SEC Comment Letter for COSTCO WHOLESALE (COST) — Mar 13, 2007
COSTCO WHOLESALE CORP /NEW (COST) (CIK 0000909832)
Date: March 13, 2007 · CIK: 0000909832 · Accession: 0000000000-07-012820
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 333-10998
Letter
January 142005 David R.Wilson dwilson@hewrn.com 206-389-4264 Mr.H.Christopher Owings Assistant Director Division ofCorporation Finance Securities andExchange Commission 4505thStreetN.W. Washington D.C.20549 MailStop3-8 ReCostco Wholesale Corporation DearMr.Owings Wearewriting onbehalfofourclient CostcoWholesale Corporation Costco to discuss stepstobeundertaken inconnection with proposed rescission offertoparticipants inits401kRetirement Plan thePlan. Wearehopeful thatyouwillconcur withthe procedures fortheconduct oftherescission offerthatareoutlined inthisletterbutifyou haveconcerns wewould liketodiscuss themwithyouoryourstaffpriortotheCompanys filing registration statement withrespect totherescission offer. Background Costco maintains 401k Retirement Plan foritsemployees. Oneoftheinvestment options under thePlanisaninvestment incommon stockofCostco which shares are purchasedintheopenmarketbytheplantrustee T.Rowe PriceTRP. Costco had registered shares tobesoldpursuant tothisinvestment andtherelated planinterests on FormS-8Registration No.33-21093. During 2004Costco discovered thatthenumber of sharesofCostcocommon stockpurchased inPlan accounts mightunder certain interpretations ofthelawhaveexceeded thenumber ofshares registered. OnNovember 16 2004 Costco filed registration statement onFormS-8333- 120523 toregister shares tobepurchased byparticipants inthePlan.Since thepriceof Costcos common stockgenerally rosethroughout thetwelve-month period ending onthe date the newFormS-8wasfiledtheRescission Period Costco believes itsultimate liability intherescission offerwillbeimmaterial toitsfinancial condition orresultsof operation. HellerEhmian White McAuliffe LLP333 Bush Street SanFrancisco CA94104-2878 www.hewm.com SanFrancisco Silicon Valley LosAngeles SanDiego Seattle Portland Anchorage NewYork Washington D.C. Madison Hong Kong Beijing Singapore Affiliated Offices Milan Paris Rome CF1-00010891
HellerEhr manJanuary 142005 ATTORNEYS TRPestimates thatover40000 participants inthePlanpurchased Costco common stockinPlan accounts during theRescission Period. Virtuallyalloftheseparticipants make their401kcontributions through bi-weekly payroll deductions sothatduring theyeareach participant canmakeupto26distinct purchases through thePlan. Costco intends tofileregistration statement onFormS-3toregister the shares sold through thePlanduring theRescission Periodandtomake rescission offertothePlan participants whopurchased sharesofCostcocommon stockin their Plan accounts during the Rescission Period. Procedures forRescission Offer Costco intends toapply thefollowing procedures inconducting therescission offer 1. Participantswhoholdshares purchased during theRescission Periodwhoelect rescission willberequired toparticipate withrespect toallCostco shares purchased during theRescission periodandstillowned. 2. Participants whosoldsharesduring theRescission Period andduring the additional period priortothetermination of therescission offerwillbesubject toFIFO methodi.e.thefirstsaleduring theRescission Period willbematched withthefirst purchase during thePeriod andsubsequent saleswillbematched inorder againstpurchases todetermine thesalepriceofthe shares forcomputation ofrescissory damagesifany. 3.Anytender thatismadepursuant totherescission offerinwhich itis determined thattherescission proceeds i.e.theaggregate costofshares purchased during theRescission Period would belessthanthethen market value ofallCostcocommon stock purchased duringtheRescission Period willberejected. Theseprocedures should beunobjectionable astheyhavebeenutilized in other registered rescission offersin similar circumstances. Seeforexample UnionBancal Corporation Registration No. 333-10998 1. ProposedAdditional Procedures Virtually allregistered rescission offersprovide period generally thirtydaysfrom theeffective dateoftheregistration statement duringwhich offerees maytender theirshares afterwhich theofferterminates. Under thisapproach thevalueofthesecurity forrescission purposesisnotknown untiltheofferterminates. Sincerescission offersgenerally provide thatanytender thatresults inrescission proceeds being lessthanthefairmarket valueofthe shareswillberejected offerees mightthink itwould bein their bestinterests totender shares CF1-0001 0892
HellerEhrmanJanuary14OO5 ATTORNEYS intheofferinordertoobtainanypossible recovery. Similarly anofferee whosoldaffected shares should alsofileclaimforanylosses incurred. Costco believes thatiftherescission offerisstructured intheconventional manner comparison offairmarket value to rescission proceeds notdetermined untiltheconclusion of theoffer--itishighly likely togenerate significant confusion andquestions amongthe participants sincetheywillnotknowhowtheywould beaffected byparticipation intheoffer atthetimetheyhaveto elect to participatebecause themarket valueoftheshareswillnotbe known. The majority oftheplanparticipants arehourly workers whomaynotbeespecially sophisticated aboutfinance andsecurities. Theoffering documents under the best of circumstances arenecessarily voluminous andcomplex. Since themarket value ofCostcos common stockhasgenerally increased from$33.89 atNovember 172003toover$47 presently Costco isconcerned about theconfusion thatmaybecaused foritsemployees by anoffertorepurchase shares atsubstantially below current market. Withover40000 affected participants Costco andTRPbelieve thatconsiderable resources willberequired to respond toinquiries fromparticipants. Theparticipants overwhelmingly arecurrent employees andCostco isconcerned thatitsemployees willnotfullyunderstand the motivation fortherescission offerandthat theremaybenegative effectonemployee morale. Costco believes thisisparticularly trueifthefairmarket value isnotknown atthe timetheofferismade.Another likely effectofthisconfusion isthatsomeparticipants who would beeligible torecover fundspursuant totheofferwillfailtoparticipate. TheCompany isinterested inmaximizing theparticipation ofthosewhoareeligible forrecoveries. Tosimplify therescission procedures provide morecertainty toparticipantsreduce thepotential forconfusionamong participants andenhancerecovery byparticipants Costco proposesthattherescission offering beconducted asfollows 1.Asoftheeffective dateoftheregistration statement Costco andtheTRPwill examine thetransaction fileofeachaffectedparticipant andbasedonthemarket value of Costcocommon stockontheeffective daterather thanthirtydayslaterwilldetermine the amount ofrescissionary damages ifanyforeachparticipant. 2.Thiscalculation willbeprovided toeachparticipant alongwithcopyofthe prospectusfortheofferandcopyoftheparticipantstransaction statement. Eachparticipant willbegiven thirty-day period tochallenge thecalculation ofdamages andprovide evidence toCostco thatthecalculation isincorrect ortooptoutoftheRescission Offer. 3. Costco willnotdirectly repurchase sharesfromtheparticipants accounts but ratherwillpayintotheparticipants accounts damages inanamount equaltothedifference between theaggregate purchase pricepaidbyparticipantforpurchases during the Rescission Periodandthefairmarket value ofthose sharesandinthecaseofparticipants CF1-0001 0893
HellerEhr manJanuary 142005 ATTORNEYS whohavesoldatlosstheamount oftheloss incurred. Thesefundswillthenbere-invested inthePlaninaccordance witheachparticipants current allocation instructions to the custodian. TheCostco shares purchased during theRescission Period andstillheldwould remain intheaccounts. Thisprocedure ofsettling claims without the actual saleofsharesbyparticipants of willenable thePlantoavoid thepotential needtoimpose blackout periodonparticipant transactions blackout period thatforadministrative reasons wouldhavetoextend toall 401kparticipantswhether ornottheyareaffectbytheRescission Offer. Itwillalsoavoid market riskassociated withmovements inthesharepricethatwould occurbeforeTRPgoes tothemarket tosellshares tendered bytheparticipants. settlement procedurethatdoes notrequire saleofsharesfromtheparticipants accounts ismostlikelyto effectuate the participants investment intentions. Becausemanyparticipantsinvesttheircontributions in fundsotherthan Costco stock saleofshares tendered bytheparticipants andreinvestment inaccordance withpre-existing investment instructions willnecessarily reduce the concentration ofCostco shares intheparticipants accounts. Although sophisticated participantscould rebalance withpost-settlement instructions to TRPmostparticipants likely willnotavailthemselves ofthisopportunity. Finally settlement procedure thatdoesnot require thesaleofshares ismoreeasilyunderstood byparticipantsitwould beseenas simple decision toaccept cashpayment without having toconsider whethertheyotherwise wouldliketosellalltheCostco shares purchased duringtheRescission Period. Conclusion Costco believes thattheprocedures outlined inthis letter willproduce resultthatis beneficial to itsPlanparticipants andupholds Costcos responsibilities under thesecurities laws.Theprocedures willresultinlessconfusion toparticipants willresultinprompter payment wheredamages aredue and willprovidemechanism forparticipants toprotect theirinterests iftheybelieve Costco haserredinitscalculations. Wehopethatyouwillagree withCostcos views. In thatevent Costco willproceed tofileitsregistration statement with respect totherescission offerpromptly. Wewillcontactyoutofollowuponthis letter. In themeantime ifthereareaspectsoftheproposal thatrequire additional clarification orin yourviewmodification wewould liketodiscuss these withyoupriortofiling. Please contact theundersignedat206-389-4264 orJohnSullivan Assistant General Counsel at CostcoWholesale Corporationat425-427-7577 toarrange mutually convenient timefor discussion. Ifitwould behelpful tothestafftohaverepresentatives ofthetrustee T.Rowe Priceparticipate inthecallwecanarrangethat. CF1-0001 0894
HellerEhrmanJanuary 142005 ATTORNEYS Fortheconvenience ofthestaffwehaveenclosed sixcopiesofthis letter. Thankyou foryourconsideration ofCostcos proposal. Verytrulyyours IsDavid R.Wilson David R.Wilson ccJohnSullivan SE2070493 v3 1/14/05 142PM25843.0002 CF1-0001 0895
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January 142005 David R.Wilson dwilson@hewrn.com 206-389-4264 Mr.H.Christopher Owings Assistant Director Division ofCorporation Finance Securities andExchange Commission 4505thStreetN.W. Washington D.C.20549 MailStop3-8 ReCostco Wholesale Corporation DearMr.Owings Wearewriting onbehalfofourclient CostcoWholesale Corporation Costco to discuss stepstobeundertaken inconnection with proposed rescission offertoparticipants inits401kRetirement Plan thePlan. Wearehopeful thatyouwillconcur withthe procedures fortheconduct oftherescission offerthatareoutlined inthisletterbutifyou haveconcerns wewould liketodiscuss themwithyouoryourstaffpriortotheCompanys filing registration statement withrespect totherescission offer. Background Costco maintains 401k Retirement Plan foritsemployees. Oneoftheinvestment options under thePlanisaninvestment incommon stockofCostco which shares are purchasedintheopenmarketbytheplantrustee T.Rowe PriceTRP. Costco had registered shares tobesoldpursuant tothisinvestment andtherelated planinterests on FormS-8Registration No.33-21093. During 2004Costco discovered thatthenumber of sharesofCostcocommon stockpurchased inPlan accounts mightunder certain interpretations ofthelawhaveexceeded thenumber ofshares registered. OnNovember 16 2004 Costco filed registration statement onFormS-8333- 120523 toregister shares tobepurchased byparticipants inthePlan.Since thepriceof Costcos common stockgenerally rosethroughout thetwelve-month period ending onthe date the newFormS-8wasfiledtheRescission Period Costco believes itsultimate liability intherescission offerwillbeimmaterial toitsfinancial condition orresultsof operation. HellerEhmian White McAuliffe LLP333 Bush Street SanFrancisco CA94104-2878 www.hewm.com SanFrancisco Silicon Valley LosAngeles SanDiego Seattle Portland Anchorage NewYork Washington D.C. Madison Hong Kong Beijing Singapore Affiliated Offices Milan Paris Rome CF1-00010891 HellerEhr manJanuary 142005 ATTORNEYS TRPestimates thatover40000 participants inthePlanpurchased Costco common stockinPlan accounts during theRescission Period. Virtuallyalloftheseparticipants make their401kcontributions through bi-weekly payroll deductions sothatduring theyeareach participant canmakeupto26distinct purchases through thePlan. Costco intends tofileregistration statement onFormS-3toregister the shares sold through thePlanduring theRescission Periodandtomake rescission offertothePlan participants whopurchased sharesofCostcocommon stockin their Plan accounts during the Rescission Period. Procedures forRescission Offer Costco intends toapply thefollowing procedures inconducting therescission offer 1. Participantswhoholdshares purchased during theRescission Periodwhoelect rescission willberequired toparticipate withrespect toallCostco shares purchased during theRescission periodandstillowned. 2. Participants whosoldsharesduring theRescission Period andduring the additional period priortothetermination of therescission offerwillbesubject toFIFO methodi.e.thefirstsaleduring theRescission Period willbematched withthefirst purchase during thePeriod andsubsequent saleswillbematched inorder againstpurchases todetermine thesalepriceofthe shares forcomputation ofrescissory damagesifany. 3.Anytender thatismadepursuant totherescission offerinwhich itis determined thattherescission proceeds i.e.theaggregate costofshares purchased during theRescission Period would belessthanthethen market value ofallCostcocommon stock purchased duringtheRescission Period willberejected. Theseprocedures should beunobjectionable astheyhavebeenutilized in other registered rescission offersin similar circumstances. Seeforexample UnionBancal Corporation Registration No. 333-10998 1. ProposedAdditional Procedures Virtually allregistered rescission offersprovide period generally thirtydaysfrom theeffective dateoftheregistration statement duringwhich offerees maytender theirshares afterwhich theofferterminates. Under thisapproach thevalueofthesecurity forrescission purposesisnotknown untiltheofferterminates. Sincerescission offersgenerally provide thatanytender thatresults inrescission proceeds being lessthanthefairmarket valueofthe shareswillberejected offerees mightthink itwould bein their bestinterests totender shares CF1-0001 0892 HellerEhrmanJanuary14OO5 ATTORNEYS intheofferinordertoobtainanypossible recovery. Similarly anofferee whosoldaffected shares should alsofileclaimforanylosses incurred. Costco believes thatiftherescission offerisstructured intheconventional manner comparison offairmarket value to rescission proceeds notdetermined untiltheconclusion of theoffer--itishighly likely togenerate significant confusion andquestions amongthe participants sincetheywillnotknowhowtheywould beaffected byparticipation intheoffer atthetimetheyhaveto elect to participatebecause themarket valueoftheshareswillnotbe known. The majority oftheplanparticipants arehourly workers whomaynotbeespecially sophisticated aboutfinance andsecurities. Theoffering documents under the best of circumstances arenecessarily voluminous andcomplex. Since themarket value ofCostcos common stockhasgenerally increased from$33.89 atNovember 172003toover$47 presently Costco isconcerned about theconfusion thatmaybecaused foritsemployees by anoffertorepurchase shares atsubstantially below current market. Withover40000 affected participants Costco andTRPbelieve thatconsiderable resources willberequired to respond toinquiries fromparticipants. Theparticipants overwhelmingly arecurrent employees andCostco isconcerned thatitsemployees willnotfullyunderstand the motivation fortherescission offerandthat theremaybenegative effectonemployee morale. Costco believes thisisparticularly trueifthefairmarket value isnotknown atthe timetheofferismade.Another likely effectofthisconfusion isthatsomeparticipants who would beeligible torecover fundspursuant totheofferwillfailtoparticipate. TheCompany isinterested inmaximizing theparticipation ofthosewhoareeligible forrecoveries. Tosimplify therescission procedures provide morecertainty toparticipantsreduce thepotential forconfusionamong participants andenhancerecovery byparticipants Costco proposesthattherescission offering beconducted asfollows 1.Asoftheeffective dateoftheregistration statement Costco andtheTRPwill examine thetransaction fileofeachaffectedparticipant andbasedonthemarket value of Costcocommon stockontheeffective daterather thanthirtydayslaterwilldetermine the amount ofrescissionary damages ifanyforeachparticipant. 2.Thiscalculation willbeprovided toeachparticipant alongwithcopyofthe prospectusfortheofferandcopyoftheparticipantstransaction statement. Eachparticipant willbegiven thirty-day period tochallenge thecalculation ofdamages andprovide evidence toCostco thatthecalculation isincorrect ortooptoutoftheRescission Offer. 3. Costco willnotdirectly repurchase sharesfromtheparticipants accounts but ratherwillpayintotheparticipants accounts damages inanamount equaltothedifference between theaggregate purchase pricepaidbyparticipantforpurchases during the Rescission Periodandthefairmarket value ofthose sharesandinthecaseofparticipants CF1-0001 0893 HellerEhr manJanuary 142005 ATTORNEYS whohavesoldatlosstheamount oftheloss incurred. Thesefundswillthenbere-invested inthePlaninaccordance witheachparticipants current allocation instructions to the custodian. TheCostco shares purchased during theRescission Period andstillheldwould remain intheaccounts. Thisprocedure ofsettling claims without the actual saleofsharesbyparticipants of willenable thePlantoavoid thepotential needtoimpose blackout periodonparticipant transactions blackout period thatforadministrative reasons wouldhavetoextend toall 401kparticipantswhether ornottheyareaffectbytheRescission Offer. Itwillalsoavoid market riskassociated withmovements inthesharepricethatwould occurbeforeTRPgoes tothemarket tosellshares tendered bytheparticipants. settlement procedurethatdoes notrequire saleofsharesfromtheparticipants accounts ismostlikelyto effectuate the participants investment intentions. Becausemanyparticipantsinvesttheircontributions in fundsotherthan Costco stock saleofshares tendered bytheparticipants andreinvestment inaccordance withpre-existing investment instructions willnecessarily reduce the concentration ofCostco shares intheparticipants accounts. Although sophisticated participantscould rebalance withpost-settlement instructions to TRPmostparticipants likely willnotavailthemselves ofthisopportunity. Finally settlement procedure thatdoesnot require thesaleofshares ismoreeasilyunderstood byparticipantsitwould beseenas simple decision toaccept cashpayment without having toconsider whethertheyotherwise wouldliketosellalltheCostco shares purchased duringtheRescission Period. Conclusion Costco believes thattheprocedures outlined inthis letter willproduce resultthatis beneficial to itsPlanparticipants andupholds Costcos responsibilities under thesecurities laws.Theprocedures willresultinlessconfusion toparticipants willresultinprompter payment wheredamages aredue and willprovidemechanism forparticipants toprotect theirinterests iftheybelieve Costco haserredinitscalculations. Wehopethatyouwillagree withCostcos views. In thatevent Costco willproceed tofileitsregistration statement with respect totherescission offerpromptly. Wewillcontactyoutofollowuponthis letter. In themeantime ifthereareaspectsoftheproposal thatrequire additional clarification orin yourviewmodification wewould liketodiscuss these withyoupriortofiling. Please contact theundersignedat206-389-4264 orJohnSullivan Assistant General Counsel at CostcoWholesale Corporationat425-427-7577 toarrange mutually convenient timefor discussion. Ifitwould behelpful tothestafftohaverepresentatives ofthetrustee T.Rowe Priceparticipate inthecallwecanarrangethat. CF1-0001 0894 HellerEhrmanJanuary 142005 ATTORNEYS Fortheconvenience ofthestaffwehaveenclosed sixcopiesofthis letter. Thankyou foryourconsideration ofCostcos proposal. Verytrulyyours IsDavid R.Wilson David R.Wilson ccJohnSullivan SE2070493 v3 1/14/05 142PM25843.0002 CF1-0001 0895