Exhibit 10.4

August 11, 2005

{Optionee Name}

{Optionee Address}

{Optionee City, State and Zip}

Re: Stock Option Grant

Dear {Name}

A few weeks ago we gave you some good news- on May 16, 2005 the Board of
Directors approved a grant of stock options to you under the Tully’s Coffee
Corporation 2004 Stock Option Plan (the “Plan”). As you may recall, we advised
you that we would be sending you the actual stock option agreement and some
related documents at a later time. I am pleased that we are now doing so with
this letter.

We enclose the following documents with this letter:

 

  1. Two copies of the stock option agreement for these stock options;

 

  2. A copy of the prospectus, dated December 17, 2004, relating to the common
stock issuable upon exercise of options granted under the Plan;

 

  3. A copy of the Plan, which is Exhibit A to the prospectus;

 

  4. A copy of our Fiscal 2005 Annual Report on Form 10-K.

Please execute one copy of the stock option agreement and return the executed
agreement to Mark Dringenberg in our Accounting Dept. (telephone: 206-233-2070)
within 30 days after you receive these materials. You should retain the other
documents for your records. Stock option grants are effective only upon the
execution of a stock option agreement between Tully’s and you, and are subject
to cancellation if the stock option agreement enclosed herein is not executed
and returned to Tully’s.

If you have any questions regarding these materials or your stock options,
please contact Kris Galvin, our CFO, or Kathy Hasegawa, our controller.

On behalf of the Board of Directors, I am pleased to provide you this
opportunity to become a shareholder of Tully’s Coffee Corporation.

Sincerely,

John D. Dresel

President and Chief Operating Officer

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TULLY’S COFFEE CORPORATION

(the “Company”)

NON-QUALIFIED STOCK OPTION AGREEMENT FOR PURCHASE OF STOCK

We are pleased to inform you that the Company has granted to you (the
“Optionee”) an option to purchase shares of the Company’s common stock
(“Option”) under the 2004 Stock Option Plan (the “Plan”) on the terms and
subject to the conditions set forth in this Stock Option Agreement.

This Stock Option Agreement is made and entered into pursuant to a specific
grant of options approved by the Company’s Board of Directors or the
Compensation Committee thereof as of the Date of Option Grant set forth below.
This Stock Option Agreement cancels, supercedes, and replaces any other oral or
written agreement, letter or other document between the parties related to this
Option.

FOR VALUABLE CONSIDERATION, the Company does hereby grant to the Optionee, in
accordance with the terms and conditions hereof, as of the Date of Option Grant,
the right and option to purchase the number of shares of common stock of the
Company (the “Option Shares”) for the Exercise Price Per Share as set forth
below, which right and option shall vest and become exercisable according to the
Vesting Schedule set forth below:

 

Name of Optionee:          Number of Option Shares:          Exercise Price Per
Share:          Date of Option Grant:    May 16, 2005       Expiration Date:   
      Vesting Schedule:         

EXECUTED as of August 11, 2005.

 

TULLY’S COFFEE CORPORATION

By  

 

  Kristopher S. Galvin   Executive Vice President and CFO

By signing below and entering into this Stock Option Agreement, Optionee agrees
to the terms hereof, and all obligations and responsibilities as described in
the Plan and the attached Terms and Conditions, which shall constitute part of
this Stock Option Agreement.

 

OPTIONEE

 

Address:

 

 

 

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TERMS AND CONDITIONS OF NON-QUALIFIED STOCK OPTION AGREEMENT

THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS

COVERING SECURITIES THAT HAVE BEEN REGISTERED

UNDER THE SECURITIES ACT OF 1933.

Capitalized Terms used in this Stock Option Agreement (the “Agreement”), if not
otherwise

defined, have the meanings given them in the Plan.

1. Time of Exercise of Option. Until it expires or is terminated as provided in
Section 2 hereof, the Option may be exercised from time to time to purchase the
number of whole shares of common stock as to which it has become exercisable.
Section 2.6 of the Plan sets forth provisions affecting the exercise and
termination of the Option in connection with certain circumstances, including
Merger, Consolidation, Tender Offer, Takeover Bid, Sale of Assets or Dissolution
as set forth therein.

2. Termination of Employment or Service.

2.1 General Rule. Except as provided in this Section 2, the Option may not be
exercised unless at the time of exercise the Optionee is employed by or is
serving as a director of the Company, and shall have been so employed or
provided such service continuously since the Date of Option Grant. For purposes
of this Agreement, the Optionee is considered to be employed by or in the
service of the Company if the Optionee is employed by or serving as a director
of the Company or any subsidiary of the Company (each, an “Employer”).

2.2 Termination Generally. If the Optionee’s employment by or service with the
Company terminates for any reason other than for cause, resignation in lieu of
dismissal, total disability, death or due to a Change of Control Event, as
provided in Sections 2.3, 2.4, 2.5, 2.6 or 2.7 hereof, then the Option may be
exercised at any time before the earliest of (a) the Expiration Date, (b) the
date that is three years after the date of termination, and (c) ten years after
the Date of Option Grant, but only if and to the extent the Optionee was
entitled to exercise the Option at the date of termination (provided that all
other conditions to exercise set forth herein shall have been met at the date of
exercise of the Option).

2.3 Termination for Cause or Resignation in Lieu of Dismissal.

(a) If the Optionee is terminated for cause or resigns in lieu of dismissal, the
Option shall be deemed to have terminated as of the time of the first act that
led or would have led to the termination for cause or resignation in lieu of
dismissal, and the Optionee shall thereupon have no right to purchase any shares
of common stock pursuant to the exercise of the Option, and any such exercise
shall be null and void.

(b) Termination for “cause” shall include (i) the violation by the Optionee of
any reasonable rule or policy of the Company; (ii) any willful misconduct or
gross negligence by the Optionee in the responsibilities assigned to him or her;
(iii) any willful failure to perform his or her job as required to meet the
objectives of the Company; (iv) any wrongful conduct of

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an Optionee that has an adverse impact on the Company or that constitutes a
misappropriation of the assets of the Company; (v) unauthorized disclosure of
confidential information; (vi) the Optionee’s performing services for any other
company or person that competes with the Company while he or she is employed by
or provides services to the Company, without the written approval of the
president or chief executive officer of the Company; or (vii) removal as a
director of the Company.

(c) “Resignation in lieu of dismissal” shall mean a resignation by the Optionee
as an employee or director, or both, if (i) the Company has given prior notice
to the Optionee of its intent to dismiss (or seek removal of) the Optionee for
circumstances that constitute cause, or (ii) within two months of the Optionee’s
resignation, the Board of Directors of the Company or the president or chief
executive officer of the Company determines that such resignation was related to
an act that would have led to a termination for cause.

2.4 Resignation. If the Optionee resigns as an employee or director of the
Company, the Optionee’s right to exercise his or her option shall be suspended
for a period of two months from the date of resignation, unless the president or
chief executive officer of the Company or the Board of Directors determines
otherwise in writing. Thereafter, unless there is a determination that the
Optionee resigned in lieu of dismissal, the option may be exercised at any time
before the earlier of (a) the Expiration Date (which shall have been extended
for the period during which the Option has been suspended) or (b) the date that
is three years after the date of resignation, to the extent the Optionee was
entitled to exercise the Option at the date of resignation (provided all other
conditions to exercise set forth herein shall have been met at the date of
exercise of the Option).

2.5 Termination Because of Total Disability. If the Optionee’s employment or
service to the Company terminates because of a permanent and total disability
(as defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as
amended), the Option may be exercised at any time before the earlier of (a) the
Expiration Date or (b) the date that is three years after the date of such
termination, but only if and to the extent the Optionee was entitled to exercise
the Option at the date of termination (provided that all other conditions to
exercise set forth herein shall have been met at the date of exercise of the
Option).

2.6 Termination Because of Death. If the Optionee dies while employed by or in
the service of the Company, the Option may be exercised at any time before the
earlier of (a) the Expiration Date or (b) the date that is 12 months after the
date of death, but only if and to the extent the Optionee was entitled to
exercise the Option at the date of termination. The Option may be exercised only
by the person or persons to whom the Optionee’s rights under the Option shall
pass by the Optionee’s will or by the applicable laws of descent and
distribution (provided all other conditions to exercise set forth herein shall
have been met at the date of exercise of the Option).

2.7 Termination Because of a “Change of Control Event.” The Option shall
terminate upon the occurrence of a Change of Control Event, as defined in
Section 2.7(e) (6) of the Plan and subject to the terms set forth therein.

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2.8 Effect of Leave of Absence; Transfer of Employment. Absence on leave
approved by the Employer or on account of illness or disability shall not be
deemed a termination or interruption of employment or service. Vesting of the
Option shall continue during any medical, family, or military leave of absence
taken in accordance with the policies of the Company. Vesting of the Option and
the Expiration Date therefor shall be suspended during any other leave of
absence, whether paid or unpaid, except as otherwise determined by the Board of
Directors or appropriate committee thereof. A transfer of employment or other
relationship between or among the Company and any subsidiaries of the parent or
the Company shall not be deemed to constitute a termination of employment or
other cessation of relationship with the Employer.

2.9 Effect of Listing or Quotation of Common Stock. Effective as of the later of
(a) the date on which the Company’s common stock is listed or quoted on a
national securities exchange or market or (b) the expiration of any restrictive
period applicable to the Option under the requirements of Section 9 below, the
three year exercise period referenced in Sections 2.2 and 2.4 above will be
reduced to three months and in Section 2.5 to twelve months.

2.10 Failure to Exercise Option. To the extent that the Option of any deceased
Optionee or any Optionee whose employment or service terminates is not exercised
within the applicable exercise period, all further rights to purchase shares
pursuant to the Option shall cease and terminate.

3. Recapitalizations. The Option shall be adjusted for recapitalizations, stock
splits, stock dividends, and the like as described in Section 2.10 of the Plan.

4. Method of Exercise of Option. Subject to the provisions of Section 1 above,
the Option may be exercised in whole or in part; provided, however, that no
fewer than 100 shares (or the remaining shares then purchasable under the
Option, if less than 100 shares) may be purchased on any exercise of the Option.
The Option shall be exercised by delivery to the Secretary of the Company or his
or her designated agent of notice, substantially in the form attached hereto as
Annex 1, of the number of Option Shares with respect to which the Option is
being exercised, together with payment in full of the exercise price and any
applicable withholding taxes. Payment of the option exercise price shall be made
in cash or bank certified or cashier’s check for the number of Option Shares
being purchased. Before the issuance of shares of common stock upon the exercise
of the Option, the Optionee shall pay to the Company the amount of any
applicable federal, state or local tax withholding obligations. The Company may
withhold any distribution in whole or in part until the Company is so paid. The
Company shall have the right to withhold such amount from any other amounts due
or to become due from the Company to the Optionee, including salary (subject to
applicable law) or to retain and withhold a number of shares having a market
value not less than the amount of such taxes required to be withheld by the
Company to reimburse it for any such taxes and cancel (in whole or in part) any
such shares so withheld.

5. Nonassignability of Option by Optionee. The Option is nonassignable and may
not be transferred, pledged or hypothecated in any manner by the Optionee,
either voluntarily or by operation of law, except by will or the applicable laws
of descent and distribution; shall not be subject to execution, attachment or
similar process; and shall be exercisable during the

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Optionee’s lifetime only by the Optionee. Any purported transfer or assignment
in violation of this provision shall be void. The Option and any and all rights
granted to the Optionee hereunder and not theretofore duly exercised shall
automatically terminate and expire upon any purported assignment or transfer or
upon the bankruptcy or insolvency of Optionee or Optionee’s estate.

6. Conditions on Company’s Obligations.

6.1 No Violations of Law. The Company shall not be obligated to issue any Option
Shares upon exercise of the Option if the Company is advised by its legal
counsel that such issuance would violate applicable state or federal laws,
including securities laws and the requirements of any stock exchange or market
on which the common stock may then be listed. The Company will use its
reasonable best efforts to take steps required by state or federal law and
applicable regulations in connection with issuance of the Option Shares. The
inability of the Company to obtain, from any regulatory body having
jurisdiction, the authority deemed by the Company’s counsel to be necessary for
the lawful issuance and sale of any Option Shares hereunder, or to qualify for
an exemption from registration for the issuance and sale of any shares
hereunder, shall relieve the Company of any liability with respect to the
nonissuance or sale of such shares as to which such requisite authority or
qualification shall not have been obtained or satisfied.

6.2 Compliance with Securities Laws. As a condition to the exercise of the
Option, the Company may require the Optionee to represent and warrant at the
time of exercise that the Option Shares are being purchased only for investment
and without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any
relevant provision of the aforementioned laws. The Company may place a
stop-transfer order against any shares of common stock on the stock records of
the Company, and a legend may be stamped on stock certificates to the effect
that the shares of common stock may not be pledged, sold or otherwise
transferred unless an opinion of counsel is provided (concurred in by counsel
for the Company) stating that such transfer is not in violation of any
applicable law or regulation. The Board of Directors (or a committee thereof)
also may require such other action or agreement by the Optionee as may from time
to time be necessary to comply with the federal and state securities laws. THIS
PROVISION SHALL NOT OBLIGATE THE COMPANY TO UNDERTAKE REGISTRATION OF THE COMMON
STOCK ISSUABLE UPON EXERCISE OF THE OPTION.

7. No Rights as a Shareholder. The Optionee shall have no rights as a
shareholder with respect to any shares of common stock until the date on which
the Optionee becomes the holder of record of those shares. No adjustment shall
be made for dividends or other rights for which the record date occurs before
the date the Optionee becomes the holder of record.

8. No Right to Employment or Service. Nothing in the Plan or this Agreement
shall confer upon the Optionee any right to be continued in the employment of
the Company or interfere in any way with the Company’s right to terminate the
Optionee’s employment at will at any time, for any reason, with or without
cause, without any pre- or post-termination warning, discipline or procedure, or
to decrease the Optionee’s compensation or benefits, or

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confer upon the Optionee any right to be retained or employed by the Company or
to the continuation, extension, renewal or modification of any compensation,
contract or arrangement with or by the Company. Neither Optionee nor any other
person shall have any claim or right to be granted additional options under the
Plan. Optionee shall have no rights to or interest in any option except as set
forth herein.

9. Market Stand-off. The Optionee agrees, in connection with any public equity
offering by the Company, (a) not to sell or otherwise dispose of any securities
of the Company in compliance with terms of the lock-up or similar agreement
proposed by the underwriters for such offering and (b) to execute an agreement
in the form proposed; provided that (x) substantially all of the Company’s
officers and directors enter into identical agreements, (y) the restrictive
period does not exceed 180 days following the offering, and (z) the failure to
execute a form of agreement shall not affect the enforceability of this
covenant. To enforce this covenant, the Company may impose stop-transfer
instructions with respect to the securities of the Optionee until the end of the
restrictive period.

10. Successors of Company. Subject to Section 2.7 hereof, this Agreement shall
be binding upon and shall inure to the benefit of any successor of the Company
but, except as provided herein, the Option may not be assigned or otherwise
transferred by the Optionee.

11. Notices. Any notices under this Agreement must be in writing and will be
effective when actually delivered or, if mailed, three days after deposit into
the United States mail by registered or certified mail, postage prepaid. Mail
shall be directed to the Company at its principal executive offices, Attention:
Secretary, and to Optionee at the address stated on the facing page of this
Agreement, or to such address as a party may certify by notice to the other
party.

12. Amendments. The Company may at any time amend this Agreement if the
amendment does not adversely affect the Optionee. Otherwise, this Agreement may
not be amended without the written consent of the Optionee and the Company.

13. Governing Law. This Agreement shall be governed by the laws of the State of
Washington.

14. Complete Agreement. This Agreement constitutes the entire agreement between
the Optionee and the Company, both oral and written concerning the matters
addressed herein, and all prior agreements or representations concerning the
matters addressed herein, whether written or oral, express or implied, are
terminated and of no further effect. This Agreement and the Option represented
hereby is granted pursuant to and is governed by the Plan, amended from time to
time. In the event of any inconsistency or ambiguity between this Agreement and
the Plan, the provisions of the Plan, as interpreted by the Board of Directors
or designated committee thereof, shall control.

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Annex 1

Form of Notice of Exercise of Stock Option

Date:                             

To: Tully’s Coffee Corporation

I hereby exercise the non-statutory stock option granted to me by Tully’s Coffee
Corporation (the “Company”) on May 16, 2005, subject to all the terms and
provisions thereof and of the 2004 Stock Option Plan referred to therein, and
notify the Company of my desire to purchase                      shares of
common stock of the Company at the exercise price of $             per share, or
an aggregate exercise price of $            .

I hereby deliver the full exercise price and all applicable withholding taxes
with respect to this exercise as follows:

                                     cash, or

                                     bank certified or cashier’s check.

I further agree to execute such other documents as the Company may request in
connection with the exercise of this stock option.

 

  By:                                          
                                        Print Name:
                                                                     Address:
                                                                         
                                       
                                                                  SSN: