-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SBRP78scIagy92vr2os0leHncIwJYoK2UGR/NkozO30XiPiL/bw2Tm4iZ5kWEw5d Q58254w/O4YaVd/CKfLHog== 0000907303-02-000048.txt : 20020414 0000907303-02-000048.hdr.sgml : 20020414 ACCESSION NUMBER: 0000907303-02-000048 CONFORMED SUBMISSION TYPE: S-8 PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 20020214 EFFECTIVENESS DATE: 20020214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COSTCO WHOLESALE CORP /NEW CENTRAL INDEX KEY: 0000909832 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-VARIETY STORES [5331] IRS NUMBER: 330572969 STATE OF INCORPORATION: WA FISCAL YEAR END: 0830 FILING VALUES: FORM TYPE: S-8 SEC ACT: 1933 Act SEC FILE NUMBER: 333-82782 FILM NUMBER: 02548779 BUSINESS ADDRESS: STREET 1: 999 LAKE DRIVE CITY: ISSAQUAH STATE: WA ZIP: 98027- BUSINESS PHONE: 4253138100 MAIL ADDRESS: STREET 1: 999 LAKE DRIVE CITY: ISSAQUAH STATE: WA ZIP: 98027 FORMER COMPANY: FORMER CONFORMED NAME: PRICE/COSTCO INC DATE OF NAME CHANGE: 19930728 FORMER COMPANY: FORMER CONFORMED NAME: COSTCO COMPANIES INC DATE OF NAME CHANGE: 19970401 S-8 1 forms8.txt As filed with the Securities and Exchange Commission on February 14, 2002 Registration No. 333- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ________________ Form S-8 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ________________ COSTCO WHOLESALE CORPORATION (Exact name of registrant as specified in its charter) Washington 33-0572969 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 999 Lake Drive Issaquah, Washington 98027 (425) 313-8100 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Amended and Restated 1993 Combined Stock Grant and Stock Option Plan 2002 Equity Incentive Plan (Full title of the plans) Richard J. Olin Vice President and General Counsel Costco Wholesale Corporation 999 Lake Drive Issaquah, Washington 98027 (425) 313-8100 (Names and addresses, including zip codes, and telephone numbers, including area codes, of agent for service) ____________________ CALCULATION OF REGISTRATION FEE
- -------------------------------- ---------------------- ----------------------- ---------------------- ------------------- Proposed maximum Proposed maximum Title of shares to be Amount to be offering price per aggregate offering Amount of registered registered share price (1) registration fee - -------------------------------- ---------------------- ----------------------- ---------------------- ------------------- Common Stock, $.01 par value 50,000,000 (1) $2,101,822,168 $193,368 $92/million - -------------------------------- ---------------------- ----------------------- ---------------------- -------------------
(1) The registration fee was calculated in accordance with Rule 457(h)(1) under the Securities Act of 1933, as amended (the "Act"). With respect to 33,408,325 options whose exercise price is not known, the fee is based on the price of the outstanding shares of common stock as of February 8, 2002 ($44.08), as determined in accordance with Rule 457(c) under the Act and with respect to 16,591,675 outstanding options whose exercise price is known, the fee is based on the aggregate exercise price of the outstanding options. PART II INFORMATION REQUIRED IN THE REGISTRATION STATEMENT Item 3. Incorporation of Documents by Reference. The following documents filed by Costco Wholesale Corporation. (the "Registrant") with the Securities and Exchange Commission (the "Commission") are incorporated by reference in this Registration Statement: (a) Annual Report on Form 10-K for the year ended September 2, 2001; (b) Quarterly Report on Form 10-Q for the quarter ended November 25, 2001; and (c) The description of the Registrant's Common Stock contained in its Registration Statement on Form 8-A, and any amendments or reports filed for the purpose of updating these descriptions. All documents subsequently filed by the Registrant pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act of 1934, as amended, prior to the filing of a post-effective amendment which indicates that all securities offered have been sold or which deregisters all securities then remaining unsold, shall be deemed to be incorporated by reference herein and to be part hereof from the date of filing of such documents. Item 4. Description of Securities. Not Applicable Item 5. Interests of Named Experts and Counsel. None Item 6. Indemnification of Directors and Officers. Section 23B.08.320 of the Washington Business Corporations Act (the "WBCA") permits a corporation to limit its directors' liability to the corporation or its shareholders for monetary damages for acts or omissions as a director, except for (a) acts or omissions involving intentional misconduct or a knowing violation of law, (b) certain unlawful distributions or loans in violation of Section 23B.08.310 of the Revised Code of Washington, or (c) transactions whereby the director received an improper personal benefit. Article VI of the Registrant's Amended and Restated Articles of Incorporation (dated November 7, 1995) contains provisions limiting the liability of Registrant's directors to the Registrant or its shareholders to the fullest extent permitted by Washington law. Sections 23B.08.500 through 23B.08.600 of the WBCA authorize a corporation to indemnify its directors, officers, employees and agents against certain liabilities they may incur in such capacities, including liabilities arising under the Securities Act of 1933, as amended (the "Securities Act") provided they acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the corporation. Article IX of the Registrant's Amended and Restated Bylaws requires the Registrant to indemnify its directors, officers, employees and other agents to the fullest extent permitted by Washington law. The above discussion of the WBCA and the Registrant's Amended and Restated Bylaws and Amended and Restated Articles of Incorporation is not intended to be exhaustive and is qualified in its II-1 entirety by reference to such statute, the Amended and Restated Bylaws and the Third Amended and Restated Articles of Incorporation, respectively. Item 7. Exemption from Registration Claimed. Not Applicable Item 8. Exhibits.
Exhibit Number Exhibit 4.1 1993 Combined Stock Grant and Stock Option Plan. Incorporated by reference to the exhibits filed as part of the Registration Statement of Price/Costco, Inc. on Form S-4 (File No. 33-50359) dated September 22, 1993. 4.2 Amendments to 1993 Combined Stock Grant and Stock Option Plan, 1995. Incorporated by reference to the exhibits filed as part of the Annual Report on Form 10-K of Price/Costco, Inc. for the fiscal year ended September 3, 1995. 4.3 Amendments to 1993 Combined Stock Grant and Stock Option Plan, 1997. Incorporated by reference to the exhibits filed as part of the Annual Report on Form 10-K of Costco Companies, Inc. for the fiscal year ended August 30, 1998. 4.4 Amendments to 1993 Combined Stock Grant and Stock Option Plan, 2000. Incorporated by reference to the exhibits filed as part of the Annual Report on Form 10-K of Costco Wholesale Corporation for the fiscal year ended September 3, 2000. 4.5 Amendments to 1993 Combined Stock Grant and Stock Option Plan, 2002 4.6 2002 Equity Incentive Plan. 5.1 Opinion of Heller Ehrman White & McAuliffe LLP. 15.1 Letter from Arthur Andersen LLP re Unaudited Interim Financial Information. 23.1 Consent of Heller Ehrman White & McAuliffe LLP (Included in its opinion filed as Exhibit 5.1). 23.2 Consent of Arthur Andersen, LLP, Independent Auditors. 24 Power of Attorney (Included on the signature page of this Registration Statement).
Item 9. Undertakings. (a) The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; II-2 (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement; Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the Registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in this Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-8 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Issaquah, State of Washington, on this 30th day of January, 2002. Costco Wholesale Corporation By: /s/ Richard A. Galanti Richard A. Galanti Executive Vice President, Chief Financial Officer II-3 POWER OF ATTORNEY Each person whose individual signature appears below hereby authorizes Richard A. Galanti or Richard J. Olin, or any of them, as attorneys-in-fact with full power of substitution, to execute in the name and on behalf of each person, individually and in each capacity stated below, and to file, any and all amendments to this Registration Statement, including any and all post-effective amendments. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities indicated on January 30, 2002. /s/ Jeffrey H. Brotman Jeffrey H. Brotman Chairman of the Board of Directors /s/ James D. Sinegal James D. Sinegal President, Chief Executive Officer and Director /s/Richard A. Galanti Richard A. Galanti Executive Vice President, Chief Financial Officer and Director (Principal Financial Officer) /s/Richard D. DiCerchio Richard D. DiCerchio Senior Executive Vice President, Chief Operating Officer and Director /s/ Benjamin S. Carson, Sr. Dr. Benjamin S. Carson, Sr., M.D. Director II-4 /s/ Hamilton E. James Hamilton E. James Director /s/ Richard M. Libenson Richard M. Libenson Director /s/ John W. Meisenbach John W. Meisenbach Director /s/ Charles T. Munger Charles T. Munger Director /s/ Fredcrick O. Paulsell, Jr. Fredrick O. Paulsell, Jr. Director /s/ Jill S. Ruckelshaus Jill S. Ruckelshaus Director /s/ David S. Petterson David S. Petterson Senior Vice President and Corporate Controller (Principal Accounting Officer) II-5 Exhibit Index
Exhibit Number Exhibit 4.1 1993 Combined Stock Grant and Stock Option Plan. Incorporated by reference to the exhibits filed as part of the Registration Statement of Price/Costco, Inc. on Form S-4 (File No. 33-50359) dated September 22, 1993. 4.2 Amendments to 1993 Combined Stock Grant and Stock Option Plan, 1995. Incorporated by reference to the exhibits filed as part of the Annual Report on Form 10-K of Price/Costco, Inc. for the fiscal year ended September 3, 1995. 4.3 Amendments to 1993 Combined Stock Grant and Stock Option Plan, 1997. Incorporated by reference to the exhibits filed as part of the Annual Report on Form 10-K of Costco Companies, Inc. for the fiscal year ended August 30, 1998. 4.4 Amendments to 1993 Combined Stock Grant and Stock Option Plan, 2000. Incorporated by reference to the exhibits filed as part of the Annual Report on Form 10-K of Costco Wholesale Corporation for the fiscal year ended September 3, 2000. 4.5 Amendments to 1993 Combined Stock Grant and Stock Option Plan, 2002 4.6 2002 Equity Incentive Plan. 5.1 Opinion of Heller Ehrman White & McAuliffe LLP. 15.1 Letter from Arthur Andersen LLP re Unaudited Interim Financial Information. 23.1 Consent of Heller Ehrman White & McAuliffe LLP (Included in its opinion filed as Exhibit 5.1). 23.2 Consent of Arthur Andersen, LLP, Independent Auditors. 24 Power of Attorney (Included on the signature page of this Registration Statement).
II-6 EX-4 3 exh45.txt EXHIBIT 4.5 AMENDMENTS TO COSTCO WHOLESALE CORPORATION 1993 COMBINED STOCK GRANT AND STOCK OPTION PLAN Applicability and Purposes of Amendments These amendments to Costco Wholesale Corporation 1993 Combined Stock Grant and Stock Option Plan (the "Plan") are being adopted in connection with the Company's adoption of a new 2002 Stock Incentive Plan (the "2002 Plan"). These amendments will not apply to change any of the terms of outstanding incentive stock options (as defined in Section 422 of the Internal Revenue Code of 1986) which will continue to governed by the provisions of the Plan in effect prior to the effectiveness of these amendments. With respect to all other options outstanding under the Plan (and shares issued upon the exercise of such options), the terms of the Plan governing such options (and such shares) are hereby amended as follows. Amendment and Restatement of Plan With Respect to Non-Qualified Stock Options Except to the extent described above with respect to outstanding incentive stock options, effective upon the effective date of the 2002 Plan, the Plan is hereby amended and restated in its entirety to read as follows: 1. Definitions and Rules of Interpretation 1.1 Definitions. The Plan uses the following defined terms: (a) "2002 Plan" means the 2002 Stock Incentive Plan of Costco Wholesale Corporation. (b) "Administrator" means the Board, the Committee, or any officer or employee of the Company to whom the Board or the Committee delegates authority to administer this Plan. (c) "Affiliate" means a "parent" or "subsidiary" (as each is defined in Section 424 of the Code) of the Company and any other entity that the Board or Committee designates as an "Affiliate" for purposes of this Plan. (d) "Applicable Law" means any and all laws of whatever jurisdiction, within or without the United States, and the rules of any stock exchange or quotation system on which Shares are listed or quoted, applicable to the taking or refraining from taking of any action under this Plan, including the administration of this Plan and the issuance or transfer of Options or Option Shares. (e) "Board" means the board of directors of the Company. (f) "Change of Control" means any transaction or event that the Board specifies as a Change of Control under Section 6.4. (g) "Committee" means a committee composed of Company Directors appointed in accordance with the Company's Articles of Incorporation and Bylaws and Section 3. (h) "Company" means Costco Wholesale Corporation, a Washington corporation. (i) "Company Director" means a member of the Board. (j) "Consultant" means an individual who, or an employee of any entity that, provides bona fide services to the Company or an Affiliate not in connection with the offer or sale of securities in a capital-raising transaction, but who is not an Employee. (k) "Director" means a member of the board of directors of the Company or an Affiliate. (l) "Divestiture" means any transaction or event that the Board specifies as a Divestiture under Section 6.5. (m) "Employee" means a regular employee of the Company or an Affiliate, including an officer or Director, who is treated as an employee in the personnel records of the Company or an Affiliate, but not individuals who are classified by the Company or an Affiliate as: (i) leased from or otherwise employed by a third party, (ii) independent contractors, or (iii) intermittent or temporary workers. The Company's or an Affiliate's classification of an individual as an "Employee" (or as not an "Employee") for purposes of this Plan shall not be altered retroactively even if that classification is changed retroactively for another purpose as a result of an audit, litigation or otherwise. An Optionee shall not cease to be an Employee due to transfers between locations of the Company, or between the Company and an Affiliate, or to any successor to the Company or an Affiliate that assumes the Optionee's Options under Section 6. Neither service as a Director nor receipt of a director's fee shall be sufficient to make a Director an "Employee." (n) "Exchange Act" means the Securities Exchange Act of 1934. (o) "Executive" means an individual who is subject to Section 16 of the Exchange Act or who is a "covered employee" under Section 162(m) of the Code, in either case because of the individual's relationship with the Company or an Affiliate. (p) "Expiration Date" means, with respect to an Option, the date stated in the Option Agreement as the expiration date of the Option or, if no such date is stated in the Option Agreement, then the last day of the maximum exercise period for the Option, disregarding the effect of an Optionee's Termination or any other event that would shorten that period. (q) "Fair Market Value" means the value of Shares as determined under Section 12.2. (r) "Fundamental Transaction" means any transaction or event described in Section 6.3. 2 (s) "Grant Date" means the date the Administrator has approved the grant of an Option or the date otherwise specified by the Administrator. (t) "Officer" means an officer of the Company as defined in Rule 16a-1 adopted under the Exchange Act. (u) "Option" means a right to purchase Shares of the Company granted under this Plan. (v) "Option Agreement" means the document evidencing the grant of an Option. (w) "Option Price" means the price payable under an Option for Shares, not including any amount payable in respect of withholding or other taxes. (x) "Option Shares" means Shares covered by an outstanding Option or purchased under an Option. (y) "Optionee" means: (i) a person to whom an Option has been granted, including a holder of a Substitute Option and (ii) a person to whom an Option has been transferred in accordance with all applicable requirements of Sections 4.4 and 11. (z) "Plan" means the Costco Wholesale Corporation 1993 Combined Stock Grant and Stock Option Plan. (aa) "Qualified Domestic Relations Order" means a judgment, order, or decree meeting the requirements of Section 414(p) of the Code. (bb) "Rule 16b-3" means Rule 16b-3 adopted under Section 16(b) of the Exchange Act. (cc) "Securities Act" means the Securities Act of 1933. (dd) "Share" means a share of the common stock $.005 par value per share, of the Company or other securities substituted for the common stock under Section 6. (ee) "Substitute Option" means an Option granted in substitution for, or upon the conversion of, an option granted by another entity to purchase equity securities in the granting entity. (ff) "Termination" means that the Optionee has ceased to be, with or without any cause or reason, an Employee, Director or Consultant; provided that unless otherwise determined by the Administrator, a Termination will not be deemed to occur in the case of a Consultant by virtue of Consultant's ceasing to provide services to the Company if Consultant has completed the project for which the Consultant was engaged. However, if so determined by the Administrator, "Termination" shall not include a change in status from an Employee, Consultant or Director to another such status. An event that causes an Affiliate to cease being an Affiliate shall be treated as the "Termination" of that Affiliate's Employees, Directors, and Consultants. 3 1.2 Rules of Interpretation. Any reference to a "Section," without more, is to a Section of this Plan. Captions and titles are used for convenience in this Plan and shall not, by themselves, determine the meaning of this Plan. Except when otherwise indicated by the context, the singular includes the plural and vice versa. Any reference to a statute is also a reference to the applicable rules and regulations adopted under that statute. Any reference to a statute, rule or regulation, or to a section of a statute, rule or regulation, is a reference to that statute, rule, regulation, or section as amended from time to time, both before and after the effective date of this Plan and including any successor provisions. 2. Shares Subject to this Plan. 2.1 No Additional Shares. Following the effective date of the 2002 Plan, no additional options or stock grants may be awarded under this Plan. All Shares that would otherwise have been available for stock grants or Option awards under the Plan as of such date or which subsequently would have otherwise become available for future stock grants or Option awards due to the cancellation of outstanding options will instead be available for issuance under the 2002 Plan. 2.2 Continuation of Plan Terms. The terms of the Plan (as amended) shall continue to govern outstanding Options granted under the Plan (other than incentive stock options) and Shares issued upon their exercise. 3. Administration 3.1 General (a) The Board shall have ultimate responsibility for administering this Plan. The Board may delegate certain of its responsibilities to a Committee, which shall consist of at least two members of the Board. The Board or the Committee may further delegate its responsibilities to any Employee of the Company or any Affiliate. Where this Plan specifies that an action is to be taken or a determination made by the Board, only the Board may take that action or make that determination. Where this Plan specifies that an action is to be taken or a determination made by the Committee, only the Committee may take that action or make that determination. Where this Plan references the "Administrator," the action may be taken or determination made by the Board, the Committee, or other Administrator. However, all actions and determinations by any Administrator are subject to the provisions of this Plan. (b) So long as the Company has registered and outstanding a class of equity securities under Section 12 of the Exchange Act, the Committee shall consist of Company Directors who are "Non-Employee Directors" as defined in Rule 16b-3 and who are "outside directors" as defined in Section 162(m) of the Code. 3.2 Authority of Administrator. Subject to the other provisions of this Plan, the Administrator shall have the authority: 4 (a) to determine the Fair Market Value of Shares; (b) to determine the types of payment that may be used to purchase Option Shares; (c) to determine the types of payment that may be used to satisfy withholding tax obligations; (d) to modify or amend any Option, including, without limitation, to extend the period during which an Option may be exercised, but the Administrator shall not have the authority to reduce the Option Price of any outstanding Option without obtaining the approval of the Company's shareholders; (e) to authorize any person to sign any document related to this Plan on behalf of the Company; (f) to determine the form of any document related to this Plan, and whether that document, including signatures, may be in electronic form; (g) to interpret this Plan and any Option Agreement or document related to this Plan; (h) to correct any defect, remedy any omission, or reconcile any inconsistency in this Plan, any Option Agreement or any other document related to this Plan; (i) to adopt, amend, and revoke rules and regulations under this Plan, including rules and regulations relating to sub-plans and Plan addenda; (j) to adopt, amend, and revoke rules and procedures relating to the operation and administration of this Plan to accommodate non-U.S. Optionees and the requirements of Applicable Law such as: (i) rules and procedures regarding the conversion of local currency, withholding procedures and the handling of stock certificates to comply with local practice and requirements, and (ii) sub-plans and Plan addenda for non-U.S. Optionees; (k) to determine whether a transaction or event should be treated as a Change of Control, a Divestiture or neither; (l) to determine the effect of a Fundamental Transaction and, if the Board determines that a transaction or event should be treated as a Change of Control or a Divestiture, then the effect of that Change of Control or Divestiture; and (m) to make all other determinations the Administrator deems necessary or advisable for the administration of this Plan. 3.3 Scope of Discretion. Subject to the last sentence of this Section 3.3, on all matters for which this Plan confers the authority, right or power on the Board, the Committee, or other Administrator to make decisions, that body may make those decisions in its sole and absolute discretion. Moreover, but again subject to the last sentence of this Section 3.3, in making those decisions the Board, Committee or other Administrator need not treat all Optionees, all Options or all Option Shares the same way. However, the discretion of the Board, Committee or other Administrator is subject to the specific provisions and specific limitations of this Plan, as well as all rights conferred on specific Optionees by Option Agreements and other agreements. 5 4. Terms and Conditions of Options 4.1 Term. No Option shall be exercisable after its Expiration Date. No Option may have an Expiration Date that is more than ten years after its Grant Date. 4.2 Vesting. Options shall be exercisable in accordance with the schedule set forth in the Option Agreement evidencing such Option; provided that no Option shall be exercisable until one year from the Grant Date. 4.3 Form of Payment. (a) The Administrator shall determine the acceptable form and method of payment for exercising an Option. (b) Acceptable forms of payment for all Option Shares are cash, check or wire transfer, denominated in U.S. dollars except as specified by the Administrator for non-U.S. Employees or non-U.S. sub-plans. (c) In addition, the Administrator may permit payment to be made by any of the following methods: (i) other Shares, or the designation of other Shares, which (A) in the case of Shares acquired upon exercise of an option (whether or not under this Plan) have been owned by the Optionee for more than six months on the date of surrender, and (B) have a Fair Market Value on the date of surrender equal to the Option Price of the Shares as to which the Option is being exercised; (ii) provided that a public market exists for the Shares, through a "same day sale" commitment from the Optionee and a broker-dealer that is a member of the National Association of Securities Dealers (an "NASD Dealer") under which the Optionee irrevocably elects to exercise the Option and the NASD Dealer irrevocably commits to forward an amount equal to the Option Price, directly to the Company, upon receipt of the Option Shares (a "Cashless Exercise"); (iii) any combination of the methods of payment permitted by any paragraph of this Section 4.3. (d) The Administrator may also permit any other form or method of payment for Option Shares permitted by Applicable Law. 6 4.4 Nonassignability of Options. Except as determined by the Administrator, no Option shall be assignable or otherwise transferable by the Optionee except (a) by will or by the laws of descent and distribution, (b) to a grantor trust or partnership established for estate planning purposes to the extent permitted under Applicable Laws, or (c) in accordance with a Qualified Domestic Relations Order. 4.5 Substitute Options. The Board may cause the Company to grant Substitute Options in connection with the acquisition by the Company or an Affiliate of equity securities of any entity (including by merger) or all or a portion of the assets of any entity. Any such substitution shall be effective when the acquisition closes. Unless and to the extent specified otherwise by the Board, Substitute Options shall have the same terms and conditions as the options they replace, except that (subject to Section 6) Substitute Options shall be Options to purchase Shares rather than equity securities of the granting entity and shall have an Option Price that, as determined by the Board in its sole and absolute discretion, properly reflects the substitution. 5. Exercise of Option; Termination 5.1 In General. Options shall be exercisable in accordance with this Plan, the Option Agreement under which it is granted, and as prescribed by the Administrator. 5.2 Time of Exercise. Options shall be considered exercised when the Company receives: (a) written notice of exercise from the person entitled to exercise the Option, (b) full payment, or provision for payment, in a form and method approved by the Administrator, for the Shares for which the Option is being exercised, and (c) payment, or provision for payment, in a form approved by the Administrator, of all applicable withholding taxes due upon exercise. An Option may not be exercised for a fraction of a Share. 5.3 Issuance of Option Shares. The Company shall issue Option Shares in the name of the person properly exercising an Option. If the Optionee is that person and so requests, the Option Shares shall be issued in the name of the Optionee and the Optionee's spouse. The Company shall endeavor to issue Option Shares promptly after an Option is exercised. However, until Option Shares are actually issued, as evidenced by the appropriate entry on the stock books of the Company or its transfer agent, no right to vote or receive dividends or other distributions, and no other rights as a shareholder, shall exist with respect to the Option Shares, even though the Optionee has completed all the steps necessary to exercise the Option. No adjustment shall be made for any dividend, distribution, or other right for which the record date precedes the date the Option Shares are issued. 5.4 Termination (a) In General. Except as provided by the Administrator, including in an Option Agreement, after an Optionee's Termination except as otherwise provided in Sections 5.4(b), (c), (d) and (e), the Optionee's Options shall be exercisable to purchase (A) the number of Shares for which such Options have vested on the date of that Termination plus (B) (in the event the Option only vests in annual increments and such termination occurs after the first anniversary of the Grant Date) the Pro Rata Number of Shares for which the Option would have become vested on the next anniversary of the Grant Date following Termination. As used in this Section 5.4, the "Pro Rata Number of Shares" shall be equal to (a) the additional number of Shares that would have become vested on the next anniversary of the Grant Date following Termination, multiplied by (b) a fraction the numerator of which shall be the number of days from the anniversary of the Grant Date preceding Termination and the denominator 7 of which shall be 365, rounded to the nearest whole Share. Except as otherwise provided by the Administrator or in the Option Agreement, such Options shall only be exercisable during the period ending 30 days after the Termination, but in no event after the Expiration Date. To the extent the Optionee does not exercise an Option within the time specified for exercise, the Option shall automatically terminate. (b) Leaves of Absence. Unless otherwise provided in the Option Agreement, no Option may be exercised more than three months after the beginning of a leave of absence, other than a personal or medical leave approved by the Administrator with employment guaranteed upon return. Except as otherwise determined by the Administrator, Options shall not continue to vest during a leave of absence, other than an approved personal or medical leave with employment guaranteed upon return. (c) Death or Disability. In the event of the death of an Optionee who at the date of death either (i) was an officer of the Company with the title of Assistant Vice President or above or (ii) had been employed by the Company for ten or more continuous years, all Options that were granted to that Optionee but are unvested as of the date of the Optionee's death shall become vested, effective as of the date of death. In the event of the death of an Optionee who at the date of death is an Employee but qualifies under neither clause (i) or (ii) of the previous sentence, 50% of the Options that were granted to that Optionee but unvested on the date of the Optionee's death shall become vested, effective as of the date of death. Unless otherwise provided by the Administrator, if an Optionee's Termination is due to death or disability (as determined by the Administrator with respect to Nonstatutory Options and as defined by Section 22(e) of the Code with respect to Incentive Stock Options), all Options of that Optionee may be exercised for one year after that Termination, but in no event after the Expiration Date. In the case of Termination of an Employee due to death, such Options shall be exercisable to purchase the number of shares for which the Options were vested as of the Termination Date in accordance with the first two sentences of this Section 9.4(c). In the case of Termination due to disability, such Options shall be exercisable to purchase (A) the number of Shares for which such Options have vested as of the Termination Date, plus (B) the Pro Rata Number of Shares (as defined in Section 9(a)) for which the Option would have vested on the next anniversary of the Grant Date (in the event the Option only vests in annual increments and such Termination occurs after the one year anniversary of the Grant Date). In the case of Termination due to death, an Option may be exercised as provided in Section 15. In the case of Termination due to disability, if a guardian or conservator has been appointed to act for the Optionee and been granted this authority as part of that appointment, that guardian or conservator may exercise the Option on behalf of the Optionee. Death or disability occurring after an Optionee's Termination shall not cause the Termination to be treated as having occurred due to death or disability. To the extent an Option is not so exercised within the time specified for its exercise, the Option shall automatically terminate. 8 (d) Divestiture. If an Optionee's Termination is due to a Divestiture, the Board may take any one or more of the actions described in Section 6.3 or 6.4. (e) Termination for Cause. If an Optionee's Termination is due to Cause (as defined below), all of the Optionee's Options shall automatically terminate and cease to be exercisable at the time of Termination. "Cause" means dishonesty, fraud, misconduct, disclosure or misuse of confidential information, conviction of, or a plea of guilty or no contest to, a felony or similar offense, habitual absence from work for reasons other than illness, intentional conduct that could cause significant injury to the Company or an Affiliate, or habitual abuse of alcohol or a controlled substance, in each case as determined by the Administrator. (f) Consulting or Employment Relationship. Nothing in this Plan or in any Option Agreement, and no Option, shall: (a) interfere with or limit the right of the Company or any Affiliate to terminate the employment or consultancy of any Optionee at any time, whether with or without cause or reason, and with or without the payment of severance or any other compensation or payment, or (b) interfere with the application of any provision in any of the Company's or any Affiliate's charter documents or Applicable Law relating to the election, appointment, term of office, or removal of a Director. 6. Certain Transactions and Events 6.1 In General. Except as provided in this Section 6, no change in the capital structure of the Company, merger, sale or other disposition of assets or a subsidiary, change of control, issuance by the Company of shares of any class of securities convertible into shares of any class, conversion of securities, or other transaction or event shall require or be the occasion for any adjustments of the type described in this Section 6. 6.2 Changes in Capital Structure. In the event of any stock split, reverse stock split, recapitalization, combination or reclassification of stock, stock dividend, spin-off, or similar change to the capital structure of the Company (not including a Fundamental Transaction or Change of Control), the Board shall make whatever adjustments it concludes are appropriate to the Option Price and number and class of securities issuable under each outstanding Option. The specific adjustments shall be determined by the Board in its sole and absolute discretion. Unless the Board specifies otherwise, any securities issuable as a result of any such adjustment shall be rounded to the next lower whole security. 6.3 Fundamental Transactions. If the Company merges with another entity in a transaction in which the Company is not the surviving entity or if, as a result of any other transaction or event, other securities are substituted for the Shares or Shares may no longer be issued (each a "Fundamental Transaction"), then, notwithstanding any other provision of this Plan, the Board shall do one or more of the following contingent on the closing or completion of the Fundamental Transaction: (a) arrange for the substitution of options or other compensatory awards of equity securities other than Shares (including, if appropriate, equity securities of an entity other than the Company) in exchange for Options, (b) accelerate the vesting and termination of outstanding Options so that Options can be exercised in full before or otherwise in connection with the closing or completion of the transaction or event but then terminate or (c) cancel Options in exchange for cash payments to Optionees. The Board need not adopt the same rules for each Option or each Optionee. 9 6.4 Changes of Control. The Board may also, but need not, specify that other transactions or events constitute a "Change of Control". The Board may do that either before or after the transaction or event occurs. Examples of transactions or events that the Board may treat as Changes of Control are: (a) the Company or an Affiliate is a party to a merger, consolidation, amalgamation, or other transaction in which the beneficial shareholders of the Company, immediately before the transaction, beneficially own securities representing 50% or less of the total combined voting power or value of the Company immediately after the transaction, (b) any person or entity, including a "group" as contemplated by Section 13(d)(3) of the Exchange Act, acquires securities holding 30% or more of the total combined voting power or value of the Company, or (c) as a result of or in connection with a contested election of Company Directors, the persons who were Company Directors immediately before the election cease to constitute a majority of the Board. In connection with a Change of Control, notwithstanding any other provision of this Plan, the Board may take any one or more of the actions described in Section 10.3. In addition, the Board may extend the date for the exercise of Options (but not beyond their original Expiration Date). The Board need not adopt the same rules for each Option or each Optionee. 6.5 Divestiture. If the Company or an Affiliate sells or otherwise transfers equity securities of an Affiliate to a person or entity other than the Company or an Affiliate, or leases, exchanges or transfers all or any portion of its assets to such a person or entity, then the Board, in its sole and absolute discretion, may specify that such transaction or event constitutes a "Divestiture". In connection with a Divestiture, notwithstanding any other provision of this Plan, the Board may take one or more of the actions described in Section 6.3 or 6.4 with respect to Options or Option Shares held by, for example, Employees, Directors or Consultants for whom that transaction or event results in a Termination. The Board need not adopt the same rules for each Option or each Optionee. 6.6 Dissolution. If the Company adopts a plan of dissolution, the Board may, in its sole and absolute discretion, cause Options to be fully vested and exercisable (but not after their Expiration Date) before the dissolution is completed but contingent on its completion. To the extent not exercised before the earlier of the completion of the dissolution or their Expiration Date, Options shall terminate just before the dissolution is completed. The Board need not adopt the same rules for each Option or each Optionee. 6.7 Cut-Back to Preserve Benefits. If the Administrator determines that the net after-tax amount to be realized by any Optionee, taking into account any accelerated vesting, or cash payments to that Optionee in connection with any transaction or event addressed in this Section 6 would be greater if one or more of those steps were not taken with respect to that Optionee's Options or Option Shares, then and to that extent one or more of those steps shall not be taken. 10 7. Withholding and Tax Reporting 7.1 Tax Withholding Alternatives (a) General. Whenever Option Shares are issued, the Company may require the Optionee to remit to the Company an amount sufficient to satisfy any applicable tax withholding requirement, whether the related tax is imposed on the Optionee or the Company. The Company shall have no obligation to deliver Option Shares until the Optionee has satisfied those tax withholding obligations. (b) Method of Payment. The Optionee shall pay any required withholding using the forms of consideration described in Section 6.4(b), except that, in the discretion of the Administrator, the Company may also permit the Optionee to use any of the forms of payment described in Section 6.4(c). The Administrator may also permit Option Shares to be withheld to pay required withholding. If the Administrator permits Option Shares to be withheld, the Fair Market Value of the Option Shares withheld shall not exceed the amount determined by the applicable minimum statutory withholding rates, and shall be determined as of the date that the amount of tax to be withheld or tendered for this purpose is to be determined. 8. Compliance with Law 8.1 Applicable Law. The grant of Options and the issuance and subsequent transfer of Option Shares shall be subject to compliance with all Applicable Law, including all applicable securities laws. Options may not be exercised, and Option Shares may not be transferred, in violation of Applicable Law. Thus, for example, Options may not be exercised unless: (a) a registration statement under the Securities Act is then in effect with respect to the related Option Shares, or (b) in the opinion of legal counsel to the Company, those Option Shares may be issued in accordance with an applicable exemption from the registration requirements of the Securities Act and any other applicable securities laws. The failure or inability of the Company to obtain from any regulatory body the authority considered by the Company's legal counsel to be necessary or useful for the lawful issuance of any Option Shares or their subsequent transfer shall relieve the Company of any liability for failing to issue those Option Shares or permitting their transfer. As a condition to the exercise of any Option or the transfer of any Option Shares, the Company may require the Optionee to satisfy any requirements or qualifications that may be necessary or appropriate to comply with or evidence compliance with any Applicable Law. 9. Amendment or Termination of this Plan or Outstanding Options 9.1 Amendment and Termination. The Board may at any time amend, suspend, or terminate this Plan. 9.2 Shareholder Approval. The Company shall obtain the approval of the Company's shareholders for any amendment to this Plan if shareholder approval is necessary or desirable to comply with any Applicable Law or if the amendment would materially enhance the benefits available to participants under the Plan. The Board may also, but need not, require that the Company's shareholders approve any other amendments to this Plan. 11 9.3 Effect. No amendment, suspension, or termination of this Plan, and no modification of any Option even in the absence of an amendment, suspension, or termination of this Plan, shall impair any existing contractual rights of any Optionee unless the affected Optionee consents to the amendment, suspension, termination, or modification. However, no such consent shall be required if the Administrator determines in its sole and absolute discretion that the amendment, suspension, termination, or modification: (a) is required or advisable in order for the Company, the Plan or the Option to satisfy Applicable Law, to meet the requirements of any accounting standard or to avoid any adverse accounting treatment, or (b) in connection with any transaction or event described in Section 6, is in the best interests of the Company or its shareholders. The Administrator may, but need not, take the tax consequences to affected Optionees into consideration in acting under the preceding sentence. Termination of this Plan shall not affect the Administrator's ability to exercise the powers granted to it under this Plan with respect to Options granted before the termination, or Option Shares issued under such Options, even if those Option Shares are issued after the termination. 10. Reserved Rights 10.1 Nonexclusively of this Plan. This Plan shall not limit the power of the Company or any Affiliate to adopt other incentive arrangements including, for example, the grant or issuance of stock options, stock, or other equity-based rights under other plans or independently of any plan. 10.2 Unfunded Plan. This Plan shall be unfunded. Although bookkeeping accounts may be established with respect to Optionees, any such accounts will be used merely as a convenience. The Company shall not be required to segregate any assets on account of this Plan, the grant of Options, or the issuance of Option Shares. The Company and the Administrator shall not be deemed to be a trustee of stock to be Optioned under this Plan. Any obligations of the Company to any Optionee shall be based solely upon contracts entered into under this Plan, such as Option Agreements. No such obligation shall be deemed to be secured by any pledge or other encumbrance on any assets of the Company. Neither the Company nor the Administrator shall be required to give any security or bond for the performance of any such obligation. 11. Beneficiaries An Optionee may file a written designation of one or more beneficiaries who are to receive the Optionee's rights under the Optionee's Options after the Optionee's death. An Optionee may change such a designation at any time by written notice. If an Optionee designates a beneficiary, the beneficiary may exercise the Optionee's Options after the Optionee's death. If an Optionee dies when the Optionee has no living beneficiary designated under this Plan, the Company shall allow the executor or administrator of the Optionee's estate to exercise the Option or, if there is none, the person entitled to exercise the Option under the Optionee's will or the laws of descent and distribution. In any case, no Option may be exercised after its Expiration Date. 12 12. Miscellaneous 12.1 Governing Law. This Plan and all determinations made and actions taken under this Plan shall be governed by the substantive laws, but not the choice of law rules, of the State of Washington. 12.2 Determination of Value. Fair Market Value shall be determined as follows: (a) Listed Stock. If the Shares are traded on any established stock exchange or quoted on a national market system, Fair Market Value shall be the closing sales price for the Shares as quoted on that stock exchange or system for the date the value is to be determined (the "Value Date") as reported in The Wall Street Journal or a similar publication. If no sales are reported as having occurred on the Value Date, Fair Market Value shall be that closing sales price for the last preceding trading day on which sales of Shares are reported as having occurred. If no sales are reported as having occurred during the five trading days before the Value Date, Fair Market Value shall be the closing bid for Shares on the Value Date. If Shares are listed on multiple exchanges or systems, Fair Market Value shall be based on sales or bids on the primary exchange or system on which Shares are traded or quoted. (b) Stock Quoted by Securities Dealer. If Shares are regularly quoted by a recognized securities dealer but selling prices are not reported on any established stock exchange or quoted on a national market system, Fair Market Value shall be the mean between the high bid and low asked prices on the Value Date. If no prices are quoted for the Value Date, Fair Market Value shall be the mean between the high bid and low asked prices on the last preceding trading day on which any bid and asked prices were quoted. (c) No Established Market. If Shares are not traded on any established stock exchange or quoted on a national market system and are not quoted by a recognized securities dealer, the Administrator will determine Fair Market Value in good faith. The Administrator will consider the following factors, and any others it considers significant, in determining Fair Market Value: (i) the price at which other securities of the Company have been issued to purchasers other than Employees, Directors, or Consultants, (ii) the Company's net worth, prospective earning power, dividend-paying capacity, and non-operating assets, if any, and (iii) any other relevant factors, including the economic outlook for the Company and the Company's industry, the Company's position in that industry, the Company's goodwill and other intellectual property, and the values of securities of other businesses in the same industry. 12.3 Electronic Communications. Any notice of exercise of an Option or other document required or permitted by this Plan may be delivered in writing or, to the extent determined by the Administrator, electronically. Signatures may also be electronic if permitted by the Administrator. 13 12.4 Notices. Unless the Administrator specifies otherwise, any notice to the Company under any Option Agreement or with respect to any Options or Option Shares shall be in writing (or, if so authorized by Section 12.3, communicated electronically), shall be addressed to the Secretary of the Company, and shall only be effective when received by the Secretary of the Company. Amendments adopted by the Board on:_______________________________________ Effective date of Amendments:_____________________________________________ 14 EX-4 4 exh46.txt EXHIBIT 4.6 2002 STOCK INCENTIVE PLAN OF COSTCO WHOLESALE CORPORATION 1. Purpose of this Plan The purpose of this 2002 Stock Incentive Plan of Costco Wholesale Corporation is to enhance the long-term shareholder value of the Company by offering opportunities to eligible individuals to participate in the growth in value of the Company's equity. 2. Definitions and Rules of Interpretation 2.1 Definitions. This Plan uses the following defined terms: (a) "Administrator" means the Board, the Committee, or any officer or employee of the Company to whom the Board or the Committee delegates authority to administer this Plan. (b) "Affiliate" means a "parent" or "subsidiary" (as each is defined in Section 424 of the Code) of the Company and any other entity that the Board or Committee designates as an "Affiliate" for purposes of this Plan. (c) "Applicable Law" means any and all laws of whatever jurisdiction, within or without the United States, and the rules of any stock exchange or quotation system on which Shares are listed or quoted, applicable to the taking or refraining from taking of any action under this Plan, including the administration of this Plan and the issuance or transfer of Options or Option Shares. (d) "Board" means the board of directors of the Company. (e) "Change of Control" means any transaction or event that the Board specifies as a Change of Control under Section 10.4. (f) "Code" means the Internal Revenue Code of 1986. (g) "Committee" means a committee composed of Company Directors appointed in accordance with the Company's Articles of Incorporation and Bylaws and Section 4. (h) "Company" means Costco Wholesale Corporation, a Washington corporation. (i) "Company Director" means a member of the Board. (j) "Consultant" means an individual who, or an employee of any entity that, provides bona fide services to the Company or an Affiliate not in connection with the offer or sale of securities in a capital-raising transaction, but who is not an Employee. (k) "Director" means a member of the board of directors of the Company or an Affiliate. (l) "Divestiture" means any transaction or event that the Board specifies as a Divestiture under Section 10.5. (m) "Employee" means a regular employee of the Company or an Affiliate, including an officer or Director, who is treated as an employee in the personnel records of the Company or an Affiliate, but not individuals who are classified by the Company or an Affiliate as: (i) leased from or otherwise employed by a third party, (ii) independent contractors, or (iii) intermittent or temporary workers. The Company's or an Affiliate's classification of an individual as an "Employee" (or as not an "Employee") for purposes of this Plan shall not be altered retroactively even if that classification is changed retroactively for another purpose as a result of an audit, litigation or otherwise. An Optionee shall not cease to be an Employee due to transfers between locations of the Company, or between the Company and an Affiliate, or to any successor to the Company or an Affiliate that assumes the Optionee's Options under Section 10. Neither service as a Director nor receipt of a director's fee shall be sufficient to make a Director an "Employee." (n) "Exchange Act" means the Securities Exchange Act of 1934. (o) "Executive" means an individual who is subject to Section 16 of the Exchange Act or who is a "covered employee" under Section 162(m) of the Code, in either case because of the individual's relationship with the Company or an Affiliate. (p) "Expiration Date" means, with respect to an Option, the date stated in the Option Agreement as the expiration date of the Option or, if no such date is stated in the Option Agreement, then the last day of the maximum exercise period for the Option, disregarding the effect of an Optionee's Termination or any other event that would shorten that period. (q) "Fair Market Value" means the value of Shares as determined under Section 16.2. 2 (r) "Fundamental Transaction" means any transaction or event described in Section 10.3. (s) "Grant Date" means the date the Administrator approves the grant of an Option. However, if the Administrator specifies that an Option's Grant Date is a future date or the date on which a condition is satisfied, the Grant Date for such Option is that future date or the date that the condition is satisfied. (t) "Incentive Stock Option" means an Option intended to qualify as an incentive stock option under Section 422 of the Code and designated as an Incentive Stock Option in the Option Agreement for that Option. (u) "Nonstatutory Option" means any Option other than an Incentive Stock Option. (v) "Officer" means an officer of the Company as defined in Rule 16a-1 adopted under the Exchange Act. (w) "Option" means a right to purchase Shares of the Company granted under this Plan. (x) Option Agreement" means the document evidencing the grant of an Option. (y) "Option Price" means the price payable under an Option for Shares, not including any amount payable in respect of withholding or other taxes. (z) "Option Shares" means Shares covered by an outstanding Option or purchased under an Option. (aa) "Optionee" means: (i) a person to whom an Option has been granted, including a holder of a Substitute Option and (ii) a person to whom an Option has been transferred in accordance with all applicable requirements of Sections 6.5, 7(h), and 15. (bb) "Plan" means this 2002 Stock Incentive Plan of Costco Wholesale Corporation. (cc) "Qualified Domestic Relations Order" means a judgment, order, or decree meeting the requirements of Section 414(p) of the Code. (dd) "Rule 16b-3" means Rule 16b-3 adopted under Section 16(b) of the Exchange Act. (ee) "Securities Act" means the Securities Act of 1933. 3 (ff) "Share" means a share of the common stock $.005 par value per share, of the Company or other securities substituted for the common stock under Section 10. (gg) "Substitute Option" means an Option granted in substitution for, or upon the conversion of, an option granted by another entity to purchase equity securities in the granting entity. (hh) "Termination" means that the Optionee has ceased to be, with or without any cause or reason, an Employee, Director or Consultant; provided that unless otherwise determined by the Administrator, a Termination will not be deemed to occur in the case of a Consultant by virtue of Consultant's ceasing to provide services to the Company if Consultant has completed the project for which the Consultant was engaged. However, if so determined by the Administrator, "Termination" shall not include a change in status from an Employee, Consultant or Director to another such status. An event that causes an Affiliate to cease being an Affiliate shall be treated as the "Termination" of that Affiliate's Employees, Directors, and Consultants. 2.2 Rules of Interpretation. Any reference to a "Section," without more, is to a Section of this Plan. Captions and titles are used for convenience in this Plan and shall not, by themselves, determine the meaning of this Plan. Except when otherwise indicated by the context, the singular includes the plural and vice versa. Any reference to a statute is also a reference to the applicable rules and regulations adopted under that statute. Any reference to a statute, rule or regulation, or to a section of a statute, rule or regulation, is a reference to that statute, rule, regulation, or section as amended from time to time, both before and after the effective date of this Plan and including any successor provisions. 3. Shares Subject to this Plan; Term of this Plan 3.1 Number of Option Shares. Subject to adjustment under Section 10, the maximum number of Shares that may be granted under Options under the Plan is 30,000,000 plus (i) the number of Shares that are available for grant under The Price/Costco 1993 Combined Stock Grant and Option Plan (the "1993 Plan") as of the date this Plan becomes effective and (ii) any Shares covered by options or portions of options granted under the 1993 Plan prior to the date this Plan becomes effective that are subsequently cancelled or expire unexercised. 3.2 Source of Shares. Option Shares may be authorized but unissued Shares. If an Option is terminated, expires, or otherwise becomes unexercisable without having been exercised in full, the unpurchased Shares that were subject to the Option shall revert to this Plan and shall again be available for future issuance under this Plan. Shares actually issued under this Plan in a Stock Option shall not be available for regrant even if repurchased by the Company. 4 3.3 Term of this Plan (a) This Plan shall be effective on the date it has been both adopted by the Board and approved by the Company's shareholders. (b) Subject to Section 13, this Plan shall continue in effect for a period of ten years from the earlier of the date on which the Plan was adopted by the Board and the date on which the Plan was approved by the Company's shareholders. 4. Administration 4.1 General (a) The Board shall have ultimate responsibility for administering this Plan. The Board may delegate certain of its responsibilities to a Committee, which shall consist of at least two members of the Board. The Board or the Committee may further delegate its responsibilities to any Employee of the Company or any Affiliate. Where this Plan specifies that an action is to be taken or a determination made by the Board, only the Board may take that action or make that determination. Where this Plan specifies that an action is to be taken or a determination made by the Committee, only the Committee may take that action or make that determination. Where this Plan references the "Administrator," the action may be taken or determination made by the Board, the Committee, or other Administrator. However, only the Board or the Committee may approve grants of Options to Executives, and an Administrator other than the Board or the Committee may grant Options only within guidelines established by the Board or Committee. Moreover, all actions and determinations by any Administrator are subject to the provisions of this Plan. (b) So long as the Company has registered and outstanding a class of equity securities under Section 12 of the Exchange Act, the Committee shall consist of Company Directors who are "Non-Employee Directors" as defined in Rule 16b-3 and who are "outside directors" as defined in Section 162(m) of the Code. 4.2 Authority of Administrator. Subject to the other provisions of this Plan, the Administrator shall have the authority: (a) to grant Options, including Substitute Options, provided that no non-employee Company Director may be granted Options to purchase more than 12,000 shares in any fiscal year (subject to proportionate increase in the event of any share dividends or stock splits); (b) to determine the Fair Market Value of Shares; (c) to determine the Option Price; 5 (d) to select the Optionees; (e) to determine the times Options are granted; (f) to determine the number of Shares subject to each Option; (g) to determine the types of payment that may be used to purchase Option Shares; (h) to determine the types of payment that may be used to satisfy withholding tax obligations; (i) to determine the other terms of each Option, including but not limited to the time or times at which Options may be exercised, whether and under what conditions an Option is assignable, and whether an Option is a Nonstatutory Option or an Incentive Stock Option; (j) to modify or amend any Option, including, without limitation, to extend the period during which an Option may be exercised, but neither the Board nor the Committee shall have the authority to reduce the Option Price of any outstanding Option without obtaining the approval of the Company's shareholders; (k) to authorize any person to sign any Option Agreement or other document related to this Plan on behalf of the Company; (l) to determine the form of any Option Agreement or other document related to this Plan, and whether that document, including signatures, may be in electronic form; (m) to interpret this Plan and any Option Agreement or document related to this Plan; (n) to correct any defect, remedy any omission, or reconcile any inconsistency in this Plan, any Option Agreement or any other document related to this Plan; (o) to adopt, amend, and revoke rules and regulations under this Plan, including rules and regulations relating to sub-plans and Plan addenda; (p) to adopt, amend, and revoke rules and procedures relating to the operation and administration of this Plan to accommodate non-U.S. Optionees and the requirements of Applicable Law such as: (i) rules and procedures regarding the conversion of local currency, withholding procedures and the handling of stock certificates to comply with local practice and requirements, and (ii) sub-plans and Plan addenda for non-U.S. Optionees; 6 (q) to determine whether a transaction or event should be treated as a Change of Control, a Divestiture or neither; (r) to determine the effect of a Fundamental Transaction and, if the Board determines that a transaction or event should be treated as a Change of Control or a Divestiture, then the effect of that Change of Control or Divestiture; and (s) to make all other determinations the Administrator deems necessary or advisable for the administration of this Plan. 4.3 Scope of Discretion. Subject to the last sentence of this Section 4.3, on all matters for which this Plan confers the authority, right or power on the Board, the Committee, or other Administrator to make decisions, that body may make those decisions in its sole and absolute discretion. Moreover, but again subject to the last sentence of this Section 4.3, in making those decisions the Board, Committee or other Administrator need not treat all persons eligible to receive Options, all Optionees, all Options or all Option Shares the same way. However, the discretion of the Board, Committee or other Administrator is subject to the specific provisions and specific limitations of this Plan, as well as all rights conferred on specific Optionees by Option Agreements and other agreements. 5. Persons Eligible to Receive Options 5.1 Eligible Individuals. Options may be granted to, and only to, Employees, Directors and Consultants, including to prospective Employees, Directors and Consultants conditioned on the beginning of their service for the Company or an Affiliate. (a) Section 162(m) Limitation. So long as the Company is a "publicly held corporation" within the meaning of Section 162(m) of the Code: (a) no Employee or prospective Employee may be granted one or more Options within any fiscal year of the Company to purchase more than 500,000 Shares, subject to adjustment under Section 10, and (b) Options may be granted to an Executive only by the Committee (and, notwithstanding Section 4.1(a), not by the Board). If an Option is cancelled without being exercised or if the Option Price of an Option is reduced, that cancelled or repriced Option shall continue to be counted against the limit on Options that may be granted to any individual under this Section 5.2. 6. Terms and Conditions of Options The following rules apply to all Options: 6.1 Price. No Option may have an Option Price less than 100% of the Fair Market Value of the Shares on the Grant Date. 7 6.2 Term. No Option shall be exercisable after its Expiration Date. No Option may have an Expiration Date that is more than ten years after its Grant Date. 6.3 Vesting. Options shall be exercisable in accordance with a schedule related to the Grant Date, the date the Optionee's directorship, employment or consultancy begins, or a different date specified in the Option Agreement evidencing such Option; provided that no Option shall be exercisable until one year from the Grant Date. 6.4 Form of Payment. (a) The Administrator shall determine the acceptable form and method of payment for exercising an Option. (b) Acceptable forms of payment for all Option Shares are cash, check or wire transfer, denominated in U.S. dollars except as specified by the Administrator for non-U.S. Employees or non-U.S. sub-plans. (c) In addition, the Administrator may permit payment to be made by any of the following methods: (i) other Shares, or the designation of other Shares, which (A) in the case of Shares acquired upon exercise of an option (whether or not under this Plan) have been owned by the Optionee for more than six months on the date of surrender, and (B) have a Fair Market Value on the date of surrender equal to the Option Price of the Shares as to which the Option is being exercised; (ii) provided that a public market exists for the Shares, through a "same day sale" commitment from the Optionee and a broker-dealer that is a member of the National Association of Securities Dealers (an "NASD Dealer") under which the Optionee irrevocably elects to exercise the Option and the NASD Dealer irrevocably commits to forward an amount equal to the Option Price, directly to the Company, upon receipt of the Option Shares (a "Cashless Exercise"); (iii)any combination of the methods of payment permitted by any paragraph of this Section 6.4. (d) The Administrator may also permit any other form or method of payment for Option Shares permitted by Applicable Law. 6.5 Nonassignability of Options. Except as determined by the Administrator, no Option shall be assignable or otherwise transferable by the Optionee except (a) by will or by the laws of descent and distribution, (b) to a grantor trust or partnership established for estate planning purposes to the extent permitted by Applicable Laws, or (c) in accordance with a Qualified Domestic Relations Order. 8 6.6 Substitute Options. The Board may cause the Company to grant Substitute Options in connection with the acquisition by the Company or an Affiliate of equity securities of any entity (including by merger) or all or a portion of the assets of any entity. Any such substitution shall be effective when the acquisition closes. Substitute Options may be Nonstatutory Options or Incentive Stock Options. Unless and to the extent specified otherwise by the Board, Substitute Options shall have the same terms and conditions as the options they replace, except that (subject to Section 10) Substitute Options shall be Options to purchase Shares rather than equity securities of the granting entity and shall have an Option Price that, as determined by the Board in its sole and absolute discretion, properly reflects the substitution. 7. Incentive Stock Options The following rules apply only to Incentive Stock Options and only to the extent these rules are more restrictive than the rules that would otherwise apply under this Plan. With the consent of the Optionee, or where this Plan provides that an action may be taken notwithstanding any other provision of this Plan, the Administrator may deviate from the requirements of this Section, notwithstanding that any Incentive Stock Option modified by the Administrator will thereafter be treated as a Nonstatutory Option. (a) The Expiration Date of an Incentive Stock Option shall not be later than ten years from its Grant Date, with the result that no Incentive Stock Option may be exercised after the expiration of ten years from its Grant Date. (b) No Incentive Stock Option may be granted more than ten years from the date this Plan was approved by the Board. (c) Options intended to be incentive stock options under Section 422 of the Code that are granted to any single Optionee under all incentive stock option plans of the Company and its Affiliates, including Incentive Stock Options granted under this Plan, may not vest at a rate of more than $100,000 in Fair Market Value of stock (measured on the grant dates of the options) during any calendar year. For this purpose, an option vests with respect to a given share of stock the first time its holder may purchase that share, notwithstanding any right of the Company to repurchase that share. Unless the Administrator specifies otherwise in the related agreement governing the Option, this vesting limitation shall be applied by, to the extent necessary to satisfy this $100,000 rule, treating certain stock options that were intended to be incentive stock options under Section 422 of the Code as Nonstatutory Options. The stock options or portions of stock options to be reclassified as Nonstatutory Options are those with the highest option prices, whether granted under this Plan or any other equity compensation plan of the Company or any Affiliate that permits that treatment. This Section 7(c) shall not cause an Incentive Stock Option to vest before its original vesting date or cause an Incentive Stock Option that has already vested to cease to be vested. 9 (d) In order for an Incentive Stock Option to be exercised for any form of payment other than those described in Section 6.4(b), that right must be stated in the Option Agreement relating to that Incentive Stock Option. (e) Any Incentive Stock Option granted to a Ten Percent Shareholder (as defined below), must have an Expiration Date that is not later than five years from its Grant Date, with the result that no such Option may be exercised after the expiration of five years from the Grant Date. A "Ten Percent Shareholder" is any person who, directly or by attribution under Section 424(d) of the Code, owns stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company or of any Affiliate on the Grant Date. (f) The Option Price of an Incentive Stock Option shall never be less than the Fair Market Value of the Shares at the Grant Date. The Option Price for the Shares covered by an Incentive Stock Option granted to a Ten Percent Shareholder shall never be less than 110% of the Fair Market Value of the Shares at the Grant Date. (g) Incentive Stock Options may be granted only to Employees. If an Optionee changes status from an Employee to a Consultant, that Optionee's Incentive Stock Options become Nonstatutory Options if not exercised within the time period described in Section 7(i). (h) No rights under an Incentive Stock Option may be transferred by the Optionee, other than by will or the laws of descent and distribution. During the life of the Optionee, an Incentive Stock Option may be exercised only by the Optionee. The Company's compliance with a Qualified Domestic Relations Order, or the exercise of an Incentive Stock Option by a guardian or conservator appointed to act for the Optionee, shall not violate this Section 7(h). (i) An Incentive Stock Option shall be treated as a Nonstatutory Option if it remains exercisable after, but is not exercised within, the three-month period beginning with the Optionee's Termination for any reason other than the Optionee's death or disability (as defined in Section 22(c) of the Code). In the case of Termination due to death, an Incentive Stock Option shall continue to be treated as an Incentive Stock Option if it remains exercisable after, but is not exercised within, that three-month period provided it is exercised before the Expiration Date. In the case of Termination due to disability, an Incentive Stock Option shall be treated as a Nonstatutory Option if it remains exercisable after, but is not exercised within, one year after the Optionee's Termination. 10 8. Consulting or Employment Relationship. Nothing in this Plan or in any Option Agreement, and no Option shall: (a) interfere with or limit the right of the Company or any Affiliate to terminate the employment or consultancy of any Optionee at any time, whether with or without cause or reason, and with or without the payment of severance or any other compensation or payment, or (b) interfere with the application of any provision in any of the Company's or any Affiliate's charter documents or Applicable Law relating to the election, appointment, term of office, or removal of a Director. 9. Exercise of Options; Termination 9.1 In General. An Option shall be exercisable in accordance with this Plan, the Option Agreement under which it is granted, and as prescribed by the Administrator. 9.2 Time of Exercise. Options shall be considered exercised when the Company receives: (a) written notice of exercise from the person entitled to exercise the Option, (b) full payment, or provision for payment, in a form and method approved by the Administrator, for the Shares for which the Option is being exercised, and (c) with respect to Nonstatutory Options, payment, or provision for payment, in a form approved by the Administrator, of all applicable withholding taxes due upon exercise. An Option may not be exercised for a fraction of a Share. 9.3 Issuance of Option Shares. The Company shall issue Option Shares in the name of the person properly exercising an Option. If the Optionee is that person and so requests, the Option Shares shall be issued in the name of the Optionee and the Optionee's spouse. The Company shall endeavor to issue Option Shares promptly after an Option is exercised. However, until Option Shares are actually issued, as evidenced by the appropriate entry on the stock books of the Company or its transfer agent, no right to vote or receive dividends or other distributions, and no other rights as a shareholder, shall exist with respect to the Option Shares, even though the Optionee has completed all the steps necessary to exercise the Option. No adjustment shall be made for any dividend, distribution, or other right for which the record date precedes the date the Option Shares are issued, except as provided in Section 11. 9.4 Termination (a) In General. Except as provided by the Administrator, including in an Option Agreement, after an Optionee's Termination, except as otherwise provided in Sections 9.4(b), (c), (d) and (e), the Optionee's Options shall be exercisable to purchase (A) the number of Shares for which such Options have vested on the date of that Termination plus (B) (in the event the Option only vests in annual increments and such Termination occurs after the one year anniversary of the Grant Date) the Pro Rata Number of Shares for which the Option would have become vested on the next anniversary of the Grant Date 11 following Termination. As used in this Section 9, the "Pro Rata Number of Shares" shall be equal to (a) the additional number of Shares that would have become vested on the next anniversary of the Grant Date following Termination, multiplied by (b) a fraction, the numerator of which shall be the number of days from the anniversary of the Grant Date preceding Termination and the denominator of which shall be 365, rounded to the nearest whole Share. Except as otherwise provided by the Administrator or in the Option Agreement, such Options shall only be exercisable during the period ending 30 days after the Termination, but in no event after the Expiration Date. To the extent the Optionee does not exercise an Option within the time specified for exercise, the Option shall automatically terminate. (b) Leaves of Absence. Unless otherwise provided in the Option Agreement, no Option may be exercised more than 90 days after the beginning of a leave of absence, other than a personal or medical leave approved by the Administrator with employment guaranteed upon return. Unless otherwise determined by the Administrator, Options shall not continue to vest during a leave of absence, other than an approved personal or medical leave with employment guaranteed upon return. (c) Death or Disability. In the event of the death of an Optionee who at the date of death either (i) was an officer of the Company with the title of Assistant Vice President or above or (ii) had been employed by the Company for ten or more continuous years, all Options that were granted to that Optionee but are unvested as of the date of the Optionee's death shall become vested, effective as of the date of death. In the event of the death of an Optionee who at the date of death is an Employee but qualifies under neither clause (i) or (ii) of the previous sentence, 50% of the Options that were granted to that Optionee but unvested on the date of the Optionee's death shall become vested, effective as of the date of death. Unless otherwise provided by the Administrator, if an Optionee's Termination is due to death or disability (as determined by the Administrator with respect to Nonstatutory Options and as defined by Section 22(e) of the Code with respect to Incentive Stock Options), all Options of that Optionee may be exercised for one year after that Termination, but in no event after the Expiration Date. In the case of Termination of an Employee due to death, such Options shall be exercisable to purchase the number of shares for which the Options were vested as of the Termination Date in accordance with the first two sentences of this Section 9.4(c). In the case of Termination due to disability, such Options shall be exercisable to purchase (A) the number of Shares for which such Options have vested as of the Termination Date, plus (B) the Pro Rata Number of Shares (as defined in Section 9(a)) for which the Option would have vested on the next anniversary of the Grant Date (in the event the Option only vests in annual increments and such Termination occurs after the one year anniversary of the Grant Date). In the case of Termination due to death, an Option may be exercised as provided in Section 15. In the case of Termination due to disability, if a guardian or conservator has been appointed to act for the Optionee and been granted this authority as part of that appointment, that guardian or conservator 12 may exercise the Option on behalf of the Optionee. Death or disability occurring after an Optionee's Termination shall not cause the Termination to be treated as having occurred due to death or disability. To the extent an Option is not so exercised within the time specified for its exercise, the Option shall automatically terminate. (d) Divestiture. If an Optionee's Termination is due to a Divestiture, the Board may take any one or more of the actions described in Section 10.3 or 10.4. (e) Termination for Cause. If an Optionee's Termination is due to Cause (as defined below), all of the Optionee's Options shall automatically terminate and cease to be exercisable at the time of Termination. "Cause" means dishonesty, fraud, misconduct, disclosure or misuse of confidential information, conviction of, or a plea of guilty or no contest to, a felony or similar offense, habitual absence from work for reasons other than illness, intentional conduct that could cause significant injury to the Company or an Affiliate, or habitual abuse of alcohol or a controlled substance, in each case as determined by the Administrator. 10. Certain Transactions and Events 10.1 In General. Except as provided in this Section 10, no change in the capital structure of the Company, merger, sale or other disposition of assets or a subsidiary, change of control, issuance by the Company of shares of any class of securities convertible into shares of any class, conversion of securities, or other transaction or event shall require or be the occasion for any adjustments of the type described in this Section 10. 10.2 Changes in Capital Structure. In the event of any stock split, reverse stock split, recapitalization, combination or reclassification of stock, stock dividend, spin-off, or similar change to the capital structure of the Company (not including a Fundamental Transaction or Change of Control), the Board shall make whatever adjustments it concludes are appropriate to: (a) the number and type of Options that may be granted under this Plan, (b) the number and type of Options that may be granted to any individual under this Plan, and (c) the Option Price and number and class of securities issuable under each outstanding Option. The specific adjustments shall be determined by the Board in its sole and absolute discretion. Unless the Board specifies otherwise, any securities issuable as a result of any such adjustment shall be rounded to the next lower whole security. 10.3 Fundamental Transactions. If the Company merges with another entity in a transaction in which the Company is not the surviving entity or if, as a result of any other transaction or event, other securities are substituted for the Shares or Shares may no longer be issued (each a "Fundamental Transaction"), then, notwithstanding any other provision of this Plan, the Board shall do one or more of the following contingent on the closing or completion of the Fundamental Transaction: (a) arrange for the substitution of options or other compensatory awards of equity securities other than Shares (including, if appropriate, equity securities of an entity other than the Company) in exchange 13 for Options, (b) accelerate the vesting and termination of outstanding Options so that Options can be exercised in full before or otherwise in connection with the closing or completion of the transaction or event but then terminate or (c) cancel Options in exchange for cash payments to Optionees. The Board need not adopt the same rules for each Option or each Optionee. 10.4 Changes of Control. The Board may also, but need not, specify that other transactions or events constitute a "Change of Control". The Board may do that either before or after the transaction or event occurs. Examples of transactions or events that the Board may treat as Changes of Control are: (a) the Company or an Affiliate is a party to a merger, consolidation, amalgamation, or other transaction in which the beneficial shareholders of the Company, immediately before the transaction, beneficially own securities representing 50% or less of the total combined voting power or value of the Company immediately after the transaction, (b) any person or entity, including a "group" as contemplated by Section 13(d)(3) of the Exchange Act, acquires securities holding 30% or more of the total combined voting power or value of the Company, or (c) as a result of or in connection with a contested election of Company Directors, the persons who were Company Directors immediately before the election cease to constitute a majority of the Board. In connection with a Change of Control, notwithstanding any other provision of this Plan, the Board may take any one or more of the actions described in Section 10.3. In addition, the Board may extend the date for the exercise of Options (but not beyond their original Expiration Date). The Board need not adopt the same rules for each Option or each Optionee. 10.5 Divestiture. If the Company or an Affiliate sells or otherwise transfers equity securities of an Affiliate to a person or entity other than the Company or an Affiliate, or leases, exchanges or transfers all or any portion of its assets to such a person or entity, then the Board, in its sole and absolute discretion, may specify that such transaction or event constitutes a "Divestiture". In connection with a Divestiture, notwithstanding any other provision of this Plan, the Board may take one or more of the actions described in Section 10.3 or 10.4 with respect to Options or Option Shares held by, for example, Employees, Directors or Consultants for whom that transaction or event results in a Termination. The Board need not adopt the same rules for each Option or each Optionee. 10.6 Dissolution. If the Company adopts a plan of dissolution, the Board may, in its sole and absolute discretion, cause Options to be fully vested and exercisable (but not after their Expiration Date) before the dissolution is completed but contingent on its completion and may cause the Company's repurchase rights on Option Shares to lapse upon completion of the dissolution. To the extent not exercised before the earlier of the completion of the dissolution or their Expiration Date, Options shall terminate just before the dissolution is completed. The Board need not adopt the same rules for each Option or each Optionee. 14 10.7 Cut-Back to Preserve Benefits. If the Administrator determines that the net after-tax amount to be realized by any Optionee, taking into account any accelerated vesting, termination of repurchase rights, or cash payments to that Optionee in connection with any transaction or event addressed in this Section 10 would be greater if one or more of those steps were not taken with respect to that Optionee's Options or Option Shares, then and to that extent one or more of those steps shall not be taken. 11. Withholding and Tax Reporting 11.1 Tax Withholding Alternatives (a) General. Whenever Option Shares are issued upon the exercise of an option, the Company may require the Optionee to remit to the Company an amount sufficient to satisfy any applicable tax withholding requirement, whether the related tax is imposed on the Optionee or the Company. The Company shall have no obligation to deliver Option Shares or release Option Shares from an escrow until the Optionee has satisfied those tax withholding obligations. (b) Method of Payment. The Optionee shall pay any required withholding using the forms of consideration described in Section 6.4(b), except that, in the discretion of the Administrator, the Company may also permit the Optionee to use any of the forms of payment described in Section 6.4(c). The Administrator may also permit Option Shares to be withheld to pay required withholding. If the Administrator permits Option Shares to be withheld, the Fair Market Value of the Option Shares withheld shall not exceed the amount determined by the applicable minimum statutory withholding rates, and shall be determined as of the date that the amount of tax to be withheld or tendered for this purpose is to be determined. 11.2 Reporting of Dispositions. Any holder of Option Shares acquired under an Incentive Stock Option shall promptly notify the Administrator in writing of the sale or other disposition of any of those Option Shares if the disposition occurs during: (a) the longer of two years after the Grant Date of the Incentive Stock Option and one year after the date the Incentive Stock Option was exercised, or (b) such other period as the Administrator has established. 12. Compliance with Law The grant of Options and the issuance and subsequent transfer of Option Shares shall be subject to compliance with all Applicable Law, including all applicable securities laws. Options may not be exercised, and Option Shares may not be transferred, in violation of Applicable Law. Thus, for example, Options may not be exercised unless: (a) a registration statement under the Securities 15 Act is then in effect with respect to the related Option Shares, or (b) in the opinion of legal counsel to the Company, those Option Shares may be issued in accordance with an applicable exemption from the registration requirements of the Securities Act and any other applicable securities laws. The failure or inability of the Company to obtain from any regulatory body the authority considered by the Company's legal counsel to be necessary or useful for the lawful issuance of any Option Shares or their subsequent transfer shall relieve the Company of any liability for failing to issue those Option Shares or permitting their transfer. As a condition to the exercise of any Option or the transfer of any Option Shares, the Company may require the Optionee to satisfy any requirements or qualifications that may be necessary or appropriate to comply with or evidence compliance with any Applicable Law. 13. Amendment or Termination of this Plan or Outstanding Options 13.1 Amendment and Termination. The Board may at any time amend, suspend, or terminate this Plan. 13.2 Shareholder Approval. The Company shall obtain the approval of the Company's shareholders for any amendment to this Plan if shareholder approval is necessary or desirable to comply with any Applicable Law, with the requirements applicable to the grant of Options intended to be Incentive Stock Options or if the amendment would materially enhance the benefits available to participants under the Plan. The Board may also, but need not, require that the Company's shareholders approve any other amendments to this Plan. Unless a greater vote is required by Applicable Law, any amendment to the Plan shall be deemed approved if such amendment receives more affirmative votes than negative votes at a shareholders' meeting at which a quorum is present. 13.3 Effect. No amendment, suspension, or termination of this Plan, and no modification of any Option even in the absence of an amendment, suspension, or termination of this Plan, shall impair any existing contractual rights of any Optionee unless the affected Optionee consents to the amendment, suspension, termination, or modification. However, no such consent shall be required if the Administrator determines in its sole and absolute discretion that the amendment, suspension, termination, or modification: (a) is required or advisable in order for the Company, the Plan or the Option to satisfy Applicable Law, to meet the requirements of any accounting standard or to avoid any adverse accounting treatment, or (b) in connection with any transaction or event described in Section 10, is in the best interests of the Company or its shareholders. The Administrator may, but need not, take the tax consequences to affected Optionees into consideration in acting under the preceding sentence. Termination of this Plan shall not affect the Administrator's ability to exercise the powers granted to it under this Plan with respect to Options granted before the termination, or Option Shares issued under such Options, even if those Option Shares are issued after the termination. 16 14. Reserved Rights 14.1 Nonexclusivity of this Plan. This Plan shall not limit the power of the Company or any Affiliate to adopt other incentive arrangements including, for example, the grant or issuance of stock options, stock, or other equity-based rights under other plans or independently of any plan. 14.2 Unfunded Plan. This Plan shall be unfunded. Although bookkeeping accounts may be established with respect to Optionees, any such accounts will be used merely as a convenience. The Company shall not be required to segregate any assets on account of this Plan, the grant of Options, or the issuance of Option Shares. The Company and the Administrator shall not be deemed to be a trustee of stock to be Optioned under this Plan. Any obligations of the Company to any Optionee shall be based solely upon contracts entered into under this Plan, such as Option Agreements. No such obligation shall be deemed to be secured by any pledge or other encumbrance on any assets of the Company. Neither the Company nor the Administrator shall be required to give any security or bond for the performance of any such obligation. 15. Beneficiaries An Optionee may file a written designation of one or more beneficiaries who are to receive the Optionee's rights under the Optionee's Options after the Optionee's death. An Optionee may change such a designation at any time by written notice. If an Optionee designates a beneficiary, the beneficiary may exercise the Optionee's Options after the Optionee's death. If an Optionee dies when the Optionee has no living beneficiary designated under this Plan, the Company shall allow the executor or administrator of the Optionee's estate to exercise the Option or, if there is none, the person entitled to exercise the Option under the Optionee's will or the laws of descent and distribution. In any case, no Option may be exercised after its Expiration Date. 16. Miscellaneous 16.1 Governing Law. This Plan and all determinations made and actions taken under this Plan shall be governed by the substantive laws, but not the choice of law rules, of the State of Washington. 16.2 Determination of Value. Fair Market Value shall be determined as follows: (a) Listed Stock. If the Shares are traded on any established stock exchange or quoted on a national market system, Fair Market Value shall be the 17 closing sales price for the Shares as quoted on that stock exchange or system for the date the value is to be determined (the "Value Date") as reported in The Wall Street Journal or a similar publication. If no sales are reported as having occurred on the Value Date, Fair Market Value shall be that closing sales price for the last preceding trading day on which sales of Shares are reported as having occurred. If no sales are reported as having occurred during the five trading days before the Value Date, Fair Market Value shall be the closing bid for Shares on the Value Date. If Shares are listed on multiple exchanges or systems, Fair Market Value shall be based on sales or bids on the primary exchange or system on which Shares are traded or quoted. (b) Stock Quoted by Securities Dealer. If Shares are regularly quoted by a recognized securities dealer but selling prices are not reported on any established stock exchange or quoted on a national market system, Fair Market Value shall be the mean between the high bid and low asked prices on the Value Date. If no prices are quoted for the Value Date, Fair Market Value shall be the mean between the high bid and low asked prices on the last preceding trading day on which any bid and asked prices were quoted. (c) No Established Market. If Shares are not traded on any established stock exchange or quoted on a national market system and are not quoted by a recognized securities dealer, the Administrator will determine Fair Market Value in good faith. The Administrator will consider the following factors, and any others it considers significant, in determining Fair Market Value: (i) the price at which other securities of the Company have been issued to purchasers other than Employees, Directors, or Consultants, (ii) the Company's net worth, prospective earning power, dividend-paying capacity, and non-operating assets, if any, and (iii) any other relevant factors, including the economic outlook for the Company and the Company's industry, the Company's position in that industry, the Company's goodwill and other intellectual property, and the values of securities of other businesses in the same industry. 16.3 Reservation of Shares. During the term of this Plan, the Company will at all times reserve and keep available such number of Shares as are still issuable under this Plan. 16.4 Electronic Communications. Any Option Agreement, notice of exercise of an Option, or other document required or permitted by this Plan may be delivered in writing or, to the extent determined by the Administrator, electronically. Signatures may also be electronic if permitted by the Administrator. 18 16.5 Notices. Unless the Administrator specifies otherwise, any notice to the Company under any Option Agreement or with respect to any Options or Option Shares shall be in writing (or, if so authorized by Section 16.4, communicated electronically), shall be addressed to the Secretary of the Company, and shall only be effective when received by the Secretary of the Company. Adopted by the Board on:____________________________________________________ Approved by the shareholders on:____________________________________________ Effective date of this Plan:________________________________________________ 19 EX-5 5 exh51.txt EXHIBIT 5.1 February 11, 2002 The Board of Directors Costco Wholesale Corporation 999 Lake Drive Issaquah, Washington 98027 Re: Registration Statement on Form S-8 Ladies and Gentlemen: This opinion is furnished to Costco Wholesale Corporation, a Washington corporation (the "Company") in connection with the filing of a Registration Statement on Form S-8 (the "Registration Statement") with the Securities and Exchange Commission under the Securities Act of 1933, as amended, relating to the proposed sale by the Company of up to 50,000,000shares (the "Shares") of common stock, par value $.0067 (the Common Stock), issuable by the Company under Amended and Restated 1993 Combined Stock Grant and Stock Option Plan and the 2002 Equity Incentive Plan (the "Plans"). We have reviewed, among other things, the Company's Articles of Incorporation and Bylaws, each as amended, the Plans and related agreements and records of corporate proceedings and other actions taken or proposed to be taken by the Company in connection with the authorization, issuance and sale of the Shares pursuant to awards made under the Plans. We have made such other factual inquiries as we deemed necessary to render this opinion. Based upon the foregoing and in reliance thereon, it is our opinion that the reservation for issuance of the Shares pursuant to the Plans has been duly authorized and, when issued pursuant to awards granted and exercised in accordance with the Plans and related agreements, the Shares will be validly issued, fully paid and non-assessable. We express no opinion herein as to the laws of any state or jurisdiction other than the State of Washington and the federal laws of the United States. We hereby authorize and consent to the use of this opinion as an exhibit to the Registration Statement and to all references to us in the Registration Statement and any amendments thereto. Very truly yours, /s/ HELLER EHRMAN WHITE & McAULIFFE LLP EX-15 6 exh151.txt EXHIBIT 15.1 Costco Wholesale Corporation 999 Lake Drive Issaquah, Washington 98092 February 12, 2002 Ladies and Gentlemen: We are aware that Costco Wholesale Corporation has incorporated by reference in its Registration Statement on Form S-8 its Form 10-Q for the quarter ended November 25, 2001, which includes our report dated December 11, 2001, covering the unaudited interim financial information contained therein. Pursuant to Regulation C of the Securities Act of 1933, that report is not considered a part of the registration statement prepared or certified by our firm or a report prepared or certified by our firm within the meaning of Sections 7 and 11 of the Act. Very truly yours, /s/ Arthur Andersen LLP EX-23 7 exh232.txt EXHIBIT 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this registration statement of our report dated October 8, 2001 included in Costco Wholesale, Inc.'s Form 10-K for the year ended September 2, 2001 and to all references to our Firm included in this registration statement. /s/ Arthur Andersen LLP Seattle, Washington February 12, 2002 -----END PRIVACY-ENHANCED MESSAGE-----