INVESTMENT AGREEMENT

among

BARNES & NOBLE, INC.,

MORRISON INVESTMENT HOLDINGS, INC.

and

MICROSOFT CORPORATION (solely for purposes of Section 3.06)

Dated as of April 27, 2012

 

 

Table of Contents

 

Schedules
Form of Amended and Restated Limited Liability Company Agreement of NewCo LLC	Annex A
Form of Registration Rights Agreement	Annex B
Separation Principles	Annex C
Form of Joinder Agreement	Exhibit A

 

 

 

 

Index of Defined Terms

 

 

     INVESTMENT AGREEMENT dated as of April 27, 2012 (this “ Agreement ”), among BARNES & NOBLE, INC., a Delaware corporation (the “ Parent ”), MORRISON INVESTMENT HOLDINGS, INC., a Nevada corporation (the “ Investor ”) and, solely for purposes of Section 3.06, MICROSOFT CORPORATION, a Washington corporation (“ Microsoft ”).

 

         WHEREAS Parent desires to sell to the Investor, and the Investor desires to purchase, a minority interest in Parent’s Digital Business and College Business.

 

         WHEREAS subject to Section 3.04, the form of the Investor’s investment is intended to be the purchase pursuant to the terms and conditions set forth in this Agreement of Preferred Membership Interests in a newly formed Delaware limited liability company (“ NewCo ”) to which Parent shall, prior to the Closing, transfer its Digital Business and College Business.

 

         NOW, THEREFORE, in consideration of the representations, warranties, covenants and agreements contained in this Agreement, and subject to the conditions set forth herein, the parties hereto, intending to be legally bound, hereby agree as follows:

ARTICLE I

Pre-Closing; Purchase and Sale; Closing

 

         SECTION 1.01     Formation of NewCo .  (a)  Prior to the Closing, Parent shall form NewCo pursuant to and in accordance with the Delaware Limited Liability Company Act (the “ Act ”).

 

         (b)     Promptly thereafter, Parent shall cause NewCo to become a party to this Agreement and adopt this Agreement with the same force and effect as if it were originally a party hereto by executing a Joinder Agreement in the form attached as Exhibit A (a “ Joinder Agreement ”).

 

         SECTION 1.02     Purchase and Sale of the Preferred Membership Interests .  On the terms and subject to the conditions set forth in this Agreement, at the Closing, Parent shall cause NewCo to issue, sell and deliver to the Investor, and the Investor shall purchase and acquire from NewCo, 300,000 Preferred Membership Interests for a purchase price per Preferred Membership Interest equal to $1,000, payable as set forth in Section 1.03(b).  The purchase and sale of the Preferred Membership Interests is referred to in this Agreement as the “ Preferred Membership Interest Purchase ”.

 

         SECTION 1.03     Closing .  (a)  The closing of the Preferred Membership Interest Purchase (the “ Closing ”) shall take place at the offices of Cravath, Swaine & Moore LLP, Worldwide Plaza, 825 Eighth Avenue, New York, New York 10019, on the second Business Day following the satisfaction (or, to the extent permitted by law, the waiver by the parties entitled to the benefits thereof) of the conditions set forth in Article IV, other than conditions that by their nature are to be satisfied as of the Closing, or, if on such second Business Day any condition set forth in Article IV is not satisfied (or, to the extent permitted by Law, waived by the party or parties entitled to the benefits thereof), as soon as practicable after all the conditions set forth in Article IV are satisfied (or, to the extent permitted by Law, waived by the party or parties entitled to the benefits thereof), or at such other place, time and date as shall be agreed between Parent and the Investor.  The date on which the Closing occurs is referred to in this Agreement as the “Closing Date”.

 

 

 

         (b)     At the Closing, (i) Parent shall cause NewCo to deliver to the Investor a certificate representing 300,000 Preferred Membership Interests issued to such Investor, duly registered in the name of the Investor, (ii) the Investor shall pay to NewCo, by wire transfer to a bank account designated in writing by NewCo of immediately available funds, $300,000,000 and (iii) Parent and the Investor shall amend and restate NewCo’s limited liability company agreement to be substantially in the form of Annex A hereto (the “ LLC Agreement ”).

ARTICLE II

Representations and Warranties

 

         SECTION 2.01     Representations and Warranties of Parent .  (a)  Except as set forth in the Disclosure Letter, Parent represents and warrants as of the date hereof and as of the Closing Date to the Investor as follows:

           (i)     Organization, Standing and Corporate Power .  Parent and each of its Subsidiaries is duly organized and validly existing under the Laws of its jurisdiction of organization and has all requisite corporate or other entity power and authority to own or lease all of its properties and assets and to carry on its business as presently conducted.  Each of Parent and its Subsidiaries is duly qualified or licensed to do business and is in good standing (where such concept is recognized under applicable Law) in each U.S. jurisdiction where the nature of its business or the ownership, leasing or operation of its properties makes such qualification or licensing necessary, other than where the failure to be so qualified, licensed or in good standing would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the ability of Parent or NewCo to consummate the transactions contemplated by this Agreement.

           (ii)            Authorization; Enforceability .  (A)  Parent has all requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated by this Agreement.  The execution and delivery of this Agreement by Parent and the consummation of the transactions contemplated by, and compliance with the provisions of, this Agreement by Parent have been duly authorized and approved by all necessary corporate action on the part of Parent.  On or prior to the date of this Agreement, the board of directors of Parent has duly adopted resolutions approving this Agreement and the transactions contemplated hereby (and, as of the date of this Agreement, the resolutions giving effect to such corporate actions have not been rescinded, modified or withdrawn in any way).  This Agreement has been duly executed and delivered by Parent and, assuming the due authorization, execution and delivery by the Investor, constitutes a legal, valid and binding obligation of Parent, enforceable against Parent in accordance with its terms, subject, as to enforceability, to bankruptcy, insolvency and other Laws of general applicability relating to or affecting creditors’ rights and to general equity principles, whether considered in a proceeding at law or in equity.

 

 

 

 

          (B)           No vote, consent or approval of the stockholders of Parent is required under applicable Law, under Parent’s Certificate of Incorporation or Parent’s By-Laws, or under any Contract between Parent and any stockholder of Parent, to authorize or approve this Agreement or the transactions contemplated hereby.

 

           (iii)     No Conflict .  (A)  Parent is not in violation or default of any provision of its Certificate of Incorporation or its By-Laws.  The execution and delivery by Parent of this Agreement do not, and the consummation of the transactions contemplated by this Agreement and compliance by Parent with the provisions of this Agreement will not conflict with, or result in any violation or breach of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancelation or acceleration of any obligation or to the loss of a benefit under, or result in the creation of any right or benefit on the part of any third party under, or result in the creation of any conflicts, violations, breaches, defaults, rights, losses or pledges, liens, charges, mortgages, encumbrances or security interests of any kind or nature (collectively, “ Liens ”) upon any of the properties or assets of Parent or any of its Subsidiaries under any term, condition or provision of (1) Parent’s Certificate of Incorporation or By-Laws or (2) (x) any loan or credit agreement, license, contract, lease, sublease, indenture, note, debenture, bond, mortgage or deed of trust or other agreement, arrangement or understanding (a “ Contract ”) to which Parent or any of its Subsidiaries is a party or by which any of their respective properties or assets are bound and that is material to the business of Parent and its Subsidiaries, taken as a whole, (y) any supranational, Federal, national, state, provincial or local statute, law (including common law), ordinance, rule or regulation of any Governmental Entity (“ Law ”) that is material to Parent and its Subsidiaries, taken as a whole, or (z) any judgment, injunction, order or decree of any Governmental Entity (“ Judgment ”), permit, concession, grant or franchise, in each case, applicable to Parent or any of its Subsidiaries or any of their respective properties or assets, other than, in the case of such sub-clause (2) above, any such conflicts, violations, breaches, defaults, rights, losses or Liens that would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the ability of Parent or NewCo to consummate the transactions contemplated by this Agreement.

 

          (B)      Other than in connection or in compliance with the provisions of the Securities Act of 1933, as amended (the “ Securities Act ”), the securities or blue sky laws of the various states, no notice to, registration, declaration or filing with, review by, or authorization, consent, order, waiver or approval of, any governmental or regulatory (including any stock exchange) authorities, agencies, courts, commissions or other entities, whether Federal, state, local or foreign, or applicable self-regulatory organizations (each, a “ Governmental Entity ”) is necessary for the consummation by Parent of the transactions contemplated by this Agreement.

 

 

 

 

     (iv)     SEC Documents; Undisclosed Liabilities; Disclosure Controls and Procedures .  (A)  Parent has filed all material reports, schedules, forms, statements and other documents with the Securities and Exchange Commission (the “ SEC ”) required to be filed by Parent pursuant to the Securities Act or the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), since January 31, 2009 (the “ SEC Documents ”).  As of their respective effective dates (in the case of SEC Documents that are registration statements filed pursuant to the requirements of the Securities Act) and as of their respective dates of filing (in the case of all other SEC Documents), the SEC Documents complied in all material respects with the requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable thereto, and, except to the extent amended or superseded by a subsequent filing with the SEC prior to the date of this Agreement, as of such respective dates, none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.  As of the date of this Agreement, there are no outstanding or unresolved comment letters received from the SEC or its staff.  The audited consolidated financial statements and the unaudited quarterly financial statements (including, in each case, the notes thereto) of Parent included or incorporated by reference in the SEC Documents when filed complied in all material respects with the published rules and regulations of the SEC with respect thereto, have been prepared in all material respects in accordance with generally accepted accounting principles (“ GAAP ”) (except, in the case of unaudited quarterly statements, as permitted by Form 10-Q of the SEC or other rules and regulations of the SEC) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present in all material respects the consolidated financial position of Parent and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited quarterly statements, to normal year-end adjustments).

 

          (B)           Except for matters reflected or reserved against in the consolidated balance sheet of Parent (or the notes thereto) included in Parent’s Form 10-Q for the quarterly period ended January 28, 2012, neither Parent nor any of its Subsidiaries has any liabilities (whether absolute, accrued, contingent, fixed or otherwise) of any nature that would be required under GAAP, as in effect on the date of this Agreement, to be reflected on a consolidated balance sheet of Parent (including the notes thereto), except liabilities that (1) were incurred since the date of such balance sheet in the ordinary course of business, (2) are incurred in connection with the transactions contemplated by this Agreement or (3) would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the business, assets or properties of Parent and its Subsidiaries, taken as a whole.  There are no unconsolidated Subsidiaries of Parent or any off-balance sheet arrangements of any type (including any off-balance sheet arrangement required to be disclosed pursuant to Item 303(a)(4) of Regulation S-K promulgated under the Securities Act) that have not been so described in the SEC Documents nor any obligations to enter into any such arrangements.

 

 

 

 

          (C)      Parent has established and maintains disclosure controls and procedures and a system of internal controls over financial reporting (as such terms are defined in paragraphs (e) and (f), respectively, of Rule 13a-15 under the Exchange Act) as required by Rule 13a-15 under the Exchange Act.  Since January 31, 2009, neither Parent nor Parent’s independent registered public accounting firm has identified or been made aware of “significant deficiencies” or “material weaknesses” (as defined by the Public Company Accounting Oversight Board) in the design or operation of Parent’s internal controls and procedures which would reasonably be expected to adversely affect in any material respect Parent’s ability to record, process, summarize and report financial data, in each case which has not been subsequently remediated.  To the knowledge of Parent, there is no fraud, whether or not material, that involves Parent’s management or other employees who have a significant role in the preparation of financial statements or the internal control over financial reporting utilized by Parent and its Subsidiaries.

 

    (v)            NewCo Subsidiaries .  Parent owns, directly or indirectly, all of the outstanding membership interests of Barnes & Noble College Booksellers LLC and barnesandnoble.com llc (the “ NewCo Subsidiaries ”), free and clear of any Liens, and all of such shares or equity interests are duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights, with no personal liability attaching to the ownership thereof.  As of the Closing NewCo will own, directly or indirectly, all of the outstanding membership interests in each NewCo Subsidiary, free and clear of any Liens, and all of such shares or equity interests are duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights, with no personal liability attaching to the ownership thereof.

 

         (b)           Except as set forth in the Disclosure Letter, Parent represents and warrants as of the Closing Date to the Investor as follows:

 

    (i)             Organization, Standing and Corporate Power of NewCo .  NewCo is duly organized and validly existing under the Act and has all requisite limited liability company power and authority to own or lease all of its properties and assets and to carry on its business as proposed to be conducted.

 

     (ii)            Capitalization of NewCo .  The total number of Membership Interests that NewCo shall have the authority to issue is unlimited.  NewCo may issue Common Membership Interests (the “ Common Membership Interests ”) and Preferred Membership Interests (together with the Common Membership Interests, the “ NewCo Membership Interests ”).  After giving effect to the Closing, (A) 1,400,000 Common Membership Interests will be issued and outstanding, (B) 300,000 Preferred Membership Interests will be issued and outstanding and (C) 300,000 Common Membership Interests will be reserved and available for issuance in connection with conversion of the Preferred Membership Interests to Common Membership Interests.  Except as set forth in the previous sentence, as of the Closing Date, no membership interests or other voting securities of or equity interests in NewCo will be issued, reserved for issuance or outstanding and no securities of NewCo or any of its Subsidiaries convertible into or exchangeable or exercisable for membership interests or other voting securities of or equity interests

 

 

 

in NewCo will be issued or outstanding.  All outstanding NewCo Membership Interests are duly authorized, validly issued, fully paid and nonassessable.  As of the Closing Date, the Preferred Membership Interests and Common Membership Interests have the terms and conditions and entitle the holders thereof to the rights set forth in the LLC Agreement and will be free and clear of all Liens.  There are no bonds, debentures, notes or other indebtedness of NewCo having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which holders of Common Membership Interests may vote (“ Voting NewCo Debt ”).  Except for any obligations pursuant to this Agreement, or as otherwise set forth above in this Section 2.01(b)(ii), there are no options, warrants, rights, convertible or exchangeable securities, stock-based performance units, Contracts or undertakings of any kind to which NewCo or any of its Subsidiaries is a party or by which NewCo is bound (A) obligating NewCo or any of its Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or sold, additional membership interests or other voting securities of or equity interests in, or any security convertible or exchangeable for any membership interests or other voting securities of or equity interests in, NewCo or any Voting NewCo Debt, (B) obligating NewCo or any of its Subsidiaries to issue, grant or enter into any such option, warrant, right, security, unit, Contract or undertaking or (C) that give any person the right to receive any economic interest of a nature otherwise accruing to the holders of Common Membership Interests.  There are no outstanding obligations of NewCo or any of its Subsidiaries to repurchase, redeem or otherwise acquire any membership interests or options, warrants, rights, convertible or exchangeable securities, stock-based performance units or other rights to acquire membership interests of NewCo.

 

    (iii)            Authorization; Enforceability .  NewCo will have all requisite limited liability company power and authority to execute and deliver the Joinder Agreement and to consummate the transactions contemplated therein.  The execution and delivery of the Joinder Agreement by NewCo and the consummation of the transactions contemplated by, and compliance with the provisions of, the Joinder Agreement by NewCo has been duly authorized and approved by all necessary limited liability company action on the part of NewCo.  The Joinder Agreement has been duly executed and delivered by NewCo and, assuming the due authorization, execution and delivery by the Investor, constitutes a legal, valid and binding obligation of NewCo, enforceable against NewCo in accordance with its terms, subject, as to enforceability, to bankruptcy, insolvency and other Laws of general applicability relating to or affecting creditors’ rights and to general equity principles, whether considered in a proceeding at law or in equity.

 

    (iv)            No Conflict .  (A)  NewCo is not in violation or default of any provision of NewCo’s certificate of formation, the limited liability company agreement as of the date of formation of NewCo or the LLC Agreement as of the Closing Date.  The execution and delivery by NewCo of the Joinder Agreement and compliance with the provisions thereof and hereof will not conflict with or result in any violation or default under NewCo’s certificate of formation, NewCo’s limited liability company agreement as of the date of formation of NewCo or the LLC Agreement as of the Closing Date.

 

 

 

 

           (B)           Other than in connection or in compliance with the provisions of the Securities Act, the securities or blue sky laws of the various states, no notice to, registration, declaration or filing with, review by, or authorization, consent, order, waiver or approval of, any Governmental Entity is necessary for the consummation by NewCo of the transactions contemplated by this Agreement.

 

    (v)            Private Offering .  None of NewCo, its Subsidiaries, its Affiliates and its or their Representatives has, directly or indirectly, made any offers or sales of the Preferred Membership Interests or Common Membership Interest or solicited any offers to buy the Preferred Membership Interests or Common Membership Interest, under circumstances that would require registration of the Preferred Membership Interests or Common Membership Interest under the Securities Act.  None of NewCo, its Subsidiaries, its Affiliates and its or their Representatives has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security under circumstances that would cause this offering of the Preferred Membership Interests to be integrated with prior offerings by NewCo for purposes of the Securities Act.  None of NewCo, its Subsidiaries, its Affiliates and its or their Representatives has taken any action or steps referred to in the two preceding sentences that would require registration of any of the Preferred Membership Interests under the Securities Act.  Assuming the accuracy of the representations made by the Investor in Section 2.02, the sale and delivery of the Preferred Membership Interests hereunder are exempt from the (A) registration and prospectus delivery requirements of the Securities Act and (B) the registration and qualification requirements of all applicable securities laws of the states of the United States.

 

    (vi)            Sufficiency of Assets .  Following consummation of the NewCo Formation Transactions, NewCo will own all material assets, rights and properties of Parent and its Subsidiaries, in each case subject to receipt of applicable third party consents, that, together with the assets to be made available to NewCo pursuant to this Agreement and the assets and services to be made available in accordance with the Separation Principles, are necessary to conduct the Digital Business and the College Business in all material respects as presently conducted by Parent and its Subsidiaries on the date hereof.  As of the Closing, NewCo will not be engaged in any business, or hold any material liabilities or assets, rights or properties relating to any business (except for liabilities, assets, rights or properties of NewCo or its Subsidiaries the transfer of which to Parent and its Subsidiaries other than NewCo and its Subsidiaries is subject to receipt of third-party consent which has not been received), other than the Digital Business and College Business and the investment by the Investor.

 

    (vii)            Taxes .  All material Tax Returns required to be filed by NewCo, any of its Subsidiaries, the College Business or the Digital Business or with respect to any of their income or assets have been timely filed in accordance with applicable Law, and all such Tax Returns are complete and correct in all material respects.  All material Taxes imposed on or with respect to NewCo, any of its Subsidiaries, the College Business or the Digital Business or with respect to any of their income or assets have been paid in full in accordance with applicable Law.  All material amounts of Taxes required to be withheld by NewCo or any of its Subsidiaries have been duly withheld and remitted to the appropriate taxing authority as required by applicable Law.  Neither NewCo nor any of its Subsidiaries has any liability for any Taxes of any other person under Treasury Regulations section 1.1502-6 or any similar provision of state, local or foreign Law, as a transferee or successor, by contract or otherwise.  Neither NewCo nor any of its Subsidiaries is a party to any Tax sharing, indemnification, or similar agreement or arrangement.  NewCo and its Subsidiaries have collected all material sales, value-added, goods and services, use, or similar Taxes required to be collected and have remitted such Taxes to the applicable taxing authority as required by applicable Law.  There are no material Liens with respect to Taxes upon any of the assets of either NewCo or any of its Subsidiaries, other than with respect to Taxes not yet due and payable.  NewCo and each of its Subsidiaries is currently, and has been since the date of its formation, a disregarded entity for U.S. federal income tax purposes.

 

 

 

         SECTION 2.02     Representations and Warranties of the Investor .  The Investor hereby represents and warrants to Parent as of the date hereof and as of the Closing Date and to NewCo as of the Closing Date:

 

        (a)     Organization and Authority .  The Investor is duly organized, validly existing and in good standing under the Laws of its jurisdiction of organization and has all requisite corporate power and authority to carry on its business as presently conducted.

 

        (b)            Authorization; Enforceability .  The Investor has all requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated by this Agreement.  The execution and delivery of this Agreement by the Investor and the consummation of the transactions contemplated by, and compliance with the provisions of, this Agreement, by the Investor have been duly authorized by all necessary corporate action on the part of the Investor (and, as of the date of this Agreement, the resolutions giving effect to such corporate actions have not been rescinded, modified or withdrawn in any way).  This Agreement has been duly executed and delivered by the Investor and, assuming the due authorization, execution and delivery by Parent and due authorization, execution and delivery of a Joinder Agreement by NewCo, constitutes a legal, valid and binding obligation of the Investor, enforceable against the Investor in accordance with its terms, subject, as to enforceability, to bankruptcy, insolvency and other Laws of general applicability relating to or affecting creditors’ rights and to general equity principles.

 

        (c)            No Conflict .  The execution and delivery by the Investor of this Agreement do not, and the transaction contemplated by this Agreement and compliance with the provisions of this Agreement will not, conflict with, or result in any violation or breach of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to the loss of a benefit under, or result in the creation of any right or benefit on the part of any third party under, or result in the creation of any Lien upon any of the properties or assets of the Investor under, the Certificate of Incorporation or By-laws, or similar organizational documents, of the Investor, any term, condition or provision of any Contract to which the Investor or any of its Subsidiaries is a party or by which any of its properties or assets are bound and that is material to the business of the Investor and its Subsidiaries, taken as a whole, or any Law that is material to the Investor and its Subsidiaries, taken as a whole, or Judgment, permit, concession, grant or franchise, in each case, applicable to the Investor or any of its Subsidiaries or any of its properties or assets, other than any such conflicts, violations, breaches, defaults, rights, losses or Liens that would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the Investor’s ability to consummate the transactions contemplated by this Agreement.

 

 

 

        (d)     Consents .  Other than in connection or in compliance with the provisions of the Securities Act and the securities or blue sky laws of the various states or any applicable antitrust, merger or competition law, no notice to, registration, declaration or filing with, review by, or authorization, consent, order, waiver, authorization or approval of any Governmental Entity is necessary for the consummation by the Investor of the transactions contemplated by this Agreement.

 

        (e)            Purchase for Investment .  The Investor acknowledges that the Preferred Membership Interests will not have been registered under the Securities Act or under any state securities laws.  The Investor (i) is acquiring the Preferred Membership Interests pursuant to an exemption from registration under the Securities Act solely for investment with no present intention or view to distribute any of the Preferred Membership Interests to any person in violation of the Securities Act, (ii) will not sell or otherwise dispose of any of the Preferred Membership Interests, except in compliance with the registration requirements or exemption provisions of the Securities Act and any other applicable securities laws, (iii) has such knowledge and experience in financial and business matters and in investments of this type, that it is capable of evaluating the merits and risks of its investment in the Preferred Membership Interests and of making an informed investment decision, and has conducted an independent review and analysis of the business and affairs of NewCo that it considers sufficient and reasonable for purposes of its making its investment in the Preferred Membership Interests, and (iv) is an “accredited investor” (as such term is defined in Rule 501 of Regulation D promulgated under the Securities Act).

ARTICLE III

Covenants

 

        SECTION 3.01     Further Assurances .  (a)  Each of Parent, the Investor and NewCo will cooperate and consult with the other and use commercially reasonable efforts (i) to prepare and file all necessary documentation, (ii) to effect all necessary applications, notices, petitions, filings and other documents, (iii) to obtain all necessary permits, consents, orders, approvals and authorizations of, or any exemption by, all Governmental Entities and any other third parties, and expiration or termination of any applicable waiting periods, necessary or advisable to consummate the transactions contemplated by this Agreement, (iv) to take actions necessary to cause the conditions to Closing to be satisfied as promptly as reasonably practicable and (v) to perform the covenants contemplated by this Agreement, it being agreed that each of Parent, NewCo and the Investor shall make or file any such applications, notices, petitions or filings required to be made by it with Governmental Entities in connection with the transactions contemplated by this Agreement as promptly as practicable.  Parent and NewCo shall take all material action necessary to effect the NewCo Formation Transactions as promptly as reasonably practicable following the date hereof.  To the extent Parent and NewCo enter into any Contracts to effect the NewCo Formation

 

 

 

Transactions, the terms of such Contracts shall be consistent with the Separation Principles.  Each party shall execute and deliver after the Closing such further certificates, agreements and other documents and take such other actions as the other party may reasonably request to consummate or implement such transactions or to evidence such events or matters.  For assets and liabilities the transfer of which from (i) Parent (or Parent’s Subsidiaries (other than NewCo and its Subsidiaries)) to NewCo or its Subsidiaries or (ii) NewCo (or NewCo’s Subsidiaries) to Parent or its Subsidiaries (other than NewCo and its Subsidiaries) is subject to receipt of third-party consent which has not been received prior to the Closing Date, Parent and NewCo shall use commercially reasonable efforts to implement arrangements to allow NewCo (in the case of clause (i)) or Parent (in the case of clause (ii)) to the maximum extent reasonably practicable to obtain the benefits and bear the burdens of such assets and liabilities until such consent is obtained.  After the Closing, Parent and NewCo shall hold and shall promptly transfer and deliver to the other party, from time to time as and when received by it, any cash, checks with appropriate endorsements (using commercially reasonable efforts not to convert such checks into cash), or other property that they may receive which properly belongs to the other party, including any payments of accounts receivable and insurance proceeds, and shall account to the other party for all such receipts. Each of Parent, the Investor and NewCo will have the right to review in advance, and to the extent practicable each will consult with the other, in each case subject to applicable Laws relating to the exchange of information, with respect to all the information relating to the other party, and any of their respective Subsidiaries, which appears in any filing made with, or written materials submitted to, any third party or any Governmental Entity in connection with the transactions contemplated by this Agreement.  In exercising the foregoing right, each of the parties hereto agrees to act reasonably and as promptly as practicable.  Each party hereto agrees to keep the other party apprised of the status of matters relating to completion of the transactions contemplated hereby.  Parent, the Investor and NewCo shall promptly furnish each other, to the extent permitted by applicable Laws, with copies of written communications received by them or their Affiliates from, or delivered by any of the foregoing to, any Governmental Entity in respect of the transactions contemplated by this Agreement.

 

        (b)      NewCo or Parent, as the case may be, shall give prompt written notice to the Investor upon becoming aware of any Claim commenced or, to the knowledge of NewCo, to which NewCo is or may become a party (including any such Claim in the right of NewCo) (x) relating to or involving this Agreement or the transactions contemplated hereby, or (y) seeking to enjoin, restrain, restrict, limit or prohibit the transactions contemplated hereby or any of the rights, privileges or preferences to which the Investor is entitled as set forth in the LLC Agreement or the other agreements contemplated by this Agreement.  NewCo or Parent, as the case may be, shall give the Investor the opportunity to participate in (but not control) the defense and settlement of any such Claims and NewCo and Parent agree to use, and to cause their or Parent’s, as the case may be, Affiliates, directors and officers to use, its commercially reasonable efforts to defend or contest any such Claim, subject to the right of NewCo to settle such Claim in compliance with the LLC Agreement.  The Investor will cooperate (at Parent’s sole cost and expense) with NewCo and Parent in its defense of such Claims as NewCo may reasonably request.

 

        (c)      Except for matters set forth in Section 3.01(c) of the Disclosure Letter or otherwise expressly permitted or required by the terms of this Agreement or expressly contemplated in connection with the NewCo Formation Transactions and, to the extent applicable, consistent with the Separation Principles, from the date of this Agreement to the earlier of the Closing or termination of this Agreement, Parent shall conduct its Digital Business and College Business in the usual, regular and ordinary course, and shall use commercially reasonable efforts to keep intact its Digital Business and College Business and preserve the relationships of its Digital Business and College Business with customers, suppliers, licensors, licensees, strategic partners, distributors and others with whom its Digital Business and College Business deal.

 

 

 

 

        (d)     At the Closing Date, Parent and the Investor shall, and Parent shall cause NewCo to, execute and deliver the LLC Agreement and the Registration Rights Agreement.

 

        (e)      From the date of this Agreement until the earlier of the Closing or the termination of this Agreement, none of Parent, NewCo or any of their respective Subsidiaries shall consummate any transaction that would require any antidilution adjustment to be made under the LLC Agreement as if entered into on the date of this Agreement.

 

        SECTION 3.02     Expenses .  Except as otherwise provided in this Agreement, each party shall bear and pay its own costs, fees and expenses incurred by it in connection with this Agreement and the transactions contemplated by this Agreement, provided that, except as otherwise provided in the Separation Principles, all costs, fees and expenses in connection with NewCo Formation Transactions shall be borne by Parent.

 

         SECTION 3.03     Confidentiality .  Each of Parent, NewCo and Investor hereby agrees to keep confidential and to cause its respective employees, officers, directors, Affiliates and Representatives to keep confidential any and all confidential information of the Investor on the one hand, and NewCo and Parent on the other, including non-public information relating to their respective finances and results, trade secrets, know-how, customers, business plans, marketing activities, financial data and other business affairs that was disclosed by the Investor on the one hand, and NewCo or Parent on the other, or their respective Affiliates or Representatives on or prior to the date of this Agreement.

 

         SECTION 3.04     Change to Transaction Structure .  The parties agree that prior to the Closing Parent shall have the right to modify the structure of NewCo as reasonably necessary, so long as (i) any such modification does not alter the terms of the preferred equity interests to be purchased by the Investor or otherwise adversely impact the Investor other than in a de minimis respect (including with respect to the Tax consequences to the Investor with respect to the purchase, ownership, or disposition of the Preferred Membership Interests) and (ii) NewCo is not classified as an association taxable as a corporation for U.S. federal income tax purposes. Upon Parent giving written notice to the Investor of such election, the parties shall, if necessary, enter into an amendment to this Agreement to implement any changes to this Agreement necessitated by such modification (including replacing or modifying the forms of governing documents of NewCo).

 

         SECTION 3.05     Taxes .  Parent shall be responsible for and shall timely pay to the applicable taxing authority as required by Law the full amount of any Taxes incurred in connection with the NewCo Formation Transactions, including any sales, use, transfer or value-added Taxes imposed in connection therewith.

 

 

 

         SECTION 3.06     Guarantee .  Microsoft hereby irrevocably and unconditionally guarantees, and agrees to cause the Investor to satisfy, all obligations of the Investor under this Agreement, on the terms and subject to the conditions set forth in this Agreement.  This guarantee (i) is a present and continuing guarantee of payment and not of collectability, and (ii) is in no way conditioned or contingent upon any attempts to collect or upon any other condition or contingency.

ARTICLE IV

Conditions

 

         SECTION 4.01     Conditions to the Obligations of Each Party’s Obligations .  The respective obligations of each party to effect the transactions set forth in this Agreement are subject to the satisfaction or (to the extent permitted by law) waiver on or prior to the Closing Date of the following conditions:

 

        (a)     Legal Restraints .  No Governmental Entity shall have issued any order, decree or ruling, and no law shall be in effect, enjoining, restraining or otherwise prohibiting any transaction contemplated by this Agreement.

 

        (b)     Definitive Agreements .  The Commercial Agreement among Parent, NewCo and Microsoft dated on or about the date hereof and effective as of the Closing Date (the “ Commercial Agreement ”) shall be effective.

 

         SECTION 4.02     Conditions to the Obligations of Parent and NewCo .  The obligations of Parent and NewCo to effect the transactions set forth in this Agreement are subject to the satisfaction or (to the extent permitted by law) waiver on or prior to the Closing Date of the following conditions:

 

        (a)     LLC Agreement .  The Investor shall have executed and delivered the LLC Agreement.

 

        (b)     Representations and Warranties .  The representations and warranties of the Investor in this Agreement shall be true and correct at and as of the Closing Date, with the same force and effect as if made on the Closing Date, except for such failures to be true and correct (without giving effect to any limitation or qualification as to “materiality” or “material adverse effect” set forth in such representations and warranties) as, individually or in the aggregate, has not had, and would not reasonably be expected to have, a material adverse effect on the ability of the Investor to consummate the transactions contemplated by this Agreement.

 

        (c)     Performance of Obligations of the Investor .  The Investor shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date.

 

        (d)     Credit Facility Consent .  Parent shall have received any required consent of the lenders under the Parent’s Amended and Restated Credit Agreement dated as of April 29, 2011, as amended (the “ Credit Agreement ”), to the consummation of the transactions contemplated hereby and the NewCo Formation Transactions.

 

 

 

 

         SECTION 4.03     Conditions to the Obligations of the Investor .  The obligations of the Investor to effect the transactions set forth in this Agreement are subject to the satisfaction or (to the extent permitted by law) waiver on or prior to the Closing Date of the following conditions:

 

        (a)     Definitive Agreements .  Parent and NewCo shall have executed and delivered the LLC Agreement, the Registration Rights Agreement and the Joinder Agreement.

 

        (b)     Representations and Warranties .  The representations and warranties of Parent in this Agreement (including with respect to NewCo) shall be true and correct at and as of the Closing Date, with the same force and effect as if made on the Closing Date, except to the extent such representations and warranties expressly relate to an earlier date (in which case such representations and warranties shall be true and correct or true and correct on such earlier date), except for such failures to be true and correct (without giving effect to any limitation or qualification as to “materiality” or “material adverse effect” set forth in such representations and warranties) as, individually or in the aggregate, has not had, and would not reasonably be expected to have, a material adverse effect on NewCo and its Subsidiaries after giving effect to the NewCo Formation Transactions, taken as a whole, or on the ability of Parent and NewCo to consummate the transactions contemplated by this Agreement.

 

        (c)     Performance of Obligations of NewCo .  Parent and NewCo shall have performed in all material respects all obligations required to be performed by them under this Agreement at or prior to the Closing Date.

 

        (d)     NewCo Formation Transactions .  The NewCo Formation Transactions shall have been consummated.

 

        (e)     Certificate .  Parent and NewCo shall have delivered to the Investor a certificate, dated as of the Closing Date and signed on behalf of Parent and NewCo by the Chief Executive Officers or Chief Financial Officers of Parent and NewCo, certifying the satisfaction of the conditions in Sections 4.03(b), (c) and (d).

ARTICLE V

Termination

 

         SECTION 5.01     Termination .  This Agreement may be terminated at any time prior to the Closing Date:

 

        (a)     by mutual written consent of Parent and the Investor;

 

        (b)     by either Parent or the Investor, if

 

    (i)       the Closing Date shall not have occurred by February 3, 2013 (such date, the “ Outside Date ”); provided that the party seeking termination of this Agreement pursuant to this Section 5.01(b)(i) is not then in material breach of any of its representations, warranties, covenants or agreements contained in this Agreement; provided further , that (A) if on the Outside Date, Parent has been pursuing completion of the NewCo Formation Transactions in good faith but the NewCo Formation Transactions have not been consummated, the Investor shall on the Outside Date either (1) exercise its right to terminate this Agreement in accordance with this Section 5.01 (b)(i) and the Settlement and License Agreement shall terminate pursuant to Section 5.2.3 thereof or (2) extend the Outside Date to May 3, 2013 (the “ Extended Outside Date ”) by giving written notice thereof to Parent, in which event, this Agreement may thereafter be terminated by either party prior the Extended Outside Date ( provided that, if Parent has been pursuing completion of the NewCo Formation Transactions in good faith, (x) in the event of a termination by the Investor, the Settlement and License Agreement shall terminate pursuant to Section 5.2.3 thereof and (y) in the event of a termination by Parent, Parent shall have the right to terminate the Settlement and License Agreement solely to the extent it is entitled to do so under Section 5.2 thereof) and (B) if the conditions to the Investor’s obligations to effect the transactions contemplated by this Agreement are not satisfied on the Extended Outside Date, the Investor shall not be required to concurrently terminate the Settlement and License Agreement in order to exercise its right to terminate this Agreement in accordance with this Section 5.01(b)(i); or

 

 

 

 

    (ii)           any Governmental Entity issues an order, decree or ruling or has taken any other action permanently enjoining, restraining or otherwise prohibiting any transaction contemplated by this Agreement and such order, decree, ruling or other action shall have become final and nonappealable.

ARTICLE VI

Miscellaneous

 

         SECTION 6.01     Survival .  The representations and warranties of the parties set forth in Article II of this Agreement shall survive until the second anniversary of the Closing, except that Sections 2.01(a)(i), (ii), Sections 2.01(b)(i), (ii) and (iii) and Sections 2.02(a) and (b) shall survive indefinitely and Section 2.01(a)(vii) shall survive until the close of business on the 60th day following the expiration of the applicable statute of limitations.  All of the covenants or other agreements of the parties contained in this Agreement shall survive until fully performed or fulfilled.

 

         SECTION 6.02     Amendments, Waivers, etc .  This Agreement may be amended or waived if, and only if, such amendment or waiver is in writing and signed by the party against whom such amendment or waiver shall be enforced.  The failure of any party hereto to exercise any right, power or remedy provided under this Agreement or otherwise available in respect hereof at law or in equity, or to insist upon compliance by any other party hereto with its obligations hereunder, shall not constitute a waiver by such party of its right to exercise any such other right, power or remedy or to demand such compliance.

 

         SECTION 6.03     Counterparts and Facsimile .  This Agreement may be executed in two or more identical counterparts (including by facsimile), each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument, and shall become effective when one or more counterparts have been signed by each of the parties and delivered (by telecopy or otherwise) to the other parties.

 

 

 

 

         SECTION 6.04     Specific Enforcement; Governing Law; Submission to Jurisdiction; Waiver of Jury Trial .  (a)  This Agreement shall be governed by and construed in accordance with the Laws of the State of New York.

 

        (b)     THE PARTIES ACKNOWLEDGE AND AGREE THAT IRREPARABLE DAMAGE WOULD OCCUR IN THE EVENT THAT ANY OF THE PROVISIONS OF THIS AGREEMENT WERE NOT PERFORMED IN ACCORDANCE WITH THEIR SPECIFIC TERMS OR WERE OTHERWISE BREACHED.  IT IS ACCORDINGLY AGREED THAT THE PARTIES SHALL BE ENTITLED TO AN INJUNCTION OR INJUNCTIONS TO PREVENT BREACHES OR THREATENED BREACHES OF THIS AGREEMENT AND TO ENFORCE SPECIFICALLY THE TERMS AND PROVISIONS OF THIS AGREEMENT IN ANY COURT OF COMPETENT JURISDICTION, IN EACH CASE WITHOUT PROOF OF DAMAGES OR OTHERWISE (AND EACH PARTY HEREBY WAIVES ANY REQUIREMENT FOR THE SECURING OR POSTING OF ANY BOND IN CONNECTION WITH SUCH REMEDY), THIS BEING IN ADDITION TO ANY OTHER REMEDY TO WHICH THEY ARE ENTITLED AT LAW OR IN EQUITY.  THE PARTIES AGREE NOT TO ASSERT THAT A REMEDY OF SPECIFIC ENFORCEMENT IS UNENFORCEABLE, INVALID, CONTRARY TO LAW OR INEQUITABLE FOR ANY REASON, NOR TO ASSERT THAT A REMEDY OF MONETARY DAMAGES WOULD PROVIDE AN ADEQUATE REMEDY.  IN ADDITION, EACH OF THE PARTIES HERETO IRREVOCABLY AGREES THAT ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS ARISING HEREUNDER, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT OF THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS ARISING HEREUNDER, BROUGHT BY THE OTHER PARTY HERETO OR ITS SUCCESSORS OR ASSIGNS SHALL BE BROUGHT AND DETERMINED EXCLUSIVELY IN ANY STATE OR FEDERAL COURT IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN, SO LONG AS ONE OF SUCH COURTS SHALL HAVE SUBJECT MATTER JURISDICTION OVER SUCH LEGAL ACTION OR PROCEEDING, AND THAT ANY CAUSE OF ACTION ARISING OUT OF THIS AGREEMENT SHALL BE DEEMED TO HAVE ARISEN FROM A TRANSACTION OF BUSINESS IN THE STATE OF NEW YORK.  EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY SUBMITS WITH REGARD TO ANY SUCH ACTION OR PROCEEDING FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, TO THE PERSONAL JURISDICTION OF THE AFORESAID COURTS AND AGREES THAT IT WILL NOT BRING ANY ACTION RELATING TO THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT IN ANY COURT OTHER THAN THE AFORESAID COURTS.  EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE, COUNTERCLAIM OR OTHERWISE, IN ANY ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT, (1) ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF THE ABOVE-NAMED COURTS FOR ANY REASON, (2) ANY CLAIM THAT IT OR ITS PROPERTY IS EXEMPT OR IMMUNE FROM JURISDICTION OF ANY SUCH COURT OR FROM ANY LEGAL PROCESS COMMENCED IN SUCH COURTS (WHETHER THROUGH SERVICE OF NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OF JUDGMENT, EXECUTION OF JUDGMENT OR OTHERWISE) AND (3) TO THE FULLEST EXTENT PERMITTED BY THE APPLICABLE LAW, ANY CLAIM THAT (A) THE SUIT, ACTION OR PROCEEDING IN SUCH COURT IS BROUGHT IN AN INCONVENIENT FORUM, (B) THE VENUE OF SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER OR (C) THIS AGREEMENT, OR THE SUBJECT MATTER HEREOF, MAY NOT BE ENFORCED IN OR BY SUCH COURTS.  EACH PARTY HERETO HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS IN ANY ACTION, SUIT OR OTHER PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, ON BEHALF OF ITSELF OR ITS PROPERTY, BY U.S. REGISTERED MAIL TO SUCH PARTY’S RESPECTIVE ADDRESS SET FORTH BELOW, AND NOTHING IN THIS SECTION 6.04(b) SHALL AFFECT THE RIGHT OF ANY PARTY TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.

 

 

 

 

        (c)      EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION, CLAIM OR OTHER PROCEEDING ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT.  EACH PARTY HERETO (1) CERTIFIES THAT NO REPRESENTATIVE OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF ANY ACTION, SUIT OR PROCEEDING, SEEK TO ENFORCE THE FOREGOING WAIVER AND (2) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVER AND CERTIFICATIONS IN THIS SECTION 6.04(c).

 

         SECTION 6.05     Notices .  Any notice required to be given hereunder shall be sufficient if in writing, and sent by facsimile transmission (provided that any notice received by facsimile transmission or otherwise at the addressee’s location on any Business Day after 5:00 p.m. (addressee’s local time) shall be deemed to have been received at 9:00 a.m. (addressee’s local time) on the next Business Day), by reliable overnight delivery service (with proof of service), or hand delivery, addressed as follows:

 

        (a)        If to Parent or NewCo:

Barnes & Noble, Inc.

122 Fifth Avenue

New York, NY 10011

Attention:  Eugene V. DeFelice

                    Vice President, General Counsel & Secretary

 

            Facsimile:  (212) 463-5683

 

 

with a copy to (which copy alone shall not constitute notice):

 

Cravath, Swaine & Moore LLP

Worldwide Plaza

825 Eighth Avenue

New York, NY 10019

Attention:  Scott A. Barshay, Esq.

                    Andrew R. Thompson, Esq.

 

Facsimile:  (212) 474-3700

 

        (b)        If to the Investor:

Morrison Investment Holdings, Inc.

c/o Microsoft Corporation

One Microsoft Way

Redmond, Washington 98052-6399

Attention:  Keith R. Dolliver

                    President

 

Facsimile:  (425) 706-7329

with a copy to (which copy alone shall not constitute notice):

 

Simpson Thacher & Bartlett LLP

425 Lexington Avenue

New York, NY 10017

Attention:  Alan M. Klein, Esq.

Facsimile:  (212) 455-2502

 

        (c)        If to Microsoft:

Microsoft Corporation

One Microsoft Way

Redmond, Washington 98052-6399

Attention:  Peter Klein

                    Chief Financial Officer

 

Fax:  (425) 706-7329

 

 

with a copy to (which copy alone shall not constitute notice):

Simpson Thacher & Bartlett LLP

425 Lexington Avenue

New York, NY 10017

Attention:  Alan M. Klein, Esq.

 

Facsimile:  (212) 455-2502

or to such other address as any person shall specify by written notice so given, and such notice shall be deemed to have been delivered as of the date so telecommunicated, personally delivered or scheduled to be received if sent by overnight delivery service.  Any party to this Agreement may notify any other party of any changes to the address or any of the other details specified in this paragraph; provided , however , that such notification shall only be effective on the date specified in such notice or five Business Days after the notice is given, whichever is later.  Rejection or other refusal to accept or the inability to deliver because of changed address of which no notice was given shall be deemed to be receipt of the notice as of the date of such rejection, refusal or inability to deliver.

 

         SECTION 6.06     Entire Agreement, etc .  This Agreement (including the Annexes hereto), together with the Related Agreements, constitutes the entire agreement, and supersedes all other prior agreements, understandings, representations and warranties, both written and oral, between the parties, with respect to the subject matter hereof and thereof, including the term sheets with respect to the subject matter hereof and thereof and the Settlement Discussion Agreement between Parent and Microsoft, dated as of July 12, 2011.

 

         SECTION 6.07     Definitions .  (a)  “ Affiliate” means, with respect to any specified person or entity, any other person or entity directly or indirectly controlling or controlled by, or under direct or indirect common control with, such specified person or entity; provided, that none of Parent and its Subsidiaries, and NewCo and its Subsidiaries shall be deemed to be Affiliates of the Investor or any of its respective Affiliates. For the purposes of this definition, “ control”, when used with respect to any specified person, means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

 

        (b)     “ Business Day ” means any weekday that is not a day on which banking institutions in New York, New York are authorized or required by law, regulation or executive order to be closed.

 

        (c)     “ Claim ” means any demand, action, claim, suit, litigation, arbitration, prosecution, proceeding (including any civil, criminal, administrative, investigative or appellate proceeding, at law or in equity), hearing, examination or investigation.

 

        (d)     “ College Business ” means the assets, rights and properties, including all goodwill relating thereto, whether tangible or intangible, real, personal or mixed, and liabilities of Parent and its Subsidiaries primarily related to, or used primarily in connection with, the college bookstore business conducted by Parent and its Subsidiaries as of the date hereof (but with respect to any asset, right and property or liability the transfer of which has not been consented to by any third-party with the right to consent to such transfer, subject to the receipt of such consent), including:

 

 

 

 

subject, in each case, to the Separation Principles.

 

         (e)     “ Digital Business ” means the assets, rights and properties, including all goodwill relating thereto, whether tangible or intangible, real, personal or mixed, and liabilities of Parent and its Subsidiaries primarily related to, or used primarily in connection with, the digital device, digital content, eCommerce and nook.com businesses (including barnesandnoble.com llc, but excluding assets and liabilities primarily related to the retail business (including the Barnes & Noble trademark)) conducted by Parent and its Subsidiaries as of the date hereof (but with respect to any asset or liability the transfer of which has not been consented to by any third-party with the right to consent to such transfer, subject to the receipt of such consent), including:

 

 

 

       

 

 

  

 

subject, in each case, to the Separation Principles.

 

         (f)      “ Disclosure Letter ” means the letter dated as of the date hereof delivered by Parent to the Investor.

 

         (g)           “ NewCo Formation Transactions ” means (i) the formation of NewCo, (ii) the separation of substantially all the Digital Business and College Business from Parent and the transfer of substantially all the Digital Business and College Business into NewCo, including the transfer of the assets, rights and properties primarily related to the Digital Business and the College Business to NewCo free and clear of all Liens (other than any Liens under the Credit Agreement and any Permitted Encumbrances (as defined in the Credit Agreement)), (iii) the transfer of substantially all the employees who as of the date of separation were primarily engaged in the conduct of the Digital Business and College Business and (iv) the entry of NewCo and Parent into commercial arrangements and transition services arrangements, in each case, in accordance with the Separation Principles.

 

         (h)           “ Preferred Membership Interests ” means the Series A Preferred Membership Interests of NewCo, having the powers, preferences and rights, and the qualifications, limitations and restrictions, specified in the LLC Agreement.

 

         (i)      “ registration ” shall refer to a registration effected by preparing and filing a registration statement with the SEC in compliance with the Securities Act and applicable rules and regulations thereunder, and the declaration or ordering of effectiveness of such registration statement by the SEC.

 

         (j)      “ Registration Rights Agreement ” means the registration rights agreement among Parent, NewCo and the Investor dated as of the Closing Date and to be substantially in the form of Annex B hereto.

 

         (k)           “ Related Agreements ” means (i) the Settlement and License Agreement, (ii) the Commercial Agreement and (iii) any other agreements between or among Parent, NewCo, Microsoft and any of their respective Affiliates entered into in connection with the transactions contemplated herein or therein.

 

 

 

 

         (l)      “ Representative ” means, with respect to any person, the directors, officers, employees, investment bankers, financial advisors, attorneys, accountants or other advisors, agents or representatives of such person.

 

         (m)           “ Separation Principles ” means the principles with respect to the separation of Parent’s Digital Business and College Business to NewCo which are set forth on Annex C.

 

         (n)           “ Settlement and License Agreement ” means the Settlement and Patent License Agreement among Parent, barnesandnoble.com llc, Microsoft and Microsoft Licensing GP, dated as of the date hereof.

 

         (o)           A “ Subsidiary ” of any person means another person, an amount of the voting securities, other voting rights or voting partnership interests of which is sufficient to elect at least a majority of its board of directors or other governing body (or, if there are no such voting interests, more than 50% of the equity interests of which) is owned directly or indirectly by such first person.  For purposes of this Agreement, “person” means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or Governmental Entity or other entity.

 

         (p)           “ Tax ” or “ Taxes ” means any federal, state, local or foreign income, gross receipts, property, sales, use, license, excise, franchise, employment, payroll, withholding, alternative or add on minimum, ad valorem, transfer or excise tax, or any other tax, custom, duty, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest or penalty, imposed by any taxing authority.

 

         (q)           “ Tax Return ” means any return, declaration, report or similar statement required to be filed with respect to any Tax (including any attached schedules), including, without limitation, any information return, claim for refund, amended return or declaration of estimated Tax.

 

         SECTION 6.08     Interpretation .  When a reference is made in this Agreement to an Article, Section or Schedule, such reference shall be to an Article or Section of, or a Schedule to, this Agreement unless otherwise indicated.  The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.  Whenever the words “include”, “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation”.  The words “hereof”, “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement.  The word “or” shall not be exclusive.  All references to “$” mean the lawful currency of the United States of America.  The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such term.  Except as specifically stated herein, any agreement, instrument or statute defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement, instrument or statute as from time to time amended, modified or supplemented, including (in the case of agreements or instruments) by waiver or consent and (in the case of statutes) by succession of comparable successor statutes and references to all attachments thereto and instruments incorporated therein.  Except as otherwise specified herein, references to a person are also to its permitted successors and assigns.  Each of the parties has participated in the drafting and negotiation of this Agreement.  If an ambiguity or question of intent or interpretation arises, this Agreement must be construed as if it is drafted by all the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of authorship of any of the provisions of this Agreement.

 

 

 

 

         SECTION 6.09     Severability .  Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement in any other jurisdiction.  If any provision of this Agreement is so broad as to be unenforceable, such provision shall be interpreted to be only so broad as is enforceable.

 

         SECTION 6.10     No Third-Party Beneficiaries .  Nothing expressed or referred to in this Agreement will be construed to give any person, other than the parties to this Agreement, any legal or equitable right, remedy or claim under or with respect to this Agreement or any provision of this Agreement.

 

         SECTION 6.11     Assignment .  Except as otherwise provided herein, neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties; provided that the Investor (and any of the Investor’s permitted assignees under this Section 6.11) may assign its rights, interests and obligations hereunder to Microsoft or any of Microsoft’s wholly owned subsidiaries; provided , however , that any assignment of the rights, interests or obligations hereunder shall not modify the obligations of Microsoft under Section 3.06.

 

         SECTION 6.12     Public Announcements .  Parent and the Investor agree that the initial press release announcing the execution and delivery of this Agreement and the transactions contemplated by this Agreement shall be a joint release of Parent and the Investor. Subject to each party’s disclosure obligations imposed by Law or the rules of any stock exchange upon which its securities are listed compliance with which shall not require consultation with, or the consent of, the other party, neither Parent nor the Investor will make any public news release or other public disclosure with respect to this Agreement or the transactions contemplated hereby in which the other party is named without first consulting with the other, and, in each case, also receiving the other’s consent (which shall not be unreasonably withheld or delayed).

[Signature Pages Follow]

 

 

BARNES & NOBLE, INC.,

by	/s/ Eugene V. DeFelice
	Name:  Eugene V. DeFelice
	Title:    Vice President, General Counsel & Secretary

 

 

 

 

 

MORRISON INVESTMENT HOLDINGS, INC.,

by	/s/ Keith R. Dolliver
	Name:  Keith R. Dolliver
	Title:    President

 

 

 

 

 

Solely for purposes of Section 3.06, MICROSOFT CORPORATION,

by	/s/ Steven A. Ballmer
	Name:  Steven A. Ballmer
	Title:    Chief Executive Officer

 

 

 

 

 

ANNEX A

CR1	=	CR0 x [(OS0 + X) / (OS0 + Y)]
CR0	=	the conversion rate in effect immediately prior to the close of business on the Record Date for such dividend, distribution or issuance
CR1	=	the new conversion rate in effect immediately following the close of business on the Record Date for such dividend, distribution or issuance
OS0	=	the number of shares of Company Common Stock outstanding immediately prior to the close of business on the Record Date for such dividend, distribution or issuance
X=		the total number of shares of Company Common Stock issuable pursuant to such rights, options or warrants
Y=		the number of shares of Company Common Stock equal to the aggregate price payable to exercise rights, options or warrants divided by the Current Market Price as of the Record Date for such dividend, distribution or issuance

CR1	=	CR0 x [(FMV + (SP1 x OS1)] / (SP1 x OS0)
CR0	=	the conversion rate in effect immediately prior to the close of business on the Expiration Date
CR1	=	the new conversion rate in effect immediately after the close of business on the Expiration Date
FMV	=	the Fair Market Value as of the Expiration Time of the aggregate value of all cash and any other consideration paid or payable for shares validly tendered or exchanged and not withdrawn as of the Expiration Time (“ Purchased Shares ”)
OS1	=	the number of shares of Company Common Stock outstanding as of the last time tenders or exchanges may be made pursuant to such tender or exchange offer (the “ Expiration Time ”), excluding any Purchased Shares
OS0	=	the number of shares of Company Common Stock outstanding immediately before the Expiration Time, including any Purchased Shares
SP1	=	the arithmetic average of the VWAP of a share of Company Common Stock for each of the 10 consecutive full Trading Days ending on the Trading Day immediately succeeding the Expiration Date

CR1	=	CR0 x [SP0 / (SP0 - FMV)]
CR0	=	the conversion rate in effect immediately prior to the close of business on the Record Date for such dividend or distribution
CR1	=	the new conversion rate in effect immediately after the close of business on the Record Date for such dividend or distribution
SP0	=	the Current Market Price of a share of Company Common Stock as of the Record Date for such dividend or distribution
FMV	=	the Fair Market Value of the portion of Distributed Property distributed with respect to each outstanding share of Company Common Stock on the Record Date for such dividend or distribution

CR1	=	CR0 x [(FMV + MP0) / MP0]
CR0	=	(x) the Exchange Ratio, multiplied by (y) the conversion rate in effect immediately prior to the close of business on the effective date of the Distribution Transaction
CR1	=	the new conversion rate in effect immediately after the close of business on the effective date of the Distribution Transaction
FMV	=	(x) the Distribution Ratio, multiplied by (y) the arithmetic average of the VWAPs of a share of the capital stock or similar equity interest distributed to holders of Company Common Stock on the principal United States securities exchange on which such capital stock or equity interest trades, for each of the ten consecutive full Trading Days commencing with, and including, the effective date of the Distribution Transaction (such arithmetic average, the “ Distributed Company VWAP ”)
MP0	=	(x) the Exchange Ratio, multiplied by (y) the arithmetic average of the VWAPs of a share of Company Common Stock for each of the ten consecutive full Trading Days commencing with, and including, the effective date of the Distribution Transaction (such arithmetic average, the “ Distributing Company VWAP ”)

SCHEDULE A

Members, Percentage Interests and Membership Interests

Member			Number of Common Membership Interests
[Beckett Member]			1,400,000
122 Fifth Avenue New York, NY 10011 Attention:       Eugene V. DeFelice           Vice President, General            Counsel & Secretary Fax:               (212) 463-5683
	Total		1,400,000
			Number of Series A Preferred Membership Units
Morrison Investment Holdings, Inc.			300,000
[ ● ] Attention:   [ ● ]                      [ ● ] Fax: [ ● ]
	Total		300,000

 

 

 

SCHEDULE B

Capital Accounts as of the Closing Date

Member

Capital Account

[Beckett Member]				$	1,400,000,000
Morrison Investment Holdings, Inc.				$	300,000,000
Total				$	1,700,000,000

 

 

Dated: __________________________                                                            Signature:_____________________________

                                                                                                (Transferor)

 

                                                                                      Address: ________________________

Dated: __________________________                                                              Signature:_____________________________

                                                                                                         (Transferee)

 

                                                                                          Address: _________________________