Starbucks Comments on District Court Conference with Kraft

Starbucks looks forward to the opportunity to have our side of the argument heard fairly and without Kraft's misleading media spin being applied to the facts of the case.

12/29/2010 --- Starbucks Coffee Company met with Kraft in Federal Court to discuss the timeline and procedure of Kraft’s preliminary injunction motion with the U.S. District Court for the Southern District of New York. In Starbucks view, the Kraft motion is based on arguments that are both misleading and entirely lacking in merit. We are further concerned that Kraft’s actions are causing confusion for the retail customers that sell Starbucks products, creating unnecessary burdens and obstacles as we work to ensure a seamless transition for our mutual customers.

During today’s hearing, the Court asked both parties to address the core issue of “irreparable harm” and the overall basis for whether a preliminary injunction is necessary since this is a matter already subject to arbitration between the parties. Starbucks reply is due to the Court on Jan. 6, 2011. Our reply will address why we believe that an injunction is unnecessary because there is no “irreparable harm” to Kraft, given that this is fundamentally a commercial dispute that can be resolved through the arbitration procedures the parties agreed to in their contract.

As the Court process continues, the parties will proceed with the arbitration called for under the agreement. The core issue in arbitration will be Kraft’s poor performance and the materiality of that performance to business results. Importantly, if Starbucks demonstrates that Kraft did not live up to its obligations under the agreement, Starbucks would not owe Kraft any remuneration the value of the dissolution of the agreement would be zero.

Through arbitration, Starbucks intends to demonstrate Kraft’s consistent, poor performance and material breaches over a period of several years. The nature of Kraft’s obligations are outlined in the contract; the contract’s language demonstrates clearly that Kraft’s repeated failures to meet its obligations constituted material breaches and, in that regard, caused clear damage to Starbucks business.

Kraft has previously and publicly acknowledged that Starbucks has the right to terminate this contract. Given this, Starbucks will vigorously oppose any action on Kraft's part that seeks to delay this inevitability through unnecessary legal processes. Even as we pursue this transition, Starbucks is continuing to supply Kraft with appropriate supplies of our packaged coffee products so that our customers business does not suffer due to Kraft’s failings and that Starbucks is properly positioned to take over full control of our brand and business as of March 1, 2011.

The arbitration process will allow Starbucks to demonstrate the flagrant contradictions between Kraft’s private exchanges and its public filings, which have been exposed in email correspondence as reported by news media. Specifically, Kraft’s own senior executives have acknowledged Kraft’s neglect of the relationship over a long period of time and, while stating that the damage could be repaired, made no clear attempt to do so. At the same time, Kraft has claimed that it has grown Starbucks business when, in fact, any recent gains have been due directly to Starbucks ongoing innovation in the packaged coffee space and overall coffee market price increases. This was preceded by several years in which Starbucks lost market share in the packaged coffee business due to Kraft’s unwillingness or inability to honor the contract between our companies.

Starbucks looks forward to the opportunity to have our side of the argument heard fairly and without Kraft's misleading media spin being applied to the facts of the case.