<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 1, 1998
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)
200 4th 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, 201 Clay Street, Oakland, California
if changed since last report. 94607
</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
4, 1998 was 8,794,266.
<PAGE>
COST PLUS, INC.
FORM 10-Q
FOR THE QUARTER ENDED AUGUST 1, 1998
INDEX
PART I. FINANCIAL INFORMATION PAGE
ITEM 1. Condensed Consolidated Financial Statements
Balance Sheets (unaudited) as of August 1, 1998,
January 31, 1998 and August 2, 1997 3
Statements of Operations (unaudited)
for the three and six months ended
August 1, 1998 and August 2, 1997 4
Statements of Cash Flows (unaudited)
for the six months ended August 1, 1998
and August 2, 1997 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
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, UNAUDITED)
<TABLE>
<CAPTION>
AUGUST 1, JANUARY 31, AUGUST 2,
1998 1998 1997
---------------- ---------------- --------------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,998 $ 27,434 $ 786
Merchandise inventories 61,330 56,606 50,557
Other current assets 4,431 3,137 2,609
---------------- ---------------- --------------------
Total current assets 77,759 87,177 53,952
Property and equipment, net 54,023 53,539 61,459
Other assets 11,085 11,284 8,271
---------------- ---------------- --------------------
Total assets $ 142,867 $ 152,000 $ 123,682
================ ================ ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,024 $ 13,707 $ 10,943
Accrued compensation 5,454 7,132 5,927
Revolving line of credit -- -- 4,900
Other current liabilities 8,685 13,708 7,222
---------------- ---------------- --------------------
Total current liabilities 26,163 34,547 28,992
Capital lease obligations 15,401 15,692 13,980
Deferred income taxes 1,969 1,969 3,548
Other long-term obligations 4,953 4,183 2,854
Shareholders' equity:
Preferred stock, $.01 par value:
5,000,000 shares authorized; none
issued and outstanding -- -- --
Common stock, $.01 par value:
30,000,000 shares authorized;
issued and outstanding 8,784,738,
8,688,488 and 8,210,502 shares 88 87 82
Additional paid-in capital 101,927 103,553 91,970
Deficit (7,634) (8,031) (17,744)
---------------- ---------------- --------------------
Total shareholders' equity 94,381 95,609 74,308
---------------- ---------------- --------------------
Total liabilities and shareholders' equity $ 142,867 $ 152,000 $ 123,682
================ ================ ====================
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
COST PLUS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS, UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------------- ------------------------------------
AUGUST 1, AUGUST 2, AUGUST 1, AUGUST 2,
1998 1997 1998 1997
-------------- -------------- --------------- -----------------
<S> <C> <C> <C> <C>
Net sales $ 58,168 $ 47,287 $ 115,007 $ 95,819
Cost of sales and occupancy 38,079 30,558 75,851 62,364
-------------- -------------- --------------- -----------------
Gross profit 20,089 16,729 39,156 33,455
Selling, general and administrative
expenses 19,066 15,758 37,396 31,544
Store preopening expenses 598 200 678 640
-------------- -------------- --------------- -----------------
Income from operations 425 771 1,082 1,271
Net interest expense 254 460 432 781
-------------- -------------- --------------- -----------------
Income before income taxes 171 311 650 490
Provision for income taxes 66 124 253 196
-------------- -------------- --------------- -----------------
Net income $ 105 $ 187 $ 397 $ 294
============== ============== =============== =================
Net income per share
Basic $ 0.01 $ 0.02 $ 0.05 $ 0.04
Diluted $ 0.01 $ 0.02 $ 0.04 $ 0.03
Weighted average shares outstanding
Basic 8,762 8,153 8,720 8,129
Diluted 9,062 8,563 9,045 8,489
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
COST PLUS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------------------
AUGUST 1, AUGUST 2,
1998 1997
--------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 397 $ 294
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 4,402 3,874
Loss on disposal of property and equipment 29 31
Change in assets and liabilities:
Merchandise inventories (4,724) (7,952)
Other assets (1,436) (171)
Accounts payable (1,066) (3,147)
Income taxes payable (6,282) (6,095)
Other liabilities 307 (449)
--------------- --------------
Net cash used in operating activities (8,373) (13,615)
--------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (5,191) (5,494)
--------------- --------------
Net cash used in investing activities (5,191) (5,494)
--------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving line of credit -- 4,900
Principal payments on capital lease obligations (247) (208)
Proceeds from issuance of common stock, net of related costs 2,125 805
Cash used for common stock repurchases (3,750) --
--------------- --------------
Net cash (used in) provided by financing
activities (1,872) 5,497
--------------- --------------
Net decrease in cash and cash equivalents (15,436) (13,612)
Cash and cash equivalents:
Beginning of period 27,434 14,398
--------------- --------------
End of period $ 11,998 $ 786
=============== ==============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the period for interest $ 453 $ 764
=============== ==============
Cash paid during the period for taxes $ 7,195 $ 6,649
=============== ==============
</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 1, 1998 AND AUGUST 2, 1997
(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 only of normal recurring
accruals) necessary to present fairly the financial position at August 1, 1998
and August 2, 1997; the interim results of operations for the three and six
months ended August 1, 1998 and August 2, 1997; and changes in cash flows for
the six months then ended. The balance sheet at January 31, 1998, 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 January 31,
1998. 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 fiscal year ended January 31, 1998.
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 Standard -- Effective February 1, 1998, Cost Plus, Inc.
- ---------------------------------
adopted Statement of Financial Accounting Standards No. 130, "Reporting
---------
Comprehensive Income." This Statement requires that all items recognized under
- --------------------
accounting standards as components of comprehensive income be reported in an
annual financial statement that is displayed with the same prominence as other
annual financial statements. This Statement also requires that an entity
classify items of other comprehensive income by their nature in an annual
financial statement. For example, other comprehensive income may include
foreign currency translation adjustments, minimum pension liability adjustments,
and unrealized gains and losses on marketable securities classified as
available-for-sale. Comprehensive income does not differ from net income for
the Company for the three and six months ended August 1, 1998 and August 2,
1997.
2. REVOLVING LINE OF CREDIT AGREEMENT
On May 7, 1996, the Company entered into a revolving line of credit agreement
with a bank, 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 1, 1998) 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
customary with such agreements. At August 1, 1998, the Company had no
outstanding borrowings under the line of credit and $1.5 million outstanding
under letters of credit.
6
<PAGE>
COST PLUS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
3. RECONCILIATION OF BASIC SHARES TO DILUTED SHARES
The following is a reconciliation of the weighted average number of shares (in
thousands) used in the Company's basic and diluted per share computations.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------- ---------------------------------
August 1, August 2, August 1, August 2,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Basic shares 8,762 8,153 8,720 8.129
Effect of dilutive stock options 300 410 325 360
------------- ------------- ------------- -------------
Diluted shares 9,062 8,563 9,045 8,489
============= ============= ============= =============
</TABLE>
4. STOCK OPTION PLANS
In June 1998, the Company amended its 1995 Stock Option Plan to increase the
number of shares available for grant by 250,000 to a total of 1,674,669 shares,
less the aggregate number of shares issued or subject to options outstanding
under the 1994 Stock Option Plan.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
AN ASTERISK ("*") DENOTES A FORWARD-LOOKING STATEMENT REFLECTING CURRENT
EXPECTATIONS THAT INVOLVE RISKS AND UNCERTAINTIES. ACTUAL RESULTS MAY DIFFER
FROM THOSE DISCUSSED IN SUCH FORWARD-LOOKING STATEMENTS, AND SHAREHOLDERS OF
COST PLUS, INC. (THE "COMPANY" OR "COST PLUS") SHOULD CAREFULLY REVIEW THE
CAUTIONARY STATEMENTS SET FORTH IN THIS FORM 10-Q, INCLUDING, "FACTORS THAT MAY
AFFECT FUTURE RESULTS" BEGINNING ON PAGE 9 HEREOF. THE COMPANY MAY FROM TIME TO
TIME MAKE ADDITIONAL WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS, INCLUDING
STATEMENTS CONTAINED IN THE COMPANY'S FILINGS WITH THE SECURITIES AND EXCHANGE
COMMISSION AND IN ITS REPORTS TO SHAREHOLDERS. THE COMPANY DOES NOT UNDERTAKE
TO UPDATE ANY FORWARD-LOOKING STATEMENT THAT MAY BE MADE FROM TIME TO TIME BY OR
ON BEHALF OF THE COMPANY.
RESULTS OF OPERATIONS
THE THREE MONTHS (SECOND QUARTER) AND SIX MONTHS (YEAR-TO-DATE) ENDED AUGUST 1,
1998 AS COMPARED TO THE THREE MONTHS (SECOND QUARTER) AND SIX MONTHS (YEAR-TO-
DATE) ENDED AUGUST 2, 1997.
NET SALES. Net sales increased $10.9 million, or 23.0%, to $58.2 million in the
- ---------
second quarter of fiscal 1998 from $47.3 million in the second quarter of fiscal
1997. Year-to-date, net sales were $115.0 million compared to $95.8 million for
the same period of fiscal 1997, an increase of $19.2 million, or 20.0%. The
increase in net sales, for the three and six months of fiscal 1998, was
attributable to new stores and an increase in comparable store sales.
Comparable stores sales rose 6.9% in the second quarter and 6.5% in the six
months, primarily as a result of a larger average transaction size. As of
August 1, 1998, the Company operated 74 stores compared to 60 stores as of
August 2, 1997. New and non-comparable stores contributed approximately $7.7
million of the second quarter increase and $14.2 million of the year-to-date
increase in net sales.
GROSS PROFIT. As a percentage of net sales, gross profit was 34.5% in the
- ------------
second quarter of fiscal 1998 compared to 35.4% in the second quarter of fiscal
1997. Year-to-date, gross profit, as a percentage of net sales, was 34.0% this
year compared with 34.9% last year. The decrease in gross profit rate resulted
from higher occupancy costs in new stores, partially offset by an improvement in
initial markon. 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 32.8% in the second quarter of fiscal
1998, from 33.3% in the second quarter of fiscal 1997. Year-to-date, SG&A
expenses decreased to 32.5% in the current fiscal year from 32.9% last year.
The decrease in SG&A expenses, as a percentage of net sales, resulted primarily
from the leveraging of store and corporate payroll expenses.
STORE PREOPENING EXPENSES. Store preopening expenses, which include grand
- -------------------------
opening advertising and preopening merchandise setup expenses, were higher in
the second quarter and first half of fiscal 1998 compared with the second
quarter and first half of fiscal 1997, primarily as a result of the timing of
store openings. Expenses are generally incurred in both the fiscal month
prior to and the fiscal 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. The
Company opened three stores in the second quarter of fiscal 1998 compared to
none in the prior year's second quarter. Year-to-date, the Company opened four
stores in fiscal 1998 compared to two in the prior year.
NET INTEREST EXPENSE. Net interest expense, which includes capital lease
- --------------------
interest and interest expense net of interest income, was $254,000 in the second
quarter of fiscal 1998 and $460,000 in the second quarter of fiscal 1997. For
the six months, interest expense was $432,000 in fiscal 1998 compared to
$781,000 in fiscal 1997. This decrease in expense resulted from higher interest
income and lower borrowings due to cash generated from the sale of the Company's
San Francisco property and the leaseback of its store facility in September 1997
and to proceeds from a secondary offering of common stock in October 1997.
8
<PAGE>
PROVISION FOR INCOME TAXES. The Company's effective tax rate was reduced to
- --------------------------
39.0% in fiscal 1998 from 40.0% in fiscal 1997, primarily as a result of the
Company's expansion into states with lower tax rates.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's business is highly seasonal, reflecting the general pattern
associated with 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 disproportionate percentage of the
Company's net sales and most of its net income for the entire fiscal year. 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.
The Company generally experiences lower sales and earnings during the first
three quarters and, as is typical in the retail industry, has incurred and may
continue to incur losses in these quarters. The results of operations for these
interim periods are not necessarily indicative of the results for the full
fiscal year. 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 also fluctuate based upon such
factors as the number and timing of store openings and related store preopening
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, competitive factors and general economic
conditions.
As is the case with most companies using computers in their operation, the
Company is in the process of addressing the Year 2000 Compliance issue. The
Company is currently engaged in a comprehensive project to assess and, if
necessary, modify its hardware and computer software applications to identify
and resolve the Year 2000 problems. A portion of the required modifications is
being addressed in conjunction with normal implementation and development of new
systems. An assessment of the readiness of external entities with which the
Company interfaces, such as vendors, customers, payment systems and others, is
ongoing. The development of contingency plans, based on the Company's assessment
of external entities' readiness, is ongoing and will continue into calendar
1999. Management expects to have substantially all of the systems and
application changes completed by the end of the first quarter of 1999 and
believes that its level of preparedness is appropriate.* Internal and external
resources are being used to address issues, effect any required modifications
and test compliance. The incremental costs to the Company of these Year 2000
Compliance activities is not expected to be material.* A portion of these costs
will be met from existing resources, with the remainder representing incremental
costs which will be expensed as incurred.
There can be no assurance that the systems of other companies on which the
Company's systems rely will be converted in a timely fashion, or that any such
failure to convert by another company would not have an adverse effect on the
Company's systems. Furthermore, no assurance can be given that any or all of the
Company's systems are or will be Year 2000 compliant, or that the ultimate costs
required to address the Year 2000 issue or the impact of any failure to achieve
substantial Year 2000 compliance will not have a material adverse effect on the
Company's financial condition.
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 from internally generated funds
and borrowings under the Company's credit facilities. The Company believes that
its cash and cash equivalents, internally generated funds and available
borrowings under its revolving line of credit will be sufficient to finance its
working capital and capital expenditures requirements for the next 12 months.*
9
<PAGE>
Net cash used in operating activities in the first half of fiscal 1998 totaled
$8.4 million, a decrease of $5.2 million over the comparable period of the prior
fiscal year. Lower inventory purchases were required in the first half of
fiscal 1998 compared to the first half of fiscal 1997 due to a better in-stock
position at the beginning of fiscal 1998. At August 1, 1998, average inventory
levels per store was consistent with the prior year.
Net cash used in investing activities, primarily for new stores, totaled $5.2
million for the first half of fiscal 1998 compared to $5.5 million in the
comparable period of the prior fiscal year. The Company estimates that capital
expenditures will approximate $13.7 million in fiscal 1998.*
Net cash used in financing activities was $1.9 million in the first half of
fiscal 1998, primarily as a result of the repurchase of 150,001 shares of common
stock for $3.8 million from the Company's retiring Chief Executive Officer,
which was partially offset by stock issued under the Company's stock option and
stock purchase plans. Net cash provided by financing activities in fiscal 1997
was $5.5 million including $4.9 million in net borrowings under the Company's
revolving credit line.
On May 7, 1996, the Company entered into a revolving line of credit agreement
with a bank, 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 1, 1998) 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
customary with such agreements. At August 1, 1998, the Company had no
outstanding borrowings under the line of credit and $1.5 million outstanding
under letters of credit.
IMPACT OF NEW ACCOUNTING STANDARD
Effective February 1, 1998, Cost Plus, Inc. adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This Statement
------------------------------
requires that all items recognized under accounting standards as components of
comprehensive income be reported in an annual financial statement that is
displayed with the same prominence as other annual financial statements. This
Statement also requires that an entity classify items of other comprehensive
income by their nature in an annual financial statement. For example, other
comprehensive income may include foreign currency translation adjustments,
minimum pension liability adjustments, and unrealized gains and losses on
marketable securities classified as available-for-sale. Comprehensive income
does not differ from net income for the Company for the three and six months
ended August 1, 1998 and August 2, 1997.
10
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's 1998 Annual Meeting of Shareholders held on June 18, 1998, the
shareholders voted on the following proposals:
PROPOSAL 1. To 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 250,000
shares.
PROPOSAL 3. To ratify and approve the appointment of Deloitte & Touche LLP as
independent auditors of the Company for the fiscal year ending
January 30, 1999.
1998 ANNUAL MEETING ELECTION RESULTS
PROPOSAL 1 - ELECTION OF DIRECTORS
<TABLE>
<CAPTION>
Name FOR WITHHELD
---- --- --------
<S> <C> <C>
Murray H. Dashe 7,580,828 645
Ralph D. Dillon 7,580,526 947
Joseph H. Coulombe 7,580,826 647
Danny W. Gurr 7,580,793 680
Edward A. Mule 7,570,828 10,645
Olivier L. Trouveroy 7,570,828 10,645
Thomas D. Willardson 7,580,828 645
</TABLE>
PROPOSAL 2 AND 3
<TABLE>
<CAPTION>
BROKER
Proposal FOR AGAINST ABSTAIN NON-VOTES
- -------- --- ------- ------- ---------
<S> <C> <C> <C> <C>
Amendment to the 1995 6,346,039 1,223,199 556 11,679
Stock Option Plan
Appointment of Deloitte & 7,567,106 13,215 1,152 0
Touche LLP
</TABLE>
11
<PAGE>
ITEM 5. OTHER INFORMATION
Nancy J. Pedot joined the Company's Board of Directors in June of 1998,
replacing Mervin G. Morris who retired. Ms. Pedot served as President and Chief
Executive Officer of Gymboree, a specialty retailer of better children's
apparel, until February 1997. Ms. Pedot currently serves on the board of
directors of several national and community organizations.
The Company's press release of June 29, 1998 is attached as Exhibit 10.2, which
is incorporated by reference herein.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 1995 Stock Option Plan, as amended.
10.2 Press release of June 29, 1998 naming Nancy J. Pedot to the
Company's Board of Directors.
10.3 Preferred Shares Rights Agreement, dated as of June 30, 1998
between Cost Plus, Inc. and BankBoston, N.A., including the
Certificate of Determination, the form of Rights Certificate and
the Summary of Rights, incorporated by reference to Exhibit 1 to
the Form 8-A filed on July 27, 1998.
10.4 Employment Agreement, dated May 6, 1998, between the Company and
John F. Hoffner.
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>
SIGNATURE
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/ John F. Hoffner
-------------------------------------------
Date: September 11, 1998 By: John F. Hoffner
Executive Vice President, Administration
Chief Financial Officer
13
<PAGE>
EXHIBIT 10.1
COST PLUS, INC.
1995 STOCK OPTION PLAN
(Adopted November 1, 1995)
(Amended October 15, 1996)
(Amended July 23, 1996)
(Amended April 21, 1997)
(Amended February 12, 1998)
(Amended June 18, 1998)
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
<PAGE>
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).
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 "Change of Control" means the occurrence of any of the following
events:
(i) The acquisition by any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act) (other than the Company or a
person that directly or indirectly controls, is controlled by, or is under
common control with, the Company) of the "beneficial ownership" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing fifty percent (50%) or more of the total voting power
represented by the Company's then outstanding voting securities;
(ii) A change in the composition of the Board of Directors of
the Company occurring within a two-year period, as a result of which fewer
than a majority of the directors are Incumbent Directors. "Incumbent
Directors" shall mean directors who either (A) are directors of the Company as
of the date hereof, or (B) are elected, or nominated for election, to the
Board of Directors of the Company with the affirmative votes of at least a
majority of the Incumbent Directors at the time of such election or nomination
(but shall not include an individual not otherwise an Incumbent Director whose
election or nomination is in connection with an actual or threatened proxy
contest relating to the election of directors to the Company);
(iii) A merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least fifty percent (50%) of
the total voting power represented by the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or the approval by the stockholders of the Company of a plan of
complete liquidation of the Company or of an agreement for the sale or
disposition by the Company of all or substantially all the Company's assets;
(iv) The sale of all or substantially all of the assets of the
Company determined on a consolidated basis; or
(v) The complete liquidation or dissolution of the Company.
2.7 "Code" means the Internal Revenue Code of 1986, as amended.
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2.8 "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.
2.9 "Company" means Cost Plus, Inc., a California corporation.
2.10 "Controlling Shareholders" means Internationale Nederlanden
(U.S.) Capital Corporation and Pearl Street L.P., collectively.
2.11 "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.
2.12 "Eligible Individual" means any director, officer or employee of
the Company or a Subsidiary, or any consultant or advisor.
2.13 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
2.14 "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.
2.15 "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.
2.16 "Grant Date" means with respect to each Option, the Grant Date as
defined in the applicable Agreement.
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2.17 "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.
2.18 "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.
2.19 "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").
2.20 "Nonqualified Stock Option" means an Option which is not an
Incentive Stock Option.
2.21 "Option" means an option to purchase Shares granted pursuant to
the Plan.
2.22 "Optionee" means a person to whom an Option has been granted
under the Plan.
2.23 "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.
2.24 "Own" or any derivation thereof means beneficial ownership as
defined in Rule 13d-3 promulgated under the Exchange Act.
2.25 "Parent" means any corporation which is a parent corporation
(within the meaning of Section 424(e) of the Code) with respect to the Company.
2.26 "Per Share Option Price" means, with respect to each Option, the
per share exercise price with respect to such Option.
2.27 "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.
2.28 "Plan" means this Cost Plus, Inc. 1995 Stock Option Plan.
2.29 "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.
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<PAGE>
2.30 "Pooling Transaction" means an acquisition of the Company in a
transaction which is treated as a "pooling of interests" under generally
accepted accounting principles.
2.31 "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:
(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.
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<PAGE>
(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 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;
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<PAGE>
(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 1,674,669 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 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,1,674,669 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.
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<PAGE>
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 Change of Control), 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:
(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
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<PAGE>
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.
(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.
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<PAGE>
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 Change of Control.
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 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
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<PAGE>
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 Change of Control.
-----------------
(a) In the event of a Change of Control, each outstanding
Option shall become fully (100%) vested and exercisable. In addition, at the
election of the Company the following shall occur:
(A) (i) each Option shall be deemed to have been exercised
to the extent it had not been exercised prior to that date, (ii) 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 (iii) 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
Change of Control, reduced by the Per Share Option Price, or
(B) immediately after each outstanding Option has become
fully (100%) vested it shall 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 consideration that each
holder of a Share was entitled to receive in connection with the Change of
Control, reduced by the Per Share Option Price, or
(C) in the event of a Change of Control 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.
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<PAGE>
(b) Any sale of Shares by any Optionee in any Change of Control 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.
(c) 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.
(d) With respect to Incentive Stock Options granted prior to February
12, 1998, in the event of a Change of Control as described in Sections 2.6
(iii), (iv) and (v), 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.)
(e) With respect to Incentive Stock Options granted prior to February
12, 1998, in any case, in the event of a Change of Control as described in
Sections 2.6(iii), (iv) and (v) (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 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
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<PAGE>
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.
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 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.
-13-
<PAGE>
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
arrangements 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;
(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
-14-
<PAGE>
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.
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
-15-
<PAGE>
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 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>
EXHIBIT 10.2
[LETTERHEAD OF COST PLUS]
FOR IMMEDIATE RELEASE
- ---------------------
COST PLUS, INC. NAMES NANCY J. PEDOT
TO ITS BOARD OF DIRECTORS
Oakland, CA - June 29, 1998 - Cost Plus, Inc. (NASDAQ:CPWM) announced today
that Nancy J. Pedot has joined the Cost Plus Board of Directors, replacing
Mervin G. Morris who has retired. Ms. Pedot brings with her extensive retailing
experience.
"We are delighted to have Nancy join the board, and look forward to her
perspective as a merchant and international retailer," said Murray Dashe,
Chairman, Chief Executive Officer and President of Cost Plus.
"I am pleased to be on the Board of Directors of Cost Plus," said Nancy
Pedot. "It will be great to be a part of this dynamic company's continued
growth," she added.
Ms. Pedot served as President and Chief Executive Officer of Gymboree, a
specialty retailer of better children's apparel, until February of 1997. During
her tenure, Gymboree expanded from 33 stores in the U.S. to over 360 stores
internationally. She left Gymboree to spend more time with her family and
currently serves on the board of directors of several national and community
organizations.
Mr. Morris served Cost Plus as a director for three years during a critical
period in its growth. Chairman Murray Dashe noted, "We will miss Merv's wise
counsel and vast experience, but he has truly earned an enjoyable retirement."
Cost Plus, Inc. is a leading specialty retailer of casual home living and
entertaining products. The Company operates 73 stores under the name "Cost Plus
World Market" in 13 states.
Contact: Murray Dashe
Chairman, CEO and President
(510) 893-7300 ext. 3002
<PAGE>
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement, dated as of the 6th day of May, 1998, by and
between Cost Plus, Inc., a California corporation (the "Company"), and John
Hoffner, 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, Chief Administrative Officer, and Chief Financial Officer, 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.
(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 $220,000.
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."
<PAGE>
(b) Bonus. Executive shall be eligible for a bonus of up to 35% 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 the Company's 1998 fiscal year and
the 1998 fiscal year bonus shall be payable in April, 1999 and based on
Executive's 1998 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 35,000 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.
(f) Relocation Expenses. The Company shall reimburse Executive for
-------------------
Executive's relocation expenses in accordance with the Company's "Director and
Above Relocation Policy." In the event Executive voluntarily resigns from his
employment with the Company prior to the first anniversary of his employment,
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 two (2) years from a date no later than June 15, 1998, 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 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
<PAGE>
plans).
(c) Stock Options; Bonus. Executives 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.
(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
<PAGE>
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 his (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 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;
(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
<PAGE>
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 reduction in Executive's Base Compensation (not
including bonus) other than such reduction which is part of, and generally
consistent with, a general reduction of officer salaries;
(iii) A reduction by the Company in the kind or level of
employee benefits (other that 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;
(v) A reduction in the Executive's scope of responsibilities
(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
<PAGE>
into his 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.
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.
<PAGE>
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 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.
-----------
(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
<PAGE>
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.
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case
of the Company by its duly authorized officer, as of the day and year first
above written.
COMPANY: COST PLUS, INC.
/s/ MURRAY H. DASHE
--------------------------------
By
CHAIRMAN, CEO, AND PRESIDENT
--------------------------------
Title
EXECUTIVE: /s/ JOHN F. HOFFNER 5/6/98
--------------------------------
JOHN HOFFNER
<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 1, 1998
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-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> AUG-01-1998
<CASH> 11,998
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 61,330
<CURRENT-ASSETS> 77,759
<PP&E> 94,862
<DEPRECIATION> 40,839
<TOTAL-ASSETS> 142,867
<CURRENT-LIABILITIES> 26,163
<BONDS> 0
0
0
<COMMON> 88
<OTHER-SE> 94,293
<TOTAL-LIABILITY-AND-EQUITY> 142,867
<SALES> 115,007
<TOTAL-REVENUES> 115,007
<CGS> 75,851
<TOTAL-COSTS> 113,925
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 432
<INCOME-PRETAX> 650
<INCOME-TAX> 253
<INCOME-CONTINUING> 397
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 397
<EPS-PRIMARY> .05
<EPS-DILUTED> .04
</TABLE>
