Item 1.01. Entry into a Material
Definitive Agreement.
As previously disclosed by Coach, Inc.
(the “Company”), affiliated entities of the Company had entered into
various agreements relating to the development and acquisition of the
Company’s new global corporate headquarters (the “
New
Headquarters
”) in a new office
building located at 10 Hudson Yards, New York, New York, in the Hudson
Yards development site (the “
Building
”).
On August 1, 2016, and as further described below, the Company and
affiliated entities entered into amendments to those agreements and
certain other new agreements to reflect, among other things, the
redemption of the Company’s interest in the joint venture which
indirectly owns the leasehold estate to the land on which the Building
is located as well as substantially all of the related tenant
improvements in the Building for a purchase price of approximately $707
million (net of approximately $77 million due to the developer of the
Hudson Yards development site), before transaction costs of
approximately $26 million. In addition, on that same date, the Company
entered into a twenty (20) year lease for its New Headquarters in the
Building (the “
Lease
”).
The New Headquarters under the Lease consists of the entire 9
th
through 23
rd
floors of the Building comprising approximately 694,000 square feet,
with rights to expand to additional floors. The Company is currently in
the process of occupying the New Headquarters.
A copy of the Company’s press release
announcing this transaction is attached as Exhibit 99.1 to this Current
Report on Form 8-K.
Redemption Agreement and Amendment to
Limited Liability Company Agreement
On August 1, 2016, Legacy Yards LLC, a
Delaware limited liability company (“
Legacy
Yards
”) Coach Legacy Yards LLC,
a Delaware limited liability company (the “
Coach
Member
”), and Podium Fund Tower
C SPV LLC, a Delaware limited liability company (the “
Fund
Member
”), entered into a
Redemption Agreement and Amendment to Limited Liability Company
Agreement of Legacy Yards (the “
LLC
Agreement
”) to effectuate and
memorialize (i) the redemption of the Coach Member’s interest in Legacy
Yards, which indirectly owns the leasehold estate to the land on which
the Building is located as well as substantially all of the related
tenant improvements in the Building, for approximately $707 million (the
“
Redemption Price
”),
(ii) the withdrawal of the Coach Member as a member of Legacy Yards,
(iii) the payment of the Redemption Price by the Fund Member to the
Coach Member, (iv) the amendment of the LLC Agreement to remove
references to the Coach Member and the New Headquarters contained
therein and (v) the mutual release by the Coach Member and the Fund
Member of the other with respect to any obligations and claims under the
LLC Agreement.
Coach Lease
On August 1, 2016, the Company, as tenant,
and Legacy Yards Tenant LP, a Delaware limited partnership (“
LY
Tenant
”), as landlord, entered
into the Lease for the entire 9
th
through 23
rd
floors of the Building for a term of twenty (20) years. Under the
Lease, the Company has an option to renew the term of the Lease either
for (i) two (2) additional terms of five (5) years each, followed by an
additional ten (10) year term or (ii) up to two additional ten (10) year
terms. Under the Lease, the Company has the right to expand its premises
to portions of the 24
th
and 25
th
floors of the Building and has a right of first offer with respect to
available space on the 26
th
floor of the Building. In addition, the Lease contains customary
default provisions, including, without limitation, those relating to
payment defaults under the Lease, performance defaults under the Lease
and events of bankruptcy as well as customary indemnification
provisions, including without limitation, an indemnification of Legacy
Yards and its affiliates for claims and damages resulting from Coach’s
breach of the Lease or Coach’s or its invitees’ negligence or misuse of
the New Headquarters.
The Lease provides for annual fixed rental
payments of approximately (i) $45.1 million during each of the first
five (5) years of the term, (ii) $49.6 million during each of years six
(6) through ten (10) of the term, (iii) $54.6 million during each of
years eleven (11) through fifteen (15) of the term and (iv) $60.1
million during each of years sixteen (16) through twenty (20) of the
term. In addition to its fixed rent obligations, Coach is obligated to
pay its percentage share for customary escalations for operating
expenses attributable to the Building and the Hudson Yards development,
taxes and tax related payments.
Amended and Restated Development
Agreement
On April 10, 2013, ERY Developer, LLC, a
Delaware limited liability company (the “
Developer
”),
and the Coach Member entered into a development agreement (the “
Development
Agreement
”) for the development
by the Developer of the Building. Pursuant to the Development
Agreement, the Developer was responsible for, among other things, the
work, labor, material, equipment and installation necessary to construct
and complete the Building, the structural build-out of the New
Headquarters and the common elements of the Building and was to be paid
a development fee for such services by the Coach Member.
On August 1, 2016, the Developer and the
Coach Member entered into an Amended and Restated Development Agreement
the (“
A&R Development
Agreement
”) to memorialize the
base building work, punch-list items and remaining obligations to be
performed by the Developer for the final completion of the Building and
the New Headquarters. The A&R Development Agreement sets forth the
procedures, conditions and specifications necessary for the Developer to
achieve final completion of the Building and the rights and remedies of
the Coach Member with respect thereto. Under the A&R Development
Agreement, the Coach Member has the right to conduct an audit of the
expenses incurred by the Developer in connection with the final
completion of the Building and certain tenant improvements in the New
Headquarters performed by Developer on behalf of the Coach Member. To
the extent that such audits reveal that any costs incurred by the
Developer and paid for by the Coach Member are determined to be in
excess or below the amounts agreed upon in the A&R Development
Agreement, the Coach Member shall be entitled to a credit for such
amounts or shall be obligated to pay such deficiency, as applicable.
Release of Coach Guaranty
On April 10, 2013, the Company entered
into a Guaranty Agreement (the “
Coach
Guaranty
”) for the benefit of
the Fund Member and the Developer pursuant to which the Company agreed
to guarantee the Coach Member’s obligations under the Development
Agreement (defined below) and the LLC Agreement, which included, among
other things, the payment of the Coach Member’s allocable share of
project costs due under such agreements.
On August 1, 2016, the Fund Member and the
Developer entered into a Termination and Release of the Coach Guaranty
releasing the Company from all of its obligations under the Coach
Guaranty.