10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 27, 2008

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No.: 1-12340

GREEN MOUNTAIN COFFEE ROASTERS, INC.

(Exact name of registrant as specified in its charter)

Delaware	03-0339228
(State or other jurisdiction of incorporation or organization)	(I.R.S. employer identification no.)

33 Coffee Lane, Waterbury, Vermont	05676
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (802) 244-5621

Securities Registered Pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, $0.10 par value per share	The Nasdaq Global Market

Securities Registered Pursuant to Section 12(g) of the Act:

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  ¨    No  x

Indicate by check mark whether the registrant (1) has 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  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer  ¨    Accelerated Filer  x     Non-Accelerated Filer  ¨    Smaller Reporting Company  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

The aggregate market value of the voting stock of the registrant held by non-affiliates of the registrant on March 29, 2008 was approximately $534,000,000 based upon the closing price of such stock on that date. As of December 2, 2008, 24,564,000 shares of common stock of the registrant were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement for the 2009 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Form 10-K, are incorporated by reference in Part III, Items 10-14 of this Form 10-K.

GREEN MOUNTAIN COFFEE ROASTERS, INC,

Annual Report on Form 10-K

Table of Contents

PART I		1
Item 1.	Business	1
Item 1A.	Risk Factors	7
Item 1B.	Unresolved Staff Comments	13
Item 2.	Properties	13
Item 3.	Legal Proceedings	14
Item 4.	Submission of Matters to a Vote of Security Holders	14
PART II		17
Item 5.	Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Securities	17
Item 6.	Selected Financial Data	18
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	34
Item 8.	Financial Statements and Supplementary Data	35
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	35
Item 9A.	Controls and Procedures	35
Item 9B.	Other Information	36
PART III		37
Item 10.	Directors, Executive Officers and Corporate Governance	37
Item 11.	Executive Compensation	37
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	37
Item 13.	Certain Relationships and Related Transactions, and Director Independence	37
Item 14.	Principal Accounting Fees and Services	37
PART IV		38
Item 15.	Exhibits and Financial Statement Schedules	38

PART I

Item 1. Business

Overview

Green Mountain Coffee Roasters, Inc. (together with its subsidiary, the “Company” or “GMCR, Inc.”) is a leader in the specialty coffee industry. We sell over 100 whole bean and ground coffee selections, hot cocoa, teas and coffees in K-Cup^® portion packs, Keurig^® single-cup brewers and other accessories. In recent years, a significant driver of the Company’s growth has been the sale of K-Cups and Keurig brewing systems. The Company manages its operations through two business segments, Green Mountain Coffee (“GMC”) and Keurig, Incorporated (“Keurig”). See Note 8 of the Consolidated Financial Statements included in this Form 10-K.

GMC sells whole bean and ground coffee, hot cocoa, teas and coffees in K-Cups mainly in domestic wholesale and retail markets, and directly to consumers. In addition, GMC sells Keurig single-cup brewers and other accessories primarily directly to consumers and more recently to supermarkets. The majority of GMC’s revenue is derived from its North American wholesale markets.

Keurig is a pioneer and leading manufacturer of gourmet single-cup brewing systems and markets its premium patented single-cup brewing systems for consumers at home (“AH”) or away-from-home (“AFH”) mainly in North America. Keurig sells its AFH single-cup brewers to distributors for offices and hotels and its AH single-cup brewers to select retailers such as department stores and club stores. Keurig sells coffee, tea and hot cocoa in K-Cups produced by a variety of roasters, including GMC, and related accessories to select retailers such as department stores and club stores and also directly to consumers. Keurig earns royalty income from the sale of K-Cups from all vendors licensed to sell K-Cups.

Corporate Information

Green Mountain Coffee Roasters, Inc. is a Delaware corporation formed in July 1993. Our corporate offices are located at 33 Coffee Lane, Waterbury, Vermont 05676. The main telephone number is (802) 244-5621, our fax number is (802) 244-5436, and our e-mail address for investor information is investor.services@gmcr.com. The address of our Company’s website is www.GreenMountainCoffee.com.

Corporate Objective and Philosophy

Our Company’s objective is to be a leader in the specialty coffee industry by selling high-quality coffee and innovative coffee brewing systems that consistently provide a superior coffee experience. Essential elements of our philosophy and approach include:

High-Quality Coffee. We buy some of the highest-quality Arabica beans available from the world’s coffee-producing regions and use a roasting process that maximizes each coffee’s individual taste and aroma. We have a passion for coffee and believe our coffees are among the highest quality coffees sold in the world.

Single-Cup Brewing Patented Technology. Our patented premium quality single-cup brewing technology provides coffee and tea drinkers with the benefits of convenience, variety and great taste. Single-cup systems are designed to provide consumers consistent taste, convenience and speed with no mess or coffee waste. The Keurig gourmet single-cup system is based on three fundamental elements:

• Patented and proprietary K-Cup portion packs, which contain precisely portioned amounts of gourmet coffees, hot cocoa and teas in a sealed, low oxygen environment to ensure freshness.

• Specially designed proprietary high-speed packaging lines that manufacture K-Cups at the coffee roasters’ facilities using freshly-roasted and ground coffee (or tea or hot cocoa).

• Brewers that precisely control the amount, temperature and pressure of water to provide a cup of coffee, tea or hot cocoa of a consistent quality in less than a minute when used with K-Cups.

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The Company holds 32 U.S. and 69 international patents covering a range of its portion pack, packaging line and brewing technology innovations, with additional patent applications in process. In 1998, Keurig launched its first single-cup brewers for the AFH market and partnered with the Company to manufacture and sell Keurig’s patented K-Cups. Since then Keurig has licensed several other coffee roasters to package gourmet coffees and teas into K-Cups, all of whom pay royalties to Keurig based on the number of K-Cups shipped.

Through K-Cups, we offer the industry’s widest selection of gourmet branded coffees and teas in a proprietary single-cup format. Consumers can choose from over a dozen gourmet brands and over 200 varieties of coffees and teas. In addition to Green Mountain Coffee^® and our co-branded Newman’s Own^® Organics brands or our licensed Caribou^® and Celestial Seasonings^® brands, which are packaged and sold by GMC, Keurig’s other North American K-Cup brand partners include Diedrich, Gloria Jean’s and Coffee People, Timothy’s, Emeril’s, Van Houtte, Bigelow, Twinings and Tully’s.

Customer Service and Distribution. The Company seeks to create customers for life. We believe that coffee is a convenience purchase, and we utilize our multi-channel distribution network of wholesale and consumer-direct customers to make our coffee and single-cup Keurig brewers widely and easily available to both AH and AFH consumers.

Our operations are coordinated from our headquarters in Waterbury, Vermont and supplemented by regional distribution centers located in Maine, Upstate New York, Massachusetts, Connecticut and Tennessee. Distribution facilities are designed to be located within a two-hour radius of most customers to expedite delivery. In 2007, we added a packaging and warehousing facility in Essex, Vermont, to allow us to grow our K-Cup packaging capacity. Our operations were expanded in 2008 with the purchase of our facility in Knoxville, Tennessee to support our growing manufacturing and distribution operations.

Socially Responsible Business Practices. We have a long history of supporting social and environmental causes, allocating at least 5% of our pretax income towards such projects. These projects typically involve direct or indirect financial support, donations of products or equipment, and employee volunteer efforts.

Among our highlights for 2008 was the announcement of a new five-year $450,000 commitment to support the expansion of Root Capital’s Porvenir Financiero program. Our commitment was recognized at the Clinton Global Initiative in September 2008. The program is an innovative financial and business education program for managers and members of rural coffee-producing cooperatives and our new commitment will support the expansion of the program throughout Latin America and Africa.

We announced a three-year $60,000 commitment to the Vermont Committee on Temporary Shelter’s Homelessness Prevention and Housing Retention Program, which provides support to low-income households in financial crisis due to an unexpected contingency, such as a medical emergency or lack of short-term disability, and access to vital community resources and necessary counseling to navigate the financial crisis and plan for the future.

Our employees volunteered for over 6,000 hours in our local communities, exceeding our previous record by over 45%. Additionally, we were recognized by the State of Vermont for our community outreach, receiving the Vermont Governor’s Award for Outstanding Community Service.

Corporate Governance and Employee Development. The Company has a Code of Ethics which is posted on our website. In addition, we believe the Company is a highly inclusive and collaborative work environment that encourages employees’ individual growth and personal awareness through a culture of personal accountability and continuous learning.

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The Products

Coffee

The Company offers high-quality Arabica coffees including single-origin, Fair Trade Certified™, organic, flavored, limited edition and proprietary blends sold under the Green Mountain Coffee Roasters^® and Newman’s Own Organics brands. We carefully select our coffee beans and appropriately roast the coffees to maximize their taste and flavor differences. Our coffee comes in a variety of packages including whole bean, fractional packages, and single-cup Keurig K-Cup portion packs. In addition to coffee, we also sell hot cocoa and teas in K-Cups.

GMC has an exclusive licensing agreement with Newman’s Own Organics. We produce a line of several co-branded Newman’s Own Organics coffees under the Newman’s Own Organics and Green Mountain Coffee Roasters brand names. In fiscal 2008, the Newman’s Own Organics product line, combined with GMC’s own branded Fair Trade Certified coffee line, represented a combined 28% of total GMC volume.

Brewers

We are a leader in selling patented and proprietary single-cup coffee and tea brewing systems under the Keurig brand name to AFH and AH channels. Keurig offers a variety of brewers for the AFH channel that include a B3000 for larger offices, a B200 for medium-sized offices and a B140 for small offices. In addition, Keurig offers a B130 for the AFH hospitality channel. For the general AH channel, Keurig offers a family of “good-better-best brewers” where the current models are the Elite, Special Edition and Platinum brewers. In addition, Keurig offers the Ultimate edition brewer model for the wholesale club and Direct TV AH channel. The most recent addition to the AH family of brewers is the Mini brewer for travel size convenience.

Marketing and Distribution

To better support customer acquisition and existing customer growth, GMC has separate sales organizations for AFH, AH and consumer direct. Consumer direct provides us the opportunity to position Green Mountain Coffee Roasters^® as a lifestyle brand by informing consumers, building one-on-one relationships, and illuminating GMC’s points of difference. GMC publishes catalogs and maintains a website to market and sell over 100 coffees, coffee-related equipment and accessories, gift assortments, hand-crafted items from coffee-source countries and Vermont, and gourmet food items covering a wide range of price points. We encourage customers to become members of our “Café EXPRESS” service, a continuity program with customized standing orders for automatic re-shipment. Over the past couple of years, a large portion of our efforts in the consumer direct channel has been directed towards increasing traffic on our website (www.GreenMountainCoffee.com) and marketing of the Keurig^® Single-Cup Brewers. These efforts, along with the catalog and direct mail programs, are intended to build brand awareness nationwide and boost direct sales to consumers in our less mature geographic markets.

Keurig’s primary geographic market is North America. In the U.S. and Canada, Keurig operates in both the AFH and AH markets. In AFH, Keurig targets the office coffee market with a broad offering of single-cup brewer systems which significantly upgrade the quality of the coffee served in the workplace. Keurig markets its AFH brewing system through a large, selective but non-exclusive network of AFH distributors in the U.S. and Canada ranging in size from local to regional to national. In AH, Keurig targets gourmet coffee drinkers who wish to enjoy the speed and convenience of single-cup brewing but who do not want to compromise on taste. Keurig markets its AH brewing system through upscale specialty and department store retailers, select wholesale clubs and mass merchants, on its website (www.keurig.com), through select supermarkets, and through its licensed roasters and authorized AFH distributors.

Growth Strategy

In recent 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

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coffee, the emergence of upscale coffee shops throughout the country, and the general level of consumer knowledge of, and appreciation for, coffee quality. The Company has been benefiting from the overall market trend plus what we believe to be carefully developed and distinctive advantages over our competitors.

Our coffee is available in many different distribution channels and customer categories, as best seen in our primary geographic market, the Eastern United States. This multi-channel strategy provides widespread exposure to the brand in a variety of settings, ease of access to the products, and many tasting opportunities for consumer trial. Our coffee is widely available throughout the day: at home in the morning, in hotels, travel destinations and entertainment venues, at convenience stores on the way to work, at the office, in restaurants, in supermarkets, and at home again at the end of the day. Our Company also participates in many special event activities, providing sampling opportunities and increased visibility for the brand.

We believe that consumer trial of our products in AFH venues such as convenience stores, foodservice establishments and office coffee services is a significant advantage and a key component of our growth strategy. As brand equity is built in AFH venues, expansion typically continues through customer channels such as supermarkets and specialty food stores which, in turn, sell our coffee to be consumed at home. This expansion process capitalizes upon this AFH / AH interrelationship. This strategy is designed to further increase our market share in geographic areas in which we already operate in order to increase sales density and drive operational and brand-equity efficiencies.

We are focused on building our brand and profitably growing our business. We believe we can continue to grow sales by increasing market share in existing markets, expanding into new geographic markets, expanding sales in high-growth market segments such as single-cup coffee and tea, and selectively pursuing other opportunities, including strategic acquisitions.

Our growth strategy for Keurig involves developing and managing marketing programs to sell as many brewers as possible to generate ongoing demand for K-Cups. In addition, we are focused on partnering with other gourmet coffee roasters and tea packers with strong national/regional brands to create additional K-Cup products that will generate further royalty income. When used with the Keurig brewers, K-Cups are designed to provide brewed coffee, tea and hot cocoa that consistently deliver the taste profiles specified by gourmet roasters and tea packers, which we believe creates attractive opportunities for our roaster partners to expand their geographical presence and take advantage of new market opportunities in both the AFH and AH single-cup markets with minimal investment. Only roasters licensed by the Company may benefit from Keurig’s technology and distribution network.

In September 2008, we entered into an Asset Purchase Agreement with the Tully’s Coffee Corporation to acquire the Tully’s coffee brand and wholesale business. Tully’s wholesale business division distributes handcrafted coffees and related products via office coffee services, food service distributors, and over 5,000 supermarkets located primarily in the western states. The geographic region encompassed by the Tully’s brand creates an advantaged opportunity for the Company to accelerate growth in the west coast market by capitalizing on Tully’s brand recognition and the loyalty of their customer base. We anticipate this transaction will close in early fiscal 2009.

Competition

The specialty coffee market is highly competitive and fragmented and we compete against larger companies that possess greater marketing and operating resources than the Company. The primary methods of competition in the specialty coffee market include price, service, product performance and brand differentiation. The Company competes against all sellers of specialty coffee, including Dunkin’ Donuts^®, Peet’s, Starbucks^® and other competitors. In the supermarket channel, we also compete with “commercial” coffee roasters, to the extent that we are also trying to “upsell” consumers into the specialty coffee segment. Some multi-national consumer goods companies have divisions or subsidiaries selling specialty coffees. For example, Smuckers distributes both

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Folgers^® and premium Millstone^® and Brothers™ brands, as well as Dunkin’ Donuts packaged coffees by license. Nestle^® markets the premium Nespresso^® single-cup espresso system as well as other less premium coffee brands. In the consumer direct channel, we compete with established roasters such as Gevalia^®, a division of Kraft Foods, as well as with other direct mail companies. In the foodservice, we compete against private label roasters, as well as brands such as Seattle’s Best Coffee^®.

Our Company was the first roaster to sell coffee in Keurig’s innovative single-cup brewing system, and we have established a leadership position in the sale of single-cup Keurig K-Cup portion packs. Other coffee roasters and specialty tea suppliers also participate in the proprietary Keurig system, including: Diedrich, Gloria Jean’s and Coffee People, Timothy’s coffees and teas, Emeril’s ,Van Houtte, Tully’s, Bigelow and Twinings. While to some extent these brands compete against our own Green Mountain Coffee and co-branded Newman’s Own Organics brands or our licensed Caribou and Celestial Seasonings branded K-Cups, they are also subject to a royalty, which is paid to us for each K-Cup shipped. The Company also competes with other single-cup coffee and tea delivery systems, including: FLAVIA^® Beverage Systems (manufactured and marketed by Mars), the TASSIMO beverage system (manufactured and marketed by Bosch and Kraft), the SENSEO^® brewing system (manufactured and marketed by Philips and Sara Lee) and a number of additional single-cup pod brewing systems and brands.

We expect intense competition as we expand into new markets and territories. The Company competes primarily by providing high-quality coffee, easy access to our products, superior customer service and a comprehensive approach to customer relationship management. We believe that our ability to provide a convenient network of outlets from which to purchase coffee is an important factor in our ability to compete. Through our multi-channel distribution network of wholesale and consumer direct operations, with particular emphasis on brand trial through K-Cups, we believe we differentiate ourselves from many of our larger competitors, who specialize in only one primary channel of distribution. We also believe that our product offering is distinctive because we offer a wide array of coffees, including flavored, Fair Trade Certified, and organic coffees. Green Mountain Coffee also offers products that feature licensed brand partnerships, including Newman’s Own Organics, Celestial Seasonings, Caribou, Heifer International, National Wildlife Federation and PBS. We also seek to differentiate ourselves through our socially- and environmentally-responsible business practices. Finally, we believe that being an independent roaster allows us to be better focused and in tune with our wholesale customers’ needs than our larger, multi-product competitors. While our Company believes we currently compete favorably with respect to these factors, there can be no assurance that we will be able to compete successfully in the future.

Green Coffee Cost and Supply

GMC sold approximately 32 million pounds of coffee in fiscal 2008. GMC utilizes a combination of outside brokers and direct relationships with farms, estates, cooperatives and cooperative groups for our supply of green coffees. Outside brokers provide the largest supply of our green coffee. Coffee is the world’s second largest traded commodity and its supply and price are subject to high volatility. Although most coffee trades in the commodity market at a price referred to as the “c” price (the price per pound quoted by the Coffee, Sugar and Cocoa Exchange), coffee of the quality we are seeking tends to trade on a negotiated basis at a substantial premium or “differential” above the “c” price, depending upon the supply and demand at the time of purchase. Supply and price can be affected by multiple factors, such as weather, pest damage, politics and economics in the producing countries.

Cyclical swings in commodity markets are common and 2008 was an especially volatile year for the “c” price of coffee. The “c” price of coffee climbed to record levels until mid-year and declined significantly along with the broader commodity markets in the second half of calendar 2008. It is expected that coffee prices will remain volatile in the coming years. Additionally, many industry experts are concerned about the ability of specialty coffee production to keep pace with demand.

For coffees that GMC purchases with differentials above the “c” price of coffee, 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

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we can adjust our sales prices to the market. GMC believes this approach is the best way to provide our customers with a fair price for our coffee. On September 27, 2008, we had approximately $73.2 million in green coffee purchase commitments, of which approximately 59% had a fixed price. In addition, from time to time we purchase coffee futures contracts and coffee options when we are not able to enter into coffee purchase commitments or when the price of a significant portion of committed contracts has not been fixed. On September 27, 2008, we held futures contracts covering approximately 1.2 million pounds of coffee.

In fiscal 2008, 40% of our purchases were from farm-identified sources, which means that we know the farms, estates or coops, and can develop a relationship directly with the farmers. We believe that our “farm-identified” strategy helps us secure long-term supplies of high-quality coffee and achieve greater pricing stability in our supply chain.

Intellectual Property

The Company owns a number of United States trademarks and service marks that have been registered with the United States Patent and Trademark Office. We anticipate maintaining our trademark and service mark registrations with the United States Patent and Trademark Office. We also own other trademarks and service marks for which we have applications for U.S. registration. The Company has further registered or applied for registration of certain of its trademarks and service marks in the United Kingdom, the European Union, Canada, Japan, the People’s Republic of China, South Korea, Taiwan and other foreign countries.

The Company has licenses to use other marks, all subject to the terms of the agreements under which such licenses are granted.

The Company holds 32 U.S. patents and 69 international patents related to our Keurig brewing and K-Cup technology. Of these, 81 are utility patents and 20 are design patents. We view these patents as very valuable but do not view any single patent as critical to the Company’s success. We own patents that cover significant aspects of our products and certain patents of ours will expire in the future. The two principal patents associated with our current generation K-Cup portion packs will expire in 2012 pending patent applications associated with this technology which, if ultimately issued as patents, would have expiration dates in 2023. Our agreements with our roasters are more than simple patent licenses. Roasters with agreements with the Company have access to and benefit from Keurig’s technology and distribution network and we believe these benefits will help us to maintain royalty revenue irrespective of our patent status.

We have diligently protected our proprietary system through the use of domestic and international patents and monitor our competitors accordingly. In January 2007, we filed a patent infringement lawsuit against Kraft Foods, Inc., Kraft Foods Global, Inc. and Tassimo Corporation (collectively “Kraft”) in the United States District Court for the District of Delaware asserting that Kraft’s T DISC single-serve beverage cartridges infringe upon Keurig’s United States Patent number 6,607,762. In October 2008, subsequent to the Company’s year end, we entered into a Settlement and License Agreement to completely settle the patent litigation with Kraft. Pursuant to the terms of the Settlement and License Agreement, Kraft paid $17 million on October 31, 2008 to the Company and Keurig has granted to Kraft and its affiliates a limited, non exclusive, perpetual, worldwide, fully paid up license of Keurig’s United States Patents Numbered 6,607,762 (the “762 Patent”) and 7,377,162 (the “162 Patent”), and United States and foreign counterpart patents connected to the 762 Patent or 162 Patent, for use in connection with the manufacture, distribution and sale of beverage brewing machines and certain beverage filter cartridges.

Seasonality

Historically, we have experienced variations in sales from quarter-to-quarter due to the holiday season and a variety of other factors, including, but not limited to, general economic trends, the cost of green coffee, competition, marketing programs, and weather. Because of the seasonality of our business, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.

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Employees

As of September 27, 2008, the Company had 1,152 full-time employees and 68 part-time employees. We supplement our workforce with temporary workers from time to time, especially in the first quarter of each fiscal year to service increased customer and consumer demand during the peak November-December holiday season.

Available information

Our Company files annual, quarterly, and current reports, proxy statements, and other documents with the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934 (the “Exchange Act”). The public may read and copy any materials that the Company files with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Also, the SEC maintains an Internet website that contains reports, proxy and information statements, and other information regarding issuers, including GMCR, Inc., that file electronically with the SEC. The public can obtain any documents that we file with the SEC at www.sec.gov.

Our Company maintains a website at www.GreenMountainCoffee.com. Our filings with the SEC, including without limitation, our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, are available through a link maintained on our website under the heading “Investor Services — SEC Filings & Reports.” Information contained on our website is not incorporated by reference into this report.

Item 1A. Risk Factors

Risks Related to the Company’s Business

The Company’s business, its future performance and forward-looking statements are affected by general industry and market conditions and growth rates, general U.S. and non-U.S. economic and political conditions (including the global economy), competition, interest rate and currency exchange rate fluctuations and other events. The following items are representative of the risks, uncertainties and other conditions that may impact our business, future performance and the forward-looking statements that we make in this report or that we may make in the future.

The Company’s financial performance is highly dependent upon the sales of K-Cup portion packs.

A significant percentage of our total revenue has increasingly been attributable to royalties and other revenue from sales of K-Cups for use with the Company’s Keurig single-cup brewing systems. In fiscal 2008, total consolidated net sales of K-Cups, Keurig brewers and royalties earned upon shipment of K-Cups by licensed roasters represent approximately 70% of consolidated net sales of the Company. Continued acceptance of K-Cup single brewer systems and sales of K-Cups to our installed base of brewers is a significant factor in the Company’s growth plans. Any substantial or sustained decline in the acceptance of K-Cups could materially adversely affect the Company’s business and financial results.

Our intellectual property may not be valid, enforceable, or commercially valuable.

While we make efforts to develop and protect our intellectual property, the validity, enforceability, and commercial value of our intellectual property rights may be reduced or eliminated by the discovery of prior inventions by third parties, the discovery of similar marks previously used by third parties, the successful independent development by third parties of the same or similar confidential or proprietary innovations, or changes in the supply or distribution chains that render our rights obsolete. Our ability to compete effectively depends, in part, on our ability to maintain the proprietary nature of our technologies, which includes the ability to obtain, protect and enforce patents and other trade secrets and know how relating to our technology. We own patents that cover significant aspects of our products and certain patents of ours will expire in the future. In the United States, we have patents expiring between 2012 and 2017 associated with the K-Cup portion packs presently used in Keurig brewers. We also have pending patent applications associated with current K-Cups

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which, if ultimately issued, would have expiration dates that extend to 2023. Additionally, we have a number of portion pack patents that extend to 2021 but which we have elected not to commercialize yet. In addition, Keurig continues to invest in further innovation in portion packs and brewing technology and takes appropriate steps to protect all such innovation. We are prepared to protect our patents vigorously; however, there can be no assurance that we will prevail in any intellectual property infringement litigation we institute to protect our intellectual property rights given the complex technical issues and inherent uncertainties in litigation. Even if we prevail in litigation, such litigation could result in substantial costs and diversion of resources and could negatively affect our business, operating results, financial position and cash flows. In addition, the validity, enforceability and value of our intellectual property depends in part on the continued maintenance and prosecution of such rights through applications, maintenance documents, and other filings, and rights may be lost through the intentional or inadvertent failure to make such necessary filings.

Competition in the single-cup brewer systems market is intense and could affect the Company’s sales of K-Cups and profitability.

The Company is highly dependent on the continued acceptance of the Keurig single-cup brewing system. There are a multitude of competitive single-cup brewing systems available in North America and internationally. Competition in the single-cup brewing system market includes lower-cost brewers that brew coffee packaged in non-patented pods. Many of our current and potential competitors in the single-cup brewer systems market have substantially greater financial, marketing and operating resources. Our primary competitors in this market are FLAVIA Beverage Systems (manufactured and marketed by Mars), the TASSIMO beverage system (manufactured and marketed by Bosch and Kraft), the SENSEO brewing system (manufactured and marketed by Philips and Sara Lee) and a number of additional single-cup brewing systems and brands. If we do not succeed in effectively differentiating ourselves from our competitors in the single-cup brewer market or our competitors adopt our strategies, then our competitive position may be weakened and our sales of single-cup brewing systems and K-Cups might be adversely affected.

A worsening of the United States economy could materially adversely affect our business.

Our revenues and performance depend significantly on consumer confidence and spending, which have recently deteriorated due to current worldwide economic. This economic downturn and decrease in consumer spending may adversely impact our revenues, ability to market our products, build customer loyalty, or otherwise implement our business strategy and further diversify the geographical concentration of our operations. For example, the Company is highly dependent on consumer demand for specialty coffee and a shift in consumer demand away from specialty coffee due to economic or other consumer preferences would harm our business. Keurig brewer sales may also decline as a result of the economic environment. We also have exposure to various financial institutions under coffee hedging arrangements and interest rate swaps and the risk of counterparty default is currently higher in light of existing capital market and economic conditions. If the current economic situation deteriorates significantly, our business could be negatively impacted.

Competition in the specialty coffee market is intense and could affect the Company’s profitability.

The specialty coffee market is highly fragmented. Competition in the specialty coffee market is increasingly intense as relatively low barriers to entry encourage new competitors to enter the specialty coffee market. Many of our current and potential competitors have substantially greater financial, marketing and operating resources. Our primary competitors in specialty coffee sales include Gevalia Kaffe (Kraft Foods), Dunkin’ Donuts, Peet’s Coffee & Tea, Millstone (Procter & Gamble), New England Coffee Company and Starbucks. There are numerous smaller, regional brands that also compete in this category. In addition, we compete indirectly against all other coffee brands on the market. A number of nationwide coffee marketers, such as Kraft Foods, Procter & Gamble, Sara Lee and Nestlé, are distributing premium coffee brands in supermarkets. These premium coffee brands may serve as substitutes for our coffee. If we do not succeed in effectively differentiating ourselves from our competitors or our competitors adopt our strategies, then our competitive position may be weakened.

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Because our Company has all of its single-cup brewers manufactured from a single supplier in China, a significant disruption in the operation of this supplier or political unrest in China could potentially disrupt our business.

We have only one supplier of single-cup brewers. Any disruption in production or inability of our supplier to produce adequate quantities to meet our needs, whether as a result of a natural disaster or other causes, could significantly impair our ability to operate our business on a day-to-day basis. Furthermore, our single supplier of single-cup brewers is located in China. This exposes us to the possibility of product supply disruption and increased costs in the event of changes in the policies of the Chinese government, political unrest or unstable economic conditions in China, or developments in the U.S. that are adverse to trade, including enactment of protectionist legislation.

Product recalls and/or product liability may adversely impact our operations.

We are subject to regulations by a variety of regulatory authorities, including the Consumer Product Safety Commission. In the event our supplier of single-cup brewers, which is located in China, does not adhere to product safety requirements or our quality control standards, we might not identify the deficiency before merchandise ships to our customers. The failure of suppliers to manufacture merchandise that adheres to our quality control standards could damage our reputation and brands and lead to customer litigation against us. If our supplier is unable or unwilling to recall products failing to meet our quality standards, we may be required to remove merchandise or recall those products at a substantial cost to us. We may be unable to recover costs related to product recalls.

We may not be able to enter into license agreements with suppliers to manufacture K-Cups or maintain our current license agreements, or it may be expensive to do so.

We license the right to manufacture and market K-Cups on an exclusive or non-exclusive basis to gourmet coffee roasters and tea packers in return for royalty payments from the licensees when they ship the K-Cups. Although many licensees are willing to enter into such licensing agreements, we cannot assure you that such agreements will be negotiated on terms acceptable to us, or at all. The failure to enter into similar licensing agreements in the future could limit our ability to develop and market new products and could cause our business to suffer.

We also have an exclusive licensing agreement with Newman’s Own Organics. We produce a line of several co-branded Newman’s Own Organics coffees under the Newman’s Own Organics and Green Mountain Coffee Roasters brand names. The failure to maintain this license agreement could cause our business to suffer.

Increases in the cost of materials used to produce our brewers or the cost of high-quality Arabica coffee beans or could reduce GMC’s gross margin and profit.

Cyclical swings in commodity markets are common and 2008 was an especially volatile year, with the “c” price of coffee climbing to record levels until mid-year, then declining with most other commodity markets in the second half of calendar 2008. It is expected that coffee prices will remain volatile in the coming years. In addition to the “c” price, coffee of the quality sought by GMC tends to trade on a negotiated basis at a substantial premium or “differential” above the “c” price. These differentials also are subject to significant variations and have generally been on the rise.

We generally try to pass on coffee price increases and decreases to our customers. There can be no assurance that we will be successful in passing on these cost increases to customers without losses in sales volume or gross margin. Additionally, if higher green coffee costs can be offset on a dollar-for-dollar basis by price increases, this trend still lowers our gross margin on a percentage of sales basis. Similarly, rapid, sharp decreases in the cost of green coffee could also force us to lower sales prices before realizing cost reductions in our green coffee inventory and purchase commitments.

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Significant fluctuations in the cost of other commodities such as steel, petroleum and copper also influence prices of plastic and other components used in the manufacturing of our coffee brewers. Approximately 90% of Keurig brewers shipped in fiscal 2008 were sold to the At Home channel at our cost with essentially no gross margin. With respect to the Keurig single-cup At Home system, we are continuing to pursue a market penetration model and are focused on driving new customers into the single serve segment. Any rapid, sharp increases in the cost of At Home brewers would likely lead us to not raise sales prices to offset such gross margin dollar declines as our current strategy is to drive penetration and not risk slowing down the rate of sales growth to competitors or before realizing cost reductions in our green coffee inventory and purchase commitments. There can be no assurance that we will able to maintain our gross margin when such fluctuations occur.

Decreased availability of high-quality Arabica coffee beans could jeopardize our Company’s ability to maintain or expand our business.

We roast over 40 different types of green coffee beans to produce more than 100 coffee selections. If one type of green coffee bean were to become unavailable or prohibitively expensive, we believe we could substitute another type of coffee of equal or better quality meeting a similar taste profile. However, a worldwide supply shortage of the high-quality Arabica coffees we purchase could have an adverse impact on our Company.

The political situation in many of the Arabica coffee growing regions, including Africa, Indonesia, and Central and South America, can be unstable, and such instability could affect our ability to purchase coffee from those regions. If Arabica coffee beans from a region become unavailable or prohibitively expensive, we could be forced to discontinue particular coffee types and blends or substitute coffee beans from other regions in our blends. Frequent substitutions and changes in our coffee product lines could lead to cost increases, customer alienation and fluctuations in our gross margins.

While production of commercial grade coffee is generally on the rise, many industry experts are concerned about the ability of specialty coffee production to keep pace with demand. Arabica coffee beans of the quality we purchase are not readily available on the commodity markets. We depend on our relationships with coffee brokers, exporters and growers for the supply of our primary raw material, high-quality Arabica coffee beans. In particular, the supply of Fair Trade Certified coffees is limited. We may not be able to purchase enough Fair Trade Certified coffees to satisfy the rapidly increasing demand for such coffees, which could impact our revenue growth.

Our increasing reliance on a limited number of specialty farms could impair our ability to maintain or expand our business.

Because an increasing amount of our supply of Arabica coffee beans comes from specifically identified specialty farms, estates, cooperatives, we are more dependent upon a limited amount of suppliers. In fiscal 2008, 40% of green coffee purchases were “farm-identified”. The timing of these purchases is dictated by when the coffee becomes available (after the annual crop), which does not always coincide with the period we need green coffee to fulfill customer demand. This can lead to higher and more variable inventory levels. Any deterioration of our relationship with these suppliers could lead to inventory shortages. In such case, we may not be able to fulfill the demand of existing customers, supply new customers or expand other channels of distribution. A raw material shortage could result in decreased revenue or could impair our ability to maintain or expand our business.

The Company depends on the expertise of key personnel. If these individuals leave or change their role within the Company without effective replacements, our operations could suffer.

The success of our Company’s business is dependent to a large degree on our President and Chief Executive Officer, Lawrence J. Blanford and the other members of our management team and our coffee roasters and purchasers. We have an employment agreement with our President and Chief Executive Officer that expires on May 3, 2012. If our President and Chief Executive Officer or the other members of the Company’s management team leave without effective replacements, our ability to implement our business strategy could be impaired.

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Because a substantial portion of the Company’s revenue is related to sales to certain major customers and retailers, the loss of one or more of these customers or retailers could materially harm our business.

Our Company sells a significant portion of Keurig brewing systems for the home to a relatively limited number of key retailers and department stores. The loss of one or more of these major retailers or a decrease in orders from one of these retailers could materially affect our sales of brewer systems and our business. In addition, the Company receives a significant portion of revenue in each fiscal period from a relatively limited number of customers, and that trend is likely to continue. The loss of one or more of these major customers or a decrease in orders from one of these customers could materially affect our business.

Our credit facility allows us to increase our outstanding indebtedness, which could restrict our ability to operate our business.

The Company has a $225 million revolving credit facility which we have the ability to increase from time to time by up to an additional $50 million, subject to receipt of lender commitments and other conditions precedent. As of September 29, 2008 approximately $123.5 million was outstanding under this credit facility. We intend to fund the $40.3 million purchase price for the Tully’s acquisition from our revolving credit facility. The incurrence of debt under our credit facility could adversely affect our business and limit our ability to plan for or respond to changes in our business. Our debt obligations could also:

– Increase our vulnerability to general adverse economic and industry conditions;

– Require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow for other purposes;

– Limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate thereby placing us at a competitive disadvantage compared to our competitors that may have less debt;

– Limit, by the financial and other restrictive covenants in our debt agreements, our ability to borrow additional funds; and have a material adverse effect on us if we fail to comply with the covenants in our debt agreements because such failure could result in an event of default which, if not cured or waived, could result in a substantial amount of our indebtedness becoming immediately due and payable.

A significant interruption in the operation of our roasting facilities, manufacturing capabilities or distribution facilities could potentially disrupt our operations.

We currently have only one coffee roasting facility. We will have additional roasting facilities when we are able to begin roasting at our Knoxville, Tennessee facility and at such time as when the Tully’s acquisition closes. A significant interruption in the operation of our current roasting facility, whether as a result of a natural disaster or other causes, could significantly impair our ability to operate our business on a day-to-day basis.

In addition, we and other licensed coffee roasters manufacture the K-Cups sold for use with our single-cup brewer systems. We manufacture K-Cups at our Vermont facilities and at our Knoxville, Tennessee facility and any significant disruption in our or our licensees ability to manufacture adequate quantities of K-Cups to meet our needs, whether as a result of a natural disaster or other causes, could adversely affect the Company’s business and financial results. We currently have three distribution facilities, one located adjacent to our roasting facility in Waterbury, Vermont, an additional distribution facility located in Essex, Vermont and our facility in Knoxville, Tennessee. Any disruption to our distribution facilities could significantly impair our ability to operate our business. In addition, because our coffee roasting and primary distribution facilities are located in Vermont, our ability to ship coffee and receive shipments or raw materials could be adversely affected during winter months as a result of severe winter conditions and storms.

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GMC’s roasting methods are not proprietary, so competitors may be able to duplicate them, which could harm our competitive position.

We consider our roasting methods essential to the flavor and richness of our coffee and, therefore, essential to our brand. Because our roasting methods cannot be patented, we would be unable to prevent competitors from copying our roasting methods if such methods became known. If the Company’s competitors copy our roasting methods, the value of our brand could be diminished, and we could lose customers to our competitors. In addition, competitors could be able to develop roasting methods that are more advanced than GMC’s roasting methods, which could also harm our competitive position.

Our order processing and fulfillment systems may fail or limit user traffic, which could cause us to lose sales. Additionally, our reliance on a single order fulfillment company for our Keurig subsidiary’s home market exposes our Company to significant credit risk.

GMC processes all customer orders for our products through our order fulfillment facility in Waterbury, Vermont. We are dependent on our ability to maintain our computer and telecommunications equipment in this facility in effective working order and to protect against damage from fire, natural disaster, power loss, telecommunications failure or similar events. In addition, growth of our customer base may strain or exceed the capacity of our systems and lead to degradations in performance or systems failure. We have experienced capacity constraints in the past that have resulted in decreased levels of service delivery such as increased customer call center wait times and delays in service to customers for limited periods of time. Although we continually review and consider upgrades to our order fulfillment infrastructure and provide for system redundancies to limit the likelihood of systems overload or failure, substantial damage to our systems or a systems failure that causes interruptions for a number of days could adversely affect our business. Additionally, if we are unsuccessful in updating and expanding our order fulfillment infrastructure our ability to grow may be constrained.

Keurig relies on an order fulfillment company to process the majority of its orders for the home market sold through retailers, including collection of all accounts receivable. Receivables from this order fulfillment company were approximately 36% of our consolidated accounts receivable balance at year end. Any material disruption in the operation of this third party company could adversely affect our business.

Because the Company relies heavily on common carriers to deliver our coffee and brewers, any disruption in their services or increase in shipping costs could adversely affect our business.

The Company relies on a number of common carriers to deliver coffee and brewers to our customers and distribution centers. We have no control over these common carriers and the services provided by them may be interrupted as a result of labor shortages, contract disputes or other factors. If we experience an interruption in these services, we may be unable to ship our coffee and brewers in a timely manner. A delay in shipping could:

– Have an adverse impact on the quality of the coffee shipped, and thereby adversely affect our brand and reputation;

– Result in the disposal of an amount of coffee that could not be shipped in a timely manner; and

– Require us to contract with alternative, and possibly more expensive, common carriers.

Any significant increase in shipping costs could lower our profit margins or force us to raise prices, which could cause the Company’s revenue and profits to suffer.

Our proposed acquisition of the Tully’s coffee brand from Tully’s Coffee Corporation may fail to close or there could be substantial delays before the acquisition is completed.

On September 15, 2008, we entered into an asset purchase agreement with Tully’s Coffee Corporation to acquire the Tully’s coffee brand and the Tully’s wholesale business for a total purchase price of $40.3 million, subject to adjustment at closing. The Company will finance the cash purchase through its existing $225 million senior revolving credit facility and has received the required bank consent. This transaction is subject to customary

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closing conditions including approval of the Tully’s shareholders, and is expected to close in the next few months. If we are unable to complete the acquisition, we will not be able to realize the anticipated benefits of the acquisition and would have devoted substantial resources and management attention without realizing any accompanying benefit.

Assuming we close the acquisition of the Tully’s wholesale business, our failure to successfully integrate the Tully’s wholesale business into our business may cause us to fail to realize the expected synergies and other benefits of the acquisition, which could adversely affect our future results.

The integration of the Tully’s wholesale business into our business presents significant challenges and risks to our business, including:

• distraction of management from regular business concerns;

• assimilation and retention of employees and customers of Tully’s;

• managing the West Coast based Tully’s wholesale operations and employees, both of which are distant from our current headquarters and operation locations;

• expansion into new geographical markets;

• integration of technologies, services and products; and

• achievement of appropriate internal control over financial reporting.

We may fail to successfully complete the integration of Tully’s into our business and, as a result, may fail to realize the synergies, cost savings and other benefits expected from the acquisition. We may fail to grow and build profits in the Tully’s business line or achieve sufficient cost savings through the integration of customers or administrative and other operational activities. Furthermore, we must achieve these objectives without adversely affecting our revenues. If we are not able to successfully achieve these objectives, the anticipated benefits of the acquisition may not be realized fully or at all, or it may take longer to realize them than expected, and our results of operations could be materially adversely affected.

Tully’s has a history of operating losses, and our ability to achieve and maintain profitability of its business lines will depend on our ability to manage and control operating expenses and to generate and sustain increased levels of revenue. Our expectations to increase its profitability may not be realized, and Tully’s losses may continue as we integrate its operations into our business. If Tully’s revenue grows more slowly than we anticipate, or if its operating expenses are higher than we expect, we may not be able to achieve, sustain or increase its profitability, in which case our financial condition will suffer and our stock price could decline.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

GMC leases its principal manufacturing facility located at Pilgrim Park in Waterbury, Vermont. The facility has in total approximately 98,000 square feet of usable space. The lease on this building expires in 2017.

GMC owns a new 72,000 square foot warehousing and distribution facility adjacent to our manufacturing plant in Waterbury, Vermont. The land underneath this facility is leased from Pilgrim Partnership, LLC. The lease for the land expires in 2024.

In 2007, GMC leased a packaging and warehousing facility located in Essex, Vermont. The facility has approximately 99,000 square feet of usable space. The lease expires in 2012.

In 2007, the Company purchased a second manufacturing and warehousing facility located in Knoxville, Tennessee. The facility has in total approximately 334,500 square feet of usable space.

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Our other facilities, all of which are leased, are as follows:

Type	Location	Approximate Square Feet	Expiration of Lease
GMC Warehouse/ Distribution/ Service/Retail Space	Wilmington, MA Southington, CT Demeritt Place (I), Waterbury, VT 112 Main Street, Waterbury, VT Boyer Street, Williston, VT Avenue Extension, Williston, VT Waterbury, VT (Factory Outlet) Waterbury, VT (Visitor Center) Biddeford, ME Latham, NY	17,500 11,200 12,000 3,000 5,200 20,000 2,000 2,900 10,000 7,500	2013 2011 2009 2010 2009 2009 2009 2026 2011 2013
GMC Administrative and Corporate Offices	Coffee Lane, Waterbury, VT Demeritt Place (II), Waterbury, VT 46 Main Street, Waterbury, VT 152 Main Street, Waterbury, VT Pilgrim Park II, Waterbury, VT Pilgrim Park V, Waterbury VT 5 New England, Essex, VT	4,000 10,000 10,900 9,600 22,900 12,000 10,000	2009 2009 2011 2018 2011 2016 2013
Keurig facilities	Reading, MA Woburn, MA	37,000 7,600	2015 2008

In addition to the locations listed above, the Company has inventory at various locations managed by third party warehouses and order fulfillment companies.

We believe our facilities are generally adequate for our current needs and for the remainder of fiscal 2009.

Item 3. Legal Proceedings

On January 10, 2007, Keurig filed a patent infringement lawsuit against Kraft Foods Inc., Kraft Foods Global, Inc. and Tassimo Corporation (collectively “Kraft”) in the United States District Court for the District of Delaware (Case No. 07-cv-17 GMS) (the “Lawsuit”) asserting that Kraft’s T DISC single-serve beverage cartridges infringe upon Keurig’s United States Patent Number 6,607,762.

On October 23, 2008, Keurig entered into a Settlement and License Agreement with Kraft providing for a complete settlement of the Lawsuit. Pursuant to the terms of the Settlement and License Agreement, Kraft agreed to pay to Keurig a lump sum of $17,000,000 and Keurig granted to Kraft and its affiliates a limited, non-exclusive, perpetual, worldwide, fully paid up license of Keurig’s United States Patents Numbered 6,607,762 (the “762 Patent”), and 7,377,162 (the “162 Patent”), and United States and foreign counterpart patents connected to the 762 Patent or 162 Patent, for use in connection with the manufacture, distribution and sale of beverage brewing machines and certain beverage filter cartridges. The Settlement Agreement also provides for the parties to dismiss the Lawsuit and includes a mutual general release of claims between the parties related thereto.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the fiscal quarter ended September 27, 2008.

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Executive Officers of the Registrant

Certain biographical information regarding each executive officer of our Company is set forth below:

Name	Age	Position	Officer since
Lawrence J. Blanford	55	President, Chief Executive Officer and Director	2007
Kathryn S. Brooks	53	Vice President, Human Resources and Organizational Development	2001
R. Scott McCreary	49	Chief Operating Officer	2004
Frances G. Rathke	48	Vice President, Chief Financial Officer, Secretary and Treasurer	2003
Stephen J. Sabol	47	Vice President of Development	1993
Michelle V. Stacy	52	President of Keurig, Incorporated	2008
Robert P. Stiller	65	Chairman of the Board and Founder	1993

Lawrence J. Blanford has served as President, Chief Executive Officer and Director since May 2007. From May 2005 to October 2006, Mr. Blanford held the position of Chief Executive Officer at Royal Group Technologies Ltd., a Canadian building products and home improvements company. Prior to the Royal Group, from January 2004 to May 2005, Mr. Blanford was Founder and President of Strategic Value Consulting, LLC, a consultancy. Prior to this, from April 2001 to December 2003, Mr. Blanford was President and Chief Executive Officer of Philips Consumer Electronics North America, a division of Royal Philips Electronics NV. Previous to Philips, he held positions that included President of Maytag Appliances, President of Maytag International and Vice President of Marketing and National Account Sales for the Building Insulation Division of Johns Manville as well as various management positions earlier in his career at PPG Industries and Procter & Gamble.

Kathryn S. Brooks has served as Vice President of Human Resources and Organizational Development since April 2001. She was also a Director of the Company from March 2002 to September 2006. From April 1998 to April 2001, Ms. Brooks was Senior Vice President of Human Resources at Webster Bank, a financial services company. Prior to that, Ms. Brooks served as Vice President of Human Resources at Bombardier Capital from May 1992 to May 1997.

R. Scott McCreary was hired as Chief Operating Officer in September 2004. Prior to this and since 1993, Mr. McCreary was employed by Unilever North America and its subsidiaries. Most recently, Mr. McCreary served as the Senior Director of Operations at Unilever’s subsidiary, Ben & Jerry’s Homemade, Inc. Prior to joining Unilever, Mr. McCreary’s previous experience included positions with Kraft General Foods, M&M Mars and Pillsbury in operations, new product development, and research and development.

Frances G. Rathke has served as Chief Financial Officer of the Company since October 2003, and as Interim Chief Financial Officer of our Company since April 2003. Prior to that, Ms. Rathke worked as a financial consultant with various food manufacturers and food retailers from September 2000 to April 2003. One of these consulting assignments included the position of Interim Chief Financial Officer for Wild Oats Markets, Inc., a supermarket chain, from July 2001 to December 2001. Prior to this, Ms. Rathke served as Chief Financial Officer for Ben & Jerry’s Homemade, Inc., an ice cream manufacturer, from April 1989 to August 2000. From September 1982 to March 1989, Ms. Rathke practiced public accounting and auditing with Coopers & Lybrand LLC, and is a certified public accountant.

Stephen J. Sabol has served as Vice President of Development of the Company since October 2001. Mr. Sabol was Vice President of Sales of our Company from September 1996 to September 2001. Prior to that, Mr. Sabol served as Vice President of Branded Sales of the Company from August 1992 to September 1996.

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Michelle V. Stacy was hired as President of Keurig, Incorporated in November 2008. Prior to this, Ms. Stacy served as Managing Partner of Archpoint Consulting, a professional services firm, from October 2007 to October 2008. From October 2005 through October 2007, Ms. Stacy was Vice President and General Manager of Global Professional Oral Care with Procter & Gamble. Prior to this, Ms. Stacy was employed by The Gillette Company from December 1983 to October 2005 and most recently served as Vice President, Global Business Management for Oral-Care. Additionally, Ms. Stacy previously held marketing positions at Parker Brothers, Clairol, and Richardson-Vicks.

Robert P. Stiller, founder of the Company, served as its President and Chief Executive Officer since its inception in July 1981 until May 2007. Since May 2007, Mr. Stiller has served the Company as Chairman of the Board of Directors and Founder.

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PART II

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Securities

(a) Price Range of Securities

The Company’s common stock trades on the NASDAQ Global Market under the symbol GMCR. The following table sets forth the high and low closing prices as reported by NASDAQ for the periods indicated as adjusted to reflect the three-for-one stock split effected on July 27, 2007.

		High	Low
Fiscal 2007	13 weeks ended December 30, 2006 13 weeks ended March 30, 2007 13 weeks ended June 30, 2007 13 weeks ended September 29, 2007	$17.74 $21.64 $26.87 $40.75	$12.32 $16.70 $20.37 $27.11
Fiscal 2008	13 weeks ended December 29, 2007 13 weeks ended March 29, 2008 13 weeks ended June 28, 2008 13 weeks ended September 27, 2008	$41.48 $41.63 $44.09 $40.25	$29.89 $25.25 $31.65 $32.47

(b) Number of Equity Security Holders

As of December 1, 2008, the number of record holders of the Company’s common stock was 542.

(c) Dividends

The Company has never paid a cash dividend on its common stock and anticipates that for the foreseeable future any earnings will be retained for use in its business and, accordingly, does not anticipate the payment of cash dividends.

(d) Securities Authorized for Issuance Under Equity Compensation Plans

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)	(b)		(c)
Equity compensation plans approved by security holders	2,716,291	$	13.60	1,240,391
Equity compensation plans not approved by security holders(1)	440,995	$	15.23	—
Total	3,157,286	$	13.83	1,240,391

⁽¹⁾ Includes compensation plans assumed in the Keurig acquisition and inducement grants to Lawrence Blanford and Nicholas Lazaris. See Note 13 of the Consolidated Financial Statements included in this Form 10-K.

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(e) Performance graph

Item 6. Selected Financial Data

The table below shows selected financial data for our last five fiscal years. Our fiscal year is based on a 52-week year for all years presented, except fiscal 2006 which was comprised of 53 weeks. There were no cash dividends paid during the past five fiscal years.

	Fiscal Years Ended
	Sept. 27, 2008(1)		Sept. 29, 2007(1)		Sept. 30, 2006(1)		Sept. 24, 2005		Sept. 25, 2004
	In thousands, except per share data
Net sales	$	500,277	$	341,651	$	225,323	$	161,536	$	137,444
Income before equity in loss of Keurig, Incorporated	$	22,299	$	12,843	$	9,406	$	9,448	$	8,901
Net income	$	22,299	$	12,843	$	8,443	$	8,956	$	7,825
Net income per share—diluted	$	0.87	$	0.52	$	0.36	$	0.39	$	0.35
Total assets	$	357,648	$	264,527	$	234,006	$	91,147	$	78,332
Long-term obligations	$	123,517	$	90,050	$	102,871	$	5,218	$	14,039
Stockholders’ equity	$	139,520	$	99,099	$	74,940	$	60,392	$	44,415

¹ Fiscal 2008, 2007 and 2006 information presented reflects the acquisition of Keurig, Incorporated on June 15, 2006.

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Item 7. Management’s 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 the Company. 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 industry. We roast high-quality Arabica coffees and offer over 100 coffee selections, including single-origins, estates, certified organics, Fair Trade Certified™, proprietary blends, and flavored coffees that we sell under the Green Mountain Coffee Roasters^® and Newman’s Own^® Organics brands. We also sell hot cocoa, teas and coffees in K-Cup^® portion packs, Keurig^® single-cup brewers and other accessories. In recent years, a significant driver of the Company’s growth has been the sale of K-Cups and K-Cup brewing systems.

Business Segments

The Company manages its operations through two operating segments, Green Mountain Coffee (“GMC”) and Keurig, Incorporated (“Keurig”). We evaluate performance primarily based on segment operating income. Expenses not specifically related to either operating segment are recorded as “Corporate”.

GMC sells whole bean and ground coffee, hot cocoa, teas and coffees in K-Cups, and to a lesser extent, Keurig single-cup brewers and other accessories mainly in domestic wholesale and retail markets, and directly to consumers. The majority of GMC’s revenue is derived from its North American wholesale markets.

Keurig is a pioneer and leading manufacturer of gourmet single-cup brewing systems and markets its premium patented single-cup brewing systems for consumers at home (“AH”) or away-from-home (“AFH”) mainly in North America. Keurig sells its AFH single-cup brewers to distributors for offices and hotels and its AH single-cup brewers to select retailers such as department stores and club stores. Keurig sells coffee, tea and hot cocoa in K-Cups produced by a variety of roasters, including GMC, and related accessories to select retailers such as department stores and club stores and also directly to consumers. Keurig earns royalty income from the sale of K-Cups from all licensed vendors to sell K-Cups.

Cost of sales for the Company consists of the cost of raw materials including coffee beans, flavorings and packaging materials; a portion of our rental expense; the salaries and related expenses of production; distribution and merchandising personnel; depreciation on production equipment; the cost of brewers manufactured by suppliers, and freight, duties and delivery expenses. Selling and operating expenses consist of expenses that directly support sales, including media and advertising expenses; a portion of the rental expense; and the salaries and related expenses of employees directly supporting sales and marketing as well as research and development. General and administrative expenses consist of expenses incurred for corporate support and administration, including a portion of the rental expense and the salaries and related expenses of personnel not elsewhere categorized.

Historically, the GMC and Keurig operating segments have not shared manufacturing or distribution facilities, and administrative functions such as accounting and information services have been decentralized. Throughout this presentation, we refer to the consolidated company as “the Company” or “GMCR, Inc.,” and we refer to our operating segments as “GMC” and “Keurig”. Expenses not specifically related to either operating segment are shown separately as “Corporate”. Our Corporate expenses include costs such as the costs associated with some members of senior management, board of directors expenses, certain legal expenses, interest expense, and amortization costs related to the intangible assets acquired in the Keurig purchase.

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Basis of Presentation

Included in this presentation are discussions and reconciliations of net income and diluted earnings per share (“EPS”) in accordance with generally accepted accounting principles (“GAAP”) to net income and diluted EPS excluding certain expenses and losses, which we refer to as non-GAAP net income and non-GAAP diluted EPS. These non-GAAP measures exclude amortization of identifiable intangibles related to the Keurig acquisition completed on June 15, 2006 and non-cash gains or losses from the Company’s equity investment in Keurig prior to the acquisition. Non-GAAP net income and non-GAAP diluted EPS are not in accordance with, or an alternative to, GAAP. The Company’s management uses these non-GAAP measures in discussing and analyzing its results of operations because it believes the non-GAAP measures provide investors with greater transparency by helping to illustrate the underlying financial and business trends relating to the Company’s results of operations and financial condition and comparability between current and prior periods. Management uses the non-GAAP measures to establish and monitor budgets and operational goals and to evaluate the performance of the Company.

Prior to the acquisition of Keurig in June 2006, the Company owned 33.2% of Keurig on a fully diluted basis and accounted for its investment in Keurig under the equity method of accounting. Since the date of the acquisition, Keurig’s results from operations have been included in the Company’s consolidated financial statements.

Our fiscal year ends on the last Saturday in September. In fiscal 2006, there were 53 weeks as compared to 52 weeks in fiscal 2008 and fiscal 2007. The extra week occurred in the fourth fiscal quarter of 2006.

Results of Operations

The following discussion of results of operations should be read in conjunction with “Item 6. Selected Financial Data,” the Consolidated Financial Statements and accompanying Notes thereto and the other financial data included elsewhere in this report.

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:

	Fiscal years ended
	Sept. 27, 2008		Sept. 29, 2007		Sept. 30, 2006
Net sales	100.0	%	100.0	%	100.0	%
Cost of sales	64.6	%	61.6	%	63.6	%
Gross profit	35.4	%	38.4	%	36.4	%
Selling and operating expenses	18.4	%	21.3	%	20.8	%
General and administrative expenses	8.5	%	9.0	%	7.6	%
Operating income	8.5	%	8.1	%	8.0	%
Other (expense) income	(0.1	)%	0.0	%	0.1	%
Interest expense	(1.1	)%	(1.8	)%	(1.0	)%
Income before income taxes	7.3	%	6.3	%	7.1	%
Income tax expense	(2.8	)%	(2.5	)%	(3.0	)%
Income before equity in losses of Keurig, Incorporated, net of tax benefit	4.5	%	3.8	%	4.1	%
Equity in losses of Keurig, Incorporated, net of tax benefit	—	%	—	%	(0.4	)%
Net income	4.5	%	3.8	%	3.7	%

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Segment Summary

Net sales and income before taxes for GMC and Keurig are summarized in the tables below. Fiscal 2007 and fiscal 2006 amounts have been reclassified to conform with fiscal 2008 presentation.

	Net sales (in millions)									Percent sales growth
	2008			2007			2006			2008		2007
GMC	$	320.1		$	242.0		$	207.6		32	%	17	%
Keurig		253.6			134.8			24.1		88	%	459	%
Corporate		—			—			—		—		—
Inter-company eliminations		(73.3	)		(35.1	)		(6.4	)	109	%	448	%
Total Company	$	500.3		$	341.7		$	225.3		46	%	52	%
	Income before taxes (in millions)									Percent growth
	2008			2007			2006			2008		2007
GMC Segment Income	$	27.8		$	22.5		$	18.7		24	%	20	%
Keurig Segment Income		32.6			16.8			1.1		94	%	1427	%
Corporate Segment Expense		(23.5	)		(17.4	)		(3.6	)	35	%	383	%
Inter-company eliminations		(0.4	)		(0.3	)		(0.1	)	33	%	200	%
Total Company Income before Taxes	$	36.5		$	21.6		$	16.1		69	%	34	%

Revenue

Company Summary

For fiscal 2008, Company net sales increased by $158.6 million or 46% as compared to fiscal 2007. For fiscal 2007, Company net sales increased by $116.4 million or 52% as compared with fiscal 2006. The increases in fiscal years 2008 and 2007 were primarily due to growth in sales of K-Cups and AH single-cup brewers.

GMC Segment

Fiscal 2008

Net sales for the GMC segment for fiscal 2008 were $320.1 million (including $34.2 million of inter-company K-Cup sales), up 32% from $242.0 million (including $11.5 million of inter-company sales) reported in the 2007 fiscal period. The primary driver for the increase in sales is the continued growth in K-Cup sales. The GMC segment K-Cup shipments of coffee, hot cocoa and tea increased 61% in 2008 over the fiscal 2007 period. Coffee, tea and hot cocoa pounds shipped by the GMC segment increased 16% in 2008 as compared to fiscal 2007.

The difference between the sales growth rate and pounds shipped growth rate is primarily due to the increase in K-Cups as a percentage of sales, which sell at a higher price per pound than our other products. In May 2008, a price increase was implemented that averaged 8 to 12 percent across all product types. This increase contributed $9.3 million, or an approximate 4% increase in GMC net sales in fiscal 2008 over the prior year.

Fiscal 2007

Net sales for the GMC segment for fiscal 2007 were $242.0 million (including $11.5 million of inter-company K-Cup sales), up 17% from $207.6 million (including $1.5 million of inter-company sales) reported in the prior year period. The primary driver for the increase in sales was the growth in K-Cup sales. The GMC segment K-Cup shipments of coffee, hot cocoa and tea increased 41% in 2007 over the fiscal 2006 period. Coffee, tea and hot cocoa pounds shipped by the GMC segment during fiscal 2007 increased 10% as compared the prior year period.

The difference between the sales growth rate and pounds shipped growth rate is primarily due to the increase in K-Cups as a percentage of sales, which sell at a higher price per pound than our other products.

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Keurig

Fiscal 2008

Net sales for the Keurig segment were $253.6 million in fiscal 2008 (including $39.2 million of inter-company brewer sales and royalty revenue), an increase of over 88% compared to fiscal 2007. The increase in sales was primarily due to higher K-Cup and brewer sales, and royalty income from the sale of K-Cups from all licensed roasters. Keurig announced a royalty rate increase of a penny on all system-wide K-Cup portion packs that went into effect on August 1, 2008. The impact of the royalty increase was to increase Keurig’s net sales by $1.7 million or 1.3% over the prior year.

Total brewers shipped during fiscal 2008 increased 105% over the 2007 fiscal year. The majority of this growth is due to the AH single-cup brewer shipments which grew 109% in 2008 over the prior period. AFH single-cup brewer shipments grew 75% in fiscal 2008 as compared to fiscal 2007, due to strong sales in the AFH market in the first three quarters of fiscal 2008. Shipments of AFH brewers were essentially flat in the fourth quarter of 2008 as compared to the prior period due to the downturn in the economy as well as a higher 2007 installed base of brewers caused by sales of our new line of office brewers introduced in late fiscal 2007.

Fiscal 2007

The Keurig segment net sales during fiscal 2007 were $134.8 million (including $23.6 million of inter-company brewer sales and royalty revenue), an increase of 400% over the prior period, when Keurig was not fully consolidated into the Company’s sales. Comparing complete fiscal years, including the period when Keurig sales were not consolidated into the Company’s sales, the growth was 78%.

Company-wide Keurig brewer and K-Cup portion pack shipments

(Unaudited data and in thousands)

	Fifty-two weeks ended September 27,	Fifty-two weeks ended September 29,	Fifty-three weeks ended September 30,	Percent growth
	2008	2007	2006	2008		2007
At Home Brewers (Consumer)	883	422	219	109	%	93	%
Away from Home Brewers (Commercial)	100	57	28	75	%	104	%
Total Keurig brewers shipped(1)	983	479	247	105	%	94	%
Total K-Cups shipped(system-wide)(2)	1,012,356	637,823	448,880	59	%	42	%
Total K-Cups sold by GMC(3)	578,939	359,056	255,412	61	%	41	%

⁽¹⁾ Total Keurig brewers shipped means brewers shipped by Keurig to customers in the U.S./Canada.

⁽²⁾ Total K-Cups shipped (system-wide) means K-Cup shipments by all Keurig licensed roasters to customers in the U.S./Canada. These shipments form the basis upon which royalties are calculated by licensees for payments to Keurig.

⁽³⁾ Total K-Cups sold by the Green Mountain Coffee (GMC) segment are under the brands Green Mountain Coffee, Newman’s Own Organics coffee and Celestial Seasonings Teas.

Gross Profit

Fiscal 2008

Company gross profit for fiscal 2008 totaled $176.9 million, or 35% of net sales, as compared to $131.1 million, or 38% of net sales, in fiscal 2007. The decline in gross margin is primarily attributable to increased sales of AH single-cup brewers which are sold approximately at cost as part of the Company’s strategy to increase the installed base of Keurig brewers. In addition, higher green coffee and other commodity costs contributed to the increase in cost of sales over the prior fiscal year.

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Fiscal 2007

Company gross profit for fiscal 2007 totaled $131.1 million, or 38% of net sales, as compared to $82.0 million, or 36% of net sales, in the prior period. This improvement in gross profit margin was primarily due to the impact of consolidating Keurig’s higher gross profit margin results into the Company’s financial results and the elimination of inter-company royalties for K-Cups from cost of sales.

Selling, General and Administrative Expenses

Fiscal 2008

Company selling, general and administrative expenses (S,G&A) increased by $31.1 million, or 30%, to $134.5 million in fiscal 2008 from $103.4 million in fiscal 2007. As a percent of net sales, S,G&A improved from 30% during fiscal 2007 to 27% during fiscal 2008. The improvement in S,G&A is mainly due to leveraging selling and organizational resources on a higher sales base.

Included in Corporate S,G&A in fiscal 2008 is $3.3 million of litigation expenses related to the Kraft Foods Inc., Kraft Food Global, Inc., and Tassimo Corporation, (collectively “Kraft”) patent infringement suit, up from $0.5 million recorded in fiscal 2007. The Company announced on October 23, 2008 that it had entered into a settlement and license agreement to settle its patent litigation with Kraft. Pursuant to the terms of the agreement, the Company received $17 million (gross of tax) in October 2008, which will be recorded as a non-recurring item in operating income in the first fiscal quarter of 2009.

Fiscal 2007

Company selling, general and administrative expenses (S,G&A) increased by $39.5 million, or 62%, to $103.4 million in fiscal 2007 from $63.9 million in the prior period. The increase in S,G&A was mainly due to the impact of consolidating a full year of Keurig’s S,G&A expenses into the Company’s financial results as compared to the 15 week period in the prior year and increased salary and promotional expenses to drive continued growth.

In fiscal 2007, total Company S,G&A expenses as a percentage of net sales increased 2% to 30% of net sales from 28% of net sales in the prior period. The increase in S,G&A as a percentage of net sales was primarily due to the increase in non-cash based compensation charges, the inclusion of non-cash amortization expenses related to identifiable intangibles as a result of the Keurig merger and increased salary and promotional expenses to support the rapid growth of our business.

Interest Expense

Company interest expense decreased by $0.5 million to $5.7 million in fiscal 2008 from $6.2 million in fiscal 2007. The decrease in fiscal 2008 was primarily due to lower interest rates on the Company’s outstanding balance under its credit facility.

Interest expense was $2.3 million in fiscal 2006. The increase in 2007 as compared to fiscal 2006 was due to increased borrowings under our revolving credit facility to fund the acquisition of Keurig.

In fiscal 2008, fiscal 2007, and fiscal 2006, the Company capitalized $0.6 million, $0.4 million, and $0.2 million of interest expense, respectively.

Income before taxes

Company income before taxes was $36.5 million in fiscal 2008, $21.6 million in fiscal 2007 and $16.1 million in fiscal 2006, and, as a percentage of net sales, 7%, 6% and 7%, respectively. Excluding the non-cash amortization expenses related to the identifiable intangibles acquired in prior years, the Company’s income before taxes was 8% of net sales in fiscal 2008, which is consistent with fiscal 2007.

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The GMC segment contributed $27.8 million in income before taxes in fiscal 2008, up from $22.5 million in fiscal 2007 and $18.7 million in fiscal 2006.

The Keurig segment contributed $32.6 million in income before taxes in fiscal 2008, up from $16.8 million in fiscal 2007. Income before taxes in fiscal 2006 was $1.1 million for the 15 weeks ended September 30, 2006.

Taxes

The effective income tax rate for the Company was 38.9% in fiscal 2008, down from 40.5% in fiscal 2007, due primarily to foreign tax credits associated with royalties earned on K-Cup portion packs from Canadian licensed roasters. Prior to 2008, the Company recognized foreign royalty revenues net of foreign tax withholdings.

The effective income tax rate was 41.4% in fiscal 2006. The decrease in fiscal 2007 compared to fiscal 2006 was due to the impact of research and development tax credits and a decrease in the Vermont state tax rate.

Net Income and Diluted EPS

Company net income in fiscal 2008 was $22.3 million, an increase of $9.5 million, or 74%, as compared to $12.8 million in fiscal 2007. Company net income in fiscal 2006 was $8.4 million.

Company diluted EPS increased 67% to $0.87 per share in fiscal 2008, as compared to $0.52 per share in fiscal 2007 and $0.36 per share in fiscal 2006.

Excluding the impact of certain non-cash expenses illustrated in the financial table provided below, non-GAAP net income grew approximately 61% in fiscal 2008 totaling $25.2 million, or $0.99 per share, as compared to non-GAAP net income of $15.7 million, or $0.63 per share, in fiscal 2007. Non-GAAP net income was $10.2 million, or $0.43 per share in fiscal 2006.

The following tables show a reconciliation of net income and diluted EPS to non-GAAP net income and non-GAAP diluted EPS for fiscal 2008, 2007 and 2006.

	Fifty-two weeks ended September 27, 2008
	GAAP			Amortization of Identifiable Intangibles			Loss related to investment in Keurig, Inc.		Non-GAAP
Net Sales	$	500,277		$	—		$	—	$	500,277
Cost of Sales		323,372			—			—		323,372
Gross Profit		176,905			—			—		176,905
Selling and operating expenses		92,182			—			—		92,182
General and administrative expenses		42,311			(4,812	)		—		37,499
Operating Income		42,412			4,812			—		47,224
Other income		(235	)		—			—		(235	)
Interest expense		(5,705	)		—			—		(5,705	)
Income before income taxes		36,472			4,812			—		41,284
Income tax expense		(14,173	)		(1,872	)		—		(16,045	)
Net Income	$	22,299		$	2,940		$	—	$	25,239
Basic income per share:
Weighted average shares outstanding		23,949,798			23,949,798			23,949,798		23,949,798
Net Income	$	0.93		$	0.12			—	$	1.05
Diluted income per share:
Weighted average shares outstanding		25,564,780			25,564,780			25,564,780		25,564,780
Net income	$	0.87		$	0.12			—	$	0.99

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	Fifty-two weeks ended September 29, 2007
	GAAP			Amortization of Identifiable Intangibles			Loss related to investment in Keurig, Inc.		Non-GAAP
Net Sales	$	341,651		$	—		$	—	$	341,651
Cost of Sales		210,530			—			—		210,530
Gross Profit		131,121			—			—		131,121
Selling and operating expenses		72,641			—			—		72,641
General and administrative expenses		30,781			(4,811	)		—		25,970
Operating Income		27,699			4,811			—		32,510
Other income		54			—			—		54
Interest expense		(6,176	)		—			—		(6,176	)
Income before income taxes		21,577			4,811			—		26,388
Income tax expense		(8,734	)		(1,947	)		—		(10,681	)
Income before loss related to investment in Keurig, Inc., net of tax		12,843			2,864			—		15,707
Loss related to investment in Keurig, Incorporated, net of tax benefit		—			—			—		—
Net Income	$	12,843		$	2,864		$	—	$	15,707
Basic income per share:
Weighted average shares outstanding		23,250,431			23,250,431			23,250,431		23,250,431
Net Income	$	0.55		$	0.12		$	—	$	0.68
Diluted income per share:
Weighted average shares outstanding		24,773,373			24,773,373			24,773,373		24,773,373
Net income	$	0.52		$	0.12		$	—	$	0.63
	Fifty-three weeks ended September 30, 2006
	GAAP			Amortization of Identifiable Intangibles			Loss related to investment in Keurig, Inc.		Non-GAAP
Net Sales	$	225,323		$	—				$	225,323
Cost of Sales		143,289			—			—		143,289
Gross Profit		82,034			—			—		82,034
Selling and operating expenses		46,808			—			—		46,808
General and administrative expenses		17,112			(1,402	)		—		15,710
Operating Income		18,114			1,402			—		19,516
Other income		202			—			—		202
Interest expense		(2,261	)		—			—		(2,261	)
Income before income taxes		16,055			1,402			—		17,457
Income tax expense		(6,649	)		(581	)		—		(7,230	)
Income before loss related to investment in Keurig, Inc., net of tax		9,406			821			—		10,227
Loss related to investment in Keurig, Incorporated, net of tax benefit		(963	)		—			963		—
Net Income	$	8,443		$	821		$	963	$	10,227
Basic income per share:
Weighted average shares outstanding		22,516,701			22,516,701			22,516,701		22,516,701
Net Income	$	0.37		$	0.04		$	0.04	$	0.45
Diluted income per share:
Weighted average shares outstanding		23,727,348			23,727,348			23,727,348		23,727,348
Net income	$	0.36		$	0.03		$	0.04	$	0.43

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Liquidity and Capital Resources

Our working capital increased $48.4 million or 157% to $79.2 million at September 27, 2008, from $30.8 million at September 29, 2007. The increase in fiscal 2008 is primarily due to increased inventory levels of Keurig At Home brewers and K-Cups in anticipation of higher holiday season sales, as well as increased accounts receivable, partially offset by increased accounts payable and accrued expenses.

Net cash provided by operating activities decreased by $27.9 million, or 94%, to $1.9 million in fiscal 2008, from $29.8 million in fiscal 2007. This decrease is primarily due to increased inventories as noted above.

During fiscal 2008, we had capital expenditures of $48.7 million, an increase of $26.9 million or 123% over fiscal 2007. This increase is mainly attributable to investments in K-Cup packaging equipment of $18.9 million, primarily installed at our new Essex, Vermont packaging facility, and $10.4 million for the purchase of our Knoxville, Tennessee manufacturing facility in August 2008.

In fiscal 2008, cash flows from financing activities included $5.7 million generated from the exercise of employee stock options and issuance of shares under the employee stock purchase plan, as compared to $3.1 million in fiscal 2007. In addition, in fiscal 2008, cash flows from financing and operating activities included a $5.8 million tax benefit from the exercise of non-qualified options and disqualifying dispositions of incentive stock options, as compared to $3.4 million in fiscal 2007. As options granted under our stock option plans are exercised, we will continue to receive proceeds and a tax deduction for disqualifying dispositions; however, we cannot predict either the amounts or the timing of these disqualifying dispositions.

The Company maintains a Revolving Credit Agreement (the “Credit Facility”) with Bank of America, N.A. (“Bank of America”) and other lenders. On December 3, 2007, the Company amended its Credit Facility to increase the facility from $125.0 million to $225.0 million, extend the expiration date of the Credit Facility from June 15, 2011 to December 3, 2012, and amend certain financial covenants. The Company has the ability from time to time to increase the size of the Credit Facility by up to an additional $50.0 million, subject to receipt of lender commitments and other conditions precedent. The Credit Facility is secured by all assets of the Company. At September 27, 2008 and September 29, 2007, $123.5 million and $90.0 million were outstanding under the Credit Facility, respectively.

The Credit Facility is subject to the following financial covenants: a funded debt to adjusted EBITDA covenant, a fixed charge coverage ratio covenant, and a capital expenditures covenant. Effective on July 18, 2008, the Credit Facility was amended to increase the maximum amount of capital expenditures permitted to $60 million in fiscal year 2008 and each fiscal year thereafter. In addition, the Company is allowed a carry-over of the unused amount available for capital expenditures for the preceding fiscal year. The Company was in compliance with these covenants at September 27, 2008.

The borrowings under the Credit Facility bear interest at prime or Libor rates, plus a margin based on a performance price structure. The average effective interest rate at September 27, 2008 was 4.91%, down from 6.70% at September 29, 2007.

The Company is party to interest rate swap agreements. The total notional amounts of these swaps at September 27, 2008 and September 29, 2007 was $78.5 million and $65.5 million, respectively. On September 27, 2008, the effect of these swaps was to limit the interest rate exposure on the outstanding balance of the Credit Facility to a fixed rate versus the 30-day Libor rate as follows: 5.4% on $28.5 million; 2.4% on $30 million; and 3.9% on $20 million. The total notional amount covered by these swaps will decrease progressively in future periods and terminates on various dates from June 2010 through December 2012.

The fair market value of the interest rate swaps are 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 September 27, 2008 and September 29, 2007 we estimate we would have paid $0.6 million and $0.9 million (gross of tax), respectively, if we terminated the agreements.

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In fiscal year 2008, the Company paid $1.1 million in additional interest expense pursuant to the swap agreements, up from $66,000 in the prior year period.

On September 15, 2008, we entered into an Asset Purchase Agreement with Tully’s Coffee Corporation (“Tully’s”) and Tully’s Bellaccino, LLC, their wholly-owned subsidiary, pursuant to which we agreed to acquire Tully’s coffee brand and certain assets related to the Tully’s wholesale business for a total purchase price of $40.3 million, paid in cash. The Company intends to finance the consideration paid through its existing $225.0 million senior revolving credit facility. On October 24, 2008, we received consent from our lenders to waive the provision of the credit agreement which prohibits borrowings in excess of $25.0 million for acquisitions in a fiscal year for the limited purpose of allowing the Company to consummate the Tully’s acquisition.

On October 31, 2008, we received a lump sum payment of $17 million (gross of tax), related to the settlement of a lawsuit with Kraft. We used the majority of these funds to pay down debt outstanding under our Credit Facility.

We expect to spend between $50.0 million and $57.0 million in capital expenditures in fiscal 2009, primarily related to the addition of roasting and K-Cup packaging in our new Tennessee facility.

We believe that our cash flows from operating activities, existing cash and the Credit Facility will provide sufficient liquidity to pay all liabilities in the normal course of business, fund anticipated capital expenditures, finance the Tully’s transaction, and service debt requirements through the next 12 months. However, as discussed in Item 1A, Risk Factors, several risks and uncertainties could cause the Company to need to raise additional capital through equity and/or debt financing. From time to time the Company considers acquisition opportunities which, if pursued, could also result in the need for additional financing. The Company also may consider from time to time engaging in stock buyback plans or programs. The availability and terms of any such financing would be subject to prevailing market conditions and other factors at that time.

A summary of our cash requirements related to our outstanding long-term debt, future minimum lease payments and inventory purchase commitments is as follows:

Fiscal Year	Long-Term Debt(1)		Operating Lease Obligations		Purchase Obligations		Total
2009	$	33,000	$	4,497,000	$	112,315,000	$	116,845,000
2010		17,000		4,200,000		18,472,000		22,689,000
2011		—		3,937,000		4,458,000		8,395,000
2012		—		3,244,000		—		3,244,000
2013		123,500,000		2,414,000		—		125,914,000
Thereafter		—		7,129,000		—		7,129,000
Total	$	123,550,000	$	25,421,000	$	135,245,000	$	284,216,000

(1) Fiscal 2009 and fiscal 2010 long-term debt obligations are comprised of capital lease obligations.

In addition, we have $0.6 million in unrecognized tax benefits. The unrecognized tax benefits relate entirely to research and development credits at the federal and state level.

Factors Affecting Quarterly Performance

Historically, we have experienced variations in sales from quarter-to-quarter due to the holiday season and a variety of other factors, including, but not limited to, general economic trends, the cost of green coffee, competition, marketing programs, and weather. Because of the seasonality of our business, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.

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Critical Accounting Policies

This discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which we prepare in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period (see Note 2 to our Consolidated Financial Statements included in this Annual Report on Form 10-K). Actual results could differ from those estimates. We believe the following accounting policies and estimates require us to make the most difficult judgments in the preparation of our consolidated financial statements and accordingly are critical.

Cash and cash equivalents

The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Cash and cash equivalents include money market funds which are carried at cost, plus accrued interest, which approximates market. The Company does not believe that it is subject to any unusual credit or market risk.

Inventories

Inventories are stated at the lower of cost or market. Cost is being measured using an adjusted standard cost method which approximates FIFO (first-in first-out). We regularly review whether the realizable value of our inventory is lower than its book value. If our valuation shows that the realizable value is lower than book value, we take a charge to expense and directly reduce the value of the inventory.

The Company estimates its reserves for inventory obsolescence by examining its inventories on a quarterly basis to determine if there are indicators that the carrying values exceed net realizable value. Indicators that could result in additional inventory write downs include age of inventory, damaged inventory, slow moving products and products at the end of their life cycles. While management believes that the reserve for obsolete inventory is adequate, significant judgment is involved in determining the adequacy of this reserve.

Inventories consist primarily of green and roasted coffee, including coffee in portion packs, purchased finished goods such as coffee brewers and packaging materials.

Hedging

We enter into coffee futures contracts to hedge against price increases in price-to-be-fixed coffee purchase commitments and anticipated coffee purchases. The Company also enters into interest rate swaps to hedge against unfavorable changes in interest rates. These derivative instruments qualify for hedge accounting under Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”). Hedge accounting is permitted if the hedging relationship is expected to be highly effective. Effectiveness is determined by how closely the changes in the fair value of the derivative instrument offset the changes in the fair value of the hedged item. If the derivative is determined to qualify for hedge accounting, the effective portion of the change in the fair value of the derivative instrument is recorded in other comprehensive income and recognized in earnings when the related hedged item is sold. The ineffective portion of the change in the fair value of the derivative instrument is recorded directly to earnings. If these derivative instruments do not qualify for hedge accounting, we would record the changes in the fair value of the derivative instruments directly to earnings. See “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” and Notes 10 and 12 in the Consolidated Financial Statements included in this Form 10-K.

The Company formally documents hedging instruments and hedged items, and measures at each balance sheet date the effectiveness of its hedges. When it is determined that a derivative is not highly effective, the

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derivative expires, or is sold or terminated, or the derivative is discontinued because it is unlikely that a forecasted transaction will occur, the Company discontinues hedge accounting prospectively for that specific hedge instrument.

The Company does not engage in speculative transactions, nor does it hold derivative instruments for trading purposes.

Other long-term assets

Other long-term assets consist of deposits and debt issuance costs. Debt issuance costs are being amortized over the respective life of the applicable debt. Debt issuance costs included in other long-term assets in the accompanying consolidated balance sheet at September 27, 2008 and September 29, 2007 were $1.7 million and $1.2 million, respectively.

Goodwill and intangibles

In accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), goodwill and indefinite-lived intangibles are tested for impairment annually using a market capitalization approach, and more frequently if indication of impairment arises.

On June 15, 2006, the Company acquired Keurig, Inc. and recorded $73.9 million of goodwill. Goodwill from the Keurig acquisition was decreased by $1.4 million in the third fiscal quarter of 2007 primarily to reflect updated estimates of R&D tax credits earned by Keurig in the years prior to the Company’s merger with Keurig. Goodwill was also increased by $113,000 in the third quarter of fiscal 2008 and decreased by $97,000 in the second quarter of fiscal 2007 due to the final settlements of contingencies related to the merger. This goodwill was tested for impairment in accordance with SFAS 142 at the end of fiscal 2008. To complete this impairment test, the Company evaluated the fair value of its Keurig segment using a number of factors including the market capitalization of the Company and estimates of projected cash flows for the Keurig segment and the whole Company.

On June 5, 2001, the Company purchased the coffee business of Frontier Natural Products Co-op (Frontier) and recorded $1.4 million of goodwill related to this acquisition. There have been no changes in this carrying amount since September 29, 2001. On an annual basis, the Company evaluates the fair value of the reporting unit associated with the Frontier acquisition and compares it to the carrying amount of goodwill. Estimation of fair value is dependent on a number of factors, including the market capitalization of the Company and estimates of the Company’s sales of its fair trade and organics products.

Based on the impairment tests performed, there was no impairment of goodwill in fiscal 2008, 2007 and 2006. All intangible assets are being amortized using the straight-line method over their useful lives. For further information on goodwill and other intangible assets, see Note 7 in the Consolidated Financial Statements included in this Form 10-K.

Impairment of Long-Lived Assets

When facts and circumstances indicate that the carrying values of long-lived assets, including fixed assets, may be impaired, an evaluation of recoverability is performed by comparing the carrying value of the assets to projected future cash flows in addition to other quantitative and qualitative analyses. Upon indication that the carrying value of such assets may not be recoverable, the Company recognizes an impairment loss as a charge against current operations. Long-lived assets to be disposed of are reported at the lower of the carrying amount or fair value, less estimated costs to sell. The Company makes judgments related to the expected useful lives of long-lived assets and its ability to realize undiscounted cash flows in excess of the carrying amounts of such assets which are affected by factors such as the ongoing maintenance and

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improvements of the assets, changes in economic conditions and changes in operating performance. As the Company assesses the ongoing expected cash flows and carrying amounts of its long-lived assets, these factors could cause the Company to realize a material impairment charge.

Provision for Doubtful Accounts

Periodically, management reviews the adequacy of its provision for doubtful accounts based on historical bad debt expense results and current economic conditions using factors based on the aging of its accounts receivable. Additionally, the Company may identify additional allowance requirements based on indications that a specific customer may be experiencing financial difficulties. Actual bad debts could differ materially from the recorded estimates.

Advertising costs

The Company expenses the costs of advertising the first time the advertising takes place, except for direct mail campaigns targeted directly at consumers, which are expensed over the period during which they are expected to generate sales. At September 27, 2008 and September 29, 2007, deferred and prepaid advertising costs of $673,000 and $200,000, respectively, were recorded in other current assets in the accompanying consolidated balance sheet. Advertising expense totaled $17.0 million, $11.2 million, and $9.1 million, for the years ended September 27, 2008, September 29, 2007, and September 30, 2006, respectively.

Fixed assets

Fixed assets are carried at cost, net of accumulated depreciation. Expenditures for maintenance, repairs and renewals of minor items are expensed as incurred. Depreciation is calculated using the straight-line method over the assets’ estimated useful lives. The cost and accumulated depreciation for fixed assets sold, retired, or otherwise disposed of are relieved from the accounts, and the resultant gains and losses are reflected in income.

The Company follows an industry-wide practice of purchasing and loaning coffee brewing and related equipment to wholesale customers. These assets are also carried at cost, net of accumulated depreciation.

Depreciation costs of manufacturing and distribution assets are included in cost of sales. Depreciation costs of other assets, including equipment on loan to customers, are included in selling and operating expenses.

Revenue recognition

Revenue from wholesale and consumer direct sales is recognized upon product delivery, and in some cases upon product shipment. The Company has no contractual obligation to accept returns for damaged product nor does it guarantee product sales. Title, risk of loss, damage and insurance responsibility for the products pass from the Company to the buyer upon accepted delivery of the products from the Company’s contracted carrier. The Company will at times agree to accept returns or issue credits for products that are clearly damaged in transit.

Sales of single-cup coffee brewers are recognized net of an estimated allowance for returns. Royalty revenue is recognized upon shipment of K-Cups by roasters as set forth under the terms and conditions of various licensing agreements.

In addition, the Company’s customers can earn certain incentives, which are netted against sales or recorded in operating and selling expenses in the consolidated income statements. These incentives include, but are not limited to, cash discounts, funds for promotional and marketing activities, and performance based incentive programs.

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Warranty

We provide for the estimated cost of product warranties, primarily using historical information and repair or replacement costs, at the time product revenue is recognized.

Cost of Sales

The Company records external shipping and handling expenses in cost of sales.

Income taxes

The Company utilizes the asset and liability method of accounting for income taxes, as set forth in Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“SFAS 109”). SFAS 109 requires the recognition of deferred tax assets and liabilities for the expected future tax 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.

In July, 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement 109” (“FIN 48”). This statement clarifies the criteria that an individual tax position must satisfy for some or all of the benefits of that position to be recognized in a company’s financial statements. FIN 48 prescribes a recognition threshold of more-likely-than-not, and a measurement attribute for all tax positions taken or expected to be taken on a tax return in order for those tax positions to be recognized in the financial statements. The Company adopted the provisions of FIN 48 in its first quarter of fiscal 2008.

Financial instruments

The Company enters into various types of financial instruments in the normal course of business. Fair values are estimated based on assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates reflecting varying degrees of perceived risk. The fair values of cash, cash equivalents, accounts receivable, accounts payable, accrued expenses and debt approximate their carrying value at September 27, 2008. See Notes 10 and 12 in the Consolidated Financial Statements included in this Form 10-K.

Stock-based compensation

The Company accounts for transactions in which it exchanges its equity instruments for goods or services in accordance with Statement of Financial Accounting Standards No. 123 (revised 2004) Share-Based Payments (“FAS123(R)”). FAS123(R) requires us to measure the cost of employee services received in exchange for an award of equity instruments (usually stock options) based on the grant-date fair value of the award. That cost is recognized over the period during which an employee is required to provide service in exchange for the award.

The Company measures the fair value of stock options using the Black-Scholes model and certain assumptions, including the expected life of the stock options, an expected forfeiture rate and the expected volatility of its common stock. The expected life of options is estimated based on options vesting periods, contractual lives and an analysis of the Company’s historical experience. The expected forfeiture rate is based on the Company’s historical experience. The Company uses a blended historical volatility to estimate expected volatility at the measurement date.

Significant customer credit risk and supply risk

The majority of the Company’s customers are located in the northeastern part of the United States. Concentration of credit risk with respect to accounts receivable is limited due to the large number of

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customers in various channels comprising the Company’s customer base. The Company does not require collateral from customers as ongoing credit evaluations of customers’ payment histories are performed. The Company maintains reserves for potential credit losses and such losses, in the aggregate, have not exceeded management’s expectations.

Keurig procures the brewers it sells from a third-party brewer manufacturer. Purchases from this brewer manufacturer amounted to approximately $91.7 million and $41.2 million in fiscal 2008 and fiscal 2007, respectively. Keurig processes the majority of its orders for the home market sold through retailers through a fulfillment company. Revenue processed by this fulfillment company amounted to $88.6 million at during fiscal year 2008 and receivables amounted to $19.6 million at fiscal 2008 year-end and $7.0 million at fiscal 2007 year-end.

Research & Development

Research and development expenses are charged to income as incurred. These expenses amounted to $4.1 million in fiscal 2008, $3.3 million in fiscal 2007 and $1.1 million in fiscal 2006. These costs primarily consist of salary and consulting expenses and are recorded in selling and operating expenses in each respective segment of the Company.

Recent accounting pronouncements

In September 2006 the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”). This new standard provides guidance for using fair value to measure assets and liabilities. SFAS 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value but does not expand the use of fair value in any new circumstances. Under SFAS 157, fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The FASB clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. The provisions of this statement must be implemented in the first quarter of the Company’s fiscal year 2009. The Company is currently reviewing this new accounting standard but does not expect it to have a material impact on its financial statements.

In February 2008, the FASB issued FASB Staff Position No. FAS 157-2 (“FSP 157-2”). FSP 157-2 delays the implementation of SFAS 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis. This statement defers the effective date to fiscal years beginning after November 15, 2008 and interim periods within those fiscal years, which is fiscal year 2010 for the Company.

In February 2007, FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities Including an amendment of FASB Statement No.115” (“SFAS159”). SFAS159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This statement is expected to expand the use of fair value measurement, which is consistent with the FASB’s long-term measurement objectives for accounting for financial instruments. The fair value option established will permit all entities to choose to measure eligible items at fair value at specified election dates. An entity shall record unrealized gains and losses on items for which the fair value option has been elected through net income in the statement of operations at each subsequent reporting date. This statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007, which is fiscal year 2009 for the Company. The Company is currently reviewing this new accounting standard but does not expect it to have a material impact on its financial statements.

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In December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business Combinations” (SFAS 141R). This Statement retains the fundamental requirements in Statement 141 that the acquisition method of accounting (which Statement 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. SFAS 141R requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions specified in the Statement. That replaces Statement 141’s cost-allocation process, which required the cost of an acquisition to be allocated to the individual assets acquired and liabilities assumed based on their estimated fair values. The Statement retains the guidance in Statement 141 for identifying and recognizing intangible assets separately from goodwill. SFAS 141R will now require acquisition costs to be expensed as incurred, restructuring costs associated with a business combination must generally be expensed prior to the acquisition date and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. Statement 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008, which is fiscal year 2010 for the Company. The effect of adoption on the Company’s financial statements will depend primarily on specific transactions completed after the effective date.

In December 2007, the FASB issued SFAS 160, “Noncontrolling Interests in Consolidated Financial Statements – An amendment of ARB No. 51”. SFAS 160 amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. Statement 160 clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this Statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008, which is fiscal 2010 for this Company. The effect of adoption on the Company’s financial statements will depend primarily on the materiality of non-controlling interests arising in future transactions.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities – an Amendment of FASB 133.” This statement is intended to enhance the current disclosure framework in Statement 133. The Statement requires that objectives for using derivative instruments be disclosed in terms of underlying risks and accounting designation. This disclosure better conveys the purpose of derivative use in terms of the risk that the entity is intending to manage and amends and expands the disclosure requirements of Statement 133 with the intent to provide users of financial statements with an enhanced understanding of: a) How and why an entity uses financial instruments; b) How derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations; and, c) How derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This Statement requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008, which is Fiscal 2010 for this Company.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” This Statement identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States. The FASB believes that the GAAP hierarchy should be directed to entities because it is the entity (not its auditor) that is responsible for selecting accounting principles for financial statements that are presented in

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conformity with GAAP. The FASB does not believe this Statement will result in a change in current practice. SFAS 162 is effective 60 days following the Securities and Exchange Commission’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Fairly in Conformity With Generally Accepted Accounting Principles.”

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, and we do not have, nor do we engage in, transactions with any special purpose entities.

Forward-Looking Statements

Except for historical information, the discussion in this Form 10-K contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Words such as “anticipate,” “believe,” “expect,” “will,” “feel,” “estimate,” “intend,” “plan,” “project,” “forecast,” and similar expressions, may identify such forward-looking statements. Forward-looking statements are inherently uncertain and actual results could differ materially from those set forth in forward-looking statements. Factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, the impact on sales and profitability of consumer sentiment in this difficult economic environment, the Company’s success in efficiently expanding operations and capacity to meet growth, the Company’s success in receiving required approvals for the acquisition of Tully’s wholesale business and then in efficiently and effectively integrating Tully’s wholesale operations and capacity into its Green Mountain Coffee segment, competition and other business conditions in the coffee industry and food industry in general, fluctuations in availability and cost of high-quality green coffee, any other increases in costs including fuel, the unknown impact of management changes, Keurig’s ability to continue to grow and build profits with its roaster partners in the office and at home markets, the impact of the loss of one or more major customers for Green Mountain Coffee or reduction in the volume of purchases by one or more major customers, delays in the timing of adding new locations with existing customers, Green Mountain Coffee’s level of success in continuing to attract new customers, sales mix variances, weather and special or unusual events, as well as other risks described in this report and other factors described from time to time in the Company’s filings with the Securities and Exchange Commission. Forward-looking statements reflect management’s analysis as of the date of this filing and we undertake no obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise.

Item 7A. 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 Coffee, Sugar and Cocoa 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 obligations that are sensitive to changes in interest rates. The table presents principal cash flows and related weighted average interest rates by expected maturity dates.

Expected maturity dates	2009			2010			2011	2012	2013			Total
Long-term debt:
Variable rate (in thousands)		—			—		—	—	$	45,033		$	45,033
Average interest rate		—			—		—	—		4.6	%		4.6	%
Fixed rate (in thousands)	$	33		$	17		—	—	$	78,467		$	78,517
Average interest rate		5.3	%		5.3	%	—	—		5.1	%		5.1	%

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At September 27, 2008, we had $45.0 million outstanding under our Credit Facility subject to variable interest rates. Should interest rates (LIBOR and Prime rates) increase by 100 basis points, we would incur additional interest expense of $450,000 annually. At September 29, 2007 we had $24.5 million subject to variable interest rates. As discussed further under the heading “Liquidity and Capital Resources” the Company is party to interest rate swap agreements.

The total notional amounts of these swaps at September 27, 2008 and September 29, 2007 was $78.5 million and $65.5 million, respectively. On September 27, 2008, the effect of these swaps was to limit the interest rate exposure on the outstanding balance of the Credit Facility to a fixed rate versus the 30-day Libor rate as follows: 5.4% on $28.5 million; 2.4% on $30 million; and 3.9% on $20 million. The total notional amount covered by these swaps will decrease progressively in future periods and terminates on various dates from June 2010 through December 2012.

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 market. In addition, we maintain an on-hand inventory of approximately 1.5 to 2 months worth of green coffee requirements. At September 27, 2008, the Company had approximately $73.2 million in green coffee purchase commitments, of which approximately 59% had a fixed price. At September 29, 2007, the Company had approximately $43.7 million in green coffee purchase commitments, of which approximately 36% 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 they are added to cost of sales. At September 27, 2008 we held outstanding futures contracts covering 1,162,500 pounds of coffee with a fair market value of ($39,000), gross of tax. At September 29, 2007, we held no futures contracts.

Item 8. Financial Statements and Supplementary Data

The consolidated financial statements and supplementary data of the Company required in this item are set forth beginning on page F-1 of this Form 10-K.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Disclosure Controls and Procedures

The Company’s management, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of September 27, 2008. Based upon this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures [as defined in Exchange Act Rule 13a-15(e)] are effective.

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Management’s Report on Internal Control Over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed under the supervision of its Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with generally accepted accounting principles. Management evaluates the effectiveness of the Company’s internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework.

Management, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the Company’s internal control over financial reporting as of September 27, 2008 and concluded that it is effective.

Changes in Internal Control over Financial Reporting

There was no change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. The attestation report of PricewaterhouseCoopers LLP is set forth under the heading “Report of Independent Registered Public Accounting Firm,” which is included in the Consolidated Financial Statements filed herewith.

Item 9B. Other Information

On December 11, 2008, the Board of Directors of Green Mountain Coffee Roasters, Inc. (the “Company”) amended and restated the Company’s Bylaws, effective immediately.

The Bylaws were amended to add advance notice provisions governing the submission to the Company of notice of a stockholder’s intention to propose director nominations and other business in connection with a meeting of stockholders. The advance notice provisions are set forth in new Section 7 and Section 8 of Article II of the Company’s Bylaws and, among other things, specify deadlines for stockholders to submit notice of director nominations and other business and require stockholders to provide specified information about the stockholder the director nominee, if applicable, and the business proposed by the stockholder to be conducted at the meeting. The advance notice provisions provide that for an annual meeting, a shareholder must deliver notice of the intention to nominate a director or of the proposed business to the Company’s Secretary no less than 60 days, nor more than 90 days prior to the date of the meeting of stockholders.

The Bylaws were also amended to make certain changes to the Article VI provisions relating to indemnification of directors and officers. These amendments include provisions that (i) clarify the directors and officers (each, an “Indemnitee”) of the Company will be entitled to indemnification to the fullest extent allowable under the General Corporation Law of the State of Delaware, (ii) require the advancement of expenses to an Indemnitee upon receipt of an undertaking by the Indemnitee to repay if it is ultimately determined that the Indemnitee is not entitled to be indemnified by the Company, unless the non interested directors affirmatively determine such person acted in bad faith and in a manner that such person did not believe to be in or not opposed to the best interests of the corporation (iii) provide that the Company is not required to indemnify an Indemnitee in connection with any legal proceeding initiated by the Indemnitee, unless such initiation was approved by the Company’s Board of Directors, and (iv) provide that the rights of Indemnitees under the indemnification provisions of the By-laws cannot be retroactively impaired. The remaining amendments to the Bylaws related to clarifications or conforming changes.

This summary is subject to and qualified in its entirety by reference to the text of the Amended and Restated Bylaws, which is included as Exhibit 3.2 to this filing and incorporated in this Item 9B by reference.

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PART III

Item 10. Directors, Executive Officers and Corporate Governance

Except for the information regarding the Company’s executive officers, the information called for by this Item is incorporated by reference in this report to our definitive Proxy Statement for the Company’s Annual Meeting of Stockholders to be held on March 12, 2009, which will be filed not later than 120 days after the close of our fiscal year ended September 27, 2008 (the “Definitive Proxy Statement”).

For information concerning the executive officers of the Company, see “Executive Officers of the Registrant” in Part I of this Form 10-K.

Item 11. Executive Compensation

The information required by this item will be incorporated by reference to the information contained in the Definitive Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item will be incorporated by reference to the information contained in the Definitive Proxy Statement.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this item will be incorporated by reference to the information contained in the Definitive Proxy Statement.

Item 14. Principal Accounting Fees and Services

The information required by this item will be incorporated by reference to the information contained in the Definitive Proxy Statement.

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PART IV

Item 15. Exhibits and Financial Statement Schedules

Exhibit No.	Exhibit Title
3.1	Certificate of Incorporation, as amended (incorporated by reference to Exhibit 3.1 in the Quarterly Report on Form 10-Q for the 12 weeks ended April 13, 2002).
3.1.1	Certificate of Amendment to Certificate of Incorporation, as amended, dated April 6, 2007 (incorporated by reference to Exhibit 3.1 in the Quarterly Report on Form 10-Q for the 12 weeks ended March 31, 2007).
3.2	Amended and Restated Bylaws of the Company.
3.3	Certificate of Merger (incorporated by reference to Exhibit 3.3 in the Quarterly Report on Form 10-Q for the 16 weeks ended January 18, 2003).
4.1	Amended and Restated Revolving Credit Agreement dated as of December 3, 2007 among Green Mountain Coffee Roasters, Inc., its guarantor subsidiaries, Bank of America, N.A., Banc of America Securities LLC and the other lender parties thereto (incorporated by reference to Exhibit 4.1 in the Annual Report on Form 10-K for the fiscal year ended September 28, 2007).
4.2	Amendment No. 1 dated July 18, 2008 to Amended and Restated Revolving Credit Agreement dated as of December 3, 2007 among Green Mountain Coffee Roasters, Inc., its guarantor subsidiaries, Bank of America, N.A., Banc of America Securities LLC and the other lender parties thereto.
10.1	Amended and Restated Lease Agreement, dated November 6, 2007 between Pilgrim Partnership L.L.C. and Green Mountain Coffee, Inc. (incorporated by reference to Exhibit 10.1 in the Annual Report on Form 10-K for the fiscal year ended September 28, 2007).
10.2	Green Mountain Coffee Roasters, Inc. Amended and Restated Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.2 in the Quarterly Report on Form 10-Q for the quarter ended March 29, 2008).*
10.3	1999 Stock Option Plan of the Company (incorporated by reference to Exhibit 10.38 in the Quarterly Report on Form 10-Q for the 16 weeks ended January 18, 1999).*
	(a) Form of Stock Option Agreement.*
10.4	Employment Agreement of Stephen J. Sabol dated as of July 1, 1993 (incorporated by reference to Exhibit 10.41 in the Registration Statement on Form SB-2 (Registration No. 33-66646) filed on July 28, 1993, and declared effective on September 21, 1993).*
10.5	2000 Stock Option Plan of the Company (incorporated by reference to Exhibit 10.105 in the Annual Report on Form 10-K for the fiscal year ended September 30, 2000).*
	(a) Form of Stock Option Agreement*
10.6	Green Mountain Coffee, Inc., Employee Stock Ownership Plan (incorporated by reference to Exhibit 10.113 in the Annual Report on Form 10-K for the fiscal year ended September 30, 2000).
10.7	Green Mountain Coffee, Inc., Employee Stock Ownership Trust (incorporated by reference to Exhibit 10.114 in the Annual Report on Form 10-K for the fiscal year ended September 30, 2000).
10.8	Loan Agreement by and between the Green Mountain Coffee, Inc., Employee Stock Ownership Trust and Green Mountain Coffee, Inc., made and entered into as of April 16, 2001 (incorporated by reference to Exhibit 10.118 in the Quarterly Report on Form 10-Q for the 12 weeks ended April 14, 2001).
10.9	2002 Deferred Compensation Plan, as amended.*

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10.10	Employment Agreement between Green Mountain Coffee Roasters, Inc. and Frances G. Rathke dated as of October 31, 2003 (incorporated by reference to Exhibit 10.26 in the Annual Report on Form 10-K for the fiscal year ended September 27, 2003).*
10.11	Letter from Green Mountain Coffee Roasters, Inc. to Frances G. Rathke re: Deferred Compensation Agreement dated as December 7, 2006.*
10.12	Ground Lease Agreement dated April 14, 2005 between Pilgrim Partnership, LLC and the Company (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the fiscal quarter ended April 9, 2005)
	(a) Amendment to Ground Lease Agreement dated November 15, 2005 (incorporated by reference to Exhibit 10.21 in Annual Report on Form 10-K for the fiscal year ended September 24, 2005).
10.13	Lease Agreement dated November 15, 2005 between Pilgrim Partnership, LLC and the Company (incorporated by reference to Exhibit 10.21 in Annual Report on Form 10-K for the fiscal year ended September 24, 2005).
10.14	Green Mountain Coffee Roasters, Inc. 2006 Incentive Plan, as amended (incorporated by reference to Appendix A of the Definitive Proxy Statement for the March 16, 2006 Annual Meeting of Stockholders). *
10.15	Merger Agreement dated May 2, 2006 between Green Mountain Coffee Roasters, Inc., Karma Merger Sub, Inc., Keurig Incorporated, and a representative of the security holders of Keurig, Incorporated (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on June 20, 2006).
10.16	Keurig, Incorporated Fifth Amended and Restated 1995 Stock Option Plan (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-8 filed on June 22, 2006). *
10.17	Keurig, Incorporated 2005 Stock Option Plan (incorporated by reference to Exhibit 4.2 to the Registration Statement on Form S-8 filed on June 22, 2006). *
10.18	Separation and Transition Agreement by and between Keurig, Incorporated and Nicholas Lazaris (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q for the quarter ended March 29, 2008). *
10.19	Agreement for Consulting Services by and between Green Mountain Coffee Roasters, Inc. and Nicholas Lazaris (incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q for the quarter ended March 29, 2008). *
10.20	Amendment No. 1 dated June 15, 2006 to Merger Agreement dated May 2, 2006 between Green Mountain Coffee Roasters, Inc., Karma Merger Sub Inc., Keurig, Incorporated and a representative of the security holders of Keurig, Incorporated. (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q for the quarter ended July 1, 2006).
10.21	Employment Agreement dated May 3, 2007 between Green Mountain Coffee Roasters, Inc. and Lawrence J. Blanford (incorporated by reference to Exhibit 10.28 to the Annual Report on Form 10-K for the year ended September 28, 2007). *
10.22	Lease Agreement dated August 16, 2007 between Keurig, Incorporated and Brookview Investments, LLC. (incorporated by reference to Exhibit 10.29 to the Annual Report on Form 10-K for the year ended September 28, 2007).
10.23	2008 Change-In-Control Severance Benefit Plan (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended March 29, 2008).
10.24	Green Mountain Coffee Roasters, Inc. Senior Executive Officer Short Term Incentive Compensation Plan (incorporated by reference to Appendix D of the Definitive Proxy Statement for the March 13, 2008 Annual Meeting of Stockholders).*

39

10.25	Agreement of Sale dated June 2, 2008 by and between MS Plant, LLC and Green Mountain Coffee Roasters, Inc. (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended June 28, 2008).
10.26	Asset Purchase Agreement dated September 15, 2008 by and between Green Mountain Coffee Roasters, Inc., Tully’s Coffee Corporation and Tully’s Bellaccino, LLC.
10.27	Settlement and License Agreement dated October 23, 2008 by and between Keurig, Incorporated and Kraft Foods Inc., Kraft Foods Global Inc., and Tassimo Corporation.
10.28	Amendment No. 1 dated November 12, 2008 to Asset Purchase Agreement by and between Tully’s Coffee Corporation, Tully’s Bellaccino, LLC and Green Mountain Coffee Roasters, Inc. dated September 15, 2008.
10.29	Amendment No. 1 dated December 9, 2008 to the Green Mountain Coffee Roasters, Inc. 2006 Incentive Plan, as amended.*
14.	Green Mountain Coffee Roasters Finance Code of Professional Conduct (incorporated by reference to Exhibit 14 in Annual Report on Form 10-K for the fiscal year ended September 27, 2003).
21.	Subsidiary List (incorporated by reference to Exhibit 21 to the Annual Report on Form 10-K for the year ended September 29, 2007).
23.	Consent of PricewaterhouseCoopers LLP.
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.
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.
32.1	Principal Executive Officer Certification Pursuant 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Principal Financial Officer Certification Pursuant 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Management contract or compensatory plan

40

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

GREEN MOUNTAIN COFFEE ROASTERS, INC.

By:	/s/    Frances G. Rathke
	FRANCES G. RATHKE Chief Financial Officer, Treasurer and Secretary

Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Lawrence J. Blanford LAWRENCE J. BLANFORD	President, Chief Executive Officer and Director (Principal Executive Officer)	December 11, 2008
/s/ Frances G. Rathke FRANCES G. RATHKE	Chief Financial Officer, Treasurer, and Secretary (Principal Financial and Accounting Officer)	December 11, 2008
/s/ Robert P. Stiller ROBERT P. STILLER	Chairman of the Board of Directors and Founder	December 11, 2008
/s/ Barbara Carlini BARBARA CARLINI	Director	December 11, 2008
/s/ William D. Davis WILLIAM D. DAVIS	Director	December 11, 2008
/s/ Jules A. Del Vecchio JULES A. DEL VECCHIO	Director	December 11, 2008
/s/ Michael Mardy MICHAEL MARDY	Director	December 11, 2008
/s/ Hinda Miller HINDA MILLER	Director	December 11, 2008
/s/ David Moran DAVID E. MORAN	Director	December 11, 2008

41

GREEN MOUNTAIN COFFEE ROASTERS, INC.

Index to Consolidated Financial Statements

	Page
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Financial Statements:
Consolidated Balance Sheets at September 27, 2008 and September 29, 2007	F-3
Consolidated Statements of Operations for each of the three years in the period ended September 27, 2008	F-4
Consolidated Statements of Changes in Stockholders’ Equity for each of the three years in the period ended September 27, 2008	F-5
Consolidated Statements of Comprehensive Income for each of the three years in the period ended September 27, 2008	F-6
Consolidated Statements of Cash Flows for each of the three years in the period ended September 27, 2008	F-7
Notes to Consolidated Financial Statements	F-8
Financial Statement Schedule—
Schedule II—Valuation and Qualifying Accounts	F-34

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and the Stockholders of Green Mountain Coffee Roasters, Inc.

In our opinion, the consolidated financial statements listed in the accompanying index on page F-1 present fairly, in all material respects, the financial position of Green Mountain Coffee Roasters, Inc. and its subsidiary at September 27, 2008 and September 29, 2007, and the results of their operations and their cash flows for each of the three years in the period ended September 27, 2008 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index on page F-1 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 27, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As discussed in note 6 to the consolidated financial statements, the Company adopted Interpretation No. 48, Accounting for Uncertainty in Income Taxes, issued by the Financial Accounting Standards Board, effective September 30, 2007.

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PriceWaterhouseCoopers, LLP

Boston, Massachusetts

December 11, 2008

F-2

GREEN MOUNTAIN COFFEE ROASTERS, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

	September 27, 2008			September 29, 2007
Assets
Current assets:
Cash and cash equivalents	$	804		$	2,818
Restricted cash and cash equivalents		161			354
Receivables, less allowances of $3,002 and $1,600 at September 27, 2008, and September 29, 2007, respectively		54,782			39,373
Inventories		85,311			38,909
Other current assets		4,886			2,811
Deferred income taxes, net		6,146			3,558
Total current assets		152,090			87,823
Fixed assets, net		97,678			65,692
Intangibles, net		29,396			34,208
Goodwill		73,953			73,840
Other long-term assets		4,531			2,964
Total assets	$	357,648		$	264,527
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of long-term debt	$	33		$	63
Accounts payable		43,821			37,778
Accrued compensation costs		11,669			7,027
Accrued expenses		14,645			9,866
Income tax payable		2,079			1,443
Other short-term liabilities		673			871
Total current liabilities		72,920			57,048
Long-term debt		123,517			90,050
Deferred income taxes, net		21,691			18,330
Commitments and contingencies (see Note 18)
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—60,000,000 shares; Issued—25,478,536 at September 27, 2008 and 24,697,008 shares at September 29, 2007, respectively		2,549			2,470
Additional paid-in capital		63,607			45,704
Retained earnings		81,280			58,981
Accumulated other comprehensive (loss)		(419	)		(512	)
ESOP unallocated shares, at cost—18,129 shares and 23,284 shares at September 27, 2008 and September 29, 2007, respectively		(161	)		(208	)
Treasury shares, at cost—1,157,554 shares		(7,336	)		(7,336	)
Total stockholders’ equity		139,520			99,099
Total liabilities and stockholders’ equity	$	357,648		$	264,527

The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

F-3

GREEN MOUNTAIN COFFEE ROASTERS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands except per share data)

	52 weeks ended September 27, 2008			52 weeks ended September 29, 2007			53 weeks ended September 30, 2006
Net sales	$	500,277		$	341,651		$	225,323
Cost of sales		323,372			210,530			143,289
Gross profit		176,905			131,121			82,034
Selling and operating expenses		92,182			72,641			46,808
General and administrative expenses		42,311			30,781			17,112
Operating income		42,412			27,699			18,114
Other income (expense)		(235	)		54			202
Interest expense		(5,705	)		(6,176	)		(2,261	)
Income before income taxes		36,472			21,577			16,055
Income tax expense		(14,173	)		(8,734	)		(6,649	)
Income before equity in losses of Keurig, Incorporated, net of tax benefit		22,299			12,843			9,406
Equity in losses of Keurig, Incorporated, net of tax benefit		—			—			(963	)
Net income	$	22,299		$	12,843		$	8,443
Basic income per share:
Weighted average shares outstanding		23,949,798			23,250,431			22,516,701
Net income	$	0.93		$	0.55		$	0.37
Diluted income per share:
Weighted average shares outstanding		25,564,780			24,773,373			23,727,348
Net income	$	0.87		$	0.52		$	0.36

The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

F-4

GREEN MOUNTAIN COFFEE ROASTERS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For the years ended September 27, 2008, September 29, 2007, and September 30, 2006 (Dollars in thousands)

	Common stock			Additional paid-in capital			Retained earnings		Accumulated other compre- hensive (loss)			Treasury stock					ESOP unallocated					Stockholders’ equity
	Shares	Amount										Shares		Amount			Shares		Amount
Balance at September 24, 2005	23,599,735	$	2,360	$	28,155		$	37,695	$	(72	)	(1,157,554	)	$	(7,336	)	(45,615	)	$	(410	)	$	60,392
Issuance of common stock under employee stock purchase plan	88,095		9		877			—		—		—			—		—			—			886
Options exercised	356,577		35		1,268			—		—		—			—		—			—			1,303
Deferred compensation and stock compensation expense	—		—		1,846			—		—		—			—		—			—			1,846
Allocation of ESOP shares	—		—		53			—		—		—			—		16,305			147			200
Tax expense from allocation of ESOP shares	—		—		(22	)		—		—		—			—		—			—			(22	)
Tax benefit from exercise of options	—		—		1,551			—		—		—			—		—			—			1,551
Other comprehensive loss, net of tax	—		—		—			—		(476	)	—			—		—			—			(476	)
Value of earned exchanged options					817																		817
Net income	—		—		—			8,443		—		—			—		—			—			8,443
Balance at September 30, 2006	24,044,407		2,404		34,545			46,138		(548	)	(1,157,554	)		(7,336	)	(29,310	)		(263	)		74,940
Issuance of common stock under employee stock purchase plan	85,095		9		1,118			—		—		—			—		—			—			1,127
Options exercised	567,506		57		1,940			—		—		—			—		—			—			1,997
Deferred compensation and stock compensation expense	—		—		4,603			—		—		—			—		—			—			4,603
Allocation of ESOP shares	—		—		145			—		—		—			—		6,026			55			200
Tax expense from allocation of ESOP shares	—		—		(59	)		—		—		—			—		—			—			(59	)
Tax benefit from exercise of options	—		—		3,412			—		—		—			—		—			—			3,412
Other comprehensive income, net of tax	—		—		—			—		36		—			—		—			—			36
Net income	—		—		—			12,843		—		—			—		—			—			12,843
Balance at September 29, 2007	24,697,008		2,470		45,704			58,981		(512	)	(1,157,554	)		(7,336	)	(23,284	)		(208	)		99,099
Issuance of common stock under employee stock purchase plan	75,982		8		2,018			—		—		—			—		—			—			2,026
Options exercised	705,546		71		3,556			—		—		—			—		—			—			3,627
Deferred compensation and stock compensation expense	—		—		6,455			—		—		—			—		—			—			6,455
Allocation of ESOP shares	—		—		153			—		—		—			—		5,155			47			200
Tax expense from allocation of ESOP shares	—		—		(61	)		—		—		—			—		—			—			(61	)
Tax benefit from exercise of options	—		—		5,782			—		—		—			—		—			—			5,782
Other comprehensive income, net of tax	—		—		—			—		93		—			—		—			—			93
Net income	—		—		—			22,299		—		—			—		—			—			22,299
Balance at September 27, 2008	25,478,536	$	2,549	$	63,607		$	81,280	$	(419	)	(1,157,554	)	$	(7,336	)	(18,129	)	$	(161	)	$	139,520

The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

F-5

GREEN MOUNTAIN COFFEE ROASTERS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands)

	52 weeks ended September 27, 2008		52 weeks ended September 29, 2007		53 weeks ended September 30, 2006
Net income	$	22,299	$	12,843	$	8,443
Other comprehensive income (loss), net of tax:
Deferred gains (losses) on derivatives designated as cash flow hedges		87		10		(408	)
Losses (gains) on derivatives designated as cash flow hedges included in net income		6		26		(68	)
Other comprehensive income (loss)		93		36		(476	)
Comprehensive income	$	22,392	$	12,879	$	7,967

The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

F-6

GREEN MOUNTAIN COFFEE ROASTERS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

	52 weeks ended September 27, 2008			52 weeks ended September 29, 2007			53 weeks ended September 30, 2006
Cash flows from operating activities:
Net income	$	22,299		$	12,843		$	8,443
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		13,500			10,328			7,906
Amortization of intangibles		4,812			4,811			1,402
Loss (gain) on disposal of fixed assets		201			133			(31	)
Provision for doubtful accounts		1,159			620			360
Loss (gain) on futures derivatives		6			26			(68	)
Tax benefit (expense) from exercise of non-qualified stock options and disqualified dispositions of incentive stock options		(386	)		105			362
Tax benefit (expense) from allocation of ESOP shares		(61	)		(59	)		(22	)
Equity in loss of Keurig, Incorporated		—			—			1,648
Deferred income taxes		549			145			385
Deferred compensation and stock compensation		6,455			4,603			1,846
Contributions to the ESOP		200			200			200
Changes in assets and liabilities, net of effect of acquisition:
Receivables		(16,568	)		(9,922	)		(7,906	)
Inventories		(46,402	)		(6,983	)		(8,626	)
Other current assets		(1,882	)		(141	)		(886	)
Income taxes payable (receivable)		636			2,061			(1,335	)
Other long-term assets		(660	)		(52	)		(409	)
Accounts payable		8,667			8,969			5,489
Accrued compensation costs		4,642			291			3,031
Accrued expenses		4,779			1,856			1,035
Net cash provided by operating activities		1,946			29,834			12,824
Cash flows from investing activities:
Acquisition of Keurig, Incorporated, net of cash acquired		—			—			(101,052	)
Expenditures for fixed assets		(48,718	)		(21,844	)		(13,613	)
Proceeds from disposals of fixed assets		407			187			493
Net cash used for investing activities		(48,311	)		(21,657	)		(114,172	)
Cash flows from financing activities:
Net change in revolving line of credit		33,500			(12,800	)		102,800
Proceeds from issuance of common stock		5,653			3,123			2,189
Windfall tax benefits		6,168			3,307			1,189
Proceeds from issuance of long-term debt		—			45			—
Repayment of long-term debt		(63	)		(100	)		(8,580	)
Deferred financing fees		(907	)		—			(1,431	)
Net cash provided by (used for) financing activities		44,351			(6,425	)		96,167
Net increase (decrease) in cash and cash equivalents		(2,014	)		1,752			(5,181	)
Cash and cash equivalents at beginning of year		2,818			1,066			6,247
Cash and cash equivalents at end of year	$	804		$	2,818		$	1,066
Supplemental disclosures of cash flow information:
Cash paid for interest	$	6,087		$	6,654		$	2,235
Cash paid for income taxes	$	6,701		$	3,184		$	5,487
Fixed asset purchases included in accounts payable and not disbursed at the end of each year	$	5,203		$	7,827		$	2,142

The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

F-7

GREEN MOUNTAIN COFFEE ROASTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of Business and Organization

Green Mountain Coffee Roasters, Inc. (together with its subsidiary, “the Company” or “GMCR, Inc.”) is a leader in the specialty coffee industry. Green Mountain Coffee Roasters, Inc. is a Delaware company.

On June 15, 2006, the Company purchased the remaining interest in Keurig, Incorporated (“Keurig”) and Keurig became a wholly-owned subsidiary of the Company. Since this merger, the Company manages its operations through two business segments, Keurig and Green Mountain Coffee (“GMC”).

GMC sells whole bean and ground coffee, hot cocoa, teas and coffees in K-Cups, Keurig single-cup brewers and other accessories mainly in domestic wholesale and retail markets, and directly to consumers. The majority of GMC’s revenue is derived from its North American wholesale markets.

Keurig is a pioneer and leading manufacturer of gourmet single-cup brewing systems and markets its premium patented single-cup brewing systems for consumers at home (“AH”) or away-from-home (“AFH”). Keurig sells its single-cup brewers, coffee, tea and hot cocoa in K-Cups produced by a variety of roasters, including GMC, and related accessories mainly in domestic wholesale and retail markets, and also directly to consumers. Keurig earns royalty income from the sale of K-Cups from all licensed vendors to sell K-Cups.

The Company’s fiscal year ends on the last Saturday in September. Fiscal 2008 and fiscal 2007 represent the years ended September 27, 2008 and September 29, 2007, respectively. Each of these fiscal years consists of 52 weeks. Fiscal 2006 represents the 53 week period ended September 30, 2006.

2. Significant Accounting Policies

Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates and assumptions that affect amounts reported in the accompanying consolidated financial statements. Actual results could differ from those estimates.

Basis of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions have been eliminated in consolidation.

Cash and cash equivalents

The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Cash and cash equivalents include money market funds which are carried at cost, plus accrued interest, which approximates market. The Company does not believe that it is subject to any unusual credit or market risk.

Inventories

Inventories are stated at the lower of cost or market. Cost is measured using an adjusted standard cost method which approximates FIFO (first-in first-out). We regularly review whether the realizable value of our inventory is lower than its book value. If our valuation shows that the realizable value is lower than book value, we take a charge to expense and directly reduce the value of the inventory.

F-8

GREEN MOUNTAIN COFFEE ROASTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company estimates its reserves for inventory obsolescence by examining its inventories on a quarterly basis to determine if there are indicators that the carrying values exceed net realizable value. Indicators that could result in additional inventory write downs include age of inventory, damaged inventory, slow moving products and products at the end of their life cycles. While management believes that the reserve for obsolete inventory is adequate, significant judgment is involved in determining the adequacy of this reserve.

Inventories consist primarily of green and roasted coffee, including coffee in portion packs, purchased finished goods such as coffee brewers and packaging materials.

Hedging

We enter into coffee futures contracts to hedge against price increases in price-to-be-fixed coffee purchase commitments and anticipated coffee purchases. The Company also enters into interest rate swaps to hedge against unfavorable changes in interest rates. These derivative instruments qualify for hedge accounting under Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”). Hedge accounting is permitted if the hedging relationship is expected to be highly effective. Effectiveness is determined by how closely the changes in the fair value of the derivative instrument offset the changes in the fair value of the hedged item. If the derivative is determined to qualify for hedge accounting, the effective portion of the change in the fair value of the derivative instrument is recorded in other comprehensive income and recognized in earnings when the related hedged item is sold. The ineffective portion of the change in the fair value of the derivative instrument is recorded directly to earnings. If these derivative instruments do not qualify for hedge accounting, we would record the changes in the fair value of the derivative instruments directly to earnings. See Notes 10 and 12 in the “Notes to Consolidated Financial Statements,” included elsewhere in this report.

The Company formally documents hedging instruments and hedged items, and measures at each balance sheet date the effectiveness of its hedges. When it is determined that a derivative is not highly effective, the derivative expires, or is sold or terminated, or the derivative is discontinued because it is unlikely that a forecasted transaction will occur, the Company discontinues hedge accounting prospectively for that specific hedge instrument.

The Company does not engage in speculative transactions, nor does it hold derivative instruments for trading purposes.

Other long-term assets

Other long-term assets consist of deposits and debt issuance costs. Debt issuance costs are being amortized over the respective life of the applicable debt. Debt issuance costs included in other long-term assets in the accompanying consolidated balance sheet at September 27, 2008 and September 29, 2007 were $1,748,000 and $1,229,000, respectively.

Goodwill and intangibles

In accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), goodwill and indefinite-lived intangibles are tested for impairment annually, using a market capitalization approach, and more frequently if indication of impairment arises.

On June 15, 2006, the Company acquired Keurig and recorded $73.9 million of goodwill. Goodwill from the Keurig acquisition was decreased by $1.4 million in the third fiscal quarter of 2007 primarily to reflect

F-9

GREEN MOUNTAIN COFFEE ROASTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

updated estimates of R&D tax credits earned by Keurig in the years prior to the Company’s merger with Keurig. Goodwill was also increased by $113,000 in the third quarter of fiscal 2008 and decreased by $97,000 in the second quarter of fiscal 2007 due to the final settlements of contingencies related to the merger. This goodwill was tested for impairment in accordance with SFAS 142 at the end of fiscal 2008. To complete this impairment test, the Company evaluated the fair value of its Keurig reporting unit using a number of factors including the market capitalization of the Company and estimates of projected cash flows for the Keurig segment and the whole Company.

On June 5, 2001, the Company purchased the coffee business of Frontier Natural Products Co-op (Frontier) and recorded $1,446,000 of goodwill related to this acquisition. There have been no changes in this carrying amount since September 29, 2001. On an annual basis, the Company evaluates the fair value of the reporting unit associated with the Frontier acquisition and compares it to the carrying amount of goodwill. Estimation of fair value is dependent on a number of factors, including the market capitalization of the Company and estimates of the Company’s sales of its fair trade and organics products.

Based on the impairment tests performed, there was no impairment of goodwill in fiscal 2008, 2007 and 2006. All intangible assets are being amortized using the straight-line method over their useful lives. For further information on goodwill and other intangible assets, see Note 7.

Impairment of Long-Lived Assets

When facts and circumstances indicate that the carrying values of long-lived assets, including fixed assets, may be impaired, an evaluation of recoverability is performed by comparing the carrying value of the assets to projected future cash flows in addition to other quantitative and qualitative analyses. Upon indication that the carrying value of such assets may not be recoverable, the Company recognizes an impairment loss as a charge against current operations. Long-lived assets to be disposed are reported at the lower of the carrying amount or fair value, less estimated costs to sell. The Company makes judgments related to the expected useful lives of long-lived assets and its ability to realize undiscounted cash flows in excess of the carrying amounts of such assets which are affected by factors such as the ongoing maintenance and improvements of the assets, changes in economic conditions and changes in operating performance. As the Company assesses the ongoing expected cash flows and carrying amounts of its long-lived assets, these factors could cause the Company to realize a material impairment charge.

Provision for Doubtful Accounts

Periodically, management reviews the adequacy of its provision for doubtful accounts based on historical bad debt expense results and current economic conditions using factors based on the aging of its accounts receivable. Additionally, the Company may identify additional allowance requirements based on indications that a specific customer may be experiencing financial difficulties. Actual bad debts could differ materially from the recorded estimates.

Advertising costs

The Company expenses the costs of advertising the first time the advertising takes place, except for direct mail campaigns targeted directly at consumers, which are expensed over the period during which they are expected to generate sales. At September 27, 2008 and September 29, 2007, prepaid advertising costs of $673,000 and $200,000, respectively, were recorded in other current assets in the accompanying consolidated balance sheet. Advertising expense totaled $16,992,000, $11,230,000, and $9,132,000, for the years ended September 27, 2008, September 29, 2007, and September 30, 2006, respectively.

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GREEN MOUNTAIN COFFEE ROASTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Fixed assets

Fixed assets are carried at cost, net of accumulated depreciation. Expenditures for maintenance, repairs and renewals of minor items are expensed as incurred. Depreciation is calculated using the straight-line method over the assets’ estimated useful lives. The cost and accumulated depreciation for fixed assets sold, retired, or otherwise disposed are relieved from the accounts, and the resultant gains and losses are reflected in income.

The Company follows an industry-wide practice of purchasing and loaning coffee brewing and related equipment to wholesale customers. These assets are also carried at cost, net of accumulated depreciation.

Depreciation costs of manufacturing and distribution assets are included in cost of sales. Depreciation costs of other assets, including equipment on loan to customers, are included in selling and operating expenses.

Revenue recognition

Revenue from wholesale and consumer direct sales is recognized upon product delivery, and in some cases upon product shipment. The Company has no contractual obligation to accept returns for damaged product nor does it guarantee product sales. Title, risk of loss, damage and insurance responsibility for the products pass from the Company to the buyer upon accepted delivery of the products from the Company’s contracted carrier. The Company will at times agree to accept returns or issue credits for products that are clearly damaged in transit.

Sales of single-cup coffee brewers are recognized net of an estimated allowance for returns. Royalty revenue is recognized upon shipment of K-Cups by roasters as set forth under the terms and conditions of various licensing agreements.

In addition, the Company’s customers can earn certain incentives, which are netted against sales or recorded in operating and selling expenses in the consolidated income statements. These incentives include, but are not limited to, cash discounts, funds for promotional and marketing activities, and performance based incentive programs.

Warranty

We provide for the estimated cost of product warranties, primarily using historical information and repair or replacement costs, at the time product revenue is recognized.

Cost of Sales

The Company records external shipping and handling expenses in cost of sales.

Income taxes

The Company utilizes the asset and liability method of accounting for income taxes, as set forth in Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“SFAS 109”). SFAS 109 requires the recognition of deferred tax assets and liabilities for the expected future tax 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.

F-11

GREEN MOUNTAIN COFFEE ROASTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In July, 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement 109” (“FIN 48”). This statement clarifies the criteria that an individual tax position must satisfy for some or all of the benefits of that position to be recognized in a company’s financial statements. FIN 48 prescribes a recognition threshold of more-likely-than-not, and a measurement attribute for all tax positions taken or expected to be taken on a tax return in order for those tax positions to be recognized in the financial statements. The Company adopted the provisions of FIN 48 in its first quarter of fiscal 2008.

Financial instruments

The Company enters into various types of financial instruments in the normal course of business. Fair values are estimated based on assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates reflecting varying degrees of perceived risk. The fair values of cash, cash equivalents, accounts receivable, accounts payable, accrued expenses and debt approximate their carrying value at September 27, 2008. See Notes 10 and 12 for disclosures on fair value determinations of hedging instruments.

Stock-based compensation

The Company accounts for transactions in which it exchanges its equity instruments for goods or services in accordance with Statement of Financial Accounting Standards No. 123 (revised 2004) Share-Based Payments (“FAS123(R)”). FAS123(R) requires us to measure the cost of employee services received in exchange for an award of equity instruments (usually stock options) based on the grant-date fair value of the award. That cost is recognized over the period during which an employee is required to provide service in exchange for the award.

The Company measures the fair value of stock options using the Black-Scholes model and certain assumptions, including the expected life of the stock options, an expected forfeiture rate and the expected volatility of its common stock. The expected life of options is estimated based on options vesting periods, contractual lives and an analysis of the Company’s historical experience. The expected forfeiture rate is based on the Company’s historical experience. The Company uses a blended historical volatility to estimate expected volatility at the measurement date.

Significant customer credit risk and supply risk

The majority of the Company’s customers are located in the northeastern part of the United States. Concentration of credit risk with respect to accounts receivable is limited due to the large number of customers in various channels comprising the Company’s customer base. The Company does not require collateral from customers as ongoing credit evaluations of customers’ payment histories are performed. The Company maintains reserves for potential credit losses and such losses, in the aggregate, have not exceeded management’s expectations.

Keurig procures the brewers it sells from a third-party brewer manufacturer. Purchases from this brewer manufacturer amounted to approximately $91,700,000 and $41,200,000 in fiscal 2008 and fiscal 2007, respectively. Keurig processes the majority of its orders for the home market sold through retailers through a fulfillment company. Revenue processed by this fulfillment company amounted to $88,600,000 at September 27, 2008 and receivables amounted to $19,600,000 and $7,000,000 at September 27, 2008, September 29, 2007, respectively.

F-12

GREEN MOUNTAIN COFFEE ROASTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Research & Development

Research and development expenses are charged to income as incurred. These expenses amounted to $4,100,000 in fiscal 2008, $3,300,000 in fiscal 2007 and $1,100,000 in fiscal 2006. These costs primarily consist of salary and consulting expenses and are recorded in selling and operating expenses in each respective segment of the Company.

Recent pronouncements

In September 2006 the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”). This new standard provides guidance for using fair value to measure assets and liabilities. SFAS 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value but does not expand the use of fair value in any new circumstances. Under SFAS 157, fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The FASB clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. The provisions of this statement must be implemented in the first quarter of the Company’s fiscal year 2009. The Company is currently reviewing this new accounting standard but does not expect it to have a material impact on its financial statements.

In February 2008, the FASB issued FASB Staff Position No. FAS 157-2 (“FSP 157-2”). FSP 157-2 delays the implementation of SFAS 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis. This statement defers the effective date to fiscal years beginning after November 15, 2008 and interim periods within those fiscal years, which is fiscal year 2010 for the Company.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities Including an amendment of FASB Statement No.115” (“SFAS159”). SFAS159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This statement is expected to expand the use of fair value measurement, which is consistent with the FASB’s long-term measurement objectives for accounting for financial instruments. The fair value option established will permit all entities to choose to measure eligible items at fair value at specified election dates. An entity shall record unrealized gains and losses on items for which the fair value option has been elected through net income in the statement of operations at each subsequent reporting date. This statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007, which is fiscal year 2009 for the Company. The Company is currently reviewing this new accounting standard but does not expect it to have a material impact on its financial statements.

In December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business Combinations” (SFAS 141R). This Statement retains the fundamental requirements in Statement 141 that the acquisition method of accounting (which Statement 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. SFAS 141R requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions specified in the Statement. That replaces Statement 141’s cost-allocation process, which required the cost of an acquisition to be allocated to the individual assets acquired and liabilities assumed based on their estimated fair values. The Statement retains the guidance in Statement 141 for identifying and recognizing intangible assets separately from

F-13

GREEN MOUNTAIN COFFEE ROASTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

goodwill. SFAS 141R will now require acquisition costs to be expensed as incurred, restructuring costs associated with a business combination must generally be expensed prior to the acquisition date and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. Statement 141 applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008, which is fiscal year 2010 for the Company. The effect of adoption on the Company’s financial statements will depend primarily on specific transactions completed after the effective date.

In December 2007, the FASB issued SFAS 160, “Noncontrolling Interests in Consolidated Financial Statements—An amendment of ARB No. 51”. SFAS 160 amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. Statement 160 clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this Statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008, which is fiscal 2010 for this Company. The effect of adoption on the Company’s financial statements will depend primarily on the materiality of non-controlling interests arising in future transactions.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities—an Amendment of FASB 133.” This statement is intended to enhance the current disclosure framework in Statement 133. The Statement requires that objectives for using derivative instruments be disclosed in terms of underlying risks and accounting designation. This disclosure better conveys the purpose of derivative use in terms of the risk that the entity is intending to manage and amends and expands the disclosure requirements of Statement 133 with the intent to provide users of financial statements with an enhanced understanding of: a) How and why an entity uses financial instruments; b) How derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations; and, c) How derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This Statement requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008, which is Fiscal 2010 for this Company.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” This Statement identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States. The FASB believes that the GAAP hierarchy should be directed to entities because it is the entity (not its auditor) that is responsible for selecting accounting principles for financial statements that are presented in conformity with GAAP. The FASB does not believe this Statement will result in a change in current practice. SFAS 162 is effective 60 days following the Securities and Exchange Commission’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Fairly in Conformity With Generally Accepted Accounting Principles.”

F-14

GREEN MOUNTAIN COFFEE ROASTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Revised classification

The Company has revised the classification of certain information presented in its fiscal 2007 and fiscal 2006 Consolidated Statements of Cash Flows to conform to fiscal 2008 presentation.

3. Stock Split

On July 6, 2007, the Company announced that its Board of Directors had approved a three-for-one stock split effected in the form of a 200% stock dividend for all outstanding shares. The stock split shares were distributed on July 27, 2007 to stockholders of record at the close of business on July 17, 2007. The par value of the common stock remained unchanged at $0.10 per share. All share and per share data presented in this report have been adjusted to reflect this stock split.

4. Inventories

Inventories consist of the following:

	September 27, 2008		September 29, 2007
Raw materials and supplies	$	19,494,000	$	11,823,000
Finished goods		65,817,000		27,086,000
	$	85,311,000	$	38,909,000

Inventory values above are presented net of $440,000 and $348,000 of obsolescence reserves at September 27, 2008, and September 29, 2007, respectively.

At September 27, 2008, the Company had approximately $73.2 million in green coffee purchase commitments, of which approximately 59% had a fixed price. These commitments extend through 2011. The value of the variable portion of these commitments was calculated using an average “C” price of coffee of $1.33 per pound at September 27, 2008. In addition to its green coffee commitments, the Company had approximately $49.8 million in fixed price brewer inventory purchase commitments and $12.2 million in production raw materials commitments at September 27, 2008. The Company believes based on relationships established with its suppliers, that the risk of non-delivery on such purchase commitments is remote.

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GREEN MOUNTAIN COFFEE ROASTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

5. Fixed Assets

Fixed assets consist of the following:

	Useful Life in Years	September 27, 2008			September 29, 2007
Production equipment	1 - 15	$	68,783,000		$	48,847,000
Equipment on loan to wholesale customers	3 - 7		12,269,000			13,013,000
Computer equipment and software	1 - 10		24,020,000			20,560,000
Land	Indefinite		1,391,000			—
Building and building improvements	4- 30		14,744,000			5,559,000
Furniture and fixtures	1 - 15		6,598,000			5,140,000
Vehicles	4 - 5		1,070,000			1,005,000
Leasehold improvements	1 - 20 or remaining life of the lease, whichever is less		7,135,000			3,387,000
Construction-in-progress			11,843,000			7,787,000
Total fixed assets			147,853,000			105,298,000
Accumulated depreciation			(50,175,000	)		(39,606,000	)
		$	97,678,000		$	65,692,000

Total depreciation and amortization expense relating to all fixed assets was $13,500,000, $10,328,000, and $7,906,000 for fiscal 2008, 2007, and 2006, respectively.

Assets classified as construction-in-progress are not depreciated, as they are not ready for production use. All assets classified as construction-in-progress on September 27, 2008 are expected to be in production use before the end of fiscal 2009.

During fiscal 2008, fiscal 2007, and fiscal 2006, $550,000, $444,000, and $164,000, respectively, of interest expense was capitalized.

The Company regularly undertakes a review of its fixed assets records. In fiscal 2008, 2007, and 2006, the Company recorded impairment charges related to obsolete equipment amounting to $32,000, $125,000, and $23,000, respectively. In fiscal 2008, 2007 and 2006, the impairment charges were recorded in other income (expense) on the Consolidated Statement of Operations, under the GMC segment of the Company.

F-16

GREEN MOUNTAIN COFFEE ROASTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

6. Income Taxes

The provision for income taxes for the years ended September 27, 2008, September 29, 2007 and September 30, 2006 consists of the following:

	September 27, 2008			September 29, 2007			September 30, 2006
Current tax expense:
Federal	$	10,935,000		$	6,943,000		$	4,543,000
State		2,010,000			1,409,000			1,139,000
Foreign		523,000			—			—
Total current		13,468,000			8,352,000			5,682,000
Deferred tax expense:
Federal		849,000			453,000		$	836,000
State		(144,000	)		(71,000	)		131,000
Total deferred		705,000			382,000			967,000
Total tax expense	$	14,173,000		$	8,734,000		$	6,649,000

Net deferred tax liabilities consist of the following:

	September 27, 2008			September 29, 2007
Deferred tax assets:
Section 263A capitalized expenses	$	838,000		$	391,000
Deferred hedging losses		284,000			352,000
Vermont VEPC tax credit		268,000			546,000
Deferred compensation		2,441,000			1,156,000
Other reserves and temporary differences		2,583,000			1,701,000
Research and development tax credit carryforwards		389,000			1,399,000
Net operating loss carryforwards		—			589,000
Gross deferred tax assets		6,803,000			6,134,000
Deferred tax asset valuation allowance		—			(42,000	)
Deferred tax liability:
Depreciation		(10,238,000	)		(6,737,000	)
Intangible assets		(12,110,000	)		(14,127,000	)
Gross deferred tax liabilities		(22,348,000	)		(20,864,000	)
Net deferred tax liabilities	$	(15,545,000	)	$	(14,772,000	)

F-17

GREEN MOUNTAIN COFFEE ROASTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

A reconciliation for continuing operations between the amount of reported income tax expense and the amount computed using the U.S. Federal Statutory rate of 34% is as follows:

	September 27, 2008			September 29, 2007			September 30, 2006
Tax at U.S. Federal Statutory rate	$	12,400,000		$	7,336,000		$	5,459,000
Increase (decrease) in rates resulting from:
Qualified stock option compensation accounting under FAS123R		699,000			648,000			390,000
State taxes, net of federal benefit		1,801,000			723,000			851,000
Section 199 deduction		(906,000	)		(243,000	)		(162,000	)
Other		179,000			270,000			111,000
Tax at effective rates	$	14,173,000		$	8,734,000		$	6,649,000

A reconciliation of increases and decreases in unrecognized tax benefits is as follows:

Gross tax contingencies – September 29, 2007	$	524,000
Gross increases to tax positions in prior periods		—
Gross decreases to tax positions in prior periods		—
Gross increases to current period tax positions		30,000
Audit settlements paid during 2007		—
Gross tax contingencies, September 27, 2008	$	554,000

The Company adopted the provisions of FIN 48 effective for the first quarter of fiscal year 2008. The total amount of unrecognized tax benefits at September 27, 2008 and September 29, 2007 was $554,000 and $524,000, respectively. The unrecognized tax benefits relate entirely to research and development credits at the federal and state level. The amount of unrecognized tax benefits at September 27, 2008 that would impact the effective tax rate if resolved in favor of the Company is $277,000. Any release of the reserve related to R&D credits earned prior to the Company’s acquisition of Keurig (currently $277,000) will be an adjustment to goodwill. The Company recognizes interest and penalties related to unrecognized tax items in the provision for income taxes.

At September 27, 2008, the Company has state research and development credit carryforwards of $598,000, expiring at various dates through 2023. During fiscal 2008, the Company fully utilized its remaining federal net operating loss (“NOL”) and federal research and development credit.

The federal research and development tax credit expired on December 31, 2007. On October 3, 2008, after the Company’s fiscal year-end, the credit was extended for the 2008 calendar year. The Company has claimed a tax credit (and reserve against it) through December 31, 2007. The Company will report an additional $86,000 of federal tax credit and an associated $17,000 reserve as a discrete item in the first quarter of 2009 to recognize this retroactive extension. With this exception, the Company does not expect a significant increase or decrease to the total amount of unrecognized tax benefits within the next 12 months.

On January 22, 2004, the Vermont Economic Progress Council (VEPC) approved an application from the Company for payroll and capital investment tax credits. The total incentives authorized are $2,091,000 over a five year period beginning in fiscal year 2004. As of September 28, 2008, the Company has met the

minimum investment requirements and earned capital investment and payroll tax credits to date through

F-18

GREEN MOUNTAIN COFFEE ROASTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 27, 2008 of $1,844,000 and $247,000, respectively. All credits are also subject to recapture and disallowance provisions due to curtailment of trade or business. The Company is deemed to have substantially curtailed its trade or business if the average number of full time employees in any period of 120 consecutive days is less than 75% of the highest average number of full time employees for any year in a period of six years after the initial authorization of the incentive. The tax credit is earned as actual capital expenditures are made in the State of Vermont or employees added to the payroll in the case of the payroll tax credit. Once a credit is earned, it may be carried forward to any subsequent year for which an approval exists (2004 through 2008 for the Company) or to any of the next 5 succeeding years following the last year of the term approved by the VEPC. The decrease in state income tax expense attributable to VEPC tax credits earned during fiscal years 2007 and 2006, after the federal tax effect, was $222,000 and $339,000, respectively. No VEPC tax credit was earned in fiscal 2008.

The Company had a deferred tax asset, and associated valuation allowance, of approximately $42,000, related to a capital loss carryforward that expired on September 29, 2007.

The company elected to use the “short cut” method in determining the FAS 123(R) pool of windfall tax benefits, as permitted under FSP FAS 123(R)-c.

7. Merger with Keurig, Incorporated

On June 15, 2006, the Company acquired Keurig and Keurig became a wholly-owned subsidiary of the Company. Since the date of the acquisition, Keurig’s results from operations have been included in the Company’s consolidated financial statements.

Total consideration under the terms of the Merger Agreement amounts to approximately $104.3 million. This consideration includes $99.5 million paid in cash and $4.8 million of stock options issued to assume the unvested options of Keurig employees (see Note 13 Employee Compensation Plans).

The total net cash disbursement associated with the Merger was $101.1 million. This includes $99.5 million of cash consideration paid to the former shareholders of Keurig (other than the Company) and direct acquisition costs of approximately $2.7 million, net of $1.1 million of cash acquired.

The allocation of the purchase price based on fair value of the acquired assets less liabilities assumed was as follows (in thousands):

Net assets acquired:
Inventory and other net current assets	$	6,400
Fixed assets and other net long term assets		3,700
Intangible assets		37,800
Goodwill		73,100
Net deferred tax liabilities		(14,400	)
GMCR’s 2002 equity investment in Keurig		(5,500	)
Total	$	101,100

In addition, the Company recorded $817,000 of goodwill related to the assumed unvested options of Keurig employees.

F-19

GREEN MOUNTAIN COFFEE ROASTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company carries $72.5 million and $72.4 million of goodwill at September 27, 2008 and September 29, 2007 related to its merger with Keurig, respectively. Goodwill was increased by $113,000 in the third quarter of fiscal 2008 and decreased by $97,000 in the second quarter of fiscal 2007 due to the final settlements of contingencies related to the merger. Goodwill was also decreased by $1.4 million in the third fiscal quarter of 2007 primarily to reflect updated estimates of R&D tax credits earned by Keurig in the years prior to the Company’s merger with Keurig.

This acquisition was recorded in accordance with Financial Accounting Standards No. 141 (FAS 141) “Business Combinations” and No. 142 (FAS 142) “Goodwill and Other Intangibles”. Intangible assets recorded in association with this acquisition are being amortized over their estimated useful lives ranging from 7 to 10 years.

Intangibles on the September 27, 2008 and September 29, 2007 balance sheets amount to $29.4 million and $34.2 million, respectively, and are presented net of accumulated amortization of $13.4 million and $8.6 million, respectively. Total intangible assets include a $2.5 million balance (gross of deferred tax liability) of identifiable technology intangible assets that were acquired through the investment made in Keurig in 2002. These assets continue to be amortized on a straight-line basis over their useful lives estimated in 2002 and ranged from 7 to 10 years. Total intangibles also represents $18.3 million of acquired completed technology with an average life of 10 years and $20.7 million of customer and roaster partner agreements and other intangible assets with an average life of 8 years. Amortization expense of intangibles in fiscal 2008, fiscal 2007 and fiscal 2006 amounted to $4,812,000, $4,812,000 and $1,402,000, respectively. Amortization of intangibles expense (gross of tax) is anticipated to be $4,708,000; $4,598,000; $4,552,000 and $4,377,000 in the years fiscal 2009 through fiscal 2012, respectively.

Prior to the acquisition of Keurig on June 15, 2006, the Company owned 33.2% of Keurig on a fully diluted basis and accounted for its investment in Keurig under the equity method of accounting.

The Company has historically conducted arms-length business transactions with Keurig. Under license agreements with Keurig dated July 22, 2003 and June 30, 2002 as amended, the Company paid Keurig a royalty for sales of Keurig licensed products. In fiscal 2006, the Company recorded royalties in cost of sales in the amount of $9,497,000 for the thirty-eight weeks ended June 15, 2006 (the Keurig merger date).

Keurig also purchased coffee products from the Company. In fiscal 2006, for the thirty-eight weeks ended June 15, 2006, the Company sold $3,966,000 worth of coffee products to Keurig.

In addition, the Company purchased brewer equipment from Keurig. In fiscal 2006, for the thirty-eight weeks ended June 15, 2006, the Company purchased $1,361,000 worth of brewers and associated equipment from Keurig. The Company has eliminated the effect of these intercompany transactions in its consolidated financial statements.

Prior to June 15, 2006, the earnings related to the Company’s equity investment in Keurig were comprised of two components: (1) the Company’s equity interest in the earnings of Keurig and (2) changes in the fair value of the Company’s investment in Keurig’s preferred stock. During the thirty eight weeks ended June 15, 2006, the losses related to the equity investment in Keurig amounted to ($963,000).

Keurig was on a calendar year-end. The Company has included in its income for its 2006 fiscal year the Company’s equity interest in the fourth calendar fiscal quarter of Keurig’s earnings (October 1, 2005 through December 31, 2005) and the first two calendar fiscal quarters of Keurig’s earnings (January 1, 2006 through June 15, 2006, the merger date). The equity interest in the earnings of Keurig includes the

F-20

GREEN MOUNTAIN COFFEE ROASTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Company’s portion of Keurig’s earnings for the period relative to the Company’s ownership of common stock in Keurig for that period including certain adjustments. These adjustments include the amortization of assigned intangible assets, the accretion of preferred stock dividends and redemption rights, as well as depreciation differences between the Company’s equity in the fair value of certain fixed assets as compared to Keurig’s historical cost basis. For the thirty-eight weeks ended June 15, 2006, the Company’s equity interest in the losses of Keurig amounted to ($3,384,000). In fiscal 2006, for the thirty-eight weeks ended June 15, 2006, ($3,502,000) of the equity interest in Keurig’s losses was due to the accretion of preferred stock redemption rights. The redemption value represented Keurig’s estimate of the amount the holders of the preferred shares would have received upon redemption. The redemption value was based upon a valuation of Keurig performed annually and approved by Keurig’s Board of Directors. The Company carried its investment in Keurig’s preferred stock at accreted redemption value, which approximated fair value which the Company believed it could realize upon redemption or in a transaction with an independent third party. During the fiscal year 2006, $2,421,000 of the earnings related to the investment in Keurig was due to the increase in the fair value of the Company’s preferred shares based upon a valuation determined by Keurig’s Board of Directors. The Company recognized its earnings related to its investment in Keurig net of related tax effects.

Summarized financial information for Keurig is as follows:

Income Statement Information for the eight and a half months ended June 15, 2006 Dollars in thousands
Revenues	$	51,704
Cost of goods sold	$	25,837
Selling, general, and administrative expenses	$	24,617
Operating income	$	1,250
Net income	$	1,145

Financial Position Information at June 15, 2006 Dollars in thousands
Current assets	$	16,325
Property, plant and equipment, net	$	3,374
Other assets	$	363
Total assets	$	20,062
Current liabilities	$	9,387
Noncurrent liabilities		—
Redeemable preferred stock	$	38,799
Stockholder’s deficit	$	(28,124	)

F-21

GREEN MOUNTAIN COFFEE ROASTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following unaudited pro forma information for the 2006 fiscal year has been prepared assuming the acquisition occurred at the beginning of the period presented:

Dollars in thousands except per share data	53 weeks ended September 30, 2006 Pro Forma
Net sales	$	262,203
Operating income	$	14,019
Net income	$	4,608
Basic income per share:
Weighted average shares outstanding		22,516,701
Net income	$	0.20
Diluted income per share:
Weighted average shares outstanding		23,820,183
Net income	$	0.19

8. Segment Reporting

Since the acquisition of Keurig on June 15, 2006 and throughout fiscal 2007, the Company manages its operations through two business segments: GMC and Keurig. GMC sells whole bean and ground coffee, coffee, hot cocoa and tea in K-Cups, Keurig single cup brewers and other accessories mainly in domestic wholesale and retail markets. Keurig sells their single cup brewers, coffee, hot cocoa and tea in K-Cups produced by a variety of licensed roasters and related accessories mainly in domestic wholesale and retail markets. Throughout this report, unless otherwise noted, the information provided is on a consolidated basis.

The Company evaluates performance based on several factors, including business segment income before taxes. The operating segments do not share manufacturing or distribution facilities, and most administrative functions such as accounting and information services are decentralized. In the event any materials and/or services are provided to one segment by the other, the transaction is valued at market price and eliminated through consolidation. The costs of the Company’s manufacturing operations is captured within the GMC segment while the Keurig segment does not have manufacturing facilities and purchases their saleable products from third parties. The Company’s property, plant and equipment, inventory and accounts receivable are captured and reported discretely within each operating segment.

Beginning in fiscal 2008, the Company manages its operations through two operating segments, GMC and Keurig, each of which is a reportable segment. Expenses not specifically related to either operating segment are shown separately as “Corporate”. Corporate expenses are comprised mainly of the compensation and other related expenses of our CEO, CFO, Chairman of the Board, Vice President of Human Resources, Vice President of Corporate Social Responsibility and other selected employees who perform duties related to our entire enterprise. Corporate expenses also include interest expense, amortization of the identifiable intangibles acquired when Keurig was purchased, as well as certain corporate legal expenses and board of directors fees. All of the Company’s goodwill and intangible assets are included in Corporate assets.

F-22

GREEN MOUNTAIN COFFEE ROASTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Fiscal 2007 and fiscal 2006 segment disclosures have been reclassified to conform to current segment presentation throughout this report.

Fiscal year ended 9/27/08 in thousands	GMC		Keurig		Corporate			Eliminations			Consolidated
Sales to unaffiliated customers	$	285,894	$	214,383		—			—		$	500,277
Intersegment sales	$	34,158	$	39,191		—		$	(73,349	)		—
Net sales	$	320,052	$	253,574		—		$	(73,349	)	$	500,277
Income before taxes	$	27,823	$	32,588	$	(23,503	)	$	(436	)	$	36,472
Total assets	$	252,127	$	86,680	$	103,349		$	(84,508	)	$	357,648
Stock compensation	$	1,978	$	2,519	$	1,851			—		$	6,348
Interest expense		—		—	$	5,705			—		$	5,705
Property additions	$	42,558	$	3,536		—			—		$	46,094
Depreciation and amortization	$	11,792	$	1,708	$	4,812			—		$	18,312

Fiscal year ended 9/29/07 in thousands	GMC		Keurig		Corporate			Eliminations			Consolidated
Sales to unaffiliated customers	$	230,487	$	111,164		—			—		$	341,651
Intersegment sales	$	11,471	$	23,607		—		$	(35,078	)		—
Net sales	$	241,958	$	134,771		—		$	(35,078	)	$	341,651
Income before taxes	$	22,453	$	16,771	$	(17,366	)	$	(281	)	$	21,577
Total assets	$	153,423	$	40,382	$	108,048		$	(37,326	)	$	264,527
Stock compensation	$	1,690	$	1,565	$	1,037			—		$	4,292
Interest expense		—		—	$	6,176			—		$	6,176
Property additions	$	19,715	$	2,129		—			—		$	21,844
Depreciation and amortization	$	8,798	$	1,660	$	4,811			—		$	15,269

Year ended 9/30/06 in thousands	GMC		Keurig		Corporate			Eliminations			Consolidated
Sales to unaffiliated customers	$	206,052	$	19,271		—			—		$	225,323
Intersegment sales	$	1,530	$	4,845		—		$	(6,375	)	$	—
Net sales	$	207,582	$	24,116		—		$	(6,375	)	$	225,323
Income before taxes	$	18,655	$	1,142	$	(3,563	)	$	(179	)	$	16,055
Total assets	$	110,826	$	31,170	$	114,324		$	(22,314	)	$	234,006
Stock compensation	$	1,692	$	113		—			—		$	1,805
Interest expense	$	100	$	—	$	2,161			—		$	2,261
Property additions	$	12,732	$	881		—			—		$	13,613
Depreciation and amortization	$	7,543	$	725	$	1,402			—		$	9,670

F-23

GREEN MOUNTAIN COFFEE ROASTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

9. Warranty reserve

The Company offers a one-year warranty on all Keurig brewers it sells. Keurig provides for the estimated cost of product warranties, primarily using historical information and repair or replacement costs, at the time product revenue is recognized. During fiscal 2007, the Company experienced higher warranty returns associated with a defective component for specific brewers manufactured during calendar 2006. The defective component was replaced with an improved component for all brewers beginning in January 2007. Replacement costs amounted to $1,600,000, of which $1,400,000 was recovered from the component manufacturer. This recovery was reflected in Keurig’s fiscal 2007 cost of sales.

The changes in the carrying amount of product warranty reserves for fiscal 2008 are as follows:

Year ended September 27, 2008
Balance at September 29, 2007	$	815,000
Provision charged to income, net of reimbursements		2,322,000
Usage		(2,489,000	)
Balance at September 27, 2008	$	648,000

The changes in the carrying amount of product warranty reserves for fiscal 2007 are as follows:

Year ended September 29, 2007
Balance at September 30, 2006	$	230,000
Provision charged to income		1,928,000
Usage		(1,343,000	)
Balance at September 29, 2007	$	815,000

10. Credit Facility

The Company maintains a Revolving Credit Agreement (the “Credit Facility”) with Bank of America, N.A. (“Bank of America”) and other lenders. On December 3, 2007, the Company amended its Credit Facility to increase the facility from $125,000,000 to $225,000,000, extend the expiration date of the Credit Facility from June 15, 2011 to December 3, 2012 and amend certain financial covenants. In addition, the Company has the ability from time to time to increase the size of the Credit Facility by up to an additional $50,000,000, subject to receipt of lender commitments and other conditions precedent. The Company paid fees to its lenders for amendments to the Credit Facility of $711,000 in the first quarter of fiscal 2008 and $112,000 in the fourth quarter of fiscal 2008. The Company also incurred $84,000 in other financing fees related to these amendments.

At September 27, 2008 and September 29, 2007, $123,500,000 and $90,000,000 were outstanding under the Credit Facility, respectively. The Credit Facility is secured by all assets of the Company. The Credit Facility contains various negative covenants, including limitations on: liens; investments; loans and advances; indebtedness; mergers, consolidations and acquisitions; asset sales; dividends and distributions or repurchases of the Company’s capital stock; transactions with affiliates; certain burdensome agreements; and changes in the Company’s lines of business.

The Credit Facility is subject to the following financial covenants: a funded debt to adjusted EBITDA covenant, a fixed charge coverage ratio covenant and a capital expenditures covenant. Effective on July 18,

F-24

GREEN MOUNTAIN COFFEE ROASTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

2008, the Credit Facility was amended to increase the maximum amount of capital expenditures permitted to $60,000,000 in fiscal year 2008 and each fiscal year thereafter. In addition, the Company is allowed a carry-over of the unused amount available for capital expenditures for the preceding fiscal year. The Company was in compliance with these covenants at September 27, 2008.

The borrowings under the Credit Facility bear interest at prime or Libor rates, plus a margin based on a performance price structure. At September 27, 2008, interest rates charged on the Credit Facility were as follows: 5.25% (Prime rate plus 25 basis points) on $6,500,000 and 4.45% (one month Libor plus 125 basis points) on $117,000,000. However, the rate charged on $78,466,667 of the $117,000,000 one-month Libor was fixed through swap agreements (see below). Therefore, the rate paid by the Company on that portion of the debt was in effect 5.11% (3.86% plus 125 basis points).

At September 29, 2007, the interest rate charged on the Credit Facility was 6.75% (Libor plus 125 basis points). However, the rate charged on $65,466,667 of the $90,000,000 one-month Libor was fixed through a swap agreement (see below). Therefore, the rate paid by the Company on that portion of the debt was in effect 6.69% (5.44% plus 125 basis points).

Interest on Libor loans is paid in arrears on the maturity date of such loans. The variable portion of the Credit Facility accrues interest daily and is paid quarterly, in arrears. The Company also pays a commitment fee on the average daily unused portion of the Credit Facility.

At September 27, 2008, and September 29, 2007, the Company also had $345,000 and $361,000 in outstanding letters of credit for leased office space and $9,655,000 and $9,639,000 available under the Credit Facility to issue letters of credit, respectively.

The Company is party to interest rate swap agreements. The notional amounts of these swaps at September 27, 2008 and September 29, 2007 was $78,466,667 and $65,466,667, respectively. The effect of these swaps was to limit the interest rate exposure to a fixed rate at September 27, 2008 as follows: 5.44% versus the 30-day Libor rate on $28,466,667; 2.35% versus the 30-day Libor rate on $30,000,000; and 3.87% versus the 30-day Libor rate on $20,000,000. The swap’s notional amounts will decrease progressively in future periods and terminates on various dates from June 2010 through December 2012.

In accordance with the swap agreements and on a monthly basis, interest expense is calculated based on the floating 30-day Libor rate and the fixed rate. If interest expense calculated is greater based on the 30-day Libor rate, the lender pays the difference to the Company; if interest expense as calculated is greater based on the fixed rate, the Company pays the difference to the lender.

The fair market value of the interest rate swaps are the estimated amount that the Company 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 September 27, 2008 and September 29, 2007 the Company estimates it would have paid $634,000 and $871,000 (gross of tax), respectively, had it terminated the agreements. The Company designates the swap agreements as cash flow hedges and the fair value of these swaps are classified in accumulated other comprehensive income. The fair market value for the interest rate swaps were obtained from a major financial institution based on the market value of those financial instruments at the end of each fiscal year.

In fiscal years 2008, 2007 and 2006, the Company paid $1,050,000, $66,000 and $8,000, respectively, in additional interest expense pursuant to the swap agreements. The Company is exposed to credit loss in the event of nonperformance by the other party to the swap agreements; however, nonperformance is not anticipated.

F-25

GREEN MOUNTAIN COFFEE ROASTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

11. Long-term Debt

	September 27, 2008		September 29, 2007
Bank of America revolving line of credit (Note 10)	$	123,500,000	$	90,000,000
Office equipment capital leases		50,000		101,000
Service vehicle installment loans		—		12,000
		123,550,000		90,113,000
Less current portion		33,000		63,000
	$	123,517,000	$	90,050,000

Service Vehicle Installment Loans

These loans are for the purchase of service vehicles. These notes matured in February 2008.

Office Equipment Capital Leases

The Company leases copiers and fax machines. These leases require monthly installments of principal and interest totaling approximately $5,000. Maturities vary from May 2009 to September 2010.

Maturities

Maturities of long-term debt for years subsequent to September 27, 2008 are as follows:

Fiscal Year
2009	$	33,000
2010		17,000
2011		—
2012		—
2013		123,500,000
	$	123,550,000

12. Coffee price hedging

The Company regularly enters into coffee futures contracts to hedge forecasted purchases of green coffee and therefore designates these contracts as cash flow hedges. At September 27, 2008, the Company held outstanding futures contracts covering 1,162,500 pounds of coffee with a fair market value of ($39,000). At September 27, 2008, deferred losses on futures contracts designated as cash flow hedges amounted to $70,000 ($43,000, net of taxes). These futures contracts are hedging coffee purchases forecasted to take place in the next six months and the related losses will be reflected in cost of sales in the first three fiscal quarters of 2009, when the related finished goods inventory is sold. The deferred losses are classified as accumulated other comprehensive losses. At September 29, 2007, the Company held no coffee futures and carried no deferred gains or losses from coffee futures transactions on its balance sheet.

The total losses on coffee futures contracts that were included in cost of sales in fiscal 2008 and fiscal 2007 amounted to $9,000 ($6,000 net of tax) and $45,000 ($26,000 net of tax), respectively. The total gains on futures contracts designated as cash flow hedges that were included in cost of sales in fiscal 2006 amounted

F-26

GREEN MOUNTAIN COFFEE ROASTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

to $54,000 ($31,000 net of tax). The fair market value for the futures is calculated at the end of each fiscal year, in consideration of information provided by a major financial institution, based on the market prices of identical (or similar) instruments that are regularly traded in readily observable markets.

13. Employee Compensation Plans

Stock Option Plans

On May 20, 1999, the Company registered on Form S-8 the 1999 Stock Option Plan (the “1999 Plan”). Under this plan, 1,500,000 shares of common stock are available for grants of both incentive and non-qualified stock options. Grants under the 1999 Plan generally expire 10 years after the grant date, or earlier if employment terminates. At September 27, 2008 and September 29, 2007, options for 202 shares and 40,152 shares of common stock were available for grant under the plan, respectively.

On September 25, 2001, the Company registered on Form S-8 the 2000 Stock Option Plan (the “2000 Plan”). Under this plan, 2,400,000 shares of common stock are available for grants of both incentive and non-qualified stock options. Grants under the 2000 Plan generally expire 10 years after the grant date, or earlier if employment terminates. At September 27, 2008 and September 29, 2007, options for 172 shares and 99,132 shares of common stock were available for grant under the plan, respectively.

On March 16, 2006, stockholders of the Company approved the Company’s 2006 Incentive Plan (the “2006 Plan”). The 2006 Plan was amended on March 13, 2008 to which the total shares of common stock authorized for issuance increased to 1,600,000 from 900,000 at fiscal 2007 year end. Awards other than stock options are limited to a total of 180,000 over the life of the 2006 Plan. At September 27, 2008 and September 29, 2007, options for 399,642 shares and 10,950 shares of common stock were available for grant under the plan, respectively.

On June 15, 2006, the Company completed its acquisition of Keurig. In connection with this acquisition, the Company assumed the existing outstanding unvested option awards of the Keurig, Incorporated Fifth Amended and Restated 1995 Stock Option Plan (the “1995 Plan”) and the Keurig, Incorporated 2005 Stock Option Plan (the “2005 Plan”). No shares under either the 1995 Plan or the 2005 Plan were eligible for post-acquisition awards. At September 27, 2008 and September 29, 2007, 32,922 and 155,853 options out of the 308,202 options for shares of common stock granted were outstanding under 1995 Plan, respectively. At September 27, 2008 and September 29, 2007, 160,573 options and 271,518 options out of the 331,239 options granted for shares of common stock were outstanding under the 2005 Plan, respectively. All awards assumed in the acquisition were initially granted with a four-year vesting schedule and continue to vest in accordance with their existing terms. Also in connection with the acquisition, the Company made an inducement grant on June 15, 2006 to Mr. Nicholas Lazaris of a non-qualified stock option to purchase 150,000 shares of the Company’s common stock, which vests in four equal annual installments beginning on June 15, 2007. The 150,000 inducement grant was outstanding at September 29, 2007. On August 15, 2008, Mr. Lazaris separated from the Company and options for 37,500 shares out of the 150,000 granted were vested and outstanding at the 2008 fiscal year end.

On May 3, 2007, Mr. Lawrence Blanford commenced his employment as the president and chief executive officer of the Company. Pursuant to the terms of the employment, the Company made an inducement grant on May 4, 2007 to Mr. Blanford of a non-qualified option to purchase 210,000 shares of the Company’s common stock, with an exercise price equal to fair market value on the date of the grant. The shares subject to the option will vest in 20% installments on each of the first five anniversaries of the date of the grant, provided that Mr. Blanford remains employed with the Company on each vesting date.

F-27

GREEN MOUNTAIN COFFEE ROASTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Under the 1999 Plan and the 2000 Plan, the option price for each incentive stock option shall not be less than the fair market value per share of common stock on the date of grant, with certain provisions which increase the option price to 110% of the fair market value of the common stock if the grantee owns in excess of 10% of the Company’s common stock at the date of grant. Under the 1999 Plan, the option price for each non-qualified stock option shall not be less than 85% of the fair market value of the common stock at the date of grant. The 2000 Plan does not have restrictions on the pricing of non-qualified grants. The 2006 Plan requires the exercise price for all awards requiring exercise to be no less than 100% of fair market value per share of common stock on the date of grant, with certain provisions which increase the option price to 110% of the fair market value of the common stock if the grantee owns in excess of 10% of the Company’s common stock at the date of grant. Options under the 1999 Plan, the 2000 Plan and the 2006 Plan become exercisable over periods determined by the Board of Directors, generally in the range of four to five years.

Option activity is summarized as follows:

	Number of Shares		Average Exercise Price
Outstanding at September 29, 2007	3,506,170			12.32
Granted	493,768			30.74
Exercised	(705,546	)		5.16
Canceled	(151,781	)		14.99
Outstanding at September 27, 2008	3,142,611			13.89
Exercisable at September 27, 2008	1,782,348		$	8.22

The following table summarizes information about stock options expected to vest at September 27, 2008:

Range of exercise price	Number of options outstanding	Weighted average remaining contractual life (in years)	Weighted average exercise price	Intrinsic value at September 27, 2008
$ 0.94 - $42.48	3,008,310	6.24	13.89	$	75,116,000

The following table summarizes information about stock options exercisable at September 27, 2008:

Range of exercise price	Number of options exercisable	Weighted average remaining contractual life (in years)	Weighted average exercise price	Intrinsic value at September 27, 2008
$ 0.94 - $42.48	1,782,348	4.57	8.22	$	54,548,000

The Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004) Share-Based Payments (“FAS123(R)”) at the beginning of its first fiscal quarter of 2006. Compensation expense is recognized only for those options expected to vest, with forfeitures estimated based on the Company’s historical employee turnover experience and future expectations.

The Company uses a blend of recent and historical volatility to estimate expected volatility at the measurement date. The expected life of options is estimated based on options vesting periods, contractual lives and an analysis of the Company’s historical experience.

Income before income taxes was reduced by $6,348,000, $4,292,000 and $1,805,000 (gross of tax), respectively, due to the recognition of stock compensation expense for the years ended September 27,

F-28

GREEN MOUNTAIN COFFEE ROASTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

2008, September 29, 2007 and September 30, 2006, respectively. Net of tax, stock compensation expense was $4,755,000, $3,335,000 and $1,479,000 for the years ended September 27, 2008, September 29, 2007 and September 30, 2006, respectively.

Total unrecognized share-based compensation costs related to unvested stock options expected to vest were approximately $12,384,000 as of September 27, 2008 which related to approximately 1,226,000 shares. This unrecognized cost is expected to be recognized over a weighted average period of approximately 2 years at September 27, 2008. The intrinsic values of options exercised during fiscal 2008 and fiscal 2007 were approximately $22,217,000 and $9,967,000, respectively. The Company’s policy is to issue new shares upon exercise of stock options.

The grant-date fair value of employee share options and similar instruments is estimated using the Black-Scholes option-pricing model with the following assumptions for grants issued during fiscal 2008: an expected life averaging 6 years; an average volatility of 45%; no dividend yield; and a risk-free interest rate averaging 3%. The weighted-average fair value of options granted during fiscal 2008 was $14.44.

The following assumptions were used for option grants issued during fiscal 2007: an expected life averaging 6 years; an average volatility of 39%; no dividend yield; and a risk-free interest rate averaging 5%. The weighted-average fair value of options granted during fiscal 2007 was $9.64.

The following assumptions were used for option grants issued during fiscal 2006: an expected life averaging 5 years; an average volatility of 43%; no dividend yield; and a risk-free interest rate averaging 5%. The weighted-average fair value of options granted during fiscal 2006 was $7.47.

Employee Stock Purchase Plan

On October 5, 1998, the Company registered on Form S-8 the 1998 Employee Stock Purchase Plan. On March 13, 2008, the plan was amended and renamed the Amended and Restated Employee Stock Purchase Plan (“ESPP”). Under this plan, eligible employees may purchase shares of the Company’s common stock, subject to certain limitations, at the lesser of 85 percent of the beginning or ending withholding period fair market value as defined in the plan. There are two six-month withholding periods in each fiscal year. At September 27, 2008 and September 29, 2007, options for 555,050 and 631,032 shares of common stock were available for grant under the plan, respectively.

The grant-date fair value of employees’ purchase rights granted during fiscal 2008 under the Company’s ESPP is estimated using the Black-Scholes option-pricing model with the following assumptions: an expected life equal to 6 months; an average volatility of 59%; no dividend yield; and an average risk-free interest rate equal to 3%. The weighted-average fair value of purchase rights granted during fiscal 2008 was $10.02.

The assumptions used for fiscal 2007 ESPP grants were: an expected life equal to 6 months; an average volatility of 36%; no dividend yield; and an average risk-free interest rate equal to 5%. The weighted-average fair value of purchase rights granted during fiscal 2007 was $4.03.

The assumptions used for fiscal 2006 ESPP grants were: an expected life equal to 6 months; an average volatility of 35%; no dividend yield; and an average risk-free interest rate equal to 4.2%. The weighted-average fair value of purchase rights granted during fiscal 2006 was $3.03.

F-29

GREEN MOUNTAIN COFFEE ROASTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

14. Defined Contribution Plan

The Company has a defined contribution plan which meets the requirements of section 401(k) of the Internal Revenue Code. As of January 1, 2008, the defined contribution plan of the Keurig subsidiary was merged into the Company’s defined contribution plan. All regular full-time employees of the Company who are at least eighteen years of age and work a minimum of 36 hours per week are eligible to participate in the plan. The plan allows employees to defer a portion of their salary on a pre-tax basis and the Company contributes 50% of amounts contributed by employees up to 6% of their salary. Company contributions to the plan amounted to $1,245,000, $856,000, and $723,000, for the years ended September 27, 2008, September 29, 2007, and September 30, 2006, respectively.

Prior to January 1, 2008, the Keurig subsidiary of the Company had a separate defined contribution plan that met the requirements of section 401(k) of the Internal Revenue Code. All regular full-time employees of Keurig who were at least eighteen years of age and had completed three months of service were eligible to participate in the plan. The plan allowed employees to defer a portion of their salary on a pre-tax basis and the Company contributed 50% of amounts contributed by employees up to 6% of their salary. Company contributions to the Keurig plan amounted to $62,000 for the fiscal quarter ended December 29, 2007 and $296,000 and $50,000 for the fiscal years ended September 29, 2007 and September 30, 2006, respectively.

15. Employee Stock Ownership Plan

On September 14, 2000, the Board of Directors of the Company adopted a resolution establishing the Green Mountain Coffee, Inc., Employee Stock Ownership Plan (the “ESOP”) and the related Green Mountain Coffee, Inc., Employee Stock Ownership Trust (the “Trust”). The ESOP is qualified under sections 401(a) and 4975(e)(7) of the Internal Revenue Code. All employees of the Company (not including its Keurig subsidiary) with one year or more of service who are at least twenty-one years of age are eligible to participate in the Plan, in accordance with the terms of the Plan. The Company may, at its discretion, contribute shares of Company stock or cash that is used to purchase shares of Company stock. Company contributions are credited to eligible participants’ accounts pro-rata based on their compensation. Plan participants become vested in their Plan benefits after five years of employment.

In April 2001, a total of 37,500 shares were purchased at a cost of $197,000 in the open market and distributed directly to participants. On April 16, 2001, the Company made a $2,000,000 loan to the Trust to provide funds for the open-market purchases of the Company’s common stock. This loan bears interest at an annual rate of 8.5% and provides for annual repayments to the Company. The maturity date of the loan is the last business day of the Company’s fiscal 2010 year. Between April 19, 2001 and August 21, 2001, the Trust purchased 221,400 shares of the Company’s common stock at an average price of $9.04 per share. The fair value of unearned ESOP shares at September 27, 2008 and September 29, 2007 was $703,000 or $38.80 per share and $773,000 or $33.19 a share, respectively.

For each of the years ended September 27, 2008, September 29, 2007, and September 30, 2006, the Company recorded compensation costs of $200,000 annually for contributions to the ESOP.

After the close of 2007 and 2006 calendar years, 6,026 shares and 16,305 shares were transferred from the unallocated ESOP pool of shares and allocated to participants’ accounts, respectively. At September 27, 2008, 5,155 shares had been committed to be released to participants’ accounts at the end of the calendar 2008 year.

F-30

GREEN MOUNTAIN COFFEE ROASTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

16. Deferred Compensation Plan

The 2002 Deferred Compensation Plan, amended in December 2007, permits certain highly compensated officers and employees of the Company and non-employee directors to defer eligible compensation payable for services rendered to the Company. Participants may elect to receive deferred compensation in the form of cash payments or shares of Company Common Stock on the date or dates selected by the participant or on such other date or dates specified in the Deferred Compensation Plan. The Deferred Compensation Plan is in effect for compensation earned on or after September 29, 2002. As of September 27, 2008 and September 29, 2007, 285,325 shares and 288,206 shares of Common Stock were available for future issuance under this Plan, respectively. As of September 27, 2008 and September 29, 2007, rights to acquire 14,675 and 11,794 shares of Common Stock were outstanding under this Plan, respectively.

17. Related party transactions

The Company uses travel services provided by Heritage Flight, a charter air services company acquired in September 2002 by Mr. Stiller, the Company’s former CEO and current Chairman of the Board. During fiscal years 2008, 2007, and 2006, the Company was billed a total of $305,000, $234,000, and $115,000, respectively, by Heritage Flight for travel services provided to various employees of the Company.

18. Commitments, Lease Contingencies and Contingent Liabilities

Leases

The Company leases office and retail space, production, distribution and service facilities, and certain equipment under various non-cancelable operating leases, with terms ranging from one to twenty years. Property leases normally require payment of a minimum annual rental plus a pro-rata share of certain landlord operating expenses. Total rent expense under all operating leases was $5,208,000, $3,693,000, and $2,899,000 in fiscal 2008, 2007, and 2006, respectively.

Minimum future lease payments under non-cancellable operating leases for years subsequent to September 27, 2008 are as follows:

Fiscal Year	Operating Leases
2009	$	4,497,000
2010		4,200,000
2011		3,937,000
2012		3,244,000
2013		2,414,000
Thereafter		7,129,000
Total minimum lease payments	$	25,421,000

In conjunction with its purchase of Keurig’s stock in 2002, the Company had issued Stock Appreciation Rights (SARs). Upon consummation of a liquidity event involving the stock of Keurig as defined in the SARs agreement, the Company would be required to record an expense equal to the difference between the value of Keurig’s stock and the price paid by the Company when it acquired Keurig stock in 2002. The Merger was not considered a liquidity event, and therefore no payments under these SARs agreements were made upon consummation of the Merger. However, the agreement remains in effect and, under certain

F-31

GREEN MOUNTAIN COFFEE ROASTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

circumstances, if the Company were to sell Keurig, the sale may trigger a liquidity event under the agreement. At September 27, 2008, the Company estimated that it would have been required to record an expense equal to $2,820,000, had a liquidity event occurred.

19. Earnings per share

The following table illustrates the reconciliation of the numerator and denominator of basic and diluted income per share from continuing operations (dollars in thousands, except share and per share data):

	Year Ended
	September 27, 2008		September 29, 2007		September 30, 2006
Numerator—basic and diluted earnings per share: Net income	$	22,229	$	12,843	$	8,443
Denominator:
Basic earnings per share—weighted average shares outstanding		23,949,798		23,250,431		22,516,701
Effect of dilutive securities—stock options		1,614,982		1,522,942		1,210,647
Diluted earnings per share—weighted average shares outstanding		25,564,780		24,773,373		23,727,348
Basic earnings per share	$	0.93	$	0.55	$	0.37
Diluted earnings per share	$	0.87	$	0.52	$	0.36

For the fiscal years ended September 27, 2008, September 29, 2007, and September 30, 2006, 234,000, 426,000, and 387,000 options for shares of common stock, respectively, have been excluded in the calculation of diluted earnings per share because they were antidilutive.

20. Unaudited Quarterly Financial Data

The following table presents the quarterly information for fiscal 2008 (dollars in thousands, except per share data). Each fiscal quarter of 2008 comprises 13 weeks.

Fiscal 2008	December 29, 2007		March 29, 2008		June 28, 2008		September 27, 2008
Net sales	$	126,445	$	120,877	$	118,120	$	134,835
Gross profit	$	43,289	$	44,713	$	42,494	$	46,409
Net income	$	2,925	$	5,957	$	6,329	$	7,088
Earnings per share:
Basic	$	0.12	$	0.25	$	0.26	$	0.29
Diluted	$	0.12	$	0.23	$	0.25	$	0.28

F-32

GREEN MOUNTAIN COFFEE ROASTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table presents the quarterly information for fiscal 2007 (dollars in thousands, except per share data). Each fiscal quarter of 2007 comprises 13 weeks.

Fiscal 2007	December 30, 2006		March 31, 2007		June 30, 2007		September 29, 2007
Net sales	$	83,341	$	82,877	$	82,418	$	93,015
Gross profit	$	31,685	$	32,484	$	34,136	$	32,816
Net income	$	2,442	$	3,145	$	3,685	$	3,571
Earnings per share:
Basic	$	0.11	$	0.14	$	0.16	$	0.15
Diluted	$	0.10	$	0.13	$	0.15	$	0.14

21. Subsequent events

On September 15, 2008, the Company entered into an Asset Purchase Agreement with Tully’s Coffee Corporation, a Washington corporation (“Tully’s”) and Tully’s Bellaccino, LLC, a Washington limited liability company and wholly-owned subsidiary of Tully’s (the “Purchase Agreement”) pursuant to which the Company agrees to acquire the Tully’s coffee brand and certain assets related to the Tully’s wholesale business for a total purchase price of $40,300,000, to be paid in cash. The Purchase Agreement contains customary representations, warranties and covenants, and is subject to customary closing conditions, including the approval of the Tully’s shareholders. The Company intends to finance the consideration paid pursuant to the Purchase Agreement through its existing $225,000,000 senior revolving credit facility. On October 24, 2008, the Company received consent from the lenders under its existing revolving credit agreement to waive the provision of the credit agreement which prohibits borrowings in excess of $25,000,000 for acquisitions in a fiscal year for the limited purpose of allowing the Company to consummate the Tully’s acquisition.

On October 23, 2008, Keurig entered into a Settlement and License Agreement with Kraft Foods Inc., Kraft Foods Global, Inc., and Tassimo Corporation (collectively “Kraft”) providing for a complete settlement of Keurig’s previously filed lawsuit against Kraft. Pursuant to the terms of the Settlement and License Agreement, Kraft paid to Keurig a lump sum of $17,000,000 and Keurig grants to Kraft and its affiliates a limited, non-exclusive, perpetual, worldwide, fully paid up license of certain Keurig patents. The settlement will be recorded in the Company’s first quarter of fiscal 2009 as a non-recurring item in operating income.

F-33

Schedule II—Valuation and Qualifying Accounts

for the fiscal years ended

September 27, 2008, September 29, 2007, and September 30, 2006

	Additions
Description	Balance at Beginning of Period		Charged to Costs and Expenses		Charged to Other Accounts		Deductions		Balance at End of Period
Allowance for doubtful accounts:
Fiscal 2008	$	1,600,000	$	1,159,000	$	243,000		—	$	3,002,000
Fiscal 2007	$	1,021,000	$	620,000		—	$	41,000	$	1,600,000
Fiscal 2006	$	544,000	$	360,000	$	117,000		—	$	1,021,000

	Additions
Description	Balance at Beginning of Period		Charged to Costs and Expenses		Charged to Other Accounts		Deductions		Balance at End of Period
Warranty reserve:
Fiscal 2008	$	815,000	$	2,322,000		—	$	2,489,000	$	648,000
Fiscal 2007	$	230,000	$	1,928,000		—	$	1,343,000	$	815,000
Fiscal 2006		—	$	260,000	$	353,000	$	383,000	$	230,000

	Additions
Description	Balance at Beginning of Period		Charged to Costs and Expenses		Charged to Other Accounts		Deductions		Balance at End of Period
Inventory obsolescence reserve:
Fiscal 2008	$	348,000	$	1,141,000		—	$	1,049,000	$	440,000
Fiscal 2007	$	219,000	$	861,000		—	$	732,000	$	348,000
Fiscal 2006	$	133,000	$	766,000	$	99,000	$	779,000	$	219,000

The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

F-34

EX-3.2

Exhibit 3.2

AMENDED AND RESTATED BY-LAWS

OF

GREEN MOUNTAIN COFFEE ROASTERS, INC.

(A Delaware corporation)

ARTICLE I

Offices

SECTION 1. Registered Office. The registered office of the Corporation within the State of Delaware shall be in the City of Dover, County of Kent.

SECTION 2. Other Offices. The Corporation may also have an office or offices other than said registered office at such place or places, either within or without the State of Delaware, as the Board of Directors shall from time to time determine or the business of the Corporation may require.

ARTICLE II

Meetings of Stockholders

SECTION 1. Place of Meetings. All meetings of the stockholders for the election of Directors or for any other purpose shall be held at any such place, either within or without the State of Delaware, as shall be designated from time to time by the Board of Directors and stated in the notice of meeting or in a duly executed waiver thereof.

SECTION 2. Annual Meeting. The annual meeting of stockholders shall be held at such date and time as shall be designated from time to time by the Board of Directors and stated in the notice of meeting or in a duly executed waiver thereof. At such annual meeting, the stockholders shall elect, by a plurality vote, a Board of Directors and transact such other business as may properly be brought before the meeting.

SECTION 3. Special Meetings. The Chief Executive Officer, a majority of the Board of Directors or the Chairman of the Board if one has been elected, may call at any time or from time to time a special meeting of stockholders. Special meetings may not be called by any other person or persons. Business transacted at any special meeting of stockholders shall be limited to matters relating to the purpose or purposes stated in the notice of the meeting.

SECTION 4. Notice of Meetings. Except as otherwise expressly required by statute, written notice of each annual and special meeting of stockholders stating the date, place and given to each stockholder of record entitled to vote thereat not less than ten nor more than sixty days before the date of the meeting. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Notice shall be given personally or by mail and, if by mail, shall be sent in a postage prepaid envelope, addressed to the stockholder at his address as it appears on the records of the Corporation. Notice by mail shall be deemed given at the time

when the same shall be deposited in the United States mail, postage prepaid. Notice of any meeting shall not be required to be given to any person who attends such meeting, except when such person attends the meeting in person or by proxy for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened, or who, either before or after the meeting, shall submit a signed written waiver of notice, in person or by proxy. Neither the business to be transacted at, nor the purpose of, an annual or special meeting of stockholders need be specified in any written waiver of notice.

SECTION 5. List of Stockholders. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before each meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, showing the address of and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city, town or village where the meeting is to be held, which place shall be specified in the notice of meeting, or, if not specified, at the place where the meeting is to be held. The list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.

SECTION 6. Quorum, Adjournments. The holders of a majority of the voting power of the issued and outstanding stock of the Corporation entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of stockholders, except as otherwise provided by statute or by the Certificate of Incorporation. If, however, such quorum shall not be present or represented by proxy at any meeting of stockholders, the, stockholders entitled to vote thereat, present in person or represented by proxy, shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented by proxy. At such adjourned meeting at which a quorum shall be present or represented by proxy, any business may be transacted which might have been transacted at the meeting as originally called. If the adjournment is for more than thirty days, or, if after adjournment a new record date is set, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

SECTION 7. Nomination of Directors. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors. Nomination for election to the Board of Directors of the Corporation at a meeting of stockholders may be made by or on behalf of the Board of Directors or by any stockholder of the Corporation entitled to vote for the election of directors at such meeting who complies with the notice procedures set forth in this Section 7. Such nominations, other than those made by or on behalf of the Board of Directors, shall be made by notice in writing delivered or mailed by first class United States mail, postage prepaid, to the Secretary, and received not less than 60 days, nor more than 90 days prior to such meeting; provided, however, that if less than 70 days notice or prior public disclosure of the date of the meeting is given to stockholders, such nomination shall have been mailed or delivered to the Secretary not later than the close of business on the 10th day (or if such day is not a business day, the close of business of the preceding business day) following the date on which the notice of the meeting was mailed or such public disclosure

was made, whichever occurs first. Such notice must set forth (a) as to each proposed nominee (i) the name, age, business address and, if known, residence address of each such nominee, (ii) the principal occupation or employment of each such nominee, (iii) the number of shares of stock of the Corporation which are beneficially owned by each such nominee, and (iv) any other information concerning the nominee that must be disclosed as to nominees in proxy solicitations in a contested election pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such person’s written consent to be named as a nominee and to serve as a director if elected); and (b) as to the stockholder making the notice (i) the name and address, as they appear on the Corporation’s books, of such stockholder, (ii) the class and number of shares of the Corporation which are beneficially owned by such stockholder, and a representation that such stockholder will notify the Corporation in writing of the class and number of such shares beneficially owned as of the record date of the meeting promptly following the later of the record date or the date notice of the record date is first publicly disclosed, (iii) a description of any agreement, arrangement or understanding (including any derivative or short positions, profit interests, options, hedging transactions and borrowed or loaned shares) that has been entered into by, or on behalf of, such stockholder and its affiliates and associates, or others with whom such stockholder is acting in concert, the effect or intent of which is to mitigate loss to, manage risk or benefit of share price changes for, or increase or decrease the voting power of the stockholder and its affiliates and associates, or others with whom such stockholder is acting in concert, with respect to shares of stock of the Corporation, and a representation that such stockholder will notify the Corporation in writing of any such agreement, arrangement or understanding in effect as of the record date of the meeting promptly following the later of the record date or the date notice of the record date is first publicly disclosed, and (iv) a description of all direct and indirect compensation and any other material agreement, arrangement, understanding or relationship during the past three years between or among such stockholder and its affiliates and associates, or others with whom such stockholder is acting in concert, on the one hand, and each such nominee and his or her affiliates and associates, or others with whom such nominee is acting in concert, on the other hand, including, without limitation, all information that would be required to be disclosed pursuant to Item 404 promulgated under Regulation S-K if the stockholder making the nomination, or any affiliate or associate of such stockholder or person with whom the stockholder is acting in concert, were the “registrant” for purposes of such rule and the nominee were a director or executive officer of such registrant. In no event shall any adjournment or postponement of an annual meeting or the announcement thereof commence a new time period for the giving of a stockholder’s notice as described above. The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as a director of the Corporation, including, without limitation, a signed questionnaire with respect to the background and qualification of such person (which questionnaire shall be provided by the Secretary upon written request). The chairman of the meeting may determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded.

SECTION 8. Notice of Business at Annual Meeting. At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or on behalf of the Board of Directors, (b) otherwise

properly brought before the meeting by or on behalf of the Board of Directors, or (c) otherwise properly brought before an annual meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, if such business relates to the election of directors of the Corporation, the procedures in Section 7 must be complied with. If such business relates to any other matter, to be properly brought before an annual meeting by a stockholder, (i) such matter must be a proper matter for stockholder action under applicable Delaware law and (ii) the stockholder must have given timely notice of such business in writing and in proper form to the Secretary. To be timely, a stockholder’s notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the meeting; provided, however, that in the event that less than 70 days’ notice or prior public disclosure of the date of the meeting is given or made to stockholders, to be timely, a stockholder’s notice must be so received not later than the close of business or the 10th day (or if such day is not a business day, the close of business of the preceding business day) following the date on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever occurs first. In no event shall any adjournment or postponement of an annual meeting or the announcement thereof commence a new time period for the giving of a stockholder’s notice as described above. To be in proper form, a stockholder’s notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (a) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and address, as they appear on the Corporation’s books, of the stockholder proposing such business, (c) the class and number of shares of the Corporation which are beneficially owned by the stockholder, and a representation that such stockholder will notify the Corporation in writing of the class and number of such shares beneficially owned as of the record date of the meeting promptly following the later of the record date or the date notice of the record date is first publicly disclosed, (d) a description of any agreement, arrangement or understanding (including any derivative or short positions, profit interests, options, hedging transactions and borrowed or loaned shares) that has been entered into by, or on behalf of, such stockholder and its affiliates and associates, or others with whom such stockholder is acting in concert, the effect or intent of which is to mitigate loss to, manage risk or benefit of share price changes for, or increase or decrease the voting power of the stockholder and its affiliates and associates, or others with whom such stockholder is acting in concert, with respect to shares of stock of the Corporation, and a representation that such stockholder will notify the Corporation in writing of any such agreement, arrangement or understanding in effect as of the record date of the meeting promptly following the later of the record date or the date notice of the record date is first publicly disclosed, and (e) any material interest of the stockholder in such business. The requirements of this Section 8 will apply to any business to be brought before an annual meeting by a stockholder (other than the nomination of a person for election as a director, which is governed by Section 7) whether such business is to be included in the Corporation’s proxy statement pursuant to Rule 14a-8 of the proxy rules (or any successor provision) promulgated under the Securities Exchange Act of 1934, as amended, or presented to stockholders by means of an independently financed proxy solicitation.

The chairman of the meeting shall determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 8, and if he should so determine, the chairman shall so declare to the meeting that any such business not properly brought before the meeting shall not be transacted.

SECTION 9. Organization. At each meeting of stockholders, the Chairman of the Board, if one shall have been elected, or, in his absence or if one shall not have been elected, the President, shall act as chairman of the meeting. The Secretary or, in his absence or inability to act, the person whom the chairman of the meeting shall appoint secretary of the meeting, shall act as secretary of the meeting and keep the minutes thereof.

SECTION 10. Order of Business. The order of business at all meetings of the stockholders shall be as determined by the chairman of the meeting.

SECTION 11. Voting. Except as otherwise provided by statute or the Certificate of Incorporation, each stockholder of the Corporation shall be entitled at each meeting of stockholders to one vote for each share of capital stock of the Corporation standing in his name on the record of stockholders of the corporation:

(a) on the date fixed pursuant to the provisions of Section 7 of Article V of these By-Laws as the record date for the determination of the stockholders who shall be entitled to notice of and to vote at such meeting; or

(b) if no such record date shall have been so fixed, then at the close of business on the day next preceding the day on which notice thereof shall be given, or, if notice is waived, at the close of business on the date next preceding the day on which the meeting is held.

Each stockholder entitled to vote at any meeting of stockholders may authorize another person or persons to act for him by a proxy signed by such stockholder or his attorney-in-fact, but no proxy shall be voted after three years from its date, unless the proxy provides for a longer period. Any such proxy shall be delivered to the secretary of the meeting at or prior to the time designated in the order of business for so delivering such proxies. When a quorum is present at any meeting, the vote of the holders of a majority of the voting power of the issued and outstanding stock of the corporation entitled to vote thereon, present in person or represented by proxy, shall decide any question brought before such meeting, unless the question is one upon which by express provision of statute or of the certificate of incorporation or of these By-Laws, a different vote is required, in which case such express provision shall govern and control the decision of such question. Unless required by statute, or determined by the chairman of the meeting to be advisable, the vote on any question need not be by ballot. On a vote by ballot, each ballot shall be signed by the stockholder voting, or by his proxy, if there be such proxy, and shall state the number of shares voted.

SECTION 12. Inspectors. The Board of Directors may, in advance of any meeting of stockholders, appoint one or more inspectors to act at such meeting or any adjournment thereof. If any of the inspectors so appointed shall fail to appear or act, the chairman of the meeting shall, or if inspectors shall not have been appointed, the chairman of the meeting may, appoint one or more inspectors. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors shall deter-mine the number of shares of

capital stock of the corporation outstanding and the voting power of each, the number of shares represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the results, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the chairman of the meeting, the inspectors shall make a report in writing of any challenge, request or matter determined by them and shall execute a certificate of any fact found by them. No director or candidate for the office of director shall act as an inspector of an election of Directors. Inspectors need not be stockholders.

ARTICLE III

Board of Directors

SECTION 1. General Powers. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. The Board of Directors may exercise all such authority and powers of the corporation and do all such lawful acts and things as are not by statute or the Certificate of Incorporation directed or required to be exercised or done by the stockholders.

SECTION 2. Number. The number of Directors constituting the initial Board of Directors shall be as determined in the resolutions of the Incorporator of the Corporation electing the Initial Board of Directors. Thereafter, the number of Directors may be fixed, from time to time, by the affirmative vote of a majority of the entire Board of Directors. Any decrease in the number of Directors shall be effective at the time of the next succeeding annual meeting of stockholders unless there shall be vacancies in the Board of Directors, in which case such decrease may become effective at any time prior to the next succeeding annual meeting to the extent of the number of such vacancies.

SECTION 3. Election and Qualifications. Except as otherwise provided by the Certificate of Incorporation, the directors shall be elected by the stockholders at the annual meeting of stockholders. A director need not be a stockholder. Each director shall hold office until his successor shall have been elected and qualified, or until his death, or until he shall have resigned, or have been removed, as hereinafter provided in these By-Laws.

SECTION 4. Classes. The Board shall be divided into three classes: Class I, Class II and Class III. The classes shall be as nearly equal in number as the then total number of directors constituting the entire Board permits. If the number of directors is changed, any increase or decrease in the number of directors shall be apportioned among the three classes so as to make all classes as nearly equal in number as possible, and the Board shall decide which class shall contain an unequal number of directors. The directors shall be assigned to a class at the time of their election.

SECTION 5. Terms of Office. Class I, Class II and Class III directors shall each serve three-year terms of service, with each class staggered to expire in successive years. At each Annual Meeting of Stockholders, the successors to the class of directors whose term shall then expire shall be elected to hold office for a term expiring at the third succeeding Annual Meeting of Stockholders and each director so elected shall hold office until his successor is elected and qualified, or until his earlier resignation or removal.

SECTION 6. Place of Meetings. Meetings of the Board of Directors shall be held at such place or places, within or without the State of Delaware, as the Board of Directors may from time to time determine or as shall be specified in the notice of any such meeting.

SECTION 7. Annual Meeting. The Board of Directors shall meet for the purpose of organization, the election of officers and the transaction of other business, as soon as practicable after each Annual Meeting of Stockholders, on the same day and at the same place where such annual meeting- shall be held. Notice of such meeting need not be given. In the event such annual meeting is not so held, the annual meeting of the Board of Directors may be held at such other time or place (within or without the State of Delaware) as shall be specified in a notice thereof given as hereinafter provided in Section 10 of this Article III.

SECTION 8. Regular Meetings. Regular meetings of the Board of Directors shall be held at such time and place as the Board of Directors may fix. If any day fixed for a regular meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting which would otherwise be held on that day shall be held at the same hour on the next succeeding business day. Notice of regular meetings of the Board of Directors need not be given except as otherwise required by statute or these By-Laws.

SECTION 9. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board, if one shall have been elected, or by two or more Directors of the corporation or by the President.

SECTION 10. Notice of Meetings. Notice of each special meeting of the Board of Directors (and of each regular meeting for which notice shall be required) shall be given by the Secretary as hereinafter provided in this Section 10, in which notice shall be stated the time and place of the meeting. Except as otherwise required by these By-Laws, such notice need not state the purposes of such meeting. Notice of each such meeting shall be mailed, postage prepaid, to each director, addressed to him at his residence or usual place of business, by first class mail, at least two days before the day on which such meeting is to be held, or shall be communicated in person or by telephone, facsimile transmission or electronic transmission, at least twenty-four hours before the time at which such meeting is to be held. Notice of any such meeting need not be given to any director who shall, either before or after the meeting, submit a signed waiver of notice or who shall attend such meeting, except when he shall attend for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.

SECTION 11. Quorum and Manner of Acting. A majority of the entire Board of Directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, and, except as otherwise expressly required by statute or the Certificate of Incorporation or these By-Laws, the act of a majority of the entire Board of Directors shall be the act of the Board of Directors. In the absence of a quorum at any meeting of the Board of Directors, a majority of the Directors present thereat may

adjourn such meeting to another time and place. Notice of the time and place of any such adjourned meeting shall be given to all of the Directors unless such time and place were announced at the meeting at which the adjournment was taken, in which case such notice shall only be given to the Directors who were not present thereat. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called. The Directors shall act only as a Board and the individual Directors shall have no power as such.

SECTION 12. Organization. At each meeting of the Board of Directors, the Chairman of the Board, if one shall have been elected, or, in the absence of the Chairman of the Board or if one shall not have been elected, the President (or, in his absence, another director chosen by a majority of the Directors present) shall act as chairman of the meeting and preside thereat. The Secretary or, in his absence, any person appointed by the chairman shall act as secretary of the meeting and keep the minutes thereof.

SECTION 13. Resignations. Any director of the Corporation may resign at any time by giving written notice of his resignation to the Corporation. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt. Unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

SECTION 14. Vacancies. Any vacancy in the Board of Directors, whether arising from death, resignation, removal (with or without cause), an increase in the number of Directors or any other cause, may be filled by the vote of a majority of the Directors then in office, though less than a quorum, or by the sole remaining Director or by the stockholders at the next annual meeting thereof or at a special meeting thereof. Each director so elected shall hold office in the same class of his predecessor until his successor shall have been elected and qualified.

SECTION 15. Removal of Directors. Any Director may be removed for cause, at any time, by the holders of a majority of the voting power of the issued and outstanding capital stock of the Corporation entitled to vote at an election of Directors. For purposes of this section “cause” shall be deemed to include without limitation the termination of a Director’s employment with the Company provided that the Director was an employee of the Company at the time of his or her most recent election to the Board.

SECTION 16. Compensation. The Board of Directors shall have authority to fix the compensation, including fees and reimbursement of expenses, of Directors for services to the Corporation in any capacity.

SECTION 17. Committees. The Board of Directors may, by resolution passed by a majority of the entire Board of Directors, designate one or more committees, including an executive committee, each committee to consist of one or more of the Directors of the Corporation. The Board of Directors may designate one or more Directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In addition, in the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member.

Except to the extent restricted by statute or the Certificate of Incorporation, each such committee, to the extent provided in the resolution creating it, shall have and may exercise all the powers and authority of the Board of Directors and may authorize the seal of the Corporation to be affixed to all papers which require it. Each such committee shall serve at the pleasure of the Board of Directors and have such name as may be determined from time to time by resolution adopted by the Board of Directors. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors.

SECTION 18. Action by Consent. Unless restricted by the Certificate of Incorporation, any action required or permitted to be taken by the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board of Directors or such committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the minutes of the proceedings of the Board of Directors or such committee, as the case may be.

SECTION 19. Telephonic Meeting. Unless restricted by the Certificate of Incorporation, any one or more members of the Board of Directors or any committee thereof may participate in a meeting of the Board of Directors or such committee by a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation by such means shall constitute presence in person at a meeting.

ARTICLE IV

Officers

SECTION 1. Number and Qualifications. The officers of the Corporation shall be elected by the Board of Directors and shall include the President, one or more vice-presidents, the Secretary and the Treasurer. If the Board of Directors wishes, it may also elect as an officer of the Corporation a Chairman of the Board and may elect other officers (including one or more Assistant Treasurers and one or more Assistant Secretaries) as may be necessary or desirable for the business of the Corporation. Any two or more offices may be held by the same person, and no officer except the Chairman of the Board need be a director. Each officer shall hold office until his successor shall have been duly elected and shall have qualified, or until his death, or until he shall have resigned or have been removed, as hereinafter provided in these By-Laws.

SECTION 2. Resignations. Any officer of the Corporation may resign at any time by giving written notice of his resignation to the Corporation. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon receipt. Unless otherwise specified therein, the acceptance of any such resignation shall not be necessary to make it effective.

SECTION 3. Removal. Any officer of the Corporation may be removed, either with or without cause, at any time, by the Board of Directors at any meeting thereof.

SECTION 4. Chairman of the Board. The Chairman of the Board, if one shall have been elected, shall be a member of the Board, an officer of the Corporation and, if present, shall preside at each meeting of the Board of Directors or the stockholders. He shall advise and counsel with the President, and in his absence with other executives of the Corporation, and shall perform such other duties as may from time to time be assigned to him by the Board of Directors.

SECTION 5. The President. The President shall be the chief executive officer of the Corporation. He shall, in the absence of the Chairman of the Board or if a Chairman of the Board shall not have been elected, preside at each meeting of the Board of Directors or the stockholders. He shall perform all duties incident to the office of President and chief executive officer and such other duties as may from time to time be assigned to him by the Board of Directors.

SECTION 6. Vice-President. Each Vice-President shall perform all such duties as from time to time may be assigned to him by the Board of Directors or the President. At the request of the President or in his absence or in the event of his inability or refusal to act, the Vice-President, or if there shall be more than one, the Vice-Presidents in the order determined by the Board of Directors (or if there be no such determination, then the Vice-Presidents in the order of their election), shall perform the duties of the President, and, when so acting, shall have the powers of and be subject to the restrictions placed upon the President in respect of the performance of such duties.

SECTION 7. Treasurer. The Treasurer shall

(a) have charge and custody of, and be responsible for, all the funds and securities of the Corporation;

(b) keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation;

(c) deposit all moneys and other valuables to the credit of the Corporation in such depositories as may be designated by the Board of Directors or pursuant to its direction;

(d) receive, and give receipts for, moneys due and payable to the Corporation from any source whatsoever;

(e) disburse the funds of the Corporation and supervise the investments of its funds, taking proper vouchers therefor;

(f) render to the Board of Directors, whenever the Board of Directors may require, an account of the financial condition of the Corporation; and

(g) in general, perform all duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the Board of Directors.

SECTION 8. Secretary. The Secretary shall

(a) keep or cause to be kept in one or more books provided for the purpose, the minutes of all meetings of the Board of Directors, the committees of the Board of Directors and the stockholders;

(b) see that all notices are duly given in accordance with the provisions of these By-Laws and as required by law;

(c) be custodian of the records and the seal of the Corporation and affix and attest the seal to all certificates for shares of the Corporation (unless the seal of the Corporation on such certificates shall be a facsimile, as hereinafter provided) and affix and attest the seal to all other documents to be executed on behalf of the Corporation under its seal;

(d) see that the books, reports, statements, certificates and other documents and records required by law to be kept and filed are properly kept and filed; and

(e) in general, perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the Board of Directors.

SECTION 9. The Assistant Treasurer. The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the Treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties as from time to time may be assigned by the Board of Directors.

SECTION 10. The Assistant Secretary. The Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the Secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties as from time to time may be assigned by the Board of Directors.

SECTION 11. Officers’ Bonds or Other Security. If required by the Board of Directors, any officer of the Corporation shall give a bond or other security for the faithful performance of his duties, in such amount and with such surety as the Board of Directors may require.

SECTION 12. Compensation. The compensation of the officers of the corporation for their services as such officers shall be fixed from time to time by the Board of Directors. An officer of the Corporation shall not be prevented from receiving compensation by reason of the fact that he is also a director of the corporation.

ARTICLE V

Stock Certificates and Their Transfer

SECTION 1. Stock Certificates. Every holder of stock in the Corporation shall be entitled to have a certificate, signed by, or in the name of the Corporation by, the Chairman of the Board or the President or a Vice-President and by the Treasurer or an Assistant

Treasurer or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by him in the corporation. If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restriction of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in Section 202 of the General Corporation Law of the State of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.

SECTION 2. Facsimile Signatures. Any or all of the signatures on a certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue.

SECTION 3. Lost Certificates. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen, or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen, or destroyed certificate or certificates, or his legal representative, to give the Corporation a bond in such sum as it may direct sufficient to indemnify it against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate.

SECTION 4. Transfers of Stock. Upon surrender to the corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its records; provided, however, that the Corporation shall be entitled to recognize and enforce any lawful restriction on transfer. Whenever any transfer of stock shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of transfer if, when the certificates are presented to the Corporation for transfer, both the transferor and the transferee request the Corporation to do so.

SECTION 5. Transfer Agents and Registrars. The Board of Directors may appoint, or authorize any officer or officers to appoint, one or more transfer agents and one or more registrars.

SECTION 6. Regulations. The Board of Directors may make such additional rules and regulations, not inconsistent with these By-Laws, as it may deem expedient concerning the issue, transfer and registration of certificates for shares of stock of the Corporation.

SECTION 7. Fixing the Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

SECTION 8. Registered Stockholders. The Corporation shall be entitled to recognize the exclusive right of a person registered on its records as the owner of shares of stock to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments a person registered on its records as the owner of shares of stock, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares of stock on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.

ARTICLE VI

Indemnification of Directors and Officers

SECTION 1. General. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) against such person in such person’s capacity as a current or former director, officer, employee or agent of the Corporation, or in such person’s capacity as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise while serving in such capacity at the request of the Corporation, against expenses (including attorneys, fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding to the maximum extent permitted from time to time under the General Corporation Law of the State of Delaware.

SECTION 2. Derivative Actions. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor against such person in such person’s capacity as a director, officer, employee or agent of the Corporation, or in such person’s capacity as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise while serving in such capacity at the request of the Corporation against expenses (including attorneys, fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit to the maximum extent permitted from time to time under the General Corporation Law of the State of Delaware.

SECTION 3. Indemnification in Certain Cases. To the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 1 and 2 of this Article VI, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by him in connection therewith.

SECTION 4. Procedure. Any indemnification under Sections 1 and 2 of this Article VI (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances. Such determination shall be made by one of the following at the Corporation’s discretion: (a) by the Board of Directors by a majority vote of a quorum consisting of Directors who were not parties to such action, suit or proceeding, or (b) by independent legal counsel in a written opinion, or (c) by the stockholders. Nothing in this Article VI shall require the corporation to indemnify or advance expenses to any person seeking indemnification in connection with any action, suit or proceeding, or part thereof, initiated by or on behalf of such person unless the initiation thereof was approved by the board of directors.

SECTION 5. Advances for Expenses. Expenses incurred in defending a civil or criminal action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount if it shall be ultimately determined that he is not entitled to be indemnified by the Corporation as authorized in this Article VI. Notwithstanding the foregoing, no advance shall be made by the Corporation if a determination is reasonably and promptly made by a majority vote of those directors who are not parties to such action, suit or proceeding, or, if there are no such directors or if such directors so direct, by independent legal counsel in a written opinion, that, based upon the facts known to such directors or counsel at the time such determination is made, such person acted in bad faith and in a manner that such person did not believe to be in or not opposed to the best interests of the corporation, or, with respect to any criminal proceeding, that such person had reasonable cause to believe his or her conduct was unlawful.

SECTION 6. Rights Not-Exclusive. The indemnification and advancement of expenses provided by, or rights granted pursuant to, the other subsections of this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any law, by-law, agreement, vote of stockholders or disinterested Directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office and shall inure to the benefit of the heirs and legal representatives of such person.

SECTION 7. Insurance. The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article VI.

SECTION 8. Definition of Corporation. For the purposes of this Article VI, references to “the Corporation” include all constituent corporations absorbed in a consolidation or merger as well as the resulting or surviving corporation so that any person who is or was a director, officer, employee or agent of such a constituent corporation or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise shall stand in the same position under the provisions of this Article VI with respect to the resulting or surviving corporation as he would if he had served the resulting or surviving corporation in the same capacity.

SECTION 9. Survival of Rights. The indemnification and advancement of expenses provided by or granted pursuant to this Article VI shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

SECTION 10. Amendments to Article VI. Any repeal or modification of the foregoing provisions of this Article VI shall not adversely affect any right or protection of a director or officer of the corporation with respect to any acts or omissions of such director or officer occurring prior to such repeal or modification.

ARTICLE VII

General Provisions

SECTION 1. Dividends. Subject to the provisions of statute and the Certificate of Incorporation, dividends upon the shares of capital stock of the Corporation may be declared by the Board of Directors at any regular or special meeting. Dividends may be paid in cash, in property or in shares of stock of the Corporation, unless otherwise provided by statute or the Certificate of Incorporation.

SECTION 2. Reserves. Before payment of any dividend there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors may, from time to time, in its absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation or for such other purpose as the Board of Directors may think conducive to the interests of the Corporation. The Board of Directors may modify or abolish any such reserves in the manner in which it was created.

SECTION 3. Seal. The seal of the Corporation shall be in such form as shall be approved by the Board of Directors.

SECTION 4. Fiscal Year. The fiscal year of the Corporation shall be fixed, and once fixed, may thereafter be changed, by resolution of the Board of Directors.

SECTION 5. Checks, Notes, Drafts, Etc. All checks, notes, drafts or other orders for the payment of money of the Corporation shall be signed, endorsed or accepted in the name of the Corporation by such officer, officers, person or persons as from time to time may be designated by the Board of Directors or by an officer or officers authorized by the Board of Directors to make such designation.

SECTION 6. Execution of Contracts, Deeds, Etc. The Board of Directors may authorize any officer or officers, agent or agents, in the name and on behalf of the Corporation to enter into or execute and deliver any and all deeds, bonds, mortgages, contracts and other obligations or instruments, and such authority may be general or confined to specific instances.

SECTION 7. Voting of Stock in Other Corporations. Unless otherwise provided by resolution of the Board of Directors, the Chairman of the Board or the President, from time to time, may (or may appoint one or more attorneys or agents to) cast the votes which the Corporation may be entitled to cast as a shareholder or otherwise in any other corporation, any of whose shares or securities may be held by the Corporation, at meetings of the holders of the shares or other securities of such other corporation. In the event one or more attorneys or agents are appointed, the Chairman of the Board or the President may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent. The Chairman of the Board or the president may, or may instruct the attorneys or agents appointed to, execute or cause to be executed in the name and on behalf of the Corporation and under its seal or otherwise, such written proxies, consents, waivers or other instruments as may be necessary or proper in the circumstances.

ARTICLE VIII

Amendments

These By-Laws may be amended or repealed or new by-laws adopted (a) by action of the stockholders entitled to vote thereon at any annual or special meeting of stockholders or (b) if the Certificate of Incorporation so provides, by action of the Board of Directors at a regular or special meeting thereof. Any by-law made by the Board of Directors may be amended or repealed by action of the stockholders at any annual or special meeting of stockholders.

EX-4.2

Exhibit 4.2

GREEN MOUNTAIN COFFEE ROASTERS, INC.

33 Coffee Lane

Waterbury, Vermont 05676

Dated as of: July 18, 2008

Bank of America, N.A.,

as Administrative Agent

100 Federal Street

Boston, Massachusetts 02110

Attention: Christopher S. Allen, Senior Vice President

The Lenders Signatory Hereto

Re: Amendment No. 1 to Amended and Restated Revolving Credit Agreement

Ladies and Gentlemen:

We refer to the Amended and Restated Revolving Credit Agreement (the “Credit Agreement”), dated as of December 3, 2007, by and among Green Mountain Coffee Roasters, Inc. (the “Borrower”), Bank of America, N.A., as administrative agent (the “Agent”) and lender, the other lenders party thereto (collectively, the “Lenders”), and Banc of America Securities, LLC, as Sole Lead Arranger and Sole Book Manager. All of the words and expressions used in this letter of agreement (this “Amendment No. 1”) which are not defined herein, but which are defined in the Credit Agreement, shall have the same meanings herein as specified therefore in the Credit Agreement.

We have requested you to make certain amendments to the Credit Agreement. You have advised us that you are prepared and would be pleased to make the amendments so requested by us on the condition that we join with you in this letter of agreement.

Accordingly, in consideration of these premises, the promises, mutual covenants and agreements contained in this Amendment No. 1, and fully intending to be legally bound by this Amendment No. 1, we hereby agree with you as follows:

ARTICLE I

AMENDMENTS TO CREDIT AGREEMENT

Effective as of July 18, 2008 (herein the “Modification Date”), the Credit Agreement is amended as follows:

(a) Loan Documents. Each reference in any Loan Document to the Credit Agreement shall be deemed to mean and include this Amendment No. 1. This Amendment No. 1 shall be deemed a Loan Document for all purposes under the Credit Agreement.

(b) Obligations. The term “Obligations” shall, wherever used in the Credit Agreement or any of the other Loan Documents, be deemed to also mean and include all obligations of the Borrower to the Agent and the Lenders under or in respect of this Amendment No. 1.

(c) Capital Expenditures. Section 6.12(d) of the Agreement is amended to read in its entirety as follows:

“(d) Capital Expenditures. The Borrower Affiliated Group shall not spend or incur obligations (including the total amount of any capital leases) to acquire fixed assets, in the aggregate, in any fiscal year identified below, in excess of the amount specified below opposite such fiscal year, plus up to $15,000,000 of the unused amount available for Capital Expenditures under this Section 6.12(d) for the preceding fiscal year (determined on a first-in, first-out basis so that the unused amount carried forward is deemed to be utilized first):

Period	Amount
Fiscal Year 2008 and each fiscal year thereafter	$	60,000,000”

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ARTICLE II

CONDITIONS PRECEDENT

The obligation of the Agent and the Lenders to make the foregoing amendment to the Credit Agreement is subject to the fulfillment of the following conditions precedent:

(a) The Borrower shall have executed and delivered (or caused to be delivered) to the Agent originals of this Amendment No. 1, which shall be in form and substance satisfactory to the Agent;

(b) Each Lender who is a signatory to this Amendment shall have received an amendment fee from the Borrower in an amount equal to 5 basis points multiplied by such Lender’s Commitment amount; and

(c) The Agent and the Required Lenders shall have executed this Amendment No. 1.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

The Borrower hereby represents and warrants to the Agent and the Lenders as follows:

(a) Representations in Loan Documents. Each of the representations and warranties made by the Loan Parties to you in any of the Loan Documents, as amended by this Amendment No. 1, was true and correct when made and is true and correct on and as of the Modification Date (except to the extent that such representations and warranties relate expressly to an earlier date) with the same full force and effect as if each of such representations and warranties had been made by the Loan Parties on the date hereof and in this Amendment No. 1.

(b) Defaults. No Default or Event of Default exists on the date hereof, both before and after giving effect hereto.

(c) Binding Effect of Documents. This Amendment No. 1 has been duly executed and delivered to you by the Borrower and is in full force and effect as of the effective date hereof, and the agreements and obligations of the Borrower contained herein and therein constitute the legal, valid and binding obligations of the Borrower, enforceable against it in accordance with their respective terms.

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ARTICLE IV

PROVISIONS OF GENERAL APPLICATION

(a) No Other Changes. Except as otherwise expressly provided by this Amendment No. 1, all of the terms, conditions and provisions of the Credit Agreement and the other Loan Documents remain unaltered. The Credit Agreement and this Amendment No. 1 shall be read and construed as one agreement. The making of the amendments in this Amendment No. 1 does not imply any obligation or agreement by the Agent to make any other amendment, waiver, modification or consent as to any matter on any subsequent occasion.

(b) Governing Law. This Amendment No. 1 is intended to take effect as a sealed instrument and shall be deemed to be a contract under the laws of the Commonwealth of Massachusetts. This Amendment No. 1 and the rights and obligations of each of the parties hereto are contracts under the laws of the Commonwealth of Massachusetts and shall for all purposes be construed in accordance with and governed by the laws of such Commonwealth (without regard to conflicts of law rules).

(c) Binding Effect; Assignment. This Amendment No. 1 shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors and assigns.

(d) Counterparts. This Amendment No. 1 may be executed in any number of counterparts, but all such counterparts shall together constitute but one and the same agreement. In making proof of this Amendment No. 1, it shall not be necessary to produce or account for more than one counterpart hereof signed by each of the parties hereto.

(e) Conflict with Other Agreements. If any of the terms of this Amendment No. 1 shall conflict in any respect with any of the terms of any of the Loan Documents, the terms of this Amendment No. 1 shall be controlling.

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If you are in agreement with the foregoing, please sign below and deliver a signed counterpart hereof to the undersigned, whereupon this Amendment No. 1, as so accepted by you, shall become a binding agreement among you and the undersigned.

Very truly yours,
GREEN MOUNTAIN COFFEE ROASTERS, INC.
By:	/s/ Frances G. Rathke
Name:	Frances G. Rathke
Title:	Chief Financial Officer

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ACCEPTED AND AGREED:
ADMINISTRATIVE AGENT:
BANK OF AMERICA, N.A.
By:	/s/ Christopher S. Allen
Name:	Christopher S. Allen
Title:	Senior Vice President
THE LENDERS:
BANK OF AMERICA, N.A.
By:	/s/ Christopher S. Allen
Name:	Christopher S. Allen
Title:	Senior Vice President

[Signatures continued on next page.]

6

SOVEREIGN BANK
By:	/s/ Angela Pecjo
Name:	Angela Pecjo
Title:	Vice President

[Signatures continued on next page.]

7

TD BANKNORTH, N.A.
By:	/s/ Douglas S. Graham
Name:	Douglas S. Graham
Title:	Senior Vice President

[Signatures continued on next page.]

8

KEYBANK NATIONAL ASSOCIATION
By:	/s/ Martin J. Costello
Name:	Martin J. Costello
Title:	Vice President

[Signatures continued on next page.]

9

BMO CAPITAL MARKETS FINANCING, INC.
By:	/s/ Tara Cuprisin
Name:	Tara Cuprisin
Title:	Vice President

[Signatures continued on next page.]

10

COOPERATIEVE CENTRALE RAIFFEISEN- BOERENLEENBANK B.A. “RABOBANK NEDERLAND”, NEW YORK BRANCH
By:	/s/ Claire Laury
Name:	Claire Laury
Title:	Executive Director
By:	/s/ Rebecca Morrow
Name:	Rebecca Morrow
Title:	Executive Director

[Signatures continued on next page.]

11

BROWN BROTHERS HARRIMAN & CO.
By:	/s/ Amy Lyons
Name:	Amy Lyons
Title:	Senior Vice President

[Signatures continued on next page.]

12

HSBC BANK USA, NATIONAL ASSOCIATION
By:	/s/ Timothy Rudge
Name:	Timothy Rudge
Title:	Vice President

[Signatures continued on next page.]

13

SUNTRUST BANK
By:	/s/ Gabe Bonfield
Name:	Gabe Bonfield
Title:	Vice President

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EX-10.9

Exhibit 10.9

GREEN MOUNTAIN COFFEE ROASTERS, INC.

2002 DEFERRED COMPENSATION PLAN

AS AMENDED ON DECEMBER 13, 2007

1. IN GENERAL. The plan set forth herein is an amendment and restatement, effective as to all Accounts remaining unpaid as of December 13, 2007, of the 2002 Deferred Compensation Plan previously established by Green Mountain Coffee, Inc., now Green Mountain Coffee Roasters, Inc. (including any successor, the “Company”).

2. DEFINED TERMS. As used in the Plan, the following terms have the meanings associated with them below:

“Account”: a memorandum account, including any subaccounts, maintained by the Administrator to reflect the Employer’s unfunded deferred compensation obligation to a Participant hereunder.

“Administrator”: the Board or, if so determined by the Board, a committee of the Board. The Board or committee of the Board, as the case may be, may delegate any of its duties and responsibilities under the Plan to such persons (including employees) as it determines. In the case of any such delegation, the term “Administrator” shall include, to the extent of such delegation, the person or persons to whom such duties and responsibilities were delegated.

“Board”: the Board of Directors of the Company.

“Change in Control”: The first to occur of any of the following events:

(a) a change in the control of the Company of a nature that would be required to be reported in accordance with Regulation 14A promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”), whether or not the Company is then subject to such reporting requirement;

(b) a public announcement (which, for purposes hereof, shall include, without limitation, a report filed pursuant to section 13(d) of the Exchange Act) that any individual, corporation, partnership, association, trust or other entity becomes the beneficial owner (as defined in Rule 13(d)(3) promulgated under the Exchange Act), directly or indirectly, of securities of the Company representing 15% or more of the voting power of the Company then outstanding;

(c) the individuals who, as of December 12, 2002, are members of the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board (provided, however, that if the election or nomination for election by the Company’s shareholders of any new director was approved by a vote of at least a majority of the Incumbent Board, such new director shall be considered to be a member of the Incumbent Board);

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(d) the approval of the shareholders of the Company of (A) any consolidation, merger or statutory share exchange of the Company with any person in which the surviving entity would not have as its directors at least 60% of the Incumbent Board and as a result of which those persons who were shareholders of the Company immediately prior to such transaction would not hold, immediately after such transaction, at least 60% of the voting power of the Company then outstanding or the combined voting power of the surviving entity’s then outstanding voting securities; (B) any sale, lease, exchange or other transfer in one transaction or series of related transactions of substantially all of the assets of the Company; or (C) the adoption of any plan or proposal for the complete or partial liquidation or dissolution of the Company; or

(e) a determination by a majority of the members of the Incumbent Board, in their sole and absolute discretion, that there has been a Change in Control.

“Code”: the federal Internal Revenue Code of 1986, as amended.

“Common Stock”: the common stock of Green Mountain Coffee Roasters, Inc.

“Earliest Post-Separation Payment Date”: whichever of the following is relevant in the circumstances: (i) in the case of a Participant who is not a Specified Employee at the date he or she Separates from Service of the Employer, the date of such Separation from Service, and (ii) in the case of a Participant who is a Specified Employee at the date he or she Separates from Service, the date that is six (6) months following the date of such separation.

“Earnings Measure”: a measure of notional investment performance, including without limitation a Stock Unit, that produces either a “rate of return on a predetermined actual investment” or a “reasonable rate of interest” as those terms are defined in the Treasury Regulations at Section 31.3121(v)(2)-1(d)(2).

“Eligible Person”: an individual who is (i) employed by an Employer, determined by the Administrator to qualify as a “highly compensated or management” employee for purposes of Sections 201(2), 301(a)(3) and 401(a)(1) OF ERISA, and designated by the Administrator as eligible to participate in the Plan, provided that such designation has not been revoked by the Administrator, or (ii) a member of the Board. A change in an individual’s eligibility status shall not affect any deferral election under Section 3 for which the applicable deferral election deadline had passed prior to such change in status.

“Eligible Pay”: except as otherwise determined by the Administrator, (i) in the case of an Eligible Person who is an employee (including an officer) of an Employer, any or all of such Eligible Person’s salary, commissions, and bonuses, and (ii) in the case of an Eligible Person who is a member of the Board and not described in clause (i), any or all of such Eligible Person’s director fees. The amount of an individual’s Eligible Pay for purposes of applying any percentage deferral election shall be determined prior to deferrals under the Plan or under any other program of the Employer. For the avoidance of doubt, any change by the Administrator in amounts included or excluded from an individual’s Eligible Pay shall be effective only as to deferrals for which the applicable deferral election deadline had not passed prior to such change.

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“Employer”: the Company and its Subsidiaries, or any of them.

“ERISA”: the Employee Retirement Income Security Act of 1974, as amended.

“Participant”: an Eligible Person who participates in the Plan.

“Plan”: the amended and restated Green Mountain Coffee Roasters, Inc. 2002 Deferred Compensation Plan as set forth herein, as the same may from time to time be amended and in effect.

“Stock Unit”: an Earnings Measure consisting of one notional share of Common Stock.

“Section 409A”: Section 409A of the Code, including the Treasury Regulations thereunder and other applicable Internal Revenue Service guidance.

“Separation from Service” (and correlative terms): an individual’s separation from service from the Employer, determined in accordance with Section 1.409A-1(h) of the Treasury Regulations. The Administrator may, but need not, elect in writing, subject to the applicable limitations under Section 409A, any of the special elective rules prescribed in Section 1.409A-1(h) of the Treasury Regulations for purposes of determining whether a “separation from service” has occurred. Any such written election shall be deemed part of the Plan.

“Specified Employee”: an individual who is determined by the Administrator to be or to have been, as of the relevant time, a “specified employee” (as that term is defined at Section 1.409A-1(i) of the Treasury Regulations) of the Employer. The Administrator may, but need not, elect in writing, subject to the applicable limitations under Section 409A, any of the special elective rules prescribed in Section 1.409A-1(i) of the Treasury Regulations for purposes of determining “specified employee” status. Any such written election shall be deemed part of the Plan.

“Subsidiary”: any corporation or other trade or business that together with the Company would be treated as a single “employer” for purposes of Section 1.409A-1(h)(3) of the Treasury Regulations (applied without regard to any permissible special elections thereunder).

“Treasury Regulations”: the Department of the Treasury regulations at 26 CFR (pertaining to the Code).

3. DEFERRAL ELECTION.

3.1. In General. Subject to the other requirements of this Section 3, each Eligible Person may elect to defer hereunder a specified portion or percentage of his or her Eligible Pay, if any, for any calendar year. Each such deferral shall be made by the Participant’s delivery to the Administrator of a deferral election on or before the date specified by the Administrator, which date shall in all events (except as provided in Section 3.2 below) be, or fall prior to:

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(a) in the case of any bonus that qualifies as “performance-based compensation” within the meaning of Section 1.409A-1(e) of the Treasury Regulations, the date that is six (6) months before the end of the performance period, but only if the Eligible Person has been in continuous employment with the Employer since the later of the beginning of the performance period or the date the performance criteria are established and only if, on the date of the deferral election, the compensation has not become readily ascertainable (as determined in accordance with Section 1.409A-2(a)(8) of the Treasury Regulations).

(b) in every other case, the last day of the calendar year preceding the calendar year in which the services to which the compensation relates are to be performed.

Each election made under this Section 3.1 shall become irrevocable in accordance with such rules as the Administrator may establish but not later than the election deadline specified in (a) or (b) above, as applicable; provided, that if the Participant is paid under Section 5.5 on account of an unforeseeable emergency, or makes a hardship withdrawal from the Employer’s 401(k) plan pursuant to Section 1.401(k)-1(d)(3) of the Treasury Regulations, any deferral election then in effect under this Section 3.1 shall forthwith be canceled.

3.2. First Year Of Participation.

(a) Notwithstanding Section 3.1 above, an individual who first becomes eligible to participate in the Plan during the course of a calendar year may elect to defer a specified portion or percentage of his or her Eligible Pay in respect of services to be performed for the remainder of the calendar year or portion thereof by delivering to the Administrator an irrevocable deferral election within thirty (30) days of first becoming eligible. In the case of performance pay for a specified performance period that had begun but had not ended prior to a mid-year election, unless Section 3.1(a) applies the election may apply to no more than the portion of such pay that equals the total amount of such pay multiplied by a fraction, the numerator of which is the number of days remaining in the performance period after the election and the denominator of which is the total number of days in the performance period.

(b) An individual who already participates or is eligible to participate in (including, except to the extent otherwise provided in Section 1.409A-2(a)(7) of the Treasury Regulations, an individual who has any entitlement, vested or unvested, to payments under) any other nonqualified deferred compensation plan that would be required to be aggregated with the Plan for purposes of Section 1.409A-1(c)(2) of the Treasury Regulation shall not be treated as eligible for the mid-year election rules of this Section 3.2 with respect to the Plan, even if he or she had never previously been eligible to participate in the Plan itself.

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3.3. Limits. Except as otherwise determined by the Administrator and subject to such minimum deferral amounts as the Administrator may prescribe, an Eligible Person may elect to defer hereunder (i) up to 50% or less of his or her base salary or commissions (in the case of an employee) or up to 100% or less of his or her fees (in the case of a non-employee director) for any calendar year, plus (ii) up to 100% of any cash incentive pay for the calendar year. Any change by the Administrator in the limits applicable to deferrals under the Plan shall take effect only as to deferrals for which the election deadline has not passed.

3.4. Form of Election. Each deferral election shall be made in writing on a form prescribed by or acceptable to the Administrator. Unless the Administrator expressly provides, prior to the applicable election deadline, that a deferral election already in effect will automatically and irrevocably carry over to future deferral periods unless modified or canceled prior the applicable election deadline, an Eligible Person must make a new deferral election for each applicable period. To the extent consistent with Section 409A, the Administrator may condition the effectiveness of any election upon the delivery by the Participant of such other form or forms as the Administrator may prescribe.

4. ACCOUNTS; CREDITS. For each Participant, the Administrator shall maintain an Account, which at all times shall be fully vested, reflecting deferrals and notional earnings as hereinafter provided.

4.1. Deferral Credits. Each amount deferred by a Participant under Section 3 above shall be credited to the Participant’s Account as of the date it would have been paid absent the deferral.

4.2. Notional Earnings. Not less frequently than annually, the Administrator shall adjust (up or down) each Participant’s Account to reflect notional earnings. Notional earnings shall be based on such Earnings Measure or Measures as the Administrator shall specify. The Administrator may, but need not, permit Participants to (i) select the Earnings Measures that will apply to their Accounts from among those specified by the Administrator, and (ii) change such Measures prospectively at any time. The Administrator shall have the absolute discretion at any time to alter or amend the Earnings Measures used in valuing and adjusting Accounts; provided, that the Administrator may not, without the written consent of the affected Participant, alter any Earnings Measure retroactively to the extent that the effect of such alteration would be to reduce the balance of the Participant’s Account below what it was immediately prior to such alteration. Nothing herein shall be construed as obligating the Administrator or any Employer to set aside assets or establish a trust or other fund for purposes of the Plan.

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4.3. Stock Units.

(a) Notwithstanding Sections 4.1 and 4.2 above but subject to Section 4.3(c) below, an Eligible Person may irrevocably elect at the time of deferral to have a portion or all of the amount so deferred credited as Stock Units on the last day of the month in which the Eligible Pay would otherwise have been paid, in a number equal to the number of shares of Common Stock (one Stock Unit for each share) that could have been purchased with the amount so deferred had such amount been applied to such purchase using the last sale price for the Common Stock reported on the Nasdaq National Market (or, if the Common Stock is then principally traded on another exchange, the closing price on such exchange). Any portion of a Participant’s Account denominated in Stock Units pursuant to this Section 4.3(a): (i) shall be increased, in the event any cash dividend is declared with respect to the Common Stock while such portion of the Account remains unpaid, by additional Stock Units equal in number to the number of shares of Common Stock in which such dividend (had it been payable with respect to Stock Units on the same basis as with respect to shares of Common Stock) could have been reinvested on the dividend payment date, using the last sale price for the Common Stock reported on the Nasdaq National Market (or, if the Common Stock is then principally traded on another exchange, the closing price on such exchange) for the payment date, and (ii) shall be payable only in shares of Common Stock, with one share of Common Stock payable for each Stock Unit; provided, that in the event of a Change in Control any portion of a Participant’s Account then denominated in Stock Units shall (A) as of the date of the Change in Control, be notionally re-invested (assuming a per-share value equal to the per-share value of the Common Stock immediately prior to the Change in Control) in one or more other Earnings Measures specified by, or elected in accordance with rules prescribed by, the Administrator, and (B) when payable thereafter in accordance with the provisions of Section 5 shall be payable in cash.

(b) In the event of any change in the outstanding shares of the Company’s Common Stock by reason of any stock dividend or split, recapitalization, merger, consolidation, spin-off, reorganization, combination or exchange of shares or other similar corporate change, the Administrator shall appropriately adjust the number of Stock Units, if any, allocated to a Participant’s Account to reflect such event, any such adjustment to be conclusive and binding on all parties.

(c) Subject to adjustment pursuant to Section 4.3(b) above, a maximum of three hundred thousand (300,000) shares of Common Stock are available for delivery under the Plan. If the Administrator determines that a deferral into Stock Units pursuant to Section 4.3(a) above could reasonably be expected to result in an issuance of shares of Common Stock in excess of such limit (as the same may from time to time be increased by Plan amendment, subject to shareholder approval to the extent required), the Administrator may reallocate any such deferrals to other Earnings Measures and/or require that a portion or all of affected Participants’ Accounts be distributed in cash.

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4.4 Certain Taxes. To the extent any amount deferred or credited hereunder to the Account of a Participant is treated as “wages” for FICA/Medicare tax purposes in the year of deferral rather than when distributed, as determined by the Administrator, then the Administrator may (i) require that the Participant timely pay such taxes in cash by separate check to the Employer, or (ii) cause a portion of the Participant’s Account to be distributed equal to the currently owed FICA/Medicare taxes and any income-tax withholding relating to such distribution.

5. PAYMENT OF DEFERRED AMOUNTS. The Participant’s Employer shall make distributions of Account balances as provided in this Section. Except as provided at Section 4.3(a) above, all distributions shall be in cash.

5.1. Time of Distribution. At the time of a Participant’s deferral election under Section 3 above and subject to the remaining provisions of this Section 5, the Participant may elect to receive all or any portion of the amount then being deferred, adjusted for notional earnings as described at Section 4 above, in a single lump sum at or within thirty (30) days following, or in installments commencing at or within thirty (30) days following, a fixed date specified in such election (a “fixed-term deferral”); provided, that if the Participant Separates from Service prior to the date so specified, any amounts subject to the “fixed-term deferral” then remaining to the Participant’s Account shall be distributed in a single lump sum on the Earliest Post-Separation Payment Date following the Participant’s Separation from Service; and further provided, that if the Participant makes no fixed-term designation at the time of his or her deferral election under Section 3 above, the amount so deferred, adjusted for notional earnings as described at Section 4 above, shall be paid in a single lump sum on the Earliest Post-Separation Payment Date following the Participant’s Separation from Service.

5.2. Subsequent Deferrals. At any time prior to the date which precedes by twelve (12) months the date on which a distribution would otherwise commence under Section 5.1 above, the Participant who has elected a fixed-term deferral may irrevocably elect to postpone by a period of not fewer than five (5) years the fixed date (the “new scheduled payment date”) on which payment is to be made or to commence. No such additional deferral election shall take effect until twelve (12) months have elapsed. Any election under this Section 5.2 to postpone a fixed payment date shall not affect the provisions of Section 5.1 relating to earlier payment following a Separation from Service or the provisions of Section 5.4 relating to earlier payment upon death.

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5.3. Installments. All installment payments shall be paid in annual installments over a period of from 1 to 15 years, as irrevocably elected by the Participant at the time of his or her deferral election. The amount of each installment shall be determined by dividing the Account (or the portion of the Account to which the installment election relates) by the number of installments remaining to be paid. For purposes of Section 1.409A-2(b)(2)(iii) of the Treasury Regulations, a Participant’s entitlement to a series of installments shall be treated as an entitlement to a single payment, and any subsequent deferrals of installment payments shall be governed by Section 5.2 of this Plan.

5.4. Payments Upon Death; Designation of Beneficiary(ies). If a Participant should die before the complete distribution of his or her Account, the balance of the Account shall be paid as soon as practicable following death (but in all events by the later of the close of the calendar year in which death occurs or, if later, by the fifteenth day of the third month after death occurs) in a single lump sum to the Participant’s beneficiary or beneficiaries designated as hereinafter provided. Each Participant shall designate in writing, on a form acceptable to the Administrator and subject to such conditions as the Administrator shall prescribe (including, in the Administrator’s discretion, spousal consent in the case of married Participants), a beneficiary or beneficiaries to receive any amounts remaining to be paid hereunder at the Participant’s death; but if no such beneficiary designation is in effect at the time of the Participant’s death, or if the Participant’s beneficiary(ies) do(es) not survive the Participant, the Administrator shall cause any such remaining benefits to be paid to the executor or administrator of the Participant’s estate.

5.5. Unforeseeable Emergency. If a Participant suffers an unforeseeable emergency (as defined in Section 1.409A-3(i)(3) of the Treasury Regulations) prior to the payment in full of his or her Account, the Participant may apply in writing for an extraordinary distribution under this Section 5.5. If the Administrator in its discretion determines that an unforeseeable emergency has occurred, the Participant’s Employer will pay the Participant an amount equal to the lesser of the following amounts: (i) the then balance of the Participant’s Account; or (ii) the amount determined by the Administrator to be necessary to meet the emergency (including applicable taxes).

5.6. Taxes. All distributions under the Plan shall be subject to reduction for applicable tax withholdings.

6. ASSIGNMENT. Each Employer’s obligations under the Plan shall be binding upon its successors and assigns. The rights of Participants and beneficiaries under the Plan are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors of such Participants and beneficiaries. Any attempt by any person other than Participants or their beneficiaries to bring a claim under the Plan shall be null and void.

7. PLAN TO BE UNFUNDED, ETC. The Plan is intended to be a “pension plan” (within the meaning of Section 3(2) of ERISA) that is unfunded for ERISA and tax purposes and that qualifies for the exemptions described in ERISA Sections 201(2), 301(a)(3) and 401(a)(1). The Administrator shall be the “plan administrator” of the Plan and shall have discretion to construe its terms and determine each Eligible Person’s or Participant’s eligibility for deferrals or distributions hereunder. The Administrator shall establish, and may from time to time modify, procedures under Section 503 of ERISA for the administration of claims and appeals from any denial of a claim under the Plan.

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Nothing in this Section or in Section 4.2 shall be construed as prohibiting the Employer from establishing and maintaining a “rabbi trust” or similar trust or account in connection with the Plan, so long as the maintenance and funding of such a trust or account does not jeopardize the unfunded status of the Plan under ERISA or effective tax deferral under the Code.

8. NO CONTRACT OF EMPLOYMENT. By participating in the Plan, each Participant expressly acknowledges and agrees that (i) nothing in the Plan or in its operation, including deferrals hereunder, limits the right of the Company or any other Employer to terminate the employment of the Participant at any time, with or without cause, and that (ii) neither the Participant, nor his or her beneficiaries, will claim lost compensation or tax benefits associated with discontinuance of participation in the Plan as damages or as a measure of damages in connection with any termination of employment.

9. AMENDMENT AND TERMINATION. The Administrator may terminate the Plan at any time and may amend the Plan at any time and from time to time, with or without retroactive effect, including without limitation amendments that change the form or timing of distributions; provided, that no such action shall, without the consent of the affected Participant, reduce the balance of any Participant’s Account below what it was immediately prior to the taking of such action. Upon termination of the Plan in general or as to any Participant or group of Participants (including exclusion of any Participant as described in the preceding sentence), payments hereunder shall be accelerated only to the extent permitted by Section 409A.

10. ADMINISTRATION OF THE PLAN. The Administrator shall have full power to interpret and administer the Plan and determine the eligibility of any person for benefits hereunder and the amount of any such benefit, in its discretion. Without limiting the foregoing, the Administrator shall have full discretionary power and authority, not inconsistent with the express provisions of the Plan, to select those individuals who may participate in the Plan; to determine their remuneration eligible for deferral under the Plan; to determine their eligibility to commence receipt of benefits (including, without limitation, any determination as to the proper treatment of leaves of absence and other periods when an individual is not actively rendering service to the Employer); to adopt, alter, and repeal such rules, guidelines and procedures for administration of the Plan and for its own acts and proceedings as it shall deem advisable; to prescribe the form of any election under the Plan; and otherwise to supervise the administration of the Plan.

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11. MISCELLANEOUS

11.1 Waiver of Jury Trial. By electing to participate in the Plan, each Participant (i) waives any right to a trial by jury in any action, proceeding or counterclaim concerning any rights under the Plan, or under any amendment, waiver, consent, instrument, document or other agreement delivered or which in the future may be delivered in connection therewith, and agrees that any such action, proceedings or counterclaim shall be tried before a court and not before a jury, and (ii) certifies that no officer, representative, or attorney of the Company has represented, expressly or otherwise, that the Company would not, in the event of any action, proceeding or counterclaim, seek to enforce the foregoing waivers.

11.2 Limitation of Liability. Notwithstanding anything to the contrary in the Plan, neither the Company, nor any Subsidiary, nor the Administrator, nor any person acting on behalf of the Company, any Subsidiary, or the Administrator, shall be liable to any Participant or to the estate or beneficiary of any Participant by reason of any acceleration of income, or any additional tax, asserted by reason of the failure of an Award to satisfy the requirements of Section 409A; provided, that nothing in this Section 11.2 shall limit the ability of the Administrator or the Company to provide by separate express written agreement with a Participant for a gross-up payment or other payment in connection with any such tax or additional tax.

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EX-10.11

Exhibit 10.11

Green Mountain Coffee Roasters, Inc.

December 7, 2006

Frances G. Rathke

1629 Shaw Mansion Road

Waterbury Center, VT 05677

Re: Deferred Compensation Agreement

Dear Fran:

Reference is made to the stock option award dated October 31, 2003 (the “Stock Option”) under the 2000 Stock Option Plan (the “Plan”) of Green Mountain Coffee, Inc. (the “Company”). We have determined that the exercise price of the Stock Option is lower on a per-share basis than the per-share fair market value of the common stock (the “Stock”) of the Company on the date the Stock Option was granted. Because the Stock Option was not fully vested and exercisable prior to January 1, 2005, under applicable interim guidance issued by the Internal Revenue Service (Notice 2005-1 and later Proposed Regulations issued under Section 409A) (the “Interim Guidance”) it will be deemed to constitute a “nonqualified deferred compensation” plan or arrangement, or part of such a plan or arrangement, subject to the provisions of Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”), unless amended as hereinafter provided.

Under the Interim Guidance, if the Stock Option is amended by December 31, 2006 to increase the exercise price so that the new exercise price equals or exceeds the fair market value of the Stock on the date the Stock Option was granted, the Stock Option may qualify for an exemption from the “nonqualified deferred compensation” rules of Section 409A. Because the Stock Option, if fully subject to Section 409A, could result in adverse tax consequences to you, and because we have agreed to establish a deferral account on the terms described below to mitigate the effects of any increase in the exercise price of the Stock Option, you and the Company hereby agree as follows:

1. Amendment of Stock Option. Effective as of the date of grant of the Stock Option, the exercise price of the Stock Option is hereby amended to be $21.34 per share (the “New Exercise Price”) instead of $17.33 per share (the “Original Exercise Price”). Except as modified by this letter agreement, the Stock Option remains in effect in accordance with its terms.

2. Deferral Account. The Company hereby agrees to establish an account on the books of the Company (the “Account”), effective as of the date of this letter agreement, and to pay you the balance of the Account, less applicable withholdings, as hereinafter provided. The Company’s obligations under this paragraph 2 shall at all times be unfunded and unsecured, and your rights with respect to the Company under this paragraph 2 shall be those of a general unsecured creditor of the Company. Neither you nor your estate or other beneficiary as described at (f) below, nor any other person, may pledge, hypothecate, sell, exchange, dispose of or otherwise transfer your rights (or those of your estate or other beneficiary) under this paragraph 2 to any person, except as expressly provided herein. Any attempt to do so will be null and void.

(a) Initial Credit to the Account; Certain Adjustments. Effective as of the date of this letter agreement, the Company shall credit to the Account the amount of $100,250, which is the amount obtained by multiplying the number of shares of Stock subject to the Stock Option on the date of this letter agreement by the positive excess of the New Exercise Price over the Original Exercise Price. The balance of the Account shall from time to time be adjusted to reflect hypothetical interest at the rate of five percent (5%).

(b) Vesting of Account. You will be vested in your rights to payment of the Account at the same time or times, and to the same extent, as you are vested in your rights under the Stock Option except for modifying the last year’s vesting from October 31, 2007 to September 29, 2007 to coincide with the end of the Company’s fiscal year. If at any time you forfeit any portion or all of the Stock Option, or if the Stock Option or any portion thereof terminates or expires without being exercised, in each case prior to payment of your Account under (d) below, you will simultaneously therewith forfeit the corresponding percentage of the Account.

(c) Adjustment for Decline in Stock Value. If at the time of payment under (d) below the fair market value of one share of Stock (the “Payment-Date Fair Market Value”) is less than the New Exercise Price, the balance of the Account shall be adjusted so that it equals the positive amount, if any, that would have been credited to the Account as of the date of payment had the Payment-Date Fair Market Value been substituted for the New Exercise Price under (a) above. In applying the adjustment provisions of this (c), appropriate adjustment shall be made for any stock splits (including reverse stock splits), stock dividends and similar changes in capitalization occurring between the date of grant of the Stock Option and the payment date under (d) below.

(d) Payment of Account. Your Account, to the extent then vested, will be paid in full on the earlier of (i) September 28, 2007 or (ii) upon a change in control of the Company as defined in the Executive Employment Agreement dated October 31, 2003 between you and Green Mountain Coffee Roasters, Inc., but in the case of any payment under (ii) only if such payment would satisfy the requirements of subsection (a)(2)(A)(v) of Section 409A. For the avoidance of doubt, any portion of the Account that cannot be paid under clause (ii), consistent with the foregoing, upon a change in control of the Company as so defined shall be paid under clause (i). The amount of the payment shall be the balance of the Account at time of payment, reduced for any earlier forfeitures and adjustments under (b) or (c) above, less applicable income tax and other required withholdings.

(e) Other Tax Matters. If and to the extent the Company determines that the vesting of any portion of the Account has resulted or will result in currently taxable “wages” for FICA tax purposes, it may require you to pay, and you hereby agree to pay promptly, to the Company the full amount of the FICA taxed owed by you in connection with such vesting, as determined by the Company.

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(f) Beneficiary. Your remaining rights, if any, to payment of the Account shall pass at your death to the person or persons to whom the Stock Option passes at your death, to be allocated among such persons (if more than one) in the same manner as the Stock Option.

(g) Form of Payment. All payments under this paragraph 2 shall be made by the Company in cash.

3. Compliance with Section 409A. This letter agreement is intended to comply with Section 409A, including the transition relief thereunder and in the interim guidance, and shall be construed accordingly.

4. Binding Effect. This letter agreement is binding on the Company and its successors and assigns and on you and your estate and heirs.

5. Amendment. This letter agreement may be amended or terminated only by a writing signed by both parties hereto.

6. Governing Law. This letter agreement shall be subject to and construed in accordance with the laws of the State of Vermont, without regard to the conflict of laws provisions thereof.

If you agree with the foregoing, please so indicate by signing the accompanying copy of this letter in the space indicated below and returning the fully executed copy to Kathryn S. Brooks, whereupon this letter agreement shall become binding upon both parties as of the date of this letter agreement.

Green Mountain Coffee Roasters, Inc.

By: /s/ Frances Rathke

The undersigned hereby acknowledges receipt of

this letter agreement and agrees with its terms.

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EX-10.26

Exhibit 10.26

Execution Version

ASSET PURCHASE AGREEMENT

By

and

Among

GREEN MOUNTAIN COFFEE ROASTERS, INC.

(Buyer)

and

TULLY’S COFFEE CORPORATION

(Seller)

TULLY’S BELLACCINO, LLC

Dated as of September 15, 2008

TABLE OF CONTENTS

1.	DEFINITIONS; CERTAIN RULES OF CONSTRUCTION		1
2.	ACQUISITION OF ASSETS BY BUYER		10
	2.1.	Purchase and Sale of Assets	10
	2.2.	Excluded Assets	12
	2.3.	Liabilities	12
	2.4.	Purchase Price	14
	2.5.	Allocation of Purchase Price	14
	2.6.	The Closing	14
	2.7.	Deliveries by Seller and Buyer	15
	2.8.	Adjustment to Purchase Price	16
3.	REPRESENTATIONS AND WARRANTIES OF THE SELLER		18
	3.1.	Organization and Qualification of the Seller	18
	3.2.	Authorization of Transaction	18
	3.3.	Governmental Authorization	18
	3.4.	Noncontravention	18
	3.5.	Brokers’ Fees	19
	3.6.	Purchased Assets	19
	3.7.	Legal and Other Compliance; Permits	19
	3.8.	Consents	20
	3.9.	Property; Liens; Completeness of Acquired Assets	20
	3.10.	Litigation	20
	3.11.	Intellectual Property	21
	3.12.	Environmental Matters	22
	3.13.	Affiliated Transactions	23
	3.14.	Absence of Certain Developments	23
	3.15.	Contracts	25
	3.16.	Employment	25
	3.17.	Certain Financial Information	27
	3.18.	Undisclosed Liabilities	28

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	3.19.	Taxes	29
	3.20.	Notes and Accounts Receivable	29
	3.21.	Insurance	29
	3.22.	Suppliers	30
	3.23.	Subsidiaries	30
	3.24.	Information To Be Supplied	30
	3.25.	Voting Requirements; Approval; Board Approval	30
	3.26.	Product Warranty	30
	3.27.	Powers of Attorney	30
	3.28.	No Illegal Payments	30
	3.29.	Anti-Takeover	31
	3.30.	Solvency	31
	3.31.	Fair Market Value	31
4.	REPRESENTATIONS AND WARRANTIES OF THE BUYER		31
	4.1.	Organization and Qualification of the Buyer(a)(b)(c)	31
	4.2.	Authorization of Transaction	31
	4.3.	Government Authorization	32
	4.4.	Noncontravention	32
	4.5.	Brokers’ Fees	32
	4.6.	Litigation	32
	4.7.	Financing	32
5.	COVENANTS		32
	5.1.	Filing and Mailing of the Proxy Statement	32
	5.2.	General	33
	5.3.	Notices and Consents	33
	5.4.	Operation of Business	33
	5.5.	Trade Payables and Receivables	34
	5.6.	Press Releases and Public Announcements	34
	5.7.	Future Assurances	34
	5.8.	Access to Books, Records, etc.	34
	5.9.	Confidentiality	35
	5.10.	Non-Assignable Assets	36

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	5.11.	Tax Matters	36
	5.12.	Board Recommendation; Non Solicitation; Fiduciary Exceptions	37
6.	CONDITIONS TO OBLIGATION TO CLOSE		41
	6.1.	Conditions to Obligations of the Buyer	41
	6.2.	Conditions to Obligations of the Seller	44
7.	INDEMNIFICATION		45
	7.1.	Survival of Representations and Warranties	45
	7.2.	Indemnification	45
	7.3.	Time Limitations	46
	7.4.	Monetary Limitations	47
	7.5.	Third Party Claims	47
	7.6.	Information	49
	7.7.	Remedies Cumulative; Sole Remedy; Order of Recovery	49
	7.8.	Purchase Price Adjustment	49
	7.9.	Tax Benefits	49
	7.10.	Insurance Recoveries	49
8.	TERMINATION AND ABANDONMENT		50
	8.1.	Basis For Termination	50
	8.2.	Effect of Termination	51
9.	MISCELLANEOUS		53
	9.1.	Entire Agreement	53
	9.2.	Succession and Assignment; No Third-Party Beneficiary	53
	9.3.	Counterparts	53
	9.4.	Headings	53
	9.5.	Notices	53
	9.6.	Mail	54
	9.7.	Governing Law	54
	9.8.	Amendments and Waivers	55
	9.9.	Severability	55
	9.10.	Expenses	55
	9.11.	Construction	55

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9.12.	Incorporation of Schedules and Exhibits	55
9.13.	Jurisdiction	55
9.14.	Venue	56
9.15.	Service of Process	56
9.16.	Specific Performance	56
9.17.	Waiver of Jury Trial	56

Exhibits

Exhibit A	-	Major Shareholders
Exhibit B	-	Bill of Sale
Exhibit C	-	Instrument of Assignment and Assumption
Exhibit D	-	Sublease Agreement
Exhibit E	-	Seller Covenant Not to Compete
Exhibit F	-	O’Keefe Covenant Not to Compete
Exhibit G	-	License Agreement
Exhibit H	-	Supply Agreement
Exhibit I	-	Escrow Agreement
Exhibit J	-	Transition Services
Exhibit K	-	Voting Agreement
Exhibit L	-	Recognition, Non-Disturbance and Attornment Agreement
Exhibit M		Wholesale Segment Balance Sheet

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ASSET PURCHASE AGREEMENT

This Asset Purchase Agreement (the “Agreement”) is dated as of September 15, 2008, by and among GREEN MOUNTAIN COFFEE ROASTERS, INC., a Delaware corporation (the “Buyer”) and TULLY’S COFFEE CORPORATION, a Washington corporation (the “Seller Parent”) and Tully’s Bellaccino, LLC, a Washington limited liability company and wholly-owned subsidiary of the Seller (the “Seller Subsidiary” and together with the Seller Parent, the “Seller”). The Buyer, the Seller and the Seller Subsidiary are collectively referred to herein as the “Parties.” Capitalized terms used in this Agreement are defined or otherwise referenced in Section 1.

Whereas, the Buyer desires to purchase and acquire the Acquired Assets from the Seller;

Whereas, subject to the terms and conditions contained in this Agreement, the Seller hereby shall sell and transfer and the Buyer hereby shall purchase the assets of the Wholesale Business in exchange for the cash Purchase Price described herein, of which a portion will be used to discharge Liens and other liabilities associated with such assets at or prior to the Closing;

Whereas, the Buyer and the Seller intend to enter into the License Agreement, the Supply Agreement, the Covenant Not to Compete, and the Escrow Agreement;

Whereas, simultaneously with the execution of this Agreement, and as an inducement to Buyer to enter into this Agreement, the Major Shareholders will have entered into Voting Agreements.

Whereas, the Buyer intends to offer employment to certain of the employees of the Wholesale Business; and

Now, therefore, in consideration of the premises and the mutual promises herein made, and in consideration of the representations, warranties, and covenants herein contained, the Parties agree as follows.

1. DEFINITIONS; CERTAIN RULES OF CONSTRUCTION.

As used herein, the following terms will have the following meanings:

“Acceptance Date” has the meaning set forth in Section 5.12(c).

“Accounting Principles” means GAAP applied on a basis consistent with the basis on which GAAP was applied in the preparation of the Wholesale Segment Balance Sheet.

“Acquired Assets” has the meaning set forth in Section 2.1.

“Acquisition Proposal” has the meaning set forth in Section 5.12(b).

“Action” means any claim, action, cause of action or suit (whether in contract or tort or otherwise), litigation (whether at law or in equity and whether civil or criminal), controversy, assessment, arbitration, investigation, hearing, charge, complaint, demand, notice or proceeding to, from, by or before any Governmental Authority.

“Adverse Recommendation Change” has the meaning set forth in Section 5.12(d).

“Affiliate” means, as to any specified Person at any time, each Person who is directly or indirectly controlling, controlled by or under direct or indirect common control with such specified Person at such time.

“Agreement” has the meaning set forth in the preamble.

“Assumed Contracts” has the meaning set forth in Section 2.1(c).

“Assumed Liabilities” has the meaning set forth in Section 2.3.

“Berner” has the meaning set forth in Section 6.1(t).

“Berner Inventory” has the meaning set forth in Section 6.1(t).

“Bill of Sale” has the meaning set forth in Section 2.7(a).

“Business Day” means a day, other than Saturday, Sunday or other day on which commercial banks in Waterbury, Vermont are authorized or required by law to close.

“Buyer” has the meaning set forth in the preamble.

“Buyer Indemnified Person” has the meaning set forth in Section 7.2(a).

“Cap” has the meaning set forth in Section 7.4(a).

“CERCLA” means the federal Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended.

“Closing” has the meaning set forth in Section 2.6.

“Closing Date” has the meaning set forth in Section 2.6.

“Closing Documents” has the meaning set forth in Section 2.7.

“Code” means the Internal Revenue Code of 1986, as amended.

“Coffee Business” means, the business of roasting, packaging, brewing, selling, distributing or otherwise providing whole bean and ground coffees, hot or cold coffee beverages or related products including brewers in North America.

“Confidential Information” has the meaning set forth in Section 5.9(a).

“Contemplated Transactions” means the transactions as contemplated by this Agreement and the other Transaction Documents.

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“Contractual Obligation” means, with respect to any Person, any contract, agreement, purchase order, deed, mortgage, lease, license, commitment, undertaking, arrangement or understanding, or other document or instrument, including without limitation any document or written instrument evidencing or otherwise relating to any Debt or Guarantee, to which or by which such Person is a party or otherwise subject or bound or to which or by which any property or right of such Person is subject or bound.

“Creditors” means Benaroya Capital Company, LLC, Northrim Funding Services, a division of Northrim Bank, and Ueshima Coffee Corporation, Ltd.

“Debt” of any Person means all obligations of such Person (i) for borrowed money, (ii) evidenced by notes, bonds, debentures or similar instruments or upon which interest charges are customarily paid, (iii) for deferred purchase price of property or services, except current accounts payable arising in the ordinary course of business of such Person, (iv) under conditional sale or other title retention agreements relating to property purchased by such Person and all capitalized lease obligations, (v) arising out of obligations of a third party secured by property or assets of such Person (regardless of whether or not such Person is liable for repayment of such obligations), or (vi) any prepayment or similar penalties for any of the foregoing.

“Disclosure Schedule” has the meaning set forth in Section 3.

“Disputes Auditor” means Deloitte & Touche LLP or, if Deloitte & Touche LLP declines engagement under Section 2.8 or is unable to act at the time it would otherwise be engaged thereunder, any other nationally recognized, independent public accounting firm mutually agreed upon by Seller and Buyer.

“Effective Date” means the date of this Agreement.

“Employee Plan” means any “employee benefit plan” (as defined in Section 3(3) of ERISA, whether or not subject to ERISA), any other bonus, profit sharing, compensation, pension, retirement, savings, severance, deferred compensation, fringe benefit, insurance, welfare, post-retirement health or welfare benefit, health, life, stock option, stock purchase, restricted stock, tuition refund, service award, company car or car allowance, scholarship, housing or living allowances, relocation, disability, accident, sick pay, sick leave, accrued leave, vacation, holiday, termination, unemployment, individual employment, consulting, executive compensation, incentive, commission, payroll practices, retention, change in control, non-competition, and/or other material plan, agreement, policy, trust fund or arrangement (in each case, whether written or unwritten, insured or self-insured).

“Enforceable” means, with respect to any Contractual Obligation stated to be Enforceable by or against any Person, that such Contractual Obligation is a legal, valid and binding obligation of such Person enforceable by or against such Person in accordance with its terms, except to the extent that enforcement of the rights and remedies created thereby is subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws of general application affecting the rights and remedies of creditors and to general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law).

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“Environmental Laws” means any law, regulation, or other applicable requirement relating to (a) releases or threatened release of Hazardous Substances; (b) pollution or protection of employee health or safety, public health or the environment; or (c) the manufacture, handling, transport, use, treatment, storage, or disposal of Hazardous Substances.

“Equipment” has the meaning set forth in Section 2.1(a).

“ERISA” means the Employment Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated thereunder, or any successor statute, rules and regulations thereto.

“ERISA Affiliate” of any entity (the “first entity”) means any other entity which, together with such first entity, is or at any relevant time would be treated as a single employer under Section 414 of the Code.

“Escrow Agreement” has the meaning set forth in Section 2.7(g).

“Estimated Asset Adjustment” means, without duplication, the amount, if any, by which (x) Wholesale Assets are less than Four Million Dollars ($4,000,000) or (y) Inventories are less than One Million Eight Hundred Thousand Dollars ($1,800,000).

“Excluded Assets” has the meaning set forth in Section 2.2.

“Excluded Liabilities” has the meaning set forth in Section 2.3.

“GAAP” means United States generally accepted accounting principles consistently applied.

“Governmental Authority” means any United States federal, state or local government or any foreign government, or political subdivision thereof, or any multinational organization or authority or any authority, agency or commission entitled to exercise any administrative, executive, judicial, legislative, police, regulatory or taxing authority or power, any court or tribunal (or any department, bureau or division thereof), or any arbitrator or arbitral body.

“Guarantee” means (i) any guarantee of the payment or performance of, or any contingent obligation in respect of, any Debt or other obligation of any other Person, (ii) any other arrangement whereby credit is extended to one obligor on the basis of any promise or undertaking of another Person (A) to pay the Debt or other obligation of such obligor, (B) to purchase any obligation owed by such obligor, (C) to purchase or lease assets under circumstances that would enable such obligor to discharge one or more of its obligations or (D) to maintain the capital, working capital, solvency or general financial condition of such obligor, or (iii) any liability as a general partner of a partnership or as a venturer in a joint venture in respect of indebtedness or other obligations of such partnership or venture.

“Hazardous Substance” has the meaning set forth in Section 3.12

“Inventory” has the meaning set forth in Section 2.1(a).

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“Indemnified Party” has the meaning set forth in Section 7.3.

“Indemnifying Party” has the meaning set forth in Section 7.3.

“Instrument of Assignment and Assumption Agreement” has the meaning set forth in Section 2.6.

“Intellectual Property” means all forms of intellectual property, however, denominated, throughout the world, including without limitation: (a) patents and applications thereof; (b) unregistered and registered Trademarks and applications thereof; (c) registered copyrights and applications thereof, and any associated moral rights; (d) Internet domains; (e) designs, whether or not patented or registered; (f) rights of privacy and publicity; (g) confidential and proprietary information, including without limitation trade secrets (such as coffee blends and recipes), research and development, know-how, recipes, processes and techniques, technical data, specifications, customer and supplier lists (including the customer mailing lists used by the Seller in connection with the conduct of the Wholesale Business), pricing and cost information, and business and marketing plans and proposals; (h) all administrative and legal rights arising therefrom and relating thereto, including the right to prosecute and perfect such interests and rights to sue, oppose, cancel, interfere, and enjoin based upon such interests; and (i) and any Contractual Obligations granting rights related to the foregoing (A) subsisting in, covering, reading on, directly applicable to, used in the production of or existing in the technology used in the Wholesale Business or (B) that are owned, licensed or controlled in whole or in part by the Seller and relate to the Wholesale Business.

“IRS” means the United States Internal Revenue Service or any successor thereto.

“Lease” means the lease between Seller and Rainer Common LLC, a Washington limited liability company dated August 16, 1999, as amended from time to time, for certain space located at 3100 South Airport Way, Seattle, Washington.

“Leased Property” means the premises located at 3100 Airport Way South, in Seattle, Washington.

“Legal Requirement” means any United States federal, state, local, or foreign law, statute, judicial opinion, standard, ordinance, code, rule, regulation, resolution or promulgation, or any order, judgment or decree of any Governmental Authority, or any similar provision having the force and effect of law.

“Liability” means, with respect to any Person, any liability or obligation of such Person whether known or unknown, whether asserted or unasserted, whether determined, determinable or otherwise, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, whether incurred or consequential, whether due or to become due and whether or not required under GAAP to be accrued on the financial statements of such Person.

“License Agreement” has the meaning set forth in Section 2.7(b).

“Lien” means, with respect to any property or asset, any mortgage, lien, pledge, charge, security interest, community or other marital property interest, equitable interest, license, option, right of way, easement, encroachment, servitude, right of first offer or first

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refusal, buy/sell agreement or other encumbrance with respect to the use, construction, voting (in the case of any security or equity interest), transfer, receipt of income or exercise of any other attribute of ownership in respect of such property or asset.

“Losses” means, collectively, any actions, Liabilities, governmental orders, encumbrances, losses, damages, bonds, dues, assessments, fines, penalties, Taxes, fees, costs (including costs of investigation, defense and enforcement of this Agreement), expenses or amounts paid in settlement (in each case, including reasonable attorneys’ and experts fees and expenses), whether or not involving a Third Party Claim.

“Material Adverse Effect” means any change in or effect on the Acquired Assets or Assumed Liabilities that, when considered either singly or in the aggregate, has or would reasonably be expected to result in a material adverse effect on the business, financial condition, operations, results of operations (including under the Lease relating to the Leased Property) and prospects of the Wholesale Business, provided, however, in no event shall any of the following be taken into account in determining whether there has been or will be a Material Adverse Effect: (i) any adverse change arising directly from the taking of any action required to comply with the terms of this Agreement; (ii) any change that results from changes affecting the industry in which Seller operates the Wholesale Business or in the United States economy generally (which changes in each case do not disproportionately affect the operation of the Wholesale Business in any material respect; and (iii) any natural disaster or any acts of terrorism, sabotage, military action or war (which events in each case do not disproportionately affect the operation of the Wholesale Business in any material respect).

“Materials of Environmental Concern” means (i) any pollutants, contaminants, or hazardous substances (as such terms are defined under CERCLA), pesticides, (as such term is defined under the Federal Insecticide, Fungicide and Rodenticide Act), hazardous wastes (as such term is defined under the Resource Conservation and Recovery Act), other hazardous, radioactive or toxic materials, oil, petroleum and petroleum products (and fractions thereof), or any other material listed or subject to regulation under any law, statute, rule, regulation, permit, or directive due to its potential, directly or indirectly, to harm the environment or the health of humans or other living beings, including, without limitation, those substances defined or regulated as hazardous or toxic under Environmental Laws.

“Major Shareholders” means the shareholders listed on Exhibit A hereto.

“Net Accounts Receivable” means Receivables less the sum of (x) allowance for doubtful accounts, and (y) estimated bill backs to customers relating to the Receivables, all as shown on the Wholesale Balance Sheet. For the avoidance of doubt, Receivables shall not include any accounts receivable subject to the Northrim Facility.

“Net Equipment” means Equipment, less any depreciation related thereto.

“Noncompete Payment” shall be the amount set forth in the Seller Covenant Not to Compete.

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“North America” means the United States of America, Canada, Mexico and the Islands of the Caribbean.

“Northrim Facility” the capital funding facility available to the Seller pursuant to the Contract of Sale and Security Agreement dated August 1, 2008, as amended from time to time, between the Seller and Northrim Funding Services, a division of Northrim Bank.

“O’Keefe Covenant Not to Compete” has the meaning set forth in Section 2.7(d).

“Outside Date” has the meaning set forth in Section 8.1(b)(iii).

“Parties” has the meaning set forth in the preamble above.

“Party” means any of the Parties individually.

“Permitted Liens” has the meaning set forth in Section 3.6.

“Person” means an individual, a partnership, a corporation, an association, a joint stock company, a limited liability company, a trust, a joint stock or venture, an unincorporated organization, a Governmental Authority, an estate or other entity or organization.

“Post-Closing Date Tax Period” means (a) all Tax periods beginning after the Closing Date and (b) with respect to any Straddle Period, the portion of such period beginning after the Closing Date.

“Pre-Closing Date Tax Period” means (a) all Tax periods ending on or before the Closing Date and (b) with respect to any Straddle Period, the portion of such period ending on Closing Date.

“Prepaid Expenses” means prepaid expenses as shown on the Wholesale Segment Balance Sheet.

“Proxy Statement” has the meaning set forth in Section 5.1.

“Purchase Price” has the meaning set forth in Section 2.4.

“Purchase Price Adjustment” has the meaning set forth in Section 2.8.

“Recognition, Non-Disturbance and Attornment Agreement” has the meaning set forth in 2.7(j).

“Records” has the meaning set forth in Section 2.1(f).

“Related Person” means, with respect to a particular individual:

(a) each other member of such individual’s Family (as defined below);

(b) any Person that is directly controlled by such individual or one or more members of such individual’s Family;

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(c) any Person in which such individual or members of such individual’s Family hold (individually or in the aggregate) a Material Interest (as defined below); or

(d) any Person with respect to which such individual or one or more members of such individual’s Family serves as a director, officer, manager, partner, executor or trustee (or in a similar capacity).

With respect to a specified Person other than an individual:

(a) any Person that holds a Material Interest in such specified Person (as defined below);

(b) each Person that serves as a director, officer, partner, executor or trustee of such specified Person (or in a similar capacity);

(c) any Person in which such specified Person holds a Material Interest (as defined below);

(d) any Person with respect to which such specified Person serves as a general partner or a trustee (or in a similar capacity); or

(e) any Related Person of any individual described in clause (a) or (b).

For purposes of this definition, (a) the “Family” of an individual includes (i) the individual, (ii) the individual’s spouse, (iii) any other natural person who is related to the individual or the individual’s spouse within the first degree of consanguinity, and (iv) any other natural person who resides with such individual, and (b) “Material Interest” means direct or indirect beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of voting securities or other voting interests representing at least five percent (5%) of the outstanding voting power of a Person or equity securities or other equity interests representing at least five percent (5%) of the outstanding equity securities or equity interests in a Person.

“Seller” has the meaning set forth in the preamble.

“Seller Consents” has the meaning set forth in Section 3.8.

“Seller Covenant Not to Compete” has the meaning set forth in Section 2.7(d).

“Seller Indemnified Person” has the meaning set forth in Section 7.2(b).

“Seller’s Knowledge” means the actual knowledge of Tom T. O’Keefe, Carl Pennington, Andrew Wynne, Mark Dacosta, Ron Gai, Andrew Mun, John Radar or Dan Johnson after reasonable inquiry.

“Seller Plan” means an Employee Plan that the Seller or any ERISA Affiliate of the Seller sponsors or maintains, or to which Seller or any ERISA Affiliate of the Seller contributes or is obligated to contribute, or under which the Seller or any ERISA Affiliate of the Seller has or may have any liability, directly or indirectly, or that benefits any current or former employee, director, officer,

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consultant or independent contractor of the Seller or any ERISA Affiliate of the Seller or the beneficiaries or dependents of any such person, in each case that relates in whole or in part to the Wholesale Business.

“Shareholder Approval” has the meaning set forth in Section 5.1.

“Straddle Period” means a Tax period that begins on or prior to the Closing Date and ends after the Closing Date.

“Sublease Agreement” means the meaning set forth in Section 2.7(i).

“Superior Proposal” has the meaning set forth in Section 5.12(c).

“Supply Agreement” has the meaning set forth in Section 2.7(c).

“Tax” or “Taxes” means (a) any United States federal, state, or local or any foreign income, gross receipts, license, payroll, service, employment, excise, severance, stamp, occupation, premium, windfall profits, customs duties, capital stock, franchise, profits, withholding, social security (or similar, including FICA), unemployment, disability, real property, personal property, sales, use, ad valorem, license, transfer, registration, recording, value added, alternative or add-on minimum, estimated, escheat obligations or other tax or governmental charge, including any interest, penalty, or addition with respect thereto, whether disputed or not, or with respect to any information reporting requirements imposed by any Governmental Authority whether arising before, on or after the Closing Date, (b) any liability for or in respect of the payment of any amounts of the type described in clause (a) of this definition as a result of being a member of an affiliated, consolidated, combined, or unitary, or other group for any period, and (c) any liability for or in respect of the payment of any amount described in clause (a) or (b) of this definition.

“Tax Return” means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

“Third Party Claim” has the meaning set forth in Section 7.5(a).

“Threshold” has the meaning set forth in Section 7.4.

“Trademarks” means any trademarks, service marks, trade dress, logos and other brand or source identifiers, together with all translations, adaptations, derivations, and combinations thereof and including all goodwill associated therewith.

“Transaction Documents” means this Agreement and each Closing Document.

“Transaction Expenses” means all out-of-pocket fees and expenses incurred by a party in connection with the Contemplated Transactions including the fees and expenses of attorneys’, accountants, agents, brokers and any other advisors and any payments made to Affiliates of such party.

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“Transfer Taxes” means all sales (including bulk sales), use, valued-added, transfer, recording, ad valorem, privilege, documentary, gross receipts, registration, conveyance, excise, license, stamp or similar Taxes and fees arising out of, in connection with or attributable to the transactions effectuated pursuant to this Agreement.

“Transition Services Agreement” has the meaning set forth in Section 2.7(f).

“Treasury Regulations” means the Treasury Regulations (including Temporary Regulations) promulgated by the United States Department of Treasury with respect to the Code or other United States federal Tax statutes.

“Voting Agreements” has the meaning set forth in Section 2.7(h).

“Wholesale Assets” shall mean the sum of (i) Net Accounts Receivable, (ii) Inventory, (iii) Prepaid Expenses, and (iv) Net Equipment, each of the Wholesale Business as of 12:01 a.m. (Eastern Time) on the Closing Date, in each case to the extent such accounts reflect Acquired Assets, calculated in accordance with the Accounting Principles and the methodologies used in preparation of Wholesale Segment Balance Sheet attached hereto as Exhibit M.

“Wholesale Business” means the operations in North America through which Seller, under brand names owned or licensed to Seller, sources, manufactures, sells and distributes whole bean and ground coffees, bottled beverages and single serve K-Cup portion packs to customers including franchisees, office coffee services, foodservice channels, supermarkets, convenience stores, independent food stores, restaurants and institutional channels, including without limitation through the operation of the Equipment at the Leased Property. Notwithstanding any other provision of this Agreement, the Wholesale Business excludes (a) Seller’s operations with respect to the sale of whole bean and ground coffees and other beverages and food products to end user consumers at (i) licensed retail kiosks including but not limited to retail kiosks operating in grocery stores, colleges and universities and hotels, (ii) licensed retail stores including but not limited to retail stores operating on the premises of Boeing and other similar business customers, (iii) franchised retail stores, and (b) all of Seller’s operations outside of North America.

“Wholesale Segment Balance Sheet” has the meaning set forth in Section 3.17(d).

2. ACQUISITION OF ASSETS BY BUYER.

2.1. Purchase and Sale of Assets. The Seller agrees to sell and transfer to the Buyer, and the Buyer agrees to purchase and acquire from the Seller at the Closing, subject to and upon the other terms and conditions contained herein, all of Seller’s right, title and interest in and to all of the assets, properties and rights of the Seller which are primarily used, to be used or maintained in connection with the current conduct of the Wholesale Business of whatever nature, kind and description, whether tangible or intangible (including goodwill) wherever located (collectively, the “Acquired Assets”) free and clear of any Liens and Liabilities, other than Permitted Liens and Assumed Liabilities. The Acquired Assets shall include:

(a) all of the tangible personal property relating to the Wholesale Business including (i) all machinery, equipment, and tools utilized to conduct the Wholesale Business whether or not contained on the premises of the Leased Property, including all buildings and other structures, leasehold improvements and fixtures located on the Leased Property relating to the Wholesale Business (the “Equipment”) and (ii) inventories of finished goods, work-in-progress, goods in process, manufactured and purchased parts, supplies and raw materials, in each case owned or identified for use in the Wholesale Business, whether or not located on the Leased Property, or in transit inventory and supplies ordered by the Wholesale Business, but not yet received as of the Closing Date and packaging, marketing and other materials related thereto (the “Inventories”);

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(b) all of Seller’s accounts and notes receivable, deferred charges, trade receivables and other rights to receive payments existing as of the Closing Date and arising out of the Wholesale Business other than such receivables subject to the Northrim Facility as of the Closing Date (the “Receivables”);

(c) all rights of the Seller under any wholesale customer and vendor agreements relating to the Wholesale Business, including without limitation the License and Distribution Agreement, as amended to date, by and between the Seller and Keurig, Incorporated (the “Assumed Contracts”);

(d) all Intellectual Property, goodwill associated therewith, licenses and sublicenses granted in respect thereto and rights thereunder, remedies against past, current and future infringements thereof and rights to protection therein, in each case relating to or used in the past or current conduct of the Wholesale Business, including without limitation all worldwide rights to the Tully’s and Bellaccino names and brands, subject to the rights of third parties set forth on Schedule 2.1(d);

(e) all licenses, permits, consents, certificates, franchises or other governmental authorizations relating to or used in or relating to the current conduct of the Wholesale Business, other than any such licenses, permits, consents, certificates, franchises or other governmental franchises which cannot be legally transferred, which non-transferable governmental authorizations are listed on Schedule 2.1(e);

(f) all books, records, files, printouts, drawings, data, files, notes, notebooks, accounts, invoices, correspondence, specifications, creative materials, advertising or promotional materials, marketing materials, personnel records, studies, reports, memoranda, equipment repair, maintenance or service records, or papers (collectively, “Records”), whether in hard copy, electronic or other format, primarily relating to or used in the current or past conduct of the Wholesale Business;

(g) all customer, distributor, supplier and mailing lists used or created by the Wholesale Business;

(h) all rights in and with respect to the insurance policies listed on Schedule 2.1(h);

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(i) all goodwill associated with the Wholesale Business or the Acquired Assets, together with the right to represent to third parties that the Buyer is the successor to the Wholesale Business;

(j) all Acquired Assets listed on Schedule 2.1(j).

2.2. Excluded Assets. Notwithstanding any provision in the Transaction Documents to the contrary, the Buyer agrees that none of the following assets, properties, rights or interests of the Seller (the “Excluded Assets”) shall be Acquired Assets:

(a) the consideration delivered to the Seller by Buyer pursuant to the Transaction Documents;

(b) all rights of the Seller arising under the Transaction Documents;

(c) all rights in and with respect to insurance policies of the Seller, except for those insurance policies listed on Schedule 2.1(h)

(d) any governmental authorization listed in Schedule 2.1(e);

(e) any assets of any Employee Plan;

(f) refunds or claims for refunds of Taxes paid by the Seller;

(g) all Seller operated, license operated and franchise operated Tully’s Coffee branded retail stores or kiosks and the leases, licenses and franchise agreements with respect thereto, including footprint stores in special venues such as within the premises of manufacturing facilities, and kiosks and cafes located in grocery stores, hotels, hospitals, airports and university campuses (the “Retail Stores”) and all leased or owned properties relating to Retail Stores and personal property located at any Retail Stores;

(h) all tangible property located at any of the Retail Stores or the Leased Property, accounts receivable, notes receivable, prepaid expenses and other current assets of the Seller generated or held by the Seller on or prior to the Closing Date, that are not used in, or otherwise attributable to the Wholesale Business;

(i) any Cash owned by the Seller as of the Closing Date; and

(j) all of the Excluded Assets listed on Schedule 2.2(j).

2.3. Liabilities. Notwithstanding any provision in this Agreement or any other writing to the contrary, the Buyer is not assuming any Liability of the Seller of whatever nature, whether presently in existence or arising hereafter, other than (collectively, the “Assumed Liabilities”):

(a) all Liabilities of the Seller under the Assumed Contracts (other than those Liabilities that arose or accrued based on any act, event, or omission that occurred prior to the Closing Date, which shall in all cases be retained by the Seller irrespective of whether they are known at Closing or become known only after the Closing, or based on any breach or default of the Seller which occurred prior to the Closing Date);

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(b) all Liabilities arising out of ownership or operation of the Wholesale Business or the Acquired Assets after the Closing Date;

(c) all of the Liabilities listed on the attached Schedule 2.3(c);

provided, that the Buyer shall in no event assume any Liabilities of the Seller arising from or in connection with (i) any Excluded Asset; (ii) any transactions between the Seller and any Affiliate of a Seller; (iii) matters not relating to the Wholesale Business or the Acquired Assets; (iv) any Debt or Guarantee of the Seller; (v) the Seller’s breach or default of any obligation or agreement; (v) the Seller’s expenses in connection with the Contemplated Transactions; (vi) insurance policies of the Seller, (vii) obligations under Assumed Contracts that arose or accrued based on any act, event, or omission that occurred prior to the Closing Date, which shall in all cases be retained by Seller irrespective of whether they are known at Closing or become known only after the Closing or based on any breach or default of the Seller that occurred prior to the Effective Date, (viii) claims, costs or other Liabilities under any Employee Plans, including without limitation relating to health or retirement benefits, (ix) any Liability for or on account of Taxes arising prior to the Closing Date (whether known or unknown), (x) any Liability of the Seller to indemnify any Person by reason of the fact that such Person was a director, officer, employee, or agent of the Seller, or was serving at the request of such entity as a partner, trustee, director, officer, employee, or agent of another entity, (xi) any Liability of the Seller arising as a result of any legal or equitable action or judicial or administrative proceeding initiated at any time in respect of anything done, suffered to be done or omitted to be done by such Seller or any of their respective directors, officers, employees or agents, (xii) any Liability of the Seller arising out of the Transaction Documents, (xiii) any Liability relating to or arising out of products manufactured or sold or services rendered by the Seller prior to the Closing Date, whether or not related to the Wholesale Business, (xiv) any Liability of the Seller for making payments or providing, funding, insuring or administering benefits of any kind to it or its ERISA Affiliates’ employees or former employees, directors or officers, including without limitation any bonus, severance payment, change of control payment, retention payment or other compensation, benefit or payment that is created, accrues, accelerates or becomes payable to any present or former director, shareholder, employee or independent contractor, pursuant to any Contractual Obligation on or before the Closing Date as a result of the execution, delivery or consummation of the Contemplated Transactions (without regard to when any such compensation, benefit or payment is due and payable) (xv) any Liability not arising out of the operation of the Wholesale Business, (xvi) any Liability relating to compliance with the Worker Adjustment and Retraining Notification Act, 29 U.S.C. § 2101, et seq. (“WARN Act”) and any state laws concerning layoffs or the closing or relocation of worksites or the like, which arises on or before the Closing Date; or (xvii) any Liabilities of the Seller incurred (or resulting from any action occurring) prior to the Closing that is not otherwise an Assumed Liability. All Liabilities that are not expressly assumed (or are expressly excluded) hereunder shall be retained by and remain Liabilities of the Seller and satisfied by the Seller in accordance with their terms (all such Liabilities not being assumed being herein referred to as the “Excluded Liabilities”).

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2.4. Purchase Price.

(a) In consideration for the Acquired Assets, the Buyer shall assume the Assumed Liabilities and pay the Seller at Closing aggregate cash consideration of Forty Million Dollars ($40,000,000) (the “Purchase Price”) minus the Estimated Asset Adjustment, if any (the “Net Purchase Price”) plus the Noncompete Payment, consisting of (i) Three Million Five Hundred Thousand Dollars ($3,500,000) (the “Escrow Amount”) in cash payable by wire transfer to Bank of New York as escrow agent (“Escrow Agent”), to be held in escrow pursuant to the Escrow Agreement among the Parties and the Escrow Agent substantially in the form of Exhibit I hereto and (ii) the sum of the Net Purchase Price and the Noncompete Payment (less the Escrow Amount) in cash payable by wire transfer to the Seller in accordance with written instructions of the Seller given to the Buyer at least three business days prior to the Closing.

(b) No later than five (5) Business Days prior to the Closing Date, the Sellers shall deliver to the Buyer a written statement (the “Estimated Asset Adjustment Statement”), calculated in accordance with the Wholesale Segment Balance Sheet, that is reasonably acceptable to the Buyer and sets forth the Sellers’ good faith calculation, as of 12:01 a.m. (Eastern Time) on the Closing Date of the Estimated Asset Adjustment. The Sellers will make available to the Buyer and its representatives as requested by the Buyer, all books, records and other documents used by the Sellers in preparing the Estimated Asset Adjustment Statement and personnel of the Sellers responsible for preparing or maintaining such books, records and documents. The Estimated Asset Adjustment Statement shall be prepared in good faith and in a manner consistent with the Accounting Principles and the methodologies used in preparation of the Wholesale Segment Balance Sheet; provided, however, for purposes of calculating the Estimated Asset Adjustment Statement, the Preliminary Closing Statement and the Final Closing Statement Net Accounts Receivable shall not equal an amount less than zero; provided further that in the event Net Accounts Receivable are deemed to equal zero, Seller shall be responsible for all estimated bill backs relating to all of Seller’s receivables relating to any date occurring during the period prior to the Closing.

2.5. Allocation of Purchase Price. Buyer and Seller shall agree upon an allocation of the Purchase Price among the Acquired Assets in accordance with Code Section 1060 and the Treasury Regulations thereunder prior to the Closing Date.

2.6. The Closing. The closing (the “Closing”) of the purchase and sale of the Acquired Assets and the assumption of the Assumed Liabilities hereunder shall take place at the offices of Ropes & Gray LLP, One International Place, Boston, MA, 02110, commencing at 10:00 a.m. Boston time not later than five (5) business days after the date upon which all of the conditions to Closing set forth in Section 6 of this Agreement have been satisfied or waived by the applicable parties or such other date as the Parties may mutually determine (the “Closing Date”).

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2.7. Deliveries by Seller and Buyer.

At the Closing:

(a) The Seller shall deliver to the Buyer (i) a bill of sale in the form attached hereto as Exhibit B (the “Bill of Sale”) and (ii) such other instruments of sale, transfer, conveyance and assignment as the Buyer and its counsel have reasonably requested at the Closing. The Parties shall execute, acknowledge (if appropriate), and deliver the Instrument of Assignment and Assumption Agreement in the form attached hereto as Exhibit C and the Buyer will deliver the consideration specified in Section 2.4. Simultaneously with such delivery, and the Seller shall put Buyer in possession and operating control of the Acquired Assets, free and clear of all Liens and other encumbrances of any kind whatsoever.

(b) The Seller and the Buyer shall enter into a License Agreement in the form attached hereto as Exhibit G (the “License Agreement”).

(c) The Seller and Buyer shall enter into a Supply Agreement in the form attached hereto as Exhibit H (the “Supply Agreement”).

(d) The Seller shall enter into a Covenant Not to Compete with Buyer with respect to the Coffee Business in the form attached hereto as Exhibit E (the “Seller Covenant Not to Compete”).

(e) The Seller will have delivered to the Buyer the O’Keefe Covenant Not to Compete executed by Tom O’Keefe in the form attached hereto as Exhibit F (the “O’Keefe Covenant Not to Compete”).

(f) The Seller and the Buyer shall enter into a Transition Services Agreement in form and substance reasonably satisfactory to the Buyer and the Seller which will provide the Buyer with the services set forth on Exhibit J (the “Transition Services Agreement”).

(g) The Seller and the Buyer shall enter into the Escrow Agreement substantially in the form attached hereto as Exhibit I (the “Escrow Agreement”).

(h) The Seller and Buyer shall enter into the Sublease Agreement in the form attached hereto as Exhibit D (the “Sublease Agreement”) .

(i) The Seller shall have caused Rainier Commons, LLC, a Washington limited liability company to enter into the Recognition, Non-Disturbance and Attornment Agreement in the form attached hereto as Exhibit L (the “Recognition, Non-Disturbance and Attornment Agreement”).

Each of the agreements and instruments referenced in clauses (a) through (i) shall be governed by and construed in accordance with the terms of this Agreement and, in the event that any provision of such agreements is construed to conflict with a provision in this Agreement, the provision in this Agreement shall be deemed to be controlling. As used in this Agreement, the

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term “Closing Documents” shall mean the documents described in clauses (a) through (j) and any other instruments of sale, transfer, conveyance, assignment, and assumption of liabilities executed and delivered by the Parties pursuant to this Section 2.7 or Section 5.7 (Future Assurances).

2.8. Adjustment to Purchase Price.

(a) Preparation of Preliminary Closing Statement.

(i) As soon as reasonably practicable after the Closing Date but in any event within 120 days thereafter, Buyer shall prepare and deliver to Sellers a statement (the “Preliminary Closing Statement”) setting forth, as of 12:01 a.m. (Eastern Time) on the Closing Date, the Wholesale Assets.

(ii) The Preliminary Closing Statement shall be prepared in accordance with the Accounting Principles and the methodologies used in preparation of the Wholesale Segment Balance Sheet; provided, however, for purposes of calculating the Preliminary Closing Statement, Net Accounts Receivable shall not equal an amount less than zero; provided further that in the event Net Accounts Receivable are deemed to equal zero, Seller shall be responsible for all bill backs relating to all of Seller’s receivables relating to any date occurring during the period prior to the Closing.

(iii) Buyer will make available to Sellers and their representatives, including its independent certified public accountants, as requested by Sellers, all books, records and other documents pertaining to the Wholesale Business used by Buyer in preparing the Preliminary Closing Statement and personnel of Buyer responsible for preparing or maintaining such books, records and documents.

(b) Review of Preliminary Statements. The Preliminary Closing Statement shall be binding and conclusive upon, and deemed accepted by, Sellers unless Sellers shall have notified Buyer in writing within twenty (20) Business Days after receipt of the Preliminary Closing Statement of any objections thereto (the “Seller Dispute Notice”). The Seller Dispute Notice shall specify in reasonable detail the items of the Preliminary Closing Statement which are being disputed, shall set forth a reasonably detailed summary of the reasons for such dispute and shall include Sellers’ calculation of the Wholesale Assets. Sellers shall be deemed to have agreed with all other items of the Preliminary Closing Statement delivered by Buyer pursuant to Section 2.8(a) except as specified in the Seller Dispute Notice.

(c) Disputes. At the request of Buyer or Sellers, any dispute between the Parties relating to the Preliminary Closing Statement that cannot be resolved by them within 30 days after Buyer’s receipt of the Seller Dispute Notice shall be referred to

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the Disputes Auditor for decision, and the decision of the Disputes Auditor shall be final and binding on both Parties. The Parties agree that they will require the Disputes Auditor to render its decision within 30 days after referral of the dispute to the Disputes Auditor for decision pursuant hereto. In making such decision, the Disputes Auditor shall consider only those items or amounts in the Preliminary Closing Statement as to which Sellers objected in the Seller Dispute Notice that remain in dispute between Buyer and Sellers. Before referring a matter to the Disputes Auditor, the Parties shall make a good faith attempt to agree on procedures to be followed by the Disputes Auditor (including procedures for presentation of evidence). If the Parties are unable to agree upon procedures before the end of ten (10) Business Days after Buyer’s receipt of the Seller Dispute Notice either Party may refer the dispute to the Disputes Auditor, and the Disputes Auditor shall render its decision as to such dispute in accordance with the terms of this Agreement, including, if the dispute relates to the Preliminary Closing Statement, the Accounting Principles. If the Parties are able to agree upon such procedures before the end of such ten (10) Business Day period, they shall, as promptly as practicable, submit evidence in accordance with the procedures agreed upon, and the Disputes Auditor shall decide the dispute in accordance therewith as promptly as practicable. The fees and expenses of the Disputes Auditor for, and relating to, the making of any such decision shall be borne by the Parties equally.

(d) Final Closing Statement. The Preliminary Closing Statement shall become final and binding on both Parties upon the earliest of (i) if no Seller Dispute Notice has been given, the expiration of the period within which Seller may notify Buyer of any objections to the Preliminary Closing Statement pursuant to Section 2.8(b), (ii) if the Seller Dispute Notice has been given, upon the agreement by Seller and Buyer that such Preliminary Closing Statement, together with any modifications thereto agreed to in writing by Seller and Buyer is final and binding, and (iii) if the Seller Dispute Notice has been given but there is no such agreement, the date on which the Disputes Auditor shall issue its decision with respect to any dispute relating to such Preliminary Closing Statement referred to the Disputes Auditor pursuant to Section 2.8(c), giving effect to any items reflected in the Seller Dispute Notice as to which Buyer and Seller were able to reach agreement prior to such referral. The Preliminary Closing Statement, as adjusted, if applicable, pursuant to any agreement between the Parties or pursuant to the decision of the Disputes Auditor, when final and binding on both Parties, is herein referred to as the “Final Closing Statement.”

(e) Payment. The Net Purchase Price shall be decreased (A) by the amount, if any, by which the Wholesale Assets shown on the Estimated Assets Adjustment Statement exceed the Wholesale Assets shown on the Final Closing Statement, unless the Wholesale Assets shown on the Final Closing Statement are equal to at least Four Million Dollars ($4,000,000) or (B) by the amount, if any, by which Inventory shown on the Estimated Asset Adjustment Statement exceeds Inventory shown on the Closing Statement, unless Inventory shown on the Final Closing Statement is equal to at least One Million Eight Hundred Thousand Dollars ($1,800,000) each (a “Shortfall”). If the Net Purchase Price is required to be decreased in accordance with this Section 2.8(e), Seller shall promptly, but in any event within three (3) Business Days, pay the Shortfall to Buyer by wire

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transfer in immediately available funds to a bank account designed in writing by Buyer. To the extent an Estimated Asset Adjustment was made which, in accordance with the Final Closing Statement, was not required to be made (the “Excess”), Buyer shall promptly, but in any event within three (3) Business Days, pay the Excess of the Estimated Asset Adjustment to Sellers by wire transfer in immediately available funds to a bank account designated in writing by Sellers.

3. REPRESENTATIONS AND WARRANTIES OF THE SELLER.

The Seller represents and warrants to the Buyer that the statements set forth in this Section 3 are true, correct and complete as of the date of this Agreement or such other date as may be referred to in any particular representation and warranty, except as set forth in the Disclosure Schedule attached to this Agreement (the “Disclosure Schedule”). The Disclosure Schedule has been arranged in sections and paragraphs corresponding to the sections and paragraphs contained in this Section 3.

3.1. Organization and Qualification of the Seller. The Seller is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization and the Seller is qualified to do business and is in good standing as a foreign corporation in each jurisdiction listed in Section 3.1 of the Disclosure Schedule, which such jurisdictions are the only jurisdictions where the nature of the activities conducted by it or the character of the property leased or operated by it make such qualification necessary or appropriate.

3.2. Authorization of Transaction. The Seller has full corporate power and authority to execute and deliver each Transaction Document to which it is a party and all other instruments, agreements and documents contemplated thereby and has taken all corporate and other actions or proceedings necessary to authorize the consummation of the Contemplated Transactions and the performance of its obligations hereunder and thereunder. Each of the Transaction Documents has been duly executed and delivered by Seller and is Enforceable against Seller.

3.3. Governmental Authorization. The execution, delivery and performance by the Seller of each Transaction Document to which it is a party and the consummation of the Contemplated Transactions by the Seller require no action (including any authorization, registration, qualification, consent or approval) by or in respect of, or filing with, any Governmental Authority.

3.4. Noncontravention. The execution, delivery and performance by the Seller of each Transaction Document to which it is a party and the consummation of the Contemplated Transactions by the Seller do not and will not (i) violate, conflict with or result in a default under of the organizational documents of the Seller, (ii) violate in any material respect any applicable Legal Requirement, (iii) conflict with, constitute a default or breach under or give rise to any right of termination, cancellation or acceleration of any right or obligation or to a loss of any material benefit relating to the Wholesale Business or to any Acquired Asset to which the Seller is entitled under any provision of any Contractual Obligation binding upon the Seller Party or to which the Acquired Assets are bound or subject, (iv) result in the creation or imposition of any Lien on any Acquired Asset, except for Permitted Liens.

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3.5. Brokers’ Fees. The Seller shall be solely obligated for the payment of all fees or expenses of any broker, agent or finder engaged by them in connection with and for this Agreement or the Contemplated Transactions. The Seller represents and warrants that there are no Liabilities with respect to any brokers’ or finders’ fees or commissions relating to the Contemplated Transactions for which the Buyer could become liable or obligated due to the conduct of the Seller.

3.6. Purchased Assets.

(a) The Seller is the sole and lawful owner of and has good title to (or, in the case of the Leased Property, good and marketable leasehold title and a valid and subsisting leasehold interest in), and the power to sell, assign or transfer to the Buyer, all of the Acquired Assets (other than in transit Inventory) free and clear of all Liens, other than Permitted Liens listed on Schedule 3.6 (the “Permitted Liens”). None of the Acquired Assets are in the possession, custody, or control of any Person other than the Seller. No Person other than the Seller has any right, title, or interest in any profits, earnings, gains or losses with respect to the Wholesale Business, or any Acquired Asset. The Acquired Assets, including the Equipment and the Inventory, is sufficient to carry on the Wholesale Business.

(b) The Equipment is in good operating condition and repair, normal wear and tear excepted and has been maintained consistent with the standards generally followed in the industry.

(c) The Inventory is merchantable and fit or suitable and usable for the production or completion of merchantable products for sale. None of the Inventory is obsolete, below standard quality, damaged, or defective, subject only to the reserve for inventory write-down set forth on Schedule 3.6(c), as adjusted for the passage of time through the Closing Date in accordance with GAAP and the past custom and practice of Seller. Each item of such Inventory reflected in the books and records of Seller is reflected on the basis of a complete physical count and is valued at the lower of cost (on a first-in, first-out basis) or market in accordance with GAAP, consistently applied. Since March 31, 2008, no Inventory has been sold or disposed of except through sales in the ordinary course of business.

3.7. Legal and Other Compliance; Permits. The Seller has complied with, and since July 31, 2005 has been in compliance with, all applicable Legal Requirements relating to the conduct of the Wholesale Business, and no Action has been filed or commenced or, to the Seller’s Knowledge, threatened against it alleging any failure so to comply. Schedule 3.7(a) contains a complete list of all material permits required pursuant to Legal Requirements for the conduct of the Wholesale Business. Except as set forth on Schedule 3.7(b) the Seller has been granted all such material permits and, to the Seller’s Knowledge, the Seller is not in breach or violation of, or default under, any such material permit. Except as set forth on Schedule 3.7(c), all such material permits may be assigned by the Seller to the Buyer as contemplated in this Agreement. The Seller has not received any written notice that any Governmental Authority will revoke, cancel, rescind, intentionally modify or refuse to renew in the ordinary course any such material permit.

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3.8. Consents. Schedule 3.8 sets forth each Contractual Obligation (including the Lease) that requires a consent, approval, waiver or other action by any Person as a result of the execution, delivery and performance of the Transaction Documents, and the identity of any Person who is entitled to consent to or receive notice of the Contemplated Transactions (all such required consents or other actions, the “Seller Consents”).

3.9. Property; Liens; Completeness of Acquired Assets.

(a) No Acquired Asset is subject to any Lien except Permitted Liens.

(b) The Acquired Assets constitute all of the material assets, properties and rights of every type and description, real, personal, tangible and intangible, used by the Seller, and necessary to the conduct of the Wholesale Business as it is currently operated.

(c) The Seller has delivered to the Buyer a correct and complete copy of the Lease. The Lease has not been amended, except as shown on Schedule 2.1(j). The Lease is (i) legal, valid, binding and enforceable against Seller, and (ii) to Seller’s Knowledge, is legal valid, binding and enforceable against the landlord named in the Lease, and (iii) is in full force and effect. No portion of the Leased Property is subleased to any other party nor is any other party in occupation of any portion of the Leased Property. Neither the tenant nor, to the Seller’s Knowledge, the landlord under the Lease is in default of its obligations under the Lease and no event has occurred which, with notice or lapse of time, would constitute a default under the Lease or permit cancellation or modification of the Lease. The Seller does not own any real property relating to or used in connection with the conduct of the Wholesale Business, nor does the Seller lease any real property relating to or used in connection with the conduct of the Wholesale Business other than the Leased Property.

(d) The improvements located on the Leased Property are in reasonably good condition. The Leased Property and the improvements located thereon do not violate in any material respect any applicable zoning ordinance, regulation, or other Legal Requirement or otherwise violate or conflict with, in any material respect, any covenant, restriction or other contractual obligation to which the Leased Property, the improvements thereon, or the Lease is subject.

3.10. Litigation. Schedule 3.10 sets forth each instance in which the Seller (i) is subject to any unsatisfied judgment, order, decree, stipulation, injunction or charge relating to the Wholesale Business, any Acquired Asset or Assumed Liability or involving any current or former employee, officer or director of the Wholesale Business, or (ii) is a party or, to the Seller’s Knowledge, is threatened to be made a party to, any charge, complaint, action, suit, proceeding, hearing or investigation of, or in any court or quasi-judicial or administrative agency of, any federal, state, local, or foreign jurisdiction or before any arbitrator.

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None of such charges, complaints, actions, suits, hearings and investigations question the validity of this Agreement or any of the other Transaction Documents or of any action taken or to be taken in connection with such transactions, nor, to the Seller’s Knowledge, is there any basis for such a claim. To the Seller’s Knowledge, there are no judgments, orders, decrees, citations, fines or penalties heretofore assessed against the Seller affecting the Wholesale Business, the Acquired Assets or the Assumed Liabilities under any applicable Legal Requirement.

3.11. Intellectual Property.

(a) The Seller owns or has the right to use pursuant to license, sublicense, agreement, or permission all Intellectual Property necessary for the operation of the business of the Wholesale Business as presently conducted. Each item of Intellectual Property owned or used by the Wholesale Business immediately prior to the Closing hereunder will be owned or available for use by the Buyer on identical terms and conditions immediately subsequent to the Closing hereunder. Except as disclosed in Schedule 3.11(a), the Seller has taken all necessary and desirable action to maintain and protect each material item of Intellectual Property that the Wholesale Business uses.

(b) Except as disclosed in Schedule 3.11(b): (i) the continued operation of the Wholesale Business, as presently conducted by the Seller, will not interfere with, infringe upon, misappropriate, or otherwise come into conflict with, any Intellectual Property rights of third parties; (ii) the Seller has never received any written charges, complaints, claims, demands, or notices alleging any such interference, infringement, misappropriation or violation (including any claim that the Seller must license or refrain from using any Intellectual Property rights of any third party); (iii) no claims are pending or, to the Knowledge of the Seller threatened, that the Seller is infringing the Intellectual Property rights of any Person; and (iv) to the Knowledge of the Seller, no third party has interfered with, infringed upon, misappropriated, or otherwise come into conflict with any Intellectual Property rights of the Seller.

(c) Schedule 3.11(c) identifies (i) all issued patents and applications thereof, all registered Trademarks and applications thereof, all unregistered Trademarks, all registered copyrights and applications thereof, and all Internet domains owned by the Seller, and (ii) each license, agreement, or other permission which the Seller has granted to any third party with respect to any of the Intellectual Property (together with any exceptions). The Seller has delivered to the Buyer correct and complete copies of all such licenses, agreements, and permissions (as amended to date), and has made available to the Buyer correct and complete copies of all other written documentation evidencing ownership and prosecution (if applicable) of each such item to be identified in this subsection. With respect to each item of Intellectual Property required to be identified in this subsection, except as disclosed in Schedule 3.11(c):

(i) Seller possess all right, title, and interest in and to the item, free and clear of any Lien, license, or other restriction;

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(ii) the item is not subject to any outstanding injunction, judgment, order, decree, ruling, or charge;

(iii) no action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand is pending or, to the Knowledge of the Seller, is threatened, which challenges the legality, validity, enforceability, use, or ownership of the item; and

(iv) Seller has not agreed to indemnify any Person for or against any interference, infringement, misappropriation, or other conflict with respect to the item.

(d) Schedule 3.11(d) identifies each item of Intellectual Property that any third party owns and that the Seller uses pursuant to license, sublicense, agreement, or permission. The Seller has delivered to the Buyer correct and complete copies of all such licenses, sublicenses, agreements, and permissions (as amended to date).

(e) Schedule 3.11(e) identifies by name and general subject matter all material proprietary coffee blend and recipe formulations maintained as unregistered trade secrets by the Seller (the “Trade Secret Formulations”). Except as otherwise described in Section 3.11(e), all rights, title and interests in all material trade secrets included in the Intellectual Property, including the Trade Secret Formulations, are owned by the Seller.

(f) All employees and consultants who contributed to the discovery or development of any of Intellectual Property rights used in the conduct of the business of the Seller did so within the scope of his or her employment.

(g) The use and dissemination by the Seller of any and all data and information concerning consumers of its products or users of any web sites operated by the Seller is in compliance with all applicable privacy policies, terms of use, and laws except to the extent such failure to comply would not have a Material Adverse Effect. The transactions contemplated to be consummated hereunder as of the Closing will not violate any privacy policy, terms of use, or material laws relating to the use, dissemination, or transfer of such data or information. The Seller uses reasonable commercial measures to protect the secrecy of consumer information that its collects and maintains, including all consumer credit card information, and there have been no breaches to the securities systems of the Seller, and no unauthorized Person has obtained access to such consumer information.

3.12. Environmental Matters.

(a) The Seller is and has been in compliance with all Environmental Laws;

(b) There has been no release or threatened release of any pollutant, contaminant or toxic or hazardous material (including toxic mold), substance or waste, or petroleum or any fraction thereof, (each a “Hazardous Substance”) on, upon, into or from the Leased Property;

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(c) There have been no Hazardous Substances generated by the Seller that have been disposed of or come to rest at any site that has been included in any published U.S. federal, state or local “superfund” site list or any other similar list of hazardous or toxic waste sites published by any governmental authority in the United States;

(d) There are no underground storage tanks located on the Leased Property, no polychlorinated biphenyls or polychlorinated biphenyls containing equipment used or stored on the Leased Property, and no hazardous waste as defined by the Resource Conservation and Recovery Act, as amended, stored at the Leased Property, except for the storage of hazardous waste in compliance with Environmental Laws; and

(e) The Seller has made available to Buyer true and correct copies of all material environmental records, reports, notifications, certificates of need, permits, pending permit applications, correspondence, engineering studies, and environmental studies or assessments with respect to the Leased Property.

3.13. Affiliated Transactions. Except as set forth on Schedule 3.12, no Affiliate or Related Person of the Seller owns or otherwise has any rights to or interests in the Wholesale Business, any Acquired Asset (including any Intellectual Property) or Assumed Liability or is currently engaged in business dealings with the Seller related to the Wholesale Business, any Acquired Assets or Assumed Liabilities, whether as a client, supplier, customer, lessor, lessee, competitor, potential competitor or otherwise. The transactions disclosed on Schedule 3.13 were entered into and performed on arms length terms and conditions which are no less favorable to the Seller than those which could be obtained with a third party which is not an Affiliate or Related Person of the Seller.

3.14. Absence of Certain Developments. Except as set forth on Schedule 3.14, since March 31, 2008 with respect to the Wholesale Business, the Acquired Assets and the Leased Property, there has not been:

(a) any change to the timing of payment or collection of accounts receivable or the cash management practices of the Seller;

(b) any payment by the Seller of any dividend or other distribution to the holders of its common or preferred stock;

(c) any event, change or circumstance which has had, or is reasonably likely to have, a Material Adverse Effect;

(d) any damage (normal wear and tear excepted), destruction, eminent domain taking or other casualty loss (whether or not covered by insurance) affecting the Wholesale Business, the Leased Property or any Acquired Asset in any material respect;

(e) any sale, mortgage, pledge, lease, or creation or other incurrence of any Lien on any Acquired Asset, other than Permitted Liens;

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(f) any material change in any method of accounting or accounting practice with respect to the Wholesale Business, except for any such change required by reason of a concurrent change in GAAP;

(g) any institution or execution of or increase or material alteration to the employment terms (including without limitation the adoption or amendment of any Employee Plans) or compensation payable or paid, or alteration in the timing or method of such payments, whether conditionally or otherwise, and whether pursuant to a Contractual Obligation, Employee Plan or otherwise to any employee, director, officer, or independent contractor of the Wholesale Business, or of the Seller whose responsibilities relate to the Wholesale Business;

(h) any entry into, termination, amendment, cancellation, or other modification of any Contractual Obligation (including any Lease) or any waiver of, or agreement with respect to, any rights or obligations set forth therein;

(i) any settlement, waiver, cancellation, compromise, waiver, release or agreement with respect to any Action, material Liability, Debt, or other material right;

(j) any change or revocation of any Tax election, change in any method of accounting for Tax purposes (except as contemplated or required by GAAP), settlement in respect of Taxes or agreement entered into with respect to Taxes with any Governmental Authority, other than such change, revocation, settlement, or agreement that does not adversely affect the Buyer or its rights hereunder;

(k) any incurrence or assumption of any Debt or Guarantee in an aggregate amount greater than $100,000;

(l) any delay or postponement of the payment of any accounts payable or other Liabilities;

(m) grant of any license or sublicense of any rights or modified any rights under or with respect to, or any settlement regarding any infringement of its rights to, any Intellectual Property;

(n) payment of any amount to any third party with respect to any Liability (excluding any costs and expenses incurred or which may be incurred in connection with this Agreement and the Contemplated Transactions) which would not constitute an Assumed Liability if in existence as of the Closing;

(o) any transaction with any Affiliate;

(p) any other occurrence, event, incident, action, failure to act, or transaction outside the past practice of the Seller; or

(q) any entry into any Contractual Obligation or agreement to do any of the foregoing.

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3.15. Contracts.

(a) The Seller is not party to any Contractual Obligation or other contract relating to the Wholesale Business or the Acquired Assets or which is otherwise material to the Wholesale Business that is not a part of the Assumed Contracts.

(b) The Seller has delivered to the Buyer a complete copy of each Assumed Contract that is in writing and an accurate and a complete description of each oral Assumed Contract, in each case, as amended or otherwise modified and in effect as of the date hereof. Except as disclosed in Schedule 3.15, the Seller has complied with all accrued material commitments and obligations pertaining to each Assumed Contract, each Assumed Contract is Enforceable against the Seller and the Seller has not, and, to the Seller’s Knowledge, any other party thereto is not, in default or breach in any material respect under the terms of any such Assumed Contract.

(c) Except as set forth on Section 3.15 of the Disclosure Schedule, with respect to the Wholesale Business and the Acquired Assets, the Seller is not a party to any (a) Contractual Obligation or commitment for the employment of any individual, employee or independent contractor, except for oral at will employment agreements and employee manuals, (b) Contractual Obligation for the sale of inventory (other than this Agreement), (c) Contractual Obligation with or commitment to any labor organization or collective bargaining unit, (d) Contractual Obligation or commitment for the future purchase or lease of goods or products, materials, supplies, equipment, services, real or personal property (tangible or intangible), (e) lease for real or personal property, (f) agreement or arrangement to grant discounts or other concessions to customers, distributors, manufacturers or suppliers or (g) Contractual Obligations that establish exclusive or restrictive arrangements with, or could result in, exclusive or restrictive arrangements with customers, distributors, manufacturers or suppliers or Contractual Obligations that prohibit or in anyway limit the Seller from doing business in any part of the world.

3.16. Employment.

(a) Schedule 3.16(a) sets forth the name, job title, employment commencement date, annual salary or hourly wage, as applicable, bonus opportunity, classification for overtime pay purposes and date of most recent salary or wage increase for each employee of the Wholesale Business.

(b) Except as set forth on Schedule 3.16(b), with respect to the Wholesale Business, (i) the Seller currently complies with and since December 31, 2005 has complied with, all Legal Requirements relating to the employment of labor in all material respects, including without limitation any provisions thereof relating to wages and hours, the classification of employees for overtime pay purposes, non-discrimination, occupational safety and health, and the classification individuals providing services to the Wholesale Business as employees or independent contractors; (ii) there is not presently pending, or to the Seller’s Knowledge threatened, any investigation, audit or review by any Governmental Authority and there is no charge, claim, complaint, grievance proceeding, or other claim pending, or to the Seller’s Knowledge, threatened, before any Governmental

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Authority; (iii) there are no strikes, lockouts work slowdowns or stoppages, picketing or other labor troubles pending, or to the Seller’s Knowledge, threatened between any employee or group of employees on the one hand, and the Seller, on the other hand, and there have been no such troubles at any time during the past three (3) years; (iv) the Seller is not a party to any collective bargaining or other agreement with any union; (v) no employee is represented by a union; (vi) no petition has been filed or proceedings instituted or, to Seller’s Knowledge, threatened by or on behalf of any employee or group of employees with any labor relations board seeking recognition of a bargaining representative; (vii) to the Seller’s Knowledge there is not currently any effort underway to organize employees (by a labor union or otherwise); (viii) during the past three (3) years the Seller has not engaged in any “plant closing” or “mass layoff” (each as defined in the Worker Adjustment and Retraining Notification Act, 29 U.S.C. § 2101, et seq., (“WARN”) or any similar act that would trigger liability under any other Legal Requirement concerning plant closings or mass layoffs; (ix) there is no Legal Requirement that in any way restricts the relocation or closing, in whole or in part, of the Wholesale Business; (x) the employment of each employee is terminable at will, (xi) the Seller has paid or will pay in full to all employees all amounts currently due and payable for wages, salaries, commissions, bonuses, benefits and other compensation accrued through the Closing Date; and (xi) to Seller’s Knowledge, the Seller is not engaged in any unfair labor practice with respect to employees and (xii) no employee of the Wholesale Business is employed outside of the United States by Seller.

(c) Schedule 3.16(c) lists all Seller Plans. With respect to each Seller Plan, the Seller has made available to the Buyer true, accurate and complete copies of each of the following: (a) the plan document together with all amendments thereto, (b) copies of any summary plan descriptions or similar summaries, (c) the most recent IRS determination letter relating to each Seller Plan intended to be qualified under Section 401(a) of the Code, and (d) in the case of any plan for which Forms 5500 are required to be filed, the three most recently filed Forms 5500, with all schedules and attachments thereto. Each Seller Plan complies, and has at all time complies complied, with the applicable requirements of ERISA, COBRA, the Code and any other applicable Legal Requirements.

(d) As of the date of this Agreement there are no pending or, to Seller’s Knowledge, threatened disputes, arbitrations, claims, suits or grievances involving any Seller Plan (other than routine claims for benefits payable under any such Employee Plan). No Seller Plan is, or within the last three years has been, the subject of an examination or audit by any federal, state, local or foreign governmental authority.

(e) Each Seller Plan that is intended to be qualified under Code Section 401(a) has received a favorable determination letter from the IRS as to its tax-qualified status, its related trust has been determined to be exempt from taxation under Code Section 501(a) and nothing has occurred with respect to such Seller Plan that has adversely affected or could reasonably be expected to affect adversely such Seller Plan’s tax qualification and the exempt status of its related trust. Each Seller Plan, including any associated trust or fund, has been administered in all material aspects in accordance with its terms and with

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applicable Legal Requirements, and nothing has occurred with respect to any Seller Plan that has subjected or could subject the Seller or any ERISA Affiliate of the Seller to any material liability under ERISA or the Code.

(f) Neither Seller nor any ERISA Affiliate of the Seller is or has ever contributed (or been required to contribute) to any plan subject to Title IV of ERISA, including without limitation any “multiemployer plan.” No Seller Plan provides for welfare benefits following termination of employment other than as required by Section 4980B of the Code.

(g) Neither the Contemplated Transactions nor any of them, alone or together with any other event, will result in any payment of any kind to any employee or other service provider, or former employee or service provider, with respect to the Wholesale Business, including without limitation any bonus, severance, stay pay or other compensation benefit or payment. The Seller has not made any payments, and is not and has not been a party to any agreement, contract, arrangement or plan that could result in Seller making payments, that have resulted or could result, separately or in the aggregate, in the payment of any “excess parachute payment” within the meaning of Code Section 280G or in the imposition of an excise Tax under Section 4999 of the Code.

3.17. Certain Financial Information.

(a) The consolidated financial statements contained in the Company 10-K and in the Company’s annual reports on Form 10-K for the years ended April 1, 2007 and April 1, 2008 (collectively, the “Company 10-Ks”) have been prepared from, and are in accordance with, the books and records of the Seller and present fairly, in all material respects, the consolidated financial condition and results of operations of the Seller as of and for the periods presented therein, all in conformity with generally accepted accounting principles applied on a consistent basis.

(b) The Seller maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iii) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The management of the Seller has designated and implemented disclosure controls and procedures (as defined in Rules 13a-15(e) promulgated under the Exchange Act), or caused such disclosure controls and procedures to be designed and implemented under their supervision, to ensure that material information relating to the Seller is made known to the management of the Seller by others within the Seller. Since the date of the filing of the Seller’s most recent annual report on Form 10-K prior to the date hereof, the Seller’s outside auditors and the audit committee of the Seller board of directors have not been advised of (A) any significant deficiencies or material weaknesses in the design or operation of internal control over financial reporting which adversely affect the Seller’s 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 Seller’s internal control over

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financial reporting. Any material change in internal control over financial reporting and any significant deficiency or material weakness in the design or operation of internal control over financial reporting required to be disclosed in any SEC Report or in any form, report or document filed by the Seller with the SEC has been so disclosed and each significant deficiency and material weakness previously so disclosed have been remediated.

(c) Each of the principal executive officer and the principal financial officer of the Seller (or each former principal executive officer and principal financial officer of the Seller, as applicable) has made all certifications required by Rule 13a-14 or 15d-14 promulgated under the Exchange Act and Sections 302 and 906 of Sarbanes-Oxley Act with respect to the SEC Reports and with respect to any form, report or document filed by the Seller with the SEC after the date hereof. For purposes of the immediately preceding sentence, “principal executive officer” and “principal financial officer” shall have the meanings given to such terms in the Sarbanes-Oxley Act.

(d) Except as set forth on Schedule 3.17(d), the segment balance sheet relating to the Wholesale Business in the form attached hereto as Exhibit M (the “Wholesale Segment Balance Sheet”) has been prepared from, and is in accordance with, the books and records of the Seller and presents fairly, in all material respects, the financial condition and results of operations of the Seller’s Wholesale Business as of and for the periods presented therein, all in conformity with generally accepted accounting principles applied on a consistent basis.

(e) Schedule 6.1(h) is true, accurate and complete in all respects.

3.18. Undisclosed Liabilities. The Seller has no Liabilities or obligations of any kind, whether accrued, absolute, secured or unsecured, contingent or otherwise, other than Liabilities that are disclosed in the Disclosure Schedule or on the face of the financial statements contained in Seller’s annual reports on Form 10-K.

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3.19. Taxes.

(a) The Seller (i) has filed on a timely basis with the appropriate authorities all Tax Returns relating to the Wholesale Business which are or were filed or required to be filed on or before the date of this Agreement under applicable Legal Requirements, whether on a consolidated, combined, unitary or individual basis, which Tax Returns are true, correct and complete in all material respects, (ii) has paid in full on a timely basis to the appropriate Governmental Authority all Taxes relating to the Wholesale Business required to have been paid by the Seller (regardless of whether shown as due on any Tax Return), (iii) has timely and properly deducted, collected or withheld all Taxes or other amounts required to have been deducted, collected or withheld by the Seller, and (iv) has complied with all reporting and recordkeeping obligations in connection therewith (v) the Seller in not a beneficiary of any extension of time within which to file any Tax Return relating to the Wholesale Business and has not waived any statute of limitations in respect of taxes relating to the Wholesale Business.

(b) (i) No Governmental Authority has asserted any adjustment, deficiency, or assessment that could result in additional Tax relating to the Wholesale Business for which the Seller is or may be liable and there is no pending audit, examination, investigation, dispute, proceeding or claim for which the Seller has received written notice relating to any Tax relating to the Wholesale Business for which the Seller is or may be liable; (ii) no claim has ever been made by an authority in a jurisdiction where the Seller does not file Tax Returns that a Seller is or may be subject to Tax in that jurisdiction, and to the Seller’s Knowledge, there is no basis for such a claim to be made.

(c) There are no Liens on any of the assets of the Seller which arose in connection with any failure or asserted failure to pay any Tax.

(d) The Wholesale Business does not include any “advanced payments,” as defined in Revenue Procedure 2004-34, for which Buyer shall have to recognize corresponding income after the Closing Date.

(e) The Seller has never been or nor is required to make any disclosure with respect to the Wholesale Business to the IRS pursuant to Section 6111 of the Code or Section 1.6011-4 of the Treasury Regulations promulgated thereunder.

3.20. Notes and Accounts Receivable. All notes and accounts receivable of the Seller related to the Wholesale Business are reflected properly on its books and records in accordance with GAAP, are valid receivables, and arose from bona fide transactions. The Seller has delivered to Buyer as Schedule 3.20 a true and correct list of all receivables which have been deemed uncollectible and are not reflected in the Wholesale Segment Balance Sheet.

3.21. Insurance. Schedule 3.21 sets forth a list of all insurance policies of the Seller (a) applicable to the Wholesale Business and/or (b) that cover any Acquired Asset, Leased Property or Assumed Liability. Except as set forth on Schedule 3.18, there are no claims that relate to the Wholesale Business currently pending under any such insurance policy and to the Seller’s

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Knowledge, each policy is legal, valid, binding and in full force and effect and no insurer has denied or disputed any claim or, to Seller’s Knowledge, threatened to cancel any such policy.

3.22. Suppliers. Schedule 3.22 sets forth a list of the names and purchase amounts of the top ten suppliers of goods to the Wholesale Business for the current fiscal year to date. The Seller has not received any written notice that, and to the Seller’s Knowledge, none of any of such suppliers will stop selling to the Wholesale Business supplies, merchandise and other goods on terms and conditions substantially the same as those used in current sales, subject to general and customary price increases.

3.23. Subsidiaries. Except as set forth on Schedule 3.23, the Seller has no subsidiaries that operate in the Wholesale Business or that hold any assets utilized in the Wholesale Business.

3.24. Information To Be Supplied. The information supplied or to be supplied by Seller for inclusion in the Proxy Statement to be filed with the Securities and Exchange Commission will not, on the date of its filing or, in, or on the dates the Proxy Statement is mailed to the Seller’s shareholders and at the time of the Seller’s shareholder meeting in connection therewith, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading.

3.25. Voting Requirements; Approval; Board Approval. The affirmative vote of the holders of at least  ²/3 of the Company’s Common Stock, Series A Preferred Stock and Series B Preferred Stock, voting together as a single voting group, and of at least a majority of the Company’s Common Stock, Series A Preferred Stock and Series B Preferred Stock, voting as separate voting groups, are the only votes of the Company’s Shareholders required to authorize this Agreement and the Contemplated Transaction and the board of directors of Seller has, at a meeting duly called and held, by unanimous vote, (i) approved this Agreement, the Closing Documents, and the Contemplated Transactions and (ii) resolved to recommend that the Seller’s shareholders authorize the Agreement and the Contemplated Transactions.

3.26. Product Warranty. No product sold or delivered by the Wholesale Business is subject to any guaranty, warranty or other indemnity issued by the Seller beyond the applicable standard terms and conditions of sale.

3.27. Powers of Attorney. Except pursuant to this Agreement and the Exhibits hereto, there are no outstanding powers of attorney executed on behalf the Seller with respect to the Wholesale Business, its assets, Liabilities or business.

3.28. No Illegal Payments. To Seller’s Knowledge, neither the Seller nor any of its directors, officers, employees or agents, has (a) directly or indirectly given or agreed to give any illegal gift, contribution, payment or similar benefit to any supplier, customer, governmental official or employee or other person who was, is or may be in a position to help or hinder the Seller (or

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assist in connection with any actual or proposed transaction) or made or agreed to make any illegal contribution, or reimbursed any illegal political gift or contribution made by any other person, to any candidate for federal, state, local or foreign public office (i) which might subject the Seller to any damage or penalty in any civil, criminal or governmental litigation or proceeding or (ii) the non-continuation of which has had or might have, individually or in the aggregate, a Material Adverse Effect or (b) established or maintained any unrecorded fund or asset or made any false entries on any books or records for any purpose.

3.29. Anti-Takeover. No state takeover statute or similar statute or regulation applies to or purports to apply to this Agreement, or the other transactions contemplated by this Agreement. The Seller does not have a “poison pill” or similar shareholder rights plan.

3.30. Solvency. Immediately after giving effect to the transactions contemplated by this Agreement (including any payments, distributions and reserves contemplated to be made at or following the Closing), the Seller (a) is and shall be able to pay its debts as they become due; (b) owns property which has a fair saleable value greater than the amounts required to pay its debts (including a reasonable estimate of the amount of all contingent liabilities); and (c) has adequate capital to carry on its business. No transfer of property is being made and no obligation is being incurred in connection with the transactions contemplated by this Agreement with the intent to hinder, delay or defraud either present or future creditors of the Seller.

3.31. Reasonably Equivalent Value. The Purchase Price represents the reasonably equivalent value of the Acquired Assets as determined pursuant to arm’s length bargaining regarding the fair market values of the Acquired Assets.

4. REPRESENTATIONS AND WARRANTIES OF THE BUYER.

The Buyer represents and warrants to the Seller that:

4.1. Organization and Qualification of the Buyer. The Buyer (a) is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, (b) is duly qualified to do business and in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties requires such qualification and (c) has all power and authority consummate the Contemplated Transactions.

4.2. Authorization of Transaction. The Buyer has full corporate power and authority to execute and deliver each Transaction Document to which it is a party and all other instruments, agreements and documents contemplated thereby and has taken all actions necessary to authorize the consummation of the Contemplated Transactions and the performance of its obligations hereunder and thereunder. Each Transaction Document to which the Buyer is a party has been duly executed and delivered by the Buyer and is Enforceable against the Buyer.

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4.3. Government Authorization. The execution, delivery and performance by the Buyer of each Transaction Document to which it is a party and the consummation of the Contemplated Transactions by the Buyer require no action (including any authorization, consent or approval) by or in respect of, or filing with, any Governmental Authority.

4.4. Noncontravention. The execution, delivery and performance by the Buyer of each Transaction Document to which it is a party and the consummation of the Contemplated Transactions by the Buyer do not and will not (i) violate, conflict with or result in a default under the Organizational Documents of the Buyer, (ii) violate in any material respect any applicable Legal Requirement, (iii) except as set forth on Schedule 4.4 require any consent or other action by any Person under, conflict with, constitute a default or breach under or give rise to any right of termination, cancellation or acceleration of any right or obligation or to a loss of any material benefit to which the Buyer is entitled under any provision of any material agreement or other material instrument binding upon the Buyer or (iv) result in the creation or imposition of any Lien on any asset of the Buyer, except for Permitted Liens.

4.5. Brokers’ Fees. The Buyer shall be solely obligated for the payment of all fees or expenses of any broker, agent or finder engaged by it in connection with and for this Agreement or the Contemplated Transactions. The Buyer represents and warrants that there are no Liabilities with respect to any such brokers’ or finders’ fees or commissions relating to the Contemplated Transactions for which the Seller could become liable or obligated.

4.6. Litigation. There are no Actions to which the Buyer is a party (either as plaintiff or defendant), or to which the Buyer’s assets are subject, pending or, to the Buyer’s knowledge, threatened, that question the validity of this Agreement or the Transaction Documents.

4.7. Financing. As of the date of this Agreement, subject to the accuracy of (x) the representations and warranties of the Seller set forth in Article 3 hereof and (y) the historical and projected financial information provided by the Seller, and the satisfaction of the conditions set forth in Sections 6.1 and 6.2 hereof, Buyer has no reason to believe that it will be unable to satisfy the conditions of closing set forth in Section 6.1(q).

5. COVENANTS.

5.1. Filing and Mailing of the Proxy Statement. As soon as practicable following the date of this Agreement but in any event no later than fifteen (15) Business Days after the date hereof, the Seller shall at its own expense file with the Securities and Exchange Commission (“SEC”) a proxy statement (the “Proxy Statement”) as required by applicable Law relating to the approval of Seller’s shareholders of (i) this Agreement and the Contemplated Transactions, (ii) Seller’s change of its corporate name to a name that does not contain the word “Tully’s”, as required by Section IV(b) of the License Agreement and (iii) the amendment of Tully’s Amended and Restated Articles of Incorporation to amend the liquidation preferences of the Common Stock, Series A Preferred Stock, and Series B Preferred Stock in connection with the consummation of the Contemplated

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Transactions (the “Shareholder Approval”). The Proxy Statement will present each of the foregoing proposals for Shareholder Approval on the agenda for the Seller shareholder meeting and such proposals may not be combined with any other proposals that the Seller may present independently in the Proxy Statement.

Prior to the filing of the Proxy Statement, the Seller shall consult with Buyer with respect to such filings and shall afford Buyer or its representatives reasonable opportunity to comment thereon. Seller shall notify Buyer of the receipt of comments of the SEC and of any request from the SEC for amendments or supplements to the Proxy Statement or for additional information, and will promptly supply Buyer with copies of all correspondence between the Seller, on the one hand, and the SEC or members of its staff, on the other hand, with respect to the Proxy Statement. The Seller shall use its reasonable best efforts to resolve all SEC comments with respect to the Proxy Statement and any other required filings as promptly as practicable after receipt thereof. The Seller will use its reasonable best efforts to cause the Proxy Statement to be mailed to its shareholders as promptly as practicable. No filing of, or amendment or supplement to the Proxy Statement will be made by Seller without providing the Buyer a reasonable opportunity to review and comment thereon. If at any time any information relating to Seller or any of its affiliates, officers or directors should be discovered which should be set forth in an amendment or supplement to the Proxy Statement, so that any it would not include any misstatement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, the Party which discovers such information will promptly notify the other Party and an appropriate amendment or supplement describing such information will be promptly filed with the SEC and, to the extent required by Law, disseminated to the applicable shareholders. Seller will notify Buyer promptly of the receipt of any comments from the SEC or its staff and of any request by the SEC or its staff for amendments or supplements to the Proxy Statement or for additional information and will supply Buyer with copies of all correspondence between Seller or any of its representatives, on the one hand, and the SEC or its staff, on the other hand, with respect thereto.

5.2. General. Seller and Buyer will each use commercially reasonable efforts to take all action and to do all things necessary, proper, or advisable in order to consummate and make effective the transactions contemplated by this Agreement (including satisfaction, but not waiver, of the closing conditions set forth in Section 6 below).

5.3. Notices and Consents. The Seller shall within 15 days of closing have given any notices to third parties, and the Seller will use commercially reasonable efforts to obtain any third party consents, that are required to transfer the Acquired Assets to Buyer, including without limitation consents from the Creditors and any other consent that the Buyer may request.

5.4. Operation of Business. Between the Effective Date and the Closing Date the Seller will not engage in any practice, take any action, or enter into any transaction outside of the ordinary course in connection with the Wholesale Business. Without

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limiting the generality of the foregoing, during such period, the Seller (i) will not (A) declare, set aside, or pay any dividend or make any distribution with respect to its capital stock or redeem, purchase, or otherwise acquire any of its capital stock, (B) pay any amount to any third party with respect to any Liability or obligation (including any costs and expenses the Seller has incurred or may incur in connection with this Agreement and the transactions contemplated hereby) which would not constitute an Assumed Liability if in existence as of the Closing, (C) institute or execute any new or modify any existing severance or termination pay practice, whether conditionally or otherwise and whether pursuant to any Contractual Obligation, Employee Plan or otherwise, with respect to any employee, officer, director or independent contractor of the Wholesale Business or whose responsibilities relate to the Wholesale Business; (D) make any changes in the rate or terms of the current or future compensation of any director, officer or employee of the Wholesale Business or whose responsibilities relate to the Wholesale Business, except for (x) normal periodic adjustments in the ordinary course for a wholesale coffee business and consistent with past practice, and (y) changes required by an applicable Legal Requirement; (E) establish, enter into, adopt, amend, terminate or otherwise terminate the coverage or benefits available under any Employer Plan or enter into any collective bargaining agreement or other agreement with a labor union in either case with respect to the Wholesale Business; (F) pay any bonus to any director or officer working for the Wholesale Business or otherwise grant any unusual or extraordinary benefit or other direct or indirect compensation to any person; (G) change the manner in which contributions to any Employer Plan are made or the basis on which such contributions are determined, except, in each case, as may be required by applicable Legal Requirements; and (ii) will (A) keep available to the Buyer the services of the Seller’s present officers, employees, agents and independent contractors related to the Wholesale Business, and (B) preserve for the benefit of Buyer the goodwill of Seller’s customers, suppliers, landlords and others having business relations with it.

5.5. Trade Payables and Receivables. Seller will not without Buyer’s written consent change any of its practices, policies, procedures or timing of the collection of accounts receivable, billing of customers, pricing and payment terms, rebates and sales practices, cash collections, inventory management, prepaid expenses or terms with vendors or suppliers in each case as related to the Wholesale Business.

5.6. Press Releases and Public Announcements. Any public announcement, press release or similar publicity, with respect to this Agreement and the transactions contemplated hereby will be issued at the time and in the manner mutually agreed by the Buyer and the Seller.

5.7. Future Assurances. At any time and from time to time after the Closing, at the request of a Party and without further consideration, each other Party will execute and deliver such other appropriate instruments of sale, transfer, conveyance, assignment and confirmation and take such action as the requesting Party may reasonably determine is necessary to effectuate the provisions and purposes of this Agreement.

5.8. Access to Books, Records, etc. Subject to Section 5.9 below, Buyer agrees that it will cooperate with and make available to the Seller, during normal business hours and upon reasonable notice, all books and records, information and

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employees (without substantial disruption of employment) of the Seller retained by Buyer and remaining in existence after the Closing Date (excluding Tax Returns and records and information pertaining to the period from and after the Closing) that are necessary in connection with any inquiry, audit, investigation, dispute, litigation or other proceeding or similar matter involving or related to the Seller (other than any dispute among the Parties or their respective Affiliates with respect to this Agreement, the Transaction Documents and the Contemplated Transactions) or which the Seller may otherwise request in connection with the performance of its obligations under the Transaction Documents, to address pre-Closing matters or to wind up the affairs of the Seller with respect to the Wholesale Business.

The Seller agrees that it will cooperate with and make available to the Buyer, during normal business hours and upon reasonable notice, all books, records and information (without substantial disruption of employment) of the Seller which relate to the Wholesale Business, the Acquired Assets or the Assumed Liabilities, retained by such Seller Party and remaining in existence after the Closing Date that are necessary in connection with any inquiry, audit, investigation, dispute, litigation or other proceeding or similar matter to which the Buyer is a party and which involves or relates to the Wholesale Business, the Acquired Assets or the Assumed Liabilities. The Seller agrees that it shall preserve and keep all books and records of the Seller relating to the Wholesale Business, the Acquired Assets and the Assumed Liabilities for a period of at least seven (7) years from the Closing Date; provided that the Seller may thereafter destroy records and information in the ordinary course of business to the extent in the Seller’s possession.

Without limiting the generality of the foregoing, within fifteen (15) days after the end of each fiscal month after the date hereof through the Closing Date, the Seller shall deliver to the Buyer monthly financial statements for the Wholesale Business for that fiscal month and, upon the Buyer’s request, meet with the Buyer to review and discuss the results of operations and changes in financial position reflected therein. No information received or investigations undertaken by the Buyer shall operate as a waiver with respect to or otherwise affect any representation, warranty, covenant or agreement made or given by the Seller in this Agreement or any of the Closing Documents or in any instrument delivered in connection herewith or therewith.

5.9. Confidentiality.

(a) Buyer and the Seller agree to maintain in the strictest confidence, and shall cause their respective lenders, investors and Representatives, including Representatives of such lenders and investors, to maintain in the strictest confidence, any and all information, written or otherwise, related to the assets, liabilities, operations and/or business of the Buyer and the Seller (“Confidential Information”), unless (i) such Confidential Information is already known to such Party or to others not bound by a duty of confidentiality or such Confidential Information becomes publicly available, in each case, through no fault of such Party from a person who is not otherwise bound by an obligation of confidentiality with respect to such Confidential Information, (ii) the use of such Confidential Information is necessary or appropriate in making any filing or obtaining any

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consent or approval required for the consummation of the Contemplated Transactions, with the prior consent of the Seller and the Buyer, which consent will not be unreasonably withheld or delayed or (iii) disclosure of Confidential Information is required by an applicable Legal Requirement, as set forth in subsection (b) hereof. Notwithstanding the foregoing, each of Buyer, Seller and their directors, officers, employees, agents and advisors may disclose to any and all persons, without limitation of any kind, the Tax treatment and Tax structure of the transactions contemplated by this Agreement and all materials of any kind (including opinions or other Tax analyses) that are provided to them relating to such Tax treatment and Tax structure, all as contemplated by Treasury Regulations section 1.6011-4.

(b) Each Party agrees that in the event it or its Representatives are required by applicable Legal Requirement to disclose the Confidential Information or the terms or existence of the Contemplated Transaction, then such Party will, unless otherwise prohibited by applicable Legal Requirements, provide prompt written notice thereof to the other Parties, together with a copy of such process, and will cooperate with the other Parties so as to enable any or all of them to seek an appropriate protective order or other remedy.

(c) Each Party agrees that, in the event of an actual or threatened breach of this Section 5.9 by such Party, then any or all of the other Parties shall be entitled to injunctive relief to prevent such actual or threatened breach, it being agreed that the other Parties shall not have any adequate remedy at law.

5.10. Non-Assignable Assets. Following the Closing, the Seller shall use commercially reasonable efforts to cooperate with and assist the Buyer in obtaining all consents required in connection with the Contemplated Transactions not obtained as of the Closing. To the extent that any consent is not obtained, at the Buyer’s request the Seller and the Buyer shall enter into agreements for each Assumed Contract, Permit or other right for which consent was not obtained, under which the Buyer shall obtain the rights and benefits of any such Assumed Contractual Obligation, Permit or other right at the Buyer’s cost and assume the corresponding obligations and liabilities of the Seller thereunder, so that the parties are, to the greatest extent possible, put in the same position they would have been in had such consent been obtained unconditionally and without recourse. Such agreements may be in the form of a subcontract, sub-license or sub-lease appointing the Buyer as agent to the Seller to perform such Lease, Contractual Obligation, Permit or other right, or any other arrangement under which the Buyer could enforce for the benefit of the Buyer any and all rights and benefits of the Seller against the third party thereto.

5.11. Tax Matters.

(a) Straddle Period. For the purposes of this Agreement, whenever it is necessary to determine the liability for Taxes (other than personal property Taxes of Washington) for a Straddle Period, (A) the determination of the Taxes for the portion of the Straddle Period ending on and including, and the portion of the Straddle Period beginning after, the Closing Date will be

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determined by assuming that the Straddle Period consisted of two taxable years or periods, one which ended at the close of the Closing Date and the other which began at the beginning of the day following the Closing Date, and, items of income, gain, deduction, loss or credit of such member for the Straddle Period will be allocated between such two taxable years or periods on a “closing of the books basis” by assuming that the books were closed at the close of the Closing Date, provided, however, that exemptions, allowances or deductions that are calculated on an annual basis (such as the deductions for depreciation and real estate taxes) will be apportioned between such two taxable years or periods on a daily basis, or (B) in the case of Taxes imposed on a periodic basis with respect to the assets of the Wholesale Business or otherwise measured by the level of any item, the Taxes for the portion of the Straddle Period ending on and including the Closing Date shall be deemed to be the amount of such Taxes for the entire period, multiplied by a fraction the numerator of which is the number of calendar days in the period ending on the Closing Date and the denominator of which is the number of calendar days in the entire period.

(b) Transfer Taxes. Seller and Buyer shall cooperate in timely making all filings, returns, reports and forms as may be required in connection with Seller’s payment of Transfer Taxes. Seller and Buyer, as appropriate shall execute and deliver, and Seller shall cause each of the Seller Affiliates, as appropriate, to execute and deliver, all instruments and certificates reasonably necessary to enable the other to comply with any filing requirements relating to any such Transfer Taxes. Seller shall pay all Transfer Taxes; provided, however, that Buyer shall cooperate with the other parties in providing any information and documentation that may be necessary to obtain any available exemption. Buyer agrees to retain all records relating to the finances and Taxes of the Acquired Assets for all Pre-Closing Tax Periods until the expiration of the statutes of limitation (including any extensions thereof) for the taxable period or periods to which such records relate. Buyer and Seller agree to provide each other with such information and assistance as is reasonably necessary, including access to records and personnel, for the preparation of any Tax Returns or for the defense of any Tax claim or assessment, whether in connection with an audit or otherwise.

(c) Wage Reporting. Buyer and Seller agree to utilize, or cause their respective Affiliates to utilize, the alternate procedure set forth in Internal Revenue Service Revenue Procedure 2004-53 with respect to wage reporting for employees of the Seller which become employees of the Buyers in connection with the Contemplated Transactions.

5.12. Board Recommendation; Non Solicitation; Fiduciary Exceptions.

(a) Subject to Section 5.12(d) hereof, the Seller’s board of directors shall recommend that Seller’s shareholders approve the Contemplated Transactions and this Agreement at the shareholders’ meeting; and Seller’s obligation to call, give notice of, convene and hold the shareholders’ meeting as set forth in the Proxy Statement and in accordance with this Agreement shall not be limited or otherwise affected by the commencement, disclosure, announcement or submission to Seller of any Acquisition Proposal or Superior Proposal.

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(b) The Seller and its officers, directors, employees, investment bankers, attorneys, accountants or other agents or those of its subsidiaries (collectively, “Representatives”) have ceased and caused to be terminated all existing solicitations, initiations, encouragements, discussions, negotiations and communications with any Persons with respect to any offer or proposal or potential offer or proposal relating to any transaction or proposed transaction or series of related transactions, other than the Contemplated Transactions, involving: (A) any acquisition or purchase from the Seller by any person or “group” (as defined under Section 13(d) of the Exchange Act and the rules and regulations thereunder) of more than a fifteen percent (15%) interest in the Seller’s Common Stock, Series A Preferred Stock or Series B Preferred Stock or any class of voting securities of the Seller’s subsidiaries or any tender offer or exchange offer that if consummated would result in any person or “group” (as defined under Section 13(d) of the Exchange Act and the rules and regulations thereunder) beneficially owning fifteen percent (15%) or more of the total outstanding voting securities of the Seller or any of its subsidiaries, (B) any consolidation, business combination, merger or similar transaction involving the Seller; (C) any sale, lease, exchange, transfer, license, acquisition or disposition of the Acquired Assets, or assets of the Seller or its subsidiaries (including for this purpose the outstanding equity securities of the Seller’s subsidiaries) for consideration that would be equal to fifteen percent (15%) or more of the revenues, net income or assets of the Seller; or (D) any recapitalization, restructuring, liquidation or dissolution of the Seller (each of clauses (A)-(D), an “Acquisition Proposal”). Except as otherwise provided in this Section 5.12, the Seller shall not, and shall not authorize or permit its Representatives to, directly or indirectly (i) initiate, solicit or knowingly encourage, or take any action to facilitate the making of, any offer or proposal which is or is reasonably likely to lead to any Acquisition Proposal, (ii) enter into any agreement with respect to any Acquisition Proposal or (iii) engage in negotiations or discussions with, or provide any information or data to, any Person (other than Seller or any of its affiliates or representatives) relating to any Acquisition Proposal or grant any waiver or release under any standstill or other agreement. Notwithstanding the foregoing, nothing contained in this Section 5.12 or any other provision hereof shall prohibit the Seller or the Seller’s board of directors from (x) taking and disclosing to the Seller’s shareholders its position with respect to any tender or exchange offer by a third party pursuant to Rules 14d-9 and 14e-2 promulgated under the Exchange Act, or (y) making such disclosures to the Seller’s shareholders as in the good faith judgment of the Seller’s board of directors, after receipt of advice from outside legal counsel, as is required for complying with Seller’s disclosure obligations with regard to any Acquisition Proposal under applicable Legal Requirements.

(c) Notwithstanding anything to the contrary contained in this Agreement, prior to the date of the Shareholder Approval (the “Acceptance Date”), the Seller and its Representatives may furnish information or data concerning Seller’s business, properties, and assets to any Person pursuant to a confidentiality agreement with terms no less favorable to the Seller than those contained in the Confidentiality Agreement, and may engage in discussions and negotiations with such Person concerning an Acquisition Proposal, if, but only if, such Person has, in the absence of any violation of this Section 5.12 by the Seller, submitted a bona fide written proposal to the Seller relating to an Acquisition Proposal that the Seller’s board of directors determines in good faith, after consultation with its outside legal counsel and its financial advisor, is or is reasonably likely to lead to a

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Superior Proposal (as defined below) and where the failure to participate in such discussions or negotiations or to furnish such information would be inconsistent with the fulfillment of the directors’ fiduciary duties (including the standards of conduct set forth in Section 23B.08.300 of the Washington Business Corporation Act) under applicable Legal Requirements. The Seller shall promptly (and in any case within 48 hours) (i) notify Buyer of the receipt of any Acquisition Proposal, which notice shall include a copy of such Acquisition Proposal, and (ii) provide Buyer with copies of all written materials provided by the Seller to the Person who has submitted such Acquisition Proposal. The Seller shall promptly keep Buyer reasonably informed (and, in any case, within 24 hours of any material developments) of the status and terms (including amendments and proposed amendments) of any such Acquisition Proposal. The Seller shall, promptly following a determination by Seller’s board of directors that an Acquisition Proposal is a Superior Proposal, notify Buyer of such determination. For purposes of this Agreement, a “Superior Proposal” is an Acquisition Proposal made by a third party that if consummated would result in such Person (or its shareholders) owning, directly or indirectly, (A) all or substantially all of the shares of the Seller’s capital stock then outstanding or (B) all or substantially all of the assets of the Seller, in each case which the Seller’s board of directors determines in good faith (after consultation with its financial advisor) to be (x) more favorable to the shareholders of the Seller from a financial point of view than the Contemplated Transactions, and (y) taking into account all the terms and conditions of such proposal and this Agreement, including any changes to the financial terms of this Agreement proposed by Buyer in response to such proposal or otherwise, and at least as likely to be consummated as the transactions contemplated thereby in a timely manner, considering all financial, legal, regulatory and other aspects of such proposal.

(d) Except as expressly permitted by this Section 5.12(d), neither the Seller’s board of directors nor any committee thereof shall (i) withdraw or modify, or propose publicly to withdraw or modify, in a manner adverse to Buyer, the approval or recommendation by the Seller’s board of directors or any such committee of the Contemplated Transactions, this Agreement or the proposal contained in the Definitive Proxy Statement relating to the approval of the Contemplated Transactions and this Agreement, (ii) approve or recommend, or propose publicly to approve or recommend, any Acquisition Proposal (any action referred to in the foregoing clauses (i) and (ii) being referred to as an “Adverse Recommendation Change”) or (iii) enter into any agreement with respect to any Acquisition Proposal (other than a confidentiality agreement in accordance with Section 5.12(c)).

Notwithstanding anything to the contrary contained in this Agreement, prior to the Acceptance Date and subject to this Section 5.12(d), the Seller’s board of directors may effect an Adverse Recommendation Change (x) in response to an unsolicited bona fide written Acquisition Proposal, if the Seller’s board of directors (A) determines in good faith (after consultation with its outside legal counsel and financial advisor) that such Acquisition Proposal constitutes a Superior Proposal and (B) determines in good faith (after consultation with its outside legal counsel) that the failure to effect an Adverse Recommendation Change would be inconsistent with the fulfillment of its fiduciary duties to the shareholders of the Seller under applicable Legal Requirements

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or (y) other than in connection with an Acquisition Proposal, if the Seller’s board of directors determines in good faith (after consultation with its outside legal counsel) that the failure to effect an Adverse Recommendation Change would be inconsistent with the fulfillment of its fiduciary duties to the shareholders of the Seller under applicable Legal Requirements; provided, however, that the Seller’s board of directors shall not be entitled to exercise its right to make an Adverse Recommendation Change or terminate this Agreement pursuant to clause (x) or (y) of this Section 5.12(d)(ii) until after the third business day following the Seller’s delivery to Buyer of a written notice advising Buyer that board of directors has received a Superior Proposal and that the Seller intends to effect an Adverse Recommendation Change or terminate this Agreement; and provided, further, that during such three (3) business day period, the Seller has provided the Buyer the opportunity, in Buyer’s sole discretion, to make such adjustments in the terms and conditions of this Agreement as would enable the Seller’s board of directors to proceed with its recommendation of the Contemplated Transactions and this Agreement without making an Adverse Recommendation Change. Neither making an Adverse Recommendation Change in accordance with this Agreement nor terminating this Agreement in accordance with this Section 5.12(d) shall constitute a breach by Seller of this Agreement.

(e) The Seller shall promptly (but in no event later than two (2) business days after the date of this Agreement) demand that each Person that has executed a confidentiality agreement in connection with a potential Acquisition Proposal return (or destroy, to the extent permitted by the terms of the applicable confidentiality agreement) all copies of confidential information furnished to such Person by or on behalf of the Seller or a Seller subsidiary.

(f) Notwithstanding anything to the contrary contained in this Agreement, prior to obtaining Shareholder Approval, if the Seller’s board of directors receives an unsolicited, bona fide written Acquisition Proposal made after the date hereof in circumstances not involving a breach of Section 5.12 which contains a statement or terms that are not reasonably understandable or clear on their face, Seller and its Representatives may submit written questions or requests for clarification to the Person making such Acquisition Proposal that are restricted exclusively to seeking clarification of such statement or terms so as to determine whether such Acquisition Proposal is or is reasonably likely to lead to a Superior Proposal; provided that both such Acquisition Proposal and such written request for clarification have been provided concurrently to Buyer with the delivery of such written request to such party.

(g) Notwithstanding anything to the contrary contained in this Section 5.12, Seller may continue to negotiate with Kouta Matsuda, as well as directly or indirectly solicit or initiate or enter into any discussions or transactions with any third party, relating to Seller’s international business, and may directly or indirectly solicit or initiate or enter into any discussions or transactions with any third party relating to the sale of Seller’s retail operations, so long as such discussions or transactions do not relate to the Wholesale Business, the Contemplated Transactions or contemplate the inclusion of any of the Acquired Assets (collectively, “Excluded Proposals”). Any such Excluded Proposals shall not be considered an Acquisition Proposal hereunder.

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5.13. Berner Inventory. Buyer shall pay to Seller any proceeds that it receives from the sale of the Berner Inventory.

6. CONDITIONS TO OBLIGATION TO CLOSE.

6.1. Conditions to Obligations of the Buyer. The obligation of the Buyer to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions:

(a) Representations and Warranties. The representations and warranties of the Seller contained in this Agreement and in any document, instrument or certificate delivered hereunder (a) that are not qualified by materiality or Material Adverse Effect will be true and correct in all material respects at and as of the Closing Date with the same force and effect as if made as of the Closing Date and (b) that are qualified by materiality or Material Adverse Effect will be true and correct in all respects at and as of the Closing Date with the same force and effect as if made as of the Closing Date, in each case, other than representations and warranties that expressly speak only as of a specific date or time, which will be true and correct as of such specified date or time.

(b) Performance by the Seller. All of the covenants, agreements and obligations that Seller is required to perform or to comply with pursuant to this Agreement at or prior to the Closing shall have been duly performed and complied with in all material respects by them at or prior to the Closing.

(c) Absence of Litigation. No action, suit, or proceeding shall be pending or threatened before any court or quasi-judicial administrative agency of any federal, state, local, or foreign jurisdiction wherein an unfavorable injunction, judgment, order, decree, ruling, or charge would (i) prevent consummation of any of the transactions contemplated by this Agreement or (ii) cause any of the transactions contemplated by this Agreement to be rescinded following consummation (and no such injunction, judgment, order, decree, ruling or charge shall be in effect).

(d) Certificates. The Seller shall have delivered to the Buyer a certificate to the effect that each of the conditions specified above in Section 6.1(a)-(c) are satisfied in all respects.

(e) Opinion. The Buyer shall have received from counsel to the Seller an opinion in form and substance reasonably satisfactory to the Buyer, addressed to the Buyer, and dated as of the Closing Date.

(f) Closing Documents. The Seller will have delivered to the Buyer each of the Closing Documents duly executed by the parties thereto and all other documents required to be delivered by Seller pursuant to Section 2.7 and the Closing Documents shall be in full force and effect.

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(g) Creditors. The Seller will have delivered to the Buyer termination and payoff letters from each of the Creditors in form and substance reasonably satisfactory to the Buyer evidencing termination of all such facilities, together with evidence of termination of all Liens on the Acquired Assets.

(h) Trade Payables. The Seller will have delivered to the Buyer a summary of the check run to be made immediately following Closing pursuant to which Seller shall pay all trade payables of the Wholesale Business as set forth on Schedule 6.1(h) (which shall reflect all trade payables of the Wholesale Business as of the Closing) and a certificate certifying that such payables will be made immediately upon the Closing. For the avoidance of doubt, Schedule 6.1(h) shall include the entire payable to Berner for the Berner Inventory, which amount is in addition to the deposit currently held by Berner referenced in 6.1(t).

(i) Seller Consents. The Seller will have delivered to the Buyer documentation satisfactory to the Buyer evidencing Seller having obtained all Seller Consents.

(j) Roaster Permit Compliance. The Buyer will have received from the Puget Sound Air Group and any other the applicable State of Washington regulatory authority all necessary 2008 permits and approvals required for each of the two smaller roasters located on the Leased Property to roast up to 6,800 pounds of coffee per day and the third larger roaster to roast up to 16,400 pounds of coffee per day and for the three roasters located on the Leased Property operating together to roast at least a combined aggregate of 30,000 pounds of coffee per day in full compliance with all Laws and all such permits and approvals will have been granted or transferred to the Buyer in full compliance with all Laws and Seller will have at its own expense completed all modifications and repairs required to operate each of the roasters at the Leased Property in compliance with such permits and that on the Closing Date each of the roasters will be operational and able to roast up to the amounts set forth herein.

(k) Organic Certification. The Seller will have obtained Organic Certification by the Washington State Department of Agriculture which covers all coffee roasting procedures at the Leased Property and all coffee roasted at the Leased Property.

(l) Tax Clearance Certificates. The Seller shall have provided Buyer with letters or certificates from each of the Washington State Department of Revenue, the Washington State Employment Security Department and the Washington State Department of Labor and Industries evidencing that no Taxes or other payments are due from Seller to any of such departments at Closing or as a result of the Closing.

(m) No Material Adverse Change. There shall not have been any change which has resulted in a Material Adverse Effect and no event has occurred or circumstance exists that may result in such a Material Adverse Effect.

(n) Shareholder Approval. The Shareholder Approval shall have been obtained and shall be in full force and effect.

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(o) Necessary Actions. All actions to be taken by the Seller in connection with the consummation of the transactions contemplated hereby and all certificates, opinions, instruments and other documents required to effect the transactions contemplated hereby will be satisfactory in form and substance to the Buyer.

(p) Employment Offers. Seller will have terminated each of its employees listed on subsection 1 of Schedule 6.1(p) effective as of the Closing Date and (i) 75% of the employees listed on subsection 1 of Schedule 6.1(p) will have accepted employment offers from the Buyer on or prior to the Closing Date, including Mark Dacosta and John Rader and (ii) either 75% of the employees listed on subsection 2 of Schedule 6.1(p) will have accepted employment offers from the Buyer on or prior to the Closing Date or arrangements reasonably satisfactory to the Buyer shall be made to provide services with respect to the functional areas of such employees through the Transition Services Agreement.

(q) Consent Under Credit Facility. The Buyer shall have met all conditions and obtained all required consents to funding the Purchase Price under the Buyer’s Amended and Restated Revolving Credit Agreement dated as of December 3, 2007 among the Buyer, its guarantor subsidiaries, Bank of America, N.A., Banc of America Securities LLC and the other lender parties thereto, as amended and in effect from time to time.

(r) Amendments to Certain Contracts. The Seller will have executed amendments reasonably satisfactory in form and substance to Buyer with the applicable counter party to Seller in each of the (i) Amended and Restated Brokerage Agreement dated as of August 1, 2005 between Impact Sales, Inc., (ii) Supply and Distributor Agreement dated as of October 1, 2003 between Food Services of America, Inc. and Seller, and (iii) Consulting Agreement dated as of June 18, 2008 by and between Tully’s and PinnPointe Consulting Group.

(s) Amendments to Coffee Contracts. The Seller will have executed amendments reasonably satisfactory in form and substance to Buyer to Seller’s existing contracts with Atlas and Sustainable Harvest to provide that all obligations in such contracts are subject to approval of sample.

(t) Berner Side Letter. The Buyer will have received a letter in form and substance reasonably satisfactory to Buyer from Berner Foods, Inc. (“Berner”) stating that the $200,000 deposit that Berner is currently holding from Seller will be applied toward the packaging materials produced by Berner pursuant to the Supply Agreement dated as of August 10, 2006 between Seller Subsidiary and Berner and Exhibit A thereto (the “Berner Inventory”).

(u) TCAP Side Letter. The Buyer will have received a letter in form and substance reasonably satisfactory to the Buyer stating that Seller acknowledges that GMCR is a third-party beneficiary under the TCAP License (as defined in the License Agreement) and shall cause Tully’s Coffee Asia Pacific, Inc. to agree GMCR is such a third-party beneficiary.

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(v) FIRPTA Certificate. Seller shall have delivered to Buyer a certification meeting the requirements of Treasury Regulation Section 1.1445-2(b)(2) to the effect that Seller is not a “foreign person” as defined in Section 1445 of the Code.

(w) TCAP Liens. Seller will have caused Tully’s Coffee Asia Pacific, Inc. to have released all Liens on the Acquired Assets held by Tully’s Coffee Asia Pacific, Inc. pursuant to the Security Agreement dated December 21, 2007 between Seller and Tully’s Coffee Asia Pacific, Inc. and that Buyer shall have received evidence reasonably satisfactory to Buyer as to the release of such Liens.

(x) Assumed Contract. The Seller will have executed amendments reasonably satisfactory in form and substance to the Buyer to each of the contracts listed on Schedule 2.1(c) in order to remove any retail obligations from such contracts.

The Buyer may waive any condition specified in this Section 6.1 if it executes a writing so stating at or prior to the Closing. Such waiver shall not be considered a waiver of any other provision in this Agreement unless the writing specifically so states.

6.2. Conditions to Obligations of the Seller. The obligation of the Seller to consummate the transactions to be performed by them in connection with the Closing is subject to satisfaction of the following conditions:

(a) Representations and Warranties. The representations and warranties set forth in Section 4 shall be true and correct as of the Closing Date.

(b) Performance by Buyer. The Buyer shall have performed and complied with all of its covenants hereunder through the Closing.

(c) Absence of Litigation. No action, suit, or proceeding shall be pending or threatened before any court or quasi-judicial administrative agency of any federal, state, local, or foreign jurisdiction wherein an unfavorable injunction, judgment, order, decree, ruling, or charge would (i) prevent consummation of any of the transactions contemplated by this Agreement or (ii) cause any of the transactions contemplated by this Agreement to be rescinded following consummation (and no such injunction, judgment, order, decree, ruling or charge shall be in effect);

(d) Certificates. The Buyer shall have delivered to the Seller a certificate to the effect that each of the conditions specified above in Sections 6.2(a)-(c) is satisfied in all respects.

(e) Necessary Actions. All actions to be taken by the Buyer in connection with the consummation of the transactions contemplated hereby and all certificates, opinions, instruments and other documents required to effect the transactions contemplated hereby will be satisfactory in form and substance to the Seller.

(f) Payment of Purchase Price and Noncompete Payment. Buyer shall have paid the Purchase Price and the Noncompete Payment in accordance with Section 2.4 and 2.8 hereof.

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(g) Shareholder Approval. The Shareholder Approval shall have been obtained and shall be in full force and effect;.

(h) Closing Documents. The Buyer will have delivered to the Seller each of the Closing Documents duly executed by the parties thereto.

The Seller may waive any condition specified in this Section 6.2 if it executes a writing so stating at or prior to the Closing. Such waiver shall not be considered a waiver of any other provision in this Agreement unless the writing specifically so states.

7. INDEMNIFICATION.

7.1. Survival of Representations and Warranties. All of the representations and warranties of the Seller (except for those contained in Sections 3.1, 3.2, 3.5, 3.12, 3.13 and 3.19) or in any document, certificate or other instrument required to be delivered hereunder shall survive the Closing and continue in full force and effect for 12 months following the Closing Date, at which time such representations and warranties and any cause of action based thereon will terminate. The representations and warranties of Seller contained in Sections 3.1, 3.2, 3.5, 3.12 3.13 and 3.19 shall survive in full force and effect until the expiration of the applicable statute of limitations (after giving effect thereto to any tolling, extension or waiver thereof) at which time such representations and warranties and any cause of action based there on shall terminate. The termination of any such representation and warranty shall not affect any claim for breaches of representations or warranties if written notice thereof is given to the breaching party or parties prior to the termination date. All of the representations and warranties of the Buyer contained in Section 4 shall survive the Closing and shall continue in full force and effect until 12 months following the Closing Date. All covenants and indemnities of any Party in this Agreement or in any document or certificate delivered hereunder shall, unless otherwise specifically provided therein, remain in full force and effect forever.

7.2. Indemnification.

(a) Subject to the limitations set forth in this Article 7, the Seller will indemnify and hold harmless the Buyer, and the Representatives and Affiliates of the Buyer (each, a “Buyer Indemnified Person”), from, against and in respect of any and all Losses incurred or suffered by the Buyer Indemnified Persons or any of them as a result of or arising out of:

(i) any breach of, or inaccuracy in, any representation or warranty made by the Seller in this Agreement (in each case, as such representation or warranty would read if all qualifications as to materiality, including each reference to the defined term “Material Adverse Effect,” were deleted therefrom);

(ii) any breach or violation of any covenant or agreement of the Seller in or pursuant to this Agreement;

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(iii) any fraud or intentional misrepresentation (as determined by a court of competent jurisdiction) by the Seller;

(iv) any Excluded Liability; or

(v) any Excluded Asset.

(b) Subject to the limitations set forth in this Article 7, the Buyer will indemnify and hold harmless the Seller, and the Representatives and Affiliates of each of the foregoing Persons (each, a “Seller Indemnified Person”), from, against and in respect of any and all Losses incurred or suffered by the Seller Indemnified Persons or any of them as a result of or arising out of:

(i) any breach of, or inaccuracy in, any representation or warranty made by Buyer in this Agreement (in each case, as such representation or warranty would read if all qualifications as to materiality, including each reference to the defined term “Material Adverse Effect,” were deleted therefrom);

(ii) any breach or violation of any covenant or agreement of Buyer in or pursuant to this Agreement;

(iii) any fraud or intentional misrepresentation (as determined by a court of competent jurisdiction) by Buyer;

(iv) any Assumed Liability; or

(v) the ownership and operation of the Acquired Assets and the conduct of the Business after the Closing Date other than Losses that arose as the result of a breach of Section 5.4 (Operation of Business) between the date hereof and the Closing Date.

7.3. Time Limitations. No claim may be made or suit instituted seeking indemnification in respect of any breach or inaccuracy in any representation or warranty pursuant to Section 7.2(a)(i) or Section 7.2(b)(i) for any breach of, or inaccuracy in, any representation or warranty unless a written notice describing such breach or inaccuracy in reasonable detail in light of the circumstances then known to the party seeking indemnification under Section 7.2 (the “Indemnified Party”), is provided to the party against whom indemnity is sought (the “Indemnifying Party”):

(a) at any time prior to the expiration of the applicable statute of limitations (taking into account any tolling periods and other extensions), in the case of any breach of, or inaccuracy in, the representations and warranties set forth in Sections 3.1, 3.2, 3.5, 3.12, 3.13 and 3.19; and

(b) at any time prior to the date which is 12 months after the Closing Date, in the case of any breach of, or inaccuracy in, any other representation and warranty in this Agreement.

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7.4. Monetary Limitations.

(a) The Buyer will have no obligation to indemnify the Seller Indemnified Persons and the Seller will have no obligation to indemnify the Buyer Indemnified Persons pursuant to Section 7.2 with respect to Losses arising from the breach of, or inaccuracy in, any representation or warranty described therein unless the aggregate amount of all such Losses incurred or suffered by the Buyer Indemnified Persons exceeds $200,000 (the “Threshold”) (at which point the Seller or Buyer will indemnify, as applicable the Seller Indemnified Persons or the Buyer Indemnified Persons for all Losses in excess of the Threshold). Subject to paragraph (c) below, (i) the maximum aggregate liability of the Seller for all claims by the Buyer Indemnified Persons under 7.1(a)(i) for Losses shall be limited to $3,500,000 (the “Cap”) and (ii) the maximum aggregate liability of Buyer for all claims by the Seller Indemnified Persons under Section 7.1(b)(i) for Losses shall be limited to the Cap.

(b) Any and all dollar amounts payable by the Seller as an Indemnifying Party to the Buyer as an Indemnified Party in connection with a claim for Losses under Section 6.1(a) will be paid in cash by Seller in accordance with payment instructions provided by the Buyer. Any and all dollar amounts payable by the Buyer as an Indemnifying Party to the Seller as an Indemnified Party in connection with a claim for Losses under Section 6.1(b) will be paid in cash in accordance with payment instructions provided by the Seller.

(c) Notwithstanding the foregoing, the limitations on liability in paragraphs (a) and (b) of this Section 7.4 shall not apply to (i) claims related to breaches of or inaccuracies in the representations and warranties set forth in Section 3.1, 3.2, 3.5, 3.12, 3.13 and 3.19; (ii) claims for indemnification pursuant to any provision of Section 7 other than Sections 7.2(a)(i) and 7.2(b)(i); provided however, that the aggregate liability with respect Losses arising as described in clauses (i) and (ii) hereof shall not exceed the Purchase Price and provided further nothing herein shall be deemed to limit an Indemnified Party’s ability to bring a claim for equitable relief or from bringing any action based on fraud or intentional misrepresentation or the monetary relief available for such claim. Subject to Section 6.3(b), any and all dollar amounts payable by an Indemnifying Party to an Indemnified Party in connection with a claim for Losses under any provision of Section 7 other than Section 7.1(a)(i) and Section 7.1(b)(i) will be paid in cash without deduction or set off by such Indemnifying Party in accordance with payment instructions provided by the Indemnified Party.

7.5. Third Party Claims.

(a) If any third party will notify an Indemnified Party with respect to any matter (a “Third Party Claim”) which may give rise to an indemnification claim against an Indemnifying Party under this Section 7, then the Indemnified Party will promptly give written notice to the Indemnifying Party; provided, however, that no delay on the part of the Indemnified Party in notifying the Indemnifying Party will relieve the Indemnifying Party from any obligation under this Section 7, except to the extent such delay actually and materially prejudices the Indemnifying Party.

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(b) The Indemnifying Party will be entitled to assume control of the defense of any Third Party Claim that is the subject of a notice given by the Indemnified Party pursuant to Section 7.6(a) and shall be entitled to defend the Indemnified Party against the Third Party Claim with counsel of its choice reasonably satisfactory to the Indemnified Party so long as (i) the Indemnifying Party gives written notice to the Indemnified Party within fifteen days after the Indemnified Party has given notice of the Third Party Claim that the Indemnifying Party will indemnify the Indemnified Party from and against the entirety of any and all Losses the Indemnified Party may suffer resulting from or arising out of the Third Party Claim, (ii) the Third Party Claim involves only money damages and does not seek an injunction or other equitable relief against the Indemnified Party, (iii) the Indemnified Party has not been advised by counsel that an actual or potential conflict exists between the Indemnified Party and the Indemnifying Party in connection with the defense of the Third Party Claim, (iv) the Third Party Claim does not relate to or otherwise arise in connection with any criminal or regulatory enforcement action and (v) the Indemnifying Party can demonstrate to the reasonable satisfaction of the Indemnified Party its ability to pay for the entirety of all the potential Losses in relation to the Third Party Claim, subject to the limitations set forth in Section 7.3. The Indemnified Party may retain separate co-counsel at its sole cost and expense and participate in (but not control) the defense of the Third Party Claim; provided, however, that the Indemnifying Party will pay the fees and expenses of separate co-counsel retained by the Indemnified Party that are incurred prior to Indemnifying Party’s assumption of control of the defense of the Third Party Claim.

(c) The Indemnifying Party will not consent to the entry of any judgment or enter into any compromise or settlement with respect to the Third Party Claim without the prior written consent of the Indemnified Party, which consent shall not be unreasonably withheld, unless such judgment, compromise or settlement (i) provides for the payment by the Indemnifying Party of money as sole relief for the claimant, (ii) results in the full and general release of the Buyer Indemnified Persons or Seller Indemnified Persons, as applicable, from all liabilities arising or relating to, or in connection with, the Third Party Claim and (iii) involves no finding or admission of any violation of Legal Requirements or the rights of any Person and no negative effect on any other claims that may be made against the Indemnified Party.

(d) If the Indemnifying Party does not deliver the notice contemplated by the first clause of Section 7.5(b) within 15 days after the Indemnified Party has given notice of the Third Party Claim, (i) the Indemnified Party may defend, and may consent to the entry of any judgment or enter into any compromise or settlement with respect to, the Third Party Claim in any manner it may deem appropriate and (ii) the Indemnifying Party shall be entitled to participate in (but not control) the defense of such action, at its own expense, provided that, the Indemnified Party shall not settle or compromise such Third Party Claim without the prior written consent of the Indemnifying Party, which consent shall not be unreasonably withheld, unless the Indemnified Party shall have notified the Indemnifying Party of the suit pursuant to clause (i) of Section 7.5(b) and the Indemnifying Party shall have failed to taken control of such suit in accordance with this Section 6.5(b). In the event that the Indemnified Party conducts the defense of the Third Party Claim pursuant to this Section 7.5(d), the Indemnifying Party will (i) advance the

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Indemnified Party promptly and periodically upon request for the costs of defending against the Third Party Claim (including reasonable attorneys’ fees and expenses) and (ii) remain responsible for any and all other Losses that the Indemnified Party may incur or suffer resulting from or arising out of the Third Party Claim to the fullest extent provided in this Section 7.

7.6. Information. Each Party hereby agrees to provide to the other Party on request all information and documentation reasonably necessary to support and verify any Losses which give rise to a claim for indemnification pursuant to this Section 7 and to provide reasonable access to all books, records and personnel in their possession or under their control which would have a bearing on such claim of the defense thereof.

7.7. Remedies Cumulative; Sole Remedy; Order of Recovery. The rights of each Buyer Indemnified Person and the Seller Indemnified Person under this Section 7 are cumulative, and each Buyer Indemnified Person and Seller Indemnified Person, as the case may be, will have the right in any particular circumstance, in its sole discretion, to enforce any provision of this Section 7 without regard to the availability of a remedy under any other provision of this Section 7. Notwithstanding the foregoing, except to the extent that a claim involves fraud or intentional misrepresentation (as determined by a non-appealable decision of a court of competent jurisdiction), the sole and exclusive remedy for any breach of, or inaccuracy in, or alleged breach or inaccuracy in, any representation or warranty in any Transaction Document shall be indemnification in accordance with this Section 7.

7.8. Purchase Price Adjustment. Any indemnity payments made pursuant to this Section 7 shall be treated by the Parties as adjustments to the Purchase Price for all purposes.

7.9. Tax Benefits. Any payment to an Indemnified Party pursuant to this Section 7 shall be reduced to take account of any net Tax benefit actually received by the Indemnified Party in respect of the taxable year in which such Loss is incurred or paid and, with respect to a Tax benefit arising in a year subsequent to the year in which the Loss is paid or incurred, the Indemnified Party shall pay to the Indemnifying Party the amount of such Tax benefit (including, as relevant, any member of its affiliated group) when such Tax benefit is actually received (reduced, in each case, by the amount of any Tax detriment actually realized by the Indemnified Party as a result of the receipt of any indemnity payment hereunder). In computing the amount of any such Tax cost or Tax benefit the Indemnified Party shall be deemed to recognize all other items of income, gain, loss, deduction or credit before recognizing any item arising from the receipt of any indemnity payment hereunder or the incurrence or payment of any indemnified Loss.

7.10. Insurance Recoveries. The amount of any Losses payable by a Party hereunder shall be net of any amounts actually recovered in cash by an Indemnified Party under applicable insurance policies, net of all expenses incurred in prosecuting such insurance claim and the present value of any increase in insurance premiums or other charges paid or to be paid by such Party directly attributable to such Loss. If any Indemnified Party seeks indemnification against an Indemnifying Party under this

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Section 7 for Losses sustained or incurred by such Indemnified Party with respect to a particular claim or series of related claims in excess of $25,000, the Indemnified Party shall be required to promptly make and pursue in good faith a claim under any applicable insurance policies to recover such Losses, but only if such Losses are not covered by the insurance policies of Indemnifying Party.

8. TERMINATION AND ABANDONMENT.

8.1. Basis For Termination. This Agreement may be terminated and the transactions contemplated hereby abandoned at any time prior to the Closing Date

(a) by mutual written consent of Buyer and Seller;

(b) by either Buyer or Seller:

(i) if the Shareholder Approval shall not have been obtained at the shareholders’ meeting duly convened therefor or at any adjournment or postponement thereof at which a vote on the matters subject to such approval was taken;

(ii) if the Closing does not occur on or prior to December 31, 2008 (the “Outside Date”), unless (x) the failure of the Closing to occur by such date is due to the failure of the Party seeking to terminate the Agreement to perform or observe in all material respects the covenants and agreements of such Party set forth herein or (y) the failure of the Closing to occur by such date is solely the result of Shareholder Approval not being obtained prior to such date, in which case the Outside Date shall be automatically extended to February 15, 2009; or

(iii) if there shall be any Legal Requirement that makes consummation of the transactions hereunder illegal or otherwise prohibited or any Governmental Authority having competent jurisdiction shall have issued an order, decree or ruling or taken any other action (which the terminating Party shall have complied with its obligations hereunder to resist, resolve or lift) permanently restraining, enjoining or otherwise prohibiting any material component of the transactions hereunder, and such order, decree, ruling or other action shall have become final and non-appealable;

(c) by Buyer:

(i) in the event that an Adverse Recommendation Change shall have occurred;

(ii) if Seller breaches any of its representations and warranties or fails to perform any of its covenants and agreements contained in this Agreement, which breach or failure to perform (A) would give rise to the failure

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of a condition set forth in Section 6.1 and (B) cannot be or has not been cured within 60 days after the giving of written notice to Buyer of such breach; or

(iii) if any of the conditions set forth in Section 6.1 shall have become incapable of fulfillment, and shall not have been waived by Buyer;

(d) by Seller:

(i) if Buyer breaches any of its representations and warranties or fails to perform any of its covenants and agreements contained in this Agreement, which breach or failure to perform (A) would give rise to the failure of a condition set forth in Section 6.2 and (B) cannot be or has not been cured within 60 days after the giving of written notice to Buyer of such breach;

(ii) in accordance with the terms and subject to the conditions of Section 5.12(d) in order to effect an Adverse Recommendation Change; or

(iii) if any of the conditions set forth in Section 6.2 shall have become incapable of fulfillment, and shall not have been waived by Seller;

provided, however, that the Party seeking termination pursuant to Section 8.1 (c)(ii), (c)(iii), (d)(i), (d)(ii) or d(iii) is not in material breach of any of its representations, warranties, covenants or agreements contained in this Agreement.

8.2. Effect of Termination.

(a) Any termination under Section 8.1 of this Agreement will be effective immediately upon the delivery of a written notice of the terminating Party to the other Party hereto, and if then due, payment of the fee set forth in Section 8.2(b) or reimbursement of expenses as set forth in Section 8.2(c) hereof, as applicable. In the event of termination of this Agreement as provided for in Section 8.1 hereof, this Agreement will become void and of no further force and effect; provided, however, that (i) the provisions of Section 5.8 relating to the obligations to keep certain information confidential, Section 5.5 relating to publicity, this Section 8 and Section 9 (other than Section 9.16 relating to specific performance, which shall terminate with the other provisions of this Agreement) shall survive termination of this Agreement and remain in full force and effect and (ii) nothing herein shall relieve any party from liability for fraud or the knowing and intentional breach of any of its representations, warranties, covenants or agreements set forth in this Agreement.

(b) Seller will pay to Buyer:

(i) a fee of $ 1.6 million if (A) either Party terminates this Agreement pursuant to Section 8.1(b)(i); (B) at any time after the date of this Agreement and prior to the date of the Seller’s shareholders’ meeting, an Acquisition Proposal with respect to Seller shall have been publicly announced, proposed or commenced and (C) within twelve months after the date of such termination, Seller shall have entered into an agreement related to an Acquisition Proposal; or

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(ii) a fee of $1.6 million if Buyer terminates this Agreement pursuant to Section 8.1(c)(i) or if Seller terminates this Agreement pursuant to Section 8.1(d)(ii) or (iii).

Any fee due under this Section 8.2(b) will be paid by wire transfer of immediately available funds (to an account specified by Buyer). The fee described in clause (i) will be paid by Seller at or before entering into the agreement relating to the Acquisition Proposal described therein. The fees described in clause (ii) will be paid by Seller promptly following termination of this Agreement, and in any event within two business days of termination. Upon payment of the termination fees in accordance with this Section 8.2(b), Seller will have no further liability to Buyer at law or in equity under this Agreement except as specifically set forth in Section 8.2(a). In no event shall Seller be required to pay the fees under this Section 8.2(b) on more than one occasion.

(c) If this Agreement is terminated by Seller pursuant to Section 8.1(d)(iii) due to Buyer’s failure to have obtained the consents to funding referenced in Section 6.2(q), then Buyer shall promptly (and in any event within two business days of termination) pay to Seller or its designee all out-of-pocket costs and expenses incurred by or on behalf of Seller in connection with this Agreement and the Contemplated Transactions, including all fees and expenses of counsel, accountants, investment bankers, and other Representatives, up to an aggregate maximum amount of $1.6 million for all such costs, fees, and expenses.

(d) Each of the Buyer and Seller acknowledges that the agreements contained in this Section 8.2 are an integral part of the transactions contemplated by this Agreement, that without these agreements the Buyer and Seller would not have entered into this Agreement, and that any amounts payable pursuant to this Section 8.2 do not constitute a penalty. If the Seller fails to pay as directed in writing by the Buyer any amounts due to the Buyer pursuant to this Section 8.2 within the time periods specified in this Section 8.2 or Buyer fails to pay the Seller any amounts due to the Seller pursuant to this Section 8.2 within the time periods specified in this Section 8.2, the Buyer or Seller, as applicable, shall pay the costs and expenses (including reasonable legal fees and expenses) incurred by Buyer, on one hand, or the Seller, on the other hand, as applicable, in connection with any action, including the lawsuit, taken to collect payment of such amounts, together with interest on such unpaid amounts at the prime lending rate prevailing during such period as published in The Wall Street Journal, calculated on a daily basis from the date such amounts were required to be paid until the date of actual payment.

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9. MISCELLANEOUS.

9.1. Entire Agreement. This Agreement, together with the confidentiality agreement dated April 17, 2008, and the Closing Documents, constitute the entire agreement among the parties hereto with respect to the subject matter hereof and supersede any and all prior discussions, negotiations, proposals, undertakings, understandings and agreements, whether written or oral, with respect thereto.

9.2. Succession and Assignment; No Third-Party Beneficiary. Subject to the immediately following sentence, this Agreement will be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, each of which such successors and permitted assigns will be deemed to be a party hereto for all purposes hereof. No Party may assign, delegate or otherwise transfer either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of the other Parties (except with respect to any successor to all or substantially all of a Party’s business that becomes a party to this Agreement and subject to the terms and conditions of this Agreement to the same extent, and in the same capacity, as the Party which is so succeeded, in which case no prior written consent shall be necessary hereunder); provided, however, that the Buyer shall have the right to effect a collateral assignment for the benefit of Buyer’s lenders. This Agreement is for the sole benefit of the Parties and their permitted successors and assignees and nothing herein expressed or implied will give or be construed to give any Person, other than the Parties and such successors and assignees, any legal or equitable rights hereunder.

9.3. Counterparts. This Agreement may be executed in any number of counterparts, each of which will be deemed an original, but all of which together will constitute but one and the same instrument. This Agreement will become effective when duly executed by each Party hereto.

9.4. Headings. The headings contained in this Agreement are for convenience purposes only and will not in any way affect the meaning or interpretation hereof.

9.5. Notices. All notices, requests, demands, claims and other communications required or permitted to be delivered, given or otherwise provided under this Agreement must be in writing and must be delivered, given or otherwise provided:

(a) by hand (in which case, it will be effective upon delivery);

(b) by facsimile (in which case, it will be effective on the business day following receipt of confirmation of good transmission; provided that a copy of any such facsimile is concurrently sent to the recipient by first class mail); or

(c) by overnight delivery by a nationally recognized courier service (in which case, it will be effective on the Business Day after being deposited with such courier service);

in each case, to the address (or facsimile number) listed below:

If to any Seller:	Tully’s Coffee Corporation
	3100 Airport Way South,
	Seattle, Washington 98134
	Phone: (206) 233-2070
	Fax:

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With a copy to:	Carney Badley Spellman, P.S.
	701 Fifth Avenue, Suite 3600
	Seattle, WA 98104
	Phone: (206) 622-8020
	Fax: (206) 467-8215
	Attention: Patrick R. Lamb
If to the Buyer:	Green Mountain Coffee Roasters, Inc.
	33 Coffee Lane Waterbury, VT 05676
	Phone: (802) 244-5621
	Fax: (802) 244-1289
	Attention: Lawrence J. Blanford
With a copy to:
	Ropes & Gray LLP
	One International Place
	Boston, MA 02110
	Phone: (617) 951-7431
	Fax: (617) 951-7050
	Attention: Jane D. Goldstein, Esq.

Any Party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other Parties notice in the manner herein set forth.

9.6. Mail. Seller authorizes Buyer on and after the Closing Date to receive and open all mail received by Buyer relating to the Acquired Assets and to deal with the contents of such communications in any proper manner. The Seller shall promptly deliver to Buyer any mail or other communications received by the Seller after the Closing Date pertaining to the Acquired Assets. Buyer shall promptly deliver to the applicable Seller any mail or other communication received by Buyer after the Closing Date pertaining to the Excluded Assets or any Excluded liabilities, and any cash, checks or other instruments of payment in respect of the Excluded Assets. As soon as is practicable after the Closing Date, upon the request of the Buyer, the Seller will mail to its vendors a notice of the sale of the Acquired Assets hereunder.

9.7. Governing Law. This Agreement and all claims, disputes or other Actions arising hereunder or out of the Contemplated Transactions shall be governed by and construed in accordance with the law of the State of New York, without regard to the conflicts of law rules of such state.

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9.8. Amendments and Waivers. No amendment or waiver of any provision of this Agreement will be valid and binding unless it is in writing and signed, in the case of an amendment, by Buyer and the Seller, or in the case of a waiver, by the Party against whom the waiver is to be effective, and if the amendment or waiver is applicable to any other party set forth on the signature pages hereto, such party. No waiver by any Party of any breach or violation of, default under or inaccuracy in any representation, warranty or covenant hereunder, whether intentional or not, will be deemed to extend to any prior or subsequent breach, violation, default of, or inaccuracy in, any such representation, warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence. No delay or omission on the part of any Party in exercising any right, power or remedy under this Agreement will operate as a waiver thereof.

9.9. Severability. Any term or provision of this Agreement or of any Section hereof that is invalid or unenforceable in any situation in any jurisdiction will not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. In the event that any provision hereof would, under applicable Legal Requirements, be invalid or unenforceable in any respect, each Party hereto intends that such provision will be construed by modifying or limiting it so as to be valid and enforceable to the maximum extent compatible with, and possible under, applicable Legal Requirements.

9.10. Expenses. Each of the Buyer and the Seller will bear its own costs and expenses (including legal and accounting fees and expenses) incurred in connection with this Agreement and the transactions contemplated hereby. The Seller also agrees that it has not paid any amount to any third party, and will not pay any amount to any third party, with respect to any of the costs and expenses of the Seller (including any of its legal fees and expenses) in connection with this Agreement or any of the transactions contemplated hereby.

9.11. Construction. The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement will be construed as if drafted jointly by the Parties and no presumption or burden of proof will arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement. In all cases, word “including” shall be interpreted as “including without limitation” and the word “or” shall be interpreted as “and/or.”

9.12. Incorporation of Schedules and Exhibits. The Schedules and Exhibits identified in this Agreement are incorporated herein by reference and made a part hereof.

9.13. Jurisdiction. Each Party to this Agreement, by its execution hereof, (a) hereby irrevocably submits to the exclusive jurisdiction of the federal or state courts within The State of New York for the purpose of any Action between the Parties arising

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in whole or in part under or in connection with this Agreement, (b) hereby waives to the extent not prohibited by applicable law, and agrees not to assert, by way of motion, as a defense or otherwise, in any such Action, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that any such Action brought in one of the above-named courts should be dismissed on grounds of forum non conveniens, should be transferred or removed to any court other than one of the above- named courts, or should be stayed by reason of the pendency of some other proceeding in any other court other than one of the above-named courts, or that this Agreement or the subject matter hereof may not be enforced in or by such court and (c) hereby agrees not to commence any such Action other than before one of the above-named courts. Notwithstanding the previous sentence a Party may commence any Action in a court other than the above-named courts solely for the purpose of enforcing an order or judgment issued by one of the above-named courts.

9.14. Venue. Each Party agrees that for any Action between the Parties arising in whole or in part under or in connection with this Agreement, such Party bring Actions only in The State of New York. Each Party further waives any claim and will not assert that venue should properly lie in any other location within the selected jurisdiction.

9.15. Service of Process. Each Party hereby (a) consents to service of process in any Action between the Parties arising in whole or in part under or in connection with this Agreement in any manner permitted by New York law, and (b) waives and agrees not to assert (by way of motion, as a defense, or otherwise) in any such Action any claim that service of process made in accordance with clause (a) does not constitute good and valid service of process.

9.16 Specific Performance. The parties to this Agreement agree that irreparable damage may occur in the event that any of the provisions of this Agreement are not performed in accordance with their specific terms or are otherwise breached. Upon proof of such irreparable damage, the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement, in addition to any other remedy to which they are entitled at law or in equity.

9.17. Waiver of Jury Trial. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW THAT CANNOT BE WAIVED, THE PARTIES HEREBY WAIVE, AND COVENANT THAT THEY WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY ACTION ARISING IN WHOLE OR IN PART UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE CONTEMPLATED TRANSACTIONS, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. THE PARTIES AGREE THAT ANY OF THEM MAY FILE A COPY OF THIS PARAGRAPH WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY AND BARGAINED-FOR AGREEMENT AMONG THE PARTIES IRREVOCABLY TO WAIVE ITS RIGHT TO TRIAL BY JURY IN ANY

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PROCEEDING WHATSOEVER BETWEEN THEM RELATING TO THIS AGREEMENT OR ANY OF THE CONTEMPLATED TRANSACTIONS WILL INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.

[The remainder of this page is intentionally left blank.]

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IN WITNESS WHEREOF, each of the undersigned has executed this Agreement as an agreement under seal as of the date first above written.

THE BUYER:	GREEN MOUNTAIN COFFEE ROASTERS, INC.
	By:	/s/ Lawrence J. Blanford
	Name:	Lawrence J. Blanford
	Title:	President and Chief Executive Officer

[Signature Page to Asset Purchase Agreement]

THE SELLER PARENT:	TULLY’S COFFEE CORPORATION
	By:	/s/ Tom T. O’Keefe
	Name:	Tom T. O’Keefe
	Title:	Chairman of the Board and Director
THE SELLER SUBSIDIARY:	TULLY’S BELLACCINO, LLC
	By:	TULLY’S COFFEE CORPORATION,
		Its Sole Member
	By:	/s/ Tom T. O’Keefe
	Name:	Tom T. O’Keefe
	Title:	Chairman of the Board and Director

[Signature Page to Asset Purchase Agreement]

EX-10.27

Exhibit 10.27

SETTLEMENT AND LICENSE AGREEMENT

This Settlement and License Agreement (“AGREEMENT”), effective as described herein, is made by and between Keurig, Incorporated, a Delaware corporation having a principal place of business at 55 Walkers Brook Drive, Reading, Massachusetts; and Kraft Foods Global, Inc. (“KFG”), a Delaware corporation having a place of business at 1250 West North Street, Dover, Delaware; Tassimo Corporation (“TASSIMO CORP.”), a Delaware corporation having a mailing address of P.O. Box 6361, Dover, Delaware; and Kraft Foods Inc. (“KRAFT FOODS”), a Virginia corporation having a place of business at Three Lakes Drive, Northfield, Illinois.

RECITALS

WHEREAS, KEURIG is the owner of all right, title and interest in and to the following patents directed to beverage technologies:

(a) United States Patent No. 6,607,762, entitled Disposable Single Serve Beverage Filter Cartridge (the “‘762 PATENT”);

(b) United States Patent No. 7,377,162, entitled Method and Apparatus for Liquid Level Sensing (the “‘162 PATENT”); and

(c) Foreign counterparts of the ‘762 PATENT and the ‘162 PATENT.

WHEREAS, KRAFT makes, uses, keeps, offers to sell, sells, imports, and otherwise commercializes single-serve beverage cartridges and single-serve beverage machines under the T-DISC and TASSIMO marks;

WHEREAS, on January 10, 2007, KEURIG filed a complaint captioned Keurig, Incorporated v. Kraft Foods Global, Inc. et al., No. 07-cv-17 GMS in the United States District Court for the District of Delaware (the “LAWSUIT”) in which KEURIG has asserted certain claims against KRAFT and KRAFT has asserted certain counterclaims against KEURIG and has sought leave to assert other counterclaims;

WHEREAS, the PARTIES desire to resolve all aspects of the LAWSUIT without the expenditure of further time and expense and to avoid any future disputes with regard to the LICENSED PATENTS;

WHEREAS, KRAFT desires the freedom to further develop and commercialize its beverage cartridge technology;

WHEREAS, while KEURIG is willing to license KRAFT under the LICENSED PATENTS, KEURIG desires to protect from copying by KRAFT any future KEURIG design or innovation for a beverage cartridge that is covered by the ‘762 PATENT;

WHEREAS, KEURIG and KRAFT have reached an agreement to settle the LAWSUIT.

Page 1 of 10

NOW THEREFORE, in consideration of the promises and the mutual covenants hereinafter recited, KEURIG and KRAFT agree as follows:

1. Definitions

(a) “EFFECTIVE DATE” as used herein shall mean the last date of signature appearing on this AGREEMENT.

(b) “PARTY” as used herein shall mean each of KEURIG and KRAFT.

(c) “AFFILIATES” as used herein shall mean any present or future domestic or foreign corporation, company or other entity that (i) is owned or controlled, directly or indirectly, by a PARTY; or (ii) owns or controls a PARTY (either directly or indirectly); or (iii) is under common ownership or control with a PARTY. For the purposes of the definition of AFFILIATES, the phrases “owned,” “owns,” “ownership,” “controlled,” “controls” and “control” mean (a) in the case of a corporation or company: owning or controlling, directly or indirectly, at least twenty percent (20%) (by nominal value or number of units) of the outstanding shares or securities conferring the right to vote at general meetings; and (b) in the case of a partnership, joint venture, unincorporated corporation or other entity that does not have outstanding shares or securities: having more than a twenty percent (20%) ownership interest representing the right to make the decisions for such partnership, joint venture, unincorporated corporation or other entity or having a fifty percent (50%) or more ownership although not necessarily having control over the decisions of such partnership, joint venture, unincorporated corporation or other entity.

(d) “KRAFT” as used herein shall mean KFG, TASSIMO CORP., KRAFT FOODS and their parents, subsidiaries and AFFILIATES worldwide.

(e) “KEURIG” as used herein shall mean Keurig, Incorporated and its parent, subsidiaries and AFFILIATES worldwide.

(f) “LICENSED PATENTS” as used herein shall mean the ‘762 PATENT, the ‘162 PATENT and foreign counterparts of the ‘762 PATENT and the ‘162 PATENT and any parent, divisional, continuation, continuation-in-part, reissue, reexamined patent, registration, renewal, extension of the ‘762 PATENT, ‘162 PATENT or foreign counterparts thereof.

(g) “LICENSED PRODUCTS” as used herein means beverage filter cartridges and all beverage brewing machines made, used, offered for sale, sold, otherwise distributed, kept, imported or exported anywhere in the world that KEURIG contends would directly or indirectly infringe at least one claim of at least one LICENSED PATENT in the absence of a license under this AGREEMENT, provided that said beverage filter cartridges are physically compatible for use with the piercing unit in the brew head in beverage brewing machines sold under the Tassimo mark on or before the EFFECTIVE DATE (“EXISTING BREWER”) or physically compatible for use with the piercing unit retrofitted in the brew head in an EXISTING BREWER after the EFFECTIVE DATE, provided, further, however, and notwithstanding any provision in this AGREEMENT to the contrary, LICENSED PRODUCTS shall not include beverage filter cartridges that KRAFT or a third party on behalf of KRAFT designed to work or intended for use with the

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piercing unit of a beverage brewing machine first offered for sale by, for or under license (other than the license granted hereunder) from or to KEURIG after the EFFECTIVE DATE (each a “NEXT GEN KEURIG BREWER”), the piercing unit of such NEXT GEN KEURIG BREWER, itself not having been copied or derived from a beverage brewing machine designed by KRAFT, or a party on behalf of KRAFT, and offered for sale prior to the date on which such NEXT GEN KEURIG BREWER is first offered for sale. A beverage filter cartridge that would be compatible for use with the original or retrofitted piercing unit in the brew head of an EXISTING BREWER but for the dimensions of the cartridge shall be a LICENSED PRODUCT. For purposes of clarity, and not to limit the foregoing, the fact that a replacement part, insert or adaptor is used in the brew head to accommodate the beverage filter cartridge shall not render the beverage filter cartridge incompatible for use with the piercing unit in the brew head. Furthermore, the fact that a beverage filter cartridge is incompatible for use in an EXISTING BREWER for a reason other than its incompatibility for use with the original or retrofitted piercing unit in the brew head of an EXISTING BREWER shall not exclude it from being a LICENSED PRODUCT. In this clause the term “a party on behalf of KRAFT” shall include any party that has licensed, assigned or otherwise transferred the relevant design to KRAFT.

2. Payment. Within ten (10) business days of the EFFECTIVE DATE, KRAFT shall pay Seventeen Million U.S. Dollars ($17,000,000.00) to KEURIG. Payment shall be wired to Bank of America, 100 Federal Street, Boston, MA 02110 (ABA Number 026009593, SWIFT # BOFAUS3N), Account Number 003880245710 (Keurig, Inc.).

3. Non-Exclusive License. KEURIG grants to KRAFT an irrevocable, non-exclusive, fully paid-up, worldwide license (“LICENSE”) under the LICENSED PATENTS to make, have made, use, keep, offer for sale, sell, otherwise directly or indirectly distribute, import or export anywhere in the world LICENSED PRODUCTS. The LICENSE grant herein includes the right to sub-license rights conveyed under this AGREEMENT to permit other parties to make, use, keep, offer to sell, sell, otherwise distribute, import or export LICENSED PRODUCTS made, sold, distributed, imported or exported anywhere in the world by or for KRAFT. Furthermore, the LICENSE grant herein includes the right for KRAFT to sub-license manufacturers of brewers for the limited purpose of making, using, keeping, offering to sell, selling, distributing, importing and exporting anywhere in the world brewers for use with KRAFT’s LICENSED PRODUCTS. KRAFT otherwise may not sub-license its rights under this AGREEMENT without KEURIG’s written consent. This LICENSE shall end on the date upon which the last of the patents licensed hereunder expires. Those terms and conditions of the LICENSE intended to be observed and performed by one or more PARTIES after termination or expiration of the LICENSE, for any reason, shall so survive and continue.

4. Patent Validity and Enforceability. Nothing herein is an admission nor shall be deemed an admission by KRAFT that any KRAFT product infringes the LICENSED PATENTS or that the LICENSED PATENTS are valid or enforceable.

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5. Patent Marking. Within one hundred and eighty (180) days of the EFFECTIVE DATE, Kraft shall begin marking LICENSED PRODUCTS in accordance with 35 U.S.C. § 287 as follows:

(a) The packaging of single-serve beverage filter cartridges shall be marked as covered by the ‘762 PATENT.

(b) The packaging of brewing machines sold by KRAFT having float-disk sensors shall be marked as covered by the ‘162 PATENT. To the extent that LICENSED brewing machines are manufactured by entities other than KRAFT, KRAFT shall make its best efforts to have such entities comply with the foregoing patent marking requirements.

6. No Warranty or Obligation. Nothing contained in this AGREEMENT shall be construed as:

(a) a warranty or representation that commercialization of LICENSED PRODUCTS will be free of infringement of third party patents;

(b) an obligation or agreement on the part of KEURIG to sue third parties for infringement of KEURIG patents; or

(c) an obligation on the part of KEURIG to pursue, maintain, prosecute or take any other action in connection with any patents or patent rights anywhere in the world.

7. Indemnification. KRAFT shall be responsible for all personal injury, property damage and warranty claims caused by any and all LICENSED PRODUCTS.

8. Dismissal of the Lawsuit. Within ten (10) business days of the EFFECTIVE DATE, the PARTIES will execute and file with the United States District Court for the District of Delaware a Stipulation of Dismissal With Prejudice in the form attached hereto as Exhibit A.

9. Binding of Successors and Assigns. This AGREEMENT, and the duties and obligations herein, shall be binding upon KRAFT and KEURIG and/or any and all of their respective AFFILIATES, successors and assigns.

10. Assignability.

(a) KRAFT may not assign or otherwise transfer any of its rights, duties or obligations under this AGREEMENT to any third party at any time without the prior written consent of KEURIG. Notwithstanding the immediately preceding, KRAFT shall have the right to assign or otherwise transfer its rights, duties, or obligations under this AGREEMENT, without KEURIG’s prior written consent, as part of the sale of its entire business, its beverage business, its coffee business, or its on demand coffee business, or, in relation to the foregoing, any part thereof, on either a worldwide or country by country basis. To the extent that KEURIG’s consent is necessary for such assignment or transfer as part of the sale of its entire business, its beverage business, its coffee business or its on demand coffee business or, in relationship to the foregoing, any part therof, on either a worldwide or country basis, KEURIG hereby agrees to provide such consent.

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(b) Any assignment of KEURIG’s rights in the LICENSED PATENTS and/or its obligations under this AGREEMENT shall include a provision that the assignment is subject to KRAFT’s license and KEURIG’s obligations under this AGREEMENT and require that the assignee accept in writing KRAFT’S license and KEURIG’s obligations under the AGREEMENT. Any assignment that does not include the required provision shall be void. Likewise, if KEURIG fails to obtain the assignee’s written acceptance of KRAFT’s license and KEURIG’s obligations under the AGREEMENT, the assignment is void.

11. Confidentiality. The PARTIES shall maintain the terms of the AGREEMENT in confidence and shall not publicize or disclose the terms in any manner whatsoever. Notwithstanding the foregoing, the PARTIES may disclose the terms of the AGREEMENT to the limited extent required by law, including but not limited to their filings at the United States Securities and Exchange Commission. In any such disclosure the disclosing PARTY shall not include any commentary or make any characterization regarding the litigation and settlement thereof, except to the extent required by law in the opinion of the disclosing PARTY’s attorneys, accountants, auditors, tax preparers, or financial advisors. For purposes of clarity, Green Mountain Coffee Roasters Inc. (“GREEN MOUNTAIN”), the parent company of KEURIG, intends to disclose the AGREEMENT in an SEC Form 8-K Current Report and to attach a copy of the AGREEMENT to GREEN MOUNTAIN’S next 10-Q Report. Nothing herein shall prohibit such disclosure. The PARTIES may also disclose the AGREEMENT and the terms thereof to their attorneys, accountants, auditors, tax preparers, financial advisors and other agents to the limited extent they have a need to know the terms in order to perform their professional duties. KEURIG may also issue a press release limited to the following content: (1) an announcement that the litigation between KEURIG and KRAFT has been settled and a license granted by KEURIG to KRAFT; (2) the amount of the payment hereunder; and (3) a statement shall be included that “The Parties believe that the settlement is an efficient and pragmatic way to resolve their patent dispute. Both parties agree that it is in the best interest of their respective businesses and shareholders to avoid the cost and uncertainties of continued litigation.” KEURIG may also include a statement that KEURIG continues to invest in research and development and the value of its intellectual property portfolio. Furthermore, the PARTIES may also disclose the LICENSE grant in Section 3, the Marking provisions in Section 5, the Assignability provisions in Section 10 and the Mutual Release provisions in Section 21 to the limited extent necessary to inform a third party that a product is licensed under the LICENSED PATENTS, or that past claims are released, in order to obtain the cooperation of a third party to mark brewers, or in KRAFT’s pursuit of a sale of its whole business, or its beverages business, or its coffee business, or its on-demand coffee business, or, in relationship to the foregoing, any part therof, on either a worldwide or country basis, or KEURIG’s assignment of rights in the LICENSED PATENTS and/or its obligations under the AGREEMENT.

12. Construction. The PARTIES acknowledge that this AGREEMENT is the result of negotiations between the PARTIES and therefore shall be interpreted fairly in accordance with its terms and without any construction in favor of or against either PARTY. The titles of the paragraphs herein are for the convenience of reference only and shall not affect the construction of this AGREEMENT.

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13. Effective Counsel. KEURIG and KRAFT have had all desired counsel, legal and otherwise, in entering into this AGREEMENT, and do so in accordance with their own free acts and deeds.

14. Controlling Law and Jurisdiction. This AGREEMENT shall be construed and interpreted in accordance with the laws of the State of Delaware without reference to its principles of conflicts of laws. Each PARTY irrevocably consents to the exclusive jurisdiction and venue of the federal and state courts in the State of Delaware to enforce the terms of this AGREEMENT and to resolve all disputes hereunder. In the event that any controversy or claim arises relating to this Agreement, the PARTY identifying the controversy or making the claim shall, as a prerequisite to filing a lawsuit, give written notice of the controversy or claim to the other PARTY. Thereinafter, the General Counsels (or the equivalent officers) of the PARTIES shall meet and attempt, in good faith, to resolve said controversy or claim. If the General Counsels (or the equivalent officers) of the PARTIES are unable to resolve the controversy or claim within sixty (60) days after written notice, the PARTIES agree to submit the controversy or claim to mediation, all prior to the filing of a lawsuit.

15. Merger and Modification. This AGREEMENT constitutes the entire agreement by and between the PARTIES concerning the subject matter hereof, and supersedes all prior proposals, agreements, representations, communications and understandings with respect thereto. No variation or modification of the terms of this AGREEMENT, nor any waiver of any of the terms or provisions hereof, shall be valid unless in writing and signed by an authorized representative of each PARTY.

16. Severability. In case any one or more of the provisions contained in this AGREEMENT shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this AGREEMENT and such invalid, illegal and unenforceable provision shall be reformed and construed so that it will be valid, legal, and enforceable to the maximum extent permitted by law.

17. Execution. This AGREEMENT shall be executed in two counterparts and each such counterpart shall be deemed an original thereof. Facsimile signatures on counterparts to this AGREEMENT shall be considered original signatures, with the further understanding that each PARTY shall exchange one counterpart signed in ink for receipt by the other PARTY no later than five (5) business days after the EFFECTIVE DATE.

18. Costs. Each PARTY will be responsible for all of its own attorneys fees, costs, expenses and other disbursements incurred by it in connection with the LAWSUIT. Nevertheless, the prevailing party in any controversy or claim involving this AGREEMENT shall be entitled to recover its reasonable attorneys fees, costs and expenses regarding same.

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19. Service of Notice. All notice obligations contemplated by this AGREEMENT shall be satisfied by sending written notice to the following addresses for the respective PARTY or such addresses as a PARTY may later specify in writing:

KEURIG	KRAFT
Michael J. Degnan, Esq.	Marc S. Firestone, Esq.
Vice President and General Counsel	General Counsel and Executive Vice President,
Keurig, Incorporated	Corporate & Legal Affairs
55 Walkers Brook Drive	Kraft Foods Inc.
Reading, MA 01867	Three Lakes Drive
	Northfield, IL 60093
with copy to:
	with copy to:
Michael A. Albert, Esq.
Wolf, Greenfield & Sacks, P.C.	David Schlitz, Esq.
600 Atlantic Avenue	Baker Botts LLP
Boston, MA 02210	The Warner
	1299 Pennsylvania Avenue, NW
	Washington, D.C. 20004

20. Representations and Warranties. Each PARTY represents and warrants that (i) it has full authority and power to enter into this AGREEMENT, and to perform its obligations hereunder; (ii) all necessary action, if any, to authorize the execution, delivery and performance of this AGREEMENT has been taken; (iii) the person executing this AGREEMENT has been duly authorized to execute this AGREEMENT; and (iv) this AGREEMENT constitutes a legal, valid and binding obligation of each such PARTY, enforceable in accordance with the terms hereof. In addition, each person executing this AGREEMENT represents that he or she has full authority to do so. Except to the extent covered by this AGREEMENT, KEURIG represents and warrants that as of the EFFECTIVE DATE, neither Keurig, Incorporated nor any of its parents, subsidiaries or AFFILIATES worldwide, have any patents or patent applications that KEURIG believes the LICENSED PRODUCTS infringe or, as to any patent applications, would infringe if and when any patent is issued thereon.

21. Mutual Releases.

(a) KEURIG, for itself and its directors, officers, partners, employees, agents, attorneys, subrogors, subrogees, predecessors, parents, subsidiaries and AFFILIATES (collectively, the “KEURIG RELEASORS”), does hereby and forever release and discharge KRAFT, and its past and present officers, directors, employees, partners, agents, attorneys, predecessors, parents, subsidiaries, AFFILIATES, successors, and assigns, all direct and indirect suppliers, all direct and indirect purchasers, and users of any products, services, or devices, acquired directly or indirectly from KRAFT, and all manufacturers (collectively, the “KRAFT RELEASEES”), of Tassimo single serve beverage cartridges and brewers for use with Tassimo single serve beverage cartridges (collectively, the “TASSIMO PRODUCTS”), from any and all actions, causes of action, suits, debts, obligations, controversies, agreements, promises,

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judgments, damages, liens, claims and demands whatsoever, in law or in equity, whether known or unknown (other than KRAFT’s obligations under this AGREEMENT), related to (i) anything the KRAFT RELEASEES have done or failed to do prior to the EFFECTIVE DATE of this AGREEMENT in connection with the manufacture, offer for sale, sale, distribution, keeping importation and exportation anywhere in the world of TASSIMO PRODUCTS or (ii) KEURIG’s allegations in the LAWSUIT. In accordance with this Mutual Release, Keurig covenants not to sue or threaten to sue any KRAFT RELEASEE based upon the manufacture, offer for sale, sale, distribution, importation and exportation anywhere in the world, prior to the EFFECTIVE DATE of this AGREEMENT, of TASSIMO PRODUCTS.

(b) KRAFT, for itself and its directors, officers, partners, employees, agents, attorneys, subrogors, subrogees, predecessors, parents, subsidiaries and AFFILIATES (collectively, the “KRAFT RELEASORS”), does hereby and forever release and discharge KEURIG, and its past and present officers, directors, employees, partners, agents, attorneys, predecessors, parents, subsidiaries, AFFILIATES, successors, and assigns (collectively, the “KEURIG RELEASEES”), from any and all actions, causes of action, suits, debts, obligations, controversies, agreements, promises, judgments, damages, liens, claims and demands whatsoever, in law or in equity (other than KEURIG’s obligations under this AGREEMENT), related to anything the KEURIG RELEASEEES have done or failed to do prior to the EFFECTIVE DATE of this AGREEMENT relating to the allegations in the LAWSUIT.

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IN WITNESS WHEREOF, each of the PARTIES have caused two original copies of this AGREEMENT to be executed on their behalf by their duly authorized officers

For Keurig, Incorporated		For Kraft Foods Global, Inc.
Michael J. Degnan, Esq. Vice President and General Counsel		Marc S. Firestone, Esq. General Counsel and Executive Vice President, Corporate & Legal Affairs
Signature:	/s/ Michael J. Degnan	Signature:	/s/ Marc S. Firestone
Date: October 23, 2008		Date: October 23, 2008
		For Tassimo Corp.
		Irma Villarreal Chief Counsel & Assistant Secretary
		Signature:	/s/ Irma Villarreal
		Date: October 23, 2008
		For Kraft Foods Inc. Marc S. Firestone, Esq. General Counsel and Executive Vice President, Corporate & Legal Affairs
		Signature:	/s/ Marc S. Firestone
		Date: October 23, 2008

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EXHIBIT A

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF DELAWARE

KEURIG, INCORPORATED,   Plaintiff,   v.   KRAFT FOODS GLOBAL, INC., TASSIMO CORPORATION, and KRAFT FOODS INC.,   Defendants. Civil Action No. 07-017-GMS

STIPULATION OF DISMISSAL WITH PREJUDICE

Having reached a settlement agreement, the parties stipulate pursuant to Fed. R. Civ. P. 41(a)(1)(A)(ii) to the dismissal of the above-captioned case, including all claims and counterclaims, with prejudice, without right of appeal, and with each party to bear its own costs.

YOUNG CONAWAY STARGATT & TAYLOR, LLP   John W. Shaw (No. 3362) Karen E. Keller (No. 4489) The Brandywine Building 1000 West Street, 17th Floor Wilmington, DE 19801 (302) 571-6600 jshaw@ycst.com kkeller@ycst.com   Attorneys for Plaintiff Keurig, Incorporated   Michael A. Albert Michael N. Rader WOLF, GREENFIELD & SACKS, P.C. 600 Atlantic Ave. Boston, MA 02210 (617) 646-8000 POTTER ANDERSON & CORROON LLP   Richard L. Horwitz (No. 2246) David E. Moore (No. 3983) Hercules Plaza, 6th Floor Wilmington, DE 19899 (302) 984-6000 rhorwitz@potteranderson.com dmoore@potteranderson.com   Attorneys for Defendants Kraft Foods Global, Inc., Tassimo Corporation, and Kraft Foods Inc.   David M. Schlitz William S. Foster, Jr. BAKER BOTTS LLP 1299 Pennsylvania Ave., NW Washington, DC 20004 (202) 639-7700

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EX-10.28

Exhibit 10.28

AMENDMENT NO. 1

TO

ASSET PURCHASE AGREEMENT

This Amendment No. 1 (the “Amendment”), dated as of November 12, 2008 amends that certain Asset Purchase Agreement dated as of September 15, 2008 (the “Agreement”) by and among Green Mountain Coffee Roasters, Inc., a Delaware corporation (the “Buyer”), Tully’s Coffee Corporation, a Washington corporation (the “Seller Parent”) and Tully’s Bellaccino, LLC, a Washington limited liability company (the “Seller Subsidiary” and together with the Seller Parent, “Seller”). Capitalized terms used and not otherwise defined in this Amendment are used herein as defined in the Agreement.

WHEREAS, the parties to this Amendment desire to amend the Agreement as provided herein.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby as follows:

1. Amendment of Section 8.1(b)(ii).

1.1 Section 8.1(b)(ii) of the Agreement is hereby amended by deleting the date “December 31, 2008” in the first line thereof and inserting in lieu thereof the date “February 9, 2009”.

1.2. Section 8.1(b)(ii) of the Agreement is hereby amended by deleting the date “February 15, 2009” in the ninth line thereof and inserting in lieu thereof the date “March 24, 2009”.

2. The parties hereby agree that the Escrow Agent shall be an escrow agent to be mutually agreed upon by the Buyer and the Seller.

3. Except as amended hereby, the Agreement is hereby ratified and confirmed and shall remain in full force and effect.

4. This Amendment may be executed in several counterparts, each of which shall be deemed an original and all such counterparts shall constitute one and the same agreement. Facsimile copies of signed signatures will be deemed binding originals.

IN WITNESS WHEREOF, each of the undersigned has executed this Amendment as an agreement under seal as of the date first above written.

THE BUYER:	GREEN MOUNTAIN COFFEE ROASTERS, INC.
	By:	/s/ Lawrence J. Blanford
	Name:	Lawrence J. Blanford
	Title:	President and Chief Executive Officer

Signature Page to Amendment

THE SELLER PARENT:	TULLY’S COFFEE CORPORATION
	By:	/s/ Tom T. O’Keefe
	Name:	Tom T. O’Keefe
	Title:	Chairman of the Board and Director
THE SELLER SUBSIDIARY:	TULLY’S BELLACCINO, LLC
	By: TULLY’S COFFEE CORPORATION,
		Its Sole Member
		By:	/s/ Tom T. O’Keefe
		Name:	Tom T. O’Keefe
		Title:	Chairman of the Board and Director

Signature Page to Amendment

EX-10.29

Exhibit 10.29

GREEN MOUNTAIN COFFEE ROASTERS, INC.

2006 INCENTIVE PLAN

Amendment

Pursuant to Section 9 of the Green Mountain Coffee Roasters, Inc. 2006 Incentive Plan, as amended, Green Mountain Coffee Roasters, Inc. hereby further amends said Plan, effective as of December 9, 2008, by revising Section 4(d) in its entirety to read as follows:

“(d) Additional Limitations. Subject to Section 7(b), (i) a maximum of 180,000 shares of Stock may be delivered in satisfaction of Full Value Awards under the Plan, and (ii) a maximum equal to the lesser of 80,000 shares of Stock or ten (10%) percent of the shares authorized under Section 4(a) may be delivered in satisfaction of Specified Awards. For purposes of the ten (10%) percent limitation under clause (ii) of the preceding sentence, (A) the last sentence of the definition of “Specified Award” shall be applied by substituting the word “retirement” for “separation from service,” and (B) any Stock Option that is accelerated, other than by reason of death, disability, retirement or a Covered Transaction, shall be treated as a Specified Award.”

EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-29641, No. 333-65321, No. 333-78937, No. 333-70116, No. 333-123255, No. 333-135237, No. 333-141567 and No. 333-150929) of Green Mountain Coffee Roasters, Inc. of our report dated December 11, 2008 relating to the financial statements, financial statement schedule, and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/ PriceWaterhouseCoopers LLP

Boston, Massachusetts

December 11, 2008

EX-31.1

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 annual report on Form 10-K 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 registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting.

Date: December 11, 2008

/s/ Lawrence J. Blanford

Lawrence J. Blanford

President and Chief Executive Officer

EX-31.2

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 annual report on Form 10-K 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 registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting.

Date: December 11, 2008

/s/ Frances G. Rathke    

Frances G. Rathke

Chief Financial Officer

EX-32.1

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 Annual Report of Green Mountain Coffee Roasters, Inc. (the “Company”) on Form 10-K for the period ending September 27, 2008 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: December 11, 2008

/s/ Lawrence J. Blanford

Lawrence J. Blanford*

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.

EX-32.2

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 Annual Report of Green Mountain Coffee Roasters, Inc. (the “Company”) on Form 10-K for the period ending September 27, 2008 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: December 11, 2008

/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.