Peets Coffee & Tea (PEET) DEF 14A Definitive proxy

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PEET’S COFFEE & TEA, INC.

1400 Park Avenue,

Emeryville, California 94608-3520

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD ON MAY 23, 2007

TO THE SHAREHOLDERS OF PEET’S COFFEE & TEA, INC.:

NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Peet’s Coffee & Tea, Inc., a Washington corporation (the “Company”), will be held on Wednesday, May 23, 2007 at 10:00 a.m., local time, at our new roasting facility located at 2001 Harbor Bay Parkway, Alameda, California 94502, for the following purposes:

1. To elect three directors to hold office until the 2010 Annual Meeting of Shareholders.

2. To ratify the selection by the Audit Committee of the Board of Directors of Deloitte & Touche LLP as the independent registered public accounting firm of the Company for its fiscal year ending December 30, 2007.

3. To transact such other business as may properly come before the meeting or any adjournment or postponement thereof.

The foregoing items of business are more fully described in the Proxy Statement accompanying this Notice.

The Board of Directors has fixed the close of business on March 26, 2007, as the record date for the determination of shareholders entitled to notice of and to vote at this Annual Meeting and at any adjournment or postponement thereof.

By Order of the Board of Directors

Thomas P. Cawley

Secretary

Emeryville, California

April 11, 2007

ALLSHAREHOLDERSARECORDIALLYINVITEDTOATTENDTHEMEETINGINPERSON. WHETHERORNOTYOUEXPECTTOATTENDTHEMEETING,PLEASECOMPLETE,DATE,SIGNANDRETURNTHEENCLOSEDPROXY,ORVOTEOVERTHETELEPHONEORTHEINTERNETASINSTRUCTEDINTHESEMATERIALSASPROMPTLYASPOSSIBLEINORDERTOENSUREYOURREPRESENTATIONATTHEMEETING. ARETURNENVELOPE (WHICHISPOSTAGEPREPAIDIFMAILEDINTHE UNITED STATES)ISENCLOSEDFORTHATPURPOSE. EVENIFYOUHAVEGIVENYOURPROXY,YOUMAYSTILLVOTEINPERSONIFYOUATTENDTHEMEETING. PLEASENOTE,HOWEVER,THATIFYOURSHARESAREHELDOFRECORDBYABROKER,BANKOROTHERNOMINEEANDYOUWISHTOVOTEATTHEMEETING,YOUMUSTOBTAINFROMTHERECORDHOLDERAPROXYISSUEDINYOURNAME.

PEET’S COFFEE & TEA, INC.

1400 Park Avenue,

Emeryville, California 94608-3520

PROXY STATEMENT

FOR THE ANNUAL MEETING OF SHAREHOLDERS

May 23, 2007

INFORMATION CONCERNING SOLICITATION AND VOTING

GENERAL

The enclosed proxy is solicited on behalf of the Board of Directors of Peet’s Coffee & Tea, Inc., a Washington corporation (“Peet’s” or the “Company”), for use at the Annual Meeting of Shareholders to be held on May 23, 2007, at 10:00 a.m., local time (the “Annual Meeting”), or at any adjournment or postponement thereof, for the purposes set forth herein and in the accompanying Notice of Annual Meeting. The Annual Meeting will be held at our new roasting facility located at 2001 Harbor Bay Parkway, Alameda, California 94502. The Company intends to mail this proxy statement and accompanying proxy card on or about April 11, 2007 to all shareholders entitled to vote at the Annual Meeting.

SOLICITATION

The Company will bear the entire cost of solicitation of proxies, including preparation, assembly, printing and mailing of this proxy statement, the proxy card and any additional information furnished to shareholders. Copies of solicitation materials will be furnished to banks, brokerage houses, fiduciaries and custodians holding in their names shares of Common Stock beneficially owned by others to forward to such beneficial owners. The Company may reimburse persons representing beneficial owners of Common Stock for their costs of forwarding solicitation materials to such beneficial owners. Original solicitation of proxies by mail may be supplemented by telephone, telegram or personal solicitation by directors, officers or other regular employees of the Company. No additional compensation will be paid to directors, officers or other regular employees for such services.

VOTING RIGHTSAND OUTSTANDING SHARES

Only holders of record of Common Stock at the close of business on March 26, 2007 will be entitled to notice of and to vote at the Annual Meeting. At the close of business on March 26, 2007, the Company had outstanding and entitled to vote 13,516,180 shares of Common Stock.

Each holder of record of Common Stock on such date will be entitled to one vote for each share held on all matters to be voted upon at the Annual Meeting.

A quorum of shareholders is necessary to hold a valid meeting. A quorum will be present if at least a majority of the outstanding shares are represented by votes at the meeting or by proxy. All votes will be tabulated by the inspector of election appointed for the meeting, who will separately tabulate affirmative and negative votes and abstentions. Brokers have discretionary authority to vote on proposals 1 and 2. Abstentions will be counted towards the quorum but will have no effect on the vote for any proposal.

VOTING VIATHE INTERNETORBY TELEPHONE

Shareholders may grant a proxy to vote their shares by means of the telephone or on the Internet.

The telephone and Internet voting procedures below are designed to authenticate shareholders’ identities, to allow shareholders to grant a proxy to vote their shares and to confirm that shareholders’

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instructions have been recorded properly. Shareholders granting a proxy to vote via the internet should understand that there may be costs associated with electronic access, such as usage charges from Internet access providers and telephone companies that must be borne by the shareholder.

For Shares Registered in Your Name

Shareholders of record may go to http://www.contintentalstock.com to grant a proxy to vote their shares by means of the Internet. They will be required to provide the company number and control number contained on their proxy cards. The voter will then be asked to complete an electronic proxy card. The votes represented by such proxy will be generated on the computer screen and the voter will be prompted to submit or revise them as desired. Any shareholder using a touch-tone telephone may also grant a proxy to vote shares by calling 1-866-894-0537 and following the recorded instructions.

For Shares Registered in the Name of a Broker or Bank

Beneficial owners whose stock is held in “street name” should have received instructions for granting proxies from their banks, brokers or other agents, rather than using the Company’s proxy card.

A number of brokers and banks are participating in a program provided through ADP Investor Communication Services that offers the means to grant proxies to vote shares by means of the telephone and Internet. If your shares are held in an account with a broker or bank participating in the ADP Investor Communications Services program, you may grant a proxy to vote those shares telephonically by calling the telephone number shown on the instruction form received from your broker or bank, or via the Internet at ADP Investor Communication Services’ website at http://www.proxyvote.com.

To vote in person at the annual meeting, you must obtain a valid proxy from your broker, bank, or other agent. Follow the instructions from your broker or bank included with these proxy materials, or contact your broker or bank to request a proxy form.

General Information for All Shares Voted Via the Internet or By Telephone

Votes submitted via the Internet or by telephone must be received by 11:59 p.m. E.S.T. on May 22, 2007. Submitting your proxy via the Internet or by telephone will not affect your right to vote in person should you decide to attend the Annual Meeting.

REVOCABILITYOF PROXIES

Any person giving a proxy pursuant to this solicitation has the power to revoke it at any time before it is voted. It may be revoked by filing with the Secretary of the Company at the Company’s principal executive office, 1400 Park Avenue, Emeryville, California 94608-3520, a written notice of revocation or a duly executed proxy bearing a later date, or it may be revoked by attending the meeting and voting in person. Attendance at the meeting will not, by itself, revoke a proxy.

If your shares are held by your broker or bank as a nominee or agent, you should follow the instructions provided by your broker or bank.

SHAREHOLDER PROPOSALS

The deadline for submitting a shareholder proposal for inclusion in the Company’s proxy statement and form of proxy for the Company’s 2008 Annual Meeting of Shareholders pursuant to Rule 14a-8 of the Securities and Exchange Commission (“SEC”) is December 15, 2007. Shareholders wishing to submit proposals or director nominations that are not to be included in such proxy statement and proxy must do so not later than February 15, 2008 nor earlier than January 16, 2008. Shareholders are also advised to review the Company’s Amended and Restated Bylaws, which contain additional requirements with respect to advance notice of shareholder proposals and director nominations.

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PROPOSAL 1

ELECTION OF DIRECTORS

The Company’s Amended and Restated Articles of Incorporation and Amended and Restated Bylaws provide that the Board of Directors shall be divided into three classes, each class consisting, as nearly as possible, of one-third of the total number of directors, with each class having a three-year term. Vacancies on the Board may be filled only by persons elected by a majority of the remaining directors unless the Board determines by resolution that such vacancies shall be filled by the shareholders. A director elected to fill a vacancy (including a vacancy created by an increase in the number of directors) shall serve for the remainder of the full term of the class of directors in which the vacancy occurred and until such director’s successor is elected and qualified.

The Board of Directors is presently composed of eight members. There are three directors in the class whose term of office expires in 2007. Jean-Michel Valette is currently a director of the Company who was previously elected by the shareholders. Michael Linton and David Deno are directors who were appointed by the Board of Directors. If elected at the Annual Meeting, each nominee would serve until the 2010 Annual Meeting and until his or her successor is elected and has qualified, or until such director’s earlier death, resignation or removal.

Directors are elected by a plurality of the votes presented in person or represented by proxy and entitled to vote at the meeting. Shares represented by executed proxies will be voted, if authority to do so is not withheld, for the election of the nominee named below. In the event that the nominee should be unavailable for election as a result of an unexpected occurrence, such shares will be voted for the election of such substitute nominee as management may propose. Each person nominated for election has agreed to serve if elected, and management has no reason to believe that the nominee will be unable to serve.

It is the Company’s policy to encourage directors to attend the Annual Meeting. Five of the seven Company’s directors attended the 2006 Annual Meeting of Shareholders.

Set forth below is biographical information for each person nominated and each person whose term of office as a director will continue after the Annual Meeting.

NOMINEESFOR ELECTIONFORA THREE-YEAR TERM EXPIRINGATTHE 2010 ANNUAL MEETING

David Deno

David Deno, 49, joined the Board of Directors in August 2006. He is currently a managing director at CCMP Capital Advisors, LLC, a private equity firm formed in August 2006 by the former buyout/growth equity firm JP Morgan Partners. In August 2006, he concluded a 15-year career with YUM! Brands, Inc. where he served as chief operating officer from October 2004 to February 2006 and as chief financial officer from November 1999 to October 2004.

Michael Linton

Michael Linton, 50, joined the Board of Directors in March 2005. Mr. Linton has served as eBay’s Senior Vice President for eBay Motors, eBay Canada, Half.com, eBay Stores and ProStores since December 2006. Prior to this, Mr. Linton was Executive Vice President and Chief Marketing Officer for Best Buy Co., Inc., a specialty retailer of consumer-electronics and related products and services, from January 1999 through August 2006.

Jean-Michel Valette

Jean-Michel Valette, 46, has served as Chairman of the Board of Directors since January 2004 and a director of the company since July 2001. Mr. Valette is an independent advisor to branded consumer companies. Until October 2006, Mr. Valette was Chairman of the Robert Mondavi Winery and was previously its President and

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Managing Director from October 2004 to April 2005. From August 1998 to May 2000, Mr. Valette was President and Chief Executive Officer of Franciscan Estates, a premium wine company. Mr. Valette currently serves as a director of Select Comfort Corporation and the Boston Beer Company.

THE BOARD OF DIRECTORS RECOMMENDS

A VOTE IN FAVOR OF EACH NAMED NOMINEE.

DIRECTORS CONTINUINGIN OFFICE UNTILTHE 2008 ANNUAL MEETING

Gordon A. Bowker

Gordon A. Bowker, 64, has served as a director of the Company from 1971 to 1987 and from September 1994 to the present. Since 1986, Mr. Bowker has been a principal and investor of Apanage Inc., a real estate development company. Mr. Bowker has 30 years of experience with publicly traded and private companies as an investor, founder, director and marketing advisor. He co-founded Starbucks Coffee Company, Redhook Ale Brewery, Incorporated and Seattle Weekly.

H. William Jesse, Jr.

H. William Jesse, Jr., 55, has served as a director of the Company since August 1998 and was Chairman from January 2001 to April 2002. Mr. Jesse is Chairman & CEO of Jesse Capital Management, Inc. an investment company. He founded the firm in 1986. Mr. Jesse is also Chairman and CEO of Modern Yachts, Inc. a design firm he founded in 2000. Mr. Jesse served as Chairman and Chief Executive Officer of Vineyard Properties Corporation, a developer of wine grape vineyards from 1998 to 2003. He also served as Chairman of Jesse.Hansen&Co. from 1986 to 2004 and its President from 1986 through 1998. Mr. Jesse is also a director of PlanetOut, Inc.

Patrick J. O’Dea

Patrick J. O’Dea, 44, has served as a Chief Executive Officer, President and as a director of the Company since May 2002. From April 1997 to March 2001 he was Chief Executive Officer of Archway/Mother’s Cookies and Mother’s Cake and Cookie Company. From 1995 to 1997, Mr. O’Dea was the Vice President and General Manager of the Specialty Cheese Division of Stella Foods. From 1984 to 1995, he was with Procter & Gamble, where he marketed several of the company’s snack and beverage brands.

DIRECTORS CONTINUINGIN OFFICE UNTILTHE 2009 ANNUAL MEETING

Gerald Baldwin

Gerald Baldwin, 64, has served as a director of the Company since 1971 and as Chairman of the Board from 1994 through January 2001. From 1971 until 1994, Mr. Baldwin was President and Chief Executive Officer. He co-founded Starbucks Coffee Company in 1971. Mr. Baldwin served as a director of Association Scientifique du Café from 1999 through March 2005 and its President from 2001 to December 2004. Since 2000, he has also served as a director of TechnoServe, Inc., a non-profit organization operating in Africa and Latin America.

Hilary Billings

Hilary Billings, 43, has served as a director of the Company since January 2002. Currently, Ms. Billings is an independent brand strategy consultant. From May 1999 to March 2004, Ms. Billings was Chairman of the Board and Chief Marketing Officer RedEnvelope, a multi-channel gift company. Ms. Billings is also a director of Design Within Reach, Inc.

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INDEPENDENCEOFTHE BOARDOF DIRECTORS

As required by the NASDAQ Stock Market (“NASDAQ”) listing standards, a majority of the members of a listed company’s Board of Directors must qualify as “independent,” as affirmatively determined by the Board of Directors. The Board consults with the Company’s counsel to ensure that the Board’s determinations are consistent with all relevant securities and other laws and regulations regarding the definition of “independent,” including those set forth in pertinent listing standards of the NASDAQ, as in effect from time to time.

Consistent with these considerations, after review of all relevant transactions or relationships between each director, or any of his or her family members, and the Company, its senior management and its independent registered public accounting firm, the Board affirmatively has determined that the following Company directors are independent directors within the meaning of the applicable NASDAQ listing standards: Ms. Billings and Mssrs. Baldwin, Deno, Linton, Valette, Bowker, and Jesse.

BOARD COMMITTEESAND MEETINGS

The Board has an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee. The following table provides membership and meeting information for the fiscal year ended December 31, 2006 for each of the Board Committees.

Name	Audit		Compensation		Nominating and Governance
Gerald Baldwin
Hilary Billings			X	*	X
Gordon A. Bowker					X	*
David Deno	X	1
H. William Jesse	X	*	X
Michael Linton			X
Patrick J. O’Dea
Jean-Michel Valette	X				X
Total meetings in fiscal year ended December 31, 2006	8		2		3

(1) Effective August 22, 2006, David Deno joined Peet’s Board of Directors.

* Committee chairperson

During the fiscal year ended December 31, 2006, the Board met four times. Each Board member attended 75% or more of the aggregate meetings of the Board and of the committees on which he or she served, held during the period for which he or she was a director or committee member.

AUDIT COMMITTEE

The Audit Committee acts on behalf of the Company’s Board of Directors in fulfilling the Board’s oversight responsibilities with respect to the Company’s corporate accounting and financial reporting processes, the systems of internal control over financial reporting, and audits of financial statements, as well as the quality and integrity of the Company’s financial statements and reports and the qualifications, independence and performance of the firm or firms of certified public accountants engaged as the Company’s independent registered public accounting firm for the purpose of preparing or issuing an audit report or performing audit services. The Audit Committee is composed of three directors: Mssrs. Jesse, Deno and Valette. Mr. Jesse is the Chair of the Audit Committee. It met eight times during the fiscal year. All members of the Company’s Audit Committee are independent (as independence is defined in Rule 4200(a)(15) of the NASDAQ Marketplace Rules). The Board of Directors has determined that Mssrs. Jesse, Deno and Valette qualify as “audit committee financial experts,” as defined in applicable rules and regulations of the Securities and Exchange Commission (the “SEC”). The Audit Committee Charter is available on our corporate website at www.peets.com.

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COMPENSATION COMMITTEE

The purpose of the Compensation Committee is to provide assistance and guidance to the Board of Directors in fulfilling its oversight responsibilities to the Company’s shareholders with respect to the Company’s compensation program for officers, directors and other employees, as well as review the Compensation Discussion and Analysis and prepare the Committee report included herein in accordance with applicable rules and regulations of the SEC. The Committee makes recommendations concerning salaries and incentive compensation, awards stock options and stock purchase rights to employees and consultants under the Company’s stock option plans and otherwise determines compensation levels and performs such other functions regarding compensation as the Board may delegate. The Compensation Committee is composed of three non-employee directors and is independent (as independence is defined in Rule 4200(a)(15) of the NASDAQ Marketplace Rules). During 2006, they were: Ms. Billings and Mssrs. Linton and Jesse. It met two times during the fiscal year. Ms. Billings is the Chair of the Compensation Committee. The Compensation Committee Charter is available on our corporate website at www.peets.com.

NOMINATINGAND CORPORATE GOVERNANCE COMMITTEE

The purpose of the Nominating and Corporate Governance Committee is to (i) oversee the Company’s corporate governance functions on behalf of the Board; (ii) make recommendations to the Board regarding corporate governance issues; (iii) identify, review and evaluate candidates to serve as directors of the Company; (iv) serve as a focal point for communication between such candidates, non-committee directors and the Company’s management; (v) recommend such candidates to the Board; and (vi) make such other recommendations to the Board regarding affairs relating to the directors of the Company. Three directors comprise the Nominating and Corporate Governance Committee: Ms. Billings and Mssrs. Valette and Bowker. Mr. Bowker is the Chair of the Committee. All members of the Nominating and Corporate Governance Committee are independent (as independence is currently defined in Rule 4200(a)(15) of the NASDAQ Marketplace Rules). The Nominating and Corporate Governance Committee held three meetings during the year. The Nominating and Corporate Governance Committee Charter is available on our corporate website at www.peets.com.

The Nominating and Corporate Governance Committee believes that candidates for director should have certain minimum qualifications, including being able to read and understand basic financial statements, being over 21 years of age and having the highest personal integrity and ethics. The Committee also intends to consider such factors as possessing relevant expertise upon which to be able to offer advice and guidance to management, having sufficient time to devote to the affairs of the Company, demonstrated excellence in his or her field, having the ability to exercise sound business judgment and having the commitment to rigorously represent the long-term interests of the Company’s shareholders. However, the Committee retains the right to modify these qualifications from time to time. Candidates for director nominees are reviewed in the context of the current composition of the board, the operating requirements of the Company and the long-term interests of shareholders. In conducting this assessment, the committee considers diversity, age, skills, and such other factors as it deems appropriate given the current needs of the board and the Company, to maintain a balance of knowledge, experience and capability. In the case of incumbent directors whose terms of office are set to expire, the Nominating and Corporate Governance Committee reviews such directors’ overall service to the Company during their term, including the number of meetings attended, level of participation, quality of performance, and any other relationships and transactions that might impair such directors’ independence. In the case of new director candidates, the committee also determines whether the nominee must be independent for NASDAQ purposes, which determination is based upon applicable NASDAQ Marketplace Rules, applicable SEC rules and regulations and the advice of counsel, if necessary. The Committee then uses its network of contacts to compile a list of potential candidates, but may also engage, if it deems appropriate, a professional search firm. The Committee conducts any appropriate and necessary inquiries into the backgrounds and qualifications of possible candidates after considering the function and needs of the Board. The Committee meets to discuss and consider such candidates’ qualifications and then selects a nominee for recommendation to the Board by majority vote. To date, the Nominating and Corporate Governance Committee has not rejected a timely director nominee from a shareholder or shareholders holding more than 5% of our voting stock.

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At this time the Nominating and Corporate Governance Committee does not consider director candidates recommended by shareholders. The Committee believes that it is in the best position to identify, review, evaluate and select qualified candidates for Board membership, based on the comprehensive criteria for Board membership approved by the Board.

CODEOF BUSINESS CONDUCTAND ETHICS

The Company has adopted the Peet’s Coffee & Tea, Inc. Code of Business Conduct and Ethics that applies to all officers, directors and employees. The Code of Business Conduct and Ethics is available on our website at www.peets.com. If the Company makes any substantive amendments to the Code of Business Conduct and Ethics or grants any waiver from a provision of the code to any executive officer or director, the Company will promptly disclose the nature of the amendment or waiver on its website.

SHAREHOLDER COMMUNICATIONS WITH THE BOARDOF DIRECTORS

The Company has adopted a formal process by which shareholders may communicate with the Board or any of its directors. Shareholders may communicate with the Board of Directors or its specific members by writing, sending an e-mail to investorrelations@peets.com or calling our Investor Relations representative at 510-594-2100. The Board will review all communication received at its regularly scheduled meetings. Additionally, all board members typically attend the Company’s Annual Meeting and will be available for questions or to receive comments from shareholders.

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EXECUTIVE COMPENSATION

COMPENSATION DISCUSSIONAND ANALYSIS

OVERVIEW

The Compensation Committee has responsibility for setting the overall compensation strategy for the Company and aligning it to the Company’s business goals. This includes determining the compensation of the Chief Executive Officer and other executive officers, overseeing the Company’s equity incentive plans and other benefit plans and ensuring that all of the Company’s compensation programs are fair, reasonable and competitive.

OBJECTIVESOFOUR COMPENSATION PROGRAM

Our executive compensation program is designed (i) to attract and retain outstanding executive officers capable of leading the Company to fulfillment of its business objectives, and (ii) to establish an appropriate link between executive compensation and achievement of the Company’s strategic and financial performance goals, including the enhancement of shareholder value. To that end, our compensation program is designed to offer competitive compensation opportunities that reward individual contributions as well as corporate performance, based on the following general principles:

• Implementation of competitive pay practices, taking into account the pay practices of other companies of comparable size and stage of development with which the Company competes for talented executives;

• Emphasis on pay-for-performance as a component of compensation through annual incentive programs designed to reward executives for achievement of annual corporate financial performance goals; and

• Use of equity-based incentives designed to motivate executives to focus on long-term strategic objectives, to align the interests of management and the shareholders and to provide opportunities for management to share in the benefits that they achieve for the Company’s shareholders.

As the Company has continued to evolve from a newly public company into a more established company with a proven track record, we expect that our compensation strategy will also evolve. Since our initial public offering in 2001, our compensation policy has focused on the attraction of key executive talent, which was primarily accomplished through the use of initial stock option grants provided as a part of each executive’s compensation package and bonus stock option grants made on an annual basis. During our next phase of growth, we expect to shift our compensation strategy to use both annual cash bonuses and smaller annual stock grants to promote retention and value creation. We believe that, going forward, a mix of both cash and stock will be more effective to retain and motivate our executive team as they accomplish our annual and long-term business objectives.

ROLEOF EXECUTIVE OFFICERSIN COMPENSATION DECISIONS

The Board of Directors determines, in its sole discretion, the compensation and other terms of employment of the Chief Executive Officer, based on the Compensation Committees’ recommendation and evaluation of the Chief Executive Officer’s performance in light of relevant corporate performance goals and objectives. The Chief Executive Officer is not present for the discussion and does not participate in the decisions regarding his compensation.

The Chief Executive Officer prepares recommendations regarding the individual and corporate performance goals and objectives of the Company’s other officers, including the named executive officers, that are periodically established. Additionally, the Chief Executive Officer recommends compensation and other terms of employment for these officers. The Compensation Committee reviews and considers these recommendations in its deliberations, taking into account the officer’s success in achieving his or her individual performance goals and objectives and the corporate performance goals and objectives deemed relevant to the officer as established by the Compensation Committee. The Chief Executive Officer may be present during these deliberations, but may not vote.

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ELEMENTSOF EXECUTIVE COMPENSATION

The Compensation Committee has structured our executive compensation program to motivate executives to achieve our business goals and reward the executives for achieving such goals. To accomplish this, we use base salary, incentive compensation based on achieving annual targets and other benefits in a mix determined by the Compensation Committee to provide the right balance of market competitiveness and alignment of the executive’s at-risk compensation with business performance and shareholder return. Each executive’s target incentive percentage is based on delivering a total compensation package that is competitive with a benchmark peer group.

Base Salary

Base salaries for executives were initially set in the key employment agreements between the executives and the Company. Initial base salaries were set based on the experience, skills, knowledge and responsibilities required of each executive officer, as well as competitive market conditions. These base salaries are subject to annual review and adjustment. The Compensation Committee evaluated 2006 executive performance at its March 2007 meeting on the basis of a variety of factors, both individual and corporate, as well as level of responsibility, competitive factors and the Company’s internal policies regarding salary increases. Merit-based salary increases for executives were, at 4% in aggregate, approximately the same on a percentage basis as merit-based salary increases received by the overall non-executive employee population.

Cash Incentive Compensation

The Company did not have a cash performance incentive program for its executives in 2006 or in any prior years since becoming public in 2001. Instead, during this period, the Company relied on the stock option bonus grants described below to serve the purpose that is often served by a cash-based incentive compensation plan. Going forward, the Compensation Committee is considering the right mix of both cash and stock to retain and motivate our executive team as they accomplish annual and long-term business objectives. This is consistent with the Company’s evolution from being newly public where the primary goal of compensation was to attract high level talent, to a company with a more proven track record.

Equity Compensation

Stock options under the Company’s stock option plans are used for executives to underscore the common interests of shareholders and management. Options are granted to executives to provide a continuing financial incentive to maximize long-term value to shareholders and to help make the executive’s total compensation opportunity competitive. In addition, because stock options generally become exercisable over a period of several years, options encourage executives to remain in the long-term employment of the Company.

The granting of stock options for members of the management team at or above the level of Director, including the named executive officers, has generally taken two forms: initial grants, which are granted at hiring or promotion dates and typically have a four or five year vesting schedule, and bonus option grants, which are granted annually with a seven-year vesting schedule, which can be accelerated by the Board of Directors if the Company achieves predetermined annual performance objectives. Initial stock option grants are set based on the experience, skills, knowledge and responsibilities required of each executive officer, as well as competitive market conditions. To date, the size of the annual bonus option grants has been calculated based on the executive officers’ respective base salaries and a factor of 2.5 that reflects the approximate accounting value of the Company’s stock options, as follows:

Base Salary x Target Incentive Percent x 2.5 = Target face value of Stock Option Grant

For example:

$100,000 salary x 40% incentive target x 2.5 = $100,000 face value. At a $25 share price, the target stock option grant would cover 4,000 shares.

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Each executive’s target incentive percentage is determined based on delivering a total compensation package that is competitive with the benchmark peer group described below. After each fiscal year, the Compensation Committee will make a determination as to whether the predetermined annual performance objectives have been met and the extent to which the bonus option grants for the year should be accelerated. In 2006, based on the Company’s achievement of its 2005 objectives, the Compensation Committee accelerated 90% of the CEO’s and 100% of the other named executive officer’s 2005 bonus option grants.

On October 20, 2006, the Board of Directors appointed an Option Review Committee (the “Option Committee”) consisting of two independent directors to oversee a review of the Company’s past stock option granting practices. This voluntary review was initiated in light of the media coverage regarding stock option granting practices of other publicly traded companies. The Option Committee’s review covered the period from the Company’s 2001 initial public offering to August 2006. The Option Committee’s final report indicates no evidence that there was any deliberate attempt to manipulate the price at which any stock option was granted nor the date of the grant in order to benefit the grant recipient or the Company. The Option Committee also reported that they have not discovered any evidence of intentional wrongdoing by any Company employee or Board member. In its final report, the Option Committee did conclude the Company had a lack of documentation and internal controls in connection with the stock administration system, particularly in the 2001 to 2003 period. Effective March 26, 2007, the Compensation Committee adopted a stock option granting policy designed to provide reasonable assurance that the measurement date for stock option grants is appropriately determined.

Although the Company has restated its previously issued consolidated financial statements to record additional non-cash stock-based compensation expense as a result of this review, no current executive officer of the Company received options subject to this adjustment. The Company’s policy is that options granted to executives have the exercise price set at the closing price of the Common Stock on the date of grant.

Retirement and Other Benefits

Except for the Chief Executive Officer, the Company provides no special retirement benefits to its executives other than those received by all employees. The Chief Executive Officer is covered by Company paid long-term disability insurance as part of ensuring market competitiveness in his total compensation package. As with all its employees, after one year of employment, the Company matches 50 cents for every dollar deferred by an executive into the Company’s 401(k) plan up to 5% of eligible income.

The Company maintains an unfunded Deferred Compensation Plan (“DCP”) that allows certain employees, including the named executive officers, to defer receipt of their salary into cash accounts that mirror the gains and/or losses of several different investment funds selected by the Company. The Company does offer a fixed income investment option within the DCP, which provides a predetermined interest rate that is paid by the Company. In 2006, the rate was 5.27% determined from Moody’s Corporate Bond Index and the total amount of interest paid by the Company was $7,596 for the named executive officers.

Change of Control and Severance Benefits

Each of the named executive officers is covered by our Change of Control Option Acceleration Plan and our Key Employee Severance Plan as described in those sections below. Additionally, each named executive officer has an employment agreement described below. The Company and the Compensation Committee believe that each of these plans and employment agreements are standard executive compensation elements that protect employee and shareholder value by promoting stability and continuity on the executive team.

Perquisites

The Company offers a financial planning allowance to the Chief Executive Officer not to exceed $12,500 per year. In 2006, the Company paid $12,500 for this perquisite. We view this benefit, as well as the long-term

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disability insurance policy discussed above, as an ongoing standard component to a competitive compensation package for its Chief Executive Officer.

EXECUTIVE COMPENSATION DISCUSSION

In late 2005, we engaged Pearl Meyer and Partners to conduct an executive compensation competitive assessment and long term incentive strategy review for use by the Compensation Committee in its 2006 executive compensation decisions. The study created a market composite using data from comparable positions in a peer group of ten companies closely aligned with our revenue size and market capitalization, as well as data from a broad group of size appropriate firms from Towers Perrin’s Executive Compensation Survey and Watson Wyatt’s Top Management Compensation Report. Companies in the peer group included: BJ’s Restaurants, Inc., Blue Nile, Inc., Build-A-Bear Workshop, Inc., California Pizza Kitchen, Inc., Cosi Inc., Design Within Reach, Inc., Hansen Natural Corporation, Panera Bread Company, Red Robin Gourmet Burgers, Inc., and The Boston Beer Company, Inc. The median revenue for this peer group was $199 million, the median market capitalization was $513 million, and each company was publicly traded and based in the United States. The competitive assessment indicated that our overall executive total compensation is at the 50^th percentile of the market on average, with base salaries between the 50^th and 75^th percentile and total cash compensation between the 25^th and 50^th percentile.

For 2006, the Company’s executive compensation program primarily included the following components: (i) base salary and (ii) long-term incentives in the form of bonus option grants. The Compensation Committee set the following annual performance objectives for 2006:

1. Sales Growth: 20% - 23%

2. Earnings Target: $.80 - $.83 per share excluding stock option expense

For 2006, the stock option expense under Statement of Financial Accounting Standard No. 123(R), (“SFAS 123(R)”) was excluded from the earnings target due to the uncertainty of our forecast related to the new pronouncement.

For 2007, the Company decided to forego the expense of another competitive assessment and instead relied upon the existing study with an assumed increase of 4% in the cash compensation paid by the peer group companies. The objectives of our executive compensation plans for 2007 are to maintain base salary competitiveness, improve total cash competitiveness, and maintain total direct compensation competitiveness within the overall pay-for-performance framework. While the Compensation Committee has determined base salaries and target performance goals for executives in 2007, they have not yet determined the structure of the incentive compensation. Going forward, the Compensation Committee is considering the right mix of both cash and stock to retain and motivate our executive team as they accomplish annual and long-term business objectives.

The Compensation Committee considers the Company’s performance against these goals when determining the salary changes, bonus option acceleration, and the size of new bonus option grants. To the extent that qualitative factors are also involved in the determination of an executive’s individual performance, the Compensation Committee makes a subjective assessment of performance. For 2006, the Compensation Committee decided not to accelerate vesting for any of the bonus stock options granted to any executive officer. This decision by the Compensation Committee reflects the fact that established performance objective for the earnings target was not achieved.

Pat O’Dea—CEO Compensation

After a review of the competitive assessment and in light of the Company’s 2005 performance, including achievement of the established 2005 performance objectives, the Compensation Committee set Mr. O’Dea’s

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salary at $500,000. This base salary represents a 4% increase from the prior year’s salary of $471,477 and places him in the 65th percentile of the peer group described above. In addition, the Compensation Committee accelerated 23,837 or 90% of the bonus options granted in 2005 and granted him 28,165 bonus options for 2006.

The Compensation Committee determined Mr. O’Dea’s base salary and incentive compensation awards based on their evaluation of his performance relative to both his financial and non-financial goals for 2006. The Company’s performance incentive goals described above accounted for 40% of Mr. O’Dea’s overall performance evaluation, while non-financial goals accounted for 60% of his overall performance evaluation. Effective March 29, 2007, the Committee recommended to the Board of Directors a 4.0% salary increase for Mr. O’Dea to $520,000, which, as discussed above, is consistent with merit-based salary increases received by the overall non-executive employee population. The Committee believes the increase maintains his base salary at approximately the 65th percentile within the Company’s peer group. As described above, because the established earnings performance goals were not achieved, the Compensation Committee decided not to accelerate vesting for any of the bonus stock options granted to Mr. O’Dea, including those associated with the non-financial goals, or to any executive officer in the company.

Tom Cawley—CFO Compensation

For 2006, based on similar factors as those reviewed in connection with Mr. O’Dea’s 2006 compensation, the Compensation Committee set Mr. Cawley’s salary at $386,000. This base salary represents a 6% increase from the prior year’s salary of $364,000 and places him above the 75th percentile of the peer group described above. In addition, the Compensation Committee accelerated 13,624 or 100% of the bonus options granted in 2005 and granted him 13,172 bonus options for 2006.

For 2007, the Compensation Committee met to evaluate the performance of Mr. Cawley, the results of which were used to determine his base salary compensation. Effective March 29, 2007, the Committee approved a 4.0% salary increase for Mr. Cawley to $401,000, representing an approximately 4% increase. The Compensation Committee believes that this places his base salary above the 75th percentile of the market. As discussed above, none of his 2006 bonus option grants were accelerated.

James E. Grimes—Vice President, Operations & Information Systems Compensation

For 2006, based on similar factors as those reviewed in connection with Messrs. O’Dea’s and Cawley’s 2006 compensation, the Compensation Committee set Mr. Grimes’ salary at $231,000. This base salary represents a 6% increase from the prior year’s salary of $217,000. In addition, the Compensation Committee accelerated 8,051 or 100% of the bonus options granted in 2005 and granted him 7,882 bonus options for 2006.

On December 5, 2006, the Compensation Committee approved an interim increase in Mr. Grimes’ base salary to $271,000 to better reflect his dual responsibilities for Operations and Information Systems, as well as his leadership in building the Company’s new roasting facility. In 2007, the Compensation Committee met to evaluate the performance of Mr. Grimes, the results of which were used to determine his base salary compensation for 2007. Effective March 29, 2007, the Committee approved a salary increase for Mr. Grimes to $281,000, representing an approximately 4.0% increase over his previous base salary. As discussed above, none of his 2006 bonus option grants were accelerated.

TAXAND ACCOUNTING IMPLICATIONS

Deductibility of Executive Compensation

Section 162(m) of the Internal Revenue Code limits deductions for executive compensation in excess of $1 million except for certain compensation which qualifies for a performance-based exception. Certain types of compensation in excess of $1 million are deductible by the Company if performance criteria are specified in detail and are contingent on stockholder approval of the compensation arrangement. The Company and the

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Compensation Committee have endeavored to structure executive compensation plans to achieve maximum deductibility under Section 162(m) with minimal sacrifices of flexibility and impact on corporate objectives.

The Compensation Committee has structured the current use of stock option arrangements in a manner intended to achieve tax deductibility of such amounts. With respect to non-equity compensation arrangements, the Compensation Committee has reviewed the terms of those arrangements most likely to be subject to the deduction limitation of Section 162(m). Cash compensation paid to Peet’s named executive officers did not exceed the Section 162(m) thresholds in fiscal 2006.

While the Compensation Committee will continue to consider deductibility under Section 162(m) with respect to future compensation arrangements with executives, deductibility will not be the only factor used in ascertaining appropriate levels or modes of compensation. Since corporate objectives may not always be consistent with the requirements for full deductibility, it is possible that the Committee may, if consistent with Peet’s “pay-for-performance” philosophy described above, enter into compensation arrangements in the future under which payments are not fully deductible under Section 162(m).

Nonqualified Deferred Compensation

On October 22, 2004, the American Jobs Creation Act of 2004 was signed into law, changing the tax rules applicable to nonqualified deferred compensation arrangements. While the final regulations have not become effective yet, the Company believes it is operating in good faith compliance with the statutory provisions which were effective January 1, 2005. A more detailed discussion of the Company’s nonqualified deferred compensation arrangements is provided on page 16 under the heading “Nonqualified Deferred Compensation”.

Accounting for Stock-Based Compensation

Beginning on January 2, 2006, the Company began accounting for stock-based compensation including its 2000 Equity Incentive Plan and its 2000 Non-Employee Director Plan in accordance with the requirements of SFAS 123(R).

COMPENSATION COMMITTEE REPORT

The Compensation Committee of the Company has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

THE COMPENSATION COMMITTEE

Hilary Billings, Chair

H. William Jesse, Jr.

Michael Linton

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EQUITY COMPENSATION PLAN INFORMATION

The following table provides certain information with respect to all of the Company’s equity compensation plans in effect as of December 31, 2006.

Equity Compensation Plan Information

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)		Weighted-average exercise price of outstanding options, warrants and rights (b)		Number of securities remaining available for issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders	2,732,711	(1)	$	20.33	1,577,038	(2)
Equity compensation plans not approved by security holders	—			—	—
Total	2,732,711		$	20.33	1,577,038

(1) Includes the following:

• 2,309,328 shares of the Company’s common stock to be issued upon exercise of outstanding stock options granted under the 2000 Equity Incentive Plan;

• 369,864 shares of the Company’s common stock to be issued upon exercise of outstanding stock options granted under the 2000 Non-Employee Director Plan;

• 53,519 shares of the Company’s common stock to be issued upon exercise of outstanding stock options granted under the 1997 Equity Incentive Plan

(2) Includes the following:

• 611,459 shares of the Company’s common stock available for issuance under the 2000 Equity Incentive Plan;

• 165,761 shares of the Company’s common stock available for issuance under the 2000 Non-Employee Director Plan;

• 2,550 shares of the Company’s common stock available for issuance under the 1997 Equity Incentive Plan (the Company has, however, determined that it will not grant further options under the 1997 Equity Incentive Plan);

• 797,268 shares of the Company’s common stock available for issuance under the Employee Stock Purchase Plan

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STOCK OPTION GRANTSAND EXERCISES

Prior to the completion of the initial public offering, the Company granted options to its executive officers under its 1993 Stock Option Plan, 1994 California Stock Option Plan and 1997 Equity Incentive Plan. Effective upon the completion of the initial public offering, the Board adopted the 2000 Equity Incentive Plan. As of December 31, 2006, options to purchase a total of 2,732,711 shares were outstanding under all of the Company’s plans and options to purchase 611,459 and 165,761 shares remain available for grant under the 2000 Equity Incentive Plan and 2000 Non-Employee Director Plan, respectively. Although no further options will be granted under the 1997 Equity Incentive Plan, options currently outstanding under those plans will continue in effect under the terms of those plans until such outstanding options are exercised or terminated in accordance with their terms.

Total options granted to employees during 2006 were 392,964, or 2.9% of common stock outstanding as of December 31, 2006.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

As noted above, the Compensation Committee consists of Ms. Billings and Mssrs. Jesse and Linton. In fiscal 2006, there were no interlocks or insider participation by member of the Compensation Committee.

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SUMMARY COMPENSATION TABLE

The following table shows for 2006, compensation awarded or paid to, or earned by, the Company’s Chief Executive Officer and its other three most highly compensated executive officers at December 31, 2006, referred to as the “named executive officers.”

(a)	(b)	(c)		(d)		(e)		(f)		(g)		(h)		(i)		(j)
Name and Principal Position	Year	Salary ($)		Bonus ($)		Stock Awards ($)		Option Awards ($) (1)		Non-Equity Incentive Plan Compensation ($)		Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)		All Other Compensation ($) (2)		Total ($)
Patrick J. O’Dea (3)     President and Chief Financial Officer	2006	$	493,479	$	—	$	—	$	466,779	$	—	$	—	$	29,767	$	990,026
Thomas P. Cawley     Vice President, Chief Financial Officer and Secretary	2006	$	380,801	$	—	$	—	$	445,468	$	—	$	—	$	9,656	$	835,925
Bruce Schroder (4)     Vice President, Development	2006	$	357,517	$	—	$	—	$	181,619	$	—	$	—	$	8,390	$	547,526
James E. Grimes     Vice President, Operations and Information Systems	2006	$	227,863	$	—	$	—	$	167,912	$	—	$	—	$	5,899	$	401,674

(1) The amounts in column (f) reflect the dollar amount recognized for financial statement reporting purposes for the fiscal year ended December 31, 2006, in accordance with SFAS 123(R) of awards pursuant to the Stock Option Program and thus include amounts from awards granted in and prior to 2006. Assumptions used in the calculation of this amount are included in Note 1 to the Company’s audited financial statements for the fiscal year ended December 31, 2006, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 2, 2007. The forfeiture rates were assumed at zero.

(2) Amounts include matching contributions made under the Company’s Section 401(k) plan (which is more fully described below under the heading, “All Other Compensation”).

(3) For Mr. O’Dea in 2006, the amount also includes $12,500 in financial planning services provided by a third party and $5,308 in long term disability insurance, $6,734 in health benefit premiums.

(4) Mr. Schroder has terminated his employment with the Company effective December 31, 2006.

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ALL OTHER COMPENSATION

(a)	(b)	(c)		(d)		(e)		(f)		(g)		(h)		(i)
Name	Year	Perquisites and Other Personal Benefits ($)		Tax Reimbursements ($)		Insurance Premiums ($)		Company Contributions to Retirement and 401(k) Plans ($)		Severance Payments / Accruals ($)		Change in Control Payments / Accruals ($)		Total ($)
Patrick J. O’Dea (3)	2006	$	12,500	$	—	$	12,042	$	5,225	$	—	$	—	$	29,767
Thomas P. Cawley	2006	$	��	$	—	$	4,706	$	4,950	$	—	$	—	$	9,656
Bruce Schroder	2006	$	—	$	—	$	4,550	$	3,840	$	—	$	—	$	8,390
James E. Grimes	2006	$	—	$	—	$	1,534	$	4,365	$	—	$	—	$	5,899

GRANTSOF PLAN BASED AWARDS

(a)	(b)	(c)		(d)		(e)		(f)	(g)	(h)	(i)	(j)	(k)		(l)
Name	Grant Date	Estimated Future Payouts Under Non-Equity Incentive Plan Awards						Estimated Future Payouts Under Equity Incentive Plan Awards			All Other Stock Awards: Number of Shares of Stock or Units (#)	All Other Option Awards: Number of Securities Underlying Options (#) (1)	Exercise or Base Price of Option Awards ($ /Sh) (2)		Grant Date Fair Value of Stock and Option Awards ($ / Sh)
		Threshold ($)		Target ($)		Maximum ($)		Threshold (#)	Target (#)	Maximum (#)
Patrick J. O’Dea	4/10/2006	$	—	$	—	$	—	—	—	—	—	28,165	$	28.91	$	10.62
Thomas P. Cawley	4/10/2006	$	—	$	—	$	—	—	—	—	—	13,172	$	28.91	$	10.62
Bruce Schroder	4/10/2006	$	—	$	—	$	—	—	—	—	—	11,512	$	28.91	$	10.62
James E. Grimes	4/10/2006	$	—	$	—	$	—	—	—	—	—	7,882	$	28.91	$	10.62

(1) Options granted to the named executive officers during 2006 were non-statutory stock options granted pursuant to the Company’s 2000 Equity Incentive Plan. Each received options to purchase shares at an exercise price of $28.91 per share subject to a seven year cliff vesting schedule, as established performance goals were not achieved.

(2) The exercise price per share of each option was equal to the fair market value of the Common Stock on the date of grant.

PENSION BENEFITS

The Company provides no pension plan to their employees.

17

OUTSTANDING EQUITY AWARDSAT FISCAL YEAR END

		Option Awards						Stock Awards
Name		Number of Securities Underlying Unexercised Options (#)	Number of Securities Underlying Unexercised Options (#)	Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)	Option Exercise Price ($)		Option Expiration Date	Number of Shares or Units of Stock That Have Not Vested (#)	Market Value of Shares or Units of Stock That Have Not Vested ($)	Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)	Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)
		Exercisable	Unexercisable
Patrick J. O’Dea	(a)	20,045	—	—	$	15.49	5/29/2012	—	—	—	—
	(a)	274,180	—	—	$	15.49	5/29/2012	—	—	—	—
	(b)	300,000	—	—	$	15.49	5/29/2012	—	—	—	—
	(c)	50,000	—	—	$	12.98	2/10/2013	—	—	—	—
	(c)	39,339	—	—	$	22.84	5/27/2014	—	—	—	—
	(c)	28,337	2,648	—	$	26.48	5/17/2015	—	—	—	—
	(c)	—	28,165	—	$	28.91	4/10/2016	—	—	—	—
Thomas P. Cawley	(a)	160,833	29,167	—	$	17.47	7/1/2013	—	—	—	—
	(c)	18,382	—	—	$	22.84	5/27/2014	—	—	—	—
	(c)	13,624	—	—	$	26.48	5/17/2015	—	—	—	—
	(c)	—	13,172	—	$	28.91	4/10/2016	—	—	—	—
Bruce Schroder	(a)	81,500	12,500	—	$	16.00	6/10/2013	—	—	—	—
	(c)	8,337	—	—	$	16.09	6/16/2013	—	—	—	—
	(c)	17,941	—	—	$	22.84	5/27/2014	—	—	—	—
	(c)	12,456	—	—	$	26.48	5/17/2015	—	—	—	—
	(c)	—	11,512	—	$	28.91	4/10/2016	—	—	—	—
James E. Grimes	(a)	22,695	—	—	$	16.41	7/3/2012	—	—	—	—
	(c)	11,564	—	—	$	22.84	5/27/2014	—	—	—	—
	(c)	8,051	—	—	$	26.48	5/17/2015	—	—	—	—
	(c)	—	7,882	—	$	28.91	4/10/2016	—	—	—	—

Option grants are subject to the following vest schedules:

a. Options were granted with twenty-five percent (25%) of the shares represented by each such grant vesting on the first anniversary of the grant date, and the remaining shares vesting monthly over the subsequent three years; provided the grantee continues to be employed by the Company.

b. Mr. O’Dea received options to purchase shares at an exercise price of $15.49 per share subject to a seven year vesting schedule to become fully vested on December 31, 2008. The vesting of the Performance-based Options were accelerated in 2005 based upon pre-determined criteria as outlined in the Key Employment Agreement between Mr. O’Dea and the Company.

c. Options were granted with a seven year vesting schedule subject to acceleration based upon pre-determined performance goals.

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OPTIONS EXERCISEDAND STOCK VESTED

(a)	(b)	( c)		(d)	(e)
	Option Awards			Stock Awards
Name	Number of Shares Acquired on Exercise (#)	Value Realized on Exercise ($)		Number of Shares Acquired on Vesting (#)	Value Realized on Vesting ($)
Patrick J. O’Dea	—		—	—	—
Thomas P. Cawley	—		—	—	—
Bruce Schroder	—		—	—	—
James E. Grimes	46,000	$	579,506	—	—

NONQUALIFIED DEFERRED COMPENSATION

The Company maintains a Deferred Compensation Plan (“DCP”) that allows certain employees, including the named executive officers, to defer receipt of their salary into cash accounts that mirror the gains and/or losses of several different investment funds selected by the Company. Participants may defer up to 75% of salary and up to 100% of bonuses and/or commissions until the date(s) they have specified. The Company is not required to make any contributions to the DCP and did not in 2006. The Company does offer a fixed income investment option within the DCP, which provides a predetermined interest rate that is paid by the Company. In 2006, the rate was 5.27% determined from Moody’s Corporate Bond Index and the total amount of interest paid by the Company was $7,596 for the named executive officers.

The DCP is not funded by the Company, and participants have an unsecured contractual commitment by the Company to pay the amounts due under the DCP. When such payments are due, the cash will be distributed from the Company’s general assets.

In addition to distributions made upon the fixed payment dates selected by participants, the DCP allows for distributions to be made: (i) immediately upon request by a participant subject to approval by the Company and a 10% penalty, (ii) in the event a participant suffers certain hardships (financial hardship resulting from illness or accident and loss of property due to casualty), (iii) in the event the participant’s employment is terminated, and (iv) to the participant’s designated beneficiary in the event of the participant’s death.

(a)	(b)		(c)		(d)		(e)		(f)
Name	Executive Contributions in Last Fiscal Year ($)		Registrant Contributions in Last Fiscal Year ($)		Aggregate Earnings in Last Fiscal Year ($)		Aggregate Withdrawals / Distributions ($)		Aggregate Balance at Last Fiscal Year-End ($)
Patrick J. O’Dea	$	39,163	$	1,137	$	3,247	$	—	$	67,353
Thomas P. Cawley	$	130,000	$	5,687	$	—	$	129,524	$	133,348
Bruce Schroder	$	—	$	—	$	—	$	—	$	—
James E. Grimes	$	38,820	$	772	$	6,819	$	—	$	83,501

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POTENTIAL PAYMENTS UPON TERMINATIONOR CHANGEOF CONTROL

The following table shows the potential payments upon termination or a change of control of the Company for the named executive officers.

(a)	(b)	(c)		(d)		(e)		(f)		(g)		(h)
Name	Benefit	Before Change in Control Termination w/o Cause or for Good Reason		After Change in Control Termination w/o Cause or for Good Reason		Voluntary Termination		Death		Disability		Change in Control
Patrick J. O’Dea	Stock Options		100% accelerated		100% accelerated		vesting ceased		N/A		N/A		100% accelerated
	Outplacement program (1)		up to $10,000		up to $10,000		N/A		N/A		N/A		up to $10,000
	Severance pay (2)	$	657,972	$	657,972	$	—	$	—	$	—	$	986,959
	Plan Benefits (3)	$	23,761	$	23,761	$	—		N/A		N/A	$	23,761
	Parachute excise taxes (4)		yes		yes	$	—	$	—	$	—		yes
	Pro-rata bonus (5)	$	—	$	—	$	—	$	—	$	—	$	—
	Life insurance coverage (6)	$	240	$	240	$	—	$	—	$	—	$	240
	Disability insurance coverage (7)	$	10,622	$	10,622	$	—	$	—	$	—	$	10,622
Thomas P. Cawley	Stock Options		100% accelerated		100% accelerated		vesting ceased		N/A		N/A		100% accelerated
	Outplacement program (1)		up to $10,000		up to $10,000		N/A		N/A		N/A		up to $10,000
	Severance pay (2)	$	285,601	$	285,601	$	—	$	—	$	—	$	380,801
	Plan Benefits (3)	$	23,761	$	23,761	$	—		N/A		N/A	$	23,761
	Parachute excise taxes (4)		yes		yes	$	—	$	—	$	—		yes
	Pro-rata bonus (5)	$	—	$	—	$	—	$	—	$	—	$	—
	Life insurance coverage (6)	$	240	$	240	$	—	$	—	$	—	$	240
	Disability insurance coverage (7)	$	—	$	—	$	—	$	—	$	—	$	—
Bruce Schroder	Stock Options		100% accelerated		100% accelerated		vesting ceased		N/A		N/A		100% accelerated
	Outplacement program (1)		up to $10,000		up to $10,000		N/A		N/A		N/A		up to $10,000
	Severance pay (2)	$	268,138	$	268,138	$	—	$	—	$	—	$	357,517
	Plan Benefits (3)	$	21,900	$	21,900	$	—		N/A		N/A	$	21,900
	Parachute excise taxes (4)		yes		yes	$	—	$	—	$	—		yes
	Pro-rata bonus (5)	$	—	$	—	$	—	$	—	$	—	$	—
	Life insurance coverage (6)	$	240	$	240	$	—	$	—	$	—	$	240
	Disability insurance coverage (7)	$	—	$	—	$	—	$	—	$	—	$	—
James E. Grimes	Stock Options		100% accelerated		100% accelerated		vesting ceased		N/A		N/A		100% accelerated
	Outplacement program (1)		up to $10,000		up to $10,000		N/A		N/A		N/A		up to $10,000
	Severance pay (2)	$	189,886	$	189,886	$	—	$	—	$	—	$	227,863
	Plan Benefits (3)	$	15,222	$	15,222	$	—		N/A		N/A	$	15,222
	Parachute excise taxes (4)		yes		yes	$	—	$	—	$	—		yes
	Pro-rata bonus (5)	$	—	$	—	$	—	$	—	$	—	$	—
	Life insurance coverage (6)	$	240	$	240	$	—	$	—	$	—	$	240
	Disability insurance coverage (7)	$	—	$	—	$	—	$	—	$	—	$	—

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(1) In the event of a termination without cause or for good reason, the Company provides for the named executive officer to participate in an outplacement program for up to 6 months, at a cost not to exceed $10,000; provided, however, that the provider of such outplacement program be reasonably acceptable to the Company and the named executive officer must provide to the Company adequate proof of the expense incurred.

(2) Reflects payments under the Key Employment Severance Plan. Mr. O’Dea would receive severance pay equal to 1 year of pay plus 1 month of pay for each year of employment with the Company, prorated at the discretion of the Company, provided that the maximum amount received shall be 2 years of pay. In the event of a change of control termination, Mr. O’Dea would receive severance pay equal to 2 years of pay. Mssrs. Cawley, Schroder, and Grimes would receive severance pay in an amount equal to 6 months of pay plus 1 month of pay for each year of employment with the Company, prorated at the discretion of the Company, provided that the maximum amount received shall be 2 years of pay. In the event of a change of control termination, Mssrs. Cawley, Schroder, and Grimes would receive severance pay equal to 1 year of pay.

(3) If the named executive officer elects COBRA coverage, the Company will pay the same amount for each applicable sub-category of coverage as the Company paid for such sub-category for the named executive officer before their termination for the duration of 2 years. The Company’s payment obligations include the payment of dependent coverage if the named executive officer maintained dependent coverage prior to termination.

(4) Under the terms of the Key Employee Severance Plan, the Company is required pay an excise tax gross-up to its executive officers for “parachute payments” under Section 280G of the Internal Revenue Code of 1986, as amended.

(5) Although named executive officers are entitled to pro rata bonus payments, if any, under the Key Employee Severance Plan, the Company has not used annual cash bonuses as part of their compensation program for executive officers. As a result, at this time, no pro rata bonuses would be payable upon a termination or change of control.

(6) Life insurance coverage provided to the named executive officer prior to termination shall be continued at the Company’s expense for 2 years after the termination date.

(7) Disability insurance coverage provided to the named executive officer prior to termination shall be continued at the Company’s expense for 2 years after the termination date.

CHANGEOF CONTROL OPTION ACCELERATION PLAN

In November 1998, the Company established the Change of Control Option Acceleration Plan. The plan provides for the acceleration of vesting of shares covered by outstanding options held by all of the Company’s employees in the event of a change of control of the Company. Employees have the right to exercise their options immediately before the change of control. If any surviving or acquiring corporation assumes or substitutes such options, then to the extent the options are not exercised before the change of control, such assumed or substituted options shall be fully vested on and after the change of control.

KEY EMPLOYEE SEVERANCE PLAN

Also in November 1998, the Company adopted a Key Employee Severance Benefit Plan to provide for the payment of severance benefits to all employees holding the position of vice president and above, and any other individual designated as an eligible employee under a Key Employee Agreement. Under the plan, if the employee’s employment, within 12 months after a change of control, is involuntarily terminated without cause or voluntarily terminated for good reason (a “change of control termination”), the executive would receive 1 year of pay, their pro rata Bonus if one applies, and the President and Chief Executive Officer will receive 2 years of pay.

Additionally, if the employee’s employment is involuntarily terminated without cause at any other time, the employee would receive severance payments based upon the terms of each employee’s respective employment agreement. The President and Chief Executive Officer would receive 12 months pay plus 1 month of pay for every year of service up to a 2 year maximum. The other executives would receive 6 months pay plus 1 month of pay for every year of service with a 2 year maximum.

EMPLOYMENT AGREEMENTS

The Company has entered into key employee agreements with each of the named executive officers, including a key employee agreement with Mr. O’Dea. Salaries in these agreements are subject to annual adjustment at the discretion of the Compensation Committee of the Board of Directors. For the Chief Executive Officer and executives hired after May 2002, the key employee agreements provide that the vesting of options to

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purchase Common Stock of the Company ceases as of the date of termination of employment for all terminations except for those covered under the Change in Control Option Acceleration Plan. For executives hired before May 2002, the key employee agreements provide that if the executive is involuntarily terminated by the Company without cause or if the executive voluntarily terminates employment due to a “constructive termination,” then the vesting of all of the executive’s outstanding options to purchase Common Stock of the Company will accelerate so that the options become fully exercisable upon the executive’s termination of employment. Under the key employee agreements, all executives also are entitled to receive benefits to the extent provided under the Key Employee Severance Benefit Plan and the Change of Control Option Acceleration Plan.

DIRECTOR COMPENSATION

Each non-employee director receives a $10,000 annual retainer and an additional $5,000 annual retainer for committee membership or $7,500 annual retainer for committee chairmanship for a maximum annual retainer of $17,500. For 2006, the total cash compensation paid to non-employee directors was $101,250. The members of the Board of Directors are also eligible for reimbursement for their expenses incurred in connection with attendance at Board meetings in accordance with Company policy.

2000 NON-EMPLOYEE DIRECTOR PLAN

The Board adopted a 2000 Non-Employee Director Plan effective upon the completion of the Company’s initial public offering of its Common Stock. The shareholders approved the plan on November 17, 2000. The plan provides for the automatic grant of nonstatutory stock options to purchase shares of Common Stock to the Company’s non-employee directors. The aggregate number of shares of Common Stock that may be issued pursuant to these options under the plan is 450,000 shares.

The Board of Directors administers the plan. Options granted to non-employee directors will generally be subject to the following terms:

• The exercise price of options granted will be equal to the fair market value of the Common Stock on the date of grant;

• The options will have a term of no more than ten years from the date they are granted;

• Options granted are not transferable other than by will, gift, or by the laws of descent and distribution and are exercisable during the life of the optionee only by the optionee or permitted transfers as provided in the option agreement;

• An optionee may designate a beneficiary who may exercise the option following the optionee’s death; and

• An optionee whose service relationship with the Company or any affiliate (whether as a non-employee director of the Company or subsequently as an employee, director or consultant of either the Company or an affiliate) ceases for any reason may exercise vested options for the term provided in the option agreement (3 months generally, 12 or 18 months in the event of disability or death).

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The plan, as amended in March 2004 and March 2005, allows for any individual who becomes a non-employee director for the first time to automatically receive an initial grant to purchase 17,500 shares of Common Stock upon being elected to the Board of Directors. On the day following each annual meeting of the Company’s shareholders, any person who is then a non-employee director automatically receives an annual grant to purchase 7,500 shares of Common Stock. Initial grants vest over a period of three years from their date of grant. Annual grants vest monthly over twelve months from the date of grant. During 2006, the Company granted 68,125 options to Directors in accordance with this plan.

(a)	(b)		(c)		(d)		(e)		(f)		(g)		(h)
Name (1)	Fees Earned or Paid in Cash ($)		Stock Awards ($)		Option Awards ($) (3)		Non-Equity Incentive Plan Compensation ($)		Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)		All Other Compensation ($)		Total ($)
Gerald Baldwin	$	10,000	$	—	$	86,631	$	—	$	—	$	—	$	96,631
Hillary Billings	$	17,500	$	—	$	86,631	$	—	$	—	$	—	$	104,131
Gordon Bowker	$	17,500	$	—	$	86,631	$	—	$	—	$	—	$	104,131
David Deno(2)	$	6,250	$	—	$	21,775	$	—	$	—	$	—	$	28,025
William Jesse Jr	$	17,500	$	—	$	86,631	$	—	$	—	$	—	$	104,131
Michael Linton	$	15,000	$	—	$	116,278	$	—	$	—	$	—	$	131,278
Jean-Michel Valette	$	17,500	$	—	$	86,631	$	—	$	—	$	—	$	104,131

(1) Patrick J. O’Dea, the Company’s President and Chief Financial Officer, is not included in this table as he is an employee of the Company and thus receives no compensation for his services as a Director. Mr. O’Dea’s compensation is shown in the Summary Compensation Table on page 13.

(2) David Deno joined the Board of Directors effective August 22, 2006.

(3) Reflects the dollar amount recognized for financial statement reporting purposes for the fiscal year ended December 31, 2006 in accordance with SFAS 123(R), and thus includes amounts from awards granted in and prior to 2006. As of December 31, 2006, each non-employee Director has the following number of options outstanding: Gerald Baldwin: 42,500; Hillary Billings: 72,500; Gordon Bowker: 87,500; David Deno: 23,125; William Jesse Jr.: 32,500; Michael Linton: 33,150; and Jean-Michel Valette: 77,500.

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SECURITY OWNERSHIP OF

CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding the ownership of the Company’s Common Stock as of February 16, 2007 by: (i) each director and nominee for director; (ii) each of the executive officers named in the Summary Compensation Table; and (iii) all executive officers and directors of the Company as a group. Information for all those known by the Company to be beneficial owners of more than five percent of its Common Stock, as stated on Schedules 13D or 13G filed by such beneficial owners, is also included.

Beneficial ownership is determined in accordance with the rules of theSEC which generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities and includes shares of Common Stock issuable pursuant to the exercise of stock options or warrants that are immediately exercisable or exercisable within 60 days of February 16, 2007. These shares are deemed to be outstanding and to be beneficially owned by the person holding those options or warrants for the purpose of computing the percentage ownership of that person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated, the persons or entities identified in this table have sole voting and investment power with respect to all shares shown as beneficially owned by them, subject to applicable community property laws. Information with respect to beneficial ownership has been furnished by each director, executive officer or five percent or more shareholder, as the case may be. Except as otherwise noted below, the address for each person listed on the table is c/o Peet’s Coffee & Tea, Inc., 1400 Park Avenue, Emeryville, California 94608-3520. Applicable percentages are based on 13,519,514 shares outstanding on February 16, 2007, adjusted as required by the rules promulgated by the SEC.

Principal Shareholders Table

Name of Beneficial Owner	Number of Shares Beneficially Owned	Percentage of Beneficial Ownership
Directors and Executive Officers:
Patrick J. O’Dea (1)	756,637	5.6
Gerald Baldwin (2)	241,875	1.8
Thomas P. Cawley (3)	214,036	1.6
Gordon A. Bowker (4)	123,018	*
Jean-Michel Valette (5)	86,875	*
Hilary Billings (6)	71,875	*
James E. Grimes (7)	50,213	*
H. William Jesse, Jr. (8)	31,875	*
Michael Linton (9)	27,941	*
David Deno (10)	16,683	*
All directors and executive officers as a group (10 persons) (11)	1,621,028	12.0
5% Shareholders(12):
Morgan Stanley (13) 1585 Broadway New York, NY 10036	1,373,543	10.2
Palo Alto Investors, LLC (14) 470 University Avenue Palo Alto, CA 94301	1,390,075	10.3
Baron Capital Group, Inc. (15) 767 Fifth Avenue New York, NY 10153	1,027,440	7.6
Next Century Growth Investors, LLC (16) 5500 Wayzata Blvd. Suite 1275 Minneapolis, MN 55416	814,979	6.0
Barclays Global Investors Japan Limited (17) Ebisu Prime Square Tower 8th Floor 1-1-39 Hiroo Shibuya-Ku Tokyo 150-8402 Japan	758,001	5.6

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* Less than 1%.

(1) Includes 707,401 shares issuable upon the exercise of vested stock options.

(2) Includes 41,875 shares issuable upon the exercise of vested stock options.

(3) Includes 209,506 shares issuable upon the exercise of vested stock options.

(4) Includes 86,875 shares issuable upon the exercise of vested stock options.

(5) Includes 76,875 shares issuable upon the exercise of vested stock options.

(6) Represents 71,875 shares issuable upon the exercise of vested stock options.

(7) Includes 42,310 shares issuable upon the exercise of vested stock options.

(8) Represents 31,875 shares issuable upon the exercise of vested stock options.

(9) Includes 26,691 shares issuable upon the exercise of vested stock options.

(10) Includes 6,683 shares issuable upon the exercise of vested stock options.

(11) See footnotes (1) through (10) above, as applicable. Excludes Mr. Schroder, who terminated his employment with the Company effective December 31, 2006.

(12) Information with respect to each beneficial owner of 5% or more of a class of the Company’s Common Stock is based on Schedules 13D or 13G filed by such beneficial owners with the SEC for the 2006 calendar year.

(13) The number of shares for Morgan Stanley includes 1,304,432 shares held by Morgan Stanley Investment Management, Inc., a wholly owned subsidiary of Morgan Stanley.

(14) The number of shares for Palo Alto Investors, LLC (“PAI”) are also deemed beneficially owned by Palo Alto Investors and William Leland Edwards. The number of shares also include 855,552 shares owned by Palo Alto Small Cap Fund, L.P. PAI is a general partner and investment advisor of investment limited partnerships and the investment advisor to other investment funds. Palo Alto Investors is the manager of PAI. William Leland Edwards is the controlling shareholder of Palo Alto Investors and the President of PAI.

(15) The number of shares for Baron Capital Group, Inc. (“BCG”) include 908,300 shares owned by BAMCO, Inc., 119,140 shares owned by Baron Capital Management, Inc., and 700,000 shares owned by Baron Growth Fund. Ronald Baron owns a controlling interest in BCG.

(16) The number of shares for Next Century Growth Investors, LLC are also deemed beneficially owned by Thomas L. Press. Thomas L. Press serves as Director, Chairman and Chief Executive Officer of Next Century Growth Investors, LLC. Mr. Press owns in excess of 25% of Next Century Growth Investors, LLC and is a controlling person of Next Century Growth Investors.

(17) The number of shares for Barclays Global Investors includes 362,102 shares owned by Barclays Global Investors, NA., 387,078 shares owned by Barclays Global Fund Advisors, and 8,821 shares owned by Barclays Global Investors, LTD. The shares are held by Barclays Global Investors Japan Limted in trust accounts.

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PROPOSAL 2

RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Audit Committee of the Board of Directors has selected Deloitte & Touche LLP as the Company’s independent registered public accounting firm for the year ending December 30, 2007 and has further directed that management submit the selection of the independent registered public accounting firm for ratification by the shareholders at the Annual Meeting. Deloitte & Touche LLP has audited the Company’s financial statements since 1996. Representatives of Deloitte & Touche LLP are expected to be present at the Annual Meeting, will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions.

Shareholder ratification of the selection of Deloitte & Touche LLP as the Company’s independent registered public accounting firm is not required by the Company’s Amended and Restated Bylaws or otherwise. However, the Board is submitting the selection of Deloitte & Touche LLP to the shareholders for ratification as a matter of good corporate practice. If the shareholders fail to ratify the selection, the Audit Committee and the Board will reconsider whether or not to retain that firm. Even if the selection is ratified, the Audit Committee and the Board in their discretion may direct the appointment of a different independent registered public accounting firm at any time during the year if they determine that such a change would be in the best interests of the Company and its shareholders.

The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and voting at the Annual Meeting will be required to ratify the selection of Deloitte & Touche LLP. For purposes of this vote, abstentions and broker non-votes will not be counted in determining whether this matter has been approved. Shares represented by executed proxies will be voted, if no abstention or vote against is marked, for the ratification of Deloitte & Touche LLP as the Company’s independent registered public accounting firm.

AUDIT FEES.    For the fiscal years ended December 31, 2006 and January 1, 2006, the aggregate fees billed by Deloitte & Touche LLP for the audit of the Company’s financial statements and internal control over financial reporting for such fiscal years and for the review of the Company’s interim financial statements were approximately $1,261,000 and $611,000, respectively. The increase in fees compared to 2005 was due primarily to the additional fees associated with the restatement of our historical financial statements resulting from our stock option granting practices review. There were no hours incurred on the audit that were not performed by full-time employees of Deloitte & Touche LLP.

AUDIT-RELATED FEES.    There were no audit-related services or fees incurred in 2006 or 2005.

TAX FEES.    For the fiscal year ended December 31, 2006, the aggregate fees billed by Deloitte & Touche LLP were $20,000 for services associated with a routine audit by the Internal Revenue Service of the Company’s 2004 tax filings. For the fiscal year ended January 1, 2006, the aggregate fees billed by Deloitte & Touche LLP for services rendered in connection with income tax compliance and related tax services were $62,000. Beginning with the fiscal year ended January 1, 2006, the Company’s income tax compliance will be performed by a firm other than the Company’s independent registered public accounting firm. Certain other related tax services were performed by a firm other than the Company’s independent registered public accounting firm during 2006 and 2005.

ALL OTHER FEES.    During the fiscal years ended December 31, 2006 and January 1, 2006, Deloitte & Touche LLP did not render or bill for any other professional services other than those described above under “Audit Fees,” “Audit-Related Fees,” and “Tax Fees”.

The Audit Committee has adopted a policy for the pre-approval of audit and non-audit services rendered by Deloitte & Touche LLP. The policy generally pre-approves specified services in the defined categories of audit

26

services, audit-related services, and tax services up to specified amounts. Pre-approval may also be given as part of the Audit Committee’s approval of the scope of the engagement of the independent auditor or on an individual explicit case-by-case basis before the independent auditor is engaged to provide each service. The pre-approval of services may be delegated to one or more of the Audit Committee’s members, but the decision must be reported to the full Audit Committee at its next scheduled meeting. All fees incurred were pre-approved by the Audit Committee.

THE BOARD OF DIRECTORS RECOMMENDS

A VOTE IN FAVOR OF PROPOSAL 2

REPORTOFTHE AUDIT COMMITTEEOFTHE BOARDOF DIRECTORS*

The Audit Committee reviews the Company’s financial reporting process on behalf of the Board of Directors. Management is responsible for the Company’s internal controls and the financial reporting process. The independent registered public accounting firm is responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with auditing standards generally accepted in the United States of America and to issue a report thereon.

In this context, the Committee has met and held discussions with management and Deloitte & Touche LLP, the Company’s independent registered public accounting firm. Management represented to the Committee that the Company’s consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America, and the Committee has reviewed and discussed the consolidated financial statements with management and the independent registered public accounting firm. The Committee discussed with the Deloitte & Touche LLP matters required to be discussed by Statement on Auditing Standards No. 61 (Communication With Audit Committees).

In addition, the Committee has discussed separately with Deloitte & Touche LLP, the auditors’ independence from the Company and its management, including the matters in the written disclosures and the letter from the auditors required by the Independence Standards Board Standard No. 1 (Independence Discussion With Audit Committees).

In reliance on the reviews and discussions referred to above, the Committee recommended to the Board of Directors, and the Board approved the inclusion of the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006, filed with the SEC on April 2, 2007. The Committee and the Board also have recommended, subject to shareholder approval, the selection of Deloitte & Touche LLP as the Company’s independent registered public accounting firm.

THE AUDIT COMMITTEE

H. William Jesse, Jr., Chair

Gordon A. Bowker

Jean-Michel Valette

* The material in this report is not “soliciting material,” is not deemed “filed” with the SEC, and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act whether made before or after the date hereof and irrespective of any general incorporation language contained in such filing.

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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires the Company’s directors and executive officers, and persons who own more than ten percent of a registered class of the Company’s equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Officers, directors and greater than ten percent shareholders are required bySEC regulation to furnish the Company with copies of all Section 16(a) forms they file.

To the Company’s knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the fiscal year ended December 31, 2006, all Section 16(a) filing requirements applicable to its officers, directors and greater than ten percent beneficial owners were complied with, except that Form 4s covering one transaction each were filed late by Mssrs. O’Dea, Cawley, Schroder, Grimes, and Deno.

CERTAIN TRANSACTIONS

The Company has entered into indemnity agreements with certain officers and directors. These agreements, among other things, provide for indemnification of the Company’s directors and executive officers for expenses, judgments, fines and settlement amounts incurred by any such person in any action or proceeding arising out of such person’s services as a director or executive officer or at the Company’s request to the full extent permitted by Washington law. The Company believes that these provisions and agreements are necessary to attract and retain qualified persons as directors and executive officers.

HOUSEHOLDINGOF PROXY MATERIALS

The SEC has adopted rules that permit companies and intermediaries (e.g., brokers) to satisfy the delivery requirements for proxy statements and annual reports with respect to two or more shareholders sharing the same address by delivering a single proxy statement addressed to those shareholders. This process, which is commonly referred to as “householding,” potentially means extra convenience for shareholders and cost savings for companies.

This year, a number of brokers with account holders who are Peet’s Coffee & Tea, Inc. shareholders will be “householding” our proxy materials. A single proxy statement will be delivered to multiple shareholders sharing an address unless contrary instructions have been received from the affected shareholders. Once you have received notice from your broker that they will be “householding” communications to your address, “householding” will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in “householding” and would prefer to receive a separate proxy statement and annual report, please notify your broker, or direct your written request to Investor Relations, Peet’s Coffee & Tea, Inc., 1400 Park Avenue, Emeryville, California 94608-3520 or contact Investor Relations at (510) 594-2100. Shareholders who currently receive multiple copies of the proxy statement at their address and would like to request “householding” of their communications should contact their broker.

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OTHER MATTERS

The Board of Directors knows of no other matters that will be presented for consideration at the Annual Meeting. If any other matters are properly brought before the meeting, it is the intention of the persons named in the accompanying proxy to vote on such matters in accordance with their best judgment.

By Order of the Board of Directors

Thomas P. Cawley

SECRETARY

April 11, 2007

A copy of the Company’s Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year ended December 31, 2006 is available without charge upon written request to: Investor Relations, Peet’s Coffee & Tea, Inc., 1400 Park Avenue, Emeryville, California 94608-3520.

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PEET’S COFFEE & TEA, INC.

n You can now vote your shares electronically through the Internet or the telephone.

n This eliminates the need to return the proxy card.

n Your electronic vote authorizes the named proxies to vote your shares in the same manner as if you marked, signed, dated and returned the proxy card.

TO VOTE YOUR PROXY BY INTERNET

www.continentalstock.com.

Have your proxy card in hand when you access the above website. You will be prompted to enter the company number, proxy number and account number to create an electronic ballot. Follow the prompts to vote your shares.

TO VOTE YOUR PROXY BY PHONE

1-866-894-0537

Use any touch-tone telephone to vote your proxy. Have your proxy card in hand when you call. You will be prompted to enter the company number, proxy number and account number. Follow the voting instructions to vote your shares.

TO VOTE YOUR PROXY BY MAIL

Mark, sign and date your proxy card below, detach it and return it in the postage-paid envelope provided.

PLEASE DO NOT RETURN THE BELOW CARD IF VOTING ELECTRONICALLY

ÚFOLD AND DETACH HERE AND READ THE REVERSE SIDEÚ

PROXY BY MAIL	Please mark your votes like this	x
THE BOARDOF DIRECTORS RECOMMENDSAVOTEFORTHENOMINEESFORDIRECTORASLISTEDBELOWANDFOR PROPOSAL 2.

		FOR all nominees listed below (except as marked to the contrary below).	WITHHOLD AUTHORITY to vote for all nominees listed below.			FOR	AGAINST	ABSTAIN
PROPOSAL 1:	To elect three directors to hold office until the 2010 Annual Meeting of Shareholders.	¨	¨	PROPOSAL 2:	To ratify the selection of Deloitte & Touche LLP as independent registered public accounting firm of the Company for its fiscal year ending December 30, 2007.	¨	¨	¨
Nominees:01 David Deno, 02 Michael Linton, 03 Jean-Michael Valette
To withhold authority to vote for any nominee(s) write such nominee(s) name(s) below:					Please vote, date and promptly return this proxy in the enclosed return envelope which is postage prepaid if mailed in the United States.

COMPANY ID:   PROXY NUMBER:   ACCOUNT NUMBER:

Signature Signature Date

Please sign exactly as your name appears hereon. If the stock is registered in the names of two or more persons, each should sign. Executors, administrators, trustees, guardians, and attorneys-in-fact should add their titles. If signer is a corporation, please give full corporate name and have a duly authorized officer sign, stating title. If signer is a partnership, please sign in partnership name by authorized person.

ÚFOLD AND DETACH HEREÚ

PEET’S COFFEE & TEA, INC.

PROXY SOLICITED BY THE BOARD OF DIRECTORS

FOR THE ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD ON MAY 23, 2007

The undersigned hereby appoints Patrick J. O’Dea and Thomas P. Cawley, and each of them, as attorneys and proxies of the undersigned, with full power of substitution, to vote all of the shares of stock of Peet’s Coffee & Tea, Inc. which the undersigned may be entitled to vote at the Annual Meeting of Shareholders of Peet’s Coffee & Tea, Inc. to be held at our new roasting facility located at 2001 Harbor Bay Parkway, Alameda, California 94502 on Wednesday, May 23, 2007 at 10:00 a.m. (local time), and at any and all postponements, continuations and adjournments thereof, with all powers that the undersigned would possess if personally present, upon and in respect of the following matters and in accordance with the following instructions, with discretionary authority as to any and all other matters that may properly come before the meeting.

UNLESSACONTRARYDIRECTIONISINDICATED,THIS PROXYWILLBEVOTEDFORALLNOMINEESLISTEDIN PROPOSAL 1ANDFOR PROPOSAL 2,ASMORESPECIFICALLYDESCRIBEDINTHE PROXY STATEMENT. IFSPECIFICINSTRUCTIONSAREINDICATED,THIS PROXYWILLBEVOTEDINACCORDANCETHEREWITH.