Starbucks filing re: Tully's bankruptcy

7/30/2019 Starbucks filing re: Tully's bankruptcy

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STARBUCKS CORPORATION

Office of Law & Corporate Affairs

2401UTAH AVE SOUTH #800,MSSLA-1

SEATTLE,WA98134

(206)318-4288

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CLARIFYING RESPONSE OF STARBUCKS CORPORATION

RE CONFIRMATION OF SUCCESSFUL BIDDER - 1

HONORABLE KAREN A. OVERSTREET

Chapter 11

HEARING DATE: Friday, January 10, 2013HEARING TIME: 1:00 p.m.

LOCATION: Courtroom 7206, Seattle

UNITED STATES BANKRUPTCY COURT

WESTERN DISTRICT OF WASHINGTON

In re

TC GLOBAL, INC.

Debtor,

Case No. 12-20253 KAO

CLARIFYING RESPONSE OF STARBUCKSCORPORATION TO DEBTORS

MEMORANUM IN SUPPORT OF APPROVALOF PROPOSED SALE OF ASSETS TOGLOBAL BARISTAS, LLC

Starbucks Corporation dba Starbucks Coffee Company (Starbucks), a partial bidder and

interested party, submits this clarifying response to theDebtors Memorandum in Support of

Approval of Proposed Sale of Assets to Global Baristas, LLC(the Debtors Reply

Memorandum). The Debtors Reply Memorandum contains a series of inaccurate statements

and negative inferences targeted at Starbucks that could materially and adversely impact the Sale

Hearing unless corrected. When corrected, the Debtors purported reliance on its business

judgment in awarding an inferior bid is misplaced.

Starbucks participated in the January 3 auction and made a series of non-contingent bids

forpart of the debtors estate: twenty-five (25) Tullys operated real estate leases consisting of 13

company operated locations (the Retail Lease Locations) and 12 sites located within Boeing

facilities and subject to the Boeing Shared Services Group Supplier Management & Procurement


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Agreementdated January 31, 2011, as amended (the Boeing Agreement)1. See Auction

Transcript at 22:23-35; 23:1-5. Given that Starbucks does not seek to operate under the Tullys

name, all Starbucks offers were partial, stand-alone bids for precise real estate locations. All

parties, then and now, unanimously agree that no Starbucks bid required the consent of Green

Mountain Coffee Roasters, Inc. (GMCR). However, the parties understood that any bidder who

intended to operate under the Tullys name would require the consent of GMCR, who was present

during the 11.5 hour auction.

A. Starbucks Identified Leases and an Intent to Assume Those Leases with Certainty

Starbucks submitted bid sheets at the auction clearly identifying Tullys sites for which

it was bidding on a non-contingent basis. See Exhibit A to the accompanying Declaration of

Michael Malanga (Malanga Decl.); see also Exhibit B to DebtorsNotice of Determination of

Back-Up Bids filed 1/9/13 [Dkt 508]. There was never any ambiguity about what leases

Starbucks isolated for purchase, nor could there be given the nature of a hybrid bid and each

partys need to evaluate and monetize partial asset classes. At no time during the auction was any

leasehold left outside the scope of a hybrid bid. See Auction Transcript at 24:14-20. Many other

bidders, including Global Baristas, made companion offers to acquire all other sites except the

Starbucks Sites.

The Debtor ignores this crucial fact in asserting that Starbucks failed to identify any real

property leases in its APA and equally problematic, retain[ed] the sole discretion to remove one

or more of the leases up until the closing date. See Debtors Reply Memorandum at p. 5, lines

11; 13-4. Theproblem with the Debtors reliance on Starbucks APA in a vacuum is that the Bid

Procedures Order required qualified bidders to redline the Stalking Horses APA, which

1Starbucks takes the position the Boeing Agreement is an executory contract that may be

assumed and assigned by the Debtor pursuant to 11 U.S.C. 365(a). No representative of the

Debtor or the Estate has made a contrary representation.


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contemplated a sale of substantially all assets to an ongoing operator of the Tullys brand.

Starbucks was in a unique position because its interests were limited to a real estate acquisition

thereby rendering the proposed APA awkward and mostly inapplicable as a baseline agreement.

However, in strict observance of the Bid Procedures Order to become a Qualified Alternative

Bidder, Starbucks submitted a redlined APA that identified specific leases in Section 2.1

(Transfer of Assets). See Starbucks redlined APA appended as Exhibit B to the Malanga Decl.

Also chiefly relevant here, and omitted from any mention by the Debtor, was that

Starbucks stated its intent in its Initial Bid submitted December 26 to assume all leases at 26

locations specifically listed therein. Id. (p.2-3 of Starbucks Cover Letter). Starbucks Initial Bid

also contained statements as to how that assumption would be structured:

Starbucks requires that prior to the Debtors assignment of these executory contracts thatall obligations thereunder are fully cured pursuant to 11 U.S.C. 365(b) and that no

defaults exist as of the effective date of assignment. Starbucks does not assume

responsibility for responding to any objection filed with the Bankruptcy Court regardingassumption or assignment of any such agreement. Starbucks does, however, agree to

cooperate with the estate in responding to any issue regarding adequate assurances of

future performance by Starbucks.

Starbucks does not seek assumption of, or any interest in, the License Agreement, SupplyAgreement and Noncompetition Agreement, each dated March 27, 2009 by and among the

Debtor and Green Mountain Coffee Roasters, Inc.

Id. For absolute clarity given the unusual nature of a partial bid, Starbucks added a confirming

statement: Starbucks certifies that this or any other offer it may make at auction constitutes a

binding and legally enforceable bid and that no financing contingencies or conditions exist. Id. at

p.3 (emphasis added). If there was any question or doubt regarding Starbucks willingness to

unequivocally assume lease agreements for sites bid at auction, the question was not raised by the

Debtor or anyone else and the transcript is noticeably void of any such concern. It is patently

disingenuous for the Debtor to now allege it lacked certainty about Starbucks intention regarding

assumptions.


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The same is true for the Debtors newly-raised representation that the Starbucks APA

caused unmitigated uncertainty about what sites it intended to close on. While the Debtor is

correct that Section 2.2(a) of Starbucks APA contained language from the Stalking Horse

regarding a contingency for third-party consents up until closing, that provision was superseded

by the Bidder Certification that Starbucks submitted after its Initial Bid but prior to auction. See

Exhibit C to the Malanga Declaration (J. Day email of 1/2/13). Section 2 of the Bidder

Certification required: A bid shall not be subject to any conditions or contingencies related to

due diligence, financing, or further approval by any person or entity not present at the Auction .

Id. (emphasis added). Starbucks President of Global Development, Arthur Rubinfeld, signed the

certification for Starbucks and it was provided to the Debtors counsel at the start of the auction.

The Debtors Reply Memorandum is silent on the subject of the Bidder Certification or

acknowledgment of its importance in these proceedings. All Starbucks bids were non-contingent

that fully disclosed locations for which it intended to close.

B. ANI and Starbucks Bids Parallel Global Baristas Treatment of Tullys Employees.

The Debtors repeated assertion that Global Baristas bid, alone, will retain and employall

Tullys employees is inaccurate and presumptuous given the terms of Global Baristas APA.

Global Baristas Final APA, filed by the Debtor, provides at Section 2.8(a) and (b):

Section 2.8 Employee Matters.

(a) Seller shall terminate the employment of all employees, includingbut not limited to Store Employees, as of the Closing (the Terminated Employees).

(b) Buyer shall have the right, but not the obligation, to make offersof employment to such of the Terminated Employees as Buyer may elect prior to

Closing in accordance with Buyers normal hiring practices. Interviews shall be

conducted at such times and places as shall be mutually agreeable to Buyer and Seller,

with such interviews occurring at least two (2) weeks before the Closing. Buyer shallprovide Seller with a list of Terminated Employees receiving such job offers at least one

(1) week prior to Closing. Seller and any Affiliate of Seller shall not hire any Terminated

Employees for a period of six (6) months after the Closing.


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See Exhibit A (Global Baristas, LLCs Final APA) to the DebtorsNotice of Conclusion of

Auction and Determination of Successful Bidfiled 1/4/13 [Dkt 493]. ANIs APA filed yesterday

provides for precisely the same treatment of employees. See Exhibit A (ANI APA) to Debtors

Notice of Determination of Back-Up Bids filed 1/9/13 [Dkt 508]. Starbucks, too, wrote into its

bid a firm, non-contingent commitment to interview and offer application opportunities to all

store partners employed at the acquired locations. See Exhibit A to Malanga Decl. It is

unnecessarily inflammatory to represent to this Court that Global Baristas is committed to

employee retention to the exclusion of any other bidder, particularly in a case already subject to

excessive press and self-serving public statements intended to divert public opinion away from

the more substantive issues. Starbucks made a voluntary, independent commitment to interview

all impacted employees at acquired Tullys locations for potential reemployment. Starbucks

undertook this commitment voluntarily at the commencement of the auction and not in response

to any bidding or request by the Debtor.

Seattle has been Starbucks hometown for more than 40 years, it employs more than 7,000

people and thousands more across the Pacific Northwest and offers more competitive employee

benefits than Tullys employees currently have available to them. Starbucks has a demonstrated

track record of running a healthy business while heavily investing in the Seattle community.

Starbucks expects that Tullys employees will have every employment opportunity available to

them and Starbucks is fully committed to a smooth transition to the Starbucks family. Similarly,

contrary to the Debtors assertion a Starbucks bid leaves Boeing workers with unusable Tullys

gift cards, Starbucks will address that issue in a way favorable to those customers, which is a

business decision between Starbucks and Boeing and its employees, but outside the scope of the


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Debtors inquiry2. Starbucks has an impressive reputation of promoting and enhancing the

customer experience, as evidenced in our cafes world-wide.

Starbucks reaffirms its non-contingent bid of $6.56 million for 13 Tullys Retail Lease

Locations, in addition to the 12 Boeing sites. This offer includes a commitment to assume all

underlying real property leases and the Boeing Agreement, as well as its commitment to interview

all impacted Tullys employees. Given material irregularities with the auction, Starbucks seeks a

resolution that reopens the auction and restarts the competitive bid process among qualified

bidders. A continued auction is more likely to achieve a higher bid for the benefit of the estate

and its stakeholders than confirmation of the Global Barista bid.

DATED this 10th day of January, 2013.


Law & Corporate Affairs

By____/s/Susan A. Brye___________

Susan A. Brye, WSBA 25125

Director, Corporate Counsel

2Starbucks understands that ANIs bid assumes all of Tullys gift card liabilities, thus Starbucks

did not include it in its bid because it was assumed by another bidder. See Malanga Decl. Thefact that another bidder may have assumed that liability, however, does not prevent Starbucks

from electing to recognize customers Tullys card balances at Starbucks locations acquired fromthe estate.

Documents

Starbucks filing re: Tully's bankruptcy