FORM 10-Q
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the thirteen weeks ended June 23, 2012
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to
Commission file number 1-12340
GREEN MOUNTAIN COFFEE ROASTERS, INC.
(Exact name of registrant as specified in its charter)
Delaware |
|
03-0339228 |
(State or other jurisdiction of |
|
(I.R.S. Employer Identification No.) |
33 Coffee Lane, Waterbury, Vermont 05676
(Address of principal executive offices) (zip code)
(802) 244-5621
(Registrants telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report.)
Indicate by check mark whether the registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer x |
|
Accelerated filer o |
|
|
|
Non-accelerated filer o |
|
Smaller Reporting Company o |
Indicate by check mark whether the Registrant is a shell company (as defined in rule 12b-2 of the Exchange Act) YES o NO x
As of July 25, 2012, 155,527,442 shares of common stock of the registrant were outstanding.
Part I. Financial Information
Item 1. Financial Statements
GREEN MOUNTAIN COFFEE ROASTERS, INC.
Unaudited Consolidated Balance Sheets
(Dollars in thousands)
|
|
June 23, |
|
September 24, |
| ||
Assets |
|
|
|
|
| ||
Current assets: |
|
|
|
|
| ||
Cash and cash equivalents |
|
$ |
138,988 |
|
$ |
12,989 |
|
Restricted cash and cash equivalents |
|
10,096 |
|
27,523 |
| ||
Receivables, less uncollectible accounts and return allowances of $39,389 and $21,407 at June 23, 2012 and September 24, 2011, respectively |
|
265,862 |
|
310,321 |
| ||
Inventories |
|
667,005 |
|
672,248 |
| ||
Income taxes receivable |
|
7,810 |
|
18,258 |
| ||
Other current assets |
|
23,812 |
|
28,072 |
| ||
Deferred income taxes, net |
|
45,598 |
|
36,231 |
| ||
Current assets held for sale |
|
|
|
25,885 |
| ||
Total current assets |
|
1,159,171 |
|
1,131,527 |
| ||
|
|
|
|
|
| ||
Fixed assets, net |
|
846,323 |
|
579,219 |
| ||
Intangibles, net |
|
496,793 |
|
529,494 |
| ||
Goodwill |
|
791,197 |
|
789,305 |
| ||
Other long-term assets |
|
43,646 |
|
47,759 |
| ||
Long-term assets held for sale |
|
|
|
120,583 |
| ||
|
|
|
|
|
| ||
Total assets |
|
$ |
3,337,130 |
|
$ |
3,197,887 |
|
|
|
|
|
|
| ||
Liabilities and Stockholders Equity |
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
| ||
Current portion of long-term debt and capital lease obligations |
|
$ |
9,271 |
|
$ |
6,669 |
|
Accounts payable |
|
215,153 |
|
265,511 |
| ||
Accrued compensation costs |
|
37,913 |
|
43,260 |
| ||
Accrued expenses |
|
108,085 |
|
92,120 |
| ||
Income tax payable |
|
77,626 |
|
9,617 |
| ||
Deferred income taxes, net |
|
|
|
243 |
| ||
Other current liabilities |
|
23,827 |
|
34,613 |
| ||
Current liabilities related to assets held for sale |
|
|
|
19,341 |
| ||
Total current liabilities |
|
471,875 |
|
471,374 |
| ||
|
|
|
|
|
| ||
Long-term debt and capital lease obligations |
|
399,841 |
|
575,969 |
| ||
Deferred income taxes, net |
|
212,101 |
|
189,637 |
| ||
Other long-term liabilities |
|
28,603 |
|
27,184 |
| ||
Long-term liabilities related to assets held for sale |
|
|
|
474 |
| ||
|
|
|
|
|
| ||
Commitments and contingencies |
|
|
|
|
| ||
|
|
|
|
|
| ||
Redeemable noncontrolling interests |
|
9,828 |
|
21,034 |
| ||
|
|
|
|
|
| ||
Stockholders equity: |
|
|
|
|
| ||
Preferred stock, $0.10 par value: Authorized - 1,000,000 shares; No shares issued or outstanding |
|
|
|
|
| ||
Common stock, $0.10 par value: Authorized - 500,000,000 shares; Issued and outstanding - 155,526,602 and 154,466,463 shares at June 23, 2012 and September 24, 2011, respectively |
|
15,553 |
|
15,447 |
| ||
Additional paid-in capital |
|
1,534,166 |
|
1,499,616 |
| ||
Retained earnings |
|
678,891 |
|
411,727 |
| ||
Accumulated other comprehensive loss |
|
(13,728 |
) |
(14,575 |
) | ||
Total stockholders equity |
|
2,214,882 |
|
1,912,215 |
| ||
|
|
|
|
|
| ||
Total liabilities and stockholders equity |
|
$ |
3,337,130 |
|
$ |
3,197,887 |
|
The accompanying Notes to the Unaudited Consolidated Financial Statements are an integral part of these interim financial statements.
GREEN MOUNTAIN COFFEE ROASTERS, INC.
Unaudited Consolidated Statements of Operations
(Dollars in thousands except per share data)
|
|
Thirteen |
|
Thirteen |
| ||
|
|
weeks ended |
|
weeks ended |
| ||
|
|
June 23, |
|
June 25, |
| ||
Net sales |
|
$ |
869,194 |
|
$ |
717,210 |
|
Cost of sales |
|
565,883 |
|
453,130 |
| ||
Gross profit |
|
303,311 |
|
264,080 |
| ||
|
|
|
|
|
| ||
Selling and operating expenses |
|
117,982 |
|
95,512 |
| ||
General and administrative expenses |
|
55,601 |
|
49,258 |
| ||
Operating income |
|
129,728 |
|
119,310 |
| ||
|
|
|
|
|
| ||
Other income (expense), net |
|
229 |
|
(233 |
) | ||
Gain on financial instruments, net |
|
3,032 |
|
482 |
| ||
Loss on foreign currency, net |
|
(5,068 |
) |
(981 |
) | ||
Interest expense |
|
(6,157 |
) |
(29,830 |
) | ||
Income before income taxes |
|
121,764 |
|
88,748 |
| ||
|
|
|
|
|
| ||
Income tax expense |
|
(48,244 |
) |
(31,778 |
) | ||
Net Income |
|
$ |
73,520 |
|
$ |
56,970 |
|
|
|
|
|
|
| ||
Net income attributable to noncontrolling interests |
|
224 |
|
622 |
| ||
|
|
|
|
|
| ||
Net income attributable to GMCR |
|
$ |
73,296 |
|
$ |
56,348 |
|
|
|
|
|
|
| ||
Basic income per share: |
|
|
|
|
| ||
Basic weighted average shares outstanding |
|
155,459,690 |
|
147,663,350 |
| ||
Net income per common share - basic |
|
$ |
0.47 |
|
$ |
0.38 |
|
|
|
|
|
|
| ||
Diluted income per share: |
|
|
|
|
| ||
Diluted weighted average shares outstanding |
|
159,299,578 |
|
153,344,389 |
| ||
Net income per common share - diluted |
|
$ |
0.46 |
|
$ |
0.37 |
|
The accompanying Notes to the Unaudited Consolidated Financial Statements are an integral part of these interim financial statements.
GREEN MOUNTAIN COFFEE ROASTERS, INC.
Unaudited Consolidated Statements of Operations
(Dollars in thousands except per share data)
|
|
Thirty-nine |
|
Thirty-nine |
| ||
|
|
weeks ended |
|
weeks ended |
| ||
|
|
June 23, |
|
June 25, |
| ||
Net sales |
|
$ |
2,912,462 |
|
$ |
1,939,016 |
|
Cost of sales |
|
1,959,509 |
|
1,288,481 |
| ||
Gross profit |
|
952,953 |
|
650,535 |
| ||
|
|
|
|
|
| ||
Selling and operating expenses |
|
370,445 |
|
253,546 |
| ||
General and administrative expenses |
|
157,349 |
|
134,788 |
| ||
Operating income |
|
425,159 |
|
262,201 |
| ||
|
|
|
|
|
| ||
Other income (expense), net |
|
1,589 |
|
933 |
| ||
Loss on financial instruments, net |
|
(214 |
) |
(11,819 |
) | ||
Gain on foreign currency, net |
|
1,231 |
|
4,643 |
| ||
Gain on sale of subsidiary |
|
26,311 |
|
|
| ||
Interest expense |
|
(18,662 |
) |
(52,560 |
) | ||
Income before income taxes |
|
435,414 |
|
203,398 |
| ||
|
|
|
|
|
| ||
Income tax expense |
|
(163,949 |
) |
(78,171 |
) | ||
Net Income |
|
$ |
271,465 |
|
$ |
125,227 |
|
|
|
|
|
|
| ||
Net income attributable to noncontrolling interests |
|
724 |
|
1,095 |
| ||
|
|
|
|
|
| ||
Net income attributable to GMCR |
|
$ |
270,741 |
|
$ |
124,132 |
|
|
|
|
|
|
| ||
Basic income per share: |
|
|
|
|
| ||
Basic weighted average shares outstanding |
|
155,071,117 |
|
143,606,691 |
| ||
Net income per common share - basic |
|
$ |
1.75 |
|
$ |
0.86 |
|
|
|
|
|
|
| ||
Diluted income per share: |
|
|
|
|
| ||
Diluted weighted average shares outstanding |
|
159,364,440 |
|
149,357,480 |
| ||
Net income per common share - diluted |
|
$ |
1.70 |
|
$ |
0.83 |
|
The accompanying Notes to the Unaudited Consolidated Financial Statements are an integral part of these interim financial statements.
GREEN MOUNTAIN COFFEE ROASTERS, INC.
Unaudited Consolidated Statements of Comprehensive Income
(Dollars in thousands)
|
|
Thirteen weeks ended |
|
Thirty-nine weeks ended |
| ||||||||
|
|
June 23, |
|
June 25, |
|
June 23, |
|
June 25, |
| ||||
Net income |
|
$ |
73,520 |
|
$ |
56,970 |
|
$ |
271,465 |
|
$ |
125,227 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
| ||||
Deferred loss on derivatives designated as cash flow hedges, net of tax benefit of $0.4 million and $1.7 million for the thirteen weeks ended June 23, 2012 and June 25, 2011, respectively, and net of tax benefit of $0.7 million and $2.4 million for the thirty-nine weeks ended June 23, 2012 and June 25, 2011, respectively |
|
(540 |
) |
(2,562 |
) |
(975 |
) |
(3,601 |
) | ||||
(Gain) loss on derivatives designated as cash flow hedges reclassified to net income, net of tax (provision)/benefit of $(0.2) million and $0.2 million for the thirteen weeks ended June 23, 2012 and June 25, 2011, respectively, and net of tax (provision)/benefit of $(0.1) million and $0.2 million for the thirty-nine weeks ended June 23, 2012 and June 25, 2011, respectively |
|
(263 |
) |
234 |
|
(64 |
) |
234 |
| ||||
Foreign currency translation adjustment |
|
(14,278 |
) |
(2,953 |
) |
1,931 |
|
12,937 |
| ||||
Other comprehensive (loss) gain |
|
(15,081 |
) |
(5,281 |
) |
892 |
|
9,570 |
| ||||
Total comprehensive income |
|
58,439 |
|
51,689 |
|
272,357 |
|
134,797 |
| ||||
Total comprehensive (loss) income attributable to redeemable noncontrolling interests, net of tax |
|
(64 |
) |
561 |
|
769 |
|
1,355 |
| ||||
Total comprehensive income attributable to GMCR |
|
$ |
58,503 |
|
$ |
51,128 |
|
$ |
271,588 |
|
$ |
133,442 |
|
The accompanying Notes to the Unaudited Consolidated Financial Statements are an integral part of these interim financial statements.
GREEN MOUNTAIN COFFEE ROASTERS, INC.
Unaudited Consolidated Statement Of Changes In Redeemable Noncontrolling Interests And Stockholders Equity
For the Period Ended June 23, 2012 (Dollars in thousands)
|
|
Equity Attributable |
|
|
Common stock |
|
Additional paid-in |
|
|
|
Accumulated |
|
Stockholders |
| ||||||||
|
|
Noncontrolling Interests |
|
|
Shares |
|
Amount |
|
capital |
|
Retained earnings |
|
loss |
|
Equity |
| ||||||
Balance at September 24, 2011 |
|
$ |
21,034 |
|
|
154,466,463 |
|
$ |
15,447 |
|
$ |
1,499,616 |
|
$ |
411,727 |
|
$ |
(14,575 |
) |
$ |
1,912,215 |
|
Options exercised |
|
|
|
|
870,546 |
|
87 |
|
3,074 |
|
|
|
|
|
3,161 |
| ||||||
Issuance of common stock under employee stock purchase plan |
|
|
|
|
130,785 |
|
13 |
|
5,218 |
|
|
|
|
|
5,231 |
| ||||||
Restricted stock awards and units |
|
|
|
|
55,701 |
|
6 |
|
(6 |
) |
|
|
|
|
|
| ||||||
Issuance of common stock under deferred compensation plan |
|
|
|
|
3,107 |
|
|
|
|
|
|
|
|
|
|
| ||||||
Stock compensation expense |
|
|
|
|
|
|
|
|
13,629 |
|
|
|
|
|
13,629 |
| ||||||
Tax benefit from equity-based compensation plans |
|
|
|
|
|
|
|
|
12,453 |
|
|
|
|
|
12,453 |
| ||||||
Deferred compensation expense |
|
|
|
|
|
|
|
|
182 |
|
|
|
|
|
182 |
| ||||||
Disposition of noncontrolling interests |
|
(10,331 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Redeemable noncontrolling interest included in other long-term liabilities |
|
(4,708 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Adjustment of redeemable noncontrolling interests to redemption value |
|
3,577 |
|
|
|
|
|
|
|
|
(3,577 |
) |
|
|
(3,577 |
) | ||||||
Cash distributions |
|
(513 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Other comprehensive income, net of tax |
|
45 |
|
|
|
|
|
|
|
|
|
|
847 |
|
847 |
| ||||||
Net income |
|
724 |
|
|
|
|
|
|
|
|
270,741 |
|
|
|
270,741 |
| ||||||
Balance at June 23, 2012 |
|
$ |
9,828 |
|
|
155,526,602 |
|
$ |
15,553 |
|
$ |
1,534,166 |
|
$ |
678,891 |
|
$ |
(13,728 |
) |
$ |
2,214,882 |
|
The accompanying Notes to the Unaudited Consolidated Financial Statements are an integral part of these interim financial statements.
GREEN MOUNTAIN COFFEE ROASTERS, INC.
Unaudited Consolidated Statements of Cash Flows
(Dollars in thousands)
|
|
Thirty-nine |
|
Thirty-nine |
| ||
|
|
weeks ended |
|
weeks ended |
| ||
|
|
June 23, |
|
June 25, |
| ||
Cash flows from operating activities: |
|
|
|
|
| ||
Net income |
|
$ |
271,465 |
|
$ |
125,227 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
| ||
Depreciation |
|
89,221 |
|
50,176 |
| ||
Amortization of intangibles |
|
34,496 |
|
29,587 |
| ||
Amortization deferred financing fees |
|
4,538 |
|
4,643 |
| ||
Loss on extinguishment of debt |
|
|
|
19,732 |
| ||
Unrealized gain of foreign currency |
|
(535 |
) |
(4,956 |
) | ||
Loss on disposal of fixed assets |
|
2,103 |
|
421 |
| ||
Gain on sale of subsidiary, excluding transaction costs |
|
(28,914 |
) |
|
| ||
Provision for doubtful accounts |
|
2,084 |
|
2,315 |
| ||
Provision for sales returns |
|
83,170 |
|
48,755 |
| ||
Unrealized loss on financial instruments, net |
|
112 |
|
7,671 |
| ||
Tax benefit from exercise of non-qualified options and disqualified dispositions of incentive stock options |
|
4 |
|
38 |
| ||
Excess tax benefits from equity-based compensation plans |
|
(12,449 |
) |
(29,175 |
) | ||
Deferred income taxes |
|
13,198 |
|
3,343 |
| ||
Deferred compensation and stock compensation |
|
13,811 |
|
7,686 |
| ||
Changes in assets and liabilities, net of effects of acquisition: |
|
|
|
|
| ||
Receivables |
|
(37,895 |
) |
(58,229 |
) | ||
Inventories |
|
6,464 |
|
(118,113 |
) | ||
Income tax receivable/payable, net |
|
91,032 |
|
25,533 |
| ||
Other current assets |
|
4,014 |
|
2,371 |
| ||
Other long-term assets, net |
|
(608 |
) |
(11,552 |
) | ||
Accounts payable |
|
(59,130 |
) |
49,134 |
| ||
Accrued compensation costs |
|
(5,024 |
) |
(1,106 |
) | ||
Accrued expenses |
|
15,341 |
|
12,054 |
| ||
Other current liabilities |
|
(3,909 |
) |
(2,388 |
) | ||
Other long-term liabilities |
|
5,593 |
|
11,541 |
| ||
Net cash provided by operating activities |
|
488,182 |
|
174,708 |
| ||
|
|
|
|
|
| ||
Cash flows from investing activities: |
|
|
|
|
| ||
Change in restricted cash |
|
(461 |
) |
98 |
| ||
Proceeds from notes receivable |
|
240 |
|
449 |
| ||
Acquisition of LJVH Holdings, Inc. (Van Houtte), net of cash acquired |
|
|
|
(907,835 |
) | ||
Proceeds from sale of subsidiary, net of cash transferred |
|
137,733 |
|
|
| ||
Capital expenditures for fixed assets |
|
(305,532 |
) |
(175,474 |
) | ||
Proceeds from disposal of fixed assets |
|
340 |
|
850 |
| ||
Other investing activities |
|
|
|
(158 |
) | ||
Net cash used in investing activities |
|
(167,680 |
) |
(1,082,070 |
) | ||
|
|
|
|
|
| ||
Cash flows from financing activities: |
|
|
|
|
| ||
Net change in revolving line of credit |
|
(208,678 |
) |
165,835 |
| ||
Proceeds from issuance of common stock under compensation plans |
|
8,392 |
|
9,577 |
| ||
Proceeds from issuance of common stock for private placement |
|
|
|
291,096 |
| ||
Cash distributions to redeemable noncontrolling interests shareholders |
|
(513 |
) |
(702 |
) | ||
Proceeds from issuance of common stock in public equity offering |
|
|
|
673,048 |
| ||
Financing costs in connection with public equity offering |
|
|
|
(25,685 |
) | ||
Excess tax benefits from equity-based compensation plans |
|
12,449 |
|
29,175 |
| ||
Principal payments under capital lease obligations |
|
(4,255 |
) |
(7 |
) | ||
Proceeds from borrowings of long-term debt |
|
|
|
796,375 |
| ||
Deferred financing fees |
|
|
|
(45,821 |
) | ||
Repayment of long-term debt |
|
(6,231 |
) |
(906,708 |
) | ||
Net cash (used in) provided by financing activities |
|
(198,836 |
) |
986,183 |
| ||
|
|
|
|
|
| ||
Change in cash balances included in current assets held for sale |
|
5,160 |
|
(8,248 |
) | ||
|
|
|
|
|
| ||
Effect of exchange rate changes on cash and cash equivalents |
|
(827 |
) |
1,164 |
| ||
|
|
|
|
|
| ||
Net increase in cash and cash equivalents |
|
125,999 |
|
71,737 |
| ||
Cash and cash equivalents at beginning of period |
|
12,989 |
|
4,401 |
| ||
Cash and cash equivalents at end of period |
|
$ |
138,988 |
|
$ |
76,138 |
|
|
|
|
|
|
| ||
Supplemental disclosures of cash flow information: |
|
|
|
|
| ||
Fixed asset purchases included in accounts payable and not disbursed at the end of each period |
|
$ |
34,293 |
|
$ |
26,970 |
|
Noncash financing and investing activities: |
|
|
|
|
| ||
Fixed assets acquired under capital lease obligations/vendor notes |
|
$ |
44,174 |
|
$ |
|
|
The accompanying Notes to the Unaudited Consolidated Financial Statements are an integral part of these interim financial statements.
Green Mountain Coffee Roasters, Inc.
Notes to Unaudited Consolidated Financial Statements
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information, the instructions to Form 10-Q, and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements.
In the opinion of management, all adjustments considered necessary for a fair presentation of the interim financial data have been included. Results from operations for the thirteen and thirty-nine week periods ended June 23, 2012 are not necessarily indicative of the results that may be expected for the fiscal year ending September 29, 2012.
The September 24, 2011 balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP. For further information, refer to the consolidated financial statements and the footnotes included in the Annual Report on Form 10-K for Green Mountain Coffee Roasters, Inc. for the fiscal year ended September 24, 2011. Throughout this presentation, we refer to the consolidated company as the Company and, unless otherwise noted, the information provided is on a consolidated basis.
2. Acquisitions and Divestitures
Fiscal Year 2012
On October 3, 2011, all the outstanding shares of Van Houtte USA Holdings, Inc., also known as the Van Houtte U.S. Coffee Service business or the Filterfresh business, were sold to ARAMARK Refreshment Services, LLC (ARAMARK) in exchange for $149.5 million in cash. Approximately $4.4 million of cash was transferred to ARAMARK as part of the sale and $7.4 million was repaid to ARAMARK upon finalization of the purchase price, resulting in a net cash inflow related to the Filterfresh sale of $137.7 million. The Company recognized a gain on the sale of $26.3 million during the thirteen weeks ended December 24, 2011. Filterfresh had been included in the Canadian business unit (CBU) segment.
As of September 24, 2011, all the assets and liabilities relating to the Filterfresh business were reported in the Consolidated Balance Sheets as assets and liabilities held-for-sale.
Filterfresh revenues and net income included in the Companys consolidated statement of operations were as follows (dollars in thousands, except per share data):
|
|
Thirteen |
|
Thirteen |
|
For the period |
|
For the period |
| ||||
|
|
weeks ended |
|
weeks ended |
|
October 3, 2011 |
|
through |
| ||||
|
|
June 23, 2012 |
|
June 25, 2011 |
|
(date of sale) |
|
June 25, 2011 |
| ||||
Net sales |
|
$ |
|
|
$ |
29,352 |
|
$ |
2,286 |
|
$ |
62,619 |
|
|
|
|
|
|
|
|
|
|
| ||||
Net income |
|
$ |
|
|
$ |
3,947 |
|
$ |
229 |
|
$ |
9,276 |
|
Less income attributable to noncontrolling interests |
|
|
|
382 |
|
20 |
|
776 |
| ||||
Net income attributable to GMCR |
|
$ |
|
|
$ |
3,565 |
|
$ |
209 |
|
$ |
8,500 |
|
|
|
|
|
|
|
|
|
|
| ||||
Diluted net income per share |
|
$ |
|
|
$ |
0.02 |
|
$ |
|
|
$ |
0.06 |
|
After the disposition, the Company continues to sell coffee and brewers to Filterfresh, which prior to the sale of Filterfresh were eliminated and were not reflected in the Consolidated Statement of Operations. For the thirteen weeks ended June 25, 2011, the Companys sales to Filterfresh that were eliminated in consolidation were $7.2 million. For the thirty-nine weeks ended June 23, 2012, the Companys sales to Filterfresh through October 3, 2011 (date of sale) that were eliminated in consolidation were $0.6 million. For the thirty-nine weeks ended June 25, 2011, the Companys sales to
Filterfresh during the period December 17, 2010 (date of acquisition) through June 25, 2011 that were eliminated in consolidation were $15.0 million.
Fiscal Year 2011
On December 17, 2010, the Company acquired all of the outstanding capital stock of LJVH Holdings, Inc. (LJVH and together with its subsidiaries, Van Houtte), a specialty coffee roaster headquartered in Montreal, Quebec, for approximately USD $907.8 million, net of cash acquired. The acquisition was financed with cash on hand and a $1,450.0 million credit facility. Van Houttes functional currency is the Canadian dollar. Van Houttes operations are included in the CBU segment.
At the time of the acquisition, the Company accounted for all the assets relating to the Filterfresh business as held-for-sale.
The Company finalized the valuation and purchase price allocation for Van Houtte during the third quarter of fiscal 2011. The Van Houtte acquisition was accounted for under the acquisition method of accounting. The total purchase price of USD $907.8 million, net of cash acquired, was allocated to Van Houttes net tangible assets and identifiable intangible assets based on their estimated fair values as of December 17, 2010. The fair value assigned to identifiable intangible assets acquired was determined primarily by using an income approach. The allocation of the purchase price is based upon a valuation determined using managements and the Companys estimates and assumptions. The table below represents the allocation of the purchase price to the acquired net assets of Van Houtte (in thousands):
|
|
Total |
|
Van Houtte |
|
Filterfresh |
| |||
Restricted cash |
|
$ |
500 |
|
$ |
500 |
|
$ |
|
|
Accounts receivable |
|
61,130 |
|
47,554 |
|
13,576 |
| |||
Inventories |
|
42,958 |
|
36,691 |
|
6,267 |
| |||
Income taxes receivable |
|
2,260 |
|
2,190 |
|
70 |
| |||
Deferred income taxes |
|
4,903 |
|
3,577 |
|
1,326 |
| |||
Other current assets |
|
5,047 |
|
4,453 |
|
594 |
| |||
Fixed assets |
|
143,928 |
|
110,622 |
|
33,306 |
| |||
Intangible assets |
|
375,099 |
|
355,549 |
|
19,550 |
| |||
Goodwill |
|
472,331 |
|
409,493 |
|
62,838 |
| |||
Other long-term assets |
|
1,577 |
|
962 |
|
615 |
| |||
Accounts payable and accrued expenses |
|
(54,502 |
) |
(46,831 |
) |
(7,671 |
) | |||
Other short-term liabilities |
|
(4,330 |
) |
(3,404 |
) |
(926 |
) | |||
Income taxes payable |
|
(1,496 |
) |
(1,496 |
) |
|
| |||
Deferred income taxes |
|
(117,086 |
) |
(104,866 |
) |
(12,220 |
) | |||
Notes payable |
|
(2,914 |
) |
(1,770 |
) |
(1,144 |
) | |||
Other long-term liabilities |
|
(2,452 |
) |
(1,683 |
) |
(769 |
) | |||
Non-controlling interests |
|
(19,118 |
) |
(9,529 |
) |
(9,589 |
) | |||
|
|
$ |
907,835 |
|
$ |
802,012 |
|
$ |
105,823 |
|
The purchase price allocated to Filterfresh was the fair value, less the estimated direct costs to sell Filterfresh established at the acquisition date. The fair value of Filterfresh was estimated using an income approach, specifically the discounted cash flow (DCF) method. Under the DCF method the fair value is calculated by discounting the projected after-tax cash flows for the business to present value. The income approach includes assumptions about the amount and timing of future cash flows using projections and other estimates. A discount rate based on an appropriate weighted average cost of capital was applied to the estimated future cash flows to estimate the fair value.
An income approach, specifically the DCF method, was used to value the noncontrolling interests.
Amortizable intangible assets acquired, valued at the date of acquisition, include approximately $263.1 million for customer relationships, $10.9 million for trademarks and trade names, $1.4 million for franchises and $0.3 million for
technology. Indefinite-lived intangible assets acquired include approximately $99.4 million for the Van Houtte trademark which is not amortized. The definite lived intangible assets classified as held-for-sale are not amortized and approximated $19.5 million. Amortizable intangible assets are amortized on a straight-line basis over their respective useful lives, and the weighted-average amortization period is 10.8 years.
The cost of the acquisition in excess of the fair market value of the tangible and intangible assets acquired less liabilities assumed represents acquired goodwill. The acquisition provides the Company with an expanded Canadian presence and manufacturing and distribution synergies, which provide the basis of the goodwill recognized with respect to the Van Houtte Canadian operations. As discussed above, the purchase price allocated to Filterfresh was the fair value, less the estimated direct costs to sell Filterfresh established at the acquisition date. The excess of the purchase price (fair value) allocated to Filterfresh over the fair value of the net tangible and identifiable intangible assets represents goodwill. Goodwill and intangible assets are reported in the CBU segment. The goodwill and intangible assets recognized are not deductible for tax purposes.
Acquisition costs were expensed as incurred and totaled approximately $10.7 million for the thirty-nine weeks ended June 25, 2011 and are included in general and administrative expenses for the Company.
At June 23, 2012, approximately $8.9 million of the purchase price is held in escrow and is included in restricted cash with the corresponding amount in other current liabilities.
The acquisition was completed on December 17, 2010 and accordingly results of operations from such date have been included in the Companys Statement of Operations. For the thirteen weeks ended June 23, 2012, the Van Houtte acquisition resulted in an additional $104.5 million of consolidated revenue and $14.1 million of consolidated income before income taxes. For the thirteen weeks ended June 25, 2011, the Van Houtte acquisition resulted in an additional $111.7 million of consolidated revenue and $13.0 million of consolidated income before income taxes. For the thirty-nine weeks ended June 23, 2012, the Van Houtte acquisition resulted in an additional $308.4 million of consolidated revenue and $34.2 million of consolidated income before income taxes. For the thirty-nine weeks ended June 25, 2011, the Van Houtte acquisition resulted in an additional $221.0 million of consolidated revenue and $10.3 million of consolidated income before income taxes.
Supplemental Pro Forma Information
The following information reflects the Companys acquisition of Van Houtte as if the transaction had occurred as of the beginning of the Companys fiscal 2011. The pro forma information does not necessarily reflect the actual results that would have occurred had the acquisitions been combined during the periods presented, nor is it necessarily indicative of the future results of operations of the combined companies.
The following table represents select pro forma data (dollars in thousands except per share data):
|
|
Thirteen |
|
Thirty-nine |
| ||
|
|
weeks ended |
|
weeks ended |
| ||
|
|
June 25, |
|
June 25, |
| ||
Unaudited Consolidated proforma revenue |
|
$ |
717,210 |
|
$ |
2,037,846 |
|
Unaudited Consolidated proforma net income |
|
$ |
56,348 |
|
$ |
148,485 |
|
Unaudited Consolidated proforma diluted earnings per common share |
|
$ |
0.37 |
|
$ |
0.99 |
|
3. Segment Reporting
The Company manages its operations through three business segments, the Specialty Coffee business unit (SCBU), the Keurig business unit (KBU) and CBU.
SCBU sources, produces and sells coffee, hot cocoa, teas and other beverages, to be prepared hot or cold, in K-Cup® and Vue® packs (single serve packs) and coffee in more traditional packaging including whole bean and ground coffee selections in bags and ground coffee in fractional packs. These varieties are sold to supermarkets, club stores and convenience stores, restaurants and hospitality, office coffee distributors and also directly to consumers in the United States. In addition, SCBU sells Keurig® Single Cup Brewing systems and other accessories to supermarkets and directly to consumers.
KBU targets its premium patented single cup brewing systems for use both at-home (AH) and away-from-home (AFH), in the United States. KBU sells AH single cup brewers, accessories and coffee, tea, cocoa and other beverages in single serve packs produced mainly by SCBU and CBU primarily to retailers, department stores and mass merchandisers principally processing its sales orders through fulfillment entities for the AH channels. KBU sells AFH single cup brewers to distributors for use in offices. KBU also sells AH brewers, a limited number of AFH brewers and single serve packs directly to consumers. KBU earns royalty income from K-Cup® packs when shipped by its third party licensed roasters, except for shipments of K-Cup® packs to KBU, for which the royalty is recognized as a reduction to the carrying cost of the inventory and as a reduction to cost of sales when sold through to third parties by KBU. In addition, through the second quarter of fiscal 2011, KBU earned royalty income from K-Cup® packs when shipped by SCBU and CBU.
CBU sources, produces and sells coffees and teas and other beverages in a variety of packaging formats, including K-Cup® packs, and coffee in more traditional packaging such as bags, cans and fractional packs, and under a variety of brands. The varieties are sold primarily to supermarkets, club stores and, through office coffee services to offices, convenience stores and restaurants throughout Canada. CBU began selling the Keurig® K-Cup® Single Cup Brewing system, accessories and coffee, tea, cocoa, and other beverages in K-Cup® packs to retailers, department stores and mass merchandisers in Canada for the AH channels in the first quarter of 2012. CBU also manufactures brewing equipment and is responsible for all the Company coffee brand sales in the grocery channel in Canada. The CBU segment included Filterfresh through October 3, 2011, the date of sale (see Note 2, Acquisitions and Divestitures).
Management evaluates the performance of the Companys operating segments based on several factors, including net sales and income before taxes. Net sales are recorded on a segment basis and intersegment sales are eliminated as part of the financial consolidation process. Income before taxes represents earnings before income taxes and includes intersegment interest income and expense and transfer pricing on intersegment sales. The Companys manufacturing operations occur within the SCBU and CBU segments, however, the costs of manufacturing are recognized in cost of sales in the operating segment in which the sale occurs. Information system technology services are mainly centralized while finance functions are primarily decentralized, but currently maintain some centralization through an enterprise shared services group. Expenses related to certain centralized administrative functions including Accounting and Information System Technology are allocated to the operating segments. Expenses not specifically related to an operating segment are recorded in the Corporate segment. Corporate expenses are comprised mainly of the compensation and other related expenses of certain of the Companys senior executive officers and other selected employees who perform duties related to the entire enterprise. Corporate expenses also include depreciation expense, interest expense, foreign exchange gains or losses, certain corporate legal and acquisition-related expenses and compensation of the board of directors.
Identifiable assets by segment are those assets specifically identifiable within each segment and for the SCBU, KBU and CBU segments primarily include accounts receivable, inventories, net property, plant and equipment, goodwill, and other intangible assets. Corporate assets include primarily cash, short-term investments, deferred tax assets, income tax receivable, certain notes receivable eliminated in consolidation, deferred issuance costs, and fixed assets related to corporate headquarters. Goodwill and intangibles related to acquisitions are included in their respective segments.
Effective with the beginning of the Companys third quarter of fiscal 2011, KBU no longer records royalty income from SCBU and CBU on shipments of single serve packs, thus removing the need to eliminate royalty income during the financial consolidation process. Prior to the third quarter of fiscal 2011, the Company recorded intersegment sales and purchases of brewer and K-Cup® packs at a markup. During the third quarter of fiscal 2011, the Company unified the standard costs of brewer and K-Cup® pack inventories across the segments and began recording intersegment sales and purchases of brewers and K-Cup® packs at new unified standard costs. This change simplified intercompany transactions by removing the need to eliminate the markup incorporated in intersegment sales as part of the financial consolidation process.
As a result of the unification of the standard costs of brewers and K-Cup® packs during the third quarter of fiscal 2011, the Company revalued its segment inventories and recorded an adjustment in each segment, which resulted in an increase in cost of sales and a decrease in inventories. This adjustment was offset by the reversal of the elimination of intersegment markup in inventories in the consolidation process resulting in no impact to the Companys consolidated results.
The changes described in the two preceding paragraphs were not retrospectively applied.
Effective at the beginning of fiscal year 2012, the Company changed its organizational structure to align certain portions of its business by geography. Prior to fiscal 2012, sales and operations associated with the Timothys brand were included in the SCBU segment and a portion of the AH single cup business with retailers in Canada was included in the KBU segment. Under the new structure, Timothys and all of the AH single cup business with retailers in Canada are included
in the CBU segment. This resulted in a re-assignment of goodwill of $17.1 million from the SCBU segment to the CBU segment using a relative fair value approach. In addition, effective September 25, 2011, K-Cup® pack and brewer inventories and, beginning in the second quarter of fiscal 2012, Vue® pack and brewer inventories, are now transferred directly between SCBU and KBU. Intersegment sales are no longer transacted between SCBU and KBU.
The following tables summarize selected financial data for segment disclosures for the thirteen and thirty-nine week periods ended June 23, 2012 and June 25, 2011. Selected financial data for segment disclosures for the thirteen and thirty-nine weeks ended June 25, 2011 have been recast to reflect Timothys and the AH single cup business with retailers in Canada in the CBU segment.
|
|
For the thirteen weeks ended June 23, 2012 |
| ||||||||||||||||
|
|
SCBU |
|
KBU |
|
CBU |
|
Corporate |
|
Eliminations |
|
Consolidated |
| ||||||
Sales to unaffiliated customers |
|
$ |
386,979 |
|
$ |
332,792 |
|
$ |
149,423 |
|
$ |
|
|
$ |
|
|
$ |
869,194 |
|
Intersegment sales |
|
$ |
1,684 |
|
$ |
2,197 |
|
$ |
20,360 |
|
$ |
|
|
$ |
(24,241 |
) |
$ |
|
|
Net sales |
|
$ |
388,663 |
|
$ |
334,989 |
|
$ |
169,783 |
|
$ |
|
|
$ |
(24,241 |
) |
$ |
869,194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income before taxes |
|
$ |
90,519 |
|
$ |
22,623 |
|
$ |
23,597 |
|
$ |
(14,975 |
) |
$ |
|
|
$ |
121,764 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total assets |
|
$ |
1,428,189 |
|
$ |
813,245 |
|
$ |
1,115,797 |
|
$ |
601,751 |
|
$ |
(621,852 |
) |
$ |
3,337,130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Stock compensation |
|
$ |
1,069 |
|
$ |
942 |
|
$ |
379 |
|
$ |
2,030 |
|
$ |
|
|
$ |
4,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
6,157 |
|
$ |
|
|
$ |
6,157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Property additions |
|
$ |
73,618 |
|
$ |
6,890 |
|
$ |
7,591 |
|
$ |
2,689 |
|
$ |
|
|
$ |
90,788 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Depreciation and amortization |
|
$ |
21,670 |
|
$ |
3,295 |
|
$ |
14,587 |
|
$ |
5,322 |
|
$ |
|
|
$ |
44,874 |
|
|
|
For the thirteen weeks ended June 25, 2011 |
| ||||||||||||||||
|
|
SCBU |
|
KBU |
|
CBU |
|
Corporate |
|
Eliminations |
|
Consolidated |
| ||||||
Sales to unaffiliated customers |
|
$ |
275,651 |
|
$ |
285,340 |
|
$ |
156,219 |
|
$ |
|
|
$ |
|
|
$ |
717,210 |
|
Intersegment sales |
|
$ |
72,909 |
|
$ |
3,320 |
|
$ |
25,959 |
|
$ |
|
|
$ |
(102,188 |
) |
$ |
|
|
Net sales |
|
$ |
348,560 |
|
$ |
288,660 |
|
$ |
182,178 |
|
$ |
|
|
$ |
(102,188 |
) |
$ |
717,210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income before taxes |
|
$ |
66,347 |
|
$ |
40,563 |
|
$ |
24,743 |
|
$ |
(42,905 |
) |
$ |
|
|
$ |
88,748 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total assets |
|
$ |
1,010,205 |
|
$ |
404,788 |
|
$ |
1,299,088 |
|
$ |
540,042 |
|
$ |
(379,701 |
) |
$ |
2,874,422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Stock compensation |
|
$ |
938 |
|
$ |
669 |
|
$ |
177 |
|
$ |
1,219 |
|
$ |
|
|
$ |
3,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
29,830 |
|
$ |
|
|
$ |
29,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Property additions |
|
$ |
72,515 |
|
$ |
8,580 |
|
$ |
8,464 |
|
$ |
2,596 |
|
$ |
|
|
$ |
92,155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Depreciation and amortization |
|
$ |
11,152 |
|
$ |
2,551 |
|
$ |
13,728 |
|
$ |
3,548 |
|
$ |
|
|
$ |
30,979 |
|
|
|
For the thirty-nine weeks ended June 23, 2012 |
| ||||||||||||||||
|
|
SCBU |
|
KBU |
|
CBU |
|
Corporate |
|
Eliminations |
|
Consolidated |
| ||||||
Sales to unaffiliated customers |
|
$ |
1,140,829 |
|
$ |
1,297,106 |
|
$ |
474,527 |
|
$ |
|
|
$ |
|
|
$ |
2,912,462 |
|
Intersegment sales |
|
$ |
8,447 |
|
$ |
7,394 |
|
$ |
75,935 |
|
$ |
|
|
$ |
(91,776 |
) |
$ |
|
|
Net sales |
|
$ |
1,149,276 |
|
$ |
1,304,500 |
|
$ |
550,462 |
|
$ |
|
|
$ |
(91,776 |
) |
$ |
2,912,462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income before taxes |
|
$ |
267,775 |
|
$ |
118,718 |
|
$ |
98,460 |
|
$ |
(49,539 |
) |
$ |
|
|
$ |
435,414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total assets |
|
$ |
1,428,189 |
|
$ |
813,245 |
|
$ |
1,115,797 |
|
$ |
601,751 |
|
$ |
(621,852 |
) |
$ |
3,337,130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Stock compensation |
|
$ |
3,330 |
|
$ |
2,817 |
|
$ |
1,504 |
|
$ |
5,978 |
|
$ |
|
|
$ |
13,629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
18,662 |
|
$ |
|
|
$ |
18,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Property additions |
|
$ |
267,401 |
|
$ |
22,542 |
|
$ |
33,006 |
|
$ |
35,626 |
|
$ |
|
|
$ |
358,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Depreciation and amortization |
|
$ |
57,084 |
|
$ |
9,705 |
|
$ |
42,487 |
|
$ |
14,441 |
|
$ |
|
|
$ |
123,717 |
|
|
|
For the thirty-nine weeks ended June 25, 2011 |
| ||||||||||||||||
|
|
SCBU |
|
KBU |
|
CBU |
|
Corporate |
|
Eliminations |
|
Consolidated |
| ||||||
Sales to unaffiliated customers |
|
$ |
705,872 |
|
$ |
882,701 |
|
$ |
350,443 |
|
$ |
|
|
$ |
|
|
$ |
1,939,016 |
|
Intersegment sales |
|
$ |
333,790 |
|
$ |
157,476 |
|
$ |
73,938 |
|
$ |
|
|
$ |
(565,204 |
) |
$ |
|
|
Net sales |
|
$ |
1,039,662 |
|
$ |
1,040,177 |
|
$ |
424,381 |
|
$ |
|
|
$ |
(565,204 |
) |
$ |
1,939,016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income before taxes |
|
$ |
193,160 |
|
$ |
93,951 |
|
$ |
41,899 |
|
$ |
(100,534 |
) |
$ |
(25,078 |
) |
$ |
203,398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total assets |
|
$ |
1,010,205 |
|
$ |
404,788 |
|
$ |
1,299,088 |
|
$ |
540,042 |
|
$ |
(379,701 |
) |
$ |
2,874,422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Stock compensation |
|
$ |
2,350 |
|
$ |
1,685 |
|
$ |
290 |
|
$ |
3,195 |
|
$ |
|
|
$ |
7,520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
52,560 |
|
$ |
|
|
$ |
52,560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Property additions |
|
$ |
128,398 |
|
$ |
18,893 |
|
$ |
18,756 |
|
$ |
14,936 |
|
$ |
|
|
$ |
180,983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Depreciation and amortization |
|
$ |
31,692 |
|
$ |
7,215 |
|
$ |
31,169 |
|
$ |
9,687 |
|
$ |
|
|
$ |
79,763 |
|
4. Inventories
Inventories consisted of the following (in thousands):
|
|
June 23, |
|
September 24, |
| ||
Raw materials and supplies |
|
$ |
243,038 |
|
$ |
182,811 |
|
Finished goods |
|
423,967 |
|
489,437 |
| ||
|
|
$ |
667,005 |
|
$ |
672,248 |
|
At June 23, 2012 the Company had approximately $401.4 million in green coffee purchase commitments, of which approximately 82% had a fixed price. These commitments primarily extend through fiscal 2014. The value of the variable portion of these commitments was calculated using an average C price of coffee of $1.63 per pound at June 23, 2012. In addition to its green coffee commitments, the Company had approximately $266.6 million in fixed price brewer and related accessory purchase commitments and $605.7 million in production raw material commitments at June 23, 2012. The Company believes based on relationships established with its suppliers that the risk of non-delivery on such purchase commitments is remote.
At June 23, 2012, minimum future inventory purchase commitments are as follows (in thousands):
Fiscal Year |
|
Inventory |
| |
Remainder of 2012 |
|
$ |
517,975 |
|
2013 |
|
254,012 |
| |
2014 |
|
111,628 |
| |
2015 |
|
111,351 |
| |
2016 |
|
114,675 |
| |
Thereafter |
|
164,041 |
| |
|
|
$ |
1,273,682 |
|
In order to ensure a continuous supply of high quality raw materials some of the Companys inventory purchase obligations include long-term purchase commitments for certain strategic raw materials critical for the manufacture of portion packs.
5. Fixed Assets
Fixed assets consist of the following (in thousands):
|
|
Useful Life in |
|
June 23, |
|
September 24, |
| ||
Production equipment |
|
1-15 |
|
$ |
462,286 |
|
$ |
314,149 |
|
Coffee service equipment |
|
3-7 |
|
59,385 |
|
53,319 |
| ||
Computer equipment and software |
|
1-6 |
|
102,794 |
|
78,377 |
| ||
Land |
|
Indefinite |
|
11,546 |
|
8,790 |
| ||
Building and building improvements |
|
4-30 |
|
77,640 |
|
54,648 |
| ||
Furniture and fixtures |
|
1-15 |
|
26,398 |
|
21,619 |
| ||
Vehicles |
|
4-5 |
|
9,318 |
|
7,860 |
| ||
Leasehold improvements |
|
1-20 or remaining life of lease, whichever is less |
|
55,224 |
|
35,496 |
| ||
Assets acquired under capital leases |
|
5-15 |
|
43,047 |
|
|
| ||
Construction-in-progress |
|
|
|
219,536 |
|
147,860 |
| ||
Total fixed assets |
|
|
|
$ |
1,067,174 |
|
$ |
722,118 |
|
Accumulated depreciation |
|
|
|
(220,851 |
) |
(142,899 |
) | ||
|
|
|
|
$ |
846,323 |
|
$ |
579,219 |
|
Assets acquired under capital leases, net of accumulated depreciation, were $40.1 million at June 23, 2012.
Total depreciation and amortization expense relating to all fixed assets was $33.4 million and $19.2 million for the thirteen weeks ended June 23, 2012 and June 25, 2011, respectively. Total depreciation and amortization expense relating to all fixed assets was $89.2 million and $50.2 million for the thirty-nine weeks ended June 23, 2012 and June 25, 2011, respectively.
Assets classified as construction-in-progress are not depreciated, as they are not ready for productive use. All assets classified as construction-in-progress on June 23, 2012 are expected to be in productive use within the next twelve months.
6. Goodwill and Intangible Assets
The following represents the change in the carrying amount of goodwill by segment for the thirty-nine weeks ended June 23, 2012 (in thousands):
|
|
SCBU |
|
KBU |
|
CBU |
|
Total |
| ||||
Balance at September 24, 2011 |
|
$ |
314,042 |
|
$ |
72,374 |
|
$ |
402,889 |
|
$ |
789,305 |
|
Reassignment of Timothys goodwill |
|
(17,063 |
) |
|
|
17,063 |
|
|
| ||||
Foreign currency effect |
|
|
|
|
|
1,892 |
|
1,892 |
| ||||
Balance at June 23, 2012 |
|
$ |
296,979 |
|
$ |
72,374 |
|
$ |
421,844 |
|
$ |
791,197 |
|
Effective September 25, 2011, Timothys is included in the CBU segment. Prior to September 25, 2011, Timothys was included in the SCBU segment. This resulted in a re-assignment of goodwill of $17.1 million from the SCBU segment to the CBU segment using a relative fair value approach. The amount of goodwill reassigned was determined based on the relative fair values of Timothys and SCBU.
The carrying value of goodwill is reviewed at least annually for possible impairment. The Company last conducted its annual impairment test of goodwill as of September 24, 2011. Goodwill of a reporting unit is tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. As a result of the decline in the Companys share price, the Company assessed
whether it was more likely than not the fair value of each reporting unit was less than its carrying amount and determined that it was more likely than not the fair value of each reporting unit was not reduced below its carrying amount.
Indefinite-lived intangible assets included in the CBU operating segment consist of the following (in thousands):
|
|
June 23, 2012 |
|
September 24, 2011 |
| ||
Trade names |
|
$ |
98,283 |
|
$ |
97,824 |
|
Intangible Assets Subject to Amortization
Definite-lived intangible assets consist of the following (in thousands):
|
|
|
|
June 23, 2012 |
|
September 24, 2011 |
| ||||||||
|
|
Useful Life in |
|
Gross Carrying |
|
Accumulated |
|
Gross Carrying |
|
Accumulated |
| ||||
Acquired technology |
|
4-10 |
|
$ |
21,610 |
|
$ |
(15,004 |
) |
$ |
21,609 |
|
$ |
(13,525 |
) |
Customer and roaster agreements |
|
8-11 |
|
27,266 |
|
(16,021 |
) |
27,259 |
|
(13,723 |
) | ||||
Customer relationships |
|
7-16 |
|
420,037 |
|
(68,296 |
) |
418,901 |
|
(40,593 |
) | ||||
Trade names |
|
9-11 |
|
37,650 |
|
(8,767 |
) |
37,611 |
|
(5,919 |
) | ||||
Non-compete agreements |
|
2-5 |
|
374 |
|
(339 |
) |
374 |
|
(324 |
) | ||||
Total |
|
|
|
$ |
506,937 |
|
$ |
(108,427 |
) |
$ |
505,754 |
|
$ |
(74,084 |
) |
Definite-lived intangible assets are amortized on a straight-line basis over the period of expected economic benefit. Total amortization expense was $11.5 million and $11.8 million for the thirteen weeks ended June 23, 2012 and June 25, 2011, respectively. Total amortization expense was $34.5 million and $29.6 million for the thirty-nine weeks ended June 23, 2012 and June 25, 2011, respectively.
The estimated aggregate amortization expense for the remainder of fiscal 2012, for each of the next five years and thereafter, is as follows (in thousands):
Remainder of 2012 |
|
$ |
11,350 |
|
2013 |
|
$ |
45,387 |
|
2014 |
|
$ |
44,761 |
|
2015 |
|
$ |
43,215 |
|
2016 |
|
$ |
42,510 |
|
2017 |
|
$ |
41,114 |
|
Thereafter |
|
$ |
170,173 |
|
7. Assets Held for Sale
The following is a summary of the major classes of assets and liabilities of Filterfresh included as assets and liabilities held-for-sale as of September 24, 2011 (in thousands):
Cash |
|
$ |
5,160 |
|
Accounts receivable, net of allowance for uncollectible accounts of $0.3 million |
|
12,734 |
| |
Inventories |
|
7,212 |
| |
Other current assets |
|
779 |
| |
Total current assets |
|
$ |
25,885 |
|
|
|
|
| |
Fixed Assets |
|
$ |
37,780 |
|
Intangibles |
|
19,550 |
| |
Goodwill |
|
62,838 |
| |
Other long-term assets |
|
415 |
| |
Total long-term assets |
|
$ |
120,583 |
|
|
|
|
| |
Current portion of long-term debt |
|
$ |
673 |
|
Accounts payable |
|
2,226 |
| |
Accrued compensation |
|
2,287 |
| |
Accrued expenses |
|
3,229 |
| |
Income taxes payable |
|
32 |
| |
Deferred income taxes, net |
|
10,894 |
| |
Total current liabilities |
|
$ |
19,341 |
|
|
|
|
| |
Long-term debt |
|
$ |
185 |
|
Other long-term liabilities |
|
289 |
| |
Total long-term liabilities |
|
$ |
474 |
|
In addition, redeemable noncontrolling interests included a non-wholly owned subsidiary included in the Filterfresh business totaling $10.3 million as of September 24, 2011.
8. Product Warranties
The Company offers a one-year warranty on all Keurig® Single Cup brewers it sells. KBU provides for the estimated cost of product warranties, primarily using historical information and repair or replacement costs, at the time product revenue is recognized. The Company is experiencing warranty claims at a lower rate than the rates experienced over the prior two years, which had related primarily to a component failing at higher-than-anticipated rates in the later stage of the warranty life. The current rates reflect an improvement in later-stage brewer performance. Management believes that the lower rates are the result of improvements made in units produced since mid-2011 that incorporated an updated component that improved later-stage performance. The Company has incorporated the recent improvement in the rate of warranty claims into its estimates used in its reserve for product warranty costs. However, because brewer failures may arise in the later part of the warranty period, actual warranty costs may exceed the reserve. As a result, there can be no assurance that the Company will not need to increase the reserve or experience additional warranty expense related to this or other quality issues in future periods. At this time, management believes that the warranty rates used and related reserves are appropriate.
As the Company has grown, it has added significantly to its product testing, quality control infrastructure and overall quality processes. Nevertheless, as the Company continues to innovate, and its products become more complex, both in design and componentry, product performance may tend to modulate, causing warranty rates to possibly fluctuate going forward, so that they may be higher or lower than the Company is currently experiencing and for which the Company is currently providing for in its warranty reserve.
The changes in the carrying amount of product warranties for the thirteen and thirty-nine weeks ended June 23, 2012 and June 25, 2011 are as follows (in thousands):
|
|
Thirteen weeks ended |
|
Thirty-nine weeks ended |
| ||||||||
|
|
June 23, 2012 |
|
June 25, 2011 |
|
June 23, 2012 |
|
June 25, 2011 |
| ||||
Balance, beginning of period |
|
$ |
25,740 |
|
$ |
15,715 |
|
$ |
14,728 |
|
$ |
6,694 |
|
Provision charged to income |
|
2,605 |
|
6,177 |
|
38,425 |
|
27,788 |
| ||||
Usage |
|
(8,962 |
) |
(6,837 |
) |
(33,770 |
) |
(19,427 |
) | ||||
Balance, end of period |
|
$ |
19,383 |
|
$ |
15,055 |
|
$ |
19,383 |
|
$ |
15,055 |
|
For the thirteen and thirty-nine weeks ended June 23, 2012, the Company recorded recoveries of $0.2 million and $8.3 million, respectively, under an agreement with a supplier. The recoveries were recorded as a reduction to warranty expense and are not reflected in the provision charged to income in the table above. There were no recoveries for the thirteen and thirty-nine weeks ended June 25, 2011.
9. Noncontrolling Interests
In the CBU segment, a portion of the coffee services business operates through non-wholly owned subsidiaries. The financial statements consolidate entities in which the Company has a controlling financial interest. Net income attributable to noncontrolling interests reflect the portion of the net income (loss) applicable to the noncontrolling interest partners in the consolidated statement of operations. The net income attributable to noncontrolling interests is classified in the consolidated statements of operations as part of consolidated net income with the net income attributable to the noncontrolling interests deducted from total consolidated net income.
If a change in ownership of a consolidated subsidiary results in a loss of control or deconsolidation, any retained ownership interests are remeasured with the gain or loss reported to net earnings.
Redeemable Noncontrolling Interests
Redeemable noncontrolling interests may be redeemed by the Company at amounts based on formulas specific to each entity. The Company classifies redeemable noncontrolling interests outside of shareholders equity in the consolidated balance sheet under the caption, Redeemable noncontrolling interests, and measures it at the redemption value at the end of each period. If the redemption value is greater than the carrying value, an adjustment is recorded in retained earnings to record the noncontrolling interest at its redemption value.
On March 26, 2012, two entities in which the Company had redeemable noncontrolling interests were merged. Under the terms of the merger, the Company retained controlling interest of the newly merged entity. As a result, no gain or loss was recognized as a result of the merger. In addition, as the Companys ownership interest in the newly merged entity remained proportionate with its historical ownership interest in the pre-merged entities, there was no adjustment to the historical carrying amounts.
Mandatorily Redeemable Noncontrolling Interests
On June 22, 2012, the Company executed a purchase agreement under which the Company is required to purchase a noncontrolling interest holders shares in an entity in which the Company has a controlling interest within 30 days of the end of the Companys third quarter of fiscal year 2014. As a result, as of June 22, 2012, the Company has a controlling financial interest in an entity whereby the shares held by the noncontrolling interest holder are mandatorily redeemable by the Company. The Company classifies the mandatorily redeemable noncontrolling interest as a liability in the consolidated balance sheet under the caption, Other long-term liabilities, and measures the liability at the amount of cash that would be paid if settlement occurred at the balance sheet date based on the formula in the shareholder agreement with any change from the prior period recognized as interest expense. Prior to June 22, 2012, the noncontrolling interest was classified as a redeemable noncontrolling interest outside of shareholders equity in the consolidated balance sheet under the caption, Redeemable noncontrolling interests, with any adjustments to record the noncontrolling interest at its redemption value recognized in retained earnings. At June 23, 2012, the mandatorily redeemable noncontrolling interest included in other long-term liabilities was $4.7 million.
10. Derivative Financial Instruments
Cash Flow Hedges
The Company is exposed to certain risks relating to ongoing business operations. The primary risks that are mitigated by financial instruments are interest rate risk and commodity price risk. The Company uses interest rate swaps to mitigate interest rate risk associated with the Companys variable-rate borrowings and enters into coffee futures contracts to hedge future coffee purchase commitments of green coffee with the objective of minimizing cost risk due to market fluctuations.
The Company designates these contracts as cash flow hedges and measures the effectiveness of these derivative instruments at each balance sheet date. The changes in the fair value of these instruments are classified in accumulated other comprehensive income (OCI). Gains and losses on these instruments are reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. If it is determined that a derivative is not highly effective, the gains and losses will be reclassified into earnings upon determination.
Fair Value Hedges
The Company enters into foreign currency forward contracts to hedge certain recognized liabilities in currencies other than the Companys functional currency. The Company designates these contracts as fair value hedges and measures the effectiveness of these derivative instruments at each balance sheet date. The changes in the fair value of these instruments along with the changes in the fair value of the hedged liabilities are recognized in net gains or losses on foreign currency on the consolidated statements of operations.
Other Derivatives
The Company is also exposed to certain foreign currency and interest rate risks on an intercompany note with a foreign subsidiary denominated in Canadian currency. At June 23, 2012, the Company has a four year, $140.0 million Canadian cross currency swap to exchange interest payments and principal on the intercompany note. This cross currency swap is not designated as a hedging instrument for accounting purposes and is recorded at fair value, with the changes in fair value recognized in the Consolidated Statements of Operations. Gains and losses resulting from the change in fair value are largely offset by the financial impact of the re-measurement of the intercompany note. In accordance with the cross currency swap agreement, on a quarterly basis, the Company pays interest based on the three month Canadian Bankers Acceptance rate and receives interest based on the three month U.S. Libor rate. Additional interest expense pursuant to the cross currency swap agreement for the thirteen and thirty-nine weeks ended June 23, 2012 was $0.4 million and $1.4 million, respectively. Additional interest expense pursuant to the cross currency swap agreement for the thirteen and thirty-nine weeks ended June 25, 2011 was $0.6 million.
The Company occasionally enters into foreign currency forward contracts and coffee futures contracts which are not designated as hedging instruments for accounting purposes in addition to the foreign currency forward contracts and coffee futures contracts noted above. Contracts that are not designated as hedging instruments are recorded at fair value with the changes in fair value recognized in the Consolidated Statements of Operations.
The Company does not hold or use derivative financial instruments for trading or speculative purposes.
The Company is exposed to credit loss in the event of nonperformance by the counterparties to these financial instruments, however nonperformance is not anticipated.
The following table summarizes the fair value of the Companys derivatives included in the Consolidated Balance Sheets (in thousands):
|
|
June 23, |
|
September 24, |
|
Balance Sheet Classification |
| ||
Derivatives designated as hedges: |
|
|
|
|
|
|
| ||
Cash Flow Hedges: |
|
|
|
|
|
|
| ||
Interest rate swaps |
|
$ |
(9,149 |
) |
$ |
(10,269 |
) |
Other current liabilities |
|
Coffee futures |
|
(612 |
) |
(424 |
) |
Other current liabilities |
| ||
|
|
$ |
(9,761 |
) |
$ |
(10,693 |
) |
|
|
|
|
|
|
|
|
|
| ||
Derivatives not designated as hedges: |
|
|
|
|
|
|
| ||
Coffee futures |
|
$ |
(149 |
) |
$ |
|
|
Other current liabilities |
|
Cross currency swap |
|
$ |
(2,356 |
) |
$ |
(2,324 |
) |
Other current liabilities |
|
Interest rate cap |
|
|
|
34 |
|
Other current assets |
| ||
|
|
$ |
(2,505 |
) |
$ |
(2,290 |
) |
|
|
|
|
|
|
|
|
|
| ||
Total |
|
$ |
(12,266 |
) |
$ |
(12,983 |
) |
|
|
The following table summarizes the amount of gain (loss), gross of tax, on financial instruments that qualify for hedge accounting included in other comprehensive income (in thousands):
|
|
Thirteen weeks ended |
|
Thirty-nine weeks ended |
| ||||||||
|
|
June 23, 2012 |
|
June 25, 2011 |
|
June 23, 2012 |
|
June 25, 2011 |
| ||||
Cash Flow Hedges: |
|
|
|
|
|
|
|
|
| ||||
Interest rate swaps |
|
$ |
(366 |
) |
$ |
(3,851 |
) |
$ |
1,120 |
|
$ |
(5,284 |
) |
Coffee futures |
|
(538 |
) |
(444 |
) |
(2,754 |
) |
(361 |
) | ||||
Total |
|
$ |
(904 |
) |
$ |
(4,295 |
) |
$ |
(1,634 |
) |
$ |
(5,645 |
) |
The following table summarizes the amount of gain (loss), gross of tax, reclassified from other comprehensive income to income (in thousands):
|
|
Thirteen weeks ended |
|
Thirty-nine weeks ended |
|
|
| ||||||||
|
|
June 23, |
|
June 25, |
|
June 23, |
|
June 25, |
|
Location of Gain or (Loss) Reclassified |
| ||||
Interest rate cap |
|
$ |
|
|
$ |
(392 |
) |
$ |
|
|
$ |
(392 |
) |
Gain (Loss) on Financial Instruments |
|
Coffee Futures |
|
440 |
|
|
|
106 |
|
|
|
Cost of Sales |
| ||||
Total |
|
$ |
440 |
|
$ |
(392 |
) |
$ |
106 |
|
$ |
(392 |
) |
|
|
The Company expects to reclassify $1.4 million of net losses, net of tax, from other comprehensive income to earnings for coffee derivatives within the next twelve months.
The following table summarizes the amount of gain (loss), gross of tax, on fair value hedges and related hedged items for the thirteen and thirty-nine weeks ended June 23, 2012 and June 25, 2011 (in thousands):
|
|
Thirteen weeks ended |
|
|
| ||||||||||
|
|
June 23, 2012 |
|
June 25, 2011 |
|
|
| ||||||||
|
|
Gain (loss) on |
|
Gain (loss) on |
|
Gain (loss) on |
|
Gain (loss) on |
|
Location of gain (loss) recognized in |
| ||||
Foreign currency forwards contracts |
|
$ |
(19 |
) |
$ |
19 |
|
$ |
|
|
$ |
|
|
Gain on foreign currency, net |
|
|
|
Thirty-nine weeks ended |
|
|
| ||||||||||
|
|
June 23, 2012 |
|
June 25, 2011 |
|
|
| ||||||||
|
|
Gain (loss) on |
|
Gain (loss) on |
|
Gain (loss) on |
|
Gain (loss) on |
|
Location of gain (loss) recognized in |
| ||||
Foreign currency forwards contracts |
|
$ |
(48 |
) |
$ |
48 |
|
$ |
|
|
$ |
|
|
Gain on foreign currency, net |
|
Net gains (losses) on financial instruments not designated as hedges for accounting purposes is as follows (in thousands):
|
|
Thirteen weeks ended |
|
Thirty-nine weeks ended |
| ||||||||
|
|
June 23, 2012 |
|
June 25, 2011 |
|
June 23, 2012 |
|
June 25, 2011 |
| ||||
Net gain (loss) on cross currency swap |
|
$ |
3,181 |
|
$ |
970 |
|
$ |
(32 |
) |
$ |
(7,861 |
) |
Net loss on coffee futures |
|
(148 |
) |
|
|
(148 |
) |
(250 |
) | ||||
Net loss on interest rate cap |
|
(1 |
) |
(592 |
) |
(34 |
) |
(592 |
) | ||||
Net gain (loss) on foreign currency option and forward contracts |
|
|
|
104 |
|
|
|
(3,116 |
) | ||||
Total |
|
$ |
3,032 |
|
$ |
482 |
|
$ |
(214 |
) |
$ |
(11,819 |
) |
The net loss on foreign currency contracts were primarily related to contracts entered into to mitigate the risk associated with the Canadian denominated purchase price of Van Houtte.
11. Fair Value Measurements
The Company measures fair value as the selling price that would be received for an asset, or paid to transfer a liability, in the principal or most advantageous market on the measurement date. The hierarchy established by the Financial Accounting Standards Board prioritizes fair value measurements based on the types of inputs used in the valuation technique. The inputs are categorized into the following levels:
Level 1 Observable inputs such as quoted prices in active markets for identical assets or liabilities.
Level 2 Inputs other than quoted prices that are observable, either directly or indirectly, for identical or similar assets and liabilities in active or non-active markets.
Level 3 Unobservable inputs not corroborated by market data, therefore requiring the entity to use the best available information, including management assumptions.
The following table discloses the level used by fair value measurements at June 23, 2012 (in thousands):
|
|
Fair Value Measurements Using |
|
Balance Sheet |
| |||||||
Financial Instrument |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Classification |
| |||
Derivatives |
|
|
|
(12,266 |
) |
|
|
Other current liabilities |
| |||
Total |
|
$ |
|
|
$ |
(12,266 |
) |
$ |
|
|
|
|
The following table discloses the level used by fair value measurements at September 24, 2011 (in thousands):
|
|
Fair Value Measurements Using |
|
Balance Sheet |
| |||||||
Financial Instrument |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Classification |
| |||
Derivatives |
|
$ |
|
|
$ |
34 |
|
$ |
|
|
Other current assets |
|
Derivatives |
|
|
|
(13,017 |
) |
|
|
Other current liabilities |
| |||
Total |
|
$ |
|
|
$ |
(12,983 |
) |
$ |
|
|
|
|
Derivative financial instruments include coffee futures contracts, interest rate swap and cap agreements, a cross currency swap agreement and foreign currency forward contracts. The Company has identified significant concentrations of credit risk based on the economic characteristics of the instrument that include interest rates, commodity indexes and foreign currency rates and selectively enters into the derivative instruments with counterparties using credit ratings.
To determine fair value, the Company utilizes the market approach valuation technique for coffee futures and foreign currency forward contracts and the income approach for interest rate and cross currency swap agreements. The Companys fair value measurements include a credit valuation adjustment for the significant concentrations of credit risk.
Level 2 derivative financial instruments use inputs that are based on market data of identical (or similar) instruments, including forward prices for commodities, interest rate curves and spot prices that are in observable markets. Derivatives recorded on the balance sheet are at fair value with changes in fair value recorded in other comprehensive income for cash flow hedges and in the Consolidated Statements of Operations for fair value hedges and derivatives that do not qualify for hedge accounting treatment.
As of June 23, 2012, the amount of loss estimated by the Company due to credit risk associated with the derivatives for all significant concentrations was not material based on the factors of an industry recovery rate and a calculated probability of default.
12. Income Taxes
The Company recognizes deferred tax assets and liabilities for the expected future tax benefits or consequences of temporary differences between the financial statement carrying amounts of existing assets and liabilities, and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.
As of June 23, 2012, the Company had a state net operating loss carryforward of $11.5 million, as well as a $17.7 million state capital loss carryforward available to be utilized against future taxable income for years through fiscal year 2029, subject to annual limitation pertaining to change in ownership rules under the Internal Revenue Code of 1986, as amended (the Code). Based upon earnings history, the Company has concluded that it is more likely than not that the net operating loss carryforward will be utilized prior to its expiration, but the capital loss carryforward will not. The Company has recorded a valuation allowance against the entire deferred tax asset balance for the capital loss carryforward.
The Companys income tax returns are periodically audited by domestic and foreign tax authorities. These audits include questions regarding tax filing positions, amount and timing of deductions taken, and the allocation of income among various tax jurisdictions. The Company evaluates its potential exposure associated with its various tax filing positions, including any indemnification agreements which may affect them, and records a related liability if necessary. The Company adjusts its liability for unrecognized tax benefits and income tax provision in the period in which an uncertain tax position is effectively settled, the statute of limitations expires for the relevant taxing authority to examine the tax position, or when new information becomes available.
The total amount of unrecognized tax benefits at June 23, 2012 and September 24, 2011 was $23.9 million and $24.4 million, respectively. The amount of unrecognized tax benefits at June 23, 2012 that would impact the effective tax rate if resolved in favor of the Company is $20.4 million. As a result of prior acquisitions, the Company is indemnified for up to $16.6 million of the total reserve balance, and the indemnification is capped at CAD $37.9 million. If these unrecognized tax benefits are resolved in favor of the Company, the associated indemnification receivable, recorded in other long-term assets, would be reduced accordingly. The indemnifications expire through June 2015.
The Company has made an election to recognize interest and penalties accrued on uncertain tax liabilities as interest expense. The Company does not expect a significant change to the amount of unrecognized tax benefits within the next twelve months.
13. Stockholders Equity
Accumulated Other Comprehensive Loss
Components of accumulated other comprehensive loss, net of tax (in thousands):
|
|
June 23, 2012 |
|
September 24, 2011 |
| ||
Net unrealized loss on derivatives classified as cash flow hedges |
|
$ |
(6,905 |
) |
$ |
(5,866 |
) |
Foreign currency translation adjustment |
|
(6,823 |
) |
(8,709 |
) | ||
Accumulated other comprehensive loss |
|
$ |
(13,728 |
) |
$ |
(14,575 |
) |
The favorable translation adjustment change during fiscal 2012 was primarily due to the strengthening of the Canadian dollar against the U.S. dollar. See also Note 10, Derivative Financial Instruments.
14. Compensation Plans
Stock Option Plans
The grant-date fair value of employee stock options and similar instruments is estimated using the Black-Scholes option-pricing model with the following assumptions for grants issued during the thirty-nine weeks ended June 23, 2012 and June 25, 2011:
|
|
Thirty-nine weeks ended |
| ||||
|
|
June 23, |
|
June 25, |
| ||
Average expected life |
|
6 years |
|
6 years |
| ||
Average volatility |
|
68 |
% |
52 |
% | ||
Dividend yield |
|
|
|
|
| ||
Risk-free interest rate |
|
1.37 |
% |
2.40 |
% | ||
Weighted average fair value |
|
$ |
32.02 |
|
$ |
28.93 |
|
Restricted Stock Units and Awards
The Company awards restricted stock units (RSUs) to eligible employees which entitle an employee to receive shares of common stock as the units vest based on service. The Company also grants restricted stock awards (RSAs) to eligible employees which entitle an employee to receive shares of common stock as the awards vest based on service. In general, the receipt of RSUs and RSAs is subject to the employees continuing employment. RSUs and RSAs are reserved for issuance under the Companys 2006 Incentive Plan. The fair value of RSUs and RSAs is based on the closing price of the Companys common stock on the grant date. Compensation expense is recognized ratably over the service period.
Employee Stock Purchase Plan
The grant-date fair value of employees purchase rights under the Companys Employee Stock Purchase Plan is estimated using the Black-Scholes option-pricing model with the following assumptions for the purchase rights granted during the thirty-nine weeks ended June 23, 2012 and June 25, 2011:
|
|
Thirty-nine weeks ended |
| ||||
|
|
June 23, |
|
June 25, |
| ||
Average expected life |
|
6 months |
|
6 months |
| ||
Average volatility |
|
61 |
% |
52 |
% | ||
Dividend yield |
|
|
|
|
| ||
Risk-free interest rate |
|
0.09 |
% |
0.20 |
% | ||
Weighted average fair value |
|
$ |
10.46 |
|
$ |
14.05 |
|
For the thirteen weeks ended June 23, 2012 and June 25, 2011, stock compensation related to the above plans was $4.4 million and $3.0 million, respectively. For the thirty-nine weeks ended June 23, 2012 and June 25, 2011, stock compensation related to the above plans was $13.6 million and $7.5 million, respectively.
Deferred Compensation Plan
The Company also maintains a Deferred Compensation Plan, which is not subject to the qualification requirements of Section 401(a) of the Code and which allows participants to defer compensation until a future date. Only non-employee directors and certain highly compensated employees of the Company selected by the Companys board of directors are eligible to participate in the Plan. For each of the thirteen week periods ended June 23, 2012 and June 25, 2011, $0.1 million of compensation expense was recorded under this Plan. For each of the thirty-nine week periods ended June 23, 2012 and June 25, 2011, $0.2 million of compensation expense was recorded under this Plan.
15. Legal Proceedings
On October 1, 2010, Keurig, Inc., a business unit of the Company (Keurig), filed suit against Sturm Foods, Inc. (Sturm) in the United States District Court for the District of Delaware (Civil Action No. 1:10-CV-00841-SLR) for patent and trademark infringement, false advertising, and other claims, related to Sturms sale of Grove Square beverage cartridges that claim to be compatible with Keurig® brewers. The suit alleges that the Grove Square cartridges contain instant rather than fresh-brewed coffee, improperly use the Keurig mark, and do not work safely or effectively in Keurig® Single Cup Brewers, in addition to violating Keurig patents (U.S. Patent Nos. 7,165,488 and 6,606,938). Keurig seeks an injunction prohibiting Sturm from selling these cartridges, as well as money damages. On October 18, 2010, Keurig requested that the court issue a preliminarily injunction on the use of the Keurig mark and false advertising claims pending final resolution of the case. The court denied that request so those issues will be resolved in due course during the litigation.
On November 2, 2011, Keurig filed suit against JBR, INC., d/b/a Rogers Family Company (Rogers) in the United States District Court for the District of Massachusetts (Civil Action No. 1:11-cv-11941-MBB) for patent infringement related to Rogers sale of San Francisco Bay beverage cartridges for use with Keurig® brewers. The suit alleges that the San Francisco Bay cartridges violate Keurig patents (U.S. Patent Nos. D502,362, 7,165,488 and 7,347,138). Keurig seeks an injunction prohibiting Rogers from selling these cartridges, as well as money damages.
On January 24, 2012, Teashot, LLC (Teashot) filed suit against the Company, Keurig and Starbucks Corp. (Starbucks) in the United States District Court for the District of Colorado (Civil Action No. 12-c v-00189-WJM-KMT) for patent infringement related to the making, using, importing, selling and/or offering for sale of K-Cup® packs containing tea. The suit alleges that the Company, Keurig and Starbucks are violating a Teashot patent (U.S. Patent No. 5,895,672). Teashot seeks an injunction prohibiting the Company, Keurig and Starbucks from continued infringement, as well as money damages. Pursuant to its Manufacturing, Sales and Distribution Agreement with Starbucks, the Company is defending and indemnifying Starbucks in connection with the suit. On March 13, 2012, the Company and Keurig, for themselves and Starbucks, filed an answer with the court, generally denying all of Teashots allegations. The Company and Keurig, for themselves and Starbucks, intend to vigorously defend this lawsuit. At this time, the Company is unable to predict the outcome of this lawsuit, the potential loss or range of loss, if any, associated with the resolution of this lawsuit or any potential effect it may have on the Company or its operations.
SEC Inquiry
As first disclosed on September 28, 2010, the staff of the SECs Division of Enforcement continues to conduct an inquiry into matters at the Company. The Company is cooperating fully with the SEC staffs inquiry.
Stockholder Litigation
The Company and certain of its officers and directors are currently subject to three putative securities fraud class actions and three putative stockholder derivative actions. The first consolidated putative securities fraud class action was commenced following the Companys disclosure of the SEC inquiry on September 28, 2010. The second putative securities fraud class action was filed on November 29, 2011, and the third putative securities fraud class action was filed on May 7, 2012. A consolidated putative stockholder derivative action pending in the United States District Court for the District of Vermont consists of four separate putative stockholder derivative complaints, the first two were filed after the Companys disclosure of the SEC inquiry on September 28, 2010, while the others were filed on February 10, 2012 and March 2, 2012, respectively. In addition, a putative stockholder derivative action is pending in the Superior Court of the
State of Vermont for Washington County that was commenced following the Companys disclosure of the SEC inquiry on September 28, 2010, and an additional putative stockholder derivative action was filed on July 23, 2012 in the United States District Court for the District of Vermont.
The first consolidated putative securities fraud class action, organized under the caption Horowitz v. Green Mountain Coffee Roasters, Inc., Civ. No. 2:10-cv-00227, is pending in the United States District Court for the District of Vermont before the Honorable William K. Sessions, III. The underlying complaints in the consolidated action allege violations of the federal securities laws in connection with the Companys disclosures relating to its revenues and its forward guidance. The complaints include counts for violation of Section 10(b) of the Securities Exchange Act of 1934, as amended (the Exchange Act) and Rule 10b-5 against all defendants, and for violation of Section 20(a) of the Exchange Act against the officer defendants. The plaintiffs seek to represent all purchasers of the Companys securities between July 28, 2010 and September 28, 2010 or September 29, 2010. The complaints seek class certification, compensatory damages, equitable and/or injunctive relief, attorneys fees, costs, and such other relief as the court should deem just and proper. Pursuant to the Private Securities Litigation Reform Act of 1995, 15 U.S.C. § 78u-4(a)(3), plaintiffs had until November 29, 2010 to move the court to serve as lead plaintiff of the putative class. On December 20, 2010, the court appointed Jerzy Warchol, Robert M. Nichols, Jennifer M. Nichols, Marc Schmerler and Mike Shanley lead plaintiffs and approved their selection of Glancy Binkow & Goldberg LLP and Robbins Geller Rudman & Dowd LLP as co-lead counsel and the Law Office of Brian Hehir and Woodward & Kelley, PLLC as liaison counsel. On December 29, 2010 and January 3, 2011, two of the plaintiffs in the underlying actions in the consolidated proceedings, Russell Blank and Dan M. Horowitz, voluntarily dismissed their cases without prejudice. Pursuant to a stipulated motion granted by the court on November 29, 2010, the lead plaintiffs filed a consolidated complaint on February 23, 2011, and defendants moved to dismiss that complaint on April 25, 2011. The court heard argument on the motions to dismiss on January 5, 2012. On January 27, 2012, the court issued an order granting defendants motions and dismissing the consolidated complaint without prejudice and the lead plaintiffs filed a motion for leave to amend the complaint on March 27, 2012. On April 9, 2012, the parties filed a stipulated motion for filing of the amended complaint and to set a briefing schedule for defendants motions to dismiss. In accordance with the stipulated briefing schedule, Plaintiffs filed their Second Consolidated Amended Complaint on April 30, 2012, and the Company moved to dismiss that complaint on June 14, 2012. Briefing on the Companys motion to dismiss has not yet been completed.
The second putative securities fraud class action, captioned Louisiana Municipal Police Employees Retirement System v. Green Mountain Coffee Roasters, Inc., et al., Civ. No. 2:11-cv-00289, was filed on November 29, 2011 and is also pending in the United States District Court for the District of Vermont before the Honorable William K. Sessions, III. The plaintiffs complaint alleges violations of the federal securities laws in connection with the Companys disclosures relating to its revenues and its forward guidance. The complaint includes counts for alleged violations of (1) Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 (the Securities Act) against various of the Company, certain of its officers and directors, and the Companys underwriters in connection with a May 2011 secondary common stock offering; and (2) Section 10(b) of the Exchange Act and Rule 10b-5 against the Company and the officer defendants and Section 20(a) of the Exchange Act against the officer defendants. The plaintiff seeks to represent all purchasers of the Companys securities between February 2, 2011 and November 9, 2011. The complaint seeks class certification, compensatory damages, attorneys fees, costs, and such other relief as the court should deem just and proper. Pursuant to the Private Securities Litigation Reform Act of 1995, 15 U.S.C. § 78u-4(a)(3), plaintiffs had until January 30, 2012 to move the court to serve as lead plaintiff of the putative class. Competing applications were filed and the Court appointed Louisiana Municipal Police Employees Retirement System, Sjunde AP-Fonden, Board of Trustees of the City of Fort Lauderdale General Employees Retirements System, Employees Retirements System of the Government of the Virgin Islands, and Public Employees Retirement System of Mississippi as lead plaintiffs counsel on April 27, 2012. On July 11, 2012, the parties filed a stipulated motion for filing of an amended complaint and to set a briefing schedule for defendants motions to dismiss. The underwriter defendants have notified the Company of their intent to seek indemnification from the Company pursuant to their underwriting agreement dated May 5, 2011 in regard to the claims asserted in this action.
The third consolidated putative securities fraud class action, captioned Fifield v. Green Mountain Coffee Roasters, Inc., Civ. No. 2:12-cv-00091, is pending in the United States District Court for the District of Vermont before the Honorable William K. Sessions, III. The complaint alleges violations of the federal securities laws in connection with the Companys disclosures relating to its revenues and its forward guidance. The complaint includes counts for violation of Section 10(b) of the Exchange Act and Rule 10b-5 against all defendants, and for violation of Section 20(a) of the Exchange Act against the officer defendants. The plaintiff seeks to represent all purchasers of the Companys securities between February 2, 2012 and May 2, 2012. The complaint seeks class certification, compensatory damages, equitable and/or injunctive relief, attorneys fees, costs, and such other relief as the court should deem just and proper. Pursuant to the Private Securities Litigation Reform Act of 1995, 15 U.S.C. § 78u-4(a)(3), plaintiffs had until July 6, 2012 to move the court to serve as lead plaintiff of the putative class. Competing applications were filed and the court has not yet appointed a lead plaintiff and lead counsel.
The first putative stockholder derivative action, a consolidated action captioned In re Green Mountain Coffee Roasters, Inc. Derivative Litigation, Civ. No. 2:10-cv-00233, premised on the same allegations asserted in the putative securities class action complaints described above, is pending in the United States District Court for the District of Vermont before the Honorable William K. Sessions, III. The derivative complaints are asserted nominally on behalf of the Company against certain of its directors and officers. The derivative complaints assert claims for breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, contribution and indemnification, and waste of corporate assets. The complaints seek compensatory damages, injunctive relief, restitution, disgorgement, attorneys fees, costs, and such other relief as the court should deem just and proper. On November 29, 2010, the federal court entered an order consolidating two actions and appointing the firms of Robbins Umeda LLP and Shuman Law Firm as co-lead plaintiffs counsel. On February 23, 2011, the federal court approved a stipulation filed by the parties providing for a temporary stay of that action until the court rules on defendants motions to dismiss the consolidated complaint in the putative securities fraud class action. On March 7, 2012, the federal court approved a further joint stipulation continuing the temporary stay until the court either denies a motion to dismiss the putative securities fraud class action or the putative securities fraud class action is dismissed with prejudice. On April 27, 2012, the federal court entered an order consolidating the stockholder derivative action captioned Himmel v. Robert P. Stiller, et al., with two additional putative derivative actions Musa Family Revocable Trust v. Robert P. Stiller, et al., Civ. No. 2:12-cv-00029, and Laborers Local 235 Benefit Funds v. Robert P. Stiller, et al., Civ. No. 2:12-cv-00042.
The second putative stockholder derivative action, M. Elizabeth Dickinson v. Robert P. Stiller, et al., Civ. No. 818-11-10, is pending in the Superior Court of the State of Vermont for Washington County and is premised on the same allegations alleged in the first consolidated putative securities fraud class action. The complaint is asserted nominally on behalf of the Company against certain of its directors and officers. The complaint asserts claims for breach of fiduciary duty, unjust enrichment, and waste of corporate assets. The complaint seeks compensatory damages, injunctive relief, restitution, disgorgement, attorneys fees, costs, and such other relief as the court should deem just and proper. On February 28, 2011, the court approved a stipulation filed by the parties similarly providing for a temporary stay of that action until the federal court rules on defendants motions to dismiss the consolidated complaint in the first putative securities fraud class action. The action remains stayed pending the federal courts decision on the Companys pending motion to dismiss the Second Consolidated Amended Complaint in the first putative securities fraud class action.
The third putative stockholder derivative action, Henry Cargo v. Robert P. Stiller, et al., Civ. No. 2:12-cv-00161, is pending in the United States District Court for the District of Vermont before the Honorable William K. Sessions, III and is premised on the same allegations alleged in the putative securities fraud class action captioned Fifield v. Green Mountain Coffee Roasters, Inc., Civ. No. 2:12-cv-00091. The complaint is asserted nominally on behalf of the Company against certain of its directors and officers. The complaint asserts claims for breach of fiduciary duty, unjust enrichment, waste of corporate assets, and contribution and indemnification. The complaint seeks compensatory damages, injunctive relief, restitution, disgorgement, attorneys fees, costs, and such other relief as the court should deem just and proper. The complaint was filed on July 23, 2012 and has not yet been served on the Company.
The Company and the other defendants intend to vigorously defend all the pending lawsuits. Additional lawsuits may be filed and, at this time, the Company is unable to predict the outcome of these lawsuits, the possible loss or range of loss, if any, associated with the resolution of these lawsuits or any potential effect they may have on the Company or its operations.
16. Related Party Transactions
The Company uses travel services provided by Heritage Flight, a charter air services company owned by Mr. Robert P. Stiller, who serves on the Companys board of directors.
During each of the thirteen week periods ended June 23, 2012 and June 25, 2011, the Company incurred expenses of $0.2 million for Heritage Flight travel services. During the thirty-nine weeks ended June 23, 2012 and June 25, 2011, the Company incurred expenses of $0.6 million and $0.5 million, respectively, for Heritage Flight travel services.
17. Earnings Per Share
The following table illustrates the reconciliation of the numerator and denominator of basic and diluted earnings per share computations (dollars in thousands, except per share data):
|
|
Thirteen weeks ended |
|
Thirty-nine weeks ended |
| ||||||||
|
|
June 23, |
|
June 25, |
|
June 23, |
|
June 25, |
| ||||
Numerator for basic and diluted earnings per share: |
|
|
|
|
|
|
|
|
| ||||
Net income attributable to GMCR |
|
$ |
73,296 |
|
$ |
56,348 |
|
$ |
270,741 |
|
$ |
124,132 |
|
Denominator: |
|
|
|
|
|
|
|
|
| ||||
Basic weighted average shares outstanding |
|
155,459,690 |
|
147,663,350 |
|
155,071,117 |
|
143,606,691 |
| ||||
Effect of dilutive securities - stock options |
|
3,839,888 |
|
5,681,039 |
|
4,293,323 |
|
5,750,789 |
| ||||
Diluted weighted average shares outstanding |
|
159,299,578 |
|
153,344,389 |
|
159,364,440 |
|
149,357,480 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Basic net income per common share |
|
$ |
0.47 |
|
$ |
0.38 |
|
$ |
1.75 |
|
$ |
0.86 |
|
Diluted net income per common share |
|
$ |
0.46 |
|
$ |
0.37 |
|
$ |
1.70 |
|
$ |
0.83 |
|
For the thirteen and thirty-nine weeks ended June 23, 2012, options to purchase 1,198,000 and 557,000 shares of common stock, respectively, were excluded from the calculation of diluted earnings per share because they were antidilutive.
For the thirteen and thirty-nine weeks ended June 25, 2011, options to purchase 360,000 and 166,000 shares of common stock, respectively, were excluded from the calculation of diluted earnings per share because they were antidilutive.
18. Recent Accounting Pronouncements
In July 2012, the Financial Accounting Standards Board issued and Accounting Standards Update (ASU) which simplifies how an entity is required to test indefinite lived-intangible assets for impairment. The amendment allows an entity to first assess qualitative factors to determine whether it is necessary to perform a quantitative indefinite-lived asset impairment test. Current guidance requires an entity to test indefinite-lived intangible assets for impairment, on at least an annual basis, by first comparing the fair value of the indefinite-lived asset with its carrying amount. If the carrying amount of the intangible asset exceeds its fair value, an entity should recognize an impairment loss in the amount of that excess. In accordance with the amendments in the ASU, an entity will have an option not to calculate annually the fair value of an indefinite-lived intangible asset if the entity determines that it is not more likely than not that the asset is impaired. The amendment includes a number of factors to be considered in conducting the qualitative assessment. The amendments in the ASU are effective for annual and interim indefinite-lived intangible impairment tests performed for fiscal years beginning after September 15, 2012, which is fiscal 2013 for the Company. Early adoption is permitted. The Company currently plans to early adopt in fiscal 2012.
In December 2011, the Financial Accounting Standards Board issued an ASU that provides amendments for disclosures about offsetting assets and liabilities. The amendments require an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. This scope would include derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. The amendments are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. Disclosures required by the amendments should be provided retrospectively for all comparative periods presented. For the Company, the amendment is effective for fiscal year 2014. The Company is currently evaluating the impact these amendments may have on its disclosures.
In September 2011, the Financial Accounting Standards Board issued an ASU that simplifies how an entity is required to test goodwill for impairment. The ASU would allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Current guidance requires an entity to test goodwill for impairment, on at least an annual basis, by first comparing the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit is less than its carrying amount, then the second step of the test must be performed to measure the amount of impairment loss, if any. Under the ASU, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The ASU includes a number of factors to be considered in conducting the qualitative assessment. The amendments in the ASU are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 which is fiscal 2013 for the Company. Early adoption is permitted. The Company currently plans to early adopt in fiscal 2012.
In June 2011, the Financial Accounting Standards Board issued an ASU that provides amendments on the presentation of comprehensive income. The amendments require that all nonowner changes in stockholders equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. The amendments do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The amendments do not change the option for an entity to present components of other comprehensive income either net of related tax effects or before related tax effects, with one amount shown for the aggregate income tax expense or benefit related to the total of other comprehensive income items. In both cases, the tax effect for each component must be disclosed in the notes to the financial statements or presented in the statement in which other comprehensive income is
presented. The amendments do not affect how earnings per share is calculated or presented. The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 and should be applied retrospectively. For the Company the amendment is effective for fiscal 2013. The effect of adoption will have minimum impact on the Company as the Companys current presentation of comprehensive income follows the two-statement approach.
19. Subsequent Event
On July 30, 2012, the Board of Directors authorized a new program for the Company to repurchase up to $500.0 million of common shares over the next two years, at such times and prices as determined by the Companys management.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis is intended to help you understand the results of operations and financial condition of Green Mountain Coffee Roasters, Inc. (together with its subsidiaries, the Company, GMCR, we, our, or us). You should read the following discussion and analysis in conjunction with our consolidated financial statements and related notes included elsewhere in this report.
Overview
We are a leader in the specialty coffee and overall coffee maker businesses. We roast high-quality Arabica bean coffees including single-origin, Fair Trade Certified TM, certified organic, flavored, limited edition and proprietary blends offered in K-Cup® and Vue® packs (single serve packs), whole bean and ground coffee selections, as well as other specialty beverages including tea, hot apple cider, fruit brew and hot cocoa also offered in single serve packs. In addition, we manufacture and sell the Keurig® Single Cup Brewer systems for use with single serve packs. The brands include:
· Arbuckle®
· Barista Prima®
· Bigelow®
· Brûlerie Mont-Royal®
· Brûlerie St. Denis®
· Café Adagio®
· Café Escapes®
· Caribou Coffee®
· Celestial Seasonings®
· Coffee People®
· Diedrich Coffee®
· Distinction®
· Donut House Collection®
· Dunkin DonutsTM
· Emerils®
· Folgers Gourmet Selections®
· Gloria Jeans®
· Green Mountain Coffee®
· Green Mountain Naturals®
· Kahlua®
· McQuarry
· Millstone®
· Newmans Own® Organics
· Orient Express®
· Promenade
· Red Carpet
· revv®
· Starbucks®
· Swiss Miss®
· Tazo®
· Timothys®
· TK
· Tullys®
· Twinings® of London
· Van Houtte®
· Vitamin Burst
· Wolfgang Puck®
The Bigelow®, Caribou Coffee®, Celestial Seasonings®, Dunkin Donuts, Emerils®, Folgers Gourmet Selections®, Gloria Jeans®, Kahlua®, Millstone®, Newmans Own® Organics, Starbucks®, Swiss Miss®, Tazo®, Twinings® of London, and Wolfgang Puck® brands are available through relationships we have with their respective brand owners. Each of these brands is property of their respective owners and is used with permission.
Over the last several years the primary growth in the coffee industry has come from the specialty coffee category, including demand for single cup specialty coffee. This growth has been driven by the wider availability of high-quality coffee, the emergence of upscale coffee shops throughout North America, and the general level of consumer knowledge of, and appreciation for, coffee quality and variety. The Company has been benefiting from this overall industry trend in addition to what we believe to be our carefully developed and distinctive advantages over our competitors.
On February 15, 2012, we announced the expansion of our line of Keurig® Single Cup Brewers with the addition of our Keurig® Vue® brewer. The new Vue® brewer, paired with new Vue® packs, maintains the simplicity and convenience of our existing Keurig® K-Cup® system with added customizable features so consumers have control over the strength, size, and
temperature of their beverages. The Keurig® Vue® V700 brewer is the first of a planned Vue® Series for home use and became available for purchase in Bed Bath and Beyond stores nationwide in March 2012 and on our two consumer-direct websites (http://www.greenmountaincoffee.com and http://www.keurig.com) in April 2012. The Vue® V700 brewer and associated Vue® packs became more widely available in a variety of retail stores during the third fiscal quarter of 2012. We plan to make available a commercial Vue® brewer for the away-from-home workplace through distributors of Keurig products in the fall of 2012. This platform will incorporate Vue® packs embedded with Radio Frequency Identification technology, which is designed to simplify the brewing experience and ensure beverages are of the highest quality and consistency for those users who may not be familiar with the brewer.
Our growth strategy involves developing and managing marketing programs to drive Keurig® Single Cup Brewer adoption in North American households and offices in order to generate ongoing demand for single serve packs. As part of this strategy, we work to sell our At Home (AH) brewers at attractive price points which are approximately at cost, or sometimes at a loss when factoring in the incremental costs related to sales, in order to drive the sales of profitable single serve packs. In addition, we have license agreements with Breville Group Limited, Jarden Inc., producer of Mr. Coffee® brand coffee makers, and Conair, Inc., producer of Cuisinart® brand coffee makers, under which each produce, market and sell coffee makers co-branded with Keurig-brewing technology.
In recent years, our growth has been driven predominantly by the growth and adoption of the Keurig® Single Cup Brewing system which includes sales of K-Cup® packs and Keurig® Single Cup Brewers. Additionally, during this timeframe we made a number of strategic acquisitions that strengthened our long-term position and contributed to our growth rate. Our net sales growth rate has moderated and was 37% and 21% in our second and third quarters of fiscal 2012, respectively, as compared to the same periods in the prior fiscal year.
We regularly conduct consumer surveys to understand better our consumers preferences and behaviors. In recent Company surveys, we have learned that consumers prefer our Keurig® Single Cup Brewing systems for three main reasons (which we see as our competitive advantages):
1. Quality - expectations of the quality of coffee consumers drink has increased over the last several years and, we believe, with the Keurig system, consumers can be certain they will get a high-quality, consistently produced beverage every time.
2. Convenience - the Keurig system prepares beverages generally in less than a minute at the touch of a button with no mess, no fuss.
3. Choice - with more than 200 varieties of K-Cup® and, recently launched Vue® packs available for the system many consumers enjoy exploring and trying new brands. In addition to a variety of brands of coffee and tea, we also produce and sell hot apple cider, iced teas and coffees, hot cocoa and other dairy-based beverages, in single serve packs.
We believe its the combination of these attributes that make the Keurig® Single Cup Brewing systems so appealing to so many consumers.
We are focused on building our brands and profitably growing our business. We believe we can continue to grow sales by increasing consumer awareness in existing regions, expanding into new geographic regions, expanding sales in high-growth industry segments such as single cup coffee, tea, and other beverages and selectively pursuing other synergistic opportunities, including strategic acquisitions. Between 2008 and 2010, we completed acquisitions of four licensed roasters to ensure adequate capital investment in the growth and expansion of K-Cup® packs and to better serve our consumers by further strengthening our diverse distribution channels.
We continue to examine opportunities for partnerships with other strong international, national and /or regional brands to create additional single serve products that will help augment consumer demand for the Keurig® Single Cup Brewing systems.
In February 2011, we entered into a multi-year manufacturing and distribution agreement under which GMCR manufactures K-Cup® packs for Dunkin Brands, Inc. using coffee sourced and roasted to Dunkin Donuts exacting specifications. Dunkin K-Cup® packs became available at participating Dunkin Donuts restaurants in August of 2011. This agreement was amended in February 2012 to include Vue® packs.
In March 2011, we entered into a strategic multi-year relationship for the manufacturing, marketing, distribution and sale of Starbucks® coffee and Tazo® tea branded K-Cup® packs. In November 2011, we, along with Starbucks, began making Starbucks K-Cup® packs available through food, drug, mass merchandisers, club, specialty and department store retailers
throughout the U.S. Recently, the companies made Starbucks K-Cup® packs available through one of our consumer-direct websites: www.keurig.com, and Starbucks consumer-direct website: www.starbucksstore.com. In March 2012, we expanded the scope of this relationship, primarily to provide for the manufacturing, marketing, distribution and sale of Starbucks® coffee and Tazo® tea branded Vue® packs, in addition to K-Cup® packs. Starbucks introduced Starbucks K-Cup® packs to retail stores in Canada during the second quarter of fiscal 2012 and Starbucks stores in June 2012. In addition, we expect to distribute Starbucks Vue® packs in specialty, department store, and mass retailers in the U.S. as well as on our consumer direct websites by the fall of 2012.
In May 2012, we entered into a multiyear agreement to make Eight OClock® coffee, Tetley® tea, and Good Earth® tea available in K-Cup® and Vue® packs for Keurig® Single Cup Brewing systems. We, along with Eight OClock Coffee, plan to make a select offering of Eight OClock® coffee K-Cup® packs available through in-home and away-from-home channels, as well as on our consumer direct websites, www.Keurig.com and www.GreenMountainCoffee.com, throughout the U.S. and Canada beginning in fall 2012. In 2013, the K-Cup® pack collection will be expanded to include Tetley® teas in the U.S. and Good Earth® teas in the U.S. and Canada.
In addition to expanding consumer choice in the system, we believe these relationships fuel excitement for current Keurig owners and users, raise system awareness, and attract new consumers to the system.
We are focused on continued innovation both in single serve brewing systems and beverage development. We are working with Luigi Lavazza S.p.A. (Lavazza) to co-develop a new single-serve espresso machine for North American consumers that we believe would complement our Keurig® Single Cup Brewers.
We believe we can continue to grow sales by increasing consumer awareness in existing regions, expanding into new geographic regions, expanding sales in high-growth industry segments such as single cup coffee, tea, and other beverages and selectively pursuing other synergistic opportunities. Management is focused on executing on the above-stated growth strategy to drive Keurig® Single Cup Brewer adoption in North American households and offices in order to generate ongoing demand for our proprietary single serve packs or other packs related to new brewer platforms.
For the third fiscal quarter of 2012, our net sales of $869.2 million represented growth of 21% over the third fiscal quarter of 2011 (the prior year period). Approximately 89.4% of our third quarter consolidated net sales were attributed to the combination of single serve packs and Keurig® Single Cup Brewers and related accessories. The primary drivers of third quarter of fiscal 2012 net sales growth compared to the prior year period were:
· A 31% increase in net sales attributed to single serve pack sales which totaled $638.0 million in the third quarter of fiscal 2012;
· A 32% increase in net sales attributed to Keurig® Single Cup Brewers and accessory net sales which totaled $139.1 million in the third quarter of fiscal 2012;
· A 27% decrease in net sales of other products and royalties primarily as a result of the sale of Filterfresh on October 3, 2011.
In the third quarter of fiscal 2012, our gross margin decreased to 34.9% from 36.8% in the prior year period due to (i) under-utilization of our current manufacturing base as a result of lower than expected manufacturing through-put primarily due to lower K-Cup® pack demand and lower-than-planned production levels which increased average labor and overhead costs per K-Cup® pack, (ii) a higher write-down of finished product and anticipated obsolescence of raw material inventory due to lower than anticipated sales of seasonal and certain coffee products, and (iii) the launch of our new Keurig® Vue® brewer platform that has a lower gross margin than the Keurig® K-Cup® brewer platform. The decrease in gross margin was partially offset by (i) a net price realization primarily from price increases taken in fiscal 2011 to offset higher green coffee and other input costs experienced in fiscal 2011 and the first half of fiscal 2012, (ii) a decrease in green coffee costs in third quarter of fiscal 2012, and (iii) a decrease in warranty expense related to the Keurig® Single Cup Brewers.
Third quarter of fiscal 2012, selling, operating, and general and administrative expenses (SG&A) increased 20% to $173.6 million from $144.8 million in the prior year. As a result of the decline in our gross margin, our operating margin declined to 14.9% from 16.6% in the third quarter of fiscal 2012 compared to the prior year period.
We continually monitor all costs, including coffee, as we review our pricing structure as cyclical swings in commodity markets are common. The recent years have seen significant volatility in the C price of coffee (the price per pound quoted by the Intercontinental Exchange). We expect coffee prices to remain volatile in the coming years. To help mitigate this volatility, we generally fix the price of our coffee contracts for approximately two fiscal quarters, and at times three fiscal quarters, prior to delivery so that we have the ability to adjust our sales prices to marketplace conditions if required. We implemented two price increases during fiscal 2011 on all K-Cup® packs.
We offer a one-year warranty on all Keurig® Single Cup Brewers we sell and provide for the estimated cost of product warranties, primarily using historical information and repair or replacement costs, at the time product revenue is recognized. In addition, sales of Keurig® Single Cup Brewers are recognized net of an allowance for returns using an average return rate based on historical experience and an evaluation of contractual rights or obligations. The Company is experiencing warranty claims that are lower than the rates experienced over the prior two years, which had related to a component failing at higher-than-anticipated rates in the later stage of the warranty life. We focus some of our research and development efforts on improving brewer reliability, strengthening its quality controls and product testing procedures. As we have grown, we have added significantly to our product testing, quality control infrastructure and overall quality processes. As we continue to innovate, and our products become more complex, both in design and componentry, product performance may tend to modulate, causing warranty or sales returns rates to possibly fluctuate going forward, so that they may be higher or lower than we are currently experiencing and for which we are currently providing for in our warranty or sales return reserves.
We generated $118.0 million in cash from operations during the third quarter of fiscal 2012 as compared to $49.3 million in the same period last year. During the third quarter of fiscal 2012, we primarily used cash, generated from operations, to reduce our borrowings under our revolving lines of credit by $28.7 million and fund capital expenditures of $101.0 million.
We consistently analyze our short-term and long-term cash requirements to continue to grow the business. We expect that most of our cash generated from operations will continue to be used to fund capital expenditures and the working capital required for our growth over the next few years.
Business Segments
We currently manage our operations through three operating segments, the Specialty Coffee business unit (SCBU), the Keurig business unit (KBU) and the Canadian business unit (CBU). See Note 3, Segment Reporting, of the Notes to Consolidated Financial Statements included in this Quarterly Report.
Management evaluates the performance of our operating segments based on several factors, including net sales and income before taxes. Net sales are recorded on a segment basis and intersegment sales are eliminated as part of the financial consolidation process. Income before taxes represents earnings before income taxes and includes intersegment interest income and expense and transfer pricing on intersegment sales. Our manufacturing operations occur within the SCBU and CBU segments, however, the costs of manufacturing are recognized in cost of sales in the operating segment in which the sale occurs. Information system technology services are mainly centralized while finance functions are primarily decentralized, but currently maintain some centralization through an enterprise shared services group. Expenses related to certain centralized administrative functions including accounting and information system technology are allocated to the operating segments. Expenses not specifically related to an operating segment are recorded in the Corporate segment. Corporate expenses are comprised mainly of the compensation and other related expenses of certain of our senior executive officers and other selected employees who perform duties related to the entire enterprise. Corporate expenses also include depreciation expense, interest expense, foreign exchange gains or losses, certain corporate legal and acquisition-related expenses and compensation of the board of directors.
Effective with the beginning of our third quarter of fiscal 2011, KBU no longer records royalty income from SCBU and CBU on shipments of single serve packs, thus removing the need to eliminate royalty income during the financial consolidation process. Prior to the third quarter of fiscal 2011, we recorded intersegment sales and purchases of brewer and K-Cup® packs at a markup. During the third quarter of fiscal 2011, we unified the standard costs of brewer and K-Cup® pack inventories across the segments and began recording intersegment sales and purchases of brewers and K-Cup® packs at new unified standard costs. This change simplified intercompany transactions by removing the need to eliminate the markup incorporated in intersegment sales as part of the financial consolidation process. These changes were not retrospectively applied.
Effective at the beginning of fiscal year 2012, we changed our organizational structure to align certain portions of our business by geography. Prior to fiscal 2012, sales and operations associated with the Timothys brand were included in our SCBU segment and a portion of the AH single cup business with retailers in Canada was included in the KBU segment. Under the new structure, Timothys and all of the AH single cup business with retailers in Canada are included in the CBU segment. In addition, effective September 25, 2011, single serve pack and brewer inventories are now transferred directly between SCBU and KBU. Intersegment sales are no longer transacted between SCBU and KBU.
Selected financial data for segment results for the thirteen and thirty-nine weeks ended June 25, 2011 have been recast to reflect Timothys and the AH single cup business with retailers in Canada in the CBU segment.
Basis of Presentation
Included in this presentation are discussions and reconciliations of income before taxes, net income and diluted earnings per share in accordance with accounting principles generally accepted in the United States of America (GAAP) to income before taxes, net income and diluted earnings per share excluding certain expenses and losses. We refer to these performance measures as non-GAAP net income and non-GAAP net income per share. These non-GAAP measures exclude transaction expenses related to our acquisitions including the foreign exchange impact of hedging the risk associated with the Canadian dollar purchase price of the Van Houtte acquisition; any gain from the sale of Filterfresh U.S. based coffee services business; legal and accounting expenses related to the SEC inquiry and pending litigation; non-cash related items such as amortization of identifiable intangibles; and loss on extinguishment of debt, each of which include adjustments to show the tax impact of excluding these items. Each of these adjustments was selected because management uses these non-GAAP measures in discussing and analyzing its results of operations and because we believe the non-GAAP measures provide investors with greater transparency by helping to illustrate the underlying financial and business trends relating to our results of operations and financial condition and comparability between current and prior periods. For example, we excluded acquisition-related transaction expenses because these expenses can vary from period to period and transaction to transaction and expenses associated with these activities are not considered a key measure of our operating performance.
We use the non-GAAP measures to establish and monitor budgets and operational goals and to evaluate the performance of the Company. These non-GAAP measures are not in accordance with, or an alternative to, GAAP and should be considered in addition to, and not as a substitute or superior to, the other measures of financial performance prepared in accordance with GAAP. Using only the non-GAAP financial measures to analyze our performance would have material limitations because their calculation is based on the subjective determination of management regarding the nature and classification of events and circumstances that investors may find significant. We compensate for these limitations by presenting both the GAAP and non-GAAP measures of its results.
Acquisitions and Divestitures
On October 3, 2011, all the outstanding shares of Van Houtte USA Holdings, Inc., also known as the Van Houtte U.S. Coffee Service business, or Filterfresh business, were sold to ARAMARK Refreshment Services, LLC (ARAMARK) in exchange for $149.5 million in cash. Approximately $4.4 million of cash was transferred to ARAMARK as part of the sale and $7.4 million was repaid to ARAMARK upon finalization of the purchase price, resulting in a net cash inflow related to the Filterfresh sale of $137.7 million.
On December 17, 2010, we acquired the Van Houtte business through the purchase of all of the outstanding capital stock of LJVH Holdings, Inc., a specialty coffee roaster headquartered in Montreal, Quebec, for approximately USD $907.8 million, net of cash acquired. The acquisition was financed with cash on hand and the Companys credit facility.
Van Houtte is reported in the CBU segment, as was Filterfresh, prior to being sold.
Results of Operations
Summary financial data of the Company
The following table presents certain financial data of the Company expressed as a percentage of net sales for the periods denoted below:
|
|
Thirteen weeks ended |
|
Thirty-nine weeks ended |
| ||||
|
|
June 23, |
|
June 25, |
|
June 23, |
|
June 25, |
|
Net sales |
|
100.0 |
% |
100.0 |
% |
100.0 |
% |
100.0 |
% |
Cost of sales |
|
65.1 |
% |
63.2 |
% |
67.3 |
% |
66.5 |
% |
Gross profit |
|
34.9 |
% |
36.8 |
% |
32.7 |
% |
33.5 |
% |
|
|
|
|
|
|
|
|
|
|
Selling and operating expenses |
|
13.6 |
% |
13.3 |
% |
12.7 |
% |
13.1 |
% |
General and administrative expenses |
|
6.4 |
% |
6.9 |
% |
5.4 |
% |
7.0 |
% |
Operating income |
|
14.9 |
% |
16.6 |
% |
14.6 |
% |
13.5 |
%* |
|
|
|
|
|
|
|
|
|
|
Other income (expense), net |
|
0.0 |
% |
0.0 |
% |
0.1 |
% |
0.0 |
% |
Gain on financial instruments, net |
|
0.3 |
% |
0.1 |
% |
0.0 |
% |
(0.6 |
)% |
Loss on foreign currency, net |
|
(0.6 |
)% |
(0.1 |
)% |
0.0 |
% |
0.2 |
% |
Gain on sale of subsidiary |
|
|
|
|
|
0.9 |
% |
|
|
Interest expense |
|
(0.7 |
)% |
(4.2 |
)% |
(0.6 |
)% |
(2.7 |
)% |
Income before income taxes |
|
14.0 |
%* |
12.4 |
% |
15.0 |
% |
10.5 |
%* |
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
(5.6 |
)% |
(4.4 |
)% |
(5.6 |
)% |
(4.0 |
)% |
Net Income |
|
8.5 |
%* |
7.9 |
%* |
9.3 |
%* |
6.5 |
% |
|
|
|
|
|
|
|
|
|
|
Net income attributable to noncontrolling interests |
|
0.0 |
% |
0.1 |
% |
0.0 |
% |
0.1 |
% |
|
|
|
|
|
|
|
|
|
|
Net income attributable to GMCR |
|
8.4 |
%* |
7.9 |
%* |
9.3 |
% |
6.4 |
% |
* Does not sum due to rounding.
Segment Summary
Net sales and income before taxes for each of our operating segments are summarized in the tables below:
|
|
Net sales (in millions) |
| ||||||||||
|
|
Thirteen weeks ended |
|
Thirty-nine weeks ended |
| ||||||||
|
|
June 23, |
|
June 25, |
|
June 23, |
|
June 25, |
| ||||
SCBU |
|
$ |
387.0 |
|
$ |
275.7 |
|
$ |
1,140.9 |
|
$ |
705.9 |
|
KBU |
|
332.8 |
|
285.3 |
|
1,297.1 |
|
882.7 |
| ||||
CBU |
|
149.4 |
|
156.2 |
|
474.5 |
|
350.4 |
| ||||
Corporate |
|
|
|
|
|
|
|
|
| ||||
Total Company |
|
$ |
869.2 |
|
$ |
717.2 |
|
$ |
2,912.5 |
|
$ |
1,939.0 |
|
|
|
Income before taxes (in millions) |
| ||||||||||
|
|
Thirteen weeks ended |
|
Thirty-nine weeks ended |
| ||||||||
|
|
June 23, |
|
June 25, |
|
June 23, |
|
June 25, |
| ||||
SCBU |
|
$ |
90.5 |
|
$ |
66.3 |
|
$ |
267.7 |
|
$ |
193.1 |
|
KBU |
|
22.6 |
|
40.6 |
|
118.7 |
|
94.0 |
| ||||
CBU |
|
23.6 |
|
24.7 |
|
98.4 |
|
41.9 |
| ||||
Corporate |
|
(14.9 |
) |
(42.9 |
) |
(49.4 |
) |
(100.5 |
) | ||||
Inter-company eliminations |
|
|
|
|
|
|
|
(25.1 |
) | ||||
Total Company |
|
$ |
121.8 |
|
$ |
88.7 |
|
$ |
435.4 |
|
$ |
203.4 |
|
Thirteen weeks ended June 23, 2012 versus thirteen weeks ended June 25, 2011
Revenue
Company Summary
The following table presents consolidated net sales by major product category:
|
|
Net Sales (in millions) |
|
|
|
|
| |||||
|
|
Thirteen weeks ended |
|
|
|
|
| |||||
|
|
June 23, |
|
June 25, |
|
$ Increase |
|
% Increase |
| |||
Single Serve Packs |
|
$ |
638.0 |
|
$ |
485.4 |
|
$ |
152.6 |
|
31 |
% |
Brewers and Accessories |
|
139.1 |
|
105.4 |
|
33.7 |
|
32 |
% | |||
Other Products and Royalties |
|
92.1 |
|
126.4 |
|
(34.3 |
) |
(27 |
)% | |||
Total Net Sales |
|
$ |
869.2 |
|
$ |
717.2 |
|
$ |
152.0 |
|
21 |
% |
Net sales for the third quarter of fiscal 2012 increased 21% to $869.2 million, up from $717.2 million reported in the prior year period. The primary drivers of the increase in our net sales were a 31%, or $152.6 million, increase in total single serve pack net sales, a 32%, or $33.7 million, increase in Keurig® Single Cup Brewer and accessory sales, and a 27%, or $34.3 million, net decrease in other products and royalties primarily as a result of the sale of Filterfresh on October 3, 2011.
The increase in single serve pack net sales was driven by a 28 percentage point increase in sales volume and a 3 percentage point increase in K-Cup® pack net price realization due primarily to price increases implemented during fiscal 2011 to offset the then higher green coffee and the other input costs.
SCBU
SCBU segment net sales to unaffiliated customers increased by $111.3 million, or 40%, to $387.0 million in the third quarter of fiscal 2012 as compared to $275.7 million in the prior year period. The increase is due primarily to a $119.9 million, or 51%, increase related to sales of K-Cup® packs.
KBU
KBU segment net sales to unaffiliated customers increased by $47.5 million, or 17%, to $332.8 million in the third quarter of fiscal 2012 as compared to $285.3 million in the prior year period. The increase is due primarily to a $19.4 million, or 10%, increase related to sales of K-Cup® and Vue® packs and a $28.4 million, or 32%, increase related to sales of Keurig® Single Cup Brewers and accessories. The $47.5 million increase in net sales included $20.0 million in sales of new Vue® brewers and Vue® packs.
CBU
CBU segment net sales to unaffiliated customers decreased by $6.8 million, or 4%, to $149.4 million in the third quarter of fiscal 2012 as compared to $156.2 million in the prior year period. The decrease is attributable to the sale of Filterfresh on October 3, 2011, which contributed $29.4 million in net sales in the prior year period, offset by an increase in net sales of $22.6 million due primarily to a $18.8 million, or 38%, increase related to the sale of K-Cup® packs and a $5.5 million, or
42%, increase related to sales of Keurig® Single Cup Brewers and accessories. Effective September 25, 2011, the beginning of our first quarter of fiscal 2012, Timothys and all AH single-cup business with retailers in Canada is included in the CBU segment. Prior to September 25, 2011, Timothys was included in the SCBU segment and a portion of the AH single cup business with retailers in Canada was included in the KBU segment. The $156.2 million in net sales in the prior period has been recast to reflect Timothys and the AH single cup business with retailers in Canada in the CBU segment.
Gross Profit
Gross profit for the third quarter of fiscal 2012 was $303.3 million, or 34.9% of net sales as compared to $264.1 million, or 36.8% of net sales, in the prior year period. Gross margin declined approximately (i) 320 basis points due to under-utilization of our current manufacturing base as a result of lower than expected manufacturing through-put primarily due to lower K-Cup® pack demand and lower-than-planned production levels which increased average labor and overhead costs per K-Cup® pack, (ii) 120 basis points due to a higher write down of finished product and anticipated obsolescence of raw material inventory due to lower than anticipated sales of seasonal and certain coffee products, and (iii) 110 basis points due to the launch of our new Keurig® Vue® brewer platform that has a lower gross margin than the Keurig® K-Cup® brewer platform. The decrease in gross margin was partially offset by (i) a 250 basis point increase due to net price realization primarily from price increases taken in fiscal 2011 to offset higher green coffee and other input costs that were experienced in fiscal 2011 and the first half of fiscal 2012, (ii) a 110 basis point increase due to a decrease in green coffee costs in the third quarter of fiscal 2012 compared to the prior year period, and (iii) a 60 basis point increase due to the decrease in warranty expense related to Keurig® Single Cup Brewers.
Selling, Operating, General and Administrative Expenses
SG&A expenses increased 20% to $173.6 million in the third quarter of fiscal 2012 from $144.8 million in the prior year period. As a percentage of sales, SG&A improved to 20.0% in the third quarter of fiscal 2012 from 20.2% in the prior year period. The increase in SG&A over the prior year period is primarily attributed to an additional $17.7 million of advertising, promotions and certain marketing expenses, $3.9 million of additional salaries and related expenses and $2.2 million of legal and accounting expenses associated with the SEC inquiry and pending litigation.
Gain (Loss) on Financial Instruments
We incurred $3.0 million in net gains on financial instruments not designated as hedges for accounting purposes during the third quarter of fiscal 2012 as compared to $0.5 million in net gains during the prior year period. The net gains were primarily attributable to the fair value adjustment of our cross currency swap, which hedges the risk in currency movements on an intercompany note denominated in Canadian currency.
Foreign Currency Exchange Gain (Loss), Net
We have certain assets and liabilities that are denominated in Canadian currency. During the third quarter of fiscal 2012, we incurred a net foreign currency loss of approximately $5.1 million as compared to a net loss of $1.0 million during the prior year period. The net foreign currency exchange losses primarily related to re-measurement of our alternative currency revolving credit facility and certain intercompany notes with our foreign subsidiaries.
Interest Expense
Interest expense was $6.2 million in the third quarter of fiscal 2012, as compared to $29.8 million in the prior year period. During the third quarter of fiscal 2011, we entered into an Amended and Restated Credit Agreement (Restated Credit Agreement) which, among other things, eliminated our term loan B facility and reduced interest rates. In conjunction with our Restated Credit Agreement, we incurred a loss of $17.1 million on the write-off of debt issuance costs and the original issue discount on the extinguishment of the term loan B. In addition, average outstanding debt was lower in the third quarter of fiscal 2012 as compared to the average outstanding debt during the third quarter of fiscal 2011 primarily due to the May 2011 $688.9 million equity offering and concurrent private placement to Lavazza, which was largely used to repay a portion of the outstanding debt under our credit facility.
Income Taxes
Our effective income tax rate was 39.6% for the third quarter of fiscal 2012 as compared to a 35.8% effective tax rate for the prior year period. The increase is attributable to the extension of the 2011 federal R&D credit in the third quarter of the prior year and lower stock option activity in the current quarter.
Net Income, Non-GAAP Net Income and Diluted Earnings Per Share (EPS)
Net income in the third quarter of fiscal 2012 was $73.3 million, an increase of $16.9 million or 30%, as compared to $56.3 million in the prior year period.
Non-GAAP net income, when excluding non-cash related items such as amortization of identifiable intangibles; legal and accounting expenses related to the SEC inquiry and pending litigation; and loss on extinguishment of debt increased 9% to $82.9 million for the third quarter of fiscal 2012 from $75.7 million non-GAAP net income in the prior year period.
Diluted EPS was $0.46 per share in the third quarter of fiscal 2012, as compared to $0.37 per share in the prior year period.
Non-GAAP diluted EPS was $0.52 per share in the third quarter of fiscal 2012, as compared to $0.49 per share in the prior year period.
The following tables show a reconciliation of net income and diluted EPS to non-GAAP net income and non-GAAP diluted EPS for the thirteen weeks ended June 23, 2012 and June 25, 2011 (in thousands, except per share data):
|
|
Thirteen weeks ended |
| ||||
|
|
June 23, 2012 |
|
June 25, 2011 |
| ||
Net income attributable to GMCR |
|
$ |
73,296 |
|
$ |
56,348 |
|
After tax: |
|
|
|
|
| ||
Expenses related to SEC inquiry (1) |
|
1,759 |
|
513 |
| ||
Amortization of identifiable intangibles (2) |
|
7,876 |
|
7,859 |
| ||
Loss on extinguishment of debt (3) |
|
|
|
11,027 |
| ||
Non-GAAP net income |
|
$ |
82,931 |
|
$ |
75,747 |
|
|
|
Thirteen weeks ended |
| ||||
|
|
June 23, 2012 |
|
June 25, 2011 |
| ||
Diluted income per share |
|
$ |
0.46 |
|
$ |
0.37 |
|
After tax: |
|
|
|
|
| ||
Expenses related to SEC inquiry (1) |
|
0.01 |
|
0.00 |
| ||
Amortization of identifiable intangibles (2) |
|
0.05 |
|
0.05 |
| ||
Loss on extinguishment of debt (3) |
|
|
|
0.07 |
| ||
Non-GAAP net income per share |
|
$ |
0.52 |
|
$ |
0.49 |
|
(1) Represents legal and accounting expenses, net of income taxes of $1.2 million and $0.3 million for the thirteen weeks ended June 23, 2012 and June 25, 2011, respectively, related to the SEC inquiry and pending litigation classified as general and administrative expense. Income taxes were calculated at the Companys effective tax rate.
(2) Represents the amortization of intangibles, net of income taxes of $3.6 million and $3.9 million for the thirteen weeks ended June 23, 2012 and June 25, 2011, respectively, related to the Companys acquisitions classified as general and administrative expense. Income taxes were calculated at the Companys deferred tax rates.
(3) Represents the write-off of debt issuance costs and original issue discount, net of income taxes of $6.1 million for the thirteen weeks ended June 25, 2011, primarily associated with the extinguishment of the term loan B under the Credit Agreement. Income taxes were calculated at the Companys effective tax rate.
Thirty-nine weeks ended June 23, 2012 versus thirty-nine weeks ended June 25, 2011
Revenue
Company Summary
The following table presents consolidated net sales by major product category:
|
|
Net Sales (in millions) |
|
|
|
|
| |||||
|
|
Thirty-nine weeks ended |
|
|
|
|
| |||||
|
|
June 23, |
|
June 25, |
|
$ Increase |
|
% Increase |
| |||
Single Serve Packs |
|
$ |
2,008.7 |
|
$ |
1,230.1 |
|
$ |
778.6 |
|
63.3 |
% |
Brewers and Accessories |
|
609.7 |
|
409.6 |
|
200.1 |
|
48.9 |
% | |||
Other Products and Royalties |
|
294.1 |
|
299.3 |
|
(5.2 |
) |
(1.7 |
)% | |||
Total Net Sales |
|
$ |
2,912.5 |
|
$ |
1,939.0 |
|
$ |
973.5 |
|
50.2 |
% |
Net sales for the thirty-nine weeks ended June 23, 2012 (the 2012 YTD period) increased 50.2% to $2,912.5 million, up from $1,939.0 million reported for the thirty-nine weeks ended June 25, 2011 (the prior YTD period). The primary drivers of the increase in our net sales were a 63.3%, or $778.6 million, increase in total single serve pack net sales and a 48.9%, or $200.1 million, increase in Keurig® Single Cup Brewer and accessory sales, offset by a 1.7%, or $5.2 million, net decrease in other products and royalties primarily as a result of the Van Houtte acquisition.
The increase in single serve pack net sales was driven by a 48 percentage point increase in sales volume, a 12 percentage point increase in K-Cup® pack net price realization due primarily to price increases implemented during fiscal 2011 to offset the then higher green coffee and the other input costs, and a 3 percentage point increase in K-Cup® pack net sales due to the acquisition of Van Houtte.
SCBU
SCBU segment net sales to unaffiliated customers increased by $435.0 million, or 62%, to $1,140.9 million in the 2012 YTD period as compared to $705.9 million in the prior YTD period. The increase is due primarily to a $452.4 million, or 78%, increase related to sales of K-Cup® packs.
KBU
KBU segment net sales to unaffiliated customers increased by $414.4 million, or 47%, to 1,297.1 million in the 2012 YTD period as compared to $882.7 million in the prior year YTD period. The increase is due primarily to a $257.7 million, or 50%, increase related to sales of K-Cup® and Vue® packs and a $159.7 million, or 44%, increase related to sales of Keurig® Single Cup Brewers and accessories.
CBU
For the 2012 YTD period, CBU segment net sales to unaffiliated customers were $474.5 million as compared to $350.4 million in the prior YTD period. The increase is due to a $79.3 million, or 63%, increase related to the sale of K-Cup® packs, a $39.0 million, or 112%, increase related to sales of Keurig® Single Cup Brewers and accessories, and a $66.1 million, or 51%, increase related to other products, partially offset by a $60.3 million decrease due to the sale of Filterfresh on October 3, 2011. Effective September 25, 2011, the beginning of fiscal 2012, Timothys and all AH single cup business with retailers in Canada are included in the CBU segment. Prior to September 25, 2011, Timothys was included in the SCBU segment and a portion of the AH single cup business with retailers in Canada was included in the KBU segment. The $350.4 million in net sales in the prior YTD period has been recast to reflect Timothys and the AH single cup business with retailers in Canada in the CBU segment. Excluding these segment changes, the Van Houtte acquisition increased net sales by $87.4 million compared to the prior YTD period.
Gross Profit
Gross profit for the 2012 YTD period was $953.0 million, or 32.7% of net sales, as compared to $650.5 million, or 33.5% of net sales, in the prior year period. Gross margin declined approximately (i) 290 basis points due to under-utilization of our current manufacturing base as a result of lower than expected manufacturing through-put primarily due to lower K-Cup® pack demand and lower-than-planned production levels which increased average labor and overhead costs per K-Cup® pack, (ii) 140 basis points due to higher green coffee costs, and (iii) 100 basis points due to a higher write down of finished product and anticipated obsolescence of raw material inventory due to lower than anticipated sales of seasonal and certain coffee products. The decrease in gross margin was partially offset by (i) a 290 basis point increase due to net price realization primarily from price increases taken in fiscal 2011 to offset higher green coffee and other input costs that were experienced in fiscal 2011 and the first half of fiscal 2012, (ii) a 40 basis point increase due to price increases on Keurig® Single Cup Brewers in fiscal 2011,
and (iii) a 40 basis point increase due to the decrease in 2012 YTD warranty expense related to Keurig® Single Cup Brewers.
Selling, Operating, General and Administrative Expenses
SG&A increased 36% to $527.8 million in the 2012 YTD period from $388.3 million in the prior YTD period. As a percentage of sales, SG&A expenses improved to 18.1% in the 2012 YTD period from 20.0% in the prior YTD period.
Including the acquisition of Van Houtte, SG&A expenses increased due to $56.1 million of additional advertising and certain marketing expenses, $26.5 million of additional salaries and related expenses and $11.6 million of additional corporate social responsibility expense. In addition, the increase in SG&A expenses was offset by a decrease in general and administrative expenses of $10.6 million in transaction-related expenses primarily due to the Van Houtte acquisition and $2.4 million in legal and accounting expenses associated with the SEC inquiry and pending litigation.
Gain (Loss) on Financial Instruments
We incurred $0.2 million in net losses on financial instruments not designated as hedges for accounting purposes during the 2012 YTD period as compared to $11.8 million in net losses during the prior YTD period. For the 2012 YTD period, the net losses were primarily attributable to the fair value adjustment of our cross currency swap, which hedges the risk in currency movements on an intercompany note denominated in Canadian currency. For the prior YTD period, we incurred net losses of approximately $3.2 million in derivative instruments that were used to hedge the Canadian dollar purchase price of the Van Houtte acquisition and a $7.9 million net loss on the fair value adjustment on our cross currency swap.
Foreign Currency Exchange Gain (Loss), Net
We have certain assets and liabilities that are denominated in Canadian currency. During the 2012 YTD period, we incurred a net foreign currency gain of approximately $1.2 million as compared to a net gain of $4.6 million during the prior YTD period. The net foreign currency exchange gains primarily related to re-measurement of our alternative currency revolving credit facility and certain intercompany notes with our foreign subsidiaries.
Gain on Sale of Subsidiary
On October 3, 2011, we sold all the outstanding shares of the Filterfresh business resulting in a gain of $26.3 million.
Interest Expense
Interest expense was $18.7 million in the 2012 YTD period, as compared to $52.6 million in the prior YTD period. During the third quarter of fiscal 2011, we entered into an Amended and Restated Credit Agreement (Restated Credit Agreement) which, among other things, eliminated our term loan B facility and reduced interest rates. In conjunction with our Restated Credit Agreement, during the prior YTD period, we incurred a loss of $17.1 million on the write-off of debt issuance costs and the original issue discount on the extinguishment of the term loan B. In addition, average outstanding debt was lower in the 2012 YTD period as compared to the average outstanding debt during the prior YTD period primarily due to the May 2011 $688.9 million equity offering and concurrent private placement to Lavazza, which was largely used to repay a portion of the outstanding debt under our credit facility. This decrease in average outstanding debt and lower interest rates on the credit facility contributed to the reduction in interest expense.
Income Taxes
Our effective income tax rate was 37.7% for the 2012 YTD period as compared to a 38.4% effective tax rate in the prior YTD period. The higher effective rate in the prior YTD period is attributed to the recognition of non-deductible acquisition-related expenses incurred during our fourth quarter of fiscal 2010 for the Van Houtte acquisition, which closed during our first quarter of fiscal 2011. The higher effective tax rate was offset with a $2.2 million income tax benefit recognized in the second quarter of fiscal 2011 related to success-based acquisition fees we paid in the Van Houtte acquisition.
Net Income, Non-GAAP Net Income and Diluted Earnings Per Share (EPS)
Net income in the 2012 YTD period was $270.7 million, an increase of $146.6 million or 118%, as compared to $124.1 million in the prior YTD period.
Non-GAAP net income, when excluding transaction-related expenses related to our acquisitions including the foreign exchange impact of hedging the risk associated with the Canadian dollar purchase price of the Van Houtte acquisition and the write-off of
deferred financing expenses as part of debt financing; any gain from the sale of Filterfresh based coffee services business; legal and accounting expenses related to the SEC inquiry and pending litigation; non-cash related items such as amortization of identifiable intangibles; and loss on extinguishment of debt, increased 62% to $280.6 million for the 2012 YTD period from $173.6 million non-GAAP net income in the prior YTD period.
Diluted weighted average shares outstanding increased 7% primarily due to the issuance of approximately 10.1 million shares on May 11, 2011 from a public offering and concurrent private placement to Lavazza pursuant to its preemptive rights.
Diluted EPS was $1.70 per share in the 2012 YTD period, as compared to $0.83 per share in the prior YTD period.
Non-GAAP diluted EPS was $1.76 per share in the 2012 YTD period, as compared to $1.16 per share in the prior YTD period.
The following tables show a reconciliation of net income and diluted EPS to non-GAAP net income and non-GAAP diluted EPS for the thirty-nine weeks ended June 23, 2012 and June 25, 2011 (in thousands, except per share data):
|
|
Thirty-nine weeks ended |
| ||||
|
|
June 23, 2012 |
|
June 25, 2011 |
| ||
Net income attributable to GMCR |
|
$ |
270,741 |
|
$ |
124,132 |
|
After tax: |
|
|
|
|
| ||
Acquisition-related expenses (1) |
|
|
|
14,524 |
| ||
Expenses related to SEC inquiry (2) |
|
2,889 |
|
4,442 |
| ||
Amortization of identifiable intangibles (3) |
|
23,658 |
|
19,514 |
| ||
Loss on extinguishment of debt (4) |
|
|
|
11,027 |
| ||
Gain on sale of subsidiary (5) |
|
(16,685 |
) |
|
| ||
Non-GAAP net income |
|
$ |
280,603 |
|
$ |
173,639 |
|
|
|
Thirty-nine weeks ended |
| ||||
|
|
June 23, 2012 |
|
June 25, 2011 |
| ||
Diluted income per share |
|
$ |
1.70 |
|
$ |
0.83 |
|
After tax: |
|
|
|
|
| ||
Acquisition-related expenses (1) |
|
|
|
0.10 |
| ||
Expenses related to SEC inquiry (2) |
|
0.02 |
|
0.03 |
| ||
Amortization of identifiable intangibles (3) |
|
0.15 |
|
0.13 |
| ||
Loss on extinguishment of debt (4) |
|
|
|
0.07 |
| ||
Gain on sale of subsidiary (5) |
|
(0.10 |
) |
|
| ||
Non-GAAP net income per share |
|
$ |
1.76 |
* |
$ |
1.16 |
|
* Does not sum due to rounding.
(1) Represents direct acquisition-related expenses of $10.6 million ($9.8 million after-tax); the write-off of deferred financing expenses as part of new debt financing of $2.6 million ($1.6 million after-tax); and the foreign exchange impact of hedging the risk associated with the Canadian dollar purchase price of the Van Houtte acquisition of $5.3 million ($4.0 million after-tax). In addition, we recognized a $2.1 million tax expense related to the reversal of nondeductible acquisition-related expenses incurred during our fourth quarter of fiscal 2010 and a $3.0 million tax benefit related to the reversal of certain nondeductible acquisition-related expenses incurred during our fourth quarter of fiscal 2010 and the first quarter of fiscal 2011 that were deemed deductible in accordance with tax regulations enacted in the second quarter of fiscal 2011. This combined tax affect was reversed for purposes of this non-GAAP table.
(2) Represents legal and accounting expenses, net of income taxes of $1.9 million and $2.8 million for the thirty-nine weeks ended June 23, 2012 and June 25, 2011, respectively, related to the SEC inquiry and pending litigation classified as general and administrative expense. Income taxes were calculated at our effective tax rate.
(3) Represents the amortization of intangibles, net of income taxes of $10.8 million and $10.1 million for the thirty-nine weeks ended June 23, 2012 and June 25, 2011, respectively, related to our acquisitions classified as general and administrative expense. Income taxes were calculated at our effective tax rate.
(4) Represents the write-off of debt issuance costs and original issue discount, net of income taxes of $6.1 million, primarily associated with the extinguishment of the term loan B under the Credit Agreement.
(5) Represents the gain recognized on the sale of Filterfresh, net of income taxes of $9.6 million. Income taxes were calculated at our effective tax rate.
Liquidity and Capital Resources
We principally have funded our operations, working capital needs, capital expenditures and acquisitions from operations, equity offerings and borrowings under our credit facilities. At June 23, 2012, we had $409.1 million in debt and capital lease obligations, $139.0 million in cash and cash equivalents and $687.3 million of working capital (including cash). At September 24, 2011, we had $582.6 million in debt outstanding, $13.0 million in cash and cash equivalents and $660.2 million of working capital (including cash).
Operating Activities:
Net cash provided by operations is principally comprised of net income and is primarily affected by the net change in working capital and non-cash items relating to depreciation and amortization, provision for sales returns and excess tax benefits from equity-based compensation plans.
Net cash provided by operating activities during the thirty-nine weeks ended June 23, 2012 was $488.2 million as compared to $174.7 million for the same period last year. Operations generated $271.5 million in net income for the thirty-nine weeks ended June 23, 2012. Significant non-cash items consisted of $123.7 million in depreciation and amortization, $83.2 million provision for sales returns offset by a $28.9 million gain, excluding transaction costs, from the sale of Filterfresh. The provision for sales returns is consistent as a percentage of sales for the thirty-nine weeks ended June 23, 2012 and June 25, 2011. Significant changes in assets and liabilities affecting net cash provided by operating activities were a $91.0 million increase in income tax payable (net) offset by an increase in accounts receivable of $37.9 million as a result of the increase in sales and profitability for the 2012 YTD period over the prior YTD period.
Investing Activities:
Investing activities primarily include acquisitions and dispositions of businesses along with capital expenditures for equipment and building improvements.
Cash flows used in investing activities for the thirty-nine weeks ended June 23, 2012 included $137.7 million received from the sale of Filterfresh. On October 3, 2011, we sold all the outstanding shares of Filterfresh to ARAMARK for $142.1 million in cash and transferred $4.4 million of cash to ARAMARK as part of the sale resulting in net cash inflow related to the sale of $137.7 million. Cash flows used in investing activities for the thirty-nine weeks ended June 25, 2011 included $907.8 million used in the acquisition of Van Houtte.
Capital expenditures were $305.5 million in the 2012 YTD period as compared to $175.5 million for the same period last year. Capital expenditures incurred during the 2012 YTD period consisted primarily of $165.8 million related to increasing packaging capabilities for the Keurig brewer platforms, $71.7 million related to facilities and related infrastructure, and $36.0 million related to information technology infrastructure and systems. For fiscal 2012, we currently expect to invest between $475.0 million to $525.0 million in capital expenditures to support our future growth. We expect approximately $145.0 million will be spent to increase our packaging capacity related to our Keurig® K-Cup® brewer platform, approximately $65.0 million will be spent for packaging capabilities related to our Keurig® Vue® brewer platform, approximately $135.0 million will be spent to expand our physical plants, research and development equipment and facilities, and office space, approximately $90.0 million will be spent for coffee processing and other equipment and approximately $65.0 million will be spent for information technology infrastructure and systems.
In fiscal 2013, we currently expect to invest between $380.0 million to $430.0 million in capital expenditures to support the Companys future growth.
Financing Activities:
Cash used in financing activities for the 2012 YTD period totaled $198.8 million. Proceeds from the sale of Filterfresh as well as cash generated from operations were used to reduce our debt and capital lease obligations by $219.2 million, principally under our revolving line of credit. Cash flows from operating and financing activities also included a $12.4 million tax benefit from the exercise of non-qualified options and disqualifying dispositions of incentive stock options. As stock options are exercised, we will continue to receive proceeds and a tax deduction where applicable; however we cannot predict either the amounts or the timing of any such proceeds or tax benefits.
Under the Restated Credit Agreement, we maintain senior secured credit facilities consisting of (i) an $800.0 million U.S. revolving credit facility, (ii) a $200.0 million alternative currency revolving credit facility, and (iii) a term loan A facility. At June 23, 2012, we had $243.8 million outstanding under the term loan A facility, $124.0 million outstanding under the revolving credit facilities and $6.2 million in letters of credit with $869.8 million available for borrowing. The Restated Credit Agreement also provides for an increase option for an aggregate amount of up to $500.0 million.
The term loan A facility requires quarterly principal repayments. The term loan and revolving credit borrowings bear interest at a rate equal to an applicable margin plus, at our option, either (a) a eurodollar rate determined by reference to the cost of funds for deposits for the interest period and currency relevant to such borrowing, adjusted for certain costs, or (b) a base rate determined by reference to the highest of (1) the federal funds rate plus 0.50%, (2) the prime rate announced by Bank of America, N.A. from time to time and (3) the eurodollar rate plus 1.00%. The applicable margin under the Restated Credit Agreement with respect to the term loan A and revolving credit facilities is a percentage per annum varying from 0.5% to 1.0% for base rate loans and 1.5% to 2.0% for eurodollar rate loans, based upon our leverage ratio. Our average effective interest rate at June 23, 2012 and September 24, 2011 was 3.9% and 2.8%, respectively, excluding amortization of deferred financing charges and including the effect of interest rate swap agreements. We also pay a commitment fee on the average daily unused portion of the revolving credit facilities.
All of our assets and the assets of our domestic wholly-owned material subsidiaries are pledged as collateral under the Restated Credit Agreement. The Restated Credit Agreement contains customary negative covenants, subject to certain exceptions, including limitations on: liens; investments; indebtedness; mergers and consolidations; asset sales; dividends and distributions or repurchases of our capital stock; transactions with affiliates; certain burdensome agreements; and changes in our lines of business.
The Restated Credit Agreement requires us to comply on a quarterly basis with a consolidated leverage ratio and a consolidated interest coverage ratio. At June 23, 2012, we were in compliance with these covenants. In addition, the Restated Credit Agreement contains certain mandatory prepayment requirements and customary events on default.
We are party to interest rate swap agreements, the effect of which is to limit the interest rate exposure on a portion of the loans under our credit facilities to a fixed rate versus the 30-day Libor rate. The total notional amount of these swaps at June 23, 2012 was $233.0 million.
The fair market value of the interest rate swaps is the estimated amount that we would receive or pay to terminate the agreements at the reporting date, taking into account current interest rates and the credit worthiness of the counterparty. At June 23, 2012, we estimate we would have paid $9.1 million (gross of tax), if we terminated the swap agreements. We designate the swap agreements as cash flow hedges and the changes in the fair value of these derivatives are classified in accumulated other comprehensive income (a component of equity). During the thirteen weeks ended June 23, 2012 and June 25, 2011, we paid approximately $1.2 million and $1.3 million, respectively, in additional interest expense pursuant to swap agreements. During the thirty-nine weeks ended June 23, 2012 and June 25, 2011, we paid approximately $3.5 million and $2.6 million, respectively, in additional interest expense pursuant to swap agreements.
On July 30, 2012, our Board of Directors authorized a new program for the Company to repurchase up to $500.0 million of our common shares over the next two years, at such times and prices as determined by the Companys management. The shares will be purchased with cash on hand, cash from operations, and funds available through our existing credit facility.
We believe that our cash flows from operating activities, existing cash and our credit facilities will provide sufficient liquidity to pay all liabilities in the normal course of business, fund anticipated capital expenditures and service debt requirements through the next 12 months. We continuously evaluate our capital requirements and access to capital. We may opt to raise additional capital through equity and/or debt financing to provide flexibility to assist with managing several risks and uncertainties inherent in a growing business including potential future acquisitions or increased capital expenditure requirements.
A summary of cash requirements related to our outstanding long-term debt, future minimum lease payments and purchase commitments is as follows (in thousands):
|
|
Long-Term Debt |
|
Interest Expense |
|
Operating Lease |
|
Capital Lease |
|
Purchase |
|
Total |
| ||||||
Remainder of 2012 |
|
$ |
1,583 |
|
$ |
2,299 |
|
$ |
4,697 |
|
$ |
1,650 |
|
$ |
596,826 |
|
$ |
607,055 |
|
FY 2013 - FY 2014 |
|
19,578 |
|
14,665 |
|
27,355 |
|
15,455 |
|
425,352 |
|
502,405 |
| ||||||
FY 2015 - FY 2016 |
|
348,156 |
|
10,056 |
|
18,947 |
|
31,681 |
|
226,026 |
|
634,866 |
| ||||||
Thereafter |
|
997 |
|
38 |
|
12,516 |
|
183,669 |
|
164,041 |
|
361,261 |
| ||||||
Total |
|
$ |
370,314 |
|
$ |
27,058 |
|
$ |
63,515 |
|
$ |
232,455 |
|
$ |
1,412,245 |
|
$ |
2,105,587 |
|
(1) Excludes capital lease obligations.
(2) Based on rates in effect at June 23, 2012. Does not include interest on amounts outstanding under the USD and multicurrency revolving credit facilities.
(3) Includes principal and interest payments under capital lease obligations and under leases for which we are deemed the owner of the construction project for accounting purposes.
In addition, we have $23.9 million in unrecognized tax benefits primarily as the result of acquisitions of which we are indemnified for $16.6 million expiring through June 2015. We are unable to make reasonably reliable estimates of the period of cash settlement, if any, due to the uncertain nature of the unrecognized tax benefits.
Recent Accounting Pronouncements
In July 2012, the Financial Accounting Standards Board issued and Accounting Standards Update (ASU) which simplifies how an entity is required to test indefinite lived-intangible assets for impairment. The amendment allows an entity to first assess qualitative factors to determine whether it is necessary to perform a quantitative indefinite-lived asset impairment test. Current guidance requires an entity to test indefinite-lived intangible assets for impairment, on at least an annual basis, by first comparing the fair value of the indefinite-lived asset with its carrying amount. If the carrying amount of the intangible asset exceeds its fair value, an entity should recognize an impairment loss in the amount of that excess. In accordance with the amendments in the ASU, an entity will have an option not to calculate annually the fair value of an indefinite-lived intangible asset if the entity determines that it is not more likely than not that the asset is impaired. The amendment includes a number of factors to be considered in conducting the qualitative assessment. The amendments in the ASU are effective for annual and interim indefinite-lived intangible impairment tests performed for fiscal years beginning after September 15, 2012, which is fiscal 2013 for the Company. Early adoption is permitted. We currently plan to early adopt in fiscal 2012.
In December 2011, the Financial Accounting Standards Board issued an ASU that provides amendments for disclosures about offsetting assets and liabilities. The amendments require an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. This scope would include derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. The amendments are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. Disclosures required by the amendments should be provided retrospectively for all comparative periods presented. For us, the amendment is effective for fiscal year 2014. We are currently evaluating the impact these amendments may have on our disclosures.
In September 2011, the Financial Accounting Standards Board issued an ASU that which simplifies how an entity is required to test goodwill for impairment. The ASU would allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Current guidance requires an entity to test goodwill for impairment, on at least an annual basis, by first comparing the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit is less than its carrying amount, then the second step of the test must be performed to measure the amount of impairment loss, if any. Under the ASU, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The ASU includes a number of factors to be considered in conducting the qualitative assessment. The amendments in the ASU are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 which is fiscal 2013 for the Company. Early adoption is permitted. We currently plan to early adopt in fiscal 2012.
In June 2011, the Financial Accounting Standards Board issued an ASU that provides amendments on the presentation of comprehensive income. The amendments require that all nonowner changes in stockholders equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. The amendments do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The amendments do not change the option for an entity to present components of other comprehensive income either net of related tax effects or before related tax effects, with one amount shown for the aggregate income tax expense or benefit related to the total of other comprehensive income items. In both cases, the tax effect for each component must be disclosed in the notes to the financial statements or presented in the statement in which other comprehensive income is presented. The amendments do not affect how earnings per share is
calculated or presented. The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 and should be applied retrospectively. For us, the amendment is effective for fiscal 2013. The effect of adoption will have minimum impact on us as our current presentation of comprehensive income follows the two-statement approach.
Factors Affecting Quarterly Performance
Historically, we have experienced variations in sales and earnings from quarter to quarter due to the holiday season (October through December) and a variety of other factors, including, but not limited to, general economic trends, the cost of green coffee, competition, marketing programs, weather, product quality and special or unusual events. Because of the seasonality our business, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.
Forward Looking Statements
Certain information contained in this filing, including statements concerning expected performance such as those relating to net sales, earnings, cost savings, acquisitions and brand marketing support, are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Generally, these statements may be identified by the use of words such as may, will, would, expect, should, anticipate, estimate, believe, forecast, intend, plan and similar expressions intended to identify forward-looking statements. These statements may relate to: the expected impact of raw material costs and our pricing actions on our results of operations and gross margins, expected trends in net sales and earnings performance and other financial measures, the expected productivity and working capital improvements, the ability to maximize or successfully assert our intellectual property rights, the success of introducing and producing new product offerings, ability to attract and retain senior management, the holding period and market risks associated with financial instruments, the impact of foreign exchange fluctuations, the adequacy of internally generated funds and existing sources of liquidity, such as the availability of bank financing, the expected results of operations of businesses acquired by us, our ability to issue debt or additional equity securities, our expectations regarding purchasing shares of our common stock under the existing authorizations, and the impact of the inquiry initiated by the SEC and any related litigation or additional governmental inquiry or enforcement proceedings.
These and other forward-looking statements are based on managements current views and assumptions and involve risks and uncertainties that could significantly affect expected results. Results may be materially affected by external factors such as damage to our reputation or brand name, business interruptions due to natural disasters or similar unexpected events, actions of competitors, customer relationships and financial condition, the ability to achieve expected cost savings and margin improvements, the successful acquisition and integration of new businesses, fluctuations in the cost and availability of raw and packaging materials, changes in regulatory requirements, and global economic conditions generally which would include the availability of financing, interest, inflation rates and investment return on retirement plan assets, as well as foreign currency fluctuations, risks associated with our information technology systems, the threat of data breaches or cyber-attacks, and other risks described in the Companys filings with the Securities and Exchange Commission.
Actual results could differ materially from those projected in the forward-looking statements. The Company undertakes no obligation to update or revise publicly, any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risks relating to our operations result primarily from changes in interest rates and the commodity C price of coffee (the price per pound quoted by the Intercontinental Exchange). To address these risks, we enter into hedging transactions as described below. We do not use financial instruments for trading purposes.
For purposes of specific risk analysis, we use sensitivity analysis to determine the impacts that market risk exposures may have on our financial position or earnings.
Interest Rate Risks
The table below provides information about our debt and capital lease obligations, some of which that are sensitive to changes in interest rates. The table presents principal cash flows and weighted average interest rates by year:
|
|
Remainder |
|
|
|
|
|
|
|
|
|
|
|
Total Debt |
| |||||||
|
|
2012 |
|
2013 |
|
2014 |
|
2015 |
|
2016 |
|
Thereafter |
|
June 23, 2012 |
| |||||||
Long-term debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Variable rate (in thousands) |
|
$ |
1,563 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
133,139 |
|
$ |
|
|
$ |
134,702 |
|
Average interest rate |
|
2.6 |
% |
2.6 |
% |
2.6 |
% |
2.6 |
% |
2.6 |
% |
0.0 |
% |
2.6 |
% | |||||||
Fixed rate (in thousands) |
|
$ |
767 |
|
$ |
9,204 |
|
$ |
15,839 |
|
$ |
22,566 |
|
$ |
199,062 |
|
$ |
26,972 |
|
$ |
274,410 |
|
Average interest rate |
|
3.9 |
% |
3.8 |
% |
3.8 |
% |
3.7 |
% |
3.4 |
% |
6.5 |
% |
4.5 |
% |
At June 23, 2012, we had $134.7 million of outstanding debt obligations subject to variable interest rates. Should all our variable interest rates increase by 100 basis points, we would incur additional interest expense of $1.3 million annually. Additionally, should Canadian Bankers Acceptance Rates increase by 100 basis points over US Libor rates, we would incur additional interest expense of $1.4 million annually, pursuant to the cross-currency swap agreement (see Foreign Currency Exchange Risk below). As discussed further under the heading Liquidity and Capital Resources the Company is party to interest rate swap agreements. On June 23, 2012, the effect of our interest rate swap agreements was to limit the interest rate exposure on $233.0 million of the outstanding balance of the term loan A facility under the Restated Credit Agreement to a fixed rate versus the 30-day Libor rate. The total notional amount covered by these swaps will decrease progressively in future periods and terminates on various dates from September 2012 through November 2015.
Commodity Price Risks
The C price of coffee is subject to substantial price fluctuations caused by multiple factors, including weather and political and economic conditions in coffee-producing countries. Our gross profit margins can be significantly impacted by changes in the C price of coffee. We enter into fixed coffee purchase commitments in an attempt to secure an adequate supply of coffee. These agreements are tied to specific market prices (defined by both the origin of the coffee and the time of delivery) but we have significant flexibility in selecting the date of the market price to be used in each contract. We generally fix the price of our coffee contracts three to nine months prior to delivery, so that we can adjust our sales prices to the marketplace. At June 23, 2012, we had approximately $401.4 million in green coffee purchase commitments, of which approximately 82% had a fixed price.
In addition, we regularly use commodity-based financial instruments to hedge price-to-be-established coffee purchase commitments with the objective of minimizing cost risk due to market fluctuations. These hedges generally qualify as cash flow hedges. Gains and losses are deferred in other comprehensive income until the hedged inventory sale is recognized in earnings, at which point gains and losses are added to cost of sales. At June 23, 2012, we held outstanding futures contracts covering 2.4 million pounds of coffee with a fair market value of $(0.8) million, gross of tax. At September 24, 2011, we held outstanding futures contracts covering 3.1 million pounds of coffee with a fair market value of $(0.4) million, gross of tax.
At June 23, 2012, we are exposed to approximately $73.5 million in un-hedged green coffee purchase commitments that do not have a fixed price as compared to $119.9 million in un-hedged green coffee purchase commitments that did not have a fixed price at September 24, 2011. A hypothetical 10% movement in the C price would increase or decrease our financial commitment for these purchase commitments outstanding at June 23, 2012 by approximately $7.4 million.
Foreign Currency Exchange Rate Risk
Our foreign operations are primarily related to CBU, which is subject to risks, including, but not limited to, unique economic conditions, changes in political climate, differing tax structures, other regulations and restrictions, and foreign exchange rate volatility. Accordingly, our future results could be materially adversely affected by changes in these or other factors. We also source our green coffee, certain production equipment, and components of our brewers and manufacturing of our brewers from countries outside the United States, which are subject to the same risks described for Canada above; however, most of our green coffee and brewer purchases are transacted in the United States dollar.
The majority of the transactions conducted by our CBU are in the Canadian dollar. As a result, our revenues are adversely affected when the United States dollar strengthens against the Canadian dollar and are positively affected when the United
States dollar weakens. Conversely, our expenses are positively affected when the United States dollar strengthens against the Canadian dollar and adversely affected when the United States dollar weakens.
As described in Note 10, Derivative Financial Instruments, in the Notes to Consolidated Financial Statements contained in Item 1 of this Quarterly Report on Form 10-Q, from time to time we engage in transactions involving various derivative instruments to mitigate our foreign currency rate exposures. More specifically, we hedge, on a net basis, the foreign currency exposure of a portion of our assets and liabilities that are denominated in Canadian dollars. These contracts are recorded at fair value and are not designated as hedging instruments for accounting purposes. As a result, the changes in fair value are recognized in the Gain (loss) on financial instruments, net line in the Consolidated Statements of Operations. We do not engage in speculative transactions, nor do we hold derivative instruments for trading purposes.
At June 23, 2012, we had a 4-year cross-currency swap of CDN $140.0 million that was not designated as a hedging instrument for accounting purposes, which largely offsets the financial impact of the re-measurement of an inter-company note receivable denominated in Canadian dollars for the same amount. Principal payments on the cross-currency swap are settled on an annual basis to match the repayments on the note receivable and the cross-currency swap is adjusted to fair value each period. Increases or decreases in the cross-currency swap are generally offset by corresponding decreases or increases in the U.S. dollar value of the Canadian dollar inter-company note. We also have some naturally occurring hedges where increases or decreases in the foreign currency exchange rates on other inter-company balances denominated in Canadian dollars, are largely offset by increases or decreases associated with Canadian dollar-denominated borrowings under our alternative currency revolving credit facility.
The market risk associated with the foreign currency exchange rate movements on foreign exchange contracts is expected to mitigate the market risk of the underlying obligation being hedged. Our net un-hedged assets (liabilities) denominated in a currency other than the functional currency were approximately $(24.8) million at June 23, 2012. A hypothetical 10% movement in the foreign currency exchange rate would increase or decrease net assets (liabilities) by approximately $(2.5) million with a corresponding charge to operations. In addition, at June 23, 2012 our net investment in our foreign subsidiaries with a functional currency different from our reporting currency was approximately $543.2 million. A hypothetical 10% movement in the foreign currency exchange rate would increase or decrease our net investment in our foreign subsidiaries by approximately $54.3 million with a corresponding charge to other comprehensive income.
In addition, we use foreign currency forward contracts to hedge certain capital purchase liabilities for production equipment with the objective of minimizing cost risk due to market fluctuations. We designate these contracts as fair value hedges and measure the effectiveness of these derivative instruments at each balance sheet date. The changes in the fair value of these instruments along with the changes in the fair value of the hedged liabilities are recognized in net gains or losses on foreign currency on the consolidated statements of operations. We had no outstanding foreign currency forward contracts at June 23, 2012.
Item 4. Controls and Procedures
As of June 23, 2012 our management with the participation of our Chief Executive Officer and Chief Financial Officer conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 and 15d-15 under the Securities Exchange Act of 1934 (the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rule 13a-15 of the Exchange Act) are effective.
There have been no changes in our internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II. Other Information
Item 1. Legal Proceedings.
On October 1, 2010, Keurig, Inc., a business unit of the Company (Keurig), filed suit against Sturm Foods, Inc. (Sturm) in the United States District Court for the District of Delaware (Civil Action No. 1:10-CV-00841-SLR) for patent and trademark infringement, false advertising, and other claims, related to Sturms sale of Grove Square beverage cartridges that claim to be compatible with Keurig® brewers. The suit alleges that the Grove Square cartridges contain instant rather than fresh-brewed coffee, improperly use the Keurig mark, and do not work safely or effectively in Keurig® Single Cup Brewers, in addition to violating Keurig patents (U.S. Patent Nos. 7,165,488 and 6,606,938). Keurig seeks an injunction prohibiting Sturm from selling these cartridges, as well as money damages. On October 18, 2010, Keurig requested that the court issue a preliminarily injunction on the use of the Keurig mark and false advertising claims pending final resolution of the case. The court denied that request so those issues will be resolved in due course during the litigation.
On November 2, 2011, Keurig filed suit against JBR, INC., d/b/a Rogers Family Company (Rogers) in the United States District Court for the District of Massachusetts (Civil Action No. 1:11-cv-11941-MBB) for patent infringement related to Rogers sale of San Francisco Bay beverage cartridges for use with Keurig® brewers. The suit alleges that the San Francisco Bay cartridges violate Keurig patents (U.S. Patent Nos. D502,362, 7,165,488 and 7,347,138). Keurig seeks an injunction prohibiting Rogers from selling these cartridges, as well as money damages.
On January 24, 2012, Teashot, LLC (Teashot) filed suit against the Company, Keurig and Starbucks Corp. (Starbucks) in the United States District Court for the District of Colorado (Civil Action No. 12-c v-00189-WJM-KMT) for patent infringement related to the making, using, importing, selling and/or offering for sale of K-Cup® packs containing tea. The suit alleges that the Company, Keurig and Starbucks are violating a Teashot patent (U.S. Patent No. 5,895,672). Teashot seeks an injunction prohibiting the Company, Keurig and Starbucks from continued infringement, as well as money damages. Pursuant to its Manufacturing, Sales and Distribution Agreement with Starbucks, the Company is defending and indemnifying Starbucks in connection with the suit. On March 13, 2012, the Company and Keurig, for themselves and Starbucks, filed an answer with the court, generally denying all of Teashots allegations. The Company and Keurig, for themselves and Starbucks, intend to vigorously defend this lawsuit. At this time, the Company is unable to predict the outcome of this lawsuit, the potential loss or range of loss, if any, associated with the resolution of this lawsuit or any potential effect it may have on the Company or its operations.
SEC Inquiry
As first disclosed on September 28, 2010, the staff of the SECs Division of Enforcement continues to conduct an inquiry into matters at the Company. The Company is cooperating fully with the SEC staffs inquiry.
Stockholder Litigation
The Company and certain of its officers and directors are currently subject to three putative securities fraud class actions and three putative stockholder derivative actions. The first consolidated putative securities fraud class action was commenced following the Companys disclosure of the SEC inquiry on September 28, 2010. The second putative securities fraud class action was filed on November 29, 2011, and the third putative securities fraud class action was filed on May 7, 2012. A consolidated putative stockholder derivative action pending in the United States District Court for the District of Vermont consists of four separate putative stockholder derivative complaints, the first two were filed after the Companys disclosure of the SEC inquiry on September 28, 2010, while the others were filed on February 10, 2012 and March 2, 2012, respectively. In addition, a putative stockholder derivative action is pending in the Superior Court of the State of Vermont for Washington County that was commenced following the Companys disclosure of the SEC inquiry on September 28, 2010 and an additional putative stockholder derivative action was filed on July 23, 2012 in the United States District Court for the District of Vermont.
The first consolidated putative securities fraud class action, organized under the caption Horowitz v. Green Mountain Coffee Roasters, Inc., Civ. No. 2:10-cv-00227, is pending in the United States District Court for the District of Vermont before the Honorable William K. Sessions, III. The underlying complaints in the consolidated action allege violations of the federal securities laws in connection with the Companys disclosures relating to its revenues and its forward guidance. The complaints include counts for violation of Section 10(b) of the Securities Exchange Act of 1934, as amended (the Exchange Act) and Rule 10b-5 against all defendants, and for violation of Section 20(a) of the Exchange Act against the officer defendants. The plaintiffs seek to represent all purchasers of the Companys securities between July 28, 2010 and September 28, 2010 or September 29, 2010. The complaints seek class certification, compensatory damages, equitable
and/or injunctive relief, attorneys fees, costs, and such other relief as the court should deem just and proper. Pursuant to the Private Securities Litigation Reform Act of 1995, 15 U.S.C. § 78u-4(a)(3), plaintiffs had until November 29, 2010 to move the court to serve as lead plaintiff of the putative class. On December 20, 2010, the court appointed Jerzy Warchol, Robert M. Nichols, Jennifer M. Nichols, Marc Schmerler and Mike Shanley lead plaintiffs and approved their selection of Glancy Binkow & Goldberg LLP and Robbins Geller Rudman & Dowd LLP as co-lead counsel and the Law Office of Brian Hehir and Woodward & Kelley, PLLC as liaison counsel. On December 29, 2010 and January 3, 2011, two of the plaintiffs in the underlying actions in the consolidated proceedings, Russell Blank and Dan M. Horowitz, voluntarily dismissed their cases without prejudice. Pursuant to a stipulated motion granted by the court on November 29, 2010, the lead plaintiffs filed a consolidated complaint on February 23, 2011, and defendants moved to dismiss that complaint on April 25, 2011. The court heard argument on the motions to dismiss on January 5, 2012. On January 27, 2012, the court issued an order granting defendants motions and dismissing the consolidated complaint without prejudice and the lead plaintiffs filed a motion for leave to amend the complaint on March 27, 2012. On April 9, 2012, the parties filed a stipulated motion for filing of the amended complaint and to set a briefing schedule for defendants motions to dismiss. In accordance with the stipulated briefing schedule, Plaintiffs filed their Second Consolidated Amended Complaint on April 30, 2012, and the Company moved to dismiss that complaint on June 14, 2012. Briefing on the Companys motion to dismiss has not yet been completed.
The second putative securities fraud class action, captioned Louisiana Municipal Police Employees Retirement System v. Green Mountain Coffee Roasters, Inc., et al., Civ. No. 2:11-cv-00289, was filed on November 29, 2011 and is also pending in the United States District Court for the District of Vermont before the Honorable William K. Sessions, III. The plaintiffs complaint alleges violations of the federal securities laws in connection with the Companys disclosures relating to its revenues and its forward guidance. The complaint includes counts for alleged violations of (1) Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 (the Securities Act) against various of the Company, certain of its officers and directors, and the Companys underwriters in connection with a May 2011 secondary common stock offering; and (2) Section 10(b) of the Exchange Act and Rule 10b-5 against the Company and the officer defendants and Section 20(a) of the Exchange Act against the officer defendants. The plaintiff seeks to represent all purchasers of the Companys securities between February 2, 2011 and November 9, 2011. The complaint seeks class certification, compensatory damages, attorneys fees, costs, and such other relief as the court should deem just and proper. Pursuant to the Private Securities Litigation Reform Act of 1995, 15 U.S.C. § 78u-4(a)(3), plaintiffs had until January 30, 2012 to move the court to serve as lead plaintiff of the putative class. Competing applications were filed and the Court appointed Louisiana Municipal Police Employees Retirement System, Sjunde AP-Fonden, Board of Trustees of the City of Fort Lauderdale General Employees Retirements System, Employees Retirements System of the Government of the Virgin Islands, and Public Employees Retirement System of Mississippi as lead plaintiffs counsel on April 27, 2012. On July 11, 2012, the parties filed a stipulated motion for filing of an amended complaint and to set a briefing schedule for defendants motions to dismiss. The underwriter defendants have notified the Company of their intent to seek indemnification from the Company pursuant to their underwriting agreement dated May 5, 2011 in regard to the claims asserted in this action.
The third consolidated putative securities fraud class action, captioned Fifield v. Green Mountain Coffee Roasters, Inc., Civ. No. 2:12-cv-00091, is pending in the United States District Court for the District of Vermont before the Honorable William K. Sessions, III. The complaint alleges violations of the federal securities laws in connection with the Companys disclosures relating to its revenues and its forward guidance. The complaint includes counts for violation of Section 10(b) of the Exchange Act and Rule 10b-5 against all defendants, and for violation of Section 20(a) of the Exchange Act against the officer defendants. The plaintiff seeks to represent all purchasers of the Companys securities between February 2, 2012 and May 2, 2012. The complaint seeks class certification, compensatory damages, equitable and/or injunctive relief, attorneys fees, costs, and such other relief as the court should deem just and proper. Pursuant to the Private Securities Litigation Reform Act of 1995, 15 U.S.C. § 78u-4(a)(3), plaintiffs had until July 6, 2012 to move the court to serve as lead plaintiff of the putative class. Competing applications were filed and the court has not yet appointed a lead plaintiff and lead counsel.
The first putative stockholder derivative action, a consolidated action captioned In re Green Mountain Coffee Roasters, Inc. Derivative Litigation, Civ. No. 2:10-cv-00233, premised on the same allegations asserted in the putative securities class action complaints described above, is pending in the United States District Court for the District of Vermont before the Honorable William K. Sessions, III. The derivative complaints are asserted nominally on behalf of the Company against certain of its directors and officers. The derivative complaints assert claims for breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, contribution and indemnification, and waste of corporate assets. The complaints seek compensatory damages, injunctive relief, restitution, disgorgement, attorneys fees, costs, and such other relief as the court should deem just and proper. On November 29, 2010, the federal court entered an order consolidating two actions and appointing the firms of Robbins Umeda LLP and Shuman Law Firm as co-lead plaintiffs counsel. On February 23, 2011, the federal court approved a stipulation filed by the parties providing for a temporary stay of that action until the court rules on defendants motions to dismiss the consolidated complaint in the putative securities
fraud class action. On March 7, 2012, the federal court approved a further joint stipulation continuing the temporary stay until the court either denies a motion to dismiss the putative securities fraud class action or the putative securities fraud class action is dismissed with prejudice. On April 27, 2012, the federal court entered an order consolidating the stockholder derivative action captioned Himmel v. Robert P. Stiller, et al., with two additional putative derivative actions Musa Family Revocable Trust v. Robert P. Stiller, et al., Civ. No. 2:12-cv-00029, and Laborers Local 235 Benefit Funds v. Robert P. Stiller, et al., Civ. No. 2:12-cv-00042.
The second putative stockholder derivative action, M. Elizabeth Dickinson v. Robert P. Stiller, et al., Civ. No. 818-11-10, is pending in the Superior Court of the State of Vermont for Washington County and is premised on the same allegations alleged in the first consolidated putative securities fraud class action. The complaint is asserted nominally on behalf of the Company against certain of its directors and officers. The complaint asserts claims for breach of fiduciary duty, unjust enrichment, and waste of corporate assets. The complaint seeks compensatory damages, injunctive relief, restitution, disgorgement, attorneys fees, costs, and such other relief as the court should deem just and proper. On February 28, 2011, the court approved a stipulation filed by the parties similarly providing for a temporary stay of that action until the federal court rules on defendants motions to dismiss the consolidated complaint in the first putative securities fraud class action. The action remains stayed pending the federal courts decision on the Companys pending motion to dismiss the Second Consolidated Amended Complaint in the first putative securities fraud class action.
The third putative stockholder derivative action, Henry Cargo v. Robert P. Stiller, et al., Civ. No. 2:12-cv-00161, is pending in the United States District Court for the District of Vermont before the Honorable William K. Sessions, III and is premised on the same allegations alleged in the putative securities fraud class action captioned Fifield v. Green Mountain Coffee Roasters, Inc., Civ. No. 2:12-cv-00091. The complaint is asserted nominally on behalf of the Company against certain of its directors and officers. The complaint asserts claims for breach of fiduciary duty, unjust enrichment, waste of corporate assets, and contribution and indemnification. The complaint seeks compensatory damages, injunctive relief, restitution, disgorgement, attorneys fees, costs, and such other relief as the court should deem just and proper. The complaint was filed on July 23, 2012 and has not yet been served on the Company.
The Company and the other defendants intend to vigorously defend all the pending lawsuits. Additional lawsuits may be filed and, at this time, the Company is unable to predict the outcome of these lawsuits, the possible loss or range of loss, if any, associated with the resolution of these lawsuits or any potential effect they may have on the Company or its operations.
Item 1A. Risk Factors.
There have been no material changes from the risk factors disclosed in our fiscal 2011 Form 10-K.
Item 5. Other Information.
None.
Item 6. Exhibits
(a) Exhibits:
10.1 |
Lease Agreement dated June 19, 2012 between Burlington Crossing Realty Trust and the Company. |
|
|
10.2 |
Lease Agreement dated March 21, 2011 between 124 Technology Park Way, LLC and the Company. |
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31.1 |
Principal Executive Officer Certification Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to the Section 302 of the Sarbanes-Oxley Act of 2002. |
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|
31.2 |
Principal Financial Officer Certification Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to the Section 302 of the Sarbanes-Oxley Act of 2002. |
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|
32.1 |
Principal Executive Officer Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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|
32.2 |
Principal Financial Officer Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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|
101 |
The following financial statements from the Companys Quarterly Report on Form 10-Q for the fiscal quarter ended June 23, 2012 formatted in eXtensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statement of Changes In Redeemable Noncontrolling Interests And Stockholders Equity, (iv) the Consolidated Statements of Comprehensive Income (v) the Consolidated Statements of Cash Flows and (vi) related notes. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
GREEN MOUNTAIN COFFEE ROASTERS, INC.
Date: 8/1/2012 |
By: |
/s/ Lawrence J. Blanford |
|
|
Lawrence J. Blanford, |
|
|
President and Chief Executive Officer |
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|
|
Date: 8/1/2012 |
By |
/s/ Frances G. Rathke |
|
|
Frances G. Rathke, |
|
|
Chief Financial Officer |
Exhibit 10.1
LEASE BETWEEN
BURLINGTON CROSSING REALTY TRUST
AND
GREEN MOUNTAIN COFFEE ROASTERS, INC.
FOR
[424,783 - 590,000] RENTABLE SQUARE FEET - 43, 53, 63 SOUTH AVENUE
BURLINGTON, MASSACHUSETTS
ARTICLE I |
REFERENCE DATA |
1 |
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1.1. SUBJECTS REFERRED TO: |
1 | |
1.2. EXHIBITS |
8 | |
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ARTICLE II |
PREMISES AND TERM |
10 |
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|
2.1. PREMISES |
10 | |
2.2. TERM |
11 | |
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ARTICLE III |
CONSTRUCTION |
11 |
|
|
|
3.1. INITIAL CONSTRUCTION |
11 | |
|
| |
3.1.1. ADDITIONAL CONSTRUCTION RELATED PROVISIONS |
21 | |
3.1.2. TENANTS CONSTRUCTION WORK |
22 | |
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| |
3.2. PREPARATION OF PREMISES FOR OCCUPANCY |
23 | |
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3.2.2. PARTIAL OCCUPANCY AND RENT COMMENCEMENT (PHASE I) |
27 | |
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3.3. GENERAL PROVISIONS APPLICABLE TO CONSTRUCTION; RESTORATION AND REMOVAL |
27 | |
3.4. REPRESENTATIVES |
28 | |
3.5. FORCE MAJEURE |
28 | |
3.6. ARBITRATION |
29 | |
3.7. WARRANTY OF LANDLORDS WORK AND TENANTS WORK |
30 | |
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ARTICLE IV RENT |
30 | |
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4.1. RENT |
30 | |
4.2. COMMON AREA MAINTENANCE COSTS, REAL ESTATE TAXES AND UTILITIES |
31 | |
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4.2.1. CAM Costs |
31 | |
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4.3. TAX EXPENSE |
36 | |
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4.3.1. TAX ABATEMENT |
38 | |
4.3.2. UTILITIES |
38 | |
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4.4. PAYMENTS |
38 | |
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ARTICLE V |
LANDLORDS COVENANTS |
39 |
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5.1. LANDLORDS COVENANTS DURING THE TERM |
39 | |
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5.1.1. Intentionally Deleted |
39 | |
5.1.2. Intentionally Deleted |
39 | |
5.1.3. Repairs |
39 | |
5.1.4. Quiet Enjoyment |
39 | |
5.1.5. LEED |
39 | |
5.1.6. Landlords Insurance |
39 | |
5.1.7. Landlords Indemnity |
40 | |
5.1.8. Hazardous Materials |
41 | |
5.1.9. Tenants Costs |
42 |
5.1.10. Tenants SECURITY AND CONFIDENTIAL PROTOCOL |
42 |
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5.2. INTERRUPTIONS |
43 |
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ARTICLE VI TENANTS COVENANTS |
44 |
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6.1. TENANTS COVENANTS DURING THE TERM |
44 |
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6.1.1. Tenants Payments |
44 |
6.1.2. Repairs and Yielding Up |
44 |
6.1.3. Occupancy and Use |
45 |
6.1.4. Rules and Regulations |
46 |
6.1.5. Compliance with Laws and Safety Appliances |
46 |
6.1.6. Assignment and Subletting |
46 |
6.1.7. Indemnity |
49 |
6.1.8. Tenants Liability Insurance |
49 |
6.1.9. Tenants Workmens Compensation Insurance |
49 |
6.1.10. Landlords Right of Entry |
49 |
6.1.11. Loading |
49 |
6.1.12. Landlords Costs |
49 |
6.1.13. Tenants Property |
50 |
6.1.14. Labor or Materialmens Liens |
50 |
6.1.15. Changes or Additions |
50 |
6.1.16. HOLDOVER |
51 |
6.1.17. Hazardous Materials |
52 |
6.1.18. Signs AND NAMING RIGHTS |
52 |
6.1.19. Tenants Authority |
53 |
6.1.20. Intentionally omitted; |
53 |
6.1.21. Covenants Independent |
53 |
6.1.22. Security |
53 |
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ARTICLE VII CASUALTY AND TAKING |
54 |
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7.1. CASUALTY AND TAKING |
54 |
7.2. RESERVATION OF AWARD |
56 |
7.3. ADDITIONAL CASUALTY PROVISIONS |
56 |
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ARTICLE VIII RIGHTS OF MORTGAGEE |
57 |
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8.1. PRIORITY OF LEASE |
57 |
8.2. LIMITATION ON MORTGAGEES LIABILITY |
58 |
8.3. MORTGAGEES OBLIGATION |
58 |
8.4. NO PREPAYMENT OR MODIFICATION, ETC |
58 |
8.5. NO RELEASE OR TERMINATION |
58 |
8.6. CONTINUING OFFER |
59 |
8.7. SUBMITTAL OF FINANCIAL STATEMENT |
59 |
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ARTICLE IX DEFAULT |
59 |
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9.1. EVENTS OF DEFAULT BY TENANT |
59 |
9.2. TENANTS OBLIGATIONS AFTER TERMINATION |
60 |
ARTICLE X |
MISCELLANEOUS |
61 |
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10.1. TITLES |
61 | |
10.2. NOTICE OF LEASE |
61 | |
10.3. NOTICES FROM ONE PARTY TO THE OTHER |
61 | |
10.4. BIND AND INURE |
62 | |
10.5. NO SURRENDER |
62 | |
10.6. NO WAIVER, ETC |
62 | |
10.7. NO ACCORD AND SATISFACTION |
62 | |
10.8. CUMULATIVE REMEDIES |
63 | |
10.9. PARTIAL INVALIDITY |
63 | |
10.10. RIGHT TO CURE |
63 | |
10.11. ESTOPPEL CERTIFICATE AND LANDLORDS CONSENT TO LIENS |
64 | |
10.12. WAIVER OF SUBROGATION |
65 | |
10.13. BROKERAGE |
65 | |
10.14. PARKING/TRAFFIC PERSONNEL |
65 | |
10.15. ACCESS |
66 | |
10.16. ENTIRE AGREEMENT |
66 | |
10.17. GOVERNING LAW |
66 | |
10.18. ADDITIONAL REPRESENTATIONS |
66 | |
10.19. ROOFTOP COMMUNICATION EQUIPMENT |
68 | |
10.20. EMERGENCY POWER |
68 | |
10.21. WAIVER OF CONSEQUENTIAL DAMAGES |
69 | |
10.22. PREVAILING PARTY |
69 | |
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ARTICLE XI SECURITY |
69 |
Date of Lease Execution: June 19, 2012
ARTICLE I
REFERENCE DATA
1.1. SUBJECTS REFERRED TO:
Each reference in this Lease to any of the following subjects shall incorporate the data stated for that subject in this Section 1.1. | ||
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Burlington Crossing Realty Trust |
LANDLORD: |
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MANAGING AGENT: |
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The Gutierrez Company |
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LANDLORDS AND MANAGING AGENTS ADDRESS: |
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Burlington Office Park |
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One Wall Street |
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Burlington, Massachusetts 01803 |
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LANDLORDS REPRESENTATIVE: |
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Arthur J. Gutierrez, Jr. |
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LANDLORDS CONSTRUCTION REPRESENTATIVES: |
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Arthur J. Gutierrez, Jr., Douglas L. Fainelli, or Dennis G. Bailey |
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TENANT: |
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Green Mountain Coffee Roasters, Inc. |
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TENANTS ADDRESS (FOR NOTICE & BILLING): |
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33 Coffee Lane |
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Waterbury, Vermont 05676 |
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Attention: Howard Malovany, General Counsel |
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TENANTS REPRESENTATIVE(S): |
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John Heller |
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TENANTS CONSTRUCTION REPRESENTATIVE(S): |
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John Heller and Michael Degnan |
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BUILDING: |
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Phase I - One (1) story and two (2) story building consisting of approximately 150,673 Rentable Square Feet to be constructed upon the land located at 63 South Avenue, Burlington, Massachusetts and described on Exhibit A-1 attached hereto (the Phase I Lot) in accordance with the final Phase I Landlords Plans and Phase I Tenants Plans (as defined in Section 3.1.A hereof, and any replacements thereof) and any alterations and additions thereto, including the Phase I Tenants Work (as hereinafter defined). The legal |
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description of the Phase I Lot is attached hereto as Exhibit A-2.
Phase II - Ten (10) stories, floors 1-4 shall be parking and floors 5-10 of the Building will consist of approximately 274,110 Rentable Square Feet* to be constructed upon the land located at 53 South Avenue, Burlington, Massachusetts and described on Exhibit A-3 attached hereto (the Phase II Lot) in accordance with the final Phase II Landlords Plans and Phase II Tenants Plans (as defined in Section 3.2.B hereof, and any replacements thereof) and any alterations and additions thereto, including the Phase II Tenants Work (as hereinafter defined). The legal description of the Phase II Lot is attached hereto as Exhibit A-4.
Phase III Six (6) - Seven (7) stories, floor 1 shall be parking and floors 2-6 or 7 of the Building will consist of approximately 125,000 Rentable Square Feet** to be constructed upon the land located at 43 South Avenue, Burlington, Massachusetts and described on Exhibit A-5 attached hereto (the Phase III Lot) in accordance with the final Phase III Landlords Plans and Phase III Tenants Plans (as defined in Section 3.2.C hereof, and any replacements thereof) and any alterations and additions thereto, including the Phase III Tenants Work (as hereinafter defined). The legal description of the Phase III Lot is attached hereto as Exhibit A-6.
NOTE: For purposes of this Lease, the term Lot shall include the Phase I Lot, the Phase II Lot and/or the Phase III Lot, as applicable following the Commencement Date for the applicable Phase and as the context so requires, unless expressly provided herein to the contrary. |
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RENTABLE SQUARE FOOT (OR PLURAL RENTABLE SQUARE FEET) OR RSF: |
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The rentable area of the Building or any portion thereof, computed consistently with respect to the entire Building, based upon BOMA Z65.3 2009 (the Method of Measurement). |
RENTABLE SQUARE FEET OF TENANTS SPACE |
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Phase I: approximately 150,673 Rentable Square Feet, as further described in Exhibit A-1, to be delivered in two stages. Stage One shall refer to the Hi-Bay Area consisting of approximately 60,000 Rentable Square Feet and designated as such on Exhibit A-1 (Stage One) and Stage Two shall refer to the balance of the space, or approximately 90,673 Rentable Square Feet referred to as the R&D and Office Areas and designated as such on Exhibit A-1 (Stage Two). Phase II: approximately 274,110 Rentable Square Feet *, as further described in Exhibit A-3. Phase.. III: approximately 125,000 Rentable Square Feet **, as further described on Exhibit A-5. |
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TOTAL RENTABLE SQUARE FEET OF THE BUILDING: |
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Phase I: approximately 150,673 Rentable Square Feet Phase II: approximately 274,110 Rentable Square Feet * Phase III: approximately 125,000 Rentable Square Feet **
NOTE: The applicable Building and Premises (as defined in Section 2.1 hereof) shall be measured by Landlords architect in accordance with the Method of Measurement within thirty (30) days after the applicable Term Commencement Date), at Landlords sole cost and expense. Landlords architect shall certify such measurement to Landlord and Tenant, and Landlord shall submit to Tenant Landlords architects calculation by written notice, in reasonable detail, which shall include computer aided design drawings. If Tenant disputes the Rentable Square Feet calculation of the Premises, Tenant may send a Dispute Notice to Landlord within thirty (30) days after the delivery of such calculation to Tenant, which Dispute Notice shall specify the respects in which Tenant believes that Landlords Architects calculation is incorrect, and the dispute resolution mechanism of Section 3.6 shall become applicable. If Tenant does not send a Dispute Notice to Landlord within the thirty (30) day period after the delivery of the calculation to Tenant, then the Rentable Square Feet of Tenants Space and the Total Rentable Square Feet of the |
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Building shall be deemed correct for all purposes of this Lease and shall no longer be subject to dispute by Tenant or re-measurement by Landlord. Upon finalization of the Rentable Square Feet of the applicable Tenants Space and Total Rentable Square Feet of the Building, the parties agree to enter into an amendment to this Lease specifying the final plans of each of the floors of the Premises, the Term, the revised rent hereunder, if any, floor by floor rentable square feet measurements, and other items that are based on the rentable square feet in the Premises and the Building. During the pendency of any such dispute, Tenant shall pay Base Rent to Landlord based on Landlords architects determination, with an appropriate adjustment once such dispute has been resolved.
Any space leased during the Term hereof (including all extensions) shall be measured using the same method of measurement for the initial Premises, subject to Tenants right to dispute such measurement. Following final determination of any Phase, the Premises shall not be subject to any remeasurement. |
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*NOTE: Tenant shall have the right to decrease the final Rentable Square Feet of Phase II by one floor, approximately 41,741 Rentable Square Feet (for the avoidance of a doubt the building would become five (5) stories instead of six (6) stories) by providing Landlord with written notice thereof on or before October 1, 2012. Tenant acknowledges that any changes to the Building could result in the need to engineer said changes and seek reapproval of the special permits granted by the Town of Burlington. Therefore to avoid additional cost and potential delay to the Scheduled Term Commencement Date if Tenant decides to decrease the final Rentable Square Feet, the decrease shall be achieved by reducing the number of stories on the Building. Upon any such election by Tenant and measurement of the Phase II Premises in accordance with and subject to the measurement process described above, the parties shall amend this Lease to reflect the new square footage for Phase II and to adjust the rent accordingly. |
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**NOTE: Further, Tenant shall have the right to increase the Rentable Square Feet of Phase III by up to 34,687 Rentable Square Feet (or more pursuant to Exhibit U hereof) by providing Landlord with written notice thereof twenty-four (24) months prior to the Scheduled Term Commencement Date for Phase III. To increase the Rentable Square Feet beyond 34,687 Rentable Square Feet, Tenant shall notify Landlord by January 1, 2016. Tenant agrees to notify Landlord by January 1, 2015 of its interest in exceeding 34,687 Rentable Square Feet in which event Landlord shall use good faith efforts to obtain all necessary permits and approvals as provided in Exhibit U. Any increase is subject to applicable zoning laws and codes. Upon any such election by Tenant, receipt of all necessary permits and approvals as provided in Exhibit U, and measurement of the Phase III Premises in accordance with and subject to the measurement process described above, the parties shall amend this Lease to reflect the new square footage for Phase III and to adjust the rent accordingly. |
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SCHEDULED TENANTS DESIGN COMPLETION DATE: |
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Phase I - June 27, 2012, subject to the provisions of Section 3.1. Phase II July 1, 2013, subject to the provisions of Section 3.1. Phase III Nine (9) months prior to the Scheduled Term Commencement Date, subject to the provisions of Section 3.1. |
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SCHEDULED TERM COMMENCEMENT DATE: |
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Phase I - January 16, 2013 for Stage One March 1, 2013 for Stage Two Phase II July 1, 2014 Phase III January 1, 2018
NOTE: Tenant shall have the right to accelerate the Scheduled Term Commencement Date for Phase III by providing Landlord with written notice at least twenty-four (24) months prior to Tenants desired Scheduled Term Commencement Date (i.e., prior to January 1, 2016), as hereinafter provided in Exhibit U. |
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RENT COMMENCEMENT DATE: |
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a) The date which is three (3) months after the Term Commencement Date for Phase I, specifically on a pro rata basis based on the Rentable Square Feet |
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contained within Stage One and Stage Two, as applicable, as such portions of the Premises are Substantially Completed pursuant to Section 3.2 hereof, b) the date which is four and one-half months after the Term Commencement Date for Phase II, and c) the date which is four and one-half months after the Term Commencement Date for Phase III. | ||
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OUTSIDE DELIVERY DATE: |
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Per Section 3.2 | ||
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TERM EXPIRATION DATE: |
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Fifteen (15) years following the Rent Commencement Date for Phase II.
NOTE: Tenant shall have the right to terminate the automatic expansion option on Phase III by providing Landlord with written notice on or before January 1, 2016, subject to the provisions of Exhibit U. | ||
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TERM: |
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Commencing on the Term Commencement Date for Phase I and ending on the Term Expiration Date, subject to extension in accordance with Exhibit F and Exhibit U. | ||
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BASE RENT (NNN)*: |
Phase I - |
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Years 1-5: |
$17.50/RSF /Year; |
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Years 6-10: |
$18.25/RSF /Year; |
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Years 11-15: |
$19.00/RSF /Year; |
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Years 16- |
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end of Initial Term: |
$19.75/RSF/Year; |
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Phase II - |
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Years 1-5: |
$29.90/RSF /Year; |
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Years 6-10: |
$30.90/RSF /Year; |
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Years 11-15: |
$32.20/RSF /Year; |
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Years 16- | ||
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end of Initial Term: |
$33.50/RSF /Year; |
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Phase III - |
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See Exhibit U |
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*NOTE: Base Rent shall be adjusted to reflect the number of Rentable Square Feet of space included within the applicable Premises as measured pursuant to the Method of Measurement as aforesaid. | |
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ANNUAL ESTIMATED CAM COSTS: (Including Real Estate Taxes) |
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Phase I: ($3.25/RSF)
Phase II: ($3.85/RSF)
Phase III: ($4.35/RSF) | |
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ESTIMATED COST OF ELECTRICAL SERVICE TO TENANTS SPACE (Excluded from Base Rent): |
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See Exhibit D, Paragraph VII | |
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SECURITY DEPOSIT: |
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See Article 11 | |
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GUARANTOR: |
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Not Applicable | |
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PERMITTED USES: |
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All uses under local zoning regulations, including, without limitation, general office, research and development (including laboratory) uses and any uses that are ancillary or accessory thereto, all in accordance with and subject to local zoning. | |
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REAL ESTATE BROKERS: |
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Cushman & Wakefield of Massachusetts, Inc. and Richards Barry Joyce & Partners | |
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PUBLIC LIABILITY INSURANCE: BODILY INJURY AND PROPERTY DAMAGE: |
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Each Occurrence: |
$1,000,000.00 |
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Aggregate: |
$2,000,000.00 |
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SPECIAL PROVISIONS: |
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Parking |
Per Section 10.14 |
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Option to Extend |
Per Exhibit F |
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Purchase and Sale Agreements containing Tyco Environmental Indemnities |
Per Exhibit H |
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Equity Participation |
Per Exhibit M |
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Right of First Offer |
Per Exhibit N |
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Guaranty of Completion |
Per Exhibit 0 |
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Market Rent |
Per Exhibit P |
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Phase III Expansion |
Per Exhibit U |
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Option to Terminate Phase III |
Per Section 1.1 and Exhibit U |
1.2. EXHIBITS
The Exhibits listed below in this Section are incorporated in this Lease by reference and are to be construed as part of this Lease:
EXHIBIT A-1 |
Plans Showing Phase I the Premises, the Phase I Lot and the Park (including the Building Parking Area and Common Areas) |
EXHIBIT A-2 |
Legal Description of the Phase I Lot |
EXHIBIT A-3 |
Plans showing Phase II the Premises, the Phase II Lot and the Park (including the Building Parking Area and Common Areas) |
EXHIBIT A-4 |
Legal Description of the Phase II Lot |
EXHIBIT A-5 |
Plans showing Phase III the Premises, the Phase III Lot and the Park (including the Building Parking Area and Common Areas) |
EXHIBIT A-6 |
Legal Description of the Phase III Lot |
EXHIBIT A-7 |
Plan of Entire Site for Phase I, II and III and Associated Parking Structures |
EXHIBIT A-8 |
Parking Plan |
EXHIBIT B-1 |
Base Building Plans for Phase I (including Stage One and Stage Two) |
EXHIBIT B-1A |
Tenant Improvement Plans for Phase I |
EXHIBIT B-2 |
Base Building Outline Specifications for Phase I |
EXHIBIT B-2A |
Tenant Improvement Specifications for Phase I |
EXHIBIT B-3 |
Preliminary Base Building for Phase II |
EXHIBIT B-3A |
Tenant Improvement Plans for Phase II |
EXHIBIT B-4 |
Base Building Outline Specifications for Phase II |
EXHIBIT B-4A |
Tenant Improvement Specifications for Phase II |
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EXHIBIT B-5 |
Preliminary Base Building Plans for Phase III |
EXHIBIT B-6 |
Base Building Outline Specifications for Phase III |
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EXHIBIT B-7 |
Outline of Phase II/III Connector Costs |
EXHIBIT B-8 |
Outline of Additional Tenants Work |
EXHIBIT C-1 |
Form of Certificate of Substantial Completion |
EXHIBIT C-2 |
Form of Certificate of Final Completion |
EXHIBIT D |
Landlords Services |
EXHIBIT E |
Rules and Regulations |
EXHIBIT F |
Option to Extend |
EXHIBIT G |
Tenant Estoppel Certificate |
EXHIBIT H |
Purchase and Sale Agreements containing Tyco Environmental Indemnities |
EXHIBIT I |
Park Covenants |
EXHIBIT J |
Subordination, Non-Disturbance and Attomment Agreement |
EXHIBIT K |
Form of Work Change Order |
EXHIBIT L |
Definition of Cost of the Work |
EXHIBIT M |
Equity Participation |
EXHIBIT N |
Right of First Offer |
EXHIBIT 0 |
Guaranty of Completion |
EXHIBIT P |
Definition of Market Rent |
EXHIBIT Q |
Form of Notice of Lease Off- |
EXHIBIT R |
Site Traffic Improvements |
EXHIBIT R-1 |
Traffic Mitigation Exhibit |
EXHIBIT S-1 |
Phase I Schedule |
EXHIBIT S-2 |
Phase II Schedule |
EXHIBIT S-3 |
Phase III Schedule |
EXHIBIT T |
Form of Letter of Credit (if applicable) |
EXHIBIT U |
Phase III Expansion |
EXHIBIT U-1 |
Pro Forma (Phase III) |
EXHIBIT U-2 |
Termination Expenses |
EXHIBIT U-3 |
Pro Forma (Phase I and Phase II) |
EXHIBIT U-4 |
Conceptual Phase III Plan |
EXHIBIT V |
Right of First Refusal |
EXHIBIT W |
Subsurface Sampling and Environmental Assessment Protocol |
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SCHEDULE 2.1 |
List of Permitted Exceptions |
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SCHEDULE 4.3 |
TIF Agreement |
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SCHEDULE 5.1.10 |
Tenants Security and Confidentiality Protocol |
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SCHEDULE 6.1.8 |
Tenants Signage Locations and Specifications and Site Amenity Plan |
ARTICLE II
PREMISES AND TERM
2.1. PREMISES
The Premises (as hereinafter defined) shall be constructed in three phases, Phase I (to be constructed in two stages, Stage One and Stage Two, as aforesaid), Phase II and Phase III (individually, a Phase or collectively, the Phases). For purposes of this Lease the above-referenced terms in Section 1.1 above shall apply to all Phases, or to a specific Phase, as applicable and as the context so requires, unless expressly provided herein to the contrary.
Subject to and with the benefit of the provisions of this Lease, Landlord hereby leases to Tenant and Tenant leases from Landlord, the Rentable Square Feet of Tenants Space in the Building (hereinafter, the Tenants Space) all as more particularly shown on Exhibit A-1 (and on Exhibit A-3 and Exhibit A-5, as applicable per each Phase) attached hereto and made a part hereof, together with the appurtenances described below and in Section 10.14 of this Lease. Tenants Space, with such appurtenances, is hereinafter collectively referred to as the Premises. As aforesaid, the term Premises as used herein shall specifically refer to all three (3) Phases, Phase I, Phase II and Phase III, or to any one or more Phase, as applicable and as the context so requires, unless expressly provided herein to the contrary. The Premises exclude the exterior walls and exterior windows (except the inner surfaces thereof), floor slabs, load bearing elements, footings, foundations, columns and other structural elements of the Building, the roof and roof membrane, and the exterior common areas and facilities of the Lots.
Tenant shall have, as appurtenant to the Premises, the right to use in common with other tenants of the Building, if any, all common areas and facilities of the Building (including loading docks and in connection therewith, Landlord agrees to provide for Tenants exclusive use two (2) loading docks with the construction of Phase II that shall also serve Phase III if Tenant is the sole tenant of Phase III) and the areas shown on the Plan attached hereto as Exhibit A-1, A-3 and A-5, as applicable, as Building Parking Area, all subject to and as further provided in Section 10.14 hereof. Landlord shall have the right to modify the Building Parking Area, so long as any such modifications do not adversely affect any of Tenants rights hereunder or increase Tenants costs, obligations or liabilities hereunder or diminish the number of spaces comprising the Building Parking Area.
Tenant shall also have, as appurtenant to the Premises, the right to use in common with others entitled thereto, subject to reasonable rules of general applicability to tenants and owners of other lots in the park commonly known and referred to as the Burlington Research Center and shown on the Plan of the Park attached hereto as part of Exhibit A-1 (and Exhibit A-3 and/or Exhibit A-5, as applicable) (the Park) from time to time made by Landlord in accordance with Section 6.1.4 of which Tenant is given written notice: (a) the common areas now or hereafter located at the Park, including, without limitation, the common areas shown on the Plan of the Park attached hereto as part of Exhibit A-1 (and Exhibit A-3 and Exhibit A-5, if applicable), as such common areas may be amended or modified by Landlord from time to time during the Term hereof (the Common Areas); (b) all rights to access, all service areas, drainage of surface water runoff, including, without limitation, storm drainage systems and detention areas; (c) all grades, driveways, roadways, sidewalks and footways, lighting systems and traffic flow patterns; (d) all parking areas designated as common or visitors parking areas for use of the entire Park, if any; (e) all other rights appurtenant to the Lot and the Building; (f) all means of access to
and from the Building to the Common Areas, including, without limitation, all sidewalks, roads, driveways and the like; and (g) all utility lines, electricity, water and sewage disposal.
The Premises are leased to Tenant subject only to the easements, restrictions and other matters of record identified on Schedule 2.1 and such other matters which are approved by Tenant or are necessary and customary in connection with the development and construction of the Premises, so long as any such new matters will not prohibit or materially interfere with the use of the Premises for the Permitted Uses, increase Tenants obligations or liabilities under this Lease or otherwise, and/or limit or impair Tenants rights under this Lease.
2.2. TERM
To have and to hold for a period (the Term) commencing on the Term Commencement Date determined in accordance with Section 3.2 (which said date is at times being hereafter referred to as the Commencement Date) and continuing until the Term Expiration Date, unless sooner terminated as provided in Sections 3.2 or 7.1 or in Article IX or in Exhibit U as to Phase III only, or unless extended pursuant to Exhibit F or Exhibit U.
ARTICLE III
CONSTRUCTION
3.1. INITIAL CONSTRUCTION
A. Phase I: Landlord shall fully construct the base building for Phase I on a turnkey basis in accordance with the final base building plans in Exhibit B-1 attached hereto (the Phase I Landlords Plans) and the base building outline specifications attached hereto as Exhibit B-2 and made a part hereof (the Phase I Outline Specifications). Landlord and Tenant hereby approve the Phase I Landlords Plans and the Phase I Outline Specifications. Landlord represents and warrants to Tenant that the Phase I Landlords Plans comply with all applicable laws, statutes, rules, codes, ordinances, requirements of governmental authorities and regulations (collectively, Legal Requirements), and Landlord shall achieve a rating of Silver Certified Core & Shell status under Leadership in Energy & Environmental Design (LEED), as adopted by the U.S. Green Building Council or its successor (USGBC) 2009, version 3. All of such work described in the Phase I Landlords Plans and in the Phase I Outline Specifications shall be collectively referred to herein as the Phase I Landlords Work.
Landlord and Tenant hereby acknowledge and agree that, except as otherwise set forth herein, no amendments, modifications or changes shall be made to the Phase I Landlords Plans without Tenants prior written approval in each instance, which such approval shall not be unreasonably withheld or delayed provided that the proposed amendments, modifications or changes (i) are required by applicable Legal Requirements, (ii) are non-material in nature, (iii) replace items with equivalent or better items and at all times equal to or better than those of the Phase I Outline Specifications, (iv) do not adversely affect the Premises, and/or (v) do not precipitate changes to the Phase I Tenants Plans.
Landlord shall also fully construct the tenant improvements for Phase I on a turnkey basis in accordance with the Phase I Tenants Plans and the Phase I TI Outline Specifications, as such terms are defined below.
Tenant has caused Visnick & Caulfield Associates (or another architect selected by Tenant and reasonably approved by Landlord, Tenants Architect) to prepare a complete set of construction plans and specifications for the tenant improvements shown on the plans attached hereto as Exhibit B-1 A (the Phase I Tenants Plans) and the outline specifications attached hereto as Exhibit B-2A (the Phase I TI Outline Specifications). All of such work described in the Phase I Tenants Plans and in the Phase I TI Outline Specifications shall be collectively referred to herein as the Phase I Tenants Work. Landlord and Tenant hereby approve the final draft set of Phase I Tenants Plans and the Phase I TI Outline Specifications. The costs of services of Tenants Architect shall be borne solely by Tenant. Tenants Architect (and Tenants Representatives) shall be allowed reasonable access to the Lot and the Premises during construction to monitor Landlords compliance with the terms and provisions of this Lease. Attached as Exhibit S-1 is a schedule (the Phase I Schedule) setting forth the respective dates by which Landlord and Tenant anticipate that (i) the final set of the Phase I Tenants Plans shall have been delivered to and approved by Landlord, and (ii) certain portions of the Phase I Landlords Work and the Phase I Tenants Work shall be substantially completed. The parties agree to cooperate with each other and to exercise reasonable efforts to complete the tasks described in the Phase I Schedule by the respective dates set forth therein.
Tenant shall deliver the final set of Phase I Tenants Plans in form ready for construction to Landlord consistent with the Phase I Schedule and not later than the Scheduled Tenants Design Completion Date, which date shall be extended for a period equal to the aggregate of delays caused by Landlords Delay. Landlord and Tenant hereby agree that the final set of the Phase I Tenants Plans shall be materially consistent with final draft sets attached hereto as Exhibits B-1A and B-2A. Upon receipt of the final set of the Phase I Tenants Plans, Landlord shall have five (5) business days following the delivery of the final set of the Phase I Tenants Plans to Landlord to approve such Phase I Tenants Plans or provide comments thereto or comments thereon, and any objection thereto or comments thereon by Landlord shall be provided to Tenant in writing in reasonable detail. If Landlord fails to approve, provide comments on, or object to, Tenants submission of the final set of the Phase I Tenants Plans within such five (5) business day period, then Landlord shall be deemed to have approved the submitted progress set of the Phase I Tenants Plan. The foregoing process shall be repeated until the final set of the Phase I Tenants Plans shall have been approved or deemed approved by Landlord, except that Landlords approval of any revisions to the Phase I Tenants Plans submitted in response to Landlords comments or objections shall be deemed given unless Landlord submits written comments or objections to Tenant within five (5) business days after receipt thereof. In its review of any set of the Phase I Tenants Plans submitted by Tenant, Landlord may not raise any objections to or request modifications of any element of the Phase I Tenants Plans which were reflected or shown on or are materially consistent with any prior set of the Phase I Tenants Plans approved or deemed approved by Landlord. In all cases, Landlord and Tenant shall use reasonable efforts to reach agreement on the final set of Phase I Tenants Plans as soon as practicable. In reaching such agreement, subject to the foregoing, Landlord and Tenant shall each approve portions of Phase I Tenants Plans that are acceptable and shall note their respective comments or objections to the portions that are unacceptable to each of them so as to enable Landlord to continue construction and order materials in a timely manner.
All revisions and modifications to the final set of Phase I Tenants Plans shall be made within ten (10) business days by Tenant and revised sets of the Phase I Tenants Plans shall be forthwith furnished to Landlord upon Tenants receipt thereof. Landlord and Tenant hereby further agree to acknowledge in writing when final approval by Landlord and Tenant of the final Phase I Tenants Plans has occurred. No changes or modifications to the Phase I Tenants Plans or Phase I Tenants Work being constructed
by Landlord pursuant thereto shall be made without Tenants written consent, such consent not to be unreasonably withheld or delayed by Tenant.
Landlord and Tenant shall cooperate during the above time periods so that each party makes the other aware of their progress with respect to the foregoing plans, selections and pricing, as well as timing, availability or cost constraints of Tenants selections or specifications and proposed alternates.
Landlord shall cause the Premises to be completed in accordance with the Phase I Landlords Plans and Phase I Tenants Plans, except as provided herein, all of such work to be performed at Landlords sole cost and expense by Landlords general contractor, Gutierrez Construction Co., Inc., or another general contractor reasonably approved by Tenant (Landlords General Contractor). Tenant may request changes to the Phase I Landlords Work or the Phase I Tenants Work by altering, adding to, or deducting from the Phase I Landlords Work or the Phase I Tenants Work as depicted in the final Phase I Landlords Plans or Phase I Tenants Plans, as applicable (each such requested change is referred to herein as a Change Order). A Change Order requested by Tenant in the Phase I Landlords Work or in the Phase I Tenants Work which affects the Phase I Landlords Work and/or the Phase I Tenants Work may result in a Tenant Delay, in which case Landlord shall notify Tenant in writing in accordance with Section 3.2. In addition, Landlord agrees to provide Tenant, upon Tenants request, with sufficient itemization and back-up documentation to facilitate analysis and to confirm the cost (or cost savings) of any such changes in the Phase I Landlords Work or the Phase I Tenants Work initiated by Tenant. Tenant shall pay to Landlord an amount equal to the actual Cost (as defined in Section 3.1.1 hereof), if any, of any such Change Order initiated by Tenant, less any appropriate credits for any of the Phase I Landlords Work and/or Phase I Tenants Work deleted and application of any allowance pursuant to Exhibit R attached hereto (if applicable), plus a contractors fee of three percent (3.0%) of such aggregate cost (hereinafter, the Net Additional Cost of the Phase I Work). The Net Additional Cost of the Phase I Work shall be due and payable to Landlord in the manner provided for in Section 3.1.1 and Section 3.1.2 hereof; provided, however, if Tenant achieves savings by virtue of a Change Order and the Net Additional Cost of the Phase I Work is less than $0 (i.e., if Landlord owes Tenant), then the actual amount of such savings shall, at Tenants election, be applied to the Phase I Additional Tenants Work (as defined below) or credited against the Base Rent first becoming due under this Lease until fully applied. Tenant agrees not to make changes to the Phase I Tenants Plans and the Phase I TI Outline Specifications that are materially inferior from the quality set forth in the Phase I Tenants Plans and the Phase I TI Outline Specifications in order to achieve savings. For purposes hereof, the term Phase I Additional Tenants Work shall mean such additional items (and associated costs) of Tenants Work included in the Phase I Tenants Plans identified on Exhibit B-8 attached hereto and made a part hereof as applicable to Phase I. The Phase I Additional Tenants Work, if elected by Tenant, shall be paid by Tenant to Landlord within thirty (30) days of receipt of a requisition therefor containing reasonable backup documentation evidencing the same, but in any event prior to the Term Commencement Date for Phase I, but shall not be deemed a Change Order, trigger any claim for a Tenant Delay, or be subject to the contractors fee described above.
B. Phase II: Subject to and in accordance with the following provisions, Landlord shall fully construct the base building on a turnkey basis in accordance with the Preliminary Base Building Plans, including, without limitation, floor plans, elevations and site plan(s) outlined in Exhibit B-3 attached hereto and made a part hereof (collectively, the Phase II PBBP) and the Base Building Outline Specifications attached hereto as Exhibit B-4 and made a part hereof (the Phase II Outline Specifications; all of such work described in the Phase II PBBP and in the Phase II Outline
Specifications, as the same may be supplemented or modified in accordance with the following provisions, shall be collectively referred to herein as the Phase II Landlords Work). In the event of differences between the Phase II PBBP or the Phase II Landlords Plans (as hereinafter defined) and the Phase II Outline Specifications, the Phase II Outline Specifications shall govern and control until the Phase II Landlords Plans (as hereinafter defined) are prepared. Landlord shall also fully construct the tenant improvements for Phase II on a turnkey basis in accordance with the Phase II Tenants Plans and the Phase II TI Outline Specifications, as such terms are defined below.
To permit Tenants Architect to prepare a complete set of construction plans and specifications for the tenant improvements shown on the plans attached hereto as Exhibit B-3A (the Phase II Tenants Plans) and the tenant improvements outline specifications attached hereto as Exhibit B-4A (the Phase II TI Outline Specifications) all of such work defined in the Phase II Tenants Plans and in the Phase II TI Outline Specifications shall be collectively referred to herein as the Phase II Tenants Work, Landlord shall, at Landlords sole cost and expense, cause to be prepared a complete set of final base building plans and construction drawings and specifications conforming in all material respects to the Phase II PBBP, such drawings and specifications to include a detail schedule of core base building finish items such as, but not limited to, carpets, doors, hardware, ceiling grids/tiles, lavatory fixtures, light fixtures, window blinds, lobby finishes and paint/wall coverings (collectively, the Phase II Landlords Plans). Landlord shall (and shall cause Symmes Maini and McKee Associates, Inc. or another architect selected by Landlord and reasonably approved by Tenant (Landlords Architect) to) work together with Tenant in order to achieve a design that meets the standard set forth below. In so doing, Landlord shall submit to Tenant progress sets of the Phase II Landlords Plans to Tenant for Tenants review in accordance with the next paragraph as soon as the same are available, and Landlord shall deliver the final Phase II Landlords Plans to Tenant on or before October 1, 2012. Landlord represents and warrants to Tenant that the Phase II Landlords Plans shall comply with all Legal Requirements and shall achieve a LEED rating of Gold Certified Core & Shell status under LEED 2009.
Upon receipt of any set (including the final set) of the Phase II Landlords Plans, Tenant shall have ten (10) business days following the delivery of the applicable set of the Phase II Landlords Plans to Landlord to approve such Phase II Landlords Plans or provide comments thereto or comments thereon, and any objection thereto or comments thereon by Tenant shall be provided to Landlord in writing in reasonable detail. If Tenant fails to approve, provide comments on, or object to, Landlords submission of a set of the Phase II Landlords Plans within such ten (10) business day period, then Tenant shall be deemed to have approved the submitted set of the Phase II Landlords Plans. The foregoing process shall be repeated until all of the Phase II Landlords Plans shall have been approved or deemed approved by Tenant, except that Tenants approval of any revisions to the Phase II Landlords Plans submitted in response to Tenants comments or objections shall be deemed given unless Tenant submits written comments or objections to Tenant within five (5) business days after receipt thereof. In all cases, Landlord and Tenant shall use reasonable efforts to reach agreement on the Phase II Landlords Plans as soon as practicable. In reaching agreement, subject to the foregoing, Landlord and Tenant shall each approve portions of the Phase II Landlords Plans that are in acceptable form and shall note their respective comments or objections to the portions that are unacceptable to each of them so as to enable Landlord to continue construction and order materials in a timely manner.
Landlord and Tenant hereby acknowledge and agree that, except as otherwise set forth herein, following approval by Landlord and Tenant (which shall be in writing as hereinafter provided), no amendments, modifications or changes shall be made to the Phase II Landlords Plans without Tenants
prior written approval in each instance, which such approval shall not be unreasonably withheld or delayed provided that the proposed amendments, modifications or changes (i) are required by Legal Requirements, (ii) are non-material in nature, (iii) replace items with equivalent or better items and at all times equal to or better than those of the Phase II Outline Specifications, (iv) do not adversely affect the Premises, and/or (v) do not precipitate changes to the Phase II Tenants Plans.
Tenant shall submit the final Phase II Tenants Plans in form ready for construction for Landlords approval as hereinafter provided, which shall not be unreasonably withheld, conditioned or delayed and shall be given so long as the same are not incompatible with the Phase II Landlords Plans and the Phase II Outline Specifications and with the final draft sets of the Phase II Tenants Plans and Phase II TI Outline Specifications attached hereto as Exhibits B-3A and B-4A. Landlord and Tenant hereby approve the final draft set of Phase II Tenants Plans and the Phase II TI Outline Specifications. Tenants Architect (and Tenants Representatives) shall be actively involved in the design decisions and shall be allowed reasonable access to the Lot and the Premises during construction to monitor Landlords compliance with the terms and provisions of this Lease. Landlord and Tenant hereby further agree that Tenant shall be solely responsible for coordinating with Tenants Architect for the timely preparation of the final Phase II Tenants Plans in accordance with the terms and provisions of this Section 3.1. Attached as Exhibit S-2 is a schedule (the Phase II Schedule) setting forth the respective dates by which Landlord and Tenant anticipate that (i) final sets of the Phase II Landlords Plans shall have been delivered to and approved by Tenant, (ii) progress and final sets of the Phase II Tenants Plans shall have been delivered to and approved by Landlord, and (iii) certain portions of the Phase II Landlords Work and the Phase II Tenants Work shall be substantially completed. The parties agree to cooperate with each other and to exercise reasonable efforts to complete the tasks described in the Phase II Schedule by the respective dates set forth therein.
Tenant shall deliver the final Phase II Tenants Plans in form ready for construction to Landlord consistent with the Phase II Schedule and not later than the Phase II Scheduled Tenants Design Completion Date, which date shall be extended for a period equal to the aggregate of delays caused by Landlords Delay, provided, however, that (i) Tenant furnishes to Landlord by September 6, 2012 all information relating to changes in the structural steel (i.e. rooftop equipment, floor and roof openings, and other equipment exceeding 100 psf live load), and (ii) Tenant furnishes to Landlord by not later than January 1, 2013 all information relating to changes or additions to Exhibit B-3 and Exhibit B-4, each of which dates shall be extended for a period equal to the aggregate of delays caused by Landlords Delay. Landlord shall promptly notify Tenant of any long lead items that have a lead time for four (4) weeks or greater. Upon receipt of the final set of the Phase II Tenants Plans, Landlord shall have five (5) business days following the delivery of the final set of the Phase II Tenants Plans to Landlord to approve such Phase II Tenants Plans or provide comments thereto or comments thereon, and any objection thereto or comments thereon by Landlord shall be provided to Tenant in writing in reasonable detail. If Landlord fails to approve, provide comments on, or object to, Landlords submission of a set of the Phase II Tenants Plans within such five (5) business day period, then Landlord shall be deemed to have approved the final set of the Phase II Tenants Plans. The foregoing process shall be repeated until the final Phase II Tenants Plans shall have been approved or deemed approved by Landlord, except that Landlords approval of any revisions to the Phase II Tenants Plans submitted in response to Landlords comments or objections shall be deemed given unless Landlord submits written comments or objections to Tenant within five (5) business days after receipt thereof. In its review of the final set of the Phase II Tenants Plans submitted by Tenant, Landlord may not raise any objections to or request modifications of any element of the Phase II Tenants Plans which were reflected or shown on or are
materially consistent with any prior set of the Phase II Tenants Plans approved or deemed approved by Landlord. In all cases, Landlord and Tenant shall use reasonable efforts to reach agreement on the final set of Phase II Tenants Plans as soon as practicable. In reaching such agreement, subject to the foregoing, Landlord and Tenant shall each approve portions of Phase II Tenants Plans that are acceptable and shall note their respective comments or objections to the portions that are unacceptable to each of them so as to enable Landlord to continue construction and order materials in a timely manner.
All revisions and modifications to the final set of Phase II Tenants Plans shall be made within ten (10) business days by Tenant and revised sets of the Phase II Tenants Plans shall be forthwith furnished to Landlord upon Tenants receipt thereof. Landlord and Tenant hereby further agree to acknowledge in writing when final approval by Landlord and Tenant of the final Phase II Tenants Plans has occurred. No changes or modifications to the Phase II Tenants Plans or Tenants Work being constructed by Landlord pursuant thereto shall be made without Tenants written consent, such consent not to be unreasonably withheld or delayed by Tenant.
If Tenant does not require full turnkey buildout of the improvements shown on the Phase II Tenants Plans or if Tenant chooses to value engineer the Phase II Tenants Work and/or the Phase II/III Connector comprising a portion of the Phase II Landlords Work, Landlord and Tenant agree that any savings associated with any items of the Phase II Landlords Work and/or the Phase II Tenants Work deleted shall be credited to Tenant to be applied to other costs relating to the Premises (or in the absence of such other costs, credited against the Base Rent first becoming due for Phase II until fully applied), so long as written notice is received by Landlord prior to the Scheduled Tenants Design Completion Date, which date shall be extended for a period equal to the aggregate of delays caused by Landlords Delay. Landlord agrees to provide Tenant, upon Tenants request, with sufficient itemization and back-up documentation to facilitate analysis and to confirm the cost savings resulting from Tenants actions under this paragraph. Landlord shall have fifteen (15) days after final approval of the Phase II Tenants Plans and Landlords receipt of final and complete sets of approved Phase II Tenants Plans, which such final approval has been acknowledged in writing by Landlord and Tenant as aforesaid, to price the Cost of Phase II Tenants Work in accordance with the last paragraph of Section 3.1.1.
Landlord and Tenant shall cooperate during the above time periods so that each party makes the other aware of their progress with respect to the foregoing plans, selections and pricing, as well as timing, availability or cost constraints of Tenants selections or specifications and proposed alternates.
Landlord shall cause the Premises to be completed in accordance with the Phase II Landlords Plans and Phase II Tenants Plans, except as provided herein, all of such work to be performed at Landlords sole cost and expense by Landlords General Contractor. After final approval or deemed approval of the Phase II Landlords Plans and the Phase II Tenants Plans by Landlord and Tenant, Tenant may request one or more Change Orders. A Change Order requested by Tenant in the Phase II Landlords Work or in the Phase II Tenants Work which affects the Phase II Landlords Work and/or the Phase II Tenants Work may result in a Tenant Delay, in which case Landlord shall notify Tenant in writing in accordance with Section 3.2. In addition, Landlord agrees to provide Tenant, upon Tenants request, with sufficient itemization and back-up documentation to facilitate analysis and to confirm the cost (or cost savings) of any such changes in the Phase II Landlords Work or the Phase II Tenants Work initiated by Tenant. Tenant shall pay to Landlord an amount equal to the actual Cost, if any, of any such Change Order initiated by Tenant, less any appropriate credits for any of the Phase II
Landlords Work and/or Phase II Tenants Work deleted and application of any allowance pursuant to Exhibit R attached hereto (if applicable and to the extent any such allowance remains following the application thereof for the construction of Phase I above in Paragraph A), plus a contractors fee of three percent (3.0%) of such aggregate cost (hereinafter, the Net Additional Cost of the Phase II Work). The Net Additional Cost of the Phase II Work shall be due and payable to Landlord in the manner provided for in Section 3.1.1 and Section 3.1.2 hereof; provided, however, if Tenant achieves savings by virtue of a Change Order and the Net Additional Cost of the Phase II Work is less than $0 (i.e., if Landlord owes Tenant), then the actual amount of such savings shall, at Tenants election, be applied to the Phase II Additional Tenants Work (as defined below) or credited against the Base Rent first becoming due for Phase II until fully applied. Tenant agrees not to make changes to the Phase II Tenants Plans and the Phase II TI Outline Specifications that are materially inferior from the quality set forth in the Phase II Tenants Plans and the Phase II TI Outline Specifications in order to achieve savings. For purposes hereof, the term Phase II Additional Tenants Work shall mean such additional items (and associated costs) of Tenants Work included in the Phase II Tenants Plans identified on Exhibit B-8 attached hereto and made a part hereof as applicable to Phase II. The Phase II Additional Tenants Work, if elected by Tenant, shall be paid by Tenant to Landlord within thirty (30) days of receipt of a requisition therefor containing reasonable back up documentation evidencing the same, but in any event prior to the Term Commencement Date for Phase II, but shall not be deemed a Change Order, trigger any claim for a Tenant Delay or be subject to the contractors fee described above. The Cost of constructing the Phase II/III connector as shown on the Phase II Landlords Plans in excess of the allowance of $172 per Rentable Square Foot shall be paid by Tenant to Landlord in the same manner as an additional component of the Net Additional Cost of the Phase II Work, as further outlined in Exhibit B-7. Notwithstanding the foregoing, Landlord agrees to permit Tenant to apply the $2,087,000 allowance shown as the Phase II Second Floor Allowance on the Phase II Tenants Plans and Phase II TI Outline Specifications to be applied towards excess costs due from Tenant hereunder as Net Additional Cost of the Phase II Work; provided, however, Tenant covenants and agrees to make additional improvements within the Phase II Tenants Work in substantial conformity with the quality of the finishes to be located on floors three to six of the Phase II Building if Tenant elects to construct offices in such area on the second floor, or in substantial conformity with the quality of the finishes to be located in the lab portion of the Phase I Building if Tenant elects to construct lab space in such area on the second floor. In the event that the foregoing additional improvements are not made by Tenant on or before January 1, 2018, then Tenant shall post a letter of credit in the amount of $2,087,000 to secure Tenants obligation to make such improvements, which such letter of credit shall remain in full force and effect until the earlier to occur of: (i) Tenant completes the additional improvements on the second floor consistent with the foregoing standards; or (ii) Tenant reimburses Landlord the amount of the allowance previously provided to Tenant, or $2,087,000.00, but in any event prior to the expiration of the Term, or earlier termination thereof. The requirements for the issuance of a letter of credit shall be in substantial compliance with Article XI hereof, as the context so requires.
In connection with the construction of Phase II, Tenant acknowledges that the construction of Phase II may generate certain ordinary levels of construction-related noise and inconveniences and disruptions. Landlord shall cause all work undertaken by Landlord to be performed in a good and workmanlike manner in accordance with appropriate industry standards of professional care and in compliance with all Legal Requirements, including, without limitation, any and all health, safety and noise ordinances of the Town of Burlington and restrictions requiring that construction and demolition work only be performed on certain days and during certain hours. Also, at least ten (10) days prior to commencing any work on Phase II involving any inconvenience to Phase I or any parking appurtenant
thereto, Landlord shall prepare and submit to Tenant, for Tenants commercially reasonable comments, a CMP (as such term is defined in Exhibit U) for the construction of Phase II. Landlord and Tenant agree to adhere to the provisions of numbered paragraphs 2 and 3 pertaining to the CMP in Exhibit U (modified as the context so requires for Phase II) with respect to the construction of Phase II.
C. Phase III: Subject to and in accordance with the following provisions, Landlord shall fully construct the base building on a turnkey basis in accordance with the Preliminary Base Building Plan, including, without limitation, floor plans, elevations and site plan(s) outlined in Exhibit B-5 attached hereto and made a part hereof (collectively, the Phase III PBBP) and the Base Building Outline Specification attached hereto as Exhibit B-6 , and made a part hereof (collectively, the Phase III Outline Specifications; all of such work described in the Phase III PBBP and in the Phase III Outline Specifications, as the same may be supplemented or modified in accordance with the following provisions, shall be collectively referred to herein as the Phase III Landlords Work). In the event of differences between the Phase III PBBP or the Phase III Landlords Plans (as hereinafter defined) and the Phase III Outline Specifications, the Phase III Outline Specifications shall govern and control until the Phase III Landlords Plans (as hereinafter defined) are prepared. Landlord represents and warrants to Tenant that the Phase III Landlords Plans shall comply with all Legal Requirements and shall achieve a LEED rating of Gold Certified Core & Shell status under LEED 2009.
Tenant acknowledges that the free standing parking structure depicted on Exhibit A-7 is subject only to Tenants review of the aesthetics and capacity thereof and Landlord warrants that it shall be constructed in substantial conformance to Exhibit A-7.
Landlord shall construct the tenant improvements on a cost-plus basis in accordance with the Phase III Tenants Plans and Phase III TI Outline Specifications, as such terms are defined below.
To permit Tenants Architect to prepare a complete set of construction plans (the Phase III Tenants Plans) and specifications (the Phase III TI Outline Specifications) for all of the tenant improvements for Phase III (all of such work described on the Tenants Phase III Plans and in the Phase III TI Outline Specifications shall be collectively referred to herein as the Phase III Tenants Work), Landlord shall, at Landlords sole cost and expense, cause to be prepared a complete set of final base building plans and construction drawings and specifications conforming in all material respects to the Phase III PBBP, such drawings and specifications to include a detail schedule of core base building finish items such as, but not limited to, carpets, doors, hardware, ceiling grids/tiles, lavatory fixtures, light fixtures, window blinds, lobby finishes and paint/wall coverings (collectively, the Phase III Landlords Plans). Landlord shall (and shall cause Landlords Architect to) work together with Tenant in order to achieve a design that meets the standard set forth below. In doing so, Landlord shall submit progress sets of the Phase III Landlords Plans to Tenant as soon as the same are available, and Landlord shall deliver the final Phase III Landlords Plans to Tenant not later than fifteen (15) months prior to the Scheduled Term Commencement Date for Phase III.
Upon receipt of any set (including the final set) of the Phase III Landlords Plans, Tenant shall have ten (10) business days following the delivery of the applicable set of the Phase III Landlords Plans to Tenant to approve such Phase III Landlords Plans or provide comments thereto or comments thereon, and any objection thereto or comments thereon by Tenant shall be provided to Landlord in writing in reasonable detail. If Tenant fails to approve, provide comments on, or object to, Landlords submission of a set of the Phase III Landlords Plans within such ten (10) business day period, then Tenant shall be
deemed to have approved the submitted set of the Phase III Landlords Plans. The foregoing process shall be repeated until all of the Phase III Landlords Plans shall have been approved or deemed approved by Tenant, except that Tenants approval of any revisions to the Phase III Landlords Plans submitted in response to Tenants comments or objections shall be deemed given unless Tenant submits written comments or objections to Landlord within five (5) business days after receipt thereof. In all cases, Landlord and Tenant shall use reasonable efforts to reach agreement on the Phase III Landlords Plans as soon as practicable. In reaching agreement, Landlord and Tenant shall each approve portions of the Phase HI Landlords Plans that are in acceptable form and shall note their respective comments or objections to the portions that are unacceptable to each of them so as to enable Landlord to continue construction and order materials in a timely manner.
Landlord and Tenant hereby acknowledge and agree that, except as otherwise set forth herein, following approval by Landlord and Tenant (which shall be in writing as hereinafter provided), no amendments, modifications or changes shall be made to the Phase III Landlords Plans without Tenants prior written approval in each instance, which such approval shall not be unreasonably withheld or delayed provided that the proposed amendments, modifications or changes (i) are required by Legal Requirements, (ii) are non-material in nature, (iii) replace items with equivalent or better items and at all times equal to or better than that of the Phase III Outline Specifications, (iv) do not adversely affect the Premises, and/or (v) do not precipitate changes to the Phase III Tenants Plans.
Tenant shall submit the Phase III Tenants Plans for Landlords approval as hereinafter provided, which shall not be unreasonably withheld, conditioned or delayed and shall be given so long as the same are not incompatible with the Phase III Landlords Plans and the Phase III Outline Specifications. Tenants Architect (and Tenants Representatives) shall be actively involved in the design decisions and shall be allowed reasonable access to the Lot and the Premises during construction to monitor Landlords compliance with the terms and provisions of this Lease. Landlord and Tenant hereby further agree that Tenant shall be solely responsible for coordinating with Tenants Architect for the timely preparation of the Phase III Tenants Plans in accordance with the terms and provisions of this Section 3.1. Attached as Exhibit S-3 is a schedule (the Phase III Schedule) setting forth the respective dates by which Landlord and Tenant anticipate that (i) progress and final sets of the Phase III Landlords Plans shall have been delivered to and approved by Tenant, (ii) progress and final sets of the Phase III Tenants Plans shall have been delivered to and approved by Landlord, and (iii) certain portions of the Phase III Landlords Work and the Phase III Tenants Work shall be substantially completed. The parties agree to cooperate with each other and to exercise reasonable efforts to complete the tasks described in the Phase III Schedule by the respective dates set forth therein.
Tenant shall deliver the Phase III Tenants Plans to the Landlord consistent with the Phase III Schedule and not later than the Phase III Scheduled Tenants Design Completion Date, provided, however, that (i) Tenant furnishes to Landlord sixteen (16) months prior to the Scheduled Term Commencement Date all information relating to changes in the structural steel (i.e. rooftop equipment, floor and roof openings, and other equipment exceeding 100 psf live load), and (ii) Tenant furnishes to Landlord by not later than sixteen (16) months prior to the Phase III Scheduled Term Commencement Date all information relating to changes or additions to Exhibit B-5 and Exhibit B-6, each of which dates shall be extended for a period equal to the aggregate of delays caused by Landlords Delay. Tenant shall permit Landlord to, and Landlord shall, review and provide any comments or objections during the preparation of progress sets of the Phase III Tenants Plans. Landlord shall promptly notify Tenant of any long lead items that have a lead time for four (4) weeks or greater. Upon receipt of any set
(including the final set) of the Phase III Tenants Plans, Landlord shall have five (5) business days following the delivery of the applicable set of the Phase III Tenants Plans to Landlord to approve such Phase III Tenants Plans or provide comments thereto or comments thereon, and any objection thereto or comments thereon by Landlord shall be provided to Tenant in writing in reasonable detail. If Landlord fails to approve, provide comments on, or object to, Landlords submission of a set of the Phase III Tenants Plans within such five (5) business day period, then Landlord shall be deemed to have approved the submitted progress set of the Phase III Tenants Plans. If any of the Phase III Tenants Plans are disapproved by Landlord, Landlord shall provide Tenant with reasonably detailed reasons for such disapproval and the foregoing process shall be repeated until all of the Phase III Tenants Plans shall have been approved or deemed approved by Landlord, except that Landlords approval of any revisions to the Phase III Tenants Plans submitted in response to Landlords comments or objections shall be deemed given unless Landlord submits written comments or objections to Tenant within five (5) business days after receipt thereof. In its review of any set of the Phase III Tenants Plans submitted by Tenant, Landlord may not raise any objections to or request modifications of any element of the Phase III Tenants Plans which were reflected or shown on or are materially consistent with any prior set of the Phase III Tenants Plans approved or deemed approved by Landlord. In all cases, Landlord and Tenant shall use reasonable efforts to reach agreement on the Phase III Tenants Plans as soon as practicable. In reaching such agreement, subject to the foregoing, Landlord and Tenant shall each approve portions of Phase III Tenants Plans that are acceptable and shall note their respective comments or objections to the portions that are unacceptable to each of them so as to enable Landlord to continue construction and order materials in a timely manner.
All revisions and modifications to the Phase III Tenants Plans shall be made within ten (10) business days by Tenant and revised sets of the Phase III Tenants Plans shall be forthwith furnished to Landlord upon Tenants receipt thereof. Landlord and Tenant hereby further agree to acknowledge in writing when final approval by Landlord and Tenant of the final Phase III Tenants Plans has occurred. No changes or modifications to the Phase III Tenants Plans or Phase III Tenants Work being constructed by Landlord pursuant thereto shall be made without Tenants written consent, such consent not to be unreasonably withheld or delayed by Tenant.
If Tenant chooses to value engineer the Phase III Tenants Work, Landlord and Tenant agree that any savings associated with any items of the Phase III Tenants Work deleted shall be credited to Tenant to be applied to other costs relating to the Premises (or in the absence of such other costs, credited against the Base Rent first becoming due for Phase III until fully applied), so long as written notice is received by Landlord on or before procurement of said item and Landlord reasonably agrees with any such savings calculation. Landlord agrees to provide Tenant, upon Tenants request, with sufficient itemization and back-up documentation to facilitate analysis and to confirm the cost savings resulting from Tenants actions under this paragraph. Landlord shall have fifteen (15) days after final approval of the Phase III Tenants Plans and Landlords receipt of final and complete sets of approved the Phase III Tenants Plans, which such final approval has been acknowledged in writing by Landlord and Tenant as aforesaid, to price the cost of the Phase III Tenants Work in accordance with the last paragraph of Section 3.1.1.
Landlord and Tenant shall cooperate during the above time periods so that each party makes the other aware of their progress with respect to the foregoing plans, selections and pricing, as well as timing, availability or cost constraints of Tenants selections or specifications and proposed alternates.
Landlord shall cause the Premises to be completed in accordance with the Phase III Landlords Plans and the Phase III Tenants Plans, except as provided herein, all of such work to be performed by Landlords General Contractor. The Phase III Landlords Work shall be performed at Landlords sole cost and expense. After final approval or deemed approval of the Phase III Landlords Plans and the Phase III Tenants Plans by Landlord and Tenant, Tenant may request one or more Change Orders. A Change Order requested by Tenant in the Phase III Landlords Work and/or in the Phase III Tenants Work which affects the Phase III Landlords Work and/or the Phase III Tenants Work may result in a Tenant Delay, in which case, Landlord shall notify Tenant in writing in accordance with Section 3.2. In addition, Landlord agrees to provide Tenant, upon Tenants request, with sufficient itemization and back-up documentation to facilitate analysis and to confirm the cost (or cost savings) of any such changes in the Phase III Landlords Work or the Phase III Tenants Work initiated by Tenant. Tenant shall pay to Landlord an amount equal to the actual Cost, if any, of any such Change Order initiated by Tenant, less any appropriate credits for any of the Phase III Landlords Work or Phase III Tenants Work deleted and application of any allowance pursuant to Exhibit R attached hereto (if applicable and to the extent any such allowance remains following the application thereof for the construction of Phase I above in Paragraph A and in Phase II above in Paragraph B), plus a contractors fee of three percent (3%) of such aggregate cost (hereinafter, the Net Additional Cost of the Phase III Work). The Net Additional Cost of the Phase III Work shall be due and payable to Landlord in the manner provided for in Section 3.1.1 and Section 3.1.2 hereof; provided, however, if Tenant achieves savings by virtue of a Change Order and the Net Additional Cost of the Phase III Work is less than $0 (i.e., if Landlord owes Tenant), then the actual amount of such savings shall be credited against the Base Rent first becoming due for Phase III until fully applied. Tenant agrees not to make changes to the Phase III Tenants Plans and Phase III TI Outline Specifications that are materially inferior from the quality set forth in the Phase III Tenants Plans and Phase III TI Outline Specifications in order to achieve savings.
Notwithstanding the foregoing or any language to the contrary set forth in this Paragraph C of Section 3.1, in no event shall Landlords Costs for the Phase III Tenants Work (i.e., the tenant improvement work for Phase III) exceed $50 per Rentable Square Foot of the Phase III portion of the Premises. Any amounts above $50 per Rentable Square Foot for the Phase III Tenants Work shall be due and payable by Tenant as an additional component included in the Net Additional Cost of the Phase III Work.
3.1.1. ADDITIONAL CONSTRUCTION RELATED PROVISIONS.
For purposes hereof, the provisions of this Section 3.1.1 (and the remainder of Article III hereof) shall apply on a per Phase basis, as applicable per Paragraphs A-C above and as the context so requires, unless expressly provided herein to the contrary. Accordingly, the Phase I Landlords Work, the Phase II Landlords Work and the Phase III Landlords Work is referred to herein individually and/or collectively as the Landlords Work; the Phase I Tenants Work, the Phase II Tenants Work and the Phase III Tenants Work is referred to herein individually and/or collectively as the Tenants Work; the Phase I Landlords Plans, the Phase II Landlords Plans and the Phase III Landlords Plans are referred to herein individually and/or collectively as the Landlords Plans; the Phase I Tenants Plans, the Phase II Tenants Plans and the Phase III Tenants Plans are referred to herein individually and/or collectively as the Tenants Plans; and the Net Additional Cost of the Phase I Work, the Net Additional Cost of the Phase II Work and the Net Additional Cost of the Phase III Work are referred to herein individually and/or collectively as the Net Additional Cost of the Work).
As aforesaid, Landlord and Tenant agree that Landlords General Contractor will construct the Phase III Tenants Work and the costs associated therewith shall be charged to Tenant at Cost, plus a contractors fee of three percent (3.0%) of such aggregate cost.
Any changes following final approval of the Tenants Plans requested by Tenant shall be initiated by Tenant pursuant to the aforesaid Change Order process. In order to provide for payment by Tenant of the Phase III Tenants Work, the Net Additional Cost of the Work, and any additional Costs due to Change Orders provided for hereunder (which such Change Orders shall include a contractors fee of three percent (3.0%) of such increased costs), Tenant expressly covenants with Landlord that Tenant agrees to pay any amounts due within thirty (30) days of receipt of a requisition therefore containing reasonable back up documentation evidencing the same, but in any event prior to the applicable Term Commencement Date hereunder. All extra work requested by Tenant shall be completed in an open book basis with detailed backup from Landlords general contractor and Landlords general contractors subcontractors indicating that the cost of such is in accordance with this Lease.
Tenant and Tenants Architect shall have the opportunity to inspect the subject work and to confirm the certification by Landlords architect provided under Section 3.2, and any disputes following such inspection(s) shall be determined pursuant to Section 3.6 hereof.
For purposes hereof, Landlord and Tenant further agree that the certification of Cost by Gutierrez Construction Co., Inc. shall be based on the definition of Cost as more particularly set forth in Exhibit L hereto. Any changes to the Landlords Plans after the approval thereof as set forth in Section 3.1 above shall be in accordance with the form of Work Change Order attached hereto as Exhibit K.
3.1.2. TENANTS CONSTRUCTION WORK.
Tenant agrees that any construction not included in Landlords Plans or Tenants Plans, which such construction shall be performed by Tenant, at Tenants sole cost, and by Tenant and/or its contractors (hereinafter referred to as Tenants Construction Work), which may include, for example, Tenants installation of furnishings, lab equipment, IT/MIS, security and later changes or additions, shall be completed by and coordinated with any work being performed by Landlord and not materially damage the Premises or Lot or materially interfere with the operation of the Building or with any of Landlords construction work hereunder, including but not limited to the construction of the Landlords Work and Tenants Work. Tenant (including its contractors, agents or employees) shall have access to the Premises and may perform Tenants Construction Work prior to the Scheduled Term Commencement Date and prior to the commencement of the Term so as to prepare the Premises for occupancy by Tenant (Pre-Occupancy), provided that (i) Tenants contractors, agents or employees cooperate with Landlords general contractor, (ii) reasonable prior written notice is given to Landlords general contractor specifying the work to be done, and (iii) no work, as reasonably determined by Landlord, shall be done or fixtures or equipment installed by Tenant in such manner as to materially interfere with the completion of Landlords Work and the Tenants Work being done by or for Landlord on the Premises. During the period of preoccupancy of the Premises by Tenant in connection with Tenants Construction Work prior to the commencement of the Term, no Base Rent or additional rent or other charges (including, without limitation, utilities) shall accrue or be payable, but otherwise such preoccupancy shall be subject to all the terms, covenants and conditions contained in this Lease. Tenant
shall have the right to use and select its own contractors and subcontractors, and to use union or nonunion labor, in the performance of Tenants Construction Work.
3.2. PREPARATION OF PREMISES FOR OCCUPANCY.
Landlord shall perform the construction work set forth in the Landlords Plans and the Tenants Plans, and, therefore, Landlord agrees to have the Premises ready for occupancy on the Scheduled Term Commencement Date, specifically by Phase as provided in Section 1.1 above.
Landlord and Tenant agree that time is of the essence, and Landlord agrees to use diligent efforts to accelerate construction to make up for time lost due to any delay. Unless sooner terminated by Tenant pursuant to the provisions of Section 3.2, the Term of this Lease shall commence on the date the Premises (specifically Phase I (or Stage One included within Phase I pursuant to Section 3.2.1 below), Phase II and Phase III) are deemed ready for occupancy as set forth below (the Term Commencement Date).
The Premises shall be deemed ready for occupancy on the earlier of:
(a) the date on which Tenant occupies all or any portion of the Premises for the Permitted Uses (except this shall not include periods of Pre-Occupancy by Tenant as set forth in Section 3.1.2) provided that all parking spaces are available to Tenant on such date; or
(b) the date on which the construction of all of the Landlords Work and the Tenants Work has been completed except for Punch List Work, as defined below, and (2) Landlord has delivered to Tenant copies of all permits and approvals (the Permits) required to be obtained from any governmental agency either in connection with the (i) construction of the Building, or (ii) prior to occupancy of the Premises by Tenant, including, without limitation, a permanent certificate of occupancy from the Town of Burlington or a temporary certificate of occupancy from the Town of Burlington which allows Tenant to use and occupy the Premises, and which temporary certificate of occupancy is not conditional on the performance of any work other than the Punch List Work as defined below, except that such Permits shall not be required as a condition of Substantial Completion if Landlord is unable to secure the same due solely to Tenants failure to complete Tenants Construction Work as specified in Section 3.1.2 above (which such date, subject to additional terms and provisions of this Section 3.2, shall hereinafter be referred to as the date of Substantial Completion or which such work shall hereinafter be referred to as Substantially Completed). In any event, notwithstanding the achievement of Substantial Completion, all Punch List Work shall be completed by no later than thirty (30) days after the date of Substantial Completion, except as hereinafter provided.
An AIA Certificate of Substantial Completion by the Landlords architect and approved by Tenants Architect (which such Certificate shall be in the form attached hereto as Exhibit C-1), shall evidence the Landlords determination that it has performed all such obligations, except for completing the landscaping work and completing the final paving course, and minor items stated in such Certificate to be incomplete or not in conformity with such requirements, or will not materially interfere with Tenants use or occupancy of the Premises and all of which work shall be identified and specified in the
Certificate of Substantial Completion (collectively such landscaping work, finish paving course work and minor items of work and adjustment of equipment and fixtures which can be completed after occupancy without causing unreasonable interference with Tenants use of the Premises, or a system of the Premises necessary for Tenant to occupy and use the Premises as intended from fully operating or functioning, or create any occupational safety hazard, as well as LEED commissioning and associated documentation for the LEED status required hereunder, are collectively referred to herein as the Punch List Work) shall be promptly completed. Tenant shall have the right within thirty (30) days after Tenants receipt of said Certificate of Substantial Completion to notify Landlord of its disagreement with said Certificate and to identify additional items of Punch List Work, all of which shall be completed by Landlord within thirty (30) days after notice thereof from Tenant.
If weather materially and adversely interferes with Landlords ability to finish the final course of paving and outside work or such other Punch List Work, which such work does not materially interfere with Tenants occupancy, and the operation of Tenants business (including Tenants parking), said work can be completed by Landlord reasonably thereafter, so long as such delay does not and will not interfere with or prevent Landlord from obtaining a certificate of occupancy upon completion of all other work herein described, and in any event as soon as weather conditions permit.
Notwithstanding the foregoing, in the event that the Punch List Work is not completed by Landlord on or before such date which is three (3) months (but six (6) months for weather dependent activities) following the date of Substantial Completion, then Tenant shall have the right, but not the obligation, to complete the Punch List Work and charge the Landlord the difference, if any, between the costs reasonably incurred by Tenant in completing the same, provided that at least thirty (30) days prior written notice has been provided to Landlord, its mortgagee (of whose address Tenant has been given written notice) and The Gutierrez Company (as guarantor under the Guaranty of Completion to be furnished to Tenant upon execution of this Lease, such guaranty to be in the form attached hereto as Exhibit 0) and Landlord shall have not cured the same (or commenced to cure and is not prosecuting curing of the same to completion with due diligence). Landlord agrees to reimburse Tenant pursuant to the provisions of 10.10(b) hereof and Tenant shall be entitled to such offset rights as set forth therein.
After Landlord has completed all Landlords Work and Tenants Work, including all Punch List Work, Landlords architect shall forward to Tenant its Certificate of Final Completion, such Certificate to be in the form attached hereto as Exhibit C-2. In addition, promptly after completion of all such work, including all Tenants Construction Work by Tenant, Landlord shall forward to Tenant a final certificate of occupancy from the Town of Burlington.
The phrase Tenants Delay shall mean the aggregate number of days (excluding any days of delay caused by or resulting from Landlords Delay or Force Majeure ) equal to the number of days that the Landlord is actually delayed in completing its construction by the Scheduled Term Commencement Date and which cannot reasonably be mitigated by Landlord in good faith, using due diligence, through re-coordination of Landlords work forces, due to (i) the failure of the Tenant to deliver the Tenants Plans (or modifications thereto) to Landlord on the dates established pursuant to Section 3.1 hereof, or in a form ready for construction or in a form compatible to the final draft set of plans and specifications attached to this Lease pursuant to Section 3.1 hereof, or (ii) a delay caused by Tenant performing the Tenants Construction Work pursuant to Section 3.1.2 hereof, or (iii) a delay or stoppage requested in writing by Tenant, or (iv) Change Orders requested by Tenant pursuant to Section 3.1 hereof, or (vi) delays by Tenant in timely responding to submissions of Landlords Plans pursuant to Section 3.1
hereof. In the event of any Tenants Delay, the Term Commencement Date shall be deemed to have occurred on the date, as certified by Landlord and its architect, and agreed upon by Tenants Architect, that Substantial Completion would have occurred had there not occurred such Tenants Delay, calculated by determining the number of days of Tenants Delay as aforesaid, giving consideration to Landlords obligation under the second paragraph of this Section 3.2 to accelerate to make up for time lost due to any delays. Landlord agrees to promptly provide Tenant with written notice of such Tenants Delay promptly after the occurrence of such Tenants Delay, such notice to include reasonable detail describing the cause of the delay as certified by Landlords architect. If Landlord fails to deliver to Tenant notice of a Tenants Delay within five (5) business days after Landlord becomes aware of such Tenants Delay, the time periods prior to the date that is five (5) business days before delivery of such notice will not constitute a Tenants Delay hereunder.
The phrase Landlords Delay shall mean the aggregate number of days (excluding any days of delay caused by or resulting from Tenants Delay or Force Majeure ) equal to the number of days that the Tenant is actually delayed in delivering Tenants Plans or otherwise complying with its obligations under this Article III due to the failure of the Landlord to deliver the Landlords Plans (or modifications thereto) to Tenant on the dates established pursuant to Section 3.1 hereof or in a form compatible to the final draft set of plans and specifications attached to this Lease pursuant to Section 3.1 hereof, or to timely respond to Tenants comments or objections to any Landlords Plans or Tenants Plans (or modifications thereto). Tenant agrees to promptly provide Landlord with written notice of such Landlords Delay promptly after the occurrence of such Landlords Delay. If Tenant fails to deliver to Landlord notice of a Landlords Delay within five (5) business days after Tenant becomes aware of such Landlords Delay, the time periods prior to the date that is five (5) business days before delivery of such notice will not constitute a Landlords Delay hereunder.
Should Landlord or Tenant dispute any claim of Landlords Delay or Tenants Delay, then such disagreement shall be resolved pursuant to the provisions of Section 3.6 hereof.
Notwithstanding the foregoing provisions, if the Premises are not deemed ready for occupancy on or before the Outside Delivery Date (as defined below) for whatever reason, Tenant may elect (i) to cancel this Lease at any time thereafter while the Premises are not deemed ready for occupancy by giving notice to Landlord of such cancellation which shall be effective ten (10) days after such notice, unless within such ten (10) day period Landlord delivers the Premises ready for occupancy as defined herein, in which event such notice of cancellation shall be rendered null and void and of no further force or effect (provided that Landlord shall reimburse Tenant for its reasonable actual out-of pocket third party costs for legal, architectural, engineering and consultants fees incurred with respect to the Premises to the date of such cancellation, and any payments that have been made to Landlord pursuant to the terms of this Lease, and the cost of penalties or non-refundable deposits relating to long lead time items and specially fabricated items which Tenant has paid with respect to the Premises to the date of such cancellation, so long as the same is properly documented and reasonable evidence thereof is provided by Tenant to Landlord, and which such damages in no event exceed Three Million Dollars ($3,000,000.00) for Phase I and Five Million Dollars ($5,000,000) for each of Phase II and Phase III), (ii) to enforce Landlords covenants to construct the Premises in accordance with the terms of this Lease, or (iii) exercise self-help has hereinafter provided. In the event Tenant elects to enforce Landlords agreement to construct the Premises in accordance with this Lease, Tenant shall also have the right to terminate this Lease if Landlord fails to complete the Premises within the period of time set by any court of competent jurisdiction for such work to be completed, or within such additional period
of time from the date of Landlords default as may be mutually agreed to by Landlord and Tenant. If Tenant elects self-help under clause (iii) above, then Tenant may, upon thirty (30) days prior written notice to Landlord and Landlords mortgagee, so long as Landlord has provided Tenant with the identity of such mortgagee and its address (unless Landlord shall have Substantially Completed Landlords Work and Tenants Work within such twenty (20) day period), complete construction, in compliance with the Landlords Plans and the Tenants Plans, of that portion of the Landlords Work and the Tenants Work which is uncompleted. The reasonable cost of Tenants completion (based on open book detailed backup from Tenants general contractor, subcontractors and suppliers) of that portion of the Landlords Work and the Tenants Work shall be reimbursed by Landlord to Tenant within thirty (30) days after Landlord receives all invoices, lien waivers and other relevant documentation from Tenant evidencing such costs actually incurred and paid by Tenant, plus interest at the interest rate provided herein for late payments. If Landlord shall fail to so reimburse Tenant and such failure shall continue for thirty (30) days after written notice from Tenant to Landlord, then Tenant, then Tenant shall have the right to have such unpaid amount credited against the next installment(s) of Base Rent and/or additional rent thereafter due under the Lease, together with such interest, until such sums due Tenant have been fully paid by Landlord or fully credited and accounted for. Any portion of the Landlords Work or Tenants Work which Tenant completes in accordance with this Section is referred to as the Tenant Self-Help Completion Work. Tenant shall assign to Landlord any warranties provided to Tenant for any Tenant Self-Help Completion Work, and Landlords warranty under Section 3.7 shall apply to such Tenant Self-Help Completion Work to the same extent as the Landlords Work and the Tenants Work performed by Landlord. In addition, Landlord hereby assigns the Landlords Plans to Tenant, which assignment shall be effective upon any self-help election by Tenant hereunder.
Notwithstanding any provisions of this Lease to the contrary, in the event that the Premises are not deemed ready for occupancy on or prior to the Scheduled Term Commencement Date (as such date may be extended for reasons due to Force Majeure and/or to Tenants Delay), then after the Rent Commencement Date for the applicable Phase, Tenant shall be entitled to receive an additional abatement equal to one day of Base Rent for each day the Tenants Work and Landlords Work is not Substantially Completed beyond the Scheduled Term Commencement Date (as such date may be extended as aforesaid) provided that if the applicable Premises are not ready for occupancy within sixty (60) days after the Scheduled Term Commencement Date (as such date may be extended for reasons due to Force Majeure and/or to Tenants Delay), then such abatement shall increase to two (2) days of Base Rent for each day thereafter that the Tenants Work and Landlords Work are not Substantially Completed; OR, rather than such abatement and as to Phase II only, Tenant shall have the right to elect to receive from Landlord actual holdover damages incurred by Tenant at its current location at 100 Quannapowitt equal to $107,340.37 per month , but in no event shall Landlord be liable for the holdover expense between the lease expiration at 100 Quannapowitt and the Scheduled Term Commencement Date for Phase II (July 1, 2014). In no event shall Tenant have the right to receive both liquidated damages in a) and b) above and holdover damages in c) above, but not both types of damages. Any such holdover damages due from Landlord pursuant to c) above shall be paid within thirty (30) days of Tenants written request therefor, which such request shall contain reasonable evidence of Tenants payment of the same to Tenants landlord and any other reasonable documentation requested by Landlord in connection therewith. If Landlord shall fail to so reimburse Tenant and such failure shall continue for thirty (30) days after written notice from Tenant to Landlord, then Tenant shall have the right to have such unpaid amount credited against the next installment(s) of Base Rent and/or additional rent thereafter due under the Lease, together with such interest, until such sums due Tenant have been
fully paid by Landlord or fully credited and accounted for. The foregoing remedies shall be Tenants sole and exclusive remedies for not having the Premises completed on or before the Outside Delivery Date.
For purposes hereof, the Outside Delivery Date shall be deemed to refer to that certain date which is one hundred twenty (120) days following the Scheduled Term Commencement Date, as such date may be extended for a period equal to that of (i) any delays due to Force Majeure as defined in Section 3.5 hereof, (ii) the number of delay days caused by a Tenants Delay as hereinbefore determined.
Further, notwithstanding the foregoing, for purposes hereof, references to Premises, Scheduled Term Commencement Date and Substantial Completion shall be deemed to refer to Phase I, Phase II and Phase III separately, as the context so requires, such that Landlord and Tenant understand that Substantial Completion of Phase I, Phase II and Phase III shall occur on separate dates as outlined on Section 1.1, subject to delays as herein provided, and that remedies available to Tenant shall be applied on a per phase basis, as applicable.
3.2.2. PARTIAL OCCUPANCY AND RENT COMMENCEMENT (PHASE 1)
Given that the entire Phase I shall not be ready for occupancy on the Scheduled Term Commencement Date attributable to Phase I in Section 1.1 hereof, as Landlord shall deliver the same in two stages, Stage One and Stage Two as aforesaid in Section 1.1. Upon Stage One being deemed ready for occupancy pursuant to Section 3.2 above, Landlord shall deliver and Tenant shall have the right to occupy such Stage One portion of the Premises (specifically Phase I) which is deemed ready for occupancy. In such event, Tenant agrees not to materially interfere with Landlords construction of the remainder of Phase I, specifically Stage Two. Upon Stage One being deemed ready for occupancy and delivered by Landlord to Tenant as required herein, Tenants obligation to pay Base Rent and additional rent allocable to Phase I shall commence on said date pro rata based on the square footage contained within Stage One compared to the total square footage in Phase I.
3.3. GENERAL PROVISIONS APPLICABLE TO CONSTRUCTION: RESTORATION AND REMOVAL
All construction work required or permitted by this Lease, whether by Landlord or by Tenant (or their respective subcontractors), shall be done in a good and workmanlike manner and in compliance with Landlords Plans and Tenants Plans and all applicable laws and all lawful ordinances, regulations and orders of governmental authority and insurers of the Building. Either party may inspect the work of the other at reasonable times and shall promptly give notice of observed defects. Notice of said defects shall be in writing and shall be rectified by Landlord or Tenant, as the case may be, within thirty (30) days of the original date of notice. Except as otherwise provided in Section 3.7 hereof, failure to provide notice hereunder shall not be the basis for any liability or for injury or damage caused by such defect of or waiver of right to cause any defect to be corrected.
Landlord hereby acknowledges and agrees that all improvements described in the Landlords Plans or the Tenants Plans shall not require removal or restoration by Tenant at the expiration of the Term and all such improvements shall be allowed to remain at no cost to Tenant.
All improvements, changes, additions, attached furniture and equipment and cabling comprising the Landlords Work or the Tenants Work shall be part of the Premises (and shall remain therein at the end of the Term), except for Tenants business fixtures and movable equipment and personal property (which personal property shall include, without limitation, demountable partitions and telephone or computer systems but excluding cabling), all of which business fixtures, movable equipment and personal property shall remain the property of the Tenant and shall be removed at the expiration of the Term. Tenant agrees to repair, at its sole cost and expense, any material damage (i.e., excluding ordinary holes in walls, ceilings and floors resulting from furniture removal) to the Premises caused by any such removal by Tenant in accordance with this paragraph.
3.4. REPRESENTATIVES
Landlord hereby acknowledges and agrees that only the following persons, John Heller and Michael Degnan, each acting singly , or any successors to either of them holding the same title or any other person delegated the authority from either of them in writing (hereinafter Tenants Construction Representatives) have the authority to act on Tenants behalf and represent Tenants interest with respect to all matters requiring Tenants action in this Article. No consent, authorization or other action by Tenant with respect to matters set forth in this Article shall bind Tenant unless in writing and signed by one of the aforementioned persons. Landlord hereby expressly recognizes and agrees that no other person claiming to act on behalf of Tenant is authorized to do so. If Landlord complies with any request or direction presented to it by anyone claiming to act on behalf of Tenant who does not have the title and position mentioned above, such compliance shall be at Landlords sole risk and responsibility and shall not in any way alter or diminish the obligations and requirements created and imposed by this Article, and Tenant shall have the right to enforce compliance with this Article without suffering any waiver or abrogation of any of its rights hereunder.
Tenant hereby acknowledges and agrees that only the following persons, Arthur J. Gutierrez, Jr., Douglas L. Fainelli and Dennis G. Bailey, each acting singly, or any successors to either of them holding the same title or any other person delegated the authority from either of them in writing (hereinafter Landlords Construction Representatives) have the authority to act on Landlords behalf and represent Landlords interests with respect to all matters requiring Landlords action in this Article. No consent, authorization or other action by Landlord with respect to matters set forth in this Article shall bind Landlord unless in writing and signed by one of the aforementioned persons. Tenant hereby expressly recognizes and agrees that no other person claiming to act on behalf of Landlord is authorized to do so. If Tenant complies with any request or direction presented to it by anyone claiming to act on behalf of Landlord who does not have the title and position mentioned above, such compliance shall be at Tenants sole risk and responsibility and shall not in any way alter or diminish the obligations and requirements created and imposed by this Article, and Landlord shall have the right to enforce compliance with this Article without suffering any waiver or abrogation of any of its rights hereunder.
3.5. FORCE MAJEURE
As used in this Article and elsewhere in the Lease, Force Majeure shall mean a time extension equal to that of any delays when the party required to perform the respective obligation is prevented from doing so, despite the exercise of reasonable diligence, and such delay is caused by: (i) Acts of God, (ii) casualty not resulting from actions of Landlord or Landlords employees, agents, contractors or licensees, (iii) labor strike, (iv) unusually adverse weather events which, in the aggregate, impede
performance of an obligation for more than one week (v) unusual scarcity of or inability to obtain supplies, parts or employees to furnish such services, or (vi) other acts reasonably beyond Landlords control, but in no event shall the term include economic or financing difficulties. Landlord shall provide Tenant with written notice of the occurrence of a Force Majeure event promptly after the occurrence thereof, and shall comply with its respective obligation(s) as soon as the cause for the delay has (have) been eliminated.
3.6. ARBITRATION
In the event there is a dispute between the parties relating to architecture, engineering, or construction by Landlord of Landlords Work or Tenants Work, or with respect to Total Project Costs pursuant to Exhibit M or is otherwise a matter which is expressly permitted under this Lease to be resolved pursuant to this Section 3.6, either party may send a notice to the other party setting forth in reasonable detail the matters in dispute (a Dispute Notice). If the dispute is not resolved within five (5) business days after the date of the giving of a Dispute Notice, then authorized representatives of each party shall meet at a mutually agreeable time and place within ten (10) business days after the date of the giving of a Dispute Notice in order to endeavor, in good faith, to resolve such dispute. In the event that they are unable to resolve the dispute within twenty (20) days from the giving of a Dispute Notice with respect to such dispute, then either party may submit the dispute to arbitration in accordance the following provisions.
If the dispute cannot be resolved between Landlord and Tenant, then the dispute shall be submitted to arbitration through the Boston office of the AAA in Boston, Massachusetts in accordance with the provisions of the following paragraph. In no event shall arbitration be required unless specifically provided in this Lease by specific reference to this Section 3.6. In the case of disputes relating to the performance of any Landlords Work or Tenants Work, the arbitrator shall be a reputable engineer, architect, or general contractor (as appropriate, considering the nature of the dispute) with at least ten (10) years experience in office building construction, including major build outs of office space and leasing, in the Boston, Massachusetts area, and with no current relationship to either party. In the case of disputes relating to CAM Costs or Total Project Costs pursuant to Exhibit M, the arbitrator shall be a reputable accountant with at least ten (10) years experience in real estate matters, the Boston, Massachusetts area, and with no current relationship to either party. The arbitrator shall be selected within fifteen (15) business days of the submission of the dispute to arbitration.
The arbitration shall be conducted on the basis of expedited proceedings under the Fast Track Procedures provisions of the Arbitration Rules of the AAA (or, with respect to construction related matters, under the Arbitration Rules of the Construction Industry of the AAA, with both parties agreeing to waive the $75,000 qualification in such rules). In any case where the parties utilize such expedited arbitration: (a) the parties will have no right to object if the arbitrator so appointed was on the list submitted by the AAA and was not objected to in accordance with the applicable rules (except that any objection shall be made within seven (7) days from transmission of the list), (b) the Notice of Hearing shall be given at least (14) days in advance of the hearing, (c) the first hearing shall be held within ten (10) business days after the appointment of the arbitrator, and (d) each party in such arbitration shall pay its own attorneys fees and other costs of such arbitration and the losing party shall pay the costs charged by the AAA and/or the arbitrator. The arbitrator shall issue his or her decision within ten (10) business days after the conclusion of the arbitration hearing. The arbitrator shall have no power to vary or
modify the provisions of this Lease or to award damages and their jurisdiction is limited accordingly, Judgment upon the award rendered may be entered in any court having jurisdiction thereof.
3.7. WARRANTY OF LANDLORDS WORK AND TENANTS WORK
Notwithstanding the provisions of Section 3.3, Landlord hereby warrants and guarantees that the Landlords Work and the Tenants Work shall be free from defects in workmanship and materials for a period of one (1) year after the Term Commencement Date or such later date upon which all such work has been completed (including Punch List Work and any warranty work). Upon the expiration of said one (1) year period, Landlord shall assign to Tenant any and all warranties and guarantees with respect to Landlords Work and Tenants Work and, to the extent that any such warranties and guarantees are not assignable, Landlord agrees to enforce the same for the benefit of Tenant, at Tenants sole cost and expense. Tenant shall not be responsible to pay for any such warranties of less than one (1) year duration or enforcement by Landlord against its own employees or against Gutierrez Construction Co., Inc. or against any of its other affiliates (including their respective employees). Any repairs or replacements or alterations to Landlords Work or Tenants Work after said initial one (1) year period may be chargeable to Tenant in accordance with and subject to the provisions of Section 4.2 hereof. Landlord agrees to repair, at its sole cost and expense (without reimbursement through CAM Costs or otherwise) any latent defects in Landlords Work or Tenants Work promptly after receipt of notice therefrom from Tenant, provided that such notice from Tenant is received by Landlord on or before such date which is five (5) years after the Term Commencement Date or such later date upon which all such work has been completed (including Punch List Work and any warranty work). In connection therewith, Tenant shall notify Landlord promptly after it becomes aware of any such latent defects. The parties understand and agree that any extensions of the warranty periods applicable to the warranty work under this Section 3.7 shall only apply to the specific item(s) of work being repaired or replaced. As aforesaid, the foregoing provisions shall apply, and the relevant dates shall commence, on a per Phase basis based on the Term Commencement Date applicable for each such Phase.
ARTICLE IV
RENT
4.1. RENT
Commencing on the Rent Commencement Date for each applicable Phase, Tenant agrees to pay, without any offset or reduction, except as expressly set forth herein, Base Rent equal to 1/12th of the annual Base Rent set forth in Section 1.1 in equal installments in advance on the first day of each calendar month included in the Term; and for any portion of a calendar month occurring at the beginning or end of the Term, at the rate payable for such portion in advance.
Tenant shall be responsible to pay CAM Costs and Tax Expense, as such terms are defined in Section 4.2 below, as additional rent, upon the Term Commencement Date for each applicable Phase) and with respect to Phase I, allocable pro rata based on the portion of the Premises Substantially Completed pursuant to Section 3.2, as applicable (i.e., Stage One and Stage Two). Any other monies as may be due from Tenant to Landlord hereunder shall be deemed additional rent.
4.2. COMMON AREA MAINTENANCE COSTS, REAL ESTATE TAXES AND UTILITIES
4.2.1. CAM COSTS. Tenant shall pay to Landlord, as additional rent, an additional payment on the first day of each month occurring during the Term hereof one-twelfth (1/12) of the amount of common area maintenance costs, but only to the extent actually incurred by Landlord and not Tenant (the CAM Costs), for each twelve (12) month period. The CAM Costs are intended to reimburse Landlord with Tenants allocable share of certain costs related to the Premises (specifically on a per Phase basis), the Lot (specifically on a per lot basis applicable to each Phase), and the Common Areas of the Park as hereinafter set forth, and shall include the following (except as provided in Section 5.1 below): (i) maintenance of watertight integrity of the roof, exterior walls, windows and skylights of the Building, (ii) monthly payment of the annual charge-off of any Permitted Capital Expenditure (as defined below); (iii) insurance premiums pursuant to Section 5.1.6; and (iv) liability insurance costs for the Common Areas of the Park.
If during the Term Landlord makes an expenditure for a capital repair, replacement or improvement to the Building or Lot which is permitted to be included in CAM Costs, whether by installing energy conservation or labor-saving devices or by making other repairs, replacements or improvements (i) to comply with Legal Requirements first enacted after the Term Commencement Date, or (ii) in good faith on the basis of engineering estimates to reduce CAM Charges to the same (the foregoing collectively called, the Permitted Capital Expenditures), the total amount of which is not properly includible in CAM Costs for the Fiscal Year in which they were made, there shall nevertheless be included in such Fiscal Years CAM Costs and in CAM Costs for each succeeding Fiscal Year the annual charge-off of such Capital Expenditure (which shall be determined by amortizing the cost of such Capital Expenditure, on a straight-line basis, over the number of years of useful life of such Capital Expenditure as determined in accordance with generally accepted accounting principles (GAAP) in effect at the time of making such Capital Expenditure), but in the case of a Permitted Capital Expenditure described in clause (ii), Tenant shall have first approved in writing the Permitted Capital Expenditure, which approval shall not be unreasonably withheld, delayed or conditioned, and the amount included in the CAM Costs for any Fiscal Year shall not exceed the annualized savings resulting from such Permitted Capital Expenditure, to the extent reasonably quantifiable.
Landlord agrees that all services, repairs and replacements required to be performed by Landlord under this Lease, whether or not the cost thereof is included in CAM Costs shall be obtained by Landlord at commercially reasonable, competitive market rates consistent with the operation and management of comparable Class A office buildings in the suburban Boston area. Tenant shall have the right, upon Tenants request to Landlord, to approve and suggest any vendors associated with Landlords operation of the Premises or Lot, so long as such approval shall not be unreasonably withheld, conditioned or delayed. Further, Landlord shall give due consideration to any vendors suggested by Tenant. As aforesaid, Landlords Statement (as hereinafter defined) shall be prepared by Landlord on a per Phase, per Lot basis and Landlords Statement shall specifically identify the CAM Costs allocable to Phase I, Phase II and Phase III, as applicable.
Notwithstanding anything to the contrary contained herein, in no event shall CAM Costs include (nor shall Tenant have any obligation to pay any costs on account of) the following:
(a) Costs, expenses and fees relating to solicitation of, advertising for and entering into leases and other occupancy arrangements for space in the Park, including but not limited
to legal fees, space planners fees, real estate brokers leasing commissions and advertising expenses.
(b) Costs of defending any lawsuits with any mortgagee, costs of selling, syndicating, financing, mortgaging or hypothecating any of Landlords interest in the Park (or any part thereof), costs of any disputes between Landlord and its employees, disputes of Landlord with building management, or outside fees paid in connection with disputes with other tenants or adjacent property owners.
(c) Costs of correcting latent defects in the Building or the Building equipment or replacing defective equipment at any time during the five (5) year period described in Section 3.7, subject to the provisions of said Section 3.7.
(d) Costs of installations or improvements of any type paid by or constructed for specific tenants or other occupants.
(e) Interest, points, other finance charges and principal payments on mortgages or other indebtedness, and other costs of indebtedness, if any.
(f) All amounts which are specifically charged to or otherwise paid by any other tenant or other occupant of the Building or the Park, or for items or services which Landlord provides selectively to one or more tenants (other than Tenant) without reimbursement.
(g) Any bad debt loss, rent loss or reserves for bad debts or rent loss.
(h) The salary and indirect compensation (including, without limitation, all fringe benefits, workmens compensation, insurance premiums and payroll taxes) of any employee above the grade of building manager, and the wages and indirect compensation of any employee to the extent such employee devotes his or her time to property other than the Building.
(i) Amounts, if any, paid as ground rental by Landlord.
(j) Expenses related to landlord-tenant disputes.
(k) Any management fees.
(l) Costs related to existing hazardous material clean-up and remediation described in the two (2) purchase and sale agreements referred to on Exhibit H attached hereto (copies of which have been provided by Landlord to Tenant) (the Tyco Agreements), Landlord and Tenant hereby agreeing that in no way shall this exclusion limit or impair Tenants obligations set forth in Section 6.1.17 hereof. See also Section 5.1.8 hereof relating to Landlords environmental obligations.
(m) Costs of capital repairs, replacements or improvements, except Permitted Capital Expenditures specifically provided for in this Section 4.2.
(n) Costs of any repairs, replacements or improvements with respect to the structural elements of the roof, the structural elements of the exterior walls, foundation, footings,
floor slabs and other structural elements of the Building (except as permitted pursuant to subsection (i) of the first paragraph of Section 4.2.1 above and the last sentence of Section 5.1.3 below);
(o) Rentals for items (excluding, however, equipment not affixed to the Building which is used in providing janitorial or similar services).
(p) Depreciation, amortization and interest payments.
(q) Overhead and profit increment paid to Landlord or to subsidiaries or affiliates of Landlord for goods and/or services in the Building or on the Lot to the extent the same exceeds the costs of such goods and/or services rendered by unaffiliated third parties on a competitive basis for comparable buildings in the Buildings market area.
(r) Landlords general corporate overhead and general and administrative expenses.
(s) Any compensation paid to clerks, attendants or other persons in concessions operated by Landlord and/or all fees paid to any parking facility operator (on or off site).
(t) Costs incurred in connection with upgrading the Building to comply with the current interpretation of disability, life, fire and safety codes, ordinances, statutes, or other laws in effect prior to the Term Commencement Date, including, without limitation, the Americans with Disabilities Act, including penalties or damages incurred due to such non-compliance.
(u) Tax penalties incurred as a result of Landlords failure, inability or unwillingness to make payments and/or to file any tax or informational returns when due.
(v) Costs arising from the negligence or willful misconduct or fault of other tenants or Landlord or otherwise reimbursable by other tenants or owners in the Park.
(w) Notwithstanding any contrary provision of the Lease, including, without limitation, any provision relating to capital expenditures, other than normal and customary office building maintenance materials and office supplies and hazardous materials for which Tenant is responsible under this Lease, any and all costs arising from the unlawful release of hazardous materials in or about the Premises, the Building or the Lot in violation of applicable law or otherwise including, without limitation, hazardous materials in the ground water or soil, and including, without limitation, monitoring, filing or audit related costs.
(x) Costs of any environmental insurance; costs of so-called lease or credit enhancement insurance or similar insurance products, whether or not the same is required by any mortgagee of the Lot, which are obtained for the purpose of obtaining financing or similar credit benefits that inure to owner or mortgagee of the Building or Lot and costs of any insurance other than that specified in Section 5.1.6.
(y) Costs arising from Landlords or its affiliates or principals charitable or political contributions.
(z) Costs arising from any mandatory or voluntary special assessment on the Building or Lot by any transit authority or any other governmental entity having the authority to impose such assessment in connection with the initial construction of the Building or Lot.
(aa) Costs for sculpture, paintings or other objects of art.
(bb) Costs of attorneys fees, settlement judgments and other payments arising from claims, disputes or potential disputes in connection with potential or actual claims, litigation or arbitration pertaining to the Landlord and/or the Building, Lot or Park except such costs are incurred in connection with the Tenants negligence or violation of law.
(cc) Costs associated with the operation of the entity constituting Landlord, including accounting and legal costs, costs of defending any lawsuits with any mortgagee, costs of selling, syndicating, financing, mortgaging or hypothecating any of Landlords interest in the Building or its ownership entities, costs of any disputes between Landlord and its employees (if any) not engaged in Buildings operation, disputes of Landlord with Buildings management.
(dd) Costs of any tap fees or any sewer or water connection fees, or any permitting fees incurred in connection with the initial construction of the Building.
(ee) Any entertainment, dining or travel expenses of Landlord for any purpose.
(ff) Any flowers, gifts, balloons, etc. provided to any entity whatsoever, including, but not limited to, Tenant, other tenants, employees, vendors, contractors, prospective tenants and agents.
(gg) Any finders fees, brokerage commissions, job placement costs or job advertising cost.
(hh) In-house legal fees.
(ii) Any costs incurred due to a breach of Landlord (which is not the result of any breach or other act or omission by Tenant) pursuant to this Lease or the TIF Agreement.
(jj) Any expenses for repairs or maintenance of the Building or Lot which are covered by warranties, guaranties or service contracts held by Landlord.
(kk) Any costs incurred to bring the Lot, or any improvements therein, thereon or thereunder (including, without limitation, any stormwater, wastewater or drainage systems) in conformity with laws and requirements in effect prior to the Term Commencement Date.
(11) Any costs incurred or assessed under any document or instrument other than the Park Covenants and any mitigation costs incurred in connection with the development of the Lot or any other parcel or Building in the Park or otherwise.
(mm) Any costs (including costs relating to required improvements or upgrades to the Buildings core and shell, structure or systems, or any sewer, stormwater, wastewater or drainage improvements serving the Building, Lot or Park) incurred by Landlord or
assessed against the Building or Lot resulting from or triggered by the permitting, development or construction of or on any other Lot or other parcel of land.
(nn) Any costs incurred by Tenant in connection with its operation and/or management of the Premises.
Notwithstanding any language to the contrary contained herein, CAM Costs shall be reduced by reimbursements, credits, discounts, reductions or other allowances received or receivable by Landlord for items of cost included in CAM Costs (except for reimbursements to Landlord in the nature of operating expenses and taxes by tenants under the additional rent provisions of their respective leases), including any tax refunds realized as a result of any abatement proceeding or otherwise.
Not later than sixty (60) days prior to the start of each Fiscal Year, Landlord shall submit to Tenant a proposed operating budget for those services, repairs and replacements for which Landlord is responsible (the Operating Budget) for the coming Fiscal Year, and Landlord shall update the Operating Budget on a quarterly basis and provide such updates to Tenant. Tenant shall have the right to review with Landlord the proposed Operating Budget, and the results shown in the quarterly updates. Landlord shall use good faith, reasonable efforts to implement any reasonable recommendations made by Tenant with respect to (i) additional services to be provided by Landlord as a part of CAM Costs, (ii) any recommended vendors or providers of services proposed by Tenant, or (iii) any methods to reduce CAM Costs.
Landlord shall provide to Tenant, within three (3) months of the end of each Fiscal Year, an annual accounting (Landlords Statement), in writing setting forth the various cost items included in CAM Costs, certified by Landlord, of actual CAM Costs charges for such Fiscal Year, and Landlord shall maintain complete books and records relating to CAM Costs in accordance with GAAP and otherwise sufficient for Tenant to verify such charges as hereinafter provided.
The term Fiscal Year as used in this Article shall mean the period of twelve (12) consecutive months commencing on January 1 and ending on December 31.
If the total of the monthly payments paid by Tenant with respect to any Fiscal Year exceeds the actual CAM Costs for such Fiscal Year, then, at Landlords option, such excess shall be either (i) credited against payments on account of CAM Costs next due hereunder, or (ii) refunded by Landlord to Tenant. If any amounts are due from Tenant, then Tenant shall promptly pay such additional amount due to Landlord within thirty (30) days after Tenants receipt of the Landlords Statement.
All records that the Landlord is required to maintain hereunder shall be maintained by the Landlord for a period of three (3) years following the expiration of the Fiscal Year to which such records relate. Tenant shall have the right, through its representatives or agents, but not an obligation, to examine, copy and audit such records at reasonable times, but no more than once per Fiscal Year, upon not less than thirty (30) days prior written notice. Such records shall be maintained at Landlords Address set forth in Section 1.1, or such other place within the Boston, Massachusetts metropolitan area as Landlord shall designate from time to time for the keeping of such records. The costs of such audits shall be borne by Tenant; provided, however, that if such audit establishes that the actual CAM Costs for the Fiscal Year in question is less than the Landlords final determination of the CAM Costs as set forth in the Landlords Statement submitted to Tenant by at least five (5%) percent, then Landlord shall pay
the reasonable cost of such audit, so long as Landlord agrees with the results thereof, acting reasonably and in good faith, otherwise Landlord and Tenant shall resolve the matter using the arbitration method set forth in Section 3.6 hereof. If, as a result of such audit, it is determined that Tenant must pay additional amounts to Landlord on account of the CAM Costs, or that Tenant has overpaid Landlord on account of the CAM Costs, then the undercharged or overpaid party shall reimburse the other party for the payment due, together with (in the case of overpayment by Tenant) interest thereon from the date of Landlords Statement at the interest rate set forth in Section 4.3 hereof. In no event shall the provisions of this paragraph require Tenant to complete any such audit.
Notwithstanding the foregoing, in the event that an audit for any Fiscal Year discloses an overcharge in any line item of CAM Costs for that Fiscal Year, then Tenant shall have the right to review that same line item for the immediately three (3) prior Fiscal Years to see if the same error was made in such years, and if so an appropriate adjustment shall be made with respect to such prior years. If Tenant does not contest the Landlords Statement within one (1) year after being received by Tenant, then such Landlord Statement shall be binding and conclusive on Tenant (except as provided in the immediately preceding sentence).
Landlord shall have the right from time to time but not more than once in any five (5) year period to change the periods of accounting under this Section 4.2 to any annual period other than the Fiscal Year and upon any such change all items referred to in this Section shall be appropriately apportioned. In all Landlords Statements, rendered under this Section, amounts for periods partially within and partially without the accounting periods shall be appropriately apportioned, and any items which are not determinable at the time of a Landlords Statement shall be included therein on the basis of Landlords estimate, and with respect thereto Landlord shall render promptly after determination a supplemental Landlords Statement, and appropriate adjustment shall be made according thereto. All Landlords Statements shall be prepared in accordance with GAAP.
Notwithstanding any other provision of this Section 4.2, if the Term expires or is terminated as of a date other than the last day of a Fiscal Year at the end of the Term, Tenants last payment to Landlord under this Section 4.2 shall be made on the basis of Landlords best estimate of the items otherwise includable in Landlords Statement and shall be made on or before the later of (a) thirty (30) days after Landlord delivers such estimate to Tenant, or (b) the last day of the Term, with an appropriate payment or refund to be made upon submission of Landlords Statement. Without limitation, the obligation of Tenant to pay CAM Costs with respect to any Fiscal Year during the Term (or portion thereof) shall survive the expiration or earlier termination of the Term.
4.3. TAX EXPENSE. This Lease is expressly contingent upon Tenant obtaining a tax increment financing agreement in the form attached hereto as Schedule 4.3 (the TIF Agreement) from the Commonwealth of Massachusetts on or before June 28, 2012 providing for annual real estate taxes not to exceed the respective amounts set forth on Schedule 4.3 attached hereto for a minimum period of fifteen (15) years. If Tenant does not obtain the TIF Agreement satisfying the foregoing criteria by such date, Tenant shall have the right to terminate this Lease by delivery of written notice thereof to Landlord, in which event, this Lease shall terminate and be of no further force and effect, except for those provisions which expressly survive a termination and Tenant shall reimburse Landlord for its actual and reasonable out-of-pocket third party costs for architectural, engineering and labor and materials costs incurred to the date of termination. Tenant shall pay directly to the relevant taxing authority real estate taxes assessed during the Term hereof (on a pro rata basis at the beginning or end of
the Term), including without limitation any taxes associated with the TIF Agreement, as applicable, attributable to the Lot and the Building and any assessment, levy, penalty, imposition or tax (including any tax which may replace or be assessed in lieu of any of the foregoing), and any interest due thereon, imposed by any authority and agency having the direct power to tax against the Tenants Lot and the Building (the Tax Expense). For purposes of calculating the Tax Expense due from Tenant hereunder, the term Lot shall after Substantial Completion of Phase II also include the Phase III Lot until the sale of Phase I and Phase II per Exhibit M or the permanent financing of Phase I and Phase II, whichever shall first occur, and thereafter (i) Tenant shall only be responsible for its pro rata share of Tax Expense allocable to Tenants share of the Phase II parking (i.e. the Phase II Building Parking Area) located on Phase III Lot and the Common Areas of the Park, all as more particularly provided in Exhibit U, which Tenant shall pay to Landlord prior to the date when interest or penalty would accrue for nonpayment, and (ii) Landlord shall pay to any such authority the full Tax Expense of the Phase III Lot and Phase III Building. The term real estate taxes means the real estate taxes, betterment assessments, water and sewer use rents, rates or charges, and such other governmental charges and impositions which are or may be charged, levied, assessed, imposed or become due and payable with respect to the Lot, Building, and other improvements comprising the Premises, but excluding any of the foregoing which are excluded from CAM Costs pursuant to this Article IV. Landlord agrees that Tax Expense shall include annually only Tenants annual share of the cost of any betterment, based on the useful life of such betterment. All such payments shall be made prior to the date when interest or penalty would accrue for non-payment or ten (10) business days after Landlord provides Tenant with the real estate tax bill, whichever is later. Tenant shall furnish to Landlord copies of such bills and receipts evidencing payment for Landlords records. Notwithstanding the foregoing, Tenant shall have no responsibility for late payment penalty or interest if Tenants payment was timely made as above provided. Real estate taxes for Phase I, Phase II and Phase III are currently estimated at $2.90/RSF, $3 .00/RSF and $3.25/RSF, respectively. Tenants reimbursement obligations under this paragraph shall survive the termination of this Lease.
If the TIF Agreement shall expire or terminate prior to the expiration of the Term due to a default by Landlord, Tenants obligation to pay the Tax Expense shall be limited during the period of time that would have been the remainder of the term of the TIF Agreement to the annual amounts payable pursuant to the terms of the TIF Agreement had it not expired or terminated, and Landlord shall pay the balance of the Tax Expense.
Tenant shall also pay all personal property taxes for Tenants personal property on the Premises or used in connection therewith. To the extent validly imposed upon owners of real estate generally and only to the extent permitted by law and to assure that the rentals hereunder are net to Landlord, Tenant shall pay, when due, taxes levied or assessed against Landlord by reason of this Lease on the rental or any other payment required to be made hereunder whether said taxes are assessed solely on the rental payment hereunder or jointly with other rentals collected pursuant to any law or ordinance now existing or hereafter enacted (other than taxes levied on the net income of Landlord derived herefrom as part of a state or federal income tax law applicable to Landlords income, and any income, franchise, gross receipts, corporation, capital levy, excess profits, revenue, rent, inheritance, devolution, gift, estate, payroll, deeds excise or stamp tax by whatsoever authority imposed or howsoever designated or any tax upon the sale, transfer and/or assignment of Landlords title or estate which at any time may be assessed against or become a lien upon all or any part of the Premises or this leasehold), subject to receipt of bills or other documentation evidencing imposition and assessment of such taxes.
4.3.1. TAX ABATEMENT. Tenant shall have the right to contest in good faith by appropriate proceedings diligently pursued the imposition or amount of any real estate taxes assessed against the Lot or the Building or such personal property taxes payable by it hereunder, including the right on behalf of, and in the name of the Landlord, to seek abatements thereto. The Landlord shall reasonably cooperate with Tenant, at Tenants sole expense, in any such contest or abatement proceedings. In the event that Tenant determines not to contest such taxes and Landlord desires to file such contest, Landlord shall give written notice of that fact to Tenant and shall have the sole right as to such tax bill to contest in good faith by appropriate proceedings diligently pursued the imposition or amount of any real estate taxes assessed against the Lot or the Building or such other taxes payable by Tenant hereunder, including the right to seek abatements thereto. In such event, the Tenant shall reasonably cooperate with Landlord, at Landlords sole expense, in any such contest or abatement proceedings. Any tax abatement or rebate received shall be allocated to the parties in the same proportion as payment.
If Landlord shall receive on behalf of the Lot or the Building a rebate or abatement on any tax paid by Tenant, then after deducting therefrom any costs reasonably incurred by Landlord in obtaining such rebate or abatement, all of such net rebate or abatement relating to the Lot or the Building or to personal property taxes assessed against the Tenants personal property shall be returned to Tenant to the extent that such rebate or abatement relates to payment made by the Tenant and not reimbursed by Landlord. If Tenant shall receive on behalf of the Lot or the Building a rebate or abatement on any tax paid by Tenant, then after deducting therefrom any costs reasonably incurred by Tenant in obtaining such rebate or abatement, all of such net rebate or abatement related to the Lot, the Building or to personal property taxes assessed against the Tenants property shall be retained by Tenant, as its sole property, to the extent such rebate or abatement relates to a payment made by Tenant and not reimbursed by Landlord. The remaining portion of such net rebate or abatement shall promptly be returned to Landlord.
4.3.2. UTILITIES. During the Term, Tenant shall be solely responsible for paying all utilities, including, but not limited to, electricity, water, sewer, telephone and gas consumed in the Building or on the Lot as the same from time to time become due, and such bills shall be placed in Tenants name and billed directly by the utility to Tenant. Landlord reserves the right to pay such utility bills if unpaid by Tenant following at least ten (10) business days prior written notice from Landlord, and to recover payment from Tenant with any interest and/or penalties chargeable thereon as additional rent.
4.4. PAYMENTS
All payments of Base Rent and additional rent (including without limitation CAM Costs described in 4.2.A above) shall be made to Managing Agent, or to such other person as Landlord may from time to time designate in writing. If any installment of rent, Base Rent or additional, or any other payment required to be made by Tenant under this Lease is paid more than five (5) days after receiving notice of such late payment, at Landlords election, it shall bear interest at the rate of nine percent (9%) per annum (or, if lower, the maximum rate permitted by law); provided that Landlord shall waive Tenants payment of interest with respect to Tenants first two late payments in any consecutive twelve (12) month period, so long as payment is made within ten (10) days of receipt of such notice.
ARTICLE V
LANDLORDS COVENANTS
5.1. LANDLORDS COVENANTS DURING THE TERM
Landlord covenants during the Term:
5.1.1. Intentionally Deleted.
5.1.2. Intentionally Deleted
5.1.3. REPAIRS. Except as otherwise provided in Article VII, Landlord shall keep in good order, first class condition and repair, the roof of the Building, all gutters and downspouts, footings and foundations, and exterior (including exterior painting and finish) and structural portions of the Building. Landlords obligations shall also include the obligation to make (i) all necessary repairs, replacements or alterations, capital or otherwise, to the roof, the exterior walls, the foundation, the floor slabs, vapor barriers and vapor mitigation systems and all other structural elements of the Building, (ii) all capital repairs and replacements to the Building Parking Area, all driveways and walkways on the Lot, the Common Areas of the Park (e.g. common parking areas, driveways, sidewalks, and roadways), and all sewer lines serving the Lot and Park, utility, fire main and fire hydrant facilities, and drainage and other infrastructure facilities serving the Building and the Lot and any improvements thereon, and Park, and (iii) all capital repairs and replacements to the Buildings heating, ventilation, and cooling, plumbing, electrical, emergency and life care and other mechanical equipment and systems of the Premises. Should any repairs or replacements required to be paid for by Landlord hereunder or in Section 4.2 be required due to Tenants negligence or Tenants failure to operate and maintain any system in accordance with the specifications set forth for that system in the final Landlords Plans and Tenants Plans, then Tenant shall promptly reimburse Landlord the cost of such repair or replacement to the extent not otherwise covered by insurance or warranty.
5.1.4. QUIET ENJOYMENT. That Landlord has the right to make this Lease and that Tenant, on paying the rent and performing its obligations hereunder, shall peacefully and quietly have, hold and enjoy the Premises throughout the Term without any manner of hindrance or molestation from Landlord or anyone claiming under Landlord, subject, however, to all the terms and provisions hereof;
5.1.5. LEED. Landlord covenants and agrees that Phase I shall be constructed per LEED-CS 2009 Silver standards and Phase II and Phase III shall be constructed per LEED-CS 2009 Gold standards. Tenants architects and engineers shall work with Landlord and design the Tenant improvements to meet the LEED standards, as so applicable per Phase. Landlord shall work with Tenants Architect to deliver the Tenants Work in accordance with the LEED standards as applicable pursuant to Article III hereof, at Tenants sole cost and expense, if Tenant elects to pursue such certification. All costs associated with LEED Commercial Interiors as it pertains to Phase I Tenants Work, Phase II Tenants Work, or Phase III Tenants Work, as the case may be, shall be due and payable by Tenant to Landlord hereunder as an additional component of the Net Additional Cost of the Work pursuant to Section 3.1 above, as applicable per Phase.
5.1.6. LANDLORDS INSURANCE. Beginning with the commencement of Landlords Work and thereafter throughout the Term, Landlord shall purchase and keep in force, broad-form commercial general liability insurance, or the equivalent then-customary form providing comparable coverages,
written out on an occurrence basis containing provisions adequate to protect the Landlord from and against claims for bodily injury, including death and personal injury and claims for property damage occurring within the Park and/or the Building, such insurance having body injury and property damage combined limits of not less than five million dollars ($5,000,000) per occurrence. In addition, Landlord shall procure and continue in force during the Term, as the same may be extended hereunder, fire and extended coverage insurance, including vandalism, sprinkler leakage and malicious mischief, upon the Building on a full replacement cost basis, agreed cost value endorsement with agreed values for the Building and other tenant improvements and alterations, as determined annually by the Landlords insurer. Landlord shall also procure and continue in force during the Term, as the same may be extended hereunder, rental interruption insurance for twelve (12) months. Copies of certificates of insurance evidencing the foregoing shall be furnished to Tenant, upon Tenants reasonable request. All insurance required of Landlord pursuant to this Section shall be effected under policies issued by insurers or recognized responsibility (which are rated A or A+ by Bests Rating Service or a comparable rating by an equivalent service). The coverages required by this Section 5.1.6 may be provided by a single package policy;
5.1.7. LANDLORDS INDEMNITY. Except to the extent that Tenant receives actual proceeds from the Environmental Insurance Policy (as defined below), Landlord covenants and agrees to defend, with counsel reasonably acceptable to Tenant, save harmless and indemnify Tenant (and its parents, shareholders, officers, directors, employees, agents, successors and assigns) from any liability for injury, loss, accident or damage (including natural resource damage) to any person or property on the Premises, the Lot or the Park, and from any claims, actions, proceedings, fines, penalties and reasonable expenses and costs (including costs for any Response Actions or any insurance deductible or self insured retention) in connection therewith (including, without implied limitation, reasonable counsel and consultant fees) (collectively, Damages), arising (i) directly from the negligent acts and/or willful misconduct of Landlord or any of Landlords employees, agents, contractors or licensees not caused directly by the negligent acts or willful misconduct of Tenant, (ii) directly or indirectly from any condition, state or facts or circumstance for which Tyco is obligated to indemnify Tenant or Landlord under the Tyco Agreements and fails or is unable to do so for any reason other than Tenants breach of the provisions of the Tyco Agreements or this Lease, (iii) directly or indirectly from the presence, release or threat of release of, or exposure to Hazardous Materials in soil, air, groundwater, drinking water or surface water at, on, under or emanating to or from the Premises, the Lot or the Park, existing as of the Term Commencement Date, including without limitation any conditions described in the Phase I RAM Plan or in any other reports, assessments, data, correspondence or governmental filings relating to the presence of Hazardous Materials on or environmental condition of the Premises, the Lot or the Park, existing as of the Term Commencement Date, or if caused by the actions of Landlord or its agents after the Term Commencement Date and not caused by the actions of Tenant or its agents, (iv) directly or indirectly from Landlords breach of any representation or warranty of Landlord contained in this Lease. As used herein, the term Hazardous Materials means any hazardous waste, hazardous substance, hazardous material, pollutant, contaminant, oil, petroleum, toxic substance or other chemicals or substances (including, without limitation, asbestos, polychlorinated biphenyls and petroleum) regulated by or forming the basis of liability under any applicable Legal Requirements, including those described in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601 et seq., the Resource Conservation and Recovery Act, as amended, 42 U.S.C. Section 6901 et seq., the Massachusetts Hazardous Waste Management Act, as amended, M.G.L. c.21C, the Massachusetts Oil and Hazardous Material Release Prevention and Response Act, as amended, M.G.L. c.21E and any applicable local ordinance or bylaw, and the
regulations adopted under these acts, as amended, including, without limitation, the Massachusetts Contingency Plan, 30 C.M.R. 40.0000 et seq. (the MCP) (collectively, the Hazardous Waste Laws). As used herein, the term Response Actions means any investigation, testing, assessment, monitoring, remediation, treatment (including operation and maintenance of any equipment relating thereto) cleanup, removal, abatement, encapsulation, mitigation (including installation of vapor mitigation systems), containment, risk assessment, reporting or other response actions. In no event shall Landlord be obligated to indemnify Tenant for any willful or negligent act or omission of Tenant or of any of Tenants employees, agents, contractors or licensees;
5.1.8. HAZARDOUS MATERIALS. Landlord represents and warrants that, to the best of Landlords knowledge, other than the existing and ongoing remediation described on Exhibit H and disclosed to Tenant (i) there does not exist (and will not exist as of the date of Substantial Completion) any leak, spill, release, discharge, emissions or disposal of Hazardous Materials on the Lot (including the Building to be located thereon), and (ii) the Building and interior Premises do not (and will not as of the date of Substantial Completion) contain any Hazardous Materials (including vapor intrusion into such Building in excess of the Efficacy Confirmation Standards as identified in Exhibit W), except as may be contained in customary cleaning supplies or in such other supplies (e.g. paint) that are necessary for Landlord to perform its obligations hereunder. In the event that any such leak, spill, release, discharge, emission, vapor intrusion or disposal of Hazardous Materials shall occur on or in the Premises, the Lot or (apart from de minimis amounts of such materials used for cleaning and maintenance purposes or in connection with the operation of loading docks) the Park not caused by the actions of Tenant or its officers, employees, agents, contractors or licensees, Landlord shall take any and all actions necessary to remove from the Premises, the Park and/or the Building (excluding all portions thereof leased or leasable to tenants) or remediate or mitigate all Hazardous Materials in compliance with applicable Hazardous Waste Laws and other governmental requirements relating thereto.
Landlord agrees to notify Tenant immediately upon discovery of any Hazardous Materials on the Lot, Building or in the Park. In connection therewith, attached as Exhibit H are references to two (2) purchase and sale agreements from Landlords (and/or its affiliate(s)) purchase of the Lot (specifically the Phase I Lot, the Phase II Lot and the Phase III Lot) from Tyco (or its predecessor M/A-Com) (together with its successors and/or assigns, Tyco), which such agreements contain an indemnity from Tyco (benefitting Tenant directly or benefitting Landlord (in which event if not direct, then Landlord hereby agrees to attempt to enforce such indemnity on Tenants behalf, as applicable to the extent allowed by such indemnity) associated with the ongoing clean-up and remediation occurring on the Lot. Further, Landlord agrees to purchase, at its sole cost and expense, and keep in force during the Term, subject to availability of policy extension (including any extensions hereunder) an environmental insurance policy naming Tenant as a Named Insured in substantially the form previously provided by Landlord to Tenant (the Environmental Insurance Policy).
Landlord shall, at its sole cost and expense, perform or cause to be performed (i) the subsurface sampling and environmental assessment work as set forth and described in Exhibit W as part of the construction of the Phase I Building (Subsurface Investigation), (ii) any and all Response Actions required under the MCP or other applicable Hazardous Waste Laws as the result of the detection of any Hazardous Materials in connection with the Subsurface Investigation or during construction activities (the Remedial Work) and shall complete such Remedial Work in compliance with the MCP or other applicable Legal Requirements, and (iii) the installation of a vapor mitigation system in the Phase I Building in compliance with the MCP and other applicable Legal Requirements (including any
guidance, rules or regulations issued or promulgated by the Massachusetts Department of Environmental Protection (DEP)) all in consultation with and to the reasonable satisfaction of Tenant prior to occupancy of the applicable portion of the Premises by Tenant. To the extent that DEP issues a Release Tracking Number for any Hazardous Materials detected during the Subsurface Investigation or construction, Landlord shall make all commercially reasonable efforts to achieve or cause to be achieved a Response Action Outcome (as those terms are defined in the MCP). To the extent the recording of a notice of activity and use limitation (AUL) is necessary as a result of the performance of any of the actions described in this paragraph or otherwise, such AUL must expressly permit the Intended Use as well as any accessory uses relating to same including, without limitation, a health club facility. Landlord represents and warrants to Tenant that Tyco has approved the final Release Abatement Measure Plan Phase I Construction at 63 South Avenue, 43-63 South Avenue, Burlington, Massachusetts, RTN 3-0264, prepared for Burlington Crossing Realty Trust (Phase I RAM Plan).
Landlord shall, as part of the construction of Phase II and Phase III, perform or cause to be performed any other environmental assessment, mitigative, response and/or remedial measures/work to the Phase II Lot and Phase III Lot in compliance with a scope of work and release abatement plan approved by Tyco and Tenant, which approval shall not in Tenants case be unreasonably withheld, conditioned or delayed, the Tyco Agreements and applicable Legal Requirements prior to and during occupancy of the Phase II and Phase III Premises by Tenant.
To the extent any of such work, or any proposed additional environmental assessment or activities conducted by Landlord on any Lot or the Park identifies an additional or previously unknown release or threatened release of Hazardous Materials at, under, from or to the Lot or any one of them, Landlord shall, at Landlords sole cost and expense, conduct (or cause to be conducted) all response actions required under applicable Legal Requirements to assess, contain, abate, mitigate and/or remediate the identified condition, and shall do so in compliance with applicable Legal Requirements, including, without limitation, CERCLA, M.G.L. c.21E, and the Massachusetts Contingency Plan, 310 CMR 40.0000. Tenant shall bear no liability and/or right of contribution to Landlord for any existing, or previously unknown release(s) or threatened release(s) of Hazardous Materials.
Landlord shall obtain for Tenant from any environmental consultant performing any Hazardous Materials assessment or report on behalf of Landlord or its mortgagees the right of Tenant to rely upon any such assessment or report issued by such consultant.
5.1.9. TENANTS COSTS. In case Tenant shall, without any fault on its part, be made party to any litigation commenced by or against Landlord or by or against any parties in possession of the Premises or any part thereof claiming under Landlord, Landlord agrees to reimburse Tenant for all reasonable costs, including without implied limitation, reasonable counsel fees, incurred by or imposed upon Tenant in connection with such litigation and to pay all such reasonable costs and fees incurred in connection with the successful enforcement by Tenant of any obligations of Landlord under this Lease.
5.1.10. TENANTS SECURITY AND CONFIDENTIAL PROTOCOL. In providing any of the services required or permitted by Landlord under this Lease (whether through its own employees or through third parties), Landlord shall comply with Tenants security and confidentiality protocol described in Schedule 5.1.10.
Except as specifically provided to the contrary in Sections 4.2, Landlord shall charge Tenant under the provisions of Section 4.2 for the costs incurred by Landlord in connection with the repairs or replacements (but only to the extent the repair or replacement in question is a Permitted Capital Expenditure) set forth in Section 5.1.3 and insurance expenses set forth in Section 5.1.6 above; provided, however, Landlord shall be responsible to pay the following, at its sole cost and expense without reimbursement from CAM Costs: (i) repairs or replacements which are necessary to maintain the structural integrity of the Building and the structural components of the roof during the Term, or which are necessary to remedy any latent defects for the five (5) year period provided in Section 3.7 (but only to the extent the repair or replacement in question is a Permitted Capital Expenditure), (ii) maintenance and repairs (and replacements, if necessary) during the initial one (1) year period described in Section 3.7 or otherwise covered by Landlords or manufacturers warranties described in Section 3.7 above, (iii) maintenance, repair or replacement of any vapor barrier or vapor mitigation systems, and (iv) insurance premiums applicable to periods prior to the Term Commencement Date.
5.2. INTERRUPTIONS.
Except as otherwise set forth below in this Section 5.2, Landlord shall not be liable to Tenant for any compensation or reduction of rent by reason of inconvenience or annoyance or for loss of business arising from power losses or shortages or from the necessity of Landlords entering the Premises for any of the purposes in this Lease authorized, or for repairing the Premises or any portion of the Building or Lot. In case, notwithstanding Landlords diligent efforts in connection therewith (which such efforts shall never obligate Landlord to pay for overtime and/or premium time work, or to pay a premium for expedited delivery, except as such additional costs are so authorized and paid for by Tenant), Landlord is prevented or delayed from making any repairs, alterations or improvements, or furnishing any service or performing any other covenant or duty to be performed on Landlords part, by reason of any cause reasonably beyond Landlords control (expressly excluding Landlords financial inability), Landlord shall not be liable to Tenant therefore, nor, except as expressly otherwise provided in Article III or Article VII, shall Tenant be entitled to any abatement or reduction of rent by reason thereof, nor shall the same give rise to a claim in Tenants favor that such failure constitutes, actual or constructive, total or partial, eviction from the Premises.
Landlord reserves the right to stop any service or utility system when necessary by reason of accident or emergency or until necessary repairs have been completed. Except in case of emergency repairs, Landlord will give Tenant reasonable advance notice of any contemplated stoppage and will use reasonable efforts to avoid unnecessary inconvenience to Tenant by reason thereof.
Notwithstanding any language to the contrary, if, due solely to any act or omission on the part of Landlord, electricity, heat, air conditioning, water or any other service or utility that Tenant is entitled to receive under this Lease is interrupted, or if Landlord is performing a repair required of Landlord in or about the Premises, and such interruption or repair renders the Premises untenantable, or any portion thereof is reasonably inaccessible by Tenant, or makes it impracticable for Tenant to conduct its business in the Premises, then if such interruption or cessation or repair shall continue for a period of three (3) consecutive days after notice thereof from Tenant to Landlord that the Premises are untenantable, or reasonably inaccessible, or Tenant cannot conduct its business as a result thereof, then the Base Rent and additional rent shall be proportionately abated for each successive day such interruption or cessation or repair continues based upon that certain portion of the Premises that are affected by such interruption (other than for reasons of casualty or eminent domain where the provisions
of Article VII shall govern). Further, Tenant shall be entitled to an abatement of Base Rent and additional rent for the initial three (3) days if covered by Landlords loss of rents insurance.
Except as set forth in this Section 5.2 or in Article VII, the foregoing rights shall be Tenants sole remedy at law or in equity for any interruptions described in this Section 5.2.
ARTICLE VI
TENANTS COVENANTS
6.1. TENANTS COVENANTS DURING THE TERM
Tenant covenants during the Term:
6.1.1. TENANTS PAYMENTS. To pay when due (a) all Base Rent and additional rent, (b) all taxes which may be imposed on Tenants personal property in the Premises (including, without limitation, Tenants fixtures and equipment) (c) directly to the utility provider (if not payable to Landlord), subject however, to Tenants right to contest and seek abatement thereof, all charges by public utility for telephone and other utility services (including service inspections therefor and the charges as may be imposed pursuant to Exhibit D hereof including all electric and gas consumed on the Premises) rendered to the Premises not otherwise required hereunder to be furnished by Landlord without charge and not consumed in connection with any services required to be furnished by Landlord without charge, and (d) as additional rent, its proportionate share of all reasonable charges of Landlord for services rendered pursuant to Sections 5.1.3 and 5.1.6 hereof, subject to the exclusions set forth in Section 4.2, and except as set forth in the last paragraph of Section 5.1, all as more particularly set forth in Section 4.2.
6.1.2. REPAIRS AND YIELDING UP. Except as otherwise provided in Article VII and Section 5.1.3, and reasonable wear and damage or destruction by casualty or eminent domain excepted, to keep the Premises and all fixtures therein in good order, repair and working condition. Tenant shall be solely responsible: (i) to make and perform or cause to be made or performed all interior maintenance, repairs, and replacements necessary to keep the Premises in such condition, including, without limitation, interior re-painting and replacement of glass damaged or broken and of floor and wall coverings worn or damaged; (ii) to keep all interior plumbing, lighting, elevator, heating, ventilating, air conditioning and other utility, life safety and mechanical systems in the Premises properly maintained and operating in good operating condition and in accordance with any manufacturers warranty and product standards, with fully licensed contractors and under contracts, each reasonably acceptable to Landlord, qualified to perform the same; (iii) to maintain and repair all sewer lines serving the Lot, utility, fire main and fire hydrant facilities, and drainage facilities serving the Building, and keep the same in good and proper condition; (iv) to maintain and repair the Building entrance signs, and other signage on the Building and elsewhere in the Park, and keep the same in good and proper condition; (v) to maintain, repair and stripe the Building Parking Areas and loading areas, including snow removal and sanding of driveways, walkways, loading areas, Building entrances and parking lots, as well as the Common Areas of the Park, including all common driveways drives, walkways and parking areas or structures; (vi) to fertilize, mow and water the lawn and maintain the landscaping and care of shrubbery on the Lot, including general grounds upkeep; (vii) to maintain street-lamp lights, walkway lights, and parking lights, including the changing thereof, and to keep the same in good and proper condition; (viii) to keep all exterior
plumbing, storm water, wastewater and utility lines in good and proper condition, (ix) to maintain and repair the Park entrance signs, lighting, traffic signals, and traffic control personnel required for the Park, and keep the same in good and proper condition; (x) to maintain and repair sewer, utilities, and drainage facilities, maintenance and repair of detention and fire main and fire hydrant facilities which service the Park and are not exclusive to any single Building within the Park, and keep the same in good and proper condition; and (xi) to maintain by fertilizing, mowing and watering, the Common Areas of the Park, including all common lawns and landscaping and care of shrubbery and general grounds upkeep of access drives, entrance areas and other such common portions of the Park; provided, however, Tenants obligations under clauses (i)- (xi) above shall be limited to the routine day-to-day maintenance and repair of said items and in no event shall Tenant have any obligation to make or perform and capital repairs or replacements, and Landlord shall perform all other repairs and replacements of said items in accordance with Section 5.1.3 above.
Tenant shall engage an independent, qualified and reputable third party property management company with experience in managing large office buildings comparable to the Building (Tenants Property Manager) to manage the services described in this Section 6.1.2 and any supplemental services which Tenant shall require. Tenants Property Manager shall be subject to the prior written approval of Landlord, which approval shall not be unreasonably withheld, conditioned or delayed. Landlord hereby approves each of Cushman & Wakefield, CBRE and Jones Lang LaSalle as an acceptable Tenants Property Manager. Tenant shall pay Tenants Property Managers management fees and expenses and any applicable vendors for the costs and expenses of providing such services unless otherwise required to be paid by Landlord under this Lease, and such costs shall be excluded from CAM Costs. Landlord and its agents reserve the right to inspect the foregoing items noted on (ii) (xi) above to insure proper maintenance thereof. If Landlord, in Landlords reasonable judgment determines that any of such items noted in (ii)(xi) above have not been properly and adequately maintained, as herein required, then Landlord, after written notice to Tenant and expiration of the applicable grace period, shall have the right to remedy such maintenance deficiency and apportion all reasonable costs of such inspections and maintenance to Tenant pursuant to Section 4.2.1 hereof (i.e. as Cam Costs), Landlord and Tenant hereby agreeing that written notice or grace period shall not apply in the event of an emergency to persons or property.
At the expiration or termination of this Lease, Tenant shall peaceably yield up the Premises and all changes and additions therein in such order, repair and condition, first removing all goods and effects of Tenant and any items, the removal of which is required by agreement or specified therein to be removed at Tenants election and which Tenant elects to remove, Landlord and Tenant hereby acknowledging and agreeing, however, that the initial improvements constructed by Landlord pursuant to Article III and described in Landlords Plans and Tenants Plans referenced therein shall not be required to be removed by Tenant upon expiration of the Term, as hereinbefore provided in Section 3.1, and repairing all damage caused by such removal and leaving them clean and neat; any property not so removed shall be deemed abandoned and may be removed and disposed of by Landlord, in such manner as Landlord shall determine, and Tenant shall pay Landlord the entire reasonable cost and expense incurred by it by effecting such removal and disposition.
6.1.3. OCCUPANCY AND USE. To use and occupy the Premises only for the Permitted Uses; and not to injure or deface the Premises, Building or Lot; and not to permit in the Premises any auction sale, nuisance, or the emission from the Premises of any objectionable noise or odor, nor to permit any use thereof which is improper, offensive, contrary to law or ordinances, or liable to invalidate or increase the
premiums for any insurance on the Building or its contents or liable to render necessary any alteration or addition to the Building, unless Tenant agrees to pay such increased premiums and/or costs, and such use (if other than Permitted Uses) is approved by Landlord in advance;
6.1.4. RULES AND REGULATIONS. To comply with the Rules and Regulations set forth in Exhibit E and all other reasonable Rules and Regulations hereafter made by Landlord, of which Tenant has been given notice, for the care and use of the Building, Lot and Common Areas of the Park (and their facilities and approaches as further described in the Park Covenants attached hereto as Exhibit I), it being understood that Landlord shall not be liable to Tenant for the failure of other tenants of the Building or Park to conform to such Rules and Regulations; provided that (i) such Rules and Regulations are enforced in a non-discriminatory fashion, (ii) such Rules and Regulations do not materially interfere with or otherwise diminish Tenants use of the Premises and the Building Parking Area or Tenants rights under this Lease, (iii) result in no additional cost or expense to Tenant, (iv) do not impose any additional obligation on Tenant, and (v) in the event of any inconsistency between the such Rules and Regulations and the provisions of this Lease, the provisions of this Lease shall control.
6.1.5. COMPLIANCE WITH LAWS AND SAFETY APPLIANCES. To keep, from and after the initial installation thereof by Landlord, subject to the provisions of Section 10.18 (c), the Premises equipped with all safety appliances required by law or ordinance or any other regulation of any and public authority because of any particular manner of use made by Tenant and to procure and comply with all licenses and permits so required because of such use, it being understood that the foregoing provisions shall not be construed to broaden in any way Tenants Permitted Uses. Tenant shall have the right, upon giving notice to the Landlord, to contest any obligation imposed upon it pursuant to the provisions of this Section 6.1.5, and provided the enforcement of such requirement or law is stayed during such contest and such contest will not subject the Landlord to penalty or jeopardize the title to the Premises or otherwise affect the Premises in any adverse way. Landlord shall cooperate with Tenant in such contest and shall execute any documents reasonably required in the furtherance of such purpose. Notwithstanding the foregoing or any other provision of this Lease, however, Tenant shall not be responsible for compliance with any such laws, regulations, or the like requiring (i) structural repairs or modifications or (ii) repairs or modifications to the utility or building service equipment located outside of the Premises or (iii) installation of new building service equipment, such as fire detection or suppression equipment, unless such repairs, modifications, or installations shall (a) be due to Tenants Construction Work, alterations, or repairs in the Premises or Tenants particular manner of use of the Premises (as opposed to commercial office operations, research and development, and laboratory space, generally), or (b) be due to the negligence or willful misconduct of Tenants or any agent, employee, or contractor of Tenant.
6.1.6. ASSIGNMENT AND SUBLETTING. Tenant shall have the right, subject to the requirement of obtaining Landlords prior written consent, such consent not to be unreasonably withheld, conditioned or delayed by Landlord, to assign this Lease or sublet the whole or any portion of the Premises, which assignment or sublease shall be only for the Permitted Uses, it being understood that Tenant shall, as additional rent, reimburse Landlord promptly for reasonable legal and other expenses incurred by Landlord in connection with any request by Tenant for consent to assignment or subletting (up to a cap of $1,500 per consent request). No assignment or subletting shall affect the continuing primary liability of Tenant (which, following assignment, shall be joint and several with the assignee) or any Security posted by Tenant hereunder (which, if applicable, shall remain in effect throughout the Term, subject to the provisions of Article XI). Such consent by Landlord to any of the foregoing in a specific instance
shall be reasonable, subject to the provisions hereinafter provided. Landlords consent shall not be treated as having been withheld unreasonably if, in connection with any such proposed assignment or subletting: (i) in connection with an assignment of this Lease, the assignee does not agree directly with Landlord, by written instrument in form reasonably satisfactory to Landlord, to be bound by all the obligations of Tenant hereunder including, without limitation, the covenant against further assignment and subletting without the written consent of Landlord where required under this Lease; and/or (ii) the proposed assignment or subletting violates any exclusive use restrictions or exclusions of the Building or Park or is inconsistent with the Permitted Uses allowed hereunder. Tenant hereby acknowledges and agrees that the foregoing is not intended to be an exclusive list of the reasons for which Landlord may reasonably withhold consent to a proposed request by Tenant for consent to assignment or subletting. No consent to any of the foregoing in a specific instance shall operate as waiver in any subsequent instance.
If an assignment or subletting is proposed to be made and Landlords consent is required as hereinabove provided, Tenant shall give Landlord prior notice of such proposal, which such notice shall include such information as Landlord may reasonably request relative to facts which would bear upon the factors entering into the determination whether Landlords approval is to be granted, and it is understood that Landlord shall use diligent efforts within a period of fifteen (15) days after the submission of such information by Tenant to make its determination whether Landlords approval is to be granted hereunder.
In connection with any sublease for which Landlords approval is required, if Tenant so requests, Landlord shall reasonably consider and, in its reasonable discretion, grant to any subtenant subleasing at least one (1) full Building an agreement executed by Landlord pursuant to which Landlord agrees to recognize the rights of such subtenant as a direct tenant of Landlord to occupy the space demised to it under its sublease in accordance with the terms and conditions of its sublease (but at the rental rate set forth in this Lease for such Building, if greater) so long as such subtenant is not in default beyond any applicable grace or cure periods.
Notwithstanding any provision contained in this Lease, no consent of Landlord shall be required for: (a) the assignment of this Lease or the subletting of any portion (or the whole) of the Premises for the Permitted Uses, (i) to a subsidiary of Tenant or any Occupying Tenant Affiliate (as hereinafter defined), (ii) to a corporation or other entity into or with which Tenant or any Occupying Tenant Affiliate has merged or consolidated or to which substantially all of Tenants (or such Occupying Tenant Affiliates) stock (or other equity interests) or assets are transferred, (iii) to any corporation or other entity which controls, is controlled by, or is under common control with Tenant or any Occupying Tenant Affiliate, or (iv) to any corporation or other entity with which Tenant is otherwise affiliated (collectively, the Permitted Transferees); (b) the subletting of up to twenty percent (20%) of the Premises to third parties; or (c) the licensing to one or licensee-operators of any amenities within the Premises; provided that, in any of such events, Tenant shall provide notice to Landlord (unless such disclosure is prohibited by law), Tenant shall remain directly and primarily liable, any assignee agrees directly with Landlord by written instrument reasonably satisfactory to Landlord to be bound by all of the obligations of Tenant (unless no such written instrument is legally required in the event of a merger or consolidation and the like), and the use remains consistent with the Permitted Uses allowed under this Lease. In the event of any such assignment or subletting to a Permitted Transferee for which no consent by Landlord is required hereunder, Tenant shall not be obligated to share Rent Differential as hereinafter set forth.
Landlord agrees that the Premises may be occupied without the need for any sublease or assignment during the Term Lease by any present or future parent, subsidiary, affiliate, business unit or division of Tenant or Keurig, Incorporated (collectively, Occupying Tenant Affiliate), and that any such occupation shall not be deemed a sublease or assignment.
Tenant shall also have the right, without the consent of Landlord (but upon reasonable prior notice to Landlord), to permit the use or occupancy of space in the Premises that is not separately demised and consists of not more than fifty-nine thousand (59,000) Rentable Square Feet of the Premises in the aggregate, by persons who have an ongoing contractual or other business relationship with Tenant providing for cooperative or collaborative work projects or otherwise providing services to Tenant or any Occupying Tenant Affiliate; provided that (x) the such occupants shall use the Premises in conformity with all applicable provisions of this Lease, and (y) such occupancy will terminate automatically upon the expiration or earlier termination of this Lease.
If this Lease shall be assigned, or if the Premises or any part hereof shall be sublet or occupied by any person other than Tenant, Landlord may, at any time and from time to time, collect rent from the assignee, subtenant or occupant and apply the net amount collected to the annual Base Rent, additional rent and all other charges herein reserved, but no such assignment, subletting, occupancy or collection shall be deemed a waiver of the provisions of this Section 6.1.6, or acceptance of the assignee, subtenant or occupant as tenant, or a release of Tenant from the further performance of the terms, covenants and conditions of this Lease on the part of Tenant to be performed. Further, no liability hereunder of Tenant shall be discharged, reduced, released or impaired in any respect by any waiver, indulgence or extension of time which Landlord may grant to the then owner of Tenants interest in this Lease, whether or not notice thereof has been given or consent from Tenant has been obtained.
If Landlord approves a sublease or assignment, and said sublease or assignment is for a total rental amount which on an annualized basis is greater than the Base Rent and additional rent due from Tenant to Landlord under this Lease, Tenant shall pay to Landlord, forthwith upon Tenants receipt of each installment of such excess rent, during the term of any approved sublease or assignment, as additional rent hereunder, in addition to the Base Rent and other payments due under this Lease, an amount equal to fifty percent (50%) of the positive excess between all fixed rent and additional rent received by Tenant under the sublease or assignment and the Base Rent and the additional rent due hereunder after Tenant has recouped its reasonable out-of-pocket expenses with respect to such sublease or assignment, including without limitation, reasonable real estate brokerage commissions, reasonable legal fees, reasonable free rent, reasonable marketing costs and the reasonable costs of refurbishment of the Premises for such sublease or assignment (the Rent Differential). In the event the sublease is for less than the full Premises hereunder, the above rent adjustment shall be equitably pro rated on a square foot basis. Anything contained in the foregoing provisions of this section to the contrary notwithstanding, neither Tenant nor any other person having interest in the possession, use, occupancy or utilization of the Premises shall enter into any lease, sublease, license, concession or other agreement for use, occupancy or utilization of space in the Premises which provides for rental or other payment for such use, occupancy or utilization based, in whole or primarily on the net income or profits derived by any person from the Premises leased, used, occupied or utilized (other than an amount based on a fixed percentage or percentages of receipts or sales), and any such purported lease, sublease, license, concession or other agreement shall be absolutely void and ineffective as a conveyance of any right or interest in the possession use, occupancy or utilization of any part of the Premises;
6.1.7. INDEMNITY. To defend, with counsel reasonably acceptable to Landlord, save harmless, and indemnify Landlord from any liability for injury, loss, accident or damage to any person or property occurring on the Premises, in the Building, or elsewhere in the Park, and from any claims, actions, proceedings and expenses and costs in connection therewith or elsewhere in the Park (including, without implied limitation, reasonable counsel fees) arising from the negligent acts and/or willful misconduct of Tenant or any of Tenants employees, agents, contractors, licensees or invitees and not caused directly by the negligent acts or gross misconduct of Landlord. In no event shall Tenant be obligated to indemnify Landlord for any willful or negligent act or omission of Landlord or any of Landlords employees, agents, contractors or licensees resulting from the failure to perform and discharge Landlords covenants and obligations under this Lease. The covenants and indemnifications set forth in this Section 6.1.7 shall survive the expiration or earlier termination of this Lease;
6.1.8. TENANTS LIABILITY INSURANCE. To maintain public liability insurance in the Premises in amounts which shall, at the beginning of the Term, be at least equal to the limits set forth in Section 1.1 and, upon written request therefor, to furnish Landlord (and/or its mortgagees) with certificates thereof;
6.1.9. TENANTS WORKMENS COMPENSATION INSURANCE. To keep all Tenants employees working in the Premises covered by workmens compensation insurance in statutory amounts and to furnish Landlord with certificates thereof;
6.1.10. LANDLORDS RIGHT OF ENTRY. Upon not less than twenty-four (24) hours advance notice (except in the event of emergencies), at times reasonably acceptable to Landlord and Tenant, to permit Landlord and Landlords agents entry, subject to Tenants security procedures; to examine the Premises (other than those areas of the Premises which Tenant has identified as Secure Areas and provided notice thereof to Landlord) at reasonable times and, if Landlord shall so elect, to make repairs or replacements; to remove, at Tenants expense, any changes, additions, signs, curtains, blinds, shades, awnings, aerials, flagpoles, or other improvements visible outside the Building not consented to in writing by Landlord where such consent is required (Landlord hereby acknowledging that the initial improvements constructed by Landlord pursuant to Article III shall be permitted and may remain upon expiration of the Term as hereinbefore provided in Sections 3.1 and 6.1.2); and to show the Premises to prospective tenants during the twelve (12) months preceding expiration of the Term and to prospective purchasers and mortgagees at all reasonable times;
6.1.11. LOADING. Not to place a load upon the Premises exceeding the limits outlined in Exhibits B-2, B-4, and B-6, as applicable; and not to move any safe, vault or other heavy equipment in, about or out of the Premises except in such a manner and at such times as Landlord shall in each instance approve, which approval shall not be unreasonably withheld, conditioned or delayed; Tenants business machines and mechanical equipment which cause material vibration or noise that may be transmitted to the Building structure and affects other tenants of the Building shall be placed and maintained by Tenant in settings of cork, rubber, spring, or other types of vibration eliminators sufficient to eliminate such vibration or noise;
6.1.12. LANDLORDS COSTS. In case Landlord shall, without any fault on its part, be made party to any litigation commenced by or against Tenant or by any party claiming under Tenant, to pay, as additional rent, all actual third party reasonable costs including, without implied limitation, reasonable counsel fees incurred by or imposed upon Landlord in connection with such litigation, and, as additional
rent, also to pay all such reasonable costs and fees incurred by Landlord in connection with the successful enforcement by Landlord of any obligations of Tenant under this Lease;
6.1.13. TENANTS PROPERTY. All the furnishings, fixtures, equipment, effects and property of every kind, nature and description of Tenant and of all persons claiming by, through or under Tenant which, during the continuance of this Lease or any occupancy of the Premises by Tenant or anyone claiming under Tenant, may be on the Premises or on the Lot shall be at the sole risk and hazard of Tenant, except for Landlords gross negligence or willful act or omission, and if the whole or any part thereof shall be destroyed or damaged by fire, water or otherwise, or by the leakage or bursting of water pipes, steam pipes, or other pipes, by theft, or from any other cause, no part of said loss or damage is to be charged to or to be borne by Landlord, except if caused directly by Landlords gross negligence or willful misconduct;
6.1.14. LABOR OR MATERIALMENS LIENS. To pay promptly when due the entire cost of any work done on the Premises by Tenant, its agents, employees, or independent contractors; not to cause or permit any liens for labor or material performed or furnished in connection therewith to attach to the Premises; and within thirty (30) days after Tenants receipt of notice thereof, to discharge or bond over any such liens which may so attach;
6.1.15. CHANGES OR ADDITIONS. Not to make any material changes, alterations or additions (Alterations) to the Premises without Landlords prior written consent, which such consent shall not be unreasonably withheld or delayed. Notwithstanding the foregoing, Tenant may, from time to time, at its own cost and expense and without the consent of Landlord, make (i) cosmetic Alterations (including, without limitation, paint and carpet), (ii) Alterations involving the conversion of laboratory space to office space, and (iii) Alterations whose cost in any one instance is Two Hundred Fifty Thousand Dollars ($250,000.00) or less, so long as they do not materially and adversely affect any of the mechanical, electrical or plumbing systems of the Building, the structure or the roof of the Building, or the life safety systems of the Building (collectively herein called Permitted Alterations), and provided that Tenant obtains any governmental approvals that may be required for such Permitted Alterations and first notifies Landlord in writing of any such Permitted Alterations. If Tenant desires to make any Alterations which are not Permitted Alterations, Tenant must first obtain the consent of Landlord thereto, which consent shall not be unreasonably withheld, conditioned or delayed. Landlord agrees to provide written consent, or non-consent, stating the reasons for such non-consent (and if non-consent, alternatively which Landlord would approve), within ten (10) days of receiving written request from Tenant (together with all relevant plans and specifications relating thereto), otherwise Landlords consent shall be deemed granted if no response is given by Landlord within such time period. If Landlord reasonably concludes that the Alterations are not typical or customary office (or in case of the Phase I Premises, research and development and laboratory) improvements and ancillary or accessory leasehold improvements and involve any construction, alterations or additions requiring unusual expense to readapt the Premises to normal office use (or in case of the Phase I Premises, research and development or laboratory space) on the Term Expiration Date, Landlord shall notify Tenant in writing at the time of approval that such readaptation will be required to be made by Tenant prior to such Term Expiration Date without expense to Landlord, and in the absence of such notification Tenant shall not be obligated to remove or restore any such Alteration.
Any and all such Alterations, including, Permitted Alterations may be done by any contractor chosen by Tenant provided any such contractor is reputable, bondable by reputable bonding companies, carries the
kind of insurance and in the amounts set forth herein, and will work in reasonable harmony with Landlords contractors and laborers, if any, who are then performing construction work in the Building; provided that Tenant will not be required to obtain any payment, performance or lien bonds or other security for the performance of Alterations to the Premises or use union labor. Landlord shall not charge any supervisory fee, surcharges, or any other charges in connection with Tenants Alterations during the Term, so long as Landlord (or its contractor) is not performing the Alterations, on Tenants behalf.
Tenant in making any alterations, including Alterations, shall cause all work to be done in a good and workmanlike manner using materials substantially equal to or better than those used in the construction of the Premises or original Tenants Work and shall comply with or cause compliance with all laws and with any direction given by any public officer pursuant to law. Tenant shall obtain or cause to be obtained and maintain in effect, as necessary, all building permits, licenses, temporary and permanent certificates of occupancy and other governmental approvals which may be required in connection with the making of the alterations, including the Alterations. Landlord shall cooperate with Tenant in the obtaining thereof and shall execute any documents reasonably required in furtherance of such purpose, provided any such cooperation shall be without expense and/or liability to Landlord.
At least annually if such Alterations or any other alterations hereunder have occurred during the past calendar year, at Landlords request Tenant shall furnish to Landlord as-built sepias and, if applicable, operating manuals, or, at Landlords option and only if Tenants computer system is compatible with that of Landlords, computer disk specifications compatible with Landlords computer system of the work done by Tenant during such past year and copies of all permits issued in connection therewith.
Tenant shall have its contractor(s) procure and maintain in effect during the performance of such Alterations satisfactory insurance coverages with an insurance company or companies authorized to do business in the Commonwealth of Massachusetts, and shall, upon Landlords request, furnish Landlord with certificates thereof;
6.1.16. HOLDOVER. To pay to Landlord two hundred percent (200%) of the monthly Base Rent, plus the actual additional rent then applicable, for each month or pro-rated portion thereof in which Tenant shall retain possession of the Premises or any part thereof after the expiration or termination of this Lease, whether by lapse of time or otherwise, and also to pay all out of pocket damages directly and proximately sustained by Landlord on account thereof (such as eviction costs, architectural and engineering costs and reasonable legal fees, but excluding lost profits, loss of business, special, incidental, or consequential damages). Notwithstanding the foregoing, Landlord agrees that: (i) during the first sixty (60) days of any such holdover, only one hundred twenty five percent (125%) of the monthly Base Rent last due, plus the actual additional rent then applicable, shall be due and payable; (ii) after the first sixty (60) days but before ninety (90) days of any such holdover, only one hundred seventy-five percent (175%) of the monthly Base Rent, plus the actual additional rent shall be due and payable; and (iii) if after ninety (90) days of any holdover following the expiration date of the Term, Tenant appeals Landlords summary process proceedings to evict Tenant from the Premises, then such holdover rent shall increase to three hundred percent (300%) of the monthly Base Rent, plus the actual additional rent then applicable, shall be due and payable; provided however, the increase in holdover rent set forth in subsection (iii) shall not apply during any period that Tenant is appealing, in good faith, the summary process proceedings brought by Landlord following an earlier termination of this Lease by Landlord then disputed by Tenant. The provisions of this Section 6.1.16 shall not waive or diminish any of Landlords rights under Article 9 of this Lease.
6.1.17. HAZARDOUS MATERIALS. Tenant shall not (either with or without negligence) cause the disposal or release of any Hazardous Materials onto the Premises or the Lot by Tenant or any of its employees, agents, or contractors, except in accordance with the requirements of applicable laws and regulations. Tenant shall not allow the storage or use of Hazardous Materials in any manner not permitted by law, nor allow to be brought into the Premises any such Hazardous Materials except to use in the ordinary course of Tenants business. Additionally, Tenant agrees not to violate any provisions within the environmental provisions of the agreements set forth on Exhibit H hereto, provided, however, that Tenant shall have no obligation to take any action with respect to Hazardous Materials existing on the Lot, the Premises or the Park as of the Term Commencement Date. Upon Landlords written request given not more than once annually, Tenant shall furnish to Landlord an inventory of the identity of any Hazardous Materials used in the ordinary course of Tenants business, other than Hazardous Materials customary for office or other commercial use. If any governmental agency shall ever require testing to ascertain whether or not there has been any release of Hazardous Materials, then the reasonable costs thereof shall be reimbursed by Tenant to Landlord upon demand as additional charges if and only if the following conditions are satisfied; (i) if such requirement applies to the Premises and any environmental condition first occurring or arising during the Term and caused by the actions of Tenant and (ii) if an independent, reputable third party engineer employed by Landlord or persons acting under Landlord and reasonably approved by Tenant conclusively determines that such release had been solely and exclusively caused by Tenant or persons acting under Tenant. If Tenant receives from any federal, state or local governmental agency any notice of violation or alleged violation of any Hazardous Waste Law, or if Tenant is obligated to give any notice under any Hazardous Waste Law, Tenant agrees to forward to Landlord a copy of any such notice within five (5) business days of Tenants receipt or transmittal thereof. Subject to the other provisions of this Lease, Landlord retains the right to inspect the Premises at all reasonable times, upon reasonable notice to Tenant, to ensure compliance with this paragraph. Nothing in this Section 6.1.17 is intended to affect Landlords obligations (including its obligations to defend, save harmless and indemnify Tenant) set forth in Sections 5.1.7 and 5.1.8. The within covenants shall survive the expiration or earlier termination of the Lease Term;
6.1.18. SIGNS AND NAMING RIGHTS. Tenant shall not, without prior written consent of Landlord (which such consent shall not be unreasonably withheld, conditioned, delayed or denied), (a) place any exterior signs visible outside the Building, on the Lot or the Premises or anywhere on the exterior of the Building, or (b) place any awnings or flagpoles or the like anywhere on the exterior of the Building visible from outside the Premises, in each case except as otherwise expressly set forth below in this Section 6.1.18 or elsewhere in this Lease. Tenant shall pay the expenses involved in the erection of any sign and of obtaining all necessary permits and approvals therefor. Except as otherwise provided below with respect to the initial Building signage, Tenant shall obtain (and furnish copies thereof to Landlord) all necessary permits and approvals in compliance with local codes and ordinances prior to erecting any such sign(s). Tenant shall remove any of such sign(s) erected by Tenant or on behalf of Tenant upon the termination of this Lease.
Notwithstanding the foregoing, Tenant shall have the right without Landlords consent to place signage in locations determined by the Tenant on the exterior of the Building and elsewhere in the Park in the locations and in accordance with the specifications set forth on Schedule 6.1.18. If Tenant does not exercise its option to lease Phase III, Tenant shall prior to the substantial completion of any building on Phase III remove the monument sign identified on such Schedule as Phase III Monument Sign. In connection with Tenants Building signage, Tenant shall obtain all necessary permits and approvals required pursuant to local codes and ordinances for the building and site signage (i.e., exterior signage
on the Building as well as standard interior signage in the main lobby, elevator lobby, entrance to the Premises and a reasonable amount if entries in any electronic directory). Subject to the following sentence, Tenants signage on the Building shall be exclusive until such time as Tenant fails to lease (or sublease) at least one hundred percent (100%) of the Building, in which case signage shall be allocated consistent with the prorata shares of Rentable Square Feet in the Building leased by Tenant and other tenants and further provided that Tenant shall not be required to remove any then existing signage. Tenant shall have the right to provide its subtenants with such signage as Tenant elects, subject to obtaining all necessary permits and approvals in compliance with local codes and ordinances prior to erecting any such sign(s). Landlord agrees to cooperate with Tenant during any sign permitting process by (i) promptly executing the necessary documentation reasonably requested by Tenant, and (ii) by furnishing the same to Tenant promptly upon Tenants request, but in no event later than seven (7) days following Tenants request. Further, the construction and erection of any such signage shall be Tenants sole responsibility and at Tenants sole cost and expense.
Tenant shall have the right from time to time to name or require Landlord to name the Park such name as Tenant selects to identify Tenant or any Occupying Tenant Affiliate or the business conducted by them at the Premises, or such other name as may be designated by Tenant to correspond with the name of Tenant or any Occupying Tenant Affiliate, so long as Tenant is the tenant of Phase I, Phase II and Phase III (including any subleases or assignees of Tenant), however, if the Tenant does not lease Phase III, then Tenant can continue to have naming rights within the portion of the Park included within Phase I and Phase II.
6.1.19. TENANTS AUTHORITY. Tenant has the power and authority to enter into this Lease and perform the obligations of Tenant hereunder. This Lease and all other documents executed and delivered by Tenant in connection herewith constitute legal, valid, binding and enforceable obligations of Tenant;
6.1.20. INTENTIONALLY OMITTED;
6.1.21. COVENANTS INDEPENDENT. Each provision hereof constitutes an independent covenant, enforceable separately from each other covenant hereof. To the extent any provision hereof or any application of any provision hereof may be declared unenforceable, such provision or application shall not affect any other provision hereof or other application of such provision. Tenant acknowledges and agrees that Tenants obligation to pay Base Rent and additional rent is independent of any and all obligations of Landlord hereunder, with the result that Tenants sole remedies for any alleged breach by Landlord of its obligation hereunder shall be to commence a judicial proceeding against Landlord seeking specific performance or damages, or to pursue such other remedies as are expressly contained in this Lease; and
6.1.22. SECURITY. Tenant shall have the option to contract, at its sole cost and expense, for security for the Building and Building Parking Area.
ARTICLE VII
CASUALTY AND TAKING
7.1. CASUALTY AND TAKING
In case during the Term all or any substantial part of the Premises, and/or the Building Parking Area, or any part thereof, or both (i.e. in the case of a fire or casualty, requiring greater than fourteen (14) months to rebuild in the reasonable judgment of an architect or general contractor selected by Landlord and reasonably approved by Tenant (the Restoration Estimator); or in the case of a condemnation or a taking, more than twenty-five percent (25%) of the floor area of the Premises or any material part of the means of access thereto or more than twenty percent (20%) of Building Parking Area) are damaged by fire or any other casualty or by action of public or other authority in consequence thereof or are taken by eminent domain Landlord shall give prompt notice, (i.e. within thirty (30) days thereof) to Tenant (the Landlords Notice) and this Lease shall terminate at Tenants election, which may be made by notice given to Landlord within thirty (30) days after the date of Landlords Notice, which termination shall be effective (i) in the event of a casualty, not less than thirty (30) nor more than sixty (60) days after the date of notice of such termination, and (ii) in the event of eminent domain event, as of the date on which such taking becomes effective and Tenant is deprived of the use and enjoyment of the Premises, or part thereof, and/or the Building Parking Area, or part thereof If in any such case this Lease is not so terminated, Landlord shall proceed promptly and use due diligence to put the Premises, or part thereof, and/or the Building Parking Area, or part thereof, or in case of taking, what may remain thereof (excluding any items installed by Tenant which Tenant may be permitted to remove upon the expiration of the Term) into as near as possible to the condition and character thereof prior to such damage or taking (except that Landlords obligation to restore any LEED certification shall be limited to the LEED certification previously obtained, to the extent then in force and applicable), and in any event shall be obligated to apply all insurance proceeds or eminent domain awards received by it toward such work, plus any deductibles and other funds required to complete such restoration and such amounts as Tenant may elect to make available for such work as hereinafter provided, or the amount of the eminent domain award, and an equitable proportion of the Base Rent and additional rent according to the nature and extent of the injury shall be abated until the Premises or such remainder and the Building Parking Area shall have been put by Landlord in such condition; and in case of a taking which permanently reduces the area of the Premises, an equitable proportion of the Base Rent and additional rent shall be abated for the remainder of the Term and an appropriate adjustment shall be made to the CAM Costs and other additional rent payable hereunder.
However, in the case of a casualty, if such damage is not repaired and the Premises, or portion thereof, and/or Building Parking Area or part thereof, restored to the same condition as they were prior to such damage within fourteen (14) months from the date of Landlords Notice, then Tenant, within thirty (30) days from the expiration of such fourteen (14) month period or from the expiration of any extension thereof by reason of any Tenants Delay (as defined in Section 3.2 hereof) and/or Force Majeure (as defined in Section 3.5 hereof and subject to the provisions set forth below) as hereinafter provided, may terminate this Lease by notice to Landlord and Landlords mortgagee(s), given in accordance with Section 10.3 hereof, specifying a date not more than thirty (30) days after the giving of such notice on which the Term of this Lease shall terminate. Notwithstanding such termination notice by Tenant, in the event that Landlord repairs such damage and restores the Premises to the same condition prior to such casualty during such period, not to exceed thirty (30) days, as specified in Tenants notice, then such notice of termination given by Tenant to Landlord hereunder shall be null and
void and of no further force or effect. The period within which the required repairs may be accomplished hereunder shall be extended by (a) the number of days lost as a result of a Tenants Delay, as defined in and subject to the provisions of Section 3.2, with such term, however, relating to restoration or repair as referenced herein and not to the initial construction of the Building, and (b) the number of days lost as a result of Force Majeure, as defined in Section 3.5 (up to a maximum of forty-five (45) days in the aggregate as aforesaid).
If less than a substantial part of the Premises or Lot, or portion thereof, and/or the Building Parking Area, or portion thereof (i.e. in the case of a fire or casualty, requiring less than fourteen (14) months to rebuild in reasonable judgment of the Restoration Estimator; or in the case of a condemnation or taking twenty-five percent (25%) or less of the floor area of the Premises or any part of the means of access thereto or twenty percent (20%) or less of the Building Parking Area) are damaged by fire or any other casualty or are taken by eminent domain, then Landlord shall give prompt notice (i.e. within thirty (30) days) thereof to Tenant, which notice shall specify the Restoration Estimators estimation of the time period within which such repairs shall be completed, and thereafter Landlord shall proceed promptly and with due diligence plus any deductible and other funds required to complete such restoration amounts and using such amount as Tenant may elect to make available for such work as hereinafter provided, or the amount of the eminent domain award. In the event that Landlord fails to repair such damage and restore the Premises to substantially the same condition prior to such fire and other casualty within the time period as reasonably estimated by Landlord, but in no event greater than such fourteen (14) month period from the date of such Landlords notice to Tenant, or any extension thereof permitted for delays lost due to any Tenants Delay and/or Force Majeure (as hereinbefore provided), then Tenant may terminate this Lease by written notice to Landlord and to Landlords mortgagee(s), as provided in Section 10.3 hereof, specifying a date not more than thirty (30) days after the giving of such notice on which the Term of this Lease shall terminate. Notwithstanding such termination notice by Tenant, in the event that Landlord repairs such damage and restores the Premises to substantially the same condition prior to such fire or other casualty during such period, not to exceed thirty (30) days, as specified in Tenants notice, then such notice of termination given by Tenant to Landlord hereunder shall be null and void and of no further force and effect. If less than a substantial part of the Premises and/or the Building Parking Area shall be so damaged, then Base Rent and additional rent due hereunder shall be equitably abated until the Premises and/or the Building Parking Area are so restored as set forth hereunder.
Landlords architects certificate, given in good faith, shall be deemed conclusive statements therein contained and binding upon Tenant with respect to the performance and completion of any repair or restoration work undertaken by Landlord pursuant to this Section, except in the event of disagreement between Landlord and Tenant relating to this Section, in which event the dispute resolution provisions of Section 3.6 shall apply.
Notwithstanding any language to the contrary, Landlord may construct Replacement Parking pursuant to the following: If not more than twenty percent (20%) of the Building Parking Area shall be so damaged, taken, appropriated, or condemned as aforesaid, then Landlord or Tenant may elect to provide Replacement Parking and render Tenants notice of termination nugatory (if applicable) by, within thirty (30) days following the effective date of such destruction, taking, appropriation or condemnation, giving to Tenant notice in writing that Landlord will, at Landlords expense, construct replacement parking spaces of the same quantity and quality and convenience as the parking spaces so taken, appropriated or condemned (i.e., Landlord shall locate the replacement parking spaces as close to
the Building as possible). Any of such Replacement Parking shall be constructed by Landlord within a reasonable time period following the effective date of such destruction, taking, appropriation or condemnation, but in no event later than thirty (30) days after the occurrence of such destruction, taking, appropriation or condemnation, it being agreed by Landlord and Tenant that such time period shall be extended to include weather-related delays as aforesaid, in which event such Replacement Parking will be completed as reasonably possible thereafter, Landlord agreeing to proceed promptly and with due diligence to complete construction of any Replacement Parking. Landlord and Tenant acknowledge that if Landlord is prevented from performing the final paving for said Replacement Parking on account of weather, such final paving may be performed as soon thereafter as is feasible. Such notice shall be accompanied by (A) a site plan showing (i) the location of the Replacement Parking spaces, and (B) an opinion from counsel for Landlord that such Replacement Parking may be constructed as-of-right under then applicable zoning and land use regulations.
In the event of any other taking of the Premises, or any part thereof, for temporary use or for less than one (1) year, (i) this Lease shall be and remain unaffected thereby; and (ii) Landlord shall pay to Tenant its pro rata share of any such use, provided that if any taking is for a period extending beyond the Term of this Lease, such award shall be appointed between Landlord and Tenant as of the Term Expiration Date.
Tenant has the option but not the obligation, in any fire or other casualty which creates a Landlord repair obligation in accordance with the terms of this Section to make available for such reconstruction all or a portion of the amount by which the cost of repair as certified by Landlords architect exceeds the amount of proceeds received by Landlord.
7.2. RESERVATION OF AWARD
Landlord reserves to itself any and all rights to receive awards made for damages to the Premises or Lot and the leasehold hereby created, or any one or more of them, accruing by reason of exercise of eminent domain or by reason of anything lawfully done in pursuance of public or other authority. Tenant hereby releases and assigns to Landlord all Tenants rights to such awards, and covenants to deliver such further assignments and assurances thereof as Landlord may from time to time request. It is agreed and understood, however, that Landlord does not reserve to itself, and Tenant does not assign to Landlord, any damages payable for (i) movable trade fixtures installed by Tenant or anybody claiming under Tenant, at its own expense, or (ii) relocation expenses recoverable by Tenant from such authority in a separate action, or (iii) the value of Tenants improvements installed in the Premises by or on behalf of Tenant, but except with respect to Tenants Work, not by Landlord.
7.3. ADDITIONAL CASUALTY PROVISIONS
(a) Landlord shall not be required to repair or replace any of Tenants business machinery, equipment, cabinet work, furniture, personal property or other installations not originally installed by Landlord.
(b) In the event of any termination of this Lease pursuant to this Article VII, the Term of this Lease shall expire as of the effective termination date as fully and completely as if such date were the date herein originally scheduled as the Term Expiration Date, and Landlord shall assist Tenant to the extent necessary to secure Tenants share of any insurance
award relative to the Tenants Work hereunder. Tenant shall have access to the Premises at Tenants sole risk for a period of thirty (30) days after the date of termination in order to remove Tenants personal property except as prohibited by any applicable governmental agency or official.
(c) Notwithstanding any language to the contrary contained in this Article VII, if all or any substantial part of the Premises and/or the Building Parking Areas or any part thereof (as hereinabove defined), shall be damaged by fire or other casualty or taken by eminent domain during the last two (2) years of the initial Term of this Lease or the last two (2) years of either of the Extended Terms, as the case may be, then either Landlord or Tenant may terminate this Lease effective as of the date of such fire or other casualty or taking upon notice to the other as aforesaid, except that Landlord may not terminate this Lease pursuant to this paragraph if Tenant has elected to exercise its option to extend the initial Term, or the Extended Term, prior to the receipt of Landlords notice of termination, or the applicable Extended Term, as the case may be, of this Lease for five (5) additional years in accordance with Exhibit F. Further, Tenant may elect to render Landlords notice of termination null and void by, within thirty (30) days following receipt of Landlords termination notice, giving to Landlord notice in writing exercising its option to extend the initial Term, or the applicable Extended Term, as the case may be, of this Lease for five (5) additional years in accordance with Exhibit F. In the event of such early exercise, Landlord and Tenant agree to determine the Base Rent for the applicable Extended Term in accordance with the time periods and in the manner set forth in said Exhibit P.
(d) The provisions of this Article VII shall apply both on a per Phase basis and collectively to all Phases such that Tenants right to terminate this Lease with respect to any particular Phase of the Premises shall become effective if the foregoing conditions are satisfied with respect to any particular Phase of the Premises in question, and Tenants right to terminate this Lease in its entirety shall become effective if the foregoing conditions are satisfied with respect to all of the then Premises (taken as a whole) leased by Tenant under this Lease.
ARTICLE VIII
RIGHTS OF MORTGAGEE
8.1. PRIORITY OF LEASE
Landlord shall have the option to subordinate this Lease to any mortgage or deed of trust of the Lot or Premises, or both (the mortgaged premises), provided the holder thereof enters into a Subordination, Non-Disturbance and Attornment Agreement (the SNDA) substantially in the form attached hereto as Exhibit J (or such other form mutually agreeable to Tenant and Landlords mortgagee, each party agreeing to reasonably cooperate with each other in reaching mutual agreement on the content of any such other form, so long as such other form does not reduce or alter Tenants rights or obligations thereunder). As of the execution of the Lease, Landlord represents and certifies to Tenant that there is no current mortgagee or deed of trust placed on the Lot or Premises, or both. Landlord agrees to use diligent efforts to deliver the SNDA to Tenant on or before August 31, 2012, otherwise Tenant shall have the right to terminate this Lease by delivery of written notice thereof to Landlord, in
which event this Lease shall terminate and be of no further force and effect, except for those provisions which expressly survive a termination, and Landlord shall reimburse Tenant for its actual and reasonable out-of-pocket third party costs for architectural, engineering, legal and other reasonable out-of-pocket third party costs incurred to the date of termination.
8.2. LIMITATION ON MORTGAGEES LIABILITY
Following notice to Tenant and upon entry and taking possession of the mortgaged premises for any purpose other than foreclosure, the holder of a mortgage shall have all rights of Landlord, and during the period of such possession, the duty to perform all Landlords obligations hereunder. Except during such period of possession, no such holder shall be liable, either as mortgagee or as holder of a collateral assignment of this Lease, to perform, or be liable in damages for failure to perform any of the obligations of Landlord unless and until such holder shall enter and take possession of the mortgaged premises for the purpose of foreclosing a mortgage. Upon entry for the purpose of foreclosing a mortgage, such holder shall be liable to perform all of the obligations of Landlord, subject to the provisions of Section 8.3 provided that a discontinuance of any foreclosure proceeding shall be deemed a conveyance under the provisions of Section 10.4 to the owner of the equity of the mortgaged premises. From and after making entry and taking possession of the Premises, any such mortgagee shall be fully and completely liable for the obligations hereunder,
8.3. MORTGAGEES OBLIGATION
The holder of the first mortgage on the mortgaged premises shall have the option to fund all costs of the Landlords Work and Tenants Work not funded by Landlord, all as more particularly provided in the SNDA.
8.4. NO PREPAYMENT OR MODIFICATION, ETC.
No Base Rent, additional rent, or any other charge shall be paid more than thirty (30) days prior to the due dates thereof, and payments made in violation of this provision shall (except to the extent that such payments are actually received by a mortgagee in possession or in the process of foreclosing its mortgage) be a nullity as against such mortgagee. No assignment of this Lease (excepting only in accordance with the provisions of this Lease) and no agreement to make or accept any surrender, termination or cancellation of this Lease (excepting only in accordance with the provisions of this Lease) and no agreement to modify so as to reduce the rent, change the Term, or otherwise materially change the rights of Landlord under this Lease, or to relieve Tenant of any obligations or liability under this Lease, shall be valid unless consented to in writing by Landlords mortgagees of which Tenant has received notice,
8.5. NO RELEASE OR TERMINATION
Except for Tenants termination rights expressly contained in this Lease or as otherwise permitted by law, no act or failure to act on the part of Landlord shall result in a release or termination of Tenants obligations hereunder or a termination of this Lease unless (i) Tenant shall have first given thirty (30) days prior written notice of Landlords act or failure to act to Landlords mortgagees of which Landlord has provided written notice to Tenant, if any, specifying the act or failure to act on the part of Landlord which could or would give basis to Tenants rights, and (ii) such mortgagees, after receipt of such notice, have failed or refused to correct or cure the condition complained of within a reasonable
time thereafter, but nothing contained in this Section 8.5 shall be deemed to impose any obligation on any such mortgagee to correct or cure any such condition. Reasonable time as used above means and includes a reasonable time to obtain possession of the mortgaged premises, if the mortgagee elects to do so, and a reasonable time to correct or cure the condition if such condition is determined to exist, but shall not exceed one hundred eighty (180) days.
8.6. CONTINUING OFFER
The covenants and agreements contained in this Lease with respect to the rights, powers and benefits of a mortgagee (particularly, without limitation thereby, the covenants and agreements contained in this Article VIII) constitute a continuing offer to any person, corporation or other entity, which by accepting or requiring an assignment of this Lease or by entry or foreclosure assumes the obligations herein set forth with respect to such mortgagee, and such mortgagee shall be entitled to enforce such provisions in its own name. Tenant agrees on request of Landlord to execute and deliver from time to time any agreement which may reasonably be deemed necessary to implement the provisions of this Article VIII.
8.7. SUBMITTAL OF FINANCIAL STATEMENT
At any time that Tenant ceases to be a pUblicly traded company, but not more than annually during the Term of this Lease, within fifteen (15) days after request therefor by Landlord (i.e. if requested by Landlords mortgagee(s)), Tenant shall supply to Landlord and/or any mortgagee of Landlord a current financial statement, which such financial statement may be given by Tenant to Landlord in the form of Tenants current annual report, or such other financial information as may be reasonably required by any such party, but shall include at least a balance sheet and income statement. Landlord agrees to use diligent efforts to keep such information confidential and to request Landlords mortgagee to keep such information confidential. As aforesaid, if Tenant is a publicly traded company this provision is not applicable.
ARTICLE IX
DEFAULT
9.1. EVENTS OF DEFAULT BY TENANT
It shall be an Event of Default under this Lease, if (i) Tenant fails to pay Base Rent or additional rent, and such failure continues for more than seven (7) business days after written notice thereof specifying such failure and that such failure may be an Event of Default hereunder; (ii) Tenant fails to perform its other non-monetary obligations hereunder for more than thirty (30) days after notice thereof from Landlord, together with such additional time, if any, as is reasonably required to cure the default if the default is of such a nature that it cannot reasonably be cured in thirty (30) days; or (iii) if Tenant makes any assignment for the benefit of creditors, or files a petition under any bankruptcy or insolvency law; or (iv) if such a petition is filed against Tenant and is not dismissed within sixty (60) days; or (v) if a receiver becomes entitled to Tenants leasehold hereunder and it is not returned to Tenant within ninety (90) days; or (vi) such leasehold is taken on execution or other process of law in any action against Tenant; then, and in any such cases, Landlord and the agents and servants of Landlord may, in addition to and not in derogation of any remedies for any preceding breach of covenant, immediately or
at any time thereafter while such default continues and without further notice, enter into and upon the Premises or any part thereof in the name of the whole or mail a notice of termination addressed to Tenant at the Premises and repossess the same as of Landlords former estate and expel Tenant and those claiming through or under Tenant and remove its and their effects without being deemed guilty of any manner of trespass and without prejudice to any remedies which might otherwise be used for arrears of rent or prior breach of covenant, and upon such entry or mailing as aforesaid, this Lease shall terminate, but Tenant shall remain liable as hereinafter provided. After the occurrence of an Event of Default as aforesaid, Tenant hereby waives all statutory rights of redemption, if any to the extent such rights may be lawfully waived, and Landlord, without notice to Tenant, may store Tenants effects and those of any person claiming through or under Tenant at the expense and risk of Tenant and, if Landlord so elects, may sell such effects at public auction or private sale and apply the net proceeds to the payment of all sums due to Landlord from Tenant, if any, and pay over the balance, if any, to Tenant.
9.2. TENANTS OBLIGATIONS AFTER TERMINATION
In the event that this Lease is terminated under any of the provisions contained in Section 9.1 or shall be otherwise terminated for breach of any obligation of Tenant, Tenant covenants as follows:
(a) at Landlords election and in lieu of any other damages, within three (3) months following the termination of this Lease or Tenants right to possession of the Premises, to pay forthwith to Landlord, as compensation, a lump sum representing the present value of the total rent reserved for the residue of the Term, minus the present value of the aggregate fair market rent and additional Rent therefore. (The Federal Reserve discount rate, or equivalent, plus 5% shall be used in calculating present values.) In calculating the rent reserved, there shall be included, in addition to the Base Rent and all additional rent, the value of all other consideration agreed to be paid or performed by Tenant for said residue, less the net proceeds of any rents obtained by Landlord in reletting the Premises as provided in (b)(ii) below; and
(b) and, to the extent not received in (a) above or to the extent Landlord elects, in its sole discretion, to proceed under this subparagraph (b) rather than subparagraph (a), as an additional and cumulative obligation, to pay punctually to Landlord all of the sums and perform all of the obligations which Tenant covenants in this Lease to pay and to perform in the same manner and to the same extent and at the same time as if this Lease had not been terminated. In calculating the amounts to be paid by Tenant under this subclause (b), Tenant shall be credited with: (i) any amount paid to Landlord as compensation as provided in subclause (a) of this Section 9.2 (if Landlord elects to proceed pursuant to subclause (a)); and (ii) the net proceeds of any rents obtained by Landlord by reletting the Premises, after deducting all of Landlords expenses in connection with such reletting, including, without implied limitation, all repossession costs, brokerage commissions, tenant improvements costs paid or tenant improvement allowances granted, fees for legal services, and any other expenses of reletting the Premises or preparing the Premises for the new tenant or tenants.
Landlord agrees to use commercially reasonable efforts to relet the Premises following termination provided, however, that Landlord: (x) may relet the Premises or any part or parts thereof for a term or terms which may, at Landlords option, be equal to or less than or exceed the period which
would otherwise have constituted the balance of the Term, and may grant such concessions and free rent as Landlord in its sole judgment considers advisable or necessary to relet same; (y) may make such alterations, repairs and decorations in the Premises as Landlord, in its sole judgment, considers advisable or necessary to relet the same, and no action of Landlord in accordance with the foregoing sub clauses (x) and/or (y), or Landlords failure to relet or to collect the rent through reletting, shall operate or be construed to release or reduce Tenants liability as aforesaid; and (z) shall have no duty to relet the Premises to a prospective tenant who is also interested in leasing other space that Landlord (or its affiliate(s)) then has available.
So long as at least twelve (12) months of the Term remain unexpired at the time of such termination, in lieu of any other damages of indemnity and in lieu of full recovery by Landlord of all sums payable under all the foregoing provisions of this Section 9.2, Landlord may, by written notice to Tenant, at any time after this Lease is terminated under any of the provisions contained in Section 9.1, or is otherwise terminated for breach of any obligation of Tenant and before such full recovery, elect to recover, and Tenant shall thereupon pay, as liquidated damages, an amount equal to the aggregate of the Base Rent and additional rent accrued under Article IV in the twelve (12) months ended next prior to such termination (or if the Term has not yet commenced, the Base Rent and additional rent that would be due for said time period) plus the amount of Base Rent and additional rent of any kind accrued and unpaid at the time of termination. To effectively exercise the foregoing remedy, Landlord must make such election within three (3) months following the termination of this Lease or Tenants right to possession of the Premises.
Nothing contained in this Lease shall, however, limit or prejudice the right of Landlord to prove and obtain in proceedings for bankruptcy or insolvency by reason of the termination of this Lease, an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which, the damages are to be proved, whether or not the amount be greater, equal to, or less than the amount of the loss or damages referred to above.
ARTICLE X
MISCELLANEOUS
10.1. TITLES
The titles of the Articles are for convenience and are not to be considered in construing this Lease.
10.2. NOTICE OF LEASE
Concurrently with the executing of this Lease, Landlord and Tenant have executed and recorded a notice of lease in the form attached hereto as Exhibit Q. If this Lease is terminated before the Term expires, the parties will, at the request of either party, execute an instrument in such form acknowledging the date of termination.
10.3. NOTICES FROM ONE PARTY TO THE OTHER
No notice, approval, consent requested or election required or permitted to be given or made pursuant to this Lease shall be effective unless the same is in writing. Communications shall be addressed, if to Landlord, at Landlords Address with a copy to Gloria M. Gutierrez, Esq., Executive
Vice President and Corporate Counsel, The Gutierrez Company, One Wall Street, Burlington, MA 01803, or at such other address as may have been specified by prior notice to Tenant and, if to Tenant, at Tenants Address with a copy to Tenant at Tenants Address, to the attention of General Counsel and to Bingham McCutchen LLP, One Federal Street, Boston, Massachusetts 02110, Attention: Richard A. Toelke, Esq., or at such other place as may have been specified by prior notice to Landlord. Any communication so addressed shall be deemed duly served if actually received or delivery is refused at the foregoing addresses mailed by registered or certified mail, return receipt requested, delivered by hand, or by overnight express service by a carrier providing a receipt of delivery.
10.4. BIND AND INURE
The obligations of this Lease shall run with the land, and this Lease shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, successors and assigns, except that the Landlord named herein and each successive owner of the Premises shall be liable only for the obligations accruing during the period of its ownership, said liability terminating as to future liability upon termination of such ownership and passing to the successor in ownership. Neither the Landlord named herein nor any successive owner of the Premises whether an individual, trust, a corporation or otherwise shall have any personal liability beyond their equity interest in the Premises.
10.5. NO SURRENDER
The delivery of keys to any employees of Landlord or to Landlords agent or any employee thereof shall not operate as a termination of this Lease or a surrender of the Premises.
10.6. NO WAIVER, ETC.
The failure of Landlord or of Tenant to seek redress for violation of, or to insist upon the strict performance of any covenant or condition of this Lease or, with respect to such failure of Landlord, any of the Rules and Regulations or Park Covenants referred to in Section 6.1.4, whether heretofore or hereafter adopted by Landlord, shall not be deemed a waiver of such violation nor prevent a subsequent act, which would have originally constituted a violation, from having all the force and effect of an original violation, nor shall the failure of Landlord to enforce any of said Rules and Regulations or Park Covenants against any other tenant in the Park be deemed a waiver of any such Rules or Regulations or Park Covenants, as applicable. The receipt by Landlord of Base Rent or additional rent with knowledge of the breach of any covenant of this Lease shall not be deemed a waiver of such breach by Landlord, unless such waiver shall be in writing signed by Landlord. No consent or waiver, express or implied, by Landlord or Tenant to or of any breach of any agreement or duty shall be construed as a waiver or consent to or of any other breach of the same agreement or duty in a previous or subsequent instance, or any other agreement or duty.
10.7. NO ACCORD AND SATISFACTION
No acceptance by Landlord of a lesser sum than the Base Rent and additional rent then due shall be deemed to be other than on account of the earliest installment of such rent due, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as rent be deemed as accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlords right to recover the balance of such installment or pursue any other remedy in this Lease provided.
10.8. CUMULATIVE REMEDIES
The specific remedies to which Landlord may resort under the terms of this Lease are cumulative and are not intended to be exclusive of any other remedies or means of redress to which it may be lawfully entitled in case of any breach or threatened breach by Tenant of any provisions of this Lease. In addition to the other remedies provided in this Lease, Landlord shall be entitled to the restraint by injunction of the violation or attempted or threatened violation of any of the covenants, conditions or provisions of this Lease or to a decree compelling specific performance of any such covenants, conditions or provisions.
10.9. PARTIAL INVALIDITY
If any term of this Lease, or the application thereof to any person or circumstances shall to any extent be invalid or unenforceable, the remainder of this Lease, or the application of such term to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby, and each term of this Lease shall be valid and enforceable to the fullest extent permitted by law.
10.10. RIGHT TO CURE
(a) If Tenant shall at any time fail to perform its obligation in accordance with the provisions of this Lease and Tenant does not commence the cure of such failure within thirty (30) days of notice thereof (except in the event of emergencies), and thereafter diligently prosecute such cure to completion, then Landlord shall have the right, but shall not be obligated, to enter upon the Premises and to perform such obligation, notwithstanding the fact that no specific provision for such substituted performance by Landlord is made in this Lease with respect to such default. In performing such obligation, Landlord may make any payment of money or perform any other act. All sums so paid by Landlord (together with interest at the rate set forth in Section 4.3 hereof), and all necessary incidental reasonable third party costs and expenses in connection with the performance of any such acts by Landlord, shall be deemed to be additional rent under this Lease and shall be payable to Landlord immediately on demand. Landlord may exercise the foregoing rights without waiving any other of its rights or releasing Tenant from any of its obligations under this Lease.
(b) If Landlord shall have failed to perform any of Landlords covenants hereunder relating to the Premises, including any Hazardous Materials indemnification obligations (Landlord and Tenant hereby agreeing, however, that Tenant shall have no self-help rights under this Lease with respect to the Common Areas of the Park unless Tenant is the sole tenant of the Park) within the time periods set forth herein and Landlord does not commence the cure of such failure within thirty (30) days of notice thereof to Landlord and Landlords mortgagee, so long as Landlord has provided Tenant with the identity and the address of such mortgagee (except in the event of emergencies), and thereafter diligently prosecute such cure to completion, then Tenant shall have the right, but not the obligation, to cure any such covenants for the account of Landlord. If Tenant shall undertake such performance, Landlord shall reimburse Tenant for all costs and expenses reasonably incurred by Tenant in connection with such performance within thirty (30) days after receipt of an invoice therefor from Tenant (together with any such back up documentation reasonably requested by Landlord). If Landlord fails to reimburse Tenant within said thirty (30) day period, then interest at the rate set forth in Section 4.3 hereof, shall accrue on any amounts due from Landlord hereunder until such costs have been reimbursed in full. If there remains any amounts unpaid by Landlord to Tenant hereunder after interest has commenced to accrue
for at least thirty (30) days, then Tenant shall be entitled to offset the unreimbursed costs together with interest thereon as aforesaid, against twenty-five percent (25%) of the monthly Base Rent due hereunder until such costs due to Tenant hereunder have been reimbursed in full.
(c) Further, if any condition in the Premises constitutes an imminent threat to person or property or Tenants business operations and is Landlords responsibility under this Lease, Landlord shall remedy such condition or cause such condition to be remedied promptly after receipt of notice thereof (whether or not from Tenant), and in the event Landlord fails to do so, Tenant may elect to take action hereunder immediately with simultaneous notice to Landlord of Tenants action and if Tenant reasonably believes an emergency to exist, Tenant shall endeavor to give Landlord advance notice, but if such notice is not reasonable under the circumstances, shall give notice to Landlord as soon as practicable thereafter. In the event that Tenant remedies such imminent threat, Tenant shall be entitled to reimbursement from Landlord (and in the event that Landlord does not timely reimburse Tenant, to offset together with interest thereof, against the Base Rent on the same terms and conditions as set forth in Section 10.10(b).
10.11. ESTOPPEL CERTIFICATE AND LANDLORDS CONSENT TO LIENS
Tenant agrees from time to time upon not less than thirty (30) days prior written request by Landlord, to execute, acknowledge and deliver to Landlord a statement in writing in substantially the form attached hereto as Exhibit G, certifying if true (and where not true, indicating where not true), as follows: that this Lease is unmodified and in full force and effect; that except as set forth in this Lease, Tenant has no defenses, offsets or counterclaims against its obligations to pay the Base Rent and additional rent and to perform its other covenants under this Lease; that there are no uncured defaults of Landlord or Tenant under this Lease (or, if there are any defenses, offsets, counterclaims, or defaults, setting them forth in reasonable detail); and the dates to which the Base Rent, additional rent and other charges have been paid. Any such statements delivered pursuant to this Section 10.11 may be relied upon by any prospective purchaser or mortgage of premises which include the Premises or any prospective assignee of any such mortgagee.
Landlord agrees from time to time upon not less than thirty (30) days prior written request by Tenant, to execute, acknowledge and deliver to Tenant a statement in writing in substantially the form attached hereto as Exhibit G, modified as the context so requires for obtaining an estoppel from Landlord, certifying if true (and where not true, indicating where not true), as follows: that this Lease is unmodified and in full force and effect; that except as set forth in this Lease, Landlord has no defenses or counterclaims against its obligations to perform its covenants under this Lease; that there are no uncured defaults of Landlord or Tenant under this Lease (or, if there are any defenses, counterclaims, or defaults, setting them forth in reasonable detail); and the dates to which the Base Rent, additional rent and other charges have been paid. Any such statements delivered pursuant to this Section 10.11 may be relied upon by any prospective assignee or subtenant of premises which include the Premises or any prospective lender or mortgagee.
Notwithstanding anything to the contrary contained in this Lease, Tenant shall have the right to grant a lien and security interest in all of its assets (including, without limitation, its personal property, equipment, fixtures, goods and inventory situated at the Premises) to secure financing for itself and its affiliates without the consent of Landlord. To accommodate such financing, Landlord hereby waives any statutory landlords lien on Tenants assets, and shall permit Tenants lender, during the existence of
any default under such financing, to access the Premises for the purpose of taking possession of and selling such assets, to the extent permitted under the agreements evidencing and securing such financing, and to execute and deliver such reasonable and customary agreements consistent with the foregoing as may be reasonably requested by Tenants lenders.
10.12. WAIVER OF SUBROGATION
Landlord and Tenant mutually agree, with respect to any hazard which is covered by casualty or property insurance then being carried by them, or required to be carried hereunder (whether or not such insurance is then in effect) to release each other from any and all claims with respect to such loss; and they further mutually agree that their respective insurance companies shall have no right of subrogation against the other on account thereof.
10.13. BROKERAGE
Tenant represents and warrants to Landlord, and Landlord represents and warrants to Tenant, that it has dealt with no broker, other than such brokers listed in Section 1.1, in connection with this transaction and agrees to defend, indemnify and save the other party harmless from and against any and all claims for a commission arising out of this Lease made by anyone, other than such brokers in Section 1.1. Landlord shall be responsible for, and hold Tenant harmless with respect to, all fees and commissions payable to only such brokers specified in Section 1.1 pursuant to a separate agreement, but in no event will Landlord be responsible for payment of a commission on Phase III until such time Tenants right to terminate as to Phase III has lapsed.
10.14. PARKING/TRAFFIC PERSONNEL
Tenants occupancy of Phase I shall include the use of two hundred seventy-five (275) parking spaces at no additional cost to Tenant. Tenants occupancy of Phase II shall include the use of eight hundred seventy-five (875) parking spaces at no additional cost to Tenant. A minimum of four hundred (400) parking spaces for Phase II shall be structured parking spaces with the parking garage of Phase II. Tenants occupancy of Phase III shall include the use of a minimum of 3.5 parking spaces per 1,000 rentable square feet contained within Phase III, all of which shall be structured. Tenants parking spaces shall be known and referred to in this Lease as the Building Parking Area and shall be shown as such on the Landlords Plans, as applicable on a per Phase basis. The Building Parking Area shall be used by Tenant in common with other tenants of the Building, if applicable.
Tenant acknowledges that during construction there will be potential inconveniences and reductions in the total parking space count. In no event will such reduction or inconvenience be deemed an interruption pursuant to Section 5.2 of this Lease or a breach or default by Landlord of any term or provision of this Lease unless Landlord fails to comply with the parking plans described below. Landlord and Tenant will work together prior to the commencement of construction activity to outline the impacts and document a procedure for executing the work. See also the provisions of Exhibit U. Attached hereto as Exhibit A-7 and Exhibit A-8 are parking plans outlining the parking configuration during all periods.
10.15. ACCESS
Subject to the terms and provisions of this Lease, Tenant shall have twenty-four (24) hours, seven (7) days per week, fifty-two (52) weeks per year, access to the Premises.
10.16. ENTIRE AGREEMENT
This instrument contains the entire and only agreement between the parties as to the Premises and supersedes all prior agreements with respect to the Premises or the construction thereof, and no oral statements or representations or prior written matter not contained in this instrument shall have any force or effect. This Lease shall not be modified in any way except by a writing subscribed by both parties.
10.17. GOVERNING LAW
This Lease shall be governed by and construed and enforced in accordance with the laws and courts of the Commonwealth of Massachusetts.
10.18. ADDITIONAL REPRESENTATIONS
Landlord represents and warrants to Tenant as follows:
(a) that Landlord has the right and authority to enter into this Lease and grant Tenant possession of the Premises and other rights set forth herein, and no joinder or approval of another person or entity is required with respect to Landlords right and authority to enter into this Lease;
(b) that Landlord (or its affiliate(s) or an affiliate(s) of The Gutierrez Company) are the sole fee simple owners of the remaining land in the Park;
(c) that the Building (specifically its core and shell, as well as all common areas, entrances, restrooms, elevators, water fountains and signage) and the Building Parking Area will, upon Substantial Completion and issuance of all necessary permits and approvals required to be obtained from any and all necessary governmental agencies prior to occupancy of the Premises by Tenant, including without limitation, a certificate of occupancy from the Town of Burlington which allows Tenant to use and occupy the Building as specified in Article III hereof, comply with all dimensional, use, parking, loading and other zoning requirements of the Town of Burlington, and all applicable building and life safety codes and governmental requirements, including without limitation the regulations of the Americans with Disabilities Act (ADA), and all environmental laws and other Legal Requirements, and the Park Covenants attached hereto as Exhibit I;
(d) all existing base Building systems shall, upon Substantial Completion, be delivered in good working order, including roof, electrical and life safety systems;
(e) that Landlord has provided Tenant with true, correct and complete copies of all licenses, permits and approvals for the Building in effect as of the Date of Lease;
(f) that the current zoning applicable to the Lots permits the Buildings and offices, research and development (including laboratory) uses contemplated by this Lease;
(g) that neither Landlord nor any of its affiliates, nor any of their respective partners, members, shareholders or other equity owners, and none of their respective employees, officers, directors, representatives or agents, is or will be a person or entity with whom U.S. persons or entities are restricted from doing business under regulations of the Office of Foreign Asset Control (OFAC) of the Department of the Treasury (including those named on OFAC s Specially Designated and Blocked Persons List) or under any statute, executive order (including the September 24, 2001, Executive Order Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism), or other governmental action;
(h) that Landlord shall take any actions that may be required to comply with the terms of the USA Patriot Act of 2001, as amended, any regulations promulgated under the foregoing law, Executive Order No. 13224 on Terrorist Financing, any sanctions program administered by the U.S. Department of Treasurys Office of Foreign Asset Control or Financial Crimes Enforcement Network, or any other laws, regulations, executive orders or government programs designed to combat terrorism or money laundering, if applicable, on this Lease. Landlord represents and warrants to Tenant that it is not an entity named on the List of Specially Designated Nationals and Blocked Persons maintained by the U.S. Department of Treasury, as last updated prior to the Date of Lease;
(i) that as of the Date of Lease, there is no ground lease or underlying lease which affects the any of the Lots;
(j) that none of the exceptions listed in Schedule 2.1 prohibit or interfere with the construction or uses of the Building or Lots contemplated by this Lease;
(k) that there are no suits, actions or proceedings now pending with respect to all or part of the Lots, nor has Landlord received written notice of any threatened suits, actions or proceedings, nor to Landlords actual knowledge, are there any threatened suits, actions or proceedings with respect to all or any part of the Lots; and
(1) that, upon Substantial Completion, the Buildings heating, ventilation and cooling (HVAC) system described on Exhibits B-2, B-3 and B-4 have, in fact, been installed and shall provide HVAC in accordance with the specifications set forth in said Exhibits B-2, B-3 and B-4.
(m) that, to Landlords knowledge, the surviving provisions of the Tyco Agreements (including the indemnities relating to Hazardous Materials under the Tyco Agreements) are in full force and effect, neither Landlord (or its affiliates) nor, to Landlords knowledge, Tyco is in default of any of its obligations under the Tyco Agreements, Tyco has not notified Landlord that any of Tycos indemnity obligations have been terminated or limited, and Tenant is a beneficiary of the indemnities relating to Hazardous Materials under the Tyco Agreements to the extent provided in the Tyco Agreements.
10.19. ROOFTOP COMMUNICATION EQUIPMENT
Subject to the provisions hereinafter provided, Tenant shall have the right from time to time during the Term hereof, at no additional charge from Landlord, to install rooftop communication equipment (i.e. satellite dishes or antenna devices, microwave antenna or other similar equipment or communication devices) or to create a park or usable open space as an amenity to employees and invitees on the roof of the Building, or to install solar panels and related equipment thereon. Subject to applicable law and the consent of Landlord (which consent shall not be unreasonably withheld or delayed), Tenant, at its sole cost and expense, has the right to install such equipment or to create such usable area on the roof of the Building. The size, design and location of the installation or area, as applicable, shall be at a site acceptable to Landlord, and the approval of any such size, design and location shall not be unreasonably withheld or delayed by Landlord. Tenant shall install any such equipment or furniture in accordance with sound construction practices, and in accordance with all applicable laws, rules, codes and ordinances, and in a good and workmanlike manner. Tenant shall be solely responsible for obtaining any and all permits and approvals associated therewith and for providing copies thereof to Landlord. Tenant shall use such roofing contractor required to comply with the existing roof warranties, as designated by Landlord. Upon expiration of the Term, Tenant shall be responsible for the removal of the same and for repairing any damage caused therefrom.
10.20. EMERGENCY POWER
Subject to the provisions hereinafter provided and available space, Tenant shall have the right, at no additional charge from Landlord, to place a dedicated emergency generator and fuel supply and any other equipment, wiring, shaft space, etc. required in connection therewith on the Lot, at Tenants sole cost and expense, subject to and in accordance with all applicable law and the consent of Landlord, not to be unreasonably withheld, conditioned or delayed. The size and location of the pad shall be mutually agreed upon and shall not be unreasonably withheld or delayed by Landlord. All installations shall be in accordance with sound construction practices, and in accordance with applicable law, and in a good and workmanlike manner, and shall not materially interfere with other tenants of the Building or Park or decrease the number of parking spaces on the Lot. Tenant shall be solely responsible for obtaining any and all permits and approvals associated therewith and for providing copies thereof to Landlord.. Upon expiration of the Term, Tenant shall be responsible for the removal of the same and for repairing any damage caused therefrom; alternatively, at Tenants election, Tenant may leave such generator and equipment in its place provided that the same is operable condition. This Section shall survive the expiration or earlier termination of this Lease.
10.21. WAIVER OF CONSEQUENTIAL DAMAGES. Tenant and Landlord waive any rights to recover consequential, punitive, or special damages against each other with respect to matters arising under or in connection with this Lease.
10.22. PREVAILING PARTY. In the event of any legal proceeding arising out of a dispute between Landlord and Tenant with regard to enforcement of any provision of this Lease, the prevailing party shall be entitled to an award of its reasonable attorneys fees and costs from the non-prevailing party.
ARTICLE XI
SECURITY
Should Tenants quarterly net income drop below Fifty Million Dollars ($50,000,000.00), for more than two (2) consecutive quarters during the first eight (8) years of the Term, Tenant shall deliver the amount of Six Million Dollars ($6,000,000.00) to Landlord as Security. Such Security shall be in the form of a letter of credit, specifically substantially in the form of the sample Letter of Credit attached hereto as Exhibit T, and shall (a) name the Landlord as its beneficiary, (b) expire not less than one (1) year after the issuance thereof, and (c) be drawn on an FDIC-insured financial institution reasonably satisfactory to Landlord. If the initial term of the Letter of Credit will expire, Tenant shall from time to time, as necessary, renew or replace or amend the original and any subsequent Letter of Credit no fewer than twenty five banking (25) days prior to the expiry date of the Letter of Credit then held by Landlord, and if Tenant fails to renew or replace or amend said Letter of Credit by not later than twenty-five (25) banking days prior to expiry date, Landlord may draw upon such Letter of Credit and hold the proceeds thereof in an account as Security, without interest until Tenant provides to Landlord a replacement letter of credit complying with the requirements for the original Letter of Credit as set forth above.
Landlord may, from time to time, without prejudice to any other remedy, use all or a portion of the Security to cure any continuing Event of Default, including any uncured default in connection with any arrearages of Rent, costs incurred by Landlord to repair damage to the Premises caused by Tenant, and any costs incurred by Landlord to repair (other than normal wear and tear or damage caused by Landlord, its agents or employees) the Premises upon termination of this Lease. Following any such application of the Security, Tenant shall, within ten (10) business days after receipt of written demand, restore the cash security or letter of credit to its full amount, as applicable. Tenant shall not have the right to call upon Landlord to apply all or any part of the Security to cure any continuing Event of Default, but such use shall be solely in the discretion of Landlord. If there is no continuing Event of Default, at the expiration or earlier termination of the Term of this Lease (including any Extended Term), after Tenant surrenders the Premises to Landlord in accordance with this Lease and all amounts then due Landlord from Tenant are finally determined and paid by Tenant or through application of the Security, the balance of the Security, either cash or the Letter of Credit, as applicable, shall be returned to Tenant and in any event, within thirty (30) days of expiration of the Term of this Lease and surrender of the Premises. If Landlord transfers its interest in the Premises during the Term, Landlord shall assign the Security to the transferee, Landlord shall notify Tenant of the assignment and thereafter have no further liability for the return of the Security. If the Security is in the form of a Letter of Credit, Landlord shall have no further liability for the return of such Letter of Credit once the assignee has assumed Landlords obligations with respect to the return of the Letter of Credit and Landlord has notified Tenant of the assignment. Upon any such delivery, Tenant hereby releases Landlord herein named of any and all liability with respect to the Letter of Credit, its application and return, and Tenant agrees to look solely to such grantee or transferee. It is further understood that this provision shall also
apply to subsequent grantees or transferees. Upon request by Tenant, Landlord shall provide Tenant with a copy of the assignment and assumption or other written documentation that was entered into to effectuate the transfer of the Letter of Credit. If at any time the Security is a cash deposit, Landlord shall be required to segregate the Security from its other accounts and pay interest thereon at market rates.
In the event the Lease is assigned by Tenant, Tenants assignee may provide a replacement Letter of Credit and the original Letter of Credit held by Landlord shall be returned to Tenant, provided that such Letter of Credit shall remain subject to all of the terms and conditions of this Article XI. Landlord shall deliver the original prior Letter of Credit to the prior tenant simultaneously upon the delivery of the replacement letter of credit by Tenants assignee or as soon as possible thereafter.
Landlord agrees that in the event that Tenant is required to post Security as aforesaid and subsequently has four (4) consecutive quarters of net income equal to or greater than Fifty Million Dollars ($50,000,000.00) per quarter, then the Security will no longer be required and shall be returned to Tenant upon Tenants request.
IN WITNESS WHEREOF, the parties hereto have duly executed this Lease as of this 19th day of June, 2012.
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LANDLORD: | ||
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BURLINGTON CROSSING REALTY TRUST | ||
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/s/ Arthur J. Gutierrez | |
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Arthur J. Gutierrez, Jr., as Trustee and not Individually | |
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TENANT: | ||
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GREEN MOUNTAIN COFFEE ROASTERS, INC. | ||
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By: |
/s/ Frances Rathke | |
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Its: |
CFO | |
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Dated: |
June 19, 2012 | |
Exhibit 10.2
LEASE
TECHNOLOGY PARK
BETWEEN
124 TECHNOLOGY PARK WAY, LLC
LANDLORD
AND
GREEN MOUNTAIN COFFEE ROASTERS, INC.
TENANT
THIS LEASE is made by and between 124 Technology Park Way, LLC, a Vermont limited liability company with a principal place of business in South Burlington, Vermont (Landlord); and Green Mountain Coffee Roasters, Inc., a corporation with a principal place of business at 33 Coffee Lane, Waterbury, Vermont 05676 (Tenant).
1. DESCRIPTION OF PREMISES.
The Landlord hereby leases to the Tenant all of the property located at 124 Technology Park Way, Technology Park, South Burlington, Vermont, containing 5 acres, more or less, and known as Lot 2 of Technology Park (the Property), as shown on the site plan attached to this Lease as Exhibit A, together with the building on the Property (the Building), floor plans of which are attached hereto as Exhibit B and made a part hereof, which includes approximately 48,395 net square feet (approximately 53,500 gross rentable square feet) (the Property and the Building are collectively the Premises). Tenant and its customers and invitees shall also have the exclusive right to use driveways, parking areas, entrance ways, walks, lobbies, elevators, emergency access, and other areas now in place on the Premises and hereafter from time to time added and made available on the Premises, subject to the rights of the Landlord and Landlords agents and contractors to perform Landlords obligations and exercise Landlords rights hereunder, and those sidewalks and drives to the extent currently dedicated to the general public (Common Areas) and subject to such reasonable rules and regulations as Landlord may from time to time promulgate governing the same, provided no such Landlord rule or regulation shall adversely impact Tenants business conducted at the Premises or diminish Tenants rights hereunder. Notwithstanding the foregoing, Tenant shall not have the right to fence the Property or Premises, install security or access limiting devises on the parking, or perform landscaping on the Property. Tenant shall be entitled to the use of all 191 parking spaces in the designated parking area on the Property shown on Exhibit A.
Landlord shall provide reasonable light for all driveways, sidewalks and parking areas on the Premises as set forth on Exhibit A, and shall maintain such driveways, walkways and parking areas at all times in a clean, safe condition and in good repair.
2. COMMENCEMENT AND TERM.
The initial term of this Lease shall be for seven (7) years (the Initial Term) and shall commence on the earlier of (i) the date Tenant occupies the Premises as offices; or (ii) October 1, 2011 (the Occupancy Date). Subject to Paragraph 10, Tenants obligation to pay Rent shall accrue from the Occupancy Date (for such purposes, and subject to Paragraph 10, the Rent Commencement Date). Should this Lease be renewed following the Initial Term, it shall be pursuant to the provisions in Paragraph 27 of this Lease and Exhibit C hereto, which is discussed below in Paragraph 27. The complete term of this Lease, including any renewal term(s), if and when exercised by Tenant, is referred to herein as the Term of the Lease.
3. RENTAL PAYMENTS.
A. Rental Payments.
Rent shall include a base rent (Base Rent as set forth below) plus Tenants share of operating expenses (Operating Expenses set forth below). Each payment of Base Rent and Operating Expenses (together, the Rent) shall be made in lawful money of the United States, in equal monthly installments in advance on the 25th day of the preceding month during the Initial Term at the Landlords address specified in Paragraph 28 below, or such other place as Landlord may designate. If the Initial Term of this Lease does not begin on the first day or end on the last day of a month, the Rent for that partial month shall be prorated by multiplying the Rent by a fraction, the numerator of which is the number of days of the partial month included in the Initial Term and the denominator of which is the total number of days in the full calendar month. Except as specifically provided in this Lease, the obligation of the Tenant to pay the rent specified herein and all other sums payable by Tenant hereunder shall be absolute and unconditional under any and all circumstances, without notice or demand and without abatement, deduction or setoff. If Tenant shall not pay the Rent or any other sum payable under this Lease within ten (10) days after it is due, the Tenant shall pay (i) a late charge equal to five percent (5%) of the unpaid amount plus (ii)
interest at the rate of one percent (1%) per month on the remaining unpaid balance retroactive to the date originally due, until paid.
B. Base Rent.
Tenant agrees to pay the annual rental set forth in Exhibit D attached hereto and made a part hereof (the Base Rent) pursuant to the terms set forth above in Paragraph 3A.
C. Operating Expenses.
In addition to the Base Rent described above, commencing on the Rent Commencement Date, Tenant shall pay to Landlord Tenants Pro Rata Share (as defined below) of Operating Expenses, as detailed in subparagraph (ii) below.
(i) For the initial period of the Lease Term ending on December 31, 2011, the total estimated annual Operating Expenses shall be $263,023, payable in monthly installments of 1/12th of the annual estimate and a monthly total Operating Expenses at the Premises for the first Lease year is attached to this Lease as Exhibit E. Tenants Pro Rata Share of Operating Expenses shall be 100%, representing Tenants percentage share of the total gross usable square footage in the Building. As soon as practicable after December 31, 2011, Landlord will calculate actual Operating Expenses for the previous year, and shall provide Tenant with an itemized accounting of same together with basic supporting information, along with the revised total estimated annual Operating Expenses for the then-current Lease year, which also shall be payable in monthly installments of l/12th of the annual estimate, subject however to any credit which may be due pursuant to this paragraph 3(C)(i). Landlord shall provide detailed supporting information promptly following a request by Tenant for the same. At that time, if Tenants Pro Rata Share of the actual Operating Expenses for the previous year exceeded the amount paid by Tenant, Tenant shall have sixty (60) days from the date of written notice from Landlord to pay the difference. If Tenants Pro Rata Share of actual Operating Expenses for the previous year is less than the amount paid by Tenant, Tenant shall receive a credit against the next months (or months, as the case may be) Pro Rata Share of Operating Expenses in that amount. Upon the termination of the term of this Lease, final adjustments will be made by the parties in a similar fashion after the end of the calendar year in which such termination occurs.
If Tenant wishes to dispute an amount shown on the annual statement of Operating Expenses, Tenant shall give Landlord written notice of such dispute within three (3) months after Tenants receipt of the annual statement. Promptly after the receipt of such notice, Landlord and Tenant shall endeavor in good faith to resolve such dispute. If such efforts do not succeed, Tenant shall have the right to cause a nationally or regionally recognized independent certified public accountant designated by Tenant, to be paid on an hourly and not a contingent fee basis, and otherwise reasonably acceptable to Landlord, to audit Landlords records pertaining to the Premises and the Operating Expenses, provided that Tenant (i) notifies Landlord in writing of Tenants intention to audit within thirty (30) days after the initial Tenant written notice of dispute referenced above, (ii) actually begins such audit within the subsequent thirty (30) day period, and (iii) diligently pursues the audit to completion as quickly as reasonably possible. Tenant shall bear all costs of such audit, including Landlords actual copying costs and personnel costs, if any, incurred in connection with such audit, except that if the audit (as certified by the auditor) shows an aggregate overstatement of Operating Expenses by three percent (3%) or more, then Landlord shall bear all costs of the audit.
(ii) Landlord is responsible for ensuring that all Operating Expenses assessed against Tenant are reasonable, actual and necessary out-of-pocket expenses of Landlord (except Landlord may use its normal accrual method of accounting), obtained at prices that are consistent with practice for comparable (Class A office) facilities in the Burlington, Vermont area, consistent with the types of operating expenses charged to tenants in
comparable facilities in the Burlington, Vermont area, and are directly attributable to the operation, maintenance, management, and repair of the Premises (all as may be more fully described in, and subject to, Paragraphs 6, 7 and 8 of this Lease), including, driveways, walks and other improvements reasonably necessary to support the use and occupancy of the Premises, as determined under generally accepted accounting principles consistently applied, including but not limited to (for the avoidance of doubt, to the extent there may be two or more items listed below that would ordinarily be interpreted as being the same, it shall only be counted once in the determination of any fees or charges hereunder):
(1) property taxes;
(2) snow and debris removal from all parking lots, driveways, sidewalks and emergency exits in or on 124 Technology Park Way, and to Tenants standards and specifications;
(3) landscaping, including maintenance of the parking lots and lawns, trees, shrubbery, walkways, and sidewalks at 124 Technology Park Way;
(4) maintenance of the roof, exterior shell and structural elements of the Building;
(5) exterior lighting as shown on Exhibit A;
(6) sprinkler system, water entrance into the Building, fire alarm system and panel;
(7) the base HVAC, plumbing, electrical systems located in the mechanical room;
(8) salaries, and other compensation (excluding officers and management of Landlord higher than the Building Manager); including payroll, income, unemployment and social security taxes, vacation, holiday, and other paid absences; and welfare, retirement, and other fringe benefits; that is paid to employees of Landlord engaged in the actual operation, repair, management, or maintenance of the Premises, pro-rated to reflect time spent by such employee on the actual operation and management of the Premises, including the following; provided, however, that for the avoidance of doubt, Tenant and Landlord agree that since Tenant will be occupying 100% of the Property, Tenant will be taking care of the interior of the Building and will not require the services of any of Landlord employees, agents or contractors therefor except as expressly provided for herein; and provided, further, that in such instance Tenant acknowledges that if it requests Landlords assistance in the interior or such interior work is required under the terms of this Lease, the costs of the same will be fully passed through to Tenant, without any up- or surcharges thereto (except that Landlord may charge a five percent (5%) management fee for work requested by Tenant that is not chargeable as an Operating Expense), and otherwise subject to the conditions of and to the extent allowable as an Operating Expense under this Lease;
(a) inspectors;
(b) window cleaners, miscellaneous repair persons, janitors, cleaning personnel; and
(c) engineers, mechanics, electricians, and plumbers; but not more than one on-premises full-time manager or superintendent and only to the extent and for such time as may be required to perform Landlords obligations under the Lease and/or complete the work requested by Tenant;
(9) repairs and maintenance of the Premises and the cost of supplies, materials, and equipment for Premises repairs and maintenance, that under generally accepted accounting principles consistently applied, would not be capitalized;
(10) premiums and other charges incurred by Landlord for insurance on the Premises as follows:
(a) fire insurance, extended coverage insurance, and earthquake, windstorm, hail, and explosion insurance;
(b) public liability and property damage insurance;
(c) boiler and machinery insurance; sprinkler leakage, water damage, water damage legal liability insurance; burglary, fidelity, and pilferage insurance on equipment and materials;
(d) insurance Landlord is required to carry under Paragraph 15; and
(e) other insurance as is customarily carried by operators of comparable commercial/industry buildings in the Chittenden County area;
(11) costs incurred for inspection and servicing, including all outside maintenance contracts necessary or proper for the maintenance of the Premises, such as janitorial and window cleaning, rubbish removal, exterminating, water treatment, electrical, plumbing, and mechanical equipment, and the cost of materials, tools, supplies, and equipment used for inspection and servicing;
(12) Intentionally omitted
(13) sales, use, and excise taxes on goods and services purchased by Landlord with respect to goods and services used specifically on or for the Premises under the Lease;
(14) license, permit, and inspection fees;
(15) management fees (calculated at fifteen percent (15%) of the real estate taxes, assessments and other Operating Expenses described herein) paid to a person or entity other than Landlord;
(17) the annual amortization over its useful life with a reasonable salvage value on a straight-line basis of the costs of any equipment or capital improvements made by Landlord after the Premises was fully assessed as a completed and occupied unit and the Lease was signed, as a labor-saving measure or to accomplish other savings in operating, repairing, managing, or maintaining of the Premises, but only to the extent of the savings;
(18) any costs for substituting work, labor, materials, or services to the extent the same are used in place of any of the above items, or for any additional work, labor, materials, services, or improvements to comply with any governmental laws, rules, regulations, or other requirements applicable to the Premises enacted after the Premises was fully assessed as a completed and occupied unit and the Lease was signed (unless such work is required due to a breach of Landlords obligations) or, that, at the time of substitution or addition, are considered operating expenses under generally accepted accounting principles consistently applied; and
(19) other costs reasonably necessary, but directly applicable, to operate, repair, manage, and maintain the Premises in a first class manner and condition, including charges for water, sewer, and excluding those utilities and consumables which are separately metered to Tenant.
Notwithstanding anything contained herein to the contrary, Operating Expenses shall not include (i) costs billed to and paid by any third parties; (ii) the cost of repairs or replacements resulting from insurable casualty losses or eminent domain takings, or from Landlords failure to comply with applicable laws, ordinances and permits; (iii) depreciation or amortization of the Premises or any part thereof, except as expressly permitted; (iv) replacement or contingency reserves; (v) payment of any debt or equity obligations; (vi) legal or other professional fees relating to leasing, financing or other services not related to
the normal operation, maintenance, cleaning, repair and protection of the Premises; (vii) brokerage fees and commissions not resulting from Tenants breach of this Lease; (viii) promotional, advertising or public relations expenses; (ix) capital expenditures; (x) costs or expenses arising out of Landlords breach of its obligations under this Lease or any other lease for any portion of the Premises; or (xi) costs for services or expenses that are materially different than those set forth as items (1) through (19) above, unless such services or expenses are required by law or are necessary in the reasonable judgment of Landlord to keep the Premises competitive with similar properties in the Burlington, Vermont area. Operating Expenses shall be reduced by the amount of any proceeds, awards, payments, guarantees, credits or reimbursements, which Landlord actually receives from any third party and which are applicable to Operating Expenses less the cost reasonably incurred in recovering such amount.
4. [Intentionally left blank]
5. USE OF PREMISES.
The Tenant may use the Premises for the following purposes: general office and other similar uses permitted by South Burlington zoning and consistent with a first class business park. Notwithstanding the foregoing, the Tenant shall not otherwise use or occupy the Premises or allow any activity in or about the Premises which would (i) materially impair the value or usefulness of the Premises or the Building, (ii) adversely affect the fire and comprehensive insurance or liability insurance premiums payable by the Landlord with respect to the Building, (iii) constitute a public or private nuisance or waste or a violation of any state, local or federal statute, rule, regulation or ordinance, or (iv) unreasonably disturb or interfere with the use and occupancy of any other parts of the office park of which the Premises are a part. Tenant shall not use the Premises for any other purpose other than those specified above without the prior written consent of the Landlord, which consent shall not be unreasonably withheld, conditioned, or delayed, provided that the proposed use complies with applicable law and does not violate any legal, contractual or lease requirements or non-compete provisions by which Landlord is bound.
6. MAINTENANCE AND REPAIR.
The Tenant shall, throughout the term of this Lease, at its own cost and expense, maintain all aspects of the Premises other than specified as a Landlord responsibility under the next paragraph of this Paragraph 6, including without limitation the interior of the Premises (including all windows and doors), all interior equipment and plumbing, electrical and HVAC systems (except systems in the mechanical room), and such other fixtures as are used in connection with the occupancy of the Premises, including any and all replacements made by the Tenant, in such condition, repair and order, as the same now are or hereafter may be put, reasonable wear and tear, fire or other casualty, repairs that are the obligation of Landlord to make, or damage caused by the failure of the Landlord to make repairs hereunder, excepted. Tenants maintenance and repair obligations shall not be included, or charged to Tenant, as an Operating Expense except to the extent that they arise from Landlords performance of a Tenant obligation that Tenant has failed to perform, past any applicable notice and cure period (if any).
Landlord shall repair and maintain the roof, foundation, load-bearing walls, elevator equipment and elevator, fire panel and alarm, sprinkler system, plus the water entrance, boilers, chillers and appurtenances (including the chiller on the pad outside the west wall of the Building), utility lines and systems within the mechanical room, and other structural components of the Building in good condition and consistent with a first class office building. Landlord shall also maintain, or cause to be maintained, the retention pond and landscaping at the Property as is consistent with a first class office building. Landlord, at its own cost and expense, and without reimbursement from Tenant as an Operating Expense or otherwise, shall be responsible for all capital repairs and replacements at the Premises, and utility infrastructure to the Building, except as due to the negligence, willful misconduct, or gross negligence of the Tenant, or its employees, agents, or contractors, or caused by a breach by Tenant of its obligations under this Lease.
In the event of an emergency requiring Tenant to take preventative action, Tenant is authorized (but not required) to take reasonable remedial action and to promptly contact Landlord using commercially reasonable attempts, and Landlord will promptly reimburse Tenant for any reasonable costs associated with such remedial action upon presentation of reasonable documentation in substantiation of the emergency costs.
7. UTILITIES AND SERVICES.
Landlord has installed water, gas, electricity, sewage disposal, and other utilities to the Building based on Landlords plans and specifications for an office building, and Landlord has provided a fiber optic conduit to a manhole thirty feet from the Building. In the event Tenants use and occupation of the Premises requires more electrical power, gas, water and sewer usage than is currently specified for the Building, Tenant shall be responsible for any increased cost in installing and upgrading the lines, pipes and equipment associated with those services and facilities. The Premises are separately metered for electrical service and water service, and Tenant shall be responsible for paying for all electrical service and water service to the Premises. Landlord shall be responsible for snow and ice removal from the driveways, parking areas, emergency exits, and walkways at the Property, to be performed to Tenants customary standards. Tenant shall be responsible for removing rubbish and recyclable materials from the Premises and disposing of them in the receptacles provided by Tenant. Tenant shall be responsible for all costs associated with upgrading and expanding said utilities and services as a result of Tenants use of the Premises beyond normal and customary office use. In the event Tenant chooses to lease space at 30 Community Drive for a data center the Landlord acknowledges and agrees to allow Tenant at its sole cost and expense, including all applicable permits and approvals, to run data lines between 30 Community Drive and 124 Technology Park Way for Tenants own use and benefit so long as Tenant maintains a lease in good standing at both 30 Community Drive and at 124 Technology Park Way. Such lines shall be run within the road right of way, with all work performed in a neat and workman like manner with all disturbed areas repaired and returned to as near their original condition as practicable. Landlord shall cooperate with Tenant in obtaining all such permits and approvals. All such data lines and conduit shall remain the property of Tenant and may be removed or disconnected by Tenant at any time subject to municipal requirements. Tenant shall be entitled to install and maintain, at Tenants cost, a back-up generator on an existing concrete pad, together with associated facilities or improvements. Such generator and associated facilities and improvements shall remain Tenants personal property.
Tenant shall be responsible for obtaining and directly paying for all other utilities and services used at the Premises, including but not limited to interior trash removal, electricity to the Premises, gas, telephone, cable, and any telecommunication services at the Premises, including provision of fiber optic cabling from the manhole referenced above to the Building, and the subsequent provision of telecommunications services from a provider of Tenants choosing in the available marketplace. Landlord makes no representation or warranty that any particular telecommunications provider will serve the Building, however Landlord represents that telecommunications providers currently serve Landlords business park. Tenant is responsible for providing any and all janitorial or security services for the Building. Landlord does not have a security system for the Building other than customary locks on the exterior doors. Tenant is responsible for providing any interior locks or other security devices required by Tenant, including a marlock access control system.
The Landlord shall not be liable for any failure of water supply or electric current or of any service by any utility, nor for injury or damage to persons (including death) or property caused by or resulting from steam, gas, electricity, water, rain or snow which may flow or leak from any part of the Premises, or from any pipes, appliances or plumbing works of the same or from the street or subsurface or from any other place, nor from interference with light or other incorporeal hereditaments or easements, however caused, except as due to the willful misconduct, negligence of the Landlord, or its employees, agents, or contractors, or the breach of this Lease by Landlord. Except as set forth in this Paragraph 7, the Tenant specifically agrees to pay all charges for electricity, light, gas and telephone/cable/internet services consumed by Tenant at the Premises, and shall indemnify the Landlord against any and all liability on such account.
8. COMPLIANCE WITH LAWS.
(a) Compliance with Law.
Landlord shall be responsible for the compliance of the Premises with all covenants and restrictions of record (if any), laws, statutes, building and zoning codes, ordinances, permits and governmental orders, conditions of approval, rules and regulations (including, but not limited to, Title III of the Americans With Disabilities Act of 1990), as all of the same may be amended and supplemented from time to time (collectively Legal Requirements) including, without
limitation, all Legal Requirements that pertain to the Building structure or any electrical or mechanical systems therein, any matters not specifically assigned as the responsibility of Tenant under this Lease and all matters involving the Common Areas. Tenant shall comply with all Legal Requirements pertaining to Tenants use and occupancy of the Premises, including without limitation such Legal Requirements that (i) pertain to Tenants personal property; or (ii) mandate alterations to the interior of the Premises as a result of modifications made to the Premises by Tenant. However, Tenant shall not have any obligation to comply with any Legal Requirements to the extent the Premises or the Building at the time the Premises are delivered to Tenant do not comply with such Legal Requirements. Landlord will be fully responsible for making all alterations and repairs to the Building and the Premises at its cost (which shall not be included as Operating Expenses), resulting from or necessitated by the failure by Landlord, Landlords contractor or agents, the Building or the Premises to comply with any such Legal Requirements. If Tenant identifies any non-compliance with any Landlord warranty contained in this paragraph, Landlord shall, except as otherwise provided in this Lease, promptly after receipt of written notice from Tenant setting forth the nature and extent of such non-compliance, rectify same at Landlords cost and expense.
(b) Condition of Premises; Condition of Building.
Promptly after the mutual execution and delivery of this Lease, Landlord will commence Landlords Work (as defined below) and diligently prosecute the same to completion. Landlord shall be responsible for turning over to Tenant the Building shell in a broom-clean condition, free of debris other than relating to Tenants ongoing interior improvements work, on the Occupancy Date and with Landlords Work (including the installation of the elevator, boilers and chillers) completed in accordance with Landlords Lease Proposal dated 19 October 2010, which is incorporated herein by reference (Landlords Work), and Paragraph 10. Landlord represents and warrants that the Building shell has been designed to LEED Gold standards, and that promptly after completion of the tenant improvements and installation of the elevator, Landlord will apply for and pursue LEED certification, provided, however, that Landlord makes no representation or warranty as to whether such certification, at any level, will be obtained. Notwithstanding the foregoing, Landlord agrees that Tenant, its contractors, subcontractors and agents shall have use of the Property without payment of rent or other charges following full execution of this Lease for purposes of performing Tenants fit-up as set forth in Paragraph 10.
9. CONDITION OF PREMISES.
Tenant acknowledges that Landlord and Landlords agents have made no representation or warranties as to the condition or use of the Premises, except as set forth herein and in the Lease Proposal dated October 19, 2010. At the expiration or earlier termination of this Lease, the Tenant shall remove all goods and effects not the property of Landlord and shall peaceably surrender the Premises in such condition as they are required to be maintained hereunder. Landlord agrees that at a date no later than the Occupancy Date, Landlord will have done all that can reasonably be done to ensure receipt of the LEED certification and will continue to do such things until receipt of such certification is received or finally refused. Landlord warrants that Landlords Work shall be performed in a good and workmanlike manner and shall be free of defects in materials and workmanship for a period of one (1) year from Tenants Occupancy Date.
10. DESIGN AND FIT UP.
All Tenant fit-up shall be provided by Landlords contractor, ReArch Company at Tenants sole cost. All design and fit-up shall be coordinated with the Tenant and shall be based on plans, specifications and permits secured and prepared by Tenant at Tenants cost (the Working Drawings). Tenant shall prepare the plans and specifications in accordance with LEED CI (Commercial Interiors) minimum base certification standards. Tenant shall have (i) retained an architect for design of the tenant improvements by April 8, 2011; (ii) executed and delivered this Lease by March 25, 2011; and (iii) obtained the Working Drawings no later than August 5, 2011. Landlords contractor, ReArch Company shall be paid a construction management fee of 5% of all costs associated with the fit-up exclusive of Tenants soft costs, furniture, fixtures and equipment. Within ten (10) business days following receipt of the Working
Drawings, ReArch Company shall solicit pricing from at least three (3) qualified subcontractors and vendors to perform various portions of the Tenant fit-up work (the Work) and shall present such pricing and bidders to the Tenant for review and approval. ReArchs solicitation shall include (but not be limited to) qualified contractors and subcontractors identified to Landlord by Tenant. Tenant shall not unreasonably withhold its consent to the pricing bids, and such consent shall be provided (or rejected) by Tenant within ten (10) business days. Tenant may require that Tenants approved subcontractors and vendors be selected, even if such subcontractor or vendor was not the low bidder, it being the intent that Tenant has the authority over selection of key subcontractors, without substitution by ReArch. After such pricing approval by Tenant, ReArch Company shall present a Guaranteed Maximum Price Contract (the Contract) which shall include the sum of all approved subcontractor prices, approved materials and labor, general conditions and requirements and the 5% contractors fee, in substantially the form of standard AIA contract A 133-2009, and such Contract, in mutually agreeable form, shall be executed within ten (10) business days. Following execution of the Contract by all parties, Tenant shall not change or modify the Working Drawings in a material manner without the prior written consent of Landlord and ReArch, not to be unreasonably withheld, delayed or conditioned. Landlord shall approve or reject (with specific reasons for such rejection) any such modification within two (2) business days of Tenants request for the same. A failure to respond with such time period shall be deemed an approval of the requested modification. A material change shall be a change that would reasonably be expected to delay occupancy by more than two (2) business days or a change that requires modification to the structural portions of the Building or affects the cost of the Work. During construction of the Work, Tenant shall have the right to hire and utilize a clerk of the works to represent Tenant, at Tenants sole cost.
For each Tenant Delay, the Occupancy Date (but not the Rent Commencement Date) shall be delayed on a day-for-day basis. For each Landlord Delay, the Rent Commencement Date and the Occupancy Date shall be delayed on a day-for-day basis. Except for the foregoing, Landlord shall have no liability for, and the Lease shall not be void or voidable for, any delay in substantial completion of the tenant improvements except as otherwise provided in this Lease.
For purposes of this Paragraph 10, Tenant Delay means any delay to the extent caused in whole or in part by the following:
(a) Tenants failure to meet any of the dates or deadlines set forth in this Paragraph 10;
(b) a material breach by Tenant of the terms of this Lease that causes a delay;
(c) Tenants requirement for materials, components, finishes or improvements not specified in the original construction contract and which are not available in a commercially reasonable time given the anticipated Occupancy Date; or
(d) Any other acts or omissions of Tenant, or its agents or employees, that delays or impedes the construction of the tenant improvements, unless such acts or omissions are due to matters beyond Tenants reasonable control.
For purposes of this Paragraph 10, Landlord Delay means any delay to the extent caused in whole or in part by the following:
(a) Landlords failure to meet any of the dates or deadlines set forth in the this Paragraph 10;
(b) Any other acts or omissions of Landlord, or its agents or employees, that delays or impedes the construction of the tenant improvements.
Tenant has initially designated Howard Malovany as its sole representative with respect to the matters set forth in this Paragraph 10, who shall have full authority and responsibility to act on behalf of the Tenant as required in this Paragraph 10, provided however that Howard Malovany may designate authority, or limited authority, to one or more individuals by written notice to Landlord.
Tenant shall require contractors and subcontractors that have access to the Building for Tenants fit-up
work to carry excess liability and products and completed operations coverage insurance, each in amounts not less than $500,000 per incident, $1,000,000 in the aggregate, and in form and with companies as are required to be carried by Tenant pursuant to Paragraph 15 of this Lease. Tenant shall hold Landlord harmless from and indemnify, protect and defend Landlord against any loss or damage to the Building or Premises as a result of such early entry, unless any such loss or damage was caused by Landlords willful misconduct, negligence or breach of this Agreement.
11. ALTERATIONS AND IMPROVEMENTS.
Tenant shall not alter any structural component of the Building (including the roof and roof membrane), nor perform any alterations, additions or improvements which would affect the exterior of the Building or the Property, except that Landlord acknowledges and agrees (i) that Tenant contemplates removing a steel column on the third floor of the Building as a part of Tenants fit-up, which Tenant may do so long as the contractor is the same as that which installed the column upon construction, and further that (ii)Tenant shall have the right to designate a portion of the Property not within the Building as a Smoking Area and, at its expense, Tenant may provide for the accommodation of its employees, agents and invitees who do smoke, so long as such Smoking Area does not unreasonably interfere with or impact the appearance or use of the Premises or surrounding Technology Park complex.
In addition, no other alteration, addition, or improvement to the Premises costing more than Fifty Thousand Dollars ($50,000.00) shall be made by Tenant without the prior written consent of Landlord, which shall not be unreasonably withheld, conditioned, or delayed; provided, however, that Tenant shall not be required to obtain Landlords consent to interior painting, redecorating, nor for the installation of window coverings so long as the same are of the same character as other existing buildings at Technology Park, nor shall Tenant be required to use Landlords contractor for any work that is anticipated to cost $50,000.00 or less. Landlord may impose, as a condition of its consent, such reasonable requirements as it chooses in its discretion, including without limitation relating to times of construction, locations of access and storage for construction materials and workers, the provision of contractors insurance, and the posting of notices of non-responsibility. All work with respect to any alteration, addition or improvement must be done in a good and workmanlike manner and be diligently prosecuted to completion.
Tenant may place any interior signage at the Premises that conforms to the applicable laws and regulations, and is consistent with the signage plan at Technology Park. Tenant shall have the exclusive right to place its logo and name on the existing monument sign at the eastern side of the Property, at Tenants sole cost. Tenant shall first ask permission from Landlord to erect any other exterior signs, such permission not be unreasonably withheld, conditioned, or delayed so long as such signage is at Tenants sole cost, is in conformity with all building and zoning codes and applicable permits, and is of a character similar to other exterior signage at Technology Park (including, without limitation, no flashing or animated signs), and provided that nothing in the foregoing restricts Landlords rights to grant exclusive naming rights to any other structure at Technology Park.
Any alteration, addition, or improvement made by Tenant during the term of this Lease shall become the property of Landlord upon the expiration or other sooner termination of this Lease unless Tenant notifies Landlord not less than two hundred and seventy (270) days prior to the expiration of the Lease that Tenant desires to remove such alterations, additions or improvements. For purposes of clarification, (i) if Tenant elects to remove any alterations, additions or improvements (other than its personal property, furniture, fixtures and equipment), then Tenant must remove all such alterations, additions or improvements, i.e., Tenant may not selectively remove only certain alterations, additions or improvements, and (ii) irrespective of its decision with respect to interior improvements, Tenant may remove any backup generator installed by it at its cost, on the pad on the western exterior of the Building. If Tenant does elect removal of interior improvements, Tenant may remove such alterations, additions or improvements provided that Tenant repairs any damage to the Premises caused by such removal. Landlord shall not have a right to require removal of alterations, additions or improvements at the end of the term.
12. TENANTS DEFAULT.
A default shall be defined for all purposes of the Lease as follows:
(a) Failure to make due and punctual payment of any Base Rent or other sums payable under this Lease when and as the same shall become due and such failure shall continue for a period of ten (10) days after receipt by Tenant of written notice thereof; or
(b) Failure by the Tenant to maintain the insurance required hereunder, and such failure is not cured within ten (10) days after receipt by Tenant of written notice thereof,
(c) Failure by the Tenant in the performance or compliance with any of the agreements, terms, covenants or conditions in this Lease other than those referenced in the foregoing subparagraph (a) or (b), and such failure shall not be cured within a period of thirty (30) days after written notice by the Landlord to the Tenant specifying the failure, or, in the case of a failure which cannot with due diligence be cured within said thirty (30) day period, if the Tenant fails to commence within said thirty (30) day period the steps necessary to cure the same and thereafter to prosecute the cure of such failure with due diligence, provided that such cure is in any event effected within seventy-five (75) days; or
(d) If the Tenant shall file a voluntary petition in bankruptcy or shall be adjudicated a bankrupt or insolvent, or if there shall be appointed a receiver or trustee of all or substantially all of the property of the Tenant, or if the Tenant shall make an assignment for the benefit of creditors; or
(e) If the Tenant shall vacate the Premises, and any such condition shall continue for a period of twenty (20) days after written notice from the Landlord, provided that it shall not be a default so long as (i) all Rent is being timely paid, (ii) the Premises are being maintained as a first-class office building, and (iii) no waste or security problems occur as a result of such vacation.
Upon the occurrence of one or more events of default, in addition to any other rights or remedies the Landlord may have, the Landlord shall have the right to immediately re-enter and regain possession of the Premises and to exclude the Tenant from further use, occupancy, and enjoyment thereof. In particular, but not by way of limitation, the Landlord may in the event of such uncured default, remove all persons and property from the Premises and may store such property in a public warehouse or elsewhere at the cost of and for the account of the Tenant, all as may be permitted by applicable law. Should the Landlord elect to re-enter, as provided herein, or should the Landlord take possession pursuant to legal proceedings or pursuant to any notice provided for by law, this Lease shall terminate. The Landlord shall use reasonable efforts to relet the Premises or any part thereof for such term or terms which may be for a term extending beyond the term of this Lease, and at such rental and upon such other terms and conditions as the Landlord, reasonably deems advisable. Upon such reletting, all rental thereby received by the Landlord shall be applied: first, to the payment of any reasonable costs and expenses of such reletting, including brokerage fees and attorneys fees, and costs of any such alterations and repairs as the Landlord may make to facilitate such re-rental; second, to the payment of any Base Rent or other amounts due hereunder from the Tenant to the Landlord; and, third, the residue, if any, shall be held by the Landlord and applied in payment of future rent as the same may become due and payable hereunder. If such rent received from such reletting during any month be less than that to be paid during the month by the Tenant hereunder, the Tenant shall pay any such deficiency to the Landlord, Should the Landlord at any time terminate this Lease for any default, in addition to any other remedies it may have, the Landlord may within twelve (12) months after such termination upon notice to the Tenant, elect to recover, in lieu of other damages, from the Tenant all damages the Landlord may incur by reason of such default, including the costs of recovering the Premises, reasonable attorneys fees, together with the worth at the time of such termination of the excess, if any, of the amount of rent and other sums payable by Tenant hereunder for the remainder of the then current term (without any extension) over the then reasonable rental value of the Premises for the remainder of such term, all of which amounts shall be immediately due and payable from the Tenant to the Landlord.
Notwithstanding anything to the contrary in this Lease, neither party shall be liable to the other for any speculative, punitive or consequential damages.
13. LANDLORDS RIGHT TO PERFORM TENANTS OBLIGATIONS, AND TENANTS RIGHT TO PERFORM LANDLORDS OBLIGATION OF MAINTENANCE AND REPAIR.
If the Tenant is in default of any provision of this Lease, other than the provisions requiring the payment of rent, and the Landlord shall give to the Tenant written notice of such default, and if the Tenant shall fail to
commence to cure such default within thirty (30) days after the receipt of such notice, and diligently pursue such cure, then the Landlord may cure such default for the account of the Tenant, and any sums reasonably expended by the Landlord in connection therewith shall be deemed to be additional rent and payable with rent which shall next become due. Once Tenant pays the amount as additional rent, Tenants default shall be deemed cured for all purposes.
Other than in emergency situations, if Tenant believes that the Landlord is in default of any of its obligations of repair or maintenance under this Lease, Tenant shall first provide written notice to Landlord, specifying the nature of the alleged default. If the same has not been cured or satisfactorily addressed by Landlord within fifteen (15) days of such written notice (subject to force majeure), then (i) Tenant shall send a second written notice to Landlord, specifying in bold type that Tenant intends to cure such default itself, and (ii) if Landlord has not cured or addressed the default within ten (10) days of the second written notice, then, Tenant may contract for and perform said repairs or maintenance, and the Landlord, within thirty (30) days after receipt from Tenant of written receipts/invoices/work orders and canceled checks to support the claim for reimbursement, shall reimburse Tenant for the cost of said repairs and maintenance. If the Landlords failure to repair or maintain causes an emergency situation in the Premises which threatens the health or safety of Tenants occupants, or an immediate threat to the properly of Tenant, Tenant is authorized (but not required) to take reasonable remedial action and to promptly contact Landlord using commercially reasonable attempts, and Landlord will promptly reimburse Tenant for any costs associated with such remedial action upon presentation of reasonable documentation in substantiation of the emergency costs.
14. RIGHT OF ACCESS.
Upon reasonable prior notice from the Landlord to the Tenant, the Landlord and its representatives may enter the Premises at reasonable times for the purpose of inspecting the Premises, performing any work on the Premises which the Landlord is authorized or obligated to undertake, exhibiting the Premises for sale or lease, or mortgage financing, or posting any required notices. Landlord shall use reasonable efforts to minimize any disruption of Tenants activities at the Premises, and except in the event of emergency or when a default has occurred and is continuing, Landlord shall not enter Tenants vaults and special security areas designated in advance by Tenant without accompaniment by a representative of Tenant, provided that shall reasonably cooperate with such request for accompaniment.
15. INSURANCE.
During the term of this Lease, the Tenant, at its sole cost and expense, shall carry and maintain the following types of insurance in the amounts specified:
(a) Property insurance covering the betterments, improvements, and contents of Tenant against loss or damage by fire, vandalism and other perils in an amount not less than full replacement cost.
(b) Commercial general liability insurance, including property damage, insuring against liability for injury to persons or property occurring in or about the Premises or arising out of the Tenants use or occupancy thereof. The liability under such insurance shall not be less than Two Million Dollars ($2,000,000.00) each occurrence for bodily injury and/or property damage. Landlord and any lender having a security interest in the Premises shall be listed as an additional insured on Tenants liability insurance policy.
All insurance policies maintained by Tenant pursuant to the terms of this Lease shall be issued by insurance companies authorized to do business in the State of Vermont. All such insurance policies shall require the insurance carriers to provide the Landlord with at least thirty (30) days written notice prior to termination or cancellation of any policy. At the commencement of the term of this Lease and thereafter not less than fifteen (15) days prior to the expiration date of any policy required hereunder, Tenant shall deliver to Landlord certificates of insurance in form and substance acceptable to Landlord.
Landlord shall keep the Building and the Property insured against damage and destruction by fire, vandalism, and other perils in the amount of the full replacement value of the Building and other
improvements, as the value may exist from time to time. The insurance shall include an extended coverage endorsement of the kind required by an institutional lender to repair and restore the Building.
The Landlord shall maintain contractual and comprehensive general liability insurance, including public liability and property damage, with a minimum combined single limit of liability of Two Million Dollars ($2,000,000.00) for personal injuries or deaths of persons occurring in or about the Building, the Property, or the Premises.
16. WAIVER OF SUBROGATION.
Each of Landlord and Tenant hereby releases the other from any and all liability or responsibility to the other or anyone claiming through or under them by way of subrogation or otherwise for any loss or damage to property, including the Building and the Premises caused by fire or any of the extended coverage or supplemental contract casualties, even if such fire or other casualty shall have been caused by the fault or negligence of the other party or anyone for whom such other party shall be responsible; provided, however that any such release shall not adversely affect or impair any insurance policies required to be maintained hereunder, or prejudice the right of the releasor to recover under such policies. Landlord and Tenant agree that each will require its insurance carrier to include in its policy a clause or endorsement confirming the foregoing. If extra costs shall be charged therefore, the insuring party shall advise the other thereof and the other party, at its election, may pay the same, but shall not be obligated to do so; provided, however, if the other party does not pay such extra cost then the first party need not include in its policy such a clause or endorsement.
17. TENANTS PROPERTY.
(a) The Landlord, its agents, contractors, or employees, shall not be liable for any damage to properly of the Tenant or of others located on the Premises or entrusted to its employees nor for the loss of any such property by theft or otherwise, and Landlord, its agents, contractors, or employees shall not be liable for any injury or damage to persons or property resulting from fire, explosion, falling plaster, steam, gas, electricity, wind, water, rain, snow or ice which may leak into the Premises from pipes, appliances or plumbing systems or from the street or from any other place, or from dampness or from any other cause whatsoever, unless caused by or due to the willful or negligent act or omission of the Landlord or its agents, contractors, or employees, or caused by a breach by Landlord of its obligations under this Lease. Except as otherwise provided in this Lease, all property of the Tenant or of others kept or stored on the Premises shall be so kept or stored at the risk of the Tenant only and the Tenant shall hold the Landlord harmless from any claims arising out of any damage to the same.
(b) If the Tenant is in default under the terms of this Lease and vacates or abandons the Premises (or after 15 days from the termination or expiration of this Lease), any property that the Tenant leaves on the Premises shall be deemed to have been abandoned and may either be retained by the Landlord as its own property or may be disposed of at public or private sale as the Landlord sees fit. Any property of the Tenant sold at public or private sale or retained by the Landlord shall have the proceeds of any such sale, or the then current fair market value of any property retained by the Landlord as reasonably determined by the Landlord, applied by the Landlord against (i) any expenses of the Landlord for removal, storage or sale of such property, (ii) any unpaid Base Rent or other amounts payable under this Lease and (iii) any damages or other amounts to which the Landlord may be entitled under this Lease. The balance of such amounts, if any, shall be paid to the Tenant at the address set forth herein for notices to the Tenant.
The Landlord hereby waives any statutory lien or other security interest that it now or hereafter may have (unless affirmatively granted by the Tenant) in the goods, equipment and other personal property of the Tenant presently, or which may hereafter be, situated on the Premises.
18. QUIET ENJOYMENT.
Landlord covenants and agrees with Tenant that upon Tenant paying said rent, and performing all the covenants and conditions aforesaid, on Tenants part to be observed and performed, Tenant shall and may
peaceable and quietly have, hold and enjoy the Premises hereby demised, twenty-four hours a day, seven days a week, for the term aforesaid as the same may be extended or renewed, subject, however, to any current or future underlying mortgages (subject to Paragraph 22).
19. ASSIGNMENT AND SUBLETTING.
This Lease may not be assigned or the Premises sublet by the Tenant without the express written consent of the Landlord, which shall not be unreasonably withheld, conditioned, or delayed, provided that it shall be reasonable for Landlord to withhold consent if the proposed assignee or sublessee is not appropriate for the tenant mix at Technology Park. However, Tenant may assign this Lease or sublease part or all of the Premises without Landlords consent to:
(i) any corporation, partnership, or other entity that controls, is controlled by, or is under common control with, Tenant; or
(ii) any corporation or other entity resulting from the merger or consolidation with Tenant or to any entity that acquires all or substantially all of Tenants assets as a going concern of the business that is being conducted on the Premises, as long as the assignee or sublessee is a bona fide entity and assumes the obligations of Tenant.
Any purported assignment or subleasing of the Premises or any portion thereof in violation of this Paragraph 19 shall be a default under this Lease, and shall be void as a matter of law.
20. INDEMNIFICATION.
Tenants Indemnity. Tenant indemnifies, defends, and holds Landlord harmless from all costs and claims which are:
(a) for personal injury, death, or property damage; and
(b) for incidents occurring in or about the Premises or Building or Property;
(c) caused by the negligence or willful misconduct of Tenant, any invitee or guest of Tenant, or those parties for whose conduct the Tenant is legally responsible; or
(d) resulting from or relating to a Tenant default under this Lease.
When the claim is caused by the joint negligence or willful misconduct of Tenant and Landlord or Tenant and a third party unrelated to Tenant, except Tenants agents, employees, or invitees, Tenants duty to defend, indemnify, and hold Landlord harmless shall be in proportion to Tenants allocable share of the joint negligence or willful misconduct.
Landlords Indemnity. Landlord indemnifies, defends, and holds Tenant harmless from all costs and claims which are:
(a) for personal injury, death, or property damage; and
(b) for incidents occurring in or about the Premises or Building or Property;
(c) caused by the negligence or willful misconduct of Landlord, or those parties for whose conduct the Landlord is legally responsible, or by Landlords breach of or its default in its obligations under this Lease; or
(d) resulting from or relating to a Landlord default under this Lease.
When the claim is caused by the joint negligence or willful misconduct of Landlord and Tenant or Landlord and a third party unrelated to Landlord, except Landlords agents, employees, or invitees, Landlords duty to defend, indemnify, and hold Tenant harmless shall be in proportion to Landlords allocable share of the joint negligence or willful misconduct.
21. CONDEMNATION.
If at any time during the term of this lease a substantial portion of the Premises (meaning thereby so much as shall render the Premises substantially unusable by Tenant, as reasonably determined by Tenant, or
which reduces available parking to below the level required by applicable zoning) shall be taken by exercise of the right of condemnation or eminent domain or by agreement between Landlord and those authorized to exercise such rights (which such agreements Landlord may enter into in its sole discretion) (all such proceedings being collectively designated as a taking in condemnation or a taking), this Lease shall terminate and expire on the date of the taking and the rent and other amounts payable by Tenant hereunder shall be apportioned and paid to the date of the taking. Tenant shall have no right to interpose, prosecute or collect a claim against the Landlord in any proceedings for taking in condemnation for the loss of the value of this Lease or improvements made by the Tenant to the Premises; provided, however, that the Tenant may claim and recover from the condemning authority, but not from the Landlord, such compensation as may be separately awarded or recoverable by the Tenant in Tenants own right on account of any and all damage to Tenants business by reason of any taking in condemnation, any cost or loss to which Tenant might be put in removing Tenants merchandise, furniture, fixtures and equipment, the remaining value of Tenants leasehold interest, Tenants relocation expenses, Tenants business dislocation expenses, and any other award that would not reduce the award payable to Landlord. Except as expressly set forth in the immediately preceding sentence, any award for the value of the land, buildings and improvements and loss of rent shall belong to the Landlord. If the title to less than a substantial portion of the Premises shall be taken in condemnation so that the business conducted on the Premises (as reasonably determined by Tenant), can be continued without material diminution, this Lease shall continue in full force and effect. If the taking does not amount to a substantial portion but does materially adversely affect the Tenants ability to conduct Tenants business on the Premises, the rent from and after the date of the vesting of title in the condemnor shall be equitably adjusted to reflect the diminished value of the Premises to the Tenant as a direct result of the condemnation. Any award for a partial taking shall be vested as set forth herein relating to total taking in condemnation.
22. PRIORITY OF MORTGAGES; NON-DISTURBANCE.
This Lease shall be subject and subordinated to the lien of all mortgages and deeds of trust at all times in any amount or amounts whatsoever that may now exist or hereafter be placed on or against the Building or Property, or on or against Landlords interest or estate therein, all without the necessity of having further instruments executed on the part of Tenant to effectuate such subordination, provided that so long as no default has occurred hereunder, Landlord shall obtain from every current or future lender, mortgagee, and holder of a deed of trust upon the Property or the Premises (each a Senior Lender), an agreement in recordable form wherein (i) the Senior Lender(s) agree not to disturb Tenants possession, deprive Tenant of any rights, or increase Tenants obligations under the Lease so long as Tenant is not in default under the Lease beyond applicable grace and cure periods, and (ii) Tenant agrees to attorn to such Senior Lender(s) should any of them take possession of or title to the Properly or the Premises (SNDA). The SNDA shall be substantially in accordance with the contents of the form identified as Exhibit F, attached hereto and made a part hereof by reference, or such other agreement as Senior Lender may reasonably require, and each of Landlord and Tenant shall bear their own costs of negotiating any SNDA. Landlord represents and warrants to Tenant that there is no current Senior Lender or other lender with an interest in the Property or Premises.
Tenant covenants and agrees that it has no power to cause or permit any lien or encumbrance of any kind whatsoever, whether created by act of Tenant, operation of law or otherwise, to attach or be placed upon the Property or the Premises. Tenant covenants and agrees not to suffer or permit any lien of mechanics or materialmen or others to be placed against the Property or the Premises, or any portion thereof, and, in case of any such lien attaching, Tenant shall cause it to be immediately released and removed of record. If such lien is not released and removed on or before the date that is ten (10) days after notice of such lien is delivered to Tenant, Landlord may immediately take all action necessary to release and remove such lien, without any duty to investigate the validity thereof, and all sums, costs and expenses, including reasonable attorneys fees and costs, incurred by Landlord in connection with such lien shall be deemed additional Rent hereunder and shall immediately be due and payable by Tenant.
Notwithstanding the foregoing, Landlord agrees that it will reasonably consent to Tenant obtaining financing that may be secured by Tenants leasehold interest, subject to Landlord obtaining a customary attornment agreement with the lender wherein (i) the lender(s) agree to perform Tenants obligations under
the Lease, in the event of a Tenant default under the Lease, and (ii) Landlord agrees to allow the lender(s) to exercise Tenants rights under the Lease and assign or sublease the leasehold interest (subject to Paragraph 19) in the event of an event of default under the leasehold mortgage, subject to curing any defaults under the Lease.
23. CUMULATIVE REMEDIES.
The remedies of the Landlord and Tenant herein shall be cumulative and not alternative, and not exclusive of any other right or remedy available to the Landlord or Tenant.
24. HOLDOVER TENANCY.
Any holding over by the Tenant after the termination of this Lease shall be on a day to day basis at the rate of (i) 150% of the Base Rent, plus (ii) applicable Operating Expenses and utility charges in effect at the time of the holding over prorated on a daily basis. The covenants and agreements contained herein shall remain in force during the period of any holding over insofar as applicable.
25. HAZARDOUS SUBSTANCES.
Except for materials used, stored or handled in the ordinary course of Tenants business, in compliance with all applicable laws and regulations, the Tenant shall not handle, process, store, release or use any hazardous or toxic materials in or on the Premises without the express written consent of the Landlord, which may be withheld in its sole discretion. In connection with the Tenants use or occupancy of the Premises, the Tenant shall comply in all respects with any applicable law, ordinance, regulation or ruling relating to environmental protection or the presence, use, generation, storage, release, containment or disposal of hazardous or toxic materials. The Tenant shall indemnify, defend and hold the Landlord harmless from and against any and all damage, cost, loss, liability and expense (including reasonable attorneys fees) which may be incurred by the Landlord by reason of, resulting from, or arising in any manner whatsoever out of the breach of the obligations of the Tenant contained in this paragraph. Landlord represents, warrants and covenants to Tenant that the Premises are free of Hazardous Substances as that term is defined and used in the federal Comprehensive Environmental Response, Compensation and Liability Act (other than reasonable quantities typically associated with normal office activities) and are presently and shall remain in compliance in all material respects with all applicable laws, regulations and ordinances. Landlord shall, at Landlords sole expense, remove from the Premises any existing Hazardous Substances (including, but not limited to. asbestos-containing materials), not later than the Occupancy Date. Landlord shall indemnify, protect and hold harmless Tenant from and against any and all claims, demands, liabilities, actions, suits, proceedings, judgments, losses, damages (including punitive damages), fines, penalties, costs and expenses (including reasonable attorneys, consultants and experts fees) arising from (i) a breach of any representation or warranty of Landlord set forth in this paragraph; and (ii) any violation or alleged violation of any Environmental Law, except that which is caused by Tenant. The foregoing indemnification obligation shall survive the expiration of earlier termination of this Lease.
26. RECORDING OF LEASE.
This Lease shall not be recorded by or on behalf either party. Either of the Landlord or the Tenant may request that both parties agree to and sign and record a notice of lease stating the names of the parties, the description of the Premises, the term of this Lease, and such other additional information as may be reasonably necessary to accurately reflect the terms of this Lease, and to protect the legitimate interests of the Landlord and the Tenant against third parties.
27. RENEWAL OF LEASE.
The Tenant shall have the rights to extend the Initial Term of this Lease set forth in Exhibit C attached hereto and made a part hereof. Except as set forth in Exhibit C, any renewal Term shall be upon all of the terms and conditions of this Lease, except no further renewals or extensions of this Lease shall be permitted. As a condition precedent to the Tenants exercise of any right of renewal provided by Exhibit C, the Tenant must not be in default beyond any applicable notice and cure provided herein, Tenant shall
exercise each renewal, if at all, not less than two hundred seventy (270) days prior to the end of the then existing term. Renewal shall be by written notice delivered to the Landlord.
28. NOTICES.
Whenever in this Lease it shall be required or permitted that notice or demand be given or served by either party to this Lease, such notice or demand shall be given or served in writing and sent to Landlord and Tenant at the addresses set forth below. All such notices shall be sent by (i) certified or registered mail, return receipt requested, and shall be effective three (3) days after the date of mailing if so sent; (ii) Federal Express or similar overnight courier and shall be effective one (1) day after delivery to Federal Express or similar overnight courier; or (iii) personal service and shall be effective on the same day as such service. Any such address may be changed from time to time by either party serving notices to the other as provided above.
Notices to Landlord: |
|
124 Technology Park Way, LLC |
|
|
Mr. John Illick |
|
|
30 Community Drive Suite # 4 |
|
|
South Burlington, VT 05403 |
|
|
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with a copy to: |
|
Paul Frank + Collins, P.C. |
|
|
Attn: Real Estate Group |
|
|
One Church Street |
|
|
Burlington, VT 05402 |
|
|
|
Notices to Tenant: |
|
Green Mountain Coffee Roasters, Inc. |
|
|
Mr. Howard Malovany, Vice President and General Counsel |
|
|
33 Coffee Lane |
|
|
Waterbury, Vermont 05676 |
|
|
|
with a copy to: |
|
Sheehey Furlong & Behm P.C. |
|
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30 Main Street, Sixth Floor |
|
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P.O. Box 66 |
|
|
Burlington, VT 05402 |
29. LIMITATION OF LIABILITY; JOINT AND SEVERAL LIABILITY.
Notwithstanding anything to the contrary contained in this Lease, Tenant agrees and understands that Tenant shall look solely to the estate in the Property of Landlord and any other property of Landlord, including, but not limited to, all rents, profits and proceeds therefrom, for the enforcement of a judgment (or other judicial decree) requiring the payment of money by Landlord to Tenant by reason of default, breach or event of default of Landlord in performance of its obligations under this Lease, it being intended that there will be absolutely no personal liability on the part of Landlord, the investors in Landlord, or of Landlords partners, if any, shall be subject to levy, execution, attachment or any other legal process for the enforcement or satisfaction of the remedies pursued by Tenant in the event of such default, breach, or event of default, this exculpation of liability to be absolute and without exception whatsoever.
30. DAMAGE OR DESTRUCTION OF PREMISES.
(a) In the event that the Premises, the Building, or the other improvements at the Property are damaged or destroyed by fire, windstorm, or any other casualty to such an extent that it shall appear unlikely under the existing conditions, as reasonably determined by Tenant, that such damage could be repaired within ninety (90) days from the date such work commences, then Tenant shall have the privilege of terminating this Lease as of the date of such event (notwithstanding any provisions in the Lease to the contrary) by furnishing written notice to Landlord to that effect not more than thirty (30) days after such event; and upon such election by
Tenant, the rental hereunder shall be prorated and paid or refunded, as the case may be, as of the date the damage occurred.
(b) If, however, the nature of such damage is such that the Building, the Premises, or other improvements at the Property, as reasonably determined by Tenant, could reasonably be repaired or reconstructed substantially to its former condition within ninety (90) days from the date such work commences, or if Tenant did not exercise its aforementioned privilege to terminate this Lease, then in either or such events, Tenant shall not be entitled to surrender this Lease, but Landlord shall with reasonable due diligence commence to repair and restore the Premises to a condition at least equivalent to that prevailing immediately prior to the happening of such casualty with all reasonable dispatch, and in any event, in the absence of unavoidable delay, such repair or restoration to be completed within ninety (90) days from the date such work commences, or such other period of time as Tenant and Landlord may agree upon in writing, and if, during the period of such repair or restoration, Tenant is deprived of occupancy of all or any part of the Premises for Tenants accustomed use thereof, then, to the extent that Tenant may be unable reasonably to conduct its regular business therein, Tenant shall receive a proportionate reduction from its rental obligation hereunder corresponding to the time during which, and the proportion of said Premises from which, Tenant shall have been so deprived. In all events, the Tenant shall have the further option of terminating this Lease should repairs to or restoration of the Premises not be complete within six months of the date of the casualty.
31. WARRANTIES AND REPRESENTATIONS
Landlord represents and warrants to Tenant as follows:
(a) 124 Technology Park Way, LLC has been duly authorized and has the full power, right and authority to enter into this Lease and to perform all of its obligations under this Lease and to execute and deliver all documents required by this Lease and neither this Lease nor the transactions contemplated hereby constitute a violation or breach of their respective articles of association or bylaws or any contract, agreement, decree, order, or judgment by which it is bound.
(b) Landlord has good and marketable title to the Property, together with all easements and other real property rights for the use of the Building and Property as presently constructed;
(c) The Property and the Building shell are in conformity and in compliance with all applicable zoning, subdivision, Act 250, environmental, land use laws, regulations, and codes of governmental authorities having jurisdiction over the Property, and with any applicable covenants or restrictions.
(d) Landlord has obtained all permits, licenses, easements and approvals necessary for the construction and operation of the Building shell and the Property, including, without limitation, the storm water system serving the Property.
(e) Landlord has no knowledge of any pending or threatened proceedings to change the zoning of the Property, either with respect to use or dimensional limitations.
(f) There are no litigation or proceedings pending, or to Landlords knowledge, threatened, against or relating to the Property which if adversely decided would adversely affect Tenants rights under this Lease.
(g) To the best of Landlords knowledge, no Hazardous Substances have ever been used, handled, manufactured, generated, produced, stored, treated, processed, transferred, or disposed of at the Property except in compliance with applicable federal, state and local laws, ordinances, rules and regulations, that any release or discharge of any Hazardous Substances has occurred on, at, to, or from the Property, that any Hazardous Substances exist on the Property, that any condition currently exists which poses a substantial likelihood of such a release or discharge, and that any litigation or proceedings are pending or threatened alleging a violation of federal, state or local laws, ordinances, rules or regulations pertaining to hazardous materials or the existence, release or discharge of Hazardous Substances at, on, from, or to the Property.
Tenant represents and warrants to Landlord as follows:
(a) Green Mountain Coffee Roasters, Inc. has been duly formed and is in good standing in the State of Delaware, and has been duly authorized and has the full power, right and authority to enter into this Lease and to perform all of its obligations under this Lease and to execute and deliver all documents required by this Lease and neither this Lease nor the transactions contemplated hereby constitute a violation or breach of their respective articles of association or bylaws or any contract, agreement, decree, order, or judgment by which it is bound.
(b) There are no litigation or proceedings pending, or to Tenants knowledge, threatened, against or relating to Tenant which if adversely decided would adversely affect Tenants obligations under this Lease and its ability to perform the same.
32. MISCELLANEOUS.
(a) If not included within Operating Expenses, Tenant shall pay its own separate utility charges for water, electricity, and heating and cooling expenses.
(b) In any litigation between the parties regarding this Lease, the losing party shall pay to the prevailing party all reasonable expenses and court costs including attorneys fees incurred by the prevailing party, including cost of appeal, if any. A party shall be considered the prevailing party if:
(1) it initiated the litigation and substantially obtains the relief it sought, either through a judgment or the losing partys voluntary action before arbitration (after it is scheduled), trial, or judgment;
(2) the other party withdraws its action without substantially obtaining the relief it sought; or
(3) it did not initiate the litigation and judgment is entered for either party, but without substantially granting the relief sought.
(c) Within twenty (20) days of written request from either party, the other party shall execute and deliver an estoppel certificate summarizing such facts and conditions of this Lease and such requesting partys leasehold estate, as such party may reasonably request.
33. WAIVER.
The failure of the Landlord or Tenant to insist upon strict performance of any of the terms, conditions and covenants herein, shall not be deemed a waiver of any rights or remedies that the Landlord or Tenant may have and shall not be deemed a waiver of any subsequent breach or default in the terms, conditions and covenants herein contained.
34. INVALIDITY OR INAPPLICABILITY OF CLAUSE.
If any term or provision of this Lease or the application thereof to any person or circumstances shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Lease shall be valid and be enforced to the fullest extent permitted by law.
35. CAPTIONS.
The headings and captions contained in the Lease are inserted for convenience of reference only, and are not to be deemed part of or to be used in construing this Lease.
36. SUCCESSORS OR ASSIGNS.
The covenants and agreements herein contained shall, subject to the provisions of this Lease bind and inure to the benefit of the Landlord, its successors and assigns, and Tenant, its successors and assigns, except as otherwise specifically provided herein.
37. ENTIRE AGREEMENT; AMENDMENTS.
It is expressly understood and agreed by and between the parties hereto that this Lease sets forth all the promises, agreements, conditions, inducements and understandings between the Landlord and the Tenant relative to the Premises and that there are no promises, agreements, conditions, understandings, inducements, warranties or representations, oral or written, express or implied, between them other than as herein set forth and shall not be modified in any manner except by an instrument in writing executed by the parties.
38. BROKER. Intentionally Omitted.
39. CONFIDENTIALITY.
From and after the mutual execution and delivery of this Lease, Landlord shall not issue any news releases, advertising or promotional releases of any kind relating to the parties execution of this Lease or their activities hereunder without the prior written approval of Tenant, not to be unreasonably withheld or delayed, provided that nothing in the foregoing restricts Landlords ability to respond to any governmental authority or judicial proceeding. Landlord agrees that neither this Lease, nor copies thereof, shall be shared with or distributed to prospective tenants, subtenants or licensees of Landlord or Landlords affiliates, subsidiaries, successors or assigns.
40. OPTION FOR DEVELOPMENT RIGHTS.
Tenant shall have the option to develop or cause to be developed any existing or future lot with a boundary or boundaries adjoining the Property contiguous to the east, currently identified by Landlord as Lot 3, containing 4 acres, more or less, and Lot 4, containing 5.75 acres, more or less, of Technology Park (the Adjacent Property) pursuant to the provisions of Exhibit G hereof. This Lease is contingent upon Exhibit G being executed by a duly authorized agent of Technology Park Campus LLC, owner of the Adjacent Property and an affiliate of Landlord.
41. COUNTERPARTS.
This Lease may be executed in any number of counterparts and may be executed by facsimile. Each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement.
Signatures pages to follow
IN WITNESS WHEREOF, the parties have executed this lease the day and year first above written.
In the presence of: |
LANDLORD: | ||
|
124 Technology Park Way, LLC | ||
|
| ||
|
| ||
/s/ Sara E. Skomitz |
|
By: |
/s/ John Illick |
Witness |
|
Its Duly Authorized Agent | |
|
| ||
|
TENANT: | ||
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Green Mountain Coffee Roasters, Inc. | ||
|
| ||
|
| ||
/s/ Kathy Brooks |
|
By: |
/s/ Lawrence J. Blanford |
Witness |
|
Lawrence J. Blanford | |
|
|
President and Chief Executive Officer | |
|
| ||
|
| ||
STATE OF VERMONT |
| ||
CHITTENDEN COUNTY, SS. |
|
At Burlington, this 21st day of March, 2011, personally appeared John Illick, and he/she acknowledged the foregoing instrument, by him/her signed, to be his/her free act and deed, and the free act and deed of Landlord.
|
Before me, |
/s/ Diane M. McCarthy |
|
|
Notary Public |
|
| |
|
Print name: |
Diane M. McCarthy |
|
| |
|
My commission expires: 2/10/15 | |
|
| |
STATE OF VERMONT |
| |
Washington COUNTY, SS. |
|
At Waterbury, this 18th day of March, 2011, personally appeared Lawrence J. Blanford, and he/she acknowledged the foregoing instrument, by him/her signed, to be his/her free act and deed, and the free act and deed of Tenant.
|
Before me, |
/s/ Christine Fitzgerald | |
|
|
Notary Public | |
|
|
| |
|
Print name: |
Christine Fitzgerald | |
|
| ||
|
My commission expires: | ||
|
| ||
|
CHRISTINE FITZGERALD | ||
|
Notary Public. State of Vermont | ||
|
My Commission Expires Feb. 10, 2015 | ||
Exhibit 31.1
CERTIFICATION PURSUANT TO
SECURITIES EXCHANGE ACT RULES 13a-14 and 15d-14
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Lawrence J. Blanford, Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Green Mountain Coffee Roasters, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: August 1, 2012
/s/ Lawrence J. Blanford |
|
Lawrence J. Blanford |
|
President and Chief Executive Officer |
|
Exhibit 31.2
CERTIFICATION PURSUANT TO
SECURITIES EXCHANGE ACT RULES 13a-14 and 15d-14
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Frances G. Rathke, Chief Financial Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Green Mountain Coffee Roasters, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: August 1, 2012
/s/ Frances G. Rathke |
|
Frances G. Rathke |
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Chief Financial Officer |
|
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Green Mountain Coffee Roasters, Inc. (the Company) on Form 10-Q for the period ending June 23, 2012 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Lawrence J. Blanford, as the Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Date: August 1, 2012
/s/ Lawrence J. Blanford |
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Lawrence J. Blanford* |
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President and Chief Executive Officer |
|
* A signed original of this written statement required by Section 906 has been provided to Green Mountain Coffee Roasters, Inc. and will be retained by Green Mountain Coffee Roasters, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and is not being filed as part of the Form 10-Q or as a separate disclosure document.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Green Mountain Coffee Roasters, Inc. (the Company) on Form 10-Q for the period ending June 23, 2012 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Frances G. Rathke, as the Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Date: August 1, 2012
/s/ Frances G. Rathke |
|
Frances G. Rathke* |
|
Chief Financial Officer |
|
* A signed original of this written statement required by Section 906 has been provided to Green Mountain Coffee Roasters, Inc. and will be retained by Green Mountain Coffee Roasters, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and is not being filed as part of the Form 10-Q or as a separate disclosure document.
Earnings Per Share (Tables)
|
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 23, 2012
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Earnings Per Share | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reconciliation of the numerator and denominator of basic and diluted earnings per share computations |
|
Goodwill and Intangible Assets (Details 2) (Trade names, CBU, USD $)
In Thousands, unless otherwise specified |
Jun. 23, 2012
|
Sep. 24, 2011
|
---|---|---|
Trade names | CBU
|
||
Indefinite-lived intangible assets | ||
Indefinite-lived intangible assets | $ 98,283 | $ 97,824 |
Fixed Assets (Details) (USD $)
|
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Jun. 23, 2012
|
Jun. 25, 2011
|
Jun. 23, 2012
|
Jun. 25, 2011
|
Sep. 24, 2011
|
|
Fixed Assets | |||||
Total fixed assets | $ 1,067,174,000 | $ 1,067,174,000 | $ 722,118,000 | ||
Accumulated depreciation | (220,851,000) | (220,851,000) | (142,899,000) | ||
Fixed assets, net | 846,323,000 | 846,323,000 | 579,219,000 | ||
Depreciation and amortization | 33,400,000 | 19,200,000 | 89,200,000 | 50,200,000 | |
Production equipment
|
|||||
Fixed Assets | |||||
Useful Life in Years, minimum | 1 | ||||
Useful Life in Years, maximum | 15 | ||||
Total fixed assets | 462,286,000 | 462,286,000 | 314,149,000 | ||
Coffee service equipment
|
|||||
Fixed Assets | |||||
Useful Life in Years, minimum | 3 | ||||
Useful Life in Years, maximum | 7 | ||||
Total fixed assets | 59,385,000 | 59,385,000 | 53,319,000 | ||
Computer equipment and software
|
|||||
Fixed Assets | |||||
Useful Life in Years, minimum | 1 | ||||
Useful Life in Years, maximum | 6 | ||||
Total fixed assets | 102,794,000 | 102,794,000 | 78,377,000 | ||
Land
|
|||||
Fixed Assets | |||||
Total fixed assets | 11,546,000 | 11,546,000 | 8,790,000 | ||
Building and building improvements
|
|||||
Fixed Assets | |||||
Useful Life in Years, minimum | 4 | ||||
Useful Life in Years, maximum | 30 | ||||
Total fixed assets | 77,640,000 | 77,640,000 | 54,648,000 | ||
Furniture and fixtures
|
|||||
Fixed Assets | |||||
Useful Life in Years, minimum | 1 | ||||
Useful Life in Years, maximum | 15 | ||||
Total fixed assets | 26,398,000 | 26,398,000 | 21,619,000 | ||
Vehicles
|
|||||
Fixed Assets | |||||
Useful Life in Years, minimum | 4 | ||||
Useful Life in Years, maximum | 5 | ||||
Total fixed assets | 9,318,000 | 9,318,000 | 7,860,000 | ||
Leasehold improvements
|
|||||
Fixed Assets | |||||
Useful Life in Years, minimum | 1 | ||||
Useful Life in Years, maximum | 20 | ||||
Total fixed assets | 55,224,000 | 55,224,000 | 35,496,000 | ||
Assets acquired under capital leases
|
|||||
Fixed Assets | |||||
Useful Life in Years, minimum | 5 | ||||
Useful Life in Years, maximum | 15 | ||||
Total fixed assets | 43,047,000 | 43,047,000 | |||
Fixed assets, net | 40,100,000 | 40,100,000 | |||
Construction-in-progress
|
|||||
Fixed Assets | |||||
Total fixed assets | $ 219,536,000 | $ 219,536,000 | $ 147,860,000 |
Assets Held for Sale (Tables)
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9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 23, 2012
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Assets Held for Sale | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of major classes of assets and liabilities held-for-sale |
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Income Taxes (Details)
In Millions, unless otherwise specified |
3 Months Ended | ||||
---|---|---|---|---|---|
Jun. 23, 2012
USD ($)
|
Sep. 24, 2011
USD ($)
|
Jun. 23, 2012
Acquisitions
CAD
|
Jun. 23, 2012
Acquisitions
Maximum
USD ($)
|
Jun. 23, 2012
State
USD ($)
|
|
Operating loss carryforwards | |||||
Net operating loss carryforwards | $ 11.5 | ||||
Capital loss carryforwards | 17.7 | ||||
Capital loss carryforwards expiration date | 2029 | ||||
Unrecognized tax benefits | 23.9 | 24.4 | |||
Unrecognized tax benefits that would impact effective tax rate | 20.4 | ||||
Amount of unrecognized tax benefits indemnifiable | 37.9 | $ 16.6 |
Earnings Per Share
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9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 23, 2012
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Earnings Per Share | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share |
|
Acquisitions and Divestitures (Details 3) (USD $)
In Thousands, except Per Share data, unless otherwise specified |
3 Months Ended | 9 Months Ended |
---|---|---|
Jun. 25, 2011
|
Jun. 25, 2011
|
|
Acquisitions and Divestitures | ||
Unaudited Consolidated proforma revenue | $ 717,210 | $ 2,037,846 |
Unaudited Consolidated proforma net income | $ 56,348 | $ 148,485 |
Unaudited Consolidated proforma diluted earnings per common share (in dollars per share) | $ 0.37 | $ 0.99 |
Stockholders' Equity (Tables)
|
9 Months Ended | ||||||||||||||||||||||||||||||||||
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Jun. 23, 2012
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Stockholders' Equity | |||||||||||||||||||||||||||||||||||
Components of accumulated other comprehensive loss, net of tax |
|
Noncontrolling Interests (Details) (USD $)
In Millions, unless otherwise specified |
1 Months Ended | 9 Months Ended |
---|---|---|
Jun. 28, 2014
|
Jun. 23, 2012
item
|
|
Noncontrolling Interests | ||
Number of redeemable noncontrolling interests entities | 2 | |
Number of days in which company required to purchase shares | 30 days | |
Mandatorily redeemable noncontrolling interest included in other current liabilities | $ 4.7 |
Related Party Transactions (Details) (Heritage Flight, USD $)
In Millions, unless otherwise specified |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Jun. 23, 2012
|
Jun. 25, 2011
|
Jun. 23, 2012
|
Jun. 25, 2011
|
|
Heritage Flight
|
||||
Related party transaction disclosures | ||||
Total amount billed for travel services | $ 0.2 | $ 0.2 | $ 0.6 | $ 0.5 |
Goodwill and Intangible Assets (Details) (USD $)
In Thousands, unless otherwise specified |
9 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Jun. 23, 2012
|
Jun. 23, 2012
SCBU
|
Jun. 23, 2012
KBU
|
Sep. 24, 2011
KBU
|
Jun. 23, 2012
CBU
|
|
Changes in the carrying amount of goodwill | |||||
Balance at the beginning of the period | $ 789,305 | $ 314,042 | $ 72,374 | $ 72,374 | $ 402,889 |
Reassignment of Timothy's goodwill | (17,063) | 17,063 | |||
Foreign currency effect | 1,892 | 1,892 | |||
Balance at the end of the period | $ 791,197 | $ 296,979 | $ 72,374 | $ 72,374 | $ 421,844 |
Basis of Presentation
|
9 Months Ended | |
---|---|---|
Jun. 23, 2012
|
||
Basis of Presentation | ||
Basis of Presentation |
|
Earnings Per Share (Details) (USD $)
In Thousands, except Share data, unless otherwise specified |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Jun. 23, 2012
|
Jun. 25, 2011
|
Jun. 23, 2012
|
Jun. 25, 2011
|
|
Numerator for basic and diluted earnings per share: | ||||
Net income | $ 73,296 | $ 56,348 | $ 270,741 | $ 124,132 |
Denominator: | ||||
Basic weighted average shares outstanding | 155,459,690 | 147,663,350 | 155,071,117 | 143,606,691 |
Effect of dilutive securities - stock options (in shares) | 3,839,888 | 5,681,039 | 4,293,323 | 5,750,789 |
Diluted weighted average shares outstanding | 159,299,578 | 153,344,389 | 159,364,440 | 149,357,480 |
Basic and diluted net income per common share | ||||
Basic net income per common share (in dollars per share) | $ 0.47 | $ 0.38 | $ 1.75 | $ 0.86 |
Diluted net income per common share (in dollars per share) | $ 0.46 | $ 0.37 | $ 1.70 | $ 0.83 |
Diluted earnings per share, other disclosure | ||||
Antidilutive securities excluded from computation of earnings per share (in shares) | 1,198,000 | 360,000 | 557,000 | 166,000 |