Barnes and Noble 2015 Annual Report Download - page 66

that the Company improperly allocated certain Information
Technology expenses between its NOOK and Retail seg-
ments for purposes of segment reporting. The Company is
cooperating with the SEC, including responding to requests
for documents.
21. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
The Company believes that the transactions and agree-
ments discussed below (including renewals of any existing
agreements) between the Company and 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 modifications,
waivers or amendments to existing related party transac-
tions. 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 transac-
tion (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-parties. In
addition, management and internal audit annually analyzes
all existing related party agreements and transactions and
reviews them with the Audit Committee.
The Company completed the acquisition (the Acquisition)
of B&N College from Leonard Riggio and Louise Riggio (the
Sellers) on September , . In connection with the
closing of the Acquisition, the Company issued the Sellers
(i) a senior subordinated note in the principal amount of
,, with interest of  per annum payable on the
unpaid principal amount, which was paid on December
,  in accordance with its scheduled due date, and
(ii) a junior subordinated note in the principal amount of
, (the Junior Seller Note), with interest of  per
annum payable on the unpaid principal amount, which was
paid on September ,  in accordance with its sched-
uled due date. Pursuant to a settlement agreed to on June
, , the Sellers waived their right to receive , in
principal amount (and interest on such principal amount)
of the Junior Seller Note.
B&N College has a long-term supply agreement (Supply
Agreement) with MBS Textbook Exchange, Inc. (MBS),
which is majority owned by Leonard Riggio and other
members of the Riggio family. MBS is a new and used
textbook wholesaler, which also sells textbooks online
and provides bookstore systems and distant learning
distribution services. Pursuant to the Supply Agreement,
which has a term of ten years, and subject to availability
and competitive terms and conditions, B&N College will
continue to purchase new and used printed textbooks for a
given academic term from MBS prior to buying them from
other suppliers, other than in connection with student
buy-back programs. Additionally, the Supply Agreement
provides for B&N College to sell to MBS certain textbooks
that B&N College cannot return to suppliers or use in its
stores. MBS pays B&N College commissions based on the
volume of these textbooks sold to MBS each year and with
respect to the textbook requirements of certain distance
learning programs that MBS fulfills on B&N College’s
behalf. MBS paid B&N College ,, , and ,
related to these commissions in fiscal , fiscal  and
fiscal , respectively. In addition, the Supply Agreement
contains restrictive covenants that limit the ability of
B&N College and the Company to become a used textbook
wholesaler and that place certain limitations on MBS’s
business activities. B&N College and Barnes & Noble also
entered into an agreement with MBS in fiscal  pursu-
ant to which MBS agrees to purchase at the end of a given
semester certain agreed upon textbooks which B&N College
and Barnes & Noble shall have rented to students during
such semester. Total sales to MBS under this program were
, , and  for fiscal , fiscal  and fiscal
, respectively. In addition, B&N College entered into
an agreement with MBS in fiscal  pursuant to which
MBS purchases books from B&N College, which have no
resale value for a flat rate per box. Total sales to MBS under
this program were ,  and  for fiscal ,
fiscal  and fiscal , respectively. Total outstanding
amounts payable to MBS for all arrangements net of any
amounts due were , and , for fiscal  and
fiscal , respectively.
The Company purchases new and used textbooks directly
from MBS. Total purchases were ,, , and
, for fiscal , fiscal  and fiscal , respec-
tively. MBS sells used books through the Barnes & Noble
dealer network. The Company earned a commission of
,, , and , on the MBS used book sales
64 Barnes & Noble, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued