<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
- -----
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 2, 1997
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
EXCHANGE ACT OF 1934
For the transition period from ______ to _______
Commission file number 0-14970
COST PLUS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
California 94-1067973
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
201 Clay Street, Oakland, California 94607
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (510) 893-7300
Former name, former address and former fiscal year, N/A
if changed since last report.
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
The number of shares of Common Stock, $0.01 par value, outstanding on September
3, 1997 was 8,211,900.
<PAGE>
COST PLUS, INC.
FORM 10-Q
FOR THE QUARTER ENDED AUGUST 2, 1997
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
Balance Sheets as of August 2, 1997 (unaudited),
February 1, 1997 and August 3, 1996 (unaudited) 3
Statements of Operations (unaudited)
for the three and six months ended
August 2, 1997 and August 3, 1996 4
Statements of Cash Flows (unaudited)
for the six months ended August 2, 1997
and August 3, 1996 5
Notes to Condensed Consolidated Financial Statements 6-7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-10
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders 11
ITEM 5. Other Information 12
ITEM 6. Exhibits and Reports on Form 8-K 12
SIGNATURE PAGE 13
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COST PLUS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AUGUST 2, FEBRUARY 1, AUGUST 3,
1997 1997 1996
(UNAUDITED) (SEE NOTE 1) (UNAUDITED)
------------- -------------- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 786 $ 14,398 $ 1,314
Merchandise inventories 50,557 42,605 41,231
Other current assets 2,609 2,413 2,060
---------- ---------- ----------
Total current assets 53,952 59,416 44,605
Property and equipment, net 61,459 60,205 58,026
Other assets 8,271 8,577 8,222
---------- ---------- ----------
Total assets $ 123,682 $ 128,198 $ 110,853
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 10,943 $ 14,706 $ 9,583
Income taxes payable -- 6,095 677
Accrued compensation 5,927 6,607 5,047
Revolving line of credit 4,900 -- 2,909
Other current liabilities 7,222 7,201 6,718
---------- ---------- ----------
Total current liabilities 28,992 34,609 24,934
Capital lease obligations 13,980 14,215 14,424
Deferred income taxes 3,548 3,548 4,455
Other long-term obligations 2,854 2,617 2,228
Shareholders' equity:
Preferred stock, $.01 par value: 5,000,000 shares authorized
August 2, 1997; none issued and outstanding -- -- --
Common stock, $.01 par value: 30,000,000
authorized; issued and outstanding 8,210,502,
8,099,840 and 8,071,449 shares 82 81 81
Additional paid-in capital 91,970 91,166 90,788
Deficit (17,744) (18,038) (26,057)
---------- ---------- ----------
Total shareholders' equity 74,308 73,209 64,812
---------- ---------- ----------
Total liabilities and shareholders' equity $ 123,682 $ 128,198 $ 110,853
========== ========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
COST PLUS, INC.
STATEMENTS OF CONDENSED CONSOLIDATED OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS, UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------ ----------------------------
AUGUST 2, AUGUST 3, AUGUST 2, AUGUST 3,
1997 1996 1997 1996
-------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Net sales $47,287 $39,986 $95,819 $79,113
Cost of sales and occupancy 30,558 25,774 62,364 51,326
-------------- ------------- ------------ -------------
Gross profit 16,729 14,212 33,455 27,787
Selling, general and administrative
expenses 15,758 13,511 31,544 26,566
Preopening store expenses 200 556 640 840
-------------- ------------- ------------ -------------
Income from operations 771 145 1,271 381
Interest expense 460 479 781 1,384
-------------- ------------- ------------ -------------
Income (loss) before income taxes 311 (334) 490 (1,003)
Provision for (benefit from) income taxes 124 (137) 196 (411)
-------------- ------------- ------------ -------------
Net income (loss) $ 187 $ (197) $ 294 $ (592)
============== ============= ============ =============
Net income (loss) per common and common
equivalent share $ .02 $ (.02) $ .03 $ (.08)
============== ============= ============ =============
Weighted average common and common
equivalent shares outstanding 8,563 8,511 8,489 7,733
============== ============= ============ =============
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
COST PLUS, INC.
STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS
(IN THOUSANDS, UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------------
AUGUST 2, AUGUST 3,
1997 1996
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 294 $ (592)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 3,874 3,285
Loss on disposal of property and equipment 31 --
Change in assets and liabilities:
Merchandise inventories (7,952) (6,018)
Other assets (171) (242)
Accounts payable (3,147) 512
Income taxes payable (6,095) (2,682)
Other liabilities (449) (746)
------------- -------------
Net cash used in operating activities (13,615) (6,483)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (5,494) (3,110)
------------- -------------
Net cash used in investing activities (5,494) (3,110)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) borrowings under revolving line of credit 4,900 (256)
Payment of note payable to related parties -- (19,895)
Principal payments on capital lease obligations (208) (168)
Proceeds from issuance of stock, net of related costs 805 29,045
------------- -------------
Net cash provided by financing activities 5,497 8,726
------------- -------------
Net decrease in cash and cash equivalents (13,612) (867)
Cash and cash equivalents:
Beginning of period 14,398 2,181
------------- -------------
End of period $ 786 $ 1,314
============= =============
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
COST PLUS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED AUGUST 2, 1997 AND AUGUST 3, 1996
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared from the records of the Company without audit and, in the opinion of
management, include all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position at August 2, 1997
and August 3, 1996; the interim results of operations for the three and six
months ended August 2, 1997 and August 3, 1996; and changes in cash flows for
the six months then ended. The balance sheet at February 1, 1997, presented
herein, has been derived from the audited financial statements of the Company
for the fiscal year then ended.
Accounting policies followed by the Company are described in Note 1 to the
audited consolidated financial statements for the fiscal year ended February 1,
1997. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted for purposes of the condensed
consolidated interim financial statements. The condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements, including notes thereto, for the year ended February 1, 1997.
The results of operations for the three and six month periods herein presented
are not necessarily indicative of the results to be expected for the full year.
Impact of New Accounting Standards--In February 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 128
("SFAS 128"), Earnings per Share ("EPS"). SFAS 128 requires dual presentation
of basic EPS and diluted EPS on the face of all income statements issued after
December 15, 1997 for all entities with complex capital structures. Basic EPS
is computed as net income divided by the weighted average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur from common shares issuable through stock options, warrants and
other convertible securities. The Company is required to adopt SFAS 128 in the
fourth quarter of fiscal 1997 and will restate, at that time, EPS data for prior
periods to conform with SFAS 128. Earlier application is not permitted. The
pro forma effect assuming adoption of SFAS 128 at the beginning of each period
is presented below:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------- ---------------------
August 2, August 3, August 2, August 2,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Pro forma EPS:
Basic............. $0.02 $(0.02) $0.04 $(0.08)
Diluted........... $0.02 $(0.02) $0.03 $(0.08)
</TABLE>
In June 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 130 ("SFAS 130"), Reporting Comprehensive
Income, and No. 131 ("SFAS 131"), Disclosures about Segments of an Enterprise
and Related Information. SFAS 130 requires that an enterprise report, by major
components and as a single total, the change in its net assets during the period
from nonowner sources; and SFAS 131 establishes annual and interim reporting
standards for an enterprise's operating segments and related disclosures about
its products, services, geographic areas and major customers. Adoptions of
these statements will not impact the Company's consolidated financial position,
results of operations or cash flows and any effect will be limited to the form
and content of its disclosures. Both statements are effective for fiscal years
beginning after December 15, 1997, with earlier application permitted.
6
<PAGE>
COST PLUS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
2. STATEMENTS OF CASH FLOWS SUPPLEMENTAL DISCLOSURES
Total cash paid for interest and income taxes was as follows:
<TABLE>
<CAPTION>
Six Months Ended
---------------------------
August 2, August 3,
1997 1996
----------- -----------
<S> <C> <C>
($000, unaudited)
Interest $ 764 $ 1,763
Income Taxes $ 6,649 $ 2,322
</TABLE>
3. REVOLVING LINE OF CREDIT AGREEMENT
On May 7, 1996, the Company entered into a revolving line of credit agreement
with Bank of America which was amended on May 15, 1997 and expires June 1, 1999.
The amended agreement allows for cash borrowing and letters of credit up to
$20.0 million from January 1 through June 30 and up to $35.0 million from July 1
through December 31 of each year. Interest is paid monthly at the bank's
reference rate (8.50% at August 2, 1997) or LIBOR plus 1.75%, depending on the
nature of the borrowings. The agreement is secured by the Company's inventory
and receivables. The Company is subject to certain financial covenants including
minimum tangible net worth and earnings coverage ratio. At August 2, 1997, the
Company had $4.9 million of outstanding borrowings under the line of credit and
$2.9 million outstanding under letters of credit.
4. STOCK OPTION PLANS
In June 1997, the Company amended its 1995 Stock Option Plan to increase the
number of shares available for grant by 400,000 to a total of 1,424,669 shares,
less the aggregate number of shares issued or subject to options outstanding
under the 1994 Stock Option Plan. The 1996 Director Option Plan was also amended
to increase the number of shares available for grant by 40,000 to a total of
68,300 shares.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THE THREE MONTHS ("SECOND QUARTER") AND SIX MONTHS ("YEAR-TO-DATE", "FIRST
HALF") ENDED AUGUST 2, 1997 AS COMPARED TO THE THREE MONTHS ("SECOND QUARTER")
AND SIX MONTHS ("YEAR-TO-DATE", "FIRST HALF") ENDED AUGUST 3, 1996.
NET SALES. Net sales increased $7.3 million, or 18.3%, to $47.3 million in the
second quarter of fiscal 1997 from $40.0 million in the second quarter of fiscal
1996. For the first half of fiscal 1997, net sales were $95.8 million compared
to $79.1 million for the same period of fiscal 1996, an increase of $16.7
million, or 21.1%. Comparable stores sales rose 6.8% in the second quarter and
7.3% in the first half, primarily as a result of a larger average transaction
size. New store openings also contributed to the increase in net sales in both
the second quarter and first half. As of August 2, 1997, the Company operated 60
stores compared to 52 stores as of August 3, 1996.
GROSS PROFIT. As a percentage of net sales, gross profit was 35.4% in the second
quarter of fiscal 1997 compared to 35.5% in the second quarter of fiscal 1996.
Year-to-date, gross profit, as a percentage of net sales, was 34.9% this year
compared with 35.1% last year. These slight decreases resulted from higher
occupancy costs in new stores, partially offset by a sales mix more heavily
weighted towards home furnishings and home decorating products, which generally
have higher gross margins than the Company average. Lower inventory
shrinkage also offset the higher occupancy costs. New stores generally have
higher occupancy costs, as a percentage of net sales, until they reach maturity.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES. As a percentage of net
sales, SG&A expenses improved 0.5% to 33.3% in the second quarter of fiscal 1997
from 33.8% in the second quarter of fiscal 1996 primarily as a result of
leveraging store payroll. Year-to-date, SG&A expenses decreased to 32.9% in the
current fiscal year from 33.6% last year. The year-to-date decrease in SG&A, as
a percentage of net sales, resulted from lower store payroll and other SG&A
expenses partially offset by higher advertising costs to support an earlier
Easter and a new spring merchandising event.
PREOPENING STORE EXPENSES. Preopening store expenses, which include grand
opening advertising and preopening merchandising expenses, were lower in the
second quarter and first half of fiscal 1997 compared with the second quarter
and first half of fiscal 1996, primarily as a result of the timing of store
openings. In addition, year-to-date the average preopening costs per store
declined to $217,000 from $240,000. This decrease in the average preopening
costs per store was primarily attributable to lower grand opening advertising
expenses. Expenses are generally incurred in both the month prior to and the
month of the store opening and vary depending on the location of a store and
whether it is located in a new or existing market.
INTEREST EXPENSE. Interest expense was $0.5 million in the second quarter of
both fiscal 1997 and fiscal 1996. Interest expense in the first half of fiscal
1997 consisted of $911,000 in capital lease interest offset by $130,000 of net
interest income. In the first half of the previous fiscal year, interest expense
included capital lease interest and interest expense on debt which was repaid in
April 1996 with the proceeds from the Company's initial public offering of its
common stock.
PROVISION FOR INCOME TAXES. The Company's effective tax rate was 40.0% in fiscal
1997 compared to 41.0% in fiscal 1996.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's business is highly seasonal, reflecting the general pattern
associated with much of the retail industry of peak sales and earnings during
the Christmas season. Due to the importance of the Christmas selling season, the
fourth quarter of each fiscal year has historically contributed, and the Company
expects it will continue to contribute, a
8
<PAGE>
disproportionate percentage of the Company's net sales and most of its net
income for the entire fiscal year/1/. Any factors negatively affecting the
Company during the Christmas selling season in any year, including unfavorable
economic conditions, could have a material adverse effect on the Company's
financial condition and results of operations. In addition, the Company makes
decisions regarding merchandise well in advance of the season in which it will
be sold, particularly for the Christmas selling season. Significant deviations
from projected demand for products could have a material adverse effect on the
Company's financial condition and results of operations, either by lost sales
due to insufficient inventory or lost margin due to the need to mark down excess
inventory.
The Company's quarterly results of operations may fluctuate based upon such
factors as the number and timing of store openings and related preopening store
expenses, the amount of net sales contributed by new and existing stores, the
mix of products sold, the timing and level of markdowns, store closings,
refurbishments or relocations, weather conditions, competitive factors and
general economic conditions.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary uses for cash, other than to fund operating expenses, are
to support inventory requirements and for store expansion. Historically, the
Company has financed its operations primarily with borrowings under the
Company's credit facilities and internally generated funds. The Company
believes that the available borrowings under its revolving line of credit and
internally generated funds will be sufficient to finance its working capital and
capital expenditures requirements for the next 12 months. /1/
Net cash used in operating activities in the first half of fiscal 1997 totaled
$13.6 million, an increase of $7.1 million over the comparable period of the
prior fiscal year. This increase resulted from higher income tax payments and
the timing of payments for merchandise inventory.
Net cash used in investing activities, primarily for new stores, totaled $5.5
million for the first half of fiscal 1997 compared to $3.1 million in the
comparable period of the prior fiscal year. The Company estimates that capital
expenditures will approximate $11.0 million in fiscal 1997. /1/
Net cash provided by financing activities was $5.5 million in the first half of
fiscal 1997 and included $4.9 million of borrowings under the Company's
revolving line of credit agreement and $805,000 from the issuance of stock to
employees pursuant to the Company's stock option and stock purchase plans. Net
cash provided by financing activities in fiscal 1996 included approximately
$29.1 million received in April 1996 as a result of the Company's initial public
offering. These proceeds were used to retire a $19.9 million long-term note
payable and pay down the $3.2 million balance then outstanding on the Company's
revolving credit line. Remaining unused proceeds were used for working capital
and general corporate purposes. The Company has entered into an agreement to
sell its San Francisco property and leaseback the store facility, subject to the
satisfaction of certain conditions. If the transaction is completed, the
Company will receive approximately $10.5 million in cash.
On May 7, 1996, the Company entered into a revolving line of credit agreement
with Bank of America which was amended on May 15, 1997 and expires June 1, 1999.
The amended agreement allows for cash borrowing and letters of credit up to
$20.0 million from January 1 through June 30 and up to $35.0 million from July 1
through December 31 of each year. Interest is paid monthly at the bank's
reference rate (8.50% at August 2, 1997) or LIBOR plus 1.75%, depending on the
nature of the borrowings. The agreement is secured by the Company's inventory
and receivables. The Company is subject to certain financial covenants
including minimum tangible net worth and earnings coverage ratio. At August 2,
1997, the Company had $4.9 million of outstanding borrowings under the line of
credit and $2.9 million outstanding under letters of credit.
IMPACT OF NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("SFAS 128"), Earnings per Share ("EPS").
SFAS 128 requires dual presentation of basic EPS and diluted EPS on the face of
all income statements issued after December 15, 1997 for all entities with
complex capital structures. Basic EPS is computed as net income divided by the
weighted average number of common shares outstanding for the period.
- --------------------
/1/ Forward looking statement
9
<PAGE>
Diluted EPS reflects the potential dilution that could occur from common shares
issuable through stock options, warrants and other convertible securities. The
Company is required to adopt SFAS 128 in the fourth quarter of fiscal 1997 and
will restate, at that time, EPS data for prior periods to conform with SFAS 128.
Earlier application is not permitted.
In June 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 130 ("SFAS 130"), Reporting Comprehensive
Income, and No. 131 ("SFAS 131"), Disclosures about Segments of an Enterprise
and Related Information. SFAS 130 requires that an enterprise report, by major
components and as a single total, the change in its net assets during the period
from nonowner sources; and SFAS 131 establishes annual and interim reporting
standards for an enterprise's operating segments and related disclosures about
its products, services, geographic areas and major customers. Adoptions of
these statements will not impact the Company's consolidated financial position,
results of operations or cash flows and any effect will be limited to the form
and content of its disclosures. Both statements are effective for fiscal years
beginning after December 15, 1997, with earlier application permitted.
10
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's 1997 Annual Meeting of Shareholders held on June 19, 1997, the
shareholders voted on the following proposals:
PROPOSAL 1. To re-elect seven directors for the ensuing year and until their
successors are elected.
PROPOSAL 2. To approve an amendment to the Company's 1995 Stock Option Plan to
increase the shares reserved for issuance thereunder by 400,000
shares.
PROPOSAL 3. To approve amendments to the Company's 1996 Director Option Plan
to: (i) increase the shares reserved for issuance thereunder by
40,000 shares; and (ii) provide for automatic annual option grants
of 2,000 shares to each of the Company's non-employee directors.
PROPOSAL 4. To approve an amendment to the Company's By-Laws to authorize the
Board of Directors to approve certain loans to officers of the
Company without further shareholder approval.
PROPOSAL 5. To approve the Company's 1997 Executive Officer and Key Employee
Loan Plan.
PROPOSAL 6. To ratify and approve the appointment of Deloitte & Touche LLP as
independent auditors of the Company for the fiscal year ending
January 31, 1998.
1997 ANNUAL MEETING ELECTION RESULTS
PROPOSAL 1 - ELECTION OF DIRECTORS
<TABLE>
<CAPTION>
NAME FOR WITHHELD
---- --- --------
<S> <C> <C>
Ralph D. Dillon 7,413,456 811
Joseph H. Coulombe 7,413,364 903
Danny W. Gurr 7,403,493 10,774
Mervin G. Morris 7,403,493 10,774
Edward A. Mule 7,413,493 774
Olivier L. Trouveroy 7,403,493 10,774
Thomas D. Willardson 7,413,493 774
</TABLE>
PROPOSAL 2, 3, 4, 5 AND 6
<TABLE>
<CAPTION>
BROKER
PROPOSAL FOR AGAINST ABSTAIN NON-VOTES
-------- --- ------- ------- ---------
<S> <C> <C> <C> <C>
Amendment to the 1995
Stock Option Plan 6,126,445 870,434 3,882 413,506
Amendments to the 1996
Director Option Plan 6,954,928 41,664 4,169 413,506
Amendment to the By-Laws 6,644,070 338,308 7,738 424,151
Executive Officer and Key
Employee Loan Plan 6,891,508 88,595 10,013 424,151
Appointment of Deloitte &
Touche LLP 7,401,136 12,500 631 0
</TABLE>
11
<PAGE>
ITEM 5. OTHER INFORMATION
Murray H. Dashe joined the Company as Vice Chairman of the Board of Directors, a
newly created position, effective June 23, 1997. As Vice Chairman, Mr. Dashe is
responsible for overseeing all day-to-day operations of the Company. Previously,
Mr. Dashe served as Chief Operating Officer and as a member of the Board of
Directors of Leslie's Poolmart., Inc., a swimming pool supplies retail chain.
In addition, see the Company's press release of September 3, 1997, a copy of
which is attached as Exhibit 10.6, which is incorporated by reference herein.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
(a) Exhibits
3.2 Amended and Restated By-laws.
10.1 1995 Stock Option Plan, as amended.
10.2 1996 Director Option Plan, as amended.
10.3 1997 Executive Officer and Key Employee Loan Plan, dated May
7, 1997, incorporated by reference to Appendix C of the
Company's Proxy Statement dated May 22, 1997.
10.4 Employment Agreement, dated June 17, 1997 between the Company
and Murray H. Dashe.
10.5 Employment Agreement, dated February 2, 1997 between the
Company and Kathi P. Lentzsch.
10.6 Press release of September 3, 1997
11 Statement re: Computation of Per Share Earnings.
27 Financial Data Schedule (submitted for SEC use only).
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the period
covered by this report.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COST PLUS, INC.
----------------------------------
Registrant
/s/ Patricia T. Saucy
----------------------------------
By: Patricia T. Saucy
Vice President Finance
Date: September 5, 1997
13
<PAGE>
AMENDED AND RESTATED/1/
BY-LAWS
OF
COST PLUS, INC.
(a California corporation)
(the "corporation")
Article I
OFFICES
Section 1.1 Principal Office. The principal office for the transaction
----------- ----------------
of the business of the corporation shall be located at 201 Clay Street, Oakland,
State of California. The Board of Directors of the corporation (the "Board" or
the "Board of Directors") is hereby granted full power and authority to change
said principal office to another location within or without the State of
California.
Section 1.2 Other Offices. One or more branch or other subordinate
----------- -------------
offices may at any time be fixed and located by the Board of Directors at such
place or places within or without the State of California as it deems
appropriate.
Article II
DIRECTORS
Section 2.1 Exercise of Corporate Powers. Except as otherwise provided
----------- ----------------------------
by the Articles of Incorporation of the corporation or by the laws of the State
of California now or hereafter in force, the business and affairs of the
corporation shall be managed and all corporate powers shall be exercised by or
under the direction of the Board of Directors. The Board may delegate the
management of the day-to-day operation as permitted by law provided that the
business and affairs of the corporation shall be managed and all corporate
powers shall be exercised under the ultimate direction of the Board. Without
limiting the foregoing, in addition to any other action required by law, by the
Articles of Incorporation or by these By-Laws, approval by the Board of
Directors or a duly established committee of the Board shall be required for any
of the following corporate actions:
(a) the election and removal of the Chairman (if any), the President,
the Chief Financial Officer, or any other executive officer of the corporation
or any significant subsidiary (as such term is defined in Regulation S-X
promulgated under the Securities Act of 1933, as amended) of the
- --------------------------
/1/ As of June 19, 1997
<PAGE>
corporation, the compensation of any of them, and the prescription of such
powers and duties for them as are not inconsistent with the Articles of
Incorporation, these By-Laws or applicable law;
(b) lease of any real property on terms which exceed parameters
approved by the Board;
(c) ceasing of operations at any of the business locations of the
corporation and any writeoff for any such location in excess of $250,000;
(d) sale, exchange, mortgage, pledge or other disposition or
encumbrance by the corporation of any real property or any other assets of the
corporation having a net book or fair market value in excess of $1,000,000 other
than sales of inventory in the ordinary course of business;
(e) settlement of any claim involving a payment or forbearance, or any
writeoff, by the corporation in excess of $500,000 not included in the annual
capital expenditure budgets for the corporation;
(f) appointment of auditors for the corporation and any significant
change in the accounting principles or tax elections applicable to the
corporation which are not mandated by generally accepted accounting principles
or applicable law; and
(g) any contract or other transaction between the corporation and one
or more of its directors or officers or any entity in which one or more of its
directors or officers has a material financial interest.
Section 2.2 Number. The number of directors of the corporation
----------- ------
shall be not less than five (5) nor more than nine (9). The exact number of
directors shall be eight (8) until changed, within the limits specified above,
by a bylaw amending this Section 2.2, duly adopted by the Board of Directors or
by the shareholders. The indefinite number of directors may be changed, or a
definite number may be fixed without provision for an indefinite number, by a
duly adopted amendment to the Articles of Incorporation or by an amendment to
this bylaw duly adopted by the vote or written consent of holders of a majority
of the outstanding shares entitled to vote; provided, however, that an amendment
reducing the fixed number or the minimum number of directors to a number less
than five cannot be adopted if the votes cast against its adoption at a meeting,
or the shares not consenting in the case of an action by written consent, are
equal to more than 16-2/3% of the outstanding shares entitled to vote thereon.
No amendment may change the stated maximum number of authorized directors to a
number greater than two times the stated minimum number of directors minus one.
Section 2.3 Need not Be Shareholders. The directors of the
----------- ------------------------
corporation need not be shareholders of the corporation.
Section 2.4 Compensation. Directors shall receive such
----------- ------------
compensation for their services as directors and such reimbursement for their
expenses of attendance at meetings as may be determined from time to time by
resolution of the Board. Nothing herein contained shall be construed
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to preclude any director from serving the corporation in any other capacity and
receiving compensation therefor.
Section 2.5 Election and Term of Office. At each annual meeting of
----------- ---------------------------
shareholders, directors shall be elected to hold office until the next annual
meeting, provided, that if for any reason, said annual meeting or an adjournment
thereof is not held or the directors are not elected thereat, then the directors
may be elected at any special meeting of the shareholders called and held for
that purpose. The term of office of the directors shall begin immediately after
their election and shall continue until the expiration of the term for which
elected and until their respective successors have been elected and qualified.
Section 2.6 Vacancies. A vacancy or vacancies in the Board of
----------- ---------
Directors shall exist when any authorized position of director is not then
filled by a duly elected director, whether caused by death, resignation, removal
change in the authorized number of directors (by the Board or the shareholders)
or otherwise. The Board of Directors may declare vacant the office of a
director who has been declared of unsound mind by an order of court or convicted
of a felony. Except for a vacancy created by the removal of a director,
vacancies on the Board may be filled by a majority of the directors then in
office, whether or not less than a quorum, or by a sole remaining director. A
vacancy created by the removal of a director may be filled only by the approval
of the shareholders. The shareholders may elect a director at any time to fill
any vacancy not filled by the directors, but any such election by written
consent requires the consent of a majority of the outstanding shares entitled to
vote. Any director may resign effective upon giving written notice to the
Chairman of the Board, the President, the Secretary or the Board of Directors of
the corporation, unless the notice specifies a later time for the effectiveness
of such resignation. If the resignation is effective at a future time, a
successor may be elected to take office when the resignation becomes effective.
Section 2.7 Removal. (a) Any and all of the directors may be
----------- -------
removed without cause if such removal is approved by the affirmative vote of a
majority of the outstanding shares entitled to vote at an election of directors,
except that no director may be removed (unless the entire Board is removed) when
the votes cast against removal, or not consenting in writing to such removal,
would be sufficient to elect such director if voted cumulatively at an election
at which the same total number of votes were cast (or, if such action is taken
by written consent, all shares entitled to vote were voted) and the entire
number of directors authorized at the time of the director's most recent
election were then being elected.
(b) Any reduction of the authorized number of directors does not
remove any director prior to the expiration of such director's term of office.
Section 2.8 Approval of Loans. The corporation may, upon the
----------- -----------------
approval of the Board of Directors alone, make loans of money or property to, or
guarantee the obligations of, any officer of the corporation or of its parent,
if any, whether or not a director, or adopt an employee benefit plan or plans
authorizing such loans or guaranties provided that: (i) the Board of Directors
determines that such a loan or guaranty or plan may reasonably be expected to
benefit the corporation; (ii) the corporation has outstanding shares held of
record by 100 or more persons (determined as provided in Section 605 of the
California General Corporation Law) on the date of approval by the Board of
Directors; and (iii) the
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approval of the Board of Directors is by a vote sufficient without counting the
vote of any interested director or directors. Notwithstanding the foregoing, the
corporation shall have the power to make loans otherwise permitted by the
California General Corporation Law.
Article III
OFFICERS
Section 3.1 Election and Qualifications. The officers of this
----------- ---------------------------
corporation shall consist of a President, a Chief Financial Officer and a
Secretary who shall be chosen by the Board of Directors and such other officers,
including a Chairman of the Board, one or more Vice Presidents, an Assistant
Treasurer, an Assistant Secretary and a Controller, as the Board of Directors
shall deem expedient, who shall be chosen in such manner and hold their offices
for such terms as the Board of Directors may prescribe. Any two or more of such
offices may be held by the same person. Any Vice President, Assistant Treasurer
or Assistant Secretary, respectively, may exercise any of the powers of the
President, the Chief Financial Officer, or the Secretary, respectively, as
directed by the Board of Directors and shall perform such other duties as are
imposed upon such officer by the By-Laws or the Board of Directors.
Section 3.2 Term of Office and Compensation. The term of office
----------- -------------------------------
and salary of each of said officers and the manner and time of the payment of
such salaries shall be fixed and determined by the Board of Directors and may be
altered by said Board from time to time at its pleasure, subject to the rights,
if any, of said officers under any contract of employment.
Section 3.3 Removal and Vacancies. Any officer of the corporation
----------- ---------------------
may be removed at the pleasure of the Board of Directors at any meeting or by
vote of shareholders entitled to exercise the majority of voting power of the
corporation at any meeting. Any officer may resign at any time upon written
notice to the corporation without prejudice to the rights, if any, of the
corporation under any contract to which the officer is a party. If any vacancy
occurs in any office of the corporation, the Board of Directors may elect a
successor to fill such vacancy for the remainder of the unexpired term and until
a successor is duly chosen and qualified.
Article IV
CHAIRMAN OF THE BOARD
Section 4.1 Powers and Duties. The Chairman of the Board of
----------- -----------------
Directors, if there be one, shall have the power to preside at all meetings of
the Board of Directors, and to call meetings of the shareholders and of the
Board of Directors to be held within the limitations prescribed by law or by
these By-Laws, at such times and at such places as the Chairman of the Board
shall deem proper. The Chairman of the Board shall have such other powers and
shall be subject to such other duties as the Board of Directors may from time to
time prescribe.
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Article V
PRESIDENT
Section 5.1 Powers and Duties. The powers and duties of the
----------- -----------------
President are:
(a) To act as the chief executive officer of the corporation and,
subject to the control of the Board of Directors, to have general supervision,
direction and control of the business and affairs of the corporation.
(b) To preside at all meetings of the shareholders and, in the absence
of the Chairman of the Board, or if there be none, at all meetings of the Board
of Directors.
(c) To call meetings of the shareholders and also of the Board of
Directors to be held, subject to the limitations prescribed by law or by these
By-Laws, at such times and at such places as the President shall deem proper.
(d) To affix the signature of the corporation to all deeds,
conveyances, mortgages, leases, obligations, bonds, certificates and other
papers and instruments in writing which have been authorized by the Board of
Directors or which do not require the approval of the Board of Directors under
Section 2.1 of the By-Laws and in the judgment of the President should be
executed on behalf of the corporation, to sign certificates for shares of stock
of the corporation and, subject to the direction of the Board of Directors, to
have general charge of the property of the corporation and to supervise and
control all officers, agents and employees of the corporation.
Section 5.2 President pro tem. If neither the Chairman of the
----------- -----------------
Board, the President, nor any Vice President is present at any meeting of the
Board of Directors, a President pro tem may be chosen to preside and act at such
meeting. If neither the President nor any Vice President is present at any
meeting of the shareholders, a President pro tem may be chosen to preside at
such meeting.
Article VI
VICE PRESIDENT
Section 6.1 Powers and Duties. In case of the absence, disability
----------- -----------------
or death of the President, the Vice President, or one of the Vice Presidents,
shall exercise all the powers and perform all the duties of the President. If
there is more than one Vice President, the order in which the Vice Presidents
shall succeed to the powers and duties of the President shall be as fixed by the
Board of Directors. The Vice President or Vice Presidents shall have such other
powers and perform such other duties as may be granted or prescribed by the
Board of Directors.
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Article VII
SECRETARY
Section 7.1 Powers and Duties. The powers and duties of the
----------- -----------------
Secretary are:
(a) To keep a book of minutes at the principal office of the
corporation, or such other place as the Board of Directors may order, of all
meetings of its directors and shareholders with the time and place of holding,
whether regular or special, and, if special, how authorized, the notice thereof
given, the names of those present at directors' meetings, the number of shares
present or represented at shareholders' meetings and the proceedings thereof.
(b) To keep the seal of the corporation and to affix the same to all
instruments which may require it.
(c) To keep or cause to be kept at the principal office of the
corporation, or at the office of the transfer agent or agents, a share register,
or duplicate share registers, showing the names of the shareholders and their
addresses, the number and classes of shares held by each, the number and date of
certificates issued for shares, and the number and date of cancellation of every
certificate surrendered for cancellation.
(d) To keep a supply of certificates for shares of the corporation, to
fill in all certificates issued, and to make a proper record of each such
issuance; provided, that so long as the corporation shall have one or more duly
appointed and acting transfer agents of the shares, or any class or series of
shares, of the corporation, such duties with respect to such shares shall be
performed by such transfer agent or transfer agents.
(e) To transfer upon the share books of the corporation any and all
shares of the corporation; provided, that so long as the corporation shall have
one or more duly appointed and acting transfer agents of the shares, or any
class or series of shares, of the corporation, such duties with respect to such
shares shall be performed by such transfer agent or transfer agents, and the
method of transfer of each certificate shall be subject to the reasonable
regulations of the transfer agent to which the certificate is presented for
transfer, and also, if the corporation then has one or more duly appointed and
acting registrars, to the reasonable regulations of the registrar to which the
new certificate is presented for registration; and provided, further, that no
certificate for shares of stock shall be issued or delivered or, if issued or
delivered, shall have any validity whatsoever until and unless it has been
signed or authenticated in the manner provided in Section 14.4 hereof.
(f) To make service and publication of all notices that may be
necessary or proper, and without command or direction from anyone, in case of
the absence, disability, refusal or neglect of the Secretary to make service or
publication of any notices, then such notices may be served and/or published by
the President or a Vice President, or by any person thereunto authorized by
either of them or by the Board of Directors or by the holders of a majority of
the outstanding shares of the corporation.
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(g) Generally to do and perform all such duties as pertain to the
office of Secretary and as may be required by the Board of Directors.
Article VIII
CHIEF FINANCIAL OFFICER
Section 8.1 Powers and Duties. The powers and duties of the Chief
----------- -----------------
Financial Officer are:
(a) To supervise and control the keeping and maintaining of adequate
and correct accounts of the corporation's properties and business transactions,
including accounts of its assets, liabilities, receipts, disbursements, gains,
losses, capital, retained earnings and shares. The books of account shall at
all reasonable times be open to inspection by any director.
(b) To have the custody of all funds, securities, evidence of
indebtedness and other valuable documents of the corporation and, at the Chief
Financial Officer's discretion, to cause any or all thereof to be deposited for
the account of the corporation with such depositary as may be designated from
time to time by the Board of Directors.
(c) To receive or cause to be received, and to give or cause to be
given receipts and acquittances for moneys paid in for the account of the
corporation.
(d) To disburse, or cause to be disbursed, all funds of the
corporation as may be directed by the Board of Directors, taking proper vouchers
for such disbursements.
(e) To render to the President and to the Board of Directors, whenever
they may require, accounts of all transactions and of the financial condition of
the corporation.
(f) Generally to do and perform all such duties as pertain to the
office of Chief Financial Officer and as may be required by the Board of
Directors.
Article IX
TREASURER
Section 9.1 Powers and Duties. The Treasurer shall have such
----------- -----------------
powers and duties as from time to time may be prescribed by the board of
directors or these By-Laws, including custody of and responsibility for all
money and investments.
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Article X
CONTROLLER
Section 10.1 Powers and Duties. The Controller, if there be one,
------------ -----------------
shall have the power and duty to keep and maintain adequate and correct accounts
of the corporation's properties and business transactions, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital
retained earnings and shares, and to render to the Chief Financial Officer, the
President and the Board of Directors, whenever they may require, accounts of all
transactions and of the financial condition of the corporation. The Controller
shall generally have the power to do and perform all such other duties as
pertain to the office of Controller and as may be required by the Board of
Directors.
Article XI
COMMITTEES OF THE BOARD
Section 11.1 Appointments and Procedure. The Board of Directors
------------ --------------------------
may, by resolution adopted by a majority of the authorized number of directors,
designate one or more committees, each consisting of two or more directors, to
serve at the pleasure of the Board, designate members of any committee, and
designate one or more directors as alternate members of any committee, who may
replace any absent member at any meeting of the committee.
Section 11.2 Powers. Any committee appointed by the Board of
------------ ------
Directors, to the extent provided in the resolution of the Board or in these By-
Laws, shall have all the authority of the Board except with respect to:
(a) the approval of any action for which the California General
Corporation Law or the Articles of Incorporation or these By-Laws requires the
approval or vote of the shareholders or of a majority or supermajority of the
directors then serving on the Board of Directors;
(b) the filling of vacancies on the Board or on any committee;
(c) the fixing of compensation of the directors for serving on the
Board or on any committee;
(d) the amendment or repeal of By-Laws or the adoption of new By-Laws;
(e) the amendment or repeal of any resolution of the Board which by
its express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the corporation, except at a
rate or in a periodic amount or within a price range determined by the Board;
and
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(g) the appointment of other committees of the Board or the members
thereof.
Section 11.3 Executive Committee. In the event that the Board of
------------ -------------------
Directors appoints an Executive Committee, such Executive Committee, in all
cases in which specific directions to the contrary shall not have been given by
the Board of Directors, shall have and may exercise, during the intervals
between the meetings of the Board of Directors, all the powers and authority of
the Board of Directors in the management of the business and affairs of the
corporation (except as provided in Section 11.2 hereof) in such manner as the
Executive Committee may deem best for the interests of the corporation.
Article XII
MEETINGS OF SHAREHOLDERS
Section 12.1 Place of Meetings. Meetings (whether regular, special
------------ -----------------
or adjourned) of the shareholders of the corporation shall be held at the
principal office for the transaction of business as specified in accordance with
Section 1.1 hereof, or any place within or without the State which may be
designated by written consent of all the shareholders entitled to vote thereat,
or which may be designated by the Board of Directors.
Section 12.2 Time of Annual Meetings. The annual meeting of the
------------ -----------------------
shareholders shall be held at the hour of 9:00 o'clock in the morning on the
fourth Thursday in June in each year, if not a legal holiday, and if a legal
holiday, then on the next succeeding business day not a legal holiday, or such
other time or date as may be set by the Board of Directors.
Section 12.3 Special Meetings. Special meetings of the shareholders
------------ ----------------
may be called by the Board of Directors, the Chairman of the Board, the
President or the holders of shares entitled to cast not less than 10% of the
vote at the meeting.
Section 12.4 Notice of Meetings. (a) Whenever shareholders are
------------ ------------------
required or permitted to take any action at a meeting, a written notice of the
meeting shall be given not less than 10 nor more than 60 days before the day of
the meeting to each shareholder entitled to vote thereat. Such notice shall
state the place, date and hour of the meeting and (1) in the case of a special
meeting, the general nature of the business to be transacted, and no other
business may be transacted, or (2) in the case of the annual meeting, those
matters which the Board, at the time of the mailing of the notice, intends to
present for action by the shareholder, but subject to the provisions of
subdivision (b) any proper matter may be presented at the meeting for such
action. The notice of any meeting at which directors are to be elected shall
include the names of nominees intended at the time of the notice to be
presented by management for election.
(b) Any shareholder approval at a meeting, other unanimous approval by
those entitled to vote, on any of the matters listed below shall be valid only
if the general nature of the proposal so approved was stated in the notice of
meeting or in any written waiver of notice:
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(1) a proposal to approve a contract or other transaction between
a corporation and one or more of its directors, or between a corporation and any
corporation, firm or association in which one or more directors has a material
financial interest;
(2) a proposal to amend the Articles of Incorporation;
(3) a proposal regarding a reorganization, merger or
consolidation involving this corporation;
(4) a proposal to wind up and dissolve the corporation; and
(5) a proposal to adopt a plan of distribution of the shares,
obligations or securities of any other corporation, domestic or foreign, or
assets other than money which is not in accordance with the liquidation rights
of any preferred shares as specified in the Articles of Incorporation.
(c) To be properly brought before an annual meeting or special
meeting, nominations for the election of directors or other business (not
specified in Section 12.4 (b)) must be (1) specified in the notice of meeting
(or any supplement thereto) given by or at the direction of the Board of
Directors, (2) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (3) otherwise properly brought before
the meeting by a shareholder. For such nominations or other business to be
considered properly brought before the meeting by a shareholder, such
shareholder must have given timely notice and in proper form of his intent to
bring such business before such meeting. To be timely, such shareholder's
notice must be delivered to or mailed and received by the secretary of the
corporation not less than 35 days prior to the meeting; provided, however, that
in the event that less than 60 days notice or prior public disclosure of the
date of the meeting is given or made to shareholders, notice by the shareholder
to be timely must be so received not later than the close of business on the
tenth day following the day on which such notice of the date of the meeting was
mailed or such public disclosure was made. To be in proper form, a
shareholder's notice to the secretary shall set forth:
(1) the name and address of the shareholder who intends to make the
nominations, propose the business, and, as the case may be, the name and address
of the person or persons to be nominated or the nature of the business to be
proposed;
(2) a representation that the shareholder is a holder of record of
stock of the corporation entitled to vote at such meeting and, if applicable,
intends to appear in person or by proxy at the meeting to nominate the person or
persons specified in the notice or introduce the business specified in the
notice;
(3) if applicable, a description of all arrangements or
understandings between the shareholders and each nominee and any other person or
persons (naming such person or persons, pursuant to which the nomination or
nominations are to be made by the shareholder);
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(4) such other information regarding each nominee or each matter of
business to be proposed by such shareholder as would be required to be included
in a proxy statement filed pursuant to the proxy rules of the Securities and
Exchange Commission had the nominee been nominated, or intended to be nominated,
or the matter been proposed, or intended to be proposed by the board of
directors; and
(5) if applicable, the consent of each nominee to serve as director
of the corporation if so elected.
The chairman of the meeting may refuse to acknowledge the nomination of any
person or the proposal of any business not made in compliance with the foregoing
procedure.
Section 12.5 Delivery of Notice. Notice of shareholders' meeting or
------------ ------------------
any report shall be given either personally or by mail or other means of written
communication, addressed to the shareholder at the address of such shareholder
appearing on the books of the corporation or given by the shareholder to the
corporation for the purpose of notice; or if no such address appears or is
given, at the place where the principal executive office of the corporation is
located or by publication at least once in a newspaper of general circulation in
the county in which the principal executive office is located. The notice or
report shall be deemed to have been given at the time when delivered personally
or deposited in the mail or sent by other means of written communication. An
affidavit of mailing of any notice or report in accordance with the provisions
of this section, executed by the Secretary, Assistant Secretary or any transfer
agent, shall be prima facie evidence of the giving of the notice or report.
If any notice or report addressed to the shareholders at the address
of such shareholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice or report to the
shareholder at such address, all future notices or reports shall be deemed to
have been duly given without further mailing if the same shall be available for
the shareholder upon written demand of the shareholder at the principal
executive office of the corporation for a period of one year from the date of
the giving of the notice to all other shareholders.
Section 12.6 Adjourned Meetings. When a shareholders' meeting is
------------ ------------------
adjourned to another time or place, unless the By-Laws otherwise require and
except as provided in this section, notice need not be given of the adjourned
meeting if the time and place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting the corporation may transact any
business which might have been transacted at the original meeting. If the
adjournment is for more than 45 days or if after the adjournment a new record
date is fixed for the adjourned meeting, a notice of the adjourned meeting shall
be given to each shareholder of record entitled to vote at the meeting.
Section 12.7 Consent to Shareholders' Meeting. The transactions of
------------ --------------------------------
any meeting of shareholders, however called and noticed, and wherever held, are
as valid as though had at a meeting duly held after regular call and notice, if
a quorum is present either in person or by proxy, and if either before or after
the meeting each of the persons entitled to vote, not present in person or
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by proxy signs a written waiver of notice or a consent to the holding of the
meeting or an approval of the minutes thereof. All such waivers, consents and
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person objects, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened and except that attendance at a meeting is
not a waiver of any right to object to the consideration of matters required by
the California General Corporation Law to be included in the notice but not so
included in the notice if such objection is expressly made at the meeting.
Neither the business to be transacted at nor the purpose of any regular or
special meeting of shareholders need be specified in any written waiver of
notice, unless otherwise provided in the Articles of Incorporation or By-Laws,
except as provided in subdivision (b) of Section 12.4.
Section 12.8 Quorum. (a) The presence in person or by proxy of the
------------ ------
persons entitled to vote the majority of the voting shares at any meeting shall
constitute a quorum for the transaction of business. Except as otherwise
expressly required by statute, the Articles of Incorporation and these By-Laws,
if a quorum is present, the affirmative vote of the majority of shares
represented at the meeting and entitled to vote on any matter shall be the act
of the shareholders.
(b) The shareholders present at a duly called or held meeting at which
a quorum is present may continue to transact business until adjournment
notwithstanding the withdrawal of the number of enough shareholders to leave
less than a quorum, if any action taken (other than adjournment) is approved by
at least a majority of the shares required to constitute a quorum.
(c) In the absence of a quorum, any meeting of shareholders from time
to time by the vote of a majority of the shares represented either in person or
by proxy, but no other business may be transacted, except as provided in
subdivision (b).
Section 12.9 Actions without Meeting. (a) Any action which may be
------------ -----------------------
taken at any annual or special meeting of shareholders may be taken without a
meeting and without prior notice, if a consent in writing, setting forth the
action so taken, shall be signed by the holders of outstanding shares having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted; provided that, subject to the provisions of Section 2.6,
directors may not be elected by written consent except by unanimous written
consent of all shares entitled to vote for the election of directors.
(b) Unless the consents of all shareholders entitled to vote have been
solicited in writing,
(1) notice of any shareholder approval on matters described in
subparagraphs (1), (3) or (5) of subdivision (b) of Section 12.4 or
respecting indemnification of agents of the corporation without a meeting
by less than unanimous written consent shall be given at least 10 days
before the consummation of the action authorized by such approval, and
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(2) prompt notice shall be given of the taking of any other corporate
action approved by shareholders without a meeting by less than unanimous
written consent, to those shareholders entitled to vote but who have not
consented in writing; the provisions of Section 12.5 shall apply to such
notice.
Section 12.10 Revocation of Consent. Any shareholder giving a
------------- ---------------------
written consent, or the shareholder's proxy holders, or a transferee of the
shares or a personal representative of the shareholder or their respective proxy
holders, may revoke the consent by a writing received by the corporation prior
to the time that written consents of the number of shares required to authorize
the proposed action have been filed with the Secretary of the corporation, but
may not do so thereafter. Such revocation is effective upon its receipt by the
Secretary of the corporation.
Section 12.11 Voting Rights. Except as provided in Section 12.13 or
------------- -------------
in the Articles of Incorporation or in any statute relating to the election of
directors or to other particular matters, each outstanding share, regardless of
class, shall be entitled to one vote on each matter submitted to a vote of
shareholders. Any holder of shares entitled to vote on any matter may vote part
of the shares in favor of the proposal and refrain from voting the remaining
shares or vote them against the proposal, other than elections to office, but,
if the shareholder fails to specify the number of shares such shareholder is
voting affirmatively, it will be conclusively presumed that the shareholder's
approving vote is with respect to all shares such shareholder is entitled to
vote.
Section 12.12 Determination of Holders of Record. (a) In order that
------------- ----------------------------------
the corporation may determine the shareholders entitled to notice of or to vote
at any meeting or entitled to receive payment of any dividend or other
distribution or allotment of any rights or entitled to exercise any rights in
respect of any other lawful action, the Board of Directors may fix in advance, a
record date, which shall not be more than 60 nor less than 10 days prior to the
date of such meeting nor more than 60 days prior to any other action.
(b) In the absence of any record date set by the Board of Directors
pursuant to subdivision (a) above, then:
(1) The record date for determining shareholders entitled to notice of
or to vote at a meeting of shareholders shall be at the close of business
on the business day next preceding the day on which notice is given or, if
notice is waived, at the close of business on the business day next
preceding the day on which the meeting is held.
(2) The record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, when no prior
action by the Board has been taken, shall be the day on which the first
written consent is given.
(3) The record date for determining shareholders for any other purpose
shall be at the close of business on the day on which the Board adopts the
resolution relating thereto, or the 60th day prior to the date of such
other action, whichever is later.
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(c) A determination of shareholders of record entitled to notice of or
to vote at a meeting of shareholders shall apply to any adjournment of the
meeting unless the Board fixes a new record date of the adjourned meeting, but
the Board shall fix a new record date if the meeting is adjourned for more than
45 days from the date set for the original meeting.
(d) Shareholders on the record date are entitled to notice and to vote
or to receive the dividend, distribution or allotment of rights or to exercise
the rights, as the case may be, notwithstanding any transfer of any shares on
the books of the corporation after the record date, except as otherwise provided
in the Articles of Incorporation or these By-Laws or by agreement or applicable
law.
Section 12.13 Election of Directors. (a) In any election of
------------- ---------------------
directors, the candidates receiving the highest number of votes of the shares
entitled to be voted for them up to the number of directors to be elected by
such shares are elected.
(b) Election for directors need not be by ballot unless a shareholder
demands election by ballot at the meeting and before the voting begins or unless
the By-Laws so require.
Section 12.14 Proxies. (a) Every person entitled to vote shares may
------------- -------
authorize another person or persons to act by proxy with respect to such shares.
Any proxy purporting to be executed in accordance with the provisions of the
General Corporation Law of the State of California shall be presumptively valid.
(b) No proxy shall be valid after the expiration of 11 months from the
date thereof unless otherwise provided in the proxy. Every proxy continues in
full force and effect until revoked by the person executing it prior to the vote
pursuant thereto, except as otherwise provided in this section. Such revocation
may be effected by a writing delivered to the corporation stating that the proxy
is revoked or by a subsequent proxy executed by, or by attendance at the meeting
and voting in person by, the person executing the proxy. The dates contained on
the forms of proxy presumptively determine the order of execution, regardless of
the postmark dates on the envelopes in which they are mailed.
(c) A proxy is not revoked by the death or incapacity of the maker
unless, before the vote is counted, written notice of such death or incapacity
is received by the corporation.
Section 12.15 Inspectors of Election. (a) In advance of any meeting
------------- ----------------------
of shareholders the Board may appoint inspectors of election to act at the
meeting and any adjournment thereof. If inspectors of election are not so
appointed, or if any persons so appointed fail to appear or refuse to act, the
chairman of any meeting of shareholders may, and on the request of any
shareholder or a shareholder's proxy shall, appoint inspectors of election (or
persons to replace those who so fail or refuse) at the meeting. The number of
inspectors shall be either one or three. If appointed at a meeting on the
request of one or more shareholders or proxies, the majority of shares
represented in person or by proxy shall determine whether one or three
inspectors are to be appointed.
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<PAGE>
(b) The inspectors of election shall determine the number of shares
outstanding and the voting power of each, the shares represented at the meeting,
the existence of a quorum and the authenticity, validity and effect of proxies,
receive votes, ballots or consents, hear and determine all challenges and
questions in any way arising in connection with the right to vote, count and
tabulate all votes or consents, determine when the polls shall close, determine
the result and do such acts as may be proper to conduct the election or vote
with fairness to all shareholders.
(c) The inspectors of election shall perform their duties,
impartially, in good faith, to the best of their ability and as expeditiously as
is practical. If there are three inspectors of election, the decision, act or
certificate of a majority is effective in all respects as the decision, act or
certificate of all. Any report or certificate made by the inspectors of
election is prima facie evidence of the facts stated therein.
Article XIII
MEETINGS OF DIRECTORS
Section 13.1 Place of Meetings. Unless otherwise specified in the
------------ -----------------
notice thereof, meetings (whether regular, special or adjourned) of the Board of
Directors of this corporation shall be held at the principal office of the
corporation for the transaction of business, as specified in accordance with
Section 1.1 hereof, which is hereby designated as an office for such purpose in
accordance with the laws of the State of California, or at any other place
within or without the State which has been designated from time to time by
resolution of the Board or by written consent of all members of the Board.
Section 13.2 Regular Meetings. Regular meetings of the Board of
------------ ----------------
Directors, of which no notice need be given except as required by the laws of
the State of California, shall be held after the adjournment of each annual
meeting of the shareholders (which meeting shall be designated the Regular
Annual Meeting) and at such other times as may be designated from time to time
by resolution of the Board of Directors.
Section 13.3 Special Meetings. Special meetings of the Board of
------------ ----------------
Directors may be called at any time by the Chairman of the Board or the
President or by any Vice President or the Secretary or by any two or more of the
directors.
Section 13.4 Notice of Meetings. Except in the case of regular
------------ ------------------
meetings, notice of which has been dispensed with, the meetings of the Board of
Directors shall be held upon four days' notice by mail or 48 hours' notice
delivered personally or by telephone, telegraph or other electronic or wireless
means. If the address of a director is not shown on the records and is not
readily ascertainable, notice shall be addressed to him at the city or place in
which the meetings of the directors are regularly held. Except as set forth in
Section 13.6, notice of the time and place of holding an adjourned meeting need
not be given to absent directors if the time and place be fixed at the meeting
adjourned.
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<PAGE>
Section 13.5 Quorum. A majority of the authorized number of directors
------------ ------
constitutes a Quorum of the Board for the transaction of business. Except as
otherwise expressly required by statute, the Articles of Incorporation or these
By-Laws and every act or decision done or made by a majority of the directors
present at a meeting duly held at which a quorum is present shall be regarded as
the act of the Board of Directors. A meeting at which a quorum is initially
present may continue to transact business notwithstanding the withdrawal of
directors, if any action taken is approved by at least a majority of the
required quorum for such meeting.
Section 13.6 Adjourned Meeting. A majority of the directors present,
------------ -----------------
whether or not a quorum is present, may adjourn any meeting to another time and
place. If the meeting is adjourned for more than 24 hours, notice of any
adjournment to another time or place shall be given prior to the time of the
adjourned meeting to the directors who were not present at the time of the
adjournment.
Section 13.7 Waiver of Notice and Consent. (a) Notice of a meeting
------------ ----------------------------
need not be given to any director who signs a waiver of notice, whether before
or after the meeting, or who attends the meeting without protesting, prior
thereto or at its commencement, the lack of notice to such director.
(b) The transactions of any meeting of the Board, however called and
noticed or wherever held, are as valid as though had at a meeting duly held
after regular call and notice if a quorum is present and if, either before or
after the meeting, each of the directors not present or who, though present, has
prior to the meeting or at its commencement, protested the lack of proper notice
to him, signs a written waiver of notice, a consent to holding the meeting or an
approval of the minutes thereof. All such waivers, consents and approvals shall
be filed with the corporate records or made a part of the minutes of the
meeting.
Section 13.8 Action Without a Meeting. Any action required or
------------ ------------------------
permitted to be taken by the Board may be taken without a meeting, if all
members of the Board shall individually or collectively consent in writing to
such action. Such written consent or consents shall be filed with the minutes
of the proceedings of the Board. Such action by written consent shall have the
same force and effect as a unanimous vote of such directors.
Section 13.9 Conference Telephone Meetings. Members of the Board may
------------ -----------------------------
participate in a meeting through use of conference telephone or similar
communications equipment, so long as all members participating in such meeting
can hear one another. Participation in a meeting pursuant to this section
constitutes presence in person at such meeting.
Section 13.10 Meetings of Committees. The provisions of this Article
------------- ----------------------
apply also to committees of the Board and action by such committees.
Article XIV
SUNDRY PROVISIONS
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<PAGE>
Section 14.1 Instruments in Writing. All checks, drafts, demands for
------------ ----------------------
money and notes of the corporation, and all written contracts of the
corporation, shall be signed by such officer or officers, agent or agents, as
the Board of Directors may from time to time by resolution designate. No
officer, agent, or employee of the corporation shall have power to bind the
corporation by contract or otherwise unless authorized to do so by these By-Laws
or by the Board of Directors.
Section 14.2 Fiscal Year. The fiscal year of this corporation shall
------------ -----------
end on the Saturday nearest to the last day of January of each year.
Section 14.3 Shares Held by the Corporation. Shares in other
------------ ------------------------------
corporations standing in the name of this corporation may be voted or
represented and all rights incident thereto may be exercised on behalf of this
corporation by the President or by any other officer of this corporation
authorized so to do by resolution of the Board of Directors.
Section 14.4 Certificates of Stock. There shall be issued to each
------------ ---------------------
holder of fully paid shares of the capital stock of the corporation a
certificate or certificates for such shares. Every holder of shares in the
corporation shall be entitled to have a certificate signed in the name of the
corporation by the Chairman or Vice Chairman of the Board or the President or a
Vice President and by the Chief Financial Officer or an Assistant Treasurer or
the Secretary or any Assistant Secretary, certifying the number of shares and
the class or series of shares owned by the shareholder. Any or all of the
signatures on the certificate may be facsimile. In case any officer, transfer
agent or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the corporation
with the same effect as if such person were an officer, transfer agent or
registrar at the date of issue.
Section 14.5 Lost Certificates. The corporation may issue a new share
------------ -----------------
certificate or a new certificate for any other security in the place of any
certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate or the owner's legal representative to give the
corporation a bond (or other adequate security) sufficient to indemnify it
against any claim that may be made against it (including any expense or
liability) on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate. The Board of Directors may
adopt such other provisions and restrictions with reference to lost
certificates, not inconsistent with applicable law, as it shall in its
discretion deem appropriate.
Section 14.6 Certification and Inspection of By-Laws. The corporation
------------ ---------------------------------------
shall keep at its principal executive office in this State, or if its principal
executive office is not in this State at its principal business office in this
State, the original or a copy of these By-Laws as amended to date, which shall
be open to inspection by the shareholders at all reasonable times during office
hours. If the principal executive office of the corporation is outside this
State and the corporation has no principal business office in this State, it
shall upon the written request of any shareholder furnish to such shareholder a
copy of the By-Laws as amended to date.
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<PAGE>
Section 14.7 Notices. Any reference in these By-Laws to the time a
------------ -------
notice is given or sent means, unless otherwise expressly provided, the time a
written notice by mail is deposited in the United States mails, postage prepaid;
or the time any other written notice is personally delivered to the recipient or
is delivered to a common carrier for transmission, or actually transmitted by
the person giving the notice by electronic means, to the recipient; or the time
any oral notice is communicated, in person or by telephone or wireless, to the
recipient or to a person at the office of the recipient who the person giving
wire the notice has reason to believe will promptly communicate it to the
recipient.
Section 14.8 Reports to Shareholders. Except as may otherwise be
------------ -----------------------
required by law, the rendition of an annual report to the shareholders is waived
so long as there are less than 100 holders of record of the shares of the
corporation (determined as provided in Section 605 of the California General
Corporation Law). At such time or times, if any, that the corporation has 100
or more holders of record of its shares, the Board of Directors shall cause an
annual report to be sent to the shareholders not later than 120 days after the
close of the fiscal year or within such shorter time period as may be required
by applicable law, and such annual report shall contain such information and be
accompanied by such other documents as may be required by applicable law.
Section 14.9 Indemnification of Officers, Directors, Employees and
------------ -----------------------------------------------------
Other Agents. (a) The corporation shall, to the fullest extent permissible
- ----- ------
under, and in the manner permitted by, California law, indemnify each of its
directors and officers against "Expenses" (as defined in Section 317(a) of the
California General Corporation Law), judgments, fines, settlements, and other
amounts actually and reasonably incurred in connection with any "Proceeding" (as
defined in Section 317(a) of the California General Corporation Law), arising by
reason of the fact that such person is or was an Agent (as defined in Section
317(a) of the California General Corporation Law) of the corporation. For
purposes of this Section 14.9, a "director" or "officer" of the corporation
includes any person (i) who is or was a director or officer of the corporation,
(ii) who is or was serving at the request of the corporation as a director or
officer of another corporation, partnership, joint venture, trust or other
enterprise, or (iii) who was a director of officer of a corporation which was a
predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
(b) The corporation shall have the power, to the fullest extent
permissible under, and in the manner permitted by, California law, to indemnify
each of its employees and other Agents against Expenses, judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any Proceeding, arising by reason of the fact that such person is or was an
employee or Agent of the corporation. For purposes of this Section 14.9, an
"employee" or "Agent" of the corporation includes any person (i) who is or was
an employee or Agent of the corporation, (ii) who is or was serving at the
request of the corporation as an employee or Agent of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was an
employee or Agent of the corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
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<PAGE>
(c) Expenses incurred in defending any civil or criminal action or
proceeding for which indemnification is required or permitted pursuant to this
Section 14.9 shall be paid by the corporation in advance of the final
disposition of such action or proceeding upon receipt of an undertaking by or on
behalf of the indemnified party to repay such amount if it shall ultimately be
determined that the indemnified party is not entitled to be indemnified as
authorized in this Section 14.9.
(d) Enforcement. Without the necessity of entering into an express
-----------
contract, all rights to indemnification and advances under this Section 14.9
shall be deemed to be contractual rights and be effective to the same extent and
as if provided for in a contract between the corporation and the director or
officer who serves in such capacity at any time while this By-Law and other
relevant provisions of the California General Corporation Law and other
applicable law, if any, are in effect. Any right to indemnification or advances
granted by this Section 14.9 to a director or officer shall be enforceable by or
on behalf of the person holding such right in any court of competent
jurisdiction if (i) the claim for indemnification or advances is denied, in
whole or in part or (ii) no disposition of such claim is made within 90 days of
request therefor. The claimant in such enforcement action (an "Action"), if
successful in whole or in part, shall be entitled to be paid also the expense of
prosecuting his claim. It shall be a defense to any Action that a claimant has
not met the standard of conduct which make it permissible under the California
General Corporation Law for the corporation to indemnify the claimant for the
amount claimed, provided that such defense shall not be available for an Action
brought to enforce a claim for the advancement of expenses pursuant to
subdivision (d) above if the claimant has tendered the required undertaking to
the corporation. It shall not be a defense to an Action, nor shall it create a
presumption that the claimant has not met the applicable standard of conduct,
that the corporation (including its Board of Directors, independent counsel or
shareholders) has failed, prior to the commencement of the Action, to have made
a determination that the indemnification of the claimant is proper in the
circumstances, or that the corporation (including its Board of Directors,
independent counsel or shareholders) has actually determined that the claimant
has not met the applicable standard of conduct.
(e) Non-Exclusivity of Rights. The rights conferred on any person by
-------------------------
this Section 14.9 shall not be exclusive of any other right which such person
may have or hereafter acquire under any statute, provision of the Articles of
Incorporation, By-Laws, agreement, vote of shareholders or disinterested
directors or otherwise both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is
specifically authorized to enter into individual contracts with any or all of
its directors, officers, employees or other Agents respecting indemnification
and advances, to the fullest extent permitted by the California General
Corporation Law.
(f) No indemnification or advance shall be made under this Section
14.9, except where such indemnification or advance is mandated by law or the
order, judgment or decree of any court of competent jurisdiction, in any
circumstance where it appears:
(1) That it would be inconsistent with a provision of the
Articles of Incorporation, these By-Laws, a resolution of the shareholders or an
agreement in effect at the time
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<PAGE>
of the accrual of the alleged cause of the action asserted in the proceeding in
which the expenses were incurred or other amounts were paid, which prohibits or
otherwise limits indemnification; or
(2) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
(g) Survival of Rights. The rights conferred on any person by this
------------------
Section 14.9 shall continue as to a person who has ceased to be a director,
officer, employee or other Agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(h) Insurance. The corporation shall have the power to purchase and
---------
maintain insurance on behalf of any person who is or was an Agent of the
corporation against any liability asserted against or incurred by such person in
such capacity or arising out of such person's status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of this Section 14.9.
(i) Repeal or Modification. Any repeal or modification of this
----------------------
Section 14.9 shall not adversely affect any rights under this Section 14.9 of
any director, officer or other Agent of the corporation relating to acts or
omissions occurring prior to such repeal or modification.
(j) Saving Clause. If this Section 14.9 or any portion hereof shall
-------------
be invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director or officer, any may
nevertheless indemnify any employee or other Agent, to the full extent permitted
by any applicable portion of this Section 14.9 that shall not have been
invalidated, or by any other applicable law.
(k) If the California General Corporation Law is hereafter amended to
further indemnification of Agents of the corporation, then the Corporation shall
be authorized to indemnify such Agents to the fullest extent permissible under
the California General Corporation Law as so amended.
Article XV
CONSTRUCTION OF BY-LAWS WITH
REFERENCE TO PROVISIONS OF LAW
Section 15.1 Definitions. Unless defined otherwise in these By-Laws
------------ -----------
or unless the context otherwise requires, terms used herein shall have the same
meaning, if any, ascribed thereto in the California General Corporation Law, as
amended from time to time.
Section 15.2 By-Law Provisions Additional and Supplemental to
------------ ------------------------------------------------
Provisions of Law. All restrictions, limitations, requirements and other
- ------------- ---
provisions of these By-Laws shall be construed, insofar as possible, as
supplemental and additional to all provisions of law applicable to the subject
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<PAGE>
matter thereof and shall be fully complied with in addition to the said
provisions of law unless such compliance shall be illegal.
Section 15.3 By-Law Contrary to or Inconsistent with Provisions of
------------ -----------------------------------------------------
Law. Any article, section, subsection, subdivision, sentence, clause or phrase
- ---
of these By-Laws which upon being construed in the manner provided in Section
15.2 hereof, shall be contrary to or inconsistent with any applicable provision
of law, shall not apply so long as said provisions of law shall remain in
effect, but such result shall not affect the validity or applicability of any
other portions of these By-Laws, it being hereby declared that these By-Laws
would have been adopted and each article, section, subsection, subdivision,
sentence, clause or phrase thereof, irrespective of the fact that any one or
more articles, sections, subsections, subdivisions, sentences, clauses or
phrases is or are illegal.
Article XVI
ADOPTION, AMENDMENT OR REPEAL OF BY-LAWS
Section 16.1 By Shareholders. Except as otherwise expressly required
------------ ---------------
by statute, the Articles of Incorporation or these By-Laws, By-Laws may be
adopted, amended or repealed by the approval of the affirmative vote of a
majority of the outstanding shares of the corporation entitled to vote.
Section 16.2 By the Board of Directors. Except as otherwise expressly
------------ -------------------------
required by statute, the Articles of Incorporation or these By-Laws and subject
to the right of shareholders to adopt, amend or repeal By-Laws, By-Laws other
than a By-Law or amendment thereof changing the authorized number of directors
(except to fix the authorized number of directors pursuant to a By-Law providing
for a variable number of directors) may be adopted, amended or repealed by the
Board of Directors.
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<PAGE>
COST PLUS, INC.
1995 STOCK OPTION PLAN
(Adopted November 1, 1995)
(Amended October 15, 1996)
(Amended July 23, 1996)
(Amended April 21, 1997)
1. Purpose.
-------
The purpose of this Plan is to strengthen Cost Plus, Inc., a
California corporation (the "Company"), by providing an incentive to selected
officers and other key employees and thereby encouraging them to devote their
abilities and industry to the success of the Company's business enterprise. It
is intended that this purpose be achieved by extending to selected officers and
other key employees of the Company and its subsidiaries an added long-term
incentive for high levels of performance and unusual efforts through the grant
of options to purchase Common Stock of the Company.
2. Definitions.
-----------
For purposes of the Plan:
2.1 "Affiliate" means (i) with respect to any Person which is not a
natural person, any other Person that directly or indirectly through one or more
intermediaries controls, or is controlled by or under common control with, such
Person; and (ii) with respect to any Person who is a natural person, any of the
following: (x) any spouse, parent, child, brother or sister of such Person or
any issue of the foregoing (as used in this definition, issue shall include
persons legally adopted into the line of descent), (y) a trust solely for the
benefit of such Person or any spouse, parent, child, brother or sister of such
Person or for the benefit of any issue of the foregoing or (z) any corporation
or partnership which is controlled by such Person, or by any spouse, parent,
child, brother or sister of such Person or by any issue of the foregoing.
2.2 "Agreement" means the written agreement between the Company and
an Optionee evidencing the grant of an Option and setting forth the terms and
conditions thereof.
2.3 "Board" means the Board of Directors of the Company.
2.4 "Cause," unless otherwise defined in the Agreement evidencing a
particular Option, means an Eligible Individual's (i) intentional failure to
perform reasonably assigned duties, (ii) dishonesty or willful misconduct in the
performance of duties, (iii) engaging in a transaction in connection with the
performance of duties to the Company or any of its Subsidiaries thereof which
transaction is adverse to the interests of the Company or any of its
Subsidiaries and which is engaged
<PAGE>
in for personal profit or (iv) willful violation of any law, rule or regulation
in connection with the performance of duties (other than traffic violations or
similar offenses).
2.5 "Change in Capitalization" means any change in the Shares or
exchange of Shares for a different number or kind of shares or other securities
of the Company, by reason of a reclassification, recapitalization, merger,
consolidation, reorganization, spin-off, stock dividend, stock split or reverse
stock split.
2.6 "Code" means the Internal Revenue Code of 1986, as amended.
2.7 "Committee" means a committee, as described in Section 3.1,
appointed by the Board to administer the Plan and to perform the functions set
forth herein.
2.8 "Company" means Cost Plus, Inc., a California corporation.
2.9 "Controlling Shareholders" means Internationale Nederlanden
(U.S.) Capital Corporation and Pearl Street L.P., collectively.
2.10 "Disability" means a physical or mental infirmity which impairs
the Optionee's ability to perform substantially his or her duties for a period
of one hundred eighty (180) consecutive days.
2.11 "Eligible Individual" means any director, officer or employee of
the Company or a Subsidiary, or any consultant or advisor.
2.12 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
2.13 "Fair Market Value" means on any date, (i) with respect to any
stock or other security (including, without limitation, the Shares) (a) if such
security is listed or admitted to trading on a national securities exchange or
the Nasdaq National Market of the National Association of Securities Dealers
Automated Quotation System, the closing price of such security (or the closing
bid, if no shares were reported, as quoted on such system or exchange or the
exchange with the greatest volume of trading in such security for the last
market trading day prior to the time of determination) as reported in the Wall
Street Journal or such other source as the Committee deems reliable, (b) if such
securities are not listed or admitted to trading, the arithmetic mean of the
closing bid price and the closing asked price on such date as quoted on such
other market in which such prices are regularly quoted, or (c) if there have
been no published bid or asked quotations with respect to such security on such
date, the Fair Market Value shall be the value established by the Committee in
good faith and, in the case of securities relating to an Incentive Stock Option,
in accordance with Section 422 of the Code, and (ii) with respect to all other
property and consideration, the value conclusively determined in good faith by
the Committee in its sole discretion. Any determination made by the Committee
hereunder shall be final, binding and non-appealable.
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<PAGE>
2.14 "First Vesting Date" means, (i) as to Options granted prior to
June 30, 1996, the earlier to occur of June 30, 1997 and the first anniversary
of the Company's Initial Public Offering, and (ii) as to each Option granted on
or after June 30, 1996, the first anniversary of the Grant Date for such Option.
2.15 "Grant Date" means with respect to each Option, the Grant Date
as defined in the applicable Agreement.
2.16 "Incentive Stock Option" means an Option satisfying the
requirements of Section 422 of the Code and designated by the Committee as an
Incentive Stock Option.
2.17 "Independent Third Party" means any Person who, immediately
prior to the contemplated transaction, does not own in excess of 5% of the
Shares on a fully diluted basis (a "5% Owner"), and any Person who is not an
Affiliate of a 5% Owner.
2.18 "Initial Public Offering" means the consummation of the first
public offering of Shares pursuant to one or more effective registration
statements under the Securities Act (other than registrations on Form S-8 or
Form S-4 or any other registration statement used for a business combination or
any successor form to any such Forms) ("Registration Statements").
2.19 "Nonqualified Stock Option" means an Option which is not an
Incentive Stock Option.
2.20 "Option" means an option to purchase Shares granted pursuant to
the Plan.
2.21 "Optionee" means a person to whom an Option has been granted
under the Plan.
2.22 "Outside Director" means a director of the Company who is an
"outside director" within the meaning of Section 162(m) of the Code and the
regulations promulgated thereunder.
2.23 "Own" or any derivation thereof means beneficial ownership as
defined in Rule 13d-3 promulgated under the Exchange Act.
2.24 "Parent" means any corporation which is a parent corporation
(within the meaning of Section 424(e) of the Code) with respect to the Company.
2.25 "Per Share Option Price" means, with respect to each Option, the
per share exercise price with respect to such Option.
-3-
<PAGE>
2.26 "Person" means any natural person, corporation, partnership,
firm, association, trust, government, governmental agency or any other entity,
whether acting in an individual, fiduciary or other capacity.
2.27 "Plan" means this Cost Plus, Inc. 1995 Stock Option Plan.
2.28 "Pooling Period" means, with respect to a Pooling Transaction,
the period ending on the first date on which the combined entity resulting from
such Pooling Transaction publishes combined operating results for at least
thirty (30) days.
2.29 "Pooling Transaction" means an acquisition of the Company in a
transaction which is treated as a "pooling of interests" under generally
accepted accounting principles.
2.30 "Sale of the Company" means any of the following transactions
which are approved by the Board and the shareholders of the Company in
accordance with the Articles of Incorporation of the Company then in effect: (i)
the sale of all or substantially all of the assets of the Company determined on
a consolidated basis, (ii) the complete liquidation or dissolution of the
Company, or (iii) a merger, consolidation or reorganization involving the
Company (a "Business Combination"), unless the shareholders of the Company,
immediately before the Business Combination, Own, directly or indirectly, at
least a majority of the combined voting power of the outstanding voting
securities of the corporation resulting from the Business Combination in
substantially the same proportions as their Ownership of the outstanding voting
securities immediately before such transaction.
2.31 "Securities Act" means the Securities Act of 1933, as amended.
2.32 "Shares" means the common stock, par value $.01 per share, of
the Company.
2.33 "Subsidiary" means any corporation which is a subsidiary
corporation (within the meaning of Section 424(f) of the Code) with respect to
the Company.
2.34 "Successor Corporation" means a corporation, or a parent or
subsidiary thereof within the meaning of Section 424(a) of the Code, which
issues or assumes a stock option in a transaction to which Section 424(a) of the
Code applies.
2.35 "Ten-Percent Shareholder" means an Eligible Individual, who, at
the time an Incentive Stock Option is to be granted to him or her, owns (within
the meaning of Section 422(b)(6) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company, or of a Parent or a Subsidiary.
3. Administration.
--------------
3.1 The Plan shall be administered as follows:
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<PAGE>
(a) The Plan shall be administered by the Committee which shall hold
meetings at such times as may be necessary for the proper administration of the
Plan. The Committee shall keep minutes of its meetings. Except as otherwise
provided in the Company's Articles of Incorporation or By-Laws, a quorum shall
consist of not less than two members of the Committee and a majority of a quorum
may authorize any action. Except as otherwise provided in the Company's
Articles of Incorporation or Bylaws, any decision or determination reduced to
writing and signed by the requisite number of the members of the Committee shall
be as fully effective as if made by the vote of the requisite number of members
at a meeting duly called and held.
(b) Procedure.
---------
(i) Multiple Administrative Bodies. The Committee shall be
------------------------------
composed of the Board or a committee of the Board. The Plan may be administered
by different Committees with respect to different Optionees.
(ii) Section 162(m). To the extent that the Board determines it
--------------
to be desirable to qualify Options granted hereunder as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the Plan shall
be administered by a Committee of two or more Outside Directors.
(iii) Rule 16b-3. To the extent desirable to qualify
----------
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
(iv) Other Administration. Other than as provided above, the
--------------------
Plan shall be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.
(c) No member of the Committee shall be liable for any action, failure
to act, determination or interpretation made in good faith with respect to this
Plan or any transaction hereunder, except for liability arising from his or her
own willful misfeasance, gross negligence or reckless disregard of his or her
duties. The Company hereby agrees to indemnify each member of the Committee for
all costs and expenses and, to the extent permitted by applicable law, any
liability incurred in connection with defending against, responding to,
negotiation for the settlement of or otherwise dealing with any claim, cause of
action or dispute of any kind arising in connection with any action in
administering this Plan or in authorizing or denying authorization to any
transaction hereunder.
3.2 Subject to the express terms and conditions set forth herein, the
Committee shall have the power from time to time:
(a) to determine those Eligible Individuals to whom Options shall be
granted under the Plan and, subject to Section 5.2, the number of Shares subject
to each Option to be
-5-
<PAGE>
granted, to prescribe the terms and conditions (which need not be identical) of
each such Option, including the Fair Market Value on any date, the Per Share
Option Price for the Shares subject to each Option in accordance with Section
5.3, and to make any amendment or modification to any Agreement, including the
acceleration of vesting, consistent with the terms of the Plan;
(b) to construe and interpret the Plan and the Options granted
hereunder and to establish, amend and revoke rules and regulations for the
administration of the Plan, including, but not limited to, correcting any defect
or supplying any omission, or reconciling any inconsistency in the Plan or in
any Agreement, in the manner and to the extent it shall deem necessary or
advisable so that the Plan complies with applicable law, including Rule 16b-3
under the Exchange Act and the Code to the extent applicable, and otherwise to
make the Plan fully effective. All decisions and determinations by the Committee
in the exercise of this power shall be final, binding and conclusive upon the
Company, its Subsidiaries, the Optionees, and all other persons having any
interest therein;
(c) to determine the duration and purposes for leaves of absence which
may be granted to an Optionee on an individual basis without constituting a
termination of employment or service for purposes of the Plan;
(d) to exercise its discretion with respect to the powers and rights
granted to it as set forth in the Plan; and
(e) generally, to exercise such powers and to perform such acts as are
deemed necessary or advisable to promote the best interests of the Company with
respect to the Plan.
4. Stock Subject to the Plan.
-------------------------
(a) The maximum number of Shares that may be made the subject of
Options granted under the Plan shall be 1,424,669 Shares (post split), less the
aggregate number of Shares from time to time (i) subject to options outstanding
under the Cost Plus, Inc. 1994 Stock Option Plan (the "1994 Option Plan") or
(ii) issued upon exercise of options granted under the 1994 Option Plan. Options
to be granted under the Plan shall be granted under the Form of Cost Plus, Inc.
1995 Stock Option Plan Incentive Stock Option Agreement attached as Exhibit A-1
-----------
or Nonqualified Stock Option Agreement attached as Exhibit A-2, which forms of
-----------
agreement may be modified or amended by the Committee from time to time so long
as any such modified or amended agreement is not inconsistent with any provision
of the Plan.
(b) Upon a Change in Capitalization, the number of Shares set forth in
this Section 4 and in Section 5 shall be adjusted in number and kind pursuant to
Section 6.
(c) Upon the granting of an Option, the number of Shares available for
the granting of further Options shall be reduced by the number of Shares in
respect of which the Option is granted. Whenever any outstanding Option or
portion thereof expires, is canceled or is otherwise terminated for any reason
without having been exercised or payment having been made in respect
-6-
<PAGE>
thereof, the Shares allocable to the expired, canceled or otherwise terminated
portion of the Option shall again be available for the granting of Options by
the Committee under the terms of the Plan.
(d) The Board shall reserve for the purpose of the Plan, out of its
authorized but unissued Shares, 1,024,669 Shares (post split), less the
aggregate number of Shares from time to time (i) subject to options outstanding
under the 1994 Option Plan or (ii) issued upon exercise of options granted under
the 1994 Option Plan.
5. Option Grants for Eligible Individuals.
--------------------------------------
5.1 Authority of Committee. Except as otherwise expressly provided
----------------------
in this Plan, the Committee shall have full and final authority to select those
Eligible Individuals who will receive Options, the terms and conditions of which
shall be set forth in an Agreement; provided, however, that no person shall
-----------------
receive any Incentive Stock Options unless he or she is an employee of the
Company, a Parent or a Subsidiary at the time the Incentive Stock Option is
granted.
5.2 Eligibility.
-----------
(a) No Eligible Individual may be granted, in any fiscal year of the
Company, Options to purchase more than 265,322 Shares; provided that the
limitation set forth in this Section 5.2(a) shall only apply to Options granted
after the Company's Initial Public Offering. If an Option is cancelled (other
than in connection with a Sale of the Company), the cancelled Option will be
counted against the limit set forth in this Section 5.2(a). For this purpose,
if the exercise price of an Option is reduced, the transaction will be treated
as a cancellation of the Option and the grant of a new Option.
(b) Each Option shall be designated in the Agreement as either an
Incentive Stock Option or a Nonqualified Stock Option. However, notwithstanding
such designations, to the extent that the aggregate Fair Market Value:
(i) of Shares subject to an Optionee's Incentive Stock Options
granted by the Company, any Parent or Subsidiary, which
(ii) become exercisable for the first time during any calendar
year (under all plans of the Company or any Parent or Subsidiary) exceeds
$100,000, such excess Options shall be treated as Nonqualified Stock Options.
For purposes of this Section 5.2(b), Incentive Stock Options shall be taken into
account in the order in which they were granted, and the Fair Market Value of
the Shares shall be determined as of the time the Option with respect to such
Shares is granted.
5.3 Option Exercise Price. The Per Share Option Price for the Shares
---------------------
to be issued pursuant to exercise of an Option shall be such price as is
determined by the Committee, but shall be subject to the following:
-7-
<PAGE>
(a) In the case of an Incentive Stock Option granted to an Eligible
Individual who, at the time of the grant of such Incentive Stock Option, is a
Ten-Percent Shareholder, the Per Share Option Price shall be no less than 110%
of the Fair Market Value per Share on the Grant Date.
(b) In the case of an Incentive Stock Option granted to any Eligible
Individual other than a Ten-Percent Shareholder, the Per Share Option Price
shall be no less than 100% of the Fair Market Value per Share on the Grant Date.
5.4 Duration of Options.
-------------------
(a) Maximum Duration. Each Option granted hereunder shall be for a
----------------
term of not more than ten (10) years from the date it is granted (five (5) years
in the case of an Incentive Stock Option granted to a Ten-Percent Shareholder).
The Committee may, subsequent to the granting of any Option, extend the term
thereof but in no event shall the term as so extended exceed the maximum term
provided for in the preceding sentence.
(b) Termination of Employment.
-------------------------
(i) Death, Disability or Retirement. In the event the Optionee's
-------------------------------
employment with or service as a consultant to or director of the Company is
terminated as a result of Disability or death or the voluntary retirement of the
Optionee at or after age 65 (or age 55 with Company consent) ("Retirement") or
the Optionee dies within the thirty (30) day period described in Section
5.4(b)(iii) below, the Optionee or, in the case of the Optionee's death,
Optionee's legal representatives, may at any time within one (1) year after his
or her termination, exercise any Options then held by the Optionee to the
extent, but only to the extent, that such Options or portions thereof are
exercisable on the date of such termination, after which time such Options shall
terminate in full; provided, however, that if the employment of an Optionee is
terminated as a result of Disability that does not qualify as a "permanent and
total disability" as defined in Code Section 22(e)(3) and the regulations
thereunder, Incentive Stock Options held by the Optionee shall be treated as
Nonqualified Stock Options as of the date that is three (3) months and one (1)
day following such termination of employment. Any portion of an Incentive Stock
Option granted to an Optionee which is not exercised within the three (3) month
period following the Optionee's Retirement shall thereafter cease to be an
Incentive Stock Option and shall be treated as a Nonqualified Stock Option. In
the event of an Optionee's termination of employment due to death as described
in this Section, all Options held by the Optionee shall be exercisable, even as
to Shares previously unvested, by the legatee or legatees under the Optionee's
will, or by the Optionee's personal representatives or distributees and such
person or persons shall be substituted for the Optionee each time the Optionee
is referred to herein. Notwithstanding anything else in this Section, the
Committee may, in its discretion, provide in the Agreement that any Options held
by Optionee on the date Optionee's employment with or service as a consultant or
director of the Company terminates as a result of Disability or Retirement shall
become fully vested and exercisable as of such termination date.
-8-
<PAGE>
(ii) Cause. In the event Optionee's employment with or service as
-----
a consultant to or director of the Company is terminated for Cause, all Options
held by the Optionee shall terminate on the date of the Optionee's termination
whether or not exercisable.
(iii) Other Termination. If Optionee's employment with or service
-----------------
as a consultant to or director of the Company is terminated for any reason other
than Disability, death, Retirement or Cause (including the Optionee's ceasing to
be employed by or a consultant to or director of a Subsidiary or division of the
Company or any Subsidiary as a result of the sale of such Subsidiary or division
or an interest in such Subsidiary or division), the Optionee may at any time
within thirty (30) days after such termination, exercise any Options held by the
Optionee to the extent, but only to the extent, that such Options or portions
thereof are exercisable on the date of the termination, after which time such
Options shall terminate in full.
5.5 Vesting. Unless otherwise provided for by the Committee in an
-------
Agreement and subject to Section 5.10, each Option shall become vested and
exercisable as to 25% of the aggregate number of Shares covered by the Option on
the First Vesting Date, and as to an additional 25% of the aggregate number of
Shares covered by the Option on each of the first, second and third
anniversaries of the First Vesting Date. Any fractional number of Shares
resulting from the application of the vesting percentage shall be rounded to the
next higher whole number of Shares. To the extent not exercised, installments
shall accumulate and be exercisable, in whole or in part, at any time after
becoming exercisable, but not later than the date an Option expires or
terminates. Notwithstanding the foregoing (or any other provision to the
contrary contained in the Plan or any Agreement) all outstanding Options shall
immediately become fully (100%) vested and exercisable upon a Sale of the
Company. In addition, the Committee may accelerate the exercisability of any
Option or portion thereof at any time.
5.6 Modification. No modification of an Option shall adversely alter
------------
or impair any rights or obligations under the Option without the Optionee's
consent.
5.7 Nontransferability. Unless otherwise provided by the Committee
------------------
in an Agreement, no Option granted hereunder shall be transferable by the
Optionee to whom granted otherwise than by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order as defined in
the Code. An Option may be exercised during the lifetime of such Optionee only
by the Optionee or his or her guardian or legal representative. The terms of
such Option shall be final, binding and conclusive upon the beneficiaries,
executors, administrators, heirs and successors of the Optionee.
5.8 Method of Exercise. The exercise of an Option shall be made only
------------------
by a written notice delivered in person or by mail to the Secretary of the
Company at the Company's principal executive office, specifying the number of
Shares to be purchased and accompanied by payment therefor and otherwise in
accordance with the Agreement pursuant to which the Option was granted. The
purchase price for any Shares purchased pursuant to the exercise of an Option
shall be paid in full upon such exercise by any one or a combination of the
following: (i) cash, (ii) check, (iii) transferring
-9-
<PAGE>
Shares to the Company upon such terms and conditions as determined by the
Committee or (iv) pursuant to a cashless exercise providing for the exercise of
the Option and sale of the underlying Shares by a designated broker and delivery
of the Shares by the Company to such broker. Cashless exercises shall be subject
to such procedures as may be established from time to time by the Committee in
its sole discretion. The Committee shall have discretion to determine at the
time of grant of each Option or at any later date (up to and including the date
of exercise) the form of payment acceptable in respect of the exercise of such
Option. With respect to the transfer of Shares to the Company as payment, in
part or in whole, of the exercise price (i) any Shares transferred to the
Company as payment of the purchase price under an Option shall be valued at
their Fair Market Value on the day preceding the date of exercise of such
Option; and (ii) any Shares acquired upon the exercise of an option must have
been owned by the Optionee for more than six months prior to such transfer. If
requested by the Committee, the Optionee shall deliver the Agreement evidencing
the Option to the Secretary of the Company who shall endorse thereon a notation
of such exercise and return such Agreement to the Optionee. No fractional Shares
(or cash in lieu thereof) shall be issued upon exercise of an Option and the
number of Shares that may be purchased upon exercise shall be rounded to the
nearest whole number of Shares.
5.9 Rights of Optionees. No Optionee shall be deemed for any purpose
-------------------
to be the owner of any Shares subject to any Option unless and until (i) the
Option shall have been exercised pursuant to the terms thereof, (ii) the Company
shall have issued and delivered the Shares to the Optionee, and (iii) the
Optionee's name shall have been entered as a shareholder of record on the books
of the Company. Thereupon, the Optionee shall have full voting, dividend and
other ownership rights with respect to such Shares, subject to such terms and
conditions as may be set forth in the applicable Agreement.
5.10 Sale of Company.
---------------
(a) In the event of a Sale of the Company, effective as of the date
of consummation of the transaction constituting the Sale of the Company, at the
election of the Company and, without any action by any Optionee:
(A)(i) each outstanding Option shall become fully (100%) vested
and exercisable, (ii) each Option shall be deemed to have been exercised to the
extent it had not been exercised prior to that date, (iii) the Shares issuable
in connection with the deemed exercise of each Option shall be issued to and in
the name of the acquiror of the Company, if any, and (iv) in respect of each
Share issued in connection with the deemed exercise of an Option, the Optionee
shall receive a per Share payment equal to the number (or amount) and kind of
stock, securities, cash, property or other consideration that each holder of a
Share was entitled to receive in connection with the Sale of the Company,
reduced by the Per Share Option Price, or
(B) each outstanding Option shall become fully (100%) vested and
shall simultaneously be terminated in exchange for a per share payment for each
Share then subject to such Option equal to the number (or amount) and kind of
stock, securities, cash, property or other
-10-
<PAGE>
consideration that each holder of a Share was entitled to receive in connection
with the Sale of the Company, reduced by the Per Share Option Price, or
(C) in the event of a Sale of the Company that is consummated
pursuant to a merger, consolidation or reorganization (a "Transaction"), each
outstanding Option shall become fully (100%) vested and exercisable, and the
Plan and the outstanding Options shall continue in effect in accordance with
their respective terms and each Optionee shall be entitled to receive in respect
of each Share subject to any outstanding Option, upon exercise of such Option,
the same number (or amount) and kind of stock, securities, cash, property or
other consideration that each holder of a Share was entitled to receive in
connection with the Transaction in respect of a Share.
(b) In the event of a Sale of the Company, the Optionee shall sell his
or her Shares and, if shareholder approval of the transaction is required and if
the Company receives an opinion of an independent, nationally recognized
investment banking firm retained by the Board to the effect that the
consideration to be received in such Sale of the Company, as the case may be, is
fair to the shareholders of the Company, shall vote his or her Shares in favor
thereof, and waive any dissenters' rights, preemptive rights, appraisal rights
or similar rights, as the case may be. (The fees and expenses incurred in
obtaining such opinion shall be borne by the Company.)
(c) Any sale of Shares by any Optionee in any Sale of the Company
shall be for the same consideration per share, on the same terms and subject to
the same conditions as the sale by the shareholders of the Company.
(d) In any case, in the event of a Sale of the Company, the payment
made to each Optionee shall be further reduced by an amount equal to the
Optionee's proportionate share of the expenses of sale incurred by the
Controlling Shareholders in connection with the Sale of the Company. In any
Sale of the Company, at the request of the Controlling Shareholders or the
Company, each Optionee shall execute and deliver a counterpart of an agreement
pursuant to which such Optionee agrees to sell its Shares in the Sale of the
Company, provided that such Optionee shall not be required to make, in
--------
connection with such Sale of the Company, any representations and warranties
with respect to the Company or its business or with respect to any other
Optionee or selling shareholder. In addition, each Optionee shall be
responsible for such Optionee's proportionate share of the expenses of sale
incurred by the selling shareholders in connection with the Sale of the Company
and the obligations and liabilities (including obligations and liabilities for
indemnification (including indemnification obligations and liabilities for (x)
breaches of representations and warranties made by the Company or any other
Optionee or selling shareholder with respect to the Company or its business, (y)
breaches of covenants and (z) other matters), amounts paid into escrow and post-
closing purchase price adjustments) incurred by the selling shareholders in
connection with the Sale of the Company; provided that (i) without the written
--------
consent of such Optionee, the amount of such obligations and liabilities shall
not exceed the gross proceeds received by such Optionee in such Sale of the
Company (provided that to the extent the proceeds received by the Optionee in
---------
such Sale of the Company are reduced by the Per Share Option Price, the "gross
proceeds received by such
-11-
<PAGE>
Optionee" shall be deemed to mean the sum of such proceeds plus the Per Share
Option Price for purposes of this Plan) and (ii) such Optionee shall not be
responsible for the fraud of any other Optionee or selling shareholder or any
indemnification obligations and liabilities for breaches of representations and
warranties made by any other Optionee or selling shareholder with respect to
such other Optionee's or selling shareholder's ownership of and title to shares
of capital stock of the Company, organization and authority. In connection with
a Sale of the Company, and subject to Section 5.10(b) and Section 5.10(c)
hereof, each Optionee shall do and perform or cause to be done and performed all
further acts and things and shall execute and deliver all other agreements,
certificates, instruments and documents as the Company or the Controlling
Shareholders reasonably may request in connection with such Sale of the Company.
(e) For all purposes of the Plan, the value of stock, securities,
property or other consideration shall be the Fair Market Value of such stock,
securities, property or other consideration as determined in accordance with
Section 2.13.
(f) In the case of a Transaction which also constitutes a Pooling
Transaction, notwithstanding anything to the contrary contained in the Plan or
any Agreement, (i) to the extent not earlier exercised or terminated under this
Section 5.10, all Options outstanding on the date of the Transaction shall
remain exercisable until the date which is thirty (30) days after the last day
of the Pooling Period, whether or not the Optionee is then an employee of the
Company, but in no event beyond the stated term of the Option, and (ii) if the
Board determines after consultation with an independent accounting firm retained
by the Company (the "Independent Accountant") that it is reasonably necessary in
order to assure that the Pooling Transaction will qualify as such, the Committee
may provide, in its sole discretion and pursuant to the specific recommendations
of the Independent Accountant, that (A) all Options, or, in the alternative,
such Options held by Optionees specifically identified by the Committee, shall
not become immediately and fully exercisable on the date of the Transaction but
rather shall become immediately and fully exercisable on the date following the
last day of the Pooling Period, (B) the Optionees holding such Options shall be
required to surrender such Options (or any portion of such Options) for
cancellation in return for the consideration provided under this Section 5.10
only during the thirty (30) day period commencing on the date following the last
day of the Pooling Period, but in no event after the stated term of the Option,
and/or (C) the consideration specified above in this Section 5.10 shall be paid
in the form of cash, Shares or securities of a successor of the Company or a
combination of the foregoing, as designated by the Committee.
6. Adjustment Upon Changes in Capitalization.
-----------------------------------------
(a) In the event of a Change in Capitalization, the Committee shall
conclusively determine the appropriate adjustments, if any, to (i) the maximum
number and class of Shares or other stock or securities with respect to which
Options may be granted under the Plan, (ii) the maximum number of Shares with
respect to which Options may be granted to any Eligible Individual during the
term of the Plan, and (iii) the number and class of Shares or other stock or
securities which
-12-
<PAGE>
are subject to outstanding Options granted under the Plan, and the purchase
price therefor, if applicable.
(b) Any such adjustment in the Shares or other stock or securities
subject to outstanding Incentive Stock Options (including any adjustments in the
purchase price) shall be made in such manner as not to constitute a modification
as defined by Section 424(h)(3) of the Code and only to the extent otherwise
permitted by Sections 422 and 424 of the Code.
(c) If, by reason of a Change in Capitalization, an Optionee shall be
entitled to exercise an Option with respect to, new, additional or different
shares of stock or securities, such new, additional or different shares shall
thereupon be subject to all of the conditions, restrictions and performance
criteria which were applicable to the Shares subject to the Option prior to such
Change in Capitalization.
7. Termination and Amendment of the Plan.
-------------------------------------
The Plan shall terminate on the day preceding the tenth anniversary of
the date of its adoption by the Board and no Option may be granted thereafter.
The Board may sooner terminate the Plan and the Board may at any time and from
time to time amend, modify or suspend the Plan; provided, however, that, except
-----------------
with the consent of the Optionee, no such amendment, modification, suspension or
termination shall impair or adversely alter any Options theretofore granted
under the Plan, nor shall any amendment, modification, suspension or termination
deprive any Optionee of any Shares which he or she may have acquired through or
as a result of the Plan. To the extent necessary and desirable to comply with
the Code or any other applicable laws, the Company shall obtain shareholder
approval of any amendment to the Plan.
8. Non-Exclusivity of the Plan.
---------------------------
The adoption of the Plan by the Board shall not be construed as
amending, modifying or rescinding any previously approved incentive arrangement
or as creating any limitations on the power of the Board to adopt such other
incentive arrangements as it may deem desirable, including, without limitation,
the granting of stock options otherwise than under the Plan, and such arrange-
ments may be either applicable generally or only in specific cases.
9. Limitation of Liability.
-----------------------
As illustrative of the limitations of liability of the Company, but
not intended to be exhaustive thereof, nothing in the Plan shall be construed
to:
(i) give any person any right to be granted an Option other than at
the sole discretion of the Committee;
-13-
<PAGE>
(ii) give any person any rights whatsoever with respect to Shares
except as specifically provided in the Plan;
(iii) limit in any way the right of the Company to terminate the
employment of any person at any time; or
(iv) be evidence of any agreement or understanding, expressed or
implied, that the Company will employ any person at any particular rate of
compensation or for any particular period of time.
10. Regulations and Other Approvals: Governing Law.
----------------------------------------------
10.1 Except as to matters of federal law, this Plan and the rights of
all persons claiming hereunder shall be construed and determined in accordance
with the laws of the State of California without giving effect to conflicts of
law principles.
10.2 The obligation of the Company to sell or deliver Shares with
respect to Options granted under the Plan shall be subject to all applicable
laws, rules, and regulations, including all applicable federal and state
securities laws and all applicable stock exchange rules, and the obtaining of
all such approvals by governmental agencies as may be deemed necessary or
appropriate by the Committee.
10.3 It is intended that from and after the date that any class of
equity securities of the Company are registered under Section 12 of the Exchange
Act, the Plan shall be administered in compliance with Rule 16b-3 promulgated
under the Exchange Act and the Committee shall interpret and administer the
provisions of the Plan or any Agreement in a manner consistent therewith. Any
provisions inconsistent with such Rule shall be inoperative and shall not affect
the validity of the Plan.
10.4 The Board may make such changes as may be necessary or
appropriate to comply with the rules and regulations of any government
authority, or to obtain for Eligible Individuals granted Incentive Stock Options
the tax benefits under the applicable provisions of the Code and regulations
promulgated thereunder.
10.5 Each Option is subject to the requirement that, if at any time
the Committee determines, in its discretion, that the listing, registration or
qualification of Shares issuable pursuant to the Plan is required by any
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body is necessary or desirable as a
condition of, or in connection with, the grant of an Option or the issuance of
Shares, no such Options shall be granted or payment made or Shares issued, in
whole or in part, unless listing, registration, qualification, consent or
approval has been effected or obtained free of any conditions other than as
acceptable to the Committee.
-14-
<PAGE>
10.6 Notwithstanding anything contained in the Plan or any Agreement
to the contrary, in the event that the disposition of Shares acquired pursuant
to the Plan is not covered by a then current registration statement under the
Securities Act of 1933, as amended, and is not otherwise exempt from such
registration, such Shares shall be restricted against transfer to the extent
required by the Securities Act of 1933, as amended, and Rule 144 or other
regulations thereunder. The Committee may require any individual receiving
Shares pursuant to an Option granted under the Plan, as a condition precedent to
receipt of such Shares, to represent and warrant to the Company in writing that
the Shares acquired by such individual are acquired without a view to any
distribution thereof and will not be sold or transferred other than pursuant to
an effective registration thereof under said Act or pursuant to an exemption
applicable under the Securities Act of 1933, as amended, or the rules and
regulations promulgated thereunder and to the effect set forth in Section 14 of
the Agreement. The certificates evidencing any of such Shares shall bear an
appropriate legend to reflect their status as restricted securities as
aforesaid.
11. Miscellaneous.
-------------
11.1 Multiple Agreements. The terms of each Option may differ from
-------------------
other Options granted under the Plan at the same time, or at some other time.
The Committee may also grant more than one Option to a given Eligible Individual
during the term of the Plan, either in addition to, or in substitution for, one
or more Options previously granted to that Eligible Individual.
11.2 Withholding of Taxes.
--------------------
(a) At such times as an Optionee recognizes taxable income in
connection with the receipt of Shares, cash or other consideration hereunder (a
"Taxable Event"), the Optionee shall pay to the Company an amount equal to the
federal, state and local income taxes and other amounts as may be required by
law to be withheld by the Company in connection with the Taxable Event (the
"Withholding Taxes") prior to the issuance or the payment of such Shares, cash
or other consideration. The Company shall have the right to deduct from any
payment of cash to an Optionee an amount equal to the Withholding Taxes in
satisfaction of the obligation to pay Withholding Taxes. In satisfaction of the
obligation to pay Withholding Taxes to the Company, the Optionee may make a
written election (the "Tax Election"), which may be accepted or rejected in the
sole discretion of the Committee, to have withheld a portion of the Shares then
issuable to him or her having an aggregate Fair Market Value, on the date
preceding the date of such issuance, equal to the Withholding Taxes.
Notwithstanding the foregoing, the Committee may, by the adoption of rules or
otherwise, (i) modify the provisions of this Section 11.2 or impose such other
restrictions or limitations on Tax Elections as may be necessary to ensure that
the Tax Elections will be exempt transactions under Section 16(b) of the
Exchange Act, and (ii) permit Tax Elections to be made at such other times and
subject to such other conditions as the Committee determines will constitute
exempt transactions under Section 16(b) of the Exchange Act.
(b) If an Optionee makes a disposition, within the meaning of Section
424(c) of the Code and regulations promulgated thereunder, of any Share or
Shares issued to
-15-
<PAGE>
such Optionee pursuant to the exercise of an Incentive Stock Option within the
two-year period commencing on the day after the date of the grant or within the
one-year period commencing on the day after the date of transfer of such Share
or Shares to the Optionee pursuant to such exercise, the Optionee shall, within
ten (10) days of such disposition, notify the Company thereof, by delivery of
written notice to the Company at its principal executive office.
12. Effective Date.
--------------
The Plan shall become effective upon its adoption by the Board of
Directors of the Company; provided that continuance of the Plan shall be subject
to approval by the shareholders of the Company within twelve (12) months after
the date the Plan is so adopted. Such shareholder approval shall be obtained in
the degree and manner required under applicable state and federal law and the
rules of any stock exchange upon which the Shares are listed.
13. Termination of Existing Option Plan.
-----------------------------------
At such time as this Plan shall become effective and shall have been
approved by the shareholders as required by Section 12, the 1994 Stock Option
Plan shall terminate and the Shares allotted for stock option grants under the
1994 Option Plan, other than Shares that are the subject of outstanding options
granted under the 1994 Option Plan, and any Shares which become available due to
the forfeiture, expiration or other termination of any option, or portion
thereof, outstanding under the 1994 Option Plan, shall not be available for the
granting of any further options or other awards under the 1994 Option Plan or
any other option or stock incentive plan or arrangement of the Company. Each
option outstanding under the 1994 Option Plan shall remain outstanding and shall
continue to be subject to the terms of the applicable agreement evidencing the
grant of such option and the terms of the 1994 Option Plan.
-16-
<PAGE>
COST PLUS, INC.
1996 DIRECTOR OPTION PLAN/1/
1. Purposes of the Plan. The purposes of this 1996 Director Option Plan
--------------------
are to attract and retain the best available personnel for service as Outside
Directors (as defined herein) of the Company, to provide additional incentive to
the Outside Directors of the Company to serve as Directors, and to encourage
their continued service on the Board.
All options granted hereunder shall be nonstatutory stock options.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Board" means the Board of Directors of the Company.
-----
(b) "Code" means the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" means the Common Stock of the Company.
------------
(d) "Company" means Cost Plus, Inc., a California corporation.
-------
(e) "Director" means a member of the Board.
--------
(f) "Employee" means any person, including officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a Director's fee by the Company shall not be sufficient in and of itself to
constitute "employment" by the Company.
(g) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(h) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the day of determination, as reported in The Wall Street Journal or such other
source as the Administrator deems reliable;
- ------------------------
/1/ Includes amendment by the board of directors on April 21, 1997 and
approval by the shareholders on June 19, 1997.
<PAGE>
(i) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the date of determination, as reported in The
Wall Street Journal or such other source as the Board deems reliable, or;
(ii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
(i) "Inside Director" means a Director who is an Employee.
---------------
(j) "Option" means a stock option granted pursuant to the Plan.
------
(k) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(l) "Optionee" means a Director who holds an Option.
--------
(m) "Outside Director" means a Director who is not an Employee.
----------------
(n) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(o) "Plan" means this 1996 Director Option Plan.
----
(p) "Representative Director" means a Director who is a member of the
-----------------------
Board as the representative for an entity that employs such Director. The
determination of whether an Outside Director is a Representative Director shall
be determined by the representations of such Director and such determination may
be changed at any time by such Director.
(q) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 10 of the Plan.
(r) "Subsidiary" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Internal Revenue Code of
1986.
3. Stock Subject to the Plan. Subject to the provisions of Section 10 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 68,300 Shares of Common Stock (the "Pool"). The Shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan.
-2-
<PAGE>
4. Administration and Grants of Options under the Plan.
---------------------------------------------------
(a) Procedure for Grants. All grants of Options to Outside Directors
--------------------
under this Plan shall be automatic and nondiscretionary and shall be made
strictly in accordance with the following provisions:
(i) No person shall have any discretion to select which Outside
Directors shall be granted Options or to determine the number of Shares to be
covered by Options granted to Outside Directors.
(ii) Thomas Willardson shall be automatically granted an Option
to purchase 7,075 Shares (the "IPO Option") on the date the Company's
registration statement on Form S-1 is declared effective by the Securities and
Exchange Commission.
(iii) Each Outside Director elected after the date this Plan is
adopted shall be automatically granted an Option to purchase 7,075 Shares (the
"First Option") on the date on which such person first becomes an Outside
Director, whether through election by the shareholders of the Company or
appointment by the Board to fill a vacancy; provided, however, that an Inside
Director who ceases to be an Inside Director but who remains a Director shall
not receive a First Option.
(iv) Each Outside Director shall be automatically granted an
Option to purchase 2,000 Shares (a "Subsequent Option") each year on the earlier
of (i) the date of the annual shareholder meeting or (ii) June 30th; provided as
of such date he or she is then an Outside Director and has served on the Board
for at least the preceding six (6) months.
(v) Notwithstanding the provisions of subsections (ii) and (iii)
hereof, any exercise of an Option granted before the Company has obtained
shareholder approval of the Plan in accordance with Section 16 hereof shall be
conditioned upon obtaining such shareholder approval of the Plan in accordance
with Section 16 hereof.
(vi) In the event an Outside Director is a Representative
Director, options granted under subsections (iii) and (iv) above shall be
granted in the name of the entity employing such Representative Director and
such Representative Director shall not personally receive any option grants in
the Representative Director's own name.
(vii) The terms of an IPO Option granted hereunder shall be as
follows:
(A) the term of the IPO Option shall be ten (10) years.
(B) the IPO Option shall be exercisable only while the
Outside Director remains a Director of the Company, except as set forth in
Sections 8 and 10 hereof.
-3-
<PAGE>
(C) the exercise price per Share shall be 100% of the price to
the public as set forth in the final prospectus included within the registration
statement on Form S-1 filed with the Securities and Exchange Commission for the
initial public offering of the Common Stock.
(D) subject to Section 10 hereof, the IPO Option shall become
exercisable as to 25% of the Shares subject to the IPO Option on each
anniversary of its date of grant, provided that the Optionee continues to serve
as a Director on such dates.
(viii) The terms of a First Option granted hereunder shall be as
follows:
(A) the term of the First Option shall be ten (10) years.
(B) the First Option shall be exercisable only while the
Outside Director remains a Director of the Company, except as set forth in
Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100% of the Fair
Market Value per Share on the date of grant of the First Option. In the event
that the date of grant of the First Option is not a trading day, the exercise
price per Share shall be the Fair Market Value on the next trading day
immediately following the date of grant of the First Option.
(D) subject to Section 10 hereof, the First Option shall become
exercisable as to 25% of the Shares subject to the First Option on each
anniversary of its date of grant, provided that the Optionee continues to serve
as a Director on such dates.
(ix) The terms of a Subsequent Option granted hereunder shall be as
follows:
(A) the term of the Subsequent Option shall be ten (10) years.
(B) the Subsequent Option shall be exercisable only while the
Outside Director remains a Director of the Company, except as set forth in
Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100% of the Fair
Market Value per Share on the date of grant of the Subsequent Option. In the
event that the date of grant of the Subsequent Option is not a trading day, the
exercise price per Share shall be the Fair Market Value on the next trading day
immediately following the date of grant of the Subsequent Option.
(D) subject to Section 10 hereof, the Subsequent Option shall
become exercisable as to 25% percent of the Shares subject to the Subsequent
Option on each anniversary of its date of grant, provided that the Optionee
continues to serve as a Director on such dates.
(x) In the event that any Option granted under the Plan would cause
the number of Shares subject to outstanding Options plus the number of Shares
previously purchased
-4-
<PAGE>
under Options to exceed the Pool, then the remaining Shares available for Option
grant shall be granted under Options to the Outside Directors on a pro rata
basis. No further grants shall be made until such time, if any, as additional
Shares become available for grant under the Plan through action of the Board or
the shareholders to increase the number of Shares which may be issued under the
Plan or through cancellation or expiration of Options previously granted
hereunder.
5. Eligibility. Options may be granted only to Outside Directors. All
-----------
Options shall be automatically granted in accordance with the terms set forth in
Section 4 hereof.
The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate the Director's relationship with the Company at any time.
6. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board or its approval by the shareholders of the
Company as described in Section 16 of the Plan; provided, however, that in the
absence of an underwritten initial public offering of the Company's Common Stock
on or before March 1, 1997, this Plan shall be null and void. It shall continue
in effect for a term of ten (10) years unless sooner terminated under Section 11
of the Plan.
7. Form of Consideration. The consideration to be paid for the Shares to
---------------------
be issued upon exercise of an Option, including the method of payment, shall
consist of (i) cash, (ii) check, (iii) other shares which (x) in the case of
Shares acquired upon exercise of an Option, have been owned by the Optionee for
more than six (6) months on the date of surrender, and (y) have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised, (iv) delivery of a properly
executed exercise notice together with such other documentation as the Company
and the broker, if applicable, shall require to effect an exercise of the Option
and delivery to the Company of the sale or loan proceeds required to pay the
exercise price, or (v) any combination of the foregoing methods of payment.
8. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times as are set forth in Section
4 hereof; provided, however, that no Options shall be exercisable until
shareholder approval of the Plan in accordance with Section 16 hereof has been
obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 7 of the Plan. Until the issuance (as evidenced by the
appropriate
-5-
<PAGE>
entry on the books of the Company or of a duly authorized transfer agent of the
Company) of the stock certificate evidencing such Shares, no right to vote or
receive dividends or any other rights as a shareholder shall exist with respect
to the Optioned Stock, notwithstanding the exercise of the Option. A share
certificate for the number of Shares so acquired shall be issued to the Optionee
as soon as practicable after exercise of the Option. No adjustment shall be made
for a dividend or other right for which the record date is prior to the date the
stock certificate is issued, except as provided in Section 10 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Continuous Status as a Director. Subject to
----------------------------------------------
Section 10 hereof, in the event an Optionee's status as a Director terminates
(other than upon the Optionee's death or total and permanent disability (as
defined in Section 22(e)(3) of the Code)), the Optionee may exercise his or her
Option, but only within six (6) months following the date of such termination,
and only to the extent that the Optionee was entitled to exercise it on the date
of such termination (but in no event later than the expiration of its ten (10)
year term). To the extent that the Optionee was not entitled to exercise an
Option on the date of such termination, and to the extent that the Optionee does
not exercise such Option (to the extent otherwise so entitled) within the time
specified herein, the Option shall terminate.
(c) Disability of Optionee. In the event Optionee's status as a
----------------------
Director terminates as a result of total and permanent disability (as defined in
Section 22(e)(3) of the Code), the Optionee may exercise his or her Option, but
only within twelve (12) months following the date of such termination, and only
to the extent that the Optionee was entitled to exercise it on the date of such
termination (but in no event later than the expiration of its ten (10) year
term). To the extent that the Optionee was not entitled to exercise an Option
on the date of termination, or if he or she does not exercise such Option (to
the extent otherwise so entitled) within the time specified herein, the Option
shall terminate.
(d) Death of Optionee. In the event of an Optionee's death, the
-----------------
Optionee's estate or a person who acquired the right to exercise the Option by
bequest or inheritance may exercise the Option, but only within twelve (12)
months following the date of death, and only to the extent that the Optionee was
entitled to exercise it on the date of death (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was not
entitled to exercise an Option on the date of death, and to the extent that the
Optionee's estate or a person who acquired the right to exercise such Option
does not exercise such Option (to the extent otherwise so entitled) within the
time specified herein, the Option shall terminate.
9. Non-Transferability of Options. The Option may not be sold, pledged,
------------------------------
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
-6-
<PAGE>
10. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
------------------------------------------------------------------
Asset Sale.
- ----------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of Shares covered by each outstanding
Option, the number of Shares which have been authorized for issuance under the
Plan but as to which no Options have yet been granted or which have been
returned to the Plan upon cancellation or expiration of an Option, as well as
the price per Share covered by each such outstanding Option, and the number of
Shares issuable pursuant to the automatic grant provisions of Section 4 hereof
shall be proportionately adjusted for any increase or decrease in the number of
issued Shares resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued Shares effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of Shares
subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it shall terminate immediately prior to the
consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
--------------------
with or into another corporation or the sale of substantially all of the assets
of the Company, outstanding Options may be assumed or equivalent options may be
substituted by the successor corporation or a Parent or Subsidiary thereof (the
"Successor Corporation"). If an Option is assumed or substituted for, the
Option or equivalent option shall continue to be exercisable as provided in
Section 4 hereof for so long as the Optionee serves as a Director or a director
of the Successor Corporation. Following such assumption or substitution, if the
Optionee's status as a Director or director of the Successor Corporation, as
applicable, is terminated other than upon a voluntary resignation by the
Optionee, the Option or option shall become fully exercisable, including as to
Shares for which it would not otherwise be exercisable. Thereafter, the Option
or option shall remain exercisable in accordance with Sections 8(c) through (e)
above.
If the Successor Corporation does not assume an outstanding Option or
substitute for it an equivalent option, the Option shall become fully vested and
exercisable, including as to Shares for which it would not otherwise be
exercisable. In such event the Board shall notify the Optionee that the Option
shall be fully exercisable for a period of thirty (30) days from the date of
such notice, and upon the expiration of such period the Option shall terminate.
For the purposes of this Section 10(c), an Option shall be considered
assumed if, following the merger or sale of assets, the Option confers the right
to purchase or receive, for each Share of Optioned Stock subject to the Option
immediately prior to the merger or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger or sale of
assets by holders of Common Stock for each Share held on the effective date of
the transaction (and
-7-
<PAGE>
if holders were offered a choice of consideration, the type of consideration
chosen by the holders of a majority of the outstanding Shares).
11. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. Except as set forth in Section 4, the
-------------------------
Board may at any time amend, alter, suspend, or discontinue the Plan, but no
amendment, alteration, suspension, or discontinuation shall be made which would
impair the rights of any Optionee under any grant theretofore made, without his
or her consent. In addition, to the extent necessary and desirable to comply
with any other applicable law or regulation (including any rule of a stock
exchange or automated stock quotation system upon which the shares are traded),
the Company shall obtain shareholder approval of any Plan amendment in such a
manner and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.
12. Time of Granting Options. The date of grant of an Option shall, for
------------------------
all purposes, be the date determined in accordance with Section 4 hereof.
13. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
14. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
-8-
<PAGE>
15. Option Agreement. Options shall be evidenced by written option
----------------
agreements in such form as the Board shall approve.
16. Shareholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the shareholders of the Company at or prior to the first annual
meeting of shareholders held subsequent to the granting of an Option hereunder.
Such shareholder approval shall be obtained in the degree and manner required
under applicable state and federal law.
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT, dated as of the [17th] day of June, 1997, by and
between Cost Plus, Inc., a California corporation (the "Company"), and Murray
Dashe, the undersigned executive (the "Executive").
Recital
-------
The Company desires to retain the services of Executive, and Executive
desires to be employed by the Company, on the terms and subject to the
conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the foregoing recital and the
respective undertakings of the Company and Executive set forth below, the
Company and Executive agree as follows:
1. Employment.
----------
(a) Duties. The Company agrees to employ the Executive as Vice Chairman,
------
and the Executive agrees to perform such reasonable responsibilities and duties
as may be required of him by the Company provided, however, that the Board of
Directors of the Company (the "Board") shall have the right to revise such
responsibilities from time to time as the Board may deem appropriate. The
Executive shall carry out his duties and responsibilities hereunder in a
diligent and competent manner and shall devote his full business time, attention
and energy thereto. Executive shall report directly to the Chairman/Chief
Executive Officer of the Company. At the next meeting of the Board, the
Executive shall be nominated to serve as a director of the Company.
(b) Employment At-Will. The Company and the Executive acknowledge and
------------------
agree that the Executive's employment is at-will, as defined under applicable
law and may be terminated at any time, with or without Cause. If the
Executive's employment terminates for any reason, the Executive shall not be
entitled to any payments, benefits, damages, awards or compensation other than
as provided in Section 3 of this Agreement.
2. Compensation and Benefits.
-------------------------
(a) Base Compensation. The Company shall pay the Executive as compensation
-----------------
for his services a base salary at the annualized rate of $315,000. Such salary
shall be subject to applicable tax withholding and shall be paid periodically in
accordance with normal Company payroll practices. The annual compensation
specified in this Section 2, together with any increases in such compensation
that the Company may, in its sole discretion, grant from time to time, is
referred to in this Agreement as "Base Compensation."
(b) Bonus. Executive shall be eligible for a bonus of up to forty percent
-----
(40%) of Executive's Base Compensation upon achievement of financial goals as
determined by the Board. All bonuses shall be paid in accordance with standard
Company policies. The bonus period shall begin with
<PAGE>
the Company's 1997 fiscal year and the 1997 fiscal year bonus shall be payable
in April, 1998 and based on Executive's 1997 fiscal year salary.
(c) Executive Benefits. Executive shall be eligible to participate in the
------------------
employee benefit plans which are available or which become available, in the
discretion of the Company, to other executives of the Company of a comparable
level, subject in each case to the generally applicable terms and conditions of
the plan or program in question and to the determination of any committee
administering such plan or program.
(d) Vacation. Executive shall be entitled to three weeks of vacation per
--------
year in accordance with the normal vacation policies of the Company.
(e) Stock Option. On the date hereof, the Company shall grant Executive an
------------
option (the "Option") to purchase 60,000 shares of the Company's Common Stock.
The per share exercise price for the Option shall be equal to the per share fair
market value of the Company's Common Stock on the date of grant. The term of
the Option shall be ten (10) years and the Option shall vest at a rate of
twenty-five percent (25%) per year on the anniversary of the grant date. In
addition, the Company shall grant Executive an option to purchase 8,000 shares
of the Company's Common Stock (the "Performance Option"). The Performance
Option shall vest in August 1998 if the Company's 1997 fiscal year earnings per
share targets (as determined by the Board) is met. Except as otherwise provided
herein, the Option and the Performance Option shall be granted pursuant to, and
shall be governed by, the Company's 1995 Stock Option Plan and conform to the
Company's standard policies with respect to options.
(f) Relocation Expenses. The Company shall reimburse Executive for
-------------------
Executive's relocation expenses in accordance with the Company's "Director and
Above Relocation Policy." The Company acknowledges that Executive will not
relocate immediately due to personal circumstances, therefore, the Company shall
reimburse Executive's relocation expenses if Executive relocates prior to
September 30, 1999. Notwithstanding the foregoing, in the event Executive
voluntarily resigns from his employment with the Company prior to the later of
(i) six (6) months after relocating or (ii) the second anniversary of this
Agreement, Executive shall repay to the Company all reimbursed relocation costs.
3. Severance Payments.
------------------
(a) Payments upon Termination. If the Executive's employment terminates as
-------------------------
a result of an Involuntary Termination other than for Cause prior to June, 2000
and the Executive signs a Release of Claims, then the Company shall pay
Executive's Base Compensation to the Executive for twelve (12) months after
Executive's termination of employment with each monthly installment payable on
the last day of such month.
(b) Benefits. In the event the Executive is entitled to severance benefits
--------
pursuant to Section 3(a), then in addition to such severance benefits, the
Executive shall receive health, dental, long term disability and life insurance
coverage as provided to Executive immediately prior to the Executive's
termination ( the "Company-Paid Coverage"). If such coverage included the
Executive's dependents
-2-
<PAGE>
immediately prior to the Executive's termination, such dependents shall also be
covered to the extent covered prior to Executive's termination. Company-Paid
Coverage shall continue until the earlier of (i) twelve (12) months following
termination in the case of a termination, or (ii) the date the Executive becomes
covered under another employer's group health, dental or life insurance plan (to
the extent covered under such plans).
(c) Stock Options; Bonus. Executive shall not be entitled to receive any
--------------------
unvested stock options or partial bonus payments for an incomplete bonus plan
year.
(d) Miscellaneous. In addition, (i) the Company shall pay the Executive
-------------
any unpaid base salary due for periods prior to the date of Executive's
termination; (ii) the Company shall pay the Executive all of the Executive's
accrued and unused vacation through the date of Executive's termination; and
(iii) following submission of proper expense reports by the Executive, the
Company shall reimburse the Executive for all expenses reasonably and
necessarily incurred by the Executive in connection with the business of the
Company prior to termination. These payments shall be made promptly upon
termination and within the period of time mandated by applicable law.
(e) Voluntary Resignation; Termination for Cause. If the Executive's
--------------------------------------------
employment terminates by reason of Executive's voluntary resignation or if the
Executive is terminated for Cause, the Executive shall not be entitled to
receive severance payments or other benefits under this Section 3.
(f) Death or Disability. If the Executive's employment terminates as a
-------------------
result of his death or disability, neither the Executive or, in the case of
death, Executive's beneficiary or estate, shall be entitled to any
compensation, severance payments, or any other benefits under this Section 3;
provided, however, that if Executive's employment terminates as a result of his
disability, Executive shall be entitled to severance and other benefits pursuant
to this Section 3 until Executive begins receiving payments pursuant to the
Company's long term disability policy described above in Section 3(b). Upon
commencement of such long term disability payments, Executive shall not be
entitled to any further severance, compensation, or other benefits including
those under this Section 3.
4. Covenants Not to Compete and Not to Solicit.
-------------------------------------------
(a) Until the Executive has received all Severance Payments as provided in
Section 3, upon the termination of the Executive's employment with the Company
for any reason, the Executive agrees that he shall not, on his own behalf, or as
owner, manager, advisor, principal, agent, partner, consultant, director,
officer, stockholder or employee of any business entity, or otherwise
participate in the development or provision of goods or services which are
directly or indirectly competitive with goods or services provided (or proposed
to be provided) by the Company without the express written authorization of the
Company. The foregoing covenant shall not be deemed to prohibit Executive from
acquiring an investment not more than one percent of the capital stock of a
competing business, whose stock is traded on a national securities exchange or
through the automated quotation system of a registered securities association.
-3-
<PAGE>
(b) Until the later of (i) five years after the date of this Agreement or
(ii) one year after termination of Executive's employment, upon the termination
of Executive's employment with the Company for any reason, the Executive agrees
that he shall not either directly or indirectly solicit, induce, attempt to
hire, recruit, encourage, take away, hire any employee of the Company or cause
an employee to leave their employment either for Executive or for any other
entity or person.
(c) The Executive represents that he (i) is familiar with the foregoing
covenants not to compete and not to solicit, and (ii) is fully aware of his
obligations hereunder, including, without limitation, the reasonableness of the
length of time, scope and geographic coverage of these covenants.
5. Confidential Information.
------------------------
(a) Company Information. Executive agrees at all times during the term of
-------------------
Executive's employment and thereafter, to hold in strictest confidence, and not
to use, except for the benefit of the Company, or to disclose to any person,
firm or corporation without written authorization of the Board of Directors of
the Company, any Confidential Information of the Company. Executive understands
that "Confidential Information" means any Company proprietary information, trade
secrets or know-how, including, but not limited to, market research, product
plans, products, services, customer lists and customers (including, but not
limited to, customers of the Company to whom Executive becomes acquainted during
the term of Executive's employment), markets, developments, marketing, finances
or other business information disclosed to Executive by the Company either
directly or indirectly in writing, orally or by drawings or observation of parts
or equipment. Executive further understands that Confidential Information does
not include any of the foregoing items which has become publicly known and made
generally available through no wrongful act of Executive or of others who were
under confidentiality obligations as to the item or items involved.
(b) Third Party Information. Executive recognizes that the Company has
-----------------------
received and in the future will receive from third parties their confidential or
proprietary information subject to a duty on the Company's part to maintain the
confidentiality of such information and to use it only for certain limited
purposes. Executive agrees to hold all such confidential or proprietary
information in the strictest confidence and not to disclose it to any person,
firm or corporation or to use it except as necessary in carrying out Executive's
work for the Company consistent with the Company's agreement with such third
party.
6. Definitions. As used herein, the terms
-----------
(a) Cause. "Cause" means the Executive's termination only upon:
-----
(i) Executive has engaged in willful and material misconduct, including
wilful and material failure to perform his duties as an officer or employee of
the Company or a material breach of this Agreement and has failed to "cure" such
default within thirty (30) days after receipt of written notice of default from
the Company;
-4-
<PAGE>
(ii) The commission of an act of fraud or embezzlement which results in
loss, damage or injury to the Company, whether directly or indirectly;
(iii) Executive's use of narcotics, liquor or illicit drugs has had a
detrimental effect on the performance of his employment responsibilities, as
determined by the Company's Board of Directors;
(iv) Executive's violation of Sections 4 or 5 of this Agreement;
(v) The arrest, indictment or filing of charges relating to a felony or
misdemeanor, either in connection with the performance of the Executive's
obligations to the Company or which shall adversely affect the Executive's
ability to perform such obligations;
(vi) Gross negligence, dishonesty, breach of fiduciary duty or material
breach of the terms of the Agreement or any other agreement in favor of the
Company;
(vii) The commission of an act which constitutes unfair competition with
the Company or which induces any customer of the Company to break a contract
with the Company.
(b) Involuntary Termination. "Involuntary Termination" shall mean:
-----------------------
(i) termination by the Company of Executive's employment with the Company
for any reason other than Cause;
(ii) a material reduction in Executive's Base Compensation (not including
bonus), other than any such reduction which is part of, and generally consistent
with, a general reduction of officer salaries;
(iii) a material reduction by the Company in the kind or level of employee
benefits (other than salary and bonus) to which Executive is entitled
immediately prior to such reduction with the result that Executive's overall
benefits package (other than salary and bonus) is substantially reduced (other
than any such reduction applicable to officers of the Company generally);
(iv) any material breach by the Company of any material provision of this
Agreement which continues uncured for 30 days following notice thereof;
provided that none of the foregoing shall constitute Involuntary Termination to
the extent Executive has agreed thereto.
-5-
<PAGE>
(c) Release of Claims. "Release of Claims" shall mean a waiver by
-----------------
Executive of all claims, causes of action and obligations against the Company or
its employees relating to Executive's employment in a form acceptable to the
Company. Such Release of Claims shall not release the Company from its
obligations, under the Amended and Restated Indemnification Agreement between
Executive and the Company.
7. Prior Agreements. Executive represents that Executive has not entered
----------------
into any agreements, understandings, or arrangements with any person or entity
which would be breached by Executive as a result of, or that would in any way
preclude or prohibit Executive from entering into this Agreement with the
Company or performing any of the duties and responsibilities provided for in
this Agreement.
8. Conflicting Employment. Executive agrees that, during the term of
----------------------
Executive's employment with the Company, Executive will not engage in any other
employment, occupation, consulting or other business activity directly related
to the business in which the Company is now involved or becomes involved during
the term of Executive's employment, nor will Executive engage in any other
activities that conflict with Executive's obligations to the Company.
9. Returning Company Documents. Executive agrees that, at the time of
---------------------------
leaving the employ of the Company, Executive will deliver to the Company (and
will not keep in Executive's possession, recreate or deliver to anyone else) any
and all devices, records, data, notes, reports, proposals, lists,
correspondence, specifications, materials, equipment, other documents or
property, or reproductions of any aforementioned items developed by Executive
pursuant to Executive's employment with the Company or otherwise belonging to
the Company, its successors or assigns.
10. Notices. Any notice, report or other communication required or
-------
permitted to be given hereunder shall be in writing to both parties and shall be
deemed given on the date of delivery, if delivered, or three days after mailing,
if mailed first-class mail, postage prepaid, to the following addresses:
If to the Executive, at the address set forth below the Executive's
signature at the end hereof.
If to the Company:
201 Clay Street
Oakland, CA 94607
Attn.: Joan Fujii
or to such other address as any party hereto may designate by notice given as
herein provided.
-6-
<PAGE>
11. Governing Law. This Employment Agreement shall be governed by and
-------------
construed and enforced in accordance with the internal substantive laws, and not
the choice of law rules of California.
12. Amendments. This Employment Agreement shall not be changed or
----------
modified in whole or in part except by an instrument in writing signed by each
party hereto.
13. Severability. The invalidity or unenforceability of any provision or
------------
provisions of this Agreement shall not affect the validity or enforceability of
any other provision hereof, which shall remain in full force and effect.
14. Successors.
----------
(a) Company's Successors. Any successor to the Company (whether direct or
--------------------
indirect and whether by purchase, lease, merger, consolidation, liquidation or
otherwise) to all or substantially all of the Company's business and/or assets
shall assume the obligations under this Agreement and agree expressly to perform
the obligations under this Agreement in the same manner and to the same extent
as the Company would be required to perform such obligations in the absence of a
succession. For all purposes under this Agreement, the term "Company" shall
include any successor to the Company's business and/or assets which executes and
delivers the assumption agreement described in this subsection (a) or which
becomes bound by the terms of this Agreement by operation of law.
(b) Executive's Successors. The terms of this Agreement and all rights of
----------------------
the Executive hereunder shall inure to the benefit of, and be enforceable by,
the Executive's personal or legal representatives, executors, administrators,
successor, heirs, distributees, devisees or legatees.
15. Entire Agreement. Except with respect to specific provisions of any
----------------
prior written agreement between the Executive and the Company relating to the
Executive's agreement not to compete with the Company or solicit the Company's
employees, this Agreement shall supersede and replace all prior agreements or
understandings relating to the subject matter hereof, and no agreement,
representations or understandings (whether oral or written or whether express or
implied) which are not expressly set forth in this Agreement have been made or
entered into by either party with respect to the relevant matter hereof.
16. Mediation. Executive and the Company agree that any dispute or
---------
controversy arising out of, relating to, or in connection with this Agreement,
or the interpretation, validity, construction, performance, breach or
termination thereof, shall first be submitted to mediation. The mediation shall
be conducted within 45 days of Executive notifying the Company of a dispute or
controversy regarding this Agreement or Executive's employment relationship with
the Company. Unless otherwise provided for by law, the Company and Executive
shall each pay half the costs and expenses of the mediation.
17. Arbitration.
-----------
-7-
<PAGE>
(a) In the event that mediation pursuant to Section 16 fails to resolve a
dispute or controversy, Executive and the Company agree that any dispute or
controversy arising out of, relating to, or in connection with this Agreement,
or the interpretation, validity, construction, performance, breach, or
termination thereof, shall be finally settled by binding arbitration to be held
in Oakland, California under the National Rules for the Resolution of Employment
Disputes supplemented by the Supplemental Procedures for Large Complex Disputes,
of the American Arbitration Association as then in effect (the "Rules"). The
parties shall be entitled to conduct discovery pursuant to the California Code
of Civil Procedure. The arbitrator may regulate the timing and sequence of such
discovery and shall decide any discovery disputes or controversies between the
Company. The arbitrator may grant injunctions or other relief in such dispute
or controversy. The decision of the arbitrator shall be final, conclusive and
binding on the parties to the arbitration. Judgment may be entered on the
arbitrator's decision in any court having jurisdiction.
(b) The arbitrator(s) shall apply California law to the merits of any
dispute or claim, without reference to rules of conflicts of law.
(c) Unless otherwise provided for by law, the Company and the Executive
shall each pay half of the costs and expenses of such arbitration.
(d) EXECUTIVE HAS READ AND UNDERSTANDS THIS SECTION, WHICH DISCUSSES
ARBITRATION. EXECUTIVE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT, EXECUTIVE
AGREES TO SUBMIT ANY CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH
THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE,
BREACH OR TERMINATION THEREOF TO BINDING ARBITRATION, AND THAT THIS ARBITRATION
CLAUSE CONSTITUTES a WAIVER OF EXECUTIVE'S RIGHT TO A JURY TRIAL AND RELATES TO
THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/EMPLOYEE
RELATIONSHIP.
18. Counterparts. This Employment Agreement may be executed in several
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
19. Effect of Headings. The section headings herein are for convenience
------------------
only and shall not affect the construction or interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the date first written above.
COST PLUS, INC.
By: /s/ Ralph D. Dillon
-----------------------------
-8-
<PAGE>
EXECUTIVE
/s/ Murray H. Dashe
-------------------------
(Signature)
Murray H. Dashe
-------------------------
Murray Dashe
-------------------------
(Print Address)
-------------------------
(Print Telephone Number)
-9-
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT, dated as of the 2nd day of February, 1997, by
and between Cost Plus, Inc., a California corporation (the "Company"), and Kathi
Lentzsch, the undersigned executive (the "Executive").
Recital
-------
The Company desires to retain the services of Executive, and Executive
desires to be employed by the Company, on the terms and subject to the
conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the foregoing recital and the
respective undertakings of the Company and Executive set forth below, the
Company and Executive agree as follows:
1. Employment.
----------
(a) Duties. The Company agrees to employ the Executive as Executive Vice
------
President, Merchandising/Marketing, and the Executive agrees to perform such
reasonable responsibilities and duties as may be required of her by the Company;
provided, however, that the Chief Executive Officer of the Company (the "CEO")
shall have the right to revise such responsibilities from time to time as the
CEO may deem appropriate. The Executive shall carry out her duties and
responsibilities hereunder in a diligent and competent manner and shall devote
her full business time, attention and energy thereto. Executive shall report
directly to the CEO.
(b) Employment At-Will. The Company and the Executive acknowledge and
------------------
agree that the Executive's employment is at-will, as defined and interpreted
under California law and may be terminated at any time, with or without cause.
No provision of this Agreement shall be construed as conferring upon Executive a
right to continue as an employee of the Company.
2. Compensation and Benefits.
-------------------------
(a) Base Compensation. The Company shall pay the Executive as compensation
-----------------
for her services a base salary at the annualized rate of $200,000. Such salary
shall be subject to applicable tax withholding and shall be paid in accordance
with normal Company payroll practices. The annual compensation specified in
this Section 2, together with any increases in such compensation that the
Company may, in its sole discretion, grant from time to time, is referred to in
this Agreement as "Base Compensation."
(b) Bonus. Executive shall be eligible for a bonus of up to 35% of
-----
Executive's Base Compensation upon achievement of financial and merchandising
goals as determined by the Company's Board of Directors. All bonuses shall be
paid in accordance with standard Company policies. The bonus period shall begin
with the Company's fiscal year beginning on or about February 1, 1997. The
Company will provide Executive with a written bonus plan within sixty (60) days
of the date of this Agreement.
<PAGE>
(c) Executive Benefits. Executive shall be eligible to participate in the
------------------
employee benefit plans which are available or which become available, in the
discretion of the Company, to other employees of the Company, subject in each
case to the generally applicable terms and conditions of the plan or program in
question and to the determination of any committee administering such plan or
program.
(d) Vacation. Executive shall be entitled to three weeks of vacation per
--------
year in accordance with the normal vacation policies of the Company; provided,
however, that beginning with the fourth year of Executive's employment with the
Company, Executive shall be entitled to four weeks of vacation per year in
accordance with the normal vacation policies of the Company.
(e) Stock Option. On the date hereof, the Company shall grant Executive an
------------
option (the "Option") to purchase 30,000 shares of the Company's Common Stock.
The per share exercise price for the Option shall be equal to the per share fair
market value of the Company's Common Stock on the date of grant, the Executive's
first date of employment. The term of the Option shall be ten (10) years and
the Option shall vest at a rate of 25% per year on the anniversary of the date
of this Agreement. In all other respects, the options shall conform to the
Company's standard policies with respect to options. Except as otherwise
provided herein, the Option shall be granted pursuant to, and shall be governed
by, the Company's 1995 Stock Option Plan and conform to the Company's standard
policies with respect to options.
3. Severance Payments.
------------------
(a) Payments upon Termination. If the Executive's employment terminates as
-------------------------
a result of Involuntary Termination other than Cause occurring prior to February
2, 1999 and the Executive signs a Release of Claims (the "Severance Event"),
then the Company shall pay Executive's Base Compensation to the Executive until
February 1, 1999 with each monthly installment payable on the last day of such
month.
(b) Stock Options. Upon the Severance Event, in addition to any payments
-------------
described in Section 3(a) above, Executive shall vest in and be able to
exercise, prior to Executive's termination of employment, any shares subject to
option which would have otherwise vested and become exercisable prior to or on
February 2, 1999 if not for the Involuntary Termination.
(c) Bonus. Executive shall not be entitled to receive any partial bonus
-----
payments for an incomplete bonus plan year; provided, however, that the CEO, in
his discretion, may award the Executive a bonus for a partial bonus plan year.
(d) Benefits; Miscellaneous. If the Employee is entitled to severance
-----------------------
benefits under Section 3(a), then in addition to such severance benefits, the
Employee shall receive health, dental, long term disability and life insurance
coverage as provided to the Employee immediately prior to the Termination Date.
Such coverage shall continue following termination until the earlier of (i)
February 1, 1999 or (ii) until (and to the extent) the Employee becomes covered
under another employer's group
-2-
<PAGE>
health, dental, long term disability or life insurance plan. In addition, (i)
the Company shall pay the Employee any unpaid base salary due for periods prior
to the Termination Date; (ii) the Company shall pay the Employee all of the
Employee's accrued and unused vacation through the Termination Date; and (iii)
following submission of proper expense reports by the Employee, the Company
shall reimburse the Employee for all expenses reasonably and necessarily
incurred by the Employee in connection with the business of the Company prior to
termination. These payments shall be made promptly upon termination and within
the period of time mandated by California law.
(e) Voluntary Resignation; Termination for Cause. If the Executive's
--------------------------------------------
employment terminates by reason of Executive's voluntary resignation, death,
disability, or if the Executive is terminated for Cause, the Executive shall not
be entitled to receive severance payments under this Section 3, except for those
severance payments (if any) as may then be established under the Company's
existing severance and benefit plans and policies at the time of such
termination.
(f) Death or Disability. If the Executive's employment terminates as a
-------------------
result of her death or disability, no compensation or payments will be made to
either the Executive or, in the case of death, Executive's beneficiary or
estate, other than those to which she is entitled under the Company's existing
benefit plans and policies at the time of such termination.
4. Covenant Not to Solicit.
-----------------------
(a) Until one year after termination of Executive's employment with the
Company for any reason, the Executive agrees that she shall not solicit, induce,
attempt to hire, recruit, encourage, take away, hire any employee of the Company
or cause an employee to leave their employment either for Executive or for any
other entity or person.
(b) The Executive represents that she (i) is familiar with the foregoing
covenant not to solicit, and (ii) is fully aware of her obligations hereunder,
including, without limitation, the reasonableness of the length of time, scope
and geographic coverage of this covenant.
5. Confidential Information.
------------------------
(a) Company Information. Executive agrees at all times during the term of
-------------------
Executive's employment and thereafter, to hold in strictest confidence, and not
to use, except for the benefit of the Company, or to disclose to any person,
firm or corporation without written authorization of the Board of Directors of
the Company, any Confidential Information of the Company. Executive understands
that "Confidential Information" means any Company proprietary information, trade
secrets or know-how, including, but not limited to, market research, product
plans, products, services, customer lists and customers (including, but not
limited to, customers of the Company on whom Executive will call), markets,
developments, marketing, finances or other business information disclosed to
Executive by the Company either directly or indirectly in writing, orally or by
drawings or observation of parts or equipment. Executive further understands
that Confidential Information does not include any of the foregoing items which
is based on either Executive's prior knowledge or the experience of the
Executive
-3-
<PAGE>
or has become publicly known and made generally available through no wrongful
act of Executive or of others who were under confidentiality obligations as to
the item or items involved.
(b) Third Party Information. Executive recognizes that the Company has
-----------------------
received and in the future will receive from third parties their confidential or
proprietary information subject to a duty on the Company's part to maintain the
confidentiality of such information and to use it only for certain limited
purposes. Executive agrees to hold all such confidential or proprietary
information in the strictest confidence and not to disclose it to any person,
firm or corporation or to use it except as necessary in carrying out Executive's
work for the Company consistent with the Company's agreement with such third
party.
6. Definitions. As used herein, the terms
-----------
(a) Cause. "Cause" means an Executive's (i) intentional failure to
-----
perform reasonably assigned duties where Executive has not "cured" such failure
within thirty (30) days after receipt of written notice of such failure by the
Company, (ii) dishonesty or willful misconduct in the performance of duties,
(iii) engaging in a transaction in connection with the performance of duties to
the Company or any of its Subsidiaries thereof which transaction is adverse to
the interests of the Company or any of its Subsidiaries and which is engaged in
for personal profit or (iv) willful violation of any law, rule or regulation in
connection with the performance of duties (other than traffic violations or
similar offenses).
(b) Involuntary Termination. "Involuntary Termination" shall mean:
-----------------------
(i) termination by the Company of Executive's employment with the Company
for any reason other than Cause (as defined in Section 6(a) above);
(ii) a material reduction in Executive's duties and responsibilities with
the Company or a demotion from the position of Executive Vice President,
Merchandising/Marketing;
(iii) a five percent reduction in Executive's Base Compensation (not
including bonus), other than any such reduction which is part of, and generally
consistent with, a general reduction of officer salaries;
(iv) a material reduction by the Company in the kind or level of employee
benefits (other than salary and bonus) to which Executive is entitled
immediately prior to such reduction with the result that Executive's overall
benefits package (other than salary and bonus) is substantially reduced (other
than any such reduction applicable to officers of the Company generally);
(v) any material breach by the Company of Section 2 of this Agreement which
continues uncured for 30 days following notice thereof;
provided that none of the foregoing shall constitute Involuntary Termination to
the extent Executive has agreed thereto.
-4-
<PAGE>
(c) Release of Claims. "Release of Claims" shall mean a waiver by
-----------------
Executive, in substantially the form attached as Exhibit A, of all employment
related obligations of and claims and causes of action against the Company.
7. Prior Agreements. Executive represents that Executive has not entered
----------------
into any agreements, understandings, or arrangements with any person or entity
which would be breached by Executive as a result of, or that would in any way
preclude or prohibit Executive from entering into this Agreement with the
Company or performing any of the duties and responsibilities provided for in
this Agreement.
8. Conflicting Employment. Executive agrees that, during the term of
----------------------
Executive's employment with the Company, Executive will not engage in any other
employment, occupation, consulting or other business activity directly related
to the business in which the Company is now involved or becomes involved during
the term of Executive's employment, nor will Executive engage in any other
activities that conflict with Executive's employment obligations to the Company
without the Company's prior written consent.
9. Returning Company Documents. Executive agrees that, at the time of
---------------------------
leaving the employ of the Company, Executive will deliver to the Company (and
will not keep in Executive's possession, recreate or deliver to anyone else) any
and all devices, records, data, notes, reports, proposals, lists,
correspondence, specifications, materials, equipment, other documents or
property, or reproductions of any aforementioned items developed by Executive
pursuant to Executive's employment with the Company or otherwise belonging to
the Company, its successors or assigns.
10. Notices. Any notice, report or other communication required or
-------
permitted to be given hereunder shall be in writing to both parties and shall be
deemed given on the date of delivery, if delivered, or three days after mailing,
if mailed first-class mail, postage prepaid, to the following addresses:
If to the Executive, at the address set forth below the Executive's
signature at the end hereof.
If to the Company:
201 Clay Street
Oakland, CA 94607
Attn: Joan Fujii
or to such other address as any party hereto may designate by notice given as
herein provided.
11. Governing Law. This Employment Agreement shall be governed by and
-------------
construed and enforced in accordance with the laws of the state of California.
-5-
<PAGE>
12. Amendments. This Employment Agreement shall not be changed or
----------
modified in whole or in part except by an instrument in writing signed by each
party hereto.
13. Severability. The invalidity or unenforceability of any provision or
------------
provisions of this Agreement shall not affect the validity or enforceability of
any other provision hereof, which shall remain in full force and effect.
14. Successors.
----------
(a) Company's Successors. Any successor to the Company (whether direct or
--------------------
indirect and whether by purchase, lease, merger, consolidation, liquidation or
otherwise) to all or substantially all of the Company's business and/or assets
shall assume the obligations under this Agreement and agree expressly to perform
the obligations under this Agreement in the same manner and to the same extent
as the Company would be required to perform such obligations in the absence of a
succession. For all purposes under this Agreement, the term "Company" shall
include any successor to the Company's business and/or assets which executes and
delivers the assumption agreement described in this subsection (a) or which
becomes bound by the terms of this Agreement by operation of law.
(b) Executive's Successors. The terms of this Agreement and all rights of
----------------------
the Executive hereunder shall inure to the benefit of, and be enforceable by,
the Executive's personal or legal representatives, executors, administrators,
successor, heirs, distributees, devisees or legatees.
15. Entire Agreement. This Agreement shall supersede and replace all
----------------
prior agreements or understandings relating to the subject matter hereof, and no
agreement, representations or understandings (whether oral or written or whether
express or implied) which are not expressly set forth in this Agreement have
been made or entered into by either party with respect to the relevant matter
hereof.
16. Mediation; Arbitration.
----------------------
(a) Mediation. The Executive agrees that any dispute or controversy
---------
arising out of, relating to, or in connection with this Agreement, or the
interpretation, validity, construction, performance, breach or termination
thereof, shall first be submitted to mediation. The mediation shall be
conducted within 45 days of Executive notifying the Company of a dispute or
controversy regarding this Agreement or Executive's employment relationship with
the Company. Unless otherwise provided for by law, the Company and Executive
shall each pay half the costs and expenses of the mediation.
(b) Arbitration. Executive agrees that any dispute or controversy arising
-----------
out of, relating to, or in connection with this Agreement, or the
interpretation, validity, construction, or breach thereof, shall be finally
settled by binding arbitration to be held in Oakland, California under the
National Rules for the Resolution of Employment Disputes supplemented by the
Supplemental Procedures for Large Complex Disputes, of the American Arbitration
Association as then in effect (the "Rules"). The arbitrator may grant
injunctions or other relief in such dispute or controversy. The decision of the
-6-
<PAGE>
arbitrator shall be final, conclusive and binding on the parties to the
arbitration. Judgment may be entered on the arbitrator's decision in any court
having jurisdiction.
(c) The arbitrator(s) shall apply California law to the merits of any
dispute or claim, without reference to rules of conflicts of law. The
arbitration proceedings shall be governed by California arbitration law and the
Rules.
(d) Unless otherwise provided for by law, the Company and the Executive
shall each pay half of the costs and expenses of such arbitration.
(e) EXECUTIVE HAS READ AND UNDERSTANDS THIS SECTION, WHICH DISCUSSES
ARBITRATION. EXECUTIVE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT, EXECUTIVE
AGREES TO SUBMIT ANY CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH
THIS EMPLOYMENT AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, OR
BREACH THEREOF TO BINDING ARBITRATION, AND THAT THIS ARBITRATION CLAUSE
CONSTITUTES A WAIVER OF EXECUTIVE'S RIGHT TO A JURY TRIAL AS TO THESE ISSUES
ONLY.
17. Counterparts. This Employment Agreement may be executed in several
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
18. Effect of Headings. The section headings herein are for convenience
------------------
only and shall not affect the construction or interpretation of this Agreement.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the date first written above.
COST PLUS, INC.
By: /s/ Ralph D. Dillon
--------------------------
EXECUTIVE
/s/ Kathi P. Lentzsch
---------------------
(Signature)
Kathi P. Lentzsch
---------------------
Kathi Lentzsch
---------------------
(Print Address)
---------------------
(Print Telephone Number)
-8-
<PAGE>
(EXHIBIT 10.6)
FOR IMMEDIATE RELEASE
- ---------------------
COST PLUS, INC. ANNOUNCES MANAGEMENT CHANGES;
MURRAY DASHE, VICE CHAIRMAN AND PRESIDENT;
PATRICIA SAUCY NAMED VICE PRESIDENT, FINANCE AND ACTING CFO
OAKLAND, CA -- September 3, 1997 -- Cost Plus, Inc. (Nasdaq:CPWM) announced
today several management changes, effective immediately. Murray H. Dashe, 55,
who joined Cost Plus in June 1997 as Vice Chairman, assumes the additional title
of President, and will continue to be responsible for the day-to-day operations
of the Company.
Patricia T. Saucy, 46, previously Vice President and Controller was
promoted to Vice President, Finance and Acting Chief Financial Officer.
Additionally, Charmaine D. Casella, 35, who served as Assistant Controller, was
promoted to Controller. These management changes were made following the
resignation of Alan E. Zimtbaum, who previously served as President, Chief
Operating Officer, Chief Financial Officer and Secretary.
"These changes will allow us to continue to implement our corporate
strategy," said Ralph D. Dillon, Chairman and Chief Executive Officer. "Our
operating and financial management depth is solid and we are poised to go
forward with this experienced management team. We wish Alan all the best in his
future endeavors and we thank him for his contributions to Cost Plus," stated
Dillon.
Saucy joined Cost Plus in January, 1991 as Vice President and Controller.
Prior to that, she served as Vice President and Controller for Crescent Jewelers
and as Assistant Controller for Ross Stores. Ms. Saucy received a B.S. degree in
Business Administration from California State University at Hayward and an
M.B.A. degree from St. Mary's College in Moraga, California and is a Certified
Public Accountant.
Casella served as Assistant Controller since February 1993 when she joined
Cost Plus. She was previously Corporate Accounting Manager for Nestle Food
Company and a Manager with the public accounting firm of Price Waterhouse LLP.
Ms. Casella received a B.S. degree in Accounting from the University of Arizona
and is a certified public accountant.
Cost Plus, Inc. is a leading retailer of casual home living and
entertaining products. The Company operates 65 stores under the name "Cost Plus
World Market" in 12 states.
CONTACT: Ralph D. Dillon Murray H. Dashe
Chairman and CEO Vice Chairman and President
(510) 893-7300 ext. 3002
<PAGE>
(Exhibit 11)
COST PLUS, INC.
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS, UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------- ------------------------------
AUGUST 2, AUGUST 3, AUGUST 2, AUGUST 3,
1997 1996 1997 1996
--------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
NET INCOME (LOSS) $ 187 $ (197) $ 294 $ (592)
========= ========== ========== ===========
Weighted average shares outstanding
during the period:
Common stock 8,153 8,067 8,129 7,354
Add incremental shares from assumed
exercise of stock options 410 444 360 379
--------- ---------- ---------- -----------
Weighted average common and common
equivalent shares outstanding 8,563 8,511 8,489 7,733
========= ========== ========== ===========
PRIMARY NET INCOME (LOSS)
PER SHARE $ .02 $ (.02) $ .03 $ (.08)
========= ========== ========== ===========
Weighted average shares outstanding
during the period:
Common Stock 8,153 8,067 8,129 7,354
Add incremental shares from assumed
exercise of stock options 436 444 452 424
--------- ---------- ---------- -----------
Weighted average common and common
equivalent shares outstanding 8,589 8,511 8,581 7,778
========= ========== ========== ===========
FULLY DILUTED NET INCOME
(LOSS) PER SHARE $ .02 $ (.02) $ .03 $ (.08)
========= ========== ========== ===========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Cost Plus, Inc. for the six months ended August 8, 1997
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> AUG-02-1997
<CASH> 786
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 50,557
<CURRENT-ASSETS> 53,952
<PP&E> 95,382
<DEPRECIATION> 33,923
<TOTAL-ASSETS> 123,682
<CURRENT-LIABILITIES> 28,992
<BONDS> 0
0
0
<COMMON> 82
<OTHER-SE> 74,226
<TOTAL-LIABILITY-AND-EQUITY> 123,682
<SALES> 95,819
<TOTAL-REVENUES> 95,819
<CGS> 62,364
<TOTAL-COSTS> 94,548
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 781
<INCOME-PRETAX> 490
<INCOME-TAX> 196
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 294
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
