1 2 3 4 5 6 7 8 9 In re 10 TC GLOBAL, INC., 11 Debtor. 12 13 14 15 16 17 18 19 20 21 22 23 SCOTT PEARSON declares as follows: 1.
HONORABLE KAREN A. OVERSTREET **HEARING DATE: OCTOBER 26, 2012 **HEARING TIME: 9:30 A.M. LOCATION: SEATTLE, COURTROOM 7206 **RESPONSES DUE: AT TIME OF HEARING **SUBJECT TO ENTRY OF ORDER SHORTENING TIME FOR HEARING
UNITED STATES BANKRUPTCY COURT WESTERN DISTRICT OF WASHINGTON
No. 12-20253 DECLARATION OF SCOTT PEARSON IN SUPPORT OF EMERGENCY MOTION FOR ORDER (i) APPROVING INTERIM BRIDGE FINANCING AGREEMENT; (ii) GRANTING FIRSTPOSITION LIENS AND SUPERPRIORITY CLAIMS; AND (iii) SCHEDULING FINAL HEARING
I am the Chief Executive Offer of TC Global, Inc. (Debtor), debtor-in-possession
herein. I have personal knowledge of the facts set forth herein and I am competent to testify to the same. 2. The Debtor is a Washington corporation based in Seattle. Founded in 1992, the Debtor
operates as Tully's Coffee, a specialty gourmet coffee retailer. The company generates revenues through two operating divisions: Its retail division operates Tullys Coffee retail stores in the United States, which sell specialty coffees, espresso, baked goods, pastries, and coffee-related supplies. The
B USH S TROUT & K ORNFELD
LAW OFFICES LLP
DECLARATION OF SCOTT PEARSON IN SUPPORT OF EMERGENCY MOTION FOR BRIDGE LOAN Page 1
1977 20121 xj23c809sz
5000 Two Union Square 601 Union Street Seattle, Washington 98101-2373 Telephone (206) 292-2110 Facsimile (206) 292-2104
Case 12-20253-KAO
Doc 62
Filed 10/23/12
Ent. 10/23/12 16:04:39
Pg. 1 of 4
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
companys specialty division oversees the franchising of Tullys Coffee retail stores. It also manages the companys international joint venture, foreign licensing, and business development activities. 3. The Debtor generates revenues through licensing fees from U.S. and foreign
franchisees and sales of products to foreign customers. 4. Between 1992 and 2001, the Debtor expanded to 114 company-operated stores. In
addition, Spinelli Coffee in Northern California and the Coffee Station in Southern California were purchased for $6.9 million and $2.7 million, respectively. Overall, the cash generated from operations was insufficient to fully fund operations and the expansion. The Debtors financial performance was negatively impacted by the economic downturn that affected Seattle and San Francisco, at a time when the market for new equity issues was significantly deteriorating. As a result, in 2002 the Debtor launched an aggressive effort to develop a wholesale coffee business to drive further top line revenue and profit. 5. Also in 2002, the debtor raised additional capital through the sale of rights to all of
Asia to UCC (a Japanese company) for $14.3M. In 2006, the Debtor again raised additional capital by selling all rights in Japan, including the brand, wholesale operations and roasting, to Tullys Coffee Japan for $17.9M. 6. In 2009, the Debtor completed the sale of the assets associated with its wholesale
business and supply chain (including the Tullys business names and trademarks) to Green Mountain Coffee Roasters, Inc. (GMCR), a Delaware corporation (the Green Mountain Transaction). In connection with the closing of the Green Mountain Transaction, the Debtor entered into a Supply Agreement, a License Agreement, and a Noncompetition Agreement with GMCR. The Debtor also secured a perpetual license to use the Tullys brand and other intellectual property rights in
DECLARATION OF SCOTT PEARSON IN SUPPORT OF EMERGENCY MOTION FOR BRIDGE LOAN Page 2
1977 20121 xj23c809sz
B USH S TROUT & K ORNFELD
LAW OFFICES
LLP
5000 Two Union Square 601 Union Street Seattle, Washington 98101-2373 Telephone (206) 292-2110 Facsimile (206) 292-2104
Case 12-20253-KAO
Doc 62
Filed 10/23/12
Ent. 10/23/12 16:04:39
Pg. 2 of 4
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
connection with retail operations worldwide (excluding Japan), and wholesale business outside of North America, utilizing an exclusive coffee supply arrangement with GMCR. 7. The Green Mountain Transaction generated approximately $40 million in cash and
allowed the Debtor, among other things, to retire secured debt in the amount of $19.3 million and to make a $5.9 million distribution to its shareholders. Going forward, Tullys core business was reduced to retail, franchised and licensed store locations, and the company changed its corporate name to TC Global, Inc. 8. During 2010 and 2011, the Debtor began implementing measures to right size its
business through various initiatives and cost-cutting measures, including the closure of underperforming company-owned locations, labor optimization, and aggressive expense reductions. The Debtor recently engaged the firm of Deloitte Financial Advisory Services LLP (Deloitte) to assist in that effort. Deloitte has assisted the Debtor in a number of ways, including (i) developing alternative courses of action and strategies, (ii) confirming managements intentions to close locations based upon (among other factors) operations and existing lease terms, and (iii) identifying and contacting numerous entities regarding the possibility of acquiring some or all of the Debtors assets and operations, providing debtor-in-possession financing, or both. 9. After extensive diligence and advice from outside expert consultants, the Debtor
ultimately determined that it would need to close a substantial number of locations in order to ultimately achieve operating profit. The Debtor therefore made the difficult decision to file this case so it could continue its downsizing efforts, conserve its cash and manage issues related to the closed locations. 10. As of the Petition Date the Debtor operated 57 company-owned and 12 franchise
locations. Since that time, the Debtor has closed nine locations that had chronically under-performed
DECLARATION OF SCOTT PEARSON IN SUPPORT OF EMERGENCY MOTION FOR BRIDGE LOAN Page 3
1977 20121 xj23c809sz
B USH S TROUT & K ORNFELD
LAW OFFICES
LLP
5000 Two Union Square 601 Union Street Seattle, Washington 98101-2373 Telephone (206) 292-2110 Facsimile (206) 292-2104
Case 12-20253-KAO
Doc 62
Filed 10/23/12
Ent. 10/23/12 16:04:39
Pg. 3 of 4
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
and has moved for authority to reject the leases of these locations. There are also 71 additional Tullys locations that operate as licensees in locations such as grocery stores, airports, university campuses and hotels. The Debtor has approximately 520 employees. 11. Commencing in early September 2012, the Debtor has been engaged its efforts to
locate a capital provider and/or purchaser for the company. Working with Deloitte, the Debtor prepared a comprehensive Offering Memorandum and created a virtual data-room site at which key diligence information could be reviewed and analyzed. 12. The Debtor and Deloitte identified and contacted fifty-six capital providers as possible
candidates for either providing post-petition financing and/or purchasing the company or its assets. Of these entities, thirteen indicated further interest, signed non-disclosure agreements and were provided the Offering Memorandum and given access to the data room. To date, a small number of parties have indicated interest in either serving as both DIP lender and stalking horse bidder or solely as DIP lender. 13. The Debtor did not have the benefit of a line of credit or similar financing for its
operations as of the Petition Date. The Debtors operations were funded exclusively from cash generated from its operations and from trade credit from its vendors and suppliers. With the commencement of this case, the Debtors business planning and budget forecasting assume that there will be no further trade credit and that the Debtor will need to pay its vendors on a COD or CIA basis. I declare under penalty of perjury under the laws of the state of Washington that the foregoing is true and correct. DATED at Seattle, Washington, this 23rd day of October, 2012.
/s/ Scott Pearson Scott Pearson
DECLARATION OF SCOTT PEARSON IN SUPPORT OF EMERGENCY MOTION FOR BRIDGE LOAN Page 4
1977 20121 xj23c809sz
B USH S TROUT & K ORNFELD
LAW OFFICES
LLP
5000 Two Union Square 601 Union Street Seattle, Washington 98101-2373 Telephone (206) 292-2110 Facsimile (206) 292-2104
Case 12-20253-KAO
Doc 62
Filed 10/23/12
Ent. 10/23/12 16:04:39
Pg. 4 of 4
