1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

CLARIFYING RESPONSE OF STARBUCKS CORPORATION RE CONFIRMATION OF SUCCESSFUL BIDDER - 1

HONORABLE KAREN A. OVERSTREET Chapter 11 HEARING DATE: Friday, January 10, 2013 HEARING 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 STARBUCKS CORPORATION TO DEBTORS MEMORANUM IN SUPPORT OF APPROVAL OF PROPOSED SALE OF ASSETS TO GLOBAL BARISTAS, LLC

Starbucks Corporation dba Starbucks Coffee Company (Starbucks), a partial bidder and interested party, submits this clarifying response to the Debtors 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 for part 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

STARBUCKS CORPORATION Office of Law & Corporate Affairs

2401 UTAH AVE SOUTH #800, MS S LA-1 SEATTLE, WA 98134 (206) 318-4288

1 2 3 4

Agreement dated 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

5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
1

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 Debtors Notice 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. The problem 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

Starbucks 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.
CLARIFYING RESPONSE OF STARBUCKS CORPORATION RE CONFIRMATION OF SUCCESSFUL BIDDER - 2
STARBUCKS CORPORATION Office of Law & Corporate Affairs
2401 UTAH AVE SOUTH #800, MS S LA-1 SEATTLE, WA 98134 (206) 318-4288

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19

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 that all 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 regarding assumption 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, Supply Agreement 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

20 21 22 23 24 25 26 27 assumptions. 28
CLARIFYING RESPONSE OF STARBUCKS CORPORATION RE CONFIRMATION OF SUCCESSFUL BIDDER - 3
STARBUCKS CORPORATION Office of Law & Corporate Affairs
2401 UTAH AVE SOUTH #800, MS S LA-1 SEATTLE, WA 98134 (206) 318-4288

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

1 2 3 4

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

5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
CLARIFYING RESPONSE OF STARBUCKS CORPORATION RE CONFIRMATION OF SUCCESSFUL BIDDER - 4
STARBUCKS CORPORATION Office of Law & Corporate Affairs
2401 UTAH AVE SOUTH #800, MS S LA-1 SEATTLE, WA 98134 (206) 318-4288

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 employ all 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, including but not limited to Store Employees, as of the Closing (the Terminated Employees). (b) Buyer shall have the right, but not the obligation, to make offers of 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 shall provide 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.

1 2 3 4

See Exhibit A (Global Baristas, LLCs Final APA) to the Debtors Notice of Conclusion of Auction and Determination of Successful Bid filed 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

5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 track record of running a healthy business while heavily investing in the Seattle community. 20 21 22 23 24 25 26 27 28
CLARIFYING RESPONSE OF STARBUCKS CORPORATION RE CONFIRMATION OF SUCCESSFUL BIDDER - 5
STARBUCKS CORPORATION Office of Law & Corporate Affairs
2401 UTAH AVE SOUTH #800, MS S LA-1 SEATTLE, WA 98134 (206) 318-4288

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

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

1 2 3 4

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

5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Starbucks 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. The fact 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 from the estate.
2

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.

STARBUCKS CORPORATION Law & Corporate Affairs

By____/s/ Susan A. Brye___________ Susan A. Brye, WSBA 25125 Director, Corporate Counsel

CLARIFYING RESPONSE OF STARBUCKS CORPORATION RE CONFIRMATION OF SUCCESSFUL BIDDER - 6

STARBUCKS CORPORATION Office of Law & Corporate Affairs

2401 UTAH AVE SOUTH #800, MS S LA-1 SEATTLE, WA 98134 (206) 318-4288