Document:

EX-10.1

 

Exhibit 10.1

15 September 2006

BETWEEN

(1) South East Water LLC

AND

(2) Macquarie
Luxembourg Water S. à. r. l.

 

FIRST AMENDMENT AGREEMENT RELATING TO

THE TERMS AND CONDITIONS OF CLASS A

PREFERRED EQUITY CERTIFICATES

 

 

 

CONTENTS

	 	 	 	 	 
	1. DEFINITIONS AND INTERPRETATION
	 	 	3	 
	 
	 	 	 	 
	2. CONFIRMATION AND AMENDMENT
	 	 	4	 
	 
	 	 	 	 
	3. GOVERNING LAW
	 	 	4	 
	 
	 	 	 	 
	4. JURISDICTION
	 	 	4	 

 

 

THIS FIRST AMENDMENT AGREEMENT (the “Amendment Agreement”) is made on 15 September 2006.

BETWEEN:

	(1)	 	South East Water LLC a public limited company, incorporated under the laws of the
DELAWARE and having a registered office at 125 W55th Street, 22nd floor, New York, NY
10019 USA, with register number N/A, duly represented by a Director,

	 
	 	 	(hereinafter the “Lender”)

AND

	(2)	 	Macquarie Luxembourg Water S.à  r.l, a
Luxembourg limited company (société à
responsabilite limitée), incorporated under the laws of Luxembourg and having its registered
office at 5, rue Guillaume Kroll, L-1882 Luxembourg, registered with the Luxembourg register of
Commerce and Companies (R.C.S. Luxembourg) under number B100413 and having a share
capital of twelve thousand five hundred euros (EUR 25,000), duly represented by a Director,
	 
	 	 	(hereinafter the “Borrower”)

All the entities here above listed are hereinafter
referred as to the “Parties”.

RECITALS:

	(A)	 	The Parties have entered into the terms and conditions of Class A Preferred Equity
Certificated
on 22 December 2004 (the “A PECs”) whereby the Lender granted Class A Preferred Equity
Certificated to the Borrower.
	 
	(B)	 	The Parties now wish to amend and restate the A PECs and in particular to amend the
definition
of the Company’s Income attached to the class A PECs.

THE PARTIES AGREE AS FOLLOWS:

	1.	 	DEFINITIONS AND INTERPRETATION
	 
	 	 	In this Amendment Agreement and the Recitals, the following words and expressions shall (unless
the context requires otherwise) have the meanings ascribed to them in the A PECs.
	 
	 	 	Words denoting the singular shall include the plural and vice versa, words denoting one gender
shall include the other gender and words denoting persons shall include firms, partnerships,
unincorporated organizations and companies and vice versa.
	 
	 	 	References in this Amendment Agreement to any statutory provision shall be deemed also to refer to
any statutory modification or re-enactment thereof or any statutory instrument, order or regulation
made there under or under any such re-enactment.

 

 

	 	 	References in this Amendment Agreement to any other agreement shall be construed as a reference to
that other agreement as the same may from time to time be, amended, varied, supplemented or
novated.
	 
	 	 	References to a “person” or to “persons” in this Amendment Agreement Includes, without limitation,
a reference to any individual, firm, company, corporation or other body corporate, government,
state or agency of a state or any joint venture, association or partnership, works council or
employee representative body (whether or not having a separate legal personality).
	 
	2.	 	CONFIRMATION AND AMENDMENT
	 
	2.1.	 	The Parties agree to amend, with effect as of 1 April 2006, the A PECs, and, in particular;
	 
	2.2	 	To amend section 1 as reproduced below, such new section replacing the definition of the
Company’s Income:
	 
	 	 	COMPANY’S INCOME
	 
	 	 	shall mean 100% of all direct or Indirect Income (including but not limited to dividend, capital
gains and bank interest received) less 100% of the Costs, by the Company from its Investments in
the Accrual Period.
	 
	3.	 	GOVERNING LAW.
	 
	 	 	This Amendment Agreement shall be governed by and construed in accordance with the laws of Grand
Duchy of Luxembourg.
	 
	4.	 	JURISDICTION.
	 
	 	 	Each party Irrevocably and unconditionally submits to the exclusive jurisdiction of the courts of
Luxembourg and the courts of appeal from them. Each party waives any right it has to object to an
action being brought in those courts including, without limitation, by claiming that the action has
been brought in an inconvenient forum or that those courts do not have jurisdiction.

 

 

IN WITNESS WHEREOF the Parties have caused this Amendment Agreement to be duly executed and
signed on the date first written above in as many original copies as there are Parties to this
Amendment Agreement, each Party declaring that it has received one original copy.

	 	 	 
	/s/ Peter Stokes

	 	/s/ Howard Higgins
	 

	 	 
	 

	 	Macquarie Luxembourg Water
	 

	 	S.à.r.l.
	 
	 	 
	By: PETER STOKES
	 	 
	 
	 	 
	Capacity: CHIEF EXECUTIVE OFFICER

	 	By: Howard Higgins
	 
	 	 
	ON BEHALF OF:
	 	Capacity: Manager
	MACQUARIE INFRASTRUCTURE 

COMPANY LLC
	 	 
	 
	 	 
	AS MANAGING MEMBER OF:
	 	 
	 
	 	 
	SOUTH EAST WATER LLC
	 	 
	 
	 	 
	 
	 	 

 

 

Terms and Conditions of
 Class A Preferred Equity
 Certificates

Dated December 22, 2004

Macquarie
Luxembourg Water Sarl (1)
South East Water LLC (2)

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 	 
	AUTHORISATION FOR PREFERRED EQUITY CERTIFICATES	 	 	1	 
	TERMS AND CONDITIONS	 	 	1	 
	1	 	 	Definitions
	 	 	1	 
	2	 	 	Return
	 	 	4	 
	3	 	 	Redemption
	 	 	4	 
	4	 	 	Withholding Taxes
	 	 	5	 
	5	 	 	Covenants
	 	 	6	 
	6	 	 	Default
	 	 	6	 
	7	 	 	Registration of the A PECs; Transfer Restrictions; Issuance and Exchange of PEC
Certificates; Loss of PEC Certificates
	 	 	6	 
	8	 	 	General Terms and Conditions of A PECs
	 	 	7	 
	9	 	 	Miscellaneous
	 	 	7	 

 

 

			
	 	 	 
	     DATE
	 	December 22, 2004

	 	 	PARTIES
	 
	 	 	MACQUARIE LUXEMBOURG WATER Sarl., a private limited liability company,
incorporated under the laws of Luxembourg, whose registered office is at 5,
rue Guillaume, BP 2501, L-1025 Luxembourg (the “Company”); and
	 
	 	 	SOUTH EAST WATER LLC, whose principal executive office is at 600 Fifth
Avenue, 21st Floor, New York, New York 10020 (“SEW LLC”).
	 
	 	 	AUTHORISATION FOR PREFERRED EQUITY CERTIFICATES
	 
	 	 	The board of managers of the Company has authorised the issuance of a number of
Class A Preferred Equity Certificates (collectively the “A PECs” and
individually an “A PEC”) to SEW LLC, having an aggregate par value of the Euro
equivalent of £10,825,587.02 (less €4,375) in respect of making equity
investments in infrastructure and related assets located in European OECD
countries. The PECs shall be denominated in Euro (EUR) upon issuance thereof.
Each A PEC shall be issued in registered form.
	 
	 	 	TERMS AND CONDITIONS
	 
	1	 	Definitions
	 
	 	 	As used in this Agreement, the following terms shall have the following meaning:

	 	 	 	 	 
	 

	 	A PEC
	 	shall mean the PECs issued, or to be
issued, by the Company under this
Agreement;
	 
	 	 	 	 
	 

	 	A PEC Register
	 	shall mean the register and transfer
book maintained by the Company for the A
PECs;
	 
	 	 	 	 
	 

	 	Accrual Period
	 	shall mean each period from, and
including, one Payment Date to, but
excluding, the next following Payment
Date, except for the initial Accrual
Period that will commence on, and
include, the Date of Issuance. If the A
PECs are redeemed under any provision of
Section 3, the Accrual Period, with
respect to the A PECs redeemed, shall
mean the period from and
including the Payment Date
immediately preceding the date of
redemption of the A PECs to but
excluding the date of redemption;
	 
	 	 	 	 
	 

	 	Annual Payment Date
	 	shall mean each twelve-month
anniversary after the initial Payment
Date;
	 
	 	 	 	 
	 

	 	Applicable Rate
	 	shall mean the rate of return equal
to the 12 month EURIBOR rate at the
Date of Issuance of the A PECs plus 200
basis points for each Accrual
Period;

1

 

	 	 	 	 	 
	 

	 	Available Amount
	 	shall mean the amount available to make payments to the
holders of the A PECs;
	 
	 	 	 	 
	 

	 	Business Day
	 	shall mean any day other than a Saturday, Sunday or other day
on which banking institutions in Luxembourg and London are
required or authorised to remain closed;
	 
	 	 	 	 
	 

	 	Company
	 	Macquarie Luxembourg Water Sarl, a private limited liability
company, incorporated under the laws of Luxembourg, whose
registered office is at 5, rue Guillaume, BP 2501, L-1025
Luxembourg;
	 
	 	 	 	 
	 

	 	Company’s Income
	 	shall mean 85% of all income (dividend and capital gains) less
85% of the Costs, by the Company from its Investments
in the Accrual Period;
	 
	 	 	 	 
	 

	 	Costs
	 	shall mean all costs and expenses incurred by the Company
in the Accrual Period that are economically attributable to the
Investment. Such Costs will not include the Return paid or accrued
during such Accrual Period on the A PECs, nor income taxes imposed
by the Grand-Duchy of Luxembourg or any sub-division, municipality
or local authority thereof;
	 
	 	 	 	 
	 

	 	Date of Issuance
	 	shall mean the date as of which the A PECs are issued;
	 
	 	 	 	 
	 

	 	Excess
	 	shall mean the amount with which the Nominal Amount exceeds
the Available Amount;
	 
	 	 	 	 
	 

	 	Excluded Return
	 	for any given period means the total amount of return excluded
from such period by reason of the limitations set forth in Section
2.2;
	 
	 	 	 	 
	 

	 	Initial Accrual Period
	 	shall mean the period from and including the Date of Issuance
up to but excluding the Initial Payment Date;
	 
	 	 	 	 
	 

	 	Initial Payment Date
	 	will mean 31 March 2005;
	 
	 	 	 	 
	 

	 	Insolvent
	 	shall mean the situation where the aggregate amount of the
Company’s obligations, determined in accordance with generally
accepted accounting principles as in effect in Luxembourg,
exceeds the fair market value of the Company’s assets.
The A PECs and any Class of Preferred Equity Certificates that
will be issued after this date will be regarded as obligations of
the Company for the purpose of computing the Company’s
insolvency;
	 
	 	 	 	 
	 

	 	Intermediary Payment Date
	 	shall mean any date determined at the discretion of the Board
of Directors of the Company.
	 
	 	 	 	 
	 

	 	Investment
	 	shall mean the Company’s equity investment in Macquarie Water
(UK) Limited as held at the Date of Issuance or to be increased or
decreased by the Company thereafter;
	 
	 	 	 	 
	 

	 	Liquidation
	 	shall have meant the event of any voluntary or involuntary
liquidation, bankruptcy, dissolution or winding up of the affairs
of the Company;

2

 

	 	 	 	 	 
	 

	 	Mandatory Redemption Date
	 	means the Payment Date nearest and prior to the 98th
anniversary of the Date of Issuance;
	 
	 	 	 	 
	 

	 	Nominal Amount
	 	shall mean the Par Value of any outstanding A PEC plus any
Unpaid Return;
	 
	 	 	 	 
	 

	 	Par Value
	 	shall mean EUR 1.00 (one Euro) with respect to each
outstanding A PEC;
	 
	 	 	 	 
	 

	 	Payment Date
	 	shall mean the Initial Payment Date, any Annual Payment Date,
any Intermediary Payment Date, and the Redemption Date. A
reasonable amount of time will be granted to the Board of
Directors of the Company after each Payment Date to determine the
amount of Return payable for any Accrual Period;
	 
	 	 	 	 
	 

	 	PEC
	 	shall mean the Preferred Equity Certificate issued or to be
issued by the Company under the Terms and Conditions of Preferred
Equity Certificates;
	 
	 	 	 	 
	 

	 	PEC Register
	 	shall mean the register and transfer book maintained by the
Company for the PECs;
	 
	 	 	 	 
	 

	 	Person
	 	shall mean any individual, corporation, company, voluntary
association, partnership, joint venture, trust, unincorporated
organisation or government (or any agency, instrumentality or
political subdivision thereof);
	 
	 	 	 	 
	 

	 	Redemption Date
	 	shall mean the date fixed for redemption of the A PECs;
	 
	 	 	 	 
	 

	 	Redemption Price
	 	shall mean a value equal to the sum of (i) the Par Value for
each outstanding A PEC that will be redeemed plus (ii) unpaid
Return accumulated through the Redemption Date;
	 
	 	 	 	 
	 

	 	Retained Earnings
	 	shall mean the retained earnings of the Company determined on
an unconsolidated basis in accordance with the generally accepted
accounting principles as in effect in Luxembourg. However the
retained earnings will be computed without taking into account the
Unpaid Return on the A PECs;
	 
	 	 	 	 
	 

	 	Return
	 	for any Accrual Period shall accrue on the A PECs from the
Date of Issuance to but not including the earlier of (i) the date
on which the A PECs have been redeemed in whole or otherwise paid
in full and (ii) the Payment Date nearest and prior to the
Mandatory Redemption Date. Return will accrue for each Accrual
Period, subject to the payment limitation of section 2.2, in an
amount equal to the (i) Excluded Return for the prior Accrual
Period and (ii) the Company’s Income on the Investment during such
Accrual Period. Such amount accrued at any time for all Accrual
Periods since the Date of Issuance, whether or not declared, is
herein called the “Return”. The Return shall be distributed
among the holders of A PECs in a proportion equal to
that which the number of ordinary shares in the Company held by
each holder of A PECs bears to the total

3

 

	 	 	 	 	 
	 

	 	 	 	number of ordinary
shares of the Company in
issue at any given
time;
	 
	 	 	 	 
	 

	 	Subordinated Securities
	 	shall mean all
shares of common
stock, whether
outstanding on the date
hereof or issued in the
future; and
	 
	 	 	 	 
	 

	 	Unpaid Return
	 	shall be any amount of
Return that has accrued
but has not become payable
pursuant to the payment
limitations of Section
2.1.

	2	 	Return
	 
	2.1	 	Return on the A PECs shall be payable on each Payment Date only if and to the extent
	 
	 	 	(a)   declared by the Board of Directors of the Company,
	 
	 	 	(b)   the Company is not immediately before and after given effect to
such payment Insolvent;
and
	 
	 	 	(c)   that such payment, will not violate any covenant contained in or
result in a default under
any 
	 	 	      agreement or other financial obligation of the Company.

	2.2	 	Each payment of Return on the A PECs shall be made by the Company directly to
the holders of
record as their name appears on the A PEC Register on the record date for such
payment. The
record date for such payment shall be the Business Day immediately preceding the
applicable
Payment Date or, if not paid on a Payment Date, the Business Day immediately
preceding the
actual payment date.

	2.3	 	Each payment made with respect to the A PECs shall be by wire transfer to any
account
maintained by such holder with a bank identified by such holder in a written notice given to the
Company not later than three Business Days prior to the relevant Payment Date.
	 
	3	 	Redemption
	 
	3.1	 	Mandatory Redemption
	 
	 	 	On the Mandatory Redemption Date, the Company shall redeem the outstanding A
PECs at the Redemption Price provided that:
	 
	 	 	(a)   the Par Value of the A PECs will be payable to the extent the
Company will not be

       Insolvent after making such payment; and
	 
	 	 	(b)   the Unpaid Return will be payable only to the extent the Company will not
be Insolvent
after 

       making such payment.
	 
	 	 	The Redemption Price shall be paid to the holders of record on the Mandatory Redemption Date.

	3.2	 	Redemption upon Liquidation of the Company
	 
	 	 	In the event of a Liquidation the holders of the A PECs shall be entitled to
be paid the Redemption Price, in any event before any payment shall be made
or any assets distributed to the holders of any Subordinated Securities,
provided that:
	 
	 	 	(a)   the Par Value of the A PECs will be payable to the extent the
Company will not be
Insolvent after 

       making such payment; and
	 
	 	 	(b)   the Unpaid Return will be payable only to the extent the Company
will not be Insolvent
after 

       making such payment.
	 
	 	 	The Redemption Price shall be paid to the holders of record ultimately on the
date on which the liquidation of the Company shall be completed.

4

 

	 	 	The Board of Managers of the Company shall not cause the shareholders of the Company to
adopt a resolution to commence a voluntary Liquidation without the consent of the holders
of the A PECs unless the Nominal Amount of the outstanding A PECs can be paid.
	 
	 	 	For purposes of this Section 3.2 neither the voluntary
sale, conveyance, exchange or
transfer (for cash, shares, stock, securities or other consideration) of all or
substantially all the property or assets of the Company nor the consolidation or merger of
the Company with one or more corporations shall be deemed to be a Liquidation unless such
voluntary sale, conveyance, exchange or transfer shall be in connection with a dissolution
or winding up of the business of the Company.
	 
	3.3	 	Optional Redemption by the holders of A PECs
	 
	 	 	As of the date of an Event of Default (as defined in Section 6), the holders of the A
PECs shall be entitled, by notice in writing to the Company, to have the A PECs held by
it redeemed at the Redemption Price, before any payment shall be made or any assets
distributed to the holders of any Subordinated Securities, provided that:
	 
	 	 	(a)   the Par Value of the A PECs will be payable to the extent the Company will
not be
Insolvent after making       
such payment; and
	 
	 	 	(b)   the Unpaid Return will be payable only to the extent the Company will not
be Insolvent
after making

       such payment.

	 	 	The Redemption Price shall be paid to the holder of record ultimately on the
15th day after the aforementioned notice has been received by the Company.
	 
	3.4	 	Redemption at the option of the Company
	 
	 	 	The Company may at any time on giving not less than 10 Business Days notice to the holder
thereof, redeem the A PECs in whole or in part (but if in part only in whole multiples of
£10,000) at par together with any accrued but unpaid Return thereon down to the date of
redemption PROVIDED THAT simultaneously with such redemption the Company redeems an equal
proportion of each of the other preferred equity certificates issued by it (including for
the avoidance of doubt, any other preferred equity certificates issued to GIFSA).
	 
	3.5	 	General
	 
	 	 	Redemption of the A PECs will be subject to the condition that:
	 
	 	 	(a)   from and after the Redemption Date, the A PECs shall cease to
accrue a
Return, and the
A PECs shall

       no longer be deemed to be outstanding and all rights of the
holders thereof
(except the right to receive

       from the Company the Redemption Price) shall cease.
Upon
the Redemption Date, specified for

       redemption in any such notice, the payment of
the
Redemption Price by the Company shall become

       payable. Surrender of the A PECs
shall
be made at the registered office of the Company.

       Upon surrender in accordance with
said notice of the A PECs so redeemed (properly endorsed or

       assigned for transfer,
if the Board of Directors of the Company shall so require
and the notice shall so

      
state),
such A PECs shall be redeemed by the Company at the Redemption Price as aforesaid;
	 
	 	 	(b)   any Return, any Unpaid Return or any other amount due and not paid on the
Redemption 

       Date will accrue interest at the Applicable Rate beginning on and including
the Redemption Date.

	4	 	Withholding Taxes
	 
	 	 	All payments on the A PECs shall be made free and clear of withholding taxes imposed by
any taxing jurisdiction, unless the withholding of such tax is compelled by law. For
purposes of this

5

 

	 	 	Section 4, withholding taxes shall not include income taxes measured or imposed upon
the net income of the holder.
	 
	5	 	Covenants
	 
	 	 	After the Date of Issuance and for so long as the A PECs are outstanding, the
Company will not, without the written consent of the holders of the A
PECs, issue any shares of capital stock having, upon or following the Liquidation of the Company, any
right to payment ranking prior or equal to the payment in full of the Nominal Amount on
the A PECs to the holders.
	 
	6	 	Default
	 
	6.1	 	Each of the following events shall constitute an “Event of Default”:

	 	 (a)	 	the Company shall fail to pay the full amount of any Return, as to which
the requirements
of section 2.1 have been met, on the applicable Payment Date or fail to make any
payments required under Section 3 and such failure continues for five Business
Days
following the date on which the holder of record gives notice of such failure to
the
Company; or
	 
	 	 (b)	 	except as expressly permitted herein, the
Company shall:

	 	(i)	 	be dissolved or liquidated;
	 
	 	(ii)	 	become insolvent or unable to pay its debts as they become due; or
	 
	 	(iii)	 	institute or have instituted against it a proceeding
seeking a judgement of insolvency or bankruptcy or any other relief under
bankruptcy or insolvency law, and in the case any such proceeding or
petition instituted or presented against it, such proceeding or petition:

	 	 (A)	 	results in a judgement of insolvency or
bankruptcy or the entry of an order
for relief or the making of an order for its winding-up or
liquidation; or
	 
	 	 (B)	 	is not dismissed, discharged, stayed or
restrained in each case within 90
days of the institution or presentation thereof.

	6.2	 	The Company shall promptly notify the holders of the A PECs if an Event of Default occurs.
	 
	7	 	Registration of the A PECs; Transfer Restrictions; Issuance and Exchange of PEC
Certificates; Loss of PEC Certificates
	 
	7.1	 	The A PECs shall be issued only in registered form, and the name and address of the holder of
each certificate representing the A PECs shall be entered into the A PEC Register by the
Company. Except as expressly required by law, the Person in whose name the A PEC stand in
the A PEC Register shall be deemed to be the full and undivided owner and record holder
thereof
for all purposes.
	 
	7.2	 	Upon request of the holder of record of the A PECs, the Company shall, at the cost of such
holder,
issue a certificate evidencing one or more A PECs. In case such certificate evidences more than
one A PEC, the Company shall upon request of the holder of record replace, at the cost of such
holder, such certificate by new certificates evidencing one or more A PECs.
	 
	7.3	 	Each holder of record shall promptly notify the Company of any mutilation, loss, theft, or
destruction of any certificate or certificates evidencing the A PECs of which it is the
record holder.
The Company may, in its discretion, issue a new certificate in place of any certificate
theretofore
issued by it and alleged to have been mutilated, lost, stolen or destroyed, upon
satisfactory proof
of such mutilation, loss, theft or destruction.

6

 

	8	 	General Terms and Conditions of A PECs
	 
	8.1	 	Ranking
	 
	 	 	Subject to the terms and conditions hereof, the A PECs shall, with respect to payment
rights, which includes the Return, redemption and rights on liquidation, winding up and
dissolution, rank prior to all Subordinated Securities but the obligations in respect of
the A PEC shalls, except for any other Class of Preferred Equity Certificates issued by
the Company at present or in the future which shall rank pari passu with the A PEC’s, rank
subordinate to all other present and future obligations of the Company whether secured or
unsecured.
	 
	8.2	 	Convertibility
	 
	 	 	The A PECs shall not be convertible into any other security issued by the Company.

	 
	8.3	 	Voting Rights
	 
	 	 	The holders of record of the A PECs shall not be entitled to any voting rights in respect
of the Company by reason of their ownership of the A PECs.
	 
	8.4	 	Non recourse
	 
	 	 	Notwithstanding any provision of these Terms and Conditions, the obligations of the
Company hereunder to make payments to the holders of the A PECs are, at any time of
determination, limited to the lesser of the Nominal Amount and the Available Amount. The
Available Amount shall, subject to any other provision of this A PEC, at all times be
limited to the income the Company has received from its Investment up to and including
the date of its Liquidation and the value of the Investment on that date. On a
liquidation of the Company, in the event that the Nominal Amount exceeds the Available
Amount, the right of any person to claim payment in respect the Excess shall be
extinguished. No party will, at any time, have recourse to, or make demand or initiate
proceedings against, the Company in respect of the Excess. The Company shall incur no
liability and be under no additional duty to any person solely as a result of any
inability on its part to make payments or to perform other obligations hereunder, which
inability results from the operation of the foregoing provisions of this clause.
	 
	9	 	Miscellaneous
	 
	9.1	 	Governing Law
	 
	 	 	These Terms and Conditions of the A PECs shall be governed by and shall be construed in
accordance with the laws of Luxembourg and the Company and the holders of the A PECs
accepting these terms and conditions hereby submit to the non-exclusive jurisdiction of
the Courts of Luxembourg with respect to any suit, action or proceeding relating hereto.

7

 

EXECUTED AS AN AGREEMENT

	 	 	 	 	 	 	 	 	 
	SIGNED by

	 	 	)	 	 	 	 	 
	for and on behalf of

	 	 	)	 	 	 	 	 
	Macquarie Luxembourg Water Sarl

	 	 	)	 	 	 	 	 
	 

	 	 	 	 	 	/s/ Jim Craig	 	 
	 

	 	 	)	 	 	 

Authorised Signatory
	 	 
	 

	 	 	)	 	 	 	 	 
	 

	 	 	)	 	 	 	 	 
	 

	 	 	)	 	 	 	 	 
	 

	 	 	 	 	 	/s/ Annabelle Helps	 	 
	 

	 	 	)	 	 	 

Authorised Signatory
	 	 
	 

	 	 	)	 	 	 	 	 
	 
	SIGNED by

	 	 	)	 	 	 	 	 
	for and on behalf of

	 	 	)	 	 	 	 	 
	South
East Water LLC

	 	 	)	 	 	 	 	 
	 

	 	 	 	 	 	/s/ Peter Stokes	 	 
	 

	 	 	)	 	 	 

Authorised Signatory
	 	 
	 

	 	 	)	 	 	 	 	 
	 

	 	 	)	 	 	 	 	 
	 

	 	 	)	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	)	 	 	 

Authorised Signatory
	 	 
	 

	 	 	)	 	 	 	 	 

8

 

Terms and Conditions of

Class B Preferred Equity

Certificates

Dated 22 December, 2004

Macquarie Luxembourg Water Sarl (1)

South East Water LLC (2)

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	AUTHORISATION FOR PREFERRED EQUITY CERTIFICATES

	 	 	1	 
	TERMS AND CONDITIONS

	 	 	1	 
	1 Definitions

	 	 	1	 
	2 Return

	 	 	4	 
	3 Redemption

	 	 	4	 
	4 Withholding Taxes

	 	 	6	 
	5 Covenants

	 	 	6	 
	6 Default

	 	 	6	 
	7 Registration of the B PECs; Transfer Restrictions; Issuance and Exchange of B PEC
Certificates; Loss of B PEC Certificates

	 	 	6	 
	8 General Terms and Conditions of B PECs

	 	 	7	 
	9 Miscellaneous

	 	 	7	 

 

 

	 	 	 	 	 
	 

	 	DATE
	 	December 22, 2004

PARTIES

MACQUARIE LUXEMBOURG WATER Sarl., a private limited liability company, incorporated under the laws
of Luxembourg, whose registered office is at 5, rue Guillaume, BP 2501, L-1025 Luxembourg (the
“Company”); and

SOUTH EAST WATER LLC, whose principal executive office is at 600 Fifth Avenue, 21st
Floor, New York, New York 10020 (“SEW LLC”).

AUTHORISATION FOR PREFERRED EQUITY CERTIFICATES

The board of managers of the Company has authorised the issuance of 9,712,500 Class B Preferred
Equity Certificates (collectively the “B PECs” and individually, a “B PEC”) to SEW LLC, having an
aggregate par value of £9,712,500 in respect of making debt investments in infrastructure and
related assets located in European EOCD countries. The PECs shall be denominated in British Pounds
upon issuance thereof. Each B PEC shall be issued in registered form.

TERMS AND CONDITIONS

	1	 	Definitions

As used in these Terms and Conditions, the following terms shall have the following meaning:

	 	 	 	 	 
	 

	 	Accrual Period
	 	shall mean each period from, and including, one Payment Date to, but
excluding, the next following Payment Date, except for the initial Accrual Period
that will commence on, and include, the Date of Issuance. If the B PECs are
redeemed under any provision of Section 3, the Accrual Period, with respect to the
B PECs redeemed, shall mean the period from and including the Payment
Date immediately preceding the date of redemption of the B PECs to but excluding
the date of redemption;
	 
	 	 	 	 
	 

	 	Annual Payment Date
	 	shall mean each twelve-month anniversary after the initial Payment Date;
	 
	 	 	 	 
	 

	 	Applicable Rate
	 	shall mean the rate of return equal to the 12 month EURIBOR rate at the
Date of Issuance of the B PECs plus 200 basis points for each Accrual Period;
	 
	 	 	 	 
	 

	 	Available Amount
	 	shall mean the amount available to make payments to the holders of the B
PECs;
	 
	 	 	 	 
	 

	 	B PECs
	 	shall mean the PECs issued, or to be issued, by the Company under this
Agreement;

1

 

	 	 	 	 	 
	 

	 	B PEC Register
	 	shall mean the register and transfer book maintained by the Company for the B PECs;
	 
	 	 	 	 
	 

	 	Business Day
	 	shall mean any day other than a Saturday, Sunday or other day on which banking institutions in Luxembourg and
London are required or authorised to remain closed;
	 
	 	 	 	 
	 

	 	Company
	 	Macquarie Luxembourg Water Sarl, a private limited liability company, incorporated under the laws of Luxembourg,
whose registered office is at 5, rue Guillaume, BP 2501, L-1025 Luxembourg;
	 
	 	 	 	 
	 

	 	Company’s Income
	 	shall mean all income and realised gains received by the Company from its Investment during the Accrual Period,
less the Costs;
	 
	 	 	 	 
	 

	 	Costs
	 	shall mean all costs and expenses incurred by the Company during the Accrual Period that are economically
attributable to the Investment. Such Costs will not include the Return paid or accrued during such Accrual Period on the
B PECs, nor income taxes imposed by the Grand-Duchy of Luxembourg or any sub-division, municipality or local authority
thereof;
	 
	 	 	 	 
	 

	 	Date of Issuance
	 	shall mean the date as of which the B PECs are issued;
	 
	 	 	 	 
	 

	 	Excess
	 	shall mean the amount with which the Nominal Amount exceeds the Available Amount;
	 
	 	 	 	 
	 

	 	Excluded Return
	 	for any given period means the total amount of return excluded from such period by reason of the limitations set
forth in Section 2.2;
	 
	 	 	 	 
	 

	 	Initial Accrual Period
	 	shall mean the period from and including the Date of Issuance up to but excluding the Initial Payment Date;
	 
	 	 	 	 
	 

	 	Initial Payment Date
	 	shall mean 31 March 2005;
	 
	 	 	 	 
	 

	 	Insolvent
	 	shall mean the situation where the aggregate amount of the Company’s obligations, determined in accordance with
generally accepted accounting principles as in effect in Luxembourg, exceeds the fair market value of the
Company’s assets. The B PECs and any Class of preferred equity certificates that will be issued after this date
will be regarded as obligations of the Company for the purpose of computing the Company’s insolvency;
	 
	 	 	 	 
	 

	 	Intermediary Payment Date
	 	shall mean any date determined at
the discretion of the Board of Directors of the Company.
	 
	 	 	 	 
	 

	 	Investment
	 	shall mean the Company’s holding of an interest bearing loan receivable of £55,500,000 on Macquarie Water (UK)
Limited as held at the Date of Issuance or to be increased or decreased by the Company thereafter;

2

 

	 	 	 
	Liquidation

	 	shall mean the event of any voluntary or involuntary
liquidation, bankruptcy, dissolution or winding up of the
affairs of the Company;
	 
	 	 
	Mandatory Redemption Date

	 	shall mean the Payment Date nearest and prior to the 98th
anniversary of the Date of Issuance;
	 
	 	 
	Nominal Amount

	 	shall mean the Par Value of any outstanding B PEC plus
any Unpaid Return;
	 
	 	 
	Par Value

	 	shall mean £1.00 (one British Pound) with respect to each
outstanding B PEC;
	 
	 	 
	Payment Date

	 	shall mean the Initial Payment Date, any Annual Payment
Date, any Intermediary Payment Date and the Redemption
Date. A reasonable amount of time will be granted to the
board of managers of the Company after each Payment
Date to determine the amount of Return payable for any
Accrual Period;
	 
	 	 
	PEC or PECs

	 	shall mean individually or collectively the Preferred Equity
Certificates issued or to be issued by the Company under
the Terms and Conditions of Preferred Equity Certificates;
	 
	 	 
	PEC Register

	 	shall mean the register and transfer book maintained by the
Company for the PECs;
	 
	 	 
	Person

	 	shall mean any individual, corporation, company, voluntary
association, partnership, joint venture, trust, unincorporated
organisation or government (or any agency, instrumentality
or political subdivision thereof);
	 
	 	 
	Redemption Date

	 	shall mean the date fixed for redemption of the B PECs;
	 
	 	 
	Redemption Price

	 	shall mean a value equal to the sum of (i) the Par Value for
each outstanding B PEC that will be redeemed plus (ii)
Unpaid Return accumulated through the Redemption Date;
	 
	 	 
	Retained Earnings

	 	shall mean the retained earnings of the Company
determined on an unconsolidated basis in accordance with
the generally accepted accounting principles as in effect in
Luxembourg. However the Retained Earnings will be
computed without taking into account the Unpaid Return on
the B PECs;
	 
	 	 
	Return

	 	for any Accrual Period shall accrue on B PECs from the
Date of Issuance to but not including the earlier of (i) the
date on which all of the B PECs have been redeemed in
whole or otherwise paid in full and (ii) the Payment Date
nearest and prior to the Mandatory Redemption Date.
Return will accrue for each Accrual Period, subject to the
payment limitation of Section 2.2, in an amount equal to the
sum of (a) the Excluded Return for then prior Accrual
Period, (b) the Company’s Income during such Accrual
Period minus the net required taxable profit to be reported
by the Company in Luxembourg with respect to its

3

 

	 	 	 
	 

	 	Investment during such Accrual Period. Such amount
accrued at any time for all Accrual Periods since the Date
of Issuance, whether or not declared, is herein called the
“Return”.
	 
	 	 
	Subordinated Securities

	 	shall mean all shares of common stock, whether
outstanding on the date hereof or issued in the future; and
	 
	 	 
	Unpaid Return

	 	shall be any amount of Return that has accrued but has not
become payable pursuant to the payment limitations of
Section 2.1.

	2	 	Return
	 
	2.1	 	Return on the B PECs shall be payable on each Payment Date only if and to the extent

	 	(a)	 	declared by the board of managers of the Company;
	 
	 	(b)	 	the Company is not immediately before and after given effect to such payment
Insolvent;
	 
	 	(c)	 	that such payment, will not violate any covenant contained in or result in a default
under any agreement or other financial obligation of the Company.

	2.2	 	Each payment of Return on the B PECs shall be made by the Company directly to the
holders of record as their names appear on the B PEC Register on the record date for such payment.
The record date for such payment shall be the Business Day immediately preceding the applicable
Payment Date or, if not paid on a Payment Date, the Business Day immediately preceding the actual
payment date.
	 
	2.3	 	Each payment made with respect to a B PEC shall be by wire transfer to any account
maintained by such holder with a bank identified by such holder in a written notice given to the
Company not later than three Business Days prior to the relevant Payment Date.
	 
	3	 	Redemption
	 
	3.1	 	Mandatory Redemption
	 
	 	 	On the Mandatory Redemption Date, the Company shall redeem all (but not some) of the then
outstanding B PECs at the Redemption Price provided that:

	 	(a)	 	the Par Value of the B PECs will be payable to the extent the
Company will not be Insolvent after making such payment; and
	 
	 	(b)	 	the Unpaid Return will be payable only to the extent the Company will not be
Insolvent after making such payment.

	 	 	The Redemption Price shall be paid to the holders of record on the Mandatory Redemption Date.
	 
	3.2	 	Redemption upon Liquidation of the Company
	 
	 	 	In the event of a Liquidation the holders of the B PECs shall be entitled to be paid the Redemption
Price, in any event before any payment shall be made or any assets distributed to the holders of
any Subordinated Securities, provided that:

	 	(a)	 	the Par Value of the B PECs will be payable to the extent the Company will not be
Insolvent after making such payment; and
	 
	 	(b)	 	the Unpaid Return will be payable only to the extent the Company will not be
Insolvent after making such payment.

4

 

	 	 	The Redemption Price shall be paid to the holders of record ultimately on the date on which
the Liquidation of the Company shall be completed.
	 
	 	 	The board of managers of the Company shall not cause the shareholders of the Company to adopt
a resolution to commence a voluntary Liquidation without the consent of the holders of the B PECs
unless the Nominal Amount of the outstanding B PEC’s can be paid.
	 
	 	 	For purposes of this Section 3.2 neither the voluntary sale, conveyance, exchange or transfer (for
cash, shares, stock, securities or other consideration) of all or substantially all the property or
assets of the Company nor the consolidation or merger of the Company with one or more
corporations shall be deemed to be a Liquidation unless such voluntary sale, conveyance,
exchange or transfer shall be in connection with a dissolution or winding up of the business of the
Company.
	 
	3.3	 	Optional Redemption by the holders of B PECs
	 
	 	 	As of the date of an Event of Default (as defined in Section 6), any holder of B PECs shall be
entitled, by notice in writing to the Company, to have the B PECs held by it redeemed at the
Redemption Price, before any payment shall be made or any assets distributed to the holders of
any Subordinated Securities, provided that:

	 	(a)	 	the Par Value of the B PECs will be payable to the extent the Company will not be
Insolvent after making such payment; and
	 
	 	(b)	 	the Unpaid Return will be payable only to the extent the Company will not be
Insolvent after making such payment.

	 	 	The Redemption Price shall be paid to the holders of record ultimately on the 15th day
after the aforementioned notice has been received by the Company.
	 
	3.4	 	Redemption at the option of the Company
	 
	 	 	The Company may at any time on giving not less than 10 Business Days notice to the holder
thereof, redeem the B PECs in whole or in part (but if in part only in whole multiples of £10,000)
at par together with any accrued but unpaid Return thereon down to the date of redemption
PROVIDED THAT simultaneously with such redemption the Company redeems an equal
proportion of each of the other preferred equity certificates issued by it (including for the
avoidance of doubt, any other preferred equity certificates issued to SEW LLC).
	 
	3.5	 	General
	 
	 	 	Redemption of the B PECs will be subject to the condition that:

	 	(a)	 	from and after the Redemption Date, the B PECs shall cease to accrue a Return, and
the B PECs shall no longer be deemed to be outstanding and all rights of the holders thereof
(except the right to receive from the Company the Redemption Price) shall cease. Upon
the Redemption Date, specified for redemption in any such notice, the payment of the
Redemption Price by the Company shall become payable. Surrender of the B PECs shall
be made at the registered office of the Company. Upon surrender in accordance with
said notice of the B PECs so redeemed (properly endorsed or assigned for transfer, if
the board of managers of the Company shall so require and the notice shall so state),
such B PECs shall be redeemed by the Company at the Redemption Price as aforesaid;
	 
	 	(b)	 	any Par Value or any Unpaid Return payable pursuant to Section 3.1. to and including
Section 3.3. but not paid on the Redemption Date will accrue interest at the Applicable
Rate beginning on and including the Redemption Date.

5

 

	4	 	Withholding Taxes
	 
	 	 	All payments on the B PECs shall be made free and clear of withholding taxes imposed by
any taxing jurisdiction, unless the withholding of such tax is compelled by law. For
purposes of this Section 4, withholding taxes shall not include income taxes measured or
imposed upon the net income of the holder.
	 
	5	 	Covenants
	 
	 	 	After the Date of Issuance and for so long as any B PECs are outstanding, the Company
will not, without the written consent of the holders of the B PECs, issue any shares of
capital stock having, upon or following the Liquidation of the Company, any right to
payment ranking prior or equal to the payment in full of the Nominal Amount on each B PEC
to the holders.
	 
	6	 	Default
	 
	6.1	 	Each of the following events shall constitute an “Event of Default”:

	 	(a)	 	the Company fails to pay the full amount of any Return, as to which the
requirements of
Section 2.1 have been met, on the applicable Payment Date or fails to make any
payments required under Section 3 and such failure continues for five Business
Days
following the date on which the holder of record gives notice of such failure to
the
Company; or
	 
	 	(b)	 	except as expressly permitted herein, the
Company:

	 	(i)	 	is dissolved or liquidated;
	 
	 	(ii)	 	becomes insolvent or unable to pay its debts as they become due; or
	 
	 	(iii)	 	institutes or has instituted against it a proceeding
seeking a judgement of insolvency or bankruptcy or any other relief under
bankruptcy or insolvency law, and in the case any such proceeding or
petition instituted or presented against it, such proceeding or petition:

	 	(A)	 	results in a judgement of insolvency or
bankruptcy or the entry of an order
for relief or the making of an order for its winding-up or
liquidation; or
	 
	 	(B)	 	is not dismissed, discharged, stayed or
restrained in each case within 90
days of the institution or presentation thereof.

	6.2	 	The Company shall promptly notify the holders of the B PECs if an Event of Default has occurred.
	 
	7	 	Registration of the B PECs; Transfer Restrictions; Issuance and Exchange of B PEC
Certificates; Loss of B PEC Certificates
	 
	7.1	 	All B PECs shall be issued only in registered form, and the name and address of the holder of
each certificate representing a B PEC shall be entered into the B PEC Register by the Company.
Except as expressly required by law, the Person in whose name the B PECs stand in the B PEC
Register shall be deemed to be the full and undivided owner and record holder thereof for all
purposes.
	 
	7.2	 	Upon request of the holder of record of the B PECs, the Company shall, at the cost of such holder,
issue a certificate evidencing one or more B PECs. In case such certificate evidences more than
one B PEC, the Company shall upon request of the holder of record replace, at the cost of such
holder, such certificate by new certificates evidencing one or more B PECs.
	 
	7.3	 	Each holder of record shall promptly notify the Company of any mutilation, loss, theft, or
destruction of any certificate or certificates evidencing any B PECs of which it is the
record holder.

6

 

	 	 	The Company may, in its discretion, issue a new certificate in place of any certificate
theretofore issued by it and alleged to have been mutilated, lost, stolen or destroyed,
upon satisfactory proof of such mutilation, loss, theft or
destruction.
	 
	7.4	 	The transfer of any B PEC is subject to the prior written consent of the Company.
	 
	8	 	General Terms and Conditions of B PECs
	 
	8.1	 	Ranking
	 
	 	 	Subject to the terms and conditions hereof, the B PECs shall, with respect to payment
rights, which includes the Return, redemption and rights on liquidation, winding up and
dissolution, rank prior to all Subordinated Securities but the obligations in respect of
the B PECs shall, except for any other class of preferred equity certificates issued by
the Company at present or in the future which shall rank pari passu with the B PEC’s, rank
subordinate to all other present and future obligations of the Company whether secured or
unsecured.
	 
	8.2	 	Convertibility
	 
	 	 	The B PECs shall not be convertible into any other security issued by the Company.
	 
	8.3	 	Voting Rights.
	 
	 	 	The holders of record of the B PECs shall not be entitled to any voting rights in respect
of the Company by reason of their ownership of the B PECs.
	 
	8.4	 	Non recourse
	 
	 	 	Notwithstanding any provision of these Terms and Conditions, the obligations of the
Company hereunder to make payments to the holders of the B PECs are, at any time of
determination, limited to the lesser of the Nominal Amount and the Available Amount. The
Available Amount shall, subject to any other provision of this B PEC, at all times be
limited to the income the Company has received from its Investment up to and including the
date of its Liquidation and the value of the Investment on that date. On a liquidation of
the Company, in the event that the Nominal Amount exceeds the Available Amount, the right
of any person to claim payment in respect the Excess shall be extinguished. No party will,
at any time, have recourse to, or make demand or initiate proceedings against, the Company
in respect of the Excess. The Company shall incur no liability and be under no additional
duty to any person solely as a result of any inability on its part to make payments or to
perform other obligations hereunder, which inability results from the operation of the
foregoing provisions of this clause.
	 
	9	 	Miscellaneous
	 
	9.1	 	Governing Law
	 
	 	 	These Terms and Conditions of the B PECs are governed by, and shall be construed in
accordance with, the laws of Luxembourg and the Company and any holders of the B PECs
accepting these terms and conditions hereby submit to the non-exclusive jurisdiction of
the courts of Luxembourg with respect to any suit, action or proceeding relating hereto.

7

 

EXECUTED AS AN AGREEMENT

	 	 	 	 	 	 	 	 	 
	SIGNED by

	 	 	)	 	 	 	 	 
	for and on behalf of
	 	 	 	 	 	 	 	 
	Macquarie Luxembourg Water Sarl

	 	 	)	 	 	/s/ Jim Craig	 	 
	 	 	 	 	 	 	 	 	 
	 

	 	 	)	 	 	Authorised signatory
	 	 
	 

	 	 	)	 	 	 	 	 
	 

	 	 	)	 	 	 	 	 
	 

	 	 	)	 	 	/s/ Annabelle Helps	 	 
	 	 	 	 	 	 	 	 	 
	 

	 	 	)	 	 	Authorised signatory	 	 
	 

	 	 	)	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	SIGNED by

	 	 	)	 	 	 	 	 
	for and on behalf of

	 	 	)	 	 	/s/ Peter Stokes	 	 
	 	 	 	 	 	 	 	 	 
	South East Water LLC

	 	 	)	 	 	Authorised signatory	 	 
	 

	 	 	)	 	 	 	 	 
	 

	 	 	)	 	 	 	 	 
	 

	 	 	)	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 

	 	 	)	 	 	Authorised signatory	 	 
	 

	 	 	)	 	 	 	 	 

8<PAGE>
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                                                                               .
                                                                               .

                                                                    EXHIBIT 10.1

                         EXECUTIVE MANAGEMENT BONUS PLAN

                              STARBUCKS CORPORATION

<TABLE>
<S>                              <C>
APPROVAL BY SHAREHOLDERS         The material terms of the Objective Performance
                                 Goals under this Executive Management Bonus
                                 Plan (the "Plan") will be submitted to the
                                 shareholders of Starbucks Corporation
                                 ("Starbucks" or the "Company") on March 21,
                                 2007. Shareholder approval of the Plan is
                                 required in order for the bonuses paid upon
                                 achievement of the Objective Performance Goals
                                 to qualify as performance-based compensation
                                 under Section 162(m) of the Internal Revenue
                                 Code.

PLAN TERM                        Five fiscal years beginning October 2, 2006.

PLAN EFFECTIVE DATE              October 2, 2006.

PLAN YEAR                        Starbucks fiscal year, which ends on the Sunday
                                 closest to September 30.

PURPOSE                          The purpose of the Plan is to increase
                                 shareholder value by providing an incentive for
                                 the achievement of goals that support Starbucks
                                 strategic plan.
</TABLE>

<PAGE>

<TABLE>
<S>                              <C>
ELIGIBILITY                      Starbucks partners serving in positions of
                                 executive vice president and above and other
                                 senior officers of the Corporation, as
                                 designated by the Compensation and Management
                                 Development Committee (the "Compensation
                                 Committee") of the Board of Directors, are
                                 eligible to participate in the Plan.

                                 The executive vice president, Partner Resources
                                 and the chief executive officer have the
                                 authority to recommend Participants. The
                                 Compensation Committee has the sole authority
                                 to designate Participants.

                                 Eligibility will cease upon termination of the
                                 Participant's employment, withdrawal of
                                 designation by the Compensation Committee,
                                 transfer to a position compensated otherwise
                                 than as provided in the Plan, termination of
                                 the Plan by Starbucks, or if the Participant
                                 engages, directly or indirectly, in any
                                 activity which is competitive with any
                                 Starbucks activity.

                                 If a Participant changes from an eligible
                                 position to an ineligible position during the
                                 Plan Year, eligibility to participate will be
                                 at the discretion of the Compensation
                                 Committee.

TARGET BONUS                     The Target Bonus for each Participant shall be
                                 established by the Compensation Committee no
                                 later than ninety (90) days after the beginning
                                 of the Plan Year. The Target Bonus shall be the
                                 amount that would be paid to the Participant
                                 under the Plan if 100% of Objective Performance
                                 Goals and 100% of Individual Goals were met.
                                 The Target Bonus may be established as a
                                 percentage of Base Pay, a specific dollar
                                 amount, or according to another method
                                 established by the Compensation Committee. The
                                 amount of the Target Bonus earned by the
                                 Participant shall be based on the achievement
                                 of Objective Performance Goals and, if
                                 applicable, Individual Performance Goals.

                                 Base Pay is the annual pay rate established for
                                 the Participant by Starbucks and in effect on
                                 the last day of the Plan Year or, in the case
                                 of a deceased or disabled Participant, on the
                                 last day of participation in the Plan.
                                 Starbucks, in conjunction with the Compensation
                                 Committee, may at any time, in its sole
                                 discretion, prospectively revise the
                                 Participant's Base Pay.
</TABLE>

<PAGE>

<TABLE>
<S>                              <C>
GOALS

-    OBJECTIVE PERFORMANCE       -    In accordance with Section 162(m) of the
     GOALS                            Internal Revenue Code, the Compensation
                                      Committee shall select one or more
                                      objective performance goal measures from
                                      among Earnings Per Share, Return on
                                      Capital, Sales Growth and Volume, Return
                                      on Assets, Return on Equity, Net Income,
                                      Operating Income, Economic Profit, Expense
                                      Reduction or Controllable Expenses, Profit
                                      Margin, Total Shareholder Return, Stock
                                      Price, and/or Free Cash Flow for the
                                      Objective Performance Goals. The
                                      Compensation Committee shall select the
                                      Objective Performance Goals for each
                                      Participant no later than ninety (90) days
                                      after the beginning of the Plan Year and
                                      while the outcome is substantially
                                      uncertain.

                                 -    At the Compensation Committee's
                                      discretion, objective performance goals
                                      may differ by Participant, relate to
                                      performance on a Company-wide or business
                                      unit basis, be expressed on an absolute
                                      and/or relative basis, and may be based on
                                      or employ comparisons based on internal
                                      targets, past performance and/or the past
                                      or current performance of peer companies.

                                 -    The Compensation Committee shall select
                                      the amount of the Target Bonus for each
                                      Participant that will be determined by
                                      achievement of the Objective Performance
                                      Goals.

-    OBJECTIVE PERFORMANCE       -    The Compensation Committee may establish
     GOALS (CONT.)                    any special adjustments that will be
                                      applied in calculating whether the
                                      Objective Performance Goals have been met
                                      to factor out extraordinary items no later
                                      than ninety (90) days after the beginning
                                      of the Plan Year and while the outcome is
                                      substantially uncertain.

                                 -    If the Objective Performance Goals
                                      selected by the Compensation Committee are
                                      not met, no bonus related to those goals
                                      is payable under the Plan.

-    INDIVIDUAL GOALS            -    The portion of the Target Bonus not
                                      determined by achievement of the Objective
                                      Performance Goals shall be determined by
                                      the Participant's achievement of
                                      Individual Goals.

                                 -    Each Participant with Individual Goals
                                      shall submit such Individual Goals for
                                      approval by the Compensation Committee.

                                 -    The maximum performance level for each
                                      Individual Goal is 100%.
</TABLE>

<PAGE>

<TABLE>
<S>                              <C>
BONUS PAYOUT AND ELIGIBILITY     Bonus Payout for each Participant is based on
                                 the achievement of the Objective Performance
                                 Goals and the Individual Goals. A Bonus Payout
                                 under this Plan is earned as of the end of the
                                 Plan Year and will be paid according to the
                                 Plan, if the Participant:

                                 1)   remains a Starbucks partner through the
                                      end of the Plan Year, unless employment is
                                      terminated prior to the end of the Plan
                                      Year due to death or disability, and

                                 2)   refrains from engaging during the Plan
                                      Year, directly or indirectly, in any
                                      activity that is competitive with any
                                      Starbucks activity.

                                 The Compensation Committee, in its discretion,
                                 may determine that the Bonus Payout for any
                                 Participant will be less than (but not greater
                                 than) the amount earned by such Participant
                                 under the Plan.

BONUS PAYOUT CALCULATION         Within ninety (90) days after the beginning of
                                 the Plan Year and while the outcome is
                                 substantially uncertain, the Compensation
                                 Committee shall review and approve for each
                                 Participant: the target bonus; the Objective
                                 Performance Goals; and the relative weighting
                                 of the Goals for the Plan Year. Those metrics
                                 will be used to calculate the Bonus Payout for
                                 each Participant. The Compensation Committee
                                 shall review the Bonus Payout Calculation for
                                 each Participant. The maximum Bonus Payout for
                                 the achievement of Objective Performance Goals
                                 is $3,500,000, to any one Participant in any
                                 plan year.

BONUS PAYOUT PRORATIONS          For any partner who meets eligibility criteria
                                 and becomes a Participant after the start of
                                 the Plan Year or whose employment with
                                 Starbucks is terminated prior to the end of the
                                 Plan Year because of disability or death, the
                                 Compensation Committee (1) shall prorate the
                                 Bonus Payout related to the Objective
                                 Performance Goals, and (2) in its discretion,
                                 may prorate the Bonus Payout related to
                                 Individual Performance Goals. If the
                                 Participant is on a leave of absence for a
                                 portion of the Plan Year, the Compensation
                                 Committee in its discretion may reduce the
                                 Participant's Bonus Payout on a pro-rata basis.

                                 The proration is based on the number of full
                                 months during which the Participant
                                 participated in the Plan during the Plan Year.
                                 Credit is given for a full month if the
                                 Participant is eligible for 15 or more calendar
                                 days during that month.

                                 If a Participant changes positions within
                                 Starbucks during the Plan Year, the
                                 Compensation Committee in its discretion may
                                 prorate the Participant's Bonus Payout by the
                                 number of months in each position.
</TABLE>

<PAGE>

<TABLE>
<S>                              <C>
ADMINISTRATION                   COMPENSATION COMMITTEE RESPONSIBILITIES:
                                 Approve the Plan design, Objective Performance
                                 Goals, and Individual Goals (if applicable) for
                                 each Participant. Determine and certify the
                                 achievement of the Objective Performance Goals
                                 and Individual Goals. Approve the Bonus Payout
                                 calculation and Bonus Payout for each
                                 Participant.

                                 In the event of a dispute regarding the Plan,
                                 the Participant may seek resolution through the
                                 executive vice president, Partner Resources and
                                 the Compensation Committee. All determinations
                                 by the Compensation Committee shall be final
                                 and conclusive.

BONUS PAYOUT ADMINISTRATION      The Bonus Payout will be made as soon as
                                 administratively feasible and is expected to be
                                 within approximately 75 days after the end of
                                 the Plan Year. No amount is due and owing to
                                 any Participant before the Compensation
                                 Committee has determined the Bonus Payout.

                                 The Company will withhold amounts applicable to
                                 federal, state and local taxes, domestic or
                                 foreign, required by law or regulation.
                                 Contributions for Future Roast 401(k) and
                                 Management Deferred Compensation Plan (MDCP)
                                 are deducted from cash Bonus Payouts, based on
                                 the Participants' elections then in effect.

TERMINATION OF EMPLOYMENT        The Plan is not a contract of employment for
                                 any period of time. Any Participant may resign
                                 or be terminated at any time for any or no
                                 reason. Employment and termination of
                                 employment are governed by Starbucks policy and
                                 any applicable employment agreement and not by
                                 the Plan.

REVISIONS TO THE PLAN            The Plan will be reviewed by the executive vice
                                 president, Partner Resources and the
                                 Compensation Committee on a periodic basis for
                                 revisions. Starbucks reserves the right at its
                                 discretion with or without notice, to review,
                                 change, amend or cancel the Plan, at any time.
</TABLE>

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