Barnes and Noble 2015 Annual Report Download - page 11

Pursuant to the Agreement, NOOK Digital, after good faith
consultations with Samsung and subject to Samsung’s
agreement, selected Samsung tablet devices under devel-
opment to be customized and co-branded by NOOK Digital.
Such devices are produced by Samsung. The co-branded
NOOK® tablet devices are sold by NOOK Digital through
Barnes & Noble retail stores, www.barnesandnoble.
com, www.nook.com and other Barnes & Noble websites.
NOOK Digital and Samsung agreed to develop co-branded
Samsung Galaxy Tab®  NOOK® tablets as the initial co-
branded devices pursuant to the Agreement.
Under the Agreement, NOOK Digital committed to pur-
chase a minimum of ,, NOOK-Samsung co-
branded devices from Samsung within  months after
the launch of the initial co-branded device, which launch
occurred on August , . The -month period was
automatically extended by three months due to the quantity
of sales of such co-branded devices through December ,
, and the period was further extended until June ,
 by an amendment executed by the parties on March ,
.
NOOK Digital and Samsung have agreed to coordinate
customer service for the co-branded NOOK® devices and
have both agreed to a license of intellectual property to
promote and market the devices. Additionally, Samsung
has agreed to fund a marketing fund for the co-branded
NOOK® devices at the initial launch and for the duration of
the Agreement.
The Agreement has a two-year term, with certain termina-
tion rights, including termination (i) by NOOK Digital for
a Samsung material default; (ii) by Samsung for a NOOK
Digital material default; (iii) by NOOK Digital if Samsung
fails to meet its shipping and delivery obligations in any
material respect on a timely basis; and (iv) by either party
upon insolvency or bankruptcy of the other party.
The companies introduced the Samsung Galaxy Tab® 
NOOK® in a -inch version in the U.S. in August  and
a -inch version in October . The co-branded device
combines the popular Samsung Galaxy Tab®  hardware
with customized NOOK® software to give customers power-
ful, full-featured tablets that are designed for reading, with
easy access to Barnes & Noble’s expansive digital collection
of approximately four million eBooks, digital magazines
and newspapers.
SERIES J PREFERRED SHARES
On August , , the Company entered into an invest-
ment agreement between the Company and Liberty GIC,
Inc. (Liberty) 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 . million 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 effect to the issuance of the
Preferred Stock), based on the initial conversion rate. The
initial conversion rate reflects 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.
On April , , Liberty sold the majority of its shares
to qualified institutional buyers in reliance on Rule A
under the Securities Act and has retained an approximate
 percent stake of its initial investment. As a result,
Liberty will no longer have the right to elect two preferred
stock directors to the Company’s Board. Additionally, the
consent rights and pre-emptive rights to which Liberty was
previously entitled ceased to apply.
On June , , the Company entered into conversion
agreements with five existing beneficial owners (Series J
Holders) of its Preferred Stock, pursuant to which each of
the Series J Holders has agreed to convert (Conversion)
shares of Preferred Stock it beneficially owns into shares
of the Company’s common stock, par value . per
share (Company Common Stock), and will in addition
receive a cash payment from the Company in connection
with the Conversion. The Series J Holders have agreed
to convert an aggregate of , shares of Preferred
Stock into ,, shares of Company Common Stock
in the Conversion, and the Company has agreed to make
an aggregate cash payment to the Series J Holders of .
million plus cash in lieu of fractional shares in connection
with the Conversion, in each case, subject to adjustment
under certain circumstances. The Company expects to issue
the shares of Company Common Stock to be issued in the
Conversion on or about July , .
2015 Annual Report 9