<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF
1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_]Preliminary Proxy Statement [_CONFIDENTIAL,]FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X]Definitive Proxy Statement
[_]Definitive Additional Materials
[_]Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
COST PLUS, INC.
-----------------------------------------------------
(Name of Registrant as Specified In Its Charter)
-----------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X]No fee required.
[_]Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_]Fee paid previously with preliminary materials.
[_]Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notes:
<PAGE>
COST PLUS, INC.
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 18, 1998
To The Shareholders:
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Shareholders of Cost
Plus, Inc. (the "Company"), a California corporation, will be held on June 18,
1998 at 2:00 p.m., local time, at the Waterfront Plaza Hotel located at 10
Washington Street, Oakland, California 94607, for the following purposes:
1. To elect the following directors to serve for the ensuing year and until
their successors are elected: Murray H. Dashe, Ralph D. Dillon, Joseph
H. Coulombe, Danny W. Gurr, Edward A. Mule, Olivier L. Trouveroy and
Thomas D. Willardson.
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.
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.
4. To transact such other business as may properly come before the Annual
Meeting and any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record at the close of business on April 29, 1998 are
entitled to notice of and to vote at the Annual Meeting.
All shareholders are cordially invited to attend the Annual Meeting in
person. However, to assure your representation at the Annual Meeting, you are
urged to mark, sign and return the enclosed proxy card as promptly as possible
in the postage-prepaid envelope enclosed for that purpose. Any shareholder
attending the Annual Meeting may vote in person even if he or she returned a
proxy.
By Order of the Board of Directors
Murray H. Dashe
Chairman of the Board, Chief
Executive
Officer and President
Oakland, California
May 18, 1998
YOUR VOTE IS IMPORTANT
TO ASSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, YOU ARE REQUESTED TO
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE AND
RETURN IT IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN
THE UNITED STATES.
<PAGE>
WATERFRONT PLAZA HOTEL
JACK LONDON SQUARE
TEN WASHINGTON STREET
OAKLAND, CA 94607
510.836.3800
800.729.3638
[MAP TO WATERFRONT PLAZA HOTEL]
DIRECTIONS FROM SAN FRANCISCO
Take the Bay Bridge to Interstate 580 East, Interstate 980 (Downtown Oakland),
to 11th/12th Street exit, straight on Brush, left on 5th Street, right on
Washington, four blocks to Waterfront Plaza Hotel. Go straight until road
deadends past the water fountain.
FROM OAKLAND AIRPORT (AND FROM THE SOUTH)
Take Interstate 880 North, to Broadway exit, left on Washington, four blocks
to Waterfront Plaza Hotel. Go straight until road deadends past the water
fountain.
PARKING
Washington Street garage (corner of Washington and Second) or valet parking at
the hotel.
<PAGE>
COST PLUS, INC.
ANNUAL MEETING OF SHAREHOLDERS
----------------
PROXY STATEMENT
----------------
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of Cost
Plus, Inc. (the "Company") for use at the 1998 Annual Meeting of Shareholders
to be held June 18, 1998 at 2:00 p.m., local time, or at any adjournment or
postponement thereof, for the purposes set forth in this Proxy Statement and
in the accompanying Notice of Annual Meeting of Shareholders. The Annual
Meeting will be held at the Waterfront Plaza Hotel located at 10 Washington
Street, Oakland, California 94607. The telephone number of the Waterfront
Plaza Hotel is (510) 836-3800.
These proxy solicitation materials were mailed on or about May 18, 1998 to
all shareholders entitled to vote at the Annual Meeting.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Company, Attention:
Charmaine Casella, Inspector of Elections, a written notice of revocation or a
duly executed proxy bearing a later date or by attending the Annual Meeting
and voting in person. The mere presence at the Annual Meeting of the
shareholder who has appointed a proxy will not revoke the prior appointment.
If not revoked, the proxy will be voted at the Annual Meeting in accordance
with the instructions indicated on the proxy card, or if no instructions are
indicated, will be voted "FOR" the slate of directors described herein, "FOR"
Proposals Two and Three, and, as to any other matter that may be properly
brought before the Annual Meeting, in accordance with the judgment of the
proxy holders.
VOTING AND SOLICITATION
Every shareholder voting for the election of directors may cumulate such
shareholder's votes and either give one candidate a number of votes equal to
the number of directors to be elected multiplied by the number of shares held
by such shareholder or distribute the shareholder's votes on the same
principle among as many candidates as the shareholder thinks fit, provided
that votes cannot be cast for more than seven candidates. However, no
shareholder shall be entitled to cumulate votes unless the candidate's name
has been placed in nomination before the voting and the shareholder, or any
other shareholder, has given notice at the Annual Meeting, prior to the
voting, of the intention to cumulate the shareholder's votes. If any one
shareholder gives such notice, all shareholders may cumulate their votes. On
all other matters, each share has one vote.
The seven nominees receiving the highest number of affirmative votes of the
shares present or represented and entitled to vote shall be elected as
directors. On each other matter, the affirmative vote of a majority of the
votes cast is required under California law for approval. For this purpose,
the "votes cast" are defined under California law to be the shares of the
Company's Common Stock represented and voting in person or by proxy at the
Annual Meeting. In addition, the affirmative votes must constitute at least a
majority of the required quorum, which quorum is a majority of the shares
outstanding on the record date for the meeting. Votes that are cast against a
proposal will be counted for purposes of determining: (i) the presence or
absence of a quorum, and (ii) the total number of votes cast with respect to
the proposal. While there is no definitive statutory or case law authority in
California as to the proper treatment of abstentions in the counting of votes
with respect to a proposal, the Company believes that abstentions should be
counted for purposes of determining both: (i) the presence or absence of a
quorum for the transaction of business; and (ii) the total number of votes
cast with respect to the proposal. In the absence of controlling precedent to
the contrary, the Company intends to treat abstentions in this manner.
Accordingly, abstentions will have the same effect as a vote against the
proposal.
<PAGE>
Broker non-votes will be counted for purposes of determining the presence or
absence of a quorum for the transaction of business, but will not be counted
for purposes of determining the number of votes cast with respect to a
proposal. An automated system administered by the Company's transfer agent
tabulates the votes. Each proposal is tabulated separately.
This solicitation of proxies is made by the Company, and all related costs
will be borne by the Company. In addition, the Company may reimburse brokerage
firms and other persons representing beneficial owners of shares for their
expenses in forwarding solicitation material to such beneficial owners.
Original solicitation of proxies by mail may be supplemented by telephone,
facsimile or personal solicitation, without payment of additional
compensation, by directors, officers, or regular employees of the Company.
Only shareholders of record at the close of business on April 29, 1998 are
entitled to notice of and to vote at the Annual Meeting. As of April 29, 1998,
8,730,568 shares of the Company's Common Stock were issued and outstanding.
PROPOSAL ONE
ELECTION OF DIRECTORS
NOMINEES
The Board of Directors of the Company currently consists of eight directors.
One of those directors, Mervin G. Morris, has indicated that he will not be
standing for re-election. The Board of Directors, therefore, has approved an
amendment to the Company's By-Laws which, effective immediately prior to the
Annual Meeting, reduces the number of directors to seven. A board of seven
directors is to be elected at the Annual Meeting. Unless otherwise instructed,
the proxy holders will vote the proxies received by them for the Company's
seven nominees named below, all of whom are presently directors of the
Company. If any nominee of the Company is unable or declines to serve as a
director at the time of the Annual Meeting, the proxies will be voted for any
nominee designated by the present Board of Directors to fill the vacancy.
Management has no reason to believe that any of the nominees will be unable or
unwilling to serve if elected. If additional persons are nominated for
election as directors, the proxy holders intend to vote all proxies received
by them so that the election of as many of the nominees listed below as
possible is assured under cumulative voting. In this event, the specific
nominees to be voted for will be determined by the proxy holders. The term of
office of each person elected as a director will continue until the next
Annual Meeting of Shareholders or until his successor has been elected and
qualified.
REQUIRED VOTE
The seven nominees receiving the highest number of affirmative votes of the
holders of the shares of the Company's Common Stock represented in person or
by proxy and entitled to vote on the proposal shall be elected to the Board of
Directors. See "Voting and Solicitation" above.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES LISTED BELOW.
2
<PAGE>
The names of the nominees, their ages as of the date of this proxy statement
and certain information about them are set forth below:
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
--------------- --- -------------------- --------
<C> <C> <S> <C>
Murray H. Dashe............. 55 Chairman, Chief Executive Officer 1997
and President
Ralph D. Dillon............. 57 Chairman Emeritus 1990
Joseph H. Coulombe.......... 67 Independent Management Consultant 1995
Danny W. Gurr............... 40 Acting President, Dorling 1995
Kindersley Publishing Inc.
Edward A. Mule.............. 35 Managing Director, Goldman, Sachs 1995
& Co.
Olivier L. Trouveroy........ 43 Managing Partner, ING Equity 1995
Partners, LP I
Thomas D. Willardson........ 47 Vice President and Associate 1991
Managing Director of Bechtel
Enterprises Inc.
</TABLE>
Except as set forth below, each of the nominees has been engaged in his
principal occupation described above during the past five years. There is no
family relationship between any director or executive officer of the Company.
Mr. Dashe joined the Company in June 1997 as Vice Chairman of the Board of
Directors and was named President in September 1997, and Chairman of the Board
of Directors and Chief Executive Officer in February 1998. From August 1992 to
June 1997, he was Chief Operating Officer of Leslie's Poolmart, Inc., a
swimming pool supply retail chain, and was a director of that company from
August 1989 to November 1996. From May 1990 through August 1992, he was
President and Chief Executive Officer of RogerSound Labs, a Southern
California retailer of audio/video consumer electronics. From September 1985
through April 1990, Mr. Dashe held several positions with SILO, a consumer
electronics and appliance retailer, including Regional President, Regional
Vice President and Director of Stores. Previously, he was employed in an
executive capacity by other retailers, including Allied Stores Corp. (now
Federated Department Stores), where he served in a variety of positions of
increasing responsibility, including Vice President/Director of Stores.
Mr. Dillon has served as Chairman Emeritus of the Board of Directors and an
employee of the Company since February 1998, when he relinquished his
positions as Chairman of the Board of Directors and Chief Executive Officer.
Mr. Dillon had served as Chairman of the Board of Directors and Chief
Executive Officer of the Company since August 1995. Prior to August 1995, Mr.
Dillon served as President and Chief Executive Officer since joining the
Company in September 1990. From August 1987 to August 1990, Mr. Dillon served
as President, Chief Operating Officer and a member of the Board of Directors
of Family Dollar Stores, Inc., a discount retail chain. From 1985 to 1987, he
was President and Chief Operating Officer of Coast America Corporation, a
hardware store chain. From 1982 to 1984, he served as President and Chief
Executive Officer of Bowater Home Center, Inc., a chain of home improvement
stores.
Mr. Coulombe has served as a director of the Company since October 1995.
From February 1995 to April 1995, Mr. Coulombe served as President and Chief
Executive Officer of Sport Chalet Inc., a sporting goods retailer. From
February 1994 to January 1995, Mr. Coulombe served as Chief Executive Officer
of Provigo Corp., a wholesale and retail grocer. From November 1992 to
February 1994, Mr. Coulombe was an independent business consultant. From March
1992 to October 1992, Mr. Coulombe served as Executive Vice President of
Pacific Enterprises, with principal responsibility for Thrifty Corporation, an
operator of drug and sporting goods chain stores and also served as Co-
Chairman of Thrifty Corporation. From June 1989 through March 1992,
Mr. Coulombe served as an independent business consultant. Mr. Coulombe is the
founder of Trader Joe's, a specialty food grocery chain, and served as its
Chief Executive Officer from 1957 to 1989. Mr. Coulombe also serves as a
director of PIA Merchandising.
Mr. Gurr has served as a director of the Company since November 1995. Since
April 1998, Mr. Gurr has served as Acting President of Dorling Kindersley
Publishing Inc., a publisher of illustrated books, videos and multi-media
products. From September 1991 to February 1998, Mr. Gurr served as President
and Chief
3
<PAGE>
Executive Officer of Lauriat's Books, Inc., an operator of various bookstore
chains ("Lauriat's Books"). In February 1998, Lauriat's Books filed for
protection under Chapter 11 of the Federal Bankruptcy Act. From November 1995
until June 1997, Mr. Gurr served as President and Chief Executive Officer of
Chadwick Miller, Inc., an importer and wholesaler of housewares and gifts.
From September 1990 to September 1991, Mr. Gurr was Vice President of
Publishing and Acquisition for the Outlet Book Company Division of Random
House, Inc.
Mr. Mule has served as a director of the Company since May 1995. Since
September 1984, Mr. Mule has been employed by Goldman, Sachs & Co., an
investment bank, serving in various departments including mergers and
acquisitions, high yield bond trading and in the office of the Chairman. Mr.
Mule has been a Managing Director of Goldman, Sachs & Co. since 1994.
Mr. Trouveroy has served as a director of the Company since March 1995. Mr.
Trouveroy joined Internationale Nederlanden (U.S.) Capital Corporation
("ING"), a diversified financial services institution, in 1992 and currently
serves as a managing partner of ING Equity Partners, LPI. From 1990 through
1991, Mr. Trouveroy was a managing director of General Electric Capital
Corporation ("GECC") in charge of GECC's Corporate Finance office in Paris,
France. From 1984 to 1990, Mr. Trouveroy was an investment banker in the
mergers and acquisitions department of Drexel Burnham Lambert Incorporated in
New York, most recently as a first vice president. Mr. Trouveroy also serves
as a director of American Communications Services, Inc., a local access
telecommunications provider.
Mr. Willardson was re-elected as a director of the Company in April 1996. He
also served as a director of the Company from March 1991 to February 1996. Mr.
Willardson is a Vice President and Associate Managing Director of Bechtel
Enterprises Inc., a wholly-owned investment and development subsidiary of
Bechtel Group, Inc. He served as a manager of that company from July 1995
until August 1997. From January 1986 to July 1995, Mr. Willardson served as a
principal at The Fremont Group, an investment company.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of nine meetings during
the fiscal year ended January 31, 1998. The Board of Directors has an Audit
Committee and a Compensation Committee. The Board of Directors does not have a
nominating committee or any committee performing similar functions.
The Audit Committee of the Board of Directors consists of Messrs. Trouveroy,
Coulombe and Gurr and held two meetings during the last fiscal year. The Audit
Committee recommends engagement of the Company's independent auditors and is
primarily responsible for approving the services performed by the Company's
independent auditors and for reviewing and evaluating the Company's accounting
principles and its system of internal accounting controls.
The Compensation Committee of the Board of Directors consists of Messrs.
Morris (who will not stand for re-election), Mule, Trouveroy and Willardson
and held two meetings during the last fiscal year. The Compensation Committee
establishes the Company's executive compensation policy, determines the salary
and bonuses of the Company's executive officers and approves stock option
grants for executive officers.
No director attended fewer than 75% of the aggregate of the total number of
meetings of the Board of Directors and the total number of meetings of all
committees of the Board of Directors on which that director served.
4
<PAGE>
DIRECTOR COMPENSATION
Cash Compensation
Messrs. Dashe and Dillon currently do not receive any cash compensation for
their service on the Board of Directors or any committee thereof, but may be
reimbursed for reasonable expenses incurred in connection with attendance at
Board of Directors and committee meetings. Messrs. Coulombe, Gurr, Morris (who
will not stand for re-election) and Willardson each receive an aggregate of
$10,000 each fiscal year for service on the Board of Directors and any
committee thereof. Non-employee directors are also reimbursed for reasonable
expenses incurred in connection with attendance at Board of Directors and
committee meetings.
1996 Director Option Plan
The Company's 1996 Director Option Plan (the "Director Option Plan") was
adopted by the Board of Directors and approved by the Company's shareholders
in March 1996. Under the Director Option Plan, the Company initially reserved
28,300 shares of Common Stock for issuance to the non-employee directors of
the Company. Each non-employee director elected after the date of the Director
Option Plan automatically receives an option to purchase 7,075 shares of
Common Stock on the date such person becomes a director. An amendment to the
Director Option Plan, which was approved by the Board of Directors in April
1997 and by the shareholders in June 1997, added an additional 40,000 shares
to the Director Option Plan and provided for automatic annual option grants of
2,000 shares to each of the Company's non-employee directors on the date of
the Company's Annual Meeting of Shareholders beginning with the 1997 Annual
Meeting, or June 30 of each year, whichever is earlier. Each option granted
under the Director Option Plan is exercisable at 100% of the fair market value
of the Company's Common Stock on the date such option was granted. Twenty-five
percent of options granted pursuant to the Director Option Plan vest on each
anniversary of their dates of grant, provided that the optionee continues to
serve as a director on such dates. The Director Option Plan will be in effect
for a term of ten years unless sooner terminated.
Pursuant to the Director Option Plan, each of Messrs. Coulombe, Gurr,
Morris, Mule, Trouveroy and Willardson was granted an option to purchase 2,000
shares of Common Stock on June 19, 1997 at an exercise price per share of
$23.3125.
PROPOSAL TWO
APPROVAL OF A 250,000 SHARE INCREASE IN SHARES ISSUABLE
UNDER THE 1995 STOCK OPTION PLAN
The Company is seeking shareholder approval of an amendment to the Company's
1995 Stock Option Plan (the "Stock Option Plan") which would increase the
number of shares issuable under the Stock Option Plan by 250,000 shares. A
summary of the Stock Option Plan is included as Appendix A.
The Stock Option Plan was approved by the Board of Directors and by the
shareholders in November 1995. A total of 774,669 shares of Common Stock were
initially reserved for issuance under the Stock Option Plan less the aggregate
number of shares of Common Stock subject to options outstanding under the
Company's 1994 Stock Option Plan and issued upon exercise of options granted
under the 1994 Stock Option Plan. Amendments to the Stock Option Plan in 1996
and 1997 reserved an additional 650,000 shares of Common Stock for issuance
under the Stock Option Plan. As a result of the foregoing limitations and
amendments, as of April 29, 1998, a total of 1,424,669 shares of Common Stock
were authorized for issuance under the Stock Option Plan, which number will
automatically increase to the extent that, as of April 29, 1998, any of the
37,373 options outstanding under the 1988 and the 1994 Stock Option Plans
lapse or are canceled without being exercised.
As of April 29, 1998, options to purchase 911,957 shares of Common Stock
were outstanding under the Stock Option Plan, 1,313,434 shares had been issued
by the Company upon exercise of options under the Stock
5
<PAGE>
Option Plan and 111,235 shares remained available for future option grants
under the Stock Option Plan. In April 1998 the Board of Directors approved a
further increase of 250,000 shares to the Stock Option Plan. The shareholders
are being requested to approve this amendment.
The Board of Directors believes that the proposed increase is in the best
interests of the Company for several reasons. First, the increase will provide
an adequate reserve of shares for issuance under the Stock Option Plan, which
is an integral part of the Company's overall compensation program. Second, the
Board of Directors believes the proposed increase is essential for the Company
to compete successfully against other companies in attracting and retaining
key employees, thereby facilitating the future potential growth of the
Company. Third, the Board of Directors believes the Stock Option Plan is an
important contributor to the alignment of employee and shareholder interests.
AMENDED STOCK OPTION PLAN BENEFITS
The following table sets forth information with respect to stock option
grants under the Stock Option Plan for the fiscal year ended January 31, 1998
to: (i) the Chief Executive Officer and the five most highly compensated
executive officers of the Company in the fiscal year ended January 31, 1998;
(ii) all current executive officers as a group; (iii) all current directors
who are not executive officers as a group; and (iv) all other employees,
including all current officers who are not executive officers, as a group:
AMENDED PLAN BENEFITS TABLE
<TABLE>
<CAPTION>
DOLLAR NUMBER OF SHARES
VALUE SUBJECT TO OPTIONS
NAME OF INDIVIDUAL OR IDENTITY OF GROUP ($)(1) GRANTED (#)
- --------------------------------------- --------- ------------------
<S> <C> <C>
Ralph D. Dillon................................... $ 212,812 72,250
Murray H. Dashe................................... 134,406 106,250
Dennis R. Daugherty............................... 78,625 32,000
Kathi P. Lentzsch................................. 365,125 63,000
Patricia T. Saucy................................. 46,625 21,000
Alan E. Zimtbaum(2)............................... 108,000 12,000
All current executive officers as a group (11 to-
tal)............................................. 1,130,968 382,000
All non-employee directors (6 persons)............ 17,250 12,000
All other employees as a group.................... 362,738 75,200
</TABLE>
- --------
(1) Calculated by determining the difference between the fair market value of
the Company's Common Stock on January 30, 1998 ($24.75), and the exercise
price of such options, multiplied by the number of shares.
(2) Mr. Zimtbaum resigned as an officer of the Company in September 1997 and
the options granted to him during the fiscal year ended January 31, 1998
have subsequently lapsed.
REQUIRED VOTE
The amendment of the Stock Option Plan to increase the number of shares
issuable thereunder by 250,000 shares requires the affirmative vote of the
holders of a majority of the shares of the Company's Common Stock represented
in person or by proxy and entitled to vote on the proposal, which shares
voting affirmatively must also constitute a majority of the required quorum.
See "Voting and Solicitation" above.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDMENT TO
THE 1995 STOCK OPTION PLAN.
6
<PAGE>
PROPOSAL THREE
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Audit Committee of the Board of Directors has selected Deloitte & Touche
LLP, independent auditors, to audit the financial statements of the Company
for the current fiscal year ending January 30, 1999 and recommends that the
shareholders ratify this selection. In the event of a negative vote on such
ratification, the Board of Directors will reconsider its selection.
Representatives of Deloitte & Touche LLP are expected to be available at the
meeting with the opportunity to make a statement if they desire to do so, and
are expected to be available to respond to appropriate questions.
REQUIRED VOTE
The ratification of the appointment of Deloitte & Touche LLP as the
Company's independent auditors requires the affirmative vote of the holders of
a majority of the shares of the Company's Common stock represented in person
or by proxy and entitled to vote on the proposal, which shares voting
affirmatively must also constitute a majority of the required quorum. See
"Voting and Solicitation" above.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF THE
APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY'S INDEPENDENT AUDITORS.
7
<PAGE>
EXECUTIVE COMPENSATION AND OTHER MATTERS
The table below sets forth information for the three most recently completed
fiscal years concerning the compensation of the Chief Executive Officer of the
Company and the five other most highly compensated executive officers of the
Company in the fiscal year ended January 31, 1998:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ----------------------
RESTRICTED SECURITIES
FISCAL SALARY BONUS STOCK UNDERLYING
NAME AND PRINCIPAL POSITION YEAR ($) ($) AWARD ($) OPTIONS (#)
--------------------------- ------ ------------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Ralph D. Dillon............... 1997 387,077 $ 234,181 $ -- 72,250
Chairman Emeritus (1) 1996 368,846 245,908 -- 50,000
1995 336,404 235,620 -- 234,856
Murray H. Dashe (2)........... 1997 199,904 87,958 -- 106,250
Chairman, Chief Executive
Officer and President
Dennis R. Daugherty........... 1997 179,231 34,502 -- 32,000
Executive Vice President,
Operations 1996 153,970 65,314 -- 19,500
1995 126,300 48,168 -- 58,478
Kathi P. Lentzsch............. 1997 200,000 77,000 -- 63,000
Executive Vice President,
Merchandising and Marketing
Patricia T. Saucy............. 1997 131,135 41,963 -- 21,000
Vice President, Finance,
Chief 1996 113,151 26,862 -- 8,000
Accounting Officer, Secretary
and 1995 101,462 25,800 -- 30,954
Acting Chief Financial
Officer
Alan E. Zimtbaum (3).......... 1997 141,231 -- -- 12,000
1996 219,515 93,118 -- 25,000
1995 185,858 70,884 -- 58,478
</TABLE>
- --------
(1) Mr. Dillon served as the Company's Chief Executive Officer until his
resignation from that position in February 1998.
(2) Mr. Dashe joined the Company in June 1997 and the table reflects amounts
paid to Mr. Dashe from that date through the end of the Company's fiscal
year, during which time he served as Vice Chairman and from September
1997, as President of the Company.
(3) Mr. Zimtbaum is no longer an officer of the Company. During the fiscal
year ended January 31, 1998, he served as President, Chief Operating
Officer, Chief Financial Officer and Secretary until his resignation in
September 1997.
8
<PAGE>
The table below provides the specified information concerning grants of
options to purchase the Company's Common Stock made during the fiscal year
ended January 31, 1998 to the persons named in the Summary Compensation Table:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
--------------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF RATES OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM (3)
OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------
NAME GRANTED (#) FISCAL YEAR (1) ($/SHARE)(2) DATE 5%($) 10%($)
---- ----------- --------------- ------------ ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Ralph D. Dillon......... 20,000 4.26% $15.75 3/26/2007 $ 198,102 502,029
52,250 11.14 24.125 8/25/2007 792,741 2,008,962
Murray H. Dashe......... 68,000 14.50 23.125 6/17/2007 988,937 2,506,159
38,250 8.15 24.125 8/25/2007 580,332 1,470,676
Dennis R. Daugherty..... 7,000 1.50 15.75 3/27/2007 69,336 175,710
25,000 5.33 24.125 8/25/2007 379,302 961,226
Kathi P. Lentzsch....... 30,000 6.39 15.50 2/21/2007 292,436 741,090
8,000 1.70 15.75 3/27/2007 79,240 200,812
25,000 5.33 24.125 8/25/2007 379,302 961,226
Patricia T. Saucy....... 4,000 0.86 15.75 3/27/2007 39,620 100,406
17,000 3.62 24.125 8/25/2007 257,925 653,634
Alan E. Zimtbaum (4) 12,000 2.60 15.75 3/27/2007 -- --
</TABLE>
- --------
(1) The Company granted options to employees to purchase a total of 457,200
shares of Common Stock during the fiscal year ended January 31, 1998.
(2) All options were granted at the fair market value of the Common Stock on
the date of grant, as determined by the Board of Directors. The exercise
price may be paid in cash, check or shares of the Company's Common Stock
through a cashless exercise procedure involving same-day sale of the
purchased shares, or by any combination of such methods.
(3) Potential realizable value is net of exercise price, but before taxes
associated with exercise. The amounts represent certain assumed rates of
appreciation only, based on the Securities and Exchange Commission rules.
Actual gains, if any, on stock option exercises are dependent on the
future performance of the Common Stock, overall market conditions and the
option holders' continued employment through the vesting period. The
amounts reflected in this table may not necessarily be achieved and do not
reflect the Company's estimate of future stock price growth.
(4) Mr. Zimtbaum resigned as an officer of the Company in September 1997 and
the options granted to him during the fiscal year ended January 31, 1998
have subsequently lapsed.
9
<PAGE>
The table below provides the specified information concerning the exercise
of options to purchase the Company's Common Stock in the fiscal year ended
January 31, 1998 and the unexercised options held as of January 31, 1998 by
the persons named in the Summary Compensation Table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN THE MONEY OPTIONS
SHARES FISCAL YEAR-END AT FISCAL YEAR-END(1)($)
ACQUIRED VALUE ------------------------- -------------------------
ON EXERCISE REALIZED(1)($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ralph D. Dillon......... 64,646 $1,131,226 133,813 156,747 $2,031,809 $1,236,997
Murray H. Dashe......... -- -- -- 106,250 -- 134,406
Dennis R. Daugherty..... -- -- 47,307 57,366 733,508 362,167
Kathi P. Lentzsch....... -- -- -- 63,000 -- 365,125
Patricia T. Saucy....... 1,000 16,233 21,188 37,766 322,665 248,585
Alan E. Zimtbaum........ 46,697 876,354 -- -- -- --
</TABLE>
- --------
(1) Calculated by determining the difference between the fair market value of
the Company's Common Stock on the date of exercise or at January 30, 1998
($24.75), as applicable, and the exercise price of such options,
multiplied by the number of shares.
EMPLOYMENT AND RELATED AGREEMENTS; CHANGE IN CONTROL ARRANGEMENTS
During the fiscal year ended January 31, 1998, the Company had an employment
agreement with Ralph D. Dillon (the "Employment Agreement") which provided for
Mr. Dillon's employment by the Company as Chief Executive Officer at an annual
base salary of not less than $340,000, such sum to be reviewed for possible
increases by the Board of Directors prior to each anniversary of the date of
the Employment Agreement. Pursuant to the Employment Agreement, Mr. Dillon was
also entitled to an annual performance bonus based upon the Company achieving
at least 85% of its targeted earnings before interest and taxes as approved by
the Board of Directors for each prospective fiscal year (the "85% EBIT
Attainment Level"). Such annual performance bonuses could increase on a
sliding scale to the extent the Company's financial performance exceeded the
85% EBIT Attainment Level. The Board of Directors also reserved the right to
award a bonus to Mr. Dillon should the Company fail to realize the 85% EBIT
Attainment Level. The foregoing compensation package was in effect until
February 11, 1998, which was the date Mr. Dillon ceased to be the Chief
Executive Officer of the Company and became Chairman Emeritus of the Board of
Directors and remained an employee of the Company. Effective February 12,
1998, the Employment Agreement was amended to provide that Mr. Dillon will
receive an annual salary of $185,500 until the later of August 12, 1998 or the
date upon which he ceases to be Chairman Emeritus of the Board of Directors of
the Company. Thereafter, for the remaining term of the Employment Agreement,
which extends until Mr. Dillon's 65th birthday, Mr. Dillon will be paid a
minimal salary in exchange for limited consulting services. See "Certain
Relationships and Related Transactions."
The Company has entered into retention agreements with the following
executive officers: Murray Dashe, Dennis Daugherty, Kathi Lentzsch and
Patricia Saucy. These agreements provide for payments to them in certain
circumstances upon termination of employment. Pursuant to his agreement, Mr.
Dashe will receive his monthly base compensation for a period of 12 months,
and continued health, disability and life insurance benefits ("Insurance
Benefits") until the earlier of the date upon which he becomes covered under
another employer's benefit plan or 12 months following the date of termination
if his employment is involuntarily terminated prior to June 2000 by the
Company for other than cause. Mr. Daugherty will receive his monthly base
compensation until August 31, 1998 if his employment is involuntarily
terminated prior to September 1, 1998 by the Company for other than cause. Ms.
Lentzsch will receive her monthly base compensation until February 1, 1999 and
continued Insurance Benefits until the earlier of February 1, 1999 or the date
upon which she becomes covered under another employer's benefit plan if her
employment is involuntarily terminated prior to February 2, 1999 by the
Company for other than cause. Ms. Lentzsch's employment agreement further
provides that, in the event
10
<PAGE>
of involuntary termination, she shall vest in and be able to exercise prior to
termination of her employment with the Company any shares subject to option
that would otherwise have vested and become exercisable prior to or on
February 2, 1999. Ms. Saucy will receive her monthly base compensation for a
period of six months following the date of termination if her employment is
involuntarily terminated prior to September 1, 1998 by the Company other than
for cause. As defined in the agreements, an involuntary termination is either
the termination by the Company of the executive's employment with the Company
or a material reduction in either the executive's salary and bonus or the
executive's employee benefits. With respect to Ms. Lentzsch's employment
agreement, an involuntary termination also includes a material reduction in
her duties and responsibilities with the Company or a demotion from the
position of Executive Vice President, Merchandising and Marketing.
The Company's Stock Option Plan provides that in the event of a change of
control of the Company, as that term is defined in the Stock Option Plan,
outstanding stock options will become fully vested and either exchanged for
the same per share consideration other shareholders receive in the sale, less
the option exercise price, or exercisable thereafter for such consideration. A
summary of the Stock Option Plan is attached to this Proxy Statement as
Appendix A.
11
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
The Company's Executive Compensation program is administered by the
Compensation Committee composed of four non-employee directors: Edward A.
Mule, Chairman, Olivier Trouveroy, Mervin G. Morris (who is not standing for
re-election as a director), and Thomas D. Willardson.
COMPENSATION PHILOSOPHY
The objectives of the executive compensation program are:
. to align compensation with Company performance in meeting both short-term
and long-term business objectives and with the interests of the Company's
shareholders
. to enable the Company to attract, retain and reward leaders who are key
to the continued successful growth of the Company
. to reward high levels of performance, with pay-at-risk increasing at
higher levels of the organization
COMPENSATION PROGRAM
The Committee annually reviews the compensation of its executive officers on
the basis of each executive's responsibility, position and level of experience
in conjunction with a competitive peer company salary survey. The Company's
total direct compensation program consists of base salary, annual cash
incentive opportunity (Cash Plus Incentive Plan) and long-term equity-based
incentive opportunity.
. The base salary structure is targeted at median competitive levels.
. The Cash Plus Incentive Plan rewards the achievement of short-term
operational goals based on the Company's achievement of a target
established prior to the fiscal year for earnings before interest, taxes,
depreciation and amortization (EBITDA). The Committee believes that
target bonus awards, in combination with base salaries, provide a total
cash compensation opportunity at median competitive levels. If actual
performance exceeds target levels, total cash compensation would be above
median competitive levels. If actual performance does not meet target
levels, total cash compensation would fall below median competitive
levels.
. Long-term incentive opportunity is delivered through annual basic grants
under the Company's Stock Option Plan at what the Committee believes are
median competitive levels. An annual performance option grant provides
additional equity opportunity above median competitive levels, based on
the achievement of earnings per share targets.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The Committee generally uses the factors and criteria described above in
establishing the compensation of the Chief Executive Officer, except that in
Mr. Dillon's case his Employment Agreement provided for a minimum base salary
of $340,000. During the fiscal year ended January 31, 1998, Mr. Dillon's base
salary was raised from $371,000 to $390,000. His Employment Agreement also
provided for an incentive bonus, which was satisfied through his participation
in the Company's Cash Plus Incentive Plan. Mr. Dillon's incentive award
payment for the fiscal year ended January 31, 1998 was based on the EBITDA
target established prior to the fiscal year. The Company exceeded the EBITDA
target for the fiscal year, resulting in the incentive award payments for Mr.
Dillon and other executive officers reflected in the Summary Compensation
Table above. Mr. Dillon's incentive award payment for the fiscal year ended
January 31, 1998 was $234,181.
Mr. Dillon was also awarded stock option grants for the purchase of an
aggregate of 72,250 shares of Common Stock during the last fiscal year. Of
these, options to purchase 10,000 shares were awarded as a standard annual
option grant and options to purchase 10,000 shares were considered
"performance options" that would become exercisable if the Company met a
specified earnings per share target for the fiscal year, which target was
achieved. In addition, the Company granted Mr. Dillon options to purchase
52,250 shares in recognition of his strong leadership during a period in which
the Company has been undergoing substantial growth. These options become fully
vested after six years or over three years if certain performance targets are
met.
12
<PAGE>
It is the opinion of the Committee that the aforementioned compensation
policies and structures provide the necessary discipline to properly align the
Company's corporate economic performance and the interest of the Company's
shareholders with progressive, balanced and competitive executive total
compensation practices in an equitable manner.
The Compensation Committee
Edward A. Mule, Chairman
Olivier L. Trouveroy
Mervin G. Morris
Thomas D. Willardson
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Neither Edward A. Mule, Olivier L. Trouveroy, Mervin G. Morris nor Thomas D.
Willardson, the members of the Company's Compensation Committee, is an
executive officer of any entity for which any executive officer of the Company
serves as a director or a member of the Compensation Committee. See also
"Certain Relationships and Related Transactions."
13
<PAGE>
PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total return for the
Company's Common Stock, the Nasdaq National Market--U.S. Index and the Nasdaq
CRSP Retail Group Index from the date trading commenced in the Company's
Common Stock (April 4, 1996) through the fiscal year ended January 31, 1998.
In preparing the graph it was assumed that: (i) $100 was invested on April 4,
1996 in the Company's Common Stock (at an initial public offering price of
$15.00 per share), the Nasdaq National Market--U.S. Index and the Nasdaq CRSP
Retail Group Index; and (ii) all dividends were reinvested.
COMPARE CUMULATIVE TOTAL RETURN
AMONG COST PLUS, INC., NASDAQ MARKET
INDEX AND NASDAQ CRSP RETAIL GROUP
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
QUARTER END 4/04/96 5/04/96 8/03/96 11/02/96 2/01/97 5/03/97 8/02/97 11/01/97 1/31/98
- ----------- ------- ------- ------- -------- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CPWM CLOSING PRICE $15.00 $20.75 $23.00 $16.75 $17.25 $16.38 $25.00 $27.13 $24.75
NASDAQ COMPOSITE TR 367.34 389.69 371.22 400.46 455.11 429.44 526.15 526.33 538.26
NASDAQ RETAIL TR 285.35 305.20 291.62 306.48 305.84 279.45 337.70 345.67 357.61
INDICES
- -------
CPWM 100.0 138.3 153.3 111.7 115.0 109.2 166.7 180.9 165.0
NASDAQ COMPOSITE TR 100.0 106.1 101.1 109.0 123.9 116.9 143.2 143.5 146.5
NASDAQ RETAIL TR 100.0 107.0 102.2 107.4 107.2 97.9 118.3 121.1 125.3
</TABLE>
ASSUMES $100 INVESTED ON APRIL 04, 1996
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING JAN. 31, 1998
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933 or the Securities Exchange
Act of 1934 that might incorporate future filings, including this proxy
statement, in whole or in part, the preceding Report of the Compensation
Committee and the preceding Performance Graph shall not be incorporated by
reference into any such filings; nor shall such Compensation Committee Report
or Performance Graph be incorporated by reference into any future filings.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with Mr. Dillon's resignation as the Company's Chief Executive
Officer in February 1998, the Company purchased from him, pursuant to the
terms of the Employment Agreement (See "Employment and Related Agreements;
Change in Control Agreements"), 150,001 shares of Common Stock of the Company
at a price per share of $25.00 (the closing price of the Common Stock as
reported by the Wall Street Journal for the Nasdaq National Market System on
February 12, 1998), for a total purchase price of $3,750,025.
14
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth as of April 29, 1998 (except as otherwise
indicated) certain information with respect to the beneficial ownership of the
Company's Common Stock by: (i) each person known by the Company to own
beneficially more than five percent (5%) of the outstanding shares of Common
Stock; (ii) each director of the Company; (iii) each executive officer named
in the Summary Compensation Table; and (iv) all directors and executive
officers as a group.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
NAME AND ADDRESS(1) OWNED(2) PERCENTAGE
- ------------------- ------------ ----------
<S> <C> <C>
Internationale Nederlanden (U.S.) Capital
Corporation(3)(4)..................................... 1,039,923 11.9%
135 East 57th Street
New York, NY 10022
The Goldman Sachs Group, L.P.(4)(5).................... 1,039,923 11.9%
85 Broad Street
New York, NY 10004
The TCW Group, Inc.(6)................................. 573,500 6.6%
865 South Figueroa
Los Angeles, CA 90017
Delaware Management Holdings, Inc.(7).................. 815,100 9.3%
One Commerce Square
2005 Market Street
Philadelphia, PA 19103
Ralph D. Dillon(8)..................................... 134,436 1.5%
Murray H. Dashe(9)..................................... 15,000 *
Dennis R. Daugherty(10)................................ 46,481 *
Kathi P. Lentzsch(11).................................. 8,833 *
Patricia T. Saucy(12).................................. 9,971 *
Alan E. Zimtbaum....................................... 8 *
Joseph H. Coulombe(13)................................. 4,036 *
Danny W. Gurr(14)...................................... 3,668 *
Mervin G. Morris(15)................................... 4,036 *
Edward A. Mule(4)(16).................................. 1,039,923 11.9%
Olivier L. Trouveroy(4)(17)............................ 1,039,923 11.9%
Thomas D. Willardson(4)................................ 4,036 *
All directors and executive officers as a group (17
persons)(18).......................................... 2,376,104 26.6%
</TABLE>
- --------
* Less than 1%
(1) Except as otherwise indicated in the footnotes to this table and pursuant
to applicable community property laws, the persons named in the table
have sole voting and investment power with respect to all shares of
Common Stock shown.
(2) Percentage ownership is based on 8,730,568 shares of Common Stock
outstanding as of April 29, 1998 plus any shares issuable pursuant to the
options held by the person or group in question which may be exercised
within 60 days of April 29, 1998.
(3) Shares held of record by ING (U.S.) Capital Corporation ("ING") on behalf
of ING Equity Partners, LP I ("Equity Partners"), the beneficial owner of
such shares. Mr. Trouveroy, a director of the Company, is a managing
partner of Equity Partners.
(4) Includes 4,036 shares issuable upon exercise of stock options exercisable
within 60 days of April 29, 1998.
15
<PAGE>
(5) Shares held by Goldman Sachs Credit Partners L.P. ("Goldman Sachs Credit
Partners"), an affiliate of the Goldman Sachs Group, L.P. ("GS Group").
(6) Information is as of February 12, 1998, and is based on a Schedule 13G
filed with the Securities and Exchange Commission by The TCW Group, Inc.
Mr. Robert Day is the majority shareholder of The TCW Group, Inc. and is
deemed also to have beneficial ownership of the shares held by The TCW
Group, Inc.
(7) Information is as of February 13, 1998, and is based on a Schedule 13G
filed with the Securities and Exchange Commission by Delaware Management
Holdings, Inc. Delaware Management Holdings, Inc. claims to have sole
dispositive power with respect to 815,100 shares and sole voting power
with respect to 209,700 shares.
(8) Includes 43,332 shares held by The Dillon Trust, of which Mr. Dillon and
his spouse are trustees, and 1,000 shares registered in the name of Mr.
Dillon's spouse, Carol Dillon. Also includes 88,775 shares issuable upon
exercise of stock options exercisable within 60 days of April 29, 1998.
(9) Consists of 15,000 shares issuable upon exercise of stock options
exercisable within 60 days of April 29, 1998.
(10) Includes 330 shares registered in the name of Mr. Daugherty's spouse, Sue
Daugherty. Also includes 24,282 shares issuable upon exercise of stock
options exercisable within 60 days of April 29, 1998.
(11) Consists of 8,833 shares issuable upon exercise of stock options
exercisable within 60 days of April 29, 1998.
(12) Includes 8,776 shares held by The Saucy Family Trust of which Ms. Saucy
and her spouse are trustees.
(13) Includes 1,268 shares issuable upon exercise of stock options exercisable
within 60 days of April 29, 1998.
(14) Includes 1,000 shares registered in the name of Mr. Gurr's spouse, Vivian
Southwell. Also includes 2,268 shares issuable upon exercise of stock
options exercisable within 60 days of April 29, 1998.
(15) Includes 500 shares issuable upon exercise of stock options exercisable
within 60 days of April 29, 1998.
(16) Consists of 1,039,923 shares held by Goldman Sachs Credit Partners. Mr.
Mule, a director of the Company, is a Managing Director of the GS Group,
which has a 99% interest in the Company that is the general partner of
Goldman Sachs Credit Partners, and has the right to direct the voting and
disposition of the shares. Accordingly, Mr. Mule may be deemed to be a
beneficial owner of these shares. Mr. Mule disclaims beneficial ownership
of such shares except to the extent of his pecuniary interest therein.
(17) Consists of 1,039,923 shares held by ING. Mr. Trouveroy, a director of
the Company, is a managing partner of Equity Partners. Accordingly, Mr.
Trouveroy may be deemed to be a beneficial owner of these shares. Mr.
Trouveroy disclaims beneficial ownership of such shares except to the
extent of his pecuniary interests therein.
(18) See notes (8) through (11) and (13) through (17) above. Also includes
210,895 shares issuable upon exercise of stock options exercisable within
60 days of April 29, 1998.
16
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of
a registered class of the Company's equity securities, to file with the
Securities and Exchange Commission (the "SEC") initial reports of ownership
and reports of changes in ownership of Common Stock and other equity
securities of the Company. Officers, directors and greater than ten percent
shareholders are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended January 31, 1998, all
officers, directors and greater than ten percent shareholders complied with
all Section 16(a) filing requirements, except that a Form 4 for Mr. Coulombe
covering the exercise of an option for 1,768 shares of the Company's Common
Stock was not timely filed.
DEADLINE FOR RECEIPT OF SHAREHOLDER
PROPOSALS -- 1999 ANNUAL MEETING
Proposals of shareholders of the Company which are intended to be presented
by such shareholders at the Company's 1999 Annual Meeting must be received by
the Company no later than January 17, 1999, in order that they may be included
in the proxy statement and proxy relating to that meeting.
OTHER MATTERS
The Company knows of no other matters to be submitted to the Annual Meeting.
If any other matters properly come before the Annual Meeting, it is the
intention of the persons named in the enclosed Proxy to vote the shares they
represent as the Board of Directors may recommend.
BY ORDER OF THE BOARD OF DIRECTORS
Murray H. Dashe
Chairman of the Board, Chief
Executive Officer and President
Dated: May 18, 1998
17
<PAGE>
APPENDIX A
SUMMARY OF 1995 STOCK OPTION PLAN
The essential features of the 1995 Stock Option Plan (the "Stock Option
Plan") are summarized below. This summary does not purport to be complete and
is subject to, and qualified in its entirety by, the provisions of the Stock
Option Plan. Capitalized terms used herein and not defined shall have the
meanings set forth in the Stock Option Plan.
Purpose. The purpose of the Stock Option Plan is to strengthen 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 stock options to purchase
Common Stock of the Company.
Administration. The Stock Option Plan is administered by the Board or a
committee appointed by the Board (as applicable, the "Administrator"). Such
committee may consist of (i) two or more "non-employee" directors in order to
grant options to officers and directors in compliance with Rule 16b-3
promulgated under the Exchange Act or (ii) two or more "outside" directors in
order to grant options intended to qualify as "performance-based compensation"
under Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"). The Administrator may make any determinations deemed necessary or
advisable for the Stock Option Plan.
Eligibility. The Stock Option Plan provides that options may be granted to
employees, including officers, directors and consultants of the Company, its
parent or subsidiaries. Incentive stock options may be granted only to
employees, including employee directors and officers. The Administrator
approves the participants, the time or times at which options are granted and
the number of shares subject to each grant.
Limits on Grants. Section 162(m) of the Code places limits on the
deductibility for federal income tax purposes of compensation paid to certain
executive officers of the Company. In order to preserve the Company's ability
to deduct the compensation income associated with options granted to such
persons, the Stock Option Plan provides that no employee, director or
consultant may be granted, in any fiscal year of the Company, options to
purchase more than 265,322 shares of Common Stock.
Reserved Shares. Without giving effect to the proposed amendment, the
maximum number of shares that may be subject to option grants under the Stock
Option Plan is 1,424,669 shares, less the aggregate number of shares (i)
subject to options outstanding under the Company's 1994 Stock Option Plan and
(ii) issued upon exercise of options granted under the 1994 Stock Option Plan.
Subject to the provisions of the Stock Option Plan, any shares of Common Stock
which cease to be subject to an option will become available for future option
grants under the Stock Option Plan.
Terms of Options. The specific terms of each option granted under the Stock
Option Plan are determined by the Administrator. Each option is evidenced by a
written agreement between the Company and the optionee to whom such option is
granted and is subject to the following additional terms and conditions:
(a) Exercise of Option. The Administrator determines when options may be
exercisable. The Administrator may accelerate the vesting of any
outstanding option. The purchase price of the exercise of any option may be
paid, at the discretion of the Administrator, in cash, check, cashless
exercise, or other shares of Common Stock (with some restrictions).
(b) Exercise Price. The exercise price under the Stock Option Plan is
determined by the Administrator, provided that, in the case of an incentive
stock option, the exercise price may not be less than 100% of the fair
market value of the Common Stock on the date the option is granted, and,
provided further, that, in the case of an incentive stock option granted to
an employee who, at the time of such grant,
A-1
<PAGE>
owns stock representing more than ten percent (10%) of the voting power of
all classes of stock of the Company or any parent or subsidiary of the
Company, the exercise price may be no less than 110% of the fair market
value of the Common Stock on the date the option is granted.
(c) Disability or Retirement of Optionee. If optionee's employment with
or service as a consultant to or director of the Company ends because of
optionee's disability or voluntary retirement (at or after age 65 or at or
after age 55 with the Company's consent), optionee may exercise his or her
options for one year after the date of termination (but in no event later
than the expiration date of the options) to the extent the options were
vested as of the date of termination unless otherwise provided for in the
stock option agreement. The Administrator may provide in the stock option
agreement for the options to become fully vested and exercisable on the
date of such termination.
(d) Death of Optionee. If an optionee should die while employed by or
serving as a consultant to or director of the Company, or within thirty
days after termination of optionee's employment, consultancy or
directorship, the options may be exercised at any time within twelve months
after the date of death (but in no event later than the date of expiration
of the term of the option), for all options including those not vested or
exercisable on the date of termination.
(e) Termination for Cause. If an optionee's employment with or service as
a consultant to the Company is terminated for cause, all options held by
the optionee will terminate on the date of optionee's termination. Cause
includes (i) the intentional failure to perform reasonably assigned duties,
(ii) dishonesty or willful misconduct in the performance of duties, (iii)
engaging in actions in connection with the performance of duties which are
adverse to the Company's interests or for personal profit or (iv) the
willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) in connection with the performance of
duties.
(f) Termination of Employment. If the optionee's status as an employee,
consultant or director terminates for any reason other than death,
disability, retirement, or cause, an option may be exercised for thirty
days after such termination (but in no event later than the date of
expiration of the term of the option) and may be exercised only to the
extent such option was exercisable and vested on the date of termination.
(g) Termination of Options. Stock options granted under the Stock Option
Plan expire as determined by the Administrator, but in no event later than
ten (10) years from the date of grant. However, in the case of an incentive
stock option granted to an employee who, at the time of such grant, owns
stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any parent or subsidiary of the Company,
the term of the option may not be greater than five (5) years. Under the
form of option agreement currently used by the Company, options generally
expire ten (10) years from the date of grant.
(h) Non-transferability of Options. Unless otherwise specified by the
Administrator, options are non-transferable by the optionee other than by
will or by the laws of descent or distribution and are exercisable during
the optionee's lifetime only by the optionee.
(i) Vesting. Unless otherwise determined by the Administrator, one-fourth
of the shares subject to option will vest and become exercisable each year
on the anniversary of the option's grant date.
(j) Other Provisions. The option agreement may contain such other terms,
provisions and conditions not inconsistent with the Stock Option Plan as
may be determined by the Administrator.
Adjustments Upon Changes in Capitalization. In the event a change in the
Company's capitalization as a result of a merger, consolidation,
reorganization, spin-off, stock dividend, stock split, reclassification or
recapitalization, the Administrator will determine the appropriate adjustment
to be made in the number of shares reserved for issuance under the Stock
Option Plan, the maximum number of shares which may be granted annually to
each employee under the Stock Option Plan and the number of shares subject to
outstanding options under the Stock Option Plan, as well as in the price per
share of Common Stock covered by such options. Such adjustment will be made so
as not to cause a modification (as defined in the Code) of any incentive stock
options.
A-2
<PAGE>
Change of Control. In connection with a Change of Control of the Company,
each outstanding option shall become fully vested and exercisable and, at the
election of the Company,:
(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 the
acquiror of the Company, if any; and (iii) the optionee shall receive a per
share payment equal to the number (or amount) and kind of consideration
that each holder of a share was entitled to receive in connection with the
transaction, reduced by the per share option price, or
(b) 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 consideration that each holder of a share was entitled to receive in
connection with the transaction, reduced by the per share option price, or
(c) in the event of a change of control of the Company that is
consummated pursuant to a merger, consolidation or reorganization (a
"Transaction"), each outstanding option shall become fully (100%) vested
and exercisable, and the Stock Option Plan and the outstanding options
shall continue in effect 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 consideration that
each holder of a share was entitled to receive in connection with the
Transaction.
A change of control means (i) a merger or consolidation of the Company where
the Company's stockholders prior to the merger or consolidation do not own at
least fifty percent of the Company after the merger or consolidation, (ii) the
sale of all or substantially all of the assets of the Company, (iii) the
complete liquidation or dissolution of the Company, (iv) an acquisition by any
person directly or indirectly of fifty percent or more of the total voting
power of the Company and (v) certain changes in the composition of the board
of directors occurring within a two year period.
Sale of the Company. In the event of a sale of the Company, each optionee
shall sell all incentive stock options, vested and unvested, granted prior to
February 12, 1998, and receive the same consideration entitled to each
shareholder in connection with the sale of the Company and, if certain
conditions are met, may be required to vote in favor of the sale of the
Company. The consideration received by an optionee with an incentive stock
option granted prior to February 12, 1998 will be reduced by an amount equal
to the optionee's proportionate share of the expenses of the sale incurred by
certain controlling shareholders of the Company. A sale of the Company
includes a sale of all or substantially all of the assets of the Company, a
complete liquidation or dissolution of the Company, and a merger consolidation
or reorganization involving the Company if certain conditions are met.
Amendment and Termination of Plan. The Board of Directors may amend the
Stock Option Plan at any time, or may terminate the Stock Option Plan, without
approval of the shareholders; provided, however, that shareholder approval is
required for any amendment to the Stock Option Plan for which shareholder
approval would be required under the Code or other applicable rules, and no
action by the Board of Directors or shareholders may unilaterally impair any
option previously granted under the Stock Option Plan. In any event, the Stock
Option Plan will terminate in November, 2005. Any options outstanding under
the Stock Option Plan at the time of its termination will remain outstanding
until they expire by their terms.
TAX INFORMATION
THE FOLLOWING IS A SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION WITH
RESPECT TO THE GRANT AND EXERCISE OF OPTIONS UNDER THE STOCK OPTION PLAN. IT
DOES NOT PURPORT TO BE COMPLETE AND DOES NOT DISCUSS THE TAX CONSEQUENCES OF
THE OPTIONEE'S DEATH OR THE INCOME TAX LAWS OF ANY MUNICIPALITY, STATE OR
FOREIGN COUNTRY IN WHICH A PARTICIPANT MAY RESIDE.
Incentive Stock Options. An optionee who is granted an incentive stock
option does not recognize taxable income at the time the option is granted or
upon its exercise, although the exercise is an adjustment item for
A-3
<PAGE>
alternative minimum tax purposes and may subject the optionee to the
alternative minimum tax. Upon a disposition of the shares more than two years
after grant of the option and one year after exercise of the option, any gain
or loss is treated as long-term capital gain or loss. Net capital gains on
shares held between 12 and 18 months may be taxed at a maximum federal rate of
28%, while net capital gains on shares held for more than 18 months may be
taxed at a maximum federal rate of 20%. Capital losses are allowed in full
against capital gains and up to $3,000 against other income. If these holding
periods are not satisfied, the optionee recognizes ordinary income at the time
of disposition equal to the difference between the exercise price and the
lower of (i) the fair market value of the shares at the date of the option
exercise or (ii) the sale price of the shares. Any gain or loss recognized on
such a premature disposition of the shares in excess of the amount treated as
ordinary income is treated as long-term or short-term capital gain or loss,
depending on the holding period. A different rule for measuring ordinary
income upon such a premature disposition may apply if the optionee is also an
officer, director, or 10% shareholder of the Company. Unless limited by
Section 162(m) of the Code, the Company is entitled to a deduction in the same
amount as the ordinary income recognized by the optionee.
Nonqualified Stock Options. An optionee does not recognize any taxable
income at the time he or she is granted a nonqualified stock option. Upon
exercise, the optionee recognizes taxable income generally measured by the
excess of the then fair market value of the shares over the exercise price.
Any taxable income recognized in connection with an option exercise by an
employee of the Company is subject to tax withholding by the Company. Unless
limited by Section 162(m) of the Code, the Company is entitled to a deduction
in the same amount as the ordinary income recognized by the optionee. Upon a
disposition of such shares by the optionee, any difference between the sale
price and the optionee's exercise price, to the extent not recognized as
taxable income as provided above, is treated as long-term or short-term
capital gain or loss, depending on the holding period. Net capital gains on
shares held between 12 and 18 months may be taxed at a maximum federal rate of
28%, while net capital gains on shares held for more than 18 months may be
taxed at a maximum federal rate of 20%. Capital losses are allowed in full
against capital gains and up to $3,000 against other income.
A-4
<PAGE>
1505-PS-98
<PAGE>
APPENDIX B
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)
1. Purpose.
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The purpose of this Plan is to strengthen Cost Plus, Inc., a
California corporation (the "Company"), by providing an incentive to selected
officers and other key employees and thereby encouraging them to devote their
abilities and industry to the success of the Company's business enterprise. It
is intended that this purpose be achieved by extending to selected officers and
other key employees of the Company and its subsidiaries an added long-term
incentive for high levels of performance and unusual efforts through the grant
of options to purchase Common Stock of the Company.
2. Definitions.
-----------
For purposes of the Plan:
2.1 "Affiliate" means (i) with respect to any Person which is not a
natural person, any other Person that directly or indirectly through one or more
intermediaries controls, or is controlled by or under common control with, such
Person; and (ii) with respect to any Person who is a natural person, any of the
following: (x) any spouse, parent, child, brother or sister of such Person or
any issue of the foregoing (as used in this definition, issue shall include
persons legally adopted into the line of descent), (y) a trust solely for the
benefit of such Person or any spouse, parent, child, brother or sister of such
Person or for the benefit of any issue of the foregoing or (z) any corporation
or partnership which is controlled by such Person, or by any spouse, parent,
child, brother or sister of such Person or by any issue of the foregoing.
2.2 "Agreement" means the written agreement between the Company and
an Optionee evidencing the grant of an Option and setting forth the terms and
conditions thereof.
2.3 "Board" means the Board of Directors of the Company.
2.4 "Cause," unless otherwise defined in the Agreement evidencing a
particular Option, means an Eligible Individual's (i) intentional failure to
perform reasonably assigned duties, (ii) dishonesty or willful misconduct in the
performance of duties, (iii) engaging in a transaction in connection with the
performance of duties to the Company or any of its Subsidiaries thereof which
<PAGE>
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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<PAGE>
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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<PAGE>
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 employ ment 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 1,424,669 Shares (post split), less the
aggregate number of Shares from time to time (i) subject to options outstanding
under the Cost Plus, Inc. 1994 Stock Option Plan (the "1994 Option Plan") or
(ii) issued upon exercise of options granted under the 1994 Option Plan. Options
to be granted under the Plan shall be granted under the Form of Cost Plus, Inc.
1995 Stock Option Plan Incentive Stock Option Agreement attached as Exhibit A-1
-----------
or Nonqualified Stock Option Agreement attached as Exhibit A-2, which forms of
-----------
agreement may be modified or amended by the Committee from time to time so long
as any such modified or amended agreement is not inconsistent with any provision
of the Plan.
(b) Upon a Change in Capitalization, the number of Shares set forth in
this Section 4 and in Section 5 shall be adjusted in number and kind pursuant to
Section 6.
(c) Upon the granting of an Option, the number of Shares available for
the granting of further Options shall be reduced by the number of Shares in
respect of which the Option is granted. Whenever any outstanding Option or
portion thereof expires, is canceled or is otherwise terminated for any reason
without having been exercised or payment having been made in respect thereof,
the Shares allocable to the expired, canceled or otherwise terminated portion of
the Option shall again be available for the granting of Options by the Committee
under the terms of the Plan.
(d) The Board shall reserve for the purpose of the Plan, out of its
authorized but unissued Shares, 1,024,669 Shares (post split), less the
aggregate number of Shares from time to time (i) subject to options outstanding
under the 1994 Option Plan or (ii) issued upon exercise of options granted under
the 1994 Option Plan.
5. Option Grants for Eligible Individuals.
--------------------------------------
5.1 Authority of Committee. Except as otherwise expressly provided
----------------------
in this Plan, the Committee shall have full and final authority to select those
Eligible Individuals who will receive Options, the terms and conditions of which
shall be set forth in an Agreement; provided, however, that no person shall
-----------------
receive any Incentive Stock Options unless he or she is an employee of the
Company, a Parent or a Subsidiary at the time the Incentive Stock Option is
granted.
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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
-10-
<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.
5.1 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.
-11-
<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
-12-
<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.
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<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 arrange
ments may be either applicable generally or only in specific cases.
9. Limitation of Liability.
-----------------------
As illustrative of the limitations of liability of the Company, but
not intended to be exhaustive thereof, nothing in the Plan shall be construed
to:
(i) give any person any right to be granted an Option other than at
the sole discretion of the Committee;
(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
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<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 Indi viduals 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>
[DETACH HERE]
PROXY
COST PLUS, INC.
PROXY FOR 1998 ANNUAL MEETING OF SHAREHOLDERS
This Proxy is Solicited by the Board of Directors
The undersigned shareholder(s) of Cost Plus, Inc., a California
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Shareholders and Proxy Statement, each dated May 18, 1998, and hereby appoints
MURRAY H. DASHE and RALPH D. DILLON, and each of them, Proxies and
Attorneys-in-Fact, with full power to each of substitution, on behalf and in
the name of the undersigned, to represent the undersigned at the 1998 Annual
Meeting of Shareholders of Cost Plus, Inc. to be held on June 18, 1998 at 2:00
p.m., local time, at the Waterfront Plaza Hotel located at 10 Washington
Street, Oakland, California, 94607 and at any adjournment or postponements
thereof, and to vote all shares of Common Stock which the undersigned would be
entitled to vote if personally present on any of the matters on the reverse
side and with discretionary authority as to any and all other matters that may
properly come before the meeting.
- ---------------- ----------------
SEE REVERSE SIDE SEE REVERSE SIDE
- ---------------- ----------------
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
<PAGE>
DETACH HERE
[X] Please mark
votes as in
this example
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
SPECIFICATIONS MADE. IF NO SPECIFICATIONS IS MADE, THE SHARES REPRESENTED BY
THIS PROXY WILL BE VOTED FOR EACH OF THE ABOVE PERSONS AND PROPOSALS, AND FOR
SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING AS THE PROXY
HOLDERS DEEM ADVISABLE.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1. Election of Directors to serve one year terms. 2. To approve an amendment to the FOR AGAINST ABSTAIN
Company's 1995 Stock Option Plan [_] [_] [_]
Nominees: Murray H. Dashe, Ralph D. Dillon, to increase the shares reserved for
Jospeh H. Coulombe, Danny W. Gurr, Edward A. issuance thereunder by 250,000
Mule, Olivier L. Trouveroy, Thomas D. Willardson shares.
[_] FOR [_] WITHHELD [_] MARK HERE [_] 3. To ratify and approve the FOR AGAINST ABSTAIN
ALL FROM ALL IF YOU PLAN appointment of Deloitte & Touche [_] [_] [_]
NOMINEES NOMINEES TO ATTEND LLP as the independent auditors of
THE MEETING the Company for the fiscal year
ending January 30, 1999.
[_] __________________________________ MARK HERE [_]
(Instruction: To withhold authority to FOR ADDRESS TO ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, PLEASE MARK, SIGN
vote for any individual nominee write CHANGE AND AND DATE THIS PROXY AND RETURN IT AS PROMPTLY AS POSSIBLE.
that nominees's name in the space above.) NOTE BELOW
(This proxy should be marked, dated and signed by each shareholder
exactly as such shareholder's name appears hereon, and returned
promptly in the enclosed envelope. Persons signing in a judiciary
capacity should so indicate. A corporation is requested to sign its
name by its President or other authorized officer, with the office
held designated. If shares are held by joint tenants or as community
property, both holders should sign.)
Signature: _________________________________ Date: ____________ Signature: _________________________________ Date: ____________
</TABLE>
