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Note 16 - Facility Lease Obligation
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Dec. 31, 2014
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16. Facility Lease Obligation
On August 18, 2014, the Company entered into a Lease Agreement (the “Lease Agreement”) with TKC LXXII, LLC, a North Carolina limited liability company (“TKC”).
Under the Lease Agreement, the Company agreed to lease certain land and an approximately 120,000 square-foot building to be constructed on approximately 11 acres in Durham County, North Carolina. This facility will house the Company’s corporate headquarters and primary manufacturing facility. The Lease Agreement is intended to replace the Company’s existing lease, located at 4233 Technology Drive, Durham North Carolina, which currently expires in November 2016. The shell of the new facility will be constructed on a build-to-suit basis by TKC, at its expense, in accordance with agreed upon specifications and plans as set forth in the Lease Agreement.
The term of the Lease Agreement will be 10 years from the commencement date for the initial term, currently estimated to be May 1, 2015, with the Company having the option to extend the Lease Agreement by six five-year renewal terms. Initial rent will be approximately $46,917 per month, subject to certain fixed increases over the course of the term as set forth in the Lease Agreement and to adjustment based on the Company’s use of certain amounts allocated for upfitting the interior of the facility.
The Lease Agreement required us to provide the landlord with a letter of credit. We have provided the bank that issued the letter of credit on our behalf a security deposit of $1.325 million to guarantee the letter of credit. The deposit is recorded as a long-term investment as of December 31, 2014 on our consolidated balance sheet.
Under the Lease Agreement, the Company had an option to purchase the property for an amount estimated at $7.6 million. On February 16, 2015, the Company entered into a Purchase and Sale Agreement (the “Purchase Agreement”) with TKC which represented the Company’s exercise of its purchase option under the Lease Agreement. The purchase price to be paid by the Company is $7.6 million plus the amount of any additional costs incurred by TKC as a result of changes requested by the Company and the amount of any improvement allowances advanced to the Company by TKC prior to the closing. The Purchase Agreement is expected to close in the second half of 2015. Upon the closing, the Lease Agreement will terminate.
Under the Lease Agreement, the Company is deemed to be the owner of this facility during its construction period under build-to-suit lease accounting. The Company therefore recorded an asset related to the facility lease obligation included in property and equipment of $3.4 million during the year ended December 31, 2014. The facility lease obligation on the Company’s consolidated balance sheet is $3.4 million as of December 31, 2014.
If the Purchase Agreement is not executed, future minimum payments due under the Lease Agreement are as follows as of December 31, 2014:
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