Green Mountain Coffee Roasters (GMCR)

5. Commitments

The Company leased certain assets under capital leases which expired in 2004. Amortization on these capitalized leases amounted to $59,955 in 2003. The Company also has certain operating leases which provide for a base rent plus real estate taxes, insurance and other expenses.

At December 31, 2005, the minimum commitments under these noncancelable operating leases, with initial or remaining terms of more than one year, are as follows:

Rent expense totaled $532,725, $528,655 and $447,212 in 2005, 2004 and 2003, respectively.

The Company has an outstanding letter of credit in the amount of $61,654, which expires in December 2007, and is collateralized by restricted cash of the same amount at December 31, 2005. Additional restricted cash of $25,000 is held in a certificate of deposit to collateralize a business credit card arrangement.

6. Convertible and Redeemable Preferred Stocks and Stockholders' Equity (Deficit)

Each share of Series A, B and C Preferred Stock is convertible, at the option of the holder, into shares of Common Stock at the conversion ratio then in effect. The conversion ratio at December 31, 2004 is one common share for each share of Series A and C Preferred Stock and 1.07558 for each share of Series B Preferred Stock. If the Company issues or sells future
securities for consideration per share less than the then-existing conversion price per share of Series B and C Preferred Stock and the holder of the stock fails to purchase the portion to which they are entitled, then the percentage of shares held by such holder equal to the percentage amount by which such holder shall have failed to purchase these future securities shall automatically be converted into shares of Common Stock at the then-effective conversion ratio.

The holders of the Preferred Stock shall participate in any dividend or distribution declared or paid on the Common Stock on the basis of the numbers of shares of Common Stock into which the Preferred shares are convertible. A cumulative dividend on the Series B and C Preferred Stock accrues at a rate of 6% per share per annum. These dividends are payable, as determined by the Board of Directors, upon sale, liquidation or winding-up of the Company, or upon redemption of the Series B and C Preferred Stock. Accrued and unpaid dividends on the Series B and C Preferred Stock shall be paid prior to the payment of dividends on the Common Stock or any other Preferred Stock.

The holders of Series C Preferred Stock shall be entitled, before payment to holders of any other equity securities of the Company, to an amount equal in value to the aggregate liquidation value of shares of Series C Preferred Stock then outstanding. Any amounts remaining after payment of the liquidation value of shares of Series C Preferred Stock, up to an amount equal in value to the aggregate liquidation value of shares of Series B Preferred Stock then outstanding, will be distributed to the holders of Series B Preferred Stock. Any amounts remaining after payment of the liquidation value of shares of Series B Preferred Stock, up to an amount equal in value to the aggregate liquidation value of shares of Series A Preferred Stock then outstanding, will be distributed to the holders of Series A Preferred Stock. Any amounts remaining after payment of all such preferential amounts will be distributed to the holders of Series A, B and C Preferred Stock and Common Stock on a pro rata basis.

The holders of not less than 25% of the Series B and C Preferred Stock may redeem all or a portion not less than one-third of their initial holdings beginning at the redemption date and extending until the time of a public offering. Upon redemption, the holders will receive the liquidation value of their Series B and C Preferred Stock, plus any unpaid accrued dividends plus an amount equal to the valuation of the Company less the total liquidation value of all the Preferred Stock multiplied by the percentage of Common Stock represented by the Series B and

6. Convertible and Redeemable Preferred Stocks and Stockholders' Equity (Deficit) (continued)

C Preferred Stock on an as-if-converted basis to the number of fully diluted shares of Common Stock outstanding (Redemption Value). The carrying value of the Series B and C Preferred Stock is being accreted to the Redemption Value ratably through the respective earliest redemption date, which dates were amended in 2002 to February 4, 2007.

Each share of Preferred Stock shall be entitled to exercise the number of votes equal to the number of shares of Common Stock into which it is convertible on the appropriate record date.

The Company has a stock option plan which provides for up to 1,620,000 shares of Common Stock issuable upon exercise of incentive and nonqualified options granted under the plan. Incentive stock options may be granted at an exercise price not less than fair market value on the date of grant. Options generally vest ratably over a four-year period and expire ten years after the date of grant. During 2002, the Company modified its existing stock option agreement to provide for immediate vesting upon certain conditions as defined in the Amendment. Based upon the intrinsic value of the affected options as of the modification date, no compensation expense was recognizable.

Information regarding the Company's stock option plan is summarized below:

6. Convertible and Redeemable Preferred Stocks and Stockholders' Equity (Deficit) (continued)

The weighted-average fair value of options granted in 2005, 2004 and 2003 was $4.63, $3.94 and $3.51, respectively. The weighted-average contractual life of options outstanding at December 31, 2005 was seven years.

At December 31, 2005, there were 338,474 options available for grant and 820,166 options exercisable at a weighted-average exercise price of $4.22.

The Company has warrants outstanding at December 31, 2005, for the purchase of Common Stock, the details of which are as follows:

The Company has reserved 3,381,768 shares for the exercise of stock options and warrants, and conversion of Series A, B and C Preferred Stock.