Barnes and Noble 2012 Annual Report Download - page 50

nection with the closing conditions and is working to try
and complete the required conditions prior to the required
date set forth in the defi nitive agreement.
Investment Agreement
Pursuant to the agreement, Microsoft would invest
, in NewCo in exchange for , Series A
Preferred interest, representing approximately . of
the common membership interest in NewCo on an as-
converted basis. Following Microsoft’s investment, the
Company would retain the common membership interest
in NewCo, representing approximately . of the com-
mon membership interests in NewCo (after giving eff ect
to the conversion of the Series A Preferred interests into
common membership interests).
Commercial Agreement
Under the commercial agreement, NewCo will develop
certain applications for Windows  for purchasing the
consumption of digital reading content. The commercial
agreement also requires NewCo to use its good faith eff orts
to undertake an international expansion of the digital
business.
As part of the commercial agreement, NewCo and Microsoft
would share in the revenues, net of certain items, from
digital content purchased from NewCo by customers using
the NewCo Windows  applications or through certain
Microsoft products and services that may be developed
in the future and are designed to interact with the NewCo
online bookstore. Microsoft will make certain nonre-
fundable advance payments to NewCo in connection with
such revenue sharing. For each of the fi rst three years
after the launch of such application for Windows , these
advance payments would be equal to , per year.
These advance payments would be subject to deferral
under certain circumstances. Microsoft would also pay
to NewCo , each year for the fi rst fi ve years of the
term for purposes of assisting NewCo in acquiring local
digital reading content and technology development in the
performance of NewCo’s obligations under the commercial
agreement.
Settlement and License Agreement
The patent agreement provides for Microsoft and its
subsidiaries to license to the Company and its affi liates
certain intellectual property in exchange for royalty pay-
ments based on sales of certain devices. Additionally, the
Company and Microsoft will dismiss certain outstanding
patent litigation between the Company, Microsoft and their
respective affi liates in accordance with the settlement and
license agreement.
12. LIBERTY INVESTMENT
On August , , the Company entered into an invest-
ment agreement between the Company and Liberty GIC,
Inc. (Liberty), a subsidiary of Liberty Media Corporation,
pursuant to which the Company issued and sold to
Liberty, and Liberty purchased, , shares of the
Company’s Series J Preferred Stock, par value .
per share (Preferred Stock), for an aggregate purchase
price of ,, in a private placement exempt from
the registration requirements of the  Act. The shares
of Preferred Stock will be convertible, at the option of
the holders, into shares of Common Stock representing
. of the Common Stock outstanding as of August ,
, (after giving pro forma eff ect to the issuance of the
Preferred Stock), based on the initial conversion rate. The
initial conversion rate refl ects an initial conversion price
of . and is subject to adjustment in certain circum-
stances. The initial dividend rate for the Preferred Stock is
equal to . per annum of the initial liquidation prefer-
ence of the Preferred Stock, to be paid quarterly and subject
to adjustment in certain circumstances. The Preferred
Stock is mandatorily redeemable on August ,  and
may be redeemed at the discretion of the Company any-
time after August , . Starting August , , if the
closing price of the Common Stock exceeds  of the
then-applicable conversion price of the Preferred Stock
for  consecutive trading days, the Company may require
conversion of all the Preferred Stock to Common Stock.
The holders of the Preferred Stock have the same vot-
ing rights as holders of the Company Common Stock and
are entitled to elect one or two directors to the board of
directors of the Company as long as certain Preferred Share
ownership requirements are met.
The entry into the investment agreement and the issu-
ance and sale of the Preferred Stock was approved by the
Company’s Board of Directors following a recommendation
made by a Special Committee of the Board of Directors. The
terms, rights, obligations and preferences of the Preferred
Stock are set forth in a Certifi cate of Designations of the
Company, which was fi led with the Secretary of State of the
State of Delaware on August , . On August , ,
the Company amended the Rights Agreement to refl ect the
issuance of the Preferred Stock.
The Preferred Stock does not meet the categories of ASC
-, Distinguishing Liabilities from Equity, and is there-
fore reported as temporary equity for classifi cation
48 Barnes & Noble, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued