Barnes and Noble 2015 Annual Report Download - page 26

On December , , Morrison, Microsoft, Barnes &
Noble and Barnes & Noble Education entered into agree-
ments pursuant to which Morrison’s interest in the LLC
was purchased by Barnes & Noble Education and the
Microsoft commercial agreement was terminated effective
as of such date. Pursuant to the Purchase Agreement (the
Purchase Agreement) among Barnes & Noble, Barnes &
Noble Education, Morrison, and Microsoft, Barnes & Noble
Education purchased from Morrison, and Morrison sold,
all of its . million convertible Series A preferred
limited liability company interest in the LLC in exchange
for an aggregate purchase price of . million consist-
ing of (i) . million in cash and (ii) ,, shares
of common stock, par value . per share, of Barnes
& Noble. The Purchase Agreement closed on December
, . The Company accounted for this transaction in
accordance with ASC -, Non Controlling Interest (ASC
-) and accordingly, the transaction was reflected as
an equity transaction. In connection with the closing, the
parties entered into a Digital Business Contingent Payment
Agreement pursuant to which Microsoft is entitled to
receive . of the proceeds from, among other events
or transactions, () any future dividends or other dis-
tributions received from Barnes & Noble’s NOOK digital
business at any time until the date that is three years from
the closing, subject to a one-year extension under certain
circumstances, and () the sale of Barnes & Noble’s NOOK
digital business at any time until the date that is three years
from the closing, subject to a one-year extension under
certain circumstances.
On December , , the LLC entered into an agree-
ment with a subsidiary of Pearson plc (Pearson) to make
a strategic investment in the LLC. That transaction closed
on January , , and Pearson invested approximately
. million of cash in the LLC in exchange for preferred
membership interests representing a  equity stake in
the LLC. Following the closing of the transaction, Barnes
& Noble owned approximately . of the LLC and
Microsoft owned approximately .. The preferred
membership interests had a liquidation preference equal
to the original investment. In addition, the LLC granted
warrants to Pearson to purchase up to an additional  of
the LLC under certain conditions. Upon the completion of
the acquisition of Pearson’s interest in the LLC, as stated
below, the temporary equity was converted to permanent
equity.
At closing, the LLC and Pearson entered into a commercial
agreement with respect to distributing Pearson content in
connection with this strategic investment. On December
, , the LLC entered into an amendment to the com-
mercial agreement that extends the term of the agreement
and the timing of the measurement period to meet certain
revenue share milestones.
On December , , Barnes & Noble entered into a
Purchase Agreement (the Pearson Purchase Agreement)
among Barnes & Noble, Barnes & Noble Education, NOOK
Media Member Two LLC, a Delaware limited liability
company (NOOK Member Two), Pearson Education,
Inc. (Pearson Education) and Pearson Inc., pursuant to
which Barnes & Noble Education and NOOK Member
Two purchased from Pearson Education all of its convert-
ible Series B preferred limited liability company interest
in the LLC and all of its warrants to purchase additional
Series B preferred limited liability company interests,
in exchange for an aggregate purchase price equal to (i)
. million in cash and (ii) , shares of common
stock, par value . per share, of Barnes & Noble. The
transactions under the Pearson Purchase Agreement closed
on December , . The Company accounted for this
transaction in accordance with ASC - and it accord-
ingly was reflected as an equity transaction. As a condi-
tion to closing, the parties entered into an amended and
restated Digital Business Contingent Payment Agreement,
pursuant to which a Digital Business Contingent Payment
Agreement dated as of December , , by and between
Barnes & Noble, the LLC and Pearson, was amended and
restated to include provisions consistent with the Digital
Business Contingent Payment Agreement entered into with
Morrison on December , .
On June , , NOOK Digital, a wholly owned subsidiary
of B&N Education as of such date and a subsidiary of Barnes
& Noble, entered into the Agreement with Samsung relat-
ing to tablets.
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 may be 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 purchase
a minimum of ,, NOOK®-Samsung co-branded
24 Barnes & Noble, Inc. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued