Termination of Split-Dollar Agreements - Starbucks Corp., Schultz Irrevocable Trust and the Howard D. Schultz Irrevocable Trust
[Starbucks letterhead]
February 11, 2005
Mr. Howard D. Schultz
Chairman and Chief Global Strategist
Starbucks Corporation
P.O. Box 34110
Seattle, WA 98124-1110
Mr. Steve Ritt, Trustee
c/o Mr. Matthew B. McCutchen
Quellos Financial Advisors, LLC
601 Union Street, 56th Floor
Seattle, WA 98101-2341
RE: TERMINATION OF SPLIT-DOLLAR AGREEMENTS
Dear Messrs. Schultz and Ritt:
This letter contains the terms and conditions of the agreement ("this
agreement") to terminate two split-dollar agreements between Starbucks
Corporation (the "Company") and the trusts described below in exchange for
certain consideration. The relevant background is as follows.
Pursuant to the Split-Dollar Insurance Agreement dated January 31, 1994 (the
"1994 Agreement") and the Split-Dollar Life Insurance Agreement and Collateral
Assignment dated September 16, 1996 (the "1996 Agreement" and together, the
"1994 and 1996 Agreements"), the Company agreed to make premium payments
covering endorsement and collateral assignment policies underwritten by several
life insurance carriers. The Schultz Irrevocable Trust and the Company jointly
own the endorsement policies, while the collateral assignment policy is owned by
the Howard D. Schultz Irrevocable Trust.
The Company has not paid premiums toward the policies since the enactment of the
Sarbanes-Oxley Act of 2002 due to substantial questions regarding such Act's
prohibition on personal loans to executive officers and potential applicability
to split-dollar arrangements. It had been hoped that the Securities and Exchange
Commission would provide guidance on which the parties could rely, but it
appears that such guidance will not be forthcoming in the near future. Moreover,
the lack of premiums for more than two years and other pertinent factors during
that time have compromised the ability of the policies to meet the design
intended by the parties.
In response, the parties agree to terminate the 1994 and 1996 Agreements and
cancel the underlying endorsement and collateral assignment policies. The
termination of the 1994 and 1996 Agreements will be carried out in accordance
with their terms, including reimbursement to the Company of its past premium
payments and the Company's release of the collateral assignment under the 1996
Agreement and of the shares of common stock previously pledged to the Company
pursuant to the terms of the 1994 Agreement. Thereafter, no party shall have any
further responsibilities or liabilities to any of the other parties in any way
relating either to the 1994 Agreement or the 1996 Agreement or the policies
described in such Agreements.
To replace the loss of the benefit to Mr. Schultz under the 1994 and 1996
Agreements, the Company will compensate Mr. Schultz $236,250 annually, as other
compensation to be used by him to acquire a like benefit, for so long as he
remains a full-time employee of the Company. This amount equals the Company's
current annual premium obligation with an adjustment for related federal income
tax consequences.
The parties agree to cooperate fully with implementing the termination of the
1994 and 1996 Agreements and cancellation of the policies, including with
respect to signing all additional insurance carrier or other documents that may
be necessary or reasonably proper in carrying out the purpose and intent of this
agreement. Payments pursuant to this agreement are in addition to and not in
lieu of any other of the Company's qualified or nonqualified pension, savings or
other retirement plans, programs or arrangements to which Mr. Schultz is
entitled.
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This agreement is binding on and enforceable by and against the parties and
their respective successors, legal representatives and assigns. Any question
concerning the interpretation or application of this agreement shall be resolved
by application of the laws of the State of Washington, without regard to its
conflict of laws rules, except to the extent that federal laws preempt and
apply. This agreement contains the entire agreement between the parties on the
subject matter herein, and shall be considered and understood to be a
contractual commitment. This agreement supersedes any and all prior and
contemporaneous oral or written agreements or understandings pertaining to the
subject matter herein. Also, this agreement may be executed and delivered
(including by facsimile transmission) in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
and delivered shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.
If you agree with the terms and conditions specified above, please sign in the
space provided below and return the original to me.
Sincerely,
/s/ Chet Kuchinad
Chet Kuchinad
SVP, Total Pay
I agree to the terms and conditions specified in the foregoing agreement, which
I have read and understand.
/s/ Howard Schultz
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Howard D. Schultz
February 11, 2005
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Date
By and on behalf of the Schultz Irrevocable Trust and the Howard D. Schultz
Irrevocable Trust, I agree to the terms and conditions specified in the
foregoing agreement, which I have read and understand.
/s/ Steven Ritt
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Steven Ritt, Trustee
February 11, 2005
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Date