Barnes and Noble 2010 Annual Report Download - page 61

a motion for a preliminary injunction seeking to enjoin
shipments of NOOK™. A hearing on plaintiff’s prelimi-
nary injunction motion took place on November 30, 2009.
On December 1, 2009, the Court issued an order denying
plaintiff’s motion for a preliminary injunction, in which it
stated, among other things, that plaintiff had not presented
sufficient evidence to show that it is likely to succeed on
the merits. On January 12, 2010, plaintiff filed a second
amended complaint, and on April 22, 2010, after Barnes &
Noble.com’s motion to dismiss certain issues on the face
of the pleadings was denied, Barnes & Noble.com filed an
answer denying all claims.
Yucaipa American Alliance Fund II, L.P. v. Leonard Riggio,
et al.
On May 5, 2010, a complaint was filed in Delaware
Chancery Court by two of the Company’s shareholders
against the Company and its directors. The complaint gen-
erally alleges breaches of fiduciary duties by the Company’s
directors in connection with the adoption of a Shareholders
Rights Plan on November 17, 2009, and the amendment of
that plan on February 17, 2010. The complaints generally
seek damages in an unspecified amount; costs and fees;
and equitable relief, including injunctive relief. On May 5,
2010, the plaintiffs also filed a motion for expedited pro-
ceedings. The Court granted that motion on May 25, 2010
and set a trial on the matter to begin on July 8, 2010.
22. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
The Company believes that the transactions and agree-
ments discussed below (including renewals of any exist-
ing agreements) between the Company and related third
parties are at least as favorable to the Company as could
have been obtained from unrelated parties at the time they
were entered into. The Audit Committee of the Board of
Directors utilizes procedures in evaluating the terms and
provisions of proposed related party transactions or agree-
ments in accordance with the fiduciary duties of directors
under Delaware law. The Company’s related party transac-
tion procedures contemplate Audit Committee review and
approval of all new agreements, transactions or courses
of dealing with related parties, including any modifica-
tions, waivers or amendments to existing related party
transactions. The Company tests to ensure that the terms
of related party transactions are at least as favorable to
the Company as could have been obtained from unrelated
parties at the time of the transaction. The Audit Committee
considers, at a minimum, the nature of the relationship
between the Company and the related party, the history of
the transaction (in the case of modifications, waivers or
amendments), the terms of the proposed transaction, the
Company’s rationale for entering the transaction and the
terms of comparable transactions with unrelated third par-
ties. In addition, management annually analyzes all existing
related party agreements and transactions and reviews
them with the Audit Committee.
The Company completed the Acquisition of B&N College
from Leonard Riggio and Louise Riggio (Sellers) on
September 30, 2009 (see Note 4). Mr. Riggio is the
Chairman of the Company’s Board of Directors and a
significant stockholder. The Company is a party to a Stock
Purchase Agreement dated as of August 7, 2009 among
the Company and the Sellers. As part of the Acquisition,
the Company acquired the Barnes & Noble trade name
that had been owned by B&N College and licensed to the
Company (described below). The purchase price paid to
the Sellers was $596,000, consisting of $346,000 in cash
and $250,000 in Seller Notes (described below). However,
the cash paid to the Sellers was reduced by approximately
$82,352 in cash bonuses paid by B&N College to 192
members of its management team and employees (Bonus
Recipients), not including Leonard Riggio. Pursuant to
the terms of the Purchase Agreement, prior to the closing
of the Acquisition, B&N College distributed to the Sellers
certain assets that are not related to B&N College’s core
business, including common stock in the Company. In
connection with such distribution, 667,058 shares of the
common stock in the Company previously held by B&N
College were transferred to certain of the Bonus Recipients.
The Company financed the Acquisition through $250,000
of Seller Notes, $150,000 from the Credit Facility and the
remainder from both the Company’s and B&N College’s
cash on hand.
In connection with the closing of the Acquisition, the
Company issued the Sellers (i) a senior subordinated
note in the principal amount of $100,000, payable in full
on December 15, 2010, with interest of 8% per annum
payable on the unpaid principal amount, and (ii) a junior
subordinated note in the principal amount of $150,000,
payable in full on the fifth anniversary of the closing of the
Acquisition, with interest of 10% per annum payable on
the unpaid principal amount (collectively, Seller Notes).
The Seller Notes are unsecured and subordinated to the
obligations under the Credit Facility and certain other
senior obligations. The Company may prepay the Seller
Notes at any time without premium or penalty to the extent
not prohibited by senior debt documents, provided that the
Company may not prepay the junior Seller Note until the
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