<SUBMISSION>
<ACCESSION-NUMBER>0000950123-04-005542
<TYPE>DEFM14A
<PUBLIC-DOCUMENT-COUNT>4
<FILING-DATE>20040503
<EFFECTIVENESS-DATE>20040503
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>BARNESANDNOBLE COM INC
<CIK>0001069665
<ASSIGNED-SIC>5735
<IRS-NUMBER>134048787
<STATE-OF-INCORPORATION>DE
<FISCAL-YEAR-END>0131
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>DEFM14A
<ACT>34
<FILE-NUMBER>000-26063
<FILM-NUMBER>04771403
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>76 NINTH AVE
<STREET2>11TH FL
<CITY>NEW YORK
<STATE>NY
<ZIP>10011
<PHONE>2124146000
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>76 NINTH AVE
<STREET2>11TH FL
<CITY>NEW YORK
<STATE>NY
<ZIP>10011
</MAIL-ADDRESS>
</FILER>
<DOCUMENT>
<TYPE>DEFM14A
<SEQUENCE>1
<FILENAME>y93480ddefm14a.htm
<DESCRIPTION>DEFINITIVE MERGER PROXY STATEMENT
<TEXT>
<HTML>
<HEAD>
<TITLE>DEFINITIVE MERGER PROXY STATEMENT</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="4">UNITED STATES</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="4">SECURITIES AND EXCHANGE COMMISSION</FONT></B>
</DIV>

<DIV align="center">
<B>Washington, D.C. 20549</B>
</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="4">SCHEDULE 14A INFORMATION</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">(RULE 14a-101)</FONT></B>

<DIV align="center">
<B><FONT size="2">SCHEDULE 14A INFORMATION</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">Proxy Statement Pursuant to Section&nbsp;14(a)
of the Securities</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">Exchange Act of 1934</FONT></B>
</DIV>

<P align="left">
<FONT size="2">Filed by the
Registrant&nbsp;<FONT face="wingdings">&#254;</FONT>
</FONT>

<P align="left">
<FONT size="2">Filed by a Party other than the
Registrant&nbsp;<FONT face="wingdings">&#111;</FONT>
</FONT>

<P align="left">
<FONT size="2">Check the appropriate box:
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="50%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="47%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <FONT size="2"><FONT face="wingdings">&#111;</FONT>&nbsp;&nbsp;Preliminary
    Proxy Statement
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <FONT size="2"><FONT face="wingdings">&#111;</FONT>&nbsp;&nbsp;Confidential,
    for Use of the Commission Only (as permitted by
    Rule&nbsp;14a-6(e)(2))
    </FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <FONT size="2"><FONT face="wingdings">&#254;</FONT>&nbsp;&nbsp;Definitive
    Proxy Statement
    </FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <FONT size="2"><FONT face="wingdings">&#111;</FONT>&nbsp;&nbsp;Definitive
    Additional Materials
    </FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <FONT size="2"><FONT face="wingdings">&#111;</FONT>&nbsp;&nbsp;Soliciting
    Material Pursuant to &#167;240.14a-11(c) of &#167;240.14a-12
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="6">barnesandnoble.com inc.</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left">
<HR size="1" width="100%" align="left" noshade>
</DIV>

<DIV align="center">
<FONT size="2">(Name of Registrant as Specified in Its Charter)
</FONT>
</DIV>

<P align="center">


<DIV align="left">
<HR size="1" width="100%" align="left" noshade>
</DIV>

<DIV align="center">
<FONT size="2">(Name of Person(s) Filing Proxy Statement, if
other than the Registrant)
</FONT>
</DIV>

<P align="left">
<FONT size="2">Payment of Filing Fee (Check the appropriate box):
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2"><FONT face="wingdings">&#111;</FONT></FONT></TD>
    <TD align="left">
    <FONT size="2">No fee required.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2"><FONT face="wingdings">&#254;</FONT></FONT></TD>
    <TD align="left">
    <FONT size="2">Fee computed on table below per Exchange Act
    Rules&nbsp;14a-6(i)(1) and 0-11.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="12%"></TD>
    <TD width="88%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)</FONT></TD>
    <TD align="left">
    <FONT size="2">Title of each class of securities to which
    transaction applies:
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Class&nbsp;A
Common Stock, par value $0.001 per share
</FONT>

<DIV align="right">
<HR size="1" width="87%" align="right" noshade>
</DIV>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="12%"></TD>
    <TD width="88%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2)</FONT></TD>
    <TD align="left">
    <FONT size="2">Aggregate number of securities to which
    transaction applies:
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;44,141,587
shares of common stock and stock options to purchase 8,501,221
shares of common stock
</FONT>

<DIV align="right">
<HR size="1" width="87%" align="right" noshade>
</DIV>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="12%"></TD>
    <TD width="88%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3)</FONT></TD>
    <TD align="left">
    <FONT size="2">Per unit price or other underlying value of
    transaction computed pursuant to Exchange Act Rule&nbsp;0-11
    (set forth the amount on which the filing fee is calculated and
    state how it was determined):
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="13%"></TD>
    <TD width="87%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">The transaction value was based upon the sum of
    (a)&nbsp;the product of 44,141,587 common shares and the merger
    consideration of $3.05 per share and (b)&nbsp;the difference
    between (i)&nbsp;the product of the merger consideration of
    $3.05 per share and the 8,501,221 common shares subject to
    outstanding stock options of which the exercise price per share
    is less than the per share merger consideration and
    (ii)&nbsp;the product of the weighted average exercise price per
    share of such stock options and such 8,501,221 common shares. In
    accordance with Section&nbsp;14(g) of the Securities Exchange
    Act of 1934, as amended, the amount of the filing fee was
    determined by multiplying $0.00008090 by the amount calculated
    in the preceding sentence.
    </FONT></TD>
</TR>

</TABLE>

<P align="right">
<HR size="1" width="87%" align="right" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="12%"></TD>
    <TD width="88%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(4)</FONT></TD>
    <TD align="left">
    <FONT size="2">Proposed maximum aggregate value of transaction:
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;$149,849,026
</FONT>
</DIV>

<DIV align="right">
<HR size="1" width="87%" align="right" noshade>
</DIV>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="12%"></TD>
    <TD width="88%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(5)</FONT></TD>
    <TD align="left">
    <FONT size="2">Total fee paid:
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;$12,122.79
</FONT>
</DIV>

<DIV align="right">
<HR size="1" width="87%" align="right" noshade>
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2"><FONT face="wingdings">&#254;</FONT></FONT></TD>
    <TD align="left">
    <FONT size="2">Fee paid previously with preliminary materials.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2"><FONT face="wingdings">&#111;</FONT></FONT></TD>
    <TD align="left">
    <FONT size="2">Check box if any part of the fee is offset as
    provided by Exchange Act Rule&nbsp;0-11(a)(2) and identify the
    filing for which the offsetting fee was paid previously.
    Identify the previous filing by registration statement number,
    or the Form or Schedule and the date of its filing.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="12%"></TD>
    <TD width="88%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)</FONT></TD>
    <TD align="left">
    <FONT size="2">Amount Previously Paid:
    </FONT></TD>
</TR>

</TABLE>

<P align="right">
<HR size="1" width="87%" align="right" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="12%"></TD>
    <TD width="88%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2)</FONT></TD>
    <TD align="left">
    <FONT size="2">Form, Schedule or Registration Statement No.:
    </FONT></TD>
</TR>

</TABLE>

<P align="right">
<HR size="1" width="87%" align="right" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="12%"></TD>
    <TD width="88%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3)</FONT></TD>
    <TD align="left">
    <FONT size="2">Filing Party:
    </FONT></TD>
</TR>

</TABLE>

<P align="right">
<HR size="1" width="87%" align="right" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="12%"></TD>
    <TD width="88%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(4)</FONT></TD>
    <TD align="left">
    <FONT size="2">Date Filed:
    </FONT></TD>
</TR>

</TABLE>

<P align="right">
<HR size="1" width="87%" align="right" noshade>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<!-- TOC -->
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<P align="center">
<IMG src="y93480dy9348002.gif" alt="(BARNES AND NOBLE LOGO)">

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="4">barnesandnoble.com inc.</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="center">
<B><FONT size="2">76 Ninth Avenue</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">New York, New York 10011</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(212)&nbsp;414-6000</FONT></B>
</DIV>

<P align="center">
<HR size="1" width="26%" align="center" noshade>

<P align="center">
<B><FONT size="2">A MERGER PROPOSAL&nbsp;&#151; YOUR VOTE IS
VERY IMPORTANT</FONT></B>

<P align="center">
<HR size="1" width="26%" align="center" noshade>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="right">
<FONT size="2">May&nbsp;3, 2004
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<FONT size="2">Dear Stockholder:
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">You are cordially invited to attend the special
meeting of our stockholders to be held on May&nbsp;27, 2004, at
10:00&nbsp;a.m., local time, at the New York Marriott East Side,
525&nbsp;Lexington Avenue between 48th and 49th Streets, New
York, New York.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At the special meeting, you will be asked to
consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of January&nbsp;8, 2004,
among Barnes &#38; Noble, Inc., B&#38;N.com Holding Corp.,
B&#38;N.com Acquisition Corp. and barnesandnoble.com inc.,
providing for the acquisition of barnesandnoble.com inc. by
Barnes &#38; Noble, Inc. If our stockholders adopt the merger
agreement, B&#38;N.com Acquisition Corp. will merge with and
into barnesandnoble.com inc. and each issued and outstanding
share of our Class&nbsp;A common stock (other than shares held
by Barnes &#38; Noble, Inc., B&#38;N.com Holding Corp. and their
respective subsidiaries and any shares with respect to which
appraisal rights have been properly perfected under Delaware
law) will be converted into the right to receive $3.05 in cash,
without interest and less any applicable withholding taxes. As a
result of the merger, we will cease to be a publicly traded
company and will become an indirect wholly owned subsidiary of
Barnes &#38; Noble, Inc.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The attached proxy statement provides you with
detailed information about the proposed merger and the special
meeting. Please give this material your careful and prompt
attention. You also may obtain more information about us from
documents that we have filed with the Securities and Exchange
Commission.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our board of directors, upon the recommendation
of a special committee consisting of two independent directors
and by unanimous vote and after careful consideration,
(i)&nbsp;has approved the merger agreement and the transactions
contemplated thereby, including the merger and (ii)&nbsp;has
determined that the terms of the merger agreement and the
transactions contemplated thereby, including the merger, are
advisable, fair to and in the best interests of our unaffiliated
stockholders. <B>Accordingly, our board of directors unanimously
recommends that our stockholders vote &#147;FOR&#148; the
approval and adoption of the merger agreement and merger.</B>
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The affirmative vote of a majority of the voting
power of our outstanding common stock entitled to vote at the
special meeting is required to adopt the merger agreement and
approve the merger. As of March&nbsp;15, 2004, Barnes &#38;
Noble, Inc. controlled approximately 96.3% of our voting power
and has committed to vote in favor of the merger agreement and
the merger. The affirmative vote of the shares controlled by
Barnes &#38; Noble, Inc. is sufficient under Delaware law to
adopt the merger agreement and approve the merger.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">It is important your shares be represented at the
special meeting, whether or not you plan to attend the special
meeting. Therefore, please complete, sign, date and promptly
mail your enclosed proxy card or voting instruction form in the
postage-paid envelope. Should you prefer, you may vote by
telephone or via the Internet by following the instructions on
the proxy card or voting instruction form.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Thank you for your cooperation.
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Sincerely,
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <IMG src="y93480dy9348010.gif" alt="-s- Marie J. Toulantis"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Marie J. Toulantis <BR>
     Chief Executive Officer
    </FONT></TD>
</TR>

</TABLE>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Neither the Securities and Exchange Commission
nor any state securities regulator has approved or disapproved
the merger, passed upon the fairness or merits of the merger, or
passed upon the accuracy or adequacy of the disclosure in this
proxy statement. Any representation to the contrary is a
criminal offense.</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">This proxy statement is dated May&nbsp;3, 2004
and is first being mailed to our stockholders beginning on or
about May&nbsp;3, 2004.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<FONT size="2">
<IMG src="y93480dy9348002.gif" alt="(BARNES&#38;NOBLE LOGO)">
</FONT>
</DIV>

<P align="center">
<B><FONT size="2">barnesandnoble.com inc.</FONT></B>

<DIV align="center">
<B><FONT size="2">76 Ninth Avenue</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">New York, New York 10011</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(212)&nbsp;414-6000</FONT></B>
</DIV>

<P align="center">
<HR size="1" width="27%" align="center" noshade>

<P align="center">
<B><FONT size="2">NOTICE OF SPECIAL MEETING OF
STOCKHOLDERS</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">TO BE HELD ON MAY&nbsp;27, 2004</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<HR size="1" width="27%" align="center" noshade>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">NOTICE IS HEREBY GIVEN that a special meeting of
stockholders of barnesandnoble.com inc., a Delaware corporation,
will be held on May&nbsp;27, 2004, at 10:00&nbsp;a.m. local
time, at the New York Marriott East Side, 525&nbsp;Lexington
Avenue between 48th and 49th Streets, New York, New York, for
the following purposes:
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To consider and
vote upon a proposal to approve and adopt the Agreement and Plan
of Merger, dated as of January&nbsp;8, 2004, among
Barnes&nbsp;&#38; Noble, Inc., B&#38;N.com Holding Corp.,
B&#38;N.com Acquisition Corp. and barnesandnoble.com inc.,
pursuant to which Barnes &#38; Noble, Inc. will acquire us for
$3.05 in cash, without interest and less any applicable
withholding taxes, per share of our outstanding common stock
(other than shares held by Barnes&nbsp;&#38; Noble, Inc.,
B&#38;N.com Holding Corp. and their respective subsidiaries and
any shares with respect to which appraisal rights have been
properly perfected under Delaware law), through the merger of
its wholly owned subsidiary, B&#38;N.com Acquisition Corp., with
and into barnesandnoble.com inc. The merger agreement and merger
are described in the attached proxy statement, which you are
encouraged to read carefully. A copy of the merger agreement is
included as Annex A to the attached proxy statement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To transact such
other matters as may properly come before the special meeting or
any adjournment or postponement of the special meeting and any
matters incidental thereto.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Only our stockholders of record at the close of
business on April&nbsp;23, 2004 are entitled to notice of, and
to vote at, the special meeting and any adjournment or
postponement thereof. Adoption of the merger agreement requires
the affirmative vote of a majority of the voting power of our
outstanding common stock entitled to vote at the special
meeting. As of March&nbsp;15, 2004, Barnes &#38; Noble, Inc.
controlled approximately 96.3% of our voting power and has
committed to vote in favor of the merger agreement and the
merger.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If you do not vote in favor of the merger
agreement and the merger, and you otherwise comply with the
applicable statutory provisions of Delaware law, you will be
entitled to appraisal rights for your shares if the merger is
completed. By properly exercising such appraisal rights, you
will be entitled to receive, in lieu of the $3.05 per share
merger consideration, payment in cash equal to the &#147;fair
value&#148; of your shares, as determined in accordance with
Delaware law. A copy of these provisions is included as Annex B
to the attached proxy statement. We also refer you to the
information included in the section of the attached proxy
statement entitled &#147;THE MERGER&nbsp;&#151; Appraisal
Rights.&#148;
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Sincerely,
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <IMG src="y93480dy9348010.gif" alt="-s- Marie J. Toulantis"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Marie J. Toulantis
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Chief Executive Officer
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">New York, New York
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left">
<FONT size="2">May&nbsp;3, 2004
</FONT>
</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Whether or not you plan to attend the special
meeting, please complete, sign, date and promptly mail your
enclosed proxy card or voting instruction form in the
postage-paid envelope provided. Should you prefer, you may vote
by telephone or via the Internet by following the instructions
on your proxy card or voting instruction form. Remember, if you
do not return your proxy card or vote by telephone or via the
Internet or if you abstain from voting, it will have the same
effect as a vote against adoption of the merger agreement and
the merger. You may revoke your proxy and vote in person if you
decide to attend the special meeting.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If you have certificates representing shares of
our common stock, please do not send your certificates to us at
this time. If the merger is completed, you will be sent
instructions regarding the surrender of your certificates to
receive payment for your shares of our common stock. If you hold
your shares of our common stock in book-entry form&nbsp;&#151;
that is, without a stock certificate&nbsp;&#151; you do not need
to do anything to receive payment for your shares of our common
stock. In such a case, following completion of the merger, the
exchange agent will automatically mail you the merger
consideration in exchange for the cancellation of your shares of
our common stock.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">No person has been authorized to give any
information or to make any representations other than those
contained in this proxy statement in connection with the
solicitation of proxies made hereby, and, if given or made, such
information or representation must not be relied upon as having
been authorized by barnesandnoble.com inc. or any other person.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">If you have any questions or need assistance
in voting your shares of our common stock, please
contact:</FONT></B>

<P align="center">
<B><FONT size="2">barnesandnoble.com inc.</FONT></B>

<DIV align="center">
<B><FONT size="2">76 Ninth Avenue</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">New York, New York 10011</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">Attn: Investor Relations, Kevin M.
Frain</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(212)&nbsp;414-6000</FONT></B>
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="center">
<B><FONT size="2">TABLE OF CONTENTS</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="90%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">SUMMARY TERM SHEET
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE
    SPECIAL MEETING
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">THE PARTIES TO THE MERGER
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
    INFORMATION
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">SPECIAL FACTORS
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Background of the Merger
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Recommendation of the Special Committee and our
    Board of Directors
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Reasons for the Special Committee&#146;s
    Determination; Fairness of the Merger
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Reasons for our Board of Directors&#146;
    Determination; Fairness of the Merger
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Opinion of the Special Committee&#146;s Financial
    Advisor
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Our Financial Projections
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Position of the Barnes &#38; Noble Parties as to
    the Fairness of the Merger
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Purposes and Reasons for the Merger;
    Consideration of Alternatives; Structure of the Merger
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Presentations of Barnes &#38; Noble&#146;s
    Financial Advisor
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Effects of the Merger
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Plans for the Company
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interests of Directors and Officers in the Merger
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Certain Relationships and Related Transactions
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Provisions for Unaffiliated Stockholders
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">THE MERGER
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">38</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Effective Time of the Merger
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">38</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Payment of Merger Consideration and Surrender of
    Stock Certificates
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">38</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Risks that the Merger will not be Completed
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">39</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Merger Financing; Sources of Funds
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">39</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Certain U.S. Federal Income Tax Consequences
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Litigation Relating to the Merger
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Regulatory Matters
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounting Treatment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Estimated Fees and Expenses of the Merger
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Appraisal Rights
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">THE SPECIAL MEETING
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">44</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Date, Time and Place of the Special Meeting
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">44</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Matters to be Considered at the Special Meeting
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">44</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Vote Required
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">44</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Record Date, Voting Rights, Quorum and
    Revocability of Proxies
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">44</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Expenses of Proxy Solicitation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">45</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Adjournments and Postponements
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">45</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Exchanging Stock Certificates
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">45</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">THE MERGER AGREEMENT
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Effective Time of the Merger
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">The Merger
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Merger Consideration
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Stock Options
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">i
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="90%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Surrender of Certificates and Payment Procedures
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Representations and Warranties
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Covenants
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">48</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Conditions to Completing the Merger
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Termination
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">51</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amendment and Waiver
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">52</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fees and Expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">52</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Governing Law
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">52</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Assignment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">52</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Our Actions
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">52</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">SUMMARY HISTORICAL FINANCIAL DATA
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">53</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">MARKET PRICE AND DIVIDENDS
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">54</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">PRINCIPAL STOCKHOLDERS
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">55</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">CERTAIN TRANSACTIONS INVOLVING OUR COMMON STOCK
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">57</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">OTHER MATTERS
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">58</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">STOCKHOLDER PROPOSALS
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">58</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">INDEPENDENT ACCOUNTANTS
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">58</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">WHERE YOU CAN FIND MORE INFORMATION
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">58</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center">
<B><FONT size="2">ANNEXES</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="81%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">ANNEX A
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">&#151;
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">AGREEMENT AND PLAN OF MERGER
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">ANNEX B
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">&#151;
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">DELAWARE GENERAL CORPORATION LAW SECTION
    262&nbsp;&#151; APPRAISAL RIGHTS
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">ANNEX C
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">&#151;
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">OPINION OF CREDIT SUISSE FIRST BOSTON LLC
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">ANNEX D
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">&#151;
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">INFORMATION RELATING TO THE COMPANY, B&#38;N.COM
    AND THE BARNES&nbsp;&#38; NOBLE PARTIES
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">ANNEX E
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">&#151;
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">ANNUAL REPORT ON FORM&nbsp;10-K/A FOR THE YEAR
    ENDED DECEMBER&nbsp;31, 2003
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">ii
</FONT>

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<P align="center">
<B><FONT size="2">SUMMARY TERM SHEET</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">This summary highlights the material information
contained elsewhere in this proxy statement. You should
carefully read the entire proxy statement, including the
documents which are annexed to this proxy statement.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<B><FONT size="2">The Parties to the Merger</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">barnesandnoble.com inc.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">barnesandnoble.com inc. is a holding company
whose sole asset is its approximate 29.6% interest in
barnesandnoble.com llc and whose sole business is acting as sole
manager of barnesandnoble.com llc. barnesandnoble.com inc. is
referred to as the &#147;Company,&#148; &#147;we,&#148;
&#147;our,&#148; or &#147;us&#148; in this proxy statement. The
Company is soliciting your proxy in connection with the proposed
merger involving the Company and Barnes&nbsp;&#38; Noble, Inc.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">barnesandnoble.com llc</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">barnesandnoble.com llc is a leading
Internet-based retailer of books, music and DVD/video.
barnesandnoble.com llc is referred to as &#147;B&#38;N.com&#148;
in this proxy statement.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Barnes&nbsp;&#38; Noble, Inc.</FONT></I></B></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Barnes&nbsp;&#38; Noble, Inc. is the
nation&#146;s largest bookseller, operating
647&nbsp;Barnes&nbsp;&#38; Noble bookstores in 49&nbsp;states
and 195&nbsp;B.&nbsp;Dalton Bookseller stores, primarily in
regional shopping malls as of January&nbsp;31, 2004.
Barnes&nbsp;&#38; Noble, Inc. also has approximately a 64%
interest in GameStop Corp., the nation&#146;s largest video-game
and PC-entertainment software specialty retailer with over
1,500&nbsp;stores. Barnes&nbsp;&#38; Noble, Inc., through its
wholly owned subsidiary B&#38;N.com Holding Corp., beneficially
owned 119,138,502&nbsp;shares of our capital stock representing
approximately 72.9% of our outstanding equity interest and
approximately 96.3% of our voting interest as of March&nbsp;15,
2004. Barnes&nbsp;&#38; Noble, Inc. is referred to as
&#147;Barnes&nbsp;&#38; Noble&#148; in this proxy statement.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">B&#38;N.com Holding Corp.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B&#38;N.com Holding Corp. is a wholly owned
subsidiary of Barnes&nbsp;&#38; Noble, whose sole assets consist
of membership units in B&#38;N.com and common stock in the
Company. B&#38;N.com Holding Corp. is referred to as
&#147;B&#38;N Holding&#148; in this proxy statement.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">B&#38;N.com Acquisition Corp.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B&#38;N.com Acquisition Corp., a wholly owned
subsidiary of B&#38;N Holding, was created solely for the
purpose of effecting the merger. In the merger, B&#38;N.com
Acquisition Corp. will be merged with and into the Company, with
the Company surviving the merger as an indirect wholly owned
subsidiary of Barnes&nbsp;&#38; Noble. B&#38;N.com Acquisition
Corp. is referred to as &#147;B&#38;N Acquisition&#148; in this
proxy statement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Barnes&nbsp;&#38; Noble, B&#38;N Holding and
B&#38;N Acquisition are sometimes referred to as the
&#147;Barnes&nbsp;&#38; Noble Parties&#148; in this proxy
statement.
</FONT>

<P align="left">
<B><FONT size="2">Terms of the Merger</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Pursuant to the merger agreement,
Barnes&nbsp;&#38; Noble will acquire the Company for $3.05 in
cash, without interest and less any applicable withholding
taxes, for each share of our outstanding Class&nbsp;A common
stock (other than shares held by Barnes&nbsp;&#38; Noble,
B&#38;N Holding and their respective subsidiaries and any shares
with respect to which appraisal rights have been properly
perfected under Delaware law), through the merger of its wholly
owned subsidiary, B&#38;N Acquisition, with and into the
Company. All outstanding options to purchase shares of our
common stock, whether vested or unvested, will be cancelled, and
each holder will be entitled to receive a cash payment equal to
the difference between the exercise price of those options and
$3.05
</FONT>

<P align="center">

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<DIV align="left">
<FONT size="2">per share, less any applicable withholding taxes.
At the closing of the merger, we will be a direct wholly owned
subsidiary of B&#38;N Holding, and B&#38;N Acquisition will
cease to exist as a separate entity. Shares of our Class&nbsp;A
common stock are referred to in this proxy statement as our
&#147;common stock,&#148; unless the context requires otherwise.
</FONT>
</DIV>

<P align="left">
<B><FONT size="2">Special Committee of our Board of
Directors</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Certain of our directors also serve as directors
of Barnes&nbsp;&#38; Noble or its affiliates. Because these
directors have financial and other interests that may be
different from, and in addition to, your interests in the
merger, our board of directors decided that, in order to protect
the interests of our unaffiliated stockholders in evaluating and
negotiating the merger agreement, a special committee of
independent directors who are not affiliated with
Barnes&nbsp;&#38; Noble or its affiliates, and who have no
financial interest in the merger, should be formed to perform
those tasks and, if appropriate, to recommend the merger and the
terms of the merger agreement to our entire board of directors.
</FONT>

<P align="left">
<B><FONT size="2">Vote Required (See Page 44)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The merger agreement and the merger must be
approved and adopted by the affirmative vote of a majority of
the voting power of our common stock outstanding on the record
date for the special meeting described in this proxy statement.
For this vote, abstentions and broker non-votes, as well as
shares that are not voted, will have the same effect as a vote
against approval and adoption of the merger agreement and the
merger. As of March&nbsp;15, 2004, Barnes&nbsp;&#38; Noble
controlled approximately 96.3% of the voting power of our common
stock and has committed to vote in favor of the merger agreement
and the merger. In addition, as of March&nbsp;15, 2004, our
directors and executive officers together beneficially owned
approximately 11,416,521&nbsp;shares of our common stock, which
represent approximately 0.95% of the voting power of our common
stock. We anticipate that each of our directors and executive
officers who is a stockholder will vote in favor of the merger.
</FONT>

<P align="left">
<B><FONT size="2">Recommendation of the Special Committee and
our Board of Directors (See Page&nbsp;15)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">After careful consideration, and in light of the
factors described in the section of this proxy statement
entitled &#147;SPECIAL FACTORS&nbsp;&#151; Reasons for our Board
of Directors&#146; Determination; Fairness of the Merger,&#148;
our board of directors, based on the recommendation of the
special committee, has unanimously determined that the merger
agreement and the transactions contemplated thereby, including
the merger, are advisable, fair to, and in the best interests of
our unaffiliated stockholders. <B>Our board of directors
recommends that you vote &#147;FOR&#148; the adoption of the
merger agreement and the merger.</B>
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For a discussion of the material factors
considered by the special committee and our board of directors
in reaching their conclusions and the reasons why our board of
directors determined that the merger agreement and the
transactions contemplated thereby, including the merger, are
advisable, fair to, and in the best interests of our
unaffiliated stockholders, see the sections of this proxy
statement entitled &#147;SPECIAL FACTORS&nbsp;&#151; Reasons for
the Special Committee&#146;s Determination; Fairness of the
Merger&#148; and &#147;&#151;&nbsp;Reasons for our Board of
Directors&#146; Determination; Fairness of the Merger.&#148;
</FONT>

<P align="left">
<B><FONT size="2">Opinion of the Special Committee&#146;s
Financial Advisor (See Page&nbsp;19)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The special committee received the written
opinion of Credit Suisse First Boston LLC, referred to as
&#147;Credit Suisse First Boston&#148; in this proxy statement,
to the effect that, as of January&nbsp;8, 2004, the merger
consideration to be received by the holders of our common stock
(other than Barnes&nbsp;&#38; Noble and its affiliates and
directors and officers of each of the Company and
Barnes&nbsp;&#38; Noble) was fair, from a financial point of
view, to such holders. The full text of Credit Suisse First
Boston&#146;s written opinion, dated January&nbsp;8, 2004, is
attached as Annex&nbsp;C to this proxy statement. We encourage
you to read this opinion carefully in its entirety for a
description of the procedures followed, assumptions made,
matters considered and limitations on the review undertaken.
<B>Credit Suisse First Boston&#146;s opinion was provided to the
special committee in connection with its evaluation of the
merger consideration and relates only to the fairness, from a
financial point of view,</B>
</FONT>

<P align="center"><FONT size="2">2
</FONT>

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<DIV align="left">
<B><FONT size="2">of the merger consideration, does not address
any other aspect of the proposed merger and does not constitute
a recommendation to any stockholder as to any matters relating
to the merger or any related transaction.</FONT></B>
</DIV>

<P align="left">
<B><FONT size="2">Position of the Barnes &#38; Noble Parties as
to the Fairness of the Merger (See Page&nbsp;25)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Barnes &#38; Noble Parties have considered
the factors examined by the special committee and our board of
directors described in the sections of this proxy statement
entitled &#147;SPECIAL FACTORS&nbsp;&#151; Reasons for the
Special Committee&#146;s Determination; Fairness of the
Merger&#148; and &#147;&#151;&nbsp;Reasons for our Board of
Directors&#146; Determination; Fairness of the Merger.&#148;
Based on these factors and certain other factors described under
&#147;SPECIAL FACTORS&nbsp;&#151; Position of the
Barnes&nbsp;&#38; Noble Parties as to the Fairness of the
Merger,&#148; the Barnes&nbsp;&#38; Noble Parties believe that
the merger is both procedurally and substantively fair to our
unaffiliated stockholders. The Barnes &#38; Noble Parties
reached this conclusion independent of Barnes &#38; Noble&#146;s
obligation, pursuant to a purchase agreement, to pay
Bertelsmann&nbsp;AG, referred to as &#147;Bertelsmann&#148; in
this proxy statement, additional consideration if our
stockholders received more than $3.05 per share in cash in the
merger.
</FONT>

<P align="left">
<B><FONT size="2">Interests of Directors and Officers in the
Merger (See Page&nbsp;32)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">When considering the recommendation of our board
of directors that you vote for approval and adoption of the
merger agreement and the transactions contemplated thereby,
including the merger, you should be aware that certain of our
directors and officers have interests in the merger that are
different from, or in addition to, yours and that may present,
or appear to present, a conflict of interest. These interests
include the following:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">some of our directors and executive officers hold
    our common stock and have options to purchase our common stock
    and, as a result, will receive the merger consideration for
    these shares and options;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Barnes&nbsp;&#38; Noble has agreed to assume or
    guarantee certain employment agreements and deferred
    compensation plans of the Company and B&#38;N.com; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">following the merger, Barnes&nbsp;&#38; Noble
    will indemnify our current and former directors and officers and
    provide these directors and officers with liability insurance
    for at least six years thereafter.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">Effects of the Merger (See Page 31)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Upon completion of the merger, B&#38;N
Acquisition will merge with and into the Company with the
Company surviving the merger. Barnes&nbsp;&#38; Noble will own
100% of our then-outstanding stock, and you will no longer be a
stockholder of, or have any ownership interest in, the Company.
We will no longer be a public company, and our common stock will
no longer be quoted on the NASDAQ National Market. The
registration of our common stock under the Securities Exchange
Act of 1934, as amended, will terminate, and we will cease to
file periodic reports with the Securities and Exchange
Commission under the Exchange Act.
</FONT>

<P align="left">
<B><FONT size="2">Conditions to Completing the Merger (See Page
50)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Conditions to the Obligations of the Parties.
</FONT></I><FONT size="2">The obligations of each party to
complete the merger are subject to the satisfaction or waiver of
certain conditions, including the following:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">absence of a temporary restraining order,
    preliminary or permanent injunction or other order issued by any
    court or other legal restraint or prohibition preventing
    consummation of the merger or any statute, rule, regulation or
    order enacted, entered or enforced preventing or prohibiting the
    consummation of the merger;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">approval of the merger agreement by a majority of
    the votes entitled to be cast at the special meeting; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">receipt of all material consents, approvals or
    authorizations of or filings with governmental entities required
    for consummation of the merger.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">3
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Conditions to our Obligations.
</FONT></I><FONT size="2">Our obligations to complete the merger
also are subject to the satisfaction or waiver of other
conditions, including the following:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the representations and warranties of the
    Barnes&nbsp;&#38; Noble Parties contained in the merger
    agreement are true and correct in all material respects;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">each Barnes&nbsp;&#38; Noble Party shall have
    performed and complied in all material respects with all its
    undertakings and agreements required by the merger agreement to
    be performed or complied with prior to or at the closing date;
    and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">we shall have received a certificate of a senior
    officer of Barnes&nbsp;&#38; Noble certifying that the above
    conditions have been fulfilled.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Conditions to the Obligations of the
Barnes&nbsp;&#38; Noble Parties. </FONT></I><FONT size="2">The
obligations of the Barnes&nbsp;&#38; Noble Parties to complete
the merger also are subject to the satisfaction or waiver of
other conditions, including the following:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">our representations and warranties contained in
    the merger agreement are true and correct in all material
    respects;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">we shall have performed and complied in all
    material respects with all our undertakings and agreements
    required by the merger agreement to be performed or complied
    with prior to or at the closing date;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Barnes&nbsp;&#38; Noble shall have received a
    certificate of one of our senior officers certifying that the
    above conditions have been fulfilled; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">since the date of the merger agreement, there has
    not been a &#147;material adverse effect&#148; on the Company
    and B&#38;N.com, taken as a whole.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">Termination (See Page&nbsp;51)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The merger agreement may be terminated prior to
the effective time of the merger for a number of reasons,
including the following:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">by mutual written consent at any time prior to
    adoption of the merger agreement at the special meeting;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">by Barnes&nbsp;&#38; Noble or the Company at any
    time prior to adoption of the merger agreement at the special
    meeting, if the merger has not been consummated on or prior to
    July&nbsp;15, 2004;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">by Barnes&nbsp;&#38; Noble or the Company at any
    time prior to the effective time of the merger, if an
    administrative agency or commission or other governmental
    authority shall have issued a final nonappealable injunction,
    order, decree, judgment or ruling permanently enjoining or
    otherwise prohibiting the merger;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">by Barnes&nbsp;&#38; Noble at any time prior to
    adoption of the merger agreement at the special meeting, if our
    board of directors (upon the recommendation of the special
    committee) or the special committee withdraws, qualifies or
    modifies its recommendation to our unaffiliated stockholders or
    upon a breach of any of our representations, warranties,
    covenants or agreements such that the closing conditions cannot
    be satisfied; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">by the special committee at any time prior to
    adoption of the merger agreement at the special meeting, if it
    has terminated the merger agreement because it determines that
    an unsolicited bona fide acquisition proposal is more favorable
    to our unaffiliated stockholders than the merger and the party
    making such proposal is reasonably able to finance the proposed
    transaction, or upon a breach of any representation, warranty,
    covenant or agreement on the part of a Barnes&nbsp;&#38; Noble
    Party such that the closing conditions cannot be satisfied.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">4
</FONT>

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<P align="left">
<B><FONT size="2">Certain U.S.&nbsp;Federal Income Tax
Consequences (See Page&nbsp;40)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The conversion of shares of our common stock into
cash pursuant to the merger is a taxable transaction for U.S.
federal income tax purposes and may also be a taxable
transaction under applicable state, local or foreign tax laws.
You should consult your own tax advisor about the particular tax
consequences of the merger to you.
</FONT>

<P align="left">
<B><FONT size="2">Litigation Relating to the Merger (See
Page&nbsp;40)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Following Barnes&nbsp;&#38; Noble&#146;s
announcement of its initial offer on November&nbsp;7, 2003,
fifteen separate complaints were filed in the Delaware Court of
Chancery to commence class action lawsuits on behalf of our
stockholders against Barnes&nbsp;&#38; Noble, the Company and
our directors. These complaints were subsequently consolidated.
On January&nbsp;8, 2004, a Memorandum of Understanding was
executed by the parties reflecting the parties&#146; agreement
to settle the action. The settlement is contingent upon, among
other things, court approval, the merger consideration being
$3.05 per share in cash and consummation of the merger.
</FONT>

<P align="left">
<B><FONT size="2">Appraisal Rights (See Page&nbsp;41)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If you so choose, you will be entitled to
exercise appraisal rights upon completion of the merger so long
as you take all the steps required to perfect your rights under
Delaware law.
</FONT>

<P align="left">
<B><FONT size="2">Questions</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If, after reading this proxy statement, you have
additional questions about the merger or other matters discussed
in this proxy statement, need additional copies of this proxy
statement or require assistance with voting your shares of our
common stock, please contact:
</FONT>

<P align="center">
<FONT size="2">barnesandnoble.com inc.
</FONT>

<DIV align="center">
<FONT size="2">76 Ninth Avenue
</FONT>
</DIV>

<DIV align="center">
<FONT size="2">New York, New York 10011
</FONT>
</DIV>

<DIV align="center">
<FONT size="2">Attn: Investor Relations, Kevin M. Frain
</FONT>
</DIV>

<DIV align="center">
<FONT size="2">(212)&nbsp;414-6000
</FONT>
</DIV>

<P align="center"><FONT size="2">5
</FONT>

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<!-- link1 "QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETING" -->

<P align="center">
<B><FONT size="2">QUESTIONS AND ANSWERS ABOUT THE
MERGER</FONT></B>

<DIV align="center">
<B><FONT size="2">AND THE SPECIAL MEETING</FONT></B>
</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The information provided in question-and-answer
format below is for your convenience and is merely a summary of
certain information contained in this proxy statement. You
should carefully read this entire proxy statement, including
each of the annexes attached to this proxy statement.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Q:</FONT></B></TD>
    <TD align="left">
    <B><FONT size="2">When and where is the special
    meeting?</FONT></B></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD><FONT size="2">A:&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">The special meeting will be held on May&nbsp;27,
    2004, at 10:00&nbsp;a.m. local time, at the New York Marriott
    East Side, 525&nbsp;Lexington Avenue between 48th and 49th
    Streets, New York, New York.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Q:</FONT></B></TD>
    <TD align="left">
    <B><FONT size="2">What am I being asked to vote on?</FONT></B></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">A:</FONT></TD>
    <TD align="left">
    <FONT size="2">You are being asked to consider and vote on a
    proposal to approve and adopt the merger agreement and the
    merger. Under the merger agreement, B&#38;N Acquisition will be
    merged with and into the Company, with the Company continuing as
    the surviving corporation. We will continue to operate after the
    closing of the merger, but will be wholly owned by
    Barnes&nbsp;&#38; Noble.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Q:</FONT></B></TD>
    <TD align="left">
    <B><FONT size="2">What will I receive in the merger?</FONT></B></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">A:</FONT></TD>
    <TD align="left">
    <FONT size="2">If the merger is completed, each outstanding
    share of our common stock that you hold at the completion of the
    merger will be converted into the right to receive $3.05 in
    cash, without interest and less any applicable withholding taxes
    (unless you exercise appraisal rights under Delaware law).
    Barnes &#38; Noble, B&#38;N Holding and their respective
    subsidiaries will not receive any consideration in the merger.
    However, they will own all of our outstanding common stock
    following the completion of the merger.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Q:</FONT></B></TD>
    <TD align="left">
    <B><FONT size="2">Who is entitled to vote at the special
    meeting?</FONT></B></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD><FONT size="2">A:&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Holders of record of our common stock at the
    close of business on April&nbsp;23, 2004, the record date for
    the special meeting, are entitled to vote in person or by proxy
    on the merger agreement and the merger at the special meeting.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Q:</FONT></B></TD>
    <TD align="left">
    <B><FONT size="2">What vote is required to approve the merger
    agreement and the merger?</FONT></B></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">A:</FONT></TD>
    <TD align="left">
    <FONT size="2">The merger agreement and the merger must be
    approved and adopted by a majority of the voting power of our
    outstanding common stock entitled to vote at the special
    meeting. As of March&nbsp;15, 2004, Barnes&nbsp;&#38; Noble
    controlled approximately 96.3% of the voting power of our common
    stock and has committed to vote in favor of the merger agreement
    and the merger. In addition, we anticipate that our directors
    and executive officers who are stockholders of the Company and
    held approximately 0.95% of the voting power of our common stock
    as of March&nbsp;15, 2004 will vote in favor of the merger.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Q:</FONT></B></TD>
    <TD align="left">
    <B><FONT size="2">What do I need to do now?</FONT></B></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD><FONT size="2">A:&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">You should read this proxy statement carefully,
    including its annexes, and consider how the merger would affect
    you. Then, simply mark, sign, date and promptly mail the
    enclosed proxy card in the postage-paid envelope provided so
    that your shares can be voted at the special meeting. Should you
    prefer, you may cast your vote by telephone or via the Internet
    in accordance with the instructions on the enclosed proxy card
    or the voting instruction form. If you sign the enclosed proxy
    card but do not mark your vote, it will have the same effect as
    voting for the merger agreement and the merger.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Q:</FONT></B></TD>
    <TD align="left">
    <B><FONT size="2">What happens if I do not return a proxy card
    or otherwise vote by proxy, abstain from voting or do not
    instruct my broker holding my shares how to vote?</FONT></B></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">A:</FONT></TD>
    <TD align="left">
    <FONT size="2">If you fail to return your proxy card or cast
    your vote by telephone or via the Internet, do not instruct your
    broker how to vote or you do not vote at the meeting, it will
    have the same effect as voting against the merger agreement and
    the merger.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Q:</FONT></B></TD>
    <TD align="left">
    <B><FONT size="2">May I vote in person?</FONT></B></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">A:</FONT></TD>
    <TD align="left">
    <FONT size="2">Yes. You may attend the special meeting and vote
    your shares in person whether or not you sign and return a proxy
    card or otherwise vote by proxy. If your shares are held of
    record by a broker, bank or other
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">6
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD align="left">
    <FONT size="2">nominee and you wish to vote at the special
    meeting, you must obtain a proxy from the record holder of your
    shares in order to vote in person at the special meeting. Please
    note that stockholders may be asked to present photo
    identification for admittance to the special meeting.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Q:</FONT></B></TD>
    <TD align="left">
    <B><FONT size="2">May I change my vote after I have mailed my
    signed proxy card or otherwise voted by proxy?</FONT></B></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">A:</FONT></TD>
    <TD align="left">
    <FONT size="2">Yes. You may change your vote at any time before
    the vote is taken at the special meeting. You can do this in one
    of three ways. First, you can send a written notice to the
    Secretary of the Company stating that you would like to revoke
    your proxy. Second, you can complete and submit a new proxy card
    by mail or later dated proxy instructions by telephone or via
    the Internet. Third, you can attend the special meeting and vote
    in person at the meeting. Your attendance at the special meeting
    will not alone revoke your proxy. If you have instructed a
    broker, bank or other nominee who is the record holder of your
    shares to vote your shares at the special meeting, you must
    follow directions received from your broker, bank or nominee to
    change those instructions.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Q:</FONT></B></TD>
    <TD align="left">
    <B><FONT size="2">If my shares are held in &#147;street
    name&#148; by my broker, will my broker vote my shares for
    me?</FONT></B></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">A:</FONT></TD>
    <TD align="left">
    <FONT size="2">Your broker will not be able to vote your shares
    without instructions from you. You should instruct your broker
    to vote your shares, following the procedures provided by your
    broker.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Q:</FONT></B></TD>
    <TD align="left">
    <B><FONT size="2">Should I send in my stock certificates
    now?</FONT></B></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">A:</FONT></TD>
    <TD align="left">
    <FONT size="2">No.&nbsp;If you hold certificates representing
    shares of our common stock after the merger is completed, you
    will receive detailed written instructions explaining how to
    exchange your certificates for a cash payment of $3.05, without
    interest and less any applicable withholding taxes, for each
    share of our common stock evidenced by your certificate.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Q:</FONT></B></TD>
    <TD align="left">
    <B><FONT size="2">What happens if I sell my shares before the
    special meeting?</FONT></B></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">A:</FONT></TD>
    <TD align="left">
    <FONT size="2">The record date for the special meeting is
    earlier than the expected date of the merger. If you own shares
    of our common stock on the record date but transfer your shares
    after the record date but before the merger, you will retain the
    right to vote at the special meeting, but the right to receive
    the merger consideration will pass to the person to whom you
    transferred your shares.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Q:</FONT></B></TD>
    <TD align="left">
    <B><FONT size="2">When do you expect the merger to be
    completed?</FONT></B></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">A:</FONT></TD>
    <TD align="left">
    <FONT size="2">If the merger agreement and the merger are
    approved and adopted at the special meeting by the requisite
    votes of our stockholders, and if the other conditions to the
    merger are satisfied or waived, we expect to complete the merger
    as promptly as possible after the special meeting.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Q:</FONT></B></TD>
    <TD align="left">
    <B><FONT size="2">Who can help answer my questions?</FONT></B></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">A:</FONT></TD>
    <TD align="left">
    <FONT size="2">If you would like additional copies of this proxy
    statement (which copies will be provided to you without charge)
    or if you have questions about the merger, including the
    procedures for voting your shares, you should contact:
    </FONT></TD>
</TR>

</TABLE>

<P align="center">
<FONT size="2">barnesandnoble.com inc.
</FONT>

<DIV align="center">
<FONT size="2">76 Ninth Avenue
</FONT>
</DIV>

<DIV align="center">
<FONT size="2">New York, New York 10011
</FONT>
</DIV>

<DIV align="center">
<FONT size="2">Attn: Investor Relations, Kevin&nbsp;M. Frain
</FONT>
</DIV>

<DIV align="center">
<FONT size="2">(212)&nbsp;414-6000
</FONT>
</DIV>

<P align="center"><FONT size="2">7
</FONT>

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<!-- link1 "THE PARTIES TO THE MERGER" -->

<P align="center">
<B><FONT size="2">THE PARTIES TO THE MERGER</FONT></B>

<P align="left">
<B><FONT size="2">barnesandnoble.com inc.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company is a Delaware corporation with its
executive offices located at 76&nbsp;Ninth Avenue, New York, New
York 10011. Its telephone number is (212)&nbsp;414-6000. The
Company is a holding company whose sole asset is its approximate
29.6% interest in B&#38;N.com and whose sole business is acting
as sole manager of B&#38;N.com. The Company is soliciting your
proxy in connection with the proposed merger involving the
Company and Barnes&nbsp;&#38; Noble.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A detailed description of the Company&#146;s
business and financial results is contained in our Annual Report
on Form&nbsp;10-K/A for the fiscal year ended December&nbsp;31,
2003, which is attached to this proxy statement as Annex&nbsp;E.
Information about our directors and executive officers is set
forth in Annex&nbsp;D to this proxy statement.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<B><FONT size="2">barnesandnoble.com llc</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B&#38;N.com is a Delaware limited liability
company with its executive offices located at 76&nbsp;Ninth
Avenue, New York, New York 10011. Its telephone number is
(212)&nbsp;414-6000.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B&#38;N.com is a leading Internet-based retailer
of books, music and DVD/video. Since opening its online store
(www.bn.com) in March 1997, B&#38;N.com has attracted
approximately 18&nbsp;million customers in 230 countries.
B&#38;N.com&#146;s bookstore includes the largest in-stock
selection of in-print book titles with access to approximately
one million titles for immediate delivery, supplemented by more
than 30&nbsp;million listings from its nationwide network of
out-of-print, rare and used book dealers. B&#38;N.com offers its
customers fast delivery, easy and secure ordering and rich
editorial content.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A detailed description of B&#38;N.com&#146;s
business and financial results are contained in our Annual
Report on Form&nbsp;10-K/A for the fiscal year ended
December&nbsp;31, 2003, which is attached to this proxy
statement as Annex&nbsp;E. Information about B&#38;N.com&#146;s
directors and executive officers is set forth in Annex&nbsp;D to
this proxy statement.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<B><FONT size="2">Barnes &#38; Noble, Inc.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Barnes&nbsp;&#38; Noble is a Delaware corporation
with its executive offices located at 122&nbsp;Fifth Avenue, New
York, New York 10011. Its telephone number is
(212)&nbsp;633-3300. Information about Barnes&nbsp;&#38;
Noble&#146;s directors and executive officers is set forth in
Annex D to this proxy statement.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Barnes&nbsp;&#38; Noble is the nation&#146;s
largest bookseller, operating 647&nbsp;Barnes&nbsp;&#38; Noble
bookstores in 49&nbsp;states as of January&nbsp;31, 2004. It
also operates 195&nbsp;B.&nbsp;Dalton Bookseller stores,
primarily in regional shopping malls as of January&nbsp;31,
2004. Barnes&nbsp;&#38; Noble offers titles from more than
50,000 publisher imprints, including thousands of small,
independent publishers and university presses. Barnes&nbsp;&#38;
Noble also has approximately a 64% interest in GameStop Corp.,
the nation&#146;s largest video-game and PC-entertainment
software specialty retailer with over 1,500&nbsp;stores.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Barnes&nbsp;&#38; Noble, through B&#38;N Holding,
beneficially owned 119,138,502&nbsp;shares of our capital stock
representing approximately 72.9% of our outstanding equity
interest and approximately 96.3% of our voting interest as of
March&nbsp;15, 2004. The shares of our capital stock
beneficially owned by Barnes&nbsp;&#38; Noble through B&#38;N
Holding consist of the following: (i)&nbsp;4,138,500 shares of
our Class&nbsp;A common stock and (ii)&nbsp;115,000,002 shares
of our Class&nbsp;A common stock which B&#38;N Holding has the
right to acquire upon conversion of its (A)&nbsp;one share of
our Class&nbsp;B common stock, which represents the only share
of Class&nbsp;B common stock issued and outstanding,
(B)&nbsp;one share of our Class&nbsp;C common stock, which
represents the only share of Class&nbsp;C common stock issued
and outstanding, and (C)&nbsp;115,000,000 membership units in
B&#38;N.com.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">8
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="left">
<B><FONT size="2">B&#38;N.com Holding Corp.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B&#38;N Holding is a Delaware corporation with
its executive offices at 122&nbsp;Fifth Avenue, New York, New
York 10011. Its telephone number is (212)&nbsp;633-3300.
B&#38;N&nbsp;Holding is a wholly owned subsidiary of
Barnes&nbsp;&#38; Noble whose sole assets consist of membership
units in B&#38;N.com and common stock in the Company.
Information about B&#38;N&nbsp;Holding&#146;s directors and
executive officers is set forth in Annex&nbsp;D to this proxy
statement.
</FONT>

<P align="left">
<B><FONT size="2">B&#38;N.com Acquisition Corp.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B&#38;N Acquisition is a Delaware corporation
with its executive offices at 122&nbsp;Fifth Avenue, New York,
New York 10011. Its telephone number is (212)&nbsp;633-3300.
B&#38;N&nbsp;Acquisition, a wholly owned subsidiary of
B&#38;N&nbsp;Holding, was created solely for the purpose of
effecting the merger. In the merger, B&#38;N&nbsp;Acquisition
will be merged with and into the Company, with the Company
surviving the merger as an indirect wholly owned subsidiary of
Barnes&nbsp;&#38; Noble. Information about
B&#38;N&nbsp;Acquisition&#146;s directors and executive officers
is set forth in Annex&nbsp;D to this proxy statement.
</FONT>

<!-- link1 "CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION" -->

<P align="center">
<B><FONT size="2">CAUTIONARY STATEMENT CONCERNING</FONT></B>

<DIV align="center">
<B><FONT size="2">FORWARD-LOOKING INFORMATION</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">This proxy statement, and the documents to which
we refer in this proxy statement, may contain forward-looking
statements regarding our expectations. When used in this proxy
statement, the words &#147;anticipate,&#148;
&#147;believe,&#148; &#147;estimate,&#148; &#147;expect,&#148;
&#147;intend,&#148; &#147;plan&#148; and similar expressions, as
they relate to the Company or our management, identify
forward-looking statements. These statements are based on the
beliefs of our management as well as assumptions made by and
information currently available to our management. These
statements reflect our current views with respect to future
events, the outcomes of which are subject to certain risks,
including among others general economic and market conditions,
changes in product demand, the growth rate of Internet usage and
e-commerce, possible disruptions in our computer or telephone
systems, possible increases in shipping rates or interruptions
in shipping service, effects of competition, the level and
volatility of interest rates, the performance of our new product
initiatives, the successful integration of acquired businesses,
unanticipated adverse litigation results or effects, product
shortages, changes in tax and other governmental rules and
regulations applicable to the Company and other factors, risks
and uncertainties. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions
prove incorrect, actual results or outcomes may vary materially
from those described herein. Unless required by law, we
undertake no obligation to update publicly any forward-looking
statements, whether as a result of new information, future
events or otherwise. Readers should carefully review the
information and the risk factors set forth in other reports and
documents that we file from time to time with the Securities and
Exchange Commission.
</FONT>

<P align="center"><FONT size="2">9
</FONT>

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<!-- link1 "SPECIAL FACTORS" -->

<P align="center">
<B><FONT size="2">SPECIAL FACTORS</FONT></B>

<!-- link2 "Background of the Merger" -->

<P align="left">
<B><FONT size="2">Background of the Merger</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Background of Barnes &#38; Noble&#146;s
    Investment in the Company</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Prior to October&nbsp;31, 1998,
B&#38;N.com&#146;s business was conducted by a wholly owned
subsidiary of Barnes &#38; Noble. Through a series of
transactions in the fall of 1998 and the spring of 1999, Barnes
&#38; Noble and Bertelsmann each held a 50% beneficial interest
in the Company through their ownership of our outstanding share
of Class&nbsp;B and share of Class&nbsp;C common stock as well
as a 50% beneficial interest in B&#38;N.com. On May&nbsp;25,
1999, the Company completed its initial public offering of
28,750,000 shares of Class&nbsp;A common stock raising a total
of approximately $484,382,000. Using the proceeds of our initial
public offering, we made a capital contribution to B&#38;N.com
in exchange for a 20.0% ownership interest in B&#38;N.com.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Due to significant operating losses and
diminishing cash reserves since our initial public offering, our
board of directors began considering additional capital sources
and financing opportunities in the spring of 2001 and continuing
through the summer of 2002. At several meetings of our board of
directors, Mr.&nbsp;Leonard Riggio, Chairman of both the Company
and Barnes &#38; Noble, discussed our possible financing
alternatives, including bank financing with guarantees from
Barnes &#38; Noble and Bertelsmann, as well as the possible sale
of debt or equity securities of the Company. Based on the
Company&#146;s forecasts at that time, the Company had
sufficient cash to meet its needs through the fall of 2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In August 2002, we received notice from the
Nasdaq Stock Market, Inc. that, for the previous 30 consecutive
trading days, the price of our common stock had closed below the
minimum $1.00 per share requirement for continued inclusion on
the NASDAQ National Market. As a result, we had 90 calendar
days, or until November&nbsp;4, 2002, for our common stock to
trade at $1.00 or above for 10 consecutive trading days in order
to avoid being delisted from the NASDAQ National Market. Our
board of directors again discussed our future cash needs and the
various possible methods of financing our future operations.
Additionally, our board of directors considered the possible
delisting from the NASDAQ National Market and reviewed means to
avoid the delisting.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At a meeting of the Barnes &#38; Noble board of
directors on September&nbsp;12, 2002, Mr.&nbsp;Riggio noted that
our common stock was trading below $1.00 and that the Company
may be subject to delisting from the NASDAQ National Market. At
this meeting, Mr.&nbsp;Riggio also stated that he believed that
our common stock was undervalued and that he was in discussions
with Bertelsmann about purchasing publicly traded shares of our
common stock. Although he stated his belief that Bertelsmann
would be supportive, he requested authority from the Barnes
&#38; Noble board for Barnes &#38; Noble to purchase up to
$10&nbsp;million of our common stock in the open market even if
Bertelsmann declined to participate. After discussion, the
Barnes &#38; Noble board approved the purchase.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On October&nbsp;1, 2002, Barnes &#38; Noble
publicly announced that, subject to market conditions, it
intended to purchase up to $10&nbsp;million of our common stock
in the open market or through privately negotiated transactions.
At the same time, Barnes &#38; Noble&#146;s management asked
Bertelsmann to consider participating in the stock acquisition
program as well. On October&nbsp;23, 2002, Bertelsmann publicly
announced that it intended to purchase, subject to market
conditions and securities law considerations, our common stock
in the open market or through privately negotiated transactions.
Barnes &#38; Noble and Bertelsmann agreed to coordinate their
purchases of our common stock in order to, among other things,
comply with the safe harbor provisions of Exchange Act
Rule&nbsp;10b-18. At the same time, Barnes &#38; Noble and
Bertelsmann each filed a Schedule&nbsp;13D with the Securities
and Exchange Commission to disclose that they were acting as a
&#147;group&#148; for purposes of the stock acquisition program.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In connection with Barnes &#38; Noble&#146;s
participation in this stock acquisition program, on
November&nbsp;1, 2002, Barnes &#38; Noble publicly disclosed
that it intended to review its holdings in the Company on a
continuing basis and, depending upon the price and availability
of our common stock, subsequent developments affecting the
Company, the business prospects of the Company, general stock
market and economic conditions, tax considerations and other
factors deemed relevant, may consider increasing or decreasing
its
</FONT>

<P align="center"><FONT size="2">10
</FONT>

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<DIV align="left">
<FONT size="2">investment in the Company. In connection with the
stock acquisition program, Barnes &#38; Noble, through B&#38;N
Holding, purchased an aggregate of 3,012,500 shares of our
common stock at prices ranging from $0.76 to $1.75 per share
between October&nbsp;2, 2002 and April&nbsp;3, 2003. See the
section of this proxy statement entitled &#147;CERTAIN
TRANSACTIONS INVOLVING OUR COMMON STOCK&#148; for more details
of Barnes &#38; Noble&#146;s acquisition of our common stock
pursuant to this stock acquisition program.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our common stock has not closed below $1.00 since
October&nbsp;22, 2002.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Barnes &#38; Noble Acquires
    Bertelsmann&#146;s Interest in the Company</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In the spring of 2003, Mr.&nbsp;Riggio met with
representatives of Bertelsmann to discuss the Company&#146;s
future capital needs and the possibility of additional capital
investments in the Company by Barnes&nbsp;&#38;&nbsp;Noble and
Bertelsmann. In those discussions, Bertelsmann indicated a
reluctance to invest significant additional capital in the
Company, as well as a desire to avoid a dilution of their
interest from a significant investment in the Company by Barnes
&#38; Noble. As a result, Mr.&nbsp;Riggio and Bertelsmann
discussed the possibility that Barnes &#38; Noble acquire
Bertelsmann&#146;s interest prior to any significant capital
infusion into the Company.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At a meeting of our board of directors held on
July&nbsp;17, 2003, the Company&#146;s future cash needs were
discussed. Representatives of Citigroup Global Markets Inc.,
referred to as &#147;Citigroup&#148; in this proxy statement,
attended the meeting and reviewed with our board various options
for raising capital to address funding needs, including
potential capital infusions from Barnes &#38; Noble and
Bertelsmann. Mr.&nbsp;Riggio also indicated to our board that,
in connection with Barnes &#38; Noble&#146;s consideration of
any capital investment in the Company, Barnes &#38; Noble may
also consider acquiring Bertelsmann&#146;s ownership interest in
the Company.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">After the July&nbsp;17, 2003 meeting of our
board, Bertelsmann again discussed with Mr.&nbsp;Riggio the
possibility that Barnes&nbsp;&#38; Noble purchase
Bertelsmann&#146;s interest in the Company. A meeting of the
Barnes&nbsp;&#38; Noble board of directors was held on
July&nbsp;21, 2003 to discuss the possible acquisition of
Bertelsmann&#146;s interest. Representatives of Citigroup
participated at this meeting and reviewed with the Barnes &#38;
Noble board the benefits to be derived from such an acquisition.
After discussion, the Barnes &#38; Noble board authorized the
acquisition of Bertelsmann&#146;s interest in the Company.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Barnes &#38; Noble and Bertelsmann entered into
negotiations that culminated in the execution of a purchase
agreement, dated July&nbsp;29, 2003, whereby Barnes&nbsp;&#38;
Noble would acquire for cash and notes all of the shares of our
Class&nbsp;A common stock, together with all of the membership
units in B&#38;N.com and the share of our Class&nbsp;C common
stock beneficially owned by Bertelsmann, for an aggregate
purchase price equal to $164,152,802.80, or $2.80 per share or
membership unit. Under the purchase agreement, Barnes&nbsp;&#38;
Noble is required to pay Bertelsmann additional consideration in
the event that at any time prior to September&nbsp;15, 2006
Barnes&nbsp;&#38; Noble acquires, subject to certain exceptions,
additional equity in the Company for a per share purchase price
in excess of $3.05 if the purchase price is paid solely in cash,
or $3.30 if the purchase price is paid solely in stock of
Barnes&nbsp;&#38; Noble. The purchase by Barnes&nbsp;&#38; Noble
of Bertelsmann&#146;s entire interest in the Company was
consummated on September&nbsp;15, 2003. Barnes&nbsp;&#38; Noble
subsequently transferred all shares and membership units
purchased from Bertelsmann to B&#38;N Holding.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Reintegrating the Company</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Barnes &#38; Noble&#146;s management and the
Barnes&nbsp;&#38; Noble board of directors have from time to
time in the past reviewed Barnes&nbsp;&#38; Noble&#146;s options
with respect to its investment in the Company. Barnes&nbsp;&#38;
Noble&#146;s management began to explore the possibility of the
proposed merger and reintegrating the Company with
Barnes&nbsp;&#38; Noble during the week of September&nbsp;22,
2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On September&nbsp;29, 2003, Mr.&nbsp;Riggio
informed William F. Reilly, Chairman of the audit committee of
our board of directors, that Barnes&nbsp;&#38; Noble was
contemplating making an offer to take the Company private and
was determining an appropriate price for an offer.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In view of Barnes&nbsp;&#38; Noble&#146;s
potential proposal, our board of directors determined that it
would be appropriate for our board to appoint a special
committee comprised of independent directors to act on its
behalf. On October 24, 2003, the special committee, consisting
of Jan-Michiel Hessels and Patricia Higgins,
</FONT>

<P align="center"><FONT size="2">11
</FONT>

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<DIV align="left">
<FONT size="2">was authorized to exercise all of the powers of
our board of directors with respect to Barnes&nbsp;&#38;
Noble&#146;s potential proposal and any transaction resulting
from the proposal, including the power to select and retain
legal counsel and an independent financial advisor.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">From the week of September&nbsp;22, 2003 through
October 2003, Barnes&nbsp;&#38; Noble&#146;s management
continued to review with Barnes&nbsp;&#38; Noble&#146;s legal
and financial advisors various strategic alternatives with
respect to the Company in light of its continued economic and
strategic challenges. Specifically, Barnes&nbsp;&#38; Noble
engaged Citigroup as its financial advisor in connection with
the potential acquisition of all of our Class&nbsp;A common
stock not already owned by Barnes &#38; Noble and discussed with
Citigroup the possible structure, associated costs and potential
benefits to Barnes &#38; Noble of such a transaction. After a
number of discussions regarding the various options concerning
the Company, Barnes &#38; Noble&#146;s management determined
that it should continue to explore the possibility of taking the
Company private and the preferred structure for such a
transaction.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On October&nbsp;24, 2003, the special committee
retained Dewey Ballantine LLP to act as its legal advisor, and
on November&nbsp;4, 2003, the special committee retained Credit
Suisse First Boston as its financial advisor.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A meeting of the Barnes &#38; Noble board of
directors was held on November&nbsp;6, 2003 at which various
alternatives with respect to the Company were discussed.
Representatives of Citigroup and Bryan Cave LLP, counsel to
Barnes&nbsp;&#38; Noble, attended the meeting and Citigroup made
a presentation to the Barnes&nbsp;&#38; Noble board of directors
and provided the Barnes&nbsp;&#38; Noble board of directors
written materials which are summarized under the section of this
proxy statement entitled &#147;&#151; Presentations of
Barnes&nbsp;&#38; Noble&#146;s Financial Advisor.&#148;
Strategic alternatives discussed included the form of
consideration for the potential transaction and various
transaction structures. See the section of the proxy statement
entitled &#147;&#151;&nbsp;Purposes and Reasons for the Merger;
Consideration of Alternatives; Structure of the
Merger&nbsp;&#151; The Barnes&nbsp;&#38; Noble Parties&#148; for
a discussion of the alternatives considered by Barnes&nbsp;&#38;
Noble. The Barnes&nbsp;&#38; Noble board of directors concluded
that reintegration could, on appropriate financial terms, enable
Barnes&nbsp;&#38; Noble to devote appropriate management
resources to the Company, reduce expenses at the Company by
eliminating the costs of being a public company, and provide
certain tax savings to Barnes&nbsp;&#38; Noble. See the section
of this proxy statement entitled &#147;&#151;&nbsp;Purposes and
Reasons for the Merger; Consideration of Alternatives; Structure
of the Merger&nbsp;&#151; The Barnes&nbsp;&#38; Noble
Parties&#148; for a more detailed discussion of the
Barnes&nbsp;&#38; Noble Parties&#146; purposes of, and reasons
for, the merger. Following further discussion and deliberation,
the Barnes&nbsp;&#38; Noble board of directors authorized
management to propose to take the Company private in a merger
that would pay $2.50 per share for each share of Class&nbsp;A
common stock of the Company that Barnes&nbsp;&#38; Noble did not
own. Additionally, the Barnes&nbsp;&#38; Noble board of
directors authorized management to inform the Company that
Barnes&nbsp;&#38; Noble remained committed to providing interim
financing to the Company if it required capital prior to the
consummation of the merger, and that in the event that the
merger was not consummated, such interim financing would be
repaid through a rights offering that Barnes &#38; Noble would
underwrite at an appropriate discount to market.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Shortly following the November&nbsp;6, 2003
meeting of the Barnes&nbsp;&#38; Noble board of directors,
representatives of Barnes&nbsp;&#38; Noble informed Marie J.
Toulantis, our Chief Executive Officer, and Ms.&nbsp;Higgins
that Barnes&nbsp;&#38; Noble planned to formally announce its
proposal and issue a press release on November&nbsp;7, 2003.
</FONT>

<P align="center"><FONT size="2">12
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On November&nbsp;7, 2003, prior to the opening of
the markets, Mr.&nbsp;Riggio sent the following letter to the
special committee:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">November&nbsp;7, 2003
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <B><U><FONT size="2">BY FAX</FONT></U></B></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Ms.&nbsp;Patricia Higgins and Mr.&nbsp;Jan
    Michiel Hessels
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Special Committee of the Board of Directors
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">c/o barnesandnoble.com inc.
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">76 Ninth Avenue, 11th Floor
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">New York, NY 10011
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">Dear Patricia and Jan Michiel:
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">Barnes &#38; Noble, Inc. (&#147;Barnes &#38;
    Noble&#148;) is pleased to propose a merger (the
    &#147;Merger&#148;) with barnesandnoble.com inc. (&#147;Barnes
    &#38; Noble.com&#148;) in which all shareholders of Barnes &#38;
    Noble.com (other than B&#38;N.com Holding Corp.) would receive
    $2.50 in cash for each share of Barnes&nbsp;&#38; Noble.com (the
    &#147;Shares&#148;) that they own. At this price,
    Barnes&nbsp;&#38; Noble estimates that it would be paying in
    excess of the approximate net after-tax price per Share that it
    paid to Bertelsmann AG in a combination of cash and notes on
    September&nbsp;15, 2003 for a 37% interest in Barnes&nbsp;&#38;
    Noble.com. As a result of the Merger, Barnes &#38; Noble.com
    would become a wholly owned subsidiary of Barnes &#38; Noble.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">Please note that we remain committed to providing
    interim financing to Barnes&nbsp;&#38; Noble.com if it requires
    capital prior to the consummation of the proposed transaction.
    In the event the transaction is not consummated, the interim
    financing would be taken out by a rights offering that we would
    underwrite at an appropriate discount to market.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">Consummation of the Merger would be subject to
    the (i)&nbsp;approval of the Special Committee of the Board of
    Directors of Barnes &#38; Noble.com, (ii)&nbsp;execution and
    delivery of a definitive merger agreement and such other
    documentation (including regulatory filings) as may be required
    or appropriate and (iii)&nbsp;receipt of all necessary third
    party consents, if any (together, the &#147;Conditions&#148;).
    Upon consummation of the Merger, Barnes&nbsp;&#38; Noble would
    cause the Shares to be delisted from trading on the Nasdaq
    National Market and deregistered under the Securities Exchange
    Act of 1934, as amended.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">A copy of the press release announcing the
    proposed transaction is attached for your information. We expect
    to make this release public prior to the market opening today.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">We reserve the right to rescind or amend this
    offer at any time prior to the satisfaction of the Conditions.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">We wish to complete this transaction as soon as
    possible. Accordingly, we appreciate your immediate
    consideration of this proposal and look forward to your prompt
    response. We are available to meet with you and your advisors to
    discuss the proposed transaction at your convenience.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Very truly yours,
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <u><U><FONT size="2">/s/ Leonard Riggio&nbsp;</u></FONT></U></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Leonard Riggio
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Chairman
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On November&nbsp;7, 2003, shortly following
delivery of the letter to the special committee, Barnes &#38;
Noble issued a press release publicly announcing its proposal.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Following Barnes &#38; Noble&#146;s public
announcement of its proposal to take the Company private,
fifteen substantially similar putative class action lawsuits
were filed on behalf of an alleged class of our unaffiliated
stockholders against the Company, our directors and Barnes &#38;
Noble in the Delaware Court of Chancery. The complaints
generally alleged that our directors and Barnes&nbsp;&#38; Noble
had violated their fiduciary duties owed to our unaffiliated
stockholders in connection with the merger and sought, among
other things, to enjoin
</FONT>

<P align="center"><FONT size="2">13
</FONT>

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<DIV align="left">
<FONT size="2">Barnes&nbsp;&#38; Noble&#146;s proposal or, in
the alternative, damages in an unspecified amount and rescission
in the event a merger occurred pursuant to the proposal, as more
fully described in the section of this proxy statement entitled
&#147;THE MERGER&nbsp;&#151; Litigation Relating to the
Merger.&#148;
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During the second week of November 2003, the
special committee met with its legal and financial advisors to
consider, among other things, Barnes&nbsp;&#38; Noble&#146;s
proposal and the special committee&#146;s fiduciary duties in
responding to Barnes&nbsp;&#38; Noble&#146;s proposal. The
special committee discussed with its legal and financial
advisors the due diligence investigations to be undertaken by
each of its advisors. In addition, the special committee was
apprised of the shareholder complaints filed against the
Company, our directors and Barnes &#38; Noble in connection with
Barnes&nbsp;&#38; Noble&#146;s proposal. During that same time,
the special committee, together with its legal and financial
advisors, met with Barnes &#38; Noble&#146;s legal and financial
advisors. Citigroup reviewed for the special committee and its
legal and financial advisors Barnes &#38; Noble&#146;s proposal.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">From mid- to late November 2003, the special
committee held telephonic meetings with its legal and financial
advisors. During these meetings, the special committee&#146;s
legal and financial advisors updated the special committee on
their respective due diligence investigations. The special
committee also reviewed financial matters relating to the
Company, including the Company&#146;s working capital resources
and liquidity needs. During this time, the special
committee&#146;s legal and financial advisors continued their
due diligence investigations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On December&nbsp;2, 2003, the special committee
held a meeting with its legal and financial advisors at which
Credit Suisse First Boston reviewed with the special committee
on a preliminary basis financial aspects of Barnes&nbsp;&#38;
Noble&#146;s offer of $2.50 per share in cash. At the
December&nbsp;2, 2003 meeting, Credit Suisse First Boston
discussed the same financial analyses that were included in
Credit Suisse First Boston&#146;s written presentation to the
special committee on January&nbsp;8, 2004, which is referred to
as the January&nbsp;8, 2004 presentation, that is summarized
under the caption &#147;&#151; Opinion of the Special
Committee&#146;s Financial Advisor,&#148; except that the later
presentation was updated to reflect more recent and additional
data as described below. In that regard, the December&nbsp;2,
2003 presentation included stock trading prices as of
November&nbsp;28, 2003 (compared to stock trading prices as of
January&nbsp;6, 2004 that were included in the January&nbsp;8,
2004 presentation); accounted for the Company&#146;s
cash-in-hand and number of shares outstanding as of
November&nbsp;17, 2003 (compared to the Company&#146;s
cash-in-hand and number of shares outstanding as of
January&nbsp;7, 2004 that were accounted for in the
January&nbsp;8, 2004 presentation); and reviewed the premiums
paid as a percentage of the closing stock prices prior to the
transaction announcement date in minority buy-out transactions
completed in the United States between January&nbsp;1, 2000 and
December&nbsp;1, 2003 (compared to the corresponding data for
transactions completed between January&nbsp;1, 1998 and
December&nbsp;1, 2003 that were reviewed in the January&nbsp;8,
2004 presentation). Also, on December&nbsp;2, 2003, the special
committee received a draft of the merger agreement from Barnes
&#38; Noble.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The special committee held telephonic meetings
with its legal and financial advisors during the second and
third weeks of December 2003 to discuss the draft merger
agreement received from Barnes&nbsp;&#38; Noble as well as
developments since the prior special committee meeting and its
views with respect to the adequacy of Barnes &#38; Noble&#146;s
offer. During this time, Barnes&nbsp;&#38; Noble informed the
special committee that Barnes&nbsp;&#38; Noble was not willing
to sell its shares of our common stock in connection with any
transaction involving the Company and that it was not willing to
consummate a transaction for the shares of our common stock that
it did not already own for consideration other than cash.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On December&nbsp;15, 2003, representatives of
Credit Suisse First Boston met with representatives of Citigroup
and, as instructed by the special committee, communicated that
Barnes&nbsp;&#38; Noble&#146;s offer of $2.50 in cash was
insufficient and that the special committee would be willing to
consider a per share price of $3.20 in cash.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On December&nbsp;17, 2003, Barnes &#38; Noble
revised its offer to $2.90 per share in cash. The special
committee met telephonically with its legal and financial
advisors on several occasions from mid- to late December 2003 to
discuss the status of the negotiations with Barnes&nbsp;&#38;
Noble. During the week of December&nbsp;23, 2003, the special
committee&#146;s legal and financial advisors held numerous
conference calls with representatives of Barnes&nbsp;&#38; Noble
with respect to the merger agreement and the offer price. During
the course
</FONT>

<P align="center"><FONT size="2">14
</FONT>

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<DIV align="left">
<FONT size="2">of these discussions, the special
committee&#146;s advisors indicated to Barnes&nbsp;&#38;
Noble&#146;s representatives that the special committee would be
willing to consider a per share price of $3.10 in cash.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On January&nbsp;6, 2004, Barnes &#38; Noble
revised its offer to $3.00 per share in cash. On January&nbsp;7,
2004, the special committee held a telephonic meeting with its
legal and financial advisors to discuss, among other things,
Barnes&nbsp;&#38; Noble&#146;s revised offer and at the
conclusion of this meeting the special committee instructed its
advisors to notify Barnes&nbsp;&#38; Noble that the special
committee would be willing to accept $3.05 per share in cash
assuming satisfactory resolution of the terms of the merger
agreement. Negotiations over the terms of the merger agreement
continued on January&nbsp;7, 2004, and on January&nbsp;8, 2004,
Barnes &#38; Noble agreed to take the Company private for $3.05
per share in cash, without interest and less any applicable
withholding taxes, and the terms of the merger agreement were
finalized.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On January&nbsp;8, 2004, the special committee
held a telephonic meeting to discuss the final terms of the
merger agreement and the proposed transaction. At this meeting,
representatives of Dewey Ballantine reviewed with the special
committee the terms and conditions of the merger agreement. Also
at this meeting, representatives of Credit Suisse First Boston
reviewed with the special committee its financial analysis of
the merger consideration and rendered to the special committee
an oral opinion, which opinion was confirmed by delivery of a
written opinion dated January&nbsp;8, 2004, to the effect that,
as of that date and based on and subject to the matters
described in its opinion, the consideration to be received in
the merger by the holders of our common stock (other than Barnes
&#38; Noble and its affiliates and certain officers and
directors of each of the Company and Barnes &#38; Noble) was
fair, from a financial point of view, to such holders. The
special committee also was notified that Barnes &#38; Noble had
reached a settlement with the plaintiffs in the shareholder
litigation.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The special committee then carefully considered
the benefits and risks associated with the proposed transaction
to our unaffiliated stockholders and the special
committee&#146;s reasons for the proposed transaction. After
deliberation, the special committee determined that the terms of
the merger agreement and the merger, were advisable, fair to,
and in the best interest of our unaffiliated stockholders. The
special committee then unanimously recommended to our entire
board of directors that the board approve the merger and the
transactions contemplated thereby, including the merger.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Following the special committee meeting, our
board of directors, upon the recommendation of the special
committee, unanimously (i)&nbsp;determined that the terms of the
merger agreement and the transactions contemplated thereby,
including the merger, were advisable, fair to and in the best
interests of our unaffiliated stockholders and
(ii)&nbsp;resolved to recommend that our stockholders vote to
approve and adopt the merger agreement and the transactions
contemplated thereby, including the merger.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On January&nbsp;8, 2004, the parties executed the
merger agreement and the Company and Barnes &#38; Noble issued
press releases announcing the execution of the merger agreement.
</FONT>

<!-- link2 "Recommendation of the Special Committee and our Board of Directors" -->

<P align="left">
<B><FONT size="2">Recommendation of the Special Committee and
our Board of Directors</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Certain of our directors also serve as directors
of Barnes &#38; Noble or its affiliates. Because these directors
have financial and other interests that may be different from,
and in addition to, your interests in the merger, our board of
directors decided that, in order to protect the interests of our
unaffiliated stockholders in evaluating and negotiating the
merger agreement, a special committee of independent directors
who are not affiliated with Barnes &#38; Noble or its
affiliates, and who have no financial interest in the merger,
should be formed to perform those tasks and, if appropriate, to
recommend the merger and the terms of the merger agreement to
our entire board.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The special committee of our board of directors
has unanimously determined that the terms of the merger
agreement and the merger are advisable, fair to and in the best
interests of our unaffiliated stockholders. The special
committee unanimously recommended to our board of directors that
the merger agreement and the merger be approved and adopted. The
special committee considered a number of factors in reaching its
determinations and recommendations as more fully described below.
</FONT>

<P align="center"><FONT size="2">15
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our board of directors, acting upon the
recommendation of the special committee, unanimously determined
that the merger agreement and the transactions contemplated
thereby, including the merger, are advisable, fair to, and in
the best interests of, our unaffiliated stockholders. <B>On the
basis of the foregoing, our board of directors has unanimously
approved the merger agreement and the merger, and recommends
that our stockholders vote to approve and adopt the merger
agreement and the merger. The recommendation of our board of
directors was made after consideration of all the material
factors, both positive and negative, as described below.</B>
</FONT>

<!-- link2 "Reasons for the Special Committee&#146;s Determination; Fairness of the Merger" -->

<P align="left">
<B><FONT size="2">Reasons for the Special Committee&#146;s
Determination; Fairness of the Merger</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In determining the fairness of the merger and
recommending adoption of the merger agreement and approval of
the merger to our board of directors, the special committee
considered a number of factors which, in the opinion of the
members of the special committee, supported the special
committee&#146;s recommendation, including:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the special committee&#146;s knowledge of our
    business, assets, financial condition and results of operations,
    our competitive position, the nature of our business and the
    retail Internet industry in which we compete and, in particular,
    its belief that many of the factors that may have caused our
    shares over the last three&nbsp;years to trade at price levels
    substantially below the merger consideration are not likely to
    change in the foreseeable future;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the relationship between the merger consideration
    and recent market prices for our common stock, including: $3.05
    per share in cash represented a 35.6% premium over the closing
    price on November&nbsp;6, 2003 (the last day of trading before
    public announcement of Barnes &#38; Noble&#146;s initial offer)
    and an 8.9% premium over the per share consideration paid by
    Barnes &#38; Noble to Bertelsmann in July 2003; and our common
    stock had not traded above $3.05 during the past
    three&nbsp;years;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the negotiations with respect to the merger
    consideration that, among other things, led to an increase in
    Barnes &#38; Noble&#146;s initial offer from $2.50 per share of
    our common stock to $3.05 per share of our common stock, and the
    special committee&#146;s determination that, following extensive
    negotiations between the special committee and Barnes &#38;
    Noble, $3.05 per share was the highest price that Barnes &#38;
    Noble would agree to pay, with the special committee basing its
    belief on a number of factors, including the duration and tenor
    of negotiations, assertions made by Barnes &#38; Noble during
    the negotiation process, Barnes&nbsp;&#38; Noble&#146;s
    obligation, pursuant to a purchase agreement, to pay Bertelsmann
    additional compensation in the event the merger consideration
    exceeded $3.05 per share in cash, and the experience of the
    special committee and its advisors;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the financial presentation of Credit Suisse First
    Boston to the special committee on January&nbsp;8, 2004,
    including Credit Suisse First Boston&#146;s opinion as to the
    fairness, from a financial point of view and as of the date of
    the opinion, of the merger consideration to holders of our
    common stock (other than Barnes &#38; Noble and its affiliates
    and directors and officers of each of the Company and Barnes
    &#38; Noble);
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the fact that the merger consideration will be
    paid in all cash to our stockholders, eliminating any
    uncertainties in value to our stockholders;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the likelihood that the merger would close as a
    result of Barnes &#38; Noble having the necessary capital to
    finance the merger without having to obtain financing;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the fact that, under the terms of the merger
    agreement, the special committee would be entitled, if necessary
    to comply with its fiduciary duties, to consider unsolicited
    bona fide alternative proposals and would be entitled to
    terminate the merger agreement if it determined that such
    proposal was more favorable to our unaffiliated stockholders and
    the party making such proposal was reasonably able to finance
    the proposed transaction;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the fact that, under the terms of the merger
    agreement, our board of directors (acting upon the
    recommendation of the special committee) or the special
    committee is not prohibited from withdrawing, qualifying or
    modifying its recommendation that our stockholders vote to
    approve and adopt the
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">16
</FONT>

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    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD></TD>
    <TD align="left">
    <FONT size="2">merger agreement and the merger if the special
    committee determines that such withdrawal, qualification or
    modification is necessary in order for the special committee to
    comply with its fiduciary duties;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the special committee&#146;s judgment, in light
    of the fact that no third parties had expressed an interest in
    acquiring the Company following Barnes &#38; Noble&#146;s public
    announcement of its initial offer on November&nbsp;7, 2003, that
    it was unlikely that any other buyer would be willing to pay a
    price equal to or greater than $3.05 per share in cash; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the ability of stockholders who may not support
    the merger to exercise appraisal rights under Delaware law.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The special committee also determined that the
merger is procedurally fair because, among other things:
</FONT>
<P>

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    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">our board of directors established a special
    committee to consider and negotiate the merger agreement;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the special committee is composed of independent
    directors who do not serve as directors of Barnes &#38; Noble;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the special committee was granted the full
    authority of our board of directors to evaluate Barnes &#38;
    Noble&#146;s proposal and any alternative transactions;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the special committee retained and received
    advice from its own independent legal and financial advisors in
    evaluating, negotiating and recommending the terms of the merger
    agreement, and these advisors reported directly to and took
    direction solely from the special committee;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the price of $3.05 per share and the other terms
    and conditions of the merger agreement resulted from active and
    lengthy negotiations between the special committee and its legal
    and financial advisors, on the one hand, and Barnes &#38; Noble
    and its legal and financial advisors, on the other hand; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">under Delaware law, our stockholders have the
    right to demand appraisal of their shares.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In light of the foregoing factors, the special
committee determined that the merger is procedurally fair
despite the fact that the terms of the merger agreement do not
require the approval of at least a majority of our unaffiliated
stockholders.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The special committee also considered a variety
of risks and other potentially negative factors concerning the
merger. The material risks and potentially negative factors
considered by the special committee were as follows:
</FONT>
<P>

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    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the Company will cease to be a public company and
    our stockholders will no longer participate in any potential
    future growth;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">while we expect to complete the merger, there can
    be no assurances that all conditions to the parties&#146;
    obligations to complete the merger agreement will be satisfied
    and, as a result, the merger may not be completed;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">gains from all cash transactions are generally
    taxable to our stockholders for U.S. federal income tax purposes;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the fact that Barnes &#38; Noble has agreed to
    vote approximately 96.3% of the voting power of our common stock
    in favor of approving the merger means that the proposed merger
    does not require the approval of any unaffiliated stockholders;
    and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the possibility of disruption to our operations
    following the announcement of the merger, and the resulting
    effect on us if the merger does not close.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The special committee concluded, however, that
these risks and potentially negative factors could be managed or
mitigated by the Company or were unlikely to have a material
impact on the merger, and that, overall, the potentially
negative factors associated with the merger were outweighed by
the potential benefits of the merger.
</FONT>

<P align="center"><FONT size="2">17
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Although the special committee considered our net
book value and going concern value in determining the fairness
of the merger to our unaffiliated stockholders, the special
committee noted the following:
</FONT>
<P>

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    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
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<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">our net book value ($0.32 per share as of
    December&nbsp;31, 2003), which is an accounting concept,
    generally has no correlation to the fair value of our shares in
    the context of a sale of the Company; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">to the extent our going concern value, which was
    based on the discounted cash flow analysis performed by Credit
    Suisse First Boston using the management case scenario ($1.49 to
    $2.13 per share as of January&nbsp;8, 2004), is reflected in the
    public market price of our common stock, the merger
    consideration to be received by our stockholders represents a
    premium to our going concern value.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The special committee also noted that, given
Barnes&nbsp;&#38; Noble&#146;s interest in the Company and its
intention to continue to conduct the Company&#146;s business as
a subsidiary of Barnes&nbsp;&#38; Noble, a liquidation of the
Company was not a viable option and, therefore, did not perform
a liquidation analysis of the Company to derive the
Company&#146;s liquidation value. In addition, the special
committee noted that even if a liquidation of the Company was a
viable option, selling the Company&#146;s business as an ongoing
operation to Barnes &#38; Noble in the merger would in all
likelihood realize greater value for our unaffiliated
stockholders that is more certain and more immediate than the
value that would otherwise be realized in an orderly liquidation
of the Company&#146;s business.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The special committee and our board of directors
were fully aware of and considered possible conflicts of
interest of certain of our directors and officers set forth
below under &#147;&#151;&nbsp;Interests of Directors and
Officers in the Merger.&#148; The special committee, which
consists solely of directors who are not officers or employees
of the Company, and who have no financial interest in the
proposed merger, was aware of these interests and considered
them in making its determination.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">After considering these factors, the special
committee concluded that the positive factors relating to the
merger outweighed the negative factors. Because of the variety
of factors considered, the special committee did not find it
practicable to quantify or otherwise assign relative weights to,
and did not make specific assessments of, the specific factors
considered in reaching its determination. In addition,
individual members of the special committee may have assigned
different weights to various factors. The determination of the
special committee was made after consideration of all of the
factors together.
</FONT>

<!-- link2 "Reasons for our Board of Directors&#146; Determination; Fairness of the Merger" -->

<P align="left">
<B><FONT size="2">Reasons for our Board of Directors&#146;
Determination; Fairness of the Merger</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our board of directors consists of six directors,
two of whom serve on the special committee. On January&nbsp;8,
2004 following the special committee&#146;s meeting with its
legal and financial advisors, our board of directors, acting
upon the recommendation of the special committee, unanimously
approved the merger agreement and the transactions contemplated
thereby, including the merger. In considering the determination
of the special committee, our board of directors believed that
the analysis of the special committee was reasonable and adopted
the special committee&#146;s conclusion and the analysis
underlying the conclusion.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our board of directors believes that the merger
agreement and the merger are substantively and procedurally fair
to, and in the best interests of, our unaffiliated stockholders
for all of the reasons set forth above under
&#147;&#151;&nbsp;Reasons for the Special Committee&#146;s
Determination; Fairness of the Merger.&#148; In addition, with
respect to procedural fairness, our board of directors
established a special committee, consisting of two independent
directors. Neither of the members of the special committee is
employed by or serves as a director of Barnes &#38; Noble or its
affiliates or is employed by us. The merger consideration of
$3.05 per share in cash was the highest price Barnes &#38; Noble
indicated it was willing to pay following extensive negotiations
between the special committee, Barnes &#38; Noble and their
respective legal and financial advisors.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In reaching these conclusions, our board of
directors considered it significant that the special committee
retained independent legal and financial advisors who have
extensive experience with transactions similar to the merger and
who assisted the special committee in evaluating the merger and
in negotiating with Barnes &#38; Noble.
</FONT>

<P align="center"><FONT size="2">18
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Because of the foregoing factors, our board of
directors determined that the merger is procedurally fair
despite the fact that the terms of the merger agreement do not
require the approval of at least a majority of our unaffiliated
stockholders.
</FONT>

<!-- link2 "Opinion of the Special Committee&#146;s Financial Advisor" -->

<P align="left">
<B><FONT size="2">Opinion of the Special Committee&#146;s
Financial Advisor</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Credit Suisse First Boston has acted as financial
advisor to the special committee in connection with the merger.
The special committee selected Credit Suisse First Boston based
on Credit Suisse First Boston&#146;s experience, reputation and
familiarity with the business sector in which the Company
conducts its business. Credit Suisse First Boston is an
internationally recognized investment banking firm and is
regularly engaged in the valuation of businesses and securities
in connection with mergers and acquisitions, leveraged buyouts,
negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private
placements and valuations for corporate and other purposes.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In connection with Credit Suisse First
Boston&#146;s engagement, the special committee requested that
Credit Suisse First Boston evaluate the fairness, from a
financial point of view, of the merger consideration to the
holders of the Company&#146;s common stock, other than Barnes
&#38; Noble and its affiliates and officers and directors of
each of Barnes &#38; Noble and the Company. On January&nbsp;8,
2004, at a meeting of the special committee held to evaluate the
merger, Credit Suisse First Boston delivered to the special
committee its opinion to the effect that, as of that date and
based on and subject to the matters described in its opinion,
the merger consideration was fair, from a financial point of
view, to the holders of the Company&#146;s common stock, other
than Barnes &#38; Noble and its affiliates and officers and
directors of each of Barnes &#38; Noble and the Company.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">The full text of Credit Suisse First
Boston&#146;s written opinion, dated January&nbsp;8, 2004, to
the special committee, which sets forth the procedures followed,
assumptions made, matters considered and limitations on the
review undertaken, is attached as Annex&nbsp;C to this proxy
statement and is incorporated herein by reference. Holders of
the Company&#146;s common stock are encouraged to read this
opinion carefully and in its entirety. Credit Suisse First
Boston&#146;s opinion was provided to the special committee in
connection with its evaluation of the merger consideration and
relates only to the fairness, from a financial point of view, of
the merger consideration, does not address any other aspect of
the proposed merger and does not constitute a recommendation to
any stockholder as to any matters relating to the merger or any
related transaction. The summary of Credit Suisse First
Boston&#146;s opinion in this proxy statement is qualified in
its entirety by reference to the full text of the
opinion.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In arriving at its opinion, Credit Suisse First
Boston reviewed publicly available business and financial
information relating to the Company, as well as the merger
agreement. Credit Suisse First Boston also reviewed other
information, including financial forecasts, that were provided
to or discussed with Credit Suisse First Boston by the
Company&#146;s management. Credit Suisse First Boston also met
with the Company&#146;s management to discuss the business and
prospects of the Company. Credit Suisse First Boston considered
financial and stock market data of the Company, and compared
those data with similar data for other publicly held companies
in businesses which it deemed similar to that of the Company.
Credit Suisse First Boston considered, to the extent publicly
available, the financial terms of other business combinations
and other transactions which have been effected or announced.
Credit Suisse First Boston also considered other information,
financial studies, analyses and investigations and financial,
economic and market criteria which it deemed relevant.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In connection with its review, Credit Suisse
First Boston did not assume any responsibility for independent
verification of any of the information that it reviewed or
considered and relied on that information being complete and
accurate in all material respects. With respect to the financial
forecasts for the Company provided to or discussed with Credit
Suisse First Boston by the Company&#146;s management, Credit
Suisse First Boston assumed that the forecasts were reasonably
prepared on bases which reflected the best currently available
estimates and judgments of the Company&#146;s management as to
the future financial performance of the Company. Credit Suisse
First Boston also assumed, with the consent of the special
committee, that the merger would be consummated in accordance
with the terms of the merger agreement, without waiver,
</FONT>

<P align="center"><FONT size="2">19
</FONT>

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<DIV align="left">
<FONT size="2">amendment, or modification of any material term,
condition or agreement contained in the merger agreement, and
that in the course of obtaining any necessary regulatory and
third party approvals and consents for the merger, no delay,
limitation, restriction or condition would be imposed that would
have an adverse effect on the contemplated benefits of the
merger.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Credit Suisse First Boston was not requested to
make, and did not make, an independent evaluation or appraisal
of the assets or liabilities, contingent or otherwise, of the
Company, and Credit Suisse First Boston was not furnished with
any such evaluations or appraisals. Although Credit Suisse First
Boston evaluated the merger consideration from a financial point
of view, Credit Suisse First Boston was not requested to, and it
did not, recommend the specific consideration to be received in
the merger, which consideration was determined between the
special committee, on the one hand, and Barnes &#38; Noble, on
the other hand. Credit Suisse First Boston&#146;s opinion was
necessarily based on information available to it and financial,
economic, market and other conditions as they exist and can be
evaluated on the date of its opinion. Credit Suisse First Boston
was not requested to, and it did not, solicit third party
indications of interest in acquiring all or any part of the
Company. Credit Suisse First Boston&#146;s opinion did not
address the relative merits of the merger as compared to other
transactions or business strategies that may be available to the
Company, and it did not address the underlying business decision
of the Company to proceed with the merger. Although subsequent
developments may affect its opinion, Credit Suisse First Boston
does not have any obligation to update, revise or reaffirm its
opinion. No other limitations were imposed on Credit Suisse
First Boston with respect to the investigations made or
procedures followed by Credit Suisse First Boston in rendering
its opinion.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In preparing its opinion to the special
committee, Credit Suisse First Boston performed a variety of
financial and comparative analyses, including those described
below. The summary of Credit Suisse First Boston&#146;s analyses
described below is not a complete description of the analyses
underlying Credit Suisse First Boston&#146;s opinion. The
preparation of a fairness opinion is a complex process involving
various determinations as to the most appropriate and relevant
methods of financial analysis and the application of those
methods to the particular circumstances and, therefore, a
fairness opinion is not readily susceptible to partial analysis
or summary description. In arriving at its opinion, Credit
Suisse First Boston made qualitative judgments as to the
significance and relevance of each analysis and factor that it
considered. Accordingly, Credit Suisse First Boston believes
that its analyses must be considered as a whole and that
selecting portions of its analyses and factors or focusing on
information presented in tabular format, without considering all
analyses and factors or the narrative description of the
analyses, could create a misleading or incomplete view of the
processes underlying its analyses and opinion.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In its analyses, Credit Suisse First Boston
considered industry performance, general business, economic,
market and financial conditions and other matters, many of which
are beyond the control of the Company. No company, transaction
or business used in Credit Suisse First Boston&#146;s analyses
as a comparison is identical to the Company or the proposed
merger, and an evaluation of the results of those analyses is
not entirely mathematical. Rather, the analyses involve complex
considerations and judgments concerning financial and operating
characteristics and other factors that could affect the
acquisition, public trading or other values of the companies,
business segments or transactions analyzed. The estimates
contained in Credit Suisse First Boston&#146;s analyses and the
ranges of valuations resulting from any particular analysis are
not necessarily indicative of actual values or predictive of
future results or values, which may be significantly more or
less favorable than those suggested by the analyses. In
addition, analyses relating to the value of businesses or
securities do not purport to be appraisals or to reflect the
prices at which businesses or securities actually may be sold.
Accordingly, the estimates used in, and the results derived
from, Credit Suisse First Boston&#146;s analyses are inherently
subject to substantial uncertainty.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Credit Suisse First Boston&#146;s opinion and
financial analyses were only one of many factors considered by
the special committee in its evaluation of the proposed merger
and should not be viewed as determinative of the views of the
special committee or the Company&#146;s management with respect
to the merger or the merger consideration.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A copy of Credit Suisse First Boston&#146;s
written presentation to the special committee has been attached
as Exhibit&nbsp;(c)(2) to the Schedule&nbsp;13E-3 filed with the
Securities and Exchange Commission in connection with
</FONT>

<P align="center"><FONT size="2">20
</FONT>

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<DIV align="left">
<FONT size="2">the merger and the summary described below is
qualified by reference to this Exhibit. Credit Suisse First
Boston&#146;s written presentation will be available for
inspection and copying at the Company&#146;s principal executive
offices during regular business hours by any interested
stockholder or any representative of the stockholder who has
been so designated in writing and may be inspected and copied at
the office of, and obtained by mail from, the Securities and
Exchange Commission.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following is a summary of the material
financial analyses underlying Credit Suisse First Boston&#146;s
opinion dated January&nbsp;8, 2004 delivered to the special
committee in connection with the merger. <B>The financial
analyses summarized below include information presented in
tabular format. In order to fully understand Credit Suisse First
Boston&#146;s financial analyses, the tables must be read
together with the text of each summary. The tables alone do not
constitute a complete description of the financial analyses.
Considering the data in the tables below without considering the
full narrative description of the financial analyses, including
the methodologies and assumption underlying the analyses, could
create a misleading or incomplete view of Credit Suisse First
Boston&#146;s financial analyses.</B>
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Stock Trading History</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Credit Suisse First Boston analyzed the prices at
which the Company&#146;s common stock traded during the period
from January&nbsp;6, 2003 through January&nbsp;6, 2004. Credit
Suisse First Boston noted that the merger consideration of $3.05
per share was higher than the highest closing price of the
Company&#146;s common stock during this period and represented:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">a 5.2% premium to the closing price of the
    Company&#146;s common stock on January&nbsp;6, 2004;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">a 35.6% premium to the closing price of the
    Company&#146;s common stock on November&nbsp;6, 2003, which was
    the last trading day prior to Barnes&nbsp;&#38; Noble&#146;s
    public announcement of its offer to acquire all of the
    Company&#146;s outstanding common stock that it did not already
    own; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">an 8.9% premium to the price that
    Barnes&nbsp;&#38; Noble paid on July&nbsp;29, 2003 to acquire
    all of Bertelsmann&#146;s interest in the Company and
    B&#38;N.com.
    </FONT></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Discounted Cash Flow Analysis</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Credit Suisse First Boston performed a discounted
cash flow analysis of the Company to calculate the estimated
present value of the stand-alone, unlevered, after-tax free cash
flows that the Company could generate over calendar years 2004
through 2008 based on three scenarios:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">a management case, which was based on internal
    estimates of the Company&#146;s management for calendar years
    2003 through 2006 and extrapolated for calendar years 2007
    through 2008 based on guidance from the Company&#146;s
    management;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">an increased competition case, which was a
    sensitivity case that included adjustments to the management
    case estimates based on guidance from the Company&#146;s
    management, reflecting negative sales growth and lower gross
    margins in calendar years 2004 and 2005, and higher promotional
    and marketing spending; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">a growth case, which was a sensitivity case that
    included adjustments to the management case estimates based on
    guidance from the Company&#146;s management, reflecting sales
    growth consistent with the total growth of the online book
    industry, higher gross margins, and higher marketing,
    merchandising and customer service spending.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Credit Suisse First Boston applied a range of
earnings before interest, taxes, depreciation and amortization,
commonly referred to as EBITDA, terminal value multiples of
12.0x to 16.0x to the Company&#146;s calendar year 2008
estimated EBITDA. The present value of the cash flows and
terminal values were calculated using
</FONT>

<P align="center"><FONT size="2">21
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">discount rates ranging from 15% to 20%. This
analysis indicated the following implied values per share of the
Company&#146;s common stock, as compared to the merger
consideration:
</FONT>
</DIV>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="11%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="11%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="11%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="13%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="12%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Implied Values Per Share of the Company&#146;s Common Stock</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Merger Consideration</FONT></B></TD>
</TR>

<TR>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Increased</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Management Case</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Competition Case</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Growth Case</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">$1.49 to $2.13</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">0.40 to $0.47</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">3.03 to $4.49</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">3.05</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Comparable
Companies Analysis</I></FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Using publicly available information, Credit
Suisse First Boston reviewed the market values and trading
multiples of the following publicly traded companies in the
e-commerce and book/video/music retail industries:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="45%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="52%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">E-commerce</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Book/Video/Music Retailers</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <FONT size="2">&#149;&nbsp;Amazon.com, Inc.<BR>
    &#149;&nbsp;drugstore.com, inc<BR>
    &#149;&nbsp;eBay Inc.<BR>
    &#149;&nbsp;InterActiveCorp<BR>
    &#149;&nbsp;Netflix, Inc.<BR>
    &#149;&nbsp;1-800-FLOWERS.COM, Inc.<BR>
    &#149;&nbsp;Overstock.com, Inc.<BR>
    &#149;&nbsp;Priceline.com Incorporated
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">&#149;&nbsp;Barnes &#38; Noble<BR>
    &#149;&nbsp;Best Buy Co., Inc.<BR>
    &#149;&nbsp;Blockbuster, Inc.<BR>
    &#149;&nbsp;Borders Group, Inc.<BR>
    &#149;&nbsp;Circuit City Stores, Inc.<BR>
    &#149;&nbsp;Hollywood Entertainment Corporation
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Credit Suisse First Boston compared the
enterprise values, calculated as equity value plus total debt
and minority interests, less cash, of the Company and the
comparable companies, as a multiple of estimated revenues and
EBITDA for 2003 and 2004, as well as projected sales and
earnings growth rates and profitability measures of the Company
and the comparable companies. Credit Suisse First Boston then
applied a range of revenue multiples derived from its analysis
of the comparable companies from 0.50x to 1.25x to calendar year
2003 estimated revenue data of the Company. All multiples were
based on closing stock prices on January&nbsp;6, 2004. Estimated
financial data for the comparable companies were based on
publicly available research analysts&#146; estimates. Estimated
financial data for the Company were based on estimates of the
Company&#146;s management. This analysis indicated the following
implied values per share of the Company&#146;s common stock, as
compared to the merger consideration:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="56%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="41%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Implied Values Per Share of</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">the Company&#146;s Common Stock</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Merger Consideration</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">$1.51 to $3.36
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">$3.05
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">22
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Precedent
Transaction Analysis</I></FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Using publicly available information, Credit
Suisse First Boston reviewed purchase price multiples in the
following 16 selected transactions involving e-commerce
companies:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="45%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="52%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Acquiror</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Target</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <FONT size="2">&#149;&nbsp;Barnes &#38; Noble<BR>
    <BR>
    &#149;&nbsp;InterActiveCorp<BR>
    &#149;&nbsp;InterActiveCorp<BR>
    &#149;&nbsp;InterActiveCorp<BR>
    &#149;&nbsp;InterActiveCorp<BR>
    &#149;&nbsp;Credit Suisse First Boston, Inc.<BR>
    &#149;&nbsp;Vivendi<BR>
    &#149;&nbsp;Autobytel, Inc.<BR>
    &#149;&nbsp;General Electric Company<BR>
    &#149;&nbsp;Staples, Inc.<BR>
    &#149;&nbsp;The Walt Disney Company<BR>
    &#149;&nbsp;Vitamin Shoppe Industries Inc.<BR>
    &#149;&nbsp;barnesandnoble.com inc.<BR>
    &#149;&nbsp;Bertelsmann<BR>
    &#149;&nbsp;Webvan Group, Inc.<BR>
    &#149;&nbsp;CMGI, Inc.
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">&#149;&nbsp;Bertelsmann&#146;s Interest in the
    Company and<BR>&nbsp;&nbsp;B&#38;N.com<BR>
    &#149;&nbsp;Hotels.com<BR>
    &#149;&nbsp;Expedia, Inc. (2003)<BR>
    &#149;&nbsp;Ticketmaster<BR>
    &#149;&nbsp;Expedia, Inc. (2001)<BR>
    &#149;&nbsp;CSFBdirect<BR>
    &#149;&nbsp;MP3.com, Inc.<BR>
    &#149;&nbsp;Autoweb.com, Inc.<BR>
    &#149;&nbsp;NBC Internet, Inc.<BR>
    &#149;&nbsp;Staples.com<BR>
    &#149;&nbsp;The Walt Disney Internet Group<BR>
    &#149;&nbsp;VitaminShoppe.com<BR>
    &#149;&nbsp;Fatbrain.com, Inc.<BR>
    &#149;&nbsp;CDnow, Inc.<BR>
    &#149;&nbsp;HomeGrocer.com, Inc.<BR>
    &#149;&nbsp;uBid, Inc.
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Credit Suisse First Boston compared enterprise
value in each of the selected transactions as a multiple of the
target company&#146;s latest 12&nbsp;months revenues, EBITDA and
earnings before interest and taxes. Credit Suisse First Boston
then applied a range of revenue multiples derived from its
analysis of the selected transactions from 0.80x to 1.40x to
corresponding latest 12&nbsp;months revenue data of the Company.
All multiples for the selected transactions were based on
publicly available financial information. Estimated financial
data for the Company were based on internal estimates of the
Company&#146;s management. This analysis indicated the following
implied values per share of the Company&#146;s common stock, as
compared to the merger consideration:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="57%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="40%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Implied Values Per Share of</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">the Company&#146;s Common Stock</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Merger Consideration</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">$2.29 to $3.69
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">$3.05
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Minority Buy-out Premiums
    Analysis</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Using publicly available information, Credit
Suisse First Boston reviewed the premiums paid as a percentage
of the closing stock prices prior to the transaction
announcement date in minority buy-out transactions completed in
the United States between January&nbsp;1, 1998 and
December&nbsp;1, 2003 with transaction values greater than
$50&nbsp;million. This analysis showed the following:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="33%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Percentage of Shares Acquired</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">All</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Transactions</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">30-40%</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">20-30%</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Less than 20%</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Median Premium
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21.8</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16.8</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23.1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Average Premium
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26.8</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24.4</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27.1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28.5</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">High Premium
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">140.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">135.1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">104.7</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">140.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Low Premium
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(29.1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(29.1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.7</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11.6</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Credit Suisse First Boston then reviewed the
following implied per share purchase prices calculated using
premiums ranging from 10% to 30% based upon the closing price of
the Company&#146;s common stock on November&nbsp;6, 2003, which
was the last trading day prior to Barnes&nbsp;&#38; Noble&#146;s
public announcement of its offer
</FONT>

<P align="center"><FONT size="2">23
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">to acquire all of the Company&#146;s outstanding
common stock that it did not already own. This analysis showed
the following:
</FONT>
</DIV>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="55%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Closing Price of</FONT></B></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">the Company&#146;s</FONT></B></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">Indicative Premium</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Common Stock</FONT></B></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">on November 6, 2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">10.0%</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">15.0%</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">20.0%</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">25.0%</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">30.0%</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">$2.25</FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.48</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.59</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.70</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.81</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.93</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Other Factors</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Credit Suisse First Boston noted in its
presentation that Barnes&nbsp;&#38; Noble had identified the
following rationale for the proposed merger:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <I><FONT size="2">Governance and
    Trading.</FONT></I><FONT size="2"> Acquiring the public float of
    the Company would eliminate ongoing issues regarding:
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="1%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Continued corporate governance;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Affiliated party transactions; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Illiquid, micro-capitalization.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <I><FONT size="2">Tax Savings.</FONT></I></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="1%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Based on Barnes &#38; Noble&#146;s initial offer
    of $2.50 per share, carry forward and utilization of the
    Company&#146;s net operating losses (subject to Internal Revenue
    Code section 382 limitation) would result in tax savings having
    an estimated present value of approximately $20.4&nbsp;million,
    or $0.51 per share not already owned by Barnes&nbsp;&#38; Noble
    as of August&nbsp;8, 2003; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Barnes&nbsp;&#38; Noble would need to own only
    80% of the Company in order to realize these tax benefits.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <I><FONT size="2">Theoretical Savings.</FONT></I><FONT size="2">
    Barnes &#38; Noble noted the elimination of separate, redundant
    public company costs which were estimated to be approximately
    $2.5&nbsp;million, and the following other synergies that were
    not quantified:
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="1%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Revenue synergies;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Brand-enhancement synergies;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Marketing synergies; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Integration savings.
    </FONT></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Miscellaneous</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company has agreed to pay Credit Suisse First
Boston customary fees for its financial advisory services in
connection with the merger. The Company also has agreed to
reimburse Credit Suisse First Boston for its reasonable and
customary out-of-pocket expenses, including the reasonable fees
and expenses of its outside legal counsel and any other advisor
retained by Credit Suisse First Boston, and to indemnify Credit
Suisse First Boston and related parties against liabilities,
including liabilities under the federal securities laws, arising
out of its engagement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Credit Suisse First Boston and its affiliates in
the past have provided and may in the future provide investment
banking and other financial services to Barnes&nbsp;&#38; Noble,
unrelated to the merger, for which services Credit Suisse First
Boston and its affiliates have received, and expect to receive,
compensation. In the ordinary course of business, Credit Suisse
First Boston and its affiliates may actively trade the debt and
equity securities of both Barnes&nbsp;&#38; Noble and the
Company for their own accounts and for the accounts of customers
and, accordingly, may at any time hold long or short positions
in those securities.
</FONT>

<P align="center"><FONT size="2">24
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<!-- link2 "Our Financial Projections" -->

<P align="left">
<B><FONT size="2">Our Financial Projections</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We do not, as a matter of course, publicly
disclose financial forecasts. However, in connection with the
merger, we provided Credit Suisse First Boston the following
financial projections prepared by our management. These
projections were not prepared with a view towards public
disclosure or compliance with published guidelines of the
Securities and Exchange Commission, the guidelines established
by the American Institute of Certified Public Accountants for
Prospective Financial Information or generally accepted
accounting principles. Our certified public accountants have not
examined or compiled any of these projections or expressed any
conclusion or provided for any form of assurance with respect to
the projections and, accordingly, assume no responsibility for
them. These projections are not fact and should not be relied
upon as being indicative of future results. You are cautioned
not to place undue reliance on these projections.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">These projections below constitute
forward-looking statements and involve numerous risks and
uncertainties. While presented with numerical specificity, these
projections reflect numerous assumptions made by our management,
many of which are inherently uncertain and subject to change. In
addition, factors such as industry performance and general
business, economic, regulatory, market and financial conditions,
all of which are difficult to predict, may cause these
projections or the underlying assumptions to be inaccurate.
Accordingly, it is expected that there will be differences
between actual and projected results, and actual results may be
materially greater or less than those contained in the
projections. Neither the Company nor any of its affiliates,
advisors or representatives has made or makes any representation
to any person regarding the Company&#146;s ultimate performance
compared to the information contained in these projections.
Except to the extent required under applicable securities laws,
we do not intend to update or otherwise revise these projections
to reflect circumstances existing after the date when made or to
reflect the occurrence of future events even in the event any or
all of the assumptions underlying these projections are shown to
be in error.
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="58%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">Fiscal Year Ending December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2005</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2006</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">(Dollars in Millions)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Sales
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">424.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">446.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">464.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">487.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gross Profits
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">109.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">118.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">126.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating Expenses:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fulfillment &#38; Customer Service
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Sales &#38; Marketing &#38; Editorial
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Website &#38; Technology Development
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">General &#38; Administrative
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total Operating Expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">119.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">109.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">104.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">105.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">EBITDA
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(19.2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation &#38; Amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">EBIT
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(44.9</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(17.5</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net Interest Income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating Loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(44.7</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(17.4</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Capital Expenditures
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<!-- link2 "Position of the Barnes &#38; Noble Parties as to the Fairness of the Merger" -->

<P align="left">
<B><FONT size="2">Position of the Barnes &#38; Noble Parties as
to the Fairness of the Merger</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Under the rules of the Securities and Exchange
Commission, the Barnes&nbsp;&#38; Noble Parties are required to
express their belief as to the fairness of the proposed merger
to our unaffiliated stockholders. The Barnes &#38; Noble Parties
have considered the factors examined by the special committee
and our board of directors described in the sections of this
proxy statement entitled &#147;&#151;&nbsp;Reasons for the
Special Committee&#146;s Determination; Fairness of the
Merger&#148; and &#147;&#151;&nbsp;Reasons for our Board of
Directors&#146; Determination; Fairness of the Merger.&#148;
Based on these factors and certain other factors described
below, the Barnes&nbsp;&#38; Noble Parties believe that the
merger is both procedurally and substantively fair to our
unaffiliated stockholders. The Barnes&nbsp;&#38; Noble Parties
reached this
</FONT>

<P align="center"><FONT size="2">25
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">conclusion independent of Barnes&nbsp;&#38;
Noble&#146;s obligation, pursuant to a purchase agreement, to
pay Bertelsmann additional consideration if our stockholders
received more than $3.05 per share in cash in the merger.
Barnes&nbsp;&#38; Noble has agreed to cause B&#38;N Holding to
vote its approximately 96.3% voting interest in the Company in
favor of adoption of the merger agreement and the merger at the
special meeting.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The liquidation of our assets was not considered
by the Barnes &#38; Noble Parties to be a viable course of
action based on their interest in the Company continuing to
conduct its business as a subsidiary of Barnes&nbsp;&#38; Noble
and remain a component of Barnes&nbsp;&#38; Noble&#146;s overall
strategy. Therefore, no appraisal of liquidation value was
sought for purposes of valuing the consideration payable in the
merger.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Additionally, the Barnes &#38; Noble Parties
formed their belief that the merger is procedurally and
substantively fair to our unaffiliated stockholders based on,
among other things, the following factors:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the financial and other terms of the merger were
    determined through arm&#146;s-length negotiations between Barnes
    &#38; Noble and the special committee and its legal and
    financial advisors, all of which are unaffiliated with
    Barnes&nbsp;&#38; Noble;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">that the merger consideration is all cash, thus
    eliminating any uncertainties in valuing the consideration to be
    received by our stockholders;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">under Delaware law, our stockholders have the
    right to demand appraisal of their shares; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the relationship between the $3.05 merger
    consideration and recent market prices for our common stock,
    including: $3.05 per share in cash represented a 35.6% premium
    over the closing price on November&nbsp;6, 2003 (the last day of
    trading before public announcement of Barnes&nbsp;&#38;
    Noble&#146;s initial offer) and an 8.9% premium over the per
    share consideration paid by Barnes&nbsp;&#38; Noble to
    Bertelsmann in July 2003; and our common stock had not traded
    above $3.05 during the past three years.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Barnes&nbsp;&#38; Noble Parties have found it
impracticable to assign, nor did they assign, relative weight to
the individual factors considered in reaching their conclusion
as to fairness. The foregoing discussion of the information and
factors considered by the Barnes&nbsp;&#38; Noble Parties as to
the fairness of the merger includes the material factors
considered by the Barnes&nbsp;&#38; Noble Parties.
Barnes&nbsp;&#38; Noble&#146;s views as to the fairness of the
merger to our unaffiliated stockholders should not be construed
as a recommendation to any stockholder as to whether such
stockholder should vote in favor of the merger agreement and the
merger.
</FONT>

<!-- link2 "Purposes and Reasons for the Merger; Consideration of Alternatives; Structure of the Merger" -->

<P align="left">
<B><FONT size="2">Purposes and Reasons for the Merger;
Consideration of Alternatives; Structure of the Merger</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">The Company</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our purpose for engaging in the merger is to
enable our stockholders (other than Barnes&nbsp;&#38; Noble,
B&#38;N Holding and their respective subsidiaries) to receive
$3.05 per share in cash, without interest and less any
applicable withholding taxes, representing a substantial premium
to the market price of our common stock prior to
Barnes&nbsp;&#38; Noble&#146;s initial offer. In addition, the
merger provides our unaffiliated stockholders immediate
liquidity for their investment in the Company. Shares of our
common stock have been trading at a relatively low trading
volume. We believe that this is due to its relatively low market
capitalization and share price and the fact that the
Barnes&nbsp;&#38; Noble Parties hold a large portion of our
outstanding shares and we have not attracted meaningful analyst
coverage. The merger will provide our unaffiliated stockholders
with immediate liquidity at a specified price for their shares
without the usual transaction costs associated with open market
sales.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, we believe that obtaining $3.05 per
share in cash, without interest and less any applicable
withholding taxes, for our stockholders in the merger is
preferable to attempting to achieve a future price in excess of
that amount as an independent publicly traded company. As a
private company, we will not continue to incur significant
audit, legal and other costs and fees associated with remaining
a public company, which we estimate to be approximately
$2.5&nbsp;million. Similarly, our management will no longer be
required to continue to devote the significant time required to
comply with our public reporting obligations. We also believe
that it is unlikely that a third party would be willing to
consummate a superior offer with us given our relationship with
Barnes&nbsp;&#38; Noble and that during the course of the
special committee&#146;s negotiations with Barnes&nbsp;&#38;
Noble and
</FONT>

<P align="center"><FONT size="2">26
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">its representatives, Barnes&nbsp;&#38; Noble
indicated that it would not be willing to sell its shares of our
common stock in any proposed transaction.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We are undertaking the merger now primarily
because it presents the most viable alternative for the Company
at this time, the benefits of which may not be available to our
unaffiliated stockholders in the future, and for the reasons set
forth in the sections of this proxy statement entitled
&#147;&#151;&nbsp;Background of the Merger,&#148;
&#147;&#151;&nbsp;Recommendation of the Special Committee and
our Board of Directors,&#148; &#147;&#151;&nbsp;Reasons for the
Special Committee&#146;s Determination; Fairness of the
Merger&#148; and &#147;&#151;&nbsp;Reasons for our Board of
Directors&#146; Determination; Fairness of the Merger.&#148;
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">The Barnes&nbsp;&#38; Noble
    Parties</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The purpose of the Barnes&nbsp;&#38; Noble
Parties for engaging in the merger is to acquire all of the
shares of our common stock that they do not currently own,
terminate our status as a publicly traded company, and afford
our unaffiliated stockholders the opportunity to dispose of
their shares of our common stock for cash at a value that the
special committee and the respective boards of directors of
Barnes&nbsp;&#38; Noble and the Company have determined to be
fair to our unaffiliated stockholders.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">After analysis conducted by Barnes&nbsp;&#38;
Noble&#146;s management and an evaluation by the
Barnes&nbsp;&#38; Noble board of directors, together with its
financial advisor, Barnes&nbsp;&#38; Noble determined that the
benefits perceived at the time of our initial public offering
had significantly diminished and that the potential advantages
to Barnes&nbsp;&#38; Noble of repurchasing the shares of our
common stock held by our unaffiliated stockholders outweighed
the advantages of continuing to maintain the Company as a
separate publicly-traded entity. Barnes&nbsp;&#38; Noble
believes the advantages of a recombination of the two companies
currently include, but are not limited to, the following:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">elimination of separate and redundant costs,
    including audit and legal costs, and management&#146;s
    commitment of time and resources associated with the Company
    being a stand-alone public company subject to the reporting
    requirements under federal securities laws;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the ability of Barnes&nbsp;&#38; Noble to utilize
    our management team to the extent that it deems it advisable;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">enabling Barnes&nbsp;&#38; Noble to no longer
    provide the Company with pricing on inventory and services on
    favorable terms as required to provide under existing
    related-party agreements as more fully described in the section
    of this proxy statement entitled &#147;&#151;&nbsp;Certain
    Relationships and Related Transactions;&#148;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">with respect to new transactions and
    interactions, Barnes&nbsp;&#38; Noble will be free to deal with
    the Company without the necessity of involving the audit
    committees of the board of directors of both Barnes&nbsp;&#38;
    Noble and the Company and without the requirement of ensuring
    that these transactions occur on arms-length terms;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">a present value tax benefit to Barnes&nbsp;&#38;
    Noble estimated to be approximately $30&nbsp;million based on
    the estimated utilization of the Company&#146;s net operating
    losses and deductions for the Company&#146;s portion of
    B&#38;N.com&#146;s current operating losses; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">as the Company is expected to require additional
    capital requirements in the near future, facilitating
    Barnes&nbsp;&#38; Noble&#146;s ability to provide such capital
    support.
    </FONT></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Consideration of Alternatives</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Once Barnes&nbsp;&#38; Noble determined to
reintegrate the Company, Barnes&nbsp;&#38; Noble decided to
structure the transaction as a cash merger in order to provide a
prompt and orderly transfer of complete ownership of the Company
with reduced transaction costs and minimal risk that the
contemplated transaction will not be finalized. In choosing this
structure, Barnes&nbsp;&#38; Noble also considered the factors
described in the section of this proxy statement entitled
&#147;&#151;&nbsp;Position of the Barnes&nbsp;&#38; Noble
Parties as to the Fairness of the Merger&#148; as well as
various alternatives to the merger discussed below.
</FONT>

<P align="center"><FONT size="2">27
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Barnes&nbsp;&#38; Noble, together with its
financial advisor, considered alternatives to a cash merger.
Among the alternatives, Barnes&nbsp;&#38; Noble considered
issuing shares of Barnes&nbsp;&#38; Noble common stock in
exchange for the shares of our common stock that
Barnes&nbsp;&#38; Noble does not already own. However, given the
relatively small size of the transaction, Barnes&nbsp;&#38;
Noble&#146;s management did not believe that the substantial
time, costs and complexity of an exchange offer were justified.
Barnes&nbsp;&#38; Noble also determined that issuing stock
instead of paying cash would have a significantly greater
dilutive effect on Barnes&nbsp;&#38; Noble&#146;s stockholders.
Additionally, given Barnes&nbsp;&#38; Noble&#146;s substantial
size and capitalization, an exchange of Barnes&nbsp;&#38; Noble
common stock for shares of our common stock would not have
resulted in our stockholders retaining in any material way the
indirect benefits of ownership of the Company&#146;s business.
Furthermore, Barnes&nbsp;&#38; Noble has expressed that because
it paid cash to Bertelsmann in connection with its buy-out of
Bertelsmann&#146;s entire interest in the Company, the payment
of stock could be perceived as treating our unaffiliated
stockholders less favorably.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Additionally, Barnes&nbsp;&#38; Noble considered
a cash tender offer. However, Barnes&nbsp;&#38; Noble ultimately
determined that a merger was in the best interests of our
unaffiliated stockholders because, through the special
committee, they were indirectly afforded the opportunity to
negotiate the financial and other terms of the merger, which our
unaffiliated stockholders would not have been able to do in a
cash tender offer. This negotiation ultimately increased the
consideration payable by Barnes&nbsp;&#38; Noble in the merger
by 22% over the price that Barnes&nbsp;&#38; Noble initially
offered.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Due to the Company&#146;s additional working
capital requirements, Barnes&nbsp;&#38; Noble also considered
having the Company engage in a rights offering.
Barnes&nbsp;&#38; Noble did not consider this a preferable
alternative largely because it would have required a significant
additional investment in the Company without any of the benefits
that would be derived from the merger. However,
Barnes&nbsp;&#38; Noble has indicated to the Company that
Barnes&nbsp;&#38; Noble remains committed to providing interim
financing to the Company if the Company requires capital prior
to the consummation of the merger and, in the event that the
merger is not consummated, this interim financing would be taken
out by a rights offering that Barnes&nbsp;&#38; Noble would
underwrite at an appropriate discount to market.
</FONT>

<DIV>&nbsp;</DIV>

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    <TD width="3%"></TD>
    <TD width="97%"></TD>
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<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Structure of the Merger</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The transaction has been structured as a merger
of B&#38;N Acquisition with and into the Company in order to
permit the acquisition of the Company in a single step and the
preservation of our identity. The merger was structured as a
cash transaction because that was the consideration offered by
Barnes&nbsp;&#38; Noble in its proposal.
</FONT>

<!-- link2 "Presentations of Barnes &#38; Noble&#146;s Financial Advisor" -->

<P align="left">
<B><FONT size="2">Presentations of Barnes &#38; Noble&#146;s
Financial Advisor</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Presentation to the Barnes &#38; Noble
    Board of Directors</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Barnes &#38; Noble retained Citigroup as its
financial advisor in connection with the possible acquisition of
all of the shares of the Company not owned by Barnes &#38;
Noble, directly or indirectly. Barnes &#38; Noble and Citigroup
entered into a formal engagement agreement on October&nbsp;31,
2003. Citigroup is one of Barnes &#38; Noble&#146;s advisors for
financial advisory and financing services and other investment
banking services. In selecting Citigroup as its financial
advisor, Barnes &#38; Noble considered primarily
Citigroup&#146;s qualifications and knowledge of the business
affairs of Barnes &#38; Noble, as well as Citigroup&#146;s
performance in connection with Barnes &#38; Noble&#146;s
acquisition of Bertelsmann&#146;s entire interest in the Company
and the reputation of Citigroup as an internationally recognized
investment banking firm that has substantial experience in
transactions similar to the proposed merger. In connection with
Citigroup&#146;s services, Barnes &#38; Noble has agreed to pay
Citigroup customary fees.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At the request of Barnes &#38; Noble, Citigroup
made a presentation at a meeting of the board of directors of
Barnes &#38; Noble on November&nbsp;6, 2003. At this meeting,
Citigroup reviewed and discussed the following:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#149;&nbsp;The terms of Barnes&nbsp;&#38;
Noble&#146;s acquisition of Bertelsmann&#146;s entire interest
in the Company:
</FONT>
<P>

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<TR>
    <TD width="6%"></TD>
    <TD width="1%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the financial terms of the Bertelsmann
    transaction, showing that the $2.80 per share purchase price
    paid to Bertelsmann consisted of two components:
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="10%"></TD>
    <TD width="1%"></TD>
    <TD width="89%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">$1.87 per share for Bertelsmann&#146;s interest
    in the Company; and
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">28
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="10%"></TD>
    <TD width="1%"></TD>
    <TD width="89%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">$0.93 per share for the tax benefits that Barnes
    &#38; Noble would receive by acquiring Bertelsmann&#146;s entire
    interest in the Company
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="1%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the two components of the $0.93 tax benefit:
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="10%"></TD>
    <TD width="1%"></TD>
    <TD width="89%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">deduction of suspended partnership losses; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">amortization of step-up from Bertelsmann
    </FONT></TD>
</TR>

</TABLE>
<P>

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<TR>
    <TD width="6%"></TD>
    <TD width="1%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the additional consideration payable to
    Bertelsmann if the purchase price in the merger exceeded $3.05
    per share in cash.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#149;&nbsp;The strategic rationale of acquiring
the shares of the Company not already owned by Barnes&nbsp;&#38;
Noble, which included the following:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="1%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the potential synergies of the merger associated
    with eliminating redundant costs;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the potential tax benefits of the merger;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the potential benefits of streamlining corporate
    governance by the elimination of any potential conflict
    associated with affiliated party transactions; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">other than the tax benefits described below, the
    benefit of any potential synergies were not quantified.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#149;&nbsp;The approximate $0.57 per share tax
benefit to Barnes&nbsp;&#38; Noble in acquiring the shares of
the Company not already owned by Barnes &#38; Noble:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="1%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the two components of a hypothetical purchase
    price of $2.44 per share in the merger:
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="10%"></TD>
    <TD width="1%"></TD>
    <TD width="89%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">$1.87 per share for remaining shares of the
    Company (same base value as the Bertelsmann transaction); and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">$0.57 per share for the tax benefits that
    Barnes&nbsp;&#38; Noble would receive, based on the present
    value of the carry forward and utilization of the Company&#146;s
    net operating losses.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#149;&nbsp;Accretion/dilution to Barnes &#38;
Noble for the fiscal years ending February 2005 and 2006 at
different premia and with different forms of consideration (cash
vs. stock):
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="1%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">estimated on a preliminary basis that an all cash
    transaction would be ($0.04) to ($0.06) dilutive to Barnes &#38;
    Noble&#146;s earnings per share at purchase prices between $2.40
    and $3.20 per share. Calculated that $6 to $8&nbsp;million of
    pre-tax synergies would be required to achieve neutral EPS
    dilution; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">estimated on a preliminary basis that an all
    stock transaction would be ($0.10) and ($0.16) dilutive to
    Barnes &#38; Noble&#146;s earnings per share at purchase prices
    between $2.40 and $3.20 per share. Calculated that $15 to
    $22&nbsp;million of pre-tax synergies would be required to
    achieve neutral EPS dilution.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#149;&nbsp;Summarized the process of making a
proposal to the special committee, the Company retaining
independent legal and financial advisors, negotiating a fair
price with the special committee through its independent
advisors, filing a proxy statement and obtaining a vote of the
Company&#146;s stockholders.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">The full text of the presentation of Citigroup
to the Barnes &#38; Noble board of directors, dated
November&nbsp;6, 2003, has been attached as Exhibit (c)(3) to
the Schedule&nbsp;13E-3 filed with the Securities and Exchange
Commission in connection with the merger and is qualified in its
entirety by reference to this exhibit.</FONT></B>

<DIV>&nbsp;</DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Presentation to the Special
    Committee</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On November&nbsp;12, 2003, during a meeting of
the special committee, together with its legal and financial
advisors, and Barnes&nbsp;&#38; Noble&#146;s legal and financial
advisors, Citigroup made a presentation to the special
committee. At this meeting, Citigroup reviewed and discussed the
following:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#149;&nbsp;The key terms of the proposed
transaction as presented in the letter to the special committee
dated November&nbsp;7, 2003. See the section of this proxy
statement entitled &#147;&#151;&nbsp;Background of the
Merger&#148; for the full text of the letter.
</FONT>

<P align="center"><FONT size="2">29
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#149;&nbsp;The financial terms of
Barnes&nbsp;&#38; Noble&#146;s acquisition of Bertelsmann&#146;s
interest in the Company, showing that the $2.80 per share
purchase price paid to Bertelsmann consisted of two components:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="1%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">$1.87 per share for Bertelsmann&#146;s interest
    in the Company; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">$0.93 per share for the tax benefits that
    Barnes&nbsp;&#38; Noble would receive by acquiring
    Bertelsmann&#146;s entire interest in the Company.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#149;&nbsp;The two components of the $0.93 tax
benefit:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="1%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">deduction of suspended partnership losses; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">amortization of step-up of Bertelsmann.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#149;&nbsp;The additional consideration payable
to Bertelsmann if the purchase price in the merger exceeded
$3.05 per share in cash.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#149;&nbsp;The approximate $0.51 per share tax
benefit to Barnes&nbsp;&#38; Noble in acquiring the shares of
the Company not already owned by Barnes &#38; Noble, which
included the following:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="1%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the value of tax benefits differed from the tax
    benefit described in its presentation to the Barnes &#38; Noble
    board of directors due to:
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="10%"></TD>
    <TD width="1%"></TD>
    <TD width="89%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">use of a revised share count; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">use of proposed $2.50 per share purchase price as
    opposed to $2.80 per share purchase price
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="1%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the source of the $0.51 tax benefit based on the
    present value of the carry forward and utilization of the
    Company&#146;s net operating losses.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#149;&nbsp;A proposed purchase price of $2.50
for the shares of the Company not already owned by Barnes &#38;
Noble was calculated as follows:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="1%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">$1.87 per share for the shares of the Company not
    already owned by Barnes &#38; Noble (same base value as the
    Bertelsmann transaction);
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">$0.51 per share for the tax benefits;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">$0.63 premium to the implied $1.87 value for the
    shares of the Company not already owned by Barnes &#38; Noble;
    and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the $2.50 per share proposed purchase price
    represented a premium to:
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="10%"></TD>
    <TD width="1%"></TD>
    <TD width="89%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the Company&#146;s trading price of $2.25 per
    share as of November&nbsp;6, 2003;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the 30 prior trading days to November&nbsp;6,
    2003 of $2.45 per share;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the 60 prior trading days to November&nbsp;6,
    2003 of $2.20 per share; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the 90 prior trading days to November&nbsp;6,
    2003 of $2.34 per share.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#149;&nbsp;The strategic rationale of acquiring
the shares of the Company not already owned by Barnes &#38;
Noble, which included the following:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="1%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the potential synergies of the merger associated
    with eliminating redundant costs;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the potential tax benefits of the merger; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the potential benefits of streamlining corporate
    governance by the elimination of any potential conflict
    associated with affiliated party transactions.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">Other than the tax benefits described below, the
benefit of any potential synergies were not quantified.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#149;&nbsp;Comparable company trading multiples:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="1%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">reviewed the following firm values for the
    Company, Amazon.com, Inc., Borders Group, Inc. and Barnes &#38;
    Noble as multiples of calendar year 2003 estimated sales and
    EBITDA:
    </FONT></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="45%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">The Company</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amazon</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Borders</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Barnes&nbsp;&#38; Noble</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Firm Value / Sales
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.0x</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.8x</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.5x</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.4x</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Firm Value / EBITDA
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(23.5x</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">57.5x</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.9x</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.4x</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="1%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">indicated that the Company&#146;s fundamental
    operating performance and prospects in terms of growth and
    profitability were generally inferior to each of the comparables.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">30
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#149;&nbsp;Reviewed premiums paid in other
minority buyout transactions, which showed that:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="1%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">60.0% of minority buyouts with a shareholder vote
    were consummated at less than a 20% premium; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">47.1% of minority buyouts with a tender or
    exchange offer were consummated at less than a 20% premium.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">The full text of the presentation of Citigroup
to the special committee, dated November&nbsp;12, 2003, has been
attached as Exhibit (c)(4) to the Schedule 13E-3 filed with the
Securities and Exchange Commission in connection with the merger
and is qualified in its entirety by reference to this
exhibit.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Upon written request, you or your designated
representative may inspect and obtain copies of Citigroup&#146;s
presentations at the principal executive offices of
Barnes&nbsp;&#38; Noble, during regular business hours, and at
your own expense. To obtain a copy of either of the
presentations, contact Barnes&nbsp;&#38; Noble at 122&nbsp;Fifth
Avenue, New York, NY 10011 Attn.: Investor Relations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In preparing the presentations, Citigroup relied
upon the accuracy and completeness of all financial, accounting
and other information reviewed by it and assumed such accuracy
and completeness for purposes of the presentations. Citigroup
was not asked to make, and did not assume responsibility for
making, any independent evaluation or appraisal of the Company
or its assets and liabilities, and did not verify, and has not
assumed any responsibility for making any independent
verification of, the information Citigroup reviewed. Citigroup
was not asked to and has not delivered a fairness opinion to
Barnes &#38; Noble in connection with the merger.
</FONT>

<!-- link2 "Effects of the Merger" -->

<P align="left">
<B><FONT size="2">Effects of the Merger</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Pursuant to the merger agreement,
Barnes&nbsp;&#38; Noble will acquire the Company for $3.05 in
cash, without interest and less any applicable withholding
taxes, per share of our common stock (other than shares held by
Barnes&nbsp;&#38; Noble, B&#38;N Holding and their respective
subsidiaries and any shares with respect to which appraisal
rights have been properly perfected under Delaware law), through
the merger of its wholly owned subsidiary, B&#38;N Acquisition,
with and into the Company. At the closing of the merger, the
Company will be an indirect wholly owned subsidiary of
Barnes&nbsp;&#38; Noble and B&#38;N Acquisition will cease to
exist as a separate entity. As a result, the interest of
Barnes&nbsp;&#38; Noble and its subsidiaries in the
Company&#146;s net book value and net earnings will increase
from approximately 73% to 100%. This will constitute an
approximately $10&nbsp;million increase in Barnes&nbsp;&#38;
Noble&#146;s interest in our net book value and will entitle
Barnes&nbsp;&#38; Noble to all future income generated by the
Company&#146;s operations, if any, and any future increase in
the Company&#146;s value. Similarly, Barnes&nbsp;&#38; Noble
also will bear the risk of all losses generated by the
Company&#146;s operations and any decrease in the value of the
Company after the merger. As a result of the acquisition of
Bertelsmann&#146;s interest in the Company in September 2003,
whether or not the merger is consummated, the Company&#146;s
financial results are consolidated with those of
Barnes&nbsp;&#38; Noble, which will remain a public company
listed on the New York Stock Exchange.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As an additional consequence of the closing of
the merger, our shares of common stock will no longer be quoted
on the NASDAQ National Market or publicly traded or quoted on
any other securities exchange or market. Furthermore, the
registration of our common stock under the Exchange Act will be
terminated upon application to the Securities and Exchange
Commission after the merger. Termination of the registration of
our common stock under the Exchange Act will substantially
reduce the information required to be furnished by us to our
stockholders and would make certain provisions of the Exchange
Act no longer applicable to us. These include the short-swing
profit recovery provisions of Section&nbsp;16(b), the
requirement to furnish proxy statements in connection with
stockholders&#146; meetings under Section&nbsp;14(a) and the
related requirement to furnish an annual report to stockholders.
</FONT>

<!-- link2 "Plans for the Company" -->

<P align="left">
<B><FONT size="2">Plans for the Company</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">It is expected that, following the consummation
of the merger, the operations and business of the Company will
be conducted substantially as they are being conducted
currently. Except as otherwise described
</FONT>

<P align="center"><FONT size="2">31
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">in this proxy statement, or as may be effected in
connection with the reintegration of the operations of
Barnes&nbsp;&#38; Noble and the Company, Barnes&nbsp;&#38; Noble
has informed us that it has no current plans or proposals or
negotiations which relate to or would result in (i)&nbsp;an
extraordinary corporate transaction, such as a merger (other
than the merger), reorganization or liquidation involving the
Company; (ii)&nbsp;any purchase, sale or transfer of a material
amount of our assets; (iii)&nbsp;any material change in our
present dividend policy, indebtedness or capitalization (other
than a possible capital contribution prior to or following
consummation of the merger); (iv)&nbsp;any change in our
management or any change in any material term of the employment
contract of any of our executive officers; or (v)&nbsp;any other
material change in our business or structure. It is expected
that, following the consummation of the merger, our board of
directors will consist of Messrs.&nbsp;Leonard Riggio, Stephen
Riggio, Matthew Berdon and William Sheluck,&nbsp;Jr.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Notwithstanding the foregoing, Barnes&nbsp;&#38;
Noble has informed us that, following the consummation of the
merger, it expects to review the Company&#146;s assets,
corporate structure, capitalization, operations, properties,
policies, management and personnel to determine which changes
may be necessary to best organize and reintegrate the activities
of the Company and Barnes&nbsp;&#38; Noble.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If the merger is not completed because the
conditions to the merger are not satisfied or waived, we expect
that our current management will continue to operate our
business substantially as presently operated. However,
Barnes&nbsp;&#38; Noble has informed us that, if the merger is
not completed, it will re-evaluate the role of the Company
within Barnes&nbsp;&#38; Noble&#146;s overall corporate strategy.
</FONT>

<!-- link2 "Interests of Directors and Officers in the Merger" -->

<P align="left">
<B><FONT size="2">Interests of Directors and Officers in the
Merger</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In considering the recommendation of the special
committee to our board of directors and the recommendation of
our board of directors, you should be aware that some of our
directors and officers may have interests in the merger that may
be different from, or in addition to, yours as a stockholder
generally and may create potential conflicts of interests. These
interests are described below and in the section of this proxy
statement entitled &#147;PRINCIPAL STOCKHOLDERS&#148; and set
forth in Annex D to this proxy statement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our board of directors appointed the special
committee, consisting solely of independent directors who are
not officers, directors, or employees of Barnes&nbsp;&#38; Noble
or its affiliates or employed by us, to evaluate, negotiate and
recommend the merger agreement and to evaluate whether the
merger is in the best interests of our stockholders who are
unaffiliated with Barnes&nbsp;&#38; Noble and its affiliates.
The special committee was aware of these differing interests and
considered them, among other matters, in evaluating and
negotiating the merger agreement and the merger and in
recommending to our board of directors that the merger agreement
be adopted and the merger be approved. In addition, each of the
members of our board of directors was aware of these interests
and considered them, among other matters, in approving the
merger agreement and the merger.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Compensation of Members of the Special
    Committee</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Each of the members of the special committee will
be compensated for serving as a member of the special committee.
This compensation was authorized by our board of directors in
order to compensate the members of the special committee for the
significant additional time commitment that was required of them
in connection with fulfilling their duties and responsibilities
as members of the special committee. It is payable whether or
not the merger is completed. Each of Mr.&nbsp;Hessels and
Ms.&nbsp;Higgins has received or will receive $75,000 for their
service on the special committee. The members of the special
committee also will be reimbursed for their reasonable
out-of-pocket expenses related to his or her services on the
special committee. In addition, the Company agreed to indemnify
and hold harmless each member of the special committee with
respect to his or her service on, and any matter or transaction
considered by, the special committee to the fullest extent
authorized or permitted by law.
</FONT>

<P align="center"><FONT size="2">32
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Merger Consideration to be Received by
    Directors and Executive Officers</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As of March&nbsp;15, 2004, our directors and
executive officers beneficially owned, in the aggregate,
11,416,521&nbsp;shares of our common stock, or approximately
20.03% of the outstanding shares of our common stock.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our directors and executive officers hold, in the
aggregate, stock options to acquire approximately
8,672,084&nbsp;shares of our common stock. The merger agreement
provides that, immediately prior to the merger, all options,
whether or not vested, will be cashed out at a price equal to
the excess, if any, of the merger consideration over the per
share exercise price of each option, less any applicable
withholding taxes. All other options will be cancelled without
payment. Accordingly, our directors and executive officers will
be able to receive the same cash consideration for their options
as all of our other option holders.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Based upon the issued shares and outstanding
options to purchase shares beneficially owned by our directors
and executive officers (which includes shares not owned directly
by such directors and executive officers), the following are the
anticipated proceeds for our directors and executive officers
from the merger, less any applicable withholding taxes:
</FONT>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="82%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Name of Director or</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Merger</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Executive Officer</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Proceeds</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Leonard Riggio
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,144,033</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Stephen Riggio
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,272,400</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Marie J. Toulantis
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,887,300</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">David C. Willen
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">760,990</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Kevin M. Frain
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">757,340</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">David Gitow
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">806,575</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Daniel A. Blackman
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">618,728</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Michael N. Rosen
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">183,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Jan-Michiel Hessels
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Patricia Higgins
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">William F. Reilly
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">152,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<FONT size="2">For further information regarding the beneficial
ownership of our securities by our directors and executive
officers, see the section of this proxy statement entitled
&#147;PRINCIPAL STOCKHOLDERS.&#148;
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Employment and Other
    Agreements</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Barnes&nbsp;&#38; Noble agreed to assume or
guarantee payment of all our obligations under the employment
agreement with Marie&nbsp;J. Toulantis for her services as Chief
Executive Officer entered into as of October&nbsp;31, 2002 and
expiring on October&nbsp;31, 2005. The agreement provides for a
minimum annual salary of $600,000 and an annual bonus in
accordance with our annual bonus compensation plan established
by the compensation committee of our board of directors. The
employment agreement also provides for reimbursement for all
expenses incurred in the performance of her duties and
responsibilities under the employment agreement, a car
allowance, disability insurance and a severance arrangement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Barnes&nbsp;&#38; Noble also agreed to assume or
guarantee our obligations under B&#38;N.com&#146;s deferred
compensation plan which is a non-qualified plan, eligibility for
which is limited to &#147;eligible executives,&#148; who
include: (i)&nbsp;our employees who became B&#38;N.com employees
on November&nbsp;1, 1998 and were eligible to participate in the
Barnes&nbsp;&#38; Noble deferred compensation plan on
October&nbsp;31, 1998; and (ii)&nbsp;our employees whose base
salary for a calendar year exceeds $130,000. An eligible
executive may elect in each year he or she is an eligible
executive to defer no less than $5,000 and no more than 50% of
his or her base salary to a deferral account. The deferral
account of each eligible executive who elects to participate in
the deferred compensation plan is credited or debited with
investment earnings or losses based upon the performance of the
investment fund or index selected by the participant from among
alternatives selected by an administrative committee appointed
by the compensation committee of our board of directors.
</FONT>

<P align="center"><FONT size="2">33
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A participant is entitled to a distribution of
his or her deferral account upon retirement or following
termination of employment, as elected by the participant, but no
later than the beginning of the year in which the participant
would attain age 70&nbsp;1/2. A participant may elect whether to
receive the distribution in a lump sum or, at retirement, in
annual installments over not more than fifteen (15)&nbsp;years.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Indemnification; Directors&#146; and
    Officers&#146; Insurance</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Subject to certain limitations contained in the
merger agreement, for a period of at least six years following
the merger, Barnes&nbsp;&#38; Noble has agreed to indemnify and
hold harmless each of the present and former directors and
officers of the Company and B&#38;N.com against any and all
claims, losses, liabilities, damages, judgments, fines, fees,
costs or expenses in respect of any matters existing or
occurring at or prior to the effective time of the merger (to
the fullest extent permitted by applicable law and our amended
and restated certificate of incorporation or amended and
restated by-laws), or any other applicable indemnification
agreements.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Barnes&nbsp;&#38; Noble will provide, for a
six-year period, our current and former directors and officers
with an insurance policy that provides coverage for events
occurring at or prior to the effective time of the merger that
is no less favorable than our policy currently in place, or, if
substantially equivalent insurance coverage is unavailable, the
most advantageous insurance policy obtainable for an annual
premium equal to 300% of our annual premium currently in place
for such insurance; provided that, Barnes&nbsp;&#38; Noble shall
not be required to pay an annual premium for such policy in
excess of 300% of the annual premium currently in place for such
insurance. Alternatively, Barnes&nbsp;&#38; Noble may procure
&#147;tail insurance coverage&#148; to cover our current and
former directors and officers for events occurring at or prior
to the effective time of the merger, which coverage shall be no
less favorable than the existing directors&#146; and
officers&#146; insurance policy, and Barnes &#38; Noble will
maintain such coverage for a period of not less than six years
after the effective time of the merger.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, we entered into an indemnification
agreement with the members of the special committee in respect
of their service on the special committee.
</FONT>

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<P align="left">
<B><FONT size="2">Certain Relationships and Related
Transactions</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In the past, B&#38;N.com has entered into
agreements with Barnes&nbsp;&#38; Noble and its affiliates. We
believe that the transactions and agreements discussed below
(including renewals of any existing agreements) between
B&#38;N.com and its affiliates are at least as favorable to
B&#38;N.com as could be obtained from unaffiliated parties. The
numbers referred to below are in thousands.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Supply Agreement.</FONT></I><FONT size="2">
B&#38;N.com entered into a Supply Agreement, dated
October&nbsp;31, 1998, as amended, with Barnes&nbsp;&#38; Noble,
whereby Barnes&nbsp;&#38; Noble has agreed to supply inventory
to B&#38;N.com through Barnes&nbsp;&#38; Noble&#146;s
distribution facilities and purchasing departments. Pursuant to
the Supply Agreement, Barnes&nbsp;&#38; Noble charges
B&#38;N.com its actual cost to acquire the inventory plus any
incremental overhead incurred by Barnes&nbsp;&#38; Noble in
connection with providing such merchandise supply services.
B&#38;N.com purchased $114,172 and $106,167 from
Barnes&nbsp;&#38; Noble representing 35.0% and 34.0% of our
merchandise purchases for the years ended December&nbsp;31, 2003
and 2002, respectively. The charges for incremental overhead for
the years ended December&nbsp;31, 2003 and 2002 were $3,705 and
$2,519, respectively.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Services Agreement.</FONT></I><FONT size="2">
Under a Services Agreement, dated October&nbsp;31, 1998, as
amended, between B&#38;N.com and Barnes&nbsp;&#38; Noble,
B&#38;N.com receives various administrative services from
Barnes&nbsp;&#38; Noble, including, among other things, services
for payroll processing, benefits administration, insurance
(property and casualty, medical, dental and life) and tax
administration. In accordance with the terms of the Services
Agreement, B&#38;N.com reimburses Barnes&nbsp;&#38; Noble in an
amount equal to the third-party expenses it incurs to fund and
provide such services, plus any incremental internal costs.
B&#38;N.com was charged $1,990 and $3,491 for such services
during the years ended December&nbsp;31, 2003 and 2002,
respectively.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Calendar Club
Purchases.</FONT></I><FONT size="2"> B&#38;N.com purchased
merchandise directly from Calendar Club, L.L.C., a company
engaged in the wholesaling and retailing of calendars, in which
Barnes &#38; Noble owns a 73.9%
</FONT>

<P align="center"><FONT size="2">34
</FONT>

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<DIV align="left">
<FONT size="2">interest. B&#38;N.com&#146;s purchases from
Calendar Club, L.L.C. were $1,320 and $1,740 for the years ended
December&nbsp;31, 2003 and 2002, respectively.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">New Jersey Warehouse
Sublease.</FONT></I><FONT size="2"> B&#38;N.com subleases from
Barnes&nbsp;&#38; Noble approximately one-third of a 300,000
square foot warehouse facility located in New Jersey.
B&#38;N.com was charged by Barnes&nbsp;&#38; Noble $561 and $498
for such subleased space during the years ended
December&nbsp;31, 2003 and 2002, respectively. The amount paid
to Barnes &#38; Noble by B&#38;N.com approximates the cost per
square foot paid by Barnes&nbsp;&#38; Noble as tenant pursuant
to its lease of the space from an unaffiliated third party.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Music Supply and Database
Services.</FONT></I><FONT size="2"> Since 1999, B&#38;N.com has
used AEC&nbsp;One Stop Group, Inc., referred to as
&#147;AEC,&#148; as its main music supplier, and as one of its
suppliers of DVD/video. AEC is among the largest wholesale
distributors of music, videos and DVDs in the United States. AEC
also provides B&#38;N.com with a music, DVD and video product
database. Subsequent to the initial supply arrangement between
AEC and B&#38;N.com, AEC&#146;s parent corporation was acquired
by an investor group in which Leonard Riggio, Chairman of our
board of directors and B&#38;N.com, became a minority investor.
B&#38;N.com was charged by AEC $52,257 and $40,536 in connection
with this agreement for merchandise purchased during the years
ended December&nbsp;31, 2003 and 2002, respectively. In
addition, B&#38;N.com was charged by AEC $490 and $403 for
database services during the years ended December&nbsp;31, 2003
and 2002, respectively. At December&nbsp;31, 2003 and 2002,
$7,939 and $9,008, respectively, remained payable to AEC.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">License Agreements.</FONT></I><FONT size="2">
B&#38;N.com licenses the &#147;Barnes&nbsp;&#38; Noble&#148;
name under a royalty-free license agreement, dated
October&nbsp;31, 1998, as amended, between B&#38;N.com and
Barnes &#38; Noble College Bookstores, Inc., of which Leonard
Riggio is the principal stockholder. Pursuant to the license
agreement, we have been granted an exclusive license to use the
&#147;Barnes&nbsp;&#38; Noble&#148; name and trademark for the
purpose of selling books over the Internet (excluding sales of
college textbooks). Under a separate agreement dated as of
January 2001, between the Company and Textbooks.com, Inc., a
corporation owned by Leonard Riggio, B&#38;N.com was granted the
right to sell college textbooks over the Internet using the
&#147;Barnes&nbsp;&#38; Noble&#148; name. Pursuant to this
agreement, B&#38;N.com pays Textbooks.com, Inc. a royalty on
revenues (net of product returns, applicable sales tax and
excluding shipping and handling) realized by us from the sale of
books designated as textbooks. The term of the agreement is for
five years and renews annually for additional one-year periods
unless terminated 12&nbsp;months prior to the end of any given
term. For the years ended December&nbsp;31, 2003 and 2002, we
recorded royalty expense of $3,984 and $3,485, respectively,
under the terms of this agreement.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B&#38;N.com has a royalty-free non-exclusive
license, dated October&nbsp;31, 1998, as amended, from
Barnes&nbsp;&#38; Noble to use Barnes &#38; Noble&#146;s
database of book bibliographic data as well as certain software
applications.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Barnes&nbsp;&#38; Noble Membership
Program.</FONT></I><FONT size="2"> B&#38;N.com and Barnes &#38;
Noble commenced a marketing program in November 2000, whereby a
customer purchases a subscription to the Barnes &#38; Noble
Membership Program (formerly the &#147;Readers&#146;
Advantage<SUP>TM</SUP> card&#148;) for an annual membership fee
of $25.00 which is non-refundable after the first 30&nbsp;days
of the membership term. With this membership card, customers can
receive discounts of 10% on certain Barnes&nbsp;&#38; Noble
purchases and 5% on all B&#38;N.com purchases. B&#38;N.com and
Barnes&nbsp;&#38; Noble have agreed to share the expenses, net
of revenue from the sale of the cards, related to this program
in proportion to the discounts customers receive on purchases
with each company. B&#38;N.com&#146;s share of the card revenue
generated from this program for the years ended
December&nbsp;31, 2003 and 2002 were $2,691 and $1,359,
respectively.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Marketing Services
Agreement.</FONT></I><FONT size="2"> In 2002, B&#38;N.com
entered into an agreement with Marketing Services (Minnesota)
Corp., a wholly owned subsidiary of Barnes&nbsp;&#38; Noble, for
marketing services, which includes the issuance of gift cards.
Under this agreement, B&#38;N.com has received $10,568 and
$2,669 as of December&nbsp;31, 2003 and 2002, respectively, from
Marketing Services (Minnesota) Corp., which represents
reimbursement for gift card purchases made in a
Barnes&nbsp;&#38; Noble store and redeemed on the B&#38;N.com
web site.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Shipping and Handling
Agreements.</FONT></I><FONT size="2"> B&#38;N.com ships, through
its fulfillment centers, customer orders on behalf of
Barnes&nbsp;&#38; Noble to Barnes&nbsp;&#38; Noble retail stores
as well as to Barnes&nbsp;&#38; Noble customers&#146; homes.
B&#38;N.com charges Barnes&nbsp;&#38; Noble the costs associated
with such shipments plus any incremental overhead incurred by
B&#38;N.com to process these orders. For the years ended
December&nbsp;31, 2003 and 2002, B&#38;N.com
</FONT>

<P align="center"><FONT size="2">35
</FONT>

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<DIV align="left">
<FONT size="2">recorded $2,357 and $1,792, respectively, as a
reimbursement for shipping and handling from Barnes&nbsp;&#38;
Noble. In addition, during the year 2001, B&#38;N.com and
Barnes&nbsp;&#38; Noble entered into an agreement whereby
B&#38;N.com receives a commission on all items ordered by
customers at Barnes&nbsp;&#38; Noble stores and shipped directly
to customers&#146; homes by B&#38;N.com. Commissions for these
sales were recorded as revenue and amounted to $1,434 and $1,280
for the years ended December&nbsp;31, 2003 and 2002,
respectively.
</FONT>
</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Nevada Warehouse
Sublease.</FONT></I><B><FONT size="2">
</FONT></B><FONT size="2">Barnes&nbsp;&#38; Noble subleased
warehouse space from B&#38;N.com in Reno, Nevada. B&#38;N.com
charged Barnes&nbsp;&#38; Noble $500 for such subleased space in
the year ended December&nbsp;31, 2002. Additionally,
Barnes&nbsp;&#38; Noble reimbursed B&#38;N.com $6,186 for fixed
assets purchased on behalf of Barnes&nbsp;&#38; Noble for the
Reno warehouse. The equipment was sold to Barnes&nbsp;&#38;
Noble at its original cost. In January 2002, we determined it
could not effectively utilize the full capacity of its Reno,
Nevada distribution center. Accordingly, following approval by
our board of directors on January&nbsp;29, 2002, we agreed to
transfer the Reno warehouse lease and sell B&#38;N.com&#146;s
inventory located in Reno to Barnes&nbsp;&#38; Noble. Barnes
&#38; Noble purchased the inventory from B&#38;N.com at cost for
approximately $9,877. Barnes&nbsp;&#38; Noble&#146;s board of
directors also approved Barnes &#38; Noble&#146;s assumption of
the lease obligation and the hiring of all of the employees at
the Reno warehouse. The Reno lease assignment and the transfer
of the operations of the Reno warehouse to Barnes&nbsp;&#38;
Noble was completed in April 2002. In connection with the
transfer, B&#38;N.com agreed to pay one-half of the rent charged
for the warehouse through December&nbsp;31, 2002. B&#38;N.com
paid $943 in relation to these expenses for the year ended
December&nbsp;31, 2002.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Textbook Agreements.</FONT></I><FONT size="2">
In 2000, B&#38;N.com began purchasing new and used textbooks
directly from MBS Textbook Exchange, Inc., referred to as
&#147;MBS,&#148; a corporation majority-owned by Leonard Riggio
and one of the nation&#146;s largest wholesalers of college
textbooks. B&#38;N.com&#146;s total purchases for the years
ended December&nbsp;31, 2003 and 2002 were $13,829 and $17,223,
respectively. In addition, B&#38;N.com maintains a link on its
web site called &#147;Sell Your Textbooks&#148; which is hosted
by MBS and through which B&#38;N.com customers are able to sell
back used books purchased at B&#38;N.com directly to MBS.
B&#38;N.com is paid a commission based on the price paid by MBS
to the consumer. Total commissions received and recorded as
revenue for the years ended December&nbsp;31, 2003 and 2002 were
$75 and $58, respectively.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Strategic Relationship
Agreement.</FONT></I><FONT size="2"> Under a Strategic
Relationship Agreement, dated as of May&nbsp;1, 2001, between
B&#38;N.com and GameStop Corp., a majority owned subsidiary of
Barnes &#38; Noble, B&#38;N.com&#146;s web site refers customers
to the GameStop Corp. web site for purchases of video game
hardware, software and accessories and PC entertainment
software. GameStop Corp. pays B&#38;N.com a referral fee based
on its net sales revenue from certain eligible purchases made by
customers as a result of the redirection from the B&#38;N.com
web site. Either party may terminate the Strategic Relationship
Agreement on 60&nbsp;days&#146; notice. Commissions of $8 and
$65 were recorded as revenue in the years ended
December&nbsp;31, 2003 and 2002, respectively, under this
agreement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">enews, inc.</FONT></I><FONT size="2">
B&#38;N.com has an approximate 46.8% equity stake in enews,
inc., a company previously engaged in selling magazine
subscriptions on the Internet, and accounted for this investment
under the equity method. Substantially all of the balance of the
shares are owned by Barnes&nbsp;&#38; Noble. In July 2002, the
board of directors and the stockholders of enews, inc. approved
a liquidation plan. The implementation of the liquidation plan
was concluded by February&nbsp;29, 2004. Prior to the
implementation of the liquidation plan, B&#38;N.com fulfilled a
majority of orders for magazine subscriptions through enews,
inc. and recorded a commission on these sales. B&#38;N.com
recorded commissions of $909 for the year ended
December&nbsp;31, 2002 and was reimbursed $488 and $524,
respectively, for expenses incurred on behalf of enews, inc. for
the years ended December&nbsp;31, 2003 and 2002.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At December&nbsp;31, 2003 and 2002, $71,957 and
$48,261, respectively, remained payable to Barnes&nbsp;&#38;
Noble in connection with the transactions described above.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Michael&nbsp;N. Rosen, Secretary and a director
of the Company, also is a member of Bryan Cave LLP, outside
counsel to the Company and B&#38;N.com in connection with
matters unrelated to the proposed merger as well as to
Barnes&nbsp;&#38; Noble.
</FONT>

<P align="center"><FONT size="2">36
</FONT>

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<!-- link2 "Provisions for Unaffiliated Stockholders" -->

<P align="left">
<B><FONT size="2">Provisions for Unaffiliated
Stockholders</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In connection with the execution of the merger
agreement, we did not make any provisions to either grant
unaffiliated stockholders access to our corporate files or the
corporate files of any other party to the merger agreement or to
obtain counsel or appraisal services for our unaffiliated
stockholders at our expense or the expense of any other party to
the merger agreement.
</FONT>

<P align="center"><FONT size="2">37
</FONT>

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<P align="center">
<B><FONT size="2">THE MERGER</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following information describes the material
aspects of the merger. This description is qualified in its
entirety by reference to the annexes to this proxy statement,
including the merger agreement itself, which is attached to this
proxy statement as Annex&nbsp;A. You are encouraged to read
Annex&nbsp;A in its entirety. See also the section of this proxy
statement entitled &#147;THE MERGER AGREEMENT.&#148;
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<!-- link2 "Effective Time of the Merger" -->

<P align="left">
<B><FONT size="2">Effective Time of the Merger</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If all of the conditions to the merger are
satisfied or, to the extent permitted, waived, the merger will
be consummated and become effective at the time that a
certificate of merger is filed with the Secretary of State of
the State of Delaware or such later time as otherwise agreed by
us and Barnes&nbsp;&#38; Noble and provided in the certificate
of merger. If the conditions to the merger are satisfied or, to
the extent permitted, waived, we expect to complete the merger
as soon as practicable after the special meeting.
</FONT>

<!-- link2 "Payment of Merger Consideration and Surrender of Stock Certificates" -->

<P align="left">
<B><FONT size="2">Payment of Merger Consideration and Surrender
of Stock Certificates</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Prior to the effective time of the merger,
Barnes&nbsp;&#38; Noble will designate a bank or trust company
reasonably acceptable to us to act as exchange agent for the
purpose of making the cash payments provided by the merger
agreement. Immediately prior to the effective time,
Barnes&nbsp;&#38; Noble will deposit, or cause to be deposited,
with the exchange agent immediately available funds in an
aggregate amount necessary to pay the merger consideration to
our stockholders (other than Barnes&nbsp;&#38; Noble, B&#38;N
Holding and their respective subsidiaries). The exchange agent
will deliver to you your merger consideration according to the
procedure summarized below.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Promptly after the effective time of the merger
(but no later that than five business days after the effective
time), the exchange agent will mail to you a letter of
transmittal and instructions advising you of the effectiveness
of the merger and the procedure for surrendering to the exchange
agent your stock certificates in exchange for payment of the
merger consideration. Upon the surrender for cancellation to the
exchange agent of your stock certificates, together with a
letter of transmittal, duly executed and completed in accordance
with its instructions, and any other items specified by the
letter of transmittal, the exchange agent will pay to you your
merger consideration and your stock certificates will be
cancelled. Payments of merger consideration also will be reduced
by any applicable withholding taxes.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If your stock certificates have been lost, stolen
or destroyed, you may be required to deliver to the exchange
agent an affidavit of such loss, theft or destruction and, if
required by the surviving corporation, (i)&nbsp;an indemnity
bond in a reasonable amount that the surviving corporation deems
reasonably necessary as indemnity or (ii)&nbsp;enter into an
indemnity agreement reasonably satisfactory to the surviving
corporation to indemnify the surviving corporation, in order to
receive your merger consideration.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If the merger consideration, or any portion of
it, is to be paid to a person other than you, it will be a
condition to the payment of the merger consideration that your
stock certificates be properly endorsed or otherwise in proper
form for transfer and that you pay to the exchange agent any
transfer or other taxes required by reason of the transfer or
establish to our satisfaction that the taxes have been paid or
are not required to be paid. You should not forward your stock
certificates to the exchange agent without a letter of
transmittal, and you should not return your stock certificates
with the enclosed proxy.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At and after the effective time of the merger,
you will cease to have any rights as a stockholder of the
Company, except for the right to surrender your stock
certificates, according to the procedure described in the merger
agreement, in exchange for payment of the merger consideration,
without interest, less any applicable withholding taxes, or, if
you exercise your appraisal rights, the right to perfect your
right to receive payment for your shares under Delaware law.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At the effective time of the merger, our stock
ledger with respect to shares of our common stock that were
outstanding prior to the merger will be closed and no further
registration of transfers of these shares will be made.
</FONT>

<P align="center"><FONT size="2">38
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">After six months following the effective time of
the merger, the exchange agent will deliver to us all cash that
has not yet been distributed in payment of the merger
consideration, plus any accrued interest, and the exchange
agent&#146;s duties will terminate. Thereafter, you may
surrender your stock certificates to the surviving corporation
of the merger and receive the merger consideration, without
interest, less any applicable withholding taxes. Neither the
Barnes&nbsp;&#38; Noble Parties nor the Company will be liable
to you for any merger consideration delivered to a public
official under any applicable abandoned property, escheat or
similar law.
</FONT>

<!-- link2 "Risks that the Merger will not be Completed" -->

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<B><FONT size="2">Risks that the Merger will not be
Completed</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Completion of the merger is subject to various
risks, including, but not limited to, the following:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">that we will experience a business interruption,
    incident, occurrence or event that has a material adverse effect
    on us and B&#38;N.com, taken as a whole, that would permit
    Barnes&nbsp;&#38; Noble to terminate the merger agreement and
    abandon the merger;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">that the parties will not have performed in all
    material respects their obligations contained in the merger
    agreement before the closing date;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">that the representations and warranties made by
    the parties in the merger agreement will not be true and correct
    as of the closing of the merger in a manner which results in a
    closing condition not being satisfied; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">that a court of competent jurisdiction or an
    administrative, governmental or regulatory body or commission
    will have issued a final nonappealable injunction, order,
    decree, judgment or ruling, that permanently enjoins or
    otherwise prohibits the merger or that a statute, rule,
    regulation or order will have been enacted, entered or enforced
    which makes the consummation of the merger illegal or prevents
    or prohibits the merger.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As a result of various risks to the completion of
the merger, there can be no assurance that the merger will be
completed even if the requisite stockholder approval is obtained.
</FONT>

<!-- link2 "Merger Financing; Sources of Funds" -->

<P align="left">
<B><FONT size="2">Merger Financing; Sources of Funds</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Barnes&nbsp;&#38; Noble estimates that the amount
of funds required to fund the payment of the merger
consideration, including payment with respect of
&#147;in-the-money&#148; options, is approximately
$150&nbsp;million. Barnes&nbsp;&#38; Noble intends to obtain the
funds required to pay the merger consideration from cash flow
from operations and from its $500&nbsp;million revolving credit
facility, as amended, with Fleet National Bank as administrative
agent thereunder, and the banks party thereto, a copy of which,
including amendments thereto, are included as
Exhibits&nbsp;(b)(1), (b)(2), (b)(3) and&nbsp;(b)(4) to the
Schedule&nbsp;13E-3 filed with the Securities and Exchange
Commission. The credit facility permits borrowings at various
interest-rate options based on the prime rate or London
Interbank Offer Rate plus applicable margin depending upon the
level of Barnes&nbsp;&#38; Noble&#146;s fixed charge coverage
ratio. As of the date of this proxy statement, Barnes&nbsp;&#38;
Noble could borrow money under the credit facility at an
interest rate per annum equal to approximately 2.55% of the
outstanding principal amount borrowed. The credit facility
contains covenants, limitations and events of default typical of
credit facilities of its size and nature, including financial
covenants, which require Barnes&nbsp;&#38; Noble to meet, among
other things, leverage and fixed charge coverage ratios and
which limit capital expenditures. Negative covenants include
limitations on other indebtedness, liens, investments, mergers,
consolidations, sales or leases of assets, acquisitions,
distributions and dividends and other payments in respect of
capital stock, transactions with affiliates, and sale/leaseback
transactions. In the event that Barnes&nbsp;&#38; Noble defaults
on these financial covenants, all outstanding borrowings under
the credit facility may become immediately payable and no
further borrowings may be available. The credit facility is
secured by Barnes&nbsp;&#38; Noble&#146;s capital stock in its
subsidiaries, and by the accounts receivable and general
intangibles of Barnes&nbsp;&#38; Noble and its subsidiaries. The
credit facility expires on May&nbsp;22, 2006. Barnes&nbsp;&#38;
Noble does not anticipate the need for any alternative financing
arrangements and the merger is not subject to any financing
contingency. Barnes&nbsp;&#38; Noble anticipates that it will
pay off any amounts that it draws upon from its credit facility
with its funds from operations.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">39
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<!-- link2 "Certain U.S. Federal Income Tax Consequences" -->

<P align="left">
<B><FONT size="2">Certain U.S. Federal Income Tax
Consequences</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following is a summary of certain
U.S.&nbsp;federal income tax consequences of the merger relevant
to a stockholder whose shares of our common stock are converted
to cash in the merger. This summary is based on the Internal
Revenue Code of 1986, as amended, which is commonly referred to
as the Code, Treasury regulations issued thereunder, judicial
decisions and administrative rulings, each as in effect as of
the date hereof and all of which are subject to change, possibly
with retroactive effect. The summary is for general information
only and does not purport to address all of the tax consequences
that may be relevant to particular stockholders in light of
their personal circumstances. The summary applies only to our
stockholders who hold their shares of our common stock as
capital assets and may not apply to stockholders subject to
special rules under the Code, including, without limitation,
stockholders who acquired their shares of our common stock
pursuant to the exercise of employee stock options or other
compensation arrangements, stockholders who dissent and exercise
appraisal rights, partnerships or other entities treated as
partnerships or flow-through entities for U.S.&nbsp;federal
income tax purposes, retirement plans, insurance companies,
tax-exempt organizations, brokers, dealers, or traders in
securities, financial institutions, persons who hold the shares
of our common stock as part of a straddle, hedge, conversion
transaction or other integrated investment or persons that have
a functional currency other than the United States dollar. The
summary does not discuss the U.S.&nbsp;federal income tax
consequences to any stockholder who, for U.S.&nbsp;federal
income tax purposes, is a non-resident alien individual, foreign
corporation, foreign partnership or foreign trust or estate, and
does not address any state, local or foreign tax consequences of
the merger.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The receipt of cash for shares of our common
stock pursuant to the merger will be a taxable transaction for
U.S.&nbsp;federal income tax purposes. In general, a stockholder
who has shares of our common stock converted into cash pursuant
to the merger will recognize gain or loss for U.S.&nbsp;federal
income tax purposes equal to the difference, if any, between the
amount of cash received and the stockholder&#146;s adjusted tax
basis in the shares of our common stock converted into cash
pursuant to the merger. Gain or loss will be determined
separately for each block of shares of our common stock (i.e.,
shares acquired at the same cost in a single transaction),
converted into cash pursuant to the merger. Such gain or loss
generally will be capital gain or loss and generally will be
long-term capital gain or loss if the stockholder has held the
shares of our common stock for more than one&nbsp;(1)&nbsp;year.
Certain limitations apply to the use of capital losses.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Under the U.S.&nbsp;federal income tax laws,
backup withholding at the applicable rate may apply to cash
payments a stockholder receives pursuant to the merger unless
the stockholder (i)&nbsp;provides a correct taxpayer
identification number (which, for an individual stockholder, is
the stockholder&#146;s social security number) and any other
required information, or (ii)&nbsp;comes within certain other
exempt categories (for example, in certain circumstances, a
corporation) and, when required, demonstrates this fact, and
otherwise complies with the applicable requirements of the
backup withholding rules. Any amounts withheld generally will be
allowed as a credit against the stockholder&#146;s
U.S.&nbsp;federal income tax liability for the year.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Stockholders are urged to consult with their
own tax advisors as to the particular tax consequences to them
of the merger, including the applicability and effect of any
state, local, foreign or other tax laws, and changes in tax
laws.</FONT></B>

<!-- link2 "Litigation Relating to the Merger" -->

<P align="left">
<B><FONT size="2">Litigation Relating to the Merger</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Following the November&nbsp;7, 2003 announcement
of Barnes&nbsp;&#38; Noble&#146;s proposal to purchase all of
the outstanding shares of our common stock at a price of
$2.50&nbsp;per share in cash, fifteen substantially similar
putative class action lawsuits were filed by individual
stockholders of the Company against the Company, our directors
and Barnes&nbsp;&#38; Noble in the Delaware Court of Chancery.
The complaints in these actions, which purported to be brought
on behalf of all of our stockholders excluding the defendants
and their affiliates, generally alleged (i)&nbsp;breaches of
fiduciary duty by Barnes&nbsp;&#38; Noble and our directors,
(ii)&nbsp;that the consideration offered by Barnes&nbsp;&#38;
Noble was inadequate and constituted unfair dealing and
(iii)&nbsp;that Barnes&nbsp;&#38; Noble, as controlling
stockholder, breached its duty to our remaining stockholders by
acting to further its own interests at the expense of our
remaining stockholders. The complaints sought to enjoin the
proposal or, in the alternative, damages in an unspecified
amount and rescission in the event a merger occurred
</FONT>

<P align="center"><FONT size="2">40
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">pursuant to the proposal. The complaints were
eventually consolidated under the caption In re
BarnesandNoble.com, Inc. Shareholders Litigation, Consolidated
Civil Action No.&nbsp;042-N.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On January&nbsp;8, 2004, the parties executed a
Memorandum of Understanding reflecting the parties&#146;
agreement to settle the action. Pursuant to the terms of the
Memorandum of Understanding, the parties agreed in good faith to
execute as soon as practicable a Stipulation of Settlement
providing for, among other things, the release of all claims of
the plaintiffs and other members of the class against defendants
that were or could have been asserted in the action or in any
way arise out of or in connection with the merger. The
Stipulation of Settlement also is to expressly provide that the
defendants in the action deny that they have committed any
violation of law whatsoever and are entering into the
Stipulation of Settlement solely to eliminate the burden,
expense and distraction of further litigation and to permit the
merger to proceed as scheduled.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The parties subsequently agreed that
plaintiffs&#146; counsel will apply to the court for an award of
attorney&#146;s fees and costs in the amount of $600,000 and
that defendants will not object to a fee award up to that
amount. It was further agreed that defendants would pay or
reimburse the costs of mailing. The settlement is contingent
upon, among other things, court approval, the merger
consideration being $3.05&nbsp;per share in cash and
consummation of the merger.
</FONT>

<!-- link2 "Regulatory Matters" -->

<P align="left">
<B><FONT size="2">Regulatory Matters</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We do not believe that any material federal or
state regulatory approvals, filings or notices are required in
connection with the merger other than approvals, filings or
notices required under federal securities laws and the filing of
a certificate of merger with the Secretary of State of the State
of Delaware.
</FONT>

<!-- link2 "Accounting Treatment" -->

<P align="left">
<B><FONT size="2">Accounting Treatment</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The merger will be accounted for under the
purchase method of accounting under which the total
consideration paid in the merger will be allocated among the
Company&#146;s consolidated assets and liabilities based on the
fair values of the assets and liabilities assumed.
</FONT>

<!-- link2 "Estimated Fees and Expenses of the Merger" -->

<P align="left">
<B><FONT size="2">Estimated Fees and Expenses of the
Merger</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Whether or not the merger is completed, in
general, all fees and expenses incurred in connection with the
merger will be paid by the party incurring those fees and
expenses. The estimated total fees and expenses to be incurred
in connection with the merger are as follows:
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="84%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Legal fees and expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">850,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Investment banker fees and expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,400,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Special committee fees and expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">165,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounting fees
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">125,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Printing, proxy solicitation and mailing expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">440,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,980,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">These expenses will not reduce the merger
consideration to be received by our stockholders.
</FONT>

<!-- link2 "Appraisal Rights" -->

<P align="left">
<B><FONT size="2">Appraisal Rights</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Under Delaware law, if you do not wish to accept
the cash payment provided for in the merger agreement, you have
the right to dissent from the merger and to receive payment in
cash for the fair value of your shares of our common stock,
exclusive of any element of value arising from the
accomplishment or expectation of the merger. Stockholders
electing to exercise appraisal rights must comply with the
provisions of Section&nbsp;262 of the Delaware General
Corporation Law in order to perfect their rights. We will
require strict compliance with the statutory procedures.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following is intended as a brief summary of
the material provisions of the Delaware statutory procedures
required to be followed by a stockholder in order to dissent
from the merger and perfect appraisal
</FONT>

<P align="center"><FONT size="2">41
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">rights. <B>This summary, however, is not a
complete statement of all applicable requirements and is
qualified in its entirety by reference to Section&nbsp;262 of
the Delaware General Corporation Law, the full text of which is
set forth in Annex&nbsp;B to this proxy statement.</B>
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;262 requires that stockholders be
notified that appraisal rights will be available not less than
20&nbsp;days before the special meeting to vote on the merger. A
copy of Section&nbsp;262 must be included with such notice. This
proxy statement constitutes our notice to our stockholders of
the availability of appraisal rights in connection with the
merger in compliance with the requirements of Section&nbsp;262.
If you wish to consider exercising your appraisal rights, you
should carefully review the text of Section&nbsp;262 contained
in Annex&nbsp;B to this proxy statement since failure to timely
and properly comply with the requirements of Section&nbsp;262
will result in the loss of your appraisal rights under Delaware
law.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If you elect to demand appraisal of your shares
of our common stock, you must satisfy each of the following
conditions:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">You must deliver to us a written demand for
    appraisal of your shares of our common stock before the vote
    with respect to the merger is taken. This written demand for
    appraisal must be in addition to and separate from any proxy or
    vote abstaining from or voting against adoption of the merger
    agreement. Voting against or failing to vote for adoption of the
    merger agreement by itself does not constitute a demand for
    appraisal within the meaning of Section&nbsp;262.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">You must not vote in favor of adoption of the
    merger agreement. A vote in favor of the adoption of the merger
    agreement, by proxy or in person, will constitute a waiver of
    your appraisal rights in respect of the shares of our common
    stock so voted and will nullify any previously filed written
    demands for appraisal.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If you fail to comply with either of these
conditions and the merger is completed, you will be entitled to
receive the cash payment for your shares of our common stock as
provided for in the merger agreement, but you will have no
appraisal rights with respect to your shares of our common stock.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">All demands for appraisal should be addressed to
Vice President&nbsp;&#151; Legal Affairs at barnesandnoble.com
inc., 76&nbsp;Ninth Avenue, New York, New York&nbsp;10011,
before the vote on the merger is taken at the special meeting,
and should be executed by, or on behalf of, the record holder of
the shares of our common stock. The demand must reasonably
inform us of the identity of the stockholder and the intention
of the stockholder to demand appraisal of his, her or its shares
of our common stock.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">To be effective, a demand for appraisal by a
holder of our common stock must be made by, or in the name of,
such registered stockholder, fully and correctly, as the
stockholder&#146;s name appears on his or her stock
certificate(s) and cannot be made by the beneficial owner if he
or she does not also hold the shares of record. The beneficial
holder must, in such cases, have the registered owner submit the
required demand in respect of those shares.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If shares of our common stock are owned of record
in a fiduciary capacity, such as by a trustee, guardian or
custodian, execution of a demand for appraisal should be made in
that capacity; and if the shares of our common stock are owned
of record by more than one person, as in a joint tenancy or
tenancy in common, the demand should be executed by or for all
joint owners. An authorized agent, including an authorized agent
for two or more joint owners, may execute the demand for
appraisal for a stockholder of record; however, the agent must
identify the record owner or owners and expressly disclose the
fact that, in executing the demand, he or she is acting as agent
for the record owner. A record owner, such as a broker, who
holds shares of our common stock as a nominee for others, may
exercise his or her right of appraisal with respect to the
shares of our common stock held for one or more beneficial
owners, while not exercising this right for other beneficial
owners. In that case, the written demand should state the number
of shares of our common stock as to which appraisal is sought.
Where no number of shares is expressly mentioned, the demand
will be presumed to cover all shares held in the name of the
record owner.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If you hold your shares of our common stock in a
brokerage account or in other nominee form and you wish to
exercise appraisal rights, you should consult with your broker
or the other nominee to determine the appropriate procedures for
the making of a demand for appraisal by the nominee.
</FONT>

<P align="center"><FONT size="2">42
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Within 10&nbsp;days after the effective date of
the merger, we must give written notice that the merger has
become effective to each stockholder who has properly filed a
written demand for appraisal and who did not vote in favor of
the merger or consent to the merger. At any time within
60&nbsp;days after the effective date, any stockholder who has
demanded an appraisal has the right to withdraw the demand and
to accept the cash payment specified by the merger agreement for
his or her shares of our common stock. Within 120&nbsp;days
after the effective date, either we or any stockholder who has
complied with the requirements of Section&nbsp;262 may file a
petition in the Delaware Court of Chancery demanding a
determination of the fair value of the shares of our common
stock held by all stockholders entitled to appraisal. We have no
obligation to file such a petition in the event there are
dissenting stockholders. Accordingly, the failure of any
stockholder to file such a petition within the period specified
could nullify previously written demands for appraisal.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If a petition for appraisal is duly filed by a
stockholder and a copy of the petition is delivered to us, we
will then be obligated, within 20&nbsp;days after receiving
service of a copy of the petition, to provide the Delaware Court
of Chancery with a duly verified list containing the names and
addresses of all stockholders who have demanded an appraisal of
their shares of our common stock. After notice to dissenting
stockholders, the Delaware Court of Chancery is empowered to
conduct a hearing upon the petition, and to determine those
stockholders who have complied with Section&nbsp;262 and who
have become entitled to the appraisal rights provided thereby.
The Delaware Court of Chancery may require the stockholders who
have demanded payment for their shares to submit their
certificates representing shares of our common stock to the
Register in Chancery for notation thereon of the pendency of the
appraisal proceedings; and if any stockholder fails to comply
with that direction, the Delaware Court of Chancery may dismiss
the proceedings as to that stockholder.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">After determination of the stockholders entitled
to appraisal of their shares of our common stock, the Delaware
Court of Chancery will appraise the shares, determining their
fair value exclusive of any element of value arising from the
accomplishment or expectation of the merger, together with a
fair rate of interest. When the value is determined, the
Delaware Court of Chancery will direct the payment of such
value, with interest thereon accrued during the pendency of the
proceeding, if the Delaware Court of Chancery so determines, to
the stockholders entitled to receive the same, upon surrender by
such holders of the certificates representing those shares of
our common stock.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In determining fair value, the Delaware Court of
Chancery is required to take into account all relevant factors.
You should be aware that the fair value of your shares as
determined under Section&nbsp;262 could be more, the same or
less than the value that you are entitled to receive under the
terms of the merger agreement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Costs of the appraisal proceeding may be imposed
upon us and the stockholders participating in the appraisal
proceeding by the Delaware Court of Chancery as the Delaware
Court of Chancery deems equitable in the circumstances. Upon the
application of a stockholder, the Delaware Court of Chancery may
order all or a portion of the expenses incurred by any
stockholder in connection with the appraisal proceeding,
including, without limitation, reasonable attorneys&#146; fees
and the fees and expenses of experts, to be charged pro rata
against the value of all shares entitled to appraisal. Any
stockholder who had demanded appraisal rights will not, after
the effective date, be entitled to vote shares subject to that
demand for any purpose or to receive payments of dividends or
any other distribution with respect to those shares, other than
with respect to payment as of a record date prior to the
effective date; however, if no petition for appraisal is filed
within 120&nbsp;days after the effective date of the merger, or
if the stockholder delivers a written withdrawal of his or her
demand for appraisal and an acceptance of the merger within
60&nbsp;days after the effective date of the merger, then the
right of that stockholder to appraisal will cease and that
stockholder will be entitled to receive the cash payment for
his, her or its shares of our common stock pursuant to the
merger agreement. Any withdrawal of a demand for appraisal made
more than 60&nbsp;days after the effective date of the merger
may only be made with the written approval of the successor
corporation and must, to be effective, be made within
120&nbsp;days after the effective date.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">In view of the complexity of Section&nbsp;262,
stockholders who may wish to dissent from the merger and pursue
appraisal rights should consult their legal advisors.</FONT></B>

<P align="center"><FONT size="2">43
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<!-- link1 "THE SPECIAL MEETING" -->

<P align="center">
<B><FONT size="2">THE SPECIAL MEETING</FONT></B>

<!-- link2 "Date, Time and Place of the Special Meeting" -->

<P align="left">
<B><FONT size="2">Date, Time and Place of the Special
Meeting</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The special meeting of our stockholders will be
held on May&nbsp;27, 2004, at 10:00&nbsp;a.m. local time, at the
New York Marriott East Side, 525&nbsp;Lexington Avenue between
48th and 49th Streets, New York, New York. We mailed this proxy
statement and accompanying proxy card on or about May&nbsp;3,
2004, to all stockholders entitled to vote at the special
meeting.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<!-- link2 "Matters to be Considered at the Special Meeting" -->

<P align="left">
<B><FONT size="2">Matters to be Considered at the Special
Meeting</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At the special meeting, our stockholders will be
asked to:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">consider and vote upon a proposal to approve and
    adopt the merger agreement and the merger; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">transact such other matters as may properly come
    before the special meeting and/or any adjournment or
    postponement of the special meeting and any matters incidental
    thereto.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We do not expect a vote to be taken on any other
matters at the special meeting. However, if any other matters
are properly presented at the special meeting for consideration,
the holders of the proxies will have discretion to vote on these
matters in accordance with their best judgment.
</FONT>

<!-- link2 "Vote Required" -->

<P align="left">
<B><FONT size="2">Vote Required</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The affirmative vote of a majority of the voting
power of our outstanding common stock entitled to vote at the
special meeting is required to approve and adopt the merger
agreement and the merger. For this vote, abstentions and broker
non-votes, as well as shares that are not voted, will have the
same effect as a vote against approval and adoption of the
merger agreement and the merger. As of March&nbsp;15, 2004,
Barnes &#38; Noble controlled approximately 96.3% of the voting
power of our common stock and in the merger agreement committed
to vote its shares in favor of the merger agreement and the
merger. In addition, we anticipate that our directors and
executive officers who are stockholders of the Company and, as
of March&nbsp;15, 2004, held approximately 0.95% of the voting
power of our common stock will vote in favor of the merger.
</FONT>

<!-- link2 "Record Date, Voting Rights, Quorum and Revocability of Proxies" -->

<P align="left">
<B><FONT size="2">Record Date, Voting Rights, Quorum and
Revocability of Proxies</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our board of directors has fixed the close of
business on April&nbsp;23, 2004 as the record date for
determination of the holders of our shares entitled to notice of
and to vote at the special meeting. As of April&nbsp;23, 2004,
we had 52,478,325 shares outstanding.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Each holder of record of our Class&nbsp;A common
stock on the record date will be entitled to one vote for each
share held. The presence, in person or by proxy, of the holders
of shares having a majority of the voting power of our common
stock issued and outstanding and entitled to vote at the special
meeting is necessary to constitute a quorum for the transaction
of business at the special meeting.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">All votes will be tabulated by the inspector of
election appointed for the special meeting, who will separately
tabulate affirmative and negative votes, abstentions and broker
non-votes. Brokers who hold shares in street name for clients
typically have the authority to vote on &#147;routine&#148;
proposals when they have not received instructions from
beneficial owners. However, absent specific instructions from
the beneficial owner of the shares, brokers are not allowed to
exercise their voting discretion with respect to the approval
and adoption of non-routine matters, such as the merger
agreement and the merger; proxies submitted without a vote by
the brokers on these matters are referred to as broker
non-votes. Abstentions and broker non-votes are counted for
purposes of determining whether a quorum exists at the special
meeting.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Any person giving a proxy pursuant to this
solicitation has the power to revoke it at any time before it is
voted. It may be revoked by sending a written notice to the
Secretary of the Company at our executive offices located at
76&nbsp;Ninth Avenue, New York, New York&nbsp;10011, submitting
a duly executed proxy bearing a later date, voting by telephone
or via the Internet at a later date or attending the special
meeting and voting in person. Attendance at the special meeting
will not, by itself, revoke a proxy. Furthermore, if a
stockholder&#146;s
</FONT>

<P align="center"><FONT size="2">44
</FONT>

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<DIV align="left">
<FONT size="2">shares are held of record by a broker, bank or
other nominee and the stockholder wishes to vote at the meeting,
the stockholder must obtain from the record holder a proxy
issued in the stockholder&#146;s name.
</FONT>
</DIV>

<!-- link2 "Expenses of Proxy Solicitation" -->

<P align="left">
<B><FONT size="2">Expenses of Proxy Solicitation</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We will bear the entire cost of solicitation of
proxies, including preparation, assembly, printing and mailing
of this proxy statement, the proxy card and any additional
information furnished to stockholders. Copies of solicitation
materials will be furnished to banks, brokerage houses,
fiduciaries and custodians holding in their names shares of our
common stock beneficially owned by others to forward to these
beneficial owners. We may reimburse persons representing
beneficial owners of common stock for their costs of forwarding
solicitation materials to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by
telephone, telegram or personal solicitation by our directors,
officers or other regular employees. No additional compensation
will be paid to directors, officers or other regular employees
for their services.
</FONT>

<!-- link2 "Adjournments and Postponements" -->

<P align="left">
<B><FONT size="2">Adjournments and Postponements</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Although it is not expected, the special meeting
may be adjourned or postponed. Any adjournment or postponement
of the special meeting may be made without notice, other than by
an announcement made at the special meeting, by approval of the
holders of shares of our common stock having a majority of the
voting power of our common stock present in person or
represented by proxy at the special meeting, whether or not a
quorum exists.
</FONT>

<!-- link2 "Exchanging Stock Certificates" -->

<P align="left">
<B><FONT size="2">Exchanging Stock Certificates</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Please do not send in stock certificates at this
time. In the event the merger is completed, instructions
regarding the procedures for exchanging your stock certificates
for the $3.05&nbsp;per share cash payment, without interest and
less any applicable withholding taxes, will be sent to you.
</FONT>

<P align="center"><FONT size="2">45
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<!-- link1 "THE MERGER AGREEMENT" -->

<P align="center">
<B><FONT size="2">THE MERGER AGREEMENT</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On January&nbsp;8, 2004, the Company,
Barnes&nbsp;&#38; Noble, B&#38;N Holding and B&#38;N Acquisition
entered into an Agreement and Plan of Merger, or the merger
agreement. The following is a summary of certain terms of the
merger agreement and the merger and is qualified by reference to
the complete text of the merger agreement, which is included as
Annex&nbsp;A. You are encouraged to read the entire merger
agreement.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<!-- link2 "Effective Time of the Merger" -->

<P align="left">
<B><FONT size="2">Effective Time of the Merger</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The merger will become effective upon the filing
of a certificate of merger with the Secretary of State of the
State of Delaware in accordance with Delaware law. We refer to
the effective time of the merger in this proxy statement as the
effective time. The filing is expected to occur as soon as
practicable after all of the conditions set forth in the merger
agreement have been satisfied or waived.
</FONT>

<!-- link2 "The Merger" -->

<P align="left">
<B><FONT size="2">The Merger</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At the effective time, B&#38;N Acquisition will
be merged with and into the Company, with the Company surviving
as a wholly owned subsidiary of B&#38;N Holding, and the
separate existence of B&#38;N Acquisition will cease. We
sometimes refer to the Company following the completion of the
merger as the surviving corporation. At the effective time, the
amended and restated certificate of incorporation of the
surviving corporation will be amended in accordance with the
form agreed to among the parties to the merger agreement and the
by-laws of B&#38;N Acquisition as in effect immediately prior to
the effective time will be the by-laws of the surviving
corporation.
</FONT>

<!-- link2 "Merger Consideration" -->

<P align="left">
<B><FONT size="2">Merger Consideration</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The merger agreement provides that each share of
our common stock outstanding immediately prior to the completion
of the merger (other than shares held by Barnes &#38; Noble,
B&#38;N Holding and their respective subsidiaries and shares as
to which appraisal rights have been properly exercised), will,
at the completion of the merger, be converted into the right to
receive $3.05&nbsp;per share in cash, without interest and less
any applicable withholding taxes.
</FONT>

<!-- link2 "Stock Options" -->

<P align="left">
<B><FONT size="2">Stock Options</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The merger agreement provides that upon the
completion of the merger, all outstanding options to purchase
shares of our common stock, whether vested or unvested, will be
converted into the right to receive an amount in cash equal to
the product of the number of shares of our common stock subject
to such option multiplied by the excess, if any, of the merger
consideration over the exercise price per share of each such
option, and when so converted, will automatically be cancelled
and retired and will cease to exist.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">All of the options that we have granted contain
change of control provisions that will give rise to their
accelerated vesting by virtue of the merger.
</FONT>

<!-- link2 "Surrender of Certificates and Payment Procedures" -->

<P align="left">
<B><FONT size="2">Surrender of Certificates and Payment
Procedures</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Prior to the effective time, an exchange agent
will be appointed to handle the issuance of applicable merger
consideration to the holders of our common stock. Promptly after
the merger, the exchange agent will mail to you a letter of
transmittal and instructions explaining how to surrender your
stock certificates. If you surrender your certificates to the
exchange agent, together with a properly completed letter of
transmittal and all other documents the exchange agent may
reasonably require, you will receive the appropriate merger
consideration, subject to any required withholding taxes. Until
surrendered in accordance with the foregoing instructions, each
certificate formerly representing our shares, other than shares
as to which appraisal rights have been properly exercised, will
only represent the right to receive the applicable merger
consideration. No interest will be paid or will accrue on the
merger consideration payable.
</FONT>

<P align="center"><FONT size="2">46
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At the completion of the merger, our stock
transfer book will be closed and there will be no further
registration of transfers of our shares. If certificates of
shares are presented after the completion of the merger, they
will be cancelled and exchanged for the right to receive the
merger consideration.
</FONT>

<!-- link2 "Representations and Warranties" -->

<P align="left">
<B><FONT size="2">Representations and Warranties</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have made certain representations and
warranties to the Barnes &#38; Noble Parties, subject to
disclosure schedules, documents filed with the Securities and
Exchange Commission and certain materiality thresholds. These
include representations and warranties as to:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="3%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">organization, standing and power;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">capitalization;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">interests in other entities;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">authority to execute, deliver and perform the
    merger agreement;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">no violation of charter documents, material
    agreements or law in connection with the merger;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">opinion of a financial advisor and approval by
    the special committee;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">absence of certain brokerage fees or commissions;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">absence of material misstatements and omissions
    in this proxy statement or Schedule&nbsp;13E-3 transaction
    statement;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Securities and Exchange Commission regulatory
    compliances, financial statements and the absence of material
    misstatements and omissions in such documents;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">absence of certain changes or events;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">absence of undisclosed material liabilities;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">no violation of law;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">absence of litigation and claims; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">employee arrangements.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Barnes&nbsp;&#38; Noble Parties have made
certain representations and warranties to us, subject to certain
materiality thresholds. These include representations and
warranties as to:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="3%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">organization, standing and power;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">authority to execute, deliver and perform the
    merger agreement;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">no violation of charter documents, material
    agreements or law in connection with the merger;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">absence of certain brokerage fees or commissions;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">absence of material misstatements or omissions in
    information supplied by the Barnes&nbsp;&#38; Noble Parties for
    inclusion in this proxy statement or Schedule&nbsp;13E-3
    transaction statement; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">absence of knowledge of any facts or
    circumstances which would cause our representations and
    warranties described above to be materially untrue or incorrect.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The representations and warranties contained in
the merger agreement will not survive the merger, but they form
the basis of specified conditions to the obligations of the
Company and the Barnes &#38; Noble Parties to complete the
merger.
</FONT>

<P align="center"><FONT size="2">47
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<!-- link2 "Covenants" -->

<P align="left">
<B><FONT size="2">Covenants</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Conduct of Business</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Until the completion of the merger, we and
B&#38;N.com have agreed to continue conducting our businesses in
the ordinary and usual course of business consistent with past
practices. Moreover, until the completion of the merger, we and
B&#38;N.com may not, without the prior written consent of
Barnes&nbsp;&#38; Noble:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="3%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">declare, set aside or pay any dividends on or
    make any other distributions in respect of, or split, combine,
    reclassify, issue or authorize or propose the issuance of, or
    repurchase, redeem or otherwise acquire, any shares of its
    capital stock or membership units;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">issue, pledge, encumber or sell or authorize the
    issuance, pledge, encumbrance or sale of, or purchase or propose
    to purchase, any shares of its capital stock or membership units
    or securities convertible into, or rights, warrants or options
    to acquire, any such shares of capital stock or membership units
    or other convertible securities, other than in connection with
    the exercise of outstanding options or the exchange or
    conversion of membership units, authorize or propose any change
    in our equity capitalization or amend any of the economic terms
    of such securities;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">amend our amended and restated certificate of
    incorporation, amended and restated by-laws or other
    organizational documents;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">merge or consolidate with, or purchase any assets
    or capital stock of, another entity, except in the ordinary
    course of business;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">incur or guarantee any indebtedness for borrowed
    money, except pursuant to any current agreements or in the
    ordinary course of business;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">make or authorize any capital expenditures, other
    than capital expenditures that are in the aggregate no greater
    than (i)&nbsp;$5.0&nbsp;million from the date of the merger
    agreement through March&nbsp;31, 2004 and
    (ii)&nbsp;$10.0&nbsp;million from the date of the merger
    agreement through July&nbsp;15, 2004;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">except as may be required by applicable law or
    U.S.&nbsp;generally accepted accounting procedures, change any
    method, practice or principle of accounting;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">enter into any new employment agreements with, or
    increase the compensation of, any of our officers (vice
    president or above) or directors or those of B&#38;N.com, other
    than as required by law or written agreements in effect on or
    prior to the date of the merger agreement, or otherwise amend in
    any material respect any existing agreements with any such
    person or use its discretion to amend any employee benefits plan
    or accelerate the vesting or any payment under any such plans;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">enter into any transaction with any of our
    officers (vice president or above) or directors or those of
    B&#38;N.com, other than as provided for in the terms of any
    agreement in effect on or prior to the date of the merger
    agreement;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">settle or compromise certain material litigation,
    arbitration or other judicial or administrative dispute or
    proceeding relating to either us or B&#38;N.com; or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">enter into any agreement to, or make any
    commitment to, take any of the preceding actions.
    </FONT></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Stockholders&#146; Meeting;
    Recommendation</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As promptly as practicable following the mailing
of this proxy statement to our stockholders, we will call and
hold a special meeting of our stockholders for the purpose of
voting upon the adoption and approval of the merger agreement
and the merger. At the special meeting, Barnes&nbsp;&#38; Noble
will cause B&#38;N Holding to vote all of its shares of our
common stock in favor of the adoption and approval of the merger
agreement and the merger. Neither our board of directors nor the
special committee may withdraw, qualify or modify its approval
or recommendation of the approval of the merger agreement in a
manner adverse to Barnes&nbsp;&#38; Noble unless: (i)&nbsp;we
receive an unsolicited bona fide acquisition proposal from a
third-party, we promptly (but in no event later than two
business days after receipt of the acquisition proposal) notify
Barnes &#38; Noble of the acquisition
</FONT>

<P align="center"><FONT size="2">48
</FONT>

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<DIV align="left">
<FONT size="2">proposal and the special committee determines in
good faith, after consultation with its legal and financial
advisors, that the acquisition proposal is more favorable to our
stockholders (other than Barnes&nbsp;&#38; Noble and its
affiliates) and is made by a third-party which is reasonably
able to finance the transaction contemplated by the proposal or
(ii)&nbsp;the special committee determines in good faith, after
consultation with its legal and financial advisors, that such
withdrawal, qualification or modification is necessary in order
for the special committee to comply with its fiduciary
obligations to our stockholders under applicable law.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Subject to our rights to terminate the merger
agreement described below under the section of this proxy
statement entitled &#147;&#151;&nbsp;Termination&#148; and
notwithstanding any withdrawal, qualification or modification by
our board of directors or the special committee of its
recommendation of the merger agreement, the merger agreement
must be submitted to our stockholders at a stockholder meeting
for the purpose of adopting the merger agreement.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Reasonable Efforts</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The parties to the merger agreement have agreed
to use their reasonable efforts to take all actions necessary or
advisable under applicable laws and regulations and to obtain
all necessary governmental or regulatory consents or approvals
necessary to complete the merger. Moreover, the parties have
agreed to cooperate with each other in connection with making
all necessary filings and submissions necessary to complete the
merger, including this proxy statement, and to take all
necessary action to deliver such other documents or instruments
as may be reasonably necessary to consummate the merger.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Company Indemnification
    Provisions</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Barnes &#38; Noble will cause the surviving
corporation to indemnify and hold harmless our current and
former directors and officers and those of B&#38;N.com and all
other persons who served at our request or the request of
B&#38;N.com as a director or officer of another entity for all
expenses and other amounts paid by reason of actions or
omissions or alleged actions or omissions existing or occurring
at or prior to the effective time of the merger to the fullest
extent permitted under applicable law and our amended and
restated certificate of incorporation or amended and restated
by-laws or other indemnification agreements, for a period of not
less than six years after the effective time of the merger.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Barnes &#38; Noble will further cause the
surviving corporation to purchase an insurance policy, including
run-off coverage, if necessary, consisting of directors&#146;
and officers&#146; liability insurance covering our current and
former directors and officers for events occurring at or prior
to the effective time, on terms and conditions that are no less
favorable than our policy currently in place, or, if
substantially equivalent insurance coverage is unavailable, the
most advantageous insurance policy obtainable for an annual
premium equal to 300% of our annual premium currently in place
for such insurance; provided, that, among other things, the
premium for such policy shall not exceed 300% of the last annual
premium paid prior to the date of the merger agreement for
directors&#146; and officers&#146; insurance currently in place.
Alternatively, Barnes &#38; Noble will be permitted to procure
&#147;tail insurance coverage&#148; to cover the Company&#146;s
current and former directors and officers for events occurring
at or prior to the effective time, which coverage shall be no
less favorable than the existing director and officer insurance
policy, and Barnes &#38; Noble shall maintain such coverage for
a period of not less than six years after the effective time of
the Merger.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Stockholder Litigation</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Each of the parties to the merger agreement will
give the other the reasonable opportunity to participate in the
defense of any stockholder litigation against any party or their
respective directors and officers, as applicable, relating to
the merger agreement and the transactions contemplated thereby.
</FONT>

<P align="center"><FONT size="2">49
</FONT>

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<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Additional Covenants Regarding the
    Merger</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition to the covenants of the merger
agreement described above, the merger agreement contains the
following additional covenants:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="3%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">the preparation and filing of this proxy
    statement and a Schedule&nbsp;13E-3 transaction statement;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">reasonable access by Barnes&nbsp;&#38; Noble to
    information concerning our operations;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">notification of certain events or communications
    among the parties to the merger agreement;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">subject to certain Securities and Exchange
    Commission disclosure requirements and applicable laws,
    consultation among the parties to the merger agreement prior to
    making any additional public announcements concerning the
    merger; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">the provision by Barnes &#38; Noble or the
    surviving corporation of employee benefits to our employees or
    those of B&#38;N.com and the assumption by Barnes&nbsp;&#38;
    Noble of all our obligations and those of B&#38;N.com under
    certain compensation plans and employment agreements.
    </FONT></TD>
</TR>

</TABLE>

<!-- link2 "Conditions to Completing the Merger" -->

<P align="left">
<B><FONT size="2">Conditions to Completing the Merger</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Conditions to Each Party&#146;s
    Obligations</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The obligations of each party to the merger
agreement to complete the merger are subject to the satisfaction
or waiver of the following conditions:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="3%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">absence of any temporary restraining order,
    preliminary or permanent injunction or other order issued by any
    court of competent jurisdiction or other legal restraint or
    prohibition preventing the consummation of the merger (each
    party agreeing to use its reasonable efforts to have any
    restraining order, injunction or other order or legal restraint
    or prohibition lifted), any proceeding brought by an
    administrative agency or commission or other governmental
    authority or instrumentality seeking any of the foregoing or any
    action taken, or any statute, rule, regulation or order (whether
    temporary, preliminary or permanent) enacted, entered or
    enforced, which makes the consummation of the merger illegal or
    prevents or prohibits the merger;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">the adoption of the merger agreement shall have
    been approved by the requisite vote of our stockholders in
    accordance with Delaware law; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">other than filing the certificate of merger with
    the Secretary of State of the State of Delaware, all material
    consents, approvals and authorizations of and filings with
    governmental entities required to be obtained in connection with
    the merger shall have been obtained.
    </FONT></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Conditions to our Obligations</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our obligations to complete the merger are
subject to the satisfaction or waiver of the following further
conditions:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="3%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">the representations and warranties made by the
    Barnes&nbsp;&#38; Noble Parties in the merger agreement shall be
    true and correct in all material respects when made and as of
    the closing date of the merger;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">the Barnes &#38; Noble Parties shall have
    performed and complied in all material respects with each of
    their undertakings and agreements contained in the merger
    agreement; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">we shall have received a certificate of Barnes
    &#38; Noble to the effect that all conditions required to be
    satisfied at or as of the closing have been waived or satisfied
    in all material respects.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">50
</FONT>

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<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Conditions to the Obligations of the Barnes
    &#38; Noble Parties</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The obligations of the Barnes &#38; Noble Parties
to complete the merger are subject to the satisfaction or waiver
of the following further conditions:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">our representations and warranties made in the
    merger agreement shall be true and correct in all material
    respects when made and as of the closing date of the merger;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">we shall have performed and complied in all
    material respects with our undertakings and agreements contained
    in the merger agreement;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Barnes &#38; Noble shall have received a
    certificate from us to the effect that all conditions required
    to be satisfied at or as of the closing have been waived or
    satisfied in all material respects; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">since the date of the merger agreement, there
    shall not have occurred any &#147;material adverse effect&#148;
    on us and B&#38;N.com, taken as a whole.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For the purposes of determining satisfaction of
the conditions to the obligations of the Barnes &#38; Noble
Parties described above, a &#147;material adverse effect&#148;
on us and B&#38;N.com, taken as a whole, means any event, fact,
violation, breach, inaccuracy, circumstance or other matter that
had or would reasonably be expected to have a material adverse
effect on the business, financial condition or results of
operations of the Company and B&#38;N.com, taken as a whole,
other than any event or condition resulting from:
(i)&nbsp;general economic, business or industry conditions;
(ii)&nbsp;the taking of any action permitted or required by the
merger agreement or from the announcement or pendency of the
merger; (iii)&nbsp;a decline in our stock price; or
(iv)&nbsp;the delisting of our common stock from the NASDAQ
National Market.
</FONT>

<!-- link2 "Termination" -->

<P align="left">
<B><FONT size="2">Termination</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We and Barnes &#38; Noble may agree by mutual
written consent to terminate the merger agreement at any time
prior to the approval of the merger agreement by our
stockholders. In addition, the merger agreement may be
terminated:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">by either us or Barnes&nbsp;&#38; Noble, if the
    merger is not completed on or before July&nbsp;15, 2004, unless
    the non-completion is caused by the failure to fulfill any of
    the obligations under the merger agreement of the party wishing
    to terminate;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">by either us or Barnes&nbsp;&#38; Noble, if a
    court of competent jurisdiction or an administrative,
    governmental or regulatory body or commission has issued a final
    nonappealable injunction, order, decree, judgment or ruling,
    permanently enjoining or otherwise prohibiting the merger;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">by Barnes&nbsp;&#38; Noble, at any time prior to
    the approval of the merger agreement by our stockholders, if our
    board of directors (upon the recommendation of the special
    committee) or the special committee withdraws, qualifies or
    modifies its approval or recommendation of the approval of the
    merger agreement in a manner adverse to Barnes &#38; Noble;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">by Barnes &#38; Noble, at any time prior to the
    approval of the merger agreement by our stockholders, upon a
    breach of any of our representations, warranties or covenants
    under the merger agreement such that the conditions in the
    merger agreement will not be satisfied;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">by the special committee, at any time prior to
    the approval of the merger agreement by our stockholders, if
    (i)&nbsp;we receive an unsolicited bona fide acquisition
    proposal from a third party, (ii)&nbsp;we give Barnes &#38;
    Noble no less than five days&#146; notice of any and all such
    proposals or offers and (iii)&nbsp;the special committee
    concludes in good faith, after consultation with its legal and
    financial advisors, that such proposal is more favorable to our
    stockholders, other than Barnes &#38; Noble and its affiliates,
    and is made by a third party which is reasonably able to finance
    the transaction contemplated by the proposal; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">by the special committee, at any time prior to
    the approval of the merger agreement by our stockholders, upon a
    breach of any of the Barnes &#38; Noble Parties&#146;
    representations, warranties or
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">51
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD></TD>
    <TD align="left">
    <FONT size="2">covenants under the merger agreement such that
    the conditions in the merger agreement will not be satisfied.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Subject to limited exceptions, including the
survival of certain obligations, if the merger agreement is
validly terminated it will become null and void and will be of
no further effect with no liability on the part of any party to
the merger agreement or affiliate of that party, unless that
party has breached the merger agreement.
</FONT>

<!-- link2 "Amendment and Waiver" -->

<P align="left">
<B><FONT size="2">Amendment and Waiver</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The merger agreement may not be amended,
modified, altered or supplemented, except by means of a written
instrument executed on behalf of each party to the merger
agreement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At any time prior to the effective time of the
merger, any of the parties to the merger agreement may, by
written instrument, (i)&nbsp;extend the time for the performance
of any of the obligations or other acts of any of the other
parties or (ii)&nbsp;waive compliance with any of the agreements
of the other parties or fulfillment of any conditions to its own
obligations under the merger agreement.
</FONT>

<!-- link2 "Fees and Expenses" -->

<P align="left">
<B><FONT size="2">Fees and Expenses</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Whether or not the proposed merger is
consummated, all fees and expenses incurred in connection with
the merger will be paid by the party to the merger agreement
incurring those fees and expenses.
</FONT>

<!-- link2 "Governing Law" -->

<P align="left">
<B><FONT size="2">Governing Law</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The merger agreement is governed in all respects
by the laws of the State of Delaware.
</FONT>

<!-- link2 "Assignment" -->

<P align="left">
<B><FONT size="2">Assignment</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">No party to the merger agreement may assign any
of its rights or delegate any of its obligations under the
merger agreement to any other person without the prior written
consent of the other parties.
</FONT>

<!-- link2 "Our Actions" -->

<P align="left">
<B><FONT size="2">Our Actions</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Any action, approval, authorization, waiver or
consent taken, given or made by us, including our board of
directors, in respect of the merger agreement or the merger
prior to the effective time of the merger will not be effective
unless such action, approval, authorization, waiver or consent
has received the prior approval of the special committee.
</FONT>

<P align="center"><FONT size="2">52
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<!-- link1 "SUMMARY HISTORICAL FINANCIAL DATA" -->

<P align="center">
<B><FONT size="2">SUMMARY HISTORICAL FINANCIAL DATA</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The summary historical financial data set forth
below as of and for the fiscal years ended December&nbsp;31,
2003, 2002 and 2001 are derived from our audited consolidated
financial statements. The summary historical data set forth
below should be read in conjunction with &#147;Management&#146;s
Discussion and Analysis of Financial Condition and Results of
Operations&#148; and the consolidated financial statements and
consolidated notes contained in our most recent Annual Report on
Form&nbsp;10-K/A for the fiscal year ended 2003, which is
attached to this proxy statement as Annex&nbsp;E.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have not provided any pro forma data giving
effect to the merger as we do not believe that such information
is material to our stockholders in evaluating the merger and the
merger agreement. The merger consideration consists solely of
cash and, if the merger is consummated, our common stock will
cease to be publicly traded. As a result, we do not believe that
the changes to our financial condition resulting from the merger
would provide meaningful or relevant information in evaluating
the merger and the merger agreement since our stockholders
(other than Barnes &#38; Noble, B&#38;N Holding and their
respective subsidiaries) will not be stockholders of, and will
have no interest in, the Company following the merger.
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="54%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Year Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Year Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Year Ended</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December 31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December 31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December 31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(Thousands of Dollars, Except Per Share Data)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Statement of Operations Data:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net sales
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">424,815</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">422,827</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">404,600</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of sales
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">320,627</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">327,258</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">313,365</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gross profit
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">104,188</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">95,569</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">91,235</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating expenses:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fulfillment and customer service
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">36,595</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,990</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">44,637</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Marketing, sales and editorial
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,390</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,760</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">61,418</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Technology and web site development
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,725</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,787</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">45,298</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">General and administrative
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,548</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,265</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32,362</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation and amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,467</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,502</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41,981</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Impairments and other special charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">88,213</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Equity in net loss of equity investments
    including amortization of intangibles
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,537</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28,733</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total operating expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">150,725</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">170,841</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">342,642</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Loss from operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(46,537</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(75,272</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(251,407</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest income, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">226</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,615</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,041</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Loss before minority interest
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(46,311</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(73,657</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(244,366</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Minority interest
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,965</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">53,525</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">176,980</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss&nbsp;&#151; historical
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,346</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(20,132</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(67,386</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Basic net loss per common share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.28</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.46</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.54</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Basic weighted average common shares outstanding
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,707</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">43,790</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">43,787</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Diluted net loss per share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.28</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.46</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.54</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Ratio of earnings to fixed charges(a)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance Sheet Data:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">68,344</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">70,144</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">105,125</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Working capital (deficit)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(26,747</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,281</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">44,628</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">347,918</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">209,734</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">287,376</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Minority interest
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">172,516</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">52,305</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">105,845</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Equity
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,971</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22,641</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">42,758</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Book value per share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.32</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.52</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.98</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(a)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">The ratio of earnings to fixed charges has not
    been provided since the ratio would be less than 1:1 for all
    periods presented. To achieve an earnings to fixed charges ratio
    of 1:1, the Company would have to generate income.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">53
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<!-- link1 "MARKET PRICE AND DIVIDENDS" -->

<P align="center">
<B><FONT size="2">MARKET PRICE AND DIVIDENDS</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our common stock has been traded on the NASDAQ
National Market since our initial public offering on
May&nbsp;25, 1999 under the symbol &#147;BNBN.&#148; As of the
record date, 52,478,325&nbsp;shares of our common stock were
issued and outstanding and we had approximately
1,400&nbsp;stockholders of record and 40,300&nbsp;beneficial
stockholders. The following table sets forth, for the periods
indicated, the high and low sales prices per share of our common
stock, as reported by the NASDAQ National Market:
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="76%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">High</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Low</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <I><FONT size="2">Fiscal Year 2004</FONT></I></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Second Quarter (through April&nbsp;29, 2004)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.05</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.03</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">First Quarter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.05</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.88</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <I><FONT size="2">Fiscal Year 2003</FONT></I></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fourth Quarter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.95</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.17</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Third Quarter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.85</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.97</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Second Quarter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.28</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">First Quarter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.62</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.97</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <I><FONT size="2">Fiscal Year 2002</FONT></I></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fourth Quarter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.20</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Third Quarter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.99</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.43</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Second Quarter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.69</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.86</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">First Quarter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.44</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.34</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On November&nbsp;6, 2003, the last full trading
day prior to public announcement of Barnes &#38; Noble&#146;s
initial offer, the last reported sales price of our common stock
was $2.25. On April&nbsp;29, 2004, the most recent practicable
trading day prior to the date of this proxy statement, the last
reported sales price of our common stock was $3.04. You should
obtain current market price quotations for shares of our common
stock in connection with voting your shares.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have not declared or paid any cash dividends
on our capital stock since our inception and B&#38;N.com has not
declared any distributions to its members since its inception.
Neither we nor B&#38;N.com expect to pay any cash dividends or
distributions for the foreseeable future, except we expect to
cause B&#38;N.com to pay distributions to its members to the
extent necessary to enable such members (including us) to pay
taxes incurred with respect to taxable income of B&#38;N.com.
</FONT>

<P align="center"><FONT size="2">54
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<!-- link1 "PRINCIPAL STOCKHOLDERS" -->

<P align="center">
<B><FONT size="2">PRINCIPAL STOCKHOLDERS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have three classes of common stock. Each
holder of our Class&nbsp;A common stock is entitled to one vote
per share. Each holder of our Class&nbsp;B common stock or
Class&nbsp;C common stock is entitled to the number of votes per
share equal to: 10, multiplied by the sum of (a)&nbsp;the
aggregate number of shares of Class&nbsp;B and Class&nbsp;C
common stock owned by such holder and (b)&nbsp;the aggregate
number of membership units in B&#38;N.com owned by such holder.
Barnes&nbsp;&#38; Noble is the beneficial owner of all of our
outstanding Class&nbsp;B and Class&nbsp;C common stock.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table sets forth certain
information regarding beneficial ownership of our common stock
as of March&nbsp;15, 2004 by: (i)&nbsp;each person known by us
to own beneficially more than 5% of the outstanding shares of
our Class&nbsp;A common stock; (ii)&nbsp;the directors and
executive officers of the Company and B&#38;N.com and these
directors and executive officers as a group; and (iii)&nbsp;the
directors and executive officers of the Barnes&nbsp;&#38; Noble
Parties. Unless otherwise indicated, the address for each of the
directors and executive officers of the Company and the
Barnes&nbsp;&#38; Noble Parties is set forth in Annex&nbsp;D to
this proxy statement.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="40%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Percentage of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number of Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Class A</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Percentage of</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="center" nowrap><B><FONT size="1">Name and Address of Beneficial Owner</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Beneficially Owned(1)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Common Stock(2)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Voting Power(2)(3)</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Beneficial Holders:</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Barnes &#38; Noble, Inc.&nbsp;</FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">119,138,502</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(4)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">72.95</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%(4)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">96.3</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%(4)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">122 Fifth Avenue<BR>
    New York, New York 10011
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="14"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Respective Executive Officers and Directors of
    the Company and B&#38;N.com:</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Leonard Riggio
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,014,437</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(5)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.17</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Stephen Riggio
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,580,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(6)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.92</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Marie J. Toulantis
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,818,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(7)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7.38</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">David C. Willen
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">450,500</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(8)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Kevin M. Frain
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">462,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(9)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">David Gitow
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">401,500</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(10)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Daniel A. Blackman
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">420,084</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(9)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Michael N. Rosen
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(11)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Jan-Michiel Hessels
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(9)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Patricia Higgins
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(9)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">William F. Reilly
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">90,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(11)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">All current executive officers and directors as a
    group (11 persons)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,416,521</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(12)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20.03</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD colspan="14"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Respective Executive Officers and Directors of
    the Barnes &#38; Noble Parties:</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Leonard Riggio
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,014,437</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(5)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.17</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Stephen Riggio
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,580,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(6)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.92</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Mitchell S. Klipper
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">234,710</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(13)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">J. Alan Kahn
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">83,333</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Lawrence S. Zilavy
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">300</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">William F. Duffy
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">830,500</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(9)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Mary Ellen Keating
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">332</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">David S. Deason
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gary A. King
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,011,190</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(14)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.05</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Joseph J. Lombardi
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">55
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="43%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Percentage of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number of Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Class A</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Percentage of</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Name and Address of Beneficial Owner</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Beneficially Owned(1)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Common Stock(2)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Voting Power(2)(3)</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Michelle L. Smith
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Mark Bottini
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">175</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Michael N. Rosen
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(11)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Matthew A. Berdon
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">95,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Michael Del Giudice
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,200</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">William Dillard, II
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(15)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Irene R. Miller
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Margaret T. Monaco
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,275</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">William Sheluck, Jr.
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">60,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="4%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">*</FONT></TD>
    <TD align="left">
    <FONT size="2">Represents less than 1%.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="4%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Except as indicated in the notes below, shares of
    common stock subject to options that are currently exercisable
    or exercisable within 60&nbsp;days after March&nbsp;15, 2004 are
    deemed to be outstanding and beneficially owned by the person
    holding such options for the purpose of computing the percentage
    ownership of such person but are not treated as outstanding for
    the purpose of computing the percentage ownership of any other
    person.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Excludes 4,158,088 shares issued to B&#38;N.com
    in connection with the merger with Fatbrain.com,&nbsp;LLC.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(3)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Represents the percentage of voting power
    resulting from the effect of all outstanding Class&nbsp;B and
    Class&nbsp;C common stock, assuming no conversion of that stock
    into Class&nbsp;A common stock.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(4)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Represents shares of Class&nbsp;B and
    Class&nbsp;C common stock that are convertible into, and
    membership units that are exchangeable for, shares of
    Class&nbsp;A common stock on a one-for-one-basis at any time at
    the option of the holder thereof, together with 4,138,500 shares
    of Class&nbsp;A common stock, beneficially owned by Barnes &#38;
    Noble through its wholly owned subsidiary B&#38;N Holding.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(5)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes 600,000 shares each owned by Barnes
    &#38; Noble College Bookstores, Inc. and MBS Textbook Exchange,
    Inc. Does not include 119,138,502 shares of Class&nbsp;A common
    stock beneficially owned by Barnes&nbsp;&#38; Noble.
    Mr.&nbsp;Riggio is Barnes&nbsp;&#38; Noble&#146;s Chairman of
    the board of directors and principal stockholder. Accordingly,
    he could be considered to beneficially own the shares owned by
    Barnes&nbsp;&#38; Noble. Mr.&nbsp;Riggio disclaims any
    beneficial ownership of such shares.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(6)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes options granted by the Company to
    purchase 3,380,000 shares of Class&nbsp;A common stock.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(7)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes options granted by the Company to
    purchase 3,400,000 shares of Class&nbsp;A common stock.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(8)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes options granted by the Company to
    purchase 450,000 shares of Class&nbsp;A common stock.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(9)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">All of these shares are issuable upon the
    exercise of options granted by the Company.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(10)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes options granted by the Company to
    purchase 400,000 shares of Class&nbsp;A common stock.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(11)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes options granted by the Company to
    purchase 40,000 shares of Class&nbsp;A common stock.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(12)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes options granted by the Company to
    purchase 8,672,084 shares of Class&nbsp;A common stock.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(13)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes 7,700 shares of Class&nbsp;A common
    stock owned by Mr.&nbsp;Klipper&#146;s wife who has sole voting
    and dispositive power with respect to these shares.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(14)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes options granted by the Company to
    purchase 1,011,000 shares of Class&nbsp;A common stock. Also
    includes 190 shares of Class&nbsp;A common stock owned by
    Mr.&nbsp;King&#146;s wife who has sole voting and dispositive
    power with respect to these shares.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(15)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Barnes &#38; Noble has informed the Company that
    Mr.&nbsp;Dillard sold all of his shares of Class&nbsp;A common
    stock on January&nbsp;20, 2004, as more fully described in the
    section of this proxy statement entitled &#147;CERTAIN
    TRANSACTIONS INVOLVING OUR COMMON STOCK.&#148;
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">56
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<!-- link1 "CERTAIN TRANSACTIONS INVOLVING OUR COMMON STOCK" -->

<P align="center">
<B><FONT size="2">CERTAIN TRANSACTIONS INVOLVING OUR COMMON
STOCK</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Since October&nbsp;1, 2002, as part of
Barnes&nbsp;&#38; Noble&#146;s stock acquisition program,
Barnes&nbsp;&#38; Noble, through B&#38;N Holding, has acquired
an aggregate of 3,012,500 shares of our common stock, at prices
ranging from $0.76 per share to $1.75 per share. During our
fourth quarter of 2002, Barnes&nbsp;&#38; Noble acquired an
aggregate of 1,644,500 shares of our common stock at a weighted
average purchase price of $1.08 per share. During our first
quarter of 2003, Barnes&nbsp;&#38; Noble acquired an aggregate
of 1,328,000 shares of our common stock at a weighted average
purchase price of $1.10 per share. During our second quarter of
2003, Barnes&nbsp;&#38; Noble acquired an aggregate of
40,000&nbsp;shares of our common stock at a weighted average
purchase price of $1.53 per share. The consideration payable in
the merger represents a 282.4%, 277.3% and 199.3% premium to the
weighted average purchase price paid by Barnes&nbsp;&#38; Noble
for the shares of our common stock that it acquired during our
fourth quarter of 2002, first quarter of 2003 and second quarter
of 2003, respectively.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On December&nbsp;20, 2002, Leonard Riggio, our
Chairman of the Board, sold 400,000&nbsp;shares of our
Class&nbsp;A common stock to Marie J. Toulantis, our Chief
Executive Officer, at a purchase price of $1.10 per share.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On September&nbsp;15, 2003, Barnes&nbsp;&#38;
Noble acquired all of our Class&nbsp;A common stock, together
with all of the membership units in B&#38;N.com and our share of
Class&nbsp;C common stock, beneficially owned by Bertelsmann for
an aggregate amount equal to $164,152,802.80, equivalent to
$2.80 per share or membership unit, subject to possible
adjustment as set forth in the stock purchase agreement related
to such acquisition. Barnes&nbsp;&#38; Noble subsequently
transferred all shares and membership units purchased from
Bertelsmann to B&#38;N Holding. See the section of this proxy
statement entitled &#147;SPECIAL FACTORS&nbsp;&#151; Background
of the Merger.&#148;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Except as described below, there has been no
transaction involving shares of our common stock which was
effected during the past 60&nbsp;days by the Company,
B&#38;N.com or, to the best of the knowledge of the Company, any
of their respective directors or executive officers, or by the
Barnes&nbsp;&#38; Noble Parties or, to the best of the knowledge
of Barnes&nbsp;&#38; Noble, any of their respective directors or
executive officers.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On January&nbsp;20, 2004, William
Dillard,&nbsp;II, a director of Barnes&nbsp;&#38; Noble and
B&#38;N Holding, sold 15,000&nbsp;shares of our Class&nbsp;A
common stock on the NASDAQ National Market at a purchase price
of $3.02 per share.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Except as set forth in this proxy statement, none
of the Company or B&#38;N.com or, to the best of the knowledge
of the Company, their respective directors or executive officers
set forth in Annex&nbsp;D to this proxy statement, or the
Barnes&nbsp;&#38; Noble Parties, or to the best of the knowledge
of Barnes&nbsp;&#38; Noble, their respective directors or
executive officers set forth in Annex&nbsp;D to this proxy
statement, is a party to any contract, arrangement,
understanding, or relationship with any other person relating,
directly or indirectly, to, or in connection with, the merger
with respect to any securities of the Company (including,
without limitation, any contract, arrangement, understanding, or
relationship concerning the transfer or the voting of any such
securities, joint ventures, loan or option arrangements, puts or
calls, guarantees of loans, guarantees against loss, or the
giving or withholding of proxies, consents, or authorizations).
Except as described in this proxy statement, there have been no
negotiations, transactions or material contacts during the past
two years concerning a merger, consolidation, or acquisition, a
tender offer for, or other acquisition of, any securities of the
Company, a contest for election of directors of the Company, or
a sale or other transfer of a material amount of assets of the
Company, between the Barnes&nbsp;&#38; Noble Parties, or to the
best of the knowledge of Barnes&nbsp;&#38; Noble, their
respective directors or executive officers set forth in
Annex&nbsp;D to this proxy statement, on the one hand, and the
Company or any of its affiliates, on the other hand. There has
been no underwritten public offering of the shares of the
Company during the past three years that was (i)&nbsp;registered
under the Securities Act of 1933, as amended, or
(ii)&nbsp;exempt from registration under the Securities Act
pursuant to Regulation&nbsp;A thereunder.
</FONT>

<P align="center"><FONT size="2">57
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<!-- link1 "OTHER MATTERS" -->

<P align="center">
<B><FONT size="2">OTHER MATTERS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As of the date of this proxy statement, we are
not aware of any matters to be presented at the special meeting
other than those described in this proxy statement. However, if
other matters should properly come before the special meeting,
it is intended that the holders of proxies solicited hereby will
vote on such matters in their discretion.
</FONT>

<!-- link1 "STOCKHOLDER PROPOSALS" -->

<P align="center">
<B><FONT size="2">STOCKHOLDER PROPOSALS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If the merger is completed, we will no longer be
a publicly held company and there will be no public
participation in any future meetings of our stockholders.
However, if the merger is not completed, our stockholders will
continue to be entitled to attend and participate in our
stockholders&#146; meetings. If the merger is not completed, we
will inform our stockholders, by press release or other means
determined reasonable, of the date by which stockholder
proposals must be received by us for inclusion in the proxy
materials relating to our 2004 annual meeting, which proposals
must comply with the rules and regulations of the Securities and
Exchange Commission then in effect.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, our amended and restated by-laws
provide that stockholders seeking to bring business before an
annual meeting of stockholders, or to nominate candidates for
election as directors at an annual meeting of stockholders, must
provide timely notice thereof in writing. To be timely, a
stockholder&#146;s notice must be delivered to or mailed and
received at our principal executive offices, not less than
30&nbsp;days&#146; nor more than 60&nbsp;days prior to the
annual meeting; provided, that in the event that less than
40&nbsp;days&#146; notice or prior public disclosure of the date
of the annual meeting is given or made to stockholders, notice
by the stockholder to be timely must be received by the close of
business on the 10th day following the date on which notice of
the date of the meeting is given to stockholders or made public,
whichever first occurs. We reserve the right to reject, rule out
of order, or take other appropriate action with respect to any
proposal that does not comply with these and other applicable
requirements.
</FONT>

<!-- link1 "INDEPENDENT ACCOUNTANTS" -->

<P align="center">
<B><FONT size="2">INDEPENDENT ACCOUNTANTS</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The financial statements as of December&nbsp;31,
2003, 2002 and 2001 have been audited by BDO Seidman, LLP,
independent accountants, as stated in their report included in
our Annual Report on Form&nbsp;10-K/A for the year ended
December&nbsp;31, 2003, which is attached to this proxy
statement as Annex E.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<!-- link1 "WHERE YOU CAN FIND MORE INFORMATION" -->

<P align="center">
<B><FONT size="2">WHERE YOU CAN FIND MORE INFORMATION</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We file annual, quarterly and special reports,
proxy statements and other information with the Securities and
Exchange Commission. You may read and copy this information at
the following locations of the Securities and Exchange
Commission:
</FONT>

<P align="center">
<FONT size="2">Public Reference Room
</FONT>

<DIV align="center">
<FONT size="2">450 Fifth Street, N.W.
</FONT>
</DIV>

<DIV align="center">
<FONT size="2">Room&nbsp;1024
</FONT>
</DIV>

<DIV align="center">
<FONT size="2">Washington, D.C. 20549
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Please call the Securities and Exchange
Commission at 1-800-SEC-0330 for further information on the
public reference rooms. You also may obtain copies of this
information by mail from the Public Reference Section of the
Securities and Exchange Commission, 450&nbsp;Fifth Street, N.W.,
Room&nbsp;1024, Washington,&nbsp;D.C. 20549, at prescribed
rates. Our Securities and Exchange Commission filings also are
available to the public from commercial document retrieval
services, at the web site maintained by the Securities and
Exchange Commission at http://www.sec.gov or at our web site at
http://www.barnesandnoble.com/ir.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The merger described in this proxy statement is a
&#147;going private transaction.&#148; We have filed a
Section&nbsp;13(e) Transaction Statement on Schedule&nbsp;13E-3
with the Securities and Exchange Commission with respect to the
merger. The Schedule&nbsp;13E-3, including all amendments
thereto, contains additional information
</FONT>

<P align="center"><FONT size="2">58
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">about us. The Schedule&nbsp;13E-3, including all
amendments and exhibits filed or incorporated by reference as
part of the Schedule&nbsp;13E-3, is available for inspection and
copying at our principal executive offices during regular
business hours, and may be obtained by mail, without charge, by
written request directed to us at the following address:
</FONT>
</DIV>

<P align="center">
<FONT size="2">barnesandnoble.com inc.
</FONT>

<DIV align="center">
<FONT size="2">76 Ninth Avenue
</FONT>
</DIV>

<DIV align="center">
<FONT size="2">New York, New York 10011
</FONT>
</DIV>

<DIV align="center">
<FONT size="2">Attn: Investor Relations, Kevin M. Frain
</FONT>
</DIV>

<DIV align="center">
<FONT size="2">(212)&nbsp;414-6000
</FONT>
</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">You should rely only on the information
contained in this proxy statement. We have not authorized anyone
to provide you with information that is different from what is
contained in this proxy statement. This proxy statement is dated
May&nbsp;3, 2004. You should not assume that the information
contained in this proxy statement is accurate as of any date
other than such date, and the mailing of this proxy statement to
stockholders shall not create any implication to the
contrary.</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">59
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<!-- link1 "ANNEX A" -->

<P align="right">
<B><FONT size="2">ANNEX A</FONT></B>

<P align="right">
<B><FONT size="2">EXECUTION COPY</FONT></B>

<P align="center">
<B><FONT size="2">AGREEMENT AND PLAN OF MERGER</FONT></B>

<P align="center">
<B><FONT size="2">by and among</FONT></B>

<P align="center">
<B><FONT size="2">BARNES &#38; NOBLE, INC.,</FONT></B>

<P align="center">
<B><FONT size="2">B&#38;N.COM HOLDING CORP.,</FONT></B>

<P align="center">
<B><FONT size="2">B&#38;N.COM ACQUISITION CORP.,</FONT></B>

<P align="center">
<B><FONT size="2">and</FONT></B>

<P align="center">
<B><FONT size="2">BARNESANDNOBLE.COM INC.</FONT></B>

<P align="center">
<B><FONT size="2">Dated as of January&nbsp;8, 2004</FONT></B>

<P align="center"><FONT size="2">A-1
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="center">
<B><FONT size="2">Table of Contents</FONT></B>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="69%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Page</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="5" align="left" valign="top">
    <FONT size="2">ARTICLE I. The Merger
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 1.1.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">The Merger
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 1.2.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Effective Time
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 1.3.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Closing
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 1.4.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Certificate of Incorporation; By-laws; Directors
    and Officers
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 1.5.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Effect of Merger on Common Stock
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 1.6.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Dissenting Shares
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 1.7.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Stock Options
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 1.8.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Exchange of Certificates; Payment for
    Class&nbsp;A Common Stock
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left" valign="top">
    <FONT size="2">ARTICLE II. Representations and Warranties of the
    Company
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 2.1.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Organization of the Companies
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 2.2.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Capitalization of the Companies
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 2.3.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Subsidiaries of the Companies
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 2.4.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Authorization
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 2.5.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Opinion of Financial Advisor and Approval by the
    Special Committee
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 2.6.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Brokers and Finders
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 2.7.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Proxy Statement; Schedule&nbsp;13E-3
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 2.8.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">SEC Documents; Financial Statements;
    Sarbanes-Oxley
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-11</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 2.9.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Absence of Certain Changes or Events
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-11</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 2.10.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">No Undisclosed Material Liabilities
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-11</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 2.11.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Compliance with Laws and Court Orders
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-12</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 2.12.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Litigation and Claims
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-12</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 2.13.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Employee Plans
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-12</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left" valign="top">
    <FONT size="2">ARTICLE III. Representations and Warranties of
    the Barnes &#38; Noble Parties
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-12</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 3.1.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Organization and Qualification
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-12</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 3.2.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Authorization
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-12</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 3.3.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Brokers and Finders
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-13</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 3.4.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Proxy Statement; Schedule&nbsp;13E-3
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-13</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 3.5.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Knowledge
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-13</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left" valign="top">
    <FONT size="2">ARTICLE IV. Certain Covenants and Agreements
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-13</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 4.1.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Certain Actions Pending Merger
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-13</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 4.2.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Proxy Statement
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-14</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 4.3.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Stockholders&#146; Meeting
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-15</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 4.4.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Reasonable Efforts
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-16</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 4.5.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Inspection of Records
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-16</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 4.6.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Notification of Certain Matters
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-16</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 4.7.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Disclosure
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-17</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 4.8.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Directors&#146; and Officers&#146; Indemnification
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-17</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 4.9.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Stockholder Litigation
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-18</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 4.10.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Employee Matters
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-18</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

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<P align="center"><FONT size="2">A-2
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    <TD colspan="3"></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Page</FONT></B></TD>
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    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
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<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="5" align="left" valign="top">
    <FONT size="2">ARTICLE V. Conditions Precedent
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-19</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
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<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 5.1.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Conditions to each Party&#146;s Obligation to
    Effect the Merger
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-19</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 5.2.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Conditions to the Obligation of the Company to
    Effect the Merger
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-19</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 5.3.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Conditions to the Obligation of the Barnes &#38;
    Noble Parties to Effect the Merger
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-19</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="5" align="left" valign="top">
    <FONT size="2">ARTICLE VI. Termination, Amendment and Waiver
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-20</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 6.1.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Termination
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-20</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 6.2.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Effect of Termination
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-20</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 6.3.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Amendment
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-21</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 6.4.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Waiver
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-21</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left" valign="top">
    <FONT size="2">ARTICLE VII. Miscellaneous
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-21</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 7.1.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Definitions
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-21</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 7.2.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Non-survival of Representations and Warranties
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-23</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 7.3.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Expenses
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-23</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 7.4.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Applicable Law
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-23</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 7.5.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Notices
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-23</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 7.6.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Entire Agreement
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-24</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 7.7.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Assignment
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-24</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 7.8.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Headings References
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-24</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 7.9.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Construction
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-24</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 7.10.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Counterparts
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-25</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 7.11.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">No Third Party Beneficiaries
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-25</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 7.12.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Actions of the Company
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-25</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">Section&nbsp; 7.13.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Severability; Enforcement
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">A-25</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">A-3
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="center">
<B><FONT size="2">AGREEMENT AND PLAN OF MERGER</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">THIS AGREEMENT AND PLAN OF
MERGER,</FONT></B><FONT size="2"> dated as of January&nbsp;8,
2004 (this &#147;Agreement&#148;), by and among Barnes &#38;
Noble, Inc., a Delaware corporation (&#147;Barnes &#38;
Noble&#148;), B&#38;N.com Holding Corp., a Delaware corporation
and a wholly owned subsidiary of Barnes &#38; Noble
(&#147;B&#38;N Holding Corp.&#148;), B&#38;N.com Acquisition
Corp., a Delaware corporation and a wholly owned subsidiary of
B&#38;N Holding Corp. (&#147;B&#38;N Acquisition Corp.&#148;),
and barnesandnoble.com inc., a Delaware corporation (the
&#147;Company&#148;). Certain capitalized terms used in this
Agreement are defined in Section&nbsp;7.1.
</FONT>

<P align="center">
<B><FONT size="2">RECITALS:</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Barnes &#38;
Noble, through B&#38;N Holding Corp., beneficially owns, within
the meaning of Rule&nbsp;13d-3 of the Exchange Act, 119,138,502
shares of capital stock of the Company (the &#147;Capital
Stock&#148;) representing approximately 74.6% of the outstanding
equity interest and approximately 96.6% of the voting interest
in the Company as of the date hereof. The shares of Capital
Stock beneficially owned by Barnes &#38; Noble through B&#38;N
Holding Corp. consist of the following: (i)&nbsp;4,138,500
shares of Class&nbsp;A common stock, par value $0.001 per share,
of the Company (the &#147;Class&nbsp;A Common Stock&#148;) and
(ii)&nbsp;115,000,002 shares of Class&nbsp;A Common Stock which
B&#38;N Holding Corp. has the right to acquire upon conversion
of its (A)&nbsp;one share of Class&nbsp;B common stock, par
value $0.001 per share, of the Company (&#147;Class&nbsp;B
Common Stock&#148;), which represents the only share of
Class&nbsp;B Common Stock issued and outstanding, (B)&nbsp;one
share of Class&nbsp;C common stock, par value $0.001 per share,
of the Company (&#147;Class&nbsp;C Common Stock&#148;), which
represents the only share of Class&nbsp;C Common Stock issued
and outstanding, and (C)&nbsp;115,000,000 membership units (the
&#147;Membership Units&#148;) in barnesandnoble.com llc, a
Delaware limited liability company whose sole manager is the
Company (&#147;B&#38;N LLC&#148;).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Barnes &#38;
Noble, through B&#38;N Acquisition Corp., desires to acquire all
of the shares of Class&nbsp;A Common Stock not owned by it,
directly or indirectly, and to provide for the payment of $3.05
per share in cash for all such shares of Class&nbsp;A Common
Stock, by means of a merger of B&#38;N Acquisition Corp. with
and into the Company in accordance with Section&nbsp;251 of the
Delaware General Corporation Law (the &#147;DGCL&#148;), upon
the terms and subject to the conditions of this Agreement (the
&#147;Merger&#148;).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">C.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The respective
Boards of Directors of the Company, Barnes &#38; Noble, B&#38;N
Holding Corp. and B&#38;N Acquisition Corp. have (and in the
case of the Company, upon the recommendation of a special
committee of its Board of Directors (the &#147;Special
Committee&#148;)) approved this Agreement and declared it
advisable and in the best interests of their respective
companies and stockholders to consummate the Merger on the terms
and subject to the conditions set forth herein.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">D.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In consideration
of the foregoing and the respective representations, warranties,
covenants and agreements set forth in this Agreement, the
Parties hereby agree as follows:
</FONT>

<P align="center">
<FONT size="2">ARTICLE I.
</FONT>

<P align="center">
<FONT size="2">The Merger
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;1.1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>The
Merger</U>. At the Effective Time, upon the terms and subject to
the conditions set forth in this Agreement and in accordance
with the DGCL, B&#38;N Acquisition Corp. will be merged with and
into the Company, the separate existence of B&#38;N Acquisition
Corp. will cease, and the Company will continue as the surviving
corporation (the &#147;Surviving Corporation&#148;). The Merger
will have the effects as provided by the DGCL and other
applicable law.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;1.2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Effective
Time</U>. On the Closing Date, B&#38;N Acquisition Corp. and the
Company will file with the Secretary of State of the State of
Delaware a certificate of merger (the &#147;Certificate of
Merger&#148;) executed in accordance with the relevant
provisions of the DGCL. The Merger will become effective at such
time as the Certificate of Merger is duly filed with the
Secretary of State of the State of Delaware, or at such other
time as is permissible in accordance with the DGCL and as the
Parties may agree, as specified in the Certificate of Merger
(the time the Merger becomes effective, the &#147;Effective
Time&#148;).
</FONT>

<P align="center"><FONT size="2">A-4
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;1.3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Closing</U>.
Unless this Agreement shall have been terminated in accordance
with Section&nbsp;6.1, the closing of the Merger (the
&#147;Closing&#148;) will take place at the offices of Bryan
Cave LLP, 1290 Avenue of the Americas, New York, New York 10104
at 10:00&nbsp;a.m. (eastern standard time) on a date to be
mutually agreed to by the Parties, which date shall be no later
than the third business day after the satisfaction of the
conditions (other than conditions that by their nature are to be
satisfied at the Closing but subject to such conditions)
provided in Article&nbsp;V, or at such other time and place as
the Parties may agree to in writing (the &#147;Closing
Date&#148;).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;1.4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Certificate
of Incorporation; By-laws; Directors and Officers</U>. At the
Effective Time:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(a)&nbsp;the Amended and Restated Certificate of
    Incorporation of the Surviving Corporation shall be amended in
    the Merger to read in its entirety as set forth in
    Exhibit&nbsp;A hereto and, until thereafter amended in
    accordance with its terms and as provided by the DGCL, shall be
    the Amended and Restated Certificate of Incorporation of the
    Surviving Corporation;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(b)&nbsp;except as required by
    Section&nbsp;4.8(a), the By-laws of B&#38;N Acquisition Corp. as
    in effect immediately prior to the Effective Time shall be the
    By-laws of the Surviving Corporation following the Merger
    (except that the name of the Surviving Corporation shall be
    &#147;barnesandnoble.com inc.&#148;), until thereafter amended
    as provided in the DGCL or in the Certificate of Incorporation
    or By-laws of the Surviving Corporation;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(c)&nbsp;the directors of B&#38;N Acquisition
    Corp. immediately prior to the Effective Time shall be the
    directors of the Surviving Corporation following the Merger
    until the earlier of (i)&nbsp;their death, resignation or
    removal or (ii)&nbsp;such time as their respective successors
    are duly elected or appointed as provided in the Certificate of
    Incorporation or By-laws of the Surviving Corporation; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(d)&nbsp;the officers of the Company immediately
    prior to the Effective Time shall be the officers of the
    Surviving Corporation until the earlier of (i)&nbsp;their death,
    resignation or removal or (ii)&nbsp;such time as their
    respective successors are duly elected as provided in the
    Certificate of Incorporation or By-laws of the Surviving
    Corporation.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;1.5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Effect
of Merger on Common Stock</U>. At the Effective Time, by virtue
of the Merger and without any action on the part of B&#38;N
Acquisition Corp., the Company or the holders of any shares of
Class&nbsp;A Common Stock:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(a)&nbsp;each share of common stock, par value
    $0.001 per share, of B&#38;N Acquisition Corp. that is issued
    and outstanding immediately prior to the Effective Time shall be
    converted into and become one share of common stock, par value
    $0.001 per share, of the Surviving Corporation;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(b)&nbsp;subject to Section&nbsp;1.5(c) and
    Section&nbsp;1.6:
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(i)&nbsp;each share of Class&nbsp;A Common Stock
    that is issued and outstanding immediately prior to the
    Effective Time (other than shares of Class A Common Stock held
    by B&#38;N Holding Corp. and Barnes &#38; Noble and their
    respective subsidiaries) will be converted into the right to
    receive $3.05 in cash, without interest (the &#147;Merger
    Consideration&#148;), and, when so converted, will automatically
    be canceled and will cease to exist;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(ii)&nbsp;each holder of a certificate
    representing any such shares of Class&nbsp;A Common Stock will
    cease to have any rights with respect to such shares of
    Class&nbsp;A Common Stock to the extent such certificate
    represents such shares of Class&nbsp;A Common Stock, except for
    the right to receive the Merger Consideration payable to the
    shares of Class&nbsp;A Common Stock formerly represented by such
    certificate upon surrender of such certificate in accordance
    with Section&nbsp;1.8; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(iii)&nbsp;in the event that, subsequent to the
    date of this Agreement but prior to the Effective Time, the
    outstanding shares of Class&nbsp;A Common Stock shall have been
    changed into a different number of shares of a different class
    as a result of a stock split, reverse stock split, stock
    dividend, subdivision, reclassification, split, combination,
    exchange, recapitalization or other similar transaction, the
    Merger Consideration shall be appropriately adjusted; and
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">A-5
</FONT>

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<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(c)&nbsp;each share of Class&nbsp;A Common Stock,
    Class&nbsp;B Common Stock and Class&nbsp;C Common Stock that is
    owned immediately prior to the Effective Time by B&#38;N Holding
    Corp. will be canceled and will cease to exist, no consideration
    will be delivered in respect of such shares, and B&#38;N Holding
    Corp. will cease to have any rights with respect to any
    certificates representing any such shares.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;1.6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Dissenting
Shares</U>.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(a)&nbsp;Notwithstanding anything in this
Agreement to the contrary, shares of Class&nbsp;A Common Stock
outstanding immediately prior to the Effective Time and held by
a holder who has demanded and perfected such holder&#146;s right
to appraisal of such shares in accordance with Section&nbsp;262
of the DGCL (the &#147;Dissenting Shares&#148;) will not be
converted into or represent the right to receive the Merger
Consideration, but their holder will instead be entitled to such
rights as are afforded under the DGCL with respect to Dissenting
Shares, unless such holder fails to perfect or withdraws or
otherwise loses its right to appraisal.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(b)&nbsp;If any holder of shares of Class&nbsp;A
Common Stock who demands appraisal of such holder&#146;s shares
pursuant to the DGCL fails to perfect or withdraws or otherwise
loses such holder&#146;s right to appraisal, at the later of the
Effective Time or upon the occurrence of such event, such
holder&#146;s Dissenting Shares will be converted into and will
represent the right to receive the Merger Consideration, without
interest, in accordance with Section&nbsp;1.5(b).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(c)&nbsp;The Company shall give Barnes &#38;
Noble:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(i)&nbsp;prompt notice of any written demand for
    appraisal or payment of the fair value of any shares of
    Class&nbsp;A Common Stock, withdrawals or attempted withdrawals
    of such demands, and any other instruments served pursuant to
    the DGCL received by the Company; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(ii)&nbsp;the opportunity to direct all
    negotiations and proceedings with respect to demands for
    appraisal under the DGCL.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(d)&nbsp;The Company shall not, except with the
prior written consent of Barnes &#38; Noble, voluntarily make
any payment with respect to any demands for appraisals of
Class&nbsp;A Common Stock, offer to settle or settle any such
demands or approve any withdrawal of any such demands.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;1.7.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Stock
Options</U>. Immediately prior to the Effective Time, each
option to purchase shares of Class&nbsp;A Common Stock granted
under any stock option plan or purchase plan, program or similar
arrangement that is outstanding immediately prior to the
Effective Time (each, an &#147;Option&#148;) shall, whether
vested or not vested, be converted into and become the right to
receive from the Surviving Corporation, promptly following the
Effective Time, an amount in cash equal to the product obtained
by multiplying (A)&nbsp;the excess of the Merger Consideration
payable for each share of Class&nbsp;A Common Stock over the
exercise price of each such Option, by (B)&nbsp;the number of
shares of Class&nbsp;A Common Stock for which such Option was
exercisable immediately prior to the Effective Time, and when so
converted, will automatically be cancelled and retired and will
cease to exist.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;1.8.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Exchange
of Certificates; Payment for Class&nbsp;A Common Stock</U>.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(a)&nbsp;<U>Exchange Agent</U>. Prior to the
Effective Time, Barnes &#38; Noble will appoint a bank or trust
company reasonably acceptable to the Company to act as exchange
agent (the &#147;Exchange Agent&#148;) for the payment of the
Merger Consideration. Immediately prior to the Effective Time,
Barnes&nbsp;&#38; Noble will have deposited, or caused to be
deposited, with the Exchange Agent, for the benefit of the
holders of shares of Class&nbsp;A Common Stock (other than
B&#38;N Holding Corp. and Barnes &#38; Noble), the aggregate
amount of cash payable under Section&nbsp;1.5(b) in exchange for
outstanding shares of Class&nbsp;A Common Stock in accordance
with this Section&nbsp;1.8 (the &#147;Exchange Fund&#148;).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(b)&nbsp;<U>Exchange Procedures</U>.
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(i)&nbsp;Promptly after the Effective Time (but
    no later than five (5)&nbsp;business days after the Effective
    Date), the Exchange Agent will mail to each holder of record of
    a certificate or certificates, which
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">A-6
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<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">represented outstanding shares of Class&nbsp;A
    Common Stock immediately prior to the Effective Time, whose
    shares were converted into the right to receive cash pursuant to
    Section&nbsp;1.5(b):
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(1)&nbsp;a letter of transmittal (which will be
    in customary form and reviewed by the Company prior to delivery
    thereof) specifying that delivery will be effected, and risk of
    loss and title to the certificates representing such shares of
    Class&nbsp;A Common Stock will pass, only upon delivery of the
    certificates representing such shares of Class&nbsp;A Common
    Stock to the Exchange Agent, which certificates must be in such
    form and have such other provisions as the Exchange Agent may
    reasonably specify; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(2)&nbsp;instructions for use in effecting the
    surrender of the certificates representing such shares of
    Class&nbsp;A Common Stock, in exchange for the Merger
    Consideration.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(ii)&nbsp;Upon surrender to, and acceptance in
    accordance with Section&nbsp;1.8(b)(iii) below by, the Exchange
    Agent of a certificate or certificates formerly representing
    shares of Class&nbsp;A Common Stock, the holder will be entitled
    to the amount of cash into which the number of shares of
    Class&nbsp;A Common Stock formerly represented by such
    certificate or certificates surrendered have been converted
    under this Agreement.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(iii)&nbsp;The Exchange Agent will accept
    certificates formerly representing shares of Class&nbsp;A Common
    Stock upon compliance with such reasonable terms and conditions
    as the Exchange Agent may impose to effect an orderly exchange
    of the certificates in accordance with normal exchange practices.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(iv)&nbsp;After the Effective Time, no further
    transfers may be made on the records of the Company or its
    transfer agent of certificates representing shares of
    Class&nbsp;A Common Stock and if such certificates are presented
    to the Company for transfer, they will be canceled against
    delivery of the Merger Consideration allocable to the shares of
    Class&nbsp;A Common Stock represented by such certificate or
    certificates.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(v)&nbsp;If any Merger Consideration is to be
    remitted to a name other than that in which the certificate for
    the Class&nbsp;A Common Stock surrendered for exchange is
    registered, no Merger Consideration may be paid in exchange for
    such certificate unless:
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(1)&nbsp;the certificate so surrendered is
    properly endorsed, with signature guaranteed, or otherwise in
    proper form for transfer; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(2)&nbsp;the Person requesting such payment shall
    pay any transfer or other taxes required by reason of the
    payment to a Person other than the registered holder of such
    certificate or establish to the satisfaction of the Exchange
    Agent that such tax has been paid or is not payable.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(vi)&nbsp;Until surrendered as contemplated by
    this Section&nbsp;1.8 and at any time after the Effective Time,
    each certificate for shares of Class&nbsp;A Common Stock (other
    than Dissenting Shares) will be deemed to represent only the
    right to receive upon such surrender the Merger Consideration
    allocable to the shares represented by such certificate as
    contemplated by Section&nbsp;1.5(b). No interest will be paid or
    will accrue on any amount payable as Merger Consideration.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(c)&nbsp;<U>No Further Ownership Rights in
Class&nbsp;A Common Stock</U>. The Merger Consideration paid
upon the surrender for exchange of certificates formerly
representing shares of Class&nbsp;A Common Stock in accordance
with this Section&nbsp;1.8 will be deemed to have been paid in
full satisfaction of all rights pertaining to the shares of
Class&nbsp;A Common Stock formerly represented by such
certificates.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(d)&nbsp;<U>Termination of Exchange Fund</U>. The
Exchange Agent will deliver to the Surviving Corporation any
portion of the Exchange Fund (including any interest and other
income received by the Exchange Agent in respect of all such
funds) which remains undistributed to the holders of the
certificates formerly representing shares of Class&nbsp;A Common
Stock upon expiry of the period of six (6)&nbsp;months following
the Effective Time. Any holders of shares of Class&nbsp;A Common
Stock prior to the Merger who have not complied with this
Section&nbsp;1.8 prior to such time, may look only to the
Surviving Corporation for payment of their claim for Merger
Consideration to which such holders may be entitled.
</FONT>

<P align="center"><FONT size="2">A-7
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(e)&nbsp;<U>No Liability</U>. No Party will be
liable to any Person in respect of any amount from the Exchange
Fund delivered to a public official in accordance with any
applicable abandoned property, escheat or similar law.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(f)&nbsp;<U>Lost Certificates</U>. If any
certificate or certificates formerly representing shares of
Class&nbsp;A Common Stock is lost, stolen or destroyed, the
Exchange Agent will issue the Merger Consideration deliverable
in respect of, and in exchange for, such lost, stolen or
destroyed certificate, as determined in accordance with this
Section&nbsp;1.8, only upon:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(i)&nbsp;the making of an affidavit of such loss,
    theft or destruction by the Person claiming such certificate or
    certificates to be lost, stolen or destroyed; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(ii)&nbsp;if required by the Surviving
    Corporation, the posting by such Person of a bond in such
    reasonable amount as the Surviving Corporation may reasonably
    require as indemnity against any claim that may be made against
    it with respect to such certificate; or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(iii)&nbsp;if required by the Surviving
    Corporation, the entering into an indemnity agreement by such
    Person reasonably satisfactory to the Surviving Corporation to
    indemnify the Surviving Corporation against any claim that may
    be made against it with respect to such certificate.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(g)&nbsp;<U>Withholding Rights</U>. The Surviving
Corporation may deduct and withhold, or may instruct the
Exchange Agent to deduct and withhold, from the consideration
otherwise payable under this Agreement to any holder of shares
of Class&nbsp;A Common Stock such amounts as the Surviving
Corporation is required to deduct and withhold under the United
States Internal Revenue Code of 1986, as amended, or any similar
provision of state, local or foreign tax law with respect to the
making of such payment. Any amounts so deducted and withheld by
the Surviving Corporation or the Exchange Agent will be treated
as having been paid to the holder of the shares of Class&nbsp;A
Common Stock in respect of which such deduction and withholding
was made for all purposes of this Agreement.
</FONT>

<P align="center">
<FONT size="2">ARTICLE II.
</FONT>

<P align="center">
<FONT size="2">Representations and Warranties of the Company
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Except as set forth in the Company&#146;s
disclosure letter delivered to the Barnes&nbsp;&#38; Noble
Parties in connection with this Agreement (the &#147;Company
Disclosure Letter&#148;) or the SEC Documents filed prior to the
date of this Agreement, the Company hereby represents and
warrants to the Barnes&nbsp;&#38; Noble Parties as follows:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;2.1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Organization
of the Companies</U>.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(a)&nbsp;To the Company&#146;s knowledge the
Company is a corporation duly organized, and the Company is
validly existing and in good standing under the laws of its
jurisdiction of organization and has all the requisite corporate
power and authority to carry on its business as now being
conducted and to own, lease, use and operate the properties
owned and used by it. To the Company&#146;s knowledge
B&#38;N&nbsp;LLC is a limited liability company duly organized,
validly existing and in good standing under the laws of its
jurisdiction of organization and has all the requisite limited
liability company power and authority to carry on its business
as now being conducted and to own, lease, use and operate the
properties owned and used by it.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(b)&nbsp;To the Company&#146;s knowledge, the
Company is qualified and in good standing to do business in each
jurisdiction in which the nature of its business requires it to
be so qualified, except to the extent the failure to be so
qualified would not reasonably be expected to have a Material
Adverse Effect on the Company. To the Company&#146;s knowledge,
B&#38;N&nbsp;LLC is qualified and in good standing to do
business in each jurisdiction in which the nature of its
business requires it to be so qualified, except to the extent
the failure to be so qualified would not reasonably be expected
to have a Material Adverse Effect on B&#38;N&nbsp;LLC.
</FONT>

<P align="center"><FONT size="2">A-8
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;2.2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Capitalization
of the Companies</U>.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(a)&nbsp;As of the date of this Agreement, the
authorized capital stock of the Company consists of
(i)&nbsp;750,000,000 shares of Class&nbsp;A Common Stock;
(ii)&nbsp;1,000 shares of Class&nbsp;B Common Stock;
(iii)&nbsp;1,000 shares of Class&nbsp;C Common Stock; and
(iv)&nbsp;50,000,000 shares of Preferred Stock, par value $.001
per share (the &#147;Preferred Stock&#148;). As of
January&nbsp;7, 2004, there were 48,280,087 shares of
Class&nbsp;A Common Stock issued and outstanding, one share of
Class&nbsp;B Common Stock issued and outstanding, one share of
Class&nbsp;C Common Stock issued and outstanding and no shares
of Preferred Stock issued and outstanding. As of January&nbsp;7,
2004, there were 14,939,905 shares of Class&nbsp;A Common Stock
issuable upon the exercise of issued and outstanding Options.
All of the issued and outstanding shares of capital stock of the
Company are duly authorized, validly issued, fully paid and
non-assessable. No shares of capital stock of the Company are
held in the treasury of the Company as of the date of this
Agreement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(b)&nbsp;Except for Class&nbsp;A Common Stock
issuable upon (i)&nbsp;the exercise of outstanding Options and
(ii)&nbsp;the conversion of Membership Units, Class&nbsp;B
Common Stock or Class&nbsp;C Common Stock, there are no
outstanding options, warrants or other rights of any kind issued
or granted by the Company to acquire (including preemptive
rights) from the Company any additional shares of capital stock
of the Company or securities convertible into or exchangeable
for, or which otherwise confer on the holder thereof any right
to acquire, any such additional shares from the Company, nor is
the Company committed to issue any such option, warrant, right
or security.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(c)&nbsp;As of January&nbsp;7, 2004, there are
issued and outstanding 163,280,087 Membership Units and the
Company is the record and beneficial owner of 48,280,089
Membership Units, which are, to the Company&#146;s knowledge,
free and clear of any Liens. All of the issued and outstanding
Membership Units are duly authorized, validly issued and fully
paid. There are no outstanding options, warrants or other rights
of any kind issued or granted by either of the Companies to
acquire (including preemptive rights) from either of the
Companies any Membership Units or securities convertible into or
exchangeable for, or which otherwise confer on the holder
thereof any right to acquire, any such Membership Units, nor are
either of the Companies committed to issuing any such option,
warrant, right or security.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;2.3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Subsidiaries
of the Companies</U>. Other than the Company&#146;s interest in
B&#38;N LLC and B&#38;N LLC&#146;s 100% interest in BookQuest
LLC, the Companies do not own, directly or indirectly, any
equity securities of any other Person.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;2.4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Authorization</U>.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(a)&nbsp;The Company has all requisite corporate
power and authority to enter into this Agreement and, subject to
any necessary approval of this Agreement by the stockholders of
the Company, to carry out its obligations under this Agreement
and to consummate the transactions contemplated by this
Agreement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(b)&nbsp;The execution and delivery of this
Agreement by the Company and the consummation by the Company of
the transactions contemplated by this Agreement have been duly
authorized by all requisite corporate action on the part of the
Company (other than the approval of this Agreement by the
stockholders of the Company and filing of the Certificate of
Merger with the Secretary of State of the State of Delaware as
required by the DGCL). Upon the recommendation of the Special
Committee, the Board of Directors of the Company has in
accordance with the requirements of the DGCL unanimously
approved and declared advisable this Agreement and has
determined that the terms of the Merger are fair to, and in the
best interests of, the Company and the Public Stockholders.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(c)&nbsp;This Agreement has been duly executed
and delivered by the Company and, assuming the due
authorization, execution and delivery of this Agreement by each
Barnes &#38; Noble Party, constitutes the valid and binding
obligation of the Company, enforceable against the Company in
accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization or
similar laws affecting creditors&#146; rights generally or by
general equitable principles.
</FONT>

<P align="center"><FONT size="2">A-9
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(d)&nbsp;<U>Consents</U>.
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(i)&nbsp;Assuming that the consents, approvals,
    qualifications, orders, authorizations and filings referred to
    in Section&nbsp;2.4(d)(ii) have been made or obtained, the
    execution, delivery and performance by the Company of this
    Agreement will not result in any violation of or be in conflict
    with, or result in a breach of, or constitute a default under:
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(1)&nbsp;any term or provision of any state or
    federal law, ordinance, rule or regulation to which either of
    the Companies is subject, except for such violations, breaches
    or defaults that would not have, together with all such other
    violations, breaches and defaults, a Material Adverse Effect on
    the Companies, taken as a whole, or prevent the consummation of
    the transactions contemplated by this Agreement; or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(2)&nbsp;the Certificate of Incorporation or
    By-laws of the Company or the organizational documents of
    B&#38;N LLC, as amended and in effect on the date of this
    Agreement; or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(3)&nbsp;any Contract or Judgment to which either
    of the Companies is a party or by which either of the Companies
    is bound, or result in the creation of any Lien upon any of the
    properties or assets of either of the Companies, except for such
    violations, breaches, defaults or Liens that would not have,
    together with all such other violations, breaches, defaults and
    Liens, a Material Adverse Effect on the Companies, taken as a
    whole, or prevent the consummation of the transactions
    contemplated by this Agreement.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(ii)&nbsp;No consent, approval, qualification,
    order or authorization of, or filing with, any Governmental
    Entity is required in connection with the Company&#146;s valid
    execution, delivery or performance of this Agreement, or the
    consummation of any other transaction contemplated on the part
    of the Company under this Agreement, except (1)&nbsp;in
    connection, or in compliance, with the Securities Act and the
    Exchange Act, (2)&nbsp;the filing of the Certificate of Merger
    with the Secretary of State of the State of Delaware and
    appropriate documents with the relevant authorities of other
    states in which either of the Companies is qualified to do
    business, and (3)&nbsp;approvals, qualifications, orders,
    authorizations, or filings, in each case, the failure to obtain
    which would not have a Material Adverse Effect on the Companies,
    taken as a whole, or prevent the consummation of the
    transactions contemplated by this Agreement.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;2.5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Opinion
of Financial Advisor and Approval by the Special Committee</U>.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(a)&nbsp;On or prior to the date of this
Agreement, the Special Committee has (i)&nbsp;approved the terms
of this Agreement and the Merger as they relate to the Public
Stockholders, (ii)&nbsp;determined that the Merger is fair to
and in the best interest of the Company and the Public
Stockholders, and (iii)&nbsp;recommended that the Board of
Directors of the Company approve this Agreement and the Merger.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(b)&nbsp;The Special Committee has received an
opinion of Credit Suisse First Boston LLC to the effect that, as
of the date of such opinion, the Merger Consideration is fair,
from a financial point of view, to the Public Stockholders.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;2.6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Brokers
and Finders</U>. Other than Credit Suisse First Boston LLC,
neither of the Companies has employed any broker, finder,
advisor or intermediary in connection with the transactions
contemplated by this Agreement that would be entitled to a
broker&#146;s, finder&#146;s or similar fee or commission in
connection with or upon the consummation of the transactions
contemplated by this Agreement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;2.7.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Proxy
Statement; Schedule&nbsp;13E-3</U>.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(a)&nbsp;None of the information to be supplied
by either of the Companies for inclusion in the Proxy Statement
or the Schedule&nbsp;13E-3 will, in the case of the
Schedule&nbsp;13E-3, as of the date thereof and the date of any
amendment thereto and, in the case of the Proxy Statement, as of
the time the Proxy Statement (or any amendment thereof or
supplement thereto) is filed with the SEC and at the time the
Proxy Statement is mailed to the Company&#146;s stockholders,
contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
</FONT>

<P align="center"><FONT size="2">A-10
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(b)&nbsp;Each of the Proxy Statement and the
Schedule&nbsp;13E-3 will, as of its first date of use, comply as
to form in all material respects with the provisions of the
Exchange Act.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;2.8.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>SEC
Documents; Financial Statements; Sarbanes-Oxley</U>.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(a)&nbsp;To the Company&#146;s knowledge, the
Company has filed with the SEC all reports, schedules, forms,
statements and other documents required to be filed with the SEC
since January&nbsp;1, 2002 (collectively, the &#147;SEC
Documents&#148;).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(b)&nbsp;As of the respective dates that they
were filed, the SEC Documents complied as to form in all
material respects with all applicable requirements of the
Securities Act and the Exchange Act, as the case may be. Except
to the extent that information contained in any SEC Document has
been revised or superseded by a later filed SEC Document, none
of the SEC Documents, at the time filed, contained any untrue
statement of a material fact or omitted to state any material
fact required to be stated in or necessary in order to make the
statements in the SEC Documents, in light of the circumstances
under which they were made, not misleading.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(c)&nbsp;The financial statements of the Company
included in the SEC Documents (i)&nbsp;comply as to form in all
material respects with applicable accounting requirements and
the applicable published rules and regulations of the SEC,
(ii)&nbsp;have been prepared in accordance with GAAP (except, in
the case of unaudited statements, as permitted by applicable
instructions or regulations of the SEC relating to the
preparation of quarterly reports on Form&nbsp;10-Q) applied on a
consistent basis during the period involved (except as may be
indicated in the notes to the financial statements), and
(iii)&nbsp;fairly present in all material respects the financial
position of the Company as of the respective dates and the
Company&#146;s results of operations and cash flows for the
periods then ended except as otherwise noted therein (subject,
in the case of unaudited statements, to normal year-end audit
adjustments).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(d)&nbsp;The Company maintains &#147;disclosure
controls and procedures&#148; (as defined in
Rules&nbsp;13a-15(e) and 15d-15(e) of the Exchange Act) required
in order for the Chief Executive Officer and Chief Financial
Officer of the Company to engage in the review and evaluation
process mandated by Section&nbsp;302 of the Sarbanes-Oxley Act
of 2002. The Company&#146;s &#147;disclosure controls and
procedures&#148; are reasonably designed to ensure that
information required to be disclosed by the Company in the
reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time
periods specified in the rules and forms of the SEC, and that
all such information is accumulated and communicated to the
Company&#146;s management as appropriate to allow timely
decisions regarding required disclosure. Neither of the
Companies is a party to any off-balance sheet arrangements (as
defined in Item&nbsp;303(c) of Regulation&nbsp;S-K promulgated
under the Exchange Act).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;2.9.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Absence
of Certain Changes or Events</U>. Since December&nbsp;31, 2002,
the Companies have conducted their respective businesses only in
the ordinary course of such businesses, and there has not been
any event, fact, violation, circumstance or other matter that
has or have had, or would reasonably be expected to, either
individually or in the aggregate, have a Material Adverse Effect
on the Companies, taken as a whole.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;2.10.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>No
Undisclosed Material Liabilities</U>. Since September&nbsp;30,
2003, the Companies have not incurred any liabilities of any
kind whatsoever, whether accrued, contingent, absolute or
otherwise, which would be required to be reflected, reserved for
or disclosed under GAAP in the consolidated financial statements
of the Company, other than:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(a)&nbsp;liabilities or obligations reflected,
    reserved for or disclosed in the Company&#146;s filed SEC
    Documents;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(b)&nbsp;liabilities or obligations which would
    not, individually or in the aggregate, reasonably be expected to
    have a Material Adverse Effect on the Companies, taken as a
    whole; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(c)&nbsp;liabilities or obligations incurred
    under this Agreement or in connection with the transactions
    contemplated by this Agreement.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">A-11
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;2.11.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Compliance
with Laws and Court Orders</U>. Each of the Companies is in
compliance with and, to the knowledge of each of the Companies,
has not been given notice of any violation of any applicable
law, rule regulation, judgment, injunction, order or decree of
any Governmental Entity applicable to either of the Companies,
except for such violations as would not reasonably be expected
to, either individually or in the aggregate, have a Material
Adverse Effect on the Companies, taken as a whole.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;2.12.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Litigation
and Claims</U>. Neither of the Companies is subject to any
continuing order of, or written agreement or memorandum of
understanding with, any Governmental Entity or any judgment,
order, writ, injunction, decree, or award of any Governmental
Entity or any court or arbitrator, and there is no claim,
action, suit, litigation, proceeding, or arbitration pending or,
to the knowledge of either of the Companies, threatened, except
for matters which would not reasonably be expected to, either
individually or in the aggregate, have a Material Adverse Effect
on the Companies, taken as a whole.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;2.13.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Employee
Plans</U>. No Company Plan or Contract exists that could result
in the payment to any present or former employee of either of
the Companies of any money or other property or accelerate or
provide any other rights or benefits to any present or former
employee of either of the Companies as a result of the Merger.
</FONT>

<P align="center">
<FONT size="2">ARTICLE III.
</FONT>

<P align="center">
<FONT size="2">Representations and Warranties of the Barnes
&#38; Noble Parties
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Barnes &#38; Noble, B&#38;N Holding Corp. and
B&#38;N Acquisition Corp. (each, a &#147;Barnes &#38; Noble
Party&#148; and together, the &#147;Barnes &#38; Noble
Parties&#148;) hereby jointly and severally represent and
warrant to the Company as follows:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;3.1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Organization
and Qualification</U>. Each Barnes &#38; Noble Party is a
corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. B&#38;N
Acquisition Corp. has been incorporated solely for the purpose
of merging with and into the Company and taking action incident
to the Merger. Except for obligations or liabilities and
activities contemplated by this Agreement, B&#38;N Acquisition
Corp. has not incurred any obligations or liabilities or engaged
in any business activities of any kind prior to the Closing.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;3.2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Authorization</U>.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(a)&nbsp;Each Barnes &#38; Noble Party has all
corporate power and authority to enter into this Agreement, to
perform its obligations under this Agreement and to consummate
the transactions contemplated by this Agreement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(b)&nbsp;The execution and delivery of this
Agreement by each Barnes &#38; Noble Party and the consummation
by each Barnes &#38; Noble Party of the transactions
contemplated by this Agreement have been duly authorized by all
corporate action on the part of each Barnes &#38; Noble Party.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(c)&nbsp;This Agreement has been duly executed
and delivered by each Barnes &#38; Noble Party and, assuming the
due authorization, execution and delivery of this Agreement by
the Company, constitutes the valid and binding obligation of
each Barnes &#38; Noble Party, enforceable against each Barnes
&#38; Noble Party in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, or similar laws affecting
creditors&#146; rights generally or by general equitable
principles.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(d)&nbsp;<U>Consents</U>.
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(i)&nbsp;Assuming that the consents, approvals,
    qualifications, orders, authorizations and filings referred to
    in Section&nbsp;3.2(d)(ii) have been made or obtained, the
    execution, delivery and performance by each Barnes &#38; Noble
    Party of this Agreement will not result in any violation of or
    be in conflict with, or result in a breach of, or constitute a
    default under:
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(1)&nbsp;any term or provision of any state or
    federal law, ordinance, rule or regulation to which any Barnes
    &#38; Noble Party is subject and which violation, breach or
    default would have, together with all
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">A-12
</FONT>

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<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">such other violations, breaches and defaults, a
    Material Adverse Effect on the Barnes &#38; Noble Parties, taken
    as a whole, or prevent the consummation of the transactions
    contemplated by this Agreement; or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(2)&nbsp;the Certificate of Incorporation or
    By-Laws of each Barnes &#38; Noble Party, as amended and in
    effect on the date of this Agreement or the Closing Date, or any
    Contract or Judgment to which any Barnes &#38; Noble Party is a
    party or by which any Barnes &#38; Noble Party is bound, or
    result in the creation of any Lien upon any of the properties or
    assets of any Barnes &#38; Noble Party, which breach or default
    would have, together with all such other breaches and defaults,
    a Material Adverse Effect on the Barnes &#38; Noble Parties,
    taken as a whole, or prevent the consummation of the
    transactions contemplated by this Agreement.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(ii)&nbsp;No consent, approval, qualification,
    order or authorization of, or filing with, any Governmental
    Entity is required in connection with the valid execution,
    delivery or performance of this Agreement by any Barnes &#38;
    Noble Party, or the consummation of any other transaction
    contemplated on the part of any Barnes &#38; Noble Party under
    this Agreement, except (1)&nbsp;in connection, or in compliance,
    with the Securities Act and the Exchange Act, (2)&nbsp;the
    filing of the Certificate of Merger with the Secretary of State
    of the State of Delaware, and (3)&nbsp;approvals,
    qualifications, orders, authorizations, or filings, in each case
    the failure to obtain which would not have a Material Adverse
    Effect on the Barnes &#38; Noble Parties, taken as a whole, or
    prevent the consummation of the transactions contemplated by
    this Agreement.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;3.3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Brokers
and Finders</U>. Other than Citigroup Global Markets, Inc., no
Barnes &#38; Noble Party has employed any broker, finder,
advisor or intermediary in connection with the transactions
contemplated by this Agreement that would be entitled to a
broker&#146;s, finder&#146;s, or similar fee or commission in
connection with or upon the consummation of the transactions
contemplated by this Agreement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;3.4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Proxy
Statement; Schedule&nbsp;13E-3</U>. None of the information to
be supplied by a Barnes &#38; Noble Party for inclusion in the
Proxy Statement or Schedule&nbsp;13E-3 will, in the case of the
Schedule&nbsp;13E-3, as of the date thereof and the date of any
amendment thereto and, in the case of the Proxy Statement, as of
the time the Proxy Statement (or any amendment thereof or
supplement thereto) is filed with the SEC and at the time the
Proxy Statement is mailed to the Company&#146;s stockholders,
contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in
order to make the statements therein with respect to the
information provided by a Barnes &#38; Noble Party, in light of
the circumstances under which they are made, not misleading.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;3.5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Knowledge</U>.
Other than as set forth in the Company Disclosure Letter, the
Barnes &#38; Noble Parties are not aware of any facts or
circumstances which would cause the representations and
warranties of the Company contained in this Agreement to be
untrue or incorrect in any material respect.
</FONT>

<P align="center">
<FONT size="2">ARTICLE IV.
</FONT>

<P align="center">
<FONT size="2">Certain Covenants and Agreements
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;4.1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Certain
Actions Pending Merger</U>. Prior to the Effective Time
(i)&nbsp;the Companies shall conduct their respective businesses
in the ordinary and usual course of business, consistent with
past practice and (ii)&nbsp;neither of the Companies shall take
any of the following actions, except with the prior written
consent of Barnes &#38; Noble or as expressly contemplated or
permitted by this Agreement:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(a)&nbsp;declare, set aside or pay any dividends
    on or make any other distribution in respect of any of its
    capital stock or Membership Units;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(b)&nbsp;split, combine or reclassify any of its
    capital stock or Membership Units or issue or authorize or
    propose the issuance or authorization of any other securities in
    respect of, in lieu of, or in substitution for shares of its
    capital stock or Membership Units or repurchase, redeem or
    otherwise acquire any shares of its capital stock or Membership
    Units;
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">A-13
</FONT>

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<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(c)&nbsp;issue, deliver, pledge, encumber or
    sell, or authorize the issuance, delivery, pledge, encumbrance
    or sale of, or purchase or propose the purchase of, any shares
    of its capital stock or Membership Units or securities
    convertible into, or rights, warrants or options to acquire, any
    such shares of capital stock or Membership Units or other
    convertible securities (other than the issuance upon the
    exercise of outstanding Options in effect on the date of this
    Agreement or the exchange or conversion of Membership Units or
    shares of Class&nbsp;B Common Stock or Class&nbsp;C Common
    Stock, in each case in accordance with their respective present
    terms), authorize or propose any change in its equity
    capitalization, or amend any of the financial or other economic
    terms of such securities or the financial or other economic
    terms of any agreement to which either of the Companies is a
    party relating to such securities;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(d)&nbsp;amend its Certificate of Incorporation,
    By-laws or other organizational documents in any manner;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(e)&nbsp;merge or consolidate with any other
    Person, or acquire any assets or capital stock of any other
    Person, other than acquisitions of assets in the ordinary course
    of business;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(f)&nbsp;incur any indebtedness for money
    borrowed or guarantee any such indebtedness of another Person
    other than pursuant to any current agreement relating to
    indebtedness for money borrowed or other than in the ordinary
    course of business;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(g)&nbsp;make or authorize any capital
    expenditures, other than capital expenditures that are in the
    aggregate no greater than (i)&nbsp;$5.0 million from the date of
    this Agreement through March&nbsp;31, 2004 and (ii)
    $10.0&nbsp;million from the date of this Agreement through
    July&nbsp;15, 2004;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(h)&nbsp;except as may be required by changes in
    applicable law or GAAP, change any method, practice or principle
    of accounting;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(i)&nbsp;enter into any new employment agreements
    with, or increase the compensation of, any officer (vice
    president or above) or director of either of the Companies
    (including entering into any bonus, severance, change of
    control, termination, reduction-in-force or consulting agreement
    or other employee benefits arrangement or agreement pursuant to
    which such person has the right to any form of compensation from
    either of the Companies), other than as required by law or by
    written agreements in effect on or prior to the date hereof with
    such person, or otherwise amend in any material respect any
    existing agreements with any such person or use its discretion
    to amend any Company Plan or accelerate the vesting or any
    payment under any Company Plan;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(j)&nbsp;enter into any transaction with any
    officer (vice president or above) or director of either of the
    Companies, other than as provided for in the terms of any
    agreement in effect on or prior to the date hereof;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(k)&nbsp;settle or otherwise compromise any
    material litigation, arbitration or other judicial or
    administrative dispute or proceeding relating to either of the
    Companies; or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(l)&nbsp;the entering into any agreement to, or
    the making of any commitment to, take any of the actions
    prohibited by this Section&nbsp;4.1.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;4.2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Proxy
Statement</U>.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(a)&nbsp;As soon as reasonably practicable after
the date of this Agreement, the Company will prepare and file
with the SEC, a proxy statement relating to the Company
Stockholders&#146; Meeting (together with any amendments thereof
or supplements thereto and any other required proxy materials,
the &#147;Proxy Statement&#148;) and a Rule&nbsp;13E-3
Transaction Statement on Schedule&nbsp;13E-3 (together with any
amendments thereof or supplements thereto, the
&#147;Schedule&nbsp;13E-3&#148;) relating to the transactions
contemplated by this Agreement and will use its reasonable
efforts to respond to any comments of the SEC and to cause the
Proxy Statement to be mailed to the Company&#146;s stockholders
as promptly as practicable; <I>provided, however, </I>that prior
to the filing of the Proxy Statement and the
Schedule&nbsp;13E-3, the Company will consult with the Barnes
&#38; Noble Parties and their counsel with respect to such
filings and shall afford the Barnes&nbsp;&#38; Noble Parties
reasonable opportunity to
</FONT>

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</FONT>

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<DIV align="left">
<FONT size="2">review and comment thereon. The Barnes&nbsp;&#38;
Noble Parties will provide the Company with any information for
inclusion in the Proxy Statement and the Schedule&nbsp;13E-3
which may be required under applicable law and which is
reasonably requested by the Company. The Company will promptly
notify the Barnes&nbsp;&#38; Noble Parties of the receipt of any
comments from the SEC and of any request by the SEC for
amendments or supplements to the Proxy Statement or the
Schedule&nbsp;13E-3 or for additional information, and will
supply the Barnes&nbsp;&#38; Noble Parties with copies of all
correspondence between the Company and any of its
representatives, on the one hand, and the SEC or members of its
staff, on the other hand, with respect to the Proxy Statement,
the Schedule&nbsp;13E-3 or the transactions contemplated hereby.
If at any time prior to the Company Stockholders&#146; Meeting
any event should occur which is required by applicable law to be
set forth in an amendment of, or a supplement to, the Proxy
Statement or the Schedule&nbsp;13E-3, the Company will prepare
and, if appropriate, mail to its stockholders such amendment or
supplement; <I>provided, however</I>, that prior to such
mailing, the Company will consult with the Barnes&nbsp;&#38;
Noble Parties and their counsel with respect to such amendment
or supplement and shall afford the Barnes&nbsp;&#38; Noble
Parties reasonable opportunity to review and comment thereon.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(b)&nbsp;Except under the circumstances described
in Section&nbsp;4.3, the Company through the Company&#146;s
Board of Directors (acting upon the recommendation of the
Special Committee) shall recommend to its Public Stockholders
the adoption of this Agreement and the transactions contemplated
hereby and such recommendation shall be included in the Proxy
Statement and the Schedule&nbsp;13E-3.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;4.3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Stockholders&#146;
Meeting</U>.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(a)&nbsp;The Company will call and hold a meeting
of the stockholders of the Company for the purpose of voting
upon the adoption and approval of this Agreement and the
transactions contemplated by this Agreement (such meeting, the
&#147;Company Stockholders&#146; Meeting&#148;). The Company
Stockholders&#146; Meeting will be held (on a date selected by
the Company in consultation with the Barnes&nbsp;&#38; Noble
Parties) as promptly as practicable after the mailing of the
Proxy Statement to the stockholders of the Company.
Barnes&nbsp;&#38; Noble hereby agrees to cause B&#38;N Holding
Corp. to vote all shares of its Class&nbsp;A Common Stock,
Class&nbsp;B Common Stock and Class&nbsp;C Common Stock in favor
of the adoption and approval of this Agreement and the
transactions contemplated by this Agreement. Neither the Board
of Directors of the Company nor any committee thereof (including
the Special Committee) shall, except as expressly permitted by
this Section&nbsp;4.3, withdraw, qualify or modify its approval
or recommendation of the approval of this Agreement and the
transactions contemplated hereby in a manner adverse to
Barnes&nbsp;&#38; Noble (an &#147;Adverse Company Board
Recommendation&#148;).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(b)&nbsp;Notwithstanding anything to the contrary
contained herein, at any time prior to the adoption of this
Agreement by the Required Company Stockholder Vote, the Board of
Directors of the Company (acting upon the recommendation of the
Special Committee) or the Special Committee may make an Adverse
Company Board Recommendation and terminate this Agreement
pursuant to Section&nbsp;6(d)(i) (a &#147;Termination
Recommendation&#148;) if: (i)&nbsp;any Person makes an
Acquisition Proposal; (ii)&nbsp;the Company provides notice to
Barnes&nbsp;&#38; Noble to the effect that it received such
Acquisition Proposal as soon as practicable after receipt
thereof, but in no event later than two&nbsp;(2) business days
after receipt thereof; and (iii)&nbsp;the Special Committee
determines in good faith (after consultation with its legal and
financial advisors) that such Acquisition Proposal is more
favorable to the Public Stockholders than the Merger and made by
a Person which is reasonably able to finance the transaction
contemplated by the Acquisition Proposal (a &#147;Superior
Proposal&#148;).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(c)&nbsp;Notwithstanding anything to the contrary
contained herein, at any time prior to the satisfaction of the
conditions set forth in Article&nbsp;V, the Board of Directors
of the Company (acting upon the recommendation of the Special
Committee) or the Special Committee may make an Adverse Company
Board Recommendation (other than a Termination Recommendation)
(any such Adverse Company Board Recommendation, a
&#147;Non-Termination Recommendation&#148;) if the Special
Committee determines in good faith (after consultation with its
outside legal counsel) that the Non-Termination Recommendation
is necessary in order for the Special Committee to comply with
its fiduciary obligations to the Public Stockholders under
applicable law. Notwithstanding any Non-Termination
Recommendation, this Agreement shall be submitted to the
stockholders of the Company at the Company Stockholders&#146;
Meeting for the purpose
</FONT>

<P align="center"><FONT size="2">A-15
</FONT>

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<DIV align="left">
<FONT size="2">of adopting this Agreement and the transactions
contemplated hereby, and nothing contained herein shall relieve
the Company of such obligation.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;4.4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Reasonable
Efforts</U>. Subject to the terms and conditions herein
provided, each of the Parties agrees to (i)&nbsp;use its
reasonable efforts to take, or cause to be taken, all action,
and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations or required to
be taken by any Governmental Entity or otherwise to consummate
and make effective the transactions contemplated by this
Agreement as promptly as practicable, (ii)&nbsp;obtain from any
Governmental Entity any consents, licenses, permits, waivers,
approvals, authorizations or orders required to be obtained or
made by any Party in connection with the authorization,
execution and delivery of this Agreement and the consummation of
the Merger, and (iii)&nbsp;as promptly as practicable, make all
necessary filings, and thereafter make any other required
submissions, with respect to this Agreement and the Merger
required under (A)&nbsp;the Exchange Act, and any other
applicable federal or state securities laws, and (B)&nbsp;any
other applicable law; provided that the Parties shall cooperate
with each other in connection with the making of all such
filings, including providing copies of all such documents to the
non-filing party and its advisors prior to filing and, if
requested, to accept all reasonable additions, deletions or
changes suggested in connection therewith. The Parties shall use
reasonable efforts to furnish to each other all information
required for any application or other filing to be made pursuant
to the rules and regulations of any applicable law (including
all information required to be included in the Proxy Statement
and the Schedule&nbsp;13E-3) in connection with the transactions
contemplated by this Agreement. In case at any time after the
Effective Time any further action is necessary or desirable to
carry out the purposes of this Agreement, the proper officers
and directors of each Party to this Agreement shall take all
such necessary or desirable action.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;4.5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Inspection
of Records</U>. From the date hereof to the Effective Time, the
Companies shall (i)&nbsp;allow all designated officers,
attorneys, financial advisors, accountants and other
representatives of Barnes&nbsp;&#38; Noble reasonable access at
all reasonable times to the offices, records and files,
correspondence, audits and properties, as well as to all
information relating to commitments, contracts, titles and
financial position, or otherwise pertaining to the business and
affairs, of the Companies and (ii)&nbsp;make available for
inspection by Barnes&nbsp;&#38; Noble and its counsel, financial
advisors, auditors and other authorized representatives such
financial and operating data and other information as such
persons may reasonably request to the extent such information is
readily available. No investigation by any Party, whether prior
to the execution of this Agreement or pursuant to this
Section&nbsp;4.5, shall affect any representation or warranty in
this Agreement of any Party or any condition to the obligations
of any Party.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;4.6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Notification
of Certain Matters</U>. From and after the date of this
Agreement until the Effective Time, each Party shall promptly
notify the other Parties of:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(a)&nbsp;any change or event, or series of
    changes or events, having, or which would reasonably be expected
    to have, individually or in the aggregate, a Material Adverse
    Effect on it or B&#38;N LLC or would be reasonably likely to
    cause any of the conditions in Article&nbsp;V not to be
    satisfied or to cause the satisfaction thereof to be materially
    delayed;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(b)&nbsp;the receipt of any material notice or
    other material communication from any Person alleging that the
    consent of such Person is or may be required in connection with
    the transactions contemplated hereby;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(c)&nbsp;the receipt of any material notice or
    other material communication from any Governmental Entity in
    connection with the transactions contemplated hereby; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(d)&nbsp;any actions, suits, claims,
    investigations or proceedings commenced or, to the knowledge of
    the Party, threatened against any Party or B&#38;N LLC which
    seeks to prohibit or prevent consummation of the transactions
    contemplated hereby;
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">in each case, to the extent such event or
circumstance is or becomes known to the Party required to give
such notice; <I>provided, however</I>, that the delivery of any
notice pursuant to this Section&nbsp;4.6 shall not be deemed to
be an amendment of this Agreement and shall not cure any breach
of any representation or warranty requiring disclosure of such
matter prior to the date of this Agreement.
</FONT>

<P align="center"><FONT size="2">A-16
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;4.7.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Disclosure</U>.
None of the Parties or their respective Affiliates will issue
any press release or otherwise make any public statement with
respect to this Agreement and the transactions contemplated by
this Agreement without the prior consent of the other Party
(which consent will not be unreasonably withheld), except as may
be required by applicable law or stock exchange regulation. The
Parties will consult (to the extent reasonably practicable if
disclosure is required by law) with each other before issuing,
and provide each other the opportunity to review and comment
upon, any such press release or other public statement with
respect to this Agreement and the transactions contemplated by
this Agreement, whether or not required by law. The Parties
shall agree on the text of a joint press release by which the
Parties will announce the execution of this Agreement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;4.8.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Directors&#146;
and Officers&#146; Indemnification</U>.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(a)&nbsp;The Certificate of Incorporation and the
By-laws of the Surviving Corporation will contain the provisions
with respect to indemnification, advancement of expenses and
limitation of liability of directors and officers set forth in
the Company&#146;s Amended and Restated Certificate of
Incorporation and By-laws on the date of this Agreement. These
provisions may not be amended, repealed or otherwise modified
for a period of six (6)&nbsp;years following the Effective Time
in any manner that would adversely affect the rights under the
Amended and Restated Certificate of Incorporation and By-laws of
individuals who on or prior to the Effective Time were directors
or officers of the Company or B&#38;N LLC or served at the
request of the Company or B&#38;N LLC as a director or officer
of another corporation, partnership, joint venture, trust,
pension or other employee benefit plan or enterprise, unless
such modification is required by law and then only to the
maximum extent required by such applicable law, and except to
make changes permitted by applicable law that would enlarge the
exculpation, rights of indemnification or advancement of
expenses thereunder; <I>provided, however</I>, that if any
claims are asserted or made within such six-year period, all
rights to indemnification (and to advancement of expenses)
hereunder in respect of such claims shall continue, without
diminution, until disposition of all such claims.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(b)&nbsp;From the Effective Time through the
later of (i)&nbsp;the sixth anniversary of the date on which the
Effective Time occurs and (ii)&nbsp;the expiration of any
statute of limitations applicable to any claim, action, suit,
proceeding or investigation referred to below, the Surviving
Corporation shall (and Barnes&nbsp;&#38; Noble shall cause the
Surviving Corporation to) indemnify and hold harmless each
present and former officer and director of the Company and
B&#38;N LLC, and each person who served at the request of the
Company or B&#38;N LLC as a director or officer of another
corporation, partnership, joint venture, trust, pension or other
employee benefit plan or enterprise, including each person
controlling any of the foregoing persons (collectively, the
&#147;Indemnified Parties&#148; and each, an &#147;Indemnified
Party&#148;), against all claims, losses, liabilities, damages,
judgments, fines, fees, costs or expenses, including reasonable
attorneys&#146; fees and disbursements, incurred in connection
with any claim, action, suit, proceeding or investigation,
whether civil, criminal, administrative or investigative,
arising out of or pertaining to matters existing or occurring at
or prior to the Effective Time (including this Agreement and the
transactions and actions contemplated hereby), whether asserted
or claimed prior to, at or after the Effective Time, to the
fullest extent permitted under applicable law and the
Certificate of Incorporation or By-laws of the Company or
indemnification agreements in effect on the date hereof,
including provisions relating to advancement of expenses
incurred in the defense of any claim, action, suit, proceeding
or investigation. Without limiting the foregoing, in the event
that any claim, action, suit, proceeding or investigation is
brought against an Indemnified Party (whether arising before or
after the Effective Time), the Indemnified Party may retain
counsel reasonably satisfactory to the Surviving Corporation,
and the Surviving Corporation shall (and Barnes&nbsp;&#38; Noble
shall cause the Surviving Corporation to) advance the fees and
expenses of such counsel for the Indemnified Party in accordance
with the Certificate of Incorporation or By-laws of the Company
in effect on the date of this Agreement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(c)&nbsp;The Surviving Corporation shall (and
Barnes&nbsp;&#38; Noble shall cause the Surviving Corporation
to) provide, for a period of not less than six (6)&nbsp;years
after the Effective Time, the Company&#146;s current and former
directors and officers who are currently covered by the
Company&#146;s existing director and officer insurance policy
with an insurance policy (including by arranging for run-off
coverage, if necessary) that provides coverage for events
occurring at or prior to the Effective Time (the &#147;D&#38;O
Insurance&#148;) that is no less favorable than the existing
policy, or, if substantially equivalent insurance coverage is
unavailable, the most
</FONT>

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</FONT>

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<DIV align="left">
<FONT size="2">advantageous D&#38;O Insurance obtainable for an
annual premium equal to 300% of the annual premium currently in
place for the Company for such insurance; <I>provided,
however</I>, that the Surviving Corporation shall not be
required to pay an annual premium for the D&#38;O Insurance in
excess of 300% of the annual premium currently in place for the
Company for such insurance; <I>provided further, however</I>,
that in lieu of the foregoing, any of the Barnes&nbsp;&#38;
Noble Parties shall be permitted to procure &#147;tail insurance
coverage&#148; to cover the Company&#146;s current and former
directors and officers who are currently covered by the
Company&#146;s existing director and officer insurance policy
that provides coverage for events occurring at or prior to the
Effective Time, which coverage shall be no less favorable than
the existing director and officer insurance policy, and the
Surviving Corporation shall (and Barnes&nbsp;&#38; Noble shall
cause the Surviving Corporation to) maintain such coverage for a
period of not less than six (6)&nbsp;years after the Effective
Time. In the event any claim is made against present or former
directors or officers of the Company or B&#38;N LLC that is
covered or potentially covered by insurance, neither the
Surviving Corporation nor Barnes&nbsp;&#38; Noble shall do
anything that would forfeit, jeopardize, restrict or limit the
insurance coverage available for that claim until the final
disposition thereof.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(d)&nbsp;This Section&nbsp;4.8 shall survive the
Effective Time, is intended to benefit the Surviving
Corporation, the Company&#146;s current and former directors and
officers who are currently covered by the Company&#146;s
existing director and officer insurance policy and shall be
enforceable by such persons, their heirs, assigns and
representatives and are in addition to, and not in substitution
for, any other rights to indemnification or contribution that
any such person may have by contract or otherwise. In the event
the Surviving Corporation or any of its successors or assigns
(i)&nbsp;consolidates with or merges into any other person and
shall not be the continuing or surviving corporation or entity
of such consolidation or merger, or (ii)&nbsp;transfers or
conveys all or substantially all of its properties and assets to
any Person, then, and in each such case, proper provision shall
be made so that the successors and assigns of the Surviving
Corporation, or at Barnes&nbsp;&#38; Noble&#146;s option,
Barnes&nbsp;&#38; Noble, shall assume the obligations set forth
in this Section&nbsp;4.8.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;4.9.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Stockholder
Litigation</U>. Each of the Parties shall give the other the
reasonable opportunity to participate in the defense of any
stockholder litigation against any Party or their respective
directors and officers, as applicable, relating to this
Agreement and the transactions contemplated hereby.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;4.10.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Employee
Matters</U>.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(a)&nbsp;Following the Closing Date until
January&nbsp;31, 2005, Barnes &#38; Noble shall, or shall cause
the Surviving Corporation to, provide employee benefits to
employees of the Company or B&#38;N LLC (collectively,
&#147;Employees&#148;) that are comparable in the aggregate to
the employee benefits provided to Employees immediately prior to
the Closing Date. To the extent that service is relevant for
purposes of eligibility or vesting under any plan, program or
arrangement established or maintained by Barnes&nbsp;&#38; Noble
for the benefit of Employees that is comparable to a plan,
program or arrangement in which any such Employee was entitled
to participate prior to the Closing Date, such plan, program or
arrangement shall credit such Employees for service on or prior
to the Closing with the Company or B&#38;N&nbsp;LLC, as the case
may be, for purposes of eligibility or vesting, but not for
benefit accrual or level of benefits. Following the Closing
Date, matching contributions on behalf of the Employees shall be
invested in the same manner as such contributions are invested
on behalf of similarly situated employees of Barnes &#38; Noble.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(b)&nbsp;Barnes &#38; Noble shall take all
actions necessary to provide that all Employees participating in
an annual bonus plan or policy of the Company or
B&#38;N&nbsp;LLC for the 2003 calendar year be paid the portion
of such annual bonus under the terms of the applicable plan or
policy as in effect immediately prior to the Closing Date.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(c)&nbsp;After the Closing Date, Barnes &#38;
Noble agrees to assume or guarantee payment of all obligations
of the Company or B&#38;N&nbsp;LLC to Employees under
(i)&nbsp;the B&#38;N&nbsp;LLC Deferred Compensation Plan and
(ii)&nbsp;any employment agreement between any Employee and the
Company or B&#38;N&nbsp;LLC.
</FONT>

<P align="center"><FONT size="2">A-18
</FONT>

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<P align="center">
<FONT size="2">ARTICLE V.
</FONT>

<P align="center">
<FONT size="2">Conditions Precedent
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;5.1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Conditions
to each Party&#146;s Obligation to Effect the Merger</U>. The
respective obligation of each Party to effect the Merger is
subject to the satisfaction on or prior to the Closing Date of
each of the following conditions (any of which may be waived by
the Parties in writing, in whole or in part, to the extent
permitted by applicable law):
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(a)&nbsp;<U>No Injunctions or Restraints;
    Illegality</U>. No temporary restraining order, preliminary or
    permanent injunction or other order issued by any court of
    competent jurisdiction or other legal restraint or prohibition
    preventing the consummation of the Merger shall be in effect
    (each Party agreeing to use its reasonable efforts (as set forth
    in Section&nbsp;4.4 hereof) to have any restraining order,
    injunction or other order or legal restraint or prohibition
    lifted) nor shall any proceeding brought by an administrative
    agency or commission or other governmental authority or
    instrumentality seeking any of the foregoing be pending; and
    there shall not be any action taken, or any statute, rule,
    regulation or order (whether temporary, preliminary or
    permanent) enacted, entered or enforced, which makes the
    consummation of the Merger illegal or prevents or prohibits the
    Merger.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(b)&nbsp;<U>Approval of Stockholders</U>. The
    adoption of this Agreement shall have been approved by the
    requisite vote of the stockholders of the Company in accordance
    with the DGCL (the &#147;Required Company Stockholder
    Vote&#148;).
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(c)&nbsp;<U>Consents</U>. Other than the filing
    of the Certificate of Merger, all material consents, approvals
    and authorizations of and filings with Governmental Entities
    required for the consummation of the Merger must have been
    obtained or effected.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;5.2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Conditions
to the Obligation of the Company to Effect the Merger</U>. The
obligation of the Company to effect the Merger is further
subject to the satisfaction or waiver of each of the following
conditions prior to or at the Closing Date:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(a)&nbsp;<U>Representations and Warranties</U>.
    The representations and warranties of each Barnes&nbsp;&#38;
    Noble Party contained in this Agreement shall be true and
    correct in all material respects (other than representations and
    warranties that are qualified as to materiality or Material
    Adverse Effect, which representations and warranties shall be
    true and correct in all respects) at and as of the Closing Date
    as though made at and as of the Closing Date (except to the
    extent that such representations and warranties speak as of a
    specific date, in which case such representations and warranties
    shall be true and correct as of such date).
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(b)&nbsp;<U>Agreements</U>. Each
    Barnes&nbsp;&#38; Noble Party shall have performed and complied
    in all material respects with all its undertakings and
    agreements required by this Agreement to be performed or
    complied with by it prior to or at the Closing Date.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(c)&nbsp;<U>Certificate</U>. The Company shall
    have received a certificate of a senior executive officer of
    Barnes &#38; Noble, dated the Closing Date, certifying that the
    conditions specified in Section&nbsp;5.2(a) and Section 5.2(b)
    have been fulfilled.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;5.3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Conditions
to the Obligation of the Barnes &#38; Noble Parties to Effect
the Merger</U>. The obligation of the Barnes &#38; Noble Parties
to effect the Merger is further subject to the satisfaction or
waiver of each of the following conditions prior to or at the
Closing Date:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(a)&nbsp;<U>Representations and Warranties</U>.
    The representations and warranties of the Company contained in
    this Agreement shall be true and correct in all material
    respects (other than representations and warranties that are
    qualified as to materiality or Material Adverse Effect, which
    representations and warranties shall be true and correct in all
    respects) at and as of the Closing Date as though made at and as
    of the Closing Date (except to the extent that such
    representations and warranties speak as of a specific date, in
    which case such representations and warranties shall be true and
    correct as of such date).
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">A-19
</FONT>

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<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(b)&nbsp;<U>Agreements</U>. The Company must have
    performed and complied in all material respects with all of its
    undertakings and agreements required by this Agreement to be
    performed or complied with by it prior to or at the Closing Date.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(c)&nbsp;<U>Certificate</U>. Barnes&nbsp;&#38;
    Noble shall have received a certificate of a senior executive
    officer of the Company, dated the Closing Date, certifying that
    the conditions specified in Section&nbsp;5.3(a) and
    Section&nbsp;5.3(b) have been fulfilled.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(d)&nbsp;<U>Material Adverse Effect</U>. Since
    the date of this Agreement, there shall not have occurred any
    Material Adverse Effect with respect to the Companies, taken as
    a whole.
    </FONT></TD>
</TR>

</TABLE>

<P align="center">
<FONT size="2">ARTICLE VI.
</FONT>

<P align="center">
<FONT size="2">Termination, Amendment and Waiver
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;6.1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Termination</U>.
This Agreement may be terminated and the Merger may be abandoned
as follows:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(a)&nbsp;at any time prior to adoption of this
    Agreement by the Required Company Stockholder Vote, by the
    mutual written consent of Barnes &#38; Noble and the Company;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(b)&nbsp;by either Barnes &#38; Noble or the
    Company, in each case by written notice to the other, if:
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(i)&nbsp;at any time prior to adoption of this
    Agreement by the Required Company Stockholder Vote, the Merger
    has not been consummated on or prior to July&nbsp;15, 2004;
    provided that the right to terminate this Agreement under this
    Section&nbsp;6.1(b)(i) will not be available to any Party whose
    failure to fulfill any obligation under this Agreement has been
    the cause of, or resulted in, the failure of the Merger to occur
    on or prior to such date; or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(ii)&nbsp;at any time prior to the Effective
    Date, an administrative agency or commission or other
    governmental authority or instrumentality shall have issued a
    final nonappealable injunction, order, decree, judgment or
    ruling, permanently enjoining or otherwise prohibiting the
    Merger.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(c)&nbsp;at any time prior to adoption of this
    Agreement by the Required Company Stockholder Vote, by Barnes
    &#38; Noble upon written notice to the Company:
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(i)&nbsp;if there has occurred an Adverse Company
    Board Recommendation; or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(ii)&nbsp;upon a breach of any representation,
    warranty, covenant or agreement on the part of the Company set
    forth in this Agreement such that the conditions set forth in
    Section&nbsp;5.3(a) or Section&nbsp;5.3(b) shall have become
    incapable of fulfillment.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(d)&nbsp;at any time prior to adoption of this
    Agreement by the Required Company Stockholder Vote, by the
    Special Committee upon written notice to Barnes &#38; Noble:
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(i)&nbsp;if there has occurred a Termination
    Recommendation; <I>provided that</I>, prior to such termination
    the Special Committee shall have given Barnes &#38; Noble no
    less than five (5)&nbsp;business days notice; or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(ii)&nbsp;upon a breach of any representation,
    warranty, covenant or agreement on the part of a Barnes &#38;
    Noble Party set forth in this Agreement such that the conditions
    set forth in Section&nbsp;5.2(a) or Section&nbsp;5.2(b) shall
    have become incapable of fulfillment.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;6.2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Effect
of Termination</U>. If this Agreement is terminated as provided
in Section&nbsp;6.1, this Agreement will become null and void
(except that the provisions of Sections&nbsp;4.7, 6.2, 7.3 and
7.4 will survive any termination of this Agreement), and there
will be no liability on the part of any Party or any of their
Affiliates; provided that nothing in this Agreement will relieve
any party from any liability or obligation with respect to any
breach of this Agreement prior to such termination.
</FONT>

<P align="center"><FONT size="2">A-20
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;6.3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Amendment</U>.
This Agreement may be amended only by an agreement in writing
executed by all of the Parties. After the approval of the
adoption of this Agreement by the stockholders of the Company,
no amendment requiring approval of the stockholders of the
Company and B&#38;N Acquisition Corp. shall be made without
first obtaining such approval.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;6.4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Waiver</U>.
At any time prior to the Effective Time, whether before or after
the satisfaction of the condition set forth in
Section&nbsp;5.1(b), any of the Parties may:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(a)&nbsp;extend the time for the performance of
    any of the obligations or other acts of any of the other Party
    or Parties, as the case may be; or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(b)&nbsp;waive compliance with any of the
    agreements of the other Party or Parties, as the case may be, or
    fulfillment of any conditions to its own obligations under this
    Agreement.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Any agreement on the part of a Party to any such
extension or waiver will be valid only if set forth in an
instrument in writing signed on behalf of such Party by a duly
authorized officer.
</FONT>

<P align="center">
<FONT size="2">ARTICLE VII.
</FONT>

<P align="center">
<FONT size="2">Miscellaneous
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;7.1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Definitions</U>.
In this Agreement, unless the context otherwise provides, the
following terms have the following meanings:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Adverse Company Board Recommendation&#148;
has the meaning specified in Section&nbsp;4.3(a).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Affiliates&#148; means, with respect to any
Person, (i)&nbsp;any other Person that directly or indirectly
Controls, is Controlled by or is under common Control with, such
Person, or (ii)&nbsp;any director, officer, partner or member of
management of such Person.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Acquisition Proposal&#148; means a bona
fide, unsolicited, proposal from any Person (whether or not in
writing) which is not withdrawn relating to any (i) direct or
indirect acquisition of all of the shares of Class&nbsp;A Common
Stock owned by the Public Stockholders, (ii)&nbsp;direct or
indirect acquisition of all of the shares of outstanding capital
stock or ownership interests of either of the Companies,
(iii)&nbsp;direct or indirect acquisition of all or
substantially all of the assets of either of the Companies, or
(iv)&nbsp;merger, consolidation, share exchange, business
combination or similar transaction involving either of the
Companies.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Barnes &#38; Noble&#148; has the meaning
specified in the introductory paragraph of this Agreement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Barnes &#38; Noble Party&#148; and
&#147;Barnes &#38; Noble Parties&#148; has the meaning specified
in Article&nbsp;III.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;B&#38;N Acquisition Corp.&#148; has the
meaning specified in the introductory paragraph of this
Agreement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;B&#38;N Holding Corp.&#148; has the meaning
specified in the introductory paragraph of this Agreement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;B&#38;N LLC&#148; has the meaning specified
in Recital A hereof.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Capital Stock&#148; has the meaning
specified in Recital A.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Certificate of Merger&#148; has the meaning
specified in Section&nbsp;1.2.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Class&nbsp;A Common Stock&#148; has the
meaning specified in Recital A.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Class&nbsp;B Common Stock&#148; has the
meaning specified in Recital A.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Class&nbsp;C Common Stock&#148; has the
meaning specified in Recital A.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Closing&#148; has the meaning specified in
Section&nbsp;1.3.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Closing Date&#148; has the meaning
specified in Section&nbsp;1.3.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Companies&#148; means the Company and
B&#38;N LLC.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Company&#148; has the meaning specified in
the introductory paragraph of this Agreement.
</FONT>

<P align="center"><FONT size="2">A-21
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Company Disclosure Letter&#148; has the
meaning specified in Article&nbsp;II.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Company Plan&#148; means any &#147;employee
benefit plan&#148; (within the meaning of Section&nbsp;3(3) of
the Employee Retirement Income Security Act of 1974, as
amended), and any severance, change in control or employment
plan, program or agreement, and vacation, incentive, bonus,
stock option, stock purchase, and restricted stock plan, program
or policy and any other employee benefit plan, agreement,
program or other arrangement sponsored or maintained by either
of the Companies, in which present or former employees thereof
participate or either of the Companies has any present or future
liability.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Company Stockholders&#146; Meeting&#148;
has the meaning set forth in Section&nbsp;4.3(a).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Contract&#148; means any contract, license,
lease, commitment, arrangement, purchase or sale order,
undertaking, understanding or other agreement, whether written
or oral.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Control&#148; means the power to direct or
cause the direction of management or policies of a Person,
directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;DGCL&#148; has the meaning specified in
Recital&nbsp;B.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;D&#38;O Insurance&#148; has the meaning
specified in Section&nbsp;4.8(c).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Dissenting Shares&#148; has the meaning
specified in Section&nbsp;1.6(a).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Effective Time&#148; has the meaning
specified in Section&nbsp;1.2.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Employees&#148; has the meaning specified
in Section&nbsp;4.10.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Exchange Act&#148; means the Securities
Exchange Act of 1934, as amended, and the rules and regulations
of the SEC promulgated under such Act from time to time.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Exchange Agent&#148; has the meaning
specified in Section&nbsp;1.8(a).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Exchange Fund&#148; has the meaning
specified in Section&nbsp;1.8(a).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;GAAP&#148; means accounting principles and
practices generally accepted from time to time in the United
States.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Governmental Entity&#148; means a court,
legislature or other agency or instrumentality or political
subdivision of federal, state or local government.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Indemnified Party&#148; has the meaning
specified in Section&nbsp;4.8(b).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Judgment&#148; means any judgment, order,
award, writ, injunction or decree of any Governmental Entity or
arbitrator.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Lien&#148; means any mortgage, pledge,
lien, charge, restriction, claim or encumbrance of any nature
whatsoever, other than Liens for or with respect to Taxes that
are not yet due and payable or delinquent, including any
restriction on use, transfer, voting or other exercise of any
attributes of ownership.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Material Adverse Effect&#148;: An event,
fact, violation, breach, inaccuracy, circumstance or other
matter will be deemed to have a <I>&#147;Material Adverse
Effect&#148;</I> on a Party if such event, fact, violation,
breach, inaccuracy, circumstance or other matter had or would
reasonably be expected to have a material adverse effect on the
business, financial condition or results of operations of the
Party, other than any event or condition resulting from:
(A)&nbsp;general economic, business or industry conditions;
(B)&nbsp;the taking of any action permitted or required by this
Agreement or from the announcement or pendency of the Merger;
(C)&nbsp;a decline in a Party&#146;s stock price; or
(D)&nbsp;the delisting of the Class&nbsp;A Common Stock from the
NASDAQ National Market.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Membership Units&#148; has the meaning
specified in Recital A hereof.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Merger&#148; has the meaning specified in
Recital&nbsp;B.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Merger Consideration&#148; has the meaning
specified in Section&nbsp;1.5(b)(i).
</FONT>

<P align="center"><FONT size="2">A-22
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Non-Termination Recommendation&#148; has
the meaning specified in Section 4.3(c).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Option&#148; has the meaning specified in
Section&nbsp;1.7.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Party&#148; means each of Barnes &#38;
Noble, B&#38;N Holding Corp., B&#38;N Acquisition Corp. and the
Company, and any other Person that may become a party to this
Agreement from time to time, and &#147;Parties&#148; means all
of the foregoing.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Person&#148; means any individual,
corporation, joint venture, partnership, limited liability
company, trust, unincorporated organization, Governmental Entity
or other entity.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Preferred Stock&#148; has the meaning
specified in Section&nbsp;2.2(a).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Proxy Statement&#148; has the meaning
specified in Section&nbsp;4.2(a).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Public Stockholders&#148; means all of the
holders of shares of Class&nbsp;A Common Stock, excluding
B&#38;N Holding Corp., Barnes &#38; Noble and their respective
Affiliates and members of management of Barnes &#38; Noble and
the Company.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Required Company Stockholder Vote&#148; has
the meaning specified in Section&nbsp;5.1(b).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Schedule&nbsp;13E-3&#148; has the meaning
specified in Section&nbsp;4.2(a).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Securities Act&#148; means the Securities
Act of 1933, as amended, and the rules and regulations of the
SEC promulgated under such Act from time to time.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;SEC&#148; means the Securities and Exchange
Commission, and any successor or replacement entity.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;SEC Documents&#148; has the meaning
specified in Section&nbsp;2.8(a).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Special Committee&#148; has the meaning
specified in Recital C.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Superior Proposal&#148; has the meaning
specified in Section&nbsp;4.3(b).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Surviving Corporation&#148; has the meaning
specified in Section&nbsp;1.1.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Taxes&#148; means (i)&nbsp;all federal,
state, local or foreign taxes, charges, fees, imposts, levies or
other assessments, including all net income, gross receipts,
capital, sales, use, ad valorem, value added, transfer,
franchise, profits, inventory, capital stock, license,
withholding, payroll, employment, social security, unemployment,
excise, severance, stamp, occupation, property and estimated
taxes, customs duties, fees, assessments and charges of any kind
whatsoever, (ii)&nbsp;all interest, penalties, fines, additions
to tax or additional amounts imposed by any taxing authority in
connection with any item described in clause (i)&nbsp;or this
clause (ii), and (iii)&nbsp;any transferee liability in respect
of any items described in clauses (i)&nbsp;and/or (ii).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Termination Recommendation&#148; has the
meaning specified in Section&nbsp;4.3(b).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;7.2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Non-survival
of Representations and Warranties</U>. None of the
representations and warranties in this Agreement or in any
instrument delivered under this Agreement will survive the
Effective Time, and none of the Barnes &#38; Noble Parties and
the Company, their respective Affiliates and any of the
officers, directors, employees or stockholders of any of the
foregoing, will have any liability whatsoever with respect to
any such representation or warranty after such time. This
Section&nbsp;7.2 will not limit any covenant or agreement of the
parties which by its terms contemplates performance after the
Effective Time.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;7.3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Expenses</U>.
Except as contemplated by this Agreement, all costs and expenses
incurred in connection with the Agreement and the consummation
of the transactions contemplated by this Agreement will be the
obligation of the Party incurring such expenses.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;7.4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Applicable
Law</U>. This Agreement will be governed by the laws of the
State of Delaware without regard to the conflicts of law
principles thereof.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;7.5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Notices</U>.
All notices and other communications under this Agreement must
be in writing and will be deemed to have been duly given or made
as follows: (a)&nbsp;if sent by registered or certified mail in
the United States, return receipt requested upon receipt, five
business days after being so sent; (b)&nbsp;if sent by
</FONT>

<P align="center"><FONT size="2">A-23
</FONT>

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<DIV align="left">
<FONT size="2">reputable overnight air courier, two business
days after being so sent; (c)&nbsp;if sent by telecopy
transmission, with a copy mailed on the same day in the manner
provided in clause (a)&nbsp;or (b)&nbsp;above, when transmitted
and receipt is confirmed by telephone; or (d)&nbsp;if otherwise
actually personally delivered, when delivered, and shall be sent
or delivered as follows:
</FONT>
</DIV>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">If to the Company, to:
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">barnesandnoble.com inc.
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">76 Ninth Avenue
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">New York, NY 10011
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Attention: Ms.&nbsp;Marie Toulantis
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Fax: (212)&nbsp;414-6107
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">with a copy to:
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Dewey Ballantine LLP
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">1301 Avenue of the Americas
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">New York, NY 10019
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Attention:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Morton A.
    Pierce, Esq.
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Jack
    S. Bodner, Esq.
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Fax: (212)&nbsp;259-6333
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">If to any Barnes &#38; Noble Party, to:
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Barnes &#38; Noble, Inc.
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">122 Fifth Avenue
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">New York, NY 10011
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Attention: Mr.&nbsp;Leonard Riggio
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Fax: (212)&nbsp;675-0413
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">with a copy to:
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Bryan Cave LLP
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">1290 Avenue of the Americas
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">New York, NY 10104
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Attention: Jay M. Dorman, Esq.
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Fax: (212)&nbsp;541-1418
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Such names and addresses may be changed by such
notice.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;7.6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Entire
Agreement</U>. This Agreement (including the documents and
instruments referred to in this Agreement) contains the entire
understanding of the Parties with respect to the subject matter
hereof, and supersedes and cancels all prior agreements,
negotiations, correspondence, undertakings and communications of
the parties, oral or written, respecting such subject matter.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;7.7.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Assignment</U>.
Neither this Agreement nor any of the rights, interests or
obligations under this Agreement may be assigned by any Party
(whether by operation of law or otherwise) without the prior
written consent of the other Party or Parties, as the case may
be.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;7.8.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Headings
References</U>. The article, section and paragraph headings
contained in this Agreement are for reference purposes only and
will not affect in any way the meaning or interpretation of this
Agreement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;7.9.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Construction</U>.
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="4%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(a)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">The Parties agree that any rule of construction
    to the effect that ambiguities are to be resolved against the
    drafting party shall not be applied in the construction or
    interpretation of this Agreement.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(b)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">As used in this Agreement, the words
    <I>&#147;include&#148;</I> and <I>&#147;including,&#148;</I> and
    variations thereof, shall not be deemed to be terms of
    limitation, but rather shall be deemed to be followed by the
    words <I>&#147;without limitation.&#148;</I>
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">A-24
</FONT>

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<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="4%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(c)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Except as otherwise indicated, all references in
    this Agreement to <I>&#147;Section,&#148; &#147;Sections,&#148;
    &#147;Article&#148;</I> or <I>&#147;Recital&#148;</I> are
    intended to refer to the Section, Sections, Article or Recital,
    as the case may be, of this Agreement.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;7.10.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Counterparts</U>.
This Agreement may be executed in one or more counterparts, each
of which will be deemed to be an original but all of which will
be considered one and the same agreement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;7.11.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>No
Third Party Beneficiaries</U>. Except as provided in Section 1.8
and Section&nbsp;4.8, nothing in this Agreement, express or
implied, is intended to confer upon any Person not a party to
this Agreement any rights or remedies under or by reason of this
Agreement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;7.12.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Actions
of the Company</U>. The Barnes &#38; Noble Parties agree that
any action, approval, authorization, waiver or consent taken,
given or made by the Company (including the Board of Directors
of the Company) in respect of this Agreement or the Merger,
prior to the Effective Date, shall not be effective unless such
action, approval, authorization, waiver or consent shall have
received the prior approval of the Special Committee.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;7.13.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Severability;
Enforcement</U>. Any term or provision of this Agreement that is
held invalid or unenforceable in any jurisdiction by a court of
competent jurisdiction will, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability
without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or
unenforceability of any of the terms or provisions of this
Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be held unenforceable by a court of
competent jurisdiction, such provision shall be interpreted to
be only so broad as is enforceable.
</FONT>

<P align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">[remainder of this page left intentionally blank]
</FONT>

<P align="center"><FONT size="2">A-25
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">IN WITNESS WHEREOF, the Parties have duly
executed this Agreement as of the date first above written.
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">BARNES &#38; NOBLE, INC.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="2%"></TD>
    <TD width="58%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">By:&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">/s/ Joseph Lombardi
    </FONT></TD>
</TR>

</TABLE>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <HR size="1" align="left" noshade></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Joseph Lombardi
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Chief Financial Officer
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">B&#38;N.COM HOLDING CORP.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="2%"></TD>
    <TD width="58%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">By:&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">/s/ Joseph Lombardi
    </FONT></TD>
</TR>

</TABLE>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <HR size="1" align="left" noshade></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Joseph Lombardi
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Chief Financial Officer
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">B&#38;N.COM ACQUISITION CORP.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="2%"></TD>
    <TD width="58%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">By:&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">/s/ Joseph Lombardi
    </FONT></TD>
</TR>

</TABLE>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <HR size="1" align="left" noshade></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Joseph Lombardi
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Chief Financial Officer
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">BARNESANDNOBLE.COM INC.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="2%"></TD>
    <TD width="58%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">By:&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">/s/ Marie J. Toulantis
    </FONT></TD>
</TR>

</TABLE>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <HR size="1" align="left" noshade></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Marie J. Toulantis
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Chief Executive Officer
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">A-26
</FONT>

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<!-- link1 "ANNEX B" -->

<P align="right">
<B><FONT size="2">ANNEX&nbsp;B</FONT></B>

<P align="center">
<B><FONT size="2">DELAWARE GENERAL CORPORATION LAW
SECTION&nbsp;262-APPRAISAL RIGHTS</FONT></B>

<P align="left">
<B><FONT size="2">&#167; 262 Appraisal Rights</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(a)&nbsp;Any stockholder of a corporation of this
State who holds shares of stock on the date of the making of a
demand pursuant to subsection (d)&nbsp;of this section with
respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who
has otherwise complied with subsection&nbsp;(d) of this section
and who has neither voted in favor of the merger or
consolidation nor consented thereto in writing pursuant to
&#167;&nbsp;228 of this title shall be entitled to an appraisal
by the Court of Chancery of the fair value of the
stockholder&#146;s shares of stock under the circumstances
described in subsections (b)&nbsp;and (c)&nbsp;of this section.
As used in this section, the word &#147;stockholder&#148; means
a holder of record of stock in a stock corporation and also a
member of record of a nonstock corporation; the words
&#147;stock&#148; and &#147;share&#148; mean and include what is
ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and
the words &#147;depository receipt&#148; mean a receipt or other
instrument issued by a depository representing an interest in
one or more shares, or fractions thereof, solely of stock of a
corporation, which stock is deposited with the depository.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(b)&nbsp;Appraisal rights shall be available for
the shares of any class or series of stock of a constituent
corporation in a merger or consolidation to be effected pursuant
to &#167;&nbsp;251 (other than a merger effected pursuant to
&#167;&nbsp;251(g) of this title), &#167;&nbsp;252,
&#167;&nbsp;254, &#167;&nbsp;257, &#167;&nbsp;258,
&#167;&nbsp;263 or &#167;&nbsp;264 of this title:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(1)&nbsp;Provided, however, that no appraisal
    rights under this section shall be available for the shares of
    any class or series of stock, which stock, or depository
    receipts in respect thereof, at the record date fixed to
    determine the stockholders entitled to receive notice of and to
    vote at the meeting of stockholders to act upon the agreement of
    merger or consolidation, were either (i)&nbsp;listed on a
    national securities exchange or designated as a national market
    system security on an interdealer quotation system by the
    National Association of Securities Dealers, Inc. or
    (ii)&nbsp;held of record by more than 2,000 holders; and further
    provided that no appraisal rights shall be available for any
    shares of stock of the constituent corporation surviving a
    merger if the merger did not require for its approval the vote
    of the stockholders of the surviving corporation as provided in
    subsection&nbsp;(f) of &#167;&nbsp;251 of this title.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(2)&nbsp;Notwithstanding paragraph&nbsp;(1) of
    this subsection, appraisal rights under this section shall be
    available for the shares of any class or series of stock of a
    constituent corporation if the holders thereof are required by
    the terms of an agreement of merger or consolidation pursuant to
    &#167;&#167;&nbsp;251, 252, 254, 257, 258, 263 and 264 of this
    title to accept for such stock anything except:
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">a.&nbsp;Shares of stock of the corporation
    surviving or resulting from such merger or consolidation, or
    depository receipts in respect thereof;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">b.&nbsp;Shares of stock of any other corporation,
    or depository receipts in respect thereof, which shares of stock
    (or depository receipts in respect thereof) or depository
    receipts at the effective date of the merger or consolidation
    will be either listed on a national securities exchange or
    designated as a national market system security on an
    interdealer quotation system by the National Association of
    Securities Dealers, Inc. or held of record by more than 2,000
    holders;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">c.&nbsp;Cash in lieu of fractional shares or
    fractional depository receipts described in the foregoing
    subparagraphs&nbsp;a. and b. of this paragraph; or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">d.&nbsp;Any combination of the shares of stock,
    depository receipts and cash in lieu of fractional shares or
    fractional depository receipts described in the foregoing
    subparagraphs&nbsp;a., b. and c. of this paragraph.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(3)&nbsp;In the event all of the stock of a
    subsidiary Delaware corporation party to a merger effected under
    &#167;&nbsp;253 of this title is not owned by the parent
    corporation immediately prior to the merger, appraisal rights
    shall be available for the shares of the subsidiary Delaware
    corporation.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">B-1
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(c)&nbsp;Any corporation may provide in its
certificate of incorporation that appraisal rights under this
section shall be available for the shares of any class or series
of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the
corporation is a constituent corporation or the sale of all or
substantially all of the assets of the corporation. If the
certificate of incorporation contains such a provision, the
procedures of this section, including those set forth in
subsections&nbsp;(d) and (e) of this section, shall apply as
nearly as is practicable.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(d)&nbsp;Appraisal rights shall be perfected as
follows:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(1)&nbsp;If a proposed merger or consolidation
    for which appraisal rights are provided under this section is to
    be submitted for approval at a meeting of stockholders, the
    corporation, not less than 20&nbsp;days prior to the meeting,
    shall notify each of its stockholders who was such on the record
    date for such meeting with respect to shares for which appraisal
    rights are available pursuant to subsection&nbsp;(b) or (c)
    hereof that appraisal rights are available for any or all of the
    shares of the constituent corporations, and shall include in
    such notice a copy of this section. Each stockholder electing to
    demand the appraisal of such stockholder&#146;s shares shall
    deliver to the corporation, before the taking of the vote on the
    merger or consolidation, a written demand for appraisal of such
    stockholder&#146;s shares. Such demand will be sufficient if it
    reasonably informs the corporation of the identity of the
    stockholder and that the stockholder intends thereby to demand
    the appraisal of such stockholder&#146;s shares. A proxy or vote
    against the merger or consolidation shall not constitute such a
    demand. A stockholder electing to take such action must do so by
    a separate written demand as herein provided. Within
    10&nbsp;days after the effective date of such merger or
    consolidation, the surviving or resulting corporation shall
    notify each stockholder of each constituent corporation who has
    complied with this subsection and has not voted in favor of or
    consented to the merger or consolidation of the date that the
    merger or consolidation has become effective; or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(2)&nbsp;If the merger or consolidation was
    approved pursuant to &#167;&nbsp;228 or &#167;&nbsp;253 of this
    title, then either a constituent corporation before the
    effective date of the merger or consolidation, or the surviving
    or resulting corporation within ten&nbsp;days thereafter, shall
    notify each of the holders of any class or series of stock of
    such constituent corporation who are entitled to appraisal
    rights of the approval of the merger or consolidation and that
    appraisal rights are available for any or all shares of such
    class or series of stock of such constituent corporation, and
    shall include in such notice a copy of this section. Such notice
    may, and, if given on or after the effective date of the merger
    or consolidation, shall, also notify such stockholders of the
    effective date of the merger or consolidation. Any stockholder
    entitled to appraisal rights may, within 20&nbsp;days after the
    date of mailing of such notice, demand in writing from the
    surviving or resulting corporation the appraisal of such
    holder&#146;s shares. Such demand will be sufficient if it
    reasonably informs the corporation of the identity of the
    stockholder and that the stockholder intends thereby to demand
    the appraisal of such holder&#146;s shares. If such notice did
    not notify stockholders of the effective date of the merger or
    consolidation, either (i)&nbsp;each such constituent corporation
    shall send a second notice before the effective date of the
    merger or consolidation notifying each of the holders of any
    class or series of stock of such constituent corporation that
    are entitled to appraisal rights of the effective date of the
    merger or consolidation or (ii)&nbsp;the surviving or resulting
    corporation shall send such a second notice to all such holders
    on or within 10&nbsp;days after such effective date; provided,
    however, that if such second notice is sent more than
    20&nbsp;days following the sending of the first notice, such
    second notice need only be sent to each stockholder who is
    entitled to appraisal rights and who has demanded appraisal of
    such holder&#146;s shares in accordance with this subsection. An
    affidavit of the secretary or assistant secretary or of the
    transfer agent of the corporation that is required to give
    either notice that such notice has been given shall, in the
    absence of fraud, be prima facie evidence of the facts stated
    therein. For purposes of determining the stockholders entitled
    to receive either notice, each constituent corporation may fix,
    in advance, a record date that shall be not more than
    10&nbsp;days prior to the date the notice is given, provided,
    that if the notice is given on or after the effective date of
    the merger or consolidation, the record date shall be such
    effective date. If no record date is fixed and the notice is
    given prior to the effective date, the record date shall be the
    close of business on the day next preceding the day on which the
    notice is given.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(e)&nbsp;Within 120&nbsp;days after the effective
date of the merger or consolidation, the surviving or resulting
corporation or any stockholder who has complied with
subsections&nbsp;(a) and (d) hereof and who is otherwise
</FONT>

<P align="center"><FONT size="2">B-2
</FONT>

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<DIV align="left">
<FONT size="2">entitled to appraisal rights, may file a petition
in the Court of Chancery demanding a determination of the value
of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60&nbsp;days after the effective
date of the merger or consolidation, any stockholder shall have
the right to withdraw such stockholder&#146;s demand for
appraisal and to accept the terms offered upon the merger or
consolidation. Within 120&nbsp;days after the effective date of
the merger or consolidation, any stockholder who has complied
with the requirements of subsections&nbsp;(a) and (d) hereof,
upon written request, shall be entitled to receive from the
corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of
shares not voted in favor of the merger or consolidation and
with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written
statement shall be mailed to the stockholder within 10&nbsp;days
after such stockholder&#146;s written request for such a
statement is received by the surviving or resulting corporation
or within 10&nbsp;days after expiration of the period for
delivery of demands for appraisal under subsection
(d)&nbsp;hereof, whichever is later.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(f)&nbsp;Upon the filing of any such petition by
a stockholder, service of a copy thereof shall be made upon the
surviving or resulting corporation, which shall within
20&nbsp;days after such service file in the office of the
Register in Chancery in which the petition was filed a duly
verified list containing the names and addresses of all
stockholders who have demanded payment for their shares and with
whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the
petition shall be filed by the surviving or resulting
corporation, the petition shall be accompanied by such a duly
verified list. The Register in Chancery, if so ordered by the
Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the
surviving or resulting corporation and to the stockholders shown
on the list at the addresses therein stated. Such notice shall
also be given by 1 or more publications at least 1&nbsp;week
before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or
such publication as the Court deems advisable. The forms of the
notices by mail and by publication shall be approved by the
Court, and the costs thereof shall be borne by the surviving or
resulting corporation.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(g)&nbsp;At the hearing on such petition, the
Court shall determine the stockholders who have complied with
this section and who have become entitled to appraisal rights.
The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by
certificates to submit their certificates of stock to the
Register in Chancery for notation thereon of the pendency of the
appraisal proceedings; and if any stockholder fails to comply
with such direction, the Court may dismiss the proceedings as to
such stockholder.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(h)&nbsp;After determining the stockholders
entitled to an appraisal, the Court shall appraise the shares,
determining their fair value exclusive of any element of value
arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. In
determining such fair value, the Court shall take into account
all relevant factors. In determining the fair rate of interest,
the Court may consider all relevant factors, including the rate
of interest which the surviving or resulting corporation would
have had to pay to borrow money during the pendency of the
proceeding. Upon application by the surviving or resulting
corporation or by any stockholder entitled to participate in the
appraisal proceeding, the Court may, in its discretion, permit
discovery or other pretrial proceedings and may proceed to trial
upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name
appears on the list filed by the surviving or resulting
corporation pursuant to subsection&nbsp;(f) of this section and
who has submitted such stockholder&#146;s certificates of stock
to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal
rights under this section.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(i)&nbsp;The Court shall direct the payment of
the fair value of the shares, together with interest, if any, by
the surviving or resulting corporation to the stockholders
entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock
forthwith, and the case of holders of shares represented by
certificates upon the surrender to the corporation of the
certificates representing such stock. The Court&#146;s decree
may be enforced as other decrees in the Court of Chancery may be
enforced, whether such surviving or resulting corporation be a
corporation of this State or of any state.
</FONT>

<P align="center"><FONT size="2">B-3
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(j)&nbsp;The costs of the proceeding may be
determined by the Court and taxed upon the parties as the Court
deems equitable in the circumstances. Upon application of a
stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the
appraisal proceeding, including, without limitation, reasonable
attorney&#146;s fees and the fees and expenses of experts, to be
charged pro-rata against the value of all the shares entitled to
an appraisal.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(k)&nbsp;From and after the effective date of the
merger or consolidation, no stockholder who has demanded
appraisal rights as provided in subsection&nbsp;(d) of this
section shall be entitled to vote such stock for any purpose or
to receive payment of dividends or other distributions on the
stock (except dividends or other distributions payable to
stockholders of record at a date which is prior to the effective
date of the merger or consolidation); provided, however, that if
no petition for an appraisal shall be filed within the time
provided in subsection&nbsp;(e) of this section, or if such
stockholder shall deliver to the surviving or resulting
corporation a written withdrawal of such stockholder&#146;s
demand for an appraisal and an acceptance of the merger or
consolidation, either within 60&nbsp;days after the effective
date of the merger or consolidation as provided in
subsection&nbsp;(e) of this section or thereafter with the
written approval of the corporation, then the right of such
stockholder to an appraisal shall cease. Notwithstanding the
foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of
the Court, and such approval may be conditioned upon such terms
as the Court deems just.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(l)&nbsp;The shares of the surviving or resulting
corporation to which the shares of such objecting stockholders
would have been converted had they assented to the merger or
consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
</FONT>

<P align="center"><FONT size="2">B-4
</FONT>
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<!-- link1 "ANNEX D" -->

<P align="right">
<B><FONT size="2">ANNEX C</FONT></B>

<P align="center"><B><FONT size="2">[LETTERHEAD OF CREDIT SUISSE FIRST BOSTON LLC]</FONT></B>




<P align="left">
January&nbsp;8, 2004

<P align="left">
Special Committee of the Board of Directors

<DIV align="left">
barnesandnoble.com inc.
</DIV>

<DIV align="left">
76&nbsp;Ninth Avenue
</DIV>

<DIV align="left">
New York, New York 10011
</DIV>

<P align="left">
Members of the Special Committee:

<P align="left">
You have asked us to advise you with respect to the fairness,
from a financial point of view, to the holders of class&nbsp;A
common stock, par value $0.001 per share (&#147;Company Common
Stock&#148;), of barnesandnoble.com inc. (the
&#147;Company&#148;), other than Barnes &#38; Noble, Inc. (the
&#147;Acquiror&#148;) and its affiliates and officers and
directors of each of the Acquiror and the Company
(&#147;Management Members&#148;), of the Consideration (as
defined below) to be received by such holders pursuant to the
terms of the Agreement and Plan of Merger, dated as of
January&nbsp;8, 2004 (the &#147;Merger Agreement&#148;), among
the Company, the Acquiror, B&#38;N.com Holding Corp.
(&#147;B&#38;N Holding&#148;) and B&#38;N.com Acquisition Corp.
(the &#147;Sub&#148;). The Merger Agreement provides, among
other things, for the merger (the &#147;Merger&#148;) of the
Company with the Sub pursuant to which the Company will become a
wholly owned subsidiary of the Acquiror and each outstanding
share of Company Common Stock not owned by the Acquiror, B&#38;N
Holding or their respective subsidiaries will be converted into
the right to receive $3.05 in cash (the
&#147;Consideration&#148;).

<P align="left">
In arriving at our opinion, we have reviewed certain publicly
available business and financial information relating to the
Company, as well as the Merger Agreement. We have also reviewed
certain other information, including financial forecasts,
provided to or discussed with us by the Company, and have met
with the Company&#146;s management to discuss the business and
prospects of the Company. We have also considered certain
financial and stock market data of the Company, and we have
compared those data with similar data for other publicly held
companies in businesses we deemed similar to the Company and we
have considered, to the extent publicly available, the financial
terms of certain other business combinations and other
transactions which have been effected or announced. We also
considered such other information, financial studies, analyses
and investigations and financial, economic and market criteria
which we deemed relevant.

<P align="left">
In connection with our review, we have not assumed any
responsibility for independent verification of any of the
foregoing information and have relied on such

<P align="center"><FONT size="2">C-1
</FONT>
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<DIV>&nbsp;</DIV>


<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

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    <TD width="99%"></TD>
    <TD width="1%"></TD>
</TR>

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    <TD align="right">
    <FONT size="2">Page 2
    </FONT></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>


<P align="left">
information being complete and accurate in all material
respects. With respect to the financial forecasts, we have
assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments
of the Company&#146;s management as to the future financial
performance of the Company. We have also assumed, with your
consent, that the Merger will be consummated in accordance with
the terms of the Merger Agreement, without waiver, amendment or
modification of any material term, condition or agreement
therein and that in the course of obtaining any necessary
regulatory and third party approvals and consents for the
Merger, no delay, limitation, restriction or condition will be
imposed that will have an adverse effect on the contemplated
benefits of the Merger. In addition, we have not been requested
to make, and have not made, an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise)
of the Company, nor have we been furnished with any such
evaluations or appraisals. Our opinion is necessarily based upon
the information available to us and financial, economic, market
and other conditions as they exist and can be evaluated on the
date hereof. We were not requested to, and did not, solicit
third party indications of interest in acquiring all or any part
of the Company. Our opinion does not address the relative merits
of the Merger as compared to other transactions or business
strategies that might be available to the Company, nor does it
address the underlying business decision of the Company to
proceed with the Merger.

<P align="left">
We have acted as financial advisor to the Special Committee of
the Board of Directors of the Company (the &#147;Special
Committee&#148;) in connection with the Merger and will receive
a fee for our services, a significant portion of which is
payable upon delivery of this opinion. From time to time in the
past, we and our affiliates have provided, and in the future we
and our affiliates may provide, investment banking and other
financial services to the Acquiror, for which services we have
received, and expect to receive, compensation. In the ordinary
course of our business, we and our affiliates may actively trade
the debt and equity securities of both the Company and the
Acquiror for our and our affiliates&#146; own accounts and for
the accounts of customers and, accordingly, may at any time hold
a long or short position in such securities.

<P align="left">
It is understood that this letter is for the information of the
Special Committee in connection with its consideration of the
Merger and does not constitute a recommendation to any
stockholder as to how such stockholder should vote or act on any
matter relating to the proposed Merger.

<P align="center"><FONT size="2">C-2
</FONT>

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<DIV>&nbsp;</DIV>

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    <TD width="99%"></TD>
    <TD width="1%"></TD>
</TR>

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    <TD align="right">
    <FONT size="2">Page 3
    </FONT></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>


<P align="left">
<FONT size="2">Based upon and subject to the foregoing, it is
our opinion that, as of the date hereof, the Consideration to be
received by the holders of Company Common Stock in the Merger is
fair to such holders, other than the Acquiror and its affiliates
and Management Members, from a financial point of view.
</FONT>

<P align="left">
<FONT size="2">Very truly yours,
</FONT>

<P align="left">
<FONT size="2">CREDIT SUISSE FIRST BOSTON LLC
</FONT>

<P align="center"><FONT size="2">C-3
</FONT>

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<!-- link1 "ANNEX D" -->

<P align="right">
<B><FONT size="2">ANNEX D</FONT></B>

<P align="center">
<B><FONT size="2">INFORMATION RELATING TO THE COMPANY,
B&#38;N.COM</FONT></B>

<DIV align="center">
<B><FONT size="2">AND THE BARNES &#38; NOBLE PARTIES</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following sets forth certain information
relating to barnesandnoble.com inc. (the &#147;Company&#148;),
barnesandnoble.com llc (&#147;B&#38;N.com&#148;),
Barnes&nbsp;&#38; Noble, Inc. (&#147;Barnes&nbsp;&#38;
Noble&#148;), B&#38;N.com Holding Corp. (&#147;B&#38;N
Holding&#148;), B&#38;N.com Acquisition Corp. (&#147;B&#38;N
Acquisition&#148; and, together with Barnes&nbsp;&#38; Noble and
B&#38;N Holding, the &#147;Barnes&nbsp;&#38; Noble
Parties&#148;) and management of each such party that is
required under certain rules of the Securities and Exchange
Commission.
</FONT>

<P align="left">
<B><FONT size="2">barnesandnoble.com inc. and barnesandnoble.com
llc</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company is a Delaware corporation with its
executive offices located at 76&nbsp;Ninth Avenue, New York, New
York 10011; (212)&nbsp;414-6000. B&#38;N.com is a Delaware
limited liability company with its executive offices located at
76&nbsp;Ninth Avenue, New York, New York 10011;
(212)&nbsp;414-6000.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The names and positions of the directors and
executive officers of the Company and B&#38;N.com are set forth
below. Each director and executive officer of the Company is a
citizen of the United States, with the exception of Jan-Michiel
Hessels, who is a citizen of the Netherlands. Each director and
executive officer of B&#38;N.com is a citizen of the United
States. Except where indicated, each director&#146;s and
executive officer&#146;s principal occupation is as listed below
and principal business address is 76&nbsp;Ninth Avenue, New
York, New York 10011. During the last five years, neither the
Company, B&#38;N.com, nor, to the best of their knowledge, any
of their respective directors or executive officers (i)&nbsp;has
been convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors) or (ii)&nbsp;was a party to
any judicial or administrative proceeding (except for matters
that were dismissed without sanction or settlement) that
resulted in a judgment, decree for final order enjoining further
violations of, or prohibiting activities subject to, federal or
state securities laws, or a finding of any violation of such
federal or state securities laws.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Directors and Executive Officers of the
    Company and B&#38;N.com</FONT></I></B></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="29%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="68%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" nowrap><B><FONT size="1">Name</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Position</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Leonard Riggio
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Chairman of the Board
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Stephen Riggio
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Vice Chairman
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Marie J. Toulantis
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Chief Executive Officer
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Kevin M. Frain
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Chief Financial Officer and Vice President,
    Operations
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">David C. Willen
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Chief Technology Officer
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">David Gitow
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Vice President, Chief Marketing Officer
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Daniel A. Blackman
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Vice President and General Manager, Books,
    Music&nbsp;&#38; Video
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Michael N. Rosen
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Director* and Secretary
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Jan-Michiel Hessels
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Director*
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Patricia Higgins
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Director*
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">William F. Reilly
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Director*
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">*&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Represents that this position is only held at the
    Company.
    </FONT></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Material Occupations, Positions, Offices or
    Employment During Previous Five Years</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Leonard Riggio </FONT></I><FONT size="2">has
been Chairman of the board of directors of the Company and
B&#38;N.com since its inception in February 1997.
Mr.&nbsp;Riggio is the founder of Barnes&nbsp;&#38; Noble and
has been Chairman of the board of directors and a principal
stockholder of Barnes&nbsp;&#38; Noble since its inception in
1986, and was Chief
</FONT>

<P align="center"><FONT size="2">D-1
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">Executive Officer of Barnes&nbsp;&#38; Noble from
inception through February 2002. Since 1965 Mr.&nbsp;Riggio has
been Chairman of the board of directors, Chief Executive Officer
and the principal stockholder of Barnes&nbsp;&#38; Noble College
Bookstores, Inc. (&#147;B&#38;N College&#148;), one of the
nation&#146;s largest operators of college bookstores. Since
1985, Mr.&nbsp;Riggio has been Chairman of the board of
directors and a principal beneficial owner of MBS Textbook
Exchange, Inc. (&#147;MBS&#148;), one of the nation&#146;s
largest wholesalers of college textbooks. Mr.&nbsp;Riggio is
also a director of GameStop Corp. (&#147;GameStop&#148;), the
nation&#146;s largest specialty retailer of video games and a
majority owned subsidiary of Barnes&nbsp;&#38; Noble.
Mr.&nbsp;Riggio is the brother of Mr.&nbsp;Stephen Riggio.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Stephen Riggio </FONT></I><FONT size="2">has
been a director of the Company and B&#38;N.com since inception
and Vice Chairman since January 2000. From January 2000 to
February 2002, Mr.&nbsp;Riggio was also Acting Chief Executive
Officer of the Company and B&#38;N.com, a position he previously
held at B&#38;N.com from inception to December 1998.
Mr.&nbsp;Riggio has been Vice Chairman of Barnes&nbsp;&#38;
Noble since December 1997, a director of Barnes &#38; Noble
since September 1993 and was named Chief Executive Officer in
February 2002. Mr.&nbsp;Riggio was Chief Operating Officer of
Barnes&nbsp;&#38; Noble from February 1995 until December 1997.
Mr.&nbsp;Riggio is also a director of iUniverse, The National
Book Foundation, The National Down&#146;s Syndrome Society and
The Association for the Help of Retarded Children.
Mr.&nbsp;Riggio is the brother of Mr.&nbsp;Leonard Riggio.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Marie J. Toulantis
</FONT></I><FONT size="2">has been Chief Executive Officer of
the Company and B&#38;N.com since February 2002.
Ms.&nbsp;Toulantis was President and Chief Operating Officer of
the Company and B&#38;N.com from May 2001 through February 2002.
Prior to that, Ms.&nbsp;Toulantis was Chief Financial Officer of
the Company and B&#38;N.com from May 1999 through May 2001. From
March 1999 through May 1999 Ms.&nbsp;Toulantis was Chief
Financial Officer of Barnes&nbsp;&#38; Noble and from July 1997
through May 1999 Ms.&nbsp;Toulantis was Executive Vice
President, Finance of Barnes&nbsp;&#38; Noble.
Ms.&nbsp;Toulantis has served on the board of directors of
Hershey Food Corporation since April 2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Kevin M. Frain </FONT></I><FONT size="2">has
been Chief Financial Officer and Vice President, Operations of
the Company and B&#38;N.com since February 2002. Mr.&nbsp;Frain
is responsible for all of the finance, distribution, order
fulfillment and customer service functions. From May 2001
through February 2002, Mr.&nbsp;Frain was Vice President,
Finance of the Company and B&#38;N.com. Prior to that
Mr.&nbsp;Frain was the Treasurer of the Company and B&#38;N.com
from April 2000 to May 2001. From January 1999 to April 2000,
Mr.&nbsp;Frain was Director of Finance of the Company and
B&#38;N.com.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">David C. Willen </FONT></I><FONT size="2">has
been Chief Technology Officer of the Company and B&#38;N.com
since May 2002. Mr.&nbsp;Willen is responsible for all aspects
of systems and technology. Mr.&nbsp;Willen was Chief Software
Architect of the Company and B&#38;N.com from October 2001
through May 2002. Mr.&nbsp;Willen was Chief Technology Officer
of TheStreet.com, a multimedia provider of financial commentary,
analysis and news, from January 2000 to October 2001.
Mr.&nbsp;Willen developed technology solutions for Bloomberg,
L.P. from January 1999 to January 2000.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">David Gitow </FONT></I><FONT size="2">has been
Vice President, Chief Marketing Officer of the Company and
B&#38;N.com since October 2001. Mr.&nbsp;Gitow is responsible
for all partner and customer marketing and all marketing
analysis and research. Mr. Gitow served as Chief Marketing
Officer of enews, inc. (&#147;enews&#148;) from June 1999
through October 2001. Prior to joining enews, Mr.&nbsp;Gitow was
with AOL Time Warner for 13&nbsp;years in a variety of positions
culminating in his founding and serving as President of Time
Inc. Home Entertainment.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Daniel A. Blackman
</FONT></I><FONT size="2">has been Vice President and General
Manager, Books, Music&nbsp;&#38; Video of the Company and
B&#38;N.com since July 2002. Mr.&nbsp;Blackman is responsible
for merchandising of consumer books, music and DVD/video
products. From October 2001 to July 2002, Mr.&nbsp;Blackman was
Vice President, Books, Music&nbsp;&#38; Video of the Company and
B&#38;N.com. From February 2000 to October 2001,
Mr.&nbsp;Blackman was Vice President, Music, Video&nbsp;&#38;
Software of the Company and B&#38;N.com. From July 1998 to
February 2000, Mr.&nbsp;Blackman was Director of
Music&nbsp;&#38; Video of the Company and B&#38;N.com.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Michael N. Rosen </FONT></I><FONT size="2">has
been Secretary of B&#38;N.com and Secretary and a director of
the Company and Barnes &#38; Noble since their inception.
Mr.&nbsp;Rosen has been the Chairman of the New York office of
Bryan Cave LLP since their July 2002 combination with Robinson
Silverman Pearce Aronsohn and Berman LLP (&#147;Robinson
Silverman&#148;), counsel to the Company, B&#38;N.com and
Barnes&nbsp;&#38; Noble. Prior to that, Mr.&nbsp;Rosen
</FONT>

<P align="center"><FONT size="2">D-2
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">was Chairman of Robinson Silverman for more than
the past five years. Mr.&nbsp;Rosen is also a director of
B&#38;N College, MBS and GameStop. Mr.&nbsp;Rosen&#146;s
principal business address is 1290&nbsp;Avenue of the Americas,
New York, New York 10104.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Jan-Michiel Hessels
</FONT></I><FONT size="2">has been a director of the Company
since August 1999. Mr.&nbsp;Hessels was Chief Executive Officer
of Royal Vendex KBB N.V. (&#147;Vendex&#148;) from 1990 until
June 2000. Vendex is a multi-billion dollar Netherlands-based
corporation with international retailing operations.
Mr.&nbsp;Hessels is also a director of Schiphol Airport, Royal
Vopak N.V., Royal Philips Electronics N.V., Euronext N.V.,
Fortis N.V. and Heineken N.V. Mr.&nbsp;Hessels&#146; principal
business address is Beursplein 5, P.O. Box 19163, 1000 GD,
Amsterdam, the Netherlands.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Patricia Higgins </FONT></I><FONT size="2">has
been a director of the Company since July 2000. Ms.&nbsp;Higgins
was President and Chief Executive Officer from September 2000 to
February 2004, and currently is a director, of Switch and Data
Facilities Inc., an international operator of convergent
computer network centers. Ms.&nbsp;Higgins was Vice President
and Chief Information Officer of Alcoa Inc. from January 1997 to
April 1999. Ms.&nbsp;Higgins&#146; principal business address is
1715 North Westshore Boulevard, Suite&nbsp;650, Tampa, Florida
33607.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">William F. Reilly
</FONT></I><FONT size="2">has been a director of the Company
since August 1999. Mr.&nbsp;Reilly has been Chief Executive
Officer of Aurelian Communications, a special interest
publisher, since he founded it in February 2002. Mr.&nbsp;Reilly
served as Chairman and Chief Executive Officer of Primedia Inc.,
a specialty media company, from February 1990 to 1999.
Mr.&nbsp;Reilly is a member of the board of directors of FMC
Corporation. Mr.&nbsp;Reilly serves on the board of trustees of
the University of Notre Dame. Mr.&nbsp;Reilly&#146;s principal
business address is 375 Park Avenue, New York, New York 10152.
</FONT>

<P align="left">
<B><FONT size="2">Barnes &#38; Noble, Inc., B&#38;N.com Holding
Corp. and B&#38;N.com Acquisition Corp.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Barnes &#38; Noble is a Delaware corporation with
its executive offices located at 122 Fifth Avenue, New York, New
York 10011; (212)&nbsp;633-3300. B&#38;N Holding is a Delaware
corporation with its executive offices located at 122 Fifth
Avenue, New York, New York 10011; (212)&nbsp;633-3300. B&#38;N
Acquisition is a Delaware corporation with its executive offices
located at 122 Fifth Avenue, New York, New York 10011;
(212)&nbsp;633-3300.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The names and positions of the directors and
executive officers of the Barnes&nbsp;&#38; Noble Parties are
set forth below. Each director and executive officer is a
citizen of the United States. Except where indicated, each
director&#146;s and executive officer&#146;s principal
occupation is as listed below and principal business address is
122 Fifth Avenue, New York, New York 10011. During the last five
years, neither the Barnes&nbsp;&#38; Noble Parties, nor, to the
best of their knowledge, any of their respective directors or
executive officers (i)&nbsp;has been convicted in a criminal
proceeding (excluding traffic violations or similar
misdemeanors) or (ii)&nbsp;was a party to any judicial or
administrative proceeding (except for matters that were
dismissed without sanction or settlement) that resulted in a
judgment, decree for final order enjoining further violations
of, or prohibiting activities subject to, federal or state
securities laws, or a finding of any violation of such federal
or state securities laws.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Directors and Executive Officers of the
    Barnes &#38; Noble Parties</FONT></I></B></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="28%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="69%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Name</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Position</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Leonard Riggio
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Founder and Chairman of the Board
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Stephen Riggio
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Vice Chairman and Chief Executive Officer
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Mitchell S. Klipper
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Chief Operating Officer
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">J. Alan Kahn
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">President of the Barnes &#38; Noble Publishing
    Group*
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Lawrence S. Zilavy
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Executive Vice President of Corporate Finance
    &#38; Strategic Planning
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">William F. Duffy
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Executive Vice President, Distribution and
    Logistics
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Mary Ellen Keating
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Senior Vice President, Corporate Communications
    and Public Affairs
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">David S. Deason
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Vice President of Barnes &#38; Noble Development*
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gary King
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Chief Information Officer
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">D-3
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="38%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="59%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Name</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Position</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Joseph J. Lombardi
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Chief Financial Officer
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Michelle L. Smith
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Vice President, Human Resources
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Mark Bottini
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Vice President and Director of Stores*
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Michael N. Rosen
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Director** and Secretary
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Matthew A. Berdon
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Director
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Michael J. Del Giudice
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Director**
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">William Dillard, II
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Director**
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Irene R. Miller
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Director**
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Margaret T. Monaco
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Director**
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">William Sheluck, Jr.
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Director
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="2%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">*&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Represents that this position is only held at
    Barnes &#38; Noble.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">**&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Represents that this position is only held at
    Barnes &#38; Noble and B&#38;N Holding.
    </FONT></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Material Occupations, Positions, Offices or
    Employment During Previous Five Years</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Leonard Riggio </FONT></I><FONT size="2">has
been Chairman of the board of directors of the Company and
B&#38;N.com since February 1997. Mr.&nbsp;Riggio is the founder
of Barnes&nbsp;&#38; Noble and has been Chairman of the board of
directors and a principal stockholder of Barnes&nbsp;&#38; Noble
since its inception in 1986, and was Chief Executive Officer of
Barnes&nbsp;&#38; Noble from inception through February 2002.
Since 1965 Mr.&nbsp;Riggio has been Chairman of the board of
directors, Chief Executive Officer and the principal stockholder
of B&#38;N College. Since 1985, Mr.&nbsp;Riggio has been
Chairman of the board of directors and a principal beneficial
owner of MBS. Mr.&nbsp;Riggio is also a director of GameStop.
Mr.&nbsp;Riggio is the brother of Mr.&nbsp;Stephen Riggio.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Stephen Riggio </FONT></I><FONT size="2">has
been a director of the Company and B&#38;N.com since inception
and Vice Chairman since January 2000. From January 2000 to
February 2002, Mr.&nbsp;Riggio was also Acting Chief Executive
Officer of the Company and B&#38;N.com, a position he previously
held at B&#38;N.com from inception to December 1998.
Mr.&nbsp;Riggio has been Vice Chairman of Barnes&nbsp;&#38;
Noble since December 1997, a director of Barnes&nbsp;&#38; Noble
since September 1993 and was named Chief Executive Officer in
February 2002. Mr.&nbsp;Riggio was Chief Operating Officer of
Barnes&nbsp;&#38; Noble from February 1995 until December 1997.
Mr.&nbsp;Riggio is also a director of iUniverse, The National
Book Foundation, The National Down&#146;s Syndrome Society and
The Association for the Help of Retarded Children.
Mr.&nbsp;Riggio is the brother of Mr.&nbsp;Leonard Riggio.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Mitchell S. Klipper
</FONT></I><FONT size="2">has been the Chief Operating Officer
of Barnes&nbsp;&#38; Noble since February 2002. Prior to that,
he was the President of Barnes&nbsp;&#38; Noble Development, the
group responsible for selecting, designing and constructing new
store locations, and an Executive Vice President of
Barnes&nbsp;&#38; Noble from December 1995 to February 2002.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">J.&nbsp;Alan Kahn
</FONT></I><FONT size="2">has been the President of the
Barnes&nbsp;&#38; Noble Publishing Group since February 2002.
Mr.&nbsp;Kahn was the Chief Operating Officer of
Barnes&nbsp;&#38; Noble from December 1997 to February 2002.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Lawrence S. Zilavy
</FONT></I><FONT size="2">became Executive Vice President of
Corporate Finance and Strategic Planning of Barnes&nbsp;&#38;
Noble in May 2003. Previously, he was Chief Financial Officer of
Barnes&nbsp;&#38; Noble since June 2002. Prior to joining
Barnes&nbsp;&#38; Noble, Mr.&nbsp;Zilavy was Executive Vice
President of IBJ Whitehall Bank and Trust Company from 1992 to
2001. Mr.&nbsp;Zilavy is a member of the board of directors of
The Hain Celestial Group, Inc. He is also a member of the
St.&nbsp;Francis College Board of Trustees in New York City.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">William F. Duffy </FONT></I><FONT size="2">has
been the Executive Vice President of Distribution and Logistics
since February 2002. Prior to that, he was Vice President,
Operations, Fulfillment and Customer Service of the Company from
January 1999 to February 2002. Mr.&nbsp;Duffy was Vice President
of Operations of the Company since its inception in February
1997. He was also Chief Financial Officer of the Company from
its inception to January 1999 and a director of the Company from
its inception to October 1998. Mr.&nbsp;Duffy&#146;s principal
business address is 100 Middlesex Center Boulevard, Jamesburg,
New Jersey 08831.
</FONT>

<P align="center"><FONT size="2">D-4
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Mary Ellen Keating
</FONT></I><FONT size="2">joined Barnes &#38; Noble as Senior
Vice President, Corporate Communications and Public Affairs in
January 1998.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">David S. Deason
</FONT></I><FONT size="2">joined Barnes &#38; Noble in January
1990 as a Director of Real Estate and became Vice President of
Barnes &#38; Noble Development in January 1997. Mr.&nbsp;Deason
serves as a board member of Creative Learning 4 Kids, a
nonprofit educational charity which provides tutorial services
and mentoring for children. Mr.&nbsp;Deason&#146;s principal
business address is 1501 LBJ Freeway, Suite&nbsp;290, Dallas,
Texas 75025.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Gary King </FONT></I><FONT size="2">joined
Barnes &#38; Noble as Chief Information Officer in May 2002.
Prior to that, Mr.&nbsp;King was Executive Vice President of
Operations and Chief Technology Officer at the Company from
January 1999 to May 2002. Mr.&nbsp;King serves on the advisory
boards of Pace University School of Computer Science and
Information Systems and Exceed Communications International.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Joseph J. Lombardi
</FONT></I><FONT size="2">became Chief Financial Officer of
Barnes&nbsp;&#38; Noble in May 2003. Previously, he was Vice
President and Controller of Barnes&nbsp;&#38; Noble since May
2002. Prior to joining Barnes&nbsp;&#38; Noble,
Mr.&nbsp;Lombardi was Chief Financial Officer at The Museum
Company Inc. from August 1999 to May 2002. From August 1995
through July 1999, he was the Vice President and Controller of
Toys &#146;R&#146; Us, Inc. Prior to that, he was a partner at
Ernst&nbsp;&#38; Young&nbsp;LLP. Mr.&nbsp;Lombardi is a
certified public accountant.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Michelle L. Smith
</FONT></I><FONT size="2">became Vice President of Human
Resources for Barnes&nbsp;&#38; Noble in November 1996.
Ms.&nbsp;Smith joined Barnes&nbsp;&#38; Noble in September 1993
as Director of Human Resources. Ms.&nbsp;Smith is a member of
the Society for Human Resource Management and serves on the
Health and Employee Benefits Committee and Employment Law
Committee of the National Retail Federation.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Mark Bottini </FONT></I><FONT size="2">has
been the Vice President and Director of Stores of
Barnes&nbsp;&#38; Noble since October 2003. Previously, he was a
Regional Director of Barnes&nbsp;&#38; Noble in New York since
October 2000. Mr.&nbsp;Bottini served as a Regional Director of
Barnes&nbsp;&#38; Noble in Chicago from April 1999 to October
2000 and a District Manager of Barnes&nbsp;&#38; Noble in New
York from September 1995 to April 1999.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Michael N. Rosen </FONT></I><FONT size="2">has
been Secretary of B&#38;N.com and Secretary and a director of
the Company and Barnes&nbsp;&#38; Noble since their inception.
Mr.&nbsp;Rosen has been the Chairman of the New York office of
Bryan Cave LLP since their July 2002 combination with Robinson
Silverman, counsel to the Company, B&#38;N.com and
Barnes&nbsp;&#38; Noble. Prior to that, Mr.&nbsp;Rosen was
Chairman of Robinson Silverman for more than the past five
years. Mr.&nbsp;Rosen is also a director of B&#38;N College, MBS
and GameStop. Mr.&nbsp;Rosen&#146;s principal business address
is 1290 Avenue of the Americas, New York, New York 10104.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Matthew A. Berdon
</FONT></I><FONT size="2">has been a director of the Barnes
&#38; Noble since June 1992. Since January 2003, Mr.&nbsp;Berdon
has been the Senior Partner of the financial consulting firm
F.&nbsp;B.&nbsp;&#38; Co.,&nbsp;LLP. From January 1998 through
December 2002, Mr.&nbsp;Berdon was the Chairman of the New York
division of the accounting firm of Urbach Kahn&nbsp;&#38; Werlin
Advisors, Inc. Mr.&nbsp;Berdon&#146;s principal business address
is 19&nbsp;West 44th Street, New York, New York 10036.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Michael J. Del Giudice
</FONT></I><FONT size="2">has been a director of
Barnes&nbsp;&#38; Noble since 1999. Mr.&nbsp;Del Giudice is a
co-founder and Senior Managing Director at Millennium Credit
Markets LLC, an investment banking firm. He is Chairman of
Rockland Capital Energy Investments LLC, a member of the board
of directors of the Consolidated Edison Company of New York,
Inc. and a Trustee of the board of directors of the New York
Racing Association. He is Chairman of the Governor&#146;s
Committee on Scholastic Achievement, an educational non-profit
group. Mr.&nbsp;Del Giudice was Chairman of the board of
directors of Orange &#38; Rockland Utilities Corp. from 1997 to
1999. Mr.&nbsp;Del Giudice&#146;s principal business address is
One Rockefeller Plaza, Suite&nbsp;2330, New York, New York 10020.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">William Dillard, II
</FONT></I><FONT size="2">has been a director of Barnes &#38;
Noble since November 1993. Mr.&nbsp;Dillard has been the Chief
Executive Officer of Dillard&#146;s, Inc.
(&#147;Dillard&#146;s&#148;) since May 1998 and he has been a
director of Dillard&#146;s since 1968. He was appointed Chairman
of Dillard&#146;s in May 2002. Mr.&nbsp;Dillard is also a member
of JPMorganChase &#38; Co. National Advisory Board,
JPMorganChase &#38; Co. Dallas Region Advisory Board and a
director of Acxiom Corp. Mr.&nbsp;Dillard&#146;s principal
business address is 1600 Cantrell Road, Little Rock, Arkansas
72201.
</FONT>

<P align="center"><FONT size="2">D-5
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Irene R. Miller </FONT></I><FONT size="2">has
been a director of Barnes &#38; Noble since May 1995.
Ms.&nbsp;Miller has been the Chief Executive Officer of Akim,
Inc., an investment management and consulting firm, since July
1997. Ms.&nbsp;Miller is also a director of Coach, Inc.,
Inditex, S.A., Oakley, Inc. and The Body Shop International PLC.
Ms.&nbsp;Miller&#146;s principal business address is 186
Riverside Drive, New York, New York 10024.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Margaret T. Monaco
</FONT></I><FONT size="2">has been a director of Barnes &#38;
Noble since May 1995. Ms.&nbsp;Monaco resumed her position as
Principal of Probus Advisors, a management and consulting firm,
in October 2003. Ms.&nbsp;Monaco had been the Chief Operating
Officer of Merrill Lynch Ventures, LLC and KECALP, Inc., wholly
owned subsidiaries of Merrill Lynch &#38; Co., Inc. from
November 1999 to October 2003. She had been the Chief
Administrative Officer from April 1998 to November 1999.
Ms.&nbsp;Monaco had been Principal of Probus Advisors from July
1993 to 1998. Ms.&nbsp;Monaco&#146;s principal business address
is 83 Devon Road, Essex Fells, New Jersey 07021.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">William Sheluck, Jr.
</FONT></I><FONT size="2">has been a director of Barnes &#38;
Noble since November 1993. Mr.&nbsp;Sheluck&#146;s principal
address is 36 Greenleaf Farms Road, Newtown, Connecticut 06470.
</FONT>

<P align="center"><FONT size="2">D-6
</FONT>

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<!-- link1 "ANNEX E" -->

<P align="right">
<B><FONT size="2">ANNEX&nbsp;E</FONT></B>

<P align="left">
<HR size="4" noshade color="#000000" style="margin-top: -5px">

<DIV align="left">
<HR size="1" noshade color="#000000" style="margin-top: -10px">
</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="4">UNITED STATES SECURITIES AND EXCHANGE
COMMISSION</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="center">
<B>Washington,&nbsp;D.C. 20549</B>
</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="5">Form&nbsp;10-K/A</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">AMENDMENT NO. 2</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">FOR ANNUAL AND TRANSITION REPORTS PURSUANT
TO</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="center">
<B><FONT size="2">SECTIONS&nbsp;13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934</FONT></B>
</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="15%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="82%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">(Mark One)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <FONT size="2"><FONT face="wingdings">&#254;</FONT>
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <B><FONT size="2">ANNUAL REPORT PURSUANT TO SECTION&nbsp;13 OR
    15(d)<BR>
    <BR>
    OF THE SECURITIES EXCHANGE ACT OF 1934</FONT></B></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <B><FONT size="2">For the fiscal year ended December&nbsp;31,
    2003</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <B><FONT size="2">or</FONT></B></TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <B><FONT size="2"><FONT face="wingdings">&#111;</FONT></FONT></B></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <B><FONT size="2">TRANSITION REPORT PURSUANT TO SECTION 13 OR
    15(d)<BR>
    <BR>
    OF THE SECURITIES EXCHANGE ACT OF 1934</FONT></B></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <B><FONT size="2">For the transition period
    from &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;to</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <B><FONT size="2">Commission file number: 0-26063</FONT></B></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="6">barnesandnoble.com inc.</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="center">
<I><FONT size="2">(Exact Name of Registrant as Specified in Its
Charter)</FONT></I>
</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="57%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="40%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <B><FONT size="2">Delaware</FONT></B></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <B><FONT size="2">13-4048787</FONT></B></TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <I><FONT size="2">(State or Other Jurisdiction of<BR>
    Incorporation or Organization)</FONT></I></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <I><FONT size="2">(I.R.S. Employer<BR>
    Identification No.)</FONT></I></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <B><FONT size="2">76 Ninth Avenue,<BR>
    New&nbsp;York, NY</FONT></B></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <BR>
    <B><FONT size="2">10011</FONT></B></TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <I><FONT size="2">(Address of Principal Executive
    Offices)</FONT></I></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <I><FONT size="2">(Zip Code)</FONT></I></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">(212)&nbsp;414-6000</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="center">
<I><FONT size="2">(Registrant&#146;s Telephone Number, Including
Area Code)</FONT></I>
</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">Securities registered pursuant to
Section&nbsp;12(b) of the Act:</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="center">
<B><FONT size="2">NONE</FONT></B>
</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">Securities registered pursuant to
Section&nbsp;12(g) of the Act:</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="center">
<B><FONT size="2">Class&nbsp;A Common Stock, $.001&nbsp;par
value per share</FONT></B>
</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Indicate by check mark whether the registrant:
(1)&nbsp;has filed all reports required to be filed by
Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12&nbsp;months (or for such shorter period
that the registrant was required to file such reports), and
(2)&nbsp;has been subject to such filing requirements for the
past
90&nbsp;days.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Yes&nbsp;<FONT face="wingdings">&#254;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No&nbsp;<FONT face="wingdings">&#111;</FONT>
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Indicate by check mark if disclosure of
delinquent filers pursuant to Item&nbsp;405 of
Regulation&nbsp;S-K is not contained herein, and will not be
contained, to the best of the registrant&#146;s knowledge, in
definitive proxy or information statements incorporated by
reference in Part&nbsp;III of this Form&nbsp;10-K or any
amendment to this
Form&nbsp;10-K&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#254;</FONT>
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Indicate by check mark whether the registrant is
an accelerated filer (as defined in Exchange Act
Rule&nbsp;12b-2).&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Yes&nbsp;<FONT face="wingdings">&#254;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No&nbsp;<FONT face="wingdings">&#111;</FONT>
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The aggregate market value of the Common Stock
held by non-affiliates of the registrant, based upon the closing
sale price of the Common Stock on June&nbsp;30, 2003 as reported
on the NASDAQ National Market System, was approximately
$87,842,624.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Number of shares of $.001&nbsp;par value
Class&nbsp;A Common Stock, Class&nbsp;B Common Stock and
Class&nbsp;C Common Stock outstanding as of March&nbsp;1, 2004
was 52,476,325, one and one, respectively.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<HR size="1" noshade color="#000000" style="margin-top: -2px">

<DIV align="left">
<HR size="4" noshade color="#000000" style="margin-top: -10px">
</DIV>

<P align="center"><FONT size="2">E-1
</FONT>

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<DIV align="left">

</DIV>

<DIV align="left">
<!-- TOC -->
</DIV>

<DIV align="left">
<A name="tocpage"></A>
</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">barnesandnoble.com inc.</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">INDEX TO FORM&nbsp;10-K/ A</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="19%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="65%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Page No.</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <FONT size="2">&nbsp;<A HREF='#101'>EXPLANATORY NOTE</A>
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">E-3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="7" align="center" valign="top">
    <B><FONT size="2">&nbsp;<A HREF='#102'>PART&nbsp;I</A></FONT></B></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#103'>Item&nbsp;1.
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Business</A>
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">E-4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#104'>Item&nbsp;2.
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Properties</A>
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">E-10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#105'>Item&nbsp;3.
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Legal Proceedings</A>
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">E-11</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#106'>Item&nbsp;4.
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Submission of Matters to a Vote of Security
    Holders</A>
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">E-12</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="7" align="center" valign="top">
    <B><FONT size="2">&nbsp;<A HREF='#107'>PART&nbsp;II</A></FONT></B></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#108'>Item&nbsp;5.
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Market for Registrant&#146;s Common Equity and
    Related Stockholder Matters</A>
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">E-13</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#109'>Item&nbsp;6.
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Selected Financial Data</A>
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">E-14</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#110'>Item&nbsp;7.
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Management&#146;s Discussion and Analysis of
    Financial Condition and Results of Operations</A>
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">E-15</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#111'>Item&nbsp;7A.
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Quantitative and Qualitative Disclosures About
    Market Risk</A>
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">E-23</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#112'>Item&nbsp;8.
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Financial Statements and Supplementary Data</A>
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">E-25</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#113'>Item&nbsp;9.
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Changes in and Disagreements with Accountants on
    Accounting and Disclosure</A>
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">E-49</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#114'>Item&nbsp;9A.
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Controls and Procedures</A>
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">E-49</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="7" align="center" valign="top">
    <B><FONT size="2">&nbsp;<A HREF='#115'>PART&nbsp;III</A></FONT></B></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#116'>Item&nbsp;10.
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Directors and Executive Officers of the
    Registrant</A>
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">E-49</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#117'>Item&nbsp;11.
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Executive Compensation</A>
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">E-52</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#118'>Item&nbsp;12.
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters</A>
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">E-58</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#119'>Item&nbsp;13.
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Certain Relationships and Related Transactions</A>
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">E-62</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#120'>Item&nbsp;14.
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Principal Accountant Fees and Services</A>
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">E-64</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="7" align="center" valign="top">
    <B><FONT size="2">&nbsp;<A HREF='#121'>PART&nbsp;IV</A></FONT></B></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#122'>Item&nbsp;15.
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Exhibits, Financial Statement Schedules, Reports
    on Form&nbsp;8-K</A>
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">E-65</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <FONT size="2">&nbsp;<A HREF='#123'>Signatures</A>
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">E-69</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left">
<!-- /TOC -->
</DIV>

<P align="center"><FONT size="2">E-2
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<A name='101'></A>
</DIV>

<!-- link1 "EXPLANATORY NOTE" -->

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">EXPLANATORY NOTE</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">This Amendment No.&nbsp;2 on Form&nbsp;10-K/ A
amends the Company&#146;s Annual Report on Form&nbsp;10-K for
the fiscal year ended December&nbsp;31, 2003 originally filed
with the Securities and Exchange Commission on March&nbsp;15,
2004 and subsequently amended by Amendment No.&nbsp;1 on
Form&nbsp;10-K/ A filed with the Securities and Exchange
Commission on April&nbsp;27, 2004. The Company is filing this
Form&nbsp;10-K/ A to include information required by
Items&nbsp;10, 11, 12, 13 and 14 of Part&nbsp;III because the
Company&#146;s proxy statement will not be filed within
120&nbsp;days after the end of its fiscal year.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-3
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<A name='102'></A>
</DIV>

<!-- link1 "PART I" -->

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">PART&nbsp;I</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left">
<A name='103'></A>
</DIV>

<!-- link1 "Item 1. Business" -->

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="8%"></TD>
    <TD width="92%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Item&nbsp;1.<I>&nbsp;</I></FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Business</FONT></I></B></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<B><FONT size="2">General</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">barnesandnoble.com inc. (the &#147;Company&#148;)
is a holding company whose sole asset is its 29.6% interest in
barnesandnoble.com llc (&#147;B&#38;N.com&#148;), and whose sole
business is acting as sole manager of B&#38;N.com. Through
direct membership interests in B&#38;N.com and ownership of
common stock in the Company, as of March&nbsp;1, 2004
Barnes&nbsp;&#38; Noble, Inc. (&#147;Barnes&nbsp;&#38;
Noble&#148;) owned a 72.9% economic interest in B&#38;N.com and
a 96.3% voting interest in the Company. Barnes&nbsp;&#38; Noble
increased its interest to that level on September&nbsp;15, 2003
by acquiring the entire 36.8% equity interest of Bertelsmann AG
(&#147;Bertelsmann&#148;) in B&#38;N.com and the Company for
$2.80&nbsp;per share or membership unit in B&#38;N.com
(&#147;Membership Unit&#148;), payable in a combination of cash
and notes. On January&nbsp;8, 2004, the Company entered into an
Agreement and Plan of Merger (the &#147;Merger Agreement&#148;),
which sets forth the terms and conditions of the proposed
acquisition of the Company by a wholly owned subsidiary of
Barnes&nbsp;&#38; Noble. The Merger Agreement provides that at
the closing of the merger, the holders of the Company&#146;s
outstanding common stock, other than Barnes&nbsp;&#38; Noble and
its subsidiaries, will receive $3.05&nbsp;per share in cash for
their shares, and the Company will become a privately held
company, wholly owned by Barnes&nbsp;&#38; Noble. The closing of
the merger is expected to occur in the second quarter of fiscal
2004.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B&#38;N.com is a leading internet-based retailer
of books, music, DVD/video and online courses. Since opening its
online store (www.bn.com) in March 1997, B&#38;N.com has
attracted more than 17.0&nbsp;million customers in 230
countries. B&#38;N.com&#146;s bookstore includes the largest
in-stock selection of in-print book titles with access to
approximately one million titles for immediate delivery,
supplemented by more than 30&nbsp;million listings from its
nationwide network of out-of-print, rare and used book dealers.
The Company now receives commissions on sales of used and out of
print books, through BookQuest LLC (&#147;BookQuest&#148;), a
service that allows independent book dealers to sell their used
books on the B&#38;N.com Web site. B&#38;N.com offers its
customers fast delivery, easy and secure ordering and rich
editorial content.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">According to Jupiter Media Metrix, in December
2003, B&#38;N.com&#146;s Web site was the eleventh
most-trafficked shopping site and was among the top 65 largest
Web properties on the Internet. Co-marketing agreements with
major Web portals such as America Online (&#147;AOL&#148;),
Google<SUP>TM</SUP> and Microsoft Network (&#147;MSN&#148;) as
well as content sites have extended B&#38;N.com&#146;s brand
recognition and increased consumer exposure to its site.
B&#38;N.com has also established a network of remote virtual
storefronts across the Internet by creating direct links with
more than 189,000 affiliate Web sites.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company believes that B&#38;N.com&#146;s
relationships with Barnes&nbsp;&#38; Noble, the nation&#146;s
largest bookseller, provides B&#38;N.com with meaningful
advantages relative to other online retailers in its category,
including:
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">The superior brand recognition of the
    Barnes&nbsp;&#38; Noble trade name, which is a strong factor in
    attracting customers;
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">The use of Barnes&nbsp;&#38; Noble&#146;s
    distribution center as its primary product supplier, which
    enables B&#38;N.com to offer approximately one million in-stock
    book titles for immediate delivery, representing the largest
    standing inventory of any online bookseller; B&#38;N.com is also
    able to benefit from the supplier relationships maintained by
    Barnes&nbsp;&#38; Noble with every significant book publisher;
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">The use of Barnes&nbsp;&#38; Noble&#146;s book
    database as the primary source of bibliographic data, which
    enables B&#38;N.com to provide its customers with the most
    authoritative and accurate book data available;
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">The enterprise value of Barnes&nbsp;&#38; Noble,
    including its network of 842 retail bookstores nationwide,
    provides significant advantages in attracting strategic
    partnerships;
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Ongoing access to the substantial book selling
    and direct marketing knowledge and experience of the management
    of Barnes&nbsp;&#38; Noble;&nbsp;and
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

</TABLE>

<P align="center"><FONT size="2">E-4
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<P>

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</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Participation with Barnes&nbsp;&#38; Noble to
    create and maintain a book buyers&#146; membership loyalty
    program, the Barnes&nbsp;&#38; Noble Membership Program
    (formerly the &#147;Readers&#146; Advantage<SUP>TM</SUP>
    card&#148;), which offers discounts and other benefits to
    members. For a $25 annual membership fee, participating
    customers receive 10% additional discounts at Barnes&nbsp;&#38;
    Noble stores and 5% additional discounts at B&#38;N.com. In
    addition to discounts, member benefits include sign-up premiums
    and member-only events.
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<B><FONT size="2">Industry Background</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">E-Commerce.</FONT></I><FONT size="2"> The
arena of e-commerce provides retailers with the opportunity to
serve a rapidly growing market, fueled by increased consumer
acceptance of the Internet as an alternative shopping channel.
According to the January 2004 Forrester US eCommerce report,
online shopping for 2003 was $107.0&nbsp;billion. Online
shopping is expected to reach $176.8&nbsp;billion in the year
2006 (Forrester July 2003 US eCommerce report). In Jupiter
Research&#146;s January 2004 population model, the
U.S.&nbsp;online buying population will grow by 14 percent in
2004 over 2003, representing 30&nbsp;percent of the
U.S.&nbsp;population. According to Jupiter Research, by 2008,
one-half of the U.S.&nbsp;population will make purchases online.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">The Book Industry.</FONT></I><FONT size="2">
The size of the U.S.&nbsp;consumer book market, according to
Veronis Suhler&nbsp;&#38; Associates, an investment banking firm
specializing in, among other things, the publishing industry,
was $18.8&nbsp;billion in 2002, and is expected to grow to
$21.6&nbsp;billion by 2007. According to the National
Association of College Stores, Inc., the college textbook market
for the 2001 to 2002 academic year was $7.7&nbsp;billion with
used textbooks representing 14.9%.
</FONT>

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</FONT></DIV>

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</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Online Shopping
Forecast.</FONT></I><FONT size="2"> Forrester Research forecasts
accelerating acceptance of the Internet as a channel that
consumers will use to purchase a wide range of products. Within
the categories of B&#38;N.com&#146;s focus of books, music and
DVD/video, Forrester Research forecasts significant growth in
online sales for all the categories. Forrester Research
estimates that North American online sales of books will grow
from $2.8&nbsp;billion in 2003 to $5.5&nbsp;billion by 2008. In
addition, Forrester Research estimates online sales in 2008 for
music and DVD/video to be $2.5&nbsp;billion up from
$1.2&nbsp;billion in 2003 and $5.6&nbsp;billion up from
$1.8&nbsp;billion in 2003, respectively.
</FONT>

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</FONT></DIV>

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</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Products that are Well Suited for
E-Commerce.</FONT></I><FONT size="2"> The book, music and video
businesses are particularly well suited for e-commerce because
an online store has virtually unlimited shelf space and can
offer consumers anywhere the convenience of browsing through
large product information databases. The use of sophisticated
search and browse engines enables users to find books and music
with convenience and speed and to get advance notice about new
titles in their areas of personal interest. Editorial content,
such as synopses, excerpts, reviews and recommendations,
downloadable music sound samples and over 10,000 movie trailers,
make for a more educated and entertaining purchasing decision.
In addition, B&#38;N.com&#146;s core categories, books, music
and DVD/video, are popular and economical gift items. According
to the December 2003 eSpending Report from Goldman
Sachs&nbsp;&#38; Co., Harris Interactive, and Nielsen/ Net
Ratings, during the holiday 2003 season (November&nbsp;1, 2003
to December&nbsp;12, 2003) the books category increased by 33%
over holiday 2002 to comprise $1.0&nbsp;billion in sales or
7.7&nbsp;percent of U.S.&nbsp;online spending; and DVD/video
sales increased by 89% over holiday 2002 to comprise
$1.2&nbsp;billion in sales or 9.2% of U.S.&nbsp;online spending.
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Broadband vs.
Dial-up.</FONT></I><FONT size="2"> Currently most households
access the Internet through a dial-up connection, which requires
use of a phone line and modem, with maximum speeds of 56 kbps.
Broadband access does not use a phone line and has speeds up to
ten times faster than dial-up connections, which makes the
online shopping experience much faster. A December 2003 Report
by ComScore Media Metrix reports that the number of home
broadband users has increased by more than 30% in the past year,
with 34% of home users now using a high-speed connection.
ComScore research has shown that broadband users are at least
50% more likely than narrowband users to complete an online
purchase in a given month.
</FONT>

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</FONT></DIV>

<P align="left">
<B><FONT size="2">Business Strategy</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B&#38;N.com has aggressively pursued its strategy
to be an e-commerce leader in the sale of books, music and
DVD/video. It is B&#38;N.com&#146;s goal to be recognized as the
most innovative and customer-focused of e-commerce merchants,
making online purchasing a simple, secure and gratifying
experience that results in
</FONT>

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</FONT></DIV>

<P align="center"><FONT size="2">E-5
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<FONT size="2">the highest levels of customer loyalty.
B&#38;N.com has made significant investments to achieve the
highest possible levels of value and service, which it believes
are reflected in the completeness of its product selection, the
ease-of-use of its Web site, the price of its products and the
speed of delivery it can offer its customers.
</FONT>
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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B&#38;N.com&#146;s goals are to increase its
customers and revenue base by:
</FONT>

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    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I><FONT size="2">Continually Enhancing the User
    Experience.</FONT></I><FONT size="2"> B&#38;N.com is committed
    to making every aspect of browsing and shopping on its Web site
    an easy and intuitive experience. It makes continual efforts to
    improve the design, layout and navigation of all elements of its
    Web site, as well as to ensure that the site&#146;s performance
    metrics are competitive, especially with regard to page download
    times and the speed of all search functions. Introduced in 2002,
    BookBrowser<SUP>TM</SUP>, powered by a licensed navigation
    technology, allows users to easily browse millions of books in
    more than 400,000 categories using a host of criteria including
    subject, author, format, price range, award winners, recommended
    books, bestsellers and more. Additionally,
    BookBrowser<SUP>TM</SUP> enables users to select and combine
    categories that best match their interests to quickly arrive at
    a list of very specific and relevant books. B&#38;N.com also
    strives to make the ordering and checkout process easy,
    intuitive, fast and secure. In 2002 and 2003, the Company
    implemented a number of enhancements to both the order checkout
    process and to the account maintenance function. These
    improvements continue to assist customers in quickly completing
    their orders and enable them to easily modify information in
    their customer accounts. During the first half of 2003, special
    processing and systems capacity were allocated to handle the
    hundreds of thousands of pre-orders for the fifth installment in
    the Harry Potter series.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I><FONT size="2">Providing Rich Editorial
    Content.</FONT></I><FONT size="2"> B&#38;N.com strives to
    provide its users with the most accurate and authoritative
    online database about books and authors. B&#38;N.com&#146;s
    online database includes editorial content such as excerpts,
    synopses, book reviews, author biographies and user reviews on
    more than one million titles. Included in this content are book
    reviews from many respected industry sources, such as The
    New&nbsp;Yorker, Publisher&#146;s Weekly, and the Kirkus
    Reviews. B&#38;N.com&#146;s in-house editorial experts also
    write and commission feature articles, columns and interviews
    with popular authors.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">In 2003, B&#38;N.com introduced the Book Clubs
    Center, where customers can find reading group recommendations
    and free, printable reading group guides for thousands of
    titles. The Book Clubs Center features a book club &#147;Pick of
    the Week,&#148; and exclusive free online reading groups with
    contemporary authors and other literary experts.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">In 2003, B&#38;N.com expanded &#147;Meet the
    Writers&#148;, the exclusive author showcase where users can
    find comprehensive biographical information, author profiles and
    interviews, book recommendations and lists of current and
    forthcoming publications. Meet the Writers also features
    exclusive audio and video interviews with select authors and a
    &#147;Writer Alert&#148; program that tells users by e-mail when
    their favorite authors have published new books.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

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</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I><FONT size="2">Offering a Large Product Selection and Fast
    Delivery.</FONT></I><FONT size="2"> B&#38;N.com has access to
    the largest in-stock selection of in-print book titles available
    for immediate delivery, supplemented by more than
    30&nbsp;million listings from its nationwide network of
    out-of-print, rare and used book dealers. This includes an
    extensive selection of English-language books in print as well
    as millions of out-of-print, rare and used books.
    B&#38;N.com&#146;s online databases act as a highly searchable
    catalogue for the full spectrum of English-language books. The
    Company&#146;s distribution network ensures speedy delivery.
    B&#38;N.com&#146;s search engine and BookBrowser<SUP>TM</SUP>
    navigation engine allow consumers to search and browse through
    the Company&#146;s database of approximately one million titles
    available for immediate delivery.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

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</FONT></TD></TR>

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    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I><FONT size="2">Extensive Product
    Offering.</FONT></I><FONT size="2"> B&#38;N.com is focused on
    becoming the best place to buy books online as well as the most
    authoritative source for information about books and authors.
    While B&#38;N.com&#146;s major focus is and will be selling
    books, the Company believes that offering complementary
    information products such as music, DVDs/videos and online
    courses is a natural extension of bookselling.
    B&#38;N.com&#146;s Music Store features hundreds of thousands of
    titles, as well as artist biographies, artist interviews and
    music reviews. The site also offers free music downloads on
    selected songs and &#147;The Listening Wall&#148;, where users
    can listen to song samples. B&#38;N.com&#146;s Video Store
    features tens of
    </FONT></TD>
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</FONT></TD></TR>

</TABLE>

<P align="center"><FONT size="2">E-6
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    <TD align="left">
    <FONT size="2">thousands of movie titles available in both DVD
    and VHS formats. Powered by the comprehensive All-Movie Guide
    database, and organized into 500 genres and more than 800
    sub-categories, B&#38;N.com&#146;s Video Store offers an
    extensive selection of DVD/videos. Users can also access the
    B&#38;N.com Screening Room featuring over 10,000 of the newest
    full-length video previews. The Company&#146;s Barnes&nbsp;&#38;
    Noble University&#174; offers hundreds of non-accredited online
    free and paid courses each year. Each online course covers a
    specific book or text and is taught by an author or expert in
    the field. The course topics include a wide range of subjects
    from technology and computer skills to literature, writing,
    business, foreign language and self-help.
    </FONT></TD>
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    <TD>&nbsp;</TD>
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    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">In February 2002, the Company launched
    Barnes&nbsp;&#38; Noble,&nbsp;Jr., featuring a wide selection of
    books for children of all ages. Barnes&nbsp;&#38;
    Noble,&nbsp;Jr. also has extensive video and music selections.
    Streamlining the shopping experience, the new store features
    clear links between product lines and age-based recommendations
    within each product line. The fully cross-merchandised
    Barnes&nbsp;&#38; Noble,&nbsp;Jr. focuses on new releases,
    celebrated award winners and classics. New in 2003 was an
    expansion of non-book products for children, which included
    games, activity kits, puzzles, plush toys, and interactive
    reading devices.
    </FONT></TD>
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    <TD>&nbsp;</TD>
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</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">In May 2003, the Company launched a Gift Center,
    featuring gifts, games, plush toys, and non-book products. The
    Gift Center was expanded in September 2003 with over 600 items,
    including exclusive gift and toy products. The wide selection of
    gift items has been organized to allow easy browsing, with
    sections for gifts for readers, scrap booking, and
    children&#146;s gifts. The Gift Center also features several
    specialty boutiques for gifts by recipient, such as &#147;Gifts
    for Travelers&#148; and &#147;Gifts for Newborns and
    Mothers&#148;.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">In September 2003, the Company introduced a
    Business&nbsp;&#38; Technology and a Medicine&nbsp;&#38; Science
    store, which merchandise all book titles in these categories.
    This new feature enables customers to easily find and purchase a
    comprehensive selection of books especially targeted to
    professionals. These stores are merchandised by a team of
    subject category experts in the fields of business, computers,
    engineering and professional science, law, education, medicine
    and other health-related professions. Specialized merchandising
    of these subjects also includes subscription newsletters in
    medicine, business and computers.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">In September 2003 the Company significantly
    expanded its selection of books in Spanish and launched
    <I>Libros en Espa&#241;ol</I>. Customers can browse
    Spanish-language titles in thousands of categories by subject,
    format and price, and get detailed information including first
    chapters and excerpts. <I>Libros en Espa&#241;ol </I>also offers
    thousands of Latin-music CDs, DVDs and video titles produced in
    Spanish or with Spanish language tracks. The area also features
    weekly bestseller lists for Spanish-language adult and
    children&#146;s books, and its &#147;Meet the Writers&#148;
    section will feature profiles and interviews of Hispanic authors.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">During the 2003 holiday season, the Company
    featured its annual Holiday Gift Guide. This comprehensive guide
    featured nearly 3,000 guaranteed in-stock products organized
    into hundreds of subject and interest categories including art
    and photography, food and wine, fiction and literature, home and
    garden, religion and science and nature. Also featured were
    special, handpicked collections, including Christmas and holiday
    books, coffee table books and gift books. Music and video
    selections included music and DVD box sets, bestsellers and
    holiday selections. Children and teen selections were
    categorized by age and included special interest collections.
    New in 2003 was an expanded non-book section featuring products
    in categories such as games, puzzles, plush toys, home and
    office, and yoga and wellness.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

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    <TD>&nbsp;</TD>
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</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I><FONT size="2">Building Brand Awareness and Driving Customer
    Acquisition Through Online Advertising and
    Promotion.</FONT></I><FONT size="2"> B&#38;N.com will continue
    to invest in building its online brand through its key
    relationships. The Company began 2003 with 13.6&nbsp;million
    customers and grew this base to more than 17.0&nbsp;million by
    year-end. In its advertising and promotion initiatives,
    B&#38;N.com seeks to continuously drive down the new customer
    acquisition cost, as well as to get customers to return to the
    site more frequently and to increase the size of their average
    purchase per visit. B&#38;N.com has formed significant strategic
    marketing
    </FONT></TD>
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<P align="center"><FONT size="2">E-7
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    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">relations with Google<SUP>TM</SUP>, AOL and MSN
    and has established an extensive affiliate network, all designed
    to build brand awareness and increase customer acquisition.
    </FONT></TD>
</TR>

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</FONT></TD></TR>

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    <TD>&nbsp;</TD>
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    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I><FONT size="2">Maintaining High Levels of Customer
    Service.</FONT></I><FONT size="2"> The Company believes that
    high levels of customer service and support are crucial to
    retaining and expanding B&#38;N.com&#146;s customer base. For
    the fourth quarter of 2003, B&#38;N.com received one of the top
    two scores in customer satisfaction of the 70&nbsp;companies
    contained in the latest American Customer Satisfaction Index
    (ACSI), a quarterly survey of consumer attitudes by the
    University of Michigan. In addition, B&#38;N.com&#146;s score of
    86 out of a possible 100 is an increase of nearly 12.0% since
    the survey&#146;s inception in 2000. This represents one of the
    largest gains of any company in the survey. B&#38;N.com monitors
    orders from the time they are placed through delivery by
    providing numerous points of electronic, telephonic and personal
    communication to its customers.
    </FONT></TD>
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</FONT></DIV>

<P align="left">
<B><FONT size="2">Marketing and Promotion</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Online Strategic
Alliances.</FONT></I><FONT size="2"> Since inception,
B&#38;N.com has aggressively pursued strategic alliances with
premier online companies and high-traffic Web sites to drive
traffic to its own site. The Company has major affiliations with
Google<SUP>TM</SUP> as well as with AOL&#146;s proprietary
service and MSN which are among the world&#146;s largest online
shopping destinations.
</FONT>

<DIV align="left"><FONT size="1">

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</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Affiliate Network.</FONT></I><FONT size="2">
In addition to securing alliances with the nation&#146;s three
highest-trafficked Internet properties, B&#38;N.com has
established an affiliate network of more than 189,000 Web sites
operated by third parties, whereby Web site operators can earn
referral fees by linking users from their sites to the
B&#38;N.com site.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

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</FONT></DIV>

<P align="left">
<B><FONT size="2">Technology</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B&#38;N.com believes that it has built a leading
interactive e-commerce platform, and plans to continue to invest
in technologies that will enable B&#38;N.com to offer its
customers the most convenient and user-friendly online shopping
experience. B&#38;N.com has licensed existing commercial
technology when available and has focused its internal
development efforts on those proprietary systems necessary to
provide the highest level of value and service to its customers.
The overall mix of technologies and applications in use by
B&#38;N.com allows it to support a distributed, scalable and
secure e-commerce environment.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B&#38;N.com uses Intel-based server technology in
a fully redundant configuration to power its Web site, which is
hosted in two locations. At these locations, B&#38;N.com
maintains computers that store its Web pages in electronic form
and transmits them to requesting users. Such storage and
transmittal is called hosting. B&#38;N.com operates two hosting
locations. Each of the hosting locations is
&#147;co-located&#148; within leading edge hosting facilities
that are maintained by two different hosting vendors. Either
site has sufficient capacity to support the volume of traffic
directed toward B&#38;N.com during peak periods. Both hosting
locations are configured with excess Internet telecommunications
capacity to ensure quick response time and three separate
Internet service providers are used. By maintaining redundant
host locations, B&#38;N.com has significantly reduced its
exposure to downtime and service outages. Additionally, the
Company believes its technology investments are scalable.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

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</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B&#38;N.com&#146;s integrated systems and tools
provide functionality in the following areas:
</FONT>

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</FONT></DIV>
<P>

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</FONT></DIV>

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    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I><FONT size="2">Book Database and Search
    Functionality.</FONT></I><FONT size="2"> B&#38;N.com has
    seamlessly incorporated the Barnes&nbsp;&#38; Noble book
    database into the Web site. The Barnes&nbsp;&#38; Noble book
    database is a comprehensive synthesis of multiple sources of
    data and content that feeds from publishers and third party
    sources. B&#38;N.com has also developed a powerful proprietary
    search engine. Search results can be sorted by user-defined
    sequences including &#147;bestseller&#148;, &#147;date
    published&#148;, or in alphabetical sequence. In addition, in
    2002 B&#38;N.com introduced BookBrowser<SUP>TM</SUP>, a
    navigation technology that allows customers to easily browse
    millions of books in more than 400,000 categories.
    BookBrowser<SUP>TM</SUP> also enables customers to select and
    combine categories that best match their interests to quickly
    arrive at a list of very specific and relevant books.
    B&#38;N.com uses licensed technology to power
    BookBrowser<SUP>TM</SUP>.
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-8
</FONT>

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</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I><FONT size="2">e-Commerce.</FONT></I><FONT size="2">
    B&#38;N.com has developed its e-commerce applications using the
    Microsoft Windows 2000 Server Architecture. B&#38;N.com has
    created a set of server applications that allow customers to
    securely establish accounts and to store address books, credit
    cards and ordering preferences. A customer needs to set up an
    account only once and then has the ability to easily modify the
    components of their account setup. When the account has been
    established, the customer can shop the traditional
    &#147;e-commerce&#148; path by adding items to their shopping
    cart. Gift certificates, gift cards, gift-wrap, gift message and
    the ability to select from a variety of shipping methods are
    available options.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I><FONT size="2">Order Processing.</FONT></I><FONT size="2">
    B&#38;N.com has created a proprietary application to expedite
    orders into the fulfillment process. This application has
    real-time connectivity to B&#38;N.com&#146;s and
    Barnes&nbsp;&#38; Noble&#146;s distribution centers as well as
    other third party suppliers. In addition to immediately securing
    the inventory for customers, application logic determines the
    best possible choice of shipping warehouse by evaluating
    purchase margin, postage cost and customer delivery time.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I><FONT size="2">Order Fulfillment and Customer
    Service.</FONT></I><FONT size="2"> B&#38;N.com has developed
    proprietary applications that enable it to receive products and
    assign them to customers based upon various ordering, handling
    and shipping criteria. B&#38;N.com utilizes licensed technology
    and has also developed proprietary applications that are used
    for customer service.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I><FONT size="2">Sales Tracking and
    Analysis.</FONT></I><FONT size="2"> B&#38;N.com licenses
    technology to support its affiliate program. The software
    provides sophisticated sales tracking for the members of the
    affiliate network with real time reporting and analysis tools.
    B&#38;N.com has built a comprehensive data warehouse to store
    and analyze customer sales and online activity data.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I><FONT size="2">Leveraging
    Technology.</FONT></I><FONT size="2"> B&#38;N.com invested
    extensively in its Web site, order processing, and fulfillment
    and customer service technologies through 2000. While the
    Company continues to invest in technology to maintain its
    industry-leading technological infrastructure, since 2001 a
    lower rate of investment has been required, providing
    opportunities to leverage fixed technology expenses and capital
    investments.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<B><FONT size="2">Competition</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Both the e-commerce market and retail bookselling
business are highly competitive. Following the introduction of
e-commerce to the Internet, a significant number of e-commerce
Web sites were launched. Despite recent failures in other areas
of the e-commerce sector, the Company expects online bookselling
competition to remain intense. The Company believes that the
primary differentiating factors in e-commerce are brand
recognition, ease of use, price, fulfillment speed, customer
support, product availability, web site reliability and site
content. The Company believes that B&#38;N.com&#146;s success
will depend heavily upon its ability to provide a compelling and
satisfying shopping experience. The Company believes the other
factors that will affect B&#38;N.com&#146;s success include
B&#38;N.com&#146;s continued ability to attract experienced
marketing, technology, operations and management talent. The
nature of the Internet as an electronic marketplace (which may,
among other things, facilitate competitive entry and
comparison-shopping) may render it inherently more competitive
than traditional retailing formats. Despite the Company&#146;s
ability to gain market share, increased competitiveness among
online retailers may result in reduced operating margins and a
potential loss of market share.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">With respect to the sale of books, which
constitutes B&#38;N.com&#146;s largest source of revenue,
B&#38;N.com currently competes with numerous booksellers
including other Internet-based companies such as Amazon.com and
traditional book retailers. With respect to the sale of music
and DVD/video, B&#38;N.com competes with numerous merchants
including other Internet-based companies, such as Amazon.com and
traditional retailers. B&#38;N.com&#146;s main online
competitor, Amazon.com, has a longer online operating history
and a larger existing customer base than B&#38;N.com.
B&#38;N.com is aware that Amazon.com has and may continue to
adopt aggressive pricing and marketing strategies. B&#38;N.com
is also aware of other online retailers that offer substantial
discounts on products, including books, music and DVD/video,
which are subsidized by advertising revenue from their Web
sites. An increase in the prevalence of this type of business
model could lead to additional pricing pressures on
B&#38;N.com&#146;s products.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-9
</FONT>

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<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<B><FONT size="2">Seasonality</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B&#38;N.com experiences seasonality in its
business, reflecting Internet usage fluctuations and traditional
retail holiday patterns.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<B><FONT size="2">Government Regulation and Legal
Uncertainties</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">E-commerce is rapidly changing, and federal and
state regulation relating to the Internet and e-commerce is
evolving. Currently there are few laws or regulations uniquely
applicable to the access of the Internet or e-commerce on the
Internet. Laws and regulations may be enacted with respect to
the Internet, covering issues such as user privacy, pricing,
taxation, content, copyrights, distribution, antitrust and
quality of products and services. Additionally, the growth of
e-commerce may trigger the development of stricter consumer
protection laws. The adoption of such laws or regulations could
reduce the rate of growth of the Internet, which could
potentially decrease the usage of B&#38;N.com&#146;s Web site or
could otherwise have a material adverse effect on
B&#38;N.com&#146;s business. In addition, applicability to the
Internet of existing laws governing issues such as taxation,
libel, obscenity and personal privacy is uncertain. The vast
majority of such laws were adopted prior to the advent of the
Internet and related technologies and, as a result, do not
contemplate or address the unique issues of the Internet and
related technologies.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Further, several telecommunications carriers have
requested that the Federal Communications Commission
(&#147;FCC&#148;) regulate telecommunications over the Internet.
Due to the increasing use of the Internet and the burden it has
placed on the current telecommunications infrastructure,
telephone carriers have requested that the FCC regulate Internet
service providers and online service providers and impose fees
on those providers. If the FCC imposes access fees, the costs of
using the Internet could increase significantly. This could
result in the reduced use of the Internet as a medium for
commerce, which could have a material adverse effect on
B&#38;N.com&#146;s business, financial condition, results of
operations or prospects.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<B><FONT size="2">Employees</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As of February&nbsp;27, 2004, B&#38;N.com
employed 1,001&nbsp;full-time and part-time employees.
B&#38;N.com also employs independent contractors to perform
duties in various departments. B&#38;N.com&#146;s employees are
not represented by unions, and B&#38;N.com considers its
relationship with its employees to be excellent. B&#38;N.com
believes that its success is dependent on its ability to attract
and retain qualified personnel in numerous areas.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<B><FONT size="2">Available Information</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our investor relations Web site is
<I>http://www.barnesandnoble.com/ir.</I> We make available on
this Web site under &#147;SEC Filings,&#148; free of charge, our
annual reports on Form&nbsp;10-K, quarterly reports on
Form&nbsp;10-Q, current reports on Form&nbsp;8-K and amendments
to those reports as soon as reasonably practicable after we
electronically file or furnish such material to the
U.S.&nbsp;Securities and Exchange Commission (&#147;SEC&#148;).
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left">
<A name='104'></A>
</DIV>

<!-- link1 "Item 2. Properties" -->

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="8%"></TD>
    <TD width="92%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Item&nbsp;2.<I>&nbsp;</I></FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Properties</FONT></I></B></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B&#38;N.com&#146;s principal administrative,
marketing and technical facilities are situated in
New&nbsp;York, New&nbsp;York, and are covered by one lease which
is for approximately 90,000&nbsp;square feet of office space and
expires in 2015. Additionally, we have 64,750&nbsp;square feet
of vacant office space that we remain obligated under a lease
agreement that expires in 2006.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Barnes&nbsp;&#38; Noble leases a
300,000&nbsp;square foot facility located in Dayton, New Jersey,
of which B&#38;N.com uses approximately 100,000&nbsp;square feet
for its fulfillment operations. This lease expires in
February&nbsp;2005; however, Barnes&nbsp;&#38; Noble has an
option to extend the lease for up to two additional successive
two-year periods.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B&#38;N.com leases a 380,000&nbsp;square foot
building in Memphis, Tennessee for distribution purposes. The
lease term is five years expiring January&nbsp;2005.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-10
</FONT>

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<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B&#38;N.com leases 30,000&nbsp;square feet in
Secaucus, New&nbsp;Jersey for its customer service operations.
The lease term is 10&nbsp;years expiring June&nbsp;2009. The
lease may be renewed for one five-year period at an agreed upon
prevailing fair market value rate.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We believe that our properties are suitable and
adequate for our present and anticipated near term needs.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left">
<A name='105'></A>
</DIV>

<!-- link1 "Item 3. Legal Proceedings" -->

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="8%"></TD>
    <TD width="92%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Item&nbsp;3.<I>&nbsp;</I></FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Legal Proceedings</FONT></I></B></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In August&nbsp;1998, The Intimate Bookshop, Inc.
and its owner, Wallace Kuralt, filed a lawsuit in the United
States District Court for the Southern District of New&nbsp;York
against a predecessor of the Company, Barnes&nbsp;&#38; Noble,
Borders Group, Inc. and others, alleging violation of the
Robinson-Patman Act and other federal law, New&nbsp;York
statutes governing trade practices and common law. In
March&nbsp;2000, a Second Amended Complaint was served on the
Company and other defendants alleging a single cause of action
for violations of the Robinson-Patman Act. The Second Amended
Complaint claims that The Intimate Bookshop, Inc. has suffered
damages of $11,250,000 or more and requests treble damages,
costs, attorneys&#146; fees and interest, as well as declaratory
and injunctive relief prohibiting the defendants from violating
the Robinson-Patman Act. The Company served an Answer in
April&nbsp;2000 denying the material allegations of the Second
Amended Complaint and asserting various affirmative defenses. On
January&nbsp;11, 2002, the Company and the other defendants
filed a motion for summary judgment. A hearing on that motion
was held on March&nbsp;22, 2002. On September&nbsp;30, 2003, the
court granted defendants&#146; motion and dismissed all of
plaintiff&#146;s claims. Plaintiff filed a notice of appeal of
that decision, which was withdrawn on February&nbsp;10, 2004.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">There is a class action lawsuit entitled <I>In Re
Initial Public Offering Securities Litigation</I> pending since
April&nbsp;2002 in the United States District Court for the
Southern District of New&nbsp;York (the &#147;Action&#148;). The
Action named over one thousand individuals and 300 corporations,
including Fatbrain.com, Inc. (&#147;Fatbrain&#148;), (a Company
subsidiary) and its former officers and directors. The Amended
Complaints in the Action all allege that the initial public
offering registration statements filed by the defendant issuers
with the Securities and Exchange Commission, including the one
filed by Fatbrain, were false and misleading because they failed
to disclose that the defendant underwriters were receiving
excess compensation in the form of profit sharing with certain
of its customers and that some of those customers agreed to buy
additional shares of the defendant issuers&#146; common stock in
the after market at increasing prices. The Amended Complaints
also allege that the foregoing constitute violations of:
(i)&nbsp;Section&nbsp;11 of the Securities Act of 1933, as
amended (the &#147;1933&nbsp;Act&#148;) by the defendant
issuers, the directors and officers signing the related
registration statements, and the related underwriters;
(ii)&nbsp;Rule&nbsp;10b-5 promulgated under the Securities
Exchange Act of 1934 (the &#147;1934&nbsp;Act&#148;) by the same
parties; and (iii)&nbsp;the control person provisions of the
1933 and 1934&nbsp;Acts by certain directors and officers of the
defendant issuers. A motion to dismiss by the defendant issuers,
including Fatbrain, was denied. After extensive negotiations
among representatives of plaintiffs and defendants, a memorandum
of understanding (&#147;MOU&#148;), outlining a proposed
settlement resolving the claims in the Action between plaintiffs
and the defendant issuers, has been entered into. A draft
settlement agreement has been prepared and circulated among the
defendants and plaintiffs in the action, the terms of which are
consistent with the MOU and which, after execution, will be
submitted to the court for approval. The proposed settlement is
not expected to have any material adverse impact on the Company.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On August&nbsp;16, 2002, B&#38;N.com, along with
17 other defendants, was sued in the United States District
Court for the Eastern District of Texas by Charles E. Hill
Associates for patent infringement of United States Patent
Nos.&nbsp;5,528,490 (the &#147;490&nbsp;Patent&#148;), 5,761,649
and 6,029,142. On November&nbsp;7, 2002, B&#38;N.com and the
other defendants answered and filed counterclaims for a
declaratory judgment of non-infringement, invalidity and
unenforceability of all three patents. On November&nbsp;27,
2002, B&#38;N.com joined the other defendants in filing a motion
to change venue to the United States District Court for the
Southern District of Indiana, where an earlier filed case
against Compuserve, one of the defendants in the Texas case, was
pending involving only the 490&nbsp;Patent. On January&nbsp;23,
2003, the court granted the motion to transfer and the
transferred case was assigned to Judge McKinney in Indianapolis.
On November&nbsp;24, 2003, the Indiana court dismissed the case
which Hill had filed against Compuserve alone (Cause
no.&nbsp;IP97-0434-C-M/S, Indiana) with prejudice based on the
filing of a covenant not to sue by Hill. Consequently, on
November&nbsp;25, 2003, the Indiana court granted Hill&#146;s
motion to retransfer the case back to the U.S.&nbsp;District
Court for the Eastern
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-11
</FONT>

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<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left">
<FONT size="2">District of Texas. Compuserve has appealed the
dismissal with prejudice and made a motion to stay the
retransfer pending the outcome of the appeal, which motion was
denied. The retransferred case has been reassigned to Judge Ward
in the Eastern District of Texas. B&#38;N.com intends to
vigorously defend this action.
</FONT>
</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On November&nbsp;19, 2002, Half Price Books,
Records, Magazine, Inc. filed a complaint against B&#38;N.com in
the United States District Court for the Northern District of
Texas. The complaint alleges trademark infringement and related
claims against B&#38;N.com for its use of the term &#147;Half
Price Books&#148; on its Web site. B&#38;N.com has responded to
the complaint denying plaintiff&#146;s claims. The
plaintiff&#146;s motion for preliminary injunction was denied.
B&#38;N.com&#146;s motion for summary judgment for dismissal of
all of plaintiff&#146;s claims is currently pending before the
court. Settlement discussions are occurring through a court
appointed mediator. B&#38;N.com intends to vigorously defend
itself against this action.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Following the November&nbsp;7, 2003 announcement
of Barnes&nbsp;&#38; Noble&#146;s proposal to purchase all of
the outstanding shares of the Company&#146;s common stock at a
price of $2.50&nbsp;per share in cash, fifteen substantially
similar putative class action lawsuits were filed by individual
stockholders of the Company against the Company, the
Company&#146;s directors and Barnes&nbsp;&#38; Noble in the
Delaware Court of Chancery. The complaints in these actions,
which purported to be brought on behalf of all of the
Company&#146;s stockholders excluding the defendants and their
affiliates, generally alleged (i)&nbsp;breaches of fiduciary
duty by Barnes&nbsp;&#38; Noble and the Company&#146;s
directors, (ii)&nbsp;that the consideration offered by
Barnes&nbsp;&#38; Noble was inadequate and constituted unfair
dealing and (iii)&nbsp;that Barnes&nbsp;&#38; Noble, as
controlling stockholder, breached its duty to the Company&#146;s
remaining stockholders by acting to further its own interests at
the expense of the Company&#146;s remaining stockholders. The
complaints sought to enjoin the proposal or, in the alternative,
damages in an unspecified amount and rescission in the event a
merger occurred pursuant to the proposal. The complaints were
eventually consolidated under the caption
In&nbsp;re&nbsp;BarnesandNoble.com, Inc. Shareholders
Litigation, Consolidated Civil Action No.&nbsp;042-N.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On January&nbsp;8, 2004, the parties executed a
Memorandum of Understanding reflecting the parties&#146;
agreement to settle the action. Pursuant to the terms of the
Memorandum of Understanding, the parties agreed in good faith to
execute as soon as practicable a Stipulation of Settlement
providing for, among other things, the release of all claims of
the plaintiffs and other members of the class against defendants
that were or could have been asserted in the action or in any
way arise out of or in connection with the merger. The
Stipulation of Settlement also is to expressly provide that the
defendants in the action deny that they have committed any
violation of law whatsoever and are entering into the
Stipulation of Settlement solely to eliminate the burden,
expense and distraction of further litigation and to permit the
merger to proceed as scheduled.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The parties subsequently agreed that
plaintiffs&#146; counsel will apply to the court for an award of
attorney&#146;s fees and costs in the amount of $600,000 and
that defendants will not object to a fee award up to that
amount. It was further agreed that defendants would pay or
reimburse the costs of mailing. The settlement is contingent
upon, among other things, court approval, the merger
consideration being $3.05&nbsp;per share in cash and
consummation of the merger.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition to the litigations described above,
the Company and B&#38;N.com are involved in various legal
proceedings incidental to the conduct of their business. The
Company does not believe that any of those legal proceedings
will have a material adverse effect on the financial condition,
results of operations or cash flows of the Company or
B&#38;N.com.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left">
<A name='106'></A>
</DIV>

<!-- link1 "Item 4. Submission of Matters to a Vote of Security Holders" -->

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="8%"></TD>
    <TD width="92%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Item&nbsp;4.<I>&nbsp;</I></FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Submission of Matters to a Vote of Security
    Holders</FONT></I></B></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">None.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-12
</FONT>

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<A name='107'></A>
</DIV>

<!-- link1 "PART II" -->

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">PART&nbsp;II</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left">
<A name='108'></A>
</DIV>

<!-- link1 "Item 5. Market for Registrant&#146;s Common Equity and Related Stockholder Matters" -->

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="8%"></TD>
    <TD width="92%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Item&nbsp;5.<I>&nbsp;</I></FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Market for Registrant&#146;s Common Equity
    and Related Stockholder Matters</FONT></I></B></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company&#146;s Class&nbsp;A Common Stock is
listed on the NASDAQ National Market under the symbol
&#147;BNBN&#148; and began trading on May&nbsp;25, 1999. On
March&nbsp;1, 2004, the Company had 1,190&nbsp;shareholders of
record for the Class&nbsp;A Common Stock. The Company&#146;s
Class&nbsp;A Common Stock price at the close of business on
March&nbsp;1, 2004 was $3.04&nbsp;per share. The Company&#146;s
Class&nbsp;B Common Stock and Class&nbsp;C Common Stock, owned
by Barnes&nbsp;&#38; Noble, are not listed or traded on any
securities exchange.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The table below sets forth the high and low sale
prices of the Company&#146;s Class&nbsp;A Common Stock for the
periods indicated, as reported by the NASDAQ National Market.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="81%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">High</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Low</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <I><FONT size="2">2003</FONT></I></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">First Quarter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.62</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.97</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Second Quarter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.28</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Third Quarter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.85</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.97</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fourth Quarter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.95</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.17</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <I><FONT size="2">2002</FONT></I></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">First Quarter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.44</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.34</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Second Quarter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.69</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.86</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Third Quarter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.99</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.43</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fourth Quarter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.20</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company has not declared or paid any
dividends on its Common Stock and B&#38;N.com has not made any
distributions to its members, since their respective dates of
initial contribution. Neither the Company nor B&#38;N.com
anticipates paying any dividends or distributions, except for
amounts that may be distributed by B&#38;N.com to cover income
tax liabilities, if any, of its members arising from the taxable
income of B&#38;N.com. Cash distributions by B&#38;N.com may
also be restricted by future debt covenants. The Company has not
had any recent sales of unregistered securities. The Company
intends to cause B&#38;N.com to retain future earnings, if any,
to finance the expansion of the business of B&#38;N.com.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-13
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2"> <A name='109'></A>
</FONT>
</DIV>

<!-- link1 "Item 6. Selected Financial Data" -->

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="8%"></TD>
    <TD width="92%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Item&nbsp;6.<I>&nbsp;</I></FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Selected Financial Data</FONT></I></B></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The selected financial data set forth below
should be read in conjunction with &#147;Management&#146;s
Discussion and Analysis of Financial Condition and Results of
Operations&#148; and the consolidated Financial Statements and
consolidated notes thereto appearing elsewhere in this
Form&nbsp;10-K/ A. Historical results are not necessarily
indicative of future results.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="16%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="23"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><B><FONT size="1">barnesandnoble.com inc. and Subsidiaries</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">barnesandnoble.com llc</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Restated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(Consolidated)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Proforma</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">and Its Predecessor</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Year Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Year Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Year Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Year Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Year Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">May&nbsp;25, 1999 to</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">January&nbsp;1, 1999</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">to May&nbsp;24,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003(6)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2000</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">1999(1)(2)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">1999</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">1999(3)</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="27"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="27" align="center" nowrap><B><FONT size="1">(Thousands of dollars, except share data)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Statement of Operations Data:
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Net sales
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">424,815</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">422,827</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">404,600</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">320,115</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">193,730</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">139,930</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">53,800</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Cost of sales
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">320,627</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">327,258</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">313,365</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">261,801</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">159,937</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">117,850</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">42,087</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Gross profit
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">104,188</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">95,569</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">91,235</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">58,314</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">33,793</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">22,080</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">11,713</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Operating expenses:
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Fulfillment and customer service
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">36,595</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">35,990</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">44,637</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">49,880</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">19,395</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">11,743</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">7,652</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Marketing, sales and editorial
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">30,390</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">35,760</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">61,418</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">82,620</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">81,682</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">59,181</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">24,140</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Technology and web site development
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">30,725</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">35,787</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">45,298</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">40,397</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">21,006</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">15,058</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">5,948</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">General and administrative
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">25,548</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">26,265</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">32,362</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">31,270</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">18,842</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">12,582</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">4,622</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Depreciation and amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">27,467</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">33,502</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">41,981</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">36,088</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">15,510</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">10,183</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">5,327</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Impairments and other special charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">88,213</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">75,051</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Stock-based compensation
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">11,740</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Equity in net loss of equity investments
    including amortization of intangibles
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">3,537</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">28,733</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">30,728</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Total operating expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">150,725</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">170,841</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">342,642</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">357,774</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">156,435</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">108,747</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">47,689</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Loss from operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(46,537</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(75,272</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(251,407</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(299,460</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(122,642</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(86,667</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(35,976</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Interest income, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">226</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">1,615</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">7,041</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">23,737</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">20,238</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">18,615</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">1,623</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Loss before minority interest
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(46,311</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(73,657</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(244,366</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(275,723</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(102,404</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(68,052</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(34,353</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Minority interest
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">34,965</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">53,525</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">176,980</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">210,320</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">54,253</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">54,253</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Net loss&nbsp;&#151; historical
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(11,346</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(20,132</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(67,386</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(65,403</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(48,151</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(13,799</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(34,353</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Proforma adjustment to minority interest(4)
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">27,534</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">27,534</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Net loss&nbsp;&#151; proforma
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(20,617</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(6,819</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Basic net loss per common share
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(0.28</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(0.46</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(1.54</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(2.02</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(0.72</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(0.48</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(0.24</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Basic weighted average common shares
    outstanding(5)
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">40,707</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">43,790</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">43,787</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">32,386</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">28,778</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">28,797</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">28,750</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Basic net loss per share(5)
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(0.28</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(0.46</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(1.54</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(2.02</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(0.72</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(0.48</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(0.24</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Balance Sheet Data:
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Cash and cash equivalents
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">68,344</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">70,144</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">105,125</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">179,609</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">247,403</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Long-term marketable securities
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">5,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">71,852</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Working capital (deficit)
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(26,747</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">2,281</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">44,628</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">156,649</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">429,674</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Total assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">347,918</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">209,734</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">287,376</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">528,935</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">679,518</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Minority interest
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">172,516</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">52,305</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">105,845</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">282,804</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">482,896</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Equity
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">12,971</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">22,641</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">42,758</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">110,144</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">120,682</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-14
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes the historical results of
    barnesandnoble.com llc for the entire year and the historical
    results of the Company from May&nbsp;25, 1999.
    barnesandnoble.com inc. was incorporated on March&nbsp;10, 1999,
    but had no activity until the Company&#146;s initial public
    offering on May&nbsp;25, 1999.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">The proforma amounts do not give effect to the
    assumed charges to operating results which might have resulted
    had the Company&#146;s Initial Public Offering occurred at the
    beginning of the respective periods.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD><FONT size="2">(3)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes the historical results of
    barnesandnoble.com llc and its predecessor.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD><FONT size="2">(4)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Represents the approximate 80% interest of
    Barnes&nbsp;&#38; Noble and Bertelsmann in the net loss of
    barnesandnoble.com llc for periods prior to May&nbsp;25, 1999.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD><FONT size="2">(5)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">For periods prior to May&nbsp;25, 1999, reflects
    the proforma effect of the shares issued in the Company&#146;s
    Initial Public Offering assuming they were issued at the
    beginning of 1998.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD><FONT size="2">(6)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">As of September&nbsp;15, 2003 the financial
    statements reflect push down accounting. The proportionate
    assets acquired and liabilities assumed have been adjusted to
    reflect Barnes&nbsp;&#38; Noble&#146;s basis.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

</TABLE>

<DIV align="left">
<A name='110'></A>
</DIV>

<!-- link1 "Item 7. Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations" -->

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<B><FONT size="2">Item&nbsp;7.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Management&#146;s
Discussion and Analysis of Financial Condition and Results of
Operations</I></FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<B><FONT size="2">Forward-Looking Statements</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">This report (including but not limited to factors
discussed below, in the &#147;Management&#146;s Discussion and
Analysis of Financial Condition and Results Of Operations,&#148;
as well as those discussed elsewhere in this Annual Report on
Form&nbsp;10-K) may contain certain forward-looking statements
(within the meaning of section&nbsp;27A of the Securities Act of
1933 and section&nbsp;21E of the Securities Exchange Act of
1934) and information relating to the Company and B&#38;N.com
that are based on the beliefs of the management of the Company
as well as assumptions made by and information currently
available to the management of the Company. When used in this
report, the words &#147;anticipate,&#148; &#147;believe,&#148;
&#147;estimate,&#148; &#147;expect,&#148; &#147;intend,&#148;
&#147;plan&#148; and similar expressions, as they relate to the
Company, B&#38;N.com or the management of the Company, identify
forward-looking statements. Such statements reflect the current
views of the Company with respect to future events, the outcome
of which is subject to certain risks, including among others
general economic and market conditions, changes in product
demand, the growth rate of Internet usage and e-commerce,
possible disruptions in the Company&#146;s or B&#38;N.com&#146;s
computer or telephone systems, possible increases in shipping
rates or interruptions in shipping service, the Company&#146;s
ability to maintain strategic alliances with AOL,
Google<SUP>TM</SUP> and MSN, effects of competition, possible
work stoppages or increases in labor costs or labor shortages,
unanticipated adverse litigation results or effects, the
performance of B&#38;N.com&#146;s current and future investments
and new product initiatives, unanticipated costs associated with
B&#38;N.com&#146;s warehouse or the failure to successfully
integrate that warehouse into B&#38;N.com&#146;s distribution
network, the level and volatility of interest rates, the
successful integration of acquired businesses, the factors
described below under &#147;Results of Operations,&#148; changes
in tax and other governmental rules and regulations applicable
to the Company or B&#38;N.com, the successful imposition by
state tax authorities of sales or use taxes on products sold by
B&#38;N.com to customers in such states, and other factors that
may be outside of the Company&#146;s control. Should one or more
of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results or
outcomes may vary materially from those described herein as
anticipated, believed, estimated, expected, intended or planned.
Subsequent written and oral forward-looking statements
attributable to the Company, B&#38;N.com or persons acting on
their behalf are expressly qualified in their entirety by the
cautionary statements in this paragraph and elsewhere described
in this report and other reports filed by the Company with the
SEC.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Overview</FONT></I></B></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company is a holding company whose sole asset
is its 29.6% equity interest in B&#38;N.com and whose sole
business is acting as sole manager of B&#38;N.com. B&#38;N.com
launched its initial online store in March 1997 and is currently
ranked the eleventh most-trafficked shopping site, based on the
Jupiter Media Metrix December 2003 report.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-15
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B&#38;N.com has pursued a strategy of focusing on
the sale of books, music, DVD/video and online courses. Since
opening its online store (www.bn.com) in March 1997, B&#38;N.com
has sold products to more than 17.0&nbsp;million customers in
230&nbsp;countries. B&#38;N.com&#146;s online bookstore includes
the largest in-stock selection of in-print book titles,
supplemented by more than 30&nbsp;million listings from its
nationwide network of out-of-print, rare and used book dealers.
B&#38;N.com offers its customers fast delivery, easy and secure
ordering and rich editorial content.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The results of operations discussed hereafter
include the results of the Company and B&#38;N.com for the years
ended December&nbsp;31, 2003, 2002 and 2001. In view of the
rapidly changing nature of B&#38;N.com&#146;s business and its
limited operating history, the Company believes that
period-to-period comparisons of the operating results of
B&#38;N.com, including gross profit margin and operating
expenses as a percentage of net sales, are not necessarily
meaningful and should not be relied upon as an indication of
future performance.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Critical Accounting Estimates</FONT></I></B></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">SEC Financial Reporting Release No.&nbsp;60
requires all companies to include in this item a discussion of
critical accounting policies or methods used in the preparation
of financial statements. Note&nbsp;2 of the Notes to
Consolidated Financial Statements includes a summary of the
significant accounting policies and methods used by the Company
in the preparation of its Consolidated Financial Statements. The
following is a brief discussion of the more critical of these
accounting policies and methods.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Revenue Recognition.</FONT></I><FONT size="2">
The Company&#146;s product sales, including outbound shipping
and handling charges, are recognized, net of estimated returns
and discounts, at the time the products are shipped to
customers. Commissions received on sales of magazine
subscriptions are recorded at the net amount earned as the
Company is acting as an agent in such transactions. The Company
continuously monitors and tracks product returns and records a
provision for the estimated amount of future returns, based on
historical experience. While returns have historically been
within the Company&#146;s expectations and the provisions
established, the Company cannot guarantee that it will continue
to experience the same return rates that it has in the past. Any
significant increase in product return rates could have a
material adverse impact on the Company&#146;s operating results
for the period or periods in which such returns materialize.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As of April 2003, the Company now receives
commissions on sales of used and out of print books, through
BookQuest, a service that allows independent book dealers to
sell their used books on the B&#38;N.com Web site. In accordance
with EITF Issue No.&nbsp;99-19, &#147;Reporting Revenue Gross as
a Principal Versus Net as an Agent,&#148; revenues are recorded
at the net amount earned as the Company is acting as an agent in
such transactions.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Impairment of Goodwill and Other Long-Lived
Assets.</FONT></I><FONT size="2"> The Company&#146;s long-lived
assets include fixed assets and goodwill. At December&nbsp;31,
2003, the Company had $61.9&nbsp;million of fixed assets, net of
accumulated depreciation, and $102.1&nbsp;million of net
goodwill, accounting for approximately 47.1% of the
Company&#146;s total assets. B&#38;N.com reviews its fixed
assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable in accordance with Statement of Financial
Accounting Standards (&#147;SFAS&#148;) No.&nbsp;144
&#147;Accounting for the Impairment or Disposal of Long-Lived
Assets&#148; (&#147;SFAS&nbsp;No.&nbsp;144&#148;). In valuation,
assets held and used are measured by a comparison of the
carrying amount of an asset to undiscounted pre-tax future net
cash flows. Future events could cause B&#38;N.com to conclude
that impairment indicators exist and that long-lived assets may
be impaired. Any resulting impairment loss could have a material
adverse impact on the Company&#146;s financial condition and
results of operations. As required by the Financial Accounting
Standards Board (&#147;FASB&#148;), SFAS&nbsp;No.&nbsp;142,
&#147;Goodwill and Other Intangible Assets&#148;
(&#147;SFAS&nbsp;No.&nbsp;142&#148;), which the Company
implemented in 2002, the Company completed its annual impairment
test on the goodwill as of November&nbsp;30, 2003 and deemed
that no impairment charge was necessary. The Company has noted
no subsequent indicators of impairment. In 2001, the Company
recorded an impairment and special charges of $88.2&nbsp;million
of which $29.9&nbsp;million was related to the impairment of
goodwill and $24.8&nbsp;million was related to the impairment of
long-lived assets.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-16
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Results of Operations</FONT></I></B></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;</FONT></B></TD>
    <TD>
    <I><FONT size="2">Net Sales</FONT></I></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="43%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">Year Ended December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">% Change</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">% Change</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">(In thousands of dollars)</FONT></B></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net sales
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">424,815</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.5%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">422,827</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.5%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">404,600</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Net sales are comprised of sales of books, music,
DVD/video and online courses including outbound shipping and
handling charges, net of returns and discounts. In 2003&nbsp;net
sales increased 0.5% to $424.8&nbsp;million from
$422.8&nbsp;million in 2002. The Company has been recording used
and out-of-print sales on a net commission basis since April
2003 due to the launch of a new business arrangement for the
used and out-of-print business whereby the Company acts as an
agent on those sales. Comparable sales reflect the gross amount
of used and out-of-print sales, consistent with how these sales
were recorded in the prior year. Full-year comparable sales for
2003 were $437.2&nbsp;million, a
3.4 &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;% increase compared to the
prior year. In 2002 sales increased 4.5% to $422.8&nbsp;million
from $404.6&nbsp;million in the previous year as a result of
incremental units sold to new customers as well as repeat
purchases from B&#38;N.com&#146;s existing customer base.
International sales represented 3.3%, 4.1% and 5.2% of net sales
for the years ended December&nbsp;31, 2003, 2002 and 2001,
respectively. The Company expects net sales to range between
$435.0&nbsp;million and $475.0&nbsp;million for the year ended
December&nbsp;31, 2004.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;</FONT></B></TD>
    <TD>
    <I><FONT size="2">Gross Profit</FONT></I></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="45%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">Year Ended December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">% Change</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">% Change</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">(In thousands of dollars)</FONT></B></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gross profit
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">104,188</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9.0%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">95,569</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.8%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">91,235</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gross margin
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24.5</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22.6</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22.5</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Gross profit is net sales less the cost of sales,
which consists of the cost of merchandise sold to customers, and
outbound and inbound shipping costs. In 2003&nbsp;gross profit
increased to $104.2&nbsp;million from $95.6&nbsp;million as a
result of the Company&#146;s net sales increase and decrease in
cost of sales. The Company&#146;s gross margin improved to 24.5%
from 22.6% due to increased efficiencies realized from internal
fulfillment operations, the change in the model for used and
out-of-print books, as well as less promotional activity during
the holiday season. In 2002&nbsp;gross profit increased to
$95.6&nbsp;million from $91.2&nbsp;million as a result of the
Company&#146;s 4.5% increase in net sales. The gross margin for
2002 was 22.6% as compared with 22.5% for 2001. The
Company&#146;s gross margin improved due to an increase in
internal fulfillment which was offset by the full year impact of
the Company&#146;s &#147;free shipping&#148; promotion, which
began in July 2001, and resulted in a reduction to shipping
revenue as a percentage of net sales.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;</FONT></B></TD>
    <TD>
    <I><FONT size="2">Fulfillment and Customer Service</FONT></I></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="46%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">Year Ended December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">% Change</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">% Change</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">(In thousands of dollars)</FONT></B></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fulfillment and customer service
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">36,595</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.7%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,990</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(19.4)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">44,637</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Percentage of net sales
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8.6</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8.5</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Fulfillment and customer service expenses consist
primarily of the cost of operating and staffing distribution and
customer service centers. In 2003 fulfillment and customer
service expenses increased 1.7% to $36.6&nbsp;million or 8.6% of
net sales from $36.0&nbsp;million or 8.5% of net sales in 2002.
The slight increase in fulfillment and customer service expenses
was more than offset by the improved profit margin achieved
through internal product sourcing. During 2002 fulfillment and
customer service expenses decreased 19.4% to $36.0&nbsp;million
from $44.6&nbsp;million and improved as a percentage of net
sales to 8.5% from 11.0%, respectively, as the Company maximized
efficiencies from the consolidation of its operations while
increasing net sales year
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-17
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left">
<FONT size="2">over year. B&#38;N.com anticipates that its
fulfillment and customer service costs will decrease as a
percentage of net sales in 2004 based on anticipated further
productivity improvements and expected sales growth.
</FONT>
</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Marketing, Sales and Editorial</FONT></I></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="46%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">Year Ended December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">% Change</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">% Change</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">(In thousands of dollars)</FONT></B></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Marketing, sales and editorial
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,390</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(15.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,760</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(41.8</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">61,418</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Percentage of net sales
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7.2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8.5</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15.2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Marketing, sales and editorial expenses consist
primarily of advertising and promotional expenditures, as well
as payroll and related expenses for personnel engaged in
marketing and selling activities. In 2003, marketing, sales and
editorial expenses decreased in absolute dollars to
$30.4&nbsp;million or 7.2% of net sales from $35.8&nbsp;million
or 8.5% of net sales in 2002 primarily due to the improvement in
terms of online marketing deals. In 2002, marketing, sales and
editorial expenses decreased in absolute dollars to
$35.8&nbsp;million from $61.4&nbsp;million, and as a percentage
of net sales to 8.5% from 15.2%, due to the Company&#146;s
increased focus on more targeted and measurable marketing
programs as well as the renegotiation of many of the
Company&#146;s online marketing deals at more advantageous
terms. The Company expects to continue to reduce these expenses
as a percentage of net sales in 2004.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <I><FONT size="2">Technology and Web Site Development</FONT></I></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="44%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">Year Ended December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">% Change</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">% Change</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">(In thousands of dollars)</FONT></B></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Technology and web site development
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,725</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14.1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,787</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(21.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">45,298</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Percentage of net sales
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7.2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8.5</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11.2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Technology and web site development expenses
consist principally of payroll and related expenses for Web page
production, network operations personnel and consultants, and
costs of infrastructure related to systems and
telecommunications. In 2003, technology and web site development
expenses decreased to $30.7&nbsp;million or 7.2% of net sales
from $35.8&nbsp;million or 8.5% of net sales due to a reduction
in personnel, lower infrastructure costs and less reliance on
consultants for on-going operations. In 2002, technology and web
site development expenses decreased to $35.8&nbsp;million or
8.5% of net sales from $45.3&nbsp;million or 11.2% of net sales,
due to increased infrastructure efficiencies, the elimination of
expenses associated with operating Fatbrain&#146;s Web site, and
rate reductions in many expense categories. B&#38;N.com expects
technology and web site development expenses to decrease
slightly as a percentage of net sales in 2004.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <I><FONT size="2">General and Administrative</FONT></I></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="44%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">Year Ended December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">% Change</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">% Change</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">(In thousands of dollars)</FONT></B></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">General and administrative
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,548</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2.7</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,265</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(18.8</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32,362</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Percentage of net sales
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">General and administrative expenses primarily
consist of payroll and related expenses for executive, finance
and administrative personnel, recruiting, professional fees and
other general corporate expenses, including costs to process
credit card transactions. In 2003, general and administrative
expenses decreased to $25.5&nbsp;million or 6.0% of net sales
from $26.3&nbsp;million or 6.2% of net sales primarily due to
improved efficiencies. In 2002, the decrease in general and
administrative expenses, to $26.3&nbsp;million or 6.2% of net
sales from $32.4&nbsp;million or 8.0% of net sales, was a result
of the Company&#146;s efforts to consolidate operations as well
as the result of its continued effort to improve efficiency.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-18
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <I><FONT size="2">Depreciation and Amortization</FONT></I></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="42%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">Year Ended December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Restated</FONT></B></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">% Change</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">% Change</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">(In thousands of dollars)</FONT></B></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation and amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,467</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(18.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,502</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(20.2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41,981</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Percentage of net sales
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.5</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7.9</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10.4</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The depreciation and amortization expenses
decreased in 2003 due to assets purchased in 2000 being fully
depreciated throughout the year. The decrease in depreciation
and amortization expenses in 2002 is the result of lower capital
expenditures in fiscal 2002 and 2001 as compared with fiscal
2000. In 2002 the Company no longer amortized goodwill due to
the adoption of SFAS&nbsp;No.&nbsp;142. Accordingly, the
carrying balance of goodwill is assessed for recoverability on
an annual basis. Capital expenditures for 2004 are expected to
be within the range of $15&nbsp;million to $20&nbsp;million.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <I><FONT size="2">Impairments and Other Special
    Charges</FONT></I></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="79%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Year ended</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(In thousands</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">of dollars)</FONT></B></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Impairments and other special charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">88,213</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Percentage of net sales
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21.8</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In the fourth quarter of 2001, B&#38;N.com
recorded an impairment of assets and other special charges of
$88.2&nbsp;million ($0.56&nbsp;per share assuming conversion of
Membership Units) as a component of operating expenses. These
charges are primarily related to the following:
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I><FONT size="2">Closure of
    Facilities</FONT></I><FONT size="2">&nbsp;&#151; B&#38;N.com
    consolidated administrative and functional operations by closing
    Fatbrain&#146;s Santa&nbsp;Clara, California office.
    Fatbrain&#146;s two retail stores in San&nbsp;Jose and
    Sunnyvale, California were also closed. Charges include exit
    costs related to the remaining term of non-cancelable lease
    obligations of the retail and Santa&nbsp;Clara facilities,
    related severance costs, as well as the abandonment of related
    fixed assets that will not be suited for future use in other
    remaining B&#38;N.com facilities. Furthermore, B&#38;N.com
    determined it could not effectively utilize the full capacity of
    its Reno, Nevada distribution center. Accordingly, following
    Board approval on January&nbsp;29, 2002, B&#38;N.com agreed to
    transfer the Reno warehouse lease and sell the Company&#146;s
    inventory located in Reno to Barnes&nbsp;&#38; Noble. The Board
    of Barnes&nbsp;&#38; Noble also approved Barnes&nbsp;&#38;
    Noble&#146;s assumption of the lease obligation and the hiring
    of all the employees at the Reno facility. The Reno lease
    assignment and the transfer of the operations of the Reno
    facility to Barnes&nbsp;&#38; Noble was completed in April 2002.
    Charges related to the Reno facility include the abandonment of
    fixed assets that are not suitable for use at other B&#38;N.com
    facilities.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I><FONT size="2">Impairment of Fixed
    Assets</FONT></I><FONT size="2">&nbsp;&#151; As of
    December&nbsp;31, 2001, B&#38;N.com wrote-off certain fixed
    assets that were no longer used in operations.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I><FONT size="2">Impairment of Other Non-Current
    Assets</FONT></I><FONT size="2">&nbsp;&#151; B&#38;N.com
    concluded that the carrying amount of certain equity
    investments, including Powered.com, goodwill and other
    investments exceeded their fair value and that the decline was
    other than temporary. The impairment loss was precipitated by
    the significant decline in the value of Internet sector
    entities, material changes in business models, and significant,
    recurring operating losses.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The consolidation of the Fatbrain administrative
and functional operations was completed in the first half of
2002, although the lease on the Santa&nbsp;Clara office expires
in 2006.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-19
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <I><FONT size="2">Equity in Net Loss of Equity Investments
    Including Amortization of Intangibles</FONT></I></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="67%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Year Ended December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">% Change</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(In thousands of dollars)</FONT></B></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Equity in net loss of equity investments
    including amortization of intangibles
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,537</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(87.7</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28,733</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Percentage of net sales
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.8</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7.1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Equity in net loss of equity investments consists
of losses from the Company&#146;s equity investments in enews,
inc. (&#147;enews&#148;), a retailer of magazine subscriptions
on the Internet. In July 2002, the Board of Directors and
stockholders of enews approved a Plan of Complete Liquidation
(the &#147;Liquidation Plan&#148;). As of December&nbsp;31,
2003, the implementation of the Liquidation Plan had been
substantially completed and was concluded by February&nbsp;29,
2004. As of December&nbsp;31, 2002, the Company had written off
its entire investment in enews of $3.3&nbsp;million. Equity in
net loss of equity investments decreased in 2002 in comparison
with the prior year period as enews ceased operations in the
fourth quarter of 2002. In addition, the 2001 period included
other equity investments, which the Company no longer holds, as
well as goodwill related to those investments. As of
December&nbsp;31, 2003, there was no remaining goodwill related
to equity investments.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <I><FONT size="2">Interest Income, Net</FONT></I></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="48%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">Year Ended December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">% Change</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">% Change</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">(In thousands of dollars)</FONT></B></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest income, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">226</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(86.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,615</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(77.1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,041</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Percentage of net sales
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.4</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.7</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Interest income has continued to decrease year
over year from 2002 and throughout 2003 when compared to 2001 as
cash and marketable securities balances decreased on average due
to their use as a source of funding the Company&#146;s
operations. In addition, all through 2003, 2002 and 2001,
interest rates on investments significantly decreased compared
to rates earned in 2000. Currently, available cash is invested
in money market funds containing highly liquid
U.S.&nbsp;Treasury Securities, U.S.&nbsp;government agency
securities and investments in high quality corporate issuers.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <I><FONT size="2">Income Taxes</FONT></I></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company has not generated any taxable income
to date and therefore has not paid any federal income taxes
since inception. The Company has provided a full valuation
allowance on the deferred tax asset, consisting primarily of net
operating loss carryforwards, because of uncertainty regarding
its realizability.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <I><FONT size="2">Results of Operations</FONT></I></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company expects that B&#38;N.com may
experience significant fluctuations in its future quarterly
operating results due to a variety of factors, many of which are
outside B&#38;N.com&#146;s control. Factors that may adversely
affect B&#38;N.com&#146;s quarterly operating results
include:&nbsp;(i)&nbsp;B&#38;N.com&#146;s ability to retain
existing customers, attract new customers at a steady rate and
maintain customer satisfaction; (ii)&nbsp;B&#38;N.com&#146;s
ability to acquire product and to manage fulfillment operations;
(iii)&nbsp;B&#38;N.com&#146;s ability to maintain gross margins
in its existing business and in future product lines and
markets; (iv)&nbsp;the development, announcement, or
introduction of new sites, services and products by B&#38;N.com
and its competitors; (v)&nbsp;price competition;
(vi)&nbsp;B&#38;N.com&#146;s ability to upgrade and develop its
systems and infrastructure; (vii)&nbsp;the level of use of the
Internet and increasing consumer acceptance of the Internet for
the purchase of consumer products such as those offered by
B&#38;N.com; (viii)&nbsp;B&#38;N.com&#146;s ability to attract
new and qualified personnel in a timely and effective manner;
(ix)&nbsp;the level of traffic on B&#38;N.com&#146;s online
stores; (x)&nbsp;B&#38;N.com&#146;s ability to manage
effectively its development of new business segments and
markets; (xi)&nbsp;B&#38;N.com&#146;s ability to successfully
manage the integration of operations and technology of
acquisitions and other business combinations;
(xii)&nbsp;technical difficulties, system downtime or Internet
brownouts; (xiii)&nbsp;the amount and timing of operating
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-20
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left">
<FONT size="2">costs and capital expenditures relating to
expansion of B&#38;N.com&#146;s business, operations and
infrastructure; (xiv)&nbsp;the level of returns experienced by
B&#38;N.com; (xv)&nbsp;governmental regulation and taxation
policies; (xvi) disruptions in service by common carriers due to
strikes or otherwise; (xvii)&nbsp;general economic conditions
including those specific to the Internet, e-commerce and book
industry; (xviii)&nbsp;the ability to secure or continue ongoing
relationships with premier online companies; and (xix)&nbsp;the
factors described above under &#147;Forward Looking
Statements.&#148;
</FONT>
</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp; </FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Liquidity and Capital
    Resources</FONT></I></B></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company finished 2003 with a debt-free
balance sheet. At December&nbsp;31, 2003, the Company&#146;s
cash and cash equivalents were $68.3&nbsp;million. At
December&nbsp;31, 2002, the Company&#146;s cash and cash
equivalents were $70.1&nbsp;million, compared with cash, cash
equivalents and marketable securities of $115.3&nbsp;million on
December&nbsp;31, 2001. In addition, at December&nbsp;31, 2003,
2002 and 2001 the Company had no long-term marketable securities.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Net cash flows provided by operating activities
were $8.0&nbsp;million for the year ended December&nbsp;31,
2003. Net cash flows used in operating activities were
$39.6&nbsp;million and $85.2&nbsp;million for the years ended
December&nbsp;31, 2002 and 2001, respectively. Cash provided by
operating activities in 2003 was due to depreciation and
amortization of $27.2&nbsp;million, an increase in payable to
affiliates of $23.7&nbsp;million, an accrued liabilities
increase of $6.7&nbsp;million a decrease in receivables of
$9.3&nbsp;million. This was offset by a net loss of
$11.3&nbsp;million after minority interest of
$35.0&nbsp;million. Additionally, merchandise inventories
increased $9.6&nbsp;million, accounts payable decreased
$2.8&nbsp;million and prepaid expenses and other current assets
increased $0.1&nbsp;million. Cash used in 2002 was due to a net
loss of $20.1&nbsp;million after minority interest of
$53.5&nbsp;million. Additionally, accrued liabilities decreased
$20.1&nbsp;million and prepaid expenses and other current assets
increased $0.1&nbsp;million. This was offset by depreciation and
amortization of $33.3&nbsp;million, an increase in payable to
affiliates of $4.7&nbsp;million, a decrease in receivables of
$1.1&nbsp;million, a decrease in merchandise inventories of
$0.3&nbsp;million, equity in net loss of equity investments
including amortization of intangibles of $3.5&nbsp;million and
an increase in accounts payable of $11.4&nbsp;million. Cash used
in 2001 was due to a net loss of $67.4&nbsp;million after
minority interest of $177.0&nbsp;million. Additionally, accounts
payable decreased $14.4&nbsp;million, accrued liabilities
decreased $13.9&nbsp;million and merchandise inventories
increased $0.3&nbsp;million. This was offset by depreciation and
amortization of $42.0&nbsp;million, an increase in payable to
affiliates of $16.4&nbsp;million, a decrease in receivables of
$10.4&nbsp;million, a decrease in prepaid expenses and other
current assets of $2.0&nbsp;million, impairment and special
charges of $88.2&nbsp;million and equity in net loss of equity
investments including amortization of intangibles of
$28.7&nbsp;million.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Net cash flows used in investing activities were
$15.5&nbsp;million for the year ended December&nbsp;31, 2003,
due to purchases of fixed assets. Net cash flows from investing
activities were $4.6&nbsp;million for the year ended
December&nbsp;31, 2002, due to a $10.1&nbsp;million redemption
of marketable securities, a decrease in acquisition and
investments of businesses, net of cash acquired of
$0.8&nbsp;million and a decrease in other non-current assets of
$0.1&nbsp;million; offset by purchases of fixed assets of
$6.4&nbsp;million. Net cash flows from investing activities were
$10.8&nbsp;million for the year ended December&nbsp;31, 2001,
due to a $27.6&nbsp;million redemption of marketable securities;
offset by purchases of fixed assets of $10.5&nbsp;million, an
increase in acquisition and investments of businesses, net of
cash acquired of $4.4&nbsp;million and an increase of
$1.9&nbsp;million in other non-current assets.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Net cash flows from financing activities were
$5.6&nbsp;million for the year ended December&nbsp;31, 2003, due
to proceeds from the exercise of stock options. There were no
cash flows from financing activities in 2002 and 2001.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At December&nbsp;31, 2003, the Company&#146;s
principal sources of liquidity consisted of $68.3&nbsp;million
of cash and cash equivalents. At December&nbsp;31, 2002, the
Company&#146;s principal sources of liquidity consisted of
$70.1&nbsp;million of cash and cash equivalents. At
December&nbsp;31, 2001, the Company&#146;s cash and cash
equivalents totaled $105.1&nbsp;million and $10.1&nbsp;million
of short-term marketable securities. As of December&nbsp;31,
2003 the Company&#146;s remaining principal commitments
consisted of obligations outstanding under operating leases. The
Company expects to gain leverage on previous investments in
capital associated with operations, infrastructure
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-21
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left">
<FONT size="2">and personnel. The Company has no unconsolidated
majority owned subsidiaries and no interests in special purpose
entities.
</FONT>
</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following summarizes the Company&#146;s
contractual obligations as of December&nbsp;31, 2003 (in
thousands):
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="41%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">Payments Due by Period</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Less than</FONT></B></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">More than</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Contractual Obligations</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">1&nbsp;Year</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">1-3&nbsp;Years</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">3-5&nbsp;Years</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">5&nbsp;Years</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Long-term debt
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Capital lease obligations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating leases(1)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,799</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,041</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,474</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,165</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,119</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Purchase obligations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,252</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,251</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,001</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Service arrangements(2)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other long-term liabilities reflected on the
    Company&#146;s balance sheet under GAAP
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,367</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,616</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,751</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">51,418</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,908</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,226</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,165</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,119</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">The Company has pledged a portion of its cash
    equivalents as collateral for stand-by letters of credit that
    guarantee certain of the Company&#146;s real property lease
    obligations. At December&nbsp;31, 2003, the total amount of
    collateral pledged under these agreements was $4,353.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">The Company has entered into agreements with
    service providers, which are transaction based and have no
    minimum commitments.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company believes that current cash and cash
equivalent balances will be sufficient to meet its anticipated
cash needs for at least 12&nbsp;months. However, any projection
of future cash needs and cash flows is subject to substantial
uncertainty. If current cash and short-term investments in
addition to cash generated from operations are insufficient to
satisfy the Company&#146;s liquidity requirements, the Company
may seek to sell additional equity or debt securities or to
obtain a credit facility. The sale of additional equity or
convertible debt securities could result in additional dilution
to the Company&#146;s stockholders. There can be no assurance
that financing will be available in amounts or on terms
acceptable to the Company, if at all. In addition, the Company
will, from time to time, consider the acquisition of or
investment in complementary businesses, products and
technologies, which might increase the Company&#146;s capital
requirements or cause the Company to issue additional equity or
debt securities.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Off-Balance Sheet
    Arrangements</FONT></I></B></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company has no off-balance sheet arrangements
(as defined in Item&nbsp;303 of Regulation&nbsp;S-K).
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-22
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<A name='111'></A>
</DIV>

<!-- link1 "Item 7A. Quantitative and Qualitative Disclosures About Market Risk" -->

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Item&nbsp;7A.<I>&nbsp;</I></FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Quantitative and Qualitative Disclosures
    About Market Risk</FONT></I></B></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company previously invested in enews
primarily for strategic purposes, which had been accounted for
under the equity method as it gave the Company the ability to
exercise significant influence, but not control, over the
investee. This is generally defined as an ownership interest in
voting stock of the investee between 20% and 50%, although other
factors, such as representation on the investee&#146;s Board of
Directors and the impact of commercial arrangements, are
considered in determining whether the equity method is
appropriate. The Company regularly reviews the carrying value of
its investments and identifies and records impairment losses
when events and circumstances indicate that such assets are
permanently impaired. In July 2002, the Board of Directors and
stockholders of enews approved the Liquidation Plan. As of
December&nbsp;31, 2003, the implementation of the Liquidation
Plan had been substantially completed and was concluded by
February&nbsp;29, 2004. As of December&nbsp;31, 2002, the
Company had written off its entire investment in enews of
$3.3&nbsp;million and had no remaining investments accounted for
under the equity method.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B&#38;N.com invests certain of its excess cash in
money market funds consisting of debt instruments of the
U.S.&nbsp;Government and its agencies, and of high quality
corporate issuers. All highly liquid instruments with an
original maturity of three months or less are considered cash
equivalents; those with original maturities greater than three
months and less than one year are classified as short-term
marketable securities. Long-term marketable securities mature in
periods greater than one year. B&#38;N.com is exposed to
interest rate risk on the debt instruments that it holds. The
value of the Company&#146;s marketable securities is subject to
market price volatility. As of December&nbsp;31, 2003, the
Company&#146;s cash and cash equivalents totaled approximately
$68.3&nbsp;million.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-23
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">REPORT OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<FONT size="2">To the Board of Directors barnesandnoble.com inc.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have audited the accompanying consolidated
balance sheets of barnesandnoble.com inc. and subsidiaries, as
of December&nbsp;31, 2003 (post-acquisition) and 2002
(pre-acquisition) and the related consolidated statements of
operations, stockholders&#146; equity, and cash flows for the
years ended December&nbsp;31, 2003, 2002 and 2001. These
financial statements are the responsibility of the
Company&#146;s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We conducted our audits in accordance with
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of barnesandnoble.com inc. and
subsidiaries at December&nbsp;31, 2003 (post-acquisition) and
2002 (pre-acquisition), and the results of their operations and
their cash flows for the years ended December&nbsp;31, 2003,
2002 and 2001 in conformity with accounting principles generally
accepted in the United States of America.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As discussed in Note&nbsp;2 to the consolidated
financial statements, effective January&nbsp;1, 2002, the
Company adopted Financial Accounting Standards Board Statement
No.&nbsp;142, &#147;Goodwill and Other Intangible Assets.&#148;
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As discussed in Note&nbsp;1 to the consolidated
financial statements, the financial statements have been
restated for the application of push down accounting.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">BDO SEIDMAN, LLP
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">/s/ BDO SEIDMAN, LLP
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <BR>
    <FONT size="2"> <HR size="1" align="left" noshade>
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<FONT size="2">New York, New York
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left">
<FONT size="2">January&nbsp;29, 2004,
</FONT>
</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left">
<FONT size="2">Except for Note&nbsp;1, as to which
</FONT>
</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left">
<FONT size="2">the date is March&nbsp;31, 2004
</FONT>
</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-24
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<A name='112'></A>
</DIV>

<!-- link1 "Item 8. Financial Statements and Supplementary Data" -->

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="8%"></TD>
    <TD width="92%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Item&nbsp;8.<I>&nbsp;</I></FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Financial Statements and Supplementary
    Data</FONT></I></B></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">barnesandnoble.com inc.</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">CONSOLIDATED BALANCE SHEETS</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="56%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Restated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Post-acquisition</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Pre-acquisition</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(In thousands, except share data)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="11" align="center" valign="top">
    <B><FONT size="2">ASSETS</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current assets:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">68,344</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">70,144</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Receivables, net of allowance $1,892 and $4,048
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,368</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,631</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Merchandise inventories
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">57,900</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">48,303</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Prepaid expenses and other current assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,072</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,991</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total current assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">135,684</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">137,069</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fixed assets, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">61,874</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">58,871</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">102,137</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,777</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Trade name
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">44,700</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Intangible assets, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other non-current assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">347,918</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">209,734</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="11"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="11" align="center" valign="top">
    <B><FONT size="2">LIABILITIES AND STOCKHOLDERS&#146;
    EQUITY</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current liabilities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts payable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,277</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,071</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accrued liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">77,197</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">70,456</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Payable to affiliate
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">71,957</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">48,261</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total current liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">162,431</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">134,788</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Minority interest
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">172,516</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">52,305</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Commitments and contingencies
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Stockholders&#146; equity:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Preferred Stock: $0.001&nbsp;par value;
    50,000,000&nbsp;shares authorized; none issued and outstanding
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Common Stock Series&nbsp;A: $0.001&nbsp;par
    value; 750,000,000&nbsp;shares authorized; 48,280,087 and
    43,802,228&nbsp;shares issued and outstanding
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">48</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">44</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Common Stock Series&nbsp;B: $0.001&nbsp;par
    value; 1,000&nbsp;shares authorized; 1&nbsp;share issued and
    outstanding
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Common Stock Series&nbsp;C: $0.001&nbsp;par
    value; 1,000&nbsp;shares authorized; 1&nbsp;share issued and
    outstanding
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Paid-in capital
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">190,966</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">189,294</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accumulated deficit
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(178,043</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(166,697</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total stockholders&#146; equity
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,971</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22,641</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total liabilities and stockholders&#146; equity
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">347,918</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">209,734</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<FONT size="2">See accompanying notes to consolidated financial
statements.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-25
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">barnesandnoble.com inc.</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">CONSOLIDATED STATEMENTS OF
OPERATIONS</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="51%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Restated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Year Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Year Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Year Ended</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(In thousands, except per share data)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net sales
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">424,815</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">422,827</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">404,600</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of sales
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">320,627</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">327,258</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">313,365</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gross profit
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">104,188</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">95,569</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">91,235</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating expenses:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fulfillment and customer service
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">36,595</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,990</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">44,637</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Marketing, sales and editorial
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,390</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,760</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">61,418</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Technology and web site development
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,725</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,787</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">45,298</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">General and administrative
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,548</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,265</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32,362</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation and amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,467</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,502</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41,981</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Impairments and other special charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">88,213</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Equity in net loss of equity investments,
    including amortization of intangibles
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,537</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28,733</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total operating expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">150,725</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">170,841</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">342,642</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Loss from operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(46,537</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(75,272</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(251,407</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest income, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">226</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,615</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,041</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Loss before minority interest
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(46,311</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(73,657</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(244,366</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Minority interest
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,965</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">53,525</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">176,980</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss&nbsp;&#151; historical
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,346</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(20,132</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(67,386</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Basic net loss per common share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.28</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.46</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.54</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Basic weighted average common shares
    outstanding(1)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,707</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">43,790</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">43,787</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">All periods exclude the assumed conversion of
    Membership Units and the elimination of minority interest, as it
    is not dilutive.
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<FONT size="2">See accompanying notes to consolidated financial
statements.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-26
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">barnesandnoble.com inc.</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">CONSOLIDATED STATEMENTS OF STOCKHOLDERS&#146;
EQUITY</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="62%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Common</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Stock</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Paid-In</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Accumulated</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Series&nbsp;A</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Capital</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Deficit</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance, December&nbsp;31, 2000
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">44</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">189,279</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(79,179</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss, for the year, net of $176,980 minority
    interest
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(67,386</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance, December&nbsp;31, 2001
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">44</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">189,279</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(146,565</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Exercise of stock options
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss, for the year, net of $53,525 minority
    interest
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(20,132</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance, December&nbsp;31, 2002
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">44</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">189,294</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(166,697</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Exercise of stock options, net of $3,975 minority
    interest
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,672</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss, for the year, net of $34,965 minority
    interest
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,346</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance, December&nbsp;31, 2003
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">48</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">190,966</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(178,043</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<FONT size="2">See accompanying notes to consolidated financial
statements.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-27
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">barnesandnoble.com inc.</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">CONSOLIDATED STATEMENTS OF CASH
FLOWS</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="51%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Restated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Year Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Year Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Year Ended</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash flows provided by (used in) operating
    activities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,346</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(20,132</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(67,386</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Adjustments to reconcile net loss to net cash
    flows provided by (used in) operating activities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation and amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,159</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,298</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41,981</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Equity in net loss of equity investments
    including amortization of intangibles
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,537</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28,733</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Impairments and other special charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">88,213</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Changes in certain assets and liabilities, net of
    effects from acquisition:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Decrease in receivables, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,263</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,067</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,431</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Decrease (increase) in merchandise inventories
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,597</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">260</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(343</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Decrease (increase) in prepaid expenses and other
    current assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(81</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(117</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,011</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Increase (decrease) in accounts payable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,794</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,419</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14,414</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Increase in payable to affiliate
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,696</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,730</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,430</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Increase (decrease) in accrued liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,686</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(20,134</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13,919</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Minority interest in loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(34,965</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(53,525</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(176,980</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net cash flows provided by (used in) operating
    activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,021</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(39,597</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(85,243</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash flows from (used in) investing activities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Purchases of fixed assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(15,462</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,413</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(10,529</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Sales of marketable securities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,141</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,554</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Decrease (increase) in acquisition and
    investments in businesses, net of cash acquired
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">763</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,408</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Decrease (increase) in other non-current assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">110</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,858</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net cash flows from (used in) investing activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(15,468</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,601</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,759</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash flows from financing activities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proceeds from exercise of stock options
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,647</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net cash flows from financing activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,647</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net change in cash and cash equivalents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,800</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(34,981</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(74,484</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents at beginning of period
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">70,144</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">105,125</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">179,609</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents at end of period
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">68,344</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">70,144</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">105,125</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<FONT size="2">See accompanying notes to consolidated financial
statements.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-28
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">barnesandnoble.com inc.</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="center">
<B><FONT size="2">(In thousands, except per share
data)</FONT></B>
</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">1.&nbsp;</FONT></B></TD>
    <TD>
    <B><FONT size="2">Business and Organization</FONT></B></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">barnesandnoble.com inc. (the &#147;Company&#148;)
is a holding company whose sole asset is a 29.6% equity interest
in barnesandnoble.com llc (&#147;B&#38;N.com&#148;), an online
retailer of books, music and DVD/video, and whose sole business
is currently acting as sole manager of B&#38;N.com. As sole
manager of B&#38;N.com, the Company controls all of the affairs
of B&#38;N.com and as a result, B&#38;N.com is consolidated with
the Company. As of December&nbsp;31, 2003, Barnes&nbsp;&#38;
Noble,&nbsp;Inc. (&#147;Barnes&nbsp;&#38; Noble&#148;)
beneficially owned an equity interest of 73.0%, (or
115,000&nbsp;membership units and 4,139&nbsp;shares of
Class&nbsp;A Common Stock) in B&#38;N.com. Barnes&nbsp;&#38;
Noble increased its interest to that level on September&nbsp;15,
2003 by acquiring the entire 36.8% equity interest of
Bertelsmann AG (&#147;Bertelsmann&#148;) in B&#38;N.com and the
Company for $2.80&nbsp;per share or membership unit, payable in
a combination of cash and notes. Each membership unit in
B&#38;N.com (&#147;Membership Unit&#148;) held by
Barnes&nbsp;&#38; Noble is convertible into one share of the
Company&#146;s Class&nbsp;A Common Stock. As reflected in the
consolidated statements of operations, the loss before minority
interest represents the total loss for the period and the net
loss represents the portion of the loss attributable to the
Company subsequent to the commencement of its activities.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Prior to October&nbsp;31, 1998, the business of
B&#38;N.com was conducted by a wholly owned subsidiary of
Barnes&nbsp;&#38; Noble, which subsidiary was originally
incorporated on January&nbsp;14, 1997 in the State of Delaware
under the name Barnes&nbsp;&#38; Noble Online,&nbsp;Inc.
(&#147;B&#38;N Online&#148;). Effective October&nbsp;31, 1998,
Barnes&nbsp;&#38; Noble and Bertelsmann completed a transaction
that established B&#38;N.com as the owner and operator of the
business (the &#147;Formation Transaction&#148;). In connection
with the Formation Transaction, B&#38;N Online contributed
substantially all of its assets and liabilities to B&#38;N.com
at their historical cost and Bertelsmann contributed $150,000
and contributed an additional $50,000 in cash prior to the
effective date of the public offering. B&#38;N.com accounted for
the investment made by Bertelsmann in B&#38;N.com as a capital
contribution. The completion of the foregoing transactions
resulted in Barnes&nbsp;&#38; Noble and Bertelsmann each having
a 50% beneficial interest in B&#38;N.com, and B&#38;N Online
changing its name to B&#38;N Sub Corp.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On March&nbsp;10, 1999, Barnes&nbsp;&#38; Noble
caused B&#38;N Sub Corp. to establish the Company. On
May&nbsp;24, 1999, B&#38;N Sub Corp. transferred its ownership
of the Company to B&#38;N.com Holding Corp (&#147;BN.com Holding
Corp.&#148;). This resulted in Barnes&nbsp;&#38; Noble owning
100% of BN.com Holding Corp., which owns 100% of the Company.
Subsequent to that, the Company filed an amended charter that,
among other things, reclassified its outstanding common stock to
one share of Class&nbsp;B Common Stock. The Company then issued
one share of Class&nbsp;C Common Stock constituting a 50%
interest in the Company to a wholly owned subsidiary of
Bertelsmann. The completion of the foregoing transactions
resulted in Barnes&nbsp;&#38; Noble and Bertelsmann each having
a 50% beneficial interest in the Company through their ownership
of all of the outstanding Class&nbsp;B and Class&nbsp;C Common
Stock.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On May&nbsp;25, 1999 the Company sold
28,750&nbsp;shares of Class&nbsp;A Common Stock in a public
offering (the &#147;Offering&#148;). The Company used the
$484,382 in proceeds of the Offering to acquire its interest in
B&#38;N.com. The acquisition of the ownership interest in
B&#38;N.com was treated as a reorganization of entities under
common control in a manner similar to a pooling of interests,
analogous to the type of transaction described in Emerging
Issues Task Force Issue&nbsp;97-2 (&#147;EITF&nbsp;97-2&#148;).
Accordingly, the net assets of B&#38;N.com contributed by
Barnes&nbsp;&#38; Noble were reported in the consolidated
financial statements at Barnes&nbsp;&#38; Noble&#146;s
historical cost, and the minority interests in B&#38;N.com were
based on the net book equity of B&#38;N.com (after contribution
of the proceeds from the Offering) multiplied by the ownership
percentages of Barnes&nbsp;&#38; Noble and Bertelsmann.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Subsequent to the Offering, the Company issued a
total of 12,474&nbsp;shares in connection with an acquisition by
merger of Fatbrain.com,&nbsp;Inc. (&#147;Fatbrain&#148;). In the
first half of 2002, Fatbrain&#146;s operations were consolidated
into B&#38;N.com. In October 2002, Barnes&nbsp;&#38; Noble and
Bertelsmann initiated a stock acquisition program to acquire up
to $10,000 of the Company&#146;s Class&nbsp;A Common Stock.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-29
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="center">
<B><FONT size="2">barnesandnoble.com inc.</FONT></B>
</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On September&nbsp;15, 2003 Barnes&nbsp;&#38;
Noble completed its acquisition of all of Bertelsmann&#146;s
interest in the Company and B&#38;N.com resulting in
Barnes&nbsp;&#38; Noble increasing its beneficial equity
interest in the Company from approximately 38.0% to
approximately 74.7% and its voting interest from approximately
48.4% to approximately 96.6%. The purchase price paid by
Barnes&nbsp;&#38; Noble was $165,406 (including acquisition
costs of $1,253), equivalent to $2.80&nbsp;per share or
Membership Unit. As a result of the substantial change in
ownership from this transaction, push down accounting has been
applied to the Company&#146;s financial statements. Accordingly,
the proportionate share of the Company&#146;s assets acquired
and liabilities assumed have been adjusted to reflect
Barnes&nbsp;&#38; Noble&#146;s basis. The $151,260 step-up
resulting from the purchase price allocation was credited to the
minority interest attributable to Barnes&nbsp;&#38; Noble.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Based upon a preliminary assessment of the fair
values, the allocation of the purchase price to the
approximately 36.8% proportionate amount of assets acquired and
the liabilities assumed by Barnes&nbsp;&#38; Noble was as
follows:
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="86%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,370</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Hardware and software
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,600</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other tangible assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,973</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Customer list and relationships
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,800</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Trade name
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">44,700</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">93,372</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total assets acquired
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">208,815</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Liabilities assumed
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">43,409</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total purchase price
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">165,406</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Hardware and software have been assigned
preliminary estimated useful lives of four years. The customer
list and relationships intangible asset has been assigned a
preliminary useful life of four years to be amortized on an
accelerated basis based on estimated usage, whereby a
substantial portion of the asset will be amortized in the first
year. The above preliminary purchase price allocation is subject
to revision as more detailed analysis is completed and
additional information on the fair value of assets and
liabilities of the Company becomes available. Barnes&nbsp;&#38;
Noble has engaged an independent third party to perform a
valuation analysis. The final purchase price allocation is
expected to be completed by the second quarter of 2004. It is
possible that some or all of the preliminary amounts may change.
The final allocation to goodwill and the trade name (which is
considered to have an indefinite life and will not be amortized)
will be tested at least annually for impairment in accordance
with SFAS Statement No.&nbsp;142, &#147;Goodwill and Other
Intangible Assets&#148; (&#147;SFAS&nbsp;No.&nbsp;142&#148;).
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As a result of the above noted preliminary
purchase price allocation, the accompanying balance sheet as of
December&nbsp;31, 2003 has been labeled Restated
post-acquisition to indicate the new basis of accounting
reflected as of that date. A similar distinction has not been
reflected in the accompanying statement of operations, since the
amounts reported for sales, net loss and net loss per share do
not differ from those previously reported because the additional
amortization resulting from the purchase price adjustments have
all been attributable to the minority interest in the statement
of operations. Similarly, the pro forma results of the Company
assuming the acquisition of Bertelsmann&#146;s interest by
Barnes&nbsp;&#38; Noble had occurred on January&nbsp;1, 2003
would not differ from previously reported sales, net loss and
net loss per share, and therefore have not been provided.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-30
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="center">
<B><FONT size="2">barnesandnoble.com inc.</FONT></B>
</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table shows the effect of the
restatement for the application of push down accounting on the
Company&#146;s December&nbsp;31, 2003 balance sheet:
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="53%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="13"></TD>
</TR>

<TR>
    <TD colspan="13" align="center" nowrap><B><FONT size="1">December&nbsp;31, 2003 Balance Sheet</FONT></B></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Net Effects of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">As Originally</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Push Down</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Impacted Balance Sheet Line Items</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Presented</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Accounting</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">As Restated</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fixed assets, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">48,474</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,400</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">61,874</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,777</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">88,360</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">102,137</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Trade name
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">44,700</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">44,700</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Intangible assets, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">197,958</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">149,960</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">347,918</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Minority Interest
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22,556</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">149,960</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">172,516</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total liabilities and stockholders&#146; equity
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">197,958</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">149,960</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">347,918</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On January&nbsp;8, 2004, the Company and
Barnes&nbsp;&#38; Noble entered into a definitive merger
agreement. Under the terms of the merger, the holders of the
Company&#146;s outstanding common stock, other than that owned
by Barnes&nbsp;&#38; Noble, will be entitled to receive $3.05 in
cash for each share that they own. As a result of this
transaction, which is subject to approval by the Company&#146;s
shareholders, the Company will become wholly owned by
Barnes&nbsp;&#38; Noble. The closing of the merger is expected
to occur during the second quarter of fiscal 2004.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">2.&nbsp;</FONT></B></TD>
    <TD>
    <B><FONT size="2">Summary of Significant Accounting
    Policies</FONT></B></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<B><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Consolidation</FONT></I></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The consolidated financial statements include the
accounts of the Company and its subsidiaries. The Company&#146;s
investment in Fatbrain has been presented in the accompanying
consolidated financial statements, as a consolidated wholly
owned subsidiary beginning after the effective date of the
merger, November&nbsp;16, 2000. As of April 2003, the Company
now receives commissions on sales of used and out of print
books, through BookQuest LLC (&#147;BookQuest&#148;), a service
that allows independent book dealers to sell their used books on
the B&#38;N.com Web site. All significant intercompany accounts
and transactions have been eliminated inconsolidation. The
Company has no unconsolidated majority owned subsidiaries and no
interests in special purpose entities.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<B><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Use of
Estimates</FONT></I></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of
the financial statements and revenues and expenses during the
period reported. Actual results could differ from those
estimates.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<B><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Concentration
of Credit Risk</FONT></I></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B&#38;N.com is subject to concentrations of
credit risk from its holdings of cash, cash equivalents and
short-term investments. B&#38;N.com&#146;s credit risk is
managed by investing its cash in high-quality money market
instruments and securities of the U.S.&nbsp;government and its
agencies, foreign governments and high-quality corporate issuers.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-31
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="center">
<B><FONT size="2">barnesandnoble.com inc.</FONT></B>
</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<B><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Merchandise
Inventories</FONT></I></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Merchandise inventories are valued at the lower
of cost or market as determined on a weighted average basis.
B&#38;N.com purchases a majority of its products from two major
vendors, Barnes&nbsp;&#38; Noble and AEC One Stop Group, Inc.
(&#147;AEC&#148;). Barnes&nbsp;&#38; Noble accounted for 34.5%,
34.2% and 45.2% of B&#38;N.com&#146;s inventory purchases during
the years ended December&nbsp;31, 2003, 2002 and 2001,
respectively. AEC accounted for the bulk of the Company&#146;s
music and DVD/video purchases and for 15.9%, 13.1% and 10.7% of
total inventory purchases during the years ended
December&nbsp;31, 2003, 2002 and 2001, respectively. The Company
receives volume-based rebates from certain third party vendors,
which is recorded as a reduction to cost of sales.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<B><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Fixed
Assets</FONT></I></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Fixed assets are carried at cost, less
accumulated depreciation and amortization. Computers and
equipment are depreciated using the straight-line method over
their estimated useful lives of 3 to 10&nbsp;years. Leasehold
improvements are capitalized and amortized over the shorter of
their estimated useful lives or the remaining terms of the
respective leases. In accordance with Statement of
Position&nbsp;98-1 &#147;Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use&#148;, direct
internal and external costs associated with the development of
the features and functionality of B&#38;N.com&#146;s online
store, transaction-processing systems, telecommunications
infrastructure and network operations, incurred during the
application development stage, have been capitalized, and are
amortized over the estimated useful lives of three years.
B&#38;N.com expects to complete and put in service the remaining
software development projects that existed as of year-end.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<B><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash and Cash
Equivalents</FONT></I></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">All highly liquid instruments with an original
maturity of three months or less at the time of purchase are
classified as cash equivalents.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<B><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Goodwill</FONT></I></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Effective July&nbsp;1, 2001, the Company adopted
certain provisions of Financial Accounting Standards Board
(&#147;FASB&#148;) Statement of Financial Accounting Standards
(&#147;SFAS&#148;)&nbsp;No.&nbsp;141 &#147;Business
Combinations&#148; (&#147;SFAS&nbsp;No.&nbsp;141&#148;), and
effective January&nbsp;1, 2002, the Company adopted the full
provisions of SFAS&nbsp;No.&nbsp;141 and SFAS&nbsp;No.&nbsp;142
&#147;Goodwill and Other Intangible Assets&#148;
(&#147;SFAS&nbsp;No.&nbsp;142&#148;). SFAS&nbsp;No.&nbsp;141
requires business combinations initiated after June&nbsp;30,
2001 to be accounted for using the purchase method of
accounting, and broadens the criteria for recording intangible
assets apart from goodwill. SFAS&nbsp;No.&nbsp;142 requires that
purchased goodwill and certain indefinite-lived intangibles no
longer be amortized, but instead be tested for impairment at
least annually. As a result of adopting SFAS&nbsp;No.&nbsp;142,
the Company ceased amortization of goodwill beginning
January&nbsp;1, 2002. Prior to the adoption of
SFAS&nbsp;No.&nbsp;142, the Company amortized goodwill on a
straight-line basis over three years. The Company has no other
intangible assets.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">SFAS&nbsp;No.&nbsp;142 prescribes a two-step
process for impairment testing of goodwill. The first step of
this test, used to identify impairment, compares the fair value
of a reporting unit with its carrying amount including goodwill.
The second step (if necessary) measures the amount of the
impairment. Using the guidance in SFAS&nbsp;No.&nbsp;142, the
Company has determined that the Company, as a whole, is a
reporting unit. The Company&#146;s annual impairment test
indicated that the fair value of the reporting unit exceeded the
reporting unit&#146;s carrying amount; accordingly, the second
step was not necessary. The Company has noted no subsequent
indicators that would require testing goodwill for impairment.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">There were no changes in the carrying amount of
goodwill for the years ended December&nbsp;31, 2003 and 2002. In
2001, the Company determined that the carrying value of the
goodwill was impaired, resulting in a charge of $29,976 against
goodwill. (See Note&nbsp;4).
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-32
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="center">
<B><FONT size="2">barnesandnoble.com inc.</FONT></B>
</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Supplemental comparative disclosure, as if the
change had been retroactively applied, is as follows:
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="61%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">For the Years Ended December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,346</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(20,132</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(67,386</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Add back: Amortization of goodwill ($20,129 in
    2001) net of minority interest
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,556</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss, as adjusted
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,346</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(20,132</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(61,830</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss per share:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.28</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.46</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.54</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of goodwill
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.13</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss per share, as adjusted
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.28</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.46</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.41</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<B><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Investments
in Equity Method Investees</FONT></I></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company has made certain investments in
business entities accounted for under the equity method of
accounting. The Company accounts for an investment under the
equity method if the investment gives the Company the ability to
exercise significant influence over the operating and financial
policies of such entity. An investment of 20% or more of the
voting stock typically denotes such influence, in the absence of
other evidence to the contrary.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company has periodically evaluated whether
the declines in fair value of its equity investments are
other-than-temporary. This evaluation consisted of reviewing
qualitative and quantitative factors including operating results
and trends, as well as market prices of public companies
operating in the same sector. As of December&nbsp;31, 2003, all
investments in equity method investees have no carrying value as
the business entities invested in have ceased all operations and
are dissolved.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<B><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Impairment of
Long-Lived Assets</FONT></I></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B&#38;N.com reviews its long-lived assets for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable in
accordance with SFAS&nbsp;No.&nbsp;144 &#147;Accounting for the
Impairment or Disposal of Long-Lived Assets&#148;.
Recoverability of assets held and used is measured by a
comparison of the carrying amount of an asset to undiscounted
pre-tax future net cash flows expected to be generated by that
asset. An impairment loss is recognized for the amount by which
the carrying amount of the assets exceeds the fair value of the
assets.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<B><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Fair Value of
Financial Instruments</FONT></I></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The carrying amounts for the Company&#146;s cash
and cash equivalents, accounts payable, amounts due to
affiliates and other liabilities approximate fair value. The
fair value for marketable securities is based on quoted market
prices that approximate cost.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<B><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net
Sales</FONT></I></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company uses the guidelines set forth in
FASB&#146;s Emerging Issues Task Force (&#147;EITF&#148;)
Issue&nbsp;No.&nbsp;99-19 &#147;Reporting Revenue Gross, as a
Principal, versus Net as an Agent,&#148; in recording revenue.
Sales of B&#38;N.com&#146;s products are recognized, net of
estimated returns and promotional discounts, at the time the
products are shipped to customers. The Company now receives
commissions on sales of used and out of print books, through
BookQuest, a service that allows independent book dealers to
sell their used books on the B&#38;N.com Web site. Allowances
for doubtful accounts are nominal.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-33
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="center">
<B><FONT size="2">barnesandnoble.com inc.</FONT></B>
</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<B><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shipping and
Handling Costs</FONT></I></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company uses guidelines set forth in EITF
Issue&nbsp;No.&nbsp;00-10 &#147;Accounting for Shipping and
Handling Fees and Costs&#148;. Net sales reported by the Company
include revenue generated from shipping and handling charges.
Costs related to inbound and outbound shipping are classified as
cost of sales. Fulfillment and customer service costs include
distribution center expenses for activities such as receiving of
goods, picking of goods for shipment and assembly for shipment,
as well as expenses to run the Company&#146;s customer service
center.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<B><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Advertising
Costs</FONT></I></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B&#38;N.com expenses the costs of advertising for
magazines, television, radio and other media the first time the
advertising takes place. Expenses for such advertising were
$5,307, $3,554 and $3,297 for the years ended December&nbsp;31,
2003, 2002 and 2001, respectively.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<B><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Technology
and Web Site Development</FONT></I></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Technology and web site development expenses
included in the accompanying statements of operations consist
principally of payroll and related expenses for Web page
production, network operations personnel and consultants, and
costs of infrastructure related to systems and
telecommunications.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<B><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net Loss Per
Share</FONT></I></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Basic net loss per share is computed by dividing
net loss by the weighted average number of common shares
outstanding during the period.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Diluted net loss per share is computed in a
manner consistent with basic net loss per share after giving
effect to potentially dilutive securities. Diluted net loss per
share for the years ended December&nbsp;31, 2003, 2002 and 2001
excludes the assumed conversion of the outstanding Membership
Units of B&#38;N.com into 115,000&nbsp;shares of Class&nbsp;A
Common Stock of the Company and the minority interest in the net
loss, because it is not dilutive. Diluted net loss per share for
the years ended December&nbsp;31, 2003, 2002 and 2001 also
excludes the effect of outstanding stock options, none of which
are dilutive.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<B><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income
Taxes</FONT></I></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B&#38;N.com is a limited liability company and as
such is not considered a taxable entity for federal income tax
purposes and most state income tax purposes. The members report
any taxable income or losses. As a result, no tax benefits have
been allocated to B&#38;N.com for its losses for all periods
presented. The Company recognizes deferred tax assets and
liabilities based on differences between the financial reporting
and tax bases of assets and liabilities using the enacted tax
rates and laws that are expected to be in effect when the
differences are expected to be recovered. The Company provides a
valuation allowance for deferred tax assets for which it does
not consider realization of such assets to be more likely than
not.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<B><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock
Options</FONT></I></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company has one stock-based employee
compensation plan in effect, which is described more fully in
Note&nbsp;12. The Company accounts for all transactions under
which employees receive shares of stock or other equity
instruments in the Company based on the price of its stock in
accordance with the provisions of Accounting Principles Board
Opinion&nbsp;No.&nbsp;25 &#147;Accounting for Stock Issued to
Employees&#148;. Options which have been repriced have been
treated as variable options. No stock-based employee
compensation cost is reflected in net loss, as all options
granted under the plan had an exercise price equal to the market
value of the underlying common stock on the date of grant and
the market price of the stock subsequent to the repricing has
not exceeded the exercise price. The following table illustrates
the effect on net loss and earnings
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-34
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="center">
<B><FONT size="2">barnesandnoble.com inc.</FONT></B>
</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<FONT size="2">per share if the Company had applied the fair
value recognition provisions of SFAS&nbsp;No.&nbsp;123
&#147;Accounting for Stock-Based Compensation&#148;
(&#147;SFAS&nbsp;No.&nbsp;123&#148;).
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="55%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Year Ended December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">As reported
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,346</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(20,132</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(67,386</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deduct: Total stock-based employee compensation
    expense determined under fair value based method for all awards
    ($7,034 in 2003, $12,088 in 2002, and $13,518 in 2001), net of
    minority interest
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,951</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,304</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,728</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proforma net loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13,297</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(23,436</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(71,114</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Basic net loss per share:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">As reported
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.28</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.46</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.54</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proforma SFAS&nbsp;No.&nbsp;123
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.33</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.54</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.62</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The fair value for each option granted was
estimated at the date of grant using the Black-Scholes
option-pricing model, one of the allowable valuation methods
under SFAS&nbsp;No.&nbsp;123, with the following assumptions:
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="69%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Year Ended December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Average risk free interest rates
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.65</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.00</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.25</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Average expected life (in years)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.65</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Volatility
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">102.27</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">140.07</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">112.73</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The weighted-average fair value of the options
granted during the years 2003, 2002 and 2001 was estimated to be
$1.03, $1.06 and $1.06, respectively, for options granted at
fair market value.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">3.&nbsp;</FONT></B></TD>
    <TD>
    <B><FONT size="2">Marketable Securities</FONT></B></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B&#38;N.com invests certain of its excess cash in
money market funds which invest in debt instruments of the
U.S.&nbsp;Government and its agencies, and of high quality
corporate issuers. All highly liquid instruments with an
original maturity of three months or less are considered cash
equivalents; those with original maturities greater than three
months and less than one year are classified as marketable
securities. Long-term marketable securities mature in a period
greater than one year. B&#38;N.com classifies investments in
accordance with SFAS&nbsp;No.&nbsp;115 &#147;Accounting for
Certain Investments in Debt and Equity Securities&#148;.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company had no marketable securities as of
December&nbsp;31, 2003 and 2002.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">4.&nbsp;</FONT></B></TD>
    <TD>
    <B><FONT size="2">Acquisitions</FONT></B></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On November&nbsp;16, 2000, the Company acquired
Fatbrain, the third largest online bookseller, specializing in
professional and technical titles for the corporate marketplace,
for $61,956 (paid 25% in cash and 75% in stock totaling
12,474&nbsp;shares). The shares of Fatbrain were transferred to
a wholly owned subsidiary of B&#38;N.com in exchange for
additional Membership Units. Subsequent to the acquisition
Fatbrain had been operated as Fatbrain.com, LLC. The acquisition
was accounted for under the purchase method of accounting and,
accordingly, the results of operations for the period subsequent
to the acquisition are included in the consolidated financial
statements of the Company. The excess of purchase price over the
net assets acquired, in the amount of $59,557, was recorded as
goodwill and was amortized using the straight-line method over
an estimated useful life of three years until the Company
adopted SFAS&nbsp;No.&nbsp;142 in 2002. In the fourth quarter of
2001, the Company determined that the carrying value of the
goodwill was impaired, resulting in a charge
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-35
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="center">
<B><FONT size="2">barnesandnoble.com inc.</FONT></B>
</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<FONT size="2">against the goodwill. The total impairment of
$29,976 was determined by basing its fair value calculation on
cash flows from Fatbrain over a five-year period.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In connection with the acquisition of Fatbrain in
2000, B&#38;N.com assessed and formulated plans to restructure
certain operations of Fatbrain. These plans involved the closure
of the Fatbrain fulfillment facility in Kentucky as well as a
consolidation of administrative operations reducing the
workforce at Fatbrain&#146;s office in Santa&nbsp;Clara,
California. The objectives of the plans were to consolidate
operations and leverage overhead expenses. The costs associated
with the consolidation effort were recorded as liabilities in
the purchase business combination and consisted of severance and
other employee costs of $1,059 and closure of the facility of
$1,876, all of which has been paid by the end of 2002.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In January 2000, the Company acquired an
approximate 32% interest in enews, inc. (&#147;enews&#148;), a
retailer of magazine subscriptions on the Internet, and warrants
to acquire additional common stock, for $26,428 in cash and
714&nbsp;shares of the Company&#146;s stock valued at $12,857.
During 2001, the Company increased its investment in enews to
approximately 49.5%. Due to market conditions and operating
expense requirements, it was determined in 2002 to cease
operations of enews. In July 2002, the Board of Directors of
enews approved a Plan of Complete Liquidation (the
&#147;Liquidation Plan&#148;), which was then approved by
stockholders of enews owning at least a majority of the
outstanding shares of capital stock of enews. As of
December&nbsp;31, 2003, the Liquidation Plan had been
substantially completed and was concluded by February&nbsp;29,
2004. As of December&nbsp;31, 2002, the Company had written off
its remaining investment in enews of $3,320.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">enews ceased all operations in October 2002.
Summarized statement of operations information for enews, for
the period during which the Company had an investment, is as
follows:
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="64%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Year Ended</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net sales
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,964</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,272</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gross Profit (loss)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,721</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,782</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,528</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14,890</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In June 2000, B&#38;N.com invested $20,000 in
cash for a 25% equity interest in MightyWords, Inc.
(&#147;MightyWords&#148;), a provider of digital content. As a
result of the purchase of Fatbrain, the Company owned
approximately 53% of the shares in MightyWords. The Company had
accounted for this acquisition using the equity method of
accounting, as control of MightyWords was deemed temporary by
the management of B&#38;N.com. In December 2001,
MightyWords&#146; Board of Directors voted to dissolve
MightyWords effective as soon as possible. The Company
determined that its investment in MightyWords was impaired and
took an impairment charge of $2,907 based on the estimated net
liquidation value of $3,228. Liquidation of MightyWords was
completed in 2002 with a net liquidation value of $3,408.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-36
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="center">
<B><FONT size="2">barnesandnoble.com inc.</FONT></B>
</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">5.&nbsp;</FONT></B></TD>
    <TD>
    <B><FONT size="2">Fixed Assets</FONT></B></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Fixed assets, at cost, consist of the following:
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="61%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Restated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Computers and equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">78,782</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">83,434</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Leasehold improvements
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,131</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,846</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Software
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">54,171</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">65,026</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">146,084</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">163,306</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Less: accumulated depreciation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">84,210</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">104,435</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fixed assets, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">61,874</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">58,871</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As of September&nbsp;15, 2003 a proportionate
share of the fixed assets was adjusted to reflected
Barnes&nbsp;&#38; Noble&#146;s basis.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">6.&nbsp;</FONT></B></TD>
    <TD>
    <B><FONT size="2">Accrued Liabilities</FONT></B></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Accrued liabilities consist of the following:
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="77%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accrued merchandise payables
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,021</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,352</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accrued special charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,052</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,293</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accrued fixed assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,208</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">752</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accrued compensation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,229</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,823</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accrued advertising
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">547</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,365</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accrued gift certificates
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,035</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,566</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,105</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,305</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">77,197</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">70,456</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">7.&nbsp;</FONT></B></TD>
    <TD>
    <B><FONT size="2">Impairments and Special Charges</FONT></B></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Impairment and Special Charges were $88,213 for
the year ended December&nbsp;31, 2001. In the fourth quarter of
2001, B&#38;N.com initiated a company-wide assessment of its
cost structure, investments, and other long-term assets
including goodwill. In connection with that assessment an
impairment of fixed assets and other special charges of $88,213
($0.56&nbsp;per share assuming conversion of Membership Units)
were recorded as a component of operating expenses during the
fourth quarter of 2001. These charges are primarily related to
the following:
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>
<P>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I><FONT size="2">Closure of Facilities&nbsp;&#151;
    </FONT></I><FONT size="2">B&#38;N.com consolidated
    administrative and functional operations by closing
    Fatbrain&#146;s Santa&nbsp;Clara, California office.
    Fatbrain&#146;s two retail stores in California were also
    closed. Charges include exit costs related to the remaining term
    of non-cancelable lease obligations of the retail and
    Santa&nbsp;Clara facilities, related severance costs, as well as
    the abandonment of related fixed assets that will not be suited
    for future use in other remaining B&#38;N.com facilities.
    Furthermore, B&#38;N.com recently determined it could not
    effectively utilize the full capacity of its Reno, Nevada
    distribution center. Accordingly, following Board approval on
    January&nbsp;29, 2002, B&#38;N.com agreed to transfer the Reno
    warehouse lease and sell the Company&#146;s inventory located in
    Reno to Barnes&nbsp;&#38; Noble. The Board of
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-37
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="center">
<B><FONT size="2">barnesandnoble.com inc.</FONT></B>
</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Barnes&nbsp;&#38; Noble also approved
    Barnes&nbsp;&#38; Noble&#146;s assumption of the lease
    obligation and the hiring of all the employees at the Reno
    facility. The Reno lease assignment and the transfer of the
    operations of the Reno facility to Barnes&nbsp;&#38; Noble was
    completed during the first half of 2002. Charges related to the
    Reno facility include the abandonment of fixed assets that were
    not suitable for use at other B&#38;N.com facilities.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I><FONT size="2">Impairment of Fixed Assets&nbsp;&#151;
    </FONT></I><FONT size="2">As of December&nbsp;31, 2001,
    B&#38;N.com wrote-off certain fixed assets that were no longer
    used in operations.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I><FONT size="2">Impairment of Other Non-Current
    Assets&nbsp;&#151; </FONT></I><FONT size="2">B&#38;N.com
    concluded that the carrying amount of certain equity
    investments, including Powered.com, goodwill and other
    investments, exceeded their fair value and that the decline was
    other than temporary. The impairment loss was precipitated by
    the significant decline in the value of Internet sector
    entities, material changes in business models, and significant,
    recurring operating losses.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The consolidation of the Fatbrain administrative
and functional operations was completed in the first half of
2002, although the lease on the Santa&nbsp;Clara office expires
in 2006.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A summary of the impairment and special charges
for the years ended December&nbsp;31, 2001 is as follows:
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="76%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Facility closure costs
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,442</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Impairment of Fatbrain goodwill
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29,976</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Impairment of equity investments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,158</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Impairment of fixed and other assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,637</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">88,213</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The components of the accrued liability
associated with the special charges are as follows:
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="29%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Balance</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Balance</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Balance</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Due within</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Due after</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">31-Dec-01</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Payments</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">31-Dec-02</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Payments</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">31-Dec-03</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">12 Months</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">12 Months</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Facility/ Lease Termination Costs
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,997</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,428</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,569</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,202</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,367</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,616</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,751</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Employee Termination Benefits
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,436</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,356</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">80</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(30</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accrued Settlement Agreements
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,014</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,370</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">644</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">635</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">635</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,447</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8,154</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,293</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,241</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,052</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,301</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,751</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">8.&nbsp;</FONT></B></TD>
    <TD>
    <B><FONT size="2">Income Taxes</FONT></B></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company did not provide any current or
deferred U.S.&nbsp;federal or state income tax provision or
benefit for any of the periods presented because it has
experienced operating losses since inception. At
December&nbsp;31, 2003, the Company had net operating loss
carryforwards of approximately $137,028 related to
U.S.&nbsp;federal and state jurisdictions. Utilization of net
operating loss carryforwards, which begin to expire at various
times starting in 2010, may be subject to certain limitations
under the Internal Revenue Code.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The deferred tax asset as of December&nbsp;31,
2003 was approximately $51,424, which consisted of net operating
loss carryforwards. The Company has provided a full valuation
allowance on the deferred tax asset because of uncertainty
regarding its realization.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-38
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="center">
<B><FONT size="2">barnesandnoble.com inc.</FONT></B>
</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">9.&nbsp;</FONT></B></TD>
    <TD>
    <B><FONT size="2">Stockholders&#146; Equity</FONT></B></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">There are three classes of common stock
authorized: Class&nbsp;A Common Stock (&#147;Class&nbsp;A
Common&#148;), Class&nbsp;B Common Stock (&#147;Class&nbsp;B
Common&#148;) and Class&nbsp;C Common Stock (&#147;Class&nbsp;C
Common&#148;). The holders of Class&nbsp;A Common generally have
rights identical to holders of Class&nbsp;B Common and
Class&nbsp;C Common (collectively &#147;High Vote Stock&#148;),
except that each holder of Class&nbsp;A Common is entitled to
one vote per share and each holder of High Vote Stock is
entitled to the number of votes per share equal to: (i)&nbsp;10,
multiplied by the sum of (a)&nbsp;the aggregate number of High
Vote Stock owned by such holder and (b)&nbsp;the aggregate
number of Membership Units owned by such holder; divided by
(ii)&nbsp;the number of shares of High Vote Stock owned by such
holder. Pursuant to the Company&#146;s Amended and Restated
Certificate of Incorporation (the &#147;Amended Charter&#148;),
each share of High Vote Stock entitles the holder to directly
elect three of the Company&#146;s directors. Otherwise, holders
of Class&nbsp;A Common and High Vote Stock (collectively
&#147;Common Stock&#148;) generally will vote together as a
single class on all matters (including the election of the
directors who are not elected directly by the holders of the
High Vote Stock) presented to the stockholders for their vote or
approval, except as otherwise required by applicable Delaware
law.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Board of Directors, currently consisting of
six members, is authorized to issue up to an aggregate of
50,000&nbsp;shares of Preferred Stock. The rights and
characteristics of the Preferred Stock are at the discretion of
the Board of Directors. There is no Preferred Stock outstanding.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">10.&nbsp;</FONT></B></TD>
    <TD>
    <B><FONT size="2">Commitments</FONT></B></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B&#38;N.com currently leases warehouse
facilities, office space and equipment under non-cancelable
operating leases. Rental expense under operating lease
agreements was $5,049, $6,055 and $7,772 for the years ended
December&nbsp;31, 2003, 2002 and 2001, respectively.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Future minimum lease payments under
non-cancelable operating leases as of December&nbsp;31, 2003 are:
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="80%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Future</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Minimum</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Lease</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Year Ending December&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Payments</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,041</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2005
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,872</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2006
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,801</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2007
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,801</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2008
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,801</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Thereafter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,483</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,799</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company has pledged a portion of its cash
equivalents for stand-by letters of credit that guarantee
certain real property leases. Obligations under letters of
credit as of December&nbsp;31, 2003, 2002 and 2001 were $4,353,
$3,809 and $3,989, respectively.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">11.&nbsp;</FONT></B></TD>
    <TD>
    <B><FONT size="2">Employees&#146; Retirement and Defined
    Contribution Plans</FONT></B></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As of June&nbsp;30, 2000, substantially all
employees of the Company were covered under the Company&#146;s
Employees&#146; Retirement Plan (the &#147;Retirement
Plan&#148;). The Retirement Plan is a defined benefit pension
plan. As of July&nbsp;1, 2000, the Retirement Plan was amended
so that employees no longer earn benefits for subsequent
service. Subsequent service continues to be the basis for
vesting of benefits not yet vested at June&nbsp;30, 2000 and the
Retirement Plan will continue to hold assets and pay benefits.
The amendment was treated as a curtailment in fiscal 2000.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-39
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="center">
<B><FONT size="2">barnesandnoble.com inc.</FONT></B>
</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Actuarial assumptions used in determining the
funded status of the Retirement Plan are as follows:
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="81%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Discount rate (beginning of year)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.50</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7.25</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Discount rate (end of year)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.25</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.50</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Expected long-term rate of return on plan assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8.75</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8.75</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Assumed rate of compensation increase
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">N/A</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">N/A</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table sets forth the funded status
of the Retirement Plan and the pension liability recognized for
the Retirement Plan in the accompanying balance sheets:
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="77%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Actuarial present value of benefit obligation:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Vested benefits
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(845</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(684</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-vested benefits
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(94</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(189</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accumulated benefit obligation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(939</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(873</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Effect of projected future compensation increases
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Projected benefit obligation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(939</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(873</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Plan assets at market value
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">988</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">827</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Excess (deficiency)&nbsp;of plan assets over
    projected benefit obligation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">49</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(46</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Unrecognized net actuarial loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">339</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">442</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Unrecognized net obligation remaining
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Unrecognized prior service cost
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Pension asset
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">388</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">396</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company&#146;s Retirement Plan allocation at
December&nbsp;31, 2003 and 2002, target allocation for 2004 and
expected long-term rate of return by asset category are as
follows:
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="39%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="11%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Percentage of Plan</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Target</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Assets at December&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Weighted Average</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Allocation</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Expected Long-Term</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Asset Category</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Rate of Return&nbsp;&#151; 2004</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Large Capitalization Equities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24.9</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21.5</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.9</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Mid Capitalization Equities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Small Capitalization Equities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">International Equities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fixed Income Core Bonds
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Global Bonds
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9.1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company&#146;s investment strategy is to
obtain the highest possible return commensurate with the level
of assumed risk. Investments are very well diversified within
each of the major asset categories.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The expected long-term rate of return is figured
by using the target allocation and expected returns for each
class as in the table stated above. The actual historical
returns are also relevant. Annualized returns for periods ending
December&nbsp;31, 2003 have been as follows: 23.7% for one year
and 6.7% for five years.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-40
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="center">
<B><FONT size="2">barnesandnoble.com inc.</FONT></B>
</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We expect that there will be no regulatory
funding requirements that will need to be made during the fiscal
year ending December&nbsp;31, 2004. It is also expected that the
maximum tax-deductible contributions will be $0 under Internal
Revenue Service rules.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Accumulated Benefit Obligation of the
Retirement Plan was as follows:
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="64%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accumulated Benefit Obligation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">939</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">873</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Expected benefit payments are as follows over
future years:
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="91%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">1/1/2004&nbsp;&#150; 12/31/2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">1/1/2005&nbsp;&#150; 12/31/2005
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">1/1/2006&nbsp;&#150; 12/31/2006
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">1/1/2007&nbsp;&#150; 12/31/2007
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">1/1/2008&nbsp;&#150; 12/31/2008
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">1/1/2009&nbsp;&#150; 12/31/2013
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">144</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B&#38;N.com is a participating employer in a
defined contribution plan (the &#147;Savings Plan&#148;),
sponsored by Barnes&nbsp;&#38; Noble, for the benefit of
substantially all of its employees who meet certain eligibility
requirements, primarily age and length of service. The Savings
Plan allows employees to invest up to 15% of their current gross
cash compensation on a pre-tax basis. B&#38;N.com&#146;s
contributions to the Savings Plan are generally in amounts based
upon a certain percentage of the employees&#146; pre-tax
contributions. B&#38;N.com provides matching contributions to
participants in the amount of 100% of the first 3% of earnings
and 50% of the next 2% contributed by them, which contributions
are made consistent with the employees direction. The Fatbrain
Savings Plan was merged into the Savings Plan on
November&nbsp;1, 2001. Charges for the Savings Plan were $741,
$796 and $794 for each of the years ended December&nbsp;31,
2003, 2002 and 2001, respectively.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B&#38;N.com&#146;s Deferred Compensation Plan is
a non-qualified plan, eligibility for which is limited to
&#147;Eligible Executives,&#148; who include: (i)&nbsp;the
Company&#146;s employees who became B&#38;N.com employees on
November&nbsp;1, 1998 and were eligible to participate in the
Barnes&nbsp;&#38; Noble deferred compensation plan on
October&nbsp;31, 1998; and (ii)&nbsp;the Company&#146;s
employees whose base salary for a calendar year exceeds $130. An
Eligible Executive may elect in each year he or she is an
Eligible Executive to defer no less than $5 and no more than 50%
of his or her base salary to a Deferral Account. The Deferral
Account of each Eligible Executive who elects to participate in
the Deferred Compensation Plan (a &#147;Participant&#148;) is
credited or debited with investment earnings or losses based
upon the performance of the investment fund or index selected by
the Participant from among alternatives selected by an
Administrative Committee appointed by the Compensation Committee
of the Board of Directors.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A participant is entitled to a distribution of
his or her Deferral Account upon retirement or following
termination of employment, as elected by the Participant, but no
later than the beginning of the year in which the Participant
would attain age&nbsp;70&nbsp;1/2. A Participant may elect
whether to receive the distribution in a lump sum or, at
retirement, in annual installments over not more than fifteen
(15)&nbsp;years.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Amounts payable under the Deferred Compensation
Plan are general unsecured obligations of B&#38;N.com, payable
out of B&#38;N.com&#146;s general assets to the extent not paid
by a grantor trust that the Company may establish. The Company
may amend or terminate the Deferred Compensation Plan at any
time without affecting any of the rights granted prior to
termination. In 2003 the Company paid $25 in relation to the
Deferred Compensation Plan.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-41
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="center">
<B><FONT size="2">barnesandnoble.com inc.</FONT></B>
</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">12.&nbsp;</FONT></B></TD>
    <TD>
    <B><FONT size="2">Stock Incentive Plan</FONT></B></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As of December&nbsp;31, 1998, B&#38;N.com had one
incentive plan (the &#147;1998 Plan&#148;) under which stock
options were granted to key officers, employees, consultants,
advisors, and managers of B&#38;N.com and its subsidiaries and
affiliates. The Compensation Committee of the Board of Managers
was responsible for the administration of the 1998 Plan.
Generally, options were granted at fair market value, began
vesting one year after grant in 25% increments, were to expire
10&nbsp;years from issuance and were conditioned upon continual
employment during the vesting period. Options granted under the
1998 Plan were replaced with options to purchase shares of the
Class&nbsp;A Common of the Company under the Company&#146;s 1999
Incentive Plan (the &#147;1999 Plan&#148;). The 1999 Plan is
substantially the same as the 1998 Plan, and is administered by
the Compensation Committee of the Company&#146;s Board of
Directors. The 1999 Plan allows the Company to grant options to
purchase&nbsp;25,500&nbsp;shares of the Company&#146;s
Class&nbsp;A Common.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A summary of the status of stock options as of
December&nbsp;31, 2003 is presented below:
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="62%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Outstanding Options</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Weighted Average</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercise Price</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Per Share</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance December&nbsp;31, 2002
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,172</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.11</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Options granted
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,421</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.48</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Options forfeited
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,173</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Options exercised
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,478</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.29</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance December&nbsp;31, 2003
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,942</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.29</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table summarizes information as of
December&nbsp;31, 2003 concerning outstanding and exercisable
options:
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Options Outstanding</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Options Exercisable</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Weighted Average</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Range of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Remaining</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Weighted Average</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Weighted Average</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercise Price</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Contractual Life</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercise Price</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercise Price</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Per Share</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Outstanding</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(in Years)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Per Share</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercisable</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Per Share</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.8000&nbsp;&#150;&nbsp;&nbsp;2.4300</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,439</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7.74</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.25</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,292</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.22</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.5000&nbsp;&#150;&nbsp;&nbsp;4.9062</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,385</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.55</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.79</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,385</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.79</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.1250&nbsp;&#150;&nbsp;&nbsp;8.0000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,563</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.61</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7.93</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,563</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7.93</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8.1250&nbsp;&#150;&nbsp;18.3750</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">555</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.33</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9.43</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">555</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9.43</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,942</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.60</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.29</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,795</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.28</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-42
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="center">
<B><FONT size="2">barnesandnoble.com inc.</FONT></B>
</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Grants during 2003, 2002 and 2001 were at fair
value; therefore, no compensation expense was recorded. Equity
Compensation Plan information for the year ended
December&nbsp;31, 2003 is as follows:
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="36%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number of Securities</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Remaining Available for</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number of Securities</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Future Issuance Under</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">to be Issued upon</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Weighted-average</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Equity Compensation</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercise of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercise Prices of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Plans (Excluding</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Outstanding Options,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Outstanding Options,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Securities Reflected in</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Warrants and Rights</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Warrants and Rights</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Column (a))</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Plan Category</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(a)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(b)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(c)</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Equity Compensation Plans Approved by Security
    Holders
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,942</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.29</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,217</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Equity Compensation Plans Not Approved by
    Security Holders
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,942</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.29</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,217</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">13.&nbsp;</FONT></B></TD>
    <TD>
    <B><FONT size="2">Litigation</FONT></B></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In August 1998, The Intimate Bookshop, Inc. and
its owner, Wallace Kuralt, filed a lawsuit in the United States
District Court for the Southern District of New&nbsp;York
against a predecessor of the Company, Barnes&nbsp;&#38; Noble,
Borders Group, Inc. and others, alleging violation of the
Robinson-Patman Act and other federal law, New&nbsp;York
statutes governing trade practices and common law. In March
2000, a Second Amended Complaint was served on the Company and
other defendants alleging a single cause of action for
violations of the Robinson-Patman Act. The Second Amended
Complaint claims that The Intimate Bookshop, Inc. has suffered
damages of $11,250 or more and requests treble damages, costs,
attorneys&#146; fees and interest, as well as declaratory and
injunctive relief prohibiting the defendants from violating the
Robinson-Patman Act. The Company served an Answer in April 2000
denying the material allegations of the Second Amended Complaint
and asserting various affirmative defenses. On January&nbsp;11,
2002, the Company and the other defendants filed a motion for
summary judgment. A hearing on that motion was held on
March&nbsp;22, 2002. On September&nbsp;30, 2003, the court
granted defendants&#146; motion and dismissed all of
plaintiff&#146;s claims. Plaintiff filed a notice of appeal of
that decision, which was withdrawn on February&nbsp;10, 2004.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">There is a class action lawsuit entitled <I>In Re
Initial Public Offering Securities Litigation </I>pending since
April 2002 in the United States District Court for the Southern
District of New&nbsp;York (the &#147;Action&#148;). The Action
named over one thousand individuals and 300&nbsp;corporations,
including Fatbrain (a Company subsidiary) and its former
officers and directors. The Amended Complaints in the Action all
allege that the initial public offering registration statements
filed by the defendant issuers with the Securities and Exchange
Commission, including the one filed by Fatbrain, were false and
misleading because they failed to disclose that the defendant
underwriters were receiving excess compensation in the form of
profit sharing with certain of its customers and that some of
those customers agreed to buy additional shares of the defendant
issuers&#146; common stock in the after market at increasing
prices. The Amended Complaints also allege that the foregoing
constitute violations of: (i)&nbsp;Section&nbsp;11 of the
Securities Act of 1933, as amended (the
&#147;1933&nbsp;Act&#148;) by the defendant issuers, the
directors and officers signing the related registration
statements, and the related underwriters;
(ii)&nbsp;Rule&nbsp;10b-5 promulgated under the Securities
Exchange Act of 1934 (the &#147;1934&nbsp;Act&#148;) by the same
parties; and (iii)&nbsp;the control person provisions of the
1933 and 1934&nbsp;Acts by certain directors and officers of the
defendant issuers. A motion to dismiss by the defendant issuers,
including Fatbrain, was denied. After extensive negotiations
among representatives of plaintiffs and defendants, a memorandum
of understanding (&#147;MOU&#148;), outlining a proposed
settlement resolving the claims in the Action between plaintiffs
and the defendant issuers, has been entered into. A draft
settlement agreement has been prepared and circulated among the
defendants and plaintiffs in the action, the terms of which are
consistent with the MOU and which,
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-43
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="center">
<B><FONT size="2">barnesandnoble.com inc.</FONT></B>
</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<FONT size="2">after execution, will be submitted to the court
for approval. The proposed settlement is not expected to have
any material adverse impact on the Company.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On August&nbsp;16, 2002, B&#38;N.com, along with
17 other defendants, was sued in the United States District
Court for the Eastern District of Texas by Charles E. Hill
Associates for patent infringement of United States Patent Nos.
5,528,490 (the &#147;490&nbsp;Patent&#148;), 5,761,649 and
6,029,142. On November&nbsp;7, 2002, B&#38;N.com and the other
defendants answered and filed counterclaims for a declaratory
judgment of non-infringement, invalidity and unenforceability of
all three patents. On November&nbsp;27, 2002, B&#38;N.com joined
the other defendants in filing a motion to change venue to the
United States District Court for the Southern District of
Indiana, where an earlier filed case against Compuserve, one of
the defendants in the Texas case, was pending involving only the
490 Patent. On January&nbsp;23, 2003, the court granted the
motion to transfer and the transferred case was assigned to
Judge McKinney in Indianapolis. On November&nbsp;24, 2003, the
Indiana court dismissed the case which Hill had filed against
Compuserve alone (Cause no. IP97-0434-C-M/ S, Indiana) with
prejudice based on the filing of a covenant not to sue by Hill.
Consequently, on November&nbsp;25, 2003, the Indiana court
granted Hill&#146;s motion to retransfer the case back to the
U.S.&nbsp;District Court for the Eastern District of Texas.
Compuserve has appealed the dismissal with prejudice and made a
motion to stay the retransfer pending the outcome of the appeal,
which motion was denied. The retransferred case has been
reassigned to Judge Ward in the Eastern District of Texas.
B&#38;N.com intends to vigorously defend this action.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On November&nbsp;19, 2002, Half Price Books,
Records, Magazine, Inc. filed a complaint against B&#38;N.com in
the United States District Court for the Northern District of
Texas. The complaint alleges trademark infringement and related
claims against B&#38;N.com for its use of the term &#147;Half
Price Books&#148; on its Web site. B&#38;N.com has responded to
the complaint denying plaintiff&#146;s claims. The
plaintiff&#146;s motion for preliminary injunction was denied.
B&#38;N.com&#146;s motion for summary judgment for dismissal of
all of plaintiff&#146;s claims is currently pending before the
court. Settlement discussions are occurring through a court
appointed mediator. B&#38;N.com intends to vigorously defend
itself against this action.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Following the November&nbsp;7, 2003 announcement
of Barnes&nbsp;&#38; Noble&#146;s proposal to purchase all of
the outstanding shares of the Company&#146;s common stock at a
price of $2.50&nbsp;per share in cash, fifteen substantially
similar putative class action lawsuits were filed by individual
stockholders of the Company against the Company, the
Company&#146;s directors and Barnes&nbsp;&#38; Noble in the
Delaware Court of Chancery. The complaints in these actions,
which purported to be brought on behalf of all of the
Company&#146;s stockholders excluding the defendants and their
affiliates, generally alleged (i)&nbsp;breaches of fiduciary
duty by Barnes&nbsp;&#38; Noble and the Company&#146;s
directors, (ii)&nbsp;that the consideration offered by
Barnes&nbsp;&#38; Noble was inadequate and constituted unfair
dealing and (iii)&nbsp;that Barnes&nbsp;&#38; Noble, as
controlling stockholder, breached its duty to the Company&#146;s
remaining stockholders by acting to further its own interests at
the expense of the Company&#146;s remaining stockholders. The
complaints sought to enjoin the proposal or, in the alternative,
damages in an unspecified amount and rescission in the event a
merger occurred pursuant to the proposal. The complaints were
eventually consolidated under the caption In re
BarnesandNoble.com, Inc. Shareholders Litigation, Consolidated
Civil Action No.&nbsp;042-N.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On January&nbsp;8, 2004, the parties executed a
Memorandum of Understanding reflecting the parties&#146;
agreement to settle the action. Pursuant to the terms of the
Memorandum of Understanding, the parties agreed in good faith to
execute as soon as practicable a Stipulation of Settlement
providing for, among other things, the release of all claims of
the plaintiffs and other members of the class against defendants
that were or could have been asserted in the action or in any
way arise out of or in connection with the merger. The
Stipulation of Settlement also is to expressly provide that the
defendants in the action deny that they have committed any
violation of law whatsoever and are entering into the
Stipulation of Settlement solely to eliminate the burden,
expense and distraction of further litigation and to permit the
merger to proceed as scheduled.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-44
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="center">
<B><FONT size="2">barnesandnoble.com inc.</FONT></B>
</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The parties subsequently agreed that
plaintiffs&#146; counsel will apply to the court for an award of
attorney&#146;s fees and costs in the amount of $600 and that
defendants will not object to a fee award up to that amount. It
was further agreed that defendants would pay or reimburse the
costs of mailing. The settlement is contingent upon, among other
things, court approval, the merger consideration being
$3.05&nbsp;per share in cash and consummation of the merger.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition to the litigations described above,
the Company and B&#38;N.com are involved in various legal
proceedings incidental to the conduct of their business. The
Company does not believe that any of those legal proceedings
will have a material adverse effect on the financial condition,
results of operations or cash flows of the Company or
B&#38;N.com.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">14.&nbsp;</FONT></B></TD>
    <TD>
    <B><FONT size="2">Related Party Transactions</FONT></B></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B&#38;N.com has entered into agreements with
Barnes&nbsp;&#38; Noble, Bertelsmann and their affiliates. The
Company believes that the transactions and agreements discussed
below (including renewals of any existing agreements) between
B&#38;N.com and its affiliates are at least as favorable to
B&#38;N.com as could be obtained from unaffiliated parties. The
Board of Directors and the Audit Committee must approve in
advance any proposed transaction or agreement with affiliates
and will utilize procedures in evaluating the terms and
provisions of such proposed transaction or agreement as are
appropriate in light of the fiduciary duties of directors under
Delaware law.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B&#38;N.com entered into a Supply Agreement,
dated October&nbsp;31, 1998, as amended, with Barnes&nbsp;&#38;
Noble (the &#147;Supply Agreement&#148;), whereby
Barnes&nbsp;&#38; Noble has agreed to supply inventory to
B&#38;N.com through Barnes&nbsp;&#38; Noble&#146;s distribution
facilities and purchasing departments. Pursuant to the Supply
Agreement, Barnes&nbsp;&#38; Noble charges B&#38;N.com its
actual cost to acquire the inventory plus any incremental
overhead incurred by Barnes&nbsp;&#38; Noble in connection with
providing such merchandise supply services. B&#38;N.com
purchased $114,172, $106,167 and $126,217 from Barnes&nbsp;&#38;
Noble representing 35%, 34% and 45% of its purchases for the
years ended December&nbsp;31, 2003, 2002 and 2001, respectively.
The charges for incremental overhead for the years ended
December&nbsp;31, 2003, 2002 and 2001 were $3,705, $2,519 and
$2,369, respectively.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Under a Services Agreement, dated
October&nbsp;31, 1998, as amended, between B&#38;N.com and
Barnes&nbsp;&#38; Noble (the &#147;Services Agreement&#148;),
B&#38;N.com receives various administrative services from
Barnes&nbsp;&#38; Noble, including, among other things, services
for payroll processing, benefits administration, insurance
(property and casualty, medical, dental and life) and tax
administration. In accordance with the terms of the Services
Agreement, B&#38;N.com reimburses Barnes&nbsp;&#38; Noble in an
amount equal to the third-party expenses it incurs to fund and
provide such services, plus any incremental internal costs.
B&#38;N.com was charged $1,990, $3,491 and $4,144 for such
services during the years ended December&nbsp;31, 2003, 2002 and
2001, respectively.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B&#38;N.com purchased merchandise directly from
Calendar Club, L.L.C. (&#147;Calendar Club&#148;), a company
engaged in the wholesaling and retailing of calendars, in which
Barnes&nbsp;&#38; Noble owns a 73.9% interest.
B&#38;N.com&#146;s purchases from Calendar Club were $1,320,
$1,740 and $1,110 for the years ended December&nbsp;31, 2003,
2002 and 2001, respectively.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B&#38;N.com subleases from Barnes&nbsp;&#38;
Noble approximately one-third of a 300,000&nbsp;square foot
warehouse facility located in New Jersey. B&#38;N.com was
charged by Barnes&nbsp;&#38; Noble $561, $498 and $486 for such
subleased space during the years ended December&nbsp;31, 2003,
2002 and 2001, respectively. The amount paid to
Barnes&nbsp;&#38; Noble by B&#38;N.com approximates the cost per
square foot paid by Barnes&nbsp;&#38; Noble as tenant pursuant
to its lease of the space from an unaffiliated third party.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Since 1999, B&#38;N.com has used AEC One Stop
Group, Inc. (&#147;AEC&#148;) as its main music supplier, and as
one of its suppliers of DVD/video. AEC is among the largest
wholesale distributors of music, videos and DVDs in the United
States. AEC also provides B&#38;N.com with a music, DVD and
video product database. Subsequent to the initial supply
arrangement between AEC and B&#38;N.com, AEC&#146;s parent
corporation was
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-45
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="center">
<B><FONT size="2">barnesandnoble.com inc.</FONT></B>
</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<FONT size="2">acquired by an investor group in which Leonard
Riggio, Chairman of the Board of the Company and B&#38;N.com,
became a minority investor. B&#38;N.com was charged by AEC
$52,257, $40,536 and $29,759 in connection with this agreement
for merchandise purchased during the years ended
December&nbsp;31, 2003, 2002 and 2001, respectively. In
addition, B&#38;N.com was charged by AEC $490, $403 and $279 for
database services during the years ended December&nbsp;31, 2003,
2002 and 2001, respectively. At December&nbsp;31, 2003 and 2002,
$7,939 and $9,008, respectively, remained payable to AEC.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B&#38;N.com licenses the &#147;Barnes&nbsp;&#38;
Noble&#148; name under a royalty-free license agreement, dated
October&nbsp;31, 1998, as amended, between B&#38;N.com and
B&#38;N College (the &#147;License Agreement&#148;), of which
Leonard Riggio is the principal stockholder. Pursuant to the
License Agreement, the Company has been granted an exclusive
license to use the &#147;Barnes&nbsp;&#38; Noble&#148; name and
trademark for the purpose of selling books over the internet
(excluding sales of college textbooks). Under a separate
agreement dated as of January 2001, between the Company and
Textbooks.com, Inc. (&#147;Textbooks.com&#148;), a corporation
owned by Leonard Riggio, B&#38;N.com was granted the right to
sell college textbooks over the Internet using the
&#147;Barnes&nbsp;&#38; Noble&#148; name. Pursuant to this
agreement, B&#38;N.com pays Textbooks.com a royalty on revenues
(net of product returns, applicable sales tax and excluding
shipping and handling) realized by the Company from the sale of
books designated as textbooks. The term of the agreement is for
five years and renews annually for additional one-year periods
unless terminated 12&nbsp;months prior to the end of any given
term. For the years ended December&nbsp;31, 2003, 2002 and 2001,
the Company recorded royalty expense of $3,984, $3,485 and
$5,981, respectively, under the terms of this agreement.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B&#38;N.com has various royalty-free
non-exclusive licenses dated October&nbsp;31, 1998, as amended,
from Barnes&nbsp;&#38; Noble, and Bertelsmann&#146;s Books
Online (&#147;BOL&#148;). B&#38;N.com licenses from
Barnes&nbsp;&#38; Noble the right to use Barnes&nbsp;&#38;
Noble&#146;s database of book bibliographic data as well as
certain software applications. B&#38;N.com licenses from BOL,
the subsidiary through which Bertelsmann conducts its Internet
business, its name and trademark for use in B&#38;N.com&#146;s
operations. Under Technology Sharing License Agreements,
B&#38;N.com was granted a royalty-free license to view, access
and use BOL&#146;s computer technology and systems, and
B&#38;N.com granted BOL a license to view, access and use
B&#38;N.com&#146;s computer technology and systems. All of the
agreements described in this paragraph were terminated as of
September&nbsp;16, 2003.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B&#38;N.com and Barnes&nbsp;&#38; Noble commenced
a marketing program in November 2000, whereby a customer
purchases a subscription to the Barnes&nbsp;&#38; Noble
Membership Program (formerly the &#147;Readers&#146;
Advantage<SUP>TM</SUP> card&#148;) for an annual membership fee
of $25.00 which is non-refundable after the first 30&nbsp;days
of the membership term. With this membership card, customers can
receive discounts of 10% on all Barnes&nbsp;&#38; Noble
purchases and 5% on all B&#38;N.com purchases. B&#38;N.com and
Barnes&nbsp;&#38; Noble have agreed to share the expenses, net
of revenue from the sale of the cards, related to this program
in proportion to the discounts customers receive on purchases
with each company. B&#38;N.com&#146;s share of the card revenue
generated from this program for the years ended
December&nbsp;31, 2003, 2002 and 2001 was $2,691, $1,359 and
$636, respectively.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In 2002, B&#38;N.com entered into an agreement
with Marketing Services (Minnesota) Corp. (&#147;Marketing
Services Corp.&#148;), a wholly owned subsidiary of
Barnes&nbsp;&#38; Noble, for marketing services, which includes
the issuance of gift cards. Under this agreement, B&#38;N.com
has received $10,568 and $2,669 as of December&nbsp;31, 2003 and
2002, respectively from Marketing Services Corp., which
represents reimbursement for purchases made with gift cards in a
Barnes&nbsp;&#38; Noble store and redeemed on the B&#38;N.com
Web site.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B&#38;N.com ships, through its fulfillment
centers, customer orders on behalf of Barnes&nbsp;&#38; Noble to
Barnes&nbsp;&#38; Noble retail stores as well as to
Barnes&nbsp;&#38; Noble customers&#146; homes. B&#38;N.com
charges Barnes&nbsp;&#38; Noble the costs associated with such
shipments plus any incremental overhead incurred by B&#38;N.com
to process these orders. For the years ended December&nbsp;31,
2003, 2002 and 2001, B&#38;N.com recorded $2,357, $1,792 and
$987, respectively, as a reimbursement for shipping and handling
from Barnes&nbsp;&#38; Noble. In addition, during 2001,
B&#38;N.com and Barnes&nbsp;&#38; Noble entered into an
agreement whereby B&#38;N.com receives a commission on all items
ordered by customers at Barnes&nbsp;&#38; Noble stores and
shipped directly to customers&#146;
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-46
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="center">
<B><FONT size="2">barnesandnoble.com inc.</FONT></B>
</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<FONT size="2">homes by B&#38;N.com. Commissions for these sales
were recorded as revenue and amounted to $1,434, $1,280 and $383
for the years ended December&nbsp;31, 2003, 2002 and 2001,
respectively.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Barnes&nbsp;&#38; Noble subleased warehouse space
from B&#38;N.com in Reno, Nevada. B&#38;N.com charged
Barnes&nbsp;&#38; Noble $500 and $1,882 for such subleased space
for the years ended December&nbsp;31, 2002 and 2001,
respectively. Additionally, Barnes&nbsp;&#38; Noble reimbursed
B&#38;N.com $6,186 for fixed assets purchased on behalf of
Barnes&nbsp;&#38; Noble for the Reno warehouse. The equipment
was sold to Barnes&nbsp;&#38; Noble at its original cost. In
January 2002, the Company determined it could not effectively
utilize the full capacity of its Reno, Nevada distribution
center. Accordingly, following Board approval on
January&nbsp;29, 2002, the Company agreed to transfer the Reno
warehouse lease and sell B&#38;N.com&#146;s inventory located in
Reno to Barnes&nbsp;&#38; Noble. Barnes&nbsp;&#38; Noble
purchased the inventory from B&#38;N.com at cost for
approximately $9,877. The Board of Barnes&nbsp;&#38; Noble also
approved Barnes&nbsp;&#38; Noble&#146;s assumption of the lease
obligation and the hiring of all of the employees at the Reno
warehouse. The Reno lease assignment and the transfer of the
operations of the Reno warehouse to Barnes&nbsp;&#38; Noble was
completed in April 2002. In connection with the transfer,
B&#38;N.com agreed to pay one-half of the rent charged for the
facility through December&nbsp;31, 2002. B&#38;N.com paid $943
in relation to these expenses for the year ended
December&nbsp;31, 2002.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In 2000, B&#38;N.com began purchasing new and
used textbooks directly from MBS Textbook Exchange, Inc.
(&#147;MBS&#148;), a corporation majority-owned by Leonard
Riggio and one of the nation&#146;s largest wholesalers of
college textbooks. B&#38;N.com&#146;s total purchases for the
years ended December&nbsp;31, 2003, 2002 and 2001 were $13,829,
$17,223 and $13,206, respectively. In addition, B&#38;N.com
maintains a link on its Web site called &#147;Sell Your
Textbooks&#148; which is hosted by MBS and through which
B&#38;N.com customers are able to sell used books directly to
MBS. B&#38;N.com is paid a commission based on the price paid by
MBS to the consumer. Total commissions received and recorded as
revenue for the years ended December&nbsp;31, 2003, 2002 and
2001 were $75, $58 and $16, respectively.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Under a Strategic Relationship Agreement, dated
as of May&nbsp;1, 2001 (the &#147;Strategic Relationship
Agreement&#148;), between B&#38;N.com and GameStop Corp.
(&#147;GameStop&#148;), a majority-owned subsidiary of
Barnes&nbsp;&#38; Noble, B&#38;N.com&#146;s Web site refers
customers to the GameStop Web site for purchases of video game
hardware, software and accessories and PC entertainment
software. GameStop pays B&#38;N.com a referral fee based on its
net sales revenue from certain eligible purchases made by
customers as a result of the redirection from the B&#38;N.com
Web site. Either party may terminate the Strategic Relationship
Agreement on 60&nbsp;days&#146; notice. Commissions of $8, $65
and $33 were recorded as revenue for the years ended
December&nbsp;31, 2003, 2002 and 2001, respectively, under this
agreement.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B&#38;N.com has an approximate 46.8% equity stake
in enews, a company previously engaged in selling magazine
subscriptions on the Internet, and accounted for this investment
under the equity method. Substantially all of the balance of the
shares are owned by Barnes&nbsp;&#38; Noble. In July 2002, the
Board of Directors and stockholders of enews approved the
Liquidation Plan. As of December&nbsp;31, 2003, the
implementation of the Liquidation Plan had been substantially
completed and was concluded by February&nbsp;29, 2004. Prior to
the implementation of the Liquidation Plan, B&#38;N.com
fulfilled a majority of orders for magazine subscriptions
through enews and recorded a commission on these sales.
B&#38;N.com recorded commissions of $909 and $590 for the years
ended December&nbsp;31, 2002 and 2001, respectively, and was
reimbursed $488, $524 and $295, respectively, for expenses
incurred on behalf of enews for the years ended
December&nbsp;31, 2003, 2002 and 2001.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At December&nbsp;31, 2003 and 2002, $71,957 and
$48,261, respectively, remained payable to Barnes&nbsp;&#38;
Noble in connection with the transactions described above.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In July 2003, Barnes&nbsp;&#38; Noble announced
that it reached an agreement with DirectGroup Bertelsmann, the
direct-to-customer division of German-based media company
Bertelsmann, to acquire all of Bertelsmann&#146;s
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-47
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="center">
<B><FONT size="2">barnesandnoble.com inc.</FONT></B>
</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<FONT size="2">interest in B&#38;N.com for $164,000 in a
combination of cash and notes, equivalent to $2.80&nbsp;per
share or Membership Unit. The transaction closed on
September&nbsp;15, 2003.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Michael N. Rosen, a director and Secretary of the
Company, is also a member of Bryan Cave LLP, outside counsel to
the Company and B&#38;N.com.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">15.&nbsp;</FONT></B></TD>
    <TD>
    <B><FONT size="2">Quarterly Financial Data (Unaudited)</FONT></B></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following tables set forth, for the periods
indicated, selected unaudited financial data.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="42%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">Three Months Ended</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">September&nbsp;30,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;30,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">March&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net sales
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">133,382</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">98,993</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">86,476</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">105,964</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gross profit
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32,670</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,305</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,217</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,996</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,405</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,069</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,551</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,321</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Basic net loss per common share(1)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.03</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.08</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.09</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.08</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Weighted average shares
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">42,527</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,247</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">39,772</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">43,802</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="42%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">Three Months Ended</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">September&nbsp;30,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;30,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">March&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net sales
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">127,880</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">102,575</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">85,837</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">106,535</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gross profit
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,657</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,578</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,172</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,162</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,968</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,815</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,686</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,663</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Basic net loss per common share(1)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.09</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.11</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.13</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.13</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Weighted average shares
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">43,790</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">43,788</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">43,788</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">43,787</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="42%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">Three Months Ended</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">September&nbsp;30,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;30,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">March&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net sales
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">115,037</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">96,838</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">83,684</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">109,041</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gross profit
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,438</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,181</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,489</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,127</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(35,251</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)(2)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(10,558</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(10,590</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(10,987</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Basic net loss per common share(1)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.81</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.24</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.24</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.25</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Weighted average shares
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">43,787</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">43,787</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">43,787</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">43,787</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Assumed conversion of Membership Units or
    exercises of stock options are not included, as it does not
    result in dilution.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes impairment and other special charges of
    $88,213 for the three months ended December&nbsp;31, 2001.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

</TABLE>

<P align="center"><FONT size="2">E-48
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<A name='113'></A>
</DIV>

<!-- link1 "Item 9. Changes in and Disagreements With Accountants on Accounting and Disclosure" -->

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="8%"></TD>
    <TD width="92%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Item&nbsp;9.<I>&nbsp;</I></FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Changes in and Disagreements With
    Accountants on Accounting and Disclosure</FONT></I></B></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">None.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left">
<A name='114'></A>
</DIV>

<!-- link1 "Item 9A. Controls and Procedures" -->

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Item&nbsp;9A.<I>&nbsp;</I></FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Controls and Procedures</FONT></I></B></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Disclosure Controls and
Procedures.</FONT></I><FONT size="2"> The Company&#146;s
management, with the participation of the Company&#146;s Chief
Executive Officer and Chief Financial Officer, has evaluated the
effectiveness of the Company&#146;s disclosure controls and
procedures (as such term is defined in Rules&nbsp;13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended
(the &#147;Exchange Act&#148;)) as of the end of the period
covered by this report. Based on such evaluation, the
Company&#146;s Chief Executive Officer and Chief Financial
Officer have concluded that, as of the end of such period, the
Company&#146;s disclosure controls and procedures are effective.
Notwithstanding the foregoing, a control system, no matter how
well designed and operated, can provide only reasonable, not
absolute, assurance that it will detect or uncover failures
within the Company to disclose material information otherwise
required to be set forth in the Company&#146;s periodic reports.
The financial statements filed for the year ended
December&nbsp;31, 2003 were restated to reflect the application
of push down accounting resulting from the acquisition by
Barnes&nbsp;&#38; Noble of Bertelsmann&#146;s interest in the
Company and B&#38;N.com in September 2003. The Form&nbsp;10-K
filed March&nbsp;15, 2004 did not include the effects of push
down accounting on the Company&#146;s financial statements due
to the significant 25.3% equity interest in B&#38;N.com still
owned by the Company which the Company believed was significant
enough to not require the application of push down accounting.
Upon review, it has been determined that based on
Barnes&nbsp;&#38; Noble&#146;s 96.6% voting interest in the
Company, push down accounting is appropriate. In
management&#146;s opinion, given the interpretive nature of the
restatement, such restatement did not change its conclusion that
the Company&#146;s controls and procedures are effective.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Internal Control Over Financial
Reporting.</FONT></I><FONT size="2"> There have not been any
changes in the Company&#146;s internal control over financial
reporting (as such term is defined in Rules&nbsp;13a-15(f) and
15d-15(f) under the Exchange Act) during the fourth quarter of
2003 that have materially affected, or are reasonably likely to
materially affect, the Company&#146;s internal control over
financial reporting.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left">
<A name='115'></A>
</DIV>

<!-- link1 "PART III" -->

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">PART&nbsp;III</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left">
<A name='116'></A>
</DIV>

<!-- link1 "Item 10. Directors and Executive Officers of the Registrant" -->

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Item&nbsp;10.<I>&nbsp;</I></FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Directors and Executive Officers of the
    Registrant</FONT></I></B></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="45%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="45%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Name</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Age</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Position</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Leonard Riggio(1)(3)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">63</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Chairman of the Board
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Stephen Riggio(1)(4)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">49</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Vice Chairman
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Marie J. Toulantis
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">50</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Chief Executive Officer
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Kevin M. Frain
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">42</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Chief Financial Officer and Vice President,
    Operations
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">David C. Willen
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">48</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Chief Technology Officer
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">David Gitow
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">43</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Vice President, Chief Marketing Officer
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Daniel A. Blackman
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Vice President and General Manager, Books,
    Music&nbsp;&#38; Video
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Michael N. Rosen(1)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">63</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Secretary and Director
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Jan-Michiel Hessels(2)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">61</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Director
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Patricia Higgins(5)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">53</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Director
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">William F. Reilly(3)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">65</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Director
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Class&nbsp;B Director.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Class&nbsp;A Director and member of the Audit
    Committee and the Compensation Committee.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD><FONT size="2">(3)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Member of the Special Committee, the Executive
    Committee and the Nominating Committee.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

</TABLE>

<P align="center"><FONT size="2">E-49
</FONT>

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<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD><FONT size="2">(4)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Member of the Executive Committee.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD><FONT size="2">(5)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Class&nbsp;A Director and a member of the Audit
    Committee.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Mr.&nbsp;Leonard Riggio, a Class&nbsp;B Director,
has been Chairman of the Board of the Company and B&#38;N.com
since inception. Mr.&nbsp;Riggio is the founder of
Barnes&nbsp;&#38; Noble and has been Chairman of the Board and a
principal stockholder of Barnes&nbsp;&#38; Noble since its
inception in 1986, and was Chief Executive Officer of
Barnes&nbsp;&#38; Noble from inception through February 2002.
Since 1965 Mr.&nbsp;Riggio has been Chairman of the Board, Chief
Executive Officer and the principal stockholder of
Barnes&nbsp;&#38; Noble College Bookstores, Inc. (&#147;B&#38;N
College&#148;), one of the nation&#146;s largest operators of
college bookstores. Since 1985, Mr.&nbsp;Riggio has been the
Chairman of the Board and a principal beneficial owner of MBS
Textbook Exchange, Inc. (&#147;MBS&#148;), one of the
nation&#146;s largest wholesalers of college textbooks.
Mr.&nbsp;Riggio is also a director of GameStop Corp.
(&#147;GameStop&#148;), the nation&#146;s largest specialty
retailer of video games and a majority-owned subsidiary of
Barnes&nbsp;&#38; Noble. Mr.&nbsp;Leonard Riggio is the brother
of Mr.&nbsp;Stephen Riggio.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Mr.&nbsp;Stephen Riggio, a Class&nbsp;B Director,
has been a director of the Company and B&#38;N.com since
inception and Vice Chairman since January 2000. From January
2000 to February 2002, Mr.&nbsp;Riggio was also Acting Chief
Executive Officer of the Company and B&#38;N.com, a position he
previously held at B&#38;N.com from inception to December 1998.
Mr.&nbsp;Riggio has been a director of Barnes&nbsp;&#38; Noble
since September 1993, Vice Chairman of Barnes&nbsp;&#38; Noble
since December 1997 and was named Chief Executive Officer in
February 2002. Mr.&nbsp;Riggio was Chief Operating Officer of
Barnes&nbsp;&#38; Noble from February 1995 until December 1997.
Mr.&nbsp;Riggio is also a director of iUniverse, The National
Book Foundation, The National Down&#146;s Syndrome Society and
The Association for the Help of Retarded Children.
Mr.&nbsp;Stephen Riggio is the brother of Mr.&nbsp;Leonard
Riggio.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Ms.&nbsp;Marie J. Toulantis has been Chief
Executive Officer of the Company and B&#38;N.com since February
2002. Ms.&nbsp;Toulantis was President and Chief Operating
Officer of the Company and B&#38;N.com from May 2001 through
February 2002. Prior to that, Ms.&nbsp;Toulantis was Chief
Financial Officer of the Company and B&#38;N.com from May 1999
through May 2001. From March 1999 through May 1999
Ms.&nbsp;Toulantis was Chief Financial Officer of
Barnes&nbsp;&#38; Noble and from July 1997 through May 1999
Ms.&nbsp;Toulantis was Executive Vice President, Finance of
Barnes&nbsp;&#38; Noble. Ms.&nbsp;Toulantis has served on the
board of directors of Hershey Food Corporation since April 2003.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Mr.&nbsp;Kevin M. Frain has been Chief Financial
Officer and Vice President, Operations of the Company and
B&#38;N.com since February 2002. Mr.&nbsp;Frain is responsible
for all of the finance, distribution, order fulfillment and
customer service functions. From May 2001 through February 2002,
Mr.&nbsp;Frain was Vice President, Finance of the Company and
B&#38;N.com. Prior to that Mr.&nbsp;Frain was the Treasurer of
the Company and B&#38;N.com from April 2000 to May 2001. From
January 1999 to April 2000, Mr.&nbsp;Frain was Director of
Finance of the Company&nbsp;&#38; B&#38;N.com.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Mr.&nbsp;David C. Willen has been Chief
Technology Officer of the Company and B&#38;N.com since May
2002. Mr.&nbsp;Willen is responsible for all aspects of systems
and technology. Mr.&nbsp;Willen was Chief Software Architect of
the Company and B&#38;N.com from October 2001 through May 2002.
Mr.&nbsp;Willen was Chief Technology Officer of TheStreet.com, a
multimedia provider of financial commentary, analysis and news,
from January 2000 to October 2001. Mr.&nbsp;Willen developed
technology solutions for Bloomberg, L.P. from January 1999 to
January 2000.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Mr.&nbsp;David Gitow has been Vice President,
Chief Marketing Officer of the Company and B&#38;N.com since
October 2001. Mr.&nbsp;Gitow is responsible for all partner and
customer marketing and all marketing analysis and research.
Mr.&nbsp;Gitow served as Chief Marketing Officer of enews from
June 1999 through October 2001. Prior to joining enews,
Mr.&nbsp;Gitow was with Time Warner Inc. for 13&nbsp;years in a
variety of positions culminating in his founding and serving as
President of Time Inc. Home Entertainment.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Mr.&nbsp;Daniel A. Blackman has been Vice
President and General Manager, Books, Music&nbsp;&#38; Video of
the Company and B&#38;N.com since July 2002. Mr.&nbsp;Blackman
is responsible for merchandising of consumer books, music and
DVD/ video products. From October 2001 to July 2002,
Mr.&nbsp;Blackman was Vice President, Books, Music&nbsp;&#38;
Video of the Company and B&#38;N.com. From February 2000 to
October 2001, Mr.&nbsp;Blackman was
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-50
</FONT>

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<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left">
<FONT size="2">Vice President, Music, Video&nbsp;&#38; Software
of the Company and B&#38;N.com. From July 1998 to February 2000,
Mr.&nbsp;Blackman was Director of Music&nbsp;&#38; Video of the
Company and B&#38;N.com.
</FONT>
</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Mr.&nbsp;Michael N. Rosen, a Class&nbsp;B
Director, has been Secretary and a director of the Company since
inception. Mr.&nbsp;Rosen has been the Chairman of the
New&nbsp;York office of Bryan Cave LLP since their July 2002
combination with Robinson Silverman Pearce Aronsohn and Berman
LLP (&#147;Robinson Silverman&#148;), counsel to the Company and
B&#38;N.com. Prior to that, Mr.&nbsp;Rosen was Chairman of
Robinson Silverman for more than the past five years.
Mr.&nbsp;Rosen is also a director of Barnes&nbsp;&#38; Noble,
B&#38;N College, MBS and GameStop.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Mr.&nbsp;Jan-Michiel Hessels, a Class&nbsp;A
Director, has been a director of the Company since August 1999.
Mr.&nbsp;Hessels was the Chief Executive Officer of Royal Vendex
KBB N.V. (&#147;Vendex&#148;) from 1990 until June 2000. Vendex
is a multi-billion dollar Netherlands-based corporation with
international retailing operations. Mr.&nbsp;Hessels is also a
director of Schiphol Airport, Royal Vopak N.V., Royal Philips
Electronics N.V., Euronext N.V., Fortis N.V. and Heineken N.V.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Ms.&nbsp;Patricia Higgins, a Class&nbsp;A
Director, has been a director of the Company since July 2000.
Ms.&nbsp;Higgins was President and Chief Executive Officer from
September 2000 to February 2004, and currently is a director, of
Switch and Data Facilities Inc., an international operator of
convergent computer network centers. Ms.&nbsp;Higgins was Vice
President and Chief Information Officer of Alcoa Inc. from
January 1997 to April 1999.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Mr.&nbsp;William F. Reilly, a Class&nbsp;A
Director, has been a director of the Company since August 1999.
Mr.&nbsp;Reilly has been Chief Executive Officer of Aurelian
Communications, a special interest publisher, since he founded
it in February 2002. Mr.&nbsp;Reilly served as Chairman and
Chief Executive Officer of Primedia Inc., a specialty media
company, from February 1990 to 1999. Mr.&nbsp;Reilly is a member
of the Board of Directors of FMC Corporation. Mr.&nbsp;Reilly
serves on the Board of Trustees of the University of Notre Dame.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Audit Committee.</FONT></I><FONT size="2"> The
Company has a separately designated Audit Committee. The current
members of the Audit Committee are Mr.&nbsp;William F. Reilly,
Mr.&nbsp;Jan-Michiel Hessels and Ms.&nbsp;Patricia Higgins. Each
member of the Audit Committee meets the independence standards
of the NASDAQ and the SEC. The Board of Directors has deferred
making any determination with respect to the designation of an
&#147;audit committee financial expert&#148; as defined by
regulations promulgated by the SEC, pending the outcome of the
Company&#146;s contemplated merger with a subsidiary of
Barnes&nbsp;&#38; Noble.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Code of Ethics.</FONT></I><FONT size="2"> The
Board of Directors has deferred finalizing a Code of Ethics
applicable to the Company&#146;s Senior Financial Officers,
pending the outcome of the Company&#146;s contemplated merger
with a subsidiary of Barnes&nbsp;&#38; Noble.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<B><FONT size="2">Section&nbsp;16(a) Beneficial Ownership
Reporting Compliance</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;16(a) of the Securities Exchange Act
of 1934, as amended, requires the Company&#146;s directors and
executive officers, and persons who own more than 10% of a
registered class of the Company&#146;s securities, to file with
the SEC initial reports of ownership and reports of changes in
ownership of common stock and other equity securities of the
Company. Executive officers, directors and greater-than-10%
stockholders are required by SEC regulation to furnish the
Company with copies of all Section&nbsp;16(a) forms they file.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">To the Company&#146;s knowledge, based solely on
a review of the copies of such reports furnished to the Company
and written representations that no other reports were required,
the Company believes that during the year ended
December&nbsp;31, 2003 its executive officers, directors and
greater-than-10% stockholders complied with all
Section&nbsp;16(a) filing requirements.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-51
</FONT>

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<DIV align="left">
<A name='117'></A>
</DIV>

<!-- link1 "Item 11. Executive Compensation" -->

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Item&nbsp;11.<I>&nbsp;</I></FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Executive Compensation</FONT></I></B></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The salaries and other compensation (other than
long-term compensation) of the executive officers of the Company
are paid by B&#38;N.com. The following table summarizes the
compensation paid or accrued by the Company and B&#38;N.com for
the year ended December&nbsp;31, 2003 for the services rendered
to the Company and B&#38;N.com, to the Chief Executive Officer
and the four other most highly compensated executive officers
(collectively, the &#147;Named Executive Officers&#148;).
Leonard Riggio, the Company&#146;s Chairman and Stephen Riggio,
the Company&#146;s Vice Chairman, receive no salary or other
cash compensation from the Company or B&#38;N.com.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">Summary Compensation Table</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="39%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Long-term</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Annual Compensation</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Compensation</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Securities</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Underlying</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">All Other</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="center" nowrap><B><FONT size="1">Name and Principal Position</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Year</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Salary</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Bonus</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Options</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Compensation(1)</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Marie J. Toulantis
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">596,153</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">273,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,288</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Chief Executive Officer
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2002</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">485,577</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">325,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">500,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,288</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2001</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">350,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">113,750</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,000,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,088</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">David C. Willen
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">293,269</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">63,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,488</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Chief Technology Officer
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2002</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">261,538</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">94,875</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">350,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">283</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2001</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41,538</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">80,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Kevin M. Frain
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">225,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47,250</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,259</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Chief Financial Officer and
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2002</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">212,981</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">87,625</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">300,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,243</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Vice President, Operations
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2001</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">167,308</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41,875</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">75,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,992</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">David Gitow
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">262,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">42,650</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">200,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,116</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Vice President,
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2002</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">212,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">70,200</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">94,281</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(2)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Chief Marketing Officer
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2001</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41,538</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">200,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">38</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Daniel A. Blackman
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">225,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47,250</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,371</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Vice President and General Manager,
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2002</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">210,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">87,625</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">200,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,082</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Books, Music&nbsp;&#38; Video
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2001</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">181,354</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,250</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,008</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Except as otherwise indicated in Note&nbsp;2
    below, these amounts represent payments made by the Company for
    life insurance premiums and for contributions to the respective
    Named Executive Officers&#146; accounts under the Company&#146;s
    401(k) Savings Plan.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Of this amount, $87,750 represents contractual
    forgiveness of a loan from the Company to Mr.&nbsp;Gitow.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

</TABLE>

<P align="center"><FONT size="2">E-52
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<B><FONT size="2">Option Grants in 2003</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table sets forth certain
information with respect to stock grants to the Named Executive
Officers during the year ended December&nbsp;31, 2003.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">Option Grants in Last Fiscal Year</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="33%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">Individual Grants(1)</FONT></B></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Potential Realizable</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">% of Total</FONT></B></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Value at Assumed Annual</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Options</FONT></B></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Rates of Stock Price</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Securities</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Granted to</FONT></B></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Appreciation for</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Underlying</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Employees</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercise</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Option&nbsp;Term(2)</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Options</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">in Fiscal</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Price per</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Expiration</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Name</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Granted</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Year</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Share</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Date</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">5.0%</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">10.0%</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Marie J. Toulantis
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">David C. Willen
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.13</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.29</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3/23/2010</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">52,516</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">122,385</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Kevin M. Frain
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.03</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.29</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3/23/2010</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,129</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,596</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">David Gitow
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">200,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8.26</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.29</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3/23/2010</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">105,032</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">244,769</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Daniel A. Blackman
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.13</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.29</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3/23/2010</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">52,516</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">122,385</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">All options were granted with an exercise price
    equal to or above the fair market value of the Common Stock at
    the date of grant.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">In accordance with the rules of the SEC, the
    amounts shown on this table reflect hypothetical gains that
    could be achieved for the respective options if exercised at the
    end of the option term. These gains are based on assumed rates
    of stock appreciation of 5.0% and 10.0%, compounded annually
    from the date the respective options were granted to their
    expiration date. The gains shown are net of the option exercise
    price, but do not include deductions for taxes or other expenses
    associated with the exercise. Actual gains, if any, on stock
    option exercises will depend on the future performance of the
    Common Stock and the date on which the options are exercised.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<B><FONT size="2">Options Exercised in 2003 and Fiscal Year-End
Option Values</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table sets forth certain
information with respect to the value of options held by the
Named Executive Officers at December&nbsp;31, 2003.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">Aggregated Option Exercises in 2003 and Fiscal
Year-End Option Values</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="28%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Number of Securities</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Value of Unexercised</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Underlying Unexercised</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">In-the-Money Options</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Options at December&nbsp;31, 2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">at December&nbsp;31, 2003(1)</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Acquired on</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Value</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Name</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercise</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Realized</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercisable</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Unexercisable</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercisable</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Unexercisable</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Marie J. Toulantis
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,400,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,312,400</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">David C. Willen
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">450,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">705,465</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Kevin M. Frain
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">462,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">709,340</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">David Gitow
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">400,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">754,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Daniel A. Blackman
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">66,666</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">80,933</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">420,084</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">578,728</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Based on the closing price of the Class&nbsp;A
    Common Stock on December&nbsp;31, 2003 ($2.93&nbsp;per share),
    less the option exercise price, multiplied by the number of
    shares exercisable or unexercisable.
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-53
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><FONT size="2">Employees&#146; Retirement Plan</FONT></B></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As of June&nbsp;30, 2000, substantially all
employees of the Company were covered under the Company&#146;s
Employees&#146; Retirement Plan (the &#147;Retirement
Plan&#148;). The Retirement Plan is a defined benefit pension
plan. As of July&nbsp;1, 2000, the Retirement Plan was amended
so that employees no longer earn benefits for subsequent
service. Subsequent service continues to be the basis for
vesting of benefits not yet vested at June&nbsp;30, 2000 and the
Retirement Plan will continue to hold assets and pay benefits.
The amendment was treated as a curtailment in fiscal 2000.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A participant&#146;s annual benefit was
determined for an employee, including an officer, generally as
(i)&nbsp;0.7% of the participant&#146;s average annual pay as
determined in accordance with the Retirement Plan up to Social
Security-covered compensation, multiplied by the
participant&#146;s years of credited service, plus
(ii)&nbsp;1.3% of the participant&#146;s average annual pay as
determined in accordance with the Retirement Plan in excess of
Social Security-covered compensation, multiplied by the
participant&#146;s years of credited service. A
participant&#146;s maximum benefit is limited pursuant to
Section&nbsp;415 of the Internal Revenue Code of 1986, as
amended (the &#147;Code&#148;) to $130,000 for 1999, indexed
annually. Compensation recognized was limited to $170,000 in
2000.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Credited years of service under the Retirement
Plan as of June&nbsp;30, 2000 for the Named Executive Officers
are: Marie J. Toulantis&nbsp;&#151;&nbsp;2, David C.
Willen&nbsp;&#151;&nbsp;0, Kevin M. Frain&nbsp;&#151;&nbsp;2,
David Gitow&nbsp;&#151;&nbsp;0 and Daniel A.
Blackman&nbsp;&#151;&nbsp;3.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table illustrates the maximum
annual amounts payable at age&nbsp;65 under the Retirement Plan,
based on various levels of highest average annual salary and
years of credited service:
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="50%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">Years of Credited Service</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Assumed Highest Average Salary</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">15</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">20</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">25</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">30</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">35</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">$100,000
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,260</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,680</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,100</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32,520</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37,940</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">$125,000
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,135</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28,180</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,225</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">42,270</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">49,315</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">$150,000
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,010</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,680</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">43,350</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">52,020</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">60,690</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">$170,000 and above(1)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29,910</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">39,880</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">49,850</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">59,820</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">69,790</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">The benefits shown corresponding to this
    compensation reflect the compensation limit under
    Section&nbsp;401(a)(17) of the Code. A participant&#146;s
    compensation in excess of $150,000 (as adjusted to reflect
    cost-of-living increases) is disregarded for purposes of
    determining highest average earnings in plan years beginning in
    1994 through 1996; a participant&#146;s compensation in excess
    of $160,000 (as adjusted to reflect cost-of-living increases) is
    disregarded for purposes of determining highest average earnings
    in plan years beginning in 1997 through 1999 and $170,000 in
    plan years beginning in 2000. Benefits accrued as of the last
    day of the plan year beginning in 1993 on the basis of
    compensation in excess of $150,000 are preserved.
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><FONT size="2">Compensation of Directors</FONT></B></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">All directors at the time of the Company&#146;s
Initial Public Offering of Class&nbsp;A Common Stock (the
&#147;Offering&#148;), other than Leonard Riggio and Stephen
Riggio, received options to purchase&nbsp;40,000&nbsp;shares of
Class&nbsp;A Common Stock at a per share exercise price equal to
the per share Offering price. Such options vested in four equal
annual installments on the first through fourth anniversary of
the completion of the Offering. Directors taking office after
the Offering received options to
purchase&nbsp;40,000&nbsp;shares of Class&nbsp;A Common Stock at
an exercise price equal to the market price on such date, with
such options vesting in four equal annual installments on the
first through fourth anniversaries of the date of grant.
Directors who are not employees of the Company, B&#38;N.com,
Barnes&nbsp;&#38; Noble or Bertelsmann receive an annual fee of
$40,000 plus a fee of $2,500 for each committee meeting
attended. In addition, members of the Special Committee formed
in connection with the proposed merger with Barnes&nbsp;&#38;
Noble each receive a one-time fee of $75,000. Furthermore, all
directors are reimbursed for certain expenses in connection with
attendance at Board of Directors and committee meetings, and
Special Committee members are reimbursed for all expenses in
connection with such service. Other than with respect to
reimbursement of expenses, directors who are
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-54
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left">
<FONT size="2">employees or officers of the Company or
B&#38;N.com do not receive additional compensation for their
services as directors.
</FONT>
</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<B><FONT size="2">Employment Arrangements</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Ms.&nbsp;Marie J. Toulantis has an employment
agreement (the &#147;Agreement&#148;) for her services as Chief
Executive Officer entered into as of October&nbsp;31, 2002 and
expiring on October&nbsp;31, 2005. The Agreement provides for a
minimum annual salary of $600,000 and an annual bonus in
accordance with the Company&#146;s annual bonus compensation
plan established by the Compensation Committee. The Agreement
also provides for reimbursement for all expenses incurred in the
performance of her duties and responsibilities under the
Agreement, a car allowance, disability insurance and a severance
arrangement. The Agreement also provided for the grant of
options to purchase&nbsp;500,000&nbsp;shares of common stock of
the Company at an exercise price of $1.15&nbsp;per share (the
fair market value at the date of grant).
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<B><FONT size="2">Compensation Committee Interlocks and Insider
Participation</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Compensation Committee consists of William F.
Reilly and Jan-Michiel Hessels, neither of whom is an officer or
employee or former officer or employee of the Company or
B&#38;N.com.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<B><FONT size="2">Compensation Committee Report on Executive
Compensation</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Compensation Committee consists of William F.
Reilly and Jan-Michiel Hessels. The Company offers compensation
packages designed to attract and retain individuals whose skills
are crucial to the long-term success of the Company. The
compensation offered by the Company should reward and motivate
individual and team performance in attaining business objectives
and maximizing stockholder value.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Compensation Committee reviews and approves
the Company&#146;s executive compensation program each year.
This includes a comparison of the Company&#146;s executive
compensation, corporate performance, stock performance and total
return to the stockholders with that of peer companies,
including other e-commerce companies. In addition, the
Compensation Committee considers and reviews the full
compensation package afforded by the Company to its executive
officers, including pension, insurance and other benefits.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The key elements of the Company&#146;s executive
compensation package consist of base salary, bonus and stock
options. The Company&#146;s policies with respect to each of
these elements are discussed below. The Compensation Committee
makes its determinations after receiving and considering the
recommendations of the Company&#146;s Chairman.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Base Salaries.</FONT></I><FONT size="2"> An
executive officer&#146;s base salary is determined primarily on
the basis of the executive officer&#146;s responsibility,
qualification, experience and the competitive marketplace for
executive talent. The base salary is intended to be competitive
with base salaries paid to executive officers with comparable
qualifications, experience and responsibilities at peer
companies.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Performance Bonus.</FONT></I><FONT size="2">
The Company&#146;s management is eligible for a performance
bonus that is based on both the Company&#146;s performance and
the individual&#146;s performance and is contingent on achieving
certain pre-determined targets.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Stock Options.</FONT></I><FONT size="2">
Stockholder grants to executive officers promote success by
aligning employee financial interests with long-term stockholder
value. Additionally, long-term awards offer executive officers
an incentive for the achievement of superior performance over
time and foster the retention of key management personnel.
Annual stock option grants are determined based on various
subjective factors, primarily related to the individual&#146;s
performance and potential to improve stockholder value.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Chief Executive Officer
Compensation.</FONT></I><FONT size="2"> The compensation of the
Company&#146;s Chief Executive Officer is determined pursuant to
the principles noted above. Specific consideration is given to
the Chief Executive Officer&#146;s responsibilities and
experience in the industry and the compensation package awarded
to chief executive officers of peer companies.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-55
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Section&nbsp;162(m) of the Internal Revenue
Code.</FONT></I><FONT size="2"> The Compensation Committee has
considered the potential impact of Section&nbsp;162(m) of the
Code, adopted under the Revenue Reconciliation Act of 1993. This
section disallows a tax deduction for any publicly held
corporation, for individual compensation exceeding $1,000,000 in
any taxable year paid to its Named Executive Officers unless
(i)&nbsp;the compensation is payable solely on account of the
attainment of performance goals, (ii)&nbsp;the performance goals
are determined by a compensation committee of two or more
outside directors, (iii)&nbsp;the material terms under which
compensation is to be paid are disclosed to and approved by
stockholders and (iv)&nbsp;the compensation committee certifies
that the performance goals were&nbsp;met.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Compensation Committee
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">William F. Reilly
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Jan-Michiel Hessels
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

</TABLE>

<P align="center"><FONT size="2">E-56
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">PERFORMANCE GRAPH</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The graph set forth below compares cumulative
total return on the Common Stock of the Company with the
cumulative total return of the NASDAQ Stock Market Index and the
NASDAQ Retail Trade Index, adjusted for stock splits and stock
dividends, resulting from an initial assumed investment of $100
in each for the period beginning on the date of the
Company&#146;s Offering of the Common Stock on May&nbsp;25, 1999
and the years ending December&nbsp;31, 1999, 2000, 2001, 2002
and 2003.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<IMG src="y93480dy9348006.gif" alt="PERFORMANCE GRAPH">

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="12%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="11%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="11%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="11%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="11%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="11%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">barnesandnoble.com inc.</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">NASDAQ Stock Market</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">NASDAQ Retail Trade</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">05/25/99</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">12/31/99</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">78.82</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">171.38</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">96.82</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">12/31/00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7.29</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">103.36</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">59.43</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">12/31/01</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8.56</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">82.04</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">82.13</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">12/31/02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.39</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">56.72</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">69.81</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">12/31/03</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16.28</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">84.80</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">97.20</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left">

</DIV>

<P align="center"><FONT size="2">E-57
</FONT>
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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<A name='118'></A>
</DIV>

<!-- link1 "Item 12. Security Ownership of Certain Beneficial Owners and Management" -->

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Item&nbsp;12.<I>&nbsp;</I></FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Security Ownership of Certain Beneficial
    Owners and Management</FONT></I></B></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Equity Compensation Plan information for the year
ended December&nbsp;31, 2003 is as follows:
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="40%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number of Securities</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Remaining Available</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Securities to be</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">for Future Issuance</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Issued Upon</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Weighted-average</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Under Equity</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercise of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercise Prices of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Compensation Plans</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Outstanding</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Outstanding</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(Excluding Securities</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Options, Warrants</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Options, Warrants</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Reflected in</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">and Rights</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">and Rights</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Column&nbsp;(a))</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Plan Category</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(a)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(b)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(c)</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Equity Compensation Plans Approved by Security
    Holders
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,942</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.29</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,217</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Equity Compensation Plans Not Approved by
    Security Holders
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,942</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.29</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,217</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<B><FONT size="2">Incentive Plan</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">General.</FONT></I><FONT size="2"> The
Company&#146;s 1999 Incentive Plan (the &#147;Incentive
Plan&#148;) provides that options to acquire shares of
Class&nbsp;A Common Stock (&#147;Shares&#148;) may be granted to
key officers, employees, consultants, advisors and directors of
the Company or any of its subsidiaries or affiliates as shall be
selected from time to time by a committee of not fewer than two
directors of the Company, as designated by the Board of
Directors. The purpose of the Incentive Plan is to assist the
Company in attracting and retaining selected individuals to
serve as directors, officers, consultants, advisors and
employees of the Company and B&#38;N.com who will contribute to
the Company&#146;s success and to achieve long-term objectives
that will inure to the benefit of all stockholders of the
Company through the additional incentive inherent in the
ownership of the Common Stock. Awards under the Incentive Plan
may take the form of stock options (&#147;Options&#148;),
including corresponding share appreciation rights
(&#147;SARs&#148;) and reload options, restricted stock awards
and stock purchase awards.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Share Authorization.</FONT></I><FONT size="2">
The maximum number of Shares that may be the subject of awards
under the Incentive Plan is 25,500,000&nbsp;Shares and in any
given year, the maximum number of Shares with respect to which
awards may be granted to any employee is 7,000,000&nbsp;Shares.
Shares covered by any unexercised portions of terminated
Options, Shares forfeited by participants and Shares subject to
any awards that are otherwise surrendered by a participant
without receiving any payment or other benefit with respect
thereto may again be subject to new awards under the Incentive
Plan. In the event the purchase price of the Option is paid in
whole or in part through the delivery of Shares, the number of
Shares issuable in connection with the exercise of the Option
shall not again be available for the grant of awards under the
Incentive Plan. Shares subject to Options, or portions thereof,
with respect to which SARs are exercised, are not again
available for the grant of awards under the Incentive Plan. The
Shares to be issued or delivered under the Incentive Plan are
authorized and unissued Shares, or issued Shares that have been
acquired by the Company, or both.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Incentive Plan
Administration.</FONT></I><FONT size="2"> The Compensation
Committee of the Board of Directors administers the Incentive
Plan. The Compensation Committee is authorized, subject to the
provisions of the Incentive Plan, to establish such rules and
regulations as it may deem appropriate for the conduct of
meetings and proper administration of the Incentive Plan.
Subject to the provisions of the Incentive Plan, the
Compensation Committee shall have authority, in its sole
discretion, to grant awards under the Incentive Plan, to
interpret the provisions of the Incentive Plan and, subject to
the requirements of applicable law, to prescribe, amend, and
rescind rules and regulations relating to the Incentive Plan or
any award thereunder as it may deem necessary or advisable.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Options.</FONT></I><FONT size="2">
&#147;Incentive Stock Options&#148; meeting the requirements of
Section&nbsp;422 of the Code, and &#147;Nonqualified Stock
Options&#148; that do not meet such requirements are both
available for grant under the Incentive Plan. The term of each
Option is determined by the Compensation Committee, but no
Option can be exercisable prior to six months from the date of
grant or more than 10&nbsp;years after the date of grant (except
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-58
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left">
<FONT size="2">in the case of Options that are not Nonqualified
Stock Options, where the Compensation Committee can specify a
longer period). Options may also be subject to restrictions on
exercise, such as exercise in periodic installments, as
determined by the Compensation Committee. In general, the
exercise price for Incentive Stock Options must be at least
equal to 100% of the fair market value of the Shares on the date
of grant and the exercise price for Nonqualified Stock Options
will be determined by the Compensation Committee at the time of
the grant. The exercise price can be paid in cash, or if
approved by the Compensation Committee, by delivery of a
promissory note or tendering Shares owned by the participant.
Options are not transferable except by will or the laws of
descent and distribution and may generally be exercised only by
the participant (or his or her guardian or legal representative)
during his or her lifetime, provided, however, the Nonqualified
Stock Options may, under certain circumstances, be transferable
to family members and trust for the benefit of the participant
or his or her family members.
</FONT>
</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Share Appreciation
Rights.</FONT></I><FONT size="2"> The Incentive Plan provides
SARs may be granted in connection with the grant of Options.
Each SAR must be associated with a specific Option and must be
granted at the time of grant of such Option. A SAR is
exercisable only to the extent the related Option is
exercisable. Upon the exercise of a SAR, the recipient is
entitled to receive from the Company, without the payment of any
cash (except for any applicable withholding taxes), up to, but
no more than, an amount in cash or Shares equal to the excess of
(A)&nbsp;the fair market value of one Share on the date of such
exercise over (B)&nbsp;the exercise price of any related Option,
multiplied by the number of Shares in respect of which such SAR
shall have been exercised. Upon the exercise of a SAR, the
related Option, or the portion thereof in respect of which such
SAR is exercised, will terminate. Upon the exercise of an Option
granted in tandem with a SAR, such tandem SAR will terminate.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Reload Options.</FONT></I><FONT size="2"> The
Compensation Committee may grant, concurrently with the award of
any Option (an &#147;Underlying Option&#148;), a reload option
(a &#147;Reload Option&#148;) to such participant to purchase
for cash or Shares a number of Shares equal to the number of
Shares delivered by the participant to the Company to exercise
the Underlying Option and, to the extent authorized by the
Compensation Committee, the number of Shares used to satisfy tax
withholding obligations. Although an Underlying Option may be an
Incentive Stock Option, a Reload Option is not intended to
qualify as an Incentive Stock Option. A Reload Option has the
same expiration date as the Underlying Option and an exercise
price equal to the fair market value of the Shares on the date
of the Reload Option. A Reload Option is exercisable six months
from the date of grant. A Reload Option permits a participant to
retain the potential Share appreciation in the number of
already-owned Shares that are used to exercise an Underlying
Option. Retention of such potential appreciation is accompanied
by granting options for the number of Shares used to pay the
exercise price of the Underlying Option or the related
tax-withholding obligation. In this way, Reload Options provide
a participant with the opportunity to build up ownership of
Shares covered by an Underlying Option earlier during the Option
term than through a single exercise at or near the end of the
Option term.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Restricted Stock.</FONT></I><FONT size="2">
The Company may award restricted Shares under the Incentive
Plan. Such a grant gives a participant the right to receive
Shares subject to a risk of forfeiture based upon certain
conditions. The forfeiture restrictions on the Shares may be
based upon performance standards, length of service or other
criteria as the Compensation Committee may determine. Until all
restrictions are satisfied, lapsed or waived, the Company will
maintain custody over the restricted Shares but the participant
will be able to vote the Shares and will be entitled to all
distributions paid with respect to the Shares, as provided by
the Compensation Committee. During such restrictive period, the
restricted Shares may not be sold, assigned, transferred,
pledged or otherwise encumbered. Upon termination of employment,
the participant forfeits the right to the Shares to the extent
the applicable performance standards, length of service
requirements, or other measurement criteria have not been met.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Antidilution
Provisions.</FONT></I><FONT size="2"> The number of Shares
authorized to be issued under the Incentive Plan and subject to
outstanding awards (and the grant or exercise price thereof) may
be adjusted to prevent dilution or enlargement of rights in the
event of any dividend or other distribution, recapitalization,
stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase or
exchange of Shares or other securities, the issuance of warrants
or other rights to purchase Shares or other securities, or other
similar capitalization change.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-59
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Change in Control.</FONT></I><FONT size="2">
Upon the occurrence of a change in control of the Company, all
Options and related SARs may become immediately exercisable and
the restricted Shares may fully vest. All options currently
outstanding vest upon a change in control of the Company.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Termination and
Amendment.</FONT></I><FONT size="2"> The Incentive Plan will
terminate by its terms and without any action by the Board of
Directors in 2008. No awards may be made after that date. Awards
outstanding on such termination date will remain valid in
accordance with their terms.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Compensation Committee may amend or alter the
terms of awards under the Incentive Plan, including to provide
for the termination or modifications of the vesting or
performance provisions of the grants of restricted Shares, but
no such action shall in any way impair the rights of a
participant under any award, without such participant&#146;s
consent.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<B><FONT size="2">Deferred Compensation Plan</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B&#38;N.com&#146;s Deferred Compensation Plan is
a non-qualified plan, eligibility for which is limited to
&#147;Eligible Executives,&#148; who include: (i)&nbsp;the
Company&#146;s employees who became B&#38;N.com employees on
November&nbsp;1, 1998 and were eligible to participate in the
Barnes&nbsp;&#38; Noble deferred compensation plan on
October&nbsp;31, 1998; and (ii)&nbsp;the Company&#146;s
employees whose base salary for a calendar year exceeds
$130,000. An Eligible Executive may elect in each year he or she
is an Eligible Executive to defer no less than $5,000 and no
more than 50% of his or her base salary to a Deferral Account.
The Deferral Account of each Eligible Executive who elects to
participate in the Deferred Compensation Plan (a
&#147;Participant&#148;) is credited or debited with investment
earnings or losses based upon the performance of the investment
fund or index selected by the Participant from among
alternatives selected by an Administrative Committee appointed
by the Compensation Committee of the Board of Directors.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A participant is entitled to a distribution of
his or her Deferral Account upon retirement or following
termination of employment, as elected by the Participant, but no
later than the beginning of the year in which the Participant
would attain age&nbsp;70&nbsp;1/2. A Participant may elect
whether to receive the distribution in a lump sum or, at
retirement, in annual installments over not more than fifteen
(15)&nbsp;years.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Amounts payable under the Deferred Compensation
Plan are general unsecured obligations of B&#38;N.com, payable
out of B&#38;N.com&#146;s general assets to the extent not paid
by a grantor trust that the Company may establish. The Company
may amend or terminate the Deferred Compensation Plan at any
time without affecting any of the rights granted prior to
termination.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<B><FONT size="2">Defined Contribution Plan</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B&#38;N.com is a participating employer in a
defined contribution plan (the &#147;401 (k)&nbsp;Savings
Plan&#148;), sponsored by Barnes&nbsp;&#38; Noble, for the
benefit of substantially all of its employees who meet certain
eligibility requirements, primarily age and length of service.
The 401(k) Savings Plan allows employees to invest up to 25%,
not to exceed limits specified in the Internal Revenue Code, of
their current gross cash compensation on a pre-tax basis.
B&#38;N.com&#146;s contributions to the 401(k) Savings Plan are
generally in amounts based upon a certain percentage of the
employees&#146; pre-tax contributions. B&#38;N.com provides
matching contributions to participants in the amount of 100% of
the first 3% of earnings and 50% of the next 2% contributed by
them, which contributions are made consistent with the employees
direction.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<B><FONT size="2">Beneficial Ownership of Shares</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company has three classes of Common Stock,
par value $0.001&nbsp;per share (the &#147;Common Stock&#148;).
Each holder of the Company&#146;s Class&nbsp;A Common Stock is
entitled to one vote per share. Each holder of the
Company&#146;s Class&nbsp;B Common Stock or Class&nbsp;C Common
Stock (collectively &#147;High Vote Stock&#148;) is entitled to
the number of votes per share equal to: 10, multiplied by the
sum of (a)&nbsp;the aggregate number of shares of High Vote
Stock owned by such holder and (b)&nbsp;the aggregate number of
Membership Units in B&#38;N.com owned by such holder.
Barnes&nbsp;&#38; Noble is the beneficial owner of all of the
Company&#146;s outstanding Class&nbsp;B Common Stock and
Class&nbsp;C Common Stock.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-60
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table sets forth certain
information regarding beneficial ownership of the Common Stock
as of March&nbsp;15, 2004 by: (i)&nbsp;each person known by the
Company to own beneficially more than 5% of the outstanding
shares of the Company&#146;s Class&nbsp;A Common Stock;
(ii)&nbsp;each of the Company&#146;s directors; (iii)&nbsp;the
executive officers named in the Summary Compensation Table
contained in &#147;Executive Compensation&#148;; and
(iv)&nbsp;all current executive officers and directors as a
group.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="40%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Percentage of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number of Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Class&nbsp;A</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Percentage of</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="center" nowrap><B><FONT size="1">Name and Address of Beneficial Owner</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Beneficially Owned(1)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Common Stock(2)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Voting Power(2)(3)</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Barnes&nbsp;&#38; Noble, Inc.
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">122 Fifth Avenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">New&nbsp;York, NY 10011
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">119,138,502</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(4)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">72.95</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%(4)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">96.3</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%(4)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Leonard Riggio
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,014,437</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(5)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.17</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Stephen Riggio
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,580,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(6)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.92</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Marie J. Toulantis
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,818,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(7)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7.38</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">David C. Willen
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">450,500</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(8)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Kevin M. Frain
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">462,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(9)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">David Gitow
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">401,500</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(10)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Daniel A. Blackman
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">420,084</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(9)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Michael N. Rosen
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(11)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Jan-Michiel Hessels
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(9)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Patricia Higgins
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(9)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">William F. Reilly
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">90,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(11)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">All current executive officers and directors as a
    group (11&nbsp;persons)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,416,521</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(12)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20.03</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="4%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">*&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Represents less than 1%.
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="4%"></TD>
    <TD width="95%"></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Except as indicated in the notes below, shares of
    Common Stock subject to options that are currently exercisable
    or exercisable within 60&nbsp;days after March&nbsp;15, 2004 are
    deemed to be outstanding and beneficially owned by the person
    holding such options for the purpose of computing the percentage
    ownership of such person but are not treated as outstanding for
    the purpose of computing the percentage ownership of any other
    person.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Excludes 4,158,088&nbsp;shares issued to
    B&#38;N.com in connection with the merger with Fatbrain.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(3)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Represents the percentage of voting power
    resulting from the effect of all outstanding High Vote Stock,
    assuming no conversion of that stock into Class&nbsp;A Common
    Stock.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(4)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Represents shares of High Vote Stock that are
    convertible into, and Membership Units that are exchangeable
    for, shares of Class&nbsp;A Common Stock on a one-for-one-basis
    at any time at the option of the holder thereof, together with
    4,138,500&nbsp;shares of Class&nbsp;A Common Stock, beneficially
    owned by Barnes&nbsp;&#38; Noble through its wholly owned
    subsidiary B&#38;N Holding.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(5)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes 600,000&nbsp;shares each owned by
    B&#38;N College and MBS. Does not include
    119,138,502&nbsp;shares of Class&nbsp;A Common Stock
    beneficially owned by Barnes&nbsp;&#38; Noble. Mr.&nbsp;Riggio
    is Barnes&nbsp;&#38; Noble&#146;s Chairman of the Board and
    principal stockholder. Accordingly, he could be considered to
    beneficially own the shares owned by Barnes&nbsp;&#38; Noble.
    Mr.&nbsp;Riggio disclaims any beneficial ownership of such
    shares.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(6)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes options granted by the Company to
    purchase&nbsp;3,380,000&nbsp;shares of Class&nbsp;A Common Stock.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(7)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes options granted by the Company to
    purchase&nbsp;3,400,000&nbsp;shares of Class&nbsp;A Common Stock.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(8)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes options granted by the Company to
    purchase&nbsp;450,000&nbsp;shares of Class&nbsp;A Common Stock.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(9)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">All of these shares are issuable upon the
    exercise of options granted by the Company.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD><FONT size="2">(10)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes options granted by the Company to
    purchase&nbsp;400,000&nbsp;shares of Class&nbsp;A Common Stock.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD><FONT size="2">(11)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes options granted by the Company to
    purchase&nbsp;40,000&nbsp;shares of Class&nbsp;A Common Stock.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD><FONT size="2">(12)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes options granted by the Company to
    purchase&nbsp;8,672,084&nbsp;shares of Class&nbsp;A Common Stock.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

</TABLE>

<P align="center"><FONT size="2">E-61
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<A name='119'></A>
</DIV>

<!-- link1 "Item 13. Certain Relationships and Related Transactions (in thousands)" -->

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Item&nbsp;13.<I>&nbsp;</I></FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Certain Relationships and Related
    Transactions (in thousands)</FONT></I></B></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B&#38;N.com has entered into agreements with
Barnes&nbsp;&#38; Noble, Bertelsmann and their affiliates. The
Company believes that the transactions and agreements discussed
below (including renewals of any existing agreements) between
B&#38;N.com and its affiliates are at least as favorable to
B&#38;N.com as could be obtained from unaffiliated parties. The
Board of Directors and the Audit Committee must approve in
advance any proposed transaction or agreement with affiliates
and will utilize procedures in evaluating the terms and
provisions of such proposed transaction or agreement as are
appropriate in light of the fiduciary duties of directors under
Delaware law.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B&#38;N.com entered into a Supply Agreement,
dated October&nbsp;31, 1998, as amended, with Barnes&nbsp;&#38;
Noble (the &#147;Supply Agreement&#148;), whereby
Barnes&nbsp;&#38; Noble has agreed to supply inventory to
B&#38;N.com through Barnes&nbsp;&#38; Noble&#146;s distribution
facilities and purchasing departments. Pursuant to the Supply
Agreement, Barnes&nbsp;&#38; Noble charges B&#38;N.com its
actual cost to acquire the inventory plus any incremental
overhead incurred by Barnes&nbsp;&#38; Noble in connection with
providing such merchandise supply services. B&#38;N.com
purchased $114,172, $106,167 and $126,217 from Barnes&nbsp;&#38;
Noble representing 35%, 34% and 45% of its purchases for the
years ended December&nbsp;31, 2003, 2002 and 2001, respectively.
The charges for incremental overhead for the years ended
December&nbsp;31, 2003, 2002 and 2001 were $3,705, $2,519 and
$2,369, respectively.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Under a Services Agreement, dated
October&nbsp;31, 1998, as amended, between B&#38;N.com and
Barnes&nbsp;&#38; Noble (the &#147;Services Agreement&#148;),
B&#38;N.com receives various administrative services from
Barnes&nbsp;&#38; Noble, including, among other things, services
for payroll processing, benefits administration, insurance
(property and casualty, medical, dental and life) and tax
administration. In accordance with the terms of the Services
Agreement, B&#38;N.com reimburses Barnes&nbsp;&#38; Noble in an
amount equal to the third-party expenses it incurs to fund and
provide such services, plus any incremental internal costs.
B&#38;N.com was charged $1,990, $3,491 and $4,144 for such
services during the years ended December&nbsp;31, 2003, 2002 and
2001, respectively.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B&#38;N.com purchased merchandise directly from
Calendar Club, L.L.C. (&#147;Calendar Club&#148;), a company
engaged in the wholesaling and retailing of calendars, in which
Barnes&nbsp;&#38; Noble owns a 73.9% interest.
B&#38;N.com&#146;s purchases from Calendar Club were $1,320,
$1,740 and $1,110 for the years ended December&nbsp;31, 2003,
2002 and 2001, respectively.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B&#38;N.com subleases from Barnes&nbsp;&#38;
Noble approximately one-third of a 300,000&nbsp;square foot
warehouse facility located in New Jersey. B&#38;N.com was
charged by Barnes&nbsp;&#38; Noble $561, $498 and $486 for such
subleased space during the years ended December&nbsp;31, 2003,
2002 and 2001, respectively. The amount paid to
Barnes&nbsp;&#38; Noble by B&#38;N.com approximates the cost per
square foot paid by Barnes&nbsp;&#38; Noble as tenant pursuant
to its lease of the space from an unaffiliated third party.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Since 1999, B&#38;N.com has used AEC One Stop
Group, Inc. (&#147;AEC&#148;) as its main music supplier, and as
one of its suppliers of DVD/ video. AEC is among the largest
wholesale distributors of music, videos and DVDs in the United
States. AEC also provides B&#38;N.com with a music, DVD and
video product database. Subsequent to the initial supply
arrangement between AEC and B&#38;N.com, AEC&#146;s parent
corporation was acquired by an investor group in which Leonard
Riggio, Chairman of the Board of the Company and B&#38;N.com,
became a minority investor. B&#38;N.com was charged by AEC
$52,257, $40,536 and $29,759 in connection with this agreement
for merchandise purchased during the years ended
December&nbsp;31, 2003, 2002 and 2001, respectively. In
addition, B&#38;N.com was charged by AEC $490, $403 and $279 for
database services during the years ended December&nbsp;31, 2003,
2002 and 2001, respectively. At December&nbsp;31, 2003 and 2002,
$7,939 and $9,008, respectively, remained payable to AEC.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B&#38;N.com licenses the &#147;Barnes&nbsp;&#38;
Noble&#148; name under a royalty-free license agreement, dated
October&nbsp;31, 1998, as amended, between B&#38;N.com and
B&#38;N College (the &#147;License Agreement&#148;), of which
Leonard Riggio is the principal stockholder. Pursuant to the
License Agreement, the Company has been granted an exclusive
license to use the &#147;Barnes&nbsp;&#38; Noble&#148; name and
trademark for the purpose of selling books over the internet
(excluding sales of college textbooks). Under a separate
agreement dated as of January 2001, between the Company and
Textbooks.com, Inc. (&#147;Textbooks.com&#148;), a corporation
owned by Leonard Riggio, B&#38;N.com was granted the right to
sell college textbooks over the Internet using the
&#147;Barnes&nbsp;&#38; Noble&#148; name.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-62
</FONT>

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<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left">
<FONT size="2">Pursuant to this agreement, B&#38;N.com pays
Textbooks.com a royalty on revenues (net of product returns,
applicable sales tax and excluding shipping and handling)
realized by the Company from the sale of books designated as
textbooks. The term of the agreement is for five years and
renews annually for additional one-year periods unless
terminated 12&nbsp;months prior to the end of any given term.
For the years ended December&nbsp;31, 2003, 2002 and 2001, the
Company recorded royalty expense of $3,984, $3,485 and $5,981,
respectively, under the terms of this agreement.
</FONT>
</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B&#38;N.com has various royalty-free
non-exclusive licenses dated October&nbsp;31, 1998, as amended,
from Barnes&nbsp;&#38; Noble, and Bertelsmann&#146;s Books
Online (&#147;BOL&#148;). B&#38;N.com licenses from
Barnes&nbsp;&#38; Noble the right to use Barnes&nbsp;&#38;
Noble&#146;s database of book bibliographic data as well as
certain software applications. B&#38;N.com licenses from BOL,
the subsidiary through which Bertelsmann conducts its Internet
business, its name and trademark for use in B&#38;N.com&#146;s
operations. Under Technology Sharing License Agreements,
B&#38;N.com was granted a royalty-free license to view, access
and use BOL&#146;s computer technology and systems, and
B&#38;N.com granted BOL a license to view, access and use
B&#38;N.com&#146;s computer technology and systems. All of the
agreements described in this paragraph were terminated as of
September&nbsp;16, 2003.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B&#38;N.com and Barnes&nbsp;&#38; Noble commenced
a marketing program in November 2000, whereby a customer
purchases a subscription to the Barnes&nbsp;&#38; Noble
Membership Program (formerly the &#147;Readers&#146;
Advantage<SUP>TM</SUP> card&#148;) for an annual membership fee
of $25.00 which is non-refundable after the first 30&nbsp;days
of the membership term. With this membership card, customers can
receive discounts of 10% on all Barnes&nbsp;&#38; Noble
purchases and 5% on all B&#38;N.com purchases. B&#38;N.com and
Barnes&nbsp;&#38; Noble have agreed to share the expenses, net
of revenue from the sale of the cards, related to this program
in proportion to the discounts customers receive on purchases
with each company. B&#38;N.com&#146;s share of the card revenue
generated from this program for the years ended
December&nbsp;31, 2003, 2002 and 2001 was $2,691, $1,359 and
$636, respectively.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In 2002, B&#38;N.com entered into an agreement
with Marketing Services (Minnesota) Corp. (&#147;Marketing
Services Corp.&#148;), a wholly owned subsidiary of
Barnes&nbsp;&#38; Noble, for marketing services, which includes
the issuance of gift cards. Under this agreement, B&#38;N.com
has received $10,568 and $2,669 as of December&nbsp;31, 2003 and
2002, respectively from Marketing Services Corp., which
represents reimbursement for purchases made with gift cards in a
Barnes&nbsp;&#38; Noble store and redeemed on the B&#38;N.com
Web site.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B&#38;N.com ships, through its fulfillment
centers, customer orders on behalf of Barnes&nbsp;&#38; Noble to
Barnes&nbsp;&#38; Noble retail stores as well as to
Barnes&nbsp;&#38; Noble customers&#146; homes. B&#38;N.com
charges Barnes&nbsp;&#38; Noble the costs associated with such
shipments plus any incremental overhead incurred by B&#38;N.com
to process these orders. For the years ended December&nbsp;31,
2003, 2002 and 2001, B&#38;N.com recorded $2,357, $1,792 and
$987, respectively, as a reimbursement for shipping and handling
from Barnes&nbsp;&#38; Noble. In addition, during 2001,
B&#38;N.com and Barnes&nbsp;&#38; Noble entered into an
agreement whereby B&#38;N.com receives a commission on all items
ordered by customers at Barnes&nbsp;&#38; Noble stores and
shipped directly to customers&#146; homes by B&#38;N.com.
Commissions for these sales were recorded as revenue and
amounted to $1,434, $1,280 and $383 for the years ended
December&nbsp;31, 2003, 2002 and 2001, respectively.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Barnes&nbsp;&#38; Noble subleased warehouse space
from B&#38;N.com in Reno, Nevada. B&#38;N.com charged
Barnes&nbsp;&#38; Noble $500 and $1,882 for such subleased space
for the years ended December&nbsp;31, 2002 and 2001,
respectively. Additionally, Barnes&nbsp;&#38; Noble reimbursed
B&#38;N.com $6,186 for fixed assets purchased on behalf of
Barnes&nbsp;&#38; Noble for the Reno warehouse. The equipment
was sold to Barnes&nbsp;&#38; Noble at its original cost. In
January 2002, the Company determined it could not effectively
utilize the full capacity of its Reno, Nevada distribution
center. Accordingly, following Board approval on
January&nbsp;29, 2002, the Company agreed to transfer the Reno
warehouse lease and sell B&#38;N.com&#146;s inventory located in
Reno to Barnes&nbsp;&#38; Noble. Barnes&nbsp;&#38; Noble
purchased the inventory from B&#38;N.com at cost for
approximately $9,877. The Board of Barnes&nbsp;&#38; Noble also
approved Barnes&nbsp;&#38; Noble&#146;s assumption of the lease
obligation and the hiring of all of the employees at the Reno
warehouse. The Reno lease assignment and the transfer of the
operations of the Reno warehouse to Barnes&nbsp;&#38; Noble was
completed in April 2002. In connection with the transfer,
B&#38;N.com agreed to pay one-half of the rent charged for the
facility through December&nbsp;31, 2002. B&#38;N.com paid $943
in relation to these expenses for the year ended
December&nbsp;31, 2002.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-63
</FONT>

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<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In 2000, B&#38;N.com began purchasing new and
used textbooks directly from MBS Textbook Exchange, Inc.
(&#147;MBS&#148;), a corporation majority-owned by Leonard
Riggio and one of the nation&#146;s largest wholesalers of
college textbooks. B&#38;N.com&#146;s total purchases for the
years ended December&nbsp;31, 2003, 2002 and 2001 were $13,829,
$17,223 and $13,206, respectively. In addition, B&#38;N.com
maintains a link on its Web site called &#147;Sell Your
Textbooks&#148; which is hosted by MBS and through which
B&#38;N.com customers are able to sell used books directly to
MBS. B&#38;N.com is paid a commission based on the price paid by
MBS to the consumer. Total commissions received and recorded as
revenue for the years ended December&nbsp;31, 2003, 2002 and
2001 were $75, $58 and $16, respectively.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Under a Strategic Relationship Agreement, dated
as of May&nbsp;1, 2001 (the &#147;Strategic Relationship
Agreement&#148;), between B&#38;N.com and GameStop Corp.
(&#147;GameStop&#148;), a majority-owned subsidiary of
Barnes&nbsp;&#38; Noble, B&#38;N.com&#146;s Web site refers
customers to the GameStop Web site for purchases of video game
hardware, software and accessories and PC entertainment
software. GameStop pays B&#38;N.com a referral fee based on its
net sales revenue from certain eligible purchases made by
customers as a result of the redirection from the B&#38;N.com
Web site. Either party may terminate the Strategic Relationship
Agreement on 60&nbsp;days&#146; notice. Commissions of $8, $65
and $33 were recorded as revenue for the years ended
December&nbsp;31, 2003, 2002 and 2001, respectively, under this
agreement.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B&#38;N.com has an approximate 46.8% equity stake
in enews, a company previously engaged in selling magazine
subscriptions on the Internet, and accounted for this investment
under the equity method. Substantially all of the balance of the
shares are owned by Barnes&nbsp;&#38; Noble. In July 2002, the
Board of Directors and stockholders of enews approved the
Liquidation Plan. As of December&nbsp;31, 2003, the
implementation of the Liquidation Plan had been substantially
completed and was concluded by February&nbsp;29, 2004. Prior to
the implementation of the Liquidation Plan, B&#38;N.com
fulfilled a majority of orders for magazine subscriptions
through enews and recorded a commission on these sales.
B&#38;N.com recorded commissions of $909 and $590 for the years
ended December&nbsp;31, 2002 and 2001, respectively, and was
reimbursed $488, $524 and $295, respectively, for expenses
incurred on behalf of enews for the years ended
December&nbsp;31, 2003, 2002 and 2001.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At December&nbsp;31, 2003 and 2002, $71,957 and
$48,261, respectively, remained payable to Barnes&nbsp;&#38;
Noble in connection with the transactions described above.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In July 2003, Barnes&nbsp;&#38; Noble announced
that it reached an agreement with DirectGroup Bertelsmann, the
direct-to-customer division of German-based media company
Bertelsmann, to acquire all of Bertelsmann&#146;s interest in
B&#38;N.com for $164,000 in a combination of cash and notes,
equivalent to $2.80&nbsp;per share or Membership Unit. The
transaction closed on September&nbsp;15, 2003.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Michael N. Rosen, a director and Secretary of the
Company, is also a member of Bryan Cave LLP, outside counsel to
the Company and B&#38;N.com.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left">
<A name='120'></A>
</DIV>

<!-- link1 "Item 14. Principal Accountant Fees and ServicesIndependent Accountants" -->

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Item&nbsp;14.<I>&nbsp;</I></FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Principal Accountant Fees and
    Services</FONT></I></B></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<B><FONT size="2">Independent Accountants</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During the fiscal year ended December&nbsp;31,
2003, BDO Seidman, LLP (&#147;BDO Seidman&#148;) provided
various audit and permissible non-audit services to the Company.
The Company and the Audit Committee have considered whether the
non-audit services provided by BDO Seidman are compatible with
maintaining the independence of BDO Seidman in its audit of the
Company and are not considered prohibited services under the
Sarbanes-Oxley Act of 2002. Set forth below are the aggregate
fees billed for those services:
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>
<P>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(a)&nbsp;<I>Audit Fees:</I> The aggregate fees
    billed for professional services rendered for the audit of the
    Company&#146;s annual financial statements for the fiscal years
    ended December&nbsp;31, 2003 and 2002 and for the reviews of the
    financial statements included in the Company&#146;s quarterly
    reports on Form&nbsp;10-Q were $315,000 and $338,000,
    respectively.
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-64
</FONT>

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<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(b)&nbsp;<I>Audit-Related Fees:</I> The aggregate
    fees billed by BDO Seidman for services rendered to the Company
    for the audit of the Company&#146;s pension plan for the fiscal
    years ended December&nbsp;31, 2003 and 2002 were $16,000 and
    $16,000, respectively.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(c)&nbsp;<I>Tax Fees:</I> No such fees were
    incurred by the Company for the fiscal years ended
    December&nbsp;31, 2003 and 2002.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(d)&nbsp;<I>All Other Fees:</I> The aggregate
    fees billed by BDO Seidman for services rendered to the Company,
    other than the services described above under &#147;Audit
    Fees&#148; and &#147;Audit-Related Fees,&#148; for the fiscal
    years ended December&nbsp;31, 2003 and 2002 were $15,000 and
    $7,000, respectively.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Audit Committee has determined that the
provision of the services above are compatible with maintaining
the independence of BDO Seidman. BDO Seidman does not provide
consulting services to the Company in any capacity.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Pre-approval Policies and
Procedures.</FONT></I><FONT size="2"> The Audit Committee
Charter adopted by the Board of Directors of the Company
requires that, among other things, the Audit Committee
pre-approve the rendering by the Company&#146;s independent
auditor of all audit and permissible non-audit services. The
Audit Committee has delegated to its Chairman, together with any
other member of the Audit Committee, the authority to grant such
pre-approvals during periods when the Audit Committee is not in
session and a meeting cannot be readily convened. All fees paid
to and or billed by our principal accountants were approved in
accordance with the policy described above beginning May&nbsp;6,
2003.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left">
<A name='121'></A>
</DIV>

<!-- link1 "PART IV" -->

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">PART&nbsp;IV</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left">
<A name='122'></A>
</DIV>

<!-- link1 "Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K" -->

<DIV>&nbsp;</DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Item&nbsp;15.&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Exhibits, Financial Statement Schedules and
    Reports on Form&nbsp;8-K</FONT></I></B></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(a)(1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Financial
Statements:</I>
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following consolidated financial statements
of the Company and subsidiaries and the related notes are filed
as part of this report pursuant to Item&nbsp;8:
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Reports of Independent Certified Public
    Accountants
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Consolidated Balance Sheets
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Consolidated Statements of Operations
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Consolidated Statement of Stockholders&#146;
    Equity
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Consolidated Statements of Cash Flows
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Notes to Consolidated Financial Statements
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(a)(2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Financial
Statement Schedules:</I>
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">None.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">All schedules are omitted because the required
information is not present or is not present in amounts
sufficient to require submission of the schedule or because the
information required is given in the consolidated financial
statements or notes thereto.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-65
</FONT>

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<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(a)(3)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Exhibits:</I>
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="85%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exhibit</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">No.</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Description</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">2.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Agreement and Plan of Merger, dated as of
    January&nbsp;8, 2004, by and among the Company,
    Barnes&nbsp;&#38; Noble, B&#38;N.com Holding Corp. and
    B&#38;N.com Acquisition Corp. (Incorporated herein by reference
    to Exhibit&nbsp;2.1 in the Company&#146;s Current Report on
    Form&nbsp;8-K, filed January&nbsp;9, 2004)
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">3.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Amended and Restated Certificate of Incorporation
    of the Company. (Incorporated herein by reference to
    Exhibit&nbsp;3.1 in the Company&#146;s Form&nbsp;10-K for the
    year ended December&nbsp;31, 2000, filed April&nbsp;2, 2001)
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">3.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Amended and Restated By-laws of the Company.
    (Incorporated herein by reference to Exhibit&nbsp;3.2 in the
    Company&#146;s Form&nbsp;10-K for the year ended
    December&nbsp;31, 2000, filed April&nbsp;2, 2001)
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Second Amended and Restated Limited Liability
    Company Agreement of barnesandnoble.com llc. (Incorporated
    herein by reference to Exhibit&nbsp;10.1 in the Company&#146;s
    Form&nbsp;10-K for the year ended December&nbsp;31, 2000, filed
    April&nbsp;2, 2001)
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Amendment No.&nbsp;1 to Second Amended and
    Restated Limited Liability Company Agreement of
    barnesandnoble.com llc. (Incorporated herein by reference to
    Exhibit&nbsp;10.30 in the Company&#146;s Form&nbsp;10-K for the
    year ended December&nbsp;31, 1999, filed March&nbsp;30, 2000)
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Stockholders Agreement between Barnes&nbsp;&#38;
    Noble, Inc. and Bertelsmann AG. (Incorporated herein by
    reference to Exhibit&nbsp;10.3 in the Company&#146;s
    Form&nbsp;10-K for the year ended December&nbsp;31, 2000, filed
    April&nbsp;2, 2001)
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">1999 Incentive Plan of the Company. (Incorporated
    herein by reference to Exhibit&nbsp;10.1 in Amendment No.&nbsp;3
    of the Company&#146;s Registration Statement No.&nbsp;333-64211,
    filed May&nbsp;24, 1999)
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Deferred Compensation Plan of the Company.
    (Incorporated herein by reference to Exhibit&nbsp;10.25 in
    Amendment No.&nbsp;3 of the Company&#146;s Registration
    Statement No.&nbsp;333-64211, filed May&nbsp;24, 1999)
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Retirement Plan of the Company. (Incorporated
    herein by reference to Exhibit&nbsp;10.26 in Amendment
    No.&nbsp;3 of the Company&#146;s Registration Statement
    No.&nbsp;333-64211, filed May&nbsp;24, 1999)
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Agreement of Lease, dated as of October&nbsp;1,
    1999, between 111 Chelsea LLC, as landlord, and
    barnesandnoble.com llc, as tenant. (Incorporated herein by
    reference to Exhibit&nbsp;10.33 in the Company&#146;s
    Form&nbsp;10-K for the year ended December&nbsp;31, 1999, filed
    March&nbsp;30, 2000)
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Indenture of Lease and Amendments thereto, dated
    as of June&nbsp;7, 1994, between SDI Technologies, Inc., as
    Landlord, and B. Dalton Bookseller, Inc., as Tenant.
    (Incorporated herein by reference to Exhibit&nbsp;10.22 in
    Amendment No.&nbsp;1 of the Company&#146;s Registration
    Statement No.&nbsp;333-64211, filed March&nbsp;18, 1999)
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Lease, dated as of June&nbsp;30, 1997, between
    P.A. Building Company, as Landlord, and Barnes&nbsp;&#38; Noble,
    Inc., as Tenant. (Incorporated herein by reference to
    Exhibit&nbsp;10.23 in Amendment No.&nbsp;1 of the Company&#146;s
    Registration Statement No.&nbsp;333-64211, filed March&nbsp;18,
    1999)
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Amended and Restated Industrial Lease Agreement
    effective as of July&nbsp;27, 1999, between Industrial
    Developments International (Tennessee), L.P., as landlord, and
    barnesandnoble.com llc, as tenant. (Incorporated herein by
    reference to Exhibit&nbsp;10.31 in the Company&#146;s
    Form&nbsp;10-K for the year ended December&nbsp;31, 1999, filed
    March&nbsp;30, 2000)
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.11</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Supply Agreement, dated as of October&nbsp;31,
    1998, between barnesandnoble.com llc and Barnes&nbsp;&#38;
    Noble, Inc. (Incorporated herein by reference to
    Exhibit&nbsp;10.14 in Amendment No.&nbsp;1 of the Company&#146;s
    Registration Statement No.&nbsp;333-64211, filed March&nbsp;18,
    1999)
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.12</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Amendment No.&nbsp;1 to the Supply Agreement,
    between barnesandnoble.com llc and Barnes&nbsp;&#38; Noble Inc.
    (Incorporated herein by reference to Exhibit&nbsp;10.14 in the
    Company&#146;s Form&nbsp;10-K for the year ended
    December&nbsp;31, 2000, filed April&nbsp;2, 2001)
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.13</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Amended and Restated Services Agreement, dated as
    of October&nbsp;31, 1998, among the Company, barnesandnoble.com
    llc and Barnes&nbsp;&#38; Noble, Inc. (Incorporated herein by
    reference to Exhibit&nbsp;10.10 in Amendment No.&nbsp;1 of the
    Company&#146;s Registration Statement No.&nbsp;333-64211, filed
    March&nbsp;18, 1999)
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-66
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="85%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exhibit</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">No.</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Description</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.14</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Amendment No.&nbsp;1 to the Amended and Restated
    Services Agreement, among the Company, barnesandnoble.com llc
    and Barnes&nbsp;&#38; Noble, Inc. (Incorporated herein by
    reference to Exhibit&nbsp;10.16 in the Company&#146;s
    Form&nbsp;10-K for the year ended December&nbsp;31, 2000, filed
    April&nbsp;2, 2001)
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.15</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Technology Sharing and Licensing Agreement, dated
    as of October&nbsp;31, 1998, between barnesandnoble.com llc, as
    Licensor and BOL.Global, Inc., as Licensee. (Incorporated herein
    by reference to Exhibit&nbsp;10.8 in Amendment No.&nbsp;1 of the
    Company&#146;s Registration Statement No.&nbsp;333-64211, filed
    March&nbsp;18, 1999)
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.16</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Amendment No.&nbsp;1 to the Technology Sharing
    and License Agreement, between barnesandnoble.com llc, as
    Licensor and BOL.Global, Inc., as Licensee. (Incorporated herein
    by reference to Exhibit&nbsp;10.18 in the Company&#146;s
    Form&nbsp;10-K for the year ended December&nbsp;31, 2000, filed
    April&nbsp;2, 2001)
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.17</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Technology Sharing and Licensing Agreement, dated
    as of October&nbsp;31, 1998, between barnesandnoble.com llc, as
    Licensee and BOL.Global, Inc., as Licensor. (Incorporated herein
    by reference to Exhibit&nbsp;10.9 in Amendment No.&nbsp;1 of the
    Company&#146;s Registration Statement No.&nbsp;333-64211, filed
    March&nbsp;18, 1999)
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.18</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Amendment No.&nbsp;1 to the Technology Sharing
    and License Agreement, between barnesandnoble.com llc, as
    Licensee and BOL.Global, Inc., as Licensor. (Incorporated herein
    by reference to Exhibit&nbsp;10.20 in the Company&#146;s
    Form&nbsp;10-K for the year ended December&nbsp;31, 2000, filed
    April&nbsp;2, 2001)
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.19</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Amended and Restated Database and Software
    License Agreement, dated as of October&nbsp;31, 1998, among the
    Company, barnesandnoble.com llc and Barnes&nbsp;&#38; Noble,
    Inc. (Incorporated herein by reference to Exhibit&nbsp;10.15 in
    Amendment No.&nbsp;1 of the Company&#146;s Registration
    Statement No.&nbsp;333-64211, filed March&nbsp;18, 1999)
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.20</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Amendment No.&nbsp;1 to the Amended and Restated
    Database and Software License Agreement, among the Company,
    barnesandnoble.com llc and Barnes&nbsp;&#38; Noble, Inc.
    (Incorporated herein by reference to Exhibit&nbsp;10.22 in the
    Company&#146;s Form&nbsp;10-K for the year ended
    December&nbsp;31, 2000, filed April&nbsp;2, 2001)
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.21</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Trademark License Agreement, dated as of
    October&nbsp;31, 1998, between BOL.Global, Inc. and
    barnesandnoble.com llc. (Incorporated herein by reference to
    Exhibit&nbsp;10.13 in Amendment No.&nbsp;1 of the Company&#146;s
    Registration Statement No.&nbsp;333-64211, filed March&nbsp;18,
    1999)
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.22</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Amendment No.&nbsp;1 to the Trademark License
    Agreement, between BOL.Global, Inc. and barnesandnoble.com llc.
    (Incorporated herein by reference to Exhibit&nbsp;10.24 in the
    Company&#146;s Form&nbsp;10-K for the year ended
    December&nbsp;31, 2000, filed April&nbsp;2, 2001)
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.23</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Amended and Restated Trademark License Agreement,
    dated as of October&nbsp;31, 1998, between Barnes&nbsp;&#38;
    Noble College Bookstores, Inc. and barnesandnoble.com llc.
    (Incorporated herein by reference to Exhibit&nbsp;10.12 in
    Amendment No.&nbsp;1 of the Company&#146;s Registration
    Statement No.&nbsp;333-64211, filed March&nbsp;18, 1999)
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.24</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Amendment No.&nbsp;1 to the Amended and Restated
    Trademark License Agreement, between Barnes&nbsp;&#38; Noble
    College Bookstores, Inc. and barnesandnoble.com llc.
    (Incorporated herein by reference to Exhibit&nbsp;10.26 in the
    Company&#146;s Form&nbsp;10-K for the year ended
    December&nbsp;31, 2000, filed April&nbsp;2, 2001)
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.25</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Web Site Agreement, dated as of January&nbsp;31,
    2001, between Textbooks.com, Inc. and barnesandnoble.com llc.
    (Incorporated herein by reference to Exhibit&nbsp;10.27 in the
    Company&#146;s Form&nbsp;10-K for the year ended
    December&nbsp;31, 2000, filed April&nbsp;2, 2001)
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.26</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Employment Agreement, dated as of
    October&nbsp;31, 2002, between the Company and Marie J.
    Toulantis (Incorporated herein by reference to
    Exhibit&nbsp;10.26 in the Company&#146;s Form&nbsp;10-K for the
    year ended December&nbsp;31, 2002, filed March&nbsp;27, 2003)
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">21.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">List of Subsidiaries
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">23.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Consent of BDO Seidman, LLP
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-67
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="85%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exhibit</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">No.</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Description</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">31.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Certification of Chief Executive Officer pursuant
    to Rule&nbsp;13a-14(a) under the Securities Exchange Act of
    1934, as adopted pursuant to Section&nbsp;302 of the
    Sarbanes-Oxley Act of 2002.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">31.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Certification of Chief Financial Officer pursuant
    to Rule&nbsp;13a-14(a) under the Securities Exchange Act of
    1934, as adopted pursuant to Section&nbsp;302 of the
    Sarbanes-Oxley Act of 2002.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">32.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Certification of Chief Executive Officer pursuant
    to Rule&nbsp;13a-14(b) under the Securities Exchange Act of 1934
    and 18&nbsp;U.S.C. Section&nbsp;1350, as adopted pursuant to
    Section&nbsp;906 of the Sarbanes-Oxley Act of 2002.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">32.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Certification of Chief Financial Officer pursuant
    to Rule&nbsp;13a-14(b) under the Securities Exchange Act of 1934
    and 18&nbsp;U.S.C. Section&nbsp;1350, as adopted pursuant to
    Section&nbsp;906 of the Sarbanes-Oxley Act of 2002.
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(b)&nbsp;<I>Reports on Form&nbsp;8-K:</I>
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On October&nbsp;29, 2003, the Company furnished a
Report on Form&nbsp;8-K pursuant to Items&nbsp;7 and 12 of such
form announcing third quarter 2003 financial results.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On November&nbsp;12, 2003, the Company filed a
Report on Form&nbsp;8-K pursuant to Items&nbsp;5 and 7 of such
form relating to Barnes&nbsp;&#38; Noble&#146;s proposal to
purchase in a merger transaction for $2.50 in cash each share of
the Company&#146;s common stock that Barnes&nbsp;&#38; Noble
does not currently own.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Subsequent to the end of the fourth quarter, on
January&nbsp;9, 2004, the Company filed a Report on
Form&nbsp;8-K pursuant to Items&nbsp;5 and 7 of such form
announcing a definitive merger agreement with Barnes&nbsp;&#38;
Noble for $3.05 in cash per share of the Company&#146;s common
stock that Barnes&nbsp;&#38; Noble does not currently own and
the subsequent dismissal of lawsuits filed with respect to the
proposed merger, subject to customary conditions.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Subsequent to the end of the fourth quarter, on
January&nbsp;30, 2004, the Company furnished a Report on
Form&nbsp;8-K pursuant to Items&nbsp;7 and 12 of such form
announcing fourth quarter 2003 and fiscal year ended
December&nbsp;31, 2003 financial results.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Subsequent to the end of the fourth quarter, on
April&nbsp;28, 2004, the Company furnished a Report on
Form&nbsp;8-K pursuant to Items&nbsp;7 and 12 of such form
announcing first quarter 2004 financial results.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-68
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<A name='123'></A>
</DIV>

<!-- link1 "SIGNATURES" -->

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center">
<B><FONT size="2">SIGNATURES</FONT></B>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Pursuant to the requirements of Section&nbsp;13
or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">BARNESANDNOBLE.COM INC.
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">(Registrant)
    </FONT></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

</TABLE>
<P>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="2%"></TD>
    <TD width="58%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">By:&nbsp;</FONT></TD>
    <TD align="center">
    <FONT size="2">/s/ MARIE J. TOULANTIS
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <HR size="1" align="left" noshade></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <I><FONT size="2">Marie J. Toulantis</FONT></I></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <I><FONT size="2">Chief Executive Officer</FONT></I></TD>
</TR>

<TR><TD><FONT size="1">

</FONT></TD></TR>

</TABLE>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="left">
<FONT size="2">Date: April&nbsp;30, 2004
</FONT>

<DIV align="left"><FONT size="1">

</FONT></DIV>

<P align="center"><FONT size="2">E-69
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<!-- link1 "PROXY CARD" -->


<P align="center"><FONT size="2"><B>barnesandnoble.com inc.</B>
</FONT>


<P align="center"><FONT size="2"><B>THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS</B>
</FONT>


<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
undersigned hereby appoints Patricia Higgins and Marie J. Toulantis, and each of
them, as his true and lawful agents and proxies, with full power of
substitution in each, and hereby authorizes them to represent and to vote, as
designated on the reverse side hereof, all of the shares of common stock of
barnesandnoble.com inc. held of record by the undersigned on
April&nbsp;23, 2004,
at the Special Meeting of Stockholders to be held on May&nbsp;27, 2004, at 10:00
a.m., local time, at the New&nbsp;York Marriott East Side,
525&nbsp;Lexington Avenue between 48th and 49th&nbsp;Streets,
New&nbsp;York, New&nbsp;York, and any adjournment or postponement thereof,
with the same effect as if the undersigned were present and voting such shares,
on all matters as further described in the accompanying Proxy Statement.
</FONT>


<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The undersigned acknowledges receipt of the Notice of Special Meeting of
Stockholders dated May&nbsp;3, 2004 and the accompanying Proxy Statement.
</FONT>


<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
SPECIFICATIONS MADE. IF THIS PROXY IS EXECUTED BUT NO SPECIFICATION IS MADE AS
TO THE PROPOSAL, WITH RESPECT TO SUCH PROPOSAL THE SHARES REPRESENTED BY THIS
PROXY WILL BE VOTED &#147;FOR&#148; THE APPROVAL OF THE AGREEMENT AND PLAN OF MERGER AND
THE MERGER CONTEMPLATED THEREBY. THE PROXIES, IN THEIR DISCRETION, ARE
AUTHORIZED TO VOTE UPON ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE
SPECIAL MEETING.
</FONT>


<P align="center"><FONT size="2"><B>By executing this proxy, the undersigned hereby revokes all prior proxies.</B>
</FONT>

<P align="center"><FONT size="2"><B>(Continued, and to be signed and dated on the reverse side.)</B>
</FONT>

<P>
<DIV style="width: 100%; border: 1px solid black; padding: 5px;">
<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="100%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</DIV>
</DIV>


<P align="center"><FONT size="2"><B>Address Change/Comments (Mark the corresponding box on the reverse side)</B>
</FONT>

<P align="center"><HR size="1" color="black" width="100%">

<DIV align="center"><FONT size="2"><B>&#94;&nbsp;&nbsp;&nbsp;FOLD AND DETACH HERE&nbsp;&nbsp;&nbsp;&#94;</B>
</FONT>
</DIV>

<P align="center"><FONT size="2">&nbsp;
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="80%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD valign="top"><FONT size="2">Please Mark Here for Address
Change or Comments<BR>
(See Reverse Side)</FONT></TD>
    <TD align="left" valign="middle">&nbsp;&nbsp;<FONT face="Wingdings">&#111;</FONT></TD>
</TR>
</TABLE>

<P align="left"><FONT size="2">THE BOARD OF DIRECTORS RECOMMENDS A VOTE &#147;FOR&#148; THE FOLLOWING PROPOSAL.
</FONT>


<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" nowrap align="right"><FONT size="2">1.</FONT></TD>
 <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
 <TD><FONT size="2">To approve and adopt the Agreement and Plan of Merger, dated as of
January&nbsp;8, 2004, among Barnes &#038; Noble, Inc., B&#038;N.com Holding Corp.,
B&#038;N.com Acquisition Corp. and barnesandnoble.com inc. and approve the
merger contemplated thereby.
</FONT></TD>
</TR>
</TABLE>
<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="10%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
<FONT face="Wingdings">&#111;</FONT>
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">FOR
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2"><FONT face="Wingdings">&#111;</FONT>
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">AGAINST
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2"><FONT face="Wingdings">&#111;</FONT>
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">ABSTAIN
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</DIV>

<P align="left"><FONT size="2">Consenting to receive all future
annual meeting materials and shareholder communications
electronically is simple and fast! Enroll today at
www.melloninvestor.com/ISD for secure online access to your proxy
materials, statements, tax documents and other important shareholder
correspondence.
</FONT>

<P align="left"><FONT size="2">Please Mark, Sign, Date and Return this Proxy Card Promptly Using the
Enclosed Envelope.</FONT>

<P align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="90%">
<TR valign="bottom">
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="40%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">Signature</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
<HR size="1" color="black"></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Signature</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
<HR size="1" color="black"></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Date</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
<HR size="1" color="black"></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>

<P align="left"><FONT size="2">Please sign exactly as name appears on this proxy card. When shares are held
by joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee, or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
</FONT>



<P align="center"><HR size="1" color="black" width="100%">

<DIV align="center"><FONT size="2"><B>&#94;&nbsp;&nbsp;&nbsp;FOLD AND DETACH HERE&nbsp;&nbsp;&nbsp;&#94;</B>
</FONT>
</DIV>



<P align="center"><FONT size="2">Vote by Telephone or Internet or Mail<BR>
24 Hours a Day, 7 Days a Week
</FONT>


<P align="center"><FONT size="2">Telephone and Internet voting is
available through 11:59&nbsp;PM Eastern Time<BR>
the day prior to special meeting day.
</FONT>


<P align="center"><FONT size="2">Your telephone or Internet vote authorizes the named proxies to vote your<BR>
shares in the same manner as if you marked, signed and returned your proxy card.
</FONT>

<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="25%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="25%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="25%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><FONT size="2"><B>Telephone</B></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="middle"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top"><FONT size="2"><B>Internet</B></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="middle"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><FONT size="2"><B>1-800-435-6710</B></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="middle"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top"><FONT size="2"><B>http://www.eproxy.com/bnbn</B>
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="middle"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top"><FONT size="2"><B>Mail</B></FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Use any touch-tone
telephone to vote
your proxy. Have
your proxy card in
hand when you call.
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="middle"><FONT size="2">
<B>OR</B>
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Use the Internet to
vote your proxy.
Have your proxy
card in hand when
you access the web
site.
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="middle"><FONT size="2"><B>OR</B>
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Mark, sign and date
your proxy card and
return it in the
enclosed
postage-paid
envelope.</FONT></TD>
</TR>
</TABLE>
</DIV>


<P align="center"><FONT size="2">If you vote your proxy by telephone or by Internet,<BR>
you do NOT need to mail back your proxy card.
</FONT>


<P align="center"><FONT size="2">You can view the 2003
Form&nbsp;10-K/A and Proxy Statement on the Internet at http://www.barnesandnoble.com/ir
</FONT>


<P align="center"><FONT size="2">&nbsp;
</FONT>

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end

</TEXT>
</DOCUMENT>
</SUBMISSION>
