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TULLY'S COFFEE CORPORATION
  CONVERTIBLE PROMISSORY NOTE
  SUBSCRIPTION AGREEMENT    
  

    This Subscription Agreement (this "Agreement") is made and entered into as of this 14th day of December, 2000, by and between Tully's Coffee Corporation, a
Washington corporation (the "Company"), and KWM INVESTMENTS LLC, a Washington limited liability company (the "Subscriber"). 

    1.  Subscription.  Pursuant to this Agreement the undersigned Subscriber hereby irrevocably subscribes
for the purchase of a convertible promissory note in the face amount of $3 Million (the "Note") and of warrants ("Warrants") to be paid in lieu of interest under the Note from the Company. The Note
and the Warrants, and Series A Preferred Stock and common stock into which the Note is convertible and for which the Warrants would be exercisable, are collectively referred to herein as the
"Securities." 

    2.  Acknowledgments.  The Subscriber acknowledges that: 

    a.  Offering Information.  The Subscriber has been provided with and has reviewed an informational
memorandum (the "Informational Memorandum") used in the recently closed private placement offering of Series B Convertible Preferred Stock, which contains business and financial information
about the Company and a description of the terms of the Series A Preferred Stock; and 

    b.  Subscriber Questions.  The Subscriber has had the opportunity to ask questions of the directors,
officers or other authorized representatives of the Company, and to the extent the Subscriber utilized such opportunity, the Subscriber received satisfactory answers concerning the Company, its
operations and prospects, and the purchase of the Note. 

    3.  Representations of Subscriber.  The Subscriber hereby represents, warrants and covenants as follows: 

    a.  Accredited Investor.  The Subscriber is an Accredited Investor within the meaning of
Regulation D promulgated by the Securities and Exchange Commission. Specifically, the Subscriber qualifies under
the following category or categories of Accredited Investor indicated below (indicate category or categories by initialing in one or more of the spaces provided): 

(i)
The Subscriber is an individual whose net worth, or joint net worth with that person's spouse, currently exceeds $1,000,000; 

(ii)
The Subscriber is an individual who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person's spouse in excess of $300,000 in each of
those years and has a reasonable expectation of reaching the same income level in the current year; 

(iii)
The Subscriber is a director or executive officer of the Company; 

(iv)
The Subscriber is a bank as defined in Section 3(a)(2) of the Securities Act of 1933 (the "Act"), or a savings and loan association or other institution as defined in Section 3(a)(5)(A) of the
Act, whether acting in its individual capacity or a fiduciary capacity; 

(v)
The Subscriber is a broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934; 

(vi)
The Subscriber is an insurance company as defined in Section 2(13) of the Act; 

(vii)
The Subscriber is an investment company registered under the Investment Company Act of 1940; 

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(viii) The Subscriber is a business development company as defined in Section 2(a)(48) of the Investment Company Act of 1940; 

(ix)
The Subscriber is a small business investment company licensed by the U.S. Small Business Administration under Section 301(c) or (d) or the Small Business Investment Act of 1958; 

(x)
The Subscriber is a plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its
employees, if such plan has total assets in excess of $5,000,000; 

(xi)
The Subscriber is an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 if (a) the investment decision is made by a plan fiduciary, as defined in
Section 3(21) of such Act, which is either a bank, savings and loan association, insurance company, or registered investment advisor or (b) the employee benefit plan has total assets in excess of
$5,000,000 or (c) if a self-directed plan, with investment decisions made solely by persons that are accredited investors; 

(xii)
The Subscriber is a private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940; 

(xiii)
The Subscriber is an organization described in Section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific
purpose of acquiring the Note, with total assets in excess of $5,000,000; 

(xiv)
The Subscriber is a trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the Note, whose purchase is directed by a sophisticated person as described
in Section 230.506(b)(2)(ii) of Title 17 of the Code of Federal Regulations; 

(xv)
The Subscriber is an entity in which each equity owner satisfies at least one of the categories (i) through (xiv) above. 

    b.  Speculative Investment.  The Subscriber acknowledges that the Securities represents a speculative
investment that involves a significant risk of loss and substantial restrictions on the transferability of the Securities. The Subscriber has sufficient resources to provide for the Subscriber's
current needs and contingencies, has no need for liquidity in this investment for an indefinite period of time and can afford to sustain a complete loss with respect to the purchase of the Securities. 

    c.  Evaluation of Investment.  By reason of the Subscriber's knowledge and experience in financial and
business matters, the Subscriber is capable of evaluating the merits and risks of this investment. In
making this investment, the Subscriber has relied solely on the Subscriber's independent investigation and its own tax and legal advisors. 

    d.  Investment Purpose.  The Subscriber is acquiring the Securities solely for the Subscriber's own
account, for investment, and not with a view to the distribution or resale thereof. 

    e.  No General Solicitation; No Other Representations.  The Subscriber did not become aware of this
investment opportunity as a result of any general or public advertising or telephone solicitation by the Company or any agent on its behalf. No representations or warranties have been made to the
Subscriber with regard to an investment in the Securities or [the Series A Preferred Stock or] Common Stock into which the Note is convertible or for which the warrant
would be exercisable other than those contained herein and in the Informational Memorandum. In making a 

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decision to purchase the Note, the Subscriber has relied solely on the information contained in the Informational Memorandum and this Agreement. 

    f.  Risk of Loss.  The Subscriber is aware that there is no assurance that the Company will be operated
profitably, and that investment in the Securities is speculative and involves a significant risk of loss of the entire investment. 

    The
foregoing representations and warranties are true and accurate as of the date hereof and shall be true and accurate as of the date of delivery of this Agreement and shall survive
such delivery. 

    4.  Representations and Warranties of the Company.  The Company hereby represents and warrants to
Subscriber that as of the date of this Agreement: 

    a.  Organization, Good Standing and Qualification.  The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Washington and has all requisite corporate power and authority to carry on its business as now conducted and as proposed to be conducted.
The Company is duly qualified and authorized to transact business and is in good standing in each jurisdiction in which the failure to so qualify would have a material adverse effect on its business,
properties, prospects or financial condition. 

    b.  Authorization.  All corporate action on the part of the Company, its officers, directors and
shareholders necessary for the authorization, execution and delivery of this Agreement, the performance of all obligations of the Company hereunder and thereunder, and the authorization, issuance (or
reservation for issuance), sale and delivery of the Note and the Warrants being sold hereunder, and the [Series A Preferred Stock and] Common Stock potentially issuable
upon conversion of the Note or exercise of the Warrants has been taken or will be taken prior to the Closing, and this Agreement, the Note and the Warrants together with all related schedules and
exhibits (collectively, the "Transaction Documents") constitute, or will constitute, valid and legally binding obligations of the Company, enforceable in accordance with their respective terms, except
(i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors' rights generally, and (ii) as
limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies. The sale of Note and Warrants is not and the subsequent conversion of the Note
into, or exercise of the Warrants for, [Series A Preferred Stock or] Common Stock will not be subject to any preemptive rights or rights of first refusal that have not
been properly waived or complied with. 

    c.  Valid Issuance of Securities.  The Securities that are being, or may be, issued to Subscriber, when
issued and delivered in accordance with the terms hereof for the consideration expressed herein, will be duly and validly issued, and free of restrictions on transfer other than restrictions on
transfer under this Agreement and applicable federal and state securities laws. 

    d.  Governmental Consents.  No consent, approval, order or authorization of, or registration,
qualification, designation, declaration or filing with, any federal, state or local governmental authority on the part of the Company is required in connection with the consummation of the
transactions contemplated by this Agreement, except for filings required pursuant to applicable federal and state securities laws. 

    e.  Disclosure.  The Transaction Documents, taken as a whole, do not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements therein not misleading. 

    f.  Compliance With Securities Laws.  None of the filings made by the Company pursuant to the Securities
Exchange Act of 1934, as amended, and the rules and regulations of the Securities and Exchange Commission thereunder (collectively, the "Reports"), contain any untrue statement of material fact or
omit to state any material fact required to be stated therein or necessary to 

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make the statements therein not misleading. There has been no material adverse change to the condition or prospects of the Company as set forth in the Reports filed with the SEC as of
November 29, 2000. 

    The
foregoing representations and warranties are true and accurate as of the date hereof and shall be true and accurate as of the date of delivery of this Agreement and shall survive
such delivery. 

    5.  Reliance.  The Subscriber acknowledges that the Company is relying on the information and
representations in this Agreement. The Subscriber affirms that all of the Subscriber's answers herein are accurate and complete and may be relied upon by the Company in determining the availability of
an exemption from registration under federal and state securities laws for the offer and sale of securities of the Company. The Subscriber agrees to provide such additional confirmation of the
Subscriber's status as an Accredited Investor as the Company may reasonably request. The Company acknowledges that Subscriber is relying on information provided and representations and warranties of
the Company made in this Agreement. The Company confirms that all of the Company's representations and warranties herein are accurate and complete and may be relied upon by the Subscriber in
determining whether to subscribe for the Note and Warrants. The Company agrees to deliver a Certificate of Compliance executed by an officer of the Company certifying that all the representations and
warranties of the Company set forth herein are accurate on the date of this Agreement. 

    6.  Indemnification.  The Subscriber acknowledges that he understands the meaning and legal consequences
of the representations and warranties contained in this Agreement, and hereby agrees to indemnify and hold harmless the Company and its officers and directors from and against any and all loss,
damage, costs, liability or expense due to or arising out of a breach of any representation or warranty of the Subscriber contained herein. 

    7.  Restrictions on Transfer.  The Subscriber understands and acknowledges that there is no public market
for the Securities, that the Securities have not been registered under the Act, the Washington State Securities Act or the securities laws of any other state, and that the Company has no obligation,
either to the Subscriber or to any other person or entity, or current intention to register the Securities, and accordingly that the Securities must be held indefinitely unless they are subsequently
registered under the Act and applicable states securities laws or unless, in the opinion of counsel for the Company, a sale or transfer may be made without registration thereunder. The Subscriber
understands the effect of, and agrees to be bound by, the limitations on disposition of the Securities set forth in Rule 502(d) under the Act. The Subscriber agrees that any certificate
evidencing the Securities may bear a legend restricting the transfer of any of such stock in a manner generally consistent with the foregoing. 

    8.  No Agency Recommendation.  The Subscriber understands that no federal or state agency has recommended
or endorsed the purchase of the Securities or passed on the adequacy of the information delivered to the Subscriber. 

    9.  Acceptance of Subscription.  The Subscriber understands that this subscription may be accepted or
rejected in whole or in part by the Company in its sole and absolute discretion and if rejected the subscription price will be returned without interest. 

    10.  Other Financings.  The Subscriber understands that the Company may consider other financings of its
operations which may include sales of the Company's securities on the same or different terms than provided herein, including higher or lower prices per security than paid by the Subscriber. 

    11.  General.  This Agreement shall be governed by the laws of Washington, contains the sole and entire
understanding of the parties with respect to its subject matter and all prior negotiations, discussions, commitments and understandings previously had between the parties with respect thereto 

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are merged herein. This Agreement cannot be changed or terminated or any performance or condition waived in whole or in part except by a writing signed by the party against whom enforcement of the
change, termination or waiver is sought. The waiver of any breach of any term or condition of this Agreement shall not be deemed to constitute the waiver of any other breach of the same or any other
term or condition. 

    IN
WITNESS WHEREOF, the parties execute and agree to be bound by this Subscription Agreement. 

	

COMPANY:	
 	

TULLY'S COFFEE CORPORATION
	

 	
 	

/s/ TOM T. O'KEEFE   
 Tom T. O'Keefe, Chairman and CEO
	

SUBSCRIBER:	
 	

KWM INVESTMENTS LLC
	

 	
 	

By MIG Corporation, Its Manager
	

 	
 	

By:	
 	

/s/ JOSEPH D. WEINSTEIN   

	 	 	Its:	 	ASSISTANT SECRETARY

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TULLY'S COFFEE CORPORATION CONVERTIBLE PROMISSORY NOTE SUBSCRIPTION AGREEMENTPrepared by MERRILL CORPORATION www.edgaradvantage.com

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    NEITHER THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933
ACT"), OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS PURSUANT TO SEC RULE 144 OR UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
1933 ACT AND THE SECURITIES LAWS OF THE APPLICABLE STATES COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE
COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND THE SECURITIES LAWS OF THE STATES.  

  
 

    Warrant No. 23, December 14, 2000    
  

 
 

COMMON STOCK PURCHASE WARRANT    
  

    Tully's Coffee Corporation, a Washington corporation (the "Company"), hereby grants to KWM INVESTMENTS LLC, a Washington limited liability company, or its
registered assigns or transferees (each being referred to herein as a "holder" and collectively as the "holders") the right to purchase, at any time and from time to time on and after the date hereof
until the Expiration Date (as defined below), up to 240,000 fully paid and non-assessable shares of Common Stock of the Company (the "Common Stock"), on the terms and subject to the
conditions set forth below 

1.  Exercise, Vesting and Expiration of Warrant.  

    1.1  Exercise.  Subject to adjustment as hereinafter provided, the rights represented by this Warrant are
exercisable on and after the date hereof (the "Exercise Date") until the Expiration Date, at a price per share (the "Exercise Price") of the Common Stock issuable hereunder (hereinafter, "Warrant
Shares") of One cent ($0.01) per Warrant Share. The total Exercise Price shall be payable in cash by certified or official bank check or immediately available funds. Alternatively, as provided in
Section 8, the Holder hereof may surrender this certificate (with the form of Notice of Exercise duly executed) and direct the Company to issue the net number of Warrant Shares issuable
pursuant to a Net Exercise (as defined in Section 8) of this Warrant, in whole or in part from time to time. 

    1.2  Procedure.  Upon surrender of this Warrant with a duly executed Notice of Exercise in the form of
Annex A attached hereto, together with payment of the total Exercise Price for the Warrant Shares purchased (or, if applicable, instructions with respect to a Net Exercise in accordance with
Section 8), at the Company's principal executive offices presently located at 3100 Airport Way South, Seattle, WA, 98134, or at such other address as the Company shall have advised the holder
in writing (the "Designated Office"), the holder shall be entitled to receive a certificate or certificates for the Warrant Shares so purchased. The Company agrees that the Warrant Shares shall be
deemed to have been issued to the holder as of the close of business on the date on which this Warrant shall have been surrendered together with the Notice of Exercise and payment for such Warrant
Shares. 

    1.3  Vesting.  This Warrant is fully vested and is not callable or redeemable by the Company. 

    1.4  Term of Warrant.  This Stock Purchase Warrant (hereinafter, this "Warrant") shall expire and be of
no further force or effect upon the earlier of: 

    (a) the
tenth (10th) anniversary of the date hereof (the "Expiration Date"); or 

    (b) the
completion by the Company of a "Qualified Public Offering" (as defined herein) provided, that the Company shall deliver to the Holder notice of the Qualified
Public Offering, and the Holder's right to exercise the Warrants, no less than thirty (30) days before the date scheduled for the effectiveness of the Registration Statement relating thereto.
For purposes of this subsection 1.4(b), "Qualified Public Offering" shall mean the consummation of the Corporation's first sale of its Common Stock to the public pursuant to a registration statement
on Form S-1 or 

 

Form SB-2 (or any successor form) under the Securities Act of 1933, as amended, at an aggregate price to the public of at least $15 million and a per share price to the public of at
least $5 (as adjusted for stock splits, combinations, recapitalizations and the like). 

2.  Transfer; Issuance of Stock Certificates: Restrictive Legends.  

    2.1  Transfer.  Subject to compliance with the restrictions on transfer set forth in this
Section 2 and the legends set forth below, each transfer of this Warrant and all rights hereunder, in whole or in part, shall be registered on the books of the Company to be maintained for such
purpose, upon surrender of this Warrant at the Designated Office, together with a written assignment of this Warrant in the form of Annex B attached hereto duly executed by the holder or its agent or
attorney. Upon such surrender and delivery, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denominations specified in such
instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, if any. A Warrant, if properly assigned in compliance with the
provisions hereof, may be exercised by the new holder for the purchase of Warrant Shares without having a new Warrant issued. Prior to due presentment for registration of transfer thereof, the Company
may deem and treat the registered holder of this Warrant as the absolute owner hereof (notwithstanding any notations of ownership or writing thereon made by anyone other than a duly authorized officer
of the Company) for all purposes and shall not be affected by any notice to the contrary. All Warrants issued upon any assignment of Warrants shall be the valid obligations of the Company, evidencing
the same rights, and entitled to the same benefits as the Warrants surrendered upon such registration of transfer or exchange. 

    2.2  Stock Certificates.  Certificates for the Warrant Shares shall be delivered to the holder within a
reasonable time after the rights represented by this Warrant shall have been exercised pursuant to Section 1 (but in any event no later than twenty (20) business days thereafter), and a
new Warrant representing the shares of Common Stock, if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the holder within such time period. The
issuance of certificates for Warrant Shares upon the exercise of this Warrant shall be made without charge to the holder hereof including, without limitation, any documentary, stamp or similar tax
that may be payable in respect thereof; provided, however, that the Company shall not be required to pay any income tax to which the holder hereof may be subject in connection with the issuance of
this Warrant or the Warrant Shares. 

    2.3  Restrictive Legends.  

    2.3.1  Share Legends.  Except as otherwise provided in this Section 2, each certificate for
Warrant Shares initially issued upon the exercise of this Warrant, and each certificate for Warrant Shares issued to any subsequent transferee of any such certificate, shall be stamped or otherwise
imprinted with a legend in substantially the following form: 

THE
SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR THE SECURITIES LAWS OF ANY STATE. THESE SHARES
MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR EXEMPTION THEREFROM UNDER SAID ACT AND LAWS. 

    2.3.2  Warrant Legends.  Except as otherwise provided in this Section 2, each Warrant issued upon
transfer shall be stamped or otherwise imprinted with a legend in substantially the following form: 

NEITHER
THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR THE SECURITIES LAWS OF ANY STATE, 

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AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS PURSUANT TO SEC RULE 144 OR UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT AND THE SECURITIES LAWS OF THE
APPLICABLE STATES COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER,
ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND THE SECURITIES LAWS OF THE STATES. 

    2.3.3  Removal of Legends.  Notwithstanding the foregoing, the legend requirements of Sections 2.3.1 and
2.3.2 shall terminate as to any particular Warrant or Warrant Share when the Company shall have received from the holder thereof an opinion of counsel in form and substance satisfactory to the Company
that such legend is not required in order to ensure compliance with the Securities Act. Whenever the restrictions imposed by this Section 2 shall terminate, the holder hereof or of Warrant
Shares, as the case may be, shall be entitled to receive from the Company, without cost to such holder, a new Warrant or certificate for Warrant Shares of like tenor, as the case may be, without such
restrictive legend. 

3.  Adjustment of Number of Shares; Exercise Price: Nature of Securities Issuable Upon Exercise of Warrants.  

    3.1  Exercise Price: Adjustment of Number of Shares.  The Exercise Price set forth in Section 1
hereof and the number of shares purchasable hereunder shall be subject to adjustment from time to time as hereinafter provided. 

    3.1.1  Stock Splits, Stock Dividends and Reverse Stock Splits.  In case at any time the Company shall
split or subdivide the outstanding shares of Common Stock into a greater number of shares, or shall declare and pay any stock dividend with respect to its outstanding stock that has the effect of
increasing the number of outstanding shares of Common Stock, the Exercise Price in effect immediately prior to such subdivision or stock dividend, shall be proportionately reduced and the number of
Warrant Shares purchasable pursuant to this Warrant immediately prior to such subdivision or stock dividend shall be proportionately increased, and conversely, in case at any time the Company shall
combine its outstanding shares of Common Stock into a smaller number of shares, the Exercise Price in effect immediately prior to such combination shall be proportionately increased and the number of
Warrant Shares purchasable upon the exercise of this Warrant immediately prior to such combination shall be proportionately reduced. By way of example, in the event the Company implements a
two-for-one stock split, the holder of a Warrant to purchase 100 Warrant Shares would, following such stock split, be entitled to purchase 200 Warrant Shares, and the Exercise
Prices therefor set forth in Section 1.1 would each be halved; accordingly, a full exercise of said Warrant would result in a purchase of 200 Warrant Shares at an Exercise Price of $0.005 per
Warrant Share, for an aggregate purchase price of $1.00. 

    3.1.2  Merger, Sale of Assets, etc.  If at any time while this Warrant, or any portion thereof, is
outstanding and unexpired there shall be a reorganization (other than a combination, reclassification, exchange, or subdivision of shares as provided in Sections 3.1.1 and 3.1.3), merger or
consolidation of the Company with or into another corporation in which the Company is not the surviving entity, or a merger in which the Company is the surviving entity but the shares of the Company's
capital stock outstanding immediately prior to the merger are convened by virtue of the merger into other property, whether in the form of securities, cash, or otherwise, or a sale or transfer of the
Company's properties and assets as, or substantially as, an entirety to any other person, then, as a part of such reorganization, merger, consolidation, sale or transfer, lawful 

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provision shall be made so that the holder of this Warrant shall thereafter be entitled to receive upon exercise of this Warrant, during the period specified herein and upon payment of the Exercise
Price then in effect, the number of shares of stock or other securities or cash or property of the successor corporation resulting from such reorganization, merger, consolidation, sale or transfer
that a holder of the shares deliverable upon exercise of this Warrant would have been entitled to receive in such reorganization, consolidation, merger, sale or transfer if this warrant had been
exercised immediately before such reorganization, consolidation, merger, sale or transfer, all subject to final adjustment as provided in this Section 3. The foregoing provisions of this
Section 3.1.2 shall similarly apply to successive reorganizations, consolidations, mergers, sales and transfers and to the stock and securities of any other corporation that are at the time
receivable upon the exercise of this Warrant. If the per share consideration payable to the holder hereof for shares in connection with any such transaction is in a form other than cash or securities,
then the value of such consideration shall be determined in good faith by the Company' s Board of Directors. In all events, appropriate adjustment shall be made in the application of the provisions of
this Warrant with respect to the rights and interests of the holder hereof after the transaction, to the end that the provisions of this Warrant shall be applicable after that event, as near as
reasonably may be, in relation to any shares or other property deliverable after that event upon exercise of this Warrant. 

    3.1.3  Reclassification, etc.  If the Company, at any time while this Warrant, or any portion thereof,
remains outstanding and unexpired, shall, by the reclassification or exchange of securities or otherwise, change any of the securities as to which purchase rights under this Warrant exist into the
same or a different number of securities of any other class or classes, this Warrant shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as
the result of such change with respect to the securities that were subject to the purchase rights under this Warrant immediately prior to such reclassification, exchange, or other change and the
Exercise Price therefor in effect immediately prior to such reclassification, exchange or other change, and each of the subsequent applicable Exercise Prices, shall be appropriately adjusted, all
subject to further adjustment as provided in this Section 3. 

    3.2  Dissolution, Liquidation or Wind-Up.  In case the Company shall, at any time prior to
the exercise of this Warrant, dissolve, liquidate or wind up its affairs, the holder hereof shall be entitled, upon the exercise of this Warrant, to receive, in lieu of the Warrant Shares which the
holder would have been entitled to receive, the same kind and amount of assets as would have been issued, distributed or paid to such holder upon any such dissolution, liquidation or winding up with
respect to such Warrant Shares, had such holder hereof been the holder of record of the Warrant Shares receivable upon the exercise of this Warrant on the record date for the determination of those
persons entitled to receive any such liquidating distribution. The Company shall provide the Holder notice of any such liquidation, dissolution or winding up and of the Holder's right to exercise this
Warrant at least thirty (30) days prior to the date scheduled for the effective date thereof. 

    3.3  Certificate.  In each case of an adjustment in the Exercise Prices, number of Warrant Shares or
other stock, securities or property receivable upon the exercise of this Warrant, the Company shall compute, certified by the Company's Chief Financial officer, such adjustment in accordance with the
terms of this Warrant and prepare a certificate setting forth such adjustment and showing in detail the facts upon which such adjustment is based, including a statement of (i) the number of
shares of Common Stock of each class outstanding or deemed to be outstanding, (ii) the adjusted Exercise Price and (iii) the number of Warrant Shares issuable upon exercise of this
Warrant. The Company will forthwith mail a copy of each such certificate to the holder hereof In the event that the holder disputes such adjustment, the holder shall be entitled to request the
Company's independent certified public accountants to certify such adjustment, which in the absence of manifest error shall be final and binding. Upon determination of such adjustment, the Board of
Directors shall forthwith make the 

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adjustments described therein. No certificate shall be required under this section unless the adjustment of the Exercise Prices would require an increase or decrease of at least $.01 per Warrant Share
in such price; provided that any adjustments which by reason of this sentence are not required to be made shall be carried forward and shall be made at the time of the next subsequent adjustment
which, together with any adjustment(s) so carried forward, shall require an increase or decrease of at least $.01 per Warrant Share in the Exercise Prices. 

4.  Registration; Exchange and Replacement of Warrant; Reservation of Shares.  

    4.1  Warrant Register.  The Company shall keep at the Designated Office a register in which the Company
shall provide for the registration, transfer and exchange of this Warrant. The Company shall not at any time, except upon the dissolution, liquidation or winding up of the Company, close such register
so as to result in preventing or delaying the exercise or transfer of this Warrant. 

    4.2  Named Holder as Owner.  The Company may deem and treat the person in whose name this Warrant is
registered as the holder and owner hereof for all purposes and shall not be affected by any notice to the contrary, until presentation of this Warrant for registration or transfer as provided in this
Section 4. 

    4.3  Replacement in Event of Loss, Theft, etc.  Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this Warrant and (in case of loss, theft or destruction) of indemnity satisfactory to it, and (in the case of mutilation) upon
surrender and cancellation of this Warrant, the Company will (in the absence of notice to the Company that the Warrant has been acquired by a bona fide
purchaser) make and deliver a new Warrant of like tenor, in lieu of this Warrant without requiring the posting of any bond or the giving of any security. 

    4.4  Shares Reserved.  The Company shall at all times reserve and keep available out of its authorized
shares of Common Stock, solely for the purpose of issuance upon the exercise of this Warrant, such number of shares of Common Stock as shall be issuable upon the exercise hereof. The Company covenants
and agrees that, upon exercise of this Warrant and payment of the Exercise Price therefor, if applicable, all Warrant Shares issuable upon such exercise shall be duly and validly issued, fully paid
and non-assessable. 

5.  Fractional Warrants and Fractional Shares.  

    If the number of Warrant Shares purchasable upon the exercise of this Warrant is adjusted pursuant to Section 3 hereof, the Company shall nevertheless
not be required to issue fractions of shares, upon exercise of this Warrant or otherwise, or to distribute certificates that evidence fractional shares. With respect to any fraction of a share called
for upon any exercise hereof, the Company shall pay to the holder an amount in cash equal to such fraction multiplied by the current market value of such fractional share as may be prescribed by the
Board of Directors of the Company. 

6.  Notices.  

    All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been duly made when delivered personally, or
mailed by registered or certified mail, return receipt requested, or telecopied or telexed and confirmed in writing and delivered personally or mailed by registered or certified mail, return receipt
requested: 

    (a) If
to the holder of this Warrant, to the address of such holder as shown on the books of the Company; or 

5

 

	(b)
	If
to the Company, as follows: 

Tully's
Coffee Corporation

3100 Airport Way South

Seattle, WA 98134

Telephone: (206)233-2070

Facsimile: (206)233-2077 

or
at such other address as the holder or the Company may hereafter have advised the other. 

7.  Successors.  

    Subject to the restrictions set forth in the Shareholders' Agreement, all the covenants, agreements, representations and warranties contained in this warrant
shall bind the parties hereto and their respective heirs, executors, administrators, distributees, successors assigns and transferees. 

8.  Net Exercise Rights.  

    In lieu of exercising this Warrant by payment of the Exercise Price in cash, at the Holder's option, this Warrant may be exercised in whole or in part from
time to time as follows (a "Net Exercise"): Upon written notice to the Company that the Holder intends to exercise this Warrant in whole or in part by a Net Exercise, the Holder shall be entitled to
receive the number of Warrant Shares equal to the quotient determined by dividing [(A-B) × C] where: 

	A	 	=	 	the fair market value of one Warrant Share at the time of exercise
	B	 	=	 	the Exercise Price per share then in effect
	C	 	=	 	the number of Warrant Shares issuable upon such exercise if the Warrant, or part thereof, had the Warrant been exercised with a cash payment.

The
fair market value of one Warrant Share shall be determined in good faith by the Board of Directors of the Company. Upon request of the Holder, the Company shall provide the Holder an officer's
certificate certifying the Board of Director's determination of the then fair market value of a Warrant Share. 

9.  Registration Rights.  

    The Company shall grant Holder registration rights for the Warrant Shares that are no less favorable than those accruing to holders of Company's
Series A Preferred Stock, if any. 

10. Law Governing.  

    This Warrant shall be construed and enforced in accordance with, and governed by, the laws of the State of Washington (not including the choice of law rules
thereof) regardless of the jurisdiction of creation or domicile of the Company or its successors or of the holder at any time hereof. 

11. Entire Agreement; Amendments and Waivers.  

    This Warrant sets forth the entire understanding of the parties with respect to the transactions contemplated hereby. The failure of any party to seek redress
for the violation or to insist upon the strict performance of any term of this Warrant shall not constitute a waiver of such term and such party shall be entitled to enforce such term without regard
to such forbearance. This Warrant may be amended, and any breach of or compliance with any covenant, agreement, warranty or representation may be waived, only if the Company has obtained the written
consent or written waiver of the holder, and then such consent or waiver shall be effective only in the specific instance and for the specific purpose for which given. 

6

 

12. Severability; Headings.  

    If any term of this Warrant as applied to any person or to any circumstance is prohibited, void, invalid or unenforceable in any jurisdiction, such term shall,
as to such jurisdiction, be ineffective to the extent of such prohibition or invalidity without in any way affecting any other term of this Warrant or affecting the validity or enforceability of this
Warrant or of such provision in any other jurisdiction. The Section headings in this Warrant have been inserted for purposes of convenience only and shall have no substantive effect. 

    IN
WITNESS WHEREOF, the Company has caused this Warrant to be duly executed as of the date first written above. 

	 	 	TULLY'S COFFEE CORPORATION
	

 	
 	

/s/ TOM T. O'KEEFE   
 Tom T. O'Keefe, Chairman and CEO

7

  

 
 

ANNEX A
  
    NOTICE OF EXERCISE
  
    (To be executed upon partial or full
  exercise of the within Warrant)    
  

To
TULLY'S COFFEE CORPORATION: 

    The
undersigned hereby irrevocably elects to exercise the right to purchase      shares of Common Stock covered by the within Warrant according to the conditions hereof
and herewith makes payment of the Exercise Price of such shares in full in the amount of $         . 

	

 	
 	

 	
 	

By:	
 	

 (Signature of Registered Holder)
	Dated:	 	
	 	 	 	 

A-1

  

 
 

ANNEX B
  
    ASSIGNMENT FORM    
  

    FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby sells, assigns and transfers unto the Assignee named below all of the rights of the
undersigned under this Warrant, with respect to the number of shares of Common Stock set forth below: 

	Name and Address of Assignee	 	No. of Shares of Common Stock
	

 	
 	

 

and
does hereby irrevocably constitute and appoint                    attorney-in-fact to register such transfer onto the books of—maintained for the
purpose, with full power
of substitution in the premises. The undersigned hereby certifies that this assignment complies in all respects with the provisions of that certain Warrant Agreement dated            , 1998.

	Dated:	 	
	 	Print Name:	 	

	 	 	 	 	Signature:	 	

	 	 	 	 	Witness:	 	

NOTICE:
The signature on this assignment must correspond with the name as written upon the face of this Warrant in every particular, without alteration or enlargement or any change whatsoever. 

B-1

QuickLinks

Warrant No. 23, December 14, 2000

COMMON STOCK PURCHASE WARRANT

ANNEX A NOTICE OF EXERCISE (To be executed upon partial or full exercise of the within Warrant)

ANNEX B ASSIGNMENT FORM

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