Exhibit 10.4

PROMISSORY NOTE

 

$6,000,000

   Date: December 28, 2007

FOR VALUE RECEIVED, Tully’s Coffee Asia Pacific, Inc., a Nevada corporation with
its principal place of business at 3100 Airport Way South, Seattle, WA 98134
(“Maker”), promises to pay to UCC Ueshima Coffee Co., Ltd., a Japanese
corporation (“Payee”), in lawful money of the United States of America, the
principal sum of Six Million Dollars ($6,000,000), together with interest in
arrears on the unpaid principal balance at an annual rate of three percent (3%),
in the manner provided below. All interest shall accrue from day to day and be
computed on the basis of a year of 360 days and for the actual number of days
elapsed.

This Promissory Note (“Note”) has been executed and delivered in conjunction
with a Settlement Agreement executed by Tully’s Coffee Corporation (“Tully’s”)
and Payee, a Guaranty executed by Tully’s for the benefit of Payee, and a
Security Agreement, executed by Maker and Tully’s, securing repayment of all
sums due pursuant to this Note, all dated as of this same date.

 

1. PAYMENTS

1.1 PRINCIPAL AND INTEREST - The principal amount of this Note shall be due and
payable in accordance with the repayment schedule set forth as Exhibit A hereto.
Interest on the unpaid principal balance of this Note shall be due and payable
annually in arrears, commencing with December 28, 2008. Notwithstanding any
provision contained herein, the total principal and all accrued and unpaid
interest and other monetary obligations of Maker hereunder (unless paid sooner
or unless the obligations hereunder are accelerated in accordance with the terms
and conditions of this Note) shall be due and payable, in full, on the earlier
of (a) two (2) business days after Tully’s receives or otherwise obtains control
over proceeds equal to or greater than the remaining balance due hereunder from
an initial public offering of shares of Tully’s common stock pursuant to a
registration under the Securities Act of 1933, as amended, and (b) the Maturity
Date, as that term is defined on Exhibit A. For purposes of this Note, the
offering of shares of Tully’s common stock to employees under Tully’s employee
stock option and employee stock purchase plans pursuant to a
registration statement on Form S-8 under the Securities Act of 1933, as amended,
shall not be considered a public offering of shares.

1.2 MANNER OF PAYMENT - All payments of principal and interest on this Note
shall be made by wire transfer of immediately available funds to - Bank Name:
Sumitomo Mitsui Banking Corporation; Branch Name: Kobe Main Office; Account
Name: UCC Ueshima Coffee Co., Ltd.; Type of Account: Current Account; Account
Number: 2405800; Swift Code: SMBCJPJT – or such other account designated by
Payee in writing. If any payment of principal or interest on this Note is due on
a day which is not a Business Day, such payment shall be due on the next
succeeding Business Day, and such extension of time shall be taken into account
in calculating the amount of interest payable under this Note. “Business Day”
means any day other than a Saturday, Sunday or legal holiday in Japan. Any
payments of Maker hereunder shall be applied as follows: first, to the repayment
of any expenses of Payee for which Maker is obligated hereunder; second, to the
payment of accrued interest on the principal due hereunder; and third, to the
payment of the principal itself.

1.3 PREPAYMENT - The Maker shall have the right, on any Business Day, without
prior written notice to the Payee, to prepay, without penalty or premium, all
sums due hereunder, in whole or in part; provided, however, that interest on the
amount prepaid, accrued to the prepayment date, shall be paid on such prepayment
date and each optional prepayment of the obligations hereunder shall be applied
to the regularly scheduled installments of principal in their inverse order of
maturities.

 

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2. DEFAULTS

2.1 EVENTS OF DEFAULT—The occurrence of any one or more of the following events
with respect to Maker shall constitute an event of default hereunder (“Event of
Default”):

(a) If Maker shall fail to pay when due any payment of principal or interest on
this Note.

(b) If, pursuant to or within the meaning of the United States Bankruptcy Code
or any other federal or state law relating to insolvency or relief of debtors (a
“Bankruptcy Law”), Maker shall (i) commence a voluntary case or proceeding;
(ii) consent to the entry of an order for relief against it in an involuntary
case; (iii) consent to the appointment of a trustee, receiver, assignee,
liquidator or similar official; (iv) make an assignment for the benefit of its
creditors; or (v) otherwise generally fail to pay its debts as they become due.

(c) If a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that (i) is for relief against Maker in an involuntary case,
(ii) appoints a trustee, receiver, assignee, liquidator or similar official for
Maker or substantially all of Maker’s properties, or (iii) orders the
liquidation of Maker, and in each case the order or decree is not dismissed
within sixty (60) days.

2.2 NOTICE BY MAKER - Maker shall notify Payee in writing within two (2) days
after the occurrence of any Event of Default of which Maker acquires knowledge.

2.3 REMEDIES - Upon the occurrence of an Event of Default hereunder (unless all
Events of Default have been cured or waived by Payee), Payee may, at its option,
(i) by written notice to Maker, declare the entire unpaid principal balance of
this Note, together with all accrued interest thereon, immediately due and
payable regardless of any prior forbearance, with default interest upon the
principal balance from and including the date of such Event of Default accruing
thereafter at the Default Rate until paid and (ii) exercise any and all rights
and remedies available to it under applicable law, including, without
limitation, the right to collect from Maker all sums due under this Note. Maker
agrees to pay all reasonable costs and expenses, including, without limitation,
attorneys’ and accountants’ fees, incurred by Payee in connection with
nonpayment of this Note and the enforcement of any obligation of Maker
hereunder. Said reasonable fees and costs shall include, without limitation,
attorneys’ and accountants’ fees incurred in any appeal or in any proceedings
under any present or future bankruptcy act or state receivership, and the costs
and fees incurred in any post-judgment collection of this Note. “Default Rate”
shall mean the lower of (x) Eighteen Percent (18%) per annum or (y) the highest
rate permitted by applicable law. Any interest or late charge which is not paid
when due hereunder shall accrue interest, compounded monthly, at the Default
Rate.

 

3. MISCELLANEOUS

3.1 WAIVER - The rights and remedies of Payee under this Note shall be
cumulative and not alternative; provided, however, that if Maker fails to make
the Initial Payment, and so long as neither Maker nor Tully’s asserts any
defense to a claim for nonpayment hereunder (other than proof of payment or a
defense based on Payee’s intentional misconduct or gross negligence) then Payee
shall elect between its rights and remedies for nonpayment hereunder and its
rights to pursue the Action (as such term is defined in the Settlement Agreement
executed by the Payee and Tully’s as of this same date). Subject to the
immediately preceding proviso, no waiver by Payee of any right or remedy under
this Note shall be effective unless in writing and signed by Payee and neither
the failure nor any delay in exercising any right, power or privilege under this
Note will operate as a waiver of such right, power or privilege and no single or
partial exercise of any such right, power or privilege by Payee will preclude
any other or further exercise of such right, power or privilege or the exercise
of any other right, power or privilege. To the maximum extent permitted by
applicable law, (a) no claim or right of Payee arising out of this Note can be
discharged by Payee, in whole or in part, by a waiver or

 

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renunciation of the claim or right unless in a writing, signed by Payee; (b) no
waiver that may be given by Payee will be applicable except in the specific
instance for which it is given; and (c) no notice to or demand on Maker will be
deemed to be a waiver of any obligation of Maker or of the right of Payee to
take further action without notice or demand as provided in this Note. Maker
hereby waives presentment, demand, protest and notice of dishonor and protest.

3.2 NOTICES - All notices and other communications required or permitted under
this Note shall be in writing and shall be sent by confirmed e-mail or facsimile
transmission (FAX) to the number or addresses set forth below (in each such case
notice shall be deemed given on the date of transmission) or by overnight air
courier service (in which case notice shall be deemed given when received by
addressee or on the third (3rd) day after the date of delivery to the courier,
whichever is earlier), or by registered or certified mail, return receipt
requested, postage prepaid and properly addressed (in which case notice shall be
deemed given when received by the addressee or on the seventh (7th) day after
the date of mailing, whichever is earlier), to the addresses set forth below, or
such other address as a party may hereafter provide notice of to the other:

 

To Payee:    UCC Ueshima Coffee Co., Ltd.    7-7-7 Minatojima-Nakamachi, Chuo-ku
   Kobe, Japan 650-8577    Attn: Gota Ueshima & Seisuke Ueshima    Fax:
011-81-78-304-8845 With a copy to:    Garvey Schubert Barer    1191 Second
Avenue, 18th Floor    Seattle, WA 98101-2939    Attn: Sara P. Sandford & Bruce
A. McDermott    Fax: 1-206-464-0125 If to Maker:    Tully’s Coffee Asia Pacific,
Inc.    3100 Airport Way South    Seattle, WA 98134    Attention: President   
Fax: 1-206-233-2075 With a copy to:    Carney Badley Spellman, P.S.    701 Fifth
Avenue, Suite 3600    Seattle, WA 98104    Attn: Patrick R. Lamb    Fax:
1-206-467-8215

3.3 SEVERABILITY - If any provision in this Note is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Note will remain in full force and effect. Any provision of this Note held
invalid or unenforceable only in part or degree or with respect to any
particular party will remain in full force and effect to the extent not held
invalid or unenforceable. In no event shall any provision of this Note be
construed to require payment by Maker of interest in excess of the maximum rate
permitted by applicable law. In the event that any payment is received by the
holder of this Note which would otherwise be deemed to be a payment of interest
in excess of such maximum, then the payment shall be deemed to have been paid on
account of principal at the time of receipt. Maker represents and warrants that
the funds evidenced by this Note have been used exclusively for commercial,
investment, or business purposes and not for personal, family or household
purposes.

 

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3.4 GOVERNING LAW - The validity, performance, construction, interpretation, and
effect of this Note shall be governed by and construed in accordance with the
laws of the State of Washington without regard to conflicts of laws principles.
Maker acknowledges that by execution and delivery of this Note and the
transactions for which this debt was incurred, Maker has transacted business in
the State of Washington and Maker hereby voluntarily submits to, consents to,
and waives any defense to the jurisdiction of courts located in the State of
Washington as to all matters relating to or arising from this Note.

3.5 PARTIES IN INTEREST - Maker shall not assign its obligations hereunder.
Subject to the foregoing, this Note shall bind Maker and its successors and
assigns.

3.6 SECTION HEADINGS, CONSTRUCTION - The headings of Sections in this Note are
provided for convenience only and will not affect its construction or
interpretation. All references to “Section” or “Sections” refer to the
corresponding Section or Sections of this Note unless otherwise specified. All
words used in this Note will be construed to be of such gender or number as the
circumstances require. Unless otherwise expressly provided, the words “hereof”
and “hereunder” and similar references refer to this Note in its entirety and
not to any specific section or subsection hereof.

MAKER HEREBY ACKNOWLEDGES LIABILITY FOR PAYMENT OF ALL AMOUNTS OWING UNDER THIS
NOTE AND AGREES THAT PAYEE DOES NOT HAVE TO FORECLOSE ON THE RELATED GUARANTY OR
SECURITY AGREEMENT BEFORE DEMANDING FULL PAYMENT FROM MAKER.

ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR
FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.

ACCORDINGLY, Maker has caused this Note to be duly executed and delivered as of
the date first stated above.

 

MAKER: Tully’s Coffee Asia Pacific, Inc. By:       Title:    

 

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EXHIBIT A

Repayment Schedule

Initial Payment: Two Million Dollars ($2,000,000) on or before the earlier of
(a) January 8, 2008 and (b) when Maker receives any distribution of $2,000,000
or more from the proposed general partnership that Maker intends to form with
one or more third parties, as a joint venture, through which Tully’s brand
coffees and products will be marketed in various jurisdictions throughout Asia.

December 28, 2008 – One Million Dollars ($1,000,000)

December 28, 2009 – One Million Dollars ($1,000,000)

December 28, 2010 – One Million Dollars ($1,000,000)

December 28, 2011 – One Million Dollars ($1,000,000)

Maturity Date: December 28, 2011

 

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