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Exhibit 10.13    
  

 
 

SECOND AMENDMENT TO SUPPLY AGREEMENT    
  

[*—Material
has been omitted pursuant to a request for confidential treatment in accordance with Rule 24b-2 under the Securities Exchange Act of 1934, as
amended. The redacted material has been filed separately with the Securities and Exchange Commission.] 

        This
Second Amendment to Supply Agreement (the "Second Amendment") is made this 14th day of February, 2002 by and between TULLY'S COFFEE CORPORATION, a Washington corporation, doing
business at 3100 Airport Way South, Seattle, Washington 98134, U.S.A. ("Seller"), and TULLY'S COFFEE JAPAN CO., LTD., a company organized under the laws of Japan, doing business at
3-4-1 Takanawa, Minato-ku, Tokyo, Japan ("Buyer"). 

RECITALS  

        A.    Seller and Buyer are parties to that certain Tully's Coffee Supply Agreement dated April 26, 2001(the "Supply Agreement"), as amended by
that certain First Amendment to Supply Agreement executed by Buyer and Seller dated October 1, 2001 (the "First Amendment") (with the Supply Agreement and the First Amendment being collectively
referred to herein as, the "Supply Agreement"). Unless otherwise defined herein, capitalized terms and phrases used in this Second Amendment shall have the meanings given to such terms and phrases in
the Supply Agreement. 

        B.    Subject
to the terms and conditions set forth herein, Seller and Buyer now desire to further amend the Supply Agreement as set forth in herein. 

        NOW,
THEREFORE, the parties hereto agree as follows: 

AGREEMENT  

1.    Amendments. The Supply Agreement is hereby amended as follows: 

        1.1    Section 2—Purchase Requirements. Section 2 of the Supply Agreement entitled "Purchase
Requirements" is hereby amended to replace the existing Schedule 1 to the Supply Agreement listing of "Tully's Products" which must be procured exclusively from Seller with the new
Schedule 1 attached to this Second Amendment. Under the Supply Agreement, Buyer is required to purchase from Seller all of Buyer's requirements for Tully's Products (other than green and
roasted coffee beans and ground coffee) needed in Buyer's operations of Tully's Stores in the Territory. For purposes of this Second Amendment and the Supply Agreement, (i) references to
"Tully's Stores in the Territory" or "Buyer's Tully's Stores" shall be deemed to include (x) Tully's Stores hereafter opened in the Territory by franchisees pursuant to a franchise business
support agreement to be entered into between Buyer and Venture Link Co., Ltd. on or about the same date as this Second Amendment ("VL Franchised Tully's Stores"), and (y) Tully's Stores
heretofore or hereafter opened in the Territory by franchisees without the support of Venture Link Co., Ltd. If Seller shall develop any new product or products in connection with the operation
of Tully's Stores (which do not replace existing Tully's Products), Seller shall have the right to include such new products on the list of Tully's Products covered by the Supply Agreement, provided
that notwithstanding to the contrary herein or in that certain License Agreement dated April 26, 2001 entered into between Seller and Buyer(as the same has been amended or otherwise modified in
writing, the "License Agreement"), Buyer shall not be required to carry or utilize any such new product in the Tully's Stores in the Territory. If Seller develops a product to replace any Tully's
Product for use in the majority of Tully's Stores worldwide, such replacement product shall automatically replace such Tully's Product on the then existing list of Tully's Products covered by the
Supply Agreement, provided, however, that (i) notwithstanding to the contrary herein or in the License 

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Agreement, the foregoing shall not result in a requirement to buy such replacement product from Seller if the replaced product is then being supplied by an approved alternative vendor pursuant to
Section 2.7, (ii) such replacement product shall be reasonably sized and scaled and, if applicable, compatible with electric outlets and current, for Tully's Stores in the Territory,
(iii) such replacement product shall comply with all applicable official regulations in the Territory (including the health code), (iv) the foregoing shall not result in a requirement to
buy such replacement product from Seller until such replacement product shall have all necessary approvals from governmental authorities in the Territory; and (v) Seller shall provide to Buyer
all information reasonably necessary for Buyer to import such replacement product into Japan, including all such information requested by governmental authorities in the Territory. Buyer agrees to use
its commercially reasonable best efforts to expeditiously obtain all necessary approvals from governmental authorities in the Territory with respect to any
replacement Tully's Product except to the extent that by virtue of subparagraph (i) above, Buyer is not obligated to purchase such replacement Tully's Product. 

        Notwithstanding
the foregoing paragraph, nothing contained in this Second Amendment is intended to amend, modify or otherwise alter the terms and conditions contained in the Supply
Agreement with respect to the purchase of green and roasted beans and ground coffee, including without limitation Sections' 2.4 and 2.5 of the Supply Agreement. 

        1.2    Section 2.1—Price. Section 2.1 of the Supply Agreement entitled "Price" is hereby amended by
adding the following two paragraphs: 

        Notwithstanding
anything to the contrary herein above, effective for purchase orders delivered on and after February, 15, 2002, the price charged by Seller to Buyer for paper and plastic
cups and lids among the Tully's Products shall not exceed the sum of (x) the Actual Landed Cost to Seller to acquire or manufacture such Tully's Product, and (y) a mark-up
equal to [ * ] of such Actual Landed Cost to Seller. For example, if Seller's Actual Landed Cost of a single paper cup is
[ * ] then Seller's price to Buyer for such cup shall not exceed [ * ] with the mark-up being calculated as
[ * ] of the Actual Landed Cost to Seller or [ * ]. As used in this Agreement, the phrase "Actual Landed Cost" to Seller or
to Buyer, as the case may be, shall take into account the actual cost of acquiring or manufacturing the relevant product, and include all normal charges for freight, duty, taxes, customs fees, funds
transfer and/or wiring fees and foreign exchange fees and costs (including the retail margin charged by the exchanging bank over the rate at which the relevant currencies are being traded) incurred by
Seller or Buyer, as the case may be. 

        In
addition, effective upon the date of the opening of the first VL Franchised Tully's Store, the price charged by Seller to Buyer for all Tully's Products shall not exceed the sum of
(x) the Actual Landed Cost to Seller to acquire or manufacture such Tully's Product, and (y) a mark-up equal to [ * ] of such Actual
Landed Cost to Seller. Seller will continue to make good faith efforts to negotiate with third party vendors for improved pricing on all Tully's Products procured from third party vendors. 

        1.3    Section 2.2—Delivery. Section 2.2 of the Supply Agreement entitled "Delivery" is hereby amended
and restated to read as follows: 

        2.2.1    General Terms. Delivery of all Tully's Products shall be F.O.B. Seller's dock in Seattle, Washington, U.S.A., or, with
respect to any Tully's Product which is to be shipped directly from Seller's vendor for such product, F.O.B. the port of Seattle, Washington, U.S.A., or with respect to the Tully's Products that
originate from countries other than the U.S., F.O.B., a port of the country of origin of such products. Title and risk of loss shall pass to Buyer upon delivery of the Tully's Products to the carrier
selected by Buyer ("Buyer's Carrier") at Seller's dock or such other F.O.B. as specified above. Buyer shall be responsible for all freight charges, freight insurance and all import, export, duties,
taxes and charges imposed by the international transportation of the Tully's Products. Seller shall follow all Buyer's instructions reasonably necessary to comply with any 

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import policies and procedures in Japan with respect to packaging, marking and labelling standards established by any governing agency of Japan, provided the cost of complying with any such standards
shall be passed through to Buyer as part of the cost of the applicable Tully's Product. Buyer shall have the right to request to see all back-up invoices related to the cost of Seller's
compliance with such packaging, marking and labelling standards. Buyer shall be responsible for compliance with all other import policies and procedures in Japan including special licenses and any
other requirements established by any governing agency of Japan. 

        Seller
shall use commercially reasonable efforts to accept purchase orders for the Tully's Products that Buyer from time to time places. If Seller accepts an order for the Tully's
Products, Seller shall deliver its acceptance to Buyer within three (3) business days after its receipt of the order. Seller shall have the right to accept individual components of a particular
purchase order even if other components are not accepted. Further, Seller shall use commercially reasonable efforts to deliver to Buyer's Carrier all the Tully's Products within twenty-one
(21) days of its acceptance of Buyer's purchase order or such other lead times as are prescribed by agreement of Seller and Buyer in  Schedule 1 attached hereto for particular products from
time to time, provided payment has been arranged in accordance with Section 2.3
below. Except as set forth in Section 2.2.3 below, Seller shall not be liable for damages resulting from late shipments. However, Seller shall inform Buyer as soon as reasonably possible, in
case of a delay in the delivery of an order to Buyer's Carrier. If Buyer fails to specify a carrier, Seller may select a carrier at Buyer's risk and expense. Buyer shall have the right to inspect and
accept or reject any shipped Product for a period of five (5) days following the completion of customs clearance thereof in Japan, provided, however, that Buyer shall have the right to reject
any Product thereafter if such Product has a latent defect or damage. Product may only be rejected if it is damaged or defective. If properly rejected as damaged or defective, Buyer shall ship such
Tully's Product to Seller at Seller's expense unless requested by Seller to dispose of such products in Japan. No product may be rejected without written documentation of any alleged damage or defect
reasonably acceptable to Seller. 

        2.2.2    Non-Acceptance of Purchase Orders. In the event that Seller does not accept a written purchase order for a
Tully's Product (or any component thereof) from Buyer within three (3) business days after Seller's receipt of the order, Buyer shall (except in cases where such non-acceptance is
due to an existing payment default by Buyer under the terms of Section 2.3 of this Agreement) immediately be permitted to purchase the Tully's Product contained in such written purchase order
from third party vendors that Buyer may choose in its sole discretion, provided, however, that in doing so, Buyer shall (i) only be permitted to purchase that quantity of Tully's Product which
is included in the written purchase order (or any component thereof) that Seller does not accept, and (ii) Buyer shall comply with all obligations it has under the License Agreement, provided,
however, that if the quantity of the Tully's Product which is included in the written purchase order (or any component thereof) that Seller does not accept is not more than the anticipated required
quantity for the relevant month of the same Tully's Product that has been specified in the most recent Order Commitment (as defined below), Buyer, in purchasing such Tully's Product from third party
vendors, shall only be required to use its commercially reasonable best efforts to comply with the License Agreement with due consideration to the value of Tully's brand and the urgency of the need
for such product. 

        2.2.3    Failure to Deliver. In the event that Seller accepts a purchase order for Tully's Products from Buyer but Seller fails
to deliver the Tully's Product specified in such order to the carrier in accordance with the applicable lead time provided for under this Agreement, such failure to 

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deliver shall, unless caused by a "Force Majeure" (as defined in Section 2.2.6 of this Agreement) be addressed as follows: 

        (a)    Upon
written notice of a delivery delay with respect to a particular Tully's Product (a "Late Tully's Product") that shall specify the earliest date by which Seller can
deliver the Late Tully's Product to Buyer's Carrier (a "Delayed Delivery Notice"), Buyer shall review its inventory, if any, for the Tully's Product belonging to a product category identical to that
of the Late Tully's Product and determine whether it has a sufficient supply of such product to meet its needs until the Late Tully's Product is delivered by Seller to Buyer in Japan. If Buyer has a
sufficient inventory of the relevant Tully's Product, Buyer shall utilize such inventory to meet its needs and Seller shall deliver the Late Tully's Product to Buyer's Carrier by the date specified in
the Delayed Delivery Notice. 

        (b)    If
Buyer does not have inventory of the relevant Tully's Product sufficient to meet its needs prior to the delivery of the Late Tully's Product to Buyer in Japan, then
Buyer shall notify Seller of its immediate need for the relevant Tully's Product (an "Immediate Need Notice A"), then Seller shall use its commercially reasonable best efforts to expedite delivery of
the Late Tully's Product to Buyer via air freight at Seller's incremental cost and expense (over the difference in the freight charge of the shipment that would have contained the Late Tully's Product
between what Buyer actually incurs and what Buyer would have incurred had the Late Tully's Product been delivered to Buyer's Carrier in time and contained in such shipment), provided however, that
Seller may elect, at its option exercisable by written notice to Buyer within forty-eight (48) hours after its receipt of the Immediate Need Notice A, to permit Buyer to purchase the Tully's
Product, with respect to which the Immediate Need Notice A has been given, from third party vendors that Buyer may choose in its sole discretion, and provided, further, that in doing so, Buyer shall
(i) only be permitted to purchase that quantity of Tully's Products which is equivalent to the quantity of the Late Tully's Product, and (ii) use its commercially reasonable best efforts
to comply with all obligations it has under the License Agreement with due consideration to the value of Tully's brand and the urgency of the need for such product. In the event that Buyer is
permitted to purchase the Tully's Products, with respect to which an Immediate Need Notice A has been given, from a third party vendor, Buyer shall have no obligation to pay Seller the purchase price
of the Late Tully's Product (and if it has been paid, it shall promptly be returned), and shall be entitled to a credit, against the costs of future purchases of any Tully's Products, equal to
(a) the Actual Landed Cost to Buyer to purchase such Tully's Products from a third party vendor (provided that Buyer uses its commercially reasonable best efforts to obtain conforming Tully's
Products at the best price reasonably available given the circumstances of the order) less (b) the Actual Landed Cost to Buyer had the Late Tully's Product be purchased from Seller under this
Agreement. 

        In
order to avoid any confusion, the parties agree that in any instance where Seller's does not to deliver Tully's Product as a result of Buyer's failure to comply with its payment
obligations under Section 2.3 of this Agreement, such non-delivery shall not constitue a failure to deliver under this Section 2.2.3. 

        2.2.4    Defective Product, Missing Product and Damaged Product. In the event that Buyer believes that any Tully's Product
supplied by Seller under this Agreement is defective, missing or damaged in any respect, such alleged defect or damage shall be addressed as follows: 

        (a)    For
any Tully's Product which has become defective or damaged during shipment after Seller's delivery of such product to Buyer's Carrier, Buyer's sole remedy shall be to
address such defect or damage with Buyer's Carrier and/or its insurance with respect to such shipment. 

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        (b)    For
any Tully's Product which Buyer believes is defective or damaged prior to delivery by Seller to the applicable carrier (the "Defective Product"), Buyer shall set
such product aside for later inspection and shall give Seller written notice of such alleged defect or damage. Within forty-eight (48) hours after its receipt of such notice, Seller shall
advise Buyer in writing of the earliest day by which Seller can deliver the Tully's Product replacing the Defective Product to Buyer's Carrier. Buyer shall then review its inventory, if any, for the
Tully's Product belonging to a product category identical to that of the Defective Product and determine whether it has a sufficient inventory of such product to meet its needs until the product
replacing the Defective Product is delivered by Seller to Buyer in Japan. If Buyer has a sufficient inventory of the applicable Tully's Product, Buyer shall utilize such inventory to meet its needs
and Seller shall deliver the replacement Tully's Product to the Buyer's Carrier by the date specified in the above Seller's notice. 

        (c)    If
Buyer does not have inventory of the applicable Tully's Product sufficient to meet its needs prior to the delivery of the replacement Tully's Product to Buyer in
Japan, then Buyer shall notify Seller of its immediate need for the Tully's Product replacing the Defective Product (an "Immediate Need Notice B"), then Seller shall use its commercially reasonable
best efforts to expedite delivery of the replacement Tully's Product to Buyer via air freight at Seller's sole cost and expense, provided, however, that Seller may elect, at its option exercisable by
written notice to Buyer within forty-eight (48) hours after its receipt of the Immediate Need Notice B, to permit Buyer to purchase the replacement Tully's Product from third party vendors that
Buyer may choose in its sole discretion, and provided, further, that in doing so, Buyer shall (i) only be permitted to purchase that quantity of Tully's Product equivalent to that of the
Defective Product, and (ii) Buyer shall use its commercially reasonable best efforts to comply with all obligations it has under the License Agreement with due consideration to the value of
Tully's brand and the urgency of the need for such product. In the event that Buyer is permitted to purchase the Tully's Products under this subparagraph (c) from a third party vendor, Buyer
shall have no obligation to pay Seller the purchase price of the Defective Product (and if it has been paid, it shall promptly be returned), and shall be entitled to a credit, against the costs of
future purchases of Tully's Products, equal to (a) the Actual Landed Cost to Buyer to purchase such replacement Tully's Products from a third party vendor (provided that Buyer uses its
commercially reasonable best efforts to obtain conforming Tully's Products at the best price reasonably available given the circumstances of the order) less (b) the Actual Landed Cost to Buyer
had the Defective Products be purchased from Seller under this Agreement. 

        (d)    For
any shipment of Tully's Products by Seller to Buyer for which there is a discrepancy between the applicable bill of lading for such shipment and Buyer's count of the
number of packages, boxes or pallets received, Buyer's sole remedy shall be to address such bill of lading discrepancy with Buyer's Carrier and/or its insurance with respect to such shipment.
Notwithstanding the above, actual shortages of Tully's Products contained in unopened cases shall not be covered by the preceding sentence. In the event that Buyer discovers actual shortages of
Tully's Products contained in unopened cases, Buyer shall notify Seller of such shortages and the parties shall negotiate an appropriate resolution of such shortage. As used herein, the term "unopened
cases" shall mean cases, packages or boxes that remain unopened until opened by Buyer or in the process of customs inspection. 

        Notwithstanding
the above, Seller shall retain the right to inspect such defective or damaged Product and determin if, in fact, Seller believes such product to be defective or damaged as
a result of manufacturing or Seller's control of such product. If the parties disagree with respect to such defect or damage, either party may submit the matter to arbitration under this Agreement,
provided that such arbitration shall not affect Seller's obligations under this Section 2.2.4. The 

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provisions of this Section 2.2.4 shall constitute Buyer's sole remedy vis-à-vis Seller with respect to claims for damaged or defective Tully's Products
supplied by Seller. 

        2.2.5    Order Forecasts. Commencing on March 1, 2002 and continuing monthly thereafter by the 10th of each
month during the term of this Agreement, Buyer shall deliver to Seller a rolling forecast of Buyer's reasonably anticipated order requirements for Tully's Products for the three calendar months
following the date of such forecast (each such forecast being referred to herein as an "Order Forecast"). Each Order Forecast shall include a month by month forecast identifying the specific Tully's
Products and quantities that Buyer anticipates ordering for such months and shall be supported by information regarding and consistent with Buyers actual planned store openings and other needs.
Notwithstanding any other provision of this Agreement, in the event, any actual order of Tully's Products by Buyer under this Agreement exceeds the quantities forecast for such month contained in the
most recent Order Forecast, Buyer shall (a) have ten (10) calendar days to accept such written purchase order; and (b) shall have the right to make a reasonable adjustment to the
applicable lead time for a portion of such Tully's Product for such purchase in excess of the quantity forecast for such month contained in the most recent Order Forecast (provided that in no case
shall any such adjustment be more than double the existing lead time for the applicable Tully's Product and, in any case, such adjustment shall not exceed an additional ninety (90) days). 

        2.2.6    Force Majeure. Notwithstanding to the contrary in this Agreement or in the License Agreement, none of the parties
hereto shall be liable to any of the other parties hereto for any loss, injury, delay or damages suffered by such other party hereto due to labor strikes, riots, storms, fire, earthquakes, explosions,
embargoes, government directives or any other law or regulation, act of God, war, or any other cause which is beyond the control of such party (collectively, a "Force Majeure"). For avoidance of
doubt, a vendor's failure to manufacture or deliver the Tully's Product timely does not constitute a Force Majeure with respect to Seller's obligation to deliver such Tully's Product to Buyer
hereunder, unless such vendor's failure results from a Force Majeure. 

        1.4    New Section 2.7—Vendor Changes. The Agreement is hereby amended to add a new Section 2.7
reading as follows: 

        2.7    Alternative Vendor Requests. Buyer shall have the right to make written proposals to Seller
requesting that Seller shall permit Buyer to use alternative third party vendors for procurement of certain Tully's Products (referred to herein as an "Alternative Vendor Request") where such
alternative vendor is capable of providing a worldwide supply of all Seller's and Buyer's then current estimated requirements for a particular Tully's Product at an Actual Landed Cost to Buyer that is
more than [ * ] lower than the then current Actual Landed Cost of such product to Buyer. Buyer's right to make Alternative Vendor Requests as to any one product
shall be limited in frequency such that any request made as to any given Tully's Product shall not be submitted within six (6) months following the submittal date of the most recently submitted
Alternative Vendor Request for the same product. Buyer may, at its option, include up to three (3) alternative vendors in an Alternative Vendor Request, and if more than one such vendor is
approved by Seller in accordance with Section 2.7.2, then Buyer shall have the right to choose which of the vendors so approved to supply the subject product. 

In
connection with Buyer's good faith preparation of an Alternative Vendor Request with respect to a particular Tully's Product, Buyer may submit a written request to Seller, from time to time, for
Seller to notify Buyer of Seller's then current estimated worldwide (excluding the Territory) requirements for such Tully's Products for the following fifteen-month period ("Seller's Requirements").
Seller shall provide such information to Buyer in writing within fifteen (15) business days after receiving such request. If Seller fails to so provide Buyer with 

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such information within such 15-business day period, then for the purposes of this Section 2.7, Seller shall be deemed to have notified Buyer that Seller's Anticipated Requirements
for the designated products are zero. For the purposes of this Section 2.7, Buyer is entitled to rely on such notice (or deemed notice) of Seller's Requirements. 

        2.7.1    Alternative Vendor Requests. Each Alternative Vendor Request shall identify: 

        (a)    the
name, headquarters address, phone number and contact person for each proposed alternative vendor; 

        (b)    the
particular Tully's Product which is the subject of the Alternative Vendor Request; 

        (c)    a
valid, written quote from each proposed alternative vendor (i.e., a quote which, if accepted, would create a binding contract) identifying the price at which such
alternative vendor will agree to provide such Tully's Products to both Seller and Buyer, the lead times for ordering and the period of time for which such price is guaranteed without change; 

        (d)    a
schedule showing a computation of Buyer's current Actual Landed Cost for the product as purchased from Seller and a computation of Buyer's projected Actual Landed Cost
from each alternative vendor (including in each case (i) the invoice cost, and (ii) all freight, duty, taxes, exchange rates, funds transfers, customs charges, CFS/container delivery
charges and other expense components of such cost (collectively, "Other Expenses:") with back-up documentation for the Other Expenses, if requested by Seller) and a comparison between the
two demonstrating at least a [ * ]difference in the Actual Landed Cost to Buyer; 

        (e)    a
complete, fully developed product sample for the particular Tully's Product by each proposed alternative vendor; 

        (f)    any
other terms and conditions applicable to purchases of Tully's Products from each proposed alternative vendor including without limitation payment terms and any
standard purchase order terms and conditions; and 

        (g)    if
readily available, the following background information on each proposed alternative vendor: (i) information concerning such vendor's production capacity,
(ii) credit rating, (iii) other customers of vendor, (iv) vendor access to necessary raw materials and product components, and (v) applicable experience in manufacturing,
selling and distributing the particular type of product at issue. 

        For
a period of fifteen (15) calendar days following Seller's receipt of an Alternative Vendor Request, Seller shall have the right to request additional information in writing
(an "Additional Information Request") with respect to any proposed alternative vendor provided such information is reasonably related to determining whether such Alternative Vendor Request complies
with all of the applicable requirements set forth in this Agreement. Buyer shall endeavor in good faith to provide such information, to extent such information is readily available, to Seller within
thn (10) calendar days following Buyer's receipt of an Additional Information Request. To the extent any information requested by Seller is not readily available, Buyer shall have the right to
deliver to Seller additional mitigating information in lieu of the information which is not readily available and Seller shall give due consideration to such mitigating information 

        2.7.2    Requirements for Approval of Alternative Vendor Requests. Seller shall have no obligation to approve any Alternative
Vendor Request unless all of the following requirements (the "AVR Requirements") are met (as determined in Seller's reasonable discretion): 

        (a)    the
proposed alternative vendor must be a bona fide third party vis-a-vis Buyer with no direct or indirect common ownership, no common officers
or directors, and no other 

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contractual or other arrangements between such vendor and Buyer which are not on a commercially reasonable arms length basis; 

        (b)    the
Actual Landed Cost to Buyer of the Tully's Products contained in the quote subject to the Alternative Vendor Request shall be more than
[ * ] lower than the current Actual Landed Cost to Buyer for such Tully's Product as supplied by Seller under this Agreement; 

        (c)    the
other material terms and conditions of the quote (including but not limited to the payment terms related to timing of payments and applicable discounts, lead times,
type of shipping and shipping terms, warranty terms, volume minimums, rebates and incentives, termination provisions, remedies for breach and limitation of damages/liability) submitted by such
alternative vendor shall be no less favorable to Buyer than the other current terms and conditions applicable to sales of such Tully's Products made under this Agreement including applicable ordering
lead times for the product as set forth on the attached Schedule 1; 

        (d)    such
alternative vendor shall confirm in writing to Seller that it is prepared to sell to Seller all of Seller's Requirements for such Tully's Products for a price and
on such other terms and conditions are identical to those included in the quote with the Alternative Vendor Request with Seller having the option but not the obligation to purchase some or all of
Seller's Requirements for such products from such alternative vendor with the understanding of Seller that the price charged by the Alternative Vendor may increase if Seller buys less than all of
Seller's Requirements from such Alternative Vendor); 

        (e)    the
alternative vendor's price shall be guaranteed not to increase for a period of at least twelve (12) months; 

        (f)    the
sample product included in the Alternative Vendor Request and all subsequent Tully's Products supplied by such alternative vendor to Buyer or Seller shall meet all
of Seller's "Product Standards." As used herein, the phrase Seller's Product Standards shall mean with respect to any sample product submitted (or any subsequent Tully's Product supplied by such
alternative vendor to Buyer or Seller) that, as compared to the existing counterpart Tully's Product then being supplied by Seller under this Agreement, such alternative product is of the
substantially the same or superior quality, firmness, texture, durability, expected wear, materials, craftsmanship, color, color scheme, color clarity, clarity of graphics, function, scale, detail,
and graphics (including correct presentation of all of Seller's logos and trademarks). As used above, the phrase "substantially the same or superior" shall be interpreted so as to protect and uphold
Seller's current brand image; and 

        (g)    the
proposed alternative vendor must be reasonably well qualified to supply the Seller's Requirement as well as Buyer's requirement of the Tully's Product of quality
substantially the same as the sample product submitted to Seller pursuant to Paragraph (f) above. As used above, the phrase "substantially the same" shall be interpreted so as to protect
Seller's current brand image. 

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        2.7.3    Approval of Alternative Vendor Requests; Seller's Right to Match; Fast-Track Arbitration; Revocation of Alternative
Vendors.

        (1)    Approval of Alternative Vendor Requests; Sellers Right to Match. Within thirty (30) calendar days of Seller's
receipt of an Alternative Vendor Request, Seller shall inform Buyer in writing whether such request meets all of the AVR Requirements, and if such request covers more than one proposed alternative
vendor, which of the proposed alternative vendors meets the AVR Requirements. In the event of an Additional Information Request, such 30-day period shall be deemed extended by a period of
time equal to ten (10) calendar days following Buyer's complete response to such Additional Information Request. If Seller's response period as described above lapses without any response by
Seller, the request shall be deemed to have been approved by Seller with respect to each proposed alternative vendor covered thereby. If such request meets all of the AVR Requirements, Seller shall
also inform Buyer whether Seller will match the price for such product contained in the Alternative Vendor Request and retain the right to supply such products to Buyer. If Seller agrees to match such
price, then such price shall become effective for all orders of such product submitted by Buyer to Seller commencing on the calendar day following the date on which Buyer receives Seller's notice of
agreement to match the price. If Seller does not agree to match such price then Buyer shall, subject to the transition requirements and other terms set forth below, be entitled to purchase such
product directly from the proposed alternative vendor. In the event that Seller informs Buyer that an Alternative Vendor Request does not meet all of the AVR Requirements for each proposed alternative
vendor, Seller shall specify the reason or reasons, in writing and in reasonable detail, that has led it to such conclusion (a "Cause for Rejection"), whereupon Buyer shall have a period of thirty
(30) calendar days within which to have the Cause for Rejection removed and resubmit an amended Alternative Vendor Request. The provisions of this Agreement shall apply to any such amended
Alternative Vendor Request as if it were an original Alternative Vendor Request, provided that the resubmission of an amended Alternative Vendor Request can be made only once for each Alternative
Vendor Request, and that for the purpose the restriction on the frequency of Alternative Vendor Request as set forth in Section 2.7 of this Agreement, an amended Alternative Vendor Request
shall be deemed to have been submitted simultaneously with the original Alternative Vendor Request. 

        If
Seller approves an Alternative Vendor Request, the sample product submitted in connection with such request shall be deemed to meet all applicable requirements under the License
Agreement for use, sale and/or distribution of such product in Tully's Stores in the Territory so long as such product remains substantially the same as the sample product. As used above, the word
"substantially" shall be interpreted so as to protect Seller's current brand image. 

        (2)    Fast-Track Arbitration. In the event Buyer believes that Seller has unreasonably refused to approve an
Alternative Vendor Request based upon a failure to meet the AVR Requirements, Buyer shall have the right to request a fast-track arbitration pursuant to the Fast-Track
Arbitration Provisions set forth
below (in lieu of Section 8.2 of this Agreement) with respect to whether Seller's refusal to approve the Alternative Vendor Request based upon a failure to meet the AVR Requirements was
reasonable or not. The terms, conditions and procedures of such fast-track arbitration are as follows (the "Fast-Track Arbitration Provisions"): 

	(i)
	Buyer
shall request such arbitration with the American Arbitration Association ("AAA") through its Seattle office. The venue of such arbitration shall
be in Seattle, Washington.

	(ii)
	Such
arbitration shall be conducted before a single arbitrator in accordance with AAA arbitration rules (under the general rules of commercial
arbitration), provided that the arbitrator shall award, or include in his or her award, the specific performance of this Agreement unless it is determined that performance is 

9

 

impossible.
Judgment upon the award of the arbitrator may be entered in any court having jurisdiction over the matter or over Seller or Buyer. 

	(iii)
	Buyer
and Seller shall each be responsible for one half of the AAA arbitration fees and expenses, provided, however, the arbitrator shall include in
the arbitration award a determination of who the substantially prevailing party is in the arbitration, and thereafter (x) the losing party shall promptly reimburse the substantially prevailing
party its share of the AAA arbitration fees and expenses that the prevailing party already paid prior to such award being issued, (y) the arbitrator shall award to the substantially prevailing
party recovery of its reasonable attorneys fees and costs (including without limitation reasonable travel and lodging expenses) and the substantially prevailing party's reasonable costs and expenses
for travel, lodging and telecommunications for its reasonably necessary representatives, (z) as a redress for the lost opportunity for the time spent by Buyer's executives at the arbitration
hearing, the arbitrator shall award Buyer, if it is the substantially prevailing party, One Thousand United States Dollars (US$1,000.00) per day of the actual arbitration hearing time, and (aa) after
such award is issued, the losing party shall be responsible for all of the AAA arbitration fees and expenses, if any, payable after that date.

	(iv)
	The
award of such arbitration shall be final, binding and non-appealable, except to the extent provided for in the AAA arbitration rules.

	(v)
	The
sole issue in such arbitration shall be whether or not Seller's decision that the Alternative Vendor Request did not meet all of the AVR
Requirements was reasonable.

	(vi)
	The
burden of proof in any such arbitration shall be on Buyer to demonstrate that Seller's decision was unreasonable.

	(ix)
	The
arbitrator shall be instructed to issue the final arbitration award no later than sixty (60) calendar days following the date on which the
arbitrator is named. The arbitrator shall be instructed to, and shall have broad discretion to, implement such schedule, rules and procedures as may be necessary to meet this deadline. 

        In
the event that Seller has requested additional information with respect to any proposed alternative vendor pursuant to Section 2.7.1(g) above that Buyer believes is not
reasonably related to determining whether an Alternative Vendor Request complies with all the requirements set forth in this Agreement, then the Fast-Track Arbitration Provisions shall
apply (in lieu of Section 8.2 of this Agreement), except that the sole issue in such arbitration is whether such reasonable relation exists. 

        In
the event that Buyer believes that Seller has unreasonably rejected an Alternative Vendor Request for failing to meet all of the requirements set forth in Section 2.7.1, then
the Fast-Track Arbitration Provisions shall apply (in lieu of Section 8.2 of this Agreement), except that the sole issue shall be whether or not Seller's decision that the
Alternative Vendor Request did not meet all of the requirements of Section 2.7.1 was reasonable. 

        In
the event that Buyer believes that Seller has unreasonably determined pursuant to Section 2.7.3(3) below that (i) an alternative vendor is not complying with any of the
applicable AVR Requirements in connection with its supply of Tully's Products to either Seller or Buyer, or (ii) an alleged default by an alternative vendor has not been remedied within the
given twenty (20) business day cure period, then the Fast-Track Arbitration Provisions shall apply (in lieu of Section 8.2 of this Agreement), except that the sole issue
shall be whether or not such determination by Seller was reasonable. 

10

 

        In
the event that Buyer believes that Seller is demanding unreasonable requirements pursuant to Section 2.7.4 for a nondisclosure agreement to be entered into between Seller and
an approved alternative vendor, then the Fast-Track Arbitration Provisions shall apply (in lieu of Section 8.2 of this Agreement), except that the sole issue shall be whether such
requirements are reasonable (in order to protect Seller's trademarks, proprietary information, marks and processes, and business plans). 

        (3)    Revocation of Alternative Vendors. If at any time Seller, in its reasonable discretion, determines that any alternative
vendor approved pursuant to this Section 2.7.3 is not complying with any of the applicable AVR Requirements in connection with its supply of Tully's Products to either Seller or Buyer, Seller
shall then have the right to deliver to Buyer a written notice of alternative vendor default reasonably identifying the default at issue. Buyer shall have twenty (20) business days from the
delivery of such notice in the event that the default relates to the supply of products to Buyer, or forty-five (45) calendar days from the delivery of such notice in the event that
the default relates to the supply of products to Seller, in which to demonstrate to Seller that such default has been remedied to Seller's reasonable satisfaction. If, after completion of the
applicable cure period, Seller determines in its
reasonable discretion that such default has not been remedied, Seller shall have the right to inform Buyer in writing that Buyer is no longer to acquire Tully's Products from such alternative vendor.
Seller and Buyer shall then cooperate to ensure an orderly and smooth transition of vendors for such product in accordance with the same terms and conditions as contained in Section 2.7.7 of
this Agreement. Without limiting the preceding sentence, Buyer shall be entitled to continue purchasing its requirements of the particular Tully's Products at issue from such alternative vendor until
all of such vendor's existing inventory (to the extent held or made based on Buyer's Anticipated Requirements) and committed purchase orders (made in the ordinary course of business) for such products
have been purchased by Buyer, provided, however, that, in the event any such revocation involves a quality defect or involves a potential material adverse effect upon Seller's brand, then Buyer's
right to purchase such Tully's Product from such alternative vendor shall cease upon the expiration of the applicable cure period. For purposes of this Section 2.7.3, and also for Sections'
2.7.6 and 2.7.7 below, the term "Buyer's Anticipated Requirements" shall mean Buyer's anticipated requirements for any given Tully's Product, as conveyed from time to time in writing by Buyer to
Seller specifically for the purposes of, and expressly referring to, this Section 2.7. 

        2.7.4    Nondisclosure Agreement; Audit Rights. With respect to any alternative vendor approved pursuant to
Section 2.7.3, Seller shall have the right to require, prior to any Buyer's purchasing of any such products from such vendor, that such vendor enter into a nondisclosure agreement with Seller
in form and substance as Seller may reasonably require in order to protect its trademarks, proprietary information, marks and processes, and its business plans. In addition, Seller audit rights under
Section 4 of this Agreement shall include the right to audit Buyer's invoices and other records related to any approved alternative vendor to ensure that all of the AVR Requirements and other
requirements under this Agreement have been and are continuing to be met. In addition, Seller's Section 4 audit rights shall also include the right to request that Buyer shall promptly provide
Seller vendor information including cost, quantities related to these costs and associated lead times on all products ordered through vendors (other than Seller) that are for use in Buyer's Tully's
Stores. 

        2.7.5    Consent to All Uses of Seller's Proprietary Marks. Buyer agrees that any use by Buyer of any of Seller's proprietary
marks on or in connection with any product supplied by a vendor other than Seller shall require Seller advance written consent and the execution by any such vendor of a nondisclosure agreement as
provided for in Section 2.7.4. Subject to the execution by such vendor of a nondisclosure agreement in form and substance acceptable to Seller, Seller hereby consents to the use of Seller's
proprietary marks by any alternative vendor with regard to 

11

 

which Buyer intends to submit an Alternative Vendor Request, provided that (i) such use is solely for the purpose of manufacturing a reasonable number of samples of any Tully's Product for
delivery to Seller as part of an Alternative Vendor Request pursuant to Section 2.7.1(e) hereof, and (ii) such use is reasonably necessary because Seller's proprietary marks are a part
of the sample product. Once Seller approves an Alternative Vendor Request in accordance with Section 2.7.3 hereof, no further approval from Seller will be necessary for the relevant vendor(s)
to use Seller's proprietary marks in manufacturing the relevant Tully's Product solely for sale to Seller and/or Buyer and for Buyer to use and/or sell, and permit to be used and/or sold, such product
in Buyer's Tully's Stores in the Territory, provided that such approval: (i) shall only be granted if and to the extent that the applicable Tully's Product includes one or more of Tully's
proprietary marks; (ii) shall only continue so long as and to the extent such Tully's Product as manufactured and sold by such alternative vendor remains of substantially the same or superior
quality as compared to the sample product approved by Seller as part of the relevant Alternative Vendor Request; and (iii) subject to the applicable transition
requirements, shall immediately terminate upon the earlier of (a) any revocation of such alternative vendor in accordance with Section 2.7.3(3) of this Agreement, (b) the
replacement of such alternative vendor by Seller in accordance with Section 2.7.6 of this Agreement, or (c) any other termination of such alternative vendor's supplier relationship with
both Buyer and Seller. Notwithstanding any other provision of this Agreement, no alternative vendor shall have the right to use any of Seller's proprietary marks in connection with the manufacturing,
selling, distributing, transferring, leasing, exchanging or any other use of any product to parties other than Seller or Buyer. 

        2.7.6    Seller's Right to Match Prices at a Later Time. In the event Seller has approved an alternative vendor for a particular
Tully's Product under Section 2.7.3 and such vendor has been supplying such product to Buyer for at least six (6) months, and if Seller can offer such product to Buyer for an Actual
Landed Cost to Buyer that is more than [ * ] lower than the Actual Landed Cost Buyer is then currently paying to its approved alternative vendor for such product,
then Seller shall have the right to provide Buyer with a notice of Seller's desire to resume its role as the exclusive supplier of such product to Buyer, which notice shall include the Actual Landed
Cost to Buyer that Seller is proposing ("Seller's Quote"), together with Seller's binding written commitment not to increase the Actual Landed Cost to Buyer for such product for at least twelve
(12) months. Seller's Quote shall provide the following information with respect to such Actual Landed Cost (i) the invoice cost, and (ii) all freight, duty, taxes, exchange
rates, funds transfers, customs charges, CFS/container delivery charges and other expense components of such cost (collectively, "Other Expenses:") with back-up documentation for the Other
Expenses. Upon receiving such notice, Buyer shall provide a copy thereof to such alternative vendor. Within twenty (20) business days following receipt of such notice by Buyer, Buyer shall
(i) notify Seller in writing whether or not such alternative vendor has committed to match Seller's Quote, and (ii) provide Seller with a copy of such alternative vendor's commitment to
match Seller's Quote (which commitment may take any form but shall be signed by such alternative vendor and shall constitute a legally binding commitment). In the event that either (i) Buyer
does not provide Seller with the notice referred to in the preceding sentence within the required twenty (20) business day period, or (ii) Buyer notifies Seller that such alternative
vendor has not committed to match Seller's Quote, then Seller and Buyer shall cooperate in good faith to ensure an orderly and smooth transition of vendors for such products. Without limiting the
preceding sentence, Buyer shall be entitled to continue purchasing its requirements of the particular Tully's Product at issue from such alternative vendor until all of such vendor's existing
inventory (to the extent held or made based on Buyer's Anticipated Requirements) and committed purchase orders (made in the ordinary course of business) for such product have been purchased by Buyer.
In any case where Buyer has requested that a third party vendor increase its manufacturing and distribution capacity to meet Buyer's Requirements for such product, Buyer's obligation to begin
purchasing such product from 

12

 

Seller shall be delayed for a reasonable period of time in order to accomplish a fair, reasonable and orderly transition for such third party vendor. Seller's right to send Buyer the notice set forth
in this Section 2.7.6 shall be limited in frequency such that any notice sent as to any given product shall not be sent within six (6) months following the date of the most recent notice
under this Section 2.7.6 for the same product. 

        2.7.7    Transitional Requirements. Upon the approval of an alternative vendor under Section 2.7.3, Buyer and Seller
shall work together to ensure an orderly and smooth transition of vendors for such products. Without limiting the preceding sentence, Buyer shall still be required to continue purchasing its
requirements of the particular Tully's Product at issue from Seller until all of Seller's existing inventory (to the extend held or made based on Buyer's Anticipated Requirements) and committed
purchase
orders for such products have been purchased by Buyer. In any case where Seller has requested that an outside vendor increase its manufacturing and distribution capacity to meet Buyer's Anticipated
Requirements for a particular Tully's Product, Buyer's right to begin purchasing such product from an approved alternative vendor shall be delayed for a reasonable period of time in order to
accomplish a fair, reasonable and orderly transition for such vendor. 

        2.7.8    Long Term Purchase Commitments. In the event Seller desires to enter into a purchase commitment (that includes Buyer's
anticipated requirements) with an outside vendor for a fixed price or prices on any Tully's Product for a term of one to three years, Seller shall give notice of the same to Buyer together with a
description of the price and terms associated with such commitment (a "Product Commitment Notice"). Upon its receipt of a Product Commitment Notice, Buyer shall have the right to determine, in its
sole discretion, whether Buyer will forego its right to submit to Seller an Alternative Vendor Request for such Tully's Product during the period of time covered by the Product Commitment Notice. Any
such determination shall not be binding upon Buyer unless memorialized in a written agreement signed by Buyer. 

        1.5    Amendment to Section 7. Section 7 of the Agreement (as re-numbered in accordance the First
Amendment) is hereby amended to replace "If to Seller" notice information with the following: 

	If to Seller:	 	Tully's Coffee Corporation

3100 Airport Way South

Seattle, Washington 98134 U.S.A.

Attention: President and/or Chief

Executive Officer

Fax: (206) 233-2077

        1.6    Amendment to Section 8.1. Section 8.1 of the Agreement (as re-numbered in accordance with the
First Amendment) is hereby amended to read as follows: 

Notwithstanding
Section 8.2, either Party shall have the right to elect to seek injunctive or equitable relief as provided for in this Section 8.1. in the state or federal courts
situated in Seattle, Washington, USA (and/or in any appellate court therefrom). The parties each consent to jurisdiction in such courts, waive objection to such venue, and waive trial by jury. The
parties stipulate and agree that any judgment relating to this Agreement which is entered in a court located within the State of Washington shall be binding throughout the world and may be sued upon,
docketed entered and/or enforced,
without challenge or opposition on their part and without re-trial of any of the issues which gave rise to such judgment, in any state, country, province, commonwealth or territory having
jurisdiction over their respective persons or properties. Either party shall be entitled, without bond, to the entry of temporary and permanent injunctions and orders of specific performance enforcing
the provisions of this Agreement, the obligations of the other party upon termination or expiration of this 

13

 

Agreement, and to prohibit any act or omission by the other party that constitutes a violation of any applicable law, ordinance, or regulation. If either party secures any such injunction or order of
specific performance, the other party agrees to pay to such party an amount equal to the aggregate of such party's costs of obtaining such relief, including without limitation reasonable attorney and
expert witness fees, costs of investigation and proof of facts, court costs, other litigation expenses, and travel and living expenses, and any damages incurred by such party as a result of the breach
of any such provision. If either party commences any such action for an injunction or order of specific performance and is not the prevailing party therein, such party agrees to pay to the other party
an amount equal to the aggregate of the other party's costs of defending against such relief, including without limitation reasonable attorney and expert witness fees, costs of investigation and proof
of facts, court costs, other litigation expenses, and travel and living expenses, and any damages incurred by the other party as a result of such proceedings. 

        1.7    Amendment to Section 8.2. Section 8.2 of the Agreement (as re-numbered in accordance with the
First Amendment) is hereby amended to read as follows: 

Except
insofar as either Party elects to enforce this Agreement by judicial process, injunction, or specific performance as hereinabove provided, all disputes and claims relating to any provision
hereof, any specification, standard, or operating procedure, or any other obligation of either Party, or the alleged breach thereof (including without limitation any claim that this Agreement any
provision thereof, any specification, standard, or operating procedure, or any other obligation of either Party, is illegal or otherwise unenforceable or voidable under any law, ordinance, or ruling)
shall be settled by arbitration at Seattle, Washington, under the U.S. Arbitration Act (9 U.S.C §§ 1 et seq..), if applicable,
and the rules of the American Arbitration Association (under the general rules of commercial arbitration), provided that the arbitrator shall award, or include in his award, the specific performance
of this Agreement unless he determines that performance is impossible. Judgement upon the award of the arbitrator may be entered in any court having jurisdiction thereof or over Seller or Buyer. The
arbitrator shall award to the substantially prevailing party recovery of its reasonable attorneys fees and costs (including without limitation reasonable travel and lodging expenses) and the
substantially prevailing party's reasonable costs and expenses for travel, lodging and telecommunications for its reasonably necessary representatives. Further, as a redress for the lost opportunity
for the time spent by Buyer's executives at the arbitration hearing, the arbitrator shall award Buyer, if it is the substantially prevailing party, One Thousand United States Dollars (US$1,000.00) per
day of the actual arbitration hearing time. 

        1.8    New Section 10. A new Section 10 of the Agreement (as renumbered by the First Amendment) is hereby added
reading as follows: 

Section 10.    Governing Law.    This Agreement shall be governed by and construed in accordance with the laws of the State
of Washington, U.S.A. without giving effect to the conflict of law rules or choice of law rules thereof, and by applicable federal law. 

2.    Condition Subsequent Regarding Amendments Contained in this Second Amendment. Seller and Buyer acknowledge and agree that Seller
willingness to agree to the amendments of the Supply Agreement contained in Sections' 1.1 through 1.6 of this Second Amendment are based and conditioned upon Buyer's plans to provide significant
growth in the number of new VL Franchised Tully's Stores to be opened in Japan. As a result, Seller and Buyer agree that, in the event, Buyer fails to open and maintain at least
[ * ] new VL Franchised Tully's Stores for business materially consistent with Buyer's other Tully's Stores in the Territory ("Regular Business") on or before the
one year anniversary of the date of this Second Amendment then the amendments contained in Sections 1.1 through 1.6 of this Second Amendment shall terminate due the failure of a condition
subsequent and 

14

 

automatically be voided and deleted from the Supply Agreement, with the sole exception of pricing for all cups and lids which shall remain as provided for in Section 1.2 of this Second
Amendment. As a result thereof and except for pricing related to all cups and lids, all pricing under the Supply Agreement shall revert to the price terms contained in the Supply Agreement prior to
date of this Second Amendment. Likewise, (i) the list of Tully's Products shall revert to the list attached to the original Supply Agreement, and (ii) Buyer will not have the right to
change suppliers or vendors thereafter for any of the Tully's Products unless Seller consents to such change in its sole discretion. 

        Notwithstanding
the foregoing, in the event that Buyer fails to open and maintain at lease [ * ] VL Franchised Tully's Stores for Regular Business
in the Territory on or prior to the one year anniversary of this Second Amendment but does open up and maintain at [ * ] VL Franchised Tully's Stores for Regular
Business in the Territory within eighteen months of the date of this Second Amendment (in other words, on or prior to the same calendar date as the date of this Second Amendment falling in the
eighteen months following the month in which this Second Amendment is executed), then the amendments contained in this Second Amendment shall again become effective commencing the calendar day
following the date on which the [ * ] VL Franchised Tully's Store opens for Regular Business. 

3.    No Other Amendments. Except as specifically set forth in this Second Amendment, the remaining terms and conditions of the Supply
Agreement shall remain unchanged and shall remain in full force and effect. In the event of a conflict between the provisions of this Second Amendment and the Supply Agreement, the provisions of this
Second Amendment shall prevail. 

4.    Execution in Counterparts. This Second Amendment may be executed in counterparts, each of which shall constitute an original, but all of
which together shall constitute one and the same document notwithstanding that both parties are no signatories to each counterpart. However, this Second Amendment shall not be enforceable against a
party until a counterpart has been executed by both parties. An executed counterpart signature page transmitted by facsimile (fax) transmission by one party to the other party shall constitute an
original signature page for all purposes. 

5.    Integration and Modification. This Second Amendment together with the Supply Agreement constitutes the entire agreement between the
parties with respect to the subject matters hereof. For such matters, there are no other agreements or representations not set forth in this Second Amendment or the Supply Agreement, and this Second
Amendment together with the Supply Agreement incorporate all prior negotiations, agreements and representations. This Second Amendment may not be modified except in writing signed by each party. 

6.    License Agreement. The parties hereto agree that nothing contained in this Second Amendment shall amend, modify or in any way change the
terms and conditions contained in the License Agreement. In the event of any conflict between any terms and conditions of this Second Amendment and any of the terms and conditions of the License
Agreement, the terms and conditions of the License Agreement shall control and govern. 

7.    Miscellaneous. The following provisions of the Supply Agreement are hereby incorporated in this Second Amendment by reference, except
that references therein to "this Agreement" shall be deemed to be references to "this Second Amendment": Sections' 3, 5 and 6 (which have been re-numbered as Sections 5, 7 and 8 pursuant
to the First Amendment). 

15

 

        IN
WITNESS WHEREOF, the parties hereto have executed this First Amendment as of the day and year first above written. 

        Executed
as of the date set forth above. 

	SELLER:	 	 
	 	 	 	 	 
	TULLY'S COFFEE CORPORATION	 	 
	 	 	 	 	 
	By:	 	/s/  MARC EVANGER      
 Marc Evanger, its President and CEO	 	 
	 	 	 	 	 
	BUYER:	 	 
	 	 	 	 	 
	TULLY'S COFFEE JAPAN CO., LTD.	 	 
	 	 	 	 	 
	By:	 	/s/  KOUTA MATSUDA      
 Kouta Matsuda, its President	 	 

16

  

 
 

SCHEDULE 1 TO SECOND AMENDMENT TO SUPPLY AGREEMENT    
  

Except
as otherwise provided for in the Supply Agreement, Tully's Products include all of Buyer's (or any approved franchisee of Buyer) requirements or needs for green and/or roasted coffee beans and
ground coffee and the other products specifically identified in the Exhibit A attached to this Schedule 1. 

17

QuickLinks

Exhibit 10.13

SECOND AMENDMENT TO SUPPLY AGREEMENT

SCHEDULE 1 TO SECOND AMENDMENT TO SUPPLY AGREEMENTQuickLinks
 -- Click here to rapidly navigate through this document

 
 

Exhibit 10.14    
  

 
 

TULLY'S COFFEE CORPORATION    
    
    EMPLOYMENT AGREEMENT
  (Anthony J. Gioia)    
  

        THIS AGREEMENT is entered into as of the 13th day of May, 2002, between ANTHONY J. GIOIA ("Executive"), and TULLY'S COFFEE CORPORATION, a Washington corporation
("Tully's"). 

 
 

RECITAL    
  

        A.    Subject
to the terms and conditions set forth below, Tully's desires to employ Executive and Executive desires to accept employment by Tully's as Tully's President and
Chief Executive Officer. 

 
 

AGREEMENT    
  

        NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows: 

        1.    Employment; Duties and Attention.    

        a.    Employment and Title.    Effective as of May 13, 2002
(the "Commencement Date") and continuing during the term of this Agreement, Tully's agrees to employ Executive as its President and Chief Executive Officer. Executive accepts such employment and
agrees to serve in such additional capacities as may be reasonably requested by the Board of Directors of Tully's from time to time. 

        b.    Duties.    Within the limitations established by Tully's bylaws,
Executive's duties shall include all of the duties and responsibilities normally associated with a President and Chief Executive Officer of a privately held corporation together with all other duties
and responsibilities as may be reasonably assigned to Executive by the Tully's Board of Directors. Executive shall report directly to the Tully's Board of Directors. Simultaneous with the execution of
this Agreement, Executive shall be elected as a member of the Tully's Board of Directors and as a member of Tully's Executive Committee of its Board of Directors and Executive shall perform all duties
and responsibilities related to such positions. Executive shall perform all duties hereunder in accordance with all applicable federal, state and local laws and regulations. 

        c.    Attention and Effort.    During the term of this Agreement,
excluding reasonable vacations compatible with his position and periods of illness, injury or other disability, Executive shall give his reasonable efforts and devote all of his business time and
attention to the business interests of Tully's. During the term of this Agreement, Executive shall not, without Tully's prior written consent, directly or indirectly engage in any employment,
consulting or other activity which would interfere or conflict with the performance of Executive's duties and obligations to Tully's. Notwithstanding the foregoing, with the prior written consent of
the Tully's Board of Directors (which consent shall not be unreasonably withheld), Executive may serve on the board of directors of one (1) for profit company that is not directly in
competition with Tully's, provided that such other board service does not materially impair Executive's ability to perform his duties and responsibilities under this Agreement. 

        2.    Term of Employment.    Except as provided in  Section 5,
Tully's shall employ Executive for the period beginning on the Commencement Date and continuing until this Agreement is terminated in
accordance with Section 5. The period during which Executive is employed pursuant to this Agreement shall be referred to as the "Employment
Period." Sections 4, 6 and 9. k. shall survive the termination of this Agreement. 

 

        3.    Compensation and Benefits.    During the Employment Period,
Tully's shall pay to Executive, and Executive shall accept from Tully's, as full compensation for Executive's services hereunder, compensation as follows: 

        a.    Base Salary.    Executive shall be paid an annual base salary
(the "Base Salary") of $250,000 during the first twelve months of this Agreement. The Tully's Board of Directors shall review Executive's Base Salary annually thereafter and shall increase such base
salary by a minimum of ten percent (10%) for the second and third years this Agreement is in effect. Tully's shall pay Executive the Base Salary in accordance with Tully's payroll practices as in
effect from time to time. 

        b.    Bonus.    During the Employment Period, Executive shall be paid
a bonus (the "Bonus") upon the completion of each Tully's fiscal year calculated as set forth below: 

        (i)    Fiscal Year 2003.    The Bonus for Tully's fiscal year 2003 (ending March 31, 2003) shall be calculated
as follows: 

        (a)  Fifty
percent (50%) of Executive's Base Salary for fiscal Year 2003 if Tully's fiscal year 2003 EBITDA is equal to or greater than Tully's Board of Directors' approved
fiscal year 2003 targeted EBITDA (the "2003 Target EBITDA") (to be agreed upon by Executive and the Tully's Board of Directors in good faith). 

        (b)  Between
the 2003 Target EBITDA and an amount that is $1,000,000 higher than the 2003 Target EBITDA, the Bonus amount shall adjust proportionally up to 75% such that the
amount by which the actual EBITDA is greater than the 2003 Target EBITDA but less than $1,000,000 over the 2003 Target EBITDA shall be multiplied by 25% (75% less 50%) and added to the 50% under
(a) above and multiplied by Executive's Base Salary (e.g. If actual EBITDA is $800,000 above 2003 Target EBITDA, 80% (i.e., $800,000 divided by $1,000,000) multiplied by 25% or 20% would be
added to 50% and a total of 70% would be multiplied by Executive's Base Salary to compute the Bonus. 

        (c)  Between
the sum of the 2003 Target EBITDA plus $1,000,000 and an actual EBITDA amount that is $800,000 higher than such sum, the Bonus amount shall adjust proportionally
up to 100% such that the amount by which the actual EBITDA is greater than the sum of 2003 Target EBITDA plus $1,000,000 but less than 2003 Target EBITDA plus $1,800,000 over 2003 Target EBITDA shall
be multiplied by 25% (100% less 75%) and added to the 75% under (b) above and multiplied by Executive's Base Salary (e.g. if actual EBITDA is $400,000 above the sum of Target EBITDA plus
$1,000,000, 50% (i.e., $400,000 divided by $800,000) multiplied by 25% or 12.5% would be added to 75% and a total of 87.5% would be multiplied by Executive's Base Salary to compute the Bonus. One
hundred percent (100%) of Executive's Base Salary for such year shall be paid out as the Bonus if Tully's has actual fiscal year 2003 EBITDA equal to the sum of the 2003 Target EBITDA plus $1,800,000. 

        (d)  An
additional 25% of Executive's Base Salary shall be paid to Executive for each additional $1,000,000 of EBITDA over and above the sum of the 2003 Target EBITDA plus
$1,800,000. 

        (ii)    Fiscal Year 2004 and Beyond.    The Bonus for Tully's fiscal years 2004 and beyond shall be calculated as
follows: 

        (a)  No
Bonus shall be paid if actual EBITDA is less than 80% of the Tully's Board of Directors approved EBITDA for the applicable year (the "Target EBITDA"). 

2

 

        (b)  Where
actual EBITDA ("A") is between 80% and 100% of the Target EBITDA ("T"), the amount of the Bonus shall be computed as follows: 

Where
A divided by T = X% then ((X% minus 80%) divided by .20) multiplied by (75% minus 25%) plus 25% = percentage of Executive's Salary to be paid in the Bonus. Example: (assuming Base
Salary is $275,000): (1) if actual EBITDA is $4,500,000 and the Target EBITDA is $5,000,000 (i.e., actual EBITDA is 90% of the Target EBITDA) then the Bonus is 50% of $275,000 or $137,500.
NOTE: The EBITDA amounts used in this example are purely hypothetical amounts solely for purposes of demonstrating the calculation and are not meant to be any indication of the anticipated
EBITDA amount for any prospective period. 

        (c)  Where
actual EBITDA ("A") is between 100% and 125% of the Target EBITDA ("T"), the amount of the Bonus payable shall be computed as follows: 

Where
A divided by T = X% then ((X% minus 100%) divided by .25) multiplied by (100% minus 75%) plus 75% = percentage of Executive's Base Salary to be paid in the Bonus. Example:
(assuming Base Salary is $275,000): (1) if actual EBITDA is $5,625,000 and Target EBITDA is $5,000,000 (i.e., actual EBITDA is 112.5% of targeted EBITDA) then the Bonus is 87.5% of $275,000 or
$240,625. NOTE: The EBITDA amounts used in this example are purely hypothetical amounts solely for purposes of demonstrating the calculation and are not meant to be any indication of the
anticipated EBITDA amount for any prospective period. 

        (d)  Where
actual EBITDA ("A") is greater than 125% of Target EBITDA ("T"), the amount of the Bonus shall be computed as follows: 

Where
A divided by (T multiplied by 1.25) = percentage of Executive's Salary to be paid in the Bonus. Example: (assuming Base Salary is $275,000): (1) if actual EBITDA is $7,500,000 and
Target EBITDA is $5,000,000 (i.e., actual EBITDA is 150% of targeted EBITDA) then the Bonus is 120% of $275,000 or $330.000. NOTE: The EBITDA amounts used in this example are purely
hypothetical amounts solely for purposes of demonstrating the calculation and are not meant to be any indication of the anticipated EBITDA amount for any prospective period. 

        As
used herein "EBITDA" means earnings before interest, taxes, depreciation and amortization as typically defined in filings made with the U.S. Securities and Exchange Commission or as
otherwise mutually agreed upon between Tully's and Executive. As used herein, EBITDA shall (i) exclude any consideration of expenses related to stock options issued by Tully's, and
(ii) be computed prior to deducting approved bonuses. The Bonus shall be paid each year in a single lump sum payment made no later than five business days after the issuance of Tully's audited
financial statements by Tully's independent auditors. 

        c.    Stock Options.    Effective on the Commencement Date, Tully's
shall deliver to Executive three (3) separate grants of Tully's non-qualified stock options (the "Stock Options") to purchase Tully's common voting stock ("Tully's Stock") as
follows: 

        (i)    Grant 1.    The first grant of the Stock Options ("Grant 1") shall include options to purchase 450,000 shares
of Tully's Stock. Subject to Executive still being an employee of Tully's on the applicable vesting date, the first one third (1/3) of the Stock Options subject to Grant 1 shall vest on
May 13, 2003, the second one third (1/3) of the Stock Options subject to Grant 1 shall vest on May 13, 2004, and the final one third (1/3) of the Stock
Options subject to Grant 1 shall vest on May 13, 2005. The exercise price for each of the Stock Options subject to Grant 1 shall be at $0.01 per share. 

        (ii)    Grant 2.    The second grant of the Stock Options ("Grant 2") shall include options to purchase 350,000 shares
of Tully's Stock. Subject to Executive still being an employee of 

3

 

Tully's on the applicable vesting date, the first one third (1/3) of the Stock Options subject to Grant 2 shall vest on May 13, 2003, the second one third (1/3)
of the Stock Options subject to Grant 2 shall vest on May 13, 2004, and the final one third (1/3) of the Stock Options subject to Grant 2 shall vest on May 13, 2005. The
exercise price for each of the Stock Options subject to Grant 2 shall be at $1.78 per share. 

        (iii)    Grant 3.    The third grant of the Stock Options ("Grant 3") shall include options to purchase 200,000 shares
of Tully's Stock. Subject to Employee still being an employee of Tully's on the applicable vesting date, the first one third (1/3) of the Stock Options subject to Grant 3 shall vest on
May 13, 2003, the second one third (1/3) of the Stock Options subject to Grant 3 shall vest on May 13, 2004, and the final one third (1/3) of the Stock
Options subject to Grant 3 shall vest on May 13, 2005. The exercise price for each of the Stock Options subject to Grant 3 shall be at $2.50 per share. 

Except
as otherwise provided for herein, all of the Stock Options shall be subject to the terms and conditions contained in that certain Tully's Coffee Corporation Stock Option Agreement for Purchase
of Stock, a copy of which is attached hereto as Exhibit A. Except as provided in Section 6
below, all Stock options which have not vested as of the date of Executive's termination of employment with the Company shall be deemed to be forfeited. Issuance of the Stock Options and any shares
related thereto shall be made only in accordance with all applicable state and federal securities laws. 

        d.    Automobile Allowance.    Executive shall be paid an automobile
allowance in an amount equal to $750 per month in accordance with Tully's payroll practices in effect from time to time. 

        e.    Other Benefits.    During the Employment Period, Executive shall
be entitled to participate in Tully's 401(k) plan (subject to a six month waiting period from the Commencement Date), insurance, health, disability, life, major medical insurance plans or other
arrangement that Tully's may adopt for the general benefit of its comparable executive employees. Executive shall also be entitled to a twenty percent (20%) discount on all products sold in Tully's
retail locations. 

        f.    Vacation.    Executive shall be entitled to three
(3) weeks annual paid vacation leave. Vacation carryover, if any, is subject to Tully's policy. Payment for accrued but unused vacation upon termination is also subject to Tully's policy as in
effect from time to time. 

        g.    Sick Leave.    The Executive will be granted sick leave in
accordance with Tully's policy as in effect from time to time. 

        h.    Reimbursement of Business Expenses.    Tully's shall reimburse
Executive for all reasonable expenses necessarily incurred by him in connection with the performance of his duties hereunder during the term of this Agreement, upon presentation of a voucher
indicating the amount, business purpose and supported by appropriate documentation, subject, however, to Tully's employee reimbursement policies and procedures relating to business related expenses as
in effect from time to time. 

        4.    Confidentiality; Nonsolicitation and Noncompetition.    

        a.    Confidentiality.    Without the prior written consent of
Tully's, except to the extent required by an order of a court having competent jurisdiction or under subpoena from an appropriate government agency, during the period of Executive's employment with
Tully's and for an indefinite period following any termination of Executive's employment with Tully's, Executive shall not disclose any trade secrets, customer lists, drawings, designs, marketing
plans, management organization information (including, without limitation, data and other information relating to members of the Board of Directors and other management personnel of Tully's),
operating policies or manuals, business plans, financial records, or other financial, commercial, business or technical 

4

 

information relating or belonging to Tully's or information designated or considered as confidential or proprietary that Tully's may receive belonging to suppliers, customers or others who do
business with Tully's (collectively, "Confidential Information") to any third person unless such Confidential Information has been previously disclosed to the public by Tully's or is in the public
domain (other than by reason of Executive's breach of this Section 4(a)). 

        b.    Tully's Property.    Promptly following Executive's termination
of employment with Tully's, Executive shall return to Tully's all property of Tully's (in whatever medium), and all copies thereof, in Executive's possession or under his control. 

        c.    Nonsolicitation of Employees.    During the Employment Period
and for the greater of (i) the one-year period following the termination of the Employment Period, or (ii) the applicable period, if any, during which Tully's is obligated to
make severance payments under Section 6 b. or Section 7 below (collectively, the
"Restriction Period"), Executive shall not directly or indirectly induce any employee of Tully's to terminate employment with Tully's, and shall not directly or indirectly, either individually or as
owner, agent, member, partner, employee, consultant or otherwise, employ or offer employment to any person who is or was employed by Tully's unless such person shall have ceased to be employed by
Tully's for a period of six (6) months. 

        d.    Noncompetition.    During the Restriction Period, Executive will
not directly or indirectly be employed by, perform consulting services for, own, manage, operate, join, control or participate in the ownership, management, operation or control of or be connected
with any business activity which directly or indirectly competes with Tully's in the retail or wholesale coffee business. For purposes of the foregoing, Executive will be deemed to be connected with
such business if the business is carried on by any entity in which (i) Executive holds an equity interest or debt with equity conversion rights (other than a shareholder owning less than 3% of
the total outstanding shares of a publicly traded corporation), or (ii) Executive serves as officer, director or is an employee, consultant, agent, member or other representative. The
geographic scope of the restrictions set forth above shall be limited to the United States of America. 

        e.    Injunctive Relief.    Executive acknowledges and agrees that the
covenants and obligations of Executive with respect to confidentiality, Tully's property, nonsolicitation and noncompetition relate to special, unique and extraordinary matters and that a violation of
any of the terms of such covenants or obligations will cause Tully's irreparable injury for which adequate remedies are not available solely at law. Therefore, Executive agrees that Tully's shall be
entitled to an injunction, restraining order or such other equitable relief (without the requirement to post bond) restraining Executive from committing any violation of the covenants and obligations
set forth in this Section 4. These injunctive remedies are cumulative and are in addition to any other rights and remedies that Tully's may have
at law or in equity. 

        f.    Acknowledgement Re Restrictions.    Executive acknowledges and
agrees that, given Executive's experience, knowledge and position with Tully's, the restrictions contained in this Section 4 are reasonable and
necessary in order for Tully's to protect its reasonable business interests. 

        5.    Termination of Employment.    

        a.    Mutual Agreement.    During the Employment Period, Executive's
employment with Tully's may be terminated at any time by mutual, written agreement of the parties hereto on terms to be negotiated at the time of such termination. 

        b.    Death or Disability.    During the Employment Period, this
Agreement shall terminate automatically upon Executive's death or due to a physical or mental disability or infirmity that prevents the performance of Executive's employment-related duties hereunder,
lasting for a period of six (6) months or longer (a "Disability"). 

5

 

        c.    Termination by Tully's for Cause.    During the Employment
Period, Executive's employment hereunder may be terminated for "Cause" by Tully's effective immediately upon delivery of written notice thereof to Executive. "Cause" shall mean (i) commission
by Executive of any act of theft, fraud, or dishonesty with respect to Tully's business; (ii) breach by Executive of any of the material terms and conditions of this Agreement which breach is
not remedied to Tully's satisfaction within ten days of written notice of the same to Executive; (iii) Executive's engaging in willful and serious misconduct that is injurious to Tully's
reputation or business; or (iv) Executive's having been convicted of, or entered a plea of guilty or nolo contendere to, a crime that constitutes
a felony or which arises out of any act involving moral turpitude. 

        d.    Termination by Tully's Without Cause.    During the Employment
Period, Executive's employment hereunder may be terminated "Without Cause" by Tully's, effective upon 30 days' prior written notice of such termination delivered to Executive. A termination
"Without Cause" shall mean a termination of Executive's employment by Tully's during the Employment Period, other than any such termination for Cause, as defined in  Section 5(c), or by reason of
Executive's death or Disability. 

        e.    Voluntarily by Executive.    During the Employment Period,
Executive's employment hereunder may be terminated by Executive, effective upon 60 days' prior written notice of such termination delivered to Tully's. Upon receipt of any such notice, Tully's
shall have the right to accept such notice of termination with immediate effect notwithstanding the advance notice given by Executive and, in such event, this Agreement shall be deemed to be
terminated as of the date specified by Tully's in writing to Executive. Upon any resignation or voluntary termination of employment by Executive hereunder, Executive shall
be deemed to have resigned from the Board of Directors of Tully's, any other executive committee of such board and any Tully's plan or trust that Executive is a trustee under. 

        f.    Voluntarily by Executive for Good Reason.    During the
Employment Period, Executive's employment hereunder may be terminated by Executive for "Good Reason" upon 60 days' prior written notice of such termination delivered to Tully's, provided that,
with respect to subclause (iv) below, such prior written notice shall be limited to five business days. Upon receipt of any such notice, Tully's shall have the right to accept such notice of
termination with immediate effect notwithstanding the advance notice given by Executive and, in such event, this Agreement shall be deemed to be terminated as of the date specified by Tully's in
writing to Executive. For the purposes of this Agreement, "Good Reason" shall exist if, without Executive's prior written consent, Tully's (i) materially reduces Executive's duties and
responsibilities so that Executive no longer performs substantially all of the duties and responsibilities typically associated with employment as the President and Chief Executive Officer of a
company, and such duties and responsibilities are not restored to Executive within 10 days after written notice thereof is delivered by Executive to Tully's; (ii) breaches any of the
material terms and conditions of this Agreement which breach is not remedied to Executive's satisfaction within 10 days after written notice thereof is delivered by Executive to Tully's;
(iii) relocates its principal executive offices to a location outside of the Puget Sound region in western Washington; or (iv) requires, as a condition of Executive's employment, that
Executive perform unethical, illegal or fraudulent acts or omissions. 

        6.    Compensation Upon Termination.    

        a.    Termination by Mutual Agreement.    In the event that
Executive's employment with Tully's is terminated by the parties hereto pursuant to a written agreement in accordance with Section 5(a),
Executive shall be entitled to receive the compensation specified in such written agreement. 

6

 

        b.    Termination of Executive's Employment Without Cause or By Executive for Good
Reason.    

        (1)  In
the event that, during the twelve-month period ending on the first anniversary of the Commencement Date, Executive's employment with Tully's is terminated by Tully's
Without Cause in accordance with Section 5(d) or by Executive for Good Reason in accordance with  Section 5(f), Executive shall be entitled to
receive (a) Executive's first year Base Salary for an additional one-year period
following the termination date of Executive's employment, with such Base Salary to paid out monthly in accordance with Tully's payroll practices as in effect from time to time; (b) full vesting
with respect to 225,000 of the Grant 1 Stock Options; and (c) forgiveness of the Loan to Executive. 

        (2)  In
the event that, during the twelve-month period ending on the second anniversary of the Commencement Date, Executive's employment with Tully's is terminated by Tully's
Without Cause in
accordance with Section 5(d) or by Executive for Good Reason in accordance with  Section 5(f), Executive shall be entitled to receive
(a) Executive's second year Base Salary for an additional fifteen months following
the termination date of Executive's employment, with such Base Salary to be paid out monthly in accordance with Tully's payroll practices as in effect from time to time; (b) full vesting with
respect to an aggregate total of 300,000 of the Grant 1 Stock Options; and (c) forgiveness of the Loan to Executive. 

        (3)  In
the event that, Executive's employment with Tully's is terminated by Tully's Without Cause in accordance with  Section 5(d) or by Executive for Good Reason in accordance with Section 5(f) at any time
after the second anniversary of the Commencement Date, Executive shall be entitled to receive (a) Executive's Base Salary (in the year during which the termination occurs) for an additional
eighteen months following the termination date of Executive's employment, with such Base Salary to be paid out monthly in accordance with Tully's payroll practices as in effect from time to time;
(b) ratable vesting (based on the portion of the third year worked by the Executive prior to the effective date of such termination) of the remaining 150,000 unvested Grant 1 Stock Options, and
(c) the forgiveness of the Loan to Executive. 

The
payments and vesting rights described in Sections 6(b) (1)-(3) above are conditioned upon Executive's execution and delivery to Tully's of a full
and complete written release (the "Release") of any and all other claims the Executive may have against the Company in form and substance acceptable to the Company. If Executive fails to deliver the
Release in a timely manner, Tully's shall have no obligation to make the payments or grant early vesting as to any of the Stock Options as described in Sections
6(b)(1)-(3) above. 

        7.    Change in Control.    In the event of a Change in Control, all
of Executive's unvested Stock Options shall immediately become fully vested and Executive shall be entitled to receive a lump sum payment (made not later than five business after the final completion
of any of the events constituting the Change in Control) equal to eighteen months of severance pay equal to the total annualized cash compensation (Base Salary plus the Bonus) for the prior year, or
in the case of a Change in Control occurring during the first year of this Agreement, the total annualized Base Salary for such year. As used herein, the phrase "Change in Control" shall mean either
(i) a sale of substantially all of the assets of Tully's to a third party other than as part of a transfer of said assets to an entity directly or indirectly controlled by existing Tully's
shareholders holding a majority of the outstanding shares of the common voting stock of Tully's; or (b) a sale of more than fifty percent (50%) of the outstanding voting stock of Tully's to one
or more third parties in a single transaction. 

7

  

        8.    Relocation.    Tully's shall reimburse Executive
for 100% of the
normal closing costs and expenses (but not including any loss on sale or the payment of the actual sales purchase price) incurred in connection with (i) the sale of Executive's current personal
residence in Phoenix, Arizona, and (2) the purchase by Executive of a personal residence in Seattle, Washington. Tully's shall also reimburse Executive for (a) 100% of Executive's actual
temporary residential living expenses in Seattle, Washington (not to exceed $2,500 per month) for up to but not exceeding the earlier of six months after the Commencement Date or the date upon which
Executive closes on the purchase of a personal residence in Seattle, Washington; (b) the cost of moving two personal vehicles from Phoenix, Arizona to Seattle, Washington; and (c) the
cost of up to two round trip tickets for each of Executive and his spouse between Phoenix, Arizona and Seattle, Washington related to Executive's initial move to Seattle. In connection with
Executive's purchase of a personal residence in Seattle, Tully's shall provide to Executive an interest-free loan of up to $100,000 (the "Loan"). The Loan may be advanced in one or more
tranches as requested by Executive from time to time. Such loan will be evidenced by a Promissory Note made by Executive in favor of Tully's and shall be repaid on the earlier to occur of
(a) the third anniversary of the Commencement Date, or (2) the date Executive's employment is terminated by Tully's for Cause. Executive's obligation to repay the Loan shall be forgiven
by Tully's in the event of (i) a Change in Control (as defined above), or (ii) the termination by Tully's of Executive's employment Without Cause or by Executive for Good Reason in
accordance with Section 5(f). 

        9.    Miscellaneous.    

        a.    Survival.    Section 4,  Section 6(b), Section 6(c) and  Section 9(k), shall survive the termination of this Agreement. 

        b.    Binding Effect.    This Agreement shall be binding on, and shall
inure to the benefit of, Tully's and any person or entity that succeeds to the interest of Tully's (regardless of whether such succession does or does not occur by operation of law) by reason of the
sale of all or a portion of Tully's stock, a merger, consolidation or reorganization involving Tully's or, unless Tully's otherwise elects in writing, a sale of the assets of the business of Tully's
(or portion thereof) in which Executive performs a majority of his services. This Agreement shall also inure to the benefit of Executive's heirs, executors, administrators and legal representatives. 

        c.    Severability.    If any provision of this Agreement is held by a
court of competent jurisdiction to be invalid, void or unenforceable as to a particular application (including, without limitation, as to its geographic coverage or duration), then such provision
shall be deemed modified to exclude such application, and such provision in all other applications and all other provisions of this Agreement shall
continue in full force and effect without being modified, impaired or invalidated in any way. Both Executive and Tully's intend that this Agreement be given the maximum force, effect and application
permissible under applicable law. 

        d.    Waiver of Default.    Any waiver by either Tully's or Executive
of a breach of any provision in this Agreement shall not operate or be construed as a waiver of any subsequent breach of the same or any other provision of this Agreement. 

        e.    Assignment.    This Agreement shall not be assignable by
Executive voluntarily or by operation of law nor shall the performance of his duties hereunder be delegable. Tully's may assign or transfer its rights and benefits hereunder which shall inure to any
successor, assignee or transferee of Tully's. 

        f.    Amendment.    Neither this Agreement nor any term or provision
hereof may be changed, waived, discharged, amended, modified or termination other than by an instrument in writing signed by all of the parties hereto. 

8

 

        g.    Paragraph Headings.    The paragraph headings are for
convenience only and in no way define, limit, extend or interpret the scope of this Agreement or of any particular paragraph hereof. 

        h.    Documents.    Each party to this Agreement shall perform any and
all acts and shall execute and deliver any and all documents as may be necessary, desirable or proper under the circumstances in order to accomplish the intents and purposes of this Agreement and to
carry out its provisions. 

        i.    Time.    Time is of the essence with respect to the performance
of each of the covenants and agreements herein set forth. 

        j.    Entire Agreement.    This Agreement contains the entire
agreement and understanding of the parties with respect to the entire subject matter regarding Executive's employment with Tully's hereunder, and there are no representations, inducements, promises,
or agreements, oral or otherwise, not embodied herein. Any and all prior discussions, negotiations, commitments and understandings relating thereto are merged herein, including without limitation any
terms and conditions contained in that certain offer letter dated April 12, 2002, executed by Executive and Tully's. There are no conditions precedent to the effectiveness of this Agreement
other than as may be stated herein. 

        k.    Law and Venue.    This Agreement shall be governed by, construed
and enforced in accordance with the internal laws of the state of Washington, without giving effect to principles and provisions thereof relating to conflict or choice of laws. The parties hereto
irrevocably submit to the jurisdiction and venue of the courts situated in King County, Washington with respect to any matter arising under the terms of this Agreement. 

        l.    Attorneys' Fees.    In the event that suit is brought to
interpret or enforce any term or provision of this Agreement, or in the event that any party hereto is forced to seek a remedy other than monetary damages, including but not limited to injunctive
relief, the prevailing party in any such suit or proceeding shall, in addition to any other relief to which such party may be entitled, be awarded its costs and attorneys' fees reasonably and actually
incurred. 

        m.    Notices.    Any notice required or desired to be delivered under
this Agreement shall be in writing and shall be delivered personally, by courier service, or by registered mail, return receipt requested and shall be effective upon actual receipt by the party to
which such notice shall be directed, and shall be addressed as follows (or to such other address as the party entitled to notice shall hereafter designate in accordance with the terms hereof): 

	If to Tully's:	 	Tully's Coffee Corporation

Attn: Chairman of the Board

3100 Airport Way South

Seattle, WA 98134
	

If to Executive:	
 	

Anthony J. Gioia

C/O 3100 Airport Way South

Seattle, WA 98134

        n.    Counterparts.    This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 

9

 

        IN
WITNESS WHEREOF, the parties have hereunto set their hands the day and year first set forth above. 

	EXECUTIVE:	 	TULLY'S:
	

 	
 	

TULLY'S COFFEE CORPORATION
	

/s/  ANTHONY J. GIOIA      
 Anthony J. Gioia	
 	

By	
 	

/s/  MARC EVANGER      
 Marc Evanger

Its President and CEO

10

 
 
 

EXHIBIT A TO EMPLOYMENT AGREEMENT
  BETWEEN
  ANTHONY J, GIOIA
  AND
  TULLY'S COFFEE CORPORATION    
  

TULLY'S COFFEE CORPORATION
  (the "Company") 

STOCK OPTION AGREEMENT FOR PURCHASE OF STOCK

        We
are pleased to inform you that the Company (which term includes any subsidiary of the Company) has granted to you (the "Optionee") this Stock Option Agreement. This Stock Option
Agreement is a
contract between you and the Company. It warrants to you certain defined rights, at certain times, and under certain conditions, to purchase shares of the Company's common stock, and in exchange you
accept certain obligations and responsibilities, as described below and in the Company's 1994 Amended and Restated Stock Option Plan (the "Plan") and the attached Terms and Conditions where the
reference is appropriate. 

        FOR
VALUABLE CONSIDERATION, the Company does hereby grant to the Optionee, as of the Date of Option Grant specified below, the right and option to purchase the Number of Option Shares of
common stock of the Company specified below (the "Option Shares") for the Exercise Price Per Share specified below, and the right to purchase the Option Shares under this Stock Option Agreement shall
accrue and vest according to the Vesting Schedule specified below: 

	Name of Optionee:	 	 	 	 
	Type of Option:	 	o	 	Employee Incentive Stock Option
	 	 	ý	 	Nonqualified Stock Option
	 	 	o	 	Director Nonqualified Stock Option
	Number of Option Shares:	 	 	 	 
	Exercise Price Per Share:	 	$.      
	Date of Option Grant:	 	 	 	 
	Term of Option:	 	 	 	 
	Vesting Schedule:	 	 	 	 

        EXECUTED
as of the Date of Option Grant. 

	 	 	TULLY'S COFFEE CORPORATION
	

 	
 	

By	
 	

 
	 	 	 	 	

	 	 	 	 	Its	 	 
	 	 	 	 	 	 	

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

	 	 	OPTIONEE
	

 	
 	

    

11

 
 
 

TERMS AND CONDITIONS OF STOCK OPTION AGREEMENT    
  

Stock
Options are subject to the terms hereof and of the Company's

1994 Amended and Restated Stock Option Plan ("Plan") where appropriate.

Capitalized Terms used in this Stock Option Agreement (this "Agreement"),

if not otherwise defined, have the meanings given them in the Plan. 

        1.    Any
Option Shares which become purchasable ("vest") but are not purchased on a vesting date or anniversary date, as the case may be, may be purchased on any subsequent
date, provided all options for the purchase of Option Shares must be exercised within the time periods specified in Section 2 below. 

        2.    Subject
to the terms hereof, all vested options (i.e., options for which the right to purchase has accrued) shall expire at the earliest to occur of the following: 

        (a)  The
earlier of the Term of Option specified on the first page of this Agreement or ten (10) years from the Date of Option Grant specified on the first page of
this Agreement; 

        (b)  Ninety
(90) days after (i) a termination of Optionee's employment (occurring during the first year of Optionee's employment with the Company) by Optionee
without "Good Reason" as described in that certain Employment Agreement dated May 13, 2002 entered into between Optionee and the Company (the "Employment Agreement"), or (ii) a
termination of Optionee's employment (occurring during the first year of Optionee's employment with the Company) by the Company "With Cause" as described in the Employment Agreement; 

        (c)  Upon
discharge of Optionee for misconduct, willfully or wantonly harmful to the Company; 

        (d)  Twelve
(12) months after Optionee's death or disability (occurring during the first year of Optionee's employment with the Company; or 

        (e)  In
the event of a Change of Control Event as described in the Plan, the date such Change of Control Event is deemed to occur. However, if the Change of Control Event, as
the case may be, and as described in the Plan, is not finalized, all options which are terminated pursuant to this Subsection (e) shall be reinstated as described in the Plan. 

        3.    This
Stock Option may be exercised at different times for portions of the total number of Option Shares for which the right to purchase shall have accrued and vested
hereunder, provided that such portions are in multiples of ten (10) shares if the Optionee holds vested portions for ninety-nine (99) or fewer shares and otherwise in
multiples of one hundred (100) shares. 

        4.    This
Stock Option shall be adjusted for recapitalizations, stock splits, stock dividends, and the like as described in the Plan. 

        5.    This
is not an employment contract and while the benefits, if any, of this Stock Option may be an incident of the Optionee's employment with Company, the terms and
conditions of such employment are otherwise wholly independent hereof. 

        6.    Neither
this Stock Option nor any right under this Agreement is assignable, and rights under this Agreement may be exercised only by the Optionee or a person to whom the
rights under this Agreement shall pass by will or the laws of descent and distribution, provided that Optionee shall be entitled to assign options to the Gioia Living Trust, dated June 5,
1998.. 

        7.    The
Optionee shall indicate Optionee's intention to exercise this Stock Option with respect to vested Option Shares by notifying the Company in writing of such intention,
indicating the number of Option Shares Optionee intends to purchase, and, within ten (10) days thereafter, paying to the Company an amount sufficient to cover the total option price of such
Option Shares. Payment of the 

12

 

Exercise Price Per Share specified on the first page of this Agreement shall be made in cash. Exercise of the Option may cause certain negative tax incidents to the Optionee which are not the
responsibility of the Company. Optionee should discuss the tax ramifications of exercise of the options granted herein with tax counsel of Optionee's choice prior to the exercise of any option. 

        8.    Notwithstanding
the foregoing, no Stock Option shall be exercisable, and rights under this Agreement are not enforceable, unless and until all requirements imposed by or
pursuant to Section 2.17 of the Plan are satisfied. 

        SECTION
2.17 OF PLAN DESCRIBES CERTAIN IMPORTANT CONDITIONS RELATING TO FEDERAL AND STATE SECURITIES LAWS THAT MUST BE SATISFIED BEFORE THIS OPTION CAN BE EXERCISED AND BEFORE THE
COMPANY CAN ISSUE ANY OPTION SHARES TO THE OPTIONEE. AT THE PRESENT TIME THE PLAN IS NOT REGISTERED AND, ALTHOUGH SHARES MAY BE ISSUED UPON EXERCISE, THE SHARES SO ISSUED ARE NOT FREELY TRADABLE. 

        THERE
CAN BE NO ASSURANCE THAT THE EXEMPTION(S) ALLOWING ISSUANCE OF THE SHARES UPON EXERCISE WILL REMAIN AVAILABLE, NOR IS THEIR ASSURANCE THAT ISSUED SHARES WILL BE REGISTERED OR THAT
ONCE REGISTERED THE REGISTRATION WILL BE MAINTAINED. IF THE SHARES ARE NOT REGISTERED OR IF THE REGISTRATION IS NOT MAINTAINED, THE OPTIONEE WILL NOT BE ABLE TO TRADE SHARES OBTAINED UPON EXERCISE OF
THIS STOCK OPTION UNTLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE. AT THE PRESENT TIME, EXEMPTIONS FROM REGISTRATION UNDER FEDERAL AND STATE SECURITIES LAWS ARE VERY LIMITED AND MIGHT BE
UNAVAILABLE TO THE OPTIONEE PRIOR TO THE EXPIRATION OF THIS OPTION. AS A CONSEQUENCE OF THE FOREGOING, THE OPTIONEE MIGHT NOT HAVE AN OPPORTUNITY TO EXERCISE THIS OPTION AND TO RECEIVE OPTION SHARES
UPON SUCH EXERCISE, AND, IF THE OPTIONEE IS ABLE TO EXERCISE THIS OPTION AND TO RECEIVE OPTION SHARES UPON SUCH EXERCISE, THE OPTIONEE MIGHT NOT HAVE THE OPPORTUNITY TO TRADE SUCH OPTION SHARES. 

        9.    NO
RIGHTS TO STOCK OPTIONS OR EMPLOYMENT; NO RESTRICTIONS; NO DAMAGES. Neither Optionee nor any other person shall have any claim or right to be granted a Stock Option.
Having received a Stock Option shall not give Optionee any right to receive any other grant or option whether or not under the Plan. Optionee shall have no rights to or interest in any Option except
as set forth herein, in the Plan where appropriate, or in another Option specifically granted by the Company to Optionee. Neither this Option, the Plan, nor any action taken hereunder or under the
Plan shall be construed as giving any Employee or Director any right to be retained in the employ of, or be engaged as a Director to, the Company, as the case may be. Nothing in the Plan restricts the
Company's rights to adopt other option plans pertaining to any or all of the Employees or Directors covered under the Plan or other Employees or Director not covered under the Plan. 

13

QuickLinks

Exhibit 10.14

TULLY'S COFFEE CORPORATION EMPLOYMENT AGREEMENT (Anthony J. Gioia)

RECITAL

AGREEMENT

EXHIBIT A TO EMPLOYMENT AGREEMENT BETWEEN ANTHONY J, GIOIA AND TULLY'S COFFEE CORPORATION

TERMS AND CONDITIONS OF STOCK OPTION AGREEMENT

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