<PAGE> 1
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
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SECURITIES EXCHANGE ACT OF 1934
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Starbucks Corporation
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<PAGE> 2
[LOGO]
Seattle, Washington
January 13, 1999
Dear Shareholders:
You are cordially invited to attend the Starbucks Corporation Annual
Meeting of Shareholders on Tuesday, February 23, 1999 at 10:00 a.m. (Pacific
Time). The meeting will be held at Benaroya Hall, 200 University Street,
Seattle, Washington. Directions to Benaroya Hall appear on the back cover of
this Notice of Annual Meeting and Proxy Statement.
The matters to be acted upon are described in the accompanying Notice of
Annual Meeting and Proxy Statement. At the meeting, we will also report on
Starbucks Corporations' operations and respond to any questions you may have.
YOUR VOTE IS VERY IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING,
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED. PLEASE COMPLETE, SIGN, DATE AND
PROMPTLY RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED, POSTAGE-PREPAID
ENVELOPE IN ORDER TO ENSURE THAT YOUR VOTE IS COUNTED. IF YOU ATTEND THE
MEETING, YOU WILL, OF COURSE, HAVE THE RIGHT TO REVOKE THE PROXY AND VOTE YOUR
SHARES IN PERSON.
Very truly yours,
[LOGO]
Howard Schultz
chairman and
chief executive officer
<PAGE> 3
STARBUCKS CORPORATION
2401 UTAH AVENUE SOUTH
SEATTLE, WASHINGTON 98134
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
ON
FEBRUARY 23, 1999
The Annual Meeting of Shareholders of Starbucks Corporation, (the
"Company") will be held at Benaroya Hall, 200 University Street, Seattle,
Washington, on Tuesday, February 23, 1999 at 10:00 a.m. (Pacific Time) for the
following purposes:
1. To elect: (i) three Class 3 directors to serve until the Annual Meeting
of Shareholders for fiscal year 2001; (ii) one Class 1 director to serve
until the Annual Meeting of Shareholders for fiscal 1999; and (iii) one
Class 2 director to serve until the Annual Meeting of Shareholders for
fiscal 2000;
2. To approve the amendment and restatement of the Starbucks Corporation
1989 Stock Option Plan for Non-Employee Directors to, among other
things, extend the term of the plan, increase by 725,000 the number of
shares of the Company's Common Stock reserved for issuance under the
plan and increase the number of options granted annually to each
non-employee director from 20,000 to 25,000;
3. To ratify the selection of Deloitte & Touche LLP as the Company's
independent auditors for the fiscal year ending October 3, 1999; and
4. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Only shareholders of record at the close of business on December 18, 1998
will be entitled to notice of and to vote at the Annual Meeting of Shareholders
and any adjournments thereof.
The Company's Proxy Statement is attached hereto. Financial and other
information concerning the Company is contained in the enclosed Annual Report to
Shareholders for the fiscal year ended September 27, 1998.
By Order of the Board of Directors,
[LOGO]
G. Scott Greenburg
secretary
Seattle, Washington
January 13, 1999
YOUR VOTE IS IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE URGED TO COMPLETE,
SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT AS PROMPTLY AS POSSIBLE IN
THE ENCLOSED, POSTAGE-PREPAID ENVELOPE TO ENSURE THE PRESENCE OF A QUORUM FOR
THE MEETING. IF YOU ATTEND THE MEETING, YOU MAY, OF COURSE, REVOKE THE PROXY AND
VOTE IN PERSON.
<PAGE> 4
STARBUCKS CORPORATION
2401 UTAH AVENUE SOUTH
SEATTLE, WASHINGTON 98134
PROXY STATEMENT
FOR THE
ANNUAL MEETING OF SHAREHOLDERS
This Proxy Statement is furnished by and on behalf of the Board of
Directors of Starbucks Corporation, a Washington corporation ("Starbucks" or the
"Company") in connection with the solicitation of proxies for use at the Annual
Meeting of Shareholders of the Company (the "Annual Meeting") for the fiscal
year ended September 27, 1998 ("fiscal 1998") to be held at 10:00 a.m. (Pacific
Time) on Tuesday, February 23, 1999 at Benaroya Hall, 200 University Street,
Seattle, Washington and at any adjournment thereof. Directions to Benaroya Hall
are provided on the back cover of this Proxy Statement.
A shareholder who delivers an executed proxy pursuant to this solicitation
may revoke it at any time before it is exercised by (i) executing and delivering
a later dated proxy card to the Secretary of the Company prior to the Annual
Meeting, (ii) delivering written notice of revocation of the proxy to the
Secretary of the Company prior to the Annual Meeting or (iii) attending and
voting in person at the Annual Meeting. Attendance at the Annual Meeting, in and
of itself, will not constitute a revocation of a proxy. Proxies will be voted as
specified by the shareholder or shareholders granting the proxy. Unless contrary
instructions are specified, if the enclosed proxy is executed and returned (and
not revoked) prior to the Annual Meeting, the shares of common stock, no par
value per share ("Common Stock"), of the Company represented thereby will be
voted for (1) the election of the five directors nominated by the Board of
Directors; (2) the approval of the amendment and restatement of the Starbucks
Corporation 1989 Stock Option Plan for Non-Employee Directors (the "Directors
Plan") as described in more detail herein; (3) the ratification of the selection
of Deloitte & Touche LLP as the Company's independent auditors for the fiscal
year ending October 3, 1999 ("fiscal 1999"), and in accordance with the best
judgment of the named proxies on other matters properly brought before the
Annual Meeting.
The presence, in person or by proxy, of holders of a majority of the
outstanding shares of Common Stock is required to constitute a quorum for the
transaction of business at the Annual Meeting. Under Washington law and the
Company's Articles of Incorporation, if a quorum is present, a nominee for
election to a position on the Board of Directors will be elected as a director
if the votes cast for the nominee exceed the votes cast against the nominee and
exceed the votes cast for any other nominee for that position. Abstentions and
"broker non-votes" (shares held by a broker or nominee that does not have the
authority, either express or discretionary, to vote on a particular matter) are
counted for purposes of determining the presence or absence of a quorum for the
transaction of business at the Annual Meeting. For the election of directors,
abstentions and broker non-votes will have the effect of neither a vote for nor
a vote against the nominee. Approval of the amendment and restatement of the
Directors Plan, ratification of the selection of Deloitte & Touche LLP as the
Company's independent auditors and any other matter that properly comes before
the meeting requires the affirmative vote of a majority of the shares of Common
Stock represented in person or by proxy and entitled to vote on the matter.
Accordingly, abstention and broker non-votes, because they are not affirmative
votes, will have the effect of a vote against the proposal. Proxies and ballots
will be received and tabulated by ChaseMellon Shareholder Services, L.L.C.
("ChaseMellon"), the Company's transfer agent and the inspector of elections for
the Annual Meeting.
This Proxy Statement and the enclosed proxy card will be first mailed on or
about January 13, 1999 to the Company's shareholders of record on December 18,
1998 (the "Record Date").
The expense of preparing, printing and mailing this Proxy Statement and the
proxies solicited hereby will be borne by the Company. Proxies will be solicited
by mail and may also be solicited by directors, officers and other employees of
the Company, without additional remuneration, in person or by telephone or
facsimile
<PAGE> 5
transmission. The Company will also request brokerage firms, banks, nominees,
custodians and fiduciaries to forward proxy materials to the beneficial owners
of shares of Common Stock as of the record date and will reimburse such persons
for the cost of forwarding the proxy materials in accordance with customary
practice. The Company has retained ChaseMellon to aid in the solicitation of
proxies and has agreed to pay ChaseMellon approximately $7,500 for such
services. Your cooperation in promptly signing and returning the enclosed proxy
card will help to avoid additional expense.
At the close of business on the Record Date, there were 89,720,436 shares
of Common Stock (the "Shares") outstanding and there were no outstanding shares
of any other class of stock. Holders of Shares authorized to vote are entitled
to cast one vote per Share on all matters.
PROPOSAL 1 -- ELECTION OF DIRECTORS
The Amended and Restated Bylaws of the Company provide that the Board of
Directors shall be divided into three classes, with such classes to be as nearly
equal in number as the total number of directors constituting the entire Board
permits. As of September 27, 1998, the Company's Board of Directors consisted of
eight members, with two members and one vacancy in Class l and three members in
each of Classes 2 and 3. Upon the expiration of the term of a class of
directors, nominees for such class are elected to serve for a term of three
years and until their respective successors have been elected and qualified. The
current terms of the Class 3 directors, Ms. Barbara Bass, Mr. Craig J. Foley and
Mr. Howard Schultz, as well as the term of Mr. Jeffery H. Brotman who has
tendered his resignation effective as of the date of the Annual Meeting, expire
upon the election and qualification of the directors to be elected at the Annual
Meeting. The Board of Directors has nominated (i) Ms. Bass, Mr. Foley and Mr.
Schultz for reelection to the Board of Directors at the Annual Meeting, to serve
until the Annual Meeting of Shareholders for fiscal 2001, expected to be held in
early 2002. The Board has also nominated Mr. Craig E. Weatherup to fill the
existing vacancy in Class 1 and serve as a Class 1 director until the Annual
Meeting of Shareholders for fiscal 1999 and Mr. Gregory B. Maffei to serve as a
Class 2 director until the Annual Meeting of Shareholders for fiscal 2000. The
terms of the other Class 1 and Class 2 directors expire at the Annual Meetings
of Shareholders for fiscal 1999 and fiscal 2000, respectively.
Unless otherwise directed, the persons named in the proxy intend to vote
all proxies FOR the election of Ms. Bass and Messrs. Foley, Schultz, Weatherup
and Maffei to the Board of Directors. The nominees have consented to serve as
directors of the Company if elected. If at the time of the Annual Meeting, one
of the nominees is unable or declines to serve as a director, the discretionary
authority provided in the enclosed proxy will be exercised to vote for a
substitute candidate designated by the Board of Directors. The Board of
Directors has no reason to believe that any of the nominees will be unable or
will decline to serve as a director.
Set forth below is certain information furnished to the Company by the
director nominees and by each of the incumbent directors whose terms will
continue following the Annual Meeting.
Class 3 Directors; terms expire at the Annual Meeting of Shareholders for fiscal
1998:
BARBARA BASS, 47, has been a director of the Company since January 1996.
Since 1993, Ms. Bass has been the president of Gerson Bakar Foundation. From
1989 to 1992, Ms. Bass was president and chief executive officer of the Emporium
Weinstock Division of Carter Hawley Hale Stores, Inc. She is on the Board of
Directors of DFS Group Limited, a retailer of luxury branded merchandise; The
Bombay Company, Inc., a retailer of traditional furniture and accessories; and
bebe stores, inc., a retailer of contemporary sportswear and accessories.
CRAIG J. FOLEY, 54, has been a director of the Company since March 1990.
Mr. Foley has served as president of Wickham Capital Corp., a venture capital
firm, since February 1994. He has also served as a principal of Phillips-Smith
Specialty Retail Group, a venture capital firm, since April 1994. From February
1982 to February 1994, Mr. Foley served on the Board of Directors of Chancellor
Capital Management, Inc., (formerly, Citicorp Investment Management) and, as
managing director of its Alternative Asset Management Group, served as a
financial advisor to various entities. Mr. Foley currently serves as a director
of the EuroEnterprise, an offshore closed-end fund; Jamba Juice, a retailer of
juice-based products; We're Entertainment, a retailer of collectibles; and The
White House, an apparel retailer.
2
<PAGE> 6
HOWARD SCHULTZ, 45, is the founder of the Company and has been chairman of
the board and chief executive officer since its inception in 1985. From 1985 to
June 1994, Mr. Schultz was also the Company's president. From September 1982 to
December 1985, Mr. Schultz was the director of retail operations and marketing
for Starbucks Coffee Company, a predecessor to the Company, and from January
1986 to July 1987, he was the chairman of the board, chief executive officer,
and president of Il Giornale Coffee Company, a predecessor to the Company. Mr.
Schultz serves on the Board of Directors of the National Association of
Securities Dealers, Inc. and eBay, Inc., an internet trading company.
Class 1 Directors; terms expire at the Annual Meeting of Shareholders for fiscal
1999:
HOWARD P. BEHAR, 54, has been a director of the Company since January 1996.
Mr. Behar has served as president of Starbucks Coffee International, Inc. since
June 1994. From February 1993 to June 1994, Mr. Behar served as the Company's
executive vice president, Sales and Operations. From February 1991 to February
1993, Mr. Behar served as senior vice president, Retail Operations of the
Company and from August 1989 to January 1991, he served as the Company's vice
president, Retail Stores.
JAMES G. SHENNAN, JR., 57, has been a director of the Company since March
1990. Mr. Shennan has served as a general partner of Trinity Ventures, a venture
capital organization, since 1989. From 1986 to 1988, he served as the president
and chief executive officer of Addison Consultancy Group, a marketing consulting
firm. Prior to that time, Mr. Shennan served as the president and chief
executive officer of Aidcom International, PLC (a predecessor of Addison
Consultancy Group), a publicly-held marketing services company located in the
United Kingdom and its predecessor, S&O Consultants, an international marketing,
design and research consulting organization. Mr. Shennan also serves on the
Board of Directors of P.F. Chang's China Bistro and a number of privately-held,
consumer-oriented companies in which Trinity Ventures is an investor.
CRAIG E. WEATHERUP, 53, is a new nominee to the Company's Board of
Directors. Mr. Weatherup is the chairman and chief executive officer of The
Pepsi Bottling Group, which is currently a division of PespiCo, Inc. Mr.
Weatherup has worked with PepsiCo for 24 years and has served as president as
well as chief executive officer of its worldwide Pepsi-Cola business. Mr.
Weatherup serves as director of PepsiCo, Inc. and Federated Department Stores.
Class 2 Directors; terms expire at the Annual Meeting of Shareholders for fiscal
2000:
GREGORY B. MAFFEI, 38, is a new nominee to the Company's Board of
Directors. Mr. Maffei is the chief financial officer of Microsoft Corporation.
Mr. Maffei joined Microsoft in 1993 and previously has served as treasurer and
vice president, Corporate Development. Mr. Maffei serves as a director of Cort
Business Services Corporation, a national provider of rental furniture; Ragen
MacKenzie Group Incorporated, a regional brokerage firm; and Skytel
Communications, a provider of wireless messaging services.
ARLEN I. PRENTICE, 61, has been a director of the Company since February
1986. Mr. Prentice is a founder of Kibble & Prentice, Inc., a financial services
firm. Mr. Prentice has served as a co-chairman and the chief executive officer
of Kibble & Prentice, Inc. since June 1972. Mr. Prentice presently serves as a
director of Northland Telecommunications Corporation, a cable television company
providing services through its affiliates to customers in nine states; Percon,
Inc., a distributor of bar code systems; and Flow International Inc., a
manufacturer and distributor of high pressure water jet cutting systems.
ORIN C. SMITH, 56, has been a director of the Company since January 1996.
Mr. Smith has served as president and chief operating officer of the Company
since June 1994. From March 1990 to June 1994, Mr. Smith served as the Company's
vice president and chief financial officer and later as its executive vice
president and chief financial officer. Mr. Smith presently serves as a director
of Oakley, Inc., a designer, manufacturer and distributor of high-performance
sunglasses and goggles.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE ELECTION
OF MS. BASS AND MESSRS. FOLEY, SCHULTZ, WEATHERUP AND MAFFEI TO THE BOARD OF
DIRECTORS.
3
<PAGE> 7
COMMITTEES
During fiscal 1998, the Company's Board of Directors had standing
Compensation, Special Compensation and Audit Committees, but did not have a
standing nominating committee. The members of each Committee and the functions
performed thereby are described below:
Compensation Committee. During fiscal 1998, the Compensation Committee was
comprised of Mr. Prentice (Chairman), Ms. Bass and Mr. Foley. The Compensation
Committee is responsible for setting compensation philosophy for the Company and
determining compensation and other benefits for the Company's senior executive
officers. The Compensation Committee also administers certain of the Company's
Stock Option Plans.
Special Compensation Committee. During fiscal 1998, the Special
Compensation Committee was comprised of Ms. Bass and Mr. Foley, both of whom
qualify as "non-employee directors" as such term is defined in Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). The Special Compensation Committee reviews remuneration of certain
executive officers of the Company, including the executive officers named in the
Summary Compensation Table set forth in the Executive Compensation section of
this Proxy Statement. The Special Compensation Committee is also charged with
the administration of the Executive Management Bonus Plan and the selection of
the annual objective measurement criteria under such plan.
Audit Committee. During fiscal 1998, the Audit Committee was comprised of
Mr. Shennan (Chairman), Ms. Bass and Mr. Brotman. The Audit Committee reviews
the planned scope of the services of the Company's independent auditors, reviews
financial statements and the auditors' opinion letter, recommends the
independent auditors for the following fiscal year, reviews the recommendations
of the independent auditors relating to accounting, internal controls, and other
matters and reviews internal controls and accounting procedures with the
Company's financial staff.
During fiscal 1998, the Compensation Committee met five times and held
three telephonic meetings, the Special Compensation Committee met five times,
the Audit Committee met three times, and the entire Board of Directors met five
times and held two telephonic meetings. Each director attended at least 75
percent of all Board meetings and meetings of Committees on which they served.
4
<PAGE> 8
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth information concerning the beneficial
ownership of Common Stock of the Company of (i) those persons known by
management of the Company to own beneficially more than 5% of the Company's
outstanding Common Stock, (ii) the directors and director nominees of the
Company, (iii) the executive officers named in the Summary Compensation Table
set forth in the "Executive Compensation" section of this Proxy Statement and
(iv) all current directors and officers of the Company as a group. Such
information is provided as of December 1, 1998. According to the rules adopted
by the SEC, a person is the "beneficial owner" of securities if he or she has or
shares the power to vote them or to direct their investment or has the right to
acquire beneficial ownership of such securities within 60 days through the
exercise of an option, warrant, right of conversion of a security or otherwise.
Except as otherwise noted, the indicated owners have sole voting and investment
power with respect to shares beneficially owned. An asterisk in the percent of
class column indicates beneficial ownership of less than 1%, based upon
89,655,557 shares of Common Stock outstanding.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP CLASS
------------------- -------------------- ----------
<S> <C> <C>
FMR Corp......................................... 5,904,900(2) 6.6
Howard Schultz................................... 3,284,137(3) 3.6
Orin C. Smith.................................... 511,422(4) *
Howard P. Behar.................................. 167,055(5) *
Barbara Bass..................................... 43,500(6) *
Jeffrey H. Brotman............................... 104,000(7) *
Craig J. Foley................................... 58,700(8) *
Arlen I. Prentice................................ 196,838(9) *
James G. Shennan, Jr............................. 224,798(10) *
Gregory B. Maffei................................ 0 *
Craig E. Weatherup............................... 0 *
John B. Richards................................. 25,568(11) *
Michael Casey.................................... 95,867(12) *
All Directors and Executive Officers as a Group
(26 persons)................................... 6,015,370(13) 6.5
</TABLE>
- ---------------
(1) The address of FMR Corp. is 82 Devonshire Street, Boston, Massachusetts
02109. The address of the directors and executive officers listed is 2401
Utah Avenue South, Seattle, Washington 98134.
(2) According to information furnished by Fidelity Management & Research
Company on December 15, 1998, FMR Corp. indirectly held the number of
shares indicated on December 1, 1998 through its wholly-owned subsidiaries
Fidelity Management & Research Company, a registered investment advisor
(5,518,700 shares), and Fidelity Management Trust Company, a bank serving
as an investment manager of institutional accounts (357,100 shares). FMR's
subsidiary, Fidelity International Limited, a Bermuda-based subsidiary
providing investment advisory and management services, also held 29,100
shares of Starbucks Common Stock.
(3) Includes 1,486,664 shares subject to options exercisable on or before
January 30, 1999.
(4) Includes 471,600 shares subject to options exercisable on or before January
30, 1999.
(5) Includes 158,366 shares subject to options exercisable on or before January
30, 1999.
(6) Includes 40,000 shares subject to options exercisable on or before January
30, 1999.
(7) Includes 80,000 shares subject to options exercisable on or before January
30, 1999.
(8) Includes 57,500 shares subject to options exercisable on or before January
30, 1999.
(9) Includes 19,500 shares held by the Prentice Family Partnership, a general
partnership in which Mr. Prentice serves as a general partner, and 103,000
shares subject to options exercisable on or before January 30, 1999.
5
<PAGE> 9
(10) Includes 23,330 shares held by Trinity Ventures II, L.P., a partnership of
which Mr. Shennan is a general partner; 6,948 shares held by Trinity
Ventures III, L.P., a partnership of which Mr. Shennan is a general partner
and 34,680 shares held by the Shennan Family Partnership, a partnership of
which Mr. Shennan is a general partner, and 73,400 shares subject to
options exercisable on or before January 30, 1999.
(11) Includes 25,000 shares subject to options exercisable on or before January
30, 1999.
(12) Includes 93,582 shares subject to options exercisable on or before January
30, 1999.
(13) Includes 3,613,811 shares subject to options exercisable on or before
January 30, 1999.
6
<PAGE> 10
EXECUTIVE COMPENSATION
SUMMARY OF COMPENSATION
The following table sets forth the compensation paid to or earned by the
Company's chief executive officer and its four most highly compensated executive
officers whose salary and bonus exceeded $100,000 in fiscal 1998 (collectively
referred to herein as the "Named Executive Officers") during each of the
Company's last three fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------- ------------------
NUMBER OF ALL OTHER
FISCAL SALARY BONUS SECURITIES COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) UNDERLYING OPTIONS ($)
--------------------------- ------ ------- --------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
HOWARD SCHULTZ 1998 750,000 425,250 525,000 25,461(1)
chairman and 1997 740,385 487,500 400,000 26,241(1)
chief executive officer 1996 493,654 0 500,000 25,786(1)
ORIN C. SMITH 1998 600,000 425,250 300,000 1,600(2)
president and 1997 592,308 360,000 300,000 1,848(2)
chief operating officer 1996 394,231 0 250,000 2,231(2)
HOWARD P. BEHAR 1998 360,000 226,800 150,000 1,600(3)
president, Starbucks 1997 355,962 180,000 150,000 2,346(3)
Coffee International, Inc. 1996 252,885 0 100,000 1,588(3)
JOHN B. RICHARDS(4) 1998 400,000 179,704 0 75,096(5)
president, Retail North 1997 0(4) 125,000(4) 125,000 0
America
MICHAEL CASEY 1998 332,212 175,000 75,000 17,501(7)
executive vice president, 1997 273,510 110,000 20,000 3,398(7)
chief financial officer and 1996 235,817 23,625(6) 0 0(7)
chief administrative officer
</TABLE>
- ---------------
(1) The amounts shown include (i) matching contributions by the Company to the
Company's 401(k) Plan on behalf of Mr. Schultz of $1,600, $2,130 and $1,500
in fiscal 1998, 1997 and 1996, respectively, and (ii) unreimbursed payments
by the Company of the insurance premium for a split dollar life insurance
policy originally issued in 1991 (the "1991 Policy") of $23,861, $24,111 and
$24,286 in fiscal 1998, 1997 and 1996, respectively.
(2) The amounts shown represent matching contributions by the Company to the
Company's 401(k) Plan on behalf of Mr. Smith.
(3) The amounts shown represent matching contributions by the Company to the
Company's 401(k) Plan on behalf of Mr. Behar.
(4) Mr. Richards joined the Company on September 15, 1997 and did not receive
any salary during fiscal 1997. He earned a $125,000 bonus pursuant to the
terms of the offer letter to him dated August 22, 1997.
(5) The amount shown represents relocation expenses paid to Mr. Richards in
accordance with the offer letter to him dated August 22, 1997. Mr. Richards
was not eligible to participate in the Company's 401(k) Plan during fiscal
1997 or fiscal 1998.
(6) The amount shown was paid in accordance with the offer letter to Mr. Casey
dated June 21, 1995.
(7) The amounts shown include (i) relocation expenses of $16,667 paid to Mr.
Casey in fiscal 1998 and (ii) matching contributions by the Company to the
Company's 401(k) Plan on behalf of Mr. Casey. Mr. Casey was not eligible to
participate in the Company's 401(k) Plan during fiscal 1996.
7
<PAGE> 11
STOCK OPTION GRANTS IN FISCAL 1998
The following table sets forth information regarding options granted to the
Company's Named Executive Officers during fiscal 1998 to purchase shares of the
Company's Common Stock. The Company has no outstanding stock appreciation
rights. In accordance with the rules of the Securities and Exchange Commission,
the table shows the hypothetical "gains" or "option spreads" that would exist
for the respective options based on assumed rates of annual stock price
appreciation of 5% and 10% from the date the options were granted over the full
option term.
OPTION GRANTS IN FISCAL 1998
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
NUMBER OF PERCENT OF FOR OPTION TERM(1)
SECURITIES TOTAL OPTIONS ---------------------------
UNDERLYING OPTIONS GRANTED TO EXERCISE PRICE EXPIRATION FIVE PERCENT TEN PERCENT
NAME GRANTED EMPLOYEES PER SHARE DATE ($) ($)
---- ------------------ ------------- -------------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Howard Schultz....... 525,000(2) 16.8 $36.81 10/03/07 12,154,371 30,801,563
Orin C. Smith........ 300,000(3) 9.6 $36.81 10/03/07 6,945,355 17,600,893
Howard P. Behar...... 150,000(4) 4.8 $36.81 10/03/07 3,472,678 8,800,447
John B. Richards..... 0 N/A N/A N/A N/A N/A
Michael Casey........ 45,000(5) 1.4 $36.81 10/03/07 1,041,803 2,640,134
30,000(6) 1.0 $35.31 11/18/07 666,235 1,688,371
</TABLE>
- ---------------
(1) Potential realizable value is based on the assumption that the price of the
Company's Common Stock appreciates at the rate shown (compounded annually)
from the date of grant to the expiration date. These numbers are presented
in accordance with the requirements of the Securities and Exchange
Commission and do not reflect the Company's estimate of future stock price
performance.
(2) Mr. Schultz's options become exercisable in one 108,334 share increment on
October 3, 1998, two 108,333 share increments on October 3 of 1999 and 2000,
and one 200,000 share increment on October 3, 2003. If the Company achieves
25% compound annual growth in earnings per share for a three year period
ending on October 1 of 2000, 2001 or 2002, then the vesting of the 200,000
options scheduled to become exercisable on October 3, 2003 will accelerate
and all such options will be exercisable on the date such earnings per share
are announced.
(3) Mr. Smith's options become exercisable in three 50,000 share increments on
October 3 of 1998, 1999 and 2000, and in one 150,000 share increment on
October 3, 2003. If the Company achieves 25% compound annual growth in
earnings per share for a three year period ending on October 1 of 2000, 2001
or 2002, then the vesting of the 150,000 options scheduled to become
exercisable on October 3, 2003 will accelerate and all such options will be
exercisable on the date such earnings per share are announced.
(4) Mr. Behar's options become exercisable in three 25,000 share increments on
October 3 of 1998, 1999 and 2000, and in one 75,000 share increment on
October 3, 2003. If the Company achieves 25% compound annual growth in
earnings per share for a three year period ending on October 1 of 2000, 2001
or 2002, then the vesting of the 75,000 options scheduled to become
exercisable on October 3, 2003 will accelerate and all such options will be
exercisable on the date such earnings per share are announced.
(5) Mr. Casey's options become exercisable in three 15,000 share increments on
October 3 of 1998, 1999 and 2000.
(6) Mr. Casey's options become exercisable in three 10,000 share increments on
November 18 of 1998, 1999 and 2000.
8
<PAGE> 12
EXERCISES OF STOCK OPTIONS
The following table sets forth information regarding stock option exercises
during fiscal 1998 by the Named Executive Officers and the value of each Named
Executive Officer's exercised and unexercised stock options on September 27,
1998.
AGGREGATED OPTION EXERCISES IN FISCAL 1998 AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY OPTIONS AT
UNDERLYING UNEXERCISED FISCAL YEAR END
SHARES ACQUIRED OPTIONS AT FISCAL YEAR END ($)(2)
ON EXERCISE VALUE REALIZED --------------------------- ---------------------------
NAME (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Howard Schultz....... 546,556 17,036,264 1,311,997 959,667 27,767,861 3,212,251
Orin C. Smith........ 144,630 3,934,718 238,264 583,336 2,241,119 1,783,893
Howard P. Behar...... 73,332 1,607,721 50,000 283,336 140,625 769,831
John B. Richards..... 0 0 25,000 100,000 0 0
Michael Casey........ 4,750 131,891 61,916 128,334 888,936 682,502
</TABLE>
- ---------------
(1) Value realized is calculated by subtracting the aggregate exercise price of
the options exercised from the aggregate market value of the shares of
Common Stock acquired on the date of exercise.
(2) The value of unexercised options is calculated by subtracting the aggregate
exercise price of the options from the aggregate market value of the shares
of Common Stock subject thereto as of September 27, 1998.
COMPENSATION OF DIRECTORS
During fiscal 1998, directors (other than directors who are executive
officers of the Company) received an annual retainer of $10,000 per year, $1,000
per board meeting attended in person, and $500 per committee meeting attended in
person.
All of the Company's directors who are not executive officers or employees
participate in the Directors Plan. Under the terms of the Directors Plan,
non-employee directors are annually awarded stock options to purchase 20,000
shares of Common Stock at a per share exercise price equal to the fair market
value on the date of grant. During the fiscal year-ended September 27, 1998,
each of Messrs. Foley, Prentice and Shennan and Ms. Bass received options to
purchase 20,000 shares of Common Stock at an exercise price of $34.00 per share.
Pursuant to the terms of a Consulting/Employment Agreement, dated as of
January 14, 1995, between the Company and Jeffrey H. Brotman (the "Consulting
Agreement"), Mr. Brotman provided consulting services to the Company,
specifically in the areas of strategic planning, capital formation, real estate
matters, major corporate negotiations, and other business planning matters, as
requested by the chairman of the Board of Directors. As consideration for such
services, Mr. Brotman receives annual stock options to purchase 20,000 shares of
the Company's Common Stock with an exercise at the fair market value per share
on the date of the grant. During the fiscal year ended September 27, 1998, Mr.
Brotman was granted options to purchase 20,000 shares of Common Stock at an
exercise price of $34.00 per share.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1998, Ms. Bass, Mr. Foley and Mr. Prentice had no
relationships or transactions with the Company or its subsidiaries required to
be disclosed pursuant to Item 402(j) of Regulation S-K promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
9
<PAGE> 13
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION*
During fiscal 1998, the Compensation Committee of the Board of Directors
was responsible for setting compensation philosophy and determining base salary,
bonus, long-term incentive compensation and other benefits for the chief
executive officer and other senior executive officers. The Special Compensation
Committee, a subset of the Compensation Committee made up of two directors who
qualify as "outside directors" under Section 162(m) of the Internal Revenue Code
("Section 162(m)") and as "non-employee directors" under Rule 16b-3 promulgated
under the Exchange Act, was responsible for administering the Company's
Executive Management Bonus Plan (the "EMB Plan") and approving grants of stock
options to the participants therein.
COMPENSATION COMPONENTS: The Compensation Committee believes that executive
officer compensation should be closely aligned with the performance of the
Company on both a short-term and long-term basis, and that such compensation
should assist the Company in attracting and retaining key executives critical to
its long-term success. To that end, the Committee's policy is that the
compensation package for executive officers should consist of three components:
(i) an annual base salary; (ii) the potential to earn incentive bonuses, the
amount of which is dependent on both Company and individual performance during
the prior fiscal year; and (iii) stock option awards designed to align
management's interests with those of shareholders by providing long-term
incentives for the Company's key employees.
The Compensation Committee establishes total annual compensation for the
chief executive officer and other senior executive officers after reviewing each
component of such executive's compensation against executive compensation
surveys prepared by outside compensation consultants. The Special Compensation
Committee approves the components of total compensation subject to Section
162(m). The surveys used for comparison reflect compensation levels and
practices for persons holding comparably responsible positions at targeted peer
group companies. The compensation comparator group is not limited to companies
listed on the National Market tier of the Nasdaq Stock Market, Inc., and
includes an array of companies in specialty retail and other industries, with
high growth, and strong brand image characteristics. Seven of the eighteen
companies used to provide competitive compensation data are included in the
indices reflected in the performance graph required by Item 402(1) of Regulation
S-K and set forth on page 13 of this Proxy Statement. In addition to reviewing
senior executive officers' compensation against the comparator group, the
Compensation Committee also solicits appropriate input from the Company's
president and chief operating officer regarding total compensation for those
executives who report directly to him.
TOTAL COMPENSATION: For fiscal 1998, the Compensation Committee determined
that total compensation for executive officers (the sum of base salary,
incentive bonus, and long-term compensation delivered through stock option
awards) should be targeted between the 75th and 90th percentiles of selected
peer group companies. The Committee may, at its discretion, award compensation
in excess of the target. Base salary and incentive bonus were targeted at the
50th percentile so that more than a proportionate amount of total compensation
is awarded through a long-term incentive vehicle. This strategy is intended to
be competitive with other high performing organizations and to enable the
Company to attract, reward and retain exceptional talent. For this period, the
aggregate of Mr. Schultz' base salary, incentive bonus and stock options was
within the competitive target range.
BASE SALARY: Base salaries for executive officers are reviewed on an annual
basis and at the time of promotion or other increase in responsibilities.
Increases in salary are based on subjective evaluation of such factors as the
level of responsibility, individual performance, level of pay, and Company peer
group pay levels. In fiscal 1998, base salary for Mr. Schultz was determined in
accordance with the factors above. During this period, Mr. Schultz's actual base
salary was $750,000, approximating the competitive target of the 50th
- ---------------
* The report of the Compensation Committee shall not be deemed
incorporated by reference by any general statement incorporating by reference
this Proxy Statement into any filing under either the Securities Act of 1933, as
amended, or the Exchange Act (together, the "Acts"), except to the extent that
the Company specifically incorporates such report by reference; and further,
such report shall not otherwise be deemed filed under the Acts.
10
<PAGE> 14
percentile of compensation paid by targeted peer group companies. Mr. Schultz's
annual salary did not change from his salary in fiscal 1997.
INCENTIVE BONUS: Incentive bonuses are generally granted based on a
percentage of each executive officer's base salary. During fiscal 1998, the
chief executive officer, president and chief operating officer, president of
Starbucks Coffee International, Inc., president, Retail North America, and
executive vice presidents of the Company participated in the EMB Plan. The EMB
Plan was designed to meet the requirements of Section 162(m) that impose a
limitation on the deductibility of non-performance-based compensation in excess
of $1 million paid to the chief executive officer and the four other most highly
paid officers of the Company.
The Special Compensation Committee selects participants and establishes
objective performance measures, bonus target percentages, and other terms and
conditions of awards under the EMB Plan. Target bonus amounts are expressed as a
percentage of base salary and are established according to the overall intended
competitive position and competitive survey data for comparable positions in
peer group companies. For fiscal 1998, the bonus targets for participating
officers ranged from 50% to 87% of base salary depending on position, with a
maximum of $1,000,000. Mr. Schultz' target was increased over his target for
fiscal 1997 to place a greater portion of his total cash compensation at risk
and make such compensation dependant upon the Company's performance. After the
end of the performance period, the extent to which the performance goals were
achieved and the amount of the award that is payable is determined.
Seventy percent (70%) of the target bonus is based on specified objective
performance goals established each fiscal year. In fiscal 1998, the objective
performance goal was earnings per share of $.98 (subject to adjustment for
significant acquisitions or dispositions). Thirty percent (30%) of the target
bonus is based on specific subjective performance goals for each officer, which
change somewhat each year according to the strategic plan initiatives and the
responsibilities of the positions. Relative weights assigned to each performance
goal typically range from 5% to 35%. Mr. Schultz' goals for fiscal 1998 related
to achievement of the operating plan, increasing return on invested assets and
managing organizational development.
The bonus payout award is adjusted according to the level of achievement of
both the objective and subjective performance goals. Below a threshold of
performance, no awards may be granted. For fiscal 1998, Mr. Schultz' annual
incentive award could have reflected his achievement of the objective
performance goal at the 97% level and his achievement of his individual
performance goals at the 100% level. However, at Mr. Schultz' suggestion and in
recognition of the equivalent contributions of the chief executive officer and
the president and chief operating officer in fiscal 1998, the Compensation
Committee exercised its discretion to modify the amount of bonus earned pursuant
to the achievement by Mr. Schultz and Mr. Smith of individual performance goals
(the subjectively determined portions) so that the total bonus payout of
$425,250 was the same for both executive officers. This award for Mr. Schultz
fell below what he otherwise would have earned based upon his target bonus,
achievement of the objective performance goal and his individual performance
goals under the EMB Plan, and was somewhat below the competitive target of the
50th percentile of bonuses paid by targeted peer group companies. For Mr. Smith,
the award was 12.5% above what he otherwise would have earned based upon his
target bonus, achievement of the objective performance goal and achievement of
his individual performance goals. The Compensation Committee also exercised its
discretion to modify the amount of bonus earned by Mr. Behar pursuant to the
achievement of individual performance goals (the subjectively determined
portion) to recognize his outstanding efforts in the integration of the
operations of Seattle Coffee Company, a London-based coffee company acquired by
Starbucks at the end of May 1998. This award was 14% above the amount that Mr.
Behar otherwise would have earned based upon his target bonus, achievement of
the objective performance goal and achievement of his individual performance
goals. The Compensation Committee exercised its discretion to increase the bonus
payout to Mr. Casey pursuant to the achievement of individual performance goals
(the subjectively determined portion) by approximately 39% in recognition of his
exemplary performance, not only in the execution of the duties expected of his
position, but also in completing the acquisition of Seattle Coffee Company and
assuming management responsibility for the Specialty Sales and Marketing
business unit for a portion of fiscal 1998. The Compensation Committee adjusted
Mr. Richards' bonus payout to reflect the bonus agreed to in the offer letter to
him dated August 22, 1997 and his participation in the EMB Plan for seven months
of fiscal 1998.
11
<PAGE> 15
STOCK OPTIONS: Long-term, performance-based compensation of executive
officers takes the form of option awards under the Company's Key Employee Stock
Option Plan -- 1994 (the "1994 Plan"). The Compensation Committee believes that
equity-based compensation ensures that the Company's executive officers have a
continuing stake in the long-term success of the Company. All options granted by
the Company have been granted with an exercise price equal to or in excess of
the closing price of the Company's Common Stock on the date of grant and,
accordingly, will have value only if the Company's stock price increases.
In granting options under the 1994 Plan, the size of stock option awards is
based on such considerations as the value of options awarded to comparable
positions in peer group companies, Company and individual performance against
plan, the predicted value of Starbucks Common Stock, the number of options
currently held by the officer, the allocation of overall share usage attributed
to executive officers, and the relative proportion of long-term incentives
within the total compensation mix. For fiscal 1998, Mr. Schultz was granted an
aggregate of 525,000 options to purchase shares of Common Stock.
Respectfully submitted,
Arlen I. Prentice, Chairman
Barbara Bass
Craig Foley
12
<PAGE> 16
PERFORMANCE GRAPH
The following graph depicts the Company's total return to shareholders from
October 1, 1993 through September 27, 1998, relative to the performance of the
Nasdaq Stock Market (U.S. Companies) Index, the Nasdaq Eating and Drinking
Establishments Index, and the Nasdaq Retail Index. All indices shown in the
graph have been reset to a base of 100 as of October 1, 1993, and assume an
investment of $100 on that date and the reinvestment of dividends paid since
that date. The Company has not ever paid cash dividends on its Common Stock. The
points represent fiscal year end index levels based on the last trading day in
each such fiscal year. The chart set forth below was prepared by Thomson
Investor Relations, which holds a license to use the indices used herein.
[GRAPH]
<TABLE>
<CAPTION>
10/1/93 9/30/94 9/29/95 10/1/96 9/28/97 9/27/98
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Starbucks Corporation......................... 100% 86% 142% 263% 305% 268%
Nasdaq Stock Market........................... 100% 101% 139% 165% 226% 238%
Nasdaq Eating and Drinking Establishments..... 100% 87% 94% 94% 85% 59%
Nasdaq Retail................................. 100% 99% 109% 130% 148% 132%
</TABLE>
CERTAIN TRANSACTIONS
The Company supplies whole bean coffees to Costco Companies, Inc., a
membership-only wholesale club. Mr. Jeffrey H. Brotman, a retiring director of
the Company, is chairman of the Board of Directors of Costco Companies, Inc.
During fiscal 1998, the Company's sales to Costco Companies, Inc. totaled $36.3
million.
The Pepsi Bottling Group purchases and distributes bottled Frappuccino(TM)
coffee drink, a product produced by the North American Coffee Partnership, a
joint venture between the Company and PepsiCo, Inc. (the "NACP"). Mr. Craig E.
Weatherup is the chairman and chief executive officer of the Pepsi Bottling
Group (a division of PepsiCo, Inc.) and also serves as a director of PepsiCo,
Inc. During fiscal 1998,
13
<PAGE> 17
Starbucks had sales of approximately $10.4 million to the NACP and the NACP had
sales of approximately $95 million to The Pepsi Bottling Group.
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 beneficially own more than 10% of the Common
Stock, to file with the Securities and Exchange Commission initial reports of
beneficial ownership ("Forms 3") and reports of changes in beneficial ownership
of Common Stock and other equity securities of the Company ("Forms 4").
Officers, directors, and greater than 10% shareholders of the Company are
required by Securities and Exchange Commission regulations to furnish to the
Company copies of all Section 16(a) reports that 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, all
Section 16(a) filing requirements applicable to its officers, directors, and
greater than 10% beneficial owners were complied with for the fiscal year ended
September 27, 1998.
PROPOSAL 2 -- APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE
STARBUCKS CORPORATION 1989 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
The Board of Directors of the Company proposes that the shareholders
approve an amendment and restatement of the Starbucks Corporation 1989 Stock
Option Plan for Non-Employee Directors (as originally approved, the "Directors
Plan") that (i) extends the term of the Plan from January 17, 1999 to January
17, 2009, (ii) increases by 725,000 the number of shares reserved for issuance
thereunder and (iii) increases the number of options granted to each
non-employee director each year from 20,000 to 25,000. The proposed amendment
and restatement would also update the Directors Plan to conform to current
administrative practices. The Board believes that the ability to grant
non-employee directors stock options allows the Company to attract and retain
the services of experienced and knowledgeable independent directors and provides
an additional incentive for such directors to work for the benefit of the
Company and its shareholders. The increase in the number of shares authorized
for issuance is necessary in order to have sufficient reserved shares to
continue to grant options to non-employee directors and to implement a proposed
change in the compensation paid to non-employee directors. It is management's
current intent that if the amendment and restatement of the Directors Plan is
approved, non-employee directors will receive an annual grant of options to
purchase 25,000 shares of Common Stock, but will not receive an annual cash
retainer or fees for each meeting attended. The Board of Directors approved the
Amended and Restated 1989 Stock Option Plan for Non-Employee Directors (the
"Amended Plan") on January 7, 1999 and recommends that the shareholders also
approve the amendment and restatement of the Plan. A copy of the Amended Plan
may be obtained by sending a written request to the Company's Investor Relations
Department at the address shown on page 17 of this Proxy Statement.
DESCRIPTION OF THE AMENDED PLAN
The Amended Plan provides that each director of the Company, who is not and
has not during the immediately preceding 12-month period been an employee of the
Company or any parent or subsidiary of the Company, shall automatically be a
participant in the Amended Plan. If the nominees for director set forth in this
Proxy Statement are elected, six directors will be eligible to participate in
the Amended Plan. The Amended Plan provides that each participant who is serving
as a director of the Company on December 31 shall, on the immediately succeeding
January 15 (or the first business day following such date if January 15 is not a
business day), receive options to purchase 25,000 shares of Common Stock
pursuant to the Amended Plan. The exercise price for such options is the fair
market value of a share of the Company's Common Stock on the date of grant. For
the purposes of the Amended Plan, the fair market value of a share of Common
Stock is the closing sale price of a share of the Company's Common Stock on the
day of grant as reported by The Nasdaq Stock Market, Inc. or the principal
national securities exchange on which the Company's Common Stock is then listed
for trading. If the Company's Common Stock is not listed for trading on any such
market or exchange, the fair market value of a share shall be determined by the
Company's Board of
14
<PAGE> 18
Directors. On December 31, 1998, the closing price per share of Starbucks Common
Stock as reported by The Nasdaq Stock Market, Inc. was $56.13.
Options granted pursuant to the Amended Plan are immediately exercisable.
The exercise price for options granted under the Amended Plan may be paid in
cash, in shares of the Company's Common Stock or in accordance with procedures
for a "cashless exercise" as the same may be established from time to time by
the Company and the brokerage firm designated by the Company to facilitate
exercises and sales under the Amended Plan. Options expire ten years from the
date of grant, subject to earlier termination in the event of the death of a
participant or in the event that a participant ceases to be a director of the
Company. Each grant of options is evidenced by an option agreement that may
contain additional terms, provisions and conditions not inconsistent with the
Amended Plan as may be determined by the Board of Directors.
The Amended Plan will be administered by the Board of Directors of the
Company, which has the power to construe the Amended Plan, to determine all
questions arising thereunder, and to adopt and amend such rules and regulations
for the administration of the Amended Plan as it may deem desirable. The Amended
Plan provides that in the event of a reorganization, merger, consolidation,
recapitalization, reclassification, stock split, stock dividend or similar
capital change, an appropriate adjustment shall be made in the number and kind
of shares subject to and reserved for issuance under the Amended Plan and as to
which outstanding options shall be exercisable, so that the proportionate
interest of participants with respect to options previously granted shall be
maintained. The Board of Directors may terminate, modify or amend the Amended
Plan at any time, provided, however, that the Board may not, without the
approval of the shareholders of the Company, increase the maximum number of
shares for which options may be granted under the Plan or the number of Shares
granted to any Participant each year except, in each case, in connection with a
reorganization, merger, consolidation, recapitalization, reclassification, stock
split, stock dividend or similar capital change.
FEDERAL INCOME TAX CONSEQUENCES RELATING TO THE AMENDED PLAN
Options granted pursuant to the Amended Plan are non-qualified stock
options that do not entitle the participant to any special tax benefit. A
participant who receives a grant of options will not recognize any taxable
income at the time of the grant, but upon the exercise of options will recognize
ordinary income for federal tax purposes in an amount equal to the excess of the
then fair market value of the shares over the aggregate exercise price. A
participant's basis for determination of gain or loss upon the subsequent
disposition of the shares acquired pursuant to the exercise of options pursuant
to the Amended Plan will be the amount paid for such shares (the exercise price)
plus any ordinary income recognized as a result of the exercise of the options.
Upon a disposition of any shares acquired pursuant to the exercise of options
granted under the Amended Plan, the difference between the sale price and the
participant's basis in the shares will be treated as capital gain or loss and
will be characterized as long-term capital gain or loss if the shares have been
held for more than one year at the date of their disposition.
In general, there will be no federal tax consequences to the Company upon
the grant or termination of non-qualified stock options or a sale or disposition
of the shares acquired upon the exercise thereof. Upon the exercise of
non-qualified stock options, however, the Company will be entitled to a
deduction for federal income tax purposes equal to the amount of ordinary income
that a participant is required to recognize as a result of the exercise,
provided that the deduction is not otherwise disallowed under the Internal
Revenue Code.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT AND
RESTATEMENT OF THE DIRECTORS PLAN.
15
<PAGE> 19
PROPOSAL 3 -- RATIFICATION OF SELECTION OF AUDITORS
The Board of Directors requests that the shareholders ratify its selection
of Deloitte & Touche LLP to serve as the Company's independent auditors for the
fiscal year ending October 3, 1999. Deloitte & Touche LLP examined the
consolidated financial statements of the Company for the fiscal year ended
September 27, 1998. Representatives of Deloitte & Touche LLP will be present at
the Annual Meeting to make a statement if they desire to do so and to respond to
questions by shareholders. The affirmative vote of a majority of the shares
represented at the meeting is required for the ratification of the Board's
selection of Deloitte & Touche LLP as the Company's independent auditors for the
fiscal year ending October 3, 1999.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
SELECTION OF DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS OF THE COMPANY.
OTHER BUSINESS
The Board of Directors knows of no other matters to be brought before the
Annual Meeting of Shareholders. However, if any other matters are properly
brought before the Annual Meeting, the persons appointed in the accompanying
proxy intend to vote the shares represented thereby in accordance with their
best judgment.
PROPOSALS OF SHAREHOLDERS
Shareholder proposals to be presented at the Company's next Annual Meeting
of Shareholders and included in the Company's Proxy Statement relating to such
meeting must be received by the Company at its executive offices at 2401 Utah
Avenue South, Seattle, Washington 98134, Attention: Office of the General
Counsel, on or prior to September 13, 1999.
16
<PAGE> 20
ANNUAL REPORT TO SHAREHOLDERS AND FORM 10-K
The Company's Annual Report to Shareholders for fiscal 1998 (which is not a
part of the Company's proxy soliciting materials) is being mailed to the
Company's shareholders with this Proxy Statement. A copy of the Company's Annual
Report on Form 10-K, without exhibits, will be furnished without charge to
shareholders upon request to:
Investor Relations
Starbucks Corporation
2401 Utah Avenue South
Seattle, Washington 98134
(206) 447-1575 x7118
By Order of the Board of Directors,
[LOGO]
G. Scott Greenburg
secretary
Seattle, Washington
January 13, 1999
17
<PAGE> 21
DIRECTIONS TO THE STARBUCKS CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
AT
BENAROYA HALL
200 UNIVERSITY STREET, SEATTLE, WASHINGTON
AT
10:00 A.M. (PACIFIC TIME)
ON
FEBRUARY 23, 1999
TRAVELING SOUTH ON I-5:
- Take Union Street exit
- Continue to Third Avenue or Second Avenue
- The hall is on your left
TRAVELING NORTH ON I-5:
- Take Seneca Street exit
- Continue on Seneca to Third Avenue and turn right
- The hall is on your left
TRAVELING FROM I-90 WESTBOUND:
- Merge onto I-5 going north
- Take Madison Street exit and turn left on Madison Street
- Continue on Madison to Third Avenue
- Turn right on Third Avenue and continue to University Street
- The hall is on your left
PARKING:
Benaroya Hall parking garage: Entrance on Second Avenue between Union
Street and University Street, with elevator access to the hall.
Cobb/Puget Sound Plaza Garage: Entrance on University Street, between Third
Avenue and Fourth Avenue.
Washington Mutual Tower Garage: Entrance on Seneca Street, between Second
Avenue and Third Avenue.
<PAGE> 22
NOTES
<PAGE> 23
Appendix 1
STARBUCKS CORPORATION
AMENDED AND RESTATED 1989 STOCK OPTION PLAN
FOR
NON-EMPLOYEE DIRECTORS
(As Amended and Restated Effective January 17, 1999)
1. Purpose.
The purpose of the Starbucks Corporation Amended and Restated 1989 Stock
Option Plan for Non-Employee Directors (the "Plan") is to attract and retain the
services of experienced and knowledgeable independent directors of Starbucks
Corporation (the "Corporation") for the benefit of the Corporation and its
shareholders and to provide an additional incentive for such directors to work
for the best interest of the Corporation and its shareholders through continuing
ownership of its common stock.
2. Shares Subject to the Plan.
The total number of shares of common stock, no par value per share, of
the Corporation (the "Shares"), for which options may be granted under the Plan
shall not exceed 1,425,000 in the aggregate, subject to adjustment hereafter in
accordance with Section 11 hereof. Within the foregoing limitations, Shares
subject to options granted pursuant to the Plan shall become available for the
grant of additional options if the options originally granted lapse or otherwise
terminate. One million four hundred and twenty-five thousand (1,425,000) of the
Corporation's authorized but unissued shares are reserved for issuance pursuant
to options granted under the Plan, subject to adjustment hereafter in accordance
with Section 11 hereof.
3. Administration of Plan.
The Plan shall be administered by the Board of Directors of the
Corporation (the "Board"). The Board shall have the power to construe the Plan,
to determine all questions arising hereunder, and to adopt and amend such rules
and regulations for the administration of the Plan as it may deem desirable.
4. Eligibility; Grant of Option.
Each director of the Corporation who is not, and has not during the
immediately preceding 12-month period been, an employee of the Corporation or
any parent or subsidiary of the Corporation (a "Participant") shall
automatically participate in the Plan. Each Participant who is serving as a
director of the Corporation on December 31 of any year (beginning December 31,
1994), shall, on the immediately succeeding January 15 (or the first business
day following such date if January 15 is not a business day), automatically be
granted non-qualified stock options to purchase 25,000 Shares pursuant to the
Plan.
-1-
<PAGE> 24
5. Option Agreement.
Each grant of options under the Plan shall be evidenced by an option
agreement (the "Agreement") duly executed on behalf of the Corporation and by
the Participant to whom such options are granted, which Agreements may but need
not be identical and which shall comply with and be subject to the terms and
conditions of the Plan. Any Agreement may contain such other terms, provisions,
and conditions not inconsistent with the Plan as may be determined by the Board.
No options shall be deemed granted within the meaning of the Plan and no
purported grant of any options shall be effective, until such Agreement shall
have been duly executed on behalf of the Corporation and the Participant to whom
the option is to be granted.
6. Option Exercise Price.
The option exercise price for an option granted under the Plan shall be
the fair market value of a Share on the grant date. For purposes hereof, the
fair market value of a Share shall be the closing sale price of the Shares as
reported by the Nasdaq Stock Market, Inc. or on the principal national
securities exchange on which the Shares are then listed for trading, or if the
Shares are not listed for trading on any such system or exchange, the fair
market value shall be as determined by the Company's Board of Directors.
7. Term of Options.
Options shall expire ten years from the date of the grant thereof, but
shall be subject to earlier termination as follows:
a. In the event of the death of a Participant, the options
granted to such Participant may be exercised by the estate of such Participant,
or by any person or persons who acquired the right to exercise such options by
will or by the laws of descent and distribution. Such options may be exercised
at any time within 180 days after the date of death of such Participant or prior
to the date on which the options expire by their terms, whichever is earlier.
b. Except as stated in paragraph (c) below, in the event that a
Participant ceases to be a director of the Corporation, other than by reason of
his or her death, the options granted to such Participant may be exercised for a
period of three (3) years after such date or on the date on which the options
expire by their terms, whichever is earlier.
c. In the event a Participant is removed from the Board of
Directors for cause as determined by the shareholders, the options granted to
such Participant must be exercised prior to his or her removal.
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<PAGE> 25
8. Time and Manner of Exercise of Option.
a. Options granted under the Plan shall be immediately
exercisable.
b. A Participant desiring to exercise options granted hereunder
shall notify the Company or, if the Company requires, the brokerage firm
designated by the Company to facilitate exercises and sales under the Plan,
specifying the number of options to be exercised and, if required by the
Company, representing in form satisfactory to the Company that the Shares are
being purchased for investment and not with a view to resale or distribution.
The notification to the brokerage firm shall be made in accordance with
procedures of such brokerage firm approved by the Company.
c. Options may be exercised by payment to the Company of the
aggregate exercise price. Payment of the exercise price shall be made in cash or
in accordance with procedures for a "cashless exercise" as the same shall have
been established from time to time by the Company and the brokerage firm
designated by the Company to facilitate exercises and sales under this Plan.
Payment in shares of the Company's common stock shall be deemed to be the
equivalent of payment in cash at the fair market value (the closing sale price
of the shares on the applicable date as reported by The Nasdaq Stock Market,
Inc.) of those shares. No such payment in shares of the Company's common stock
shall be allowed when the same may, in the reasonable opinion of the Company,
cause the Company to record a loss or expense as a result thereof.
9. Transferability of Options.
The right of any Participant to exercise options granted under the Plan
shall not be assignable or transferable by such Participant except (i) by will
or the laws of descent and distribution, or (ii) by gift or, with the consent of
the Corporation, for value to immediate family members of the Participant,
partnerships of which the only partners are members of the Participant's
immediate family and trusts established solely for the benefit of such family
members; and solely as it pertains to effecting an exercise of options
transferred in accordance with this Section 9, the term Participant shall
include a permitted transferee.
10. No Rights as Shareholder Until Exercise.
Neither the recipient of an option under the Plan nor such Participant's
successors in interest shall have rights as a shareholder of the Corporation
with respect to any Shares subject to options granted to such person until such
person becomes holder of record of such Shares.
11. Adjustments Upon Changes in Capitalization.
In the event that the outstanding shares of the common stock of the
Corporation are changed into or exchanged for a different number or kind of
shares or other securities of the Corporation or of another corporation, by
reason of any reorganization, merger,
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<PAGE> 26
consolidation, recapitalization, reclassification, stock split, combination of
shares, or dividend payable in capital stock, appropriate adjustment shall be
made in the number and kind of shares subject to and reserved for issuance under
the Plan and as to which outstanding options shall be exercisable, to the end
that the proportionate interest of Participants with respect to options
theretofore granted shall be maintained as before the occurrence of such event.
Such adjustment in outstanding options shall be made without change in the total
price applicable to the unexercised portion of such options, but with a
corresponding adjustment in the exercise price per share. The Board of Directors
may, in its discretion, adjust proportionally or change the number of options to
be granted annually to each director pursuant to Section 4 hereof in connection
with the occurrence of any reorganization, merger, consolidation,
recapitalization, reclassification, stock split, combination of shares, or
dividend payable in capital stock.
12. Restrictions on Issue of Shares.
Anything in this Plan to the contrary notwithstanding, the Corporation
may delay the issuance of Shares pursuant to the exercise of an option under the
Plan and the delivery of such Shares until the following conditions shall be
satisfied:
(i) the Shares with respect to which options have been exercised
are at the times of the issue or transfer of such Shares effectively registered
under applicable federal securities laws now in force or hereafter amended; or
(ii) counsel for the Corporation shall have given an opinion,
which opinion shall not be unreasonably conditioned or withheld, that such
Shares are exempt from registration under applicable federal securities laws now
in force or hereafter amended.
It is intended that all exercises of options shall be effective. Accordingly,
the Corporation shall use its best efforts to bring about compliance with the
above conditions within a reasonable time, except that the Corporation shall be
under no obligation to cause a registration statement or a post-effective
amendment to any registration statement to be prepared at its expense solely for
the purpose of covering the issuance of Shares pursuant to an option granted
under the Plan.
13. Purchase for Investment.
Unless the Shares to be issued upon exercise of options granted under
the Plan have been effectively registered under the Securities Act of 1933, as
now in force or hereafter amended, the Corporation shall be under no obligation
to issue or transfer any Shares covered by options unless the person or persons
who exercise such options gives a written representation and undertaking to the
Corporation, which is satisfactory in form and scope to counsel to the
Corporation and upon which, in the opinion of such counsel, the Corporation may
reasonably rely, that he or she is acquiring the Shares issued or transferred to
him or her for his or her own account as an investment and not with a view to,
or for sale in connection with, the distribution of any such Shares, and that he
or she
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<PAGE> 27
will make no transfer of the same except in compliance with any rules and
regulations in force at the time of such transfer under the Securities Act of
1933, or any other applicable law, and that if Shares are issued or transferred
without such registration a legend to this effect may be placed upon the
certificates representing the Shares.
14. Effective Date.
The effective date (the "Effective Date") of this Amended and Restated
1989 Stock Option Plan for Non-Employee Directors is January 17, 1999.
15. Expenses of the Plan.
All costs and expenses of the adoption and administration of the Plan
shall be borne by the Corporation and none of such expenses shall be charged to
any Participant.
16. Termination and Amendment of Plan.
Unless sooner terminated as herein provided, the Plan shall terminate
ten years from the Effective Date. The Board may at any time terminate the Plan
or make such modification or amendment hereof as it deems advisable; provided,
however, that, except as provided in Section 11, the Board may not, without the
approval of the shareholders of the Corporation, increase the maximum aggregate
number of shares for which options may be granted under the Plan or the number
of Shares granted to any Participant each year. Termination or any modification
or amendment of the Plan shall not, without the consent of a Participant, affect
his or her rights under options previously granted to him or her.
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<PAGE> 28
Appendix 2
PROXY
FOR ANNUAL MEETING OF THE SHAREHOLDERS
OF
STARBUCKS CORPORATION
This Proxy Is Solicited On Behalf Of The Board Of Directors
The undersigned hereby appoints Orin C. Smith and Howard P. Behar
(collectively, the "Proxies"), and each of them, with full power of
substitution, as proxies to vote the shares which the undersigned is entitled
to vote at the Annual Meeting of the Company to be held at Benaroya Hall on
Tuesday, February 23, 1999 at 10:00 a.m. (Pacific Time) and at any adjournments
thereof. Such shares shall be voted as indicated with respect to the proposals
listed on the reverse side hereof and in the Proxies' discretion on such other
matters as may properly come before the meeting or any adjournment thereof.
(Continued and to be signed on reverse side.)
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FOLD AND DETACH HERE
<PAGE> 29
Please mark [X]
your votes as
indicated
in this example.
FOR WITHHOLD
all nominees AUTHORITY
listed (except to vote for
as withheld) nominees listed
1. ELECTION OF DIRECTORS: / / / /
Class 3 Directors: Barbara Bass, Craig J. Foley
and Howard Schultz
Class 1 Director: Craig E. Weatherup
Class 2 Director: Gregory B. Maffei
WITHHOLD AUTHORITY To Vote for the following Directors:
_______________________________________________________
FOR AGAINST ABSTAIN
/ / / / / /
2. Proposal to approve the amendment and restatement of the
Starbucks Corporation 1989 Stock Option Plan for
Non-Employee Directors to, among other things, extend
the term of the plan, increase by 725,000 the number of
shares of Starbucks Common Stock reserved for issuance
under the plan and increase the number of options granted
annually to each non-employee director from 20,000 to 25,000.
FOR AGAINST ABSTAIN
/ / / / / /
3. Proposal to ratify the selection of Deloitte & Touche LLP
as the Company's independent auditors for the fiscal year
ending October 3, 1999.
This proxy when properly signed will be voted in the manner directed herein by
the undersigned shareholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSALS 1, 2 and 3.
IMPORTANT -- PLEASE SIGN AND RETURN PROMPTLY.
Signature______________________________
Signature, if held jointly_______________________ Dated:__________, 1999
When shares are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee, or guardian, please give full title
as such. If a corporation, please sign in full corporate name by President or
other authorized officer. If a partnership, please sign in partnership name by
an authorized person.
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