Document:

ex10-1.htm

 Franklin Credit Management Corporation 8-K

Exhibit 10.1

 

CAPITAL CONTRIBUTION AGREEMENT

 

 

THIS CAPITAL CONTRIBUTION AGREEMENT (the “Agreement”), made the 11th day of October 2013, and effective September 30, 2013, between Franklin Credit Management Corporation, a Delaware Corporation, with its principal place of business at 101 Hudson Street, 25th Floor, Jersey City, N.J. (“FCRM” or the “Company”) and Thomas J. Axon, Number 6 Harrison Street, Fifth Floor, New York, N.Y.  (“Mr. Axon”) hereby agree as follows:

 

	
1.  

	
Purchase of Preferred Stock. Subject to the terms and conditions herein, Mr. Axon agrees to purchase from the Company an aggregate of Two Million Fifty Thousand (2,050,000) shares of non-transferrable restricted Preferred Stock, par value $0.001, in the Company (the  “Preferred Shares”) at the price of $2.00 per share for an aggregate purchase price of Four Million One Hundred Thousand ($4,100,000.00) dollars. Except as otherwise provided in this Agreement, Mr. Axon shall have no right to (1) withdraw, redeem or exchange the Preferred Shares, or (2) receive a liquidation preference on account of the Preferred Shares.  The Preferred Shares shall be paid for in US dollars and in immediately available funds, payable as follows:

 

	
a.     

	
The Company shall issue Mr. Axon 250,000 shares of Preferred Stock in exchange for Five Hundred Thousand ($500,000.00) dollars, which was paid to the Company by Mr. Axon on May 20, 2013 and is hereby acknowledged as received by the Company (the “Initial Contribution”);

 

	
b.     

	
Mr. Axon shall purchase a minimum of 100,000 shares of Preferred Stock per month for an aggregate minimum monthly purchase of Two Hundred Thousand ($200,000.00) dollars, in cash in non-refundable funds, monthly on the 20th of each month until such date as Mr. Axon has purchased and holds 2,050,000 Preferred Shares and an aggregate amount of $4.10 Million has been paid in full (with such date on which the $4.10 Million has been paid in full to be referred to herein as the “Exchange Date”).

 

	
c.     

	
In the event of any consolidation or merger of the Company into any other corporation or other entity or person, the Company shall have the right, but not the obligation, to accelerate this Agreement and repurchase all or, at its election, a portion of the Preferred Shares from Mr. Axon at the purchase price paid by Mr. Axon for the Preferred Shares, plus any accrued and unpaid dividends payable to Mr. Axon on account of such Preferred Shares. Any shares not repurchased by the Company shall be converted into common stock of the Company under the procedures set forth under Paragraph 15, with the Conversion Date, for purposes of this provision only, to be the date of acceleration by the Company. Notwithstanding the foregoing, Mr. Axon shall have the right within no later than thirty (30) days of any acceleration by the Company to purchase the remaining Preferred Shares necessary to exercise his rights under Paragraph 5 to exchange the Preferred Shares for the Property and to exercise the Exchange Option, prior to the Company repurchasing all, or at its election, a portion of the Preferred Shares.

 

  

  

  

	
d.      

	
All certificates representing the Preferred Shares shall have endorsed thereon the following legends:

 

	
(1)      

	
THE SALE, TRANSFER, ASSIGNMENT, PLEDGE, HYPOTHECATION ENCUMBRANCE OR OTHER DISPOSAL OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF A CAPITAL CONTRIBUTION AGREEMENT BETWEEN FRANKLIN CREDIT MANAGEMENT CORPORATION AND THE HOLDER OF RECORD OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE.  NO TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IN CONTRAVENTION OF SUCH AGREEMENT SHALL BE VALID OR EFFECTIVE.  COPIES OF SUCH AGREEMENT MAY BE OBTAINED BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THE CERTIFICATE TO THE SECRETARY OF FRANKLIN CREDIT MANAGEMENT CORPORATION; and

 

	
(2)      

	
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.  THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

 

	
e.      

	
Mr. Axon shall be entitled to receive, when, if and as declared by the Board of Directors of the Company, out of funds legally available therefore, cumulative dividends payable as set forth herein. Dividends on each Preferred Share shall accrue and shall be cumulative and accumulate commencing as of the first of the month immediately following the date of issuance of each such Preferred Share, whether or not earned or declared by the Board of Directors of the Company, at the dividend rate of seven percent (7%) per annum based on the price of $2 per share paid for each such Preferred Share, until paid, in preference and priority to any payment of any dividend on the common stock of the Company.

 

	
2. 

	
Nature of Preferred Shares.  The amounts paid by Mr. Axon for the Preferred Shares represent capital contributions made by Mr. Axon.  Payments made on account of the Preferred Shares are non-refundable, with no distribution, redemption or withdrawal rights (except for the right of exchange as provided herein).  There shall be no voting or redemption rights associated with the Preferred Shares. Except as expressly provided in this Agreement, Mr. Axon, without the written consent of the Audit Committee of the Board of Directors of the Company, which may be withheld by the Audit Committee in its sole discretion, may not directly or indirectly offer, sell, transfer, grant any option for the purchase of, enter into any arrangement with the same economic effect as a sale of, relinquish, liquidate, divest, assign, hypothecate, pledge, encumber, convey in trust, transfer by gift, bequest or descent, or otherwise dispose of voluntarily or by operation of law any Preferred Shares acquired by him or any part thereof to any person or entity during his lifetime or upon his death.

 

  

  

  

	
3. 

	
Obligations Unconditional.  The obligations of Mr. Axon to purchase the Preferred Shares are absolute, irrevocable and unconditional in all respects and shall be unaffected by any circumstance whatsoever.  Payments of the capital contributions shall be made by wire transfer to the Company according to written instructions provided by the Company in immediately available funds.  The payment obligations provided for in this Agreement are absolute and unconditional and not subject to any defense, set-off, counterclaim, rescission, recoupment or adjustment except as specifically provided herein.

 

	
4. 

	
Right to Accelerate Purchases of Preferred Shares.   Mr. Axon has the right to purchase additional Preferred Shares in advance of the minimum requirements of Paragraph 1 at any time without penalty, subject to the maximum entitlement under this Agreement to purchase 2,050,000 Preferred Shares.

 

	
5. 

	
Right to Exchange Preferred Shares.   The Company grants to Mr. Axon an irrevocable and exclusive option (the “Exchange Option”), exercisable on or after the Exchange Date, to exchange 2.05 Million Preferred Shares (the “Option Price”) for the real property described on the attached Exhibit A (the “Property”). Mr. Axon shall have no right whatsoever to exercise the Exchange Option prior to the Exchange Date. The term “Property” as used in this Agreement, includes all personal property located on the real property described on the attached Exhibit A, together will all interests in any buildings located thereon.

 

	
6. 

	
Transfer of Deed.  The Company agrees to complete, sign and hold in escrow, a Quit Claim Deed conveying any and all right, title, and interest of the Company in and to the Property, except for those items listed on the attached Exhibit B, together with any encumbrances that may be caused by the acts or omissions of Mr. Axon after the parties sign this Agreement.

 

	
a.      

	
The Company agrees to deliver the Quit Claim Deed to Mr. Axon within ten (10) days of the receipt of notice of the exercise of the Exchange Option and delivery of 2.05 Million shares of Preferred Stock (the “Closing Date”);

 

	
b.      

	
The deed shall be the usual quit claim deed and in proper statutory short form for recording. It shall be duly executed and acknowledged by the Company at the Company’s expense, so as to convey to Mr. Axon the fee simple interest of the Property, free of all liens and encumbrances except as set forth in Exhibit B;

 

	
c.      

	
Unless otherwise specifically prohibited under the terms and conditions of the Agreement, the Company shall convey and Mr. Axon will accept the Property subject to all covenants; conditions; restrictions; easements of record; fire and building codes; land use, zoning, and environmental protection regulations; and any defects or clouds on the title of the Property; and any state of facts which any inspection and/or accurate survey may show;

 

  

  

  

	
d.      

	
An escrow agreement naming the agent and assigning custody of the signed documents will be signed by both parties; and,

 

	
e.      

	
Prior to the Closing Date and delivery of the Quit Claim Deed, the Company shall remain the sole legal, beneficial and equitable owner of the Property. Prior to the Closing Date and delivery of the Quit Claim Deed, Mr. Axon shall have no right, title or interest, legal or equitable in the Property, except as expressly provided herein.

 

	
7. 

	
Possession.  Pending satisfaction, in full of the Option Price and exercise of the Exchange Option, the Company will retain use and possession of the Property.  Use and possession of the Property shall be given and conveyed to Mr. Axon on the Closing Date of this Agreement unless otherwise agreed by the parties.

 

	
8. 

	
Real Estate Taxes, Water Bills and Sewer Charges.  The real estate taxes, water bills, and sewer charges shall be prorated as of the Closing Date. The Company agrees to pay all the real estate taxes, water bills, and sewer charges that come due and payable prior to the Closing Date of this Agreement. The Company agrees to provide proof of payment to Mr. Axon for all real estate taxes, water bills, and sewer charges. Mr. Axon agrees to pay all the real estate taxes and assessments, water rents, and any sewer charges that shall be taxed or assessed upon the Property from and after the Closing Date of this Agreement.

 

	
9. 

	
Fire and Other Insurances.  The Company agrees to name Mr. Axon as an additional insured on any property and liability insurance policy maintained or purchased by the Company covering the Property and to provide Mr. Axon with a copy of the insurance binder.

 

	
10. 

	
Condemnation.  In the event of the condemnation or taking by eminent domain of any interest that is the subject of this Agreement, Mr. Axon shall be made a party to any related proceedings, and the amount of any award to be accepted or whether the amount of such award shall be determined by trial in the courts shall require the consent of Mr. Axon, which consent shall not be unreasonably withheld, delayed, or conditioned. The amount of such award by agreement, or after trial or otherwise, shall be paid to the Company and applied as to the purchase of Preferred Shares due hereunder. If the amount of the award is greater than the remaining purchase obligation due, the Company shall pay to Mr. Axon the difference between the amount of the award and the remaining Preferred Shares purchase obligations.

 

	
11. 

	
Reserved.

 

	
12. 

	
Inspection.  Mr. Axon agrees that a full inspection of the Property has been made and that the Company shall not be held to any promise respecting the condition of any improvements on the Property other than what is written in this Agreement. At such time as the Property is conveyed to Mr. Axon it shall be conveyed “as is.”

 

	
13. 

	
Improvements/Repairs. The Company will keep the Property in good order and reasonable repair prior to the Closing Date.  Any special assessments for renovations or similar work related to the Property coming due and payable prior to the closing date shall paid by the Company.  The Company shall be entitled to be reimbursed in cash by Mr. Axon for any credit, recovery or refund of any special assessments or interest payments that may have been overpaid or paid for the benefit of another condominium unit owner other than the Company prior to the Closing Date, but recovered, received or applied for the benefit of Mr. Axon or the Property on or after the Closing Date.  Any special assessments for renovations or similar work related to the Property coming on or after the closing date shall be paid by Mr. Axon.

 

  

  

  

	
14. 

	
Rental Income.  Prior to the Closing Date, all rental income from the Property, including but not limited to the current lease to BevForce at the rate of $17,500 per month shall belong to the Company.  Post-closing the rental income shall belong to Mr. Axon.

 

	
15. 

	
Mr. Axon Default.  Mr. Axon is in default in the event any full Preferred Shares purchase obligation under Paragraph 1 is not made within sixty (60) days of the monthly due date. In the event a particular full monthly Preferred Shares purchase is not made within sixty (60) days of the related monthly due date, subject to the review and approval by the Audit Committee of the Board of Directors of the Company to be granted in its sole discretion, Mr. Axon may cure the shortfall attributable to that monthly capital contribution over a period of no more than sixty (60) days so long as no other breach, default or event of default then exists or would exist but for notice. Upon the occurrence of a default, subject to the expiration of the cure period provided in this paragraph to the extent applicable, the issued Preferred Shares, as well as any accrued and unpaid dividends, shall be automatically converted at the conversion rate (the “Conversion Rate”) into shares of common stock of the Company, effective as of the first of the month immediately following the default and any cure period expiration (the “Conversion Date”), in full satisfaction of any obligations owed by the Company to Mr. Axon hereunder. The Conversion Rate shall equal (a) the aggregate capital contributions made by Mr. Axon to the Company, plus any accrued and unpaid dividends, divided by (b) the greater of (x) the closing price of the common stock of the Company on the day immediately prior to the Conversion Date or if such day is not during a “window period” during which Mr. Axon would otherwise be permitted to purchase Company securities, under the Company’s insider trading policy then in effect, then the first business day of the next “window period” that would be applicable to Mr. Axon or (y) $0.41. The shares of common stock shall have endorsed thereon the legend stated in Paragraph (1)(c)(2).  Notwithstanding the foregoing, in the event Mr. Axon willfully or intentionally defaults in his obligations under this Agreement for the purpose of benefiting from an actual or potential economic advantage to him, the Company shall, in addition to any other remedies it may have under this Agreement, be entitled to liquidated damages equal to the market value of the common stock of the Company received by Mr. Axon on the Conversion Date. MR. AXON ACKNOWLEDGES AND AGREES THAT LEGAL, OR MONETARY, DAMAGES MAY BE DIFFICULT TO ASCERTAIN WITH CERTAINTY AND THAT SUCH LIQUIDATED DAMAGES AS SET FORTH HEREIN ARE A FAIR ESTIMATE OF ACTUAL DAMAGES AND NOT INTENDED AS A PENALTY.

 

	
16. 

	
The Company’s Remedy.  If Mr. Axon defaults, the Company shall have the right to proceed to protect its legal interest using any and all available legal and equitable means, and Mr. Axon shall be liable for the Company’s reasonable attorney fees and court costs. Pursuant to New York State law, the Company shall not proceed on default in village, town, or city court.

 

	
17. 

	
The Company Default.  The Company is in default if: (1) it does not provide Mr. Axon with the quit claim deed within thirty (30) days of Closing Date, or (2) the Company takes any action which makes it impossible for the Company to deliver the Property as completed by this Agreement.

 

  

  

  

	
18. 

	
Mr. Axon’s Remedies.  If the Company defaults, Mr. Axon shall have the right to proceed to protect its legal interest using any and all available legal and equitable means; including but not limited specific performance.  The Company shall be liable for Mr. Axon’s reasonable attorney fees and court costs. Pursuant to New York State law, Mr. Axon shall not proceed on default in village, town, or city court.

 

	
19. 

	
Notices.  Notices, demands, or requests made between Mr. Axon and the Company must be in writing and may be delivered in person or sent by first class mail to the addresses set forth on page one (1) of this Agreement unless notice of an address change has been provided to the other party in writing. If the Company provides written notice of a change of address to Mr. Axon, or Mr. Axon provides written notice of a change of address to the Company, the updated address must be used.

 

	
20. 

	
Parties Bound by this Agreement. This Agreement shall apply to and bind the heirs, executors, administrators, legal representatives, successors, and assigns of the respective parties to this Agreement.

 

	
21. 

	
Assignment.  Mr. Axon shall have the right to assign this Agreement or convey any of the rights in this Agreement, with the prior written consent of the Company, which consent may be withheld in its sole discretion.

 

	
22. 

	
Interpretation of Agreement.  This Agreement shall be governed by, construed, and endorsed in accordance with the laws of the State of Delaware. If any provision of this Agreement is held invalid, illegal, void or unenforceable by any rule, law, administrative order, or judicial decision, all other provisions of the Agreement shall remain in full force.

 

	
23. 

	
Modification. This Agreement may not be changed by simply talking about desired changes. Changes can only occur upon written agreement signed by both parties.

 

	
24. 

	
Representations and Warranties of the Company.  As of the date hereof, the Company hereby represents and warrants to Mr. Axon, to the best of its knowledge and belief:

 

	
a.      

	
the Company knows of no other party who has an interest in the property that has not been disclosed to Mr. Axon in this Agreement;

 

	
b.      

	
there are no delinquent real estate taxes, or water and sewer charges which have previously become due and owing;

 

	
c.      

	
no labor, service, or materials have been furnished for the improvement of the real estate during the last eight months, or if such labor, service, or materials have been furnished, payment in full or acceptable arrangements for payment in full for the improvements have been made;

 

	
d.      

	
the Company agrees not to borrow any money against the property unrelated to that which is disclosed on Exhibit B;

 

  

  

  

	
e.      

	
the Company agrees to take all commercially reasonable actions to prevent any additional lien being placed against the property;

 

	
f.       

	
the Company agrees that if any lien or judgment is placed on the property pursuant to any action brought against the Company, the Company shall discharge the lien or judgment before final payment is made or reduce the purchase price by the amount of the lien or judgment; and,

 

	
g.      

	
the Company has not dealt with any broker in connection with the Property. The Company will indemnify and hold harmless Mr. Axon from and against any and all claims, loss, liability, cost and expense (including reasonable attorney's fees) resulting from any claim that may be made against Mr. Axon by any broker or other person claiming a commission, fee or other compensation by reason of this transaction, if the same shall arise by or on account of any act of the Company or its representatives. Mr. Axon represents and warrants that Mr. Axon has not dealt with any broker in connection with the Property. Mr. Axon will indemnify and hold harmless the Company from and against any and all claims, loss, liability, cost and expense (including reasonable attorney's fees) resulting from any claim that may be made against the Company by any broker or other person claiming a commission, fee or other compensation by reason of this transaction, if the same shall arise by or on account of any act of Mr. Axon.

 

	
25. 

	
Recording.  The parties to this Agreement agree that this Agreement, contract or a memorandum thereof, shall be recorded in the New York County Clerk’s Office along with all other required documents. Parties further agree to take whatever reasonable steps necessary to complete the documents required for filing.

 

	
26. 

	
Merger Of All Prior Understandings. It is understood and agreed that all understandings and agreements heretofore had between the Company and Mr. Axon regarding the Property and subject matter of this Agreement are merged in this Agreement, this Agreement fully and completely expresses their agreement, and that the same is entered into after full investigation, neither party relying upon any statement or representation not embodied in this Agreement, made by the other.

 

	
27. 

	
Company Approval.  This Agreement is subject to approval by the Company’s Audit Committee and Board of Directors (“Company Approval”).

 

  

  

  

The parties have duly executed this Agreement.

 

	  	  	

Franklin Credit Management Corporation:

	  	  	  
	 	 	 
	  	  	/s/ Paul D. Colasono
	  	  	
BY:

	Paul D. Colasono
	  	  	
ITS:

	Chief Operating Officer
	 	 	 	 

 

	 	 	 
	 	 	Mr. Axon
	 	 	 	 
	 	 	/s/	Thomas J. Axon
	 	 	 	Thomas J. Axon

 

  

  

  

 

Exhibit A

 

Sixth Floor, Number 6 Harrison Street.

 

Block: 181, Lot: 1106

New York City, New York

(See attached Schedule for Legal Description)

Commercial Condominium Unit 6

6 Harrison Street

New York, NY 10013

 

Unit 6C at 350 Albany Street.

 

Block 16, Lot 2054

New York City, New York

(See attached Schedule for Legal Description)

Condominium Apartment Unit 6C

350 Albany Street

New York, NY 10280

  

  

  

 

Exhibit B

 

Collateral Mortgage dated May 16, 2012 and recorded on August 21, 2012 by Franklin Credit Management Corporation in favor of Communications Workers Of America Local 1180 under CRFN 2012000330970COST EX 10.5 10K 2013

Exhibit 10.5

COSTCO DEFERRED COMPENSATION PLAN

Amended and Restated June 19, 2013

Article 1 - Introduction

This deferred compensation plan was established by Costco Wholesale Corporation, a Washington corporation (“Costco”), on January 30, 1990, and has been amended and restated from time to time.  This is the restated Plan on June 19, 2013.  The purpose of this plan is to provide flexibility in timing the receipt of compensation to a select group of management and highly compensated employees and for non-employee members of the Board of Directors of Costco.  

Article 2 - Definitions

Whenever used in this plan, the following terms shall have the meanings set out below, unless the context clearly indicates otherwise.  When the defined meaning is intended, the term is capitalized.

		
	2.1
	"Account" - The separate bookkeeping account established for each Participant on the books of the Company for purposes of recording amounts credited with respect to each Plan Year's deferral under the Plan and any associated Company matching credits, if applicable, under Article 5 and interest credits under Article 7.  "Accounts" shall refer to the aggregate accounts of each Participant.  Effective September 4, 2001, all bookkeeping accounts established under the Costco Deferred Compensation Plan for Employees of The Price Company shall be transferred to become Accounts in this Plan, each participant with an account in that plan shall become a Participant in this Plan, and that plan shall be terminated.  

		
	2.2
	“Affiliate” - Any entity with which the Company would be considered a single employer under Section 414(b) or Section 414(c) of the Code, except that, for purposes of determining whether there is a controlled group or common control, the language “at least 50 percent” is used instead of “at least 80 percent.”

		
	2.3
	“Board” - The Board of Directors of Costco.

		
	2.4
	"Bonus" - A bonus awarded during the Plan Year under the Costco Executive Bonus Plan or such other bonus or variable compensation arrangement as the Company may from time to time adopt and/or designate as an eligible source of compensation that may be deferred under the Plan.  Bonus shall be calculated before reduction for compensation voluntarily deferred or contributed by the Participant pursuant to all qualified or nonqualified plans of the Company and shall be calculated to include amounts not otherwise included in Participant’s gross income under Code Section 125, 402(e)(3), 402(h), or 403(b) pursuant to plans established by the Company; provided, however, that all such amounts will be included in compensation only to the extent that had there been no such plan, the amount would have been payable in cash to the Participant.

		
	2.5
	“Change of Control” - A change in the ownership of the Company, a change in the effective control of the Company, or a change in the ownership of a substantial portion of the assets of the Company, as defined for purposes of Code section 409A(a)(2)(A)(v).

		
	2.6
	"Committee" - The "Benefits Committee" appointed by Costco to administer the employee benefit programs offered to employees and Directors of Costco and its subsidiaries.  If there is no acting committee, the Plan shall be administered by Costco acting through its Chief Financial Officer.  

		
	2.7
	"Code” - The Internal Revenue Code of 1986, as amended.

		
	2.8
	"Company" - Costco Wholesale Corporation and any Affiliate thereof. 

		
	2.9
	“Director” - A non-employee member of the Board. 

		
	2.10
	“Director Fees” - The annual fees earned during the Plan Year by a Director from Costco, including retainer fees and meeting fees, as compensation for serving on the Board.

		
	2.11
	"Participant" - An eligible employee or Director who has elected to defer payment of any portion of, in the case of employees, Salary or Bonus, and in the case of Directors, Director Fees, under the Plan.

		
	2.12
	"Plan" - The Costco Deferred Compensation Plan reflected in this document.

		
	2.13
	“Plan Year” - A period commencing on January 1 of each calendar year and continuing through December 31 of such calendar year.

		
	2.14
	"Prior Deferred Compensation" - Amounts that were previously deferred but that are due to be paid out during the year in question.

		
	2.15
	"Salary" - The basic compensation of a Participant paid by the Company during the Plan Year in question before payroll deductions, but excluding bonuses, fringe benefits, and disability pay.  Salary does not include amounts earned by a Participant after being permanently transferred to a foreign Affiliate and taken off the U.S. payroll.  Salary shall be calculated before reduction for compensation voluntarily deferred or contributed by the Participant pursuant to all qualified or nonqualified plans of the Company and shall be calculated to include amounts not otherwise included in Participant’s gross income under Code Section 125, 402(e)(3), 402(h), or 403(b) pursuant to plans established by the Company; provided, however, that all such amounts will be included in compensation only to the extent that had there been no such plan, the amount would have been payable in cash to the Participant.

		
	2.16
	“Separation from Service” - A “separation from service,” as defined in Treas. Reg. section 1.409A-1(h), with the Company.  However, with respect to a Participant who provides services to the Company as an employee, a Separation from Service will occur at the date reasonably anticipated by the Committee that the Participant’s level of service will permanently decrease to 21% or less of the average level of service provided by the Participant over the immediately preceding 36 month period (or, if providing services for less than 36 months, such lesser period).  For a Participant who provides services to the Company as a Director, a Separation from Service will occur upon the expiration of the Director’s term, provided that the expiration of the term is determined by the Committee to constitute a good-faith and complete termination of the service relationship between the Participant and the Company.  For a Participant who provides services to the Company as both an employee and a Director, to the extent permitted by Treas. Reg. section 1.409A-1(h)(5), the services provided by such Participant as a Director shall not be taken into account in determining whether the Participant has experienced a Separation from Service as an employee, and the services provided by such Participant as an employee shall not be taken into account in determining whether the Participant has experienced a Separation from Service as a Director.

Article 3 - Eligibility and Selection of Participants

Eligibility shall be limited to (i) a select group of management or highly compensated employees as designated by the Company for each year and (ii) Directors.  For purposes of employees, eligibility for participation in the Plan may change from year to year, depending on an employee's position within the Company or on any other factors at the sole discretion of the Company.  

Article 4 - Election to Defer

		
	4.1
	Initial Deferral Election.  Prior to December 15 of the calendar year immediately preceding the applicable Plan Year, or such earlier date set by the Committee as necessary to comply with Code section 409A, a Participant may elect to defer a specified amount or stated whole percentage (such method of determining deferrable amount to be determined by the Committee) of the Participant's expected compensation in the Plan Year.  

		
	4.2
	Source of Deferrals.  Subject to Section 4.4, a Participant may elect, under the terms and conditions of the Plan, to defer all or a portion of his or her, in the case of employees, Salary and/or Bonus, and in the case of Directors, Director Fees.  Such election shall be made by written or electronic notice in the manner specified by the Company and shall be irrevocable on December 15 or such earlier date set by the Committee under Section 4.1 as the last day for making the election.  

		
	4.3
	Crediting of Deferrals.  A Participant's Account shall be credited with the appropriate deferral at the time the Salary and/or Bonus or Director Fees, as applicable, would have been paid to the Participant if a deferral election had not been made, or in any other manner determined by the Company; provided that such deferrals during the applicable Plan Year, in the aggregate, shall reflect the Participant’s elections in accordance with Code 

section 409A.  If an expected item of compensation would not have been paid to the Participant for any reason, the deferral election is inoperative, and no deferral shall be credited for that item.  

		
	4.4
	Deductions.  The Company shall deduct from any deferred amount any necessary payroll withholding and all other amounts it may be required to withhold from the deferral amount by law, to the extent allowed under Code section 409A, and the amount credited to a Participant’s Account shall be reduced by any such deductions.  In addition, for Participants who are employees, the Company shall first deduct from a Participant's Salary or Bonus any other allowed voluntary deductions the Participant may have elected (excluding deferrals under the Company’s 401(k) retirement plan), such as deductions for health care or other benefits, and any other amounts required to be deducted by law, such as amounts that must be paid according to a legally established lien, levy, or court order.  The maximum amount that can be elected to be deferred shall be the remaining amount of Salary or Bonus after all such deductions (excluding deferrals under the Company’s 401(k) retirement plan) from Salary or Bonus under this Section 4.4.  

Article 5 - Company Matching Credit for Employees

		
	5.1
	Matching Amount.  For each Participant who is an employee, the Company will match a portion of each Participant's annual deferral of Salary and Bonus by crediting to his or her Account an amount equal to 50% of the Salary and Bonus deferred by the Participant, up to a maximum credit by the Company of $5,000 per Plan Year.  Such amounts will be credited on or about January 1 following the Plan Year of such annual deferral only to Participants who are still employed by the Company on January 1 following the year of deferral.  No matching credit shall be given for re-deferrals of Prior Deferred Compensation.  

		
	5.2
	Vesting.  The Company matching contributions credited under this Article shall vest on a "class year" basis, as follows:

		
	a.
	20% immediately on the January 1 that the Company match is credited to a Participant's Account; and

		
	b.
	An additional 20% each following January 1, subject to the employment requirement described below, until the matching credit is 100% vested.

Vesting applies to each year's matching credit on a separate, "class year" basis.  Thus, five years after a Participant's matching contribution is first credited in connection with the Participant’s first deferral, the Participant will be 100% vested in that first year's matching credit, but not in the matching credits posted for deferrals in subsequent years, which vest separately according to the number of years that pass from the time of each deferral.  

A Participant must remain employed by the Company on the vesting date in order to be entitled to vesting credits on any January 1.  However, a Participant shall become 100% vested in all Company matching credits, regardless of the class year vesting that would otherwise apply, in the following events:  

		
	a.
	The Participant becomes totally disabled (as determined in accordance with Section 6.5) while employed by the Company; 

		
	b.
	The Participant dies while employed by the Company; 

		
	c.
	The Participant earns 65 "Vesting Points" while employed by the Company.  A Participant shall be credited with one Vesting Point for each year of service as an employee with the Company and one Vesting Point for each year of age not to exceed 60 years of age.  If a Participant experiences a Separation from Service after having reached 65 Vesting Points and is subsequently rehired, he will continue to be treated as having earned 65 Vesting Points on rehire.  If a Participant experiences a Separation from Service without earning 65 Vesting Points, and is subsequently rehired, years of service with the Company will include only those years of service beginning after the Participant is rehired.

		
	5.3
	Forfeiture of Credits for Cause.  Notwithstanding the foregoing, the Company retains the right to void the Company matching credit posted under Section 5.1, together with interest posted on all of a Participant's Accounts, if a Participant is terminated for cause.  

Article 6 - Timing and Manner of Distribution

		
	6.1
	Option.  At the time of each deferral election, a Participant shall make an irrevocable election to receive payment of his or her Account (along with any vested portion of the Company's matching credit, if applicable, for that Account and the earnings credited to that Account) in one of the forms set forth in Section 6.1(a) and commencing on one of the times or events set forth in Sections 6.1(b):  

		
	a.
	Form of Payment.

		
	i.
	Payment of the Account in a single lump sum payment; or

		
	ii.
	Payment of the Account in a specified number of approximately equal annual installments (with a maximum of ten installments), with the first installment occurring at the time set forth in the election under Section 6.1(b) (or, where no election is made, pursuant to Section 6.1(d)).

		
	b.
	Time of Payment

		
	i.
	In the first calendar quarter of a specified calendar year five or more years after the Plan Year during which such compensation would have been paid, were it not deferred; or

		
	ii.
	The date of your Separation from Service, subject to any delay required under Section 6.4.

		
	c.
	In addition to the payment times or events set forth in Section 6.1(b), a Participant may elect to receive payment of his or her Account in a lump sum payment upon a Change of Control that occurs prior to one of the times or events set forth in Section 6.1(b).  An election to receive distribution pursuant to this Section 6.1 (c) may not be changed pursuant to Section 6.2 or otherwise and an initial deferral election that did not include a distribution pursuant to this Section 6.1(c) may not be changed pursuant to Section 6.2 or otherwise to add a distribution pursuant to this Section 6.1(c).

		
	d.
	If a Participant fails to specify one of the payment options described above, such Participant shall be deemed to have specified the single lump sum payment option payable five years after the calendar year during which the compensation would have been paid, were it not deferred (and, for the avoidance of any doubt, the Account shall not be paid upon a Change of Control pursuant to Section 6.1(c) that occurs prior to the time contemplated under this Section 6.1(d)).  If a Participant elects installment payments, the amount of any given installment shall be determined by dividing the then-current value of the Account by the remaining number of unpaid installments.

If a Participant elects to defer compensation to a specified calendar year pursuant to Section 6.1(b)(i), the minimum period of deferral is five years.  For example, if funds were deferred from income otherwise payable in calendar year 2014, the earliest a lump sum payment or installment payment can be made from those particular funds would be in the first calendar quarter of the year 2019.  However, to the extent the Participant elects to have the distribution of his Account accelerated to the date of a Change of Control, the distribution will be made earlier than the times or events specified in Section 6.1(b).  In addition, distribution will be made earlier if a Participant dies, becomes totally disabled (as determined in accordance with Section 6.5), or experiences a Separation from Service before reaching the age of 65, in the case of deferrals made before 1997, or before earning 65 “Vesting Points” while employed by the Company, in the case of deferrals made on or after January 1, 1997 (in accordance with Section 6.3).

		
	6.2
	Change in Time or Form of Distribution.  A Participant may change the time or form of distribution of all or a portion of Prior Deferred Compensation except for Prior Deferred Compensation that was elected to be distributed upon Separation from Service pursuant to Section 6.1(b)(ii) or upon a Change of Control pursuant to Section 6.1(c)  A Participant’s election to change the time or form of distribution of Prior Deferred Compensation pursuant to the foregoing sentence shall be made by such date set by the Committee and shall be irrevocable as of the last date set for making such election.  Such election shall not take effect until at least 12 months after the date of the election, must be made no less than 12 months prior to the date of the otherwise scheduled first payment of the Prior Deferred Compensation, and must defer payment not less than 5 years from the date payment would otherwise be made or, in the case of installments, would begin to be made.  For the avoidance of any doubt, in the event of an election that is subsequently changed pursuant to this Section 6.2 to provide for a distribution upon a Separation from Service, any distribution that is made pursuant to the new distribution election shall not be made prior to the fifth anniversary of the date that the payment would otherwise have been made pursuant to the distribution election that was previously in effect, notwithstanding the occurrence of a Separation from Service before the fifth anniversary.

		
	6.3
	Termination Before Age 65 Without 65 Vesting Points.  Except as provided in Section 6.4, upon a Participant’s Separation from Service prior to reaching age 65, in the case of deferrals made before 1997, or before earning 65 "Vesting Points" while employed by the Company, in the case of deferrals made on or after January 1, 1997, the Participant's Accounts, to the extent vested, shall be paid to him or her in a lump sum within 90 days after the Participant’s Separation from Service.   If a Participant who has experienced a Separation from Service is rehired, the distribution of the Participant’s account balance on the Participant’s Separation from Service will be made notwithstanding the Participant’s being rehired.  For purposes of distribution of account balances contributed after rehire, if a Participant is rehired after having reached age 65 ”Vesting Points” at the time of the original Separation from Service, he will continue to be treated as having earned 65 Vesting Points on rehire.  If a Participant is rehired after a Separation from Service without earning 65 Vesting Points, years of service with the Company will include only those years of service beginning after the Participant is rehired.  The Company retains the right to void the Company matching credit, as well as interest posted on all of a Participant’s Accounts, if the Participant is terminated for cause.

		
	6.4
	6-Month Delay Applicable to Specified Employees.  Notwithstanding anything in this Plan to the contrary, in the case of a Participant who is determined to be a specified employee under Code Section 409A(a)(2)(B)(i) at the time of the Participant’s Separation from Service, no payment that is scheduled to be made upon a Participant’s Separation from Service shall be made before the date that is six months after the Participant’s Separation from Service, or upon the Participant’s death, if earlier.  A payment otherwise due during the six months after the Participant’ Separation from Service shall be paid on the first day following the earlier of (i) the expiration of the sixth month following the date of the Participant’s Separation from Service (ii) the Participant’s death.

		
	6.5
	Death.  Upon the death of a Participant, his or her Accounts, to the extent vested, shall be paid in a lump sum to his or her designated beneficiary within 90 days after the Participant’s death.  If the Participant had designated a spouse as beneficiary but is divorced from that spouse at the time of death, then the designation of the former spouse shall be ineffective, unless the Participant re-designated the former spouse as beneficiary after the date of the divorce.  Any designation of secondary or other beneficiaries shall not be affected by the disqualification of a former spouse, except that the former spouse shall be deemed to have died before the Participant.  If a Participant has not made an effective beneficiary designation under this Plan, or if all designated beneficiaries predecease the Participant, the designated beneficiary shall be the beneficiary designated by the Participant to receive life insurance benefits under The Costco Wholesale Corporation Flexible Benefits Plan, unless that beneficiary is a former spouse designated as beneficiary before the date of the divorce, in which case the former spouse shall be treated as if he or she had died before the Participant.  If no effective beneficiary has been designated by the Participant under the Costco Wholesale Corporation Flexible Benefits Plan, or if all designated beneficiaries predecease the Participant, the death benefit shall be paid to the Participant's estate.  (If a Participant dies while employed by the Company, the Participant's matching credits, if applicable, shall become 100% vested.)

		
	6.6
	Disability.  Upon the total disability of a Participant while employed by the Company, the Participant’s matching credits, if applicable, shall become 100% vested and the vested portion of the Participant's Accounts shall be paid to him or her in a lump sum within 90 days after such total disability.  A Participant is totally disabled under this Plan only when found to be totally disabled by the Social Security Administration, and if such Participant presents proof of eligibility for Social Security disability income benefits to the Committee or its designee.  

		
	6.7
	Distribution of Small Account Balances.  If at any time after a Participant’s Separation from Service or a distribution event specified above, the amount of the Participant’s Account is less than the annual limit under Code section 402(g)(1)(B) as in effect at the time of the distribution (in 2013, this limit is $17,500) and as determined in accordance with Treas. Reg. section 1.409A-3(j)(4)(v), the Committee may, in its sole discretion, elect to distribute the Participant’s Account in a lump sum.

		
	6.8
	Deductions.  The Company may deduct from any distribution under this Plan any necessary payroll withholding, any other amounts required to be deducted by law, and any amounts owed by the Participant to the Company to the extent consistent with Code section 409A.  

Article 7 - Interest Credits

		
	7.1
	Interest on Accounts.  As of the end of each month, the Company shall credit to each Participant's Accounts interest on all deferral and matching amounts, if applicable, credited by such time based on the interest rate as determined by Section 7.2 or Section 7.3, whichever is appropriate.  

		
	7.2
	Normal Interest Rate.  Interest shall be credited at the monthly equivalent of the annual rate published as the local Bank of America Prime Rate in effect at the date interest is posted.  

		
	7.3
	Bonus Interest Rate.  For each Participant who is an Employee, if the Participant dies while employed by the Company, or if the Participant meets either of the service requirements described below, interest shall be credited thereafter at the monthly equivalent of the annual rate published as the local Bank of America Prime Rate plus one percent, and for all the Participant's Accounts then in the Plan, interest shall be recalculated retroactively to add one percent to the interest rate in effect at the time the interest was posted for all years of deferral.  In all situations, the method of calculation shall be determined pursuant to rules of administration established by the Committee.  For purposes of this section, a Participant who is an Employee qualifies for the bonus interest rate in the following events:

		
	a.
	The Participant dies while employed by the Company; 

		
	b.
	With respect to deferrals made before 1997, the Participant reaches the age of at least 65 while the Participant is employed by the Company; or 

		
	c.
	With respect to deferrals made on or after January 1, 1997, the Participant earns 65 "Vesting Points" while employed by the Company.  A Participant shall be credited with one Vesting Point for each year of service with the Company and one Vesting Point for each year of age not to exceed 60 years of age.  If a Participant is rehired after having earned 65 Vesting Points at the time of the original Separation from Service, he will continue to be treated as having earned 65 Vesting Points on rehire.  If a Participant is rehired after a Separation from Service without earning 65 Vesting Points, years of service with the Company will include only those years of service beginning after the Participant is rehired.

		
	7.4
	Forfeiture of Interest for Cause.  Notwithstanding the foregoing, the Company retains the right to void all interest posted on all of a Participant's Accounts if a Participant is terminated for cause.

Article 8 - Rights of Participants and Funding

		
	8.1
	No Right to Employment.  Nothing contained in the Plan shall:

		
	a.
	Confer upon any Participant any right with respect to continuation of employment with the Company; 

		
	b.
	Interfere in any way with the right of the Company to terminate a Participant's employment at any time;  

		
	c.
	Confer upon any Participant or other person any claim or right to any distribution under the Plan, except in accordance with its terms; or

		
	d.
	Guarantee continued eligibility for participation in the Plan.

		
	8.2
	Unfunded Plan.  This Plan shall be unfunded, as that term is defined for tax purposes under the Internal Revenue Code and for purposes of Title 1 of the Employee Retirement Income Security Act of 1974 (ERISA).  The Plan constitutes a mere promise by the Company to make benefit payments in the future, and any compensation deferred under this Plan, the Company matching credits, if applicable, and the interest credited to a Participant's Accounts shall continue to be a part of the general assets of the Company.  To the extent that a Participant, former Participant, or beneficiary acquires a right to receive payments from the Plan, such right may be no greater than the right of any unsecured general creditor of the Company.

		
	8.3
	Assignment Prohibited.  Except as expressly provided herein, no right or interest of any Participant or beneficiary in any Account in the Plan shall, prior to actual payment or distribution to such Participant or beneficiary, be assignable or transferable in whole or in part, either voluntarily or by operation of law or otherwise, including by domestic relations order, or be subject to payment of debts of any Participant or beneficiary by execution, levy, 

garnishment, attachment, pledge, bankruptcy, encumbrance, alienation, anticipation, sale, or in any other manner.  

Article 9 - Hardship Payments 

		
	9.1
	Early Payment of Deferred Amounts.  Unless otherwise permitted in the Plan, or allowed by the Committee consistent with Treas. Reg. section 1.409A-3(j)(4), a Participant shall not be entitled to payment of any portion of his or her Accounts before payments are otherwise due under the normal terms of the Plan.  However, in cases of extreme financial hardship, the Committee may authorize (on a nondiscriminatory basis and taking into account other resources of the Participant) a hardship payment of the portion of a Participant’s deferral Account (excluding any interest credited to date and any matching credits) in the minimum amount that is required to meet the need created by the extreme financial hardship (including amounts necessary to pay taxes reasonably anticipated to result from the hardship payment).  

In order to qualify under this section, the hardship must be the result of an unforeseeable emergency.  For this purpose, an “unforeseeable emergency" is an event or circumstance described under Treas. Reg. section 1.409A-3(i)(3), i.e., an extraordinary and unanticipated emergency that is caused by an event beyond the control of the Participant (such as an illness, accident, casualty or other similar extraordinary and unforeseeable event) and that would result in severe financial hardship to the Participant if the early payment were not permitted. The Participant must supply written evidence of the financial hardship and must declare, under penalty of perjury, that the Participant has no other resources available to meet the emergency, including the resources of the Participant’s spouse and minor children that are reasonably available to the Participant.  The Participant must also declare that the need cannot be met by any of the following:

		
	a.
	Reimbursement or compensation by insurance or otherwise;

		
	b.
	Reasonable liquidation of the Participant’s assets (or the assets of the spouse or minor children of the Participant) to the extent such liquidation will not itself cause severe financial hardship;

		
	c.
	Suspending all of the Participant’s contributions to any employee benefit plan (and the spouse’s contributions to any plan), including this Plan, to the extent such contributions may or are required to be suspended; or

		
	d.
	Applying for distributions or loans from any other plans in which the Participant or the Participant’s spouse participate.

The Committee may delegate decision-making authority hereunder to an independent person who may or may not be an employee of the Company.

		
	9.2
	Suspension of Participation.  A Participant who receives a hardship payment from this Plan shall be suspended from further participation in this Plan for the remainder of the calendar year in which the payment was made.  Moreover, a Participant who receives a hardship distribution from the Costco 401(k) Retirement Plan (or from any other qualified 401(k) plan maintained by the Company) shall be suspended from further participation in this Plan for a period of 12 consecutive months, which period shall be reduced to 6 months effective January 1, 2002.  Deferrals already elected under this Plan shall not be made during any suspension period, and an election for deferrals for a subsequent year shall not be effective until the suspension period has expired.  

Article 10 - Administration

		
	10.1
	Plan Amendment or Termination.  The Company or the Committee may, from time to time, amend or suspend any or all of the provisions of the Plan, prospectively or retroactively as it shall see fit.  The Company or the Committee may also terminate the Plan at any time.  If the Plan is terminated, the value of each Participant's Accounts as of the date of termination shall be fully vested and distributed to such Participant in a lump sum as soon as administratively feasible, as long as such a distribution shall not result in non-compliance with Code section 409A, including the required six-month delay in payments for specified employees, if applicable.  The Plan shall not be amended retroactively in any way that would reduce the accrued vested balance of a Participant's Accounts as of the date of the amendment.

Amendments to the Plan, including termination of the Plan, shall be valid upon execution by any four members of the Committee, and no formal approval by the Board shall be required.  However, the Company may also amend or terminate the Plan by resolution of the Board or an appropriate subcommittee thereof, and such amendment or termination supersedes any inconsistent action by the Committee, except as provided in Section 10.4, relating to a Change of Control of the Company. 

		
	10.2
	Plan Administration.  The administration of the Plan shall be vested in the Committee.  The Committee shall, subject to the express provisions of the Plan, have power to construe the Plan, interpret the meaning of its terms, prescribe rules and regulations relating to the Plan, and make all determinations necessary or advisable for the administration and interpretation of the Plan.  The Committee may correct any defect, supply any omission, or reconcile any inconsistency in the Plan document in the manner and to the extent deemed expedient to effect the intent of the Company and the purpose of the Plan.  The Committee may delegate all or any part of its power under this Section 10.2 to a single member of the Committee.

		
	10.3
	Expenses.  All expenses and costs incurred in connection with the administration and operation of the Plan shall be borne by the Company.

		
	10.4
	Change of Control.  If the threat of a Change of Control is accompanied by the filing of Form 13-D with the Securities and Exchange Commission, the Committee shall meet and discuss what, if any, actions regarding this Plan should be taken.  In that event, the Committee may elect to terminate the Plan within 30 days before or 12 months following the Change of Control; to secure benefits under the Plan by the establishment of a "Rabbi Trust" in the form set out in Revenue Procedure 92-64 (or any successor ruling or regulation that established an IRS model rabbi trust) or in such other form as may be acceptable to the Committee; to accelerate vesting credits under the Plan; to grant all Participants the higher rate of interest described in Section 7.3; or take any other actions that the Committee deems advisable in order to protect the interests of Participants in the Plan.  For the avoidance of any doubt, any action contemplated under this Section 10.4 shall not affect a Participant’s election to receive distribution of his Account upon a Change of Control pursuant to Section 6.1(c).  Furthermore, upon and after a Change of Control, the Plan may not be amended or terminated without the consent of the Committee, as the Committee was constituted before the Change of Control occurred.  

Article 11 - Claims Procedure

		
	11.1
	Interpretation.  Any Participant (or the beneficiary of a deceased Participant) desiring a benefit under, interpretation of, ruling under, or information regarding this Plan shall submit a written request regarding the same to the Committee.  The Committee shall respond in writing to any such request as soon as practicable.  Any such ruling or interpretation by the Committee shall be final and binding on all parties, subject to the following appeal procedures.

		
	11.2
	Denial of Claim.  If a claim for benefits under this Plan is denied in whole or in part, the Committee shall notify the claimant in writing of such denial and of his or her right to a conference with an individual designated in the notice for the purpose of explaining the denial.  The denial notice will be provided within 90 days after a claim is received by the Committee.  If special circumstances require an extension of time for processing a claim beyond the initial 90-day period, written notice of the extension will be furnished before the end of the initial 90-day period.  An extension of time will not exceed a period of 90 days from the end of the initial 90-day period.  An extension notice will explain the reasons for the extension and the expected date of a decision.

		
	11.3
	Contents of Written Notice of Benefit Denial.  If a claim for benefits under this Plan is denied, the written notice will include the following:

		
	•
	the specific reason or reasons for the denial;

		
	•
	references to the specific Plan provisions on which the denial is based;

		
	•
	a description of any additional material or information necessary in order to perfect the claim, and an explanation of why such material or information is needed;

		
	•
	an explanation of the Plan’s review procedure for denied claims, including the applicable time limits for submitting a claim for review; and

		
	•
	a statement of the right to bring a civil action under Section 502(a) of ERISA, if a claim is denied on appeal.

		
	11.4
	Appeal Procedure.  If the claimant does not want a conference, or is dissatisfied with its outcome, the claimant may appeal a denial of a claim for benefits.  The claimant (or a duly authorized representative) must file a written 

appeal with the Committee within 60 days after receipt of written notice of the denial.   

The claimant may submit a written statement, documents, records, and other information.  The claimant may also, free of charge upon request, have reasonable access to and copies of Relevant Documents (as defined in Section 11.7).  The review will consider all statements, documents, and other information submitted by the claimant, whether or not such information was submitted or considered under the initial denial decision.  Claim determinations are made in accordance with Plan documents and, where appropriate, Plan provisions are applied consistently to similarly situated claimants.

		
	11.5
	Timing and Effect of Appeal Decision.  A decision on an appeal will be made by the Committee not later than 60 days after an appeal is received, unless special circumstances require an extension of time for processing, in which case a decision will be rendered not later than 120 days after an appeal is received.  Written notice of any extension of time will be sent before the end of the initial 60-day period explaining the reason for the extension and the expected date of the appeal determination.  If an extension is required because the claimant has not provided the information necessary to decide the claim, the time period for processing the claim will not run from the date of notice of an extension until the earlier of 1) the date the Plan receives a response to a request for additional information or 2) the date set by the Plan for the requested response (at least 45 days).

The decision by the Committee on review shall be final and binding upon the claimant and all persons claiming by, through, or under the claimant, subject to the right to appeal under applicable law.

		
	11.6
	Contents of Appeal Decision.  The decision on review will be in writing and will include the following information:

		
	•
	the specific reason or reasons for the decision;

		
	•
	reference to the specific Plan provisions on which the decision is based;

		
	•
	a statement of the right to receive, upon request free of charge, reasonable access to and copies of Relevant Documents; and

		
	•
	a statement of the right to bring a civil action under Section 502(a) of ERISA.

		
	11.7
	Relevant Documents.  Relevant Document means any document, record or other information that:

		
	•
	was relied upon in making a decision to deny benefits;

		
	•
	was submitted, considered, or generated in the course of making the decision to deny benefits, whether or not it was relied upon in making the decision to deny benefits; or

		
	•
	demonstrates compliance with any administrative processes and safeguards designed to confirm that the benefit determination was in accord with the Plan and that Plan provisions, where appropriate, have been applied consistently regarding similarly situated individuals.

Article 12 - Code Section 409A Savings Clause

It is the intention of the Company that deferrals of compensation under this Plan shall comply in all respects with Code section 409A.  Should it be determined that any provision or feature of the Plan is not in compliance with Code section 409A, that provision or feature shall be null and void to the extent required to avoid the noncompliance with Code section 409A, and the Company shall have the right, to the extent the Company deems necessary or advisable in its sole discretion, to amend or modify the terms of this Plan or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take other action, including any amendments or action that would result in a reduction to the benefit payable under the Plan, in each case, without the consent of the Participant, as may be necessary to ensure that the distributions under this Plan are made in a manner that complies with Code section 409A or to mitigate any additional tax, interest and/or penalties or other adverse tax consequences that may apply under Code section 409A if compliance is not practical; provided, however, that nothing in this Article 12 creates an obligation on the part of the Company to modify the terms of the Plan.  In that light, the Company makes no representation that the terms of the Plan will comply with Code Section 409A or that distributions under the Plan will not be subject to taxes, interest and penalties or other adverse tax consequences under Code section 409A.  In no event whatsoever shall the Company be liable to the Participant or any other party for any additional tax, interest, penalties or other liability that may be imposed on the Participant by Code section 409A or for any action taken by the Company with respect thereto.  To the extent taxation of a Participant is required under Code section 409A, the Participant’s Account shall be distributed to the Participant in an amount equal to the amount required to be included in income under Code section 409A less any required income and payroll tax withholdings under Federal, state, local or other tax laws.

Article 13 - Miscellaneous

		
	13.1
	Governing Law.  This Plan shall be subject to and governed by the laws of the State of Washington, except to the extent preempted by federal law.  

		
	13.2
	Execution.  This Plan may be adopted, amended, or terminated by an appropriate instrument signed by any four members of the Costco Benefits Committee, if such a committee has been appointed, and if not, by resolution of the Board. 

	
			
	Dated:  June 19, 2013
	 
	Costco Benefits Committee

	 
	 
	 

	By: /s/ Pat Callans
	 
	By: /s/ Julie Cruz

	Pat Callans
	 
	Julie Cruz

	 
	 
	 

	By: /s/ John Eagan
	 
	By: /s/ Richard Galanti

	John Eagan
	 
	Richard Galanti

	 
	 
	 

	By: /s/ Bob Hickok
	 
	By: /s/ Franz Lazarus

	Bob Hickok
	 
	Franz Lazarus 

	 
	 
	 

	By: /s/ John Matthews
	 
	By: /s/ John McKay

	John Matthews 
	 
	John McKay 

	 
	 
	 

	By: /s/ Monica Smith
	 
	By: /s/ Jay Tihinen

	Monica Smith 
	 
	Jay Tihinen

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