Barnes & Noble DEFA14A Additional proxy soliciting materials

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

(RULE 14a-101)

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.    )

Filed by the Registrant  x                            Filed by a Party other than the Registrant  ¨

Check the appropriate box:

¨ Preliminary Proxy Statement

¨ Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

¨ Definitive Proxy Statement

x Definitive Additional Materials

¨ Soliciting Material Pursuant to § 240.14a-12

Barnes & Noble, Inc.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

x No fee required

¨ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

1) Title of each class of securities to which transaction applies:

2) Aggregate number of securities to which transaction applies:

3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined):

4) Proposed maximum aggregate value of transaction:

5) Total fee paid:

¨ Fee paid previously with preliminary materials.

¨ Check box if any part of the fee is offset as provided by Exchange Act Rule 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.

1) Amount Previously Paid:

2) Form, Schedule or Registration Statement No.:

3) Filing Party:

4) Date Filed:

Investor

Investor

Presentation

Presentation

September, 2010

September, 2010

2

Important Information and Certain Information Regarding Participants

On August 25, 2010, Barnes & Noble, Inc. (“Barnes & Noble”) filed with the Securities and Exchange Commission (the “SEC”) a definitive proxy statement

in connection with its 2010 Annual Meeting and has mailed the definitive proxy statement to its stockholders.  The definitive proxy statement contains

information regarding the names, affiliations and interests of Barnes & Noble’s directors, director nominees and certain of its officers that may be

deemed, along with Barnes & Noble, to be participants in the solicitation of Barnes & Noble’s stockholders in connection with its 2010 Annual Meeting. 

Security holders are urged to read the definitive proxy statement and any other relevant documents filed with the SEC  when they become

statement and other documents (when available) that Barnes & Noble files with the SEC at the SEC’s website at www.sec.gov, at Barnes & Noble’s website

at www.barnesandnobleinc.com and from Barnes & Noble by directing a request to Barnes & Noble, Inc., Attention: Investor Relations, 122 Fifth Avenue,

New York, New York 10011.

Safe Harbor

This communication contains “forward-looking statements.” Barnes & Noble is including this statement for the express purpose of availing itself of the

protections of the safe harbor provided by the Private Securities Litigation Reform Act of 1995 with respect to all such forward-looking statements. When

used in this communication, the words “anticipate,” “believe,” “estimate,” ���expect,” “intend,” “plan,” “will, “projection” and similar expressions, as they

relate to Barnes & Noble or the management or Board of Directors of Barnes & Noble, identify forward-looking statements.  These forward-looking

statements are based on currently available information and represent the beliefs of the management of the company. These statements are subject to

risks and uncertainties that could cause actual results to differ materially. These risks include, but are not limited to, general economic and market

conditions, decreased consumer demand for the company’s products, possible disruptions in the company’s computer systems, telephone systems or

supply chain, possible risks associated with data privacy and information security, possible work stoppages or increases in labor costs, possible increases in

shipping rates or interruptions in shipping service, effects of competition, possible disruptions or delays in the opening of new stores or the inability to

obtain suitable sites for new stores, higher than anticipated store closing or relocation costs, higher interest rates, the performance of the company’s

online, digital and other initiatives, the performance and successful integration of acquired businesses, the success of the company’s strategic

investments, unanticipated increases in merchandise, component or occupancy costs, unanticipated adverse litigation results or effects, the results or

effects of any governmental review of the company’s stock option practices, product and component shortages, effects of the company’s evaluation of

strategic alternatives and other factors which may be outside of the company’s control. Please refer to the company’s annual, quarterly and periodic

reports on file with the SEC for a more detailed discussion of these and other risks that could cause results to differ materially. The company assumes no

obligation to update or revise any forward-looking statements.

This communication includes projected financial performance information from Barnes & Noble’s 2011 financial plan. These projections are necessarily

based upon a variety of estimates and assumptions which, through currently considered reasonable by Barnes & Noble, may not be realized and are

inherently subject, in addition to the specific risks identified above, to business, economic, competitive, industry, market and financial uncertainties and

contingencies, many of which are beyond Barnes & Noble’s control. There can be no assurance that the assumptions made in preparing the projected

financial performance information will prove accurate. Accordingly, actual results may differ materially from the results projected. 

available,

because

they

contain

(or

will

contain)

important

information.

Security

holders

may

obtain

a

free

copy

of the definitive proxy

Why You Should Support Barnes & Noble

We're here to ask you to support the Barnes & Noble Board of Directors highly qualified

Director nominees and to reject Yucaipa's proposed resolution and Board slate.

Our

argument

for

supporting

the

Company

and

slate

of

nominees

is

six

fold:

1)

The book industry is undergoing dramatic transformation.  We have the

management team and strategy to capitalize on that transformation.

2)

Mr. Burkle

and his proposed slate have no demonstrated vision and do not have

the requisite competencies to help guide the Company.

3)

Mr. Burkle

has a history

of taking control of companies without paying

shareholders a premium.

4)  The

Delaware

court

rejected

all

of

Mr.

Burkle’s

claims

regarding

the

Company’s

Shareholder Rights Plan.  In fact, the Company’s Shareholder Rights Plan is doing

exactly

what

the

Delaware

courts

say

Rights

Plans

are

designed

to

do

-

prevent

“creeping

acquisitions”

and

ensure

that

nobody

acquires

control

of

a

company

without paying an appropriate premium.

5)  Moreover, Mr. Burkle

has clouded the discussion with false accusations about the

management team that need to be disputed.

His inflammatory arguments aren't

predicated on fact.

6) The Company's proposed slate provides competency, independence, and vision.

3

The Bookselling Industry is Transforming

4

We Are Confident Today’s Investments in Our Strategy

Will Lead to Significant Value Creation for Shareholders

5

$ in millions

$281

$235 -

$275

> $500

Total Comparable Sales

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

$10,000

2010

2011P

2014P

$8,900

$7,100

$5,810

EBITDA

$0

$100

$200

$300

$400

$500

$600

2010

2011P

2014P

Barnes & Noble –

The World’s Largest Bookseller

Barnes & Noble is a leading retailer in large multi-billion dollar markets. 

The

company

has

approximately

18%

market

share

of

the

$23

billion

consumer

book

industry

and

15%

share

of

the

$12

billion

collegiate

book

market.

Additionally,

Barnes

&

Noble

is

the

#2

retailer

in

the

$22

billion

Newsstand

(single

copy)

market.

The

company

believes

that

digital

content

will

grow

all

of

these

markets

and

offers

incremental

business

opportunities for the company. 

The company operates:

-

717 consumer bookstores in 50 states

-

633 college bookstores serving nearly 4 million students and faculty members

-

One

of

the

Web’s

largest

eCommerce

sites

and

eBookstores

Given the dynamic nature of the book industry, the challenges faced by traditional

booksellers, and the robust innovation pipeline fueling new opportunities in hardware,

software and content creation and delivery, Barnes & Noble is utilizing the strength of its retail

footprint

to

bolster

its

leadership

and

fuel

sales

growth

across

multiple

channels.

1)    Bowker, 2009 Book Consumer Annual Review

2)

Market Share derived from National Association of College Store data

3)

Veronis

Suhler

Stevenson, Communication Industry Forecast 2010-2014

6

2

2

1

3

The Bookselling Industry is Transforming

7

Consumer spending on new physical books

is expected to decline from $20.5 billion in

2009 to $19 billion in 2014

Spending on digital books is expected to

grow at a CAGR of 56.4%, from $365

million in 2009 to $3.4 billion in 2014

eCommerce

and digital book sales are

expected to grow, while books sold at

bookstores will continue to decline

Barnes & Noble is pursuing strategies to

gain share in all three channels:

eCommerce, digital and bookstore sales

Source: Veronis

Suhler

Stevenson, Communication Industry Forecast 2010-2014

($ in millions)

CAGR

2009

2014

2009 -

2014

New Books

$20,536

$19,049

(1.5%)

Used Books

1,368

1,881

6.6%

Audio

412

350

(3.2%)

Digital

365

3,419

56.4%

Total

$22,681

$24,699

1.7%

Well Positioned to Gain Physical Book Market Share

8

2013P BKS Market Share*

2013P BKS Market Share*

2010 BKS Market Share*

2010 BKS Market Share*

*Source: Bowker

2009 Book Consumer Annual Review and Veronis

Suhler

Stevenson, Communications Industry Forecast 2010-2014 

and Company forecasts

B&N is by far the strongest bookstore

operator in the segment, having

consistently outperformed the competition

B&N has consistently gained bookstore

market share against the competition

Approximately 50% of books are sold at

non-bookstore outlets; and as book sales

continue to progress towards eBooks and

books sold online, we believe these non-

bookstore outlets will reduce their

presence, if not eliminate their book

departments altogether

B&N believes there will be industry

consolidation in the form of fewer

bookstores and bookstore chains and that

the company will be the beneficiary of that

consolidation

Superior Bookstore Execution Has Led to Market Share Gains

9

Source: Public Filings

Source: Public Filings

10

Transformative Digital Strategy Leads to Further Market Share Gains

B&N believes the eBook market will

be significantly less fragmented than

the physical book market.

Within 12 months of the launch of its

eBookstore, the company had 20%

market share and established itself as

the #2 player in this category.

There are significant barriers to entry,

including capital investments in

developing technology and

converting/amassing digital content,

that B&N believes will discourage

mass merchandisers from entering

the marketplace.

June

2009

June

2010

20%

20%

Barnes & Noble’s eBooks Market Share

They are the best-kept secret in the e-book space.

“

”

-

David Shanks, CEO Penguin Group,

Crain’s New York, June 13, 2010

B&N’s

Multi-Faceted Digital Approach

11

Created

the

most

advanced

eReaders

in

the

marketplace

Multi-channel/Multi-reach strategy

differentiates Barnes & Noble from anyone

else in this space

Apps allow for support for over 400 devices

Established partnerships with Best Buy

(NOOK fixtures in 1,070 Best Buy stores

and featured on bestbuy.com) and HP

(cobranded website and desktop app) to

expand NOOK’s

presence

Digital Strategies are Driving Big Sales Increases

12

On a comparable sales basis

The

launch

of

the

eBookstore

served

as

a catalyst for comparable sales

increases at BN.com

and that has

further accelerated with the launch of

NOOK –

the company expects fiscal

2011 comparable sales to increase 75%.

Members who have purchased a NOOK

have increased their digital and physical

spend by approximately 20% and on a

unit basis by 70%.

Additionally, NOOK devices and our

eReading

software has triggered a

significant expansion of the BN.com

customer base –

25% of NOOK users

are new to BN.com.

Launched

eBookstore

4%

2%

-10%

-7%

9%

32%

50%

53%

75%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

2%

Bookstores are Driving NOOK Sales…

The company reaches over 40 million

customers and is leveraging its leading

market position to educate its customers

about its digital products offerings.  Simply

put, Barnes & Noble Bookstores attract the

core NOOK customer.

Bookstores provide a distinct see, feel,

touch advantage for customers to be able to

experience NOOK.

The company’s 45,000 booksellers are

ambassadors for its digital products

offerings.

The bookstores have played such an

important

component

of

NOOK’s

success

that B&N is expanding its commitment and

resources to its digital strategy through the

roll-out of NOOK Boutiques.

13

Point of Purchase (Mid-Feb. Bookstore Launch)

0%

20%

40%

60%

80%

100%

Dec

Jan

Feb

March

April

May

June

July

Aug

Bookstores

Online

And, Digital Programs Are Driving Traffic Back To The Bookstores

The company is also using NOOK to drive

traffic back to the bookstores after

customers purchase the device through

innovative features such as:

–

Read In Store™, where customers can

browse and read complete eBooks for

free while they are in a Barnes &

Noble bookstore

–

More In Store™, which provides free

exclusive content from top authors

only in our bookstores for NOOK

users

–

Additional promotions such as free

eBook offers for bookstore customers

and free coffee offers to those who 

show our eReader

software on their

devices.

14

Transforming the Bookstore Experience

15

As B&N reduces the amount of space

dedicated to shrinking categories such as

music, it intends to leverage its brand and

locations by selling additional

complementary products.

The company is in the process of rolling out

its Toys & Games department, which is

curated

with a unique selection of

educational toys and games and an

expansion of adult games and puzzles.

The introduction of educational toys and

games along with the expansion of adult

games and puzzles is expected to increase

department sales by more than 60% in

fiscal 2011 (on an annualized basis).

The company is also building on its stellar

reputation with educators and parents

through its B&N @ School departments,

further establishing Barnes & Noble as an

education destination.

Accelerating eCommerce

Sales

B&N’s

investments in its digital

platform, combined with recently

introduced new strategies, such as

every day low pricing and free

unlimited express shipping for

Members are translating into strong

business momentum and accelerated

revenue growth.

The company intends to capitalize on

these accelerating trends by adding

new categories and significantly

expanding the number of SKUs at

BN.com.

B&N has significantly expanded its

used

and

new

Marketplace

–

its

direct

seller network now has over 60 million

listings

of

new

and

used

products

–

up

50% from two years ago.

16

On a comparable sales basis

BN.com

Comparable Sales

9%

32%

50%

53%

75%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Transforming the Campus Bookstore

Barnes & Noble is utilizing the strength of its digital

platform and is at the forefront of transforming the

college bookstore industry.  The company offers college

students and faculty the most comprehensive textbook

offering in the marketplace. Since the College

Booksellers acquisition, the company has significantly

increased the amount of options available for students to

acquire their required course materials. Barnes & Noble

is the first and only major online retailer offering higher

education students four textbook options -

new, used,

rental and digital.

The company is also revolutionizing the way students

study through the release of NOOKstudy™, an integrated

software solution for the higher education market. This

feature rich, free software application is the ultimate

study tool, enabling students to manage all their digital

content –

eTextbooks, class materials, and notes –

on

their PC or Mac. This software enables students to “study

smarter, not harder.”

B&N intends to gain further market share in the

collegiate market as more and more schools look for a

partner to outsource their campus bookstore

management.

17

Digital Strategy Transforms Barnes & Noble

into a Technology and Growth Company

18

2010 Includes College results since acquisition date

$ in millions

69%

Retail

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

2010

2011P

2012P

2013P

2014P

Booksellers

College

bn.com

BKS’s

Stock Performance Reflects Decline of

Traditional Retail Bookselling

Ron Burkle’s

Ron Burkle’s

attempt to blame BKS’s

attempt to blame BKS’s

stock performance

stock performance

on related party transactions is misleading

on related party transactions is misleading

19

Analysts Recognize Potential in eBooks

“Barnes & Noble’s digital strategy has begun to pay off, with a 50% increase in

ecommerce sales in 4Q10 and a forecasted 75% increase in fiscal 2011.”

(Bank of

America/Merrill Lynch, June 30, 2010)

“The firm’s 20% market share of digital books (newly disclosed) is impressive, and

some

of

this

investment

–

most

notably

the

digitization

of

back-list

books

–

will

likely peak in the next year or two.”

(Goldman Sachs, June 30, 2010)

“BKS sees the business moving to e-books. BKS has two great competitive strengths

in our view (1) long-standing relationships with publishers that give it a big seat at

the e-book table and (b) best in class real estate that can somewhat offset BKS

from the constant struggles in book demand through gains in market share.”

(Stifel

Nicolaus, June 30, 2010)

“We have no doubt that BKS has a winning management team, great brand, great

real estate portfolio and substantial competitive advantages with a weakened

primary sector competitor in Borders.”

(Stifel

Nicolaus, May 21, 2009)

“The migration to digital distribution may open up new opportunities for BKS.”

(C.L.

King, August 4, 2010)

20

An Independent Special Committee is

Reviewing Strategic Alternatives to

Maximize Shareholder Value

21

Review of Strategic Alternatives

We believe the market is undervaluing the digital opportunity for B&N

On August 3, 2010, Barnes & Noble announced that its Board had formed a Special

Committee to review strategic alternatives

The Special Committee consists of four independent board members

The Special Committee is being assisted by top independent financial and legal

advisors (Lazard and Morris, Nichols)

Alternatives include soliciting offers for a potential sale of the Company

22

A

A

Process

Process

is

is

Underway

Underway

to

to

Deliver

Deliver

Full

Full

Value

Value

to

to

ALL

ALL

Shareholders

Shareholders

Review of Strategic Alternatives

The

Delaware

Chancery

Court

rejected

Ron

Burkle’s

argument

that

the

Special Committee lacks independence

–

“The strategic process is to be led by a special committee of four of the

company’s independent directors, a group that does not include any director

this decision has found to be non-independent.”

(p. 86)

Mr. Burkle

can participate in sale process: if he wants control, he can

make an offer to all

shareholders

Instead, Burkle

seeks two

representatives on the Special Committee

–

Len Riggio

has no

representation on the Special Committee

The Board believes Mr. Burkle

is trying to influence the Special

Committee process to advance his

own interests

Weakening the Rights Plan While the Board Reviews Strategic

Weakening the Rights Plan While the Board Reviews Strategic

Alternatives Could Deny Shareholders a Control Premium

Alternatives Could Deny Shareholders a Control Premium

23

The Company’s Related Party Transactions

Support The Business

24

25

Overview of Related Party Transactions

Related

party

transaction

preceded

BKS's

IPO

in

1993

–

when

all

companies

(B&N, B&N College, MBS) were privately owned

All have been disclosed in SEC filings since IPO

Independent Audit Committee reviews all related party transactions both

when they occur and again each year

Company analyzes all related party transactions, both when they occur and

again each year, to ensure the terms are at least as favorable to the Company

as comparable, arms-length transactions available in the market

Board also forms independent special committees as appropriate (e.g.,

acquisition of Babbages, B&N College)

26

History of Related Party Transactions and the Barnes & Noble Brand

1965: B&N College founded by Len Riggio

1986: B&N College acquired B. Dalton Bookseller (754 stores) jointly with Vendex

–

B&N

College

and

Barnes

&

Noble

were

kept

as

two

separate

private

companies

to

provide

Vendex

with

50% ownership of Barnes & Noble without the well-established College business

•

B&N College focused on sale of textbooks

•

Barnes & Noble focused on sale of trade books

–

Related party transactions were established to share certain resources between the two companies

1993: IPO of Barnes & Noble after successful development of the superstore concept

–

B&N

College

remained

the

owner

of

the

“Barnes

&

Noble”

name

but

granted

the

right

to

BKS

to

use

it

in

perpetuity for trade books under a royalty-free license agreement

1998:

B&N

College

granted

Barnes

&

Noble.com

the

exclusive

license

to

the

“Barnes

&

Noble”

name and trademark from for the purpose of online sale of trade books (excluding textbooks)

2001:

B&N

College

granted

Barnes

&

Noble.com

the

right

to

sell

college

textbooks

online

for

royalty payments on such sales

2009: Barnes & Noble’s acquisition of B&N College represents the logical reunification of the

Barnes & Noble brand to enable the Company’s digital transformation

27

GameStop –

Value Creation for Barnes & Noble Shareholders

Acquired Babbage's ($209m) from Len Riggio

in

1999 and publicly traded Funco

($159m) in 2000

and consolidated them under GameStop brand

Babbage's acquisition negotiated by

independent special committee

Expanded GME to become nation’s largest video

game and PC entertainment software specialty

retailer

2002 GME IPO yielded $250m in cash plus a 63%

interest in GME for Barnes & Noble

2004 Barnes & Noble sold additional shares back

to GME for ~ $112m in proceeds

In subsequent 2004 GME Spin-off, the company

distributed remaining GME shares to Barnes &

Noble shareholders, which achieved a peak

value of $3.8 Bn*

Company itself recouped full original investment

through IPO proceeds and 2004 share sale

GameStop Investment Return

($MM)

Funco

GME IPO Proceeds

GME Shares Sold

Babbage's

GME Peak Value

*GameStop

shares

reached

a

peak

value

of

$63.30

in

December

2007,

which

equates

to

a

market

value

of

nearly

$3.8

billion

for

the

59.8

million

s

hares

(adjusted for a 2 for 1 stock split in March 2007) spun off to Barnes & Noble shareholders in 2004. The closing price of GameStop shares as

of September 8, 2010 was $18.57, which equates to a market value

of $1.1 billion for the 59.8 million shares.

College Transaction: Reunited Brand and

Supports Digital Transformation

College owned Barnes & Noble trade name; reuniting the

brand and reintegrating businesses was a top priority of

the Board for many years

By reuniting the brand and owning College, BKS has been

able to:

–

Integrate its Internet and digital products into a

single, comprehensive brand and marketing offering

–

Become the only major online retailer offering

textbooks

in

every

format

–

new,

used,

rental

and

digital –

making BKS highly relevant to college

students

–

Make BKS the clear partner of choice for colleges and

universities that need to modernize their offerings

–

Launch NOOKstudy™, a feature-rich digital textbook

and study tool that lets college students manage all

their digital content on a PC or Mac

–

Build relationships with the key college demographic

group

–

More effectively transition those relationships into

lifetime BKS customers

28

29

College Transaction: Attractive

Financial Terms Support Digital Strategy

Independent special committee and independent financial and legal advisors

reviewed and negotiated the transaction to ensure fairness to all shareholders

$514 million purchase price includes $75 million of cash College

had at closing

Purchase price of only $439 million (net of cash) equates to only 3.8x  adjusted

EBITDA (pro forma for Fiscal Year 2010)*

College continues to be a healthy and profitable business

–

Positive 2.9% comp store sales increase in latest quarter

–

Expected to generate $65MM in cash from operations this fiscal year

College is a significant source of funding for the Company’s investments aimed at

growing digital sales

*In the twelve months ended April 30, 2010, College had operating profit of approximately $49 million and generated adjusted EBITDA of $117 million on a pro

forma basis.  A reconciliation of adjusted EBITDA to operating profit is included in the Appendix.

30

MBS Supply Agreement is Key

Competitive Advantage for College

College has long-term Supply Agreement with MBS Textbook Exchange, Inc. (“MBS”),

a leading U.S. wholesaler of new and used textbooks (majority owned by Len Riggio)

–

College purchases new and used printed textbooks from MBS prior to buying from other

suppliers ($24MM since the acquisition date in 2010)

–

College sells used textbooks (bought back from students) exclusively to MBS

Agreement re-negotiated by independent special committee in College acquisition

Access to supply of used textbooks from market leading wholesaler is key

competitive advantage for College and nearly impossible to replicate

–

Other major textbook retailers (Follett, Nebraska) have integrated wholesale operations

Separately, MBS sells used books through B&N.com; B&N.com

receives same

commissions from MBS as from other dealers in its dealer network

($3MM in 2010)

Ronald Burkle

is Cherry-Picking Analyst

Comments on The College Transaction

Burkle

claims on slide 18 of his presentation that Bank of America/Merrill Lynch

criticized the acquisition of College Booksellers, but here is what they said:

–

“... [W]e

view the transaction favorably as it provides the company with an alternate

avenue for growth”

(14 August 2009)

–

“Recall the college book market is estimated at $10 billion, and 65% of colleges bookstores

(2,000+ colleges) are still operated by the schools themselves. As such, we believe BKS will

look to grow this newly acquired channel.”

(8 October 2009)

Stifel

Nicolaus

also noted the favorable transaction terms and that investor

skepticism was overdone:

–

“BKS

bought

College

with

cheap

money

relative

to

the

cash

flows

of

the

business”

(10

August 2009)

–

“We believe the skepticism [regarding the transaction] may be getting overdone. College

bookstores may indeed have more resilience to e-books (you can’t take notes in the

margin as easily on an e-book or mobile phone).”

(20 August 2009)

31

We Believe Ronald Burkle’s

Self-Serving

Agenda is not in the Best Interest of

Barnes & Noble Shareholders

32

Why You Should Reject Yucaipa’s Nominees

Ronald Burkle

has a history of taking control of companies without paying shareholders a

premium –

many with highly negative consequences

We believe Mr. Burkle’s

actions are part of his ongoing effort to gain control of Barnes & Noble

–

Yucaipa and Aletheia

together control 34% of outstanding shares

–

Yucaipa and Aletheia

have a history of following each other in making investments

–

In

response

to

the

company’s

Rights

Plan,

Burkle

sued

in

the

Chancery

court

in

Delaware

–

The court held for the company on every issue

–

The court said the Board’s “adoption and use of the Rights Plan was a good faith, reasonable

response

to

a

threat

to

Barnes

&

Noble

and

its

stockholders”

(Opinion,

pg.

87)

The Shareholder Rights Plan is more important now than ever

–

A special committee of independent Directors is reviewing strategic alternatives to maximize

shareholder value

–

The Rights Plan must continue in its current form in order to protect this process

–

A

special

meeting

of

shareholders

will

be

held

on

or

before

Nov.

17

to

ratify

the

Rights

Plan

If the Board’s nominees are elected, 7 of the 9 directors would be independent directors

Ron

Burkle’s

slate

proposes

two

“independent

Directors”

who

are

now

on

his

payroll

Burkle

has offered no strategy or plan to create shareholder value

33

th

Burkle

and Aletheia

–

A Clear Pattern Emerges

34

Barnes & Noble Ownership Percentage

3/31/2008

6/30/2008

9/30/2008

12/31/2008

3/31/2009

6/30/2009

9/30/2009

12/31/2009

3/31/2010

6/30/2010

Aletheia

0.4%

0.4%

0.6%

0.4%

5.7%

4.7%

4.8%

13.1%

17.1%

15.7%

Yucaipa

n/a

n/a

n/a

8.3%

8.3%

8.0%

8.0%

17.8%

18.7%

19.6%

Mr.

Burkle

Claims

That

He

“Barely

Knows”

Aletheia

–

But

Look at the Remarkable Pattern of Their Investments

Yucaipa Total Position

Aletheia Total Position

A&P: Yucaipa Total Position (Includes Warrants and Preferred Convertible)

35

Barnes & Noble

Whole Foods Market

A&P (The Great Atlantic and Pacific Tea Company)

Wild Oats Markets

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

2/26/2005

8/27/2005

2/25/2006

8/26/2006

2/24/2007

8/27/200

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

3/31/2008

9/04/2008

2/08/2009

7/15/2009

12/19/2009

5/21/2010

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

12/03/2007

5/24/2008

11/13/2008

5/05/2009

10/25/2009

4/16/2010

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

6/30/2008

11/05/2008

3/13/2009

7/19/2009

11/24/2009

3/31/2010

2/1/07:

Whole Foods announces

offer to acquire Wild Oats

Favorable Investment Timing?

Shareholders Should Not Let Burkle

Increase His Ownership

He Has Proven to Serve His Own

Interests Time and Time Again

As the Delaware Chancery Court found:

“Despite its protestations, Yucaipa’s prior investing history is replete

with

the

sorts

of

investments

that

often

lead

to

transactions

in

which

public

stockholders

are

treated

differently.

Although

Yucaipa

seems

to

have

mostly

entered

on

friendly

terms,

the

terms

it

extracted

have

often given it control rights not available more generally to

stockholders and its influence has resulted in important managerial

changes.”

(p. 68) (emphasis added)

36

Company

Issue

Comments

Aletheia

Follows

Investment by

Yucaipa

No Shareholder Rights Plan was in place to protect shareholders and

Yucaipa and Aletheia

together now control approximately 45% of A&P on a

fully diluted basis.

Preferential

Treatment

Right to designate 2 directors; in addition former Yucaipa appointee to

Pathmark board has been A&P director since Pathmark was acquired

Yucaipa approval required for certain business combinations exceeding $50

million, certain issuances of equity securities and amendments to articles of

incorporation and by-laws

The

approval

of

at

least

one

Yucaipa

nominated

director

required

for

certain

acquisitions and dispositions of assets exceeding $50 million, certain

issuances or repurchases of equity securities, incurrence of debt exceeding

$50 million and declaration of any dividends on common stock

The terms of Yucaipa’s Pathmark warrants were amended to permit

exchange of the warrants for A&P warrants.  A&P warrants received by

Yucaipa enable Yucaipa to have greater participation in any upside than

A&P’s

other stockholders

Yucaipa nominated director named Chief Administrative Officer; President

and CEO, EVP of Operations and SVP of Human Resources and

Communications also have Yucaipa ties

Payments to

Yucaipa;

Shareholders

Suffer

Four consulting agreements for Yucaipa employees each worth

$500,000/year

Share price decline of 40% since Yucaipa nominated directors were added

to the Board

Shareholders

Should

Think

Twice

Before

Allowing

Burkle

to

Increase

His

Ownership

He Has Proven to Serve His Own

Interests Time and Time Again

37

Company

Issue

Comments

Creeping

Control

While

owning

less

than

a

majority

of

Source,

Mr.

Burkle

took

control

of

board

by

reducing

board

size

so

that

Burkle’s

designees

constituted

a

majority

and

by naming Yucaipa partner as Chairman

Treatment of

Minority

Shareholders

Ignored long-time shareholder’s requests to “do what’s right for all

shareholders and not just [what is] in Yucaipa’s self interest”

Postponed annual meeting to keep shareholder proposal (relating to

declaration

of

special

dividend

to

return

value

to

shareholders)

out

of

proxy

materials

Poor Strategic

Decision

Review of strategic alternatives led by Yucaipa resulted in acquisition of

Primedia

for $1.2 B in 2007, which left company overlevered

Payments to

Yucaipa

Yucaipa entered into a $1 million per year consulting arrangement with

Source in 2005

Source paid Yucaipa an additional $12.8 million for special consulting services

in connection with Source’s review of strategic alternatives

Bankruptcy

Source filed for bankruptcy protection in April 2009, citing a heavy debt load

38

Shareholders

Should

Think

Twice

Before

Allowing

Burkle

to

Increase

His

Ownership

He Has Proven to Serve His Own

Interests Time and Time Again

Company

Issue

Comments

Burkle

Acquires Stake

Mr.

Burkle

acquired

a

22%

stake

in

Simon

Worldwide

(fka

Cyrk)

via

warrants

and convertible preferred shares

and received 3 of 7 Board seats (Burkle

chairman)

Scandal

Scandal

over

administration

of

McDonalds’

game

competitions

leads

to

loss

of major customers, lawsuits

Stock delisting due to insufficient assets and equity

Resignation of Burkle

as Chairman

Payments to

Yucaipa

Management consulting contract of $500,000/year and 1% of purchase

price of any acquisition/divestiture in which Yucaipa consulted

Sale or

Liquidation

Subsequent

to

a

recapitalization

giving

Mr.

Burkle

a

70%

stake,

stockholders

decided

to

either

sell

or

liquidate

the

company

by

end

of

2010

39

Shareholders

Should

Think

Twice

Before

Allowing

Burkle

to

Increase

His

Ownership

He Has Proven to Serve His Own

Interests Time and Time Again

Company

Issue

Comments

Burkle

Reportedly

Gains Influence

Ron Burkle

made investments in Kmart (11/2000) and Fleming Companies

(2/2001)

In same month Mr. Burkle

made his investment in Fleming, Kmart, as a part

of a superstore initiative that was reportedly encouraged by Burkle, entered

a 10-year $4.5Bn food supply agreement with Fleming

Burkle

Profits

but Companies

File for

Bankruptcy

Burkle

sold Fleming investment 10 months later (12/2001) with a $25

million

profit

(based on press estimates)

A

month

later

(1/2002),

Kmart

filed

for

bankruptcy;

Burkle

claims

to

have

purchased downside protection on Kmart stock

Fleming filed for bankruptcy in 4/2003

40

Shareholders

Should

Think

Twice

Before

Allowing

Burkle

to

Increase

His

Ownership

He Has Proven to Serve His Own

Interests Time and Time Again

In Our View The Record Is Clear: Ron Burkle

Pursues

His Own Interests –

NOT That of All Shareholders

41

Mr. Burkle’s

40+ page investor presentation lacks a single positive

idea, plan or strategy for BKS

The

BKS

Board

believes

Burkle’s

nominees

have

no

vision,

no

strategy

and

no

relevant

experience

to

build

value

at

Barnes

&

Noble

Burkle

has a history of investments characterized by

–

Creeping control without paying a premium

to all shareholders

–

Preferential

treatment

of

Yucaipa

–

Corporate governance failures

The

Board

is

convinced

Ron

Burkle

and

Aletheia

are

trying

to

gain

control

without paying a premium to all shareholders¹

–

Rights Plan with 20% trigger prevents Burkle/Aletheia

control group

1) While Yucaipa’s nominees, if elected would constitute a minority of the Board, the Board believes Yucaipa’s proposal to elect its

nominees, together with its efforts to weaken the Rights Plan, are part of a larger plan to obtain control of the company. 

We Believe the Current Rights Plan is

Necessary to Keep Burkle

and Aletheia

from

Gaining Control Without Paying a Premium

42

Barnes & Noble Shareholder Rights Plan

Adopted November 17, 2009 with a three-year term

20% triggering threshold

Leonard Riggio frozen at pre-existing ownership level of approximately 30%,

which includes options

Barnes & Noble publicly committed to put the Rights Plan to a shareholder

vote by November 17, 2010

Mr. Burkle sued in the Delaware Chancery Court to challenge the Rights Plan

Vice Chancellor Leo Strine upheld the Rights Plan following a trial on the merits

in July 2010; Burkle has appealed

43

Rights Plan Protects Barnes & Noble Shareholders

against the Formation of a Control Bloc

Mr.

Burkle

claims

he

wants

to

level

the

playing

field,

but

his

proposal

to

increase

the ownership threshold to 30% would allow formation of an absolute control

bloc –

Burkle

and Aletheia

already own 34%

Among

other

things,

this

control

bloc

would

give

Burkle

and

Aletheia

–

Ability to block outcome of the strategic alternatives process

–

Power to deny Barnes & Noble shareholders a control premium for their shares

As the Court stated:  “[T]he

board was concerned that Yucaipa could, along with

Aletheia

as

an

admiring

and

devoted

fellow

traveler,

essentially

form

a

control

bloc without paying a control premium.  Wielding effective voting control,

Yucaipa and Aletheia

could then propose options, such as a leveraged buyout in

which they remained as controlling stockholders, that might be less attractive to

the company’s other stockholders than would either the status quo or the sale

of the company in an open shopping process.  Contrary to Yucaipa’s view, I do

not believe that this concern is at all unreasonable.”

(p. 71)

44

What Did the Court Say about Yucaipa and Aletheia?

45

What

did

the

Court

say

about

Yucaipa

and

Aletheia’s

discussions

about

Barnes &

Noble?

–

“The

evidence

at

trial

also

showed

that

Eichler

and

Burkle

had

met

for

lunch

in

both

August

2009

and

January

2010,

although

Burkle

disclaims

having

had

any

serious

discussions

about

Barnes

&

Noble.

Notably,

however,

their

initial

meeting

on

August

14,

2009

was

the

same

day

that

Burkle

sent

his

first

letter

to

Riggio

complaining

about

the

College

Booksellers

transaction.

Furthermore,

Eichler

had

a

more

detailed,

and

quite

believable,

recollection

of

the

discussion.”

(p.

24)

–

“That

Burkle

and

Eichler

took

a

meeting

on

the

same

day

that

Burkle

shot

off

his

private

letter

to

Riggio

complaining about the College Booksellers deal, and met again after the Rights Plan was in place, are

events that I, being neither Goober Pyle or Kenneth Parcell, believe were anything but coincidental and

had

everything

to

do

with

Barnes

&

Noble”

(p.

67)

What did the Court say about a Yucaipa and Aletheia

control bloc?

–

“The testimonial record supports the conclusion that the board had good reason to be concerned that

these two large investors were capable of and interested in cooperating in a joint effort to take

effective

voting

control

of

the

company”

(p.

25)

–

“[I]t

is clear that Aletheia’s

Eichler

is a big admirer of Burkle

and that there is a strong possibility for the

immediate

formation

of

a

control

bloc

if

the

Rights

Plan

were

not

in

place”

(p.

73)

What Did the Court Say about the Rights Plan?

What did the Court say about the Board’s adoption of the Rights Plan?

–

The Board’s

“adoption

and

use

of

the

Rights

Plan

was

a

good

faith,

reasonable

response

to

a threat to Barnes & Noble and its stockholders”

(p. 87)

–

“In response to this threat that the corporation’s stockholders would relinquish control

through a creeping acquisition without the benefit of receiving a control premium, the

board adopted a measured pill that protected Barnes & Noble shareholders”

(p. 3)

What did the Court say about the Rights Plan’s 20% triggering threshold?

–

"In this respect, it is critical that the board used a 20% trigger rather than a 15% cap. With

the Riggios’

ownership, that threshold was reasonable because setting the threshold any

higher would have only made Yucaipa’s creeping acquisition of control more likely.”

(p.

84) (emphasis added)

–

“[The Board’s advisor] focused, in my view reasonably, on the notion that a standard pill

with a cap higher than 20% —

such as 25% —

would allow for the formation of a de facto

control bloc between Yucaipa and Aletheia

(or another activist) through conscious

parallelism.“

(p. 85)

46

How Can You Believe Burkle

Does Not

Want Control?

Last

November,

Mr.

Burkle’s

SEC

filings

reserved

the

right

for

Yucaipa

to

acquire all of the Company’s stock and Yucaipa notified the Company that it

had requested U.S. antitrust clearance to do so

This July, he testified in Court that he considered offering to buy the

Company

"Burkle

also

took

meetings

with

two

large

investment

banks,

Bank

of

America and Deutsche Bank, about the possibility of a leveraged buyout of

the company." (Opinion, p. 14)

He recently told New York magazine that he “would certainly consider a bid”

to buy the Company  (“The

Billionaire

and

the

Book

Lover,”

Andrew

Rice,

New

York,

August

30

–

September

6,

2010,

p.

40)

Ronald Burkle

has spent millions in legal fees on litigation to invalidate or

weaken

the

Rights

Plan

in

order

to

be

able

to

acquire

additional

BKS

shares

47

Highly Qualified Slate With Two New

Independent Nominees

48

Highly Qualified Slate with Two New Independent Nominees

49

Leonard Riggio

Visionary Founder, Chairman and former CEO of Barnes & Noble with 45+ years of entrepreneurial, executive

and board-level experience

Mr.

Riggio

has

led

Barnes

&

Noble

to

become

the

nation's

top

bookseller

brand

for

seven

years

in

a

row

(1)

and was a key leader of the Company’s expansion into digital media

Mr. Riggio

founded and serves as a director of GameStop Corporation

Mr. Riggio

is Barnes & Noble’s largest shareholder

David Golden

Top

executive

at

Revolution

LLC

with

over

20

years

of

technology

and

finance

experience,

maximizing

value

from investments in diversified portfolio of innovative consumer-facing businesses, including Zipcar

Provides significant Tech & Media experience having served as Vice Chairman and Director of JP Morgan’s

global technology, media and telecommunications investment banking practice

Dr. David Wilson

Brings

15

years

of

executive

and

board-level

experience

and

extensive

knowledge

of

the

education

market

as

President & CEO of the Graduate Management Admission Council

Specific previous Board experience in value-creating sale transactions of Terra Industries Inc. and Laureate

Education, Inc.

Valuable financial experience having served as Ernst & Young Audit Partner, Managing Partner, National

Director

of

Professional

Development

and

a

Director

of

the

Ernst

&

Young

Foundation

Notes: (1) Based on EquiTrend®  Brand Study by Harris Interactive®

Notes:  

(1)

Stephen

Bollenbach

and

Burkle

served

on

the

board

of

KB

Home

until

Burkle

stepped

down

in

April

2010.

According

to

Bollenbach,

he

and

Burkle

have

known

each

other

for

25

years

and

have

vacationed

together.

Michael

McQuary

would

have

joined

the

board

of

Liquid

Audio

Inc.

as

a

Yucaipa

director

upon

the

failed

merger

of

Alliance

Entertainment

Corp.,

a

company

majority-owned

by

Yucaipa,

and

Liquid

Audio

in

2002.

According

to

McQuary,

he

and

Burkle

met

10

years

ago

when

McQuary

did

consulting

work for Burkle’s

technology portfolio and have been friends since then.

(2) “Business

Insider:

What

would

you

do?”

The

Atlanta

Journal

–

Constitution.

May

8,

2008

The Board Believes Mr. Burkle’s

Nominees Are

Neither Independent Nor Qualified

50

Yucaipa’s “independent”

nominees have been hand-picked by Burkle, are each being paid $100,000 to run

and

have

each

had

prior

dealings

with

Burkle

(1)

In

the

Board’s

view,

Burkle’s

nominees

do

not

have

the

experience

to

build

value

at

Barnes

&

Noble

Ronald Burkle

Has

provided

no

strategic

vision

and

offered

no

plan

for

Barnes

&

Noble’s

future

Was

part

of

the

Yahoo!

Board

that

rejected

an

acquisition

proposal

from

Microsoft

at

$33

per

share

-

Possibly

the biggest missed opportunity in the history of technology M&A

Served

together

with

Mr.

Bollenbach

on

the

Board

of

troubled

homebuilder

KB

Home.

KB

Home

shares

are

down 40% in the last two years.

Stephen Bollenbach

Served

on

the

Board

of

Time

Warner

that

approved

the

merger

with

AOL

–

possibly

the

worst

M&A

transaction in history in terms of value destruction

Served

together

with

Mr.

Burkle

on

the

Board

of

troubled

homebuilder

KB

Home.

KB

Home

shares

are

down

40% in the last two years.

Served as lead director at AIG when it almost went bankrupt and needed a $180 billion taxpayer bailout to

mitigate systemic risk to the global financial system

Michael McQuary

Presided over a stock price decline of nearly 70% during his 2-1/2 year tenure as President of Earthlink

Later

admitted

publicly

that

he

was

“pushed

out”

(2)

Board nominees include the Founder and largest shareholder

and two new highly-qualified independents

Significant Experience in Book Industry, Technology, Education,

Corporate Governance and Strategic Alternatives

Strong Governance

–

If Board’s nominees are elected, 7 of 9 directors would be independent

–

Separated positions of Chairman & CEO

–

Independent Audit, Compensation and Governance Committees

Electing the Board’s Nominees is in

the Best Interests of B&N Shareholders

51

Ron Burkle

Ron Burkle

and his nominees do not bring any relevant experience,

and his nominees do not bring any relevant experience,

insight or business plan to BKS

insight or business plan to BKS

52

Conclusion

Barnes & Noble is at a crucial inflection point:

Executing value-creating strategy in evolving industry with positive early results

Requires focused execution to drive shareholder value

Supported by an experienced and engaged Board

Independent Special Committee reviewing strategic alternatives to maximize value

Barnes & Noble does NOT need:

What is, in the Board’s view, a thinly veiled attempt by Yucaipa and Aletheia

to

acquire control without paying a premium to all shareholders

Burkle’s

nominees, who the Board believes have demonstrated no vision, no strategy

and no relevant experience

Costly legal battles to the detriment of shareholder value

Protect Your Investment: Vote the WHITE Proxy Card FOR The Barnes & Noble

Protect Your Investment: Vote the WHITE Proxy Card FOR The Barnes & Noble

Nominees and AGAINST Yucaipa’s Rights Plan Proposal

Nominees and AGAINST Yucaipa’s Rights Plan Proposal

Appendix

53

54

Overview of Other Ongoing Related Party Transactions

Transaction

Since

Expense

(FY’10)

Comments

Aircraft Time

Sharing Agreement

Pre-IPO

$0.4MM

Use of jet aircraft owned by LR Enterprises Management LLC owned

by Len

Riggio

and others (prior to 2010, used aircraft owned by B&N College)

Reimbursement of costs for usage

Lease

Agreements

Pre-IPO

$4.9MM

$0.5MM

$0.8MM

Leases

2

corporate

office

buildings

where

Len

Riggio

has

an

ownership

interest,

expiring in 2013 and 2016

Company leases one of its B&N College stores from partnership owned by

Leonard and Stephen Riggio, expiring in 2014

Company leases office/warehouse from partnership in which Leonard Riggio

has

50% interest, expiring 2023

Freight Distribution

Agreement

1996

$17.2MM

Argix

Direct (formerly the LTA Group) provides national freight distribution

services for many major retailers including: Ann Taylor, Barney’s, Coach, Hot

Topic, Limited, Liz Claiborne, Polo and Toys R Us

A brother of Len and Steve Riggio

owns a 20% interest in Argix

(since 1996)

Argix

provided services to BKS for over 20 years –

long before this investment

Rates comparable to third-party freight distributors at time of agreement

Argix

higher contracted fuel surcharge and transportation costs led to amended

agreement providing annual credit to Company’s costs to level Argix

costs to

market

Source Interlink /

Digital on Demand

1993

(1)

$34.0MM

$3.0MM

Source Interlink used as primary supplier of music and DVD/video

Digital on Demand used as provider of music and video database equipment and

services

Len Riggio

and Yucaipa both owned minority interests in Source Interlink (prior

to its bankruptcy, through its parent company AEC Associates, LLC). Both own

minority interests in Digital on Demand through same investment

(1)

The predecessor company AEC One Stop Group started providing services to B&N in 1993. In 1999, AEC’s parent was acquired by an investor group in

which Len Riggio and  Yucaipa were minority investors

College: EBITDA Reconciliation Table

55

Pro Forma Fiscal 2010 ($ 000's)

12 Month Operating Profit

$      49,241

Depreciation & Amortization

37,350

12 Month EBITDA

$      86,591

Pre-Acquisition Adjustments:

Seller Paid Employee Bonuses

96,861

Gain on Transfer of Stock

(72,466)

Non-Cash Asset Impairments

6,163

Total Pre-Acquisition Adjustments

$      30,558

12 Month Adjusted EBITDA

$    117,149