Barnes and Noble 2006 Annual Report Download - page 36

deferred taxes by , and increase additional paid in
capital by ,, to correct the consolidated balance
sheet for the cumulative impact of the misstated
compensation cost in periods prior to fi scal .
In December , the Board members and all cur-
rent Section  offi cers holding options unvested as of
December ,  voluntarily agreed to reprice such
options, upon a fi nding by the Special Committee that
such options were improperly priced, to an exercise
price determined to be the appropriate fair market value
by the Special Committee. The Special Committee has
recommended that all incorrectly dated and unexercised
stock options issued to current Section  offi cers and
directors of the Company, other than hiring grants,
be re-priced to refl ect the greater of the original grant
price or the price appropriate to the measurement date
as determined by the Special Committee. The Board
members and Section  offi cers will not receive any
cash payments to compensate them for their voluntary
agreements to reprice such options. The total diff erence
in exercise price as a result of the re-pricing of these
unexercised options is approximately ,.
Consistent with the Special Committee’s recommenda-
tion that all incorrectly dated and unexercised options
issued to current Section  offi cers be re-priced, the
current Section  offi cers have voluntarily agreed to
repay to the Company for options granted while they
were Section  offi cers an amount equal to the dif-
ference in the price at which the stock options were
exercised and the price at which the Special Committee
believes the stock options should have been priced,
net of any allocable portion of income taxes paid in
connection with such exercise. The total amount to be
voluntarily repaid to the Company by current Section
 offi cers is approximately ,, prior to any allocable
portion of income taxes paid in connection with such
exercise, which will be recorded as an increase to addi-
tional paid in capital upon receipt.
The Company continues to cooperate fully with the
informal inquiry of the Securities and Exchange
Commission (SEC) regarding the Company’s stock
option grant practices. In addition, the Company is also
cooperating fully with the United States Attorney’s offi ce
for the Southern District of New York in connection with
its inquiry into such matters.
Tax-Related Payments
Incorrectly dated options that vested after December ,
 and were exercised in  may be subject to pen-
alty taxes under Section A of the Internal Revenue
Code. The Company will reimburse Section  offi cers
who voluntarily repay the Company if they are subject to
these penalty taxes. The Board has approved payment to
such executives who are subject to Section A taxes in
connection with exercised options in an amount equal to
the cost of the Section A penalty tax, any interest or
penalties plus an amount to off set the associated income
tax consequences of the reimbursement payments. In
reaching this decision, the Board took into consider-
ation, among other factors, the fact that the applicable
taxes under Section A far exceed the amount of
any possible enrichment to such offi cers as a result of
improper grant dating and the agreement by such offi -
cers to repay the amount of any enrichment as a result
of the improper dating. The Company estimates that the
aggregate cost of the payments to such offi cers, includ-
ing the gross-up amounts, would be approximately .
million, not taking into account interest and penalties.
Additionally, the Company will make payments on
behalf of option holders who are not Section  offi cers,
for any A tax liability due to the exercise of incor-
rectly dated options in . The Company estimates
that the aggregate cost of these payments, including
gross-up payments, will be in a range of from .
million to . million.
The Company intends to honor all option grants made
to employees, but expects to implement a program for
employees who are not Section  offi cers to amend
incorrectly dated options that vested after December ,
 so as to increase the exercise price to the trading
price on the correct measurement date determined by
the Special Committee. In addition, the Company will
pay to such employees whose options are repriced cash
bonuses in the amount of the diff erence. If necessary
to comply with applicable law, such program will be
eff ected as a tender off er. The total aggregate amount
to be paid by the Company as cash bonuses under this
program is approximately . million which would be
paid in  to comply with applicable tax laws. These
amendments to outstanding options are intended to
permit the holders to qualify under certain transitional
tax rules, so that an excise tax and certain other unfa-
vorable tax consequences of Section A that might
otherwise apply to such options will not be applicable.
34 Barnes & Noble, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued