Tully's warns it could close if sale fails to win OK

Tully's Coffee could go out of business if shareholders do not approve the sale of its wholesale business to Green Mountain Coffee Roasters of Vermont, the Seattle-based coffee chain said in a securities filing Friday.

In a report the day after Tully's announced plans in September to sell the business for $40.3 million to Green Mountain, "our auditors stated that our recurring losses and accumulated deficit raised substantial doubts about our ability to continue as a going concern."

In Friday's filing, Tully's scheduled a special meeting for shareholders to vote on the deal March 16.

Tully's had an accumulated deficit of about $102 million as of March 30, 2008, the end of its last fiscal year.

Without the sale, Tully's said, it would need immediate financing to pay debts, including about $8.8 million that is overdue to Benaroya Capital and about $4.5 million to Northrim Funding Services due March 31.

After the sale, Tully's would have a retail business with 158 coffee shops, $41 million in annual net sales and a loss of $16.3 million in fiscal 2008. The wholesale division it wants to sell posted net income of $2.4 million in fiscal 2008.

Tully's expects to make a cash distribution to shareholders if the deal is approved, but it has not determined the amount, the filing said.

First, it would pay off about $25.2 million in debt, including obligations to Benaroya, Northrim, Ueshima Coffee and Asia Food Culture Management, the limited partner in Tully's Asian joint venture.

Tully's also would place $3.5 million in escrow for a year to cover any possible payments it might have to make to Green Mountain for fraud or other breaches of their sale agreement.

The company recommended shareholders vote for the deal and, if there are not enough approving votes at the March 16 meeting, asked that the special meeting adjourn until a later date so it could solicit more votes.

Tully's also wants to change its articles of incorporation so that it can make a cash distribution without considering how much money it would need to liquidate.

"Although our board of directors has determined that the asset sale is not liquidating event, Green Mountain desires additional assurance, in the form of an amendment to our articles of incorporation, that the proceeds that we receive in the asset sale will not be immediately distributable to our shareholders, but rather be used to repay in full our outstanding indebtedness and all trade payables related to the wholesale business of approximately $25.2 million," the filing said.

It also wants the articles to be changed to allow a cash distribution to shareholders without certain asset requirements.

Tully's founder and chairman Tom O'Keefe has said that he doesn't expect any layoffs because of the sale. He has said Green Mountain would employ the roughly 70 people who work for Tully's wholesale business.

Melissa Allison: 206-464-3312 or mallison@seattletimes.com