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                                                                   EXHIBIT 10.12


                              PEET'S COFFEE & TEA

                      KEY EMPLOYEE SEVERANCE BENEFIT PLAN


Section 1.  Introduction.

     The Peet's Coffee & Tea Key Employee Severance Benefit Plan (the "Plan")
was approved by the Board of Directors (the "Board") of Peet's Coffee & Tea (the
"Company") and the Board of Directors (the "Parent Board") of Peet's Companies,
Inc. (the "Parent"), effective November 3, 1998 (the "Effective Date").  The
purpose of the Plan is to provide for the payment of benefits to Eligible
Employees (as defined below) of the Company in the event such employees'
employment with the Company and its Affiliates is terminated under certain
circumstances as specified herein.  No benefits shall be paid under this Plan
prior to the date of such specified termination.  This Plan shall supersede any
severance benefit plan, policy or practice previously maintained by the Company
for Eligible Employees; provided, however, that this Plan shall not supersede or
otherwise affect the Peet's Coffee & Tea Employee Severance Benefit Plan
established effective November 3, 1998 (the "Employee Plan") or the Peet's
Companies, Inc. Change of Control Option Acceleration Plan established effective
November 3, 1998 (the "Option Acceleration Plan").  This Plan document also is
the Summary Plan Description for the Plan.

     Certain capitalized terms used in the Plan, and not elsewhere defined in
the Plan, are defined in Section 7.

Section 2.  Eligibility For Benefits.

     (a)    General Rules. Subject to the requirements set forth in this Section
            2, the Company shall provide benefits under the Plan to Eligible
            Employees.

            (i)  "Eligible Employees" are the Chairman of the Board and/or the
                 Parent Board (as the case may be), the Vice President of Coffee
                 of the Company, the Chief Executive Officer of the Company, all
                 employees who hold the position of vice president of the
                 Company and any other individual who is designated an Eligible
                 Employee for the purposes of the Plan under a duly executed Key
                 Employee Agreement (a "Designated Key Employee). No other
                 employees of or consultants to the Company or members of the
                 Board or the Parent Board shall be eligible to receive benefits
                 under the Plan. An Eligible Employee shall be eligible for
                 benefits under this Plan if the Eligible Employee's employment
                 with the Company and its Affiliates is terminated due to a
                 Covered Termination or due to a Change of Control Termination.
                 An Eligible Employee whose employment is terminated due to
                 death or Disability or due to any reason other than a Covered
                 Termination or Change of Control Termination shall not be
                 eligible for benefits under this Plan.

            (ii) in order to receive benefits under the Plan, an Eligible
                 Employee must execute a general waiver and release on the form
                 provided by the

                                       1.
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                  Company and must not be in breach or violation of any
                  restrictive covenants or other obligations or duties to the
                  Company related to confidential information, proprietary
                  rights, noncompetition, noninterference, nonsolicitation or
                  the like, whether set forth in the Eligible Employee's Key
                  Employee Agreement or other instrument or arising by operation
                  of law. In the event of any such breach or violation, any
                  payments or other benefits otherwise provided under the Plan
                  that have not yet been received by the Eligible Employee shall
                  cease, and the Eligible employee shall forfeit all such
                  remaining payments or benefits.

            (iii) Any Change of Control that triggers the payment of benefits
                  under this Plan must occur during the term of this Plan as
                  specified in Section 6(b).

     (b)    Exceptions. An employee who otherwise is an Eligible Employee will
            not receive benefits under the Plan in any of the following
            circumstances:

            (i)   The employee has executed an individually negotiated
                  employment contract or agreement with the Company which
                  excludes such employee from eligibility for participation in
                  this Plan and such individually negotiated employment contract
                  or agreement is in effect on his or her Termination Date. Such
                  employee's severance benefit, if any, shall be governed by the
                  terms of such individually negotiated employment contract or
                  agreement.

            (ii)  The Eligible Employee's employment with the Company and its
                  Affiliates is terminated due to any other reason than due to a
                  Covered Termination or a Change of Control Termination.

            (iii) Following a Change of Control Termination, the Eligible
                  Employee is offered and accepts immediate reemployment by a
                  successor to the Company in an identical or substantially
                  similar position at pay equal to or greater than the Eligible
                  Employee's Pay (as defined in Section 7 below). For purposes
                  of this provision, "immediate reemployment" means that the
                  employee's employment with the successor to the Company result
                  in uninterrupted employment such that the Eligible Employee's
                  does not suffer a lapse in Pay as a result of a Change of
                  Control. Following such reemployment the terms of this Plan as
                  otherwise in effect from time to time shall continue to apply
                  to such Eligible Employee.

Section 3.  Plan Benefits.

     (a)    Severance benefits payable under the Plan are as set forth on the
            attached schedules for each class of Eligible Employee (the
            "Schedule of Benefits").

     (b)    Notwithstanding any other provision of the Plan to the contrary, any
            benefits payable to an Eligible Employee under this Plan shall be in
            lieu of any severance benefits payable by the Company to such
            individual under any other arrangement

                                       2.
<PAGE>

            covering the individual, unless expressly otherwise agreed to by the
            Company in writing.

     (c)    Notwithstanding any other provision of the Plan to the contrary, in
            the event that the severance benefits provided for in this Plan or
            otherwise payable to the Eligible Employee (i) constitute "parachute
            payments" within the meaning of Section 28OG (as it may be amended
            or replaced) of the Code and (ii) but for this Section 3(c), would
            be subject to the excise tax imposed by Section 4999 (as it may be
            amended or replaced) of the Code (the "Excise Tax"), then the
            benefits specified hereunder shall be either

            (i)  provided to the Eligible Employee in full, or

            (ii) provided to the Eligible Employee as to such lesser extent
                 which would result in no portion of such benefits being subject
                 to the Excise Tax,

            whichever of the foregoing amounts, when taking into account the
            applicable federal, state and local income taxes and the Excise Tax,
            results in the receipt by the Eligible Employee on an after-tax
            basis, of the greatest amount of benefits, notwithstanding that all
            or some portion of such benefits may be taxable under the Excise
            Tax. Unless the Company and the Eligible Employee otherwise agree in
            writing, any determination required under this Section 3(c) shall be
            made in writing in good faith by the Accountants. In the event of a
            reduction in benefits hereunder, Executive shall be given the choice
            of which benefits to reduce. For purposes of making the calculations
            required by this Section 3(c), the Accountants may make reasonable
            assumptions and approximations concerning applicable taxes and may
            rely on reasonable, good faith interpretations concerning the
            application of the Code. The Company and Eligible Employee shall
            furnish to the Accountants such information and documents as the
            Accountants may reasonably request in order to make a determination
            under this Section 3(c). The Company shall bear all costs the
            Accountants may reasonably incur in connection with any calculations
            contemplated by this Section 3(c).

Section 4.  Time Of Payment And Form Of Severance Pay; Indebtedness.

     (a)    Severance Pay under this Plan shall be paid in monthly installments
            following the Eligible Employee's Termination Date and continuing
            throughout the Severance Payment Period. The Company reserves the
            right to determine the time of payment of such Severance Pay and to
            pay such Severance Pay in a lump sum or to accelerate the payment of
            any remaining unpaid Severance Pay at any time; provided, however,
            that no payment shall be made under this Plan prior to the last day
            of any waiting period or revocation period as required by applicable
            law in order for the general waiver and release required by Section
            2(a)(ii) of this Plan to be effective, and provided further that all
            payments under this Plan will be completed within two (2) years of
            an Eligible Employee's Termination Date.

                                       3.
<PAGE>

     (b)    If an Eligible Employee is indebted to the Company or any of its
            Affiliates at his or her Termination Date, the Company reserves the
            right to offset any severance payments under the Plan by the amount
            of such indebtedness. In no event shall payment of any Plan benefit
            be made prior to the Eligible Employee's Termination Date.

Section 5.  Continuation Of Benefits.

     (a)    COBRA Continuation. Under the Consolidated Omnibus Budget
            Reconciliation Act of 1985, as amended ("COBRA"), each Eligible
            Employee who is enrolled in a group medical, vision or dental plan
            sponsored by the Company may be eligible to continue coverage under
            such group medical, vision or dental plan (or to convert to an
            individual policy), at the time of the Eligible Employee's
            termination of employment. The Company will notify the individual of
            any such right to continue health coverage at the time of
            termination. No provision of this Plan will affect the continuation
            coverage rules under COBRA, except that the Company's payment of any
            applicable insurance premiums during the period provided for under
            the applicable schedule of benefits under this Plan will be credited
            as-payment by the Eligible Employee for purposes -of the Eligible
            Employee's payment required under COBRA. Therefore, the period
            during which an Eligible Employee must elect to continue the
            Company's group medical, vision or dental coverage at his or her own
            expense under COBRA, the length of time during which COBRA coverage
            will be made available to the Eligible Employee, and all other
            rights and obligations of the Eligible Employee under COBRA (except
            the obligation to pay insurance premiums that the Company pays
            during the period provided for under the applicable schedule of
            benefits under this Plan) will be applied in the same manner that
            such rules would apply in the absence of this Plan. At the
            conclusion of the period provided for under the applicable schedule
            of benefits under this Plan, the Eligible Employee will be
            responsible for the payment of the entire amount of premiums
            required under COBRA for the remaining duration of the COBRA
            continuation coverage period.

            For purposes of this Section 5(a), applicable premiums that will be
            paid by the Company during the period provided for under the
            applicable schedule of benefits under this Plan shall not include
            any amounts payable by the Eligible Employee under any Section 125
            health cue reimbursement plan sponsored by the Company, which
            amounts, if any, are the sole responsibility of the Eligible
            Employee.

     (b)    Other Employee Benefits. All other benefits (such as 401(k) plan
            matching contributions) terminate as of the Eligible Employee's
            Termination Date in accordance with the terms of the plans under
            which such benefits were granted, except as provided in the attached
            Schedule of Benefits

                                       4.
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Section 6.  Right To Interpret Plan; Amend And Terminate; Other Arrangements;
            Binding Nature Of Plan.

     (a)    Exclusive Discretion. The Plan Administrator shall have the
            exclusive discretion and authority to establish rules, forms, and
            procedures for the administration of the Plan, and to construe and
            interpret the Plan and to decide any and all questions of fact,
            interpretation, definition, computation or administration arising in
            connection with the operation of the Plan, including, but not
            limited to, the eligibility to participate in the Plan and the
            amount of benefits paid under the Plan. The rules, interpretations,
            computations and other actions of the Plan Administrator shall be
            binding and conclusive on all persons.

     (b)    Term Of Plan; Amendment Or Termination; Binding Nature Of Plan.

            (i)   This Plan shall be effective until amended, suspended or
                  terminated by the Company.

            (ii)  The Company reserves the right to amend, suspend or
                  discontinue this Plan or the benefits provided hereunder at
                  any time; provided, however, that no such amendment,
                  suspension or termination shall reduce the benefits received
                  by any Eligible Employees covered under the Plan until one (1)
                  year from the date notice in writing is given to such Eligible
                  Employees of such amendment, suspension or termination, and
                  the terms of the Plan prior to its amendment, suspension or
                  termination shall remain in effect until the end of such one
                  (1) year period.

            (iii) Any action amending or terminating the Plan shall be in
                  writing and executed by the Chief Executive Officer of the
                  Company or the Chairman of the Board and/or the Parent Board
                  as the case may be.

     (c)    Other Severance Arrangements. The Company reserves the right to make
            other arrangements regarding severance and change of control
            benefits in special circumstances.

     (d)    Binding Effect On Successor To Company. This Plan shall be binding
            upon any successor or assignee, whether direct or indirect, by
            purchase, merger, consolidation or otherwise, to all or
            substantially all the business or assets of the Company, or upon any
            successor to the Company as the result of a Change of Control, and
            any such successor or assignee shall be required to perform the
            Company's obligations under the Plan, in the same manner and to the
            same extent that the Company would be required to perform if no such
            succession or assignment or Change of Control had taken place. In
            such event the term "Company," as used in the Plan, shall mean the
            Company as hereinafter defined and any successor or assignee as
            described above which by reason hereof becomes bound by the terms
            and provisions of this Plan.

                                       5.
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Section 7.  Definitions.

     Capitalized terms used in this Plan, unless defined elsewhere in this Plan,
shall have the following meanings:

     (a)    Accountants means the certified independent public accountants of
            the Company.

     (b)    Affiliate means any parent corporation or subsidiary corporation of
            the Company, as those terms are defined in Sections 424(e) and (0
            respectively, of the Code.

     (c)    Board means the Board of Directors of Peet's Coffee & Tea.

     (d)    Cause means (i) conviction of, a guilty plea with respect to, or a
            plea of nolo contendere to a charge that the Eligible Employee has
            committed a felony under the laws of the United States or of any
            state or a crime involving moral turpitude, including, but not
            limited to, fraud, theft, embezzlement or any crime that results in
            or is intended to result in personal enrichment at the expense of
            the Company; (ii) material breach of any agreement entered into
            between the Eligible Employee and the Company that impairs the
            Company's interest therein; (iii) willful misconduct, significant
            failure of the Eligible Employee to perform the Eligible Employee's
            duties, or gross neglect by the Eligible Employee of the Eligible
            Employee's duties; or (iv) engagement in any activity that
            constitutes a material conflict of interest with the Company.

     (e)    Change of Control means: (i) a sale of sixty percent (601/6) or more
            of the assets of the Company or the Parent; (ii) a merger or
            consolidation involving the Company or the Parent in which the
            Company or the Parent is not the surviving corporation and the
            shareholders of the Parent immediately prior to the completion of
            such transaction hold, directly or indirectly, less than fifty
            percent (50%) of the beneficial ownership (within the meaning of
            Rule 13d-3 promulgated under the Exchange Act, or comparable
            successor rules) of the securities of the surviving corporation
            (excluding any shareholders who possessed a beneficial ownership
            interest in the surviving corporation prior to the completion of
            such transaction); (iii) a reverse merger involving the Company or
            the Parent in which the Company or the Parent, as the case may be,
            is the surviving corporation but the shares of common stock of the
            Company or the Parent (the "Common Stock") outstanding immediately
            preceding the merger are converted by virtue of the merger into
            other property, whether in the form of securities, cash or
            otherwise, and the shareholders of the Parent, immediately prior to
            the completion of such transaction hold, directly or indirectly,
            less than fifty percent (50%) of the beneficial ownership (within
            the meaning of Rule 13d-3 promulgated under the Exchange Act, or
            comparable successor rules) of the surviving entity or, if more than
            one entity survives the transaction, the controlling entity; (iv) an
            acquisition by -any person, entity or group within the meaning of
            Section 13 )(d) or 14(d) of the Exchange Act or any comparable
            successor provisions (excluding any employee benefit plan, or
            related trust, sponsored or maintained by the Company or an
            Affiliate of the Company) of the

                                       6.
<PAGE>

          beneficial ownership (within the meaning of Rule 13d-3 promulgated
          under the Exchange Act, or comparable successor rules) of securities
          of the Company or of the Parent representing at least fifty percent
          (50%) of the combined voting power entitled to vote in the election of
          directors; or, (v) in the event that the individuals who, as of the
          Effective Date, are members of the Parent's Board (the "Incumbent
          Board"), cease for any reason to constitute at least fifty percent
          (50%) of the Parent's Board. (If the election, or nomination for
          election by the Parent's shareholders, of any new member of the
          Parent's Board is approved by a vote of at least fifty percent (50%)
          of the Incumbent Board, such new member of the Parent's Board shall be
          considered as a member of the Incumbent Board.) Notwithstanding the
          foregoing, for the purposes of this Plan and with respect to any and
          all clauses of this Section of the Plan, an initial public offering of
          the securities of the Company (an "IPO") or any transactions or events
          constituting part of an IPO shall not be deemed to constitute or in
          any way effect a Change of Control.

     (f)  Change of Control Termination means any involuntary termination
          without Cause or any Voluntary Termination with Good Reason of an
          Eligible Employee within twelve (12) months or less after the date of
          a Change of Control. A Change of Control Termination does not include
          a termination due to death or Disability or any other sort of
          termination.

     (g)  Code means toe Internal Revenue Code of 1986, as amended.

     (h)  Company means Peet's Coffee & Tea, a Washington corporation, and any
          successor as provided in Section 6(d) hereof.

     (i)  Covered Termination means any involuntary termination without Cause of
          an Eligible Employee, other than a termination that constitute a
          Change of Control Termination. A Covered Termination also includes any
          termination designated as such in an Eligible Employee's Key Employee
          Agreement. A Covered Termination does not include a termination due to
          death or Disability.

     (j)  Disability means the inability of an Eligible Employee, in the opinion
          of a qualified physician acceptable to the Company, to perform the
          major duties of that Eligible Employee's position with the Company
          because of the sickness or injury of the Eligible Employee.

     (k)  Effective Date means November 3, 1998, the date of adoption of this
          Plan.

     (l)  Eligible Employee means an employee of the Company who is eligible to
          participate in the Plan as specified in Section 2 hereof.

     (m)  Exchange Act means the Securities Exchange Act of 1934, as amended.

     (n)  Key Employee Agreement means an employment contract or agreement
          entered into between an Eligible Employee and the Company that refers
          to this plan and the benefits provided hereunder.

                                       7.
<PAGE>

     (o)  Parent means Peet's Companies, Inc., a Washington corporation, and any
          successor as provided in Section 6(d) hereof.

     (p)  Parent Board means the Board of Directors of Peet's Companies, Inc.

     (q)  Pay means the following:

          (i)  With respect to a Covered Termination, Pay means the Eligible
               Employee's base pay (not including bonus and other forms of
               supplemental compensation) at the rate in effect during the
               regularly scheduled payroll period coincident with the Covered
               Termination.

          (ii) With respect to a Change of Control Termination, Pay means the
               higher of the Eligible Employee's base pay (not including bonus
               and other forms of supplemental compensation) at the rate in
               effect (A) immediately prior to the Change of Control or (B)
               during the regularly scheduled payroll period coincident with the
               Change of Control Termination.

     (r)  Plan means this Peet's Coffee & Tea Key Employee Severance and Change
          of Control Benefit Plan.

     (s)  Pro Rata Bonus means an amount equal to the target bonus amount for
          the Eligible Employee for the relevant period in which the Termination
          Date occurs (monthly if such Eligible Employee's bonus is calculated
          on a monthly basis, quarterly if the bonus is calculated on a
          quarterly basis, annually if the bonus is calculated on an annual
          basis) prorated on a daily basis from the beginning of such period up
          to and including the Termination Date.

     (t)  Severance Pay means the amount of an Eligible Employee's Pay received
          by such Eligible Employee pursuant to the Plan as a result of a
          Covered Termination or a Change of Control Termination.

     (u)  Severance Payment Period means the period of time during which an
          Eligible Employee receives Severance Pay pursuant to this Plan and as
          specified in the Schedule of Benefits.

     (v)  Termination Date means the last date on which the Eligible Employee is
          in active pay status as an employee with the Company or an Affiliate
          of the Company.

     (w)  Voluntary Termination with Good Reason means that the Eligible
          Employee voluntarily terminates his or her employment after any of the
          following are undertaken without the Eligible Employee's express
          written consent:

          (i)  the assignment to the Eligible Employee of any duties or
               responsibilities which result in any diminution or adverse change
               of the Eligible Employee's position, status or circumstances of
               employment as in effect immediately prior to a Change of Control
               of the Company; a material

                                       8.
<PAGE>

                  change in the Eligible Employee's titles or offices as in
                  effect immediately prior to a Change of Control of the
                  Company; any removal of the Eligible Employee from or any
                  failure to reelect the Eligible Employee to any of such
                  positions, except in connection with the termination of his or
                  her employment for death, Disability, retirement, fraud,
                  misappropriation, embezzlement or any other voluntary
                  termination of employment by the Eligible Employee other than
                  Voluntary Termination for Good Reason;

            (ii)  a reduction by the Company in the Eligible Employee's Pay;

            (iii) any failure by the Company to continue in effect any benefit
                  plan or arrangement, including incentive plans or plans to
                  receive securities of the Company, in which the Eligible
                  Employee is Participating at the time of a Change of Control
                  of the Company (hereinafter referred to as "Benefit Plans"),
                  or the taking of any action by the Company which would
                  adversely affect the Eligible Employee's participation in or
                  reduce the Eligible Employee's benefits under any Benefit
                  Plans or deprive the Eligible Employee of any fringe benefit
                  enjoyed by the Eligible Employee at the time of a Change of
                  Control of the Company, provided, however, that Eligible
                  Employee may not terminate for Good Reason following a Change
                  of Control of the Company if the Company offers a range of
                  benefit plans and programs which, taken as a whole, are
                  comparable to the Benefit Plans;

            (iv)  a relocation of the Eligible Employee or the Company's
                  principal executive offices to a location more than thirty-
                  five (35) miles from the location at which the Eligible
                  Employee performed the Eligible Employee's duties prior to a
                  Change of Control of the Company, except for required travel
                  by the Eligible Employee on the Company's business to an
                  extent substantially consistent with the Eligible Employee's
                  business travel obligations at the time of a Change of Control
                  of the Company;

            (v)   any material breach by the Company of any provision of this
                  Plan or the Eligible Employee's Key Employee Agreement; or

            (vi)  any failure by the Company to obtain the assumption of this
                  Plan by any successor or assign of the Company.

Section 8.  No Implied Employment Contract.

     The Plan shall not be deemed (i) to give any employee or other person any
right to be retained in the employ of the Company or its Affiliates or (ii) to
interfere with the right of the Company or its Affiliates to discharge any
employee or other person at any time and for any reason, which right is hereby
reserved.

                                       9.
<PAGE>

Section 9.  Legal Construction.

     This Plan is intended to be governed by and shall be construed in
accordance with the Employee Retirement income Security Act of 1974, as amended
("ERISX) and, to the extent not preempted by ERISA, the laws of the State of
California.

Section 10. Claims, Inquiries And Appeals.

     (a)    Applications For Benefits And Inquiries. Any application for
            benefits, inquiries about the Plan or inquiries about present or
            future rights under the Plan must be submitted to the Plan
            Administrator in writing. The Plan Administrator is:

                              Peet's Coffee & Tea
                               1400 Park Avenue
                             Emeryville, CA 94608

     (b)    Denial Of Claims. In the event that any application for benefits is
            denied in whole or in part, the Plan Administrator must notify the
            applicant, in writing, of the denial of the application, and of the
            applicant's right to review the denial. The written notice of denial
            will be set forth in a manner designed to be understood by the
            employee, and will include specific reasons for the denial, specific
            references to the Plan provision upon which the denial is based, a
            description of any information or material that the Plan
            Administrator needs to complete the review and an explanation of the
            Plan's review procedure.

     This written notice will be given to the employee within go days after the
plan Administrator receives the application, unless special circumstances
require an extension of time, in which case, the Plan Administrator has up to an
additional 90 days for processing the application.  If an extension of time for
processing is required, written notice of the extension will be furnished to the
applicant before the end of the initial 90-day period.

     This notice of extension will describe the special circumstances
necessitating the additional time and the date by which the Plan Administrator
is to render its decision on the application.  If written notice of denial of
the application for benefits is not furnished within the specified time, the
application shall be deemed to be denied.  The applicant will then be permitted
to appeal the denial in accordance with the Review Procedure described below.

     (c)    Request For A Review. Any person (or that person's authorized
            representative) for whom an application for benefits is denied (or
            deemed denied), in whole or in part, may appeal the denial by
            submitting a request for a review to the Plan Administrator within
            60 days after the application is denied (or deemed denied). The Plan
            Administrator will give the applicant (or his or her representative)
            an opportunity to review pertinent documents in preparing a request
            for a review. A request for a review shall be in writing and shall
            be addressed to:

                                      10.
<PAGE>

                              Peet's Coffee &Tea
                               1400 Park Avenue
                             Emeryville, CA 94608

     A request for review must set forth all of the grounds on which it is
based, all facts in support of the request and any other matters that the
applicant feels are pertinent.  The Plan Administrator may require the applicant
to submit additional facts, documents or other material as it may rind necessary
or appropriate in making its review.

     (d)    Decision On Review. The Plan Administrator will act on each request
            for review within 60 days after receipt of the request, unless
            special circumstances require an extension of time (not to exceed an
            additional sixty (60) days), for processing the request for a
            review. If an extension for review is required, written notice of
            the extension will be furnished to the applicant within the initial
            sixty (60) day period. The Plan Administrator will give prompt,
            written notice of its decision to the applicant. In the event that
            the Plan Administrator confirms the denial of the application for
            benefits in whole or in part, the notice will outline, in a manner
            calculated to be understood by the applicant, the specific Plan
            provisions upon which the decision is based. If written notice of
            the Plan Administrator's decision is not given to the applicant
            within the time prescribed in this Section 10(d), the application
            will be deemed denied on review.

     (e)    Rules And Procedures. The Plan Administrator will establish rules
            and procedures, consistent with the Plan and with ERISA, as
            necessary and appropriate in carrying out its responsibilities in
            reviewing benefit claims. The Plan Administrator may require an
            applicant who wishes to submit additional information in connection
            with an appeal from the denial (or deemed denial) of benefits to do
            so at the applicant's own expense.

     (f)    Exhaustion Of Remedies. No legal action for benefits under the plan
            may be brought until the claimant (i) has submitted a written
            application for benefits in accordance with the procedures described
            by Section 10(a) above, (ii) has been notified by the Plan
            Administrator that the application is denied (or the application is
            deemed denied due to the Plan Administrator's failure to act on it
            within the established time period), (iii) has filed a written
            request for a review of the application in accordance with the
            appeal procedure described in Section 10(c) above and (iv) has been
            notified in writing that the Plan Administrator has denied the
            appeal (or the appeal is deemed to be denied due to the Plan
            Administrator's failure to take any action on the claim within the
            time prescribed by Section 10(d) above).

Section 11. Basis Of Payments To And From Plan.

     All benefits under the Plan shall be paid by the Company.  The Plan shall
be unfunded, and benefits hereunder shall be paid only from the general assets
of the Company.

                                      11.
<PAGE>

Section 12. Other Plan Information.

     (a)    Employer And Plan Identification Numbers. The Employer
            Identification Number assigned to the Company (which is the "Plan
            Sponsor as that term is used in ERISA) by the Internal Revenue
            Service is 91-0863396. The Plan Number assigned to the Plan by the
            Plan Sponsor pursuant to the instructions of the Internal Revenue
            Service is 502.

     (b)    Ending Date For Plan's Fiscal Year. The date of the end of the
            fiscal year for the purpose of maintaining the Plan's records is
            December 31.

     (c)    Agent For The Service Of Legal Process. The agent for the Service of
            legal process with respect to the Plan is the Chief Financial
            Officer, Peet's Coffee & Tea, 1400 Park Avenue, Emeryville, CA
            94608. The service of legal process may also be made on the Plan by
            serving the Plan Administrator.

     (d)    Plan Sponsor And Administrator. The "Plan Sponsor" and the "Plan
            Administrator" of the Plan is Peet's Coffee & Tea, 1400 Park Avenue,
            Emeryville, CA 94608. The Plan Sponsor's and Plan Administrator's
            telephone number is (510) 594-2100. The Plan Administrator is the
            named fiduciary charged with the responsibility for administering
            the Plan.

Section 13. Statement Of ERISA Rights.

     Participants in this Plan (which is a welfare benefit plan sponsored by
Peet's Coffee & Tea) are entitled to certain rights and protections under ERISA.
If you are an Eligible Employee, you are considered a participant in the Plan
and, under ERISA, you are entitled to:

     (a)    Examine, without charge, at the Plan Administrator's office and at
            other specified locations, such as work sites, all Plan documents
            and copies of all documents filed by the Plan with the U.S.
            Department of Labor, such as detailed annual reports;

     (b)    Obtain copies of all Plan documents and Plan information upon
            written request to the Plan Administrator. The Administrator may
            make a reasonable charge for the copies;

     (c)    Receive a summary of the Plan's annual financial report, in the case
            of a plan that is required to file an annual financial report with
            the Department of Labor. (Generally, all pension plans and welfare
            plans with 100 or more participants must file these annual reports.)

     In addition to creating rights for Plan participants, ERISA imposes duties
upon the people responsible for the operation of the employee benefit plan.  The
people who operate the Plan, called "fiduciaries" of the Plan, have a duty to do
so prudently and in the interest of you and other Plan participants and
beneficiaries.

     No one, including your employer or any other person, may fire you or
otherwise discriminate against you in any way to prevent you from obtaining a
Plan benefit or exercising

                                      12.
<PAGE>

your rights under ERISA. If your claim for a Plan benefit is denied in whole or
in part, you must receive a written explanation of the reason for the denial.
You have the right to have the Plan review and reconsider your claim.

     Under ERISA, there are steps you can take to enforce the above rights.  For
instance, if you request materials from the Plan and do not receive them within
30 days, you may file suit in a federal court.  In such a case, the court may
require the Plan Administrator to provide the materials and pay you up to S 100
a day until you receive the materials, unless the materials were not sent
because of reasons beyond the control of the Plan Administrator.  If you have a
claim for benefits that is denied or ignored, in whole or in part, you may file
suit in a state or federal court.  If it should happen that the Plan fiduciaries
misuse the Plan's money or if you are discriminated against for asserting your
rights, you may seek assistance from the U.S. Department of Labor, or you may
rile suit in a federal court.  The court will decide who should pay court costs
and legal fees.  If you are successful, the court may order the person you have
sued to pay these costs and fees.  If you lose, the court may order you to pay
these costs and fees, for example, if it finds your claim is frivolous.

     If you have any questions about this statement or about your rights under
ERISA, you should contact the nearest office of the Pension and Welfare Benefits
Administration, U.S. Department ` of Labor, listed in your telephone directory,
or the Division of Technical Assistance and Inquiries, Pension and Welfare
Benefit Administration, U.S. Department of Labor, 200 Constitution Avenue N.W.,
Washington, D.C. 20210.

Section 14.  Execution.

     To record the adoption of the Plan as set forth herein, effective as of
November 3, 1998, Peet's Coffee & Tea and Peet's Companies, Inc. have caused a
duly authorized officer to execute the same this 4th day of January, 1999.

Peet's Companies, Inc.                    Peet's Coffee & Tea



By: /s/ Christopher P. Mottern            By: /s/ Christopher P. Mottern
    ------------------------------            ------------------------------

Title:____________________________        Title:____________________________

Attachment:  Schedule of Benefits

                                      13.
<PAGE>

                              PEET'S COFFEE & TEA

                      KEY EMPLOYEE SEVERANCE BENEFIT PLAN

                             SCHEDULE OF BENEFITS

                             CHAIRMAN OF THE BOARD


I.   Covered Termination.

An Eligible Employee whose position with the Company is that of Chairman of .the
Board and/or the Parent Board (as the case may be) or Vice President of Coffee
and whose employment is terminated due to a Covered Termination (as defined in
Section 7 of the Plan) shall receive the following benefits:

          (i)   Severance Pay in an amount equal to two (2) years of Pay.

          (ii)  An amount equal to the Pro Rata Bonus.

          (iii) If the Eligible Employee elects COBRA coverage, then the Company
     shall pay the same amount for each applicable sub-category of coverage
     (e.g., health, dental, vision) as the Company paid for such sub-category of
     coverage for the Eligible Employee before the Eligible Employee's
     Termination Date for the duration of the Severance Payment Period.
     Company's payment obligations under this Section I.(iii) shall include the
     payment of dependent coverage if Eligible Employee maintained dependent
     coverage prior to Eligible Employee's Termination Date.

          (iv)  To the extent permitted by the applicable carrier, disability
     and life insurance coverage provided to the Eligible Employee by the
     Company prior to the Eligible Employee's Termination Date shall be
     continued at the Company's expense for two (2) years after the Termination
     Date.

          (v)   The Eligible Employee shall be eligible to participate in an
     outplacement program to the extent and in the manner specified in the Key
     Employee Agreement between such Eligible Employee and the Company.

II.  Change Of Control Termination.

     An Eligible Employee whose position with the Company is that of Chairman of
the Board or the Parent Board (as the case may be) or Vice President of Coffee
and whose employment is terminated due to a Change of Control Termination (as
defined in Section 7 of the Plan) shall receive the following benefits:

          (i)   Severance Pay in an amount equal to two (2) years of Pay.

          (ii)  The benefits listed above in clauses I(ii)-(v) for a Covered
                Termination.
<PAGE>

                              PEET'S COFFEE & TEA

                      KEY EMPLOYEE SEVERANCE BENEFIT PLAN

                             SCHEDULE OF BENEFITS

                            VICE PRESIDENT, COFFEE



I.   COVERED TERMINATION.

     An Eligible Employee whose position with the Company is that of Chairman
of the Board and/or the Parent Board (as the case may be) or Vice President of
Coffee and whose employment is terminated due to a Covered Termination (as
defined in Section 7 of the Plan) shall receive the following benefits:

           (i)     Severance Pay in an amount equal to two (2) years of
     Pay.

           (ii)    An amount equal to the Pro Rata Bonus.

           (iii)   If the Eligible Employee elects COBRA coverage, then the
     Company shall pay the same amount for each applicable sub-category of
     coverage (e.g., health, dental, vision) as the Company paid for such sub-
     category of coverage for the Eligible Employee before the Eligible
     Employee's Termination Date for the duration of the Severance Payment
     Period. Company's payment obligations under this Section I.(iii) shall
     include the payment of dependent coverage if Eligible Employee maintained
     dependent coverage prior to Eligible Employee's Termination Date.

           (iv)    To the extent permitted by the applicable carrier, disability
     and life insurance coverage provided to the Eligible Employee by the
     Company prior to the Eligible Employee's Termination Date shall be
     continued at the Company's expense for two (2) years after the Termination
     Date.

           (v)     The Eligible Employee shall be eligible to participate in an
     outplacement program to the extent and in the manner specified in the Key
     Employee Agreement between such Eligible Employee and the Company.

II.  CHANGE OF CONTROL TERMINATION.

     An Eligible Employee whose position with the Company is that of Chairman of
the Board or the Parent Board (as the case may be) or Vice President of Coffee
and whose employment is terminated due to a Change of Control Termination (as
defined in Section 7 of the Plan) shall receive the following benefits:

           (i)     Severance Pay in an amount equal to two (2) years of Pay.

           (ii)    The benefits listed above in clauses I(ii)-(v) for a Covered
                   Termination.
<PAGE>

                              PEET'S COFFEE & TEA

                     KEY EMPLOYEE SEVERANCE BENEFIT PLAN

                             SCHEDULE OF BENEFITS

                            CHIEF EXECUTIVE OFFICER



I.   COVERED TERMINATION.

     An Eligible Employee whose position with the Company is that of Chief
Executive Officer and whose employment is terminated due to a Covered
Termination (as defined in Section 7 of the Plan) shall receive the following
benefits:

           (i)     Severance Pay in an amount equal to one (1) year of Pay plus
     one (1) month of Pay for each year of employment with the Company, prorated
     at the discretion of the Company, provided that the maximum amount received
     shall be twenty-four (24) months of Pay.

           (ii)    An amount equal to the Pro Rata Bonus.

           (iii)   If the Eligible Employee elects COBRA coverage, then the
     Company shall pay the same amount for each applicable sub-category of
     coverage (e.g., health, dental, vision) as the Company paid for such sub-
     category of coverage for the Eligible Employee before the Eligible
     Employee's Termination Date for the duration of the Severance Payment
     Period. Company's payment obligations under this Section I.(iii) shall
     include the payment of dependent coverage if Eligible Employee maintained
     dependent coverage prior to Eligible Employee's Termination Date.

           (iv)    To the extent permitted by the applicable carrier, disability
     and life insurance coverage provided to the Eligible Employee by the
     Company prior to the Eligible Employee's Termination Date shall be
     continued at the Company's expense for two (2) years after the Termination
     Date.

           (v)     The Eligible Employee shall be eligible to participate in an
     outplacement program to the extent and in the manner specified in the Key
     Employee Agreement between such Eligible Employee and the Company.

II.  CHANGE OF CONTROL TERMINATION.

     An Eligible Employee whose position with the Company is that of Chief
Executive Officer and whose employment is terminated due to a Change of Control
Termination (as defined in Section 7 of the Plan) shall receive the following
benefits:

           (i)     Severance Pay in an amount equal to two (2) years of Pay.

           (ii)    The benefits listed above in clauses I(ii)-(v) for a Covered
                   Termination.
<PAGE>


                              PEET'S COFFEE & TEA

                     KEY EMPLOYEE SEVERANCE BENEFIT PLAN

                             SCHEDULE OF BENEFITS

                                VICE PRESIDENTS



I.   COVERED TERMINATION.

     An Eligible Employee whose position with the Company is that of vice
president and whose employment is terminated due to a Covered Termination (as
defined in Section 7 of the Plan) shall receive the following benefits:

           (i)     Severance Pay in an amount equal to six (6) months of Pay
     plus one (1) month of Pay for each year of employment with the Company,
     prorated at the discretion of the Company, provided that the maximum amount
     received shall be twenty-four (24) months of Pay.

           (ii)    An amount equal to the Pro Rata Bonus.

           (iii)   If the Eligible Employee elects COBRA coverage, then the
     Company shall pay the same amount for each applicable sub-category of
     coverage (e.g., health, dental, vision) as the Company paid for such sub-
     category of coverage for the Eligible Employee before the Eligible
     Employee's Termination Date for the duration of the Severance Payment
     Period.

           (iv)    To the extent permitted by the applicable carrier, disability
     and life insurance coverage provided to the Eligible Employee by the
     Company prior to the Eligible Employee's Termination Date shall be
     continued at the Company's expense for six (6) months after the Termination
     Date.

           (v)     The Eligible Employee shall be eligible to participate in an
     outplacement program for up to six (6) months, at a cost not exceeding ten
     thousand dollars ($10,000); provided, however, that the provider of such
     outplacement program must be reasonably acceptable to the Company and the
     Eligible Employee must provide to the Company adequate proof of the expense
     incurred.

II.  CHANGE OF CONTROL TERMINATION.

     An Eligible Employee whose position with the Company is that of Vice
President and whose employment is terminated due to a Change of Control
Termination (as defined in Section 7 of the Plan) shall receive the following
benefits:

           (i)     Severance Pay in an amount equal to one (1) year of Pay.

           (ii)    The benefits listed above in clauses I(ii)-(v) for a Covered
                   Termination.