Unassociated Document


    
      CREDIT
        AGREEMENT

       

      THIS
        CREDIT AGREEMENT
        (this
“Agreement”)
        is
        entered into as of November 26, 2008, by and between PEET’S
        COFFEE & TEA, INC.,
        a
        Washington corporation (“Borrower”),
        and
WELLS FARGO
        BANK, NATIONAL ASSOCIATION
        (“Bank”).

      


      RECITALS

       

      Borrower
        has requested that Bank extend or continue credit to Borrower as described
        below, and Bank has agreed to provide such credit to Borrower on the terms
        and
        conditions contained herein.

       

      NOW,
        THEREFORE,
        for
        valuable consideration, the receipt and sufficiency of which are hereby
        acknowledged, Bank and Borrower hereby agree as follows:

      


      ARTICLE
        I

      CREDIT
        TERMS

       

      SECTION
        1.1. LINE
        OF
        CREDIT.

       

      (a) Line
        of Credit.
        Subject
        to the terms and conditions of this Agreement, Bank hereby agrees to make
        advances to Borrower from time to time up to and including
        December 1, 2009, or if Borrower duly exercises extension option under
        and pursuant to the terms of the Line of Credit Note (defined below), December
        1, 2010, not to exceed at any time the aggregate principal amount of Twenty-five
        Million Dollars ($25,000,000.00) (“Line
        of Credit”),
        the
        proceeds of which shall be used to finance Borrower’s repurchase of stock and to
        fund working capital, capital expenditures and other needs of its operating
        subsidiary, Peet’s Operating Company, Inc. (“POCI”).
        Borrower’s obligation to repay advances under the Line of Credit shall be
        evidenced by a promissory note dated as of November 26, 2008 (“Line
        of Credit Note”),
        all
        terms of which are incorporated herein by this reference.

       

      (b) Borrowing
        and Repayment.
        Borrower may from time to time during the term of the Line of Credit borrow,
        partially or wholly repay its outstanding borrowings, and reborrow, subject
        to
        all of the limitations, terms and conditions contained herein or in the Line
        of
        Credit Note; provided however, that the total outstanding borrowings under
        the
        Line of Credit shall not at any time exceed the maximum principal amount
        available thereunder, as set forth above. 

       

      SECTION
        1.2. INTEREST/FEES.

       

      (a) Interest.
        The
        outstanding principal balance of the Line of Credit shall bear interest at
        the
        rate of interest set forth in the Line of Credit Note.

       

      (b) Computation
        and Payment.
        Interest shall be computed on the basis of a 360-day year, actual days elapsed.
        Interest shall be payable at the times and place set forth in each promissory
        note or other instrument or document required hereby.

       

      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

      

       

      (c) Commitment
        Fee.
        Borrower shall pay to Bank a non-refundable commitment fee for the Line of
        Credit equal to $43,750.00, which fee shall be due and payable in full upon
        the
        execution of this Agreement. If Borrower duly exercises the extension option
        under the Line of Credit Note, Borrower shall pay to Bank an extension
        commitment fee as provided in the Line of Credit Note. 

       

      SECTION
        1.3. COLLATERAL.

       

      As
        security for all indebtedness and other obligations of Borrower to Bank under
        the Line of Credit, Borrower hereby grants to Bank security interests of
        first
        priority (except for Permitted Liens) in all Borrower’s personal
        property.

       

      As
        security for all indebtedness and other obligations of Borrower to Bank under
        the Line of Credit, Borrower shall cause POCI to grant to Bank security
        interests of first priority (except for Permitted Liens) in all POCI’S personal
        property.

       

      All
        of
        the foregoing shall be evidenced by and subject to the terms of such security
        agreements, financing statements and other documents as Bank shall reasonably
        require, all in form and substance satisfactory to Bank; provided that Bank
        shall not require any leasehold mortgages, certificates of title for vehicles
        or
        other assets subject thereto, landlord waivers or acknowledgements (other
        than
        Emeryville Properties LLC) or filings with the US Patent and Trademark Office.
        Borrower shall pay to Bank immediately upon demand the full amount of all
        charges, costs and expenses (to include fees paid to third parties and all
        allocated costs of Bank personnel), expended or incurred by Bank in connection
        with any of the foregoing security, including without limitation, filing
        and
        recording fees and costs of appraisals, audits and title insurance.


       

      SECTION
        1.4. GUARANTY.
        The
        payment and performance of all indebtedness and other obligations of Borrower
        to
        Bank shall be guaranteed by POCI in the principal amount of Twenty-five Million
        Dollars ($25,000,000.00), as evidenced by and subject to the terms of a guaranty
        in form and substance satisfactory to Bank.

      


      ARTICLE
        II

      REPRESENTATIONS
        AND WARRANTIES

       

      Borrower
        makes the following representations and warranties to Bank, which
        representations and warranties shall survive the execution of this Agreement
        and
        shall continue in full force and effect until the full and final payment,
        and
        satisfaction and discharge, of all obligations of Borrower to Bank subject
        to
        this Agreement.

       

      SECTION
        2.1. LEGAL
        STATUS.
        Borrower is a corporation, duly organized and existing and in good standing
        under the laws of Washington, and POCI is a corporation, duly organized and
        existing and in good standing under the laws of Virginia. Borrower and each
        of
        its subsidiaries is qualified or licensed to do business (and is in good
        standing as a foreign corporation, if applicable) in all jurisdictions in
        which
        the failure to so qualify or to be so licensed could have a material adverse
        effect on Borrower or such subsidiary.

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

      SECTION
        2.2. AUTHORIZATION
        AND VALIDITY.
        This
        Agreement and each promissory note, contract, instrument and other document
        required hereby or at any time hereafter delivered to Bank in connection
        herewith (collectively, the “Loan
        Documents”)
        have
        been duly authorized, and upon their execution and delivery in accordance
        with
        the provisions hereof will constitute legal, valid and binding agreements
        and
        obligations of Borrower or the party which executes the same, enforceable
        in
        accordance with their respective terms, subject to the effect of bankruptcy,
        insolvency, reorganization, moratorium or similar laws affecting the
        enforceability of creditor’s rights generally and to general principles of
        equity.

       

      SECTION
        2.3. NO
        VIOLATION.
        The
        execution, delivery and performance by Borrower and POCI of each of the Loan
        Documents to which it is a party do not violate any material provision of
        any
        law or regulation, or contravene any provision of the Articles of Incorporation
        or By-Laws of Borrower or POCI, or result in any breach of or default under
        any
        material contract, obligation, indenture or other material instrument to
        which
        Borrower or POCI is a party or by which Borrower or POCI may be
        bound.

       

      SECTION
        2.4. LITIGATION.
        There
        are no pending, or to the best of Borrower’s knowledge threatened, actions,
        claims, investigations, suits or proceedings by or before any governmental
        authority, arbitrator, court or administrative agency which would reasonably
        be
        expected to have a material adverse effect on the financial condition or
        operation of Borrower or POCI other than those disclosed by Borrower to Bank
        in
        writing (including as disclosed pursuant to Borrower’s Forms 8-K, 10-K and 10-Q
        filed with the United States Securities and Exchange Commission) prior to
        the
        date hereof.

       

      SECTION
        2.5. CORRECTNESS
        OF FINANCIAL STATEMENT.
        The
        consolidated annual financial statement of Borrower dated December 30, 2007,
        and
        all interim financial statements delivered to Bank since said date, true
        copies
        of which have been delivered by Borrower to Bank prior to the date hereof,
        (a)
        are complete and correct and present fairly the financial condition of Borrower
        and POCI, (b) disclose all liabilities of Borrower and POCI that are required
        to
        be reflected or reserved against under generally accepted accounting principles
        (“GAAP”),
        whether liquidated or unliquidated, fixed or contingent, and (c) have been
        prepared in accordance with generally accepted accounting principles
        consistently applied. Since the dates of such financial statements there
        has
        been no material adverse change in the financial condition of Borrower or
        POCI,
        nor has Borrower or POCI mortgaged, pledged, granted a security interest
        in or
        otherwise encumbered any of its assets or properties except for Permitted
        Liens
        or in favor of Bank or as otherwise permitted by Bank in writing.

       

      SECTION
        2.6. INCOME
        TAX RETURNS.
        Borrower has no knowledge of any pending assessments or adjustments of its
        income tax payable with respect to any year.

       

      SECTION
        2.7. NO
        SUBORDINATION.
        There
        is no agreement, indenture, contract or instrument to which Borrower is a
        party
        or by which Borrower may be bound that requires the subordination in right
        of
        payment of any of Borrower’s obligations subject to this Agreement to any other
        obligation of Borrower.

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

      SECTION
        2.8. PERMITS,
        FRANCHISES.
        Each of
        Borrower and POCI possesses, and Borrower will and will cause POCI to hereafter
        possess, all permits, consents, approvals, franchises and licenses required
        and
        rights to all trademarks, trade names, patents, and fictitious names, if
        any,
        necessary to enable it to conduct the business in which it is now engaged
        in
        compliance with applicable law, except to the extent the failure to so possess
        would not reasonably be expected to have a material adverse effect on Borrower
        or any of its subsidiaries.

       

      SECTION
        2.9. ERISA.
        Borrower and its subsidiaries each (i) is in compliance in all material respects
        with all applicable provisions of the Employee Retirement Income Security
        Act of
        1974, as amended or recodified from time to time (“ERISA”);
        (ii)
        has not violated any provision of any defined employee pension benefit plan
        (as
        defined in ERISA) maintained or contributed to by it (each, a “Plan”); (iii) has
        had no Reportable Event as defined in ERISA occur and be continuing with
        respect
        to any Plan initiated by it; (iv) has met its minimum funding requirements
        under
        ERISA with respect to each Plan; and (v) represent and warrant that each
        Plan
        will be able to fulfill its benefit obligations as they come due in accordance
        with the applicable Plan documents and under generally accepted accounting
        principles.

       

      SECTION
        2.10. OTHER
        OBLIGATIONS.
        Except
        as disclosed to Bank prior to the date hereof, neither Borrower nor POCI
        is in
        default on any obligation for borrowed money, any purchase money obligation
        or
        any other material lease, commitment, contract, instrument or
        obligation.

       

      SECTION
        2.11. ENVIRONMENTAL
        MATTERS.
        Except
        as disclosed by Borrower to Bank in writing prior to the date hereof, Borrower
        and its subsidiaries each are in compliance in all material respects with
        all
        applicable federal or state environmental, hazardous waste, health and safety
        statutes, and any rules or regulations adopted pursuant thereto, which govern
        or
        affect any of Borrower’s operations and/or properties, including without
        limitation, the Comprehensive Environmental Response, Compensation and Liability
        Act of 1980, the Superfund Amendments and Reauthorization Act of 1986, the
        Federal Resource Conservation and Recovery Act of 1976, and the Federal
        Toxic Substances Control Act, as any of the same may be amended, modified
        or
        supplemented from time to time. None of the operations of Borrower or any
        of its
        subsidiaries is the subject of any federal or state investigation evaluating
        whether any remedial action involving a material expenditure is needed to
        respond to a release of any toxic or hazardous waste or substance into the
        environment. Neither Borrower nor any subsidiary has any material contingent
        liability in connection with any release of any toxic or hazardous waste
        or
        substance into the environment.

      


      ARTICLE
        III

      CONDITIONS

       

      SECTION
        3.1. CONDITIONS
        OF INITIAL EXTENSION OF CREDIT.
        The
        obligation of Bank to extend the initial credit extension contemplated by
        this
        Agreement is subject to the fulfillment to Bank’s satisfaction of all of the
        following conditions:

       

      (a) Approval
        of Bank Counsel.
        All
        legal matters incidental to the extension of credit by Bank shall be
        satisfactory to Bank’s counsel.

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

       

      (b) Documentation.
        Bank
        shall have received, in form and substance satisfactory to Bank, each of
        the
        following, duly executed:

      


      
        	
              	(i)	
                This
                  Agreement and each promissory note or other instrument or document
                  required hereby.

              


      

      
        	
              	(ii)	
                Certificate
                  of Incumbency.

              


      

      
        	
              	(iii)	
                Corporate
                  Resolution: Borrowing.

              


      

      
        	
              	(iv)	
                Corporate
                  Resolution: Continuing Guaranty.

              


      

      
        	
              	(v)	
                Corporation
                  Resolution: Third Party Collateral and Automatic Transfer
                  Authorization.

              


      

      
        	
              	(vi)	
                Disbursement
                  Order.

              


      

      
        	
              	(vii)	
                Continuing
                  Guaranty.

              


      

      
        	
              	(viii)	
                Security
                  Agreement.

              


      

      
        	
              	(ix)	
                Third
                  Party Security Agreement.

              


      

      
        	
              	(x)	
                Agreement
                  and Acknowledgment of Security
                  Interest.

              


      

      
        	
              	(xi)	
                Notices
                  to Warehouse of Security Interest.

              


      

      
        	
              	(xii)	
                Such
                  other documents as Bank may require under any other Section of
                  this
                  Agreement.

              


      

       

      (c) Financial
        Condition.
        There
        shall have been no material adverse change, as determined by Bank, in the
        financial condition or business of Borrower or any guarantor hereunder, nor
        any
        material decline, as determined by Bank, in the market value of any collateral
        required hereunder or a substantial or material portion of the assets of
        Borrower or any such guarantor.

       

      (d) Insurance.
        Borrower shall have delivered to Bank evidence of insurance coverage on all
        Borrower’s and POCI’S property, in form, substance, amounts, covering risks and
        issued by companies satisfactory to Bank, and where required by Bank, with
        loss
        payable endorsements in favor of Bank.

       

      SECTION
        3.2. CONDITIONS
        OF EACH EXTENSION OF CREDIT.
        The
        obligation of Bank to make each extension of credit requested by Borrower
        hereunder shall be subject to the fulfillment to Bank’s satisfaction of each of
        the following conditions:

       

      (a) Compliance.
        The
        representations and warranties contained herein and in each of the other
        Loan
        Documents shall be true in all material respects on and as of the date of
        the
        signing of this Agreement and on the date of each extension of credit by
        Bank
        pursuant hereto, with the same effect as though such representations and
        warranties had been made on and as of each such date, and on each such date,
        no
        Event of Default as defined herein, and no condition, event or act which
        with
        the giving of notice or the passage of time or both would constitute such
        an
        Event of Default, shall have occurred and be continuing or shall
        exist.

       

      (b) Documentation.
        Bank
        shall have received all additional documents which may be required in connection
        with such extension of credit.

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

      


      ARTICLE
        IV

      AFFIRMATIVE
        COVENANTS

       

      Borrower
        covenants that so long as Bank remains committed to extend credit to Borrower
        pursuant hereto, or any liabilities (whether direct or contingent, liquidated
        or
        unliquidated) of Borrower to Bank under any of the Loan Documents remain
        outstanding, and until payment in full of all obligations of Borrower subject
        hereto, Borrower shall, unless Bank otherwise consents in writing:

       

      SECTION
        4.1. PUNCTUAL
        PAYMENTS.
        Punctually pay all principal, interest, fees or other liabilities due under
        any
        of the Loan Documents at the times and place and in the manner specified
        therein.

       

      SECTION
        4.2. ACCOUNTING
        RECORDS.
        Maintain, and cause POCI to maintain, adequate books and records in accordance
        with generally accepted accounting principles consistently applied, and permit
        any representative of Bank, at any reasonable time and upon reasonable advance
        notice, to inspect, audit and examine such books and records, to make copies
        of
        the same, and to inspect the properties of Borrower and POCI.

       

      SECTION
        4.3. FINANCIAL
        STATEMENTS; REPORTS.
        Provide
        to Bank all of the following, in form and detail satisfactory to
        Bank:

       

      (a) not
        later
        than 90 days after and as of the end of each fiscal year, consolidated financial
        statements of Borrower, audited and accompanied by a report and opinion of
        Deloitte & Touche LLP or another independent certified public accountant
        reasonably acceptable to Bank, which financial statements are to include
        balance
        sheet, income statement, statement of cash flow and all supporting schedules
        and
        footnotes;

       

      (b) not
        later
        than 45 days after and as of the end of each fiscal quarter, consolidated
        financial statements of Borrower, which financial statements are to include
        balance sheet, income statement and statement of cash flow;

       

      (c) contemporaneously
        with the delivery of any annual and quarterly financial statements of Borrower
        required hereby, a certificate of the chief financial officer of Borrower
        that
        said financial statements fairly present the consolidated financial position
        and
        results of operations of Borrower as of and for the periods presented, subject
        in the case of quarterly financial statements, to normal year-end adjustments
        and the absence of footnotes, and that to the best knowledge of such officer,
        there exists no Event of Default nor any condition, act or event which with
        the
        giving of notice or the passage of time or both would constitute an Event
        of
        Default, and including covenant calculation information on a schedule in
        the
        form attached as Exhibit A hereto;

       

      (d)
        promptly,
        or if applicable, within the time frame required for delivery of items required
        above that may be included therein, copies of all proxy statements, financial
        statements, reports, and notices sent or made available generally by Borrower
        to
        its security holders or to any holders of its debt and all registration
        statements, regular, periodic and special reports filed with the Securities
        and
        Exchange Commission or any governmental authority that may be substituted
        therefor, or with any national securities exchange;
        provided
        that any such proxy statements, financial statements, reports and notices
        shall
        be deemed to have been provided to Bank to the extent publicly available
        on the
        website of the United States Securities and Exchange Commission;

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

         

      

      (e) from
        time
        to time such other information as Bank may reasonably request.

       

      SECTION
        4.4. COMPLIANCE.
        Preserve and maintain and cause POCI to preserve and maintain, all licenses,
        permits, governmental approvals, rights, privileges and franchises necessary
        for
        the conduct of its business (other than such approvals, rights, privileges
        and/or franchises, the failure to preserve or maintain would not reasonably
        be
        expected to result in a material adverse effect on Borrower or any of its
        subsidiaries); and comply with the provisions of all documents pursuant to
        which
        it is organized and/or which govern its continued existence and with the
        requirements of all laws, rules, regulations and orders of any governmental
        authority applicable to it and/or its business, except where non-compliance
        would not reasonably be expected to result in a material adverse effect on
        Borrower or any of its subsidiaries.

       

      SECTION
        4.5. INSURANCE.
        Maintain and keep in force, and cause POCI to maintain and keep in force,
        for
        each business in which it is engaged, insurance of the types and in amounts
        customarily carried in similar lines of business, including but not limited
        to
        fire, extended coverage, public liability, flood, property damage and workers’
compensation, with all such insurance carried with companies and in amounts
        reasonably satisfactory to Bank, and deliver to Bank from time to time at
        Bank’s
        request schedules setting forth all insurance then in effect. 

       

      SECTION
        4.6. FACILITIES.
        Keep
        all properties useful or necessary to Borrower’s and POCI ‘s businesses in good
        repair and condition, subject to normal wear and tear, and from time to time
        make necessary repairs, renewals and replacements thereto, except where the
        failure to do so would not reasonably be expected to have a material adverse
        effect on Borrower or any of its subsidiaries.

       

      SECTION
        4.7. TAXES
        AND
        OTHER LIABILITIES.
        Pay and
        discharge when due (subject to applicable grace periods) any and all
        indebtedness, obligations, assessments and taxes, both real or personal,
        including without limitation federal and state income taxes and state and
        local
        property taxes and assessments applicable to Borrower and its subsidiaries,
        except (a) such as Borrower may in good faith contest or as to which a bona
        fide
        dispute may arise, and (b) for which Borrower has set aside adequate reserves
        in
        accordance with GAAP.

       

      SECTION
        4.8. LITIGATION.
        Promptly give notice in writing to Bank of any litigation pending or threatened
        against Borrower or POCI involving any claims in excess of
        $1,000,000.

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

       

      SECTION
        4.9. FINANCIAL
        CONDITION.
        Maintain Borrower’s financial condition as follows on a consolidated basis using
        GAAP consistently applied and used consistently with prior practices (except
        to
        the extent modified by the definitions herein):

       

      (a) Current
        Ratio not less than 0.75 to 1.0 at each fiscal quarter end, with “Current Ratio”
defined as total current assets plus long-term marketable securities divided
        by
        total current liabilities, in each case as of the last day of such fiscal
        quarter. 

       

      (b) Leverage
        Ratio not greater than 1.75 to 1.0 at each fiscal quarter end, with
        (i) ”Leverage
        Ratio”
defined
        as Total Liabilities plus Adjusted Rental Expense divided by Tangible Net
        Worth,
        (ii) “Total
        Liabilities”
defined
        as the aggregate of current liabilities and non-current liabilities as of
        the
        last day of such fiscal quarter, (iii) “Adjusted
        Rental Expense”
defined
        as Rental Expense for the trailing four fiscal quarters multiplied by six
        (6),
        (iv) ”Rental
        Expense”
for
        any
        fiscal quarter defined as all rental expense incurred during such fiscal
        quarter
        under any rental agreements or leases, other than obligations in respect
        of any
        capitalized leases, and (v) ”Tangible
        Net Worth”
defined
        as the aggregate of total stockholders’ equity plus subordinated debt less any
        intangible assets, in each case as of the last day of such fiscal
        quarter.

       

      (c) Net
        income after tax provision not less than $1.00 on a quarterly basis, determined
        as of each fiscal quarter end.

       

      (d) EBITDAR
        Coverage Ratio not less than 1.75 to 1.0 as of each fiscal quarter end, with
        “EBITDAR”
defined
        as income before income taxes plus interest expense, depreciation expense
        amortization expense, and Rental Expense, and with “EBITDAR
        Coverage Ratio”
defined
        as EBITDAR for the trailing four fiscal quarters divided by the sum of total
        interest expense for such trailing four quarter fiscal period, scheduled
        payments of principal of long-term debt (including capitalized leases) made
        during such trailing four fiscal quarter period and Rental Expense for such
        trailing four fiscal quarter period.

       

      SECTION
        4.10. NOTICE
        TO
        BANK.
        Promptly (but in no event more than five (5) days after the occurrence of
        each
        such event or matter) give written notice to Bank in reasonable detail of:
        (a) the occurrence of any Event of Default, or any condition, event or act
        which with the giving of notice or the passage of time or both would constitute
        an Event of Default; (b) any change in the name or the organizational
        structure of Borrower or POCI; (c) the occurrence and nature of any
        Reportable Event or Prohibited Transaction, each as defined in ERISA, or
        any
        funding deficiency with respect to any Plan; or (d) any termination or
        cancellation of any insurance policy which Borrower or POCI is required to
        maintain, or any uninsured or partially uninsured loss through liability
        or
        property damage, or through fire, theft or any other cause affecting Borrower’s
        or POCI’s property. 

      


      ARTICLE
        V

      NEGATIVE
        COVENANTS

       

      Borrower
        further covenants that so long as Bank remains committed to extend credit
        to
        Borrower pursuant hereto, or any liabilities (whether direct or contingent,
        liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents
        remain outstanding, and until payment in full of all obligations of Borrower
        subject hereto, Borrower will not without Bank’s prior written
        consent:

       

      SECTION
        5.1. USE
        OF
        FUNDS.
        Use or
        permit the use of any of the proceeds of any credit extended hereunder except
        for the purposes stated in Article I hereof.

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

       

      SECTION
        5.2. OTHER
        INDEBTEDNESS.
        Create,
        incur, assume or permit to exist or permit POCI to create, incur, assume
        or
        permit, any indebtedness or liabilities resulting from borrowings, loans
        or
        advances, whether secured or unsecured, matured or unmatured, liquidated
        or
        unliquidated, joint or several, except (a) liabilities to Bank, (b) any other
        liabilities of Borrower and POCI existing as of, and disclosed to Bank prior
        to,
        the date hereof, (c) new purchase money debt, and (d) other unsecured
        indebtedness of Borrower not existing on the date hereof, provided that the
        aggregate principal amount of all such indebtedness does not exceed
        $500,000.

       

      SECTION
        5.3. MERGER,
        CONSOLIDATION, TRANSFER OF ASSETS.
        Merge
        into or consolidate or permit POCI to merge or consolidate with any other
        entity; make any substantial change in the nature of Borrower’s or POCI’s
        business as conducted as of the date hereof; acquire all or substantially
        all of
        the assets of any other entity or permit POCI to do the same; or sell, lease,
        transfer or otherwise dispose of all or a substantial or material portion
        of
        Borrower’s assets except in the ordinary course of its business or POCI to do
        the same in respect of its assets; provided, however, that Borrower and/or
        POCI
        shall be permitted to engage in any non-hostile mergers or acquisitions so
        long
        as (a) Borrower or POCI, as the case may be, remains the surviving entity
        in the
        event of any merger, (b) no Event of Default or any condition, event or act
        which with the giving of notice or the passage of time or both would constitute
        an Event of Default exists at the time of such transaction or would result
        from
        the consummation of any such transaction, immediately after giving effect
        thereto, on a pro-forma basis, and (c) any such merger or acquisition involves
        a
        line of business substantially the same as that which is presently engaged
        in by
        Borrower and POCI. 

       

      SECTION
        5.4. GUARANTIES.
        Guarantee
        or become liable in any way as surety, endorser (other than as endorser of
        negotiable instruments for deposit or collection in the ordinary course of
        business), accommodation endorser or otherwise for, nor pledge or hypothecate
        any assets as security for, any liabilities or obligations of any person
        or
        entity (other than Borrower or POCI), except any of the foregoing in favor
        of
        Bank, or allow POCI to do any of the foregoing, except that Borrower and
        POCI
        may guarantee or become liable for indebtedness otherwise permitted under
        Section 5.2 and Borrower and POCI may incur Permitted Liens (as defined
        below).

       

      SECTION
        5.5. LOANS,
        ADVANCES, INVESTMENTS.
        Make
        any
        loans or advances to or investments (collectively, “investments”)
        in any
        person or entity, or allow POCI to do any of the foregoing, except (a) any
        of
        the foregoing existing as of, and disclosed to Bank prior to, the date hereof,
        (b) investments acquired as a result of an acquisition or merger permitted
        by Section 5.3, (c) investments in cash, cash equivalents, and
        investments approved by Borrower’s board of directors or otherwise pursuant to
        an investment policy approved by Borrower’s board of directors, (d) guaranties
        and other contingent obligations permitted by Section 5.4,
        (e) investments by Borrower in POCI, (f) investments consisting of
        extensions of credit to Borrower’s or any subsidiary’s customers that arise in
        the ordinary course of Borrower’s or such subsidiary’s business and are in the
        nature of accounts receivables, prepaid royalties or notes receivables arising
        from the sale or lease of goods, provision of services or licensing activities
        of Borrower, (g) investments, not to exceed $100,000.00 in the aggregate
        outstanding at any time, received in satisfaction or partial satisfaction
        of
        obligations owed by financially troubled obligors and investments acquired
        in
        connection with or as a result of a bankruptcy, workout, reorganization or
        recapitalization of an obligor or customer, (h) investments consisting of
        commodity forward purchase contracts, (i) investments consisting of loans
        and
        advances to employees in an aggregate amount not to exceed $250,000 at any
        one
        time outstanding, (j) investments constituting accounts receivables, trade
        debt or deposits made in the ordinary course of business, and (k) Joint
        Ventures, provided (a) no Event of Default or any condition, event or act
        which
        with the giving of notice or the passage of time or both would constitute
        an
        Event of Default exists at the time of such transaction or would result from
        the
        consummation of any such transaction, immediately after giving effect thereto,
        on a pro-forma basis, and (b) any such joint venture involves a line of
        business substantially the same as, or related to, that which is presently
        engaged in by Borrower and POCI.

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

       

      SECTION
        5.6. PLEDGE
        OF
        ASSETS.
        Mortgage,
        pledge, grant or permit to exist a security interest in, or lien upon
        (collectively, “liens”),
        all
        or any portion of Borrower’s assets now owned or hereafter acquired, or permit
        POCI to do the same in respect of its assets, except the following liens
        (collectively, “Permitted
        Liens”):
        (a)
        liens in favor of Bank, (b) liens existing as of, and disclosed to Bank in
        writing prior to, the date hereof, (c) liens to the extent they secure purchase
        money debt permitted under Section 5.2 hereof provided that such liens do
        not
        extend beyond the assets (including accessions, additions, parts, replacements,
        fixtures, improvements and attachments thereto, and the proceeds thereof)
        subject to such purchase money financing, (d) liens for taxes, fees,
        assessments or other government charges or levies, either not delinquent
        or
        being contested in good faith pursuant to appropriate proceedings and for
        which
        Borrower maintains adequate reserves on its books in accordance with GAAP,
        (e)
        liens incurred in the extension, renewal or refinancing of the indebtedness
        secured by Liens described in (b) through (d), but any extension, renewal
        or
        replacement Lien must be limited to the property encumbered by the existing
        Lien
        and the terms relating to principal amount, amortization, maturity, collateral
        (if any) and subordination (if any), and other material terms taken as a
        whole,
        of any such refinancing, refunding, renewing or extending indebtedness, and
        of
        any agreement entered into and of any instrument issued in connection therewith,
        are no less favorable in any material respect to Borrower than the terms
        of any
        agreement or instrument governing the indebtedness being refinanced, refunded,
        renewed or extended and the interest rate applicable to any such refinancing,
        refunding, renewing or extending indebtedness does not exceed the then
        applicable market interest rate; (f) leases, subleases, licenses or sublicenses
        of property granted in the ordinary course of business and not substantial
        in
        amount; (g) liens in favor of other financial institutions arising in connection
        with Borrower’s deposit or securities accounts held at such institutions; (h)
        liens to secure payment of workers’ compensation, employment insurance, old-age
        pensions, social security and other like obligations incurred in the ordinary
        course of business (other than Liens imposed by ERISA); (i) liens on property
        of, or on shares of stock or Indebtedness of, any corporation existing at
        the
        time such corporation becomes, or becomes a part of, any subsidiary; provided
        that such liens do not extend to or cover any property or assets of Borrower
        or
        any subsidiary other than the property or assets acquired and the proceeds
        and
        products thereof and were not incurred in anticipation of such person becoming
        a
        subsidiary; (j) liens arising by operation of law and in the ordinary
        course of Borrower’s and its subsidiaries’ business of landlords and carriers,
        warehousemen, mechanics, suppliers, sellers, material men or repairmen, or
        other
        similar liens; (k) easements, rights-of-way, municipal and zoning and building
        ordinances and similar charges, encumbrances, title defects or other
        irregularities, governmental restrictions on the use of property or conduct
        of
        business, and liens in favor of governmental authorities and public utilities,
        that do not materially interfere with the ordinary course of business of
        Borrower and its subsidiaries; (l) liens arising from the rendering of an
        interim or final judgment or order against Borrower or any subsidiary that
        does
        not give rise to an Event of Default; and (m) liens arising in the ordinary
        course of Borrower’s and/or its subsidiaries’ business in favor of customs and
        revenue authorities arising as a matter of law to secure payment of customs
        duties in connection with the importation of goods.

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

      


      ARTICLE
        VI

      EVENTS
        OF DEFAULT

       

      SECTION
        6.1. The
        occurrence of any of the following shall constitute an “Event
        of Default”
under
        this Agreement:

       

      (a) Borrower
        shall fail to pay when due any principal, interest, fees or other amounts
        payable under any of the Loan Documents and such failure, in the case of
        interest, fees or other amounts continues for five (5) business
        days.

       

      (b) Any
        financial statement or certificate furnished to Bank in connection with,
        or any
        representation or warranty made by Borrower or any other party under this
        Agreement or any other Loan Document shall prove to be incorrect, false or
        misleading in any material respect when furnished or made.

       

      (c) Any
        default in the performance of or compliance with any obligation, agreement
        or
        other provision contained herein or in any other Loan Document (other than
        those
        referred to in subsections (a) and (b) above), and with respect to any such
        default which by its nature can be cured, such default shall continue for
        a
        period of thirty (30) days.

       

      (d) Borrower
        or POCI: (i) fails to make any payment when due (whether by scheduled maturity,
        required prepayment, acceleration, demand, or otherwise) in respect of any
        debt
        having an aggregate principal amount (including undrawn committed or available
        amounts and including amounts owing to all creditors under any combined or
        syndicated credit arrangement) of more than $100,000; or (ii) fails to observe
        or perform any other agreement or condition relating to any such other debt
        or
        contained in any document evidencing, securing or relating to any of the
        foregoing, or any other default or event occurs, the effect of which default
        or
        other event is to cause, or to permit the holder or holders of such debt
        (or a
        trustee or agent on behalf of such holder or holders) to cause, with the
        giving
        of notice if required, such debt to be demanded or to become due or to be
        repurchased, prepaid, defeased or redeemed (automatically or otherwise),
        or an
        offer to repurchase, prepay, defease or redeem such Debt to be made, prior
        to
        its stated maturity.

       

      (e) There
        is
        entered against Borrower or POCI: (i) one or more final judgments or orders
        for
        the payment of money in an aggregate amount exceeding $1,000,000 (to the
        extent
        not covered by independent third-party insurance as to which the insurer
        does
        not dispute coverage); or (ii) any one or more non-monetary final judgments
        that
        have, or could reasonably be expected to have, individually or in the aggregate,
        a material adverse effect on Borrower or POCI, as applicable, and, in either
        case: (A) enforcement proceedings are commenced by any creditor upon such
        judgment or order; or (B) there is a period of thirty consecutive days during
        which a stay of enforcement of such judgment, by reason of a pending appeal
        or
        otherwise, is not in effect.

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

       

      (f) Borrower
        or POCI shall become insolvent, or shall suffer or consent to or apply for
        the
        appointment of a receiver, trustee, custodian or liquidator of itself or
        any of
        its property, or shall generally fail to pay its debts as they become due,
        or
        shall make a general assignment for the benefit of creditors; Borrower or
        POCI
        shall file a voluntary petition in bankruptcy, or seeking reorganization,
        in
        order to effect a plan or other arrangement with creditors or any other relief
        under the Bankruptcy Reform Act, Title 11 of the United States Code, as amended
        or recodified from time to time (“Bankruptcy
        Code”),
        or
        under any state or federal law granting relief to debtors, whether now or
        hereafter in effect; or any involuntary petition or proceeding pursuant to
        the
        Bankruptcy Code or any other applicable state or federal law relating to
        bankruptcy, reorganization or other relief for debtors is filed or commenced
        against Borrower or POCI, or Borrower or POCI shall file an answer admitting
        the
        jurisdiction of the court and the material allegations of any involuntary
        petition; or Borrower or POCI shall be adjudicated a bankrupt, or an order
        for
        relief shall be entered against Borrower or POCI by any court of competent
        jurisdiction under the Bankruptcy Code or any other applicable state or federal
        law relating to bankruptcy, reorganization or other relief for
        debtors.

       

      (g) There
        shall exist or occur any event or condition that would reasonably be expected
        to
        materially impair the prospect of payment or performance by Borrower of its
        obligations under any of the Loan Documents.

       

      (h) The
        dissolution or liquidation of Borrower or POCI (other than the dissolution
        or
        liquidation of POCI into Borrower); or Borrower or POCI, or any of its directors
        or stockholders, shall take action seeking to effect the dissolution or
        liquidation of Borrower or POCI (other than the dissolution or liquidation
        of
        POCI into Borrower).

       

      SECTION
        6.2. REMEDIES.
        Upon
        the occurrence of any Event of Default: (a) all indebtedness of Borrower
        under each of the Loan Documents, any term thereof to the contrary
        notwithstanding, shall at Bank’s option and without notice become immediately
        due and payable without presentment, demand, protest or notice of dishonor,
        all
        of which are hereby expressly waived by Borrower; (b) the obligation, if
        any, of Bank to extend any further credit under any of the Loan Documents
        shall
        immediately cease and terminate; and (c) Bank shall have all rights, powers
        and remedies available under each of the Loan Documents, or accorded by law,
        including without limitation the right to resort to any or all security for
        any
        credit subject hereto and to exercise any or all of the rights of a beneficiary
        or secured party pursuant to applicable law. All rights, powers and remedies
        of
        Bank may be exercised at any time by Bank and from time to time after the
        occurrence of an Event of Default, are cumulative and not exclusive, and
        shall
        be in addition to any other rights, powers or remedies provided by law or
        equity.

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

      


      ARTICLE
        VII

      MISCELLANEOUS

       

      SECTION
        7.1. NO
        WAIVER.
        No
        delay, failure or discontinuance of Bank in exercising any right, power or
        remedy under any of the Loan Documents shall affect or operate as a waiver
        of
        such right, power or remedy; nor shall any single or partial exercise of
        any
        such right, power or remedy preclude, waive or otherwise affect any other
        or
        further exercise thereof or the exercise of any other right, power or remedy.
        Any waiver, permit, consent or approval of any kind by Bank of any breach
        of or
        default under any of the Loan Documents must be in writing and shall be
        effective only to the extent set forth in such writing.

       

      SECTION
        7.2. NOTICES.
        All
        notices, requests and demands which any party is required or may desire to
        give
        to any other party under any provision of this Agreement must be in writing
        delivered to each party at the following address:

      


      
        	
              	BORROWER:	
                PEET’S
                  COFFEE & TEA, INC.

              


      

      1400
        Park
        Avenue

      Emeryville,
        CA 94608-3520

       

      
        	
              	BANK:	
                WELLS
                  FARGO BANK, NATIONAL ASSOCIATION

              


      

      East
        Bay
        RCBO

      One
        Kaiser Plaza, Suite #850

      Oakland,
        CA 94612

       

      or
        to
        such other address as any party may designate by written notice to all other
        parties. Each such notice, request and demand shall be deemed given or made
        as
        follows: (a) if sent by hand delivery, upon delivery; (b) if sent by
        mail, upon the earlier of the date of receipt or three (3) days after deposit
        in
        the U.S. mail, first class and postage prepaid; and (c) if sent by
        telecopy, upon receipt.

       

      SECTION
        7.3. COSTS,
        EXPENSES AND ATTORNEYS’ FEES.
        Borrower shall pay to Bank immediately upon demand the full amount of all
        payments, advances, charges, costs and expenses, including reasonable attorneys’
fees (to include outside counsel fees but not including any allocated costs
        of
        Bank’s in-house counsel), expended or incurred by Bank in connection with
        (a) the negotiation and preparation of this Agreement and the other Loan
        Documents, Bank’s continued administration hereof and thereof, and the
        preparation of any amendments and waivers hereto and thereto, (b) the
        enforcement of Bank’s rights and/or the collection of any amounts which become
        due to Bank under any of the Loan Documents, and (c) the prosecution or
        defense of any action in any way related to any of the Loan Documents, including
        without limitation, any action for declaratory relief, whether incurred at
        the
        trial or appellate level, in an arbitration proceeding or otherwise, and
        including any of the foregoing incurred in connection with any bankruptcy
        proceeding (including without limitation, any adversary proceeding, contested
        matter or motion brought by Bank or any other person) relating to Borrower
        or
        any other person or entity.

       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

       

      SECTION
        7.4. SUCCESSORS,
        ASSIGNMENT.
        This
        Agreement shall be binding upon and inure to the benefit of the heirs,
        executors, administrators, legal representatives, successors and assigns
        of the
        parties; provided however, that Borrower may not assign or transfer its
        interests or rights hereunder without Bank’s prior written consent. Bank
        reserves the right to sell, assign, transfer, negotiate or grant participations
        in all or any part of, or any interest in, Bank’s rights and benefits under each
        of the Loan Documents. In connection therewith, Bank may disclose all documents
        and information which Bank now has or may hereafter acquire relating to any
        credit subject hereto, Borrower or its business, any guarantor hereunder
        or the
        business of such guarantor, or any collateral required hereunder.

       

      SECTION
        7.5. ENTIRE
        AGREEMENT; AMENDMENT.
        This
        Agreement and the other Loan Documents constitute the entire agreement between
        Borrower and Bank with respect to each credit subject hereto and supersede
        all
        prior negotiations, communications, discussions and correspondence concerning
        the subject matter hereof. This Agreement may be amended or modified only
        in
        writing signed by each party hereto.

       

      SECTION
        7.6. NO
        THIRD
        PARTY BENEFICIARIES.
        This
        Agreement is made and entered into for the sole protection and benefit of
        the
        parties hereto and their respective permitted successors and assigns, and
        no
        other person or entity shall be a third party beneficiary of, or have any
        direct
        or indirect cause of action or claim in connection with, this Agreement or
        any
        other of the Loan Documents to which it is not a party.

       

      SECTION
        7.7. TIME.
        Time is
        of the essence of each and every provision of this Agreement and each other
        of
        the Loan Documents.

       

      SECTION
        7.8. SEVERABILITY
        OF PROVISIONS.
        If any
        provision of this Agreement shall be prohibited by or invalid under applicable
        law, such provision shall be ineffective only to the extent of such prohibition
        or invalidity without invalidating the remainder of such provision or any
        remaining provisions of this Agreement.

       

      SECTION
        7.9. COUNTERPARTS.
        This
        Agreement may be executed in any number of counterparts, each of which when
        executed and delivered shall be deemed to be an original, and all of which
        when
        taken together shall constitute one and the same Agreement.

       

      SECTION
        7.10. GOVERNING
        LAW.
        This
        Agreement shall be governed by and construed in accordance with the laws
        of the
        State of California.

       

      SECTION
        7.11. ARBITRATION.

       

      (a) Arbitration.
        The
        parties hereto agree, upon demand by any party, to submit to binding arbitration
        all claims, disputes and controversies between or among them (and their
        respective employees, officers, directors, attorneys, and other agents),
        whether
        in tort, contract or otherwise in any way arising out of or relating to (i)
        any
        credit subject hereto, or any of the Loan Documents, and their negotiation,
        execution, collateralization, administration, repayment, modification,
        extension, substitution, formation, inducement, enforcement, default or
        termination; or (ii) requests for additional credit.

       

      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

       

      (b) Governing
        Rules.
        Any
        arbitration proceeding will (i) proceed in a location in California selected
        by
        the American Arbitration Association (“AAA”); (ii) be governed by the Federal
        Arbitration Act (Title 9 of the United States Code), notwithstanding any
        conflicting choice of law provision in any of the documents between the parties;
        and (iii) be conducted by the AAA, or such other administrator as the parties
        shall mutually agree upon, in accordance with the AAA’s commercial dispute
        resolution procedures, unless the claim or counterclaim is at least
        $1,000,000.00 exclusive of claimed interest, arbitration fees and costs in
        which
        case the arbitration shall be conducted in accordance with the AAA’s optional
        procedures for large, complex commercial disputes (the commercial dispute
        resolution procedures or the optional procedures for large, complex commercial
        disputes to be referred to herein, as applicable, as the “Rules”).
        If
        there is any inconsistency between the terms hereof and the Rules, the terms
        and
        procedures set forth herein shall control. Any party who fails or refuses
        to
        submit to arbitration following a demand by any other party shall bear all
        costs
        and expenses incurred by such other party in compelling arbitration of any
        dispute. Nothing contained herein shall be deemed to be a waiver by any party
        that is a bank of the protections afforded to it under 12 U.S.C. §91 or any
        similar applicable state law.

       

      (c) No
        Waiver of Provisional Remedies, Self-Help and Foreclosure.
        The
        arbitration requirement does not limit the right of any party to (i) foreclose
        against real or personal property collateral; (ii) exercise self-help remedies
        relating to collateral or proceeds of collateral such as setoff or repossession;
        or (iii) obtain provisional or ancillary remedies such as replevin, injunctive
        relief, attachment or the appointment of a receiver, before during or after
        the
        pendency of any arbitration proceeding. This exclusion does not constitute
        a
        waiver of the right or obligation of any party to submit any dispute to
        arbitration or reference hereunder, including those arising from the exercise
        of
        the actions detailed in sections (i), (ii) and (iii) of this
        paragraph.

       

      (d) Arbitrator
        Qualifications and Powers.
        Any
        arbitration proceeding in which the amount in controversy is $5,000,000.00
        or
        less will be decided by a single arbitrator selected according to the Rules,
        and
        who shall not render an award of greater than $5,000,000.00. Any dispute
        in
        which the amount in controversy exceeds $5,000,000.00 shall be decided by
        majority vote of a panel of three arbitrators; provided however, that all
        three
        arbitrators must actively participate in all hearings and deliberations.
        The
        arbitrator will be a neutral attorney licensed in the State of California
        or a
        neutral retired judge of the state or federal judiciary of California, in
        either
        case with a minimum of ten years experience in the substantive law applicable
        to
        the subject matter of the dispute to be arbitrated. The arbitrator will
        determine whether or not an issue is arbitratable and will give effect to
        the
        statutes of limitation in determining any claim. In any arbitration proceeding
        the arbitrator will decide (by documents only or with a hearing at the
        arbitrator’s discretion) any pre-hearing motions which are similar to motions to
        dismiss for failure to state a claim or motions for summary adjudication.
        The
        arbitrator shall resolve all disputes in accordance with the substantive
        law of
        California and may grant any remedy or relief that a court of such state
        could
        order or grant within the scope hereof and such ancillary relief as is necessary
        to make effective any award. The arbitrator shall also have the power to
        award
        recovery of all costs and fees, to impose sanctions and to take such other
        action as the arbitrator deems necessary to the same extent a judge could
        pursuant to the Federal Rules of Civil Procedure, the California Rules of
        Civil
        Procedure or other applicable law. Judgment upon the award rendered by the
        arbitrator may be entered in any court having jurisdiction. The institution
        and
        maintenance of an action for judicial relief or pursuit of a provisional
        or
        ancillary remedy shall not constitute a waiver of the right of any party,
        including the plaintiff, to submit the controversy or claim to arbitration
        if
        any other party contests such action for judicial relief.

       

      
        
          
          

        

        
          15

          
            

          

        

        
          
          

        

      

       

      (e) Discovery.
        In any
        arbitration proceeding, discovery will be permitted in accordance with the
        Rules. All discovery shall be expressly limited to matters directly relevant
        to
        the dispute being arbitrated and must be completed no later than 20 days
        before
        the hearing date. Any requests for an extension of the discovery periods,
        or any
        discovery disputes, will be subject to final determination by the arbitrator
        upon a showing that the request for discovery is essential for the party’s
        presentation and that no alternative means for obtaining information is
        available.

       

      (f) Class
        Proceedings and Consolidations.
        No
        party hereto shall be entitled to join or consolidate disputes by or against
        others in any arbitration, except parties who have executed any Loan Document,
        or to include in any arbitration any dispute as a representative or member
        of a
        class, or to act in any arbitration in the interest of the general public
        or in
        a private attorney general capacity. 

       

      (g) Payment
        Of Arbitration Costs And Fees.
        The
        arbitrator shall award all costs and expenses of the arbitration
        proceeding.

       

      (h) Real
        Property Collateral; Judicial Reference.
        Notwithstanding anything herein to the contrary, no dispute shall be submitted
        to arbitration if the dispute concerns indebtedness secured directly or
        indirectly, in whole or in part, by any real property unless (i) the holder
        of
        the mortgage, lien or security interest specifically elects in writing to
        proceed with the arbitration, or (ii) all parties to the arbitration waive
        any
        rights or benefits that might accrue to them by virtue of the single action
        rule
        statute of California, thereby agreeing that all indebtedness and obligations
        of
        the parties, and all mortgages, liens and security interests securing such
        indebtedness and obligations, shall remain fully valid and enforceable. If
        any
        such dispute is not submitted to arbitration, the dispute shall be referred
        to a
        referee in accordance with California Code of Civil Procedure Section 638
        et
        seq., and this general reference agreement is intended to be specifically
        enforceable in accordance with said Section 638. A referee with the
        qualifications required herein for arbitrators shall be selected pursuant
        to the
        AAA’s selection procedures. Judgment upon the decision rendered by a referee
        shall be entered in the court in which such proceeding was commenced in
        accordance with California Code of Civil Procedure Sections 644 and
        645.

       

      (i) Miscellaneous.
        To the
        maximum extent practicable, the AAA, the arbitrators and the parties shall
        take
        all action required to conclude any arbitration proceeding within 180 days
        of
        the filing of the dispute with the AAA. No arbitrator or other party to an
        arbitration proceeding may disclose the existence, content or results thereof,
        except for disclosures of information by a party required in the ordinary
        course
        of its business or by applicable law or regulation. If more than one agreement
        for arbitration by or between the parties potentially applies to a dispute,
        the
        arbitration provision most directly related to the Loan Documents or the
        subject
        matter of the dispute shall control. This arbitration provision shall survive
        termination, amendment or expiration of any of the Loan Documents or any
        relationship between the parties.

       

      (j) Small
        Claims Court.
        Notwithstanding anything herein to the contrary, each party retains the right
        to
        pursue in Small Claims Court any dispute within that court’s jurisdiction.
        Further, this arbitration provision shall apply only to disputes in which
        either
        party seeks to recover an amount of money (excluding attorneys’ fees and costs)
        that exceeds the jurisdictional limit of the Small Claims Court.

       

      [Signatures
        on following page]

       

      
        
          
          

        

        
          16

          
            

          

        

        
          
          

        

      

       

      IN
        WITNESS WHEREOF,
        the
        parties hereto have caused this Agreement to be executed as of the day and
        year
        first written above.

       

       

      
        	 	 	 	 WELLS FARGO
                BANK,
	PEET’S COFFEE & TEA,
                INC. 	 	 NATIONAL
                ASSOCIATION
	 	 	 	 	 
	By:
                	 	 	 By:
                	 
	 	
                Thomas
                  P. Cawley 

                Chief
                  Financial Officer, 

                Vice
                  President, Secretary

              	 	 	
                Todd G. Tajiri

                Vice President

              


      

       

       

      
        
          
          

        

        
          Credit
            Agreement

          
            

          

        

        
          
          

        

      


      EXHIBIT
        A

      
 

      
        	To:	
                WELLS
                  FARGO BANK, NATIONAL ASSOCIATION

              


      

      One
        Kaiser Plaza, Suite 850

      Oakland,
        CA 94612

      Attn:
        Todd Tajiri

      


      


      
        	
              	Re:	
                PEET’S
                  COFFEE & TEA, INC.

              


      

      (“Borrower”)

       

      The
        undersigned is the Chief Financial Officer of Borrower. In said capacity,
        the
        undersigned hereby certifies to Wells Fargo Bank, National Association
        (“Bank”)
        that
        (a) the financial statement of Borrower dated as of ________________, ______,
        heretofore or concurrently herewith delivered by Borrower to Bank, and all
        schedules and footnotes thereto, fairly present the financial condition and
        results of operations as of and for the period set forth therein, and (b)
        as of
        the date hereof, there exists no default or defined Event of Default under
        the
        Credit Agreement, dated as of November 26, 2008, by and between the Borrower
        and
        Bank, as amended, modified and/or supplemented prior to the date
        hereof.

      


      


      Dated:
        _______________, ______

      

        
          	
                   

                	
                  By:

                	 
	
                   

                	
                  Title: 

                	
                   

                


        

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      SCHEDULE
        I

      To
        Compliance Certificate for 

      Peet’s
        Coffee & Tea, Inc.

       

      
        
          	
                  Financial
                    Statement Date: _____________

                	 
	 	 	 	 
	
                  I.     Section
                    4.9(a) Current Ratio

                	 	 	 
	 	 	 	 
	 	
                  A.

                	
                  Current
                    Assets

                	 	 	 
	 	 	
                  1.

                	
                   Current
                    Assets

                	 	
                  --

                	 
	 	 	
                  2.

                	
                   Long-term
                    marketable securities

                	 	
                  --

                	 
	 	 	
                  3.

                	
                   Sum
                    of Lines A.1. and A.2.

                	 	
                  --

                	 
	 	 	 	 	 	 	 
	 	
                  B.

                	
                  Current
                    Liabilities

                	 	
                  --

                	 
	 	 	 	 	 	 
	 	 	 	 	
                   Actual
                    Current Ratio (A.3./B.)

                	 	
                  --

                	 
	 	 	 	 	
                   Required
                    Minimum

                	
                   

                	
                  0.75

                	
                  x

                
	 	 	 	 	
                   Borrower
                    is in Compliance Y/N

                	 	 	 
	 	 	 	 	 
	
                  II.    Section
                    4.9(b) Leverage Ratio

                	 	 	 
	 	 	 	 	 
	 	
                  A.

                	
                  Total
                    Liabilities

                	 	 	 
	 	 	
                  1.

                	
                  Current
                    liabilities

                	 	
                  --

                	 
	 	 	
                  2.

                	
                  Non-current
                    liabilities

                	 	
                  --

                	 
	 	 	
                  3.

                	
                  Sum
                    of Lines A.1. and A.2

                	 	
                  --

                	 
	 	 	 	 	 	 	 	 
	 	
                  B.

                	
                  Adjusted
                    Rental Expense

                	 	 	 
	 	 	
                  1.

                	
                  Rental
                    Expense

                	 	
                  --

                	 
	 	 	
                  2.

                	
                  Multiplied
                    by six (6)

                	 	
                  --

                	 
	 	 	 	 	 	 	 	 
	 	
                  C.

                	
                  Tangible
                    Net Worth

                	 	 	 
	 	 	
                  1.

                	
                  Total
                    stockholders’ equity

                	 	
                  --

                	 
	 	 	
                  2.

                	
                  Subordinated
                    debt

                	 	
                  --

                	 
	 	 	
                  3.

                	
                  Intangible
                    assets

                	 	 	 
	 	 	
                  4.

                	
                  Sum
                    of Lines C.1. plus C.2. minus C.3.

                	 	
                  --

                	 
	 	 	 	 	 	 	 	 
	 	 	 	 	
                   Actual
                    Leverage Ratio (A.3. + B.2.)/C.4.

                	 	
                  --

                	 
	 	 	 	 	
                   Required
                    Maximum

                	 	
                  1.75

                	
                  x

                
	 	 	 	 	
                   Borrower
                    is in Compliance Y/N

                	 	 	 
	 	 	 	 	 
	
                  III.   Section
                    4.9(c) Net Income After Tax Provision

                	 	 	 
	 	 	 	 	 
	 	
                  A.

                	
                  Net
                    income after tax provision for current quarter

                	 	
                  --

                	 
	 	 	 	 	 	 
	 	 	 	 	
                   Required
                    Minimum

                	
                   

                	
                  
                    $1.00

                  

                	 
	 	 	 	 	
                   Borrower
                    is in Compliance Y/N

                	 	 	 
	 	 	 	 	 
	
                  IV.   Section
                    4.9(d) EBITDAR Coverage Ratio

                	 	 	 
	 	 	 	 	 


        

        
          	 	
                  A.

                	
                  EBITDAR

                	 	 	 
	 	 	
                  1.

                	
                  Income
                    before income taxes

                	
                   

                	
                  --

                	 
	 	 	
                  2.

                	
                  Interest
                    expense

                	
                   

                	
                  --

                	 
	 	 	
                  3.

                	
                  Depreciation
                    expense

                	
                   

                	
                  --

                	 
	 	 	
                  4.

                	
                  Amortization
                    expense

                	
                   

                	
                  --

                	 
	 	 	
                  5.

                	
                  Rental
                    Expense

                	
                   

                	
                  --

                	 
	 	 	
                  6.

                	
                  Sum
                    of Lines A.1. plus A.2. plus A.3. plus A.4. plus A.5

                	
                   

                	
                  --

                	
                   

                
	 	 	 	 	 	 	
                  --

                	 
	 	
                  B.

                	
                  Interest
                    expense

                	
                   

                	
                  --

                	 
	 	
                  C.

                	
                  Prior
                    period current maturity long-term debt (including capitalized
                    leases)

                	
                   

                	
                  --

                	 
	 	
                  D.

                	
                  Rental
                    Expense

                	
                   

                	
                  --

                	 
	 	
                  E.

                	
                  Sum
                    of Lines B. plus C. plus D.

                	
                   

                	
                  --

                	 
	 	 	 	 	 	 
	 	 	 	 	
                  Actual
                    EBITDAR Coverage Ratio A.6./E.

                	
                   

                	
                  --

                	 
	 	 	 	 	
                  Required
                    Minimum

                	
                	
                  
                    1.75

                  

                	
                  x

                
	 	 	 	 	
                  Borrower
                    is in Compliance Y/N