Exhibit
10.1


 


AMENDMENT
TO PROMISSORY NOTE


 


This
Amendment to Promissory Note (this “Amendment”) is made effective the 3rd
day of March, 2003, by TULLY’S COFFEE CORPORATION, a Washington corporation
(“Maker”), and KENT CENTRAL, L.L.C., a Washington limited liability company
(“Holder”).


 


R E C I
T A L S


 


A.                                   Maker has previously executed that certain
Promissory Note dated November 1, 2002, in favor of Holder in the original
principal amount of up to TWO MILLION EIGHT HUNDRED NINETY THOUSAND THIRTY
SEVEN AND 09/100 DOLLARS ($2,890,037.09), a copy of which is attached hereto as
Exhibit A and by this reference incorporated herein (the “Note”).  To secure repayment of the Note, Maker
executed and delivered to Holder that certain General Security Agreement also
dated November 1, 2002, a copy of which is attached hereto as Exhibit B
and by this reference incorporated herein (the “Security Agreement”).  A UCC-1 Financing Statement was filed on
November 5, 2002 under File No. 2002-310-5560-6 (the “Financing
Statement”).


 


B.                                     Repayment of the Note has been guaranteed by
Richard Padden and Laurie Padden, husband and wife, Tom O’Keefe and Cathy
O’Keefe, husband and wife, Ron Neubauer and Linda Neubauer, husband and wife,
George Hubman and Carolyn Hubman, husband and wife, Larry Hood and Ritchie
Hood, husband and wife, Marc Evanger and Heidi Evanger, husband and wife, and
Kevin Fortun, as his separate estate (individually a “Guarantor” and
collectively the “Guarantors”).


 


C.                                     The Security Agreement contemplated that Holder
would subordinate its interest in the “Collateral” (as defined in the Security
Agreement”) to a third party “Asset Based Financing Facility” lender who would
make a loan to Maker of up to $1,000,000.


 


D.                                    Holder has agreed to make the Asset Based
Financing Facility Loan to Maker.


 


NOW,
THEREFORE, the parties hereto, in consideration of their mutual promises
contained herein and for other good and valuable consideration, hereby agree to
amend the Note as follows:


 


AGREEMENT


 


1.                                       The amount of the Note shall be increased to up
to THREE MILLION EIGHT HUNDRED NINETY THOUSAND THIRTY SEVEN AND 09/100 DOLLARS
($3,890,037.09).  The original
$2,890,037.09 described in the Note is herein called the “Original Note Amount”
and the additional $1,000,000.00 is herein called the “Increased Note
Amount”.  The terms and conditions of
the original Note relating to borrowing, repaying, reborrowing, maximum
borrowing amount and interest accruing on the Original Note Amount shall
continue to govern the Original Note Amount. 
The remainder of this Amendment shall govern the borrowing, repaying,
reborrowing and interest accruing on the Increased Note Amount.


 


1

















 


2.                                       No later than March 5, 2003, Maker shall pay
Holder a commitment fee equal to $15,000, which shall be paid to Holder as
consideration for Holder’s agreements contained herein to loan Maker up to the
maximum amount of the Increased Note Amount and shall not be applied against
the principal or interest due under the Note or this Amendment.  Should Maker request, and Holder thereafter
agree (which Holder has no obligation to do so), to loan Maker any monies in
excess of the Increased Note Amount, Maker shall pay Holder a commitment fee
equal to one and one-half percent (1.5%) of said increased amount and one-half
of any such increased loan amount borrowed by Maker shall be applied against
the Original Note Amount and shall also thereafter reduce the maximum amount of
the borrowings under the Original Note Amount by the amount of said repayment.


 


3.                                       Regarding
the Increased Note Amount, Maker desires to obtain short-term financing by
borrowing from Holder against all Acceptable/Eligible Accounts (as defined in
Section 4 below).


 


4.                                       The
following definitions shall govern the terms and provisions of this Amendment
as it relates to the Increased Note Amount.


 


(a)                                  “Account”
means any right of payment for goods sold or leased, and delivered, or services
rendered, to a Customer net of any credit memo or payments received by Maker
from the Customer.


 


(b)                                 “Acceptable/Eligible
Account” means an Account conforming to the warranties of Maker set forth in
Section 7 below and that meets all of the following requirements:
(i) has not been outstanding for more than 90 days from the date of the
invoice, (ii) has been underwritten and not disapproved by Holder if
Holder so chooses to underwrite an Account, (iii) has not been reduced
from the original amount billed by (A) offset, or (B) an adjustment
of any kind other than a credit memo (credit memos are handled as part of the
definition of Account in Section 4(a) above), (iv) is not subject to a
Customer Dispute, and (v) the amount owed to the Customer by Maker is less
than fifty percent (50%) of the amount the Customer owes to Maker under the Account.


 


(c)                                  “Customer”
means Maker’s customer or the Account debtor.


 


(d)                                 “Customer
Dispute” means any claim by a Customer against Maker of any kind whatsoever,
valid or invalid, that potentially reduces the amount collectible from a
Customer by Maker or Holder.


 


5.                                       Holder
agrees to loan to Maker, up to the Increased Note Amount, a sum equal to all
Acceptable/Eligible Accounts as certified to Holder by an “Authorized Officer”
(as defined in the Security Agreement) in the form of Exhibit C attached hereto
and by this reference incorporated herein (the “Borrowing Certificate”).  Maker shall submit a Borrowing Certificate
signed by an Authorized Officer to Holder on the day before Maker first desires
to obtain loan funds evidenced by the Increased Note Amount and then no later
than 12:00 P.M. Pacific


 


2

















 


Standard or Daylight Time, as applicable, on every Wednesday
thereafter.  If Maker is unable to
submit a Borrowing Certificate on a Wednesday for any reason, Maker shall notify
Holder in writing no later than 12:00 P.M. Pacific Standard or Daylight Time,
as applicable, on such Wednesday that Maker is unable to submit a Borrowing
Certificate, the reason for such inability and the date on which Maker expects
to be able to submit the Borrowing Certificate.  At any time after Maker has failed to submit a Borrowing
Certificate, Holder may request in writing to Maker that Maker pay over to
Holder immediately upon receipt by Maker all monies received by Maker in
payment of any Account and Maker shall comply with such request no later than
two (2) “Business Days” (as defined in the Note) after Maker’s receipt of such
request until Maker has submitted its next Borrowing Certificate.  If requested by Holder in writing, within
two (2) Business Days of its receipt of Holder’s request Maker shall provide to
Holder the original Acceptable/Eligible Account (Invoice), together with one
copy thereof, a copy of the bill of lading contract, purchase order, purchase
order number and/or any other requisite supporting documentation corresponding
to said Account.  If Maker fails to
submit a signed Borrowing Certificate to Holder for two consecutive Wednesdays
or if Maker fails to submit any Account or back up materials within two (2)
Business Days of its receipt of Holder’s request, Maker shall be deemed to have
no Acceptable/Eligible Accounts and Maker shall repay to Holder all amounts
outstanding under the Increased Note Amount.


 


6.                                       Maker
shall properly mark each Acceptable/Eligible Account against which Maker has
borrowed funds from Holder as assigned to Holder and Holder is authorized to
notify each Customer of said assignment.


 


7.                                       Maker
represents and warrants to Holder that:


 


(a)                                  Maker
is the sole and absolute owner of any and all Accounts and Maker has full legal
right to make the assignment and transfer as set forth in the Security
Agreement and in this Amendment;


 


(b)                                 All
Acceptable/Eligible Accounts so certified by Maker are an accurate statement of
a bona fide sale, delivery and acceptance of merchandise, or performance of
service by Maker to/for an Account-debtor. 
Each Acceptable/Eligible Account is not contingent upon the fulfillment
of any promise by Maker and each Account-debtor’s business is believed to be
solvent.  The terms for payment of said
Accounts are Net 30 days or as expressly set forth on the face of an Account
delivered to Holder, and the payment of said Accounts are not contingent upon
the fulfillment by Maker of any further performance of any nature
whatsoever.  Within two (2) Business
Days Maker shall give written notice to Holder of any credit memo, write-off or
similar adjustment in excess of $5,000.00, or of a lesser amount which, in the
aggregate with related credit memos, write-offs and similar adjustments for the
same Customer, is in excess of $5,000;


 


(c)                                  With
respect to any Acceptable/Eligible Account for which Maker has borrowed funds
from Holder, there are no known setoffs, Customer Disputes, adverse claims,
defenses and/or liens whatsoever against the payment of said Accounts except
the liens in favor of Holder and the Guarantors.  Maker shall, immediately upon borrowing


 


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against any Acceptable/Eligible Account, make proper
entries on its books and records disclosing the assignment and pledge of said
Accounts to Holder;


 


(d)                                 Maker
does not own, control, manage, participate in management or have any
involvement and/or association whatsoever with the business of any
Account-debtor related to any Acceptable/Eligible Accounts for which Maker has
borrowed funds from Holder;


 


(e)                                  Maker’s
taxes are not delinquent nor has Maker been subject to a tax levy by any
governmental entity nor are there now on file in any public office tax liens
affecting Maker;


 


(f)                                    All  records, statements, books or other
documents shown to Holder by Maker at any time, whether before or after the
signing of this Amendment, are true and accurate;


 


(g)                                 Maker
shall furnish Holder with periodic statements, accounts receivable agings,
journals, bank records and other information as requested by Holder from time
to time;


 


(h)                                 Maker
will not change or modify the terms of the original sold and assigned Account
with Customer unless Holder first consents to such change in writing.  Holder agrees to provide a prompt response
to Maker’s request for modification or change with respect to an
Acceptable/Eligible Account;


 


(i)                                     Maker
shall immediately notify Holder of any Customer Disputes greater than $5,000.00
in total for any one Customer; and


 


(j)                                     Maker
shall promptly notify Holder of any attachment or any other legal process
levied against Maker or any of the Collateral.


 


8.                                       When
payment owing on an Acceptable/Eligible Account is paid to Maker, Maker shall
notify Holder of such payment in the next Borrowing Certificate and shall pay
said amount to Holder with the next Borrowing Certificate.  At Holder’s option, all of Maker’s invoices
shall bear the address of a Lock Box chosen by Holder as the “REMIT TO” address
and Maker agrees that thereafter all remittances for payment on all such
Accounts shall be made to the Lock Box or other repository authorized in
writing by Holder.


 


9.                                       All
funds advanced by Holder to Maker under the Increased Note Amount shall bear
interest equal to the “Prime Rate” (as defined in the Note), plus four percent
(4%) per annum, computed on a 360-day year
comprised of twelve 30 day months (but interest shall be charged for the actual
number of days principal is unpaid). 
Interest on the Increased Note Amount shall be payable monthly and shall
be included in the “Interest Statement” described in the Note.  The Increased Note Amount and any accrued
but unpaid interest on the Increased Note Amount shall be due and payable in
full on March 4, 2004, if not sooner depending on the amount of the


 


4

















 


Acceptable/Eligible Accounts outstanding at any time, i.e., the amount
outstanding on the Increased Note Amount shall never be greater than the amount
of Acceptable/Eligible Accounts then in existence.


 


10.                                 Maker
shall hold Holder harmless against any liability, damages, loss, attorneys’
fees and costs of any type due to any action by a Customer arising from Holder
collecting or attempting to collect any Account so long as Holder’s collections
are performed in a commercially reasonable manner and in compliance with all
applicable laws, rules and regulations. 
Maker shall retain the primary responsibility for collection efforts
until the occurrence of an Event of Default.


 


11.                                 Holder
shall have the right, to be exercised not more frequently than once each
calendar quarter unless an audit by Holder discovers any discrepancies between
Maker’s books and records and Maker’s representations herein or in any
Borrowing Certificate, to require an audit of Maker’s books and records by
Holder’s in-house personnel upon not less than two (2) Business Days prior
written notice to Maker, the cost of which audits shall be reimbursed to Holder
by Maker.  Maker shall cooperate with
Holder in connection with said audit and shall make all of Maker’s books and
records relating to all Accounts readily and conveniently available to Holder’s
representatives and shall provide Holder’s representatives, at Maker’s cost and
expense, with copies of any of Maker’s books and records which Holder’s representatives
have requested copies.


 


12.                                 During
any time period that Maker has the right to borrow any of the Increased Note
Amount, Section 22.2 of the Security Agreement shall not be enforceable against
Holder.


 


13.                                 This
Amendment may be executed in any number of original counterparts, each of which
shall be deemed an original, but all of which when taken together shall
constitute one and the same instrument.


 


14.                                 By their execution of counterparts to this
Amendment, Guarantors hereby approve the foregoing, agree that nothing
contained herein shall in any way terminate or amend their guaranties and
hereby subordinate their security interest in the Collateral to the security
interest of Holder which secures repayment of the Note, as amended by this Amendment.  Holder acknowledges that Guarantors are not
guaranteeing Maker’s repayment of any portion of the Increased Note Amount or
the interest earned thereon.


 


15.                                 Except as set forth in this Amendment, the Note
shall remain in full force and effect as originally executed by Maker.


 


 


(Signatures Appear on the
Following Pages)


 


5

















 


	
  MAKER:

  
	
   

  
	
  TULLY’S COFFEE CORPORATION

  
	
   

  
	
   

  
	
  By:

  	
  /s/ Anthony J. Gioia

  	
   

  
	
   

  
	
  Name:

  	
  Anthony J. Gioia

  	
   

  
	
   

  
	
  Title:

  	
  CEO & President

  	
   

  
	
   

  
	
  LENDER:

  
	
   

  
	
  KENT CENTRAL, L.L.C.

  
	
   

  
	
   

  
	
  By:

  	
  /s/ Larry R. Benaroya

  	
   

  
	
   

  
	
  Name:

  	
  Larry R. Benaroya

  	
   

  
	
   

  
	
  Title:

  	
  Manager

  	
   

  
	
   

  	
   

  
	
  GUARANTORS:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Richard Padden

  	
   

  
	
  Richard Padden

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Laurie Padden

  	
   

  
	
  Laurie Padden

  	
   

  



 


6

















 


	
  /s/ Tom O’Keefe

  	
   

  
	
  Tom O’Keefe

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Cathy O’Keefe

  	
   

  
	
  Cathy O’Keefe

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Ron Neubauer

  	
   

  
	
  Ron Neubauer

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Linda Neubauer

  	
   

  
	
  Linda Neubauer

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ George Hubman

  	
   

  
	
  George Hubman

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Carolyn Hubman

  	
   

  
	
  Carolyn Hubman

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Larry Hood

  	
   

  
	
  Larry Hood

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Ritchie Hood

  	
   

  
	
  Ritchie Hood

  	
   

  



 


7

















 


	
  /s/ Marc Evanger

  	
   

  
	
  Marc Evanger

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Heidi Evanger

  	
   

  
	
  Heidi Evanger

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Kevin Fortun

  	
   

  
	
  Kevin Fortun

  	
   

  



 


8

















 


EXHIBIT A


 


Copy of Promissory Note


 


9

















 


EXHIBIT B


 


Copy of Security
Agreement


 


10

















 


EXHIBIT C


 


Form of Borrowing
Certificate


 


Kent Central, L.L.C.

Attn: Larry R. Benaroya

1001 Fourth Avenue, Suite 4700


Seattle, WA 98104


 


Kent Central, L.L.C.

Attn: Marc G. Nemirow

1001 Fourth Avenue, Suite 4700

Seattle, WA 98104


 


Dear Sirs:


 


Borrowing
Certificate and Collateral Report


 


As provided in the Amendment to Promissory Note dated March 3,
2003 (the “Agreement”), Tully’s Coffee Corporation (“Borrower”) hereby reports
and certifies its borrowing base, determined in accordance with the Agreement,
is as follows: 


 


	
  Date of
  Accounts Receivable Aging Report (dated no earlier than two (2) business days
  prior to the date of this Certificate) 

  	
   

  	
  Unpaid accounts

  receivable 90 or less

  days from invoice

  date

  	
   

  	
  Unpaid accounts

  receivable

  outstanding more

  than 90 days from

  invoice date

  	
   

  	
  Total Accounts

  Receivable

  	
   

  
	
  Total
  accounts receivable as set forth in the aging (copy attached)

  	
   

  	
  $

  	
   

  	
   

  	
  $

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
  Less-
  Accounts ineligible due to vendor offsets (schedule attached)

  	
   

  	
  $

  	
   

  	
   

  	
  $

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
  Less-
  Other ineligible accounts, if any (schedule attached)

  	
   

  	
  $

  	
   

  	
   

  	
  $

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
  Total
  eligible accounts receivable and Borrowing Base

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  



 


11

















 


Borrower certifies that the accounts receivable amounts set forth above
(the “Accounts”) represent bona fide obligations of Borrower’s customers out of
the sale of services or goods to the customers in the ordinary course of
business and that such goods have been delivered to these customers as provided
in the invoices.  The Accounts are not
subject to any liens or security interests except those of Lender and the
guarantors of Borrower’s debt to Lender.


 


As of
                                         (the
most recent inventory measurement date), Borrower’s total inventories were
$                         .


 


12

















 


Borrower hereby computes and reports the amount Available for Borrowing
under the Agreement as of the date of this certificate to be as follows:


 


	
  1.
  Total Outstanding Borrowings under the Agreement as of the previous
  certificate (Date of certificate:
                                           )

  	
   

  	
  $

  	
   

  	
   

  
	
  2.
  Less- principal payments since the previous certificate (schedule attached)

  	
   

  	
  $

  	
   

  	
   

  
	
  3.
  Outstanding Borrowings as of this Certificate

  	
   

  	
  $

  	
   

  	
   

  
	
  4.
  Borrowing Base, from this Certificate (Not to exceed $1,000,000.00)

  	
   

  	
  $

  	
   

  	
   

  
	
  5.
  Available for Borrowing (excess of Borrowing Base over Outstanding Borrowings
  as of this Certificate.  If amount is
  a deficit, this amount must be repaid as provided in section 5 of the
  Agreement).

  	
   

  	
  $

  	
   

  	
   

  
	
  6.
  New Borrowing Request provided to Lender by Borrower as of the date of this
  Certificate (cannot be more than the Available amount set forth in item 5
  above), attached.

  	
   

  	
  $

  	
   

  	
   

  
	
  7.
  Adjusted total Outstanding Borrowings (New Borrowing Request from item 6,
  plus Outstanding Borrowings as of the date of this Certificate in item 3
  above)

  	
   

  	
  $

  	
   

  	
   

  



 


Certified for Tully’s
Coffee Corporation on this
           day of
          , 200  


 


 


	
   

  	
  By:

  	
   

  
	
   

  	
  (name of officer and
  title)

  



 


13

















 


Kent Central, L.L.C.


Attn: Larry R. Benaroya


1001 Fourth Avenue, Suite 4700


Seattle, WA 98104


 


Kent Central, L.L.C.


Attn: Marc G. Nemirow


1001 Fourth Avenue, Suite 4700


Seattle, WA 98104


 


Dear Sirs:


 


Borrowing
Request


 


As provided in the Amendment to Promissory Note dated March 3,
2003 (the “Agreement”), Tully’s Coffee Corporation (“Borrower”) requests a
borrowing advance be made to Borrower pursuant to section 5 of the Agreement in
the amount of $                                  ,
and that such funds be paid to Borrower.


 


Borrower certifies that the total amount of outstanding principal under
the Agreement as of this date, including the amount requested under this
Borrowing Request, is not in excess of the Borrowing Base, determined in
accordance with the Agreement, as of the date of this Borrowing Request.


 


Requested and certified on behalf of Tully’s Coffee Corporation on this
            day of
           ,
200  


 


 


	
   

  	
  By:

  	
   

  
	
   

  	
  (name of officer and
  title)

  



 


14


 

















 


	
  MAKER:

  
	
   

  
	
  TULLY’S COFFEE CORPORATION

  
	
   

  
	
   

  
	
  By:

  	
  /s/ Anthony J. Gioia

  	
   

  
	
   

  
	
  Name:

  	
  Anthony J. Gioia

  	
   

  
	
   

  
	
  Title:

  	
  CEO & President

  	
   

  
	
   

  
	
  LENDER:

  
	
   

  
	
  KENT CENTRAL, L.L.C.

  
	
   

  
	
   

  
	
  By:

  	
  /s/ Larry R. Benaroya

  	
   

  
	
   

  
	
  Name:

  	
  Larry R. Benaroya

  	
   

  
	
   

  
	
  Title:

  	
  Manager

  	
   

  
	
   

  	
   

  
	
  GUARANTORS:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Richard Padden

  	
   

  
	
  Richard Padden

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Laurie Padden

  	
   

  
	
  Laurie Padden

  	
   

  



 


15