (a). "Board" or "Board of Managers" shall mean the Board of Managers defined in Section 3.1. "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-to-consumer 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. "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. "Business Plan" shall mean a five-year business plan for the Company setting forth a statement of projected expenses, revenue and capital requirements of the Company over such period. "Certificate of Formation" means 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, as such Certificate of Formation may be amended or restated from time to time. "Code" shall mean the Internal Revenue Code of 1986, as amended. "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 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 Board and shall include, but not be limited to, reasonable reserves for current and future operating expenses, debt service, business expansion and acquisitions, contingencies and emergencies. "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. "Formation Agreement" shall mean the Formation Agreement by and among BN, BN Holding, USO and BAG, dated as of the date hereof. "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 to be negotiated in good faith after the Closing Date. "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. "Majority in Interest of the Members" means, at any time, Members owning a majority of all of the outstanding Membership Interests in the Company. "Member" shall mean, at any time, each of BN Holding and USO if, at such time, they have a Membership Interest in the Company and any Person who at such time has a Membership Interest in the Company. "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 Interest" shall mean a Member's entire interest in the Company, including (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 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 1.704-1(b)(4)(iv) 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 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. "Percentage Interest" shall mean a Member's aggregate economic percentage interest in the Company as set forth on Schedule I hereto as each such percentage may be adjusted from time to time by the Members by mutual consent or upon any Transfer by a Member in accordance with the terms of this Agreement. "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 Transferee" shall mean amazon.com, inc., Borders Group, Inc., America Online, Inc. ("AOL"), Microsoft, Inc. or Yahoo, Inc. or any of their respective Affiliates. "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. "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 of any interest in the Company (whether profits, management or Percentage Interest). "Transition Services Agreement" shall mean the Transition Services Agreement, dated as of the date hereof, by and between the Company and BN. "Treasury Regulations" means the regulations promulgated by the U.S. Department of the Treasury under the Code. "USO Managers" shall mean, collectively, the Managers designated by USO pursuant to Section 3.2(a). "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. S 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. 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. II. ORGANIZATIONAL AND OTHER MATTERS; MEMBERSHIP 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 hereto, by virtue of the execution of this Agreement, are being admitted to the Company as a Member. 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 Original Agreement in its entirety. 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. 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 Board. (b) The Company shall operate one or more Websites for the purpose of selling English Language Books. (c) As soon as reasonably practical, 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 Board) 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. (d) As soon as reasonably practical, 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 applicable Boards) 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 as promptly as practicable following the Closing, each BOL Website (other than BOL.UK) shall offer its customers access to English Language Books through two equal sized buttons, one of which shall access BOL.UK and one of which shall access the Company. In the case of BOL.UK, 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 through the applicable Fulfillment Agreements to be negotiated in good faith after the Closing Date. (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 through the applicable Fulfillment Agreements to be negotiated in good faith after the Closing Date. (h) BN or its Affiliates will provide services for the benefit of the Company pursuant to that certain Amended and Restated Services Agreement for BN, Amended and Restated Services Agreement for Marboro and Supply Agreement entered into in connection herewith. (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) Either 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 7.7, 7.8 and 7.9. (k) Nothing herein shall affect the right of either BN, BAG or their respective Affiliates to engage in any other business, including sale in any manner 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 contemplated to be executed in connection with 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 and USO are fully aware of, have been advised and agree that each of them 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. 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 Board (as hereinafter defined) from time to time may select. 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, 2049, subject to extension under Section 9.1(a), or until the earlier dissolution of the Company in accordance with the provisions of ARTICLE IX hereof or as otherwise provided by law. 2.6 MEMBERS. The Members of the Company as of the date of this Agreement are BN Holding and USO. Subject to the prior written consent of all Members, a new Person may be admitted from time to time as a Member; pro- vided, 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. 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. 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 Board, and the Secretary of the Meeting shall be appointed by the Chairman. 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. 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 hereof not fewer than ten (10) days nor more than sixty (60) days before the date thereof. 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. 2.12 QUORUM. A Majority in Interest of the Members 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. A Majority in Interest of the Members 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. 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. 2.14 VOTING POWER. Each Member shall be entitled to vote in proportion to such Member's Percentage Interest. 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. BOARD OF MANAGERS; POWERS; VOTING; MEETINGS 3.1 BOARD OF MANAGERS/CHAIRMAN. (a) The business, property and affairs of the Company shall be managed under the direction of the Board of Managers (the "Board") consisting of six (6) Managers (the "Managers"). (b) Without limiting the foregoing provisions of this Section 3.1, the Managers 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 Section 3.11(b) and 4.6), 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; (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, subject to the provisions of Section 3.11(b); (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. (c) The Board will elect Mr. Leonard Riggio as its first Chairman. Each subsequent Chairman will be nominated by the BN Managers and shall be elected as the Chairman of the Company by the Managers unless the USO Managers reject such nominee for good reason. In the event that Mr. Leonard Riggio ceases to serve as the Chairman, USO agrees that it will not reject the election of Mr. Stephen Riggio as Chairman. 3.2 ELECTION AND TERM OF MANAGERS; COMMITTEE MEMBERS. (a) (i) Each of USO and BN Holding shall be entitled to designate three (3) Managers. Each of USO and BN Holding hereby agrees to vote its respective Membership Interests and take whatever action may be necessary in respect of its Membership Interest to cause the election or removal of all such designees as contemplated by this Article III. (ii) If either Member Transfers a percentage of its Membership Interest which is equal to more than ten percent (10%) of the aggregate Membership Interests in the Company to any Person (other than an Affiliate as permitted by Section 7.2(a)), then the transferring Member will lose the right to elect one of its three (3) Managers and the number of Managers on the Board of Managers will be reduced to five (5) by automatic resignation of one of the Managers designated by the transferring Member (such resigning Manager to be selected by the transferring Member within ten (10) days prior to the transfer). In the absence of such notice, the nontransferring Member shall designate the resigning Manager. Upon such reduction, the nomination rights, restrictions on nomination and election of the Chairman and CEO (whichever is applicable with respect to the transferring Member) and, thereafter, all other governance provisions, including the provisions of Section 3.11(b), shall be eliminated, and all such decisions shall be made by majority vote of the Board of Managers. (b) Each Member who is entitled to designate a Manager or Committee Member pursuant to Section 3.15 hereof, shall have the authority to designate a successor to that Manager or Committee Member should such Manager or Committee Member resign, be removed or otherwise no longer be a Manager or Committee Member of the Company. In addition, at the request of a Member who desires to remove a Manager or Committee Member designated by such Member and designate a successor Manager or Committee Member, the Members agree to take all necessary action to remove such Manager or Committee Member and appoint the successor Manager or Committee Member. (c) The initial Board shall be constituted as set forth on Schedule 3.2. 3.3 VACANCIES. Vacancies occurring on the Board or any Committee thereof, for any reason, shall be filled by the Member which appointed the Manager whose resignation, death or removal caused such vacancy. 3.4 REMOVAL OF MANAGERS AND COMMITTEE MEMBERS. A Manager or Committee Member may be removed at any time for any or no reason by the Member which appointed such Manager or Committee Member. 3.5 RESIGNATION. A Manager or Committee Member may resign at any time by giving written notice to the Members and the Company. Unless otherwise specified in such notice or consent, the resignation shall take effect upon receipt of such notice by all of the Members. 3.6 PLACE OF MEETINGS. Unless otherwise agreed by each of the Members or each Committee Member in the case of a Committee Meeting (as hereinafter defined), Meetings of the Board (each, a "Board Meeting") and any committees thereof (each a "Committee Meeting") shall be held at the principal office of the Company. 3.7 MEETINGS. A Board Meeting may be called by any Manager or by the Chief Executive Officer. Board Meetings shall be held from time to time, but no fewer than once in any calendar quarter. Committee Meetings may be called by a member thereof, or by the Board or by the Chief Executive Officer. Meetings shall be chaired by the Chairman of the Board, and the Secretary of the Meeting shall be appointed by the Chairman. 3.8 TELEPHONIC MEETINGS. Board Meetings and Committee Meetings may be held through the use of conference telephone or similar communications equipment so long as all Persons participating in such Board Meetings and Committee Meetings can hear one another at the time of such Board Meeting or Committee Meeting. Participation in such Board Meeting or Committee Meeting via conference telephone or similar communications equipment in accordance with the preceding sentence constitutes presence in person at the Board Meeting or Committee Meeting. 3.9 NOTICE OF MEETINGS. Written notice of each Board Meeting and Committee Meeting shall state the place, date and hour of such Board Meeting or Committee Meeting, and the general nature of the business to be transacted. Notice shall be given in the manner prescribed in Section 11.2 hereof to each of the Managers and the Members at the addresses set forth therein and, in the case of the Managers, to their addresses appearing on the records of the Company and not fewer than ten (10) days (provided that in case of an economic emergency, the notice period may be reduced to twenty- four (24) hours at the request of a Member) nor more than sixty (60) days before the date thereof. 3.10 WAIVERS. Notice of a Board Meeting need not be given to any Manager or Committee Member who signs a waiver of notice, in person or by proxy, whether before or after the Board Meeting or Committee Meeting. The attendance of any Manager or Committee Member at a Board Meeting or Committee Meeting, in person or by proxy, without protesting prior to the conclusion of such Board Meeting or Committee Meeting the lack of notice of such Board Meeting or Committee Meeting, shall constitute a waiver of notice by such Manager or Committee Member, provided that such Manager or Committee Member has been given an adequate opportunity at the meeting to protest such lack of notice. 3.11 QUORUM; BOARD ACTION. (a) A majority of the Managers shall constitute a quorum at a Board Meeting for the transaction of any business. A majority of the Managers present may adjourn the Board Meeting, whether or not a quorum is present. An adjournment may include notice of the date, hour and place that the Managers shall reconvene. Notice of the adjournment (with the new date, time and place) shall be given to all Managers who were absent at the time of the adjournment and, unless such date, hour and place are announced at the Board Meeting, to the other Managers. Except as otherwise expressly provided in this Agreement, the vote of a majority of the Managers present at a meeting at which a quorum is present shall be the act of the Board, provided that such majority must contain at least one BN Manager and one USO Manager. The Board shall keep a written record of its proceedings. (b) Without the prior affirmative majority vote of each of the BN Managers and the USO Managers then in office, the Company shall not, and shall not permit any subsidiary to, and no officer, employee or agent of the Company or any subsidiary thereof shall, take any of the actions specified in Schedule 3.11(b). (c) If the Board is unable to resolve any material matter subject to approval under Section 3.11(b), the matter shall be referred to the Chairman and Chief Executive Officer of BN Holding and USO, respectively, for resolution, which resolution shall be final and binding on the Members. 3.12 PROXIES. Every Manager entitled to vote at a Board Meeting or a Committee Meeting may authorize another Manager or Managers to act for him by proxy. Every proxy must be signed by the Manager 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 Manager executing it. 3.13 VOTING POWER. Each Manager of record shall be entitled to one vote. 3.14 WRITTEN CONSENT. Any action required or permitted to be taken at any Board Meeting or Committee Meeting may be taken without a meeting if all Managers or Committee Members consent thereto in writing. Any such written consents shall be filed with the minutes of the proceedings of the Board or Committee. 3.15 COMMITTEES. The Board may, by resolution passed by a majority of the whole Board, designate two or more of their Managers to constitute committees of the Board to hold office at the pleasure of the Board; provided, however, that each such Committee shall have at least one member (a "Committee Member") designated by USO and one member designated by BN Holding. Any Person ceasing to be a Manager shall ipso facto cease to be a member of each Committee of which they were a member. A majority of the members of a Committee shall constitute a quorum; provided at least one Committee Member designated by USO and one Committee Member designated by BN Holding are present. The act of a majority of the members of a Committee present at any meeting at which a quorum is present shall be the act of such Committee. The members of a Committee shall act only as a Committee, and the individual members thereof shall not have any powers as such. A Committee may act on such matters as authorized by the Board; provided, however, a Committee may not act on any matter requiring Board approval under Section 3.11(b). 3.16 COMPENSATION. No Manager rendering services to the Company shall be entitled to compensation for services rendered in his capacity as a Manager or Committee Member. Each Member shall be responsible for the compensation and expenses of its representatives on the Board or any Committee thereof. ARTICLE IV. OFFICERS AND EMPLOYEES 4.1 CHIEF EXECUTIVE OFFICER; ELECTION. USO will have the right to nominate the Chief Executive Officer of the Company for approval by the Board of Managers. The individual nominated by USO will be elected as the Chief Executive Officer of the Company unless the BN Managers reject a nominee for good reason. The terms of employment of the Chief Executive Officer will be negotiated by the Chairman and shall be subject to Board approval. 4.2 OTHER OFFICERS AND EMPLOYEES. In addition to the Chief Executive Officer, the Board may appoint such other officers as they may from time to time determine to be appropriate. 4.3 REMOVAL OF OFFICERS AND EMPLOYEES; RESIGNATION. (a) Any person serving as Chief Executive Officer shall be removed by the Board of Managers upon the request of (i) the Chairman of the Board, due to the failure of the Chief Executive Officer to perform his duties in a manner satisfactory to the Chairman; or (ii) the majority of the Board of Managers, due to the failure of the Chief Executive Officer to perform his duties in a manner satisfactory to a majority of the Board of Managers. (b) Any person serving as any other officer or employee appointed, hired or otherwise approved by the Board shall cease to serve in such position upon the written notification at any time by the Board. Any officer or employee hired by the Company without requirement of approval by the Board may be dismissed at any time by the Chief Executive Officer. (c) The Chief Executive Officer may resign by giving written notice to the Board. Unless otherwise specified in such notice, the resignation shall take effect upon the receipt of such notice by the Board, and the acceptance of the resignation shall not be necessary to make it effective. 4.4 DUTIES; POWERS OF CHIEF EXECUTIVE OFFICER AND CHAIRMAN. (a) The Chief Executive Officer shall implement all orders and resolutions of the Board. As long as the name of the Company (or the business operated thereunder) includes the name "Barnes and Noble" or any substantially similar name or derivation thereof, subject to the terms and conditions of this Agreement, including Sections 3.11(b) and 4.6, the Chief Executive Officer shall report to the Chairman of the Board, who will be the representative of the Board in reviewing the day-to-day affairs of the business of the Company. As long as the name of the Company (or the business operated thereunder) uses the name "Barnes and Noble, or any substantially similar name or derivation thereof, the Chairman may direct the Chief Executive Officer in accordance with the guidelines and Business Plan established by the Board, subject to Sections 3.11(b) and 4.6. (b) Any matters involving a contractual relationship between the Company and any of the Members or any of their Affiliates shall either be on the terms set forth herein, an agreement entered into pursuant to this Agreement or on an arm's length basis and, if in excess of $50,000, such matter shall be subject to the approval of the Board of Managers. 4.5 MANAGEMENT POLICIES (a) 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 Board. (b) To the extent specifically requested by the Board or the Chairman, the Chief Executive Officer shall attend all meetings of the Board. The Board or the Chairman may also request any other Person (including officers and employees of the Company) to attend any meeting of the Board. 4.6 RESTRICTED ACTIVITIES. Any variance from the license agreement relating to the name "Barnes & Noble", or any substantially similar name or derivation thereof, shall require the approval of the BN Managers. 4.7 SPECIAL MANAGEMENT PROVISIONS. Notwithstanding anything to the contrary contained in Article IV, the following actions shall at all times be taken by the party indicated below, by or on behalf of the Company, without the approval, consent or authorization by the other party (including in such party's capacity as a Member) or its designees on the Board or any Committee: (a) Subject to Section 4.4(b), all action with respect to the execution, delivery, or termination in accordance with the terms of any agreement between BN Holding (or any of its Affiliates) and the Company shall be taken solely pursuant to the direction of USO, and BN Holding shall cause its Members to take such action by or on behalf of the Company as is directed by USO. (b) Subject to Section 4.4(b), all action with respect to the execution, delivery, or termination in accordance with the terms of any agreement between USO (or any of its Affiliates) and the Company shall be taken solely pursuant to the direction of BN Holding, and USO shall cause its Members to take such action by or on behalf of the Company as is directed by BN Holding. (c) The appointment and dismissal of the Chief Executive Officer shall be governed by the provisions of Sections 4.1 and 4.3(a). The appointment of the Chairman shall be governed by the provisions of Section 3.1(c). (d) Subject to Section 4.4(b), all action with respect to matters relating to the enforcement or waiver of any rights granted the Company under an agreement with USO (or any of its Affiliates) shall be taken solely pursuant to the direction of BN Holding, and USO shall cause its Members to take such action as is directed by BN Holding. (e) Subject to Section 4.4(b), all action with respect to matters relating to the enforcement or waiver of any rights granted the Company under an agreement with BN Holding (or any of its Affiliates) shall be taken solely pursuant to the direction of USO, and BN Holding shall cause its Members to take such action as is directed by USO. ARTICLE V. FINANCE AND CAPITAL 5.1 CAPITAL CONTRIBUTIONS. (a) The Members have made, on or prior to the date hereof, capital contributions or acquired Membership Interests as specified opposite their respective names on Schedule I hereto, including cash and certain other assets all as set forth on Schedule I hereto. (b) One Hundred Fifty Million shall be paid on the Closing Date by USO to the Company as a capital contribution. Fifty Million Dollars ($50 million) of USO's initial capital contribution shall be placed in a segregated account of the Company (the "Reserve Account"). Withdrawals from the Reserve Account may only be made in accordance with Section 5.3(a)(ii) and (iii). The funds in the Reserve Account shall be invested as directed by the BN Managers in their sole discretion. 5.2 ADDITIONAL CAPITAL CONTRIBUTIONS. Except as set forth in Section 5.3, no Member shall be required or permitted to make additional capital contributions to the Company without the consent of all of the Members. 5.3 DRAWDOWN AND PAYMENT OF AGREED CAPITAL CONTRIBUTIONS. (a) (i) USO has agreed to make additional cash capital contributions to the Company in amounts not to exceed, in the aggregate, the sum of Fifty Million Dollars ($50 million). USO agrees that it will cause such contribution to be made within two (2) Business Days after receipt of a request signed by each of the Chairman and Chief Executive Officer of the Company specifying the amount to be contributed by USO and the account to which such amount shall be remitted. In no event shall the individual obligation of USO under this Section 5.3 exceed, in the aggregate, the sum of Fifty Million Dollars ($50 million). (ii) Concurrently with any USO additional contribution referred to in Section 5.3(a)(i), an equal amount shall be released to the Company from the principal portion of the Reserve Account, together with interest earned thereon as is reasonably allocable to such principal portion, for use, in accordance with the Business Plan, as determined by the Chairman and CEO of the Company. In the event that the principal portion of the amount on deposit in the Reserve Account is less than the amount of such additional USO contribution, then, in addition to releasing to the Company the full amount of the Reserve Account, BN Holding agrees to contribute to the Company as an additional capital contribution the amount of any such deficiency, concurrently with such USO additional contribution. (iii) Subject to Section 5.3(a)(ii), the remaining amount of the principal on deposit in the Reserve Account (or any portion thereof) may be paid to BN Holding at any time and from time to time after the six (6) month anniversary of the date hereof if the BN Managers shall determine, in their sole discretion, that such funds to be paid to BN Holding are no longer needed by the Company. Any interest earned in the Reserve Account on the principal paid to BN Holding shall be released to the Company at the time of such payment. Unless otherwise agreed by the Managers, the amount (if any) on deposit in the Reserve Account on January 1, 2001 shall be paid by the Company to BN Holding on such day. (b) In the event that a party defaults (a "Defaulting Party") for a period of more than fifteen (15) days after notice from the Company or the other party (the "Non-Defaulting Party") in satisfying a funding obligation imposed on the Defaulting Party under the terms of this Agreement (regardless of when and how such a default or failure occurs), the Non-Defaulting Party shall be entitled, in connection with such funding obligation, to take all necessary and available remedies to enforce the obligation of the Defaulting Party for and on behalf of itself or the Company. Such failure to fund shall constitute a material breach of this Agreement. (c) The Non-Defaulting Party may, but shall not be required to, satisfy the funding obligation of the Defaulting Party, in which case neither party's percentage ownership interest in the Company shall change and the Defaulting Party shall be obligated to reimburse the Non-Defaulting Party for all amounts so funded together with interest thereon (at the rate provided for herein) to the date of repayment. (d) During the fifteen (15) day period described in Section 5.3(b) and such longer period until the Defaulting Party cures said default or the Non-Defaulting Party effectuates the remedies described in Section 5.3(b), as applicable, the funding which is not made shall bear interest at five percent (5%) over the Prime Rate and such interest shall be paid by the Defaulting Party to the Company or the Non-Defaulting Party upon demand. In the event that such interest rate is in excess of the legally permissible rate of interest in New York, the rate of interest applicable under this Section 5.3(d) shall be the highest rate allowed by New York State law. (e) A Defaulting Party shall remain fully liable to the Company, in proportion to its interest in the Company, for further funding obligations to be made by the parties following such failure to fund pursuant to this Agreement. (f) This Section 5.3 provides a specific remedy only with respect to funding obligations imposed pursuant to the terms and conditions of this Agreement. (g) Subject to Section 4.7, in the event that a party is a Defaulting Party under Section 5.3, then, for a period which is equal to two (2) times the period from the date on which such funding should originally have been made to the date of cure, the right of the Defaulting Party to grant or withhold consent to the matters requiring joint action set forth in Sections 3.11(b) shall be suspended. Notwithstanding the foregoing, the provisions of Sections 4.6 and 4.7 shall continue to apply in accordance with their terms. 5.4 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) (except as otherwise set forth therein) 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, 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 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 (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. 5.5 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. (b) Tax credits, if any, shall be allocated among the Members in proportion to their Percentage Interests. (c) When the book 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 shall be allocated among the Members under the traditional method with remedial allocations under Treasury Regulation Section 1.704-3(d). The Members agree that, as of the date hereof, all such differences relate to goodwill, and the corresponding remedial allocations shall be made ratably over a fifteen (15) year period. (d) Determinations by the Members. All matters concerning the allocation of Net Income and Net Loss 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 Members, 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 the allocations provided for in Section 5.5(a), (b), (c), (d) or (e), 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 5.5(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 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 5.5(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 5.5(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 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) and (h) (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 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. If the remedial allocation provisions of Section 5.5(c) or the provisions of Section 6.8(b) shall not apply in the manner contemplated by the parties, then notwithstanding Section 5.5(a), Net Profits and Net Losses or items of income, gain, deduction or loss shall be allocated among the Members so that the tax consequences are as nearly as possible identical to those tax consequences contemplated by the parties. 5.6 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 Board, subject to Sections 5.1(c) and 5.3(a)(ii) and (iii). 5.7 DISTRIBUTIONS. (a) Except as otherwise required by law or as provided in this Agreement (including Section 5.3(a)(iii)), 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, within ninety (90) days after the end of each Fiscal Year (the "Distribution Period"), distribute Distributable Cash as of the date of the proposed distribution, to each Member in proportion to such Member's Percentage Interest. 5.8 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. 5.9 BUSINESS PLAN. (a) Business Plan. The Business Plan is annexed to the Disclosure Letter as Schedule 5.9(a) and is hereby adopted and approved by the Members. No later than October 1st of each Fiscal Year beginning with October 1, 2000, the Chief Executive Officer shall furnish to the Board a Business Plan for the following Fiscal Year which shall be prepared in a manner substantially similar to and contain the same level of detail as that set forth in the Business Plan annexed to the Disclosure Letter. Such Business Plan shall be subject to the review and approval of the Board. If the Board approves any Business Plan item, the Company may make the capital and other expenditures set forth in the Business Plan with respect to such item, provided it has the necessary funds or can borrow such funds if authorized by the Board in accordance with this Agreement, from third-party lenders. A Member shall not be under any obligation to cause a vote in favor of modifying a Business Plan once it has been adopted by the Board, it being agreed that such decision is within the sole discretion of each Member. (b) Other Reports. The Chief Executive Officer shall also furnish to the Board such other reports and budgets as the Board may request from time to time. ARTICLE VI. ACCOUNTING; TAX MATTERS 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 in German GAAP. 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 and BN Holding and in sufficient detail to permit each of USO and BN Holding to report its respective share of income, expense and such other GAAP items as each of USO and BN Holding 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. 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 of the Board of Managers or the Chief Executive Officer shall provide all information requested by a Member. 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 Manager and 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 Board resolution. 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 in this Agreement shall be deemed to refer to a Member, Members and the Company, respectively. 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. 6.7 TAX MATTERS PARTNER. Pursuant to Code Section 6231(a)(7)(A), the Board of Managers shall designate 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 either Member, to effectuate such designation. The Tax Matters Partner shall cooperate with the other Member and shall promptly provide the other Member with copies of notices or other materials from, and inform the other Member of discussions engaged in with, any taxing authority and shall provide the other Member 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 Member with a view to accommodating the reasonable convenience of both the Tax Matters Partner and the other Member. 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 Board. The Tax Matters Partner may request extensions to file any tax return or statement without the written consent of, but shall so inform, the Board. The provisions of this Agreement regarding the Company's tax returns shall survive the termination of the Company and the transfer of either 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. 6.8 TAX ELECTIONS. (a) The Board shall determine in accordance with Section 3.11(b) whether to make any available tax election. (b) The Company shall, at the written request of BN Holding or USO, file a written statement (the "Section 754 Election"), signed by a Manager, setting forth (i) the name and address of the Company, (ii) a declaration that the Company elects under Section 754 to apply the provisions of Section 734(b) and Section 743(b) and (iii) such other information as may be required under Treas. Reg. Section 1.754-1. The Company shall file the Section 754 Election with its tax return for the taxable year during which the election is to be effective. The Section 754 Election, once made, may not be revoked without the consent of the Internal Revenue Service, and applies to all subsequent distributions of Company property and permitted ownership Transfers. The Company shall allocate such special basis adjustments under Section 734(b) and Section 743(b) pursuant to Section 755. The Members agree that a Section 754 Election shall be made with respect to the Company's Fiscal Year which includes USO's purchase from barnesandnoble.com inc. of a 21.42857% Membership Interest. (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. ARTICLE VII. TRANSFERS/EXCLUSIVITY/NONCOMPETITION 7.1 PROHIBITED TRANSFERS. Except as expressly permitted in this Agreement, no Member or any of their respective Affiliates, including any direct or indirect beneficial owner or ultimate parent of any Member (including BN and BAG), shall, directly or indirectly, Transfer any of the right, title or interest in (i) any Membership Interest or (ii) any of their Affiliates which beneficially own, either directly or indirectly, a Membership Interest. 7.2 PERMITTED TRANSFERS. Notwithstanding anything in this Agreement to the contrary, each Member may Transfer all (but not less than all) of the Membership Interests owned by it and its rights under this Agreement under any of the following circumstances: (a) Each of USO and BN Holding may Transfer all (but not less than all) of the Membership Interests 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; (b) Each of USO and BN Holding (or any permitted transferee under clause (a) above) may Transfer all (but not less than all) of the Membership Interests 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. (c) 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, 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, the transferee shall execute and deliver to the non-transferring Member and the Company such documents as may reasonably be requested by the non- transferring Member or the Company to evidence the same. 7.3 RIGHTS OF FIRST REFUSAL. (a) Except with respect to Transfers permitted pursuant to Sections 7.2, if, on or after the first anniversary after the date hereof, a Member desires to Transfer any part of its Membership Interest 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 Member at the same price and the same terms and conditions as the Offeror would receive from such other Person. If the Offeror shall Transfer a percentage of its Membership Interest which is equal to more than ten percent (10%) of the aggregate Membership Interests in the Company, the terms of Section 3.2(a)(ii) shall apply. The Offeror shall submit to the Company and the other Member 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 Interest. The other Member 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 other Member elects to accept such offer, which acceptance must be for all and not part of the Membership Interest 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 other Member (the "Purchaser") 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 other Member does not exercise its right to purchase all of the Membership Interest offered for sale pursuant to the provisions of this Section 7.3, the Offeror of such Membership Interest shall have the right to sell to the Person identified in the Offer Notice, subject to the provisions of all of such Membership Interest on the same terms and conditions including the Membership Interest 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 Interest has 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 Interest shall again become subject to all of the restrictions and provisions hereof. (c) The purchase price per unit for the Membership Interest 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 Purchaser the certificates evidencing the Membership Interest to be conveyed, duly endorsed and in negotiable form as well as the items listed in Section 7.4. 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 Purchaser the Membership Interest being purchased by the Purchaser, 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. 7.5 CONTINUITY OF AGREEMENTS. (a) In the event of a permitted Transfer under Section 7.2 or 7.3 (other than a permitted transfer to an Affiliate), the parties' rights under the fulfillment agreements with BN shall terminate on the date which is six (6) months after the date of Transfer unless otherwise provided therein. (b) Notwithstanding the foregoing Section 7.5(a), in the event that (x) USO is the transferring party in a transfer subject to Section 7.3, and has complied with Section 7.3, and (y) 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 7.3(a), to terminate the Name License Agreement insofar as relates to the right granted to the Company to use the name "Barnes and Noble" or any substantially similar name or derivation. 7.6 BN'S PURCHASE RIGHT. If BOL (or the entity operating BOL's business, but excluding any entity operating solely within one country) engages in an initial public offering within five (5) years after the date hereof, then BN shall have the right, exercisable within forty-five (45) days after notice thereof, to purchase twenty percent (20%) of BOL outside of the offering at a purchase price equal to eighty percent (80%) of the public offering price. 7.7 EXCLUSIVITY. Each of BN and BAG agrees that the following provisions shall be applicable during such time as BN and BAG (directly or indirectly through its respective Affiliates) own an interest in the Company: (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, except that BAG (and its Affiliates) may engage in the sale of English Language Books through BOL.UK in accordance with the provisions set forth in Section 2.3(e). (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, 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. 7.8 EXCEPTIONS TO EXCLUSIVITY. Notwithstanding anything in this Agreement to the contrary, the following shall be exempt from the restrictions set forth in Section 7.7: (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. (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. 7.9 NONCOMPETITION AFTER SALE OF MEMBERSHIP INTEREST. The restrictions set forth in Section 7.7 , and the provisions of Sections 2.3(c), (d), and (e), shall apply to a Member at all times during which: (a) such Member owns a Membership Interest; 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 Interests. ARTICLE VIII. LIMITED LIABILITY; INDEMNIFICATION 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 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, Manager nor the Company shall be obligated or liable for any such debt, obligation or liability of such Member. 8.2 INDEMNIFICATION. (a) The Company shall indemnify, defend and hold harmless any Member, Manager or other Person, 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, Manager, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, 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 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 the Member, Manager, employee or agent 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 may maintain insurance on behalf of any Person who is or was a Member, Manager, employee or agent, or is or was serving at the request of the Company as a 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, Manager, employee or agent 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, except with respect to the provisions set forth in Section 8.2(h). (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. (h) The parties agree that the remedial allocations described in Section 5.5(c) of this Agreement are intended to comply with the provisions of Section 704 of the Code and, along with the 754 Election to be made pursuant to Section 6.8(b), are intended to eliminate the disparity between USO's (outside) basis in its interest in the Company and USO's share of the Company's (inside) basis in the Company's assets as of the date hereof. In the event that such disparity is not eliminated in full, and USO does not secure the benefit of the deductions which it would have been entitled to if an amount equal to USO's outside basis had been used to calculate the deductions or credits allowable to USO, BN shall indemnify, defend and hold harmless USO (and its Affiliates) and the Company from and against all loss, expenses (including attorneys' fees and expenses), judgments, interest, fines and amounts paid or incurred in connection with any claim, action, suit or proceeding involving any adverse tax consequences to any of such parties, including adverse tax consequences resulting by reason of the remedial allocation provisions of Section 5.5(c), the 754 Election described in Section 6.8(b), or Section 5.5(j) not applying in the manner contemplated by such parties. For purposes hereof, the disallowance of any such benefits shall be deemed to give rise to economic loss to USO at the time USO (or its Affiliates) could have used the benefit in any jurisdiction to offset any other income or gain (after giving effect to all other available offsets) upon presentation of a certificate to that effect to BN. The obligation of BN hereunder shall survive until the year in which such deduction could have been used. ARTICLE IX. DISSOLUTION; LIQUIDATION 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 Member may elect to continue to carry on the Company business pursuant to, and subject to, all of the terms and provisions of this Agreement. 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 such Member's entire Membership Interest under Article VII. Prior to the tenth anniversary of the date hereof, no Member shall seek a decree of judicial dissolution with respect to the Company. 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 Board, or any other Person designated by the Board (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; (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 5.5 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 5.5, 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. 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. 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. ARTCIEL X. MEMBERSHIP INTERESTS; CERTIFICATES 10.1 CERTIFICATES. A Membership Interest of the Company 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 initial Percentage Interest which such certificate represents. Such certificates shall be entered in the books of the Company as they are issued, and shall be signed by the Chief Executive Officer and may be sealed with the Company's seal or a facsimile thereof. Upon any Transfer permitted under this Agreement, BN Holding and USO shall surrender to the Company and the Company shall issue to BN Holding and USO certificates representing the Membership Interests taking into account such Transfer. All certificates representing Membership Interests (unless registered under the Securities Act of 1933, as amended (the "Securities Act")), shall bear the following legend: THE MEMBERSHIP INTERESTS 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. 10.2 LOST OR DESTROYED CERTIFICATES. The Company may issue a new certificate for Membership Interests 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 Company, by the Person claiming the certificate to be lost or destroyed. 10.3 TRANSFER OF MEMBERSHIP INTERESTS. Except for Transfers duly made in accordance with Article VII, no Transfer of Membership Interests 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. 10.4 REGULATIONS. The Board 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 Interests. 10.5 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 Interests to receive distributions and to vote as owner of Membership Interests and shall not be bound to recognize any equitable or other claim to or interest in such Membership Interest(s) 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 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. 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, telegram or on the third business day following the date on which mailed by certified mail: If to the Company, 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 BN Holding representatives on the Board, 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 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 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. 11.4 ENTIRE AGREEMENT. This Agreement, including the schedules and exhibits 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. 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. 11.6 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 Member. No consent to, or waiver, dis- charge 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. 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. 11.18 INVESTMENT SERVICES. BN Holding shall be entitled to an investment advisory fee with respect to investments and earnings on the Reserve Account. Such fee shall be payable to BN Holding on January 1 of each year in an amount equal to the aggregate earnings, if any, on the amounts in the Reserve Account for the preceding calendar year. 11.9 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. 11.10 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. 11.11 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. 11.12 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 his Membership Interest (or any portion thereof or any beneficial interest therein) or this Agreement or his rights, interests or obligations hereunder, except in accordance with the terms of this Agreement. 11.13 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. 11.14 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. 11.15 EQUITABLE REMEDIES. Each party acknowledges that no adequate remedy of law would be available for a breach of Sections 3.11 and 4.6 and Articles VII and VIII of this Agreement, and that a breach of any of such Sections 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 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 injured. Nothing in this Section 11.15 is intended to exclude the possibility of equitable remedies with respect to breaches of other sections of this Agreement. 11.16 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. 11.17 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, the Formation 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 Formation 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:/s/Thomas Middelhoff _______________________ Name: Title: BOL.US Online, Inc. By:/s/Robert Sorrentino _______________________ Name: Title: Barnes & Noble, Inc. By:/s/Leonard Riggio ________________________ Name: Title: B&N.com Holding Corp. By:/s/Leonard Riggio _______________________ Name: Title: B&N.com Member Corp. By:/s/Leonard Riggio _______________________ Name: Title: SCHEDULE 3.11(b) ACTIONS REQUIRING BOARD APPROVAL BY A MAJORITY OF EACH OF THE BN MANAGERS AND THE USO MANAGERS 1. Any amendment, change or other modification, or restatement of this Amended and Restated Limited Liability Company Agreement or the Certificate of Formation of the Company. 2. The issuance, authorization, cancellation, alteration, modification, redemption or any change in, of, or to, any Membership Interest, debt or equity security of the Company or any option, put, call or warrant with respect to the foregoing, or any initial public offering with respect to the Membership Interest in the Company or any Person established for the purpose of engaging in an initial public offering of the Company's business. 3. The Transfer or other disposition (other than inventory or obsolete assets of the Company) of, or placing any Encumbrance (other than Encumbrances arising by operation of law) on, any asset of the Company, except Permitted Encumbrances. 4. The acquisition of any interest in another entity by the Company for an amount in excess of $500,000; provided that the foregoing shall not apply with respect to cash management objectives of the Company on a short term basis with a recognized money market institution. 5. The merger, consolidation, dissolution or liquidation of the Company, or any transaction having the same effect. 6. Other than pursuant to an agreement entered into with the consent of the Board of Managers or involving an amount below $50,000, any transaction between the Company on the one hand and either BAG, BN or their respective Affiliates on the other hand; or any amendment or modification of, or waiver with respect to, any such agreement or transaction. 7. Adoption and approval of the Business Plan. 8. Any capital expenditure (or a series of related expenditures) in excess of $5 million. 9. Any debt, loan or borrowing (other than borrowings under a revolving credit facility approved by the Board under Section 3.11(b)) exceeding $20 million outstanding in the aggregate at any time or any revolving credit facility permitting aggregate borrowings at any one time outstanding to exceed $20 million. 10. Adoption of any stock option or other employee benefit plan or any material amendment to any existing plan (except as set forth in Section 5.8 of the Formation Agreement). 11. Hiring any personnel with an annual salary in excess of $250,000 or increasing the compensation of any personnel above $250,000. 12. Appointment or dismissal of auditors. SCHEDULE I 1. Members' Percentage Interest B&N.com Holding Corp. 50% BOL.US Online, Inc. 50% 2. Initial Capital Contributions and Acquisitions of Membership Interests BN Holding USO All of the business, assets and liabilities (i) Purchase of 21.42857 % of barnesandnoble.com, other than its Membership Interest investment in NuvoMedia, Inc. and B&N.com from BN and/or its Member Corp., all such assets being Affiliates: $75 million contributed by BN Holding having an aggregate net agreed value of $275 million (ii) Capital contribution (determined after taking into account the for 28.57143% transfer of $75 million of capital to USO Membership in connection with its acquisition of the Interest: $150 million 21.42857% Membership Interest). ------------ $225 million 3. Initial Capital Accounts BN Holding USO $275 million $225 million -----END PRIVACY-ENHANCED MESSAGE-----