Exhibit 10.22

SECURITY AGREEMENT

This Security Agreement is made as of the 26th day of April, 2007.

 

By:    TULLY’S COFFEE CORPORATION       3100 AIRPORT WAY SOUTH       SEATTLE, WA
98134       (the “Debtor”)    in favor of    BENAROYA CAPITAL COMPANY, L.L.C.   
   1100 OLIVE WAY, SUITE 1700       SEATTLE, WA 98101       (the “Secured
Party”)   

I. Security

 

1.1 For value received, the Debtor grants and creates the security constituted
by this Security Agreement and agrees to the terms, covenants, agreements,
conditions, provisos and other matters set out in this Security Agreement.

 

1.2 As general and continuing security for the Obligations (defined in clause
2.1 hereof), the Debtor hereby grants to the Secured Party a security interest
in all presently owned and hereafter acquired personal property of the Debtor of
whatsoever nature and kind and wheresoever situate and all proceeds thereof and
therefrom, including Cash Proceeds and Proceeds, renewals thereof, Accessions
thereto and substitutions therefor (all of which are herein collectively called
the “Collateral”), including, without limiting the generality of the foregoing,
all the presently owned or held and hereafter acquired right, title and interest
of the Debtor in and to all Accounts, Goods (including all accessories,
attachments, additions and Accessions thereto) Chattel Paper, Deposit accounts,
Documents (whether negotiable or not), Instruments, Intangibles and General
Intangibles, Investment Property, Money, Securities and Software, and all:

 

  (a) Inventory of whatsoever nature and kind and wheresoever situate;

 

  (b) Equipment (other than Inventory) of whatsoever nature and kind and
wheresoever situate, including, without limitation, all machinery, tools,
apparatus, plant, furniture, fixtures and vehicles of whatsoever nature and
kind;

 

  (c) book accounts and book debts and all Accounts, debts, dues, claims, choses
in action and demands of every nature and kind howsoever arising or secured,
including letters of guarantee and advices of credit which are now due, owing or
accruing or growing due to or owned by or which may

 

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hereafter become due, owing or accruing or growing due to or owned by the Debtor
(all of which are herein collectively called the “Debts”);

 

  (d) deeds, documents, writings, papers, books of account and other books
relating to or being records of Debts, Chattel Paper or Documents or by which
such are or may hereafter be secured, evidenced, acknowledged or made payable;

 

  (e) contractual rights and insurance claims and all goodwill, patents,
trademarks, copyrights and other intellectual or industrial property;

 

  (f) monies other than trust monies lawfully belonging to others;

 

  (g) right, title and interest of the Debtor in and to leasehold property; and

 

  (h) goodwill of the Debtor.

 

1.3 In this Security Agreement:

 

  1.3.1 any reference to “Debtor” and the personal pronoun “it” or “its” and any
verb relating thereto and used therewith shall be read and construed as required
by and in accordance with the context in which such words are used depending
upon whether the Debtor is one or more corporations;

 

  1.3.2 any reference to “Northrim Encumbrances” shall mean the indebtedness or
claims arising under, or relating to, the Contract of Sale and Security
Agreement between Debtor and Northrim Funding Services dated as of November 16,
2006;

 

  1.3.3 any reference to “Note” shall mean that certain senior subordinated note
made by Debtor to Secured Party of even date herewith;

 

  1.3.4 any reference to “Permitted Senior Encumbrances” shall mean the Northrim
Encumbrances and those encumbrances listed and described on Schedule A hereto.

 

  1.3.5 any reference to “Security Agreement” shall, unless the context
otherwise requires, be deemed a reference to this Security Agreement as amended
from time to time by written agreement together with any schedules attached
hereto pursuant to the provisions hereof;

 

  1.3.6 any reference to “UCC” shall mean the Uniform Commercial Code of the
State of Washington as amended from time to time, including any amendments
thereto and any Act substituted therefor and amendments thereto;

 

  1.3.7 any reference to “Warrant” shall mean that certain warrant issued by
Debtor to Secured Party pursuant to the Note; and

 

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  1.3.8 the terms “Goods”, “Chattel Paper”, “Documents”, “Equipment”, “Accounts”
“Consumer Goods”, “Instruments”, “Intangibles”, “General Intangibles”,
“Investment Property”, “Securities”, “Proceeds”, “Inventory”, “Software”,
“Deposit accounts” and “Accessions” and other words and expressions which have
been defined in the UCC shall be interpreted in accordance with their respective
meanings given in the UCC (either in the singular or plural thereof), as the
context requires unless otherwise defined herein or unless the context otherwise
requires.

II. Obligations Secured

 

2.1 The security constituted by this Security Agreement is general and
continuing security for payment, performance and satisfaction of each and every
obligation, indebtedness and liability of the Debtor to the Secured Party under
the Note (including interest thereon), present or future, direct or indirect,
absolute or contingent, matured or not, extended or renewed, wheresoever and
howsoever incurred, and any ultimate unpaid balance thereof, and whether the
Debtor be bound alone or with another or others and whether as principal or
surety (all of which obligations, indebtedness and liabilities are herein
collectively called the “Obligations”).

 

2.2 This Security Agreement and the security constituted hereby are in addition
to and not in substitution for any other security or securities which the
Secured Party may now or from time to time hold or take from the Debtor or from
any other person whosoever.

III. Representations and Warranties of Debtor

 

3.1 The Debtor represents and warrants that:

 

  3.1.1 this Security Agreement has been authorized, executed and delivered in
accordance with resolutions of the directors of the Debtor and all other matters
and things have been done and performed so as to authorize and make the
execution and delivery of this Security Agreement, the creation of the security
constituted hereby and the performance of the Debtor’s obligations hereunder
legal, valid and binding;

 

  3.1.2 the Collateral is genuine and is owned by the Debtor free of all
security interests, mortgages, liens, claims, charges and other encumbrances
(herein collectively called “Encumbrances”), save for the security constituted
by this Security Agreement and the Permitted Senior Encumbrances; and

 

  3.1.3 the Debtor has good and lawful authority to create the security in the
Collateral constituted by this Security Agreement.

 

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IV. Covenants of the Debtor

 

4.1 The Debtor covenants and agrees that at all times while this Security
Agreement remains in effect the Debtor will:

 

  4.1.1 defend the Collateral for the benefit of the Secured Party against the
claims and demands of all other persons;

 

  4.1.2 not, without the prior written consent of the Secured Party create or
permit to exist any Encumbrance against any of the Collateral which ranks or
could in any event rank in priority to or pari passu with the security
constituted by this Security Agreement, save for (i) Permitted Senior
Encumbrances and (ii) Encumbrances approved in writing by the Secured Party
prior to creation or assumption;

 

  4.1.3 fully and effectively maintain and keep maintained valid and effective
the security constituted by this Security Agreement;

 

  4.1.4 notify the Secured Party promptly of:

 

  (a) any change in the Debtor’s name, jurisdiction of organization or legal
form; and

 

  (b) any material loss or damage to the Collateral not covered by insurance;

 

  4.1.5 keep the Collateral generally in good order, condition and repair and
not use any material amount of the Collateral in violation of the provisions of
this Security Agreement or any other agreement relating to the Collateral or any
policy insuring the Collateral or any applicable statute, law, by-law, rule,
regulation or ordinance;

 

  4.1.6 carry on and conduct the business of the Debtor in a commercially
reasonable manner and so as to protect and preserve the Collateral and to keep,
in accordance with generally accepted accounting principles, consistently
applied, proper books of account for the Debtor’s business as well as accurate
and complete records concerning the Collateral and, at the Secured Party’s
request, mark any and all such records and the Collateral so as to indicate the
security constituted by this Security Agreement;

 

  4.1.7 forthwith pay when due:

 

  (a) all obligations to its employees and all obligations to others which
relate to its employees when due, including, without limitation, all taxes,
duties, levies, government fees, claims and dues related to its employees;

 

  (b) all taxes, assessments, rates, duties, levies, government fees, claims and
dues lawfully levied, assessed or imposed upon it or the Collateral when

 

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     due, unless the Debtor shall in good faith contest its obligations so to
pay and shall furnish such security as the Secured Party may require; and

 

  (c) all Encumbrances which rank or could in any event rank in priority to or
pari passu with the security constituted by this Security Agreement, including
the Permitted Senior Encumbrances;

 

  4.1.8 Debtor, at its own cost and expense, will keep all of the Collateral
comprising insurable property continuously insured in such amounts, with such
responsible and reputable insurance companies or associations, against such
risks, and in such form, as are generally consistent with the Debtor’s insurance
policies in effect on the date hereof or as otherwise reasonably satisfactory to
Secured Party. Promptly following the occurrence of any loss of, or damage to,
any material part of the Collateral comprising insurable property, Debtor will
give to Secured Party notice of such loss or damage;

 

  4.1.9 forthwith pay when due all reasonable costs, charges, expenses and legal
fees and disbursements which may be incurred by the Secured Party in:

 

  (a) inspecting the Collateral upon or after the occurrence of an Event of
Default;

 

  (b) taking, recovering, keeping possession of and insuring the Collateral upon
or after the occurrence of an Event of Default; and

 

  (c) all other actions and proceedings taken in connection with the
preservation of the Collateral under the terms of this Security Agreement and
the confirmation, perfection and enforcement of this Security Agreement; and

 

  4.1.10 at the Secured Party’s request at any time and from time to time
execute and deliver such further and other documents and instruments and do all
other acts and things as the Secured Party reasonably requires in order to give
effect to this Security Agreement or to confirm and perfect, and maintain
perfection of, the security constituted by this Security Agreement in favor of
the Secured Party.

V. Payments and Proceeds

 

5.1 Subject to the rights of the holders of the Permitted Senior Encumbrances,
after default under this Security Agreement, the Secured Party may notify all or
any debtors on any Account (“Account Debtors”) of the security constituted by
this Security Agreement and may also direct such Account Debtors to make all
payments on the Collateral to the Secured Party.

 

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VI. Secured Party Actions

 

6.1 The Debtor hereby authorizes the Secured Party to file such financing
statements and other documents and do such acts, matters and things, consistent
with the terms and conditions of this Security Agreement, as the Secured Party
may deem appropriate to perfect and continue the security constituted hereby, to
protect and preserve the Collateral and to realize upon the security constituted
hereby. The Debtor hereby irrevocably constitutes and appoints the Secured Party
the true and lawful attorney of the Debtor, with full power of substitution to
do any of the foregoing in the name of the Debtor whenever and wherever it may
be deemed necessary or expedient by the Secured Party following the occurrence
and during the continuation of an event of default under this Security
Agreement.

 

6.2 If the Debtor fails to perform any of its Obligations hereunder, the Secured
Party may, after written notice to Debtor, but shall not be obliged to, perform
any or all of such Obligations without prejudice to any other rights and
remedies of the Secured Party hereunder, and any payments made and any
reasonable costs, charges, expenses and legal fees and disbursements incurred in
connection therewith shall be payable by the Debtor to the Secured Party
forthwith with interest until paid at the highest rate borne by any of the
Obligations and such amounts shall form part of the Obligations and constitute a
charge upon the Collateral in favor of the Secured Party prior to all claims
subsequent to this Security Agreement.

VII. Default

 

7.1 The Debtor shall be in default under this Security Agreement, unless
otherwise agreed in writing by the Secured Party, upon the occurrence of any of
the following events:

 

  7.1.1 the Debtor defaults in payment when due, after the expiration of any
applicable grace periods, of any of the Obligations which are indebtedness or
liabilities or the Debtor fails to perform or satisfy any other of the
Obligations; or

 

  7.1.2 the Debtor is in breach of any written term, condition, proviso,
agreement or covenant to the Secured Party contained in the Note, the Warrant or
this Security Agreement, or any representation or warranty given by the Debtor
to the Secured Party in connection with the Note, the Warrant or this Security
Agreement is untrue; or

 

  7.1.3 the Debtor makes an assignment for the benefit of its creditors, is
declared bankrupt, makes a proposal or otherwise takes advantage of provisions
for relief under the Bankruptcy Code or similar legislation in any jurisdiction;
or

 

  7.1.4 there is instituted by or against the Debtor, and not dismissed within
90 days thereof, any formal or informal proceeding for the dissolution or
liquidation of, settlement of claims against, or winding up of affairs of, the
Debtor; or

 

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  7.1.5 the Debtor ceases or an officer of Debtor with apparent authority to
bind Debtor threatens to Secured Party or any holder of a Permitted Senior
Encumbrance to cease to carry on business or makes or agrees to make a bulk sale
of assets or commits or an officer of Debtor with apparent authority to bind
Debtor threatens to Secured Party or any holder of a Permitted Senior
Encumbrance to commit an act of bankruptcy; or

 

  7.1.6 a receiver, receiver and manager or receiver-manager of all or any
material part of the Collateral or of any other material property, assets or
undertakings of the Debtor is appointed; or

 

  7.1.7 any execution, sequestration, extent or other process of any court
materially adversely affecting the Collateral becomes enforceable against the
Debtor or a distress or analogous process is levied upon the Collateral or any
material part thereof; or

 

  7.1.8 an order is made or an effective resolution is passed for winding-up the
Debtor; or

 

  7.1.9 without the prior written consent of the Secured Party, the Debtor
creates or permits to exist any Encumbrance against any of the Collateral (other
than any of the Permitted Senior Encumbrances) which ranks or could in any event
rank in priority to or par passu with the security constituted by this Security
Agreement; or

 

  7.1.10 the holder of any Encumbrance against any of the Collateral (other than
the holder of any Permitted Senior Encumbrance) does anything to enforce or
realize on such Encumbrance.

VIII. Enforcement

 

8.1 Upon any default under this Security Agreement, the Secured Party may
declare any or all of the Obligations to become immediately due and payable.

 

8.2 Upon default under this Security Agreement, the security hereby constituted
will immediately become enforceable.

 

8.3 To enforce and realize on the security constituted by this Security
Agreement, the Secured Party may take any action permitted by law or in equity
as it may deem expedient, and in particular, without limiting the generality of
the foregoing, the Secured Party may do any one or more of the following:

 

  8.3.1 appoint by instrument a receiver, receiver and manager or
receiver-manager (the person so appointed is herein called the “Receiver”) of
the Collateral, with or without bond as the Secured Party may determine, and
from time to time in its sole discretion remove such Receiver and appoint
another in its stead;

 

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  8.3.2 enter upon any premises of the Debtor and take possession of the
Collateral with power to exclude the Debtor, its agents and its servants
therefrom, without becoming liable as a mortgagee in possession;

 

  8.3.3 preserve, protect and maintain the Collateral and make such replacements
thereof and repairs and additions thereto as the Secured Party may deem
advisable;

 

  8.3.4 sell, lease or otherwise dispose of or concur in selling, leasing or
otherwise disposing of all or any part of the Collateral, whether by public or
private sale or lease or otherwise, in such manner, at such price as can be
reasonably obtained therefor and on such terms as to credit and with such
conditions of sale and stipulations as to title or conveyance or evidence of
title or otherwise as to the Secured Party may seem reasonable, provided that
the Debtor will not be entitled to be credited with the proceeds of any such
sale, lease or other disposition until the monies therefor are actually
received; and

 

  8.3.5 exercise all of the rights and remedies of a secured party under the
UCC.

 

8.4 A Receiver appointed pursuant to this Security Agreement shall be the agent
of the Debtor and not of the Secured Party and, to the extent permitted by law
or to such lesser extent permitted by its appointment, shall have all the powers
of the Secured Party hereunder, and in addition shall have power to carry on the
business of the Debtor and for such purpose from time to time to borrow money
either secured or unsecured, and if secured by a security on any of the
Collateral, any such security may rank in priority to or pari passu with or
behind the security constituted by this Security Agreement, and if it does not
so specify such security shall rank in priority to the security constituted by
this Security Agreement.

 

8.5 Subject to applicable law and the claims, if any, of the holders of any
Permitted Senior Encumbrances, all amounts realized from the disposition of the
Collateral pursuant to this Security Agreement will be applied as the Secured
Party, in its sole discretion, may direct as follows:

 

Firstly: in or toward payment of all costs, charges and expenses, including
legal fees and disbursements incurred by the Secured Party in connection with or
incidental to:

 

  (a) the exercise by the Secured Party of all or any of the powers granted to
it pursuant to this Security Agreement; and

 

  (b) the appointment of the Receiver and the exercise by the Receiver of all or
any of the powers granted to the Receiver pursuant to this Security Agreement,
including the Receiver’s reasonable remuneration and all outgoings properly
payable by the Receiver;

 

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Secondly:    in or toward payment to the Secured Party of all principal and
other monies (except interest) due in respect of the Obligations; Thirdly:    in
or toward payment to the Secured Party of all interest remaining unpaid in
respect of the Obligations; and Fourthly:    any surplus will be paid to the
Debtor.

IX. Deficiency

 

9.1 If the amounts realized from the disposition of the Collateral are not
sufficient to pay the Obligations in full to the Secured Party, the Debtor will
immediately pay to the Secured Party the amount of such deficiency.

X. Rights Cumulative

 

10.1 All rights and remedies of the Secured Party set out in this Security
Agreement are cumulative and no right or remedy contained herein is intended to
be exclusive but each will be in addition to every other right or remedy
contained herein or in any existing or future security agreement or now or
hereafter existing at law or in equity or pursuant to any other agreement
between the Debtor and the Secured Party that may be in effect from time to
time.

XI. Appointment of Attorney

 

11.1 The Debtor hereby irrevocably appoints the Secured Party or the Receiver,
as the case may be, with full power of substitution, to be the attorney of the
Debtor for and in the name of the Debtor to sign, endorse or execute under seal
or otherwise any deeds, documents, transfers, checks, instruments, demands,
assignments, assurances or consents that the Debtor is obliged to sign, endorse
or execute under the terms and conditions of this Security Agreement and
generally to use the name of the Debtor and to do all things as may be necessary
or incidental to the exercise of all or any of the powers conferred on the
Secured Party or the Receiver, as the case may be, pursuant to this Security
Agreement, in and such case after the occurrence and during the continuation of
an event of default under this Security Agreement.

XII. Waiver

 

12.1 No delay or omission by the Secured Party in exercising any right or remedy
hereunder or with respect to any of the Obligations shall operate as a waiver
thereof or of any other right or remedy, and no single or partial exercise
thereof shall preclude any other or further exercise thereof or the exercise of
any other right or remedy.

 

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XIII. Assignment

 

13.1 The Secured Party may, without further notice to the Debtor, at any time
mortgage, charge, assign, transfer or grant a security interest in this Security
Agreement and the security constituted hereby.

 

13.2 The Debtor expressly agrees that the assignee, transferee or secured party
of the Secured Party, as the case may be, shall have all of the Secured Party’s
rights and remedies under this Security Agreement.

XIV. Satisfaction and Discharge

 

14.1 The Debtor shall be entitled to a release and discharge of the security
constituted by this Security Agreement upon full payment, by the Debtor and
payment to the Secured Party of all costs, charges, expenses and legal fees and
disbursements incurred by the Secured Party in connection with the Obligations
and such release and discharge.

XV. No Merger

 

15.1 This Security Agreement shall not operate so as to create any merger or
discharge of any of the Obligations, or any assignment, transfer, guarantee,
lien, contract, promissory note, bill of exchange or security in any form held
or which may hereafter be held by the Secured Party from the Debtor or from any
other person whomsoever.

 

15.2 The taking of a judgment with respect to any of the Obligations will not
operate as a merger of any of the terms, conditions, covenants, agreements or
provisos contained in this Security Agreement.

 

15.3 The release and discharge of the security constituted by this Security
Agreement by the Secured Party shall not operate as a release or discharge of
any right of the Secured Party against the Debtor arising under this Security
Agreement prior to such release and discharge.

XVI. Interpretation

 

16.1 In this Security Agreement:

 

  16.1.1 the invalidity or unenforceability of the whole or any part of any
clause shall not affect the validity or enforceability of any other clause or
the remainder of such clause;

 

  16.1.2 the headings have been inserted for reference only and shall not
define, limit, alter or enlarge the meaning of any provision of this Security
Agreement; and

 

  16.1.3 when the context so requires, the singular shall be read as if the
plural were expressed and the provisions hereof shall be read with all
grammatical changes

 

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     necessary dependent upon the person referred to being a male, female, firm
or corporation.

XVII. Notice

 

17.1 Whenever either the Secured Party or the Debtor is required or entitled to
notify or direct the other or to make a demand upon or request of the other
relating to the Collateral, this Security Agreement or the UCC, such notice,
direction, demand or request shall be sufficiently given if given in writing and
delivered to the party for whom it is intended at the address of such party
herein or as changed pursuant hereto or if sent by prepaid certified or
registered mail, addressed to the party for whom it is intended at the address
of such party herein set forth or as changed pursuant hereto, provided that such
notice shall not be effective until three days after such mailing.

 

17.2 Either the Secured Party or the Debtor may notify the other in accordance
herewith of any change in its principal address to be used for the purposes
hereof.

XVIII. Variation

 

18.1 No modification, variation or amendment of any provision of this Security
Agreement shall be made except by written agreement, executed by the parties
hereto and no waiver of any provision hereof shall be effective unless in
writing.

XIX. Enurement

 

19.1 This Security Agreement shall enure to the benefit of the Secured Party and
its successors and assigns and shall be binding upon the successors and
permitted assigns of the Debtor.

XX. Copy of Agreement and Financing Statement

 

20.1 The Debtor hereby acknowledges receiving a copy of this Security Agreement.

XXI. Governing Law

 

21.1 This Security Agreement shall be governed by and construed in accordance
with the laws of the State of Washington.

 

21.2 For the purpose of legal proceedings this Security Agreement shall be
deemed to have been made in the State of Washington and to be performed there
and the courts of the State of Washington shall have jurisdiction over all
disputes which may arise under this Security Agreement and the Debtor hereby
irrevocably and unconditionally submits to the non-exclusive jurisdiction of
such courts, provided always that nothing herein contained shall prevent the
Secured Party from proceeding at its election against the Debtor in the courts
of any other state, country or jurisdiction.

 

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XXII. Additional Borrowings; Leases.

 

22.1 Secured Party agrees that Debtor may (i) borrow additional funds from third
parties and grant additional security interest in the Collateral all provided
that any such borrowings and collateralizations are junior and subordinate to
Secured Party, and (ii) enter into leases of equipment and real or personal
property.

XXIII. Cure of Any Applicable Defaults Under Guaranties.

 

23.1 Secured Party agrees that, upon the occurrence of any default under the
terms of any guaranty given in connection with the Note and this Security
Agreement, Secured Party shall give Debtor written notice of any such default
and a thirty (30) day period to cure any such default thereunder, including the
right to replace such guaranty or pay down the indebtedness evidenced by the
Note and this Security Agreement by the amount of any such guaranty and,
concurrently with such pay down, the maximum permitted outstanding balance under
the Note shall correspondingly be reduced. Upon the death of a guarantor under
guaranty given in connection with the Note and this Security Agreement, Debtor
shall give Secured Party written notice of such death and Debtor shall replace
such guaranty with a substituted guaranty subject to Secured Party’s reasonable
approval or pay down the indebtedness evidenced by the Note and this Security
Agreement by the amount of any such guaranty within thirty (30) days of such
notice and, concurrently with such pay down, the maximum permitted outstanding
balance under the Note shall correspondingly be reduced.

In Witness Whereof the Debtor has executed this Security Agreement as of the day
and year first above written.

 

TULLY’S COFFEE CORPORATION, a Washington corporation By:  

/s/ John K. Buller

Name:   John K. Buller Title:   President and CEO

 

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Schedule A

Permitted Senior Encumbrances

“Permitted Senior Encumbrances” means (i) the types of Liens described in
clauses (a) through (j) of paragraph 1 below and (ii) the specific Liens
identified by UCC financing statement filing number in paragraph 2 below.

1. Types of Liens constituting Permitted Senior Encumbrances:

(a) liens for taxes, assessments or governmental charges or claims payment of
which is not, at the time, required by Section 4.1.7(b);

(b) statutory liens of landlords and liens of carriers, warehousemen mechanics
and materialmen and other liens imposed by law (other than any Lien imposed
pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue Code or by
ERISA) incurred in the ordinary course of business for sums not yet delinquent
or being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made therefor;

(c) Liens incurred or deposits made in the ordinary course of business in
connection with workers’ compensation, unemployment insurance and other types of
social security, or to secure the performance of tenders, statutory obligations,
surety and appeal bonds, bids, leases, government contracts, trade contracts,
performance and return-of-money bonds and other similar obligations (exclusive
of obligations for the payment of borrowed money);

(d) any attachment or judgment Lien not constituting an Event of Default under
subsection 9.1(i);

(e) leases or subleases granted to others not interfering in any material
respect with the ordinary conduct of the business of Debtor;

(f) easements, rights-of-way, restrictions, minor defects, encroachments or
irregularities in title and other similar charges or encumbrances not
interfering in any material respect with the ordinary conduct of the business of
Debtor;

(g) any (i) interest or title of a lessor or sublessor under any capital lease
or any operating lease not prohibited by this Agreement, (ii) restriction or
encumbrance that the interest or title of such lessor or sublessor may be
subject to, or (iii) subordination of the interest of the lessee or sublessee
under such lease to any restriction or encumbrance referred to in the preceding
clause (ii);

(h) Liens arising from filing UCC financing statements relating solely to leases
permitted by this Agreement;

(i) Liens in favor of customs and revenue authorities arising as a matter of law
to secure payment of customs duties in connection with the importation of goods;
and

 

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(j) deposits in the ordinary course of business to secure liabilities to
insurance carriers, lessors, utilities and other service providers.

2. Specific Permitted Senior Encumbrances:

 

#

  

Secured Party(ies)

   State    Filing No(s)    Filing
Date   

Collateral

1.   

Pioneer Leasing, Inc.

PO Box 646

Vancouver, WA 98666

   California    20057026638370    05/11/05    336 Taylor Machine S/N K4114838
2.   

UCC Ueshima Coffee

Company Ltd.

7-7, Minatojima

Nakamachi 7-Chome

Kobe, JAPAN 650-8577

   Washington    2001-101-0027

2005-286-1246-8

   04/11/01

10/13/05

   See Attached Schedule A-1 (copy of 2d UCC-1; two filings appear substantively
identical)          2001-102-0089

2005-286-1260-4

   04/12/01

10/13/05

   3.   

Fres-co System USA, Inc.

3005 State Road

Telford, PA 18969

   Washington    2002-326-0436-0    11/21/02    One (1) GL-14M Corner Seal (TM)
Machine, SN2816 4.   

General Electric

Capital Corporation

3000 Lakeside Drive

Suite 200N

Bannockburn, IL 60015

   Washington    2003-135-1637-7    05/13/03    7 new taylor model #336 stand up
ice cream machines 5.   

American Express

Business Finance

600 Travis Street

Suite 1300

Houston, TX 77002

   Washington    2003-150-6270-4    05/29/03   

Equipment, personal property and other property covered by agreement no.
C#765845/

A#817064

6.   

Farnam Street

Financial, Inc.

240 Pondview Plaza

5850 Opus Parkway

Minnetonka, MN 55343

   Washington    2005-080-3115-9    03/18/05    Lease agreement #TU102604 7.   

Pinnacle Capital, LLC

5407 12th Street E.

Suite A

Tacoma, WA 98424

   Washington    2005-090-6097-4    03/31/05    All equipment and general
intangibles covered by

 

14

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8.   

Unisource Worldwide

20213 89th Avenue S.

Kent, WA 98031

   Washington    2005-136-9280-2    05/16/05    equipment lease/finance number
3001994 1 Belcore 505-55N1110 serial number #505-041649 9.   

Pinnacle Capital, LLC

5407 12th Street E.

Suite A

Tacoma, WA 98424

US Bancorp Manifest

Funding Services

1450 Channel Parkway

Marshall, MN 56258

   Washington    2005-138-0081-8    05/18/05    All equipment and general
intangibles covered by equipment lease/finance number 3001870 10.   

Northrim Funding Services, a division of Northrim Bank

170 120th Avenue NE

Suite 202

Bellevue, WA 98005

   Washington    2005-174-9948-3    06/23/05   

See Attached,

Schedule A-2

11.   

NMHG Financial

Services, Inc.

10 Riverview Drive

Danbury, CT 06810

   Washington    2006-076-3136-6    03/17/06    All equipment now or hereafter
leased by Lessor to Lessee

 

15

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[Remaining schedules intentionally left blank]

 

16