Document:

<PAGE>

                                                                    EXHIBIT 10.8

                            Fidelity Investments(R)

                       [Advisor Retirement Connection(R)
                        Premium Service] Retirement Plan

                               SERVICE AGREEMENT
                                      for
                           PROFIT SHARING/401(k) PLAN

This Agreement is between Fidelity Management Trust Company ("Fidelity") and
Peet's Coffee & Tea, Inc. (the "Employer"), who maintains the Plan designated
below.

Plan Name:              Peet's Coffee & Tea, Inc. Savings & Retirement Plan.

                        _______________________________________________________

Implementation Date:    04/01/1999     Number of Eligible Employees: 331
                                                                     ---
                                       Number of Participants:
                                                                     __________

Select One:
[_] Start-up Plan  [X] Conversion Plan or Start-up Plan with assets transferred
from another Plan.

Article I.  Startup and Conversion Services
-------------------------------------------

Start-up Plan Fee: (New Plans Only)                                  $_________
Includes:
--------
 .  Camera-ready copy of all relevant Administrative Forms
 .  Fidelity Workbench(TM) Software
 .  Implementation Conference Call - Issues covered include electronic data
transmission, contribution processing cycles, Plan administrative needs, project
timetables, and resource coordination
 .  IRS Determination Letter Kit for Form 5307 filing
 .  Prototype Plan and trust document (updated as required to ensure
compliance with the Internal Revenue Code)
 .  One original Summary Plan Description

Conversion Plan Fee                                                  $waived
                                                                     -------
(For Conversion Plans or Start-up Plans with assets transferred from
another plan)
In addition to documentation above, includes:
--------------------------------------------
 .  Establishment of historical data on the Fidelity Participant Recordkeeping
System (FPRS)
 .  Preparation of Participant and Plan records for FPRS
 .  Reconciliation to transferred data
 .  Transfer or registration of assets from current Trustee

                                      1.
<PAGE>

Article II.  Administrative Service Fees
----------------------------------------

     1.  Annual Recordkeeping Fee (Per Participant)               See Appendix C

 Includes:
 --------

     .  1-800 # Administrator access
     .  Monthly contribution processing
     .  Daily valuation
     .  Up to 10 investment options
     .  Investment exchanges of existing Participant account balances
     .  Investment direction of future contributions
     .  Distribution and withdrawal processing
     .  Monthly Trial Balance and Distribution/Withdrawal Report
     .  Quarterly Administrative Report*
     .  Quarterly Statements mailed directly to Participants' address of record*
     .  Twenty-four hour Participant telephone access to account balance and
        fund price information
     .  Annual Plan Year-End Summary Reporting Package on a cash basis
        (available only for an Employer preparing its own IRS 5500 or 5500-C/R)

     * Quarterly reporting cycle: as of February 28, May 31, August 31 and
     November 30

     2.  Contribution Processing Cycle - Monthly                    Included in
         per participant                                                    fee

     An additional fee of $60 per payroll in excess of 12 per year will be
     charged.

         [_]  Semimonthly                                               $  720
                                                                        -------
         [X]  Biweekly                                                  $Waived
                                                                        --------
         [_]  Weekly                                                    $2,400
                                                                        -------

     Contribution processing cycle fee for other than monthly will be prorated
     for the first year if plan is implemented during mid-year.

Article III.  Trustee Fees
--------------------------

Annual Trustee Fee:                                                $1500
                                                                   -----

As Non-Discretionary Trustee, Fidelity will be:
----------------------------------------------
  .  Responsible for the possession and safekeeping of the qualified retirement
     plan assets
  .  Responsible for following the direction of the Administrator in the
     administration of the Plan assets in the trustee's possession
  .  Responsible for following the direction of the Participants in the
     investment of their individual account balances among the Permissible
     Investment options made available as investment options under the Plan
  .  Responsible for providing the Administrator with a year end balance sheet
     and annual income statement of the financial activity in the Plan, along
     with the appropriate schedules to be used in the preparation of the IRS
     Form 5500 Report/Return for the Plan
  .  Responsible for issuing distribution checks and annual IRS Form 1099-R Tax
     reporting

                                      2.
<PAGE>

Article IV.  Additional Services
--------------------------------

1. Loan Initiation and Service Fee
   Participant Loans (Select One)                                $125 per loan
   ------------------------------                                ------------
   [X] Yes   [_] No

   This one-time fee is payable when the loan is originated. Fidelity will be
   responsible for processing Participant loan transactions.

   If Employer has more than one payroll cycle, loan repayments will be made on
   the same frequency as contributions:

   [_]  Weekly

   [X]  Biweekly

   [_]  Semi-monthly

   [_]  Monthly

   [_]  Other __________

2. Compliance and Reporting Services Fee:
   Package Non-Discrimination Testing ("NDT") (Select One)        $1500
   -------------------------------------------------------         ----
   [X] Yes  [_] No

   Fidelity will perform non-discrimination testing. Fidelity will perform
   semiannual Actual Deferral Percentage (ADP) and Actual Contribution
   Percentage (ACP) non-discrimination tests (if applicable). In addition,
   Fidelity will perform 402(g) Deferral Limitation Monitoring (for calendar
   year plans only) (if applicable) and 415 Limitation Monitoring (for defined
   contribution plans only), and, if necessary, the annual Top Heavy and Minimum
   Coverage (ratio percentage test only) tests for the Employer's Plan.
   Ad Hoc non-discrimination testing is available and a fee will
   be provided upon request.

   The Employer will be billed a prorata portion of the entire Compliance and
   Reporting Services Fee at the end of each quarter based upon the tests
   elected.

   Signature Ready IRS Form 5500 (Select One)                     Included in
   ------------------------------------------                     -----------
   [X] Yes  [_] No                                                Compliance
                                                                  ----------
                                                                  and Reporting
                                                                  -------------
                                                                  Services Fee
                                                                  ------------

   Please Note: Signature Ready IRS Form 5500 cannot be selected unless Package
                                              ------             --------------
   Non-Discrimination Testing is selected.
   --------------------------------------

   Fidelity will prepare the appropriate signature-ready IRS Form 5500 and
   Summary Annual Report. The completed IRS Form 5500 Questionnaire must be
   received from the Employer or Plan Administrator, as appropriate, for the
   applicable plan year within three and one-half months after plan year end. If
   this information is not received by the prescribed time, an additional fee of
   $350 will be charged to the Employer. An Employer maintaining a multiple
   employer plan that is required to file more than one IRS Form 5500 will be
   charged an additional fee of $350 for each 5500 required over one.

3. Additional Investment Options Fee:

   There will be an additional annual fee of $500 for each permissible
   investment option offered in excess of ten (maximum of twenty):

                                      3.
<PAGE>

   Number of investments offered under the Plan in excess of ten:

          __________ x $500 =                                         $________

4. Additional Fees for services elected by the Employer and Identified
   in the attached Addenda

   Identify number of Addenda attached __________.

                                      4.
<PAGE>

Article V.  Billing Information
-------------------------------
  Fidelity's quarterly invoice for services rendered will be sent to the
  following address (quarterly billing cycle is same as quarterly reporting
  cycle in Article II):

  Company:  Peet's Coffee & Tea
          ----------------------------------------------------------------------
  Contact Name:  Edie Hoffman
               -----------------------------------------------------------------
  Title:  director, human resources        Telephone Number:   510-594-2100
        ------------------------------                      --------------------
  Street Address:  1400 Park Avenue
                 ---------------------------------------------------------------
                    Emeryville, CA 94608
  ------------------------------------------------------------------------------
         (City)                        (State)                 (Zip Code)

Article VI.
-----------

  Prior Recordkeeper:  Benefit Services Corporation
                     -----------------------------------------------------------
  Contact Name:        Georgianna Lewis
               -----------------------------------------------------------------
  Title:               Account Administrator
        ------------------------------------------------------------------------
  Telephone Number:  404-872-0700x1683     Fax Number:  404-876-9014
                   ---------------------              --------------------------
  Street Address:  1375 Peachtree Street NE Suite 300
                 ---------------------------------------------------------------
                   Atlanta, GA  30309-3116
--------------------------------------------------------------------------------
     (City)                          (State)                    (Zip Code)

  Prior Trustee:     Peet's Coffee & Tea
                ----------------------------------------------------------------
  Contact Name:      Jerry Baldwin
               -----------------------------------------------------------------
  Title:             chairman
        ------------------------------------------------------------------------
  Telephone Number:  510-594-2100          Fax Number:         510-594-2180
                   --------------------               --------------------------
  Street Address:    1400 Park Avenue
                 ---------------------------------------------------------------
                     Emeryville, CA 94608
--------------------------------------------------------------------------------
     (City)                          (State)                     (Zip Code)

                                      1.
<PAGE>

Article VII.
------------

  Prior Custodian:______________________________________________________________
  (If not Trustee)

  Contact Name:_________________________________________________________________

  Title:________________________________________________________________________

  Telephone Number:______________________   Fax Number:_________________________

  Street Address:_______________________________________________________________

  ______________________________________________________________________________
       (City)                        (State)                    (Zip Code)

  External Payroll Vendor:   ADP
                          ------------------------------------------------------
  Contact Name:              Emily Keller
               -----------------------------------------------------------------
  Title:                     Major Account Manager
        ------------------------------------------------------------------------
  Telephone Number:  404-919-4911           Fax Number:  408-982-2255
                   ----------------------              -------------------------
  Street Address:  3300 Olcott St
                 ---------------------------------------------------------------
                   Santa Clara, CA 95054
  ------------------------------------------------------------------------------
       (City)                        (State)                    (Zip Code)

  Internal Payroll Contact:_____________________________________________________

  Contact Name:_________________________________________________________________

  Title:________________________________________________________________________

  Telephone Number                          Fax Number:
                  ----------------------               -------------------------

  Street Address:_______________________________________________________________

  ______________________________________________________________________________
       (City)                        (State)                    (Zip Code)

  Payroll Frequency/Dates:  bi-weekly
                          --------------

  Please provide all payroll frequencies and dates.

Article VIII.  Terms of Agreement
---------------------------------

This Agreement is subject to the following terms and conditions:

1.  Data Submission: The Employer or Administrator will provide Fidelity with
    ---------------
    accurate and complete data via electronic data transmission or the Fidelity
    Workbench Software on a timely basis. Fidelity will not be responsible for
    any losses and/or expenses that arise due to the submission of incorrect or
    incomplete data, or data transmitted to Fidelity in an improper format.

                                      2.
<PAGE>

2. Services: Fidelity shall have the responsibility to perform only those
   --------
   services set forth in Articles I - IV and in any Appendices and Addenda to
   this Agreement. All other regulatory and administrative matters relating to
   the Plan shall be the responsibility of the Employer and the Administrator.
   The Employer acknowledges that Fidelity does not provide legal or tax advice,
   and that the Employer must obtain its own legal and tax counsel for advice on
   the Plan design appropriate for its specific situation and on legal and tax
   issues pertaining to the administration of the Plan.

3. Documents: The Employer must use the [Advisor Retirement Connection(R)
   ---------
   Premium Service] Retirement Plan Basic Plan Document, corresponding Adoption
   Agreement and Service Agreement. The Employer may not add, delete, or modify
   the documents in any way without the consent of Fidelity. If the Non-
   Standardized Adoption Agreement is used, or if the Standardized Adoption
   Agreement is used and the Employer maintains, or has ever maintained, another
   plan, the Employer may not rely on the opinion letter issued by the National
   Office of the Internal Revenue Service as evidence that this Plan is
   qualified under Section 401 of the Internal Revenue Code. In such case, the
   Employer is responsible for filing a request with the appropriate Internal
   Revenue Service office to obtain an individual determination letter for the
   Plan.

4. Related Employers: The Employer is responsible for determining if the
   -----------------
   Employer is a member of a controlled group of businesses or an affiliated
   service group, as those terms are defined by the Internal Revenue Code, and
   for notifying Fidelity of its determination. Fidelity is under no obligation
   to verify the Employer's determination. Only members of the Employer's
   controlled group or affiliated service group may participate in the Plan. If
   the Standardized Adoption Agreement is adopted by the Employer, all members
   of its controlled group or affiliated service group must be included in the
   Plan and listed as an adopting related employer in the Adoption Agreement.
   Failure to do so may result in disqualification of the Plan by the Internal
   Revenue Service. If the Non-Standardized Adoption Agreement is adopted by the
   Employer, group members that participate in the Plan must be listed as
   Related Employers in the Adoption Agreement. All employees of group members
   must be considered for the coverage and nondiscriminatory contribution
   requirements of the Plan as well as any plan of a group member. If the
   Employees controlled group or affiliated service group status changes after
   initial retention of Fidelity, the Employer must provide timely written
   notification to Fidelity and take other action to include, exclude or remove
   group members or former group members from the Plan.

5. Contributions: The Employer shall provide Fidelity with Participant
   -------------
   information in accordance with Fidelity's specifications. The Employer shall
   be responsible for effecting Employee contributions and the transmittal of
   Employee and Employer contributions to Fidelity at such times and in such
   manner as mutually agreed between the parties. The Employer must consolidate
   the contribution information for multiple payrolls and/or multiple payroll
   sites onto one diskette, electronic data transmission, Fidelity Workbench
   Software or magnetic tape before sending it to Fidelity. The Employer will
   remit contributions by wire transfer to Fidelity after receiving notification
   and approval from Fidelity to wire the funds. Fidelity shall be responsible
   for the receipt of such amounts from the Employer and the deposit of the
   contributions to the accounts of Participants, including the deposit among
   available investment options, as directed by the Employer or Participants, as
   the case may be.

6. Telephone and Electronic Directions by Participants: If Participant
   ---------------------------------------------------
   direction is chosen by the Employer, each Participant in the Plan shall be
   permitted to direct the investment of his/her individual account balance and
   investment of future contributions among available Permissible Investment
   options through the use of Fidelity's telephone exchange system, or through
   electronic medium , to the extent permitted by Fidelity. The Employer hereby
   directs Fidelity to act upon such telephonic or electronic instructions
   without questioning the authenticity of such direction other than as provided
   in this Section. A Participant will be required to provide the Fidelity
   telephone exchange system representative or electronic medium with his/her
   Employer's Plan number, Social Security Number and personal identification
   number. For security purposes, upon proper notice to Fidelity, the Employer
   shall have the right to require a Participant to respond to additional
   questions (i.e., date of birth, date of hire, etc.) before being able to
   access his/her accounts. Only authorized Plan contact(s) and the Participant
   shall have access to a Participants account.

                                      3.
<PAGE>

7. Reliance and Indemnification: Fidelity may rely upon and act upon any
   ----------------------------
   writing or any other medium acceptable to Fidelity, including but not limited
   to electronic medium , from any person authorized by the Employer, including
   an Investment Professional, to give instructions concerning the Plan and may
   conclusively rely upon and be protected in acting upon any written or
   electronic order from the Employer or upon any other notice, request,
   consent, certificate, or other instructions or paper reasonably believed by
   it to have been executed by a duly authorized person, so long as it acts in
   good faith in taking or omitting to take any such action. Fidelity need not
   inquire as to the basis in fact of any statement in writing or any other
   medium acceptable to Fidelity received from the Employer or any other party
   authorized by the Employer to act on behalf of the Employer. Fidelity shall
   be entitled to reasonably rely upon the information provided by the Employer
   in performance of its duties hereunder. Unless resulting from Fidelity's
   negligence or willful misconduct, the Employer shall indemnify and save
   harmless Fidelity from any and all liabilities to which Fidelity may be
   subjected by reason of any act or conduct in carrying out its
   responsibilities under this Agreement, including all expenses reasonably
   incurred in its defense.

8. Transition Period: An existing Employer Plan converting to Fidelity will be
   -----------------
   subject to a transition period to facilitate the movement of Participant
   records and Plan assets from the prior recordkeeper and/or trustee to
   Fidelity. The Employer will be responsible for ensuring the prior
   recordkeeper provides Fidelity with all of the required Participant account
   balance history and related information. The Plan assets must be converted to
   cash and wired to Fidelity on the Implementation Date unless the assets are
   already invested in a Permissible Investment option offered under this
   Agreement. The assets will be invested in a money market fund or the previous
   investment option(s) that are also offered under this Agreement until all
   Participant information is received by Fidelity and approved by the Employer.
   Participants will not be able to take out a loan, make withdrawals or
   exchanges, or redirect future contributions during the transition period. The
   duration of the transition period is dependent upon the cooperation of the
   prior recordkeeper, prior trustee, the Employer and the Administrator.
   Fidelity cannot guarantee that the transition period will end as of a
   specified date, or the length of time required to complete the implementation
   process. Please note, an additional fee of $100 per hour will be charged for
   data manipulation services involving information not sent in the prescribed
   format during the Conversion process.

8. Package Non-Discrimination Testing: (Optional Service) If the Employer
   ----------------------------------
   elects to use Fidelity's Package Non-Discrimination Testing Services,
   Fidelity must-receive complete and accurate data in the required format
   within forty-five days after the Plan's year end to ensure any Participant
   refunds, due to the Plan's failure of the ADP and/or ACP tests, are
   distributed within seventy-five days after the Plan's year end. Fidelity must
   receive proper written, or any other medium acceptable to Fidelity,
   authorization from the Employer before making any such distributions.

   All annual IRC tests not identified in Section 2 of Article IV of this
   Agreement are the responsibility of the Employer. The data for the Package
   Non-Discrimination Testing Services must be transmitted to Fidelity on the
   Fidelity Workbench Software. The Employer understands that the non-
   discrimination test results are based upon information provided to Fidelity
   by the Employer. Fidelity cannot be responsible for invalid test results that
   are based upon incorrect or incomplete information provided to Fidelity.
   Fidelity has no obligation to solicit data, nor does it have an obligation to
   ascertain the accuracy or completeness of the data received. The Employer
   must complete Fidelity non-discrimination testing and top-heavy
   questionnaires before the initial test can be performed. These questionnaires
   will be provided to the Employer prior to the implementation of the Plan.

   All Consulting Services provided by Fidelity's Non-discrimination Testing
   Service Group will be provided at a rate of $100 per hour after the first
   hour. Consulting Services shall include (but are not limited to) telephone
   calls regarding the gathering, preparation and submission of test data, Plan
   document reviews, testing interpretations, and telephone calls to review
   final non-discrimination test results. In addition, any correction or
   manipulation of Plan data by Fidelity personnel at the request of the
   Employer will be charged at the rate of $100 per hour.

                                      4.
<PAGE>

    If the Plan is adopted by an Employer that is considered to be unrelated to
    the initial adopting Employer, there will be a charge of $100 per test per
    unrelated employer for each unrelated employer participating in the Plan.
    This charge is in addition to any base charges.

10. Signature Ready IRS Form 5500 Services:  (Optional Service) If the Employer
    --------------------------------------
    elects to use Fidelity's Signature Ready IRS Form 5500 Services, Fidelity
    will prepare the appropriate signature-ready IRS Form 5500 and Summary
    Annual Report. For Fidelity to complete the signature-ready Form 5500, the
    Employer must elect to use Fidelity's Package Non-Discrimination Testing
    Service. The testing process must be completed prior to commencing Form 5500
    preparation.

    The Employer agrees to:

    a.  Provide the Trustee with a copy of the most recent IRS Form 5500 that
        was filed with the IRS and a copy of any prior year's return as
        requested by the Trustee,

    b.  Complete a plan questionnaire ("IRS Form 5500 Questionnaire") that is
        provided by the Trustee. The IRS Form 5500 Questionnaire must be sent to
        the Trustee within a reasonable time before the initial IRS filing date.
        The Employer may delegate this responsibility to the Administrator
        identified in the [Advisor Retirement Connection(R) Premium Service
        Retirement Plan] Adoption Agreement; however, the Employer is still
        responsible for the accuracy of the information,

    c.  Provide the Trustee with a copy of the independent auditor's report for
        the Plan if one is required,

    d.  Use its best effort, along with the Administrator, to review, sign and
        timely mail to the IRS the IRS Form 5500 prepared by the Trustee,

    e.  Distribute the Summary Annual Report to Participants and beneficiaries,

    f.  Elect the Trustee's 5500 Services prior to the last day of the plan year
        for which the IRS Form 5500 would be required.

    Fidelity agrees to:

    g.  Send the Employer or Administrator, as appropriate, the IRS Form 5500
        Questionnaire within 45 days after plan year end. The Trustee shall have
        no responsibility for verifying the authenticity of the data submitted
        by the Employer or Administrator, as appropriate, on the IRS Form 5500
        Questionnaire,

    h.  Use its best effort to timely prepare IRS Form 5500 and summary annual
        report,

    i.  File IRS Form 5558 (Application for Extension of Time To File Certain
        Employee Plan Returns) to request an extension of time to file the IRS
        Form 5500 if all the required data is not received from the Employer or
        Administrator, as appropriate, within a reasonable time before the
        initial IRS filing date. If all the requested information is not
        received within a reasonable period before the extended IRS filing date,
        the Trustee will send the Employer or Administrator, as appropriate, the
        IRS Form 5500 that has been completed to that date. The Employer or
        Administrator, as appropriate, will be responsible for supplying the
        missing information and completing IRS Form 5500,

    j.  Assist in responding to IRS inquiries, received by the Employer or
        Administrator, about any IRS Form 5500 prepared by the Trustee.

11. Distributions and Withdrawals: The Employer is responsible for obtaining the
    -----------------------------
  required completed Plan withdrawal documentation from the Participant and the
  spouse, if applicable, for any benefits payable under the Plan. The Employer
  must provide the Participant, beneficiary and spouse, if

                                      5.
<PAGE>

   applicable, with any required statutory and regulatory notice(s) and
   waiver(s). The Employer is responsible for the safekeeping of the Plan
   withdrawal documentation. Withdrawals for terminated Participants should not
   be requested until all Employer contributions have been sent to the Trustee
   and deposited into affected Participants accounts.

   The Employer or Administrator may provide Fidelity with accurate and complete
   data by either electronic data transmission or diskette generated by the
   Fidelity Workbench Software ("Software") when any Participant is entitled to
   receive benefits under the Plan. The Trustee agrees to process Participant
   withdrawals on any business day, Monday through Friday during any month
   subject to the following:

   .  No withdrawals will be processed, except for loans, from December 15
      through January 1.

   .  The Administrator may not use the Software to make Participant
      distributions that are due to the Plan's failure of any required Internal
      Revenue Code test, that are to an alternate payee under a qualified
      domestic relations order, that are installment distributions, that are
      minimum required distributions, or that are to a beneficiary due to a
      Participant's death.

   .  The Software may not be used if the Employer's Plan uses more than one
      vesting schedule to compute a Participant's vested percentage in his/her
      Employer contribution account. A Participant's vested percentage on
      Fidelity's Participant Recordkeeping System will be used to compute
      distributions unless the Employer provides the Trustee with a separate
      written direction prior to the distribution processing date indicating the
      Participant's vested percentage. (Note: Although a Participant's vested
      percentage line appears on certain Software withdrawal forms, it does not
      have any operational impact within the system. Therefore, any adjustment
      to a Participant's vested percentage must be made by the Employer prior to
      the submission of the data to Fidelity.)

   .  The Trustee will provide the Employer with the Software and the
      corresponding instructions for installation and use. The Software is
      proprietary information of the Trustee and the Employer may not sell,
      distribute, copy or use it for any purpose other than to process
      withdrawals. The Employer must have the minimum hardware and software
      configuration as specified in the "Getting Started" booklet.

   The Employees submission of the distribution request to the Trustee on the
   Software constitutes the Employer's authorized written direction by the
   Administrator to process withdrawals. The Trustee shall have no
   responsibility for verifying the authenticity of the Participant request or
   data.

   Distribution and withdrawal requests received on hardcopy forms will be
   processed monthly on the date determined by Fidelity except withdrawals
   during December will only be processed the first two weeks of the month. All
   withdrawal requests received after the monthly cutoff date will be processed
   the following month. Fidelity reserves the right to change the monthly
   processing date and to process withdrawals on a more frequent basis.

   Distributions and withdrawals will only be processed if there is complete,
   accurate and properly authorized data received by Fidelity in the required
   media. Fidelity will process all withdrawals and mail the distribution checks
   to the Participants within ten business days of the processing date.

1. Participant Loans: Participant loans shall be made and administered in
   -----------------
   accordance with the provisions of the [Advisor Retirement Connection(R)
   Premium Service Retirement Plan] Basic Plan Document and the separate loan
   procedures attached to this Agreement as Appendix B.

2. Participant Communication Materials and Forms: Fidelity may from time to time
   ---------------------------------------------
   produce Participant communication materials and forms for use by the Employer
   in meeting its obligations under the Plan. The Employer is responsible for
   reviewing such materials and forms and ensuring

                                      6.
<PAGE>

   that the Participant communication materials and forms as provided by
   Fidelity are complete and accurate descriptions of the terms and provisions
   of the Employees Plan. To the extent such materials and forms are incomplete
   or incorrect, the Employer will be responsible for revising the materials or
   forms as needed, either directly or by notifying Fidelity of the need for the
   revision. The Employer or Administrator will be responsible for physical
   custody of all Participant beneficiary designation forms.

3. Investments: Fidelity shall have no discretion or authority with respect to
   -----------
   the investment of the Plan assets but shall act solely as a directed trustee
   of the contributed funds. All Plan assets must be invested in the investments
   elected by the Employer and identified in Appendix A and are subject to the
   conditions contained therein.

4. Fees: As consideration for its services under this Agreement, Fidelity shall
   ----
   be entitled to the fees in accordance with Articles I, II, III, IV and any
   Appendices and Addenda. A reasonable additional fee will be charged if
   Fidelity has to reprocess any contribution data transmission due to excessive
   errors of the Employer or payroll vendor. Fidelity shall charge $100 per hour
   for expenses incurred for creation of an electronic file related to the
   termination of this Agreement. In addition, Fidelity reserves the right to
   charge a termination fee in an amount equal to a full year of fees identified
   under this Agreement in the event the Employer terminates its relationship
   with Fidelity within one year after the Implementation Date.

   The Start-up and Conversion Plan Fees in Article I will be billed with the
   initial invoice generated by Fidelity. The annual base fees in Article II
   will become effective as of the date the Fidelity Retirement Benefits Line
   becomes available to Participants or the Employer. All Fidelity fees in
   Articles II, III and IV will be billed in arrears to the Employer, or
   Participants, as applicable, on a quarterly basis. Quarterly basis for
   purposes of billing is defined as February 28, May 31, August 31, and
   November 30 of each calendar year.

   An Employee is treated as a Participant for purposes of the annual per-
   Participant fee if he/she has an account balance on any day of the quarter or
   any previous quarter in the twelve-month annual billing cycle. In addition, a
   Participant receiving a lump sum distribution will be considered a
   Participant through the end of the quarterly billing cycle that includes the
   month of December. The trustee fee in Article III will become effective as of
   the Implementation Date. If payment of the aforementioned fees is not
   received by Fidelity within sixty days of receipt of Fidelity's invoice, the
   fees shall be paid from available Plan forfeitures and shall then be charged
   against the respective accounts of all Participants in such reasonable manner
   as the Trustee may determine.

   Fidelity will charge a separate Conversion Plan Fee under Article I if the
   Employer acquires another Company and merges the acquired Company's Plan with
   its Plan or receives additional assets for its Plan. The Conversion Plan Fee
   will be determined after the relevant information has been received by
   Fidelity and communicated to the Employer prior to the conversion.

5. Duration and Amendment: This Agreement shall remain in effect for the
   ----------------------
   remainder of the current calendar year and shall thereafter be automatically
   extended for successive one-year terms. Either party, however, by sixty days
   prior written notice to the other, may terminate this Agreement unless the
   receiving party agrees to a shorter notice period. This Agreement may be
   amended or modified periodically by an instrument executed by the parties.
   Notwithstanding the foregoing, Fidelity reserves the right to amend
   unilaterally the fee schedule upon sixty days prior written notice to the
   Employer.

6. Appendices:  The terms and conditions of the attached Appendix(cies) are
   ----------
   hereby incorporated into this Agreement by reference.

7. Service Providers: Fidelity Management Trust Company is the non-discretionary
   -----------------
   Trustee of Employer's Plan. Fidelity may use its affiliates in providing the
   services described in this Agreement.

                                      7.
<PAGE>

8. Force Majeure. Should the performance of this Agreement by any party be
   --------------
   prevented by fire, flood, storm, strike, acts of God, unavoidable casualty,
   governmental order or state of war, or by any similar cause beyond the
   control of such party, such party's performance to the extent it is so
   prevented or delayed shall be excused, provided notice of its inability to
   perform is given to the other party within a reasonable period of time.

9. Governing Law: This Agreement shall be governed by the laws of the
   -------------
   Commonwealth of Massachusetts except to the extent such laws are superseded
   by Section 514 of ERISA.

                                      8.
<PAGE>

Specimen Signatures
-------------------

At least one person is required to be authorized to provide instructions to
Fidelity Management Trust Company regarding the Plan. Only the following
person(s) designated below is/are authorized to advise Fidelity on all Plan
administrative matters:

NAME & TITLE                          SPECIMEN SIGNATURE
---------------------------------     ---------------------------------------

Kelly Nielson                         /s/ Kelly Nielson
---------------------------------     ---------------------------------------

Human Resources Specialist
---------------------------------

Mark N. Rudolph                       /s/ Mark N. Rudolph
---------------------------------     ---------------------------------------

CFO
---------------------------------

_________________________________     _______________________________________

_________________________________

_________________________________     _______________________________________

_________________________________

PROCEDURE FOR CHANGING SPECIMEN SIGNATURES:

The specimen signatures can be changed by the Employer at any time. To add to a
new authorized signer, the Employer must send a letter of instruction signed by
an authorized individual to the Fidelity Plan Representative, with an original
specimen signature of the new authorized signer. To delete or replace a signer,
the Employer should identify the name(s) of the individual(s) who are no longer
authorized signer(s). The Employer must provide any change at least ten business
days prior to the date the change will become effective.

                                      1.
<PAGE>

Execution Page - Fidelity Copy
------------------------------

In witness whereof, the parties hereto have caused this Agreement to be executed
by their duly authorized officers.

Employer:                                Employer:

Mark N. Rudolph
--------------------------------------   _____________________________________
(Print Name)                             (Print Name)

/s/ Mark N. Rudolph
--------------------------------------   _____________________________________
(Signature)                              (Signature)

CFO
--------------------------------------   ____________________________________
(Title)                                  (Title)

1/21/99
--------------------------------------   ____________________________________
(Date)                                   (Date)

Note: Only one authorized signature is required to execute this Agreement
      unless the Employer's corporate policy mandates two authorized signatures.

Fidelity Management Trust Company:

______________________________________
(Print Name)

/s/ Ingrid M. Brandenberg
--------------------------------------
(Signature)

Authorized Signatory
--------------------------------------
(Title)

2/12/99
--------------------------------------
(Date)

                                      2.
<PAGE>

Execution Page - Employer Copy
------------------------------

In witness whereof, the parties hereto have caused this Agreement to be executed
by their duly authorized officers.

Employer:                             Employer:

Mark N. Rudolph
------------------------------------  ________________________________________
(Print Name)                          (Print Name)

/s/ Mark N. Rudolph
------------------------------------  ________________________________________
(Signature)                           (Signature)

CFO
------------------------------------  ________________________________________
(Title)                               (Title)

1/21/99
------------------------------------  ________________________________________
(Date)                                (Date)

Note: Only one authorized signature is required to execute this Agreement
      unless the Employer's corporate policy mandates two authorized signatures.

Fidelity Management Trust Company:

____________________________________
(Print Name)

/s/ Ingrid M. Brandenberg
------------------------------------
(Signature)

Authorized Signatory
------------------------------------
(Title)

2/12/99
------------------------------------
(Date)

NOTE: This page should be signed by both the Employer and Fidelity. The Employer
      should forward this page to Fidelity after signing it. Fidelity will
      return it to the Employer after it is executed by an authorized Fidelity
      representative.

                                      3.
<PAGE>

                     Appendix A - Plan Investment Options

       Participant Accounts under the Trust will be invested among the
       Permissible Investment options listed below pursuant to Participant
       and/or Employer directions.

              Fund Name                                              Fund Number
              ---------                                              -----------

1.  Treasury Fund-Daily Money Class                                        58
----------------------------------------------------------------         -----
2.  Fidelity Advisor High Yield Fund                                      165
----------------------------------------------------------------         -----
3.  Fidelity Advisor Intermediate Bond Fund                               287
----------------------------------------------------------------         -----
4.  Fidelity Advisor Equity Income Fund                                   280
----------------------------------------------------------------         -----
5.  Dreyfus S&P 500 Index Fund                                           OFYP
----------------------------------------------------------------         -----
6.  Fidelity Advisor Dividend Growth Fund                                 720
----------------------------------------------------------------         -----
7.  Fidelity Advisor Growth Opportunities Fund                            168
----------------------------------------------------------------         -----
8.  Neuberger & Berman Socially Responsive Assets                        OF9F
----------------------------------------------------------------         -----
9.  LifePath 2030 Fund                                                   OFYT
----------------------------------------------------------------         -----
10. Fidelity Advisor Overseas Fund                                        175
----------------------------------------------------------------         -----

       To the extent that the Employer selects as a Permissible Investment
       option, the Fidelity Advisor Stable Value Portfolio of the Fidelity Group
       Trust for Employee Benefit Plans ("Group Trust"), the Employer hereby (A)
       agrees to the terms of the Group Trust and adopts said terms as a part of
       this Agreement and (B) acknowledges that it has received from the Trustee
       copies of Declaration of Trust, the Declaration of Separate Fund for the
       Fidelity Advisor Stable Value Portfolio, the Offering Circular for the
       Fidelity Advisor Stable Value Portfolio and the IRS Determination Letter
       for the Group Trust.

                                      1.
<PAGE>

                Non-Fidelity Mutual Fund Addendum to Appendix A

Non-Fidelity Mutual Funds
-------------------------

For this purpose, "Non-Fidelity Mutual Funds" shall mean those investment
companies registered under the Investment Company Act of 1940, as amended, other
than those advised by Fidelity Management & Research Company, permitted under
the Peet's Coffee & Tea, Inc. Savings & Retirement Plan and specified in an
agreement between Fidelity Investments Institutional Operations Company
("FIIOC"), a division of FMR Corp., and the transfer agent for such investment
company ("Fund Vendor"). Fidelity shall provide recordkeeping services for Non-
Fidelity Mutual Funds in accordance with the terms and conditions of this
Addendum.

Fees and Other Requirements
---------------------------

As consideration for its services under this Addendum, Fidelity shall be
entitled to the following fees, in addition to any fees specified elsewhere in
this Agreement or in any other agreement between the Employer and Fidelity:

____% (25 basis points) per annum of assets invested in Non-Fidelity Mutual
Funds to be paid by [the Employer] or [plan participants utilizing the Non-
Fidelity Mutual Fund investments], as specified on the Fee Payment Direction
Form.

This fee will be computed and billed in arrears quarterly based on the market
value of Non-Fidelity Mutual Funds on the last business day of the quarter.
FIIOC shall be entitled to fees as set forth in a separate agency agreement with
the Fund Vendor.]

Operational Procedures
----------------------

Pricing. The Fund Vendor will provide to FIIOC the information specified in the
agreement between such parties ("Price Information"). If on any business day the
Fund Vendor does not provide such Price Information to FlIOC, FIIOC shall pend
all associated transaction activity in the Fidelity Participant Recordkeeping
System ("FPRS") until the relevant Price Information is made available by Fund
Vendor.

Participant Communications. The Fund Vendor shall provide internally prepared
fund descriptive information approved by its legal counsel for use by FlIOC in
its written participant communication materials. FlIOC shall utilize historical
performance data obtained from third-party vendors (currently Morningstar, Inc.,
FACTSET Research Systems and Upper Analytical Services) in telephone
conversations with plan participants and in quarterly participant statements.
The Employer hereby consents to FlIOC's use of such materials and acknowledges
that FlIOC is not responsible for the accuracy of such third-party information.

Indemnification. The Fund Vendor is responsible for compensating participants
and/or FIIOC in the event that losses occur as a result of (1) the Fund Vendor's
failure to provide FIIOC with Price Information or (2) providing FIIOC with
incorrect Price Information.

                                      1.
<PAGE>

              Appendix B - Participant Loan Policy and Procedures

This Loan Policy is adopted in accordance with Article 9 of the Plan. All other
provisions governing Participant loans are included in Article 9. This Policy is
effective for loans made on or after the Effective Date of this Agreement. Other
loans made under the Plan shall continue under their existing terms until they
are repaid.

1. Administration - The Employer or Administrator shall administer the Plan loan
   --------------
   program and shall act as the Trustee's agent in holding physical custody of
   promissory notes and other loan documents, collecting and remitting all
   principal and interest payments to the Trustee, keeping the proceeds of such
   loan repayments separate from the other assets of the Employer and clearly
   identifying such assets as Plan assets, and canceling and surrendering the
   promissory note and other loan documents to the Participant when a loan has
   been paid in full.

2. Application Procedures - Applications for loans shall be made to the
   ----------------------
   Administrator on forms available from the Administrator.

3. Conditions and Limitations -
   --------------------------

   a. Minimum Principal Amount. The minimum principal amount of any loan is
      $1,000.

   b. Duration. The repayment period of any loan shall be no more than five
      years unless such loan is for the purchase of a Participants primary
      residence, in which case the repayment period may not extend beyond ten
      years from the date of the loan.

   c. Repayment Method. A loan to an Employee shall be repaid at least quarterly
      by payroll. If repayment is not made by payroll deduction, a loan shall be
      repaid by the Employee to the Employer or Administrator.

   d. Outstanding Loans. A Participant with an existing loan may not apply for
      another loan until the existing loan is paid in full and may not refinance
      an existing loan or attain a second loan for the purpose of paying off the
      existing loan. A Participant may not apply for more than one loan during
      each Plan Year.

4. Interest Rate - The Administrator shall determine and communicate to the
   -------------
   Trustee a reasonable rate of interest based on the prevailing interest rates
   charged by persons in the business of lending money for loans which would be
   made under similar circumstances. The interest rate shall remain fixed
   throughout the duration of the loan.

5. Default - The Administrator shall promptly notify the Trustee of any default.
   -------
   If a distributable event has occurred, the Administrator shall direct the
   Trustee to foreclose on the promissory note and offset the Participant's
   vested Account by the outstanding balance of the loan. If a distributable
   event has not occurred, the Administrator shall direct the Trustee to
   foreclose on the promissory note and offset the Participant's vested Account
   as soon as a distributable event occurs.

                                      1.
<PAGE>

                                  Appendix C

                           Annual Recordkeeping Fee

The Annual Recordkeeping Fee per Participant for the Employer's Plan will be as
follows:

 Average Participant Account Balance Invested in Permissible Investment Options

<TABLE>
<CAPTION>
                            $10,000 - $20,000       $20,001 - $30,000       $30,001 - $50,000     $50,001 or more
  <S>                       <C>                     <C>                     <C>                   <C>
  Participants
  101-200                         [$45]                   [$25]                   [$15]                   [$5]**
  201-400                         [$30]                   [$15]                   [$10]*                  [$5]**
  401-600                         [$25]                   [$10]*                  [$5]**                  [$5]**
  601 or more                     [$10]*                  [$5]**                  [$5]**                  [$5]**
</TABLE>

NOTE:  For multiple plans, plans with 100 or less participants, less than $2
       million in assets, or with an average participant balance less than
       $10,000, the per participant fees will be provided to the Employer.

    *  Conversion Plan Fee is waived. Data manipulation charges may apply.
   **  Compliance & Reporting Services Fees and Conversion Plan Fee are waived.
       Data manipulation charges may apply.

The Average Participant Account Balance will be calculated based on the ending
market value of the last quarterly billing cycle divided by the number of
Participants with balances and will be based on assets invested in Permissible
Investment Options. However, such term may not include certain Wasting or Frozen
GICs.

The per participant fee will be reviewed each quarter. If the Average
Participant Account Balance and/or the number of Participants with balances
increases from one quarter to the next which results in a lower per participant
fee, the lower fee may be applied to the Employer's Plan to the following fee
invoice. If the Average Participant Account Balance and/or the number of
Participants with balances decreases from one quarter to the next which results
in a higher per participant fee, the higher fee may be applied to the Employer's
Plan after the annual review of the plan. The fees will be billed in accordance
with Article VII, Section 15.

Initial Per Participant Fee (as of Implementation Date)               $  30  *
                                                                      --------
Number of Participants: 331
Total Plan Assets: $1,950,300
Average Participant Account Balance $ 5,892

*Fee is subject to change pending verification of the number of participants and
the plan's assets by Fidelity Investments.

                                      1.
<PAGE>

                       [ADVISOR RETIREMENT CONNECTION(R)
                       PREMIUM SERVICE] RETIREMENT PLAN
                          FEE PAYMENT DIRECTION FORM

Employer Name  Peet's Coffee & Tea
               -----------------------------------------------------------------

Plan Name  Peet's Coffee & Tea, Inc. Savings & Retirement Plan  Plan Number  001
           ---------------------------------------------------               ---

This form will serve as notification to Fidelity Investments of the party
responsible for paying the Fidelity fees of the Employer's Plan. Please note,
under Article VII Section 15 of the Service Agreement, fees will be paid out of
plan forfeitures (if available) or charged against Participant accounts unless
paid by the Employer within sixty days of receipt of Fidelity's invoice.
Expenses of the Plan will be:

TYPE OF FEE;                                PAID BY     CHARGED TO      NOT
                                            EMPLOYER   PARTICIPANT*  APPLICABLE

1.  Start-up Plan Fee                          [X]         [_]           [_]

2.  Conversion Plan Fee                        [_]         [_]           [X]

3.  Annual Recordkeeping Fee                   [X]         [_]           [_]

4.  Contribution Processing Fee                [X]         [_]           [_]

5.  Annual Trustee Fee                         [X]         [_]           [_]

6.  Loan Initiation and Service Fee**          [_]         [X]           [_]

7.  Compliance and Reporting Services Fee      [X]         [_]           [X]

8.  Additional Investment Options Fee          [_]         [_]           [X]

9.  GIC Services Fee                           [_]         [_]           [X]

10. Other  ______________________              [_]         [_]           [_]
           ______________________

*   The fee charged to each participant will be based on a flat dollar amount
    unless otherwise directed by the Employer.

**  Charged only to affected participants.

--------------------------------------------------------------------------------

NOTE 1:   Any forfeiture occurring during a Plan Year shall be used to reduce
          administrative expenses under the Plan. Any forfeitures remaining
          after paying the administrative expenses of the plan shall be applied
          to reduce the contributions of the Employer next payable under the
          Plan.

NOTE 2:   The Employer shall consult with their attorney to determine if the
          above expenses are reasonable expenses of the Plan under Sections
          403(c)(1) and 404(a)(1)(A) of the Employee Retirement Income Security
          Act of 1974.

     ACCEPTED

     EMPLOYER

BY:   /s/ Mark N. Rudolph
      ---------------------------

TITLE:      CFO
      ---------------------------

DATE:       1/21/99
      ---------------------------

                                      2.
<PAGE>

                            ADVISOR RETIREMENT CONNECTION(R)
                            PREMIUM SERVICE PROGRAM
                            SUMMARY OF ASSETS FORM

Employer Name:   Peet's Coffee & Tea

Plan Name:       Peet's Coffee & Tea, Inc Savings & Retirement Plan

This form represents a complete list of the assets for the above-mentioned plan.
As one of the conditions for acceptance Into the ADVISOR RETIREMENT
CONNECTION(R) - PREMIUM SERVICE PROGRAM, all assets must be liquidated prior to
the implementation date or mapped to like funds on the conversion date. Please
note, this form must be completed and signed in order to be accepted by Fidelity
Investments.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
      EXISTING                            CURRENT           IF MAPPED           IF LIQUIDATED          DATE OF LIQUIDATION
       FUNDS                             BALANCES         LIST NEW FUNDS            AMOUNT
-----------------------------------------------------------------------------------------------------------------------------
 <S>                                     <C>              <C>                   <C>                    <C>
 Treasury - Daily Money                                   Same
-----------------------------------------------------------------------------------------------------------------------------
 F.A. High Yield                                          Same
-----------------------------------------------------------------------------------------------------------------------------
 F.A. Equity Income                                       Same
-----------------------------------------------------------------------------------------------------------------------------
 F.A. Growth Opportunities                                Same
-----------------------------------------------------------------------------------------------------------------------------
 F.A. Overseas                                            Same
-----------------------------------------------------------------------------------------------------------------------------
 F.A. Natural Resources                                   Same                                         4/1/99
-----------------------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------------
Total
-----------------------------------------------------------------------------------------------------------------------------

I represent that I am authorized to complete and execute this information on behalf of the Plan Sponsor, and that the above
information is accurate and complete. I further represent that all plan assets can be liquidated or mapped as required for
acceptance of this plan. I understand that inaccurate or incomplete information may preclude Fidelity's acceptance of this
plan or delay the plan's implementation.

-----------------------------------------------------------------------------------------------------------------------------
 BY:                       Mark Rudolph  /s/ Mark N. Rudolph
-----------------------------------------------------------------------------------------------------------------------------
 TITLE:                    CFO
-----------------------------------------------------------------------------------------------------------------------------
 DATE:
-----------------------------------------------------------------------------------------------------------------------------
</TABLE><PAGE>

                                                                    EXHIBIT 10.9

                           PEET'S COFFEE & TEA, INC.

                          2000 EQUITY INCENTIVE PLAN

                           Adopted November 1, 2000
                  Approved By Shareholders November 17, 2000

1.   Purposes.

     (a) Eligible Stock Award Recipients.  The persons eligible to receive Stock
Awards are the Employees, Directors and Consultants of the Company and its
Affiliates.

     (b) Available Stock Awards. The purpose of the Plan is to provide a means
by which eligible recipients of Stock Awards may be given an opportunity to
benefit from increases in value of the Common Stock through the granting of the
following Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock
Options, (iii) stock bonuses and (iv) rights to acquire restricted stock.

     (c) General Purpose. The Company, by means of the Plan, seeks to retain the
services of the group of persons eligible to receive Stock Awards, to secure and
retain the services of new members of this group and to provide incentives for
such persons to exert maximum efforts for the success of the Company and its
Affiliates.

2.   Definitions.

     (a) "Affiliate" means any parent corporation or subsidiary corporation of
the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.

     (b) "Board" means the Board of Directors of the Company.

     (c) "Code" means the Internal Revenue Code of 1986, as amended.

     (d) "Committee" means a committee of one or more members of the Board
appointed by the Board in accordance with subsection 3(c).

     (e) "Common Stock" means the common stock of the Company.

     (f) "Company" means Peet's Coffee & Tea, Inc., a Washington corporation,
formerly known as Peet's Companies, Inc.

     (g) "Consultant" means any person, including an advisor, (i) engaged by the
Company or an Affiliate to render consulting or advisory services and who is
compensated for such services or (ii) who is a member of the Board of Directors
of an Affiliate.  However, the term "Consultant" shall not include either
Directors who are not compensated by the Company

                                       1.
<PAGE>

for their services as Directors or Directors who are merely paid a director's
fee by the Company for their services as Directors.

     (h) "Continuous Service" means that the Participant's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Participant's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Participant renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Participant
renders such service, provided that there is no interruption or termination of
the Participant's Continuous Service. For example, a change in status from an
Employee of the Company to a Consultant of an Affiliate or a Director will not
constitute an interruption of Continuous Service. The Board or the chief
executive officer of the Company, in that party's sole discretion, may determine
whether Continuous Service shall be considered interrupted in the case of any
leave of absence approved by that party, including sick leave, military leave or
any other personal leave.

     (i) "Covered Employee" means the chief executive officer and the four (4)
other highest compensated officers of the Company for whom total compensation is
required to be reported to shareholders under the Exchange Act, as determined
for purposes of Section 162(m) of the Code.

     (j) "Director" means a member of the Board of Directors of the Company.

     (k) "Disability" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.

     (l) "Employee" means any person employed by the Company or an Affiliate.
Mere service as a Director or payment of a director's fee by the Company or an
Affiliate shall not be sufficient to constitute "employment" by the Company or
an Affiliate.

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

     (n) "Fair Market Value" means, as of any date, the value of the Common
Stock determined as follows:

         (i)    If the Common Stock is listed on any established stock exchange
or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair
Market Value of a share of Common Stock shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or market (or the exchange or market with the greatest volume of
trading in the Common Stock) on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable.

         (ii)   In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.

     (o) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.

                                       2.
<PAGE>

     (p)  "Non-Employee Director" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or a subsidiary, does
not receive compensation (directly or indirectly) from the Company or its parent
or a subsidiary for services rendered as a consultant or in any capacity other
than as a Director (except for an amount as to which disclosure would not be
required under Item 404(a) of Regulation S-K promulgated pursuant to the
Securities Act ("Regulation S-K")), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3.

     (q)  "Nonstatutory Stock Option" means an Option not intended to qualify as
an Incentive Stock Option.

     (r)  "Officer" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

     (s)  "Option" means an Incentive Stock Option or a Nonstatutory Stock
Option granted pursuant to the Plan.

     (t)  "Option Agreement" means a written agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
Each Option Agreement shall be subject to the terms and conditions of the Plan.

     (u)  "Optionee" means a person to whom an Option is granted pursuant to the
Plan or, if applicable, such other person who holds an outstanding Option.

     (v)  "Outside Director" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
Treasury Regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.

     (w)  "Participant" means a person to whom a Stock Award is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding Stock
Award.

     (x)  "Plan" means this Peet's Coffee & Tea, Inc. 2000 Equity Incentive
Plan.

     (y)  "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.

     (z)  "Securities Act" means the Securities Act of 1933, as amended.

     (aa) "Stock Award" means any right granted under the Plan, including an
Option, a stock bonus and a right to acquire restricted stock.

                                       3.
<PAGE>

     (bb) "Stock Award Agreement" means a written agreement between the Company
and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.

     (cc) "Subsidiary" means Peet's Operating Company, Inc., formerly known as
Peet's Coffee & Tea.

     (dd) "Ten Percent Shareholder" means a person who owns (or is deemed to own
pursuant to Section 424(d) of the Code) stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or of any of its Affiliates.

3.   Administration.

     (a)  Administration by Board. The Board shall administer the Plan unless
and until the Board delegates administration to a Committee, as provided in
subsection 3(c).

     (b)  Powers of Board. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:

          (i)   To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; what type or combination of types of Stock Award shall be
granted; the provisions of each Stock Award granted (which need not be
identical), including the time or times when a person shall be permitted to
receive Common Stock pursuant to a Stock Award; and the number of shares of
Common Stock with respect to which a Stock Award shall be granted to each such
person.

          (ii)  To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.

          (iii) To amend the Plan or a Stock Award as provided in Section 12.

          (iv)  Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.

     (c)  Delegation to Committee.

          (i)    General. The Board may delegate administration of the Plan to a
Committee or Committees of one (1) or more members of the Board, and the term
"Committee" shall apply to any person or persons to whom such authority has been
delegated. If administration is delegated to a Committee, the Committee shall
have, in connection with the administration of the Plan, the powers theretofore
possessed by the Board, including the power to delegate to a subcommittee any of
the administrative powers the Committee is authorized to exercise (and
references in this Plan to the Board shall thereafter be to the Committee or
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the

                                       4.
<PAGE>

Plan, as may be adopted from time to time by the Board. The Board may abolish
the Committee at any time and revest in the Board the administration of the
Plan.

          (ii)   Committee Composition when Common Stock is Publicly Traded. At
such time as the Common Stock is publicly traded, in the discretion of the
Board, a Committee may consist solely of two or more Outside Directors, in
accordance with Section 162(m) of the Code, and/or solely of two or more Non-
Employee Directors, in accordance with Rule 16b-3. Within the scope of such
authority, the Board or the Committee may (1) delegate to a committee of one or
more members of the Board who are not Outside Directors the authority to grant
Stock Awards to eligible persons who are either (a) not then Covered Employees
and are not expected to be Covered Employees at the time of recognition of
income resulting from such Stock Award or (b) not persons with respect to whom
the Company wishes to comply with Section 162(m) of the Code and/or (2) delegate
to a committee of one or more members of the Board who are not Non-Employee
Directors the authority to grant Stock Awards to eligible persons who are not
then subject to Section 16 of the Exchange Act.

     (d)  Effect of Board's Decision.  All determinations, interpretations and
constructions made by the Board in good faith shall not be subject to review by
any person and shall be final, binding and conclusive on all persons.

4.   Shares Subject to the Plan.

     (a)  Share Reserve. Subject to the provisions of Section 11 relating to
adjustments upon changes in Common Stock, the Common Stock that may be issued
pursuant to Stock Awards shall not exceed seven hundred thousand (700,000)
shares of Common Stock (the "Reserved Shares").  As of each annual meeting of
the Company's shareholders, beginning in 2002, and continuing through and
including the annual meeting of the Company's shareholders in 2010, the number
of Reserved Shares will be increased automatically by the least of (i) three
percent (3%) of the total number of shares of Common Stock outstanding on such
date, (ii) five hundred thousand (500,000) shares, or (iii) a number of shares
determined by the Board prior to such date, which number shall be less than (i)
and (ii) above.

     (b)  Reversion of Shares to the Share Reserve. If any Stock Award shall for
any reason expire or otherwise terminate, in whole or in part, without having
been exercised in full, the shares of Common Stock not acquired under such Stock
Award shall revert to and again become available for issuance under the Plan.

     (c)  Source of Shares. The shares of Common Stock subject to the Plan may
be unissued shares or reacquired shares, bought on the market or otherwise.

5.   Eligibility.

     (a)  Eligibility for Specific Stock Awards.  Incentive Stock Options may be
granted only to Employees.  Stock Awards other than Incentive Stock Options may
be granted to Employees, Directors and Consultants.

     (b)  Ten Percent Shareholders. A Ten Percent Shareholder shall not be
granted an Incentive Stock Option unless the exercise price of such Option is at
least one hundred ten

                                       5.
<PAGE>

percent (110%) of the Fair Market Value of the Common Stock at the date of grant
and the Option is not exercisable after the expiration of five (5) years from
the date of grant.

     (c)  Section 162(m) Limitation.  Subject to the provisions of Section 11
relating to adjustments upon changes in the shares of Common Stock, no Employee
shall be eligible to be granted Options covering more than five hundred thousand
(500,000) shares of Common Stock during any calendar year.

     (d)  Consultants.

          (i)    A Consultant shall not be eligible for the grant of a Stock
Award if, at the time of grant, a Form S-8 Registration Statement under the
Securities Act ("Form S-8") is not available to register either the offer or the
sale of the Company's securities to such Consultant because of the nature of the
services that the Consultant is providing to the Company, or because the
Consultant is not a natural person, or as otherwise provided by the rules
governing the use of Form S-8, unless the Company determines both (i) that such
grant (A) shall be registered in another manner under the Securities Act (e.g.,
on a Form S-3 Registration Statement) or (B) does not require registration under
the Securities Act in order to comply with the requirements of the Securities
Act, if applicable, and (ii) that such grant complies with the securities laws
of all other relevant jurisdictions.

          (ii)   Form S-8 generally is available to consultants and advisors
only if (i) they are natural persons; (ii) they provide bona fide services to
the issuer, its parents, its majority-owned subsidiaries; and (iii) the services
are not in connection with the offer or sale of securities in a capital-raising
transaction, and do not directly or indirectly promote or maintain a market for
the issuer's securities.

6.   Option Provisions.

     Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate.  All Options shall be separately
designated Incentive Stock Options or Nonstatutory Stock Options at the time of
grant, and, if certificates are issued, a separate certificate or certificates
will be issued for shares of Common Stock purchased on exercise of each type of
Option.  The provisions of separate Options need not be identical, but each
Option shall include (through incorporation of provisions hereof by reference in
the Option or otherwise) the substance of each of the following provisions:

     (a)  Term. Subject to the provisions of subsection 5(b) regarding Ten
Percent Shareholders, no Incentive Stock Option shall be exercisable after the
expiration of ten (10) years from the date it was granted.

     (b)  Exercise Price of an Incentive Stock Option. Subject to the provisions
of subsection 5(b) regarding Ten Percent Shareholders, the exercise price of
each Incentive Stock Option shall be not less than one hundred percent (100%) of
the Fair Market Value of the Common Stock subject to the Option on the date the
Option is granted. Notwithstanding the foregoing, an Incentive Stock Option may
be granted with an exercise price lower than that set forth in the preceding
sentence if such Option is granted pursuant to an assumption or

                                       6.
<PAGE>

substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.

     (c)  Exercise Price of a Nonstatutory Stock Option. The exercise price of
each Nonstatutory Stock Option shall be not less than eighty-five percent (85%)
of the Fair Market Value of the Common Stock subject to the Option on the date
the Option is granted. Notwithstanding the foregoing, a Nonstatutory Stock
Option may be granted with an exercise price lower than that set forth in the
preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.

     (d)  Consideration. The purchase price of Common Stock acquired pursuant to
an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised or (ii) at
the discretion of the Board at the time of the grant of the Option (or
subsequently in the case of a Nonstatutory Stock Option) (1) by delivery to the
Company of other Common Stock, (2) according to a deferred payment or other
similar arrangement with the Optionee or (3) in any other form of legal
consideration that may be acceptable to the Board. Unless otherwise specifically
provided in the Option, the purchase price of Common Stock acquired pursuant to
an Option that is paid by delivery to the Company of other Common Stock
acquired, directly or indirectly from the Company, shall be paid only by shares
of the Common Stock of the Company that have been held for more than six (6)
months (or such longer or shorter period of time required to avoid a charge to
earnings for financial accounting purposes). At any time that the Company is
incorporated in Delaware, payment of the Common Stock's "par value," as defined
in the Delaware General Corporation Law, shall not be made by deferred payment.

In the case of any deferred payment arrangement, interest shall be compounded at
least annually and shall be charged at a market rate of interest necessary to
avoid a change to earnings for financial accounting purposes.

     (e)  Transferability of an Incentive Stock Option. An Incentive Stock
Option shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Optionee only
by the Optionee. Notwithstanding the foregoing, the Optionee may, by delivering
written notice to the Company, in a form satisfactory to the Company, designate
a third party who, in the event of the death of the Optionee, shall thereafter
be entitled to exercise the Option.

     (f)  Transferability of a Nonstatutory Stock Option.  A Nonstatutory Stock
Option shall be transferable to the extent provided in the Option Agreement.  If
the Nonstatutory Stock Option does not provide for transferability, then the
Nonstatutory Stock Option shall not be transferable except by will or by the
laws of descent and distribution and shall be exercisable during the lifetime of
the Optionee only by the Optionee.  Notwithstanding the foregoing, the Optionee
may, by delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the Optionee,
shall thereafter be entitled to exercise the Option.

                                       7.
<PAGE>

     (g)  Vesting Generally. The total number of shares of Common Stock subject
to an Option may, but need not, vest and therefore become exercisable in
periodic installments that may, but need not, be equal. The Option may be
subject to such other terms and conditions on the time or times when it may be
exercised (which may be based on performance or other criteria) as the Board may
deem appropriate. The vesting provisions of individual Options may vary. The
provisions of this subsection 6(g) are subject to any Option provisions
governing the minimum number of shares of Common Stock as to which an Option may
be exercised.

     (h)  Termination of Continuous Service. In the event an Optionee's
Continuous Service terminates (other than upon the Optionee's death or
Disability), the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise such Option as of the date of termination) but
only within such period of time ending on the earlier of (i) the date three (3)
months following the termination of the Optionee's Continuous Service (or such
longer or shorter period specified in the Option Agreement), or (ii) the
expiration of the term of the Option as set forth in the Option Agreement. If,
after termination, the Optionee does not exercise his or her Option within the
time specified in the Option Agreement, the Option shall terminate.

     (i)  Extension of Termination Date. An Optionee's Option Agreement may also
provide that if the exercise of the Option following the termination of the
Optionee's Continuous Service (other than upon the Optionee's death or
Disability) would be prohibited at any time solely because the issuance of
shares of Common Stock would violate the registration requirements under the
Securities Act, then the Option shall terminate on the earlier of (i) the
expiration of the term of the Option set forth in subsection 6(a) or (ii) the
expiration of a period of three (3) months after the termination of the
Optionee's Continuous Service during which the exercise of the Option would not
be in violation of such registration requirements.

     (j)  Disability of Optionee.  In the event that an Optionee's Continuous
Service terminates as a result of the Optionee's Disability, the Optionee may
exercise his or her Option (to the extent that the Optionee was entitled to
exercise such Option as of the date of termination), but only within such period
of time ending on the earlier of (i) the date twelve (12) months following such
termination (or such longer or shorter period specified in the Option Agreement)
or (ii) the expiration of the term of the Option as set forth in the Option
Agreement.  If, after termination, the Optionee does not exercise his or her
Option within the time specified herein, the Option shall terminate.

     (k)  Death of Optionee.  In the event (i) an Optionee's Continuous Service
terminates as a result of the Optionee's death or (ii) the Optionee dies within
the period (if any) specified in the Option Agreement after the termination of
the Optionee's Continuous Service for a reason other than death, then the Option
may be exercised (to the extent the Optionee was entitled to exercise such
Option as of the date of death) by the Optionee's estate, by a person who
acquired the right to exercise the Option by bequest or inheritance or by a
person designated to exercise the Option upon the Optionee's death pursuant to
subsection 6(e) or 6(f), but only within the period ending on the earlier of (1)
the date eighteen (18) months following the date of death (or such longer or
shorter period specified in the Option Agreement) or (2) the expiration of the
term of such Option as set forth in the Option Agreement.  If, after death, the
Option is not exercised within the time specified herein, the Option shall
terminate.

                                       8.
<PAGE>

     (l)  Early Exercise. The Option may, but need not, include a provision
whereby the Optionee may elect at any time before the Optionee's Continuous
Service terminates to exercise the Option as to any part or all of the shares of
Common Stock subject to the Option prior to the full vesting of the Option. Any
unvested shares of Common Stock so purchased may be subject to a repurchase
option in favor of the Company or to any other restriction the Board determines
to be appropriate.

7.   Provisions of Stock Awards other than Options.

     (a)  Stock Bonus Awards. Each stock bonus agreement shall be in such form
and shall contain such terms and conditions as the Board shall deem appropriate.
The terms and conditions of stock bonus agreements may change from time to time,
and the terms and conditions of separate stock bonus agreements need not be
identical, but each stock bonus agreement shall include (through incorporation
of provisions hereof by reference in the agreement or otherwise) the substance
of each of the following provisions:

          (i)    Consideration. A stock bonus may be awarded in consideration
for past services actually rendered to the Company or an Affiliate for its
benefit.

          (ii)   Vesting.  Shares of Common Stock awarded under the stock bonus
agreement may, but need not, be subject to a share repurchase option in favor of
the Company in accordance with a vesting schedule to be determined by the Board.

          (iii)  Termination of Participant's Continuous Service. In the event a
Participant's Continuous Service terminates, the Company may reacquire any or
all of the shares of Common Stock held by the Participant which have not vested
as of the date of termination under the terms of the stock bonus agreement.

          (iv)   Transferability. Rights to acquire shares of Common Stock under
the stock bonus agreement shall be transferable by the Participant only upon
such terms and conditions as are set forth in the stock bonus agreement, as the
Board shall determine in its discretion, so long as Common Stock awarded under
the stock bonus agreement remains subject to the terms of the stock bonus
agreement.

     (b)  Restricted Stock Awards. Each restricted stock purchase agreement
shall be in such form and shall contain such terms and conditions as the Board
shall deem appropriate. The terms and conditions of the restricted stock
purchase agreements may change from time to time, and the terms and conditions
of separate restricted stock purchase agreements need not be identical, but each
restricted stock purchase agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions:

          (i)    Purchase Price.  The purchase price under each restricted stock
purchase agreement shall be such amount as the Board shall determine and
designate in such restricted stock purchase agreement.  The purchase price shall
not be less than eighty-five percent (85%) of the Common Stock's Fair Market
Value on the date such award is made or at the time the purchase is consummated.

                                       9.
<PAGE>

          (ii)   Consideration. The purchase price of Common Stock acquired
pursuant to the restricted stock purchase agreement shall be paid either: (i) in
cash at the time of purchase; (ii) at the discretion of the Board, according to
a deferred payment or other similar arrangement with the Participant; or (iii)
in any other form of legal consideration that may be acceptable to the Board in
its discretion; provided, however, that at any time that the Company is
incorporated in Delaware, then payment of the Common Stock's "par value," as
defined in the Delaware General Corporation Law, shall not be made by deferred
payment.

          (iii)  Vesting.  Shares of Common Stock acquired under the restricted
stock purchase agreement may, but need not, be subject to a share repurchase
option in favor of the Company in accordance with a vesting schedule to be
determined by the Board.

          (iv)   Termination of Participant's Continuous Service. In the event a
Participant's Continuous Service terminates, the Company may repurchase or
otherwise reacquire any or all of the shares of Common Stock held by the
Participant which have not vested as of the date of termination under the terms
of the restricted stock purchase agreement.

          (v)    Transferability. Rights to acquire shares of Common Stock under
the restricted stock purchase agreement shall be transferable by the Participant
only upon such terms and conditions as are set forth in the restricted stock
purchase agreement, as the Board shall determine in its discretion, so long as
Common Stock awarded under the restricted stock purchase agreement remains
subject to the terms of the restricted stock purchase agreement.

8.   Covenants of the Company.

     (a)  Availability of Shares. During the terms of the Stock Awards, the
Company shall keep available at all times the number of shares of Common Stock
required to satisfy such Stock Awards.

     (b)  Securities Law Compliance.  The Company shall seek to obtain from each
regulatory commission or agency having jurisdiction over the Plan such authority
as may be required to grant Stock Awards and to issue and sell shares of Common
Stock upon exercise of the Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any
such Stock Award.  If, after reasonable efforts, the Company is unable to obtain
from any such regulatory commission or agency the authority which counsel for
the Company deems necessary for the lawful issuance and sale of Common Stock
under the Plan, the Company shall be relieved from any liability for failure to
issue and sell Common Stock upon exercise of such Stock Awards unless and until
such authority is obtained.

9.   Use of Proceeds from Stock.

     Proceeds from the sale of Common Stock pursuant to Stock Awards shall
constitute general funds of the Company.

                                      10.
<PAGE>

10.  Miscellaneous.

     (a)  Acceleration of Exercisability and Vesting.  The Board shall have the
power to accelerate the time at which a Stock Award may first be exercised or
the time during which a Stock Award or any part thereof will vest in accordance
with the Plan, notwithstanding the provisions in the Stock Award stating the
time at which it may first be exercised or the time during which it will vest.

     (b)  Shareholder Rights. No Participant shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any shares of
Common Stock subject to such Stock Award unless and until such Participant has
satisfied all requirements for exercise of the Stock Award pursuant to its
terms.

     (c)  No Employment or other Service Rights.  Nothing in the Plan or any
instrument executed or Stock Award granted pursuant thereto shall confer upon
any Participant any right to continue to serve the Company or an Affiliate in
the capacity in effect at the time the Stock Award was granted or shall affect
the right of the Company or an Affiliate to terminate (i) the employment of an
Employee with or without notice and with or without cause, (ii) the service of a
Consultant pursuant to the terms of such Consultant's agreement with the Company
or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the
Company or an Affiliate, and any applicable provisions of the corporate law of
the state in which the Company or the Affiliate is incorporated, as the case may
be.

     (d)  Incentive Stock Option $100,000 Limitation.  To the extent that the
aggregate Fair Market Value (determined at the time of grant) of Common Stock
with respect to which Incentive Stock Options are exercisable for the first time
by any Optionee during any calendar year (under all plans of the Company and its
Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or
portions thereof which exceed such limit (according to the order in which they
were granted) shall be treated as Nonstatutory Stock Options.

     (e)  Investment Assurances.  The Company may require a Participant, as a
condition of exercising or acquiring Common Stock under any Stock Award, (i) to
give written assurances satisfactory to the Company as to the Participant's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (ii) to
give written assurances satisfactory to the Company stating that the Participant
is acquiring Common Stock subject to the Stock Award for the Participant's own
account and not with any present intention of selling or otherwise distributing
the Common Stock.  The foregoing requirements, and any assurances given pursuant
to such requirements, shall be inoperative if (1) the issuance of the shares of
Common Stock upon the exercise or acquisition of Common Stock under the Stock
Award has been registered under a then currently effective registration
statement under the Securities Act or (2) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws.  The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with

                                      11.
<PAGE>

applicable securities laws, including, but not limited to, legends restricting
the transfer of the Common Stock.

     (f)  Withholding Obligations. To the extent provided by the terms of a
Stock Award Agreement, the Participant may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of Common
Stock under a Stock Award by any of the following means (in addition to the
Company's right to withhold from any compensation paid to the Participant by the
Company) or by a combination of such means: (i) tendering a cash payment; (ii)
authorizing the Company to withhold shares of Common Stock from the shares of
Common Stock otherwise issuable to the Participant as a result of the exercise
or acquisition of Common Stock under the Stock Award, provided, however, that no
shares of Common Stock are withheld with a value exceeding the minimum amount of
tax required to be withheld by law; or (iii) delivering to the Company owned and
unencumbered shares of Common Stock.

11.  Adjustments upon Changes in Stock.

     (a)  Capitalization Adjustments.  If any change is made in the Common Stock
subject to the Plan, or subject to any Stock Award, without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities subject to the Plan
pursuant to subsection 4(a) and the maximum number of securities subject to
award to any person pursuant to subsection 5(c), and the outstanding Stock
Awards will be appropriately adjusted in the class(es) and number of securities
and price per share of Common Stock subject to such outstanding Stock Awards.
The Board shall make such adjustments, and its determination shall be final,
binding and conclusive.  (The conversion of any convertible securities of the
Company shall not be treated as a transaction "without receipt of consideration"
by the Company.)

     (b)  Change of Control.  In the event of a Change of Control (as defined
below), the Company shall, at least fifteen (15) days prior to such Change of
Control, notify in writing all Optionees of such Change of Control and of the
acceleration of the vesting of the outstanding Stock Awards held by such
Optionees.  Such notice shall give such Opionees the right to exercise their
Stock Awards immediately prior to the Change of Control.  Such acceleration of
vesting and right to exercise shall be conditioned upon the consummation of the
transaction constituting the Change of Control.  In the event any surviving or
acquiring corporation assumes any Stock Awards outstanding under the Plan or
substitutes similar stock awards for those outstanding under the Plan, then, to
the extent not exercised prior to the Change of Control, the vesting of such
assumed or substituted Stock Awards shall be fully accelerated at the time of
the Change of Control and shall remain fully vested at all times thereafter.

     For purposes of the Plan, a "Change of Control" shall mean: (i) a sale of
sixty percent (60%) or more of the assets of the Company or the Subsidiary; (ii)
a merger or consolidation involving the Company or the Subsidiary in which the
Company or the Subsidiary is not the surviving corporation and the shareholders
of the Company immediately prior to the completion of such transaction hold,
directly or indirectly, less than fifty percent (50%) of the beneficial

                                      12.
<PAGE>

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 Subsidiary in which the Company or
the Subsidiary, as the case may be, is the surviving corporation but the shares
of Common Stock of the Company or the Subsidiary 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 Company 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 beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act, or comparable successor rules) of
securities of the Company or the Subsidiary 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 of the Plan, are members of the Board (the "Incumbent Board"), cease for
any reason to constitute at least fifty percent (50%) of the Board.  (If the
election or nomination for election by the Company's shareholders, of any new
member of the Board is approved by a vote of at least fifty percent (50%) of the
Incumbent Board, such new member of the 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.

12.  Amendment of the Plan and Stock Awards.

     (a)  Amendment of Plan.  The Board at any time, and from time to time, may
amend the Plan.  However, except as provided in Section 11 relating to
adjustments upon changes in Common Stock, no amendment shall be effective unless
approved by the shareholders of the Company to the extent shareholder approval
is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3
or any Nasdaq or securities exchange listing requirements.

     (b)  Shareholder Approval. The Board may, in its sole discretion, submit
any other amendment to the Plan for shareholder approval, including, but not
limited to, amendments to the Plan intended to satisfy the requirements of
Section 162(m) of the Code and the regulations thereunder regarding the
exclusion of performance-based compensation from the limit on corporate
deductibility of compensation paid to certain executive officers.

     (c)  Contemplated Amendments. It is expressly contemplated that the Board
may amend the Plan in any respect the Board deems necessary or advisable to
provide eligible Employees with the maximum benefits provided or to be provided
under the provisions of the Code and the regulations promulgated thereunder
relating to Incentive Stock Options and/or to bring the Plan and/or Incentive
Stock Options granted under it into compliance therewith.

                                      13.
<PAGE>

     (d)  No Impairment of Rights.  Rights under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Participant and (ii) the Participant
consents in writing.

     (e)  Amendment of Stock Awards. The Board at any time, and from time to
time, may amend the terms of any one or more Stock Awards (including, but not
limited to, the extension of the post-termination exercise period of an Option);
provided, however, that the rights under any Stock Award shall not be impaired
by any such amendment unless (i) the Company requests the consent of the
Participant and (ii) the Participant consents in writing.

13.  Termination or Suspension of the Plan.

     (a)  Plan Term.  The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the day before the tenth
(10th) anniversary of the date the Plan is adopted by the Board or approved by
the shareholders of the Company, whichever is earlier.  No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.

     (b)  No Impairment of Rights. Suspension or termination of the Plan shall
not impair rights and obligations under any Stock Award granted while the Plan
is in effect except with the written consent of the Participant.

14.  Effective Date of Plan.

     The Plan shall become effective as of the effective date of the initial
public offering of the Common Stock, but no Stock Award shall be exercised (or,
in the case of a stock bonus, shall be granted) unless and until the Plan has
been approved by the shareholders of the Company, which approval shall be within
twelve (12) months before or after the date the Plan is adopted by the Board.

15.  Choice of Law.

     The law of the State of Washington shall govern all questions concerning
the construction, validity and interpretation of this Plan, without regard to
such state's conflict of laws rules.

                                      14.
<PAGE>

                           Peet's Coffee & Tea, Inc.
                          2000 Equity Incentive Plan

                            Stock Option Agreement
             (Incentive Stock Option or Nonstatutory Stock Option)

     Pursuant to your Stock Option Grant Notice ("Grant Notice") and this Stock
Option Agreement, Peet's Coffee & Tea, Inc. (the "Company") has granted you an
option under its 2000 Equity Incentive Plan (the "Plan") to purchase the number
of shares of the Company's Common Stock indicated in your Grant Notice at the
exercise price indicated in your Grant Notice.  Defined terms not explicitly
defined in this Stock Option Agreement but defined in the Plan shall have the
same definitions as in the Plan.

     The details of your option are as follows:

     1.  Vesting.  Subject to the limitations contained herein, your option will
vest as provided in your Grant Notice, provided that vesting will cease upon the
termination of your Continuous Service.

     2.  Number of Shares and Exercise Price.  The number of shares of Common
Stock subject to your option and your exercise price per share referenced in
your Grant Notice may be adjusted from time to time for Capitalization
Adjustments, as provided in the Plan.

     3.  Exercise prior to Vesting ("Early Exercise").  If permitted in your
Grant Notice (i.e., the "Exercise Schedule" indicates that "Early Exercise" of
your option is permitted) and subject to the provisions of your option, you may
elect at any time that is both (i) during the period of your Continuous Service
and (ii) during the term of your option, to exercise all or part of your option,
including the nonvested portion of your option; provided, however, that:

         (a)  a partial exercise of your option shall be deemed to cover first
vested shares of Common Stock and then the earliest vesting installment of
unvested shares of Common Stock;

         (b)  any shares of Common Stock so purchased from installments that
have not vested as of the date of exercise shall be subject to the purchase
option in favor of the Company as described in the Company's form of Early
Exercise Stock Purchase Agreement;

         (c)  you shall enter into the Company's form of Early Exercise Stock
Purchase Agreement with a vesting schedule that will result in the same vesting
as if no early exercise had occurred; and

         (d)  if your option is an incentive stock option, then, as provided in
the Plan, to the extent that the aggregate Fair Market Value (determined at the
time of grant) of the shares of Common Stock with respect to which your option
plus all other incentive stock options you hold are exercisable for the first
time by you during any calendar year (under all plans of the Company and its
Affiliates) exceeds one hundred thousand dollars ($100,000), your option(s) or

                                       1
<PAGE>

portions thereof that exceed such limit (according to the order in which they
were granted) shall be treated as nonstatutory stock options.

     4.  Method of Payment.  Payment of the exercise price is due in full upon
exercise of all or any part of your option.  You may elect to make payment of
the exercise price in cash or by check or in any other manner permitted by your
Grant Notice, which may include one or more of the following:

         (a)  In the Company's sole discretion at the time your option is
exercised and provided that at the time of exercise the Common Stock is publicly
traded and quoted regularly in The Wall Street Journal, pursuant to a program
developed under Regulation T as promulgated by the Federal Reserve Board that,
prior to the issuance of Common Stock, results in either the receipt of cash (or
check) by the Company or the receipt of irrevocable instructions to pay the
aggregate exercise price to the Company from the sales proceeds.

         (b)  Provided that at the time of exercise the Common Stock is publicly
traded and quoted regularly in The Wall Street Journal, by delivery of already-
owned shares of Common Stock either that you have held for the period required
to avoid a charge to the Company's reported earnings (generally six months) or
that you did not acquire, directly or indirectly from the Company, that are
owned free and clear of any liens, claims, encumbrances or security interests,
and that are valued at Fair Market Value on the date of exercise. "Delivery" for
these purposes, in the sole discretion of the Company at the time you exercise
your option, shall include delivery to the Company of your attestation of
ownership of such shares of Common Stock in a form approved by the Company.
Notwithstanding the foregoing, you may not exercise your option by tender to the
Company of Common Stock to the extent such tender would violate the provisions
of any law, regulation or agreement restricting the redemption of the Company's
stock.

         (c)  Pursuant to the following deferred payment alternative:

              (i)    Not less than one hundred percent (100%) of the aggregate
exercise price, plus accrued interest, shall be due four (4) years from date of
exercise or, at the Company's election, upon termination of your Continuous
Service.

              (ii)   Interest shall be compounded at least annually and shall be
charged at the market rate of interest necessary to avoid a charge to earnings
for financial accounting purposes.

              (iii)  At any time that the Company is incorporated in Delaware,
payment of the Common Stock's "par value," as defined in the Delaware General
Corporation Law, shall be made in cash and not by deferred payment.

              (iv)   In order to elect the deferred payment alternative, you
must, as a part of your written notice of exercise, give notice of the election
of this payment alternative and, in order to secure the payment of the deferred
exercise price to the Company hereunder, if the Company so requests, you must
tender to the Company a promissory note and a security agreement covering the
purchased shares of Common Stock, both in form and substance

                                       2
<PAGE>

satisfactory to the Company, or such other or additional documentation as the
Company may request.

     5.  Whole Shares.  You may exercise your option only for whole shares of
Common Stock.

     6.  Securities Law Compliance.  Notwithstanding anything to the contrary
contained herein, you may not exercise your option unless the shares of Common
Stock issuable upon such exercise are then registered under the Securities Act
or, if such shares of Common Stock are not then so registered, the Company has
determined that such exercise and issuance would be exempt from the registration
requirements of the Securities Act.  The exercise of your option must also
comply with other applicable laws and regulations governing your option, and you
may not exercise your option if the Company determines that such exercise would
not be in material compliance with such laws and regulations.

     7.  Term.  You may not exercise your option before the commencement of its
term or after its term expires. The term of your option commences on the Date of
Grant and expires upon the earliest of the following:

         (a)  three (3) months after the termination of your Continuous Service
for any reason other than for Cause or your Disability or death, provided that
if during any part of such three- (3-) month period your option is not
exercisable solely because of the condition set forth in the preceding paragraph
relating to "Securities Law Compliance," your option shall not expire until the
earlier of the Expiration Date indicated in your Grant Notice or until it shall
have been exercisable for an aggregate period of three (3) months after the
termination of your Continuous Service;

         (b)  twelve (12) months after the termination of your Continuous
Service due to your Disability;

         (c)  eighteen (18) months after your death if you die either during
your Continuous Service or within three (3) months after your Continuous Service
terminates;

         (d)  immediately upon your termination of Continuous Service for Cause;

         (e)  the Expiration Date indicated in your Grant Notice; or

         (f)  the day before the tenth (10th) anniversary of the Date of Grant.

     For these purposes, "Cause" shall include, but not be limited to, the
commission of any act of fraud, embezzlement or dishonesty, any unauthorized use
or disclosure of confidential information or trade secrets of the Company, or
any other intentional misconduct adversely affecting the business or affairs of
the Company in a material manner.  The foregoing definition shall not be deemed
to be inclusive of all acts or omissions which the Company may consider as
ground for your dismissal or discharge.

     If your option is an incentive stock option, note that, to obtain the
federal income tax advantages associated with an "incentive stock option," the
Code requires that at all times

                                       3
<PAGE>

beginning on the date of grant of your option and ending on the day three (3)
months before the date of your option's exercise, you must be an employee of the
Company or an Affiliate, except in the event of your death or Disability. The
Company has provided for extended exercisability of your option under certain
circumstances for your benefit but cannot guarantee that your option will
necessarily be treated as an "incentive stock option" if you continue to provide
services to the Company or an Affiliate as a Consultant or Director after your
employment terminates or if you otherwise exercise your option more than three
(3) months after the date your employment terminates.

     8.  Exercise.

         (a)  You may exercise the vested portion of your option (and the
unvested portion of your option if your Grant Notice so permits) during its term
by delivering a Notice of Exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require.

         (b)  By exercising your option you agree that, as a condition to any
exercise of your option, the Company may require you to enter into an
arrangement providing for the payment by you to the Company of any tax
withholding obligation of the Company arising by reason of (1) the exercise of
your option, (2) the lapse of any substantial risk of forfeiture to which the
shares of Common Stock are subject at the time of exercise, or (3) the
disposition of shares of Common Stock acquired upon such exercise.

         (c)  If your option is an incentive stock option, by exercising your
option you agree that you will notify the Company in writing within fifteen (15)
days after the date of any disposition of any of the shares of the Common Stock
issued upon exercise of your option that occurs within two (2) years after the
date of your option grant or within one (1) year after such shares of Common
Stock are transferred upon exercise of your option.

     9.  Transferability.  Your option is not transferable, except by will or by
the laws of descent and distribution, and is exercisable during your life only
by you. Notwithstanding the foregoing, by delivering written notice to the
Company, in a form satisfactory to the Company, you may designate a third party
who, in the event of your death, shall thereafter be entitled to exercise your
option.

    10.  Right of Repurchase.  To the extent provided in the Company's bylaws as
amended from time to time, the Company shall have the right to repurchase all or
any part of the shares of Common Stock you acquire pursuant to the exercise of
your option.

    11.  Option not a Service Contract.  Your option is not an employment or
service contract, and nothing in your option shall be deemed to create in any
way whatsoever any obligation on your part to continue in the employ of the
Company or an Affiliate, or of the Company or an Affiliate to continue your
employment. In addition, nothing in your option shall obligate the Company or an
Affiliate, their respective shareholders, Boards of Directors, Officers or
Employees to continue any relationship that you might have as a Director or
Consultant for the Company or an Affiliate.

                                       4
<PAGE>

    12.  Withholding Obligations.

         (a)  At the time you exercise your option, in whole or in part, or at
any time thereafter as requested by the Company, you hereby authorize
withholding from payroll and any other amounts payable to you, and otherwise
agree to make adequate provision for (including by means of a "cashless
exercise" pursuant to a program developed under Regulation T as promulgated by
the Federal Reserve Board to the extent permitted by the Company), any sums
required to satisfy the federal, state, local and foreign tax withholding
obligations of the Company or an Affiliate, if any, which arise in connection
with your option.

         (b)  Upon your request and subject to approval by the Company, in its
sole discretion, and compliance with any applicable conditions or restrictions
of law, the Company may withhold from fully vested shares of Common Stock
otherwise issuable to you upon the exercise of your option a number of whole
shares of Common Stock having a Fair Market Value, determined by the Company as
of the date of exercise, not in excess of the minimum amount of tax required to
be withheld by law. If the date of determination of any tax withholding
obligation is deferred to a date later than the date of exercise of your option,
share withholding pursuant to the preceding sentence shall not be permitted
unless you make a proper and timely election under Section 83(b) of the Code,
covering the aggregate number of shares of Common Stock acquired upon such
exercise with respect to which such determination is otherwise deferred, to
accelerate the determination of such tax withholding obligation to the date of
exercise of your option. Notwithstanding the filing of such election, shares of
Common Stock shall be withheld solely from fully vested shares of Common Stock
determined as of the date of exercise of your option that are otherwise issuable
to you upon such exercise. Any adverse consequences to you arising in connection
with such share withholding procedure shall be your sole responsibility.

         (c)  You may not exercise your option unless the tax withholding
obligations of the Company and/or any Affiliate are satisfied. Accordingly, you
may not be able to exercise your option when desired even though your option is
vested, and the Company shall have no obligation to issue a certificate for such
shares of Common Stock or release such shares of Common Stock from any escrow
provided for herein.

    13.  Notices.  Any notices provided for in your option or the Plan shall be
given in writing and shall be deemed effectively given upon receipt or, in the
case of notices delivered by mail by the Company to you, five (5) days after
deposit in the United States mail, postage prepaid, addressed to you at the last
address you provided to the Company.

    14.  Governing Plan Document.  Your option is subject to all the provisions
of the Plan, the provisions of which are hereby made a part of your option, and
is further subject to all interpretations, amendments, rules and regulations
which may from time to time be promulgated and adopted pursuant to the Plan. In
the event of any conflict between the provisions of your option and those of the
Plan, the provisions of the Plan shall control.

                                       5

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