Barnes and Noble 2006 Annual Report Download - page 45

The class action lawsuit In Re Initial Public Off ering
Securities Litigation fi led in the U.S. District Court,
Southern District of New York in April  (the
Action) named over one thousand individuals and 
corporations, including Fatbrain.com, LLC (Fatbrain)
(a subsidiary of Barnes & Noble.com) and its former
offi cers and directors. The amended complaints in the
Action all allege that the initial public off ering registra-
tion statements fi led by the defendant issuers with the
Securities and Exchange Commission, including the
one fi led by Fatbrain, were false and misleading because
they failed to disclose that the defendant underwriters
were receiving excess compensation in the form of profi t
sharing with certain of its customers and that some of
those customers agreed to buy additional shares of the
defendant issuers’ common stock in the after market at
increasing prices. The amended complaints also allege
that the foregoing constitute violations of: (i) Section
 of the Securities Act of , as amended (the 
Act) by the defendant issuers, the directors and offi cers
signing the related registration statements, and the
related underwriters; (ii) Rule b- promulgated under
the Securities Exchange Act of  (the  Act) by the
same parties; and (iii) the control person provisions of
the  and  Acts by certain directors and offi cers
of the defendant issuers. A motion to dismiss by the
defendant issuers, including Fatbrain, was denied. After
extensive negotiations among representatives of plain-
tiff s and defendants, a memorandum of understanding
(MOU), outlining a proposed settlement resolving the
claims in the Action between plaintiff s and the defen-
dants issuers, has been entered into. Subsequently a
settlement agreement was executed between the defen-
dants and plaintiff s in the action, the terms of which are
consistent with the MOU. The Settlement Agreement
was submitted to the Court for approval and on February
, , the judge granted preliminary approval of the
settlement. On December , , the federal appeals
court for the Second Circuit issued a decision revers-
ing Judge Scheindlin’s class certifi cation decision in six
focus cases. In light of that decision, Judge Scheindlin
has stayed all proceedings in the district court, including
consideration of the settlement. Plaintiff s then fi led, in
January , a Petition for Rehearing En Banc before
the Second Circuit.
While Barnes & Noble.com is currently collecting sales
tax in a majority of states, the Company receives com-
munications from time to time from various states
regarding the applicability of state sales tax to sales made
to customers in their respective states prior to the com-
mencement of sales tax collection. While management
believes that the accompanying fi nancial statements
refl ect the best current estimate of any potential liability
in this area, there can be no assurance that the outcome
of any discussions with any state taxing authority will not
result in the payment of state sales taxes for prior periods,
or that the amount of any such payments will not be
materially in excess of any liability currently recorded.
In addition to the above actions, various claims and
lawsuits arising in the normal course of business are
pending against the Company. The subject matter of
these other proceedings primarily includes commercial
disputes, personal injury claims and employment issues.
The results of these other proceedings are not expected
to have a material adverse eff ect on the Company’s con-
solidated fi nancial position or results of operations.
17. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
The Company believes that the transactions and agree-
ments discussed below (including renewals of any
existing agreements) between the Company and its
affi liates are at least as favorable to the Company as
could be obtained from unaffi liated parties. The Board
of Directors and the Audit Committee are designated
to approve in advance any new proposed transaction or
agreement with affi liates and will utilize procedures in
evaluating the terms and provisions of such proposed
transaction or agreement as are appropriate in light of
the fi duciary duties of directors under Delaware law.
The Company leases space for its executive offi ces in
properties in which Leonard Riggio has a minority
interest. The space was rented at an aggregate annual
rent including real estate taxes of approximately ,,
, and , in fi scal years ,  and ,
respectively. Rent per square foot is approximately
., which is currently estimated to be below market.
2006 Annual Report 43