STOCK PLANS. U.S. and Canada STOCK PARTNERS IN GROWTH. Bean Stock. Key Employee

Transcription

1 STOCK PLANS U.S. and Canada STOCK PARTNERS IN GROWTH Bean Stock Stock Investment Plan (S.I.P.) Key Employee Stock Plan Additional Information sources

2 LOOK INSIDE 2 page Bean Stock our company-wide stock plan (formally referred to as Starbucks Corporation 2005 Company-Wide Sub-Plan to the 2005 Long-Term Equity Incentive Plan ) Bean Stock our company-wide stock plan How the Plan Works... 2 Three Ways to Exercise Your Vested Stock Options... 6 Taxes... 9 If You Leave Starbucks Important note: Starbucks offers Bean Stock, S.I.P. and the Key Employee Stock Plan to assist Starbucks in attracting and retaining talented personnel and to promote the success of Starbucks by providing rewards for exceptional performance and long-term incentives for future contributions. However, the value of stock options granted and shares of common stock purchased under these plans is based on many factors, including, but not limited to, the performance of Starbucks and is not guaranteed to increase over time. Before you make an investment in Starbucks stock, we encourage you to learn about investing in securities generally, to research Starbucks past performance by reviewing its filings with the Securities and Exchange Commission and to consult with a financial advisor about the risks and potential benefits of investing in securities.

3 11 S.I.P. (Stock Investment Plan) our discounted stock purchase plan 16 page page Key Employee Stock Plan our stock plan for (formally referred to as Starbucks Corporation Employee Stock Purchase Plan 1995 ) director level and above (formally referred to as Starbucks Corporation 2005 Key Employee Sub-Plan to the 2005 Long-Term Equity Incentive Plan ) S.I.P. (Stock Investment Plan) our discounted stock purchase plan How the Plan Works Enrolling in the Plan Steps to Enroll Re-enrolling in the Plan Your Account Selling Your S.I.P. Shares Taxes Key Employee Stock Plan our stock plan for director level and above How the Plan Works Additional Information Sources Questions?... 17

4 BEAN STOCK BEAN STOCK At Starbucks, our success is defined, to a large extent, by the contributions of our partners. We want every Starbucks partner to share in the vision, the sense of pride and the financial success of Starbucks. The Bean Stock plan is designed to give a broad base of partners an opportunity to own shares of Starbucks stock. With Bean Stock, you have a personal connection to Starbucks growth and a means of sharing in the benefits of the company s success. How the Plan Works Eligible partners may receive stock options to purchase shares of Starbucks common stock. The grant of Bean Stock options is based on the company s performance and our efforts throughout the year. These stock options give you the opportunity to buy a fixed number of shares of Starbucks stock, during a 10-year period, at a fixed price. If the value of the stock increases over time, you can buy those shares at the lower, guaranteed price and reap the rewards of your employment with Starbucks. You are eligible to participate in Bean Stock if you: Are employed by Starbucks as of April 1 of the fiscal year preceding the grant date, Have been paid for at least 500 hours: From the first of the fiscal year through March 31, or From April 1 through the end of the Working Part Time? As long as you meet the eligibility requirements, you may receive a Bean Stock grant even if you work part time. The plan is designed to reward a broad range of partners contributing to Starbucks success. fiscal year, and Are in a position up to the director level. (Note: After the November 2006 grant, directors are not eligible for Bean Stock. They will be eligible to receive 100% of their annual grant under the Key Employee Stock Plan.) What Is a Fiscal Year? A fiscal year is the 12-month period used for accounting purposes. Starbucks fiscal year starts on the Monday following the Sunday closest to September 30 and ends on the Sunday closest to September 30 the following year. Fiscal Year 2006: Monday, October 3, 2005 through Sunday, October 1, 2006 Fiscal Year 2007: Monday, October 2, 2006 through Sunday, September 30, 2007 Fiscal Year 2008: Monday, October 1, 2007 through Sunday, September 28, 2008

5 BEAN STOCK Annual Bean Stock Grant Awards Each year, our Board of Directors considers the company s performance and may grant stock options to eligible partners at a set price. The number of stock options granted may vary from year to year. The number of stock options you may receive in a Bean Stock grant depends on three factors: Starbucks success and profitability for the fiscal year, Your eligible fiscal year base wages (converted to U.S. dollars), and The exercise (or grant) price. Starbucks Success When Stock Option Grants Are Distributed Grant packages are generally distributed by mail by the end of the January following the grant date. In January, if you have been granted stock options under the Bean Stock plan, we will send your stock option grant agreement to your work location, indicating the exact number of stock options you have been granted and the terms of your grant. Because Starbucks success depends on the individual contributions of each partner, the company looks at its success and profitability for the prior fiscal year to determine the award value of your Bean Stock grant. The Board of Directors may grant stock options to purchase shares of stock with a value equal to a percentage of your eligible fiscal year base wages up to a maximum of 14%. Eligible Fiscal Year Base Wages The number of stock options you are granted depends on your base wages (converted to U.S. dollars) for the prior fiscal year. Your eligible fiscal year base wages include, but are not limited to, the following: Base pay Holiday pay Sick pay Vacation pay The Basics Bean Stock is an award program; you do not have to enroll. Instead, this is an award to recognize company performance and partner contributions for the previous fiscal year. What is a share of stock? A share of stock is an individual share of ownership in a company. When you purchase shares of Starbucks stock, you become a shareholder a part owner in the company. As a shareholder, you have the right to vote on important company issues, such as who serves on the Board of Directors. What is a stock option? A stock option is a right to buy a share of company stock at a set price (also known as the exercise price) for a specified period of time. The right to buy the share may continue into the future, but the purchase price is fixed when the stock option is granted. The value of your stock option increases as the price of Starbucks stock increases. What is exercising? Exercising stock options is the process of purchasing the underlying shares of company stock at the fixed price, regardless of the current market price. When you exercise your vested Bean Stock options and hold the shares, you become a part owner of the company. The decision if and when to exercise your vested stock options is up to you, within the terms of the plan; however, you can only exercise stock options that have vested. (You will find vesting explained on page 4.)

6 BEAN STOCK Exercise Price The exercise price (also known as the grant price) is the fixed price per share at which you may buy shares of Starbucks stock in the future by exercising your vested stock options. The Board of Directors sets the exercise price on the grant date at the fair market value of a share of Starbucks stock, determined to be the regular trading session closing price on the grant date, as reported by The NASDAQ Global Select Market. Stock Option Grant Calculation Here is an example of the calculation used to determine the number of stock options you are granted. Say your eligible fiscal year base wages were $25,000, and the company performed well. As a result, the Board of Directors decided to award a value of 10% of your fiscal year base wages. You are granted 100 stock options based on the formula below: Eligible fiscal year base wages (converted to U.S. dollars) $25,000 Grant award percentage x 10% Award value $2,500 Exercise price (fair market value of Starbucks stock on the grant date) $25 TOTAL NUMBER OF STOCK OPTIONS GRANTED 100 How Your Stock Options Vest Vesting gives you the right to exercise your Bean Stock options. When a portion of your Bean Stock options vests, you may exercise that portion for actual shares of Starbucks stock. As long as you are a Starbucks partner, your stock options vest at 25% per year over a period of four years. Vesting will generally occur on the anniversary date of the stock option grant. Your specific stock option vesting schedule is included in your stock option grant agreement. For Bean Stock options granted between November 20, 2003 and November 16, 2005, vesting will occur on October 1. With the November 2006 annual grant and going forward, the stock options will vest on the anniversary date of the grant. Here is an example of how Bean Stock vests. In this example, 100 stock options were granted. On the first anniversary of the grant date, 25 stock options, or 25% of 100 stock options, become vested and may be exercised. On the succeeding anniversary, another 25 stock options become vested, for a total of 50 stock options that may be exercised. Vesting continues until, after four years, all 100 stock options are vested and exercisable. GRANT YEAR YEAR 1 YEAR 2 YEAR 3 YEAR 4 0% VESTED 25% VESTED 50% VESTED 75% VESTED 100% VESTED 0 Stock Options Total = 0 25 Stock Options Total = Stock Options Total = Stock Options Total = Stock Options Total = 100

7 BEAN STOCK Exercising Your Stock Options Once a portion of your stock options is vested and you have activated your account with Starbucks dedicated service provider, Fidelity, you may exercise your vested stock options. Exercising your stock options means you are buying actual shares of Starbucks stock at the previously determined exercise price. Ten Years to Exercise Your Vested Stock Options As long as you remain an active Starbucks partner, you have 10 years from the grant date to exercise your vested stock options before they expire. Once you exercise your stock options and purchase the underlying shares of Starbucks stock, you may either: Hold your shares of Starbucks stock as an investment, or Sell the shares for cash. Prior to your first stock option vesting, you will receive a Fidelity Welcome Kit notifying you how to activate your Fidelity account. When to Exercise Your Stock Options It is up to you if and when to exercise your vested stock options. You will want to consider Starbucks stock price, the exchange rate (for Canadian partners), and your personal tax situation. Generally, the higher the market value of Starbucks stock, the better. For example, assume you are granted stock options with an exercise price of $20 per share (i.e., the fair market value on the grant date). On the date you exercise, four years from the grant, you pay the exercise price of $20 per share. Assume that over four years the stock price increases significantly and is $40 on the date you exercise. That is a gain of $20 per share.* MARKET VALUE OF STARBUCKS STOCK PER SHARE $50 $40 $30 $20 $10 $20 $30 $28 $35 $40 } Gain in your stock option value (market price minus exercise price) GRANT YEAR ONE YEAR TWO YEARS THREE YEARS FOUR YEARS * This chart is provided as a hypothetical example only and is not intended to represent actual or expected changes in the value of Starbucks stock.

8 BEAN STOCK Three Ways to Exercise Your Vested Stock Options It is your decision if and when to exercise your vested stock options. Here is a brief overview of the ways to exercise. 1 Exercise and sell (cashless exercise) You may conduct an exercise and sell if you want the proceeds from exercising your vested stock options right away, without having to pay the exercise cost in cash out of your own pocket. Here is how it works: You request Fidelity to conduct an exercise and sell of some or all of your vested Bean Stock options (online, via FAST in the U.S. only, or through a Fidelity representative). Fidelity lends you the money to buy shares of Starbucks stock and cover the exercise cost (the amount equal to the exercise price multiplied by the number of stock options you are exercising), and arranges to sell your shares immediately on the open market. Remember, you do not have to immediately exercise your stock options once they vest. As long as you are an active Starbucks partner, you may exercise them up until they expire, which is generally on the 10- year anniversary of the grant date. Fidelity pays you the gains (or profits) from the sale of your shares, minus the loan amount, any applicable withholding taxes and fees. (If you request the proceeds from your sale to be sent to you in a currency other than U.S. dollars, Fidelity will apply the currency conversion rate to your proceeds at the time of transfer.) With an exercise and sell of your vested stock options, you do not end up owning any shares of Starbucks stock because you bought and then immediately sold them. Example: You decide to exercise 50 vested stock options that were granted at an exercise price of $20 per share for an exercise cost of $1,000. You exercise your stock options when Starbucks stock is trading at $30 per share. Fidelity conducts an exercise and sell on your behalf and advances you $1,000 to buy the 50 shares. Fidelity then immediately sells the shares on your behalf for the market value of $1,500 a $500 gain. After you exercise your stock options, you will not own any shares of Starbucks stock and you will have $500, less any applicable taxes and fees. 1 Exercise and Sell * Market value ($30 x 50 shares) $1,500 Less: Exercise cost ($20 x 50 shares) $1,000 Taxable gain (subject to taxes and fees) $500 Receive $500 cash (less fees and applicable taxes on the gain) and own no shares of Starbucks stock. * Amounts are reflected in U.S. dollars.

9 BEAN STOCK 2 Exercise and hold (cash exercise) You may conduct an exercise and hold if you would like to purchase and hold the shares of Starbucks stock, paying for the stock options and applicable taxes with cash. Here is how it works: You request Fidelity to conduct an exercise and hold of some or all of your vested Bean Stock options (online, via FAST in the U.S. only, or through a Fidelity representative). You remit to Fidelity the exercise cost (the amount in cash equal to the exercise price multiplied by the number of stock options you are exercising), as well as any applicable taxes. The amount of cash you remit to Fidelity must be in U.S. dollars. With an exercise and hold of your vested stock options, you end up owning shares of Starbucks stock. These shares will stay in your Fidelity account until you instruct Fidelity to sell or transfer the shares. When you sell these shares in the future, you may be subject to capital gains tax. Example: You decide to exercise 50 vested stock options that were granted at an exercise price of $20 per share for an exercise cost of $1,000. Starbucks stock is trading at $30 per share. You may complete an exercise and hold by contacting Fidelity and remitting to them the total exercise cost for the 50 shares, plus any applicable taxes. After you exercise your stock options, you will own 50 shares of Starbucks stock purchased for $1,000 and valued at $1,500 on the date of exercise. 2 Exercise and Hold * Market value ($30 x 50 shares) $1,500 Less: Exercise cost ($20 x 50 shares) $1,000 Taxable gain (subject to taxes) $500 Own 50 shares of Starbucks stock (pay exercise cost of stock options plus applicable taxes on the gain). Subject to capital gains upon sale of shares. * Amounts are reflected in U.S. dollars.

10 BEAN STOCK 3 Sell-to-Cover Exercise You may conduct a sell-to-cover exercise if you would like to exercise and hold some of the shares of Starbucks stock while paying for the stock options and applicable taxes from the gains of an exercise and sell. You end up owning shares of Starbucks stock without having to pay the exercise cost of the stock options and taxes out of your own pocket. Here is how it works: 3a. You request Fidelity to conduct an exercise and hold of some of your vested Bean Stock options (see exercise and hold example). 3b. Then, to cover the exercise cost of the stock options and applicable taxes from the exercise and hold, you request Fidelity to simultaneously conduct an exercise and sell of some of your vested Bean Stock options (see exercise and sell example). Fidelity will use the gains (or profits) from the sale of your shares to cover the cost of the exercise and hold. You end up owning shares of Starbucks stock with no out-of-pocket cost. Example: You contact Fidelity to conduct a sell-to-cover exercise on 50 vested stock options with an exercise price of $20 per share. Starbucks stock is trading at $30 per share. On your behalf, Fidelity conducts an exercise and hold of 16 vested stock options with an exercise price of $20 per share for an exercise cost of $320 plus applicable taxes. Simultaneously, Fidelity conducts an exercise and sell on your behalf and loans you $680 to buy the 34 shares. Fidelity then immediately sells the shares on your behalf for a market value of $1,020 a $340 gain. You remit $320 of the gross proceeds to Fidelity to pay for the 16 shares acquired through the exercise and hold and applicable taxes. After the exercises, you end up with 16 shares of Starbucks stock and $20 cash (less fees). When you sell these shares in the future, you may be subject to capital gains tax. 3a Sell-to-Cover Exercise and Hold * 3b Sell-to-Cover Exercise and Sell * Market value ($30 x 16 shares) $480 Market value ($30 x 34 shares) $1,020 Less: Exercise cost ($20 x 16 shares) $320 Less: Exercise cost ($20 x 34 shares) $680 Taxable gain (subject to taxes) $160 Taxable gain (subject to taxes and fees) $340 Total cost (plus applicable taxes) $320 Gross proceeds $340 Own 16 shares of Starbucks stock using the proceeds from the simultaneous exercise and sell Remit $320 (plus cost of applicable taxes) to Fidelity to cover the cost of the exercise and hold Receive $20 (less fees) * Amounts are reflected in U.S. dollars. Partners are encouraged to contact a Fidelity representative by phone when conducting a sell-to-cover exercise. Representatives are available to help determine the number of shares you will need to exercise and sell to cover the cost and applicable taxes of the exercise and hold. The Fidelity representative can then walk you through completing the transactions online to ensure you will pay the lowest fee possible.

11 BEAN STOCK Exercising Your Vested Stock Options Once you decide which method of exercise works best for you, you will need to contact Fidelity to exercise your vested stock options. U.S. partners Go online to 24 hours a day, seven days a week, or Call Fidelity at (866) where you can: Speak to a Fidelity representative, Monday through Friday, from 5 a.m. to 9 p.m. Pacific, or Connect to Fidelity Automated Service Telephone (FAST ), 24 hours a day, seven days a week. Canadian partners Go online to and click Log in to NetBenefits Worldwide, 24 hours a day, seven days a week, or Speak to a Fidelity representative at (800) , Monday through Friday, from 5 a.m. to 9 p.m. Pacific. Taxes When you exercise Bean Stock options, you are required to pay taxes on the gain (i.e., the difference between the market price and exercise price times the number of stock options exercised). The amount of tax you must pay depends on current federal, provincial, state, local and/or foreign tax rates and includes all applicable payroll taxes. You may want to consult a tax advisor before exercising any of your Bean Stock options. Check Out Your Stock You can see what the value of Starbucks stock is at any time. Look on the Internet ( or in the business section of your newspaper for the list of stocks trading on The NASDAQ Global Select Market, then find the Starbucks trading symbol SBUX.

12 BEAN STOCK If You Leave Starbucks Depending on your situation, what happens to any previously granted Bean Stock options will vary. The chart below explains what happens to your vested and unvested Bean Stock options when you leave Starbucks. YOUR SITUATION You voluntarily leave Starbucks or are separated for reasons other than misconduct or retirement. You involuntarily leave Starbucks for misconduct. You retire at age 55 or greater and have 10 years or more of credited service. You are no longer an active Starbucks partner due to a permanent and total disability. Your death. WHAT HAPPENS TO YOUR VESTED BEAN STOCK OPTIONS You have 90 days* from your last day to exercise your vested stock options. You may forfeit all vested stock options upon your separation. You have 36 months to exercise your vested stock options granted on or after November 20, 2003, and 90 days* to exercise your vested stock options granted prior to November 20, You have 12 calendar months from your last day to exercise your vested stock options. Your estate has 12 calendar months from your death to exercise your vested stock options. WHAT HAPPENS TO YOUR UNVESTED BEAN STOCK OPTIONS All unvested stock options are forfeited. All unvested stock options are forfeited. All unvested stock options granted on or after November 20, 2003 are vested. All unvested stock options granted prior to November 20, 2003 are forfeited. All unvested stock options are forfeited. All unvested stock options granted on or after November 20, 2003 are vested. All unvested stock options granted prior to November 20, 2003 are forfeited. * 3 months for grants made under the Key Employee Stock Plan Expiring Stock Options If your stock options are set to expire on a weekend or market holiday, you must complete the exercise of your vested stock options by market close on the last business day prior to expiration. The NASDAQ Global Select Market is open between 6:30 a.m. and 1 p.m. Pacific, Monday through Friday. 10

13 S.I.P. S.I.P. (STOCK INVESTMENT PLAN) As a Starbucks partner, you invest your time and talents in helping the company grow and succeed. To help you share the benefits of this successful partnership, Starbucks offers S.I.P., the company s discounted stock plan. S.I.P. offers eligible partners the opportunity to buy shares of Starbucks common stock each quarter at a discounted price through regular payroll deductions. It is a way to share in Starbucks success. How the Plan Works You are eligible to enroll in S.I.P. if you: Have worked as a regular partner for Starbucks for at least 90 days, and Have been paid for an average of 20 hours a week during the three months preceding the quarterly offering. (Note: Eligibility hours for S.I.P. are calculated differently than they are for benefits eligibility.) Here is how S.I.P. works: You can contribute from 1% to 10% of your gross base pay to the plan in whole percentage increments. Your contributions are automatically deducted from your paycheck, after taxes, each pay period (and converted to U.S. dollars). Each quarter, your contributions are used to purchase shares of Starbucks stock. Your contributions automatically continue each quarter unless you make a contribution change, withdraw from the plan or end your employment with Starbucks. Your Discounted Purchase Price At the end of each quarter, your contributions are used to buy shares of Starbucks stock at a 15% discount applied to the lower of the fair market value of Starbucks stock on: The first business day of the quarterly offering, or The last business day of the quarterly offering. The fair market value of a share of stock is the regular trading session closing price as reported by The NASDAQ Global Select Market ( Questions to Ask Yourself Before you decide to enroll in S.I.P. and when determining the right amount to contribute to the plan, ask yourself: Is Starbucks stock the best investment for me? Do I understand the risk associated with investing in stock? How much can I afford to contribute to the plan each pay period? 11

14 S.I.P. Purchasing S.I.P. Shares At the end of each quarterly offering, your cumulative S.I.P. contributions are used to buy shares of Starbucks stock. Your shares are then held in your account at Fidelity, Starbucks dedicated service provider. If a portion of your contributions remains after shares of stock have been purchased, the money will be held and used to purchase shares of stock during the next quarterly offering. Example: You purchase 21 shares of Starbucks stock for $17 per share, when the market value of the stock is $25 per share a savings of $168. Because your quarterly contribution of $360 is not evenly divided by $17, you will have $3 remaining to be applied toward the following quarter s S.I.P. purchase. 1. First, look at your contribution: Gross base pay each pay period $1,000 Your S.I.P. contribution percentage x 6% Your S.I.P. dollar contribution each pay period* *Contributions are converted to U.S. dollars each pay period. $60 Your S.I.P. quarterly contribution ($60 x 6 pay periods) $ Then, determine the lower of either: Starbucks closing stock price on the first business day of the quarterly offering $20 or Starbucks closing stock price on the last business day of the quarterly offering $25 3. and subtract 15% from that price: Lower stock price $20 15% discount off lower stock price x 85% Discounted Starbucks stock purchase price $17 4. The number of Starbucks shares purchased on your behalf that quarter is: Your quarterly S.I.P. contribution $360 Discounted Starbucks stock purchase price $17 Number of Starbucks shares purchased 21 Applied to next quarterly S.I.P. purchase $3 12

15 S.I.P. Enrolling in the Plan You can enroll in S.I.P. four times a year, during 15-day open enrollment periods, as shown in the following chart. During each of these periods, you can make decisions about if and how much to invest in S.I.P. during the following three months. Each three-month period (or quarter), beginning January 1, April 1, July 1 and October 1, is called an offering. During the S.I.P. open enrollment periods and as long as you are eligible, you can: Enroll in S.I.P. for the first time, Change your payroll deductions, Withdraw from the plan, or Re-enroll in the plan after you have withdrawn. Enroll or make changes during this open enrollment period December 1 15 March 1 15 June 1 15 September 1 15 to be effective during this offering and subsequent offerings, until changed January / February / March April / May / June July / August / September October / November / December After you enroll in the plan, your participation in S.I.P. is continuous from one offering to the next, until you withdraw from the plan or end your employment with Starbucks. You can continue to participate in S.I.P. even if your hours fall below 20 per week. However, if you withdraw from the plan and re-enroll later, you will have to meet the hours requirement to be eligible to participate. Steps to Enroll Enrolling in S.I.P. is easy: 1. You decide how much to contribute from 1% to 10% of your gross base pay (in whole percentage increments) each pay period toward the purchase of shares of Starbucks stock. 2. Then, during the open enrollment period, you can enroll online through or by contacting a Fidelity representative. 3. You must complete the online enrollment or enroll through a Fidelity representative by the 15th of the enrollment period, as shown in the table above. 4. Your payroll deductions start on the first paycheck after the new quarterly offering begins. Re-enrolling in the Plan If you have withdrawn from the plan and want to restart your contributions, you must re-enroll following the same steps as outlined above under Steps to Enroll. To re-enroll, you must still be eligible for the plan as described earlier in How the Plan Works. 13

16 S.I.P. Your Account Once Starbucks has purchased shares of Starbucks stock on your behalf, your shares are held in your Fidelity account. This account not only holds your S.I.P. shares but is also the same account used to exercise vested stock options you may have. Fidelity will mail quarterly account statements to your home address. These statements reflect the number of shares of Starbucks stock you own, the purchase price and the market value of your shares. At the beginning of each calendar year, you will receive a S.I.P. statement if S.I.P. shares were purchased on your behalf during the previous calendar year. This statement contains tax information you will need for reporting taxes should you decide to sell your shares. Making Changes or Withdrawing from the Plan You can make changes to your S.I.P. contributions or withdraw from the plan for any reason. Simply go online to or contact a Fidelity representative during any open enrollment period (see table on page 13). Your change or withdrawal will become effective the first pay period of the next offering period. If you withdraw from the plan, any contributions you have made that have not yet been used to purchase shares will be refunded to you. Selling Your S.I.P. Shares You will need to contact Fidelity to sell your S.I.P. shares. U.S. partners Go online to 24 hours a day, seven days a week, or Call Fidelity at (866) where you can: Speak to a Fidelity representative, Monday through Friday, from 5 a.m. to 9 p.m. Pacific, or Connect to Fidelity Automated Service Telephone (FAST ), 24 hours a day, seven days a week. Canadian partners Go online to and click Log in to NetBenefits Worldwide, 24 hours a day, seven days a week, or Speak to a Fidelity representative at (800) , Monday through Friday, from 5 a.m. to 9 p.m. Pacific. 14

17 S.I.P. Taxes U.S. S.I.P. Taxation For citizens of the U.S. who are participating in S.I.P., there are no income tax consequences related to stock purchased under S.I.P. until you sell or transfer your shares. A key factor in determining the income tax consequences of a stock sale is how long you have held the shares. If you hold the shares for a qualified holding period, the law allows preferential tax treatment. Under S.I.P., you must hold your shares in your Fidelity account for at least 21 months from the date of purchase to meet this requirement. (This is a specific requirement for this type of stock purchase and is a different holding period than what is required for capital gains purposes.) Generally, you will pay tax on a portion of this income at lower capital gains rates if you meet the holding-period requirement. After that 21- month period, you are free to transfer those shares to another brokerage account. If you sell your shares at a gain before holding them for 21 months, a portion of the gain will be reported as ordinary income. Starbucks will report this income on your W-2 as compensation in the year you sell your shares. Currently, Starbucks does not withhold any taxes on this amount; however, in the future, Starbucks may be required to withhold payroll (Social Security and Medicare) taxes. Canadian S.I.P. Taxation For citizens of Canada who participate in S.I.P., there are some important tax issues of which you need to be aware. At the time you purchase Starbucks shares through S.I.P., the difference between the purchase price and the market price of the stock on the last business day of the quarter is considered ordinary income by Revenue Canada. This amount must be reported on your T4, and Starbucks is required to withhold taxes from your paycheck at the time of purchase. Additionally, when you sell your shares, 50% of the difference between the sale price and the market price of the stock on the last business day of the quarter is treated as capital gain and taxed as such. Please consult a tax advisor to discuss your personal tax situation. If You Are No Longer a Starbucks Partner If you are no longer employed by Starbucks for any reason, the balance of your S.I.P. contributions not used for purchase is refunded to you or to your designated beneficiary if you die as soon as administratively possible (generally six to eight weeks) after your separation is processed. You can continue to hold S.I.P. shares you have purchased after you leave Starbucks. Check Out Your Stock You can see what the value of Starbucks stock is at any time. Look on the Internet ( or in the business section of your newspaper for the list of stocks trading on The NASDAQ Global Select Market, then find the Starbucks trading symbol SBUX. 15

18 KEY EMPLOYEE stock plan Key Employee Stock Plan At Starbucks, we believe in rewarding partners with the opportunity to share ownership in the company through stock and stock options. Beyond Bean Stock and S.I.P., we create this opportunity through the Key Employee Stock Plan. Generally, you are eligible for the Key Employee Stock Plan if you are in the position of director or above. Partners in these positions have a significant impact on the company s business goals, direction and longterm success. How the Plan Works The stock options you may be granted under the Key Employee Stock Plan depend on Starbucks performance as a company, your position in the company and your individual performance as a contributing partner. If you are newly hired or promoted to the level of director or above, stock options under the Key Employee Stock Plan are generally granted monthly. Subsequent stock option grants are generally made on an annual basis after the close of the fiscal year. Grants are approved by a committee of the Starbucks Board of Directors or by a designated Starbucks executive officer. Participating partners receive grant agreements that specify the date of grant, exercise price, number of stock options granted and vesting schedule. If you are a participating partner, you will need to sign and return a copy of the grant agreement to Stock Administration, indicating you have accepted the stock option grant and its terms. For information on the following, refer to pages 3 10 of this brochure: Stock terminology How vesting works How to exercise your vested stock options If you leave Starbucks Tax Questions? You may want to talk to a tax professional for more information and to understand the tax implications of exercising your stock options under the Key Employee Stock Plan. 16

19 STOCK Additional Information Sources Questions? For general questions about our stock plans, talk to your manager or Partner Resources generalist. For information about Starbucks, refer to the most current annual report, proxy statement and financial statements at To inquire about your stock options or S.I.P. shares, open an account, exercise vested stock options or sell shares, contact Starbucks dedicated service provider, Fidelity Stock Plan Services, LLC. U.S. partners Go online to 24 hours a day, seven days a week, or Call Fidelity at (866) where you can: Speak to a Fidelity representative Monday through Friday, from 5 a.m. to 9 p.m. Pacific, or Connect to Fidelity Automated Service Telephone (FAST ) 24 hours a day, seven days a week. Canadian partners Go online to and click Log in to NetBenefits Worldwide, 24 hours a day, seven days a week, or Speak to a Fidelity representative at (800) , Monday through Friday, from 5 a.m. to 9 p.m. Pacific. For additional questions, call Starbucks Partner Contact Center at (866) , Monday through Friday, from 5 a.m. to 5 p.m. Pacific. Check Out Your Stock You can see what the value of Starbucks stock is at any time. Look on the Internet ( or in the business section of your newspaper for the list of stocks trading on The NASDAQ Global Select Market. Starbucks trading symbol is SBUX. 17

20 2007 Starbucks Coffee Company. All rights reserved. This brochure highlights Starbucks Employee Stock Plans. If a discrepancy should arise between this information and the official plan documents, the official plan documents govern in all cases. Starbucks reserves the right at its discretion with or without notice to review, change, amend or cancel the plans at any time. The language in this brochure does not constitute a guarantee of employment. Nor does any of the material in this brochure itself in any way constitute a contract of employment or a contract to continue to offer the plans described herein. Made from 30% recycled content. 30% minimum post-consumer material.